DERIVATIVES	12 Months Ended
Dec. 31, 2025
DERIVATIVES
DERIVATIVES	NOTE 12 DERIVATIVES Mortgage Banking Derivatives Loans Held for Sale (“LHFS”) - The Bank originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business, totaling $3.2 million as of December 31, 2025, of which $3.2 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2. Interest Rate Lock Commitments and Forward Sales Commitments - The Bank enters commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (“IRLCs”). Such rate lock commitments on mortgage loans to be sold in the secondary market are derivatives. Upon entering a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment). The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best-efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors, the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate loan commitments will close. The fair value of these derivative instruments is reported in “Other assets” in the Consolidated Balance Sheet at December 31, 2025, and totaled $37 thousand, with a notional amount of $4.5 million and total positions of 17. The fair value of the IRLCs at December 31, 2024 totaled $18 thousand, with a notional amount of $3.2 million and total positions of 13. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the years ended December 31, 2025 and 2024. The Company’s IRLCs are classified as Level 2. At December 31, 2025 and 2024, each IRLC and all LHFS were subject to a forward sales commitment on a best- efforts basis. The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2025 totaled $20 thousand, with a notional amount of $7.0 million and total positions of 27. The fair value of forward sales commitments reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2024 totaled $41 thousand, with a notional amount of $4.3 million and total positions of 18.

DERIVATIVES

12 Months Ended

Dec. 31, 2025

NOTE 12 DERIVATIVES

Mortgage Banking Derivatives

Loans Held for Sale (“LHFS”) - The Bank originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. Fair value of the Company’s LHFS is based on observable market prices for the identical instruments traded in the secondary mortgage loan markets in which the Company conducts business, totaling $3.2 million as of December 31, 2025, of which $3.2 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.

Interest Rate Lock Commitments and Forward Sales Commitments - The Bank enters commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (“IRLCs”). Such rate lock commitments on mortgage loans to be sold in the secondary market are derivatives. Upon entering a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment).

The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best-efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors, the Company does not expect them to fail to meet their obligation. The Company determines the fair value of the IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best-efforts basis while taking into consideration the probability that the rate loan commitments will close.

The fair value of these derivative instruments is reported in “Other assets” in the Consolidated Balance Sheet at December 31, 2025, and totaled $37 thousand, with a notional amount of $4.5 million and total positions of 17. The fair value of the IRLCs at December 31, 2024 totaled $18 thousand, with a notional amount of $3.2 million and total positions of 13. Changes in fair value are recorded as a component of “Mortgage banking income” in the Consolidated Income Statement for the years ended December 31, 2025 and 2024. The Company’s IRLCs are classified as Level 2. At December 31, 2025 and 2024, each IRLC and all LHFS were subject to a forward sales commitment on a best- efforts basis.

The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments was reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2025 totaled $20 thousand, with a notional amount of $7.0 million and total positions of 27. The fair value of forward sales commitments reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2024 totaled $41 thousand, with a notional amount of $4.3 million and total positions of 18.

F&M BANK CORP 10-K