Farmers Bankshares, Inc. (OTC-PINK: FBVA) reports unaudited earnings of $1.8 million, or $0.57 per share, for the fourth quarter of 2020. These results are increased from the $921 thousand, or $0.30 per share, earned during the fourth quarter of 2019. The Company posted record earnings for the year, which amounted to $5.4 million or $1.74 per share, which is a 6.07% increase from the $5.1 million or $1.65 per share, reported for 2019.

At December 31, 2020, select financial information and key highlights include:

• Return on average assets of 1.05%, compared to 1.10% in 2019.
• Return on average equity of 8.70%, compared to 9.49% in 2019.
• Return on average tangible common equity (1) of 10.45%, compared to 11.82% in 2019.
• Net interest margin was 3.53%, significantly reduced from 3.83% in the prior year.
• Total cost of deposits decreased to 0.38% from 0.63% at December 31, 2019.

"We are pleased to report another year of record earnings in 2020. Our strategy of investing in sources of non-interest income through insurance and mortgage partnerships proved highly beneficial in 2020 and helped to offset the negative impact of falling net interest margins in traditional banking. We made significant contributions to our provision for loan losses to account for the economic uncertainty caused by the COVID-19 pandemic and still enjoyed a very profitable year. I am proud of our employees for their continuous commitment to providing high level customer service during a challenging environment. Our staff's ability and willingness to adapt to new and creative ways of conducting business and servicing our customers in a safe and efficient manner showed brightly in 2020. As a community bank, we remain nimble and flexible in responding to ever-changing customer needs, no matter the circumstances. The year 2020 held many challenges for the financial industry. Our team chose to approach it as a time for our Bank to rise to the occasion and continue to support our local community and customers, and I'm very proud of their efforts and the results," said Vernon M. Towler, President and Chief Executive Officer.

Consolidated Balance Sheet

Net loans increased $17.6 million, or 6.74%, as compared to December 31, 2019. The increase was primarily driven by loans associated with the Company's participation in the CARES Act's Paycheck Protection Program ("PPP"). While the Company had productive loan growth in some of its newer markets, two large loans to municipalities repaid during the fourth quarter which affected net loan growth during that time. The Company had approximately $17.4 million in PPP loans on the balance sheet as of December 31, 2020 and had received approximately $7.6 million in payments on 45 loans being fully forgiven through the same time period. Deposit balances have increased by $68.1 million to $454.7 million as of December 31, 2020 from $385.5 million as of December 31, 2019. Non-interest bearing deposits increased by $34.6 million and make up approximately 33.23% of total deposits. The influx of customer stimulus payments, PPP loan funds and seasonal municipality deposits all contributed to this increase in deposits. During the fourth quarter, the Company used excess cash to repay a $5.0 million Federal Home Loan Bank advance prior to its maturity in order to reduce interest expense.

Capital ratios at the bank level remain well within the well-capitalized guidelines of the regulatory framework.

Results of Operations

Net interest income decreased 2.47%, for the year ended December 31, 2020 compared to 2019. Net interest margin through the fourth quarter decreased to 3.53%, when compared to the fourth quarter of 2019 of 3.83%. This reduction is primarily due to the impact of significantly lower market interest rates since the first quarter of 2020 and the rate associated with loans originated through the PPP program.

Non-interest income through the fourth quarter of 2020 was approximately $9.6 million and was increased by 24.35% over the same period in the prior year due primarily to increased insurance revenues from Manry Rawls Insurance and our investment in mortgage lending through our ownership interest in Tidewater Home Funding. Non-interest expense remained relatively flat in 2020 compared to same period in 2019, decreasing by less than one percent.

No provision for loan losses was added during the fourth quarter of 2020. Total provision equaled $921 thousand for the year ended December 31, 2020 compared to $0 for the same period in 2019. The Company considers local and national unemployment, housing and market trends when determining the estimated allowance. The economic factor of our allowance for loan loss calculation drove the additional provision expense during the year. Our allowance for loan losses was 2.23% of gross loans as of December 31, 2020, including loans originated through the PPP, and 2.37% of gross loans excluding loans originated through the PPP (1).

Asset Quality

Non-performing assets, which consists of nonaccrual loans and other real estate owned decreased from $1.4 million at December 31, 2019 to $844 thousand at December 31, 2020. There were no additions to nonaccrual loans during the quarter.

Loans are considered past due if the required principal and interest income have not been received as of the date such payments were due. As of December 31, 2020, loans greater than thirty days past due totaled $466 thousand, or 0.16% of total gross loans. This compared to $927 thousand or 0.35% of total gross loans as of December 31, 2019.

Of the $37.6 million in loans that were on a COVID-19 payment deferral plan during 2020, all have returned to normal payment schedules.