10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒    Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-13273

F&M BANK CORP.

Virginia	54-1280811
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

P. O. Box 1111

Timberville, Virginia 22853

(Address of Principal Executive Offices) (Zip Code)

 (540) 896-8941

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 3, 2023
Common Stock, par value ‑ $5 per share	3,482,373 shares

F & M BANK CORP.

Index

		Page
Part I	Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets – September 30, 2023 and December 31, 2022	3
	Consolidated Statements of Income – Three Months Ended September 30, 2023 and 2022	4
	Consolidated Statements of Income – Nine Months Ended September 30, 2023 and 2022	5
	Consolidated Statements of Comprehensive Loss – Three and Nine Months Ended September 30, 2023 and 2022	6
	Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended September 30, 2023 and 2022	7
	Consolidated Statements of Changes in Shareholders’ Equity – Nine Months Ended September 30, 2023 and 2022	8
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	53
Part II	Other Information	54
Item 1.	Legal Proceedings	54
Item 1a.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchase of Equity Securities	54
Item 3.	Defaults upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
Signatures		56
Certifications

2

Part I Financial Information

Item 1 Financial Statements

F & M BANK CORP.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	September 30,			December 31,
	2023			2022*
	(Unaudited)
Assets
Cash and due from banks	$	17,391		$	17,926
Money market funds and interest-bearing deposits in other banks		184			687
Federal funds sold		4,583			16,340
Cash and cash equivalents		22,158			34,953
Securities:
Held to maturity, at amortized cost – fair value of $113 and $112 in 2023 and 2022, respectively		125			125
Less: allowance for credit losses		-			-
Held to maturity, net		125			125
Available for sale, at fair value		372,339			392,095
Other investments		11,038			11,317
Loans held for sale, at fair value		2,027			1,373
Loans held for investment, net of deferred fees and costs		805,602			743,604
Less: allowance for credit losses		(9,166	)		(7,936	)
Net loans held for investment		796,436			735,668
Bank premises and equipment, net		23,927			19,587
Interest receivable		4,645			3,995
Goodwill		3,082			3,082
Bank owned life insurance		22,705			23,554
Other assets		23,937			20,153
Total Assets	$	1,282,419		$	1,245,902
Liabilities
Deposits:
Noninterest bearing	$	277,219		$	293,596
Interest bearing		856,691			789,781
Total deposits		1,133,910			1,083,377
Short-term debt		60,000			70,000
Long-term debt		6,922			6,890
Other liabilities		14,567			14,843
Total liabilities		1,215,399			1,175,110
Commitments and contingencies
Shareholders’ Equity
Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,482,217 and 3,456,237 shares issued and outstanding (32,957 and 26,456 unvested restricted shares)		17,246			17,149
Additional paid in capital		10,941			10,577
Retained earnings		81,481			83,078
Accumulated other comprehensive loss		(42,648	)		(40,012	)
Total shareholders’ equity		67,020			70,792
Total liabilities and shareholders’ equity	$	1,282,419		$	1,245,902

*2022 derived from audited consolidated financial statements.

See Notes to Consolidated Financial Statements

3

F & M BANK CORP.

Consolidated Statements of Income

 (Dollars in thousands, except per share data)

 (Unaudited)

	Three Months Ended
	September 30,
Interest and Dividend income	2023			2022
Interest and fees on loans held for investment	$	12,525		$	8,881
Interest and fees on loans held for sale		19			29
Interest from money market funds and federal funds sold		68			48
Interest on debt securities		2,005			2,054
Total interest and dividend income		14,617			11,012
Interest expense
Total interest on deposits		5,811			1,378
Interest from short-term debt		702			158
Interest from long-term debt		115			345
Total interest expense		6,628			1,881
Net interest income		7,989			9,131
Provision for Credit Losses		620			-
Net Interest Income After Provision for Credit Losses		7,369			9,131
Noninterest income
Service charges on deposit accounts		256			255
Investment services and insurance income		374			316
Mortgage banking income		536			666
Title insurance income		444			376
Income on bank owned life insurance		181			178
Low-income housing partnership losses		(205	)		(205	)
ATM and check card fees		672			628
Other operating income		269			68
Total noninterest income		2,527			2,282
Noninterest expense
Salaries		4,210			4,334
Employee benefits		907			1,184
Occupancy expense		371			342
Equipment expense		357			294
FDIC insurance assessment		225			215
OREO expenses		-			59
Advertising expense		259			193
Legal and professional fees		326			294
ATM and check card fees		349			321
Telecommunication and data processing expense		551			619
Directors fees		124			131
Bank franchise tax		129			124
Other operating expenses		1,114			762
Total noninterest expense		8,922			8,872
Income before income taxes		974			2,541
Income tax (benefit) expense		(44	)		237
Net Income	$	1,018		$	2,304
Per Common Share Data
Net income	$	0.29		$	0.67
Cash dividends on common stock		0.26			0.26
Weighted average common shares outstanding		3,480,670			3,453,767

See Notes to Consolidated Financial Statements

4

F & M BANK CORP.

Consolidated Statements of Income

 (Dollars in thousands, except per share data)

 (Unaudited)

	Nine Months Ended
	September 30,
Interest and Dividend income	2023			2022
Interest and fees on loans held for investment	$	34,896		$	24,384
Interest and fees on loans held for sale		66			90
Interest from money market funds and federal funds sold		218			87
Interest on debt securities		6,034			5,521
Total interest and dividend income		41,214			30,082
Interest expense
Total interest on deposits		15,069			3,060
Interest from short-term debt		2,217			204
Interest from long-term debt		343			628
Total interest expense		17,629			3,892
Net interest income		23,585			26,190
Provision for Credit Losses		1,159			150
Net Interest Income After Provision for Credit Losses		22,426			26,040
Noninterest income
Service charges on deposit accounts		755			836
Investment services and insurance income		1,236			1,020
Mortgage banking income		1,619			2,647
Title insurance income		1,069			1,215
Income on bank owned life insurance		982			522
Low-income housing partnership losses		(616	)		(613	)
ATM and check card fees		1,971			1,823
Net investment securities losses		-			(97	)
Other operating income		629			489
Total noninterest income		7,645			7,842
Noninterest expense
Salaries		13,571			12,690
Employee benefits		3,044			3,712
Occupancy expense		1,023			1,028
Equipment expense		1,138			918
FDIC insurance assessment		545			496
OREO expense		-			59
Advertising expense		753			599
Legal and professional fees		1,235			945
ATM and check card fees		944			954
Telecommunication and data processing expense		1,926			2,205
Directors fees		409			424
Bank franchise tax		449			456
Other operating expenses		3,246			2,495
Total noninterest expense		28,283			26,981
Income before income taxes		1,788			6,901
Income tax (benefit) expense		(526	)		280
Net Income	$	2,314		$	6,621
Per Common Share Data
Net income	$	0.67		$	1.92
Cash dividends on common stock		0.78			0.78
Weighted average common shares outstanding		3,473,911			3,447,470

See Notes to Consolidated Financial Statements

5

F & M BANK CORP.

Consolidated Statements of Comprehensive Loss

(Dollars in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Net Income	$	1,018		$	2,304		$	2,314		$	6,621
Other comprehensive loss:
Unrealized holding losses on available-for sale securities		(6,865	)		(9,879	)		(3,337	)		(49,606	)
Tax effect		1,442			2,075			701			10,417
Unrealized holding losses, net of tax		(5,423	)		(7,804	)		(2,636	)		(39,189	)
Less:
Reclassifications adjustment for losses included in net income		-			-			-			97
Tax effect		-			-			-			20
Realized losses on sale of available-for sale securities, net		-			-			-			77
Total other comprehensive loss		(5,423	)		(7,804	)		(2,636	)		(39,112	)
Total comprehensive loss	$	(4,405	)	$	(5,500	)	$	(322	)	$	(32,491	)

See Notes to Consolidated Financial Statements

6

F & M BANK CORP.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands)

(Unaudited)

Three Months Ended September 30, 2023 and 2022.

	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance June 30, 2022	$	17,121	$	10,351	$	80,878		$	(36,400	)	$	71,950
Net income		-		-		2,304			-			2,304
Other comprehensive loss		-		-		-			(7,804	)		(7,804	)
Dividends on common stock ($.26 per share)		-		-		(903	)		-			(903	)
Common stock issued		14		55		-			-			69
Stock-based compensation expense		-		61		-			-			61
Balance, September 30, 2022	$	17,135	$	10,467	$	82,279		$	(44,204	)	$	65,677
Balance June 30, 2023	$	17,228	$	10,822	$	81,369		$	(37,225	)	$	72,194
Net income		-		-		1,018			-			1,018
Other comprehensive loss		-		-		-			(5,423	)		(5,423	)
Dividends on common stock ($.26 per share)		-		-		(906	)		-			(906	)
Common stock issued		18		58		-			-			76
Stock-based compensation expense		-		61		-			-			61
Balance, September 30, 2023	$	17,246	$	10,941	$	81,481		$	(42,648	)	$	67,020

See Notes to Consolidated Financial Statements

7

F & M BANK CORP.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30, 2023 and 2022.

	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2021	$	17,071	$	10,127		$	78,350		$	(5,092	)	$	100,456
Net Income		-		-			6,621			-			6,621
Other comprehensive loss		-		-			-			(39,112	)		(39,112	)
Dividends on common stock ($.78 per share)		-		-			(2,692	)		-			(2,692	)
Common stock issued		38		175			-			-			213
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		26		30			-			-			56
Stock-based compensation expense		-		135			-			-			135
Balance, September 30, 2022	$	17,135	$	10,467		$	82,279		$	(44,204	)	$	65,677
Balance December 31, 2022	$	17,149	$	10,577		$	83,078		$	(40,012	)	$	70,792
Net income		-		-			2,314			-			2,314
Cumulative effect adjustment due to the adoption of ASC 326, net of tax		-		-			(1,203	)		-			(1,203	)
Other comprehensive loss		-		-			-			(2,636	)		(2,636	)
Dividends on common stock ($.78 per share)		-		-			(2,708	)		-			(2,708	)
Common stock issued		57		182			-			-			239
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		40		(12	)		-			-			28
Stock-based compensation expense		-		194			-			-			194
Balance, September 30, 2023	$	17,246	$	10,941		$	81,481		$	(42,648	)	$	67,020

See Notes to Consolidated Financial Statements

8

F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities
Net income	$	2,314		$	6,621
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		958			833
Amortization of intangibles		23			28
Amortization of securities		11,594			19,173
Proceeds from loans held for sale		93,872			116,448
Loans held for sale originated		(92,677	)		(112,954	)
Gain on sale of loans held for sale		(1,849	)		(1,917	)
Provision for credit losses		1,159			150
Increase in interest receivable		(650	)		(543	)
(Increase) decrease in deferred taxes		(1	)		9,179
(Increase) decrease in other assets		(2,691	)		1,039
Decrease in accrued expenses		(1,025	)		(9,244	)
Amortization of limited partnership investments		616			613
Amortization of debt issuance costs		32			107
Income from life insurance investment		(612	)		(522	)
Gain on life insurance investment		(370	)		-
Loss on the sale of investment securities		-			97
Gain on the sale of fixed assets		(16	)		(10	)
Stock-based compensation expense		194			135
Loss on sale and valuation adjustments for other real estate owned and bank premises held for sale		-			59
Net cash provided by operating activities		10,871			29,292
Cash flows from investing activities
Purchase of investments available for sale and other investments		-			(108,057	)
Proceeds from maturity of investments available for sale		4,825			4,000
Proceeds from the sale of investments available for sale		-			8,699
Investment in restricted stock, net		(137	)		(891	)
Investment in limited partnership		(200	)		(220	)
Net increase in loans held for investment		(62,702	)		(37,753	)
Proceeds from life insurance investment		1,738			-
Proceeds from the sale of fixed assets		93			27
Net purchase of property and equipment		(5,375	)		(2,720	)
Proceeds from the sale of other real estate owned		-			138
Net cash (used in) investing activities		(61,758	)		(136,777	)
Cash flows from financing activities
Net change in deposits		50,533			37,099
Net change in short-term debt		(10,000	)		30,000
Dividends paid in cash		(2,708	)		(2,692	)
Proceeds from issuance of common stock		267			269
Repayments of long-term debt		-			(15,000	)
Net cash provided by financing activities		38,092			49,676
Net decrease in Cash and Cash Equivalents		(12,795	)		(57,809	)
Cash and cash equivalents, beginning of period		34,953			88,121
Cash and cash equivalents, end of period	$	22,158		$	30,312
Supplemental Cash Flow information:
Cash paid for: Interest	$	16,709		$	4,031
Taxes		360			-
Supplemental non-cash disclosures:
Change in unrealized loss on securities available for sale	$	3,337		$	(49,509	)
Cumulative effect of the adoption of ASC 326		1,524			-
Transfer from loans to other real estate owned		-			197

See Notes to Consolidated Financial Statements

9

Notes to the Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of F&M Bank Corp. (the “Company”), Farmers & Merchants Bank (the “Bank”), TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc. (“FMFS”), VBS Mortgage, LLC (dba “F&M Mortgage”), and VSTitle, LLC (“VST”), with all significant intercompany accounts and transactions eliminated.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to accepted practices within the banking industry.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank, operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, Augusta, and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., F&M Mortgage, and VSTitle, LLC.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.

Accounting Standards Adopted in 2023

On 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. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

10

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $777,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $747,000, which is recorded within Other Liabilities. The Company recorded a net decrease to retained earnings of $1.2 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined there was no allowance for credit losses on available for sale securities.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses – Held to Maturity Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities was immaterial at September 30, 2023 and was excluded from the estimate of credit losses.

The state and local governments securities held by the Company are highly rated by major rating agencies. As a result, no allowance for credit losses was recorded on held to maturity securities at September 30, 2023.

Allowance for Credit Losses – Available for Sale Securities

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit loss related to the available for sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $1.4 million at September 30, 2023 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.2 million at September 30, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

11

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company utilizes a Qualitative Scorecard (“scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Bank’s portfolio, in particular during the great financial crisis from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that in order to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses are economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology:

1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Other construction, land development and land. Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Secured by farmland. Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations.

Home equity - open end. The home-equity loan portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

12

Real estate. Real estate loans are for consumer residential 1-4 family real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios.

Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to-value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property.

Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Other commercial real estate. The other commercial real estate segment includes loans secured by commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured).

Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).

Credit cards. Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt-to-income ratios, and minimum borrower credit scores.

Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles is subject to the risk of changing values in the availability of vehicles and the resale value.

Other consumer loans. Other consumer loans may be secured or unsecured. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.

Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s trade area. Credit risk is based on the cash flow and management of the local town’s budgets.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

13

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Earnings per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends.

Recent Accounting Pronouncements

Accounting Standards adopted in 2023:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. ASU 2016-13 was effective for the Company on January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $1.5 million. The adjustment net of tax recorded to shareholders’ equity totaled $1.2 million. See Note 1 for additional details of adoption of this standard.

In March 2022, the FASB issued Accounting Standards Update ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ASU 2022-02 was effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.

14

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Pending Adoption:

In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

In August 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”. This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification® Master Glossary. While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements. The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). This ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025. Early adoption of ASU No. 2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance). A joint venture that elects to early adopt may apply ASU No. 2023-05 either prospectively or retrospectively. The Company does not expect the adoption of ASU 2023-05 to have a material impact on its consolidated financial statements.

In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

15

In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”. These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2023-01 to have a material impact on its consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of U.S. dollar LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

16

Note 2. Investment Securities

The amortized cost and estimated fair value of securities held to maturity along with gross unrealized gains and losses are summarized as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2023
U. S. Treasury	$	125	$	-	$	12	$	113
December 31, 2022
U. S. Treasury	$	125	$	-	$	13	$	112

There is no allowance for credit losses on held to maturity securities. At September 30, 2023, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the quarter ended September 30, 2023.

The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized as follows (dollars in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2023
U.S. Treasury	$	39,918	$	-	$	2,912	$	37,006
U.S. Agency		143,484		-		11,870		131,614
Municipal bonds		41,382		-		5,059		36,323
Mortgage-backed securities		171,546		161		29,988		141,719
Corporate		30,550		-		4,873		25,677
Total Securities Available for Sale	$	426,880	$	161	$	54,702	$	372,339

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
December 31, 2022
U.S. Treasury	$	39,902	$	-	$	3,259	$	36,643
U.S. Agency		143,473		-		13,725		129,748
Municipal bonds		46,331		27		4,160		42,198
Mortgage-backed securities		183,044		77		26,246		156,875
Corporate		30,550		-		3,919		26,631
Total Securities Available for Sale	$	443,300	$	104	$	51,309	$	392,095

There was no allowance for credit losses on available for sale securities.

The amortized cost and fair value of securities at September 30, 2023, by contractual maturity are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	125	$	113	$	25,491	$	25,096
Due after one year through five years		-		-		186,744		171,180
Due after five years		-		-		71,573		60,115
Due after ten years		-		-		143,072		115,948
Total	$	125	$	113	$	426,880	$	372,339

17

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized losses		-		-
Net realized (losses)	$	-	$	-
Proceeds from sales of securities	$	-	$	-

	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized (losses)		-		(97	)
Net realized (losses)	$	-	$	(97	)
Proceeds from sales of securities	$	-	$	8,699

The following table shows the gross unrealized losses and estimated fair value of available for sale securities for which an allowance for credit losses has not been recorded, aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2023 (dollars in thousands):

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2023
U.S. Treasury	$	-	$	-	$	37,006	$	2,912	$	37,006	$	2,912
U.S. Agency		-		-		131,614		11,870		131,614		11,870
Municipal bonds		5,432		593		30,890		4,466		36,322		5,059
Mortgage-backed securities		-		-		136,523		29,988		136,523		29,988
Corporate		1,673		327		24,004		4,546		25,677		4,873
Total	$	7,105	$	920	$	360,037	$	53,782	$	367,142	$	54,702

Unrealized losses at September 30, 2023 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities. Issuers continue to make timely principal and interest payments and the Company currently has no plans to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The following table shows the gross unrealized losses and estimated fair value of available sale securities and held to maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2022 (dollars in thousands):

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2022
U.S. Treasury	$	9,657	$	362	$	26,987	$	2,897	$	36,644	$	3,259
U.S. Agency		13,914		1,083		115,835		12,642		129,749		13,725
Municipal bonds		21,805		1,426		18,710		2,734		40,515		4,160
Mortgage-backed securities		32,823		2,429		119,892		23,817		152,715		26,246
Corporate		16,252		2,198		10,379		1,721		26,631		3,919
Total	$	94,451	$	7,498	$	291,803	$	43,811	$	386,254	$	51,309

18

As of September 30, 2023, other investments consist of investments in twelve low-income housing and historic equity partnerships (carrying basis of $5.3 million), stock in the Federal Home Loan Bank of Atlanta (“FHLB’) (carrying basis $3.7 million) and various other investments (carrying basis $2.0 million). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The fair values of these securities are estimated to approximate their carrying value as of September 30, 2023. At September 30, 2023, the Company was committed to invest an additional $625,000 in three low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in other liabilities on the consolidated balance sheet.

The Company has pledged securities with a par value of $222.5 million and market value of $190.2 million to the Federal Reserve Discount Window Bank Term Funding Program (“BTFP”) as of September 30, 2023. The BTFP was established in March 2023 to offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP was created 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 Bank has not borrowed from the BTFP during 2023.

Note 3. Loans and Allowance for Credit Losses

Under adoption of ASC 326, there were changes to certain loan segments to better differentiate credit characteristics and align with our ACL model. Construction/land development was split into two segments: 1-4 family residential construction and other construction, land development and land. Commercial real estate was also split into two segments: owner-occupied commercial real estate and other commercial real estate. Commercial and industrial – non-real estate was divided into agricultural loans, commercial and industrial loans, and municipal loans. Dealer finance was consolidated with other automobile loans.

The following is a summary of the major categories of total loans outstanding at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
1-4 Family residential construction	$	34,320
Other construction, land development and land		46,027
Secured by farmland		80,502
Home equity – open end		46,351
Real estate		182,814
Home Equity – closed end		5,054
Multifamily		8,257
Owner-occupied commercial real estate		91,836
Other commercial real estate		102,216
Agricultural loans		13,299
Commercial and industrial		47,282
Credit Cards		3,316
Automobile loans		123,981
Other consumer loans		15,149
Municipal loans		5,844
Gross loans		806,248
Unamortized net deferred loan fees		(646	)
Less allowance for credit losses		9,166
Net loans	$	796,436

19

	December 31, 2022
Construction/Land Development	$	68,671
Farmland		74,322
Real Estate		153,281
Multi-Family		9,622
Commercial Real Estate		195,163
Home Equity – closed end		4,707
Home Equity – open end		46,928
Commercial & Industrial – Non-Real Estate		56,625
Consumer		6,488
Dealer Finance		125,125
Credit Cards		3,242
Gross loans		744,174
Unamortized net deferred loan fees		(570	)
Less allowance for credit losses		7,936
Net loans	$	735,668

The Company has pledged loans held for investment as collateral for borrowings with the FHLB totaling $271.5 million and $209.8 million as of September 30, 2023 and December 31, 2022, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios.

Nonaccrual and Past Due Loans

The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2023 (dollars in thousands):

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past due		Nonaccrual Loans		Accruing Current Loans			Total Loans
September 30, 2023
1-4 Family residential construction	$	-	$	-	$	-	$	723	$	33,597		$	34,320
Other construction, land development and land		-		-		-		545		45,482			46,027
Secured by farmland		-		-		-		977		79,525			80,502
Home equity – open end		494		-		-		225		45,632			46,351
Real estate		1,714		-		-		591		180,509			182,814
Home Equity – closed end		-		-		-		-		5,054			5,054
Multifamily		-		-		-		-		8,257			8,257
Owner-occupied commercial real estate		1,328		-		-		-		90,508			91,836
Other commercial real estate		-		-		-		-		102,216			102,216
Agricultural loans		-		-		-		73		13,226			13,299
Commercial and industrial		162		-		25		33		47,062			47,282
Credit Cards		59		19		4		-		3,234			3,316
Automobile loans		854		221		-		380		122,526			123,981
Other consumer loans		67		16		-		10		15,056			15,149
Municipal loans		-		-		-		-		5,844			5,844
Gross loans		4,678		256		29		3,557		797,728			806,248
Less: Unamortized net deferred loan fees		-		-		-		-		(646	)		(646	)
Loans held for investment	$	4,678	$	256	$	29	$	3,557	$	797,082		$	805,602

20

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2022 (dollars in thousands):

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past Due		Nonaccrual Loans		Accruing Current Loans			Total Loans
December 31, 2022
Construction/Land Development	$	477	$	539	$	-	$	21	$	67,634		$	68,671
Farmland		85		18		-		1,458		72,761			74,322
Real Estate		1,807		226		-		419		150,829			153,281
Multi-Family		-		-		-		-		9,622			9,622
Commercial Real Estate		234		82		-		-		194,847			195,163
Home Equity – closed end		3		-		-		-		4,704			4,707
Home Equity – open end		385		177		-		-		46,366			46,928
Commercial & Industrial – Non- Real Estate		104		-		31		101		56,389			56,625
Consumer		11		11		-		15		6,451			6,488
Dealer Finance		1,117		225		5		210		123,568			125,125
Credit Cards		51		9		2		-		3,180			3,242
Less: Unamortized net deferred loan fees		-		-		-		-		(570	)		(570	)
Loans held for investment	$	4,274	$	1,287	$	38	$	2,224	$	735,781		$	743,604

There were $3.6 million and $2.2 million in nonaccrual loans at September 30, 2023 and December 31, 2022, respectively. The Company would have earned $162,000 in the first nine months of 2023 and $103,000 in the first nine months of 2022, if interest on the nonaccrual loans had been accrued.

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (dollars in thousands). Information for September 30, 2023 is presented under CECL, while information for December 31, 2022 is presented in accordance with the previously applicable incurred loss methodology.

	CECL						Incurred Loss
	September 30, 2023						December 31, 2022
	Nonaccrual loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
1-4 Family residential construction	$	723	$	-	$	723	$	-
Other construction, land development and land		545		-		545		21
Secured by farmland		977		-		977		1,458
Home equity – open end		225		-		225		-
Real estate		591		-		591		419
Home Equity – closed end		-		-		-		-
Multifamily		-		-		-		-
Owner-occupied commercial real estate		-		-		-		-
Other commercial real estate		-		-		-		-
Agricultural loans		73		-		73		88
Commercial and industrial		33		-		33		13
Credit Cards		-		-		-		-
Automobile loans		380		-		380		210
Other consumer loans		10		-		10		15
Municipal loans		-		-		-		-
Total loans	$	3,557	$	-	$	3,557	$	2,224

21

The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2023 (dollars in thousands):

	For the Three Months Ended September 30, 2023		For the Nine Months Ended September 30, 2023
1-4 Family residential construction	$	10	$	10
Other construction, land development and land		6		6
Secured by farmland		-		-
Home equity – open end		-		1
Real estate		1		3
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		5		8
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	22	$	28

22

Credit Quality Indicators

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023 (dollars in thousands):

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
1-4 Family residential construction
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	33,079	$	33,079
Watch		-		-		-		-		-		-		518		518
Substandard		-		-		-		-		-		-		723		723
Total 1-4 Family residential construction		-		-		-		-		-		-		34,320		34,320
Current period gross write-offs		-		70		-		-		-		-		-		70
Other construction, land development and land
Pass		4,343		3,903		5,753		1,862		2,883		4,957		21,339		45,040
Watch		-		-		-		-		-		261		181		442
Substandard		521		-		-		-		-		24		-		545
Total Other construction, land development and land		4,864		3,903		5,753		1,862		2,883		5,242		21,520		46,027
Current period gross write-offs		-		-		-		-		-		-		-		-
Secured by farmland
Pass		6,395		15,174		14,149		27,475		2,533		6,530		5,553		77,809
Watch		-		-		-		-		790		910		-		1,700
Substandard		-		-		325		-		-		652		16		993
Total Secured by farmland		6,395		15,174		14,474		27,475		3,323		8,092		5,569		80,502
Current period gross write-offs		-		-		-		-		-		-		-		-
Home equity – open end
Pass		370		-		-		-		-		143		44,182		44,695
Watch		-		-		-		-		-		-		1,381		1,381
Substandard		-		-		-		-		-		-		275		275
Total Home equity - open end		370		-		-		-		-		143		45,838		46,351
Current period gross write-offs		-		-		-		-		-		-		-		-
Real estate
Pass		36,704		44,780		15,382		12,310		6,555		56,434		192		172,357
Watch		-		-		-		502		155		5,784		-		6,441
Substandard		-		90		542		-		1,218		2,166		-		4,016
Total Real estate		36,704		44,870		15,924		12,812		7,928		64,384		192		182,814
Current period gross write-offs		-		-		-		-		-		19		-		19
Home Equity – closed end
Pass		1,059		391		121		1,067		473		1,560		-		4,671
Watch		-		-		-		-		-		371		-		371
Substandard		-		-		-		-		12		-		-		12
Total Home Equity - closed end		1,059		391		121		1,067		485		1,931		-		5,054
Current period gross write-offs		-		-		-		-		-		-		-		-
Multifamily
Pass		-		2,730		1,414		916		-		1,590		1,504		8,154
Watch		-		-		-		-		-		103		-		103
Substandard		-		-		-		-		-		-		-		-
Total Multifamily		-		2,730		1,414		916		-		1,693		1,504		8,257
Current period gross write-offs		-		-		-		-		-		-		-		-
Owner-occupied commercial real estate
Pass		2,165		18,342		18,132		7,208		3,649		23,487		5,891		78,874
Watch		-		-		-		-		40		2,108		-		2,148
Substandard		-		-		-		-		6,323		1,193		3,298		10,814
Total Owner-occupied commercial real estate		2,165		18,342		18,132		7,208		10,012		26,788		9,189		91,836
Current period gross write-offs		-		-		-		-		-		-		-		-
Other commercial real estate
Pass		4,148		30,132		12,895		5,059		3,825		31,048		3,229		90,336
Watch		-		-		-		-		-		11,793		-		11,793
Substandard		-		-		-		-		-		87		-		87
Total Other commercial real estate		4,148		30,132		12,895		5,059		3,825		42,928		3,229		102,216
Current period gross write-offs		-		-		-		-		-		-		-		-

23

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Agricultural loans
Pass		2,869		2,719		627		453		-		38		6,333		13,039
Watch		-		-		-		37		-		-		150		187
Substandard		-		48		14		11		-		-		-		73
Total Agricultural loans		2,869		2,767		641		501		-		38		6,483		13,299
Current period gross write-offs		-		-		-		-		-		-		-		-
Commercial and industrial
Pass		4,971		8,901		5,790		1,914		806		369		16,571		39,322
Watch		-		48		57		-		-		-		7,167		7,272
Substandard		-		33		628		25		-		2		-		688
Total 1-4 Commercial and industrial		4,971		8,982		6,475		1,939		806		371		23,738		47,282
Current period gross write-offs		-		-		-		-		-		2		-		2
Credit Cards
Pass		-		-		-		-		-		-		3,312		3,312
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		4		4
Total Credit cards		-		-		-		-		-		-		3,316		3,316
Current period gross write-offs		-		-		-		-		-		-		25		25
Automobile loans
Pass		46,565		42,147		21,824		8,772		2,755		1,019		-		123,082
Watch		199		130		48		43		53		46		-		519
Substandard		30		124		187		30		4		5		-		380
Total Automobile loans		46,794		42,401		22,059		8,845		2,812		1,070		-		123,981
Current period gross write-offs		88		424		386		105		32		25		-		1,060
Other consumer loans
Pass		4,521		5,619		2,587		1,062		307		532		473		15,101
Watch		-		4		23		-		2		3		1		33
Substandard		-		10		-		-		5		-		-		15
Total Other consumer loans		4,521		5,633		2,610		1,062		314		535		474		15,149
Current period gross write-offs		-		56		1		2		6		2		-		67
Municipal loans
Pass		-		170		973		1,128		1,257		2,316		-		5,844
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Municipal loans		-		170		973		1,128		1,257		2,316		-		5,844
Current period gross write-offs		-		-		-		-		-		-		-		-
Total loans	$	114,860	$	175,495	$	101,471	$	69,874	$	33,645	$	155,531	$	155,372	$	806,248
Less: Unamortized net deferred loan fees																(646	)
Loans held for investment															$	805,602
Current period gross write-offs	$	88	$	550	$	387	$	107	$	38	$	48	$	25	$	1,243

Under the adoption of ASC 326, the Company consolidated its internal risk ratings 1 through 5 into a pass category. Doubtful loans are charged off; dealer finance loans utilize the updated credit quality indicators. Credit cards are classified as pass or substandard. The credit quality indicators for watch and substandard remain unchanged.

Description of the Company’s credit quality indicators under CECL:

Pass: Loans in all classes that are part of the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

24

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Credit cards are classified as pass or substandard. A credit card is substandard when payments of principal and interest are past due 90 days or more.

The following table shows the Company’s loan portfolio broken down by internal loan grade as of December 31, 2022 (dollars in thousands):

December 31, 2022	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	4	$	11,112	$	42,684	$	13,116	$	1,213	$	542	$	-	$	68,671
Farmland		155		269		11,373		38,051		22,069		947		1,458		-		74,322
Real Estate		-		553		27,003		86,269		28,560		6,950		3,946		-		153,281
Multi-Family		-		-		963		5,116		3,430		113		-		-		9,622
Commercial Real Estate		-		3,097		55,662		72,779		41,749		13,878		7,998		-		195,163
Home Equity – closed end		-		48		1,065		2,560		639		382		13		-		4,707
Home Equity – open end		27		1,272		18,671		23,207		2,091		1,611		49		-		46,928
Commercial & Industrial - Non-Real Estate		10		516		12,934		26,310		15,613		911		331		-		56,625
Consumer (excluding dealer)		33		286		2,965		3,105		68		16		15		-		6,488
Gross loans	$	225	$	6,045	$	141,748	$	300,081	$	127,335	$	26,021	$	14,352	$	-	$	615,807
Less: Unamortized net deferred loan fees																		(570	)
Total																	$	615,237

	Credit Cards		Dealer Finance
Performing	$	3,240	$	124,910
Nonperforming		2		215
Total	$	3,242	$	125,125

Description of internal loan grades under Incurred Loss:

Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through additional long-term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

25

Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 – Doubtful: Loans having all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.

Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.

Collateral Dependent Disclosures

The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

26

The following table presents an analysis of collateral-dependent loans of the Company as of September 30, 2023 (dollars in thousands):

	September 30, 2023
	Real Estate		Business/ Other Assets
1-4 Family residential construction	$	-	$	-
Other construction, land development and land		521		-
Secured by farmland		-		-
Home equity – open end		-		-
Real estate		-		-
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		-		-
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	521	$	-

Allowance for Credit Losses

The following tables summarize the activity related to the allowance for credit losses for the nine months ended September 30, 2023 under the CECL methodology (dollars in thousands).

ACL for Loans

	December 31, 2022		Adjustment for adoption of ASU 2016-13			Charge-offs		Recoveries		Provision for loan credit losses			September 30, 2023
1-4 Family residential construction	$	324	$	109		$	70	$	1	$	154		$	518
Other construction, land development and land		694		602			-		-		148			1,444
Secured by farmland		571		311			-		-		67			949
Home equity – open end		446		(189	)		-		-		-			257
Real estate		1,389		(184	)		19		-		68			1,254
Home Equity – closed end		39		96			-		-		14			149
Multifamily		71		182			-		-		(45	)		208
Owner-occupied commercial real estate		992		280			-		-		(39	)		1,233
Other commercial real estate		1,023		(582	)		-		-		(5	)		436
Agricultural loans		80		(58	)		-		-		2			24
Commercial and industrial		368		338			2		1		67			772
Credit Cards		68		26			25		20		2			91
Automobile loans		1,790		(257	)		1,060		475		535			1,483
Other consumer loans		81		103			67		42		189			348
Municipal loans		-		-			-		-		-			-
Total loans	$	7,936	$	777		$	1,243	$	539	$	1,157		$	9,166

27

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods (dollars in thousands).

September 30, 2022	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	977	$	-	$	-	$	77		$	1,054	$	228	$	826
Farmland		448		-		-		77			525		-		525
Real Estate		1,162		17		-		(4	)		1,141		99		1,042
Multi-Family		29		-		-		27			56		-		56
Commercial Real Estate		2,205		-		-		(398	)		1,807		21		1,786
Home Equity – closed end		41		-		-		(7	)		34		-		34
Home Equity – open end		407		-		130		(141	)		396		-		396
Commercial & Industrial – Non-Real Estate		288		36		44		102			398		-		398
Consumer		520		147		21		(137	)		257		-		257
Dealer Finance		1,601		794		445		518			1,770		13		1,757
Credit Cards		70		42		11		36			75		-		75
Total	$	7,748	$	1,036	$	651	$	150		$	7,513	$	361	$	7,152

The following tables presents, as of September 30, 2023 and December 31, 2022 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above (dollars in thousands).

	September 30, 2023
	Loan Balances						Allowance for Credit Losses - Loans
	Loans Individually Evaluated		Loans Collectively Evaluated		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
1-4 Family residential construction	$	-	$	34,320	$	34,320	$	-	$	518	$	518
Other construction, land development and land		521		45,506		46,027		228		1,216		1,444
Secured by farmland		-		80,502		80,502		-		949		949
Home equity – open end		-		46,351		46,351		-		257		257
Real estate		-		182,814		182,814		-		1,254		1,254
Home Equity – closed end		-		5,054		5,054		-		149		149
Multifamily		-		8,257		8,257		-		208		208
Owner-occupied commercial real estate		-		91,836		91,836		-		1,233		1,233
Other commercial real estate		-		102,216		102,216		-		436		436
Agricultural loans		-		13,299		13,299		-		24		24
Commercial and industrial		-		47,282		47,282		-		772		772
Credit Cards		-		3,316		3,316		-		91		91
Automobile loans		-		123,981		123,981		-		1,483		1,483
Other consumer loans		-		15,149		15,149		-		348		348
Municipal loans		-		5,844		5,844		-		-		-
Total loans	$	521	$	805,727	$	806,248	$	228	$	8,938	$	9,166

28

December 31, 2022	Loan Receivable			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,671		$	853	$	67,818
Farmland		74,322			2,079		72,243
Real Estate		153,281			3,260		150,021
Multi-Family		9,622			-		9,622
Commercial Real Estate		195,163			9,111		186,052
Home Equity – closed end		4,707			-		4,707
Home Equity –open end		46,928			-		46,928
Commercial & Industrial – Non-Real Estate		56,625			-		56,625
Consumer		6,488			-		6,488
Dealer Finance		125,125			62		125,063
Credit Cards		3,242			-		3,242
Gross Loans		744,174			15,365		728,809
Less: Unamortized net deferred loan fees		(570	)		-		(570	)
Total	$	743,604		$	15,365	$	728,239

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all substandard loans greater than $500,000 and all troubled debt restructurings. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

29

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022 (dollars in thousands):

	December 31, 2022
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment(1)		Balance		Allowance		Investment
Impaired loans with no related allowance recorded:
Construction/Land Development	$	332	$	332	$	-	$	474
Farmland		2,535		2,079		-		2,137
Real Estate		1,882		1,882		-		2,107
Multi-Family		-		-		-		-
Commercial Real Estate		8,131		8,131		-		8,851
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		7		7		-		11
		12,887		12,431		-		13,580
Impaired loans with an allowance recorded:
Construction/Land Development		521		521		228		261
Farmland		-		-		-		-
Real Estate		1,378		1,378		92		1,466
Multi-Family		-		-		-		-
Commercial Real Estate		980		980		11		1,935
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		55		55		13		62
		2,934		2,934		344		3,724
Total impaired loans	$	15,821	$	15,365	$	344	$	17,304

¹The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.

30

The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the nine-month period ended September 30, 2022 (dollars in thousands):

	Nine Months Ended September, 30, 2022
	Average Recorded		Interest Income
	Investment		Recognized
Impaired loans with no related allowance recorded:
Construction/Land Development	$	552	$	15
Farmland		2,188		151
Real Estate		2,290		75
Multi-Family		-		-
Commercial Real Estate		8,339		266
Home Equity – closed end		74		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		3		-
Credit Cards		-		-
Dealer Finance		11		1
		13,457		508
Impaired loans with an allowance recorded:
Construction/Land Development	$	261	$	17
Farmland		-		-
Real Estate		1,309		49
Multi-Family		-		-
Commercial Real Estate		3,496		34
Home Equity – closed end		-		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		-		-
Credit Card		-		-
Dealer Finance		81		5
		5,147		105
Total Impaired Loans	$	18,604	$	613

Modifications Made to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

31

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

There were no loans modified to a borrower experiencing financial difficulty in the three months ended September 30, 2023. There was one loan modified to a borrower experiencing financial difficulty in the nine months ended September 30, 2023 (see table below, dollars in thousands). There were no loans that had a payment default during the quarter that were modified in the previous 12 months.

	Nine months ending September 30, 2023
	Term Extension
	Amortized Cost		Weighted Average Term Extension (Months)
Automobile loans	$	21		3
Total loans	$	21		3

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (dollars in thousands):

	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
1-4 Family residential construction	$	-	$	-	$	-
Other construction, land development and land		-		-		-
Secured by farmland		-		-		-
Home equity – open end		-		-		-
Real estate		-		16		-
Home Equity – closed end		-		-		-
Multifamily		-		-		-
Owner-occupied commercial real estate		-		-		-
Other commercial real estate		-		-		-
Agricultural loans		-		-		-
Commercial and industrial		-		-		-
Credit Cards		-		-		-
Automobile loans		37		-		-
Other consumer loans		-		-		-
Municipal loans		-		-		-
Total loans	$	37	$	16	$	-

The following table shows, by modification type, TDRs that occurred during 2022 (dollars in thousands):

	December 31, 2022
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Extended maturity		3	$	44	$	44
Change in terms		1		162		162
Total		4	$	206	$	206

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans and are discussed above. The allowance for credit losses for unfunded loan commitments of $749,000 at September 30, 2023 is separately classified on the balance sheet within Other liabilities.

32

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended September 30, 2023 (dollars in thousands).

	Total Allowance for Credit Losses – Unfunded Commitments
Balance, December 31, 2022	$	-
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		747
Provision for credit losses		2
Balance, September 30, 2023	$	749

Note 4. Mortgage Banking and Derivatives

Loans Held for Sale

The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. The Company uses fair value accounting for its entire portfolio of loans held for sale (“LHFS”) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business totaled $2.0 million as of September 30, 2023 of which $2.0 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.

Interest Rate Lock Commitments and Forward Sales Commitments

The Company, through F&M Mortgage, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).

The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate loan commitments will close.

The fair value of these derivative instruments is reported in “Other Assets” in the Consolidated Balance Sheet at September 30, 2023, and totaled $21,000, with a notional amount of $13.3 million and total positions of 42. The fair value of the IRLCs were reported in the “Other liabilities” in the Consolidated Balance Sheet at December 31, 2022 and totaled $92,000, with a notional amount of $12.2 million and total positions of 38. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended September 30, 2023 and 2022. The Company’s IRLCs are classified as Level 2. At September 30, 2023 and December 31, 2022, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.

The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at September 30, 2023 and totaled $122,000, with a notional amount of $15.3 million and total positions of 48. The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2022 and totaled $186,000, with a notional amount of $13.6 million and total positions of 43.

33

Note 5. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31^st as the measurement date for the defined benefit pension plan. The plan was amended on February 15, 2023 to stop the accrual of future benefits. The following is a summary of net periodic pension costs for the three and nine month periods ended September 30, 2023 and 2022 (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Service cost	$	-		$	190		$	-		$	570
Interest cost		92			104			276			312
Expected return on plan assets		(130	)		-			(390	)		-
Amortization of prior service cost		-			(195	)		-			(585	)
Amortization of net loss		-			58			-			174
Net periodic pension cost	$	(38	)	$	157		$	(114	)	$	471

Note 6. Stock-Based Compensation

The Company granted stock awards to directors and employees under the Company’s 2020 Stock Incentive Plan. On March 7, 2023 the Bank’s Compensation Committee awarded 23,556 shares with a fair value of $526,000 to selected employees. These shares vest 25% over each of the next four years. The Committee also awarded 1,309 shares with a fair value of $29,000 to directors that vested upon issuance. There were 6,974 shares vested, less 96 shares netted for taxes, during the nine months ended September 30, 2023. There were 529 shares forfeited in the three months ended September 30, 2023. Unrecognized compensation expense related to the nonvested restricted stock as of September 30, 2023 totaled $638,000.

Note 7. Fair Value

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

34

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans Held for Sale

The Company uses the fair value accounting for its entire portfolio of originated loans held for sale in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s originated loans held for sale through F&M Mortgage is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale through F&M Mortgage is classified as Level 2. Gains and losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of Income.

Derivative assets – IRLCs

The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 2.

Derivative Asset/Liability – Forward Sale Commitments

The Company uses the fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best efforts commitments are valued using the committed price to the counter-party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All the Company’s forward sale commitments are classified Level 2.

35

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (dollars in thousands):

			Fair Value Measurements Using:
	Balance at September 30, 2023		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	2,027	$	-	$	2,027	$	-
U.S. Treasury		37,006		-		37,006		-
U.S. Agency		131,614		-		131,614		-
Municipal bonds		36,323		-		36,323		-
Mortgage-backed securities		141,719		-		141,719		-
Corporate		25,677		-		25,677		-
IRLC		122		-		122		-
Forward Sales Commitments		21		-		21		-
Assets at Fair Value	$	374,509	$	-	$	374,509	$	-

			Fair Value Measurements Using:
	Balance at December 31, 2022		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	1,373	$	-	$	1,373	$	-
U.S. Treasury		36,643		-		36,643		-
U.S. Agency		129,748		-		129,748		-
Municipal bonds		42,198		-		42,198		-
Mortgage-backed securities		156,875		-		156,875		-
Corporate		26,631		-		26,631		-
Forward sales commitments		186		-		186		-
Assets at Fair Value	$	393,654	$	-	$	393,654	$	-
Liabilities:
IRLC	$	92	$	-	$	92	$	-
Liabilities at Fair Value	$	92	$	-	$	92	$	-

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Collateral Dependent Loans with an ACL

In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

36

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

			Fair Value Measurements Using:
Collateral dependent loans with an ACL	Balance at September 30, 2023		Level 1		Level 2		Level 3
Other construction, land development and land	$	293	$	-	$	-	$	293
Total collateral dependent loans with an ACL	$	293	$	-	$	-	$	293

			Fair Value Measurements Using:
Impaired Loans	Balance at December 31, 2022		Level 1		Level 2		Level 3
Construction/Land Development	$	293	$	-	$	-	$	293
Real Estate		1,286		-		-		1,286
Commercial Real Estate		969		-		-		969
Dealer Finance		42		-		-		42
Total Impaired loans	$	2,590	$	-	$	-	$	2,590

The following table presents information about Level 3 Fair Value Measurements for September 30, 2023 and December 31, 2022 (dollars in thousands):

	Fair Value at September 30, 2023		Valuation Technique	Significant Unobservable Inputs	Range
Collateral Dependent Loans	$	293	Discounted appraised value	Discount for selling costs and marketability		62%

	Fair Value at December 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	2,590	Discounted appraised value	Discount for selling costs and marketability	10.00%-33.00% (Average 19.00%)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.

The Company markets other real estate owned and assets held for sale both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The Company did not have any other real estate owned as of September 30, 2023 or December 31, 2022.

Note 8. Disclosures about Fair Value of Financial Instruments

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2023 and December 31, 2022. Fair values for September 30, 2023 and December 31, 2022 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

37

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows (dollars in thousands):

			Fair Value Measurements at September 30, 2023 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2023
Assets:
Cash and cash equivalents	$	22,158	$	22,158	$	-	$	-	$	22,158
Securities available for sale		372,339		-		372,339		-		372,339
Securities held to maturity		125		-		113		-		113
Loans held for sale		2,027		-		2,027		-		2,027
Loans held for investment, net		805,602		-		-		773,821		773,821
Interest receivable		4,645		-		4,645		-		4,645
Bank owned life insurance		22,705		-		22,705		-		22,705
IRLC		122		-		122		-		122
Forward sales commitments		21		-		21		-		21
Total	$	1,229,744	$	22,158	$	401,972	$	773,821	$	1,197,951
Liabilities:
Deposits	$	1,133,910	$	-	$	1,131,833	$	-	$	1,133,833
Short-term debt		60,000		-		-		60,000		60,000
Long-term debt		6,922		-		-		6,656		6,656
Interest payable		1,215		-		1,215		-		1,215
Total	$	1,202,047	$	-	$	1,133,048	$	66,656	$	1,199,704

			Fair Value Measurements at December 31, 2022 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2022
Assets:
Cash and cash equivalents	$	34,953	$	34,953	$	-	$	-	$	34,953
Securities		392,220		-		392,220		-		392,220
Loans held for sale		1,373		-		1,373		-		1,373
Loans held for investment, net		743,604		-		-		720,806		720,806
Interest receivable		3,995		-		3,995		-		3,995
Bank owned life insurance		23,554		-		23,554		-		23,554
Forward sales commitments		186		-		186		-		186
Total	$	1,199,885	$	34,953	$	421,328	$	720,806	$	1,177,087
Liabilities:
Deposits	$	1,083,377	$	-	$	1,080,909	$	-	$	1,080,909
Short-term debt		70,000		-		-		70,000		70,000
Long-term debt		6,890		-		-		6,778		6,778
IRLC		92		-		92		-		92
Interest payable		295		-		295		-		295
Total	$	1,160,654	$	-	$	1,081,296	$	76,778	$	1,158,074

38

Note 9. Accumulated Other Comprehensive Loss

The following tables present components of accumulated other comprehensive loss for the periods stated (dollars in thousands).

	For the three months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at June 30, 2023	$	(37,664	)	$	439	$	(37,225	)
Change in unrealized securities gains (losses), net of tax benefit of $1,442		(5,423	)		-		(5,423	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the three months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at June 30, 2022	$	(33,109	)	$	(3,291	)	$	(36,400	)
Change in unrealized securities gains (losses), net of tax benefit of $2,075		(7,804	)		-			(7,804	)
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

	For the nine months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	(40,451	)	$	439	$	(40,012	)
Change in unrealized securities gains, net of tax expense of $701		(2,636	)		-		(2,636	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the nine months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(1,801	)	$	(3,291	)	$	(5,092	)
Change in unrealized securities losses, net of tax benefit of $10,417		(39,189	)		-			(39,189	)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit of $20		77			-			77
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

There were no reclassifications adjustments reported on the consolidated statements of income during the three and nine months ended September 30, 2023.

Note 10. Debt

Short-term Debt

The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to support loans growth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the need of the Company. There was $60.0 million in short-term debt at September 30, 2023 and $70.0 million in short-term debt at December 31, 2022.

39

Long-term Debt

On July 29, 2020, the Company sold and issued to an institutional accredited investor $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated note due July 31, 2030. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate 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 September 30, 2023.

Note 11. Revenue Recognition

Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all the Company’s revenue is generated from contracts with customers. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Investment Services and Insurance Income

Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

Title Insurance Income

VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.

ATM and Check Card Fees

ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

Other

Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

40

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Noninterest Income
In-scope of Topic 606:
Service Charges on Deposits	$	256	$	255	$	755	$	836
Investment Services and Insurance Income		374		316		1,236		1,020
Title Insurance Income		444		376		1,069		1,215
ATM and check card fees		672		628		1,971		1,823
Other		268		173		628		668
Noninterest Income (in-scope of Topic 606)		2,014		1,748		5,659		5,562
Noninterest Income (out-of-scope of Topic 606)		513		534		1,986		2,280
Total Noninterest Income	$	2,527	$	2,282	$	7,645	$	7,842

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2023 and December 31, 2022, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

Note 12. Leases

The Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

41

The following tables present information about the Company’s leases (dollars in thousands):

	September 30, 2023
Lease Liabilities	$	773
Right-of-use assets	$	755
Weighted average remaining lease term (years)		1.77 years
Weighted average discount rate		3.30	%

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Operating lease cost	$	40	$	75	$	123	$	169
Total lease cost	$	40	$	75	$	123	$	169
Cash paid for amounts included in the measurement of lease liabilities	$	44	$	100	$	149	$	205

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

	September 30, 2023
Three months ending December 31, 2023	$	44
Twelve months ending December 31, 2024		166
Twelve months ending December 31, 2025		122
Twelve months ending December 31, 2026		69
Twelve months ending December 31, 2027		56
Thereafter		462
Total undiscounted cash flows	$	919
Discount		146
Lease liabilities	$	773

Note 13. Subsequent Events

On October 23, 2023 the Bank filed documents for the dissolution of TEB Life Insurance Company with the Arizona Corporation Commission. TEB has made accommodations to extinguish all remaining insurance obligations and has no insurance obligations by direct writing. The Bank plans for the dissolution to be finalized by December 31, 2023.

On November 7, 2023 the Company announced they are offering an early retirement program to certain employees during the fourth quarter of 2023. The maximum potential one-time expense associated with this program is currently estimated to be $1,812,427. The Company cannot predict at this time how many employees will choose to participate or whether the expense associated with the program will be less than $1,812,427. The Company expects to recognize all expenses associated with the early retirement program during the fourth quarter ending December 31, 2023.

42

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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”). TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services (“FMFS”) and VBS Mortgage LLC (dba “F&M Mortgage”) are wholly owned subsidiaries of the Bank. The Company held a majority ownership in VSTitle LLC (“VST”), with the remaining minority interest owned by F&M Mortgage, until the Company purchased F&M Mortgage’s minority interest in VST on January 3, 2022.

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). TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. 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, Fishersville, Woodstock, and Winchester, Virginia. VSTitle provides title insurance services through their offices in Harrisonburg, Fishersville, and Charlottesville, Virginia.

The Company’s primary trade area services customers in the counties of Rockingham, Shenandoah, Augusta and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester.

Management’s discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Part 1, Item 1 of this Form 10-Q and in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Caution Regarding Forward-Looking Statements

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning opinions or judgments of the Company and its management about future events. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, those described in described in Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, and the following:

· Changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries, declines in real estate values in our markets, or in the repayment ability of individual borrowers or issuers;

· The strength of the economy in our market area, as well as general economic, market, or business conditions;

· An insufficient allowance for credit losses as a result of inaccurate assumptions;

· Our ability to maintain our “well-capitalized” regulatory status;

· Changes in our competitive position, competitive actions by other financial institutions, financial technology firms and others, the competitive nature of the financial services industry and our ability to compete effectively in our banking markets;

· Our ability to manage growth;

· Our potential growth, including our entrance or expansion into new markets, the need for sufficient capital to support that growth, difficulties or disruptions expanding into new markets or integrating the operations of acquired branches or business, and the inability to obtain the expected benefits of such growth;

43

· Our exposure to operational risk;

· Our ability to raise capital as needed by our business;

· Changes in laws, regulations and the policies of federal or state regulators and agencies;

· The effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB, or other accounting standards setting bodies;

· Geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;

· Other factors identified in reports the Company files with the SEC from time to time; and

· Other circumstances, many of which are beyond our control.

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.

Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry. 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. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.

The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of September 30, 2023 were unchanged from the policies disclosed in the 2022 Form 10-K within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” except for the adoption of ASC 326. See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.

Results of Operations

Third Quarter Income Statement Highlights

Net income for the current quarter was $1.0 million or $0.29 per share, an increase of $777,000 from the second quarter and a decrease of $1.3 million from the third quarter 2022. The increase from the second quarter was due to an increase in net interest income of $220,000 and a decrease in noninterest expense of $1.3 million, which included an accrual for a potential one-time severance payment to a former officer in the amount of $764,000 in the second quarter. The decrease from the third quarter of 2022 is attributable to a $1.1 million decrease in net interest income.

Net interest income for the current quarter was $8.0 million, an increase of $220,000 from the second quarter 2023 and a decrease of $1.1 million from third quarter 2022. Interest income for the three months ended September 30, 2023, was $14.6 million, an increase of $1.0 million from second quarter 2023 and $3.6 million over the prior year third quarter, 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 to $6.6 million from $5.9 million in the prior quarter and $1.9 million from the same period in 2022.

During third quarter 2023, the Bank recorded a $620,000 provision for credit losses due to loan growth of $29.3 million and $193,000 in net charge-offs. A provision for credit losses of $539,000 was recorded in second quarter 2023, compared to no provision for credit losses in third quarter 2022. At September 30, 2023, the Allowance for Credit Losses for loans (ACL) totaled $9.2 million or 1.14% of loans held for investment.

44

Noninterest income totaled $2.5 million for the quarter, a decrease from the second quarter of $225,000 and an increase of $245,000 from the third quarter of 2022. The decrease from last quarter was due to a one time gain on bank owned life insurance of $363,000 in the second quarter, offset by increases of $67,000 in title insurance income, $19,000 in investment services and insurance income, and $154,000 in other operating income. The increase from third quarter 2022 is primarily due to increases in other operating income of $201,000, title insurance income of $68,000, investment services and insurance income of $58,000, and ATM and check card fees of $44,000. These increases were offset by a decrease of $130,000 in mortgage banking income. There were fewer mortgage loans sold on the secondary market as a result of an overall decrease in loan volume and a shift in production from the 30-year fixed rate product to variable rate products which were retained in the Bank’s loan portfolio.

Noninterest expense totaled $8.9 million in third quarter 2023, down $1.3 million from the linked quarter and up $50,000 from third quarter 2022. The decrease from second quarter 2023 was driven by reductions in salary expense of $809,000, employee benefits of $187,000, legal and professional fees of $212,000, and telecommunication expense of $117,000. There was little change from third quarter 2022 as decreases of $124,000 in salaries, $277,000 in employee benefits, and $68,000 in telecommunications were offset by increases of $352,000 in other operating expenses, $66,000 in advertising expenses, and $63,000 in equipment expenses.

Year-to-Date Income Statement Highlights

Year-to-date net income was $2.3 million or $0.67 per share compared to $6.6 million or $1.92 per share for the same period in 2022. The decrease is due to a decline in net interest income of $2.6 million, an increase in the provision for credit losses of $1.0 million, a decrease of $294,000 in noninterest income (excluding securities losses) and an increase in noninterest expense of $1.3 million. There were no securities gains or losses in the first nine months of 2023 compared to a $97,000 loss recorded in 2022.

Net interest income for the nine months ended September 30, 2023 was $23.6 million, a decrease of $2.6 million from the first nine months of 2022. Interest income was $41.2 million, an increase of $11.1 million from 2022 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 to $17.6 million from $3.9 million.

In 2023, the Bank recorded a $1.2 million provision for credit losses. This is $1.0 million higher than the provision for loan losses recorded in the first nine months of 2022. The higher provision expense is due to loan growth and net charge-offs in the indirect auto portfolio.

Noninterest income totaled $7.6 million for the first nine months of 2023, which was a decrease of $197,000 from the first nine months of 2022. The primary reason for the decrease was a reduction of $1.0 million in mortgage banking income. Lower mortgage banking activity also negatively impacted title insurance income which declined by $146,000 from the first nine months of 2022 compared to the same period in 2023. Service charges on deposit accounts decreased by $81,000 due to a change that was made in August 2022 in the method used to charge insufficient funds and overdraft fees. Additionally, there was a $97,000 loss on investment securities in 2022 that was not repeated in 2023. These decreases were partially offset by increases of $216,000 in investment and insurance income, $460,000 in bank owned life insurance income (including the previously mentioned gain of $363,000), ATM and check card fees of $148,000, and $140,000 in other operating income.

Noninterest expenses totaled $28.3 million for the first nine months of 2023, compared to $27.0 million in 2022. The increase was primarily due to an increase in salary expense related to the previously mentioned accrual for a potential one-time severance payment. Other increases were spread over professional fees of $290,000, equipment expense of $220,000 for the installation of new ATMs, and other noninterest expenses of $751,000. These amounts were partially offset by a decrease in employee benefits of $668,000 and lower telecommunication and data processing expense of $279,000 resulting from the renegotiation of the contract with the Bank’s core system provider.

For the nine months ended September 30, 2023 and September 30, 2022, there was an income tax benefit of $526,000 and income tax expense of $280,000, respectively. The Company’s 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, bank owned life insurance income, including gains, tax credits from low-income housing tax credit investments, and the vesting of other stock-based compensation.

45

Net Interest Income and Net Interest Margin

For the first nine months of 2023, tax equivalent net interest income¹ totaled $23.7 million, a decrease of $2.6 million from the first nine months of 2022, resulting in a decrease in our net interest margin by 0.35%. Interest income and fees on loans held for investment were $10.5 million higher due to higher rates on variable rate loans and growth of $92.3 million in average loans held for sale since September 30, 2022. Income from interest bearing deposits and securities was $665,000 higher due to increased interest rates.

Interest expense increased by $13.7 million in the first nine months of 2023 to $17.6 million at September 30, 2023, mostly due to higher market interest rates and increases in the average balances of deposits and short-term debt. Beginning in the fourth quarter of 2022 and continuing through the second quarter of 2023, rates paid on money market and time deposits increased significantly. The increase in market interest rates also caused a shift in the deposit mix to higher-cost accounts. Short-term borrowings were used to augment deposits to fund loan growth which increased short-term borrowings expense to $2.2 million from $204,000 last year.

The net interest margin was 2.67% and 3.11% for the three months ended September 30, 2023 and 2022, respectively. The lower net interest margin was due to higher cost of funds, partially offset by higher yields on interest-earning assets.

_____________ 

¹ Tax equivalent net interest income is a non-GAAP financial measure. For more information, see “Non-GAAP Financial Measures” below.”

46

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 nine months ended September 30, 2023 and 2022 (dollars in thousands):

	Nine Months Ended September 30, 2023							Nine Months Ended September 30, 2022							Three Months Ended September 30, 2023							Three Months Ended September 30, 2022
	Average Balance 5		Income/ Expense		Average Rates1			Average Balance5		Income/ Expense		Average Rates1			Average Balance5		Income/ Expense		Average Rates1			Average Balance5		Income/ Expense		Average Rates1
Interest income
Loans held for investment2,3,4	$	767,673	$	34,930		6.08	%	$	675,420	$	24,423		4.83	%	$	787,983	$	12,537		6.31	%	$	696,539	$	8,894		5.07	%
Loans held for sale		1,700		66		5.19	%		4,099		90		2.94	%		1,454		19		5.18	%		4,380		29		2.63	%
Federal funds sold		5,031		187		4.97	%		26,605		82		0.41	%		4,390		54		4.88	%		8,451		47		2.21	%
Interest bearing deposits		758		31		5.47	%		1,789		5		0.37	%		811		13		6.36	%		188		1		2.11	%
Investments
Taxable		391,589		5,718		1.95	%		440,419		5,282		1.60	%		385,734		1,900		1.95	%		447,944		1,947		1.72	%
Partially taxable 4		-		-		-			125		1		1.07	%		-		-		-			125		-		-
Tax exempt 4		14,291		400		3.74	%		12,081		301		3.33	%		14,391		134		3.69	%		12,917		134		4.12	%
Total earning assets	$	1,181,042	$	41,332		4.68	%	$	1,160,538	$	30,184		3.48	%	$	1,194,763	$	14,657		4.87	%	$	1,170,544	$	11,052		3.75	%
Interest Expense
Demand deposits		172,077		2,414		1.88	%		182,383		453		0.33	%		168,159		864		2.04	%		186,614		247		0.53	%
Savings		506,190		9,921		2.62	%		505,759		1,917		0.51	%		509,642		3,526		2.74	%		512,414		897		0.69	%
Time deposits		151,338		2,734		2.42	%		120,975		690		0.76	%		180,400		1,421		3.13	%		121,907		234		0.76	%
Federal funds purchased		727		32		5.88	%		-		-		-			961		15		6.19	%		-		-		-
Short-term debt		57,901		2,185		5.05	%		16,403		204		1.66	%		50,250		687		5.42	%		30,880		158		2.03	%
Long-term debt		6,906		343		6.64	%		15,772		628		5.32	%		6,917		115		6.60	%		9,334		345		14.66	%
Total interest bearing liabilities	$	895,139	$	17,629		2.63	%	$	841,292	$	3,892		0.62	%	$	916,329	$	6,628		2.87	%	$	861,149	$	1,881		0.87	%
Tax equivalent net interest income			$	23,703						$	26,292						$	8,029						$	9,171
Net interest margin						2.68	%						3.03	%						2.67	%						3.11	%

_____________________

¹     Annualized.

²     Interest income on loans includes loan fees.

³     Loans held for investment includes nonaccrual loans.

⁴     Income tax rate of 21% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans.

⁵     Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

47

Non-GAAP Financial Measures

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.

The following table reconciles tax equivalent net interest income, which is not a measurement under GAAP, to net interest income (dollars in thousands):

	September 30, 2023				September 30, 2022
	Nine Months		Three Months		Nine Months		Three Months
Interest Income – Loans	$	34,962	$	12,544	$	24,474	$	8,910
Interest Income - Securities and Other Interest-Earnings Assets		6,252		2,073		5,608		2,102
Interest Expense – Deposits		15,069		5,811		3,060		1,378
Interest Expense - Other Borrowings		2,560		817		832		503
Total Net Interest Income	$	23,585	$	7,989	$	26,190	$	9,131
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income – Loans & Securities		118		40		102		40
Total Tax Benefit on Tax-Exempt Interest Income		118		40		102		40
Tax-Equivalent Net Interest Income	$	23,703	$	8,029	$	26,292	$	9,171

During the first nine months of 2023, the unrealized loss on the bond portfolio increased by $3.3 million, decreasing the Company’s tangible common equity ratio from 5.13% at December 31, 2022, to 4.99% at September 30, 2023. The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing consolidated total common shareholders' equity by consolidated total average assets, after reducing both amounts by average goodwill and other intangible assets. The TCE ratio is not required by GAAP or by bank regulations but is a metric used by management to evaluate the adequacy of the Company's capital levels. Since there is no authoritative requirement to calculated the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible average assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.

Balance Sheet Review

Overview

On September 30, 2023, assets totaled $1.28 billion, an increase of $36.5 million over December 31, 2022. Total loans increased by $62.0 million to $805.6 million, including increases primarily of $29.0 million in 1-to-4 family variable rate mortgage loans, $15.6 million in dealer financing loans, $7.7 million in owner-occupied commercial real estate loans, and $6.7 million in agricultural loans. Investment securities decreased by $19.8 million due to paydowns on U.S. Agency mortgage-backed securities and expected bond maturities.

Securities Available for Sale (“AFS”)

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 $372.3 million at September 30, 2023, compared to $392.1 million at December 31, 2022. This represents a decrease of $19.8 million or 5.04%. The average balance during the first nine months of 2023 was $405.9 million, compared to $452.6 million during the first nine months of 2022. The average AFS securities portfolio represented 34.4% and 39.0% of average earning assets in the first nine months of 2023 and 2022, respectively. The year-over-year decrease in average AFS securities is primarily due to maturities and normal paydowns of mortgage-backed securities and municipal bond maturities. There are $19.4 million of scheduled maturities and paydowns expected in the last quarter of 2023 and $93.7 million in 2024.

48

Net unrealized losses related to the fair value of securities AFS increased $3.3 million in the first nine months of 2023 to $54.5 million, from $51.2 million at December 31, 2022 . The unrealized loss is driven by the increase in market interest rates, not credit quality. The average maturity of the portfolio is 4.74 years.

Loan Portfolio

The local economy that the Company operates in benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid-size businesses and farms within its primary service area. The Bank also makes automobile and recreational vehicle loans through its Dealer Finance division.

Loans Held for Investment of $805.6 million increased $62.0 million during the nine months ended September 30, 2023 compared to $743.6 million at December 31, 2022. As a percentage of average earning assets, average loans were 65.0% for the nine months ended September 30, 2023, compared with 58.2% for the nine months ended September 30, 2022.

Loans Held for Sale totaled $2.0 million on September 30, 2023, an increase of $654,000 compared to $1.4 million at December 31, 2022. 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.

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses and the reserve for unfunded commitments. The amount of the allowance for credit losses is based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include historical losses based on internal and peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank. The amount of the reserve for unfunded commitments considers the probability that those commitments will fund.

Management has developed a comprehensive analytical process to monitor the adequacy of the allowance for credit losses. The process and guidelines were developed utilizing, among other factors, the guidance from federal banking regulatory agencies, relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. 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, loan concentrations, credit quality, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. Refer to additional detail regarding these forecasts in the “Allowance for Credit Losses - Loans" section of Note 1 to the Consolidated Financial Statements.

The results of this process, in combination with conclusions of the Bank’s external loan review of the risk inherent in the loan portfolio, support management’s assessment as to the adequacy of the allowance at the balance sheet date. Please refer to the discussion under “Critical Accounting Policies” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table on page 28 which reflects activity in the allowance for credit losses.

At September 30, 2023, the allowance for credit losses on loans (“ACLL”) reflected a day one CECL impact of $777,000 which was charged to retained earnings, $704,000 in net charge-offs, and a provision for credit losses on loans of $1.2 million. The provision was primarily due to loan growth of $62.0 million and charge-offs in the automobile portfolio. Additionally, the provision for credit losses was increased by $2,000 due to a provision for unfunded commitments, for a net provision of $1.2 million. The provision for credit losses was $150,000 for the first nine months of 2022.

Management evaluated the qualitative factors and adjusted the factor for changes in the value of underlying collateral for collateral dependent loans for the real estate, commercial and industrial, and automobile segments. The local real estate market is active, with housing prices continuing to increase and days on the market remaining less than a week. As a result, no additional qualitative factor adjustment is needed. Commercial and industrial loans have not experienced declines in collateral values; therefore, this segment does not need an additional qualitative factor adjustment. The used vehicle value index is expected to stabilize as a balance between buyers and sellers is achieved. As a result, the qualitative factor for automobile loans was reduced. No other adjustments to the qualitative factors were necessary.

49

Nonperforming Assets

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 $3.6 million at September 30, 2023 compared to $2.3 million at December 31, 2022.

A summary of credit ratios for nonaccrual loans is as follows (dollars in thousands):

	September 30, 2023			December 31, 2022
Allowance for credit losses on loans	$	9,166		$	7,936
Nonperforming loans	$	3,586		$	2,262
Total loans	$	805,602		$	743,604
Allowance for credit losses to total loans		1.14	%		1.07	%
Nonperforming loans to total loans		0.45	%		0.30	%
Coverage ratio, allowance for credit losses to nonperforming loans		255.61	%		350.84	%

Deposits and Other Borrowings

The Company's main source of funding is 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 $1.14 billion and $1.08 billion at September 30, 2023 and December 31, 2022, respectively. Noninterest bearing deposits decreased $16.4 million while interest bearing deposits increased $66.9 million. Total deposits increased $50.5 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 opening insured cash sweep (“ICS”) accounts for new and existing customers.

The Bank participates in the CDARS (Certificate of Deposit Account Registry Service) and ICS 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 September 30, 2023 and December 31, 2022 the Company had a total of $258,000 and $241,000, respectively, in CDARS accounts; and, $96.3 million and $77.6 million in ICS accounts, respectively. At September 30, 2023, 12.32% of the Company’s total deposits were uninsured deposits, calculated per Bank Call Report instructions.

Short-term borrowings

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 were $60.0 million and $70.0 million of FHLB advances at September 30, 2023 and December 31, 2022, respectively. The increase in deposits allowed us to reduce the FHLB advances during the first nine months of 2023.

Long-term borrowings

On July 29, 2020, the Company sold and issued to an institutional accredited investor $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated note due July 31, 2030. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate 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 September 30, 2023.

Capital

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts, and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

50

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain capital in order to meet certain capital ratios to be considered adequately capitalized or well capitalized under the regulatory framework for prompt corrective action. As of the most recent formal notification from the Federal Reserve, the Bank was categorized as “well capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s categorization.

Final comprehensive regulatory capital rules for U.S. banking organizations pursuant to the capital framework of the Basel Committee on Banking Supervision, generally referred to as “Basel III,” became effective for the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions. Beginning January 1, 2016, Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements, which fully phased in by January 1, 2019, in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. At September 30, 2023, the Bank is in compliance with the capital conservation buffer requirement and 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 leverage ratio was 8.20%, its common equity Tier 1 and Tier 1 capital ratios were both 11.68%, its total capital ratio was 12.69% and the capital conservation buffer was 4.67% at September 30, 2023.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023, and elected not to phase in the effect of CECL on regulatory capital.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. The Company’s most liquid assets are unrestricted cash and cash equivalents, federal funds sold, loans held for sale, and unpledged available for sale investment securities. Our primary source of funding is deposits. If additional liquidity is needed or otherwise desired as part of our liquidity management strategy, we have additional sources of liquidity that can be accessed, including FHLB advances, federal fund lines, the Federal Reserve’s lending programs and brokered deposits, as well as loan and investment securities sales.

As of September 30, 2023, the Bank had total credit availability with the FHLB of $383.1 million, or 30% of total assets, and $170.9 million in lendable collateral. At September 30, 2023, we had $60.0 million in FHLB term borrowings and a $15.0 million letter of credit to provide collateral for our public deposits, which leaves $95.9 million in available lendable collateral.

In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) to provide any U.S. federally insured depository institution, including the Bank, with a line a credit equal to the par value of securities pledged to the BTFP. Advances from the BTFP may be requested by the Bank for up to one year until March 31, 2024. The Bank has securities pledged to the BTFP with a par value of $222.5 million at September 30, 2023; the Bank has not borrowed from the BTFP in 2023.

The Company’s on-balance sheet asset liquidity includes cash and cash equivalents, unpledged investment securities and loans held for sale, which totaled $206.4 million at September 30, 2023, down from $428.4 million at December 31, 2022. The decrease is due to pledging securities to the BTFP. Combining unused borrowing capacity through the FHLB of $95.9 million, through the BTFP of $222.5 million, and on-balance sheet liquidity of $206.4 million, produces readily available liquidity of approximately $524.8 million, with a coverage ratio of 372% to uninsured and uncollateralized deposits.

The Bank has a Funding and Liquidity Risk Management policy that limits the amount of short-term and long-term alternative funding to no more than 25% of total assets. At September 30, 2023, total wholesale funding was $69.6 million or 5.43% of total assets.

51

Interest Rate Sensitivity

Market risk is the sensitivity of a financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, exchange rates, and equity prices. The Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations impact the amount of interest income and expense the Bank pays or receives on the majority its assets. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest-bearing liabilities and interest earning assets.

The Company manages interest rate risk through an asset and liability committee (“ALCO”) composed of members of its Board of Directors and executive management. The ALCO is responsible for monitoring and managing the Company’s interest rate risk and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides an additional analysis of the sensitivity of the earnings to changes in interest rates to static gap analysis. Assumptions used in the model rates are derived from historical trends, peer analysis, and management’s outlook, and include loans and deposit growth rates and projected yields and rates. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different assets and liability accounts move differently when the prime rate changes and is reflected in different rate scenarios.

The following table represents interest rate sensitivity on the Company’s net interest income using different rate scenarios:

Change in Prime Rate	% Change in Net Interest Income
+ 400 basis points		-18.74	%
+ 300 basis points		-12.59	%
+ 200 basis points		-7.56	%
+ 100 basis points		-3.26	%
- 100 basis points		2.76	%
- 200 basis points		6.22	%
- 300 basis points		9.83	%
- 400 basis points		13.08	%

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation.

The following table reflects the change in net economic value over different rate environments (dollars in thousands):

Change in Prime Rate	% Change in Net Economic Value
+ 400 basis points		-13.60	%
+ 300 basis points		-9.11	%
+ 200 basis points		-5.32	%
+ 100 basis points		-2.41	%
- 100 basis points		1.43	%
- 200 basis points		1.85	%
- 300 basis points		-0.74	%
- 400 basis points		-11.24	%

Prudent balance sheet management requires processes that monitor and protect the Company against unanticipated or significant changes in the level of market interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk is kept to an acceptable level. The ability to reprice our interest-sensitive assets and liabilities over various time intervals is of critical importance.

The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the “gap” between interest-sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect us from unanticipated rate movements, by understanding the dynamic nature of our balance sheet components.

52

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 September 30, 2023, the Company had $170.3 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of September 30, 2023. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC and that such information is accumulated and communicated to management including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

53

Part II Other Information

Item 1.	Legal Proceedings
	There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject.
Item 1a.	Risk Factors
	For information regarding factors that could affect the Company's results of operations, financial condition, or liquidity, see the risk factors discussed in Part I, Item 1A, of the Company’s 2022 Form 10-K. See also "Forward-Looking Statements," included in Part I, Item 2, of this Quarterly Report on Form 10-Q. There have been no material changes from the risk factors previously disclosed in the Company’s 2022 Form 10-K.
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	None
Item 3.	Defaults Upon Senior Securities	None
Item 4.	Mine Safety Disclosures	None
Item 5.	Other Information	None

54

Item 6. Exhibits

(a) Exhibits

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101	The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).
104	The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, formatted in Inline XBRL (included with Exhibit 101)

55

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

F & M BANK CORP.

/s/ Aubrey M. Wilkerson

Aubrey M. Wilkerson

Chief Executive Officer

/s/ Lisa F. Campbell

Lisa F. Campbell

Executive Vice President and Chief Financial Officer

November 14, 2023

56

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(Chapter 63, Title 18 USC Section 1350 (A) and (B)

I, Aubrey M. Wilkerson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Dated: November 14, 2023	/s/ Aubrey M. Wilkerson
	Aubrey M. Wilkerson
	Chief Executive Officer

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(Chapter 63, Title 18 USC Section 1350 (A) and (B)

I, Lisa F. Campbell, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Dated: November 14, 2023	/s/ Lisa F. Campbell
	Lisa F. Campbell
	Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

EXHIBIT 32

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,

EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

The undersigned, as the Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual’s knowledge and belief, the Quarterly Report on Form 10-Q for the period ended September 30, 2023, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

 

/s/ Aubrey M. Wilkerson

Aubrey M. Wilkerson

Chief Executive Officer

/s/ Lisa F. Campbell

Lisa F. Campbell

Executive Vice President and Chief Financial Officer

November 14, 2023

XML

Cover - shares	9 Months Ended
	Sep. 30, 2023	Nov. 03, 2023
Cover [Abstract]
Entity Registrant Name	F&M BANK CORP.
Entity Central Index Key	0000740806
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Entity Common Stock Shares Outstanding		3,482,373
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	000-13273
Entity Incorporation State Country Code	VA
Entity Tax Identification Number	54-1280811
Entity Address Address Line 1	P. O. Box 1111
Entity Address City Or Town	Timberville
Entity Address State Or Province	VA
Entity Address Postal Zip Code	22853
City Area Code	540
Local Phone Number	896-8941
Security 12b Title	Common Stock, par value ‑ $5 per share
Entity Interactive Data Current	Yes

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets
Cash and due from banks	$ 17,391	$ 17,926
Money market funds and interest-bearing deposits in other banks	184	687
Federal funds sold	4,583	16,340
Cash and cash equivalents	22,158	34,953
Securities:
Held to maturity, at amortized cost - fair value of $113 and $112 in 2023 and 2022, respectively	125	125
Less: allowance for credit loss	0	0
Held to maturity, net	125	125
Available for sale, at fair value	372,339	392,095
Other investments	11,038	11,317
Loans held for sale, at fair value	2,027	1,373
Loans held for investment, net of deferred fees and costs	805,602	743,604
Less: allowance for credit losses	(9,166)	7,936
Net loans held for investment	796,436	735,668
Bank premises and equipment, net	23,927	19,587
Interest receivable	4,645	3,995
Goodwill	3,082	3,082
Bank owned life insurance	22,705	23,554
Other assets	23,937	20,153
Total Assets	1,282,419	1,245,902
Deposits:
Noninterest bearing	277,219	293,596
Interest bearing	856,691	789,781
Total deposits	1,133,910	1,083,377
Short-term debt	60,000	70,000
Long-term debt	6,922	6,890
Other liabilities	14,567	14,843
Total liabilities	1,215,399	1,175,110
Shareholders' Equity
Common stock, $5 par value, 6,000,000 shares authorized, 200,000 designated, 3,482,217 and 3,456,237 shares issued and outstanding (32,957 and 26,456 unvested restricted shares)	17,246	17,149
Additional paid in capital	10,941	10,577
Retained earnings	81,481	83,078
Accumulated other comprehensive loss	(42,648)	(40,012)
Total shareholders' equity	67,020	70,792
Total liabilities and shareholders' equity	$ 1,282,419	$ 1,245,902

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Consolidated Balance Sheets
Fair value	$ 113	$ 112
Stockholders' Equity
Common stock, shares par value	$ 5	$ 5
Common stock, shares designated	200,000	200,000
Common stock, shares authorized	6,000,000	6,000,000
Common stock, shares issued	3,482,217	3,456,237
Common stock, shares outstanding	3,482,217	3,456,237
Common stock, unvested restricted shares	32,957	26,456

XML

Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Income (Unaudited)
Interest and fees on loans held for investment	$ 12,525	$ 8,881	$ 34,896	$ 24,384
Interest and fees on loans held for sale	19	29	66	90
Interest from money market funds and federal funds sold	68	48	218	87
Interest on debt securities	2,005	2,054	6,034	5,521
Total interest and dividend income	14,617	11,012	41,214	30,082
Interest expense
Total interest on deposits	5,811	1,378	15,069	3,060
Interest from short-term debt	702	158	2,217	204
Interest from long-term debt	115	345	343	628
Total interest expense	6,628	1,881	17,629	3,892
Net interest income	7,989	9,131	23,585	26,190
Provision for Credit Losses	620	0	1,159	150
Net Interest Income After Provision for Credit Losses	7,369	9,131	22,426	26,040
Noninterest income
Service charges on deposit accounts	256	255	755	836
Investment services and insurance income	374	316	1,236	1,020
Mortgage banking income	536	666	1,619	2,647
Title insurance income	444	376	1,069	1,215
Income on bank owned life insurance	181	178	982	522
Low-income housing partnership losses	(205)	(205)	(616)	(613)
ATM and check card fee	672	628	1,971	1,823
Other operating income	269	68	629	489
Net investment securities losses			0	(97)
Total noninterest income	2,527	2,282	7,645	7,842
Noninterest expense
Salaries	4,210	4,334	13,571	12,690
Employee benefits	907	1,184	3,044	3,712
Occupancy expense	371	342	1,023	1,028
Equipment expense	357	294	1,138	918
FDIC insurance assessment	225	215	545	496
OREO expenses	0	59
Advertising expense	259	193	753	599
OREO expense			0	59
Legal and professional fees	326	294	1,235	945
ATM and check card fees	349	321	944	954
Telecommunication and data processing expense	551	619	1,926	2,205
Directors fees	124	131	409	424
Bank franchise tax	129	124	449	456
Other operating expenses	1,114	762	3,246	2,495
Total noninterest expense	8,922	8,872	28,283	26,981
Income before income taxes	974	2,541	1,788	6,901
Income tax (benefit) expense	(44)	237	(526)	280
Net Income	$ 1,018	$ 2,304	$ 2,314	$ 6,621
Per Common Share Data
Net income	$ 0.29	$ 0.67	$ 0.67	$ 1.92
Cash dividends on common stock	$ 0.26	$ 0.26	$ 0.78	$ 0.78
Weighted average common shares outstanding	3,480,670	3,453,767	3,473,911	3,447,470

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Net Income	$ 1,018	$ 2,304	$ 2,314	$ 6,621
Other comprehensive loss:
Unrealized holding losses on available-for sale securities	(6,865)	(9,879)	(3,337)	(49,606)
Tax effect	1,442	2,075	701	10,417
Unrealized holding losses, net of tax	(5,423)	(7,804)	(2,636)	(39,189)
Less:
Reclassifications adjustment for losses included in net income	0	0	0	97
Tax effects	0	0	0	20
Realized losses on sale of available-for sale securities, net	0	0	0	77
Total other comprehensive loss	(5,423)	(7,804)	(2,636)	(39,112)
Total comprehensive loss	$ (4,405)	$ (5,500)	$ (322)	$ (32,491)

XML

Condensed Consolidated Statements of Changes in Stockholders Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)	Accumulated other comprehensive loss
Balance, amount at Dec. 31, 2021	$ 100,456	$ 17,071	$ 10,127	$ 78,350	$ (5,092)
Net Income	6,621	0	0	6,621	0
Other comprehensive loss	(39,112)	0	0	0	(39,112)
Dividends on common stock ($.78 per share)	2,692	0	0	2,692	0
Common stock issued	213	38	175	0	0
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes	56	26	30	0	0
Stock-based compensation expense	135	0	135	0	0
Balance, amount at Sep. 30, 2022	65,677	17,135	10,467	82,279	(44,204)
Balance, amount at Jun. 30, 2022	71,950	17,121	10,351	80,878	(36,400)
Net Income	2,304	0	0	2,304	0
Other comprehensive loss	(7,804)	0	0	0	(7,804)
Dividends on common stock ($.78 per share)	903	0	0	903	0
Common stock issued	69	14	55	0	0
Stock-based compensation expense	61	0	61	0	0
Balance, amount at Sep. 30, 2022	65,677	17,135	10,467	82,279	(44,204)
Balance, amount at Dec. 31, 2022	70,792	17,149	10,577	83,078	(40,012)
Net Income	2,314	0	0	2,314	0
Other comprehensive loss	(2,636)	0	0	0	(2,636)
Dividends on common stock ($.78 per share)	2,708	0	0	2,708	0
Common stock issued	239	57	182	0	0
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes	28	40	(12)	0	0
Stock-based compensation expense	194	0	194	0	0
Cumulative effect adjustment due to the adoption of ASC 326, net of tax	(1,203)	0	0	(1,203)	0
Balance, amount at Sep. 30, 2023	67,020	17,246	10,941	81,481	(42,648)
Balance, amount at Jun. 30, 2023	72,194	17,228	10,822	81,369	(37,225)
Net Income	1,018	0	0	1,018	0
Other comprehensive loss	(5,423)	0	0	0	(5,423)
Dividends on common stock ($.78 per share)	906	0	0	906	0
Common stock issued	76	18	58	0	0
Stock-based compensation expense	61	0	61	0	0
Balance, amount at Sep. 30, 2023	$ 67,020	$ 17,246	$ 10,941	$ 81,481	$ (42,648)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities
Net income	$ 2,314	$ 6,621
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	958	833
Amortization of intangibles	23	28
Amortization of securities	11,594	19,173
Proceeds from loans held for sale	93,872	116,448
Loans held for sale originated	(92,677)	(112,954)
Gain on sale of loans held for sale	(1,849)	(1,917)
Provision for credit losses	1,159	150
Increase in interest receivable	(650)	(543)
(Increase) decrease in deferred taxes	(1)	9,179
(Increase) decrease in other assets	(2,691)	1,039
Decrease in accrued expenses	(1,025)	(9,244)
Amortization of limited partnership investments	616	613
Amortization of debt issuance costs	32	107
Income from life insurance investment	(612)	(522)
Gain on life insurance investment	(370)	0
Loss on the sale of investment securities	0	97
Gain on the sale of fixed assets	(16)	(10)
Stock-based compensation expense	194	135
Loss on sale and valuation adjustments for other real estate owned and bank premises held for sale	0	59
Net cash provided by operating activities	10,871	29,292
Cash flows from investing activities
Purchase of investments available for sale and other investments	0	(108,057)
Proceeds from maturity of investments available for sale	4,825	4,000
Proceeds from the sale of investments available for sale	0	8,699
Investment in restricted stock, net	(137)	(891)
Investment in limited partnership	(200)	(220)
Net increase in loans held for investment	(62,702)	(37,753)
Proceeds from life insurance investment	1,738	0
Proceeds from the sale of fixed assets	93	27
Net purchase of property and equipment	(5,375)	(2,720)
Proceeds from the sale of other real estate owned	0	138
Net cash (used in) investing activities	(61,758)	(136,777)
Cash flows from financing activities
Net change in deposits	50,533	37,099
Net change in short-term debt	(10,000)	30,000
Dividends paid in cash	(2,708)	(2,692)
Proceeds from issuance of common stock	267	269
Repayments of long-term debt	0	(15,000)
Net cash provided by financing activities	38,092	49,676
Net decrease in Cash and Cash Equivalents	(12,795)	(57,809)
Cash and cash equivalents, beginning of period	34,953	88,121
Cash and cash equivalents, end of period	22,158	30,312
Supplemental Cash Flow information:
Cash paid for: Interest	16,709	4,031
Taxes	360	0
Supplemental non-cash disclosures:
Change in unrealized loss on securities available for sale	3,337	(49,509)
Cumulative effect of the adoption of ASC 326	1,524	0
Transfer from loans to other real estate owned	$ 0	$ 197

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of F&M Bank Corp. (the “Company”), Farmers & Merchants Bank (the “Bank”), TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc. (“FMFS”), VBS Mortgage, LLC (dba “F&M Mortgage”), and VSTitle, LLC (“VST”), with all significant intercompany accounts and transactions eliminated.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to accepted practices within the banking industry.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank, operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, Augusta, and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., F&M Mortgage, and VSTitle, LLC.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.

Accounting Standards Adopted in 2023

On 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. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $777,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $747,000, which is recorded within Other Liabilities. The Company recorded a net decrease to retained earnings of $1.2 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined there was no allowance for credit losses on available for sale securities.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses – Held to Maturity Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities was immaterial at September 30, 2023 and was excluded from the estimate of credit losses.

The state and local governments securities held by the Company are highly rated by major rating agencies. As a result, no allowance for credit losses was recorded on held to maturity securities at September 30, 2023.

Allowance for Credit Losses – Available for Sale Securities

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit loss related to the available for sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $1.4 million at September 30, 2023 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.2 million at September 30, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company utilizes a Qualitative Scorecard (“scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Bank’s portfolio, in particular during the great financial crisis from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that in order to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses are economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology:

1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Other construction, land development and land. Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Secured by farmland. Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations.

Home equity - open end. The home-equity loan portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

Real estate. Real estate loans are for consumer residential 1-4 family real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios.

Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to-value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property.

Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Other commercial real estate. The other commercial real estate segment includes loans secured by commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured).

Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).

Credit cards. Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt-to-income ratios, and minimum borrower credit scores.

Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles is subject to the risk of changing values in the availability of vehicles and the resale value.

Other consumer loans. Other consumer loans may be secured or unsecured. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.

Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s trade area. Credit risk is based on the cash flow and management of the local town’s budgets.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Earnings per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends.

Recent Accounting Pronouncements

Accounting Standards adopted in 2023:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. ASU 2016-13 was effective for the Company on January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $1.5 million. The adjustment net of tax recorded to shareholders’ equity totaled $1.2 million. See Note 1 for additional details of adoption of this standard.

In March 2022, the FASB issued Accounting Standards Update ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ASU 2022-02 was effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Pending Adoption:

In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

In August 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”. This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification® Master Glossary. While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements. The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). This ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025. Early adoption of ASU No. 2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance). A joint venture that elects to early adopt may apply ASU No. 2023-05 either prospectively or retrospectively. The Company does not expect the adoption of ASU 2023-05 to have a material impact on its consolidated financial statements.

In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”. These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2023-01 to have a material impact on its consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of U.S. dollar LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

XML

Investment Securities

9 Months Ended

Sep. 30, 2023

Investment Securities

Investment Securities

Note 2. Investment Securities

The amortized cost and estimated fair value of securities held to maturity along with gross unrealized gains and losses are summarized as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2023
U. S. Treasury	$	125	$	-	$	12	$	113
December 31, 2022
U. S. Treasury	$	125	$	-	$	13	$	112

There is no allowance for credit losses on held to maturity securities. At September 30, 2023, the Company had no securities held to maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held to maturity classified as nonaccrual for the quarter ended September 30, 2023.

The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized as follows (dollars in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2023
U.S. Treasury	$	39,918	$	-	$	2,912	$	37,006
U.S. Agency		143,484		-		11,870		131,614
Municipal bonds		41,382		-		5,059		36,323
Mortgage-backed securities		171,546		161		29,988		141,719
Corporate		30,550		-		4,873		25,677
Total Securities Available for Sale	$	426,880	$	161	$	54,702	$	372,339

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
December 31, 2022
U.S. Treasury	$	39,902	$	-	$	3,259	$	36,643
U.S. Agency		143,473		-		13,725		129,748
Municipal bonds		46,331		27		4,160		42,198
Mortgage-backed securities		183,044		77		26,246		156,875
Corporate		30,550		-		3,919		26,631
Total Securities Available for Sale	$	443,300	$	104	$	51,309	$	392,095

There was no allowance for credit losses on available for sale securities.

The amortized cost and fair value of securities at September 30, 2023, by contractual maturity are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	125	$	113	$	25,491	$	25,096
Due after one year through five years		-		-		186,744		171,180
Due after five years		-		-		71,573		60,115
Due after ten years		-		-		143,072		115,948
Total	$	125	$	113	$	426,880	$	372,339

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized losses		-		-
Net realized (losses)	$	-	$	-
Proceeds from sales of securities	$	-	$	-

	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized (losses)		-		(97	)
Net realized (losses)	$	-	$	(97	)
Proceeds from sales of securities	$	-	$	8,699

The following table shows the gross unrealized losses and estimated fair value of available for sale securities for which an allowance for credit losses has not been recorded, aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2023 (dollars in thousands):

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2023
U.S. Treasury	$	-	$	-	$	37,006	$	2,912	$	37,006	$	2,912
U.S. Agency		-		-		131,614		11,870		131,614		11,870
Municipal bonds		5,432		593		30,890		4,466		36,322		5,059
Mortgage-backed securities		-		-		136,523		29,988		136,523		29,988
Corporate		1,673		327		24,004		4,546		25,677		4,873
Total	$	7,105	$	920	$	360,037	$	53,782	$	367,142	$	54,702

Unrealized losses at September 30, 2023 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities. Issuers continue to make timely principal and interest payments and the Company currently has no plans to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The following table shows the gross unrealized losses and estimated fair value of available sale securities and held to maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2022 (dollars in thousands):

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2022
U.S. Treasury	$	9,657	$	362	$	26,987	$	2,897	$	36,644	$	3,259
U.S. Agency		13,914		1,083		115,835		12,642		129,749		13,725
Municipal bonds		21,805		1,426		18,710		2,734		40,515		4,160
Mortgage-backed securities		32,823		2,429		119,892		23,817		152,715		26,246
Corporate		16,252		2,198		10,379		1,721		26,631		3,919
Total	$	94,451	$	7,498	$	291,803	$	43,811	$	386,254	$	51,309

As of September 30, 2023, other investments consist of investments in twelve low-income housing and historic equity partnerships (carrying basis of $5.3 million), stock in the Federal Home Loan Bank of Atlanta (“FHLB’) (carrying basis $3.7 million) and various other investments (carrying basis $2.0 million). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The fair values of these securities are estimated to approximate their carrying value as of September 30, 2023. At September 30, 2023, the Company was committed to invest an additional $625,000 in three low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in other liabilities on the consolidated balance sheet.

The Company has pledged securities with a par value of $222.5 million and market value of $190.2 million to the Federal Reserve Discount Window Bank Term Funding Program (“BTFP”) as of September 30, 2023. The BTFP was established in March 2023 to offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP was created 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 Bank has not borrowed from the BTFP during 2023.

XML

Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

Note 3. Loans and Allowance for Credit Losses

Under adoption of ASC 326, there were changes to certain loan segments to better differentiate credit characteristics and align with our ACL model. Construction/land development was split into two segments: 1-4 family residential construction and other construction, land development and land. Commercial real estate was also split into two segments: owner-occupied commercial real estate and other commercial real estate. Commercial and industrial – non-real estate was divided into agricultural loans, commercial and industrial loans, and municipal loans. Dealer finance was consolidated with other automobile loans.

The following is a summary of the major categories of total loans outstanding at September 30, 2023 and December 31, 2022 (dollars in thousands):

	September 30, 2023
1-4 Family residential construction	$	34,320
Other construction, land development and land		46,027
Secured by farmland		80,502
Home equity – open end		46,351
Real estate		182,814
Home Equity – closed end		5,054
Multifamily		8,257
Owner-occupied commercial real estate		91,836
Other commercial real estate		102,216
Agricultural loans		13,299
Commercial and industrial		47,282
Credit Cards		3,316
Automobile loans		123,981
Other consumer loans		15,149
Municipal loans		5,844
Gross loans		806,248
Unamortized net deferred loan fees		(646	)
Less allowance for credit losses		9,166
Net loans	$	796,436

	December 31, 2022
Construction/Land Development	$	68,671
Farmland		74,322
Real Estate		153,281
Multi-Family		9,622
Commercial Real Estate		195,163
Home Equity – closed end		4,707
Home Equity – open end		46,928
Commercial & Industrial – Non-Real Estate		56,625
Consumer		6,488
Dealer Finance		125,125
Credit Cards		3,242
Gross loans		744,174
Unamortized net deferred loan fees		(570	)
Less allowance for credit losses		7,936
Net loans	$	735,668

The Company has pledged loans held for investment as collateral for borrowings with the FHLB totaling $271.5 million and $209.8 million as of September 30, 2023 and December 31, 2022, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios.

Nonaccrual and Past Due Loans

The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2023 (dollars in thousands):

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past due		Nonaccrual Loans		Accruing Current Loans			Total Loans
September 30, 2023
1-4 Family residential construction	$	-	$	-	$	-	$	723	$	33,597		$	34,320
Other construction, land development and land		-		-		-		545		45,482			46,027
Secured by farmland		-		-		-		977		79,525			80,502
Home equity – open end		494		-		-		225		45,632			46,351
Real estate		1,714		-		-		591		180,509			182,814
Home Equity – closed end		-		-		-		-		5,054			5,054
Multifamily		-		-		-		-		8,257			8,257
Owner-occupied commercial real estate		1,328		-		-		-		90,508			91,836
Other commercial real estate		-		-		-		-		102,216			102,216
Agricultural loans		-		-		-		73		13,226			13,299
Commercial and industrial		162		-		25		33		47,062			47,282
Credit Cards		59		19		4		-		3,234			3,316
Automobile loans		854		221		-		380		122,526			123,981
Other consumer loans		67		16		-		10		15,056			15,149
Municipal loans		-		-		-		-		5,844			5,844
Gross loans		4,678		256		29		3,557		797,728			806,248
Less: Unamortized net deferred loan fees		-		-		-		-		(646	)		(646	)
Loans held for investment	$	4,678	$	256	$	29	$	3,557	$	797,082		$	805,602

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2022 (dollars in thousands):

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past Due		Nonaccrual Loans		Accruing Current Loans			Total Loans
December 31, 2022
Construction/Land Development	$	477	$	539	$	-	$	21	$	67,634		$	68,671
Farmland		85		18		-		1,458		72,761			74,322
Real Estate		1,807		226		-		419		150,829			153,281
Multi-Family		-		-		-		-		9,622			9,622
Commercial Real Estate		234		82		-		-		194,847			195,163
Home Equity – closed end		3		-		-		-		4,704			4,707
Home Equity – open end		385		177		-		-		46,366			46,928
Commercial & Industrial – Non- Real Estate		104		-		31		101		56,389			56,625
Consumer		11		11		-		15		6,451			6,488
Dealer Finance		1,117		225		5		210		123,568			125,125
Credit Cards		51		9		2		-		3,180			3,242
Less: Unamortized net deferred loan fees		-		-		-		-		(570	)		(570	)
Loans held for investment	$	4,274	$	1,287	$	38	$	2,224	$	735,781		$	743,604

There were $3.6 million and $2.2 million in nonaccrual loans at September 30, 2023 and December 31, 2022, respectively. The Company would have earned $162,000 in the first nine months of 2023 and $103,000 in the first nine months of 2022, if interest on the nonaccrual loans had been accrued.

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (dollars in thousands). Information for September 30, 2023 is presented under CECL, while information for December 31, 2022 is presented in accordance with the previously applicable incurred loss methodology.

	CECL						Incurred Loss
	September 30, 2023						December 31, 2022
	Nonaccrual loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
1-4 Family residential construction	$	723	$	-	$	723	$	-
Other construction, land development and land		545		-		545		21
Secured by farmland		977		-		977		1,458
Home equity – open end		225		-		225		-
Real estate		591		-		591		419
Home Equity – closed end		-		-		-		-
Multifamily		-		-		-		-
Owner-occupied commercial real estate		-		-		-		-
Other commercial real estate		-		-		-		-
Agricultural loans		73		-		73		88
Commercial and industrial		33		-		33		13
Credit Cards		-		-		-		-
Automobile loans		380		-		380		210
Other consumer loans		10		-		10		15
Municipal loans		-		-		-		-
Total loans	$	3,557	$	-	$	3,557	$	2,224

The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2023 (dollars in thousands):

	For the Three Months Ended September 30, 2023		For the Nine Months Ended September 30, 2023
1-4 Family residential construction	$	10	$	10
Other construction, land development and land		6		6
Secured by farmland		-		-
Home equity – open end		-		1
Real estate		1		3
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		5		8
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	22	$	28

Credit Quality Indicators

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023 (dollars in thousands):

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
1-4 Family residential construction
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	33,079	$	33,079
Watch		-		-		-		-		-		-		518		518
Substandard		-		-		-		-		-		-		723		723
Total 1-4 Family residential construction		-		-		-		-		-		-		34,320		34,320
Current period gross write-offs		-		70		-		-		-		-		-		70
Other construction, land development and land
Pass		4,343		3,903		5,753		1,862		2,883		4,957		21,339		45,040
Watch		-		-		-		-		-		261		181		442
Substandard		521		-		-		-		-		24		-		545
Total Other construction, land development and land		4,864		3,903		5,753		1,862		2,883		5,242		21,520		46,027
Current period gross write-offs		-		-		-		-		-		-		-		-
Secured by farmland
Pass		6,395		15,174		14,149		27,475		2,533		6,530		5,553		77,809
Watch		-		-		-		-		790		910		-		1,700
Substandard		-		-		325		-		-		652		16		993
Total Secured by farmland		6,395		15,174		14,474		27,475		3,323		8,092		5,569		80,502
Current period gross write-offs		-		-		-		-		-		-		-		-
Home equity – open end
Pass		370		-		-		-		-		143		44,182		44,695
Watch		-		-		-		-		-		-		1,381		1,381
Substandard		-		-		-		-		-		-		275		275
Total Home equity - open end		370		-		-		-		-		143		45,838		46,351
Current period gross write-offs		-		-		-		-		-		-		-		-
Real estate
Pass		36,704		44,780		15,382		12,310		6,555		56,434		192		172,357
Watch		-		-		-		502		155		5,784		-		6,441
Substandard		-		90		542		-		1,218		2,166		-		4,016
Total Real estate		36,704		44,870		15,924		12,812		7,928		64,384		192		182,814
Current period gross write-offs		-		-		-		-		-		19		-		19
Home Equity – closed end
Pass		1,059		391		121		1,067		473		1,560		-		4,671
Watch		-		-		-		-		-		371		-		371
Substandard		-		-		-		-		12		-		-		12
Total Home Equity - closed end		1,059		391		121		1,067		485		1,931		-		5,054
Current period gross write-offs		-		-		-		-		-		-		-		-
Multifamily
Pass		-		2,730		1,414		916		-		1,590		1,504		8,154
Watch		-		-		-		-		-		103		-		103
Substandard		-		-		-		-		-		-		-		-
Total Multifamily		-		2,730		1,414		916		-		1,693		1,504		8,257
Current period gross write-offs		-		-		-		-		-		-		-		-
Owner-occupied commercial real estate
Pass		2,165		18,342		18,132		7,208		3,649		23,487		5,891		78,874
Watch		-		-		-		-		40		2,108		-		2,148
Substandard		-		-		-		-		6,323		1,193		3,298		10,814
Total Owner-occupied commercial real estate		2,165		18,342		18,132		7,208		10,012		26,788		9,189		91,836
Current period gross write-offs		-		-		-		-		-		-		-		-
Other commercial real estate
Pass		4,148		30,132		12,895		5,059		3,825		31,048		3,229		90,336
Watch		-		-		-		-		-		11,793		-		11,793
Substandard		-		-		-		-		-		87		-		87
Total Other commercial real estate		4,148		30,132		12,895		5,059		3,825		42,928		3,229		102,216
Current period gross write-offs		-		-		-		-		-		-		-		-

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Agricultural loans
Pass		2,869		2,719		627		453		-		38		6,333		13,039
Watch		-		-		-		37		-		-		150		187
Substandard		-		48		14		11		-		-		-		73
Total Agricultural loans		2,869		2,767		641		501		-		38		6,483		13,299
Current period gross write-offs		-		-		-		-		-		-		-		-
Commercial and industrial
Pass		4,971		8,901		5,790		1,914		806		369		16,571		39,322
Watch		-		48		57		-		-		-		7,167		7,272
Substandard		-		33		628		25		-		2		-		688
Total 1-4 Commercial and industrial		4,971		8,982		6,475		1,939		806		371		23,738		47,282
Current period gross write-offs		-		-		-		-		-		2		-		2
Credit Cards
Pass		-		-		-		-		-		-		3,312		3,312
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		4		4
Total Credit cards		-		-		-		-		-		-		3,316		3,316
Current period gross write-offs		-		-		-		-		-		-		25		25
Automobile loans
Pass		46,565		42,147		21,824		8,772		2,755		1,019		-		123,082
Watch		199		130		48		43		53		46		-		519
Substandard		30		124		187		30		4		5		-		380
Total Automobile loans		46,794		42,401		22,059		8,845		2,812		1,070		-		123,981
Current period gross write-offs		88		424		386		105		32		25		-		1,060
Other consumer loans
Pass		4,521		5,619		2,587		1,062		307		532		473		15,101
Watch		-		4		23		-		2		3		1		33
Substandard		-		10		-		-		5		-		-		15
Total Other consumer loans		4,521		5,633		2,610		1,062		314		535		474		15,149
Current period gross write-offs		-		56		1		2		6		2		-		67
Municipal loans
Pass		-		170		973		1,128		1,257		2,316		-		5,844
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Municipal loans		-		170		973		1,128		1,257		2,316		-		5,844
Current period gross write-offs		-		-		-		-		-		-		-		-
Total loans	$	114,860	$	175,495	$	101,471	$	69,874	$	33,645	$	155,531	$	155,372	$	806,248
Less: Unamortized net deferred loan fees																(646	)
Loans held for investment															$	805,602
Current period gross write-offs	$	88	$	550	$	387	$	107	$	38	$	48	$	25	$	1,243

Under the adoption of ASC 326, the Company consolidated its internal risk ratings 1 through 5 into a pass category. Doubtful loans are charged off; dealer finance loans utilize the updated credit quality indicators. Credit cards are classified as pass or substandard. The credit quality indicators for watch and substandard remain unchanged.

Description of the Company’s credit quality indicators under CECL:

Pass: Loans in all classes that are part of the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Credit cards are classified as pass or substandard. A credit card is substandard when payments of principal and interest are past due 90 days or more.

The following table shows the Company’s loan portfolio broken down by internal loan grade as of December 31, 2022 (dollars in thousands):

December 31, 2022	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	4	$	11,112	$	42,684	$	13,116	$	1,213	$	542	$	-	$	68,671
Farmland		155		269		11,373		38,051		22,069		947		1,458		-		74,322
Real Estate		-		553		27,003		86,269		28,560		6,950		3,946		-		153,281
Multi-Family		-		-		963		5,116		3,430		113		-		-		9,622
Commercial Real Estate		-		3,097		55,662		72,779		41,749		13,878		7,998		-		195,163
Home Equity – closed end		-		48		1,065		2,560		639		382		13		-		4,707
Home Equity – open end		27		1,272		18,671		23,207		2,091		1,611		49		-		46,928
Commercial & Industrial - Non-Real Estate		10		516		12,934		26,310		15,613		911		331		-		56,625
Consumer (excluding dealer)		33		286		2,965		3,105		68		16		15		-		6,488
Gross loans	$	225	$	6,045	$	141,748	$	300,081	$	127,335	$	26,021	$	14,352	$	-	$	615,807
Less: Unamortized net deferred loan fees																		(570	)
Total																	$	615,237

	Credit Cards		Dealer Finance
Performing	$	3,240	$	124,910
Nonperforming		2		215
Total	$	3,242	$	125,125

Description of internal loan grades under Incurred Loss:

Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must by covered through additional long-term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 – Watch: Loans are currently protected but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 – Doubtful: Loans having all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.

Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.

Collateral Dependent Disclosures

The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following table presents an analysis of collateral-dependent loans of the Company as of September 30, 2023 (dollars in thousands):

	September 30, 2023
	Real Estate		Business/ Other Assets
1-4 Family residential construction	$	-	$	-
Other construction, land development and land		521		-
Secured by farmland		-		-
Home equity – open end		-		-
Real estate		-		-
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		-		-
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	521	$	-

Allowance for Credit Losses

The following tables summarize the activity related to the allowance for credit losses for the nine months ended September 30, 2023 under the CECL methodology (dollars in thousands).

ACL for Loans

	December 31, 2022		Adjustment for adoption of ASU 2016-13			Charge-offs		Recoveries		Provision for loan credit losses			September 30, 2023
1-4 Family residential construction	$	324	$	109		$	70	$	1	$	154		$	518
Other construction, land development and land		694		602			-		-		148			1,444
Secured by farmland		571		311			-		-		67			949
Home equity – open end		446		(189	)		-		-		-			257
Real estate		1,389		(184	)		19		-		68			1,254
Home Equity – closed end		39		96			-		-		14			149
Multifamily		71		182			-		-		(45	)		208
Owner-occupied commercial real estate		992		280			-		-		(39	)		1,233
Other commercial real estate		1,023		(582	)		-		-		(5	)		436
Agricultural loans		80		(58	)		-		-		2			24
Commercial and industrial		368		338			2		1		67			772
Credit Cards		68		26			25		20		2			91
Automobile loans		1,790		(257	)		1,060		475		535			1,483
Other consumer loans		81		103			67		42		189			348
Municipal loans		-		-			-		-		-			-
Total loans	$	7,936	$	777		$	1,243	$	539	$	1,157		$	9,166

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods (dollars in thousands).

September 30, 2022	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	977	$	-	$	-	$	77		$	1,054	$	228	$	826
Farmland		448		-		-		77			525		-		525
Real Estate		1,162		17		-		(4	)		1,141		99		1,042
Multi-Family		29		-		-		27			56		-		56
Commercial Real Estate		2,205		-		-		(398	)		1,807		21		1,786
Home Equity – closed end		41		-		-		(7	)		34		-		34
Home Equity – open end		407		-		130		(141	)		396		-		396
Commercial & Industrial – Non-Real Estate		288		36		44		102			398		-		398
Consumer		520		147		21		(137	)		257		-		257
Dealer Finance		1,601		794		445		518			1,770		13		1,757
Credit Cards		70		42		11		36			75		-		75
Total	$	7,748	$	1,036	$	651	$	150		$	7,513	$	361	$	7,152

The following tables presents, as of September 30, 2023 and December 31, 2022 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above (dollars in thousands).

	September 30, 2023
	Loan Balances						Allowance for Credit Losses - Loans
	Loans Individually Evaluated		Loans Collectively Evaluated		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
1-4 Family residential construction	$	-	$	34,320	$	34,320	$	-	$	518	$	518
Other construction, land development and land		521		45,506		46,027		228		1,216		1,444
Secured by farmland		-		80,502		80,502		-		949		949
Home equity – open end		-		46,351		46,351		-		257		257
Real estate		-		182,814		182,814		-		1,254		1,254
Home Equity – closed end		-		5,054		5,054		-		149		149
Multifamily		-		8,257		8,257		-		208		208
Owner-occupied commercial real estate		-		91,836		91,836		-		1,233		1,233
Other commercial real estate		-		102,216		102,216		-		436		436
Agricultural loans		-		13,299		13,299		-		24		24
Commercial and industrial		-		47,282		47,282		-		772		772
Credit Cards		-		3,316		3,316		-		91		91
Automobile loans		-		123,981		123,981		-		1,483		1,483
Other consumer loans		-		15,149		15,149		-		348		348
Municipal loans		-		5,844		5,844		-		-		-
Total loans	$	521	$	805,727	$	806,248	$	228	$	8,938	$	9,166

December 31, 2022	Loan Receivable			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,671		$	853	$	67,818
Farmland		74,322			2,079		72,243
Real Estate		153,281			3,260		150,021
Multi-Family		9,622			-		9,622
Commercial Real Estate		195,163			9,111		186,052
Home Equity – closed end		4,707			-		4,707
Home Equity –open end		46,928			-		46,928
Commercial & Industrial – Non-Real Estate		56,625			-		56,625
Consumer		6,488			-		6,488
Dealer Finance		125,125			62		125,063
Credit Cards		3,242			-		3,242
Gross Loans		744,174			15,365		728,809
Less: Unamortized net deferred loan fees		(570	)		-		(570	)
Total	$	743,604		$	15,365	$	728,239

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all substandard loans greater than $500,000 and all troubled debt restructurings. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022 (dollars in thousands):

	December 31, 2022
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment(1)		Balance		Allowance		Investment
Impaired loans with no related allowance recorded:
Construction/Land Development	$	332	$	332	$	-	$	474
Farmland		2,535		2,079		-		2,137
Real Estate		1,882		1,882		-		2,107
Multi-Family		-		-		-		-
Commercial Real Estate		8,131		8,131		-		8,851
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		7		7		-		11
		12,887		12,431		-		13,580
Impaired loans with an allowance recorded:
Construction/Land Development		521		521		228		261
Farmland		-		-		-		-
Real Estate		1,378		1,378		92		1,466
Multi-Family		-		-		-		-
Commercial Real Estate		980		980		11		1,935
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		55		55		13		62
		2,934		2,934		344		3,724
Total impaired loans	$	15,821	$	15,365	$	344	$	17,304

¹The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.

The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the nine-month period ended September 30, 2022 (dollars in thousands):

	Nine Months Ended September, 30, 2022
	Average Recorded		Interest Income
	Investment		Recognized
Impaired loans with no related allowance recorded:
Construction/Land Development	$	552	$	15
Farmland		2,188		151
Real Estate		2,290		75
Multi-Family		-		-
Commercial Real Estate		8,339		266
Home Equity – closed end		74		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		3		-
Credit Cards		-		-
Dealer Finance		11		1
		13,457		508
Impaired loans with an allowance recorded:
Construction/Land Development	$	261	$	17
Farmland		-		-
Real Estate		1,309		49
Multi-Family		-		-
Commercial Real Estate		3,496		34
Home Equity – closed end		-		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		-		-
Credit Card		-		-
Dealer Finance		81		5
		5,147		105
Total Impaired Loans	$	18,604	$	613

Modifications Made to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

There were no loans modified to a borrower experiencing financial difficulty in the three months ended September 30, 2023. There was one loan modified to a borrower experiencing financial difficulty in the nine months ended September 30, 2023 (see table below, dollars in thousands). There were no loans that had a payment default during the quarter that were modified in the previous 12 months.

	Nine months ending September 30, 2023
	Term Extension
	Amortized Cost		Weighted Average Term Extension (Months)
Automobile loans	$	21		3
Total loans	$	21		3

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (dollars in thousands):

	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
1-4 Family residential construction	$	-	$	-	$	-
Other construction, land development and land		-		-		-
Secured by farmland		-		-		-
Home equity – open end		-		-		-
Real estate		-		16		-
Home Equity – closed end		-		-		-
Multifamily		-		-		-
Owner-occupied commercial real estate		-		-		-
Other commercial real estate		-		-		-
Agricultural loans		-		-		-
Commercial and industrial		-		-		-
Credit Cards		-		-		-
Automobile loans		37		-		-
Other consumer loans		-		-		-
Municipal loans		-		-		-
Total loans	$	37	$	16	$	-

The following table shows, by modification type, TDRs that occurred during 2022 (dollars in thousands):

	December 31, 2022
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Extended maturity		3	$	44	$	44
Change in terms		1		162		162
Total		4	$	206	$	206

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans and are discussed above. The allowance for credit losses for unfunded loan commitments of $749,000 at September 30, 2023 is separately classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended September 30, 2023 (dollars in thousands).

	Total Allowance for Credit Losses – Unfunded Commitments
Balance, December 31, 2022	$	-
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		747
Provision for credit losses		2
Balance, September 30, 2023	$	749

XML

Mortgage Banking and Derivatives

9 Months Ended

Sep. 30, 2023

Mortgage Banking and Derivatives

Mortgage Banking and Derivatives

Note 4. Mortgage Banking and Derivatives

Loans Held for Sale

The Company, through the Bank’s mortgage banking subsidiary, F&M Mortgage, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. The Company uses fair value accounting for its entire portfolio of loans held for sale (“LHFS”) in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business totaled $2.0 million as of September 30, 2023 of which $2.0 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.

Interest Rate Lock Commitments and Forward Sales Commitments

The Company, through F&M Mortgage, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (IRLCs). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).

The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate loan commitments will close.

The fair value of these derivative instruments is reported in “Other Assets” in the Consolidated Balance Sheet at September 30, 2023, and totaled $21,000, with a notional amount of $13.3 million and total positions of 42. The fair value of the IRLCs were reported in the “Other liabilities” in the Consolidated Balance Sheet at December 31, 2022 and totaled $92,000, with a notional amount of $12.2 million and total positions of 38. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the period ended September 30, 2023 and 2022. The Company’s IRLCs are classified as Level 2. At September 30, 2023 and December 31, 2022, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.

The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at September 30, 2023 and totaled $122,000, with a notional amount of $15.3 million and total positions of 48. The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2022 and totaled $186,000, with a notional amount of $13.6 million and total positions of 43.

XML

Employee Benefit Plan

9 Months Ended

Sep. 30, 2023

Employee Benefit Plan

Employee Benefit Plan

Note 5. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31^st as the measurement date for the defined benefit pension plan. The plan was amended on February 15, 2023 to stop the accrual of future benefits. The following is a summary of net periodic pension costs for the three and nine month periods ended September 30, 2023 and 2022 (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Service cost	$	-		$	190		$	-		$	570
Interest cost		92			104			276			312
Expected return on plan assets		(130	)		-			(390	)		-
Amortization of prior service cost		-			(195	)		-			(585	)
Amortization of net loss		-			58			-			174
Net periodic pension cost	$	(38	)	$	157		$	(114	)	$	471

XML

StockBased Compensation

9 Months Ended

Sep. 30, 2023

StockBased Compensation

Stock-based Compensation

Note 6. Stock-Based Compensation

The Company granted stock awards to directors and employees under the Company’s 2020 Stock Incentive Plan. On March 7, 2023 the Bank’s Compensation Committee awarded 23,556 shares with a fair value of $526,000 to selected employees. These shares vest 25% over each of the next four years. The Committee also awarded 1,309 shares with a fair value of $29,000 to directors that vested upon issuance. There were 6,974 shares vested, less 96 shares netted for taxes, during the nine months ended September 30, 2023. There were 529 shares forfeited in the three months ended September 30, 2023. Unrecognized compensation expense related to the nonvested restricted stock as of September 30, 2023 totaled $638,000.

XML

Fair Value

9 Months Ended

Sep. 30, 2023

Fair Value

Fair Value

Note 7. Fair Value

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans Held for Sale

The Company uses the fair value accounting for its entire portfolio of originated loans held for sale in accordance with ASC 820 – Fair Value Measurement and Disclosures. Fair value of the Company’s originated loans held for sale through F&M Mortgage is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company’s portfolio of loans held for sale through F&M Mortgage is classified as Level 2. Gains and losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of Income.

Derivative assets – IRLCs

The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 2.

Derivative Asset/Liability – Forward Sale Commitments

The Company uses the fair value accounting for its forward sales commitments related to IRLCs and LHFS. Best efforts sales commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The best efforts commitments are valued using the committed price to the counter-party against the current market price of the interest rate lock commitment or mortgage loan held for sale. All the Company’s forward sale commitments are classified Level 2.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (dollars in thousands):

			Fair Value Measurements Using:
	Balance at September 30, 2023		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	2,027	$	-	$	2,027	$	-
U.S. Treasury		37,006		-		37,006		-
U.S. Agency		131,614		-		131,614		-
Municipal bonds		36,323		-		36,323		-
Mortgage-backed securities		141,719		-		141,719		-
Corporate		25,677		-		25,677		-
IRLC		122		-		122		-
Forward Sales Commitments		21		-		21		-
Assets at Fair Value	$	374,509	$	-	$	374,509	$	-

			Fair Value Measurements Using:
	Balance at December 31, 2022		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	1,373	$	-	$	1,373	$	-
U.S. Treasury		36,643		-		36,643		-
U.S. Agency		129,748		-		129,748		-
Municipal bonds		42,198		-		42,198		-
Mortgage-backed securities		156,875		-		156,875		-
Corporate		26,631		-		26,631		-
Forward sales commitments		186		-		186		-
Assets at Fair Value	$	393,654	$	-	$	393,654	$	-
Liabilities:
IRLC	$	92	$	-	$	92	$	-
Liabilities at Fair Value	$	92	$	-	$	92	$	-

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Collateral Dependent Loans with an ACL

In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

			Fair Value Measurements Using:
Collateral dependent loans with an ACL	Balance at September 30, 2023		Level 1		Level 2		Level 3
Other construction, land development and land	$	293	$	-	$	-	$	293
Total collateral dependent loans with an ACL	$	293	$	-	$	-	$	293

			Fair Value Measurements Using:
Impaired Loans	Balance at December 31, 2022		Level 1		Level 2		Level 3
Construction/Land Development	$	293	$	-	$	-	$	293
Real Estate		1,286		-		-		1,286
Commercial Real Estate		969		-		-		969
Dealer Finance		42		-		-		42
Total Impaired loans	$	2,590	$	-	$	-	$	2,590

The following table presents information about Level 3 Fair Value Measurements for September 30, 2023 and December 31, 2022 (dollars in thousands):

	Fair Value at September 30, 2023		Valuation Technique	Significant Unobservable Inputs	Range
Collateral Dependent Loans	$	293	Discounted appraised value	Discount for selling costs and marketability		62%

	Fair Value at December 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	2,590	Discounted appraised value	Discount for selling costs and marketability	10.00%-33.00% (Average 19.00%)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.

The Company markets other real estate owned and assets held for sale both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The Company did not have any other real estate owned as of September 30, 2023 or December 31, 2022.

XML

Disclosures about Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

Disclosures about Fair Value of Financial Instruments

Disclosures about Fair Value of Financial Instruments

Note 8. Disclosures about Fair Value of Financial Instruments

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2023 and December 31, 2022. Fair values for September 30, 2023 and December 31, 2022 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows (dollars in thousands):

			Fair Value Measurements at September 30, 2023 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2023
Assets:
Cash and cash equivalents	$	22,158	$	22,158	$	-	$	-	$	22,158
Securities available for sale		372,339		-		372,339		-		372,339
Securities held to maturity		125		-		113		-		113
Loans held for sale		2,027		-		2,027		-		2,027
Loans held for investment, net		805,602		-		-		773,821		773,821
Interest receivable		4,645		-		4,645		-		4,645
Bank owned life insurance		22,705		-		22,705		-		22,705
IRLC		122		-		122		-		122
Forward sales commitments		21		-		21		-		21
Total	$	1,229,744	$	22,158	$	401,972	$	773,821	$	1,197,951
Liabilities:
Deposits	$	1,133,910	$	-	$	1,131,833	$	-	$	1,133,833
Short-term debt		60,000		-		-		60,000		60,000
Long-term debt		6,922		-		-		6,656		6,656
Interest payable		1,215		-		1,215		-		1,215
Total	$	1,202,047	$	-	$	1,133,048	$	66,656	$	1,199,704

			Fair Value Measurements at December 31, 2022 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2022
Assets:
Cash and cash equivalents	$	34,953	$	34,953	$	-	$	-	$	34,953
Securities		392,220		-		392,220		-		392,220
Loans held for sale		1,373		-		1,373		-		1,373
Loans held for investment, net		743,604		-		-		720,806		720,806
Interest receivable		3,995		-		3,995		-		3,995
Bank owned life insurance		23,554		-		23,554		-		23,554
Forward sales commitments		186		-		186		-		186
Total	$	1,199,885	$	34,953	$	421,328	$	720,806	$	1,177,087
Liabilities:
Deposits	$	1,083,377	$	-	$	1,080,909	$	-	$	1,080,909
Short-term debt		70,000		-		-		70,000		70,000
Long-term debt		6,890		-		-		6,778		6,778
IRLC		92		-		92		-		92
Interest payable		295		-		295		-		295
Total	$	1,160,654	$	-	$	1,081,296	$	76,778	$	1,158,074

XML

Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2023

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Note 9. Accumulated Other Comprehensive Loss

The following tables present components of accumulated other comprehensive loss for the periods stated (dollars in thousands).

	For the three months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at June 30, 2023	$	(37,664	)	$	439	$	(37,225	)
Change in unrealized securities gains (losses), net of tax benefit of $1,442		(5,423	)		-		(5,423	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the three months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at June 30, 2022	$	(33,109	)	$	(3,291	)	$	(36,400	)
Change in unrealized securities gains (losses), net of tax benefit of $2,075		(7,804	)		-			(7,804	)
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

	For the nine months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	(40,451	)	$	439	$	(40,012	)
Change in unrealized securities gains, net of tax expense of $701		(2,636	)		-		(2,636	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the nine months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(1,801	)	$	(3,291	)	$	(5,092	)
Change in unrealized securities losses, net of tax benefit of $10,417		(39,189	)		-			(39,189	)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit of $20		77			-			77
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

There were no reclassifications adjustments reported on the consolidated statements of income during the three and nine months ended September 30, 2023.

XML

Debt

9 Months Ended

Sep. 30, 2023

Debt

Debt

Note 10. Debt

Short-term Debt

The Company utilizes short-term debt such as Federal funds purchased and FHLB short-term borrowings to support loans growth and provide liquidity. Federal funds purchased are unsecured overnight borrowings from other financial institutions. FHLB short term debt, which is secured by the loan portfolio, can be a daily rate variable loan that acts as a line of credit or a fixed rate advance, depending on the need of the Company. There was $60.0 million in short-term debt at September 30, 2023 and $70.0 million in short-term debt at December 31, 2022.

Long-term Debt

On July 29, 2020, the Company sold and issued to an institutional accredited investor $7.0 million in aggregate principal amount of 6.00% fixed to floating rate subordinated note due July 31, 2030. The note initially bears interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate 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 September 30, 2023.

XML

Revenue Recognition

9 Months Ended

Sep. 30, 2023

Revenue Recognition

Revenue Recognition

Note 11. Revenue Recognition

Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Substantially all the Company’s revenue is generated from contracts with customers. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Investment Services and Insurance Income

Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

Title Insurance Income

VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.

ATM and Check Card Fees

ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

Other

Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Noninterest Income
In-scope of Topic 606:
Service Charges on Deposits	$	256	$	255	$	755	$	836
Investment Services and Insurance Income		374		316		1,236		1,020
Title Insurance Income		444		376		1,069		1,215
ATM and check card fees		672		628		1,971		1,823
Other		268		173		628		668
Noninterest Income (in-scope of Topic 606)		2,014		1,748		5,659		5,562
Noninterest Income (out-of-scope of Topic 606)		513		534		1,986		2,280
Total Noninterest Income	$	2,527	$	2,282	$	7,645	$	7,842

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2023 and December 31, 2022, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

XML

Leases

9 Months Ended

Sep. 30, 2023

Leases

Leases

Note 12. Leases

The Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about the Company’s leases (dollars in thousands):

	September 30, 2023
Lease Liabilities	$	773
Right-of-use assets	$	755
Weighted average remaining lease term (years)		1.77 years
Weighted average discount rate		3.30	%

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Operating lease cost	$	40	$	75	$	123	$	169
Total lease cost	$	40	$	75	$	123	$	169
Cash paid for amounts included in the measurement of lease liabilities	$	44	$	100	$	149	$	205

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

	September 30, 2023
Three months ending December 31, 2023	$	44
Twelve months ending December 31, 2024		166
Twelve months ending December 31, 2025		122
Twelve months ending December 31, 2026		69
Twelve months ending December 31, 2027		56
Thereafter		462
Total undiscounted cash flows	$	919
Discount		146
Lease liabilities	$	773

XML

Subsequent Events

9 Months Ended

Sep. 30, 2023

Subsequent Events

Subsequent Events

Note 13. Subsequent Events

On October 23, 2023 the Bank filed documents for the dissolution of TEB Life Insurance Company with the Arizona Corporation Commission. TEB has made accommodations to extinguish all remaining insurance obligations and has no insurance obligations by direct writing. The Bank plans for the dissolution to be finalized by December 31, 2023.

On November 7, 2023 the Company announced they are offering an early retirement program to certain employees during the fourth quarter of 2023. The maximum potential one-time expense associated with this program is currently estimated to be $1,812,427. The Company cannot predict at this time how many employees will choose to participate or whether the expense associated with the program will be less than $1,812,427. The Company expects to recognize all expenses associated with the early retirement program during the fourth quarter ending December 31, 2023.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

Principles Of Consolidation

The Consolidated Financial Statements include the accounts of F&M Bank Corp. (the “Company”), Farmers & Merchants Bank (the “Bank”), TEB Life Insurance Company (“TEB”), Farmers & Merchants Financial Services, Inc. (“FMFS”), VBS Mortgage, LLC (dba “F&M Mortgage”), and VSTitle, LLC (“VST”), with all significant intercompany accounts and transactions eliminated.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to accepted practices within the banking industry.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Nature Of Operations

The Company, through its subsidiary Farmers & Merchants Bank, operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank provides services to customers primarily in the counties of Rockingham, Shenandoah, Augusta, and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., F&M Mortgage, and VSTitle, LLC.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.

Accounting Standards Adopted in 2023

On 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. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $777,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $747,000, which is recorded within Other Liabilities. The Company recorded a net decrease to retained earnings of $1.2 million as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined there was no allowance for credit losses on available for sale securities.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses - Held to Maturity Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities was immaterial at September 30, 2023 and was excluded from the estimate of credit losses.

The state and local governments securities held by the Company are highly rated by major rating agencies. As a result, no allowance for credit losses was recorded on held to maturity securities at September 30, 2023.

Allowance for Credit Losses - Available for Sale Securities

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit loss related to the available for sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $1.4 million at September 30, 2023 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.2 million at September 30, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses - Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company utilizes a Qualitative Scorecard (“scorecard”) to adjust the historical loss information, as necessary, to reflect the Company’s expectations about the future. For each segment, the scorecard calculates the difference between the quantitative expected credit loss and the high watermark average remaining maturity loss rates. This difference is the maximum qualitative adjustment that can be applied to that segment. Due to the low number of losses in the Bank’s portfolio, in particular during the great financial crisis from 2008-2012, a number of pool sets will leverage peer data to calculate the overall loss rate. The Company believes that in order to provide a reasonable and supportable loss rate, data representative of losses during a financial downturn will provide a better representation of the perceived risk in the portfolio. In determining how to apply the weightings for the various qualitative factors, management assessed which factors would have the highest impact on potential loan losses. The economy and problem loan trends were determined to have the most significant effect on the estimated losses. The most influential factor on potential loan losses are economic conditions, with a weighting of 20%-25%. The Company will evaluate the weighting applied to each pool on an annual basis.

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a remaining life methodology:

1-4 family residential construction. Construction loans are subject to general risks from changing housing market trends and economic conditions that may impact demand for completed properties, availability of building materials, and the costs of completion. Changes in construction costs and interest rates may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Other construction, land development and land. Construction and land development loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Completed properties that do not sell or become leased within originally expected timeframes may impact the borrower’s ability to service the debt. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates. Risks specific to the borrower are also evaluated, including previous repayment history, debt service ability, and current and projected loan-to-value ratios for the collateral.

Secured by farmland. Farmland loans are loans secured by agricultural property. These loans are subject to risks associated with the value of the underlying farmland and the cash flows of the borrower’s farming operations.

Home equity - open end. The home-equity loan portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

Real estate. Real estate loans are for consumer residential 1-4 family real estate where the credit quality is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, and local housing market trends and interest rates. Risks specific to a borrower are determined by previous repayment history, loan-to-value ratios, and debt-to-income ratios.

Home equity - closed end. The home-equity closed-end loan portfolio carries risks associated with the creditworthiness of the borrower, changes in loan-to-value ratios, and subordinate lien positions. The Company manages these risks through policies and procedures such as limiting loan-to-value at origination, experienced underwriting, and requiring standards for appraisers.

Multifamily. Multifamily loans are loans secured by multi-unit residential property. These loans are subject to risks associated with the value of the underlying property, availability of rental units, as well as the successful operation and management of the property.

Owner-occupied commercial real estate. The commercial real estate segment includes loans secured by commercial real estate occupied by the owner/borrower. Loans in this segment are impacted by economic risks from changing commercial real estate markets, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Other commercial real estate. The other commercial real estate segment includes loans secured by commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for commercial buildings, business bankruptcy rates, local unemployment rates and interest rate trends that would impact the businesses housed by the commercial real estate.

Agriculture loans. Agriculture loans are secured by agricultural equipment or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local agricultural/farming trends, interest rates, and borrower repayment ability and collateral value (if secured).

Commercial and industrial. Commercial and industrial loans are secured by collateral other than real estate or are unsecured. Credit risk for these loans is subject to economic conditions, generally monitored by local business bankruptcy trends, interest rates, and borrower repayment ability and collateral value (if secured).

Credit cards. Credit card loan portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt-to-income ratios, and minimum borrower credit scores.

Automobile loans. Automobile loans generally carry certain risks associated with the values of the collateral and borrower’s ability to repay the loan. Lending on new and used vehicles is subject to the risk of changing values in the availability of vehicles and the resale value.

Other consumer loans. Other consumer loans may be secured or unsecured. Credit risk stems primarily from the borrower’s ability to repay. If the loan is secured, the Company analyzes loan-to-value ratios. All consumer non-real estate loans are analyzed for debt-to-income ratios and previous credit history, as well as for general risks for the portfolio, including local unemployment rates, personal bankruptcy rates and interest rates.

Municipal loans. Municipal loans are unsecured loans generally made to local towns within the Bank’s trade area. Credit risk is based on the cash flow and management of the local town’s budgets.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate.

Allowance for Credit Losses - Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Earnings Per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends.

Recent Accounting Pronouncements

Accounting Standards adopted in 2023:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. ASU 2016-13 was effective for the Company on January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company’s reserve for unfunded loan commitments, was $1.5 million. The adjustment net of tax recorded to shareholders’ equity totaled $1.2 million. See Note 1 for additional details of adoption of this standard.

In March 2022, the FASB issued Accounting Standards Update ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ASU 2022-02 was effective for the Company on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of ASU 2022-01 did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Pending Adoption:

In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

In August 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement”. This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification® Master Glossary. While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements. The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). This ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025. Early adoption of ASU No. 2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance). A joint venture that elects to early adopt may apply ASU No. 2023-05 either prospectively or retrospectively. The Company does not expect the adoption of ASU 2023-05 to have a material impact on its consolidated financial statements.

In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”. These amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2023-01 to have a material impact on its consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of U.S. dollar LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The Company transitioned all loan agreements, other than SWAP loans, away from LIBOR during 2022. The SWAP loans have amended Rate Protection Agreements executed by the borrower in preparation of transition away from LIBOR by the swap holder.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

XML

Investment Securities (Tables)

9 Months Ended

Sep. 30, 2023

Investment Securities

Schedule Of Amortized Cost And Fair Value For Securities

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2023
U. S. Treasury	$	125	$	-	$	12	$	113
December 31, 2022
U. S. Treasury	$	125	$	-	$	13	$	112

Schedule Of Amortized Cost And Fair Value Of Securities Current

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2023
U.S. Treasury	$	39,918	$	-	$	2,912	$	37,006
U.S. Agency		143,484		-		11,870		131,614
Municipal bonds		41,382		-		5,059		36,323
Mortgage-backed securities		171,546		161		29,988		141,719
Corporate		30,550		-		4,873		25,677
Total Securities Available for Sale	$	426,880	$	161	$	54,702	$	372,339

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
December 31, 2022
U.S. Treasury	$	39,902	$	-	$	3,259	$	36,643
U.S. Agency		143,473		-		13,725		129,748
Municipal bonds		46,331		27		4,160		42,198
Mortgage-backed securities		183,044		77		26,246		156,875
Corporate		30,550		-		3,919		26,631
Total Securities Available for Sale	$	443,300	$	104	$	51,309	$	392,095

Schedule Amortized Cost And Fair Value Of Securities, Maturity

	Securities Held to Maturity				Securities Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	125	$	113	$	25,491	$	25,096
Due after one year through five years		-		-		186,744		171,180
Due after five years		-		-		71,573		60,115
Due after ten years		-		-		143,072		115,948
Total	$	125	$	113	$	426,880	$	372,339

Schedule Of Rrealized Losses

	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized losses		-		-
Net realized (losses)	$	-	$	-
Proceeds from sales of securities	$	-	$	-

	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Realized gains (losses):
Gross realized gains	$	-	$	-
Gross realized (losses)		-		(97	)
Net realized (losses)	$	-	$	(97	)
Proceeds from sales of securities	$	-	$	8,699

Schedule Of Unrealized Losses

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2023
U.S. Treasury	$	-	$	-	$	37,006	$	2,912	$	37,006	$	2,912
U.S. Agency		-		-		131,614		11,870		131,614		11,870
Municipal bonds		5,432		593		30,890		4,466		36,322		5,059
Mortgage-backed securities		-		-		136,523		29,988		136,523		29,988
Corporate		1,673		327		24,004		4,546		25,677		4,873
Total	$	7,105	$	920	$	360,037	$	53,782	$	367,142	$	54,702

	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2022
U.S. Treasury	$	9,657	$	362	$	26,987	$	2,897	$	36,644	$	3,259
U.S. Agency		13,914		1,083		115,835		12,642		129,749		13,725
Municipal bonds		21,805		1,426		18,710		2,734		40,515		4,160
Mortgage-backed securities		32,823		2,429		119,892		23,817		152,715		26,246
Corporate		16,252		2,198		10,379		1,721		26,631		3,919
Total	$	94,451	$	7,498	$	291,803	$	43,811	$	386,254	$	51,309

XML

Loans and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2023

Loans and Allowance for Credit Losses

Schedule Of Loans Outstanding

	September 30, 2023
1-4 Family residential construction	$	34,320
Other construction, land development and land		46,027
Secured by farmland		80,502
Home equity – open end		46,351
Real estate		182,814
Home Equity – closed end		5,054
Multifamily		8,257
Owner-occupied commercial real estate		91,836
Other commercial real estate		102,216
Agricultural loans		13,299
Commercial and industrial		47,282
Credit Cards		3,316
Automobile loans		123,981
Other consumer loans		15,149
Municipal loans		5,844
Gross loans		806,248
Unamortized net deferred loan fees		(646	)
Less allowance for credit losses		9,166
Net loans	$	796,436

	December 31, 2022
Construction/Land Development	$	68,671
Farmland		74,322
Real Estate		153,281
Multi-Family		9,622
Commercial Real Estate		195,163
Home Equity – closed end		4,707
Home Equity – open end		46,928
Commercial & Industrial – Non-Real Estate		56,625
Consumer		6,488
Dealer Finance		125,125
Credit Cards		3,242
Gross loans		744,174
Unamortized net deferred loan fees		(570	)
Less allowance for credit losses		7,936
Net loans	$	735,668

Summary Of Nonaccrual and Past Due Loans

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past due		Nonaccrual Loans		Accruing Current Loans			Total Loans
September 30, 2023
1-4 Family residential construction	$	-	$	-	$	-	$	723	$	33,597		$	34,320
Other construction, land development and land		-		-		-		545		45,482			46,027
Secured by farmland		-		-		-		977		79,525			80,502
Home equity – open end		494		-		-		225		45,632			46,351
Real estate		1,714		-		-		591		180,509			182,814
Home Equity – closed end		-		-		-		-		5,054			5,054
Multifamily		-		-		-		-		8,257			8,257
Owner-occupied commercial real estate		1,328		-		-		-		90,508			91,836
Other commercial real estate		-		-		-		-		102,216			102,216
Agricultural loans		-		-		-		73		13,226			13,299
Commercial and industrial		162		-		25		33		47,062			47,282
Credit Cards		59		19		4		-		3,234			3,316
Automobile loans		854		221		-		380		122,526			123,981
Other consumer loans		67		16		-		10		15,056			15,149
Municipal loans		-		-		-		-		5,844			5,844
Gross loans		4,678		256		29		3,557		797,728			806,248
Less: Unamortized net deferred loan fees		-		-		-		-		(646	)		(646	)
Loans held for investment	$	4,678	$	256	$	29	$	3,557	$	797,082		$	805,602

	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past Due		Nonaccrual Loans		Accruing Current Loans			Total Loans
December 31, 2022
Construction/Land Development	$	477	$	539	$	-	$	21	$	67,634		$	68,671
Farmland		85		18		-		1,458		72,761			74,322
Real Estate		1,807		226		-		419		150,829			153,281
Multi-Family		-		-		-		-		9,622			9,622
Commercial Real Estate		234		82		-		-		194,847			195,163
Home Equity – closed end		3		-		-		-		4,704			4,707
Home Equity – open end		385		177		-		-		46,366			46,928
Commercial & Industrial – Non- Real Estate		104		-		31		101		56,389			56,625
Consumer		11		11		-		15		6,451			6,488
Dealer Finance		1,117		225		5		210		123,568			125,125
Credit Cards		51		9		2		-		3,180			3,242
Less: Unamortized net deferred loan fees		-		-		-		-		(570	)		(570	)
Loans held for investment	$	4,274	$	1,287	$	38	$	2,224	$	735,781		$	743,604

Summary Of nonaccrual loans by major categories

	CECL						Incurred Loss
	September 30, 2023						December 31, 2022
	Nonaccrual loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
1-4 Family residential construction	$	723	$	-	$	723	$	-
Other construction, land development and land		545		-		545		21
Secured by farmland		977		-		977		1,458
Home equity – open end		225		-		225		-
Real estate		591		-		591		419
Home Equity – closed end		-		-		-		-
Multifamily		-		-		-		-
Owner-occupied commercial real estate		-		-		-		-
Other commercial real estate		-		-		-		-
Agricultural loans		73		-		73		88
Commercial and industrial		33		-		33		13
Credit Cards		-		-		-		-
Automobile loans		380		-		380		210
Other consumer loans		10		-		10		15
Municipal loans		-		-		-		-
Total loans	$	3,557	$	-	$	3,557	$	2,224

Summary Of accrued interest receivables

	For the Three Months Ended September 30, 2023		For the Nine Months Ended September 30, 2023
1-4 Family residential construction	$	10	$	10
Other construction, land development and land		6		6
Secured by farmland		-		-
Home equity – open end		-		1
Real estate		1		3
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		5		8
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	22	$	28

Schedule Of Credit Quality Indicators

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
1-4 Family residential construction
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	33,079	$	33,079
Watch		-		-		-		-		-		-		518		518
Substandard		-		-		-		-		-		-		723		723
Total 1-4 Family residential construction		-		-		-		-		-		-		34,320		34,320
Current period gross write-offs		-		70		-		-		-		-		-		70
Other construction, land development and land
Pass		4,343		3,903		5,753		1,862		2,883		4,957		21,339		45,040
Watch		-		-		-		-		-		261		181		442
Substandard		521		-		-		-		-		24		-		545
Total Other construction, land development and land		4,864		3,903		5,753		1,862		2,883		5,242		21,520		46,027
Current period gross write-offs		-		-		-		-		-		-		-		-
Secured by farmland
Pass		6,395		15,174		14,149		27,475		2,533		6,530		5,553		77,809
Watch		-		-		-		-		790		910		-		1,700
Substandard		-		-		325		-		-		652		16		993
Total Secured by farmland		6,395		15,174		14,474		27,475		3,323		8,092		5,569		80,502
Current period gross write-offs		-		-		-		-		-		-		-		-
Home equity – open end
Pass		370		-		-		-		-		143		44,182		44,695
Watch		-		-		-		-		-		-		1,381		1,381
Substandard		-		-		-		-		-		-		275		275
Total Home equity - open end		370		-		-		-		-		143		45,838		46,351
Current period gross write-offs		-		-		-		-		-		-		-		-
Real estate
Pass		36,704		44,780		15,382		12,310		6,555		56,434		192		172,357
Watch		-		-		-		502		155		5,784		-		6,441
Substandard		-		90		542		-		1,218		2,166		-		4,016
Total Real estate		36,704		44,870		15,924		12,812		7,928		64,384		192		182,814
Current period gross write-offs		-		-		-		-		-		19		-		19
Home Equity – closed end
Pass		1,059		391		121		1,067		473		1,560		-		4,671
Watch		-		-		-		-		-		371		-		371
Substandard		-		-		-		-		12		-		-		12
Total Home Equity - closed end		1,059		391		121		1,067		485		1,931		-		5,054
Current period gross write-offs		-		-		-		-		-		-		-		-
Multifamily
Pass		-		2,730		1,414		916		-		1,590		1,504		8,154
Watch		-		-		-		-		-		103		-		103
Substandard		-		-		-		-		-		-		-		-
Total Multifamily		-		2,730		1,414		916		-		1,693		1,504		8,257
Current period gross write-offs		-		-		-		-		-		-		-		-
Owner-occupied commercial real estate
Pass		2,165		18,342		18,132		7,208		3,649		23,487		5,891		78,874
Watch		-		-		-		-		40		2,108		-		2,148
Substandard		-		-		-		-		6,323		1,193		3,298		10,814
Total Owner-occupied commercial real estate		2,165		18,342		18,132		7,208		10,012		26,788		9,189		91,836
Current period gross write-offs		-		-		-		-		-		-		-		-
Other commercial real estate
Pass		4,148		30,132		12,895		5,059		3,825		31,048		3,229		90,336
Watch		-		-		-		-		-		11,793		-		11,793
Substandard		-		-		-		-		-		87		-		87
Total Other commercial real estate		4,148		30,132		12,895		5,059		3,825		42,928		3,229		102,216
Current period gross write-offs		-		-		-		-		-		-		-		-

	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Agricultural loans
Pass		2,869		2,719		627		453		-		38		6,333		13,039
Watch		-		-		-		37		-		-		150		187
Substandard		-		48		14		11		-		-		-		73
Total Agricultural loans		2,869		2,767		641		501		-		38		6,483		13,299
Current period gross write-offs		-		-		-		-		-		-		-		-
Commercial and industrial
Pass		4,971		8,901		5,790		1,914		806		369		16,571		39,322
Watch		-		48		57		-		-		-		7,167		7,272
Substandard		-		33		628		25		-		2		-		688
Total 1-4 Commercial and industrial		4,971		8,982		6,475		1,939		806		371		23,738		47,282
Current period gross write-offs		-		-		-		-		-		2		-		2
Credit Cards
Pass		-		-		-		-		-		-		3,312		3,312
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		4		4
Total Credit cards		-		-		-		-		-		-		3,316		3,316
Current period gross write-offs		-		-		-		-		-		-		25		25
Automobile loans
Pass		46,565		42,147		21,824		8,772		2,755		1,019		-		123,082
Watch		199		130		48		43		53		46		-		519
Substandard		30		124		187		30		4		5		-		380
Total Automobile loans		46,794		42,401		22,059		8,845		2,812		1,070		-		123,981
Current period gross write-offs		88		424		386		105		32		25		-		1,060
Other consumer loans
Pass		4,521		5,619		2,587		1,062		307		532		473		15,101
Watch		-		4		23		-		2		3		1		33
Substandard		-		10		-		-		5		-		-		15
Total Other consumer loans		4,521		5,633		2,610		1,062		314		535		474		15,149
Current period gross write-offs		-		56		1		2		6		2		-		67
Municipal loans
Pass		-		170		973		1,128		1,257		2,316		-		5,844
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Municipal loans		-		170		973		1,128		1,257		2,316		-		5,844
Current period gross write-offs		-		-		-		-		-		-		-		-
Total loans	$	114,860	$	175,495	$	101,471	$	69,874	$	33,645	$	155,531	$	155,372	$	806,248
Less: Unamortized net deferred loan fees																(646	)
Loans held for investment															$	805,602
Current period gross write-offs	$	88	$	550	$	387	$	107	$	38	$	48	$	25	$	1,243

Summary Of internal loan grade

December 31, 2022	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	4	$	11,112	$	42,684	$	13,116	$	1,213	$	542	$	-	$	68,671
Farmland		155		269		11,373		38,051		22,069		947		1,458		-		74,322
Real Estate		-		553		27,003		86,269		28,560		6,950		3,946		-		153,281
Multi-Family		-		-		963		5,116		3,430		113		-		-		9,622
Commercial Real Estate		-		3,097		55,662		72,779		41,749		13,878		7,998		-		195,163
Home Equity – closed end		-		48		1,065		2,560		639		382		13		-		4,707
Home Equity – open end		27		1,272		18,671		23,207		2,091		1,611		49		-		46,928
Commercial & Industrial - Non-Real Estate		10		516		12,934		26,310		15,613		911		331		-		56,625
Consumer (excluding dealer)		33		286		2,965		3,105		68		16		15		-		6,488
Gross loans	$	225	$	6,045	$	141,748	$	300,081	$	127,335	$	26,021	$	14,352	$	-	$	615,807
Less: Unamortized net deferred loan fees																		(570	)
Total																	$	615,237

	Credit Cards		Dealer Finance
Performing	$	3,240	$	124,910
Nonperforming		2		215
Total	$	3,242	$	125,125

Summary Of analysis of collateral-dependent loans

	September 30, 2023
	Real Estate		Business/ Other Assets
1-4 Family residential construction	$	-	$	-
Other construction, land development and land		521		-
Secured by farmland		-		-
Home equity – open end		-		-
Real estate		-		-
Home Equity – closed end		-		-
Multifamily		-		-
Owner-occupied commercial real estate		-		-
Other commercial real estate		-		-
Agricultural loans		-		-
Commercial and industrial		-		-
Credit Cards		-		-
Automobile loans		-		-
Other consumer loans		-		-
Municipal loans		-		-
Total loans	$	521	$	-

Summary Of Allowance for Credit Losses

	December 31, 2022		Adjustment for adoption of ASU 2016-13			Charge-offs		Recoveries		Provision for loan credit losses			September 30, 2023
1-4 Family residential construction	$	324	$	109		$	70	$	1	$	154		$	518
Other construction, land development and land		694		602			-		-		148			1,444
Secured by farmland		571		311			-		-		67			949
Home equity – open end		446		(189	)		-		-		-			257
Real estate		1,389		(184	)		19		-		68			1,254
Home Equity – closed end		39		96			-		-		14			149
Multifamily		71		182			-		-		(45	)		208
Owner-occupied commercial real estate		992		280			-		-		(39	)		1,233
Other commercial real estate		1,023		(582	)		-		-		(5	)		436
Agricultural loans		80		(58	)		-		-		2			24
Commercial and industrial		368		338			2		1		67			772
Credit Cards		68		26			25		20		2			91
Automobile loans		1,790		(257	)		1,060		475		535			1,483
Other consumer loans		81		103			67		42		189			348
Municipal loans		-		-			-		-		-			-
Total loans	$	7,936	$	777		$	1,243	$	539	$	1,157		$	9,166

September 30, 2022	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	977	$	-	$	-	$	77		$	1,054	$	228	$	826
Farmland		448		-		-		77			525		-		525
Real Estate		1,162		17		-		(4	)		1,141		99		1,042
Multi-Family		29		-		-		27			56		-		56
Commercial Real Estate		2,205		-		-		(398	)		1,807		21		1,786
Home Equity – closed end		41		-		-		(7	)		34		-		34
Home Equity – open end		407		-		130		(141	)		396		-		396
Commercial & Industrial – Non-Real Estate		288		36		44		102			398		-		398
Consumer		520		147		21		(137	)		257		-		257
Dealer Finance		1,601		794		445		518			1,770		13		1,757
Credit Cards		70		42		11		36			75		-		75
Total	$	7,748	$	1,036	$	651	$	150		$	7,513	$	361	$	7,152

Summary Of segregated loan portfolio segment

	September 30, 2023
	Loan Balances						Allowance for Credit Losses - Loans
	Loans Individually Evaluated		Loans Collectively Evaluated		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
1-4 Family residential construction	$	-	$	34,320	$	34,320	$	-	$	518	$	518
Other construction, land development and land		521		45,506		46,027		228		1,216		1,444
Secured by farmland		-		80,502		80,502		-		949		949
Home equity – open end		-		46,351		46,351		-		257		257
Real estate		-		182,814		182,814		-		1,254		1,254
Home Equity – closed end		-		5,054		5,054		-		149		149
Multifamily		-		8,257		8,257		-		208		208
Owner-occupied commercial real estate		-		91,836		91,836		-		1,233		1,233
Other commercial real estate		-		102,216		102,216		-		436		436
Agricultural loans		-		13,299		13,299		-		24		24
Commercial and industrial		-		47,282		47,282		-		772		772
Credit Cards		-		3,316		3,316		-		91		91
Automobile loans		-		123,981		123,981		-		1,483		1,483
Other consumer loans		-		15,149		15,149		-		348		348
Municipal loans		-		5,844		5,844		-		-		-
Total loans	$	521	$	805,727	$	806,248	$	228	$	8,938	$	9,166

December 31, 2022	Loan Receivable			Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,671		$	853	$	67,818
Farmland		74,322			2,079		72,243
Real Estate		153,281			3,260		150,021
Multi-Family		9,622			-		9,622
Commercial Real Estate		195,163			9,111		186,052
Home Equity – closed end		4,707			-		4,707
Home Equity –open end		46,928			-		46,928
Commercial & Industrial – Non-Real Estate		56,625			-		56,625
Consumer		6,488			-		6,488
Dealer Finance		125,125			62		125,063
Credit Cards		3,242			-		3,242
Gross Loans		744,174			15,365		728,809
Less: Unamortized net deferred loan fees		(570	)		-		(570	)
Total	$	743,604		$	15,365	$	728,239

Summary Of impairment class of loans

	December 31, 2022
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment(1)		Balance		Allowance		Investment
Impaired loans with no related allowance recorded:
Construction/Land Development	$	332	$	332	$	-	$	474
Farmland		2,535		2,079		-		2,137
Real Estate		1,882		1,882		-		2,107
Multi-Family		-		-		-		-
Commercial Real Estate		8,131		8,131		-		8,851
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		7		7		-		11
		12,887		12,431		-		13,580
Impaired loans with an allowance recorded:
Construction/Land Development		521		521		228		261
Farmland		-		-		-		-
Real Estate		1,378		1,378		92		1,466
Multi-Family		-		-		-		-
Commercial Real Estate		980		980		11		1,935
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		55		55		13		62
		2,934		2,934		344		3,724
Total impaired loans	$	15,821	$	15,365	$	344	$	17,304

	Nine Months Ended September, 30, 2022
	Average Recorded		Interest Income
	Investment		Recognized
Impaired loans with no related allowance recorded:
Construction/Land Development	$	552	$	15
Farmland		2,188		151
Real Estate		2,290		75
Multi-Family		-		-
Commercial Real Estate		8,339		266
Home Equity – closed end		74		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		3		-
Credit Cards		-		-
Dealer Finance		11		1
		13,457		508
Impaired loans with an allowance recorded:
Construction/Land Development	$	261	$	17
Farmland		-		-
Real Estate		1,309		49
Multi-Family		-		-
Commercial Real Estate		3,496		34
Home Equity – closed end		-		-
Home Equity – open end		-		-
Commercial & Industrial – Non-Real Estate		-		-
Consumer		-		-
Credit Card		-		-
Dealer Finance		81		5
		5,147		105
Total Impaired Loans	$	18,604	$	613

Schedule Of modified to borrowers experiencing

	Nine months ending September 30, 2023
	Term Extension
	Amortized Cost		Weighted Average Term Extension (Months)
Automobile loans	$	21		3
Total loans	$	21		3

	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
1-4 Family residential construction	$	-	$	-	$	-
Other construction, land development and land		-		-		-
Secured by farmland		-		-		-
Home equity – open end		-		-		-
Real estate		-		16		-
Home Equity – closed end		-		-		-
Multifamily		-		-		-
Owner-occupied commercial real estate		-		-		-
Other commercial real estate		-		-		-
Agricultural loans		-		-		-
Commercial and industrial		-		-		-
Credit Cards		-		-		-
Automobile loans		37		-		-
Other consumer loans		-		-		-
Municipal loans		-		-		-
Total loans	$	37	$	16	$	-

Schedule Of TDRS modified to borrowers experiencing

	December 31, 2022
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Extended maturity		3	$	44	$	44
Change in terms		1		162		162
Total		4	$	206	$	206

Summary Of balance and activity in the allowance for credit losses

	Total Allowance for Credit Losses – Unfunded Commitments
Balance, December 31, 2022	$	-
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		747
Provision for credit losses		2
Balance, September 30, 2023	$	749

XML

Employee Benefit Plan (Tables)

9 Months Ended

Sep. 30, 2023

Employee Benefit Plan

Schedule Of Employee Benefit Plan

	Three Months Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Service cost	$	-		$	190		$	-		$	570
Interest cost		92			104			276			312
Expected return on plan assets		(130	)		-			(390	)		-
Amortization of prior service cost		-			(195	)		-			(585	)
Amortization of net loss		-			58			-			174
Net periodic pension cost	$	(38	)	$	157		$	(114	)	$	471

XML

Fair Value (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value

Schedule Of Assets And Liabilities At Fair Value On Recurring Basis

			Fair Value Measurements Using:
	Balance at September 30, 2023		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	2,027	$	-	$	2,027	$	-
U.S. Treasury		37,006		-		37,006		-
U.S. Agency		131,614		-		131,614		-
Municipal bonds		36,323		-		36,323		-
Mortgage-backed securities		141,719		-		141,719		-
Corporate		25,677		-		25,677		-
IRLC		122		-		122		-
Forward Sales Commitments		21		-		21		-
Assets at Fair Value	$	374,509	$	-	$	374,509	$	-

			Fair Value Measurements Using:
	Balance at December 31, 2022		Level 1		Level 2		Level 3
Assets:
Loans held for sale, F&M Mortgage	$	1,373	$	-	$	1,373	$	-
U.S. Treasury		36,643		-		36,643		-
U.S. Agency		129,748		-		129,748		-
Municipal bonds		42,198		-		42,198		-
Mortgage-backed securities		156,875		-		156,875		-
Corporate		26,631		-		26,631		-
Forward sales commitments		186		-		186		-
Assets at Fair Value	$	393,654	$	-	$	393,654	$	-
Liabilities:
IRLC	$	92	$	-	$	92	$	-
Liabilities at Fair Value	$	92	$	-	$	92	$	-

Summarizes Measured At Fair Value On A Nonrecurring Basis

			Fair Value Measurements Using:
Collateral dependent loans with an ACL	Balance at September 30, 2023		Level 1		Level 2		Level 3
Other construction, land development and land	$	293	$	-	$	-	$	293
Total collateral dependent loans with an ACL	$	293	$	-	$	-	$	293

			Fair Value Measurements Using:
Impaired Loans	Balance at December 31, 2022		Level 1		Level 2		Level 3
Construction/Land Development	$	293	$	-	$	-	$	293
Real Estate		1,286		-		-		1,286
Commercial Real Estate		969		-		-		969
Dealer Finance		42		-		-		42
Total Impaired loans	$	2,590	$	-	$	-	$	2,590

Schedule Fair Value Measurements Level 3

	Fair Value at September 30, 2023		Valuation Technique	Significant Unobservable Inputs	Range
Collateral Dependent Loans	$	293	Discounted appraised value	Discount for selling costs and marketability		62%

	Fair Value at December 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	2,590	Discounted appraised value	Discount for selling costs and marketability	10.00%-33.00% (Average 19.00%)

XML

Disclosures About Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Disclosures about Fair Value of Financial Instruments

Schedule Of Carrying Value And Estimated Fair Value For Financial Instruments

			Fair Value Measurements at September 30, 2023 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2023
Assets:
Cash and cash equivalents	$	22,158	$	22,158	$	-	$	-	$	22,158
Securities available for sale		372,339		-		372,339		-		372,339
Securities held to maturity		125		-		113		-		113
Loans held for sale		2,027		-		2,027		-		2,027
Loans held for investment, net		805,602		-		-		773,821		773,821
Interest receivable		4,645		-		4,645		-		4,645
Bank owned life insurance		22,705		-		22,705		-		22,705
IRLC		122		-		122		-		122
Forward sales commitments		21		-		21		-		21
Total	$	1,229,744	$	22,158	$	401,972	$	773,821	$	1,197,951
Liabilities:
Deposits	$	1,133,910	$	-	$	1,131,833	$	-	$	1,133,833
Short-term debt		60,000		-		-		60,000		60,000
Long-term debt		6,922		-		-		6,656		6,656
Interest payable		1,215		-		1,215		-		1,215
Total	$	1,202,047	$	-	$	1,133,048	$	66,656	$	1,199,704

			Fair Value Measurements at December 31, 2022 Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2022
Assets:
Cash and cash equivalents	$	34,953	$	34,953	$	-	$	-	$	34,953
Securities		392,220		-		392,220		-		392,220
Loans held for sale		1,373		-		1,373		-		1,373
Loans held for investment, net		743,604		-		-		720,806		720,806
Interest receivable		3,995		-		3,995		-		3,995
Bank owned life insurance		23,554		-		23,554		-		23,554
Forward sales commitments		186		-		186		-		186
Total	$	1,199,885	$	34,953	$	421,328	$	720,806	$	1,177,087
Liabilities:
Deposits	$	1,083,377	$	-	$	1,080,909	$	-	$	1,080,909
Short-term debt		70,000		-		-		70,000		70,000
Long-term debt		6,890		-		-		6,778		6,778
IRLC		92		-		92		-		92
Interest payable		295		-		295		-		295
Total	$	1,160,654	$	-	$	1,081,296	$	76,778	$	1,158,074

XML

Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2023

Accumulated Other Comprehensive Loss

Schedule Of Accumulated Other Comprehensive Loss

	For the three months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at June 30, 2023	$	(37,664	)	$	439	$	(37,225	)
Change in unrealized securities gains (losses), net of tax benefit of $1,442		(5,423	)		-		(5,423	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the three months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at June 30, 2022	$	(33,109	)	$	(3,291	)	$	(36,400	)
Change in unrealized securities gains (losses), net of tax benefit of $2,075		(7,804	)		-			(7,804	)
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

	For the nine months ended September 30, 2023
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	(40,451	)	$	439	$	(40,012	)
Change in unrealized securities gains, net of tax expense of $701		(2,636	)		-		(2,636	)
Balance at September 30, 2023	$	(43,087	)	$	439	$	(42,648	)

	For the nine months ended September 30, 2022
	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(1,801	)	$	(3,291	)	$	(5,092	)
Change in unrealized securities losses, net of tax benefit of $10,417		(39,189	)		-			(39,189	)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit of $20		77			-			77
Balance at September 30, 2022	$	(40,913	)	$	(3,291	)	$	(44,204	)

XML

Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2023

Revenue Recognition

Summary Of Noninterest Income, Segregated By Revenue Streams

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Noninterest Income
In-scope of Topic 606:
Service Charges on Deposits	$	256	$	255	$	755	$	836
Investment Services and Insurance Income		374		316		1,236		1,020
Title Insurance Income		444		376		1,069		1,215
ATM and check card fees		672		628		1,971		1,823
Other		268		173		628		668
Noninterest Income (in-scope of Topic 606)		2,014		1,748		5,659		5,562
Noninterest Income (out-of-scope of Topic 606)		513		534		1,986		2,280
Total Noninterest Income	$	2,527	$	2,282	$	7,645	$	7,842

XML

Leases (Tables)

9 Months Ended

Sep. 30, 2023

Leases

Schedule Of Leases And Liabilities Measurement

	September 30, 2023
Lease Liabilities	$	773
Right-of-use assets	$	755
Weighted average remaining lease term (years)		1.77 years
Weighted average discount rate		3.30	%

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Operating lease cost	$	40	$	75	$	123	$	169
Total lease cost	$	40	$	75	$	123	$	169
Cash paid for amounts included in the measurement of lease liabilities	$	44	$	100	$	149	$	205

Schedule Of Operating Lease Liabilities And Reconciliation

	September 30, 2023
Three months ending December 31, 2023	$	44
Twelve months ending December 31, 2024		166
Twelve months ending December 31, 2025		122
Twelve months ending December 31, 2026		69
Twelve months ending December 31, 2027		56
Thereafter		462
Total undiscounted cash flows	$	919
Discount		146
Lease liabilities	$	773

XML

Summary of Significant Accounting Policies (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2023	Sep. 30, 2023	Jan. 31, 2023
Summary of Significant Accounting Policies
Increase in the allowance for credit losses on loans	$ 777,000
Increase in allowance for credit losses on unfunded loan commitments	$ 747,000
Net decrease to retained earnings			$ 1,200,000
Accrued interest receivable on available for sale debt securities		$ 1,400,000
Accrued interest receivable related to loans		$ 3,200,000

XML

Investment Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Fair value	$ 113	$ 112
Held to maturity, net	125	125
U S Treasuries [Member]
Fair value	113	112
Gross Unrealized Gains	0	0
Gross Unrealized Losses	12	13
Held to maturity, net	$ 125	$ 125

XML

Investment Securities (Details 1) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Amortized Cost	$ 426,880	$ 443,300
Unrealized Gains	161	104
Unrealized Losses	54,702	51,309
Fair Value	372,339	392,095
U S Treasuries [Member]
Amortized Cost	39,918	39,902
Unrealized Gains	0	0
Unrealized Losses	2,912	3,259
Fair Value	37,006	36,643
U.S. Agency [Member]
Amortized Cost	143,484	143,473
Unrealized Gains	0	0
Unrealized Losses	11,870	13,725
Fair Value	131,614	129,748
Municipal bonds [Member]
Amortized Cost	41,382	46,331
Unrealized Gains	0	27
Unrealized Losses	5,059	4,160
Fair Value	36,323	42,198
Mortgage-backed securities [Member]
Amortized Cost	171,546	183,044
Unrealized Gains	161	77
Unrealized Losses	29,988	26,246
Fair Value	141,719	156,875
Corporate [Member]
Amortized Cost	30,550	30,550
Unrealized Gains	0	0
Unrealized Losses	4,873	3,919
Fair Value	$ 25,677	$ 26,631

XML

Investment Securities (Details 2) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Total, Amortized Cost	$ 125,000	$ 125,000
Total Fair Value	113,000	$ 112,000
Securities Held to Maturity [Member]
Due in one year or less, Amortized Cost	125,000
Due in one year or less, Fair Value	113,000
Due after one year through five years, Amortized Cost	0
Due after one year through five years, Fair Value	0
Due after five years, Amortized Cost	0
Due after five years, Fair Value	0
Due After Ten Years, Amortized Cost	0
Due After Ten Years, Fair Value	0
Total, Amortized Cost	125,000
Total Fair Value	113,000
Securities Available for Sale [Member]
Due in one year or less, Amortized Cost	25,491,000
Due in one year or less, Fair Value	25,096,000
Due after one year through five years, Amortized Cost	186,744,000
Due after one year through five years, Fair Value	171,180,000
Due after five years, Amortized Cost	71,573,000
Due after five years, Fair Value	60,115,000
Due After Ten Years, Amortized Cost	143,072,000
Due After Ten Years, Fair Value	115,948,000
Total, Amortized Cost	426,880,000
Total Fair Value	$ 372,339,000

XML

Investment Securities (Details 3) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Investment Securities
Gross realized losses	$ 0	$ 0	$ 0	$ (97)
Gross realized gains	0	0	0	0
Net realized (losses)	0	0	0	(97)
Proceeds from sale of securities	$ 0	$ 0	$ 0	$ 8,699

XML

Investment Securities (Details 4) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Fair Value Less Than 12 Months	$ 7,105	$ 94,451
Unrealized Losses Less Than 12 Months	920	7,498
Fair Value More Than 12 Months	360,037	291,803
Unrealized Losses More Than 12 Months	53,782	43,811
Fair Value Total	367,142	386,254
Unrealized Losses Total	54,702	51,309
U.S. Agency [Member]
Fair Value Less Than 12 Months	0	13,914
Unrealized Losses Less Than 12 Months	0	1,083
Fair Value More Than 12 Months	131,614	115,835
Unrealized Losses More Than 12 Months	11,870	12,642
Fair Value Total	131,614	129,749
Unrealized Losses Total	11,870	13,725
Municipal bonds [Member]
Fair Value Less Than 12 Months	5,432	21,805
Unrealized Losses Less Than 12 Months	593	1,426
Fair Value More Than 12 Months	30,890	18,710
Unrealized Losses More Than 12 Months	4,466	2,734
Fair Value Total	36,322	40,515
Unrealized Losses Total	5,059	4,160
Mortgage-backed securities [Member]
Fair Value Less Than 12 Months	0	32,823
Unrealized Losses Less Than 12 Months	0	2,429
Fair Value More Than 12 Months	136,523	119,892
Unrealized Losses More Than 12 Months	29,988	23,817
Fair Value Total	136,523	152,715
Unrealized Losses Total	29,988	26,246
Corporate [Member]
Fair Value Less Than 12 Months	1,673	16,252
Unrealized Losses Less Than 12 Months	327	2,198
Fair Value More Than 12 Months	24,004	10,379
Unrealized Losses More Than 12 Months	4,546	1,721
Fair Value Total	25,677	26,631
Unrealized Losses Total	4,873	3,919
U.S. Treasury [Member]
Fair Value Less Than 12 Months	0	9,657
Unrealized Losses Less Than 12 Months	0	362
Fair Value More Than 12 Months	37,006	26,987
Unrealized Losses More Than 12 Months	2,912	2,897
Fair Value Total	37,006	36,644
Unrealized Losses Total	$ 2,912	$ 3,259

XML

Investment Securities (Details Narrative) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Other Investments	$ 11,038,000	$ 11,317,000
Federal Home Loan Bank [Member]
Other Investments	2,000,000.0
Stock	3,700,000
Three low-income housing limited partnerships [Member]
Other Investments	625,000
Twelve Low-Income housing [Member]
Other Investments	5,300,000
Federal Reserve Discount Window Bank Term Funding Program [Member]
Pledged securities value	222,500,000
Securities market value	$ 190,200,000

XML

Loans and Allowance for Credit Losses (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Gross loans	$ 806,248	$ 744,174
Unamortized net deferred loan fees	(646)	570
Less allowance for credit losses	9,166	7,936
Loans outstanding	796,436	735,668
Multi-Family [Member]
Loans outstanding	8,257	9,622
Real Estate [Member]
Loans outstanding	182,814	153,281
Other commercial real estate [Member]
Loans outstanding	102,216
Commercial and industrial [Member]
Loans outstanding	47,282
Credit Cards [Member]
Loans outstanding	3,316	3,242
1-4 Family residential construction [Member]
Loans outstanding	34,320
Owner-occupied Commercial Real Estate [Member]
Loans outstanding	91,836
Commercial Real Estate [Member]
Loans outstanding		195,163
Commercial & Industrial - Non- Real Estate [Member]
Loans outstanding		56,625
Farmland [Member]
Loans outstanding	80,502	74,322
Construction/Land Developments [Member]
Loans outstanding	46,027	68,671
Agricultural loans [Member]
Loans outstanding	13,299
Home Equity - Open End [Member]
Loans outstanding	46,351	46,928
Automobile loans [Member]
Loans outstanding	123,981
Other consumer loans [Member]
Loans outstanding	15,149
Municipal loans [Member]
Loans outstanding	5,844
Consumer [Member]
Loans outstanding		6,488
Dealers Finance [Member]
Loans outstanding		125,125
Home Equity - Closed End [Member]
Loans outstanding	$ 5,054	$ 4,707

XML

Loans and Allowance for Credit Losses (Details 1) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Less: Deferred aoan fees, net of costs, 30-59 days past due	$ 0	$ 0
Less: Deferred Loan fees, net of costs,Current	797,728
Gross loans, net of costs, 30-59 days past due	4,678
Less: Deferred aoan fees, net of costs, 60-89 days past due	0	0
Gross loans, net of costs, 60-89 days past due	256
Less: Deferred aoan fees, net of costs, greater than 90 days	0	0
Gross loans, net of costs, greater than 90 days	29
Less: Deferred loan fees, net of costs, non accruel loans	0	0
Gross loans, net of costs, non accruel loans	3,557,000
Less: Deferred loan fees, net of costs, current	646,000	570,000
Less: Deferred loan fees, net of costs, total loan receivable	646,000	570,000
Gross loans, net of costs, total loan receivable	806,248,000
Commercial Real Estate [Member]
Non-Accrual Loans		0
Current		194,847,000
Total Loan Receivable		195,163,000
30-59 Days Past Due		234,000
60-89 Days Past Due		82,000
Commercial & Industrial - Non- Real Estate [Member]
Non-Accrual Loans		101,000
Current		56,389,000
Total Loan Receivable		56,625,000
30-59 Days Past Due		104,000
60-89 Days Past Due		0
Greater than 90 Days		31
Total [Member]
30-59 Days Past due	4,678,000	4,274,000
60-89 Days Past due	256,000	1,287,000
Greater than 90 Days	29,000	38,000
Non-Accrual Loans	3,557,000	2,224,000
Current	797,082,000	735,781,000
Total Loan Receivable	805,602,000	743,604,000
Multi-Family [Member]
Non-Accrual Loans	0	0
Current	8,257,000	9,622,000
Total Loan Receivable	8,257,000	9,622,000
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Construction/Land Development Other [Member]
Non-Accrual Loans	545,000
Current	45,482,000
Total Loan Receivable	46,027,000
30-59 Days Past Due	0
60-89 Days Past Due	0
Real Estate [Member]
Non-Accrual Loans	591,000	419,000
Current	180,509,000	150,829,000
Total Loan Receivable	182,814,000	153,281,000
30-59 Days Past Due	1,714,000	1,807,000
60-89 Days Past Due	0	226,000
Other commercial real estate [Member]
Non-Accrual Loans	0
Current	102,216,000
Total Loan Receivable	102,216,000
30-59 Days Past Due	0
60-89 Days Past Due	0
Commercial and industrial [Member]
Non-Accrual Loans	33,000
Current	47,062,000
Total Loan Receivable	47,282,000
30-59 Days Past Due	162,000
60-89 Days Past Due	0
Greater than 90 Days	25
Credit Cards [Member]
Non-Accrual Loans	0	0
Current	3,234,000	3,180,000
Total Loan Receivable	3,316,000	3,242,000
30-59 Days Past Due	59,000	51,000
60-89 Days Past Due	19,000	9,000
Greater than 90 Days	4	2
1-4 Family residential construction [Member]
Non-Accrual Loans	723
Current	33,597,000
Total Loan Receivable	34,320,000
30-59 Days Past Due	0
60-89 Days Past Due	0
Owner-occupied [Member]
Non-Accrual Loans	0
Current	90,508,000
Total Loan Receivable	91,836,000
30-59 Days Past Due	1,328
60-89 Days Past Due	0
Farmland [Member]
Non-Accrual Loans	977,000	1,458,000
Current	79,525,000	72,761,000
Total Loan Receivable	80,502,000	74,322,000
30-59 Days Past Due	0	85,000
60-89 Days Past Due	0	18,000
Agricultural loans [Member]
Non-Accrual Loans	73,000
Current	13,226,000
Total Loan Receivable	13,299,000
30-59 Days Past Due	0
60-89 Days Past Due	0
Automobile loans [Member]
Non-Accrual Loans	380,000
Current	122,526,000
Total Loan Receivable	123,981,000
30-59 Days Past Due	854,000
60-89 Days Past Due	221,000
Other consumer loans [Member]
Non-Accrual Loans	10,000
Current	15,056,000
Total Loan Receivable	15,149,000
30-59 Days Past Due	67,000
60-89 Days Past Due	16,000
Municipal loans [Member]
Non-Accrual Loans	0
Current	5,844,000
Total Loan Receivable	5,844,000
30-59 Days Past Due	0
60-89 Days Past Due	0
Consumer [Member]
Non-Accrual Loans		15,000
Current		6,451,000
Total Loan Receivable		6,488,000
30-59 Days Past Due		11,000
60-89 Days Past Due		11,000
Dealers Finance [Member]
Non-Accrual Loans		210,000
Current		123,568,000
Total Loan Receivable		125,125,000
30-59 Days Past Due		1,117,000
60-89 Days Past Due		225,000
Greater than 90 Days		5
Home Equity Open End [Member]
Non-Accrual Loans	225,000	0
Current	45,632,000	46,366,000
Total Loan Receivable	46,351,000	46,928,000
30-59 Days Past Due	494,000	385,000
60-89 Days Past Due	0	177,000
Home Equity - Close End [Member]
Non-Accrual Loans	0	0
Current	5,054,000	4,704,000
Total Loan Receivable	5,054,000	4,707,000
30-59 Days Past Due	0	3,000
60-89 Days Past Due	$ 0	0
Construction/Land [Member]
Non-Accrual Loans		21,000
Current		67,634,000
Total Loan Receivable		68,671,000
30-59 Days Past Due		477,000
60-89 Days Past Due		$ 539,000

XML

Loans and Allowance for Credit Losses (Details 2) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Total [Member]
Nonaccrual loans with No Allowance	$ 3,557,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	3,557,000	$ 2,224,000
Owner-occupied commercial real estateCommercial Real Estate [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
Other Commercial Real Estate [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
Multi-Family [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
Real Estate [Member]
Nonaccrual loans with No Allowance	591,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	591,000	419,000
Credit Cards [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
1-4 Family residential construction [Member]
Nonaccrual loans with No Allowance	723,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	723,000	0
Farmland [Member]
Nonaccrual loans with No Allowance	977,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	977,000	1,458,000
Agricultural loans [Member]
Nonaccrual loans with No Allowance	73,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	73,000	88,000
Automobile loans [Member]
Nonaccrual loans with No Allowance	380,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	380,000	210,000
Municipal loans [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
Home Equity Open End [Member]
Nonaccrual loans with No Allowance	225,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	225,000	0
Home Equity - Close End [Member]
Nonaccrual loans with No Allowance	0
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	0	0
Other construction, land development and land [Member]
Nonaccrual loans with No Allowance	545,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	545,000	21,000
Commercial & Industrial [Member]
Nonaccrual loans with No Allowance	33,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	33,000	13,000
Other consumer loans [Member]
Nonaccrual loans with No Allowance	10,000
Nonaccrual Loans with an Allowance	0
Non-Accrual Loans	$ 10,000	$ 15,000

XML

Loans and Allowance for Credit Losses (Details 3) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Total [Member]
Accrued interest receivables	$ 22,000	$ 28,000
Owner-occupied commercial real estateCommercial Real Estate [Member]
Accrued interest receivables	0	0
Other Commercial Real Estate [Member]
Accrued interest receivables	0	0
Multi-Family [Member]
Accrued interest receivables	0	0
Real Estate [Member]
Accrued interest receivables	1,000	3
Credit Cards [Member]
Accrued interest receivables	0	0
1-4 Family residential construction [Member]
Accrued interest receivables	10,000	10
Farmland [Member]
Accrued interest receivables	0	0
Agricultural loans [Member]
Accrued interest receivables	0	0
Automobile loans [Member]
Accrued interest receivables	5,000	8,000
Municipal loans [Member]
Accrued interest receivables	0	0
Home Equity Open End [Member]
Accrued interest receivables	0	1,000
Home Equity - Close End [Member]
Accrued interest receivables	0	0
Other construction, land development and land [Member]
Accrued interest receivables	6,000	6
Commercial & Industrial [Member]
Accrued interest receivables	0	0
Other consumer loans [Member]
Accrued interest receivables	$ 0	$ 0

XML

Loans and Allowance for Credit Losses (Details 4) $ in Thousands	Sep. 30, 2023 USD ($)
Less: Unamortized net deferred loan fees	$ (646)
Loans held for investment	805,602
Total [Member]
2023	114,860
2022	175,495
2021	101,471
2020	69,874
2019	33,645
Prior	155,531
Revolving	155,372
Total	806,248
Total [Member] | Current Period Gross Write Offs Member [Member]
2023	88
2022	550
2021	387
2020	107
2019	38
Prior	48
Revolving	25
Total	1,243
1-4 Family residential construction [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	70
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	70
Multi-Family [Member]
2023	0
2022	2,730
2021	1,414
2020	916
2019	0
Prior	1,693
Revolving	1,504
Total	8,257
Multi-Family [Member] | Pass [Member]
2023	0
2022	2,730
2021	1,414
2020	916
2019	0
Prior	1,590
Revolving	1,504
Total	8,154
Multi-Family [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	103
Revolving	0
Total	103
Multi-Family [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Real Estate [Member]
2023	36,704
2022	44,870
2021	15,924
2020	12,812
2019	7,928
Prior	64,384
Revolving	192
Total	182,814
Real Estate [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	19
Revolving	0
Total	19
Real Estate [Member] | Pass [Member]
2023	36,704
2022	44,780
2021	15,382
2020	12,310
2019	6,555
Prior	56,434
Revolving	192
Total	172,357
Real Estate [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	502
2019	155
Prior	5,784
Revolving	0
Total	6,441
Real Estate [Member] | Substandard [Member]
2023	0
2022	90
2021	542
2020	0
2019	1,218
Prior	2,166
Revolving	0
Total	4,016
Other commercial real estate [Member]
2023	4,148
2022	30,132
2021	12,895
2020	5,059
2019	3,825
Prior	42,928
Revolving	3,229
Total	102,216
Other commercial real estate [Member] | Pass [Member]
2023	4,148
2022	30,132
2021	12,895
2020	5,059
2019	3,825
Prior	31,048
Revolving	3,229
Total	90,336
Other commercial real estate [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	11,793
Revolving	0
Total	11,793
Other commercial real estate [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	87
Revolving	0
Total	87
Commercial and industrial [Member]
2023	4,971
2022	8,982
2021	6,475
2020	1,939
2019	806
Prior	371
Revolving	23,738
Total	47,282
Commercial and industrial [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	2
Revolving	0
Total	2
Commercial and industrial [Member] | Pass [Member]
2023	4,971
2022	8,901
2021	5,790
2020	1,914
2019	806
Prior	369
Revolving	16,571
Total	39,322
Commercial and industrial [Member] | Watch [Member]
2023	0
2022	48
2021	57
2020	0
2019	0
Prior	0
Revolving	7,167
Total	7,272
Commercial and industrial [Member] | Substandard [Member]
2023	0
2022	33
2021	628
2020	25
2019	0
Prior	2
Revolving	0
Total	688
Credit Cards [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	3,316
Total	3,316
Credit Cards [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	25
Total	25
Credit Cards [Member] | Pass [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	3,312
Total	3,312
Credit Cards [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Credit Cards [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	4
Total	4
1-4 Family residential construction [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	34,320
Total	34,320
1-4 Family residential construction [Member] | Pass [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	33,079
Total	33,079
1-4 Family residential construction [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	518
Total	518
1-4 Family residential construction [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	723
Total	723
Owner-occupied [Member]
2023	2,165
2022	18,342
2021	18,132
2020	7,208
2019	10,012
Prior	26,788
Revolving	9,189
Total	91,836
Owner-occupied [Member] | Pass [Member]
2023	2,165
2022	18,342
2021	18,132
2020	7,208
2019	3,649
Prior	23,487
Revolving	5,891
Total	78,874
Owner-occupied [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	40
Prior	2,108
Revolving	0
Total	2,148
Owner-occupied [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	6,323
Prior	1,193
Revolving	3,298
Total	10,814
Construction/Land [Member] | Pass [Member]
2023	4,343
2022	3,903
2021	5,753
2020	1,862
2019	2,883
Prior	4,957
Revolving	21,339
Total	45,040
Construction/Land [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	261
Revolving	181
Total	442
Construction/Land [Member] | Substandard [Member]
2023	521
2022	0
2021	0
2020	0
2019	0
Prior	24
Revolving	0
Total	545
Automobile loans [Member] | Current Period Gross Write Offs Member [Member]
2023	88
2022	424
2021	386
2020	105
2019	32
Prior	25
Revolving	0
Total	1,060
Automobile loans [Member] | Pass [Member]
2023	46,565
2022	42,147
2021	21,824
2020	8,772
2019	2,755
Prior	1,019
Revolving	0
Total	123,082
Automobile loans [Member] | Watch [Member]
2023	199
2022	130
2021	48
2020	43
2019	53
Prior	46
Revolving	0
Total	519
Automobile loans [Member] | Substandard [Member]
2023	30
2022	124
2021	187
2020	30
2019	4
Prior	5
Revolving	0
Total	380
Farmland [Member]
2023	6,395
2022	15,174
2021	14,474
2020	27,475
2019	3,323
Prior	8,092
Revolving	5,569
Total	80,502
Farmland [Member] | Pass [Member]
2023	6,395
2022	15,174
2021	14,149
2020	27,475
2019	2,533
Prior	6,530
Revolving	5,553
Total	77,809
Farmland [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	790
Prior	910
Revolving	0
Total	1,700
Farmland [Member] | Substandard [Member]
2023	0
2022	0
2021	325
2020	0
2019	0
Prior	652
Revolving	16
Total	993
Agricultural loans [Member]
2023	2,869
2022	2,767
2021	641
2020	501
2019	0
Prior	38
Revolving	6,483
Total	13,299
Agricultural loans [Member] | Pass [Member]
2023	2,869
2022	2,719
2021	627
2020	453
2019	0
Prior	38
Revolving	6,333
Total	13,039
Agricultural loans [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	37
2019	0
Prior	0
Revolving	150
Total	187
Agricultural loans [Member] | Substandard [Member]
2023	0
2022	48
2021	14
2020	11
2019	0
Prior	0
Revolving	0
Total	73
Automobile loans [Member]
2023	46,794
2022	42,401
2021	22,059
2020	8,845
2019	2,812
Prior	1,070
Revolving	0
Total	123,981
Other consumer loans [Member]
2023	4,521
2022	5,633
2021	2,610
2020	1,062
2019	314
Prior	535
Revolving	474
Total	15,149
Other consumer loans [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	56
2021	1
2020	2
2019	6
Prior	2
Revolving	0
Total	67
Other consumer loans [Member] | Pass [Member]
2023	4,521
2022	5,619
2021	2,587
2020	1,062
2019	307
Prior	532
Revolving	473
Total	15,101
Other consumer loans [Member] | Watch [Member]
2023	0
2022	4
2021	23
2020	0
2019	2
Prior	3
Revolving	1
Total	33
Other consumer loans [Member] | Substandard [Member]
2023	0
2022	10
2021	0
2020	0
2019	5
Prior	0
Revolving	0
Total	15
Municipal loans [Member]
2023	0
2022	170
2021	973
2020	1,128
2019	1,257
Prior	2,316
Revolving	0
Total	5,844
Municipal loans [Member] | Current Period Gross Write Offs Member [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Municipal loans [Member] | Pass [Member]
2023	0
2022	170
2021	973
2020	1,128
2019	1,257
Prior	2,316
Revolving	0
Total	5,844
Municipal loans [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Municipal loans [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Home Equity Open End [Member]
2023	370
2022	0
2021	0
2020	0
2019	0
Prior	143
Revolving	45,838
Total	46,351
Home Equity Open End [Member] | Pass [Member]
2023	370
2022	0
2021	0
2020	0
2019	0
Prior	143
Revolving	44,182
Total	44,695
Home Equity Open End [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	1,381
Total	1,381
Home Equity Open End [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	275
Total	275
Home Equity - Close End [Member]
2023	1,059
2022	391
2021	121
2020	1,067
2019	485
Prior	1,931
Revolving	0
Total	5,054
Home Equity - Close End [Member] | Pass [Member]
2023	1,059
2022	391
2021	121
2020	1,067
2019	473
Prior	1,560
Revolving	0
Total	4,671
Home Equity - Close End [Member] | Watch [Member]
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	371
Revolving	0
Total	371
Home Equity - Close End [Member] | Substandard [Member]
2023	0
2022	0
2021	0
2020	0
2019	12
Prior	0
Revolving	0
Total	12
Construction/Land [Member]
2023	4,864
2022	3,903
2021	5,753
2020	1,862
2019	2,883
Prior	5,242
Revolving	21,520
Total	$ 46,027

XML

Loans and Allowance for Credit Losses (Details 5) $ in Thousands	Dec. 31, 2022 USD ($)
Commercial Real Estate [Member]
Grade 1 Minimal Risk	$ 0
Grade 2 Modest Risk	3,097
Grade 3 Average Risk	55,662
Grade 4 Acceptable Risk	72,779
Grade 5 Marginally Acceptable	41,749
Grade 6 Watch	13,878
Grade 7 Substandard	7,998
Grade 8 Doubtful	0
Total	195,163
Multi-Family [Member]
Grade 1 Minimal Risk	0
Grade 2 Modest Risk	0
Grade 3 Average Risk	963
Grade 4 Acceptable Risk	5,116
Grade 5 Marginally Acceptable	3,430
Grade 6 Watch	113
Grade 7 Substandard	0
Grade 8 Doubtful	0
Total	9,622
Land Development Construction [Member]
Grade 1 Minimal Risk	0
Grade 2 Modest Risk	4
Grade 3 Average Risk	11,112
Grade 4 Acceptable Risk	42,684
Grade 5 Marginally Acceptable	13,116
Grade 6 Watch	1,213
Grade 7 Substandard	542
Grade 8 Doubtful	0
Total	68,671
Real Estate [Member]
Grade 1 Minimal Risk	0
Grade 2 Modest Risk	553
Grade 3 Average Risk	27,003
Grade 4 Acceptable Risk	86,269
Grade 5 Marginally Acceptable	28,560
Grade 6 Watch	6,950
Grade 7 Substandard	3,946
Total	153,281
Grade 8 Doubtful	0
Credit Cards [Member]
Total	3,242
Performing	3,240
Non-performing	2
Farmland [Member]
Grade 1 Minimal Risk	(155)
Grade 2 Modest Risk	269
Grade 3 Average Risk	11,373
Grade 4 Acceptable Risk	38,051
Grade 5 Marginally Acceptable	22,069
Grade 6 Watch	947
Grade 7 Substandard	1,458
Grade 8 Doubtful	0
Total	74,322
Consumer [Member]
Grade 1 Minimal Risk	(33)
Grade 2 Modest Risk	286
Grade 3 Average Risk	2,965
Grade 4 Acceptable Risk	3,105
Grade 5 Marginally Acceptable	68
Grade 6 Watch	16
Grade 7 Substandard	15
Grade 8 Doubtful	0
Total	6,488
Dealers Finance [Member]
Total	125,125
Performing	124,910
Non-performing	215
Home Equity Open End [Member]
Grade 1 Minimal Risk	(27)
Grade 2 Modest Risk	1,272
Grade 3 Average Risk	18,671
Grade 4 Acceptable Risk	23,207
Grade 5 Marginally Acceptable	2,091
Grade 6 Watch	1,611
Grade 7 Substandard	49
Grade 8 Doubtful	0
Total	46,928
Home Equity - Close End [Member]
Grade 1 Minimal Risk	0
Grade 2 Modest Risk	48
Grade 3 Average Risk	1,065
Grade 4 Acceptable Risk	2,560
Grade 5 Marginally Acceptable	639
Grade 6 Watch	382
Grade 7 Substandard	13
Grade 8 Doubtful	0
Total	4,707
Commercial & Industrial (Non-Real Estate)
Grade 1 Minimal Risk	(10)
Grade 2 Modest Risk	516
Grade 3 Average Risk	12,934
Grade 4 Acceptable Risk	26,310
Grade 5 Marginally Acceptable	15,613
Grade 6 Watch	911
Grade 7 Substandard	331
Grade 8 Doubtful	0
Total	56,625
Gross Loan [Member]
Grade 1 Minimal Risk	(225)
Grade 2 Modest Risk	6,045
Grade 3 Average Risk	141,748
Grade 4 Acceptable Risk	300,081
Grade 5 Marginally Acceptable	127,335
Grade 6 Watch	26,021
Grade 7 Substandard	14,352
Grade 8 Doubtful	0
Total	615,807
Less: Deferred Loan Fees Net Of Costs [Member]
Grade 1 Minimal Risk	(570)
Total	$ 615,237

XML

Loans and Allowance for Credit Losses (Details 6) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Business/Other Assets	$ 23,937	$ 20,153
Total [Member]
Real state	521
Business/Other Assets	0
Owner-occupied commercial real estateCommercial Real Estate [Member]
Real state	0
Business/Other Assets	0
Other Commercial Real Estate [Member]
Real state	0
Business/Other Assets	0
Multi-Family [Member]
Real state	0
Business/Other Assets	0
Real Estate [Member]
Real state	0
Business/Other Assets	0
Credit Cards [Member]
Real state	0
Business/Other Assets	0
1-4 Family residential construction [Member]
Real state	0
Business/Other Assets	0
Farmland [Member]
Real state	0
Business/Other Assets	0
Agricultural loans [Member]
Real state	0
Business/Other Assets	0
Automobile loans [Member]
Real state	0
Business/Other Assets	0
Municipal loans [Member]
Real state	0
Business/Other Assets	0
Home Equity Open End [Member]
Real state	0
Business/Other Assets	0
Home Equity - Close End [Member]
Real state	0
Business/Other Assets	0
Other construction, land development and land [Member]
Real state	521
Business/Other Assets	0
Commercial & Industrial [Member]
Real state	0
Business/Other Assets	0
Other consumer loans [Member]
Real state	0
Business/Other Assets	$ 0

XML

Loans and Allowance for Credit Losses (Details 7) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Owner-occupied Commercial Real Estate [Member]
Beginning Balance	$ 992
Charge-offs	0
Recoveries	0
Provision for Loan Losses	(39)
Ending Balance	1,233
Adjustment for adoption of ASU 2016-13	280
Commercial Real Estate [Member]
Beginning Balance		$ 2,205
Charge-offs		0
Recoveries		0
Provision for Loan Losses		(398)
Ending Balance		1,807
Individually Evaluated for Impairment		21
Collectively Evaluated for Impairment		1,786
Total [Member]
Beginning Balance	7,936	7,748
Charge-offs	1,243	1,036
Recoveries	539	651
Provision for Loan Losses	1,157	150
Ending Balance	9,166	7,513
Individually Evaluated for Impairment		361
Collectively Evaluated for Impairment		7,152
Adjustment for adoption of ASU 2016-13	777
Other Commercial Real Estate [Member]
Beginning Balance	1,023
Charge-offs	0
Recoveries	0
Provision for Loan Losses	(5)
Ending Balance	436
Adjustment for adoption of ASU 2016-13	(582)
Multi-Family [Member]
Beginning Balance	71	29
Charge-offs	0	0
Recoveries	0	0
Provision for Loan Losses	(45)	27
Ending Balance	208	56
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		56
Adjustment for adoption of ASU 2016-13	182
Real Estate [Member]
Beginning Balance	1,389	1,162
Charge-offs	19	17
Recoveries	0	0
Provision for Loan Losses	68	(4)
Ending Balance	1,254	1,141
Individually Evaluated for Impairment		99
Collectively Evaluated for Impairment		1,042
Adjustment for adoption of ASU 2016-13	(184)
Credit Cards [Member]
Beginning Balance	68	70
Charge-offs	25	42
Recoveries	20	11
Provision for Loan Losses	2	36
Ending Balance	91	75
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		75
Adjustment for adoption of ASU 2016-13	26
1-4 Family residential construction [Member]
Beginning Balance	324
Charge-offs	70
Recoveries	1
Provision for Loan Losses	154
Ending Balance	518
Adjustment for adoption of ASU 2016-13	109
Farmland [Member]
Beginning Balance	571	448
Charge-offs	0	0
Recoveries	0	0
Provision for Loan Losses	67	77
Ending Balance	949	525
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		525
Adjustment for adoption of ASU 2016-13	311
Agricultural loans [Member]
Beginning Balance	80
Charge-offs	0
Recoveries	0
Provision for Loan Losses	2
Ending Balance	24
Adjustment for adoption of ASU 2016-13	(58)
Automobile loans [Member]
Beginning Balance	1,790
Charge-offs	1,060
Recoveries	475
Provision for Loan Losses	535
Ending Balance	1,483
Adjustment for adoption of ASU 2016-13	(257)
Municipal loans [Member]
Beginning Balance	0
Charge-offs	0
Recoveries	0
Provision for Loan Losses	0
Ending Balance	0
Adjustment for adoption of ASU 2016-13	0
Consumer [Member]
Beginning Balance		520
Charge-offs		147
Recoveries		21
Provision for Loan Losses		(137)
Ending Balance		257
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		257
Dealers Finance [Member]
Beginning Balance		1,601
Charge-offs		794
Recoveries		445
Provision for Loan Losses		518
Ending Balance		1,770
Individually Evaluated for Impairment		13
Collectively Evaluated for Impairment		1,757
Home Equity Open End [Member]
Beginning Balance	446	407
Charge-offs	0	0
Recoveries	0	130
Provision for Loan Losses	0	(141)
Ending Balance	257	396
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		396
Adjustment for adoption of ASU 2016-13	(189)
Home Equity - Close End [Member]
Beginning Balance	39	41
Charge-offs	0	0
Recoveries	0	0
Provision for Loan Losses	14	(7)
Ending Balance	149	34
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		34
Adjustment for adoption of ASU 2016-13	96
Other construction, land development and land [Member]
Beginning Balance	694	977
Charge-offs	0	0
Recoveries	0	0
Provision for Loan Losses	148	77
Ending Balance	1,444	1,054
Individually Evaluated for Impairment		228
Collectively Evaluated for Impairment		826
Adjustment for adoption of ASU 2016-13	602
Commercial & Industrial [Member]
Beginning Balance	368
Charge-offs	2
Recoveries	1
Provision for Loan Losses	67
Ending Balance	772
Adjustment for adoption of ASU 2016-13	338
Other consumer loans [Member]
Beginning Balance	81
Charge-offs	67
Recoveries	42
Provision for Loan Losses	189
Ending Balance	348
Adjustment for adoption of ASU 2016-13	$ 103
Commercial & Industrial (Non-Real Estate)
Beginning Balance		288
Charge-offs		36
Recoveries		44
Provision for Loan Losses		102
Ending Balance		398
Individually Evaluated for Impairment		0
Collectively Evaluated for Impairment		$ 398

XML

Loans and Allowance for Credit Losses (Details 8) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Allowance for Credit Losses - Loans [Member] | Owner-occupied commercial real estateCommercial Real Estate [Member]
Allowance for Credit Losses - Loans	$ 1,233
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	1,233
Allowance for Credit Losses - Loans [Member] | Other Commercial Real Estate [Member]
Allowance for Credit Losses - Loans	436
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	436
Multi-Family [Member]
Loan Individually Evaluated For Impairment		$ 0
Collectively Evaluated for Impairment		9,622
Multi-Family [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	208
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	208
Real Estate [Member]
Loan Individually Evaluated For Impairment		3,260
Collectively Evaluated for Impairment		150,021
Real Estate [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	1,254
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	1,254
Credit Cards [Member]
Loan Individually Evaluated For Impairment		0
Collectively Evaluated for Impairment		3,242
Credit Cards [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	91
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	91
1-4 Family residential construction [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	518
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	518
Commercial and industrial [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	772
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	772
Farmland [Member]
Loan Individually Evaluated For Impairment		2,079
Collectively Evaluated for Impairment		72,243
Farmland [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	949
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	949
Home Equity Open End [Member]
Loan Individually Evaluated For Impairment		0
Collectively Evaluated for Impairment		46,928
Home Equity Open End [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	257
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	257
Home Equity - Close End [Member]
Loan Individually Evaluated For Impairment		0
Collectively Evaluated for Impairment		4,707
Home Equity - Close End [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	149
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	149
Total Loan [Member]
Loan Individually Evaluated For Impairment		15,365
Collectively Evaluated for Impairment		$ 728,239
Total Loan [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	9,166
Loan Individually Evaluated For Impairment	228
Collectively Evaluated for Impairment	8,938
Other construction, land development and land [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	1,444
Loan Individually Evaluated For Impairment	228
Collectively Evaluated for Impairment	1,216
Agricultural loans [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	24
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	24
Automobile loans [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	1,483
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	1,483
Other consumer loans [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	348
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	348
Municipal loans [Member] | Allowance for Credit Losses - Loans [Member]
Allowance for Credit Losses - Loans	0
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	0
Loans Balances [Member] | Owner-occupied commercial real estateCommercial Real Estate [Member]
Loan Balances	91,836
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	91,836
Loans Balances [Member] | Other Commercial Real Estate [Member]
Loan Balances	102,216
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	102,216
Loans Balances [Member] | Multi-Family [Member]
Loan Balances	8,257
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	8,257
Loans Balances [Member] | Real Estate [Member]
Loan Balances	182,814
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	182,814
Loans Balances [Member] | Credit Cards [Member]
Loan Balances	3,316
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	3,316
Loans Balances [Member] | 1-4 Family residential construction [Member]
Loan Balances	34,320
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	34,320
Loans Balances [Member] | Commercial and industrial [Member]
Loan Balances	47,282
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	47,282
Loans Balances [Member] | Farmland [Member]
Loan Balances	80,502
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	80,502
Loans Balances [Member] | Home Equity Open End [Member]
Loan Balances	46,351
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	46,351
Loans Balances [Member] | Home Equity - Close End [Member]
Loan Balances	5,054
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	5,054
Loans Balances [Member] | Total Loan [Member]
Loan Balances	806,248
Loan Individually Evaluated For Impairment	521
Collectively Evaluated for Impairment	805,727
Loans Balances [Member] | Other construction, land development and land [Member]
Loan Balances	46,027
Loan Individually Evaluated For Impairment	521
Collectively Evaluated for Impairment	45,506
Loans Balances [Member] | Agricultural loans [Member]
Loan Balances	13,299
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	13,299
Loans Balances [Member] | Automobile loans [Member]
Loan Balances	123,981
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	123,981
Loans Balances [Member] | Other consumer loans [Member]
Loan Balances	15,149
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	15,149
Loans Balances [Member] | Municipal loans [Member]
Loan Balances	5,844
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	$ 5,844

XML

Loans and Allowance for Credit Losses (Details 9) $ in Thousands	Dec. 31, 2022 USD ($)
Commercial Real Estate [Member]
Loan Receivable	$ 195,163
Loan Individually Evaluated For Impairment	9,111
Collectively Evaluated for Impairment	186,052
Multi-Family [Member]
Loan Receivable	9,622
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	9,622
Real Estate [Member]
Loan Receivable	153,281
Loan Individually Evaluated For Impairment	3,260
Collectively Evaluated for Impairment	150,021
Credit Cards [Member]
Loan Receivable	3,242
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	3,242
Farmland [Member]
Loan Receivable	74,322
Loan Individually Evaluated For Impairment	2,079
Collectively Evaluated for Impairment	72,243
Consumer [Member]
Loan Receivable	6,488
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	6,488
Dealers Finance [Member]
Loan Receivable	125,125
Loan Individually Evaluated For Impairment	62
Collectively Evaluated for Impairment	125,063
Home Equity Open End [Member]
Loan Receivable	46,928
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	46,928
Home Equity - Close End [Member]
Loan Receivable	4,707
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	4,707
Commercial & Industrial (Non-Real Estate)
Loan Receivable	56,625
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	56,625
Gross Loan [Member]
Loan Receivable	744,174
Loan Individually Evaluated For Impairment	15,365
Collectively Evaluated for Impairment	728,809
Less: Deferred Loan Fees Net Of Costs [Member]
Loan Receivable	(570)
Loan Individually Evaluated For Impairment	0
Collectively Evaluated for Impairment	570
Construction/Land Development [Member]
Loan Receivable	68,671
Loan Individually Evaluated For Impairment	853
Collectively Evaluated for Impairment	67,818
Total Loan [Member]
Loan Receivable	743,604
Loan Individually Evaluated For Impairment	15,365
Collectively Evaluated for Impairment	$ 728,239

XML

Loans and Allowance for Credit Losses (Details 10)	Dec. 31, 2022 USD ($)
Allowance [Member] | Consumer [Member]
Recorded invested	$ 0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Commercial Real Estate [Member]
Recorded invested	8,131,000
Unpaid principal balance	8,131,000
Related Allowance	0
Average Recorded investment	8,851,000
Commercial Real Estate [Member] | Allowance [Member]
Recorded invested	980,000
Unpaid principal balance	980,000
Related Allowance	11,000
Average Recorded investment	1,935,000
Commercial & Industrial - Non- Real Estate [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Multi-Family [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Multi-Family [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Land Development Construction[Member]
Recorded invested	332,000
Unpaid principal balance	332,000
Related Allowance	0
Average Recorded investment	474,000
Construction Of Land Development [Member] | Allowance [Member]
Recorded invested	521,000
Unpaid principal balance	521,000
Related Allowance	228,000
Average Recorded investment	261,000
Real Estate [Member]
Recorded invested	1,882,000
Unpaid principal balance	1,882,000
Related Allowance	0
Average Recorded investment	2,107,000
Real Estate [Member] | Allowance [Member]
Recorded invested	1,378,000
Unpaid principal balance	1,378,000
Related Allowance	92,000
Average Recorded investment	1,466,000
Credit Cards [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Credit Cards [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Farmland [Member]
Recorded invested	2,535,000
Unpaid principal balance	2,079,000
Related Allowance	0
Average Recorded investment	2,137,000
Farmland [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Consumer [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Dealers Finance [Member]
Recorded invested	7,000
Unpaid principal balance	7,000
Related Allowance	0
Average Recorded investment	11,000
Home Equity Open End [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Home Equity Open End [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Home Equity - Close End [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Home Equity - Close End [Member] | Allowance [Member]
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Commercial & Industrial (Non-Real Estate)
Recorded invested	0
Unpaid principal balance	0
Related Allowance	0
Average Recorded investment	0
Gross Loan [Member]
Recorded invested	12,887,000
Unpaid principal balance	12,431,000
Related Allowance	0
Average Recorded investment	13,580,000
Gross Loan [Member] | Allowance [Member]
Recorded invested	2,934,000
Unpaid principal balance	2,934,000
Related Allowance	344,000
Average Recorded investment	3,724,000
Dealer Finance [Member] | Allowance [Member]
Recorded invested	55,000
Unpaid principal balance	55,000
Related Allowance	13,000
Average Recorded investment	62,000
Related Allowances and No Related Allowances [Member]
Recorded invested	15,821,000
Unpaid principal balance	15,365,000
Related Allowance	344,000
Average Recorded investment	$ 17,304,000

XML

Loans and Allowance for Credit Losses (Details 11)	9 Months Ended
	Sep. 30, 2022 USD ($)
Allowance [Member] | Consumer [Member]
Interest Income Recognized	$ 0
Average Recorded investment	0
Commercial Real Estate [Member]
Interest Income Recognized	266,000
Average Recorded investment	8,339,000
Commercial Real Estate [Member] | Allowance [Member]
Interest Income Recognized	34,000
Average Recorded investment	3,496,000
Commercial & Industrial - Non- Real Estate [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Multi-Family [Member]
Interest Income Recognized	0
Average Recorded investment	0
Multi-Family [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Land Development Construction[Member] | Allowance [Member]
Interest Income Recognized	17,000
Average Recorded investment	261,000
Real Estate [Member]
Interest Income Recognized	75,000
Average Recorded investment	2,290,000
Real Estate [Member] | Allowance [Member]
Interest Income Recognized	49,000
Average Recorded investment	1,309,000
Credit Cards [Member]
Interest Income Recognized	0
Average Recorded investment	0
Credit Cards [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Farmland [Member]
Interest Income Recognized	151,000
Average Recorded investment	2,188,000
Farmland [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Consumer [Member]
Interest Income Recognized	0
Average Recorded investment	3,000
Dealers Finance [Member]
Interest Income Recognized	1,000
Average Recorded investment	11,000
Home Equity Open End [Member]
Interest Income Recognized	0
Average Recorded investment	0
Home Equity Open End [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Home Equity - Close End [Member]
Interest Income Recognized	0
Average Recorded investment	74,000
Home Equity - Close End [Member] | Allowance [Member]
Interest Income Recognized	0
Average Recorded investment	0
Commercial & Industrial (Non-Real Estate)
Interest Income Recognized	0
Average Recorded investment	0
Gross Loan [Member]
Interest Income Recognized	508,000
Average Recorded investment	13,457,000
Gross Loan [Member] | Allowance [Member]
Interest Income Recognized	105,000
Average Recorded investment	5,147,000
Construction/Land Development [Member]
Interest Income Recognized	15,000
Average Recorded investment	552,000
Dealer Finance [Member] | Allowance [Member]
Interest Income Recognized	5,000
Average Recorded investment	81,000
Gross Loan Total [Member]
Interest Income Recognized	613,000
Average Recorded investment	$ 18,604,000

XML

Loans and Allowance for Credit Losses (Details 12) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Total [Member]
Amortized cost	$ 21
Weighted Average TermExtension (Months)	3 years
Automobile loans [Member]
Amortized cost	$ 21
Weighted Average TermExtension (Months)	3 years

XML

Loans and Allowance for Credit Losses (Details 13)	Sep. 30, 2023 USD ($)
Current payment status	$ 37,000
Past due payment status	16,000
Automobile loans [Member]
Current payment status	37,000
Real Estate [Member]
Current payment status	0
Past due payment status	$ 16,000

XML

Loans and Allowance for Credit Losses (Details 14) $ in Thousands	12 Months Ended
	Dec. 31, 2022 USD ($)
Total TDR[Member]
Number Of Contracts	$ 4
Pre-modification Outstanding Recorded Investment	206
Post-modification Outstanding Recorded Investment	206
Change In Terms [Member]
Number Of Contracts	1
Pre-modification Outstanding Recorded Investment	162
Post-modification Outstanding Recorded Investment	162
Extended Maturity [Member]
Number Of Contracts	3
Pre-modification Outstanding Recorded Investment	44
Post-modification Outstanding Recorded Investment	$ 44

XML

Loans and Allowance for Credit Losses (Details 15) - Total Allowance for Credit Losses Unfunded CommitmentsMember [Member]	9 Months Ended
	Sep. 30, 2023 USD ($)
Beg balance	$ 0
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13	747,000
Recovery of credit losses	2,000
End balance	$ 749,000

XML

Loans and Allowance for Credit Losses (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Loans and Allowance for Credit Losses
Revenue	$ 162,000	$ 103,000,000
Pledged Loans	27,150,000		$ 20,980,000
Nonaccrual loans	$ 3,600,000		$ 2,200,000
Impairment description	The Company individually assessed for impairment all substandard loans greater than $500,000 and all troubled debt restructurings
Unfunded loan commitments	$ 749,000

XML

Mortgage Banking and Derivatives (Details Narrative)	9 Months Ended	12 Months Ended
	Sep. 30, 2023 USD ($) integer	Dec. 31, 2022 USD ($) integer
Total Amount Of Conducted Business	$ 2,000,000.0
Total Amount Of Conducted Business Unpaid	2,000,000.0
Other Assets [Member]
Notional Debt Amount	$ 13,300,000	$ 12,200,000
Total Notional Positions | integer	42	38
Fair Value Of Derivative Instruments	$ 21,000	$ 92,000
Other Liability [Member]
Total Notional Positions | integer	48	43
Fair Value Of Forward Sales	$ 122,000	$ 186,000,000
Notional Amount	$ 15,300,000	$ 13,600,000

XML

Employee Benefit Plan (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Employee Benefit Plan
Service cost	$ 0	$ 190	$ 0	$ 570
Interest cost	92	104	276	312
Expected return on plan assets	(130)	0	(390)	0
Amortization of prior service cost	0	(195)	0	(585)
Amortization of net loss	0	58	0	174
Net periodic pension cost	$ (38)	$ 157	$ (114)	$ 471

XML

Stock Based Compensation (Details Narrative)	3 Months Ended	9 Months Ended
	Sep. 30, 2023 USD ($) shares	Sep. 30, 2023 USD ($) shares
Unrecognized compensation expense | $		$ 638,000
Share vested		6,974
Share forfeited	529	96
Directors [Member]
Stock Plan Committee Awarded Shares Issued		1,309
Employee Service Fair Value | $	$ 29,000	$ 29,000
U S Treasuries [Member]
Stock Plan Committee Awarded Shares Issued		23,556
Employee Service Fair Value | $	$ 526,000	$ 526,000
Description Of Vest Shares		These shares vest 25% over each of the next four years

XML

Fair Value (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Loans held for sale, F&M Mortgage	$ 2,027,000	$ 1,373,000
U.S Treasury	37,006,000	36,643,000
U.S. Agency	131,614,000	129,748,000
Municipal bonds	36,323,000	42,198,000
Mortgage-backed securities	141,719,000	156,875,000
IRLC	122,000	92,000
Corporate	25,677,000	26,631,000
Forward sales commitments	21,000	186,000
Assets at Fair Value	374,509	393,654,000
Liabilities at Fair Value		92,000
Fair Value Inputs Level 1
Loans held for sale, F&M Mortgage	0	0
U.S Treasury	0	0
U.S. Agency	0	0
Municipal bonds	0	0
Mortgage-backed securities	0	0
IRLC	0	0
Corporate	0	0
Forward sales commitments	0	0
Assets at Fair Value	0	0
Liabilities at Fair Value		0
Fair Value Inputs Level 2
Loans held for sale, F&M Mortgage	2,027,000	1,373,000
U.S Treasury	37,006,000	36,643,000
U.S. Agency	131,614,000	129,748,000
Municipal bonds	36,323,000	42,198,000
Mortgage-backed securities	141,719,000	156,875,000
IRLC	122,000	92,000
Corporate	25,677,000	26,631,000
Forward sales commitments	21,000	186,000
Assets at Fair Value	374,509	393,654,000
Liabilities at Fair Value		92,000
Fair Value Inputs Level 3
Loans held for sale, F&M Mortgage	0	0
U.S Treasury	0	0
U.S. Agency	0	0
Municipal bonds	0	0
Mortgage-backed securities	0	0
IRLC	0	0
Corporate	0	0
Forward sales commitments	0	0
Assets at Fair Value	$ 0	0
Liabilities at Fair Value		$ 0

XML

Fair Value (Details 1) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Impaired loans		$ 2,590,000
Collateral dependent loans with an ACL	$ 293
Fair Value Inputs Level 1
Impaired loans		0
Collateral dependent loans with an ACL	0
Fair Value Inputs Level 2
Impaired loans		0
Collateral dependent loans with an ACL	0
Fair Value Inputs Level 3
Impaired loans		2,590,000
Collateral dependent loans with an ACL	293,000
Commercial Real Estate [Member]
Impaired loans		969,000
Commercial Real Estate [Member] | Fair Value Inputs Level 1
Impaired loans		0
Commercial Real Estate [Member] | Fair Value Inputs Level 2
Impaired loans		0
Commercial Real Estate [Member] | Fair Value Inputs Level 3
Impaired loans		969,000
Real Estate [Member]
Impaired loans		1,286,000
Real Estate [Member] | Fair Value Inputs Level 1
Impaired loans		0
Real Estate [Member] | Fair Value Inputs Level 2
Impaired loans		0
Real Estate [Member] | Fair Value Inputs Level 3
Impaired loans		1,286,000
Dealers Finance [Member]
Impaired loans		42,000
Dealers Finance [Member] | Fair Value Inputs Level 1
Impaired loans		0
Dealers Finance [Member] | Fair Value Inputs Level 2
Impaired loans		0
Dealers Finance [Member] | Fair Value Inputs Level 3
Impaired loans		42,000
Other construction, land development and land [Member]
Collateral dependent loans with an ACL	293,000
Other construction, land development and land [Member] | Fair Value Inputs Level 1
Collateral dependent loans with an ACL	0
Other construction, land development and land [Member] | Fair Value Inputs Level 2
Collateral dependent loans with an ACL	0
Other construction, land development and land [Member] | Fair Value Inputs Level 3
Collateral dependent loans with an ACL	$ 293,000
Construction/Land Development [Member]
Impaired loans		293,000
Construction/Land Development [Member] | Fair Value Inputs Level 1
Impaired loans		0
Construction/Land Development [Member] | Fair Value Inputs Level 2
Impaired loans		0
Construction/Land Development [Member] | Fair Value Inputs Level 3
Impaired loans		$ 293,000

XML

Fair Value (Details 2) - Fair Value Inputs Level 3 - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Valuation technique other real estate owned	Discounted appraised value	Discounted appraised value
Significant unobservable inputs lmpaired loans	Discount for selling costs and marketability	Discount for selling costs and marketability
Average impaired loans		19.00%
Impaired loans		$ 2,590
Collateral Dependent Loans	$ 293
Range impaired loans	62.00%
Minimum [Member]
Range impaired loans		10.00%
Maximum [Member]
Range impaired loans		33.00%

XML

Disclosures about Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Securities held to maturity	$ 125	$ 125
Loans held for investment, net	805,602
Bank owned life insurance	22,705	23,554
IRLC	122	92
Forward sales commitments	21	186
Carrying Amount [Member]
Cash and cash equivalents	22,158	34,953
Securities		392,220
Securities held to maturity	125
Securities available for sale	372,339
Loans held for sale	2,027	1,373
Loans held for investment, net	805,602	743,604
Interest receivable	4,645	3,995
Bank owned life insurance	22,705	23,554
IRLC	122	92
Forward sales commitments	21	186
Total Assets	1,229,744	1,199,885
Deposits	1,133,910	1,083,377
Short-term debt	60,000	70,000
Long-term debt	6,922	6,890
Interest payable	1,215	295
Total liabilities	1,202,047	1,160,654
Total Amount [Member]
Cash and cash equivalents	22,158	34,953
Securities		392,220
Securities held to maturity	113
Securities available for sale	372,339
Loans held for sale	2,027	1,373
Loans held for investment, net	773,821	720,806
Interest receivable	4,645	3,995
Bank owned life insurance	22,705	23,554
IRLC	122	92
Forward sales commitments	21	186
Total Assets	1,197,951	1,177,087
Deposits	1,133,833	1,080,909
Short-term debt	60,000	70,000
Long-term debt	6,656	6,778
Interest payable	1,215	295
Total liabilities	1,199,704	1,158,074
Fair Value Inputs Level 1
Cash and cash equivalents	22,158	34,953
Securities		0
Securities held to maturity	0
Securities available for sale	0
Loans held for sale	0	0
Loans held for investment, net	0	0
Interest receivable	0	0
Bank owned life insurance	0	0
IRLC	0	0
Forward sales commitments	0	0
Total Assets	22,158	34,953
Deposits	0	0
Short-term debt	0	0
Long-term debt	0	0
Interest payable	0	0
Total liabilities	0	0
Fair Value Inputs Level 2
Cash and cash equivalents	0	0
Securities		392,220
Securities held to maturity	113
Securities available for sale	372,339
Loans held for sale	2,027	1,373
Loans held for investment, net	0	0
Interest receivable	4,645	3,995
Bank owned life insurance	22,705	23,554
IRLC	122	92
Forward sales commitments	21	186
Total Assets	401,972	421,328
Deposits	1,131,833	1,080,909
Short-term debt	0	0
Long-term debt	0	0
Interest payable	1,215	295
Total liabilities	1,133,048	1,081,296
Fair Value Inputs Level 3
Cash and cash equivalents	0	0
Securities		0
Securities held to maturity	0
Securities available for sale	0
Loans held for sale	0	0
Loans held for investment, net	773,821	720,806
Interest receivable	0	0
Bank owned life insurance	0	0
IRLC	0	0
Forward sales commitments	0	0
Total Assets	773,821	720,806
Deposits	0	0
Short-term debt	60,000	70,000
Long-term debt	6,656	6,778
Interest payable	0	0
Total liabilities	$ 66,656	$ 76,778

XML

Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Adjustments Related to Pension Plan
Beginning balance	$ 439	$ (3,291)	$ 439	$ (3,291)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit				0
Ending balance	439	(3,291)	439	(3,291)
Change in unrealized securities gains (losses), net of tax benefit	0	0	0	0
Accumulated Other comprehensive Income (Loss)
Beginning balance	(37,225)	(36,400)	(40,012)	(5,092)
Change in unrealized securities gains (losses), net of tax	(5,423)	(7,804)	(2,636)	(39,189)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit				77
Ending balance	(42,648)	(44,204)	(42,648)	(44,204)
Unrealized Securities Gains (Losses) [Member]
Beginning balance	(37,664)	(33,109)	(40,451)	(1,801)
Reclassification for previously unrealized net losses recognized in net income, net of tax benefit				77
Ending balance	(43,087)	(40,913)	(43,087)	(40,913)
Change in unrealized securities gains (losses), net of tax benefit	$ (5,423)	$ (7,804)	$ (2,636)	$ (39,189)

XML

Debt (Details Narrative) - USD ($) $ in Millions	1 Months Ended
	Jul. 29, 2020	Sep. 30, 2023	Dec. 31, 2022
Short term debt		$ 60.0	$ 70.0
Subordinated Debt		$ 6.9
2030 Notes [Member] | Accredited Investor [Member]
Interest Rate	6.00%
Interest Rate Description	The note initially bears interest at 6.00% per annum, beginning July 29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From and including July 31, 2025 through July 30, 2030, or up to an early redemption date, the interest rate 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
Principal Amount	$ 7.0
Maturity Date	July 31, 2030

XML

Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Total noninterest income	$ 2,527	$ 2,282	$ 7,645	$ 7,842
Service Charges on Deposits
Total noninterest income	256	255	755	836
Investment Services and Insurance Income
Total noninterest income	374	316	1,236	1,020
Title Insurance Income
Total noninterest income	444	376	1,069	1,215
ATM and check card fees
Total noninterest income	672	628	1,971	1,823
Other
Total noninterest income	268	173	628	668
Noninterest Income (in-scope of Topic 606)
Total noninterest income	2,014	1,748	5,659	5,562
Noninterest Income (out-of-scope of Topic 606)
Total noninterest income	$ 513	$ 534	$ 1,986	$ 2,280

XML

Leases (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Lease liabilities	$ 773		$ 773
Long-Term Lease Agreements [Member]
Lease liabilities	773		773
Right-of-use assets	$ 755		$ 755
Weighted average discount rate	3.30%		3.30%
Weighted average remaining lease term			1 year 9 months 7 days
Operating lease cost	$ 40	$ 75	$ 123	$ 169
Total lease cost	40	75	123	169
Cash paid for amounts included in the measurement of lease liabilities	$ 44	$ 100	$ 149	$ 205

XML

Leases (Details 1) $ in Thousands	Sep. 30, 2023 USD ($)
Leases
Nine months ending December 31, 2023	$ 44
Twelve months ending December 31, 2024	166
Twelve months ending December 31, 2025	122
Twelve months ending December 31, 2026	69
Twelve months ending December 31, 2027	56
Thereafter	462
Total undiscounted cash flows	919
Discount	146
Lease Liabilites	$ 773

XML

Subsequent Events (Details Narrative)	Nov. 07, 2023
Subsequent Event
Description of maximum potential one-time expense	they are offering an early retirement program to certain employees during the fourth quarter of 2023. The maximum potential one-time expense associated with this program is currently estimated to be $1,812,427