-----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, MrPKaOadxt3Tx5yoDpQujE0a4sqH19YDKruOrn6TbmUv2+4Q2oEVp+sWrDyESG4Z vWfRPoB2EdzGd5NwjQnYPg== 0000930609-98-000004.txt : 19980331 0000930609-98-000004.hdr.sgml : 19980331 ACCESSION NUMBER: 0000930609-98-000004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE 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: 10KSB SEC ACT: SEC FILE NUMBER: 000-13273 FILM NUMBER: 98577465 BUSINESS ADDRESS: STREET 1: PO BOX F CITY: TIMBERVILLE STATE: VA ZIP: 22853 BUSINESS PHONE: 7038968941 MAIL ADDRESS: STREET 1: DRAWER F CITY: TIMBERVILLE STATE: VA ZIP: 22853 10KSB 1 LIVE FILING FOR 10KSB SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1997 Commission file number: 0-13273 F & M Bank Corp. (Exact name of registrant as specified in its charter) Virginia 54-1280811 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box F, Timberville, Virginia 22853 (Address of principal executive offices) (Zip Code) Issuer's telephone number including area code: (540) 896-8941 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock - $5 Par Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ..X. No .... Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for its most recent fiscal year: $14,405,000 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: As of February 24, 1998 - $37 average bid price; $37 average ask price. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of March 1, 1998 - 818,654 DOCUMENTS INCORPORATED BY REFERENCE: None LOCATION OF EXHIBIT INDEX The index of exhibits is contained in Part IV herein on page 49. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X 2 TABLE OF CONTENTS Part I Page Item 1. Description of Business 3 General Competition Regulation and Supervision Item 2. Description of Property 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 5 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 7. Financial Statements 21 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 46 Part III Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 46 Item 10. Executive Compensation 47 Item 11. Security Ownership of Certain Beneficial Owners and Management 48 Item 12. Certain Relationships and Related Transactions 49 Part IV Item 13. Exhibits and Reports on Form 8-K 49 Signatures 50 3 Part I Item 1. Description of Business General F & M Bank Corp., incorporated in Virginia in 1983, is a one-bank holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, and owns 100% of the outstanding stock of its two affiliates, Farmers & Merchants Bank (Bank) and TEB Life Insurance Company (TEB). Farmers & Merchants Financial Services, Inc. (FMFS) is a wholly-owned subsidiary of Farmers & Merchants Bank. Farmers & Merchants Bank was chartered on April 15, 1908, as a state chartered bank under the laws of the State of Virginia. TEB was incorporated on January 27, 1988, as a captive life insurance company under the laws of the State of Arizona. FMFS is a Virginia chartered corporation and was incorporated on February 25, 1993 (as Timway Insurance Agency, Inc.). The Bank offers all services normally offered by a full-service commercial bank, including commercial and individual demand and time deposit accounts, repurchase agreements for commercial customers, commercial and individual loans, trusts, and drive-in banking services. TEB was organized to re-insure credit life and accident and health insurance currently being sold by the Bank in connection with its lending activities. FMFS was organized to write title insurance and to provide other financial services to customers of Farmers & Merchants Bank. The operations of F & M Bank Corp., the Bank, TEB and FMFS are conducted in Timberville, Virginia, at offices located at 205 South Main Street. The Bank has branches at 127 West Rockingham Street, Elkton, Virginia, at the corner of Route 259 and 259 Alternate, Broadway, Virginia, at Highway 33 West at Elkton Plaza, Elkton, Virginia, and at 100 Plaza Drive, Bridgewater, Virginia. On December 31, 1997, F & M Bank Corp., the Bank, TEB and FMFS had forty-seven full time and nineteen part time employees. No one employee devotes his services full time to the F & M Bank Corp. Competition The Bank's offices compete with three national banks, five state chartered banks and two national chartered savings banks. The main office and the Broadway branch serve the northern portion of Rockingham County, Virginia and the southwestern portion of Shenandoah County. The Elkton branches serve the town of Elkton and the eastern portion of Rockingham County. The Bridgewater office serves the Bridgewater area including the southern portion of Rockingham County and the northwestern portion of Augusta County. Bank competition in the area of all offices is very strong. The Bank makes all types of commercial and consumer loans and historically has had a heavy concentration of home and agricultural real estate loans. The Bank experienced a good loan demand throughout 1997 due to improving local and national economies but this was true of the entire market area served. The local economy is relatively diverse with strong employment in the agricultural, manufacturing, service and governmental sectors. 4 Regulation and Supervision The operations of F & M Bank Corp. and the Bank are subject to federal and state statutes which apply to state member banks of the Federal Reserve System. The stock of F & M Bank Corp. is subject to the registration requirements of the Securities Act of 1934. F & M Bank Corp. is subject to the periodic reporting requirements of the Securities Exchange Act of 1934. These include, but are not limited to, the filing of annual, quarterly and other current reports with the Securities and Exchange Commission. F & M Bank Corp., as a bank holding company, is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "Act"). It is registered as such and is supervised by the Federal Reserve Board. The Act requires F & M Bank Corp. to secure the prior approval of the Federal Reserve Board before F & M Bank Corp. acquires ownership or control of more than 5% of the voting shares, or substantially all of the assets of any institution, including another bank. As a bank holding company, F & M Bank Corp. is required to file with the Federal Reserve Board an annual report and such additional information as it may require pursuant to the Act. The Federal Reserve Board may also conduct examinations of F & M Bank Corp. and any or all of its subsidiaries. Under Section 106 of the 1970 Amendments to the Act and the regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, provision of credit, sale, or lease of property or furnishing of services. Federal Reserve Board regulations permit bank holding companies to engage in nonbanking activities closely related to banking or to managing or controlling banks. These activities include the making or servicing of loans, performing certain data processing services, and certain leasing and insurance agency activities. F & M Bank Corp. formed a captive life insurance company in 1988 and began operations in July of 1989. This entity acts as the primary reinsurer for credit life insurance sold through the Bank. In 1992, F & M Bank Corp. entered into an agreement with the City Light Development Corp. of Winchester, Virginia to purchase an equity position in the Johnson Williams Project. This project provides housing for the elderly and lower income tenants. Since 1994, the Company has entered into agreements with the Housing Equity Fund of Virginia to purchase equity positions in the Housing Equity Fund of Virginia II, III and IV. These funds will provide housing for low income persons in Virginia. Approval of the Federal Reserve Board is necessary to engage in any of the other activities described above or to acquire interests engaging in these activities. The Bank as a state member bank is supervised and regularly examined by the Virginia Bureau of Financial Institutions and the Federal Reserve Board. Such supervision and examination by the Virginia Bureau of Financial Institutions and the Federal Reserve Board is intended primarily for the protection of depositors and not for the stockholders of F & M Bank Corp. The information required by Guide 3 has been included under Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations. 5 Item 2. Description of Property The main office of Farmers & Merchants Bank is located at 205 South Main Street in Timberville, Virginia. The building is of brick veneer construction and contains an automatic teller machine. This office is situated on 1.32 acres of land. One branch office is situated at 127 West Rockingham Street in Elkton, Virginia. This office is of brick veneer construction and is situated on one acre of land. The Broadway branch is located on the corner of Virginia Route 259 and Route 259 Alternate in Broadway, Virginia. This office is constructed primarily of concrete, steel and wood frame and contains an automatic teller machine. The office is situated on one acre of land. The Bank established a branch in the Elkton Plaza shopping center in 1989 and it is of brick veneer construction, includes drive in facilities and has an automatic teller machine. The Bank opened a new facility in Bridgewater, Virginia, in 1995. The office is constructed of brick veneer, contains an automatic teller machine and is situated on a .6 acre lot at 100 Plaza Drive, Bridgewater, VA. All properties are owned by the Bank and are in good condition. Item 3. Legal Proceedings Management is not aware of any pending or threatened litigation in which the Company or its subsidiaries may be involved as a defendant. In the normal course of business the Bank periodically must initiate suits against borrowers as a final course of action in collecting past due loans. Item 4. Submission of Matters to a Vote of Security Holders F & M Bank Corp. has not submitted any matters to the vote of security holders for the last quarter ending December 31, 1997. Part II Item 5. Market for Common Equity and Related Stockholder Matters (a) Market Information Farmers & Merchants Bank acts as a transfer agent for F & M Bank Corp. There have been sufficient inquiries on the National Stock Exchange so that the holding company is required to report on any stock or cash dividend to the National Association of Security Dealers. The 'bid' and 'asked' price of the holding company stock is not published in any newspaper. Scott & Stringfellow in Richmond, Virginia, makes a market for the stock and the firm has provided market quotes in recent years. The prices presented are bid prices which represent prices between broker-dealers and don't include retail mark-ups and mark-downs or any commission to the dealer. The prices may not reflect actual transactions and other transactions may have occurred which were not reported to the Company. 6 (a) Market Information (Continued) The following schedule shows the range of reported trade prices and dividends per share declared for 1994 through 1996: Dividends Declared High Low 1995 1st quarter .20 28.13 28.00 2nd quarter .20 28.50 28.13 3rd quarter .20 30.00 29.50 4th quarter .20 30.50 29.75 1996 1st quarter .20 34.00 29.50 2nd quarter .22 34.50 31.50 3rd quarter .22 34.00 31.00 4th quarter .22 33.50 32.00 1997 1st quarter .22 35.00 33.00 2nd quarter .26 35.75 33.00 3rd quarter .26 35.00 33.50 4th quarter .29 37.88 34.00 (b) Stockholders On December 31, 1997, there were 1,104 holders of F & M Bank Corp. common stock. (c) Dividends The cash dividends declared are shown in the above table. The principal source of income of F & M Bank Corp. is dividends paid by its subsidiary bank. See Note 16 to the consolidated financial statements for a discussion of the restrictions on the ability of the subsidiary bank to transfer funds to F & M Bank Corp. in the form of cash dividends. 7 Item 6. Management's Discussion and Analysis of Financial Conditions and Results of Operations OPERATIONS ANALYSIS - 1997 Compared to 1996 Overview Net income for 1997 increased $566,775 or 23.22% from 1996 earnings. Net income per share increased from $2.99 in 1996 to $3.67 in 1997. The Company's improved earnings were due to a combination of factors. See Table I (page 17) for a five year summary of operations. Net Interest Margins The net interest margin on earning assets on a tax equivalent basis increased in 1997 from 1996. The Company's net yield on average earning assets of 4.61% is in line with its peer group. Yields on loans decreased from 9.25% to 9.18%. In 1997, real estate loan rates decreased fourteen basis points due to a general decline in rates of interest in the market for real estate loans. Commercial loans increased eight basis points while installment loans showed a slight decrease of three basis points. To balance its interest rate risk on fixed rate loans, the Bank borrows from the Federal Home Loan Bank at fixed rates which are determined by market conditions. This program has helped the Bank meet the needs of its customers who might otherwise have gone to another financial institution seeking fixed rate loans. Tax equivalent yields on securities increased to 6.86% in 1997 from 6.66% in 1996. This increase was primarily a result of a greater level of investments in higher yielding agency securities and commercial debt. Average investments decreased 5.35% from the previous year. The Company's philosophy of investing only in securities with short to intermediate maturities allows it to be responsive to interest rate movements within the market place. The rates paid on interest bearing deposits decreased slightly to 4.45% in 1997 from 4.46% in 1996. Rates paid on time deposits decreased thirteen basis points in 1997 due to decreased rates on renewed certificates of deposit. Rates paid on savings deposits decreased thirteen basis points in 1997. The Bank offers a tiered rate savings account which is designed to be an alternative to the certificate of deposit in times of changing interest rates. This savings account rate can be changed daily and gives the Bank the ability to adjust rates quickly in response to changes in market rates. Interest rates paid on long-term indebtedness with the Federal Home Loan Bank of Atlanta (FHLB) was virtually unchanged in 1996 compared to rates in effect in previous years. Borrowings through the FHLB are incurred only to balance the rate exposure on fixed rate loans and are used to fund loans with variable rate features. Yields on repurchase agreements declined eight basis points in line with declining market rates. Table II (page 18) contains a complete yield analysis for the last three years and Table III (page 19) contains the rate/volume changes in these years. 8 Other Income The Company recognized $345,262 in gains on investments in 1997, most of which were related to sale of corporate stock. The Company purchased the equities anticipating long-term appreciation. When the equities reached a pre-determined selling price, they were sold. The previous year the Company recognized gains of $235,105 as a result of the disposition of some of the above referenced equities. Noninterest income other than security gains increased 24.01% in 1997 from 1996 levels. This increase was attributable to an increase in service charges on deposit accounts following the implementation of higher overdraft fees and other account service charges. Other Expenses Noninterest expense increased $158,690 or 4.65% in 1997 over 1996 levels. Salaries and employee benefits increased 6.08% due to increased staffing and normal salary increases. Other noninterest expenses increased $41,697 (2.81%). The increase was spread over a variety of expense categories, with no single area increasing significantly. The Company's overall cost of operations relative to asset size compares favorably to its peer group and to larger statewide institutions. 1996 COMPARED TO 1995 OPERATIONS Net income in 1996 increased 15.37% over net income in 1995. The increase was a result of the combined effect of an eight basis point increase in the yield on earning assets and a five basis point decrease in the cost of interest bearing liabilities. Gains on securities transactions decreased $340,691 or 59.17%. Due to the continuing improvement in the national economy, the Company chose to sell fewer common stocks during 1996. This action was consistent with the Company's strategy of holding common stocks for the long-term appreciation potential. Other noninterest income increased 14.52% due to increased trustee fees and service charges on deposit accounts. Noninterest expense increased $76,719 or 2.30% in 1996 over 1995 levels. Salaries and employee benefits decreased 1.53% due to officer retirements and reductions in health insurance premiums. Equipment and occupancy expenses increased 10.94% due to greater depreciation expense for the new Bridgewater office and additional expenses incurred to upgrade the Bank's computer system. Deposit insurance decreased due to a decline in the insurance rate assessed. Other noninterest expenses increased 6.37% due mainly to the advertising expense, data processing fees related to the computer upgrade, consulting fees and additional legal fees associated with higher loan demand. This increase was tempered by a reduction in FDIC insurance which resulted from changes in insurance rates in 1995. The Company's overall cost of operations relative to asset size compares favorably to its peer groups and to larger statewide institutions. 9 UNCERTAINTIES AND TRENDS General Management is of the opinion that loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not (i) represent or result from trends or uncertainties which are reasonably expected to materially impact future operating results, liquidity, or capital resources, or (ii) represent material credits which any available information causes serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Management is not aware of any known trends, events or uncertainties that will have or that are reasonably likely to have a material effect on the issuers liquidity, capital resources or operations of the issuers. Additionally, management is not aware of any current recommendations by the regulatory authorities which, if they were to be implemented, would have such an effect. Year 2000 Preparedness The Bank has formed a committee to oversee its year 2000 plan implementation. The Bank has inventoried all personal computers, software and equipment that could be affected by the year 2000 date change in preparation for testing its equipment. Correspondence regarding year 2000 preparedness has been received from some vendors and letters are being prepared requesting updated status reports from these and other vendors. Letters will also be sent to significant loan customers that appear to have the potential for material impact in the event of a year 2000 failure. Funds totaling $3,000 per month have been budgeted to cover expenses related to consulting fees, hardware and software replacements. A legal firm has been engaged to assist in the development of a comprehensive year 2000 plan and for review of vendor correspondence and major contracts. Management does not anticipate other events or uncertainties related to the year 2000 that are reasonably likely to have a material effect on the issuers liquidity, capital resources or operations. 10 BALANCE SHEET INVESTMENT SECURITIES Average balances in investment securities declined 5.35% in 1997 compared to 1996. Continued strong loan demand absorbed all funds derived from deposit growth and additional long-term borrowing. The Company maintains a high level of earning assets in investment securities to provide for liquidity and as security for public indebtedness. A schedule of investment securities is shown in note 4 of the consolidated financial statements. The Company accounts for investments under Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires all securities to be classified at the point of purchase as trading securities, available for sale or held to maturity. See note 2d of the consolidated financial statements for a discussion of the accounting policies for investments. The Company values its debt securities based on information supplied by its correspondent banks for actively traded obligations and by market comparison with similar obligations for non-rated investments. Investments in common stocks are based on the last trades as provided by the Wall Street Journal. Yields and Maturities The yields on taxable and nontaxable investments for 1997, 1996 and 1995 are shown in the yield analysis in Table II (page 18). The carrying amount and estimated market value of debt securities (in thousands of dollars) at December 31, 1997 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities Held to Maturity Carrying Market Average Amount Value Yield Due in one year or less $ 5,933 $ 5,939 6.08 Due after one year through five years 8,890 8,931 6.42 Due after five years through ten years 996 1,001 7.07 Due after ten years 1,726 1,716 6.70 ------- ------- ----- Total $ 17,545 $ 17,587 6.37 ======= ======= ===== Securities Available for Sale Amortized Market Average Cost Value Yield Due in one year or less $ 1,998 $ 2,004 6.41 Due after one year through five years 5,508 5,551 6.39 Due after five years through ten years 903 909 6.76 Due after ten years 2,252 2,271 6.89 ------- ------- ----- 10,661 10,735 6.53 Equity securities 6,634 10,436 8.70 ------- ------- ----- Total $ 17,295 $ 21,171 7.36 ======= ======= ===== Yields on tax exempt securities and equities are stated at tax equivalent yields. Management's philosophy is to keep the maturities of investments relatively short which allows the Company to better match deposit maturities with investment maturities and thus react more quickly to interest rate changes. 11 INVESTMENT SECURITIES (CONTINUED) Mortgage-backed Securities The Company's investment in mortgage-backed securities as of December 31, 1997, is shown in the following schedule: Book Market Issuer Value Value Pass through obligations FNMA & FHLMC $2,110,509 $2,111,446 GNMA 2,480,736 2,503,101 --------- --------- 4,591,245 4,614,547 Obligations with fixed principal payments FNMA & FHLMC 2,206,787 2,196,943 --------- --------- Total $6,798,032 $6,811,490 ========= ========= The mortgage-backed securities purchased by the Company are guaranteed by the issuing agency and are all rated AAA. Obligations issued by the GNMA are backed by FHA or VA insured mortgages and obligations issued by the FNMA or FHLMC are backed by conventional mortgages. Bonds with fixed principal payments have a market risk and interest rate risk similar to other federal agency securities. The pass through obligations are sensitive to prepayment and extension risk which affect the securities exposure to market risk. As interest rates move higher, prepayments slow down and the average life increases. As interest rates move lower, the prepayments increase and the average life decreases. The Company's mortgage-backed securities were purchased at a premium which will cause yields to rise as interest rates and average life increases. Conversely, the yields will fall as interest rates fall and the average life decreases. Equity Investments The Company has investments in common and preferred stock totaling $6,634,360 at December 31, 1997, with an estimated market value of $10,435,736. The investments include common stocks of other southeastern region bank holding companies and Dow Jones Industrial Average stocks, which were purchased with the objective of realizing capital gains. Preferred stocks of public utilities and other quality companies have been purchased to obtain competitive yields after the 70% dividend exclusion. The market value of these investments is sensitive to general trends in the stock market and fluctuations in interest rates. Corporate Bonds The Company has invested in high quality corporate debt obligations. The estimated market value at December 1997 of the Company's corporate bonds was $8,297,677 compared with book value of $8,248,144. The Bonds were purchased as short-term investments and maturities extend to February 5, 2001. 12 RISK ELEMENTS IN THE LOAN PORTFOLIO The Company's loan portfolio totaled $123,190,165 at December 31, 1997 compared with $111,545,235 at the beginning of the year. The Company's policy has been to make conservative loans that are held for future interest income. Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the financial condition of the borrower. The Company's commercial and agricultural loans increased .47% during 1997 to $27,048,927. The composition of the loans as of December 31, 1997 is shown in the following schedule: Commercial and Agricultural Loans (In thousands) Secured by Real Estate Other Total Commercial $ 11,378 $ 5,223 $ 16,601 Agricultural 7,232 1,447 8,679 Multi family residential 1,769 1,769 -------- ------- ------- $ 20,379 $ 6,670 $ 27,049 ======== ======= ======= The majority of commercial loans are made to small retail and service businesses. The Company's mortgage loans increased 7.28% from $68,614,474 to $73,610,681 at December 31, 1997. Residential real estate loans are generally made for a period not to exceed 30 years and are secured by first deed of trusts which do not exceed 95% of the appraised value. If the loan to value ratio exceeds 90% the Company requires additional collateral, guarantees or mortgage insurance. On approximately 80% of the real estate loans, interest is adjustable after each three or five year period. Fixed rate loans are generally made for a fifteen year period or a twenty year period with an interest rate adjustment after 10 years. Since 1992, fixed rate real estate loans have been funded with fixed rate borrowings from the Federal Home Loan Bank, which allows the Company to control its interest rate risk. In addition, the Company makes home equity loans secured by second deeds of trust not to exceed 90% of the appraised value. Home equity loans are made for three or five year periods at a fixed rate and as a revolving line of credit. The Company's consumer installment loans increased 38.61% to $16,977,224 at December 31, 1997. Consumer loans are made for a variety of reasons, however, approximately 59% of the loans are secured by automobiles and trucks. The Company's market area has a stable economy which tends to be less cyclical than the national economy. Major industries in the market area include agricultural production and processing, higher education, retail sales, services and light manufacturing. The agricultural production and processing industry is a major contributor to the local economy and its performance and growth tend to be cyclical in nature, however, its impact is offset by other stable industries in the trade area. A large percentage of the agricultural loans are made to poultry growers. In the past two years, the poultry industry has suffered due to high grain prices, excess supplies of all types of meat and high mortality rates among turkey poults. In addition to direct agricultural loans, a large percentage of residential real estate loans and consumer installment loans are made to borrowers whose income is derived from the agricultural sector of the economy. Although the Company has not experienced elevated loan delinquency rates through the end of 1997, if these conditions persist the Company would expect greater delinquency rates and more problem loans in the future. During 1997, real estate values in the Company's market area for commercial, agricultural and residential property increased, on the average, between 2% and 5% depending on the location and type of property. Approximately 80% of the Company's loans are secured by real estate, however, policies relating to appraisals and loan to value ratios are adequate to control the related risk. 13 RISK ELEMENTS IN THE LOAN PORTFOLIO (CONTINUED) Unemployment rates in the Company's market area tend to be below both the national and state averages. The unemployment rate for the month of December 1997 for Rockingham County was 2.0% compared with 3.1% for Virginia and 4.7% for the nation. The unemployment rate for Rockingham County has improved since December 1996 when the rate was 2.2%. The trend in employment in the area has a positive effect on the ability of borrowers to repay loans. The following table shows the Company's loan maturity distribution (in thousands of dollars) as of December 31, 1997: Maturity Range Less Than 1-5 Over Loan Type 1 Year Years 5 Years Total --------- --------- ----- ------- ----- Commercial and Agricultural Loans $ 4,272 $ 15,042 $ 7,735 $ 27,049 Real Estate - mortgage 2,386 1,667 69,558 73,611 Real Estate - construction 4,708 4,708 Consumer - installment/other 3,853 13,909 60 17,822 -------- ------- ------- ------- Total $ 15,219 $ 30,618 $ 77,353 $123,190 ======== ======= ======= ======= Loans with predetermined rates $ 1,838 $ 16,326 $ 10,604 $ 28,768 Loans with variable or adjustable rates 13,381 14,292 66,749 94,422 -------- ------- ------- ------- Total $ 15,219 $ 30,618 $ 77,353 $123,190 ======== ======= ======= ======= NONACCRUAL AND PAST DUE LOANS The following table shows loans placed in a nonaccrual status and loans contractually past due 90 days or more as to principal or interest payments: December 31, 1997 1996 1995 Nonaccruing loans None None None Loans past due 90 days or more $ 824,782 $1,429,993 $ 379,863 Percentage to total loans .67% 1.28% .39% Interest accruals are continued on past due, secured loans until the principal and accrued interest equal the value of the collateral and on unsecured loans until the financial condition of the creditor deteriorates to the point that any further accrued interest would be determined to be uncollectible. At December 31, 1997 and 1996, there were no restructured loans on which interest was accruing at a reduced rate or on which payments had been extended. POTENTIAL PROBLEM LOANS At December 31, 1997, management had identified loans of $1,708,288 as potential problem loans. These loans are not classified as nonaccrual or past due and management does not anticipate losses on these loans as collateral is considered adequate. The status of these loans is monitored closely and losses, if any, would not be material. Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. 14 LOAN CONCENTRATIONS At December 31, 1997, no industry category exceeded ten percent of total loans. LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES For each period presented, the provision for loan losses charged to operations is based on management's judgment after taking into consideration all factors connected with the collectibility of the existing portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors. Specific factors considered by management in determining the amounts charged to operations include internally generated loan review reports, past due reports and historical loan loss experience. This review also considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates nonperforming loans relative to their collateral value and makes appropriate adjustments to the allowance for loan losses when needed. The Bank has experienced insignificant loan losses in each of the last three years. Based on historical losses, delinquency rates, a thorough review of the loan portfolio and after considering the elements of the preceding paragraph, management is of the opinion that the allowance for loan losses is adequate to absorb future losses in the current portfolio. A summary of the activity in the allowance for loan losses for 1997, 1996, and 1995 follows: 1997 1996 1995 ---- ---- ---- Balance at beginning of period $1,003,371 $ 862,766 $ 744,513 --------- -------- -------- Provision charged to expenses 180,000 226,000 164,500 --------- -------- -------- Loan losses: Commercial 9,635 11,239 25,630 Installment 91,510 82,482 29,726 Real estate 9,123 9,143 --------- -------- -------- Total loan losses 101,145 102,844 64,499 --------- -------- -------- Recoveries: Commercial 7,213 700 3,782 Installment 31,310 16,649 10,048 Real Estate 100 4,422 --------- -------- -------- Total recoveries 38,523 17,449 18,252 --------- -------- -------- Net loan losses 62,622 85,395 46,247 --------- -------- -------- Balance at end of period $1,120,749 $1,003,371 $ 862,766 ========= ========= ======== Allowance for loan losses as a percentage of loans .91% .90% .88% Ratio of net loan losses during the period to average loans outstanding during the period .05% .08% .05% 15 LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) The Company has allocated the allowance according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within each of the above categories of loans. The allocation of the allowance as shown below should not be interpreted as an indication that loan losses in future years will occur in the same proportions or that the allocation indicates future loan loss trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio. The following table shows the balance and percentage of the Company's allowance for loan losses allocated to each major category of loans:
At December 31 1997 1996 1995 Percent Percent Percent of of of Loans Loans Loans Percent in Percent in Percent in of Category of Category of Category Allow- to Total Allow- to Total Allow- to Total Amount ance Loans Amount ance Loans Amount ance Loans (Dollars in Thousands) Commercial $ 376 34% 22% $ 372 37% 24% $ 285 33% 26% Real estate mortgage 370 33 64 366 36 64 233 27 63 Installment 255 22 14 185 19 12 276 32 11 Unallocated 120 11 80 8 69 8 ----- -- --- ----- --- --- ----- --- Total $1,121 100% 100% $1,003 100% 100% $ 863 100% 100% ===== === === ===== === === ===== === ===
DEPOSITS The Bank recognized an increase in year end deposits in 1997 of 1.41% with an increase in average deposits for the year of 7.53%. Most of the year end increase can be attributed to an increase in noninterest bearing deposits. The Bank has traditionally shunned brokered and large deposits believing that they were unstable and thus not desirable. This has proven to be a good strategy as the local deposit base is considered very stable and small increases in rates above the competition have resulted in deposit gains in past years. Certificates of deposit over $100,000 totaled $6,539,282 at December 31, 1997. The maturity distribution of these certificates is as follows: Less than 3 months $1,418,007 3 to 12 months 2,635,855 1 year to 5 years 2,485,420 Total $6,539,282 16 STOCKHOLDERS' EQUITY Total stockholders' equity increased $3,776,042 or 19.74% in 1997. Earnings retained from operations and unrealized gains on common stocks were the primary source of the increase. As of December 31, 1997, the book value per share was $27.98 compared to $23.36 as of December 31, 1996. Dividends are paid to the stockholders on a quarterly basis in uniform amounts, unless unexpected fluctuations in net income indicate a change to this policy is needed. Banking regulators have established a uniform system to address the adequacy of capital for financial institutions. The rules require minimum capital levels based on risk adjusted assets. Simply stated, the riskier an entity's investment, the more capital it is required to maintain. The Bank, as well as the holding company, is required to maintain these minimum capital levels. The two types of capital guidelines are Tier I capital (referred to as core capital) and Tier II capital (referred to as supplementary capital). At December 31, 1997, the Company had Tier I capital of 17.46% of risk weighted assets and combined Tier I and II capital of 18.41% of risk weighted assets. Regulatory minimums at this date were 4% and 8%, respectively. The Bank has maintained capital levels far above the minimum requirements throughout the year. In the unlikely event that such capital levels are not met, regulatory agencies are empowered to require the Company to raise additional capital and/or reallocate present capital. In addition, the regulatory agencies have issued guidelines requiring the maintenance of a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by actual total assets. The regulators have established a minimum of 3% for this ratio, but can increase the minimum requirement based upon an institution's overall financial condition. At December 31, 1997, the Company reported a leverage ratio of 12.04%. The Bank's leverage ratio was also above the minimum. SHORT-TERM BORROWINGS The information concerning short-term borrowings is shown in Note 9 to the financial statements. LIQUIDITY AND INTEREST SENSITIVITY Liquidity as of December 31, 1997 remains adequate. The Bank historically has had a stable core deposit base and, therefore, does not have to rely on volatile funding sources. Because of the stable core deposit base, changes in interest rates should not have a significant effect on liquidity. During 1997, the Bank used maturing investments, deposit growth and a reduction in short-term investments to meet its liquidity needs. The Bank was a seller of federal funds for most of 1997. The Bank's membership in the Federal Home Loan Bank System also provides liquidity, as the Bank borrows money that is repaid over a ten-year period and uses the money to make fixed rate loans. The matching of the long-term receivables and liabilities helps the Bank reduce its sensitivity to interest rate changes. The Company reviews its interest rate gap periodically and makes adjustments as needed. As of September 30, 1996, adjusted volatile liabilities equaled minus .60% of total assets as compared to plus 2.54% of the Company's peer group. The greater negative position indicates the better liquidity. Therefore, our adjusted volatile liabilities are much better than those of our peers. Temporary investments to volatile liabilities were 110.29% compared with 116.24% to the peer group; i.e., for every $100.00 in volatile liabilities, the Company has $110.29 in short-term investments. The Company's peer group had $116.24 of short-term investments. Thus, the Company has similar liquidity to the average bank in its peer group. There are no off-balance-sheet items that will impair future liquidity. Table IV (page 20) contains an analysis which shows the repricing opportunities of earning assets and interest bearing liabilities as of December 31, 1997. At December 31, 1997, the Company had a cumulative Gap Rate Sensitivity Ratio of 26.26% for the one year repricing period. This generally indicates that earnings would improve in a declining interest rate environment as liabilities reprice more quickly than assets. Conversely, earnings would probably decrease in periods during which interest rates are increasing. Management constantly monitors the Company's interest rate risk and has decided that the current position is an acceptable risk for a well capitalized community bank operating in a rural environment. 17 Table I F & M BANK CORP. SELECTED OPERATING INFORMATION
Years Ending December 31 (In Thousands, Except per Share Information) 1997 1996 1995 1994 1993 CONDENSED STATEMENTS OF INCOME AND DIVIDENDS Interest Income $13,532 $12,505 $11,136 $ 9,769 $ 9,223 Interest Expense 6,319 6,076 5,515 4,556 4,422 ------ ------ ------ ------ ------ Net Interest Income 7,213 6,429 5,621 5,213 4,801 Provision for Loan Losses 180 226 164 60 60 ------ ------ ------ ------ ------ Net Interest Income after Provision for Loan Losses 7,033 6,203 5,457 5,153 4,741 Noninterest Income 873 661 947 743 739 Noninterest Expenses 3,568 3,410 3,333 3,128 2,915 ------ ------ ------ ------ ------ Income before Income Taxes 4,338 3,454 3,071 2,768 2,565 Income Tax Expense 1,330 1,013 955 779 678 ------ ------ ------ ------ ------ Net Income $ 3,008 $ 2,441 $ 2,116 $ 1,989 $ 1,887 ====== ====== ====== ====== ====== Total Assets at Year End $173,810 $166,511 $152,301 $132,649 $127,824 ======= ======= ======= ======= ======= PER SHARE INFORMATION Net Income Per Share $ 3.67 $ 2.99 $ 2.60 $ 2.44 $ 2.32 Dividends Per Share $ 1.06 $ .86 $ .80 $ .75 $ .65 Book Value Per Share $ 27.98 $ 23.36 $ 21.00 $ 18.29 $ 16.74 FINANCIAL STATEMENT RATIOS Return on Average Assets1 1.77% 1.54% 1.49% 1.50% 1.54% Return on Average Equity1 14.44% 13.58% 13.15% 13.64% 14.53% Dividend Payout Ratio 28.89% 28.79% 30.79% 30.71% 28.02% Average Equity to Average Assets Ratio 12.22% 11.34% 11.34% 11.01% 10.57% 1 Ratios are primarily based on daily average balances.
18 Table II F & M BANK CORP. NET INTEREST INCOME/RATES EARNED AND PAID (On a fully taxable equivalent basis) (In thousands of dollars)
1997 1996 1995 ---- ---- ---- Average Average Average Rates Rates Rates Income/ Earned/ Income/ Earned/ Income/ Earned/ ASSETS Average Expense Paid Average Expense Paid Average Expense Paid Loans: Commercial 1 $ 29,518 $ 2,791 9.46% $ 25,066 $ 2,351 9.38% $ 23,762 $ 2,325 9.78% Real estate 1 73,499 6,491 8.83 66,870 5,998 8.97 56,118 5,079 9.05 Installment 1 14,427 1,514 10.49 12,439 1,309 10.52 9,557 1,009 10.56 ------- ------ ------ ------- ------ ------ -------- ------- ----- Total Loans 117,444 10,796 9.19 104,375 9,658 9.25 89,437 8,413 9.41 Investment securities: Fully taxable 3 33,196 2,147 6.47 35,928 2,218 6.17 35,845 2,145 5.98 Partially Taxable 2,3 7,460 645 8.65 6,828 621 9.09 7,033 586 8.33 Nontaxable 2,3 372 23 6.18 591 48 8.12 915 64 6.99 ------- ------ ------ ------- ------ ------ -------- ------- ----- Total Investment Securities 41,028 2,815 6.86 43,347 2,887 6.66 43,793 2,795 6.38 Interest bearing deposits in banks 546 28 5.13 349 19 5.44 638 39 6.11 Federal funds sold 1,968 108 5.49 1,572 84 5.34 1,608 93 5.78 ------- ------ ------ ------- ------ ------ -------- ------- ----- Total Earning Assets 160,986 13,747 8.54 149,643 12,648 8.45 135,476 11,340 8.37 ------ ------ ------ ------ ------- ----- Allowance for loan losses (1,086) (885) (781) Nonearning assets 10,412 9,727 7,161 ------- ------- -------- Total Assets $170,312 $158,485 $ 141,856 ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand - Interest bearing $ 19,666 495 2.52 $ 19,950 513 2.57 $ 20,366 612 3.01 Savings 28,005 999 3.57 29,665 1,097 3.70 29,047 1,222 4.21 All other time deposits 65,732 3,550 5.40 56,427 3,122 5.53 45,546 2,438 5.35 ------- ------ ------ ------- ------ ------ -------- ------- ----- Total Deposits 113,403 5,044 4.45 106,042 4,732 4.46 94,959 4,272 4.50 Short-term debt 3,306 163 4.93 2,236 112 5.01 272 13 4.78 Long-term debt 17,065 1,112 6.52 18,871 1,232 6.53 18,920 1,230 6.50 ------- ------ ------ ------- ------ ------ -------- ------- ----- Total Interest Bearing Liabilities 133,774 6,319 4.72 127,149 6,076 4.78 114,151 5,515 4.83 ------ ------ ------ ------ ------- ----- Noninterest bearing deposits 13,101 11,604 10,526 Other liabilities 2,608 1,758 1,089 ------- ------- -------- Total Liabilities 149,483 140,511 125,766 Stockholders' equity 20,829 17,974 16,090 ------- ------- -------- Total Liabilities and Stockholders' Equity $170,312 $158,485 $ 141,856 ======= ======= ======== Net Interest Earnings $ 7,428 $ 6,572 $ 5,825 ====== ====== ======= Net Yield on Interest Earning Assets 4.61% 4.39% 4.30% ==== ==== ==== 1 Interest income on loans includes loan fees. 2 An incremental income tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially taxable investments. 3 Average balance information is reflective of historical cost and has not been adjusted for changes in market value.
19 Table III F & M BANK CORP. EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME (On a fully taxable equivalent basis) (In thousands of dollars)
1997 Compared to 1996 1996 Compared to 1995 Increase (Decrease) Increase (Decrease) Due to Change in: Total Due to Change in: Total Average Average Increase Average Average Increase Volume Rate (Decrease) Volume Rate (Decrease) Interest income: Loans: Commercial $ 417 $ 23 $ 440 $ 127 $ (101) $ 26 Real estate 594 (101) 493 973 (54) 919 Installment 209 (4) 205 305 (5) 300 ------ ------- ------ ------ ------- ------ Total loans 1,220 (82) 1,138 1,405 (160) 1,245 Investment securities: Fully taxable (169) 98 (71) 5 68 73 Partially taxable 57 (33) 24 (17) 52 35 Nontaxable (18) (7) (25) (23) 7 (16) ------ ------- ------ ------ ------- ------ Total investment securities (130) 58 (72) (35) 127 92 Interest bearing deposits in banks 11 (2) 9 (18) (2) (20) Federal funds sold 21 3 24 (2) (7) (9) ------ ------- ------ ------ ------- ------ Total Interest Income $ 1,122 $ (23) $ 1,099 $ 1,350 $ (42) $ 1,308 ====== ======= ====== ====== ======= ====== Interest expense: Deposits: Demand $ (7) $ (11) $ (18) $ (12) $ (87) $ (99) Savings (61) (37) (98) 26 (151) (125) All other time deposits 515 (87) 428 582 102 684 ------ ------- ------ ------ ------- ------ Total deposits 447 (135) 312 596 (136) 460 Short-term debt 54 (3) 51 94 5 99 Long-term debt (118) (2) (120) (3) 5 2 ------- ------- ------ ------ ------- ------ Total Interest Expense $ 383 $ (140) $ 243 $ 687 $ (126) $ 561 ====== =======- ====== ====== ======= ======
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. 20 Table IV F & M BANK CORP. INTEREST SENSITIVITY ANALYSIS (In Thousands of Dollars) December 31, 1997
1-90 91-365 1-5 Over 5 Not Days Days Years Years Classified Total Uses of Funds Loans: Commercial $21,411 $ 1,411 $ 8,768 $ 616 $ $32,206 Consumer installment 34 656 13,953 60 14,703 Consumer real estate 6,390 9,883 41,442 17,748 75,463 Credit cards 818 818 ------ ------ ------ ------ ------ ------ Total Loans 28,653 11,950 64,163 18,424 123,190 Federal funds sold 2,255 2,255 Interest bearing bank deposits 827 827 Investment Securities 3,005 4,932 14,441 5,902 12,048 40,328 ------ ------ ------ ------ ------ ------ Total 34,740 16,882 78,604 24,326 12,048 166,600 -------- -------- -------- -------- -------- -------- Sources of Funds Deposits: Interest bearing demand deposits 19,651 19,651 Savings 27,024 27,024 Certificates of deposit $100,000 and over 1,418 2,636 2,485 6,539 Other certificates of deposit 15,348 20,872 22,530 58,750 ------ ------ ------ ------ ------ ------ Total Deposits 63,441 23,508 25,015 111,964 Repurchase agreements 3,903 3,903 Short-term borrowings 1,301 1,301 Long-term borrowings 853 2,357 10,851 2,915 16,976 ------ ------ ------ ------ ------ ------ Total 69,498 25,865 35,866 2,915 134,144 ------- ------- ------- ------ ----- -------- Discrete Gap (34,758) (8,983) 42,738 21,411 12,048 32,456 ------- ------ ------ ------ ------ ------ Cumulative Gap (34,758) (43,741) (1,003) 20,408 32,456 ------- ------- ------ ------ ------ Ratio of Cumulative Gap to Total Earning Assets (20.86)% (26.26)% (.60)% 12.25% 19.48%
Table IV reflects the earlier of the maturity or repricing dates for various assets and liabilities at December 31, 1997. In preparing the above table, no assumptions are made with respect to loan prepayments or deposit run offs. Loan principal payments are included in the earliest period in which the loan matures or can be repriced. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. 21 Item 7. Financial Statements INDEX TO FINANCIAL STATEMENTS Page Independent Auditors' Report 22 Consolidated Balance Sheets as of December 31, 1997 and 1996 23 Consolidated Statements of Income - Years Ended December 31, 1997, 1996, and 1995 24 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 1997, 1996, and 1995 25 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996, and 1995 26 Notes to Consolidated Financial Statements 27 - 45 22 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors F & M Bank Corp. Timberville, Virginia We have audited the accompanying consolidated balance sheets of F & M Bank Corp. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of F & M Bank Corp. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. S. B. Hoover & Company, L.L.P. January 30, 1998 Harrisonburg, Virginia 23 F & M BANK CORP. CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1997 1996 Cash and due from banks (note 3) $ 3,574,401 $3,567,828 Interest bearing deposits in banks 827,460 854,106 Federal funds sold 2,255,000 3,397,000 Securities - Held to maturity (note 4) 17,545,119 22,708,455 Available for sale (note 4) 21,170,694 19,722,229 Other investments (note 4) 1,612,124 1,512,655 Loans (note 5) 123,190,165 111,545,235 Less allowance for loan losses (note 6) (1,120,749) (1,003,371) ---------- ---------- Net Loans 122,069,416 110,541,864 Bank premises and equipment, net (note 7) 1,882,850 1,953,146 Other real estate 427,067 107,000 Interest receivable 1,277,266 1,311,645 Other assets 1,168,299 834,832 ---------- --------- Total Assets $173,809,696 $166,510,760 =========== =========== LIABILITIES Deposits: Noninterest bearing $ 14,387,564 $ 12,613,945 Interest bearing: Demand 14,290,888 14,122,724 Money market accounts 5,359,705 5,355,777 Savings 27,024,134 28,390,506 Time deposits over $100,000 (note 8) 6,539,282 6,925,895 All other time deposits (note 8) 58,749,602 57,189,748 ---------- ---------- Total Deposits 126,351,175 124,598,595 Short-term debt (note 9) 5,204,099 3,115,588 Accrued liabilities 2,376,407 1,398,543 Long-term debt (note 10) 16,976,101 18,272,162 ---------- ---------- Total Liabilities 150,907,782 147,384,888 ----------- ----------- STOCKHOLDERS' EQUITY Common stock $5 par value, 2,000,000 shares authorized, 818,654 shares issued and outstanding 4,093,270 4,093,270 Capital surplus 866,694 866,694 Retained earnings (note 16) 15,536,083 13,396,313 Net unrealized gains on securities available for sale 2,405,867 769,595 ------------ ---------- Total Stockholders' Equity 22,901,914 19,125,872 ---------- ---------- Total Liabilities and Stockholders' Equity $173,809,696 $166,510,760 The accompanying notes are an integral part of this statement. 24 F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1997 1996 1995 INTEREST AND DIVIDEND INCOME: Interest and fees on loans 10,778,088 $9,646,361 $8,401,531 Interest on time deposits and federal funds sold 135,835 103,218 132,550 Interest on debt securities - taxable 2,198,515 2,334,902 2,180,051 Interest on debt securities - nontaxable 15,212 31,754 47,631 Dividends on common stock 404,082 388,617 374,159 -------- -------- -------- Total Interest and Dividend Income 13,531,732 12,504,852 11,135,922 ---------- ---------- ---------- INTEREST EXPENSE: Interest on demand deposits 494,549 513,275 611,422 Interest on savings deposits 999,314 1,091,086 1,222,310 Interest on time deposits over $100,000 247,949 265,488 223,074 Interest on all other time deposits 3,301,664 2,862,754 2,215,059 --------- --------- --------- Total interest on deposits 5,043,476 4,732,603 4,271,865 Interest on short-term debt 163,478 112,254 13,478 Interest on long-term debt 1,112,146 1,231,426 1,229,799 --------- --------- --------- Total Interest Expense 6,319,100 6,076,283 5,515,142 --------- --------- --------- NET INTEREST INCOME 7,212,632 6,428,569 5,620,780 --------- --------- --------- PROVISION FOR LOAN LOSSES (note 6) 180,000 226,000 164,500 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,032,632 6,202,569 5,456,280 --------- --------- --------- NONINTEREST INCOME: Service charges on deposit accounts 400,192 253,362 236,072 Insurance and other commissions 15,268 37,040 43,425 Other operating income 112,307 135,181 92,140 Gain on security transactions (note 4) 345,262 235,104 575,795 -------- -------- -------- Total Noninterest Income 873,029 660,687 947,432 -------- -------- -------- NONINTEREST EXPENSES: Salaries 1,563,488 1,443,829 1,446,305 Employee benefits (note 12) 478,516 481,182 508,606 Occupancy expense 168,785 166,495 179,857 Equipment expense 285,715 290,372 231,962 Other operating expenses 1,071,848 1,027,784 966,213 --------- --------- -------- Total Noninterest Expenses 3,568,352 3,409,662 3,332,943 --------- --------- --------- Income before Income Taxes 4,337,309 3,453,594 3,070,769 INCOME TAX EXPENSE (note 11) 1,329,766 1,012,826 955,086 --------- --------- -------- NET INCOME $3,007,543 $2,440,768 $2,115,683 ========= ========= ========= PER SHARE DATA NET INCOME $ 3.67 $ 2.99 $ 2.60 ======== ======== ======== CASH DIVIDENDS $ 1.06 $ .86 $ .80 ======== ======== ======== COMMON SHARES OUTSTANDING 818,654 816,948 814,288 ======== ======== ======== The accompanying notes are an integral part of this statement. 25 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized Gains (Losses) on Securities Common Capital Retained Available Stock Surplus Earnings for Sale Total BALANCE - December 31, 1994 $4,071,440 $ 746,629 $10,194,457 $(116,369) $14,896,157 Net income 2,115,683 2,115,683 Dividends on common stock (651,425) (651,425) Change in net unrealized gains on securities available for sale, net of income taxes of $437,871 738,160 738,160 -------- -------- -------- -------- -------- BALANCE - December 31, 1995 4,071,440 746,629 11,658,715 621,791 17,098,575 Net income 2,440,768 2,440,768 Dividends on common stock (703,170) (703,170) Stock issued to ESOP (4,366 shares) (note 12) 21,830 120,065 141,895 Change in net unrealized gains on securities available for sale, net of income taxes of $95,375 147,804 147,804 -------- -------- -------- -------- -------- BALANCE - December 31, 1996 4,093,270 866,694 13,396,313 769,595 19,125,872 Net income 3,007,543 3,007,543 Dividends on common stock (867,773) (867,773) Change in net unrealized gains on securities available for sale, net of income taxes of $976,803 1,636,272 1,636,272 -------- -------- -------- --------- --------- BALANCE - December 31, 1997 $4,093,270 $ 866,694 $15,536,083 $2,405,867 $22,901,914 ========= ======== ========== ========= ==========
The accompanying notes are an integral part of this statement. 26 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,007,543 $2,440,768 $2,115,683 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of securities (345,262) (235,104) (575,795) Depreciation 256,495 258,315 204,520 Amortization of security premiums 92,415 109,398 146,966 Provision for loan losses 180,000 226,000 164,500 Provision for deferred taxes (32,140) (43,415) (47,267) (Increase) decrease in interest receivable 34,379 (48,075) (261,755) Increase in other assets (325,233) (146,633) (14,909) Increase (decrease) in accrued expenses (86,600) 185,006 454,235 Amortization of limited partnership investments 94,127 36,369 49,901 Other noncash expenses 25,807 -------- Net Cash Provided by Operating Activities 2,901,531 2,782,629 2,236,079 ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest bearing bank deposits 26,646 (771,901) (23,855) Net (increase) decrease in federal unds sold 1,142,000 (1,610,000) 1,787,000) Proceeds from maturities of securities held to maturity 10,724,026 12,649,324 15,409,547 Proceeds from maturities of securities available for sale 3,193,936 1,793,435 1,280,093 Proceeds from sales of securities available for sale 7,326,099 2,265,492 4,931,003 Purchases of securities available for sale (8,955,309) (5,585,748) (6,740,372) Purchases of securities held to maturity (5,949,245) (9,160,122)(13,256,220) Net increase in loans (11,516,933)(13,666,799)(16,647,730) Purchase of property and equipment (203,173) (203,688) (627,202) Construction in progress payments (24,788) Purchase of other real estate (427,067) Proceeds from sales of equipment 9,500 -------- Net Cash Used in Investing Activities (4,629,520)(14,314,795)(17,461,736) ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand and savings deposits 579,339 (935,050) 507,727 Net increase in time deposits 1,173,241 11,873,065 14,399,318 Net increase in short-term debt 2,088,511 2,277,858 304,253 Dividends paid in cash (810,468) (685,924) (651,425) Proceeds from long-term debt 2,000,000 2,000,000 4,000,000 Repayments of long-term debt (3,296,061) (3,146,062) (2,538,919) ---------- ---------- --------- Net Cash Provided by Financing Activities 1,734,562 11,383,887 16,020,954 --------- ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 6,573 (148,279) 795,297 Cash and Cash Equivalents, Beginning of Year 3,567,828 3,716,107 2,920,810 ---------- ----------- ----------- Cash and Cash Equivalents, End of Year $3,574,401 $3,567,828 $3,716,107 ========= ========= ========= Supplemental Disclosure: Cash paid for: Interest expense $6,324,663 $6,045,799 $5,369,040 Income taxes 1,370,180 997,000 792,241 The accompanying notes are an integral part of this statement. 27 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS: F & M Bank Corp. ("Company"), through its subsidiary Farmers & Merchants Bank ("Bank"), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers located mainly in Rockingham County, Virginia, and the adjacent counties of Page, Shenandoah and Augusta. Services are provided at five branch offices. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles and to accepted practice within the banking industry. The following is a summary of the more significant policies: (a)Principles of Consolidation The consolidated financial statements include the accounts of the Farmers and Merchants Bank, the TEB Life Insurance Company and Timway Insurance Agency, Inc. Significant intercompany accounts and transactions have been eliminated. (b)Use of Estimates in the Preparation of Financial Statements In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in those statements; actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant changes is the determination of the allowance for loan losses, which is sensitive to changes in local economic conditions. (c)Cash and Cash Equivalents Cash and cash equivalents include cash on hand and deposits at other financial institutions whose initial maturity is ninety days or less. (d)Investment Securities Management reviews the securities portfolio and classifies all securities as either held to maturity or available for sale at the date of acquisition. Securities that the Company has both the positive intent and ability to hold to maturity (at time of purchase) are classified as held to maturity securities. All other securities are classified as available for sale. Securities held to maturity are carried at historical cost and adjusted for amortization of premiums and accretion of discounts, using the effective interest method. Securities available for sale are carried at fair value with any valuation adjustments reported, net of deferred taxes, as a separate component of stockholders' equity. Also included in securities available for sale are marketable equity securities. Changes subsequent to the adoption of this statement are shown as a separate item on the statement of stockholders' equity. 28 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (d)Investment Securities (Continued) Interest and dividends on securities and amortization of premiums and discounts on securities are reported as interest income using the effective interest method. Gains (losses) realized on sales and calls of securities are determined on the specific identification method. (e)Loans Loans are carried on the balance sheet net of any unearned interest and the allowance for loan losses. Interest income on loans is determined using the effective interest method on the daily amount of principal outstanding except where serious doubt exists as to collectibility of the loan, in which case the accrual of income is discontinued. (f)Allowance for Loan Losses The allowance for loan losses is based upon management's knowledge and review of the loan portfolio. Estimation of an adequate allowance for loan losses involves the exercise of judgement, the use of assumptions with respect to present economic conditions and knowledge of the environment in which the Bank operates. Among the factors considered in determining the level of the allowance are the changes in composition of the loan portfolio, the amount of delinquent and nonaccrual loans, past loan loss experience and the value of collateral securing the loans. (g)Impaired Loans SFAS 114 requires that impaired loans within the scope of the statements be presented in the financial statements at the present value of expected future cash flows or at the fair value of the loan's collateral. A valuation allowance is required to the extent that such measurement is less than the recorded investment. Under this standard a loan is considered impaired based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due under the contractual terms of the loan agreement. Charge-offs for impaired loans occur when the loan, or portion of the loan is determined to be uncollectible, as is the case for all loans. 29 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (h)Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over the estimated useful lives of the assets on a combination of the straight-line and accelerated methods. The ranges of the useful lives of the premises and equipment are as follows: Buildings and Improvements 10 - 40 years Furniture and Fixtures 3 - 20 years Maintenance, repairs, and minor improvements are charged to operations as incurred. Gains and losses on dispositions are reflected in other income or expense. (i)Pension Plans Substantially all employees are covered by a pension plan. The net periodic pension expense includes a service cost component, reflecting the actual return on plan assets, and the effect of deferring and amortizing certain actuarial gains and losses and the unrecognized net transition asset. (j)Income Taxes Amounts provided for income tax expense are based on income reported for financial statement purposes rather than amounts currently payable under income tax laws. Deferred taxes, which arise principally from temporary differences between the period in which certain income and expenses are recognized for financial accounting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. (k)Earnings Per Share Earnings per share are based on the weighted average number of shares outstanding. NOTE 3 CASH AND DUE FROM BANKS: The Bank is required to maintain average reserve balances based on a percentage of deposits. The average balance of cash which the Federal Reserve Bank requires to be on reserve was $633,000 and $567,000 for the years ended December 31, 1997 and 1996, respectively. 30 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 INVESTMENT SECURITIES: The amortized cost and fair value of securities held to maturity are as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1997 U. S. Treasuries and Agencies $9,283,442 $ 33,321 $ 2,569 $9,314,194 Mortgage-backed obligations of federal agencies 3,709,499 5,221 13,758 3,700,962 State and municipals 404,882 53 404,935 Corporate bonds 4,147,296 20,615 1,061 4,166,850 --------- -------- -------- --------- Total Securities Held to Maturity $17,545,119 $ 59,210 $ 17,388 $17,586,941 ========== ======== ======== ========== December 31, 1996 U. S. Treasuries and Agencies $14,381,436 $ 21,234 $ 66,300 $14,336,370 Mortgage-backed obligations of federal agencies 4,721,334 2,492 36,888 4,686,938 State and municipals 449,757 715 449,042 Corporate bonds 3,155,928 38,753 3,194,681 --------- -------- -------- --------- Total Securities Held to Maturity $22,708,455 $ 62,479 $ 103,903 $22,667,031 ========== ======== ======== ========== The amortized cost and fair value of securities available for sale are as follows: December 31, 1997 U.S. Agencies $3,471,310 $ 22,292 $ $3,493,602 Mortgage-backed obligations of federal agencies 3,088,533 22,365 370 3,110,528 Marketable equities 6,634,360 3,802,422 1,046 10,435,736 Corporate bonds 4,100,848 29,980 4,130,828 --------- -------- -------- --------- Total Securities Available for Sale $17,295,051 $3,877,059 $ 1,416 $21,170,694 ========== ========= ======== ========== December 31, 1996 U.S. Agencies $4,747,235 $ 26,263 $ 11,559 $4,761,939 Mortgage-backed obligations of federal agencies 1,480,078 16,246 28,354 1,467,970 Marketable equities 6,077,035 1,259,148 28,307 7,307,876 Corporate bonds 6,177,080 34,193 26,829 6,184,444 --------- -------- -------- --------- Total Securities Available for Sale $18,481,428 $1,335,850 $ 95,049 $19,722,229 ========== ========= ======== ========== 31 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 INVESTMENT SECURITIES (CONTINUED): The amortized cost and fair value of securities at December 31, 1997, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available for Sale Securities Held to Maturity Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $1,997,668 $2,003,669 $5,933,236 $5,939,388 Due after one year through five years 5,508,359 5,551,355 8,889,597 8,930,796 Due after five years through ten years 903,496 909,489 995,995 1,001,214 Due after ten years 2,251,168 2,270,445 1,726,291 1,715,543 --------- --------- --------- --------- Total 10,660,691 10,734,958 17,545,119 17,586,941 Marketable equities 6,634,360 10,435,736 $17,295,051 $21,170,694 $17,545,119 $17,586,941
Realized gains and losses and the gross proceeds from the sale of debt securities were not material in 1997, 1996 or 1995. Realized gains and losses on marketable equity transactions are summarized below: 1997 1996 1995 -------------------------------- Gains $ 461,136 $ 250,808 $ 620,036 Losses 115,874 15,704 44,241 -------- -------- -------- Net Gains $ 345,262 $ 235,104 $ 575,795 ======== ======== ======== The carrying value (which approximates fair value) of securities pledged by the Company to secure deposits and for other purposes amounted to $8,527,124 at December 31, 1997 and $7,546,959 at December 31, 1996. There were no state or political subdivision obligations of a single issuer which exceeded 10% of stockholders' equity at December 31, 1997, 1996 or 1995. 32 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED): NOTE 4 INVESTMENT SECURITIES (CONTINUED): At December 31, 1997, the Company was committed to invest an additional $977,823 in two low income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. Other investments consist of investments in three low income housing partnerships (carrying basis of $599,317) and stock in the Federal Home Loan Bank, Community Bankers Bank and Federal Reserve Bank (carrying basis of $1,012,807). The interests in the low income housing partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The market values of these securities are estimated to approximate their carrying value as of December 31, 1997. NOTE 5 LOANS: Loans outstanding as of December 31 are summarized as follows: 1997 1996 Real Estate Construction $ 4,708,218 $ 2,924,696 Mortgage 73,610,681 68,614,474 Commercial and agricultural 27,048,927 26,921,693 Installment 16,977,224 12,248,499 Credit cards 817,867 799,257 Other 27,248 36,616 ---------- ---------- Total $123,190,165 $111,545,235 =========== ============= The Company has pledged mortgage loans as collateral for borrowings with the Federal Home Loan Bank of Atlanta totalling $21,240,390 and $21,219,513 as of December 31, 1997 and 1996, respectively. NOTE 6 ALLOWANCE FOR LOAN LOSSES: A summary of changes in the allowance for loan losses for the years ended December 31 is shown in the following schedule: 1997 1996 1995 -------------------------------- Balance, beginning of year $1,003,371 $ 862,766 $ 744,513 Provision charged to operating expenses 180,000 226,000 164,500 Loan recoveries 38,523 17,449 18,252 Loans charged off (101,145) (102,844) (64,499) --------- --------- -------- Balance, End of Year $1,120,749 $1,003,371 $ 862,766 ========= ========= ======== Percentage of gross loans .91% .90% .88% 33 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 BANK PREMISES AND EQUIPMENT: Bank premises and equipment as of December 31 are summarized as follows: 1997 1996 Construction in progress $ $ 24,788 Land 384,763 392,237 Buildings and improvements 1,887,945 1,809,589 Furniture and equipment 1,963,886 1,846,852 ---------- ---------- 4,236,594 4,073,466 Less - accumulated depreciation (2,353,744) (2,120,320) ---------- ----------- Net $ 1,882,850 $ 1,953,146 ========== ========== Provisions for depreciation of $256,495 in 1997, $258,315 in 1996 and $204,520 in 1995 were charged to operations. NOTE 8 DEPOSITS: At December 31, 1997, the scheduled maturities of time deposits are as follows: 1998 $40,273,830 1999 13,016,137 2000 9,260,201 2001 940,463 2002 and thereafter 1,798,253 ---------- Total $65,288,884 NOTE 9 SHORT-TERM DEBT: 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 Outstanding1 Rate Rate 1997 Treasury, tax and loan $1,402,834 $1,300,663 $ 332,603 4.52% 5.25% Federal funds purchased 2,577,000 81,512 5.75 N/A Notes payable 477,220 55,642 7.74 N/A Securities sold under agreements to repurchase 3,903,436 3,903,436 2,892,035 4.98 4.91 --------- --------- --------- ------ ------ Totals $5,204,099 $3,361,792 4.99% 5.00% ========== ========== ==== ==== 1 Based on daily amounts outstanding
34 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 SHORT-TERM DEBT (CONTINUED):
Weighted Maximum Outstanding Average Average Year End Outstanding at at Balance Interest Interest Any Month End Year End Outstanding1 Rate Rate 1996 Treasury, tax and loan $ 757,867 $ 347,092 $ 245,557 4.87% 5.15% Federal funds purchased 1,988,000 121,470 5.44 N/A Notes payable 319,023 137,808 7.45 N/A Securities sold under agreements to repurchase 2,768,496 2,768,496 1,731,108 4.80 4.77 --------- --------- --------- ------ ------ Totals $3,115,588 $2,235,943 5.01% 4.82% ========== ========== ==== ==== 1 Based on daily amounts outstanding 1995 Treasury, tax and loan $ 708,163 $ 137,730 $ 265,833 4.76% 5.15% Federal funds purchased 5,699 6.10 N/A Notes payable 700,000 700,000 7,671 8.20 8.20 -------- -------- -------- ------ ------ Totals $837,730 $279,203 4.88% 7.69% ======== ======== ==== ==== 1 Based on daily amounts outstanding
The Company has lines of credit with correspondent banks totalling $10,302,000, which are used in the management of short-term liquidity. All securities sold under agreements to repurchase are under the Company's control. NOTE 10 LONG-TERM DEBT: The Company has borrowed on a cumulative basis $27,900,000 from the Federal Home Loan Bank of Atlanta (FHLB) since 1992. Advances for the years ended December 31, 1997 and 1996, were $2,000,000 in each year. The interest rates on the notes payable are fixed at the time of the advance and range from 5.26% to 7.72%; the weighted average interest rate is 6.52% at December 31, 1997. The long-term debt is secured by qualifying mortgage loans owned by the Company. Repayments of long-term debt are due quarterly and interest is due monthly. Interest expense of $1,112,146, $1,231,426, and $1,229,799 was incurred on these debts in 1997, 1996 and 1995, respectively. The maturities of long-term debt as of December 31, 1997 are as follows: 1998 $3,210,344 1999 2,924,631 2000 2,924,631 2001 2,684,631 2002 2,316,993 Thereafter 2,914,871 --------- Total $16,976,101 ========== 35 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 INCOME TAX EXPENSE: The components of the income tax expense for the years ended December 31 are as follows: 1997 1996 1995 -------------------------------- Current expense Federal $1,341,529 $1,040,736 $ 959,652 State 20,377 15,505 42,701 Deferred expense Federal (32,140) (43,415) (47,267) -------- -------- -------- Total Income Tax Expense $1,329,766 $1,012,826 $ 955,086 ========= ========= ======== Amounts in above arising from gains on security transactions $ 132,744 $ 89,791 $ 220,572 ======== ======== ======== The deferred tax effects of temporary differences for the years ended December 31 are as follows: 1997 1996 1995 Tax Effects of Temporary Differences: Accounting change $ (11,523) $ (11,523) $ (11,523) Provision for loan losses (36,848) (47,806) (40,206) Split dollar life insurance (6,557) (5,006) (11,492) Depreciation 1,037 (2,319) (3,521) Pension expense 15,946 15,487 18,272 Other 5,805 7,752 1,203 -------- -------- -------- Deferred Income Tax Benefit $ (32,140) $ (43,415) $ (47,267) ======== ======== ======== The components of the deferred taxes as of December 31 are as follows: 1997 1996 Deferred Tax Assets: Bad debt allowance $ 262,441 $ 225,593 Split dollar life insurance 74,049 67,492 Other 8,267 7,270 -------- -------- Total Assets 344,757 300,355 -------- -------- Deferred Tax Liabilities: Securities available for sale 1,469,772 471,206 Low income housing credits 94,847 58,812 Accretion 24,436 17,634 Depreciation 17,667 16,630 Pension 140,951 125,005 Change in accounting method 11,524 23,047 FHLB dividends 18,564 18,564 -------- -------- Total Liabilities 1,777,761 730,898 --------- -------- Net Liability $(1,433,004) $(430,543) ========== ========= 36 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 INCOME TAX EXPENSE (CONTINUED): The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rates for the years ended December 31: 1997 1996 1995 Tax expense at federal statutory rates $1,451,470 $1,160,264 $1,044,062 Increases (decreases) in taxes resulting from: Partially exempt income (127,577) (131,461) (116,067) State income taxes, net 25,250 7,683 37,722 Tax-exempt interest (11,796) (12,522) (14,792) Other (7,581) (11,138) 4,161 -------- -------- -------- Total Income Tax Expense $1,329,766 $1,012,826 $ 955,086 ========= ========= ======== NOTE 12 EMPLOYEE BENEFITS: The Bank participates in the Virginia Bankers' Association Master Defined Benefit Pension Plan and Trust. Substantially all bank employees are covered by the plan. Benefits are based upon the participant's length of service and annual earnings with vesting of benefits after five years of service. The Bank's funding policy is to fund the maximum amount permitted by federal income tax regulations. Plan assets consist primarily of investments in stocks and bonds. Pension expense totaled $90,786, $87,246 and $75,062 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company has established an employee stock ownership plan which provides stock ownership to substantially all employees of the Bank. The Plan provides total vesting upon the attainment of five years of service. Contributions to the plan are made at the discretion of the Board of Directors and are allocated based on the compensation of each employee relative to total compensation paid by the Bank. All shares issued and held by the Plan are considered outstanding in the computation of earnings per share. Dividends on Company stock are allocated and paid to participants at least annually. Shares of Company stock when distributed have restrictions on transferability. The Company contributed $153,663 in 1997, $144,176 in 1996 and $141,926 in 1995 to the Plan and charged this expense to operations. 37 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13 CONCENTRATIONS OF CREDIT: The Company had cash deposits in other commercial banks totaling $2,322,681 and $3,313,981 at December 31, 1997 and 1996. The Company grants commercial, residential real estate and consumer loans to customers located primarily in the northwestern portion of the state of Virginia. Although the Company has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the agribusiness economic sector, specifically the poultry industry. In the past year, the poultry industry has suffered due to high grain prices, excess supplies of all types of meat and high mortality rates among turkey poults. Although the Company has not experienced elevated loan delinquency rates through the end of 1997, if these conditions persist the Company would expect greater delinquency rates and more problem loans in the future. Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the financial condition of the borrower. Approximately 70% of the loan portfolio is secured by real estate. NOTE 14 COMMITMENTS: The Company makes commitments to extend credit in the normal course of business and issues standby letters of credit to meet the financing needs of its customers. The amount of the commitments represents the Company's exposure to credit loss that is not included in the balance sheet. As of the balance sheet dates, the Company had outstanding the following commitments: 1997 1996 Commitments to loan money $19,772,394 $14,043,469 Standby letters of credit 236,439 572,900 The Company uses the same credit policies in making commitments to loan money and issuing standby letters of credit as it does for the loans reflected in the balance sheet. 38 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 COMMITMENTS (CONTINUED): Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment. NOTE 15 TRANSACTIONS WITH RELATED PARTIES: During the year, officers and directors (and companies controlled by them) were customers of and had transactions with the Company in the normal course of business. These transactions were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk. Loan transactions to such related parties are shown in the following schedule: 1997 1996 Total loans, beginning of year $1,043,002 $1,223,327 New loans 605,782 611,550 Payments (431,251) (791,875) -------- -------- Total Loans, End of Year $1,217,533 $1,043,002 ========= ========= NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK: The principal source of funds of F & M Bank Corp. is dividends paid by the Farmers and Merchants Bank. The amount of dividends the Bank may pay is restricted by the Federal Reserve Act and approval of the Board of Governors of the Federal Reserve System is required if the dividends declared by a state member bank in any year exceed the sum of (1) net income of the current year and (2) net income after dividends for the preceding two years. As of January 1, 1998, approximately $1,467,073 was available for dividend distribution without permission of the Board of Governors. Dividends paid by the Bank to the Company totaled $2,120,364 in 1997, $587,858 in 1996 and $170,458 in 1995. 39 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107 (SFAS 107) "Disclosures About the Fair Value of Financial Statements" defines the fair value of a financial instrument as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. As the majority of the Bank's financial instruments lack an available trading market, significant estimates, assumptions and present value calculations are required to determine estimated fair value. Estimated fair value and the carrying value of financial instruments at December 31, 1997 and 1996, are as follows (in thousands): 1997 1996 Estimated Carrying Estimated Carrying Fair Value Value Fair Value Value Financial Assets Cash $ 3,574 $ 3,574 $ 3,568 $ 3,568 Interest bearing deposits 827 827 854 854 Federal funds sold 2,255 2,255 3,397 3,397 Securities available for sale 21,171 21,171 19,722 19,722 Securities held to maturity 17,587 17,545 22,667 22,708 Other investments 1,612 1,612 1,513 1,513 Loans 123,093 122,069 110,286 110,542 Accrued interest receivable 1,277 1,277 1,312 1,312 Financial Liabilities Demand Deposits: Non-interest bearing 14,388 14,388 12,614 12,614 Interest bearing 19,651 19,651 19,478 19,478 Savings deposits 27,024 27,024 28,391 28,391 Time deposits 65,534 65,289 64,676 64,116 Short-term debt 5,204 5,204 3,116 3,116 Long-term debt 17,132 16,976 18,299 18,272 Accrued interest payable 502 502 507 507 The carrying value of cash and cash equivalents, other investments, deposits with no stated maturities, short-term borrowings, and accrued interest approximates fair value. The fair value of securities was calculated using a pricing model which takes into consideration maturity, yields and quality. The remainder of the financial instruments was valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments during the month of December 1997. 40 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 REGULATORY MATTERS: The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997, that the Company and its subsidiary bank meet all capital adequacy requirements to which they are subject. As of December 31, 1997, the most recent notification from the Bureau of Financial Institutions, the subsidiary bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The Company's actual capital ratios are presented in the following table: Actual Regulatory Requirements December 31, Adequately Well 1997 1996 Capitalized Capitalized Total risk-based ratio 18.41% 17.67% 8.00% 10.00% Tier 1 risk-based ratio 17.46% 16.75% 4.00% 6.00% Total assets leverage ratio 12.04% 11.37% 3.00% 5.00% 41 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS: BALANCE SHEETS December 31, ASSETS 1997 1996 Cash and cash equivalents $ 593,236 $ 162,408 Investment in subsidiaries 11,858,642 11,509,142 Loans receivable 271,808 282,262 Securities available for sale 10,435,736 7,307,876 Other securities 605,846 516,277 Accrued interest receivable 1,472 1,552 Due from subsidiaries 364,445 90,690 Income tax receivable 120,441 Other real estate 427,067 -------- Total Assets $24,678,693 $19,870,207 ========== ========== LIABILITIES Dividends payable $ 237,410 $ 180,104 Income taxes payable 37,699 Deferred income tax 1,539,369 526,532 --------- -------- Total Liabilities 1,776,779 744,335 --------- -------- STOCKHOLDERS' EQUITY Common stock par value $5 per share, 2,000,000 shares authorized, 818,654 shares issued and outstanding 4,093,270 4,093,270 Capital surplus 866,694 866,694 Retained earnings 15,536,083 13,396,313 Net unrealized gains on securities available for sale 2,405,867 769,595 --------- -------- Total Stockholders' Equity 22,901,914 19,125,872 ---------- ---------- Total Liabilities and Stockholders' Equity $24,678,693 $19,870,207 42 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED): STATEMENTS OF NET INCOME AND RETAINED EARNINGS Years Ended December 31, 1997 1996 1995 INCOME Dividends from affiliate $2,120,364 $ 587,858 $ 170,458 Interest on loans 24,929 25,826 26,786 Investment income - taxable 6,364 1,856 1,675 Dividend income 404,082 388,617 374,159 Security gains 373,469 248,864 620,036 Limited partnership income (loss), net of tax credits (25,062) 11,505 (8,854) --------- ---------- --------- Total Income 2,904,146 1,264,526 1,184,260 --------- ---------- --------- EXPENSES Interest expense 4,305 10,260 467 Administration expense 74,043 80,266 73,697 --------- ---------- --------- Total Expenses 78,348 90,526 74,164 --------- ---------- --------- Net income before income tax expense and increase in undistributed equity of affiliates 2,825,798 1,174,000 1,110,096 INCOME TAX EXPENSE 125,215 76,094 267,699 --------- ---------- --------- Income before increase in undistributed equity of affiliates 2,700,583 1,097,906 842,397 Increase in undistributed equity of affiliates 306,960 1,342,862 1,273,286 --------- ---------- --------- NET INCOME 3,007,543 2,440,768 2,115,683 Retained earnings, beginning of year 13,396,313 11,658,715 10,194,457 Dividends on common stock (867,773) (703,170) (651,425) --------- ---------- --------- Retained Earnings, End of Year $15,536,083 $13,396,313 $11,658,715 ========== ========== ========== 43 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED): STATEMENTS OF CASH FLOWS Years Ended December 31, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,007,543 $2,440,768 $2,115,683 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed subsidiary income (306,960) (1,342,862) (1,273,286) Gain on sale of securities (373,469) (248,864) (620,036) Decrease in interest receivable 80 87 162 Decrease (increase) in due from subsidiary (273,755) 29,874 107,703 Decrease (increase) in other receivables (120,441) 76,324 Increase (decrease) in accrued expenses (1,673) 1,944 77,319 Amortization of limited partnership investments 94,127 36,369 49,901 --------- -------- -------- Net Cash Provided by Operating Activities 2,025,452 917,316 533,770 ------------ --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale 1,251,339 1,188,867 2,255,476 Proceeds from maturity of securities available for sale 703,793 4,629 5,480 Purchase of securities available for sale (2,135,196) (587,818) (2,030,149) Purchase of other securities (187,488) (130,226) (121,359) Decrease in loans receivable 10,463 9,557 8,680 Investment in subsidiary (700,000) Purchase of other real estate (427,067) Net Cash Provided by (Used in) Investing Activities (784,156) 485,009 (581,872) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term debt (700,000) 700,000 Stock issued to stock bonus plan 141,895 Dividends paid in cash (810,468) (685,924) (651,425) --------- -------- -------- Net Cash Provided by (Used in) Financing Activities (810,468) (1,244,029) 48,575 --------- ---------- --------- Net Increase in Cash and Cash Equivalents 430,828 158,296 473 Cash and Cash Equivalents, Beginning of Year 162,408 4,112 3,639 ---------- -------- -------- Cash and Cash Equivalents, End of Year $ 593,236 $ 162,408 $ 4,112 ========= ======== ======== 44 F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars Except Per Share Data)
1997 1996 1995 1994 1993 -------- -------- -------- -------- ------ INTEREST AND DIVIDEND INCOME: Interest and fees on loans $ 10,778 $ 9,646 $ 8,401 $ 7,106 $ 6,685 Federal funds sold and time deposits 136 103 133 82 140 Investment securities - taxable 2,603 2,724 2,554 2,463 2,180 Investment securities - nontaxable 15 32 48 118 218 -------- -------- -------- -------- --------- Total 13,532 12,505 11,136 9,769 9,223 --------- --------- --------- -------- -------- INTEREST EXPENSE: Interest on deposits 5,043 4,733 4,272 3,435 3,598 Other interest expense 1,276 1,343 1,243 1,121 824 -------- -------- -------- -------- -------- Total 6,319 6,076 5,515 4,556 4,422 -------- -------- -------- -------- -------- NET INTEREST INCOME 7,213 6,429 5,621 5,213 4,801 Provision for Loan Losses 180 226 165 60 60 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,033 6,203 5,456 5,153 4,741 -------- -------- -------- -------- -------- NONINTEREST INCOME: Service charges on deposits 400 254 236 219 220 Other operating income 128 172 135 111 144 Gain on security transactions 345 235 576 413 375 -------- -------- -------- -------- -------- Total Noninterest Income 873 661 947 743 739 -------- -------- -------- -------- -------- NONINTEREST EXPENSES: Salaries 1,563 1,444 1,446 1,327 1,218 Employee benefits 479 481 508 460 404 Occupancy expense 169 167 180 129 114 Equipment expense 286 290 232 194 228 Other operating expenses 1,071 1,028 966 1,018 951 -------- ------- -------- -------- -------- Total Noninterest Expenses 3,568 3,410 3,332 3,128 2,915 -------- -------- -------- -------- -------- Income before Income Taxes 4,338 3,454 3,071 2,768 2,565 Income Tax Expense 1,330 1,013 955 779 678 -------- -------- -------- -------- -------- NET INCOME $ 3,008 $ 2,441 $ 2,116 $ 1,989 $ 1,887 ======== ======== ======== ======== ======== Total Assets at Year End $ 173,810 $ 166,511 $ 152,301 $ 132,649 $ 127,824 Net Income Per Share $ 3.67 $ 2.99 $ 2.60 $ 2.44 $ 2.32 Dividends Per Share $ 1.06 $ .86 $ .80 $ .75 $ .65 Book Value Per Share $ 27.98 $ 23.36 $ 21.00 $ 18.29 $ 16.74
45 FINANCIAL HIGHLIGHTS F & M BANK CORP. & SUBSIDIARIES 1997 1996 1995 FOR THE YEAR Net income $ 3,007,543 $2,440,768 $ 2,115,683 Net income per share 3.67 2.99 2.60 Cash dividends 867,773 703,170 651,425 Cash dividends per share 1.06 .86 .80 Return on average assets 1.77% 1.54% 1.49% Return on average equity 14.44% 13.58% 13.15% AT YEAR END Assets $173,809,696 $166,510,760 $152,301,336 Loans 123,190,165 111,545,235 97,963,831 Deposits 126,351,175 124,598,595 113,660,580 Stockholders' equity 22,901,914 19,125,872 17,098,575 Average shares outstanding 818,654 816,948 814,288 Book value per share 27.98 23.36 21.00 Primary capital/assets 13.18% 11.49% 11.23% 46 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Part III Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Principal Occupation Name and Position Director During the Last with the Bank Age Since Five Years CLASS A DIRECTORS (to serve until the 2000 annual meeting of shareholders) Lawrence H. Hoover, Jr. 63 1981 Attorney, Partner in Hoover, Penrod, Vice Chairman of the Board Davenport & Crist and its predecessor since 1971 Richard S. Myers 50 1988 President of Dick Myers Chevrolet-GEO since February 1991 Ronald E. Wampler 50 1991 Farmer and partner in Dove Farms, Inc. and its affiliates CLASS C DIRECTORS (to serve until the 1999 annual meeting of shareholders) Julian D. Fisher 57 1990 CEO of Farmers & Merchants Bank President since May 1996; President of Bank since Oct. 1991 Dan B. Todd 66 1969 CEO of Farmers & Merchants Bank Chairman from 1969 to May 1999; Chairman of the Board since Oct. 1991 CLASS B DIRECTORS (to serve until the 1998 annual meeting of shareholders) Thomas L. Cline 51 1991 President of Truck & Equipment Corp. and MacLease, Inc. since May 1997; Secretary of North and South Lines, Inc. since May 1997; Secretary of Truck Thermo King and Transport Repairs, Inc. since 1974 Robert L. Halterman 62 1980 President of Virginia Classic Mustang, Inc., an auto parts company; Partner in H&H Properties Wayne L. Long 68 1985 Real estate and retired farmer Michael W. Pugh 43 1994 President of Old Dominion Realty, Inc.; Partner in Tri-City Development Co.; President of Colonial Appraisal Service, Inc. and Treasurer of Old Mill Enterprises, Inc. 47 Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act (Continued) Compliance with Section 16(a) Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and any persons who own more than 10% of the common stock of the Company, to file with the Securities and Exchange Commission reports of ownership and changes in ownership of common stock. Officers and directors are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of the copies of such reports furnished to the Company or written representation that no other reports were required, the Company believes that, during 1997, all filing requirements applicable to its officers and directors were complied with. Item 10. Executive Compensation The Summary Compensation Table below sets forth the compensation of the Company's Chief Executive Officer for all services rendered to the Company and its subsidiary, Farmers & Merchants Bank, for the last three fiscal years. SUMMARY COMPENSATION TABLE Name and Annual Compensation 1 Other Principal Position Year Salary ($) Bonus ($) Compensation ($) 2 Julian D. Fisher 1997 $100,000 $35,000 $31,082 Chief Executive Officer 1996 84,912 30,000 20,813 & President 1995 72,800 25,000 17,213 1 The value of perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus. 2 The amounts presented include the Company's contribution for the benefit of Mr. Fisher under the Company's Stock Bonus Plan ($14,486, $12,151 and $9,280 in 1997, 1996 and 1995, respectively), the gross value of life insurance premiums paid by the Company on behalf of Mr. Fisher ($14,796, $7,334 and $7,386 in 1997, 1996 and 1995, respectively) and the lease value of personal mileage on a company vehicle that has been provided for Mr. Fisher's use ($1,800, $1,328 and $547 in 1997, 1996 and 1995, respectively). Pursuant to a split-dollar insurance agreement between the Company and Mr. Fisher, the Company will be repaid such premium payments from the proceeds of the insurance policies. Thus, the gross premium payment amounts shown overstate the actual economic benefit to Mr. Fisher. (1) Directors of the Bank are compensated for attendance at the Board and Committee meetings, of which they are members, as follows: One hundred and fifty dollars ($150) for each Board of Directors' meeting, and fifty dollars ($50) for each Committee meeting; in addition each Director is paid a bonus at the end of each calendar year, the amount of which is determined by the Board of Directors, after considering the performance of the Bank. For the calendar year 1997, a bonus of $5,000 was paid to each Director. 48 Item 11. Security Ownership of Certain Beneficial Owners and Management There were no persons or entities that held directly or indirectly more than a 5% beneficial interest in the capital stock of the Company as of December 31, 1997. The following table sets forth the number and percentage of shares of common stock held, as of December 31, 1997 by each of the Company's directors and all of the Company's directors and officers as a group. Amount Percent Beneficially of Name of Owner Owned Class Thomas L. Cline 2,317 1 .283% Julian D. Fisher 29,479 2 3.601% Robert L. Halterman 9,616 1.175% Lawrence H. Hoover, Jr. 15,644 3 1.911% Wayne L. Long 5,538 4 .676% Richard S. Myers 3,890 5 .475% Michael W. Pugh 200 .024% Dan B. Todd 11,842 6 1.447% Ronald E. Wampler 2,500 .305% All Directors and executive officers as a group 81,026 9.897% 1 Includes 1,241 shares owned directly, 1,020 shares owned jointly with another member of his household and 56 shares owned by another member of his household. 2 Includes 3,143 shares owned directly, 2,730 shares owned by another member of his household and 23,606 shares which are owned by the Company's stock bonus plan over which Mr. Fisher has voting power. 3 Includes 10,280 shares owned directly, 46 shares owned by another member of his household and 5,318 shares owned by a Unitrust in which he is one of the trustees. 4 Includes 1,742 shares owned directly and 3,796 shares owned by a member of his household. 5 Includes 1,600 shares owned directly and 2,290 shares held in Mr. Myers' IRA account. 6 Includes 1,280 shares owned directly, 8,554 shares owned by a member of his household and 2,008 shares held in Mr. Todd's IRA account. 49 Item 12. Certain Relationships and Related Transactions Most of the directors, partnerships of which they may be general partners and corporations of which they are officers or directors, maintain normal banking relationships with the Bank. Loans made by the Bank to such persons or other entities were made only in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features. See Note 15 of the consolidated financial statements. Part IV Item 13. Exhibits and Reports on Form 8-K Exhibit No. 3 i Articles of Incorporation of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s Form S14 filed February 17, 1984. 3 ii Bylaws of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s form S14 filed February 17, 1984. 21 Subsidiaries of the small business issuers attached 23 Consent of Certified Public Accountant attached 27 Financial Data Schedule attached Reports on Form 8-K The Corporation did not file any reports on Form 8-K for the quarter ending December 31, 1997. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. F & M Bank Corp. By: JULIAN D. FISHER Julian D. Fisher Chief Executive Officer and President Date: MARCH 27, 1998 By: NEIL W. HAYSLETT Neil W. Hayslett Vice President and Chief Financial Officer Date: MARCH 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated. Signature Title Date THOMAS L. CLINE Director MARCH 27, 1998 Thomas L. Cline JULIAN D. FISHER Director, President, MARCH 27, 1998 Julian D. Fisher Chief Executive Officer ROBERT L. HALTERMAN Director MARCH 27, 1998 Robert L. Halterman 51 Director Lawrence H. Hoover, Jr. Director Wayne L. Long RICHARD S. MYERS Director MARCH 27, 1998 Richard S. Myers Director Michael W. Pugh DAN B. TODD Director, Chairman MARCH 27, 1998 Dan B. Todd Director Ronald E. Wampler EX-21 2 LIST OF SUBSIDIARIES OF THE REGISTRANT 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 EX-23 3 CONSENT OF CERTIFIED PUBLIC ACCOUNTANT Exhibit 23 - Consent of Certified Public Accountant To the Shareholders and Board of Directors F & M Bank Corp. We consent to the use of our report, dated January 30, 1998, relating to the consolidated balance sheets of F & M Bank Corp. as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears on Page 22 in the December 31, 1997 Annual Report on Form 10-KSB of F & M Bank Corp. S. B. Hoover & Company, L.L.P. Harrisonburg, VA March 25, 1998 EX-27 4 FDS FOR 10KSB
9 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. 0000740806 F & M BANK CORP. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,574 828 2,255 0 21,171 17,545 17,587 123,190 1,121 173,810 126,351 5,204 2,377 16,976 0 0 4,093 18,809 173,810 10,778 2,214 540 13,532 5,043 6,319 7,213 180 345 3,568 4,337 3,008 0 0 3,008 3.67 3.67 4.61 0 825 0 0 1,003 101 38 1,121 1,121 0 0
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