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, 1999 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: $16,416,000
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 10, 2000 - $20.63 average bid price; $20.63 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 10, 2000 -
2,453,402
DOCUMENTS INCORPORATED BY REFERENCE:
None
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 46.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X
<PAGE> 2
TABLE OF CONTENTS
Part I
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 Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 7. Financial Statements 20
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 43
Item 10. Executive Compensation 44
Item 11. Security Ownership of Certain Beneficial Owners and
Management 45
Item 12. Certain Relationships and Related Transactions 46
Part IV
Item 13. Exhibits and Reports on Form 8-K 46
Signatures 47
<PAGE> 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.
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 Bank makes various types of commercial and consumer loans and has a
heavy concentration of residential and agricultural real estate loans. The Bank
continued to experience good loan demand throughout 1999 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.
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, 1999, F & M Bank Corp., the Bank, TEB and FMFS had
fifty-three full time and twenty 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 Town of Bridgewater,
the southern portion of Rockingham County and the northwestern portion of
Augusta County. Bank competition in the area of all offices is very strong.
<PAGE> 4
Item 1. Description of Business (Continued)
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. TEB Life acts as the primary re-insurer for credit life insurance
sold through the Bank. F & M Bank Corp. owns an interest in the Johnson Williams
Project in Berryville, Virginia which 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, and Historic Equity Fund I. These funds
provide housing for low income persons throughout 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, includes drive in
facilities and has an automatic teller machine, 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, 1999.
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. Stock
quotes can also be found on financial websites on the Internet by using the
stock symbol "FMBM".
<PAGE> 6
(a) Market Information (Continued)
The following schedule shows the range of reported trade prices and
dividends per share declared for 1997 through 1999:
Dividends
Declared High Low
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
1999
1st quarter .12 24.50 21.00
2nd quarter .13 26.50 21.00
3rd quarter .13 26.50 23.00
4th quarter .14 25.00 22.00
All amounts reflect a three for one stock split declared in 1998.
(b) Stockholders
On December 31, 1999, there were 1,183 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 - 1999 Compared to 1998
Overview
The Company's net income for 1999 increased $305,630 or 8.73% from 1998
earnings. Net income per share increased from $1.43 in 1998 to $1.55 in 1999.
The Company's improved earnings were due to a combination of factors summarized
below. See Table I (page 16) for a five year summary of operations.
Net Interest Margins
The net weighted interest margin on earning assets on a tax equivalent basis
increased from 4.39% in 1998 to 4.52% in 1999. The Company's net yield on
average earning assets of 4.52% is in line with its peer group.
Yields on loans decreased from 9.15% in 1998 to 8.81% in 1999. Real estate
loan rates decreased twenty-one basis points, while commercial and installment
loans decreased forty-nine and sixty 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 6.34% in 1999 from 6.58% in
1998. This decrease was primarily a result of a decline in market rates on all
types of debt instruments. Average investments increased 12.27% from the
previous year. The Company's philosophy of investing only in securities with
short to intermediate maturities allows it to be responsive to interest rate
movements within the market place.
The rates paid on interest bearing deposits decreased to 4.22% in 1999 from
4.47% in 1998. Average rates decreased on all deposit types as a result of
declines in general market rates. Rates on interest bearing demand, savings and
time deposits decreased twenty-three, nineteen and twenty-three basis points,
respectively. The improvement in the net interest margin was positively affected
by an increase in the mix of interest bearing deposit liabilities that are low
rate obligations (i.e. demand deposits and savings). The Bank also offers a
tiered rate savings account which is designed to be an alternative to time
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.
Also affecting the improved net interest margin was a full year of reduced
interest expense on long-term debt, which resulted from refinancing at lower
rates in the latter part of 1998. 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 (primarily repurchase
agreements) declined forty basis points and was in line with declining market
rates.
Table II (page 17) contains a complete yield analysis for the last three
years and Table III (page 18) contains the rate/volume changes in these years.
<PAGE> 8
Other Income
The Company realized gains of $1,179,883 in 1999 on the sale of corporate
stocks compared with gains of $1,248,585 in 1998. A significant portion of these
gains in each year has come from the sale of common stock in regional bank
holding companies. These assets have been sold to reduce the concentration in
both individual stocks and within the financial services industry as a whole. To
diversify the portfolio, proceeds have been reinvested in a variety of holdings
including healthcare, technology, utilities, retail and service businesses.
Other noninterest income increased 48.60% in 1999 from 1998 levels. The increase
is attributed to an increase in service charges on deposit accounts and
increases in commissions from the sales of insurance and investment products.
Other Expenses
Noninterest expense increased $433,012 or 11.16% in 1999 over 1998 levels.
Salaries and employee benefits increased 17.56% due to increased staffing,
normal salary increases, higher health insurance premiums and increased pension
expense. Other noninterest expenses increased $47,188 (2.80%). The increase was
spread over a variety of expense categories, with no single area increasing
significantly. The Company's overall cost of operations relative to asset size
compares favorably to its peer group.
1998 COMPARED TO 1997 OPERATIONS
Net income in 1998 increased 16.39% over net income in 1997.
Gains on securities transactions increased $903,323 or 261.63%. The Company
continued its strategy of selectively selling common stocks that have shown
sizable long-term appreciation. Other noninterest income increased 16.78% due to
an increase in commissions generated from insurance, investment sales, and loan
origination fees.
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, 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.
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.
<PAGE> 9
BALANCE SHEET
INVESTMENT SECURITIES
Average balances in investment securities increased 12.27% in 1999 compared
to 1998. Growth of the loan portfolio was flat through eight months of 1999 and
funds generated from deposit growth were invested in the securities portfolio.
The Company maintains a high level of earning assets in investment securities to
provide for liquidity and as security for public indebtedness and to secure
repurchase agreements. 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 1999, 1998 and 1997 are
shown in the yield analysis in Table II (page 17). The carrying amount and
estimated market value of debt securities (in thousands of dollars) at December
31, 1999 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 Fair Average
--------------------------- Amount Value Yield
Due in one year or less $ 1,550 $ 1,539 5.97%
Due after one year through five years 2,780 2,701 6.12%
------- ------- ----
Total $ 4,330 $ 4,240 6.07%
======== ======== ====
Securities Available for Sale Amortized Fair Average
----------------------------- Cost Value Yield
Due in one year or less $ 1,858 $ 1,839 6.12%
Due after one year through five years 22,580 21,991 6.05%
------- ------- ----
24,438 23,830 6.06%
Equity securities 10,811 12,339 6.45%
-------- -------- ----
Total $ 35,249 $ 36,169 6.18%
======== ======= ====
Yields on tax-exempt securities and equities are stated at tax equivalent
yields.
Management's philosophy is to keep the maturities of investments relatively
short which allows the Company to better match deposit maturities with
investment maturities and thus react more quickly to interest rate changes.
<PAGE> 10
INVESTMENT SECURITIES (CONTINUED)
Mortgage-backed Securities
The Company's investment in mortgage-backed securities as of December 31,
1999, is shown in the following schedule:
Book Fair
Issuer Value Value
Pass through obligations
FNMA & FHLMC $ 263 $ 260
GNMA 2,321 2,311
-------- --------
Total $ 2,584 $ 2,571
======== ========
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
$10,810,992 at December 31, 1999, with an estimated market value of $12,338,974.
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% corporate 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 fair value at December 1999 of the Company's corporate bonds was
$9,062,220 compared with book value of $9,361,998. The Bonds were purchased
primarily as short-term investments and maturities extend to 2004.
<PAGE> 11
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's loan portfolio totaled $140,317,896 at December 31, 1999
compared with $132,301,709 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 .37% during 1999
to $31,685,756. The composition of the loans as of December 31, 1999 is shown in
the following schedule:
Commercial and Agricultural Loans
(In thousands)
Secured by
Real Estate Other Total
Commercial $ 14,029 $ 8,851 $ 22,880
Agricultural 6,244 2,148 8,392
Multi family residential 414 414
-------- ------- -------
$ 20,687 $ 10,999 $ 31,686
======== ======= =======
The majority of commercial loans are made to small retail and service
businesses.
The Company's mortgage loans increased 7.24% from $78,348,885 to
$84,019,312 at December 31, 1999. Residential real estate loans are generally
made for a period not to exceed 25 years and are secured by first deed of trust
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 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 with total indebtedness not to exceed 90% of the
appraised value. Home equity loans are made for three, five year, or seven year
periods at a fixed rate or as a revolving line of credit.
The Company's consumer installment loans increased 5.59% to $18,082,123 at
December 31, 1999. 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, this cyclical nature is offset by other stable
industries in the trade area. 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. 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. During 1998 and 1999, poultry operations improved due primarily
to falling grain prices and better poultry pricing. If the above conditions
return, the Company would expect greater delinquency rates and more problem
loans in the future. The Company continuously monitors its loan delinquency
rates.
During 1999, real estate values in the Company's market area for
commercial, agricultural and residential property increased, on the average,
between 2% and 5% depending on the location and type of property. Approximately
80% of the Company's loans are secured by real estate, however, policies
relating to appraisals and loan to value ratios are adequate to control the
related risk.
<PAGE> 12
RISK ELEMENTS IN THE LOAN PORTFOLIO (CONTINUED)
Unemployment rates in the Company's market area tend to be below both the
national and state averages. The unemployment rate for the month of January 2000
for Rockingham County was 1.1% compared with 2.8% for Virginia and 4.0% for the
nation. 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, 1999:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
--------- --------- ----- ------- -----
Commercial and
Agricultural Loans $ 7,259 $ 15,620 $ 8,807 $ 31,686
Real Estate - mortgage 516 2,190 81,313 84,019
Real Estate - construction 5,481 5,481
Consumer - installment/other 1,970 16,099 1,063 19,132
-------- ------- ------- -------
Total $ 15,226 $ 33,909 $ 91,183 $140,318
======== ======= ======= =======
Loans with predetermined
rates $ 2,231 $ 18,220 $ 13,767 $ 34,218
Loans with variable or
adjustable rates 12,995 15,689 77,416 106,100
-------- ------- ------- -------
Total $ 15,226 $ 33,909 $ 91,183 $140,318
======== ======= ======= =======
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,
------------------------------
1999 1998 1997
---- ---- ----
Nonaccruing loans None None None
Loans past due 90 days or more $1,917 $2,059 $ 825
Percentage to total loans 1.37% 1.56% .67%
Interest accruals are continued on past due, secured loans until the
principal and accrued interest equal the value of the collateral and on
unsecured loans until the financial condition of the creditor deteriorates to
the point that any further accrued interest would be determined to be
uncollectible. At December 31, 1999 and 1998, 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, 1999, management had identified loans of $2,970,634 as
potential problem loans. These loans are not classified as nonaccrual or past
due and management does not anticipate losses on these loans as collateral is
considered adequate. The status of these loans is monitored closely and losses,
if any, would not be material.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
<PAGE> 13
LOAN CONCENTRATIONS
At December 31, 1999, 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 not experienced significant loan losses in any of the last
three years. While 1999 losses increased relative to prior years, the loss rate
of .16% of average loans outstanding is still below the Company's peer group.
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 1999, 1998,
and 1997 follows:
1999 1998 1997
---- ---- ----
Balance at beginning of period $1,162,176 $1,120,749 $1,003,371
--------- --------- ---------
Provision charged to expenses 140,000 110,000 180,000
--------- -------- --------
Loan losses:
Commercial 107,280 3,551 9,635
Installment 149,357 169,866 91,510
Real estate 2,384
Total loan losses 259,021 173,417 101,145
--------- -------- --------
Recoveries:
Commercial 5,381 6,819 7,213
Installment 39,454 98,025 31,310
Real Estate 2,272
Total recoveries 47,107 104,844 38,523
--------- -------- --------
Net loan losses 211,914 68,573 62,622
--------- -------- --------
Balance at end of period $1,090,262 $1,162,176 $1,120,749
========= ========= =========
Allowance for loan losses
as a percentage of loans .78% .88% .91%
Ratio of net loan losses during the
period to average loans outstanding
during the period .16% .05% .05%
<PAGE> 14
LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Company has allocated the allowance according to the amount deemed to be
reasonably necessary to provide for the possibility of losses being incurred
within each of the above categories of loans. The allocation of the allowance as
shown below should not be interpreted as an indication that loan losses in
future years will occur in the same proportions or that the allocation indicates
future loan loss trends. Furthermore, the portion allocated to each loan
category is not the total amount available for future losses that might occur
within such categories since the total allowance is a general allowance
applicable to the entire portfolio.
The following table shows the balance and percentage of the Company's
allowance for loan losses allocated to each major category of loans:
<TABLE>
<CAPTION>
At December 31
------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------
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 $ 327 30% 26% $ 392 34% 27% $ 376 34% 22%
Real estate
mortgage 327 30 60 350 30 59 370 33 64
Installment 273 25 14 260 22 14 255 22 14
Unallocated 163 15 160 14 120 11
----- -- --- ------- --- ---- ------- --- ---
Total $ 1,090 100% 100% $ 1,162 100% 100% $ 1,121 100% 100%
====== === === ====== === === ====== === ===
</TABLE>
DEPOSITS
The Bank recognized an increase in year-end deposits in 1999 of 3.23%. The
Bank has traditionally avoided 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 $ 7,381,162 at December 31,
1999. The maturity distribution of these certificates is as follows:
Less than 3 months $ 947,906
3 to 12 months 4,332,614
1 year to 5 years 2,100,642
---------
Total $7,381,162
=========
<PAGE> 15
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $1,207,926 or 5.02% in 1999. Earnings
retained from operations were the primary source of the increase. As of December
31, 1999, the book value per share was $10.30 compared to $9.80 as of December
31, 1998. 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,
1999, the Company had Tier I capital of 17.66% of risk weighted assets and
combined Tier I and II capital of 18.44% 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, 1999, the
Company reported a leverage ratio of 12.65%. 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, 1999 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 1999,
the Bank used maturing investments, deposit growth and an increase in short-term
debt to meet its liquidity needs. The Bank was a seller of federal funds for
most of 1999. 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 19) contains an analysis, which shows the repricing
opportunities of earning assets and interest bearing liabilities as of December
31, 1999.
At December 31, 1999, the Company had a cumulative Gap Rate Sensitivity
Ratio of 22.44% for the one-year repricing period. This generally indicates that
earnings would improve in a declining interest rate environment as liabilities
reprice more quickly than assets. Conversely, earnings would probably decrease
in periods during which interest rates are increasing. Management constantly
monitors the Company's interest rate risk and has decided that the current
position is an acceptable risk for a well-capitalized community bank operating
in a rural environment.
<PAGE> 16
Table I
F & M BANK CORP.
SELECTED OPERATING INFORMATION
Years Ending December 31,
-----------------------------------------------
(In Thousands, Except per Share Information)
1999 1998 1997 1996 1995
CONDENSED STATEMENTS OF
INCOME AND DIVIDENDS
Interest and Dividend
Income $ 14,321 $ 14,147 $ 13,532 $ 12,505 $ 11,136
Interest Expense 6,475 6,931 6,319 6,076 5,515
------- ------- ------- ------- -------
Net Interest Income 7,846 7,216 7,213 6,429 5,621
Provision for Loan Losses 140 110 180 226 164
Net Interest Income after
Provision for Loan Losses 7,706 7,106 7,033 6,203 5,457
Noninterest Income 2,095 1,865 873 661 947
Noninterest Expenses 4,313 3,880 3,568 3,410 3,333
------- ------- ------- ------- -------
Income before Income
Taxes 5,488 5,091 4,338 3,454 3,071
Income Tax Expense 1,682 1,590 1,330 1,013 955
------- ------- ------- ------ ------
Net Income $ 3,806 $ 3,501 $ 3,008 $ 2,441 $ 2,116
======= ======= ======= ======= =======
Total Assets at Year
End $195,338 $191,495 $173,810 $166,511 $152,301
======= ======= ======= ======= =======
PER SHARE INFORMATION
Net Income Per Share $ 1.55 $ 1.43 $ 1.22 $ 1.00 $ .87
Dividends Per Share $ .52 $ .73 $ .35 $ .29 $ .27
Book Value Per Share $ 10.30 $ 9.80 $ 9.33 $ 7.79 $ 7.00
FINANCIAL STATEMENT RATIOS
Return on Average
Assets 2 1.96% 1.94% 1.77% 1.54% 1.49%
Return on Average
Equity 2 15.47% 15.00% 14.44% 13.58% 13.15%
Dividend Payout Ratio 33.55% 51.22% 28.89% 28.79% 30.79%
Average Equity to Average
Assets Ratio 2 12.65% 12.97% 12.22% 11.34% 11.34%
1 Reflects adjustments for three for one stock split declared in 1998.
2 Ratios are primarily based on daily average balances.
<PAGE> 17
Table II
<TABLE>
F & M BANK CORP.
NET INTEREST INCOME/RATES EARNED AND PAID
(On a fully taxable equivalent basis)
(In thousands of dollars)
<CAPTION>
1999 1998 1997
---- ---- ----
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 $ 35,799 $ 3,147 8.79% $ 33,921 $ 3,148 9.28% $ 29,518 $ 2,791 9.46%
Real estate 1 80,693 6,944 8.61 78,072 6,889 8.82 73,499 6,491 8.83
Installment 1 17,131 1,681 9.81 16,226 1,689 10.41 14,427 1,514 10.49
-------- ------- ---- ------- ------- ----- ------- ------- -----
Total Loans 133,623 11,772 8.81 128,219 11,726 9.15 117,444 10,796 9.19
Investment securities:
Fully taxable 3 32,530 1,983 6.10 27,794 1,707 6.14 33,196 2,147 6.47
Partially Taxable 2,3 8,278 605 7.31 8,235 663 8.05 7,460 645 8.65
Nontaxable 2,3 320 20 6.25 372 23 6.18
-------- ------ ---- ------- ------ ----- ------- ------- -----
Total Investment
Securities 40,808 2,588 6.34 36,349 2,390 6.58 41,028 2,815 6.86
Interest bearing deposits
in banks 893 38 4.26 1,777 82 4.61 546 28 5.13
Federal funds sold 2,135 105 4.92 3,415 182 5.33 1,968 108 5.49
-------- ------ ---- ------- ----- ----- ------- ------ ----
Total Earning Assets 177,459 14,503 8.17 169,760 14,380 8.47 160,986 13,747 8.54
------- ---- ------- ------ ----- ------ ----
Allowance for loan
losses (1,109) (1,174) (1,086)
Nonearning assets 18,085 11,420 10,412
------ ------ ------
Total Assets $194,435 $180,006 $170,312
======= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Interest
bearing $ 20,771 $ 467 2.25 $ 19,552 485 2.48 $ 19,666 495 2.52
Savings 29,532 975 3.30 27,286 953 3.49 28,005 999 3.57
All other time
deposits 69,964 3,637 5.20 68,362 3,713 5.43 65,732 3,550 5.40
------- ------- ---- ------- ------ ---- ------- ------ -----
Total Deposits 120,267 5,079 4.22 115,200 5,151 4.47 113,403 5,044 4.45
Short-term debt 6,726 301 4.48 5,159 252 4.88 3,306 163 4.93
Long-term debt 20,010 1,095 5.47 18,824 1,529 8.12 17,065 1,112 6.52
------- ------ ---- ------- ------ ---- ------- ------ ----
Total Interest Bearing
Liabilities 147,003 6,475 4.40 139,183 6,932 4.98 133,774 6,319 4.72
------ ---- ------ ---- ------ ----
Noninterest bearing
deposits 16,618 14,813 13,101
Other liabilities 6,211 2,668 2,608
------- ------- -------
Total Liabilities 169,832 156,664 149,483
Stockholders' equity 24,603 23,342 20,829
------ ------ ------
Total Liabilities
and Stockholders'
Equity $194,435 $180,006 $170,312
======= ======= =======
Net Interest Earnings $ 8,028 $ 7,448 $ 7,428
======= ======= ======
Net Yield on Interest
Earning Assets 4.52% 4.39% 4.61%
==== ==== ====
</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> 18
Table III
<TABLE>
F & M BANK CORP.
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
(On a fully taxable equivalent basis)
(In thousands of dollars)
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
----------------------------- ---------------------
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 $ 174 $ (175) (1) $ 416 $ (59) $ 357
Real estate 231 (176) 55 404 (6) 398
Installment 94 (102) (8) 189 (14) 175
---- ------ ------ ---- ----- ----
Total loans 499 (453) 46 1,009 (79) 930
Investment securities:
Fully taxable 291 (15) 276 (350) (90) (440)
Partially taxable 3 (61) (58) 67 (49) 18
Nontaxable (20) (20) (3) 0 (3)
----- ----- ------ ----- ---- ----
Total investment
securities 274 (76) 198 (286) (139) (425)
Interest bearing
deposits in banks (41) (3) (44) 63 (9) 54
Federal funds sold (68) (9) (77) 79 (5) 74
----- ------ ------ ---- ------ ----
Total Interest Income $ 664 $ (541) $ 123 $ 865 $(232) $ 633
==== ====== ===== ==== ===== ====
Interest expense:
Deposits:
Demand $ 30 $ (48) $ (18) $ (3) $ (7) $ (10)
Savings 78 (56) 22 (26) (20) (46)
All other time
deposits 87 (163) (76) 143 20 163
Total deposits 195 (267) (72) 114 (7) 107
Short-term debt 76 (27) 49 91 (2) 89
Long-term debt 96 (530) (434) 115 302 417
---- ------ ------ ---- ---- ----
Total Interest
Expense $ 367 $ (824) $ (457) $ 320 $ 293 $ 613
==== ===== ===== ==== ==== ====
</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> 19
Table IV
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
(In Thousands of Dollars)
December 31, 1999
1-90 91-365 1-5 Over 5 Not
Days Days Years Years Classified Total
Uses of Funds
Loans:
Commercial $4,750 $3,318 $16,336 $7,282 $ $31,686
Consumer installment 86 868 16,099 1,063 18,116
Consumer real estate 5,629 13,272 52,701 17,898 89,500
Credit cards 1,016 1,016
----- ----- ----- ----- ----- ------
Total Loans 11,481 17,458 85,136 26,243 140,318
Interest bearing
bank deposits 462 462
Investment Securities 3,389 24,771 16,262 44,422
----- ----- ------ ----- ------ ------
Total 11,943 20,847 109,907 26,243 16,262 185,202
Sources of Funds
Deposits:
Interest bearing
demand deposits 6,072 9,074 6,003 21,149
Savings 5,913 11,826 11,827 29,566
Certificates of
deposit $100,000
and over 948 4,333 1,426 674 7,381
Other certificates
of deposit 13,015 36,352 14,587 264 64,218
------ ------ ------ ----- ----- ------
Total Deposits 13,963 52,670 36,913 18,768 122,314
Short-term debt 7,719 7,719
Long-term debt 2,711 15,837 18,548
----- ----- ----- ------ ----- ------
Total 21,682 52,670 39,624 34,605 148,581
Discrete Gap (9,739) (31,823) 70,283 (8,362) 16,262 36,621
Cumulative Gap (9,739) (41,562) 28,721 20,359 36,621
Ratio of Cumulative Gap
to Total Earning
Assets (5.26)% (22.44)% 15.51% 10.99% 19.77%
Table IV reflects the earlier of the maturity or repricing dates for various
assets and liabilities at December 31, 1999. 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.
Estimated maturities on deposits which have no stated maturity dates were
derived from guidance contained in FDICIA 305.
<PAGE> 20
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 21
Consolidated Balance Sheets as of December 31, 1999 and 1998 22
Consolidated Statements of Income - Years Ended December 31,
1999, 1998, and 1997 23
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1999, 1998, and 1997 24
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998, and 1997 25
Notes to Consolidated Financial Statements 26 - 42
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
F & M Bank Corp.
Timberville, Virginia
We have audited the accompanying consolidated balance sheets of F & M Bank Corp.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, comprehensive net income
and cash flows for each of the years in the three year period ended December 31,
1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
S. B. Hoover & Company, L.L.P.
January 25, 2000
Harrisonburg, Virginia
<PAGE> 22
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1999 1998
-------------- -------
Cash and due from banks (note 3) $ 4,799,546 $ 4,198,472
Interest bearing deposits 462,127 2,144,938
Federal funds sold 2,436,000
Securities -
Held to maturity - fair value of $4,240,013
in 1999 and $9,820,919 in 1998 (note 4) 4,329,863 9,714,876
Available for sale (note 4) 36,168,625 33,941,033
Other investments (note 4) 3,923,097 2,700,682
Loans (note 5) 140,317,896 132,301,079
Less allowance for loan losses (note 6) (1,090,262) (1,162,176)
----------- ----------
Net Loans 139,227,634 131,138,903
Bank premises and equipment, net (note 7) 3,158,371 2,080,298
Other real estate 426,128 472,128
Interest receivable 1,372,707 1,351,812
Other assets 1,470,155 1,316,020
---------- ---------
Total Assets $195,338,253 $191,495,162
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $17,192,876 $16,232,131
Interest bearing:
Demand 15,009,191 14,665,408
Money market accounts 6,140,163 5,547,034
Savings 29,565,654 27,443,491
Time deposits over $100,000 (note 8) 7,381,162 6,941,598
All other time deposits (note 8) 64,217,906 64,309,689
---------- ----------
Total Deposits 139,506,952 135,139,351
Short-term debt (note 9) 7,719,369 7,155,227
Accrued liabilities 4,277,260 3,268,543
Long-term debt (note 10) 18,548,276 21,853,571
---------- ----------
Total Liabilities 170,051,857 167,416,692
----------- -----------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 3,000,000 shares authorized,
2,455,962 shares issued and outstanding 12,279,810 12,279,810
Capital surplus 868,132 866,694
Retained earnings (note 16) 11,587,061 9,057,266
Accumulated other comprehensive income 551,393 1,874,700
---------- ---------
Total Stockholders' Equity 25,286,396 24,078,470
---------- ----------
Total Liabilities and Stockholders' Equity $195,338,253 $191,495,162
=========== ===========
The accompanying notes are an integral part of this statement.
<PAGE> 23
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1999 1998 1997
-------------------------- ------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $11,740,753 $11,695,691 $10,778,088
Interest on deposits and federal
funds sold 143,132 264,235 135,835
Interest on debt securities - taxable 1,904,852 1,670,354 2,198,515
Interest on debt securities - nontaxable 13,083 15,212
Dividends on equity securities 532,173 503,911 404,082
-------- -------- --------
Total Interest and Dividend Income 14,320,910 14,147,274 13,531,732
---------- ---------- ----------
INTEREST EXPENSE:
Interest on demand deposits 467,082 484,254 494,549
Interest on savings deposits 974,507 953,291 999,314
Interest on time deposits over $100,000 312,233 317,374 247,949
Interest on all other time deposits 3,324,936 3,395,708 3,301,664
--------- --------- ---------
Total interest on deposits 5,078,758 5,150,627 5,043,476
Interest on short-term debt 301,216 251,889 163,478
Interest on long-term debt 1,095,059 1,529,009 1,112,146
--------- --------- ---------
Total Interest Expense 6,475,033 6,931,525 6,319,100
--------- --------- ---------
NET INTEREST INCOME 7,845,877 7,215,749 7,212,632
--------- --------- ---------
PROVISION FOR LOAN LOSSES (note 6) 140,000 110,000 180,000
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,705,877 7,105,749 7,032,632
--------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 470,623 419,904 400,192
Insurance and other commissions 145,007 19,857 15,268
Other operating income 300,227 176,557 112,307
Gain on security transactions (note 4) 1,179,683 1,248,585 345,262
--------- --------- --------
Total Noninterest Income 2,095,540 1,864,903 873,029
--------- --------- --------
NONINTEREST EXPENSES:
Salaries 1,972,167 1,749,640 1,563,488
Employee benefits (note 12) 611,060 447,763 478,516
Occupancy expense 201,983 188,340 168,785
Equipment expense 254,220 254,402 285,715
Other operating expenses 1,273,926 1,240,199 1,071,848
--------- --------- ---------
Total Noninterest Expenses 4,313,356 3,880,344 3,568,352
--------- --------- ---------
Income before Income Taxes 5,488,061 5,090,308 4,337,309
INCOME TAX EXPENSE (note 11) 1,681,856 1,589,733 1,329,766
--------- --------- ---------
NET INCOME $3,806,205 $3,500,575 $3,007,543
========= ========= =========
PER SHARE DATA
NET INCOME $ 1.55 $ 1.43 $ 1.22
========= ======== ========
CASH DIVIDENDS $ .52 $ .73 $ .35
========= ======== ========
COMMON SHARES OUTSTANDING 1 2,454,250 2,455,962 2,455,962
========= ========= =========
1 Restated to reflect three for one stock split in 1998.
The accompanying notes are an integral part of this statement.
<PAGE> 24
<TABLE>
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
<S> <C> <C> <C> <C> <C>
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 (note 2(k)) 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 (note 2(k)) (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
Comprehensive Income:
Net income 3,806,205 3,806,205
Net change in unrealized
appreciation on
securities available
for sale (note 2(k)) (1,323,307) (1,323,307)
----------
Comprehensive Income 2,482,898
Dividends on common stock (1,276,410) (1,276,410)
Shares repurchased
(2,655 shares) (13,275) (46,352) (59,627)
Shares sold to ESOP
(2,655 shares) 13,275 47,790 61,065
---------- -------- ---------- --------- ----------
BALANCE - December 31,
1999 $12,279,810 $ 868,132 $11,587,061 $ 551,393 $25,286,396
========== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 25
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1999 1998 1997
---------------------------- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,806,205 $3,500,575 $3,007,543
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain on sale of securities (1,179,683) (1,248,585) (345,262)
Depreciation 218,134 212,687 256,495
Amortization of security premiums 198,559 155,898 92,415
Provision for loan losses 140,000 110,000 180,000
Provision for deferred taxes 9,410 (35,407) (32,140)
(Increase) decrease in interest
receivable (20,895) (74,546) 34,379
Increase in other assets (154,134) (147,721) (325,233)
Increase (decrease) in accrued
expenses 386,151 214,860 (86,600)
Amortization of limited partnership
investments 121,685 81,965 94,127
Other noncash expenses 15,208 25,807
Gain on sale of land (9,702)
---------- ---------- ---------
Net Cash Provided by Operating
Activities 3,525,432 2,775,232 2,901,531
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest
bearing bank deposits 1,682,811 (1,317,478) 26,646
Net (increase) decrease in federal
funds sold 2,436,000 (181,000) 1,142,000
Proceeds from maturities of securities
held to maturity 4,436,157 13,206,462 10,724,026
Proceeds from maturities of securities
available for sale 12,349,066 6,393,226 3,193,936
Proceeds from sales of securities
available for sale 3,764,619 7,319,842 7,326,099
Purchases of securities held to
maturity (1,523,000) (5,438,377) (5,949,245)
Purchases of securities available
for sale (16,827,648) (25,390,932) (8,767,821)
Purchase of other securities (1,500) (999,150) (187,488)
Net increase in loans (8,228,731) (9,225,487) (11,516,933)
Purchase of property and equipment (1,296,207) (319,803) (203,173)
Construction in progress payments (90,332)
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 (3,208,433) (16,032,388) (4,629,520)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings
deposits 4,036,901 2,825,773 579,339
Net increase in time deposits 347,781 5,962,403 1,173,241
Net increase in short-term debt 430,322 1,951,128 2,088,511
Dividends paid in cash (1,227,072) (1,735,547) (810,468)
Proceeds from long-term debt 23,714,053 2,000,000
Payments to repurchase common stock (59,627)
Proceeds from issuance of common stock 61,065
Repayments of long-term debt (3,305,295) (18,836,583) (3,296,061)
---------- ----------- ----------
Net Cash Provided by Financing Activities 284,075 13,881,227 1,734,562
---------- ----------- ----------
Net Increase in Cash and Cash Equivalents 601,074 624,071 6,573
Cash and Cash Equivalents, Beginning of
Year 4,198,472 3,574,401 3,567,828
---------- ---------- ----------
Cash and Cash Equivalents, End of Year $ 4,799,546 $ 4,198,472 $ 3,574,401
========== ========== ==========
Supplemental Disclosure:
Cash paid for:
Interest expense $ 6,467,192 $ 6,883,142 $ 6,324,663
Income taxes 1,345,000 1,595,000 1,370,180
Noncash Transactions
The Company financed purchases of its interests in limited partnerships in
1999 and 1998 through the incurrence of debt totaling $1,498,500 and $969,309,
respectively.
The accompanying notes are an integral part of this statement.
<PAGE> 26
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS:
F & M Bank Corp. ("Company"), through its subsidiary Farmers &
Merchants Bank ("Bank"), operates under a charter issued by the
Commonwealth of Virginia and provides commercial banking services. As
a state chartered bank, the Bank is subject to regulation by the
Virginia Bureau of Financial Institutions and the Federal Reserve
Bank. The Bank provides services to customers located mainly in
Rockingham County, Virginia, and the adjacent counties of Page,
Shenandoah and Augusta. Services are provided at five branch offices.
In addition, the Company offers insurance and financial services
through its subsidiaries, TEB Life Insurance, Inc. and Farmers &
Merchants Financial Services, Inc.
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 part of other accumulated comprehensive
income. Also included in securities available for sale are
marketable equity securities.
<PAGE> 27
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d)Investment Securities (Continued)
Interest, amortization of premiums and accretion of 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)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 5 - 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.
<PAGE> 28
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h)Pension Plans
Substantially all employees are covered by a pension plan. The net
periodic pension expense includes a service cost component,
reflecting the actual return on plan assets, and the effect of
deferring and amortizing certain actuarial gains and losses and the
unrecognized net transition asset.
(i)Income Taxes
Amounts provided for income tax expense are based on income
reported for financial statement purposes rather than amounts
currently payable under income tax laws. Deferred taxes, which
arise principally from temporary differences between the period in
which certain income and expenses are recognized for financial
accounting purposes and the period in which they affect taxable
income, are included in the amounts provided for income taxes.
(j)Earnings Per Share
Earnings per share are based on the weighted average number of
shares outstanding. Prior period per share amounts have been
restated to reflect the 1998 stock split.
(k)Comprehensive Income
The Corporation adopted SFAS 130, Reporting Comprehensive Income,
as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS 130 had no effect on the
Corporation's net income or shareholders' equity.
The components of other comprehensive income and related tax
effects are as follows:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Unrealized holding gains
(losses) on available-
for-sale securities $ (915,573) $ 388,325 $ 2,980,100
Reclassification adjustment
for gains realized in
income (1,179,683) (1,248,585) (345,262)
Net Unrealized Gains (Losses) (2,095,256) (860,260) 2,634,838
Tax effect 771,949 329,093 (998,566)
-------- -------- --------
Net Change $ (1,323,307) $ (531,167) $1,636,272
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 $736,000 and $659,000 for
the years ended December 31, 1999 and 1998, respectively.
<PAGE> 29
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and fair value of securities held to maturity are
as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1999
U. S. Treasuries
and Agencies $2,468,607 $ $ 25,194 $2,443,413
Mortgage-backed
obligations of
federal agencies 79,696 316 79,380
Corporate bonds 1,781,560 64,340 1,717,220
--------- -------- -------- ---------
Total Securities
Held to Maturity $4,329,863 $ $ 89,850 $4,240,013
========= ======== ======== =========
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
========= ======== ======== =========
The amortized cost and fair value of securities available for sale are
as follows:
December 31, 1999
U.S. Agencies $14,273,511 $ $ 360,181 $13,913,330
Mortgage-backed
obligations of
federal agencies 2,584,194 7,480 20,353 2,571,321
Marketable equities 10,810,992 2,433,176 905,194 12,338,974
Corporate bonds 7,580,438 235,438 7,345,000
--------- -------- -------- ---------
Total Securities
Available for
Sale $35,249,135 $2,440,656 $1,521,166 $36,168,625
========== ========= ========= ==========
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
========== ========= ======== ==========
<PAGE> 30
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
The amortized cost and fair value of securities at December 31, 1999,
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 Securities Available
to Maturity for Sale
----------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or
less $1,550,038 $1,538,733 $1,857,554 $1,838,561
Due after one year
through five years 2,779,825 2,701,280 22,580,589 21,991,090
Total 4,329,863 4,240,013 24,438,143 23,829,651
Marketable equities 10,810,992 12,338,974
--------- --------- ---------- ----------
$4,329,863 $4,240,013 $35,249,135 $36,168,625
========= ========= ========== ==========
Realized gains and losses and the gross proceeds from the sale of debt
securities were not material in 1999, 1998 or 1997. Realized gains and
losses on marketable equity transactions are summarized below:
1999 1998 1997
------- ------- ------
Gains $1,239,207 $1,579,042 $ 461,136
Losses 59,524 330,457 115,874
--------- --------- --------
Net Gains $1,179,683 $1,248,585 $ 345,262
========= ========= ========
The carrying value (which approximates fair value) of securities
pledged by the Company to secure deposits and for other purposes
amounted to $13,836,267 at December 31, 1999 and $13,563,958 at
December 31, 1998.
There were no state or political subdivision obligations of a single
issuer that exceeded 10% of stockholders' equity at December 31, 1999,
1998 or 1997.
<PAGE> 31
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
NOTE 4 INVESTMENT SECURITIES (CONTINUED):
Other investments consist of investments in six low-income housing
partnerships (carrying basis of $2,873,490) and stock in the Federal
Home Loan Bank, Community Bankers Bank, Federal Reserve Bank,
Shenandoah Title, LLC and Virginia Bankers' Insurance Center, LLC
(carrying basis of $1,049,607). 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, 1999.
At December 31, 1999, the Company was committed to invest additional
$2,467,809 in four 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:
1999 1998
------ ------
Real Estate
Construction $ 5,481,073 $ 4,375,669
Mortgage 84,019,312 78,348,885
Commercial and agricultural 31,685,756 31,567,617
Installment 18,082,123 17,125,279
Credit cards 1,015,866 831,814
Other 33,766 51,815
---------- ----------
Total $140,317,896 $132,301,079
=========== ===========
The Company has pledged mortgage loans as collateral for borrowings
with the Federal Home Loan Bank of Atlanta totaling $22,033,948 and
$24,246,293 as of December 31, 1999 and 1998, respectively.
NOTE 6 ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses is shown in the
following schedule:
1999 1998 1997
------------------------ ------
Balance, beginning of year $1,162,176 $1,120,749 $1,003,371
Provision charged to operating
expenses 140,000 110,000 180,000
Loan recoveries 47,107 104,844 38,523
Loans charged off (259,021) (173,417) (101,145)
--------- ---------- --------
Balance, End of Year $1,090,262 $1,162,176 $1,120,749
========= ========= =========
Percentage of gross loans .78% .88% .91%
<PAGE> 32
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment as of December 31 are summarized as
follows:
1999 1998
------ ------
Construction in progress $ $ 90,332
Land 480,651 480,651
Buildings and improvements 2,818,590 1,954,531
Furniture and equipment 2,558,613 2,110,885
---------- ----------
5,857,854 4,636,399
Less - accumulated depreciation (2,699,483) (2,556,101)
---------- ----------
Net $ 3,158,371 $ 2,080,298
========== ==========
Provisions for depreciation of $218,134 in 1999, $212,687 in 1998 and
$256,495 in 1997 were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
2000 $54,825,367
2001 8,333,688
2002 3,037,372
2003 4,276,930
2004 1,125,711
----------
Total $71,599,068
==========
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
1999
Treasury, tax
and loan $ 26,246 $ 17,081 $ 22,214 n/a n/a
Federal funds
purchased 1,072,000 963,000 136,827 5.66% 5.77%
Notes payable 116,739 116,739 9,598 8.00% 8.00%
Securities sold
under agreements
to repurchase 7,762,956 6,622,549 6,557,376 4.46% 4.88%
--------- --------- --------- ----- -----
Totals $7,719,369 $6,726,015 4.47% 5.03%
========= ========= ===== =====
<PAGE> 33
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 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%
========= ========= ==== ====
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%
========= ========= ==== ====
1 Based on daily amounts outstanding
The Bank issues repurchase agreements to commercial customers desiring
short-term investments. These agreements are issued on a daily basis
and are secured by United States Agency obligations and corporate
bonds. The market value of these securities approximates their
carrying value.
As of December 31, 1999, the Company had lines of credit with
correspondent banks totaling $8,585,000, which are used in the
management of short-term liquidity. All securities sold under
agreements to repurchase are under the Company's control.
<PAGE> 34
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) were zero
in 1999 and $8,000,000 in 1998. The interest rates on the notes
payable are fixed at the time of the advance and range from 5.05% to
5.96%; the weighted average interest rate is 5.47% at December 31,
1999. 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 $1,095,059,
$1,529,009 and $1,112,146 was incurred on these debts in 1999, 1998,
and 1997, respectively. The maturities of long-term debt as of
December 31, 1999 are as follows:
2000 $ 3,162,438
2001 2,922,438
2002 2,842,438
2003 2,688,384
2004 2,226,222
Thereafter 4,706,356
---------
Total $18,548,276
==========
NOTE 11 INCOME TAX EXPENSE:
The components of the income tax expense are as follows:
1999 1998 1997
------------------------ ------
Current expense
Federal $1,626,377 $1,552,168 $1,341,529
State 46,069 72,972 20,377
Deferred expense
Federal 9,410 (35,407) (32,140)
-------- --------- --------
Total Income Tax Expense $1,681,856 $1,589,733 $1,329,766
========= ========= =========
Amounts in above arising from gains
on security transactions $ 427,980 $ 473,182 $ 132,744
======== ======== ========
The deferred tax effects of temporary differences are as follows:
1999 1998 1997
------------------ ------
Tax Effects of Temporary Differences:
Provision for loan losses $ 24,451 $ (14,086) $ (36,848)
Split dollar life insurance (2,422) (11,267) (6,557)
Non-qualified deferred
compensation (42,932) (27,427) (4,561)
Depreciation 19,902 8,477 1,037
Pension expense 7,992 16,818 15,946
Accounting change (11,523) (11,523)
Other 2,419 3,601 10,366
-------- -------- --------
Deferred Income Tax Benefit $ 9,410 $ (35,407) $ (32,140)
======= ========= ========
<PAGE> 35
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:
1999 1998
------ ------
Deferred Tax Assets:
Bad debt allowance $ 252,075 $ 276,526
Split dollar life insurance 85,869 85,316
Non-qualified deferred compensation 74,919 31,988
Other 12,152 11,220
-------- --------
Total Assets 425,015 405,050
-------- --------
Deferred Tax Liabilities:
Securities available for sale 368,730 1,140,679
Low income housing credits 199,980 145,557
Depreciation 46,047 26,145
Pension 165,762 157,770
Partnership losses 13,953
FHLB dividends 9,418 18,564
-------- --------
Total Liabilities 803,890 1,488,715
-------- ---------
Net Liability $(378,875)$(1,083,665)
========= ==========
The following table summarizes the differences between the actual
income tax expense and the amounts computed using the federal
statutory tax rates:
1999 1998 1997
----------------------------- ----
Tax expense at federal statutory
rates $1,825,616 $1,702,599 $1,451,470
Increases (decreases) in taxes
resulting from:
State income taxes, net 56,038 62,594 25,250
Partially exempt income (146,584) (138,667) (127,577)
Tax-exempt interest (6,887) (12,928) (11,796)
Other (46,327) (23,865) (7,581)
--------- -------- ---------
Total Income Tax Expense $1,681,856 $1,589,733 $1,329,766
========= ========= =========
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 $153,667, $96,868, and $90,786 for 1999, 1998,
and 1997, respectively.
<PAGE> 36
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 $160,000 in 1999, $150,000 in 1998 and
$153,663 in 1997 to the Plan and charged this expense to operations.
NOTE 13 CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks totaling
$2,157,260 and $2,488,133 at December 31, 1999 and 1998.
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 1998 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. Within
1999, 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 adverse 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:
1999 1998
------- ------
Commitments to loan money $25,295,880 $18,695,383
Standby letters of credit 1,189,951 748,620
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> 37
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 COMMITMENTS (CONTINUED):
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness
on a case-by-case basis. 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 with related parties are shown in the following
schedule:
1999 1998
------- ------
Total loans, beginning of year $1,133,362 $1,217,533
Change in directorship 131,279
New loans 697,597 693,832
Repayments (616,818) (778,003)
--------- --------
Total Loans, End of Year $1,345,420 $1,133,362
========= =========
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 Federal Reserve Act restricts the
amount of dividends the Bank may pay. 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, 2000, approximately $1,715,000
was available for dividend distribution without permission of the
Board of Governors. Dividends paid by the Bank to the Company totaled
$1,419,000 in 1999, $1,550,000 in 1998 and $2,120,364 in 1997.
<PAGE> 38
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS 107)
"Disclosures About the Fair Value of Financial Statements" defines the
fair value of a financial instrument as the amount at which a
financial instrument could be exchanged in a current transaction
between willing parties, other than in a forced liquidation sale. As
the majority of the Bank's financial instruments lack an available
trading market, significant estimates, assumptions and present value
calculations are required to determine estimated fair value.
Estimated fair value and the carrying value of financial instruments
at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
---------------- ---------
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Financial Assets
Cash $ 4,800 $ 4,800 $ 4,198 $ 4,198
Interest bearing deposits 462 462 2,145 2,145
Federal funds sold 2,436 2,436
Securities available
for sale 36,169 36,169 33,941 33,941
Securities held to
maturity 4,240 4,330 9,821 9,715
Other investments 3,923 3,923 2,701 2,701
Loans 136,922 139,228 135,799 131,139
Accrued interest
receivable 1,373 1,373 1,352 1,352
Financial Liabilities
Demand Deposits:
Non-interest bearing 17,193 17,193 16,232 16,232
Interest bearing 21,149 21,149 20,213 20,213
Savings deposits 29,566 29,566 27,443 27,443
Time deposits 71,904 71,599 71,971 71,251
Accrued liabilities 4,277 4,277 3,269 3,269
Short-term debt 7,719 7,719 7,155 7,155
Long-term debt 17,472 18,548 21,883 21,854
The carrying value of cash and cash equivalents, other investments,
deposits with no stated maturities, short-term borrowings, and accrued
interest approximate 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 1999.
<PAGE> 39
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 REGULATORY MATTERS:
The Company and its subsidiary bank are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on
the Company's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation, to ensure capital
adequacy, require the Company to maintain minimum amounts and ratios.
These ratios are defined in the regulations and the amounts are set
forth in the table below. Management believes, as of December 31,
1999, that the Company and its subsidiary bank meet all capital
adequacy requirements to which they are subject.
As of 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
1999 1998 Capitalized Capitalized
Total risk-based ratio 18.44% 18.36% 8.00% 10.00%
Tier 1 risk-based ratio 17.66% 17.45% 4.00% 6.00%
Total assets leverage ratio 12.65% 12.32% 3.00% 5.00%
<PAGE> 40
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31,
ASSETS 1999 1998
--------- ------
Cash and cash equivalents $ 189,476 $ 1,044,071
Investment in subsidiaries 13,461,648 12,651,188
Loans receivable 246,885 259,829
Securities available for sale 11,851,335 10,492,756
Other securities 2,873,490 1,495,177
Accrued interest receivable 1,373 1,205
Due from subsidiaries 4,393
Income tax receivable 127,673 209,602
Other real estate 426,128 426,128
-------- --------
Total Assets $29,178,008 $26,584,349
========== ==========
LIABILITIES
Notes payable $ 116,739 $
Due to subsidiaries 176,743
Dividends payable 343,835 294,716
Demand obligations for low income housing
investment 2,467,809 969,309
Deferred income taxes 786,486 1,241,854
-------- ---------
Total Liabilities 3,891,612 2,505,879
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $5 per share, 3,000,000
shares authorized, 2,455,962 shares issued
and outstanding, respectively 12,279,810 12,279,810
Capital surplus 868,132 866,694
Retained earnings 11,587,061 9,057,266
Accumulated other comprehensive income 551,393 1,874,700
-------- ---------
Total Stockholders' Equity 25,286,396 24,078,470
---------- ----------
Total Liabilities and Stockholders' Equity $29,178,008 $26,584,349
========== ==========
<PAGE> 41
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF NET INCOME AND RETAINED EARNINGS
Years Ended December 31,
1999 1998 1997
---------------------------- -------
INCOME
Dividends from affiliate $1,419,000 $ 1,550,000 $2,120,364
Interest on loans 21,022 22,059 24,929
Investment income - taxable 12,759 26,308 6,364
Dividend income 422,640 433,962 404,082
Security gains 1,127,882 1,236,405 373,469
Limited partnership income (loss),
net of tax credits 36,302 12,802 (25,062)
Other 2,504 9,702
--------- ---------- ---------
Total Income 3,042,109 3,291,238 2,904,146
--------- ---------- ---------
EXPENSES
Interest expense 965 3,917 4,305
Administration expense 112,531 80,584 74,043
--------- ---------- ---------
Total Expenses 113,496 84,501 78,348
--------- ---------- ---------
Net income before income tax expense
and increase in undistributed equity
of affiliates 2,928,613 3,206,737 2,825,798
INCOME TAX EXPENSE 401,790 461,570 125,215
--------- ---------- ---------
Income before increase in undistributed
equity of affiliates 2,526,823 2,745,167 2,700,583
Increase in undistributed income
of affiliates 1,279,382 755,408 306,960
--------- ---------- ---------
NET INCOME 3,806,205 3,500,575 3,007,543
Retained earnings, beginning of year 9,057,266 15,536,083 13,396,313
Stock split effected in the form of
a dividend (8,186,540)
Dividends on common stock (1,276,410) (1,792,852) (867,773)
----------- ----------- ---------
Retained Earnings, End of Year $11,587,061 $ 9,057,266 $15,536,083
========== ========== ==========
<PAGE> 42
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1999 1998 1997
---------------------------- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,806,205 $3,500,575 $3,007,543
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed subsidiary income (1,279,382) (755,408) (306,960)
Gain on sale of securities (1,127,882) (1,236,405) (373,469)
Deferred tax expense 10,628
Decrease (increase) in interest
receivable (168) 267 80
Decrease (increase) in due from
subsidiary 4,393 360,052 (273,755)
Decrease (increase) in other
receivables 81,929 (89,161) (120,441)
Increase (decrease) in accrued
expenses 234,492 51,650 (1,673)
Amortization of limited partnership
investments 121,685 81,965 94,127
--------- -------- --------
Net Cash Provided by Operating
Activities 1,851,900 1,913,535 2,025,452
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available for sale 3,556,512 4,912,248 1,251,339
Proceeds from maturity of securities
available for sale 1,987 994,192 703,793
Purchase of securities available
for sale (5,167,543) (4,646,422) (2,135,196)
Purchase of other securities (1,500) (999,150) (187,488)
Decrease in loans receivable 12,944 11,979 10,463
Purchase of other real estate (427,067)
--------- -------- --------
Net Cash Provided by (Used in)
Investing Activities (1,597,600) 272,847 (784,156)
----------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 116,739
Payments to repurchase common stock (59,627)
Proceeds from issuance of common stock 61,065
Dividends paid in cash (1,227,072) (1,735,547) (810,468)
---------- ---------- --------
Net Cash Used in Financing Activities (1,108,895) (1,735,547) (810,468)
---------- ---------- --------
Net Increase (decrease) in Cash and
Cash Equivalents (854,595) 450,835 430,828
Cash and Cash Equivalents, Beginning
of Year 1,044,071 593,236 162,408
----------- --------- --------
Cash and Cash Equivalents, End of Year $ 189,476 $1,044,071 $ 593,236
========= ========= ========
Noncash Transactions
The Company financed purchases of its interests in limited partnerships in
1999 and 1998 through the incurrence of debt totaling $1,498,500 and $969,309,
respectively.
<PAGE> 43
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)
Ellen R. Fitzwater 53 1999 Corporate Accountant, Rocco,
Inc., since 1995; Partner,
Financial Manager Fitzwater
Trucking since 1990
Lawrence H. Hoover, Jr. 65 1981 Attorney, Partner in Hoover,
Vice Chairman of the Board Penrod, Davenport & Crist
and its predecessor since 1971
Richard S. Myers 52 1988 President of Dick Myers
Chevrolet-GEO since February
1991
Ronald E. Wampler 52 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 53 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 64 1980 President of Virginia
Classic Mustang, Inc., an
auto parts company; Partner
in H&H Properties
Michael W. Pugh 45 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.; Manager
of Pugh Investments L.L.C.
and Secretary of Oak Tree
Enterprises, Inc.
CLASS C DIRECTORS
(to serve until the 2002 annual meeting of shareholders)
Julian D. Fisher 59 1990 CEO of Farmers & Merchants
President Bank since May 1996; President
of Bank since Oct. 1991
Dan B. Todd 68 1969 CEO of Farmers & Merchants
Chairman Bank from 1969 to May 1996;
Chairman of the Board since
Oct. 1991
<PAGE> 44
Item 9. Directors, 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 1999, 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 1999 $120,000 $45,000 2 $42,157
Chief Executive Officer 1998 110,000 40,000 42,742
& President 1997 100,000 35,000 31,082
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 ($15,322, $16,116, and $14,486
1999, 1998 and 1997, respectively), the gross value of life insurance premiums
paid by the Company on behalf of Mr. Fisher ($16,106, $16,210 and $14,796 in
1999, 1998, and 1997, respectively) and the Company's contribution for the
benefit of Mr. Fisher under the Executive Deferred Compensation Plan for Farmers
& Merchants Bank ($10,729 and $10,416 in 1999 and 1998, respectively). Pursuant
to a split-dollar insurance agreement between the Company and Mr. Fisher, the
Company will be repaid such premium payments from the proceeds of the insurance
policies. Thus, the gross premium payment amounts shown overstate the actual
economic benefit to Mr. Fisher.
(1) Directors of the Bank are compensated for attendance at the Board and
Committee meetings, of which they are members, as follows: 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 1999, a bonus of
$5,000 was paid to each Director.
<PAGE> 45
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,
1999.
The following table sets forth the number and percentage of shares of common
stock held, as of December 31, 1999 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 6,951 1 .283%
Julian D. Fisher 92,117 2 3.751%
Ellen R. Fitzwater 3,582 3 .146%
Robert L. Halterman 29,348 1.195%
Lawrence H. Hoover, Jr. 55,095 4 2.243%
Richard S. Myers 12,069 5 .491%
Michael W. Pugh 784 6 .032%
Dan B. Todd 34,438 7 1.402%
Ronald E. Wampler 7,500 .306%
All Directors and executive 241,884 9.849%
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, 8,201 shares owned by another member
of his household and 74,489 shares which are owned by the Company's stock
bonus plan over which Mr. Fisher has voting power.
3 Includes 2,604 shares owned directly and 978 shares owned jointly with
other persons.
4 Includes 33,536 shares owned directly, 138 shares owned by another member of
his household and 21,421 shares owned by unitrusts in which he is one of the
trustees.
5 Includes 4,800 shares owned directly and 7,267 shares held in Mr. Myers'
IRA account.
6 Includes 600 shares owned directly, 84 shares owned jointly with another
member of his household and 100 shares held in Mr. Pugh's SEP.
7 Includes 19,422 shares owned directly, 8,992 shares owned by another
member of his household and 6,024 shares held in Mr. Todd's IRA Account.
<PAGE> 46
Item 12. Certain Relationships and Related Transactions
Most of the directors, partnerships of which they may be general partners
and corporations of which they are officers or directors, maintain normal
banking relationships with the Bank. Loans made by the Bank to such persons or
other entities were made only in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectibility or present other unfavorable
features. See Note 15 of the consolidated financial statements.
Part IV
Item 13. Exhibits and Reports on Form 8-K
Exhibit No.
3 i Articles of Incorporation of F & M Bank Corp. are incorporated by
reference to Exhibits to F & M Bank Corp.'s Form S14 filed February
17, 1984.
3 ii Bylaws of F & M Bank Corp. are incorporated by reference to
Exhibits to F & M Bank Corp.'s form S14 filed February 17, 1984.
21 Subsidiaries of the small business issuers attached
23 Consent of Certified Public Accountant attached
27 Financial Data Schedule attached
Reports on Form 8-K
The Corporation did not file any reports on Form 8-K for the quarter ending
December 31, 1999.
<PAGE> 47
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
President and Chief Executive Officer
Date: March 30, 2000
By: NEIL W. HAYSLETT
-------------------------------------
Neil W. Hayslett
Vice President and Chief Financial
Officer
Date: March 30, 2000
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, 2000
- ---------------------------
Thomas L. Cline
JULIAN D. FISHER Director, President, March 30, 2000
- --------------------------- Chief Executive Officer
Julian D. Fisher
ELLEN R. FITZWATER Director March 30, 2000
- ---------------------------
Ellen R. Fitzwater
ROBERT L. HALTERMAN Director March 30, 2000
- ---------------------------
Robert L. Halterman
<PAGE> 48
- --------------------------- Director
Lawrence H. Hoover, Jr.
RICHARD S. MYERS Director March 30, 2000
- ---------------------------
Richard S. Myers
- --------------------------- Director
Michael W. Pugh
- ---------------------------- Director, Chairman
Dan B. Todd
- ---------------------------- Director
Ronald E. Wampler
<PAGE> 49
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> 50
Exhibit 23 - Consent of Certified Public Accountant
To the Shareholders and Board of Directors
F & M Bank Corp.
We consent to the use of our report, dated January 25, 2000, relating to the
consolidated balance sheets of F & M Bank Corp. as of December 31, 1999 and
1998, 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, 1999, which report appears on Page 21 in the December
31, 1999 Annual Report on Form 10-KSB of F & M Bank Corp.
S. B. Hoover & Company, L.L.P.
Harrisonburg, VA
March 28, 2000
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,800
<INT-BEARING-DEPOSITS> 462
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<INVESTMENTS-CARRYING> 4,330
<INVESTMENTS-MARKET> 4,240
<LOANS> 140,318
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<TOTAL-ASSETS> 195,338
<DEPOSITS> 139,507
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<COMMON> 12,280
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