-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVXXVr5WIVJ+vQIvZ5ksHsHVt1910LALNux2SKCg5Pl5XvwTX1e6AgpzfJyL/Q01 fhoXI/GZiWRDoMFVl3TfIA== 0000930609-04-000099.txt : 20040816 0000930609-04-000099.hdr.sgml : 20040816 20040816162726 ACCESSION NUMBER: 0000930609-04-000099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: F&M BANK CORP CENTRAL INDEX KEY: 0000740806 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541280811 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13273 FILM NUMBER: 04979079 BUSINESS ADDRESS: STREET 1: P.O. BOX 1111 CITY: TIMBERVILLE STATE: VA ZIP: 22853 BUSINESS PHONE: 540-896-8941 MAIL ADDRESS: STREET 1: P. O. BOX 1111 CITY: TIMBERVILLE STATE: VA ZIP: 22853 10-Q 1 fm10qfor604.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended Commission File Number: 0-13273 June 30, 2004 F & M BANK CORP. Virginia 54-1280811 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Drawer 1111 Timberville, Virginia 22853 (Address of Principal Executive Offices, Including Zip Code) (540) 896-8941 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 requirement for the past 90 days. Yes ..X. No .... State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at June 30, 2004 Common Stock, par value - $5 2,415,030 shares 1 F & M BANK CORP. INDEX Page PART I FINANCIAL INFORMATION 2 Item 1. Financial Statements Consolidated Statements of Income - Six Months Ended June 30, 2004 and 2003 2 Consolidated Statements of Income - Three Months Ended June 30, 2004 and 2003 3 Consolidated Balance Sheets - June 30, 2004 and December 31, 2003 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2004 and 2003 5 Consolidated Statements of Changes in Stockholders' Equity - Six Months Ended June 30, 2004 and 2003 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4. Controls and Procedures 19 PART II OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibit and Reports on Form 8K 20 SIGNATURES 21 2 Part I Financial Information Item 1 Financial Statements F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars) (Unaudited) Six Months Ended June 30, 2004 2003 Interest Income Interest and fees on loans $ 7,020 $ 7,125 Interest on federal funds sold 18 98 Interest on interest bearing deposits 93 90 Interest and dividends on investment securities 858 1,189 ------- ------ Total Interest Income 7,989 8,502 ------- ------ Interest Expense Interest on demand accounts 103 114 Interest on savings deposits 219 273 Interest on time deposits 1,657 2,116 ------- ------ Total interest on deposits 1,979 2,503 Interest on short-term debt 37 27 Interest on long-term debt 490 664 ------- ------ Total Interest Expense 2,506 3,194 ------- ------ Net Interest Income 5,483 5,308 Provision for Loan Losses 120 133 ------- ------ Net Interest Income after Provision for Loan Losses 5,363 5,175 ------- ------ Noninterest Income Service charges 467 419 Income on bank owned life insurance 126 110 Other 513 516 Security gains 321 289 ------- ------ Total Noninterest Income 1,427 1,334 ------- ------ Noninterest Expense Salaries 1,602 1,522 Employee benefits 593 500 Date processing expenses 130 109 Occupancy expense 197 200 Equipment expense 213 192 Audit and professional fees 136 99 Intangibles amortization 138 138 Other 816 794 ------- ------ Total Noninterest Expense 3,825 3,554 ------- ------ Income before Income Taxes 2,965 2,955 Provision for Income Taxes 890 879 ------- ------ Net Income $ 2,075 $ 2,076 ======= ====== Per Share Data Net Income $ .86 $ .86 ======= ====== Cash Dividends $ .36 $ .34 ======= ====== Equivalent Shares Outstanding 2,417,925 2,423,015 ========= ========= The accompanying notes are an integral part of these statements. 3 F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars Except Per Share Amounts) (Unaudited) Three Months Ended June 30, 2004 2003 Interest Income Interest and fees on loans $ 3,560 $ 3,537 Interest on federal funds sold 8 66 Interest on interest bearing deposits 42 42 Interest and dividends on investment securities 408 557 ------- ------ Total Interest Income 4,018 4,202 ------- ------ Interest Expense Interest on demand deposits 52 56 Interest on savings accounts 111 131 Interest on time deposits 819 1,042 ------- ------ Total interest on deposits 982 1,229 Interest on short-term debt 28 13 Interest on long-term debt 236 322 ------- ------ Total Interest Expense 1,246 1,564 ------- ------ Net Interest Income 2,772 2,638 Provision for Loan Losses 60 61 ------- ------ Net Interest Income after Provision for Loan Losses 2,712 2,577 ------- ------ Noninterest Income Service charges 243 246 Security gains 146 399 Other 266 285 Income on bank owned life insurance 63 63 ------- ------ Total Noninterest Income 718 993 ------- ------ Noninterest Expense Salaries 795 769 Employee benefits 296 240 Occupancy expense 102 105 Data processing expenses 68 69 Equipment expense 108 103 Audit and professional fees 64 56 Intangibles amortization 69 69 Other 435 411 ------- ------ Total Noninterest Expense 1,937 1,822 ------- ------ Income before Income Taxes 1,493 1,748 Provision for Income Tax 451 525 ------- ------ Net Income $ 1,042 $ 1,223 ======= ====== Per Share Data Net Income $ .43 $ .50 ======= ====== Cash Dividends $ .18 $ .17 ======= ====== Equivalent Shares Outstanding 2,416,678 2,422,359 ========= ========= The accompanying notes are an integral part of these statements. 4 F & M BANK CORP. CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) June 30, December 31, ASSETS 2004 2003 ---------- ------------- (Unaudited) (Audited) Cash and due from banks $ 6,547 $ 5,665 Interest bearing deposits in banks 10,346 9,003 Federal funds sold 5,035 Securities held to maturity (note 2) 870 873 Securities available for sale (note 2) 52,814 54,896 Other investments 5,473 5,461 Loans, net of unearned discount (note 3) 226,043 211,231 Less allowance for loan losses (note 4) (1,512) (1,484) -------- ------- Net Loans 224,531 209,747 Bank premises and equipment 4,939 5,001 Interest receivable 1,318 1,496 Goodwill 2,639 2,639 Deposit intangibles 1,840 1,978 Bank owned life insurance (note 5) 4,957 4,832 Other assets 2,371 2,500 ------- -------- Total Assets $318,645 $309,126 ======= ======= LIABILITIES Deposits Noninterest bearing demand $ 37,357 $ 33,124 Interest bearing Demand 37,052 37,875 Savings deposits 51,461 47,545 Time deposits 118,513 122,171 ------- ------- Total Deposits 244,383 240,715 Short-term debt 11,491 6,389 Long-term debt 25,020 24,784 Accrued expenses 4,945 4,919 ------- ------- Total Liabilities 285,839 276,807 ------- ------- STOCKHOLDERS' EQUITY Common stock $5 par value, 2,415,030 and 2,420,478 shares issued and outstanding in 2003 and 2002, respectively 12,075 12,102 Surplus 180 286 Retained earnings 20,915 19,710 Accumulated other comprehensive income (loss) (364) 221 -------- ------- Total Stockholders' Equity 32,806 32,319 ------- ------- Total Liabilities and Stockholders' Equity $318,645 $309,126 ======= ======= The accompanying notes are an integral part of these statements. 5 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited) Six Months Ended June 30, 2004 2003 Cash Flows from Operating Activities: Net income $ 2,075 $ 2,076 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 207 202 Amortization of security premiums 214 100 Gain on security transactions (321) (289) Income from life insurance investment (126) (110) Provision for loan losses 120 133 Decrease in interest receivable 178 220 Decrease in other assets 341 225 Intangibles amortization 138 138 Increase in accrued expenses 108 245 Losses on limited partnership investments 122 129 ------- ------- Total Adjustments 981 993 ------- ------- Net Cash Provided by Operating Activities 3,056 3,069 ------- ------- Cash Flows from Investing Activities: Proceeds from sales of investments available for sale 10,330 1,241 Proceeds from maturity of investments available for sale 8,906 28,453 Proceeds from maturity of investments held to maturity 1,000 Purchase of investments available for sale (18,054) (24,150) Net change in federal funds sold 5,035 (6,679) Net change in loans (14,903) 1,199 Purchase of property and equipment (145) (323) Net change in interest bearing bank deposits (1,344) (4,128) Construction in progress payments (161) Proceeds from sale of other real estate owned 65 Purchase of life insurance (1,870) ------- -------- Net Cash Used in Investing Activities (10,175) (5,353) -------- ------- Cash Flows from Financing Activities: Net increase in demand and savings deposits 7,291 5,739 Net increase (decrease) in time deposits (3,658) 3,096 Net increase (decrease) in short-term debt 5,137 (1,526) Repurchase of common stock (133) (97) Repayment of long-term debt (3,764) (3,764) Proceeds from long-term debt 4,000 Payment of dividends (872) (823) -------- ------- Net Cash Provided by Financing Activities 8,001 2,625 ------- ------- Net Increase in Cash and Cash Equivalents 882 341 Cash and Cash Equivalents, Beginning of Period 5,665 6,017 ------- ------- Cash and Cash Equivalents, End of Period $ 6,547 $ 6,358 ======= ======= Supplemental Disclosure Cash paid for: Interest expense $ 2,553 $ 3,258 Income taxes 700 375 The accompanying notes are an integral part of these statements. 6 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars) (Unaudited) Six Months Ended June 30, 2004 2003 Balance, beginning of period $ 32,319 $ 29,541 Comprehensive Income: Net income 2,075 2,076 Net change in unrealized appreciation on securities available for sale, net of taxes (583) 76 -------- ------- Total comprehensive income 1,492 2,152 Repurchase of common stock (133) (97) Dividends declared (872) (823) -------- ------- Balance, end of period $ 32,806 $ 30,773 ======= ======= The accompanying notes are an integral part of these statements. 7 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ACCOUNTING PRINCIPLES: The consolidated financial statements include the accounts of F & M Bank Corp. and its subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements conform to accounting principles generally accepted in the United States and to general industry practices. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2004 and the results of operations for the six and three month periods ended June 30, 2004 and June 30, 2003. The notes included herein should be read in conjunction with the notes to financial statements included in the 2003 annual report to stockholders of the F & M Bank Corp. The Company does not expect the anticipated adoption of any newly issued accounting standards to have a material impact on future operations or financial position. NOTE 2 INVESTMENT SECURITIES: The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at June 30, 2004 and December 31, 2003 follows: 2004 2003 ---------- ------------ Market Market Cost Value Cost Value Securities Held to Maturity U. S. Treasury and Agency obligations $ 110 $ 110 $ 110 $ 111 Other securities 760 807 763 787 ------- ------- ------- ------- Total $ 870 $ 917 $ 873 $ 898 ======= ======= ======= ======= 2004 2003 ----------- ----------- Market Market Value Cost Value Cost Securities Available for Sale U. S. Treasury and Agency obligations $ 27,453 $ 27,592 $ 25,444 $ 25,387 Equity securities 9,219 9,554 9,245 9,110 Mortgage-backed securities 6,929 7,043 8,989 9,004 Other securities 9,213 9,141 11,218 11,035 ------- ------- ------- ------- Total $ 52,814 $ 53,330 $ 54,896 $ 54,536 ======= ======= ======= ======= 8 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 LOANS: Loans outstanding are summarized as follows: June 30, December 31, 2004 2003 Real Estate Construction $15,529 $ 15,329 Residential 135,857 118,677 Commercial and agricultural 50,460 56,000 Installment loans to individuals 22,713 19,630 Credit cards 1,361 1,463 Other 123 132 ------ ------- Total $226,043 $211,231 ======= ======= NOTE 4 ALLOWANCE FOR LOAN LOSSES: A summary of transactions in the allowance for loan losses follows: Six Months Ended Three Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ----- Balance, beginning of period $1,484 $ 1,477 $1,517 $ 1,545 Provisions charged to Operating expenses 120 133 60 61 Net (charge offs) recoveries: Loan recoveries 49 38 9 19 Loan charge-offs (141) (82) (74) (59) ------ ------ ------ ------ Total Net Charge-offs * (92) (44) (65) (40) ------ ------ ------ ------ Balance, End of Period $1,512 $ 1,566 $1,512 $ 1,566 ===== ====== ===== ====== * Components of net charge-offs: Real estate - Residential $ (7) $ $ (7) $ Commercial (57) (3) (9) (4) Installment loans to individuals (28) (41) (49) (36) ------ ------ ------ ------ Total $ (92) $ (44) $ (65) $ (40) ====== ====== ====== ====== 9 Page 9 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 BANK OWNED LIFE INSURANCE (BOLI): The Bank currently offers a variety of benefit plans to all full time employees. While the costs of these plans are generally tax deductible to the Bank, the cost has been escalating greatly in recent years. In order to attract and retain good employees, the Bank has determined that the benefits offered are necessary. To help offset the growth in these costs, the Bank decided to enter into BOLI contracts. Dividends received on these policies are tax-deferred and may be tax exempt as the death benefits under the policies are exempt from income taxation. Rates of return on a tax-equivalent basis are very favorable when compared to other long-term assets which the Bank could obtain. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations F & M Bank Corp. (Company) is a one-bank holding company organized under Virginia law which provides financial services through its wholly-owned subsidiaries Farmers & Merchants Bank (Bank) and TEB Life Insurance Company (TEB). Farmers & Merchants Financial Services (FMFS) is a wholly-owned subsidiary of the Bank. The Bank is a full service commercial bank offering a wide range of banking and financial services through its seven branch offices. TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides title insurance, brokerage services and property/casualty insurance to customers of the Bank. The Company's primary trade area services customers in Rockingham County, Shenandoah County, the southern part of Page County and the northern part of Augusta County. Management's discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 1, Part 1 of this Form 10-Q. Forward-Looking Statements Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, and consumer spending and savings habits. We do not update any forward-looking statements that may be made from time to time by or on behalf of the Company. Critical Accounting Policies General The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that are used. The fair value of the investment portfolio is based on period end valuations but changes daily with the market. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Allowance for Loan Losses The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standard ("SFAS") No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. Securities Impairment The Company evaluates each of its investments in securities, debt and equity, under guidelines contained in SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. These guidelines require the Company to determine whether a decline in value, below original cost, is other than temporary. In making its determination, management considers current market conditions, historical trends in the individual securities, and historical trends in the total market. Expectations are developed regarding potential returns from dividend reinvestment and price appreciation over a reasonable holding period (five years). Overview Net income in the second quarter 2004 was $1,042,000 or $.43 per share, compared to $1,223,000 or $.50 per share the second quarter of 2003, a decrease of 14.80% in earnings per share. Core operating earnings, (exclusive of securities gains, net of tax effect) totaled $944,000 in 2004 and $960,000 in 2003, a decrease of 1.46%. For the six months ended June 30, 2004, net income was $2,075,000 or $.86 per share compared to $2,076,000 in 2003 or $.86 per share. Net interest income through the end of the second quarter increased 3.30% compared with the prior year. Noninterest income increased 6.97% and noninterest expense increased 7.63% during the same period. On an annualized basis, return on average assets through the end of the second quarter 2004 was 1.32% and return on average shareholders' equity was 12.66%. As of June 30, 2004, assets increased 3.08%, deposits increased 1.53% and loans increased 7.01% compared to amounts at December 31, 2003. The allowance for loan losses at the end of the second quarter was $1,512,000 or ..67% of loans while shareholders' equity totaled $32,806,000. A quarterly dividend of $.18 per share was paid to shareholders of record. Results of Operations Year to Date The 2004 year to date tax equivalent net interest margin increased $173,000 or 3.20% compared to the same period in 2003. The yield on earning assets decreased .50%, while the cost of funds decreased .57% compared to the same period of 2003. These decreases resulted as maturing assets and liabilities continued to reprice at significantly lower rates. The lower market rates resulted from aggressive rate cutting by the Federal Reserve's Federal Open Market Committee (FOMC); which began in January 2001 and included thirteen separate rate cuts through June 2003. Recently the FOMC reversed its monetary policy by stating "With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured." The FOMC raised the federal rate by 1/4 percent at both its June 30 and August 10 meetings. Although the Interest Sensitivity Analysis on page 18 indicates the Company is in a liability sensitive position, management anticipates the increase in rates should prove beneficial to the net interest margin in future periods. A large percentage of rate sensitive liabilities (checking and savings) do not reprice immediately with changes in market rates, but are adjusted at the discretion of management based on funding needs and competitive factors. However, the rapid growth in the loan portfolio and competition within the Bank's market for deposit accounts could have a material effect on the speed at which Bank management adjusts rates to meet liquidity needs. 12 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations A schedule of the net interest margin for 2004 and 2003 is shown on page 17 as Table 1. Noninterest income increased $93,000 in the first six months of 2004. Exclusive of securities transactions, other noninterest income items increased $61,000, or 5.84%. Service charges on deposit accounts have increased following the implementation of an overdraft privilege program which commenced during the second quarter of 2003. Noninterest expense increased $271,000 or 7.63% through June 30, 2004. Of the total, $173,000 (an 8.56% increase) can be attributed to salaries and employee benefits. This increase includes normal salary increases, an increase in pension expense of approximately 18% and an increase in the cost of group insurance of approximately 17%. The increase in pension expense is a result of lower market rates of interest, lower earnings on investments and an increase in the number of employees covered by the plan. Group insurance costs increased due to an increase in the number of employees covered by the plan and premium increases passed through to the Bank by its primary insurance provider. Quarter Ending June 30 The Company's net income decreased $181,000 to $1.042 million in 2004 as compared to the second quarter of 2003. After adjusting to exclude securities transactions, core earnings and earnings per share decreased $14,000 or less than $.01 per share, respectively. Net interest income increased $134,000, while the net interest margin increased 6 bps to 3.87%. For the quarter, noninterest income, exclusive of securities transactions, declined slightly to $572,000 compared to $594,000 in 2003. The decline was primarily the result of a reduction in origination fees generated on mortgage loans sold on the secondary market. Noninterest expense increased 6.31%, or $115,000 in 2004. Of this amount, $82,000 related to increases in salaries and benefits expenses. Total salaries and benefits increased 8.13%, and include normal increases in base salaries, an increase in staffing of three full-time equivalent positions, and increases in group health and pension expense. Financial Condition Federal Funds Sold and Interest Bearing Bank Deposits The Company's subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest bearing bank deposits. Federal funds sold offer daily liquidity and pay a market rate of interest that was benchmarked at 1.00% by the Federal Reserve until the last day of the quarter when it was raised to 1.25%. Actual rates received vary slightly based upon money supply and demand among banks. Interest bearing bank deposits are held either in money market accounts or as short-term certificates of deposits. Balances in federal funds sold decreased due to increases in loan demand, while balances in interest bearing bank deposits increased as proceeds from maturing securities were placed in short term certificates as a temporary investment with the intent that as these mature they will fund additional loan commitments. Securities The Company's securities portfolio is held to assist the Company in liquidity and asset liability management. The securities portfolio consists of securities held to maturity and securities available for sale. Securities are classified as securities held to maturity when management has the intent and ability to hold the securities to maturity. These securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, general liquidity needs and other similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and losses on available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a part of other comprehensive income. As of June 30, 2004, the amortized cost of all securities available for sale exceeded their market value by $516,000 ($364,000 after the consideration of income taxes). Management has traditionally held debt securities (regardless of classification) until maturity and thus it does not expect these fluctuations in value of debt securities to have a direct impact on earnings. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Securities (Continued) Investments in debt securities have declined approximately two million dollars during 2004. Proceeds from maturing bonds have been used to fund loan growth during the period. The Company generally invests in relatively short-term maturities due to the uncertainty in the direction of interest rates. Recent purchases of debt securities have been primarily U.S. Treasury and Agency obligations with contractual maturities of a month or less to three years. Of the investments in securities available for sale, 17.4% are invested in equity securities, most of which are dividend producing and subject to the corporate dividend exclusion for taxation purposes. The Company believes these investments render adequate returns and have historically resulted in significant increases in value. A review of these investments as of June 30, 2004, did not reveal any additional impairment to be recognized in excess of that which was recognized in the fourth quarter of 2003. Loan Portfolio The Company operates in an agriculturally dominated area, which includes the counties of Rockingham, Page and Shenandoah in the western portion of Virginia. The Company does not make a significant number of loans to borrowers outside its primary service area. The Company is very active in local residential construction mortgages. Commercial lending includes loans to small and medium sized businesses within its service area. The allowance for loan losses (see subsequent section) provides for the risk that borrowers will be unable to repay their obligations and is reviewed quarterly for adequacy. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies, and consumer confidence. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies. While lending is geographically diversified within the service area, the Company does have some concentration in agricultural loans (primarily poultry farming). In April 2004, Pilgrim's Pride announced the planned sale or closure of its turkey processing plant in Hinton, Virginia. A group of local growers have organized the Virginia Poultry Growers Cooperative and have signed a non-binding letter of intent to purchase the plant. At present, it is not known whether this effort will be successful. Management has reviewed its poultry related loans that are contracted with Pilgrim's Pride Turkey Division and has determined that its exposure is limited due to a combination of strong collateral positions on most of the loans, the potential for some of these borrowers to contract these poultry houses with other processors, the potential to convert the houses to other uses and other sources of income for some of the borrowers. In addition to direct agricultural loans, a significant percentage of residential real estate loans and consumer installment loans are made to borrowers employed in the agricultural sector of the economy. The Company continues to monitor its past due loans closely and has not experienced higher delinquencies in this sector compared to the overall loan portfolio. Management has entered into an agreement with Gateway Bank to purchase short-term real estate loan participations. These loans have been purchased by Gateway from mortgage brokers and will be held until sold to the ultimate holder in the secondary market. All loans have firm take-out commitments and are held for periods ranging from two to sixty days, but averaging approximately fourteen days. These loans originate in several states through the country, however, a significant portion are from the state of California. Management has funded these loans with short-term liquid assets and at times through short-term borrowings. The yield on these loans is based on a discount to the prime rate, but offers a premium over other comparable short-term investments. During the second quarter, these participations averaged $10,590,000, with a maximum outstanding balance of $29,730,000. The Bank has made a commitment to purchase up to a maximum of $40,000,000 in these loans. There were no loans of this type outstanding at June 30, 2004. The first six months of 2004 resulted in an increase of $14,812,000 in loans outstanding. Most of the increase was in the real estate portfolio, both residential and commercial properties. As secondary market rates increased during the first half of the year, the Bank's in-house three and five year adjustable loan rates became more attractive and contributed to the growth in the portfolio. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Loan Portfolio (Continued) Nonperforming loans include nonaccrual loans, loans 90 days or more past due and restructured loans. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans on which the original interest rate or repayment terms have changed due to financial hardship. Nonperforming loans totaled $1,361,000 at June 30, 2004 compared to $1,614,000 at December 31, 2003. Approximately 85% of these nonperforming loans are secured by real estate. Although the potential exists for some loan losses, management believes the Bank is generally well secured and continues to actively work with these customers to effect payment. As of June 30, 2004, the Company did not hold any of real estate that was acquired through foreclosure. Allowance for Loan Losses In evaluating the portfolio, loans are segregated into loans with identified potential losses and pools of loans by type (commercial, residential, consumer, credit cards). Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of $100,000 are reviewed individually for impairment under FAS 114. A variety of factors are taken into account when reviewing these credits, including borrower cash flow, payment history, fair value of collateral, company management, industry and economic factors. Loan relationships that are determined to have no impairment are placed back into the appropriate loan pool and reviewed under FAS 5. Loan pools are further segmented into watch list, past due over 90 days and all other loans by type. Watch list loans include loans that are 60 days past due, and may include restructured loans, borrowers that are highly leveraged, loans that have been upgraded from classified or loans that contain policy exceptions (term, collateral coverage, etc.). Loss estimates on these loans reflect the increased risk associated with these assets due to any of the above factors. The past due pools contain loans that are currently 90 days or more past due. Loss rates assigned reflect the fact that these loans bear a significant risk of charge-off. Loss rates vary by loan type to reflect the likelihood that collateral values will offset a portion of the anticipated losses. The remainder of the portfolio falls into pools by type of homogenous loans that do not exhibit any of the above described weaknesses. Loss rates are assigned based on historical loss rates over the prior five years. A multiplier has been applied to these loss rates to reflect the time for loans to season within the portfolio and due to the inherent imprecision of these estimates. All potential losses are evaluated within a range of low to high. An unallocated allowance has been established to reflect other unidentified losses within the portfolio. It helps to offset the increased risk of loss associated with fluctuations in past due trends, changes in the local and national economies, and other unusual events. The Board approves the loan loss provision for the following quarter based on this evaluation and an effort is made to keep the actual allowance at or above the midpoint of the range established by the evaluation process. The allowance for loan losses of $1,512,000 at June 30, 2004 is equal to ..67% of total loans. This compares to an allowance of $1,484,000 (.70%) at December 31, 2003. Although management has slightly decreased the funding of the allowance compared to the first six months of 2003, funding for the quarter at $120,000 exceeds charge-offs by $28,000. The allowance as a percentage of loans outstanding remains well below the peer group average of 1.36%. The Bank compares favorably to the peer group in all other measures relating to the allowance as of the most recently available information, including: net losses to average loans, earnings coverage of net losses, allowance to net losses and non-current loans to gross loans. Management feels the level of the allowance is appropriate based upon the above factors and on its loan loss history, the composition of its loan portfolio, the recent downward trend in non-performing loans and collateral values of delinquent loans. The current allowance for loan losses is equal to approximately seven years of average loan losses. Based upon its thorough review of the portfolio, management is of the opinion that the allowance for loan losses fairly states the estimated losses in the current portfolio. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Allowance for Loan Losses (Continued) Net charge offs during the first six months of 2004 were $92,000, which annualizes to a loss rate of .08%. Although losses through six months of 2003 only totaled $44,000, full year losses of $219,000 were equivalent to .10%. The Bank's average loss rate in recent years of .09% is approximately one-third the loss rate of its peer group. Deposits The Company's main source of funding is customer deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. Total deposits increased $3,678,000 during the first half of 2004. Certificates of deposit decreased $3,658,000 during this period while demand deposits and savings deposits increased a total of $7,326,000, compared to December 31, 2003. Management believes this increase resulted from frequent advertising of its free checking account and accounts gained from BB&T following its takeover of the F & M National Corp. branches. Management has not offered any special rate promotions during the period to attract certificates of deposit as the growth in other deposits, use of federal funds and maturities in the securities portfolio have been sufficient to fund loan growth. Historically the Bank has had a heavier concentration in certificates of deposit than its peers. Management is willing to accept some level of run-off in certificates of deposit as the shift to lower costing deposits will result in improvements in the net interest margin. Short-term debt Short-term debt consists of federal funds purchased and commercial repurchase agreements (repos.) Commercial customers deposit operating funds into their checking account and by mutual agreement with the bank; their excess funds are swept daily into the repo accounts. These accounts are not considered deposits and are not insured by FDIC. The Bank pledges securities held in its investment portfolio as collateral for these short-term loans. Federal funds purchased are overnight borrowings obtained from the Bank's primary correspondent bank to manage short-term liquidity needs. Long-term debt Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be an important source of funding real estate loan growth. The Company's subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to fund either a fifteen-year fixed rate loan or a twenty-year loan, of which the first ten years have a fixed rate. This program allows the Bank to match the maturity of its fixed rate real estate portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes. Scheduled repayments totaled $3,764,000 in the first half of the year. Additional borrowings of $4,000,000 were obtained to assist in funding the growth in the loan portfolio. In September 2002, the Company borrowed $3 million from SunTrust Bank. This loan carries an interest rate of LIBOR + 1.10% and is variable. Payments of $230,769 plus interest began in the second quarter of 2004 and will continue for a period of thirteen quarters. Proceeds of this loan were used to provide a capital contribution to the Bank and to pay off an intercompany loan. Capital The Company seeks to maintain a strong capital position to expand facilities, promote public confidence, support current operations and grow at a manageable level. As of June 30, 2004, the Company's total risk based capital and tier 1 risk based capital ratios were 14.39% and 13.66%, respectively. Both ratios are in excess of regulatory minimums and are favorable compared with the ratios of the Company's peers. Earnings have been sufficient to allow an increase in regular quarterly dividends in 2004 over those in 2003. 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity Liquidity is the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, investments and loans maturing within one year. The Company's ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Company's management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchase of federal funds. To further meet its liquidity needs, the Bank maintains lines of credit with correspondent financial institutions. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings. In the past, growth in deposits and proceeds from the maturity of investment securities has been sufficient to fund most of the net increase in loans and investment securities. Interest Rate Sensitivity As a result of continued growth in deposits and through maturities of investments, the Bank has been able to meet its liquidity needs through the first half of 2004. 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. The Bank's membership in the federal Home Loan Bank System also provides liquidity, as the Bank borrows money that is repaid over a five to ten year period and uses the money to make fixed rate loans. The matching of long-term receivables and liabilities helps the Bank reduce its sensitivity to interest rate changes. There are no off-balance-sheet items that will impair future liquidity. The Company monitors its interest rate sensitivity periodically and makes adjustments as needed. A summary of asset and liability repricing opportunities is shown on page 18 as Table II. Stock Repurchase On June 12, 2003, the Company announced that the Board of Directors had authorized the repurchase of up to 50,000 shares of the Company's outstanding common stock. Repurchases were authorized to be made by the Company from time to time in the open market or privately negotiated transactions during the year as, in the opinion of management, market conditions warrant. The repurchased shares are accounted for as retired stock. Shares repurchased since the program was initiated through June 30, 2004 total 10,022 shares. Shares repurchased during the second quarter of 2004 totaled 3,118 shares, at an average cost of $24.99 per share. Securities and Exchange Commission Web Site The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including F & M Bank Corp., and the address is (http://www.sec.gov). 17 F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (Dollar Amounts in Thousands)
Six Months Ended Six Months Ended Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 Average Income/ Rates Average Income/ Rates Average Income/ Rates Average Income/ Rates Balance Expense Balance Expense Balance Expense Balance Expense Rate Related Income Loans 1 $222,327 $ 7,050 6.34% $200,693 $ 7,154 7.19% $230,847 $ 3,576 6.20% $200,554 $ 3,550 7.08% Federal funds sold 3,792 18 .95% 16,996 98 1.16% 3,319 8 .96% 22,855 66 1.16% Bank deposits 9,555 93 1.95% 7,633 90 2.38% 9,698 42 1.73% 8,392 42 2.00% Investments Taxable 3 40,517 638 3.15% 47,725 984 4.12% 37,558 291 3.10% 43,018 462 4.30% Partially taxable 2,3 9,675 276 5.71% 8,981 273 6.08% 9,664 144 5.96% 8,972 137 6.10% Tax exempt 2,3 375 9 4.80% 375 5 5.33% ----- ------- ----- ------- ------ ----- ------- ----- ----- ------ ------ ----- Total Earning Assets 286,241 8,084 5.65% 282,028 8,599 6.15% 291,461 4,066 5.58% 283,791 4,257 6.01% ------- ----- ------ ------- ------ ----- ------ ------ ------ ------- ------ ----- Interest Expense Demand deposits 37,887 103 .54% 34,246 114 .67% 37,859 52 .55% 34,886 56 .64% Savings 48,731 219 .90% 43,080 273 1.28% 49,546 111 .90% 43,772 131 1.20% Time deposits 120,077 1,657 2.76% 127,185 2,116 3.36% 119,720 819 2.74% 127,246 1,042 3.28% Short-term debt 9,693 37 .76% 7,628 27 .71% 12,641 28 .89% 7,724 14 .73% Long-term debt 23,114 490 4.24% 30,372 664 4.41% 22,466 236 4.20% 29,384 321 4.38% ------ ----- ---- ------ ----- ---- ------ ----- ----- -------- ----- ----- Total Interest Bearing Liabilities 239,502 2,506 2.09% 242,511 3,194 2.66% 242,232 1,246 2.06% 243,012 1,564 2.58% ------- ------ ----- ------ ----- ----- ------ ------ ----- --------- ------ ----- Net Interest Income 1 $ 5,578 $ 5,405 $ 2,820 $ 2,693 ======== ===== ===== ====== Net Yield on Interest Earning Assets 1 3.90% 3.86% 3.87% 3.81% ===== ==== ===== =====
1 Interest income on loans includes loan fees. 2 An incremental 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. 4 Average balances include non-accrual loans. 18 TABLE II F & M BANK CORP. INTEREST SENSITIVITY ANALYSIS JUNE 30, 2004 (In Thousands of Dollars) 0 - 3 4 - 12 1 - 5 Over 5 Not Months Months Years Years Classified Total Uses of Funds Loans: Commercial $29,291 $ 5,874 $13,207 $ 2,088 $ $50,460 Installment 307 1,052 17,085 4,392 22,836 Real estate 13,435 20,575 94,343 23,033 151,386 Credit cards 1,361 1,361 Interest bearing bank deposits 3,911 5,544 891 10,346 Investment securities 8,651 6,740 29,074 14,692 59,157 ------ ------ ------ ------ ------ ------ Total 56,956 39,785 154,600 29,513 14,692 295,546 ------ ------ ------- ------ ------ ------- Sources of Funds Demand deposits 11,148 20,985 4,919 37,052 Savings deposits 10,292 30,877 10,292 51,461 Certificates of deposit $100,000 and over 3,162 9,729 9,394 22,285 Other certificates of deposit 16,450 34,948 44,830 96,228 Short-term borrowings 11,491 11,491 Long-term debt 1,772 6,745 15,324 1,179 25,020 ------ ------ ------ ------ ----- ------ Total 32,875 72,862 121,410 16,390 243,537 ------ ------ ------- ------ ----- ------- Discrete Gap 24,081 (33,077) 33,190 13,123 14,692 52,009 Cumulative Gap 24,081 (8,996) 24,194 37,317 52,009 Ratio of Cumulative Gap 8.15% (3.04)% 8.19% 12.63% 17.60% to Total Earning Assets Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities at June 30, 2004. In preparing the above table no assumptions are made with respect to loan prepayments. 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 of deposits, which have no stated maturity dates, were derived from guidance contained in FDICIA 305. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risk from the information provided in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company's 2003 Form 10-K. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as F & M Bank Corp. that file periodic reports under the Securities Exchange Act of 1934 (the "Act") are required to include in those reports certain information concerning the issuer's controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We have established disclosure controls and procedures to ensure that material information related to F & M Bank Corp. is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. As required, we evaluate the effectiveness of these disclosure controls and procedures on a quarterly basis, and have done so as of the end of the period covered by this report. Based on this evaluation, F & M Bank Corp.'s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that F & M Bank Corp.'s disclosure controls and procedures were operating effectively as designed as of the date of such evaluation. Changes in Internal Controls During the period reported upon, there were no significant changes in the internal controls of F & M Bank Corp. pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls. 20 Part II Other Information Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities - Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - On May 8, 2004, the stockholders held their annual meeting. The following items were approved by the shareholders by the required majority: 1) Election of the Board of Directors as proposed in the proxy material without any additions or exceptions. Votes Votes "For" by "Against" by Proxy Proxy Abstain Thomas L. Cline 1,799,684 15,081 2,193 Robert L. Halterman 1,800,548 14,217 2,193 Michael W. Pugh 1,800,548 14,217 2,193 2) Appointment of S.B. Hoover & Co. LLP. as independent accountants as proposed in the proxy materials; 1,815,658 votes for, 800 votes against, 500 abstained. Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on 8-K (a)Exhibits 3 i Restated Articles of Incorporation of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s 2001 Form 10-K filed March 1, 2002. 3 ii Amended and Restated Bylaws of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s 2001 Form 10-K filed March 1, 2002. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith). 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). 32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). (b)Reports on Form 8-K The Company did not file any reports on Form 8-K for the quarter ending June 30, 2004. 21 Signatures Pursuant to the requirements 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. /s/ DEAN W. WITHERS ----------------------------------- Dean W. Withers President and Chief Executive Officer /s/ NEIL W. HAYSLETT ----------------------------------- Neil W. Hayslett Senior Vice President and Chief Financial Officer August 13, 2004 EX-31 2 exhibit311for10q604.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 USC Section 1350 (A) and (B)) I, Dean W. Withers, certify that: 1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 13, 2004 /s/ DEAN W. WITHERS ------------------------- Dean W. Withers President and Chief Executive Officer A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request. EX-31 3 exhibit312for10q604.txt EXHIBITI 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 USC Section 1350 (A) and (B)) I, Neil W. Hayslett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 13, 2004 /s/ NEIL W. HAYSLETT ------------------------- Neil W. Hayslett Senior Vice President & Chief Financial Officer A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 4 exhibit321for10q604.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 USC ss. 1350) The undersigned, as the President and Chief Executive Officer, Senior Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual's knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2004, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated. The foregoing certification is made pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law. /s/ DEAN W. WITHERS ------------------------ Dean W. Withers President and Chief Executive Officer /s/ NEIL W. HAYSLETT ------------------------ Neil W. Hayslett Senior Vice President & Chief Financial Officer Date: August 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----