F&M BANK CORP
For the period ended Dec 31, 2024. Filed Mar 28, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 28, 2025
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-27.
0001654954-24-003726
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-28.
0001654954-25-003506
Item 7. 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 117 previous paragraphs and 113 current paragraphs.
45 unchanged; 19 reworded; 48 added; 52 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 21 previous and 19 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 (48)
Current report
Commercial & Industrial – Non-Real Estate
Current report
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.
Current report
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.
Current report
Results of Operations
Current report
Net Income
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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%.
Current report
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.
Current report
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.
Current report
Volume and Rate Analysis
Current report
Provision for Credit Losses
Current report
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”).
Current report
The following table sets forth the various components of our non-interest income for the periods indicated (in thousands):
Current report
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.
Current report
The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands):
Current report
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.
Current report
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.
Current report
Income Tax Expense (Benefit)
Current report
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.
Current report
Analysis of Financial Condition
Current report
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.
Current report
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”).
Current report
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.
Current report
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.
Current report
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.
Current report
Maturity Distribution and Yields of Securities
Current report
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.
Current report
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.
Current report
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.
Current report
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).
Current report
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.
Current report
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.
Current report
Nonperforming Assets and Credit Ratios
Current report
(dollars in thousands):
Current report
Analysis of Allowance for Credit Losses on Loans
Current report
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.
Current report
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.
Showing the first 40 of 48 passages. Open the source sections for the rest.
Removed paragraphs (52)
Previous report
Commercial & Industry – Non-Real Estate
Previous report
General
Previous report
The Allowance for Credit Losses on Loans (“ACLL”) represents the estimated balance that management considers adequate to absorb expected credit losses over the expected contractual life of the loan portfolio. The ACLL uses a remaining life methodology for all loans.
Previous report
Effective January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments “ASC 326”. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
Previous report
Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in future periods. There are both internal factors (i.e., loan balances, credit quality, and the contractual lives of loans) and external factors (i.e., economic conditions such as trends in housing prices, interest rates, gross domestic product, inflation, and unemployment) that can impact the ACLL estimate.
Previous report
Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACLL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ACLL because we consider a wide variety of factors and inputs in estimating the ACLL and changes in those factors and inputs may not occur at the same rate and may not be consistent across all loan types. Additionally, changes in factors and inputs may be directionally inconsistent, such that an improvement in one factor may offset deterioration in others.
Previous report
Management reviews the ACLL estimation process regularly for appropriateness as the economic and internal environment are constantly changing. While the ACLL estimate represents our current estimate of expected credit losses, due to uncertainty surrounding internal and external factors, there is potential that the estimate may not be adequate over time to cover credit losses in the portfolio. Although available information is used to estimate expected losses on loans, future changes in the ACLL may be necessary based on changes in portfolio composition, portfolio credit quality, economic conditions and/or other factors.
Previous report
Fair Value Measurements
Previous report
Certain assets and liabilities are measured at fair value on a recurring basis, including securities and derivative instruments. Fair value estimates are inherently subjective and involve significant assumptions, adjustments, and judgment including, among others, discount rates, rates of return on assets, cash flows, default rates, loss rates, terminal values and liquidation values. A significant change in assumptions may result in a significant change in fair value, which in turn, may result in a higher degree of financial statement volatility and could result in a significant impact on results of operations, financial condition, or disclosures of fair value information.
Previous report
Under ASC 820,Fair Value Measurements, there is a three-level fair value hierarchy that requires the use of inputs that are observable or unobservable, when observable inputs are not available. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s market assumptions. As such, fair value measurements, particularly in level 2 and level 3 of the hierarchy, may require management to use significant assumptions that are subject to change. A change in one assumption could have a significant impact on the fair value estimate and certain assumptions may have offsetting impacts to one another. Changes in significant assumptions could have a significant impact on the Balance Sheet, Statements of Income, and/or fair value disclosures. For more information on financial instruments and fair value assessment, refer to Note 15 “Fair Value Measurements” in this Form 10-K.
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Overview
Previous report
The Company’s net income for 2023 totaled $2.8 million or $0.79 per common share, a decrease of 66.69% from $8.3 million, or $2.41 per share, in 2022. Return on average equity decreased in 2023 to 3.85% from 10.48% in 2022, and the return on average assets decreased from 0.67% in 2022 to 0.22% in 2023. The Company’s net income per common share totaled $0.79 in 2023, a decrease from $2.41 in 2022.
Previous report
At year-end 2023, the Company had total assets of $1.29 billion, total loans held for investment of $822.1 million, and total deposits of $1.13 billion, compared to year-end balances for 2022 of total assets of $1.25 billion, total loans held for investment of $743.6 million, and total deposits of $1.08 billion.
Previous report
Changes in Net Income per Common Share:
Previous report
Non-GAAP Financial Measures
Previous report
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 operating 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.
Previous report
In this discussion and in the tabular analysis of net interest income performance, entitled “Consolidated Average Balances, Yields and Rates,” the interest earned on tax exempt loans and investment securities has been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxation. This is referred to as tax-equivalent net interest income.
Previous report
The following table reconciles tax equivalent net interest income, which is not a measurement under GAAP, to net interest income (dollars in thousands):
Previous report
In 2022 and 2023, short term interest rates rose significantly due to eleven Federal Reserve interest rate hikes totaling 525 basis points. This directly impacted the Bank’s cost of deposits and short-term borrowings, while the longer-term rates used to price loans have not increased to the same extent. For the year 2023, tax-equivalent net interest income totaled $31.8 million, a decrease of $3.2 million from 2022, as the $14.2 million increase in interest income was outpaced by a $17.4 million increase in interest expense. These factors also contributed to a 35 basis point decline in Net Interest Margin to 2.67% in 2023 from 3.02% in 2022. Tax-equivalent net income is a non-GAAP measure. See “Non-GAAP Financial Measures” above for additional information.
Previous report
Interest Income
Previous report
Tax-equivalent income on earning assets totaled $56.5 million for 2023, an increase of $14.2 million from the prior year. The increase resulted from both a shift in the mix of earning assets and a higher earning asset yield.
Previous report
Loans held for investment, expressed as a percentage of total earning assets, increased in 2023 to 65.3% as compared to 59.3% in 2022. Average loans held for investment increased by $92.1 million to $778.6 million. Average balances on commercial loans increased 25.01%, real estate loans increased 2.60%, and consumer installment loans increased 15.22%. Meanwhile, average investment securities decreased 9.8%, with average securities outstanding declining from $445.6 million to $402.1 million. Proceeds from bond maturities and paydowns were used to fund new loan originations during 2023.
Previous report
The taxable-equivalent yield on earning assets increased 109 basis points from 3.65% in 2022 to 4.74% in 2023 due to the rising interest rate environment experienced in 2023. Interest income and fees on loans were $13.7 million higher and income from cash equivalents and securities was $535,000 higher due to higher rates on variable rate loans, interest bearing cash and Federal Funds Sold.
Previous report
Interest Expense
Previous report
Interest expense increased $17.4 million or 240.44% during 2023. Higher rates on interest bearing deposits, specifically money market and time deposit accounts, coupled with interest paid on short-term borrowings increased the Bank’s interest expense. The average cost of interest-bearing liabilities was 2.73%, an increase of 187 basis points from 2022 while average balances of interest-bearing liabilities increased $57.3 million or 6.76% during the same period. During 2023, there was a shift in deposits from non-interest bearing demand to interest-bearing deposits and the average balance of interest-bearing deposits rose by $30.1 million to $838.4 million. Interest expense on deposits increased $15.4 million or 269.26% due to the higher balances and an increase of 182 basis points in the cost of interest-bearing deposits to 2.53%. Interest expense was also impacted by an increase of $27.2 million in the average balance of other interest-bearing liabilities. The cost of those liabilities also increased by 140 basis points from 3.88% in 2022 to 5.28% in 2023.
Previous report
Noninterest income totaled $10.2 million for the year ended December 31, 2023, a decrease of $1.1 million from the year ended December 31, 2022. The primary reasons for this decrease were reductions of $33,000 in service charges on deposit accounts, $1.1 million in mortgage banking income, and $244,000 in title insurance income. The declines in mortgage banking and title insurance income are due to the overall decrease in mortgage banking volume and a shift from loans being sold on the secondary market to portfolio adjustable rate mortgages (ARMs) and construction products. These decreases were partially offset by a $459,000 increase in income from BOLI resulting from a one-time gain received in the second quarter, an increase of $260,000 in investment services and insurance income, higher ATM and check card fees which grew by $174,000, and a $2,000 increase in other operating income. In 2022, there was a $2.9 million loss on the sale of investment securities compared to no loss in 2023. Also in 2022, the Company sold its partnership interest in Infinex Financial Holdings, Inc., resulting in a $3.8 million gain in 2022 and a second smaller milestone gain of $232,000 in December 2023.
Previous report
Noninterest expenses totaled $38.8 million in 2023, compared to $36.5 million in 2022, an increase of $2.2 million. A primary driver for this increase was the $2.3 million in pre-tax severance expenses related to the early retirement program accrued in the fourth quarter and severance accruals for two former executives earlier in 2023. These accruals contributed to the $1.9 million increase in salary expense to $18.9 million. Other significant year-over-year increases include higher equipment expense which increased $252,000, FDIC Insurance expense which increased $226,000, legal and professional fees which were $85,000 higher than last year, and higher other operating expenses, which were up $853,000. These higher expenses were partially offset by decreases in employee benefits expense and telecommunications and data processing expenses which were down $676,000 and $253,000, respectively, as well as smaller decreases in other expense categories.
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Balance Sheet
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Total assets increased 3.91% during the year to $1.29 billion at December 31, 2023, an increase of $48.7 million from $1.25 billion at December 31, 2022. The increase was fueled by strong growth in loans held for investment that increased by $78.5 million to $822.1 million. Cash and cash equivalents decreased $11.2 million as excess funds were used to fund loan growth. Investment securities decreased by $24.0 million due to paydowns on U.S. Agency mortgage-backed securities and expected bond maturities that were partially offset by an improvement in the unrealized loss on the bond portfolio. During 2023, the net unrealized loss declined by $11.0 million to $40.2 million from $51.2 million at December 31, 2022.
Previous report
Total deposits at December 31, 2023, were $1.13 billion, an increase of $49.9 million from the end of 2022, as the Bank was able to attract deposits by offering higher rates on money market and time deposit accounts, and by opening insured cash sweep accounts for new and existing customers. The additional deposits allowed us to reduce Federal Home Loan Bank (FHLB) advances by $10.0 million. At December 31, 2023, 11.60% of the Bank’s total deposits were uninsured.
Previous report
Shareholders’ Equity increased by $7.5 million to $78.3 million due to net income of $2.8 million and other comprehensive income of $9.0 million, offset by a $1.2 million adjustment to retained earnings upon the adoption of the Current Expected Credit Loss (CECL) accounting standard on January 1, 2023, and dividends to shareholders of $3.6 million. Other comprehensive income includes an $8.7 million improvement in unrealized losses in the bond portfolio and a $318,000 adjustment to the pension liability.
Previous report
Total securities decreased $24.0 million or 5.94% in 2023 to $379.6 million at December 31, 2023 from $403.5 million at December 31, 2022. Average balances in investment securities decreased 9.76% in 2023 to $402.1 million. At year end, 33.7% of average earning assets of the Company were held as investment securities compared to 38.5% at year-end 2022. The Company has securities with a par value of $220.8 million and a market value of $196.0 million pledged to the Federal Reserve Discount Window Bank Term Funding Program (“BTFP”) as of December 31, 2023. Additionally, the Company has securities with a par value of $20.0 million and a market value of $19.5 million pledged to the Federal Reserve Discount Window. The BTFP was created in March 2023 to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the BTFP or discount window during 2023.
Previous report
The Company adopted ASC 326 on January 1, 2023. Management evaluates all investments in an unrealized loss position quarterly. The Company has the intent and the ability to hold securities in the portfolio to maturity and an allowance for credit losses has not been recorded as of December 31, 2023.
Previous report
Maturities and weighted average yields of securities at December 31, 2023 are presented in the table below (dollars in thousands). Amounts are shown by contractual maturity; expected maturities will differ as issuers may have the right to call or prepay obligations. Maturities of other investments are not readily determinable due to the nature of the investment; see Note 2 “Securities” of this Form 10-K for a description of these investments.
Previous report
1 Tax equivalent yield to the earlier of the call or the maturity date. On securities without a call date, it is the stated yield.
Previous report
Loans held for investment, net of deferred fees and costs, totaled $822.1 million at December 31, 2023 compared with $743.6 million at December 31, 2022. One-to-four family residential real estate and automobile loans represent the Company’s largest categories at December 31, 2023. The largest areas of growth in 2023 occurred in the farmland, real estate, and automobile portfolios. The Company is committed to solid growth by originating soundly underwritten loans to qualified borrowers. Nearly 73% of the commercial portfolio is comprised of adjustable interest rate loans. When interest rates fluctuate, these loans will reprice accordingly, giving customers an advantage when rates trend down and providing protection for the Bank if rates trend up.
Previous report
The following table shows the maturity of loans and leases, outstanding as of December 31, 2023 (dollars in thousands):
Previous report
At December 31, 2023, for loans and leases due after one year, interest rate information is as follows (dollars in thousands):
Previous report
Management evaluates the loan portfolio considering national and local economic trends, changes in the nature and volume of the portfolio, changes in underlying collateral values and trends in past due, nonperforming and criticized loans. Loans past due 30-89 days and on accrual increased, while loans greater than 90 days and on accrual decreased.
Previous report
Nonperforming Loans and Past Due Loans
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Reworded paragraphs (19)
Previous wording
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 Credit Administration Department supervises 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.
Current wording
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.
Previous wording
The Bank uses a management loan committee and a directors’ loan committee to approve loans. The management loan committee is comprised of members of senior management, credit administration and senior lenders; the directors’ loan committee is comprised of any six directors. Both committees approve new, renewed and or modified loans that exceed officer loan authorities. The directors’ loan committee also reviews any changes to the lending policies, which are then approved by the Board of Directors.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
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 real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Current wording
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.
Previous wording
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.
Current wording
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.
Previous wording
Allowance for Credit Losses on Loans
Current wording
Allowance for Credit Losses
Previous wording
Management considers the national unemployment rate, national gross domestic product, and the core inflation index as external economic variables in developing the ACLL and utilizes economic projections published by The Federal Reserve of St. Louis for reasonable and supportable forecasts. The qualitative estimate of the ACLL is sensitive to these forecasts as economic conditions are the most influential qualitative factor.
Current wording
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.
Previous wording
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, on a tax equivalent basis, 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.
Current wording
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.
Previous wording
At December 31, 2023, the allowance for credit losses was $8.3 million or 1.01% of total loans held for investment, compared to an allowance of $7.9 million or 1.07% of total loans at December 31, 2022. At December 31, 2023, the allowance for credit losses on loans (“ACLL”) reflected a day one CECL impact of $777,000 which was charged to retained earnings net of taxes, $1.5 million in net charge-offs, and a provision for credit losses on loans of $1.1 million. The provision was primarily due to loan growth of $78.5 million and charge-offs in the automobile portfolio. Additionally, the provision for credit losses includes a recovery of $57,000 on the reserve for unfunded commitments. 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 for a provision of $1.0 million.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
The average deposit balances and average rates paid for 2023 and 2022 were as follows (dollars in thousands):
Current wording
The following table shows the average deposit balances and average rates paid for 2024 and 2023 (dollars in thousands).
Previous wording
Total uninsured deposits in excess of $250 thousand were $131.9 million and $157.4 million at December 31, 2023 and 2022, respectively.
Current wording
Total uninsured deposits in excess of $250 thousand were $131.8 million and $131.9 million at December 31, 2024 and 2023, respectively.
Previous wording
Short-term debt totaled $60.0 million at December 31, 2023, and consisted of Federal Home Loan Bank (“FHLB”) advances which were used to fund loan growth. Long-term debt remained at $6.9 million from December 31, 2022 to December 31, 2023 and consists solely of subordinated debt. See Note 9 “Short-Term Debt” and Note 10 “Long-Term Debt” in this Form 10-K for a discussion of the rates, terms, and conversion features on these advances.
Current wording
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.
Previous wording
Total Shareholders’ Equity increased by $7.5 million to $78.3 million due to net income of $2.8 million and other comprehensive income of $9.0 million, offset by dividends to shareholders of $3.6 million. Other comprehensive income includes $8.7 million improvement in unrealized losses in the bond portfolio and a $318,000 adjustment to the pension liability.
Current wording
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.
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 December 31, 2023, the Company had $151.7 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.
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 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.
Previous wording
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, LHFS, 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.
Current wording
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.
Previous wording
As of December 31, 2023, liquid assets totaled $97.2 million, or 7.5% of total assets, and liquid earning assets totaled $77.4 million, or 6.5% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $93.7 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
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.
Previous wording
In addition to the BTFP, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million December 31, 2023, and December 31, 2022. The Bank also has a secured line of credit with the FHLB with available credit of $90.1 million and $39.1 million as of December 31, 2023, and December 31, 2022, 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.
Current wording
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.
Previous wording
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, 2023, 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 14 “Regulatory Matters” of this Form 10-K for more information regarding the Company’s and its subsidiary bank’s capital ratios.
Current wording
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.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The following table includes the average deposits and average rates paid for 2024 and 2023 (dollars in thousands).
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summary of the Company’s significant accounting policies that are highly dependent on estimates, assumptions and judgments.