F&M BANK CORP
For the period ended Jun 30, 2024. Filed Aug 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 14, 2024
FMBMStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001654954-24-006311
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001654954-24-010593
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 67 previous paragraphs and 92 current paragraphs.
38 unchanged; 24 reworded; 28 added; 5 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 6 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (28)
Current report
All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
Current report
Second Quarter Income Statement Discussion
Current report
Net income increased by $2.8 million or $0.79 per share from the $241,000 or $0.07 per share reported for second quarter 2023. The improved results reflect an increase of $422,000 in net interest income, a decrease of $997,000 in the provision for credit losses, an increase of $79,000 in noninterest income and a reduction of $2.2 million in noninterest expenses. Results for second quarter 2023 included a pre-tax severance accrual of $773,000 which lowered net income by $611,000.
Current report
For second quarter 2024, net interest income totaled $8.2 million, an increase of $70,000 from first quarter 2024, as a $143,000 increase in interest income outpaced a $73,000 increase in interest expense. Net interest margin for the quarter was 2.72%, up eight basis points on a linked quarter basis. Higher loan balances and repricing of adjustable-rate loans contributed to a $142,000 increase in loan interest income, which represented most of the increase in interest income and increased the earning asset yield by twelve basis points to 5.19%. Cost of funds increased by six basis points to 2.51%. Total interest expense increased by $73,000, a combination of a $614,000 increase in interest expense on deposits and a $542,000 decrease on interest expense on short-term debt. The increase in interest expense on deposits resulted from growth in time deposit balances and higher rates paid on new time deposits. This was partially offset by the decrease in interest expense on short-term debt as Federal Home Loan Bank advances declined from $60.0 million on March 31, 2024, to $20.0 million on June 30, 2024.
Current report
Compared to second quarter 2023, net interest margin increased by eight basis points as the earning asset mix shifted from cash and investments to loans. Loans as a percentage of earning assets increased to 68% in second quarter 2024 from 65% in second quarter 2023. Interest income increased $2.1 million, and the earning asset yield increased by 0.55% due to higher average balances and interest rates on loans, federal funds sold and interest-bearing cash balances. Interest expense grew by $1.7 million due to growth in both the average balances of and rates paid on time deposits causing the cost of funds to increase by 0.76%.
Current report
During second quarter 2024, the Bank recorded a $458,000 recovery of credit losses compared to an $823,000 provision for credit losses in first quarter 2024 and a $539,000 provision in second quarter 2023. The current quarter recovery was the result of the release of $608,000 in reserves related to the improvement in the collateral value on a $4.2 million individually evaluated loan relationship, net loan charge-offs of $180,000, slower loan growth and an improvement to the experience, depth and ability of the lending management qualitative factor used in the Bank’s Allowance for Credit Losses on Loans (“ACLL”) model. By comparison, net charge-offs were $807,000 in first quarter 2024 and $344,000 in second quarter 2023. Also, gross loans grew more during those periods, by $3.8 million in first quarter 2024 and $19.3 million in second quarter 2023. On June 30, 2024, the ACLL totaled $7.8 million or 0.95% of gross loans outstanding.
Current report
Noninterest income, which includes gains and losses, totaled $3.0 million for second quarter 2024, an increase of $644,000 from first quarter 2024. Several categories of noninterest income increased on a linked-quarter basis. Service charges on deposits increased by $18,000, investment services and insurance income increased by $48,000, mortgage banking income increased by $375,000, title insurance income increased by $124,000, and card services and interchange income increased by $75,000. The other categories of noninterest income combined to increase noninterest income by $5,000.
Current report
Noninterest expenses totaled $8.2 million for second quarter 2024, compared to $8.4 million in first quarter 2024, a decrease of $275,000. During second quarter 2024, the Bank recognized $577,000 in gains from lump sum pension distributions, which drove a decrease in employee benefits expense of $514,000. There were decreases of $69,000 in ATM and check card fees, and $12,000 in legal and professional fees. These decreases offset increases of $65,000 in salary expense, $27,000 in occupancy expenses, $33,000 in equipment expense, $21,000 in other real estate owned expenses, $19,000 in telecommunications and data processing expenses, $24,000 in directors’ fees and $126,000 in other operating expenses. There were other changes in noninterest expense categories that combined to increase total noninterest expenses by $5,000.
Current report
Compared to the same quarter in 2023, noninterest expenses declined $2.2 million. As a result of the early retirement program that was implemented in 2023, salary expense declined by $1.2 million. Employee benefits expense declined by $684,000 due to the combination of the early retirement program and gains received from pension lump sum distributions. There were decreases of $46,000 in equipment expense, $141,000 in marketing expense, $71,000 in legal and professional fees, $88,000 in ATM and check card fees, and $144,000 in other operating expenses. Offsetting these decreases were increases of $88,000 in occupancy expense, $89,000 in FDIC insurance expense, and $41,000 in bank franchise tax expense. The remaining categories combined to increase noninterest expenses by $8,000.
Current report
Year-to-Date Income Statement Discussion
Current report
Net income for the six months ended June 30, 2024 was $4.2 million or $1.21 per share, compared to $1.3 million or $0.37 per share for the same period in 2023, an increase of $2.9 million or $0.84 per share. Return on average assets was 0.65% and return on average equity was 10.96% for the first half of 2024. Both ratios are higher than those reported for the first six months of 2023. The improvement in net income is attributed primarily to lower noninterest expenses, which declined by $2.8 million to $16.6 million. Net interest income and noninterest income also improved by $709,000 and $231,000, respectively. The year-to-date provision for credit losses decreased from $539,000 in 2023 to $366,000 in 2024.
Current report
In the first half of 2024, net interest income totaled $16.3 million, an increase of $709,000 from 2023, as a $4.7 million increase in interest income outpaced a $4.0 million increase in interest expense. Net interest margin was 2.70%, up one basis point from the 2.69% reported for the first half of 2023. Higher loan balances and repricing of adjustable-rate loans contributed to a $4.5 million increase in loan interest income, which represented most of the increase in interest income and increased the earning asset yield by fifty-eight basis points to 5.15%. Cost of funds increased by fifty-eight basis points to 2.49%. Total interest expense increased by $4.0 million, due to growth in both the average balances of and rates paid on time deposits.
Current report
During the first six months of 2024, the Bank recorded a $366,000 provision for credit losses compared to a $539,000 provision for credit losses in the same period in 2023. The provision was the result of $987,000 in net charge-offs, which were partially offset by the release of $608,000 in reserves related to improvement in the collateral value of a $4.2 million individually evaluated loan relationship.
Current report
Noninterest income, which includes gains and losses, totaled $5.3 million for the first half of 2024, an increase of $231,000 from the first half of 2023. Several categories of noninterest income increased on a year-over-year basis. Service charges on deposit accounts increased by $66,000, investment services and insurance income increased by $345,000, mortgage banking income increased by $92,000, title insurance income increased by $136,000, and card services and interchange fees increased by $39,000. Income on bank owned life insurance declined by $434,000 due to the gains received in 2023. Other categories of noninterest income combined to decrease noninterest income by $13,000.
Current report
For the six months ended June 30, 2024 and June 30, 2023, there was income tax expense of $470,000 and an income tax benefit of $483,000, respectively. Our effective tax rate differs from the 21% federal statutory rate due to the impact of various permanent tax differences, including tax-exempt income from municipal securities, BOLI income, including gains, tax credits from low-income housing tax credit investments, and the vesting of other stock-based compensation.
Current report
Net Interest Income and Net Interest Margin
Current report
For the first six months of 2024, tax equivalent net interest income 1 totaled $16.4 million, an increase of $745,000 from the first six months of 2023. As a result, the net interest margin increased by 0.01% to 2.70% from 2.69%. Tax equivalent interest income and fees on loans were $4.5 million higher due to higher rates on variable rate loans and an increase of $69.3 million in the average balance of loans and loans held for sale. Tax equivalent interest income from interest bearing deposits with other banks, Federal funds sold, and securities was $228,000 higher due to higher interest rates and average balances in Federal funds sold and interest bearing deposits with other banks. The earning asset yield for the first half of 2024 was 5.15% compared to 4.57% for the same period of 2023.
Current report
Interest expense increased by $4.0 million in the first six months of 2024 to $15.0 million, mostly due to higher market interest rates and an increase of $126.6 million in the average balances of time deposits. The growth in time deposits also caused a shift in the deposit mix from noninterest bearing demand and lower cost deposits into time deposits. As a result, the cost of funds increased to 2.49% for the period compared to 1.91% in 2023.
Current report
During the second quarter 2024, tax equivalent net interest income 1 totaled $8.3 million, an increase of $440,000 from the second quarter 2023. The net interest margin was 2.72% and 2.65% for the three months ended June 30, 2024 and 2023, respectively. Tax equivalent interest income for the quarter was $15.8 million, up from $13.7 million for the same quarter last year. The increase is due mostly to an additional $2.0 million in tax equivalent interest and fee income on loans resulting from an increase of $63.4 million in average balances of loans and loans held for sale. Tax equivalent interest income from interest bearing deposits with other banks, Federal funds sold, and securities grew by $107,000 but the average balances declined by $23.2 million due to bond maturities and principal paydowns. The growth in the loan portfolio coupled with the decline in bonds resulted in a shift in the earning asset mix. For the second quarter 2024, average loans represented 68% of average earning assets compared to 65% in the second quarter 2023. Thanks to this shift and higher market interest rates, the earning asset yield for the current quarter was 5.19% compared to 4.64% for the prior year quarter.
Current report
Total interest expense for second quarter 2024 was $7.5 million, an increase of $1.7 million from second quarter 2023. Higher interest expense on time deposits was the driver of this increase. Interest expense on time deposits grew by $2.3 million while the expense on interest bearing demand and savings and money market accounts declined by $557,000. This is a result of higher rates paid on time deposits coupled with a shift in funding away from lower costing deposits to time deposits.
Current report
Comparing the two quarters, average balances on noninterest bearing and low costing deposits declined by a combined $90.4 million and the average balance of time deposits grew by $137.6 million. This resulted in an increase in the cost of funds to 2.51% in the second quarter 2024 from 1.75% in the same quarter 2023.
Current report
On June 30, 2024, assets totaled $1.31 billion, an increase of $15.0 million over December 31, 2023. Total loans increased by $4.2 million to $826.3 million, including increases of $8.3 million in residential mortgage loans, $10.3 million in other construction and land development loans, $8.1 million in commercial and industrial loans, $2.8 million in multifamily loans, and $1.0 million in loans to finance agriculture production. These increases were offset by decreases of $6.2 million in automobile loans, $6.0 million in residential construction loans, $1.4 million in other consumer loans, and $12.0 million in commercial real estate loans.
Current report
Investment securities decreased by $16.5 million due to paydowns on U.S. Agency mortgage-backed securities and expected bond maturities, combined with a decrease of $907,000 in unrealized loss on the bond portfolio. On June 30, 2024, the net unrealized loss was $39.3 million compared to $40.2 million on December 31, 2023.
Current report
Total deposits on June 30, 2024, were $1.19 billion, an increase of $52.0 million from the end of 2023, due to growth of $46.0 million in interest bearing deposits, specifically time deposits, and an increase of $6.0 million in noninterest bearing deposits.
Current report
Shareholders’ equity increased by $3.3 million to $81.6 million due to net income of $4.2 million, a decrease in accumulated other comprehensive loss of $719,000, and $102,000 in shares issued. These increases were offset by $1.8 million in dividends paid to shareholders.
Current report
The Company’s loans held for investment portfolio is diversified with its largest segment being first-lien, amortizing residential mortgage loans representing 25.07% of total loans. Total commercial real estate loans, both owner and non-owner occupied constitute $186.5 million or 22.55% of the loan portfolio. Automobile loans originated by the Bank’s dealer finance division total $116.8 million and 14.12% of the portfolio. Following is a breakdown of the loan portfolio composition as of June 30, 2024, and December 31, 2023 (dollars in thousands):
Current report
The current quarter recovery was the result of the release of $608,000 in reserves related to improvement in the collateral value of a $4.2 million individually evaluated loan relationship, net loan charge-offs of $180,000, slower loan growth, and an improvement to the experience, depth and ability of the lending management qualitative factor used in the Bank’s ACLL model. By comparison, net charge-offs were $807,000 in first quarter 2024 and $344,000 in second quarter 2023. Gross loans grew by $500,000 in second quarter 2024 and $3.8 million in first quarter 2024. On June 30, 2024, the ACLL totaled $7.8 million or 0.95% of gross loans outstanding compared to $8.3 million or 1.01% of gross loans outstanding at December 31, 2023.
Current report
The reserve for unfunded commitments decreased from $690,000 at December 31, 2023, to $575,000 at June 30, 2024, due to decreases in loan commitments of $10.3 million in commercial and industrial loans and $3.6 million in construction and land loans, which were offset by an increase of $2.1 million in commitments for 1-4 family residential construction and $3.1 million in owner-occupied commercial real estate.
Removed paragraphs (5)
Previous report
Interest income for first quarter 2024 was $15.5 million, an increase of $2.5 million over first quarter 2023, due to higher loan volume and higher interest rates. Higher rates on interest bearing deposits, specifically money market accounts and time deposits, coupled with interest paid on short-term borrowings, increased the Bank’s interest expense by $2.3 million over first quarter 2023.
Previous report
During first quarter 2024, the Bank recorded an $823,000 provision for credit losses compared to no provision in first quarter 2023. The current quarter provision was the result of net loan charge-offs of $807,000, and minimal changes to the economic, credit quality, and collateral dependent qualitative factors used in the Bank’s ACLL model. The provision also included a recovery of $71,000 in the reserve for unfunded commitments that resulted from a decline in outstanding loan commitments. At March 31, 2024, the ACLL totaled $8.4 million or 1.02% of gross loans outstanding.
Previous report
For first quarter 2024, tax equivalent net interest income 1 totaled $8.1 million. Compared to first quarter 2023, tax equivalent net interest income increased by $240,000, while our tax equivalent net interest margin decreased by eleven basis points. Tax equivalent interest income and fees on loans for first quarter 2024 totaled $13.4 million, $2.5 million higher than the same quarter last year due to higher rates on adjustable rate loans and growth of $74.0 million in the average balance of loans since March 31, 2023. Interest expense grew by $2.3 million from the same quarter last year due to higher interest rates on deposits, specifically time deposits due to product specials. Since last March, we have seen a shift from noninterest-bearing demand deposits to interest-bearing deposits, with noninterest-bearing deposits declining by $17.0 million and interest-bearing deposits increasing by $68.1 million.
Previous report
On March 31, 2024, assets totaled $1.32 billion, an increase of $21.6 million since December 31, 2023. Total loans increased by $3.8 million to $825.9 million, including increases of $5.1 million in other construction and land loans, $2.2 million in 1-to-4 family adjustable rate mortgage loans, $2.5 million in multifamily loans and $2.3 million in commercial and industrial loans. These increases were offset by decreases of $3.1 million in automobile loans and $8.6 million in commercial real estate loans. Investment securities decreased by $9.7 million due to paydowns on U.S. Agency mortgage-backed securities and expected bond maturities. Total deposits grew by $23.1 million to $1.16 billion, with noninterest bearing deposits increasing by $2.9 million and interest bearing deposits growing by $20.3 million. Short-term debt and long-term debt remained consistent at $60 million and $6.9 million, respectively. Total shareholders’ equity declined by $589,000 to $77.7 million.
Previous report
The Bank recorded a provision for credit losses of $823,000 in first quarter 2024, compared no provision for credit losses in first quarter 2023. The provision was the result of net loan charge-offs of $807,000, loan growth of $3.8 million and minimal changes to qualitative factors. The ACLL was $8.4 million at March 31, 2024, up $87,000 from December 31, 2023. The ACLL as a percentage of total loans was 1.02% at March 31, 2024, compared to 1.01% at December 31, 2023. The reserve for unfunded commitments decreased from $690,0000 at December 31, 2023 to $619,000 at March 31, 2024 due to decreases of $3.5 million in commitments for 1-4 family construction, $1.4 million in commercial construction, $3.9 million in commercial and industrial construction loans which were offset by an increase of $3.3 million in commitments for owner occupied commercial real estate.
Reworded paragraphs (24)
Previous wording
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands)
Current wording
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Previous wording
F & M Bank Corp. (“Company”), incorporated in Virginia in 1983, is a financial holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (“Bank”). Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba “F&M Mortgage”) are wholly owned subsidiaries of the Bank.
Current wording
F & M Bank Corp. (“Company”), incorporated in Virginia in 1983, is a financial holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiaries, Farmers & Merchants Bank (“Bank”) and VSTitle (“VST’). As well as the Bank’s wholly-owned subsidiaries, VBS Mortgage LLC (dba “F&M Mortgage”), and TEB Life Insurance Company (“TEB”), and Farmers & Merchants Financial Services (“FMFS”). 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.
Previous wording
The Bank is a full-service commercial bank offering a wide range of banking and financial services through its fourteen branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). FMFS provides brokerage services and property/casualty insurance to customers of the Bank. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Woodstock, and Winchester, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg and Charlottesville, Virginia.
Current wording
The Bank is a full-service commercial bank offering a wide range of banking and financial services through its fourteen branch offices as well as its loan production office located in Penn Laird, Virginia (which specializes in providing automobile financing through a network of automobile dealers). The former operations of FMFS now operates as a division of the Bank to provide brokerage services and property/casualty insurance. F&M Mortgage originates conventional and government sponsored mortgages through their offices in Harrisonburg, Woodstock, and Winchester, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg and Charlottesville, Virginia.
Previous wording
Certain statements in this report may contain “forward-looking statements” as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “will,” “estimate,” “project” or similar expressions. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in local and national economies or market conditions; changes in interest rates; regulations and accounting principles; changes in policies or guidelines; loan demand and asset quality, including values of real estate and other collateral; deposit flow; the impact of competition from traditional or new sources; and other factors. Readers should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements.
Current wording
Certain statements in this report may contain “forward-looking statements” as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “will,” “estimate,” “project,” “plan,” or similar expressions or other statements concerning opinions or judgments of the Company and its management about future events. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements.
Previous wording
Net income for first quarter 2024 was $1.2 million or $0.35 per share, compared to $1.1 million or $0.30 per share for first quarter 2023.
Current wording
Net income for second quarter 2024 was $3.0 million or $0.86 per share, compared to $1.2 million or $0.35 per share for first quarter 2024, an increase of $1.8 million or $0.51 per share. The improvement in net income is attributed primarily to a recovery of credit losses of $458,000 in the second quarter compared to a provision of $823,000 in the first quarter. Also contributing to the improvement, net interest income was $70,000 higher than in the first quarter. Additionally, noninterest income increased by $644,000 to just under $3.0 million in the second quarter and noninterest expenses declined by $275,000. Due to the improved results, income tax expense increased by $472,000.
Previous wording
Noninterest income, which includes gains and losses, totaled $2.4 million for first quarter 2024. Compared to first quarter 2023, noninterest income increased by $25,000. The increase resulted from increases of $48,000 in service charges on deposit accounts, $74,000 in investment services and insurance income, $55,000 in title insurance income and $36,000 in ATM and check card fees. There were decreases of $152,000 in mortgage banking income and $47,000 in other operating income. Other smaller year over year changes netted to increase noninterest income by another $11,000.
Current wording
Compared to second quarter 2023, noninterest income increased by $79,000. The increase resulted from increases of $18,000 in service charges on deposit accounts, $272,000 in investment services and insurance income, $236,000 in mortgage banking income, and $68,000 in title insurance income. There was a decrease of $436,000 in income from bank owned life insurance due to a gain received upon the death of a retired bank officer in 2023. Also, other operating income declined by $91,000. Smaller year-over-year changes in other categories netted to increase noninterest income by another $12,000.
Previous wording
Noninterest expenses totaled $8.4 million for first quarter 2024, compared to $9.2 million for the first quarter in 2023, a decrease of $766,000. As a result of the early retirement program announced in the fourth quarter 2023, salary expense declined by $562,000. Employee benefits expense declined by $177,000 due to the combination of the early retirement program and a refund of $162,000 recorded in March 2024 due to better than projected group health claims in 2023. There were other changes in noninterest expense categories that combined to decrease total noninterest expenses by $27,000.
Current wording
Noninterest expenses totaled $16.6 million for first six months of 2024, compared to $19.4 million for the same period of 2023, a decrease of $2.8 million. Salary expense declined by $1.7 million due to cost savings associated with an early retirement program implemented in fourth quarter 2023. Employee benefits expense declined by $919,000 due to a combination of the early retirement program, $577,000 in gains from lump sum pension distributions, and a refund of $162,000 received in March 2024 due to better than projected group health insurance claims in 2023. There were declines of $228,000 in marketing expense, $145,000 in other operating expense, $80,000 in ATM and check card fees, and $62,000 in directors’ fees. There were increases of $132,000 in occupancy expenses, $201,000 in FDIC insurance expense and $63,000 in bank franchise tax expense. There were other changes in noninterest expense categories that combined to decrease total noninterest expenses by $3,000.** **
Previous wording
The following table shows tax equivalent interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended March 31, 2024 and 2023 (dollars in thousands):
Current wording
The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):
Previous wording
This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies and are supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP. Details on non-GAAP measures follow.
Current wording
This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies and are supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP. Details on non-GAAP measures follow. These non-GAAP measures should not be viewed as a substitute for measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Previous wording
Our AFS securities portfolio is reported at fair value, which is determined based on market prices of similar instruments. The portfolio is made up of primarily U.S. Treasury, U.S Agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities. Total securities available for sale were $359.0 million at March 31, 2024, compared to $368.7 million at December 31, 2023. This represents a decrease of $9.7 million or 2.62%. The average balance during the first quarter of 2024 was $388.1 million, compared to $397.0 million during the first quarter of 2023. The average AFS securities portfolio represented 31.5% and 34.2% of average earning assets in the first quarter of 2024 and 2023, respectively. The year-over-year decrease in average AFS securities is due to maturities and normal paydowns of mortgage-backed securities and municipal bond maturities. There is $84.2 million of scheduled maturities and paydowns expected during the remainder of 2024 and another $55.5 million expected in 2025.
Current wording
This represents a decrease of $16.5 million or 4.5%. The average balance during the first half of 2024 was $376.7 million, compared to $409.5 million during the first half of 2023. The average AFS securities portfolio represented 30.7% and 34.7% of average earning assets in the first half of 2024 and 2023, respectively. The decrease in AFS securities is primarily due to maturities and normal paydowns of mortgage-backed securities and municipal bond maturities. There are $74.6 million of scheduled maturities and paydowns expected in the second half of 2024 and $55.7 million in 2025.
Previous wording
Net unrealized losses related to the fair value of securities AFS increased $1.3 million in the first quarter of 2024 to $41.5 million, from $40.2 million at December 31, 2023. The unrealized loss is driven by the increase in market interest rates, not credit quality. The average maturity and modified duration of the portfolio is 4.64 years and 3.67 years, respectively.
Current wording
Net unrealized losses related to the fair value of securities AFS decreased $907,000 in the first six months of 2024 to $39.3 million, from $40.2 million at December 31, 2023. The unrealized loss is driven by the increase in market interest rates, not credit quality. The weighted average life of the portfolio is 4.50 years.
Previous wording
Loans Held for Investment of $825.9 million increased $3.8 million during the quarter ended March 31, 2024 compared to $822.1 million at December 31, 2023. As a percentage of average earning assets, average loans were 66.8% for the quarter ended March 31, 2024, compared with 64.6% for the quarter ended March 31, 2023.
Current wording
Loans Held for Investment totaled $826.3 million at June 30, 2024 and increased $4.2 million from $822.1 million at December 31, 2023. As a percentage of average earning assets, average loans were 67.3% for the six months ended June 30, 2024, compared with 64.3% for the six months ended June 30, 2023.
Previous wording
Loans Held for Sale totaled $1.4 million on March 31, 2024, an increase of $300,000 compared to $1.1 million at December 31, 2023. Loans Held for Sale consists of F&M Mortgage loans, which are subject to changes in interest rates, seasonal fluctuations, and refinance activity. All the mortgage loans held for sale have been precommitted to investors, which minimizes the interest rate risk.
Current wording
Loans Held for Sale totaled $4.0 million at June 30, 2024, an increase of $2.8 million from $1.1 million at December 31, 2023. Loans Held for Sale consists of F&M Mortgage loans, which are subject to changes in interest rates, seasonal fluctuations, and refinance activity. All the mortgage loans held for sale have been precommitted to investors, which minimizes the interest rate risk.
Previous wording
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $6.2 million on March 31, 2024 compared to $6.4 million at December 31, 2023. On both dates, nonperforming loans included a large relationship that totaled $3.9 million, that is secured by owner occupied commercial real estate and equipment. At March 31, 2024, there were smaller loans totaling $2.3 million that were nonperforming. The non-performing coverage ratio increased to 134.59% from 129.87%. See “Loans and Credit Quality” in Note 3 to the Consolidated Financial Statements for additional information about non-performing loans by segment.
Current wording
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled $7.6 million on June 30, 2024 compared to $6.5 million at December 31, 2023. On June 30, 2024 and December 31, 2023, nonperforming loans included a large relationship secured by owner occupied commercial real estate and equipment that totaled $4.2 million and $3.9 million, respectively. This relationship did not require an allowance for credit losses at June 30, 2024. Additionally, there were smaller loans totaling $3.4 million that were nonperforming at June 30, 2024. The non-performing coverage ratio decreased to 103.02% from 129.87%. See “Loans and Credit Quality” in Note 3 to the Consolidated Financial Statements for additional information about non-performing loans by segment.
Previous wording
The Company's main source of funding consists of deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market, and certificates of deposit. Total deposits were $1.16 billion and $1.13 billion at March 31, 2024 and December 31, 2023, respectively. Noninterest bearing deposits increased $2.9 million while interest bearing deposits increased $20.3 million, for a total increase of $23.1 million from the end of 2023.
Current wording
The Company's main source of funding consists of deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market, and certificates of deposit. Total deposits were $1.19 billion and $1.13 billion at June 30, 2024 and December 31, 2023, respectively. Noninterest bearing deposits increased $6.0 million while interest bearing deposits increased $46.0 million. Total deposits increased $52.0 million from the end of 2023, as the Bank was able to attract deposits by offering higher rates on time deposits.
Previous wording
The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. At March 31, 2024 and December 31, 2023, the Company had a total of $258 thousand in CDARS accounts; and, $77.1 million and $95.5 million in ICS accounts, respectively. At March 31, 2024, 11.09% of the Company’s total deposits were uninsured deposits.
Current wording
The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) programs. These programs, CDARS for certificates of deposit and ICS for demand and savings, allow the Bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. At June 30, 2024 and December 31, 2023, the Company had a total of $258,000 in CDARS accounts; and, $87.4 million and $95.5 million in ICS accounts, respectively. At June 30, 2024, 11.34% of the Company’s total deposits were uninsured deposits.
Previous wording
The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short-term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the needs of the Company. There was $60.0 million of FHLB advances at March 31, 2024 and December 31, 2023.
Current wording
The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short-term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the needs of the Company. There was $20.0 million and $60.0 million of FHLB advances at June 30, 2024 and December 31, 2023, respectively.
Previous wording
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 $6.9 million at March 31, 2024 and December 31, 2023.
Current wording
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 $6.95 million and $6.93 million at June 30, 2024 and December 31, 2023.
Previous wording
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 March 31, 2024 was 4.89% and for December 31, 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.
Current wording
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 June 30, 2024 was 5.13% and for December 31, 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.
Previous wording
At March 31, 2024, the Bank exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations. The Bank’s common equity Tier 1 and Tier 1 capital ratios were both 11.96%, its total capital ratio was 12.89%; the leverage ratio was 8.11%.
Current wording
At June 30, 2024, the Bank exceeded the minimum common equity Tier 1, Tier 1, and total capital ratio, inclusive of the fully phased-in capital conservation buffer, of 7.00%, 8.50%, and 10.50%, respectively, and the Bank qualified as “well capitalized” for purposes of the federal bank regulatory prompt corrective action regulations. The Bank’s common equity Tier 1 and Tier 1 capital ratios were both 12.21%, its total capital ratio was 13.13%; the leverage ratio was 8.29%.
Previous wording
The Company’s on-balance sheet asset liquidity includes cash and cash equivalents, unpledged investment securities, and loans held for sale, which totaled $179.6 million at March 31, 2024, up from $178.0 million at December 31, 2023. In 2023, the Bank pledged investment securities with a par value totaling $220.8 million to the Federal Reserve System’s Bank Term Funding Program (BTFP). In March 2023, the Board of Governors of the Federal Reserve System established the BTFP to provide any U.S. federally insured depository institution, including the Bank, with a line of credit equal to the par value of securities pledged to the BTFP. Advances from the BTFP could be requested by the Bank for up to one year until March 31, 2024. The Bank also pledged securities with a market value of $19.5 million to the Federal Reserve Discount Window in 2023. The BTFP expired on March 11, 2024.
Current wording
The Company’s on-balance sheet asset liquidity includes cash and cash equivalents, unpledged investment securities, and loans held for sale, which totaled $200.0 million at June 30, 2024, up from $178.0 million at December 31, 2023. The Bank had securities with a market value of $206.6 million and $215.6 million pledged to Federal Reserve Bank’s credit programs as of June 30, 2024 and December 31, 2023, respectively. The bank has not utilized these credit programs in 2024 or 2023.
Previous wording
The Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million at March 31, 2024, and December 31, 2023. The Bank has a secured line of credit with the Federal Home Loan Bank (FHLB) with available credit of $104.8 million as of March 31, 2024, and $90.1 million as of December 31, 2023. 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.
Current wording
The Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million at June 30, 2024, and December 31, 2023. The Bank has a secured line of credit with the Federal Home Loan Bank (FHLB) with available credit of $150.0 million as of June 30, 2024, and $90.1 million as of December 31, 2023. 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.
Previous wording
The Bank is scheduled to receive $84.2 million from bond paydowns and maturities by the end of 2024 which can be used to fund future loan growth and for other purposes.
Current wording
The Bank is scheduled to receive $74.6 million from bond paydowns and maturities by the end of 2024 which can be used to fund future loan growth and for other purposes.
Previous wording
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 March 31, 2024, the Company had $166.0 million in assets repricing than liabilities 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.
Current wording
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 June 30, 2024, the Company had $176.7 million more in assets repricing than liabilities 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.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in local and national economies or market conditions; changes in interest rates; regulations and accounting principles; changes in policies or guidelines; loan demand and asset quality, including values of real estate and other collateral; deposit flow; the impact of competition from traditional or new sources; and other factors. Readers should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements.
Current report — wording carried from elsewhere
Our AFS securities portfolio is reported at fair value, which is determined based on market prices of similar instruments. The portfolio is made up of primarily U.S. Treasury, U.S Agency and mortgage-backed securities issued by federal agencies, as well as securities issued by municipal bonds and corporate debt securities. Total securities available for sale were $352.2 million at June 30, 2024, compared to $368.7 million at December 31, 2023.