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 the fiscal year ended December 31, 2024 Commission file number: 0-13273 F&M BANK CORP. (Exact name of registrant as specified in its charter) Virginia 54-1280811 State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization 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 Securities Act. Yes ☐ No ☒ 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 ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§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 ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant 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. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The registrant’s Common Stock is quoted on the OTC Market’s OTCQX tier under the symbol FMBM. The aggregate market value of the 3,148,592 shares of Common Stock of the registrant issued and outstanding held by non-affiliates on June 30, 2024 was approximately $50,849,761 based on the closing sales price of $16.15 per share on that date. For purposes of this calculation, the term “affiliate” refers to all directors and executive officers of the registrant, plus the F&M Bank Corp. Stock Bonus Plan. As of the close of business on March 17, 2025, there were 3,529,262 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 17, 2025, which the registrant plans to file with the Securities and Exchange Commission subsequent to the date hereof. Table of Contents Page PART I Item 1 Business 4 Item 1A Risk Factors 10 Item 1B Unresolved Staff Comments 10 Item 1C Cybersecurity 11 Item 2 Properties 12 Item 3 Legal Proceedings 12 Item 4 Mine Safety Disclosures 12 PART II Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 13 Item 6 [Reserved] 14 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A Quantitative and Qualitative Disclosures about Market Risk 29 Item 8 Financial Statements and Supplementary Data 29 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 74 Item 9A Controls and Procedures 74 Item 9B Other Information 75 Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 75 PART III Item 10 Directors, Executive Officers and Corporate Governance 76 Item 11 Executive Compensation 76 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 76 Item 13 Certain Relationships and Related Transactions, and Director Independence 76 Item 14 Principal Accountant Fees and Services 76 PART IV Item 15 Exhibit and Financial Statement Schedules 77 Item 16 Form 10-K Summary 78 Signatures 79 3 Table of Contents PART I Item 1. Business. Business F & M Bank Corp. (the “Company”), incorporated in Virginia in 1983, is a one-bank holding company under the Bank Holding Company Act of 1956 that has elected to become a financial holding company. The Company owns 100% of the outstanding stock of its banking subsidiary, Farmers & Merchants Bank (“Bank”) and VSTitle, LLC (“VST”). VBS Mortgage, LLC (“F&M Mortgage”), is a wholly owned subsidiary of the Bank. The Company dissolved TEB Life Insurance Company (“TEB”) on November 8, 2023. Farmers & Merchants Financial Services, Inc. (“FMFS”) was formerly a wholly owned subsidiary of the Bank. FMFS was dissolved effective April 25, 2024, and its legal existence was subsequently terminated on June 7, 2024. The operations, assets, and liabilities of FMFS were transferred to the Bank. The Company’s and the Bank’s headquarters are located in Timberville, Virginia, and its primary operations centers are located in the Shenandoah Valley of Virginia. On April 15, 1908, the Bank was chartered as a state-chartered bank under the laws of the Commonwealth of Virginia. 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, as well as a courier service for its commercial banking customers. The Bank makes various types of commercial and consumer loans and has a large portfolio of residential mortgages and indirect auto loans. The local economy is diverse with strong employment in the agricultural, manufacturing, service and governmental sectors. On November 3, 2008, the Bank acquired a 70% ownership interest in 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 agency sponsored mortgages for sale in the secondary market and to be held in the Bank’s mortgage portfolio. On January 1, 2017, the Company acquired a 76% ownership interest in VST; F&M Mortgage owned the remaining minority interest and, on January 3, 2022, the Company purchased F&M Mortgage’s minority interest in VST to have 100% ownership. VST provides title insurance services to the customers in our market area, including F&M Mortgage and the Bank. Available Information The Company files annual, quarterly and other reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the Securities and Exchange Commission (“SEC”). The Company’s filings are available through the SEC’s website at www.sec.gov. More information about the Company can be found at www.fmbankva.com. Except as otherwise expressly stated, the information contained on our website or available by hyperlink from our website is not a part of this report and is not incorporated by reference into this report or any other documents we file with, or furnish to, the SEC. Competition The Bank's offices face strong competition in the markets it serves. The Company competes with large national and regional financial institutions, other independent community banks, nationally chartered savings banks, credit unions, consumer finance companies, mortgage companies, loan production offices, marketplace lenders and other financial technology firms and mutual funds. 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. Human Capital On December 31, 2024, the Bank had 169 full-time equivalent employees. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement. No one employee devotes full-time services to F&M Bank Corp. As a financial institution, our ability to attract, develop and retain highly qualified employees is critical to our success. We believe our people provide significant value to our Company and its shareholders. 4 Table of Contents Regulation and Supervision General.The operations of the Company and the Bank are subject to extensive federal and state laws and regulations, 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 Exchange Act. These include, but are not limited to, the filing of annual, quarterly, and other current reports with the SEC. As an Exchange Act reporting company, the Company is directly affected by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). The Company, 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 generally 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 the assets of another financial 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 shareholders 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. 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. The Federal Reserve Board and other federal banking agencies have issued risk-based capital requirements for assessing bank capital adequacy. Virginia chartered banks must also satisfy the capital requirements adopted by the Virginia Bureau of Financial Institutions. 5 Table of Contents At December 31, 2024, the "Basel III" capital and leverage ratios were as follows: Ratio F&M Bank Minimum Capital Requirement(includes capital conservation buffer) Minimum To be Well Capitalized Under Prompt Corrective Action Regulations Common equity Tier 1 (“CET1”) 12.42% 7.00% 6.50% Tier 1 risk-based capital 12.42% 8.50% 8.00% Total risk-based capital 13.39% 10.50% 10.00% Tier 1 leverage 8.23% 4.00% 5.00% 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 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 July 2023, the Federal Reserve Board and the FDIC issued proposed rules to implement the final components of the Basel III agreement, often known as the “Basel III endgame.” These proposed rules contain provisions that apply to banks with $100 billion or more in total assets and that will significantly alter how those banks calculate risk-based assets. These proposed rules do not apply to holding companies or banks with less than $100 billion in assets, such as the Company and the Bank, but the final impacts of these rules cannot yet be predicted. 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” (“CBLR”). 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 Bank has elected to not adopt the CBLR framework. 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. 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. 6 Table of Contents Transactions with Affiliates.Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W establish parameters for a bank to conduct “covered transactions” with its affiliates, with the objective of limiting risk to the insured bank. Generally, Sections 23A and 23B (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit the aggregate of all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate. The term “covered transaction” includes the making of loans to the affiliate, purchase of assets from the affiliate, issuance of a guaranty on behalf of the affiliate and several other types of transactions. Under the Dodd-Frank Act, restrictions on transactions with affiliates are enhanced by (i) including among “covered transactions” transactions between bank and affiliate-advised investment funds; (ii) including among “covered transactions” transactions between a bank and an affiliate with respect to securities repurchase agreements and derivatives transactions; (iii) adopting stricter collateral rules; and (iv) imposing tighter restrictions on transactions between banks and their financial subsidiaries. Transactions with Insiders. The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholders of banks. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the bank’s loan- to-one borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed two times the bank’s unimpaired capital and unimpaired surplus until the bank’s total deposits equal or exceed $100,000,000, at which time the aggregate is limited to the bank’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a bank or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the Board of Directors of the bank with any “interested” director not participating in the voting. The FDIC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of directors approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons. Limits on Incentive Compensation. The Federal Reserve reviews incentive compensation arrangements of bank holding companies such as the Company as part of its regular, risk-focused supervisory process. The federal banking agencies have also issued guidance designed to help ensure that incentive compensation policies at banking organizations do not encourage excessive risk-taking or undermine the safety and soundness of banking organizations. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide employees incentives that appropriately balance risk and reward and, thus, do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. 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 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. The Company believes it has implemented appropriate internal practices, procedures, and controls to comply with these obligations. 7 Table of Contents Dodd-Frank Act. The Dodd-Frank Act was signed into law in July 2010. Its wide-ranging provisions affect all federal financial regulatory agencies and nearly every aspect of the American financial services industry. 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 rules that have the effect of limiting the fees charged to merchants for debit card transactions. These rules 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 expanded 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 included 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 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. Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. Banking regulators consider CRA ratings when considering approval of a proposed transaction. The Bank received a rating of “satisfactory” in its most recent CRA examination. CRA regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s CRA performance and to review the institution’s CRA public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. Applicable law requires public disclosure of a financial institution’s written CRA evaluations. This promotes enforcement of CRA requirements by providing the public with the status of a particular institution’s community reinvestment record. Furthermore, if after becoming a financial holding company and undertaking activities not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. 8 Table of Contents On October 24, 2023, the federal bank regulatory agencies jointly issued a final rule to modernize CRA regulations consistent with the following key goals: (i) to encourage banks to expand access to credit, investment, and banking services in low to moderate income communities; (ii) to adapt to changes in the banking industry, including internet and mobile banking and the growth of non-branch delivery systems; (iii) to provide greater clarity and consistency in the application of the CRA regulations, including adoption of a new metrics-based approach to evaluating bank retail lending and community development financing; and (iv) to tailor CRA evaluations and data collection to bank size and type, recognizing that differences in bank size and business models may impact CRA evaluations and qualifying activities. Most of the final CRA rule’s requirements will be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027. The Bank is evaluating the expected impact of the modified CRA regulations. 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. On November 18, 2021, the federal bank regulatory agencies issued a final rule to improve the sharing of information about cyber incidents that may affect the U.S. banking system. The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred. Notification is required for incidents that have materially affected—or are reasonably likely to materially affect—the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector. In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule became effective May 1, 2022. With increased focus on cybersecurity, we are continuing to monitor legislative, regulatory, and supervisory developments related thereto. We had no material cybersecurity incidents in 2023. See “Item 1C. Cybersecurity” for more information. Future 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 application of existing regulations. 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. Management expects that financial institutions will remain heavily regulated, and that additional laws or regulations may be adopted further regulating specific banking practices. Effect of Governmental Monetary Policies. The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities. In particular, the Federal Reserve uses monetary policy tools to impact money market and credit market conditions and interest rates to influence general economic conditions. These policies have a significant impact on overall growth and distribution of loans, investments, and deposits; they affect market interest rates charged on loans or paid for deposits and can significantly influence employment and inflation rates. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to do so in the future. 9 Table of Contents 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, 2024 and 2023: Period Class of Service Percentage of Total Revenues December 31, 2024 Interest and fees on loans held for investment 72.71% December 31, 2023 Interest and fees on loans held for investment 72.09% Executive Officers of the Company Aubrey Michael (Mike) Wilkerson, 66, has served as Chief Executive Officer of the Company and the Bank since April 2023. Prior to that he served as Executive Vice President/Chief Lending Officer from January 2022 to April 2023, and Executive Vice President/Chief Strategy Officer and Northern Shenandoah Valley Market Executive since January 2021. Mr. Wilkerson began his banking career at Wachovia Bank on January 4, 1982. Mr. Wilkerson’s banking career 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 and 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. Barton E. Black, 54, has served as President of the Company and Bank since April 2023. Prior to that he served as Executive Vice President/Chief Operating Officer from June 2020 to April 2023, and as Executive Vice President/Chief Strategy & Risk Officer from March 2019 to May 2020. 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. Lisa F. Campbell, 57, has served as Executive Vice President/Chief Financial Officer of the Company and the Bank since October 2022. Prior to joining the Company, she served as Group Vice President and Chief Financial Officer for Fidelity Bancshares N.C., Inc. in Fuquay-Varina, North Carolina from August 2014 to October 2022. Previously, she served as Executive Vice President, Chief Operating Officer and Chief Financial Officer for New Century Bancorp, Inc. in Dunn, North Carolina from March 2000 to August 2014 and as Senior Vice President and Controller for Triangle Bancorp, Inc. in Raleigh, North Carolina from September 1997 to March 2000. Ms. Campbell also worked in public accounting from September 1990 through September 1997. Charles C. Driest, 47, has served as Executive Vice President/Chief Experience Officer since April 2023. Prior to that he served as Senior Vice President/Director of Digital Banking from January 2022 to April 2023. Prior to joining the company, he served as Senior Vice President, Director of Digital Banking at Essex Bank from July 2017 to January 2022. Mr. Driest holds a Master of Business Administration (MBA) – Finance from St. John’s University. Paul E. Eberly, 43, has served as Executive Vice President/Chief Development Officer since September 2022, Executive Vice President/Chief Credit Officer from September 2020 until September 2022, 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. Melody Emswiler, 51, has served as Executive Vice President/Chief Human Resources Officer since January 2022, Senior Vice President/Human Resources Director from January 2019 to December 2021, Vice President/Director of Human Resources from February 2015 to December 2018, and Assistant Vice President/Human Resources Manager from February 2011 to January 2015. Ms. Emswiler has been in the human resources profession since 1997. Jason C. Withers, 42, has served as Executive Vice President/Chief Credit Officer since September 2022, and Senior Vice President/Credit Manager from March 2021 to September 2022. Prior to joining the Company, he served as a Senior Credit Analyst at Blue Ridge Bank, from April 2017 to March 2021, and as a Credit Analyst for CresCom Bank from March 2010 to March 2017. Item 1A. Risk Factors. Item not required for smaller reporting companies. Item 1B. Unresolved Staff Comments. Item not required for non-accelerated filers. 10 Table of Contents Item 1C. Cybersecurity. Risk Management and Strategy The Company recognizes the importance of a cybersecurity risk management program designed to assess, identify, and manage risk associated with cybersecurity threats. Our cybersecurity risk management program (the “Program”) is consistent with the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool, which incorporates bank regulatory guidance and principles from the National Institute of Standards and Technology Cybersecurity Framework and includes the following risk-based principles: · Identification, measurement, mitigation, monitoring and reporting of cybersecurity threats based on internal and external information sharing and resources; · Safeguards designed to protect against identified threats, including documented policies and procedures, controls, and employee education and awareness; · Processes to detect cybersecurity events and improve incident response, including routine testing of incident response, recovery and business continuity plans and processes; and · Third-party risk management process to manage cybersecurity risk with service providers, suppliers, and vendors. The Program is designed to adapt to an evolving landscape of emerging cybersecurity threats and advancing technology to determine the Company’s cybersecurity preparedness. Through routine data gathering, emerging risks, internal incidents, technology investments and internal controls, our Program and overall cybersecurity risk strategy is adjusted as needed. The Program is supported by regular training of information security employees and awareness training and activities for executives, directors, and employees through which we communicate our cybersecurity policies, standards, processes, and practices to foster a culture of cybersecurity risk management across the Company. Integrated Risk Management The Program is integrated into the Company’s enterprise risk management framework and functions to identify risk, form a strategy to manage risk, implement the strategy, test the implementation, and monitor our technology environment to control risk. The information technology team works closely with stakeholders across security, risk, compliance, operations, other business stakeholders, and senior leadership to conduct an annual cybersecurity risk assessment utilizing the FFIEC Cybersecurity Assessment Tool. Engagement of Third Parties in Connection with Risk Management The Company engages various third parties to evaluate the effectiveness and maturity of the Program. The Company engages an independent third party to audit the cybersecurity risk strategy and preparedness. The Company also maintains cybersecurity insurance, however, the costs related to cybersecurity threats or disruptions may not be fully insured. The Company also engages third parties to perform regular penetration tests, vulnerability scans, disaster recovery tests and cyber exercises to simulate threat actor attacks. Our relationships with third parties enable us to leverage their cybersecurity expertise and industry knowledge to assess our Program and adjust as needed. Oversight of Third-party Risks Our third-party service providers, suppliers, and vendors face their own risks from cybersecurity threats that could impact the Company in certain circumstances. In response, we have implemented processes for overseeing and managing these risks. The processes include limiting the exposure of our information systems to external systems to the least practical amount, assessing the third parties’ information security practices before allowing them to access our information systems or data, requiring third parties to implement appropriate cybersecurity controls in our agreements with them, conducting ongoing monitoring of their compliance with those requirements, and requiring third parties to agree to contractual requirements designed to ensure cybersecurity concepts are appropriately addressed. Risks from Cybersecurity Threats As of the date of this report, we have not encountered any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition. 11 Table of Contents Governance Board of Directors Oversight Our Board’s Operational Risk Committee oversees cybersecurity risk. Management's Role in Cybersecurity Risk Management Given the important role of technology in the Company’s operations and customer service, the Company has established an Information Technology Steering Committee, which consists of our IT Manager, President, Chief Financial Officer, Chief Experience Officer, Director of Risk Management and Information Security Officer. The Information Technology Steering Committee reviews, monitors, aligns, and prioritizes all significant strategic information technology initiatives and security risks. The Information Technology Steering Committee reports to the Operational Risk Committee and minutes of the committee’s meetings are subsequently reported by the Operational Risk Committee to the Company’s Board of Directors. Our IT Manager, in collaboration with our Information Security Officer, makes quarterly reports to the Information Technology Steering Committee. Such reports include updates related to key metrics, key risk indicators, key performance indicators, penetration test results, risk assessment results, project updates, incident reports, compliance matters, and operational issues. Risk Management Personnel The Information Security Officer has the primary responsibility for managing the Program to identify, assess, manage, and control cybersecurity risk. The Information Security Officer reports directly to the President. The Information Security Officer has approximately 16 years of experience in cybersecurity, information security risk management, identity and access management, security architecture, vulnerability management, threat intelligence, security operations and incident management and response. Monitoring Cybersecurity Incidents The Information Security Officer is continually informed of and monitors cybersecurity risks and incidents. In the event of a cybersecurity incident, the Company has developed an incident response plan to timely report cybersecurity incidents to the executive management team, the Operational Risk Committee and Board of Directors, as necessary. In addition to facilitating timely evaluation, escalation and reporting of cybersecurity incidents, this plan also sets forth the process for identifying and assessing the severity of cybersecurity incidents, as well as monitoring post-incident mitigation and remediation. Reporting to Board of Directors The Operational Risk Committee receives reports from the President, Information Security Officer, and Director of Risk Management, and briefings on our information security and enterprise risk management programs at least quarterly, including the results of any external audits, bank regulatory examinations and evaluations, as well as maturity assessments of our information security program. Item 2. Properties. The Company owns or leases buildings that are used in the normal course of business. The Company’s corporate headquarters are located at 205 South Main Street, Timberville, Virginia 22853. At December 31, 2024, the Bank operated fourteen branches and a dealer finance division in the Shenandoah Valley of Virginia. See Note 1 - Nature of Banking Activities and Significant Accounting Policies and Note 5 - Bank Premises and Equipment and Note 6 - Leases in Notes to the Consolidated Financial Statements for information with respect to the amounts at which bank premises and equipment are carried and commitments under long-term leases. 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 outcome in such legal proceedings, in the aggregate, will have a material adverse effect on the Company’s business, financial condition, or results of operations. Item 4. Mine Safety Disclosures. None. 12 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Information on Common Stock, Market Prices and Dividends. The Company’s Common Stock is quoted on the OTC Markets Group’s OTCQX Market under the symbol “FMBM.” As of March 12, 2025, the Company had approximately 2,586 shareholders of record. During 2024 and 2023, the Company declared four quarterly dividends of $0.26 per share for an annual total of $1.04 per share. The Company’s Board of Directors determines the payment of dividends based on a number of factors, including the Company’s historic and projected financial condition, liquidity and results of operations, capital levels and needs, tax considerations, any acquisitions or potential acquisitions, statutory and regulatory prohibitions and other limitations, the terms of contractual arrangements that restrict the ability to pay cash dividends, general economic conditions, and other factors deemed relevant by our Board of Directors. The Company is not obligated to pay dividends on its common stock, and is subject to certain regulatory restrictions on paying dividends. Because the Company is a financial holding company and does not engage directly in business activities of a material nature, the ability to pay dividends to shareholders depends, in large part, upon the receipt of dividends from the Bank, which is also subject to numerous limitations on the payment of dividends under federal banking laws, regulations and policies. Regulatory restrictions on the ability of the Bank to transfer funds to the Company at December 31, 2024 are set forth in Note 21 - Parent Company Financial Information in Notes to Consolidated Financial Statements. There were no repurchases of the Company's common stock during 2024. 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 S&P U.S. BMI Banks Index, as reported by SNL Financial, LC, assuming an investment of $100 in the Company’s common stock on December 31, 2019, and the reinvestment of dividends. 13 Table of Contents Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain information contained in this report may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements are generally identified by phrases such as “we expect,” “we believe” or words of similar import. Such forward-looking statements are subject to known and unknown risks including, but not limited to: · Changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries, declines in real estate values in our markets, or in the repayment ability of individual borrowers or issuers; · The strength of the economy in our market area, as well as general economic, market, or business conditions; · An insufficient allowance for credit losses as a result of inaccurate assumptions; · Our ability to maintain our “well-capitalized” regulatory status; · Changes in the interest rates affecting our deposits, loans and investment portfolio; · Changes in our competitive position, competitive actions by other financial institutions, financial technology firms and others, the competitive nature of the financial services industry and our ability to compete effectively in our banking markets; · Our ability to manage growth; 14 Table of Contents · 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; · Changing trends in customer profiles and behavior; · Our exposure to operational risk; · Reliance on our management team including our ability to attract and retain key personnel; · Our ability to raise capital as needed by our business; · Changes in laws, regulations and the policies of federal or state regulators and agencies; · The effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setting bodies; · Geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; · The occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events; · The Company’s potential exposure to fraud, negligence, computer theft, and cyber-crime; · Other factors identified in reports the Company files with the SEC from time to time; and · Other circumstances, many of which are beyond our control. Although the Company believes 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. 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 Policies 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. To manage the risk, the Bank’s Credit Administration Department ensures that the underwriting process follows the written policies and procedures approved by the Board of Directors. The 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. The Bank has a loan review process to monitor and manage the portfolio, identify concentrations and credit deterioration, establish loss exposure and assess compliance with the loan policy. The Bank uses a management loan committee and a directors’ loan committee to approve loans. The management loan committee consists of members of senior management, credit administration and senior lenders; the directors’ loan committee consists of six directors appointed by the Board of Directors. Both committees approve new, renewed and or modified loans that exceed individual officer loan authorities. The directors’ loan committee also reviews any changes to the lending policies, which are then approved by the Board of Directors. 15 Table of Contents Construction and Development Lending The Bank makes 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, loan amounts are limited to 75% to 90% of appraised value, in addition to analyzing the creditworthiness of the borrower. In addition, a first lien on the property is obtained as security for construction loans and typically requires personal guarantees from the borrower’s principal owners. The Bank further mitigates risk by advancing funds for the construction in increments based on the progress of construction. 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. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios and the borrower’s creditworthiness, prior credit history and reputation; as well as an evaluation of the location of the property securing the loan and personal guarantees or endorsements of the borrower’s principal owners. Commercial & Industrial – Non-Real Estate Business loans generally have a higher degree of risk than residential mortgage loans but have higher yields. To manage these risks, the Bank obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of business borrowers. Residential mortgage loans generally are made based on the borrower’s ability to repay 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 based on the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as 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 The Bank offers various consumer loans, including personal loans, automobile loans, deposit account loans, installment and demand loans, and home equity loans. The underwriting standards 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 the Bank requires 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, the borrower’s income, and the borrower’s credit worthiness. Loans that are retained in our portfolio generally carry adjustable rates that can change every one, three or five years, based on amortization periods of twenty to thirty years. 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 or transferred to the Bank and held in the loan portfolio. 16 Table of Contents Dealer Finance Division The Dealer Finance Division specializes in providing automobile financing through a network of automobile dealers in the Shenandoah Valley. Critical Accounting Policies 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. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change. Allowance for Credit Losses The allowance for credit losses represents our estimate of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and projections including reasonable and supportable forecasts. It is a valuation account that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial asset. Financial assets are charged-off against the allowance when management believes the uncollectibility of a financial asset is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The Company’s loan portfolio is the largest financial asset that is in scope of this critical accounting estimate. Determining the amount of the allowance for credit losses is considered a critical accounting estimate, because it is based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts, and prepayment experience as related to credit contractual terms. Management estimates the allowance balance using relevant available information from internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses; adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, and delinquency levels, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The model methodology used for funded credits, along with taking into consideration the probability of drawdowns or funding on unfunded commitments and whether such commitments are irrevocable or not by the Company, is how the Company determines the allowance for credit losses for unfunded commitments. These evaluations are conducted at least quarterly and more frequently, if deemed necessary. The Company’s allowance model uses a remaining life or weighted average remaining maturity method with the portfolio segmented by federal call codes. Management considers the national unemployment rate, national gross domestic product, and the core inflation index as external economic variables in developing the allowance and utilizes economic projections published by The Federal Reserve Bank of St. Louis for reasonable and supportable forecasts. The Company uses a reasonable and supportable period forecast period of 12 months. The qualitative estimate of the allowance for credit losses on loans (“ACLL”) is sensitive to these forecasts as economic conditions are the most influential qualitative factor. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. See Note 1 – Nature of Banking Activities and Significant Accounting Policies in Notes to the Consolidated Financial Statements for additional information concerning the determination of the allowance for credit losses on loans. 17 Table of Contents Summary of Selected Financial Data (Dollars in thousands, except per share data) 2024 2023 Selected Income Statement Data: Interest and dividend income $ 64,483 $ 56,411 Interest expense 30,551 24,706 Net interest income 33,932 31,705 Provision for credit losses 2,343 1,025 Net interest income after provision for credit losses 31,589 30,680 Noninterest income 10,766 10,117 Noninterest expenses 34,432 38,772 Income before income taxes 7,923 2,025 Income tax expense (benefit) 638 (746) Net income $ 7,285 $ 2,771 Selected Performance Ratios: Return on average assets1 0.55% 0.22% Return on average equity1 8.86% 3.87% Net interest spread 2.76% 2.68% Net interest margin 2.77% 2.70% Non-interest income to average assets 0.82% 0.80% Non-interest expense to average assets 2.62% 3.06% Per Common Share Data: Net income (basic and diluted) $ 2.07 $ 0.80 Book value per common share 24.43 22.47 Selected Balance Sheet Data: Assets $ 1,302,011 $ 1,294,596 Loans held for sale 2,283 1,119 Loans held for investment 839,949 822,092 Allowance for credit losses 8,129 8,321 Deposits 1,195,105 1,133,236 Borrowings 6,975 66,932 Shareholders’ equity 86,138 78,323 Average common shares outstanding (basic and diluted) 3,512,427 3,476,326 Asset Quality Ratios: Nonperforming loans to total loans3 0.84% 0.79% Allowance for credit losses to loans2 0.97% 1.01% Allowance for credit losses to nonperforming loans 114.87% 128.63% Nonperforming assets to total assets4 0.54% 0.50% Net charge-offs to average loans3 0.31% 0.19% Capital Ratios (Bank only): Leverage 8.23% 8.13% Risk-based capital ratios: Total capital 12.42% 11.68% Tier 1 capital 12.42% 11.68% Common equity tier 1 capital 13.39% 12.58% 1 Ratios are primarily based on daily average balances. 2 Calculated based on Loans Held for Investment, excludes Loans Held for Sale. 3 Calculated based on 90 day past due loans and non-accrual loans to Total Loans. 4 Calculated based on 90 day past due loans, non-accrual loans and OREO to Total Assets. 18 Table of Contents Results of Operations Net Income Net income for 2024 was $7.3 million, an increase of $4.5 million or 162.90% from 2023’s net income of $2.8 million. Basic and diluted earnings per share were $2.07 and $0.80 for 2024 and 2023, respectively. The increase in net income for 2024 was the result of an increase in net interest income of $2.2 million coupled with a decrease in noninterest expense of $4.3 million. Return on average assets (“ROA”) measures how efficiently the Company uses its assets to produce net income. Some factors reflected within this measurement include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, was 0.55% and 0.22% for 2024 and 2023, respectively. Return on average equity (“ROE”) measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by the shareholders. The ROE for the Company was 8.86% and 3.87% for 2024 and 2023, respectively. Net Interest Income and Net Interest Margin Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest income was $33.9 million for 2024 and $31.7 million for 2023, which represents an increase of $2.2 million or 7.02%. Total interest income was $64.5 million for 2024 and $56.4 million for 2023, which represents an increase of $8.1 million or 14.31% for 2024. Total interest expense was $30.6 million for 2024 and $24.7 million for 2023, which represents an increase of $5.8 million or 23.66% in 2024. The increase in total interest income, total interest expense and net interest income during 2024 was driven by the growth in interest-earning assets, interest-bearing liabilities and the repricing of assets and liabilities into higher rates. The net interest margin increased 7 basis points from 2.70% for 2023 to 2.77% for 2024. The net interest margin is calculated by dividing net interest income by total average earning assets. Higher loan balances and the repricing of adjustable-rate loans contributed to an increase of $6.8 million in loan interest income, and income from cash and securities increased $1.2 million due to higher average balances of federal funds sold in 2024. As a result, the yield on earning assets increased by 46 basis points to 5.27%. Higher rates paid on time deposits coupled with growth in that deposit category resulted in an increase of $7.0 million in deposit interest expense. The increase in deposit interest expense was offset by lower interest expense on short-term borrowings, which declined by $1.2 million due to the gradual paydown of Federal Home Loan Bank (“FHLB”) advances during the year. The cost of funds for the year was 2.51%, which was 38 basis points higher than 2023. The table titled “Consolidated Average Balances, Yields and Rates” displays the composition of interest earning assets and interest bearing liabilities and their respective yields and rates for the years ended December 31, 2024 and 2023. 19 Table of Contents Consolidated Average Balances, Yields and Rates (dollars in thousands)1 2024 2023 Balance Interest Rate Balance Interest Rate ASSETS Loans held for investment2,4 $ 826,365 $ 54,715 6.62% $ 778,732 $ 47,957 6.16% Loans held for sale 3,057 162 5.30% 2,856 88 3.08% Federal funds sold 29,213 1,513 5.18% 4,800 246 5.13% Interest bearing deposits in banks and other investments 6,057 470 7.76% 5,680 391 6.88% Investment securities3 Taxable 341,909 7,205 2.11% 371,916 7,413 1.99% Tax exempt 16,207 418 2.58% 10,020 316 3.15% Total investment securities 358,116 7,623 2.13% 381,936 7,729 2.02% Total earning assets 1,222,808 64,483 5.27% 1,174,004 56,411 4.81% Allowance for credit losses (8,111) (8,570) Nonearning assets 99,497 99,572 Total assets $1,314,194 $1,265,006 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits Demand-interest bearing $ 136,894 $ 2,455 1.79% $ 166,730 $ 3,163 1.90% Savings 488,180 12,965 2.66% 508,354 13,433 2.64% Time deposits 288,271 12,805 4.44% 163,999 4,622 2.82% Total interest-bearing deposits 913,345 28,225 3.09% 839,083 21,218 2.53% Federal funds purchased 207 8 3.86% 755 42 5.56% Short‑term debt 33,730 1,855 5.50% 58,430 2,987 5.11% Long-term debt 6,953 463 6.66% 6,910 459 6.64% Total interest-bearing liabilities 954,235 30,551 3.20% 905,178 24,706 2.73% Noninterest bearing deposits 263,002 256,218 Other liabilities 14,689 31,997 Total liabilities 1,231,926 1,193,393 Shareholders’ equity 82,268 71,613 Total liabilities and shareholders’ equity $1,314,194 $1,265,006 Net interest earnings $ 33,932 $ 31,705 Net yield on interest earning assets (NIM) 2.77% 2.70% 1 Tax exempt income is not significant and has been treated as fully taxable. 2 Interest income on loans includes loan fees. 3 Average balance information is reflective of historical cost and has not been adjusted for changes in market value. 4 Includes nonaccrual loans. 20 Table of Contents Volume and Rate Analysis Changes in the cost of funds attributable to rate and volume variances are reflected in the following table (dollars in thousands), which illustrates the effect of changes in interest income and interest expense, and distinguishes between the changes resulting from the increases or decreases in the outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes resulting from increases or decreases in average interest rates on such assets and liabilities (rate). Changes related to both volume and rate have been allocated proportionally. 2024 Compared to 2023 Increase (Decrease) Due to Change in: Average Volume Average Rate Change Interest income Loans held for investment $ 2,934 $ 3,824 $ 6,758 Loans held for sale 6 68 74 Federal funds sold 1,252 15 1,267 Interest bearing deposits in banks and other investments 26 53 79 Investment securities: Taxable (597) 389 (208) Tax exempt 195 (93) 102 Total Interest Income 3,816 4,256 8,072 Interest expense Deposits: Demand - interest bearing (567) (141) (708) Savings (533) 65 (468) Time deposits 3,504 4,679 8,183 Federal funds purchased (30) (4) (34) Short-term debt (1,262) 130 (1,132) Long-term debt 3 1 4 Total Interest Expense 1,115 4,730 5,845 Net Interest Income $ 2,701 $ (474) $ 2,227 Provision for Credit Losses The provision for credit losses totaled $2.3 million in 2024, compared to a provision for credit losses of $1.0 million for 2023. The provision comprised a $2.4 million provision for credit losses on loans and a $43 thousand recovery of provision for credit losses on unfunded commitments. The provision for credit losses in 2024 increased primarily due to historical credit loss trends and qualitative factor adjustments for changes in the future economic forecasts impacting the automobile segment. This increase was partially offset by a reduction in the provision for individually evaluated 1-4 family construction and owner- occupied commercial real estate loans, which either paid down, experienced collateral improvement, or transitioned to other real estate owned (“OREO”). Noninterest Income The following table sets forth the various components of our non-interest income for the periods indicated (in thousands): Years Ended December 31, Increase (Decrease) 2024 vs. 2023 2024 2023 Amount Percent Service charges on deposit accounts $ 1,193 $ 1,029 $ 164 15.94% Wealth management income 2,181 1,722 459 26.66% Mortgage banking income 2,490 1,973 517 26.20% Title insurance income 1,489 1,334 155 11.62% Income on bank owned life insurance 750 1,160 (410) (35.34)% Low-income housing partnership losses (786) (821) 35 (4.26)% ATM and check card fees 3,101 3,021 80 2.65% Gain on sale of limited partnership investment - 232 (232) (100.00)% Other operating income 348 467 (119) (25.48)% Total $ 10,766 $ 10,117 $ 649 6.41% 21 Table of Contents Noninterest income increased by $649 thousand, or 6.41% for the year ended December 31, 2024, compared to December 31, 2023. The increase was primarily driven by increases in wealth management and mortgage banking income. Wealth management income increased by $459,000 due to new client referrals and the wealth management team’s proactive business development strategy to meet with existing clients and conduct relationship reviews. This resulted in increasing assets under management for existing clients and the acquisition of new relationships. Higher production boosted mortgage banking income which grew by $517,000. These increases were partially offset by decreases in one-time gains received in 2023 for bank owned life insurance and a milestone gain on sale of a limited partnership investment. Noninterest Expense The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands): Years Ended December 31, Increase (Decrease) 2024 vs. 2023 2024 2023 Amount Percent Salaries $ 15,393 $ 18,890 $ (3,497) (18.51)% Employee benefits 2,966 4,112 (1,146) (27.87)% Occupancy expense 1,544 1,417 127 8.96% Equipment expense 1,310 1,285 25 1.95% FDIC assessment 1,041 790 251 31.77% OREO expense (21) - (21) - Advertising expense 608 963 (355) (36.86)% Legal and professional fees 1,784 1,667 117 7.02% ATM and check card fees 1,130 1,259 (129) (10.25)% Data processing fees 3,291 2,914 377 12.94% Directors fees 446 530 (84) (15.85)% Bank franchise tax 779 636 143 22.48% Other operating expenses 4,161 4,309 (148) (3.43)% Total $ 34,432 $ 38,772 $ (4,340) (11.19)% Noninterest expense decreased 11.19% for the year ended December 31, 2024, compared to December 31, 2023. Salaries decreased $3.5 million, or 18.51%, for the year ended December 31, 2024 due to cost savings from a voluntary early retirement program at the end of 2023. Employee benefits also decreased for the year ended December 31, 2024 due to the voluntary early retirement program in 2023, combined with gains in the Company’s pension plan and lower than expected health insurance claims. FDIC assessment and bank franchise taxes increased in 2024 reflecting the increase in total deposits; data processing fees increased as new technology enhancements were added to enhance customer experience with products and improve operating processes. These increases were offset by decreases in advertising, ATM and check card fees, and directors fees. Advertising expenses decreased due to one-time milestone events held in 2023, ATM and check card fees decreased due to lowered contract fees and incentives received, and directors fees decreased as a result of a subsidiary discontinuing a separate board of directors. Income Tax Expense (Benefit) Income tax expense was $638 thousand for the year ended December 31, 2024, an increase of $1.4 million from the tax benefit for the year ended December 31, 2023. These amounts correspond to an effective tax rate of 8.05% and (36.84)% for 2024 and 2023, respectively. The effective tax rate is below the statutory rate of 21%, due primarily to tax credits on qualified affordable housing project investments as discussed in Note 8 – Other Assets in Notes to the Consolidated Financial Statements. The effective tax rate is also impacted by tax-exempt income on investment securities and bank owned life insurance. Note 18 – Income Tax Expense (Benefit) in Notes to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense (benefit) during 2024 and 2023. Analysis of Financial Condition Assets increased by $7.4 million to $1.30 billion as of December 31, 2024, compared to $1.29 billion as of December 31, 2023. The increase in assets was primarily due to an increase in loans of $17.9 million and federal funds sold of $33.8 million, which was offset by a decrease of $41.0 million in the balance of our securities portfolio due to paydowns and maturities partially offset by an increase in fair value. The securities portfolio totaled $327.7 million at December 31, 2024, compared to $368.7 million at December 31, 2023. Deposits increased by $61.9 million and totaled $1.20 billion at December 31, 2024, compared to $1.13 billion at December 31, 2023. Short-term debt of $60.0 million was paid off in 2024. Long-term debt increased $43 thousand to $6.98 million as of December 31, 2024, compared to $6.93 million at December 31, 2023 due to the amortization of debt issuance costs. 22 Table of Contents Investment Securities Our investment policy is established and reviewed annually by the Board of Directors. We are permitted under federal law to invest in various types of liquid assets, including United States Government obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities, time deposits of federally insured institutions, subordinated debt of other financial institutions, equity securities, certain bankers’ acceptances and federal funds. Our securities are all classified as available-for-sale (“AFS”). Our investments provide a source of liquidity because we can pledge them to support borrowed funds or can liquidate them to generate cash proceeds. Our investment portfolio is also a resource in managing interest rate risk because the maturity and interest rate characteristics of this asset class can be modified to match changes in the loan and deposit portfolios. The majority of our AFS investment portfolio consists of obligations of states and municipalities and residential mortgage-backed securities. For the year ended December 31, 2024, unrealized losses on our holdings declined compared to December 31, 2023, resulting in an increase in the fair value of the portfolio. However, this increase was offset by maturities and paydowns on mortgage-backed securities, leading to a reduction in the portfolio from $368.7 million as of December 31, 2023, to $327.7 million as of December 31, 2024. Note 2 – Securities in Notes to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio as of December 31, 2024 and 2023. The Company has sufficient access to liquidity such that management does not believe it would be necessary to sell any of its investment securities at a loss to offset any unexpected deposit outflows. The Company did not sell any securities within the investment portfolio for the years ended December 31, 2024 or 2023. For available-for-sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Maturity Distribution and Yields of Securities The investment maturity table below summarizes contractual maturities for our investment securities at December 31, 2024. The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands). Interest on securities below excludes tax-equivalent adjustments. One Year One to Five to After Or Less Five Years Ten Years Ten Years Amount Yield Amount Yield Amount Yield Amount Yield Total Yield Securities AFS: U.S. Treasuries $ 4,980 2.67% $ 13,634 1.00% $ - - $ - - $ 18,614 1.45% U.S. Government agencies 14,954 1.44% 46,192 1.43% 6,579 1.84% - - 67,725 1.47% Municipal securities 14,875 1.62% 4,819 1.70% 6,100 2.04% 12,413 2.79% 38,207 2.08% Mortgage- backed securities 3,782 1.56% 24,452 2.27% 18,546 0.41% 128,169 2.61% 174,949 2.31% Corporate debt securities - - - - 28,175 4.08% - - 28,175 4.08% Total $ 38,591 1.68% $ 89,097 1.61% $ 59,400 2.48% $ 140,582 2.63% $ 327,670 2.13% Loan Portfolio The Bank is an active lender with a diverse loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans. The Bank’s lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas. Additional discussion on the segments of loans the Company originates and related risks is included in Note 1 - Nature of Banking Activities and Significant Accounting Policies and Note 3 - Loans and Credit Quality in Notes to Consolidated Financial Statements. Our primary source of income is derived from interest earned on loans. The loan portfolio, excluding the allowance for credit losses, or ACL, increased $17.9 million, or 2.17%, from $822.1 million at December 31, 2023 to $839.9 million at December 31, 2024. Loan growth in 2024 was primarily driven by consumer real estate, commercial construction, and commercial and industrial lending. The bank continues to expand organically by serving customers within its market and has also strengthened its portfolio by purchasing consumer real estate loans originated by its mortgage subsidiary. This growth was partially offset by a decline in the automobile loan portfolio, as the Bank tightened credit standards for indirect consumer lending. 23 Table of Contents The following table shows the maturity distribution for total loans outstanding as of December 31, 2024. The maturity distribution is grouped by remaining scheduled principal payments that are due in the following periods. The principal balances of loans are indicated by both fixed and floating rate categories in the table below (in thousands). December 31, 2024 Within 1 Year 1 Year to 5 Years 5 Years to 15 Years After 15 Years Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Fixed Rates Adjustable Rates Total 1-4 Family residential construction $ 12,037 $ 467 $ 8,677 $ 3,131 $ - $ 790 $ - $ - $ 25,102 Other construction, land development and land 1,983 22,346 7,600 14,097 2,085 9,229 23 845 58,208 Secured by farmland - 29,525 20 25,872 6,219 23,479 - 901 86,016 Home equity – open end 4 2,680 - 6,871 - 39,781 - 206 49,542 Real Estate 13 26,864 2,323 81,878 1,245 96,662 3,690 406 213,081 Home equity – closed end 9 1,015 192 2,271 2,274 376 - - 6,137 Multifamily - 1,024 - 6,769 - 3,011 - - 10,804 Owner-occupied commercial real estate 678 21,972 91 29,064 6,197 25,929 - 2,238 86,169 Other commercial real estate - 41,982 7,951 32,298 6,741 9,217 - - 98,189 Agricultural loans 1,441 2,206 4,258 6,744 2,346 933 - - 17,928 Commercial and industrial 7,333 12,641 18,091 11,218 10,751 4,867 - - 64,901 Credit cards 3,524 - - - - - - - 3,524 Automobile loans 1,490 - 41,988 - 60,793 - - - 104,271 Other consumer loans 501 1,021 7,024 429 2,940 - - - 11,915 Municipal loans - 244 699 294 601 3,063 - - 4,901 Less: Deferred loan fees, net of costs - - - - - - - - (739) Total $ 29,013 $ 163,987 $ 98,914 $ 220,936 $ 102,192 $ 217,337 $ 3,713 $ 4,596 $ 839,949 Asset Quality The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for credit losses. Management classifies non-performing assets as non-accrual loans, loans 90 days or more past due and still accruing, and OREO. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had $77 thousand and $55 thousand in assets classified as OREO at December 31, 2024 and 2023, respectively. There were $7.2 million in total non-performing assets at December 31, 2024. This is an increase of $630 thousand when compared to the December 31, 2023 balance of $6.5 million. This increase resulted primarily from an increase in nonaccrual loans. In 2024, four loans were added to nonaccrual status due to delinquent payments in the following segments: owner occupied commercial real estate, other commercial real estate, agricultural loans, and commercial and industrial loans. These additions were offset by a 1-4 family construction loan moving to OREO, a loan secured by farmland being paid in full, a loan secured by farmland and a loan in owner occupied commercial real estate paying down, and a loan in other construction and land development returning to accrual status. 24 Table of Contents Nonperforming Assets and Credit Ratios (dollars in thousands): December 31, 2024 2023 Nonaccrual loans $ 7,045 $ 6,438 Loans past due 90 days and accruing interest 32 31 Total nonperforming loans 7,077 6,469 Other real estate owned 77 55 Total nonperforming assets $ 7,154 $ 6,524 Allowance for credit losses $ 8,129 $ 8,321 Total Loans $ 839,949 $ 822,092 Ratios: Allowance for credit losses to Total Loans 0.97% 1.01% Allowance for credit losses to Total nonperforming assets 113.63% 127.54% Allowance for credit losses to Nonaccrual loans 115.39% 129.25% Nonaccrual Loans to Total Loans 0.84% 0.78% Analysis of Allowance for Credit Losses on Loans Refer to the discussion in “Critical Accounting Policies” and Note 1 - Nature of Banking Activities and Significant Accounting Policies in Notes to Consolidated Financial Statements for management’s methodology to estimate the allowance for credit losses. The Company maintains the allowance for credit losses on loans at a level deemed adequate by management for expected credit losses. Management evaluates the adequacy of the allowance for credit losses on loans utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experience, trends in delinquencies, non-performing loans and other risk assets, and other qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated. For the year ended December 31, 2024, net charge-offs of loans totaled $2.6 million or 0.31% of average loans held for investment, compared to net charge- offs of $1.5 million or 0.19% for the year ended December 31, 2023. A majority of the charge-offs in 2024 and 2023 related to the Company’s indirect automobile lending. The provision for credit losses, including the recovery for unfunded commitments, was $2.3 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively. The provision for credit losses in 2024 reflects $17.9 million in loan growth, coupled with $1.9 million in net charge offs in the automobile segment. Additionally, management adjusted qualitative factors in the model methodology for economic conditions based on changes in the economic forecast during the year, changes in loan volume, and changes in past due trends. The provision for 2023 was primarily due to loan growth of $78.5 million and charge-offs in the automobile portfolio. The provision for credit losses includes a recovery of $43 thousand and $57 thousand on the reserve for unfunded commitments for the years ended December 31, 2024 and 2023, respectively. The provision for credit losses on loans and for unfunded commitments net together as reflected in the provision for credit losses on the consolidated statements of income. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for a summary of the activity in the allowance for credit losses for years ended December 31, 2024 and 2023. 25 Table of Contents Analysis of Allowance for Credit Losses (dollars in thousands) Years Ended December 31, 2024 2023 Net charge- offs (recoveries) Average loans outstanding (1) Net charge- offs (recoveries) to average loans outstanding Net charge- offs (recoveries) Average loans outstanding (1) Net charge- offs (recoveries) to average loans outstanding 1-4 Family residential construction $ 362 $ 27,378 1.32% $ 69 $ 32,404 0.21% Other construction, land development and land (69) 56,184 -0.12% - 46,888 - Secured by farmland - 82,972 - - 81,080 - Home equity – open end (26) 46,649 -0.06% (3) 46,050 -0.01% Real estate (5) 205,828 0.00% 17 191,722 0.01% Home Equity – closed end - 6,222 - - 4,945 - Multifamily - 10,859 - - 8,230 - Owner-occupied commercial real estate - 88,737 - - 92,099 - Other commercial real estate - 100,127 - - 104,189 - Agricultural loans - 16,215 - - 13,852 - Commercial and industrial 259 53,839 0.48% 31 45,806 0.07% Credit Cards - 3,210 0.00% 32 3,284 0.97% Automobile loans 1,932 114,152 1.69% 1,290 123,453 1.04% Other consumer loans 125 12,366 1.01% 38 14,763 0.26% Municipal loans - 5,265 - - 5,735 - Total $ 2,578 $ 830,003 0.31% $ 1,474 $ 814,496 0.18% (1) Averages as disclosed are based on the outstanding balances of the loans in each segment. These averages do no include net deferred costs and premiums. Allocation of Allowance for Credit Losses on Loans (dollars in thousands) December 31, 2024 December 31, 2023 Allowance for Credit Losses on loans Percent of Loans in Segment to Total Loans Allowance for Credit Losses on loans Percent of Loans in Segment to Total Loans 1-4 Family residential construction $ 258 2.99% $ 714 3.71% Other construction, land development and land 1,551 6.92% 1,287 5.80% Secured by farmland 946 10.23% 815 9.92% Home equity – open end 197 5.89% 180 5.56% Real estate 606 25.35% 810 24.39% Home Equity – closed end 99 0.73% 77 0.59% Multifamily 190 1.29% 181 1.00% Owner-occupied commercial real estate 809 10.25% 1,221 11.23% Other commercial real estate 105 11.68% 166 12.90% Agricultural loans 27 2.13% 20 1.75% Commercial and industrial 982 7.72% 1,034 5.39% Credit Cards 87 0.42% 81 0.40% Automobile loans 1,956 12.40% 1,443 14.94% Other consumer loans 301 1.42% 292 1.75% Municipal loans 15 0.58% - 0.68% Total $ 8,129 100.00% $ 8,321 100.00% Deposits Core deposits are the Company’s primary source of funding. Demand deposits, money market accounts, savings accounts, and time deposits provide a source of fee income and opportunities to build customer relationships. Total deposits were $1.2 billion and $1.1 billion at December 31, 2024 and 2023, respectively, which represents an increase of $61.9 million or 5.46% during 2024. There was a shift in deposit mix when comparing the periods. At December 31, 2024, there was a decrease in noninterest bearing demand, interest checking, and savings accounts, coupled with an increase in time deposits compared to December 31, 2023. 26 Table of Contents The following table shows the average deposit balances and average rates paid for 2024 and 2023 (dollars in thousands). December 31, 2024 December 31, 2023 Balance % of total deposits Balance % of total deposits Noninterest-bearing demand $ 260,301 21.8% $ 264,254 23.3% Interest Checking 138,919 11.6% 153,308 13.5% Savings Accounts 497,577 41.6% 501,151 44.2% Time Deposits 298,308 25.0% 214,523 18.9% Total deposits $ 1,195,105 $ 1,133,236 The following table includes the average deposits and average rates paid for 2024 and 2023 (dollars in thousands). December 31, 2024 December 31, 2023 Average Balance Rate Average Balance Rate Noninterest-bearing $ 263,002 - $ 256,218 - Interest-bearing: Interest Checking $ 136,894 1.79% $ 166,730 1.90% Savings Accounts 488,180 2.66% 508,354 2.64% Time Deposits 288,271 4.44% 163,999 2.82% Total interest-bearing deposits 913,345 3.09% 839,083 2.53% Total average deposits $ 1,176,347 2.40% $ 1,095,301 1.94% Total uninsured deposits in excess of $250 thousand were $131.8 million and $131.9 million at December 31, 2024 and 2023, respectively. The following table sets forth maturity ranges of time deposits, as of December 31, 2024, that meet or exceed the FDIC insurance limit (in thousands). Maturity period: December 31, 2024 3 months or less $ 28,492 Over 3 months through 6 months 12,971 Over 6 months through 12 months 16,135 Over 12 months - Total $ 57,598 Borrowings In 2024 the Company used proceeds from investment maturities to pay off short-term debt which consisted of Federal Home Loan Bank (“FHLB”) advances. Long-term debt increased from $6.9 million at December 31, 2023 to $7.0 million at December 31, 2023 and consists solely of subordinated debt. See Note 10 - Short-Term Debt and Note 11 - Long-Term Debt in Notes to the Consolidated Financial Statements for a discussion of the rates, terms, and conversion features on these advances. Shareholders’ Equity Total Shareholders’ Equity increased by $7.8 million to $86.1 million due to net income of $7.3 million and other comprehensive income of $3.6 million, offset by dividends to shareholders of $3.6 million. Other comprehensive income includes a $4.0 million improvement in unrealized losses in the bond portfolio and a $315 thousand adjustment to the pension liability. Market Risk Management Market risk is the sensitivity of a financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, exchange rates, and equity prices. The Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations impact the amount of interest income and expense the Bank pays or receives on the majority of its assets. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest-bearing liabilities and interest earning assets. 27 Table of Contents The Company manages interest rate risk through an asset and liability committee (“ALCO”) composed of members of its Board of Directors and executive management. The ALCO is responsible for monitoring and managing the Company’s interest rate risk and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO. Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides an additional analysis of the sensitivity of the earnings to changes in interest rates to static gap analysis. Assumptions used in the model rates are derived from historical trends, peer analysis, and management’s outlook, and include loans and deposit growth rates and projected yields and rates. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different assets and liability accounts move differently when the prime rate changes and is reflected in different rate scenarios. The following table represents interest rate sensitivity on the Company’s net interest income using different rate scenarios: Change in Prime Rate % Change in Net Interest Income + 400 basis points -9.93% + 300 basis points -7.38% + 200 basis points -4.76% + 100 basis points -2.28% - 100 basis points 1.89% -200 basis points 3.14% -300 basis points 3.79% -400 basis points 1.80% Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value over different rate environments is an indication of the longer- term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation. The following table reflects the change in net economic value over different rate environments: Change in Prime Rate % Change in Net Economic Value +400 basis points -20.65% + 300 basis points -15.73% + 200 basis points -10.40% + 100 basis points -5.04% - 100 basis points 3.63% -200 basis points 4.51% -300 basis points 2.87% -400 basis points -2.32% Prudent balance sheet management requires processes that monitor and protect the Company against unanticipated or significant changes in the level of market interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk is kept to an acceptable level. The ability to reprice our interest-sensitive assets and liabilities over various time intervals is of critical importance. The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the “gap” between interest- sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect us from unanticipated rate movements, by understanding the dynamic nature of our balance sheet components. 28 Table of Contents An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At December 31, 2024, the Company had $157.9 million more in liabilities repricing than assets subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time. Liquidity Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, credit availability at the Federal Reserve Bank, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs. The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Deposits have remained a steady source of liquidity from 2023 to 2024. The Company may use other means of borrowings or other liquidity sources to fund any liquidity needs based on declines in deposit balances. The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in fair value of the Company’s securities portfolio due to rising market interest rates. As of December 31, 2024, liquid assets totaled $95.6 million, or 7.3% of total assets, and liquid earning assets totaled $76.4 million, or 5.9% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $69.8 million from bond paydowns and maturities by the end of 2025 which can be used to fund future loan growth and for other purposes. In 2024 the Bank pledged investment securities with a par value totaling $131.3 million to the Federal Reserve System’s Discount Window. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during 2024. In addition to the Discount Window, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million at December 31, 2024, and December 31, 2023. The Bank also has a secured line of credit with the FHLB with available credit of $172.7 million and $90.1 million as of December 31, 2024, and December 31, 2023, respectively. The FHLB line of credit is secured by a blanket lien on qualifying loans in the residential, commercial, agricultural real estate, and home equity portfolios. The Bank has a Funding and Liquidity Risk Management policy that limits the amount of short-term and long-term alternative funding to no more than 25% of total assets. Capital Resources The Company continues to maintain capital ratios intended to support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.50% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital. Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not required to comply with Basel III on a parent-only basis. As of December 31, 2024, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules. The Company currently expects to continue to exceed required minimum capital ratios. See Note 15 - Regulatory Matters in Notes to Consolidated Financial Statements for more information regarding the Company’s and its subsidiary bank’s capital ratios. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Item not required for smaller reporting companies. Item 8. Financial Statements and Supplementary Data 29 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of F&M Bank Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of F&M Bank Corp. and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ 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, 2024 and 2023, 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 its 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 such 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 Matter 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 Credit Losses (ACL) – Loans Collectively Evaluated for Credit Losses Description of the Matter As discussed in Note 1 (Nature of Banking Activities and Significant Accounting Policies) and Note 4 (Allowance for Credit Losses) to the consolidated financial statements, the allowance for credit losses on loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans represented $8.07 million of the total recorded ACLL of $8.13 million as of December 31, 2024. The collectively evaluated ACLL consists of quantitative and qualitative components. 30 Table of Contents The Company uses a weighted average remaining life methodology to determine the quantitative component of the collectively evaluated ACLL. Under this methodology, the Company determines future expectations of the pool balances by using a remaining life calculator. A quarterly expected loss rate based on historical information is applied to an expected remaining balance for each period to determine the unadjusted expected loss for each loan pool segment. In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures; the nature and volume of the portfolio; experience, depth, and ability of lending management; the volume and severity of delinquencies and adversely classified loan balances; concentrations of credit; the value of underlying collateral; forecasted economic conditions; the quality of the loan review system; and legal or regulatory requirements. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates. The primary audit procedures we performed to address this critical audit matter included: · Obtaining an understanding of the Company’s process for determining its ACLL, including the underlying methodology and significant inputs to the calculation. · Substantively testing management’s process for measuring the collectively evaluated ACLL, including: o Evaluating conceptual soundness, assumptions, and key data inputs of the Company’s weighted average remaining life methodology, including the identification of loan pools, inputs for the attrition rate calculation, and the historical loss information utilized to determine the quarterly expected loss rate. o Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate. o Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors. o Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data. o Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the discounted cashflow and qualitative factor components of the calculations. /s/ Yount, Hyde & Barbour, P.C. We have served as the Company’s auditor since 2016. Roanoke, Virginia March 28, 2025 31 Table of Contents F & M Bank Corp. Consolidated Balance Sheets (dollars in thousands) As of December 31, 2024 and 2023 2024 2023 Assets Cash and due from banks $ 19,139 $ 19,790 Money market funds and interest-bearing deposits in other banks 298 178 Federal funds sold 37,524 3,749 Cash and cash equivalents 56,961 23,717 Securities: Available for sale, at fair value 327,670 368,674 Other investments, at cost 2,869 5,535 Loans held for sale, at fair value 2,283 1,119 Loans held for investment, net of deferred fees and costs 839,949 822,092 Less: allowance for credit losses (8,129) (8,321) Net loans held for investment 831,820 813,771 Bank premises and equipment, net 22,192 23,656 Other real estate owned 77 55 Interest receivable 4,939 5,034 Goodwill 3,082 3,082 Bank owned life insurance 23,607 22,878 Deferred tax asset, net 9,465 10,141 Assets held for sale 356 - Other assets 16,690 16,934 Total Assets $ 1,302,011 $ 1,294,596 Liabilities Deposits: Noninterest bearing $ 260,301 $ 264,254 Interest bearing 934,804 868,982 Total deposits 1,195,105 1,133,236 Short-term debt - 60,000 Long-term debt 6,975 6,932 Other liabilities 13,793 16,105 Total Liabilities 1,215,873 1,216,273 Commitments and contingencies Shareholders’ Equity Common stock $5 par value, 6,000,000 shares authorized, 3,525,649 (2024) and 3,485,570 (2023) shares issued and outstanding 17,383 17,263 Additional paid in capital 11,463 11,043 Retained earnings 84,669 81,034 Accumulated other comprehensive loss (27,377) (31,017) Total Shareholders’ Equity 86,138 78,323 Total Liabilities and Shareholders’ Equity $ 1,302,011 $ 1,294,596 See accompanying Notes to the Consolidated Financial Statements. 32 Table of Contents F & M Bank Corp. Consolidated Statements of Income (dollars in thousands, except per share data) For the years ended 2024 and 2023 2024 2023 Interest and Dividend Income Interest and fees on loans held for investment $ 54,715 $ 47,957 Interest from loans held for sale 162 88 Interest from money market funds and federal funds sold 1,513 246 Interest and dividends on interest bearing deposits and other investments 470 391 Interest from debt securities 7,623 7,729 Total interest and dividend income 64,483 56,411 Interest Expense Total interest on deposits 28,225 21,218 Interest from short-term debt 1,863 3,029 Interest from long-term debt 463 459 Total interest expense 30,551 24,706 Net Interest Income 33,932 31,705 Provision for Credit Losses 2,343 1,025 Net Interest Income After Provision for Credit Losses 31,589 30,680 Noninterest Income Service charges on deposit accounts 1,193 1,029 Wealth management income 2,181 1,722 Mortgage banking income 2,490 1,973 Title insurance income 1,489 1,334 Income on bank owned life insurance 750 1,160 Low-income housing partnership losses (786) (821) ATM and check card fees 3,101 3,021 Gain on sale of limited partnership investment - 232 Other operating income 348 467 Total noninterest income 10,766 10,117 Noninterest Expense Salaries 15,393 18,890 Employee benefits 2,966 4,112 Occupancy expense 1,544 1,417 Equipment expense 1,310 1,285 FDIC assessment 1,041 790 OREO expense (21) - Advertising expense 608 963 Legal and professional expense 1,784 1,667 ATM and check card fees 1,130 1,259 Data processing fees 3,291 2,914 Directors’ fees 446 530 Bank franchise tax 779 636 Other operating expenses 4,161 4,309 Total noninterest expense 34,432 38,772 Income before income taxes 7,923 2,025 Income tax expense (benefit) 638 (746) Net income $ 7,285 $ 2,771 Per Common Share Data Net income (basic and diluted) $ 2.07 $ 0.80 Cash dividends on common stock $ 1.04 $ 1.04 Weighted average common shares outstanding (basic and diluted) 3,512,427 3,476,326 See accompanying Notes to the Consolidated Financial Statements. 33 Table of Contents F & M Bank Corp. Consolidated Statements of Comprehensive Income (dollars in thousands) For the years ended 2024 and 2023 Years Ended December 31, 2024 2023 Net Income $ 7,285 $ 2,771 Other comprehensive income: Changes in pension plan benefits, net of deferred income tax (benefit) expense of $(84) and $85 for the years ended December 2024 and 2023, respectively (315) 318 Unrealized gain on available-for-sale securities, net of deferred income tax of $1,053 and $2,307 for the years ended December 2024 and 2023, respectively 3,955 8,677 Total other comprehensive income 3,640 8,995 Total comprehensive income $ 10,925 $ 11,766 See accompanying Notes to the Consolidated Financial Statements. 34 Table of Contents F & M Bank Corp. Consolidated Statements of Changes in Shareholders’ Equity (dollars in thousands, except per share data) For the years ended December 31, 2024 and 2023 Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Balance, December 31, 2022 $ 17,149 $ 10,577 $ 83,078 $ (40,012) $ 70,792 Net Income - - 2,771 - 2,771 Cumulative effect adjustment due to the adoption of ASC 326, net of tax - - (1,203) - (1,203) Other comprehensive income - - - 8,995 8,995 Dividends on common stock - - (3,612) - (3,612) Common stock issued 73 219 - - 292 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes 41 (12) - - 29 Stock-based compensation expense - 259 - - 259 Balance, December 31, 2023 $ 17,263 $ 11,043 $ 81,034 $ (31,017) $ 78,323 Net Income - - 7,285 - 7,285 Other comprehensive income - - - 3,640 3,640 Dividends on common stock - - (3,650) - (3,650) Common stock issued 79 235 - - 314 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes 41 (41) - - - Stock-based compensation expense - 226 - - 226 Balance, December 31, 2024 $ 17,383 $ 11,463 $ 84,669 $ (27,377) $ 86,138 See accompanying Notes to the Consolidated Financial Statements. 35 Table of Contents F & M Bank Corp. Consolidated Statements of Cash Flows (dollars in thousands) For the years ended December 31, 2024 and 2023 2024 2023 Cash Flows from Operating Activities Net income $ 7,285 $ 2,771 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,375 1,317 Amortization of intangibles 29 31 Amortization of securities 756 772 Proceeds from loans held for sale 63,199 42,590 Gain on sale of loans held for sale (1,506) (811) Loans held for sale originated (62,857) (41,525) Provision for credit losses 2,343 1,025 Deferred tax (benefit) expense (293) 200 Decrease (increase) in interest receivable 95 (1,039) (Decrease) in other assets (939) (3,624) (Increase) decrease in accrued liabilities (2,270) 798 Gain on sale of limited partnership investment - (232) Amortization of limited partnership investments 786 821 Amortization of debt issuance costs 43 42 Gain on sale of fixed assets, net (12) (15) Gain on sale of OREO, net (21) - Purchase of other real estate owned - (55) Income from life insurance investment (750) (790) Gain on life insurance investment - (370) Stock based compensation expense 226 259 Net Cash Provided by Operating Activities 7,489 2,165 Cash Flows from Investing Activities Proceeds from maturities of securities available for sale 76,000 19,825 Proceeds from paydowns of mortgage-backed securities 14,932 13,934 Purchases of securities available for sale and other investments (45,677) - Changes in restricted stock, net 2,817 (137) Proceeds from sale of limited partnership investments - 232 Investment in limited partnership investment (150) (250) Net increase in loans held for investment (20,511) (79,962) Net purchase of property and equipment (282) (5,453) Proceeds from sale of other real estate owned 76 - Proceeds from life insurance benefits - 1,739 Proceeds from the sale of property and equipment 17 103 Net Cash Provided by (Used in) Investing Activities 27,222 (49,969) Cash Flows from Financing Activities Net change in deposits 61,869 49,859 Net change in short-term debt (60,000) (10,000) Dividends paid in cash (3,650) (3,612) Proceeds from sale of common stock 194 292 Proceeds from issuance of common stock 120 29 Net Cash (Used in) Provided by Financing Activities (1,467) 36,568 Net Increase (Decrease) in Cash and Cash Equivalents 33,244 (11,236) Cash and Cash Equivalents, Beginning of Year 23,717 34,953 Cash and Cash Equivalents, End of Year $ 56,961 $ 23,717 Supplemental Cash Flow information: Cash paid for: Interest $ 30,243 $ 23,367 Income taxes $ 608 $ 360 Supplemental non-cash disclosures: Change in unrealized loss on securities available for sale, net $ 5,008 $ 10,984 Cumulative effect of the adoption of ASC 326 $ - $ 1,524 Minimum pension asset (liability) adjustment, net $ 315 $ (318) Transfer Held to Maturity security from subsidiary to Bank available for sale portfolio $ - $ 125 Transfer from loans to other real estate owned $ 777 $ - Transfer from property and equipment to assets held for sale $ 356 $ - See accompanying Notes to the Consolidated Financial Statements. 36 Table of Contents F & M Bank Corp. Notes to the Consolidated Financial Statements December 31, 2024 and 2023 NOTE 1 NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES 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 financial products and services to consumers and businesses. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division loan production office. The Company offers mortgage lending and title insurance through its subsidiaries, VBS Mortgage, LLC (dba “F&M Mortgage”) and VSTitle, LLC (“VST”). TEB Life Insurance Company (“TEB”) was dissolved on November 8, 2023. FMFS was dissolved effective April 25, 2024, and its legal existence was subsequently terminated on June 7, 2024. The operations, assets, and liabilities of FMFS were transferred to the Bank. Basis of Financial Information - The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United State of America (“GAAP’) and to accepted practices within the banking industry. The preparation of the consolidated financial statements in conformity 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 are the determination of the allowance for credit losses and the fair value of financial instruments. Principles of Consolidation - The consolidated financial statements include the accounts of the Company, Bank, FMFS (through its termination on June 7, 2024), F&M Mortgage, and VST. Significant inter-company accounts and transactions have been eliminated. Segment Reporting - The Company's revenue is primarily derived from the business of banking. The Company's financial performance is monitored on a consolidated basis by the Chief Executive Officer, who is designated the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered. The segments are also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if the operating performance of products and customers are similar. The CODM evaluates the financial performance of the Company’s business components such as revenue streams, significant expenses, and budget to actual results in assessing the Company’s segments and in determination of allocated resources. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's Consolidated Balance Sheets and Consolidated Statements of Income. Additionally, the Company's significant expenses are adequately segmented by category and amount in the Consolidated Statements of Income to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include salaries and employee benefits, occupancy expense, equipment expense, data processing fees and legal and professional expenses. All of the Company's financial results are similar and considered by management to be aggregated into one reportable operating segment. While the Company has assigned certain management responsibilities by region and business-line, the Company's CODM evaluates financial performance on a Company-wide basis. The majority of the Company's revenue is from the business of banking and the Company's assigned regions have similar economic characteristics, products, services and customers. Accordingly, all of the Company's operations are considered by management to be aggregated in one reportable operating segment. Cash and Cash Equivalents - Cash and cash equivalents include cash, cash due from banks, money market funds and interest-bearing deposits in other banks, and federal funds sold. Securities - At the time of purchase, debt securities are classified as 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 the 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. 37 Table of Contents Amortization of premiums and accretion of discounts on securities are reported as adjustments to interest income using the effective interest method. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to shareholders’ equity, whereas realized gains and losses flow through the Company’s current earnings. 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, the Company considers 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, the Company 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. Other Investments - Due to restrictions on the Company’s investments in the FHLB and the Federal Reserve Bank of Richmond (“FRB”), these securities are considered restricted and carried at cost. The FHLB requires the Bank to maintain stock in an amount equal to 3.75% of outstanding borrowings. The FRB requires the Company to maintain stock with a par value equal to 6% of its outstanding capital and surplus. Allowance for Credit Losses – Available for Sale Securities - For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance of any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2024 and 2023, there was no allowance for credit loss related to the available for sale portfolio. Accrued interest receivable on available for sale debt securities totaled $1.5 million at December 31, 2024 and was excluded from the estimate of credit losses. Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.5 million at December 31, 2024 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments. Nonaccruals, Past Dues, and Charge-offs - The policy for placing commercial and consumer loans on nonaccrual status is generally when the loan is 90 days delinquent unless the credit is well secured and in process of collection. Consumer loans are typically charged-off when management judges the loan to be uncollectible. Commercial loans are typically written down to net realizable value when it is determined that the Company will be unable to collect the principal amount in full and the amount is a confirmed loss. Loans in all segments of portfolios are considered past due or delinquent when a contractual payment has not been satisfied. Loans are placed on nonaccrual status or charged off at an earlier date if collection of principal and interest is considered doubtful and in accordance with regulatory requirements. 38 Table of Contents For both the commercial and consumer loan portfolio segments, all interest accrued but not collected for loans placed on nonaccrual status or charged-off is reversed against interest income and accrual of interest income is terminated. Payments and interest on these loans are accounted for using the cost-recovery method by applying all payments received as a reduction to the outstanding principal balance until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The determination of future payments being reasonably assured varies depending on the circumstances present with the loan; however, the timely payment of contractual amounts owed for six consecutive months is a primary indicator. Allowance for Credit Losses – Loans - The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a pool basis when similar risk characteristics exist. The Company measures the allowance for credit losses using the weighted average remaining life methodology. Under this methodology, the Company uses a loss rate for each loan pool segment using historical information. Future expectations of the pool balances are determined by using a remaining life calculator. A quarterly expected loss rate is applied to an expected remaining balance for each period to determine the unadjusted expected loss for each loan pool segment. The Company utilizes a Qualitative Scorecard (“Scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the Scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Company’s portfolio, in particular during the period from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses is economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology: 1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral. Other construction, land development and land. Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market- area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral. 39 Table of Contents Secured by farmland. Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations. Home equity - open end. The home-equity loan portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers. Real estate. Real estate loans are for consumer residential 1-4 family real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios. Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to- value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers. Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property. Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses occupying the commercial real estate. Other commercial real estate. The other commercial real estate segment includes loans secured by commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate. Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured). Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured). Credit cards. Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt-to-income ratios, and minimum borrower credit scores. Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles is subject to the risk of changing values in the availability of vehicles and the resale value. Other consumer loans. Other consumer loans may be secured or unsecured. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates. Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s market area. Credit risk is based on the cash flow and management of the local town’s budgets. Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured. 40 Table of Contents Loans that do not share risk characteristics are evaluated on an individual basis. Management evaluates loans on nonaccrual status over $250,000 on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. Allowance for Credit Losses – Unfunded Commitments - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets. Earnings per Share - Basic Earnings per Share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends. Diluted earnings per share includes all convertible securities, such as convertible preferred stock, convertible debt, equity options, and warrants. The Company does not have any convertible securities that would dilute the earnings per share. 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. Bank Premises and Equipment - Land is carried at cost. Buildings 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. Estimated useful lives range from 10 to 39 years for buildings, and 5 to 10 years for furniture and equipment. Maintenance, repairs, and minor improvements are charged to operations as incurred; major improvements are capitalized. Gains and losses on dispositions are reflected in other income or expense. Goodwill and Intangible Assets - Goodwill, the excess of purchase price over the fair value of the identifiable net assets acquired, is evaluated for impairment by comparing the fair value of a reporting unit with its carrying amount. Impairment testing is performed annually as of December 31, as well as when management reasonably believes an impairment-triggering event may have occurred. The Company performed the internal evaluation of goodwill for December 31, 2024, and based on the results, no impairment was deemed necessary. 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. Bank Owned Life Insurance - The Company has purchased life insurance on certain key employees and directors. These policies are recorded at their cash surrender value and are included in a separate line item on the Company’s Consolidated Balance Sheets. Income generated from policies is recorded as noninterest income. The Company is exposed to credit risk to the extent an insurance company is unable to fulfill its financial obligations under a policy. Loans Held for Sale - Loans held for sale consist of one-to-four family conforming residential real estate loans originated for sale in the secondary market by F&M Mortgage. Credit risk associated with these loans is mitigated by entering sales commitments with third party investors to purchase the loans after they are originated; the Company does not service these loans after they are sold. 41 Table of Contents The Company records loans held for sale via the fair value option; see Note 13 “Derivatives” for additional information. The change in the fair value of loans held for sale is included in “Mortgage banking income” on the Company’s Consolidated Statements of Income. Low-Income Housing Partnerships - The Company has investments in low-income housing partnerships whose primary benefit is the distribution of federal income tax credits to partners. The Company recognizes the benefits and the costs of the investments over the life of the partnership on the Consolidated Balance Sheets. Pension Plan - 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 recognizes the over-funded or under‑funded status of pension and other postretirement benefit plans on the balance sheet. 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 loss, net of tax effects, until they are amortized as a component of net periodic cost. The Virginia Bankers Association Defined Benefit Plan for Farmers & Merchants Bank was amended on February 15, 2023 to stop the accrual of future benefits and was terminated on June 1, 2024. Income Taxes - Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined 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 temporary differences between the book and tax bases of assets and liabilities and gives current recognition to changes in tax rates and laws. When the Company’s federal tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more likely than not to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any, associated with unrecognized tax benefits are classified as additional income taxes in the Consolidated Statements of Income. Advertising Costs - The Company expenses advertising costs as incurred. 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 the assets have been isolated from the Company, 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 the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. 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. Reclassifications - The accompanying consolidated financial statements and notes reflect certain immaterial reclassifications in prior periods to conform to the current presentation. None of these reclassifications are considered material and have no impact on net income or shareholders’ equity. 42 Table of Contents Recent Accounting Pronouncements Accounting Standards Recently Adopted: On December 31, 2024, the Company adopted ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures.” These amendments required that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, required other segment items by reportable segment to be disclosed and a description of their composition, and required disclosure of the title and position of the chief operating decision maker and an explanation of how they use the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments were applied retrospectively to all prior periods presented and did not have a material effect on the Company’s consolidated financial statements. Refer to Segment Reporting section above. Accounting Standards Pending Adoption: In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718).” This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements. Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows. 43 Table of Contents NOTE 2 SECURITIES The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized are as follows (dollars in thousands): December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U. S. Treasuries $ 20,072 $ - $ 1,458 $ 18,614 U. S. Government agencies 72,995 5,270 67,725 Municipal securities 40,674 - 2,467 38,207 Mortgage-backed securities 198,591 158 23,800 174,949 Corporate debt securities 30,550 - 2,375 28,175 Total Securities Available for Sale $ 362,882 $ 158 $ 35,370 $ 327,670 December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U. S. Treasuries $ 35,048 $ - $ 2,167 $ 32,881 U. S. Government agencies 133,487 - 8,784 124,703 Municipal securities 41,341 145 2,725 38,761 Mortgage-backed securities 168,468 173 23,568 145,073 Corporate debt securities 30,550 25 3,319 27,256 Total Securities Available for Sale $ 408,894 $ 343 $ 40,563 $ 368,674 There was no allowance for credit losses on available for sale securities at December 31, 2024 and 2023. The amortized cost and fair value of securities at December 31, 2024, by contractual maturity are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities Available for Sale Amortized Cost Fair Value Due in one year or less $ 38,958 $ 38,591 Due after one year through five years 95,882 89,097 Due after five years through ten years 65,889 59,400 Due after ten years 162,153 140,582 Total $ 362,882 $ 327,670 The following tables show the gross unrealized losses and estimated fair value of available sale securities for which an allowance for credit losses has not been recorded aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2024 and 2023: (dollars in thousands): Less than 12 Months More than 12 Months Total December 31, 2024 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U. S. Treasuries $ - $ - $ 18,614 $ 1,458 $ 18,614 $ 1,458 U. S. Government agencies - - 67,725 5,270 67,725 5,270 Municipal securities 9,971 139 28,236 2,328 38,207 2,467 Mortgage-backed securities 39,461 603 126,470 23,197 165,931 23,800 Corporate debt securities 1,463 37 26,712 2,338 28,175 2,375 Total Securities Available for Sale $ 50,895 $ 779 $ 267,757 $ 34,591 $ 318,652 $ 35,370 44 Table of Contents Less than 12 Months More than 12 Months Total December 31, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U. S. Treasuries $ 125 $ - $ 32,756 $ 2,167 $ 32,881 $ 2,167 U. S. Government agencies - - 124,703 8,784 124,703 8,784 Municipal securities 484 11 32,597 2,714 33,081 2,725 Mortgage-backed securities - - 140,041 23,568 140,041 23,568 Corporate debt securities 1,729 271 25,002 3,048 26,731 3,319 Total Securities Available for Sale $ 2,338 $ 282 $ 355,099 $ 40,281 $ 357,437 $ 40,563 Unrealized losses at December 31, 2024 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to credit quality concerns on the investment securities. Issuers continue to make timely principal and interest payments. The Company currently has no plans to sell the investments and it is likely that management will not be required to sell the securities prior to their anticipated recovery. The fair value is expected to recover as the bonds approach maturity. At December 31, 2024, there were $267.8 million or 100 instances of individual available for sale securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $34.6 million. At December 31, 2023 there were $355.1 million or 110 instances of individual available for sale securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $40.3 million. The Company pledged securities with market value of $134.9 million to the Federal Reserve Discount Window as of December 31, 2024. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. Additionally, the Company pledged securities with a market value of $9.0 million to the Federal Reserve Bank of Richmond as collateral for deposits of the Department of Justice U.S. Bankruptcy Trustee as of December 31, 2024. The Company pledged securities with a market value of $196.0 million to the Federal Reserve as of December 31, 2023. The Company did not borrow from the Discount Window during 2024 or 2023. 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 any indication of credit losses. 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. As of December 31, 2024, other investments consisted of restricted stock in the FRB (carrying basis of $1.1 million), FHLB (carrying basis of $920 thousand), and various other investments (carrying basis of $809 thousand). As of December 31, 2023, other investments consisted of restricted stock in the FRB (carrying basis of $1.1 million), FHLB (carrying basis of $3.7 million), and various other investments (carrying basis of $735 thousand). The market values of these securities are estimated to approximate their carrying values as of December 31, 2024 and 2023 since the interests are restricted as to sales. 45 Table of Contents NOTE 3 LOANS AND CREDIT QUALITY The following is a summary of the major categories of total loans held for investment outstanding at December 31, 2024 and 2023 (dollars in thousands): December 31, 2024 December 31, 2023 1-4 Family residential construction $ 25,102 $ 30,488 Other construction, land development and land 58,208 47,749 Secured by farmland 86,016 81,657 Home equity – open end 49,542 45,749 Real estate 213,081 200,629 Home Equity – closed end 6,137 4,835 Multifamily 10,804 8,203 Owner-occupied commercial real estate 86,169 92,362 Other commercial real estate 98,189 106,181 Agricultural loans 17,928 14,405 Commercial and industrial 64,901 44,329 Credit Cards 3,524 3,252 Automobile loans 104,271 122,924 Other consumer loans 11,915 14,376 Municipal loans 4,901 5,625 Gross loans 840,688 822,764 Unamortized net deferred loan fees (739) (672) Less allowance for credit losses 8,129 8,321 Net loans $ 831,820 $ 813,771 The table above does not include loans held for sale of $2.3 million and $1.1 million and at December 31, 2024 and December 31, 2023, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market. Accrued interest receivable on loans held for investment totaled $3.5 million and $3.6 million at December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements. The Company has pledged loans held for investment as collateral for borrowings with the FHLB totaling $306.7 million and $289.1 million as of December 31, 2024 and 2023, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios. 46 Table of Contents Nonaccrual and Past Due Loans The following table shows the aging of the Company’s loans held for investment, by segment (dollars in thousands): Age Analysis of Past Due Loans As of December 31, 2024 Accruing Loans 30- 59 Days Past due Accruing Loans 60- 89 Days Past due Accruing Loans 90 Days or More Past due Nonaccrual Loans Accruing Current Loans Total Loans 1-4 Family residential construction $ - $ - $ - $ - $ 25,102 $ 25,102 Other construction, land development and land - 10 - 14 58,184 58,208 Secured by farmland - - - 53 85,963 86,016 Home equity – open end 130 - - 501 48,911 49,542 Real estate 1,799 877 - 916 209,489 213,081 Home Equity – closed end - - - - 6,137 6,137 Multifamily - - - - 10,804 10,804 Owner-occupied commercial real estate 124 - - 3,416 82,629 86,169 Other commercial real estate - - - 785 97,404 98,189 Agricultural loans - - - 171 17,757 17,928 Commercial and industrial 849 46 - 768 63,238 64,901 Credit Cards 41 19 32 - 3,432 3,524 Automobile loans 2,153 304 - 397 101,417 104,271 Other consumer loans 95 10 - 24 11,786 11,915 Municipal loans - - - - 4,901 4,901 Gross loans 5,191 1,266 32 7,045 827,154 840,688 Less: Unamortized net deferred loan fees - - - - (739) (739) Loans held for investment $ 5,191 $ 1,266 $ 32 $ 7,045 $ 826,415 $ 839,949 Age Analysis of Past Due Loans As of December 31, 2023 Accruing Loans 30- 59 Days Past due Accruing Loans 60- 89 Days Past due Accruing Loans 90 Days or More Past due Nonaccrual Loans Accruing Current Loans Total Loans 1-4 Family residential construction $ - $ - $ - $ 440 $ 30,048 $ 30,488 Other construction, land development and land - - - 528 47,221 47,749 Secured by farmland - - - 596 81,061 81,657 Home equity – open end 595 74 - 217 44,863 45,749 Real estate 2,125 425 - 701 197,378 200,629 Home Equity – closed end 41 - - - 4,794 4,835 Multifamily - - - - 8,203 8,203 Owner-occupied commercial real estate 1,482 - - 3,000 87,880 92,362 Other commercial real estate 92 887 - 105,202 106,181 Agricultural loans 10 - - 73 14,322 14,405 Commercial and industrial 75 39 25 622 43,568 44,329 Credit Cards 35 7 6 - 3,204 3,252 Automobile loans 1,137 481 - 237 121,069 122,924 Other consumer loans 151 14 - 24 14,187 14,376 Municipal loans - - - - 5,625 5,625 Gross loans 5,743 1,927 31 6,438 808,625 822,764 Less: Unamortized net deferred loan fees - - - - (672) (672) Loans held for investment $ 5,743 $ 1,927 $ 31 $ 6,438 $ 807,953 $ 822,092 47 Table of Contents There were $7.0 million and $6.4 million in nonaccrual loans at December 31, 2024 and December 31, 2023, respectively. There was no income recognized on nonaccrual loans during the years ended December 31, 2024 and 2023. The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (dollars in thousands). December 31, 2024 December 31, 2023 Nonaccrual loans Nonaccrual loans With no Allowance With an Allowance Total With no Allowance With an Allowance Total 1-4 Family residential construction $ - $ - $ - $ - $ 440 $ 440 Other construction, land development and land 14 - 14 528 - 528 Secured by farmland 53 - 53 596 - 596 Home equity – open end 501 - 501 217 - 217 Real estate 916 - 916 701 - 701 Owner-occupied commercial real estate 2,147 1,269 3,416 - 3,000 3,000 Other commercial real estate 785 - 785 - - - Agricultural loans 171 - 171 73 - 73 Commercial and industrial 768 - 768 25 597 622 Automobile loans 397 - 397 237 - 237 Other consumer loans 24 - 24 24 - 24 Total loans $ 5,776 $ 1,269 $ 7,045 $ 2,401 $ 4,037 $ 6,438 Troubled Loan Modifications Loan modifications where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, are defined by the Company as troubled loan modifications. The allowance for credit losses on loans (“ACLL”) on troubled loan modifications is measured using the same method as other loans held for investment. The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan. The following tables present the amortized cost of loans and leases to borrowers experiencing financial difficulty by class of financing receivable, type of modification, financial effect of the modification, and percentage of the amortized cost basis of modifications as compared to the amortized cost basis of each loan segment for the periods presented (dollars in thousands). Term Extensions for the Year Ended December 31, 2024 Amortized Cost Basis % of Total Loan Type Financial Effect Real estate 7 <0.01% Added a weighted-average of 11 months to the life of the loan. Other commercial real estate 10 0.01% Added a weighted-average of 13 months to the life of the loan. Automobile loans 111 0.11% Added a weighted-average of 4.4 months to the life of the loans. Total Term Extensions $ 128 0.03% Interest Rate Reductions for the Year Ended December 31, 2024 Amortized Cost Basis % of Total Loan Type Financial Effect Owner-occupied commercial real estate 5,448 5.55% Reduced the contractual interest rate from 7.53% to 5.99%. 48 Table of Contents Other than Insignificant Payment Delays for the Year Ended December 31, 2024 Amortized Cost Basis % of Total Loan Type Financial Effect Owner-occupied commercial real estate 1,205 1.23% Delayed principal payments for 6 months. Term Extensions for the Year Ended December 31, 2023 Amortized Cost Basis % of Total Loan Type Financial Effect Owner-occupied commercial real estate 45 0.05% Added a weighted-average of 13 months to the life of the loan. Automobile loans 68 0.06% Added a weighted-average of 4.5 months to the life of the loans. Total Term Extensions $ 113 0.05% The Company monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company considers a default on a troubled loan modification to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. No loan or lease modifications to borrowers experiencing financial difficulty had a payment default at December 31, 2024 or 2023. The Company monitors the performance of troubled loan modifications to determine the effectiveness of the modifications. As of December 31, 2024, $49 thousand in loans modified and designated as a troubled loan modifications were past due. There were no loans designated as troubled loan modifications past due at December 31, 2023. The Company did not have any unfunded commitments on loans modified and designated as troubled loan modifications as of December 31, 2024. Collateral Dependent Disclosures The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit loss (“CECL”) model, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The following table presents an analysis of collateral-dependent loans of the Company as of the periods noted (dollars in thousands): Collateral Dependent Loans and Leases December 31, 2024 Real Estate Business/Other Assets Owner-occupied commercial real estate 3,416 - Other commercial real estate 785 - Commercial and industrial - 605 Total loans $ 4,201 $ 605 49 Table of Contents Collateral Dependent Loans and Leases December 31, 2023 Real Estate Business/Other Assets 1-4 Family residential construction $ 440 $ - Other construction, land development and land 511 - Secured by farmland 596 - Owner-occupied commercial real estate 3,000 - Commercial and industrial - 597 Total loans $ 4,547 $ 597 The following tables present the loan portfolio by segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above (dollars in thousands). December 31, 2024 Loan Balances Allowance for Credit Losses - Loans Loans Individually Evaluated Loans Collectively Evaluated Total Loans Individually Evaluated Loans Collectively Evaluated Total 1-4 Family residential construction $ - $ 25,102 $ 25,102 $ - $ 258 $ 258 Other construction, land development and land - 58,208 58,208 - 1,551 1,551 Secured by farmland - 86,016 86,016 - 946 946 Home equity – open end - 49,542 49,542 - 197 197 Real estate - 213,081 213,081 - 606 606 Home Equity – closed end - 6,137 6,137 - 99 99 Multifamily - 10,804 10,804 - 190 190 Owner-occupied commercial real estate 3,416 82,753 86,169 61 748 809 Other commercial real estate 785 97,404 98,189 - 105 105 Agricultural loans - 17,928 17,928 - 27 27 Commercial and industrial 605 64,296 64,901 - 982 982 Credit Cards - 3,524 3,524 - 87 87 Automobile loans - 104,271 104,271 - 1,956 1,956 Other consumer loans - 11,915 11,915 - 301 301 Municipal loans - 4,901 4,901 - 15 15 Gross loans 4,806 835,882 840,688 61 8,068 8,129 Less: Unamortized net deferred loan fees - - (739) - - - Net loans held for investment $ 4,806 $ 835,882 $ 839,949 $ 61 $ 8,068 $ 8,129 50 Table of Contents December 31, 2023 Loan Balances Allowance for Credit Losses - Loans Loans Individually Evaluated Loans Collectively Evaluated Total Loans Individually Evaluated Loans Collectively Evaluated Total 1-4 Family residential construction $ 440 $ 30,048 $ 30,488 $ 363 $ 351 $ 714 Other construction, land development and land 511 47,238 47,749 - 1,287 1,287 Secured by farmland 596 81,061 81,657 - 815 815 Home equity – open end - 45,749 45,749 - 180 180 Real estate - 200,629 200,629 - 810 810 Home Equity – closed end - 4,835 4,835 - 77 77 Multifamily - 8,203 8,203 - 181 181 Owner-occupied commercial real estate 3,000 89,362 92,362 263 958 1,221 Other commercial real estate - 106,181 106,181 - 166 166 Agricultural loans - 14,405 14,405 - 20 20 Commercial and industrial 597 43,732 44,329 351 683 1,034 Credit Cards - 3,252 3,252 - 81 81 Automobile loans - 122,924 122,924 - 1,443 1,443 Other consumer loans - 14,376 14,376 - 292 292 Municipal loans - 5,625 5,625 - - - Gross loans 5,144 817,620 822,764 977 7,344 8,321 Less: Unamortized net deferred loan fees - - (672) - - - Net loans held for investment $ 5,144 $ 817,620 $ 822,092 $ 977 $ 7,344 $ 8,321 Credit Quality Indicators The Company presents loan portfolio segments and classes by credit quality indicator and vintage year. The Company defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty which are presented in the original vintage. Description of the Company’s credit quality indicators under CECL: Pass: Loans in all classes that are part of the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass. Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status. Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss. Credit cards are classified as pass or substandard. A credit card is substandard when payments of principal and interest are past due 90 days or more. 51 Table of Contents The following table presents the Company’s recorded investment in loans by credit quality indicators and gross write-offs by year of origination as of December 31, 2024 (dollars in thousands): Term Loans by Year of Origination 2024 2023 2022 2021 2020 Prior Revolving Total 1-4 Family residential construction Pass $ - $ 1,224 $ - $ - $ - $ 92 $ 23,786 $ 25,102 Watch - - - - - - - - Substandard - - - - - - - - Total 1-4 Family residential construction - 1,224 - - - 92 23,786 25,102 Current period gross write-offs - 362 - - - - - 362 Other construction, land development and land Pass 2,668 13,898 7,417 4,530 1,727 8,580 18,251 57,071 Watch - - - - - - 128 128 Substandard - - - - - 525 484 1,009 Total Other construction, land development and land 2,668 13,898 7,417 4,530 1,727 9,105 18,863 58,208 Current period gross write-offs - - - - - - - - Secured by farmland Pass 5,462 10,038 13,283 12,908 25,209 8,413 8,074 83,387 Watch 155 - 1,667 - - 754 - 2,576 Substandard - - - - - 53 - 53 Total Secured by farmland 5,617 10,038 14,950 12,908 25,209 9,220 8,074 86,016 Current period gross write-offs - - - - - - - - Home equity – open end Pass - - - - - 153 48,589 48,742 Watch - - - - - - 249 249 Substandard - - - - - - 551 551 Total Home equity - open end - - - - - 153 49,389 49,542 Current period gross write-offs - - - - - - - - Real estate Pass 21,150 59,160 43,895 13,643 11,595 59,013 1,671 210,127 Watch - - - - - - - - Substandard - 203 86 528 - 2,137 - 2,954 Total Real estate 21,150 59,363 43,981 14,171 11,595 61,150 1,671 213,081 Current period gross write-offs - - - - - - - - Home Equity – closed end Pass 727 2,469 252 87 786 1,816 - 6,137 Watch - - - - - - - - Substandard - - - - - - - - Total Home Equity - closed end 727 2,469 252 87 786 1,816 - 6,137 Current period gross write-offs - - - - - - - - Multifamily Pass 2,130 - 4,854 1,368 866 1,586 - 10,804 Watch - - - - - - - - Substandard - - - - - - - - Total Multifamily 2,130 - 4,854 1,368 866 1,586 - 10,804 Current period gross write-offs - - - - - - - - Owner-occupied commercial real estate Pass 7,187 2,207 17,127 15,754 6,697 19,933 5,042 73,947 Watch 1,165 - - - - - - 1,165 Substandard - - - - - 8,613 2,444 11,057 Total Owner-occupied commercial real estate 8,352 2,207 17,127 15,754 6,697 28,546 7,486 86,169 Current period gross write-offs - - - - - - - - Other commercial real estate Pass 386 9,258 29,385 11,767 3,739 31,885 1,938 88,358 Watch - - - - - 1,018 - 1,018 Substandard 7,942 - - - - 871 - 8,813 Total Other commercial real estate 8,328 9,258 29,385 11,767 3,739 33,774 1,938 98,189 Current period gross write-offs - - - - - - - - 52 Table of Contents Term Loans by Year of Origination 2024 2023 2022 2021 2020 Prior Revolving Total Agricultural loans Pass 3,522 2,181 1,818 333 180 - 9,673 17,707 Watch - - 13 - 24 - 13 50 Substandard - - 21 - - - 150 171 Total Agricultural loans 3,522 2,181 1,852 333 204 - 9,836 17,928 Current period gross write-offs - - - - - - - - Commercial and industrial Pass 14,798 4,817 6,766 3,738 878 376 28,934 60,307 Watch - 348 63 32 - - 3,328 3,771 Substandard - - 57 609 - - 157 823 Total Commercial and industrial 14,798 5,165 6,886 4,379 878 376 32,419 64,901 Current period gross write-offs - 57 176 47 24 6 - 310 Credit Cards Pass - - - - - - 3,524 3,524 Substandard - - - - - - - - Total Credit Cards - - - - - - 3,524 3,524 Current period gross write-offs - - - - - - 27 27 Automobile loans Pass 26,426 37,698 25,096 10,563 3,121 975 - 103,879 Watch - - - - - - - - Substandard 22 66 147 110 36 11 - 392 Total Automobile loans 26,448 37,764 25,243 10,673 3,157 986 - 104,271 Current period gross write-offs 194 1,119 760 503 115 64 - 2,755 Other consumer loans Pass 3,604 3,102 2,633 989 210 994 359 11,891 Watch - - - - - - - - Substandard - 7 6 11 - - - 24 Total Other consumer loans 3,604 3,109 2,639 1,000 210 994 359 11,915 Current period gross write-offs 7 99 62 23 15 7 - 213 Municipal loans Pass - - - 775 1,032 3,094 - 4,901 Watch - - - - - - - - Substandard - - - - - - - - Total Municipal loans - - - 775 1,032 3,094 - 4,901 Current period gross write-offs - - - - - - - - Total loans $ 97,344 $ 146,676 $ 154,586 $ 77,745 $ 56,100 $ 150,892 $ 157,345 $ 840,688 Less: Unamortized net deferred loan fees (739) Loans held for investment $ 839,949 Current period gross write-offs $ 201 $ 1,637 $ 998 $ 573 $ 154 $ 77 $ 27 $ 3,667 53 Table of Contents The following table presents the Company’s recorded investment in loans by credit quality indicators and gross write-offs by year of origination as of December 31, 2023 (dollars in thousands): Term Loans by Year of Origination 2023 2022 2021 2020 2019 Prior Revolving Total 1-4 Family residential construction Pass $ 162 $ - $ - $ - $ - $ 108 $ 29,214 $ 29,484 Watch - - - - - - 564 564 Substandard - - - - - - 440 440 Total 1-4 Family residential construction 162 - - - - 108 30,218 30,488 Current period gross write-offs - 70 - - - - - 70 Other construction, land development and land Pass 5,123 9,138 4,983 1,831 2,847 5,456 17,770 47,148 Watch - - - - - 67 - 67 Substandard 511 - - - - 23 - 534 Total Other construction, land development and land 5,634 9,138 4,983 1,831 2,847 5,546 17,770 47,749 Current period gross write-offs - - - - - - - - Secured by farmland Pass 7,503 15,834 13,688 27,020 2,509 7,842 5,869 80,265 Watch - - - - 781 - - 781 Substandard - - 333 - - 263 15 611 Total Secured by farmland 7,503 15,834 14,021 27,020 3,290 8,105 5,884 81,657 Current period gross write-offs - - - - - - - - Home equity – open end Pass 370 - - - - 141 44,089 44,600 Watch - - - - - - 883 883 Substandard - - - - - - 266 266 Total Home equity - open end 370 - - - - 141 45,238 45,749 Current period gross write-offs - - - - - - - - Real estate Pass 53,413 47,785 15,211 12,192 6,490 55,665 386 191,142 Watch - 45 - 499 155 4,893 - 5,592 Substandard - 88 539 - 1,212 2,056 - 3,895 Total Real estate 53,413 47,918 15,750 12,691 7,857 62,614 386 200,629 Current period gross write-offs - - - - - 19 - 19 Home Equity – closed end Pass 1,126 382 117 1,044 464 1,690 - 4,823 Watch - - - - - - - - Substandard - - - - 12 - - 12 Total Home Equity - closed end 1,126 382 117 1,044 476 1,690 - 4,835 Current period gross write-offs - - - - - - - - Multifamily Pass - 2,712 1,395 906 - 1,567 1,524 8,104 Watch - - - - - 99 - 99 Substandard - - - - - - - - Total Multifamily - 2,712 1,395 906 - 1,666 1,524 8,203 Current period gross write-offs - - - - - - - - Owner-occupied commercial real estate Pass 2,820 18,049 17,775 7,109 3,586 22,301 7,821 79,461 Watch - - - - 40 2,097 - 2,137 Substandard - - - - 6,283 1,183 3,298 10,764 Total Owner-occupied commercial real estate 2,820 18,049 17,775 7,109 9,909 25,581 11,119 92,362 Current period gross write-offs - - - - - - - - Other commercial real estate Pass 10,193 29,317 12,744 4,990 3,739 32,666 3,206 96,855 Watch - - - - - 9,239 - 9,239 Substandard - - - - - 87 - 87 Total Other commercial real estate 10,193 29,317 12,744 4,990 3,739 41,992 3,206 106,181 Current period gross write-offs - - - - - - - - 54 Table of Contents Term Loans by Year of Origination 2023 2022 2021 2020 2019 Prior Revolving Total Agricultural loans Pass 4,626 2,548 534 340 - 38 6,066 14,152 Watch - - - 31 - - 149 180 Substandard - 48 14 11 - - - 73 Total Agricultural loans 4,626 2,596 548 382 - 38 6,215 14,405 Current period gross write-offs - - - - - - - - Commercial and industrial Pass 7,396 9,373 5,359 1,691 674 272 17,408 42,173 Watch - 44 91 - - - 1,363 1,498 Substandard - - 632 25 - 1 - 658 Total Commercial and industrial 7,396 9,417 6,082 1,716 674 273 18,771 44,329 Current period gross write-offs - 31 - - - 2 - 33 Credit Cards Pass - - - - - - 3,246 3,246 Substandard - - - - - - 6 6 Total Credit Cards - - - - - - 3,252 3,252 Current period gross write-offs - - - - - - 69 69 Automobile loans Pass 52,471 38,375 19,193 7,301 2,145 2,367 - 121,852 Watch 179 323 158 106 36 32 - 834 Substandard 98 48 63 6 18 5 - 238 Total Automobile loans 52,748 38,746 19,414 7,413 2,199 2,404 - 122,924 Current period gross write-offs 334 669 560 149 53 39 - 1,804 Other consumer loans Pass 5,169 4,983 2,230 843 194 367 530 14,316 Watch 17 4 7 - 1 2 1 32 Substandard 12 7 2 - 6 1 - 28 Total Other consumer loans 5,198 4,994 2,239 843 201 370 531 14,376 Current period gross write-offs - 77 3 3 6 4 - 93 Municipal loans Pass - 118 923 1,096 1,228 2,260 - 5,625 Watch - - - - - - - - Substandard - - - - - - - - Total Municipal loans - 118 923 1,096 1,228 2,260 - 5,625 Current period gross write-offs - - - - - - - - Total loans $ 151,189 $ 179,221 $ 95,991 $ 67,041 $ 32,420 $ 152,788 $ 144,114 $ 822,764 Less: Unamortized net deferred loan fees (672) Loans held for investment $ 822,092 Current period gross write-offs $ 334 $ 847 $ 563 $ 152 $ 59 $ 64 $ 69 $ 2,088 55 Table of Contents NOTE 4 ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses (“ACL”) consists of the allowance for credit losses on loans and the reserve for unfunded commitments. The Company’s ACL is governed by the Company’s ACL Committee, which reports to the Board of Directors and contains representatives from the Company’s finance, credit, and risk teams, and is responsible for calculating the Company’s estimate of expected credit losses and resulting ACL. The ACL Committee considers the quantitative model results and qualitative factors when finalizing the ACL. The Company’s ACL model is subject to the Company’s models risk management program, which is overseen by the Director of Risk Management that reports to the Company’s Board Risk Committee. Allowance for Credit Losses on Loans The following tables show the allowance for credit losses activity by loan segment for the periods indicated, (dollars in thousands). Allowance for Credit Losses For the Year Ended December 31, 2024 Beginning Balance Charge-offs Recoveries Provision for loan credit losses Ending Balance 1-4 Family residential construction $ 714 $ 362 $ - $ (94) $ 258 Other construction, land development and land 1,287 - 69 195 1,551 Secured by farmland 815 - - 131 946 Home equity – open end 180 - 26 (9) 197 Real estate 810 - 5 (209) 606 Home Equity – closed end 77 - - 22 99 Multifamily 181 - - 9 190 Owner-occupied commercial real estate 1,221 - - (412) 809 Other commercial real estate 166 - - (61) 105 Agricultural loans 20 - - 7 27 Commercial and industrial 1,034 310 51 207 982 Credit Cards 81 27 27 6 87 Automobile loans 1,443 2,755 823 2,445 1,956 Other consumer loans 292 213 88 134 301 Municipal loans - - - 15 15 Total $ 8,321 $ 3,667 $ 1,089 $ 2,386 $ 8,129 56 Table of Contents Allowance for Credit Losses For the Year Ended December 31, 2023 Beginning Balance Adjustment for adoption of ASU 2016-13 Charge- offs Recoveries Provision for loan credit losses Ending Balance 1-4 Family residential construction $ 324 $ 109 $ 70 $ 1 $ 350 $ 714 Other construction, land development and land 694 602 - - (9) 1,287 Secured by farmland 571 311 - - (67) 815 Home equity – open end 446 (189) - 3 (80) 180 Real estate 1,389 (184) 19 2 (378) 810 Home Equity – closed end 39 96 - - (58) 77 Multifamily 71 182 - - (72) 181 Owner-occupied commercial real estate 992 280 - - (51) 1,221 Other commercial real estate 1,023 (582) - - (275) 166 Agricultural loans 80 (58) - - (2) 20 Commercial and industrial 368 338 33 2 359 1,034 Credit Cards 68 26 69 37 19 81 Automobile loans 1,790 (257) 1,804 514 1,200 1,443 Other consumer loans 81 103 93 55 146 292 Municipal loans - - - - - - Total $ 7,936 $ 777 $ 2,088 $ 614 $ 1,082 $ 8,321 Unfunded Commitments The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for (recovery of) credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over their estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans and are discussed above. The allowance for credit losses for unfunded loan commitments was $647 thousand and $690 thousand at December 31, 2024 and 2023, respectively, is separately classified on the Consolidated Balance Sheets within Other liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the periods indicated (dollars in thousands). 2024 2023 Balance as of January 1 $ 690 $ - Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13 - 747 Recovery of credit losses – unfunded commitments (43) (57) Balance as of December 31 $ 647 $ 690 Note 5 Bank Premises and Equipment Bank premises and equipment as of December 31 are summarized as follows (dollars in thousands): 2024 2023 Land $ 4,735 $ 4,851 Buildings and improvements 17,989 18,264 Furniture and equipment 13,757 13,543 Total 36,481 36,658 Accumulated depreciation (14,289) (13,002) Premises and equipment, net $ 22,192 $ 23,656 Depreciation expense for the years ended December 31, 2024 and 2023 was $1.4 million and $1.3 million, respectively. 57 Table of Contents NOTE 6 LEASES Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and 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. The Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. The Company has five operating leases for office properties. The following tables present information about the Company’s leases (dollars in thousands): December 31, 2024 December 31, 2023 Lease Liabilities (included in other liabilities) $ 589 $ 733 Right-of-use assets (included in other assets) $ 558 $ 712 Weighted average remaining lease term 9.02 years 8.71 years Weighted average discount rate 3.44% 3.31% Lease cost 2024 2023 Operating lease cost $ 134 $ 164 Total lease cost $ 134 $ 164 Cash paid for amounts included in the measurement of lease liabilities $ 155 $ 182 A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands): Lease payments due As of December 31, 2024 Twelve months ending December 31, 2025 $ 114 Twelve months ending December 31, 2026 70 Twelve months ending December 31, 2027 56 Twelve months ending December 31, 2028 57 Twelve months ending December 31, 2029 59 Thereafter 358 Total undiscounted cash flows $ 714 Discount (125) Lease liabilities $ 589 NOTE 7 OTHER REAL ESTATE OWNED The table below reflects other real estate owned (OREO) activity for 2024 and 2023 (dollars in thousands). 2024 2023 Balance as of January 1 $ 55 $ - Purchase of foreclosed real estate - 55 Loans transferred to OREO 77 - Sale of OREO (76) - Gain on sale of OREO 21 - Balance as of December 31 $ 77 $ 55 There were no expenses related to OREO in 2024 or 2023. There was one residential real estate property under construction in other real estate owned at December 31, 2024; there were no consumer mortgage loans secured by residential real estate properties under formal foreclosure procedures. At December 31, 2024 there was a mortgage office transferred from bank premises to assets held for sale for $356 thousand. There were no assets held for sale as of December 31, 2023. 58 Table of Contents NOTE 8 OTHER ASSETS As of December 31, 2024, the Company was a partner in eleven low-income housing and historic equity partnerships with a carrying basis of $4.3 million. The market values of these securities are estimated to approximate their carrying values as of December 31, 2024 since the partnership interests have limited transferability. At December 31, 2024, the Company was committed to invest an additional $139 thousand in three low-income housing limited partnerships that has been reflected in accrued liabilities on the consolidated balance sheet. These funds will be paid as requested by the general partner to complete the projects. NOTE 9 TIME DEPOSITS Time deposits that meet or exceed the FDIC insurance limit of $250 thousand at year end 2024 and 2023 were $57.6 million and $37.8 million, respectively. At December 31, 2024, the scheduled maturities of all time deposits are as follows (dollars in thousands): 2025 $ 285,122 2026 7,728 2027 2,392 2028 1,398 2029 1,668 Thereafter - Total $ 298,308 NOTE 10 SHORT‑TERM DEBT Short-term debt, all maturing within 12 months, as of December 31, 2024 and 2023 is summarized as follows (dollars in thousands). Highest Month-End Balance Outstanding at Year End Average Balance Weighted Average Rate 2024 Federal funds purchased $ 607 $ - $ 207 5.33% FHLB short-term 75,000 - 33,730 5.40% Totals $ - $ 33,937 5.40% 2023 Federal funds purchased $ 54 $ - $ 755 5.03% FHLB short-term 75,000 60,000 58,430 5.10% Totals $ 60,000 $ 59,185 5.10% The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to support loan growth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short-term debt 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. FHLB advances are secured by a blanket lien on the qualifying loans in the Company’s residential, commercial, agriculture, and home equity loan portfolios. There was no outstanding short-term debt at December 31, 2024. Short-term debt totaled $60.0 million at December 31, 2023, and consisted of FHLB advances which were used to fund loan growth. As of December 31, 2024, the Company had unsecured lines of credit with correspondent banks totaling $90.0 million which may be used in the management of short-term liquidity, on which none was outstanding. NOTE 11 LONG-TERM DEBT On July 29, 2020, the Company sold and issued to an institutional accredited investor a 6.00% fixed to floating rate subordinated note due July 31, 2030 with an aggregate principal amount of $7.0 million. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 593 basis points, payable quarterly in arrears. Beginning on July 31, 2025 through maturity, the note may be redeemed, at the Company’s option, on any scheduled interest payment date. The note will mature on July 31, 2030. The subordinated note, net of issuance costs totaled $7.0 and $6.9 million at December 31, 2024 and 2023, respectively. 59 Table of Contents NOTE 12 COMMITMENTS AND CONTINGENCIES 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, 2024 and 2023, the Company had the following commitments outstanding (dollars in thousands): 2024 2023 Commitments to extend credit $ 229,330 $ 253,816 Standby letters of credit 3,654 2,911 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 if 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 evaluation of the borrower’s ability to pay. Collateral may include accounts receivable, inventory, property, plant and equipment. As of December 31, 2024 and 2023, the Company had cash deposits in other commercial banks in excess of FDIC insurance limits totaling $4.8 million. The Bank has established procedures for measuring and monitoring the concentration risk in correspondent banks and performs quarterly reviews of the financial condition of correspondent banks to assess and monitor risks. The Company grants commercial, residential real estate and consumer loans to customers located primarily in the Shenandoah Valley 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, 2024, approximately 75% of the loan portfolio was secured by real estate. NOTE 13 DERIVATIVES Mortgage Banking Derivatives Loans Held for Sale (“LHFS”) - 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. 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, totaling $2.3 million as of December 31, 2024, of which $2.3 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2. Interest Rate Lock Commitments and Forward Sales Commitments - The Company, through F&M Mortgage Company, enters 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 derivatives. Upon entering 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, 2024, and totaled $18 thousand, with a notional amount of $3.2 million and total positions of 13. The fair value of the IRLCs at December 31, 2023 totaled $81 thousand, with a notional amount of $2.8 million and total positions of 14. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended December 31, 2024 and 2023. The Company’s IRLCs are classified as Level 2. At December 31, 2024 and 2023, each IRLC and all LHFS were subject to a forward sales commitment on a best- efforts basis. The Company uses 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 was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2024 totaled $41 thousand, with a notional amount of $4.3 million and total positions of 18. The fair value of forward sales commitments was reported in “Other Liabilities” in the Consolidated Balance Sheet at December 31, 2023 totaled $22 thousand, with a notional amount of $3.9 million and total positions of 19. 60 Table of Contents NOTE 14 ACCUMULATED OTHER COMPREHENSIVE LOSS The balances in accumulated other comprehensive loss are shown in the following table (dollars in thousands): Unrealized Securities Gains (Losses) Adjustments Related to Pension Plan Accumulated Other Comprehensive Loss Balance at December 31, 2022 $ (40,451) $ 439 $ (40,012) Change in unrealized securities gains , net of tax of $2,307 8,677 - 8,677 Change in unfunded pension liability, net of tax of $85 - 318 318 Balance at December, 31, 2023 $ (31,774) $ 757 $ (31,017) Change in unrealized securities gains , net of tax of $1,053 3,955 - 3,955 Change in unfunded pension liability, net of tax benefit of $84 - (315) (315) Balance at December, 31, 2024 $ (27,819) $ 442 $ (27,377) During 2024 and 2023, there were no realized security gains or losses reclassified out of unrealized loss on available for sale securities and reclassified into net investment security losses on the consolidated statements of income. NOTE 15 REGULATORY MATTERS 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. 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 impact 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. 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 is 2.50%. The Company’s capital conservation buffer for 2024 was 5.39% and for 2023 was 4.58%. 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 to avoid restrictions on capital distributions and other payments. 61 Table of Contents On September 17, 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community bank leverage ratio or “CBLR”). Under the rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% are not subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The Bank elected not to opt into the CBLR framework as of December 31, 2024 and 2023. The Bank does not expect to opt into the CBLR framework in 2025. The minimum capital amounts and ratios are defined in the regulations and the amounts are set forth in the table below (dollars in thousands). The Bank has maintained capital levels far above the minimum requirements throughout the year, and as of December 31, 2024 and 2023, the Bank meets all capital adequacy requirements to which they are subject. Actual Minimum Capital Requirement Minimum to be Well Capitalized Under Prompt Corrective Action Provisions December 31, 2024 Amount Ratio Amount Ratio Amount Ratio Total risk-based ratio $ 120,892 13.39% $ 72,223 8.00% $ 90,279 10.00% Tier 1 risk-based ratio 112,114 12.42% 54,168 6.00% 72,223 8.00% Common equity tier 1 112,114 12.42% 40,626 4.50% 58,682 6.50% Tier 1 leverage ratio 112,114 8.23% 54,472 4.00% 68,090 5.00% Actual Minimum Capital Requirement Minimum to be Well Capitalized Under Prompt Corrective Action Provisions December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Total risk-based ratio $ 116,787 12.58% $ 74,292 8.00% $ 92,865 10.00% Tier 1 risk-based ratio 108,466 11.68% 55,719 6.00% 74,292 8.00% Common equity tier 1 108,466 11.68% 41,789 4.50% 60,362 6.50% Tier 1 leverage ratio 108,466 8.13% 53,392 4.00% 66,740 5.00% NOTE 16 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. 62 Table of Contents 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: Available for Sale Securities (“AFS Securities”) - AFS Securities are recorded at fair value on a recurring basis. The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio. No material differences were identified during the valuation for the years ended December 31, 2024 and 2023. The carrying value of restricted FRB and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table. Loans Held for Sale - Residential loans originated for sale in the open market are carried at fair value. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within mortgage banking income on the Consolidated Statements of Income. Derivative assets – IRLCs - The Company recognizes 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. The Company’s IRLCs are classified as Level 2. Derivative Asset/Liability – Forward Sale Commitments - The Company uses the 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 counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale. The Company’s forward sale commitments are classified Level 2. The following tables present the balances of financial assets measured at fair value on a recurring basis as of December 31, 2024, and 2023 (dollars in thousands): December 31, 2024 Total Level 1 Level 2 Level 3 Assets: Loans held for sale $ 2,283 $ - $ 2,283 $ - U. S. Treasury securities 18,614 - 18,614 - U.S. Government agencies 67,725 - 67,725 - Municipal securities 38,207 - 38,207 - Mortgage-backed securities 174,949 - 174,949 - Corporate debt securities 28,175 - 28,175 - IRLC 18 - 18 - Forward sales commitments 41 - 41 - Assets at Fair Value $ 330,012 $ - $ 330,012 $ - December 31, 2023 Total Level 1 Level 2 Level 3 Assets: Loans held for sale $ 1,119 $ - $ 1,119 $ - U. S. Treasury securities 32,881 - 32,881 - U.S. Government agencies 124,703 - 124,703 - Municipal securities 38,761 - 38,761 - Mortgage-backed securities 145,073 - 145,073 - Corporate debt securities 27,256 - 27,256 - IRLC 81 - 81 - Assets at Fair Value $ 369,874 $ - $ 369,874 $ - Liabilities: Forward sales commitments $ 22 $ - $ 22 $ - Liabilities at Fair Value $ 22 $ - $ 22 $ - 63 Table of Contents 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: Collateral Dependent Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. 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 two 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 had OREO with a carrying value of $77 thousand and $55 thousand at December 31, 2024 and 2023. The Company markets OREO 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 presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2024 and 2023 (dollars in thousands). Fair values for December 31, 2024 and 2023 are estimated under the exit price notion in accordance with the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands): Fair Value Measurements Using: Collateral dependent loans with an ACL Balance at December 31, 2024 Level 1 Level 2 Level 3 Owner-occupied commercial real estate 1,208 - - 1,208 Total collateral dependent loans with an ACL $ 1,208 $ - $ - $ 1,208 OREO $ 77 $ - $ - $ 77 Fair Value Measurements Using: Collateral dependent loans with an ACL Balance at December 31, 2023 Level 1 Level 2 Level 3 1-4 family residential construction $ 77 $ - $ - $ 77 Owner-occupied commercial real estate 2,737 - - 2,737 Commercial and industrial 246 - - 246 Total collateral dependent loans with an ACL $ 3,060 $ - $ - $ 3,060 OREO $ 55 $ - $ - $ 55 64 Table of Contents The following table presents information about Level 3 Fair Value Measurements for December 31, 2024 and 2023: Fair Value at December 31, 2024 Valuation Technique Significant Unobservable Inputs Discount Collateral Dependent Loans $ 1,208 thousand Discounted appraised value Discount for selling costs and marketability 34.26% OREO $ 77 thousand Discounted appraised value Discount for selling costs and marketability 33.26% Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs Discount / Range Collateral Dependent Loans $ 3,060 thousand Discounted appraised value Discount for selling costs and marketability 31% - 71% (Average 44%) OREO $ 55 thousand Discounted appraised value Discount for selling costs and marketability 29% 2024 Fair Value Measurements using Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value Carrying Value Level 1 Level 2 Level 3 Balance Assets: Cash and cash equivalents $ 56,961 $ 56,961 $ - $ - $ 56,961 Securities 327,670 - 327,670 - 327,670 Loans held for sale 2,283 - 2,283 - 2,283 Loans held for investment, net 831,820 - - 808,812 808,812 Interest receivable 4,939 - 4,939 - 4,939 Bank owned life insurance 23,607 - 23,607 - 23,607 IRLC 18 - 18 - 18 Forward sales commitments 41 - 41 - 41 Liabilities: Deposits $ 1,195,105 $ - $ 1,194,717 $ - $ 1,194,717 Long-term debt 6,975 - - 6,917 6,917 Interest payable 1,900 - 1,900 - 1,900 2023 Fair Value Measurements using Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value Carrying Value Level 1 Level 2 Level 3 Balance Assets: Cash and cash equivalents $ 23,717 $ 23,717 $ - $ - $ 23,717 Securities 368,674 - 368,674 - 368,674 Loans held for sale 1,119 - 1,119 - 1,119 Loans held for investment, net 813,771 - - 785,119 785,119 Interest receivable 5,034 - 5,034 - 5,034 Bank owned life insurance 22,878 - 22,878 - 22,878 IRLC 81 - 81 - 81 Liabilities: Deposits $ 1,133,236 $ - $ 1,131,747 $ - $ 1,131,747 Short-term debt 60,000 - - 60,000 60,000 Long-term debt 6,932 - - 6,761 6,761 Interest payable 1,592 - 1,592 - 1,592 Forward sales commitments 22 - 22 - 22 65 Table of Contents NOTE 17 EMPLOYEE BENEFITS Defined Benefit Pension Plan - The Company has a qualified noncontributory defined benefit pension plan which covers substantially all employees hired before April 1, 2012. The plan was amended on February 15, 2023 to stop the accrual of future benefits and terminated on June 1, 2024. All vested benefit liabilities under the Plan will be paid following receipt of Internal Revenue Service approval and the expiration of time required for the Pension Benefit Guaranty Corporation to object. The Company uses December 31 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 2024 and 2023 (dollars in thousands): 2024 2023 Change in Benefit Obligation Benefit obligation, beginning $ 7,070 $ 8,011 Service cost - - Interest cost 317 370 Actuarial (gain)loss (264) 56 Benefits paid (3,467) (1,194) Decrease in Obligation due to Curtailment - - Settlement (gain) (279) (173) Benefit obligation, ending $ 3,377 $ 7,070 Change in Plan Assets Fair value of plan assets, beginning $ 7,502 $ 7,787 Actual return on plan assets 58 909 Benefits paid (3,467) (1,194) Fair value of plan assets, ending $ 4,093 $ 7,502 Funded status at the end of the year $ 716 $ 432 66 Table of Contents The fair value of plan assets is measured based on the fair value hierarchy as discussed in Note 15, “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. 2024 2023 Amount recognized in the Consolidated Balance Sheet Prepaid benefit cost $ 156 $ (526) Overfunded pension benefit obligation under ASC 325-960 560 959 Deferred taxes 84 (85) Amount recognized in accumulated other comprehensive loss Net (gain) $ (560) $ (958) Prior service cost - - Amount recognized (560) (958) Deferred taxes 118 201 Amount recognized in accumulated comprehensive (loss) $ (442) $ (757) Accrued benefit detail Benefit obligation $ (3,377) $ (7,070) Fair value of assets 4,093 7,502 Unrecognized net actuarial (income) (560) (958) Accrued benefits $ 156 $ (526) Components of net periodic benefit cost Service cost $ - $ - Interest cost 317 370 Expected return on plan assets (391) (520) Recognized net gain due to settlement (589) (104) Recognized net actuarial (gain)loss (19) - Net periodic benefit cost $ (682) $ (254) Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss Net loss(gain) $ 399 $ (403) Amortization of prior service cost - - Total recognized in other comprehensive income $ 399 $ (403) Total recognized in net periodic benefit cost and other Comprehensive (loss) income $ (283) $ (657) Additional disclosure information Accumulated benefit obligation $ 3,377 $ 7,070 Vested benefit obligation $ 3,377 $ 7,070 Discount rate used for net pension cost 4.75% 5.00% Discount rate used for disclosure First Five Years 4.17% 4.75% Five Years to Twenty Years 4.76% 4.75% After Twenty Years 5.25% 4.75% Retiree Annuities 4.50% 4.75% Expected return on plan assets 5.50% 7.25% Rate of compensation increase N/A N/A Average remaining service (years) N/A N/A 67 Table of Contents Funding Policy - Due to the current funding status of the plan, the Company did not contribute to the plan in 2024 or 2023. The net periodic pension cost of the plan for 2025 will be approximately $156 thousand. The Company was subject to settlement accounting in 2024 and may be subject to settlement accounting in 2025. As of February 15, 2023, the Virginia Bankers Association Defined Benefit Plan for Farmers & Merchants Bank was amended to stop the accrual of future benefits. 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. Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Asset Allocation - The trust fund is 100% cash and equivalents as of December 31, 2024 as the plan has terminated and all benefits will be paid out in 2025. The pension plan’s weighted-average asset allocations for December 31, 2023, was 40% fixed income and 60% equity. Estimated Future Benefit Payments, which reflect expected future service, as appropriate, as of December 31, 2024, are as follows (dollars in thousands): 2025 $ 4,093 2026 - 2027 - 2028 - 2029 - 2030-2034 - $ - Employee Stock Ownership Plan (ESOP) - The Company sponsors an ESOP, known as the F&M Bank Corp. Stock Bonus Plan (the “Plan”), 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 $257 thousand in 2024 and $246 thousand in 2023 to the Plan and charged this expense to operations. The shares held by the ESOP totaled 168,459 and 170,905 at December 31, 2024 and 2023, 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 $437 thousand and $478 thousand in 2024 and 2023, respectively. Deferred Compensation Plan - The Company has a nonqualified deferred compensation plan for 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 $227 thousand in 2024 and $182 thousand in 2023. A liability is accrued for the obligation under the plan and totaled $3.6 million at December 31, 2024 and 2023. Investments in Life Insurance Contracts - The Bank currently offers a variety of benefit plans to all full-time employees. The costs of these plans are generally tax deductible to the Bank; however, to help offset the 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 favorable when compared to other long-term investments which the Bank might make. The accrued liability related to the BOLI contracts was $735 thousand and $706 thousand for December 31, 2024 and 2023, respectively. Stock Incentive Plan - The Company has a Stock Incentive Plan 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 Compensation Committee of the Board of Directors administers the plan including designating employees, directors, or other recipients to whom awards are to be granted, the amount of the award or equity to be granted, and the terms and conditions applicable to each award. On March 7, 2024, the Company’s Compensation Committee awarded 33,568 shares with a fair value of $597 thousand from this plan to selected employees. These shares vest 25% over each of the next four years. As of December 31, 2024 and 2023 the total unrecognized compensation cost related to the nonvested restricted stock awards were $740 thousand and $573 thousand, respectively. The following table summarizes the status of the Company’s nonvested awards for the year ended December 31, 2024: Shares Weighted- Average Grant Date Fair Value Per Share Nonvested at December 31, 2023 32,957 $ 25.25 Granted 33,568 17.78 Vested (8,347) 25.76 Forfeited (9,122) 24.04 Nonvested at December 31, 2024 49,056 20.27 68 Table of Contents NOTE 18 INCOME TAX EXPENSE (BENEFIT) The components of income tax expense were as follows (dollars in thousands): 2024 2023 Current expense (benefit) $ 931 $ (946) Deferred (benefit) expense (293) 200 Total Income Tax Expense (Benefit) $ 638 $ (746) The components of deferred taxes as of December 31, were as follows (dollars in thousands): Deferred Tax Assets: 2024 2023 Allowance for credit losses $ 1,707 $ 1,747 Allowance for unfunded commitments 136 146 Split Dollar Life Insurance 3 3 Nonqualified deferred compensation 768 804 Low-income housing partnerships losses 477 444 Core deposit amortization 30 30 Lease Liability 124 148 Prepaid pension 42 44 Unvested restricted stock 78 61 Net unrealized loss on securities available for sale 7,393 8,446 Investment in limited liability companies 49 - Other 82 - Total Assets $ 10,889 $ 11,873 Deferred Tax Liabilities: 2024 2023 Unearned low-income housing credits $ 4 $ 15 Depreciation 592 738 Investment in limited liability companies - 47 Unfunded pension benefit obligation 117 201 Goodwill tax amortization 594 589 Right of Use Asset 117 142 Total Liabilities 1,424 1,732 Net Deferred Tax Asset $ 9,465 $ 10,141 The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rates (dollars in thousands): 2024 2023 Tax expense at federal statutory rates $ 1,664 $ 425 Increases (decreases) in taxes resulting from: Tax-exempt income (191) (288) LIH and historic credits (775) (853) Other (60) (30) Total Income Tax Expense (Benefit) $ 638 $ (746) 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 2021. NOTE 19 REVENUE RECOGNITION The majority of the Company’s noninterest income is generated from short-term contracts for fees on deposit accounts, ATM and check cards, and annuity and insurance commissions that is accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers. Service charges on deposit accounts consist of account maintenance charges and overdrawn account fees. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or by month-end. Wealth management income consists primarily of commissions received on mutual funds and other investment sales that are recognized on the trade date, which is when the Company has satisfied its performance obligation. Title insurance and real estate settlement services revenue is recognized at the time the real estate transaction is completed. ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. The Company’s performance obligation is generally satisfied, and the related revenue recognized, immediately, when the transaction occurs, or by month-end. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly. 69 Table of Contents Noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for December 31, 2024 and 2023 consisted of the following (dollars in thousands). Twelve Months Ended December 31, 2024 2023 Noninterest income Service charges on deposits accounts $ 1,193 $ 1,029 Wealth management income 2,181 1,722 Title insurance income 1,489 1,334 ATM and check card fees 3,101 3,021 Other 269 408 Within scope of ASC 606 8,233 7,514 Not within scope of ASC 606 2,533 2,603 Total noninterest income $ 10,766 $ 10,117 NOTE 20 RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company may have loans issued to its executive officers, directors, and principal shareholders. Pursuant to its policy, such loans are made in the ordinary course of business and do not involve more than the normal risk of collectability. The Company’s subsidiary bank has made loans, in the normal course of business, to the directors and officers of the Company and its subsidiaries, and to their associates. The aggregate dollar amount of these loans was $20.6 million and $22.2 million at December 31, 2024 and 2023, respectively. During 2024, $3.8 million advances or new loans were made and repayments totaled $4.0 million. There was a net decrease of $1.4 million due to changes in individuals classified as a related party. Deposits from related parties held by the Bank at December 31, 2024 and 2023 amounted to $8.4 million and $11.8 million respectively. NOTE 21 PARENT COMPANY FINANCIAL INFORMATION The primary source of funds for the dividends paid by F&M Bank Corp. (for this note only, the “Parent Company”) is dividends received from its subsidiaries. The payments of dividends by the Bank to the Parent Company are subject to certain statutory limitations which contemplate that the current year earnings and earnings retained for the two preceding years may be paid to the Parent Company without regulatory approval. As of December 31, 2024, the aggregate amount of unrestricted funds that could be transferred from the Bank to the Parent Company without prior regulatory approval totaled approximately $9.6 million or 11.13% of the consolidated shareholders’ equity. The Bank paid $3.7 million in dividends to the Parent Company in 2024. 70 Table of Contents Financial information for the Parent Company is as follows: PARENT COMPANY CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Assets Cash and cash equivalents $ 3,043 $ 1,781 Investment in subsidiaries 88,074 81,943 Other assets 2,174 1,763 Total assets $ 93,291 $ 85,487 Liabilities and Stockholders’ Equity Long-term borrowings 6,975 6,932 Other liabilities 178 232 Total liabilities 7,153 7,164 Total shareholders' equity 86,138 78,323 Total liabilities and shareholders' equity $ 93,291 $ 85,487 71 Table of Contents PARENT COMPANY CONDENSED STATEMENTS OF INCOME YEARS ENDED December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Income Dividends received from subsidiaries $ 5,151 $ - Other operating income 98 45 Total income 5,249 45 Expenses Interest expense 462 459 Other operating expenses 42 15 Total expenses 504 474 Net income (loss) before income taxes and equity in undistributed net income from subsidiaries 4,745 (429) Income tax benefit (49) (143) Equity in undistributed net income from subsidiaries 2,491 3,057 Net Income $ 7,285 $ 2,771 72 Table of Contents PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Operating activities: Net income $ 7,285 $ 2,771 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed net income of subsidiaries (2,491) (3,057) Amortization of debt issuance costs 43 42 (Increase) decrease in other assets (261) (900) (Decrease) increase in other liabilities (54) (540) Share based compensation expense 226 259 Net cash provided by (used in) operating activities 4,748 (1,425) Investing activities: Purchase limited liability interest (150) (250) Net cash used in investing activities (150) (250) Financing activities: Proceeds from the sale of common stock 194 292 Proceeds from issuance of common stock 120 29 Dividends paid in cash (3,650) (3,612) Net cash used in financing activities (3,336) (3,291) Increase (decrease) in cash and cash equivalents 1,262 (4,966) Cash and cash equivalents, beginning of the year 1,781 6,747 Cash and cash equivalents, end of the year $ 3,043 $ 1,781 73 Table of Contents 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's management evaluated, with the participation of the Company's principal executive officer and principal financial officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of December 31, 2024 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected. This annual report does not include an attestation report of the Company’s registered public accounting firm, Yount, Hyde & Barbour, P.C., regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report. Internal Control Over Financial Reporting Management's Report on Internal Control Over Financial Reporting To the F&M Bank Corp.: Management is responsible for the preparation and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management's judgments 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 consolidated financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. 74 Table of Contents 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, 2024. 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 believes the Company maintained effective internal control over financial reporting as of December 31, 2024. This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in its annual report. The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company's accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent registered public accounting firm and approves decisions regarding the appointment or removal of the Company's internal auditors. It meets periodically with management, the independent registered public accounting firm and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent registered public accounting firm and the internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 75 Table of Contents 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 2025 Annual Meeting of Shareholders to be held on May 17, 2025 (“Proxy Statement”), under the captions “Corporate Governance and the Board of Directors – Committees of the Board – Audit Committee” and “Executive Officers who are not Directors.” 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 “Delinquent Section 16(a) Reports.” 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. The Company has adopted an insider trading and reporting policy governing the purchase, sale, and other dispositions of our securities by our directors, officers, and employees. The Company does not transact in its own securities if it is aware of material nonpublic information about the Company. The Company believes that these policies are reasonably designed to promote compliance with insider trading laws, rules, regulations, and listing standards applicable to the Company. A copy of our insider trading and reporting policy is filed as Exhibit 19.1 to this report. 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 Shareholder Matters. This information is incorporated by reference from the Proxy Statement under the captions “Security Ownership of Directors and Executive Officers,” “Security Ownership of Certain Beneficial Owners” and “Executive Compensation.” Item 13. Certain Relationships and Related Transactions, and Director Independence. This information is incorporated by reference from the Proxy Statement under the caption “Certain Relationships and Related Transactions” and “Corporate Governance and the Board of Directors – Independence of Directors.” Item 14. Principal Accountant Fees and Services. This information is incorporated by reference from the Proxy Statement under the caption “Fees of Independent Registered Public Accounting Firm.” 76 Table of Contents 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 34 through 42: Report of Independent Registered Public Accounting Firm (PCAOB ID 613) 30 Consolidated Balance Sheets - December 31, 2024 and 2023 32 Consolidated Statements of Income - Years ended December 31, 2024 and 2023 33 Consolidated Statements of Comprehensive Income - Years ended December 31, 2024 and 2023 34 Consolidated Statements of Changes in Shareholders’ Equity – Years ended December 31, 2024 and 2023 35 Consolidated Statements of Cash Flows - Years ended December 31, 2024 and 2023 36 Notes to the Consolidated Financial Statements 37 (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. 77 Table of Contents (a)(3) Exhibits The following exhibits are filed as a part of this Form 10-K: Exhibit No. 3.1 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. 3.2 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. 3.3 Amended and Restated Bylaws of F & M Bank Corp., incorporated herein by reference from Exhibit 3.1 to F&M Bank Corp.’s Current Report on Form 8-K, filed January 28, 2025. 4.1 Description of Securities, incorporated herein by reference from Exhibit 4.1 to F&M Bank Corp’s Annual Report on Form 10-K, filed March 16, 2020. 4.3 Form of 2030 Subordinated Note, incorporated herein by reference from Exhibit 4.2 to F&M Bank Corp.’s Current Report on Form 8-K filed July 31, 2020. 10.1+ 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. 10.2+ 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. 10.3+ Employment Agreement, dated December 30, 2020, by and between F&M Bank Corp. and Barton E. Black, incorporated herein by reference from Exhibit 10.1 to F&M Bank Corp.’s Current Report on Form 8-K, filed January 6, 2021. 10.4+ 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. 10.5+ Form of Restricted Stock Award Agreement, incorporated herein by reference from Exhibit 10.7 from F&M Bank Corp.’s Form 10-K, filed March 22, 2023. 10.6 Form of Subordinated Note Purchase Agreement, incorporated herein by reference to Exhibit 10.1 to F&M Bank Corp.’s Current Report on Form 8-K filed July 31, 2020. 10.7+ Employment Agreement, dated January 4, 2021, by and between F&M Bank Corp. and Aubrey Michael Wilkerson, incorporated herein by reference from Exhibit 10.10 from F&M Bank Corp.’s Annual Report on Form 10-K, filed March 22, 2023. 10.8+ Employment Agreement, dated October 18, 2022, by and between F&M Bank Corp. and Lisa F. Campbell, incorporated herein by reference from Exhibit 10.1 to F&M Bank Corp.’s Current Report on Form 8-K filed October 24, 2022. 10.9+ F&M Bank Corp. 2023 Directors Stock Incentive Plan, incorporated herein by reference to Exhibit 4.1 to F&M Bank Corp.’s Registration Statement on Form S-8 (No. 333-279300), filed May 10, 2024. 16.1 Letter of Yount, Hyde & Barbour, P.C., dated January 28, 2025 incorporated herein by reference to Exhibit 16.1 to F&M Bank Corp.’s Current Report on Form 8-K, filed January 28, 2025. 19.1 F&M Bank Corp. Insider Trading and Reporting Policy 21.1 Subsidiaries of the Registrant 23.1 Consent of Yount, Hyde & Barbour, P.C. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 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-Oxley Act of 2002. 101 The following materials from F&M Bank Corp.’s Annual Report on Form 10-K for the year ended December 31, 2024, 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 Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (furnished herewith). 104 The cover page from F&M Bank Corp.’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in Inline XBRL (included with Exhibit 101) + Indicates management contract or compensatory plan Item 16. Form 10-K Summary. Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information. 78 Table of Contents SIGNATURES 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. F & M Bank Corp. (Registrant) By: /s/ Aubrey M. Wilkerson March 28, 2025 Aubrey M. Wilkerson Date Director and Chief Executive Officer (Principal Executive Officer) 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 Title Date /s/ Aubrey M. Wilkerson Director and Chief Executive Officer March 28, 2025 Aubrey M. Wilkerson (Principal Executive Officer) /s/ Lisa F. Campbell Executive Vice President and March 28, 2025 Lisa F. Campbell Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Michael W. Pugh Director, Chair March 28, 2025 Michael W. Pugh /s/ E. Ray Burkholder Director March 28, 2025 E. Ray Burkholder /s/ Neil Houff Director March 28, 2025 Neil Houff /s/ Hannah Hutman Director March 28, 2025 Hannah Hutman /s/ Anne Keeler Director March 28, 2025 Anne Keeler /s/ Christopher S. Runion Director March 28, 2025 Christopher S. Runion /s/ Daphyne Thomas Director March 28, 2025 Daphyne Thomas /s/ John Willingham Director March 28, 2025 John Willingham /s/ Dean W. Withers Director March 28, 2025 Dean W. Withers /s/ Peter H. Wray Director March 28, 2025 Peter H. Wray 79 EXHIBIT 19.1 F&M BANK CORP. INSIDER TRADING AND REPORTING POLICY Control Objectives The Board of Directors of F&M Bank Corp. (the “Company”) has adopted this Insider Trading and Reporting Policy to (i) provide a general overview of the laws and regulations relating to insider trading and reporting and (ii) establish and set forth the policies that must be observed in connection with the use and handling of material non-public information and trading in the Company’s securities. The Company has designated Lisa F. Campbell, EVP- Chief Financial Officer as the SEC Compliance Officer and contact person for questions or issues relating to this Policy. You may also contact Candy Barkley, Executive Secretary, or Krista Suter, SVP - Director of Finance, with any questions with respect to this Policy. * * * * * What is “insider trading”? You will be involved in insider trading if you buy or sell the Company’s securities at a time when you have or know of material information about the Company that is not public information. Insider trading is illegal under federal securities laws and under many state securities laws. Insider trading laws prevent you from unfairly profiting from your knowledge and access to information about the Company that the public does not have. What are the insider trading rules? The rules that govern insider trading and reporting include the following: · Rule 10b-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is the fundamental insider trading regulation and generally prohibits fraud and other forms of deception in the purchase and sale of securities, which courts have interpreted to include “insider trading” · Rule 14e-3 under the Exchange Act, which specifically prohibits trading upon inside information relating to a tender offer · the Insider Trading Sanctions Act and the Insider Trading and Securities Fraud Enforcement Act, which provides for civil and criminal penalties for insider trading violations to both the individual and his employer, including possible jail terms and the imposition of monetary penalties · Section 16 of the Exchange Act, and the regulations under that section, which require reporting of transactions and prohibit “short swing profits” and “short sales” by executive officers and directors of a public company 1 To whom do the insider trading rules apply? The insider trading rules apply to individuals who have a fiduciary relationship with the Company and its shareholders. Specifically, the Company’s executive officers, directors and other senior management are within the reach of the insider trading rules. Many employees who are not part of this senior management structure may also be considered insiders, at least with respect to non-public information that they occasionally receive in performing their particular employment duties. In addition, lawyers, accountants and underwriters who perform services for the Company may be, under some circumstances, “temporary insiders” due to the confidential disclosure of material non-public information to them in the course of their engagement by the Company. The reporting requirements and short-swing trading liability under Section 16 of the Exchange Act, as described in more detail below, apply only to executive officers and directors of the Company and to owners of 10% or more of the Company’s common stock. Do the insider trading rules also apply to any other outsiders? Yes. In particular, your family and close friends are within the reach of the insider trading rules. Generally, the insider trading prohibition reaches “tippees” – individuals who trade upon material non-public information that they received from you through tips. “Tippees” will be involved in insider trading if: · you disclosed material non-public information because you sought to benefit personally, directly or indirectly, by disclosing the non-public information to the tippee – e.g., the desire to play an influential role with the tippee, to foster a good relationship with the tippee or to enhance your reputation; and · the tippee knew or should have known that the disclosure was improper and that you would benefit from the disclosure. What exactly is “material” information? Information is “material” if there is a substantial likelihood that an investor would consider the information important in his or her decision to buy, sell or hold the Company’s securities. Examples of material information are important corporate events and occurrences, including the following: · the release of a substantially good or bad earnings report · an imminent tender offer for or merger of the Company · news of a pending significant acquisition or divestiture by the Company · the declaration of a stock split or a significant change in dividend policy · the filing or conclusion of an important piece of litigation What are the possible penalties associated with insider trading? The possible penalties associated with insider trading include the following: · prison sentences for criminal violations · fines for individuals and corporations for criminal violations · lawsuits from investors who contemporaneously buy (or sell) shares of the Company’s common stock when you sell (or buy) shares with material non-public information · civil penalties from the Securities and Exchange Commission (the “SEC”) against your employer, and possibly its officers, directors, supervisors and other management personnel 2 What are the Section 16 reporting requirements? Executive officers and directors of the Company and owners of 10% or more of the Company’s common stock must file reports with the SEC concerning their beneficial ownership of common stock and changes in their ownership. While these “reporting persons” must also technically provide the Company with copies of all reports that they file, the Company may assist them with their Section 16 filing requirements. The three Section 16 forms are the following: · Initial Statement of Beneficial Ownership of Securities on Form 3, which must be filed within ten days after the date on which the reporting person becomes subject to Section 16 · Statement of Changes of Beneficial Ownership of Securities on Form 4, which must be filed within two business days following the day on which there has been a transaction that results in a change in beneficial ownership of the Company’s common stock and that is not reportable on a deferred basis · Annual Statement of Beneficial Ownership of Securities on Form 5, which must be filed within 45 days after the end of the Company’s fiscal year to report any transactions that were not previously reported on a Form 4, because of either the ability to file a report on a deferred basis or the failure to file a required report Transactions that may be reported on a deferred basis on a Form 5 include inheritances and small acquisitions that total no more than $10,000 in value. Certain types of transactions, such as stock splits and transactions by an executor of an estate in the first 12 months following appointment, are exempt from the Section 16 requirements. As a general rule, however, a reporting person should assume that any transaction in the Company’s common stock must be reported to the SEC – even if the transaction is involuntary on the part of the reporting person or, when combined with another transaction, results in no net change in ownership. What is beneficial ownership for Section 16 purposes? For Section 16 purposes, a reporting person is presumed to be the beneficial owner of all securities in which the reporting person has a “pecuniary interest” – that is, the opportunity to profit or share in any profit, either directly or indirectly. This concept includes securities held by a spouse, child, grandchild, parent, grandparent, sibling and other relative sharing the same household, including step-in-law and adoptive relationships and children living away from home while attending college (and economically dependent on the reporting person). A reporting person may also be deemed to be the beneficial owner of stock held by a trust, corporation, partnership or other entity over which he or she has a controlling influence. Special rules exist for trusts in which the reporting person acts as trustee and a member of his or her family has a pecuniary interest in the securities held by the trust. In certain cases, stock held in these trusts will be considered to be beneficially owned by the reporting person. What happens if any of these Section 16 forms are filed late? The Company must disclose in its Annual Report on Form 10-K and the proxy statement for the annual meeting of shareholders any delinquent stock ownership filings, and by whom, made during the preceding fiscal year. Also, the SEC can impose fines for late filings. You should notify the Company’s SEC Compliance Officer as soon as possible of any trades that you, either directly or indirectly through your family or affiliated entities, plan to make in the Company’s common stock so that the officer can assist you with reporting requirements under the federal securities laws. 3 What is “short-swing trading liability”? Section 16(b) of the Exchange Act requires a reporting person to pay to the Company the “short-swing profit” realized in either a matched purchase and sale, or a matched sale and purchase (or any number of these transactions), that take place within a period of less than six months. The possession of inside information is not a precondition to the recovery of these profits by the Company, and good faith is not a defense. In determining whether there has been a purchase and sale within the meaning of Section 16(b), it is not necessary to establish that the same shares were purchased and sold, or sold and purchased, within the six-month period. It is necessary to establish only that the Company’s common stock (or options, warrants or similar rights to buy or sell the Company’s common stock) was either purchased and sold, or sold and purchased, within a six-month period. To compute the statutory short-swing profit, the highest sale price and the lowest purchase price during the six-month period are matched, regardless of whether the sale and the purchase involved the same shares. For a series of transactions, the difference between the highest sale price and the lowest purchase price during the period is computed (regardless of the order in which they occur), then the difference between the next highest sale price and the next lowest purchase price is computed, and so forth. These differences are then totaled to determine the “profit realized” in a series of transactions. As with Section 16(a), the director or officer is considered the beneficial owner of stock held by certain family members for short-swing profit purposes. The recovery for short-swing profits belongs to the Company and cannot be waived by it. There are lawyers who review Section 16 filings for violations of Section 16(b) solely with the intention of making a demand, on behalf of a shareholder, that the reporting person give up these profits. If the Company fails or refuses to collect or sue a reporting person for short-swing profits, the shareholder may bring suit in the Company’s name for recovery. There is ample legal support for the reimbursement of the attorney’s fees in these cases, even if only a demand was made, based upon the amount recovered. Any unpaid Section 16(b) liability must be shown as an indebtedness of the reporting person to the Company in the Company’s proxy statement. * * * * * What are the most important rules with respect to material non-public information and trading in the Company’s securities? · DO NOT TRADE IN THE COMPANY’S SECURITIES WHILE YOU HAVE OR KNOW OF MATERIAL NON-PUBLIC INFORMATION ABOUT THE COMPANY. · DO NOT DISCLOSE TO ANYONE ANY MATERIAL INFORMATION THAT HAS NOT BEEN PUBLICLY DISCLOSED. · NOTIFY THE COMPANY’S SEC COMPLIANCE OFFICER IMMEDIATELY IF YOU LEARN THAT MATERIAL NON-PUBLIC INFORMATION HAS BEEN COMMUNICATED TO AN UNAUTHORIZED PERSON. · NOTIFY THE COMPANY’S SEC COMPLIANCE OFFICER AS SOON AS POSSIBLE OF ANY TRADES THAT YOU, EITHER DIRECTLY OR INDIRECTLY THROUGH YOUR FAMILY OR AFFILIATED ENTITIES, PLAN TO MAKE IN THE COMPANY’S SECURITIES SO THAT THE OFFICER CAN ASSIST YOU WITH REPORTING REQUIREMENTS UNDER THE FEDERAL SECURITIES LAWS. 4 Finally, and most importantly, when can I trade in the Company’s securities? As mentioned above, you may not buy or sell the Company’s securities if you possess material non-public information. Moreover, you may not buy or sell shares of the Company’s common stock immediately following the Company’s disclosure of such information. You must allow for a sufficient period of time for the public to absorb the information. The bottom line is that you should not trade until the third business day after the Company publicly announces the material information. Insiders also cannot buy or sell the Company’s securities during “Black Out Periods”. “Black Out Periods” begin at least 2 days before the end of a quarter (March 31, June 30, September 31, and December 31) until the third business day after FMBM’s quarterly financial results are publicly announced. FMBM can also designate a “Black Out Period” in certain unique unscheduled situations due to material events, pending events, or information that is not known to the public until the event has been resolved and/or made public. 5 EXHIBIT 21.1 List of Subsidiaries of the Registrant Farmers & Merchants Bank (incorporated in Virginia) VSTitle, LLC (a Virginia Limited Liability Company) VBS Mortgage, LLC, DBA F&M Mortgage (a Virginia Limited Liability Company), a subsidiary of Farmers & Merchants Bank EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in Registration Statements No. 333-160715 on Form S-3 and No. 333-279300, No. 333-244322 and No. 333- 159074 on Form S-8 of F&M Bank Corp. and Subsidiaries of our report dated March 28, 2025, 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, 2024. /s/ Yount, Hyde & Barbour, P.C. Roanoke, Virginia March 28, 2025 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 USC Section 1350 (A) and (B)) I, Aubrey M. Wilkerson, certify that: 1. I have reviewed this 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f), 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 (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 28, 2025 /s/ Aubrey M. Wilkerson Aubrey M. Wilkerson Chief Executive Officer A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request. 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, Lisa F. Campbell, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f), 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 (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 28, 2025 /s/ Lisa F. Campbell Lisa F. Campbell Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request. 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, 2024 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/ Aubrey M. Wilkerson Aubrey M. Wilkerson Chief Executive Officer /s/ Lisa F. Campbell Lisa F. Campbell Executive Vice President & Chief Financial Officer March 28, 2025