8-K: F&M Bank Corp. Reports Mixed Fourth Quarter and Year-End 2023 Results Amid Strategic Overhaul

F&M Bank Corp. reported a decrease in net income for both the fourth quarter and full year 2023, impacted by one-time expenses, while also showing growth in loans and deposits.

Summary

• F&M Bank Corp. announced its financial results for the fourth quarter and year ended December 31, 2023.
• Net income for the fourth quarter was $457,000, or $0.13 per share, a decrease compared to both the previous quarter ($1.0 million, $0.29 per share) and the same quarter of the previous year ($1.7 million, $0.49 per share).
• Full-year net income was $2.8 million, or $0.79 per share, significantly lower than the $8.3 million, or $2.41 per share, reported in 2022, due to $1.8 million in after-tax one-time expenses.
• These one-time expenses included severance accruals for former bank officers and costs related to a voluntary early exit plan.
• Total assets reached $1.29 billion, with total loans at $822.1 million and total deposits at $1.13 billion.
• The company experienced loan growth of $78.5 million and deposit growth of $49.9 million since the end of 2022.
• Net interest income for the fourth quarter was $8.1 million, a slight increase from the previous quarter but a decrease compared to the same quarter in 2022.
• Noninterest income for the fourth quarter was $2.5 million, a decrease compared to both the previous quarter and the same quarter in 2022.
• Noninterest expenses for the fourth quarter were $10.5 million, an increase compared to both the previous quarter and the same quarter in 2022, driven by severance expenses and other costs.
• The company's net interest margin decreased to 2.66% in the fourth quarter, down from 3.04% in the same quarter of 2022.
• The allowance for credit losses (ACL) totaled $8.3 million, or 1.01% of gross loans outstanding.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like loan and deposit growth, but the significant decrease in net income and increase in non-performing loans, along with the one-time expenses, create a negative sentiment overall. The strategic plan and future outlook provide some hope, but the current results are concerning.

Positives

• The company experienced growth in total loans by $78.5 million and total deposits by $49.9 million since the end of 2022.
• Interest income increased due to higher loan volume and higher interest rates.
• The company recorded a $134,000 recovery of credit losses in the fourth quarter, indicating improvements in the loan portfolio.
• Tangible book value per common share increased to $21.551 from $19.551 at December 31, 2022.
• The company has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million.
• The company is scheduled to receive $93.7 million from bond paydowns and maturities by the end of 2024.
• The company declared a fourth quarter dividend of $0.26 per share.

Negatives

• Net income decreased significantly for both the fourth quarter and full year 2023 compared to the previous year.
• The company incurred $1.8 million in after-tax, one-time expenses, impacting profitability.
• Net interest margin decreased due to higher interest expenses outpacing interest income growth.
• Noninterest income decreased due to declines in mortgage banking and title insurance income.
• Noninterest expenses increased due to severance costs and other operating expenses.
• Nonperforming loans as a percentage of total assets increased from 0.18% to 0.50% year-over-year.
• Net charge-offs as a percentage of average loans increased from 0.10% in 2022 to 0.19% in 2023.
• The company's on-balance sheet asset liquidity decreased from $439.9 million to $178.0 million year-over-year.

Risks

• The company faces challenges from changes in interest rates and market conditions.
• The company's profitability is impacted by increased interest expenses and one-time costs.
• The company's loan portfolio is exposed to risks associated with concentrations in particular loan types.
• The company's nonperforming loans have increased, indicating potential credit quality issues.
• The company's liquidity has decreased, which could impact its ability to fund future growth.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Future Outlook

The company is executing a multi-year strategic plan focused on growing profitability and capital, and managing asset growth and liquidity to improve return on investment to shareholders. The company expects to receive $93.7 million from bond paydowns and maturities by the end of 2024 which can be used to fund future loan growth and for other purposes.

Management Comments

• Mike Wilkerson, chief executive officer, stated that April 2023 marked a new beginning for F&M, with a focus on ensuring the long-term health and future of the bank.
• Management is executing a multi-year strategic plan focused on growing profitability and capital and managing asset growth and liquidity.
• Management believes that progress is already being made, and that progress is reflected in the financial report.
• Management is excited about the future and believes the bank is well-positioned to meet future challenges.

Industry Context

The company's results reflect the challenges faced by the banking industry, including rising interest rates and increased competition. The company's strategic plan to improve profitability and manage asset growth is in line with industry trends to adapt to the changing economic environment. The company's focus on cost savings and organizational effectiveness is also a common theme in the banking sector.

Comparison to Industry Standards

• F&M Bank's net interest margin of 2.66% is below the average for US banks, which has been around 3.0% to 3.5% in recent periods, indicating a potential area for improvement.
• The increase in non-performing loans to 0.50% of total assets is higher than the industry average, which has been around 0.3% to 0.4% for well-performing banks, suggesting a need for closer monitoring of loan quality.
• The efficiency ratio of 90.66% is higher than the industry average, which is typically around 60%, indicating that the bank has higher operating costs relative to its income.
• Compared to regional banks like First Community Bankshares, Inc. (FCBC) and Blue Ridge Bankshares, Inc. (BRBS), F&M Bank's profitability metrics are lower, with FCBC and BRBS reporting higher returns on assets and equity.
• The loan growth of $78.5 million is a positive sign, but the increase in interest expenses and one-time costs have significantly impacted the bottom line, which is a common challenge for many banks in the current interest rate environment.
• The company's strategic plan to improve profitability and manage asset growth is similar to the strategies being implemented by other banks to navigate the current economic challenges.

Stakeholder Impact

• Shareholders will be impacted by the decrease in net income and the lower dividend yield compared to previous periods.
• Employees may be impacted by the voluntary early exit plan and potential future cost-cutting measures.
• Customers may be impacted by changes in interest rates and loan terms.
• The company's performance may impact its relationships with suppliers and creditors.

Next Steps

• The company will continue to execute its multi-year strategic plan focused on growing profitability and capital.
• The company will manage asset growth and liquidity to improve return on investment to shareholders.
• The company will monitor its loan portfolio and asset quality closely.
• The company will use the $93.7 million from bond paydowns and maturities to fund future loan growth and for other purposes.

Key Dates

Keywords

bank, financial results, net income, loans, deposits, interest income, interest expense, noninterest income, noninterest expense, dividend, asset quality, credit losses, liquidity, net interest margin