As filed with the Securities and Exchange Commission on January 28, 1998
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1993
------------------------
F&M NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 6711 54-0857462
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
38 Rouss Avenue
Winchester, Virginia 22601
(540) 665-4200
(Address,including zip code, and telephone number, including area code
of registrant's principal executive office)
------------------------
Alfred B. Whitt
Senior Vice President and Secretary
F&M National Corporation
38 Rouss Avenue
Winchester, Virginia 22601
(540) 665-4200
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
Copies to:
George P. Whitley, Esq. Wayne A. Whitham, Esq.
LeClair Ryan, A Professional Corporation Williams, Mullen, Christian &Dobbins
707 East Main Street, 11th Floor P.O. Box 1320
Richmond, Virginia 23219 Richmond, Virginia 23210
------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered (1) offering price per aggregate offering registration
share price(2) fee
========================================= =================== ======================= ======================== ================
<S> <C>
Common Stock, $2.00 par value 795,202 N/A $ 8,214,010 $2,423
========================================= =================== ======================= ======================== ================
</TABLE>
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) thereunder, on the basis of
the book value of Peoples Bank of Virginia common stock on September 30,
1997 to be received by the Registrant in exchange for common stock of the
Registrant pursuant to the business combination described in the enclosed
Prospectus/Proxy Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
F&M NATIONAL CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item
501(b) of Regulation S-K, Showing the Location or
Heading in the Prospectus and proxy Statement
of the Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
----------------------- ------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus.....................Facing Page of Registration Statement; Cross Reference Sheet
Outside Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...........................................Available Information; Incorporation of Certain Information
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................Summary; Comparative Per Share Information; Selected
Financial Data; The Special Meeting; The Merger; Market
Prices and Dividends; Peoples Bank of Virginia
4. Terms of the Transaction.............................Summary; The Merger; Comparative Rights of Shareholders;
Description of F&M Capital Stock
5. Pro Forma Financial Information......................Not Applicable
6. Material Contacts with the Company
Being Acquired.......................................Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............................Not Applicable
8. Interests of Named Experts and Counsel...............Experts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..........................................Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants..........Available Information; Incorporation of Certain Information
by Reference; Summary; Market Prices and Dividends; Business
of F&M; Description of F&M Capital Stock
<PAGE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
----------------------- ------------------------------
<S> <C>
11. Incorporation of Certain Information by
Reference............................................Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3
Registrants..........................................Not Applicable
13. Incorporation of Certain Information by
Reference............................................Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants..........................Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................................Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................Summary; Comparative Per Share Information; Selected
Financial Data; Market Prices and Dividends; Peoples Bank of
Virginia; Management's Discussion and Analysis of Financial
Condition and Results of Operations of Peoples Bank of
Virginia
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited...................Incorporation of Certain Information by Reference; Summary;
The Special Meeting; The Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer.................................Not Applicable
</TABLE>
<PAGE>
[Peoples letterhead]
January ___, 1998
Dear Fellow Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of Peoples Bank of Virginia ("PBV") to be held at our Main Office located at
9970 Iron Bridge Road, Chesterfield, Virginia on ____________, February ___,
1998 at 7:00 p.m.
At this important meeting, you will be asked to consider and vote on
the Agreement and Plan of Reorganization, dated as of December 1, 1997, and a
related Plan of Merger (collectively, the "Merger Agreement") among PBV, F&M
National Corporation ("F&M") and F&M Bank Richmond, a subsidiary bank of F&M
headquartered in Richmond. F&M is a community bank holding company with
consolidated assets of $2.4 billion at September 30, 1997, headquartered in
Winchester Virginia with its principal operations being conducted through eleven
subsidiary banks in Virginia, West Virginia and Maryland and one trust company.
Under the terms of the Merger Agreement, PBV will be merged with F&M
Bank-Richmond (the "Merger"), and each share of common stock of PBV outstanding
immediately prior to consummation of the Merger will be exchanged for 2.58
shares of common stock of F&M, with cash being paid in lieu of issuing
fractional shares. F&M common stock is listed and traded on the New York Stock
Exchange under the symbol "FMN." It is anticipated that the Merger will become
effective by April 1, 1998.
The exchange of shares (other than for cash in lieu of any fractional
shares) will be a tax-free transaction for federal income tax purposes. Details
of the proposed transaction with F&M are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with F&M requires the affirmative vote of more than
two-thirds of the outstanding shares of common stock of PBV.
Your Board of Directors has retained the investment banking firm of
Scott & Stringfellow, Inc. to act as its financial advisor in connection with
the Merger. As discussed in the accompanying Proxy Statement/Prospectus, Scott &
Stringfellow has delivered to the Board of Directors its written opinion that,
as of this date, the terms of the Merger Agreement are fair from a financial
point of view to our shareholders.
Your Board of Directors has unanimously approved the Merger Agreement
and the transaction with F&M and believes that they are in the best interests of
PBV and our shareholders. Accordingly, the Board unanimously recommends that you
VOTE FOR the Merger Agreement.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
W. S. CARNES QUENTIN L. CORBETT
Chairman of the Board President
<PAGE>
PEOPLES BANK OF VIRGINIA
Chesterfield, Virginia
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
February __, 1998
-------------------------
A Special Meeting of Shareholders of Peoples Bank of Virginia ("PBV")
will be held on _______________, February ___, 1998 at 7:00 p.m., at PBV's Main
Office located at 9970 Iron Bridge Road, Chesterfield, Virginia for the
following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as of
December 1, 1997, by and among PBV, F&M National Corporation ("F&M") and F&M
Bank-Richmond and a related Plan of Merger (collectively, the "Merger
Agreement"), providing for the merger of PBV with and into F&M Bank-Richmond
upon the terms and conditions therein (the "Merger"), including, among other
things, that each issued and outstanding share of PBV common stock will be
exchanged for 2.58 shares of F&M common stock, with cash being paid in lieu of
issuing fractional shares. The Merger Agreement is enclosed as Appendix I to the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed January ___, 1998, as the record date
for the Special Meeting, and only holders of record of PBV common stock at the
close of business on that date are entitled to receive notice of and to vote at
the Special Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
Quentin L. Corbett
President and Chief Executive Officer
January ___, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF PEOPLES BANK OF VIRGINIA UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE MERGER AGREEMENT.
<PAGE>
PEOPLES BANK OF VIRGINIA
PROXY STATEMENT
F&M NATIONAL CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
Peoples Bank of Virginia ("PBV") in connection with the solicitation of proxies
by the Board of Directors of PBV for use at its Special Meeting of Shareholders
(the "Special Meeting") to be held on February ___, 1998, and any postponements
or adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Reorganization, dated as of December 1, 1997, among PBV,
F&M National Corporation, a community bank holding company based in Winchester,
Virginia ("F&M"), and F&M Bank-Richmond, a wholly-owned subsidiary bank of F&M
headquarted in Richmond, and a related Plan of Merger (collectively, the "Merger
Agreement") providing for the merger of PBV with and into F&M Bank-Richmond (the
"Merger") and the exchange of common stock of PBV ("PBV Common Stock") for the
common stock of F&M ("F&M Common Stock"). Upon consummation of the Merger, each
outstanding share of PBV Common Stock will be exchanged for 2.58 shares (the
"Exchange Ratio") of F&M Common Stock. Cash will be paid in lieu of fractional
shares. The Merger Agreement also provides for the conversion upon consummation
of the Merger of all stock options outstanding under PBV's 1993 Stock Option
Plan (the "PBV Stock Options") into options to acquire shares of F&M Common
Stock, appropriately adjusted to reflect the Exchange Ratio. See "The Merger"
for a more complete description of the Merger. A copy of the Merger Agreement is
included as Appendix I hereto.
The Board of Directors of PBV unanimously recommends that shareholders
vote to approve the Merger Agreement. Failure to vote is equivalent to voting
against the proposal.
This Proxy Statement/Prospectus also serves as the prospectus of F&M
covering up to approximately 795,202 shares of F&M Common Stock issuable to
shareholders of PBV in connection with the Merger. The Proxy
Statement/Prospectus also constitutes a prospectus of F&M in respect of any
shares of F&M Common Stock that are issuable upon exercise of the PBV Stock
Options following consummation of the Merger.
F&M Common Stock is listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol "FMN." On December 1, 1997, the last business day
prior to the public announcement of the execution of the Merger Agreement, the
last reported sale price of F&M Common Stock on the NYSE Composite Transactions
Reporting System (the "NYSE Composite Tape") was $32.25, and on January ___,
1998, the last practicable date prior to the mailing of this Proxy
Statement/Prospectus, the last reported sale price was _________.
This Proxy Statement/Prospectus is first being mailed to shareholders
of PBV on or about January __, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY NOR HAS
THE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF F&M COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The date of this Proxy Statement/Prospectus is January ___, 1998.
<PAGE>
AVAILABLE INFORMATION
F&M is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by F&M
with the Commission may be inspected and copied at the principal office of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and may
be inspected at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain of such reports, proxy
statements and other information are also available from the Commission over the
Internet at http://www.sec.gov. In addition, F&M Common Stock is listed and
traded on the NYSE. Reports, proxy statements and other information concerning
F&M may be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
As permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is
a part, and exhibits thereto (together with the amendments thereto, the
"Registration Statement"), which have been filed by F&M with the Commission
under the Securities Act of 1933 (the "Securities Act") with respect to F&M
Common Stock and to which reference is hereby made for further information.
This Proxy Statement/Prospectus incorporates by reference certain
documents relating to F&M that are not presented herein or delivered herewith.
These documents (other than exhibits to such documents that are not specifically
incorporated by reference in such documents) are available to any person to whom
this Proxy Statement/Prospectus is delivered, without charge, upon written or
oral request directed to F&M's Secretary, 9 Court Square, P.O. Box 2800,
Winchester, Virginia 22604; telephone number (540) 665-4200. In order to ensure
timely delivery of any requested documents, the request should be made by
______________________, 1998.
The information contained in this Proxy Statement/Prospectus relating
to F&M has been supplied by F&M, and the information relating to PBV has been
supplied by PBV.
No person has been authorized to make any representations or give any
information not contained in this Proxy Statement/Prospectus or incorporated by
reference herein and, if made or given, such representation or information
should not be relied upon as having been authorized by PBV or F&M. Neither the
delivery of this Proxy Statement/Prospectus nor the issuance of any securities
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of PBV or F&M since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by F&M (File No.
0-05929) under the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) F&M's Annual Report on Form 10-K for the year ended
December 31, 1996; (ii) F&M's Quarterly Report on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; and (iii) F&M's
Current Reports on Form 8-K, dated October 22, 1997, December 2, 1997 and
December 12, 1997.
All documents filed by F&M pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
Also incorporated by reference herein is the Merger Agreement, which is
included as Appendix I to the Proxy Statement/Prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of F&M and PBV. These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) competitive pressure in the banking industry increases significantly; (2)
changes in the interest rate environment reduce margins; (3) general economic
conditions, either nationally or regionally, are less favorable than expected,
resulting in, among other things, a deterioration in credit quality; (4) changes
occur in the regulatory environment; (5) changes occur in business conditions
and inflation; and (6) changes occur in the securities markets.
<PAGE>
TABLE OF CONTENTS
Available Information......................................................
Incorporation of Certain Information by Reference..........................
Cationary Statement Concerning Forward-Looking Information.................
Summary....................................................................
Comparative Per Share Information..........................................
Selected Financial Data....................................................
The Special Meeting........................................................
The Merger.................................................................
Terms of the Merger...................................................
Reasons for and Background of the Merger..............................
Opinion of Financial Advisor..........................................
Effective Date........................................................
Surrender of Stock Certificates.......................................
Conditions to the Merger..............................................
Regulatory Approvals..................................................
Business Pending the Merger...........................................
Waiver, Amendment and Termination.....................................
Resales of F&M Common Stock...........................................
Accounting Treatment..................................................
Interests of Certain Persons in the Merger............................
The Option Agreement..................................................
Certain Federal Income Tax Matters....................................
Absence of Appraisal..................................................
Certain Differences in Rights of Shareholders.........................
Expenses of the Merger................................................
Market Prices and Dividends................................................
Peoples Bank of Virginia...................................................
Business..............................................................
Lending Activities....................................................
Employees.............................................................
Competition...........................................................
Property..............................................................
Security Ownership of Management......................................
Peoples Bank of Virginia Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................
Business of F&M ...........................................................
History and Business..................................................
F&M's Acquisition Program.............................................
Comparative Rights of Shareholders.........................................
Description of F&M Capital Stock...........................................
Experts....................................................................
Legal Opinions.............................................................
Other Matters..............................................................
Index to Financial Statements..............................................
APPENDICES
I Agreement and Plan of Reorganization and Plan of Merger
II Stock Option Agreement
III Opinion of Scott & Stringfellow, Inc.
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary is not intended to be complete
description of all the matters covered in this Proxy Statement/Prospectus and is
subject to and qualified in its entirety by reference to the more detailed
information and financial statements contained elsewhere in this Proxy
Statement/Prospectus including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement is set forth in
Appendix I to this Proxy Statement/Prospectus and reference is made thereto for
a complete description of the terms of the Merger. Shareholders are urged to
read carefully the entire Proxy Statement/Prospectus, including the Appendices.
The Parties
F&M. F&M is a multi-bank holding company headquartered in Winchester,
Virginia. F&M has eleven subsidiary banks (the "Subsidiary Banks") that operate
108 banking offices and offer a full range of banking services principally to
individuals and to small and medium-sized businesses in the Shenandoah Valley of
Virginia, central and northern Virginia, the eastern panhandle of West Virginia,
and the Maryland portion of the Washington D.C. metropolitan area. F&M was
formed in 1969 to serve as the parent holding company of its then sole
subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its organization,
F&M has acquired sixteen banks, which have expanded its market area and
increased its market share in Virginia, West Virginia and Maryland. At September
30, 1997, F&M had total assets of $2.4 billion, total deposits of $2.1 billion
and total shareholders' equity of $237 million. F&M's principal executive
offices are located at 9 Court Square, Winchester, Virginia 22601, and its
telephone number is (540) 665-4200. See "Selected Financial Data," and "Business
of F&M."
F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN."
PBV. PBV is a community bank headquartered in Chesterfield, Virginia.
PBV opened for business in 1985 and currently operates four banking offices in
Chesterfield County offering banking services to individuals and small to
medium-sized businesses. Its primary market area is Chesterfield County. At
September 30, 1997, PBV had total assets of $79.4 million, total deposits of
$69.9 million, and total shareholders' equity of $8.0 million. The principal
executive offices of PBV are located at 9970 Iron Bridge Road, Chesterfield,
Virginia 23832, and its telephone number is (804) 271-5000. See "Selected
Financial Data" and "Peoples Bank of Virginia." See also the consolidated
financial statements of PBV accompanying this Proxy Statement/Prospectus.
The Special Meeting
Time, Place and Purpose. The Special Meeting will be held on February
___, 1998 at 7:00 p.m. at PBV's Main Office located at 9970 Iron Bridge Road
Chesterfield, Virginia 23832. At the Special Meeting, PBV shareholders will be
asked to consider and vote upon a proposal to approve the Merger Agreement,
attached hereto as Appendix I.
Record Date. Only holders of record of PBV Common Stock at the close of
business on January ____, 1998 (the "Record Date"), will be entitled to notice
of and to vote at the Special Meeting. At the record date, there were 282
holders of record of the 301,376 shares of PBV Common Stock then outstanding and
entitled to vote at the Special Meeting. See "The Special Meeting."
<PAGE>
Terms of the Merger
The Merger Agreement provides that PBV will merge with and into F&M
Bank-Richmond, which will be the surviving corporation of the Merger. Upon
consummation of the Merger, each outstanding share of PBV Common Stock will
automatically and without further action be exchanged for 2.58 shares of F&M
Common Stock (the "Exchange Ratio"). No fractional shares of F&M Common Stock
will be issued. Rather, cash (without interest) will be paid in lieu of any
fractional share interest based on the average of the last sale prices of F&M
Common Stock as reported on the NYSE Composite Transactions Reporting System for
each of the ten consecutive trading days ending on the fifth business day prior
to the Effective Date (as defined herein). The Exchange Ratio will be adjusted
to reflect any stock split, stock dividend, recapitalization or similar
transaction with respect to F&M Common Stock. See "The Merger."
The Merger Agreement further provides for the conversion upon
consummation of the Merger of all stock options held by employees outstanding
under PBV's 1993 Stock Option Plan into options to acquire shares of F&M Common
Stock, appropriately adjusted to reflect the Exchange Ratio. See "The Merger
Interests of Certain Persons in the Merger."
Recommendation of the Board of Directors of PBV
The Board of Directors of PBV has unanimously approved the Merger and
the Merger Agreement. The Board of Directors believes that the Merger is fair to
and in the best interests of the shareholders of PBV and recommends that
shareholders VOTE FOR the Merger and the Merger Agreement. In deciding to adopt
the Merger Agreement and approve the transactions contemplated therein, the PBV
Board considered a number of factors, including the financial condition, results
of operations, and future prospects of PBV and F&M. See "The Merger - Background
of and Reasons for the Merger."
Opinion of Financial Advisor
Scott & Stringfellow, Inc. has served as financial advisor to PBV in
connection with the Merger and has rendered its opinion to the PBV Board that
the Exchange Ratio of 2.58 shares of F&M Common Stock for each share of PBV
Common Stock is fair from a financial point of view to the PBV shareholders. For
additional information concerning Scott & Stringfellow and its opinion, see "The
Merger - Opinion of Financial Advisor" and the opinion of Scott & Stringfellow
attached as Appendix III to this Proxy Statement/Prospectus.
Vote Required
Approval of the Merger Agreement requires the affirmative vote of the
holders of more than two-thirds of the shares of PBV Common Stock outstanding at
the Record Date. As of the Record Date, directors and executive officers of PBV
and their affiliates beneficially owned 39,181 shares of PBV Common Stock, or
approximately 13.0% of the shares of PBV Common Stock outstanding on such date
(exclusive of shares of PBV Common Stock subject to options and warrants). The
directors and executive officers of PBV have indicated their intention to vote
their shares of PBV Common Stock in favor of the Merger. See "The Special
Meeting - Vote Required." The Board of Directors of F&M has approved the Merger
Agreement. Approval of the Merger Agreement of F&M shareholders is not required
by applicable law or regulation.
<PAGE>
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
Effective Date
If the Merger is approved by the requisite vote of the PBV
shareholders, all required governmental and other consents and approvals are
obtained and the other conditions to the Merger are either satisfied or waived
(as permitted), the Merger will be consummated and made effective at the date
and time set forth on the Certificate of Merger issued by the Virginia State
Corporation Commission (the "Effective Date"). The Merger is expected to be made
effective on or about April 1, 1998. F&M and PBV each has the right, acting
unilaterally, to terminate the Merger Agreement should the Merger not be
consummated by July 31, 1998. See "The Merger - The Effective Date."
Distribution of Stock Certificates and Payment for Fractional Shares
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each PBV shareholder a letter of transmittal and
instructions for use in order to surrender the certificates representing shares
of PBV Common Stock in exchange for certificates representing shares of F&M
Common Stock. Cash (without interest) will be paid to PBV shareholders in lieu
of the issuance of any fractional shares. See "The Merger - Surrender of Stock
Certificates."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Generally, no gain or loss should be recognized for federal income tax purposes
by PBV shareholders as a result of the Merger, except with respect to any cash
received in lieu of fractional share interests. A condition to consummation of
the Merger is the receipt of an opinion from LeClair Ryan, legal counsel for
F&M, as to the qualification of the Merger as a tax-free reorganization and
certain other federal income tax consequences of the Merger.
All shareholders should carefully read the discussion of the material
federal income tax consequences of the proposed Merger under "The Merger Certain
Federal Income Tax Consequences" and are urged to consult with their own tax
advisors as to the federal, state, and local tax consequences in their
particular circumstances.
Interests of Certain Persons in the Merger
Certain members of PBV's management, as well as certain members of the
PBV Board of Directors, have interests in the Merger in addition to their
interests as shareholders of PBV. These include, among other things, provisions
in the Merger Agreement relating to indemnification of directors and officers of
PBV, the treatment of outstanding options with respect to PBV Common Stock,
change of control employment agreements with F&M, and eligibility for certain
F&M employee benefits. In each case, the PBV Board was aware of these potential
interests, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
<PAGE>
Indemnification. F&M has generally agreed to indemnify, for a period of
six years after the Effective Date, the officers and directors of PBV against
certain liabilities arising prior to the Effective Date of the Merger. F&M has
also agreed to provide directors' and officers' liability insurance for the
present officers and directors of PBV for a period of three years after the
Effective Date.
Directors of F&M Bank-Richmond. All of the directors of PBV will become
directors of F&M Bank-Richmond upon consummation of the Merger or as soon
thereafter as practicable.
Stock Options and Warrants. Certain officers and employees of PBV hold
stock options under PBV's 1993 Stock Option Plan to acquire an aggregate of
6,842 shares of PBV Common Stock at exercise prices ranging from $14.46 to
$30.00 per share. Such options, to the extent not exercised prior to the
Effective Date, will be converted into options to acquire shares of F&M Common
Stock, appropriately adjusted to reflect the Exchange Ratio.
Agreement with Mr. Corbett. The Merger Agreement provides that F&M will
enter into change-in-control employment agreements with Quentin L. Corbett, the
President and Chief Executive Officer of PBV, on terms similar to those in
effect for certain of the senior executive officers of the Subsidiary Banks.
These agreements follow a standard form and provide for the continuation of
employment and other benefits for a two year period following the occurrence of
a "change in control" of F&M, as defined in the agreement. In the event of a
termination of employment during this two year period other than for "cause" or
by the officer for "good reason" or during a 45 day period immediately following
the first anniversary of the date on which the change in control occurred, the
officer will be paid in one lump sum an amount equal to one times the average
annual taxable compensation he received during the five year period immediately
prior to the year of the change of control.
See "The Merger - Interests of Certain Persons in the Merger" and "The
Merger - Terms of the Merger."
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Virginia State
Corporation Commission (the "Virginia SCC"), and may be subject to the approval
of or notice to other regulatory authorities. Applications have been filed or
will promptly be filed with such agencies. There can be no assurance that the
approval of the Federal Reserve or the Virginia SCC will be obtained or as to
the timing or conditions of such approvals. See "The Merger - Regulatory
Approvals."
Conditions to Consummation of the Merger; Termination
Consummation of the Merger is contingent upon the following unwaivable
conditions: (i) receipt of the approval of the shareholders of PBV solicited
hereby; (ii) receipt of all governmental and other consents and approvals
necessary to permit consummation of the Merger; and (iii) satisfaction of
certain other usual conditions, including the receipt of the tax opinion
discussed above. Substantially all of the conditions to consummation of the
Merger may be waived, in whole or in part, to the extent permissible under
applicable law by the party for whose benefit the condition has been imposed,
without the approval of the shareholders of that party. Shareholder and
regulatory approvals, however, may not be waived. See "The Merger
Representations and Warranties; Conditions to the Merger" and "The Merger
Regulatory Approvals."
<PAGE>
The Merger Agreement may be terminated and the Merger abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of F&M and PBV, (ii) by either F&M or PBV if the Effective Date has
not occurred by July 31, 1998, except that the party whose failure to perform
any obligation under the Merger Agreement resulted in the delay may not
terminate as a result of the delay, or (iii) by either PBV or F&M if the
satisfaction in any material respect of one or more conditions to that party's
obligation to consummate the Merger becomes impossible of satisfaction. See "The
Merger - Waivers, Amendment and Termination."
Option Agreement
As a condition of F&M's entering into the Merger Agreement and to
increase the probability that the Merger will be consummated, PBV and F&M
entered into an Option Agreement, dated as of December 1, 1997 (the "Option
Agreement"). The Option Agreement provides for the acquisition by F&M of up to
59,970 shares of PBV Common Stock (approximately 19.9% of the PBV Common Stock
outstanding as of the date of the Merger Agreement), subject to adjustment, at
an exercise price of $33.00 per share (the "F&M Option"). The Option Agreement
is attached to this Proxy Statement/Prospectus as Appendix II.
Exercise of the F&M Option is permitted only upon the occurrence of the
events and subject to the limitations specified in the Option Agreement. See
"The Merger - The Option Agreement."
Effect of the Merger on the Rights of PBV Shareholders
Upon consummation of the Merger, PBV shareholders will become
shareholders of F&M, and their rights as such will be governed by the Virginia
Stock Corporation Act (the "Virginia SCA") and by the Articles of Incorporation
and Bylaws of F&M. The rights of the shareholders of PBV are different in
certain material respects from the rights of the shareholders of F&M. See
"Comparative Rights of Shareholders."
Accounting Treatment
It is intended that the Merger will be accounted for as a pooling of
interests . It is a condition to F&M's obligation to consummate the Merger that
it receive an opinion from its outside auditors that the Merger will be
accounted for as a pooling of interests. See "The Merger - Accounting
Treatment."
Absence of Dissenters' Rights
Shareholders of PBV will not be entitled to dissent from the Merger and
obtain the judicially determined fair value of their shares of PBV Common Stock
in connection with the Merger. See "The Merger - Absence of Appraisal Rights."
Resales of F&M Common Stock
Shares of F&M Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and major shareholders) of PBV under applicable
federal securities laws. See "The Merger - Resales of F&M Common Stock."
<PAGE>
F&M's Acquisition Program
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. During the ten year period
beginning in 1988, F&M has acquired approximately $1.2 billion in assets and
approximately $1.0 billion in deposits through twelve bank acquisitions.
Management believes there are additional opportunities to acquire financial
institutions or to acquire assets and deposits that will allow F&M to enter new
markets or increase market share in existing markets. Management intends to
pursue acquisition opportunities in strategic markets where its managerial,
operational and capital resources will enhance the performance of acquired
institutions and may, after the date of this Proxy Statement/Prospectus, enter
into agreements to acquire one or more financial institutions.
On December 12, 1997, F&M entered into an agreement for the acquisition
of Bank of Alexandria, a Virginia chartered bank based in Alexandria, Virginia.
The acquisition of Bank of Alexandria is subject to the approval of shareholders
of Bank of Alexandria and the appropriate regulatory agencies and is expected to
close in the second quarter of 1998. The acquisition of Bank of Alexandria is
expected to be accounted for as a pooling of interests for financial reporting
purposes and provides for a tax-free exchange of 0.942 of a share of F&M Common
Stock for each common share of Bank of Alexandria. In connection with the
proposed acquisition, Bank of Alexandria granted F&M a stock option representing
approximately 19.9% of Bank of Alexandria's outstanding shares. At December 31,
1997, Bank of Alexandria had 686,461 common shares outstanding and 66,476
issuable upon outstanding stock options (excluding the stock option granted to
F&M).
Bank of Alexandria, headquartered in Alexandria, Virginia, had assets
of $73.9 million as of September 30, 1997 and operates four banking offices in
the Alexandria and surrounding area. See "Business of F&M's Acquisition
Program."
There can be no assurance that F&M will be able to successfully effect
any additional acquisition activity, or that any such acquisition activity will
have a positive effect on the value of shares of F&M Common Stock.
Market Prices
F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN." PBV Common Stock is not registered on any exchange, traded in the
over-the-counter market, or quoted by The Nasdaq Stock Market. There is
currently no established public market for PBV Common Stock, which has
periodically been sold in a limited number of privately negotiated transactions.
Based on information made available to it, PBV believes that the per share
selling price of PBV Common Stock ranged from $29.09 to $31.50 in 1997. There
may, however, have been other transactions at other prices not known to PBV.
The following table sets forth the last sale price of F&M Common Stock
on the NYSE Composite Transactions List, the most recent sale price of PBV
Common Stock to the best knowledge of PBV, and the equivalent price per share
(as explained below) of PBV as of the close of business on December 1, 1997, the
last business day prior to public announcement of the execution of the Merger
Agreement, and January ___, 1998, the last practicable date prior to the mailing
of this Proxy Statement/Prospectus:
<PAGE>
Market Price Per Share
------------------------------------------------
F&M PBV Equivalent Per
Common Stock Common Stock Share Price (1)
------------ ------------ ---------------
December 1, 1997.............. $32.25 $31.00 $83.20
January ___, 1998.............
- ---------------
(1) The equivalent per share price of PBV Common Stock at the specified
dates represents the last sale price of a share of F&M Common Stock on
such date multiplied by the Exchange Ratio of 2.58.
Shareholders are advised to obtain current market quotations for F&M
Common Stock. No assurance can be given as to the market price of F&M Common
Stock at or after the Effective Date. See "Market Prices and Dividends."
COMPARATIVE PER SHARE INFORMATION
The table below presents selected comparative unaudited per share
information (i) for F&M on a historical basis and on a pro forma combined basis
assuming the Merger had been effective during the periods presented and
accounted for as a pooling of interests and (ii) for PBV on a historical basis
and on a pro forma equivalent basis. The information shown below should be read
in conjunction with the historical financial statements of F&M and PBV and the
respective notes thereto included or incorporated herein by reference. Results
for F&M and PBV for the nine months ended September 30, 1997 are not necessarily
indicative of results to be expected for their entire fiscal years.
The following information is presented for comparative purposes only
and is not necessarily indicative of the future combined financial position, the
results of the future operations or the actual results or combined financial
position of F&M that would have been achieved had the Merger been consummated as
of the dates or for the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Year ended
Nine months ended December 31,
September 30 ----------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C>
Per Common Share:
Net Income:
PBV-historical (1).............................. $ 2.52 $ 3.23 $ 2.50 $ 2.04
F&M-historical.................................. 1.15 1.44 1.27 1.19
Pro forma combined.............................. 1.14 1.43 1.26 1.18
PBV pro forma equivalent (2).................... 2.94 3.69 3.25 3.04
Cash Dividends Declared:
PBV-historical.................................. $ -- $ 0.25 $ 0.21 $ 0.17
F&M-historical.................................. 0.54 0.69 0.61 0.54
Pro forma combined (3).......................... 0.54 0.69 0.61 0.54
PBV pro forma equivalent (2).................... 1.39 1.78 1.57 1.39
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C>
Book Value:
PBV-historical.................................. $ 26.65 $ 26.40
F&M-historical.................................. 11.80 11.32
Pro forma combined.............................. 11.75 11.29
PBV pro forma equivalent (1).................... 30.32 29.13
</TABLE>
- ---------------
(1) After retroactive adjustments for stock dividends and including shares
issuable under stock option plans, when dilutive.
(2) PBV pro forma equivalent amounts represents F&M's pro forma combined
information multiplied by the Exchange Ratio of 2.58 shares of F&M Common
Stock for each share of PBV Common Stock.
(3) Pro forma dividends per share represent historical dividends paid by F&M.
SELECTED FINANCIAL DATA
The following table presents selected historical financial information
for F&M and PBV. This information is derived from and should be read in
conjunction with the historical financial consolidated statements of F&M and PBV
and the respective notes thereto included in this Proxy Statement/Prospectus or
in documents incorporated herein by reference. For each of F&M and PBV, income
statement information for each of the years ended December 31, 1996, 1995 and
1994, and balance sheet information as of December 31, 1996 and 1995, are based
on, and should be read in conjunction with, the consolidated audited financial
statements of F&M and PBV included or incorporated herein by reference. See
"Incorporation of Certain Information by Reference." All adjustments necessary
to present a fair statement in accordance with generally accepted accounting
principles of results of interim periods of F&M and PBV (which adjustments were
of a normal recurring nature), in the opinion of the respective management's of
F&M and PBV, have been included. Results for F&M and PBV for the nine months
ended September 30, 1997 are not necessarily indicative of the results
to be expected for their entire fiscal years.
<PAGE>
F&M National Corporation
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Year Ended December 31,
------------------------- -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C>
Income Data
Interest income............... $ 132,890 $ 125,241 $ 168,034 $ 158,529 $ 139,806 $ 124,103 $ 119,886
Interest expense.............. 55,426 53,158 71,231 67,157 53,409 49,142 52,825
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income........... 77,464 72,083 96,803 91,372 86,397 74,961 67,061
Provision for loan losses..... 2,691 1,590 2,050 2,048 2,669 3,295 4,799
Noninterest income............ 17,499 15,139 20,745 19,518 18,541 17,634 14,464
Noninterest expense........... 56,892 52,700 71,105 70,166 67,547 57,678 51,813
Income taxes.................. 12,106 11,266 15,095 12,841 10,450 9,770 7,246
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.................... $ 23,274 $ 21,666 $ 29,298 $ 25,835 $ 24,272 $ 21,852 $ 17,667
=========== =========== =========== =========== =========== =========== ===========
Per Share Data
Net income.................... $ 1.15 $ 1.06 $ 1.44 $ 1.27 $ 1.19 $ 1.12 $ 0.97
Cash dividends................ 0.54 0.48 0.69 0.61 0.54 0.58 0.41
Book value, end of period..... 11.80 11.32 11.32 10.87 9.69 9.65 8.84
Average shares outstanding.... 20,239 20,412 20,409 20,368 20,381 19,563 18,261
Period End Balances
Assets........................ $ 2,444,902 $ 2,273,689 $ 2,303,751 $ 2,207,989 $ 2,020,491 $ 1,940,967 $ 1,655,026
Loans, net of unearned income. 1,528,029 1,395,065 1,439,108 1,296,204 1,209,511 1,120,866 919,067
Securities.................... 616,867 616,491 596,993 634,747 590,389 591,003 502,805
Deposits...................... 2,081,073 1,949,110 1,966,938 1,882,849 1,754,131 1,693,029 1,444,336
Shareholders' equity.......... 236,642 228,513 230,723 222,046 195,436 189,039 164,145
Performance Ratios (1)
Return on average assets...... 1.32% 1.29% 1.30% 1.23% 1.21% 1.24% 1.13%
Return on average equity...... 13.22 12.80 12.89 12.18 12.50 12.46 11.99
Dividend payout ratio......... 46.96 45.28 48.08 42.05 39.52 43.91 34.91
Capital Ratios
Leverage...................... 9.51% 9.70% 9.90% 10.09% 9.72% 10.34% 10.47%
Risk-based:
Tier 1 capital............. 14.89 15.82 15.53 15.94 14.87 15.69 17.30
Total capital.............. 16.08 17.07 16.78 17.19 16.12 16.94 18.55
Average equity to average
assets....................... 9.98 10.08 10.09 10.11 9.69 9.95 9.42
</TABLE>
- ------------------
(1) Annualized for the nine months ended September 30, 1997 and 1996.
<PAGE>
Peoples Bank of Virginia
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------- ------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C>
Income Data
Interest income ............. $ 4,188 $ 4,024 $ 5,261 $ 4,884 $ 4,064 $ 3,783 $ 4,192
Interest expense ............ 1,703 1,749 2,325 2,224 1,669 1,577 2,017
Net interest income ......... 2,485 2,275 2,936 2,660 2,395 2,206 2,175
Provision for loan losses ... 18 23 33 18 37 111 385
Noninterest income .......... 400 351 531 463 495 445 450
Noninterest expense ......... 1,709 1,552 1,987 2,002 1,927 1,917 1,920
Income taxes ................ 387 350 471 353 314 207 84
-------- -------- -------- -------- -------- -------- --------
Net income .................. $ 771 $ 701 $ 976 $ 750 $ 612 $ 416 $ 236
======== ======== ======== ======== ======== ======== ========
Per Share Data
Net income (2) .............. $ 2.52 $ 2.32 $ 3.23 $ 2.50 $ 2.04 $ 1.39 $ 0.79
Cash dividends .............. 0 0 0.25 0.21 0.17 0.15 0.00
Book value, end of period ... 26.65 25.68 26.40 23.98 20.38 20.41 18.88
Average shares outstanding .. 306 303 303 301 301 300 300
Period End Balances
Assets ...................... $ 79,398 $ 73,770 $ 75,739 $ 69,530 $ 62,849 $ 54,357 $ 56,391
Loans, net of unearned income 45,197 39,260 39,754 36,134 33,100 33,048 32,270
Securities .................. 19,154 21,051 23,472 20,552 20,413 15,233 15,255
Deposits .................... 69,917 65,093 66,391 61,061 55,547 47,532 48,113
Shareholders' equity ........ 8,032 6,967 7,206 6,547 5,562 5,062 4,673
Performance Ratios (1)
Return on average assets .... 1.38% 1.31% 1.40% 1.18% 1.04% 0.77% 0.43%
Return on average equity .... 13.55 14.04 14.69 12.87 11.52 8.68 5.17
Dividend payout ratio ......... -- -- 7.17 6.93 6.86 8.89 --
Capital Ratios
Leverage .................... 10.32% 9.65% 9.79% 9.33% 9.01% 9.28% 8.26%
Risk-based:
Tier 1 capital ........... 17.94 16.09 16.80 15.51 15.81 13.34 12.03
Total capital ............ 19.19 17.34 18.05 16.76 17.07 15.84 13.25
Average equity to average
assets.................... 10.18 9.34 9.41 9.20 9.27 8.91 --
</TABLE>
- -------------------
(1) Annualized for the nine months ended September 30, 1997 and 1996.
(2) After retroactive adjustment for stock dividend and including shares
issuable under stock option plans, when dilutive.
<PAGE>
THE SPECIAL MEETING
Date, Place and Time
The Special Meeting will be held at the Main Office of PBV located at
9970 Iron Bridge Road, Chesterfield, Virginia on ___________, February ___, 1998
at 7:00 p.m.
Record Date
Only shareholders of record at the close of business on January __,
1998 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were 301,376 shares of PBV Common Stock outstanding held by approximately
282 shareholders of record.
Vote Required
Each share of PBV Common Stock outstanding on the Record Date entitles
the holder to cast one vote upon each matter properly submitted at the Special
Meeting. The affirmative vote of the holders of more than two-thirds of the
shares of PBV Common Stock outstanding as of the Record Date, in person or by
proxy, is required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of PBV and
their affiliates, beneficially owned an aggregate of 39,181 shares of PBV Common
Stock, or 13.0% of the shares of PBV Common Stock outstanding on such date
(exclusive of shares of PBV Common Stock subject to outstanding options that are
currently exercisable). Directors and executive officers of PBV have indicated
an intention to vote their shares of PBV Common Stock in favor of the Merger.
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
Voting and Revocation of Proxies.
Shareholders of PBV are requested to complete, date and sign the
accompanying form of proxy and return it promptly to PBV in the enclosed
envelope. If a proxy is properly executed and returned in time for voting, it
will be voted as indicated thereon. If a proxy is signed and returned without
indicating any voting instructions, shares of PBV Common Stock represented by
the proxy will be voted FOR the Merger Agreement.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to PBV by executing and delivering a substitute proxy to
PBV or by attending the Special Meeting and voting in person. If a PBV
shareholder desires to revoke a proxy by written notice, such notice should be
mailed for receipt or delivered, on or prior to the meeting date, to Quentin L.
Corbett, President, Peoples Bank of Virginia, 9970 Iron Bridge Road,
Chesterfield, Virginia 23832.
Solicitation of Proxies
PBV will bear the costs of this solicitation of proxies. Solicitations
may be made by mail, telephone, telegraph or personally by directors, officers
and employees at PBV, none of whom will receive additional compensation for
performing such services. F&M shall pay all of the expenses of printing and
mailing the Proxy Statement/Prospectus.
<PAGE>
Recommendation
The Board of Directors of PBV has unanimously approved the Merger
Agreement and believes that the proposed transaction is fair to and in the best
interests of PBV and its shareholders. The Board of Directors of PBV unanimously
recommends that PBV shareholders VOTE FOR approval of the Merger Agreement.
THE MERGER
The following is a summary description of the material terms of the
Merger, and is qualified in its entirety by reference to the Merger Agreement
which is attached as Appendix I hereto. All holders of PBV Common Stock are
urged to read the Merger Agreement in its entirety.
Terms of the Merger
The Merger Agreement provides that PBV will merge with and into F&M
Bank-Richmond, which will be the surviving corporation of the Merger. Upon
consummation of the Merger, each outstanding share of PBV Common Stock will
automatically and without further action be exchanged for 2.58 shares of F&M
Common Stock (the "Exchange Ratio"). No fractional shares of F&M Common Stock
will be issued. Rather, cash (without interest) will be paid in lieu of any
fractional share interest based on the average of the last sale prices of F&M
Common Stock as reported on the NYSE Composite Transactions Reporting System for
each of the ten consecutive trading days ending on the fifth business day prior
to the Effective Date. The Exchange Ratio will be adjusted to reflect any stock
split, stock dividend, recapitalization or similar transaction with respect to
F&M Common Stock.
The Merger Agreement further provides for the conversion upon
consummation of the Merger of all stock options held by employees outstanding
under PBV's 1993 Stock Option Plan into options to acquire shares of F&M Common
Stock, appropriately adjusted to reflect the Exchange Ratio.
All of the directors of PBV will become directors of F&M Bank-Richmond
upon consummation of the Merger, and Quentin L. Corbett, President of PBV, will
become Executive Vice President of F&M Bank-Richmond.
Reasons for and Background of the Merger
In May 1997 the PBV Board of Directors met to review a five year
business plan prepared by management of PBV. As it reviewed the business plan
with management, the Board of Directors reached several conclusions:
o As a result of the consolidation of both large banks and
community banks in the Richmond, Virginia metropolitan area, PBV
would need to grow in order to meet increasingly intense
competition. Because a growing number of customers with multiple
locations in the Richmond, Virginia metropolitan area were
demanding it, the Board concluded that PBV, whose operations are
in suburban Chesterfield County, Virginia would need to expand
into the suburban County of Henrico, as well as into the City of
Richmond.
<PAGE>
o PBV could not realize the economies of scale necessary to compete
with larger financial institutions without substantial growth, but
such growth and the necessary efforts to diversify PBV's income
stream would involve large investments in assets, technology and
personnel. The potential rewards from such investments were
considered to be uncertain.
o PBV concluded that its relatively low stock price could make it
difficult to grow through acquisitions without diluting existing
shareholders and that without acquiring other financial
institutions, PBV likely would not be able to increase its
deposits at a rate sufficient to fund the necessary growth in its
assets.
o As it concluded that continued growth involved significant risks
and uncertain rewards, PBV also considered the possibility that if
it were to wait several years or more to seek a merger with a
larger institution, the interest of larger regional bank holding
companies in acquiring an institution the size of PBV might
diminish.
The Board decided to consider acquisitions as a means of expanding and
retained an investment advisor. At the June 23, 1997 meeting of PBV Board of
Directors, a representative of Scott & Stringfellow, Inc. made a presentation to
the Board on the estimated market value of PBV and an analysis of PBV's market
and adjoining markets. He reviewed recent merger and acquisition activity in
Virginia and presented an outlook of the future of community banking in the PBV
market. During and after that meeting, the Board of Directors reviewed the
information presented by Scott & Stringfellow and the five year business plan
and concluded that PBV either should pursue a merger of equals with a community
bank operating in the City of Richmond or Henrico County or, alternatively,
should pursue an affiliation with a larger banking organization. Mr. Corbett,
the Chief Executive Officer of PBV, held informal and inconclusive discussions
with two other community banks in the Richmond, Virginia area. He also contacted
F&M because, of the larger banking organizations operating in Richmond, Virginia
and in the adjoining counties, F&M's presence (ten branch offices) was not so
large that it could not be expanded and, additionally, there is no overlap
between the F&M branch offices and the PBV branch offices. PBV also was aware
that F&M historically has permitted its subsidiary banks to operate with a high
degree of autonomy. Mr. Corbett, who served as executive vice president of F&M
Bank-Richmond until 1992, was very familiar with F&M's operations and he advised
the PBV Board that in his opinion, F&M would provide improved services to PBV
customers without sacrificing personal service and local decision making.
PBV also believed that an affiliation with a larger banking
organization, such as F&M, could have advantages over a merger of equals
transaction. F&M can provide products and technology to customers that PBV and
most small banks cannot provide at this time and PBV was faced with the prospect
of substantial expenditures to acquire the necessary technology. F&M has an
array of products that PBV believes will enable it to better compete with larger
banks, including master cards and visa cards, debit cards, voice response and
trust services. Additionally, F&M common stock is listed on the New York stock
exchange which is expected to provide greater liquidity to PBV shareholders than
would result from a merger of equals.
Discussions between Mr. Corbett and the Chairman of the Board of F&M
began in July of 1997. F&M indicated the price that it might be willing to
offer, which PBV considered inadequate. Because it believed that negotiations
with other large banking organizations would not likely be fruitful, PBV held
discussions with other community banks in its market area during July and August
of 1997. None of those informal discussions ever ripened into formal
negotiations.
<PAGE>
In September 1997 F&M again contacted PBV with a higher offer. The
Board of Directors of PBV concluded that F&M's revised proposal was
significantly more attractive than its original proposal and negotiations
continued through the fall of 1997.
In November 1997 PBV retained Scott & Stringfellow to review the F&M
proposal and also retained counsel. On December 1, 1997 the PBV Board of
Directors met to review the Agreement. At that meeting a representative of Scott
& Stringfellow reviewed the proposed transaction with the Board of Directors and
delivered the opinion of Scott & Stringfellow that the Merger is fair to the
shareholders of PBV from a financial point of view. Counsel reviewed the terms
of the Agreement with the Board of Directors. The Agreement was approved by the
PBV Board of Directors and executed on behalf of PBV on December 1, 1997.
In deciding to enter into the Merger Agreement, the PBV Board
considered a number of factors. The PBV Board did not assign any relative or
specific weights to the factors considered. Material factors considered were:
the exchange ratio offered for PBV Common Stock; the financial condition and
history of performance of F&M; diversification of risk associated with ownership
of an institution with a broader geographic market area; the well capitalized
position and earnings of F&M; the compatibility of the managements of the two
organizations; and the ability of the PBV to remain involved as members of the
F&M Bank Board. The PBV Board believes that the addition of resources resulting
from the Merger will enable PBV to provide a wider and improved array of
financial services to consumers and businesses and to achieve added flexibility
in dealing with the changing competitive environment in its market area. In
addition, the PBV Board believes that the Merger will help provide PBV with the
financial resources needed to meet the competitive challenges arising from
recent and anticipated changes in the banking and financial services industry.
The PBV Board has concluded that the terms of the Reorganization
Agreement, which were determined on the basis of arms-length negotiations, are
fair to PBV shareholders. As explained, this conclusion is supported by the
opinion of an independent financial advisor. In establishing the Exchange Ratio,
the PBV Board also considered the market value and earnings per share of PBV
Common Stock and F&M Common Stock; information concerning the financial
condition, results of operations and the prospects of PBV and F&M; and the
tax-free nature of the Reorganization to the shareholders of PBV to the extent
they receive F&M Common Stock in exchange for their shares of PBV Common Stock.
The Board of Directors of PBV believes that the Reorganization is in
the best interests of PBV and its shareholders. The PBV directors have all
committed to vote shares under their control in favor of the Reorganization to
the extent of their fiduciary ability. The PBV directors unanimously recommend
that PBV shareholders vote FOR the approval of the Reorganization Agreement.
Opinion of Financial Advisor
In developing its Opinion, Scott & Stringfellow reviewed and analyzed:
(i) the Agreement; (ii) the Registration Statement and this Proxy
Statement/Prospectus; (iii) PBV's audited financial statements for the three
years ended December 31, 1996; (iv) PBV's unaudited financial statements for the
nine months ended September 30, 1997 and 1996, and other internal information
relating to PBV prepared by PBV's management; (v) information regarding the
trading market for PBV's Common Stock and the F&M Common Stock and the price
<PAGE>
ranges within which the respective stocks have traded; (vi) the relationship of
prices paid to relevant financial data such as net worth, earnings, deposits and
assets in certain bank and bank holding company mergers and acquisitions in
Virginia in recent years; (vii) F&M's annual reports to shareholders and its
audited financial statements for the three fiscal years ended December 31, 1996;
and (viii) F&M's unaudited financial statements for the nine months ended
September 30, 1997 and 1996 and other internal information relating to F&M
prepared by F&M's management. Scott & Stringfellow has discussed with members of
PBV's and F&M's management past and current business operations, the background
of the Merger, the reasons and basis for the Merger, results of regulatory
examinations, and the business and future prospects of PBV and F&M individually
and as a combined entity, as well as other matters relevant to its inquiry.
Scott & Stringfellow has conducted such other studies, analysis and
investigations particularly of the banking industry, and considered such other
information as it deemed appropriate, the material portion of which is described
below. Finally, Scott & Stringfellow also took into account its assessment of
general economic, market and financial conditions and its experience in other
transactions, as well as its experience in securities valuations and knowledge
of the commercial banking industry generally.
Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and discussed with it for purposes of its Opinion. With respect to
financial forecasts reviewed by Scott & Stringfellow in rendering its Opinion,
Scott & Stringfellow assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgment of the managements of PBV and F&M as to the future financial
performance of PBV and F&M, respectively. Scott & Stringfellow did not make an
independent evaluation or appraisal of the assets or liabilities of PBV and F&M
nor was it furnished with any such appraisal.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including a discounted cash flow analysis, a
market comparable analysis, a comparable acquisition analysis, and a dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of PBV Common Stock. Among other things, Scott & Stringfellow
considered a range of asset and earnings growth for PBV of between 8.00% and
10.00% and a required equity capital level of 8.00% of total assets. A range of
discount rates from 11.50% to 13.50% was applied to the cash flows resulting
from the projections during the first five years and the residual values. The
residual values were estimated by capitalizing the projected final year earnings
by the discount rates, less the projected long-term growth rate of PBV's
earnings. The discount rates, growth rates and capital levels were chosen based
on what Scott & Stringfellow, in its judgment, considered to be appropriate
taking into account, among other things, PBV's past and current financial
performance and conditions, the general level of inflation, rates of return for
fixed income and equity securities in the marketplace, generally and
particularly in the banking industry. The discounted cash flow analysis
indicated a reference range of $43 to $54 per share for PBV Common Stock.
These values compare to the value of $81.91 per share of consideration for each
share of PBV Common Stock as of December 1, 1997. Accordingly, the present value
of PBV Common Stock was calculated at less than the value of the consideration
to be received from F&M pursuant to the Agreement.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 17 community bank and community bank
holding company mergers and acquisitions in Virginia since January 1, 1995,
<PAGE>
representing all such transactions known to Scott & Stringfellow to have
occurred during this period with the proposed Merger and found the consideration
to be received from F&M to be within the relevant pricing ranges acceptable for
such recent transactions. Specifically, based upon transactions announced in
Virginia since January 1, 1995, other than the Merger, the average price to
tangible book value in these transactions is 2.26x, compared with 3.10x for the
Merger; the average price to earnings ratio was 18.99x, compared with 23.88x for
the Merger; the average deal price to deposits was 23.73% compared with 35.87%
for the Merger; the average deal price to assets was 20.50%, compared with
31.59% for the Merger; and the average tangible book premium to core deposits
was 15.14%, compared to 28.46% for the Merger. For purposes of computing the
information with respect to the Merger, $81.91 per share of consideration for
each share of PBV Common Stock was used.
Analysis of F&M and Bank Peer Group. Scott & Stringfellow analyzed the
performance and financial condition of F&M relative to the Bank Peer Group
consisting of Centura Banks, Inc., Crestar Financial Corp., FCNB Corp., F&M
Bancorp, First Virginia Banks, MainStreet BankGroup, Mercantile Bankshares, One
Valley Bancorp, and Union Bankshares. Certain financial information compared
was, among other things, information relating to tangible equity to assets,
loans to deposits, net interest margin, nonperforming assets, total assets, and
efficiency ratio. Additional valuation information compared for the trailing
twelve month period ended September 30, 1997, and stock prices as of December 1,
1997, was (i) price to tangible book value ratio which was 2.77x for F&M,
compared to an average of 2.71x for the Bank Peer Group, (ii) price to last
twelve months earnings ratio which was 20.75x for F&M, compared to an average of
19.43x for the Bank Peer Group; (iii) return on average assets which was 1.32%
for F&M, compared to an average of 1.29% for the Bank Peer Group; (iv) return on
average equity which was 13.17% for F&M, compared to an average of 13.80% for
the Bank Peer Group; and (v) a dividend yield of 2.37% for F&M, compared to an
average of 2.27% for the Bank Peer Group. Overall, in the opinion of Scott &
Stringfellow, F&M's operating performance and financial condition were
comparable to the Bank Peer Group average and F&M's market value was reasonable
when compared to the Bank Peer Group.
Dilution Analysis. Based upon publicly available financial information
on PBV and F&M, Scott & Stringfellow considered the effect of the transaction on
F&M and PBV. The immediate effect on F&M, assuming pretax cost savings and
revenue enhancements of $115,000, was to decrease earnings per share by $0.01 or
0.23% and to decrease book value per share by $0.06 or 0.49%. The effect on PBV
under the same assumptions is to increase dividends per share to $1.91 and to
increase the December 1, 1997 market value of PBV of $33.00 per share to $81.91.
This dilution analysis does not take into account the long-term benefits for the
combined companies resulting from the combination. Scott & Stringfellow
concluded from this analysis that the transaction would have a positive effect
on PBV and PBV Common Stock shareholders in that, PBV's historical dividends and
market value per share would increase after giving effect to the exchange ratio
of F&M Common Stock to be received by PBV shareholders. See "Summary --
Comparative Per Share Data."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the PBV Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors discussed above,
Scott & Stringfellow believes that its analyses must be considered as a whole
and that selecting portions of its analysis and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its Opinion. As a whole, these various
analyses contributed to Scott & Stringfellow's opinion that the terms of the
Agreement are fair from a financial point of view to the PBV's shareholders.
<PAGE>
Pursuant to the engagement between PBV and Scott & Stringfellow, in
exchange for its services, Scott & Stringfellow will receive a fee of $40,000
which is payable at closing.
If the Merger is approved by the requisite vote of the shareholders of
PBV, all required governmental and other consents are obtained (see "The Merger
Regulatory Approvals") and the other conditions to the Merger are satisfied or
waived (as permitted by the Merger Agreement or applicable law), the Merger will
be consummated and made effective on the date and at the time indicated on the
certificate of merger issued by the Virginia SCC pursuant to the Virginia SCA.
The Effective Date will occur on the first day of the month following the month
in which the conditions specified in the Merger Agreement have been satisfied or
waived. See "The Merger - Conditions to the Merger."
It is anticipated that the Effective Date will occur on or about April
1, 1998.
Surrender of Stock Certificates
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each PBV shareholder a letter of transmittal and
instructions for use in order to surrender the certificates representing shares
of PBV Common Stock in exchange for certificates representing shares of F&M
Common Stock.
PBV SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for PBV Common
Stock, together with a properly completed letter of transmittal, the holder of
such certificates will receive a certificate or certificates representing the
number of shares of F&M Common Stock to which he or she is entitled and, where
applicable, a check for the amount payable in cash in lieu of issuing a
fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of F&M.
Cash (without interest) will be paid to PBV shareholders in lieu of the
issuance of any fractional shares.
After the Effective Date, PBV shareholders will be entitled to vote the
number of shares of F&M Common Stock into which their PBV Common Stock has been
converted, regardless of whether they have surrendered their PBV certificates.
The Merger Agreement provides, however, that no dividend or distribution payable
to the holders of record of F&M Common Stock at or as of any time after the
Effective Date will be paid to the holder of any PBV certificate until such
holder physically surrenders such certificate, promptly after which time all
such dividends or distributions will be paid (without interest).
<PAGE>
Conditions to the Merger
The obligations of F&M and PBV to consummate the Merger are subject to
the following conditions, among, others: approval and adoption of the Merger
Agreement by the requisite shareholder vote; receipt of all necessary regulatory
approvals not conditioned or restricted in a manner that, in the judgment of the
Boards of Directors of F&M or PBV, materially adversely affects the economic or
business benefits of the Merger so as to render inadvisable or unduly burdensome
consummation of the Merger; the absence of certain actual or threatened
proceedings before a court or other governmental body relating to the Merger;
receipt of a fairness opinion from Scott & Stringfellow; and the receipt of an
opinion of counsel as to certain federal income tax consequences of the Merger.
Also, under the terms of the Merger Agreement, F&M agreed that, following the
Effective Date, it will indemnify those persons associated with PBV and its
subsidiaries who are entitled to indemnification as of the Effective Date of the
Merger.
In addition, each party's obligation to effect the Merger, unless
waived, is subject to performance by the other party of its obligations under
the Merger Agreement, the accuracy, in all material respects, of the
representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
Regulatory Approvals
As indicated above, the consummation of the Merger is conditioned on
the prior approval of the Merger by the Federal Reserve and the Virginia SCA and
any other state or federal regulatory agency having jurisdiction. As of the date
hereof, all regulatory applications have been filed and accepted, but no
approvals have been obtained. Although neither PBV nor F&M know of any reason
that any approval should not be granted, there can be no assurance that
necessary approvals will be obtained, or that any approval will not be
conditioned in a manner which makes consummation of the Merger, in the judgment
of the Board of Directors of F&M or PBV, inadvisable or unduly burdensome.
Business Pending the Merger
Until consummation of the Merger (or termination of the Merger
Agreement), PBV is obligated to operate its businesses only in the ordinary and
usual course, consistent with past practice and to use its best efforts to
maintain its business organizations, employees and business relationships and
retain the services of its officers and key employees. Until consummation of the
Merger (or termination of the Merger Agreement) PBV may not, without the consent
of F&M, among other things: (a) declare or pay dividends in excess of $0.25 per
share on its capital stock; (b) solicit or encourage inquires or proposals with
respect to, furnish any information relating to, or participate in any
negotiations regarding any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, PBV or any
business combination with PBV, except where the failure to do so would
constitute a breach of the fiduciary or legal obligations of the PBV Board of
Directors to the shareholders of PBV; (c) amend its charter or bylaws; (d) issue
any capital stock, except upon exercise of rights or options issued pursuant to
existing employee benefits plans, programs or arrangements or effect any stock
split or otherwise change its capitalization; or (e) purchase or redeem any of
its capital stock.
<PAGE>
Pending consummation of the Merger, F&M has agreed that F&M and its
subsidiary banks will operate their respective businesses in the ordinary course
and use best efforts to preserve their respective properties, business and
customer and employee relationships.
Waiver, Amendment and Termination
At any time on or prior to the Effective Date, any term or condition of
the Merger, except for the general conditions set forth in Section 5.1(a) - (d)
of the Merger Agreement, may be waived by the party which is entitled to the
benefits thereof, without shareholder approval, to the extent permitted under
applicable law. The Merger Agreement may be amended at any time prior to the
Effective Date by agreement of the parties whether before or after the Special
Meeting (except that the Exchange Ratio shall not be changed after approval of
the Merger Agreement by the PBV shareholders). Any material change in a material
term of the Merger Agreement would require a resolicitation of PBV's
shareholders. Such a material change would include, but not be limited to, a
change in the tax consequences to PBV's shareholders.
The Merger Agreement may be terminated by F&M or PBV, whether before or
after the approval of the Merger Agreement by the shareholders of PBV: (a) by
mutual consent of PBV and F&M; (b) unilaterally by PBV or F&M, in the event that
the Effective Date has not occurred on or before July 31, 1998, except that the
party whose failure to perform any obligation under the Merger Agreement is the
cause of the delay may not terminate the Merger based upon the delay; or (c)
unilaterally by PBV or F&M if the satisfaction in any material respect of one or
more conditions to the obligation of that party is rendered impossible of
satisfaction. In the event of termination, the Merger Agreement shall become
null and void, except that certain provisions thereof relating to expenses and
confidentiality of information exchanged between the parties shall survive any
such termination.
Resales of F&M Common Stock
All shares of F&M Common Stock received by PBV shareholders in
connection with the Merger will be freely transferable, except that F&M Common
Stock received by persons who are deemed to be "affiliates" of PBV for purposes
of Rule 145 under the 1933 Act. To the best knowledge of PBV and F&M, the only
persons who may be deemed to be affiliates of PBV subject to these limitations
are the directors and executive officers of PBV.
Accounting Treatment
It is anticipated that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of F&M and PBV are carried forward
at their previously recorded amounts, income of the combined corporations will
include income of F&M and PBV for the entire fiscal year in which the Merger
occurs, and the reported income of the separate corporations for prior periods
will be combined. No recognition of goodwill in the combination is required of
any party to the Merger.
For the Merger to qualify as a pooling of interests, it must satisfy a
number of conditions including that substantially all of the PBV Common Stock be
exchanged for F&M Common Stock. In the event that any of the conditions to
pooling of interests accounting is not satisfied, then the Merger would not
qualify for pooling of interests accounting treatment, and a condition to the
obligation of F&M to consummate the Merger would not be satisfied. Each of F&M
and PBV have agreed that they will use their respective best efforts to ensure
that the Merger will qualify for pooling of interests accounting treatment. In
addition, affiliates of F&M and PBV have agreed that they will not sell any F&M
Common Stock or PBV Common Stock within 30 days prior to the Effective Date, nor
sell any F&M Common Stock until such time as F&M has published financial results
covering at least 30 days of the combined operations of F&M and PBV after the
Merger.
<PAGE>
Interests of Certain Persons in the Merger
Certain members of PBV's management, as well as certain members of the
PBV Board of Directors, have interests in the Merger in addition to their
interests as shareholders of PBV. These include, among other things, provisions
in the Merger Agreement relating to indemnification of directors and officers of
PBV, the treatment of outstanding options with respect to PBV Common Stock,
change of control employment agreements with F&M, and eligibility for certain
F&M employee benefits. In each case, the PBV Board was aware of these potential
interests, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Indemnification. F&M has generally agreed to indemnify, for a period of
six years after the Effective Date, the officers and directors of PBV against
certain liabilities arising prior to the Effective Date of the Merger. F&M has
also agreed to provide directors' and officers' liability insurance for the
present officers and directors of PBV for a period of three years after the
Effective Date.
Directors of F&M Bank-Richmond. All of the directors of PBV will become
directors of F&M Bank-Richmond upon consummation of the Merger or as soon
thereafter as practicable.
Stock Options and Warrants. Certain officers and employees of PBV hold
stock options under PBV's 1993 Stock Option Plan to acquire aggregate of 6,842
shares of PBV Common Stock at exercise prices ranging from $14.46 to $30.00 per
share. Such options, to the extent not exercised prior to the Effective Date,
will be converted into options to acquire shares of F&M Common Stock,
appropriately adjusted to reflect the Exchange Ratio.
Agreement with Mr. Corbett. The Merger Agreement provides that F&M will
enter into change-in-control employment agreements with Quentin L. Corbett, the
President and Chief Executive Officer of PBV, on terms similar to those in
effect for certain of the senior executive officers of the Subsidiary Banks.
These agreements follow a standard form and provide for the continuation of
employment and other benefits for a two year period following the occurrence of
a "change in control" of F&M, as defined in the agreement. In the event of a
termination of employment during this two year period other than for "cause" or
by the officer for "good reason" or during a 45 day period immediately following
the first anniversary of the date on which the change in control occurred, the
officer will be paid in one lump sum an amount equal to one times his average
annual taxable compensation he received during the five year period immediately
prior to the year of the change of control.
Employees and Benefit Plans. The Merger Agreement provides that the
officers and employees of PBV will not change as a result of the Merger. As soon
as administratively practicable following the Merger, employees of PBV will be
entitled to participate in the F&M pension, benefit and similar plans on the
same terms and conditions as employees of F&M. Employees of PBV will receive
credit for their years of service to PBV for participation and vesting purposes
only.
<PAGE>
The Option Agreement
The Option Agreement was entered into as a condition to F&M's entering
into the Merger Agreement and is intended to increase the probability that the
Merger will be consummated. Exercise of the F&M Option may tend to make the
acquisition of a controlling interest in PBV more expensive to any prospective
acquiror other than F&M, even if such an acquisition would be beneficial to
PBV's shareholders. The existence of the F&M Option is intended to make it less
likely that a prospective acquiror, other than F&M, will seek a business
combination with PBV. The following is a brief summary of the F&M Option and is
qualified in its entirety by reference to the Option Agreement, a copy of which
is attached to this Proxy Statement/Prospectus as Appendix II and incorporated
by reference herein.
The Option Agreement permits the exercise by F&M of the PBV Option to
acquire up to 59,970 shares of PBV Common Stock at a price of $33.00 per share,
subject to adjustment upon the occurrence of certain events described below. The
shares subject to the PBV Option represent approximately 19.9% of the
outstanding shares of PBV Common Stock as of the date of the Merger Agreement.
F&M may exercise the F&M Option, in whole or in part, at any time or
from time to time, upon or after the occurrence of a "Purchase Event." As used
in the Option Agreement, a "Purchase Event" means:
(a) PBV shall have entered into an agreement with a person (other than
F&M or its affiliates) to: (i) acquire, merge or consolidate with, or enter
into any similar transaction with PBV, (ii) purchase, lease or otherwise
acquire all or substantially all of the assets of PBV, or (iii) purchase or
otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing more than 10%
of the voting power of PBV;
(b) any person shall have acquired beneficial ownership of more than
20% of the outstanding shares of PBV Common Stock; or
(c) a bona fide proposal is made by any person (other than F&M or its
affiliates) by public announcement or written communication that is or
becomes the subject of public disclosure to acquire, merge or consolidate
with, or enter into any similar transaction with PBV, and following such
proposal the shareholders of PBV vote not to approve the Merger Agreement.
PBV is required to notify F&M upon the occurrence of a transaction,
offer or event giving rise to a Purchase Event. In the event F&M wishes to
exercise the PBV Option, it must send PBV written notice specifying (i) the
total number of shares it will purchase and (ii) the place and date not earlier
than three business days nor later than 60 business days after the date on which
such notice is given for the closing of such purchase. If prior notification to,
or approval of, any federal or state regulatory agency is required, F&M will
promptly file the required notice or application for approval and the period of
time that otherwise would run pursuant to such notice period will run instead
from the date on which the last required notification period has expired or has
been terminated or such approvals have been obtained and any requisite waiting
period has passed.
<PAGE>
The PBV Option will expire and terminate, to the extent not previously
exercised, upon the earlier of (i) the Effective Date; (ii) the date on which
the Merger Agreement is terminated, other than a termination based upon (a) a
material breach by PBV of any covenant in the Merger Agreement or (b) the
failure of PBV to obtain shareholder approval of the transactions contemplated
by the Merger Agreement by the vote required by applicable law, in either case
following the occurrence of a Purchase Event or (iii) twelve months after the
Merger Agreement is terminated based upon a material breach by PBV of certain
specified covenants or the failure of PBV to obtain shareholder approval of the
transactions contemplated by the Merger Agreement by the vote required under
applicable law, in either case following the occurrence of a Purchase Event.
In the event that PBV's capitalization changes by reason of stock
dividend, split-up merger, recapitalization, combination, exchange of shares or
the like, the number of shares subject to the PBV Option and the purchase price
per share thereof will be adjusted so that the economic value of the PBV Option
remains unaltered.
Certain Federal Income Tax Matters
The following is a discussion of all material federal income tax
consequences of the Merger under the Internal Revenue Code of 1986, as amended
(the "Code"), to PBV shareholders who receive F&M Common Stock solely in
exchange for PBV Common Stock and cash in lieu of fractional shares. The
discussion does not deal with all aspects of federal taxation that may be
relevant to particular PBV shareholders. Accordingly, because certain tax
consequences of the Merger may vary depending upon the particular circumstances
of each PBV shareholder and other factors, each PBV shareholder is urged to
consult such holder's own tax advisor to determine the particular tax
consequences to such holder of the Merger (including the application and effect
of state and local income and other tax laws).
This summary is based on current law and the advice of LeClair Ryan,
legal counsel to F&M. The advice of LeClair Ryan set forth in this summary is
based on, among other things, certain customary assumptions and representations
relating to certain facts and circumstances of, and the intentions of the
parties to, the Merger. Neither F&M nor PBV has requested a ruling from the
Internal Revenue Service in connection with the Merger. To meet a condition to
consummation of the Merger, F&M and PBV will receive from LeClair Ryan, counsel
to F&M, an opinion as to certain federal income tax consequences of the Merger.
Such opinion is not binding on the Internal Revenue Service.
In the opinion of counsel, the Merger will constitute a tax-free
reorganization under Section 368(a) of the Code, if consummated in the manner
set forth in the Merger Agreement. Accordingly, among other things, in the
opinion of such counsel:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
2. No gain or loss will be recognized by F&M or PBV as a result of the
Merger;
3. No gain or loss will be recognized by a PBV shareholder to the
extent he or she receives F&M Common Stock solely in exchange for his PBV Common
Stock pursuant to the Merger;
4. The tax basis of the F&M Common Stock received by each PBV
shareholder will be the same as the tax basis of the PBV Common Stock
surrendered in exchange therefor; and
<PAGE>
5. The holding period for each share of F&M Common Stock received by
each PBV shareholder in exchange for PBV Common Stock will include the period
for which such shareholder held the PBV Common Stock exchanged therefor,
provided such PBV Common Stock is a capital asset in the hands of such holder at
the Effective Date.
Any cash received by shareholders in lieu of the issuance of fractional
shares could result in taxable income to the shareholders. The receipt of such
cash will generally be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations.
Absence of Appraisal Rights
Under Section 6.1-43 of the Virginia SCA, shareholders of PBV will not
be entitled to dissent from the Merger and obtain the judicially determined fair
value of their shares of PBV.
Certain Differences in Rights of Shareholders
Both F&M and PBV are corporations subject to the provisions of the
Virginia SCA. Shareholders of PBV, whose rights are governed by PBV's Articles
of Incorporation and Bylaws, will, upon consummation of the Merger, become
shareholders of F&M. The rights of the former PBV shareholders will then be
governed by the Articles of Incorporation and Bylaws of F&M.
There are no material differences between the rights of a PBV
shareholder under PBV's Articles of Incorporation and Bylaws, on the one hand,
and the rights of an F&M shareholder under the Articles of Incorporation and
Bylaws of F&M, on the other hand, except as disclosed in the section
"Comparative Rights of Shareholders."
Expenses of the Merger
In general, whether or not the Merger is consummated, PBV and F&M will
pay their own expenses incident to preparing, entering into and carrying out the
Merger Agreement, and preparing and filing the Registration Statement of which
this Proxy Statement/Prospectus is a part, except that F&M will pay the expenses
of printing and mailing this Proxy Statement/Prospectus, and under circumstances
involving willful and material breaches of certain provisions of the Merger
Agreement.
If either party willfully and materially breaches the Merger Agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If the Merger Agreement is terminated by PBV because it is
not approved by the PBV shareholders, PBV must pay 50% of F&M's costs in this
transaction, up to $50,000.
MARKET PRICES AND DIVIDENDS
Market Prices
F&M. F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN." The following table sets forth the high and low closing sales prices of
F&M Common Stock as reported on the NYSE Composite Transactions List.
<PAGE>
<TABLE>
<CAPTION>
Closing Sales Prices
-----------------------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C>
1st Quarter (through Jan. ___)......... $ $ $22.875 $19.625 $19.750 $17.250
2nd Quarter............................ 26.375 19.875 18.500 16.000
3rd Quarter............................ 30.438 26.000 19.375 17.250
4th Quarter............................ 36.250 28.563 21.375 18.125
</TABLE>
The closing price of F&M Common Stock on the NYSE Composite
Transactions List on December 1, 1997, the last full trading day preceding the
public announcement of the execution of the Merger Agreement, was $32.25 per
share. The closing price of F&M Common Stock on the NYSE Composite Transactions
List on January ____, 1998, the latest practicable date prior to the date of the
Proxy Statement/Prospectus was $_____ per share.
PBV. PBV Common Stock is not registered on any exchange, traded in the
over-the-counter market, or quoted by The Nasdaq Stock Market. PBV Common Stock
has periodically been sold in a limited number of privately negotiated
transactions. Based on information made available to it, PBV believes that the
per share selling price of PBV Common Stock ranged from $29.09 to $31.50 in 1997
and from $29.50 to $34.00 in 1996. Such prices do not necessarily reflect the
price that would be paid in an active and liquid market. There may, however,
have been other transactions at other prices not known to PBV.
As of September 30, 1997, there were 7,881 record holders of F&M Common
Stock. As of the Record Date, there were 282 record holders of PBV Common Stock.
Dividends
The following tables reflect the cash dividends per share paid during
each quarter on F&M Common Stock for the periods indicated. PBV declared and
recorded an annual cash dividend of $0.25 in December of each of 1997 and 1996.
The information in the table below concerning F&M may vary for certain
periods from the dividends declared during the quarter in cases where the
dividend was paid in the quarter following its declaration. In addition, the
amounts shown for F&M have not been restated and adjusted to reflect (i) the
acquisitions on October 1, 1996 of Allegiance Banc Corporation, on March 29,
1996 of FB&T Financial Corporation, and on April 6, 1995 of Bank of the Potomac.
See "Selected Financial Data" for such restated dividend information for F&M.
F&M
1997 1996 1995
---- ---- ----
1st Quarter................................... $0.180 $0.160 $0.150
2nd Quarter................................... 0.180 0.160 0.150
3rd Quarter................................... 0.185 0.175 0.150
4th Quarter................................... 0.185 0.230 0.160
<PAGE>
F&M or F&M Bank-Winchester has paid regular cash dividends for more
than 55 consecutive years.
F&M is a legal entity separate and distinct from its subsidiaries, and
its revenues depend primarily on the payment of dividends from its subsidiary
banks. F&M's subsidiary banks are subject to certain legal restrictions on the
amount of dividends they are permitted to pay to F&M. For example, a Virginia
chartered bank, of which there are nine within the F&M system, is prohibited
from paying a dividend that would impair its paid-in capital. In addition, the
Virginia SCC may limit the payment by any Virginia chartered bank if it
determines that the limitation is in the public interest and is necessary to
ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as the
Subsidiary Banks, are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is defined in federal law). Based
on the Subsidiary Banks' current financial condition, F&M does not expect that
this provision will have any impact on its ability to obtain dividends from its
insured depository institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by F&M's bank subsidiaries. The final
determination of the timing, amount and payment of dividends on F&M Common Stock
is at the discretion of F&M's Board of Directors and will depend upon the
earnings of F&M and its subsidiaries, principally its subsidiary banks, the
financial condition of F&M and other factors, including general economic
conditions and applicable governmental regulations and policies.
PEOPLES BANK OF VIRGINIA
Business
Peoples Bank of Virginia ("PBV") is a community bank headquartered in
Chesterfield, Virginia. PBV opened for business in 1985 and currently operates
four branches in Chesterfield County, and one remote ATM in the City of Colonial
Heights. PBV also operates an operations center in Chesterfield.
Principal Market Area. The primary service area of PBV is Chesterfield
County. PBV also serves customers in surrounding counties and portions of the
City of Richmond. PBV solicits business from individuals and small- to
medium-sized businesses within these service areas. PBV's present intention is
to continue to concentrate its activities in its current service area while
evaluating expansion opportunities in surrounding counties.
Banking Services. PBV provides a wide range of banking services
including various deposit products, loan services, automated teller machines,
ATM cards, and telephone banking. No material portion of PBV's deposits has been
obtained from a single or small group of customers and the loss of deposits of
any one customer or of a small group of customers would not have a material
adverse effect on the business of PBV.
<PAGE>
Lending Activities
PBV's primary focus is on making loans to individuals and small
businesses within its market area. PBV's legal lending limit to any one customer
was approximately $1.2 million at September 30, 1997. PBV had $10.8 million in
loan commitments, including lines of credit, outstanding at September 30, 1997.
Commercial Business Lending. PBV's commercial loans are made primarily
to service, retail and wholesale businesses in PBV's market area. Such loans are
generally collateralized by real estate, business assets, and personal
guarantees, and have a higher degree of risk than residential mortgage loans. To
manage the risks associated with its commercial loan portfolio, PBV correlates
risk with the interest rates charged on commercial loans, maintains specific
reserves where necessary, and maintains an internal watch system to monitor the
financial condition of these borrowers and the market value of associated
collateral. Due to the diversification of the local economy, no significant
concentrations of credit exist in any single industry with the exception of
residential construction, which is addressed below.
Commercial business loans generally have a higher degree of risk than
residential mortgage loans, but also offer commensurately higher yields. Pricing
of commercial business loans is tied to the prevailing interest rate, at a
factor over prime. Pricing decisions in individual cases are based on perceived
credit risk and anticipated administrative costs. Pricing on commercial loans
also takes into account any depository relationship between the borrower and
PBV, which in many cases, can provide for both a stable lending and depository
relationship. Although PBV typically looks to the borrower's cash flow as the
principal source of repayments of these types of loans, the large majority of
PBV's commercial loans are secured by assets, such as real estate and other
forms of collateral. In addition, PBV's commercial loans are personally
guaranteed by the principals of the business as necessary under PBV's credit
standards.
Real Estate Construction Loans. PBV's construction loans for
residential purposes are generally structured as construction-only loans where
the borrower is a contractor building pre-sold homes. PBV obtains a first lien
on the security property as collateral for its construction loans, limits loan
amounts to 80% of the appraised value, and limits its lending activities to
borrowers with demonstrated financial strength. PBV has not experienced losses
involving its construction loan portfolio. In some cases, PBV extends lines to
established contractors for speculative construction. In these cases, the loan
amount is limited to 75% of the appraised value. Commercial construction loans
are generally structured as construction-permanent loans where the borrower will
convert the construction loan to term financing and remain a permanent mortgage
customer of PBV.
Residential Mortgage Lending. The residential mortgage loans made by
PBV have a 3 and 5 year fixed rate feature with terms up to 10 years. Its
lending and asset/liability strategies currently do not allow PBV to maintain
conventional long-term fixed rate mortgage loans. However, PBV has established a
relationship with a third party for placement of loan requests for this type,
for which PBV earns a portion of the origination fees associated with these
types of loans.
Consumer Lending. PBV currently offers most types of consumer
installment loans. The performance of the consumer loan portfolio is directly
tied to and dependent upon the general economic conditions in PBV's market area.
<PAGE>
Credit Policies and Loan Administration. PBV has adopted a
comprehensive lending policy which includes stringent underwriting standards for
all types of loans and pricing guidelines, as well as the "New Standards for
Prudent Real Estate Lending" set forth in a recent FFIEC opinion statement.
PBV's policy specifies "permitted" loans, as well as "undesirable and
prohibited" loans. Collateral requirement and maturity limits also are
addressed. In an effort to manage risk, all credit decisions are made according
to prescribed lending authorities for each loan officer and the Loan Committee
of the Board. These lending authorities are approved by the full Board.
Employees
On September 30, 1997, PBV had 30 full-time and 11 part-time employees.
None of its employees are represented by any collective bargaining agreements,
and relations with employees are considered excellent.
Competition
PBV's primary market is generally defined as Chesterfield County. PBV
is subject to intense competition from various other financial institutions and
other companies that offer financial services. Among financial institutions, the
primary method of competition is the efficient delivery of diversified quality
services at competitive prices.
Property
PBV currently operates four retail facilities, which are located at
5756 Hopkins Road (in an out-parcel of Meadowbrook Plaza Shopping Center), 9970
Iron Bridge Road (at Chesterfield Courthouse), 11010 Hull Street Road (in an
out-parcel of Genito Crossing Shopping Center), and 11450 Midlothian Turnpike
(in an out-parcel of Chesterfield Towne Center Shopping Mall). In addition, PBV
houses its operations center in the same building as its Hopkins Road branch
location, in which data processing functions are housed. The corporate
headquarters is housed in the Iron Bridge Road location, where the greatest
concentration of deposits and loans are serviced. All offices are physically
equipped to provide all services available at PBV, including ATM service except
for the Hopkins Road location which does not have an ATM. PBV also operates an
ATM at the Southpark Exxon at 901 Southpark Boulevard in the City of Colonial
Heights. This ATM operates as a cash-dispensing machine only.
The Iron Bridge Road and Genito Crossing branches are owned by the
Bank. The other locations are leased under leases containing varying terms and
maturities.
Security Ownership of Management
The following table sets forth information as of September 30, 1997
regarding the number of shares of PBV Common Stock beneficially owned by all
directors of PBV, by the executive officers of PBV and by all directors and
executive officers as a group. For the purposes of this table, beneficial
ownership has been determined in accordance with the provisions of Rule 13d-3
under the Securities and Exchange Act of 1934 (the "Exchange Act"), as amended,
under which, in general, a person is deemed to be a beneficial owner of a
security if he has or shares the power to vote or direct the voting of the
security or the power to dispose or direct disposition of the security, or if he
has the right to acquire beneficial ownership of the security within 60 days.
<PAGE>
Common Stock Percent of
Name Beneficially Owned Class
- ---- ------------------ -----
Director
W. S. Carnes ...................... 1,018 *
Quentin L. Corbett ................ 2,740 *
Read F. Goode ..................... 5,856 1.9%
A. Lee Hanbury .................... 4,724 1.6
Seale F. Moorer, Jr ............... 3,951 1.3
Thomas L. Newton, Jr .............. 719 *
Thomas E. Pruitt .................. 14,633 4.9
Oliver D. Rudy .................... 2,195 *
J. Kenneth Timmons ................ 1,235 *
All executive officers
And directors as a group
(12 persons) .................... 39,181 13.0
- --------------------------
* Represents less than 1% of the outstanding shares of PBV Common Stock.
PEOPLES BANK OF VIRGINIA
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition of PBV. This
discussion and analysis should be read in conjunction with PBV's consolidated
financial statements and accompanying notes.
Financial Condition
At September 30, 1997, total assets were $79.4 million, compared to
$73.8 million at September 30, 1996 and $75.7 million at December 31, 1996.
Deposits at September 30, 1997 were $69.9 million, compared to $65.1 million and
$66.4 million at September 30, 1996 and December 31, 1996, respectively.
In 1996 PBV experienced asset growth of $6.2 million (8.9%) compared to
asset growth of $6.7 million (10.6%) in 1995. In 1996 PBV had net income of $976
thousand or $3.23 per share, compared to net income of $750 thousand or $2.5 per
share in 1995. Asset growth was due to increased loan balances, which were
funded by increased deposits. Increased earnings resulted primarily from
increased net interest income as well as continued management of non-interest
expense.
Net Income
For the nine months ended September 30, 1997, net income was $771
thousand, or $2.52 per share, compared to $701 thousand, or $2.32 per share, for
the same period in 1996, an increase of 10.0%. The principal reason for the
increase in net income was a 9.5% increase in net interest income, which was
$2.5 million for the first nine months of 1997, compared to $2.3 million for the
same period in 1996.
<PAGE>
Net income for the year ended December 31, 1996 of $976 thousand was an
increase of 30.1% over the year ended December 31, 1995. The increase in net
income during 1996 reflects primarily an increase in the lending volume, and
control of non-interest expense. In addition, deposit volume increased by 8.7%
while the total cost of those deposits increased by only 4.5%, thereby
contributing substantially to the improvement in net income.
PBV's return on average equity increased for the year ended December
31, 1996 when compared to the year ended December 31, 1995. The return on
average equity was 14.69% for the year ended December 31, 1996, compared to
12.87% for 1995. PBV's return on average assets was 1.40% and 1.18% for December
31, 1996 and 1995, respectively.
PBV is not aware of any current recommendations by the bank regulatory
authorities which, if implemented, would have a material effect on its
liquidity, capital reserve or results of operations. There are no agreements
between PBV and either the FDIC or the SCC, nor has either regulatory agency
made any recommendations concerning the operations of PBV that could have a
material effect on its liquidity, capital reserves or results of operations.
Net Interest Income
Net interest income is the difference between interest income and
interest expense and represents PBV's gross profit margin. For comparative
purposes, the income from tax-exempt securities and loans is adjusted to a
tax-equivalent basis. This adjustment, based on the statutory federal corporate
tax rate of 34 percent, causes tax exempt income and resultant yields to be
presented on a basis comparable with income and yields from fully taxable
earning assets. The net interest margin represents tax-equivalent net interest
income divided by average earning assets. It reflects the average effective rate
earned by PBV on its average earning assets. Net interest income and the net
interest margin are influenced by fluctuations in market rates and changes in
both the volume and mix of average earning assets and the liabilities used to
fund those assets.
Table 1 presents average balances, related interest income and expense,
and average yield/cost rate for the first nine months of 1997 and for each of
the last two years. Table 2 reflects changes in interest income and interest
expense resulting from changes in average volume and changes due to rates.
<PAGE>
Table 1: Average Balances, Interest Income and Expenses, and Average Yields and
Rates
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
--------------------------- ----------------------------------------------------
1997 1996 1995
--------------------------- -------------------------- --------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C>
Assets:
Securities (1).................... $22,069 $1,001 6.05% $22,822 $1,414 6.20% $19,589 $1,237 6.31%
Federal funds sold................ 4,723 194 5.48 5,841 310 5.31 5,356 313 5.84
Loans (net)....................... 42,483 3,023 9.49 38,297 3,576 9.34 35,027 3,554 9.58
------ ----- ------ ----- ------ -----
Total earning assets............ 69,275 4,218 8.12 66,960 5,300 7.92 59,972 4,904 8.18
Non-interest earning assets:........
Cash and due from banks........... 3,646 3,195 3,022
Premises and equipment............ 1,483 1,553 1,611
Other assets...................... 787 815 762
Less: allowance for loan losses...
603 578 530
--- --- ---
Total assets.................... $74,588 $71,945 $64,847
======= ======= =======
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Money Market and NOW accounts..... $17,213 $ 348 2.70% $16,262 $ 427 2.63% $14,099 $ 419 2.97%
Regular savings................... 6,382 143 2.99 6,222 187 3.01 5,283 159 3.01
Time deposits <$100,000........... 21,092 877 5.54 23,612 1,328 5.62 21,654 1,243 5.74
Time deposits > $100,000.......... 7,883 304 5.14 6,473 342 5.28 6,462 344 5.32
------- ------ ------- ------ ------- ------
Total interest-bearing deposits... 52,570 1,672 4.24 52,569 2,284 4.34 47,498 2,165 4.56
-----
Securities sold under agreements to
repurchase........................ 1,403 31 2.95 1,351 41 3.03 1,844 59 3.20
----- ------- ------- ------- ------- -------
Total Interest-bearing 53,973 1,703 4.21 53,920 2,325 4.31 49,342 2,224 4.51
liabilities.......................
Non-interest bearing liabilities:
Demand deposits................... 12,564 10,778 9,058
Other liabilities................. 455 474 471
-------- -------- ---
Total liabilities................. 66,992 65,172 58,871
Stockholders' equity................ 7,596 6,773 5,966
-------- -------- -----
Total liabilities and
stockholders' equity $74,588 $71,945 $64,837
======= ======= =======
Net interest income................. $2,515 $2,975 $2,680
====== ====== ======
Interest rate spread (2) (4)........ 3.91% 3.60% 3.67%
Interest expense as a percent of
average earning assets (4)........ 3.28% 3.47% 3.71%
Net interest margin (3) (4)......... 4.84% 4.44% 4.47%
- -----------------
(1) Income and yields are reported on a tax equivalent basis assuming a federal
tax rate of 34%.
(2) Interest spread is the average yield earned on earning assets, calculated
on a fully taxable equivalent basis, less the average rate incurred on
interest-bearing liabilities.
(3) Net interest margin is the net interest income, calculated on a fully
taxable basis assuming a federal income tax rate of 34%, expressed as a
percentage of average earning assets.
(4) Annualized for the nine months ended September 30, 1997 and 1996.
</TABLE>
Interest income and interest expense are affected by changes in both
average interest rates and average volumes of interest-earning assets and
interest-bearing liabilities. The following table analyzes changes in net
interest income attributable to changes in the volume of interest-bearing assets
and liabilities compared to changes in interest rates. The change in interest
due to both rate and volume has been allocated to change due to volume and
change due to rate in proportion to the relationship of the absolute dollar
amounts of the change in each.
<PAGE>
Table 2: Volume and Rate Analysis
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30 December 31,
---------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------- -------------
Increase (decrease) Increase (decrease)
Due to changes in: Due to changes in:
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in thousands)
<S> <C>
Increase (decrease) in:
Earning assets:............
Securities............... $(43) $(31) $(74) $ 201 $ (43) $ 158
Federal funds sold....... (22) 6 (16) 28 (31) (3)
Loans.................... 324 (71) 253 321 (71) 250
-------- --------- -------- ------- ----- ------
Total.................. $ 259 $(96) $ 163 $ 550 $(145) $ 405
Interest expense:..........
Money market & NOW....... $ 23 $ 12 $ 35 $ 64 $ (56) $ 8
Regular savings.......... 6 (1) 5 28 (0) 28
Time deposits <$100,000 (131) (17) (148) 112 (27) 85
Time deposits >$100,000 70 (11) 59 1 (3) (2)
-
Securities sold under
agreements to repurchase. 3 0 3 (16) (2) (18)
-------- -------- -------- -------- -------- ------
Total.................. (29) (17) (46) 189 (88) 101
Net interest earnings...... $ 288 $(79) $ 209 $ 361 $ (57) $ 304
===== ====== ===== ====== ====== =====
</TABLE>
* The change in interest income due to both rate and volume has been
allocated to change due to volume and change due to rate in proportion
to the relationship of the absolute dollar amounts of the change in
each.
In the nine months ended September 30, 1997, net interest income was
$2.5 million, compared to $2.3 million for the same period in 1996. The
annualized net interest margin increased to 4.84%, compared to 4.63% for the
nine months ended September 30, 1996 and increased compared to 4.44% for the
year ended December 31, 1996.
Improvements in the margin were primarily driven by increased lending
in commercial real estate and residential construction. These loans generate
fee income which translates to improvement in the margin. Typically the inherent
risk in such loans would commend higher interest rates, but real estate within
Chesterfield County is continually appreciating and is projected to do so,
therefore, the high quality portfolio created by these loans must be priced
carefully to preserve the margins and continue to make the loan. Construction
loans are generally short-term so that portion of the portfolio can be
"turned" more often increasing the fees and interest.
The net interest margin remained almost unchanged in 1996 and 1995, at
4.56% and 4.58%, respectively. This was due to a similar growth in both the
loans and deposits but no significant improvement in the loan to deposit ratio.
Net interest income and the net interest margin benefited in 1996 from
a 11.6% increase in average earning assets. The loan portfolio experienced
growth throughout 1996, and average loans increased 9.3% during the year.
Securities, on average, increased 16.5% in 1996.
Influenced by interest rate trends, competitive factors, and
management's efforts to stabilize PBV's expenses associated with obtaining and
maintaining deposits, its average cost of funds declined in 1996 from 4.31%
compared to 4.51% in 1995.
<PAGE>
Interest Sensitivity
An important element of earnings performance and the maintenance of
sufficient liquidity is proper management of the interest sensitivity gap. The
interest sensitivity gap is the difference between interest sensitive assets and
liabilities in a specific time interval. This gap can be managed by repricing
assets or liabilities, which can be effected by replacing an asset or liability
at maturity or by adjusting the interest rate during the life of an asset or
liability. Matching the amounts of assets and liabilities maturing in the same
time interval helps to hedge the risk and minimize the impact on net interest
income in periods of rising or falling interest rates.
PBV determines the overall magnitude of interest sensitivity risk and
then formulates policies governing asset generation and pricing, funding sources
and pricing and off-balance-sheet commitments. These decisions are based on
management's outlook regarding future interest rate movements, the state of the
local and national economy, and other financial and business risk factors.
The following tables present PBV's interest sensitivity position at
September 30, 1997 and at December 31, 1996. This is a one-day position which
continually is changing and is not necessarily indicative of PBV's position at
any other time.
<PAGE>
Table 3: Interest Sensitivity Analysis
<TABLE>
<CAPTION>
September 30, 1997 (1)
------------------------------------------------------------------
Within 3-12 1 to 5 Over
3 Months Months Years 5 Years Total
--------- ------ ----- ------- -----
(Dollars in thousands)
<S> <C>
Earning Assets:
Loans...................................... $ 15,826 $ 5,093 $ 24,269 $ 618 $ 45,806
Investment securities, at amortized cost... - - - - -
Securities available for sale, at fair value 2,501 3,699 12,611 343 19,154
Federal funds sold......................... 8,850 - - - 8,850
-------- ---------- -------- ---------- --------
Total earning assets..................... $ 27,177 $ 8,792 $ 36,880 $ 961 $ 73,810
Interest Bearing Liabilities:
Deposits:
NOW & Savings............................ $ 6,388 4,029 $ 5,696 $ - $ 16,113
Money Market............................. 4,801 2,400 2,400 - 9,601
Time deposits, $100,000 and over......... 3,722 3,739 2,680 397 10,538
Other time deposits...................... 3,019 8,983 4,909 1,712 18,623
Securities sold under agreements to
repurchase............................ 1,147 - - - 1,147
----- ---------- -------- -------- --------
Total interest-bearing liabilities..... $19,077 $ 19,151 $ 15,685 2,109 $ 56,022
Period Gap................................... $ 8,100 $ (10,359) $ 21,195 $ (1,148) $ 17,788
Cumulative Gap............................... $ 8,100 $ (2,259) $ 18,936 $ 17,788
Ratio of cumulative gap to total earning
assets..................................... 10.95% (3.05)% 25.60% 24.10%
Ratio of interest-earning assets to
interest-bearing liabilities............... 142.46% 45.91% 235.13% 45.55%
Cumulative ratio of interest-earning assets to
interest-bearing liabilities............... 142.46% 94.09% 83.02% 131.75%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 3: Interest Sensitivity Analysis
December 31, 1996 (1)
--------------------------------------------------------------
Within 3-12 1 to 5 Over
3 Months Months Years 5 Years Total
--------- ------ ----- ------- -----
(Dollars in thousands)
<S> <C>
Earning Assets:
Loans...................................... $ 13,804 $ 4,108 $ 21,121 $ 721 $ 39,754
Investment securities, at amortized cost... - - - - -
Securities available for sale, at fair value 1,405 6,018 15,712 337 23,472
Federal funds sold......................... 7,055 - - - 7,055
--------- --------- --------- ---------
Total earning assets..................... $ 22,264 $ 10,126 $ 36,833 $ 1,058 $ 70,281
--------- --------- --------- --------- ---------
Interest Bearing Liabilities:
Deposits:
NOW and savings.......................... $ 6,518 $ 4,101 $ 5,783 $ - $ 16,402
Money Market............................. 3,869 1,935 1,935 - 7,739
Time deposits, $100,000 and over......... 2,290 3,787 3,266 277 9,620
Other time deposits...................... 3,964 7,885 5,651 1,699 19,199
--------- --------- --------- --------- ---------
Securities sold under agreements to
repurchase.............................. 1,739 - - - 1,739
--------- ---------
Total interest-bearing liabilities..... $ 18,380 $ 17,708 $ 16,635 $ 1,976 $ 54,699
--------- --------- ========= ========= ---------
Period Gap................................... $ 3,884 (7,582) 20,198 (918) 15,582
Cumulative Gap............................... $ 3,884 (3,698) 16,500 15,582
Ratio of cumulative gap to total earning
assets..................................... 5.52% (5.25)% 23.43% 22.17%
Ratio of interest-earning assets to interest-
bearing liabilities........................ 121.13% 57.18% 221.42% 53.54%
Cumulative ratio of interest-earning assets
to interest-bearing interest-bearing
liabilities.................................. 121.13% 89.75% 80.64% 128.49%
</TABLE>
- ----------------
(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
As of September 30, 1997 PBV had $8.1 million more in assets than
liabilities subject to repricing within three months or less and was, therefore,
in an asset sensitive position. The cumulative gap at the end of one year was a
negative $2.3 million and, therefore in a liability-sensitive position. All NOW,
Savings, and Money Market accounts can be repriced daily; however, a study of
deposit trends and true sensitivity to interest rate movement has verified that
those accounts may be spread as shown in the table above, and indeed are not
particularly rate-sensitive. The one year negative gap position reflects the
placement of those deposits in this way and the trend in time deposits to 1 year
maturities. In this presentation, approximately $38.2 million, or 68.2% of PBV's
interest-bearing liabilities, matures or reprices within one year or less. An
asset-sensitive institution's net interest margin generally will be impacted
favorably by increasing interest rates, while that of a liability sensitive
institutions will be impacted favorably by declining interest rates. To reduce
the impact of shifts in prevailing rates, a significant portion of PBV's loan
portfolio is either short-term or based upon a floating rate.
<PAGE>
Noninterest Income
Noninterest income includes service charges and other income from
services rendered by PBV. In addition, other operating income includes gains and
losses realized from the sales and calls of investment securities and other
income items.
In the nine months ended September 30, 1997 noninterest income was $400
thousand compared to $351 thousand for the same period in 1996. The increase is
attributable to growth in usage volume of the Bank's products and services as
well as introduction of new fee-generating services.
Noninterest income increased from $463 thousand in 1995 to $531
thousand in 1996, due in part to securities gains of $47,000 in 1996.
Table 4: Noninterest Income
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Service charges on deposit accounts...... $ 303 $ 274 $ 392 $ 379
Other fees and commissions............... 99 55 92 84
-------- -------- -------- --------
Non-interest income...................... 402 329 484 463
Securities gains, net.................... (2) 22 47 -
--------- -------- -------- --------
Total noninterest income................. $ 400 $ 351 $ 531 $ 463
======== ======== ======== ========
</TABLE>
Noninterest Expense
In the nine months ended September 30, 1997 noninterest expense was
$1.7 million, compared to $1.6 million for the same period in 1996.
Noninterest expense was unchanged at $2.0 million in 1995 and 1996. The
category with the largest decrease as compared to 1995 was other operating
expenses, which decreased 11.0% in 1996. Expense factors involved in this
decrease included renegotiation of the Bank's data processing services
contract, as well as reduction in consultant fees. The cost of providing
deposit insurance from the Federal Deposit Insurance Corporation ("FDIC")
reflected a significant decrease from the $62,000 expenses incurred in 1995 to
$2,000 in 1996. This decrease was due to reductions in FDIC insurance premiums
as a result of the re-capitalization of the FDIC's insurance fund.
<PAGE>
Table 5: Noninterest Expenses
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Salaries and employee benefits $ 896 $ 818 $1,016 $ 976
Occupancy expenses ........... 331 332 540 542
Other expenses ............... 482 402 431 484
------ ------ ------ ------
Total noninterest expenses ... $1,709 $1,552 $1,987 $2,002
====== ====== ====== ======
</TABLE>
Income Taxes
Reported income tax expense for the year ended December 31, 1996 was
$471,000, a 33.1% increase from the $353,000 for the year end December 31, 1995.
The effective tax rate increased slightly to 32.5% in 1996 compared to 32.0% in
1995. The increase in income tax expense in 1996 was due to the increase in
taxable income. Note 8 to the consolidated financial statements provides a
reconciliation between the amount of income tax expense computed using the
federal statutory income tax rate and the Bank's actual income tax expense and
information regarding the principal items giving rise to deferred taxes as of
December 31, 1996 and 1995.
Loan Portfolio
PBV's loan portfolio is comprised of commercial loans, real estate
loans, home equity loans, consumer loans, and other miscellaneous types of
credit. The primary markets in which PBV makes loans are generally areas
contiguous to its branch locations. The philosophy is consistent with PBV's
focus on providing community-based financial services.
At September 30, 1997, the loan portfolio was at $45.8 million, up $6.0
million or 15.1% from December 31, 1996. The majority of PBV's lending activity
centers around loans to small and medium-sized businesses and loans for real
estate acquisition and development. Loans to small businesses generally finance
their operating activities or the purchase of real estate; in either case they
are generally secured by real estate. In addition, in March of 1997, PBV hired a
business development officer/commercial lender whose primary responsibility is
to develop new business for and bring high quality credits to PBV. The efforts
have resulted in an increase during 1997.
Loans increased by $3.7 million or 10.2% from December 31, 1995 to
December 31, 1996. This increase was due to an increase in various loans secured
by real estate and a significant increase (13.8%) in commercial loans. The
increase was slightly offset by a decrease in consumer loans decreased of 13.3%
during this same time period. Super-regional banks and private finance companies
continue to dominate the consumer market in PBV's trade area; therefore, the
majority of the portfolio continues to be in business and business-related
loans. The trends observed in 1996 are consistent with 1997.
<PAGE>
Table 6: Loan Portfolio
<TABLE>
<CAPTION>
September 30, December 31,
--------------------- ---------------------------------------------
1997 1996 1995
--------------------- --------------------- -----------------------
% to % to % to
Total Total Total
Gross Gross Gross
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C>
Real estate-mortgage............. $28,761 62.79% $23,877 60.07% $19,545 54.09%
Real estate-construction......... 5,138 11.21% 4,508 11.34% 5,600 15.50%
Commercial, industrial &
agricultural loans............. 8,372 18.28% 7,750 19.49% 6,813 18.85%
Loans to individuals for
household, family and other
consumer expenditures.......... 3,535 7.72% 3,619 9.10% 4,176 11.56%
------- ------- -------
Total gross loans.............. 45,806 100.00% 39,754 100.00% 36,134 100.00%
------ ------ ------
Less unearned income............. 0 0 0
Less deferred loan fee........... 0 0 0
Less allowance for loan losses... (609) (595) (565)
---------- ---------- ----------
Total Net Loans................ $45,197 $39,159 $35,569
======= ======= =======
</TABLE>
Consistent with its focus on providing community-based financial
services, PBV generally does not make loans outside its principal market areas.
PBV maintains a policy not to originate or purchase loans classified by
regulators as highly leveraged transactions or loans to foreign entities or
individuals.
At September 30, 1997, PBV's unfunded loan commitments, including
revolving lines, were approximately $10.8 million.
PBV's unfunded loan commitments were approximately $9.4 million at
December 31, 1996 compared to $7.7 million at December 31, 1995.
Included in Table 7 is a maturity schedule of selected loans within the
portfolio. Actual maturities may differ from those shown in the table as loans
often are refinanced or repaid prior to maturity. A significant portion of PBV's
loans have a variable rate feature which allows PBV to change rates as "prime
rates" change, thus reducing PBV's interest rate risk.
<PAGE>
Table 7: Loan Maturity Schedule
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------------------------
Maturing
---------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(Dollars in thousands)
<S> <C>
Total........................... $ 17,127 $ 26,709 $ 1,970 $ 45,806
========== ========== ========== ==========
Loans maturing after one year within:
Fixed interest rates.............. $ 22,898 $ 617 $ 23,515
Variable interest rates........... 3,811 1,353 5,164
---------- ---------- ----------
Total........................... $ 26,709 $ 1,970 $ 28,679
========== ========== ==========
</TABLE>
Allowance for Loan Losses
Management evaluates the adequacy of the allowance for loan losses on a
quarterly basis. The analysis is a calculation based on the following factors
relating to the loan portfolio, by type of loan: delinquency trends,
nonperforming loans and related ratio analysis (i.e., LTV), average of net
charge offs or recoveries, classification of loans (i.e., watch list) and the
potential changes in classifications. The allowance is estimated based on a
general allowance based on loan types, specific amounts for classified credits
and a discretionary amount. The final analysis and recommendation of the
allowance for loan losses is approved by the Board of Directors of PBV.
The allowance for loan losses represents an amount management believes
is adequate to provide for probable loan losses inherent in the loan portfolio.
However, there are additional risks of future losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because those
risks are influenced by general economic trends as well as conditions affecting
individual borrowers, management's judgment of the allowance is necessarily
approximate and imprecise. The allowance is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance and the size of the
allowance in comparison to peer Companies identified by regulatory agencies. PBV
is examined at different times by the FRB and the State Corporation Commission's
Bureau of Financial Institutions. The last examination of PBV was conducted by
the Federal Reserve Bank of Richmond as of August 22, 1997.
For the nine months ended September 30, 1997, the provision for loan
losses was $17,000. The allowance for loan losses was $609 thousand at September
30, 1997, compared to $586 thousand at September 30, 1996 and $595 thousand at
December 31, 1996.
The provision for loan losses for the year ended December 31, 1996 was
$33,000, an increase of $15,000 over the previous year. Management charged
income for the provision deemed necessary based on its analysis of the loan
portfolio. After reviewing the internally classified credits and growth in the
overall portfolio, management believes that the allowance for loan losses is at
the appropriate level to cover probable losses. There are no nonperforming
loans. PBV had recoveries of $7,000 during 1996, compared to charge-offs of
$10,000. Recoveries in 1995 totaled $59,000 while charge-offs totaled $20,000.
<PAGE>
Table 8: Allowance for Loan Losses
<TABLE>
<CAPTION>
September 30, December 31,
----------------- ------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C>
Balance, beginning of period..................... $ 595 $ 565 $ 508
Loans charged off:
Real Estate .................................. - - -
Commercial.................................... 9 4 20
Installment.................................. 1 6 -
----------- ----------- -----------
Total loans charged off....................... 10 10 20
Recoveries of loans previously charged off:
Real estate................................... - - -
Commercial.................................... 5 7 59
Installment................................... 1 - -
Total recoveries 6 7 59
----------- ----------- -----------
Net loans recovered (charged off)................ (4) (3) 39
Provision for loan losses........................ 18 33 18
----------- ----------- -----------
Balance, end of period........................... $ 609 $ 595 $ 565
======= ======= =======
Average total loans.............................. $42,483 $38.297 $35,027
Total loans (net of unearned income)............. 45,806 39,754 36,134
Selected Loan Loss Ratios:
Net charge-offs (recoveries) to average loans.... .01% .01% (-0.11)%
Provisions for loan losses to average loans...... .04% .09% 0.05%
Provision for loan losses to net charge-offs..... (566.7)% (1100.0)% 46.15%
Allowance for loan losses to period-end loans.... 1.33% 1.50% 1.56%
</TABLE>
Net charge-offs were $3,000 in 1996. The sustained low rate of
charge-offs can be attributed to careful underwriting practices as well as
consistent collection efforts on delinquent loans. Also included in Table 8 is
the ratio of net charge-offs to average loans outstanding during the period.
Effective January 1, 1995, PBV adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan (as amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosure). The effect of adopting this new
accounting standard was immaterial to the operating results of PBV for the year
ended December 31, 1995.
Under the new accounting standard, a loan is considered to be impaired
when it is probable that PBV will be unable to collect all principal and
interest amounts according to the contractual terms of the loan agreement. A
loan is not considered to be impaired if (a) there is an insignificant delay in
or shortfall in the amounts of payments, or (b) PBV expects to collect all
amounts due, including interest accrued at the contractual interest rate for the
period of delay.
<PAGE>
The allowance for loan losses related to loans identified as impaired
is primarily based on the excess of the loan's current outstanding principal
balance over the estimated fair market value of the related collateral. For a
loan that is not collateral-dependent, the allowance is recorded at the amount
by which the outstanding principal balance exceeds the current best estimate of
the future cash flows of the loan discounted at the loan's effective interest
rate. At September 30, 1997, December 31, 1996, and December 31, 1995, PBV did
not have any impaired loans.
Presented in Table 9 are details of the allocation of the allowance for
loan losses. The allocation for loan losses has remained relatively constant
over the past five years.
Table 9: Allocation for Allowance for Loan Losses in Dollars
<TABLE>
<CAPTION>
September 30, December 31,
--------------------- -------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
% of % of % of
Loans in Loans in Loans in
Each Each Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C>
Real estate-mortgage............. $383 62.79% $358 60.07% $305 54.09%
Real estate-construction......... 68 11.21% 67 11.34% 88 15.50%
Commercial....................... 111 18.28% 116 19.49% 107 18.85%
Installment...................... 47 7.72% 54 9.10% 65 11.56%
------ ------ ------
Total allowance for loan losses.. $609 100.00% $595 100.00% $565 100.00%
==== ======= ==== ======= ==== =======
</TABLE>
Nonperforming Assets
At September 30, 1997 the Bank had no nonperforming assets, compared to
$3,000 at September 30, 1996.
Total nonperforming assets consist of nonaccrual loans, restructured
loans, loans 90 days or more past due, and other real estate owned. At December
31, 1996 the Bank had $1,000 in nonperforming assets, and $0 at December 31,
1995. The ratio of nonperforming assets to period-end loans and foreclosed
properties is detailed within Table 10.
<PAGE>
Table 10: Nonperforming Assets
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Nonaccrual loans.............. - - - -
Loans past due 90 days accruing
interest.................... - $ 3 $ 1 -
Troubled debt restructuring... - - -
----- ----- ----- -----
Total nonperforming loans - $ 3 $ 1 -
Other real estate owned:
Foreclosed properties....... - - - -
Other real estate owned, net - - - -
- - - -
Total nonperforming assets.... - $ 3 $ 1 -
==== ====== ====== =====
Nonperforming assets to
period-end total loans and
other real estate........... 0.00% 0.01% 0.00% 0.00%
Foregone interest income on
nonaccrual loans............ - - - -
Interest income recorded on
non- accrual loans during the
year........................ - - - -
----- ----- ----- -----
</TABLE>
- ---------------
Loans are placed on nonaccrual status when collection of interest and
principal is doubtful, generally when loans become 90 days past due unless they
are well secured and in the process of collection. There are three negative
implications for earnings when a loan is placed on nonaccrual status. First, all
interest accrued but unpaid at the date the loan is placed on nonaccrual status
is either deducted from interest income or written off as a loss. Second,
accruals of interest are discontinued until it becomes certain that both
principal and interest can be repaid. Third, there may be actual losses which
necessitate additional provisions for loan losses charged against earnings. The
Bank had no nonaccrual loans outstanding at December 31, 1996, December 31,
1995, or September 30, 1997.
PBV closely monitors loans that are deemed to be potential problem
loans. Loans are viewed as potential problem loans when possible credit problems
of the borrowers or industry trends cause management to have doubts as to the
ability of such borrowers to comply with current repayment terms. Those loans
are subject to regular management attention, and their status is reviewed on a
regular basis.
<PAGE>
As of September 30, 1997, management is not aware of any loans other
than those disclosed in the foregoing table and discussion, for which management
has serious doubt as to the ability of the borrower to comply with loan
repayment terms.
Investment Securities
The securities portfolio is maintained to manage excess funds in order
to provide diversification and liquidity in the overall asset management policy.
The maturity of securities purchased are based on the needs of PBV and current
yields and other market conditions.
Securities available for sale are recorded at fair value, based on
quoted market prices. The net unrealized holding gain or loss on securities
available for sale, net of deferred income taxes, is included as a separate
component of stockholders' equity. A decline in the fair value of any securities
available for sale below cost that is deemed other than temporary would be
charged to earnings resulting in a new cost basis for the security. Cost of
securities sold would be determined on the basis of specific identification.
The amortized cost of investment securities at September 30, 1997 was
$19.3 million compared to $23.7 million at December 31, 1996. PBV reduced the
portfolio by 18.4% to meet liquidity demands for certain reductions in deposit
levels and increase loan demands during the nine month period. In addition, the
market risk of long term investments is not offset by a corresponding increase
in yield, therefore, PBV has chosen to hold most of its available funds in
overnight investments.
The amortized cost of investment securities amounted to $23.5 million
at December 31, 1996 compared to $20.2 million at December 31, 1995. Note 2 of
the consolidated financial statements provide an analysis of gross unrealized
gains and losses of investment securities. Securities available for sale are
used as part of PBV's interest rate risk management strategy and may be sold in
response to changes in interest rates, changes in prepayment risk, liquidity
needs, the need to increase regulatory capital and other factors. The fair value
of securities available for sale totaled $23.5 million at December 31, 1996
compared to $20.5 million at December 31, 1995. Note 2 also provides an analysis
of gross unrealized gains and losses of securities available for sale. Included
in Table 11 are the amortized costs and fair values of investment securities and
securities available for sale as of September 30, 1997 and December 31, 1996 and
1995.
In accordance with a permissible, one-time reclassification of
securities, in 1995 the Bank reassessed its liquidity and transferred securities
with an amortized cost of $11.4 million from held to maturity to available for
sale at fair value resulting in a net unrealized gain of $125 thousand.
<PAGE>
Table 11: Securities Portfolio
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 December 31, 1995
--------------------------- -------------------------- --------------------------
Available for Sale Available for Sale Available for Sale
------------------ ------------------ ------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C>
U.S. Treasuries.................. $11,750 $11,764 $14,231 $14,242 $12,494 $12,738
Federal Agencies................. 5,198 5,192 6,597 6,544 6,076 6,160
State and Political Subdivisions:
Non Taxable.................... 1,554 1,556 2,060 2,053 1,320 1,309
Taxable........................ 637 642 636 633 340 345
------- ------ ------- ------- ------- -------
Total $19,139 $19,154 $23,524 $23,472 $20,231 $20,552
======= ======= ======= ======= ======= =======
</TABLE>
Table 12 provides an analysis of maturities of investment securities
and securities available for sale at September 30, 1997 and December 31, 1996
and 1995.
Table 12: Maturities of Investments
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 December 31, 1995
------------------------------------------------------------ -----------------------------
Weighted Weighted Weighted
Amortized Fair Average Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield Cost Value Yield
---- ----- ----- ---- ----- ----- ---- ----- -----
Available for Sale Available for Sale Available for Sale
------------------------------------------------------------ -----------------------------
(Dollars in thousands)
<S> <C>
One year or less............ $6,194 $6,200 5.82% $7,398 $7,423 5.85% $4,821 $4,849 5.85%
After one year to five years 12,605 12,611 6.05% 15,787 15,712 6.05% 15,070 15,358 6.35%
After five years to ten years 340 343 6.62% 339 337 6.62% 340 345 6.62%
After ten years.............
------ ------ ------- ------ ------ -----
Total $19,139 $19,154 6.04% $23,524 $23,472 6.00% $20,231 $20,552 6.24%
======= ======= ======= ======= ======= =======
</TABLE>
Deposits
Deposits provide funds for PBV's investments in loans and securities,
and the interest paid for deposits must be managed carefully to control the cost
of funds. The table below presents a two year history of total deposits and
the rates paid on interest-bearing deposit accounts, beginning with the year
ended December 31, 1995.
<PAGE>
Table 13: Deposit Analysis
<TABLE>
<CAPTION>
For the Nine Months For the Years
Ended Ended
September 30, December 31,
--------------------- --------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
------- ---- ------- ---- ------- ----
(Dollars in thousands)
<S> <C>
Noninterest-bearing accounts....... $12,564 $10,778 - $9,058 -
Interest-bearing liabilities:
Money market and NOW accounts.... 17,213 2.70% 16,262 2.63% 14,099 2.97%
Savings deposits................. 6,382 2.99% 6,222 3.01% 5,283 3.01%
Time deposits > $100,000......... 7,883 5.14% 6,473 5.28% 6,462 5.32%
-
Other time deposits.............. 21,092 5.54% 23,612 5.62% 21,654 5.74%
------ ------ ------
Total interest-bearing accounts.. 52,570 4.24% 52,569 4.34% 47,498 4.56%
====== ------ ------
Total............................ $65,134 $63,347 $56,556
======= ======= =======
</TABLE>
Table 14: Maturity of CDs $100,000 and Over
<TABLE>
<CAPTION>
Under Three To Six Six To Twelve Percent of Total
Three Months Months Months Over One Year Total Deposits
------------ ------ ------------- ------------- ----- --------
(Dollars in thousands)
<S> <C>
September 30, 1997 $3,722 $1,429 $2,310 $3,077 $10,538 15.07%
December 31, 1996 $2,290 $1,013 $2,774 $3,543 $9,620 14.49%
</TABLE>
Deposits at September 30, 1997 increased by $3.5 million or 5.3% from
December 31, 1996. The primary areas of increase were in demand deposits and
certificates of deposit greater than $100,000. The increase in demand deposits
is consistent with the composition of the customer base. Certificates of deposit
increased due to additional deposits from several customers. The 9.4% increase
in Money Market and NOW accounts is due to an increase in certain contractual
management accounts.
Deposits at December 31, 1996 were $66.4 million, up $5.3 million from
December 31, 1995, or 8.7%. The growth in deposits was led by demand deposits
which increased to $13.4 million at December 31, 1996, up $3.2 million from year
end 1995, or 32.0%. Savings accounts also increased, to a total of $6.7 million
at December 31, 1996, for an increase of $1.2 million from year-end December 31,
1995, an increase of 21.2%.
Short-Term Borrowings
PBV's short-term borrowings consist of securities sold under agreements
to repurchase. These overnight repurchase accounts are transacted for customer
convenience, are not insured by FDIC, and are governed by individual contracts.
<PAGE>
Capital Resources
Capital represents funds, earned or obtained, over which financial
institutions can exercise great or longer control in comparison with deposits
and borrowed funds. The adequacy of PBV's capital is reviewed by management on
an ongoing basis with reference to the size, composition, and quality of PBV's
resources and consistency with regulatory requirements and industry standards.
Management seeks to maintain a capital structure that will support anticipated
asset growth and absorb potential losses.
The Federal Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, adopted capital guidelines to supplement
the existing definitions of capital for regulatory purposes and to establish
minimum capital standards. Specifically, the new guidelines categorize assets
and off-balance-sheet items into four risk-weighted categories. After the
transition period which ended December 31, 1992, the minimum ratio of qualifying
total capital to risk-weighted assets is now 8.0%, of which 4.0% must be Tier 1
capital. Tier 1 capital is defined as common equity, retained earnings and a
limited amount of perpetual preferred stock, less certain intangible assets
and unrealized gains/losses on FASB 115 adjustments for available for sale
securities. PBV had a ratio of total capital to risk-weighted assets 18.1% on
December 31, 1996 and a ratio of Tier 1 capital to risk-weighted assets of
16.8%. Both of these exceed the fully phased-in capital requirements.
Table 16 labeled Analysis of Capital contains a two year summary,
beginning with 1995, of the breakdown between Tier 1 capital, Tier 2 capital,
risk-weighted assets, as well as the ratios discussed above.
<PAGE>
Table 16: Analysis of Capital
<TABLE>
<CAPTION>
September 30, December 31,
----------------- -------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C>
Tier 1 Capital
Common stock.................................. $3,014 $2,730 $2,482
Surplus....................................... 2,568 1,937 1,417
Retained earnings (deficit)................... 2,441 2,574 2,436
Total Tier 1 capital.......................... 8,023 7,241 6,335
Tier 2 Capital
Allowance for loan losses..................... 560 539 511
Allowance for long-term debt.................. - - -
----------- ----------- -----------
Total Tier 2 capital.......................... 560 539 511
-------- -------- --------
Total risk-based capital...................... $8,583 $7,780 $6,846
====== ====== ======
Risk weighted assets............................. 44,717 43,091 40,853
Capital Ratios:
Tier 1 risk-based capital ratio.................. 17.94% 16.80% 15.51%
Total risk based capital ratio................... 19.19% 18.05% 16.76%
Tier 1 capital to average adjusted total assets.. 10.32% 9.79% 9.33%
</TABLE>
Liquidity
Liquidity refers to the PBV's ability to meet present and future
financial obligations on a timely basis and at reasonable cost. PBV manages its
liquidity of both assets and liabilities.
Asset liquidity is derived from the management of cash due from banks,
fed funds sold, and available-for-sale investment securities, all of which
provide cash flow to meet liquidity demands. The aggregate of these assets
represented 45.2% and 45.5% of total assets at the end of 1996 and 1995,
respectively.
Liability liquidity is primarily derived from the management of
deposits. Demand, savings, and time deposits are used with maturity dates from 1
day to five years. Such deposits represented 94.0% and 94.0% of total
liabilities at the end of 1996 and 1995, respectively. Additionally, the
bank extends overnight repurchase accounts to large commercial customers. The
balances in these accounts represented an additional 2.5% and 2.4% of
total liabilities at the end of 1996 and 1995, respectively. The
management monitors the volume of $100,000 and over time deposits that it
considers to be potentially volatile liabilities. Time deposits over $100,000 as
a percent of total time deposits were 33.4% and 26.8%, at the end of
1996 and 1995, respectively. All other time deposits plus savings and
demand deposits are considered to be core deposits because of their historical
stability and relative low cost. Certificates of deposit amounting to $19.5
million mature within the next 12 months as of September 30, 1997. Management
believes that this amount will present no significant liquidity risk in light of
PBV's strong capitalization, long history of deposit growth, and minimal
dependence upon non-core deposits.
<PAGE>
Additional sources of liquidity available to PBV include the capacity
to borrow additional funds when the need arises. PBV maintains lines of credit
of $1,000,000 and $1,000,000 with Crestar Bank, N. A. and Centura Bank,
respectively
PBV has had no outstanding long term debt as of December 31, 1996,
December 31, 1995 and and September 30, 1997.
Recent Accounting Pronouncements
See Note 4 - Recent Accounting Pronouncements to the Notes to Interim
Consolidated Financial Statements of PBV for additional information.
Emerging Issues
The Federal Financial Institutions Examination Council ("FFIEC") first
alerted the banking industry to potential year 2000 computer problems in June
1996 and recommended that institutions perform risk assessments and adopt
strategies to address vulnerable systems. In a May 1997 policy statement the
FFIEC strongly encouraged institutions to complete an inventory of core computer
functions and set priorities for year 2000 goals by September 30, 1997. Banks
are expected to largely complete programming changes and have systems testing
well underway by December 31, 1998. The federal bank regulatory agencies are
assessing individual institutions' planning efforts and have announced that they
expect to complete examinations of individual institutions' conversion efforts
by mid-1998.
PBV has established a plan to address year 2000 issues. Successful
implementation of this plan will eliminate any extraordinary expenses related to
the year 2000. The plan includes obtaining confirmation from mission-critical
suppliers and vendors regarding their year 2000 plans. If confirmations are
unavailable, PBV will request specific documentation of the supplier's or
vendor's plans and will regularly follow up with progress checks. Areas to be
monitored include but are not limited to mainframe systems, microcomputers,
ATMs, all software, electrical systems, phone systems, elevators and vaults. PBV
has already begun testing mission critical systems and will continue to do so in
1998.
During the most recent Federal Reserve Bank Examination of August 22,
1997, a special year 2000 review was conducted. It was the finding of the
Reserve Bank that PBV is taking the necessary steps to achieve Year 2000
compliance on a timely basis.
<PAGE>
BUSINESS OF F&M
History and Business
F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired sixteen banks, which expanded its market area and
increased market share in Virginia and West Virginia. F&M has eleven subsidiary
banks (the "Subsidiary Banks") that operate 108 banking offices offering a full
range of banking services, principally to individuals and small and
middle-market businesses in the Shenandoah Valley, central and northern
Virginia, Southside Virginia, the eastern panhandle of West Virginia, and the
Maryland portion of the Washington, D.C. metropolitan area.
The Subsidiary Banks are community-oriented and offer services
customarily provided by full-service banks, including individual and commercial
demand and time deposit accounts, commercial and consumer loans, residential
mortgages, credit card services and safe deposit boxes. Lending is focused on
individuals and small and middle-market businesses in the local market regions
of the Subsidiary Banks. F&M has consolidated the operations of the trust
departments of its Subsidiary Banks in Virginia in F&M Trust Company. F&M also
operates Big Apple Mortgage which engages in residential mortgage origination
and servicing in the Shenandoah Valley and the eastern panhandle of West
Virginia.
F&M has maintained its community orientation by allowing the Subsidiary
Banks latitude to tailor products and services to meet community and customer
needs. While F&M has preserved the autonomy of its Subsidiary Banks, it has
established system-wide policies governing, among other things, lending
practices, credit analysis and approval procedures, as well as guidelines for
deposit pricing and investment portfolio management. In addition, F&M has
established a centralized loan review team that regularly performs a detailed,
on-site review and analysis of each Subsidiary Bank's loan portfolio to ensure
the consistent application of credit policies and procedures system-wide. One or
more senior holding company officers serve on the board of directors of each
Subsidiary Bank to monitor operations and to serve as a liaison to F&M.
F&M currently operates in seven market regions: the Shenandoah Valley
and Loudoun County; the eastern panhandle of West Virginia;
Charlottesville/Albemarle County and surrounding areas; Greenville County in
southside Virginia; suburban Richmond, primarily Henrico and Chesterfield
Counties; the northern Virginia area that includes the eastern portions of
Fairfax and Prince William Counties, Loudoun County; the Warrenton and
surrounding Fauquier County area; and Montgomery and Prince George's Counties in
Maryland of the Washington, D.C. suburban area. F&M operates 40 banking offices
in the Shenandoah Valley from Winchester to Harrisonburg and in Loudoun County
with deposits of $889.9 million at September 30, 1997, 12 banking offices in the
eastern panhandle of West Virginia with deposits of $259.8 million at September
30, 1997, 7 banking offices in the Charlottesville/Albemarle County and
surrounding area with deposits of $61.5 million at September 30, 1997, three
banking offices in Emporia, Virginia and surrounding Greenville County with
deposits of $57.8 million at September 30, 1997, 10 banking offices in suburban
Richmond with deposits of $153.7 million at September 30, 1997, 23 banking
offices in the Fairfax and Prince William County area of northern Virginia area
with deposits of $421.0 million at September 30, 1997, four offices in the
Warrenton and surrounding Fauquier County area with deposits of $100.0 million
at September 30, 1997, and 9 offices in the Montgomery and Prince George's
County area in Maryland with deposits of $142.8 million at September 30, 1997.
F&M's principal banking market is Winchester and the surrounding five Virginia
counties where its lead bank, F&M Bank-Winchester, is the dominant financial
institution in terms of deposit market share.
<PAGE>
At September 30, 1997, F&M had total consolidated assets of
approximately $2.4 billion, total consolidated deposits through its banking
subsidiaries of approximately $2.1 billion and consolidated shareholders' equity
of approximately $237 million. F&M's total consolidated net income for the nine
months ended September 30, 1997, was approximately $23.3 million, or $1.15 per
share.
F&M's Acquisition Program
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. During the ten year period
beginning in 1988, F&M has acquired approximately $1.2 billion in assets and
approximately $1.0 billion in deposits through twelve bank acquisitions.
Management believes there are additional opportunities to acquire financial
institutions or to acquire assets and deposits that will allow F&M to enter new
markets or increase market share in existing markets. Management intends to
pursue acquisition opportunities in strategic markets where its managerial,
operational and capital resources will enhance the performance of acquired
institutions and may, after the date of this Proxy Statement/Prospectus, enter
into agreements to acquire one or more financial institutions.
On December 12, 1997, F&M entered into an agreement for the acquisition
of Bank of Alexandria, a Virginia chartered bank based in Alexandria, Virginia.
The acquisition of Bank of Alexandria is subject to the approval of shareholders
of Bank of Alexandria and the appropriate regulatory agencies and is expected to
close in the second quarter of 1998. The acquisition of Bank of Alexandria is
expected to be accounted for as a pooling of interests for financial reporting
purposes and provides for a tax-free exchange of 0.942 of a share of F&M Common
Stock for each common share of Bank of Alexandria.
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow F&M to
enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire one or more financial
institutions. There can be no assurance that F&M will be able to successfully
effect any additional acquisition activity, or that any such acquisition
activity will have a positive effect on the value of shares of F&M Common Stock.
For additional information about F&M's business, see "Available
Information" and "Incorporation of Certain Information by Reference."
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
F&M and PBV are corporations subject to the provisions of the Virginia
Stock Corporation Act (the "Virginia SCA"). Shareholders of PBV whose rights are
governed by PBV's Articles of Incorporation and Bylaws and by the Virginia SCA,
will become shareholders of F&M upon consummation of the Merger. The rights of
such shareholders as shareholders of F&M will then be governed by the Articles
of Incorporation and Bylaws of F&M and by the Virginia SCA.
<PAGE>
The following is a summary of the material differences in the rights of
shareholders of PBV and F&M. This summary is qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of each corporation and to
the Virginia SCA.
Authorized Capital
F&M. F&M is authorized to issue (i) 30,000,000 shares of Common Stock,
par value $2.00 per share, of which 20,054,931 shares were issued and
outstanding as of September 30, 1997, and (ii) 5,000,000 shares of serial
Preferred Stock, without par value, of which no shares were issued and
outstanding as of September 30, 1997. F&M's Articles of Incorporation authorize
the F&M Board, without shareholder approval, to fix the preferences, limitations
and relative rights of the preferred stock and to establish series of such
preferred stock and determine the variations between each series. If any shares
of preferred stock are issued, the rights of holders of F&M Common Stock would
be subject to the rights and preferences conferred to holders of such preferred
stock. See "Description of F&M Capital Stock" for additional information.
PBV. PBV is authorized to issue 500,000 shares of PBV Common Stock, par
value $1.00 per share, of which 301,376 shares were issued and outstanding as of
September 30, 1997. PBV does not have an authorized class of preferred stock.
Dividend Rights
F&M. The holders of F&M Common Stock are entitled to share ratably in
dividends when and as declared by the F&M Board of Directors out of funds
legally available therefor. One of the principal sources of income to F&M is
dividends from its subsidiary banks. For a description of certain restrictions
on the payment of dividends by banks, see "Market Prices and Dividends." F&M's
Articles of Incorporation permit the F&M Board to issue preferred stock with
terms set by the F&M Board, which terms may include the right to receive
dividends ahead of the holders of F&M Common Stock. No shares of preferred stock
are presently outstanding.
PBV. The holders of PBV Common Stock also are entitled to share ratably
in dividends when and as declared by the PBV Board of Directors out of funds
legally available therefor. For a description of certain restrictions on the
payment of dividends by banks, see "Market Prices and Dividends."
Voting Rights
The holders of both F&M and PBV Common Stock have one vote for each
share held on any matter presented for consideration by the shareholders.
Neither the holders of F&M nor PBV Common Stock are entitled to cumulative
voting in the election of directors.
Directors and Classes of Directors
F&M. All of F&M's directors are elected each year. F&M's Articles of
Incorporation do not include a provision relating to the removal of directors.
Accordingly, the removal of F&M directors is governed by the Virginia SCA which
provides that shareholders may remove directors with or without cause if, in the
case of F&M, the number of votes cast to remove him constitutes a majority of
the outstanding shares of F&M Common Stock.
<PAGE>
PBV. All of PBV's directors are elected each year. PBV's Articles of
Incorporation do not include a provision relating to the removal of directors.
Accordingly, the removal of PBV's directors is governed by the Virginia SCA
which provides that shareholders may remove directors with or without cause if
the number of votes cast to remove him constitutes a majority of the outstanding
shares of PBV Common Stock.
Anti-Takeover Provisions
Certain provisions of the Virginia SCA and the Articles of
Incorporation and Bylaws of F&M and may discourage an attempt to acquire control
of F&M that a majority of either corporation's shareholders determined was in
their best interests. These provisions also may render the removal of one or all
directors more difficult or deter or delay corporate changes of control that the
F&M Board did not approve.
Authorized Preferred Stock. The Articles of Incorporation of F&M
authorize the issuance of preferred stock. The F&M Board may, subject to
applicable law and the rules of the NYSE, authorize the issuance of preferred
stock at such times, for such purposes and for such consideration as it may deem
advisable without further shareholder approval. The issuance of preferred stock
under certain circumstances may have the effect of discouraging an attempt by a
third party to acquire control of F&M by, for example, authorizing the issuance
of a series of preferred stock with rights and preferences designed to impede
the proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that, unless
a corporation's articles of incorporation provide for a higher or lower vote,
certain significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be cast on the
matter. Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of F&M provide that a Fundamental Action
shall be approved by a vote of a majority of all votes entitled to be cast on
such transactions by each voting group entitled to vote on the transaction,
provided that the transaction has been approved and recommended by at least
two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
The provisions of the Articles of Incorporation of F&M and the Virginia
SCA could tend to make the acquisition of F&M more difficult to accomplish
without the cooperation or favorable recommendation of the F&M.
Shareholder Meetings. Shareholders of F&M may not request that a
special meeting of shareholders be called, while shareholders owning 10% or more
of the issued and outstanding shares of PBV may call a special meeting of
shareholders.
<PAGE>
Virginia Anti-Takeover Statutes. Virginia has two anti-takeover
statutes in force, the Affiliated Transaction Statute and the Control Share
Acquisitions Statute.
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
F&M has not done so.
<PAGE>
Director and Officer Exculpation
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The Articles of Incorporation of F&M provide that to the full extent
that the Virginia SCA permits the limitation or elimination of the liability of
directors or officers, a director or officer of F&M shall not be liable to F&M
or its shareholders for monetary damages in excess of one dollar ($1.00). There
is no similar provision in the Articles of Incorporation of PBV.
Indemnification
The Articles of Incorporation of F&M provide that to the full extent
permitted by the Virginia SCA and any other applicable law, F&M is required to
indemnify a director or officer of F&M who is or was a party to any proceeding
by reason of the fact that he is or was such a director or officer or is or was
serving at the request of the corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The board of directors is empowered,
by majority vote of a quorum of disinterested directors, to contract in advance
to indemnify any director or officer. The Articles of Incorporation of PBV do
not include a provision with respect to the indemnification of officers and
directors.
DESCRIPTION OF F&M CAPITAL STOCK
F&M is authorized to issue (i) 30,000,000 shares of Common Stock, par
value $2.00 per share, and (ii) 5,000,000 shares of serial Preferred Stock,
without par value, which may be issued in series with such powers, designations,
and rights as may be established from time to time by the Board of Directors. On
September 30, 1997, F&M had issued and outstanding 20,054,931 shares of F&M
Common Stock held by 7,881 shareholders of record. All outstanding shares of F&M
Common Stock are fully paid and nonassessable. No shares of Preferred Stock have
been issued.
Common Stock
Holders of shares of F&M Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
therefor. F&M's ability to pay dividends is dependent upon its earnings and
financial condition of F&M and certain legal requirements. Specifically, the
Federal Reserve has stated that bank holding companies should not pay dividends
except out of current earnings and unless the prospective rate of earnings
retention by the company appears consistent with its capital needs, asset
quality and overall financial condition. In addition, Virginia law precludes any
distribution to shareholders if, after giving it effect, (a) F&M would not be
able to pay its debts as they become due in the usual course of business; or (b)
F&M's total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if F&M were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Upon the liquidation, dissolution or winding up of F&M, whether
voluntary or involuntary, holders of F&M Common Stock are entitled to share
ratably, after satisfaction in full of all liabilities, in all remaining assets
of F&M available for distribution. The dividend and liquidation rights of F&M
Common Stock are subject to the rights of any Preferred Stock that may be issued
and outstanding.
<PAGE>
Holders of F&M Common Stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in the
election of directors or preemptive rights to purchase additional shares of any
class of F&M's capital stock. Holders of F&M Common Stock have no conversion or
redemption rights. The shares of F&M Common Stock presently outstanding are, and
those shares of F&M Common Stock to be issued in connection with the Merger will
be when issued, fully paid and nonassessable. F&M Common Stock is listed and
traded on the NYSE.
F&M maintains an Employee Stock Purchase Plan (the "ESP Plan")
providing that all F&M employees who have served F&M full time for over twelve
months may purchase shares of F&M Common Stock through payroll deduction. An
eligible employee who wishes to participate elects to contribute from 2% to 15%
of his or her actual adjusted base pay (actual base pay plus overtime and shift
premiums) by payroll deduction. In November, a participant may elect to bring
his or her total actual contribution up to 15% of his or her annual base pay.
Shares are sold by F&M to the ESP Plan fund on behalf of those participating
employees at 85% of the lesser of market value on January 1 or December 31 of
the year. The maximum number of shares is limited for any calendar year to
50,000 plus shares available to be offered but not purchased in prior years. A
total of 142,817 shares of F&M Common Stock have been issued under the ESP Plan
since its inception in 1993. The renewal of the ESP Plan will be presented to
shareholders for their consideration and approval at the 1998 annual meeting.
Preferred Stock
The Board of Directors of F&M is empowered to authorize the issuance,
in one or more series, of shares of Preferred Stock at such times, for such
purposes and for such consideration as it may deem advisable without shareholder
approval. The Board of Directors is also authorized to fix the designations,
voting, conversion, preference and other relative rights, qualifications and
limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of F&M
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of F&M.
The creation and issuance of any series of Preferred Stock, and the
relative rights, designations and preferences of such series, if and when
established, will depend upon, among other things, the future capital needs of
F&M, then existing market conditions and other factors that, in the judgment of
the Board of Directors, might warrant the issuance of Preferred Stock.
<PAGE>
EXPERTS
The consolidated financial statements of F&M incorporated in this Proxy
Statement/Prospectus by reference to F&M's Annual Report on Form 10-K for the
year ended December 31, 1996 have been so incorporated in reliance upon the
report of Yount, Hyde & Barbour, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in auditing and accounting.
The consolidated financial statements of Peoples Bank of Virginia, as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996 included in this Proxy Statement/Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the shares of F&M Common Stock offered hereby is being
passed upon for F&M by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. LeClair Ryan will deliver an opinion to F&M and PBV concerning certain
federal income tax consequences of the Merger. See "The Merger - Certain Federal
Income Tax Consequences."
Certain matters relating to the Merger will be passed upon for PBV by
Williams, Mullen, Christian & Dobbins, P.C.
OTHER MATTERS
The Board of Directors does not intend to bring any matter before the
Special Meeting other than as specifically set forth in the Notice of Special
Meeting of Shareholders, nor does it know of any matter to be brought before the
Special Meeting by others. If, however, any other matters properly come before
the Special Meeting, it is the intention of each of the proxyholders to vote
such proxy in accordance with the decision of a majority of the PBV Board of
Directors.
<PAGE>
Index to Financial Statements
Peoples Bank of Virginia
Page
Audited Consolidated Financial Statements:
Independent Auditor's Report................................................F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995................F-3
Consolidated Statements of Income for the Three Years Ended
December 31, 1996, 1995 and 1994...................................F-4
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended December 31, 1996, 1995 and 1994.......................F-5
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1996, 1995 and 1994...................................F-6
Notes to Consolidated Financial Statements..................................F-7
Unaudited Interim Consolidated Financial Statements:
Consolidated Balance Sheet as of September 30, 1997........................F-18
Consolidated Statements of Income for the Nine Months Ended
September 30, 1997 and 1996.......................................F-19
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.......................................F-20
Consolidated Statements of Changes in Stockholder's Equity for
the Nine Months Ended September 30, 1997 and 1996.................F-21
Notes to Interim Consolidated Financial Statements.........................F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Peoples Bank of Virginia
Chesterfield, Virginia
We have audited the accompanying consolidated balance sheets of Peoples Bank of
Virginia and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Peoples Bank of Virginia and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for the each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 17, 1997
(January 27, 1998, as to Note 10b)
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C>
ASSETS
Cash and due from banks $ 3,723,884 $ 4,415,162
Federal funds sold 7,055,000 6,650,000
------------- -----------
Total cash and cash equivalents 10,778,884 11,065,162
Investment securities, available for sale
at fair value, amortized cost of $23,524,764;
and $20,230,179, respectively (Note 2) 23,472,238 20,551,706
Federal Reserve Bank Stock 140,000 116,850
Loans - net of deferred fees and allowance for
loan losses of $595,000 and $565,000,
respectively (Note 4) 39,158,828 35,568,927
Premises and equipment - net 1,547,285 1,578,470
Accrued interest receivable 512,088 559,762
Other assets 129,757 89,267
- ---------------------------------------------------------------------------------------------
Total assets $ 75,739,080 $ 69,530,144
- ---------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing deposits 13,432,087 10,174,560
Interest-bearing deposits:
NOW accounts 9,667,407 8,625,554
Money market deposit accounts 7,739,239 6,716,737
Savings accounts 6,733,592 5,559,882
Certificates of deposit $100,000 or more 9,619,999 8,030,034
Other certificates of deposit 19,199,131 21,954,090
---------- ----------
Total deposits 66,391,455 61,060,857
Securities sold under agreements to repurchase 1,739,220 1,484,774
Dividend payable 68,244 52,126
Other liabilities 334,292 385,557
- ---------------------------------------------------------------------------------------------
Total liabilities 68,533,211 62,983,314
- ---------------------------------------------------------------------------------------------
Commitments and contingencies (Note 14)
STOCKHOLDERS' EQUITY
Common stock, $10 par value;
Authorized shares of 500,000, issued
and outstanding shares of 272,975 and
248,219, respectively 2,729,750 2,482,190
Surplus 1,936,712 1,416,836
Retained earnings 2,574,074 2,435,596
Net unrealized gain (loss) on securities available
for sale, net of tax (benefit) of ($17,859) and
$109,319, respectively (34,667) 212,208
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 7,205,869 6,546,830
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 75,739,080 $ 69,530,144
- ---------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
<S> <C>
INTEREST INCOME
Loans receivable $3,575,896 $3,354,903 $2,975,033
Investment securities
Taxable 1,300,091 1,177,188 893,064
Tax-exempt 75,252 39,512 31,059
Federal funds sold 310,322 312,975 165,716
- ------------------------------------------------------------------------------------------------------
Total interest income 5,261,561 4,884,578 4,064,872
- ------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW accounts 201,517 186,509 186,051
Money market deposit accounts 225,426 232,664 219,069
Savings accounts 187,576 159,344 174,185
Certificates of deposit $100,000 or more 342,077 344,290 221,802
Other certificates of deposit 1,328,014 1,242,686 822,403
Securities sold under agreements to repurchase 40,527 58,797 45,756
- ------------------------------------------------------------------------------------------------------
Total interest expense 2,325,137 2,224,290 1,669,266
- ------------------------------------------------------------------------------------------------------
Net interest income 2,936,424 2,660,288 2,395,606
Provision for loan losses 32,964 17,508 37,362
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 2,903,460 2,642,780 2,358,244
- ------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 391,920 379,186 374,789
Other operating income 91,778 83,626 71,663
Gain on sales of investment securities available
for sale 46,795 18 48,678
- ------------------------------------------------------------------------------------------------------
Total other income 530,493 462,830 495,130
- ------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 1,016,201 976,314 876,759
Occupancy and equipment 540,168 541,569 522,421
Office supplies and services 220,236 271,371 323,329
Fees and dues 128,126 135,179 132,370
Advertising and promotion 55,961 54,036 42,347
Other 26,279 24,016 30,246
- ------------------------------------------------------------------------------------------------------
Total other expense 1,986,971 2,002,485 1,927,472
- ------------------------------------------------------------------------------------------------------
Income before income taxes 1,446,982 1,103,125 925,902
Income tax expense 470,782 353,000 314,000
- ------------------------------------------------------------------------------------------------------
Net income $ 976,200 750,125 $ 611,902
- ------------------------------------------------------------------------------------------------------
Earnings per share $ 3.23 $ 2.50 $ 2.04
- ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN/(LOSS) ON
SECURITIES
COMMON RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
----- ------- -------- -------- -----
<S> <C>
Balance, January 1, 1994 $ 2,480,190 $ 1,413,536 $ 1,167,858 $ $ 5,061,584
Net income -- 1994 -- -- 611,902 -- 611,902
Cash dividend declared -- 1994 -- -- (42,163) -- (42,163)
Effect of adopting SFAS 115
at January 1, 1994 -- -- -- 55,971 55,971
Change in unrealized gain(loss)
on securities available for sale -- -- -- (125,272) (125,272)
------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 2,480,190 1,413,536 1,737,597 (69,301) 5,562,022
Net income -- 1995 -- -- 750,125 -- 750,125
Dividends declared -- 1995 -- -- (52,126) -- (52,126)
Issuance of Stock 2,000 3,300 -- -- 5,300
Change in unrealized gain (loss)
on securities available for sale -- -- -- 281,509 281,509
-----------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 2,482,190 1,416,836 2,435,596 212,208 6,546,830
Net income -- 1996 -- -- 976,200 -- 976,200
10% stock dividend declared - 1996 247,560 519,876 (767,436) -- --
Cash dividend declared - 1996 -- -- (70,286) -- (70,286)
Change in unrealized gain(loss)
on securities available for sale -- -- -- (246,875) (246,875)
-------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ 2,729,750 $ 1,936,712 $ 2,574,074 $ (34,667) $ 7,205,869
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 1995 1994
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $5,309,418 $4,750,222 $ 3,970,319
Service charges and other income received 483,698 462,812 447,910
Interest paid (2,331,421) (2,199,880) (1,653,893)
Cash paid to suppliers and employees (1,861,567) (1,849,989) (1,729,804)
Income tax paid (402,481) (396,000) (268,602)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,197,647 767,165 765,930
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments held to maturity -- 7,249,998 3,214,592
Proceeds from sales and maturities of investments
available for sale 9,388,757 2,431,061 2,314,267
Purchase of investments held to maturity -- (3,489,531) (5,909,498)
Purchases of investments available for sale (12,638,364) (5,878,267) (4,866,341)
Purchase of Federal Reserve Bank Stock (23,150) -- (300)
Net increase in loans receivable (3,622,865) (2,994,531) (59,942)
Purchases of premises and equipment (121,221) (196,473) (6,590)
Proceeds from the sale of other real estate -- -- 47,604
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,016,843) (2,877,743) (5,266,208)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts ,330,598 5,513,514 8,015,005
Net increase (decrease) in securities sold under
agreements to repurchase 254,446 20,810 (61,236)
Cash dividends (52,126) (42,163) (37,203)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,532,918 5,492,161 7,916,566
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (286,278) 3,381,583 3,416,288
Cash and cash equivalents at beginning of year 11,065,162 7,683,579 4,267,291
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 10,778,884 11,065,162 7,683,579
----------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income 976,200 750,125 611,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 152,406 152,638 152,709
Provision for loan losses 32,964 17,508
37,362
Deferred income taxes (benefit) (23,871) 20,372 (13,726)
Non-cash compensation -- 5,300 --
Net realized gain on securities (46,795) (18) (48,678)
Loss on sale of real estate owned -- -- 1,456
Net (accretion)amortization of discounts and premiums 183 (25,507) 10,720
Increase (decrease) in interest receivable 47,674 (108,831) (105,273)
(Increase) decrease in other assets (40,490) (30,897) 37,160
Increase (decrease) in other liabilities 99,376 (13,525) 82,298
----------- ------------ ------
Total adjustments 221,447 17,040 154,028
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $1,197,647 767,165 $ 765,930
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
PEOPLES BANK OF VIRGINIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples Bank of Virginia ("the
Bank") conform to generally accepted accounting principles and general
practices within the banking industry. The following is a description
of the more significant of those policies.
a Peoples Bank of Virginia operates under a state bank charter and
provides full banking services. As a state member bank, the Bank is
subject to regulation of the State Corporation Commission, Bureau of
Financial Institutions, the Federal Reserve System and the Federal
Deposit Insurance Corporation. The area served by Peoples Bank of
Virginia is Chesterfield County and services are provided at four
locations.
b The accompanying consolidated financial statements include the accounts
of Peoples Bank of Virginia and its wholly-owned subsidiary, PBV
Service Corp. All material intercompany accounts and transactions have
been eliminated in consolidation.
c The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
d Effective January 1, 1994, the Bank adopted Statement of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115") which resulted in a change in
accounting principle. This pronouncement requires that investments in
debt and equity securities with readily determinable fair values are
classified as either held to maturity, available for sale or
trading, based on management's intent. Available for sale securities
are carried at fair value with the corresponding unrealized gains and
losses included in stockholder's equity on an after tax basis. All
other securities are classified as held to maturity and are carried at
amortized cost. The Bank does not have any securities classified
as trading securities. Gains or losses are recognized only upon
realization at the time of sale using the cost of the specific
security sold.
The Adoption of SFAS 115, which has not been applied retroactively to
1993 financial statements, resulted in an increase in stockholders'
equity of $55,971 for the unrealized gain net of income tax of $28,834
on investment securities classified as available for sale at January 1,
1994. In accordance with a permissible, one-time reclassification of
securities, the Bank reassessed its liquidity need and transferred
securities with an amortized cost of $11,402,234 from held to maturity
to available for sale at fair value resulting in a net unrealized gain
on $124,645 in 1995.
e Federal Reserve Bank stock is stated at cost. No ready market exists
for this stock, and it has no quoted market value. For presentation
purposes, such stock is assumed to have market value which is equal to
cost.
f Loans are carried at the principal amount outstanding net of unearned
income and an allowance for possible loan losses. Unearned income on
installment loans is recognized as income over the terms of the loans
by the interest method. Interest on other loans is calculated by using
the simple interest method on daily balances on the principal amount
outstanding. Loans are generally placed on nonaccrual status when the
collection of principal or interest is 90 days or more past due, or
earlier if collection is uncertain based upon an evaluation of the net
realizable value of the collateral and the financial strength of the
borrower. Loans greater than 90 days past due may remain on accrual
status if management determines it has adequate collateral to cover the
principal and interest. For those loans which are carried on nonaccrual
status, interest is recognized on the cash basis.
Loan origination fees and costs are deferred and the net amount is
amortized as an adjustment of the loan yield using a method which
approximates the level yield method. The Bank is amortizing these
amounts over the estimated lives of the related loans.
g An allowance is maintained for probable losses on loans. Loan losses,
net of recoveries on loans previously charged off, are charged to the
allowance. The allowance for loan losses is based upon
management's periodic evaluation of the portfolio with consideration
given to the overall loss experience, delinquency data, financial
condition of the borrowers, and such other factors that, in
management's judgment, warrant recognition in providing an adequate
allowance.
h Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
charged to expense over the estimated useful lives of the assets and
are computed using the straight-line method for financial reporting
purposes. The cost of major renewals or improvements are capitalized
while the cost of ordinary maintenance and repairs are charged to
expense as incurred.
i Property acquired through foreclosure is stated at the lower of the
recorded cost or the estimated fair value of the property, less selling
costs. At the time of foreclosure, any excess of cost over estimated
fair value, less selling costs is charged to the allowance for loan
losses. Subsequent declines in the fair value are recorded in a
valuation account and are reflected in operations in the year in which
the decline occurred.
j An asset and liability approach to financial accounting and reporting
for income taxes is used by the bank. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income. Income tax expense is the tax
payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
k Earnings per share are computed by dividing net income by the weighted
average number of shares outstanding during the year, plus dilutive
common stock equivalents attributable to stock options. During 1996,
1995 and 1994, the number of shares used in computing earnings per
share was 302,676, 300,569, and 300,533, respectively.
l The Bank's definition of cash and cash equivalents are shown in the
Consolidated Statement of Cash Flows includes items such as short-term,
highly liquid investments with maturities of three months or less at
date of purchase, including federal funds sold.
m In 1995, the Bank adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS
114"), as amended by SFAS 118. These pronouncements require that an
impaired loan be measured based on the present value of expected future
cash flows discounted at the effective interest rate of the loan, or at
fair value of the loan's collateral for "collateral dependent' loans.
The Bank considers a loan impaired when it is probable that the Bank
will be unable to collect all interest and principal payments as
scheduled in the loan agreement. A loan is not considered impaired
during a period of delay in payment if the ultimate collectibility of
all amounts due is expected. A valuation allowance is required to the
extent that the measure of the impaired loan is less than expected. A
valuation allowance is required to the extent that the measure of the
impaired loan is less than the recorded investment. Consistent with the
Bank's method for nonaccrual loans, interest receipts for impaired
loans are recognized on the cash basis. The Bank had no impaired loans
as of December 31, 1996.
<PAGE>
2 INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities at
December 31, 1996 are shown in the following table:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
<S> <C>
AVAILABLE FOR SALE:
U. S. Treasuries $14,230,704 $ 61,046 $(49,482) $14,242,268
Federal agencies 6,597,327 6,308 (60,019) 6,543,616
States and political subdivisions
Non-taxable 2,060,318 3,563 (10,751) 2,053,130
Taxable 636,415 - (3,191) 633,224
-------------------------------------------------------------------------------------------
Total $23,524,764 $ 70,917 $(123,443) $23,472,238
- ------------------------------------------------------------------------------------------------------------------------------------
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
AVAILABLE FOR SALE:
U. S. Treasuries $12,493,986 $ 247,520 $ (2,913) $12,738,593
Federal agencies 6,076,533 84,192 (1,000) 6,159,725
States and political subdivisions
Non-taxable 1,319,660 4,180 (15,110) 1,308,730
Taxable 340,000 4,658 - 344,658
- ------------------------------------------------------------------------------------------------------------------------------------
Total $20,230,179 $ 340,550 $ (19,023) $20,551,706
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1996, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C>
AVAILABLE FOR SALE:
One year or less $ 7,397,768 $ 7,422,688
1 to 5 years 15,787,191 15,712,270
5 to 10 years 339,805 337,280
-------------------------------------------------------------------------------------------------------------
Total $23,524,764 $ 23,472,238
-------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investment securities available for sale during 1996 were
$2,967,301, resulting in gross realized gains of $48,361 and gross realized
losses of $1,566.
Proceeds from sales of investment securities available for sale during 1995 were
$2,431,061, resulting in gross realized gains of $18. There were no gross
realized losses.
Proceeds from sales of investment securities available for sale during 1994 were
$2,314,267, resulting in gross realized gains of $48,678. There were no gross
realized losses.
Securities having a amortized cost of $3,702,589 and $4,949,067 and fair value
of $3,688,424 and $5,012,862 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes as required by law.
3 LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Commercial $ 7,750,150 $ 6,812,812
Real estate - construction 4,507,908 5,599,359
Real estate - commercial 15,251,513 11,957,123
Real estate - residential 8,624,706 7,588,157
Consumer 3,619,551 4,176,481
-----------------------------------------------------------------------------
39,753,828 36,133,932
Less deferred fees --- (5)
39,753,828 36,133,927
Less allowance for loan losses (595,000) (565,000)
------------------------------------------------------------------------------
Loans - net $39,158,828 $35,568,927
---------------------------------------------------------------------------------------
</TABLE>
4 ALLOWANCE FOR LOAN LOSSES
The following is a summary of transactions in the allowance for loan losses for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
Beginning balance $565,000 $508,000 $479,000
Charge-offs (9,598) (19,736) (17,817)
Recoveries 6,634 59,228 9,455
Provision for loan losses 32,964 17,508 37,362
---------------------------------------------------------------------------------------
Ending balance $595,000 $565,000 $508,000
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
5 PREMISES AND EQUIPMENT
The summary of bank premises and equipment is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Cost
Land $ 549,694 $ 549,694
Buildings 1,008,246 1,008,246
Building improvements 175,647 172,348
Leasehold improvements 99,919 86,122
Furniture, fixtures and equipment 1,041,097 964,379
- -------------------------------------------------------------------------------------------------------
Total cost 2,874,603 2,780,789
- -------------------------------------------------------------------------------------------------------
Accumulated depreciation and amortization
Buildings 312,326 279,283
Building improvements 122,098 111,074
Leasehold improvements 53,184 44,171
Furniture, fixtures and equipment 839,710 767,791
- -------------------------------------------------------------------------------------------------------
Total accumulated depreciation and amortization 1,327,318 1,202,319
- -------------------------------------------------------------------------------------------------------
Net premises and equipment $1,547,285 $1,578,470
- -------------------------------------------------------------------------------------------------------
</TABLE>
6 DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was $9,619,999 and $8,030,034 in 1996 and
1995, respectively.
At December 31, 1996, the scheduled maturities of certificates of deposit are as
follows:
1997 $18,523,048
1998 5,135,662
1999 2,606,880
2000 1,928,890
2001 and thereafter 624,650
-------------------------------------------------------
Total certificates of deposit $28,819,130
-------------------------------------------------------
<PAGE>
7 LEASES
The Bank leases facilities under noncancelable lease agreements which are
accounted for as operating leases. Rent expenses with respect to operating
leases were $113,339, $110,230, and $107,240 for the years ended December 31,
1996, 1995, and 1994 respectively. During 1990, the Bank entered into a contract
to sublease a branch facility. The lease runs through August 31, 2000 and has
rent escalations of 4% per year.
At December 31, 1996, future minimum lease payments due under noncancelable
operating leases that have an initial term in excess of one year are as follows:
1997 $ 116,301
1998 87,153
1999 90,640
2000 62,508
-----------------------------------------------------
Total minimum lease payments $ 356,602
-----------------------------------------------------
<PAGE>
8 INCOME TAXES
Income taxes applicable to net income for the years ended December 31, 1996,
1995 and 1994 were as follows:
1996 1995 1994
Current $494,653 $332,628 $327,726
Deferred (23,871 20,372 (13,726)
- --------------------------------------------------------------------------------
Total income tax expense $470,782 $353,000 $314,000
- --------------------------------------------------------------------------------
The following is a reconciliation of the expected tax expense with the reported
expense for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
<S> <C>
Expected tax expense $491,973 34.0% $375,063 34.0% $314,807 34.0%
Effect of
Tax exempt interest (25,586) (1.8) (39,512) (3.6) (12,776) (1.4)
Other 4,395 0.3 17,449 1.6 11,969 1.3
- -----------------------------------------------------------------------------------------------------------------
Total income tax expense $470,782 32.5% $353,000 32.0% $314,000 33.9%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Deferred Tax Asset:
Allowance for loan losses $156,156 $144,948 $132,710
Net unrealized loss on securities
available for sale 24,724 --- 35,701
Other --- 4,419 7,382
- -----------------------------------------------------------------------------------------
Deferred tax asset 180,880 149,367 175,793
- -----------------------------------------------------------------------------------------
Deferred Tax Liability:
Net unrealized gain on securities
available for sale --- (109,319) ---
Depreciation (47,066) (46,165) (49,770)
Cash conversion. (150,716) (166,280) (133,028)
- ------------------------------------------------------------------------------------------
Deferred tax liability (197,782) (321,764) (182,798)
- ------------------------------------------------------------------------------------------
Net deferred tax liability $ (16,902) $ (172,397) $ (7,005)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9 SAVINGS AND PROFIT SHARING PLANS
The bank has a voluntary 401(k) savings plan which permits eligible employees to
contribute up to 12% of their compensation. The Bank matches 50% of each
employee's contribution, up to a maximum of 6% of the employee's compensation.
Contributions to the savings plan were $16,060 in 1996, $17,164 in 1995 and
$15,426 in 1994, and amounts expensed for contribution to the profit sharing
plan were $22,755 in 1996, $23,100 in 1995, and $0 in 1994.
10 STOCK DIVIDENDS
a. 1996 - On March 18, 1996, the board of directors authorized a 10% stock
dividend to be distributed on May 14, 1996 to shareholders of record on April
16, 1996.
b. 1997 - Subsequent event - On May 13, 1997 the board of directors distributed
a 10% stock dividend to the shareholders of record on April 15, 1997. All share
and per share data have been restated to reflect the stock dividends and a
correction of a computational error in weighted average shares in
1996, which increased the total shares by 9,021.
11 STOCK OPTION PLAN
In 1993 the Bank's directors and shareholders authorized the reservation of
5,000 shares of the Bank's common stock for issuance under a non-qualified stock
option plan. Under this plan the Bank's management personnel are eligible to
receive incentive awards in the form of stock options. The options are
exercisable immediately and originally expired 5 years from the date of grant.
In 1996, the shareholders modified the plan to extend the life of the option to
10 years from the date of grant, and increased the reservations to 10,000
shares. No options had been exercised or canceled at December 31, 1996 and 1995.
At December 31, 1996, 7,942 stock options are exercisable. Transactions under
the stock option and incentive plan for the periods indicated were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Shares Weighted Average Shares Weighted Average
Exercise Price Exercise Price
<S> <C>
Outstanding, beginning of year 1,342 $13.84 1,342 $13.84
Granted ......... 6,600 18.94
Outstanding, end of year 7,942 $18.07 1,342 $13.84
</TABLE>
At December 31, 1996, outstanding stock options with weighted average exercise
prices and average remaining contractual lives were as follows: 1,100 shares at
$13.64 for 2 years, 242 shares at $13.84 for 3 years, and 6,600 shares at $18.94
for 10 years.
The Bank applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plan. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Bank's stock
incentive plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under FAS
123, "Accounting for Stock-Based Compensation," the Bank's net income and income
per share would not have been materially different from the amount shown in the
statement of income for the year ended December 31, 1996 and 1995.
The weighted average fair value of each option granted during the year ended
December 31, 1996, was estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions for 1996: fair
value of options granted of $13.57; risk-free rate of 6.50%; dividend yield of
0.76%; and expected lives of 10 years.
12 REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Reserve
Bank categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets) $7,779,874 18.1% >$3,447,280 >8.0% >$4,309,100 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $7,240,536 16.8% >$1,723,640 >4.0% >$2,585,460 >6.0%
- - - -
Tier I Capital
(to Average Assets) $7,240,536 9.8% >$2,959,680 >4.0% >$3,699,600 >5.0%
- - - -
As of December 31, 1995
Total Capital
(to Risk Weighted Assets) $6,829,063 16.8% >$3,158,800 >8.0% >$3,948,500 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $6,334,622 15.5% >$1,579,400 >4.0% >$2,369,100 >6.0%
- - - -
Tier I Capital
(to Average Assets) $6,334,622 9.3% >$2,715.480 >4.0% >$3,394,350 >5.0%
- - - -
</TABLE>
13 RELATED PARTY TRANSACTIONS
The Bank leases a facility from a corporation owned by a director under an
operating lease. Rental payments in connection with this lease totaled $32,500
in 1996, 1995, and 1994. At December 31, 1996 and 1995, loans to directors and
executive officers totaled $996,045 and $991,347, respectively. New advances to
directors and executive officers totaled $677,051 and repayments totaled
$692,421 in the year ended December 31, 1996. At December 31, 1996 and 1995,
loans and guarantees to related interests of directors and executive officers
totaled $441,225 and $477,975, respectively. At December 31, 1995, securities
sold under agreements to repurchase held by directors totaled $49,227.
14 COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the accompanying financial
statements. These include commitments to extend letters of credit and loan
guarantees. These arrangements have credit risk essentially the same as that
involved in extending loans and are subject to the Bank's normal credit
policies. Collateral is obtained based on management's credit assessment of the
customer. No losses are expected to result from these transactions.
Lines of credit are established for a potential borrower as an indication of the
aggregate amount of outstanding loans that the Bank is willing to extend.
Sometimes these lines of credit are supported by balances left on deposit. Loan
advances made under such lines usually do not extend beyond the borrower's
fiscal year. Such advances are normally given for working capital purposes and
require repayment within twelve months.
Formal long-term commitments are made under legal and binding agreements for
which the borrower pays a commitment fee. These agreements typically contain
clauses that permit cancellation of the commitment in the event of credit
deterioration of the borrower. At December 31, 1996 and 1995, the Bank had
outstanding letters of credit totaling $2,529,993 and $1,883,366 and loan
commitments of approximately $9,369,000 and $7,660,000, respectively.
Also, at December 31, 1996, substantially all of the Bank's loan activity was
with customers located in Chesterfield County, Virginia, of which approximately
38% were collateralized by commercial real estate properties.
15 FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments"
("SFAS 107"). The estimated fair value amounts have been determined by the Bank
using available market information and appropriate valuation methodologies. Loan
commitments are conditional and subject to market pricing and therefore do not
reflect a gain or a loss of market value. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties at
the reporting date. However, considerable judgment is required to interpret
market data to develop the estimates of fair value.
Accordingly, the estimates presented below are not necessarily indicative of the
amounts the Bank could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash and short-term investments. The nature of these instruments and their
relatively short maturities provides for the reporting of fair value equal to
the historical cost.
Investment securities. The fair value of investment securities is based on
quoted market prices.
Loans. The estimate of fair value of loan portfolio is estimated based on
present values using applicable spreads to the U. S. Treasury curve.
Deposits. The fair value of all demand accounts is the amount payable at the
report date. For time deposits, the fair value is computed based on an estimated
of the cost savings due to the low cost of the deposits over their life,
discounted using an appropriate cost of funds rate.
<TABLE>
<CAPTION>
December 31, 1995
Carrying Estimated
Amount* Fair Value*
------ ----------
<S> <C>
Financial Assets:
Cash and short term investments $11,065 $11,065
Investment securities 20,230 20,552
Net loans 35,569 35,266
Financial Liabilities:
Demand deposits 31,077 31,077
Time deposits 29,984 30,355
Securities sold under agreements to repurchase 1,485 1,485
Off Balance Sheet Items
Loan commitments 7,660 7,660
Letters of credit $ 1,883 $ 1,833
</TABLE>
* In thousands
In December 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 126, "Exemption from Certain Required
Disclosures About Financial Instruments for Certain Nonpublic Entities"("SFAS
126"). The statement exempts certain companies from the requirements of SFAS 107
on financial instrument disclosures. As a result, the Bank is now exempt from
these disclosure requirements and accordingly such information for December 31,
1996 is not presented.
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C>
ASSETS
Cash and due from banks $ 3,901 $ 3,724
Federal funds sold 8,850 7,055
---------- ---------
Total cash and cash equivalents 12,751 10,779
Investment securities, available for sale
at fair value, amortized cost of $19,139;
and $23,524, respectively 19,154 23,472
Federal Reserve Bank Stock 167 140
Loans - net of deferred fees and allowance for
loan losses of $609 and $586,
respectively (Note 2) 45,197 39,159
Premises and equipment - net 1,470 1,547
Accrued interest receivable 521 512
Other assets 138 130
---------------------------------------------------------------------------------------------
Total assets 79,398 75,739
- -------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest bearing deposits 15,041 13,432
Interest-bearing deposits:
NOW accounts 9,444 9,668
Money market deposit accounts 9,601 7,739
Savings accounts 6,670 6,734
Certificates of deposit $100,000 or more 10,538 9,620
Other certificates of deposit 18,623 19,199
Total deposits 69,917 66,392
Securities sold under agreements to repurchase 1,147 1,739
Dividend payable 0 68
Other liabilities 302 334
--------------------------------------------------------------------------------------------
Total liabilities 71,366 68,533
- ------------------------------------------------------------------------------------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $10 par value;
Authorized shares of 500,000, issued
and outstanding shares of 301,376 and
272,975, respectively 3,014 2,730
Surplus 2,568 1,937
Retained earnings 2,441 2,574
Net unrealized gain (loss) on securities available
for sale, net of tax (benefit) of $6 and
$(17), respectively 9 (35)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 8,032 7,206
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 79,398 $ 75,739
- -------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30 Three months ended September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
INTEREST INCOME
Loans receivable $3,023 $2,770 $1,066 $ 959
Investment securities
Taxable 913 990 284 317
Tax-exempt 58 54 18 20
Federal funds sold 194 210 99 80
Total interest income 4,188 4,024 1,467 1,376
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW accounts 151 148 53 49
Money market deposit accounts 197 164 80 59
Savings accounts 143 138 48 47
Certificates of deposit $100,000 or more 304 245 111 78
Other certificates of deposit 877 1,025 296 337
Securities sold under agreements to repo 31 29 12 11
----------------------------------------------------------------------------------------------------------------
Total interest expense 1,703 1,749 600 581
- --------------------------------------------------------------------------------------------------------------------
Net interest income 2,485 2,275 867 795
Provision for loan losses 18 23 -- 7
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 2,467 2,252 867 788
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 303 274 102 95
Other operating income 99 55 32 19
Gain (loss) on sales of investment
securities available for sale (2) 22 -- (2)
- --------------------------------------------------------------------------------------------------------------------
Total other income 400 351 134 112
- --------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 896 818 306 281
Occupancy and equipment 331 332 113 117
Office supplies and services 267 238 92 77
Fees and dues 110 96 39 33
Advertising and promotion
61 48 22 16
Other 44 20 5 5
--------------------------------------------------------------------------------------------------------------
Total other expense 1,709 1,552 577 529
--------------------------------------------------------------------------------------------------------------
Income before income taxes 1,158 1,051 424 371
Income tax expense 387 350 142 123
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 771 $ 701 $ 282 $ 248
- ---------------------------------------------------------------------------------------------------------------------
Earnings per share $ 2.52 $ 2.32 .92 .82
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine months ended September 30, 1997 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $4,169 $4,072
Service charges and other income received 402 330
Interest paid (1,700) (1,755)
Cash paid to suppliers and employees (1,515) (1,564)
Income tax paid (509) (283)
- -------------------------------------------------------------------------------------- --------------------
Net cash provided by operating activities 847 800
- -------------------------------------------------------------------------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investments available for sale 7,397 6,094
Purchases of investments available for sale (3,026) (6,846)
Purchase of Federal Reserve Bank Stock (27) (23)
Net increase in loans receivable (6,056) (3,714)
Purchases of premises and equipment (39) (118)
- -------------------------------------------------------------------------------------- --------------------
Net cash used in investing activities (1,751) (4,607)
- ------------------------------------------------------------------------------------ -------------------- -
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 3,525 4,032
Net increase (decrease) in securities sold under agreements to repurchase (592) (150)
Proceeds from issuance of stock 15
Cash dividends (72) (54)
- -------------------------------------------------------------------------------------- --------------------
Net cash provided by financing activities 2,876 3,828
- -------------------------------------------------------------------------------------- --------------------
Net increase (decrease) in cash and cash equivalents 1,972 21
Cash and cash equivalents at beginning of period 10,779 11,065
- -------------------------------------------------------------------------------------- --------------------
Cash and cash equivalents at end of period $ 12,751 $ 11,093
- -------------------------------------------------------------------------------------- --------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income 771 $ 701
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 116 111
Provision for loan losses 18 23
Net realized gain on securities 2 (22)
Net (accretion)amortization of discounts and premiums (11) (4)
Increase (decrease) in interest receivable (9) 51
(Increase) decrease in other assets (8) (50)
Increase (decrease) in other liabilities (32) (10)
- -------------------------------------------------------------------------------------- --------------------
Total adjustments 76 99
- -------------------------------------------------------------------------------------- --------------------
Net cash provided by operating activities $ 847 $ 800
- -------------------------------------------------------------------------------------- --------------------
See notes to consolidated financial statements
</TABLE>
PEOPLES BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
NET
UNREALIZED
GAIN/(LOSS)
ON
SECURITIES
COMMON RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
Balance January 1, 1996 $2,482 $1,417 $2,436 $ 212 $6,547
Net income--1997 701 701
10% stock dividend 248 520 (768)
Cash paid in lieu of
fractional shares (2) (2)
Change in unrealized
gain (loss) on
securities available
for sale (279) (279)
------ ------ ------ ------ ------
Balance September 30, 1996 $2,730 $1,937 $2,367 $ (67) $6,967
====== ====== ====== ====== ======
Balance January 1, 1997 $2,730 $1,937 $2,574 $ (35) $7,206
Net income--1997 -- -- 771 771
10% stock dividend
declared - 1997 273 627 (900)
Cash paid in lieu
of fractional shares -- -- (4) (4)
Issuance of stock 11 4 15
Change in unrealized
gain (loss) on
securities available
for sale 44 44
------ ------ ------ ----- ------
Balance September 30, 1997 $3,014 $2,568 $2,441 $ 9 $8,032
====== ====== ====== ===== ======
<PAGE>
PEOPLES BANK OF VIRGINIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended September 30, 1997 and 1996
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The information contained in the financial statements is unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results
of the interim periods presented have been made. Operating results for the
nine month period ended are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The accompanying consolidated financial statements include the accounts of
Peoples Bank of Virginia and its wholly-owned subsidiary, PBV Service Corp.
All material intercompany accounts and transactions have been eliminated in
consolidation.
These financial statements should be read in conjunction with consolidated
financial statements and notes thereto included in the Company's Annual
Report for the year ended December 31, 1996. Certain previously reported
amounts have been reclassified to current period presentation.
2 ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the nine
months ended September 30, (in thousands):
1997 1996
Balance, January 1 $ 595 $565
Chargeoffs (10) (6)
Recoveries 6 4
Provision for loan losses 18 23
-----------------------------------------------------------
Ending balance, September 30 $609 $586
-----------------------------------------------------------
3 EARNINGS PER SHARE
Earnings per share outstanding has been computed by dividing net income by
the weighted average number outstanding for the period. Weighted average
shares used for the computation were 306,424 and 302,676 for the nine
months ended September 30, 1997 and 1996.
4
On May 13, 1997, the board of directors distributed a 10% stock dividend to
the Shareholders of record on April 15, 1997. All share and per share data
have been restated to reflect the stock dividend.
<PAGE>
5 RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued FASB No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial components
approach that focuses on transfer of the affected asset or liability that
it controls or surrenders. This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. PBV is not
presently expected to be impacted by this Statement in the forseeable
future.
In December 1996, the FASB issued FASB Statement No. 127, which deferred
for one year paragraphs 9 - 12 (Accounting for Transfers and Servicing of
Financial Assets) under FASB No. 125 for securities lending, repurchase
agreements, dollar rolls, and other secured transactions. The FASB also
agreed to defer for one year paragraph 5 (Secured Borrowings and
Collateral) under FASB No. 125 for all transactions.
In February 1997, the FASB issued FASB No. 128, Earnings Per Share. FASB
No. 128 simplifies the calculation of earnings per share (EPS) and makes it
comparable to international standards. Under FASB No. 128, primary EPS is
replaced with a calculation known as basic EPS. Basic EPS is calculated by
dividing income available to common shareholders by the weighted average
number of common shares outstanding during the period. Fully diluted EPS
has not changed significantly but has been renamed diluted EPS. Under the
new rules, income available to common shareholders should be adjusted for
the assumed conversion of all potentially dilutive securities. The treasury
stock method is used to calculate the dilutive effect of options and
warrants. The treasury stock method is applied using the average market
price of PBV's common stock during the period rather than the higher of the
average market price or ending market price. The dilutive effect of
convertible debt of convertible preferred stock will be calculated using
the if-converted method, which assumes conversion at the beginning of the
period of the effect is dilutive. FASB No. 128 is effective for both
interim and annual financial statements for periods ending after December
15, 1997. Earlier application is not permitted.
During June 1997, the FASB issued FASB No. 130, Reporting Comprehensive
Income. This pronouncement establishes standards for reporting and display
of comprehensive income and its components (revenue, expenses, gains, and
losses) in a full set of general purpose financial statements. FASB No. 130
is effective for financial statements beginning after December 15, 1997.
Additionally during June of 1997, the FASB issued FASB No. 131, Disclosures
About Segments of an Enterprise and Related Information. FASB No. 131
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas and major customers. This statement becomes effective for
financial statements for periods beginning after December 15, 1997.
FASB 130 and 131 will not have any impact on the Bank's financial
statements except to require additional disclosures.
6 PENDING MERGER
The Boards of Directors for F & M National Corporation (F&M) and Peoples
Bank of Virginia (PBV) have approved an Agreement and Plan of
Reorganization to merge PBV with F&M Bank--Richmond. The Agreement and Plan
of Reorganization contemplates a share exchange between the respective
bank's shareholders. Shareholders of PBV stock will receive 2.58 shares of
F&M Common Stock for each outstanding share of PBV Common Stock, with cash
being paid in lieu of fractional shares.
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
AND
PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
by and among
F&M NATIONAL CORPORATION
F&M BANK-RICHMOND
and
PEOPLES BANK OF VIRGINIA
----------------------------
December 1, 1997
----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. THE MERGER AND RELATED MATTERS..................................................................1
1.1 The Merger......................................................................................1
1.2 Conversion of PBV Stock.........................................................................1
1.3 Exchange Procedures.............................................................................2
1.4 Board of Directors of the Continuing Bank; Certain Officer Positions............................2
1.5 PBV Stock Options...............................................................................2
1.6 Closing; The Effective Date.....................................................................3
1.7 Definitions.....................................................................................3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF PBV...........................................................4
2.1 Organization, Standing and Power of PBV.........................................................4
2.2 Organization, Standing and Power of the PBV Subsidiaries........................................4
2.3 Authorized and Effective Agreements.............................................................4
2.4 Capital Structure...............................................................................5
2.5 Rights..........................................................................................5
2.6 Financial Statements; Books and Records; Minute Books...........................................5
2.7 Absence of Material Changes and Events..........................................................5
2.8 Absence of Undisclosed Liabilities..............................................................6
2.9 Legal Proceedings; Compliance with Laws.........................................................6
2.10 Tax Matters.....................................................................................6
2.11 Property........................................................................................6
2.12 Employee Benefit Plans..........................................................................7
2.13 Insurance.......................................................................................7
2.14 Loans; Allowance for Loan Losses................................................................8
2.15 Environmental Matters...........................................................................8
2.16 Takeover Laws...................................................................................9
2.17 Brokers........................................................................................10
2.18 Statements True and Correct....................................................................10
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF F&M..........................................................10
3.1 Organization, Standing and Power...............................................................10
3.2 Organization, Standing and Power of F&M Subsidiaries...........................................10
3.3 Authorized and Effective Agreement.............................................................11
3.4 Capital Structure..............................................................................11
3.5 Financial Statements; Books and Records; Minute Books..........................................11
3.6 Absence of Material Changes or Events..........................................................12
3.7 Absence of Undisclosed Liabilities.............................................................12
3.8 Legal Proceedings; Compliance with Laws........................................................12
3.9 Tax Matters....................................................................................12
3.10 Employee Benefit Plans.........................................................................12
3.11 Insurance......................................................................................13
3.12 Allowance for Loan Losses......................................................................13
3.13 Environmental Matters..........................................................................13
3.14 Securities Reports.............................................................................13
3.15 Statements True and Correct....................................................................13
ARTICLE 4. COVENANTS AND AGREEMENTS.......................................................................14
4.1 Reasonable Best Efforts........................................................................14
4.2 Access to Information; Notice of Certain Matters, Confidentiality..............................14
4.3 Registration Statement; Shareholder Approval...................................................14
4.4 Operation of the Business of PBV...............................................................15
4.5 Operation of the Business of F&M...............................................................16
4.6 Dividends......................................................................................16
4.7 No Solicitation of Other Offers................................................................16
4.8 Regulatory Filings.............................................................................17
4.9 Public Announcements...........................................................................17
4.10 Accounting Treatment...........................................................................17
4.11 Affiliate Agreements...........................................................................17
4.12 Benefit Plans; Employment Agreements...........................................................17
4.13 NYSE Listing...................................................................................17
4.14 Indemnification................................................................................17
4.15 Stock Option Agreement.........................................................................18
ARTICLE 5. CONDITIONS TO THE MERGER.......................................................................18
5.1 General Conditions.............................................................................18
5.2 Conditions to Obligations of F&M...............................................................19
5.3 Conditions to Obligations of PBV...............................................................19
ARTICLE 6. TERMINATION....................................................................................20
6.1 Termination....................................................................................20
6.2 Effect of Termination..........................................................................21
6.3 Survival of Representations, Warranties and Covenants..........................................21
6.4 Fees and Expenses..............................................................................21
ARTICLE 7. GENERAL PROVISIONS.............................................................................22
7.1 Entire Agreement...............................................................................22
7.2 Binding Effect; No Third-Party Rights..........................................................22
7.3 Waiver and Amendment...........................................................................22
7.4 Governing Law..................................................................................22
7.5 Notices........................................................................................22
7.6 Counterparts...................................................................................23
7.7 Severability...................................................................................23
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 1, 1997, by and between F&M NATIONAL CORPORATION, a
Virginia corporation ("F&M"), F&M BANK-RICHMOND, a wholly-owned Virginia banking
subsidiary of F&M ("F&M Bank-Richmond"), and PEOPLES BANK OF VIRGINIA, a
Virginia banking corporation ("PBV").
WITNESSETH:
WHEREAS, the respective Boards of Directors of F&M and PBV have
approved the affiliation of their companies through the merger of PBV with and
into F&M Bank-Richmond pursuant to and subject to the terms and conditions of
this Agreement and the Plan of Merger in the form attached hereto as Exhibit A
(the "Plan of Merger"); and
WHEREAS, the parties desire to provide for certain conditions,
representations, warranties and agreements in connection with the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
THE MERGER AND RELATED MATTERS
1.1 The Merger
Subject to the terms and conditions of this Agreement, at the Effective
Date as defined in Section 1.5 hereof, PBV shall be merged with and into F&M
Bank-Richmond pursuant to the Plan of Merger attached hereto as Exhibit A and
made a part hereof (the "Merger"). The separate corporate existence of PBV shall
thereupon cease, and F&M Bank-Richmond will be the surviving corporation in the
Merger and its name shall remain F&M Bank-Richmond (F&M Bank-Richmond as
existing on and after the Effective Date is sometimes referred to as the
"Continuing Bank"). From and after the Effective Date, the Merger shall have the
effect set forth in Section 13.1-721 of the Virginia Stock Corporation Act (the
"VSCA").
1.2 Conversion of PBV Stock
(a) At the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof, each share of common stock, par value
$10.00 per share, of PBV ("PBV Common Stock") issued and outstanding immediately
prior to the Effective Date shall cease to be outstanding and shall be converted
into and exchanged for 2.58 shares of common stock, par value $2.00 per share,
of F&M ("F&M Common Stock") pursuant to the terms and conditions set forth in
this Agreement and the Plan of Merger (the "Exchange Ratio").
(b) F&M will issue cash in lieu of fractional shares to the holders of
PBV Common Stock on the basis of the Average Closing Price of F&M Common Stock.
As used herein, "Average Closing Price" shall mean the average closing price of
F&M Common Stock as reported on the New York Stock Exchange for each of the ten
consecutive trading days ending on the fifth business day prior to the Effective
Date.
(c) In the event F&M changes (or establishes a record date for
changing) the number of shares of F&M Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding F&M
Common Stock and the record date therefor shall be prior to the Effective Date,
appropriate and proportional adjustments will be made to the Exchange Ratio.
1.3 Exchange Procedures
As promptly as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent ("Exchange
Agent"), to send to each former holder of record of PBV Common Stock immediately
prior to the Effective Date transmittal materials for use in exchanging such
shareholder's certificates of PBV Common Stock for the consideration set forth
in Section 2.1 above. Any dividends paid on any shares of F&M Common Stock that
such shareholder shall be entitled to receive prior to the delivery to the
Exchange Agent of such shareholder's certificates representing all of such
shareholder's shares of PBV Common Stock, will be delivered to such shareholder
only upon delivery to the Exchange Agent of the certificates representing all of
such shares (or indemnity satisfactory to F&M and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
1.4 Board of Directors of the Continuing Bank; Certain Officer
Positions
(a) At the Effective Date, the Board of Directors of the Continuing
Bank shall consist of all the current directors of each of F&M Bank-Richmond and
PBV.
(b) At the Effective Date, F&M agrees to cause Mr. Quentin L. Corbett
to be appointed as Executive Vice President of the Continuing Bank.
1.5 PBV Stock Options
From and after the Effective Date, all employee and director stock
options to purchase shares of PBV Common Stock (each, a "PBV Stock Option"),
that are then outstanding and unexercised, shall be converted into and become
options to purchase shares of F&M Common Stock, and F&M shall assume each such
PBV Stock Option in accordance with the terms of the plan and agreement by which
it is evidenced; provided, however, that from and after the Effective Date (i)
each such PBV Stock Option assumed by F&M may be exercised solely to purchase
shares of F&M Common Stock, (ii) the number of shares of F&M Common Stock
purchasable upon exercise of such PBV Stock Option shall be equal to the number
of shares of PBV Common Stock that were purchasable under such PBV Stock Option
immediately prior to the Effective Date multiplied by the Exchange Ratio and
rounding down to the nearest whole share, with cash being paid for any
fractional share interest that otherwise would be purchasable, and (iii) the per
share exercise price under each such PBV Stock Option shall be adjusted by
dividing the per share exercise price of each such PBV Stock Option by the
Exchange Ratio, and rounding down to the nearest cent. The terms of each PBV
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction with respect to F&M Common Stock
on or subsequent to the Effective Date.
1.6 Closing; The Effective Date
The Merger shall become effective on the date and at the time shown on
the Certificate of Merger issued by the Virginia State Corporation Commission
effecting the Merger (the "Effective Date"). Subject to the satisfaction or
waiver of the conditions set forth in Article V, the parties shall use their
reasonable best efforts to cause the Effective Date to occur on the first day of
the month following the month in which the conditions set forth in Article V
have been satisfied or waived in accordance with the terms of this Agreement or
on such other date as the parties may agree in writing. All documents required
by this Agreement to be delivered at or prior to the Effective Date will
exchanged by the parties at the closing of the Merger (the "Merger Closing"),
which shall be held on or before the Effective Date. At or after the Merger
Closing, F&M, F&M Bank-Richmond and PBV shall execute and deliver to the
Virginia State Corporation Commission Articles of Merger containing the Plan of
Merger.
1.7 Definitions
Any term defined in this Agreement and the Plan of Merger shall have
the meaning ascribed to it for purposes of this Agreement. In addition:
(a) The term "Knowledge" means the knowledge, after due inquiry, of any
"Executive Officer" of such party, as such term is defined in Regulation
O (12 C.F.R. 215).
(b) The term "Material Adverse Effect" means, with respect to a party,
any effect that (i) has or is reasonably likely to have a material and adverse
effect upon the financial position, results of operations or business of the
party and its subsidiaries, taken as a whole, or (ii) would materially impair
the party's ability to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Merger;
provided that Material Adverse Effect shall not be deemed to include the impact
of (a) changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, or (b) changes in
generally accepted accounting principles or regulatory requirements applicable
to financial institutions.
(c) The term "Previously Disclosed" shall mean information set forth in
a schedule (a "Disclosure Schedule", which shall be arranged in sections
corresponding to the sections of this Agreement) from one party to the other
party delivered and dated not later than 5:00 p.m. on December 4, 1997, setting
forth, among other things, items the disclosure of which is necessary or
appropriate in relation to any or all of such party's representations and
warranties. Any matter included, whether aggregated or not, in the PBV Financial
Statements or the F&M Financial Statements, as the case may be, shall be deemed
to be Previously Disclosed.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PBV
PBV represents and warrants to F&M as follows:
2.1 Organization, Standing and Power of PBV
PBV is a Virginia chartered banking corporation duly organized, validly
existing and in good standing under the laws of Virginia. PBV has the corporate
power and authority to carry on its business in Virginia as now conducted and to
own and operate its assets, properties and business; and PBV has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement of even date herewith by and between
PBV and F&M, a copy of which is attached hereto as Exhibit B (the "Option
Agreement"), and to consummate the transactions contemplated hereby and thereby.
2.2 Organization, Standing and Power of the PBV Subsidiaries
Each subsidiary of PBV is identified on its Disclosure Schedule (the
"PBV Subsidiaries" and, collectively with PBV, the "PBV Companies") is a duly
organized corporation, validly existing and in good standing under applicable
laws. Each PBV Subsidiary (i) has full corporate power and authority to carry on
its business as now conducted and (ii) is duly qualified to do business in the
states where its ownership or leasing of property or the conduct of its business
requires such qualification and where the failure to so qualify would have a
material adverse effect on PBV on a consolidated basis. The outstanding shares
of capital stock of each of the PBV Subsidiaries are validly issued and
outstanding, fully paid and nonassessable and all such shares are directly or
indirectly owned by PBV free and clear of all liens, claims and encumbrances or
preemptive rights of any person.
2.3 Authorized and Effective Agreements
(a) Subject to receipt of the approval of the shareholders of PBV of
this Agreement and the Plan of Merger, this Agreement, the Plan of Merger and
the Option Agreement and the transactions contemplated hereby and thereby have
been authorized by all necessary corporate action on the part of PBV on or prior
to the date hereof. This Agreement, the Plan of Merger and the Option Agreement
are valid and legally binding obligations of PBV, enforceable against PBV in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws affecting the enforcement of rights of creditors or
by general principles of equity).
(b) Neither the execution and delivery of this Agreement, the Plan of
Merger and the Option Agreement, nor the consummation of the transactions
contemplated herein or therein, nor compliance by PBV with any of the provisions
hereof or thereof will: (i) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of PBV; (ii) except as Previously
Disclosed in its Disclosure Schedule, constitute or result in the breach of any
term, condition or provision of, or constitute a default under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge or encumbrance upon, any property or
asset of PBV pursuant to any (A) note, bond, mortgage, indenture, or (B) any
material license, agreement or other instrument or obligation, to which PBV is a
party or by which it or any of its properties or assets may be bound, or (iii)
subject to the receipt of all required regulatory and shareholder approvals,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to PBV.
2.4 Capital Structure
The authorized capital stock of PBV consists of 500,000 shares of
common stock, par value $10.00 per share, of which 301,376 shares are issued and
outstanding as of this date. All outstanding shares of PBV Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable and
have not been issued in violation of the preemptive rights of any person. As of
the date hereof, there are options held by employees of PBV that represent
rights to purchase a total of 6,842 shares of PBV Common Stock.
2.5 Rights
As of the date of this Agreement, there are not any shares of capital
stock of PBV reserved for issuance, or any outstanding or authorized options,
warrants, rights, agreements, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to its capital stock pursuant to
which PBV is or may become obligated to issue shares of capital stock or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock (collectively, "Rights"), except
as contemplated by the Option Agreement and as Previously Disclosed in its
Disclosure Schedule (which shall include copies of the stock option plans and
individual stock option agreements pursuant to which employees of PBV may
exercise stock options).
2.6 Financial Statements; Books and Records; Minute Books
The PBV Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of PBV
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods or as of the
dates set forth therein (subject, in the case of unaudited interim statements,
to normal recurring audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis. The books and records of
the PBV Companies fairly reflect in all material respects the transactions to
which they are a party or by which their properties are subject or bound. Such
books and records have been properly kept and maintained and are in compliance
in all material respects with all applicable legal and accounting requirements.
The minute books of the PBV Companies contain accurate records of all corporate
actions of their respective shareholders and Boards of Directors (including
committees of its Board of Directors). The PBV Financial Statements shall mean
(i) the consolidated statements of financial condition of PBV as of December 31,
1996 and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years ended December 31, 1996
(including related notes and schedules, if any) and (ii) the consolidated
balance sheets of PBV and related consolidated statements of income and
shareholders' equity (including related notes and schedules, if any) with
respect to quarterly periods ended subsequent to December 31, 1996.
2.7 Absence of Material Changes and Events
Since September 30, 1997 and except as Previously Disclosed in its
Disclosure Schedule, there has not been any change in the financial condition or
results of operations of PBV or the PBV Subsidiaries which, individually or in
the aggregate, has had or is reasonably likely to have a Material Adverse
Effect.
2.8 Absence of Undisclosed Liabilities
PBV has not incurred any liability (contingent or otherwise) that is
material to PBV on a consolidated basis or that, when combined with all similar
liabilities, would be material to PBV on a consolidated basis, except as
Previously Disclosed in its Disclosure Schedule or as disclosed in the PBV
Financial Statements and except for liabilities incurred in the ordinary course
of business consistent with past practice since the date of the most recent PBV
Financial Statements.
2.9 Legal Proceedings; Compliance with Laws
Except as Previously Disclosed in its Disclosure Schedule, there are no
actions, suits or proceedings instituted or pending or, to the Knowledge of PBV,
threatened against any of the PBV Companies or against any property, asset,
interest or right of the PBV Companies, or against any officer, director or
employee of the PBV Companies that would, if determined adversely to PBV or any
PBV Subsidiary, have a Material Adverse Effect on PBV on a consolidated basis.
To the Knowledge of PBV, the PBV Companies have complied in all material
respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
2.10 Tax Matters
The PBV Companies have filed all federal, state and local tax returns
and reports ("Tax Returns") required to be filed, and all such Tax Returns were
correct and complete in all material respects. All Taxes (as defined below) owed
by the PBV Companies have been paid, are reflected as a liability in the PBV
Financial Statements, or are being contested in good faith and have been
Previously Disclosed in its Disclosure Schedule. Except as Previously Disclosed,
no tax return or report of the PBV Companies is under examination by any taxing
authority or the subject of any administrative or judicial proceeding, and no
unpaid tax deficiency has been asserted against the PBV Companies by any taxing
authority. As used herein, "Taxes" mean all taxes, charges, fees, levies or
other assessments, including, without limitation, all income, gross receipts,
sales, use, ad valorem, goods and services, capital, transfer, franchise,
profits, license, withholding, payroll, employment, employer health, excise,
estimated, severance, stamp, occupation, property or other taxes, custom duties,
fees, assessments or chargers of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority.
2.11 Property
Except as Previously Disclosed in its Disclosure Schedule or reserved
against in the PBV Financial Statements, the PBV Companies have good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equitable interests to all of the properties and assets, real and
personal, reflected in the balance sheet included in the PBV Financial
Statements as of December 31, 1996 or acquired after such date. To the Knowledge
of PBV, all buildings, and all fixtures, equipment, and other property and
assets that are material to its business, held under leases or subleases, are
held under valid instruments enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws. To the Knowledge of PBV, the buildings, structures, and appurtenances
owned, leased, or occupied by the PBV Companies are in good operating condition
and in a state of good maintenance and repair and comply with applicable zoning
and other municipal laws and regulations, and there are no latent defects
therein.
2.12 Employee Benefit Plans.
(a) PBV has Previously Disclosed in its Disclosure Schedule all
employee benefit plans and programs, including without limitation: (i) all
retirement, savings and other pension plans; (ii) all health, severance,
insurance, disability and other employee welfare plans; and (iii) all
employment, vacation and other similar plans, all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other employee benefit plans, programs or arrangements, and all employment
or compensation arrangements, in each case for the benefit of or relating to
current and former employees of PBV (collectively, the "PBV Benefit Plans").
(b) None of the PBV Benefit Plans is a "multi-employer plan" as defined
in section 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(c) Except as Previously Disclosed in its Disclosure Schedule, all PBV
Benefit Plans are in compliance in all material respects with applicable laws
and regulations, and PBV has administered the PBV Benefit Plans in accordance
with applicable laws and regulations in all material respects.
(d) Each PBV Benefit Plan that is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") has
been determined by the Internal Revenue Service to be so qualified, as reflected
in a current favorable determination letter.
(e) PBV has made available to F&M copies of all PBV Benefit Plans and,
where applicable, summary plan descriptions, and annual reports required to be
filed within the last three years pursuant to ERISA or the Code with respect to
the PBV Benefit Plans.
(f) To the knowledge of PBV, PBV has not engaged in any prohibited
transactions, as defined in Code section 4975 or ERISA section 406, with respect
to any PBV Employee Benefit Plan that is a pension plan as defined in Section
3(2) of ERISA.
(g) There are no actions, suits, investigations or claims pending,
threatened or anticipated (other than routine claims for benefits) with respect
to any PBV Benefit Plans.
(h) No compensation or benefit that is or will be payable in connection
with the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment" within the meaning of Code section 280G. Except as
Previously Disclosed in its Disclosure Schedule, no PBV Benefit Plan contains
any provision which would give rise to any severance, termination or other
payments or liabilities as a result of the transactions contemplated by this
Agreement.
(i) PBV has not established and does not maintain a welfare plan, as
defined in ERISA section 3(1), that provides benefits to an employee at the
expense of PBV after a termination of employment, except as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985.
2.13 Insurance
Each of the PBV Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the Knowledge of PBV, similar in
scope and coverage to that maintained by other entities similarly situated.
Since January 1, 1997, none of the PBV Companies has received any notice of a
premium increase or cancellation or a failure to renew with respect to any
insurance policy or bond and, within the last three fiscal years, none of the
PBV Companies has been refused any insurance coverage sought or applied for, and
PBV has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums or
unavailability of coverage that do not result from any extraordinary loss
experience on the part of the PBV Companies.
2.14 Loans; Allowance for Loan Losses
(a) Except as Previously Disclosed in its Disclosure Schedule, to the
Knowledge of PBV each loan reflected as an asset in the PBV Financial Statements
(i) is evidenced by notes, agreements or evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, (iii)
is the legal, valid and binding obligation of the obligor and any guarantor,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and no defense,
offset or counterclaim has been asserted with respect to any such loan which if
successful could have a Material Adverse Effect, and (iv) in all material
respects was made in accordance with PBV's standard loan policies.
(b) PBV has Previously Disclosed in its Disclosure Schedule the
aggregate amounts as of a recent date of all loans, losses, advances, credit
enhancements, other extensions of credit, commitments and interest-bearing
assets of the PBV Companies that have been classified by any bank examiner
(whether regulatory or internal) as "Other Loans Specially Mentioned," "Special
Mention," "Substandard," "Doubtful," "Loss," "Classified" or words of similar
import, and PBV shall promptly on a periodic basis inform F&M of any such
classification arrived at any time after the date hereof.
(c) The real property classified as other real estate owned ("OREO")
included in non-performing assets is carried net of reserve at the lower of cost
or market value based on independent appraisals.
(d) The allowance for loan losses reflected on the statements of
financial condition included in the PBV Financial Statements, as of their
respective dates, is adequate in all material respects under the requirements of
generally accepted accounting principles and regulatory accounting principles to
provide for reasonably anticipated losses on outstanding loans.
2.15 Environmental Matters
(a) Except as Previously Disclosed in its Disclosure Schedule, the PBV
Companies are in substantial compliance with all Environmental Laws (as defined
below). PBV has not received any communication alleging that PBV is not in such
compliance and there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
(b) PBV has not received notice of pending, and are not aware of any
threatened, legal, administrative, arbitral or other proceedings, asserting
Environmental Claims (as defined below) or other claims, causes of action or
governmental investigations of any nature, seeking to impose, or that could
result in the imposition of, any material liability arising under any
Environmental Laws upon (i) PBV, (ii) any person or entity whose liability for
any Environmental Claim PBV has or may have retained either contractually or by
operation of law, (iii) any real or personal property owned or leased by PBV, or
any real or personal property which PBV has been, or is, judged to have managed
or to have supervised or to have participated in the management of, or (iv) any
real or personal property in which PBV holds a security interest securing a loan
recorded on the books of PBV. PBV is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
(c) With respect to all real and personal property owned or leased by
PBV, or all real and personal property which PBV has been, or is, judged to have
managed or to have supervised or to have participated in the management of, PBV
will promptly provide F&M with access to copies of any environmental audits,
analyses and surveys that have been prepared relating to such properties (a list
of which will be Previously Disclosed in its Disclosure Schedule). The PBV
Companies are in compliance in all material respects with all recommendations
contained in any such environmental audits, analyses and surveys.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against PBV or against any person or entity whose liability for any
Environmental Claim PBV has or may have retained or assumed either contractually
or by operation of law.
(e) For purposes of this Agreement, the following terms shall have the
following meanings:
(1) "Environmental Claim" means any written notice from any
governmental authority or third party alleging potential liability
(including, without limitation, potential liability for investigatory
costs, clean-up, governmental response costs, natural resources
damages, property damages, personal injuries or penalties) arising out
of, based upon, or resulting from the presence, or release into the
environment, of any Materials of Environmental Concern.
(2) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, that relate to pollution or protection of human health or the
environment.
(3) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum
products and any other materials regulated under Environmental Laws.
2.16 Takeover Laws
PBV has taken all action necessary to exempt this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby from the
requirements of any "control share," "fair price," "affiliate transaction" or
other anti-takeover laws and regulations of any state, including without
limitation Sections 13.1-725 through 13.1-728 of the VSCA (because a majority of
PBV's disinterested directors approved such transactions for such purposes prior
to any "determination date" with respect to F&M) and Sections 13.1-728.1 through
13.1-728.9 of the VSCA.
<PAGE>
2.17 Brokers
Other than the financial advisory services performed for PBV by Scott &
Stringfellow, Inc. (on terms disclosed to F&M), neither PBV nor any of its
subsidiaries, nor any of their respective officers, directors or employees has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with transactions contemplated by this
Agreement.
2.18 Statements True and Correct
When the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by F&M with the Securities and Exchange Commission (the
"SEC") shall become effective, and at all times subsequent thereto up to and
including the PBV shareholders' meeting called to vote upon the Merger, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished by PBV relating to PBV, (i) shall
comply in all material respects with the applicable provisions of the federal
and state securities laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF F&M
F&M represents and warrants to PBV as follows:
3.1 Organization, Standing and Power
F&M is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia. F&M has the corporate
power and authority to carry on its business as now conducted and to own and
operate its assets, properties and business; and each of F&M and F&M
Bank-Richmond has the corporate power and authority to execute, deliver and
perform their respective obligations under this Agreement and to consummate the
transactions contemplated hereby. F&M is duly registered as a bank holding
company under the Bank Holding Company Act of 1956.
3.2 Organization, Standing and Power of F&M Subsidiaries
Each subsidiary of F&M (the "F&M Subsidiaries" and, collectively with
F&M, the "F&M Companies") is a duly organized corporation, validly existing and
in good standing in their respective states of incorporation. Each F&M
Subsidiary (i) has full corporate power and authority to carry on its business
as now conducted and (ii) is duly qualified to do business in the states where
its ownership or leasing of property or the conduct of its business requires
such qualification and where the failure to so qualify would have a material
adverse effect on F&M on a consolidated basis. The outstanding shares of capital
stock of each of the F&M Subsidiaries are validly issued and outstanding, fully
paid and nonassessable and all such shares are directly or indirectly owned by
F&M free and clear of all liens, claims and encumbrances or preemptive rights of
any person.
<PAGE>
3.3 Authorized and Effective Agreement
(a) This Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action on the part of F&M and F&M Bank-Richmond. This Agreement and the Plan of
Merger are valid and legally binding obligations of F&M and F&M Bank-Richmond,
enforceable against each of them in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws affecting the
enforcement of rights of creditors or by general principles of equity).
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by F&M with
any of the provisions hereof will: (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of F&M or any F&M
Subsidiary; (ii) constitute or result in the breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or asset of F&M
or any F&M Subsidiary pursuant to any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation that would have a Material Adverse
Effect F&M, or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to F&M or any F&M Subsidiary.
3.4 Capital Structure
The authorized capital stock of F&M consists of: (i) 5,000,000 shares
of preferred stock, no par value per share, of which none are issued and
outstanding; and (ii) 30,000,000 shares of common stock, par value $2.00 per
share, of which 20,317,960 shares were issued and outstanding on November 1,
1997. All outstanding shares of F&M Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person. The shares of F&M Common Stock
to be issued in exchange for shares of PBV Common Stock upon consummation of the
Merger will have been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable,
will not be issued in violation of the preemptive rights of any person, and will
be duly registered under the applicable federal and state securities laws.
3.5 Financial Statements; Books and Records; Minute Books
The F&M Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of F&M
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods or as of the
dates set forth therein (subject, in the case of unaudited interim statements,
to normal recurring audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis. The books and records of
the F&M Companies fairly reflect in all material respects the transactions to
which each company is a party or by which its properties are subject or bound.
Such books and records have been properly kept and maintained and are in
compliance in all material respects with all applicable legal and accounting
requirements. The minute books of the F&M Companies contain accurate records of
all corporate actions of their respective shareholders and Boards of Directors
(including committees of its Board of Directors). The F&M Financial Statements
shall mean (i) the consolidated balance sheets of F&M as of December 31, 1996
and 1995 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years ended December 31, 1996, 1995 and
1994 (including related notes and schedules, if any) and (ii) the consolidated
balance sheets of F&M and related consolidated statements of income,
shareholders' equity and cash flows (including related notes and schedules, if
any) with respect to quarterly periods ended subsequent to December 31, 1996.
3.6 Absence of Material Changes or Events
Since September 30, 1997, there has not been any change in the
financial condition or results of operations of F&M or the F&M Subsidiaries
which, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect.
3.7 Absence of Undisclosed Liabilities
Neither F&M nor any F&M Subsidiary has any liability (contingent or
otherwise) that is material to F&M on a consolidated basis or that, when
combined with all similar liabilities, would be material to F&M on a
consolidated basis, except as disclosed in the F&M Financial Statements and
except for liabilities incurred in the ordinary course of business consistent
with past practice since the date of the most recent F&M Financial Statements.
3.8 Legal Proceedings; Compliance with Laws
There are no actions, suits or proceedings instituted or pending or, to
the Knowledge of F&M, threatened against any of the F&M Companies or against any
property, asset, interest or right of any of the F&M Companies or against any
officer, director or employee of any of the F&M Companies that would, if
determined adversely to F&M or any F&M Subsidiary, have a Material Adverse
Effect on F&M on a consolidated basis. To the Knowledge of F&M, the F&M
Companies have complied in all material respects with all laws, ordinances,
requirements, regulations or orders applicable to their respective businesses
(including environmental laws, ordinances, requirements, regulations or orders).
3.9 Tax Matters
The F&M Companies have filed all Tax Returns required to be filed, and
all such Tax Returns were correct and complete in all material respects. All
Taxes owed by the F&M Companies have been paid, are reflected as a liability in
the F&M Financial Statements, or are being contested in good faith and have been
Previously Disclosed in its Disclosure Schedule. Except as Previously Disclosed,
no tax return or report of the F&M Companies is under examination by any taxing
authority or the subject of any administrative or judicial proceeding, and no
unpaid tax deficiency has been asserted against the F&M Companies by any taxing
authority.
3.10 Employee Benefit Plans
(a) All F&M employee benefit plans are in compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to F&M on a consolidated basis.
(b) No F&M employee benefit plan subject to ERISA that is a defined
benefit pension plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of
the assets of any such plan exceeds the plan's `benefit liabilities,' as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan was terminated in accordance with all
applicable legal requirements.
3.11 Insurance
Each of the F&M Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the Knowledge of F&M, similar in
scope and coverage to that maintained by other entities similarly situated.
Since January 1, 1997, none of the F&M Companies has received any notice of a
premium increase or cancellation or a failure to renew with respect to any
insurance policy or bond and, within the last three fiscal years, none of the
F&M Companies has been refused any insurance coverage sought or applied for, and
F&M has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums or
unavailability of coverage that do not result from any extraordinary loss
experience on the part of the F&M Companies.
3.12 Allowance for Loan Losses
The allowance for loan losses reflected on the balance sheets included
in the F&M Financial Statements, as of their respective dates, is adequate in
all material respects under the requirements of generally accepted accounting
principles and regulatory accounting principles to provide for reasonably
anticipated losses on outstanding loans.
3.13 Environmental Matters
To the Knowledge of F&M, the F&M Companies are in substantial
compliance with all Environmental Laws. None of the F&M Companies has received
any communication alleging that F&M or any F&M Subsidiary is not in such
compliance and, to the Knowledge of F&M, there are no present circumstances that
would prevent or interfere with the continuation of such compliance.
3.14 Securities Reports
F&M has filed with the SEC all required forms, reports and documents
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). F&M's Annual Report on Form 10-K for the year ended December 31, 1996,
and all other reports, definitive proxy statements or documents filed or to be
filed by it subsequent to December 31, 1996 under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed, or to be filed, with the SEC (i)
complied or will comply in all material respects as to form with the applicable
requirements under the Exchange Act and (ii) did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
3.15 Statements True and Correct
When the Registration Statement to be filed by F&M with the SEC shall
become effective, and at all times subsequent thereto up to and including the
PBV shareholders' meeting called to consider and vote on the approval of the
Merger, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished by F&M relating to
F&M (i) shall comply in all material respects with the applicable provisions of
the federal and state securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, F&M and PBV
agree to use their reasonable best efforts in good faith to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and shall cooperate fully with the other
party hereto to that end.
4.2 Access to Information; Notice of Certain Matters;
Confidentiality
(a) F&M and PBV each will keep the other advised of all material
developments relevant to its business and to consummation of the transactions
contemplated herein. F&M and PBV each may make or cause to be made such further
investigation of the operational, financial and legal condition of the other as
such party reasonably deems necessary or advisable in connection with the
Merger, provided, however, that such investigation shall not interfere
unnecessarily with normal operations. F&M and PBV agree to furnish the other and
the other's advisors with such financial data and other information with respect
to its business and properties as such other party shall from time to time
reasonably request. No investigation pursuant to this Section 4.2 shall affect
or be deemed to modify any representation or warranty made by, or the conditions
to the obligations to consummate the Merger of, such party hereto.
(b) F&M and PBV shall give prompt notice to the other of any fact,
event or circumstance known to it that (i) is reasonably likely, individually or
taken together with all other facts, events and circumstances known to it, to
result in any Material Adverse Effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.
(c) Each party shall, and shall cause each of its directors, officers,
attorneys and advisors, to maintain the confidentiality of all information
obtained in such investigation which is not otherwise publicly disclosed by the
other party, such undertaking with respect to confidentiality to survive any
termination of this Agreement. In the event of the termination of this
Agreement, each party shall return to the furnishing party or, at the request of
the furnishing party, destroy and certify the destruction of all confidential
information previously furnished in connection with the transactions
contemplated by this Agreement.
4.3 Registration Statement; Shareholder Approval
(a) F&M and PBV agree to cooperate in the preparation of the
Registration Statement to be filed by F&M with the SEC in connection with the
issuance of F&M Common Stock in the Merger (including the proxy statement and
prospectus and other proxy solicitation materials of F&M and PBV constituting a
part thereof (the "Proxy Statement") and all related documents). F&M and PBV
agree to use all reasonable efforts to cause the Registration Statement to be
declared effective under the Securities Act of 1933, as amended (the "Securities
Act"), as promptly as reasonably practicable after filing thereof. F&M shall
also take any action required to be taken under state securities or "Blue Sky"
laws in connection with the issuance of F&M Common Stock pursuant to the Merger.
(b) PBV shall submit this Agreement and the Plan of Merger to its
shareholders at a special meeting to be held as promptly as practicable after
the Registration Statement is declared effective for the purpose of approving
the Merger. The Board of Directors of PBV shall recommend such approval, and PBV
shall take all reasonable lawful action to solicit such approval by its
shareholders; provided, however, that if the Board of Directors of PBV shall
have reasonably determined in good faith (after consultation with its counsel)
that such recommendation is reasonably likely to constitute a breach of its
fiduciary duties to the shareholders of PBV, then the Board of Directors of PBV
shall not be obligated to recommend the approval of this Agreement and Plan of
Merger.
4.4 Operation of the Business of PBV
PBV agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by F&M, during the period from the
date hereof to the Effective Date:
(a) PBV will conduct its operations only in the ordinary and usual
course of business consistent with past practice (subject, in any event, to the
provisions of paragraph (c) below) and will use its best efforts to keep
available the services of its officers and employees and maintain satisfactory
relationships with customers, suppliers, employees and others having business
relationships with them.
(b) PBV shall not take any action, engage in any transactions or enter
into any agreement which would adversely affect or delay in any material respect
the ability of F&M or PBV to obtain any necessary approvals, consents or waivers
of any governmental authority or third party required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under this Agreement.
(c) PBV will not:
(1) Other than pursuant to stock options Previously Disclosed
in its Disclosure Schedule and currently outstanding as of the date
hereof: (i) issue, sell or otherwise permit to become outstanding, or
authorize the creation of, any additional shares of capital stock, any
stock appreciation rights or any Rights; (ii) enter into any agreement
with respect to the foregoing; or (iii) permit any additional shares of
capital stock to become subject to new grants of employee stock
options, stock appreciation rights, or similar stock-based employee
rights;
(2) Enter into or amend any written employment agreement,
severance or similar agreements or arrangements with any of its
directors, officers or employees, or grant any salary or wage increase
or increase any employee benefit (including incentive or bonus
payments), except for normal individual increases in compensation to
employees in the ordinary course of business consistent with past
practice;
(3) Enter into or amend (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive, welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect
of any directors, officers or employees, including without limitation
taking any action that accelerates the vesting or exercise of any
benefits payable thereunder;
(4) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or
encumber any of its assets, nor dispose of any of its assets in any
other manner, except in the ordinary course of its business and for
adequate value, or as otherwise specifically permitted in this
Agreement;
(5) Change its lending, investment, asset/liability management
or other material banking policies in any material respect, except as
may be required by applicable law;
(6) Alter, amend or repeal its bylaws or articles of
incorporation;
(7) Take any other action which would make any
representation or warranty in Article 2 hereof untrue; or
(8)Agree or commit to do anything prohibited by this
Section 4.4.
4.5 Operation of the Business of F&M
F&M agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by PBV, during the period from the
date hereof to the Effective Date:
(a) F&M will and will cause each of the F&M Subsidiaries to conduct
their respective operations only in the ordinary and usual course of business
consistent with past practice and will use its best efforts to preserve intact
their respective business organizations, keep available the services of their
officers and employees and maintain satisfactory relationships with customers,
suppliers, employees and others having business relationships with them.
(b) F&M shall not, and shall not permit any of the F&M Subsidiaries to,
take any action, engage in any transactions or enter into any agreement which
would adversely affect or delay in any material respect the ability of F&M or
PBV to obtain any necessary approvals, consents or waivers of any governmental
authority or third party required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under this Agreement.
4.6 Dividends
F&M agrees that prior to the Effective Date PBV may declare and pay its
regular cash dividend in an amount not to exceed $0.25 per share.
4.7 No Solicitation of Other Offers
Without the prior consent of F&M, PBV shall not, and shall cause its
officers, directors, agents, advisors and affiliates not to, solicit or
encourage inquiries or proposals with respect to, furnish any information
relating to, or participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, PBV or any business combination with PBV other
than as contemplated by this Agreement. PBV shall promptly (within 24 hours)
notify F&M of its receipt of any such proposal or inquiry, of the substance
thereof, and of the identity of the person making such proposal or inquiry.
<PAGE>
4.8 Regulatory Filings
F&M and PBV shall use their reasonable best efforts to prepare and file
as soon as practicable after the date hereof all required applications for
regulatory approval of the Merger. F&M shall use its best efforts to obtain
prompt approval of each required application.
4.9 Public Announcements
Each party will consult with the other before issuing any press release
or otherwise making any public statements with respect to the Merger and shall
not issue any such press release or make any such public statement prior to such
consultations, except as may be required by law.
4.10 Accounting Treatment
F&M and PBV shall each use their best efforts to ensure that the Merger
qualifies for pooling-of-interests accounting treatment.
4.11 Affiliate Agreements
PBV has identified to F&M all persons who were, as of the date hereof,
directors or executive officers of PBV (the "Affiliates"). PBV has delivered a
written letter agreement in the form of Exhibit C hereto from each Affiliate.
4.12 Benefit Plans; Employment Agreement
(a) Upon consummation of the Merger, as soon as administratively
practicable, employees of PBV shall be entitled to participate in the F&M
pension, health and welfare benefit and similar plans on the same terms and
conditions as employees of the F&M Companies, giving effect to years of service
for purposes of eligibility to participate, eligibility for benefits, and
vesting with PBV as if such service were with F&M.
(b) F&M shall enter into a severance agreement, effective as of the
Effective Date, with Quentin L. Corbett in the form provided in Exhibit D
hereto.
4.13 NYSE Listing
F&M shall use its reasonable best efforts to list, as of the Effective
Date, on the New York Stock Exchange upon official notice of issuance, the
shares of F&M Common Stock to be issued in the Merger.
4.14 Indemnification
Following the Effective Date and for a period of six years thereafter,
F&M shall indemnify, defend and hold harmless any person who has rights to
indemnification from PBV, to the same extent and on the same conditions as such
person is entitled to indemnification pursuant to applicable law and PBV's
Articles of Incorporation or Bylaws, as in effect on the date of this Agreement,
to the extent legally permitted to do so with respect to matters occurring on or
prior to the Effective Date. Without limiting the foregoing, in any case in
which corporate approval may be required to effectuate any indemnification, F&M
shall direct, at the election of the party to be indemnified, that the
determination of permissibility of indemnification shall be made by independent
counsel mutually agreed upon between F&M and the indemnified party. F&M shall
use its reasonable best efforts to maintain PBV's existing directors' and
officers' liability policy, or some other policy, including F&M's existing
policy, providing at least comparable coverage, covering persons who are
currently covered by such insurance of PBV for a period of three years after the
Effective Date on terms no less favorable than those in effect on the date
hereof.
<PAGE>
4.15 Stock Option Agreement
PBV shall grant to F&M an option to acquire such number of shares of
PBV Common Stock that would equate to 19.9% of the issued and outstanding common
stock of PBV as of the date hereof, all in accordance with the Option Agreement.
ARTICLE 5
CONDITIONS TO THE MERGER
5.1 General Conditions
The respective obligations of each of F&M and PBV to effect the Merger
shall be subject to the fulfillment or waiver at or prior to the Effective Date
of the following conditions:
(a) Corporate Action. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby shall have been duly and validly taken,
including without limitation the approval of the shareholders of PBV.
(b) Registration Statement; NYSE Listing. The Registration Statement
shall have been declared effective under the Securities Act, and F&M shall
received all state securities laws or "blue sky" permits and other
authorizations or there shall be exemptions from registration requirements
necessary to issue F&M Common Stock in connection with the Merger, and neither
the Registration Statement nor any such permit or authorization shall be subject
to a stop order or any threatened stop order of the SEC or any state securities
commissioner. The shares of F&M Common Stock to be issued in connection with the
Merger shall have been approved for listing on the New York Stock Exchange.
(c) Regulatory Approvals. F&M and PBV shall have received all
regulatory approvals required in connection with the transactions contemplated
by this Agreement, all notice periods and waiting periods required after the
granting of any such approvals shall have passed, and all such approvals shall
be in effect; provided, however, that no such approvals shall have imposed any
condition or requirement which, in the reasonable opinion of the Boards of
Directors of F&M or PBV, would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement as to
render consummation of the Merger inadvisable or unduly burdensome.
(d) Tax Opinion. F&M and PBV shall have received the opinion of LeClair
Ryan, A Professional Corporation, counsel to F&M, in form and substance
satisfactory to F&M and PBV and dated as of the Effective Date to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that no gain or loss will be recognized by the
shareholders of PBV to the extent they receive F&M Common Stock solely in
exchange for their PBV Common Stock in the Merger. In rendering its opinions,
such counsel may rely upon representations contained in certificates of officers
of F&M, PBV and others.
(e) Opinions of Counsel. PBV shall have delivered to F&M and F&M shall
have delivered to PBV opinions of counsel, dated as of the Effective Date, as to
such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(f) Legal Proceedings. Neither F&M nor PBV shall be subject to any
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger.
(g) Accountants' Letters. F&M and PBV shall have received a letter,
dated as of the Effective Date, from Yount, Hyde & Barbour, P.C., satisfactory
in form and substance to F&M and PBV, that the Merger will qualify for
pooling-of-interests accounting treatment.
5.2 Conditions to Obligations of F&M
The obligations of F&M to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of PBV set forth in Article 2 shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on the Effective Date,
except (i) for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, (ii) as expressly
contemplated by this Agreement, or (iii) for representations and warranties the
inaccuracies of which relate to matters that, individually or in the aggregate,
do not materially adversely affect the Merger and the other transactions
contemplated by this Agreement.
(b) Performance of Obligations. PBV shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. PBV shall have delivered to F&M a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.2(a) and
5.2(b) have been satisfied.
5.3 Conditions to Obligations of PBV
The obligations of PBV to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of F&M set forth in Article 3 shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on the Effective Date,
except (i) for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, (ii) as expressly
contemplated by this Agreement, or (iii) for representations and warranties the
inaccuracies of which relate to matters that, individually or in the aggregate,
do not materially adversely affect the Merger and the other transactions
contemplated by this Agreement.
(b) Performance of Obligations. F&M shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. F&M shall have delivered to PBV a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c),
5.3(a) and 5.3(b) have been satisfied.
(d) Investment Banking Letter. PBV shall have received an updated
fairness opinion from Scott & Stringfellow, Inc., financial advisor to PBV,
addressed to PBV and dated on or about the date the Proxy Statement is mailed to
shareholders of PBV, to the effect that the terms of the Merger are fair to the
shareholders of PBV from a financial point of view.
ARTICLE 6
TERMINATION
6.1 Termination
This Agreement and the Plan of Merger may be terminated at any time
before the Effective Date, whether before or after approval thereof by the
shareholders of F&M at the F&M Meeting or the shareholders of PBV at the PBV
Meeting, respectively, as provided below:
(a) Mutual Consent. By the mutual consent in writing of F&M and PBV.
(b) Closing Delay. At the election of either party, evidenced by
written notice, if the Effective Date shall not have occurred on or before July
31, 1998, or such later date as shall have been agreed to in writing by the
parties; provided, however, that the right to terminate under this Section
6.1(b) shall not be available to either party whose failure to perform an
obligation hereunder has been the cause of, or has resulted in, the failure of
the Effective Date to occur on or before such date.
(c) Conditions to F&M Performance Not Met. By F&M upon delivery of
written notice of termination to PBV if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of F&M to effect the Merger set forth in Sections
5.1 and 5.2, and such noncompliance is not waived by F&M.
(d) Conditions to PBV Performance Not Met. By PBV upon delivery of
written notice of termination to F&M if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of PBV to effect the Merger set forth in Sections
5.1 and 5.3, and such noncompliance is not waived by PBV.
(e) Due Diligence Review of PBV. By F&M in writing at any time prior to
December 8, 1997 if F&M determines in its sole good faith judgment that the
financial condition, business or prospects of PBV are materially adversely
different from what was reasonably expected by F&M after the performance of its
due diligence prior to the execution of this Agreement; provided that F&M shall
inform PBV upon such termination of the reasons for F&M's determination and,
provided further, that this Section 6.1(e) shall not limit in any way the due
diligence investigation of PBV which F&M may perform or otherwise affect any
other rights which F&M has after the date hereof and after December 8, 1997,
under the terms of this Agreement.
(f) Due Diligence Review of F&M. By PBV in writing at any time prior to
December 8, 1997, if PBV determines in its sole good faith judgment that the
financial condition, business or prospects of F&M are materially adversely
different from what was reasonably expected by PBV after the performance of its
due diligence prior to the execution of this Agreement; provided that PBV shall
inform F&M upon such termination of the reasons for PBV's determination and,
provided further, that this Section 6.1(f) shall not limit in any way the due
diligence investigation of F&M which PBV may perform or otherwise affect any
other rights which PBV has after the date hereof and after December 8, 1997,
under the terms of this Agreement.
6.2 Effect of Termination
In the event this Agreement is terminated pursuant to Section 6.1
hereof, both this Agreement and the Plan of Merger shall become void and have no
effect, except that (i) the provisions hereof relating to confidentiality, press
releases and expenses set forth in Sections 4.2, 4.9 and 6.4, respectively,
shall survive any such termination and (ii) a termination pursuant to 6.1(c) or
6.1(d) hereof shall not relieve the breaching party from liability for an
uncured intentional breach of any provision of this Agreement giving rise to
such termination.
6.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement and the
Plan of Merger shall not survive the Effective Date and shall be terminated and
extinguished at the Effective Date. From and after the Effective Date, the
parties hereto shall have no liability to the other on account of any breach of
any of those representations, warranties and covenants; provided, however, that
the foregoing clause shall not (i) apply to agreements of the parties which by
their terms are intended to be performed after the Effective Date, and (ii)
shall not relieve any person for liability for fraud, deception or intentional
misrepresentation.
6.4 Fees and Expenses
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that printing expenses shall be
shared equally between F&M and PBV.
(b) Notwithstanding any provision in this Agreement to the contrary, if
for any reason the Merger is not approved by PBV's shareholders at the PBV
Meeting or any adjournment thereof, then PBV shall reimburse F&M for one-half of
its reasonable out-of-pocket and other expenses incurred by F&M in connection
with entering into this Agreement and the transactions contemplated hereunder,
provided that the maximum amount that PBV shall be responsible to F&M under this
Section 6.4(b) shall be limited to $50,000.
(c) If this Agreement is terminated by F&M or PBV because of a willful
and material breach by the other of any representation, warranty, covenant,
undertaking or restriction set forth herein, and provided that the terminating
party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall reimburse the other party for all
reasonable out-of-pocket expenses incurred by it in connection with the
transactions contemplated by this Agreement and the enforcement of its rights
hereunder.
(d) Final settlement with respect to the reimbursement of such fees and
expenses by the parties shall be made within thirty days after the termination
of this Agreement.
<PAGE>
ARTICLE 7
GENERAL PROVISIONS
7.1 Entire Agreement
This Agreement contains the entire agreement among F&M and PBV with
respect to the Merger and the related transactions and supersedes all prior
arrangements or understandings with respect thereto.
7.2 Binding Effect; No Third Party Rights
This Agreement shall bind F&M and PBV and their respective successors
and assigns. Other than Section 4.14, nothing in this Agreement is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights or remedies under or by reason of this Agreement.
7.3 Waiver and Amendment
Any term or provision of this Agreement may be waived in writing at any
time by the party that is, or whose shareholders are, entitled to the benefits
thereof, and this Agreement may be amended or supplemented by a written
instrument duly executed by the parties hereto at any time, whether before or
after the later of the date of the PBV Meeting, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
7.4 Governing Law
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia without regard to the conflict of law
principles thereof.
7.5 Notices
All notices or other communications that are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to F&M:
Alfred B. Whitt
F&M National Corporation
38 Rouss Avenue
P. O. Box 2800
Winchester, Virginia 22604
(Tele: (540) 665-4282)
<PAGE>
Copy to:
George P. Whitley, Esquire
LeClair Ryan, A Professional Corporation
707 East Main Street; 11th Floor
Richmond, Virginia 23219
(Tele: (804) 783-2003)
If to PBV:
Quentin L. Corbett
Peoples Bank of Virginia
9970 Iron Bridge Road
P.O. Drawer 728
Chesterfield, Virginia 23832-0728
(Tele: (804) 271-5000)
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tele: (804) 783-6473)
7.6 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same agreement.
7.7 Severability
In the event that any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof. Any provision of
this Agreement held invalid or unenforceable only in part or degree shall remain
in full force and effect to the extent not held invalid or unenforceable.
Further, the parties agree that a court of competent jurisdiction may reform any
provision of this Agreement held invalid or unenforceable so as to reflect the
intended agreement of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the date first written above.
F&M NATIONAL CORPORATION
Winchester, Virginia
By: /s/ Jack R. Huyett
----------------------------
Jack R. Huyett
President and Chief
Administrative Officer
F&M BANK-RICHMOND
Richmond, Virginia
By: /s/ James H. Atkinson, Jr.
-----------------------------
James H. Atkinson, Jr.
President
PEOPLES BANK OF VIRGINIA
Chesterfield, Virginia
By: /s/ Quentin L. Corbett
-----------------------------
Quentin L. Corbett
President
<PAGE>
EXHIBIT A
To the Agreement and
Plan of Reorganization
PLAN OF MERGER
BETWEEN
F&M BANK-RICHMOND
AND
PEOPLES BANK OF VIRGINIA
Pursuant to this Plan of Merger ("Plan of Merger"), Peoples Bank of
Virginia, a Virginia banking corporation ("PBV"), shall merge with and into F&M
Bank-Richmond, a wholly-owned Virginia banking subsidiary of F&M National
Corporation.
ARTICLE I
TERMS OF THE MERGER
1.1 The Merger
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of December 1, 1997, by and among F&M National
Corporation, a Virginia corporation ("F&M"), F&M Bank-Richmond and PBV (the
"Agreement"), at the Effective Date PBV shall be merged with and into F&M
Bank-Richmond (the "Merger") in accordance with the provisions of Virginia law
and with the effect specified in Section 13.1-721 of the Virginia Stock
Corporation Act. F&M Bank-Richmond shall be the surviving corporation of the
Merger, and its name shall remain F&M Bank-Richmond (F&M Bank-Richmond as
existing on and after the Effective Date is sometimes referred to as the
"Continuing Bank"). The Merger shall become effective on such date and time as
may be determined in accordance with Section 1.5 of the Agreement (the
"Effective Date").
1.2 Articles of Incorporation and Bylaws
The Articles of Incorporation and Bylaws of F&M Bank-Richmond in effect
immediately prior to the consummation of the Merger shall remain in effect
following the Effective Date until otherwise amended or repealed.
ARTICLE II
MANNER OF CONVERTING SHARES
2.1 Conversion of Shares
Upon and by reason of the Merger becoming effective, no cash shall be
allocated to the shareholders of PBV and stock shall be issued and allocated as
follows:
(a) At the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof, each share of common stock, par value
$10.00 per share, of PBV ("PBV Common Stock") issued and outstanding immediately
prior to the Effective Date shall cease to be outstanding and shall be converted
into and exchanged for 2.58 shares of common stock, par value $2.00 per share,
of F&M ("F&M Common Stock") pursuant to the terms and conditions set forth in
the Agreement and this Plan of Merger (the "Exchange Ratio").
(b) Each holder of a certificate representing shares of PBV Common
Stock upon the surrender of his PBV stock certificates to the Exchange Agent (as
defined in Section 2.2), duly endorsed for transfer in accordance with Section
2.2 below, will be entitled to receive in exchange therefor a certificate or
certificates representing the number of whole shares of F&M Common Stock that
his shares shall be converted into pursuant to the Exchange Ratio. Each such
holder of PBV Common Stock shall have the right to receive the consideration
described in this Section 2.1 and Section 2.3 upon the surrender of such
certificate in accordance with Section 2.2.
(c) In the event F&M changes (or establishes a record date for
changing) the number of shares of F&M Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding F&M
Common Stock and the record date therefor shall be prior to the Effective Date,
appropriate and proportional adjustments will be made to the Exchange Ratio.
(d) Each share of common stock of F&M Bank-Richmond issued and
outstanding immediately prior to the Effective Date shall continue unchanged as
an outstanding share of common stock of the Continuing Bank.
(e) From and after the Effective Date, all employee and director stock
options to purchase shares of PBV Common Stock (each, a "PBV Stock Option"),
that are then outstanding and unexercised, shall be converted into and become
options to purchase shares of F&M Common Stock, and F&M shall assume each such
PBV Stock Option in accordance with the terms of the plan and agreement by which
it is evidenced; provided, however, that from and after the Effective Date (i)
each such PBV Stock Option assumed by F&M may be exercised solely to purchase
shares of F&M Common Stock, (ii) the number of shares of F&M Common Stock
purchasable upon exercise of such PBV Stock Option shall be equal to the number
of shares of PBV Common Stock that were purchasable under such PBV Stock Option
immediately prior to the Effective Date multiplied by the Exchange Ratio and
rounding down to the nearest whole share, with cash being paid for any
fractional share interest that otherwise would be purchasable, and (iii) the per
share exercise price under each such PBV Stock Option shall be adjusted by
dividing the per share exercise price of each such PBV Stock Option by the
Exchange Ratio, and rounding down to the nearest cent. The terms of each PBV
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction with respect to F&M Common Stock
on or subsequent to the Effective Date. It is intended that the foregoing
assumption shall be effected in a manner that is consistent with the
requirements of Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code") as to any PBV Stock Option that is an "incentive stock option" (as
defined in Section 422 of the Code).
2.2 Manner of Exchange of PBV Common Stock Certificates
As promptly as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent ("Exchange
Agent"), to send to each former holder of record of PBV Common Stock immediately
prior to the Effective Date transmittal materials for use in exchanging such
shareholder's certificates of PBV Common Stock for the consideration set forth
in Section 2.1 above. Any dividends paid on any shares of F&M Common Stock that
such shareholder shall be entitled to receive prior to the delivery to the
Exchange Agent of such shareholder's certificates representing all of such
shareholder's shares of PBV Common Stock, will be delivered to such shareholder
only upon delivery to the Exchange Agent of the certificates representing all of
such shares (or indemnity satisfactory to F&M and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
2.3 No Fractional Shares
No certificates or scrip for fractional shares of F&M Common Stock will
be issued. In lieu thereof, F&M will pay the value of such fractional shares in
cash on the basis of the Average Closing Price of F&M Common Stock. As used
herein, "Average Closing Price" shall mean the average closing price of F&M
Common Stock as reported on the New York Stock Exchange for each of the ten
consecutive trading days ending on the fifth business day prior to the Effective
Date.
2.4 Dividends
No dividend or other distribution payable to the holders of record of
F&M Common Stock at or as of any time after the Effective Date shall be paid to
the holder of any certificate representing shares of PBV Common Stock issued and
outstanding at the Effective Date until such holder physically surrenders such
certificate for exchange as provided in Section 2.2 of this Plan of Merger,
promptly after which time all such dividends or distributions shall be paid
(without interest).
ARTICLE III
BOARD OF DIRECTORS
At the Effective Date, the Board of Directors of the Continuing Bank
shall consist of all the current directors of each of F&M Bank-Richmond and PBV.
ARTICLE IV
CONDITIONS PRECEDENT
The obligations of F&M, F&M Bank-Richmond and PBV to effect the Merger
as herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Agreement.
ARTICLE V
TERMINATION
This Plan of Merger may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 6 of the Agreement.
<PAGE>
APPENDIX II
STOCK OPTION AGREEMENT
<PAGE>
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of December 1, 1997 (the "Option
Agreement"), by and between PEOPLES BANK OF VIRGINIA, a Virginia banking
corporation ("PBV"), and F&M NATIONAL CORPORATION, a Virginia corporation
("F&M").
WITNESSETH
WHEREAS, the Boards of Directors of the parties hereto approved an
Agreement and Plan of Reorganization (the "Reorganization Agreement") and have
adopted a related Plan of Merger, dated as of the date hereof (together referred
to herein as the "Merger Agreements"), providing for the merger of PBV with and
into F&M Bank-Richmond, a wholly-owned Virginia banking subsidiary of F&M (the
"Merger"); and
WHEREAS, as a condition to and as consideration for F&M's entry into
the Merger Agreements and to induce such entry, PBV has agreed to grant to F&M
the option set forth herein to acquire authorized but unissued shares of PBV
Common Stock.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions
Capitalized terms used but not defined herein and defined in the Merger
Agreements shall have the same meanings as in the Merger Agreements.
2. Grant of Option
Subject to the terms and conditions set forth herein, PBV hereby grants
to F&M an option (the "Option") to acquire up to 59,970 shares of PBV Common
Stock at a price of $33.00 per share (the "Exercise Price") in exchange for the
consideration provided in Section 4 hereof; provided, however, that in the event
PBV issues or agrees to issue any shares of PBV Common Stock (other than as
permitted under the Merger Agreements) at a price less than $33.00 per share (as
adjusted pursuant to Section 6 hereof), the Exercise Price shall be equal to
such lesser price. Notwithstanding anything else in this Option Agreement to the
contrary, the number of shares of PBV Common Stock subject to the Option shall
be reduced if and to the extent necessary so that the number of shares for which
this Option is exercisable shall not exceed 19.9% of the issued and outstanding
shares of PBV Common Stock, before giving effect to the exercise of the Option.
The number of shares of PBV Common Stock that may be received upon the exercise
of the Option is subject to adjustment as set forth herein.
3. Exercise of Option
(a) Subject to compliance with applicable law and regulation, F&M may
exercise the Option, in whole or part, at any time or from time to time if a
Purchase Event (as defined below) shall have occurred and be continuing.
(b) PBV shall notify F&M promptly in writing of the occurrence of any
transaction, offer or event giving rise to a Purchase Event. If more than one of
the transactions, offers or events giving rise to a Purchase Event is undertaken
or effected by the same person or occurs at the same time, then all such
transactions, offers and events shall give rise only to one Purchase Event,
which Purchase Event shall be deemed continuing for all purposes hereof until
all such transactions are terminated or abandoned by such person and all such
events have ceased or ended.
(c) In the event that F&M wishes to exercise the Option, it shall send
PBV a written notice (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of shares it will acquire pursuant to
such exercise, and (ii) a place and date not earlier than three business days
nor later than 60 business days from the Notice Date for the closing of such
transaction (the "Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such acquisition, F&M shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of: (i) the Effective Time of the Merger; (ii) upon
termination of the Merger Agreements in accordance with the provisions thereof,
other than a termination based upon, following or in connection with either (A)
a material breach by PBV of a Specified Covenant (as defined below) or (B) the
failure of PBV to obtain shareholder approval of the Merger Agreements by the
vote required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or (iii) 12 months after termination of the
Merger Agreements based upon a material breach by PBV of a Specified Covenant or
the failure of PBV to obtain shareholder approval of the Merger Agreements by
the vote required under applicable law, in either case following the occurrence
of a Purchase Event.
(e) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(1) PBV, without having received F&M's prior written consent, shall
have entered into an agreement with any person to (i) acquire, merge or
consolidate, or enter into any similar transaction, with PBV, (ii)
purchase, lease or otherwise acquire all or substantially all of the
assets of PBV, or (iii) purchase or otherwise acquire directly from PBV
securities representing 10% or more of the voting power of PBV;
(2) any person shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 20% or more of the outstanding
shares of PBV Common Stock after the date hereof (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder); or
(3) any person shall have made a bona fide proposal to PBV by
public announcement or written communication that is or becomes the
subject of public disclosure to acquire PBV by merger, share exchange,
consolidation, purchase of all or substantially all of its assets or
any other similar transaction, and following such bona fide proposal
the shareholders of PBV vote not to approve the Merger Agreements.
(f) As used herein, "Specified Covenant" means any covenant
or agreement contained in the Merger Agreements.
4. Payment and Delivery of Certificates
(a) At the Closing Date, F&M shall tender certified funds in an amount
equal to the aggregate Exercise Price for the number of shares with respect to
which F&M is exercising the Option.
(b) At such closing, PBV shall deliver to F&M a certificate or
certificates representing the number of shares of PBV Common Stock exchanged for
the Exercise Price and F&M shall deliver to PBV a letter agreeing that F&M will
not offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Option Agreement.
(c) Certificates for PBV Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend which shall read substantially as
follows:
"The transfer of the shares represented by this
Certificate is subject to certain provisions of an agreement
between the registered holder hereof and Peoples Bank of
Virginia and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement
is on file at the principal office of Peoples Bank of
Virginia. A copy of such agreement will be provided to the
holder thereof without charge upon receipt by Peoples Bank of
Virginia of a written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if F&M shall have delivered to
PBV a copy of a letter from the staff of the Securities and Exchange Commission
(the "Commission"), or an opinion of counsel, in form and substance satisfactory
to PBV, to the effect that such legend is not required for purposes of the
Securities Act of 1933 (the "Securities Act").
5. Representations
PBV hereby represents, warrants and covenants to F&M as follows:
(a) PBV shall at all times maintain sufficient authorized but unissued
shares of PBV Common Stock so that the Option may be exercised without
authorization of additional shares of PBV Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. Adjustment Upon Changes in Capitalization
In the event of any change in PBV Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of PBV Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement or pursuant to the exercise of [warrants or]
options to acquire shares of PBV Common Stock outstanding as of the date of the
Merger Agreements or that may be issued after the date of the Merger Agreements
without constituting a breach thereof), the number of shares of PBV Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
19.9% of the number of shares of PBV Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option or
any shares issued pursuant to the exercise of options to acquire shares of PBV
Common Stock outstanding as of the date of the Merger Agreements or that may be
issued after the date of the Merger Agreements without constituting a breach
thereof. Nothing contained in this Section 6 shall be deemed to authorize PBV to
breach any provision of the Merger Agreements.
7. Registration Rights
PBV shall, if requested by F&M, as expeditiously as possible file a
registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of PBV
Common Stock that are acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by F&M. F&M shall
provide all information reasonably requested by PBV for inclusion in any
registration statement to be filed hereunder. PBV will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 270 days from the date on which such
registration statement first becomes effective as may be reasonably necessary to
effect such sales or other dispositions. The first registration effected under
this Section 7 shall be at PBV's expense except for underwriting commissions and
the fees and disbursements of F&M's counsel attributable to the registration of
such PBV Common Stock. A second registration statement may be requested
hereunder at F&M's expense. In no event shall PBV be required to effect more
than two registrations hereunder. The filing of any registration statement
hereunder may be delayed for such period of time as may reasonably be required
to facilitate any public distribution by PBV of PBV Common Stock. If requested
by F&M, in connection with any such registration, PBV will become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. Upon receiving any request from F&M or an assignee of F&M under this
Section 7, PBV agrees to send a copy thereof to F&M and to any assignee of F&M
known to PBV, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
8. Severability
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option Agreement will not permit the holder to
acquire the full number of shares of PBV Common Stock provided in Section 2
hereof (as adjusted pursuant to Section 6 hereof), it is the express intention
of PBV to allow the holder to acquire, or to require PBV to repurchase to the
extent permitted under applicable law, such number of shares as may be necessary
to comply with such court or regulatory agency's determination of the
permissible number of shares, without any amendment or modification hereof.
<PAGE>
9. Miscellaneous
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation to any of its wholly-owned
subsidiaries, and F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation in the event a Purchase
Event shall have occurred and F&M shall have delivered to PBV a copy of a letter
from the staff of the Commission, or an opinion of counsel, in form and
substance reasonably satisfactory to PBV, to the effect that such assignment
will not violate the requirements of the Securities Act; provided that prior to
any such assignment, F&M shall give written notice of the proposed assignment to
PBV, and within 24 hours of such notice of a bona fide proposed assignment, PBV
may purchase the Option at a price and on other terms at least as favorable to
F&M as that set forth in the notice of assignment.
(d) Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the address provided for in or pursuant to Section 7.5 of the
Reorganization Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without
regard to the conflicts of laws principles thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed
this Option Agreement as of the day and year first written above.
PEOPLES BANK OF VIRGINIA
By: /s/ Quentin L. Corbett
--------------------------------
Quentin L. Corbett
President
F&M NATIONAL CORPORATION
By: /s/ Alfred B. Whitt
--------------------------------
Alfred B. Whitt
Senior Vice President
<PAGE>
APPENDIX III
OPINION OF SCOTT & STRINGFELLOW, INC.
<PAGE>
January 12, 1998
Board of Directors
Peoples Bank of Virginia
9970 Iron Bridge Road
Chesterfield, Virginia 23832
Gentlemen:
You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of Peoples Bank of Virginia
("PBV") of the terms of an Agreement and Plan of Reorganization by and among F&M
National Corporation ("F&M"), F&M Bank-Richmond ("F&M Bank-Richmond") and PBV
dated December 1, 1997 and a related Plan of Merger (collectively the
"Agreement"). The Agreement provides for the merger of PBV with and into F&M
Bank-Richmond (the "Merger") and further provides that each share of Common
Stock of PBV which is issued and outstanding immediately prior to the Effective
Date of the Merger shall be exchanged for 2.58 shares of F&M Common Stock (the
"Exchange Ratio").
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Agreement; (2) the Registration Statement and this Proxy
Statement/Prospectus (3) PBV's financial statements for the three years ended
December 31, 1996; (4) PBV's unaudited financial statements for the nine months
ended September 30, 1997 and 1996, and other internal information relating to
PBV prepared by PBV's management; (5) information regarding the trading market
for the common stocks of PBV and F&M and the price ranges within which the
respective stocks have traded; (6) the relationship of prices paid to relevant
financial data such as net worth, assets, deposits and earnings in certain bank
and bank holding company mergers and acquisitions in Virginia in recent years;
(7) F&M's annual reports to shareholders and its financial statements for the
three years ended December 31, 1996; and (8) F&M's unaudited financial
statements for the nine months ended September 30, 1997 and 1996, and other
internal information relating to F&M prepared by F&M's management. We have
discussed with members of management of PBV and F&M the background to the
Merger, reasons and basis for the Merger and the business and future prospects
of PBV and F&M individually and as a combined entity. Finally, we have conducted
such other studies, analyses and investigations, particularly of the banking
industry, and considered such other information as we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of PBV and F&M. We have not attempted independently to verify
such information, nor have we made any independent appraisal of the assets of
PBV or F&M. We have taken into account our assessment of general economic,
financial market and industry conditions as they exist and can be evaluated at
the date hereof, as well as our experience in business valuation in general.
On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof the terms
of the Agreement are fair from a financial point of view to the shareholders of
PBV Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By:
Gary S. Penrose
Managing Director
Financial Institutions Group
<PAGE>
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
The laws of the Commonwealth of Virginia pursuant to which the Company
is incorporated permit it to indemnify its officers and directors against
certain liabilities with the approval of its shareholders. The articles of
incorporation of the Company, which have been approved by its shareholders,
provide for the indemnification of each director and officer (including former
directors and officers and each person who may have served at the request of the
Company as a director or officer of any other legal entity and, in all such
cases, his or her heirs, executors and administrators) against liabilities
(including expenses) reasonably incurred by him or her in connection with any
actual or threatened action, suit or proceeding to which he or she may be made
party by reason of his or her being or having been a director or officer of the
Company, except in relation to any action, suit or proceeding in which he or she
has been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
<TABLE>
<S> <C>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
1 Not Applicable
2.1 Agreement and Plan of Reorganization, dated December 1, 1997, among F&M National
Corporation ("F&M"), F&M Bank-Richmond and Peoples Bank of Virginia ("PBV") and a
related Plan of Merger, filed as Appendix I to the Proxy Statement/Prospectus included
in this Registration Statement.
2.2 Stock Option Agreement, dated December 1, 1997,
between F&M and PBV filed as Appendix II to the Proxy
Statement/Prospectus included in this Registration
Statement.
3.1 Articles of Incorporation of F&M. Incorporated herein by reference to Exhibit 3.1 to
F&M's Registration Statement on Form S-4 (Registration No. 33-45717).
3.2 Bylaws of F&M. Incorporated herein by reference to F&M's Registration Statement on
Form S-4 (Registration No. 33-45717).
5 Opinion of LeClair Ryan, A Professional Corporation, regarding the legality of the
securities being registered and consent.
Exhibit No. Description of Exhibit
8.1 Form of tax opinion of LeClair Ryan, A
Professional Corporation, regarding the tax-free
nature of the acquisition of F&M and PBV.
21 Subsidiaries of F&M: F&M Bank-Winchester; F&M
Bank-Central Virginia; F&M Bank-Emporia; F&M
Bank-Northern Virginia; F&M Bank-Massanutten; F&M
Bank-Peoples; F&M Bank-Richmond; F&M Bank-Blakely;
F&M Bank-Keyser; F&M Bank-Martinsburg; F&M Trust
Company; Big Apple Mortgage Company; Apple Title
Company; Winchester Credit Corporation; Credit Bureau
of Winchester, Inc.
23.1 Consent of Yount, Hyde & Barbour, P.C., as accountants for F&M.
23.2 Consent of Deloitte & Touche, LLP, as accountants for PBV.
23.3 Consent of LeClair Ryan, (included as part of Exhibit 5).
23.4 Consent of Scott & Stringfellow, Inc. relating to inclusion of its opinion given to
PBV in the Proxy Statement/Prospectus included in this Registration Statement.
99.1 Form of proxy of PBV.
(b) No financial statement schedules are required to be filed herewith pursuant to Item 21(b) of
this Form.
</TABLE>
Item 22. Undertakings
(a) Item 512 of Regulation S-K.
Rule 415 offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Filings incorporating subsequent Exchange Act documents by reference.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Registration on Form S-4. (1) The undersigned registrant hereby
undertakes as follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Request for acceleration of effective date or filing registration
statement on Form S-8. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payments by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) Item 22(b) of Form S-4
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) Item 22(c) of Form S-4
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Winchester,
Commonwealth of Virginia on January 14, 1998.
F&M NATIONAL CORPORATION
By: /s/ Alfred B. Whitt
------------------------------------------
Alfred B. Whitt, Vice Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints
Alfred B. Whitt and Charles E. Curtis, and each of them singly, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all registration statements or applications to the
Securities and Exchange Commission, the regulatory authorities of any state in
the United States or any other regulatory authorities as may be necessary to
permit shares of Common Stock of the Company to be offered in the United States
in connection with the proposed merger of Peoples Bank of Virginia with and into
F&M Bank-Richmond, including without limitation any and all amendments or
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission or any other such regulatory authority,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite or necessary to be done to
enable F&M National Corporation to comply with the provisions of the Securities
Act of 1933, and all requirements of the Securities and Exchange Commission as
well as all other laws, rules and regulations relating to the offer and sale of
securities.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C>
/s/ W. M. Feltner Chairman of the Board and Chief January 14, 1998
- --------------------------------------------------
W. M. Feltner Executive Officer and Director
(Principal Executive Officer)
/s/ Alfred B. Whitt Vice Chairman, President and Chief January 14, 1998
- --------------------------------------------------
Alfred B. Whitt Financial Officer and Director
(Principal Financial Officer)
/s/ Charles E. Curtis Vice Chairman, Chief Administrative January 14, 1998
- --------------------------------------------------
Charles E. Curtis Officer and Director
/s/ Frank Armstrong Director January 14, 1998
- -------------------------------------------------
Frank Armstrong
/s/ William H. Clement Director January 14, 1998
- --------------------------------------------------
William H. Clement
Director
- --------------------------------------------------
John R. Fernstrom
/s/ William R. Harris Director January 14, 1998
- --------------------------------------------------
William R. Harris
/s/ L. David Horner, III Director January 14, 1998
- --------------------------------------------------
L. David Horner, III
/s/ Jack R. Huyett Director January 14, 1998
- --------------------------------------------------
Jack R. Huyett
/s/ George L. Romine Director January 14, 1998
- --------------------------------------------------
George L. Romine
/s/ John S. Scully, III Director January 14, 1998
- --------------------------------------------------
John S. Scully, III
/s/ J. D. Shockey, Jr. Director January 14, 1998
- --------------------------------------------------
J. D. Shockey, Jr.
/s/ Ronald W. Tydings Director January 14, 1998
- --------------------------------------------------
Ronald W. Tydings
/s/ Fred G. Wayland, Jr. Director January 14, 1998
- --------------------------------------------------
Fred G. Wayland, Jr.
</TABLE>
(804) 343-4089
2994.012
January 22, 1998
F&M National Corporation
P. O. Box 2800
Winchester, Virginia 22604
Ladies and Gentlemen:
We have acted as counsel to F&M National Corporation, a Virginia
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Company (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission"), relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of a maximum of 795,202 shares (the "Shares") of the
Company's common stock, par value $2.00 per share, issuable pursuant to the
Agreement and Plan of Reorganization, dated as of December 1, 1997, by and among
the Company, F&M Bank-Richmond and Peoples Bank of Virginia ("PBV"), and the
related Plan of Merger (collectively, the "Agreement"), whereby each share of
PBV common stock, par value $10.00 per share ("PBV Common Stock"), will be
exchanged for shares of Company common stock pursuant to the terms set forth in
the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and By-laws of the Company, as
amended and as currently in effect; (iii) certain resolutions of the Board of
Directors of the Company relating to the issuance of the Shares and the other
transactions contemplated by the Registration Statement; (iv) the Agreement; and
(v) such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such copies. As to any facts material to this opinion that we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon the foregoing, we are of the opinion that if and when issued
in exchange for shares of PBV Common Stock pursuant to the terms of the
Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the Commonwealth of Virginia and the federal law of the United States of
America.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our name under
the caption "Legal Matters" in the Proxy Statement/Prospectus constituting a
part of the Registration Statement.
Sincerely,
LECLAIR RYAN
A Professional Corporation
By: /s/George P. Whitley
-----------------------------------------
George P. Whitley
Vice President
GPW/lsr
EXHIBIT 8.1
[Form of Tax Opinion]
January _____, 1998
F&M National Corporation Peoples Bank of Virginia
9 Court Square 9970 Iron Bridge Road
Post Office Box 2800 Chesterfield, Virginia 23832
Winchester, Virginia 22604
Tax Opinion Relating to the Acquisition of
Peoples Bank of Virginia by F&M National Corporation
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger of Peoples Bank of Virginia, a Virginia
chartered banking corporation ("PBV"), with and into F&M Bank-Richmond, a
Virginia chartered banking corporation and wholly-owned subsidiary of F&M
National Corporation ("F&M"), pursuant to an Agreement and Plan of
Reorganization, dated as of December 1, 1997 and a related Plan of Merger
(collectively, the "Agreement"), by and among PBV, F&M and F&M Bank-Richmond.
The Merger
Pursuant to the Agreement and the Plan of Merger (the "Plan") attached
as Exhibit A to the Agreement, and subject to various regulatory approvals, PBV
will be merged with and into F&M Bank-Richmond in accordance with the provisions
of, and with the effect provided in, the Virginia Stock Corporation Act (the
"Merger"). Upon consummation of the Merger, F&M will continue to serve as the
parent holding company for F&M Bank-Richmond and its other subsidiary banks, all
of which will continue to conduct their businesses in substantially the same
manner as prior to the Merger.
At the effective date of the Merger, and pursuant to the Plan, each
share of common stock of PBV ("PBV Common Stock") will be exchanged for and
converted into 2.58 shares of common stock of F&M ("F&M Common Stock"), plus
cash in lieu of issuing fractional shares of F&M Common Stock.
Our Examination
In connection with the preparation of this opinion, we have examined
such documents concerning the Merger as we have deemed necessary. We have based
our conclusions on the Internal Revenue Code of 1986 (the "Code") and the
regulations promulgated pursuant thereto, each as amended from time to time and
in effect as of the date hereof, as well as existing judicial and administrative
interpretations thereof.
F&M National Corporation
Peoples Bank of Virginia
January ___, 1998
Page 2
As to various questions of fact material to our opinion, we have relied
upon the representations made in the Agreement as well as the additional
representations set forth below. In particular, we have assumed that there is no
plan or intention on the part of the shareholders of PBV to sell or otherwise
dispose of the F&M Common Stock received by them in the Merger which would have
the effect set forth in paragraph B of the "Additional Representations" below.
Additional Representations
In connection with the proposed Merger, the following additional
representations have been made to and relied upon by us in the preparation of
this opinion:
A. The fair market value of F&M Common Stock received by PBV
shareholders will be approximately equal to the fair market value of PBV Common
Stock to be surrendered in exchange therefor, and the exchange ratio used in
such exchange is the result of arm's length negotiations.
B. To the best knowledge of the management of PBV, there is no plan or
intention on the part of PBV's shareholders to sell or otherwise dispose of F&M
Common Stock received by them in the Merger that will reduce their holdings of
F&M Common Stock to a number of shares having in the aggregate a fair market
value of less than 50 percent of the fair market value of all of the PBV Common
Stock held by PBV shareholders on the effective date of the Merger. For purposes
of this representation, shares of PBV Common Stock exchanged for cash in lieu of
fractional shares of F&M Common Stock will be treated as outstanding shares of
PBV Common Stock on the effective date of the Merger. In addition, shares of PBV
Common Stock and shares of F&M Common Stock held by PBV shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
C. F&M has no plan or intention to sell or otherwise dispose of any of
the assets of PBV to be transferred to F&M in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C).
D. Each party to the Merger will pay its own expenses, if any, incurred
in connection with the Merger.
F&M National Corporation
Peoples Bank of Virginia
January ___, 1998
Page 3
E. Following the Merger of PBV with and into F&M Bank-Richmond, F&M
will continue the historic business of F&M Bank-Richmond.
F. F&M has no plan or intention to redeem or reacquire any of its stock
to be issued in the Merger.
G. The liabilities of PBV to be assumed by F&M Bank-Richmond as a
result of the Merger and the liabilities to which PBV's assets are subject were
incurred in the ordinary course of business and are associated with the assets
to be transferred in the Merger.
H. There is no intercorporate indebtedness existing between F&M and PBV
that was issued, acquired or will be settled at a discount.
I. The fair market value and adjusted basis of the assets of PBV to be
transferred to F&M in the Merger will equal or exceed the sum of the liabilities
assumed by F&M plus the amount of liabilities to which the PBV assets are
subject.
J. No dividends or other distributions will be made with respect to any
PBV Common Stock immediately before the proposed Merger, except for regular,
normal distributions.
K. None of the shares of F&M Common Stock, cash in lieu of fractional
shares or other property received by any shareholder-employee of PBV in exchange
for PBV Common Stock pursuant to the Merger constitutes or is intended as
compensation for services rendered, or is considered separate consideration for,
or allocable to, any employment agreement, warrant, stock option or other
relationship. None of the compensation to be received by any
shareholder-employee of PBV, or warrants or options to acquire F&M Common Stock
which are exchanged for warrants or options to acquire PBV Common Stock in
connection with the Merger, will be separate consideration for, or allocable to,
any of such shareholder-employee's PBV Common Stock. In addition, any
compensation paid to any shareholder-employee of PBV, including any shares of
F&M Common Stock or options or warrants to purchase F&M Common Stock received by
such shareholder-employee in exchange for and in cancellation of any option or
warrant to purchase shares of PBV Common Stock existing as of the effective date
of the Merger, will constitute and be intended as compensation for services
actually rendered and bargained for at arm's length, and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
F&M National Corporation
Peoples Bank of Virginia
January ___, 1998
Page 4
L. No two parties to the Merger are investment companies as defined in
Section 368(a)((2)(F)(iii) and (iv) of the Code, and for each of F&M and PBV,
less than 50 percent of the fair market value of its total assets (excluding
cash, cash items, government securities, and stock and securities in any 50
percent or greater subsidiary) consists of stock and securities.
M. PBV is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
N. Cash paid to PBV shareholders in lieu of issuing fractional shares
of F&M Common Stock will be paid solely for the purpose of saving the expense
and administrative inconvenience of issuing fractional shares, will not be
separately bargained for consideration and will represent only a mechanical
rounding off of the number of shares of F&M Common Stock to be issued to PBV
shareholders.
Tax Opinion
Based upon the foregoing, subject to the limitations expressed herein,
and with due regard to such legal considerations as we deem necessary, we are of
the opinion that for federal income tax purposes:
1. The Merger will constitute and qualify as a "reorganization" within
the meaning of Section 368(a)(2)(D) of the Code.
2. No gain, other income or loss will be recognized by F&M (Section
1032 of the Code) or PBV (Section 361 of the Code) as a result of the Merger.
3. To the extent that shareholders of PBV receive F&M Common Stock
solely in exchange for their shares of PBV Common Stock, they will recognize no
gain or loss as a result of the Merger. Section 354(a)(1) of the Code.
4. An PBV shareholder who receives cash in lieu of a fractional share
of F&M Common Stock will be treated as if the fractional share of F&M Common
Stock had been issued and then redeemed by F&M. If the deemed redemption
distribution is not essentially equivalent to a dividend within the meaning of
Section 302(b)(1) of the Code, then the PBV shareholder will be treated as
receiving a distribution in redemption of such fractional share, subject to the
provisions and limitations of Section 302 of the Code. If the deemed redemption
distribution is essentially equivalent to a dividend, then the PBV shareholder
will be treated as receiving a dividend distribution under Section 301(c)(1) of
the Code, as provided in Section 302(d) of the Code. See Section 356(a)(2) of
the Code, as interpreted by Clark v. Commissioner, 489 U.S. 726 (1989) and
Revenue Ruling 66-365, 1966-2 C.B. 116.
F&M National Corporation
Peoples Bank of Virginia
January ___, 1998
Page 5
5. The tax basis of F&M Common Stock received by PBV shareholders who
exchange their PBV Common Stock for F&M Common Stock will be the same as the tax
basis of PBV Common Stock surrendered in exchange therefor. Section 358(a)(1) of
the Code.
6. The holding period of F&M Common Stock received by PBV shareholders
will include the period during which PBV Common Stock surrendered in exchange
therefor was held by such PBV shareholders, provided the PBV Common Stock was
held as a capital asset on the date of the exchange. Section 1223(1) of the
Code.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof.
This opinion is provided in connection with the Merger as required by
Section 5.1(d) of the Agreement, is solely for the benefit of F&M, PBV and PBV
shareholders, and may not be relied upon in any other manner or by any other
person. This opinion may not be disclosed to any other person or used in any
other manner without the prior written consent of the undersigned.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
exhibit 21 to come yet <TO COME>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of our report, dated January 20, 1997, on the consolidated financial
statements of F&M National Corporation as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996. We also consent
to the reference made to us under the caption "Experts" in the Proxy
Statement/Prospectus constituting a part of this Registration Statement.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
January 27, 1998
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Registration Statement of F&M National Corporation on
Form S-4 of our report dated January 17, 1997 (January 27, 1998, as to Note 10b)
relating to the consolidated financial statements of Peoples Bank of Virginia as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996 appearing in the Proxy Statement/Prospectus, which is a
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
/s/DELOITTE & TOUCHE LLP
Richmond, Virginia
January 27, 1998
Exhibit 23.4
CONSENT OF INVESTMENT BANKERS
We consent to the use, quotation and summarization in the Registration
Statement on Form S-4 of our fairness opinion dated January 12, 1998, rendered
to the Board of Directors of Peoples Bank of Virginia in connection with the
acquisition of Peoples Bank of Virginia by F&M National Corporation and to the
use of our name, and the statements with respect to us, appearing in the
Registration Statement.
/s/ SCOTT & STRINGFELLOW, INC.
Richmond, Virginia
January 21, 1998
Exhibit 99
PEOPLES BANK OF VIRGINIA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _______________ and ______________, or
either of them and with full power of substitution, his or her attorney-in-fact
and proxy, to represent the undersigned at the Special Meeting of Shareholders
of Peoples Bank of Virginia ("PBV"), to be held on February __, 1998 at _____
p.m. at __________________________ located at ____________________________,
Virginia and at any adjournment thereof, and to vote all shares of stock of PBV
that the undersigned shall be entitled to vote at such meeting. The proxies are
instructed to vote on the matter set forth in the proxy statement as specified
below.
1. To approve an Agreement and Plan of Reorganization, dated as of
December 1, 1997, and a related Plan of Merger (collectively, the "Agreement")
among PBV, F&M National Corporation ("F&M") and one of its subsidiary banks, F&M
Bank-Richmond, providing for the merger of PBV with and into F&M-Richmond upon
the terms and conditions set forth in the Agreement as described in the Proxy
Statement/Prospectus of PBV and F&M, dated January ___, 1998.
FOR [__] AGAINST [__] ABSTAIN [__]
(Has the same effect as a
vote Against)
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
This proxy, when properly signed and dated, will be voted in the manner
directed herein. If no direction is made, this proxy will be voted FOR proposal
number 1 as specified above.
Dated:________________, 1998
-----------------------------------
-----------------------------------
Please sign exactly as name appears
on the stock certificate. When
signing as attorney, executor,
administrator or trustee, please give
full title. This proxy may be
revoked at any time prior to its
exercise.
