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EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2023

NOTE 16 EMPLOYEE BENEFITS

Defined Benefit Pension Plan - The Company has a qualified noncontributory defined benefit pension plan which covers substantially all employees hired before April 1, 2012. The plan was amended on February 15, 2023 to stop the accrual of future benefits. The Company uses December 31 as the measurement date for the defined benefit pension plan.

The following table provides a reconciliation of the changes in the benefit obligations and fair value of plan assets for 2023 and 2022 (dollars in thousands):

	2023			2022
*Change in Benefit Obligation*
Benefit obligation, beginning	$	8,011		$	15,557
Service cost		-			759
Interest cost		370			415
Actuarial loss		56			(5,421	)
Benefits paid		(1,194	)		(1,145	)
Decrease in Obligation due to Curtailment		-			(2,154	)
Settlement (gain)		(173	)		-
Benefit obligation, ending	$	7,070		$	8,011

*Change in Plan Assets*
Fair value of plan assets, beginning	$	7,787		$	11,235
Actual return on plan assets		909			(2,303	)
Benefits paid		(1,194	)		(1,145	)
Fair value of plan assets, ending	$	7,502		$	7,787
Funded status at the end of the year	$	432		$	(224	)

The fair value of plan assets is measured based on the fair value hierarchy as discussed in Note 15, “Fair Value Measurements” to the Consolidated Financial Statements. The valuations are based on third party data received as of the balance sheet date. All plan assets are considered Level 1 assets, as quoted prices exist in active markets for identical assets.

	2023			2022
*Amount recognized in the Consolidated Balance Sheet*
Prepaid benefit cost	$	(526	)	$	(780	)
Overfunded pension benefit obligation under ASC 325-960		959			556
Deferred taxes		(85	)		(995	)

*Amount recognized in accumulated other*
*comprehensive loss*
Net (gain)	$	(959	)	$	(556	)
Prior service cost		-			-
Amount recognized		(959	)		(556	)
Deferred taxes		201			117
Amount recognized in accumulated comprehensive (loss)	$	(758	)	$	(439	)

*Accrued benefit detail*
Benefit obligation	$	(7,070	)	$	(8,011	)
Fair value of assets		7,502			7,787
Unrecognized net actuarial (income)		(959	)		(556	)
Accrued benefits	$	(527	)	$	(780	)

*Components of net periodic benefit cost*
Service cost	$	-		$	758
Interest cost		370			415
Expected return on plan assets		(520	)		(781	)
Recognized net gain due to settlement		(104	)		-
Recognized net actuarial loss		-			232
Net periodic benefit cost	$	(254	)	$	624

*Other changes in plan assets and benefit obligations* *recognized in other comprehensive (income) loss*
Net gain	$	(403	)	$	(4,722	)
Amortization of prior service cost		-			-
Total recognized in other comprehensive income	$	(403	)	$	(4,722	)
*Total recognized in net periodic benefit cost and other* *Comprehensive (loss) income*	$	(657	)	$	(4,098	)

*Additional disclosure information*
Accumulated benefit obligation	$	7,070		$	8,011
Vested benefit obligation	$	7,070		$	8,011
Discount rate used for net pension cost		5.00	%		2.75	%
Discount rate used for disclosure		4.75	%		5.00	%
Expected return on plan assets		7.25	%		7.25	%
Rate of compensation increase		3.00	%		3.00	%
Average remaining service (years)		10.71			10.89

Funding Policy - Due to the current funding status of the plan, the Company did not make a contribution in 2023 or 2022. The net periodic pension cost of the plan for 2024 will be approximately ($150 thousand). The Company was subject to settlement accounting in 2023 and may be subject to settlement accounting in 2024. As of February 15, 2023, the Virginia Bankers Association Defined Benefit Plan for Farmers & Merchants Bank was amended to stop the accrual of future benefits.

Long-Term Rate of Return - The Company, as plan sponsor, selects the expected long-term rate of return on assets assumption in consultation with investment advisors and the plan actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation) for the major asset classes held or anticipated to be held by the trust. Undue weight is not given to recent experience, which may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, and solely for this purpose, the plan is assumed to continue in force and not terminate during the period during which the assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).

Asset Allocation - The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return. The Investment Manager selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance. Both actively and passively managed investment strategies will allocate funds across the asset classes to develop an efficient investment structure. The pension plan’s weighted-average asset allocations as of December 31, 2023 was 40% fixed income and 60% equity; the weighted-average asset allocations for December 31, 2022, was 38% fixed income and 62% equity.

Estimated Future Benefit Payments, which reflect expected future service, as appropriate, as of December 31, 2023, are as follows (dollars in thousands):

2024	$	809
2025		551
2026		957
2027		1,124
2028		619
2029-2033		1,859
	$	5,919

Employee Stock Ownership Plan (ESOP) - The Company sponsors an ESOP, known as the F&M Bank Corp. Stock Bonus Plan, (the “Plan”) which provides stock ownership to substantially all employees of the Company. The Plan provides total vesting upon the attainment of five years of service. Contributions to the plan are made at the discretion of the Board of Directors and are allocated based on the compensation of each employee relative to total compensation paid by the Company. All shares issued and held by the Plan are considered outstanding in the computation of earnings per share. Dividends on Company stock are allocated and paid to participants at least annually. Shares of Company stock, when distributed, have restrictions on transferability. The Company contributed $246 thousand in 2023 and $496 thousand in 2022 to the Plan and charged this expense to operations. The shares held by the ESOP totaled 170,905 and 170,905 at December 31, 2023 and 2022, respectively.

401(k) Plan - The Company sponsors a 401(k) savings plan under which eligible employees may choose to save up to 20 percent of their salary on a pretax basis, subject to certain IRS limits. Under the Federal Safe Harbor rules employees are automatically enrolled at 3% (this increases by 1% per year up to 6%) of their salary unless elected otherwise. The Company matches one hundred percent of the first 1% contributed by the employee and fifty percent from 2% to 6% of employee contributions. Vesting in the contributions made by the Company is 100% after two years of service. Contributions under the plan amounted to $478 thousand and $475 thousand in 2023 and 2022, respectively.

Deferred Compensation Plan - The Company has a nonqualified deferred compensation plan for its key employees and directors. The Company may make annual contributions to the plan, and the employee or director has the option to defer a portion of their salary or bonus based on qualifying annual elections. Contributions to the plan totaled $182 thousand in 2023 and $187 thousand in 2022. A liability is accrued for the obligation under the plan and totaled $3.6 million and $3.4 million at December 31, 2023 and 2022, respectively.

Investments in Life Insurance Contracts - The Bank currently offers a variety of benefit plans to all full-time employees. The costs of these plans are generally tax deductible to the Bank; however, to help offset the benefit costs and to attract and retain qualified employees, the Bank purchased Bank Owned Life Insurance (“BOLI”) contracts that will provide benefits to employees during their lifetime. Dividends received on these policies are tax-deferred and the death benefits under the policies are tax exempt. Rates of return on a tax-equivalent basis are favorable when compared to other long-term investments which the Bank might make. The accrued liability related to the BOLI contracts was $706 thousand and $729 thousand for December 31, 2023 and 2022, respectively.

Stock Incentive Plan - The Company has a Stock Incentive Plan was adopted by the Company’s Board, effective upon shareholder approval on May 2, 2020 and will expire on March 18, 2030. The plan provides for the granting of an option, restricted stock, restricted stock unit, stock appreciation right, or stock award to employees, directors, and consultants. It authorizes the issuance of up to 200,000 shares of the Company’s common stock.

The Company’s Compensation Committee of the Board of Directors administers the plan including designating employees, directors, or other recipients to whom awards are to be granted, the amount of the award or equity to be granted, and the terms and conditions applicable to each award. On March 7, 2024, the Company’s Compensation Committee awarded 33,568 shares with a fair value of $597 thousand from this plan to selected employees. These shares vest 25% over each of the next four years. As of December 31, 2023 and 2022 the total unrecognized compensation cost related to the nonvested restricted stock awards were $573 thousand and $580 thousand, respectively.

The following table summarizes the status of the Company’s nonvested awards for the year ended December 31, 2023:

	Shares			Weighted- Average Grant Date Fair Value Per Share
Nonvested at December 31, 2022		26,456		$	29.24
Granted		24,865			22.34
Vested		(8,283	)		22.34
Forfeited		(10,081	)		26.38
Nonvested at December 31, 2023		32,957			25.25