F & M Bank Corp.
Annual Report 2008

Plain-text annual report

( OI^Q?/^ F&M Bank Corp. 2008 ANNUAL REPORT ^^mAi€le4^^ SSeMe/i/ : ^ F ^ ^ m ^^ Dear Stocknolder: Deeemter 3 1, 2 0 08 marked tke completion ot our lOOtk year in operation, and wnat a year it was. We nad Live Radio Remotes at all or our Branches in conjunction witn Customer Appreciation Celebrations involving tood and prizes. The final Remote was at tke TimkerviUe Headquarters Branck wkere we kad a daylong celekration including prizes and lunck tor tke community (over 6 00 people). I want to tkank tke skarekolders for tkeir support tkrougk tke years and tke employees and directors for tkeir kard work to make it all possible. We truly kave "stood tke test of time". Last year was also an interesting year from a financial perspective. Tke Federal Reserve reduced tke Federal Funds Rate seven times to an unprecedented low of 0 to . 2 5 %. Tkis resulted in kotk deposit and loan rates reacking lows not seen in tke last forty years. Tke Dow Jones Industrial Average lost 3 4% of its value, 25 t a n ks failed, including tke two largest bank failures in our country's kistory (Indy Mac and ^C^skington Mutual). Large brokerage firms, suck as Lekman Brotkers failed. Insurance companies, kanks, auto makers and state governments all tried to line up at tke federal trougk, all tke wkile mortgaging our ckildren and grandckildren's future. After considering it. Management and tke Board decided to not apply for Federal Assistance due to tke "Strings " attacked to tke program ky tke Government. Given tke current mood of our Congress and Administration, I definitely feel tkis was tke rigkt decision. In 2 0 08 F &M Bank Corp. experienced kotk significant growtk and signincant ckallenges. Total assets of our company grew to $ 4 72 million, an increase of $ 85 million since last year. Tkis growtk was fueled ky rapid growtk in tke portfolio of loans keid for investment from $ 3 17 million to $399- However, as kas keen tke case in recent years, deposit growtk kas been more difficult. Local deposits increased only $ 16 million, witk non local, brokered deposits and Federal Home Loan Bank debt providing tke bulk of tke funding for loan growtk. Tke interest income generated by tke rapid growtk in tke loan portfolio resulted in very good earnings for Farmers & Merckants Bank; kowever, due to tke significant drop in tke stock market, F &M Bank Corp. experienced record losses witkin its equities portfolio. Tke losses witkin tke securities portfolio were not tke result of securities actually sold, but due to accounting rules tkat required us to recognize Otker Tkan Temporary Impairment (OTTI) losses on securities tkat declined significantly in value. Typically securities are considered impaired wken tkeir value kas been significantly below cost for over a year. Witk tke continued decline in tke stock market, tkere will likely be more O T TI losses in 2 0 09 unless tke markets experience a rapid and significant recovery. Net income for tke year totaled $ 3 , 2 04 million versus $ 4 , 4 53 million in 2 0 0 7, a decrease of $ 1 , 2 49 million. Tkis decrease was driven ky securities losses totaling $ 1 , 6 80 million. However, for tke year, core earnings from operations totaled $ 4 , 3 99 million versus $ 4 , 1 25 million in 2 0 0 7, an increase of $ 2 74 tkousand or 6 . 6 5 %. Tkis increase in core eamings was tke result of our strong loan growtk. Earnings per skare decreased from $ 1 . 89 to $ 1 . 3 8. Witk tke increase in Assets but lower earnings, botk our Return on Average Assets and Return on Average Equity at . 7 5% and 8 . 5% were down significantly again due to tke O T TI on tke Securities Rarifolio. Credit quality remained good witk ckarge offs at . 0 8% of Loans Held for Investment in 2 0 0 8; wkick is an improvement from . 1 1% in 2 0 0 7. Witk tke slowing economy, we may see some increase in ckarge offs for 2 0 0 9. Nonperforming assets decreased to 1.01% of total assets, wkick is still kigker tkan it kas been in tke last few years except for 2 0 0 7. Tke Allowance for Loan Losses remained relatively steady at . 5 5% of Loans Held for Investment, wkick is kelow our bank peer group; kowever, we feel it is adequate to cover any potential losses. Dividends increased from $.86 to $.90 per skare, an increase of 4 . 6 5 %. In 2 0 08 we paid out 6 5 . 0 1% of our earnings in dividends. Tkis was okviously a significant increase over 2 0 0 7, kowever it is still in line witk previous years based on true cask flow ratker tkan net income. Financial stocks in general are at tkeir lowest levels in years and F &M kas seen some decline since tke first of tke year to around $ 2 2 . 00 from a year end price of $ 3 0 . 2 5. Still, in ligkt of our peers at kistorical lows, our price kas keld up well. Tkis repori is for tke year ending 2 0 0 8. However, since tke first of tke year, tke economy kas continued to decline along witk no positive moves in tke kousing market. Even tkougk our local economy is stronger tkan tke national economy, we are starting to see an increase in tke unemployment numbers and cutbacks on tke kours worked per week even for tkose tkat are employed. Tke stock market kas also continued to decline since year end and tke current administration's policies may or may not kave tkeir intended effects of stimulating tke economy. Furtkermore, tke F D IC seems intent on assessing more and more F D IC assessments on tke Banking industry to cover potential losses. I want to note tkat tke losses tkat tkey kave kad so far are primarily at tke larger banks, and not tke community banks like F & M. We kave conducted business responsibly; kowever, we along witk our peers, are being asked to cover losses associated witk tke larger banks wko didn't act responsibly. Based on tke current proposal of tke F D I C, tke assessments in 2 0 09 will be significantly kigker tkan 2 0 0 8. Tkis increase along witk tke potential for more O T T is mentioned above and tke slowing economy will make 2 0 09 a difficult year. I can assure you tkat your Management Team, Board of Directors, and Staff will work diligently to make it tke best year we can. We do kave a couple of projects eitker ready to roll out or will be skorily. After many years of researck we are ready for Document Imaging to kelp witk filing efficiency and storage space. Also, we now offer Remote Capture for businesses or individuals wko want to scan tkeir deposits tkemselves and electronically send tkem to us. In 2 0 08 we completed tke Branck Capture wkere tke branckes scan tkeir daily work and electronically send it to Bookkeeping. In November we purckased a majority interest in V BS Mortgage, wkick will give us more of a presence in tkis field once tke real estate market improves. In 2 0 09 tkey kave keen very profitable due to tke amount of refinancing to lower interest rates. We kave all tke services and products tkat meet tke needs of our customers. Please refer any friends, family or associates to us to see if we can meet tkeir needs. I want to tkank everyone again for your support and I look forward to leading your Corporation as we kegin our second century in operation. D e a n W W i t k e rs President/CEO ^4P£/^>e^i^S^U/in'in€mm'oS^f^eie^^^ : ^ g s s ^ ^^ (Dollars in thousands, except per share data) Income Statement Data: 2008 2007 2006 2005 2004 Interest and Dividend Income Interest Expense $ 25,544 $ 10.498 24,635 $ 11,043 22,526 $ 9.091 19,878 $ 6,998 Net Interest Income Provision for Loan Losses Net Interest Income after Provision for Loan Losses Noninterest Income Securities Gains (Losses) Noninterest Expenses Income before Income Taxes Income Tax Expense Net Income Per Share Data: Net Income Dividends Declared Book Value Average Shares Outstanding Balance Sheet Data: Assets Loans Held for Investment Loans Held for Sale Securities Deposits Short-Term Debt Long-Term Debt Shareholders' liquity Financial Ratios: Return on Average Assets' Return on Average Exjuity' Net Interest Alargin Efficiency Ratio ^ Dividend Payout Ratio $ $ $ Capital and Credit Ouality Ratios: Average Exquity to Average Assets' Allowance for Loan Losses to Loans' Nonperforming Assets to Total Assets Net Charge-ofFs to Total Loans' 15,046 815 14,231 3,169 (1,680) 11.097 4,623 1.419 13,592 270 13,322 3,215 IOl 10,532 6,106 1.653 13,435 240 13,195 2,754 193 9.688 6,454 1,925 12,880 360 12,520 2,643 71 8.608 6,626 1.846 3.504 .H 4,4.53 $ 4..59.9 % 4,780 1.38 $ 1.89 $ .90 15.64 2,319 .86 16.71 2,360 1.90 $ .82 16.05 2,386 1.99 $ .78 15.22 2,404 472,058 $ 399,233 3,780 30,785 342,225 20,510 65,331 36,258 386,727 $ 317,180 - 36,614 298,560 12,743 29,714 39,165 375,924 $ 309,461 - 37,373 289,522 11,717 29,247 38,105 346,328 $ 277,398 3,528 34,921 267,310 14,345 22,808 36,567 .75% 8.50% 3.89% 58.60% 65.01% 8.85% .55% 1.01% .08% 1.17% 11.53% 3.94% 60.31% 45.60% 10.05% .54% 1.11% .11% 1.26% 12.13% 4.17% 57.45% 43.12% 10.36% .58% .58% .04% 1.34% 13.56% 4.01% 53.07% 38.70% 9.86% .60% .20% .07% 16,804 5.396 11,408 240 11,168 2,254 532 7,741 6,213 1.863 4,350 1.80 .74 14.21 2,414 369,957 248,972 47,150 38,800 246,505 57,362 26,462 34,260 1.31% 13.11% 3.82% 54.02% 41.06% 10.00% .61% .63% .09% Ratios are priinarily based on daily average balances. ^ The Efficiency Ratio equals noninterest expenses divided 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 Held for Sale. ' The 100th Anniversary ofour bank's original opening date was August 22, 2008, and all our branches helped make sure that residents of every town knew all about it. Over nine weeks, each branch had a week-long Anniversary Party, offering re freshments and giving prizes including Millionaire For A Day cash. WSVA Radio visited each branch at the crack of dawn on a Wednesday morning, and bank folks talked about the things that make our bank special. The entire project was lots of work, but lots of fun too. Things culminated in Timberville on August 22, when we served lunch to over 600 people, cut over 500 slices of anniversary cake, and gave out over 400 servings of ice cream. The big Grand Prize drawing for "Millionaire For A Week" was the exciting ending to the big promotion. At local parades, the bank entered a float, built and staffed by employees, to commemorate our 100th Anniversaiy. : ^ F s ^ a d^ /a [standing] Vickie Wendt —Mortgage ProceMor, Kefin Ru^^ell- Pratdent, Richard ElLlott —Mortgage Advuor (Roanoke office), Eddie Blackweli—Mortgage Advuor, Ct^arled Wljately — Mortgage Advufor (Roanoke of fiee), Ron ROM- Mortgage Advuor, Jonathan Dean —Mortgage Advijor, Linda Lab be — Mortgage Proceddor Bottom Row (left to right): Kitty PurceU — Mortgage Advidor, Terri Dart- Offiee Manager, Tina Eppard — Mortgage ProceMor, Sue Hughed- Mortgage Advidor, Tonja Showalter- Mortgage Advuior, Amanda Couduid- Mortgage Adi>uior, Anita Beckman — Mortgage Adfufor In November of 2008, Farmers & Merchants Bank acquired 70% ownership in VBS Mortgage, head quartered in Harrisonburg, VA. This affiliation combines tke mortgage expertise of VBS Mortgage with the branch netw^ork offered by Farmers & Merchants Bank, offering additional mortgage products to Bank customers and giving VBS Mortgage customers direct access to a wade variety of bank products. This relationship enables VBS Mortgage to provide a fully integrated product delivery system, from construction financing, permanent financing, to title insurance and homeowners insurance along with traditional bank services. : ^ F S ^ 2 s J^ Cot^ri^U^m^^ r9(e^in€ €^tM^-A Jean Y. Estep 55 Years Linda D. Jenkins 40 Years Stephanie Shillingburg 30 Years Mm^m^m^ Sfk^imce/*-- Jeffrey L. Lam 25 Years Kathy Grubbs 20 Years Anthony W. Keyser 20 Years Cynthia L. Merica 20 Years Richard S. Myers 20 Years Eleanor C. Nicholson 20 Years Kathy Sherman 20 Years t^MeMte€i/ ^^g^^m^^ Frances L. Showalter, head teller at our Broadw^ay branch, retired on September 30, 2008. She had worked for our bank from 1968- 1975, and after rearing her family returned here to work in May 1994 as a teller. In 1998 Frances moved to the Broadway office and in December 2002 was promoted to Head Teller. She has three sons and four grandchildren to enjoy during retirement. Frances L. Sho-walter DIRKCTORS T H O M AS L. C L I NE R I C H A RD S. M Y E RS President, Truck & Equipment Cx)rp. President, M ac Lease, Inc. President, Dick Myers Automotive, Inc. M I C H A EL W. P U GH J O HN N. C R I ST Partner, Hoover Penrod, PLC-Attorneys President, Old Dominion Realty, Inc. President, Ckjlonial Appraisal Service, Inc. J U L I AN D. F I S H ER Chairman of the Board, Farmers & Merchants Bank and F &M Bank (3orp. R O N A LD E. W A M P L ER Outside sales-Dick Myers Automotive, Inc. Partner, Dove Ohio Farms, LLC. and W W TD Ohio Farms, L LC E L L EN R F I T Z W A T ER D E AN W. W I T H E RS Partner, Financial Manager, F & R Leasing, L LC President, Farmers & Merchants Bank and F &M Bank Corp. D A N I EL J. H A R S H M AN Manager, Town of Eklinburg OFFICERS J u l i an D. Fisher Chairman of the Board Thomas L. Cline Vice Chairman of the Board D e an W. Withers President and Chief Executive Officer Curtis M. Arey Anita C. Beckman Sylvia T. Bowman Carolyn J. Dove Sally H. Erickson Charles P. H a r d er H e my E. H a w k i ns Susan K. Olson M a iy S. Prophet Kitty H. Purcell Robert R. R e e dy J r. Kevin A. Russell Cynthia A. Sherman Gregory B. Spitler Fxlward A. S t r u nk Vice Presidents Larry A. Caplinger Executive Vice President and Secretaiy of the Board Neil W. Hayslett Executive Vice President a nd Chief Financial Officer D e b o r ah A. Andes Carrie A. Comer Kathy L. G r u b bs J o s h ua P. Hale M a ry Ellen Harrison Teresa D. Helmick Cathy M. Lindamood Darlene K. Sites D e b o r ah D. Vance Assistant Vice Presidents Ellen C. Branner Senior Vice President/Human Resources Ralph C. Foltz, J r. Senior Vice President/Operations Jeffrey L. Lam Senior Vice President/Retail Loan Administration Stephanie E. Shillingburg Senior Vice President/Retail Services Bridgev/ater 100 Plaza Drive 828-6300 Broadway 126 North Timber Way 896-7071 Edinburg 120 South Main Street 984-4128 Elkton 127 West Rockingham Street 298-1251 Harrisonburg Crossroads 80 Cross Keys Road - 433-7575 Harrisonburg Port Road 1085 Port Repubhc Road 433-0112 Luray 700 East Main Street 743-1130 Timberville 205 South Main Street 896-8941 Woodstock 161 South Main Street 459-3707 VBS Mortgage 2040 Deyerle Avenue, Ste 102 Harrisonburg 442-8583 

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