FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2001 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 Identification No.)
incorporation or organization)
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(540) 896-8941
(Registrant's telephone number including area code)
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 value per share
Check whether the registrant (1) has 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.
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-K or any amendment to this Form 10-K [X]
Registrant's revenues for its most recent fiscal year: $20,091,363
The registrant's Common Stock is traded Over-the-Counter under the symbol FMBM. The aggregate market value of the 2,193,152 shares of Common Stock of the registrant issued and outstanding held by nonaffiliates on February 14, 2002 was approximately $43,314,752 based on the closing sales price of $19.75 per share on that date. For purposes of this calculation, the term "affiliate" refers to all directors and executive officers of the registrant.
As of the close of business on February 14, 2002, there were 2,438,170 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the Annual Meeting of Shareholders to be held on April 13, 2002 (the "Proxy Statement").
F & M Bank Corp.
Index
Forward-Looking Statements 2
Form 10-K Cross Reference Sheet 3
F & M Bank Corp. 4
Report Format 4
Selected Financial Data 5
Market for Common Equity and Related Stockholder Matters 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-18
Consolidated Financial Statements 19-22
Notes to Consolidated Financial Statements 23-38
Management's Statement of Responsibility 39
Report of Independent Auditors 40
Other Material Required by Form 10-K 41-45
Description of Business
Properties
Exhibits, Financial Statements, and Reports on Form 8-K
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Signatures
Forward-Looking Statements
F & M Bank Corp. makes forward-looking statements in the Management's Discussion and Analysis of Financial Condition and Results of Operations and in other portions of this Annual Report on Form 10-K that are subject to risks and uncertainties. These forward-looking statements include: estimates of risks and of future costs and benefits; assessments of probable loan losses and statements of goals and expectations. These forward-looking statements are subject to significant uncertainties because they are based upon management's estimates and projections of future interest rates and other economic conditions; future laws and regulations; and a variety of other matters. As a result of these uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate its future results.
F & M Bank Corp.
Form 10-K Cross Reference Sheet Material Incorporated by Reference
The following table shows the location in this Annual Report on Form 10-K or in the Proxy Statement of the information, which requires disclosure in SEC Form 10-K. As indicated below, information has been incorporated by reference in the Report from the Proxy Statement. Other portions of the Proxy Statement are not included in this Report. This Report is not part of the Proxy Statement. Page references are in this report unless indicated otherwise.
Item of Form 10-K Location
PART I
Item 1 Business "Forward-Looking Statements" on page
2, "F&M Bank Corp." and "Report
Format" on page 4, and "Business" on
pages 41 to 42.
Item 2 Properties "Properties" on page 43.
Item 3 Legal Proceedings Note 17 "Litigation" on page 33.
Item 4 Submission of Matters No matters have been submitted to a
to a Vote of Security vote of security holders during the
Holders fourth quarter of 2001.
PART II
Item 5 Market for "Market for Registrant's Common Equity
Registrant's Common and Related Stockholder Matters" on page
Equity and Related 6.
Stockholder Matters
Item 6 Selected Financial Data "Selected Financial Data" on page 5.
Item 7 "Management's Discussion "Management's Discussion and Analysis
and Analysis of Financial of Financial Condition and Results of
Condition and Results of Operations" on pages 7-18.
Operation
Item 7a Quantitative and "Forward-Looking Statements" on page 2
Qualitative Disclosures and "Market Risk Management" on page
about Market Risk 17-18.
Item 8 Financial Statements Pages 19 to 38.
and Supplementary
Information
Item 9 Changes in and There were no changes in or
Disagreements with disagreements with accountants on
Accountants on accounting and financial
Accounting and disclosure during the last
Financial Disclosure two fiscal years.
PART III
Item 10 Directors and The material labeled "Section 16(a)
Executive Officers of Beneficial Ownership Reporting
the Registrant Compliance" and "Information
Concerning Directors and
Nominees" in the Proxy Statement is
incorporated in this Report by
reference.
Item 11 Executive Compensation The material labeled "Summary
Compensation" and "Salary Committee
Report on Executive Compensation"
in the Proxy Statement is
incorporated in this Report by
reference.
Item 12 Security Ownership of The material labeled "Stock Ownership
Certain Beneficial of Directors and Executive Officers"
Owners and Management in the Proxy Statement is
incorporated in this Report by
reference.
Item 13 Certain Relationships and The material labeled "Indebtedness and
Related Transactions Other Transactions" in the
Proxy Statement is incorporated in
this Report by reference.
PART IV
Item 14 Exhibits, Financial Statement "Exhibits, Financial Statements, and
Schedules and Reports on Reports on Form 8-K" on page 44.
Form 8-K
Signatures "Signatures" on page 45.
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F & M Bank Corp.
F & M Bank Corp. is the holding company for Farmers & Merchants Bank, the oldest banking business native to Rockingham County, Virginia. Operating as an independent community bank, Farmers & Merchants Bank was originally organized as Farmers & Merchants Bank of Timberville in 1908. The bank provides a wide range of financial services to individuals and businesses through 7 offices located in Rockingham and Shenandoah Counties.
Report Format
The format of this report has been changed in order to increase information distributed to shareholders and to reduce expenses related to preparing and distributing annual financial information. In the past, F & M Bank Corp. has provided an annual report to shareholders along with the annual proxy materials, and also prepared and filed a separate Annual Report on Form 10-K under the rules of the United States Securities and Exchange Commission ("SEC"). This year, we are distributing the 2001 Form 10-K report to shareholders with the annual proxy materials for the 2001 annual meeting. This report includes the entire Form 10-K, other than exhibits, as filed with the SEC. Please see page 43 for information regarding how to obtain copies of exhibits and additional copies of the Form 10-K.
The SEC has not approved or disapproved this Report or passed upon its accuracy or adequacy.
Five Year Summary of Selected Financial Data
(Dollars in thousands,
except per share data) 2001 2000 1999 1998 1997
Income Statement Data:
Interest and Dividend
Income $ 17,681 $ 15,509 $ 14,321 $ 14,147 $ 13,532
Interest Expense 9,494 7,411 6,475 6,931 6,319
------- ------- ------- ------- -------
Net Interest Income 8,187 8,098 7,846 7,216 7,213
Provision for Loan
Losses 204 123 140 110 180
----- ---- ---- ----- ----
Net Interest Income
after Provision
for Loan Losses 7,983 7,975 7,706 7,106 7,033
Noninterest Income 1,158 1,038 916 616 528
Securities Gains 1,252 770 1,179 1,249 345
Noninterest Expenses 5,728 4,653 4,313 3,880 3,568
------- ------- ------- ------- -------
Income before Income
Taxes 4,665 5,130 5,488 5,091 4,338
Income Tax Expense 1,435 1,486 1,682 1,590 1,330
------- ------- ------- ------- -------
Net Income $ 3,230 $ 3,644 $ 3,806 $ 3,501 $ 3,008
======= ======= ======= ======= =======
Per Share Data:1
Net Income $ 1.33 $ 1.49 $ 1.55 $ 1.43 $ 1.22
Dividends Declared .63 .59 .52 .73 .35
Book Value 11.74 11.18 10.30 9.80 9.33
Balance Sheet Data:
Assets $272,673 $208,818 $195,338 $191,495 $173,810
Loans 176,625 152,035 140,318 132,301 123,190
Securities 63,987 45,323 44,422 46,357 40,328
Deposits 208,279 152,354 139,507 135,139 126,351
Shareholders' Equity 28,617 27,198 25,286 24,078 22,902
Average Shares
Outstanding 2,431 2,445 2,454 2,456 2,456
Financial Ratios:
Return on Average
Assets 2 1.26% 1.76% 1.96% 1.94% 1.77%
Return on Average
Equity 2 11.47% 13.88% 15.47% 15.00% 14.44%
Net Interest Margin 3.52% 4.32% 4.52% 4.39% 4.61%
Efficiency Ratio 3 58.04% 50.93% 49.23% 51.41% 46.10%
Dividend Payout Ratio 47.45% 39.53% 33.55% 51.22% 28.89%
Capital and Credit
Quality Ratios:
Average Equity to
Average Assets 2 11.02% 12.70% 12.65% 12.97% 12.22%
Allowance for Loan
Losses to Loans .73% .73% .78% .88% .91%
Nonperforming Assets
to Total Assets .40% .52% .98% 1.08% .47%
Net Charge-offs to
Total Loans .06% .07% .16% .05% .05%
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1 Reflects adjustments for three for one stock split declared in 1998.
2 Ratios are primarily based on daily average balances.
3 The Efficiency Ratio equals noninterest expenses as a percentage of net
interest income plus noninterest income. Noninterest expenses exclude
intangible asset amortization. Noninterest income excludes gains on sales
of securities.
Market for Common Equity and Related Stockholder Matters
Stock Listing
The Company's Common Stock trades under the symbol "FMBM" on the OTC Bulletin Board. The bid and asked price of the Company's stock is not published in any newspaper. Although several firms in both Harrisonburg and Richmond, Virginia occasionally take positions in the Company stock, they typically only match buyers and sellers.
Transfer Agent and Registrar
Farmers & Merchants Bank
205 South Main Street
P.O. Box 1111
Timberville, VA 22853
Recent Stock Prices and Dividends
Dividends to shareholders totaled $1,532,752 and $1,440,318 in 2001 and 2000, respectively. Regular quarterly dividends have been declared for forty consecutive quarters. Dividends per share increased 6.78% in 2001.
The ratio of dividends per share to net income per share was 47.45% in 2001, compared to 39.53% in 2000. The decision as to timing, amount and payment of dividends is at the discretion of the Company's Board of Directors. The payment of dividends depends on the earnings of the Company and its subsidiaries, the financial condition of the Company and other factors including capital adequacy, regulatory requirements, general economic conditions and shareholder returns.
In April 2000, the Board of Directors approved a stock repurchase plan, which allows the repurchase of up to 50,000 shares of its outstanding common stock. Shares are purchased either through broker-arranged transactions or directly from the shareholder at the discretion of management. The decision to purchase shares is based on factors including market conditions for the stock and the availability of cash. Shares repurchased totaled 3,810 and 22,589 in 2001 and 2000, respectively.
The number of common shareholders of record was approximately 1,530 as of February 14, 2002. This amount includes all shareholders, whether titled individually or held by a brokerage firm or custodian in street name.
Quarterly Stock Information
These quotes were obtained from Davenport & Company and include the terms of trades transacted through a broker. The terms of exchanges occurring between individual parties may not be known to the Company.
2001 2000
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Stock Price Range Per Share Stock Price Range Per Share
Quarter Low High Dividend Low High Dividend
1st 22.00 31.00 .15 18.50 24.25 .14
2nd 17.00 23.50 .16 18.00 24.00 .15
3rd 18.60 21.00 .16 19.50 22.88 .15
4th 16.05 22.50 .16 20.00 33.00 .15
-- --
Total .63 .59
-- --
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company's net income for 2001 decreased $413,355 or 11.34% from 2000 earnings. Net income per share declined from $1.49 in 2000 to $1.33 in 2001. Although net income declined in 2001, according to the latest Bank Holding Company Performance Report from the Federal Reserve, the Company's Return on Equity (ROE) for the nine months ended September 30, 2001 was in the 75th percentile of all U.S. Bank Holding Companies with assets between $150-300 million.
The Company's operating earnings, which are net earnings excluding gains on the sale of investments and the non-cash amortization of acquisition intangibles, were $2,635,000 for 2001 versus $3,168,000 in 2000, a decline of 16.82%. Return on average equity decreased in 2001 to 11.47% from 13.88% in 2000, while the return on average assets declined from 1.75% to 1.26%. This decrease was due primarily to a lower net interest margin.
See page 5 for a five-year summary of selected financial data.
Changes in Net Income per Common Share
2001 to 2000 2000 to 1999
-------------------------------------------------------------------------------
Prior Year Net Income Per Share $ 1.49 $ 1.55
Change from differences in:
Net interest income .04 .11
Provision for credit losses (.03) (.01)
Noninterest income, excluding securities gains .05 .05
Securities gains .20 (.16)
Noninterest expenses, excluding intangibles (.32) (.14)
amortization
Amortization of intangibles (.13)
Income taxes .02 .08
Shares outstanding .01 .01
-------------------------------------------------------------------------------
Total Change (.16) (.06)
-------------------------------------------------------------------------------
Net Income Per Share $ 1.33 $ 1.49
-------------------------------------------------------------------------------
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Net Interest Income
The largest source of operating revenue for the Company is net interest income, which is calculated as the difference between the interest earned on earning assets and the interest expense paid on interest-bearing liabilities. Changes in the volume and mix of interest earning assets and interest bearing liabilities, along with their yields and rates, have a significant impact on the level of net interest income.
Net interest income for 2001 was $8,187,000 representing an increase of $89,000 or 1.11% from 2000. A 3.22% increase in 2000 versus 1999 resulted in total net interest income of $8,098,000.
In this discussion and in the tabular analysis of net interest income performance, entitled "Consolidated Average Balances, Yields and Rates," the interest earned on tax-exempt investment securities has been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxes. This is referred to as tax-equivalent net interest income.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Average Balances, Yields and Rates 1
2001 2000 1999
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Loans: 2
Commercial $40,093 $ 3,297 8.22% $ 37,770 $ 3,573 9.46% $ 35,799 $ 3,147 8.79%
Real estate 101,858 8,486 8.33 88,485 7,340 8.30 80,693 6,944 8.61
Installment 24,487 2,426 10.09 20,483 2,047 9.99 17,131 1,681 9.81
------ ----- ----- ------ ----- ---- ------ ----- ------
Total Loans 166,438 14,209 8.54 146,738 12,960 8.83 133,623 11,772 8.81
Investment securities: 3
Fully taxable 31,264 1,910 6.11 31,704 1,975 6.23 32,530 1,983 6.10
Partially taxable 10,415 581 5.58 10,892 646 5.93 8,278 605 7.31
------ ----- ----- ------ ----- ---- ------ ----- ------
Total Investment
Securities 41,679 2,491 5.98 42,596 2,621 6.15 40,808 2,588 6.34
Interest bearing deposits
in banks 9,140 405 4.43 659 37 5.61 893 38 4.26
Federal funds sold 20,212 759 3.75 322 19 5.90 2,135 105 4.92
------ ----- ----- ----- ----- ---- ------ ----- ------
Total Earning
Assets 237,469 17,864 7.52 190,315 15,637 8.22 177,459 14,503 8.17
------ ----- ------ ---- ------ ------
Allowance for loan
losses (1,229) (1,129) (1,109)
Nonearning assets 19,427 17,578 18,085
------ ------ ------
Total Assets $255,667 $ 206,764 $194,435
======= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand -
Interest bearing $ 27,299 436 1.60 $ 20,378 466 2.29 $ 20,771 467 2.25
Savings 32,063 873 2.72 28,264 944 3.34 29,532 975 3.30
Time deposits 113,035 6,385 5.65 80,791 4,565 5.65 69,964 3,637 5.20
----- ----- ----- ----- ----- ----- ------- ------ ---------
Total Deposits 172,397 7,694 4.46 129,433 5,975 4.62 120,267 5,079 4.22
Short-term debt 9,127 312 3.42 8,379 499 5.96 6,726 301 4.48
Long-term debt 20,632 1,488 7.21 17,037 937 5.50 20,010 1,095 5.47
------ ----- ----- ------ ----- ---- ------ ----- ------
Total Interest Bearing
Liabilities 202,156 9,494 4.69 154,849 7,411 4.79 147,003 6,475 4.40
----- ----- ----- ---- ----- ------
Noninterest bearing
deposits 22,567 18,035 16,618
Other liabilities 2,779 7,622 6,211
----- ----- ------
Total Liabilities 227,502 180,506 169,832
Stockholders' equity 28,165 26,258 24,603
------ ------ ------
Total Liabilities and
Stockholders'
Equity $ 255,667 $ 206,764 $ 194,435
======== ======= =========
Net Interest Earnings $ 8,370 $ 8,226 $ 8,028
====== ======= =======
Net Yield on Interest
Earning Assets (NIM) 3.52% 4.32% 4.52%
==== ======= ====
1 Income and yields are presented on a tax-equivalent basis using the
applicable federal income tax rate.
2 Interest income on loans includes loan fees.
3 Average balance information is reflective of historical cost and has not been
adjusted for changes in market value.
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The analysis on the facing page reveals declining net interest margins and a significant increase in average earning assets from 1999 to 2001. Although earning assets have increased 33.82%, net interest income only increased 4.26% during the same period. Decreases in the net interest margin from 1999 to 2000 were caused by competition for deposits creating a need to run frequent rate "specials" to attract and retain time deposits, which were used to support loan growth. These time deposit rate specials carried terms ranging from eight to thirty-three months.
The decrease in 2001 from 4.32% to 3.52% NIM is part of an industry-wide trend towards tighter margins following eleven rate cuts by the Federal Reserve. As short-term interest rates have fallen, interest sensitive assets (primarily adjustable rate loans and federal funds sold) have repriced downward more quickly and by greater percentages than interest bearing liabilities.
This trend began to reverse in the fourth quarter of 2001. Large amounts of time deposits matured and repriced at current market rates. Should market rates remain low, this trend will continue throughout 2002 as $83,000,000 in time deposits will mature and be subject to renewal at lower rates. This represents in excess of 70% of total time deposits held by the Bank.
Changes in the distribution of earning assets have also resulted in a portion of the decline in the NIM. Prior to 2001, the Bank had a balance sheet, which was highly leveraged. Longer-term, higher yielding assets (loans and securities) accounted for approximately 99% of earning assets in 1999 and 2000. In 2001, following the acquisition of two branches from First Union National Bank, this percentage dropped to 88%. Approximately $21,800,000 of excess funds were received in this acquisition and were held primarily as overnight funds or as short-term deposits until they could be loaned to customers in the normal course of business.
The following table illustrates the effect of changes in volumes and rates.
2001 Compared to 2000 2000 Compared to 1999
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Increase (Decrease) Increase (Decrease)
Due to Change Increase Due to Change Increase
in Average: or in Average: or
Volume Rate (Decrease) Volume Rate Decrease)
------------------------------------------------------------ -----------------
Interest income:
Loans $1,740 $(491) $1,249 $1,155 $33 $1,188
Investment securities:
Taxable (28) (37) (65) (50) 42 8
Partially Taxable (28) (37) (65) 191 (150) 41
Interest bearing deposits
in banks 476 (108) 368 (10) 9 (1)
Federal funds sold 1,174 (434) 740 (89) 3 (86)
----- ------ ----- ----- ---- -----
Total Interest Income $3,876 $1,649) $2,227 $1,050 $ 84 $1,134
===== ==== ==== ==== ==== ======
Interest expense:
Deposits:
Demand $ 158 $ (188) $ (30) $ (9) $ 8 $ (1)
Savings 127 (198) (71) (42) 11 (31)
Time deposits 1,822 (2) 1,820 563 365 928
Short-term debt 45 (232) (187) 74 124 198
Long-term debt 198 353 551 (163) 5 (158)
---- ----- ----- ----- ---- ----
Total Interest Expense $2,266 $ (183) $2,083 $ 345 $ 591 $ 936
---- ---- --- ---- ---- ---
Net Interest Income $1,610 $(1,466) $ 144 $ 705 $ (507)$ 198
====== ===== ====== ==== === ===
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NOTE: Variances are computed line-by-line and may not add to the totals shown.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Interest Income
Tax equivalent interest income increased by 14.24% or $2,227,000 in 2001. This improvement was primarily the result of a $47,154,000 increase in earning assets. The increase in interest income was in spite of a decrease in average yields earned from 8.22% to 7.52%.
During 2001, average loans outstanding increased $19,700,000 to $166,438,000. All three major loan categories increased. The greatest percentage increase was in consumer installment and credit card loans which increased 19.55%. Average balances of real estate loans increased 15.11% or $13,373,000. Average total securities, yielding 5.98% decreased slightly during 2001. This was in part due to sales of equity securities, the proceeds of which were contributed by the Company to the Bank as capital surplus. The largest increase in average earning assets was in interest bearing bank deposits and in federal funds sold. These short-term investments increased an average of $28,371,000 or 2,992%. The increase is primarily attributed to excess funds received in the acquisition of deposits from First Union National Bank, that were temporarily held as short-term investments until they can be loaned to customers in the normal course of business.
Interest Expense
Interest expense increased $2,083,000 or 28.11% during 2001. The average cost of funds of 4.69% declined .10% compared to 2000. However, the increase in average interest bearing liabilities totaling $47,307,000 resulted in the significant increase in interest expense. Interest expense on demand deposits, savings deposits and short-term debt decreased $288,000 (15.10%) as the Bank was able to rapidly decrease rates paid in response to a sharp decline in market rates. Expense of time deposits, however, increased $1,820,000 or 39.87%. This increase mirrored the increase in average time deposits as the average rate paid was unchanged from 2000. Expense of long-term debt increased $551,000. Much of the increase was due to $359,000 of prepayment penalties paid the Federal Home Loan Bank on debt that are either paid off early or refinanced at lower interest rates and on different terms.
Noninterest Income
Noninterest income is becoming an increasingly important factor in maintaining profitability. Management is conscious of the need to constantly review fee income and develop additional sources of complementary revenue. The Bank continues to enjoy increases in revenue from its partnership in Bankers Title Shenandoah, LLC. During 2001, the Bank also received its first commissions from the referral of commercial insurance products to Bankers Insurance, LLC. In 2002, these revenues should increase as product offerings will increase to include personal lines of insurance. Sales of credit life and accident & health insurance continue to increase with the growth of the consumer loan portfolio. Credit life and accident & health sales have more than doubled since 1998 when a sales incentive program was introduced for loan officers.
Overall noninterest income increased 11.51% in 2001 from 2000 and 13.33% in 2000 versus 1999. Noninterest income should increase in 2002 as service charges on acquired deposits were waived from February to August of 2001.
Securities gains totaled $1,253,000 in 2001, $769,000 in 2000 and $1,180,000 in 1999. Management continues to evaluate the securities portfolio for opportunities to recognize gains and increase portfolio diversification. Gains in each of the last three years have included substantial amounts from regional bank stocks following announcements of mergers or acquisitions.
Noninterest Expense
Noninterest expenses increased from $4,653,000 in 2000 to $5,728,000 in 2001. This followed an increase of $340,000 in 2000 from 1999.
Salary and benefits increased 13.77% to $3,168,000 in 2001, and 7.78% in 2000 compared to 1999. The increase in salaries and benefits in 2001 was primarily the result of the addition of the employees of the two acquired branch offices. The 2000 increase was principally the result of normal salary increases and higher benefits costs for pensions and insurance.
Occupancy and equipment expense increased $142,000 (28.38%) in 2001. This increase resulted from additional depreciation of the remodeled Broadway office, as well as expenses related to the newly acquired Edinburg and Woodstock offices. The increase of 9.56% in 2000 resulted from a full year's depreciation and equipment maintenance expenses related to the operations center that was built in 1999.
Other operating expenses increased $549,000 during 2001, including $304,000 of intangibles amortization. The remaining increase of $245,000 (17.97%) included additional costs associated with stationary, supplies, postage and advertising of the new branches; higher correspondent bank fees which are based on the additional volume of transactions processed; and fees for technology and marketing consulting contracts.
Although noninterest expenses increased substantially in 2001, they have remained steady as a percentage of average assets; 2.24%, 2.25% and 2.22% in 2001, 2000, and 1999, respectively. This compares favorably to peer group averages, which ranged between 3.06% and 3.13% over the same period.
Provision for Loan Losses
Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance for loan losses 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 the appropriate adjustments to the allowance for loan losses when needed. Based on the factors outlined above, the current year provision for loan losses increased from $123,000 in 2000 to $204,000 in 2001. Actual loan charge-offs were $107,411 in 2001 and $105,345 in 2000. Loan losses as a percentage of average loans totaled .06% in 2001 and .07% in 2000, respectively. Losses continue at approximately one-third that of the Bank's peer group average.
Balance Sheet
Total assets increased 30.58% during the year to $272,672,769, an increase of $63,854,875 from $208,817,894 at December 31, 2000. Earning assets increased 28.32% or $56,232,145 to $254,811,417 at December 31, 2001. In February 2001, the Bank completed its acquisition of two branch offices from First Union National Bank, one each in Edinburg and Woodstock, Virginia. These offices became the Bank's first venture outside Rockingham County, Virginia and also its first branch acquisitions. The acquisition included deposits totaling $37,244,000, and loans totaling $9,800,000. The Woodstock facility was also purchased at a cost of $625,000, while the Edinburg facility is leased. Equipment and fixtures acquired as part of the transaction totaled $54,893. The cost of deposit intangibles and other acquisition costs totaled $5,472,153. These costs are being amortized using the straight-line method over a fifteen-year period. Other acquisition costs include legal, accounting, investment advisory and data conversion support by both First Union and the Bank's core software vendor.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Investment Securities
Average balances in investment securities decreased 2.15% in 2001 to $41,679,000. The Company maintains a high level of earning assets as investment securities to provide liquidity, as security for public deposits and to secure repurchase agreements. Management strives to match the types and maturities of securities owned to balance projected liquidity needs, interest rate sensitivity and to maximize earnings through a portfolio bearing low credit risk.
Analysis of Securities
The composition of securities at December 31 was:
(Dollars in thousands) 2001 2000 1999
Available for Sale:1
U.S. Treasury and Agency $ 29,428 $ 15,418 $ 13,913
Mortgage-backed 2 7,922 1,840 2,571
Corporate bonds 10,402 9,480 7,345
Marketable equity securities 10,500 11,942 12,339
---- ---- -----
Total 58,252 38,680 36,168
Held to Maturity and Other Equity Investments:
U.S. Treasury and Agency 111 1,109 2,469
Mortgage-backed 2 80
Corporate bonds 1,772 1,777 1,781
Other equity investments 3,852 3,757 3,923
----- ----- ----
Total 5,735 6,642 8,253
------ ------ ------
Total Securities $ 63,986 $ 45,323 $ 44,421
====== ===== =====
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1 At estimated fair value.
2 Issued by a U.S. Government Agency or secured by U.S. Government Agency
collateral.
Maturities and weighted average yields of debt securities at December 31, 2001 are presented in the table below. Amounts are shown by contractual maturity, expected maturities will differ as issuers may have the right to call or prepay obligations.
Years to Maturity
-------------------------------------------------------------------------------
Less One to Over
(Dollars in thousands) than one Five Five
------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Total Yield
Debt Securities
Available for Sale:
U.S. Treasury &
Agency $11,996 1.63% $15,335 4.33% $2,097 4.90% $29,428 3.26%
Mortgage-backed 16 6.38 7,906 4.04 7,922 4.04
Corporate bonds 1,031 5.85 8,871 6.50 500 7.38 10,402 6.50
-------- --------- -------- --------
Total $13,027 1.96% $24,222 5.13% $10,503 4.37% $47,752 4.10%
------- ------- ------- -------
Debt Securities Held to
Maturity:
U.S. Treasury & Agency 111 5.25 111 5.25
Corporate bonds 1,772 6.15 1,772 6.15
-------- --------- --------
Total $ 111 5.25% $1,772 6.15% $1,883 6.10%
--- -------- -----
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Analysis of Loan Portfolio
The Company's loan portfolio totaled $176,625,383 at December 31, 2001 compared with $152,034,979 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.
All major loan categories increased in 2001. The increase includes approximately $9.8 million of loans purchased from First Union National Bank in the Shenandoah County market. Commercial loans, including agricultural loans, increased 25.07% during 2001 to $41,256,218. Real estate mortgages increased 13.89% to $105,304,862, while construction loans increased $1,148,856 or 26.28%. Consumer installment and credit cards increased 10.41% and 7.95%, respectively.
The following table presents the changes in the loan portfolio over the previous five years.
December 31 ----------------------------------------------------------------------------- (Dollars in thousands) 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Real estate - mortgage $105,305 $ 92,464 $ 84,019 $78,349 $73,611 Real estate- construction 5,521 4,372 5,481 4,376 4,708 Consumer installment 23,106 20,927 18,082 17,125 16,977 Commercial 28,552 25,628 22,880 21,478 16,601 Agricultural 11,835 6,656 8,392 8,670 8,679 Multi-family residential 869 703 414 1,419 1,769 Credit cards 1,348 1,249 1,016 832 818 Other loans 89 36 34 52 27 ------------------------------------------------------------------------------- Total Loans $176,625 $152,035 $140,318 $132,301 $123,190 ------------------------------------------------------------------------------ |
The following table shows the Company's loan maturity and interest rate sensitivity as of December 31, 2001:
Maturity Range
-------------------------------------------------------------------------------
Less Than 1-5 Over
(Dollars in thousands) 1 Year Years 5 Years Total
-------------------------------------------------------------------------------
Commercial and
agricultural loans $ 28,160 $ 12,516 $ 580 $ 41,256
Real Estate - mortgage 16,587 57,082 31,636 105,305
Real Estate - construction 5,521 5,521
Consumer - installment/other 3,066 21,477 24,543
--------------------------------------------------------------------------------
Total $ 53,334 $ 91,075 $ 32,216 $176,625
-------------------------------------------------------------------------------
Loans with predetermined rates $ 2,257 $ 28,711 $ 22,599 $ 53,567
Loans with variable or
adjustable rates 51,077 62,364 9,617 123,058
------------------------------------------------------------------------------
Total $ 53,334 $ 91,075 $ 32,216 $176,625
------------------------------------------------------------------------------
|
Residential real estate loans are generally made for a period not to exceed 25 years and are secured by a first deed of trust which normally does not exceed 90% of the appraised value. If the loan to value ratio exceeds 90%, the Company requires additional collateral, guarantees or mortgage insurance. On approximately 80% of the real estate loans, interest is adjustable after each three or five year period. Fixed rate loans are generally made for a fifteen-year or a twenty-year period with an interest rate adjustment after ten years.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Since 1992, fixed rate real estate loans have been funded with fixed rate borrowings from the Federal Home Loan Bank, which allows the Company to control its interest rate risk. In addition, the Company makes home equity loans secured by second deeds of trust with total indebtedness not to exceed 90% of the appraised value. Home equity loans are made for three, five or seven year periods at a fixed rate or as a revolving line of credit.
The majority of commercial loans are made to small retail, manufacturing and service businesses. Consumer loans are made for a variety of reasons, however, approximately 60% of the loans are secured by automobiles and trucks.
The Company's market area has a stable economy, which tends to be less cyclical than the national economy. Major industries in the market area include agricultural production and processing, higher education, retail sales, services and light manufacturing. The agricultural production and processing industry is a major contributor to the local economy and its performance and growth tend to be cyclical in nature, however, this cyclical nature is offset by other stable industries in the trade area. In addition to direct agricultural loans, a large percentage of residential real estate loans and consumer installment loans are made to borrowers whose income is derived from the agricultural sector of the economy. A large percentage of the agricultural loans are made to poultry growers. During 2001, two major poultry producers that were headquartered in the Company's market area were sold to national poultry producers. Although the sales resulted in some managerial restructuring, the day-to-day operations of these companies continue with little noticeable change. Management has not seen any change in past due loans that relate to these major employers changing ownership.
During recent years, real estate values in the Company's market area for commercial, agricultural and residential property increased, on the average, between 2% and 5% annually 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.
Unemployment rates in the Company's market area continue to be below both the national and state averages. The national economic slowdown that has resulted since the September 11th tragedies has not had a significant impact within the local area and as yet does not appear to have resulted in increased loan delinquencies.
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,
-------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------
Nonaccruing loans None $ 664 None None None
Loans past due 90 days or more $ 1,096 $ 421 $ 1,917 $2,059 $ 823
Percentage to total loans .62% 71% 1.37% 1.56% .67%
|
Interest accruals are continued on past due, secured loans until the principal and accrued interest equal the value of the collateral and on unsecured loans until the financial condition of the borrower deteriorates to the point that any further accrued interest would be determined to be uncollectible. At December 31, 2001, 2000 and 1999, there were no restructured loans on which interest was accruing at a reduced rate or on which payments had been extended.
Potential Problem Loans
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. Nor do they 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.
As of December 31, 2001, management is not aware of any potential problem loans, which are not already classified for regulatory purposes or classified substandard or watch as part of the Bank's internal grading system.
Loan Concentrations
At December 31, 2001, no industry category exceeded ten percent of total loans.
Loan Losses and the Allowance for Loan Losses
For each period presented, the provision for loan losses charged to operations is based on management's judgment after taking into consideration all factors connected with the collectibility of the existing portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors. Specific factors considered by management in determining the amounts charged to operations include internally generated loan review reports, past due reports and historical loan loss experience. This review also considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates nonperforming loans relative to their collateral value and makes appropriate adjustments to the allowance for loan losses when needed.
The Bank has not experienced significant loan losses in any of the last three years. While 1999 losses increased relative to the Bank's normal experience, the loss rate of .16% of average loans outstanding was still below the Company's peer group. During 2000, losses returned to historic levels and continued to be well below peer averages throughout 2001. While the overall level of the allowance is well below peer group averages, management feels this is appropriate based on its loan loss history and the composition of its loan portfolio. The current allowance for loan losses is equal to approximately eight years average loan losses. 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 follows:
(Dollars in thousands) 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------
Balance at beginning of period $1,108 $1,090 $1,162 $1,121 $1,003
Provision charged to expenses 204 123 140 110 180
Other adjustments 84
Loan losses:
Commercial 22 21 107 4 10
Installment 138 125 150 170 91
Real estate 2 2
-------------------------------------------------------------------------------
Total loan losses 160 148 259 174 101
Recoveries:
Commercial 3 3 5 8
Installment 49 39 40 98 31
Real Estate 1 1 2
-------------------------------------------------------------------------------
Total recoveries 53 43 47 105 39
Net loan losses 107 105 212 69 62
Balance at end of period $1,289 $1,108 $1,090 $1,162 $1,121
Allowance for loan losses
as a percentage of loans .73% .73% .78% .88% .91%
Ratio of net loan losses during the
period to average loans outstanding
during the period .06% .07% .16% .05% .05%
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
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
-------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
Percent Percent Percent Percent Percent
of of of of of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-----------------------------------------------------------------------------------------------------------
Commercial $ 451 23% $ 332 25% $ 327 26% $ 392 27% $ 376 22%
Real estate 323 63 277 61 327 60 350 59 320 64
Installment 451 14 333 14 273 14 260 14 250 14
Unallocated 64 166 163 160 120
------------------------------------------------------------------------------------------------------------
Total $1,289 100% $1,108 100% $1,090 100% 1,162 100% $1,162 100%
|
Deposits and Borrowings
The Bank recognized an increase in year-end deposits in 2001 of 36.71%. Growth in deposits included $37,422,974 of deposits that were purchased in Shenandoah County. Internally generated loan growth totaled $18,501,402. The Bank experienced deposit growth in all deposit types, even though interest rates paid on deposits fell throughout most of the year. Management believes that economic uncertainty and the volatility of the stock market contributed to the growth in deposits.
The Bank has traditionally avoided brokered and large deposits believing that they were unstable and, thus not desirable. This has proven to be a good strategy as the local deposit base is considered very stable and small increases in rates above the competition have resulted in deposit gains in past years. Certificates of deposit over $100,000 totaled $17,487,077 at December 31, 2001. The maturity distribution of these certificates is as follows:
Less than 3 months $4,375,715
3 to 12 months 9,104,788
1 year to 5 years 4,006,574
---------
Total $17,487,077
==========
|
Non-deposit borrowings include repurchase agreements, federal funds purchased and long-term debt obtained through the Federal Home Loan Bank. Repurchase agreements continue to be an important source of funding and provide commercial customers the opportunity to earn market rates of interest on funds that are secured by specific securities owned by the Bank.
Borrowings from the Federal Home Loan Bank are used to support the Bank's mortgage lending program and allow the Bank to offer longer-term mortgages. During 2001, the Bank paid off approximately $8,500,000 in FHLB debt with a combination of liquid assets and a new loan of $6,000,000. This refinancing allowed the Bank to reposition its cash flows to more closely match payments received on customer mortgages. It also reduced the amount of low yielding liquid assets which the Bank held, while paying off higher rate obligations.
Stockholder's Equity
Total stockholders' equity increased $1,399,571 or 5.15% in 2001. Earnings retained from operations were the primary source of the increase. As of December 31, 2001, the book value per share was $11.74 compared to $11.18 as of December 31, 2000. Dividends are paid to 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 investments, the more capital it is required to maintain. The Bank, as well as the 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, 2001, the Company had Tier I capital of 13.87% of risk weighted assets and combined Tier I and II capital of 14.65% 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, 2001, the Company reported a leverage ratio of 9.20%. The Bank's leverage ratio was also above the minimum.
Market Risk Management
Most of the Company's net income is dependent on the Bank's net interest income. As the rapid change in short-term interest rates demonstrated in 2001, net interest income is subject to interest rate risk to the extent that imbalances exist between the maturities or repricing of interest bearing liabilities and interest earning assets. In 2001 for example, interest-earning assets repriced much more quickly than interest bearing liabilities; this resulted in a decrease in the net interest margin compared to 2000. Conversely, in a period of rapidly rising rates, if interest earning assets reprice more quickly than interest bearing liabilities the resulting effect would be an increase in the net interest margin. Also, net interest income is also affected by changes in the mix of funding that supports earning assets. For example, higher levels of non-interest bearing demand deposits and leveraging earning assets by funding with stockholder's equity would result in greater levels of net interest income than if most of the earning assets were funded with higher cost interest-bearing liabilities, such as certificates of deposit.
Liquidity as of December 31, 2001 is very strong. 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 2001, the Bank used funds received in the branch acquisition, maturing investments, deposit growth and an increase in short-term debt to meet its liquidity needs. The Bank's membership in the Federal Home Loan Bank also provides liquidity as the Bank borrows money that is repaid over a five to ten year period and uses the money to make fixed rate loans. The matching of the long-term receivables and liabilities helps the Bank reduce its sensitivity to interest rate changes. The Company reviews its interest rate gap periodically and makes adjustments as needed. There are no off balance sheet items that will impair future liquidity.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following table depicts the Company's interest rate sensitivity, as measured by the repricing of its interest sensitive assets and liabilities as of December 31, 2001. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. The analysis indicates a liability sensitive one-year cumulative GAP position of 10.78% of total earning assets. Approximately 35% of rate sensitive assets and 55% of rate sensitive liabilities are subject to repricing within one year. The one-year cumulative GAP narrowed during 2001, as the Bank held more short-term liquid assets. With rates falling throughout 2001, the Investment Committee and management choose to not reinvest bond maturities, loan repayments and cash acquired from First Union in longer-term investments. Management believes that remaining liquid and keeping investments short-term in nature will allow it to achieve greater earnings in the future when rates stabilize at higher levels.
The following GAP analysis shows the time frames from December 31, 2001, in which the Company's assets and liabilities are subject to repricing:
1-90 91-365 1-5 Over 5 Not
(Dollars in thousands) Days Days Years Years Classified Total
-------------------------------------------------------------------------------
Rate Sensitive Assets:
Loans $ 39,224 $ 14,110 $ 91,075 $ 32,216 $ $176,625
Investments securities 11,996 8,974 25,994 2,671 14,352 63,987
Interest bearing
bank deposits 3,207 10,992 14,199
--------------------------------------------------------------------------------
Total 54,427 34,076 117,069 34,887 14,352 254,811
Rate Sensitive Liabilities:
Interest bearing
demand deposits 4,097 8,194 8,194 20,485
Savings 11,582 18,540 13,915 44,037
Certificates of deposit
$100,000 and over 4,375 9,105 4,007 17,487
Other certificates
of deposit 23,081 47,229 30,218 100,528
-------------------------------------------------------------------------------
Total Deposits 27,456 72,013 60,959 22,109 182,537
Short-term debt 10,696 10,696
Long-term debt 1,096 4,717 14,420 750 20,983
-------------------------------------------------------------------------------
Total 39,248 76,730 75,379 22,859 214,216
-------------------------------------------------------------------------------
Discrete Gap 15,179 (42,654) (41,690) 12,028 14,352
-------------------------------------------------------------------------------
Cumulative Gap* 15,179 (27,475) 14,215 26,243 40,595
----------------------------------------------------------------------------
Percent of Earning
Assets 5.96% (10.78)% 5.58% 10.30% 15.93%
--------------------------------------------------------------------------
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* In preparing the above table, no assumptions are made with respect to loan prepayments or deposit run offs. Loan principal payments are included in the earliest period in which the loan matures or can be repriced. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities on deposits which have no stated maturity dates were derived from guidance contained in FDICIA 305.
F & M Bank Corp. and Subsidiaries
Consolidated Balance Sheets
December 31,
ASSETS 2001 2000
-------------- ---------
Cash and due from banks (note 3) $ 5,363,722 $3,807,575
Interest bearing deposits 14,198,842 312,524
Federal funds sold 909,000
Securities -
Held to maturity - fair value
of $ 1,944,405 in 2001
and $ 2,859,536 in 2000(note 4) 1,882,781 2,886,336
Available for sale (note 4) 58,252,017 38,679,896
Other investments (note 4) 3,852,394 3,756,537
Loans (note 5) 176,625,383 152,034,979
Less allowance for loan losses (note 6) (1,288,506) (1,107,917)
----------- ----------
Net Loans 175,336,877 150,927,062
Construction in progress 578,586
Bank premises and equipment, net (note 7) 4,411,526 3,068,827
Other real estate 566,966 426,128
Interest receivable 1,541,541 1,481,032
Intangible assets 5,168,144
Other assets 2,097,959 1,984,391
---------- ---------
Total Assets $272,672,769 $208,817,894
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $25,740,570 $18,614,720
Interest bearing:
Demand 20,485,481 14,371,795
Money market accounts 9,249,751 5,977,576
Savings 34,787,009 26,405,584
Time deposits over $100,000 (note 8) 17,487,077 12,574,718
All other time deposits (note 8) 100,528,887 74,410,006
----------- ----------
Total Deposits 208,278,775 152,354,399
Short-term debt (note 9) 10,695,695 8,698,035
Accrued liabilities 4,118,402 4,181,392
Long-term debt (note 10) 20,982,698 16,385,838
---------- ----------
Total Liabilities 244,075,570 181,619,664
----------- -----------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 3,000,000
shares authorized, 2,438,563 and 2,433,373
shares issued and outstanding
for 2001 and 2000, respectively 12,192,815 12,166,865
Capital surplus 525,015 479,468
Retained earnings (note 16) 15,488,406 13,790,628
Accumulated other comprehensive income 390,963 761,269
---------- ---------
Total Stockholders' Equity 28,597,199 27,198,230
---------- ----------
Total Liabilities and Stockholders' Equity $272,672,769 $208,817,894
=========== ===========
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The accompanying notes are an integral part of this statement.
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
2001 2000 1999
------------------------------------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $14,162,330 $12,920,610 $11,740,753
Interest on deposits and federal
funds sold 1,163,750 62,510 143,132
Interest on debt securities 1,837,897 1,980,466 1,904,852
Dividends on equity securities 517,435 545,654 532,173
-------- -------- --------
Total Interest and Dividend Income 17,681,412 15,509,240 14,320,910
---------- ---------- ----------
INTEREST EXPENSE:
Interest on demand deposits 435,919 466,086 467,082
Interest on savings deposits 873,462 944,232 974,507
Interest on time deposits over $100,000 723,697 462,019 312,233
Interest on all other time deposits 5,661,394 4,102,688 3,324,936
--------- --------- ---------
Total interest on deposits 7,694,472 5,975,025 5,078,758
Interest on short-term debt 311,240 498,846 301,216
Interest on long-term debt 1,488,569 936,822 1,095,059
--------- -------- ---------
Total Interest Expense 9,494,281 7,410,693 6,475,033
--------- --------- ---------
NET INTEREST INCOME 8,187,131 8,098,547 7,845,877
--------- --------- ---------
PROVISION FOR LOAN LOSSES (note 6) 204,000 123,000 140,000
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,983,131 7,975,547 7,705,877
--------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 674,366 554,685 470,623
Insurance and other commissions 141,116 143,682 145,007
Other operating income 341,969 339,582 300,227
Gain on security transactions (note 4) 1,252,500 769,704 1,179,683
--------- -------- ---------
Total Noninterest Income 2,409,951 1,807,653 2,095,540
--------- --------- ---------
NONINTEREST EXPENSES:
Salaries 2,473,605 2,120,549 1,972,167
Employee benefits (note 12) 693,933 663,704 611,060
Occupancy expense 324,092 215,312 201,983
Equipment expense 317,597 284,514 254,220
Amortization of intangibles 304,008
Other operating expenses 1,614,519 1,369,139 1,273,926
--------- --------- ---------
Total Noninterest Expenses 5,727,754 4,653,218 4,313,356
--------- --------- ---------
Income before Income Taxes 4,665,328 5,129,982 5,488,061
INCOME TAX EXPENSE (note 11) 1,434,798 1,486,097 1,681,856
--------- --------- ---------
NET INCOME $3,230,530 $3,643,885 $3,806,205
========= ========= =========
PER SHARE DATA
NET INCOME $ 1.33 $ 1.49 $ 1.55
======== ======== ========
CASH DIVIDENDS $ .63 $ .59 $ .52
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 2,430,993 2,445,509 2,454,250
========= ========= =========
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The accompanying notes are an integral part of this statement.
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
BALANCE - December 31, 1998 $12,279,810 $ 866,694 $ 9,057,266 $1,874,700 $24,078,470
Comprehensive Income:
Net income 3,806,205 3,806,205
Net change in other
comprehensive income
(note 2) (1,323,307) (1,323,307)
-----------
Comprehensive Income 2,482,898
Dividends on common stock (1,276,410) (1,276,410)
Shares repurchased
(2,655 shares) (13,275) (46,352) (59,627)
Shares sold to ESOP (2,655 shares) 13,275 47,790 61,065
-------- -------- --------- ----------- ----------
BALANCE - December 31, 1999 12,279,810 868,132 11,587,061 551,393 25,286,396
Comprehensive Income:
Net income 3,643,885 3,643,885
Net change in other
comprehensive income(note 2) 209,876 209,876
--------
Comprehensive Income 3,853,761
Dividends on common stock (1,440,318) (1,440,318)
Shares repurchased
(22,589 shares) (112,945) (388,664) (501,609)
-------- -------- --------- --------- ----------
BALANCE - December 31, 2000 12,166,865 479,468 13,790,628 761,269 27,198,230
Comprehensive Income:
Net income 3,230,530 3,230,530
Net change in other
comprehensive income(note 2) (370,306) (370,306)
-----------
Comprehensive Income 2,860,224
Dividends on common stock (1,532,752) (1,532,752)
Shares sold to ESOP (9,000) 45,000 110,250 155,250
Shares repurchased (3,810 shares) (19,050) (64,703) (83,753)
--------- ------ -------- ------- --------
BALANCE - December 31, 2001 $12,192,815 $ 525,015 $15,488,406 $390,963 $28,597,199
======= ========== ========= ======= =========
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The accompanying notes are an integral part of this statement.
F & M Bank Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
2001 2000 1999
---------------------------- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,230,530 $ 3,643,885 $ 3,806,205
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain on sale of securities (1,252,500) (769,704) (1,179,683)
Depreciation 308,152 257,586 218,134
Amortization of security premiums 40,266 19,222 198,559
Provision for loan losses 204,000 123,000 140,000
Provision for deferred taxes (43,982) (90,867) 9,410
Increase in interest receivable (60,509) (108,325) (20,895)
Increase (decrease) in other assets 54,166 (514,236) (154,134)
Increase (decrease) in accrued
expenses 84,173 (52,373) 386,151
Amortization of limited partnership
investments 218,804 360,893 121,685
Amortization of intangibles 304,008
Gain on sale of land (21,484)
--------- -------- --------
Net Cash Provided by Operating
Activities 3,065,624 2,869,081 3,525,432
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest
bearing bank deposits (13,886,318) 149,603 1,682,811
Net (increase) decrease in federal
funds sold 909,000 (909,000) 2,436,000
Proceeds from maturities of securities
held to maturity 20,100,747 1,430,967 4,436,157
Proceeds from maturities of securities
available for sale 40,828,490 3,326,438 12,349,066
Proceeds from sales of securities
available for sale 3,051,910 2,185,135 3,764,619
Purchases of securities held to
maturity (19,990,333) (6,771) (1,523,000)
Purchases of securities available
for sale (62,216,028) (7,233,362)(16,827,648)
Purchase of other securities (1,500)
Net increase in loans (24,955,943) (11,822,428) (8,228,731)
Purchase of property and equipment (1,072,265) (225,456) (1,296,207)
Construction in progress payments (578,586)
Purchase of intangible assets (5,472,152)
Sale of other real estate 138,774 79,489
-------- -------- --------
Net Cash Used in Investing Activities (62,564,118) (13,603,971) (3,208,433)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand and savings
deposits 24,893,136 (2,538,209) 4,036,901
Net increase in time deposits 31,031,240 15,385,656 347,781
Net increase in short-term debt 1,997,660 978,666 430,322
Dividends paid in cash (1,532,752) (1,419,147) (1,227,072)
Proceeds from long-term debt 13,000,000 1,000,000
Payments to repurchase common stock (83,753) (501,609) (59,627)
Proceeds from issuance of common stock 155,250 61,065
Repayments of long-term debt (8,403,140) (3,162,438) (3,305,295)
----------- --------- ----------
Net Cash Provided by Financing
Activities 61,054,641 9,742,919 284,075
-------- -------- ------
Net Increase (decrease) in Cash
and Cash Equivalents 1,556,147 (991,971) 601,074
Cash and Cash Equivalents,
Beginning of Year 3,807,575 4,799,546 4,198,472
-------- -------- -------
Cash and Cash Equivalents, End of Year $ 5,363,722 $ 3,807,575 $4,799,546
========= ========= =========
Supplemental Disclosure:
Cash paid for:
Interest expense $ 9,458,909 $ 7,218,051 $6,467,192
Income taxes 1,050,000 1,322,000 1,345,000
|
The accompanying notes are an integral part of this statement
F & M Bank Corp. and Subsidiaries
Notes to the 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 seven branch offices. In addition, the Company offers insurance and financial services through its subsidiaries, TEB Life Insurance, Inc. and Farmers & Merchants Financial Services, Inc.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles and to accepted practice within the banking industry.
The following is a summary of the more significant policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the Farmers and Merchants Bank, the TEB Life Insurance Company and Farmers & Merchants Financial Services, Inc. Significant intercompany accounts and transactions have been eliminated.
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 and national economic conditions.
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.
Investment Securities
Management reviews the securities portfolio and classifies all securities as either held to maturity or available for sale at the date of acquisition. Securities that the Company has both the positive intent and ability to hold to maturity (at time of purchase) are classified as held to maturity securities. All other securities are classified as available for sale. Securities held to maturity are carried at historical cost and adjusted for amortization of premiums and accretion of discounts, using the effective interest method. Securities available for sale are carried at fair value with any valuation adjustments reported, net of deferred taxes, as a part of other accumulated comprehensive income. Also included in securities available for sale are marketable equity securities.
Interest, amortization of premiums and accretion of discounts on securities are reported as interest income using the effective interest method. Gains (losses) realized on sales and calls of securities are determined on the specific identification method.
Notes to the Consolidated Financial Statements
Accounting for Historic Rehabilitation and Low Income Housing Partnerships
The Company periodically invests in low income housing partnerships whose primary benefit is the distribution of federal tax credits to partners. The Company recognizes these benefits and the cost of the investments over the life of the partnership (usually 15 years). In addition, state and federal historic rehabilitation credits are generated from a recent investment in a partnership organized for this purpose. Amortization of this investment is based on the amount or benefits received in the current year to total estimated benefits over the life of the project. All benefits have been shown as investment income since income tax benefits are the only anticipated benefits of ownership.
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.
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.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over the estimated useful lives of the assets on a combination of the straight-line and accelerated methods. The ranges of the useful lives of the premises and equipment are as follows:
Buildings and Improvements 10 - 40 years Furniture and Fixtures 5 - 20 years
Maintenance, repairs, and minor improvements are charged to operations as incurred. Gains and losses on dispositions are reflected in other income or expense.
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.
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.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and gains or losses on certain derivative contracts, are reported as a separate component of the equity section of the balance sheet. Such items, along with operating net income, are components of comprehensive income.
The components of other comprehensive income and related tax effects are as follows:
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Unrealized holding gain (loss)
on interest rate swap $ (30,106) $ $
Unrealized holding gains
(losses)on available-
for-sale securities 698,279 1,134,127 (915,573)
Reclassification adjustment
for gains realized
in income (1,252,500) (769,704) (1,179,683)
-------- ------- --------
Net Unrealized Gains (Losses) (584,327) 364,423 (2,095,256)
Tax effect 214,021 (154,547) 771,949
-------- --------- --------
Net Change $ (370,306) $ 209,876 $(1,323,307)
========= ======== ==========
|
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 $ 1,005,000 and $764,000 for the years ended December 31, 2001 and 2000, respectively.
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, 2001
U. S. Treasuries
and Agencies $ 110,465 $ 3,385 $ $ 113,850
Corporate bonds 1,772,316 58,239 1,830,555
--------- -------- --------- ---------
Total Securities
Held to
Maturity $ 1,882,781 $ 61,624 $ $1,944,405
========= ======== ======== =========
December 31, 2000
U. S. Treasuries
and Agencies $ 1,109,274 $ $ 1,786 $1,107,488
Corporate bonds 1,777,062 25,014 1,752,048
--------- -------- --------- ---------
Total Securities
Held to
Maturity $2,886,336 $ $ 26,800 $2,859,536
========= ======== ======== =========
|
Notes to the Consolidated Financial Statements
The amortized cost and fair value of securities available for sale are as follows:
December 31, 2001
U.S. Treasuries and $29,097,413 $ 332,543 $ 2,189 $29,427,767
Agencies
Mortgage-backed 7,853,039 68,966 436 7,921,569
obligations of
federal agencies
Marketable equities 10,682,587 1,411,532 1,594,000 10,500,119
Corporate bonds 10,012,271 390,291 10,402,562
---------- -------- -------- ----------
Total Securities
Available for
Sale $57,645,310 $2,203,332 $1,596,625 $58,252,017
========== ========= ========= ==========
December 31, 2000
U.S. Agencies $15,326,434 $ 137,478 $ 45,452 $15,418,460
Mortgage-backed
obligations of
federal agencies 1,839,058 7,445 6,808 1,839,695
Marketable equities 10,853,533 2,416,151 1,327,793 11,941,891
Corporate bonds 9,499,943 57,652 77,745 9,479,850
--------- -------- -------- ---------
Total Securities
Available for
Sale $37,518,968 $2,618,726 $1,457,798 $38,679,896
========== ========= ========= ==========
|
The amortized cost and fair value of securities at December 31, 2001, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Held Securities Available
to Maturity for Sale
--------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or
less $ $ $13,006,324 $13,027,565
Due after one year
through five years 1,882,781 1,944,405 33,956,399 34,724,333
Total 1,882,781 1,944,405 46,962,723 47,751,898
Marketable equities 10,682,587 10,500,119
-------- -------- ---------- ----------
$1,882,781 $1,944,405 $57,645,310 $58,252,017
========= ========= ========== ==========
|
Realized gains and losses and the gross proceeds from the sale of debt securities were not material in 2001, 2000 or 1999. Realized gains and losses on marketable equity transactions are summarized below:
2001 2000 1999
------------------------ --------
Gains $1,283,189 $ 798,563 $1,239,207
Losses 30,689 28,859 59,524
-------- -------- --------
Net Gains $1,252,500 $ 769,704 $1,179,683
========= ======== =========
|
The carrying value (which approximates fair value) of securities pledged by the Bank to secure deposits and for other purposes amounted to $ 19,341,970 at December 31, 2001 and $18,107,053 at December 31, 2000. The Company has pledged $6,000,000 of equity securities to secure the $4,000,000 loan it obtained from SunTrust Bank (see note 10).
There were no state or political subdivision obligations of a single issuer that exceeded 10% of stockholders' equity at December 31, 2001, 2000 or 1999
Other investments consist of investments in six low-income housing and historic credit partnerships (carrying basis of $2,300,564) and stock in the Federal Home Loan Bank, Community Bankers Bank, Federal Reserve Bank, Shenandoah Title, LLC and Virginia Bankers' Insurance Center, LLC (carrying basis of $1,551,830). The interests in the low-income housing and historic credit 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, 2001.
At December 31, 2001, the Company was committed to invest an additional $2,118,074 in four low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and as an accrued liability on the balance sheet.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
2001 2000
-------------- ---------
Real Estate
Construction $ 5,520,815 $ 4,371,959
Mortgage 105,304,862 92,463,872
Commercial and agricultural 41,256,218 32,987,085
Installment 23,106,243 20,927,176
Credit cards 1,348,372 1,249,068
Other 88,873 35,819
---------- ----------
Total $176,625,383 $152,034,979
========== ==========
|
The Company has pledged mortgage loans as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $22,923,410 and $21,293,076 as of December 31, 2001 and 2000, respectively.
Notes to the Consolidated Financial Statements
NOTE 6 ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses is shown in the following schedule:
2001 2000 1999
------------------------ ------
Balance, beginning of year $1,107,917 $1,090,262 $1,162,176
Other adjustments 84,000
Provision charged to operating
expenses 204,000 123,000 140,000
Loan recoveries 52,848 42,697 47,107
Loans charged off (160,259) (148,042) (259,021)
---------- ---------- --------
Balance, End of Year $1,288,506 $1,107,917 $1,090,262
========= ========= =========
Percentage of gross loans .73% .73% .78%
|
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment as of December 31 are summarized as follows:
2001 2000
-------------- ---------
Land $ 549,723 $ 424,723
Buildings and improvements 3,957,920 2,797,386
Furniture and equipment 2,683,780 2,661,095
---------- ----------
7,191,423 5,883,204
Less - accumulated depreciation (2,779,897) (2,814,377)
Net $4,411,526 $ 3,068,827
======= =========
|
Provisions for depreciation of $ 308,152 in 2001, $257,586 in 2000, and $218,134 in 1999 and were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 2001, the scheduled maturities of time deposits are as follows:
2002 $83,153,552
2003 20,483,810
2004 5,438,221
2005 6,118,613
Thereafter 2,821,768
----------
Total $118,015,964
===========
|
NOTE 9 SHORT-TERM DEBT:
Short-term debt information is summarized as follows:
Maximum Outstanding Weighted Year
Outstanding at Average Average End
at Any Year Balance Interest Interest
Month End End Outstanding 1 Rate Rate
-------------------------------- ---------- -----
2001
Treasury, tax
and loan $ 69,746 $ 69,746 $ 18,655 n/a n/a
Federal funds 936,000 936,000 89,315 6.22% n/a
purchased
Notes payable 266,065 198,260 74,592 5.14% 4.35%
Securities sold
under
agreements to
repurchase 10,853,937 9,491,689 8,946,884 3.38% 1.50%
-------- ------- ------- ------ ------
Totals $10,695,695 $ 9,129,446 3.42% 1.51%
======== ======= ===== ====
2000
Treasury, tax
and loan $ 29,205 $ $ 16,931 n/a n/a
Federal funds
purchased 6,040,000 2,037,910 6.74% n/a
Notes payable 359,302 68,105 8.92% n/a
Securities sold under
agreements to
repurchase 8,698,035 8,698,035 6,255,820 5.68% 5.76%
--------- --------- --------- ------- ------
Totals $ 8,698,035 $ 8,378,766 5.95% 5.76%
========= ========= ======= ======
1999
Treasury, tax
and loan $ 26,246 $ 17,081 $ 22,214 n/a n/a
Federal funds
purchased 1,072,000 963,000 136,827 5.66% 5.77%
Notes payable 116,739 116,739 9,598 8.00% 8.00%
Securities sold under
agreements to
repurchase 7,762,956 6,622,549 6,557,376 4.46% 4.88%
--------- --------- --------- ------- ------
Totals $7,719,369 $6,726,015 4.47% 5.03%
========= ========= ======= ======
|
1 Based on daily amounts outstanding
The Bank issues repurchase agreements to customers desiring short-term investments. These agreements are issued on a daily basis and are secured by United States Agency obligations and corporate bonds. The market value of these securities approximates their carrying value. All securities sold under agreements to repurchase are under the Company's control.
As of December 31, 2001, the Company had lines of credit with correspondent banks totaling $16,232,000, which are used in the management of short-term liquidity.
Notes to the Consolidated Financial Statements
NOTE 10 LONG-TERM DEBT:
Advances from the Federal Home Loan Bank of Atlanta (FHLB) were $13,000,000 in 2001 and $1,000,000 in 2000. The interest rates on the notes payable are fixed at the time of the advance and range from 4.02% to 5.33%; the weighted average interest rate is 4.69% at December 31, 2001. During 2001, the Company paid $358,955 in prepayment penalties to refinance portions of this debt. These penalties were expensed in 2001 when paid. The long-term debt is secured by qualifying mortgage loans owned by the Company.
The Company incurred $4,000,000 of long-term debt from SunTrust Bank in March 2001. Proceeds of this debt were used as contributed surplus to the Bank. The balance at December 31, 2001 was $3,333,333 with quarterly principal payments of $333,333. The interest rate is a floating rate of LIBOR plus 1.10% adjustable quarterly. On September 30, 2001, the Company entered into a rate swap agreement with SunTrust Robinson Humphrey, which fixed the rate a 4.60% for the remaining term of the obligation. As a result of a continued decline in market interest rates, had the Company cancelled this swap agreement at December 31, 2001 it would have suffered a $30,106 pretax loss on the transaction.
Repayments of long-term debt are due either quarterly or semi-annually and interest is due monthly. Interest expense of $1,488,569, $936,822, and $1,095,059 was incurred on these debts in 2001, 2000, and 1999, respectively. The maturities of long-term debt as of December 31, 2001 are as follows:
2002 $5,813,531
2003 4,813,531
2004 4,146,865
2005 3,480,199
2006 1,978,571
Thereafter 750,001
--------
Total $20,982,698
==========
|
NOTE 11 INCOME TAX EXPENSE:
The components of the income tax expense are as follows:
2001 2000 1999
------------------------ -------
Current expense
Federal $1,448,500 $1,538,275 $1,626,377
State 30,280 38,689 46,069
Deferred expense
Federal (43,982) (90,867) 9,410
--------- --------- --------
Total Income Tax Expense $1,434,798 $1,486,097 $1,681,856
========= ========= =========
|
The deferred tax effects of temporary differences are as follows:
LIH Partnership Losses $ 19,107 $ (43,697) $
Provision for loan losses (30,800) 4,983 24,451
Split dollar life insurance (10,629) (8,506) (2,422)
Non-qualified deferred
compensation (52,147) (54,828) (42,932)
Depreciation 39,177 56,362 19,902
Pension expense (1,736) (40,163) 7,992
Other (6,954) (5,018) 2,419
--------- --------- --------
Deferred Income Tax Benefit $(43,982) $ (90,867) $ 9,410
======== ========= ========
|
The components of the deferred taxes as of December 31 are as follows:
2001 2000
------------ --------
Deferred Tax Assets:
Bad debt allowance $ 287,858 $ 257,058
Split dollar life insurance 105,004 94,375
Nonqualified deferred compensation 181,895 129,747
Low income housing partnership losses 10,636 29,743
State historic tax credits 99,591 129,871
Other 14,157 7,205
-------- --------
Total Assets 699,141 647,999
-------- ---------
Deferred Tax Liabilities:
Securities available for sale 194,340 375,693
Unearned low income housing credits 353,978 288,438
Depreciation 141,585 102,409
Pension 123,863 125,599
Other 9,418 9,418
-------- --------
Total Liabilities 823,184 901,557
-------- --------
Net Liability $(124,043) $(253,558)
========= ========
|
The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rates:
2001 2000 1999
----------------------------- ----
Tax expense at federal
statutory rates $1,586,212 $1,744,194 $1,865,941
Increases (decreases) in taxes
resulting from:
State income taxes, net 31,613 39,512 56,038
Partially exempt income (134,909) (126,828) (146,584)
Tax-exempt income (79,739) (180,486) (47,212)
Other 31,621 9,705 (46,327)
-------- -------- --------
Total Income Tax Expense $1,434,798 $1,486,097 $1,681,856
========= ========= =========
|
Notes to the Consolidated Financial Statements
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. Plan assets consist primarily of investments in stocks and bonds. Pension expense totaled $140,622, $165,509, and $153,667, for 2001, 2000, and 1999, 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 $155,250 in 2001, $159,000 in 2000, and $160,000 in 1999 to the Plan and charged this expense to operations.
NOTE 13 CONCENTRATIONS OF CREDIT:
The Company had cash deposits in other commercial banks totaling $17,669,293 and $2,580,337 at December 31, 2001 and 2000, respectively.
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. Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the financial condition of the borrower. Approximately 70% of the loan portfolio is secured by real estate.
NOTE 14 COMMITMENTS:
The Company makes commitments to extend credit in the normal course of business and issues standby letters of credit to meet the financing needs of its customers. The amount of the commitments represents the Company's exposure to credit loss that is not included in the balance sheet. As of the balance sheet dates, the Company had the following commitments outstanding:
2001 2000
------------ --------
Commitments to loan money $42,837,337 $23,266,949
Standby letters of credit 714,090 596,922
|
The Company uses the same credit policies in making commitments to lend money and issue standby letters of credit as it does for the loans reflected in the balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Collateral required, if any, upon extension of credit is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment.
NOTE 15 TRANSACTIONS WITH RELATED PARTIES:
During the year, officers and directors (and companies controlled by them) were customers of and had transactions with the Company in the normal course of business. These transactions were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.
Loan transactions with related parties are shown in the following schedule:
2001 2000
------------ -------
Total loans, beginning of year $1,403,599 $1,345,420
Change in directorship 162,097
New loans 1,174,549 594,748
Repayments (956,900) (536,569)
--------- --------
Total Loans, End of Year $1,783,345 $1,403,599
========= =========
|
NOTE 16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK:
The principal source of funds of F & M Bank Corp. is dividends paid by the Farmers and Merchants Bank. The Federal Reserve Act restricts the amount of dividends the Bank may pay. Approval by the Board of Governors of the Federal Reserve System is required if the dividends declared by a state member bank, in any year, exceed the sum of (1) net income of the current year and (2) income net of dividends for the preceding two years. As of January 1, 2002, approximately $2,094,000 was available for dividend distribution without permission of the Board of Governors. Dividends paid by the Bank to the Company totaled $954,000 in 2001, $1,345,000 in 2000 and $1,419,000 in 1999.
NOTE 17 LITIGATION
In the normal course of business, the Company may become involved in litigation arising from banking, financial, or other activities of the Company. Management after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Company's financial condition, operating results or liquidity.
NOTE 18 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.
Notes to the Consolidated Financial Statements
Estimated fair value and the carrying value of financial instruments at December 31, 2001 and 2000 are as follows (in thousands):
2001 2000
-------------------------------------------------
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
---------- --------- ---------- ---------
Financial Assets
Cash $ 5,364 $ 5,364 $ 3,808 $ 3,808
Interest bearing
deposits 14,506 14,506 313 313
Federal funds sold 909 909
Securities available
for sale 58,252 57,645 38,680 38,680
Securities held to
maturity 1,944 1,883 2,860 2,886
Other investments 3,852 3,852 3,757 3,757
Loans 182,474 176,625 150,833 150,927
Accrued interest
receivable 1,542 1,542 1,481 1,481
Financial Liabilities
Demand Deposits:
Non-interest bearing 25,741 25,741 18,615 18,615
Interest bearing 29,735 29,735 20,349 20,349
Savings deposits 34,787 34,787 26,406 26,406
Time deposits 120,620 118,015 87,385 86,985
Accrued liabilities 4,099 4,099 4,181 4,181
Short-term debt 10,696 10,696 8,698 8,698
Long-term debt 21,013 20,983 16,219 16,386
|
The carrying value of cash and cash equivalents, other investments, deposits with no stated maturities, short-term borrowings, and accrued interest approximate fair value. The fair value of securities was calculated using the most recent transaction price or a pricing model, which takes into consideration maturity, yields and quality. The remaining financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments during the month of December 2001.
NOTE 19 REGULATORY MATTERS:
The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation, to ensure capital adequacy, require the Company to maintain minimum amounts and ratios. These ratios are defined in the regulations and the amounts are set forth in the table below. Management believes, as of December 31, 2001, that the Company and its subsidiary bank meet all capital adequacy requirements to which they are subject.
As of the most recent notification from the Bureau of Financial Institutions, the subsidiary bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
The Company's actual capital ratios are presented in the following table:
Actual Regulatory Requirements
--------------------------------------------------------
December 31, Adequately Well
2001 2000 Capitalized Capitalized
Total risk-based ratio 14.65% 18.95% 8.00% 10.00%
Tier 1 risk-based ratio 13.87% 18.20% 4.00% 6.00%
Total assets leverage
ratio 9.20% 12.96% 3.00% 5.00%
|
NOTE 20 BRANCH ACQUISITIONS:
During the third quarter of 2000, F&M Bank Corp. entered into an agreement to purchase the First Union National Bank branches located in Edinburg and Woodstock, Virginia. Closing was held on for February 23, 2001, with the branches reopening as branches of Farmers & Merchants Bank on February 26, 2001.
The acquisition included deposits totaling $37,244,000, and loans totaling $9,800,000. The Woodstock facility was also purchased at a cost of $625,000, while the Edinburg facility is leased. Equipment and fixtures acquired as part of the transaction totaled $54,893. The cost of deposit intangibles and other acquisition costs totaled $5,472,153. These costs are being amortized using the straight-line method over a fifteen-year period. Other acquisition costs include legal, accounting, investment advisory and data conversion support by both First Union and the Bank's core software vendor.
NOTE 21 EMERGING ACCOUNTING STANDARDS:
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, "Business Combinations" and Statement 142 "Goodwill and Other Intangible Assets". These statements change the accounting for business combinations and goodwill in two significant ways. First, Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is now prohibited. Second, Statement 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this Statement, which was effective for fiscal years beginning after December 15, 2001.
At the present time, the FASB's position with regard to deposit intangibles is that they will continue to be amortized under Statement 72 "Accounting for Certain Acquisitions of Banking and Thrift Institutions". The American Bankers Association (ABA) has requested that the FASB reconsider its position and allow Bank acquisitions of branch offices to fall under the two new Statements. If this were to occur, it could result in a substantial decrease or the elimination of the intangibles amortization related to the two branch offices purchased from First Union National Bank.
Until such time as the FASB determines to amend its position, these intangibles will continue to be amortized by the Company using the straight-line method over a period of fifteen years.
Notes to the Consolidated Financial Statements
NOTE 22 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
Balance Sheets
December 31,
ASSETS 2001 2000
------------- --------
Cash and cash equivalents $ 189,345 $ 176,599
Investment in subsidiaries 22,942,514 15,147,934
Loans receivable 194,902
Securities available for sale 9,883,785 11,409,194
Other securities 2,300,563 2,519,666
Accrued interest receivable 736
Due from subsidiaries 15,998 68,762
Income tax receivable 218,291 248,086
Other real estate 307,891 426,128
-------- --------
Total Assets $35,858,387 $30,192,007
========== ==========
LIABILITIES
Notes payable $ 4,333,333 $
Margin payable 198,260
Accrued interest payable 39,532
Other liabilities 30,106
Dividends payable 390,340 365,006
Demand obligations for low income
housing investment 2,118,074 2,151,766
Deferred income taxes 151,543 477,005
-------- --------
Total Liabilities 7,261,188 2,993,777
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $5 per share,
3,000,000 shares authorized, 2,438,563
and 2,433,373 shares issued and outstanding
for 2001 and 2000, respectively
12,192,815 12,166,865
Capital surplus 525,015 479,468
Retained earnings 15,488,406 13,790,628
Accumulated other comprehensive income 390,963 761,269
-------- --------
Total Stockholders' Equity 28,597,199 27,198,230
---------- ----------
Total Liabilities and Stockholders' Equity $35,858,387 $ 30,192,007
========== ==========
|
Statements of Net Income and Retained Earnings
INCOME
Dividends from affiliate $ 954,000 $ 1,345,000 $1,419,000
Interest on loans 8,489 16,543 21,022
Investment income 11,621 20,933 12,759
Dividend income 382,108 415,533 422,640
Security gains 1,160,235 798,563 1,127,882
Net limited partnership income 81,361 147,008 36,302
Other 20,537 831 2,504
--------- ---------- ---------
Total Income 2,618,351 2,744,411 3,042,109
--------- ---------- ---------
EXPENSES
Interest expense 194,488 6,087 965
Administrative expenses 119,167 111,740 112,531
--------- ---------- ---------
Total Expenses 313,655 117,827 113,496
--------- ---------- ---------
Net income before income tax expense
and increase in undistributed equity
of affiliates 2,304,696 2,626,584 2,928,613
INCOME TAX EXPENSE 384,990 200,018 401,790
--------- ---------- ---------
Income before increase in undistributed
equity of affiliates 1,919,706 2,426,566 2,526,823
Increase in undistributed income
of affiliates 1,310,824 1,217,319 1,279,382
--------- ---------- ---------
NET INCOME 3,230,530 3,643,885 3,806,205
Retained earnings, beginning of year 13,790,628 11,587,061 9,057,266
Stock split effected in the form
of a dividend
Dividends on common stock (1,532,752) (1,440,318) (1,276,410)
----------- ----------- ----------
Retained Earnings, End of Year $15,488,406 $13,790,628 $11,587,061
========== ========== ==========
|
Notes to the Consolidated Financial Statements
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,230,530 $3,643,885 $3,806,205
Adjustments to reconcile net income
to net cash provided by operating
activities:
Undistributed subsidiary income (1,310,824) (1,217,319) (1,279,382)
Gain on sale of securities (1,160,235) (798,563) (1,127,882)
Deferred tax (benefit) expense 49,387 (90,608) 10,628
Decrease (increase) in interest
receivable 736 (637) (168)
Decrease (increase) in due from
subsidiary 52,764 (68,762) 4,393
Decrease (increase) in other
receivables 29,795 (120,414) 81,929
Increase (decrease) in due to
subsidiary (176,743) 234,492
Increase in other liabilities 39,530
Increase in deferred tax credits 65,537
Amortization of limited partnership
investments 218,804 360,893 121,685
Gain on sale of land (20,537)
---------- -------- --------
Net Cash Provided by Operating
Activities 1,195,487 1,531,732 1,851,900
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contributed to subsidiary (6,000,000)
Proceeds from sales of securities
available for sale 2,695,063 2,185,135 3,556,512
Proceeds from maturity of securities
available for sale 298 690 1,987
Purchase of securities available
for sale (1,273,759) (1,428,879) (5,167,543)
Purchase of other securities (1,500)
Proceeds from sale of real estate 138,775
Decrease in loans receivable 194,902 51,983 12,944
--------- -------- --------
Net Cash Provided by (Used in)
Investing Activities (4,244,721) 808,929 (1,597,600)
----------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 5,000,000
Payments on long-term debt (666,667)
Increase (decrease) in short-term debt 198,260 (116,739) 116,739
Decrease in demand obligations payable (33,692) (316,043)
Payments to repurchase common stock (83,753) (501,609) (59,627)
Proceeds from issuance of common stock 155,250 61,065
Dividends paid in cash (1,507,418) (1,419,147) (1,227,072)
-------- ------- -------
Net Cash Used in Financing Activities 3,061,980 (2,353,538) (1,108,895)
-------- --------- --------
Net Increase (decrease) in Cash and
Cash Equivalents 12,746 (12,877) (854,595)
Cash and Cash Equivalents, Beginning
of Year 176,599 189,476 1,044,071
----- ------ --------
Cash and Cash Equivalents, End of Year $ 189,345 $ 176,599 $ 189,476
========= ======== ========
|
Management's Statement of Responsibility
Management acknowledges its responsibility for financial reporting (both audited and unaudited) which provides a fair representation of the Company's operations and is reliable and relevant to a meaningful appraisal of the Company.
Management has prepared these statements in accordance with Generally Accepted Accounting Principles. Where appropriate, estimates have been used and management has exercised its best judgement in determining these estimates, including consideration of whether the items and amounts will have a material effect on the statements when taken as a whole. All financial information presented in Management's Discussion and Analysis is consistent with the audited financial statements, with the exception of tax equivalency adjustments that were presented to aid in comparative analysis.
Oversight of the financial reporting process is provided by the Audit Committee of the Board of Directors, which consists of five outside directors. This Committee meets regularly, to discuss the scope and schedule of the audit function, review and discuss the adequacy of internal control systems and the financial reporting process. At least annually the committee meets with the internal audit firm and with representatives of the independent public accounting firm to discuss the results of the annual financial statement audit.
The independent public accounting firm of S.B. Hoover & Company, LLP has examined the Company's financial records. The resulting opinion statement, which follows, is based upon knowledge of the Company's accounting systems, as well as on tests and other audit procedures performed in accordance with Generally Accepted Auditing Standards.
Julian D. Fisher Neil W. Hayslett, CPA President & Chief Vice President & Chief Executive Officer Financial Officer |
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, 2001 and 2000, 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, 2001. 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 U.S. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2001, in conformity with U.S. generally accepted accounting principles.
S. B. Hoover & Company, L.L.P.
January 29,2002
Harrisonburg, Virginia
Other Material Required by Form 10-K
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 Commonwealth of Virginia. TEB was incorporated on January 27, 1988, as a captive life insurance company under the laws of the State of Arizona. FMFS is a Virginia chartered corporation and was incorporated on February 25, 1993.
The Bank offers all services normally offered by a full-service commercial bank, including commercial and individual demand and time deposit accounts, repurchase agreements for commercial customers, commercial and individual loans, 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 but now provides other financial services to customers of Farmers & Merchants Bank.
The Bank makes various types of commercial and consumer loans and has a heavy concentration of residential and agricultural real estate loans. The Bank has continued to experience good loan demand throughout 2001 due to the strong local and national economies. The local economy is relatively diverse with strong employment in the agricultural, manufacturing, service and governmental sectors.
On December 31, 2001, F & M Bank Corp., the Bank, TEB and FMFS had sixty-three full-time and twenty-eight part-time employees. No one employee devotes full-time services to F&M Bank Corp.
The Company's and the Bank's principal executive office is at 205 South Main Street, Timberville, VA 22853, and its phone number is (540) 896-8941.
Competition
The Bank's offices compete with approximately sixteen financial institutions. These other institutions include state and nationally chartered banks, as well as nationally chartered savings banks. The main office and the Broadway branch serve the northern portion of Rockingham County, Virginia and the southwestern portion of Shenandoah County. The Elkton branches serve the town of Elkton, the eastern portion of Rockingham County, and the southern portion of Page County. The Bridgewater office serves the town of Bridgewater, the southern portion of Rockingham County and the northwestern portion of Augusta County. The newly acquired offices in Shenandoah County serve the towns of Edinburg and Woodstock and the surrounding areas. Bank competition in the area of all offices is very strong.
Regulation and Supervision
The operations of F & M Bank Corp. and the Bank are subject to federal and state statutes, which apply to state member banks of the Federal Reserve System.
The stock of F & M Bank Corp. is subject to the registration requirements of the Securities Act of 1934. F & M Bank Corp. is subject to the periodic reporting requirements of the Securities Exchange Act of 1934. These include, but are not limited to, the filing of annual, quarterly and other current reports with the Securities and Exchange Commission.
F & M Bank Corp., as a bank holding company, is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the "Act"). It is registered as such and is supervised by the Federal Reserve Board. The Act requires F & M Bank Corp. to secure the prior approval of the Federal Reserve Board before F & M Bank Corp. acquires ownership or control of more than 5% of the voting shares, or substantially all of the assets of any institution, including another bank.
As a bank holding company, F & M Bank Corp. is required to file with the Federal Reserve Board an annual report and such additional information as it may require pursuant to the Act. The Federal Reserve Board may also conduct examinations of F & M Bank Corp. and any or all of its subsidiaries. Under Section 106 of the 1970 Amendments to the Act and the regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, provision of credit, sale, or lease of property or furnishing of services.
Federal Reserve Board regulations permit bank holding companies to engage in non-banking activities closely related to banking or to managing or controlling banks. These activities include the making or servicing of loans, performing certain data processing services, and certain leasing and insurance agency activities. TEB Life acts as the primary re-insurer for credit life insurance sold through the Bank. F & M Bank Corp. owns an interest in the Johnson Williams Project in Berryville, Virginia which provides housing for the elderly and lower income tenants. Since 1994, the Company has entered into agreements with the Virginia Community Development Corporation to purchase equity positions in the Housing Equity Fund of Virginia II, III, IV, V, VII and Historic Equity Fund I. These funds provide housing for low-income persons throughout Virginia. Approval of the Federal Reserve Board is necessary to engage in any of the 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 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Description of Properties The locations of F & M Bank Corp., Inc. and its subsidiaries are shown below. Timberville Main Office Elkton Branch 205 South Main Street 127 West Rockingham Street Timberville, VA 22853 Elkton, VA 22827 Broadway Branch Elkton Plaza Branch 126 Timberway Rt. 33 West Broadway, VA 22815 Elkton, VA 22827 Bridgewater Branch Edinburg Branch 100 Plaza Drive 120 South Main Street Bridgewater, VA 22812 Edinburg, VA 22824 Woodstock Branch 161 South Main Street Woodstock, VA 22664 |
With the exception of the Edinburg Branch, all facilities are owned by Farmers & Merchants Bank. ATMs are available at all locations, with the exception of the Edinburg Branch.
Through an agreement with Nationwide Money ATM Services the Bank also operates cash only ATMs at seven Food Lion grocery stores, one in Mt. Jackson, VA, three in Harrisonburg, VA and three in Charlottesville, VA.
Exhibits, Financial Statements, and Reports on Form 8-K
The following financial statements are filed as a part of this report:
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements
Report of the Independent Auditors
All financial statement schedules have been omitted, as the required information is either inapplicable or included in the consolidated financial statements or related notes.
The following exhibits are filed as a part of this report:
Exhibit No.
3 i Restated Articles of Incorporation of F & M Bank Corp.
3 ii Amended and Restated Bylaws of F & M Bank Corp.
21 Subsidiaries of the registrant are attached
23 Consent of Certified Public Accountant attached
The Corporation did not file any reports on Form 8-K for the quarter ending December 31, 2001.
Shareholders may obtain, free of charge, a copy of the exhibits to this Report on Form 10-K by writing Larry A. Caplinger, Corporate Secretary, at F & M Bank Corp., P.O. Box 1111, Timberville, VA 22853.
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.
(Registrant)
By: /s/ Julian D. Fisher March 1, 2002
-------------------------- ----------------------------
Julian D. Fisher Date
Director, President and Chief
Executive Officer
By: /s/ Neil W. Hayslett March 1, 2002
--------------------------- --------------------
Neil W. Hayslett Date
Vice President and Chief
Financial Officer
|
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
Director
-------------------------- ----------------
Thomas L. Cline
/s/ John N. Crist Director March 1, 2002
--------------------------- ----------------
John N. Crist
/s/ Ellen R. Fitzwater Director March 1, 2002
--------------------------- ----------------
Ellen R. Fitzwater
/s/ Robert L. Halterman Director March 1, 2002
--------------------------- ----------------
Robert L. Halterman
/s/ Daniel J. Harshman Director March 1, 2002
-------------------------- ----------------
Daniel J. Harshman
Director, Chairman
------------------------- ----------------
Lawrence H. Hoover, Jr
/s/ Richard S. Myers Director March 1, 2002
--------------------------- ----------------
Richard S. Myers
Director
------------------------- ----------------
Michael W. Pugh
Director
---------------------------- ----------------
Ronald E. Wampler
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Exhibit 3i - Restated Articles of Incorporation of F & M Bank Corp.
RESTATED ARTICLES OF INCORPORATION
OF
F & M BANK CORP.
(Restated in electronic format only)
1. The name of the corporation is
F & M BANK CORP.
2. The purpose of the corporation is to conduct any business not required to be specifically stated herein.
3. The corporation shall have authority to issue 3,000,000 shares of the par value of $5.00 each.
4. No stockholder shall have the preemptive right to subscribe to additional shares of capital stock of the corporation or to securities convertible into such shares or to options, warrants or rights to subscribe to such shares.
5. The address of the initial registered office of the corporation shall be Box F, Timberville, Virginia 22853, in the County of Rockingham, and the initial registered agent shall be Dan B. Todd, who is a resident of Virginia and a Director of the corporation and whose business address is the same as the address of the initial registered office of the corporation.
6. The initial number of the Directors shall be nine.
Their names and addresses are:
Name Address
Randall R. Dean 403 E. Rockingham Drive
Elkton, VA 22827
Justin W. Dove Route 3, Box 64-B
Broadway, VA 22815
Robert L. Halterman P.O. Box 193
Broadway, VA 22815
George A. Heitz 525 Fairway Drive
Harrisonburg, VA 22801
Welty H. Hensley P.O. Box 65
Elkton, VA 22827
Lawrence H. Hoover, Jr. 111 Campbell Street
Harrisonburg, VA 22801
|
Name Address
Robert E. Plecker Box 49
Harrisonburg, VA 22801
Samuel S. Shank P.O. Box 66
Broadway, VA 22815
Dan B. Todd Route 2, Box 203
Timberville, VA 22853
|
7. No Director of the corporation shall be removed from his office as a Director except by the affirmative vote of the holders of 80 percent of the shares of the corporation's capital stock, issued, outstanding and entitled to vote.
8. Except as set forth below, the affirmative vote of holders of 80 percent of the shares of the corporation's capital stock, issued, outstanding and entitled to vote shall be required to approve any of the following:
a.) any merger or consolidation of the corporation with or
into any other corporation; or
b.) any share exchange in which a corporation, person or entity
acquires the issued or outstanding shares of capital stock
of the corporation pursuant to a vote of shareholders; or
c.) any issuance of shares of the corporation that results in the
acquisition of control of the corporation by any person,
firm or corporation or group of one or more thereof that
previously did not control the corporation; or
d.) any sale, lease, exchange, mortgage, pledge or other
transfer, in one transaction or a series of transactions,
of all, or substantially all, of the assets of the corporation
to any other corporation, person, or entity; or
e.) the adoption of a plan for the liquidation or dissolution of the
corporation proposed by any other corporation, person or entity;
or
f.) any proposal in the nature of a reclassification or
reorganization that would increase the proportionate voting
rights of any other corporation, person or entity; or
g.) any transaction similar to, or having similar effect as, any
of the foregoing transactions, if, in any such case, as of the
record date for the determination of shareholders entitled to
notice thereof and to vote thereon, such other corporation,
person or entity is the beneficial owner, directly or indirectly,
of more than 5 percent of the shares of capital stock of the
corporation issued, outstanding and entitled to vote.
If any of the transactions identified above in this Paragraph 8 is with a corporation, person or entity that is not the beneficial owner, directly or indirectly, of more than 5 percent of the shares of capital stock of the corporation issued, outstanding and entitled to vote, then the affirmative vote of holders of more than two-thirds of the shares of the corporation's capital stock issued, outstanding and entitled to vote shall be required to approve any of such transactions.
The Board of Directors of the corporation shall have the power and
duty to determine, for purposes of this Paragraph 8, on the basis of
information known to the Board, if and when such other corporation,
person or entity is the beneficial owner, directly or indirectly, of
more than 5 percent of the shares of capital stock of the corporation
issued, outstanding and entitled to vote and/or if any transaction is
similar to, or has a similar effect as, any of the transactions
identified above in this Paragraph 8. Any such determination shall be
conclusive and binding for all purposes of this Paragraph 8. The
provisions of this Paragraph 8 shall not apply to any transaction
which is approved in advance by a majority of those Directors
(a) who were Directors before the corporation, person or
entity acquired beneficial ownership of five percent (5%) or more of
the shares of capital stock of the corporation and who are not
affiliates of such corporation, person or entity and (b) who became
Directors at the recommendation of the Directors referred to in (a)
above.
9. The Board of Directors of the corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the corporation, (b) merge or consolidate the corporation with another corporation, (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, or (d) engage in any transaction similar to, or having similar effects as, any of the foregoing transactions, shall, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its shareholders, give due consideration to all relevant factors, including without limitation the social and economic effects of the proposed transaction on the depositors, employees, suppliers, customers and other constituents of the corporation and its subsidiaries and on the communities in which the corporation and its subsidiaries operate or are located, the business reputation of the other party, and the Board of Directors' evaluation of the then value of the corporation in a freely negotiated sale and of the future prospects of the corporation as an independent entity.
10. Section 1. Limitation or Elimination of Liability. A director or officer of the corporation shall not be liable to the corporation or its shareholders for any monetary damages, to the full extent that the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers.
Section 2. Indemnification for Liability. The corporation shall indemnify any director or officer of the corporation who is or was a party to any proceeding by reason of the fact that he is or was such a director or officer, and shall indemnify any director or officer of the corporation who is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other profit or non-profit enterprise, against all liabilities and expenses incurred in the proceeding, except such liabilities and expenses as are incurred because of his willful misconduct or knowing violation of the criminal law.
Section 3. Advance for Expenses. The corporation, upon request of an officer or director who is a party to any proceeding, shall determine whether the facts then known to those making the determination would preclude indemnification under the provisions of this Article, and if they would not, shall make advances and reimbursements for expenses incurred by a director or officer in a proceeding upon receipt of (i) a written statement of his good faith belief that he has met the standard of conduct described in Va. Code Section 13.1-697 as amended; and, (ii) a written undertaking, executed personally or on behalf of the director or officer, to repay the advance if it is ultimately determined that he did not meet the standard of conduct, such undertaking being an unlimited general obligation which need not be secured and may be accepted without reference to financial ability to make repayment.
Section 4. Determination to Indemnity. Subject to the provisions of Section 7 of this Article, a determination to make advances, reimbursements, or indemnifications to a director or officer under Sections 2 and 3 of this Article shall be made, in the first instance, by a majority vote of a quorum of the Board of Directors, such quorum consisting of disinterested directors. If a quorum consisting of disinterested directors cannot be obtained, then the determination shall be made by majority vote of a committee designated by the Board of Directors (in which designation interested directors may participate), the committee to consist solely of two or more disinterested directors. If such a committee cannot be designated, the determination shall be made by special legal counsel selected by majority vote of the Board of Directors (in which selection interested directors may participate). Notwithstanding any other provision of this Article, in any instance, the determination to indemnify a director or officer may be made by vote of the shareholders, except that any shares owned, or voted under the control of, directors of officers who are parties to the proceeding may not be voted.
Section 5. Indemnification of Agents and Employees. The corporation may indemnify and make advances and reimbursements to any person not specified in Section 2 of this Article who was or is a party to any proceeding by reason of the fact that he is or was an employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other profit or non-profit enterprise, to the same extent as if such person was specified as one to whom indemnification is granted in Section 2. The provisions of Sections 2 through 4 of this Article shall be applicable to any indemnification, determination, advancements and reimbursements provided pursuant to this Section.
Section 6. Indemnification Insurance. The corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article, and also may procure insurance in such amounts as the Board of Directors may determine on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other profit or non-profit enterprise, against any liability asserted against or incurred by such person in any such capacity, or arising from this status as such, whether or not the corporation would have power to indemnify him against such liability under the provisions of this Article.
Section 7. New Majority of the Board of Directors. If there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification, or advancement or reimbursement of expenses with respect to any claim for indemnification, made pursuant to Sections 2 or 5 of this Article shall be made by special legal counsel agreed upon by the Board of Directors and the proposed indemnitee. If the Board of Directors and the proposed indemnitee are unable to agree upon such special legal counsel, the Board of Directors and the proposed indemnitee each shall select a nominee, and the nominees shall select such special legal counsel.
Section 8. Applicability of this Article. The provisions of this Article shall be applicable to all actions, claims, suits or proceedings commenced after the adoption hereof, whether arising from any action taken, or failure to act, before or after such adoption. No amendment, modification or repeal of this Article shall diminish the rights provided hereby or diminish the right to indemnification with respect to any claim, issue or matter in any then pending or subsequent proceeding that is based in any material respect on any alleged action or failure to act prior to such amendment, modification or repeal. References in this Article to directors, officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators.
11. The directors shall be divided into three Classses, A, B, and C, as nearly equal in number as possible. Commencing with the election of directors at the annual meeting of shareholders in 1990, the term of each director shall be determined by placing the names in alphabetical order and designating the first named director as a Class A director, the second named director as a Class B director, the third named director as a Class C director, and so forth throughout the list of directors. The initial term of office for members of Class A shall expire at the annual meeting in 1991; the initial term of office for members of Class B shall expire at the annual meeting of shareholders in 1992; and the initial term of office for members of Class C shall expire at the annual meeting of shareholders in 1993. At each annual meeting of shareholders following such initial classification and election, successive elections of those directors, or directors elected to succeed those directors, shall be selected for a term of office to expire at the third succeeding annual meeting of shareholders after their election and shall continue to hold office until their respective successors are elected and qualify. However, any director named between any annual meeting of shareholders shall be for the term of one year to be elected at the next annual meeting of shareholders, within the alphabetical order as aforesaid. In the event of any increase or decrease in the number of directors fixed by the bylaws, all classes of directors shall be increased or decreased as equally as possible.
12. The provisions of Paragraphs 7 through 12 of these Articles may not be amended, nor shall an amendment be adopted that is inconsistent with any of the provisions of such Paragraphs 7 through 12 hereof, except upon the affirmative vote of the holders of at least eighty percent (80%) of the shares of the corporation's capital stock, issued, outstanding and entitled to vote.
Dated: June 8, 1989 Dan B. Todd
------------------ ---------------------------
Incorporator
Lawrence H. Hoover, Jr.
----------------------------
Incorporator
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Exhibit 3ii - Amended and Restated Bylaws F & M Bank Corp.
BYLAWS
OF
F & M BANK CORP.
(Restated in electronic format only)
ARTICLE I
Shareholder Matters
Section 1.1. Annual Meetings. The annual meeting of the shareholders of the Corporation shall be held on the second Saturday of April of each year or at such other date and at such place as may be decided by the Board of Directors. At the annual meeting of the shareholders of the Corporation directors shall be elected and reports of the affairs of the Corporation shall be received and considered. Any other business may be transacted which is within the powers of the shareholders, except that, if any shareholder shall bring new business before the annual meeting, the shareholder must give advance notice as set forth in Section 1.6 of these Bylaws.
Section 1.2. Special Meetings. A special meeting of the shareholders may be called for any purpose or purposes whatsoever at any time, but only by the President, the Chair of the Board of Directors, the Board of Directors or by holders of not less than one-tenth of all the shares entitled to vote at the meeting.
Section 1.3. Notice of Meetings. Notice of the time and place of every annual meeting or special meeting shall be mailed to each shareholder of record entitled to vote at the meeting at such shareholder's address as it appears on the records of the Corporation not less than ten (10) nor more than sixty (60) days before the date of such meeting (except as a different time may be specified by law).
Section 1.4. Voting in Person or by Proxy. Each shareholder shall be entitled to one vote for each share outstanding in such shareholder's name on the books of the Corporation as of the record date, as provided in Section 4.6 of these Bylaws. Shareholders may vote at any meeting of the shareholders in person or by proxies duly authorized in writing. Proxies shall be valid only for one meeting. Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.5. Quorum. A majority of the votes entitled to be cast constitutes a quorum. If there is no quorum at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority of the shareholders present or represented by proxy until there is a quorum, no further notice of any adjourned meeting being required.
Section 1.6. Notice of Shareholder Business. At an annual meeting of the
shareholders of the Corporation, only such business shall be conducted as shall
have been properly brought before the meeting. To be brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
brought before the meeting by or at the direction of the Board of Directors, or
(c) properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have
given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal offices of the Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the date of the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by a shareholder, to be timely, must be so received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A shareholder's notice to the Secretary of the Corporation shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books of the shareholder proposing such business and of any other person or entity who is the record or beneficial owner of any shares of the Corporation and who, to the knowledge of the shareholder proposing such business, supports such proposal, (c) the number of shares of the Corporation which are beneficially owned and owned of record by the shareholder proposing such business on the date of the notice to the Corporation and the number of shares so owned by any person or entity who, to the knowledge of the shareholder proposing such business, supports such proposal and (d) any material interest (financial or other) of such shareholder in such proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 1.6. The Chair of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.6 and any such business not properly brought before the meeting shall not be transacted.
Section 1.7. Chair and Secretary of the Meeting. The Chair of the Board shall preside at all shareholder meetings. If the Chair is not present the President shall preside. If the President is not present the Chair or the President shall designate a presiding officer. If neither the Chair of the Board nor the President nor the designee is present, a Chair shall be elected by the meeting. The Secretary of the Corporation shall act as Secretary of all the meetings, if present. If not present, the Chair shall appoint a Secretary of the meeting.
Section 1.8. Rules & Order of Business. All meeting of shareholders shall be conducted in accordance with such rules as are prescribed by the Chair of the meeting and the Chair shall determine the order of business.
Section 1.9. Inspectors. The Board of Directors, in advance of any meeting of shareholders, may, but shall not be required to, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the Chair of the meeting may appoint one or more inspectors. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the Chair of the meeting, the inspectors shall make a report of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be shareholders.
ARTICLE II
Directors
Section 2.1. General Powers. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors and, except as otherwise expressly provided by law or by the Articles of Incorporation, or by these Bylaws, all of the power of the Corporation shall be exercised by or under the authority of the Board of Directors.
Section 2.2. Number and Qualification. The Board of Directors shall consist of not less than seven nor more than fifteen shareholders, the exact number to be fixed by resolution of a majority of The Board. Each Director shall be a resident of the Commonwealth of Virginia.
Section 2.3. Election of Directors. The Directors shall be elected at the annual meeting of shareholders, and shall hold their offices until their successors are elected in accordance with the Articles of Incorporation. Nominations for the election of Directors shall be given in the manner provided in Section 2.4.
Section 2.4 Vacancy. Any vacancy arising among the Directors, including a vacancy resulting from an increase by not more than two in the number of directors may be filled by the remaining Directors, unless sooner filled by the shareholders.
Section 2.5. Nominations. Only persons who are nominated
in accordance with the procedures set forth in this Section 2.4 shall be
eligible for election as Directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made by or at the direction of the
Board of Directors, or by any shareholder of the Corporation entitled to
vote for the election of Directors who complies with the notice procedures
set forth in this Section 2.4. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the date of the scheduled annual meeting,
regardless of postponements, deferrals, or adjournments of that meeting to a
later date; provided, however, in the event that less than seventy (70) days'
notice or prior public disclosure of the date of the meeting is given or made,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day on
which such public disclosure was made. Such shareholder's notice shall set forth
(a) as to each person whom the shareholder proposes to nominate for election as
a Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the Corporation which are beneficially
owned by such person and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice (i) the name and address of such shareholder and
of any other person or entity who is the record or beneficial owner of
shares of the Corporation and who, to the knowledge of the shareholder giving
notice, supports such nominee(s) and (ii) the class and number of shares of the
Corporation which are beneficially owned and owned of record by such shareholder
and by any other person or entity who is the record or beneficial owner of
shares of the Corporation and who, to the knowledge of the shareholder giving
the notice, supports such nominee(s). At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation the information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a Director of the
Corporation unless in accordance with the procedures set forth in this Section
2.4. The Chair of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and the defective nomination shall be disregarded.
Section 2.6. Meetings of Directors. Meetings of the Board of Directors shall be held at places within or without the Commonwealth of Virginia and at times fixed by resolution of the Board of Directors, or upon call of the Chair of the Board of Directors or the President. The Secretary, or officer performing his duties, shall give at least twenty-four (24) hours' notice by letter, telephone, fax, e-mail or in person, of all meetings of the Directors; provided, that notice need not be given of regular meetings held at times and places fixed by resolution of the Board. Regular meetings of the Board of Directors shall be held at least once in every calendar month. Meetings may be held at any time without notice if all of the Directors are present, or if those not present waive notice either before or after the meeting. Members of the Board of Directors or any committee designated thereby may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. On any question the names of those voting each way shall be entered on the record of the proceeding if any member at the time requests it. Neither the business to be transacted nor the purpose of any annual or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
Section 2.7. Quorum. A majority of the members of the Board of Directors shall constitute a quorum.
Section 2.8. Compensation. The Board of Directors shall fix the compensation of the Directors.
Section 2.9. Mandatory Retirement. The mandatory retirement age for Directors shall be 70. Upon reaching the age of 70 a Director shall become an Honorary Director and shall continue to function as an Honorary Director until he or she tenders a resignation to the Board of Directors or until the Board requests that such Honorary Director tender his/her resignation.
Section 2.10. Honorary Directors. An Honorary Director may attend Board of Directors meetings, but will not be entitled to vote. Special meetings of Honorary Directors may be called by the Board of Directors, the Chair of the Board or the President for the purpose of seeking the collective advice of the Honorary Directors on matters of policy or special projects. Individual Honorary Directors may be called upon as needed by management or the Board of Directors for advice and consultation in respect of their special expertise.
Section 2.11. Committees. The Board of Directors may create standing and temporary committees and appoint members of standing committees in accordance with Virginia law. There shall be an Executive Committee and such committee may exercise the authority of the Board of Directors to the fullest extent permitted by law.
ARTICLE III
Officers
Section 3.1. Election. The officers of the Corporation shall consist of the Chair of the Board of Directors, the President, one or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries, and such other officers as may be designated as provided in Section 3.3 of this Article. All officers shall be elected by the Board of Directors, and shall hold office until their successors are elected and qualify. Vacancies may be filled at any meeting of the Board of Directors. Subject to any applicable provision of Virginia law, more than one office may be combined in the same person as the Board of Directors may determine.
Section 3.2. Removal of Officers. Any officer of the Corporation may be summarily removed with or without cause, at any time, by a resolution passed by affirmative vote of a majority of all of the Directors; provided that any such removal shall not affect an officer's right to any compensation to which he is entitled under any employment contract between him and the Corporation.
Section 3.3. Other Officers. Other officers may from time to time be designated by the Board of Directors, and such officers shall hold office for such term as may be designated by the said Board.
Section 3.4. Chair of the Board. The Chair of the Board shall be the senior officer of the Corporation, and the Chair shall preside at all meetings of the Directors and all meetings of the shareholders. The Chair shall appoint all members of temporary committees. The Chair shall be a member ex officio of all standing committees and shall have all other powers and duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 3.5. President. In the absence or disability of the Chair of the Board, the President shall preside at all meetings of the Directors and at meetings of the shareholders and in the absence or disability of the Chair of the Board the duties and responsibilities of his office shall devolve upon the President. The President shall have such other powers and duties as may be prescribed by the Chair of the Board of Directors, the Board of Directors or by the Bylaws.
Section 3.6. Vice Presidents. Vice Presidents shall perform such duties as may be prescribed for them from time to time by the Chair or the President of the Board of Directors, the Board of Directors or the Bylaws.
Section 3.7. Secretary. The Secretary shall have the duties and responsibilities prescribed by law for the secretary of a Virginia corporation.
Section 3.8. Surety Bonds. All officers and employees who shall have charge or possession of money, securities or property of the Corporation must, before entering upon their duties, be covered by a bond with a surety company approved by the Board of Directors and state and federal authorities. The costs of such bond shall be borne by the Corporation.
ARTICLE IV
Capital Stock
Section 4.1. Certificates of Stock. Certificates of capital stock shall be in such form as may be prescribed by law and by the Board of Directors. All certificates shall be signed by the President and by the Secretary or an Assistant Secretary, or by any other officers authorized by resolution of the Board of Directors.
Section 4.2. Transfer of Stock. The stock of the Corporation shall be transferable or assignable on the books of the Corporation by the holders in person or by attorney on surrender of the certificate or certificates for such shares duly endorsed, and, if sought to be transferred by attorney, accompanied by a written power of attorney to have such stock transferred on the books of the Corporation.
Section 4.3 Transfer Agent & Registrar. The Board of Directors may appoint one or more Transfer Agents and Registrars and may require stock certificates to be countersigned by a Transfer Agent or registered by a Registrar or may require stock certificates to be both countersigned by a Transfer Agent and registered by a Registrar. If certificates of capital stock of the Corporation are signed by a Transfer Agent or by a Registrar (other than the Corporation itself or one of its employees), the signature thereon of the officers of the Corporation and the seal of the Corporation thereon may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation.
Section 4.4. Restrictions of Transfer of Stock. Any restrictions that may be imposed by law, by the Articles of Incorporation or Bylaws of the Corporation, or by an agreement among shareholders of the Corporation, shall be noted conspicuously on the front or back of all certificates representing shares of stock of the Corporation.
Section 4.5. Lost, Destroyed or Mutilated Certificates. The holder of stock of the Corporation shall immediately notify the Corporation of any loss, destruction, or mutilation of the certificate therefor, and the Corporation may in its discretion cause one or more new certificates for the same aggregate number of shares to be issued to such shareholder upon such terms not in conflict with law as the Board of Directors may prescribe.
Section 4.6. Holder of Record. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.
Section 4.7. Record Date. The Board of Directors shall fix in advance the record date in order to make a determination of shareholders for any purpose, including the determination of shareholders entitled to notice of or to vote at any shareholders' meeting or entitled to payment of any dividend or distribution to shareholders. Such record date shall not be more than seventy (70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken.
ARTICLE V
Miscellaneous Provisions
Section 5.1. Seal. The seal of the Corporation shall be circular in shape with the name of the Corporation around the circumference thereof, and the word "SEAL" in the center thereof.
Section 5.2. Examination of the Books and Records. The books and records of account of the Corporation, the minutes of the proceedings of the shareholders, the Board and committees appointed by the Board of Directors and the records of the shareholders showing the names and addresses of all shareholders and the number of shares held by each, shall be subject to inspection during the normal business hours by any person who is a duly qualified Director of the Corporation at the time he makes such inspection. Shareholders shall have such rights to inspect records of the Corporation as are prescribed by applicable law.
Section 5.3. Checks, Notes and Drafts. Checks, notes, drafts, and other orders for the payment of money shall be signed by such persons as the Board of Directors from time to time may authorize.
Section 5.4. Amendments to Bylaws. These Bylaws may be altered, amended or repealed at any regular meeting of the Board of Directors by a vote of a majority of the Directors.
Section 5.5. Voting of Stock Held. Unless otherwise provided by resolution of the Board of Directors, the Chair of the Board of Directors or the President may from time to time appoint an agent or agents of the Corporation to cast in the name of the Corporation the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose stock or securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation; and the Board or such officers may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers, or other instruments as may be necessary or proper in the premises; or any of such officers may attend any meeting of the holders of stock or other securities of any such other corporation and there vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation.
Exhibit 21 - List of Subsidiaries of the Registrant
Farmers & Merchants Bank (incorporated in Virginia) TEB Life Insurance Company (incorporated in Arizona) Farmers & Merchants Financial Services (incorporated in Virginia), a subsidiary of Farmers & Merchants Bank
Exhibit 23 - Consent of Certified Public Accountant
To the Shareholders and Board of Directors F & M Bank Corp.
We consent to the use of our report, dated January 29, 2002, relating to the consolidated balance sheets of F & M Bank Corp. as of December 31, 2001 and 2000, 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, 2001, which report appears on Page 40 in the December 31, 2001 Annual Report on Form 10-K of F & M Bank Corp.
Harrisonburg, VA
March 6, 2002