8-K: F&M Bank Corp. Reports Mixed Third Quarter Results Amidst One-Time Expenses

F&M Bank Corp. announced third quarter 2024 earnings impacted by significant one-time expenses, despite growth in loans and deposits.

Summary

• F&M Bank Corp. reported a net income of $792,000, or $0.23 per share, for the third quarter of 2024, a decrease compared to the previous quarter's $3.0 million, or $0.86 per share.
• The third quarter results were significantly impacted by $734,000 in after-tax one-time expenses, including a $152,000 severance expense and a $582,000 expense related to an external fraud event.
• Excluding these one-time expenses, core earnings for the third quarter were $1,526,000.
• For the first nine months of 2024, net income was $5.0 million, or $1.44 per share, an increase from $2.3 million, or $0.67 per share, for the same period in 2023.
• Total assets reached $1.34 billion, with total loans at $830.7 million and total deposits at $1.22 billion as of September 30, 2024.
• The company experienced growth in total loans by $4.4 million and total deposits by $33.0 million during the third quarter.
• The tangible book value per common share increased from $21.551 on December 31, 2023, to $25.011 on September 30, 2024.
• The stock price per share increased by 44.8% during the third quarter, rising from $16.15 on June 30, 2024, to $23.40 as of September 30, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the significant impact of one-time expenses and increased credit loss provisions on the third quarter results, despite positive year-to-date performance and stock price increase. The mixed results and the presence of a fraud event temper the overall positive aspects.

Positives

• Year-to-date net income significantly increased to $5.0 million, or $1.44 per share, compared to $2.3 million, or $0.67 per share, for the same period in 2023.
• Total assets grew to $1.34 billion, with loan growth of $4.4 million and deposit growth of $33.0 million during the third quarter.
• The company's stock price saw a substantial increase of 44.8% during the third quarter.
• Tangible book value per common share increased to $25.011 as of September 30, 2024.
• Net interest income increased by $294,000 on a linked quarter basis.
• The company's net interest margin increased by five basis points on a linked quarter basis to 2.77%.
• The company has a strong liquidity position with $228.3 million in on-balance sheet asset liquidity and access to $90.0 million in unsecured federal funds lines.
• The company has a secured line of credit with the FHLB with available credit of $150.7 million as of September 30, 2024.

Negatives

• Third quarter net income decreased to $792,000, or $0.23 per share, compared to $3.0 million, or $0.86 per share, in the previous quarter.
• The company incurred $734,000 in after-tax one-time expenses due to severance and an external fraud event.
• Noninterest income declined by $238,000 from the previous quarter.
• Noninterest expenses increased by $1.5 million due to one-time items and higher employee benefits expenses.
• The provision for credit losses increased to $902,000 for the third quarter, compared to a recovery of $458,000 in the second quarter.
• Return on average assets and return on average equity were lower for the third quarter compared to the second quarter.
• Net charge-offs as a percentage of average loans increased to 0.32% for the quarter ended September 30, 2024.

Risks

• The company experienced a significant external fraud event resulting in a $737,000 expense.
• Increased provision for credit losses in the third quarter could indicate potential asset quality concerns.
• The company's noninterest income declined, which could impact future profitability.
• The company's noninterest expenses increased, which could impact future profitability.
• The company's net charge-offs as a percentage of average loans increased, which could indicate potential asset quality concerns.

Future Outlook

The company is focused on generating sufficient and sustainable profit through effective leadership, disciplined credit fundamentals, and remixing the securities portfolio into higher yielding loans and investments. The company is scheduled to receive $70.7 million from bond paydowns and maturities in the fourth quarter of 2024 which can be used to fund future loan growth and for other purposes.

Management Comments

• Mike Wilkerson, chief executive officer, stated that F&M employees continued to focus on executing the strategic plan, providing exceptional customer service, and serving the community.
• Management highlighted that their efforts resulted in increased revenue and interest income, controlled operational expenses, and growth in both deposits and loans while maintaining strong asset quality.
• Management expressed appreciation to shareholders, employees, and customers for their support.

Industry Context

The results reflect a mixed performance in the banking sector, with growth in key areas like loans and deposits, but also challenges from one-time expenses and increased credit loss provisions. The increase in net interest margin is a positive sign in the current interest rate environment. The company's focus on community banking and local engagement is a common strategy for regional banks.

Comparison to Industry Standards

• F&M Bank Corp.'s net interest margin of 2.77% is within the range of other community banks, but the one-time expenses and increased credit loss provisions are notable deviations.
• The 44.8% increase in stock price during the quarter is significantly higher than the average for regional banks, suggesting strong investor confidence despite the mixed financial results.
• The company's tangible book value per share growth from $21.551 to $25.011 is a positive indicator of increasing shareholder value, which is a key metric for bank performance.
• Compared to larger national banks, F&M's focus on local markets and community engagement is a differentiating factor, but it also exposes them to regional economic fluctuations.
• The company's loan portfolio diversification, with a significant portion in residential mortgages and commercial real estate, is typical for community banks, but the increase in net charge-offs is a concern that needs to be monitored.

Stakeholder Impact

• Shareholders will see a mixed impact with a strong stock price increase but lower quarterly earnings.
• Employees may be affected by the severance expense and the ongoing focus on cost control.
• Customers will likely continue to receive services as the bank focuses on its strategic plan.
• The community will continue to benefit from the bank's volunteerism and community engagement.

Next Steps

• The company will use $70.7 million from bond paydowns and maturities in the fourth quarter of 2024 to fund future loan growth and for other purposes.
• The company will continue to focus on executing its strategic plan, providing exceptional customer service, and serving the community.

Key Dates

Keywords

bank, earnings, financial results, net income, loans, deposits, dividends, book value, fraud, credit losses, noninterest income, noninterest expense