SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1995 Commission file number: 0-13273
F & M Bank Corp.
(Exact name of registrant as specified in its charter)
Virginia 54-1280811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box F, Timberville, Virginia 22853
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (540) 896-8941
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $5 Par
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ..X. No ....
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $12,083,354
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: As of March 1, 1996 - $33 average bid price; $34
average ask price.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of March 1, 1996 -
814,288
DOCUMENTS INCORPORATED BY REFERENCE:
None
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 46.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X
Page
TABLE OF CONTENTS
Part I Page
Item 1. Description of Business 3
General
Competition
Regulation and Supervision
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7. Financial Statements 20
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
Part III
Item 9. Directors and Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act 43
Item 10. Executive Compensation 44
Item 11. Security Ownership of Certain Beneficial Owners
and Management 45
Item 12. Certain Relationships and Related Transactions 46
Part IV
Item 13. Exhibits and Reports on Form 8-K 46
Signatures 47
Page
Part I
Item 1. Description of Business
General
F & M Bank Corp., incorporated in Virginia in 1983, is a one-bank holding
company pursuant to section 3(a)(1) of the Bank Holding Company Act of
1956, and owns 100% of the outstanding stock of its two affiliates, Farmers
& Merchants Bank (Bank) and TEB Life Insurance Company (TEB). Timway
Insurance Agency, Inc. (Timway) is a wholly-owned subsidiary of Farmers &
Merchants Bank.
Farmers & Merchants Bank was chartered on April 15, 1908, as a state
chartered bank under the laws of the State of Virginia. TEB was
incorporated on January 27, 1988, as a captive life insurance company under
the laws of the State of Arizona. Timway is a Virginia chartered
corporation and was incorporated on February 25, 1993.
The Bank offers all services normally offered by a full-service commercial
bank, including commercial and individual demand and time deposit accounts,
repurchase agreements for commercial customers, commercial and individual
loans, trusts, and drive-in banking services. TEB was organized to
re-insure credit life and accident and health insurance currently being
sold by the Bank in connection with its lending activities. Timway was
organized to write title insurance through the Investors Title Insurance
Company on loans made by Farmers & Merchants Bank.
The operations of F & M Bank Corp., the Bank, TEB and Timway are conducted
in Timberville, Virginia, at offices located at 205 South Main Street. The
Bank has branches at 127 West Rockingham Street, Elkton, Virginia, at the
corner of Route 259 and 259 Alternate, Broadway, Virginia, and Highway 33
West at Elkton Plaza, Elkton, Virginia. The Bank opened a fifth location
at 100 Plaza Drive, Bridgewater, Virginia, in March 1995 and this, like the
other locations, will be a full service branch. The Bridgewater office
serves the Bridgewater area including the southern portion of Rockingham
County and the northwestern portion of Augusta County.
On December 31, 1995, F & M Bank Corp., the Bank, TEB and Timway had forty-
five full time and nineteen part time employees. No one employee devotes
his services full time to the F & M Bank Corp.
Competition
The main office, Broadway office and Elkton offices compete with four
national banks, five state chartered banks and two national chartered
savings banks. The main office and the Broadway branch serve the northern
portion of Rockingham County, Virginia and the southwestern portion of
Shenandoah County. The Elkton branches serve the town of Elkton and the
eastern portion of Rockingham County, Virginia. Bank competition in the
area of all offices is very strong. The Bank makes all kinds of commercial
and consumer loans and heretofore has had a heavy concentration of home and
agricultural real estate loans. The Bank experienced a good loan demand
throughout 1995 due to improving local and national economies but this was
true of the entire market area served. The local economy is relatively
diverse with strong employment in the agricultural, manufacturing, service
and governmental sectors.
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Regulation and Supervision
The operations of F & M Bank Corp. and the Bank are subject to federal and
state statutes which apply to state member banks of the Federal Reserve
System.
The stock of F & M Bank Corp. is subject to the registration requirements
of the Securities Act of 1934. F & M Bank Corp. is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934. These
include, but are not limited to, the filing of annual, quarterly and other
current reports with the Securities and Exchange Commission.
F & M Bank Corp., as a bank holding company, is subject to the provisions
of the Bank Holding Company Act of 1956, as amended (the "Act"). It is
registered as such and is supervised by the Federal Reserve Board. The Act
requires F & M Bank Corp. to secure the prior approval of the Federal
Reserve Board before F & M Bank Corp. acquires ownership or control of more
than 5% of the voting shares, or substantially all of the assets of any
institution, including another bank.
As a bank holding company, F & M Bank Corp. is required to file with the
Federal Reserve Board an annual report and such additional information as
it may require pursuant to the Act. The Federal Reserve Board may also
conduct examinations of F & M Bank Corp. and any or all of its
subsidiaries. Under Section 106 of the 1970 Amendments to the Act and the
regulations of the Federal Reserve Board, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with an extension of credit, provision of credit, sale, or lease
of property or furnishing of services.
Federal Reserve Board regulations permit bank holding companies to engage
in nonbanking activities closely related to banking or to managing or
controlling banks. These activities include the making or servicing of
loans, performing certain data processing services, and certain leasing and
insurance agency activities. F & M Bank Corp. formed a captive life
insurance company in 1988 and began operations in July of 1989. This
entity acts as the primary reinsurer for credit life insurance sold through
the Bank. In 1992, F & M Bank Corp. entered into an agreement with the
City Light Development Corp. of Winchester, Virginia to purchase an equity
position in the Johnson Williams Project. This project provides housing
for the elderly and lower income tenants. In 1993, the Company entered
into an agreement with the Housing Equity Fund of Virginia to purchase an
equity position in the Housing Equity Fund of Virginia II, L.P. This fund
will provide housing for low income persons in Virginia. Approval of the
Federal Reserve Board is necessary to engage in any of the other activities
described above or to acquire interests engaging in these activities.
The Bank as a state member bank is supervised and regularly examined by the
Virginia Bureau of Financial Institutions and the Federal Reserve Board.
Such supervision and examination by the Virginia Bureau of Financial
Institutions and the Federal Reserve Board is intended primarily for the
protection of depositors and not for the stockholders of F & M Bank Corp.
The information required by Guide 3 has been included under Item 6,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page
Item 2. Description of Property
The main office of Farmers & Merchants Bank is located at 205 South Main
Street in Timberville, Virginia. The building is of brick veneer
construction and is situated on 1.32 acres of land. One branch office is
situated at 127 West Rockingham Street in Elkton, Virginia. This office is
of brick veneer construction and is situated on one acre of land. The
Broadway branch is located on the corner of Virginia Route 259 and Route
259 Alternate in Broadway, Virginia. This office is constructed primarily
of concrete, steel and wood frame and contains an automatic teller machine.
The office is situated on one acre of land. The Bank established a branch
in the Elkton Plaza shopping center in 1989 and it is of brick veneer
construction, includes drive in facilities and has an automatic teller
machine. The Bank opened a new facility in Bridgewater, Virginia, in 1995.
The office is constructed of brick veneer and is situated on a .6 acre lot
at 100 Plaza Drive, Bridgewater, VA. All properties are owned by the Bank
and are in good condition.
Item 3. Legal Proceedings
Management is not aware of any pending or threatened litigation in which
the Company or its subsidiaries may be involved as a defendant. In the
normal course of business the Bank periodically must initiate suits against
borrowers as a final course of action in collecting past due loans.
Item 4. Submission of Matters to a Vote of Security Holders
F & M Bank Corp. has not submitted any matters to the vote of security
holders for the last quarter ending December 31, 1995.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Farmers & Merchants Bank acts as a transfer agent for F & M Bank Corp.
There have been sufficient inquiries on the National Stock Exchange so that
the holding company is required to report on any stock or cash dividend to
the National Association of Security Dealers. The `bid' and `asked' price
of the holding company stock is not published in any newspaper. Scott &
Stringfellow in Richmond, Virginia, makes a market for the stock and the
firm has provided market quotes in recent years.
The prices presented are bid prices which represent prices between broker-
dealers and don't include retail mark-ups and mark-downs or any commission
to the dealer. The prices may not reflect actual transactions and other
transactions may have occurred which were not reported to the Company.<PAGE>
Page
(a) Market Information (Continued)
The following schedule shows the range of reported trade prices and
dividends per share declared for 1993 through 1995 (all amounts have been
adjusted for the two for one stock split declared in 1993):
Dividends
Declared High Low
1993
1st quarter .125 21.88 21.88
2nd quarter .125 24.00 22.75
3rd quarter .20 24.50 24.00
4th quarter .20 27.25 24.25
1994
1st quarter .15 28.13 26.75
2nd quarter .20 28.50 28.13
3rd quarter .20 29.00 27.50
4th quarter .20 28.63 27.00
1995
1st quarter .20 28.13 28.00
2nd quarter .20 28.50 28.13
3rd quarter .20 30.00 29.50
4th quarter .20 30.50 29.75
(b) Stockholders
On February 22, 1995, there were 1,122 holders of F & M Bank Corp. common
stock.
(c) Dividends
The cash dividends declared are shown in the above table. The principal
source of income of F & M Bank Corp. is dividends paid by its subsidiary
bank. See Note 16 to the consolidated financial statements for a discussion
of the restrictions on the ability of the subsidiary bank to transfer funds
to F & M Bank Corp. in the form of cash dividends.
Page
Item 6. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
OPERATIONS ANALYSIS - 1995 Compared to 1994
Overview
Net income for 1995 increased $126,733 or 6.37% from 1994 earnings. This
increase can be attributed to gains in security transactions of $575,795 in
1995 compared to $413,493 in 1994. The gains are mainly from the sale of
investments in common stocks. Other noninterest income increased 10.38%
due to increased income on insurance operations and service charges on
deposit accounts. Noninterest expense increased 6.55% in 1995 over 1994
due mainly to higher personnel costs. Management believes that overhead
expenses have been managed well during 1995. See Table I (page 16) for a
five year summary of operations.
Net Interest Margins
The net interest margin on earning assets on a tax equivalent basis
decreased in 1995 from 1994 after an increase in 1994 from 1993. The
Company's return on average earning assets of 4.30% is in line with its
peer group.
Yields on loans increased from 9.12% to 9.41%. In 1995, commercial loan
rates increased 83 basis points due to increased loan rates and the
Company's ability to increase rates on variable rate commercial loans.
Installment loans decreased 26 basis points while real estate loans
remained virtually unchanged with a slight increase of 12 basis points. To
balance its interest rate risk on fixed rate loans, the Bank borrows from
the Federal Home Loan Bank at fixed rates which are determined by market
conditions. This program has helped the Bank meet the needs of its
customers who might otherwise have gone to another financial institution
seeking fixed rate loans.
Tax equivalent yields on securities increased to 6.38% in 1995 from 6.28%
in 1994 due to a slight increase in market rates. The average investments
in securities decreased 8.14% in 1995. This decline was caused by
management's decision to use proceeds from the maturity of investments to
fund higher yielding loans. The Company's philosophy of investing only in
securities with short to intermediate maturities allows it to be responsive
to interest rate movements within the market place.
The rates paid on interest bearing deposits increased to 4.50% in 1995 from
3.81% in 1994. Rates paid on time deposits increased 95 basis points in
1995 due to increased rates on renewed certificates of deposit, a trend
which started in the fourth quarter of 1994. Rates paid on savings
deposits increased 60 basis points in 1995. The Bank offers a tier rate
savings account which was designed to be an alternative to the certificate
of deposit in times of changing interest rates. This savings account rate
can be changed daily and gave the Bank the ability to compete with
competitors' special deposit promotions. The Bank also opened a new branch
in 1995 and paid slightly higher rates to attract new customers.
Interest rates paid on long-term indebtedness with the Federal Home Loan
Bank of Atlanta (FHLB) increased in 1995 due to additional borrowings at
rates higher than those in effect in previous years. Borrowings through
the FHLB are incurred only to balance the rate exposure on fixed rate loans
and are used to fund loans with variable rate features.
Page
Net Interest Margins (Continued)
Table II (page 17) contains a complete yield analysis for the last three
years and Table III (page 18) contains the rate/volume changes in these
years.
Other Income
The Company recognized $575,795 in gains on investments in 1995, most of
which were related to sale of corporate stock. The Company purchased the
equities anticipating long-term appreciation. When the equities reached a
pre-determined selling price, they were sold. The previous year the
Company recognized gains of $413,493 as a result of the disposition of some
of the above referenced equities.
Noninterest income other than security gains increased 10.38% in 1995 from
1994 levels. This increase was attributable to an increase in insurance
income (due to a decrease in claims in 1995) and an increase in service
charges on deposit accounts (due to a greater volume of accounts).
Other Expenses
Noninterest expense increased $204,816 or 6.55% in 1995 over 1994 levels.
Salaries and employee benefits increased 9.38% due to inflationary increase
and staffing of the new Bridgewater office. Equipment and occupancy
expenses increased 27.47% due to greater depreciation expense for the new
Bridgewater office and additional expenses incurred to upgrade the Bank's
inhouse computer system. Deposit insurance decreased due to a decline in
the insurance rate assessed. Other noninterest expenses increased 7.14%
due mainly to the new branch addition and inflation. The Company's overall
cost of operations relative to asset size compares favorably to its peer
groups and to larger statewide institutions.
1994 COMPARED TO 1993 OPERATIONS
Net income in 1994 increased 5.42% over net income in 1993. Lower rates
paid on deposits and a 7.64% increase in average earning assets were
responsible for the earnings increase. As a result, net interest income on
a tax equivalent basis increased 12.47%. The net interest margin increased
from 4.22% in 1993 to 4.41% in 1994.
Gains on security transactions increased $38,511 or 10.27% due to the sale
of investment in common stocks in regional and national financial
institutions. Other noninterest income declined 9.54% due to lower income
on insurance operations.
Noninterest expenses increased 7.29% due mainly to higher personnel costs.
UNCERTAINTIES AND TRENDS
Management is of the opinion that loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention do not (i) represent or
result from trends or uncertainties which management reasonably expects
will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is
aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.
Management is not aware of any known trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on the
issuers liquidity, capital resources or operations of the issuers.
Additionally, management is not aware of any current recommendations by the
regulatory authorities which, if they were to be implemented, would have
such an effect.
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BALANCE SHEET
INVESTMENT SECURITIES
Average balances in investment securities declined 8.14% in 1995 compared
with 1994. Low rates offered in the marketplace in the beginning of 1995
made loans and mortgage-backed investments more attractive than
governmental obligations. Later in the year, changes in market conditions
pushed rates upwards but loans in the local community continued to be the
most attractive investment alternative. The Company maintains a high level
of earnings assets in investment securities to provide for liquidity and as
security for public indebtedness. A schedule of investment securities is
shown in note 4 to the consolidated financial statements.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This statement requires all securities to be
classified at the point of purchase as trading securities, available for
sale or held to maturity. See note 2d of the consolidated financial
statements for a discussion of the accounting policies for investments.
The Company values its debt securities based on information supplied by its
correspondent banks for actively traded obligations and by market
comparison with similar obligations for non-rated investments. Investments
in common stocks are based on the last trades as provided by the Wall
Street Journal.
Yields and Maturities
The yields on taxable and nontaxable investments for 1995, 1994 and 1993
are shown in the yield analysis in Table II (page 17). The carrying amount
and estimated market value of debt securities (in thousands of dollars) at
December 31, 1995 by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Securities Held to Maturity Carrying Market Average
Amount Value Yield
Due in one year or less $ 7,734 $ 7,715 5.76%
Due after one year through
five years 15,188 15,328 6.03
Due after five years through
ten years 3,501 3,511 6.55
Due after ten years 487 494 9.42
Total $ 26,910 $ 27,048 6.06%
Securities Available for Sale Amortized Market Average
Cost Value Yield
Due in one year or less $ 4,032 $ 4,106 6.64%
Due in one through five years 2,999 3,029 6.89
Due after ten years 2,859 2,864 7.35
9,890 9,999 6.92
Equity securities 6,429 7,318 5.82<PAGE>
Total $ 16,319 $ 17,317 6.46%
Yields on tax exempt securities are stated at tax equivalent yields.
Management's philosophy is to keep the maturities of investments relatively
short which allows the Company to better match deposit maturities with
investment maturities and thus react more quickly to interest rate changes.
Page
INVESTMENT SECURITIES (CONTINUED)
Mortgage-backed Securities
The Company's investment in mortgage-backed securities as of December 31,
1995, is shown in the following schedule:
Book Market
Issuer Value Value
Pass through obligations
FNMA & FHLMC $ 4,477,332 $ 4,480,938
GNMA 748,040 759,019
5,225,372 5,239,957
Obligations with fixed principal payments
FNMA & FHLMC 1,264,916 1,285,900
Total $ 6,490,288 $ 6,525,857
The mortgage-backed securities purchased by the Company are guaranteed by
the issuing agency and are all rated AAA. Obligations issued by the GNMA
are backed by FHA or VA insured mortgages and obligations issued by the
FNMA or FHLMC are backed by conventional mortgages. Bonds with fixed
principal payments have a market risk and interest rate risk similar to
other federal agency securities. The pass through obligations are
sensitive to prepayment and extension risk which affect the securities
exposure to market risk. As interest rates move higher prepayments slow
down and the average life increases. As interest rates move lower the
prepayments increase and the average life decreases. The Company's
mortgage-backed securities were purchased at a premium which will cause
yields to rise as interest rates and average life increases. Conversely
the yields will fall as interest rates fall and the average life decreases.
Equity Investments
The Company has investments in common and preferred stock totaling
$6,429,220 at December 31, 1995, with an estimated market value of
$7,317,977. The investments include common stocks of other Virginia bank
holding companies which were purchased with the objective of realizing
capital gains and preferred stocks of public utilities and other quality
companies which were purchased to obtain higher yields after the 70%
dividend exclusion available to corporations. The market value of these
investments is sensitive to general trends in the stock market and
fluctuations in interest rates.
Corporate Bonds
The Company has invested in high quality corporate debt obligations. The
estimated market value at December 1995 of the Company's corporate bonds
was $8,726,312 compared with book value of $8,554,333. The Bonds were
purchased as short-term investments and maturities extend to March 1, 1999.
Page
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's loan portfolio totaled $97,963,831 at December 31, 1995
compared with $81,362,348 at the beginning of the year. The Company's
policy has been to make conservative loans that are held for future
interest income. Collateral required by the Company is determined on an
individual basis depending on the purpose of the loan and the financial
condition of the borrower.
The Company's commercial and agricultural loans increased 14.20% during
1995 to $25,018,296. The composition of the loans is shown in the
following schedule:
Commercial and Agricultural Loans
(In thousands)
Secured by
Real Estate Other Total
Commercial $ 6,399 $ 6,530 $ 12,929
Agricultural 8,593 2,064 10,657
Multi family residential 1,432 1,432
$ 16,424 $ 8,594 $ 25,018
The majority of commercial loans are made to small retail and service
businesses.
The Company's mortgage loans increased 18.6% from $49,564,148 to
$58,771,486 at December 31, 1995. Residential real estate loans are
generally made for a period not to exceed 30 years and are secured by first
deed of trusts which do not exceed 95% of the appraised value. If the loan
to value ratio exceeds 90% the Company requires additional collateral,
guarantees or mortgage insurance. On approximately 80% of the real estate
loans interest is adjustable after each three or five year period. Fixed
rate loans are generally made for a fifteen year period or a twenty year
period with an interest rate adjustment in the 10th year. Since 1992 fixed
rate real estate loans have been funded with fixed rate borrowings from the
Federal Home Loan Bank, which allows the Company to control its interest
rate risk. In addition, the Company makes home equity loans secured by
second deeds of trust not to exceed 90% of the appraised value. The home
equity loans are made for three and five year periods at a fixed rate.
The Company's consumer installment loans increased 28% to $10,806,613 at
December 31, 1995. The consumer loans are made for a variety of reasons,
however, approximately 70% of the loans are secured by automobiles and
trucks.
The Company's market area has a stable economy which tends to be less
cyclical than the national economy. Major industries in the market area
include agricultural production and processing, higher education, retail
sales, services and light manufacturing. The agricultural production and
processing industry is a major contributor to the local economy and its
performance and growth tend to be cyclical in nature, however, its impact
is offset by other stable industries in the trade area. A large percentage
of the agricultural loans are made to poultry growers. Poultry production
in the Company's trade area showed moderate growth in 1994 and 1995,
however, the forecast for 1996 is uncertain because of a period of
sustained high grain prices and the Russian embargo on poultry imports. In
addition to direct agricultural loans, a large percentage of residential
real estate loans and consumer installment loans are made to borrowers
whose income is derived from the agricultural sector of the economy.
During 1995, real estate values in the Company's market area for
commercial, agricultural and residential property increased, on the
average, between 2% and 5% depending on the location and type of property.
Approximately 80% of the Company's loans are secured by real estate,
however, policies relating to appraisals and loan to value ratios are
adequate to control the related risk.
Unemployment rates in the Company's market area tend to be below both the
national and state averages. The unemployment rate for the month of
January 1996 for Rockingham County was 3.9% compared with 5.0% for Virginia
and 6.3% for the nation. The unemployment rate for Rockingham County has
improved since January 1995 when the rate was 4.6%. The trend in
employment in the area has a positive effect on the ability of borrowers to
repay loans.
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RISK ELEMENTS IN THE LOAN PORTFOLIO (CONTINUED)
The following table shows the Company's loan maturity distribution (in
thousands of dollars) as of December 31, 1995:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
Commercial and
Agricultural Loans $ 5,409 $ 12,489 $ 7,120 $ 25,018
Real Estate 2,943 1,800 56,568 61,311
Consumer - installment 1,545 9,973 117 11,635
Total $ 9,897 $ 24,262 $ 63,805 $ 97,964
Loans with predetermined
rates $ 2,799 $ 11,725 $ 11,988 $ 26,512
Loans with variable or
adjustable rates 7,098 12,537 51,817 71,452
Total $ 9,897 $ 24,262 $ 63,805 $ 97,964
NONACCRUAL AND PAST DUE LOANS
The following table shows loans placed in a nonaccrual status and loans
contractually past due 90 days or more as to principal or interest
payments:
December 31,
1995 1994 1993
Nonaccruing loans None None None
Loans past due 90 days or more $ 379,863 $ 784,886 $ 496,088
Percentage to total loans .39% .96% .67%
Interest accruals are continued on past due, secured loans until the
principal and accrued interest equal the value of the collateral and on
unsecured loans until the financial condition of the creditor deteriorates
to the point that any further accrued interest would be determined to be
uncollectible. At December 31, 1995 and 1994, there were no restructured
loans on which interest was accruing at a reduced rate or on which payments
had been extended.
Loans past due 90 days or more at December 31, 1994 included a $400,000
farm loan which was well secured and brought current in January, 1996.
POTENTIAL PROBLEM LOANS
At December 31, 1995, management had identified loans of $175,216 as
potential problem loans. These loans are not classified as nonaccrual or
past due and management does not anticipate losses on these loans as
collateral is considered adequate. The status of these loans is monitored
closely and losses, if any, would not be material.
LOAN CONCENTRATIONS
At December 31, 1995, only loans for agriculture or agricultural related
industries exceeded ten percent of total loans. The total amount of these
loans at December 31, 1995 was $10,656,676.
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LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into
consideration all factors connected with the collectibility of the existing
portfolio. Management evaluates the loan portfolio in light of economic
conditions, changes in the nature and value of the portfolio, industry
standards and other relevant factors. Specific factors considered by
management in determining the amounts charged to operations include
internally generated loan review reports, previous loan loss experience
with the borrower, the status of past due interest and principal payments
on the loan, the quality of financial information supplied by the borrower
and the general financial condition of the borrower.
The Bank has experienced insignificant loan losses in each of the last
three years. Based on historical losses, delinquency rates, a thorough
review of the loan portfolio and after considering the elements of the
preceding paragraph, management is of the opinion that the allowance for
loan losses is adequate to absorb future losses in the current portfolio.
A summary of the activity in the allowance for loan losses for 1995, 1994,
and 1993 follows:
1995 1994 1993
Balance at beginning of period $ 744,513 $ 699,954 $ 665,159
Provision charged to expenses 164,500 60,000 60,000
Loan losses:
Commercial 25,630 22,545 20,537
Installment 29,726 22,996 20,394
Real estate 9,143
Total loan losses 64,499 45,541 40,931
Recoveries:
Commercial 3,782 3,127 2,480
Installment 10,048 26,973 13,246
Real Estate 4,422
Total recoveries 18,252 30,100 15,726
Net loan losses 46,247 15,441 25,205
Balance at end of period $ 862,766 $ 744,513 $ 699,954
Allowance for loan losses
as a percentage of loans .88% .92% .94%
Ratio of net loan losses during the
period to average loans outstanding
during the period .05% .02% .04%
Page
LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Company has allocated the allowance according to the amount deemed to
be reasonably necessary to provide for the possibility of losses being
incurred within each of the above categories of loans. The allocation of
the allowance as shown above should not be interpreted as an indication
that loan losses in future years will occur in the same proportions or that
the allocation indicates future loan loss trends. Furthermore, the portion
allocated to each loan category is not the total amount available for
future losses that might occur within such categories since the total
allowance is a general allowance applicable to the entire portfolio.
The following table shows the balance and percentage of the Company's
allowance for loan losses allocated to each major category of loans:
<TABLE>
<CAPTION>
At December 31,
1995 1994 1993
Percent Percent Percent
of of of
Loans Loans Loans
Percent in Percent in Percent in
of Category of Category of Category
Allow- to Total Allow- to Total Allow- to Total
Amount ance Loans Amount ance Loans Amount ance Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 285 33% 26% $ 267 36% 26% $ 210 30% 29%
Real estate
mortgage 233 27 63 209 28 64 105 15 60
Installment 276 32 11 206 28 10 350 50 11
Unallocated 69 8 63 8 35 5
Total $ 863 100% 100% $ 745 100% 100% $ 700 100% 100%
</TABLE>
DEPOSITS
The Bank recognized an increase in year end deposits in 1995 of 15.10% with
an increase in average deposits for the year of 5.33%. This increase can
be attributed to the new Bridgewater office which had total deposits of
$8,253,671 on December 31, 1995. The new office, combined with increasing
rates on time deposits in 1995, caused certificates of deposit to increase
$14,399,318. The Bank has traditionally shunned brokered and large
deposits believing that they were unstable and thus not desirable. This
has proven to be a good strategy as the local deposit base is considered
very stable and small increases in rates above the competition have
resulted in deposit gains in past years.
Certificates of deposit over $100,000 totaled $5,280,388 at December 31,
1995. The maturity distribution of these certificates is as follows:
Less than 3 months $ 1,708,156
3 to 6 months 956,931
6 months to 12 months 606,446
1 year to 5 years 2,008,855
Total $ 5,280,388
Page
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $2,202,418 or 14.79% in 1995.
Earnings retained from operations were the primary source of the increase.
As of December 31, 1995, the book value per share was $21.00 compared to
$18.29 as of December 31, 1994. Dividends are paid to the stockholders on
a quarterly basis in uniform amounts, unless unexpected fluctuations in net
income indicate a change to this policy is needed.
Banking regulators have established a uniform system to address the
adequacy of capital for financial institutions. The rules require minimum
capital levels based on risk adjusted assets. Simply stated, the riskier
an entity's investment, the more capital it is required to maintain. The
Bank, as well as the holding company, is required to maintain these minimum
capital levels. The two types of capital guidelines are Tier I capital
(referred to as core capital) and Tier II capital (referred to as
supplementary capital). At December 31, 1995, the Company had Tier I
capital of 16.96% of risk weighted assets and combined Tier I and II
capital of 17.84% of risk weighted assets. Regulatory minimums at this
date were 4% and 8%, respectively. The Bank has also maintained capital
levels far above the minimum requirements throughout the year. In the
unlikely event that such capital levels are not met, regulatory agencies
are empowered to require the Company to raise additional capital and/or
reallocate present capital.
In addition, the regulatory agencies have issued guidelines requiring the
maintenance of a capital leverage ratio. The leverage ratio is computed by
dividing Tier I capital by actual total assets. The regulators have
established a minimum of 3% for this ratio, but can increase the minimum
requirement based upon an institution's overall financial condition. At
December 31, 1995, the Company reported a leverage ratio of 11.62%. The
Bank's leverage ratio was also above the minimum.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity as of December 31, 1995 remains adequate. The Bank historically
has had a sound core deposit base and, therefore, does not have to rely on
volatile funding sources. Because of the stable core deposit base, changes
in interest rates should not have a significant effect on liquidity.
During 1995, the liquidity position was enhanced by increasing temporary
investments which were funded by core deposits. The Bank was a seller of
federal funds for the most part of 1995. The Bank's membership in the
Federal Home Loan Bank System has also improved liquidity, as the Bank
borrows money that is repaid over a ten-year period and uses the money to
make fixed rate loans. The matching of the long-term receivables and
liabilities helps the Bank reduce its sensitivity to interest rate changes.
As of September 30, 1995, adjusted volatile liabilities equaled minus 2.37%
of total assets as compared to plus 3.92% of the Bank's peer group. The
greater negative position indicates the better liquidity. Therefore, our
adjusted volatile liabilities are much better than those of our peers.
Temporary investments to volatile liabilities were 153.53% compared with
72.27% to the peer group; i.e., for every $100.00 in volatile liabilities,
the Company has $153.53 in short-term investments. The Company's peer
group had $72.27 of short-term investments. Thus, the Company is much more
liquid than the average bank in its peer group.
There are no off-balance-sheet items that will impair future liquidity.
Table IV (page 19) contains an analysis which shows the repricing
opportunities of earning assets and interest bearing liabilities as of
December 31, 1995.
At December 31, 1995, the Company had a cumulative Gap Rate Sensitivity
Ratio of 49.3% for the one year repricing period. This generally indicates
that earnings would improve in a declining interest rate environment as
liabilities reprice more quickly than assets. Conversely, earnings would
probably decrease in periods during which interest rates are increasing.
Management constantly monitors the Company's interest rate risk and has
decided that the current position is an acceptable risk for a well
capitalized community bank operating in a rural environment.
Page
Table I
F & M BANK CORP.
SELECTED OPERATING INFORMATION
<TABLE>
<CAPTION>
Years Ending December 31,
(In Thousands, Except per Share Information)
1995 1994 1993 1992 1991
CONDENSED STATEMENTS OF
INCOME AND DIVIDENDS
<S> <C> <C> <C> <C> <C>
Interest Income $ 11,144 $ 9,769 $ 9,223 $ 8,566 $ 8,502
Interest Expense 5,515 4,556 4,422 3,957 4,411
Net Interest Income 5,629 5,213 4,801 4,609 4,091
Provision for Loan Losses 164 60 60 60 78
Net Interest Income after
Provision for Loan
Losses 5,465 5,153 4,741 4,549 4,013
Noninterest Income 939 743 739 655 267
Noninterest Expenses 3,333 3,128 2,915 2,698 2,569
Income before Income Taxes 3,071 2,768 2,565 2,506 1,711
Income Tax Expense 955 779 678 727 419
Net Income $ 2,116 $ 1,989 $ 1,887 $ 1,779 $ 1,292
Total Assets at Year End $ 152,301 $ 132,649 $ 127,824 $ 113,974 $ 88,493
PER SHARE INFORMATION
Net Income Per Share 1, 2 $ 2.60 $ 2.44 $ 2.32 $ 2.22 $ 1.63
Dividends Per Share 1, 2 $ .80 $ .75 $ .65 $ 1.15 $ .63
Book Value Per Share 1, 2 $ 21.00 $ 18.29 $ 16.74 $ 15.03 $ 13.88
FINANCIAL STATEMENT RATIOS
Return on Average Assets 3 1.49% 1.50% 1.54% 1.79% 1.61%
Return on Average Equity 3 13.15% 13.64% 14.53% 15.33% 13.44%
Dividend Payout Ratio 30.79% 30.71% 28.02% 52.01% 35.91%
Average Equity to Average
Assets Ratio 3 11.34% 11.01% 10.57% 11.66% 11.96%
<FN>
<F1>
1 Per share amounts have been adjusted to reflect the 1993 stock split.
2 Per share data includes the dilutive effect of outstanding options to purchase common stock.
3 Ratios are based on daily average balances.
<FN>
</TABLE>
Page
Table II
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
1995
Average
Rates
Income/ Earned/
ASSETS Average Expense Paid
Loans:
Commercial $ 23,762 $ 2,325 9.78%
Real estate 1 56,118 5,079 9.05
Installment 9,557 1,009 10.56
Total Loans 89,437 8,413 9.41
Investment securities:
Fully taxable 35,845 2,145 5.98
Partially Taxable 2 7,033 586 8.33
Nontaxable 2 915 64 6.99
Total Investment Securities 43,793 2,795 6.38
Interest bearing deposits
in banks 638 39 6.11
Federal funds sold 1,608 93 5.78
Total Earning Assets 135,476 11,340 8.37
Allowance for loan losses (781)
Nonearning assets 7,161
Total Assets $ 141,856
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest bearing $ 20,366 612 3.01
Savings 29,047 1,222 4.21
All other time deposits 45,546 2,438 5.35
Total Deposits 94,959 4,272 4.50
Short-term debt 272 13 4.78
Long-term debt 18,920 1,230 6.50
Total Interest Bearing
Liabilities 114,151 5,515 4.83
Noninterest bearing deposits 10,526
Other liabilities 1,089
Total Liabilities 125,766
Stockholders' equity 16,090
Total Liabilities and
Stockholders' Equity $ 141,856
Net Interest Earnings $ 5,825
Net Yield on Interest Earning Assets 4.30%
1 Interest income on loans includes loan fees.
2 An incremental income tax rate of 34% was used to calculate the tax
equivalent income on nontaxable and partially taxable investments.
Page
Table II (Continued)
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
1994
Average
Rates
Income/ Earned/
ASSETS Average Expense Paid
Loans:
Commercial $ 21,981 $ 1,968 8.95%
Real estate 1 48,479 4,327 8.93
Installment 7,604 823 10.82
Total Loans 78,064 7,118 9.12
Investment securities:
Fully taxable 39,086 2,282 5.84
Partially Taxable 2 6,437 553 8.59
Nontaxable 2 2,153 160 7.43
Total Investment Securities 47,676 2,995 6.28
Interest bearing deposits
in banks 533 23 4.32
Federal funds sold 1,607 59 3.67
Total Earning Assets 127,880 10,195 7.97
Allowance for loan losses (723)
Nonearning assets 5,342
Total Assets $ 132,499
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest bearing $ 21,882 663 3.03
Savings 29,422 1,061 3.61
All other time deposits 38,850 1,711 4.40
Total Deposits 90,154 3,435 3.81
Short-term debt 302 11 3.64
Long-term debt 17,417 1,110 6.37
Total Interest Bearing
Liabilities 107,873 4,556 4.22
Noninterest bearing deposits 9,633
Other liabilities 406
Total Liabilities 117,912
Stockholders' equity 14,587
Total Liabilities and
Stockholders' Equity $ 132,499
Net Interest Earnings $ 5,639
Net Yield on Interest Earning Assets 4.41%
1 Interest income on loans includes loan fees.
2 An incremental income tax rate of 34% was used to calculate the tax
equivalent income on nontaxable and partially taxable investments.
Page
Table II (Continued)
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
1993
Average
Rates
Income/ Earned/
ASSETS Average Expense Paid
Loans:
Commercial $ 21,620 $ 1,939 8.97%
Real estate 1 41,024 3,938 9.60
Installment 7,043 823 11.69
Total Loans 69,687 6,700 9.61
Investment securities:
Fully taxable 36,081 1,884 5.22
Partially Taxable 2 4,914 418 8.51
Nontaxable 2 4,179 294 7.04
Total Investment Securities 45,174 2,596 5.75
Interest bearing deposits
in banks 2,267 90 3.97
Federal funds sold 1,680 50 2.98
Total Earning Assets 118,808 9,436 7.94
Allowance for loan losses (688)
Nonearning assets 4,762
Total Assets $ 122,882
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest bearing $ 20,542 681 3.32
Savings 27,770 1,029 3.71
All other time deposits 39,734 1,887 4.75
Total Deposits 88,046 3,597 4.09
Short-term debt 333 9 2.70
Long-term debt 12,328 816 6.62
Total Interest Bearing
Liabilities 100,707 4,422 4.39
Noninterest bearing deposits 8,514
Other liabilities 677
Total Liabilities 109,898
Stockholders' equity 12,984
Total Liabilities and
Stockholders' Equity $ 122,882
Net Interest Earnings $ 5,014
Net Yield on Interest Earning Assets 4.22%
1 Interest income on loans includes loan fees.
2 An incremental income tax rate of 34% was used to calculate the tax
equivalent income on nontaxable and partially taxable investments.
Page
Table III
<TABLE>
F & M BANK CORP.
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
(On a fully taxable equivalent basis)
(In thousands of dollars)
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Increase (Decrease)
Due to Change in: Total Due to Change in: Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans:
Commercial $ 159 $ 198 $ 357 $ 32 $ (3) $ 29
Real estate 682 70 752 716 (327) 389
Installment 211 (25) 186 66 (66)
Total loans 1,052 243 1,295 814 (396) 418
Investment securities:
Fully taxable (189) 52 (137) 157 241 398
Partially taxable 51 (18) 33 130 5 135
Nontaxable (92) (4) (96) (143) 9 (134)
Total investment
securities (230) 30 (200) 144 255 399
Interest bearing
deposits in banks 5 11 16 (69) 2 (67)
Federal funds sold 34 34 (2) 11 9
Total Interest Income $ 827 $ 318 $ 1,145 $ 887 $ (128) $ 759
Interest expense:
Deposits:
Demand $ (46) $ (5) $ (51) $ 44 $ (62) $ (18)
Savings (14) 175 161 61 (29) 32
All other time
deposits 295 432 727 (42) (134) (176)
Total deposits 235 602 837 63 (225) (162)
Short-term debt (1) 3 2 (1) 3 2
Long-term debt 96 24 120 337 (43) 294
Total Interest Expense $ 330 $ 629 $ 959 $ 399 $ (265) $ 134
</TABLE>
NOTES: The rate/volume variance was allocated 100% to the change due to rate.
Page
Table IV
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
(In Thousands of Dollars)
December 31, 1995
<TABLE>
<CAPTION>
1-90 91-365 1-5 5-10 Not
Days Days Years Years Over 10 Classified Total
Uses of Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 15,680 $ 1,984 $ 6,221 $ 1,133 $ $ $ 25,018
Consumer installment 922 623 9,973 117 11,635
Consumer real estate 4,143 5,756 32,591 9,104 9,717 61,311
Total Loans 20,745 8,363 48,785 10,354 9,717 97,964
Federal Funds Sold 1,787 1,787
Interest Bearing
Bank deposits 82 82
Investment Securities 4,985 7,080 19,891 4,952 8,780 45,688
Total 27,599 15,443 68,676 15,306 9,717 8,780 145,521
Sources of Funds
Deposits:
Interest Bearing
Deposits 20,243 20,243
Regular Savings 30,234 30,234
Certificates of Deposit
$100,000 and over 1,708 1,563 2,009 5,280
Other Certificates
of Deposit 8,010 21,841 17,111 46,962
Total Deposits 60,195 23,404 19,120 102,719
Short-Term Borrowings 838 838
Long-Term Borrowings 728 2,082 11,241 5,367 19,418
Total 61,761 25,486 30,361 5,367 122,975
Discrete Gap (34,162) (10,043) 38,315 9,939 9,717 8,780 22,546
Cumulative Gap (34,162) (44,205) (5,890) 4,049 13,766 22,546
Cumulative Gap Rate
Sensitivity Ratio 44.7 49.3 95.0 1.03 1.11 N/A
</TABLE>
Table IV reflects the earlier of the maturity on repricing dates for various
assets and liabilities at December 31, 1995. In preparing the above table
no assumptions are made with respect to loan prepayments or deposit run offs.
Loan principal payments are included in the earliest period in which the loan
matures or can be repriced. Principal payments on installment loans
scheduled prior to maturity are included in the period of maturity or
repricing. Proceeds from the redemption of investments and deposits are
included in the period of maturity.
Page
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 21
Consolidated Balance Sheets as of December 31, 1995 and 1994 22
Consolidated Statements of Income - Years Ended December 31,
1995, 1994, and 1993 23
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1995, 1994, and 1993 24
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994, and 1993 25
Notes to Consolidated Financial Statements 26 - 42
Page
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
F & M Bank Corp.
Timberville, Virginia
We have audited the accompanying consolidated balance sheets of F & M Bank
Corp. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31,
1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated 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 misstatements. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of F & M
Bank Corp. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
S. B. HOOVER & COMPANY, L.L.P.
January 24, 1996
Harrisonburg, Virginia
Page
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1995 1994
Cash and due from banks (note 3) $ 3,716,107 $ 2,920,810
Interest bearing deposits in banks 82,205 58,350
Federal funds sold 1,787,000
Securities held to maturity (Fair value
in 1995 $27,047,504; in 1994,
$33,632,033) (note 4) 26,909,778 34,854,549
Securities available for sale (note 4) 17,316,584 9,137,160
Other investments (note 4) 1,461,898 1,765,640
Total Securities 45,688,260 45,757,349
Loans (note 5) 97,963,831 81,362,348
Less allowance for loan losses
(note 6) (862,766) (744,513)
Net Loans 97,101,065 80,617,835
Construction in progress 248,711
Bank premises and equipment,
net (note 7) 1,982,984 1,311,589
Interest receivable 1,263,570 1,001,815
Other assets 680,145 732,388
Total Assets $ 152,301,336 $ 132,648,847
LIABILITIES
Deposits:
Noninterest bearing $ 10,940,797 $ 10,298,623
Interest bearing:
Demand 12,446,938 11,998,159
Money market accounts 7,796,454 9,305,682
Savings 30,233,813 29,307,811
Time deposits over $100,000 5,280,388 1,664,354
All other time deposits 46,962,190 36,178,906
Total Deposits 113,660,580 98,753,535
Short-term debt (note 8) 837,730 533,477
Accrued liabilities 1,286,227 508,535
Long-term debt (note 9) 19,418,224 17,957,143
Total Liabilities 135,202,761 117,752,690
STOCKHOLDERS' EQUITY
Common stock $5 par value, 1,000,000
shares authorized, 814,288 shares
issued and outstanding (note 17) 4,071,440 4,071,440
Capital surplus 746,629 746,629
Retained earnings (note 16) 11,658,715 10,194,457
Net unrealized gains (losses) on<PAGE>
securities available for sale 621,791 (116,369)
Total Stockholders' Equity 17,098,575 14,896,157
Total Liabilities and
Stockholders' Equity $ 152,301,336 $ 132,648,847
The accompanying notes are an integral part of this statement.
Page
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1995 1994 1993
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 8,401,531 $ 7,106,280 $ 6,685,508
Interest on time deposits and
federal funds sold 132,550 82,089 139,656
Interest on debt securities
- taxable 2,188,081 2,106,838 1,901,259
Interest on debt securities
- nontaxable 47,631 118,118 218,572
Dividends on common stock 374,159 355,979 278,509
Total Interest and Dividend
Income 11,143,952 9,769,304 9,223,504
INTEREST EXPENSE:
Interest on demand deposits 611,422 663,486 688,724
Interest on savings deposits 1,222,310 1,061,469 1,028,127
Interest on certificates of
deposit over $100,000 223,074 70,307 70,585
Interest on all other time
deposits 2,215,059 1,639,405 1,810,548
Total interest on deposits 4,271,865 3,434,667 3,597,984
Interest on short-term debt 13,478 11,318 8,509
Interest on long-term debt 1,229,799 1,109,942 815,822
Total Interest Expense 5,515,142 4,555,927 4,422,315
NET INTEREST INCOME 5,628,810 5,213,377 4,801,189
PROVISION FOR LOAN LOSSES
(note 6) 164,500 60,000 60,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,464,310 5,153,377 4,741,189
NONINTEREST INCOME:
Service charges on deposit
accounts 236,072 219,015 220,382
Insurance and other commissions 43,425 29,513 56,535
Other operating income 84,110 80,880 87,250
Gain on security transactions
(note 4) 575,795 413,493 374,982
Total Noninterest Income 939,402 742,901 739,149
NONINTEREST EXPENSES:
Salaries 1,446,305 1,326,681 1,218,315
Employee benefits
(notes 11 & 12) 508,606 460,566 404,326
Occupancy expense 179,857 129,340 113,652
Equipment expense 231,962 193,711 228,129
FDIC insurance 115,030 223,377 223,726
Other operating expenses 851,183 794,452 727,560
Total Noninterest Expenses 3,332,943 3,128,127 2,915,708
Income before Income Taxes 3,070,769 2,768,151 2,564,630
INCOME TAX EXPENSE (note 10) 955,086 779,201 677,976
NET INCOME $ 2,115,683 $ 1,988,950 $ 1,886,654
PER SHARE DATA
NET INCOME $ 2.60 $ 2.44 $ 2.32
CASH DIVIDENDS $ .80 $ .75 $ .65
COMMON EQUIVALENT SHARES
OUTSTANDING (note 17) 814,288 814,288 812,392
The accompanying notes are an integral part of this statement.
Page
<TABLE>
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized
Gains
(Losses)
on Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale Total
<S> <C> <C> <C> <C> <C>
BALANCE - December 31, 1992 $ 2,023,785 $ 647,569 $ 9,493,979 $ $12,165,333
Net income 1,886,654 1,886,654
Dividends on common stock (528,690) (528,690)
Stock issued to stock bonus
plan (2,387 shares)
(note 12) 11,935 99,060 110,995
Stock split effected in the
form of a dividend
(407,144 shares) 2,035,720 (2,035,720)
BALANCE - December 31, 1993 4,071,440 746,629 8,816,223 13,634,292
Net income 1,988,950 1,988,950
Dividends on common stock (610,716) (610,716)
Cumulative effect of change
in accounting for securities
available for sale 757,000 757,000
Change in net unrealized
losses on securities
available for sale (873,369) (873,369)
BALANCE - December 31, 1994 4,071,440 746,629 10,194,457 (116,369) 14,896,157
Net income 2,115,683 2,115,683
Dividends on common stock (651,425) (651,425)
Change in net unrealized
gains (losses) on securities
available for sale 738,160 738,160
BALANCE - December 31, 1995 $ 4,071,440 $ 746,629 $11,658,715 $ 621,791 $17,098,575
</TABLE>
The accompanying notes are an integral part of this statement.
Page
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,115,683 $ 1,988,950 $ 1,886,654
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of securities (575,795) (413,493) (374,982)
Depreciation 204,520 170,127 203,930
Amortization of security
premiums 146,966 199,631 244,797
Provision for loan losses 164,500 60,000 60,000
Provision for deferred taxes (28,497) (25,396) (5,715)
(Increase) decrease in
interest receivable (261,755) 38,482 (13,015)
Increase in other assets (14,909) (118,852) (158,125)
Increase (decrease) in
accrued expenses 435,465 (148,127) (575)
Losses on limited
partnership investments 49,901 33,268
Net Cash Provided by
Operating Activities 2,236,079 1,784,590 1,842,969
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest
bearing bank deposits (23,855)
Change in federal funds sold (1,787,000) 1,080,000
Proceeds from maturities of
investment securities
held to maturity 15,409,547 12,499,393 17,518,089
Proceeds from maturities of
securities available for sale 1,280,093 2,518,940
Proceeds from sales of
securities available for sale 4,931,003 803,253
Proceeds from sales of investment
securities held to maturity 1,207,294
Purchases of securities
available for sale (6,740,372) (1,656,077)
Purchases of investment
securities held to maturity (13,256,220) (11,548,349) (27,013,582)
Net increase in loans (16,647,730) (6,968,973) (6,529,943)
Purchase of property
and equipment (627,202) (176,483) (221,430)
Construction in progress
payments (248,711)
Net Cash Used in
Investing Activities (17,461,736) (4,777,007) (13,959,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand
and savings deposits 507,727 1,249,651 6,945,660
Net increase (decrease)
in time deposits 14,399,318 (1,629,866) (1,126,328)
Net increase (decrease)
in short-term debt 304,253 (302,913) 183,142
Dividends paid in cash (651,425) (610,716) (527,735)
Proceeds from long-term debt 4,000,000 6,000,000 6,900,000
Repayments on long-term debt (2,538,919) (1,537,452) (405,405)
Net Cash Provided by
Financing Activities 16,020,954 3,168,704 11,969,334
Net Increase (Decrease) in
Cash and Cash Equivalents 795,297 176,287 (147,269)
Cash and Cash Equivalents,
Beginning of Year 2,920,810 2,744,523 2,891,792
Cash and Cash Equivalents,
End of Year $ 3,716,107 $ 2,920,810 $ 2,744,523
Supplemental Disclosure:
Cash paid for:
Interest expense $ 5,369,040 $ 4,560,595 $ 4,462,586
Income taxes 792,241 823,985 700,481
The accompanying notes are an integral part of this statement.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS:
F & M Bank Corp. ("Company"), through its subsidiary Farmers &
Merchants Bank ("Bank"), operates under a charter issued by the
Commonwealth of Virginia and provides commercial banking
services. As a state chartered bank, the Bank is subject to
regulation by the Virginia Bureau of Financial Institutions and
the Federal Reserve Bank. The Bank provides services to
customers located mainly in Rockingham County, Virginia, and the
adjacent counties of Page, Shenandoah and Augusta. Services are
provided at five branch offices.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles
and to accepted practice within the banking industry.
The following is a summary of the more significant policies:
(a) Principles of Consolidation
The consolidated financial statements include the accounts
of the Farmers and Merchants Bank, the TEB Life Insurance
Company and Timway Insurance Agency, Inc. Significant
intercompany accounts and transactions have been eliminated.
(b) Use of Estimates in the Preparation of Financial Statements
In preparing the financial statements, management is
required to make estimates and assumptions that affect the
reported amounts in those statements, actual results could
differ significantly from those estimates. A material
estimate that is particularly susceptible to significant
changes is the determination of the allowance for loan
losses, which is sensitive to changes in local economic
conditions.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and deposits
at other financial institutions whose initial maturity is
ninety days or less.
(d) Investment Securities
Prior to December 31, 1993, all securities were carried at
historical cost, adjusted for amortization of premiums and
accretion of discounts. Marketable equity securities were
stated at lower of aggregate cost or fair value.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Investment Securities (Continued)
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Management has reviewed the securities portfolio and
classified all securities as either held to maturity or
available for sale. Securities that the Company has both
the positive intent and ability to hold to maturity (at time
of purchase) are classified as held to maturity securities.
All other securities are classified as available for sale.
Securities held to maturity are carried at historical cost
and adjusted for amortization of premiums and accretion of
discounts, using the effective interest method. Securities
available for sale are carried at fair value with any
valuation adjustments reported, net of deferred taxes, as a
separate component of stockholders' equity. Also included
in securities available for sale are marketable equity
securities. The adoption of this statement as of January 1,
1994, increased stockholders' equity by $757,000 (net of tax
impact of $465,000). Changes subsequent to the adoption of
this statement are shown as a separate item on the statement
of stockholders' equity.
Interest and dividends on securities and amortization of
premiums and discounts on securities are reported as
interest income using the effective interest method. Gains
(losses) realized on sales and calls of securities are
determined on the specific identification method.
(e) Loans
Loans are carried on the balance sheet net of any unearned
interest and the allowance for loan losses. Interest income
on loans is determined using the effective interest method
on the daily amount of principal outstanding except where
serious doubt exists as to collectibility of the loan, in
which case the accrual of income is discontinued.
(f) Allowance for Loan Losses
The allowance for loan losses is based upon management's
knowledge and review of the loan portfolio. Estimation of
an adequate allowance for loan losses involves the exercise
of judgement, the use of assumptions with respect to present
economic conditions and knowledge of the environment in
which the Bank operates. Among the factors considered in
determining the level of the allowance are the changes in
composition of the loan portfolio, the amount of delinquent
and nonaccrual loans, past loan loss experience and the
value of collateral securing the loans.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Bank Premises and Equipment
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is charged to income
over the estimated useful lives of the assets on a
combination of the straight-line and accelerated methods.
The ranges of the useful lives of the premises and equipment
are as follows:
Buildings and Improvements 10 - 40 years
Furniture and Fixtures 3 - 20 years
Maintenance, repairs, and minor improvements are charged to
operations as incurred. Gains and losses on dispositions
are reflected in other income or expense.
(h) Pension Plans
Substantially all employees are covered by a pension plan.
The net periodic pension expense includes a service cost
component, reflecting the actual return on plan assets, and
the effect of deferring and amortizing certain actuarial
gains and losses and the unrecognized net transition asset.
(i) Income Taxes
Amounts provided for income tax expense are based on income
reported for financial statement purposes rather than
amounts currently payable under income tax laws. Deferred
taxes, which arise principally from temporary differences
between the period in which certain income and expenses are
recognized for financial accounting purposes and the period
in which they affect taxable income, are included in the
amounts provided for income taxes.
(j) Earnings Per Share
Earnings per share are based on the weighted average number
of shares outstanding and take into account common stock
equivalents outstanding during the year.
NOTE 3 CASH AND DUE FROM BANKS:
The Bank is required to maintain average reserve balances based
on a percentage of deposits. The average balance of cash
required to be on reserve with the Federal Reserve Bank was
$522,000 and $516,000 for the years ended December 31, 1995 and
1994, respectively.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES:
<TABLE>
The amortized cost and fair value of securities held to maturity are as follows:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1995
U. S. Treasuries
and Agencies $18,279,611 $ 91,633 $ 81,307 $18,289,937
Mortgage-backed
obligations of
federal agencies 3,631,173 32,618 1,678 3,662,113
State and municipals 476,460 0 893 475,567
Corporate bonds 4,522,534 97,353 0 4,619,887
Total Securities
Held to Maturity $26,909,778 $ 221,604 $ 83,878 $27,047,504
December 31, 1994
U. S. Treasuries
and Agencies $28,529,245 $ 11 $ 1,211,356 $27,317,900
State and municipals 1,313,699 3,155 12,416 1,304,438
Corporate bonds 5,011,605 19,167 21,077 5,009,695
Total Securities
Held to Maturity $34,854,549 $ 22,333 $ 1,244,849 $33,632,033
The amortized cost and fair value of securities available for sale are as follows:
December 31, 1995
U.S. Agencies $ 2,998,825 $ 59,613 $ 30,000 $ 3,028,438
Mortgage-backed
obligations of
federal agencies 2,859,115 19,779 15,150 2,863,744
Marketable equities 6,429,220 944,887 56,130 7,317,977
Corporate bonds 4,031,800 74,625 0 4,106,425
Total Securities
Available for
Sale $16,318,960 $ 1,098,904 $ 101,280 $17,316,584
December 31, 1994
Mortgage-backed
obligations of
federal agencies $ 3,281,061 $ 7,963 $ 199,827 $ 3,089,197
Marketable equities 6,034,510 421,461 408,008 6,047,963
Total Securities
Available for
Sale $ 9,315,571 $ 429,424 $ 607,835 $ 9,137,160<PAGE>
</TABLE>
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
The amortized cost and fair value of securities at December 31,
1995, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or
less $ 4,031,800 $ 4,106,425 $ 7,734,349 $ 7,714,984
Due after one year
through five years 2,998,825 3,028,438 15,187,913 15,327,839
Due after five years
through ten years 3,500,926 3,510,781
Due after ten years 486,590 493,900
Total 7,030,625 7,134,863 26,909,778 27,047,504
Mortgage-backed 2,859,115 2,863,744
Marketable equities 6,429,220 7,317,977
$16,318,960 $17,316,584 $26,909,778 $27,047,504
</TABLE>
Realized gains and losses and the gross proceeds from the sale
of debt securities were not material in 1995, 1994 or 1993.
Realized gains and losses on marketable equity transactions are
summarized below:
1995 1994 1993
Gains $ 620,036 $ 489,926 $ 440,197
Losses 44,241 76,433 65,215
Net Gains $ 575,795 $ 413,493 $ 374,982
In response to a statement from the Financial Accounting Standards
Board permitting banks to reassess their classification of
investments, the Bank transferred securities with a carrying value
of $7,390,508 and net unrealized gains of $95,838 from held to
maturity to available for sale in December 1995.
The carrying value (which approximates fair value) of securities
pledged by the Company to secure deposits and for other purposes
amounted to $5,516,110 at December 31, 1995 and $2,000,841 at
December 31, 1994.
There were no state or political subdivision obligations of a
single issuer which exceeded 10% of stockholders' equity at
December 31, 1995, 1994 or 1993.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
At December 31, 1995, the Company was committed to invest an
additional $695,538 in two low income housing limited
partnerships. These funds will be paid as requested by the
general partner to complete the projects.
Other investments consist of investments in two low income
housing partnerships (carrying basis of $412,098) and stock in
the Federal Home Loan Bank, Virginia Bankers Bank and Federal
Reserve Bank (carrying basis of $1,049,800). The interests in
the low income housing partnership have limited transferability
and the interest in the FHLB stock is based on FHLB debt
outstanding and thus is restricted as to sales. The market
values of these securities are estimated to approximate their
carrying value as of December 31, 1995.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
1995 1994
Real Estate
Construction $ 2,540,013 $ 2,122,818
Mortgage 58,771,486 49,564,148
Commercial and agricultural 25,018,296 20,474,132
Installment 10,806,613 8,427,239
Credit cards 806,745 753,345
Other 20,678 20,666
Total $97,963,831 $81,362,348
The Company has pledged mortgage loans as collateral for
borrowings with the Federal Home Loan Bank of Atlanta totalling
$24,014,113 and $22,718,951 as of December 31, 1995 and 1994,
respectively.
NOTE 6 ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses for the
years ended December 31 is shown in the following schedule:
1995 1994 1993
Balance, beginning of year $744,513 $699,954 $665,159
Provision charged to operating
expenses 164,500 60,000 60,000
Loan recoveries 18,252 30,100 15,726
Loans charged off (64,499) (45,541) (40,931)
Balance, end of year $862,766 $744,513 $699,954
Percentage of gross loans .88% .92% .94%
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment as of December 31 are summarized as
follows:
1995 1994
Land $ 392,237 $ 326,829
Buildings and improvements 1,804,459 1,420,869
Furniture and equipment 1,975,042 1,643,183
4,171,738 3,390,881
Less - Accumulated depreciation (2,188,754) (2,079,292)
Net $ 1,982,984 $ 1,311,589
Provisions for depreciation of $204,520 in 1995, $170,127 in
1994 and $203,930 in 1993 were charged to operations.
NOTE 8 SHORT-TERM DEBT:
Short-term debt information is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding Rate Rate
<S> <C> <C> <C> <C> <C>
1995
Treasury, tax
and loan $ 708,163 $ 137,730 $ 265,833 4.76% 5.148%
Federal funds
purchased 0 0 5,699 6.10 N/A
Notes payable 700,000 700,000 7,671 8.20 8.20
Totals $ 837,730 $ 279,203 4.88% 7.69%
1994
Treasury, tax
and loan $ 439,857 $ 203,477 $ 250,542 3.46% 5.20%
Federal funds
purchased 1,110,000 330,000 51,863 5.10 5.87
Totals $ 533,477 $ 302,405 3.74% 5.31%
</TABLE>
The Bank has lines of credit with correspondent banks totalling
$4,600,000, which are used to manage short-term liquidity needs.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 LONG-TERM DEBT:
The Company has borrowed on a cumulative basis $23,900,000 from
the Federal Home Loan Bank of Atlanta (FHLB) since 1992.
Advances for the years ended December 31, 1995 and 1994, were
$4,000,000 and $6,000,000, respectively. The interest rates on
the notes payable are fixed at the time of the advance and range
from 5.62% to 7.72%; the weighted average interest rate is 6.50%
at December 31, 1995.
Repayments of long-term debt are due quarterly and interest is
due monthly. Interest expense of $1,229,799 and $1,109,942 was
incurred on these debts in 1995 and 1994, respectively. The
maturities of long-term debt as of December 31, 1995 are as
follows:
1996 $ 2,810,345
1997 2,810,345
1998 2,810,345
1999 2,810,345
2000 2,810,346
Thereafter 5,366,498
Total $ 19,418,224
NOTE 10 INCOME TAX EXPENSE:
The components of the income tax expense for the years ended
December 31 are as follows:
1995 1994 1993
Current expense
Federal $ 940,882 $ 780,302 $ 655,187
State 42,701 24,295 28,504
Deferred expense
Federal (28,497) (25,396) (5,715)
Total Income Tax Expense $ 955,086 $ 779,201 $ 677,976
Amounts in above arising
from gains on security
transactions $ 220,572 $ 159,000 $ 144,926
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 INCOME TAX EXPENSE (CONTINUED):
The deferred tax effects of temporary differences for the years
ended December 31 are as follows:
1995 1994 1993
Tax Effects of Temporary Differences:
Accounting change $ (11,523) $ (11,524) $ (11,524)
Provision for loan losses (40,206) (18,210) (10,385)
Split dollar life insurance (11,492) (8,660) (42,334)
Depreciation (3,521) (152) 9,548
FHLB dividends (5,576) 4,794 19,346
Pension expense 18,272 14,357 19,935
Low income housing credits 18,770 17,244
Other 6,779 (23,245) 9,699
Deferred Income Tax Benefit $ (28,497) $ (25,396) $ (5,715)
The components of the deferred taxes as of December 31 are as
follows:
1995 1994
Deferred Tax Assets:
Securities available for sale $ $ 62,040
Bad debt allowance 177,787 137,581
Split dollar life insurance 62,486 50,994
Other 6,668 7,025
Total Assets 246,941 257,640
Deferred Tax Liabilities:
Securities available for sale 375,831
Low income housing credit 36,014 17,244
Accretion 9,278 2,856
Depreciation 18,949 22,470
Pension 109,518 91,246
Change in accounting method 34,572 46,095
FHLB dividends 18,564 24,140
Total Liabilities 602,726 204,051
Net Asset (Liability) $ (355,785) $ 53,589
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 INCOME TAX EXPENSE (CONTINUED):
The following table summarizes the differences between the actual
income tax expense and the amounts computed using the federal
statutory tax rates for the years ended December 31:
1995 1994 1993
Tax expense at federal
statutory rates $1,044,062 $ 930,915 $ 871,975
Increases (decreases) in
taxes resulting from:
Tax-exempt interest (14,792) (34,349) (65,588)
Partially exempt income (116,067) (107,185) (92,267)
State income taxes, net 37,722 18,270 18,813
Change in accounting
method (25,097)
Other 4,161 (28,450) (29,860)
Total Income Tax
Expense $ 955,086 $ 779,201 $ 677,976
NOTE 11 PENSION EXPENSE:
The Bank participates in the Virginia Bankers' Association Master
Defined Benefit Pension Plan and Trust. Substantially all bank
employees are covered by the plan. Benefits are based upon the
participant's length of service and annual earnings with vesting
of benefits after five years of service. The Bank's funding
policy is to fund the maximum amount permitted by federal income
tax regulations. Plan assets consist primarily of investments in
stocks and bonds.
The Plan's funded status at December 31, 1995, 1994 and 1993
(plan information is as of October 1, 1995, 1994 and 1993) is as
follows:
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 PENSION EXPENSE (CONTINUED):
1995 1994 1993
Actuarial present value of
benefit obligations:
Vested $(1,399,834) $(1,407,164) $(1,216,375)
Nonvested (8,796) (3,599) (6,126)
Accumulated benefit
obligation (1,408,630) (1,410,763) (1,222,501)
Effect of assumed
increase in
compensation (544,608) (480,641) (472,434)
Projected benefit
obligation for
services to date (1,953,238) (1,891,404) (1,694,935)
Plan assets at fair
market value 2,030,441 1,892,842 1,786,866
Plan assets in excess
of projected
benefit obligation 77,203 1,438 91,931
Deferred prior service
costs 158,983 168,919 178,855
Unrecognized net asset
existing at
transition date 121,893 132,051 142,209
Unrecognized net gains (164,769) (140,949) (293,850)
Prepaid Pension Expense $ 193,310 $ 161,459 $ 119,145
The net periodic pension expense for years ended December 31 is
as follows:
1995 1994 1993
Service cost $ 83,185 $ 83,911 $ 74,018
Interest cost on projected
benefit obligation 140,436 126,436 109,173
Actual return on plan assets (168,653) (17,223) (127,299)
Net amortization and deferrals 20,094 (128,438) (7,532)
Net Periodic Pension Cost $ 75,062 $ 64,686 $ 48,360
In determining the projected benefit obligation, the weighted
average assumed discount rate was 7.50%, the assumed rate of
increase in future salary levels was 6% and expected long-term rate
of return on assets used in determining the net periodic pension
cost was 9%.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has established an employee stock ownership plan
which provides stock ownership to all employees of the Bank.
The Plan provides total vesting upon the attainment of five
years of service. Contributions to the plan are made at the
discretion of the Board of Directors and are allocated based on
the compensation of each employee relative to total compensation
paid by the Bank. All shares issued and held by the Plan are
considered outstanding in the computation of earnings per share.
Dividends on Company stock are allocated and paid to
participants at least annually. Shares of Company stock when
distributed have restrictions on transferability. The Company
contributed $141,926 in 1995, $130,600 in 1994 and $120,301 in
1993 to the Plan and charged this expense to operations.
NOTE 13 CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks totaling
$2,760,038 and $2,019,764 at December 31, 1995 and 1994,
respectively.
The Company grants commercial, residential real estate and
consumer loans to customers located primarily in the
northwestern portion of the state of Virginia. Although the
Company has a diversified loan portfolio, a substantial portion
of its debtors' ability to honor their contracts is dependent
upon the agribusiness economic sector. Collateral required by
the Company is determined on an individual basis depending on
the purpose of the loan and the financial condition of the
borrower. Approximately 60% of the loan portfolio is secured by
real estate.
NOTE 14 COMMITMENTS:
The Company makes commitments to extend credit in the normal
course of business and issues standby letters of credit to meet
the financing needs of its customers. The amount of the
commitments represents the Company's exposure to credit loss
that is not included in the balance sheet. As of the balance
sheet dates, the Company had outstanding the following
commitments:
1995 1994
Commitments to loan money $12,915,632 $ 9,296,304
Standby letters of credit 240,000 205,500
The Company uses the same credit policies in making commitments
to loan money and issuing standby letters of credit as it does
for the loans reflected in the balance sheet.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 COMMITMENTS (CONTINUED):
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by
the Company upon extension of credit is based on management's
credit evaluation of the borrower. Collateral held varies but
may include accounts receivable, inventory, property, plant and
equipment.
NOTE 15 TRANSACTIONS WITH RELATED PARTIES:
During the year, officers and directors (and companies
controlled by them) were customers of and had transactions with
the Company in the normal course of business. These
transactions were made on substantially the same terms as those
prevailing for other customers and did not involve any abnormal
risk.
Loan transactions to such related parties are shown in the
following schedule:
1995 1994
Total loans, beginning of year $ 1,566,329 $ 1,266,040
Existing loans to newly
appointed directors 100,000 0
New loans 640,685 1,197,112
Payments made (891,014) (896,823)
Loans to retiring officers
and directors (28,664) 0
Total Loans, end of year $ 1,387,336 $ 1,566,329
NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK:
The principal source of funds of F & M Bank Corp. is dividends
paid by the Farmers and Merchants Bank. The amount of dividends
the Bank may pay is restricted by the Federal Reserve Act and
approval of the Board of Governors of the Federal Reserve System
is required if the dividends declared by a state member bank in
any year exceed the sum of (1) net income of the current year
and (2) net income after dividends for the preceding two years.
As of January 1, 1996, approximately $1,501,599 was available
for dividend distribution without permission of the Board of
Governors. Dividends paid by the Bank to the Company totaled
$170,458 in 1995, $972,859 in 1994 and $764,643 in 1993.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 STOCK SPLIT EFFECTED IN THE FORM OF A DIVIDEND:
In September 1993, the Company declared a two for one stock
split to be distributed in the form of a dividend. One
additional share was distributed for each share outstanding as
of October 1, 1993 with no change in the par value of the stock.
All per share computations have been restated to reflect this
stock split.
NOTE 18 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS 107)
"Disclosures About the Fair Value of Financial Statements"
defines the fair value of a financial instrument as the amount
at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced
liquidation sale. As the majority of the Bank's financial
instruments lack an available trading market, significant
estimates, assumptions and present value calculations are
required to determine estimated fair value.
Estimated fair value and the carrying value of financial
instruments at December 31, 1995, are as follows (in thousands):
Estimated Carrying
Fair Value Value
Financial Assets:
Cash and cash equivalents $ 5,585 $ 5,585
Securities available for sale 17,316 17,316
Securities held to maturity 27,047 26,910
Other investments 1,462 1,462
Loans 97,211 97,101
Accrued interest receivable 1,264 1,264
Financial Liabilities:
Demand Deposits:
Non-interest bearing 10,941 10,941
Interest bearing 20,243 20,243
Savings deposits 30,234 30,234
Time deposits 52,713 52,243
Accrued interest payable 477 477
The carrying value of cash and cash equivalents, other
investments, deposits with no stated maturities, short-term
borrowings, and accrued interest approximates fair value. The
fair value of securities was calculated using a pricing model
which takes into consideration maturity, yields and quality. The
remainder of the financial instruments was valued based on the
present value of estimated future cash flows, discounted at
various rates in effect for similar instruments during the month
of December 1995.
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31,
1995 1994
ASSETS
Cash $ 4,112 $ 3,639
Investment in subsidiaries 10,230,568 8,061,808
Loans receivable 291,819 300,500
Securities available for sale 7,745,026 6,409,034
Accrued interest receivable 1,639 1,801
Due from subsidiaries 120,564 228,267
Income tax receivable 0 76,322
Total Assets $18,393,728 $15,081,371
LIABILITIES
Interest payable $ 467 $ 0
Dividends payable 162,858 162,858
Short-term debt 700,000 0
Income taxes payable 58,087 0
Deferred income tax 373,741 22,356
Total Liabilities 1,295,153 185,214
STOCKHOLDERS' EQUITY
Common stock par value $5 per
share, 1,000,000 shares authorized,
814,288 shares issued and
outstanding 4,071,440 4,071,440
Capital surplus 746,629 746,629
Retained earnings 11,658,715 10,194,457
Net unrealized gains (losses)
on securities available for sale 621,791 (116,369)
Total Stockholders' Equity 17,098,575 14,896,157
Total Liabilities and
Stockholders' Equity $18,393,728 $15,081,371
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF NET INCOME AND RETAINED EARNINGS
Years Ended December 31,
1995 1994 1993
INCOME
Dividends from affiliate $ 170,458 $ 972,859 $ 764,643
Interest on bank balances 0 0 293
Interest on loans 26,786 29,352 33,280
Investment income - taxable 1,675 2,793 9,551
Investment income
- nontaxable 0 3,980 43,631
Dividend income 374,159 355,979 278,509
Security gains 620,036 464,933 440,197
Other 0 0 99
Total Income 1,193,114 1,829,896 1,570,203
EXPENSES
Limited partnership
losses, net of credits 8,854 33,268 0
Interest expense 467 11,540
Administration expense 73,697 70,938 58,528
Total Expenses 83,018 104,206 70,068
Net income before income
tax expense and increase
in undistributed equity
of affiliates 1,110,096 1,725,690 1,500,135
INCOME TAX EXPENSE 267,699 151,284 185,144
Income before increase in
undistributed equity of
affiliates 842,397 1,574,406 1,314,991
Increase in undistributed
equity of affiliates 1,273,286 414,544 571,663
NET INCOME 2,115,683 1,988,950 1,886,654
Retained earnings,
beginning of year 10,194,457 8,816,223 9,493,979
Cash dividends of common stock (651,425) (610,716) (528,690)
Stock dividends 0 0 (2,035,720)
Retained Earnings, End of Year $11,658,715 $10,194,457 $ 8,816,223
Page
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,115,683 $ 1,988,950 $ 1,886,654
Adjustments to reconcile net
income to net cash provided
by operating activities:
Undistributed subsidiary
income (1,273,286) (414,544) (571,663)
Deferred tax expense 18,770 17,244
Gain on sale of
securities (620,036) (464,933) (440,197)
Decrease in interest
receivable 162 726 15,107
Decrease (increase) in due
from subsidiary 107,703 9,880 (238,147)
Decrease (increase) in
other receivables 76,324 (72,184) 75,620
Increase (decrease) in
accrued expenses 99,596 (85,813) 9,301
Increase (decrease) in
due to subsidiary (206,611)
Losses on limited
partnership investments 8,854 33,268
Net Cash Provided by
Operating Activities 533,770 1,012,594 530,064
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of
investments available
for sale 2,260,956 803,252 1,000,794
Proceeds from maturity of
investments held to
maturity 122,467 1,546,126
Purchase of investments
available for sale (2,030,149) (1,204,971) (1,980,679)
Purchase of other investments (121,359) (291,810) (116,585)
(Increase) decrease in
loans receivable 8,680 157,528 (57,657)
Investment in subsidiary (700,000) (499,645)
Net Cash Used in Investing
Activities (581,872) (413,534) (107,646)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 700,000
Stock issued to stock<PAGE>
bonus plan 110,995
Dividends paid in cash (651,425) (610,716) (527,735)
Net Cash Provided by (Used in)
Financing Activities 48,575 (610,716) (416,740)
Net Increase (Decrease) in
Cash and Cash Equivalents 473 (11,656) 5,678
Cash and Cash Equivalents,
Beginning of Year 3,639 15,295 9,617
Cash and Cash Equivalents,
End of Year $ 4,112 $ 3,639 $ 15,295
Page
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Principal Occupation
Name and Position Director During the Last
with the Bank Age Since Five Years
CLASS A DIRECTORS
(to serve until the 1997 annual meeting of shareholders)
Lawrence H. Hoover, Jr. 61 1981 Attorney, Partner in Hoover,
Vice Chairman of the Board Penrod, Davenport & Crist and
its predecessor since 1971
Richard S. Myers 48 1988 President of Dick Myers
Chevrolet-GEO since February
1991
Ronald E. Wampler 48 1991 Farmer and partner in Dove
Farms, Inc. and its affiliates
CLASS B DIRECTORS
(to serve until the 1998 annual meeting of shareholders)
Thomas L. Cline 49 1991 Secretary/Treasurer of Truck &
Equipment Corp. and related
companies since 1974
Robert L. Halterman 60 1980 President of Virginia Mustang
Supply, Inc., an auto parts
company
Wayne L. Long 66 1985 Real estate and retired farmer
Michael W. Pugh 41 1994 President of Old Dominion
Realty, Inc.; Partner in Tri-
City Development; President of
Colonial Appraisal Service,
Inc.
CLASS C DIRECTORS
(to serve until the 1999 annual meeting of shareholders)
Julian D. Fisher 55 1990 President of Farmers &
President Merchants Bank since Oct.
1991; Exec. VP of the Bank
from May 1990 to Oct. 1991
Dan B. Todd 64 1969 CEO of Farmers & Merchants
Chairman Bank since 1969; Chairman of
the Board of the Bank since
Oct. 1991; Pres. of the
Company and the Bank and its
predecessor from 1969 to Oct.
1991
Page
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act (Continued)
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than 10% of
the common stock of the Company, to file with the Securities and Exchange
Commission reports of ownership and changes in ownership of common stock.
Officers and directors are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such reports furnished to the Company or written
representation that no other reports were required, the Company believes
that, during 1995, all filing requirements applicable to its officers and
directors were complied with except that Richard S. Myers, Director,
inadvertently failed to file reports between 1988 and 1995 covering 400
shares of common stock of the Company that were acquired for his IRA
accounts. A corrective filing has been made.
Item 10. Executive Compensation
The Summary Compensation Table below sets forth the compensation of the
Company's Chief Executive Officer for all services rendered to the Company
and its subsidiary, Farmers & Merchants Bank, for the last three fiscal
years.
SUMMARY COMPENSATION TABLE
Name and Annual Compensation 1 Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) 2
Dan B. Todd
Chief Executive 1995 $ 95,000 $ 45,000 $ 31,585
Officer and
Chairman 1994 92,500 40,000 31,195
of Board 1993 90,000 35,000 30,833
1 The value of perquisites and other personal benefits did not exceed
the lessor of $50,000 or 10% of the total of annual salary and bonus.
2 The amounts presented include the Company's contribution for the
benefit of Mr. Todd under the Company's Stock Bonus Plan ($13,877,
$13,318 and $12,791 in 1995, 1994 and 1993, respectively) and the
gross value of life insurance premiums paid by the Company on behalf
of Mr. Todd ($17,708, $17,877 and $18,042 in 1995, 1994 and 1993,
respectively). Pursuant to a split-dollar insurance agreement between
the Company and Mr. Todd, the Company will be repaid such premium
payments from the proceeds of the insurance policies. Thus, the gross
premium payment amounts shown overstate the actual economic benefit to
Mr. Todd.
(1) Directors of the Bank are compensated for attendance at the Board and
Committee meetings, of which they are members, as follows: One
hundred and fifty dollars ($150) for each Board of Directors' meeting,
and fifty dollars ($50) for each Committee meeting; in addition each
Director is paid a bonus at the end of each calendar year, the amount
of which is determined by the Board of Directors, after considering
the performance of the Bank. For the calendar year 1995, a bonus of
$4,000 was paid to each Director.
Page
Item 11. Security Ownership of Certain Beneficial Owners and Management
There were no persons or entities that held directly or indirectly more
than a 5% beneficial interest in the capital stock of the Company as of
December 31, 1995.
The following table sets forth the number and percentage of shares of
common stock held, as of December 31, 1995 by each of the Company's
directors and all of the Company's directors and officers as a group.
Amount Percent
Beneficially of
Name of Owner Owned Class
Thomas L. Cline 1,875 1 .230%
Julian D. Fisher 6,910 2 .849%
Robert L. Halterman 9,616 1.181%
Lawrence H. Hoover, Jr. 11,005 3 1.351%
Wayne L. Long 5,080 4 .624%
Richard S. Myers 3,740 5 .459%
Michael W. Pugh 200 .025%
Dan B. Todd 11,782 6 1.447%
Ronald E. Wampler 2,500 .307%
All Directors and executive
officers as a group 52,708 6.473%
1 Includes 1,241 shares owned directly, 578 shares owned jointly with
another member of his household and 56 shares owned by another member
of his household.
2 Includes 3,132 shares owned directly, 2,730 shares owned by another
member of his household and 1,048 shares which are vested in the
Company's stock bonus plan.
3 Includes 10,280 shares owned directly and 725 shares owned by members
of his household.
4 Includes 1,284 shares owned directly and 3,796 shares owned by a
member of his household.
5 Includes 1,600 shares owned directly and 2,140 shares held in Mr.
Myers' IRA account.
6 Includes 1,660 shares owned directly, 8,554 shares owned by a member
of his household and 1,568 shares which are vested in the Company's
stock bonus plan.
Page
Item 12. Certain Relationships and Related Transactions
Most of the directors, partnerships of which they may be general partners
and corporations of which they are officers or directors, maintain normal
banking relationships with the Bank. Loans made by the Bank to such
persons or other entities were made only in the ordinary course of
business, were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than normal risk
of collectibility or present other unfavorable features. See Note 15 of
the consolidated financial statements.
Part IV
Item 13. Exhibits and Reports on Form 8-K
Exhibit No.
3 i Articles of Incorporation of F & M Bank Corp. are
incorporated by reference to Exhibits to F & M Bank
Corp.'s Form S14 filed February 17, 1984.
3 ii Bylaws of F & M Bank Corp. are incorporated by
reference to Exhibits to F & M Bank Corp.'s form S14
filed February 17, 1984.
21 Subsidiaries of the small business issuers attached
23 Consent of Certified Public Accountant attached
27 Financial Data Schedule attached
Reports on Form 8-K
The Corporation did not file any reports on Form 8-K for the quarter ending
December 31, 1995.
Page
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
F & M Bank Corp.
By: DAN B. TODD
Dan B. Todd, Chairman
Chief Executive Officer
and Chief Financial Officer
Date: March 21, 1996
By: RALPH C. FOLTZ, JR.
Ralph C. Foltz, Jr.
Controller and Chief Accounting
Officer
Date: March 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the date indicated.
Signature Title Date
THOMAS L. CLINE Director March 21, 1996
Thomas L. Cline
JULIAN D. FISHER Director, President March 21, 1996
Julian D. Fisher
ROBERT L. HALTERMAN Director March 21, 1996
Robert L. Halterman
Page
LAWRENCE H. HOOVER, JR. Director March 21, 1996
Lawrence H. Hoover, Jr.
WAYNE L. LONG Director March 21, 1996
Wayne L. Long
RICHARD S. MYERS Director March 21, 1996
Richard S. Myers
MICHAEL W. PUGH Director March 21, 1996
Michael W. Pugh
DAN B. TODD Director, Chairman March 21, 1996
Dan B. Todd and Chief Executive
Officer
RONALD E. WAMPLER Director March 21, 1996
Ronald E. Wampler
Exhibit 21 - List of Subsidiaries of the Registrant
Farmers & Merchants Bank (incorporated in Virginia)
TEB Life Insurance Company (incorporated in Arizona)
Timway Insurance Agency, Inc. (incorporated in Virginia), a subsidiary
of Farmers & Merchants Bank.
Exhibit 23 - Consent of Certified Public Accountant
To the Shareholders and Board of Directors
F & M Bank Corp.
We consent to the use of our report, dated January 24, 1996, relating to
the consolidated balance sheets of F & M Bank Corp. as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, which report appears on Page 21
in the December 31, 1995 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. HOOVER & COMPANY, L.L.P.
Harrisonburg, VA
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from F & M Bank
Corp. Form 10KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,716,107
<INT-BEARING-DEPOSITS> 82,205
<FED-FUNDS-SOLD> 1,787,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,316,584
<INVESTMENTS-CARRYING> 26,909,778
<INVESTMENTS-MARKET> 27,047,504
<LOANS> 97,963,831
<ALLOWANCE> 862,766
<TOTAL-ASSETS> 152,301,336
<DEPOSITS> 113,660,580
<SHORT-TERM> 837,730
<LIABILITIES-OTHER> 1,286,227
<LONG-TERM> 19,418,224
0
0
<COMMON> 4,071,440
<OTHER-SE> 13,027,135
<TOTAL-LIABILITIES-AND-EQUITY> 152,301,336
<INTEREST-LOAN> 8,401,531
<INTEREST-INVEST> 2,609,871
<INTEREST-OTHER> 132,550
<INTEREST-TOTAL> 11,143,952
<INTEREST-DEPOSIT> 4,271,865
<INTEREST-EXPENSE> 5,515,142
<INTEREST-INCOME-NET> 5,628,810
<LOAN-LOSSES> 164,500
<SECURITIES-GAINS> 575,795
<EXPENSE-OTHER> 3,332,943
<INCOME-PRETAX> 3,070,769
<INCOME-PRE-EXTRAORDINARY> 3,070,769
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,115,683
<EPS-PRIMARY> 2.60
<EPS-DILUTED> 2.60
<YIELD-ACTUAL> 4.30
<LOANS-NON> 0
<LOANS-PAST> 379,863
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 744,513
<CHARGE-OFFS> 64,499
<RECOVERIES> 18,252
<ALLOWANCE-CLOSE> 862,766
<ALLOWANCE-DOMESTIC> 862,766
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 69
</TABLE>
