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, 1998 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: $16,012,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 4, 1999 - $22 average bid price; $23.25 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 4, 1999 -
2,455,962
DOCUMENTS INCORPORATED BY REFERENCE:
None
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 48.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X
<PAGE> 2
TABLE OF CONTENTS
Part I
Page
Item 1. Description of Business 3
General
Competition
Regulation and Supervision
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 7. Financial Statements 21
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
Part III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 45
Item 10. Executive Compensation 46
Item 11. Security Ownership of Certain Beneficial Owners and
Management 47
Item 12. Certain Relationships and Related Transactions 48
Part IV
Item 13. Exhibits and Reports on Form 8-K 48
Signatures 49
<PAGE> 3
Part I
Item 1. Description of Business
General
F & M Bank Corp., incorporated in Virginia in 1983, is a one-bank holding
company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, and
owns 100% of the outstanding stock of its two affiliates, Farmers & Merchants
Bank (Bank) and TEB Life Insurance Company (TEB). 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,
trust services, 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, 1998, F & M Bank Corp., the Bank, TEB and FMFS had fifty-two
full time and seventeen part time employees. No one employee devotes full time
services to F & M Bank Corp.
Competition
The Bank's offices compete with approximately fifteen financial
institutions. These other institutions include state and nationally chartered
banks, as well as nationally 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, the eastern portion of Rockingham County, and the southern
portion of Page 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 good loan demand throughout 1998 due to the strong local and
national economies. 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
non-banking 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 re-insurer 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 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 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, 1998.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Farmers & Merchants Bank acts as the 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 markdowns 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 1996 through 1998:
Dividends
Declared High Low
1996
1st quarter .067 11.33 9.83
2nd quarter .073 11.50 10.50
3rd quarter .073 11.33 10.33
4th quarter .073 11.17 10.67
1997
1st quarter .073 11.67 11.00
2nd quarter .087 11.92 11.00
3rd quarter .097 11.67 11.17
4th quarter .097 12.63 11.33
1998
1st quarter .097 12.67 11.92
2nd quarter .103 16.25 12.83
3rd quarter .110 16.13 15.00
4th quarter .120 21.50 18.00
Special Dividend .300
All amounts reflect a three for one stock split declared in 1998.
(b) Stockholders
On December 31, 1998, there were 1,140 holders of F & M Bank Corp. common
stock.
(c) Dividends
The cash dividends declared are shown in the above table. The principal
sources of income of F & M Bank Corp. include dividends paid by its subsidiary
bank, dividends received on common and preferred stocks of other corporations,
and securities gains. 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 - 1998 Compared to 1997
Overview
Net income for 1998 increased $493,032 or 16.39% from 1997 earnings. Net
income per share increased from $1.22 in 1997 to $1.43 in 1998. 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 weighted interest margin on earning assets on a tax equivalent basis
decreased from 4.61% in 1997 to 4.39% in 1998. The Company's net yield on
average earning assets of 4.39% is in line with its peer group.
Yields on loans decreased from 9.19% to 9.15%. In 1998, real estate loan
rates were virtually unchanged, while commercial and installment loans decreased
eighteen and eight basis points, respectively due to a general decline in rates
of interest in the market. 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 decreased to 6.58% in 1998 from 6.86% in
1997. This decrease was primarily a result of a decline in market in rates on
all types of debt instruments. Average investments decreased 11.40% 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 increased slightly to 4.47% in
1998 from 4.45% in 1997. This increase was primarily a result of higher rates
paid on time deposits. At various times during the year promotional rates were
offered, with varying terms, in order to increase time deposits. Rates paid on
savings deposits decreased eight basis points in 1998. The Bank offers a tiered
rate savings account, which is designed to be an alternative to time of deposits
in periods 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) reflect prepayment penalties paid during 1998 to
refinance existing long-term debt. The refinanced obligations carry rates of
interest that are approximately one hundred basis points lower than the original
obligations. Savings in interest expense on these obligations will be recognized
over the term of the new obligations. 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 short-term debt declined five 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 $1,248,585 in gains on investments in 1998, most of
which were related to sale of corporate stock. The Company purchased the equity
securities anticipating long-term appreciation. When the equities reached a
pre-determined selling price, they were sold. The previous year the Company
recognized gains of $345,262 as a result of the disposition of some of the above
referenced equities.
Noninterest income other than security gains increased 16.78% in 1998 from
1997 levels. This increase resulted from a number of factors, including
commissions generated from insurance and investment sales, and loan origination
fees.
Other Expenses
Noninterest expense increased $311,992 or 8.74% in 1998 over 1997 levels.
Salaries and employee benefits increased 7.61% due to increased staffing and
normal salary increases. Other noninterest expenses increased $156,593 (10.26%).
The increase was spread over a variety of expense categories, including data
processing, advertising and training expense. The Company's overall cost of
operations relative to asset size compares favorably to its peer group and to
larger statewide institutions.
1997 COMPARED TO 1996 OPERATIONS
Net income in 1997 increased 23.22% over net income in 1996. The increase
was a result of the combined effect of an nine basis point increase in the yield
on earning assets and a six basis point decrease in the cost of interest bearing
liabilities.
Gains on securities transactions increased $110,158 or 46.86%. The Company
continued its strategy of selectively selling common stocks that have shown
sizable long-term appreciation. Other noninterest income increased 24.01% due to
an increase in service charges on deposit accounts following the implementation
of higher overdraft fees and other account service charges.
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 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 Readiness Disclosure
The following statements are being designated as Year 2000 Readiness
Disclosures under the Year 2000 Information and Readiness Disclosure Act,
enacted by the 105th Congress on October 19, 1998.
The Company has formed a year 2000 project team to identify information
technology and non-technology systems that require modification for the year
2000. A project plan has been established with goals and target dates. The
Company has completed the assessment phase and has begun the renovation and
validation phases of the project. Substantially all mission critical systems
have been tested. Redeployment of renovated or new equipment will continue
through mid-1999.
The impact of year 2000 issues on the Company depends not only on corrective
actions that the Company takes, but also on the actions of governmental
agencies, businesses and other third parties that provide services to, or
receive services from, the Company. The Company has implemented an ongoing
process of identifying and contacting mission critical third parties to
determine their year 2000 readiness. Although the Company has undertaken these
measures, there can be no assurance that mission critical third parties will
adequately address their year 2000 issues.
The Company is developing contingency plans for implementation in the event
that testing of alternate vendors to provide mission critical systems. There may
be certain mission critical third parties, such as utilities or
telecommunications companies, where alternative arrangements or sources are
limited or unavailable.
The Company has reviewed its significant loan customers to assess the risk
of increased problem loans and credit losses due to borrowers failure to
adequately address year 2000 issues. Although it is not possible to quantify the
potential impact of such credit losses at this time, management has designated a
portion of the allowance for loan losses as an undesignated reserve which can be
used to absorb uncertainties, including year 2000 problems, within the loan
portfolio.
The Company has incurred expenses throughout 1998 related to its year 2000
project. Additional funds have been budgeted in anticipation of costs related to
testing and renovation that will be incurred during 1999. At the present time,
management of the Company does not believe that the costs of addressing this
issue will have a material adverse impact on the Company's financial condition.
If, however, the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. The Company plans to continue to devote all resources
necessary to resolve any significant year 2000 issues in a timely manner.
<PAGE> 10
BALANCE SHEET
INVESTMENT SECURITIES
Average balances in investment securities declined 11.40% in 1998 compared
to 1997. Continued strong loan demand absorbed most 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 1998, 1997 and 1996 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, 1998 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 $ 2,362 $ 2,379 6.17%
Due after one year through five years 6,244 6,301 6.19
Due after five years through ten years 782 817 6.15
Due after ten years 327 324 3.96
------- ------- -----
Total $ 9,715 $ 9,821 6.04%
======= ======= =====
Securities Available for Sale Amortized Market Average
Cost Value Yield
Due in one year or less $ 1,539 $ 1,548 6.72%
Due after one year through five years 11,363 11,432 5.98
Due after five years through ten years 7,026 7,070 5.54
Due after ten years 3,393 3,401 5.94
------- ------- -----
23,321 23,451 5.88
Equity securities 7,605 10,490 6.63
------- ------- -----
Total $ 30,926 $ 33,941 6.08%
======= ======= =====
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,
1998, is shown in the following schedule:
Book Market
Issuer Value Value
Pass through obligations
FNMA & FHLMC $ 1,537 $ 1,550
GNMA 3,553 3,563
-------- --------
Total $ 5,090 $ 5,113
======== ========
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
$7,604,938 at December 31, 1998, with an estimated market value of $10,489,783.
The investments include common stocks of other bank holding companies, and other
common 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 1998 of the Company's corporate bonds was
$8,993,207 compared with book value of $8,860,931. The Bonds were purchased
primarily as short-term investments and maturities extend to August 24, 2004.
<PAGE> 12
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's loan portfolio totaled $132,301,079 at December 31, 1998
compared with $123,190,165 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 16.71% during
1998 to $31,567,617. The composition of the loans as of December 31, 1998 is
shown in the following schedule:
Commercial and Agricultural Loans
(In thousands)
Secured by
Real Estate Other Total
Commercial $ 13,529 $ 7,950 $ 21,479
Agricultural 7,278 1,392 8,670
Multi family residential 1,419 1,419
-------- ------- -------
$ 22,226 $ 9,342 $ 31,568
======== ======= =======
The majority of commercial loans are made to small retail and service
businesses.
The Company's mortgage loans increased 6.44% from $73,610,681 to
$78,348,885 at December 31, 1998. Residential real estate loans are generally
made for a period not to exceed 25 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 or as a revolving line of credit.
The Company's consumer installment loans increased .87% to $17,125,279 at
December 31, 1998. Consumer loans are made for a variety of reasons, however,
approximately 60% 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 1996 and 1997, the poultry industry 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. Within 1998, poultry operations improved due primarily to falling grain
prices and better poultry pricing. The Company continues to monitor its loan
delinquency rates. If the above conditions return, the Company would expect
greater delinquency rates and more problem loans in the future. Approximately
70% of the loan portfolio is secured by real estate.
During 1998, 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
1998 for Rockingham County was 1.1% compared with 2.7% for Virginia and 4.3% for
the nation. The unemployment rate for Rockingham County has improved since
December 1997 when the rate was 2.0%. 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, 1998:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
--------- --------- ----- ------- -----
Commercial and
Agricultural Loans $ 7,927 $ 15,373 $ 8,268 $ 31,568
Real Estate - mortgage 33 2,305 76,011 78,349
Real Estate - construction 4,376 4,376
Consumer - installment/other 1,760 16,208 41 18,009
-------- ------- ------- -------
Total $ 14,096 $ 33,886 $ 84,320 $132,302
======== ======= ======= =======
Loans with predetermined
rates $ 2,223 $ 17,102 $ 11,497 $ 30,822
Loans with variable or
adjustable rates 11,873 16,784 72,823 101,480
-------- ------- ------- -------
Total $ 14,096 $ 33,886 $ 84,320 $132,302
======== ======= ======= =======
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 (in
thousands):
December 31,
1998 1997 1996
Nonaccruing loans None None None
Loans past due 90 days or more $ 2,059 $ 825 $ 1,430
Percentage to total loans 1.56% .67% 1.28%
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, 1998 and 1997, 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, 1998, management had identified loans of $1,775,651 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, 1998, 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 1998, 1997,
and 1996 follows:
1998 1997 1996
---- ---- ----
Balance at beginning of period $1,120,749 $1,003,371 $ 862,766
--------- --------- --------
Provision charged to expenses 110,000 180,000 226,000
--------- -------- --------
Loan losses:
Commercial 3,551 9,635 11,239
Installment 169,886 91,510 82,482
Real estate 9,123
--------- -------- --------
Total loan losses 173,417 101,145 102,844
--------- -------- --------
Recoveries:
Commercial 6,819 7,213 700
Installment 98,025 31,310 16,649
Real Estate 100
--------- -------- --------
Total recoveries 104,844 38,523 17,449
--------- -------- --------
Net loan losses 68,573 62,622 85,395
--------- -------- --------
Balance at end of period $1,162,176 $1,120,749 $1,003,371
========= ========= =========
Allowance for loan losses
as a percentage of loans .88% .91% .90%
Ratio of net loan losses during the
period to average loans outstanding
during the period .05% .05% .08%
<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>
At December 31
-------------------------------------------------------------
1998 1997 1996
<CAPTION>
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 $ 392 34% 27% $ 376 34% 22% $ 372 37% 24%
Real estate
mortgage 350 30 59 370 33 64 366 36 64
Installment 260 22 14 255 22 14 185 19 12
Unallocated 160 14 120 11 80 8
Total $1,162 100% 100% $1,121 100% 100% $1,003 100% 100%
===== === ==== ===== === === ===== === ===
</TABLE>
DEPOSITS
The Bank recognized an increase in year-end deposits in 1998 of 6.96%. 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 $ 6,941,598 at December 31,
1998. The maturity distribution of these certificates is as follows:
Less than 3 months $1,353,872
3 to 12 months 2,882,893
1 year to 5 years 2,704,833
Total $6,941,598
<PAGE> 16
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $1,176,556 or 5.14% in 1998. Earnings
retained from operations and unrealized gains on common stocks were the primary
source of the increase. As of December 31, 1998, the book value per share was
$9.80 compared to $9.33 as of December 31, 1997. 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,
1998, the Company had Tier I capital of 17.45% of risk weighted assets and
combined Tier I and II capital of 18.36% 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 12.32%. 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, 1998 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 1998,
the Bank used maturing investments, deposit growth and an increase in long-term
debt to meet its liquidity needs. The Bank was a seller of federal funds for
most of 1998. 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.
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, 1998.
At December 31, 1998, the Company had a cumulative Gap Rate Sensitivity
Ratio of 33.86% 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)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF
INCOME AND DIVIDENDS
Interest and Dividend Income $ 14,147 $ 13,532 $ 12,505 $ 11,136 $ 9,769
Interest Expense 6,931 6,319 6,076 5,515 4,556
------- ------- ------- ------- -------
Net Interest Income 7,216 7,213 6,429 5,621 5,213
Provision for Loan Losses 110 180 226 164 60
Net Interest Income after
Provision for Loan Losses 7,106 7,033 6,203 5,457 5,153
Noninterest Income 1,865 873 661 947 743
Noninterest Expenses 3,880 3,568 3,410 3,333 3,128
------- ------- ------- ------- -------
Income before Income Taxes 5,091 4,338 3,454 3,071 2,768
Income Tax Expense 1,590 1,330 1,013 955 779
------- ------- ------- ------- -------
Net Income $ 3,501 $ 3,008 $ 2,441 $ 2,116 $ 1,989
======= ======= ======= ======= =======
Total Assets at Year End $191,495 $173,810 $166,511 $152,301 $132,649
PER SHARE INFORMATION
Net Income Per Share $ 1.43 $ 1.22 $ 1.00 $ .87 $ .81
Dividends Per Share $ .73 $ .35 $ .29 $ .27 $ .25
Book Value Per Share $ 9.80 $ 9.33 $ 7.79 $ 7.00 $ 6.10
FINANCIAL STATEMENT RATIOS
Return on Average Assets 1 1.94% 1.77% 1.54% 1.49% 1.50%
Return on Average Equity 1 15.00% 14.44% 13.58% 13.15% 13.64%
Dividend Payout Ratio 51.22% 28.89% 28.79% 30.79% 30.71%
Average Equity to Average
Assets Ratio 12.97% 12.22% 11.34% 11.34% 11.01%
</TABLE>
1 Ratios are primarily based on daily average balances.
<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>
1998 1997 1996
---- ---- ----
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 $ 33,921 $ 3,148 9.28% $ 29,518 $ 2,791 9.46% $ 25,066 $ 2,351 9.38%
Real estate 1 78,072 6,889 8.82 73,499 6,491 8.83 66,870 5,998 8.97
Installment 1 16,226 1,689 10.41 14,427 1,514 10.49 12,439 1,309 10.52
Total Loans 128,219 11,726 9.15% 117,444 10,796 9.19 104,375 9,658 9.25
Investment securities:
Fully taxable 3 27,794 1,707 6.14 33,196 2,147 6.47 35,928 2,218 6.17
Partially Taxable 2,3 8,235 663 8.05 7,460 645 8.65 6,828 621 9.09
Nontaxable 2,3 320 20 6.25 372 23 6.18 591 48 8.12
----- ----- ----- ----- ----- ---- ------ ----- ----
Total Investment
Securities 36,349 2,390 6.58 41,028 2,815 6.86 43,347 2,887 6.66
Interest bearing
deposits in banks 1,777 82 4.61 546 28 5.13 349 19 5.44
Federal funds sold 3,415 182 5.33 1,968 108 5.49 1,572 84 5.34
----- ----- ----- ----- ----- ---- ------ ----- ----
Total Earning Assets 169,760 14,380 8.47 160,986 13,747 8.54 149,643 12,648 8.45
------ ----- ------ ---- ------ ----
Allowance for loan
losses (1,174) (1,086) (885)
Nonearning assets 11,420 10,412 9,727
------ ------ ------
Total Assets $180,006 $170,312 $ 158,485
======= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest
bearing $ 19,552 485 2.48 $ 19,666 495 2.52 $ 19,950 513 2.57
Savings 27,286 953 3.49 28,005 999 3.57 29,665 1,097 3.70
All other time
deposits 68,362 3,713 5.43 65,732 3,550 5.40 56,427 3,122 5.53
Total Deposits 115,200 5,151 4.47 113,403 5,044 4.45 106,042 4,732 4.46
Short-term debt 5,159 252 4.88 3,306 163 4.93 2,236 112 5.01
Long-term debt 18,824 1,529 8.12 17,065 1,112 6.52 18,871 1,232 6.53
------ ----- ----- ------ ----- ---- ------ ----- ----
Total Interest Bearing
Liabilities 139,183 6,932 4.98 133,774 6,319 4.72 127,149 6,076 4.78
----- ----- ----- ---- ----- ----
Noninterest bearing
deposits 14,813 13,101 11,604
Other liabilities 2,668 2,608 1,758
----- ----- ------
Total Liabilities 156,664 149,483 140,511
Stockholders' equity 23,342 20,829 17,974
------ ------ ------
Total Liabilities
and Stockholders'
Equity $180,006 $170,312 $158,485
Net Interest Earnings $ 7,448 $ 7,428 $6,572
Net Yield on Interest
Earning Assets 4.39% 4.61% 4.39%
</TABLE>
1 Interest income on loans includes loan fees.
2 An incremental income tax rate of 34% was used to calculate the tax
equivalent income on nontaxable and partially taxable investments.
3 Average balance information is reflective of historical cost and has not been
adjusted for changes in market value.
<PAGE> 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>
1998 Compared to 1997 1997 Compared to 1996
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 $ 416 $ (59) $ 357 $ 417 $ 23 $ 440
Real estate 404 (6) 398 594 (101) 493
Installment 189 (14) 175 209 (4) 205
---- ------ ----- ---- ---- ----
Total loans 1,009 (79) 930 1,220 (82) 1,138
Investment securities:
Fully taxable (350) (90) (440) (169) 98 (71)
Partially taxable 67 (49) 18 57 (33) 24
Nontaxable (3) 0 (3) (18) (7) (25)
----- ----- ------ ---- ---- ----
Total investment
securities (286) (139) (425) (130) 58 (72)
Interest bearing
deposits in banks 63 (9) 54 11 (2) 9
Federal funds sold 79 (5) 74 21 3 24
---- ------- ----- ---- ---- ----
Total Interest Income $ 865 $ (232) $ 633 $1,122 $ (23) $1,099
==== ====== ===== ===== ==== =====
Interest expense:
Deposits:
Demand $ (3) $ (7) $ (10) $ (7) $ (11) $ (18)
Savings (26) (20) (46) (61) (37) (98)
All other time
deposits 143 20 163 515 (87) 428
Total deposits 114 (7) 107 447 (135) 312
Short-term debt 91 (2) 89 54 (3) 51
Long-term debt 115 302 417 (118) (2) (120)
---- ----- ----- ---- ---- ----
Total Interest Expense$ 320 $ 293 $ 613 $ 383 $(140) $ 243
==== ===== ===== ==== ====- ====
</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, 1998
1-90 91-365 1-5 Over 5 Not
Days Days Years Years Classified Total
Uses of Funds
Loans:
Commercial $5,355 $2,572 $15,373 $8,268 $ $31,568
Consumer installment 88 840 16,208 41 17,177
Consumer real estate 7,095 12,196 46,338 17,096 82,725
Credit cards 832 832
----- ----- ----- ----- ----- ------
Total Loans 13,370 15,608 97,919 25,405 132,302
Federal funds sold 2,436 2,436
Interest bearing
bank deposits 2,145 2,145
Investment Securities 1,294 2,618 17,675 11,580 13,190 46,357
----- ----- ------ ------ ------ ------
Total 19,245 18,226 95,594 36,985 13,190 183,240
Sources of Funds
Deposits:
Interest bearing
demand deposits 20,212 20,212
Savings 27,443 27,443
Certificates of
deposit $100,000
and over 1,354 2,883 2,705 6,942
Other certificates
of deposit 15,823 24,502 23,985 64,310
------ ------ ------ ----- ----- ------
Total Deposits 64,832 27,385 26,690 118,907
Short-term debt 7,155 7,155
Long-term debt 143 3,647 18,064 21,854
----- ----- ----- ------ ----- ------
Total 71,987 27,528 30,337 18,064 147,916
Discrete Gap (52,742) (9,302) 65,257 18,921 13,190 35,324
Cumulative Gap (52,742) (62,044) 3,213 22,134 35,324
Ratio of Cumulative Gap
to Total Earning
Assets (28.78)% (33.86)% 1.75% 12.08% 19.28%
Table IV reflects the earlier of the maturity or repricing dates for various
assets and liabilities at December 31, 1998. 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, 1998 and 1997 23
Consolidated Statements of Income - Years Ended December 31,
1998, 1997, and 1996 24
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1998, 1997, and 1996 25
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997, and 1996 26
Notes to Consolidated Financial Statements 27 - 44
<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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
S. B. Hoover & Company, L.L.P.
February 2, 1999
Harrisonburg, Virginia
<PAGE> 23
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1998 1997
Cash and due from banks (note 3) $ 4,198,472 $ 3,574,401
Interest bearing deposits 2,144,938 827,460
Federal funds sold 2,436,000 2,255,000
Securities -
Held to maturity (note 4) 9,714,876 17,545,119
Available for sale (note 4) 33,941,033 21,170,694
Other investments (note 4) 2,700,682 1,612,124
Loans (note 5) 132,301,079 123,190,165
Less allowance for loan losses (note 6) (1,162,176) (1,120,749)
----------- ----------
Net Loans 131,138,903 122,069,416
Bank premises and equipment, net (note 7) 2,080,298 1,882,850
Other real estate 472,128 427,067
Interest receivable 1,351,812 1,277,266
Other assets 1,316,020 1,168,299
---------- ---------
Total Assets $191,495,162 $173,809,696
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $ 16,232,131 $ 14,387,564
Interest bearing:
Demand 14,665,408 14,290,888
Money market accounts 5,547,034 5,359,705
Savings 27,443,491 27,024,134
Time deposits over $100,000 (note 8) 6,941,598 6,539,282
All other time deposits (note 8) 64,309,689 58,749,602
---------- ----------
Total Deposits 135,139,351 126,351,175
Short-term debt (note 9) 7,155,227 5,204,099
Accrued liabilities 3,268,543 2,376,407
Long-term debt (note 10) 21,853,571 16,976,101
---------- ----------
Total Liabilities 167,416,692 150,907,782
----------- -----------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 3,000,000 shares
authorized, 2,455,962 in 1998 and
818,654 in 1997 shares issued
and outstanding, respectively 12,279,810 4,093,270
Capital surplus 866,694 866,694
Retained earnings (note 16) 9,057,266 15,536,083
Accumulated other comprehensive income 1,874,700 2,405,867
---------- ---------
Total Stockholders' Equity 24,078,470 22,901,914
---------- ----------
Total Liabilities and Stockholders' Equity $191,495,162 $173,809,696
The accompanying notes are an integral part of this statement.
<PAGE> 24
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1998 1997 1996
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $11,695,691 $10,778,088 $ 9,646,361
Interest on deposits and federal
funds sold 264,235 135,835 103,218
Interest on debt securities - taxable 1,670,354 2,198,515 2,334,902
Interest on debt securities - nontaxable 13,083 15,212 31,754
Dividends on equity securities 503,911 404,082 388,617
-------- -------- --------
Total Interest and Dividend Income 14,147,274 13,531,732 12,504,852
---------- ---------- ----------
INTEREST EXPENSE:
Interest on demand deposits 484,254 494,549 513,275
Interest on savings deposits 953,291 999,314 1,091,086
Interest on time deposits over $100,000 317,374 247,949 265,488
Interest on all other time deposits 3,395,708 3,301,664 2,862,754
--------- --------- ---------
Total interest on deposits 5,150,627 5,043,476 4,732,603
Interest on short-term debt 251,889 163,478 112,254
Interest on long-term debt 1,529,009 1,112,146 1,231,426
--------- --------- ---------
Total Interest Expense 6,931,525 6,319,100 6,076,283
--------- --------- ---------
NET INTEREST INCOME 7,215,749 7,212,632 6,428,569
--------- --------- ---------
PROVISION FOR LOAN LOSSES (note 6) 110,000 180,000 226,000
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,105,749 7,032,632 6,202,569
--------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 419,904 400,192 253,362
Insurance and other commissions 19,857 15,268 37,040
Other operating income 176,557 112,307 135,181
Gain on security transactions (note 4) 1,248,585 345,262 235,104
--------- -------- --------
Total Noninterest Income 1,864,903 873,029 660,687
--------- -------- --------
NONINTEREST EXPENSES:
Salaries 1,749,640 1,563,488 1,443,829
Employee benefits (note 12) 447,763 478,516 481,182
Occupancy expense 188,340 168,785 166,495
Equipment expense 254,402 285,715 290,372
Other operating expenses 1,240,199 1,071,848 1,027,784
--------- --------- ---------
Total Noninterest Expenses 3,880,344 3,568,352 3,409,662
--------- --------- ---------
Income before Income Taxes 5,090,308 4,337,309 3,453,594
INCOME TAX EXPENSE (note 11) 1,589,733 1,329,766 1,012,826
--------- --------- ---------
NET INCOME $3,500,575 $3,007,543 $2,440,768
========= ========= =========
PER SHARE DATA
NET INCOME $ 1.43 $ 1.22 $ 1.00
======== ======== ========
CASH DIVIDENDS $ .73 $ .35 $ .29
======== ======== ========
COMMON SHARES OUTSTANDING 1 2,455,962 2,455,962 2,450,844
========= ========= =========
1 Restated to reflect three for one stock split in 1998.
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>
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
<S> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 $ 4,071,440 $ 746,629 $11,658,715 $ 621,791 $17,098,575
Comprehensive Income:
Net income 2,440,768 2,440,768
Net change in unrealized
appreciation on securities
available for sale 147,804 147,804
--------
Comprehensive Income 2,588,572
Dividends on common stock (703,170) (703,170)
Stock issued to ESOP
(4,366 shares) (note 12) 21,830 120,065 141,895
BALANCE - December 31, 1996 4,093,270 866,694 13,396,313 769,595 19,125,872
Comprehensive Income:
Net income 3,007,543 3,007,543
Net change in unrealized
appreciation on securities
available for sale 1,636,272 1,636,272
Comprehensive Income 4,643,815
Dividends on common stock (867,773) (867,773)
BALANCE - December 31, 1997 4,093,270 866,694 15,536,083 2,405,867 22,901,914
Comprehensive Income:
Net income 3,500,575 3,500,575
Net change in unrealized
appreciation on securities
available for sale (531,167) (531,167)
Comprehensive Income 2,969,408
Dividends on common stock (1,792,852) (1,792,852)
Stock split effected in the
form of a dividend (1,637,308
shares) 8,186,540 (8,186,540)
BALANCE - December 31, 1998 $ 12,279,810 $ 866,694 $9,057,266 $1,874,700 $24,078,470
</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,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,500,575 $3,007,543 $ 2,440,768
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain on sale of securities (1,248,585) (345,262) (235,104)
Depreciation 212,687 256,495 258,315
Amortization of security premiums 155,898 92,415 109,398
Provision for loan losses 110,000 180,000 226,000
Provision for deferred taxes (35,407) (32,140) (43,415)
(Increase) decrease in interest
receivable (74,546) 34,379 (48,075)
Increase in other assets (147,721) (325,233) (146,633)
Increase (decrease) in accrued
expenses 1,184,169 (86,600) 185,006
Amortization of limited partnership
investments 81,965 94,127 36,369
Other noncash expenses 15,208 25,807
Gain on sale of land (9,702)
-------- -------- --------
Net Cash Provided by Operating Activities 3,744,541 2,901,531 2,782,629
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest
bearing bank deposits (1,317,478) 26,646 (771,901)
Net (increase) decrease in federal funds
sold (181,000) 1,142,000 (1,610,000)
Proceeds from maturities of securities
held to maturity 13,206,462 10,724,026 12,649,324
Proceeds from maturities of securities
available for sale 6,393,226 3,193,936 1,793,435
Proceeds from sales of securities
available for sale 7,319,842 7,326,099 2,265,492
Purchases of securities available
for sale (27,359,391) (8,955,309) (5,585,748)
Purchases of securities held to maturity (5,438,377) (5,949,245) (9,160,122)
Net increase in loans (9,225,487)(11,516,933) (13,666,799)
Purchase of property and equipment (319,803) (203,173) (203,688)
Construction in progress payments (90,332) (24,788)
Purchase of other real estate (427,067)
Proceeds from sales of equipment 9,500
Sale of other real estate 10,641
-------- -------- --------
Net Cash Used in Investing Activities (17,001,697) (4,629,520) (14,314,795)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
and savings deposits 2,825,773 579,339 (935,050)
Net increase in time deposits 5,962,403 1,173,241 11,873,065
Net increase in short-term debt 1,951,128 2,088,511 2,277,858
Dividends paid in cash (1,735,547) (810,468) (685,924)
Proceeds from long-term debt 23,714,053 2,000,000 2,000,000
Repayments of long-term debt (18,836,583) (3,296,061) (3,146,062)
Net Cash Provided by Financing
Activities 13,881,227 1,734,56 11,383,887
Net Increase (Decrease) in Cash and
Cash Equivalents 624,071 6,573 (148,279)
Cash and Cash Equivalents, Beginning of Year 3,574,401 3,567,828 3,716,107
Cash and Cash Equivalents, End of Year $4,198,472 $3,574,401 $3,567,828
========= ========= =========
Supplemental Disclosure:
Cash paid for:
Interest expense $6,883,142 $6,324,663 $6,045,799
Income taxes 1,595,000 1,370,180 997,000
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
Farmers & Merchants Financial Services, 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 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 a 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. Prior period per share amounts have been
restated to reflect the 1998 stock split.
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 $659,000 and $633,000 for
the years ended December 31, 1998 and 1997, 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, 1998
U. S. Treasuries
and Agencies $4,985,921 $ 44,231 $ $5,030,152
Mortgage-backed
obligations of
federal agencies 1,220,365 11,595 2,330 1,229,630
State and municipals 250,000 58 250,058
Corporate bonds 3,258,590 52,489 3,311,079
--------- -------- --------- ---------
Total Securities
Held to Maturity $9,714,876 $ 108,373 $ 2,330 $9,820,919
========= ======== ======== =========
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
========== ======== ======== ==========
The amortized cost and fair value of securities available for sale are
as follows:
December 31, 1998
U.S. Agencies $13,848,879 $ 37,887 $ 780 $13,885,986
Mortgage-backed
obligations of
federal agencies 3,869,491 15,685 2,040 3,883,136
Marketable equities 7,604,938 3,019,825 134,980 10,489,783
Corporate bonds 5,602,341 79,787 5,682,128
--------- -------- -------- ---------
Total Securities
Available for
Sale $30,925,649 $3,153,184 $ 137,800 $33,941,033
========== ========= ======== ==========
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
========== ========= ======== ==========
<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, 1998, 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 Available Securities Held
for Sale to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or
less $1,538,501 $1,548,403 $2,362,466 $2,379,025
Due after one year
through five years 11,362,616 11,431,962 6,243,495 6,300,759
Due after five years
through ten years 7,026,263 7,069,588 782,249 816,772
Due after ten years 3,393,331 3,401 ,297 326,666 324,363
--------- --------- -------- --------
Total 23,320,711 23,451,250 9,714,876 9,820,919
Marketable equities 7,604,938 10,489,783
$30,925,649 $33,941,033 $9,714,876 $9,820,919
========== ========== ========= =========
Realized gains and losses and the gross proceeds from the sale of debt
securities were not material in 1998, 1997 or 1996. Realized gains and
losses on marketable equity transactions are summarized below:
1998 1997 1996
------------------------------------
Gains $1,579,042 $ 461,136 $ 250,808
Losses 330,457 115,874 15,704
-------- -------- --------
Net Gains $1,248,585 $ 345,262 $ 235,104
========= ======== ========
The carrying value (which approximates fair value) of securities
pledged by the Company to secure deposits and for other purposes
amounted to $13,563,958 at December 31, 1998 and $8,527,124 at
December 31, 1997.
There were no state or political subdivision obligations of a single
issuer that exceeded 10% of stockholders' equity at December 31, 1998,
1997 or 1996.
<PAGE> 32
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
Other investments consist of investments in four low-income housing
partnerships (carrying basis of $1,495,175) and stock in the Federal
Home Loan Bank, Community Bankers Bank and Federal Reserve Bank
(carrying basis of $1,205,507). 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, 1998.
At December 31, 1998, the Company was committed to invest an
additional $969,309 in two low-income housing limited partnerships.
These funds will be paid as requested by the general partner to
complete the projects. This additional investment has been reflected
in the above carrying basis and as an accrued liability on the balance
sheet.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
1998 1997
Real Estate
Construction $ 4,375,669 $ 4,708,218
Mortgage 78,348,885 73,610,681
Commercial and agricultural 31,567,617 27,048,927
Installment 17,125,279 16,977,224
Credit cards 831,814 817,867
Other 51,815 27,248
---------- ----------
Total $132,301,079 $123,190,165
The Company has pledged mortgage loans as collateral for borrowings
with the Federal Home Loan Bank of Atlanta totalling $24,246,293 and
$21,240,390 as of December 31, 1998 and 1997, 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:
1998 1997 1996
------------------------------------
Balance, beginning of year $1,120,749 $1,003,371 $ 862,766
Provision charged to operating
expenses 110,000 180,000 226,000
Loan recoveries 104,844 38,523 17,449
Loans charged off (173,417) (101,145) (102,844)
---------- --------- --------
Balance, End of Year $1,162,176 $1,120,749 $1,003,371
========= ========= =========
Percentage of gross loans .88% .91% .90%
<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:
1998 1997
Construction in progress $ 90,332 $
Land 480,651 384,763
Buildings and improvements 1,954,531 1,887,945
Furniture and equipment 2,110,885 1,963,886
---------- ----------
4,636,399 4,236,594
Less - accumulated depreciation (2,556,101) (2,353,744)
Net $ 2,080,298 $ 1,882,850
Provisions for depreciation of $212,687 in 1998, $256,495 in 1997 and
$258,315 in 1996 were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $44,561,800
2000 14,219,482
2001 6,135,823
2002 and thereafter 6,334,182
----------
Total $71,251,287
NOTE 9 SHORT-TERM DEBT:
Short-term debt information is summarized as follows:
Weighted
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding 1 Rate Rate
1998
Treasury, tax
and loan $ 661,833 $ $ 73,505 7.98% N/A
Federal funds
purchased 304,000 11,244 5.88% N/A
Notes payable 344,753 50,542 7.75% N/A
Securities sold under
agreements to
repurchase 7,155,227 7,155,227 5,099,700 4.82% 4.31%
------
Totals $7,155,227 $5,234,991 4.81% 4.31%
1 Based on daily amounts outstanding
<PAGE> 34
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 SHORT-TERM DEBT (CONTINUED):
Weighted
Maximum Outstanding Average Average Year End
Outstanding at at Balance Interest Interest
Any Month End Year End Outstanding Rate Rate
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 4.86% 5.00%
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%
========= ========= ====== ======
The Bank issues repurchase agreements to commercial customers desiring
short-term investments. Such agreements are issued on a daily basis
and consists of United States Treasury and Agency obligations. The
market value of such securities with the repurchase obligation is
approximately the same as their cost.
The Company has lines of credit with correspondent banks totalling
$10,850,000, which are used in the management of short-term liquidity.
All securities sold under agreements to repurchase are under the
Company's control.
<PAGE> 35
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 LONG-TERM DEBT:
Advances from the Federal Home Loan Bank of Atlanta (FHLB) for the
years ended December 31, 1998 and 1997, were $8,000,000 and
$2,000,000, respectively. The interest rates on the notes payable are
fixed at the time of the advance and range from 5.05% to 7.72%; the
weighted average interest rate is 5.49% at December 31, 1998. During
1998 the Company paid $392,729 in prepayment penalties to refinance
portions of this debt. These penalties were expensed in 1998 when
paid. The long-term debt is secured by qualifying mortgage loans owned
by the Company.
Repayments of long-term debt are due either quarterly or semi-annually
and interest is due monthly. Interest expense of $1,529,009,
$1,112,146, and $1,231,426 was incurred on these debts in 1998, 1997,
and 1996, respectively. The maturities of long-term debt as of
December 31, 1998 are as follows:
1999 $3,305,295
2000 3,162,438
2001 2,922,438
2002 2,842,438
2003 2,688,384
Thereafter 6,932,578
---------
Total $21,853,571
NOTE 11 INCOME TAX EXPENSE:
The components of the income tax expense for the years ended December
31 are as follows:
1998 1997 1996
------------------------------------
Current expense
Federal $1,562,546 $1,341,529 $1,040,736
State 62,594 20,377 15,505
Deferred expense
Federal (35,407) (32,140) (43,415)
--------- -------- --------
Total Income Tax Expense $1,589,733 $1,329,766 $1,012,826
========= ========= =========
Amounts in above arising from gains
on security transactions $ 473,182 $ 132,744 $ 89,791
======== ======== ========
The deferred tax effects of temporary differences for the years ended
December 31 are as follows:
1998 1997 1996
------------------------------------
Tax Effects of Temporary Differences:
Accounting change $ (11,523) $ (11,523) $ (11,523)
Provision for loan losses (14,086) (36,848) (47,806)
Split dollar life insurance (11,267) (6,557) (5,006)
Non-qualified deferred
compensation (27,427) (4,561)
Depreciation 8,477 1,037 (2,319)
Pension expense 16,818 15,946 15,487
Other 3,601 10,366 7,752
-------- -------- --------
Deferred Income Tax Benefit $(35,407) $ (32,140) $ (43,415)
======== ======== ========
<PAGE> 36
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 INCOME TAX EXPENSE (CONTINUED):
The components of the deferred taxes as of December 31 are as follows:
1998 1997
Deferred Tax Assets:
Bad debt allowance $ 276,526 $ 262,441
Split dollar life insurance 85,316 74,049
Non-qualified deferred compensation 31,988 4,561
Other 11,220 3,706
-------- --------
Total Assets 405,050 344,757
-------- --------
Deferred Tax Liabilities:
Securities available for sale 1,140,679 1,469,772
Low income housing credits 145,557 94,847
Accretion 24,436
Depreciation 26,145 17,667
Pension 157,770 140,951
Change in accounting method 11,524
FHLB dividends 18,564 18,564
-------- --------
Total Liabilities 1,488,715 1,777,761
--------- ---------
Net Liability $(1,083,665)$(1,433,004)
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:
1998 1997 1996
---------------------------------------
Tax expense at federal
statutory rates $ 1,702,599 $1,451,470 $1,160,264
Increases (decreases) in
taxes resulting from:
State income taxes, net 62,594 25,250 7,683
Partially exempt income (138,667) (127,577) (131,461)
Tax-exempt interest (12,928) (11,796) (12,522)
Other (23,865) (7,581) (11,138)
-------- -------- ---------
Total Income Tax Expense $1,589,733 $1,329,766 $1,012,826
========= ========= =========
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 $96,868, $90,786, and $87,246 for the years
ended December 31, 1998, 1997, and 1996, respectively.
<PAGE> 37
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 EMPLOYEE BENEFITS (CONTINUED):
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 $150,000 in 1998, $153,663 in 1997, and
$144,176 in 1996 to the Plan and charged this expense to operations.
NOTE 13 CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks totaling
$2,488,133 and $2,322,681 at December 31, 1998 and 1997.
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 1997 and 1996, the poultry
industry suffered due to high grain prices, excess supplies of all
types of meat and high mortality rates among turkey poults. Within
1998, poultry operations improved due primarily to falling grain
prices and better poultry pricing. The Company continues to monitor
its loan delinquency rates. If the above conditions return, 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 the following
commitments outstanding:
1998 1997
Commitments to loan money $ 18,695,383 19,772,394
Standby letters of credit 748,620 236,439
The Company uses the same credit policies in making commitments to
lend money and issue 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. Collateral required, if any, 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:
1998 1997
Total loans, beginning of year $1,217,533 $1,043,002
New loans 693,832 605,782
Payments (778,003) (431,251)
-------- --------
Total Loans, End of Year $1,133,362 $1,217,533
========= =========
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. Approval by 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) income net of dividends for the
preceding two years. As of January 1, 1999, approximately $877,767 was
available for dividend distribution without permission of the Board of
Governors. Dividends paid by the Bank to the Company totaled
$1,550,000 in 1998, $2,120,364 in 1997, and $587,858 in 1996.
<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, 1998 and 1997 are as follows (in thousands):
1998 1997
--------------------------------------------------
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Financial Assets
Cash $ 4,198 $ 4,198 $ 3,574 $ 3,574
Interest bearing deposits 2,145 2,145 827 827
Federal funds sold 2,436 2,436 2,255 2,255
Securities available for
sale 33,941 33,941 21,171 21,171
Securities held to maturity 9,821 9,715 17,587 17,545
Other investments 2,701 2,701 1,612 1,612
Loans 135,799 131,139 123,093 122,069
Accrued interest receivable 1,352 1,352 1,277 1,277
Financial Liabilities
Demand Deposits:
Non-interest bearing 16,232 16,232 14,388 14,388
Interest bearing 20,213 20,213 19,651 19,651
Savings deposits 27,443 27,443 27,024 27,024
Time deposits 71,971 71,251 65,534 65,289
Short-term debt 7,155 7,155 5,204 5,204
Long-term debt 21,883 21,854 17,132 16,976
Accrued interest payable 550 550 502 502
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 the most recent transaction price or a pricing model,
which takes into consideration maturity, yields and quality. The
remaining financial instruments were 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 1998.
<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.
These ratios are defined in the regulations and the amounts are set
forth in the table below. Management believes, as of December 31,
1998, that the Company and its subsidiary bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1998, 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
1998 1997 Capitalized Capitalized
Total risk-based ratio 18.36% 18.41% 8.00% 10.00%
Tier 1 risk-based ratio 17.45% 17.46% 4.00% 6.00%
Total assets leverage
ratio 12.32% 12.04% 3.00% 5.00%
NOTE 19 YEAR 2000 ISSUES:
The Company has formed a year 2000 project team to identify
information technology and non-technology systems that require
modification for the year 2000. A project plan has been established
with goals and target dates. The Company has completed the assessment
phase and has begun the renovation and validation phases of the
project. Substantially all mission critical systems have been tested.
Redeployment of renovated or new equipment will continue through
mid-1999.
<PAGE> 41
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 CONTINGENCIES (CONTINUED):
The impact of year 2000 issues on the Company depends not only on
corrective actions that the Company takes, but also on the actions of
governmental agencies, businesses and other third parties that provide
services to, or receive services from, the Company. The Company has
implemented an ongoing process of identifying and contacting mission
critical third parties to determine their year 2000 readiness.
Although the Company has undertaken these measures, there can be no
assurance that mission critical third parties will adequately address
their year 2000 issues, or that statements we obtain as to the year
2000 readiness or third parties are correct or complete.
The Company is developing contingency plans for implementation in the
event that testing of mission critical systems reveals significant
problems. These plans involve identifying alternate vendors to provide
mission critical systems. There may be certain mission critical third
parties, such as utilities or telecommunications companies, where
alternative arrangements or sources are limited or unavailable.
The Company has reviewed its significant loan customers to assess the
risk of increased problem loans and credit losses due to borrowers
failure to adequately address year 2000 issues. Although it is not
possible to quantify the potential impact of such credit losses at
this time, management has designated a portion of the allowance for
loan losses as an undesignated reserve which can be used to absorb
uncertainties, including year 2000 problems, within the loan
portfolio.
The Company has incurred expenses throughout 1998 related to its year
2000 project. Additional funds have been budgeted in anticipation of
costs related to testing and renovation that will be incurred during
1999. At the present time, management of the Company does not believe
that the costs of addressing this issue will have a material adverse
impact on the Company's financial condition. If, however, the Company
and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk
to the Company. The Company plans to continue to devote all resources
necessary to resolve any significant year 2000 issues in a timely
manner.
<PAGE> 42
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31,
ASSETS 1998 1997
--------------------------
Cash and cash equivalents $ 1,044,071 $ 593,236
Investment in subsidiaries 12,651,188 11,858,642
Loans receivable 259,829 271,808
Securities available for sale 10,489,783 10,435,736
Other securities 1,498,150 605,846
Accrued interest receivable 1,205 1,472
Due from subsidiaries 4,393 364,445
Income tax receivable 209,602 120,441
Other real estate 426,128 427,067
-------- --------
Total Assets $26,584,349 $24,678,693
========== ==========
LIABILITIES
Dividends payable $ 294,716 $ 237,410
Demand obligations for low income housing
investment 969,309
Deferred income taxes 1,241,854 1,539,369
--------- ---------
Total Liabilities 2,505,879 1,776,779
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $5 per share, 3,000,000
shares authorized, 2,455,962 in 1988 and 818,654
in 1997 shares issued and outstanding 12,279,810 4,093,270
Capital surplus 866,694 866,694
Retained earnings 9,057,266 15,536,083
Accumulated other comprehensive income 1,874,700 2,405,867
--------- ---------
Total Stockholders' Equity 24,078,470 22,901,914
---------- ----------
Total Liabilities and Stockholders' Equity $26,584,349 $24,678,693
<PAGE> 43
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF NET INCOME AND RETAINED EARNINGS
Years Ended December 31,
1998 1997 1996
INCOME
Dividends from affiliate $1,550,000 $ 2,120,364 $ 587,858
Interest on loans 22,059 24,929 25,826
Investment income - taxable 26,308 6,364 1,856
Dividend income 433,962 404,082 388,617
Security gains 1,236,405 373,469 248,864
Limited partnership income (loss),
net of tax credits 12,802 (25,062) 11,505
Other 9,702
--------- ---------- ---------
Total Income 3,291,238 2,904,146 1,264,526
--------- ---------- ---------
EXPENSES
Interest expense 3,917 4,305 10,260
Administration expense 80,584 74,043 80,266
--------- ---------- ---------
Total Expenses 84,501 78,348 90,526
--------- ---------- ---------
Net income before income tax expense
and increase in undistributed equity
of affiliates 3,206,737 2,825,798 1,174,000
INCOME TAX EXPENSE 461,570 125,215 76,094
--------- ---------- ---------
Income before increase in undistributed
equity of affiliates 2,745,167 2,700,583 1,097,906
Increase in undistributed income
of affiliates 755,408 306,960 1,342,862
--------- ---------- ---------
NET INCOME 3,500,575 3,007,543 2,440,768
Retained earnings, beginning of year 15,536,083 13,396,313 11,658,715
Stock split effected in the form of
a dividend (8,186,540)
Dividends on common stock (1,792,852) (867,773) (703,170)
Retained Earnings, End of Year $9,057,266 $15,536,083 $13,396,313
========= ========== ==========
<PAGE> 44
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,500,575 $3,007,543 $2,440,768
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed subsidiary income (755,408) (306,960) (1,342,862)
Gain on sale of securities (1,236,405) (373,469) (248,864)
Decrease in interest receivable 267 80 87
Decrease (increase) in due from
subsidiary 360,052 (273,755) 29,874
Decrease (increase) in other
receivables (89,161) (120,441)
Increase (decrease) in accrued
expenses 51,650 (1,673) 1,944
Amortization of limited partnership
investments 81,965 94,127 36,369
--------- -------- --------
Net Cash Provided by Operating
Activities 1,913,535 2,025,452 917,316
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available for sale 4,912,248 1,251,339 1,188,867
Proceeds from maturity of securities
available for sale 994,192 703,793 4,629
Purchase of securities available for
sale (4,646,422) (2,135,196) (587,818)
Purchase of other securities (1,968,459) (187,488) (130,226)
Decrease in loans receivable 11,979 10,463 9,557
Purchase of other real estate (427,067)
--------- -------- --------
Net Cash Provided by (Used in)
Investing Activities (696,462) (784,156) 485,009
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 969,309 (700,000)
Stock issued to stock bonus plan 141,895
Dividends paid in cash (1,735,547) (810,468) (685,924)
---------- -------- --------
Net Cash Used in Financing Activities (766,238) (810,468) (1,244,029)
--------- -------- ----------
Net Increase in Cash and Cash Equivalents 450,835 430,828 158,296
Cash and Cash Equivalents, Beginning
of Year 593,236 162,408 4,112
Cash and Cash Equivalents, End of Year $1,044,071 $ 593,236 $ 162,408
========= ======== ========
<PAGE> 45
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
Item 9.Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Principal Occupation
Name and Position Director During the Last
with the Bank Age Since Five Years
CLASS A DIRECTORS
(to serve until the 2000 annual meeting of shareholders)
Lawrence H. Hoover, Jr. 64 1981 Attorney, Partner in Hoover,
Vice Chairman of the Board Penrod, Davenport & Crist and
its predecessor since 1971
Richard S. Myers 51 1988 President of Dick Myers
Chevrolet-GEO since
February 1991
Ronald E. Wampler 51 1991 Farmer and partner in Dove
Ohio Farms, LLC. and its
affiliates
CLASS B DIRECTORS
(to serve until the 2001 annual meeting of shareholders)
Thomas L. Cline 52 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 63 1980 President of Virginia
Classic Mustang, Inc., an
auto parts company;
Partner in H&H Properties
Wayne L. Long 69 1985 Real estate and retired
farmer
Michael W. Pugh 44 1994 President of Old Dominion
Realty, Inc.; Partner in
Tri-City Development Co.;
President of Colonial
Appraisal Service, Inc.
and Treasurer of Old Mill
Enterprises, Inc.
CLASS C DIRECTORS
(to serve until the 2002 annual meeting of shareholders)
Julian D. Fisher 58 1990 CEO of Farmers & Merchants
President Bank since May 1996;
President of Bank since Oct.
1991
Dan B. Todd 67 1969 CEO of Farmers & Merchants
Chairman Bank from 1969 to May 1996;
Chairman of the Board since
Oct. 1991
<PAGE> 46
Item 9.Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act (Continued)
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than 10% of the
common stock of the Company, to file with the Securities and Exchange Commission
reports of ownership and changes in ownership of common stock. Officers and
directors are required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file. Based solely on review of the copies of such
reports furnished to the Company or written representation that no other reports
were required, the Company believes that, during 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 ($)3
- -----------------
Julian D. Fisher 1998 $110,000 $40,000 2 $42,742
Chief Executive Officer 1997 100,000 35,000 31,082
& President 1996 84,912 30,000 20,813
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 amount presented includes compensation that was deferred at Mr. Fisher's
election.
3 The amounts presented include the Company's contribution for the benefit of
Mr. Fisher under the Company's Stock Bonus Plan ($16,116, $14,486, and $12,151
1998, 1997 and 1996, respectively), the gross value of life insurance premiums
paid by the Company on behalf of Mr. Fisher ($16,210, $14,796, and $7,334 in
1998, 1997, and 1996, respectively) and the Company's contribution for the
benefit of Mr. Fisher under the Executive Deferred Compensation Plan for Farmers
& Merchants Bank ($10,416 in 1998). 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: Two hundred ($200)
for each Board of Directors' meeting, and one hundred ($100) 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 1998, a bonus of
$5,000 was paid to each Director.
<PAGE> 47
Item 11. Security Ownership of Certain Beneficial Owners and Management
There were no persons or entities that held directly or indirectly more than
a 5% beneficial interest in the capital stock of the Company as of December 31,
1998.
The following table sets forth the number and percentage of shares of common
stock held, as of December 31, 1998 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 6,9511 .283%
Julian D. Fisher 89,3202 3.640%
Robert L. Halterman 28,848 1.175%
Lawrence H. Hoover, Jr. 55,0953 2.245%
Wayne L. Long 21,0844 .859%
Richard S. Myers 12,6705 .516%
Michael W. Pugh 600 .024%
Dan B. Todd 35,5266 1.448%
Ronald E. Wampler 7,500 .306%
All Directors and executive 257,594 10.496%
officers as a group
1 Includes 3,723 shares owned directly, 3,060 shares owned jointly with
another member of his household and 168 shares owned by another member of
his household.
2 Includes 9,427 shares owned directly, 8,190 shares owned by another member
of his household and 71,703 shares which are owned by the Company's stock
bonus plan over which Mr. Fisher has voting power.
3 Includes 37,119 shares owned directly, 138 shares owned by another member of
his household and 17,838 shares owned by a Unitrust in which he is one of
the trustees.
4 Includes 8,976 shares owned directly and 12,108 shares owned by a
member of his household.
5 Includes 4,800 shares owned directly and 7,870 shares held in Mr.
Myers' IRA account.
6 Includes 3,840 shares owned directly, 25,662 shares owned by a member of his
household and 6,024 shares held in Mr. Todd's IRA account.
<PAGE> 48
Item 12. Certain Relationships and Related Transactions
Most of the directors, partnerships of which they may be general partners
and corporations of which they are officers or directors, maintain normal
banking relationships with the Bank. Loans made by the Bank to such persons or
other entities were made only in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectibility or present other unfavorable
features. See Note 15 of the consolidated financial statements.
Part IV
Item 13. Exhibits and Reports on Form 8-K
Exhibit No.
3i 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.
3ii 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, 1998.
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
F & M Bank Corp.
By: JULIAN D. FISHER
Julian D. Fisher
Chief Executive Officer and President
Date: March 30, 1999
By: NEIL W. HAYSLETT
Neil W. Hayslett
Vice President and Chief Financial
Officer
Date: March 30, 1999
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 30, 1999
Thomas L. Cline
JULIAN D. FISHER Director, President, MARCH 30, 1999
Julian D. Fisher Chief Executive Officer
ROBERT L. HALTERMAN Director MARCH 30, 1999
Robert L. Halterman
<PAGE> 50
Director
Lawrence H. Hoover, Jr.
Director
Wayne L. Long
RICHARD S. MYERS Director MARCH 30, 1999
Richard S. Myers
Director
Michael W. Pugh
DAN B. TODD Director, Chairman MARCH 30, 1999
Dan B. Todd
Director
Ronald E. Wampler
<PAGE> 52
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
<PAGE> 53
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 February 2, 1999, relating to the
consolidated balance sheets of F & M Bank Corp. as of December 31, 1998 and
1997, 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, 1998, which report appears on Page 22 in the December
31, 1998 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. Hoover & Company, L.L.P.
Harrisonburg, VA
March 29, 1999
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<INT-BEARING-DEPOSITS> 2,145
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