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1908-2008 tA
A N N I V E R S A RY
F&M BANK CORP.
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2007
ANNUAL REPORT
Filings Services
April 8, 2008
SNL Financial, LC
1-800-969-4121
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Dear Stoclenolcler:
We liave now entered our 100 year for Farmers & Mercfiants Bank and I tkink it is
appropriate to taise a moment to reriect on now signiricant an acnievement tnis is. in 1908
tnere were no computers, ceil pnones, televisions or radios tnat are now an aEtertiiougnt in
today's world. Automotiles and planes were just starting to te built and used. Yet a group
oE farmers and mercnants in tne Timterville area liad tne vision and drive to start a Dank
wnicli would grow and prosper for more tnan 100 years. We snould all ne proud of our
accomplisfiments and also tkankful for tne guidance provided by not only our founding fathers,
nut for tne very loyal employees, management, directors and sfiarenolders tnrougnout tne years.
Managements' goal is to continue tnis guidance and vision so tnat Farmers & Mercnants will be
celebrating its 2 00 anniversary in tne year 2 1 0 8.
With that thought in mind, 1 am pleased to present the financial results for Farmers &
Merchants Bank and F &M Bank Corp.
Net inconie for 2 0 07 was $ 4 , 4 53 million or a decrease slightly of $76,000 (1.68%) over the prior year 2 0 0 6. Earnings per share
decreased from $1.90 to $1.89. Both our Return on Average Assets and Return on Average Equity at 1.17% and 11.53% were
down, but still in line with our Peer Group. Loans Held for Investment increased by $7,719 million (2.5%) to $ 3 1 7 , 1 80 million.
Deposits increased by $9,038 million (3.1%) to $298,560 million.
Credit quality remained good with charge offs at . 1 1% of Loans Held for Investment in 2007; however this was an increase from
.04% in 2 0 0 6. Charge-offs in 2 0 06 were the lowest in a number of years. The increase for 2 0 07 was primarily related to one
account in the medical field. Toward the end of last year and early 2 0 08 the economy slowed, especially in the housing sector.
Therefore, we have increased our monthly Allowance for Loan Loss contribution to help offset any potential increase in charge-offs
because of the slowing economy.
Nonperforming assets increased to f . 1 1% of total assets, which is higher than it has been in the last few years. This increase is
primarily related to two accounts, both of which are secured with real estate and are in the process of collection. I anticipate that
both will be collected in the second quarter of 2 0 0 8. Management has reviewed the balance of the nonperforming loans, and
determined that they are primarily secured with real estate with little potential for losses. The Allowance for Loan Losses remained
relatively steady at .o4% oi Loans Held ior Investment, which is below our bank peer group; however, we ieel it is adequate to cover
any potential losses.
Dividends increased from $.82 to $.86 per share, an increase of 4.88%. In 2 0 07 we paid out 4 5 . 6 0% of our earnings in
dividends. This was a slight increase over 2 0 06 and was the highest payout over the previous five years. Over the past few months
we have seen financial stocks in general well below their highs in 2007, however F &M Bank Corp's stock price has held up well.
We closed on December 3 1, 2 0 07 at $31.05 with a high in 2 0 07 of $ 3 3 . 9 5.
The new branches opened in 2 0 06 showed significant growth in 2 0 0 7. The Crossroads branch had an increase in loans of over
$20 million and all three showed good deposit growth. As these branches continue to mature they will contribute significantly to
the bottom line.
For 2 0 08 we have a number of new products and services, two of which have already been launched. Platinum Rewards is a new
checking account which pays a CD like rate to our customers and should also increase both our deposits and non interest income.
We have also added ID Saie Choice to our Platinum checking accounts. This product helps to prevent identiiy theit ior our
customers, which uniortunately has become a large problem in today's society. Internally we are installing Branch Capture for
processing oi checks. leather than having a courier pick up the daily work from a branch, it will be sent electronically to Timberville
for processing. Later in the year we will also have Remote Capture, which will allow primarily business customers to process
their deposit at their location and electronically send it to the bank. Both of these products have significant efficiency savings.
Document Imaging is another product we are considering.
As I mentioned before, this is our 100 ' year and we have a number of events planned, along with some items to commemorate this
occasion. Our history book is now available and can be picked up at any of our branches. Be on the lookout for various events, etc.
throughout the year.
I want to thank everyone for your support not only for the last year, but for your support over the last 100 years. Many of our
current shareholders are descendants oi shareholders irom our earlier years, and I think that is the cornerstone oi what sets us
apart irom many oi our competitors today. The philosophy oi our iounding lathers to help our local communities grow is still very
important to us today. Farmers & Merchants truly has "Stood the Test oi Time ".
^Xl^ee^ U i -^ ^f"^^^"^^
Dean W Withers
President/CEO
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