2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

Figure 2: ROAA for F&M Bank and Peer Group 5 from 2015-2019 This figure depicts return on average assets as a percentage of average total assets for F&M Bank and PG5. Data source: UBPR, FFIEC .

as a percentage of average assets. 3 This spread is accomplished through robust growth in its loans held for investment. Further, F&M Bank continues to see a steady increase in both its noninterest income and noninterest expense. Its primary source of noninterest income is derived from investments made for businesses and individuals. 4 Additionally, its noninterest expense covers personnel and various operating expenses, with personnel expenses making up the majority (58% in 2019) of total noninterest expenses. The last item in Table 1 depicts returns as a percentage of average assets, or ROAA. In Figure 2, we graph F&M Bank’s ROAA against PG5 to get a better visual. As Figure 2 illustrates, aside from 2019, F&M Bank is generating healthy returns from its assets. Transitioning into 2020, management is certain that its proactive measures to cover loan losses will put F&M Bank back in position to yield strong returns at the start of the new decade. 1.3 Loan Portfolio Composition Farmers and Merchants Bank has

F&M Bank PG5

1.5%

1%

0.5%

Percentage

0%

2015

2016

2017

2018

2019

Year

Figure 3: Loan Portfolio Composition of F&M Bank from 2015-2019 This figure depicts F&M Bank’s loan portfolio composition as a percentage of its total portfolio value. Data Source: UBPR, FFIEC

Real Estate

Individual

Other

Commercial

Agricultural

2019

2018

2017

Year

2016

2015

0%

100%

Percentage

Given the history of F&M Bank, we expected agricultural loans to represent a larger share of its portfolio than illustrated. 7 Moreover, F&M Bank branches sit beside two of the highest agricultural-producing counties in Virginia: Rockingham County and Augusta County (“Virginia”). This being said, management

diversified its loan portfolio over its history through organic loan growth and expansion of local branches. 5,6 In Figure 3, we examine its loan portfolio composition and find that real estate loans deliver about three quarters (75%) of its total value annually.

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