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 June 30, 2025

☐    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 ☒

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

Class	Outstanding at August 12, 2025
Common Stock, par value ‑ $5 per share	3,557,267 shares

F & M BANK CORP.

Quarterly Report on Form 10-Q

For the quarterly period ended June 30, 2025

Table of Contents

		Page
Part I	Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2025 and December 31, 2024	3
	Consolidated Statements of Income – Three Months Ended June 30, 2025 and 2024	4
	Consolidated Statements of Income – Six Months Ended June 30, 2025 and 2024	5
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2025 and 2024	6
	Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended June 30, 2025 and 2024	7
	Consolidated Statements of Changes in Shareholders’ Equity - Six Months Ended June 30, 2025 and 2024	7
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2025 and 2024	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	43
Part II	Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
Signatures		45
Certifications

2

Part I Financial Information

Item 1 Financial Statements

F & M BANK CORP.

Consolidated Balance Sheets

(Dollars in thousands, except share data)

	June 30,			December 31,
	2025			2024*
	(Unaudited)
Assets
Cash and due from banks	$	20,457		$	18,685
Money market funds and interest-bearing deposits in other banks		518			298
Federal funds sold		26,298			37,524
Cash and cash equivalents		47,273			56,507
Securities available for sale, at fair value		340,021			327,670
Other investments		2,254			2,249
Loans held for sale, at fair value		2,280			2,283
Loans held for investment, net of deferred fees and costs		848,773			839,949
Less: allowance for credit losses		(8,312	)		(8,129	)
Net loans held for investment		840,461			831,820
Bank premises and equipment, net		21,776			22,192
Other real estate owned		-			77
Interest receivable		5,163			4,939
Goodwill		3,082			3,082
Bank owned life insurance		23,989			23,607
Deferred tax asset, net		8,136			9,465
Other assets		17,489			18,120
Total Assets	$	1,311,924		$	1,302,011
Liabilities
Deposits:
Noninterest bearing	$	278,322		$	260,301
Interest bearing		918,129			934,804
Total deposits		1,196,451			1,195,105
Long-term debt		6,996			6,975
Other liabilities		13,736			13,793
Total Liabilities		1,217,183			1,215,873
Commitments and contingencies
Shareholders’ Equity
Common stock, $5 par value, 6,000,000 shares authorized, 3,567,056 (2025) and 3,525,649 (2024) shares issued and outstanding		17,491			17,383
Additional paid in capital		11,674			11,463
Retained earnings		88,247			84,669
Accumulated other comprehensive loss		(22,671	)		(27,377	)
Total Shareholders’ Equity		94,741			86,138
Total Liabilities and Shareholders’ Equity	$	1,311,924		$	1,302,011

*2024 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 June 30,
Interest and Dividend income	2025			2024
Interest and fees on loans held for investment	$	13,971		$	13,494
Interest and fees on loans held for sale		20			46
Interest from money market funds and federal funds sold		385			216
Interest and dividends on interest bearing deposits and other investments		58			129
Interest from securities available for sale		2,378			1,835
Total interest and dividend income		16,812			15,720
Interest expense
Total interest on deposits		6,168			6,950
Interest on short-term debt		1			453
Interest on long-term debt		116			116
Total interest expense		6,285			7,519
Net interest income		10,527			8,201
Provision for (recovery of) credit losses - loans		1,082			(413	)
Provision for (recovery of) credit losses – unfunded commitments		105			(44	)
Total Provision for (Recovery of) Credit Losses		1,187			(457	)
Net Interest Income After Provision for (Recovery of) Credit Losses		9,340			8,658
Noninterest income
Service charges on deposit accounts		307			292
Wealth management income		560			629
Mortgage banking income		358			762
Title insurance income		584			427
Income on bank owned life insurance		215			185
Low income housing partnership amortization		(196	)		(197	)
ATM and check card fees		875			802
Other operating income		89			98
Total noninterest income		2,792			2,998
Noninterest expense
Salaries		3,704			3,845
Employee benefits		923			352
Occupancy expense		387			402
Equipment expense		298			356
FDIC assessment		246			263
Legal and professional expense		527			473
ATM and check card fees		229			223
Data processing fees		855			737
Other operating expenses		1,543			1,519
Total noninterest expense		8,712			8,170
Income before income taxes		3,420			3,486
Income tax expense		455			471
Net Income	$	2,965		$	3,015
Per Common Share Data
Net income (basic and diluted)	$	0.84		$	0.86
Cash dividends on common stock		0.26			0.26
Weighted average common shares outstanding (basic and diluted)		3,564,133			3,517,122

See Notes to Consolidated Financial Statements

4

F & M BANK CORP.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

	Six Months Ended June 30,
Interest and Dividend income	2025			2024
Interest and fees on loans held for investment	$	27,436		$	26,846
Interest and fees on loans held for sale		45			64
Interest from money market funds and federal funds sold		1,037			373
Interest and dividends on interest bearing deposits and other investments		88			301
Interest from securities available for sale		4,471			3,713
Total interest and dividend income		33,077			31,297
Interest expense
Total interest on deposits		12,868			13,288
Interest on short-term debt		4			1,449
Interest on long-term debt		231			231
Total interest expense		13,103			14,968
Net interest income		19,974			16,329
Provision for credit losses - loans		902			481
Provision for (recovery of) credit losses – unfunded commitments		181			(115	)
Total Provision for Credit Losses		1,083			366
Net Interest Income After Provision for Credit Losses		18,891			15,963
Noninterest income
Service charges on deposit accounts		620			565
Wealth management income		1,236			1,211
Mortgage banking income		960			1,150
Title insurance income		939			730
Income on bank owned life insurance		424			368
Low income housing partnership amortization		(393	)		(393	)
ATM and check card fees		1,639			1,527
Other operating income		212			174
Total noninterest income		5,637			5,332
Noninterest expense
Salaries		7,831			7,625
Employee benefits		2,038			1,218
Occupancy expense		795			776
Equipment expense		626			679
FDIC assessment		511			521
Legal and professional expense		1,006			958
ATM and check card fees		556			515
Data processing fees		1,770			1,458
Other operating expenses		3,104			2,842
Total noninterest expense		18,237			16,592
Income before income taxes		6,291			4,703
Income tax expense		869			470
Net Income	$	5,422		$	4,233
Per Common Share Data
Net income (basic and diluted)	$	1.53		$	1.21
Cash dividends on common stock		0.52			0.52
Weighted average common shares outstanding (basic and diluted)		3,547,513			3,503,790

See Notes to Consolidated Financial Statements

5

F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net Income	$	2,965	$	3,015	$	5,422	$	4,233
Other comprehensive income:
Unrealized gain (loss) on available-for sale securities, net of income tax expense of $369 and $460 for the three months and $1,251 and $191 for the six months ended June 30, 2025 and 2024, respectively		1,169		1,729		4,706		719
Total other comprehensive income		1,169		1,729		4,706		719
Total comprehensive income	$	4,134	$	4,744	$	10,128	$	4,952

See Notes to Consolidated Financial Statements

6

F & M BANK CORP.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands)

(Unaudited)

Three Months Ended June 30, 2025 and 2024.

	Common Stock					Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares			Amount
Balance, March 31, 2024		3,516,013		$	17,318	$	11,097	$	81,346		$	(32,027	)	$	77,734
Net income		-			-		-		3,015			-			3,015
Other comprehensive income		-			-		-		-			1,729			1,729
Dividends on common stock		-			-		-		(914	)		-			(914	)
Common stock issued		3,104			15		37		-			-			52
Balance, June 30, 2024		3,519,117		$	17,333	$	11,134	$	83,447		$	(30,298	)	$	81,616
Balance, March 31, 2025		3,563,938		$	17,466	$	11,476	$	86,209		$	(23,840	)	$	91,311
Net income		-			-		-		2,965			-			2,965
Other comprehensive income		-			-		-		-			1,169			1,169
Dividends on common stock		-			-		-		(927	)		-			(927	)
Common stock issued		5,020			25		76		-			-			101
Net restricted common stock activity		(1,902	)		-		-		-			-			-
Stock-based compensation expense		-			-		122		-			-			122
Balance, June 30, 2025		3,567,056		$	17,491	$	11,674	$	88,247		$	(22,671	)	$	94,741

Six Months Ended June 30, 2025 and 2024.

	Common Stock				Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares		Amount
Balance December 31, 2023		3,485,570	$	17,263	$	11,043		$	81,034		$	(31,017	)	$	78,323
Net income		-		-		-			4,233			-			4,233
Other comprehensive income		-		-		-			-			719			719
Dividends on common stock		-		-		-			(1,820	)		-			(1,820	)
Common stock issued		5,818		29		73			-			-			102
Net restricted common stock activity		27,729		-		-			-			-			-
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		-		41		(41	)		-			-			-
Stock-based compensation expense		-		-		59			-			-			59
Balance, June 30, 2024		3,519,117	$	17,333	$	11,134		$	83,447		$	(30,298	)	$	81,616
Balance December 31, 2024		3,525,649	$	17,383	$	11,463		$	84,669		$	(27,377	)	$	86,138
Net income		-		-		-			5,422			-			5,422
Other comprehensive income		-		-		-			-			4,706			4,706
Dividends on common stock		-		-		-			(1,844	)		-			(1,844	)
Common stock issued		10,106		50		152			-			-			202
Net restricted common stock activity		31,301		-		-			-			-			-
Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes		-		58		(135	)		-			-			(77	)
Stock-based compensation expense		-		-		194			-			-			194
Balance, June 30, 2025		3,567,056	$	17,491	$	11,674		$	88,247		$	(22,671	)	$	94,741

See Notes to Consolidated Financial Statements

7

F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2025			2024
Cash flows from operating activities
Net income	$	5,422		$	4,233
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		683			755
Amortization of intangibles		16			14
Amortization of securities		348			364
Proceeds from loans held for sale		24,563			27,112
Loans held for sale originated		(24,008	)		(29,309	)
Gain on sale of loans held for sale		(552	)		(642	)
Provision for credit losses		1,083			366
Increase in interest receivable		(224	)		(89	)
Decrease (increase) in deferred tax asset		80			(3	)
Decrease (increase) in other assets		307			(147	)
Decrease in other liabilities		(240	)		(222	)
Amortization of limited partnership investments		393			393
Amortization of debt issuance costs		21			22
Income from life insurance investment		(424	)		(367	)
Gain on sale of fixed assets		-			(11	)
Gain on the sale of assets held for sale		(43	)		-
Gain on the sale of OREO		(73	)		(21	)
Stock-based compensation expense		194			59
Net cash provided by operating activities		7,546			2,507
Cash flows from investing activities
Proceeds from maturity of investments available for sale		21,360			10,000
Purchases of investments available for sale		(40,863	)		-
Proceeds from paydowns of mortgage-backed securities		12,761			7,005
Investment in restricted stock, net		(5	)		1,867
Net increase in loans held for investment		(9,543	)		(5,235	)
Proceeds from the sale of fixed assets		-			372
Proceeds from the sale of OREO		150			76
Net purchase of property and equipment		(267	)		(153	)
Net cash (used by) provided by investing activities		(16,407	)		13,932
Cash flows from financing activities
Net change in deposits		1,346			52,021
Net change in short-term debt		-			(40,000	)
Dividends paid in cash		(1,844	)		(1,820	)
Proceeds from issuance of common stock		125			102
Net cash (used by) provided by financing activities		(373	)		10,303
Net (decrease) increase in Cash and Cash Equivalents		(9,234	)		26,742
Cash and cash equivalents, beginning of period		56,507			23,717
Cash and cash equivalents, end of period	$	47,273		$	50,459
Supplemental Cash Flow information:
Cash paid for: Interest	$	13,539		$	14,400
Taxes		450			-
Supplemental non-cash disclosures:
Change in unrealized loss on securities available for sale	$	5,957		$	907

See Notes to Consolidated Financial Statements

8

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”), 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. FMFS was dissolved effective April 25, 2024, and its legal existence was subsequently terminated on June 7, 2024. The operations, assets, and liabilities of FMFS were transferred to the Bank. Effective on May 15, 2025, the operations, assets and liabilities of F&M Mortgage were transferred to the Bank.

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.

Basis of Presentation and 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 relates to the determination of the allowance for credit losses. The unaudited consolidated financial statements in this report have been prepared in accordance with GAAP for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented. All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

Segment Reporting

The Company's revenue is primarily derived from the business of banking. The Company's financial performance is monitored on a consolidated basis by the Chief Executive Officer, who is designated the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered. The segments are also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if the operating performance of products and customers are similar. The CODM evaluates the financial performance of the Company’s business components such as revenue streams, significant expenses, and budget to actual results in assessing the Company’s segments and in determination of allocated resources. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's consoldiated balance sheets and consolidated statements of income. Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of income to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include salaries and employee benefits, occupancy expense, equipment expense, data processing fees and legal and professional expenses.

All of the Company's financial results are similar and considered by management to be aggregated into one reportable operating segment. While the Company has assigned certain management responsibilities by region and business-line, the Company's CODM evaluates financial performance on a Company-wide basis. The majority of the Company's revenue is from the business of banking and the Company's assigned regions have similar economic characteristics, products, services and customers. Accordingly, all of the Company's operations are considered by management to be aggregated in one reportable operating segment.

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 or shareholders’ equity.

9

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, money market funds and interest-bearing deposits. Generally, federal funds are purchased and sold on an overnight basis.

Allowance for Credit Losses – Securities Available for Sale

For securities available for sale, 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 a security available for sale is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2025 and December 31, 2025, there was no allowance for credit loss related to the securities available for sale portfolio.

Accrued interest receivable on securities available for sale totaled $1.5 million at June 30, 2025 and December 31, 2024, and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.6 million and $3.4 million at June 30, 2025 and December 31, 2024, respectively, 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.

10

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 from 2008-2012, a number of pool sets 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 was economic conditions, with a weighting of 20%-25%. The Company evaluates 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 ratios 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 ratios 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.

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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 to 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 towns’ budgets.

Additionally, the allowance for credit losses calculation includes 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 consolidated statements of income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period, including voting rights and sharing in nonforfeitable dividends. Diluted earnings per share includes all convertible securities, such as convertible preferred stock, convertible debt, equity options, and warrants. The Company does not have any convertible securities that would dilute earnings per share.

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Recent Accounting Pronouncements

Accounting Standards Pending Adoption:

In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2023, the 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.

Other accounting standards that have been issued or proposed 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.

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NOTE 2 SECURITIES

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):

June 30, 2025	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U. S. Treasuries	$	15,081	$	-	$	1,050	$	14,031
U. S. Government agencies		57,996		-		3,907		54,089
Municipal securities		40,898		-		2,626		38,272
Mortgage-backed securities		224,751		326		20,630		204,447
Corporate debt securities		30,550		-		1,368		29,182
Total Securities Available for Sale	$	369,276	$	326	$	29,581	$	340,021

December 31, 2024	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U. S. Treasuries	$	20,072	$	-	$	1,458	$	18,614
U. S. Government agencies		72,995				5,270		67,725
Municipal securities		40,674		-		2,467		38,207
Mortgage-backed securities		198,591		158		23,800		174,949
Corporate debt securities		30,550		-		2,375		28,175
Total Securities Available for Sale	$	362,882	$	158	$	35,370	$	327,670

The amortized cost and fair value of securities at June 30, 2025, by contractual maturity are shown below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	18,864	$	18,657
Due after one year through five years		95,269		90,625
Due after five years		72,077		67,416
Due after ten years		183,066		163,323
Total	$	369,276	$	340,021

There were no sales of securities available for sale in the first or second quarters of 2025 or 2024.

The following tables show the present fair value and gross unrealized losses (dollars in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated. The reference point for determining when securities are in an unrealized loss position is period-end; therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the past twelve-month period. Excluded from the tables below were securities whose amortized cost equaled their fair value or were in an unrealized gain position as of the dates stated totaling $47.1 million and $9.0 million, as of June 30, 2025 and December 31, 2024, respectively.

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	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2025
U. S. Treasuries	$	-	$	-	$	14,031	$	1,050	$	14,031	$	1,050
U. S. Government agencies		-		-		54,089		3,907		54,089		3,907
Municipal securities		8,813		405		28,243		2,221		37,056		2,626
Mortgage-backed securities		39,576		344		119,004		20,286		158,580		20,630
Corporate debt securities		998		2		28,184		1,366		29,182		1,368
Total Securities Available for Sale	$	49,387	$	751	$	243,551	$	28,830	$	292,938	$	29,581

	Less than 12 Months				More than 12 Months				Total
December 31, 2024	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U. S. Treasuries	$	-	$	-	$	18,614	$	1,458	$	18,614	$	1,458
U. S. Government agencies		-		-		67,725		5,270		67,725		5,270
Municipal securities		9,971		139		28,236		2,328		38,207		2,467
Mortgage-backed securities		39,461		603		126,470		23,197		165,931		23,800
Corporate debt securities		1,463		37		26,712		2,338		28,175		2,375
Total Securities Available for Sale	$	50,895	$	779	$	267,757	$	34,591	$	318,652	$	35,370

At June 30, 2025 and December 31, 2024, the majority of securities in an unrealized loss position were of investment grade; however, a portion of the portfolio does not have a third-party investment grade available (securities with fair values of $24.6 million and $23.7 million at June 30, 2025 and December 31, 2024, respectively). These securities were primarily subordinated debt instruments issued by bank holding companies and are classified as corporate debt securities in the tables above. The Company evaluated the issuers of these individually, observing that each issuer had strong capital ratios and profitability, thereby indicating limited exposure to asset quality or liquidity issues and resulted in no identifiable credit losses. Contractual cash flows for mortgage-backed securities and U.S. Treasury and agencies are guaranteed and/or funded by the U.S. government and government agencies. State and municipal securities showed no indication that the contractual cash flows would not be received when due. The Company does not intend to sell, nor does it believe that it will be required to sell, any of its impaired securities prior to the recovery of the amortized cost. As of June 30, 2025 and December 31, 2024, there was no allowance for credit losses ("ACL") for the Company's securities AFS portfolio. Any impairment that has not been recorded through an ACL is recognized in accumulated other comprehensive income (loss).

The Company had securities with a market value of $119.2 million pledged to the Federal Reserve Discount Window as of June 30, 2025. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during the first six months of 2025. Additionally, the Company had securities with a market value of $9.2 million pledged to the Federal Reserve Bank of Richmond as collateral for deposits of the Department of Justice U.S. Bankruptcy Trustee.

As of June 30, 2025, other investments consisted of restricted stock in the Federal Reserve Bank (“FRB”) (carrying basis of $1.1 million at June 30, 2025 and December 31, 2024), Federal Home Loan Bank (“FHLB”) (carrying basis of $925 thousand and $920 thousand at June 30, 2025 and December 31, 2024, respectively), in Farmer Mac stock (carrying basis of $4 thousand at June 30, 2025 and December 31, 2024), and in a correspondent bank (carrying value of $50 thousand at June 30, 2025 and December 31, 2024). Additionally, the Company has an equity investment in National Bankshares Inc. totaling $135 thousand at June 30, 2025 and December 31, 2024. Other investments are carried at cost.

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NOTE 3 LOANS AND CREDIT QUALITY

The following is a summary of the major categories of total loans outstanding at June, 2025 and December 31, 2024 (dollars in thousands):

	June 30, 2025			December 31, 2024
1-4 Family residential construction	$	26,173		$	25,102
Other construction, land development and land		38,807			58,208
Secured by farmland		105,235			86,016
Home equity – open end		51,364			49,542
Real estate		228,374			213,081
Home equity – closed end		6,496			6,137
Multifamily		11,185			10,804
Owner-occupied commercial real estate		94,021			86,169
Other commercial real estate		104,415			98,189
Agricultural loans		16,844			17,928
Commercial and industrial		58,703			64,901
Credit cards		3,295			3,524
Automobile loans		90,016			104,271
Other consumer loans		9,839			11,915
Municipal loans		4,548			4,901
Gross loans		849,315			840,688
Unamortized net deferred loan fees		(542	)		(739	)
Less allowance for credit losses		8,312			8,129
Net loans	$	840,461		$	831,820

The table above does not include loans held for sale of $2.3 million at both June 30, 2025 and December 31, 2024. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

Accrued interest receivable on loans held for investment totaled $3.6 million and $3.5 million at June 30, 2025 and December 31, 2024, respectively. For the quarters and six months ended June 30, 2025 and 2024, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements.

The Company had loans held for investment pledged as collateral for borrowings with the FHLB totaling $324.7 million and $306.7 million as of June 30, 2025, and December 31, 2024, respectively. The Company maintains a blanket lien on certain loans in its residential real estate, commercial, agricultural farmland, and home equity portfolios.

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Nonaccrual and Past Due Loans

The following tables present the aging of the recorded investment of loans held for investment by loan category as of the dates stated (dollars in thousands).

June 30, 2025
	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past due		Nonaccrual Loans		Accruing Current Loans			Total Loans
1-4 Family residential construction	$	-	$	-	$	-	$	-	$	26,173		$	26,173
Other construction, land development and land		158		-		-		13		38,636			38,807
Secured by farmland		-		114		-		1,188		103,933			105,235
Home equity – open end		176				-		516		50,672			51,364
Real estate		1,278		342		-		2,129		224,625			228,374
Home equity – closed end		32		-		-		-		6,464			6,496
Multifamily		-		-		-		-		11,185			11,185
Owner-occupied commercial real estate		304		1,172		-		2,529		90,016			94,021
Other commercial real estate		-		-		-		-		104,415			104,415
Agricultural loans		-		-		-		283		16,561			16,844
Commercial and industrial		29		330		-		452		57,892			58,703
Credit cards		38		8		16		-		3,233			3,295
Automobile loans		2,020		441		-		489		87,066			90,016
Other consumer loans		102		10		-		41		9,686			9,839
Municipal loans		-		-		-		-		4,548			4,548
Gross loans		4,137		2,417		16		7,640		835,105			849,315
Less: Unamortized net deferred loan fees		-		-		-		-		(542	)		(542	)
Total	$	4,137	$	2,417	$	16	$	7,640	$	834,563		$	848,773

December 31, 2024
	Accruing Loans 30-59 Days Past due		Accruing Loans 60-89 Days Past due		Accruing Loans 90 Days or More Past due		Nonaccrual Loans		Accruing Current Loans			Total Loans
1-4 Family residential construction	$	-	$	-	$	-	$	-	$	25,102		$	25,102
Other construction, land development and land		-		10		-		14		58,184			58,208
Secured by farmland		-		-		-		53		85,963			86,016
Home equity – open end		130		-		-		501		48,911			49,542
Real estate		1,799		877		-		916		209,489			213,081
Home equity – closed end		-		-		-		-		6,137			6,137
Multifamily		-		-		-		-		10,804			10,804
Owner-occupied commercial real estate		124		-		-		3,416		82,629			86,169
Other commercial real estate		-		-		-		785		97,404			98,189
Agricultural loans		-		-		-		171		17,757			17,928
Commercial and industrial		849		46		-		768		63,238			64,901
Credit cards		41		19		32		-		3,432			3,524
Automobile loans		2,153		304		-		397		101,417			104,271
Other consumer loans		95		10		-		24		11,786			11,915
Municipal loans		-		-		-		-		4,901			4,901
Gross loans		5,191		1,266		32		7,045		827,154			840,688
Less: Unamortized net deferred loan fees		-		-		-		-		(739	)		(739	)
Total	$	5,191	$	1,266	$	32	$	7,045	$	826,415		$	839,949

There were $7.6 million and $7.0 million in nonaccrual loans at June 30, 2025 and December 31, 2024, respectively.  There was no income recognized on nonaccrual loans during the three months or six months ended June 30, 2025 and 2024.

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The following table is a summary of the Company’s nonaccrual loans by major categories as of the dates stated (dollars in thousands).

	June 30, 2025						December 31, 2024
	Nonaccrual loans						Nonaccrual loans
	With no Allowance		With an Allowance		Total		With no Allowance		With an Allowance		Total
Other construction, land development and land	$	13	$	-	$	13	$	14	$	-	$	14
Secured by farmland		1,115		73		1,188		53		-		53
Home equity – open end		516		-		516		501		-		501
Real estate		2,102		27		2,129		916		-		916
Owner-occupied commercial real estate		2,495		34		2,529		2,147		1,269		3,416
Other commercial real estate		-		-		-		785		-		785
Agricultural loans		171		112		283		171		-		171
Commercial and industrial		54		398		452		768		-		768
Automobile loans		489		-		489		397		-		397
Other consumer loans		41		-		41		24		-		24
Total loans	$	6,996	$	644	$	7,640	$	5,776	$	1,269	$	7,045

Troubled Loan Modifications

The Company closely monitors the performance of borrowers experiencing financial difficulty and grants certain loan modifications it would not otherwise consider. The Company refers to such loan modifications as troubled loan modifications (“TLMs”). There were no loans modified for borrowers experiencing financial difficulty in the three months or six months ended June 30, 2025 or 2024.

The following tables present an aging analysis of the amortized cost of TLMs as of the dates stated (dollars in thousands).

	June 30, 2025
	Current Loans		30-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total
Real estate	$	-	$	-	$	-	$	5	$	5
Owner occupied commercial real estate		5,409		-		-		1,192		6,601
Automobile loans		36		-		-		11		47
Total modified loans	$	5,445	$	-	$	-	$	1,208	$	6,653

	December 31, 2024
	Current Loans		30-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total
Real estate	$	7	$	-	$	-	$	-	$	7
Owner occupied commercial real estate		6,653		-		-		-		6,653
Other commercial real estate		10		-		-		-		10
Automobile loans		62		49		-		-		111
Total modified loans	$	6,732	$	49	$	-	$	-	$	6,781

At June 30, 2025 and December 31, 2024, there were no unfunded commitments to borrowers with TLMs.

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The following table presents the amortized cost of TLMs modified in the preceding twelve months and had a payment default during the periods stated (dollars in thousands).

	For the three and six months ended June 30, 2025
	Number of Loans		Amortized Cost		% of Amortized Cost to Gross Loans by Category
Term extension and deferral
Real estate		1	$	5		0.01	%
Automobile loans		1		8		0.01	%
Total term extension and deferral		2	$	13
Other than temporary payment delay
Owner occupied commercial real estate		1	$	1,192		1.27	%
Total other than temporary payment delay		1	$	1,192
Total		3	$	1,205

There were no TLMs modified in the preceding twelve months that had a payment default during the three and six months ended June 30, 2024.

Collateral Dependent Disclosures

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

The following table presents an analysis of collateral-dependent loans of the Company as of the dates stated (dollars in thousands):

	June 30, 2025				December 31, 2024
	Real Estate		Business/Other Assets		Real Estate		Business/Other Assets
Secured by farmland	$	1,302	$	-	$	-	$	-
Home equity – open end		116
Real estate		1,029		-		-		-
Owner-occupied commercial real estate		2,405		-		3,416		-
Other commercial real estate		-		-		785		-
Agricultural loans		-		112
Commercial and industrial		-		398		-		605
Total loans	$	4,852	$	510	$	4,201	$	605

Credit Quality Indicators

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. The Company defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty which are presented in the original vintage.

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Description of the Company’s credit quality indicators:

Pass: Loans in all classes that comprise 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.

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The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of June 30, 2025 (dollars in thousands):

	Term Loans by Year of Origination
	2025		2024		2023		2022		2021		Prior		Revolving		Total
1-4 Family residential construction
Pass	$	-	$	-	$	778	$	-	$	-	$	-	$	25,395	$	26,173
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total 1-4 Family residential construction		-		-		778		-		-		-		25,395		26,173
Current period gross write-offs		-		-		-		-		-		-		-		-
Other construction, land development and land
Pass		835		1,714		9,714		1,110		544		3,296		20,914		38,127
Watch		-		-		-		-		-		-		120		120
Substandard		-		-		-		-		-		13		547		560
Total Other construction, land development and land		835		1,714		9,714		1,110		544		3,309		21,581		38,807
Current period gross write-offs		-		-		-		-		-		9		-		9
Secured by farmland
Pass		10,469		5,873		11,242		13,186		15,039		35,904		9,662		101,375
Watch		-		154		-		1,667		-		737		-		2,558
Substandard		-		-		-		319		869		-		114		1,302
Total Secured by farmland		10,469		6,027		11,242		15,172		15,908		36,641		9,776		105,235
Current period gross write-offs		-		-		-		-		-		-		-		-
Home equity – open end
Pass		-		-		-		-		-		125		50,673		50,798
Watch		-		-		-		-		-		-		566		566
Substandard		-		-		-		-		-		-		-		-
Total Home equity - open end		-		-		-		-		-		125		51,239		51,364
Current period gross write-offs		-		-		-		-		-		-		-		-
Real estate
Pass		19,025		25,112		56,624		41,608		13,084		65,973		-		221,426
Watch		-		1,433		1,445		-		-		215		-		3,093
Substandard		-		-		295		230		805		2,525		-		3,855
Total Real estate		19,025		26,545		58,364		41,838		13,889		68,713		-		228,374
Current period gross write-offs		-		-		-		-		-		-		-		-
Home equity – closed end
Pass		579		695		2,407		203		81		2,531		-		6,496
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Home equity - closed end		579		695		2,407		203		81		2,531		-		6,496
Current period gross write-offs		-		-		-		-		-		-		-		-
Multifamily
Pass		-		2,703		-		2,597		1,280		2,362		2,243		11,185
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Multifamily		-		2,703		-		2,597		1,280		2,362		2,243		11,185
Current period gross write-offs		-		-		-		-		-		-		-		-
Owner-occupied commercial real estate
Pass		7,383		9,860		2,384		16,778		15,011		22,290		7,378		81,084
Watch		-		-		736		-		-		1,071		-		1,807
Substandard		-		1,158		-		-		-		9,924		48		11,130
Total Owner-occupied commercial real estate		7,383		11,018		3,120		16,778		15,011		33,285		7,426		94,021
Current period gross write-offs		-		-		-		-		-		-		-		-
Other commercial real estate
Pass		-		379		11,134		34,260		11,392		36,150		2,104		95,419
Watch		-		-		-		-		-		992		-		992
Substandard		-		7,919		-		-		-		85		-		8,004
Total Other commercial real estate		-		8,298		11,134		34,260		11,392		37,227		2,104		104,415
Current period gross write-offs		-		-		-		-		-		-		-		-

21

	Term Loans by Year of Origination
	2025		2024		2023		2022		2021		Prior		Revolving		Total
Agricultural loans
Pass		2,646		2,139		1,691		1,331		217		109		7,982		16,115
Watch		409		-		-		13		-		24		-		446
Substandard		-		-		112		21		-		-		150		283
Total Agricultural loans		3,055		2,139		1,803		1,365		217		133		8,132		16,844
Current period gross write-offs		-		-		-		-		-		-		-		-
Commercial and industrial
Pass		9,243		13,776		3,571		5,872		2,962		691		19,876		55,991
Watch		-		-		-		52		-		-		1,150		1,202
Substandard		45		398		330		-		2		-		735		1,510
Total Commercial and industrial		9,288		14,174		3,901		5,924		2,964		691		21,761		58,703
Current period gross write-offs		-		11		-		74		-		-		-		85
Credit cards
Pass		-		-		-		-		-		-		3,279		3,279
Substandard		-		-		-		-		-		-		16		16
Total Credit cards		-		-		-		-		-		-		3,295		3,295
Current period gross write-offs		-		-		-		-		-		-		32		32
Automobile loans
Pass		8,971		21,830		30,285		19,118		7,303		1,949		-		89,456
Watch		-		-		-		-		-		-		-		-
Substandard		-		151		86		184		97		42		-		560
Total Automobile loans		8,971		21,981		30,371		19,302		7,400		1,991		-		90,016
Current period gross write-offs		11		393		315		300		66		48		-		1,133
Other consumer loans
Pass		1,502		2,854		2,334		1,758		581		419		350		9,798
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		10		22		9		-		-		41
Total Other consumer loans		1,502		2,854		2,344		1,780		590		419		350		9,839
Current period gross write-offs		-		4		15		17		5		-		-		41
Municipal loans
Pass		-		-		-		-		551		3,997		-		4,548
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Municipal loans		-		-		-		-		551		3,997		-		4,548
Current period gross write-offs		-		-		-		-		-		-		-		-
Total loans	$	61,107	$	98,148	$	135,178	$	140,329	$	69,827	$	191,424	$	153,302		849,315
Less: Unamortized net deferred loan fees																(542	)
Loans held for investment															$	848,773
Current period gross write-offs	$	11	$	408	$	330	$	391	$	71	$	57	$	32	$	1,300

22

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024 (dollars in thousands):

	Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
1-4 Family residential construction
Pass	$	-	$	1,224	$	-	$	-	$	-	$	92	$	23,786	$	25,102
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total 1-4 Family residential construction		-		1,224		-		-		-		92		23,786		25,102
Other construction, land development and land
Pass		2,668		13,898		7,417		4,530		1,727		8,580		18,251		57,071
Watch		-		-		-		-		-		-		128		128
Substandard		-		-		-		-		-		525		484		1,009
Total Other construction, land development and land		2,668		13,898		7,417		4,530		1,727		9,105		18,863		58,208
Secured by farmland
Pass		5,462		10,038		13,283		12,908		25,209		8,413		8,074		83,387
Watch		155		-		1,667		-		-		754		-		2,576
Substandard		-		-		-		-		-		53		-		53
Total Secured by farmland		5,617		10,038		14,950		12,908		25,209		9,220		8,074		86,016
Home equity – open end
Pass		-		-		-		-		-		153		48,589		48,742
Watch		-		-		-		-		-		-		249		249
Substandard		-		-		-		-		-		-		551		551
Total Home equity - open end		-		-		-		-		-		153		49,389		49,542
Real estate
Pass		21,150		59,160		43,895		13,643		11,595		59,013		1,671		210,127
Watch		-		-		-		-		-		-		-		-
Substandard		-		203		86		528		-		2,137		-		2,954
Total Real estate		21,150		59,363		43,981		14,171		11,595		61,150		1,671		213,081
Home equity – closed end
Pass		727		2,469		252		87		786		1,816		-		6,137
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Home equity - closed end		727		2,469		252		87		786		1,816		-		6,137
Multifamily
Pass		2,130		-		4,854		1,368		866		1,586		-		10,804
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Multifamily		2,130		-		4,854		1,368		866		1,586		-		10,804
Owner-occupied commercial real estate
Pass		7,187		2,207		17,127		15,754		6,697		19,933		5,042		73,947
Watch		1,165		-		-		-		-		-		-		1,165
Substandard		-		-		-		-		-		8,613		2,444		11,057
Total Owner-occupied commercial real estate		8,352		2,207		17,127		15,754		6,697		28,546		7,486		86,169
Other commercial real estate
Pass		386		9,258		29,385		11,767		3,739		31,885		1,938		88,358
Watch		-		-		-		-		-		1,018		-		1,018
Substandard		7,942		-		-		-		-		871		-		8,813
Total Other commercial real estate		8,328		9,258		29,385		11,767		3,739		33,774		1,938		98,189
Agricultural loans
Pass		3,522		2,181		1,818		333		180		-		9,673		17,707
Watch		-		-		13		-		24		-		13		50
Substandard		-		-		21		-		-		-		150		171
Total Agricultural loans		3,522		2,181		1,852		333		204		-		9,836		17,928
Commercial and industrial
Pass		14,798		4,817		6,766		3,738		878		376		28,934		60,307
Watch		-		348		63		32		-		-		3,328		3,771
Substandard		-		-		57		609		-		-		157		823
Total Commercial and industrial		14,798		5,165		6,886		4,379		878		376		32,419		64,901

23

	Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
Credit cards
Pass		-		-		-		-		-		-		3,524		3,524
Substandard		-		-		-		-		-		-		-		-
Total Credit cards		-		-		-		-		-		-		3,524		3,524
Automobile loans
Pass		26,426		37,698		25,096		10,563		3,121		975		-		103,879
Watch		-		-		-		-		-		-		-		-
Substandard		22		66		147		110		36		11		-		392
Total Automobile loans		26,448		37,764		25,243		10,673		3,157		986		-		104,271
Other consumer loans
Pass		3,604		3,102		2,633		989		210		994		359		11,891
Watch		-		-		-		-		-		-		-		-
Substandard		-		7		6		11		-		-		-		24
Total Other consumer loans		3,604		3,109		2,639		1,000		210		994		359		11,915
Municipal loans
Pass		-		-		-		775		1,032		3,094		-		4,901
Watch		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Total Municipal loans		-		-		-		775		1,032		3,094		-		4,901
Total loans	$	97,344	$	146,676	$	154,586	$	77,745	$	56,100	$	150,892	$	157,345	$	840,688
Less: Unamortized net deferred loan fees																(739	)
Loans held for investment															$	839,949

NOTE 4 ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses (“ACL”) consists of the allowance for credit losses on loans and the allowance for unfunded commitments. The Company’s ACL is governed by the Bank's ACL Committee, which reports to the Board of Directors and contains representatives from the Company’s finance, credit, and risk teams, and is responsible for calculating the Company’s estimate of expected credit losses and resulting ACL. The ACL Committee considers the quantitative model results and qualitative factors when finalizing the ACL. The Company’s ACL model is subject to the Company’s models risk management program, which is overseen by the Director of Risk Management that reports to the Company’s Board Risk Committee.

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. 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 their estimated life, which are the same loss rates that are used in computing the ACL. The ACL for unfunded commitments is classified on the balance sheet within Other liabilities.

24

The following tables detail the changes in the ACL for the periods indicated (dollars in thousands).

	For the three months ended June 30, 2025
	Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for loan credit losses			Ending Balance
1-4 Family residential construction	$	252	$	-	$	-	$	19		$	271
Other construction, land development and land		1,658		9		9		(611	)		1,047
Secured by farmland		1,043		-		-		434			1,477
Home equity – open end		191		-		-		(21	)		170
Real estate		692		-		1		190			883
Home Equity – closed end		83		-		-		(10	)		73
Multifamily		32		-		-		2			34
Owner-occupied commercial real estate		713		-		-		129			842
Other commercial real estate		83		-		-		7			90
Agricultural loans		25		-		-		112			137
Commercial and industrial		826		85		145		372			1,258
Credit Cards		79		17		5		13			80
Automobile loans		1,894		734		191		423			1,774
Other consumer loans		191		41		3		23			176
Total allowance for credit losses - loans	$	7,762	$	886	$	355	$	1,082		$	8,312
Allowance for credit losses – unfunded commitments	$	725	$	-	$	-	$	105		$	830

	For the three months ended June 30, 2024
	Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for loan credit losses			Ending Balance
1-4 Family residential construction	$	734	$	-	$	-	$	(132	)	$	602
Other construction, land development and land		1,345		-		-		103			1,448
Secured by farmland		825		-		-		(8	)		817
Home equity – open end		181		-		-		(4	)		177
Real estate		815		-		1		(36	)		780
Home Equity – closed end		100		-		-		2			102
Multifamily		243		-		-		8			251
Owner-occupied commercial real estate		1,314		-		-		(466	)		848
Other commercial real estate		178		-		-		(4	)		174
Agricultural loans		21		-		-		1			22
Commercial and industrial		807		5		15		(16	)		801
Credit Cards		84		12		6		5			83
Automobile loans		1,459		466		243		233			1,469
Other consumer loans		285		26		64		(98	)		225
Municipal loans		17		-		-		(1	)		16
Total allowance for credit losses - loans	$	8,408	$	509	$	329	$	(413	)	$	7,815
Allowance for credit losses – unfunded commitments	$	620	$	-	$	-	$	(44	)	$	576

25

	For the six months ended June 30, 2025
	Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for loan credit losses			Ending Balance
1-4 Family residential construction	$	258	$	-	$	-	$	13		$	271
Other construction, land development and land		1,551		9		9		(504	)		1,047
Secured by farmland		946		-		-		531			1,477
Home equity – open end		197		-		24		(51	)		170
Real estate		606		-		3		274			883
Home Equity – closed end		99		-		-		(26	)		73
Multifamily		190		-		-		(156	)		34
Owner-occupied commercial real estate		809		-		-		33			842
Other commercial real estate		105		-		-		(15	)		90
Agricultural loans		27		-		-		110			137
Commercial and industrial		982		85		147		214			1,258
Credit Cards		87		32		11		14			80
Automobile loans		1,956		1,133		356		595			1,774
Other consumer loans		301		41		31		(115	)		176
Municipal loans		15		-		-		(15	)		-
Total allowance for credit losses - loans	$	8,129	$	1,300	$	581	$	902		$	8,312
Allowance for credit losses – unfunded commitments	$	649	$	-	$	-	$	181		$	830

	For the six months ended June 30, 2024
	Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for loan credit losses			Ending Balance
1-4 Family residential construction	$	714	$	-	$	-	$	(112	)	$	602
Other construction, land development and land		1,287		-		-		161			1,448
Secured by farmland		815		-		-		2			817
Home equity – open end		180		-		25		(28	)		177
Real estate		810		-		3		(33	)		780
Home Equity – closed end		77		-		-		25			102
Multifamily		181		-		-		70			251
Owner-occupied commercial real estate		1,221		-		-		(373	)		848
Other commercial real estate		166		-		-		8			174
Agricultural loans		20		-		-		2			22
Commercial and industrial		1,034		209		42		(66	)		801
Credit Cards		81		21		15		8			83
Automobile loans		1,443		1,223		377		872			1,469
Other consumer loans		292		67		71		(71	)		225
Municipal loans		-		-		-		16			16
Total allowance for credit losses - loans	$	8,321	$	1,520	$	533	$	481		$	7,815
Allowance for credit losses – unfunded commitments	$	691	$	-	$	-	$	(115	)	$	576

NOTE 5 LEASES

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

26

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

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

	June 30, 2025
Lease Liabilities	$	930
Right-of-use assets	$	896
Weighted average remaining lease term (years)	9.60 years
Weighted average discount rate		3.79	%

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2025		2024		2025		2024
Operating lease cost	$	29	$	23	$	59	$	75
Total lease cost	$	29	$	23	$	59	$	75
Cash paid for amounts included in the measurement of lease liabilities	$	35	$	30	$	69	$	89

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):                                                               

	June 30, 2025
Six months ending December 31, 2025	$	68
Twelve months ending December 31, 2026		115
Twelve months ending December 31, 2027		101
Twelve months ending December 31, 2028		103
Twelve months ending December 31, 2029		106
Thereafter		639
Total undiscounted cash flows	$	1,132
Discount		(202	)
Lease liabilities	$	930

NOTE 6 REGULATORY CAPITAL MATTERS

Banks and financial holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, “prompt corrective action” regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on AFS securities is not included in computing regulatory capital. Management believes as of June 30, 2025, the Bank meets all capital adequacy requirements to which  it is subject.

“Prompt corrective action” regulations provide five classifications: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”, although these terms are not used to represent overall financial condition. If “adequately capitalized”, regulatory approval is required to accept brokered deposits. If “undercapitalized”, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of June 30, 2025, and December 31, 2024, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

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	Actual					Minimum Required Capital					Minimum Required to be Well Capitalized
June 30, 2025	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based ratio	$	124,664		13.73	%	$	72,624		8.00	%	$	90,780		10.00	%
Tier 1 risk-based ratio		115,522		12.73	%		54,468		6.00	%		72,624		8.00	%
Common equity tier 1		115,522		12.73	%		40,851		4.50	%		59,007		6.50	%
Tier 1 leverage ratio		115,522		8.89	%		51,975		4.00	%		64,969		5.00	%
December 31, 2024
Total risk-based ratio	$	120,892		13.39	%	$	72,223		8.00	%	$	90,279		10.00	%
Tier 1 risk-based ratio		112,114		12.42	%		54,168		6.00	%		72,223		8.00	%
Common equity tier 1		112,114		12.42	%		40,626		4.50	%		58,682		6.50	%
Tier 1 leverage ratio		112,114		8.23	%		54,472		4.00	%		68,090		5.00	%

NOTE 7 FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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

Fair Value – Recurring Basis

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 - When quoted market prices are not available, fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discount cash flow methods. Level 2 securities included U.S. agency securities, mortgage-backed agency securities, obligations of state 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 stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Loans held for sale – Mortgage loans originated and intended for sale in the secondary market are carried at fair value, which  is based on the price secondary markets are currently offering for similar loans using observable market data. Changes in fair value are recognized in mortgage banking income on the consolidated statements of income (Level 2).          

Derivative financial instruments - Derivative instruments used to hedge residential mortgage loans held for sale and the related interest rate lock commitments include forward commitments to sell mortgage loans and are reported at fair value utilizing Level 2 inputs. The fair values of derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments.

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The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates stated (dollars in thousands):

June 30, 2025	Carrying Value		Level 1		Level 2		Level 3
Securities available for sale
U. S. Treasury securities	$	14,031	$	-	$	14,031	$	-
U.S. Government agencies		54,089		-		54,089		-
Municipal securities		38,272		-		38,272		-
Mortgage-backed securities		204,447		-		204,447		-
Corporate debt securities		29,182		-		4,571		24,611
Total securities available for sale	$	340,021	$	-	$	315,410	$	24,611
Other assets
Loans held for sale	$	2,280	$	-	$	2,280	$	-
IRLC		39		-		39	$	-
Forward sales commitments		11		-		11		-
December 31, 2024	Carrying Value		Level 1		Level 2		Level 3
Securities available for sale
U. S. Treasury securities	$	18,614	$	-	$	18,614	$	-
U.S. Government agencies		67,725		-		67,725		-
Municipal securities		38,207		-		38,207		-
Mortgage-backed securities		174,949		-		174,949		-
Corporate debt securities		28,175		-		4,512		23,663
Total securities available for sale	$	327,670	$	-	$	304,007	$	23,663
Other assets
Loans held for sale	$	2,283	$	-	$	2,283	$	-
IRLC		18		-		18		-
Forward sales commitments		41		-		41		-

Fair Value - Nonrecurring Basis

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. 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 - Collateral-dependent loans are carried at fair value, which equals the estimated market value of the collateral less estimated costs to sell. Collateral may be in the form of real estate, securities, or business assets, including equipment, inventory, and accounts receivable. A loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of operations.

Other Real Estate Owned (“OREO”) - Certain assets such as OREO are measured at fair value less estimated costs to sell. Valuation of OREO is generally determined using current appraisals from independent parties, a Level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal, 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.

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The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2025 and December 31, 2024 (dollars in thousands). Fair values are estimated under the exit price notion in accordance with the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

The following tables summarize assets that were measured at fair value on a nonrecurring basis as of the dates stated (dollars in thousands).

	June 30, 2025
	Balance		Level 1		Level 2		Level 3
Collateral-dependent loans	$	5,362	$	-	$	-	$	5,362

	December 31, 2024
	Balance		Level 1		Level 2		Level 3
Collateral-dependent loans	$	4,806	$	-	$	-	$	4,806
OREO		77		-		-		77

The following tables present quantitative information about Level 3 fair value measurements as of the dates stated (dollars in thousands).

	Balance at June 30, 2025		Unobservable Input	Discount
Collateral-dependent loans
Discounted appraised value technique	$	5,362	Discount rate		25	%
			Selling costs	9% - 80		%

	Balance at December 31, 2024		Unobservable Inputs	Discount
Collateral-dependent loans
Discounted appraised value technique	$	4,806	Discount rate		25	%
			Selling costs	9% - 10		%
OREO
Discounted sales price technique		77	Discount rate		25	%
			Selling costs		8	%

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The carrying values of cash and due from banks, federal funds sold, and restricted cash are of such short duration that carrying value reasonably approximates fair value (Level 1).

The carrying values of accrued interest receivable and accrued interest payable are of such short duration that carrying value reasonably approximates fair value (Level 2).

The carrying value of restricted equity investments approximates fair value based on the redemption provisions of the issuer (Level 2). The fair value of other investments is approximated by its carrying value (Level 3).

The fair value of the Company’s loan portfolio includes a credit risk assumption in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans, and all other loans. The results are then adjusted to account for credit risk as described above. The fair value of the Company’s loan portfolio also considers illiquidity risk through the use of a discounted cash flow model to compensate for, based on certain assumptions included within the discounted cash flow model, primarily the use of discount rates that better capture inherent credit risk over the lifetime of a loan. This consideration of both credit risk and illiquidity risk provides an estimated exit price for the Company’s loan portfolio. Loans held for investment are reported as Level 3.

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The carrying value of BOLI reasonably approximates fair value, as these policies are reported at their cash surrender value, which is estimated based on information provided by insurance carriers (Level 3).

The carrying value of noninterest-bearing deposits approximates fair value (Level 1). The carrying values of interest-bearing demand, money market, and savings deposits approximates fair value based on their current pricing and are reported as Level 2. The fair values of time deposits were obtained using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for time deposits that mature in the same period. Time deposits are reported as Level 3.

The fair value of the FHLB borrowings is estimated by discounting the future cash flows using current interest rates offered for similar advances (Level 2).

The fair value of the Company’s subordinated notes is estimated by utilizing recent issuance interest rates for subordinated debt offerings of similar issuer size (Level 3).

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Borrowers with fixed rate obligations may be less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates may be more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

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The following tables (dollars in thousands) present estimated fair values and related carrying amounts of the Company’s financial instruments as of the dates indicated presented in accordance with the applicable accounting guidance.

	June 30, 2025
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets
Cash and cash equivalents	$	47,273	$	47,273	$	-	$	-	$	47,273
Securities available for sale		340,021		-		340,021		-		340,021
Other investments		2,254		-		-		2,254		2,254
Loans held for sale		2,280		-		2,280		-		2,280
Loans held for investment, net		840,461		-		-		831,196		831,196
Interest receivable		5,163		-		5,163		-		5,163
Bank owned life insurance		23,989		-		23,989		-		23,989
Forward sales commitments		11		-		11		-		11
IRLC		39		-		39		-		39
Financial Liabilities
Noninterest-bearing demand  deposits	$	278,322	$	278,322	$	-	$	-	$	278,322
Interest checking deposits		134,094		-		134,094		-		134,094
Savings deposits		549,836		-		549,836		-		549,836
Time deposits		234,199		-		-		233,284		233,284
Long-term debt		6,996		-		-		6,989		6,989
Interest payable		1,464		-		1,464		-		1,464

	December 31, 2024
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets
Cash and cash equivalents	$	56,507	$	56,507	$	-	$	-	$	56,507
Securities available for sale		327,670		-		327,670		-		327,670
Loans held for sale		2,283		-		2,283		-		2,283
Loans held for investment, net		831,820		-		-		808,812		808,812
Interest receivable		4,939		-		4,939		-		4,939
Bank owned life insurance		23,607		-		23,607		-		23,607
IRLC		18		-		18		-		18
Forward sales commitments		41		-		41		-		41
Financial Liabilities
Noninterest-bearing demand deposits	$	260,301	$	260,301	$	-	$	-	$	260,301
Interest checking deposits		138,919		-		138,919		-		138,919
Savings deposits		497,577		-		497,577		-		497,577
Time deposits		298,308		-		-		297,920		297,920
Long-term debt		6,975		-		-		6,917		6,917
Interest payable		1,900		-		1,900		-		1,900

NOTE 8 – SUBSEQUENT EVENTS

On July 24, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share of common stock. The dividend is payable on August 29, 2025 to common shareholders of record as of August 14, 2025.

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

F & M Bank Corp. (the “Company”), incorporated in Virginia in 1983, is a one-bank holding company registered under the Bank Holding Company Act of 1956 that has elected to become a financial holding company. The Company owns 100% of the outstanding stock of its banking subsidiary and VST. During the second quarter of 2025, the operations, assets, and liabilities of F&M Mortgage were transferred to the Bank.

The Company, through its subsidiary Bank, operates under a charter issued by the Commonwealth of Virginia and provides financial products and services to consumers and businesses. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the FRB. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and at mortgage and dealer finance loan production offices. The Company offers title insurance through its subsidiary VST. 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 Item 1, Part 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, 2024 (the “2024 Form 10-K”).

Forward-Looking Statements

Certain statements in this report may contain “forward-looking statements” as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “will,” “estimate,” “project,” “plan” or similar expressions or other statements concerning opinions or judgments of the Company and its management about future events. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements.

Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in local and national economies or market conditions; changes in interest rates; regulations and accounting principles; changes in policies or guidelines; loan demand and asset quality, including values of real estate and other collateral; deposit flow; the impact of competition from traditional or new sources; and other factors. Readers should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements.

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 June 30, 2025 were unchanged from the policies disclosed in the 2024 Form 10-K within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.

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Results of Operations

Overview

Comparing the Three-Month Periods Ending June 30, 2025 and June 30, 2024

Net income decreased $50,000 to $2.97 million, or $0.84 per share, for the three months ended June 30, 2025, compared to $3.01 million, or $0.86 per share, for the same period in 2024. Return on average assets was 0.91% and return on average equity was 12.81% for the second quarter of 2025, compared to 0.93% and 15.58%, respectively, for the same period in 2024.

The $50,000 decrease in net income resulted from a $2.3 million increase in net interest income offset by a $1.6 million increase in provision for credit losses, a $206,000 decrease in noninterest income, and a $542,000 increase in noninterest expenses.

Net interest income increased by $2.3 million as total interest income increased by $1.1 million and interest expense decreased by $1.2 million. Net interest income was positively impacted by a $33.1 million decrease in short-term debt, which was partially offset by a $13.9 million increase in deposits. The net interest margin increased 74-basis points to 3.48%.

Provision for credit losses increased by $1.6 million. For the second quarter of 2025, provision for credit losses totaled $1.2 million and was comprised of a $1.1 million provision for credit losses on loans and a $105,000 provision for credit losses on unfunded commitments. For the same period of 2024, the recovery of provision for credit losses totaled $457,000.

Noninterest income decreased by $206,000 in the second quarter of 2025 from decreases in wealth management income and mortgage banking income. The decreases were partially offset by increases in title insurance income, card services and interchange income, and income on bank owned life insurance.

Noninterest expenses increased by $542,000 and were primarily attributable to an increase in employee benefits and data processing fees. Employee benefits in 2024 included a gain as a result of pension settlement accounting. The increases were partially offset by a decrease in salary expense and occupancy and equipment expense.

Comparing the Six-Month Periods Ending June 30, 2025 and June 30, 2024

Net income increased $1.2 million to $5.4 million, or $1.53 per share, for the six months ended June 30, 2025, compared to $4.2 million, or $1.21 per share, for the same period in 2024. Return on average assets was 0.84% and return on average equity was 12.08% for the six months ended June 30, 2025, compared to 0.65% and 10.96%, respectively, for the same period in 2024.

The $1.2 million increase in net income resulted from $3.6 million increase in net interest income and a $305,000 increase in noninterest income, which was partially offset by a $717,000 increase in provision for credit losses, a $1.6 million increase in noninterest expenses, and a $399,000 increase in income tax expense.

Net interest income increased $3.6 million from a $1.8 million increase in total interest income and a $1.9 million decrease in interest expense. Net interest income was positively impacted by a $53.2 million decrease in average borrowings coupled with a $5.3 million increase in average earning assets. Net interest margin increased 60-basis points to 3.32% at June 30, 2025, from 2.72% for the same period ended 2024.

Provision for credit losses increased by $717,000. For the six months ended June 30, 2025, provision for credit losses totaled $1.1 million and was comprised of a $902,000 provision for credit losses on loans and a $181,000 provision for credit losses on unfunded commitments. For the same period in 2024, the provision for credit losses totaled $366,000.

Noninterest income increased by $305,000 primarily from an increase in title insurance income, card services and interchange income, income on bank owned life insurance, and service charges. The increases were partially offset by a decrease in mortgage banking income.

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Noninterest expenses increased by $1.6 million and were primarily attributable to an increase in salaries and employee benefits, data processing expense, and other operating expenses. Expenses related to the Company’s pension plan increased due to an increase in net periodic pension cost and pension settlement gains received in 2024.

Net Interest Income

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, and subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing net interest income by average earning assets. The provision for credit losses, noninterest income, and noninterest expense are the other components that determine net income. Noninterest income and expense primarily consist of income from service charges on deposit accounts, revenue from wealth management services, mortgage banking, title insurance income, ATM and check card income, income from bank owned life insurance, and general and administrative expenses.

Three Month Period Ended June 30, 2025

Net interest income increased by $2.3 million, or 28%, to $10.5 million for the three months ended June 30, 2025 as compared to the same period in the prior year. Total interest income increased by $1.1 million and interest expense decreased by $1.2 million.

The increase in total interest income was attributed to a $543,000 increase in interest from securities available for sale, a $477,000 increase in interest and fees on loans held for investment, and a $169,000 increase in interest on federal funds sold. The increase in interest income  from securities available for sale was attributable to a 77-basis point increase in yield compared to the same period in the prior year. The increase in interest income on loans held for investment was attributable to an 11-basis point increase in yield and 2% increase in average balance compared to the same period in the prior year. The increase in income on federal funds sold was attributable to a 120% increase in average balance.

The decrease in total interest expense was attributable to a $782,000 decrease in interest expense on deposits and a $452,000 decrease in interest expense on short-term debt. The lower interest expense on deposits resulted from a 40-basis point decrease in the cost of interest-bearing deposits and a 2% increase in average interest-bearing deposit balances. The decrease in cost of deposits was impacted by a decrease in rates paid on deposits and a change in the composition of the deposit portfolio as lower cost demand and savings deposit balances increased, while higher cost time deposit balances decreased. The lower interest expense on borrowings resulted from a $33.1 million decrease in the average balance of short-term borrowings.

The net interest margin was 3.48% for the second quarter of 2025 compared to 2.74% for the same period in the prior year as the yield on earning assets increased 31-basis points and the cost of funds decreased 40-basis points.

Six Month Period Ended June 30, 2025

Net interest income increased $3.6 million, or 22%, to $20.0 million for the first six months of 2025 compared to the same period in the prior year. Total interest income increased by $1.8 million and total interest expense decreased by $1.9 million.

The increase in total interest income was attributable to a $758,000 increase in interest income from securities available for sale, a $664,000 increase in interest income on federal funds sold, and a $590,000 increase in interest income and fees on loans held for investment. The increase in interest income from securities available for sale was attributable to a 69-basis point increase in yield. The increase in interest income on federal funds sold is attributable to a 256% increase in average balance. The increase in interest income on loans held for investment was attributable to an 8-basis point increase in yield and a 1% increase in average balance.

The decrease in total interest expense was attributable to a $420,000 decrease in interest expense on deposits and a $1.4 million decrease in interest expense on short-term debt. The lower interest expense on deposits resulted from a 21-basis point decrease in the cost of interest-bearing deposits. The decrease in the cost of interest-bearing deposits was impacted by a decrease in rates paid on deposits and a change in composition of the deposit portfolio as higher cost time deposit balances decreased, while lower cost demand and savings deposit balances increased. The lower interest expense on borrowings resulted from a $53.2 million decrease in average balances of borrowings.

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The following tables show 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 periods indicated (dollars in thousands):

	Three Months ended
	June 30, 2025								June 30, 2024
	Average Balance4			Interest Income /Expense		Yield /Rate1			Average Balance4			Interest Income /Expense		Yield /Rate1
ASSETS
Loans held for investment2,3	$	838,332		$	13,971		6.68	%	$	825,838		$	13,494		6.57	%
Loans held for sale		2,815			20		2.85	%		2,688			46		6.88	%
Federal funds sold		34,694			385		4.45	%		15,795			216		5.50	%
Interest-bearing deposits in banks and other investments		2,660			58		8.75	%		5,140			129		10.09	%
Investment securities4
Taxable		318,400			2,194		2.76	%		339,155			1,657		1.97	%
Tax exempt		16,538			184		4.46	%		16,226			178		4.41	%
Total investment securities		334,938			2,378		2.85	%		355,381			1,835		2.08	%
Total earning assets		1,213,439			16,812		5.56	%		1,204,842			15,720		5.25	%
Allowance for credit losses		(7,739	)							(8,515	)
Nonearning assets		96,681								102,810
Total assets	$	1,302,381							$	1,299,137
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand-interest bearing	$	131,489		$	526		1.60	%	$	129,653		$	556		1.72	%
Savings		545,713			3,636		2.67	%		483,812			3,179		2.64	%
Time deposits		239,162			2,006		3.36	%		289,014			3,215		4.47	%
Total interest-bearing deposits		916,364			6,168		2.70	%		902,479			6,950		3.10	%
Short‑term debt		-			1		-			33,077			453		5.51	%
Long-term debt		6,990			116		6.66	%		6,948			116		6.71	%
Total interest-bearing liabilities		923,354			6,285		2.73	%		942,504			7,519		3.21	%
Noninterest bearing deposits		272,208								264,265
Other liabilities		13,952								14,557
Total liabilities		1,209,514								1,221,326
Shareholders’ equity		92,867								77,811
Total liabilities and shareholders’ equity	$	1,302,381							$	1,299,137
Net interest income				$	10,527							$	8,201
Interest rate spread							3.45	%							2.74	%
Cost of funds							2.11	%							2.51	%
Net interest margin							3.48	%							2.74	%

____________________ 

1	Annualized.
2	Interest income on loans includes loan fees.
3	Loans held for investment include nonaccrual loans.
4	Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

36

	Six Months ended
	June 30, 2025								June 30, 2024
	Average Balance4			Interest Income /Expense		Yield /Rate1			Average Balance4			Interest Income /Expense		Yield /Rate1
ASSETS
Loans held for investment2,3	$	834,770		$	27,436		6.63	%	$	824,692		$	26,846		6.55	%
Loans held for sale		2,124			45		4.27	%		2,736			64		4.70	%
Federal funds sold		47,356			1,037		4.42	%		13,317			373		5.63	%
Interest-bearing deposits in banks and other investments		2,608			88		6.80	%		7,435			301		8.14	%
Investment securities4
Taxable		310,701			4,258		2.76	%		344,192			3,503		2.05	%
Tax exempt		16,343			213		2.63	%		16,245			210		2.60	%
Total investment securities		327,044			4,471		2.76	%		360,437			3,713		2.07	%
Total earning assets		1,213,902			33,077		5.49	%		1,208,617			31,297		5.21	%
Allowance for credit losses		(7,870	)							(8,471	)
Nonearning assets		98,278								101,759
Total assets	$	1,304,310							$	1,301,905
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand-interest bearing	$	134,536		$	1,106		1.66	%	$	134,455		$	1,162		1.74	%
Savings		531,748			7,015		2.66	%		490,728			6,470		2.65	%
Time deposits		259,262			4,747		3.69	%		263,146			5,656		4.32	%
Total interest-bearing deposits		925,546			12,868		2.80	%		888,329			13,288		3.01	%
Federal funds purchased		-			-		-			417			8		3.86	%
Short‑term debt		-			4		-			52,380			1,441		5.49	%
Long-term debt		6,985			231		6.67	%		6,942			231		6.69	%
Total interest-bearing liabilities		932,531			13,103		2.83	%		948,518			14,968		3.17	%
Noninterest bearing deposits		267,486								260,829
Other liabilities		13,804								14,869
Total liabilities		1,213,821								1,224,216
Shareholders’ equity		90,489								77,689
Total liabilities and shareholders’ equity	$	1,304,310							$	1,301,905
Net interest income				$	19,974							$	16,329
Interest rate spread							3.29	%							2.72	%
Cost of funds							2.20	%							2.49	%
Net interest margin							3.32	%							2.72	%

________________________ 

1	Annualized.
2	Interest income on loans includes loan fees.
3	Loans held for investment include nonaccrual loans.
4	Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

37

Provision for (Recovery of) Credit Losses

Three-Month Period Ended June 30, 2025

The provision for credit losses totaled $1.2 million for the three-month period ended June 30, 2025, compared to a recovery of provision of $457,000 for the same period of the prior year. The provision was comprised of $1.1 million provision for credit losses on loans and $105,000 provision for credit losses on unfunded commitments. The increase in provision for credit losses on loans resulted primarily from net charge-offs totaling $531,000, an increase in the specific reserve component of the allowance for credit losses on loans, and an increase in the general reserve component of the allowance during the period resulting from a change in a qualitative factor related to loan volume.

Six-Month Period Ended June 30, 2025

The provision for credit losses totaled $1.1 million for the six-month period ended June 30, 2025, compared to $366,000 for the same period in the prior year. The provision was comprised of $902,000 provision for credit losses on loans and $181,000 provision for credit losses on unfunded commitments. The increase in provision for credit losses on loans resulted primarily from net charge-offs totaling $719,000, an increase in the specific reserve component of the allowance for credit losses, an increase in the general reserve component of the allowance during the period resulting from a change in a qualitative factors related to classified loans, loan review, and loan volume, which were partially offset by decreases in the qualitative factor related to economic conditions.

Noninterest Income

Three-Month Period Ended June 30, 2025

Noninterest income decreased $206,000, or 7%, to $2.8 million for the second quarter of 2025, compared to the same period of 2024. The decrease resulted from a $404,000 decrease in mortgage banking income due to a decrease in originations held for sale. The decrease in mortgage banking income was offset by a $157,000 increase in title insurance income due to increased title premium and loan closing volume.

Six-Month Period Ended June 30, 2025

Total noninterest income increased $305,000, or 6%, to $5.6 million for the six months ended June 30, 2025, compared to the same period in 2024. The increase resulted from a $209,000 increase in title insurance income due to increased title premiums and loan closing volume and a $112,000 increase in card services and interchange income due to renegotiated interchange contracts. These increases were offset by a $209,000 decrease in mortgage banking income due to a decrease in originations of loans held for sale.

Noninterest Expense

Three-Month Period Ended June 30, 2025

Noninterest expenses increased $542,000, or 7%, to $8.7 million for the three-month period ended June 30, 2025, compared to the same period one year ago. The increase was primarily attributable to a combined $430,000 increase in salaries and employee benefits and a $118,000 increase in data processing expense. Salaries and benefits were lower in 2024 due to pension settlement gains of $547,000 and lower periodic pension costs. Data processing expense increased due to development and implementation of advanced technology for process improvements.

Six-Month Period Ended June 30, 2025

Noninterest expenses increased $1.6 million, or 10%, to $18.2 million for the six-month period ended June 30, 2025, compared to the same period one year ago. The increase was primarily attributable to a $1.0 million increase in combined salaries and employee benefits, a $312,000 increase in data processing expense, and a $262,000 increase in other operating expenses. Salaries and employee benefits increased due to increased net periodic pension costs, no pension settlement gains in 2025, and a lower refund (rebate) of health insurance expenses. Data processing expenses increased due to new products provided by our core provider and additional software contracts process improvements. The increase in other operating expenses is attributable to an increase in fraud losses and collection expenses.

Income Taxes

Three-Month Period Ended June 30, 2025

Income tax expense decreased $16,000 for the second quarter of 2025, compared to the same period one year ago. The effective tax rate, before tax credits, for the second quarter of 2025 was 18.98% compared to 19.17% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended June 30, 2025, and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and low-income housing credits. A more detailed discussion of the Company’s tax calculation is contained in Note 18 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

38

Six-Month Period Ended June 30, 2025

Income tax expense, before tax credits, increased $399,000, or 85%, for the first six months of 2025 compared with the same period in 2024. The effective tax rate for the first six months of 2025 was 19.77% compared with 18.37% for the same period in 2024. The decreased effective tax rate for 2025 was the result of increased permanent tax differences in 2025 compared to 2024.

Balance Sheet Review

General

Assets totaled $1.3 billion at June 30, 2025, which was an increase of $9.9 million or 1% from December 31, 2024. The asset composition changed during the first six months of the year as loans held for investment, net of the allowance for loan losses, increased by $8.6 million, securities available for sale increased by $12.4 million and federal funds sold decreased by $11.2 million.

Total liabilities increased $1.3 million during the six-month period ended June 30, 2025 from December 31, 2024, primarily due to an increase in deposits during the first six months of 2025. Composition of deposits as of June 30, 2025 changed as non-interest bearing deposits increased $18.0 million and interest bearing deposits decreased $16.7 million.

Total shareholders’ equity increased $8.6 million during the first six months of 2025, primarily from a $3.6 million increase in retained earnings and a $4.7 million decrease in accumulated other comprehensive loss. Retained earnings increased as $5.4 million of net income was partially offset by $1.8 million of cash dividends on common stock. The decrease in accumulated other comprehensive loss was attributable to lower unrealized losses in the available-for-sale securities portfolio. The Bank’s capital ratios continued to exceed the minimum capital requirements for regulatory purposes.

Loans

Loans held for investment totaled $848.8 million at June 30, 2025, which was an $8.8 million, or 1% increase from December 31, 2024. The loan portfolio is primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, loans secured by farmland, and indirect automobile loans. The growth of loans since December 31, 2024 has shifted the composition of the loan portfolio by decreasing indirect automobile loans and increasing loans secured by farmland.

Following is a breakdown of the loan portfolio composition as of the periods indicated (dollars in thousands):

	June 30, 2025						December 31, 2024
Loan Segment	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
1-4 Family residential construction	$	26,173			3.08	%	$	25,102			2.99	%
Other construction, land development and land		38,807			4.57	%		58,208			6.92	%
Secured by farmland		105,235			12.39	%		86,016			10.23	%
Home equity – open end		51,364			6.05	%		49,542			5.89	%
Real estate		228,374			26.89	%		213,081			25.35	%
Home Equity – closed end		6,496			0.76	%		6,137			0.73	%
Multifamily		11,185			1.32	%		10,804			1.29	%
Owner-occupied commercial real estate		94,021			11.07	%		86,169			10.25	%
Other commercial real estate		104,415			12.29	%		98,189			11.68	%
Agricultural loans		16,844			1.98	%		17,928			2.13	%
Commercial and industrial		58,703			6.91	%		64,901			7.72	%
Credit Cards		3,295			0.39	%		3,524			0.42	%
Automobile loans		90,016			10.60	%		104,271			12.40	%
Other consumer loans		9,839			1.16	%		11,915			1.42	%
Municipal loans		4,548			0.54	%		4,901			0.58	%
Gross loans	$	849,315			100.00	%	$	840,658			100.00	%
Unamortized deferred net loan fees		(542	)					(739	)
Loans held for investment, net of deferred loan fees	$	848,773					$	839,949

39

Loans held for sale totaled $2.3 million at June 30, 2025 and at December 31, 2024. Loans held for sale consists of one-to-four family residential real estate loans investors at pre-committed rates. The volume of loans held for sale originated are affected by interest rate changes, seasonal trends, and refinancing activity.

Asset Quality

Management classifies nonperforming loans as nonaccrual loans and loans that are 90 days or more past due. Nonaccrual loans are those on which interest accruals have been suspended or permanently discontinued. Nonperforming loans totaled $7.7 million and $7.1 million at June 30, 2025 and December 31, 2024, representing 0.90% and 0.84% of total loans, respectively. Nonaccrual loans totaled $7.6 million and $7.0 million at June 30, 2025 and December 31, 2024, respectively. There was no OREO at June 30, 2025 and $77,000 in OREO at December 31, 2024. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through local realtors.  The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of June 30, 2025.

The following table summarizes the Company’s non-performing loans and assets as of the periods indicated (in thousands):

	June 30, 2025			December 31, 2024
Nonaccrual loans	$	7,640		$	7,045
Loans past due 90 days and accruing interest		16			32
Total nonperforming loans		7,656			7,077
Other real estate owned		-			77
Total nonperforming assets	$	7,656		$	7,154
Allowance for credit losses	$	8,312		$	8,129
Total Loans	$	848,773		$	839,949
Ratios:
Allowance for credit losses to Total Loans		0.98	%		0.97	%
Allowance for credit losses to Total nonperforming assets		108.57	%		113.63	%
Allowance for credit losses to Nonaccrual loans		108.80	%		115.39	%
Nonaccrual Loans to Total Loans		0.90	%		0.84	%

Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, externally generated loan quality reports, and other relevant factors when evaluating the loan portfolio. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the allowance for credit losses, see “Critical Accounting Policies” above.

Securities Available for Sale (“AFS”)

The securities portfolio plays a primary role in the management of the Company’s interest rate sensitivity and serves as a source of liquidity. The portfolio is used as needed to meet collateral requirements, such as those related to secure balances with the FRB. The Company’s AFS portfolio is reported at fair value, based on market prices of comparable instruments. The portfolio consists primarily of U.S. Treasury securities, U.S. agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities.

40

On June 30, 2025, the AFS portfolio totaled $340.0 million, an increase of $12.4 million, or 4%, from $327.7 at December 31, 2024. The increase is attributable to purchases of $40.9 million in AFS securities during the first six months of 2025 and a $4.7 million decrease in unrealized losses of the investment securities. The change in the unrealized losses of investment securities from December 31, 2024 to June 30, 2025 was related to changes in market interest rates and maturities of lower yielding bonds. These increases were partially offset by maturities of $21.4 million and paydowns on mortgage-backed securities of $12.8 million. Scheduled maturities and paydowns are expected to total $26.4 million in the remaining six months of 2025.

Other Investments

Restricted securities, including Federal Home Loan Bank, FRB, and Community Bankers' Bank stock, are generally viewed as long-term investments because there is a minimal market for the stock and they are carried at cost.

Deposits

Deposits totaled $1.2 billion on June 30, 2025, which was a $1.3 million increase from December 31, 2024. The composition of the deposit portfolio has shifted from time deposits to savings accounts. The following table shows the balance of each category of deposits as of the dates indicated (dollars in thousands):

	June 30, 2025					December 31, 2024
	Balance		% of total deposits			Balance		% of total deposits
Noninterest-bearing demand	$	278,322		23.3	%	$	260,301		21.8	%
Interest Checking		134,094		11.2	%		138,919		11.6	%
Savings Accounts		549,836		46.0	%		497,577		41.6	%
Time Deposits		234,199		19.6	%		298,308		25.0	%
Total deposits	$	1,196,451				$	1,195,105

Estimated uninsured deposits totaled approximately $148.4 million and $131.9 million at June 30, 2025, and December 31, 2024, respectively.

The following table shows the average balances of deposits and average interest rates paid as of the periods indicated (dollars in thousands):

	Three months ended June 30, 2025					Six months ended June 30, 2025
	Average Balance		Rate			Average Balance		Rate
Noninterest-bearing	$	272,208		-		$	267,489		-
Interest-bearing:
Interest Checking	$	131,489		1.60	%	$	134,536		1.66	%
Savings Accounts		545,713		2.67	%		531,748		2.66	%
Time Deposits		239,162		3.36	%		259,262		3.69	%
Total interest-bearing deposits		916,364		2.70	%		925,546		2.80	%
Total average deposits	$	1,188,572		2.08	%	$	1,193,032		2.18	%

The following table sets forth maturity ranges of time deposits, as of June 30, 2025, that meet or exceed the FDIC insurance limit (in thousands):

Maturity period:	June 30, 2025
3 months or less	$	12,093
Over 3 months through 6 months		8,435
Over 6 months through 12 months		24,092
Over 12 months		886
Total	$	45,506

Long-term borrowings

Long-term debt totaled $7.0 million on June 30, 2025 and December 31, 2024, and consisted of one subordinated debt note. The note bore interest at 6.00% per annum through July 30, 2025, payable semi-annually in arrears. From July 31, 2025 through July 30, 2030, 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.

41

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, credit availability at the Federal Reserve Bank, the purchase of brokered certificates of deposit, a corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Deposits have remained a steady source of liquidity. The Company may use other means of borrowings or other liquidity sources to fund any liquidity needs based on declines in deposit balances. The Company is also closely tracking the potential impacts on the Company’s liquidity due to declines in fair value of the Company’s securities portfolio due to rising market interest rates.

As of June 30, 2025, liquid assets totaled $65.9 million, or 5.0% of total assets, and liquid earning assets totaled $45.5 million, or 3.5% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $26.4 million from bond paydowns and maturities by the end of 2025, which can be used to fund future loan growth and for other purposes.

At June 30, 2025, the Bank pledged investment securities with a par value totaling $137.6 million to the Federal Reserve System’s Discount Window. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during the first six months of 2025. In addition to the Discount Window, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million, and a secured line of credit with the FHLB with $179.8 million in available credit at June 30, 2025. The FHLB line of credit is secured by a blanket lien on qualifying loans in the residential, commercial, agricultural real estate, and home equity portfolios.

Market Risk Management

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

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.

42

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

			As of June 30, 2025			As of December 31, 2024
Change in Interest Rates (in Basis Points)			Percent Change in Earnings			Percent Change in Earnings
	400			-6.71	%		-9.93	%
	300			-4.91	%		-7.38	%
	200			-3.25	%		-4.76	%
	100			-1.51	%		-2.28	%
	(100	)		1.14	%		1.89	%
	(200	)		1.66	%		3.14	%
	(300	)		1.28	%		3.79	%
	(400	)		-0.08	%		1.80	%

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value of equity (“EVE”) 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:

			As of June 30, 2025			As of December 31, 2024
Change in Interest Rates (in Basis Points)			Percentage Change in EVE			Percentage Change in EVE
	400			-21.10	%		-20.65	%
	300			-16.19	%		-15.73	%
	200			-11.03	%		-10.40	%
	100			-5.92	%		-5.04	%
	(100	)		2.56	%		3.63	%
	(200	)		1.68	%		4.51	%
	(300	)		-1.80	%		2.87	%
	(400	)		-4.36	%		-2.32	%

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

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

An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At June 30, 2025, the Company had $117.7 million more in liabilities repricing than assets subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Disclosure under this item is 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 June 30, 2025. 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 June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

43

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.
	Disclosure under this item is not required for smaller reporting companies.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	None
Item 3.	Defaults Upon Senior Securities.	None
Item 4.	Mine Safety Disclosures.	None
Item 5.	Other Information.

Insider Trading Arrangements

During the quarterly period ended June 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (as such terms are defined in Item 408 of Regulation S-K).

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 June 30, 2025, formatted in Inline Extensible Business Reporting Language (iXBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).
		104	The cover page from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended June 30, 2025, formatted in Inline XBRL (included with Exhibit 101).

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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.
	(Registrant)
By:	/s/ Aubrey M. Wilkerson
	Aubrey M. Wilkerson
	Director and Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Lisa F. Campbell
	Lisa F. Campbell
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

August 14, 2025

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