2020 Journal of Community Bank Studies

SECOND PLACE: James Madison University

rate in earnings over the time interval 2015- 2018. Following another strong year of profits in 2018 just north of $9 million, earnings fell in 2019 to $4.5 million. This decline in net income stems from several non-recurring items reported in its 2019 fourth-quarter earnings statement. First, in 2018, multiple upper-level executives announced their retirement. These retirements involved pension costs and severance benefits accruing to an estimated value of $1.5 million. In addition, management discovered an accounting error in November 2019 (Hanna). 2 This accounting error brought forth additional expenses on the year. Above all, in 2019, management injected nearly $7.5 million in provisions to its Allowance for Loan & Lease Losses. This tactic intends to cover expected loan losses due to impairments on substandard loans and problem credits,

as well as its forecast of the health and direction of the economy. Next, in Table 1, we outline key line-items from F&M Bank’s income statement to help us recognize its standard profitability. As Table 1 shows, when measured against Peer Group 5 (PG5), F&M Bank returns a greater share of interest income and net interest income

Figure 1: F&M Bank’s Net Income from 2015-2019 This table depicts net income in $1,000s. Data source: UBPR, FFIEC

$10000

$9,320

$9,051

$8,644

$7500

$8,242

$5000

$4,541

$2500

0

2015

2016

2017

2018

2019

Year

Table 1: Income Statement Analysis for F&M Bank & Peer Group 5 from 2015-2019 This table provides a brief overview of income statement line-items as a percentage of average assets during the year for F&M Bank and PG5. Source: UBPR, FFIEC

2015

2016

2017

2018

2019

F&M PG5 F&M PG5 F&M PG5 F&M PG5 F&M PG5

Interest income

4.6 3.92 4.56 3.94 4.73 4.04 4.9 4.27 4.8 4.46

Interest expense

0.45 0.4 0.51 0.4 0.54 0.44 0.64 0.61 0.86 0.84

Net interest income

4.15 3.51 4.05 3.53 4.19 3.59 4.25 3.65 3.95 3.62

Non-interest income

2.8 2.86 2.73 2.84 3.31 2.8 3.44 2.81 3.52 2.81

Non-interest expense

0.61 0.76 0.52 0.76 0.95 0.72 0.93 0.71 1.06 0.71

Net income

1.29

1.04

1.32

1.05

1.20

1.03

1.21

1.22

0.57

1.23

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