# EDGAR Filing Document

**Accession Number:** 0000740806
**File Stem:** 0001654954-25-009632
**Filing Date:** 2025-8
**Character Count:** 175290
**Document Hash:** 2e6e76767c345fb890a0c85c7f73aa21
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001654954-25-009632.hdr.sgml**: 20250814

**ACCESSION NUMBER**: 0001654954-25-009632

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 61

**CONFORMED PERIOD OF REPORT**: 20250630

**FILED AS OF DATE**: 20250814

**DATE AS OF CHANGE**: 20250814

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** F&M BANK CORP
- **CENTRAL INDEX KEY:** 0000740806
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **ORGANIZATION NAME:** 02 Finance
- **EIN:** 541280811
- **STATE OF INCORPORATION:** VA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-13273
- **FILM NUMBER:** 251217932

**BUSINESS ADDRESS:**
- **STREET 1:** P.O. BOX 1111
- **CITY:** TIMBERVILLE
- **STATE:** VA
- **ZIP:** 22853
- **BUSINESS PHONE:** 540-896-8941

**MAIL ADDRESS:**
- **STREET 1:** P. O. BOX 1111
- **CITY:** TIMBERVILLE
- **STATE:** VA
- **ZIP:** 22853

?xml version='1.0' encoding='ASCII'? fmbm.htm

**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: <u>**000-13273**</u>

**F&M BANK CORP.**<br>

---

| | |
|:---|:---|
| **Virginia** | **54-1280811** |
| (State or Other Jurisdiction of<br>Incorporation or Organization) | (I.R.S. Employer<br>Identification No.) |

---

**P. O. Box 1111**

**<u>Timberville, Virginia 22853</u>**

(Address of Principal Executive Offices) (Zip Code)

<u>**(540) 896-8941**</u>

(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 |

---

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**

**<u>**Table of Contents**</u>**

---

| | | |
|:---|:---|:---|
|  |  | **Page** |
| **[Part I](#p1)** | **[Financial Information](#p1)** |  |
| [Item 1.](#p1i1) | [Financial Statements](#p1i1) | 3 |
|  | [Consolidated Balance Sheets – June 30, 2025 and December 31, 2024](#bs) | 3 |
|  | [Consolidated Statements of Income – Three Months Ended June 30, 2025 and 2024](#soi1) | 4 |
|  | [Consolidated Statements of Income – Six Months Ended June 30, 2025 and 2024](#soi2) | 5 |
|  | [Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2025 and 2024](#ci) | 6 |
|  | [Consolidated Statements of Changes in Shareholders' Equity - Three Months Ended June 30, 2025 and 2024](#eqt) | 7 |
|  | [Consolidated Statements of Changes in Shareholders' Equity - Six Months Ended June 30, 2025 and 2024](#eqt) | 7 |
|  | [Consolidated Statements of Cash Flows – Six Months Ended June 30, 2025 and 2024](#cf) | 8 |
|  | [Notes to Consolidated Financial Statements](#notes) | 9 |
| [Item 2.](#p1i2) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#p1i2) | 33 |
| [Item 3.](#p1i3) | [Quantitative and Qualitative Disclosures about Market Risk](#p1i3) | 43 |
| [Item 4.](#p1i4) | [Controls and Procedures](#p1i4) | 43 |
| **[Part II](#p2)** | **[Other Information](#p2)** |  |
| [Item 1.](#p2i1) | [Legal Proceedings](#p2i1) | 44 |
| [Item 1A.](#p2i1a) | [Risk Factors](#p2i1a) | 44 |
| [Item 2.](#p2i2) | [Unregistered Sales of Equity Securities and Use of Proceeds](#p2i2) | 44 |
| [Item 3.](#p2i3) | [Defaults Upon Senior Securities](#p2i3) | 44 |
| [Item 4.](#p2i4) | [Mine Safety Disclosures](#p2i4) | 44 |
| [Item 5.](#p2i5) | [Other Information](#p2i5) | 44 |
| [Item 6.](#p2i6) | [Exhibits](#p2i6) | 44 |
| **[Signatures](#sig)** | **[Signatures](#sig)** | 45 |
| **Certifications** | **Certifications** |  |

---

---

| |
|:---|
| 2 |
| *[**Table of Contents**](#toc)* |

---

Part I Financial Information

Item 1 Financial Statements

**F & M BANK CORP.**

**Consolidated Balance Sheets**

**(Dollars in thousands, except share data)**

---

| | | |
|:---|:---|:---|
|  | **June 30,**<br>**2025** | **December 31,**<br>**2024\*** |
|  | ***(Unaudited)*** |  |
| **Assets** |  |  |
| Cash and due from banks | $20457 | $18685 |
| Money market funds and interest-bearing deposits in other banks | 518 | 298 |
| Federal funds sold | 26298 | 37524 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | 47273 | 56507 |
| Securities available for sale, at fair value | 340021 | 327670 |
| Other investments | 2254 | 2249 |
| Loans held for sale, at fair value | 2280 | 2283 |
| Loans held for investment, net of deferred fees and costs | 848773 | 839949 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: allowance for credit losses | (8312) | (8129) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loans held for investment | 840461 | 831820 |
| Bank premises and equipment, net | 21776 | 22192 |
| Other real estate owned |  | 77 |
| Interest receivable | 5163 | 4939 |
| Goodwill | 3082 | 3082 |
| Bank owned life insurance | 23989 | 23607 |
| Deferred tax asset, net | 8136 | 9465 |
| Other assets | 17489 | 18120 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total Assets | $1311924 | $1302011 |
| **Liabilities** |  |  |
| Deposits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Noninterest bearing | $278322 | $260301 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest bearing | 918129 | 934804 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total deposits | 1196451 | 1195105 |
| Long-term debt | 6996 | 6975 |
| Other liabilities | 13736 | 13793 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities | 1217183 | 1215873 |
| **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 | 17491 | 17383 |
| Additional paid in capital | 11674 | 11463 |
| Retained earnings | 88247 | 84669 |
| Accumulated other comprehensive loss | (22671) | (27377) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total Shareholders' Equity | 94741 | 86138 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities and Shareholders' Equity | $1311924 | $1302011 |

---

**\*2024 derived from audited consolidated financial statements.**

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 3 |
| *[**Table of Contents**](#toc)* |

---

**F & M BANK CORP.**

**Consolidated Statements of Income**

**(Dollars in thousands, except per share data)**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Three Months Ended June 30,** | **Three Months Ended June 30,** |
| ***Interest and Dividend income*** | **2025** | **2024** |
| Interest and fees on loans held for investment | $13971 | $13494 |
| 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 | 2378 | 1835 |
| Total interest and dividend income | 16812 | 15720 |
| ***Interest expense*** |  |  |
| Total interest on deposits | 6168 | 6950 |
| Interest on short-term debt | 1 | 453 |
| Interest on long-term debt | 116 | 116 |
| Total interest expense | 6285 | 7519 |
| ***Net interest income*** | 10527 | 8201 |
| Provision for (recovery of) credit losses - loans | 1082 | (413) |
| Provision for (recovery of) credit losses – unfunded commitments | 105 | (44) |
| &nbsp;&nbsp;&nbsp;&nbsp;***Total Provision for (Recovery of) Credit Losses*** | 1187 | (457) |
| ***Net Interest Income After Provision for (Recovery of) Credit Losses*** | 9340 | 8658 |
| ***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 | 2792 | 2998 |
| ***Noninterest expense*** |  |  |
| Salaries | 3704 | 3845 |
| 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 | 1543 | 1519 |
| Total noninterest expense | 8712 | 8170 |
| ***Income before income taxes*** | 3420 | 3486 |
| Income tax expense | 455 | 471 |
| ***Net Income*** | $2965 | $3015 |
| ***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) | 3564133 | 3517122 |

---

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 4 |
| *[**Table of Contents**](#toc)* |

---

**F & M BANK CORP.**

**Consolidated Statements of Income**

**(Dollars in thousands, except per share data)**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Six Months Ended June 30,** | **Six Months Ended June 30,** |
| ***Interest and Dividend income*** | **2025** | **2024** |
| Interest and fees on loans held for investment | $27436 | $26846 |
| Interest and fees on loans held for sale | 45 | 64 |
| Interest from money market funds and federal funds sold | 1037 | 373 |
| Interest and dividends on interest bearing deposits and other investments | 88 | 301 |
| Interest from securities available for sale | 4471 | 3713 |
| Total interest and dividend income | 33077 | 31297 |
| ***Interest expense*** |  |  |
| Total interest on deposits | 12868 | 13288 |
| Interest on short-term debt | 4 | 1449 |
| Interest on long-term debt | 231 | 231 |
| Total interest expense | 13103 | 14968 |
| ***Net interest income*** | 19974 | 16329 |
| Provision for credit losses - loans | 902 | 481 |
| Provision for (recovery of) credit losses – unfunded commitments | 181 | (115) |
| &nbsp;&nbsp;&nbsp;&nbsp;***Total Provision for Credit Losses*** | 1083 | 366 |
| ***Net Interest Income After Provision for Credit Losses*** | 18891 | 15963 |
| ***Noninterest income*** |  |  |
| Service charges on deposit accounts | 620 | 565 |
| Wealth management income | 1236 | 1211 |
| Mortgage banking income | 960 | 1150 |
| 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 | 1639 | 1527 |
| Other operating income | 212 | 174 |
| Total noninterest income | 5637 | 5332 |
| ***Noninterest expense*** |  |  |
| Salaries | 7831 | 7625 |
| Employee benefits | 2038 | 1218 |
| Occupancy expense | 795 | 776 |
| Equipment expense | 626 | 679 |
| FDIC assessment | 511 | 521 |
| Legal and professional expense | 1006 | 958 |
| ATM and check card fees | 556 | 515 |
| Data processing fees | 1770 | 1458 |
| Other operating expenses | 3104 | 2842 |
| Total noninterest expense | 18237 | 16592 |
| ***Income before income taxes*** | 6291 | 4703 |
| Income tax expense | 869 | 470 |
| ***Net Income*** | $5422 | $4233 |
| ***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) | 3547513 | 3503790 |

---

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 5 |
| *[**Table of Contents**](#toc)* |

---

**F & M BANK CORP.**

**Consolidated Statements of Comprehensive Income**

**(Dollars in thousands)**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended**<br>**June 30,** | **Three Months Ended**<br>**June 30,** | **Six Months Ended** <br>**June 30,** | **Six Months Ended** <br>**June 30,** |
|  | **2025** | **2024** | **2025** | **2024** |
| Net Income | $2965 | $3015 | $5422 | $4233 |
| 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 | 1169 | 1729 | 4706 | 719 |
| Total other comprehensive income | 1169 | 1729 | 4706 | 719 |
| Total comprehensive income | $4134 | $4744 | $10128 | $4952 |

---

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 6 |
| *[**Table of Contents**](#toc)* |

---

**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** | **Common Stock** | **Additional Paid in Capital** | **Retained Earnings** | **Accumulated Other Comprehensive Loss** | **Total** |
|  | Shares | Amount | | | | |
| ***Balance, March 31, 2024*** | 3516013 | $17318 | $11097 | $81346 | $(32027) | $77734 |
| Net income  |  |  |  | 3015 |  | 3015 |
| Other comprehensive income |  |  |  |  | 1729 | 1729 |
| Dividends on common stock |  |  |  | (914) |  | (914) |
| Common stock issued | 3104 | 15 | 37 | - | - | 52 |
| ***Balance, June 30, 2024*** | 3519117 | $17333 | $11134 | $83447 | $(30298) | $81616 |
| ***Balance, March 31, 2025*** | 3563938 | $17466 | $11476 | $86209 | $(23840) | $91311 |
| Net income  |  |  |  | 2965 |  | 2965 |
| Other comprehensive income |  |  |  |  | 1169 | 1169 |
| Dividends on common stock |  |  |  | (927) |  | (927) |
| Common stock issued | 5020 | 25 | 76 |  |  | 101 |
| Net restricted common stock activity | (1902) |  |  |  |  |  |
| Stock-based compensation expense | - | - | 122 | - | - | 122 |
| ***Balance, June 30, 2025*** | 3567056 | $17491 | $11674 | $88247 | $(22671) | $94741 |

---

Six Months Ended June 30, 2025 and 2024.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional Paid in Capital** | **Retained Earnings** | **Accumulated Other Comprehensive Loss** | **Total** |
|  | Shares | Amount |  |  |  |  |
| ***Balance December 31, 2023*** | 3485570 | $17263 | $11043 | $81034 | $(31017) | $78323 |
| Net income  |  |  |  | 4233 |  | 4233 |
| Other comprehensive income |  |  |  |  | 719 | 719 |
| Dividends on common stock |  |  |  | (1820) |  | (1820) |
| Common stock issued | 5818 | 29 | 73 |  |  | 102 |
| Net restricted common stock activity | 27729 |  |  |  |  |  |
| 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*** | 3519117 | $17333 | $11134 | $83447 | $(30298) | $81616 |
| ***Balance December 31, 2024*** | 3525649 | $17383 | $11463 | $84669 | $(27377) | $86138 |
| Net income  |  |  |  | 5422 |  | 5422 |
| Other comprehensive income |  |  |  |  | 4706 | 4706 |
| Dividends on common stock |  |  |  | (1844) |  | (1844) |
| Common stock issued | 10106 | 50 | 152 |  |  | 202 |
| Net restricted common stock activity | 31301 |  |  |  |  |  |
| 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*** | 3567056 | $17491 | $11674 | $88247 | $(22671) | $94741 |

---

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 7 |
| *[**Table of Contents**](#toc)* |

---

**F & M BANK CORP.**

**Consolidated Statements of Cash Flows**

**(Dollars in thousands)**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Six Months Ended June 30,** | **Six Months Ended June 30,** |
|  | **2025** | **2024** |
| ***Cash flows from operating activities*** |  |  |
| Net income | $5422 | $4233 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 683 | 755 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangibles | 16 | 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of securities | 348 | 364 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from loans held for sale | 24563 | 27112 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale originated | (24008) | (29309) |
| &nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of loans held for sale | (552) | (642) |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision for credit losses | 1083 | 366 |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase in interest receivable | (224) | (89) |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease (increase) in deferred tax asset | 80 | (3) |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease (increase) in other assets | 307 | (147) |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease in other liabilities | (240) | (222) |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of limited partnership investments | 393 | 393 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt issuance costs | 21 | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income from life insurance investment | (424) | (367) |
| &nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of fixed assets |  | (11) |
| &nbsp;&nbsp;&nbsp;&nbsp;Gain on the sale of assets held for sale | (43) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Gain on the sale of OREO | (73) | (21) |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 194 | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities | 7546 | 2507 |
| ***Cash flows from investing activities*** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturity of investments available for sale | 21360 | 10000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of investments available for sale | (40863) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from paydowns of mortgage-backed securities | 12761 | 7005 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment in restricted stock, net | (5) | 1867 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net increase in loans held for investment | (9543) | (5235) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the sale of fixed assets |  | 372 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the sale of OREO | 150 | 76 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net purchase of property and equipment | (267) | (153) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash (used by) provided by investing activities | (16407) | 13932 |
| ***Cash flows from financing activities*** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net change in deposits | 1346 | 52021 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net change in short-term debt |  | (40000) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends paid in cash | (1844) | (1820) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock | 125 | 102 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash (used by) provided by financing activities | (373) | 10303 |
| ***Net (decrease) increase in Cash and Cash Equivalents*** | (9234) | 26742 |
| ***Cash and cash equivalents, beginning of period*** | 56507 | 23717 |
| ***Cash and cash equivalents, end of period*** | $47273 | $50459 |
| ***Supplemental Cash Flow information:*** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash paid for: Interest | $13539 | $14400 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxes | 450 |  |
| ***Supplemental non-cash disclosures:*** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Change in unrealized loss on securities available for sale | $5957 | $907 |

---

*See Notes to Consolidated Financial Statements*

---

| |
|:---|
| 8 |
| *[**Table of Contents**](#toc)* |

---

**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.

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***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.

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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):

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| **June 30, 2025** | **Amortized Cost** | **Unrealized Gains** | **Unrealized Losses** | **Fair Value** |
| U. S. Treasuries | $15081 | $- | $1050 | $14031 |
| U. S. Government agencies | 57996 |  | 3907 | 54089 |
| Municipal securities | 40898 |  | 2626 | 38272 |
| Mortgage-backed securities | 224751 | 326 | 20630 | 204447 |
| Corporate debt securities | 30550 | - | 1368 | 29182 |
| Total Securities Available for Sale | $369276 | $326 | $29581 | $340021 |

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| **December 31, 2024** | **Amortized Cost** | **Unrealized Gains** | **Unrealized Losses** | **Fair Value** |
| U. S. Treasuries | $20072 | $- | $1458 | $18614 |
| U. S. Government agencies | 72995 |  | 5270 | 67725 |
| Municipal securities | 40674 |  | 2467 | 38207 |
| Mortgage-backed securities | 198591 | 158 | 23800 | 174949 |
| Corporate debt securities | 30550 | - | 2375 | 28175 |
| Total Securities Available for Sale | $362882 | $158 | $35370 | $327670 |

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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.

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|  | **Securities Available for Sale** | **Securities Available for Sale** |
|  | **Amortized**<br>**Cost** | **Fair**<br>**Value** |
| Due in one year or less | $18864 | $18657 |
| Due after one year through five years | 95269 | 90625 |
| Due after five years | 72077 | 67416 |
| Due after ten years | 183066 | 163323 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $369276 | $340021 |

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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** | **Less than 12 Months** | **More than 12 Months** | **More than 12 Months** | **Total** | **Total** |
|  | **Fair Value** | **Unrealized Losses** | **Fair Value** | **Unrealized Losses** | **Fair Value** | **Unrealized Losses** |
| **<u>June 30, 2025</u>** |  |  |  |  |  |  |
| U. S. Treasuries | $- | $- | $14031 | $1050 | $14031 | $1050 |
| U. S. Government agencies |  |  | 54089 | 3907 | 54089 | 3907 |
| Municipal securities | 8813 | 405 | 28243 | 2221 | 37056 | 2626 |
| Mortgage-backed securities | 39576 | 344 | 119004 | 20286 | 158580 | 20630 |
| Corporate debt securities | 998 | 2 | 28184 | 1366 | 29182 | 1368 |
| Total Securities Available for Sale | $49387 | $751 | $243551 | $28830 | $292938 | $29581 |

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|  | **Less than 12 Months** | **Less than 12 Months** | **More than 12 Months** | **More than 12 Months** | **Total** | **Total** |
| **<u>December 31, 2024</u>** | **Fair Value** | **Unrealized Losses** | **Fair Value** | **Unrealized Losses** | **Fair Value** | **Unrealized Losses** |
| U. S. Treasuries | $- | $- | $18614 | $1458 | $18614 | $1458 |
| U. S. Government agencies |  |  | 67725 | 5270 | 67725 | 5270 |
| Municipal securities | 9971 | 139 | 28236 | 2328 | 38207 | 2467 |
| Mortgage-backed securities | 39461 | 603 | 126470 | 23197 | 165931 | 23800 |
| Corporate debt securities | 1463 | 37 | 26712 | 2338 | 28175 | 2375 |
| Total Securities Available for Sale | $50895 | $779 | $267757 | $34591 | $318652 | $35370 |

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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):

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|  | **June 30, 2025** | **December 31, 2024** |
| 1-4 Family residential construction | $26173 | $25102 |
| Other construction, land development and land | 38807 | 58208 |
| Secured by farmland | 105235 | 86016 |
| Home equity – open end | 51364 | 49542 |
| Real estate | 228374 | 213081 |
| Home equity – closed end | 6496 | 6137 |
| Multifamily | 11185 | 10804 |
| Owner-occupied commercial real estate | 94021 | 86169 |
| Other commercial real estate | 104415 | 98189 |
| Agricultural loans | 16844 | 17928 |
| Commercial and industrial | 58703 | 64901 |
| Credit cards | 3295 | 3524 |
| Automobile loans | 90016 | 104271 |
| Other consumer loans | 9839 | 11915 |
| Municipal loans | 4548 | 4901 |
| Gross loans | 849315 | 840688 |
| Unamortized net deferred loan fees | (542) | (739) |
| Less allowance for credit losses | 8312 | 8129 |
| Net loans | $840461 | $831820 |

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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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*<u>Nonaccrual and Past Due Loans</u>*

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).

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|:---|:---|:---|:---|:---|:---|:---|
| **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **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 | $- | $- | $- | $- | $26173 | $26173 |
| Other construction, land development and land | 158 |  |  | 13 | 38636 | 38807 |
| Secured by farmland |  | 114 |  | 1188 | 103933 | 105235 |
| Home equity – open end | 176 |  |  | 516 | 50672 | 51364 |
| Real estate | 1278 | 342 |  | 2129 | 224625 | 228374 |
| Home equity – closed end | 32 |  |  |  | 6464 | 6496 |
| Multifamily |  |  |  |  | 11185 | 11185 |
| Owner-occupied commercial real estate | 304 | 1172 |  | 2529 | 90016 | 94021 |
| Other commercial real estate |  |  |  |  | 104415 | 104415 |
| Agricultural loans |  |  |  | 283 | 16561 | 16844 |
| Commercial and industrial | 29 | 330 |  | 452 | 57892 | 58703 |
| Credit cards | 38 | 8 | 16 |  | 3233 | 3295 |
| Automobile loans | 2020 | 441 |  | 489 | 87066 | 90016 |
| Other consumer loans | 102 | 10 |  | 41 | 9686 | 9839 |
| Municipal loans | - | - | - | - | 4548 | 4548 |
| Gross loans | 4137 | 2417 | 16 | 7640 | 835105 | 849315 |
| Less: Unamortized net deferred loan fees | - | - | - | - | (542) | (542) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $4137 | $2417 | $16 | $7640 | $834563 | $848773 |

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|:---|:---|:---|:---|:---|:---|:---|
| **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **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 | $- | $- | $- | $- | $25102 | $25102 |
| Other construction, land development and land |  | 10 |  | 14 | 58184 | 58208 |
| Secured by farmland |  |  |  | 53 | 85963 | 86016 |
| Home equity – open end | 130 |  |  | 501 | 48911 | 49542 |
| Real estate | 1799 | 877 |  | 916 | 209489 | 213081 |
| Home equity – closed end |  |  |  |  | 6137 | 6137 |
| Multifamily |  |  |  |  | 10804 | 10804 |
| Owner-occupied commercial real estate | 124 |  |  | 3416 | 82629 | 86169 |
| Other commercial real estate |  |  |  | 785 | 97404 | 98189 |
| Agricultural loans |  |  |  | 171 | 17757 | 17928 |
| Commercial and industrial | 849 | 46 |  | 768 | 63238 | 64901 |
| Credit cards | 41 | 19 | 32 |  | 3432 | 3524 |
| Automobile loans | 2153 | 304 |  | 397 | 101417 | 104271 |
| Other consumer loans | 95 | 10 |  | 24 | 11786 | 11915 |
| Municipal loans | - | - | - | - | 4901 | 4901 |
| Gross loans | 5191 | 1266 | 32 | 7045 | 827154 | 840688 |
| Less: Unamortized net deferred loan fees | - | - | - | - | (739) | (739) |
| Total | $5191 | $1266 | $32 | $7045 | $826415 | $839949 |

---

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).

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** |
|  | **Nonaccrual loans** | **Nonaccrual loans** | **Nonaccrual loans** | **Nonaccrual loans** | **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 | 1115 | 73 | 1188 | 53 |  | 53 |
| Home equity – open end | 516 |  | 516 | 501 |  | 501 |
| Real estate | 2102 | 27 | 2129 | 916 |  | 916 |
| Owner-occupied commercial real estate | 2495 | 34 | 2529 | 2147 | 1269 | 3416 |
| 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 | $6996 | $644 | $7640 | $5776 | $1269 | $7045 |

---

*<u>Troubled Loan Modifications</u>*

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).

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **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 | 5409 |  |  | 1192 | 6601 |
| Automobile loans | 36 | - | - | 11 | 47 |
| Total modified loans | $5445 | $- | $- | $1208 | $6653 |

---

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **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 | 6653 |  |  |  | 6653 |
| Other commercial real estate | 10 |  |  |  | 10 |
| Automobile loans | 62 | 49 | - | - | 111 |
| Total modified loans | $6732 | $49 | $- | $- | $6781 |

---

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** | **For the three and six months ended June 30, 2025** | **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% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total term extension and deferral | 2 | $13 |  |
| Other than temporary payment delay |  |  |  |
| Owner occupied commercial real estate | 1 | $1192 | 1.27% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total other than temporary payment delay | 1 | $1192 |  |
| Total | 3 | $1205 |  |

---

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.

*<u>Collateral Dependent Disclosures</u>*

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):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **December 31, 2024** | **December 31, 2024** |
|  | **Real Estate** | **Business/Other Assets** | **Real Estate** | **Business/Other Assets** |
| Secured by farmland | $1302 | $- | $- | $- |
| Home equity – open end | 116 |  |  |  |
| Real estate | 1029 |  |  |  |
| Owner-occupied commercial real estate | 2405 |  | 3416 |  |
| Other commercial real estate |  |  | 785 |  |
| Agricultural loans |  | 112 |  |  |
| Commercial and industrial | - | 398 | - | 605 |
| Total loans | $4852 | $510 | $4201 | $605 |

---

*<u>Credit Quality Indicators</u>*

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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<u>Description of the Company's credit quality indicators:</u>

<u>Pass:</u> 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.

<u>Grade 6 – Watch</u>: 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.

<u>Grade 7 – Substandard</u>: 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):

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | | |
|  | **2025** | **2024** | **2023** | **2022** | **2021** | **Prior** |<br>**Revolving** |<br>**Total** |
| **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** |
| Pass | $- | $- | $778 | $- | $- | $- | $25395 | $26173 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total 1-4 Family residential construction | - | - | 778 | - | - | - | 25395 | 26173 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** |
| Pass | 835 | 1714 | 9714 | 1110 | 544 | 3296 | 20914 | 38127 |
| Watch |  |  |  |  |  |  | 120 | 120 |
| Substandard | - | - | - | - | - | 13 | 547 | 560 |
| Total Other construction, land development and land | 835 | 1714 | 9714 | 1110 | 544 | 3309 | 21581 | 38807 |
| Current period gross write-offs | - | - | - | - | - | 9 | - | 9 |
| **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** |
| Pass | 10469 | 5873 | 11242 | 13186 | 15039 | 35904 | 9662 | 101375 |
| Watch |  | 154 |  | 1667 |  | 737 |  | 2558 |
| Substandard | - | - | - | 319 | 869 | - | 114 | 1302 |
| Total Secured by farmland | 10469 | 6027 | 11242 | 15172 | 15908 | 36641 | 9776 | 105235 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** |
| Pass |  |  |  |  |  | 125 | 50673 | 50798 |
| Watch |  |  |  |  |  |  | 566 | 566 |
| Substandard | - | - | - | - | - | - | - | - |
| Total Home equity - open end | - | - | - | - | - | 125 | 51239 | 51364 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** |
| Pass | 19025 | 25112 | 56624 | 41608 | 13084 | 65973 |  | 221426 |
| Watch |  | 1433 | 1445 |  |  | 215 |  | 3093 |
| Substandard | - | - | 295 | 230 | 805 | 2525 | - | 3855 |
| Total Real estate | 19025 | 26545 | 58364 | 41838 | 13889 | 68713 | - | 228374 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** |
| Pass | 579 | 695 | 2407 | 203 | 81 | 2531 |  | 6496 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Home equity - closed end | 579 | 695 | 2407 | 203 | 81 | 2531 | - | 6496 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** |
| Pass |  | 2703 |  | 2597 | 1280 | 2362 | 2243 | 11185 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Multifamily | - | 2703 | - | 2597 | 1280 | 2362 | 2243 | 11185 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** |
| Pass | 7383 | 9860 | 2384 | 16778 | 15011 | 22290 | 7378 | 81084 |
| Watch |  |  | 736 |  |  | 1071 |  | 1807 |
| Substandard | - | 1158 | - | - | - | 9924 | 48 | 11130 |
| Total Owner-occupied commercial real estate | 7383 | 11018 | 3120 | 16778 | 15011 | 33285 | 7426 | 94021 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** |
| Pass |  | 379 | 11134 | 34260 | 11392 | 36150 | 2104 | 95419 |
| Watch |  |  |  |  |  | 992 |  | 992 |
| Substandard | - | 7919 | - | - | - | 85 | - | 8004 |
| Total Other commercial real estate | - | 8298 | 11134 | 34260 | 11392 | 37227 | 2104 | 104415 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |

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| 21 |
| *[**Table of Contents**](#toc)* |

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** |  |  |
|  | **2025** | **2024** | **2023** | **2022** | **2021** | **Prior** | **Revolving** | **Total** |
| **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** |
| Pass | 2646 | 2139 | 1691 | 1331 | 217 | 109 | 7982 | 16115 |
| Watch | 409 |  |  | 13 |  | 24 |  | 446 |
| Substandard | - | - | 112 | 21 | - | - | 150 | 283 |
| Total Agricultural loans | 3055 | 2139 | 1803 | 1365 | 217 | 133 | 8132 | 16844 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** |
| Pass | 9243 | 13776 | 3571 | 5872 | 2962 | 691 | 19876 | 55991 |
| Watch |  |  |  | 52 |  |  | 1150 | 1202 |
| Substandard | 45 | 398 | 330 | - | 2 | - | 735 | 1510 |
| Total Commercial and industrial | 9288 | 14174 | 3901 | 5924 | 2964 | 691 | 21761 | 58703 |
| Current period gross write-offs | - | 11 | - | 74 | - | - | - | 85 |
| **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** |
| Pass |  |  |  |  |  |  | 3279 | 3279 |
| Substandard | - | - | - | - | - | - | 16 | 16 |
| Total Credit cards | - | - | - | - | - | - | 3295 | 3295 |
| Current period gross write-offs | - | - | - | - | - | - | 32 | 32 |
| **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** |
| Pass | 8971 | 21830 | 30285 | 19118 | 7303 | 1949 |  | 89456 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | 151 | 86 | 184 | 97 | 42 | - | 560 |
| Total Automobile loans | 8971 | 21981 | 30371 | 19302 | 7400 | 1991 | - | 90016 |
| Current period gross write-offs | 11 | 393 | 315 | 300 | 66 | 48 | - | 1133 |
| **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** |
| Pass | 1502 | 2854 | 2334 | 1758 | 581 | 419 | 350 | 9798 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | 10 | 22 | 9 | - | - | 41 |
| Total Other consumer loans | 1502 | 2854 | 2344 | 1780 | 590 | 419 | 350 | 9839 |
| Current period gross write-offs | - | 4 | 15 | 17 | 5 | - | - | 41 |
| **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** |
| Pass |  |  |  |  | 551 | 3997 |  | 4548 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Municipal loans | - | - | - | - | 551 | 3997 | - | 4548 |
| Current period gross write-offs | - | - | - | - | - | - | - | - |
| **Total loans** | $61107 | $98148 | $135178 | $140329 | $69827 | $191424 | $153302 | 849315 |
| Less: Unamortized net deferred loan fees |  |  |  |  |  |  |  | (542) |
| Loans held for investment |  |  |  |  |  |  |  | $848773 |
| Current period gross write-offs | $11 | $408 | $330 | $391 | $71 | $57 | $32 | $1300 |

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| 22 |
| *[**Table of Contents**](#toc)* |

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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 December 31, 2024 (dollars in thousands):

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | | |
|  | **2024** | **2023** | **2022** | **2021** | **2020** | **Prior** | <br>**Revolving** | <br>**Total** |
| **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** | **1-4 Family residential construction** |
| Pass | $- | $1224 | $- | $- | $- | $92 | $23786 | $25102 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total 1-4 Family residential construction | - | 1224 | - | - | - | 92 | 23786 | 25102 |
| **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** | **Other construction, land development and land** |
| Pass | 2668 | 13898 | 7417 | 4530 | 1727 | 8580 | 18251 | 57071 |
| Watch |  |  |  |  |  |  | 128 | 128 |
| Substandard | - | - | - | - | - | 525 | 484 | 1009 |
| Total Other construction, land development and land | 2668 | 13898 | 7417 | 4530 | 1727 | 9105 | 18863 | 58208 |
| **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** | **Secured by farmland** |
| Pass | 5462 | 10038 | 13283 | 12908 | 25209 | 8413 | 8074 | 83387 |
| Watch | 155 |  | 1667 |  |  | 754 |  | 2576 |
| Substandard | - | - | - | - | - | 53 | - | 53 |
| Total Secured by farmland | 5617 | 10038 | 14950 | 12908 | 25209 | 9220 | 8074 | 86016 |
| **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** | **Home equity – open end** |
| Pass |  |  |  |  |  | 153 | 48589 | 48742 |
| Watch |  |  |  |  |  |  | 249 | 249 |
| Substandard | - | - | - | - | - | - | 551 | 551 |
| Total Home equity - open end | - | - | - | - | - | 153 | 49389 | 49542 |
| **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** | **Real estate** |
| Pass | 21150 | 59160 | 43895 | 13643 | 11595 | 59013 | 1671 | 210127 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | 203 | 86 | 528 | - | 2137 | - | 2954 |
| Total Real estate | 21150 | 59363 | 43981 | 14171 | 11595 | 61150 | 1671 | 213081 |
| **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** | **Home equity – closed end** |
| Pass | 727 | 2469 | 252 | 87 | 786 | 1816 |  | 6137 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Home equity - closed end | 727 | 2469 | 252 | 87 | 786 | 1816 | - | 6137 |
| **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** | **Multifamily** |
| Pass | 2130 |  | 4854 | 1368 | 866 | 1586 |  | 10804 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Multifamily | 2130 | - | 4854 | 1368 | 866 | 1586 | - | 10804 |
| **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** | **Owner-occupied commercial real estate** |
| Pass | 7187 | 2207 | 17127 | 15754 | 6697 | 19933 | 5042 | 73947 |
| Watch | 1165 |  |  |  |  |  |  | 1165 |
| Substandard | - | - | - | - | - | 8613 | 2444 | 11057 |
| Total Owner-occupied commercial real estate | 8352 | 2207 | 17127 | 15754 | 6697 | 28546 | 7486 | 86169 |
| **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** | **Other commercial real estate** |
| Pass | 386 | 9258 | 29385 | 11767 | 3739 | 31885 | 1938 | 88358 |
| Watch |  |  |  |  |  | 1018 |  | 1018 |
| Substandard | 7942 | - | - | - | - | 871 | - | 8813 |
| Total Other commercial real estate | 8328 | 9258 | 29385 | 11767 | 3739 | 33774 | 1938 | 98189 |
| **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** | **Agricultural loans** |
| Pass | 3522 | 2181 | 1818 | 333 | 180 |  | 9673 | 17707 |
| Watch |  |  | 13 |  | 24 |  | 13 | 50 |
| Substandard | - | - | 21 | - | - | - | 150 | 171 |
| Total Agricultural loans | 3522 | 2181 | 1852 | 333 | 204 | - | 9836 | 17928 |
| **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** | **Commercial and industrial** |
| Pass | 14798 | 4817 | 6766 | 3738 | 878 | 376 | 28934 | 60307 |
| Watch |  | 348 | 63 | 32 |  |  | 3328 | 3771 |
| Substandard | - | - | 57 | 609 | - | - | 157 | 823 |
| Total Commercial and industrial | 14798 | 5165 | 6886 | 4379 | 878 | 376 | 32419 | 64901 |

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | **Term Loans by Year of Origination** | | |
|  | **2024** | **2023** | **2022** | **2021** | **2020** | **Prior** |<br>**Revolving** |<br>**Total** |
| **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** | **Credit cards** |
| Pass |  |  |  |  |  |  | 3524 | 3524 |
| Substandard | - | - | - | - | - | - | - | - |
| Total Credit cards | - | - | - | - | - | - | 3524 | 3524 |
| **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** | **Automobile loans** |
| Pass | 26426 | 37698 | 25096 | 10563 | 3121 | 975 |  | 103879 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | 22 | 66 | 147 | 110 | 36 | 11 | - | 392 |
| Total Automobile loans | 26448 | 37764 | 25243 | 10673 | 3157 | 986 | - | 104271 |
| **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** | **Other consumer loans** |
| Pass | 3604 | 3102 | 2633 | 989 | 210 | 994 | 359 | 11891 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | 7 | 6 | 11 | - | - | - | 24 |
| Total Other consumer loans | 3604 | 3109 | 2639 | 1000 | 210 | 994 | 359 | 11915 |
| **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** | **Municipal loans** |
| Pass |  |  |  | 775 | 1032 | 3094 |  | 4901 |
| Watch |  |  |  |  |  |  |  |  |
| Substandard | - | - | - | - | - | - | - | - |
| Total Municipal loans | - | - | - | 775 | 1032 | 3094 | - | 4901 |
| **Total loans** | $97344 | $146676 | $154586 | $77745 | $56100 | $150892 | $157345 | $840688 |
| Less: Unamortized net deferred loan fees |  |  |  |  |  |  |  | (739) |
| Loans held for investment |  |  |  |  |  |  |  | $839949 |

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**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.

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

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the three months ended June 30, 2025** | **For the three months ended June 30, 2025** | **For the three months ended June 30, 2025** | **For the three months ended June 30, 2025** | **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 | 1658 | 9 | 9 | (611) | 1047 |
| Secured by farmland | 1043 |  |  | 434 | 1477 |
| 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 | 1258 |
| Credit Cards | 79 | 17 | 5 | 13 | 80 |
| Automobile loans | 1894 | 734 | 191 | 423 | 1774 |
| Other consumer loans | 191 | 41 | 3 | 23 | 176 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total allowance for credit losses - loans | $7762 | $886 | $355 | $1082 | $8312 |
| Allowance for credit losses – unfunded commitments | $725 | $- | $- | $105 | $830 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the three months ended June 30, 2024** | **For the three months ended June 30, 2024** | **For the three months ended June 30, 2024** | **For the three months ended June 30, 2024** | **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 | 1345 |  |  | 103 | 1448 |
| 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 | 1314 |  |  | (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 | 1459 | 466 | 243 | 233 | 1469 |
| Other consumer loans | 285 | 26 | 64 | (98) | 225 |
| Municipal loans | 17 | - | - | (1) | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total allowance for credit losses - loans | $8408 | $509 | $329 | $(413) | $7815 |
| Allowance for credit losses – unfunded commitments | $620 | $- | $- | $(44) | $576 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, 2025** | **For the six months ended June 30, 2025** | **For the six months ended June 30, 2025** | **For the six months ended June 30, 2025** | **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 | 1551 | 9 | 9 | (504) | 1047 |
| Secured by farmland | 946 |  |  | 531 | 1477 |
| 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 | 1258 |
| Credit Cards | 87 | 32 | 11 | 14 | 80 |
| Automobile loans | 1956 | 1133 | 356 | 595 | 1774 |
| Other consumer loans | 301 | 41 | 31 | (115) | 176 |
| Municipal loans | 15 | - | - | (15) | - |
| &nbsp;&nbsp;&nbsp;&nbsp;Total allowance for credit losses - loans | $8129 | $1300 | $581 | $902 | $8312 |
| Allowance for credit losses – unfunded commitments | $649 | $- | $- | $181 | $830 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, 2024** | **For the six months ended June 30, 2024** | **For the six months ended June 30, 2024** | **For the six months ended June 30, 2024** | **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 | 1287 |  |  | 161 | 1448 |
| 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 | 1221 |  |  | (373) | 848 |
| Other commercial real estate | 166 |  |  | 8 | 174 |
| Agricultural loans | 20 |  |  | 2 | 22 |
| Commercial and industrial | 1034 | 209 | 42 | (66) | 801 |
| Credit Cards | 81 | 21 | 15 | 8 | 83 |
| Automobile loans | 1443 | 1223 | 377 | 872 | 1469 |
| Other consumer loans | 292 | 67 | 71 | (71) | 225 |
| Municipal loans | - | - | - | 16 | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total allowance for credit losses - loans | $8321 | $1520 | $533 | $481 | $7815 |
| Allowance for credit losses – unfunded commitments | $691 | $- | $- | $(115) | $576 |

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**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.

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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):

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| | |
|:---|:---|
|  | **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% |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Three Months Ended June 30,** | **For the Three Months Ended June 30,** | **For the Six 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 |

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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):&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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| | |
|:---|:---|
|  | **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 | $1132 |
| Discount | (202) |
| Lease liabilities | $930 |

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**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** | **Actual** | **Minimum Required Capital** | **Minimum Required Capital** | **Minimum Required to be Well Capitalized** | **Minimum Required to be Well Capitalized** |
| <br>**June 30, 2025** | **Amount** | **Ratio** | **Amount** | **Ratio** | **Amount**  | **Ratio** |
| Total risk-based ratio | $124664 | 13.73% | $72624 | 8.00% | $90780 | 10.00% |
| Tier 1 risk-based ratio | 115522 | 12.73% | 54468 | 6.00% | 72624 | 8.00% |
| Common equity tier 1 | 115522 | 12.73% | 40851 | 4.50% | 59007 | 6.50% |
| Tier 1 leverage ratio | 115522 | 8.89% | 51975 | 4.00% | 64969 | 5.00% |
| **December 31, 2024** |  |  |  |  |  |  |
| Total risk-based ratio | $120892 | 13.39% | $72223 | 8.00% | $90279 | 10.00% |
| Tier 1 risk-based ratio | 112114 | 12.42% | 54168 | 6.00% | 72223 | 8.00% |
| Common equity tier 1 | 112114 | 12.42% | 40626 | 4.50% | 58682 | 6.50% |
| Tier 1 leverage ratio | 112114 | 8.23% | 54472 | 4.00% | 68090 | 5.00% |

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**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:

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|:---|:---|
| 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. |

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*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:

*<u>Securities</u>* - 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.

*<u>Loans held for sale</u>* – 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).*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;* 

*<u>Derivative financial instruments</u>* - 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):

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| | | | | |
|:---|:---|:---|:---|:---|
| **June 30, 2025** | **Carrying Value** | **Level 1** | **Level 2** | **Level 3** |
| Securities available for sale |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;U. S. Treasury securities | $14031 | $- | $14031 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. Government agencies | 54089 |  | 54089 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Municipal securities | 38272 |  | 38272 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage-backed securities | 204447 |  | 204447 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate debt securities | 29182 | - | 4571 | 24611 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total securities available for sale | $340021 | $- | $315410 | $24611 |
| Other assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale | $2280 | $- | $2280 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;IRLC | 39 |  | 39 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;Forward sales commitments | 11 |  | 11 |  |
| **December 31, 2024** | **Carrying Value** | **Level 1** | **Level 2** | **Level 3** |
| Securities available for sale |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;U. S. Treasury securities | $18614 | $- | $18614 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. Government agencies | 67725 |  | 67725 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Municipal securities | 38207 |  | 38207 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage-backed securities | 174949 |  | 174949 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate debt securities | 28175 | - | 4512 | 23663 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total securities available for sale | $327670 | $- | $304007 | $23663 |
| Other assets |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale | $2283 | $- | $2283 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;IRLC | 18 |  | 18 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Forward sales commitments | 41 |  | 41 |  |

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*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.

*<u>Collateral Dependent Loans</u>* - 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.

*<u>Other Real Estate Owned</u>* ("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).

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** |
|  | **Balance** | **Level 1** | **Level 2** | **Level 3** |
| Collateral-dependent loans  | $5362 | $- | $- | $5362 |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** |
|  | **Balance**  | **Level 1** | **Level 2** | **Level 3** |
| Collateral-dependent loans  | $4806 | $- | $- | $4806 |
| OREO | 77 |  |  | 77 |

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

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| | | | |
|:---|:---|:---|:---|
|  | **Balance at** <br>**June 30, 2025** | **Unobservable Input** | **Discount** |
| Collateral-dependent loans |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Discounted appraised value technique | $5362 | Discount rate | 25% |
|  |  | Selling costs | 9% - 80 |

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| | | | |
|:---|:---|:---|:---|
|  | **Balance at December 31, 2024** | **Unobservable Inputs** | **Discount** |
| Collateral-dependent loans |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Discounted appraised value technique | $4806 | Discount rate | 25% |
|  |  | Selling costs | 9% - 10 |
| OREO |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Discounted sales price technique | 77 | Discount rate | 25% |
|  |  | Selling costs | 8% |

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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.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **June 30, 2025**  | **June 30, 2025**  | **June 30, 2025**  | **June 30, 2025**  | **June 30, 2025**  |
|  | | **Quoted Prices in Active Markets for Identical Assets** | **Significant Other Observable Inputs** | **Significant Unobservable Inputs** | **Total Fair Value** |
|  | <br>**Carrying Value** | **Level 1** | **Level 2** | **Level 3** | **Balance** |
| **Financial Assets** |  |  |  |  |  |
| Cash and cash equivalents | $47273 | $47273 | $- | $- | $47273 |
| Securities available for sale | 340021 |  | 340021 |  | 340021 |
| Other investments | 2254 |  |  | 2254 | 2254 |
| Loans held for sale | 2280 |  | 2280 |  | 2280 |
| Loans held for investment, net | 840461 |  |  | 831196 | 831196 |
| Interest receivable | 5163 |  | 5163 |  | 5163 |
| Bank owned life insurance | 23989 |  | 23989 |  | 23989 |
| Forward sales commitments | 11 |  | 11 |  | 11 |
| IRLC | 39 |  | 39 |  | 39 |
| **Financial Liabilities** |  |  |  |  |  |
| Noninterest-bearing demand deposits | $278322 | $278322 | $- | $- | $278322 |
| Interest checking deposits | 134094 |  | 134094 |  | 134094 |
| Savings deposits | 549836 |  | 549836 |  | 549836 |
| Time deposits | 234199 |  |  | 233284 | 233284 |
| Long-term debt | 6996 |  |  | 6989 | 6989 |
| Interest payable | 1464 |  | 1464 |  | 1464 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** | **December 31, 2024** |
|  | | **Quoted Prices in Active Markets for Identical Assets** | **Significant Other Observable Inputs** | **Significant Unobservable Inputs** | **Total Fair Value** |
|  | <br>**Carrying Value** | **Level 1** | **Level 2** | **Level 3** | **Balance** |
| **Financial Assets** |  |  |  |  |  |
| Cash and cash equivalents | $56507 | $56507 | $- | $- | $56507 |
| Securities available for sale | 327670 |  | 327670 |  | 327670 |
| Loans held for sale | 2283 |  | 2283 |  | 2283 |
| Loans held for investment, net | 831820 |  |  | 808812 | 808812 |
| Interest receivable | 4939 |  | 4939 |  | 4939 |
| Bank owned life insurance | 23607 |  | 23607 |  | 23607 |
| IRLC | 18 |  | 18 |  | 18 |
| Forward sales commitments | 41 |  | 41 |  | 41 |
| **Financial Liabilities** |  |  |  |  |  |
| Noninterest-bearing demand deposits | $260301 | $260301 | $- | $- | $260301 |
| Interest checking deposits | 138919 |  | 138919 |  | 138919 |
| Savings deposits | 497577 |  | 497577 |  | 497577 |
| Time deposits | 298308 |  |  | 297920 | 297920 |
| Long-term debt | 6975 |  |  | 6917 | 6917 |
| Interest payable | 1900 |  | 1900 |  | 1900 |

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**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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**<u>Results of Operations</u>** 

*Overview*

<u>Comparing the Three-Month Periods Ending June 30, 2025 and June 30, 2024</u>

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.

<u>Comparing the Six-Month Periods Ending June 30, 2025 and June 30, 2024</u>

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.

<u>Net Interest Income</u> 

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):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months ended** | **Three Months ended** | **Three Months ended** | **Three Months ended** | **Three Months ended** | **Three Months ended** |
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2024** | **June 30, 2024** | **June 30, 2024** |
|  | **Average Balance<sup>4</sup>** | **Interest Income**<br>**/Expense** | **Yield /Rate<sup>1</sup>** | **Average Balance<sup>4</sup>** | **Interest Income /Expense** | **Yield /Rate<sup>1</sup>** |
| **ASSETS** |  |  |  |  |  |  |
| Loans held for investment<sup>2,3</sup> | $838332 | $13971 | 6.68% | $825838 | $13494 | 6.57% |
| Loans held for sale | 2815 | 20 | 2.85% | 2688 | 46 | 6.88% |
| Federal funds sold | 34694 | 385 | 4.45% | 15795 | 216 | 5.50% |
| Interest-bearing deposits in banks and other investments | 2660 | 58 | 8.75% | 5140 | 129 | 10.09% |
| Investment securities<sup>4</sup> |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxable | 318400 | 2194 | 2.76% | 339155 | 1657 | 1.97% |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax exempt | 16538 | 184 | 4.46% | 16226 | 178 | 4.41% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total investment securities | 334938 | 2378 | 2.85% | 355381 | 1835 | 2.08% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total earning assets | 1213439 | 16812 | 5.56% | 1204842 | 15720 | 5.25% |
| Allowance for credit losses | (7739) |  |  | (8515) |  |  |
| Nonearning assets | 96681 |  |  | 102810 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total assets | $1302381 |  |  | $1299137 |  |  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |  |  |
| Interest bearing deposits: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Demand-interest bearing | $131489 | $526 | 1.60% | $129653 | $556 | 1.72% |
| &nbsp;&nbsp;&nbsp;&nbsp;Savings | 545713 | 3636 | 2.67% | 483812 | 3179 | 2.64% |
| &nbsp;&nbsp;&nbsp;&nbsp;Time deposits | 239162 | 2006 | 3.36% | 289014 | 3215 | 4.47% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total interest-bearing deposits | 916364 | 6168 | 2.70% | 902479 | 6950 | 3.10% |
| Short-term debt |  | 1 |  | 33077 | 453 | 5.51% |
| Long-term debt | 6990 | 116 | 6.66% | 6948 | 116 | 6.71% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total interest-bearing liabilities | 923354 | 6285 | 2.73% | 942504 | 7519 | 3.21% |
| Noninterest bearing deposits | 272208 |  |  | 264265 |  |  |
| Other liabilities | 13952 |  |  | 14557 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 1209514 |  |  | 1221326 |  |  |
| Shareholders' equity | 92867 |  |  | 77811 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and shareholders' equity | $1302381 |  |  | $1299137 |  |  |
| Net interest income |  | $10527 |  |  | $8201 |  |
| Interest rate spread |  |  | 3.45% |  |  | 2.74% |
| Cost of funds |  |  | 2.11% |  |  | 2.51% |
| Net interest margin |  |  | 3.48% |  |  | 2.74% |

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<sup>1</sup> Annualized.

<sup>2</sup> Interest income on loans includes loan fees.

<sup>3</sup> Loans held for investment include nonaccrual loans.

<sup>4</sup> Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Six Months ended** | **Six Months ended** | **Six Months ended** | **Six Months ended** | **Six Months ended** | **Six Months ended** |
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2024** | **June 30, 2024** | **June 30, 2024** |
|  | **Average Balance<sup>4</sup>** | **Interest Income**<br>**/Expense** | **Yield /Rate<sup>1</sup>** | **Average Balance<sup>4</sup>** | **Interest Income /Expense** | **Yield /Rate<sup>1</sup>** |
| **ASSETS** |  |  |  |  |  |  |
| Loans held for investment<sup>2,3</sup> | $834770 | $27436 | 6.63% | $824692 | $26846 | 6.55% |
| Loans held for sale | 2124 | 45 | 4.27% | 2736 | 64 | 4.70% |
| Federal funds sold | 47356 | 1037 | 4.42% | 13317 | 373 | 5.63% |
| Interest-bearing deposits in banks and other investments | 2608 | 88 | 6.80% | 7435 | 301 | 8.14% |
| Investment securities<sup>4</sup> |  |  |  |  |  |  |
| Taxable | 310701 | 4258 | 2.76% | 344192 | 3503 | 2.05% |
| Tax exempt | 16343 | 213 | 2.63% | 16245 | 210 | 2.60% |
| Total investment securities | 327044 | 4471 | 2.76% | 360437 | 3713 | 2.07% |
| Total earning assets | 1213902 | 33077 | 5.49% | 1208617 | 31297 | 5.21% |
| Allowance for credit losses | (7870) |  |  | (8471) |  |  |
| Nonearning assets | 98278 |  |  | 101759 |  |  |
| Total assets | $1304310 |  |  | $1301905 |  |  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |  |  |
| Interest bearing deposits: |  |  |  |  |  |  |
| Demand-interest bearing | $134536 | $1106 | 1.66% | $134455 | $1162 | 1.74% |
| Savings | 531748 | 7015 | 2.66% | 490728 | 6470 | 2.65% |
| Time deposits | 259262 | 4747 | 3.69% | 263146 | 5656 | 4.32% |
| Total interest-bearing deposits | 925546 | 12868 | 2.80% | 888329 | 13288 | 3.01% |
| Federal funds purchased |  |  |  | 417 | 8 | 3.86% |
| Short-term debt |  | 4 |  | 52380 | 1441 | 5.49% |
| Long-term debt | 6985 | 231 | 6.67% | 6942 | 231 | 6.69% |
| Total interest-bearing liabilities | 932531 | 13103 | 2.83% | 948518 | 14968 | 3.17% |
| Noninterest bearing deposits | 267486 |  |  | 260829 |  |  |
| Other liabilities | 13804 |  |  | 14869 |  |  |
| Total liabilities | 1213821 |  |  | 1224216 |  |  |
| Shareholders' equity | 90489 |  |  | 77689 |  |  |
| Total liabilities and shareholders' equity | $1304310 |  |  | $1301905 |  |  |
| Net interest income |  | $19974 |  |  | $16329 |  |
| Interest rate spread |  |  | 3.29% |  |  | 2.72% |
| Cost of funds |  |  | 2.20% |  |  | 2.49% |
| Net interest margin |  |  | 3.32% |  |  | 2.72% |

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<sup>1</sup> Annualized.

<sup>2</sup> Interest income on loans includes loan fees.

<sup>3</sup> Loans held for investment include nonaccrual loans.

<sup>4</sup> Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

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<u>Provision for (Recovery of) Credit Losses</u>

*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.

<u>Noninterest Income</u>

*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.

<u>Noninterest Expense</u>

*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.

<u>Income Taxes</u>

*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.

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*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.

**<u>Balance Sheet Review</u>**

<u>General</u>

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.

<u>Loans</u>

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):

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| | | | | |
|:---|:---|:---|:---|:---|
| | **June 30, 2025** | **June 30, 2025** | **December 31, 2024** | **December 31, 2024** |
| <br>**Loan Segment** | **Balance** | **Percentage of Portfolio** | **Balance** | **Percentage of Portfolio** |
| 1-4 Family residential construction | $26173 | 3.08% | $25102 | 2.99% |
| Other construction, land development and land | 38807 | 4.57% | 58208 | 6.92% |
| Secured by farmland | 105235 | 12.39% | 86016 | 10.23% |
| Home equity – open end | 51364 | 6.05% | 49542 | 5.89% |
| Real estate | 228374 | 26.89% | 213081 | 25.35% |
| Home Equity – closed end | 6496 | 0.76% | 6137 | 0.73% |
| Multifamily | 11185 | 1.32% | 10804 | 1.29% |
| Owner-occupied commercial real estate | 94021 | 11.07% | 86169 | 10.25% |
| Other commercial real estate | 104415 | 12.29% | 98189 | 11.68% |
| Agricultural loans | 16844 | 1.98% | 17928 | 2.13% |
| Commercial and industrial | 58703 | 6.91% | 64901 | 7.72% |
| Credit Cards | 3295 | 0.39% | 3524 | 0.42% |
| Automobile loans | 90016 | 10.60% | 104271 | 12.40% |
| Other consumer loans | 9839 | 1.16% | 11915 | 1.42% |
| Municipal loans | 4548 | 0.54% | 4901 | 0.58% |
| Gross loans | $849315 | 100.00% | $840658 | 100.00% |
| Unamortized deferred net loan fees | (542) |  | (739) |  |
| Loans held for investment, net of deferred loan fees | $848773 |  | $839949 |  |

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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.

<u>Asset Quality</u>

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 | $7640 | $7045 |
| Loans past due 90 days and accruing interest | 16 | 32 |
| Total nonperforming loans | 7656 | 7077 |
| Other real estate owned | - | 77 |
| Total nonperforming assets | $7656 | $7154 |
| Allowance for credit losses | $8312 | $8129 |
| Total Loans | $848773 | $839949 |
| 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.

<u>Securities Available for Sale ("AFS")</u>

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.

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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.

<u>Other Investments</u> 

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.

<u>Deposits</u>

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):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **December 31, 2024** | **December 31, 2024** |
|  | Balance | % of total deposits | Balance | % of total deposits |
| Noninterest-bearing demand | $278322 | 23.3% | $260301 | 21.8% |
| Interest Checking | 134094 | 11.2% | 138919 | 11.6% |
| Savings Accounts | 549836 | 46.0% | 497577 | 41.6% |
| Time Deposits | 234199 | 19.6% | 298308 | 25.0% |
| Total deposits | $1196451 |  | $1195105 |  |

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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):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended June 30, 2025** | **Three months ended June 30, 2025** | **Six months ended June 30, 2025** | **Six months ended June 30, 2025** |
|  | Average Balance | Rate | Average Balance | Rate |
| Noninterest-bearing | $272208 |  | $267489 |  |
| Interest-bearing: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest Checking | $131489 | 1.60% | $134536 | 1.66% |
| &nbsp;&nbsp;&nbsp;&nbsp;Savings Accounts | 545713 | 2.67% | 531748 | 2.66% |
| &nbsp;&nbsp;&nbsp;&nbsp;Time Deposits | 239162 | 3.36% | 259262 | 3.69% |
| Total interest-bearing deposits | 916364 | 2.70% | 925546 | 2.80% |
| Total average deposits | $1188572 | 2.08% | $1193032 | 2.18% |

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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 | $12093 |
| Over 3 months through 6 months | 8435 |
| Over 6 months through 12 months | 24092 |
| Over 12 months | 886 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $45506 |

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<u>Long-term borrowings</u>

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.

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<u>Liquidity</u>

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.

<u>Market Risk Management</u>

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.

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

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| | | |
|:---|:---|:---|
| <br>**Change in Interest Rates (in Basis Points)** | **As of June 30, 2025**<br>**Percent Change in Earnings** | **As of December 31, 2024**<br>**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% |

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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:

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| | | |
|:---|:---|:---|
| <br>**Change in Interest Rates (in Basis Points)** | **As of June 30, 2025**<br>**Percentage Change in EVE** | **As of December 31, 2024**<br>**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% |

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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.

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**Part II Other Information**

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| | |
|:---|:---|
| 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.<br>|
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
| Item 3. | Defaults Upon Senior Securities. |
| Item 4. | Mine Safety Disclosures. |
| Item 5. | Other Information. |

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&nbsp;&nbsp;&nbsp;&nbsp;

<u>*Insider Trading Arrangements*</u>

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).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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| | | |
|:---|:---|:---|
| Item 6. |  |  |
| (a) | **Exhibits** |  |
|  | [31.1](fmbm_ex311.htm) | [Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).](fmbm_ex311.htm) |
|  | [31.2](fmbm_ex312.htm) | [Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).](fmbm_ex312.htm) |
|  | [32](fmbm_ex32.htm) | [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).](fmbm_ex32.htm) |
|  | 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

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER**

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

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

I, Aubrey M. Wilkerson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Dated: August 14, 2025 | /s/ Aubrey M. Wilkerson  |
|  | Aubrey M. Wilkerson |
|  | Chief Executive Officer |

---

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

## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

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

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

I, Lisa F. Campbell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Dated: August 14, 2025 | /s/ Lisa F. Campbell  |
|  | Lisa F. Campbell |
|  | Executive Vice President & Chief Financial Officer |

---

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

## Ex-32

**EXHIBIT 32**

**CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER**

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

The undersigned, as the Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual's knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2025, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

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| |
|:---|
| /s/ Aubrey M. Wilkerson  |
| Aubrey M. Wilkerson |
| Chief Executive Officer |
| /s/ Lisa F. Campbell  |
| Lisa F. Campbell |
| Executive Vice President and Chief Financial Officer |

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August 14, 2025