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, 1996 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: $13,166,000
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 3, 1997 - $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, 1997 -
818,654
DOCUMENTS INCORPORATED BY REFERENCE:
None
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 48.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X
<PAGE> 2
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 45
Part III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act 45
Item 10. Executive Compensation 46
Item 11. Security Ownership of Certain Beneficial Owners
and Management 47
Item 12. Certain Relationships and Related Transactions 48
Part IV
Item 13. Exhibits and Reports on Form 8-K 48
Signatures 49
<PAGE> 3
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,
at Highway 33 West at Elkton Plaza, Elkton, Virginia, and at 100 Plaza
Drive, Bridgewater, Virginia.
On December 31, 1996, F & M Bank Corp., the Bank, TEB and Timway had
forty-six full time and nineteen part time employees. No one employee
devotes his services full time to the F & M Bank Corp.
Competition
The Bank's offices compete with three 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. The Bridgewater office serves the Bridgewater area
including the southern portion of Rockingham County, Virginia and the
northwestern portion of Augusta 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 1996 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.
<PAGE> 4
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 1996, 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 III, L.P. These
funds 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> 5
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, 1996.
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> 6
(a) Market Information (Continued)
The following schedule shows the range of reported trade prices and
dividends per share declared for 1994 through 1996:
Dividends
Declared High Low
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
1996
1st quarter .20 34.00 29.50
2nd quarter .22 34.50 31.50
3rd quarter .22 34.00 31.00
4th quarter .22 33.50 32.00
(b) Stockholders
On December 31, 1996, there were 1,105 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> 7
Item 6. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
OPERATIONS ANALYSIS - 1996 Compared to 1995
Overview
Net income for 1996 increased $325,085 or 15.37% from 1995 earnings.
This increase can be attributed primarily to an increase in net interest
income resulting from rapid loan growth and improvement in the net interest
margin. Other noninterest income decreased 30.27% due to a reduction in
realized gains on security transactions from $575,795 in 1995 to $235,104
in 1996. Noninterest expense increased only 2.31% in 1996 over 1995 due
mainly to a 1.53% reduction in salaries and benefits as a result of
retirements which occurred in 1996. 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
increased in 1996 from 1995 after a decrease in 1995 from 1994. The
Company's net yield on average earning assets of 4.39% is in line with its
peer group.
Yields on loans decreased from 9.41% to 9.25%. In 1996, commercial
loan rates decreased forty basis points due to the effects of reductions in
the prime rate of interest charged on variable rate loans. Installment
loans decreased eight basis points while real estate loans remained
virtually unchanged with a slight decrease of four 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 6.66% in 1996 from
6.38% in 1995 due to a slight increase in market rates. This increase was
primarily a result of a greater investment concentration in higher yielding
agency securities and commercial debt. Average investments were relatively
unchanged for the year. 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 decreased slightly to
4.46% in 1996 from 4.50% in 1995. Rates paid on time deposits increased
eighteen basis points in 1996 due to increased rates on renewed
certificates of deposit, a trend which started in the fourth quarter of
1994. Rates paid on savings deposits decreased 51 basis points in 1996.
The Bank offers a tiered rate savings account which is 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 gives the Bank
the ability to adjust rates quickly in response to changes in market rates.
The Bank also opened a new branch in 1995 and has continued to pay slightly
higher rates to attract new customers.
Interest rates paid on long-term indebtedness with the Federal Home
Loan Bank of Atlanta (FHLB) was virtually unchanged in 1996 compared to
rates 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.
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.
<PAGE> 8
Other Income
The Company recognized $235,104 in gains on investments in 1996, 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 $575,795 as a result of the disposition of
some of the above referenced equities.
Noninterest income other than security gains increased 14.52% in 1996
from 1995 levels. This increase was attributable to an increase in service
charges on deposit accounts (due to a greater volume of accounts),
increases in trustee fees and greater returns on low income housing
investments.
Other Expenses
Noninterest expense increased $76,719 or 2.30% in 1996 over 1995
levels. Salaries and employee benefits decreased 1.53% due to officer
retirements and reductions in health insurance premiums. Equipment and
occupancy expenses increased 10.94% due to greater depreciation expense for
the new Bridgewater office and additional expenses incurred to upgrade the
Bank's computer system. Deposit insurance decreased due to a decline in
the insurance rate assessed. Other noninterest expenses increased 18.70%
due mainly to the advertising expense, data processing fees related to the
computer upgrade, consulting fees and additional legal fees associated with
higher loan demand. The Company's overall cost of operations relative to
asset size compares favorably to its peer groups and to larger statewide
institutions.
1995 COMPARED TO 1994 OPERATIONS
Net income in 1995 increased 6.37% over net income in 1994. Higher
rates paid on liabilities were offset by an increase of forty basis points
on earning assets and a 5.94% increase in average earning assets. As a
result, net interest income on a tax equivalent basis increased 3.30%. The
net interest margin decreased from 4.41% in 1994 to 4.30% in 1995.
Gains on securities transactions increased $162,302 or 39.25% due
primarily to the sale of investments in common stocks of regional and
national financial institutions. Other noninterest income increased 12.82%
due to increased income on insurance operations and service charges on
deposit accounts.
Noninterest expense increased a total of 6.55%. Personnel costs
increased 9.38% due to the combined effect of normal salary increases and
additional staffing for the new Bridgewater office. Occupancy and
equipment costs increased a total of 27.48% and were related to the new
branch and an upgrade of the Bank's computer system. The FDIC insurance
assessment decreased 48.50% due to a virtual elimination of the insurance
cost at mid year.
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 are reasonably
expected to materially impact future operating results, liquidity, or
capital resources, or (ii) represent material credits which any available
information causes 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.
<PAGE> 9
BALANCE SHEET
INVESTMENT SECURITIES
Average balances in investment securities declined slightly (1.02%) in
1996 compared to 1995. Continued strong loan demand absorbed all funds
derived from deposit growth and additional long-term borrowing. The
Company maintains a high level of earning assets in investment securities
to provide for liquidity and as security for public indebtedness. A
schedule of investment securities is shown in note 4 of 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 1996, 1995 and
1994 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, 1996 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 $ 6,384 $ 6,396 5.67
Due after one year through
five years 12,199 12,191 6.39
Due after five years through
ten years 1,996 1,969 6.53
Due after ten years 2,129 2,111 6.70
Total $ 22,708 $ 22,667 6.23
Securities Available for Sale Amortized Market Average
Cost Value Yield
Due in one year or less $ 2,144 $ 2,154 6.31
Due after one year through
five years 8,605 8,622 6.40
Due after five years through
ten years 788 770 6.72
Due after ten years 867 868 7.61
12,404 12,414 6.49
Equity securities 6,077 7,308 9.26
Total $ 18,481 $ 19,722 7.40
Yields on tax exempt securities and equities 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> 10
INVESTMENT SECURITIES (CONTINUED)
Mortgage-backed Securities
The Company's investment in mortgage-backed securities as of December
31, 1996, is shown in the following schedule:
Book Market
Issuer Value Value
Pass through obligations
FNMA & FHLMC $ 2,677,263 $ 2,653,309
GNMA 639,629 639,932
3,316,892 3,293,241
Obligations with fixed principal payments
FNMA & FHLMC 2,884,521 2,861,668
Total $ 6,201,413 $ 6,154,909
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
$6,077,035 at December 31, 1996, with an estimated market value of
$7,307,876. 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 1996 of the Company's corporate
bonds was $9,379,125 compared with book value of $9,333,008. The Bonds
were purchased as short-term investments and maturities extend to March 1,
1999.
<PAGE> 11
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's loan portfolio totaled $111,545,235 at December 31,
1996 compared with $97,963,831 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 7.61%
during 1996 to $26,921,693. The composition of the loans as of December
31, 1996 is shown in the following schedule:
Commercial and Agricultural Loans
(In thousands)
Secured by
Real Estate Other Total
Commercial $ 9,829 $ 5,367 $ 15,196
Agricultural 7,995 1,829 9,824
Multi family residential 1,902 1,902
$ 19,726 $ 7,196 $ 26,922
The majority of commercial loans are made to small retail and service
businesses.
The Company's mortgage loans increased 16.75% from $58,771,486 to
$68,614,474 at December 31, 1996. 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. Home
equity loans are made for three and five year periods at a fixed rate.
The Company's consumer installment loans increased 13.34% to
$12,248,499 at December 31, 1996. Consumer loans are made for a variety of
reasons, however, approximately 65% 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. In the past year,
the poultry industry has suffered due to high grain prices, excess supplies
of all types of meat and high mortality rates among turkey poults. 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.
Although the Company has not experienced elevated loan delinquency rates
through the end of 1996, if these conditions persist the Company would
expect greater delinquency rates and more problem loans in the future.
During 1996, 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.
<PAGE> 12
RISK ELEMENTS IN THE LOAN PORTFOLIO (CONTINUED)
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
December 1996 for Rockingham County was 2.2% compared with 3.9% for
Virginia and 5.0% for the nation. The unemployment rate for Rockingham
County has improved since January 1996 when the rate was 3.9%. The trend
in employment in the area has a positive effect on the ability of borrowers
to repay loans.
The following table shows the Company's loan maturity distribution
(in thousands of dollars) as of December 31, 1996:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
Commercial and
Agricultural Loans $ 7,130 $ 12,936 $ 6,856 $ 26,922
Real Estate - mortgage 807 2,144 65,663 68,614
Real Estate - construction 2,925 2,925
Consumer - installment 1,566 11,372 146 13,084
Total $ 12,428 $ 26,452 $ 72,665 $ 111,545
Loans with predetermined
rates $ 2,262 $ 13,942 $ 12,176 $ 28,380
Loans with variable or
adjustable rates 10,156 12,521 60,488 83,165
Total $ 12,418 $ 26,463 $ 72,664 $ 111,545
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,
1996 1995 1994
Nonaccruing loans None None None
Loans past due 90 days
or more $1,429,993 $ 379,863 $ 784,886
Percentage to total loans 1.28% .39% .96%
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, 1996 and 1995, there were no restructured
loans on which interest was accruing at a reduced rate or on which payments
had been extended.
POTENTIAL PROBLEM LOANS
At December 31, 1996, management had identified loans of $1,708,518
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.
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention do not represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources, or 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.
<PAGE> 13
LOAN CONCENTRATIONS
At December 31, 1996, no industry category exceeded ten percent of
total loans.
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 1996,
1995, and 1994 follows:
1996 1995 1994
Balance at beginning of period $ 862,766 $ 744,513 $ 699,954
Provision charged to expenses 226,000 164,500 60,000
Loan losses:
Commercial 11,239 25,630 22,545
Installment 82,482 29,726 22,996
Real estate 9,123 9,143
Total loan losses 102,844 64,499 45,541
Recoveries:
Commercial 700 3,782 3,127
Installment 16,649 10,048 26,973
Real Estate 100 4,422
Total recoveries 17,449 18,252 30,100
Net loan losses 85,395 46,247 15,441
Balance at end of period $1,003,371 $ 862,766 $ 744,513
Allowance for loan losses
as a percentage of loans .90% .88% .92%
Ratio of net loan losses during the
period to average loans outstanding
during the period .08% .05% .02%
<PAGE> 14
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,
1996 1995 1994
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 $ 372 37% 24% $ 285 33% 26% $ 267 36% 26%
Real estate
mortgage 366 36 64 233 27 63 209 28 64
Installment 185 19 12 276 32 11 206 28 10
Unallocated 80 8 69 8 63 8
Total $1,003 100% 100% $ 863 100% 100% $ 745 100% 100%
</TABLE>
DEPOSITS
The Bank recognized an increase in year end deposits in 1996 of 9.62%
with an increase in average deposits for the year of 11.67%. Most of the
increase can be attributed to the Bridgewater office, which opened in May
1995 and which had total deposits of $15,891,566 on December 31, 1996. The
new office, combined with increasing rates on time deposits in 1996, caused
certificates of deposit to increase $11,873,065. 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 $6,925,895 at December
31, 1996. The maturity distribution of these certificates is as follows:
Less than 3 months $ 923,270
3 to 6 months 1,812,716
6 months to 12 months 1,867,540
1 year to 5 years 2,322,369
Total $ 6,925,895
<PAGE> 15
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $2,027,297 or 11.86% in 1996.
Earnings retained from operations were the primary source of the increase.
As of December 31, 1996, the book value per share was $23.36 compared to
$21.00 as of December 31, 1995. 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, 1996, the Company had Tier I
capital of 16.75% of risk weighted assets and combined Tier I and II
capital of 17.67% of risk weighted assets. Regulatory minimums at this
date were 4% and 8%, respectively. The Bank has 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, 1996, the Company reported a leverage ratio of
11.37%. The Bank's leverage ratio was also above the minimum.
SHORT-TERM BORROWINGS
The information concerning short-term borrowings is shown in Note 9 to
the financial statements.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity as of December 31, 1996 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 1996, 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 1996. 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. The Company reviews its interest rate gap
periodically and makes adjustments as needed.
As of September 30, 1996, adjusted volatile liabilities equaled minus
4.92% of total assets as compared to plus 1.56% 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 211.94% compared with
144.26% to the peer group; i.e., for every $100.00 in volatile liabilities,
the Company has $211.94 in short-term investments. The Company's peer
group had $144.26 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, 1996.
At December 31, 1996, the Company had a cumulative Gap Rate
Sensitivity Ratio of 46.3% 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> 16
Table I
<TABLE>
F & M BANK CORP.
SELECTED OPERATING INFORMATION
<CAPTION>
Years Ending December 31,
(In Thousands, Except per Share Information)
1996 1995 1994 1993 1992
CONDENSED STATEMENTS OF
INCOME AND DIVIDENDS
<S> <C> <C> <C> <C> <C>
Interest Income $ 12,505 $ 11,136 $ 9,769 $ 9,223 $ 8,566
Interest Expense 6,076 5,515 4,556 4,422 3,957
Net Interest Income 6,429 5,621 5,213 4,801 4,609
Provision for Loan Losses 226 164 60 60 60
Net Interest Income after
Provision for Loan Losses 6,203 5,457 5,153 4,741 4,549
Noninterest Income 661 947 743 739 655
Noninterest Expenses 3,410 3,333 3,128 2,915 2,698
Income before Income Taxes 3,454 3,071 2,768 2,565 2,506
Income Tax Expense 1,013 955 779 678 727
Net Income $ 2,441 $ 2,116 $ 1,989 $ 1,887 $ 1,779
Total Assets at Year End $ 166,511 $ 152,301 $ 132,649 $ 127,824 $ 113,974
PER SHARE INFORMATION
Net Income Per Share 1, 2 $ 2.99 $ 2.60 $ 2.44 $ 2.32 $ 2.22
Dividends Per Share 1, 2 $ .86 $ .80 $ .75 $ .65 $ 1.15
Book Value Per Share 1, 2 $ 23.36 $ 21.00 $ 18.29 $ 16.74 $ 15.03
FINANCIAL STATEMENT RATIOS
Return on Average Assets 3 1.54% 1.49% 1.50% 1.54% 1.79%
Return on Average Equity 3 13.58% 13.15% 13.64% 14.53% 15.33%
Dividend Payout Ratio 28.79% 30.79% 30.71% 28.02% 52.01%
Average Equity to Average
Assets Ratio 3 11.34% 11.34% 11.01% 10.57% 11.66%
<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.
</TABLE>
<PAGE> 17
Table II
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
1996
Average
Rates
Income/ Earned/
ASSETS Average Expense Paid
Loans:
Commercial 1 $ 25,066 $ 2,351 9.38%
Real estate 1 66,870 5,998 8.97
Installment 1 12,439 1,309 10.52
Total Loans 104,375 9,658 9.25
Investment securities:
Fully taxable 3 35,928 2,218 6.17
Partially Taxable 2,3 6,828 621 9.09
Nontaxable 2,3 591 48 8.12
Total Investment Securities 43,347 2,887 6.66
Interest bearing deposits
in banks 349 19 5.44
Federal funds sold 1,572 84 5.34
Total Earning Assets 149,643 12,648 8.45
Allowance for loan losses (885)
Nonearning assets 9,727
Total Assets $ 158,485
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest bearing $ 19,950 513 2.57
Savings 29,665 1,097 3.70
All other time deposits 56,427 3,122 5.53
Total Deposits 106,042 4,732 4.46
Short-term debt 2,236 112 5.01
Long-term debt 18,871 1,232 6.53
Total Interest Bearing
Liabilities 127,149 6,076 4.78
Noninterest bearing deposits 11,604
Other liabilities 1,758
Total Liabilities 140,511
Stockholders' equity 17,974
Total Liabilities and
Stockholders' Equity $ 158,485
Net Interest Earnings $ 6,572
Net Yield on Interest Earning Assets 4.39%
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.
3 Average balance information is reflective of historical cost and has not
been adjusted for changes in market value.
<PAGE> 17 (Continued)
Table II (Continued)
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 1 $ 23,762 $ 2,325 9.78%
Real estate 1 56,118 5,079 9.05
Installment 1 9,557 1,009 10.56
Total Loans 89,437 8,413 9.41
Investment securities:
Fully taxable 3 35,845 2,145 5.98
Partially Taxable 2,3 7,033 586 8.33
Nontaxable 2,3 915 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
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
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.
3 Average balance information is reflective of historical cost and has not
been adjusted for changes in market value.
<PAGE> 17 (Continued)
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 1 $ 21,981 $ 1,968 8.95%
Real estate 1 48,479 4,327 8.93
Installment 1 7,604 823 10.82
Total Loans 78,064 7,118 9.12
Investment securities:
Fully taxable 3 39,086 2,282 5.84
Partially Taxable 2,3 6,437 553 8.59
Nontaxable 2,3 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.
3 Average balance information is reflective of historical cost and has not
been adjusted for changes in market value.
<PAGE> 18
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>
1996 Compared to 1995 1995 Compared to 1994
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 $ 127 $ (101) $ 26 $ 159 $ 198 $ 357
Real estate 973 (54) 919 682 70 752
Installment 305 (5) 300 211 (25) 186
Total loans 1,405 (160) 1,245 1,052 243 1,295
Investment securities:
Fully taxable 5 68 73 (189) 52 (137)
Partially taxable (17) 52 35 51 (18) 33
Nontaxable (23) 7 (16) (92) (4) (96)
Total investment
securities (35) 127 92 (230) 30 (200)
Interest bearing
deposits in banks (18) (2) (20) 5 11 16
Federal funds sold (2) (7) (9) 34 34
Total Interest Income $ 1,350 $ (42) $ 1,308 $ 827 $ 318 $ 1,145
Interest expense:
Deposits:
Demand $ (12) $ (87) $ (99) $ (46) $ (5) $ (51)
Savings 26 (151) (125) (14) 175 161
All other time
deposits 582 102 684 295 432 727
Total deposits 596 (136) 460 235 602 837
Short-term debt 94 5 99 (1) 3 2
Long-term debt (3) 5 2 96 24 120
Total Interest
Expense $ 687 $ (126) $ 561 $ 330 $ 629 $ 959
NOTES: Volume changes have been determined by multiplying the prior years' average rate by the
change in average balances outstanding. The rate change is the difference in the total change and
the volume change.
</TABLE>
<PAGE> 19
Table IV
<TABLE>
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
(In Thousands of Dollars)
December 31, 1996
<CAPTION>
1-90 91-365 1-5 5-10 Not
Days Days Years Years Over 10 Classified Total
Uses of Funds
<C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 16,852 $ 1,181 $ 8,181 $ 337 $ 371 $ $ 26,922
Consumer
installment 880 686 11,372 125 21 13,084
Consumer real
estate 5,076 6,322 39,937 9,610 10,594 71,539
Total Loans 22,808 8,189 59,490 10,072 10,986 111,545
Federal Funds Sold 3,397 3,397
Interest Bearing
Bank deposits 854 854
Investment Securities 1,000 7,538 20,822 2,765 2,997 8,821 43,943
Total 28,059 15,727 80,312 12,837 13,983 8,821 159,739
Sources of Funds
Deposits:
Interest Bearing
Deposits 19,478 19,478
Regular Savings 28,391 28,391
Certificates of
Deposit $100,000
and over 923 3,680 2,323 6,926
Other Certificates
of Deposit 9,510 26,390 21,290 57,190
Total Deposits 58,302 30,070 23,613 111,985
Short-Term Borrowings 3,116 3,116
Long-Term Borrowings 721 2,289 11,230 4,032 18,272
Total 62,139 32,359 34,843 4,032 133,373
Discrete Gap (34,080) (16,632) 45,469 8,805 13,983 8,821 26,366
Cumulative Gap (34,080) (50,712) (5,243) 3,562 17,545 26,366
Cumulative Gap Rate
Sensitivity Ratio 45.2 46.3 95.9 102.7 113.2 N/A
Table IV reflects the earlier of the maturity or repricing dates for various assets and liabilities at December 31,
1996. 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.
</TABLE>
<PAGE> 20
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 21
Consolidated Balance Sheets as of December 31, 1996 and 1995 22
Consolidated Statements of Income - Years Ended December 31,
1996, 1995, and 1994 23
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1996, 1995, and 1994 24
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995, and 1994 25
Notes to Consolidated Financial Statements 26 - 42
<PAGE> 21
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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
S. B. HOOVER & COMPANY, L.L.P.
January 24, 1997
Harrisonburg, Virginia
<PAGE> 22
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1996 1995
Cash and due from banks (note 3) $ 3,567,828 $ 3,716,107
Interest bearing deposits in banks 854,106 82,205
Federal funds sold 3,397,000 1,787,000
Securities held to maturity (note 4) 22,708,455 26,909,778
Securities available for sale (note 4) 19,722,229 17,316,584
Other investments (note 4) 1,512,655 1,461,898
Total Securities 43,943,339 45,688,260
Loans (note 5) 111,545,235 97,963,831
Less allowance for loan losses (note 6) (1,003,371) (862,766)
Net Loans 110,541,864 97,101,065
Bank premises and equipment, net (note 7) 1,953,146 1,982,984
Interest receivable 1,311,645 1,263,570
Other assets 941,832 680,145
Total Assets $166,510,760 $152,301,336
LIABILITIES
Deposits:
Noninterest bearing $ 12,613,945 $ 10,940,797
Interest bearing:
Demand 14,122,724 12,446,938
Money market accounts 5,355,777 7,796,454
Savings 28,390,506 30,233,813
Time deposits over $100,000 (note 8) 6,925,895 5,280,388
All other time deposits (note 8) 57,189,748 46,962,190
Total Deposits 124,598,595 113,660,580
Short-term debt (note 9) 3,115,588 837,730
Accrued liabilities 1,398,543 1,286,227
Long-term debt (note 10) 18,272,162 19,418,224
Total Liabilities 147,384,888 135,202,761
STOCKHOLDERS' EQUITY
Common stock $5 par value, 1,000,000 shares
authorized, 818,654 shares and 814,288
shares issued and outstanding,
respectively 4,093,270 4,071,440
Capital surplus 866,694 746,629
Retained earnings (note 16) 13,396,313 11,658,715
Net unrealized gains on securities
available for sale 769,595 621,791
Total Stockholders' Equity 19,125,872 17,098,575
Total Liabilities and
Stockholders' Equity $166,510,760 $152,301,336
The accompanying notes are an integral part of this statement.
<PAGE> 23
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 9,646,361 $ 8,401,531 $ 7,106,280
Interest on time deposits and
federal funds sold 103,218 132,550 82,089
Interest on debt securities -
taxable 2,334,902 2,180,051 2,106,838
Interest on debt securities -
nontaxable 31,754 47,631 118,118
Dividends on common stock 388,617 374,159 355,979
Total Interest and Dividend
Income 12,504,852 11,135,922 9,769,304
INTEREST EXPENSE:
Interest on demand deposits 513,275 611,422 663,486
Interest on savings deposits 1,091,086 1,222,310 1,061,469
Interest on time deposits
over $100,000 265,488 223,074 70,307
Interest on all other time
deposits 2,862,754 2,215,059 1,639,405
Total interest on deposits 4,732,603 4,271,865 3,434,667
Interest on short-term debt 112,254 13,478 11,318
Interest on long-term debt 1,231,426 1,229,799 1,109,942
Total Interest Expense 6,076,283 5,515,142 4,555,927
NET INTEREST INCOME 6,428,569 5,620,780 5,213,377
PROVISION FOR LOAN LOSSES (note 6) 226,000 164,500 60,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,202,569 5,456,280 5,153,377
NONINTEREST INCOME:
Service charges on deposit
accounts 253,362 236,072 219,015
Insurance and other commissions 37,040 43,425 29,513
Other operating income 135,181 92,140 80,880
Gain on security transactions
(note 4) 235,104 575,795 413,493
Total Noninterest Income 660,687 947,432 742,901
NONINTEREST EXPENSES:
Salaries 1,443,829 1,446,305 1,326,681
Employee benefits (note 12) 481,182 508,606 460,566
Occupancy expense 166,495 179,857 129,340
Equipment expense 290,372 231,962 193,711
FDIC insurance 17,468 115,030 223,377
Other operating expenses 1,010,316 851,183 794,452
Total Noninterest Expenses 3,409,662 3,332,943 3,128,127
Income before Income Taxes 3,453,594 3,070,769 2,768,151
INCOME TAX EXPENSE (note 11) 1,012,826 955,086 779,201
NET INCOME $ 2,440,768 $ 2,115,683 $ 1,988,950
PER SHARE DATA
NET INCOME $ 2.99 $ 2.60 $ 2.44
CASH DIVIDENDS $ .86 $ .80 $ .75
COMMON EQUIVALENT SHARES
OUTSTANDING 816,948 814,288 814,288
The accompanying notes are an integral part of this statement.
<PAGE> 24
<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, 1993 $ 4,071,440 $ 746,629 $ 8,816,223 $ $13,634,292
Cumulative effect of change in
accounting for securities
available for sale 757,000 757,000
Net income 1,988,950 1,988,950
Dividends on common stock (610,716) (610,716)
Change in net unrealized
losses on securities
available for sale, net
of income taxes of $589,040 (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
on securities available
for sale, net of income
taxes of $437,871 738,160 738,160
BALANCE - December 31, 1995 4,071,440 746,629 11,658,715 621,791 17,098,575
Net income 2,440,768 2,440,768
Dividends on common stock (703,170) (703,170)
Stock issued to ESOP
(4,366 shares) (note 12) 21,830 120,065 141,895
Change in net unrealized gains
on securities available
for sale, net of income
taxes of $95,375 147,804 147,804
BALANCE - December 31, 1996 $ 4,093,270 $ 866,694 $13,396,313 $ 769,595 $19,125,872
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE> 25
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,440,768 $ 2,115,683 $ 1,988,950
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of securities (235,104) (575,795) (413,493)
Depreciation 258,315 204,520 170,127
Amortization of security
premiums 109,398 146,966 199,631
Provision for loan losses 226,000 164,500 60,000
Provision for deferred taxes (43,415) (47,267) (42,640)
(Increase) decrease in
interest receivable (48,075) (261,755) 38,482
Increase in other assets (146,633) (14,909) (101,608)
Increase (decrease) in
accrued expenses 185,006 454,235 (148,127)
Amortization of limited
partnership investments 36,369 49,901 33,268
Net Cash Provided by
Operating Activities 2,782,629 2,236,079 1,784,590
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest
bearing bank deposits (771,901) (23,855)
Change in federal funds sold (1,610,000) (1,787,000)
Proceeds from maturities of
securities held to maturity 12,649,324 15,409,547 12,499,393
Proceeds from maturities of
securities available for sale 1,793,435 1,280,093 2,518,940
Proceeds from sales of securities
available for sale 2,265,492 4,931,003 803,253
Purchases of securities available
for sale (5,585,748) (6,740,372) (1,656,077)
Purchases of securities held
to maturity (9,160,122) (13,256,220) (11,548,349)
Net increase in loans (13,666,799) (16,647,730) (6,968,973)
Purchase of property and
equipment (203,688) (627,202) (176,483)
Construction in progress
payments (24,788) (248,711)
Net Cash Used in Investing
Activities (14,314,795) (17,461,736) (4,777,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
and savings deposits (935,050) 507,727 1,249,651
Net increase (decrease) in
time deposits 11,873,065 14,399,318 (1,629,866)
Net increase (decrease) in
short-term debt 2,277,858 304,253 (302,913)
Dividends paid in cash (685,924) (651,425) (610,716)
Proceeds from long-term debt 2,000,000 4,000,000 6,000,000
Repayments on long-term debt (3,146,062) (2,538,919) (1,537,452)
Net Cash Provided by Financing
Activities 11,383,887 16,020,954 3,168,704
Net Increase (Decrease) in Cash and
Cash Equivalents (148,279) 795,297 176,287
Cash and Cash Equivalents,
Beginning of Year 3,716,107 2,920,810 2,744,523
Cash and Cash Equivalents,
End of Year $ 3,567,828 $ 3,716,107 $ 2,920,810
Supplemental Disclosure:
Cash paid for:
Interest expense $ 6,045,799 $ 5,369,040 $ 4,560,595
Income taxes 997,000 792,241 823,985
The accompanying notes are an integral part of this statement.
<PAGE> 26
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. Certain
reclassifications have been made to prior years' consolidated
financial statements to conform to the 1996 presentation.
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> 27
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.
(g) Impaired Loans
On January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114), as amended
by SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively
SFAS 114. SFAS 114 requires that impaired loans within the
scope of the statements be presented in the financial
statements at the present value of expected future cash
flows or at the fair value of the loan's collateral. A
valuation allowance is required to the extent that such
measurement is less than the recorded investment. Under
this standard a loan is considered impaired based on current
information and events, if it is probable that the Company
will be unable to collect the scheduled payments of
principal and interest when due under the contractual terms
of the loan agreement. Charge-offs for impaired loans occur
when the loan, or portion of the loan is determined to be
uncollectible, as is the case for all loans. The effect of
the adoption of SFAS 114 was not material to the Company's
consolidated financial statements as of and for the years
ended December 31, 1996 or 1995.
<PAGE> 28
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) 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.
(i) 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.
(j) 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.
(k) 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 which
the Federal Reserve Bank requires to be on reserve was $567,000
and $522,000 for the years ended December 31, 1996 and 1995,
respectively.
<PAGE> 29
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and fair value of securities held to maturity
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1996
U. S. Treasuries
and Agencies $ 14,381,436 $ 21,234 $ 66,300 $ 14,336,370
Mortgage-backed
obligations of
federal agencies 4,721,334 2,492 36,888 4,686,938
State and municipals 449,757 715 449,042
Corporate bonds 3,155,928 38,753 3,194,681
Total Securities
Held to Maturity $ 22,708,455 $ 62,479 $ 103,903 $ 22,667,031
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 476,460 893 475,567
Corporate bonds 4,522,534 97,353 4,619,887
Total Securities
Held to Maturity $ 26,909,778 $ 221,604 $ 83,878 $ 27,047,504
The amortized cost and fair value of securities available for sale are as follows:
December 31, 1996
U.S. Agencies $ 4,747,235 $ 26,263 $ 11,559 $ 4,761,939
Mortgage-backed
obligations of
federal agencies 1,480,078 16,246 28,354 1,467,970
Marketable equities 6,077,035 1,259,148 28,307 7,307,876
Corporate bonds 6,177,080 34,193 26,829 6,184,444
Total Securities
Available for Sale $ 18,481,428 $ 1,335,850 $ 95,049 $ 19,722,229
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 4,106,425
Total Securities
Available for Sale $ 16,318,960 $ 1,098,904 $ 101,280 $ 17,316,584
</TABLE>
<PAGE> 30
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,
1996, 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 $ 2,144,252 $ 2,154,425 $ 6,384,302 $ 6,396,187
Due after one year
through five years 8,605,174 8,621,973 12,199,572 12,190,657
Due after five years
through ten years 788,305 769,486 1,995,965 1,969,375
Due after ten years 866,662 868,469 2,128,616 2,110,812
Total 12,404,393 12,414,353 22,708,455 22,667,031
Marketable equities 6,077,035 7,307,876
$ 18,481,428 $ 19,722,229 $ 22,708,455 $ 22,667,031
</TABLE>
Realized gains and losses and the gross proceeds from the sale of
debt securities were not material in 1996, 1995 or 1994.
Realized gains and losses on marketable equity transactions are
summarized below:
1996 1995 1994
Gains $ 250,808 $ 620,036 $ 489,926
Losses 15,704 44,241 76,433
Net Gains $ 235,104 $ 575,795 $ 413,493
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 $7,546,959 at December 31, 1996 and $5,516,110 at
December 31, 1995.
There were no state or political subdivision obligations of a
single issuer which exceeded 10% of stockholders' equity at
December 31, 1996, 1995 or 1994.
<PAGE> 31
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
At December 31, 1996, the Company was committed to invest an
additional $665,312 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 three low income
housing partnerships (carrying basis of $505,955) and stock in
the Federal Home Loan Bank, Community Bankers Bank and Federal
Reserve Bank (carrying basis of $1,006,700). The interests in
the low income housing partnerships have limited transferability
and the interests in the other stocks are restricted as to
sales. The market values of these securities are estimated to
approximate their carrying value as of December 31, 1996.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
1996 1995
Real Estate
Construction $ 2,924,696 $ 2,540,013
Mortgage 68,614,474 58,771,486
Commercial and agricultural 26,921,693 25,018,296
Installment 12,248,499 10,806,613
Credit cards 799,257 806,745
Other 36,616 20,678
Total $111,545,235 $ 97,963,831
The Company has pledged mortgage loans as collateral for
borrowings with the Federal Home Loan Bank of Atlanta totalling
$21,219,513 and $24,014,113 as of December 31, 1996 and 1995,
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:
1996 1995 1994
Balance, beginning of year $ 862,766 $ 744,513 $ 699,954
Provision charged to
operating expenses 226,000 164,500 60,000
Loan recoveries 17,449 18,252 30,100
Loans charged off (102,844) (64,499) (45,541)
Balance, end of year $1,003,371 $ 862,766 $ 744,513
Percentage of gross loans .90% .88% .92%
<PAGE> 32
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:
1996 1995
Construction in progress $ 24,788 $
Land 392,237 392,237
Buildings and improvements 1,809,589 1,804,459
Furniture and equipment 1,846,852 1,975,042
4,073,466 4,171,738
Less - Accumulated depreciation (2,120,320) (2,188,754)
Net $ 1,953,146 $ 1,982,984
Provisions for depreciation of $258,315 in 1996, $204,520 in 1995
and $170,127 in 1994 were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 1996, the scheduled maturities of time deposits
are as follows:
1997 $ 41,790,236
1998 13,807,050
1999 2,633,639
2000 4,952,751
2001 and thereafter 931,967
$ 64,115,643
NOTE 9 SHORT-TERM DEBT:
Short-term debt information is summarized as follows:
<TABLE>
Weighted
<CAPTION>
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding1 Rate Rate
<S> <C> <C> <C> <C> <C>
1996
Treasury, tax
and loan $ 757,867 $ 347,092 $ 245,557 4.87% 5.15%
Federal funds
purchased 1,988,000 121,470 5.44 N/A
Notes payable 319,023 137,808 7.45 N/A
Securities sold under
agreements to
repurchase 2,768,496 2,768,496 1,731,108 4.80 4.77
Totals $3,115,588 $2,235,943 5.01% 4.82%
<F2>
1 Based on daily amounts outstanding
</TABLE>
<PAGE> 33
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 SHORT-TERM DEBT (CONTINUED):
<TABLE>
<CAPTION>
Weighted
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding1 Rate Rate
<S> <C> <C> <C> <C> <C>
1995
Treasury, tax
and loan $ 708,163 $ 137,730 $ 265,833 4.76% 5.15%
Federal funds
purchased 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%
<F3>
1 Based on daily amounts outstanding
</TABLE>
The Company has lines of credit with correspondent banks
totalling $9,467,000, which are used in the management of short-
term liquidity. All securities sold under agreements to
repurchase are under the Company's control.
NOTE 10 LONG-TERM DEBT:
The Company has borrowed on a cumulative basis $25,900,000 from
the Federal Home Loan Bank of Atlanta (FHLB) since 1992.
Advances for the years ended December 31, 1996 and 1995, were
$2,000,000 and $4,000,000, 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 6.54%
at December 31, 1996. The long-term debt is secured by
qualifying mortgage loans owned by the Company.
Repayments of long-term debt are due quarterly and interest is
due monthly. Interest expense of $1,231,426, $1,229,799 and
$1,109,942 was incurred on these debts in 1996, 1995 and 1994,
respectively. The maturities of long-term debt as of December
31, 1996 are as follows:
1997 $ 3,010,345
1998 3,010,345
1999 3,010,345
2000 2,724,631
2001 2,484,632
Thereafter 4,031,864
Total $ 18,272,162
<PAGE> 34
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 INCOME TAX EXPENSE:
The components of the income tax expense for the years ended
December 31 are as follows:
1996 1994 1994
Current expense
Federal $1,040,736 $ 959,652 $ 797,546
State 15,505 42,701 24,295
Deferred expense
Federal (43,415) (47,267) (42,640)
Total Income Tax Expense $1,012,826 $ 955,086 $ 779,201
Amounts in above arising
from gains on security
transactions $ 89,791 $ 220,572 $ 159,000
The deferred tax effects of temporary differences for the years
ended December 31 are as follows:
1996 1995 1994
Tax Effects of Temporary Differences:
Accounting change $ (11,523) $ (11,523) $ (11,524)
Provision for loan losses (47,806) (40,206) (18,210)
Split dollar life
insurance (5,006) (11,492) (8,660)
Depreciation (2,319) (3,521) (152)
FHLB dividends (5,576) 4,794
Pension expense 15,487 18,272 14,357
Other 7,752 6,779 (23,245)
Deferred Income
Tax Benefit $ (43,415) $ (47,267) $ (42,640)
The components of the deferred taxes as of December 31 are as
follows:
1996 1995
Deferred Tax Assets:
Bad debt allowance $ 225,593 $ 177,787
Split dollar life insurance 67,492 62,486
Other 7,270 6,668
Total Assets 300,355 246,941
Deferred Tax Liabilities:
Securities available for sale 471,206 375,831
Low income housing credits 58,812 36,014
Accretion 17,634 9,278
Depreciation 16,630 18,949
Pension 125,005 109,518
Change in accounting method 23,047 34,572
FHLB dividends 18,564 18,564
Total Liabilities 730,898 602,726
Net Liability $ (430,543) $ (355,785)
<PAGE> 35
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 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:
1996 1995 1994
Tax expense at federal
statutory rates $1,160,264 $1,044,062 $ 930,915
Increases (decreases) in
taxes resulting from:
Tax-exempt interest (12,522) (14,792) (34,349)
Partially exempt income (131,461) (116,067) (107,185)
State income taxes, net 7,683 37,722 18,270
Other (11,138) 4,161 (28,450)
Total Income Tax
Expense $1,012,826 $ 955,086 $ 779,201
NOTE 12 EMPLOYEE BENEFITS:
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. Pension expense totaled $87,246, $75,062 and
$64,686 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company has established an employee stock ownership plan
which provides stock ownership to substantially 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
$144,176 in 1996, $141,926 in 1995 and $130,000 in 1994 to the
Plan and charged this expense to operations.
<PAGE> 36
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks totaling
$3,313,981 and $2,760,038 at December 31, 1996 and 1995.
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, specifically the poultry industry.
In the past year, the poultry industry has suffered due to high
grain prices, excess supplies of all types of meat and high
mortality rates among turkey poults. Although the Company has
not experienced elevated loan delinquency rates through the end
of 1996, if these conditions persist the Company would expect
greater delinquency rates and more problem loans in the future.
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 68% 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:
1996 1995
Commitments to loan money $ 14,043,469 $ 12,915,632
Standby letters of credit 572,900 240,000
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> 37
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:
1996 1995
Total loans, beginning of year $1,223,327 $1,566,329
Existing loans to newly
appointed directors 100,000
New loans 611,550 544,952
Payments made (791,875) (877,757)
Retirements and reclassifications (110,197)
Total loans, end of year $1,043,002 $1,223,327
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, 1997, approximately $2,425,256 was available
for dividend distribution without permission of the Board of
Governors. Dividends paid by the Bank to the Company totaled
$587,858 in 1996, $170,458 in 1995 and $972,859 in 1994.
<Page 38>
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 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, 1996 and 1995, are as follows (in
thousands):
1996 1995
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Financial Assets
Cash $ 3,568 $ 3,568 $ 3,716 $ 3,716
Interest bearing
deposits 854 854 82 82
Federal funds sold 3,397 3,397 1,787 1,787
Securities available
for sale 19,722 19,722 17,316 17,316
Securities held to
maturity 22,667 22,708 27,047 26,910
Other investments 1,513 1,513 1,462 1,462
Loans 110,286 110,542 97,211 97,101
Accrued interest
receivable 1,312 1,312 1,264 1,264
Financial Liabilities
Demand Deposits:
Non-interest
bearing 12,614 12,614 10,941 10,941
Interest bearing 19,478 19,478 20,243 20,243
Savings deposits 28,391 28,391 30,234 30,234
Time deposits 64,676 64,116 52,713 52,243
Short-term debt 3,116 3,116 533 533
Long-term debt 18,299 18,272 19,447 19,418
Accrued interest
payable 507 507 477 477
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 1996.
<PAGE> 39
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 REGULATORY MATTERS:
The Company and its subsidiary bank are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional
discretionary -actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of
the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets
(as defined). Management believes, as of December 31, 1996, that
the Company and its subsidiary bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notification from the
Bureau of Financial Institutions, the subsidiary bank was
categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Company's actual capital ratios are presented in the
following table:
Actual Regulatory Requirements
December 31, Adequately Well
1996 1995 Capitalized capitalized
Total risk-based
ratio 17.67% 17.81% 8.00% 10.00%
Tier 1 risk-based
ratio 16.75% 16.92% 4.00% 6.00%
Total assets leverage
ratio 11.37% 11.01% 3.00% 5.00%
<PAGE> 40
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31,
ASSETS 1996 1995
Cash $ 162,408 $ 4,112
Investment in subsidiaries 11,509,142 10,230,568
Loans receivable 282,262 291,819
Securities available for sale 7,307,876 7,317,977
Other securities 516,277 427,049
Accrued interest receivable 1,552 1,639
Due from subsidiaries 90,690 120,564
Total Assets $19,870,207 $18,393,728
LIABILITIES
Interest payable $ $ 467
Dividends payable 180,104 162,858
Short-term debt 700,000
Income taxes payable 37,699 58,087
Deferred income tax 526,532 373,741
Total Liabilities 744,335 1,295,153
STOCKHOLDERS' EQUITY
Common stock par value $5 per share,
1,000,000 shares authorized,
818,654 and 814,288 shares
issued and outstanding, respectively 4,093,270 4,071,440
Capital surplus 866,694 746,629
Retained earnings 13,396,313 11,658,715
Net unrealized gains on securities
available for sale 769,595 621,791
Total Stockholders' Equity 19,125,872 17,098,575
Total Liabilities and Stockholders' Equity $19,870,207 $18,393,728
<PAGE> 41
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,
1996 1995 1994
INCOME
Dividends from affiliate $ 587,858 $ 170,458 $ 972,859
Interest on loans 25,826 26,786 29,352
Investment income - taxable 1,856 1,675 2,793
Investment income - nontaxable 3,980
Dividend income 388,617 374,159 355,979
Security gains 248,864 620,036 464,933
Limited partnership income
(loss), net of tax credits 11,505 (8,854) (33,268)
Total Income 1,264,526 1,184,260 1,796,628
EXPENSES
Interest expense 10,260 467
Administration expense 80,266 73,697 70,938
Total Expenses 90,526 74,164 70,938
Net income before income tax
expense and increase in
undistributed equity
of affiliates 1,174,000 1,110,096 1,725,690
INCOME TAX EXPENSE 76,094 267,699 151,284
Income before increase in
undistributed equity of
affiliates 1,097,906 842,397 1,574,406
Increase in undistributed
equity of affiliates 1,342,862 1,273,286 414,544
NET INCOME 2,440,768 2,115,683 1,988,950
Retained earnings,
beginning of year 11,658,715 10,194,457 8,816,223
Dividends on common stock (703,170) (651,425) (610,716)
Retained Earnings, End of Year $13,396,313 $11,658,715 $10,194,457
<PAGE> 42
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,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,440,768 $ 2,115,683 $ 1,988,950
Adjustments to reconcile net
income to net cash provided
by operating activities:
Undistributed subsidiary
income (1,342,862) (1,273,286) (414,544)
Gain on sale of securities (248,864) (620,036) (464,933)
Decrease in interest
receivable 87 162 726
Decrease in due from
subsidiary 29,874 107,703 9,880
Decrease (increase) in
other receivables 76,324 (72,184)
Increase (decrease) in
accrued expenses 1,944 77,319 (68,569)
Amortization of limited
partnership investments 36,369 49,901 33,268
Net Cash Provided by
Operating Activities 917,316 533,770 1,012,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available for sale 1,188,867 2,255,476 803,252
Proceeds from maturity of
securities available for sale 4,629 5,480 122,467
Purchase of securities available
for sale (587,818) (2,030,149) (1,204,971)
Purchase of other securities (130,226) (121,359) (291,810)
Decrease in loans receivable 9,557 8,680 157,528
Investment in subsidiary (700,000)
Net Cash Provided by (Used in)
Investing Activities 485,009 (581,872) (413,534)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in
short-term debt (700,000) 700,000
Stock issued to stock bonus plan 141,895
Dividends paid in cash (685,924) (651,425) (610,716)
Net Cash Provided by (Used in)
Financing Activities (1,244,029) 48,575 (610,716)
Net Increase (Decrease) in Cash
and Cash Equivalents 158,296 473 (11,656)
Cash and Cash Equivalents,
Beginning of Year 4,112 3,639 15,295
Cash and Cash Equivalents,
End of Year $ 162,408 $ 4,112 $ 3,639
<PAGE> 43
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 9,646 $ 8,401 $ 7,106 $ 6,685 $ 6,639
Federal funds sold and time deposits 103 133 82 140 236
Investment securities - taxable 2,724 2,554 2,463 2,180 1,350
Investment securities - nontaxable 32 48 118 218 341
Total 12,505 11,136 9,769 9,223 8,566
INTEREST EXPENSE:
Interest on deposits 4,733 4,272 3,435 3,598 3,734
Other interest expense 1,343 1,243 1,121 824 223
Total 6,076 5,515 4,556 4,422 3,957
NET INTEREST INCOME 6,429 5,621 5,213 4,801 4,609
Provision for Loan Losses 226 165 60 60 60
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,203 5,456 5,153 4,741 4,549
NONINTEREST INCOME:
Service charges on deposits 254 236 219 220 205
Other operating income 172 135 111 144 145
Gain on security transactions 235 576 413 375 305
Total Noninterest Income 661 947 743 739 655
NONINTEREST EXPENSES:
Salaries 1,444 1,446 1,327 1,218 1,116
Employee benefits 481 508 460 404 410
Occupancy expense 167 180 129 114 117
Equipment expense 290 232 194 228 246
Other operating expenses 1,028 966 1,018 951 810
Total Noninterest Expenses 3,410 3,332 3,128 2,915 2,699
Income before Income Taxes 3,454 3,071 2,768 2,565 2,505
Income Tax Expense 1,013 955 779 678 727
NET INCOME $ 2,441 $ 2,116 $ 1,989 $ 1,887 $ 1,778
Total Assets at Year End $166,511 $152,301 $132,649 $127,824 $113,974
Net Income Per Share $ 2.99 $ 2.60 $ 2.44 $ 2.32 $ 2.22
Dividends Per Share $ .86 $ .80 $ .75 $ .65 $ 1.15
Book value per share $ 23.36 $ 21.00 $ 18.29 $ 16.74 $ 15.03
<F4>
1 1992 information has been restated to reflect the stock split which occurred in 1993.
</TABLE>
<PAGE> 44
FINANCIAL HIGHLIGHTS
F & M BANK CORP.
& SUBSIDIARIES
1996 1995 1994
FOR THE YEAR
Net income $ 2,440,768 $ 2,115,683 $ 1,988,950
Net income per share 2.99 2.60 2.44
Cash dividends 685,924 651,425 610,716
Cash dividends per share .86 .80 .75
Return on average assets 1.54% 1.49% 1.53%
Return on average equity 13.58% 13.15% 13.94%
AT YEAR END
Assets $166,510,760 $152,301,336 $132,648,847
Loans 111,545,235 97,963,831 81,362,348
Deposits 124,598,595 113,660,580 98,753,535
Stockholders' equity 19,125,872 17,098,575 14,896,157
Number of shares outstanding 818,654 814,288 814,288
Book value per share 23.36 21.00 18.29
Primary capital/assets 11.49% 11.23% 11.23%
<PAGE> 45
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. 62 1981 Attorney, Partner in
Vice Chairman of the Board Hoover, Penrod,
Davenport & Crist and its
predecessor since 1971
Richard S. Myers 49 1988 President of Dick Myers
Chevrolet-GEO since
February 1991
Ronald E. Wampler 49 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 50 1991 Secretary/Treasurer of
Truck & Equipment Corp.
and related companies
since 1974
Robert L. Halterman 61 1980 President of Virginia
Classic Mustang, Inc., an
auto parts company
Wayne L. Long 67 1985 Real estate and retired
farmer
Michael W. Pugh 42 1994 President of Old Dominion
Realty, Inc.; Partner in
Tri-City Development Co.;
President of Colonial
Appraisal Service, Inc.
and Treasurer of Old Mill
Enterprises, Inc.
CLASS C DIRECTORS
(to serve until the 1999 annual meeting of shareholders)
Julian D. Fisher 56 1990 CEO of Farmers &
President Merchants Bank since May
1996; President of Bank
since Oct. 1991
Dan B. Todd 65 1969 CEO of Farmers &
Chairman Merchants Bank from 1969
to May 1996; Chairman of
the Board since Oct. 1991
<PAGE> 46
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 1996, all filing requirements applicable to
its officers and directors were complied with.
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
Julian D. Fisher 1996 $ 84,912 $ 30,000 $ 20,813
Chief Executive Officer 1995 72,800 25,000 17,213
& President 1994 70,300 20,000 16,616
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. Fisher under the Company's Stock Bonus Plan ($12,151, $9,280 and
$8,871 in 1996, 1995 and 1994, respectively), the gross value of life
insurance premiums paid by the Company on behalf of Mr. Fisher ($7,334,
$7,386 and $7,428 in 1996, 1995 and 1994, respectively) and the lease value
of personal mileage on a company vehicle that has been provided for Mr.
Fisher's use ($1,328, $547 and $317 in 1996, 1995 and 1994, respectively).
Pursuant to a split-dollar insurance agreement between the Company and Mr.
Fisher, 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. Fisher.
(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 1996, a bonus of $4,000 was paid to each Director.
<PAGE> 47
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, 1996.
The following table sets forth the number and percentage of shares of
common stock held, as of December 31, 1996 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 2,140 1 .261%
Julian D. Fisher 22,328 2 2.727%
Robert L. Halterman 9,616 1.175%
Lawrence H. Hoover, Jr. 12,526 3 1.530%
Wayne L. Long 5,080 4 .621%
Richard S. Myers 3,740 5 .457%
Michael W. Pugh 200 .024%
Dan B. Todd 11,842 6 1.447%
Ronald E. Wampler 2,500 .305%
All Directors and executive
officers as a group 69,972 8.547%
1 Includes 1,241 shares owned directly, 843 shares owned jointly with
another member of his household and 56 shares owned by another member of
his household.
2 Includes 3,130 shares owned directly, 2,730 shares owned by another
member of his household and 16,468 shares which are owned by the
Company's stock bonus plan over which Mr. Fisher has voting power.
3 Includes 10,280 shares owned directly, 46 shares owned by another member
of his household and 2,200 shares owned by a Unitrust in which he is one
of the trustees.
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 1,280 shares owned directly, 8,554 shares owned by a member of
his household and 2,008 shares held in Mr. Todd's IRA account.
<PAGE> 48
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, 1996.
<PAGE> 49
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: JULIAN D. FISHER
Julian D. Fisher
Chief Executive Officer and President
Date: MARCH 20, 1997
By: NEIL W. HAYSLETT
Neil W. Hayslett
Vice President and Chief Financial Officer
Date: MARCH 20, 1997
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 20, 1997
Thomas L. Cline
JULIAN D. FISHER Director, President, MARCH 20, 1997
Julian D. Fisher Chief Executive Officer
ROBERT L. HALTERMAN Director MARCH 20, 1997
Robert L. Halterman
<PAGE> 50
LAWRENCE H. HOOVER, JR. Director MARCH 20, 1997
Lawrence H. Hoover, Jr.
Director
Wayne L. Long
Director
Richard S. Myers
MICHAEL W. PUGH Director MARCH 20, 1997
Michael W. Pugh
Director, Chairman
Dan B. Todd
RONALD E. WAMPLER Director MARCH 20, 1997
Ronald E. Wampler
<PAGE> 51
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.
<Page 52>
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, 1997, relating
to the consolidated balance sheets of F & M Bank Corp. as of December 31,
1996 and 1995, 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, 1996, which report appears on Page 21
in the December 31, 1996 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. HOOVER & COMPANY, L.L.P.
Harrisonburg, VA
March 20, 1997
<PAGE> 51
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.
<PAGE> 52
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, 1997, relating
to the consolidated balance sheets of F & M Bank Corp. as of December 31,
1996 and 1995, 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, 1996, which report appears on Page 21
in the December 31, 1996 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. HOOVER & COMPANY, L.L.P.
Harrisonburg, VA
March 20, 1997
<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> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,568
<INT-BEARING-DEPOSITS> 854
<FED-FUNDS-SOLD> 3,397
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,722
<INVESTMENTS-CARRYING> 22,708
<INVESTMENTS-MARKET> 22,667
<LOANS> 111,545
<ALLOWANCE> 1,003
<TOTAL-ASSETS> 166,511
<DEPOSITS> 124,599
<SHORT-TERM> 3,116
<LIABILITIES-OTHER> 1,399
<LONG-TERM> 18,272
0
0
<COMMON> 4,093
<OTHER-SE> 15,033
<TOTAL-LIABILITIES-AND-EQUITY> 166,511
<INTEREST-LOAN> 9,646
<INTEREST-INVEST> 2,756
<INTEREST-OTHER> 103
<INTEREST-TOTAL> 12,505
<INTEREST-DEPOSIT> 4,733
<INTEREST-EXPENSE> 6,076
<INTEREST-INCOME-NET> 6,429
<LOAN-LOSSES> 226
<SECURITIES-GAINS> 235
<EXPENSE-OTHER> 3,410
<INCOME-PRETAX> 3,454
<INCOME-PRE-EXTRAORDINARY> 2,441
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441
<EPS-PRIMARY> 2.99
<EPS-DILUTED> 2.99
<YIELD-ACTUAL> 4.39
<LOANS-NON> 0
<LOANS-PAST> 1,430
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 863
<CHARGE-OFFS> 103
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 1,003
<ALLOWANCE-DOMESTIC> 1,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
