F & M Bank Corp.
Annual Report 2005

Plain-text annual report

2005 ANNUAL REPORT - - - - - -- ---- Filings Services April 11,2006 SNL Financial, LC 1 - ~ n n - 9 ~ 9 - 4 1 2 1 Y F&M Bank Corp. ne Bank Holding Company For: Farmers & Merchants Bank TEB Life Insurance Company The primary mission of Fdrmers & Mercbmts Bank is to be a strong, i n ~ e p e ~ ~ e n t community banking organization tbdt provides d refionable return to our shareholders, quahy service to OUT customers and communities and a rewarding and challenging workplace for our employees. Dear Stockholder, The year 2005 was an excellent year for F & M Bank Corp. We again had record earnings for the third straight year. Contributing significantly to the increase in earnings was an 1 1.4% increase in Loans Held for Investment and the rising interest rate environment. Securities Gains fox 2005 were only $71,000 versus $532,000 in 2004, which makes the record earnings in 2005 even more remarkable. As you review this report, I hope you will share our enthusiasm for our accomplishments this past year. With three new branches, which I will discuss in more detail later, opening in 2006 I am excited about the growth potential for F & M in the future. Net income for 2005 was $4.780 million or an increase of $430,000 (9.9%) over the prior year 2004. Earnings per share increased from $1.80 to $1.99. The incrcase in both net income and earnings per share can be attributed priniarily to an increase in net interest income from our growth in loans held for investment of $20.805 million. We did see a reduction in our loan participarion program that contributed significantly to earnings in 2004. In 2005 this program contributed approximately $135,000 to net earnings, bur toward the end of the year we had very few loans in the program. This reduction was due to the rising short term rate environment. The secondary market mortgage originarors have found cheaper funding options and, therefore, are not using the program. If short term rates decline, I would anticipate this program generating income in the future. Credit quality remained good with charge offs dropping to .07% of Loans Held for Investment in 2005 from .09% in 2004. Averagc losses continue at less than one-half that of the Banks peer group average, which have ranged between .13% and .26% over the last three years. Nonperforming assets decreased significantly to .200/0 of total assets which is well below our five year average. Management has reviewed the nonperforming loans, and determined that they are primarily secured by real estate with little potential for losses. The Allowance for Loan Losses remained steady at .60% of Loans Held for Investment, which is below our bank peer group; however, we feel it is adequate based on our excellent history of loan losses. I ~ Dividends increased from $.74 to $.78 per share, an increase of 5.4%. In 2005 we paid out 38.70% of our earnings in dividends. As I mentioned earlier, we hope to open three new branches in 2006. The construction of our Crossroads branch is moving along smoothly now after a few early delays. Our projected opening date is August 1st. At that time we will be closing our current office located in the Food Lion shopping center in Elkton. The building housing this branch does not allow us room for growth and expansion. Also on April 3rd, we will be opening a new branch in the Port Crossing shopping center on Port Republic Road in Harrisonburg. This will be our first branch within the city limits of Harrisonburg and should compliment the Crossroads branch. Both branches will be located on high traffic roads. We are also continuing with our Courier Service in Harrisonburg to pick up business deposits. This service has becn well received by the Harrisonburg business community. By the time this annual report is distributed, we hope to also have regulatory approval for the third branch which will be in Luray, Va. We feel that Luray and the surrounding Page County area fit our marketing plan and represent good areas for future growth. This office will be in a leased facility in the East Luray Shopping Center. Oncc all of these branches are operating, we will have nine full service branches, a mortgage department and an investment department. As you review this annual report, I think you will agree with me that we had an excellent year in 2005. This is due to the excellent staff we have and the support of the stockholders and the communities that we serve. We are committed to continuing our efforts to provide quality customcr service which will result in a good return on your investment. Thanks again for your support through the years. Dean W. Withers President/CEO I Five Year Summary of Selected Financial Data (Dollars in thousands, except per share data) Income Statement Data: 2005 2004 2003 2002 200 1 Interest and Dividend Income Interest Expense $ 19,878 6,998 $ 16,804 5,396 $ 16,683 6,010 $ 17,846 7,390 $ 17,681 9,494 Net Intcrest Income Provision for Loan Losses 12,880 360 1 1,408 240 10,673 226 10,456 387 Net Interest Income after Provision for Loan Losses Noninterest Income Sccurities Gains (Losses) Noninterest Expenses Income before Incomc Taxes Income Tax Expense 12,520 2,643 71 8,608 6,626 1,846 11,168 2,254 532 7,74 1 6,213 1,863 10,447 2,308 179 7,256 5,678 1,666 10,069 1,380 (182) 6,448 4,819 1,315 8,187 204 7,983 1,158 1,252 5,728 4,665 1,435 Net Income $ 4,780 $ 4,350 $ 4,012 $ 3,504 $ 3,230 Per Share Data: Net Income Dividcnds Declared Book Value Balance Sheet Data: $ $ 1.99 .78 15.22 1.80 .74 14.2 1 $ $ 1.66 .70 13.35 1.44 .66 12.19 $ 1.33 .63 11.74 Assets Loans Held for Investment Loans Held for Sale Sccuriries Deposits Short-Term Debt Long-Term Dcbt Shareholders' Equity Average Shares Outstanding $ 346,328 277,398 3,528 3492 1 267,3 10 14,345 22,808 36,567 2,404 $ 369,957 248,972 47,150 38,800 246,505 57,362 26,462 34,260 2,414 $ 309,126 211,231 $ 303,149 201,980 $ 272,673 176,625 6 1,230 240,715 6,389 24,784 32,3 19 2,4 18 69,602 228,284 8,308 32,3 12 29,541 2,429 63,987 208,279 10,696 20,983 28,597 2,431 Financial Ratios: Return on Average Assets' Return on Average Equity' Net Intcrest Margin Efficiency Ratio2 Dividend Payout Ratio 1.34% 1 3.56%) 3.95% 53.07% 38.70% Capital and Credit Quality Ratios: Average Equity to Avcrage Assets' Allowance for Loan Losses to Loans3 Nonperforming Assets to Total Assets Net Charge-offs to Total Loans' 9.86% .60% .200/0 .07% ' Ratios are primarily based on daily average balances. 1.31% 1 3.1 1 Yo 3.82% 54.02% 4 1.06% 10.00% .6 1 % .63% .09% 1.29% 13.13% 3.8 29'0 53.96% 42.17% 9.86% .70% .520/0 .lo% 1.21% 12.12Yo 4.03% 5 1.28% 45.72% 9.98% .73% .86Yo .lo% 1.26 % 11.47 % 3.52 '3/0 56.93 % 47.45 % 1 1.02 Yo .73 Yo .40 9'0 .06 % The EKciency Ratio cquals noninterest expenses dividcd by the sum of tax equivalent net interest income and noninterest income. Noninterest expenses exclude intangible asset amortization. Noninterest income excludes gains (losses) on securities transactions. Calculated based on Loans Held for Investment. excludes Loans Hcld for Sale. Five Year Summary of Selected Financial Charts Balance Sheet: Total Assets Balance Sheet: Loans Held For Investment $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 2001 I 2002 I 2uu3 1 2004 I 2005 I '" ~ ~- w Loans $176,625 2001 I 2002 2003 $201,980 $211,231 I 1 2005 4 $277,396 2004 $248,972 Dividends Per Share Earnings Per Share $2.00 $1 .eo $1.60 $1.40 $1.20 $1 .oo $0.80 $0.60 $0.40 $0.20 r n nn *U'uu ~ [.Earnings 1 1 2003 $0.70 1 2004 ~ 2005 $0.74 $0.78 I 2002 $1.44 1 2001 $1.33 2003 ~ 2004 $1.66 $1.80 I 2005 4 $1.99 2001 ~ 2002 LDlvldendc $0.63 $0.66 $400,000- $350,000-' $300,000 -' 5250,000-' $200,000-' $150,000-' $100,000-' $50,000 ' -, $0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Financial Ratios: Return on Average Assets Financial Ratios: Return on Average Equity 1.34% 1.32% 1.30% 1.2a% 1.26% 1.24% 1.22% 1.20% 1.18% 1.16% 1 l A % 2002 1.21% I 1 2003 I I 1.29% 1.31% 14.00% ('1 13.50% 13.00% 12.50% 12.00% 1 I .50% 11 .OO% a n nnol 10.50% I " . " " I O +: WReturn 13.13% 12.12% 2o02 11.47% 1 1 2004 13.11% 1 I 13.56% , 0 ° 5 i Along with approximately 60 other Virginia community banks, our Bank has ownership in Bankers Insurance and can offer a variety of insurance products to our area. Bankers Insurance, LLC Comprehensive insurance solutions for you, your business and your family Lee Shuler Hdrrison burg Agent Representative Business Products Property Coverage Buildings, Business Personal Property, Computer Equipment, Property of Others Professional Liability Health and Welfare General Liability Coverage Premises and Operations, Personal Fire Damage "jury, Workers' Compensation Major Medical, Disability, Group Life, Dental, Retirement, Key Employee Life Surety Bonds Representative Personal Products Property and Casualty 0 Personal Articles Homeowners, Automobiles and Boats Personal Umbrella Life Term, Whole, Universal Health Accident, Disability, Long-Term Care Farmers & Merchants Financial Services Henry Ha wkins Mary Ellen Harrison Helping our Customers Reach Their Financial Goals Henry Hawkins and Mary Ellen Harrison, the investment consultants at Farmers & Merchants Financial Services, bring a wealth of experience to Farmers & Merchants Bank customers. They can tailor an investment strategy to fit comfortably with each customer's objectives. At Farmers & Merchants Bank, we want our customers to receive the same level of care they expect when banking with us. That's why we continue to offer all the financial capabilities found at other brokerage firms through our association with BI Investments, LLC.* Annuity Representatives With customers becoming more educated about their financial needs, the Bank chose to work with BI Investments to license employees for fixed annuities. T h e employees pictured above successfully completed the licensing requiremcnts needed to offer annuities to our customers. By licensing several employees in each branch, the Bank is able to compete with insurance companies and other investment companies to meet the customers' investment needs. *Securities and Insurancc Products: Not insured hy FDIC o r any Fcdcrd Government Agency, May lose value, Not a deposit of or guaranteed hy the Rank or any Bank Affiliate Srcuritics nnd insurtmr &red Fintincia1 Seroiccs is nn @liine of'kiumers $. Merchants Bank. through BI Inzicstnients. LLC, member NASD and SIPC, BI Inveslmmts is Usrociatcd with hrmers & Mrrcbants Bunk. Farmers &Modiann O n July 21, 2005, Robert L. Halterman retired as a director and Vice Chairman of Farmers & Merchants Bank and F & M Bank Corp. and it was also his 70th birthday. Bob served on the board for 25 years and contributed significantly to the success of the Bank over that time. A dinner was held for Bob at Spotswood Country Club, where he was awarded an engraved plaque and a framed resolution honoring his service. H e is President of Virginia Classic Mustang, Inc. in Broadway and Partner in H & H Properties. Robert E. Halterman Service Anniversaries Carolyn J. Dove 30 years Phyllis B. Dela wder 20 years Farmers & Merchants Bank Offices Coming Soon Crossroads Farm 80 Cross Keys Road Harrisonburg, VA Port Road 1085 Port Republic Road Harrisonburg, VA Lourier 3ervice Farmers & Merchants Bank Courier Van Service to Harrisonburg and surrounding areas began operations on July 11, 2005, with daily pick up of commercial deposits, offering safety and convenience to commercial customers. This is the first service of this type in the Harrisonhurg area and is proving to be a great source of new business and a jump start for our new Crossroads branch. The custom van is equipped with a dual-control night deposit vault and security equipment. FOR OUR CUSTOMERS’ CONVENIENCE, WE ALSO PROVIDE ACCESS TO BANK SERVICES THROUGH: ATM Locations 24-Hour Access 6 at Branch Locations Internet Banking at www.farmersandmerchats.biz T h e following off site are cash dispensing only: 4 in Food Lion Stores in Harrisonburg, VA Food Lion Store in Mt. Jackson, VA Bo’s Interstate Shell, Edinburg, VA Telephone Banking 540-901-8733 or Toll Free 877-901-8733 Directors THOMAS L. CLINE President, Truck t$ Lquipment Corp. President, Mac Lease, Inc. JOHN N. CRIST Partner, Hoover Penrod, I’LC, Attorneys RICHARD S. MYERS President, Dick Myers Chevrolet-Pontiac MICHAEL W. PUGH President, Old Dominion Realty, Inc. President, Colonial Appraisal Service, Inc. JULLAN D. FISHER RONALD E. WAMPLEK Chairman ofthe Board, Farmers &Merchants Bank and F & M Bank Corp. ELLEN R. FITZWATER Partner, Financial Manager, F t$ R Leasing, ILIA. C DANIEL J. HARSIIMAN Manager. Tnwn of Edinburg Officers Julian D. Fisher Chairmun of the Board Thomas L. Clinc Vice Chairman of the Board Dcan W. Withers President and Chief Executive Oficer Larry A. Caplinger Sr. Kce President and Secretmy of the Board Salesman, Dick Myers Chevrolet-Pontiac Retired Farmer Partner, Dove Ohio Farms, LLC. and WWTD Ohio Farms. LLC DEAN W. WIl’HERS President, Farmers &Merchants Bank and P B M Bank Corp. Curtis M. Arey Sylvia T. Bowman Carolyn J. Dove Sally H. Erickson Ralph C. Foltz, Jr. Henry E. Hawkins Gary L. Knott Jeffrey L. Lam Susan K. Olson Mary Sue l’rophcc Kitty H. Purcell Robert R. Reedy, Jr. Carrie A. Comer Ellcn M. Grataski Kathy L. Grubhs Joshua I? Hale Mary Ellen Harrison Teresa D. Helmick Cathy M. Lindamood Judith A. Mathias Sheila E Owen Cindy A. Sherman Jacqueline M. ShiMcct Darlene K. Sites Dcborah D. Vance Neil W. Hayslett Kce Presidents Sr. Vice President and Chief’Financial Oficer Assistant Kce Presidents Ellen C. Branner Sr. Vice PresidendHuman Resources Stephanic E. Shillingburg Sr. Vice President/Retail Services (caption f i r centerspread) Farmers & Merchants Bank determined that it was important to be involved with the relief rricane Katrina. One of the ways the bank chose to help was by allowing empla repair efforts. The bank also made monetary contributions for the purchase the American Ked Cross immediately after the hurricane. So far Farmers & trips co Mississippi and at lew one additional trip is being planned. The Bank would like t their time and efforts in the clean up and also those who remained here in Virginia to cover for those f the jobs performed were: floor and paneling in one roam of the home of a 70-year old woman and her 90-year old mo r, replaced sheet rock, insulation ctc. in homes, painted and installed plumbing and furtures in two homes, removed damaged roof and replaced with new shingles, complctcly replaced r o o m destroyed by hurricane, removed debris from homes, anticipate similar jobs in coming rrip(s). 

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