8-K: F&M Bank Corp. Issues $10M Subordinated Notes, Reports Strong YTD Earnings

F&M Bank Corp. announced the issuance of $10.0 million in fixed-to-floating rate subordinated notes and reported robust year-to-date financial results for September 30, 2025, alongside a quarterly dividend declaration.

Summary

• F&M Bank Corp. issued and sold $10.0 million in aggregate principal amount of 7.55% fixed to floating rate subordinated notes due November 1, 2035.
• The notes will bear a fixed interest rate of 7.55% per annum until November 1, 2030, then convert to a floating rate of three-month SOFR plus 424.5 basis points, resetting quarterly.
• The proceeds from the notes will be used to redeem existing subordinated debt and for general corporate purposes, including supporting organic growth and the Bank's regulatory capital ratios, structured to qualify as Tier 2 capital.
• Net income for the third quarter of 2025 was $2.9 million ($0.82 per share), a 2.38% decrease from the second quarter of 2025.
• Year-to-date net income for September 30, 2025, was $8.3 million ($2.35 per share), a significant increase over $5.0 million ($1.44 per share) for the same period in 2024.
• Total assets reached $1.36 billion, total loans held for investment were $872.3 million, and total deposits stood at $1.24 billion as of September 30, 2025, reflecting growth since December 31, 2024.
• Tangible book value per share increased to $27.631 as of September 30, 2025, up 17.4% or $4.10 per share year-to-date.
• The Board of Directors declared a quarterly dividend of $0.26 per share to common shareholders, payable November 28, 2025, to shareholders of record as of November 14, 2025.

Sentiment

Score: 8

Explanation: The overall sentiment is positive due to strong year-to-date financial performance, significant growth in key metrics like net income and tangible book value, and a strategic capital raise to strengthen regulatory capital. While there was a slight sequential dip in Q3 net income and an increase in net charge-offs, these are outweighed by the consistent positive trends and robust year-over-year improvements.

Positives

• Year-to-date net income of $8.3 million ($2.35 per share) significantly increased by $3.3 million ($0.91 per share) compared to the same period in 2024.
• The company achieved four straight quarters of positive trends in key categories including net income, net interest margin, yield on earning assets, cost of funds, return on average equity, return on average assets, and the Bank's leverage ratio.
• Tangible book value per share increased for the fourth consecutive quarter, reaching $27.631, an increase of 17.4% or $4.10 per share year-to-date.
• Total assets grew by $56.1 million (4.17%) to $1.36 billion since December 31, 2024.
• Total loans held for investment increased by $32.4 million (3.90%) to $872.3 million since December 31, 2024, with Q3 loan growth of $23.5 million across multiple categories.
• Total deposits increased by $40.2 million (3.30%) to $1.24 billion since December 31, 2024, including growth in noninterest-bearing deposits.
• The Bank's net interest margin increased by 60 basis points year-to-date to 3.33% from 2024.
• Unrealized loss in the securities portfolio declined from $35.2 million to $23.2 million since December 31, 2024, indicating an improvement in bond portfolio valuation.
• Capital ratios for Farmers & Merchants Bank (Leverage, CET1, Tier 1, Total Capital) all showed slight increases as of September 30, 2025, indicating a stronger capital position.

Negatives

• Net income for the third quarter of 2025 decreased by $41,000 or $0.02 per share (2.38%) compared to the second quarter of 2025, primarily due to higher noninterest expenses.
• Net interest income for Q3 2025 decreased by $32,000 from Q2 2025, as an increase in interest income was offset by a larger increase in interest expense.
• The Bank's net interest margin decreased by 12 basis points to 3.36% on a linked-quarter basis in Q3 2025.
• Noninterest expenses increased by $609,000 in Q3 2025 compared to Q2 2025, driven by higher salary expense, ATM and check card fees, and data processing expenses.
• Net charge-offs as a percentage of average loans increased to 0.49% for Q3 2025, up from 0.25% for Q2 2025.
• The Allowance for Credit Losses on Loans (ACLL) decreased by $464,000 from December 31, 2024, reflecting changes in loan portfolio mix and lower net charge-offs, but also a decline in reserves on individually analyzed loans.

Risks

• The indebtedness evidenced by the subordinated notes is junior in right of payment to Senior Indebtedness of F & M Bank Corp. and is unsecured.
• The subordinated notes are not a deposit and are not insured by the Federal Deposit Insurance Corporation or any other government agency or fund.
• In the event of liquidation, holders of Senior Indebtedness must be paid in full before any payment is made on the principal or interest of the subordinated notes.
• The company may be unable to redeem the subordinated notes prior to November 1, 2030, unless a Tier 2 Capital Event, Tax Event, or Investment Company Event occurs, and regulatory approvals are obtained.
• Changes in laws or regulations, or their interpretation, could materially risk the subordinated notes not qualifying as Tier 2 Capital, potentially triggering an early redemption event.
• Changes in tax laws or regulations could result in interest payable on the subordinated notes not being deductible by the company for federal income tax purposes, potentially triggering an early redemption event.
• The company faces risks related to general economic or capital market conditions, changes in interest rates, regulations and accounting principles, loan demand and asset quality, deposit flow, and competition.
• The company's ability to predict actual results or the effect of future plans or strategies is inherently uncertain, and actual results could differ materially from forward-looking statements.

Future Outlook

The company intends to use the net proceeds from the sale of the subordinated notes to refinance existing subordinated debt and for other general corporate purposes, including supporting organic growth and the Bank's regulatory capital ratios. The company acknowledges that forward-looking statements are subject to significant risks and uncertainties, and actual results may differ materially from expectations.

Management Comments

• CEO Mike Wilkerson stated, 'I am pleased to share that F&M continued to achieve consistent and improving financial results on a quarter-to-quarter basis, as well as year over year.'
• Wilkerson highlighted, 'Most significant, are four straight quarters of positive trends in the key categories of net income, net interest margin, yield on earning assets, cost of funds, return on average equity, return on average assets, and the Banks leverage ratio.'
• He expressed deep appreciation to the F&M team members for achieving these financial results through dedication, customer service, and community support.
• Wilkerson noted, 'As a result of their efforts and a strong focus on fundamentals, tangible book value of F&M shares increased for the fourth consecutive quarter.'
• He also thanked the F&M Mortgage team for enabling 176 families to purchase new homes year-to-date, including 95 first-time home buyers, emphasizing home ownership as a primary driver in building wealth.
• Wilkerson affirmed, 'We remain focused on our highest priority, which is to generate sufficient and sustainable profit. Doing so gives us the financial strength and liquidity to continue to make loans that support both businesses and individuals in the Shenandoah Valley.'

Industry Context

The issuance of subordinated debt is a common strategy for bank holding companies to enhance their regulatory capital, specifically Tier 2 capital, which supports their lending capacity and overall financial stability. The shift from fixed to floating rate debt, tied to SOFR, reflects the broader industry's transition away from LIBOR and adaptation to current interest rate environments. The company's focus on consistent loan and deposit growth, alongside improving asset quality and capital ratios, aligns with the strategic priorities of many regional banks aiming for sustainable profitability and community engagement in a competitive financial landscape.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or global benchmarks for direct assessment against industry standards.

Corporate Governance

Stakeholder Impact

• **Shareholders**: Benefit from increased tangible book value per share, strong year-to-date net income growth, and a declared quarterly dividend, indicating healthy returns and management's commitment to shareholder value.
• **Noteholders (New Subordinated Notes)**: Receive a fixed-to-floating interest rate on their investment, but bear the risk of subordination to senior indebtedness and the notes not being FDIC insured. The notes' qualification as Tier 2 capital provides regulatory stability for the company.
• **Existing Subordinated Debt Holders**: The proceeds from the new notes will be used to redeem existing subordinated debt, potentially impacting their investment depending on the terms of their current holdings.
• **Employees**: The company acknowledged the dedication of its team members for achieving financial results. The pension plan was amended in 2023 and terminated in 2024, which may have implications for employee benefits.
• **Customers**: Loan growth across multiple categories, including residential mortgages and support for first-time home buyers, indicates continued service and support for individual and business customers in the Shenandoah Valley. Deposit growth also reflects customer trust.
• **Regulators**: The issuance of notes structured to qualify as Tier 2 capital and the company's improved capital ratios demonstrate compliance with and strengthening of regulatory requirements.

Next Steps

• Payment of a $0.26 per share dividend to common shareholders on November 28, 2025.

Key Dates

Recommendation

The company demonstrates strong year-to-date financial performance with significant increases in net income, tangible book value, and overall asset/loan/deposit growth. The strategic issuance of $10.0 million in subordinated notes strengthens its Tier 2 capital, supporting future growth and regulatory compliance. While the third quarter saw a slight sequential dip in net income and an increase in net charge-offs, these are minor concerns when viewed against the backdrop of consistent positive trends and robust year-over-year improvements. A 'hold' recommendation is appropriate as a seasoned investor would acknowledge the solid performance and strategic moves but might await further quarters to confirm the sustainability of the positive trends and the impact of the new debt on profitability and risk profile before a 'strong buy' decision.

Keywords

Subordinated Notes, Tier 2 Capital, Fixed to Floating Rate, SEC Filing, Earnings Report, Financial Results, Bank Holding Company, Regulatory Capital, SOFR, Net Income, Assets, Loans, Deposits, Net Interest Margin, Tangible Book Value, Dividend, F&M Bank Corp.