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, 1997 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: $14,405,000
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 February 24, 1998 - $37 average bid price; $37 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, 1998 -
818,654
DOCUMENTS INCORPORATED BY REFERENCE:
None
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 49.
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 21
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 46
Part III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 46
Item 10. Executive Compensation 47
Item 11. Security Ownership of Certain Beneficial Owners and
Management 48
Item 12. Certain Relationships and Related Transactions 49
Part IV
Item 13. Exhibits and Reports on Form 8-K 49
Signatures 50
<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). Farmers & Merchants Financial
Services, Inc. (FMFS) 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. FMFS is a Virginia chartered corporation and was incorporated
on February 25, 1993 (as Timway Insurance Agency, Inc.).
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. FMFS was organized to write title
insurance and to provide other financial services to customers of Farmers &
Merchants Bank.
The operations of F & M Bank Corp., the Bank, TEB and FMFS 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, 1997, F & M Bank Corp., the Bank, TEB and FMFS had
forty-seven 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. The Bridgewater office
serves the Bridgewater area including the southern portion of Rockingham County
and the northwestern portion of Augusta County. Bank competition in the area of
all offices is very strong. The Bank makes all types of commercial and consumer
loans and historically has had a heavy concentration of home and agricultural
real estate loans. The Bank experienced a good loan demand throughout 1997 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. Since 1994, the
Company has entered into agreements with the Housing Equity Fund of Virginia to
purchase equity positions in the Housing Equity Fund of Virginia II, III and IV.
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 contains an automatic teller machine. This office 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, contains an automatic teller machine 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, 1997.
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
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
1997
1st quarter .22 35.00 33.00
2nd quarter .26 35.75 33.00
3rd quarter .26 35.00 33.50
4th quarter .29 37.88 34.00
(b) Stockholders
On December 31, 1997, there were 1,104 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 - 1997 Compared to 1996
Overview
Net income for 1997 increased $566,775 or 23.22% from 1996 earnings. Net
income per share increased from $2.99 in 1996 to $3.67 in 1997. The Company's
improved earnings were due to a combination of factors. See Table I (page 17)
for a five year summary of operations.
Net Interest Margins
The net interest margin on earning assets on a tax equivalent basis
increased in 1997 from 1996. The Company's net yield on average earning assets
of 4.61% is in line with its peer group.
Yields on loans decreased from 9.25% to 9.18%. In 1997, real estate loan
rates decreased fourteen basis points due to a general decline in rates of
interest in the market for real estate loans. Commercial loans increased eight
basis points while installment loans showed a slight decrease of three 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 6.86% in 1997 from 6.66% in
1996. This increase was primarily a result of a greater level of investments in
higher yielding agency securities and commercial debt. Average investments
decreased 5.35% from the previous 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 4.45% in
1997 from 4.46% in 1996. Rates paid on time deposits decreased thirteen basis
points in 1997 due to decreased rates on renewed certificates of deposit. Rates
paid on savings deposits decreased thirteen basis points in 1997. 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.
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. Yields on repurchase agreements declined eight basis
points in line with declining market rates.
Table II (page 18) contains a complete yield analysis for the last three
years and Table III (page 19) contains the rate/volume changes in these years.
<PAGE> 8
Other Income
The Company recognized $345,262 in gains on investments in 1997, 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 $235,105 as a result of the disposition of some of the above
referenced equities.
Noninterest income other than security gains increased 24.01% in 1997 from
1996 levels. This increase was attributable to an increase in service charges on
deposit accounts following the implementation of higher overdraft fees and other
account service charges.
Other Expenses
Noninterest expense increased $158,690 or 4.65% in 1997 over 1996 levels.
Salaries and employee benefits increased 6.08% due to increased staffing and
normal salary increases. Other noninterest expenses increased $41,697 (2.81%).
The increase was spread over a variety of expense categories, with no single
area increasing significantly. The Company's overall cost of operations relative
to asset size compares favorably to its peer group and to larger statewide
institutions.
1996 COMPARED TO 1995 OPERATIONS
Net income in 1996 increased 15.37% over net income in 1995. The increase
was a result of the combined effect of an eight basis point increase in the
yield on earning assets and a five basis point decrease in the cost of interest
bearing liabilities.
Gains on securities transactions decreased $340,691 or 59.17%. Due to the
continuing improvement in the national economy, the Company chose to sell fewer
common stocks during 1996. This action was consistent with the Company's
strategy of holding common stocks for the long-term appreciation potential.
Other noninterest income increased 14.52% due to increased trustee fees and
service charges on deposit accounts.
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 6.37% 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. This increase was
tempered by a reduction in FDIC insurance which resulted from changes in
insurance rates in 1995. The Company's overall cost of operations relative to
asset size compares favorably to its peer groups and to larger statewide
institutions.
<PAGE> 9
UNCERTAINTIES AND TRENDS
General
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.
Year 2000 Preparedness
The Bank has formed a committee to oversee its year 2000 plan
implementation. The Bank has inventoried all personal computers, software and
equipment that could be affected by the year 2000 date change in preparation for
testing its equipment. Correspondence regarding year 2000 preparedness has been
received from some vendors and letters are being prepared requesting updated
status reports from these and other vendors. Letters will also be sent to
significant loan customers that appear to have the potential for material impact
in the event of a year 2000 failure.
Funds totaling $3,000 per month have been budgeted to cover expenses related
to consulting fees, hardware and software replacements. A legal firm has been
engaged to assist in the development of a comprehensive year 2000 plan and for
review of vendor correspondence and major contracts. Management does not
anticipate other events or uncertainties related to the year 2000 that are
reasonably likely to have a material effect on the issuers liquidity, capital
resources or operations.
<PAGE> 10
BALANCE SHEET
INVESTMENT SECURITIES
Average balances in investment securities declined 5.35% in 1997 compared to
1996. 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.
The Company accounts for investments under 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 1997, 1996 and 1995 are
shown in the yield analysis in Table II (page 18). The carrying amount and
estimated market value of debt securities (in thousands of dollars) at December
31, 1997 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 $ 5,933 $ 5,939 6.08
Due after one year through five years 8,890 8,931 6.42
Due after five years through ten years 996 1,001 7.07
Due after ten years 1,726 1,716 6.70
------- ------- -----
Total $ 17,545 $ 17,587 6.37
======= ======= =====
Securities Available for Sale Amortized Market Average
Cost Value Yield
Due in one year or less $ 1,998 $ 2,004 6.41
Due after one year through five years 5,508 5,551 6.39
Due after five years through ten years 903 909 6.76
Due after ten years 2,252 2,271 6.89
------- ------- -----
10,661 10,735 6.53
Equity securities 6,634 10,436 8.70
------- ------- -----
Total $ 17,295 $ 21,171 7.36
======= ======= =====
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> 11
INVESTMENT SECURITIES (CONTINUED)
Mortgage-backed Securities
The Company's investment in mortgage-backed securities as of December 31,
1997, is shown in the following schedule:
Book Market
Issuer Value Value
Pass through obligations
FNMA & FHLMC $2,110,509 $2,111,446
GNMA 2,480,736 2,503,101
--------- ---------
4,591,245 4,614,547
Obligations with fixed principal payments
FNMA & FHLMC 2,206,787 2,196,943
--------- ---------
Total $6,798,032 $6,811,490
========= =========
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
$6,634,360 at December 31, 1997, with an estimated market value of $10,435,736.
The investments include common stocks of other southeastern region bank holding
companies and Dow Jones Industrial Average stocks, which were purchased with the
objective of realizing capital gains. Preferred stocks of public utilities and
other quality companies have been purchased to obtain competitive yields after
the 70% dividend exclusion. 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 1997 of the Company's corporate bonds was
$8,297,677 compared with book value of $8,248,144. The Bonds were purchased as
short-term investments and maturities extend to February 5, 2001.
<PAGE> 12
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's loan portfolio totaled $123,190,165 at December 31, 1997
compared with $111,545,235 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 .47% during 1997
to $27,048,927. The composition of the loans as of December 31, 1997 is shown in
the following schedule:
Commercial and Agricultural Loans
(In thousands)
Secured by
Real Estate Other Total
Commercial $ 11,378 $ 5,223 $ 16,601
Agricultural 7,232 1,447 8,679
Multi family residential 1,769 1,769
-------- ------- -------
$ 20,379 $ 6,670 $ 27,049
======== ======= =======
The majority of commercial loans are made to small retail and service
businesses.
The Company's mortgage loans increased 7.28% from $68,614,474 to
$73,610,681 at December 31, 1997. 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
after 10 years. 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 or five year periods at a fixed rate and as
a revolving line of credit.
The Company's consumer installment loans increased 38.61% to $16,977,224 at
December 31, 1997. Consumer loans are made for a variety of reasons, however,
approximately 59% 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 two years, 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 1997, if these conditions persist the Company would
expect greater delinquency rates and more problem loans in the future.
During 1997, 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> 13
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
1997 for Rockingham County was 2.0% compared with 3.1% for Virginia and 4.7% for
the nation. The unemployment rate for Rockingham County has improved since
December 1996 when the rate was 2.2%. 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, 1997:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
--------- --------- ----- ------- -----
Commercial and
Agricultural Loans $ 4,272 $ 15,042 $ 7,735 $ 27,049
Real Estate - mortgage 2,386 1,667 69,558 73,611
Real Estate - construction 4,708 4,708
Consumer - installment/other 3,853 13,909 60 17,822
-------- ------- ------- -------
Total $ 15,219 $ 30,618 $ 77,353 $123,190
======== ======= ======= =======
Loans with predetermined
rates $ 1,838 $ 16,326 $ 10,604 $ 28,768
Loans with variable or
adjustable rates 13,381 14,292 66,749 94,422
-------- ------- ------- -------
Total $ 15,219 $ 30,618 $ 77,353 $123,190
======== ======= ======= =======
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,
1997 1996 1995
Nonaccruing loans None None None
Loans past due 90 days or more $ 824,782 $1,429,993 $ 379,863
Percentage to total loans .67% 1.28% .39%
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, 1997 and 1996, 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, 1997, management had identified loans of $1,708,288 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> 14
LOAN CONCENTRATIONS
At December 31, 1997, 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, past due
reports and historical loan loss experience. This review also considers
concentrations of loans in terms of geography, business type or level of risk.
Management evaluates nonperforming loans relative to their collateral value and
makes appropriate adjustments to the allowance for loan losses when needed.
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 1997, 1996,
and 1995 follows:
1997 1996 1995
---- ---- ----
Balance at beginning of period $1,003,371 $ 862,766 $ 744,513
--------- -------- --------
Provision charged to expenses 180,000 226,000 164,500
--------- -------- --------
Loan losses:
Commercial 9,635 11,239 25,630
Installment 91,510 82,482 29,726
Real estate 9,123 9,143
--------- -------- --------
Total loan losses 101,145 102,844 64,499
--------- -------- --------
Recoveries:
Commercial 7,213 700 3,782
Installment 31,310 16,649 10,048
Real Estate 100 4,422
--------- -------- --------
Total recoveries 38,523 17,449 18,252
--------- -------- --------
Net loan losses 62,622 85,395 46,247
--------- -------- --------
Balance at end of period $1,120,749 $1,003,371 $ 862,766
========= ========= ========
Allowance for loan losses
as a percentage of loans .91% .90% .88%
Ratio of net loan losses during the
period to average loans outstanding
during the period .05% .08% .05%
<PAGE> 15
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 below 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
1997 1996 1995
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 $ 376 34% 22% $ 372 37% 24% $ 285 33% 26%
Real estate
mortgage 370 33 64 366 36 64 233 27 63
Installment 255 22 14 185 19 12 276 32 11
Unallocated 120 11 80 8 69 8
----- -- --- ----- --- --- ----- ---
Total $1,121 100% 100% $1,003 100% 100% $ 863 100% 100%
===== === === ===== === === ===== === ===
</TABLE>
DEPOSITS
The Bank recognized an increase in year end deposits in 1997 of 1.41% with
an increase in average deposits for the year of 7.53%. Most of the year end
increase can be attributed to an increase in noninterest bearing deposits. 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 $6,539,282 at December 31,
1997. The maturity distribution of these certificates is as follows:
Less than 3 months $1,418,007
3 to 12 months 2,635,855
1 year to 5 years 2,485,420
Total $6,539,282
<PAGE> 16
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $3,776,042 or 19.74% in 1997. Earnings
retained from operations and unrealized gains on common stocks were the primary
source of the increase. As of December 31, 1997, the book value per share was
$27.98 compared to $23.36 as of December 31, 1996. 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,
1997, the Company had Tier I capital of 17.46% of risk weighted assets and
combined Tier I and II capital of 18.41% 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, 1997, the
Company reported a leverage ratio of 12.04%. 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, 1997 remains adequate. The Bank historically
has had a stable 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 1997,
the Bank used maturing investments, deposit growth and a reduction in short-term
investments to meet its liquidity needs. The Bank was a seller of federal funds
for most of 1997. The Bank's membership in the Federal Home Loan Bank System
also provides 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 .60%
of total assets as compared to plus 2.54% of the Company'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 110.29% compared with 116.24% to the
peer group; i.e., for every $100.00 in volatile liabilities, the Company has
$110.29 in short-term investments. The Company's peer group had $116.24 of
short-term investments. Thus, the Company has similar liquidity to the average
bank in its peer group.
There are no off-balance-sheet items that will impair future liquidity.
Table IV (page 20) contains an analysis which shows the repricing
opportunities of earning assets and interest bearing liabilities as of December
31, 1997.
At December 31, 1997, the Company had a cumulative Gap Rate Sensitivity
Ratio of 26.26% 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> 17
Table I
F & M BANK CORP.
SELECTED OPERATING INFORMATION
<TABLE>
<CAPTION>
Years Ending December 31
(In Thousands, Except per Share Information)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF
INCOME AND DIVIDENDS
Interest Income $13,532 $12,505 $11,136 $ 9,769 $ 9,223
Interest Expense 6,319 6,076 5,515 4,556 4,422
------ ------ ------ ------ ------
Net Interest Income 7,213 6,429 5,621 5,213 4,801
Provision for Loan Losses 180 226 164 60 60
------ ------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 7,033 6,203 5,457 5,153 4,741
Noninterest Income 873 661 947 743 739
Noninterest Expenses 3,568 3,410 3,333 3,128 2,915
------ ------ ------ ------ ------
Income before Income Taxes 4,338 3,454 3,071 2,768 2,565
Income Tax Expense 1,330 1,013 955 779 678
------ ------ ------ ------ ------
Net Income $ 3,008 $ 2,441 $ 2,116 $ 1,989 $ 1,887
====== ====== ====== ====== ======
Total Assets at Year End $173,810 $166,511 $152,301 $132,649 $127,824
======= ======= ======= ======= =======
PER SHARE INFORMATION
Net Income Per Share $ 3.67 $ 2.99 $ 2.60 $ 2.44 $ 2.32
Dividends Per Share $ 1.06 $ .86 $ .80 $ .75 $ .65
Book Value Per Share $ 27.98 $ 23.36 $ 21.00 $ 18.29 $ 16.74
FINANCIAL STATEMENT RATIOS
Return on Average Assets1 1.77% 1.54% 1.49% 1.50% 1.54%
Return on Average Equity1 14.44% 13.58% 13.15% 13.64% 14.53%
Dividend Payout Ratio 28.89% 28.79% 30.79% 30.71% 28.02%
Average Equity to Average
Assets Ratio 12.22% 11.34% 11.34% 11.01% 10.57%
1 Ratios are primarily based on daily average balances.
</TABLE>
<PAGE> 18
Table II
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Average Average Average
Rates Rates Rates
Income/ Earned/ Income/ Earned/ Income/ Earned/
ASSETS Average Expense Paid Average Expense Paid Average Expense Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Commercial 1 $ 29,518 $ 2,791 9.46% $ 25,066 $ 2,351 9.38% $ 23,762 $ 2,325 9.78%
Real estate 1 73,499 6,491 8.83 66,870 5,998 8.97 56,118 5,079 9.05
Installment 1 14,427 1,514 10.49 12,439 1,309 10.52 9,557 1,009 10.56
------- ------ ------ ------- ------ ------ -------- ------- -----
Total Loans 117,444 10,796 9.19 104,375 9,658 9.25 89,437 8,413 9.41
Investment securities:
Fully taxable 3 33,196 2,147 6.47 35,928 2,218 6.17 35,845 2,145 5.98
Partially Taxable 2,3 7,460 645 8.65 6,828 621 9.09 7,033 586 8.33
Nontaxable 2,3 372 23 6.18 591 48 8.12 915 64 6.99
------- ------ ------ ------- ------ ------ -------- ------- -----
Total Investment Securities 41,028 2,815 6.86 43,347 2,887 6.66 43,793 2,795 6.38
Interest bearing deposits
in banks 546 28 5.13 349 19 5.44 638 39 6.11
Federal funds sold 1,968 108 5.49 1,572 84 5.34 1,608 93 5.78
------- ------ ------ ------- ------ ------ -------- ------- -----
Total Earning Assets 160,986 13,747 8.54 149,643 12,648 8.45 135,476 11,340 8.37
------ ------ ------ ------ ------- -----
Allowance for loan losses (1,086) (885) (781)
Nonearning assets 10,412 9,727 7,161
------- ------- --------
Total Assets $170,312 $158,485 $ 141,856
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest bearing $ 19,666 495 2.52 $ 19,950 513 2.57 $ 20,366 612 3.01
Savings 28,005 999 3.57 29,665 1,097 3.70 29,047 1,222 4.21
All other time deposits 65,732 3,550 5.40 56,427 3,122 5.53 45,546 2,438 5.35
------- ------ ------ ------- ------ ------ -------- ------- -----
Total Deposits 113,403 5,044 4.45 106,042 4,732 4.46 94,959 4,272 4.50
Short-term debt 3,306 163 4.93 2,236 112 5.01 272 13 4.78
Long-term debt 17,065 1,112 6.52 18,871 1,232 6.53 18,920 1,230 6.50
------- ------ ------ ------- ------ ------ -------- ------- -----
Total Interest Bearing
Liabilities 133,774 6,319 4.72 127,149 6,076 4.78 114,151 5,515 4.83
------ ------ ------ ------ ------- -----
Noninterest bearing deposits 13,101 11,604 10,526
Other liabilities 2,608 1,758 1,089
------- ------- --------
Total Liabilities 149,483 140,511 125,766
Stockholders' equity 20,829 17,974 16,090
------- ------- --------
Total Liabilities and
Stockholders' Equity $170,312 $158,485 $ 141,856
======= ======= ========
Net Interest Earnings $ 7,428 $ 6,572 $ 5,825
====== ====== =======
Net Yield on Interest Earning Assets 4.61% 4.39% 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.
</TABLE>
<PAGE> 19
Table III
F & M BANK CORP.
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
(On a fully taxable equivalent basis)
(In thousands of dollars)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
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 $ 417 $ 23 $ 440 $ 127 $ (101) $ 26
Real estate 594 (101) 493 973 (54) 919
Installment 209 (4) 205 305 (5) 300
------ ------- ------ ------ ------- ------
Total loans 1,220 (82) 1,138 1,405 (160) 1,245
Investment securities:
Fully taxable (169) 98 (71) 5 68 73
Partially taxable 57 (33) 24 (17) 52 35
Nontaxable (18) (7) (25) (23) 7 (16)
------ ------- ------ ------ ------- ------
Total investment securities (130) 58 (72) (35) 127 92
Interest bearing deposits
in banks 11 (2) 9 (18) (2) (20)
Federal funds sold 21 3 24 (2) (7) (9)
------ ------- ------ ------ ------- ------
Total Interest Income $ 1,122 $ (23) $ 1,099 $ 1,350 $ (42) $ 1,308
====== ======= ====== ====== ======= ======
Interest expense:
Deposits:
Demand $ (7) $ (11) $ (18) $ (12) $ (87) $ (99)
Savings (61) (37) (98) 26 (151) (125)
All other time deposits 515 (87) 428 582 102 684
------ ------- ------ ------ ------- ------
Total deposits 447 (135) 312 596 (136) 460
Short-term debt 54 (3) 51 94 5 99
Long-term debt (118) (2) (120) (3) 5 2
------- ------- ------ ------ ------- ------
Total Interest Expense $ 383 $ (140) $ 243 $ 687 $ (126) $ 561
====== =======- ====== ====== ======= ======
</TABLE>
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.
<PAGE> 20
Table IV
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
(In Thousands of Dollars)
December 31, 1997
<TABLE>
<CAPTION>
1-90 91-365 1-5 Over 5 Not
Days Days Years Years Classified Total
Uses of Funds
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $21,411 $ 1,411 $ 8,768 $ 616 $ $32,206
Consumer installment 34 656 13,953 60 14,703
Consumer real estate 6,390 9,883 41,442 17,748 75,463
Credit cards 818 818
------ ------ ------ ------ ------ ------
Total Loans 28,653 11,950 64,163 18,424 123,190
Federal funds sold 2,255 2,255
Interest bearing
bank deposits 827 827
Investment Securities 3,005 4,932 14,441 5,902 12,048 40,328
------ ------ ------ ------ ------ ------
Total 34,740 16,882 78,604 24,326 12,048 166,600
-------- -------- -------- -------- -------- --------
Sources of Funds
Deposits:
Interest bearing
demand deposits 19,651 19,651
Savings 27,024 27,024
Certificates of deposit
$100,000 and over 1,418 2,636 2,485 6,539
Other certificates
of deposit 15,348 20,872 22,530 58,750
------ ------ ------ ------ ------ ------
Total Deposits 63,441 23,508 25,015 111,964
Repurchase agreements 3,903 3,903
Short-term borrowings 1,301 1,301
Long-term borrowings 853 2,357 10,851 2,915 16,976
------ ------ ------ ------ ------ ------
Total 69,498 25,865 35,866 2,915 134,144
------- ------- ------- ------ ----- --------
Discrete Gap (34,758) (8,983) 42,738 21,411 12,048 32,456
------- ------ ------ ------ ------ ------
Cumulative Gap (34,758) (43,741) (1,003) 20,408 32,456
------- ------- ------ ------ ------
Ratio of Cumulative Gap
to Total Earning Assets (20.86)% (26.26)% (.60)% 12.25% 19.48%
</TABLE>
Table IV reflects the earlier of the maturity or repricing dates for various
assets and liabilities at December 31, 1997. In preparing the above table, no
assumptions are made with respect to loan prepayments or deposit run offs. Loan
principal payments are included in the earliest period in which the loan matures
or can be repriced. Principal payments on installment loans scheduled prior to
maturity are included in the period of maturity or repricing. Proceeds from the
redemption of investments and deposits are included in the period of maturity.
<PAGE> 21
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 1997 and 1996 23
Consolidated Statements of Income - Years Ended December 31,
1997, 1996, and 1995 24
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1997, 1996, and 1995 25
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996, and 1995 26
Notes to Consolidated Financial Statements 27 - 45
<PAGE> 22
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
S. B. Hoover & Company, L.L.P.
January 30, 1998
Harrisonburg, Virginia
<PAGE>23
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1997 1996
Cash and due from banks (note 3) $ 3,574,401 $3,567,828
Interest bearing deposits in banks 827,460 854,106
Federal funds sold 2,255,000 3,397,000
Securities -
Held to maturity (note 4) 17,545,119 22,708,455
Available for sale (note 4) 21,170,694 19,722,229
Other investments (note 4) 1,612,124 1,512,655
Loans (note 5) 123,190,165 111,545,235
Less allowance for loan losses (note 6) (1,120,749) (1,003,371)
---------- ----------
Net Loans 122,069,416 110,541,864
Bank premises and equipment, net (note 7) 1,882,850 1,953,146
Other real estate 427,067 107,000
Interest receivable 1,277,266 1,311,645
Other assets 1,168,299 834,832
---------- ---------
Total Assets $173,809,696 $166,510,760
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $ 14,387,564 $ 12,613,945
Interest bearing:
Demand 14,290,888 14,122,724
Money market accounts 5,359,705 5,355,777
Savings 27,024,134 28,390,506
Time deposits over $100,000 (note 8) 6,539,282 6,925,895
All other time deposits (note 8) 58,749,602 57,189,748
---------- ----------
Total Deposits 126,351,175 124,598,595
Short-term debt (note 9) 5,204,099 3,115,588
Accrued liabilities 2,376,407 1,398,543
Long-term debt (note 10) 16,976,101 18,272,162
---------- ----------
Total Liabilities 150,907,782 147,384,888
----------- -----------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 2,000,000 shares
authorized, 818,654 shares issued and
outstanding 4,093,270 4,093,270
Capital surplus 866,694 866,694
Retained earnings (note 16) 15,536,083 13,396,313
Net unrealized gains on securities
available for sale 2,405,867 769,595
------------ ----------
Total Stockholders' Equity 22,901,914 19,125,872
---------- ----------
Total Liabilities and Stockholders' Equity $173,809,696 $166,510,760
The accompanying notes are an integral part of this statement.
<PAGE> 24
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1997 1996 1995
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans 10,778,088 $9,646,361 $8,401,531
Interest on time deposits and federal
funds sold 135,835 103,218 132,550
Interest on debt securities - taxable 2,198,515 2,334,902 2,180,051
Interest on debt securities -
nontaxable 15,212 31,754 47,631
Dividends on common stock 404,082 388,617 374,159
-------- -------- --------
Total Interest and Dividend Income 13,531,732 12,504,852 11,135,922
---------- ---------- ----------
INTEREST EXPENSE:
Interest on demand deposits 494,549 513,275 611,422
Interest on savings deposits 999,314 1,091,086 1,222,310
Interest on time deposits over $100,000 247,949 265,488 223,074
Interest on all other time deposits 3,301,664 2,862,754 2,215,059
--------- --------- ---------
Total interest on deposits 5,043,476 4,732,603 4,271,865
Interest on short-term debt 163,478 112,254 13,478
Interest on long-term debt 1,112,146 1,231,426 1,229,799
--------- --------- ---------
Total Interest Expense 6,319,100 6,076,283 5,515,142
--------- --------- ---------
NET INTEREST INCOME 7,212,632 6,428,569 5,620,780
--------- --------- ---------
PROVISION FOR LOAN LOSSES (note 6) 180,000 226,000 164,500
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,032,632 6,202,569 5,456,280
--------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 400,192 253,362 236,072
Insurance and other commissions 15,268 37,040 43,425
Other operating income 112,307 135,181 92,140
Gain on security transactions (note 4) 345,262 235,104 575,795
-------- -------- --------
Total Noninterest Income 873,029 660,687 947,432
-------- -------- --------
NONINTEREST EXPENSES:
Salaries 1,563,488 1,443,829 1,446,305
Employee benefits (note 12) 478,516 481,182 508,606
Occupancy expense 168,785 166,495 179,857
Equipment expense 285,715 290,372 231,962
Other operating expenses 1,071,848 1,027,784 966,213
--------- --------- --------
Total Noninterest Expenses 3,568,352 3,409,662 3,332,943
--------- --------- ---------
Income before Income Taxes 4,337,309 3,453,594 3,070,769
INCOME TAX EXPENSE (note 11) 1,329,766 1,012,826 955,086
--------- --------- --------
NET INCOME $3,007,543 $2,440,768 $2,115,683
========= ========= =========
PER SHARE DATA
NET INCOME $ 3.67 $ 2.99 $ 2.60
======== ======== ========
CASH DIVIDENDS $ 1.06 $ .86 $ .80
======== ======== ========
COMMON SHARES OUTSTANDING 818,654 816,948 814,288
======== ======== ========
The accompanying notes are an integral part of this statement.
<PAGE> 25
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses)
on Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale Total
<S> <C> <C> <C> <C> <C> <C>
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
Net income 3,007,543 3,007,543
Dividends on common stock (867,773) (867,773)
Change in net unrealized gains
on securities available
for sale, net of income
taxes of $976,803 1,636,272 1,636,272
-------- -------- -------- --------- ---------
BALANCE - December 31, 1997 $4,093,270 $ 866,694 $15,536,083 $2,405,867 $22,901,914
========= ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 26
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,007,543 $2,440,768 $2,115,683
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of securities (345,262) (235,104) (575,795)
Depreciation 256,495 258,315 204,520
Amortization of security premiums 92,415 109,398 146,966
Provision for loan losses 180,000 226,000 164,500
Provision for deferred taxes (32,140) (43,415) (47,267)
(Increase) decrease in interest
receivable 34,379 (48,075) (261,755)
Increase in other assets (325,233) (146,633) (14,909)
Increase (decrease) in accrued
expenses (86,600) 185,006 454,235
Amortization of limited partnership
investments 94,127 36,369 49,901
Other noncash expenses 25,807
--------
Net Cash Provided by Operating Activities 2,901,531 2,782,629 2,236,079
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest
bearing bank deposits 26,646 (771,901) (23,855)
Net (increase) decrease in federal
unds sold 1,142,000 (1,610,000) 1,787,000)
Proceeds from maturities of securities
held to maturity 10,724,026 12,649,324 15,409,547
Proceeds from maturities of securities
available for sale 3,193,936 1,793,435 1,280,093
Proceeds from sales of securities
available for sale 7,326,099 2,265,492 4,931,003
Purchases of securities available
for sale (8,955,309) (5,585,748) (6,740,372)
Purchases of securities held to
maturity (5,949,245) (9,160,122)(13,256,220)
Net increase in loans (11,516,933)(13,666,799)(16,647,730)
Purchase of property and equipment (203,173) (203,688) (627,202)
Construction in progress payments (24,788)
Purchase of other real estate (427,067)
Proceeds from sales of equipment 9,500
--------
Net Cash Used in Investing Activities (4,629,520)(14,314,795)(17,461,736)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
and savings deposits 579,339 (935,050) 507,727
Net increase in time deposits 1,173,241 11,873,065 14,399,318
Net increase in short-term debt 2,088,511 2,277,858 304,253
Dividends paid in cash (810,468) (685,924) (651,425)
Proceeds from long-term debt 2,000,000 2,000,000 4,000,000
Repayments of long-term debt (3,296,061) (3,146,062) (2,538,919)
---------- ---------- ---------
Net Cash Provided by Financing
Activities 1,734,562 11,383,887 16,020,954
--------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 6,573 (148,279) 795,297
Cash and Cash Equivalents, Beginning of Year 3,567,828 3,716,107 2,920,810
---------- ----------- -----------
Cash and Cash Equivalents, End of Year $3,574,401 $3,567,828 $3,716,107
========= ========= =========
Supplemental Disclosure:
Cash paid for:
Interest expense $6,324,663 $6,045,799 $5,369,040
Income taxes 1,370,180 997,000 792,241
The accompanying notes are an integral part of this statement.
<PAGE> 27
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS:
F & M Bank Corp. ("Company"), through its subsidiary Farmers &
Merchants Bank ("Bank"), operates under a charter issued by the
Commonwealth of Virginia and provides commercial banking services. As
a state chartered bank, the Bank is subject to regulation by the
Virginia Bureau of Financial Institutions and the Federal Reserve
Bank. The Bank provides services to customers located mainly in
Rockingham County, Virginia, and the adjacent counties of Page,
Shenandoah and Augusta. Services are provided at five branch offices.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles and
to accepted practice within the banking industry.
The following is a summary of the more significant policies:
(a)Principles of Consolidation
The consolidated financial statements include the accounts of the
Farmers and Merchants Bank, the TEB Life Insurance Company and
Timway Insurance Agency, Inc. Significant intercompany accounts and
transactions have been eliminated.
(b)Use of Estimates in the Preparation of Financial Statements
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts in
those statements; actual results could differ significantly from
those estimates. A material estimate that is particularly
susceptible to significant changes is the determination of the
allowance for loan losses, which is sensitive to changes in local
economic conditions.
(c)Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and deposits at
other financial institutions whose initial maturity is ninety days
or less.
(d)Investment Securities
Management reviews the securities portfolio and classifies all
securities as either held to maturity or available for sale at the
date of acquisition. 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. Changes subsequent to the adoption of this
statement are shown as a separate item on the statement of
stockholders' equity.
<PAGE> 28
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d)Investment Securities (Continued)
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
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.
<PAGE> 29
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.
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 $633,000 and $567,000 for
the years ended December 31, 1997 and 1996, respectively.
<PAGE> 30
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:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1997
U. S. Treasuries
and Agencies $9,283,442 $ 33,321 $ 2,569 $9,314,194
Mortgage-backed
obligations of
federal agencies 3,709,499 5,221 13,758 3,700,962
State and municipals 404,882 53 404,935
Corporate bonds 4,147,296 20,615 1,061 4,166,850
--------- -------- -------- ---------
Total Securities
Held to Maturity $17,545,119 $ 59,210 $ 17,388 $17,586,941
========== ======== ======== ==========
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
========== ======== ======== ==========
The amortized cost and fair value of securities available for sale are
as follows:
December 31, 1997
U.S. Agencies $3,471,310 $ 22,292 $ $3,493,602
Mortgage-backed
obligations of
federal agencies 3,088,533 22,365 370 3,110,528
Marketable equities 6,634,360 3,802,422 1,046 10,435,736
Corporate bonds 4,100,848 29,980 4,130,828
--------- -------- -------- ---------
Total Securities
Available for
Sale $17,295,051 $3,877,059 $ 1,416 $21,170,694
========== ========= ======== ==========
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
========== ========= ======== ==========
<PAGE> 31
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, 1997,
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 $1,997,668 $2,003,669 $5,933,236 $5,939,388
Due after one year
through five years 5,508,359 5,551,355 8,889,597 8,930,796
Due after five years
through ten years 903,496 909,489 995,995 1,001,214
Due after ten years 2,251,168 2,270,445 1,726,291 1,715,543
--------- --------- --------- ---------
Total 10,660,691 10,734,958 17,545,119 17,586,941
Marketable equities 6,634,360 10,435,736
$17,295,051 $21,170,694 $17,545,119 $17,586,941
</TABLE>
Realized gains and losses and the gross proceeds from the sale of debt
securities were not material in 1997, 1996 or 1995. Realized gains and
losses on marketable equity transactions are summarized below:
1997 1996 1995
--------------------------------
Gains $ 461,136 $ 250,808 $ 620,036
Losses 115,874 15,704 44,241
-------- -------- --------
Net Gains $ 345,262 $ 235,104 $ 575,795
======== ======== ========
The carrying value (which approximates fair value) of securities
pledged by the Company to secure deposits and for other purposes
amounted to $8,527,124 at December 31, 1997 and $7,546,959 at December
31, 1996.
There were no state or political subdivision obligations of a single
issuer which exceeded 10% of stockholders' equity at December 31,
1997, 1996 or 1995.
<PAGE> 32
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
At December 31, 1997, the Company was committed to invest an
additional $977,823 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 $599,317) and stock in the Federal
Home Loan Bank, Community Bankers Bank and Federal Reserve Bank
(carrying basis of $1,012,807). 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, 1997.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
1997 1996
Real Estate
Construction $ 4,708,218 $ 2,924,696
Mortgage 73,610,681 68,614,474
Commercial and agricultural 27,048,927 26,921,693
Installment 16,977,224 12,248,499
Credit cards 817,867 799,257
Other 27,248 36,616
---------- ----------
Total $123,190,165 $111,545,235
=========== =============
The Company has pledged mortgage loans as collateral for borrowings
with the Federal Home Loan Bank of Atlanta totalling $21,240,390 and
$21,219,513 as of December 31, 1997 and 1996, 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:
1997 1996 1995
--------------------------------
Balance, beginning of year $1,003,371 $ 862,766 $ 744,513
Provision charged to operating
expenses 180,000 226,000 164,500
Loan recoveries 38,523 17,449 18,252
Loans charged off (101,145) (102,844) (64,499)
--------- --------- --------
Balance, End of Year $1,120,749 $1,003,371 $ 862,766
========= ========= ========
Percentage of gross loans .91% .90% .88%
<PAGE> 33
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:
1997 1996
Construction in progress $ $ 24,788
Land 384,763 392,237
Buildings and improvements 1,887,945 1,809,589
Furniture and equipment 1,963,886 1,846,852
---------- ----------
4,236,594 4,073,466
Less - accumulated depreciation (2,353,744) (2,120,320)
---------- -----------
Net $ 1,882,850 $ 1,953,146
========== ==========
Provisions for depreciation of $256,495 in 1997, $258,315 in
1996 and $204,520 in 1995 were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
1998 $40,273,830
1999 13,016,137
2000 9,260,201
2001 940,463
2002 and thereafter 1,798,253
----------
Total $65,288,884
NOTE 9 SHORT-TERM DEBT:
<TABLE>
Short-term debt information is summarized as follows:
<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>
1997
Treasury, tax
and loan $1,402,834 $1,300,663 $ 332,603 4.52% 5.25%
Federal funds
purchased 2,577,000 81,512 5.75 N/A
Notes payable 477,220 55,642 7.74 N/A
Securities sold under
agreements to
repurchase 3,903,436 3,903,436 2,892,035 4.98 4.91
--------- --------- --------- ------ ------
Totals $5,204,099 $3,361,792 4.99% 5.00%
========== ========== ==== ====
1 Based on daily amounts outstanding
</TABLE>
<PAGE> 34
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>
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%
========== ========== ==== ====
1 Based on daily amounts outstanding
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%
======== ======== ==== ====
1 Based on daily amounts outstanding
</TABLE>
The Company has lines of credit with correspondent banks totalling
$10,302,000, 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 $27,900,000 from the
Federal Home Loan Bank of Atlanta (FHLB) since 1992. Advances for the
years ended December 31, 1997 and 1996, were $2,000,000 in each year.
The interest rates on the notes payable are fixed at the time of the
advance and range from 5.26% to 7.72%; the weighted average interest
rate is 6.52% at December 31, 1997. 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 $1,112,146, $1,231,426, and $1,229,799
was incurred on these debts in 1997, 1996 and 1995, respectively. The
maturities of long-term debt as of December 31, 1997 are as follows:
1998 $3,210,344
1999 2,924,631
2000 2,924,631
2001 2,684,631
2002 2,316,993
Thereafter 2,914,871
---------
Total $16,976,101
==========
<PAGE> 35
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:
1997 1996 1995
--------------------------------
Current expense
Federal $1,341,529 $1,040,736 $ 959,652
State 20,377 15,505 42,701
Deferred expense
Federal (32,140) (43,415) (47,267)
-------- -------- --------
Total Income Tax Expense $1,329,766 $1,012,826 $ 955,086
========= ========= ========
Amounts in above arising from
gains on security
transactions $ 132,744 $ 89,791 $ 220,572
======== ======== ========
The deferred tax effects of temporary differences for the years ended
December 31 are as follows:
1997 1996 1995
Tax Effects of Temporary Differences:
Accounting change $ (11,523) $ (11,523) $ (11,523)
Provision for loan losses (36,848) (47,806) (40,206)
Split dollar life insurance (6,557) (5,006) (11,492)
Depreciation 1,037 (2,319) (3,521)
Pension expense 15,946 15,487 18,272
Other 5,805 7,752 1,203
-------- -------- --------
Deferred Income Tax Benefit $ (32,140) $ (43,415) $ (47,267)
======== ======== ========
The components of the deferred taxes as of December 31 are as follows:
1997 1996
Deferred Tax Assets:
Bad debt allowance $ 262,441 $ 225,593
Split dollar life insurance 74,049 67,492
Other 8,267 7,270
-------- --------
Total Assets 344,757 300,355
-------- --------
Deferred Tax Liabilities:
Securities available for sale 1,469,772 471,206
Low income housing credits 94,847 58,812
Accretion 24,436 17,634
Depreciation 17,667 16,630
Pension 140,951 125,005
Change in accounting method 11,524 23,047
FHLB dividends 18,564 18,564
-------- --------
Total Liabilities 1,777,761 730,898
--------- --------
Net Liability $(1,433,004) $(430,543)
========== =========
<PAGE> 36
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:
1997 1996 1995
Tax expense at federal statutory
rates $1,451,470 $1,160,264 $1,044,062
Increases (decreases) in taxes
resulting from:
Partially exempt income (127,577) (131,461) (116,067)
State income taxes, net 25,250 7,683 37,722
Tax-exempt interest (11,796) (12,522) (14,792)
Other (7,581) (11,138) 4,161
-------- -------- --------
Total Income Tax Expense $1,329,766 $1,012,826 $ 955,086
========= ========= ========
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 $90,786, $87,246 and $75,062 for the years
ended December 31, 1997, 1996 and 1995, 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 $153,663 in 1997, $144,176 in 1996 and
$141,926 in 1995 to the Plan and charged this expense to operations.
<PAGE> 37
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
$2,322,681 and $3,313,981 at December 31, 1997 and 1996.
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 1997, 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 70% 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:
1997 1996
Commitments to loan money $19,772,394 $14,043,469
Standby letters of credit 236,439 572,900
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> 38
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:
1997 1996
Total loans, beginning of year $1,043,002 $1,223,327
New loans 605,782 611,550
Payments (431,251) (791,875)
-------- --------
Total Loans, End of Year $1,217,533 $1,043,002
========= =========
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, 1998,
approximately $1,467,073 was available for dividend distribution
without permission of the Board of Governors. Dividends paid by the
Bank to the Company totaled $2,120,364 in 1997, $587,858 in 1996 and
$170,458 in 1995.
<PAGE> 39
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, 1997 and 1996, are as follows (in thousands):
1997 1996
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Financial Assets
Cash $ 3,574 $ 3,574 $ 3,568 $ 3,568
Interest bearing deposits 827 827 854 854
Federal funds sold 2,255 2,255 3,397 3,397
Securities available for sale 21,171 21,171 19,722 19,722
Securities held to maturity 17,587 17,545 22,667 22,708
Other investments 1,612 1,612 1,513 1,513
Loans 123,093 122,069 110,286 110,542
Accrued interest receivable 1,277 1,277 1,312 1,312
Financial Liabilities
Demand Deposits:
Non-interest bearing 14,388 14,388 12,614 12,614
Interest bearing 19,651 19,651 19,478 19,478
Savings deposits 27,024 27,024 28,391 28,391
Time deposits 65,534 65,289 64,676 64,116
Short-term debt 5,204 5,204 3,116 3,116
Long-term debt 17,132 16,976 18,299 18,272
Accrued interest payable 502 502 507 507
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 1997.
<PAGE> 40
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, 1997, that the Company and its subsidiary
bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, 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
1997 1996 Capitalized Capitalized
Total risk-based ratio 18.41% 17.67% 8.00% 10.00%
Tier 1 risk-based ratio 17.46% 16.75% 4.00% 6.00%
Total assets leverage ratio 12.04% 11.37% 3.00% 5.00%
<PAGE> 41
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31,
ASSETS 1997 1996
Cash and cash equivalents $ 593,236 $ 162,408
Investment in subsidiaries 11,858,642 11,509,142
Loans receivable 271,808 282,262
Securities available for sale 10,435,736 7,307,876
Other securities 605,846 516,277
Accrued interest receivable 1,472 1,552
Due from subsidiaries 364,445 90,690
Income tax receivable 120,441
Other real estate 427,067
--------
Total Assets $24,678,693 $19,870,207
========== ==========
LIABILITIES
Dividends payable $ 237,410 $ 180,104
Income taxes payable 37,699
Deferred income tax 1,539,369 526,532
--------- --------
Total Liabilities 1,776,779 744,335
--------- --------
STOCKHOLDERS' EQUITY
Common stock par value $5 per share, 2,000,000
shares authorized, 818,654 shares issued and
outstanding 4,093,270 4,093,270
Capital surplus 866,694 866,694
Retained earnings 15,536,083 13,396,313
Net unrealized gains on securities
available for sale 2,405,867 769,595
--------- --------
Total Stockholders' Equity 22,901,914 19,125,872
---------- ----------
Total Liabilities and Stockholders' Equity $24,678,693 $19,870,207
<PAGE> 42
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,
1997 1996 1995
INCOME
Dividends from affiliate $2,120,364 $ 587,858 $ 170,458
Interest on loans 24,929 25,826 26,786
Investment income - taxable 6,364 1,856 1,675
Dividend income 404,082 388,617 374,159
Security gains 373,469 248,864 620,036
Limited partnership income (loss),
net of tax credits (25,062) 11,505 (8,854)
--------- ---------- ---------
Total Income 2,904,146 1,264,526 1,184,260
--------- ---------- ---------
EXPENSES
Interest expense 4,305 10,260 467
Administration expense 74,043 80,266 73,697
--------- ---------- ---------
Total Expenses 78,348 90,526 74,164
--------- ---------- ---------
Net income before income tax expense
and increase in undistributed
equity of affiliates 2,825,798 1,174,000 1,110,096
INCOME TAX EXPENSE 125,215 76,094 267,699
--------- ---------- ---------
Income before increase in undistributed
equity of affiliates 2,700,583 1,097,906 842,397
Increase in undistributed equity
of affiliates 306,960 1,342,862 1,273,286
--------- ---------- ---------
NET INCOME 3,007,543 2,440,768 2,115,683
Retained earnings, beginning of year 13,396,313 11,658,715 10,194,457
Dividends on common stock (867,773) (703,170) (651,425)
--------- ---------- ---------
Retained Earnings, End of Year $15,536,083 $13,396,313 $11,658,715
========== ========== ==========
<PAGE> 43
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,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,007,543 $2,440,768 $2,115,683
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed subsidiary income (306,960) (1,342,862) (1,273,286)
Gain on sale of securities (373,469) (248,864) (620,036)
Decrease in interest receivable 80 87 162
Decrease (increase) in due from
subsidiary (273,755) 29,874 107,703
Decrease (increase) in other
receivables (120,441) 76,324
Increase (decrease) in accrued
expenses (1,673) 1,944 77,319
Amortization of limited partnership
investments 94,127 36,369 49,901
--------- -------- --------
Net Cash Provided by Operating
Activities 2,025,452 917,316 533,770
------------ --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available for sale 1,251,339 1,188,867 2,255,476
Proceeds from maturity of securities
available for sale 703,793 4,629 5,480
Purchase of securities available
for sale (2,135,196) (587,818) (2,030,149)
Purchase of other securities (187,488) (130,226) (121,359)
Decrease in loans receivable 10,463 9,557 8,680
Investment in subsidiary (700,000)
Purchase of other real estate (427,067)
Net Cash Provided by (Used in)
Investing Activities (784,156) 485,009 (581,872)
--------- -------- --------
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 (810,468) (685,924) (651,425)
--------- -------- --------
Net Cash Provided by (Used in)
Financing Activities (810,468) (1,244,029) 48,575
--------- ---------- ---------
Net Increase in Cash and Cash Equivalents 430,828 158,296 473
Cash and Cash Equivalents, Beginning
of Year 162,408 4,112 3,639
---------- -------- --------
Cash and Cash Equivalents, End of Year $ 593,236 $ 162,408 $ 4,112
========= ======== ========
<PAGE>44
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 10,778 $ 9,646 $ 8,401 $ 7,106 $ 6,685
Federal funds sold and time deposits 136 103 133 82 140
Investment securities - taxable 2,603 2,724 2,554 2,463 2,180
Investment securities - nontaxable 15 32 48 118 218
-------- -------- -------- -------- ---------
Total 13,532 12,505 11,136 9,769 9,223
--------- --------- --------- -------- --------
INTEREST EXPENSE:
Interest on deposits 5,043 4,733 4,272 3,435 3,598
Other interest expense 1,276 1,343 1,243 1,121 824
-------- -------- -------- -------- --------
Total 6,319 6,076 5,515 4,556 4,422
-------- -------- -------- -------- --------
NET INTEREST INCOME 7,213 6,429 5,621 5,213 4,801
Provision for Loan Losses 180 226 165 60 60
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,033 6,203 5,456 5,153 4,741
-------- -------- -------- -------- --------
NONINTEREST INCOME:
Service charges on deposits 400 254 236 219 220
Other operating income 128 172 135 111 144
Gain on security transactions 345 235 576 413 375
-------- -------- -------- -------- --------
Total Noninterest Income 873 661 947 743 739
-------- -------- -------- -------- --------
NONINTEREST EXPENSES:
Salaries 1,563 1,444 1,446 1,327 1,218
Employee benefits 479 481 508 460 404
Occupancy expense 169 167 180 129 114
Equipment expense 286 290 232 194 228
Other operating expenses 1,071 1,028 966 1,018 951
-------- ------- -------- -------- --------
Total Noninterest Expenses 3,568 3,410 3,332 3,128 2,915
-------- -------- -------- -------- --------
Income before Income Taxes 4,338 3,454 3,071 2,768 2,565
Income Tax Expense 1,330 1,013 955 779 678
-------- -------- -------- -------- --------
NET INCOME $ 3,008 $ 2,441 $ 2,116 $ 1,989 $ 1,887
======== ======== ======== ======== ========
Total Assets at Year End $ 173,810 $ 166,511 $ 152,301 $ 132,649 $ 127,824
Net Income Per Share $ 3.67 $ 2.99 $ 2.60 $ 2.44 $ 2.32
Dividends Per Share $ 1.06 $ .86 $ .80 $ .75 $ .65
Book Value Per Share $ 27.98 $ 23.36 $ 21.00 $ 18.29 $ 16.74
</TABLE>
<PAGE> 45
FINANCIAL HIGHLIGHTS
F & M BANK CORP.
& SUBSIDIARIES
1997 1996 1995
FOR THE YEAR
Net income $ 3,007,543 $2,440,768 $ 2,115,683
Net income per share 3.67 2.99 2.60
Cash dividends 867,773 703,170 651,425
Cash dividends per share 1.06 .86 .80
Return on average assets 1.77% 1.54% 1.49%
Return on average equity 14.44% 13.58% 13.15%
AT YEAR END
Assets $173,809,696 $166,510,760 $152,301,336
Loans 123,190,165 111,545,235 97,963,831
Deposits 126,351,175 124,598,595 113,660,580
Stockholders' equity 22,901,914 19,125,872 17,098,575
Average shares outstanding 818,654 816,948 814,288
Book value per share 27.98 23.36 21.00
Primary capital/assets 13.18% 11.49% 11.23%
<PAGE> 46
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 2000 annual meeting of shareholders)
Lawrence H. Hoover, Jr. 63 1981 Attorney, Partner in Hoover, Penrod,
Vice Chairman of the Board Davenport & Crist and its predecessor
since 1971
Richard S. Myers 50 1988 President of Dick Myers Chevrolet-GEO
since February 1991
Ronald E. Wampler 50 1991 Farmer and partner in Dove Farms,
Inc. and its affiliates
CLASS C DIRECTORS
(to serve until the 1999 annual meeting of shareholders)
Julian D. Fisher 57 1990 CEO of Farmers & Merchants Bank
President since May 1996; President of Bank
since Oct. 1991
Dan B. Todd 66 1969 CEO of Farmers & Merchants Bank
Chairman from 1969 to May 1999; Chairman of
the Board since Oct. 1991
CLASS B DIRECTORS
(to serve until the 1998 annual meeting of shareholders)
Thomas L. Cline 51 1991 President of Truck & Equipment
Corp. and MacLease, Inc. since May
1997; Secretary of North and South
Lines, Inc. since May 1997;
Secretary of Truck Thermo King and
Transport Repairs, Inc. since 1974
Robert L. Halterman 62 1980 President of Virginia Classic
Mustang, Inc., an auto parts
company; Partner in H&H Properties
Wayne L. Long 68 1985 Real estate and retired farmer
Michael W. Pugh 43 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.
<PAGE> 47
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 1997, 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 1997 $100,000 $35,000 $31,082
Chief Executive Officer 1996 84,912 30,000 20,813
& President 1995 72,800 25,000 17,213
1 The value of perquisites and other personal benefits did not exceed the
lesser 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 ($14,486, $12,151 and $9,280 in
1997, 1996 and 1995, respectively), the gross value of life insurance premiums
paid by the Company on behalf of Mr. Fisher ($14,796, $7,334 and $7,386 in 1997,
1996 and 1995, respectively) and the lease value of personal mileage on a
company vehicle that has been provided for Mr. Fisher's use ($1,800, $1,328 and
$547 in 1997, 1996 and 1995, 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 1997, a
bonus of $5,000 was paid to each Director.
<PAGE> 48
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,
1997.
The following table sets forth the number and percentage of shares of common
stock held, as of December 31, 1997 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 2,317 1 .283%
Julian D. Fisher 29,479 2 3.601%
Robert L. Halterman 9,616 1.175%
Lawrence H. Hoover, Jr. 15,644 3 1.911%
Wayne L. Long 5,538 4 .676%
Richard S. Myers 3,890 5 .475%
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 81,026 9.897%
1 Includes 1,241 shares owned directly, 1,020 shares owned jointly with
another member of his household and 56 shares owned by another member of his
household.
2 Includes 3,143 shares owned directly, 2,730 shares owned by another member
of his household and 23,606 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 5,318 shares owned by a Unitrust in which he is one of
the trustees.
4 Includes 1,742 shares owned directly and 3,796 shares owned by a member of
his household.
5 Includes 1,600 shares owned directly and 2,290 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> 49
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, 1997.
<PAGE> 50
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 27, 1998
By: NEIL W. HAYSLETT
Neil W. Hayslett
Vice President and Chief Financial Officer
Date: MARCH 27, 1998
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 27, 1998
Thomas L. Cline
JULIAN D. FISHER Director, President, MARCH 27, 1998
Julian D. Fisher Chief Executive Officer
ROBERT L. HALTERMAN Director MARCH 27, 1998
Robert L. Halterman
<PAGE> 51
Director
Lawrence H. Hoover, Jr.
Director
Wayne L. Long
RICHARD S. MYERS Director MARCH 27, 1998
Richard S. Myers
Director
Michael W. Pugh
DAN B. TODD Director, Chairman MARCH 27, 1998
Dan B. Todd
Director
Ronald E. Wampler
Exhibit 21 - List of Subsidiaries of the Registrant
Farmers & Merchants Bank (incorporated in Virginia)
TEB Life Insurance Company (incorporated in Arizona)
Farmers & Merchants Financial Services (incorporated in Virginia),
a subsidiary of Farmers & Merchants Bank
Exhibit 23 - Consent of Certified Public Accountant
To the Shareholders and Board of Directors F & M Bank Corp.
We consent to the use of our report, dated January 30, 1998, relating to the
consolidated balance sheets of F & M Bank Corp. as of December 31, 1997 and
1996, 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, 1997, which report appears on Page 22 in the December
31, 1997 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. Hoover & Company, L.L.P.
Harrisonburg, VA
March 25, 1998
<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>
<CIK> 0000740806
<NAME> F & M BANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,574
<INT-BEARING-DEPOSITS> 828
<FED-FUNDS-SOLD> 2,255
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,171
<INVESTMENTS-CARRYING> 17,545
<INVESTMENTS-MARKET> 17,587
<LOANS> 123,190
<ALLOWANCE> 1,121
<TOTAL-ASSETS> 173,810
<DEPOSITS> 126,351
<SHORT-TERM> 5,204
<LIABILITIES-OTHER> 2,377
<LONG-TERM> 16,976
0
0
<COMMON> 4,093
<OTHER-SE> 18,809
<TOTAL-LIABILITIES-AND-EQUITY> 173,810
<INTEREST-LOAN> 10,778
<INTEREST-INVEST> 2,214
<INTEREST-OTHER> 540
<INTEREST-TOTAL> 13,532
<INTEREST-DEPOSIT> 5,043
<INTEREST-EXPENSE> 6,319
<INTEREST-INCOME-NET> 7,213
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 345
<EXPENSE-OTHER> 3,568
<INCOME-PRETAX> 4,337
<INCOME-PRE-EXTRAORDINARY> 3,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,008
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 3.67
<YIELD-ACTUAL> 4.61
<LOANS-NON> 0
<LOANS-PAST> 825
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,003
<CHARGE-OFFS> 101
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<ALLOWANCE-CLOSE> 1,121
<ALLOWANCE-DOMESTIC> 1,121
<ALLOWANCE-FOREIGN> 0
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</TABLE>
