SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential of Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
F&M NATIONAL CORPORATION
------------------------
(Name of Registrant as Specified in Its Charter)
F&M NATIONAL CORPORATION
------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies
--------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
--------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
1)Amount Previously Paid: __________________________________________
2)Form Schedule or Registration Statement No.: _____________________
3)Filing Party: ____________________________________________________
4)Date Filed: ______________________________________________________
<PAGE>
[F & M logo]
F & M National Corporation
P. O. Box 2800 / Winchester, Virginia 22601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of F&M NATIONAL CORPORATION (the
"Company") will be held at the TraveLodge of Winchester, 160 Front Royal Pike,
Winchester, Virginia, on Tuesday, April 28, 1998, at 10:00 a.m. for the
following purposes:
1. To elect thirteen directors to serve for the ensuing year;
2. To approve the F&M National Corporation 1998 Employee Stock
Discount Plan, as more particularly described in the
accompanying Proxy Statement;
3. To approve an amendment and restatement of the F&M National
Corporation 1992 Incentive and Non-Qualified Stock Option Plan
(the "Stock Option Plan") and to increase the number of shares
available under the Stock Option Plan from 250,000 to 750,000,
as more particularly described in the accompanying Proxy
Statement;
4. To ratify the selection by the Audit Committee of the Board of
Directors of Yount, Hyde Barbour, P.C., independent certified
public accountants, as auditors of the Company for 1998; and
5. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on February 28,
1998, will be entitled to vote at the Annual Meeting.
Attendance at the Annual Meeting will be limited to shareholders of
record, persons holding proxies from shareholders and certain representatives of
the press and financial community. If you wish to attend the Annual Meeting, but
your shares are held in the name of a broker, bank or other nominee, you should
bring with you written confirmation from such nominee of your beneficial
ownership.
You are cordially invited to attend the Annual Meeting in person.
Whether or not you plan to attend the meeting, it is important that your shares
be represented. Please complete, sign, date and return the enclosed proxy card
promptly. If you attend the Annual Meeting, you may withdraw any proxy
previously given and vote in person.
Due to limited seating space, lunch will not be served.
Following the adjournment of the Annual Meeting, officers and directors
of the Company will be available to meet with you.
By Order of the Board of Directors
/s/ Michael L. Bryan
--------------------
Michael L. Bryan
Corporate Secretary
Winchester, Virginia
March 30, 1998
<PAGE>
F&M NATIONAL CORPORATION
P R O X Y S T A T E M E N T
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of F&M National Corporation (the "Company")
to be voted at the 1998 Annual Meeting of Shareholders to be held Tuesday, April
28, 1998, at 10:00 a.m. at the TraveLodge of Winchester, 160 Front Royal Pike,
Winchester, Virginia, and any adjournment thereof. The distribution of this
Proxy Statement and related proxy material will commence on or about March 30,
1998.
Voting and Revocation of Proxies
All properly executed proxies delivered pursuant to this solicitation
will be voted at the Annual Meeting in accordance with instructions noted
thereon or, if no direction is indicated, they will be voted in favor of the
proposals set forth in the Notice of Annual Meeting. Any shareholder giving a
proxy has the power to revoke it at any time before the proxy is voted by giving
written notice to the Secretary of the Company, by executing or delivering a
substitute proxy or by attending the Annual Meeting and revoking the proxy at
the meeting.
Voting Rights of Shareholders
Only Shareholders of record at the close of business on February 28,
1998, will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. As of the close of business on the record date, 20,389,759
shares of Common Stock, par value $2.00 per share, were outstanding and entitled
to vote at the Annual Meeting. The Company has no other class of stock
outstanding. Each share of Common Stock will entitle the holder thereof to one
vote on all matters to come before the Annual Meeting. A majority of the votes
entitled to be cast, represented in person or by proxy, will constitute a quorum
for the transaction of business. Shares for which the holder has elected to
abstain or to withhold the proxies' authority to vote (including broker
non-votes) on a matter will count toward a quorum, but will not be included in
determining the number of votes cast with respect to such matter.
Solicitation of Proxies
The cost of the solicitation of proxies will be borne by the Company.
In addition to solicitation by use of the mails, certain officers and employees
of the Company (who will not be compensated in addition to their regular
salaries) may solicit proxies personally or by telephone. The Company will
reimburse brokerage firms, and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in forwarding proxy material to beneficial
owners of Company Common Stock.
<PAGE>
ELECTION OF DIRECTORS - PROPOSAL ONE
The thirteen persons named below, each of whom currently serves on the
Board of Directors, will be nominated to serve as directors until the 1999
Annual Meeting of Shareholders or until their successors have been duly elected
and qualified. The persons named in the proxy will vote for the election of the
nominees named below unless authority is withheld. If for any reason any of the
persons named below should become unavailable to serve, an event which
management does not anticipate, proxies will be voted for the remaining nominees
and such other person or persons as the Board of Directors may designate. The
election of each nominee requires the affirmative vote of the holders of a
plurality of the shares of Common Stock cast in the election of directors.
The Board of Directors recommends that shareholders vote for the
nominees set forth below.
<TABLE>
<CAPTION>
Served as Principal Occupation
Name and Age Director Since During Past Five Years
------------ -------------- ----------------------
<S> <C>
Frank Armstrong, III (61) 1985 Chairman, President and Chief Executive Officer of
National Fruit Product Company, Inc. (food processor and
distributor), Winchester, Virginia.
William H. Clement (70) 1988 Vice Chairman, Hidden Creek Industries, Inc. (a private
real estate investment company), Winchester, Virginia;
Retired in 1995 as Chairman of the Board of Automotive
Industries, Inc. and Vice Chairman of the Board of
Automotive Industries Holding, Inc. (automobile parts
manufacturer), Strasburg, Virginia.
Charles E. Curtis (59) 1996 Vice Chairman and Chief Administrative Officer, F&M
National Corporation and Vice Chairman of F&M
Bank-Winchester as of January 1, 1998; President and
Chief Executive Officer of F&M Bank-Northern Virginia
from August 9, 1996 to December 31, 1997; President and
Chief Executive Officer of Fairfax Bank and Trust Company
from July 22, 1985 to August 8, 1996.
W. M. Feltner (78) 1970 Chairman of the Board and Chief Executive Officer of the
Company; Chairman of the Board of F&M Bank-Winchester.
John R. Fernstrom (51) 1997 Real Estate Investor; Chairman of the Board of F&M
Bank-Allegiance.
William R. Harris (69) 1986 Chairman of the Board of Harris Heating & Plumbing, Inc.,
Richmond, Virginia; Chairman of the Board, F&M
Bank-Richmond.
L. David Horner, III (63) 1986 Chairman of the Board of Horner Properties, Inc. (real
estate developer), Stuart, Florida.
Jack R. Huyett (65) 1990 Retired President, Chief Administrative Officer and Vice
Chairman of the Board of F&M National Corporation.
George L. Romine (86) 1986 Retired Vice President and Director of Abex Corporation
(automobile parts manufacturer), Winchester, Virginia;
Retired Executive Director of the Winchester-Frederick
County Economic Development Commission.
J. D. Shockey, Jr. (55) 1970 President of Shockey Industries, Inc. (general
construction contractor), Winchester, Virginia.
Ronald W. Tydings (58) 1996 Attorney, President of the law firm of Tydings Bryan and
Adams, P.C., Fairfax, Virginia; Chairman of the Board,
F&M Bank-Northern Virginia.
Fred G. Wayland, Jr. (69) 1994 Retired President and Chief Executive Officer of PNB
Financial Corporation (a bank holding company which
affiliated with the Company in 1994), Warrenton, Virginia.
Alfred B. Whitt (59) 1997 President, Vice Chairman and Chief Financial Officer of
F&M National Corporation and Vice Chairman and Secretary
of F&M Bank-Winchester as of January 1, 1998; Senior Vice
President, Senior Financial Officer and Secretary of F&M
National Corporation from 1991 through 1997.
</TABLE>
Mr. John S. Scully, III, a director since 1970, is retiring as a
director as of the Annual Meeting and will not stand for re-election. Mr.
Scully has been elected Director Emeritus in honor of his long and valued
service.
Board of Directors and Committees
During 1997, the Board of Directors held twelve regular monthly
meetings. No special Board meetings were held. All nominees to the Board
attended at least 75%, in the aggregate, of the meetings of the Board and
committees on which they served.
The standing committees of the Board of Directors are the Executive
Committee, the Audit Committee, the Nominating Committee, and the Human
Resources Committee.
<PAGE>
Executive Committee. The members of the Executive Committee for
1997 were Messrs. Clement, Feltner, Harris, Huyett, and Romine. The
Company's Bylaws empower the Executive Committee to exercise the full authority
of the Board of Directors when it is not in session, except for certain matters
reserved to the Board by law.
Audit Committee. The Audit Committee, whose members are Messrs.
Armstrong, Horner, Romine, Scully, and Tydings recommends the independent
auditors to be selected by the Board, discusses with the independent auditors
the scope of their proposed audit, reviews the audit reports, discusses with
management the implementation of the auditors' recommendations, reviews the fee
of the independent auditors for audit and non-audit services, reviews the
adequacy of the Company's system of internal accounting controls and reviews
reports of audit activities performed by the Company's staff of internal
auditors. This committee met four times during 1997.
Nominating Committee. The Nominating Committee was composed of
Messrs. Clement, Romine, Shockey, and Wayland. The Nominating Committee
recommends to the Board of Directors candidates for election as directors of
the Company. This committee met twice during 1997.
Human Resources Committee. The members of the Human Resources Committee
are Messrs. Clement, Romine, and Shockey. The primary responsibilities of this
committee are to review and recommend to the Board of Directors compensation of
senior management. This committee also administers cash awards made under the
Company's Officers' Incentive Bonus Plan and the granting of stock options under
the Company's stock option plan.
This committee met once during 1997.
Directors' Fees
During 1997, each director received $500 for each Board meeting
attended through June and $600 for each Board meeting attended from July to
December. Each nonemployee director received, in addition, an annual retainer of
$6,500. Board members were not compensated for committee meetings attended,
except that members of the Audit Committee and the Human Resources Committee
received $200 for each committee meeting attended. Directors also received
$1,200 annually to cover travel, lodging, and related expenses incurred in
attending Board and committee meetings.
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth, as of February 28, 1998, certain
information with respect to the beneficial ownership of Company Common Stock
held by each director and nominee and each executive officer named in the
Summary Compensation Table below, and by the directors and all executive
officers as a group.
As of February 28, 1998, no person beneficially owned 5% or more of the
Company's Common Stock. The directors and all executive officers as a group
beneficially owned as of that date 6.5% of the outstanding shares of Common
Stock.
<PAGE>
<TABLE>
<CAPTION>
Stock
Name Ownership (1)
---- -------------
<S> <C>
Frank Armstrong, III........................................ 15,937
William H. Clement.......................................... 87,771
Charles E. Curtis........................................... 173,325(2)
W. M. Feltner............................................... 171,650(2)
John R. Fernstrom........................................... 13,173
William R. Harris........................................... 108,868
L. David Horner, III........................................ 98,048
Jack R. Huyett.............................................. 109,204(2)
George L. Romine............................................ 26,151
John S. Scully, III......................................... 90,643
J. D. Shockey, Jr........................................... 29,718
Ronald W. Tydings........................................... 171,120
Fred G. Wayland, Jr......................................... 7,800
Alfred B. Whitt............................................. 87,702(2)
Betty H. Carroll............................................ 90,445(2)
All Directors & Executive Officers as a Group............... 1,334,954
</TABLE>
(1) Includes shares held by affiliated corporations, spouses and minor
children, and shares held jointly with spouses or as custodians or
trustees for children and others.
(2) Includes: 70,125 shares issuable to Mr. Feltner; 27,625 shares issuable
to Mr. Huyett; 37,625 shares issuable to Mrs. Carroll; 37,625 shares
issuable to Mr. Whitt; and 30,301 shares issuable to Mr. Curtis under
the Company's stock option plans.
EXECUTIVE COMPENSATION
The table below sets forth certain information concerning the annual
and long-term compensation earned by the Chief Executive Officer and the other
four most highly compensated executive officers of the Company (collectively,
the "Named Officers") for each of the past three years, with the exception of
Mr. Charles E. Curtis for whom compensation information is provided only for
1997 in view of his recent promotion to Vice Chairman and Chief Administrative
Officer of the Company.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION> Long-term
Compensation
------------
Annual Compensation(1) Securities
Name and ----------------------- Underlying All Other
Principal Position Year Salary(2) Bonus Options(3) Compensation(4)
------------------ ---- --------- --------- ---------- ---------------
<S> <C>
W. M. Feltner 1997 $607,800 $225,000 20,000 $10,375
Chairman of the Board/ 1996 507,200 200,000 15,000 7,500
Chief Executive Officer 1995 507,200 180,000 10,000 9,346
Jack R. Huyett 1997 $267,800 $ 85,000 10,000 $10,375
Retired President/Chief 1996 232,200 75,000 7,500 9,750
Administrative Officer 1995 207,200 65,000 5,000 9,346
Betty H. Carroll 1997 $250,000 $ 80,000 10,000 $10,375
Senior Vice President; 1996 222,200 74,000 7,500 9,761
President/CEO, F&M 1995 207,200 64,000 5,000 9,346
Bank-Winchester
Alfred B. Whitt 1997 $191,400 $ 70,000 10,000 $10,375
Vice Chairman, President, 1996 170,000 55,000 7,500 9,723
Chief Financial Officer 1995 157,200 45,000 5,000 9,346
Charles E. Curtis 1997 $177,800 $ 50,000 1,500 $10,375
Vice Chairman, Chief
Administrative Officer
</TABLE>
- ----------------
(1) Each Named Officer received certain perquisites and other personal
benefits, the amounts of which are not shown because the aggregate
amount of such compensation during the year did not exceed the lesser
of $50,000 or 10% of total salary and bonus reported for such
executive officer.
(2) Includes directors' fees.
(3) The Company's stock option plan does not permit grants of restricted
stock, and this plan is the Company's only stock-based long term
compensation plan currently in effect.
(4) These amounts represent Company contributions allocated under the
Company's 401(k) Retirement Plan and the Company's Employee Stock
Ownership Plan, respectively, to the Named Officers for 1997 in the
following amounts: W. M. Feltner, $2,375 and $8,000; Jack R. Huyett,
$2,375 and $8,000; Betty H. Carroll, $2,375 and $8,000; Alfred B.
Whitt, $2,375 and $8,000; and Charles E. Curtis, $2,375 and $8,000.
Stock Option Grants in 1997
The Company's stock option plan provides for the granting of both
incentive and non-qualified stock options to executive officers and key
employees of the Company and its subsidiaries. While the option price of
incentive options may not be less than the fair market value of the stock at the
date of grant, non-qualified options may be granted at prices less than the fair
market value of the Common Stock on the date of grant, but in no event at an
exercise price less than one-half of the market price on the date of grant.
The following table provides certain information concerning stock
options granted during 1997 to the Named Officers. No stock appreciation rights
may be granted under the Company's stock option plan.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Percent of
Number of Total
Shares Options Market
Underlying Granted to Exercise Price Potential
Options Employees Price per on Grant Expiration Realizable Value (2)(3)
--------------------------------
Name Granted(1) in 1997 Share Date Date 0% 5% 10%
---- ---------- ------- ----- ---- ---- -- -- ---
<S> <C>
W. M. Feltner 20,000 29.2% $10.69 $21.375 1/2/07 $ 213,700 $ 852,738 $ 1,407,289
Jack R. Huyett 10,000 14.6 10.69 21.375 1/2/07 106,850 426,369 703,644
Betty H. Carroll 10,000 14.6 10.69 21.375 1/2/07 106,850 426,369 703,644
Alfred B. Whitt 10,000 14.6 10.69 21.375 1/2/07 106,850 426,369 703,644
Charles E. Curtis 1,500 2.2 10.69 21.375 1/2/07 16,027 63,955 105,546
</TABLE>
- --------------
(1) The stock options granted during 1997 to the Named Officers were
granted on January 2, 1997, and first became exercisable on that date.
(2) Potential realizable value at the assumed annual rates of stock price
appreciation based on actual option term (10 years) and annual compounding.
(3) No allowance has been made for income taxes that will be due upon
exercise.
Stock Option Exercises in 1997 and Year-End Option Values
The following table shows certain information with respect to the stock
options exercised during 1997 and the number and value of unexercised options at
year-end.
<TABLE>
<CAPTION>
Number of Value of
Shares Underlying Unexercised
Number of Unexercised In-the-Money
Shares Acquired Value Options at Options at
Name on Exercise Realized(1) December 31, 1997(2) December 31, 1997(3)
---- ----------- ----------- -------------------- --------------------
<S> <C>
W. M. Feltner 5,125 $ 93,241 50,125 $1,239,205
Jack R. Huyett -0- -0- 27,625 687,368
Betty H. Carroll 2,562 34,763 27,625 687,368
Alfred B. Whitt 1,025 13,909 27,625 687,368
Charles E. Curtis 10,932 138,508 20,301 489,023
</TABLE>
- ---------------
(1) Market value of underlying shares on the date of exercise, minus the
option exercise price.
(footnotes continued on next page)
<PAGE>
(2) All the stock options shown for each Named Officer are currently
exercisable.
(3) Values are calculated by subtracting the exercise price from the fair
market value of the stock at December 31, 1997
Employment Arrangements
The Company has employment agreements with certain executive officers,
including Mrs. Carroll and Messrs. Curtis, Whitt and 25 senior officers that
become effective upon a change in control of the Company. In the case of the
Named Officers, with the exception of Messrs. Feltner and Huyett, the Company or
its successor agrees to continue these officers in its employ for a term of
three years after the date of a change in control. During the contract term,
these officers will retain commensurate authority and responsibilities and
compensation benefits. They will receive base salaries at least equal to the
immediate prior year and bonuses at least equal to the annual bonus paid prior
to the change in control. If the officer's employment is terminated during the
three year period following a change in control other than for cause or
disability as defined in the agreement, or if the officer should terminate
employment because a material term of the contract is breached by the Company,
the officer will be entitled to a lump sum payment, in cash, within thirty days
after the date of termination. This lump sum will be equal to two times the sum
of the officer's base salary, annual bonus, and equivalent benefits for Mrs.
Carroll and Messrs. Curtis and Whitt, and one times the sum of the other senior
officers' base salaries, annual bonuses, and equivalent benefits.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors of the Company
(the "Committee") has furnished the following report on executive compensation:
The Committee has developed and implemented compensation policies and
plans which seek to enhance the profitability of the Company and, thus,
shareholder value. In furtherance of these goals, the policies and plans are
designed to provide competitive levels of compensation that rely on annual and
longer term incentive compensation to attract and retain corporate officers and
other key employees of outstanding abilities and to motivate them to perform to
the full extent of their abilities. Both types of incentive compensation are
variable and closely tied to corporate and individual performance in a manner
that encourages a continuing focus on building profitability and shareholder
value.
In its review of management performance and compensation, the Committee
has taken into account management's consistent commitment to the long-term
success of the Company. Based on its evaluation of these factors, the Committee
believes that the senior management of the Company is dedicated to achieving
significant improvements in long-term financial performance and that the
compensation policies and plans the Committee has implemented and administered
have contributed to achieving this management focus.
Compensation for each of the Named Officers, as well as other senior
executives, consists of a base salary and annual and longer term incentive
compensation. The Committee fixes base salaries at levels that are competitive
or somewhat below the competitive amounts paid to senior executives with
comparable qualifications, experience, and responsibilities, after comparing
salary ranges of other bank holding companies and other large locally
headquartered companies. The annual incentive compensation is approved as a
percentage of the net income of the Company. The longer-term incentive
compensation is closely tied to the Company's success in achieving significant
financial performance goals. The Committee considers the total compensation
(earned or potentially available) of each of the Named Officers and the other
senior executives in establishing each element of compensation.
<PAGE>
During the fourth quarter of each year, the Chief Executive Officer
submits to the Committee the annual salaries for the past three years for the
Company's senior executives (other than the Chief Executive Officer), and the
Committee reviews the salaries and responsibilities of the officers, and makes
any modifications it deems appropriate. Salary proposals are developed by the
Company's Chief Executive Officer based on industry peer groups, surveys, and
performance judgments as to the past and expected future contributions of the
individual senior executives.
In addition to internal measurements and goals, the Committee considers
return on average assets (ROAA) and growth in total assets when evaluating the
performance of executive officers. ROAA is a measure used in the industry to
compare the profitability of banking companies. For the period ending December
31, 1996, the Company's ROAA was 1.37%, compared to 1.21% for its 126 Peer Group
Banks (126 financial institutions, like the Company, between $1 billion and $3
billion in asset size, as supplied by the Federal Reserve Board's Division of
Banking). During the same period, the Company's total assets grew at 25.74%,
compared to 16.44% for the Peer Group Banks. For a four-year average comparison
of the Company's performance to the Peer Group Banks, please see the table on
page 12.
CEO Compensation
The Committee reviews and fixes the base salary of the Chief Executive
Officer based on similar competitive compensation data similar to senior
executives and the Committee's assessment of his past performance and its
expectation as to his future contributions in leading the Company.
A salary increase of $100,000 was recommended for 1997.
Although the 1997 salary and option grant were not measured upon the
attainment of any specific goals by the Company, the Committee, in its
discretion and judgment in making these decisions, took into consideration his
individual contribution to the Company's performance for the prior fiscal year
reflected by: (1) a $5,866,000 increase in net income, and (2) a $37,241,000
increase in shareholders' equity. The growth of the Company for 1996 exceeded
$469,927,000 or 25.7%. Peer group banks at December 31, 1996, increased by
16.4%. Although the Committee, in establishing this salary, uses a subjective
approach and does not rely on a formula or weights of specific factors, it
carefully considers all the factors listed above.
Annual Incentives
The Incentive Compensation Plan stresses rewards for achievement of
goals set each year. Financial goals include operating earnings and return on
shareholders' equity. The formula for 1997 adopted by the Board of Directors was
as follows: 12% of net income in excess of 10% return on equity capital, plus 6%
of net income in excess of 11.5% return on equity capital. At the end of each
year, this formula defines the total fund available for distribution as bonuses.
<PAGE>
The Committee distributes the incentive fund to eligible employees
based on the Committee's subjective evaluation of individual performance and
contribution to the Company and recommendations by certain senior officers.
In determining the awards for 1997 from the incentive fund to other
eligible employees, including other Named Officers other than the Chief
Executive Officer, the Committee reviewed with the Chief Executive Officer
recommendations based on individual performance, as well as its evaluation of
factors substantially comparable to those considered in establishing the award
for the Chief Executive Officer.
In determining the Chief Executive Officer's award for 1997, in
addition to the factors discussed above, the Committee considered its evaluation
of the Company's performance and the state of the economy in the Company's
service area. The growth of the Company for the nine months ending September 30,
1997, was 7.5% or $171,213,000. Net income growth was 7.4% for the same time
period. It considered these factors both on an absolute basis and relative to
the performance of the Company's peers.
Stock Incentives
The Committee considered the desirability of granting awards under the
Company's Stock Option Plan which provides the Committee the flexibility to
grant longer-term incentives in stock options. The Committee believes that its
past grant of options has successfully focused the Company's senior management
on building profitability and shareholder value. Stock options granted in 1997
are reflected in the table, "Stock Option Grants in 1997".
The awards were based, among other things, on a review of competitive
compensation data from selected peer companies and information on their total
compensation as well as the Committee's evaluation of their past and expected
future contributions to the Company's achievement of its long-term goals. Like
other compensation decisions, the Committee does not use a formula or weight
specific factors in recommending stock options awards, but rather relies on its
own subjective evaluation.
The foregoing report has been furnished by Messrs. Clement, Romine, and
Shockey.
Compensation Committee Interlocks and Insider Participation
During 1997 and up to the present time, there were transactions between
certain of the Company's banking subsidiaries and certain members of the Human
Resources Committee, or their associates, all consisting of extensions of credit
by the banks in the ordinary course of business. Each transaction was made on
substantially the same terms, including interest rates, collateral and repayment
terms, as those prevailing at the time for comparable transactions with the
general public. In the opinion of management, none of the transactions involve
more than the normal risk of collectibility or present other unfavorable
features.
None of the members of the Human Resources Committee has served as an
officer or employee of the Company or any of its affiliates.
<PAGE>
SHAREHOLDER RETURN
The Company is subject to the rules of the Securities and Exchange
Commission (the "SEC") that require all public companies to present a graph of
total investment return in their annual proxy statements. The rules require a
line graph which compares the Company's five-year cumulative shareholder return
on its Common Stock with the Standard's & Poor's 500 Stock Index ("S&P 500 Stock
Index") and either a published industry index or an index of peer companies
selected by the Company. The graph below presents a comparison of the Company's
performance with the S&P 500 Stock Index and the SNL Securities $1 to $5 Billion
Bank Index (the "SNL $1B-$5B Bank Index"), assuming that investments of $100
were made on December 31, 1992, and that dividends were reinvested. SNL
Securities, based in Charlottesville, Virginia, is a research and publishing
firm specializing in the collection and dissemination of data on the financial
services industry.
Comparison of Five Year Cumulative Total Return Among
F&M National Corporation, S&P 500 Stock Index and
the SNL $1B-$5B Bank Index
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C>
F&M National Corporation 100.00 98.57 102.25 133.53 148.24 244.96
S&P 500 Stock Index 100.00 110.08 111.53 153.44 188.52 251.44
SNL $1B - $5B Bank Index 100.00 120.19 126.54 170.16 220.59 367.88
</TABLE>
While the growth in the Company's stock price over the past five years
has lagged behind the peer group, the Company has outperformed the S&P 500 Stock
Index in the last twelve months. The Company has outperformed its peer group for
the last four years according to other measurements. A review of certain
performance measurements for the four-year period ending September 30, 1997, for
the 126 Peer Group Banks with assets ranging from $1 billion to $3 billion, as
furnished by the Federal Reserve System, indicates that the Company's
performance compares favorably to this peer group. The table below presents a
comparison of selected annual performance measurements, averaged for the
four-year period ending September 30, 1997, for the Company and the Peer Group
Banks.
<PAGE>
<TABLE>
<CAPTION>
Peer Group
Financial Institutions
F&M National Corporation Between $1 - $3 Billion
------------------------ -----------------------
<S> <C>
Return on assets 1.34% 1.17%
Asset growth 14.01% 15.17%
Equity capital to assets 9.87% 8.65%
Cash dividend/net income 45.61% 28.19%
Efficiency Ratio 62.00% 62.00%
Loan Growth 20.53% 16.73%
Net Loan Loss/Average Loans 0.14% 0.27%
</TABLE>
INTEREST OF DIRECTORS AND OFFICERS IN CERTAIN TRANSACTIONS
During 1997, the Company's banking subsidiaries extended credit to
directors and officers of the Company and its subsidiaries. All such loans (i)
were made in the ordinary course of business, (ii) were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and (iii) did not
involve more than the normal risk of collectibility or present unfavorable
features.
The banking subsidiaries of the Company, pursuant to the Company's
employee loan policy, make individual general purpose loans on a
nondiscriminatory basis to employees of subsidiaries at interest rates below
those for comparable transactions with other persons. The banking subsidiaries
are prohibited from making loans, with the exception of residential mortgages
and educational loans, to executive officers in excess of certain dollar limits
fixed by banking laws.
J. D. Shockey, Jr., a director of the Company and F&M Bank-Winchester,
performed work for F&M Bank-Winchester during 1997 in connection with the
renovation of the 9 Court Square Complex which was under contract with Shockey
Industries, Inc. Ronald W. Tydings, a director of the Company, is also Chairman
of the Board of F&M Bank-Northern Virginia, a subsidiary of the Company. Mr.
Tydings is President of the Fairfax, Virginia, law firm of Tydings Bryan and
Adams, P.C., which serves as legal counsel for that bank.
Compliance with Stock Ownership Reporting Requirements
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, directors and executive officers of the Company are required to file
reports with the SEC indicating their holdings of and transactions in the
Company's stock. To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, insiders of the Company complied with all filing
requirements during 1997.
<PAGE>
APPROVAL OF THE 1998 EMPLOYEE STOCK DISCOUNT PLAN - PROPOSAL TWO
The Board of Directors has adopted, subject to shareholder approval,
the F&M National Corporation 1998 Employee Stock Discount Plan (the "Stock
Discount Plan"), to be effective January 1, 1998 through December 31, 2002.
Approval of the Stock Discount Plan requires the affirmative vote of a
majority of the shares actually voting, in person or by proxy, at the Annual
Meeting.
The Board of Directors recommends a vote "FOR" approval of the Stock
Discount Plan.
The following is a summary description of the material features of the
Stock Discount Plan and is qualified in its entirety by reference to the Stock
Discount Plan, a copy of which is available upon request made in writing to the
Secretary of the Company.
Purpose
The purpose of the Stock Discount Plan is to provide employees of the
Company a means to purchase shares of the Company's Common Stock through payroll
deductions. The Company believes the adoption of the Stock Discount Plan will
assist it in retaining employees, securing and retaining new employees, and will
provide incentives for employees to exert maximum efforts for the success of the
Company.
The Stock Discount Plan is an "employee stock purchase plan" under
section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). That
section provides certain tax benefits to employees, as explained below. The
Stock Discount Plan is identical in all material respects to the 1993 Employee
Stock Discount Plan, which expired by its terms on December 31, 1997.
Eligibility and Participation
Regular employees of the Company with 6 months of service as of January
1 of a calendar year may participate for that calendar year. A regular employee
is one who is customarily employed for more than 20 hours per week and more than
5 months per year. All officers and directors who are eligible employees may
participate.
No employee is eligible for the Stock Discount Plan if, immediately
after such right is granted, the employee would own or be deemed to own stock of
the Company possessing 5% or more of the total combined voting power or value of
stock of the Company or any affiliate of the Company. No rights may be granted
that would permit an employee to purchase stock with a fair market value in
excess of $25,000 (determined at the time the rights are granted) in any
calendar year.
Participation by an eligible employee is voluntary for each calendar
year. An eligible employee who wishes to participate for a year does so by
electing to contribute from 1% to 15% of his or her actual adjusted base pay
(actual base pay plus overtime and shift premiums) by payroll deduction. In
November of the year, a participant may elect to bring his or her total actual
contribution up to 15% of his or her annual base pay rate at January 1
(annualized base pay without overtime or shift premiums) by designating that all
or some part of his or her bonus payable in December be withheld as a special
payroll deduction. Any participant wishing to cease participation in the Plan
for the calendar year may do so by submitting such request to the Plan
Administrator before December 31. In such case, all payroll deductions for the
calendar year will stop.
<PAGE>
Purchase of Stock
By executing an election to participate in the Stock Discount Plan, the
employee is entitled to purchase whole shares of Common Stock equal to 15% of
his or her annual base pay rate at January 1 (annualized base pay without
overtime or shift premiums) divided by 85% of the per share trading price at
that time. However, the maximum number of shares is limited for any calendar
year to 50,000 shares plus, in the case of 1999 through 2002, shares available
to be offered but not purchased by employees under the Stock Discount Plan in
prior years. The Plan Administrator may decide to offer fewer than the maximum
available number.
Purchase Price
The purchase price per share is 85% of the lesser of (1) the Common
Stock's trading price at January 1 or (2) the Common Stock's trading price at
December 31. Trading price means the closing price of Common Stock on the stated
date or the last prior date on which trading occurred on the New York Stock
Exchange.
Administration
The Plan is administered by the Human Resources Committee of the Board
of Directors of the Company. The Committee has the full power, discretion and
authority to interpret and administer the Stock Discount Plan.
Duration, Amendment and Termination
The Committee or the Board may amend the Stock Discount Plan at any
time, except that it may not, without shareholder approval, increase the number
of shares which may be issued, increase the 15% of base pay limit on
contributions for a calendar year, reduce the exercise price, change the class
of employees eligible to participate in the Stock Discount Plan, or permit
issuance of stock before payment in full or modify any other provision of the
Plan in a manner that would materially increase the benefits accruing to
participants or if such approval is required under Code Section 423.
The Plan will continue for 5 years unless terminated earlier. The Board
may terminate the Stock Discount Plan at any time, in which case each
participant's then accumulated payroll deductions will be used for exercising
outstanding options as though the termination date was December 31.
Federal Income Tax Treatment
Rights granted under the Stock Discount Plan are intended to qualify
for favorable tax treatment under Code sections 421 and 423. Under those
provisions, a participant will be taxed on amounts withheld for the purchase of
shares as if such amounts were actually received. Other than this, no income
will be taxable to a participants until the disposition of the shares acquired,
and the method of taxation will depend upon the holding period of the purchased
shares.
If the stock is disposed of after two years from the January 1 as of
which the right to purchase shares was granted (the "Grant Date") and more than
one year from the date the shares are transferred to the participant, then the
lesser of (i) the excess of the fair market value of the stock as of the
disposition date over the purchase price or (ii) the excess of the fair market
value of the stock as of the Grant Date over the purchase price (determined as
of the Grant Date) will be treated as ordinary income. Any further gain or any
loss will be taxed as long-term capital gain or loss.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above, then the excess of the fair market value of
the stock on the date of transfer to the participant over the purchase price
will be treated as ordinary income at the time of such disposition. The balance
of any gain will be treated as capital gain. If the stock is later disposed of
for less than its fair market value on the date of purchase, the same amount of
ordinary income is attributable to the participant, and a capital loss is
recognized equal to the difference between the sales price and the fair market
value of the stock on such purchase date. Any capital gain or loss will be
long-term or short-term depending upon whether the stock has been held for more
than one year.
There are no federal income tax consequences to the Company by reason
of the grant or exercise of rights under the Stock Discount Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant, subject to the Company's satisfaction of applicable federal income
tax withholding requirements.
APPROVAL OF THE AMENDMENT TO THE INCENTIVE AND NON-QUALIFIED STOCK
OPTION PLAN - PROPOSAL THREE
General
The Board of Directors of the Company has approved an amendment and
restatement of the Company's 1992 Incentive and Non-Qualified Stock Option Plan
(the "Option Plan"), subject to shareholder approval at the Annual Meeting. The
proposed Plan amendment and restatement will increase the number of shares of
Common Stock reserved thereunder from 250,000 to 750,000 shares for the granting
of incentive and non-qualified stock options (collectively, "Options") to
employees of the Company and its subsidiaries. There are no other material
modifications to the Option Plan.
Approval of the proposed amendment to the Option Plan requires the
affirmative vote of a majority of the shares actually voting, in person or by
proxy, at the Annual Meeting.
The Board of Directors recommends a vote "FOR" approval of the
amendment to the Option Plan.
The following is a summary description of the material features of the
Option Plan and is qualified in its entirety by reference to the Option Plan, a
copy of which is available upon request made in writing to the Secretary of the
Company.
Purpose
The Option Plan was approved by shareholders at the 1992 Annual Meeting
and will terminate in 2002. There are 7,850 shares available under the Option
Plan for additional option grants. The Board of Directors believes that
additional shares are necessary to utilize effectively the Option Plan. For a
number of years the Company has provided stock-based compensation opportunities
to executives and key employees under the Option Plan and its predecessor stock
option plan. The Board of Directors believes the Option Plan and its predecessor
plan have served their purpose of promoting a greater identity of interests
between participants and shareholders and that similar opportunities should
continue to be made available. However, the number of shares available for
issuance under the Option Plan has been depleted.
<PAGE>
The Board believes that, by amending the Option Plan to increase the
number of shares reserved thereunder, the Option Plan will continue to benefit
the Company by (i) assisting it in recruiting and retaining employees with
ability and initiative, (ii) providing greater incentives for employees who
provide valuable services to the Company and (iii) associating the interests of
such persons with those of the Company through opportunities for increased stock
ownership.
Administration
The Option Plan is administered by the Human Resources Committee of the
Board of Directors of the Company. In addition to selecting the employees to
whom Options are granted, the Committee has the authority to determine the terms
and conditions upon which Options may be made and exercised, to determine terms
and provisions of each separate option agreement, to construe and interpret the
Option Plan and the agreements, to establish, amend or waive rules or
regulations for the Option Plan's administration, to accelerate the
exercisability of any Option, and to make all other determinations and take all
other actions necessary or advisable for the administration of the Option Plan.
The Board of Directors may terminate, amend or modify the Option Plan
from time to time in any respect without shareholder approval, unless the
particular amendment or modification requires shareholder approval under the
Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations under Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"), or pursuant to any other applicable laws, rules or regulations.
The Plan will expire in 2002, unless sooner terminated by the Board.
Eligibility
All employees of the Company and its subsidiaries who are deemed to be
key employees by the Committee are eligible for Options under the Plan. Key
employees include officers or other employees of the Company and its
subsidiaries who, in the opinion of the Committee, can contribute significantly
to the growth and profitability of, or perform services of major importance to,
the Company and its subsidiaries. The Company is not able to estimate the number
of individuals the Committee will select to participate in the Option Plan or
the type or size of grants the Committee will approve.
Options
The Option Plan authorizes the grant to employees of incentive stock
options within the meaning of Section 422A of the Code ("ISOs") and
non-qualified stock options ("NQSOs"). All Options granted as ISOs will comply
with all applicable provisions of the Code, including the requirement that they
will not be exercisable after ten years from its grant, and all other applicable
rules and regulations governing ISOs.
<PAGE>
Certain Federal Income Tax Consequences
Incentive Stock Options. An optionee will not recognize income on the
grant of an ISO, and an optionee generally will not recognize income on the
exercise of an ISO, except as described in the following paragraph. Under these
circumstances, no deduction will be allowable to the Company in connection with
either the grant of such Options or the issuance of shares upon exercise
thereof.
However, if the exercise of an ISO occurs more than three months after
the optionee ceased to be an employee for reasons other than death or disability
(or more than one year thereafter if the optionee ceased to be an employee by
reason of permanent and total disability), the exercise will not be treated as
the exercise of an ISO, and the optionee will be taxed in the same manner as on
the exercise of a NQSO, as described below. For the Option to qualify as an ISO
upon the optionee's death, the optionee must have been employed at the Company
for at least three months before his or her death.
Gain or loss from the sale or exchange of shares acquired upon exercise
of an ISO generally will be treated as capital gain or loss. If, however, shares
acquired pursuant to the exercise of an ISO are disposed of within two years
after the Option was granted or within one year after the shares were
transferred pursuant to the exercise of the Option, the optionee generally will
recognize ordinary income at the time of the disposition equal to the excess
over the exercise price of the lesser of the amount realized or the fair market
value of the shares at the time of exercise (or, in certain circumstances, at
the time such shares became either transferable or not subject to a substantial
risk of forfeiture). The exercise of an ISO may result in a tax to the optionee
under the alternative minimum tax because as a general rule the excess of the
fair market value of stock received on the exercise of an ISO over the exercise
price is defined as an item of "tax preference" for purposes of determining
alternative minimum taxable income.
Non-qualified Options. A participant will not recognize income on the
grant of a NQSO, but generally will recognize income upon the exercise of a
NQSO. The amount of income recognized upon the exercise of a NQSO will be
measured by the excess, if any, of the fair market value of the shares at the
time of exercise over the exercise price. In the case of ordinary income
recognized by an optionee in connection with the exercise of a NQSO, the Company
will be entitled to a deduction in the amount of ordinary income so recognized
by the optionee, provided the Company satisfies certain federal income tax
withholding requirements.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - PROPOSAL FOUR
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Yount, Hyde & Barbour, P.C., as the Company's independent public
accountants for the year ending December 31, 1998, and has further directed that
management submit the selection of independent public accountants for
ratification by the shareholders at the Annual Meeting. Yount, Hyde & Barbour,
P.C., has been serving the Company for many years. This firm has advised the
Company that neither the firm nor any member of the firm now has, or has held
during the past five years, any direct or indirect financial interest in the
Company or any of its subsidiaries. Representatives of the firm are expected to
be present at the Annual Meeting and will be given an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, management of the Company has
no knowledge of any matters to be presented for consideration at the Annual
Meeting other than those referred to above. If any other matter properly comes
before the Annual Meeting, the persons named in the accompanying proxy intend to
vote such proxy, to the extent entitled, in accordance with their best judgment.
PROPOSALS FOR THE 1999 ANNUAL MEETING
The Company's Bylaws provide that, in addition to any other applicable
requirements, for business (including shareholder nominations of Director
candidates) to be properly brought before the Annual Meeting by a shareholder,
the shareholder must give timely notice in writing to the Secretary of the
Company at least 90 days prior to the Annual Meeting. As to each matter, the
notice must comply with certain informational requirements set forth in the
Bylaws.
The 1999 Annual Meeting of Shareholders is scheduled for April 27,
1999.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for 1997 filed with
the Securities and Exchange Commission, excluding exhibits, can be obtained
without charge by writing to Alfred B. Whitt, President, F&M National
Corporation, P.O. Box 2800, Winchester, VA 22604.
By Order of the Board of Directors
Michael L. Bryan
Corporate Secretary
Winchester, Virginia
March 30, 1998
<PAGE>
INSTRUCTIONS AND MAP TO TRAVELODGE OF WINCHESTER
Coming from Town.
Take Route 50 East. After you cross over Interstate I-81, turn right at
stoplight onto Route 522 South. TraveLodge will be on the right.
Coming from the South on I-81 (i.e., traveling northbound). EXIT 313.
Take Exit 313 for Route 50 in Winchester. After coming off the Exit, continue
straight through stoplight across Route 50 (and onto Route 522 South).
TraveLodge will be on the right after going through the intersection.
Coming from the North on I-81 (i.e., traveling southbound). EXIT 313-A.
Take Exit 313-A onto Route 50 East in Winchester. At stoplight, turn right onto
Route 522. TraveLodge will be on the right.
PLEASE USE "BANQUET ROOM" ENTRANCE.
TraveLodge's address is 160 Front Royal Pike, Winchester, VA 22602.
Telephone: 540-665-0685
<PAGE>
F&M NATIONAL CORPORATION
This Proxy is solicited on behalf of the Board of Directors.
The undersigned, revoking all prior proxies, hereby appoints Joseph E.
Kalbach, Fred G. Wayland, Jr., and Thom F. Hanes as proxies, and each or any of
them with full power of substitution, and hereby authorizes them to represent
and to vote, as designated below, all the shares of Common Stock of F&M NATIONAL
CORPORATION held of record by the undersigned on February 28, 1998, at the
Annual Meeting of Shareholders to be held April 28, 1998, or any adjournment
thereof, on each of the following matters:
1. Election of directors:
[ ] FOR all Nominees listed below [ ] WITHHOLD AUTHORITY TO VOTE FOR
THOSE INDICATED BELOW
Frank Armstrong, III; William H. Clement; Charles E. Curtis; W. M. Feltner;
John R. Fernstrom; William R. Harris; L. David Horner, III; Jack R. Huyett;
George L. Romine; J. D. Shockey, Jr.; Ronald W. Tydings; Fred G. Wayland,
Jr., and Alfred B. Whitt
INSTRUCTIONS: To withhold authority to vote for an individual Nominee, print
the name of the Nominee in the space provided below.
- --------------------------------------------------------------------------------
2. To approve the F&M National Corporation 1998 Employee Stock Discount Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment and restatement of the Company's 1992 Incentive and
Non-Qualified Stock Option Plan and to increase the number of shares of
Company Common Stock reserved thereunder the from 250,000 to 750,000 shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection by the Audit Committee of the Board of
Directors of Yount, Hyde & Barbour, P.C., independent certified public
accountants, as auditors of the Company for 1998:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Board of
Directors has not been notified of any such matters.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
Proxy will be voted "FOR" each proposal. All joint owners MUST sign.
Please sign exactly as your name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such.
DATED:____________________ , 1998
---------------------------------
Signature
NUMBER OF SHARES
- -----------------------
---------------------------------
Signature (if jointly owned)
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE & RETURN THIS PROXY PROMPTLY IN ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
