SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
F&M NATIONAL CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
March 4, 1996
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders
of FB&T Financial Corporation ("FB&T") to be held at the Main Office of Fairfax
Bank & Trust Company located at 4117 Chain Bridge Road, Fairfax, Virginia on
Friday, March 29, 1996 at 3:00 p.m.
At this important meeting, you will be asked to consider and vote on
the Agreement and Plan of Reorganization, dated as of November 22, 1995, and a
related Plan of Merger (collectively, the "Merger Agreement") between the FB&T
and F&M National Corporation ("F&M"). Based in Winchester, Virginia, F&M is a
bank holding company with $1.83 billion in total assets at December 31, 1995 and
with its principal operations currently being conducted through 11 affiliated
banks in Virginia and West Virginia.
Under the terms of the Merger Agreement, F&M will exchange shares of
its common stock whose aggregate market value equals $35.00 for each share of
common stock of FB&T held by you, and cash in lieu of any fractional share. In
addition, two members of the Board of Directors of FB&T will be appointed by F&M
to its Board of Directors upon consummation of the merger. F&M common stock is
traded on the New York Stock Exchange under the symbol "FMN." It is anticipated
that the merger will become effective during the early part of the second
quarter of this year.
Your Board of Directors has retained the investment banking firm of
Scott & Stringfellow, Inc. to act as its financial advisor in connection with
this transaction. As discussed in the accompanying Proxy Statement/Prospectus,
Scott & Stringfellow has delivered to the Board of Directors its written opinion
that, as of this date, the terms of the Merger Agreement are fair from a
financial point of view to our shareholders.
FB&T shareholders will not recognize gain or loss for federal income
tax purposes to the extent F&M common stock is received in the merger in
exchange for FB&T common stock, although the receipt of cash in lieu of
fractional shares will be taxable. Details of the proposed transaction with F&M
are set forth in the accompanying Proxy Statement/Prospectus, which you are
urged to read carefully in its entirety. Approval of the transaction with F&M
requires the affirmative vote of at least a majority of the outstanding shares
of common stock of FB&T.
Your Board of Directors has unanimously approved the Merger Agreement
and the transaction with F&M and believes that they are in the best interests of
FB&T and our shareholders. Accordingly, the Board unanimously recommends that
you VOTE FOR the Merger Agreement.
WE HOPE YOU CAN ATTEND THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE
NUMBER OF SHARES YOU OWN.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
RONALD W. TYDINGS CHARLES E. CURTIS
Chairman of the Board President
FB&T FINANCIAL CORPORATION
FAIRFAX, VIRGINIA
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 29, 1996
-------------------------
A Special Meeting of Shareholders of FB&T Financial Corporation
("FB&T") will be held on Friday, March 29, 1996 at 3:00 p.m., at the Main
Office of Fairfax Bank & Trust Company located at 4117 Chain Bridge Road,
Fairfax, Virginia for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as of
November 22, 1995, between FB&T and F&M National Corporation ("F&M") and a
related Plan of Merger (collectively, the "Merger Agreement"), providing for the
merger of FB&T with and into F&M upon the terms and conditions therein,
including, among other things, that each issued and outstanding share of FB&T
common stock will be exchanged for shares of F&M common stock with an aggregate
market value equal to $35.00, with cash being paid in lieu of issuing fractional
shares. The Merger Agreement is enclosed with the accompanying Proxy
Statement/Prospectus as Appendix I.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Each FB&T shareholder will have the right to dissent from the Merger
and to demand payment of the fair value of his shares in the event the Merger is
approved and consummated. Any right of any such FB&T shareholder to receive such
payment is contingent upon strict compliance with the requirements set forth in
Article 15 of the Virginia Stock Corporation Act, the full text of which is
included as Appendix VII to the accompanying Proxy Statement/Prospectus.
The Board of Directors has fixed January 26, 1996, as the record date
for the Special Meeting, and only holders of record of FB&T common stock at the
close of business on that date are entitled to receive notice of and to vote at
the Special Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
T. Earl Rogers
Assistant Secretary
March 29, 1996
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF FB&T RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE MERGER AGREEMENT.
FB&T FINANCIAL CORPORATION
PROXY STATEMENT
F&M NATIONAL CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
FB&T Financial Corporation ("FB&T") in connection with the solicitation of
proxies by the Board of Directors of FB&T for use at its Special Meeting of
Shareholders (the "Special Meeting") to be held on March 29, 1996, and any
postponements or adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Reorganization, dated as of November 22, 1995, between
FB&T and F&M National Corporation, a bank holding company based in Winchester,
Virginia ("F&M"), and a related Plan of Merger (collectively, the "Merger
Agreement") providing for the merger of FB&T with and into F&M (the "Merger")
and the exchange of common stock of FB&T ("FB&T Common Stock") for the common
stock of F&M ("F&M Common Stock"). Upon consummation of the Merger, each
outstanding share of FB&T Common Stock, other than shares as to which appraisal
rights have been duly exercised, will be converted into and exchanged for shares
of F&M Common Stock with an aggregate market value equal to $35.00. Cash will be
paid in lieu of fractional shares. A copy of the Merger Agreement is included as
Appendix I hereto.
Except as described below, the market value of F&M Common Stock will be
its average closing price as reported on the New York Stock Exchange (the
"NYSE") for each of the ten trading days immediately preceding the closing date
(the "Average Closing Price"). The ratio of shares of F&M Common Stock that will
be exchanged for each outstanding share of FB&T Common Stock will then be
determined by dividing $35.00 by the Average Closing Price. Accordingly, the
exchange ratio will not, except as described below, be established until the
effective date of the Merger. The Merger Agreement includes a price adjustment
provision designed to address the situation in which the market value of F&M
Common Stock increases in the unanticipated event of a proposed acquisition
of F&M which would thereby dilute the number of shares of F&M Common Stock that
would otherwise be issued to FB&T shareholders. In that event, the exchange
ratio would fixed at that time based on market value of F&M Common Stock using
the average closing price of F&M Common Stock for each of the ten trading days
immediately preceding the public announcement of the proposed transaction.
See "The Merger -- Terms of the Merger."
Scott & Stringfellow, Inc. ("Scott & Stringfellow") has rendered its
opinion, updated to the date hereof, to the Board of Directors of FB&T that the
terms of the Merger are fair to FB&T's shareholders from a financial point of
view. See "The Merger - Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF FB&T UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE TO VOTE IS EQUIVALENT TO VOTING
AGAINST THE PROPOSAL.
This Proxy Statement/Prospectus also constitutes a prospectus of F&M
covering up to approximately 2,796,000 shares of F&M Common Stock to be issued
to shareholders of FB&T in connection with the Merger. The outstanding shares
of F&M Common Stock are, and the shares offered hereby will be, listed on
the NYSE and traded under the symbol "FMN." The closing price of F&M Common
Stock on the NYSE on February 29, 1996 was $19.00.
This Proxy Statement/Prospectus is first being mailed to shareholders
of FB&T on or about March 4, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF F&M COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The date of this Proxy Statement/Prospectus is March 4, 1996.
AVAILABLE INFORMATION
F&M and FB&T are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center (13th Floor), New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information with
respect to F&M may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, and with respect to FB&T
may be inspected at the office of the National Association of Securities Dealers
Stock Market, Report Section, 1735 K Street, N.W., Washington, D.C. 2006. As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is
a part, and exhibits thereto (together with the amendments thereto, the
"Registration Statement"), which have been filed by F&M with the Commission
under the Securities Act of 1933 (the "Securities Act") with respect to F&M
Common Stock and to which reference is hereby made for further information.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by F&M are
incorporated by reference in this Proxy Statement/Prospectus: (i) F&M's Annual
Report on Form 10-K for the year ended December 31, 1994; (ii) F&M's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995, and its Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1995 filed on February 27, 1996; and (iii) F&M's Current
Reports on Form 8-K, filed January 18, 1995, February 21, 1995, April 12,
1995, and November 24, 1995. All documents filed by F&M pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO F&M THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, UPON
REQUEST FROM ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED
DIRECTED TO: ALFRED B. WHITT, SENIOR VICE PRESIDENT AND SECRETARY, F&M NATIONAL
CORPORATION, P.O. BOX 2800, WINCHESTER, VIRGINIA 22604; TELEPHONE NUMBER (540)
665-4200. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENTS, THE
REQUEST SHOULD BE MADE BY MARCH 22, 1996.
------------------
The information contained in this Proxy Statement/Prospectus relating
to F&M has been supplied by F&M, and the information relating to FB&T has been
supplied by FB&T.
CERTAIN INFORMATION REGARDING FB&T
Selected portions of certain reports filed by FB&T with the Commission
are included (without the exhibits thereto) as Appendices to this Proxy
Statement/Prospectus. Portions of FB&T's Annual Report on Form 10-KSB for the
year ended December 31, 1994 (the "FB&T Form 10-KSB"), including FB&T's Proxy
Statement for its 1995 Annual Meeting, appear as Appendix IV; portions of FB&T's
1994 Annual Report to Stockholders (the "FB&T Annual Report"), including the
audited financial statements of FB&T and notes thereto, appear as Appendix V;
and portions of FB&T's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1995 appears as Appendix VI. Shareholders of FB&T are urged to
refer to the more detailed information on FB&T contained in Appendices IV, V,
and VI. Such Appendices (excluding any documents incorporated by reference
therein or exhibits thereto) are part of this Proxy Statement/Prospectus and
should be carefully reviewed for the information regarding FB&T contained
therein. The portions of the reports which do not appear in the Appendices,
as well as the documents incorporated by reference by, or included as
exhibits to, such reports are NOT a part of this Proxy Statement/Prospectus
or the Registration Statement. See "Information Concerning FB&T -- General."
------------------
TABLE OF CONTENTS
Available Information.................................. 1
Incorporation of Certain Information by Reference...... 1
Certain Information Regarding FB&T..................... 2
Summary................................................ 3
Comparative Per Share Information...................... 8
Recent Financial Data on F&M and FB&T.................. 9
Selected Financial Data................................ 10
The FB&T Special Meeting............................... 14
The Merger............................................. 15
Market Prices and Dividends............................ 29
Pro Forma Condensed Financial Information.............. 31
Information Concerning FB&T ........................... 35
Business of F&M ....................................... 38
Comparative Rights of Shareholders..................... 39
Description of F&M Capital Stock....................... 44
Experts................................................ 45
Legal Opinions......................................... 45
Shareholder Proposals.................................. 45
Other Matters.......................................... 46
APPENDICES
I Agreement and Plan of Reorganization and Plan of Merger
II Stock Option Agreement dated November 22, 1995
III Opinion of Scott & Stringfellow, Inc.
IV FB&T Form 10-KSB for the year ended December 31, 1994
(including FB&T's Proxy Statement for its 1995 Annual Meeting)
V FB&T's 1994 Annual Report to Shareholders
VI FB&T's Form 10-QSB for the quarter ended September 30, 1995
VII Article 15 of the Virginia Stock Corporation Act Relating to Dissenters'
Rights
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING F&M, FB&T AND THE MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING AND IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE.
THE PARTIES
F&M. F&M is a multi-bank holding company headquartered in Winchester,
Virginia. F&M has eleven subsidiary banks (the "Subsidiary Banks") that operate
78 banking offices which offer a full range of banking services principally to
individuals and to small and medium sized businesses in the Shenandoah Valley of
Virginia, central and northern Virginia and the eastern panhandle of West
Virginia. F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired fourteen banks, which have expanded its market
area and increased its market share in Virginia and West Virginia. At September
30, 1995, F&M had total assets of $1.81 billion, total deposits of $1.57 billion
and total shareholders' equity of $188 million. F&M's principal executive
offices are located at 38 Rouss Avenue, Winchester, Virginia 22601, and its
telephone number is (540) 665-4200. See "Recent Financial Data on F&M and FB&T,"
"Selected Financial Data" and "Business of F&M."
F&M Common Stock is listed for trading on the NYSE under the symbol
"FMN."
FB&T. FB&T is a one bank holding company that serves as the parent
company for Fairfax Bank & Trust Company ("Fairfax Bank"). Fairfax Bank, which
is a state-chartered commercial bank and member of the Federal Reserve System
("Federal Reserve"), commenced its banking business in 1985 and provides
commercial and consumer banking services through eleven full-service banking
offices to customers in Fairfax and Prince William Counties in Northern
Virginia. At September 30, 1995, FB&T had total assets of $244.6 million, total
deposits of $200.9 million, and total shareholders' equity of $17.2 million. The
principal executive offices of FB&T are located at 4117 Chain Bridge Road,
Fairfax, Virginia 22030. See "Recent Financial Data on F&M and FB&T,"
"Selected Financial Data" and "Information Concerning FB&T." For additional
information concerning FB&T, see the FB&T Form 10-KSB, including FB&T's Proxy
Statement for its 1995 Annual Meeting, the FB&T Annual Report, and the FB&T
Form 10-QSB for the quarter ended September 30, 1995 that are included as
Appendices IV, V and VI, respectively, to this Proxy Statement/Prospectus.
FB&T Common Stock is approved for trading on the Nasdaq National Market
under the symbol "FBTC."
THE SPECIAL MEETING
TIME, PLACE AND PURPOSE. The Special Meeting will be held on March 29,
1996 at 3:00 p.m. at the Main Office of Fairfax Bank located at 4117 Chain
Bridge Road, Fairfax, Virginia 22030. At the Special Meeting, FB&T shareholders
will be asked to consider and vote upon a proposal to approve the Merger
Agreement, attached hereto as Appendix I.
RECORD DATE. Only holders of record of FB&T Common Stock at the close
of business on January 26, 1996, will be entitled to notice of and to vote at
the Special Meeting. At the record date, there were approximately 494 holders of
record of the 1,269,580 shares of FB&T Common Stock then outstanding and
entitled to vote at the Special Meeting. See "The FB&T Special Meeting."
TERMS OF THE MERGER
The Merger provides for the exchange of each outstanding share of FB&T
Common Stock for F&M Common Stock. F&M will then serve as the parent bank
holding company for Fairfax Bank, which will continue to carry on its banking
business in substantially the same manner as before the Merger.
At the effective date of the Merger, each outstanding share of FB&T
Common Stock will be exchanged for shares of F&M Common Stock with an aggregate
market value equal to $35.00 (the "Exchange Ratio"), and cash in lieu of any
fractional shares. Except as described below, the market value of F&M Common
Stock will be its average closing price as reported on the NYSE for each of the
ten trading days immediately preceding the closing date (the "Average Closing
Price"). The ratio of shares of F&M Common Stock that will be exchanged for
each outstanding share of FB&T Common Stock will then be established at the
closing date of dividing $35.00 of the Average Closing Price (the "Exchange
Ratio").
The Merger Agreement includes a price adjustment provision for the
Exchange Ratio designed to address the situation in which the market value of
F&M Common Stock increases in the unanticipated event of a proposed
acquisition of F&M which would thereby dilute the number of shares of F&M
Common Stock that would otherwise be issued to FB&T shareholders. Accordingly,
in the event: (a) F&M shall have entered into an agreement with any person to
(i) acquire, merge or consolidate, or enter into any similar transaction, with
F&M, (ii) purchase, lease or otherwise acquire all or substantially all of the
assets of F&M or (iii) purchase or otherwise acquire securities representing
10% or more of the voting power of F&M; or (b) any person shall have made a
bona fide proposal to F&M by public announcement or written communication
that is or becomes the subject of public disclosure to acquire F&M by
merger, share exchange, consolidation, purchase of all or substantially all
of its assets or any similar transaction, the Exchange Ratio will thereupon be
fixed based on the market value of F&M Common Stock using the average closing
price of F&M Common Stock for each of the ten trading days immediately
preceding the public announcement of a transaction or event described in
either (a) or (b). See "The Merger - Terms of the Merger."
In addition, at the Effective Date, FB&T's obligations with respect to
outstanding options granted under its 1985 Incentive Stock Option Plan and its
Non-Employee Director Stock Compensation Plan (the "FB&T Stock Option Plans")
(allowing holders to acquire an aggregate of up to 87,116 shares of FB&T Common
Stock as of December 31, 1995) will be assumed by F&M and each stock option
outstanding under such plans will become the right to receive, upon payment by
the holder of the adjusted exercise price, that number of shares of F&M Common
Stock the option holder would have received pursuant to the Merger if he or she
had exercised such option immediately prior thereto, and cash in lieu of any
fractional shares. The conversion of the FB&T stock options is subject to the
restrictions imposed on "incentive stock options" by federal law. See "The
Merger - Terms of the Merger" and "Interests of Certain Persons in the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FB&T
The Board of Directors of FB&T has unanimously approved the Merger,
including the Merger Agreement. The Board of Directors believes that the Merger
is fair to and in the best interests of the shareholders of FB&T and recommends
a VOTE FOR the Merger. See "The Merger - Background of and Reasons for the
Merger."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of FB&T retained Scott & Stringfellow to act as
its financial advisor in connection with the Merger, and Scott & Stringfellow
has rendered its opinion to the Board of Directors of FB&T that the terms of the
Merger are fair from a financial point of view to the FB&T shareholders. The
full text of Scott & Stringfellow's opinion, updated to the date hereof, is set
forth as Appendix III to this Proxy Statement/Prospectus and should be read in
its entirety with respect to the assumptions made and other matters considered
and limitations on the review undertaken. See "The Merger - Opinion of Financial
Advisor."
VOTE REQUIRED
Approval of the Merger requires the affirmative vote of the holders of
at least a majority of the outstanding shares of FB&T Common Stock. As of the
record date, directors and executive officers of FB&T and their affiliates
beneficially owned approximately 368,869 shares of FB&T Common Stock, or
approximately 29% of the shares of FB&T Common Stock outstanding on such date
(exclusive of shares of FB&T Common Stock subject to outstanding options that
are currently exercisable). The directors and executive officers of FB&T have
indicated their intention to vote their shares of FB&T Common Stock in favor of
the Merger. See "The FB&T Special Meeting Vote Required."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
EFFECTIVE DATE
The Merger will become effective at the date and time set forth on the
Certificate of Merger issued by the Virginia State Corporation Commission (the
"Effective Date"). The Effective Date will occur as soon as practicable
following the date that all conditions specified in the Merger Agreement have
been satisfied or waived. The Merger is expected to be made effective during the
second quarter of 1996. F&M and FB&T each has the right, acting unilaterally, to
terminate the Merger Agreement should the Merger not be consummated by September
30, 1996. See "The Merger - The Effective Date."
DISTRIBUTION OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each FB&T shareholder (other than dissenting
shareholders) a letter of transmittal and instructions for use in order to
surrender the certificates representing shares of FB&T Common Stock in exchange
for certificates representing shares of F&M Common Stock. Cash (without
interest) will be paid to FB&T shareholders in lieu of the issuance of any
fractional shares in an amount equal to the fraction of a share of F&M Common
Stock to which such shareholder would otherwise be entitled multiplied by the
average of the closing prices of F&M Common Stock as reported on the NYSE during
the ten trading days immediately preceding the Effective Date. See "The Merger -
Surrender of Stock Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
LeClair Ryan, counsel for F&M, has delivered an opinion that, among
other things, (i) no gain or loss will be recognized by FB&T shareholders to the
extent they receive shares of F&M Common Stock solely in exchange for their FB&T
Common Stock pursuant to the Merger, (ii) the aggregate tax basis of F&M Common
Stock received by a FB&T shareholder will equal the aggregate tax basis of the
FB&T Common Stock surrendered in exchange therefor by such shareholder (reduced
by any amount allocable to fractional share interests for which cash is
received), and (iii) the holding period of the F&M Common Stock received will
generally include the holding period of the FB&T stock surrendered if the FB&T
Common Stock is held as a capital asset at the Effective Date. For a more
complete description of the federal income tax consequences of the Merger, see
"The Merger - Certain Federal Income Tax Consequences."
DUE TO THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE MERGER, IT
IS RECOMMENDED THAT EACH FB&T SHAREHOLDER CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT TO THEIR PARTICULAR
TAX SITUATION.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of FB&T's management, as well as certain members of the
FB&T Board of Directors, have interests in the Merger in addition to their
interests as shareholders of FB&T. These include, among other things, provisions
in the Merger Agreement relating to indemnification of directors and officers of
FB&T, appointment of two FB&T directors to the Board of Directors of F&M
assumption by F&M of outstanding stock options for FB&T Common Stock held by
directors officers and employees of FB&T, certain change in control agreements,
and eligibility for certain F&M employee benefits. In each case, the FB&T Board
was aware of their potential interests, and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Directors. F&M has agreed to cause two members of the FB&T Board of
Directors designated by the FB&T Board and approved by F&M to become members of
the F&M Board of Directors upon consummation of the Merger. The FB&T Board has
designated Messrs. Curtis and Tydings for appointment to the F&M Board, but
the F&M Board has not as of this date approved such appointments. F&M currently
pays each director $500 for attendance at each Board meeting and, in addition,
pays each nonemployee director an annual retainer of $6,500.
Stock Options. Each director and certain officers and employees of FB&T
hold options under the FB&T Stock Option Plans to acquire up to 87,116 shares of
FB&T Common Stock as of December 31, 1995. Such options, to the extent not
exercised prior to the Effective Date, will become, by virtue of the Merger, the
right to receive, upon payment of the adjusted exercise price specified in the
option, that number of shares of F&M Common Stock the option holder would have
received pursuant to the Merger if he or she had exercised such option
immediately prior thereto, and cash in lieu of any fractional shares. Each
non-employee director of FB&T holds an option granted pursuant to FB&T's
Non-Employee Director Stock Compensation Plan for 2,050 shares at a weighted
average exercise price of $15.86 per share. Messrs. Charles E. Curtis and T.
Earl Rogers, the executive officers of FB&T, hold options covering 30,870 and
23,705 shares, respectively, with a weighted average exercise price of $12.35 in
the case of Mr. Curtis and $12.83 in the case of Mr. Rogers. See "Information
Concerning FB&T - Ownership of FB&T Common Stock." In accordance with the
requirements of the FB&T Stock Option Plans, the exercise price of all options
granted thereunder equaled the fair market value of FB&T Common Stock at the
date of grant.
Agreements with Messrs. Curtis and Rogers. The Merger Agreement
provides that F&M will enter into change-in-control agreements with FB&T's
executive officers Charles E. Curtis and T. Earl Rogers on terms similar to
those in effect for certain of the senior executive officers of the Subsidiary
Banks. These agreements follow a standard form and provide for the continuation
of employment and other benefits for a two year period following the occurrence
of a "change in control" of F&M, as defined in the agreement. In the event of a
termination of employment during this two year period other than for "cause" or
by the officer for "good reason" or during a 45 day period immediately following
the first anniversary of the date on which the change in control occurred, the
officer will be paid in one lump sum an amount equal to one times his average
annual taxable compensation he received during the five year period immediately
prior to the year of the change of control.
Office Lease. Fairfax Bank has leased property for its Main Office at
4117 Chain Bridge Road in the City of Fairfax from a limited partnership of
which Mr. Tydings (the Chairman of the Board of FB&T) is on of three general
partners and Messrs. Tydings and Phillips (a director of FB&T) are two of
twenty-three limited partners. Immediately prior to executing the Merger
Agreement, and with the consent of F&M, Fairfax Bank agreed to extend the
initial term of that lease to December 31, 2005, with four options to renew for
five years each, with current monthly rental payments of approximately $35,363,
subject to certain annual cost of living adjustments.
Ownership of F&M Common Stock by Certain FB&T Directors. The following
directors of FB&T are deemed to own beneficially (which includes shares held by
close relatives and children and shares held jointly with spouses or as
custodians or trustees) the indicated number of shares of F&M Common Stock; Mr.
Baran, 2,116 shares; Mr. Phillips, 2,516 shares; Mr. Pool, 26,952 shares; Mr.
Rogers, 1,796 shares; and Mr. Tydings, 2,516 shares.
See "The Merger - Interests of Certain Persons in the Merger."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and the Virginia State
Corporation Commission (the "Virginia SCC"). Applications were filed in
January by F&M with the Federal Reserve and the Virginia SCC. Each application
has been accepted for processing. There can be no assurance that the approval
of the Federal Reserve or the Virginia SCC will be obtained or as to the timing
or conditions of such approvals. See "The Merger - Regulatory Approvals."
CONDITIONS TO CONSUMMATION OF THE MERGER; TERMINATION
Consummation of the Merger is contingent upon the following unwaivable
conditions: (i) receipt of the approval of the shareholders of FB&T solicited
hereby; (ii) receipt of an opinion of counsel as to the tax-free nature of the
Merger (except for cash received in lieu of fractional shares or upon the
exercise of dissenters' rights); and (iii) approval of the Federal Reserve and
the Virginia SCC. The receipt by F&M of an opinion from Yount, Hyde & Barbour,
P.C., that the Merger may be accounted for under the pooling of interests
accounting method is a condition to consummation of the Merger that may be
waived by F&M. The Merger is also subject to satisfaction or waiver of other
conditions. See "The Merger - Representations and Warranties; Conditions to
the Merger" and "The Merger - Regulatory Approvals."
The Merger Agreement may be terminated and the Merger abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of F&M and FB&T or (ii) by either F&M or FB&T if the Effective Date
has not occurred by September 30, 1996 or if certain specified events occur. See
"The Merger - Waivers, Amendment and Termination."
COMBINATION OF FAIRFAX BANK WITH CERTAIN OTHER SUBSIDIARY BANKS
F&M has two Subsidiary Banks that operate in the Northern Virginia
market. F&M Bank-Hallmark, based in Springfield, Virginia with total assets of
$125.6 million at September 30, 1995, operates six offices, including its Main
Office in Springfield and branch offices in Alexandria, Annandale, Newington,
Woodbridge, Virginia. F&M Bank-Potomac operates one office based in Herndon,
Virginia and reported total assets of $57.6 million at September 30, 1995.
F&M contemplates that two of the Subsidiary Banks, F&M Bank-Hallmark
and F&M Bank-Potomac, will be combined with Fairfax Bank following the Effective
Date in order to give F&M a larger and more competitive presence in the Northern
Virginia market. No time frame for completing the combination has been
established nor has a name for the resulting bank been determined. See "The
Merger - Combination of Fairfax Bank with Certain Other Subsidiary Banks."
OPTION AGREEMENT
As a condition of F&M's entering into the Merger Agreement and to
increase the probability that the Merger will be consummated, FB&T and F&M
entered into an Option Agreement, dated as of November 22, 1995 (the "Option
Agreement"). The Option Agreement provides for the acquisition by F&M of up to
252,600 shares of FB&T Common Stock (approximately 19.8% of the FB&T Common
Stock), subject to adjustment, at an exercise price of $22.75 per share (the
"FB&T Option"). The Option Agreement is attached to this Proxy
Statement/Prospectus as Appendix II.
Exercise of the FB&T Option is permitted only upon the occurrence of
the events and subject to the limitations specified in the Option Agreement. See
"The Merger - The Option Agreement."
EFFECT OF THE MERGER ON THE RIGHTS OF FB&T SHAREHOLDERS
Upon consummation of the Merger, FB&T shareholders will become
shareholders of F&M. While the rights of the former shareholders of FB&T will
continue to be governed by the Virginia Stock Corporation Act (the "Virginia
SCA") since F&M is a Virginia corporation, the rights of FB&T shareholders will
also be as provided for under the Articles of Incorporation and Bylaws of F&M.
The provisions of the Articles of Incorporation and Bylaws of F&M differ in
certain material respects from the Articles of Incorporation and Bylaws of FB&T.
See "Comparative Rights of Shareholders."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a pooling of
interests . It is intended that F&M will receive an opinion from its outside
auditors that the Merger will be accounted for as a pooling of interests. See
"The Merger - Accounting Treatment."
RIGHTS OF DISSENT AND APPRAISAL
Each holder of FB&T shares may dissent from the Merger and is entitled
to the rights and remedies of dissenting shareholders provided in Article 15 of
the Virginia SCA, subject to compliance with the procedures set forth therein,
including the right to appraisal of his or her stock. A copy of Article 15 is
attached as Appendix VII to this Proxy Statement/Prospectus and a summary
thereof is included under "The Merger - Rights of Dissenting Shareholders."
RESALES OF F&M COMMON STOCK
Shares of F&M Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and major shareholders) of FB&T under applicable
federal securities laws. See "The Merger - Resales of F&M Common Stock."
MARKET PRICES
The following table discloses the price per share of F&M Common Stock
and FB&T Common Stock based on the last reported sale prices per share of F&M
Common Stock on the NYSE Composite Transactions List and of FB&T Common Stock on
the Nasdaq National Market on November 21, 1995, the last business day prior to
public announcement of the execution of the Merger Agreement, and on February
29, 1996. See "Market Prices and Dividends."
PRICE PER SHARE
F&M FB&T
November 21, 1995................ $ 18.25 $24.00
February 29, 1996................ 19.00 33.00
BECAUSE THE MARKET PRICE OF F&M COMMON STOCK IS SUBJECT TO FLUCTUATION
AND WILL LIKELY CHANGE PRIOR TO THE TIME THE EXCHANGE RATIO IS FIXED, THE PER
SHARE MARKET VALUE OF F&M COMMON STOCK THAT FB&T SHAREHOLDERS WILL RECEIVE
PURSUANT TO THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE DATE,
BUT THE AGGREGATE VALUE OF F&M COMMON STOCK RECEIVED BY FB&T SHAREHOLDERS WILL
STILL EQUAL $35.00. FB&T SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR F&M COMMON STOCK.
F&M'S ACQUISITION PROGRAM
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. Since the beginning of 1988,
F&M has acquired approximately $800 million in assets and approximately $716
million in deposits through ten bank acquisitions. Management believes there are
additional opportunities to acquire financial institutions or to acquire assets
and deposits that will allow F&M to enter new markets or increase market share
in existing markets. Management intends to pursue acquisition opportunities in
strategic markets where its managerial, operational and capital resources will
enhance the performance of acquired institutions and may, after the date of this
Proxy Statement/ Prospectus, enter into agreements to acquire one or more
financial institutions. See "Business of F&M - F&M's Acquisition Program."
COMPARATIVE PER SHARE INFORMATION
The table below presents selected comparative unaudited per share
information (i) for F&M on a historical basis and on a pro forma combined basis
assuming the Merger had been effective during the periods presented and
accounted for as a pooling of interests and (ii) for FB&T on a historical basis
and on a pro forma equivalent basis. The information shown below should be read
in conjunction with the historical financial statements of F&M and FB&T and the
respective notes thereto that are included elsewhere herein or incorporated
herein by reference. Results for F&M and FB&T for the nine months ended
September 30, 1995 are not necessarily indicative of results to be expected for
their entire fiscal years, nor are pro forma amounts necessarily indicative of
results that will be obtained on a combined basis.
As explained more fully in Note 1 below, because the number of shares
of F&M Common Stock issuable pursuant to the Exchange Ratio will not be
established until the Effective Date, it is assumed for purposes of this table
that 1.851 shares of F&M Common Stock will be issued for each share of FB&T
Common Stock. BECAUSE THE MARKET PRICE OF F&M COMMON STOCK IS SUBJECT TO
FLUCTUATION AND WILL LIKELY CHANGE PRIOR TO THE FIXING OF THE EXCHANGE RATIO,
THE PRO FORMA COMBINED AND FB&T PRO FORMA EQUIVALENT AMOUNTS ARE SUBJECT TO
CHANGE.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31,
------------------------------
1995 1994 1993 1992
---- ---- ---- ----
PER COMMON SHARE:
NET INCOME:
FB&T-historical....................... $ 1.44 $ 1.87 $ 1.90 $ 1.02
F&M-historical........................ 1.07 1.25 1.16 1.09
Pro forma combined.................... 1.03 1.22 1.15 1.03
FB&T pro forma equivalent (1)......... 1.91 2.26 2.13 1.91
CASH DIVIDENDS DECLARED:
FB&T-historical....................... $ 0.44 $ 0.52 $ 0.23 $ --
F&M-historical........................ 0.45 0.54 0.58 0.41
Pro forma combined.................... 0.45 0.54 0.58 0.41
FB&T pro forma equivalent (1)......... 0.83 1.00 1.07 0.75
SEPTEMBER 30, DECEMBER 31,
1995 1994
---- ----
BOOK VALUE:
FB&T-historical....................... $ 13.92 $ 12.83
F&M-historical........................ 11.36 10.25
Pro forma combined.................... 10.89 9.85
FB&T pro forma equivalent (1)......... 20.16 18.23
.........
(1) FB&T pro forma equivalent amounts represents F&M's pro forma combined
information multiplied by an assumed Exchange Ratio of 1.851 shares of F&M
Common Stock for each share of FB&T Common Stock, which has been computed for
purposes of this summary as follows: $35.00 divided by the average closing price
of F&M Common Stock on the NYSE Composite Transactions List for the ten trading
days extending from February 14 through February 28, 1996 ($18.913) to arrive at
an assumed Exchange Ratio of 1.851 shares of F&M Common Stock for each share
of FB&T Common Stock.
RECENT FINANCIAL DATA OF F&M AND FB&T
F&M. For the three months ended December 31, 1995, net income for F&M
was $5.7 million or $.35 per share, compared to $5.5 million or $.33 per share
for the same period in 1994. For the twelve months ended December 31, 1995, net
income for F&M increased to $23.4 million or $1.42 per share, from $20.7 million
or $1.25 per share for 1994. At December 31, 1995 and 1994, F&M had total assets
of $1.83 and $1.71 billion, respectively. Total loans were $1.05 billion at
December 31, 1995, compared to $1.01 billion at year-end 1994. Deposits at
December 31, 1995 increased to $1.58 billion, up from $1.49 billion at December
31, 1994.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans and foreclosed properties, were $23.9 million at December 31,
1995, a decrease of $6.1 million (20.3%) from the prior year end. The decrease
in nonperforming assets helped improve the ratio of nonperforming assets to
period end loans and foreclosed properties to 2.24% at December 31, 1995 from
2.94% at December 31, 1994. Relatively slow loan growth in certain of F&M's
markets and improved underwriting standards permitted F&M to reduce its
provision for loan losses during 1995 to $1.1 million, down from $2.5 million
for 1994. At December 31, 1995, the ratio of the allowance for loan losses to
period end loans was 1.42% compared to 1.53% at December 31, 1994.
On a pro forma combined basis at December 31, 1995, the ratio of the
allowance for loan losses to period end loans was 1.43%, and the ratio of
nonperforming assets to period end loans and foreclosed properties was 2.25%.
FB&T. For the three months ended December 31, 1995, FB&T posted a net
loss of $238,000 or $0.19 per share, down from earnings of $641,000 or $0.51 per
share for the same period in 1994. During the month of December, 1995, in
preparation for the Merger, FB&T elected to increase the reserve for loan losses
and implement a reserve for potential selling expenses related to certain
foreclosed properties. Although FB&T policies were in compliance with generally
accepted accounting principles and all reserves were deemed adequate by
management and in recent regulatory reviews, FB&T decided to reflect reserve
levels which were more in line with F&M guidelines. Charges to income resulting
from these adjustments amounted to approximately $1.0 million. Additionally,
various accounting and legal expenses related to the Merger were expensed in
December.
Following these extraordinary charges to income, net income for the
twelve months ended December 31, 1995 was $1.6 million or $1.26 per share,
compared to $2.4 million or $1.87 per share for 1994. Before these adjustments,
FB&T earned approximately $2.4 million or $1.91 per share. As of December 31,
1995, FB&T had total assets of $243 million, total loans of $149 million and
total deposits of $192 million.
With the increase in the reserve for loan losses described above, the
total allowance for loan losses increased from $1.3 million at December 31, 1994
to $2.2 million at December 31, 1995. As a result, the ratio of the reserve for
loan losses to period end loans as of December 31, 1995 increased to 1.5%,
compared to 1.0% at December 31, 1994. While total nonperforming assets
increased approximately 10% during 1995, the 18% increase in total assets during
the year resulted in the ratio of nonperforming assets to total assets
decreasing from 1.52% at December 31, 1994 to 1.43% at December 31, 1995. The
ratio of nonperforming assets to period end loans and foreclosed properties was
2.30% at December 31, 1995, representing no change from the 2.30% level at
December 31, 1994.
The following tables set forth certain unaudited financial data for F&M
and FB&T, except that the financial data for the year ended December 31, 1994 is
audited for each organization. In the opinion of the respective management's of
F&M and FB&T, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of such unaudited periods have been included.
F&M National Corporation (Historical)
Three Months Ended
December 31, Year Ended
(Unaudited) December 31,
------------------------------------ -----------------------------------
1995 1994 1995 1994
---- ----
(Unaudited)
(In thousands, except per share data)
Income Data
Interest income..................... $ 34,542 $ 31,229 $ 133,262 $ 119,613
Interest expense.................... 15,379 12,098 57,297 46,430
Net interest income................. 19,163 19,131 75,965 73,183
Provision for loan losses........... 372 965 1,081 2,535
Noninterest income.................. 4,085 3,628 16,220 16,312
Noninterest expense................. 14,344 14,465 55,995 56,283
Income taxes........................ 2,793 1,866 11,677 9,976
------------- ------------- --------------- --------------
Net income.......................... $ 5,739 $ 5,463 $ 23,432 $ 20,701
============= ============= =============== ==============
Per Share Data
Net income.......................... $ 0.35 $ 0.33 $ 1.42 $ 1.25
Cash dividend....................... 0.16 0.14 0.61 0.54
Book value, end of period........... 11.69 10.25 11.69 10.25
Performance Ratios (1)
Return on average assets............ 1.30% 1.28% 1.33% 1.21%
Return on average equity............ 12.44 12.91 12.70 12.23
Year Ended
December 31,
---------------------------------
1995 1994
----
(Unaudited)
(In thousands)
Period End Balances
Assets.............................. $ 1,833,820 $ 1,708,493
Loans, net of unearned income....... 1,053,829 1,009,223
Securities.......................... 569,269 514,488
Deposits............................ 1,583,477 1,491,072
Shareholders' equity................ 193,482 168,989
(1) Annualized based on the three months ending December 31, 1995 and 1994.
FB&T Financial Corporation (Historical)
Three Months Ended
December 31, Year Ended
(Unaudited) December 31,
------------------------------------ -----------------------------------
1995 1994 1995 1994
---- ----
(Unaudited)
(In thousands, except per share data)
Income Data
Interest income..................... $ 4,180 $ 3,559 $ 15,779 $ 12,412
Interest expense.................... 1,513 1,265 5,883 4,172
Net interest income................. 2,667 2,294 9,896 8,240
Provision for loan losses........... 933 31 1,068 65
Noninterest income.................. 650 1,231 2,429 2,695
Noninterest expense................. 2,804 2,492 8,957 7,339
Income taxes........................ 182 361 725 1,168
------------- ------------- --------------- --------------
Net income.......................... $ (238) $ 641 $ 1,575 $ 2,364
============== ============= =============== ==============
Per Share Data
Net income.......................... $ (0.19) $ 0.51 $ 1.26 $ 1.87
Cash dividend....................... 0.16 0.13 0.60 0.52
Book value, end of period........... 13.34 12.83 13.34 12.83
Performance Ratios (1)
Return on average assets............ (0.42)% 1.30% 0.73% 1.27%
Return on average equity............ (5.77) 17.26 9.55 15.91
Year Ended
December 31,
--------------------------------
1995 1994
----
(Unaudited)
(In thousands)
Period End Balances
Assets.............................. $ 243,069 $ 205,672
Loans, net of unearned income....... 149,062 133,988
Securities.......................... 41,798 47,891
Deposits............................ 191,514 169,952
Shareholders' equity................ 16,934 15,868
(1) Annualized based on the three months ending December 31, 1995 and 1994.
SELECTED FINANCIAL DATA
The following table presents selected historical financial information
for F&M and FB&T and selected combined pro forma financial information for F&M
and FB&T. This information is derived from and should be read in conjunction
with the historical financial consolidated statements of F&M and FB&T and the
respective notes thereto included elsewhere in the Proxy Statement/Prospectus or
in documents incorporated herein by reference. See "Incorporation of Certain
Information by Reference." All adjustments necessary to present a fair statement
of results of interim periods of F&M and FB&T (which adjustments were of a
normal recurring nature), in the opinion of the respective management's of F&M
and FB&T, have been included. Results for F&M and FB&T for the nine months ended
September 30, 1995 and 1994, are not necessarily indicative of the results to be
expected for their entire fiscal years.
The selected combined pro forma financial information showing the
combined results of F&M and FB&T is provided for informational purposes only. It
is not necessarily indicative of actual results that would have been achieved
had the Merger been consummated on the dates at the beginning of the periods
presented, nor is it necessarily indicative of future results. For additional
pro forma information, see "Pro Forma Condensed Financial Information."
F&M National Corporation (Historical)
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA (1)
Interest Income ................. $ 98,720 $ 88,384 $ 119,613 $ 107,534 $ 103,381 $ 111,848 $ 112,596
Interest expense................. 41,918 34,332 46,630 43,615 46,058 60,749 62,308
Net interest income.............. 56,802 54,052 73,183 63,919 57,323 51,099 50,288
Provision for loan losses........ 709 1,570 2,535 2,857 3,623 6,962 3,339
Noninterest income............... 12,135 12,684 16,312 14,844 12,524 11,478 9,652
Noninterest expense.............. 41,651 41,818 56,283 48,330 43,207 40,043 38,060
Income taxes..................... 8,884 8,110 9,976 8,844 6,733 4,262 5,176
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income....................... $ 17,693 $ 15,238 $ 20,701 $ 18,732 $ 16,284 $ 11,310 $ 13,365
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA (1)
Net income....................... $ 1.07 $ 0.92 $ 1.25 $ 1.16 $ 1.09 $ 0.77 $ 0.91
Cash dividends................... 0.45 0.40 0.54 0.58 0.41 0.39 0.37
Book value, end of period........ 11.36 10.24 10.25 9.97 9.17 8.30 7.90
Average shares outstanding....... 16,529 16,522 16,517 16,124 14,961 14,669 14,608
PERIOD END BALANCES (1)
Assets........................... $1,808,400 $1,712,626 $1,708,493 $1,670,657 $1,409,814 $1,301,720 $1,191,680
Loans, net of unearned income.... 1,025,081 1,007,138 1,009,223 959,052 781,292 766,053 761,872
Securities....................... 548,372 511,325 514,488 502,855 434,039 354,792 271,102
Deposits......................... 1,566,973 1,490,769 1,491,072 1,465,287 1,228,404 1,150,557 1,050,524
Shareholders' equity............. 188,032 169,153 168,989 164,494 146,161 122,115 115,128
PERFORMANCE RATIOS (1) (2)
Return on average assets......... 1.35% 1.19% 1.21% 1.23% 1.22% 0.91% 1.15%
Return on average equity......... 12.97 12.03 12.23 12.03 12.40 9.54 12.01
CAPITAL RATIOS (1)
Leverage......................... 10.40% 9.81% 9.94% 10.41% 10.90% 9.79% 9.80%
Risk-based:......................
Tier 1 capital................ 17.08 16.21 16.40 15.75 17.97 15.70 15.74
Total capital................. 18.33 17.46 17.65 17.00 19.22 16.95 16.90
.........
(1) The amounts previously reported in F&M's reports on Form 10-Q and 10-K for
the periods presented have been restated to reflect the acquisition on
April 6, 1995 of Bank of the Potomac accounted for as a pooling of
interest.
(2) Annualized for nine months ended September 30, 1995 and 1994.
FB&T FINANCIAL CORPORATION (HISTORICAL)
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA
Interest Income..................... $ 11,599 $ 8,852 $ 12,412 $ 9,498 $ 9,221 $ 9,148 $ 9,291
Interest Expense.................... 4,371 2,906 4,172 2,759 3,382 4,554 4,427
Net interest income................. 7,228 5,946 8,240 6,739 5,839 4,594 4,864
Provision for loan losses........... 135 34 65 348 801 900 937
Noninterest income.................. 1,780 1,464 2,695 1,751 1,028 1,378 457
Noninterest expense................. 6,153 4,847 7,339 5,211 4,548 4,391 3,604
Income taxes........................ 907 806 1,167 926 513 226 265
-------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 1,813 $ 1,723 $ 2,364 $ 2,005 $ 1,005 $ 455 $ 515
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA
Net income.......................... $ 1.44 $ 1.36 $ 1.87 $ 1.90 $ 1.02 $ 0.44 $ 0.50
Cash dividends...................... 0.44 0.39 0.52 0.23 -- -- 0.12
Book value, end of period........... 13.92 12.46 12.83 11.58 9.36 8.83 8.38
Average Shares outstanding.......... 1,256 1,268 1,266 1,053 983 1,038 1,020
PERIOD END BALANCES
Assets.............................. $244,641 $203,314 $205,672 $164,836 $141,488 $129,693 $ 95,438
Loans, net of unearned income....... 144,038 129,953 133,988 109,172 88,101 80,890 73,919
Securities.......................... 37,946 47,976 47,891 43,488 28,594 20,872 9,706
Deposits............................ 200,945 174,787 169,952 132,820 121,233 115,783 83,516
Shareholders' equity................ 17,229 15,411 15,868 14,282 9,403 7,925 7,650
PERFORMANCE RATIOS (1)
Return on average assets............ 1.15% 1.26% 1.27% 1.37% 0.76% 0.43% 0.57%
Return on average equity............ 14.76 15.65 15.91 19.10 11.92 5.82 6.72
CAPITAL RATIOS
Leverage............................ 5.85% 6.04% 6.32% 8.66% 6.64% 6.11% 8.02%
Risk-based:
Tier 1 capital................... 9.98 10.06 10.25 13.48 11.66 9.78 10.80
Total capital.................... 10.97 11.12 11.30 14.52 12.79 10.78 11.93
........
(1) Annualized for nine months ended September 30, 1995 and 1994.
Summary Pro Forma Financial Data
F&M National Corporation and FB&T Financial Corporation
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA
Interest Income................ $ 110,319 $ 97,236 $ 132,025 $ 117,032 $ 112,602 $ 120,996 $ 121,887
Interest expense............... 46,289 37,238 50,602 46,374 49,440 65,303 66,735
Net interest income............ 64,030 59,998 81,423 70,658 63,162 55,693 55,152
Provision for loan losses...... 844 1,604 2,600 3,205 4,424 7,862 4,276
Noninterest income............. 13,915 14,148 19,007 16,595 13,552 12,856 10,109
Noninterest expense............ 47,804 46,665 63,622 53,541 47,755 44,434 41,664
Income taxes................... 9,791 8,916 11,143 9,770 7,246 4,488 5,441
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income..................... $ 19,506 $ 16,961 $ 23,065 $ 20,737 $ 17,289 $ 11,765 $ 13,880
=========== =========== =========== =========== =========== =========== ===========
PER SHARE DATA
Net income..................... $ 1.03 $ 0.90 $ 1.22 $ 1.15 $ 1.03 $ 0.71 $ 0.84
Cash dividends................. 0.45 0.40 0.54 0.58 0.41 0.39 0.37
Book value, end of period...... 10.89 9.80 9.85 9.52 8.74 7.95 7.55
Average Shares outstanding..... 18,854 18,869 18,860 18,073 16,781 16,590 16,496
PERIOD END BALANCES
Assets......................... $ 2,053,041 $ 1,915,940 $ 1,914,165 $ 1,835,493 $ 1,551,302 $ 1,431,413 $ 1,287,118
Loans, net of unearned income.. 1,169,119 1,137,091 1,143,211 1,068,224 869,393 846,943 835,791
Securities..................... 586,318 559,301 562,379 546,343 462,633 375,664 280,808
Deposits....................... 1,767,918 1,665,556 1,661,024 1,598,107 1,349,637 1,266,340 1,134,040
Shareholders' equity........... 205,261 184,364 184,857 178,776 155,564 130,040 122,778
PERFORMANCE RATIOS (1)
Return on average assets....... 1.33% 1.20% 1.21% 1.24% 1.18% 0.87% 1.10%
Return on average equity....... 13.12 12.32 12.53 12.47 12.37 9.31 11.67
CAPITAL RATIOS
Leverage....................... 10.01% 9.53% 9.65% 10.35% 10.56% 9.60% 9.71%
Risk-based:
Tier 1 capital.............. 16.24 15.53 15.73 15.53 17.40 15.14 15.30
Total capital............... 17.49 16.78 16.98 16.78 18.65 16.39 16.46
.........
(1) Annualized for nine months ended September 30, 1995 and 1994.
THE FB&T SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at the Main Office of Fairfax Bank
located at 4117 Chain Bridge Road, Fairfax, Virginia 22030 on Friday,
March 29, 1996 at 3:00 p.m.
RECORD DATE
Only shareholders of record at the close of business on January 26,
1996, (the "Record Date") are entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. At the close of business on the Record Date,
FB&T had outstanding 1,269,580 shares of FB&T Common Stock outstanding held by
approximately 494 shareholders of record.
VOTE REQUIRED
Each share of FB&T Common Stock outstanding on the Record Date entitles
the holder to cast one vote upon each matter properly submitted at the Special
Meeting. The affirmative vote of the holders of at least a majority of the
shares of FB&T Common Stock outstanding as of the FB&T Record Date, in person or
by proxy, is required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of FB&T and
their affiliates, persons and entities as a group owned of record and
beneficially a total of approximately 368,869 shares of FB&T Common Stock, or
29% of the shares of FB&T Common Stock outstanding on such date (exclusive of
shares of FB&T Common Stock subject to outstanding options that are currently
exercisable). Directors and executive officers of FB&T have indicated an
intention to vote their shares of FB&T Common Stock in favor of the Merger.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
VOTING AND REVOCATION OF PROXIES.
Shareholders of FB&T are requested to complete, date and sign the
accompanying form of proxy and return it promptly to FB&T in the enclosed
envelope. If a proxy is properly executed and returned in time for voting, it
will be voted as indicated thereon. IF A PROXY IS SIGNED AND RETURNED WITHOUT
INDICATING ANY VOTING INSTRUCTIONS, SHARES OF FB&T COMMON STOCK REPRESENTED BY
THE PROXY WILL BE VOTED FOR THE MERGER AGREEMENT.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to FB&T by executing and delivering a substitute proxy to
FB&T or by attending the Special Meeting and voting in person. If a FB&T
shareholder desires to revoke a proxy by written notice, such notice should be
mailed for receipt or delivered, on or prior to the meeting date, to Charles E.
Curtis, President, FB&T Financial Corporation, 4117 Chain Bridge Road, Fairfax,
Virginia 22030.
If a sufficient number of signed proxies enabling the persons named as
proxies to vote in favor of the Merger are not received by FB&T by the time
scheduled for the Special Meeting, the persons named as proxies may propose one
or more adjournments of a meeting to permit continued solicitation of proxies
with respect to such approval. If an adjournment is proposed, unless contrary
instructions are contained in the proxy, the persons named as proxies will vote
in favor of such adjournment those proxies which are entitled to be voted in
favor of the Merger and against such adjournment those proxies containing
instructions to vote against approval of the Merger. Adjournment of the meetings
will be proposed only if the Board Directors of FB&T believes that additional
time to solicit proxies might permit the receipt of sufficient votes to approve
the Merger. It is anticipated that any such adjournment would be for a
relatively short period of time, but in no event for more than 120 days. Any
shareholder may revoke such shareholder's proxy during any period of adjournment
in the manner described above.
SOLICITATION OF PROXIES
FB&T will bear the costs of its solicitation of proxies. Solicitations
may be made by mail, telephone, telegraph or personally by directors, officers
and employees at FB&T, none of whom will receive additional compensation for
performing such services. F&M shall pay all of the expenses of printing and
mailing the Proxy Statement/Prospectus.
RECOMMENDATION
The Board of Directors of FB&T has unanimously approved the Merger
Agreement and believes that the proposed transaction is fair to and in the best
interests of FB&T and its shareholders. The Board of Directors of FB&T
unanimously recommends that FB&T shareholders VOTE FOR approval of the Merger
Agreement.
In making its recommendation, the Board of Directors of FB&T has
considered, among other things, the opinion of Scott & Stringfellow that F&M's
proposal is fair to FB&T shareholders from a financial point of view. See "The
Merger - Opinion of Financial Advisor."
THE MERGER
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL TERMS OF THE
MERGER, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT
WHICH IS ATTACHED AS APPENDIX I HERETO. ALL HOLDERS OF FB&T COMMON STOCK ARE
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE MERGER
Fairfax Bank & Trust Company ("Fairfax Bank") opened for business in
1985 as an independent, community-oriented bank serving individuals and
businesses in Fairfax and Prince William Counties and surrounding areas. Fairfax
Bank formed a holding company, FB&T Financial Corporation, in 1994 in order to
facilitate possible acquisitions, among other reasons. FB&T planned to expand
its market area through internal growth and by possible acquisitions of other
financial institutions. The Board also discussed occasionally the merger of
several local banks into larger financial institutions.
On August 16, 1995, the Board of Directors of FB&T appointed a
committee consisting of Messrs. Warren E. Barry, Charles E. Curtis, and Jacques
Rebibo to study the possibility of affiliating with other financial
institutions. The committee reported its findings on October 19, 1995, at which
meeting a resolution, consistent with the committee's report, was made and
seconded that FB&T remain independent. Although a majority of the directors
indicated that they would support the resolution to remain independent, the
matter was tabled until the November 1995 meeting to allow for additional
discussion. Management at that time had no direction from the Board to seek out
a merger partner, and management did not approach any financial institution,
including F&M, about the possibility of affiliating with FB&T.
On October 25, Charles E. Curtis, President and Chief Executive Officer
of FB&T, met with Wilbur Feltner, Chairman of the Board and Chief Executive
Officer of F&M, to discuss an unrelated matter. At that meeting, Mr. Feltner
asked Mr. Curtis if FB&T would consider an offer to affiliate with F&M. Mr.
Curtis responded that FB&T intended to remain independent, but that management,
in the performance of its fiduciary duty, would consider any offer received from
F&M. On November 14, 1995, Mr. Curtis received a telephone call and an
accompanying letter from Alfred B. Whitt, Senior Vice President and Secretary of
F&M, indicating that F&M was interested in affiliating with FB&T. A copy of the
letter was also delivered to Ronald W. Tydings, Chairman of FB&T's Board. This
offer was unsolicited.
The offer provided that each shareholder of FB&T would receive shares
of F&M Common Stock with an aggregate market value of $35.00 per share (based on
the 10 trading days before the closing) for each share of FB&T Common Stock
held. In addition, the letter indicated that FB&T would have representation on
F&M's Board of Directors, that there would be no changes in FB&T's senior
management, and that employee benefits would be equal to or greater than those
presently in place for FB&T personnel. The letter also confirmed F&M's
management philosophy of maintaining its subsidiary banks' local identity and
continuity of management and employees with minimal disruption in operations.
The letter was submitted to the FB&T Board at a special meeting on
November 15, 1995. The Board believed that the price offered by F&M was
reasonable, but more importantly that the opportunity to affiliate with F&M, in
a way that allowed Fairfax Bank to retain much of its autonomy, was not
inconsistent with FB&T's philosophy of community banking and should be pursued.
The Board appointed Messrs. Tydings and Curtis as its drafting committee,
representing FB&T's Board in negotiations to draft a definitive agreement with
F&M. At that time, the Board also retained Scott & Stringfellow as its financial
advisor in negotiating the definitive agreement and providing advice on the
fairness of the offer, and the Board retained Mays & Valentine as its legal
counsel for this process.
On November 17, Messrs. Tydings and Curtis had lengthy discussions with
Gary S. Penrose of Scott & Stringfellow, and FB&T's attorneys, to prepare for
the negotiation of the definitive agreement. F&M, FB&T, and their respective
advisors met on November 20 to draft the definitive agreement. Negotiations were
successfully concluded on November 21, and the Merger Agreement was submitted to
the FB&T Board for consideration on that date.
In the FB&T Board meeting held on November 21, Mr. Penrose indicated
that, based on preliminary analysis, Scott & Stringfellow believed the offer to
be fair to FB&T shareholders from a financial point of view. Mr. Penrose also
indicated that Scott & Stringfellow's opinion would have to be confirmed in
connection with the proxy solicitation process since the opinion would be
included as part of the proxy statement sent to the shareholders of FB&T after
Scott & Stringfellow performed an additional due diligence examination of F&M
and considered market conditions at that time. The Merger Agreement specifically
provides that the opinion from FB&T's financial advisor that the Merger is fair
to FB&T shareholders from a financial point of view is a condition to FB&T's
obligation to complete the transaction, so the FB&T Board could approve the
Agreement contingent upon receiving an updated opinion from Scott & Stringfellow
at the date the definitive proxy materials are sent to the shareholders of FB&T.
Relying on the advice of its expert and the considerations described below, the
FB&T Board unanimously approved the Merger Agreement.
In deciding to enter into the Merger Agreement with F&M, the FB&T Board
considered a number of factors, but it did not assign any relative or specific
weights to the factors considered. The factors considered included the
following: the price offered was approximately 50% higher than the trading price
per share of FB&T Common Stock prior to the offer and represented a substantial
multiple of both the book value and earnings per share of FB&T Common Stock; F&M
Common Stock is traded on the New York Stock Exchange and would provide a more
liquid investment vehicle for FB&T shareholders; F&M pays a higher dividend
yield than FB&T; F&M has an excellent reputation for effective management of its
financial institutions and a history of favorable and consistent financial
results; FB&T would be permitted to designate two representatives to serve on
the F&M Board, subject to the F&M Board's approval of the designees; the market
area of F&M is much broader and more diverse that FB&T's, thus reducing
the risks associated with operating primarily in a single market such as
Northern Virginia; F&M indicated that Fairfax Bank would retain a substantial
amount of autonomy in its operations; the Merger will provide Fairfax Bank with
greater resources and a wider variety of products; F&M plans to combine its
Northern Virginia operations, which would increase Fairfax Bank's local
resources and create greater economies of scale in the area; the transaction
would be substantially tax-free to FB&T shareholders to the extent they receive
F&M Common Stock in exchange for their shares of FB&T Common Stock; and although
F&M has a policy of remaining independent, if F&M should be acquired in the
future, it will likely be at a premium, resulting in additional gains for F&M
shareholders. In summation, the FB&T Board believes that the banking industry
will experience significant changes in the next few years, and a larger
institution with a management philosophy similar to FB&T's (and F&M's) will be
better equipped to adjust to this fast-changing and competitive industry.
Pursuant to the Merger Agreement, the officers, and employees of
Fairfax Bank will not change as a result of the Merger. F&M will be permitted to
designate one or more of its officers to serve as a member of Fairfax Bank's
Board of Directors after the Effective Date. F&M, as the sole shareholder of
Fairfax Bank after the Effective Date, will have the power to elect the
directors of Fairfax Bank.
Based on the factors described above, the Board of Directors of FB&T
unanimously approved the Merger Agreement, because it determined that the Merger
is in the best interests of FB&T and its shareholders. The FB&T directors have
all committed to vote the FB&T shares under their control in favor of the Merger
to the extent of their fiduciary duty and to encourage other FB&T shareholders
to do likewise.
THE FB&T DIRECTORS UNANIMOUSLY RECOMMEND THAT THE FB&T SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The FB&T Board of Directors retained the investment banking firm of
Scott & Stringfellow to evaluate the terms of the Merger Agreement, and Scott &
Stringfellow has rendered its opinion to the Board of Directors of FB&T that the
terms of the Merger Agreement are fair from a financial point of view. In
developing its opinion, Scott & Stringfellow reviewed and analyzed: (1) the
Merger Agreement; (2) the Registration Statement; (3) FB&T's audited financial
statements for the four years ended December 31, 1994; (4) FB&T's unaudited
financial statements for the quarter and nine months ended September 30, 1994
and 1995, and other internal information relating to FB&T prepared by FB&T's
management; (5) information regarding the trading markets for FB&T Common Stock
and F&M Common Stock and the price ranges within which the respective stocks
have traded; (6) the relationship of prices paid to relevant financial data such
as net worth, earnings, deposits and assets in certain bank and bank holding
company mergers and acquisitions in Virginia in recent years; (7) F&M's annual
reports to stockholders and its financial statements for the four years ended
December 31, 1994; and (8) F&M's unaudited financial statements for the quarter
and nine months ended September 30, 1994 and 1995 and other internal information
relating to F&M prepared by F&M's management. Scott & Stringfellow has discussed
with members of FB&T's and F&M's management the background of the Merger, the
reasons and basis for the Merger, and the business and future prospects of FB&T
and F&M individually and as combined entity. No instructions or limitations were
given or imposed in connection with the scope of or the examination or
investigations made by Scott & Stringfellow in arriving at its findings.
Finally, Scott & Stringfellow has conducted such other studies, analysis and
investigations particularly of the banking industry, and considered such other
information as it deemed appropriate, the material portion of which is described
below. A copy of Scott & Stringfellow's opinion, which sets forth the
assumptions made, matters considered and qualifications made on the review
undertaken, is attached as Appendix III hereto and should be read in its
entirety.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including discounted cash flow analysis,
market comparable analysis, comparable acquisition analysis, and dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of FB&T Common Stock. Among other things, Scott & Stringfellow
considered a range of asset and earnings growth for FB&T of between 7% and 10%
and required equity capital level of 8.00% assets. A range of discount rates
from 10% to 12% were applied to the cash flows resulting from the projections
during the first five years and the residual values. The residual values were
estimated by capitalizing the projected final year earnings by the discount
rates, less the projected long-term growth rate of FB&T's earnings. The discount
rates, growth rates and capital levels were chosen based on what Scott &
Stringfellow, in its judgment, considered to be appropriate taking into account,
among other things, FB&T's past and current financial performance and condition,
the general level of inflation, rates of return for fixed income and equity
securities in the marketplace generally and particularly in the banking
industry. The discounted cash flow analysis indicated a reference range of
$19.94 to $27.58 per share for FB&T Common Stock. These values compare to the
value of $35.000 per share of consideration for each share of FB&T Common Stock.
Accordingly, the present value of FB&T Common Stock was calculated at less than
the value of the consideration to be received from F&M pursuant to the Merger
Agreement.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 17 bank and bank holding company mergers
and acquisitions in Virginia since January 1, 1992, representing all such
transactions known to Scott & Stringfellow to have occurred during this period
involving bank and bank holding companies, and in particular to all such
transactions that have been announced or closed in 1994 and 1995 in Virginia,
with the proposed Merger and found the consideration to be received by FB&T's
shareholders from F&M to be within the relevant pricing ranges acceptable for
such recent transactions. Specifically, based upon the most recent transactions
either closed or announced in Virginia since January 1, 1992, other than the
Merger, the average price to tangible book value in these transactions was
1.88 times, compared with 2.96 times for the Merger, the average price to
earnings ratio was 20.7 times, compared to 17.9 times for the Merger, the
average premium to deposits was 16.9% compared with 23.4% for the Merger, and
the average premium to assets was 15.4% compared with 19.2% for the Merger. For
purposes of computing the information with respect to the Merger, $35.00 per
share of consideration for each share of FB&T Common Stock was used.
Analysis of F&M and Virginia Bank Group. Scott & Stringfellow analyzed
the performance and financial condition of F&M relative to the Virginia Bank
Group, which includes the following Virginia based financial institutions:
Crestar Financial Corporation, Central Fidelity Banks, Inc., Central Virginia
Bankshares, First Patriot Bankshares Corp., First Virginia Banks, Inc., George
Mason Bankshares, Inc., Jefferson Bankshares, Inc., James River Bankshares,
Inc., MainStreet BankGroup, Inc., Premier Bankshares Corporation, Signet Banking
Corporation, and Union Bankshares Corporation. Among the financial
information compared was information relating to tangible equity to assets,
loans to deposits, net interest margin, nonperforming assets, total assets,
non-accrual loans, and efficiency ratio, as well as a comparison of common stock
liquidity. Additional information compared for the trailing nine-month period
ended September 30, 1995, was (i) price to tangible book value ratio which was
1.75x for F&M, compared to an average of 1.70x for the Virginia Bank Group,
(ii) price to earnings ratio which was 13.7x for F&M, compared to an average of
13.3x for the Virginia Bank Group, (iii) return on assets which was 1.36%
for F&M, compared to an average of 1.30% for the Virginia Bank Group, (iv)
return on equity which was 13.01% for F&M, compared to an average of 13.78% for
the Virginia Bank Group, and (v) a dividend yield of 3.32% for F&M, compared
to an average of 2.76% for the Virginia Bank Group. Overall, in the opinion
of Scott & Stringfellow, F&M's operating performance, financial
condition, and liquidity for its Common Stock were comparable to the Virginia
Bank Group average and F&M's market value was reasonable when compared to the
Virginia Bank Group. Accordingly, FB&T stockholders shall receive F&M Common
Stock that is reasonably valued when compared to the Virginia Bank Group.
Dilution Analysis. Based upon publicly available financial information
on FB&T and F&M, Scott & Stringfellow considered the effect of the transaction
on the book value, earnings, and market value of FB&T and F&M. The
immediate effect on F&M -- assuming minimal cost savings of 10% of FB&T's non-
interest expense -- was to decrease earnings by $0.02 per share or 1.35% and to
dilute book value by $0.61 or 5.53%. The effect on FB&T under the same
assumptions is to increase earnings of $0.65 per share or 33.20% to increase
book value by $7.35 per share or 68.78% to increase dividends by $0.57 or
91.41% and to increase the November 22, 1995 market value of FB&T of $23.50
per share to $35.00. This dilution analysis does not take into account the
longer term benefits for the combined companies resulting from the combination.
Scott & Stringfellow concluded from this analysis that the transaction
would have a significant positive effect on FB&T and the FB&T
stockholders in that, historical dividends per share, net income per share and
book value per share of F&M Common Stock to be received by the FB&T
stockholders, after giving effect to the Exchange Ratio, would represent a
substantial increase in the historical dividends per share, net income per
share, and book value per share of FB&T Common Stock, although there can be
no assurance that pro forma amounts are indicative of future results. See
"Comparative Per Share Information."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the FB&T Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Accordingly, notwithstanding the separate factors
summarized above. Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the process underlying the preparation of its
opinion. As a whole, these various analyses, contributed to Scott &
Stringfellow's opinion that the terms of the Merger Agreement are fair from a
financial point of view to FB&T stockholders.
Scott & Stringfellow is a full service investment banking and brokerage
firm headquartered in Richmond, Virginia, that provides a broad array of
services to corporations, financial institutions and state and local
governments. The Financial Institutions Group of Scott & Stringfellow actively
works with financial institutions in Maryland, Virginia, North Carolina, the
District of Columbia, and West Virginia on these and other matters. As part of
its investment banking practice, it is continually engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions, negotiated underwritings, and secondary distribution of listed and
unlisted securities. Scott & Stringfellow was selected by the FB&T Board based
upon its expertise and reputation in providing valuation and merger and
acquisition and advisory services to financial institutions.
In addition to the financial advisory services described above, Scott &
Stringfellow has from time to time provided underwriting, financial advisory
and/or brokerage services to FB&T, for which Scott & Stringfellow has received
customary compensation. In the ordinary course of business, Scott & Stringfellow
makes a market in FB&T COmmon Stock and F&M Common Stock and trades such
securities for its own account and for the accounts of its customers.
In exchange for its services, Scott & Stringfellow will receive from
FB&T on the effective date of the Merger a fee equal to 0.5% of the total
market value of the consideration received by FB&T shareholders in the Merger
which equates to a fee of approximately $237,000.
TERMS OF THE MERGER
The Merger provides for the exchange of each outstanding share of FB&T
Common Stock for F&M Common Stock. F&M will then serve as the parent bank
holding company for Fairfax Bank, which will continue to carry on its banking
business in substantially the same manner as before the Merger.
At the effective date of the Merger, each outstanding share of FB&T
Common Stock will be exchanged for shares of F&M Common Stock with an aggregate
market value equal to $35.00 (the "Exchange Ratio"), and cash in lieu of any
fractional shares. Except as described below, the market value of F&M Common
Stock will be its average closing price as reported on the NYSE for each of the
ten trading days immediately preceding the closing date.
The Merger Agreement includes a price adjustment provision for the
Exchange Ratio designed to address the situation in which the market value of
F&M Common Stock increases in the unanticipated event of a proposed
acquisition of F&M which would thereby dilute the number of shares of F&M
Common Stock that would otherwise be issued to FB&T shareholders. Accordingly,
in the event: (a) F&M shall have entered into an agreement with any person to
(i) acquire, merge or consolidate, or enter into any similar transaction, with
F&M, (ii) purchase, lease or otherwise acquire all or substantially all of the
assets of F&M or (iii) purchase or otherwise acquire securities representing
10% or more of the voting power of F&M; or (b) any person shall have made a
bona fide proposal to F&M by public announcement or written communication
that is or becomes the subject of public disclosure to acquire F&M by
merger, share exchange, consolidation, purchase of all or substantially all
of its assets or any similar transaction, the market value of F&M Common Stock
will be based on the average closing price of F&M Common Stock for each of the
ten trading days immediately preceding the public announcement of a
transaction or event described in either (a) or (b).
In addition, at the Effective Date, FB&T's obligations with respect to
outstanding options granted under its 1985 Incentive Stock Option Plan and its
Non-Employee Director Stock Compensation Plan (the "FB&T Stock Option Plans")
(allowing holders to acquire an aggregate of up to 87,116 shares of FB&T Common
Stock as of December 31, 1995) will be assumed by F&M and each stock option
outstanding under such plans will become the right to receive, upon payment by
the holder of the adjusted exercise price, that number of shares of F&M Common
Stock the option holder would have received pursuant to the Merger if he or she
had exercised such option immediately prior thereto, and cash in lieu of any
fractional shares. The conversion of the FB&T stock options is subject to the
restrictions imposed on "incentive stock options" by federal law.
Shareholders of FB&T are entitled to exercise their dissenters' rights
with respect to the Merger. See "The Merger - Rights of Dissenting
Shareholders."
EFFECTIVE DATE
If the Merger is approved by the requisite vote of the shareholders of
FB&T and by the Federal Reserve and the Virginia SCC (see "The Merger Regulatory
Approvals") and other conditions to the Merger are satisfied (or waived to the
extent permitted by applicable law), the Merger will be consummated and effected
at the time a certificate of merger is issued by the Virginia SCC pursuant to
the Virginia SCA. See "The Merger - Representations and Warranties; Conditions
to the Merger."
It is anticipated that the Effective Date will occur during the early
part of the second quarter of this year.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each FB&T shareholder (other than dissenting
shareholders) a letter of transmittal and instructions for use in order to
surrender the certificates representing shares of FB&T Common Stock in exchange
for certificates representing shares of F&M Common Stock.
FB&T SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for FB&T Common
Stock, together with a properly completed letter of transmittal, the holder of
such certificates will receive a certificate or certificates representing the
number of shares of F&M Common Stock to which he or she is entitled and, where
applicable, a check for the amount payable in cash in lieu of issuing a
fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of F&M.
Cash (without interest) will be paid to FB&T shareholders in lieu of
the issuance of any fractional shares in an amount equal to the fraction of a
share of F&M Common Stock to which such shareholder would otherwise be entitled
multiplied by the average of the closing prices of F&M Common Stock as reported
on the NYSE during the ten trading days immediately preceding the Effective
Date.
After the Effective Date, FB&T shareholders will be entitled to vote
the number of shares of F&M Common Stock into which their FB&T Common Stock has
been converted, regardless of whether they have surrendered their FB&T
certificates. The Merger Agreement provides, however, that no dividend or
distribution payable to the holders of record of F&M Common Stock at or as of
any time after the Effective Date will be paid to the holder of any FB&T
certificate until such holder physically surrenders such certificate, promptly
after which time all such dividends or distributions will be paid (without
interest).
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The Merger Agreement contains representations and warranties by F&M and
FB&T regarding, among other things, their respective organizations,
authorizations to enter into the Merger Agreement, capitalization, financial
statements and pending and threatened litigation. These representations and
warranties (except as otherwise provided in the Merger Agreement) will not
survive the Effective Date.
The obligations of F&M and FB&T to consummate the Merger are subject to
the following conditions, among, others: approval and adoption of the Merger
Agreement by the requisite shareholder votes; receipt of all necessary
regulatory approvals not conditioned or restricted in a manner that, in the
judgment of the Boards of Directors of F&M and FB&T, materially adversely
affects the economic or business benefits of the Merger so as to render
inadvisable consummation thereof; the absence of certain actual or threatened
proceedings before a court or other governmental body relating to the Merger;
receipt of a current fairness opinion from Scott & Stringfellow; and the receipt
of an opinion of counsel as to certain Federal income tax consequences of the
Merger. Also, under the terms of the Merger Agreement, F&M agreed that,
following the Effective Date, it will indemnify those persons associated with
FB&T and its subsidiaries who are entitled to indemnification as of the
effective date of the Merger.
In addition, each party's obligation to effect the Merger, unless
waived, is subject to performance by the other party of its obligations under
the Merger Agreement, the accuracy, in all material respects, of the
representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
REGULATORY APPROVALS
F&M's application to acquire FB&T pursuant to the Merger is subject to
approval by the Federal Reserve under the BHC Act, which requires that the
Federal Reserve take into consideration the financial and managerial resources
and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. The BHC Act prohibits the
Federal Reserve from approving the Merger if it would result in a monopoly or if
it would be in furtherance of any combination or conspiracy to monopolize or to
attempt to monopolize the business of banking in any part of the United States,
or if its effect may be substantially to lessen competition or to tend to create
a monopoly, or if it would be in any other manner a restraint of trade, unless
the Federal Reserve finds that the anti-competitive effects of the Merger are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated for thirty days after such approval
pursuant to federal law in order to provide a period for the Merger to be
challenged under the antitrust laws. The U.S. Department of Justice may agree to
shorten the waiting period to fifteen days.
The BHC Act provides for the publication of notice and the opportunity
for administrative hearings relating to the applications, and it authorizes the
regulatory agency to permit interested parties to intervene in the proceedings.
If an interested party is permitted to intervene, such intervention could
substantially delay the regulatory approvals required for consummation of the
Merger.
The Merger is further subject to the approval of the Bureau of
Financial Institutions of the Virginia SCC. To obtain such approval, the
Virginia SCC must conclude that the Merger will not affect detrimentally the
safety or soundness of a Virginia bank.
An application for approval of the Merger under the BHC Act was
filed by F&M with the Federal Reserve. On January 23, 1996 and supplemented on
February 12, 1996. The application was accepted as informationally complete on
February 21, 1996. An application was filed by F&M with the Virginia SCC on
January 26, 1996 and supplemented on February 13, 1996. It was accepted as
informationally complete on February 14, 1996. F&M and FB&T are not aware of any
other governmental approvals or actions that are required for consummation of
the Merger, except as described above. Should any such approval or action
be required, it is currently contemplated that such approval or action
would be sought. There can be no assurance that any such approval or action,
if needed, could be obtained.
BUSINESS PENDING THE MERGER
Until consummation of the Merger (or termination of the Merger
Agreement), FB&T is obligated to operate its businesses only in the ordinary and
usual course, consistent with past practice and to use its best efforts to
maintain its business organizations, employees and business relationships and
retain the services of its officers and key employees. Until consummation of the
Merger (or termination of the Merger Agreement) FB&T may not, without the
consent of F&M, among other things: (a) declare or pay additional dividends on
its capital stock, except for regular quarterly cash dividends in an amount not
to exceed $0.154 per share; (b) enter into any merger, consolidation or business
combination (other than the Merger) or any acquisition or disposition of a
material amount of assets or securities or solicit proposals in respect thereof;
(c) amend its charter or bylaws; (d) issue any capital stock, except upon
exercise of rights or options issued pursuant to existing employee benefits
plans, programs or arrangements or effect any stock split or otherwise change
its capitalization; or (e) purchase or redeem any of its capital stock. F&M
has agreed to FB&T paying a special quarter dividend if necessary to ensure
that the FB&T shareholders receive four quarterly dividends in 1996. This may
be necessary because of the difference in dividend record and payment dates
between F&M and FB&T.
WAIVER, AMENDMENT AND TERMINATION
At any time on or prior to the Effective Date, any term or condition of
the Merger may be waived by the party which is entitled to the benefits thereof,
without shareholder approval, to the extent permitted under applicable law. The
Merger Agreement may be amended at any time prior to the Effective Date by
agreement of the parties whether before or after the Special Meeting (except
that the Exchange Ratio shall not be changed after approval of the Merger
Agreement by the shareholders). Any material change in a material term of the
Merger Agreement would require a resolicitation of FB&T's shareholders. Such a
material change would include, but not be limited to, a change in the tax
consequences to FB&T's shareholders.
The Merger Agreement may be terminated by F&M or FB&T, whether before
or after the approval of the Merger Agreement by the shareholders: (a) if the
other party materially breaches any representation, warranty or agreement which
is not properly cured by such breaching party; (b) if the Merger is not
consummated by September 30, 1996; or (c) if the Federal Reserve or the Virginia
SCC have denied approval. The Merger Agreement also may be terminated at any
time by the mutual consent of F&M and FB&T. In the event of termination, the
Merger Agreement shall become null and void, except that certain provisions
thereof relating to expenses and confidentiality of information exchanged
between the parties shall survive any such termination.
COMBINATION OF FAIRFAX BANK WITH CERTAIN OTHER SUBSIDIARY BANKS
F&M has two Subsidiary Banks that operate in the Northern Virginia
market. F&M Bank-Hallmark, based in Springfield, Virginia with total assets of
$125.6 million at September 30, 1995, operates six offices, including its Main
Office in Springfield and offices in Alexandria, Annandale, Newington,
Woodbridge, Virginia. F&M Bank-Potomac operates one office based in Herndon,
Virginia and reported total assets of $57.6 million at September 30, 1995.
F&M contemplates that F&M Bank-Hallmark and F&M Bank-Potomac will be
combined with Fairfax Bank following the Effective Date in order to give F&M a
larger and more competitive presence in the Northern Virginia market. No time
frame for completing the combination has been established nor has a name for the
resulting bank been determined.
RESALES OF F&M COMMON STOCK
All shares of F&M Common Stock received by FB&T shareholders in
connection with the Merger will be freely transferable, except that F&M Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined in Rule 144 under the Securities Act) of FB&T may be resold by them only
in transactions permitted by the resale provisions of Rule 145 under the 1933
Act. For purposes of Rule 144 as applied to FB&T, the directors and executive
officers of FB&T are the only affiliates who will be subject to the resale
limitations.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of F&M and FB&T are carried forward
at their previously recorded amounts, income of the combined corporations will
include income of F&M and FB&T for the entire fiscal year in which the Merger
occurs, and the reported income of the separate corporations for prior periods
will be combined. No recognition of goodwill in the combination is required of
any party to the Merger.
For the Merger to qualify as a pooling of interests, it must satisfy
certain conditions, including the condition that the total cash paid by F&M
pursuant to the Merger Agreement for (a) fractional shares and (b) all the FB&T
Common Stock held by dissenting stockholders, may not exceed 10% of the value of
the FB&T Common Stock at the Effective Date. In addition, affiliates of F&M and
FB&T must agree that, among other things, they will not sell any F&M Common
Stock or FB&T Common Stock within 30 days prior to the Effective Date, nor sell
any F&M Common Stock until such time as F&M has published financial results
covering at least 30 days of the combined operations of F&M and FB&T after the
Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of FB&T and the FB&T Board may be deemed
to have interests in the Merger in addition to their interests as shareholders
of FB&T generally. These interests include, among others, provisions in the
Merger Agreement relating to indemnification of FB&T directors and officers,
directors' and officers' liability insurance, the election or appointment of two
members of the FB&T Board to the F&M Board, and certain severance and other
employee benefits, as described below. In each case, the FB&T Board was aware of
their potential interests, and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
Directors. F&M has agreed to cause two members of the FB&T Board of
Directors designated by the FB&T Board and approved by F&M to become members of
the F&M Board of Directors upon consummation of the Merger. The FB&T Board has
designated Messrs. Curtis and Tydings for appointment to the F&M Board, but the
F&M Board has not as of this date approved such appointments. F&M currently pays
each director $500 for attendance at each Board meeting and, in addition, pays
each nonemployee director an annual retainer of $6,500.
Indemnification of Directors and Officers. Following the Effective
Date, F&M has agreed to indemnify the directors and officers of FB&T who are
currently entitled to indemnification from FB&T to the same extent and on the
same conditions as they are entitled to indemnification pursuant to Virginia law
and FB&T's Articles of Incorporation or Bylaws with respect to matters occurring
on or prior to the Effective Date. In addition, F&M has agreed to use its
reasonable best efforts to maintain FB&T's existing directors' and officers'
liability policy, or some other policy providing at least comparable coverage,
for a period of three years after the Effective Date.
Stock Options. Each director and Certain officers and employees of
FB&T hold options under the FB&T Stock Option Plans to acquire up to 87,116
shares of FB&T Common Stock as of December 31, 1995. Such options, to the
extent not exercised prior to the Effective Date, will become, by virtue of the
Merger, the right to receive, upon payment of the adjusted exercise price
specified in the option, that number of shares of F&M Common Stock the option
holder would have received pursuant to the Merger if he or she had exercised
such option immediately prior thereto, and cash in lieu of any fractional
shares. Each non-employee director of FB&T holds an option granted pursuant to
FB&T's Non-Employee Director Stock Compensation Plan for 2,050 shares at a
weighted average exercise price of $15.86 per share. Messrs. Charles E. Curtis
and T. Earl Rogers, the executive officers of FB&T, hold options covering 30,870
and 23,705 shares, respectively, with a weighted average exercise price of
$12.35 in the case of Mr. Curtis and $12.83 in the case of Mr. Rogers. See
"Information Concerning FB&T - Ownership of FB&T Common Stock." In accordance
with the requirements of the FB&T Stock Option Plans, the exercise price of all
options granted thereunder equaled the fair market value of FB&T Common Stock at
the date of grant. See "The Merger -- Terms of the Merger."
Agreements with Messrs. Curtis and Rogers. The Merger Agreement
provides that F&M will provide Messrs. Charles E. Curtis and T. Earl Rogers,
President and Executive Vice President, respectively, of Fairfax Bank with a
change-in-control agreement containing terms and conditions consistent with
the other agreements F&M has offered certain of the senior executive officers of
the Subsidiary Banks. These agreements follow a standard form and provide for
the continuation of employment and other benefits for a two year period
following the occurrence of a "change in control" of F&M, as defined in the
agreement. In the event of a termination of employment during this two year
period other than for "cause" or by the officer for "good reason" or during a 45
day period immediately following the first anniversary of the date on which the
change in control occurred, the officer will be paid in one lump sum an
amount equal to one times his average annual taxable compensation he received
during the five year period immediately prior to the year of the change of
control.
Employees and Benefit Plans. The Merger Agreement provides that the
officers and employees of Fairfax Bank will not change as a result of the
Merger. As soon as administratively practicable following the Merger, employees
of FB&T will be entitled to participate in the F&M pension, benefit and similar
plans on the same terms and conditions as employees of F&M. Employees of FB&T
will receive credit for their years of service to FB&T for participation and
vesting purposes only.
Office Lease. Fairfax Bank has leased property for its Main Office at
4117 Chain Bridge Road in the City of Fairfax from a limited partnership of
which Mr. Tydings is one of three general partners and Messrs. Tydings and
Phillips are two of twenty-three limited partners. Immediately prior to
executing the Merger Agreement, and with the consent of F&M, Fairfax Bank agreed
to extend the initial term of that lease to December 31, 2005, with four options
to renew for five years each, with current monthly rental payments of
approximately $35,363, subject to certain annual cost of living adjustments.
Ownership of F&M Common Stock by Certain FB&T Directors. The following
directors of FB&T are deemed to own beneficially (which includes shares held by
close relatives and children and shares held jointly with spouses or as
custodians or trustees) the indicated number of shares of F&M Common Stock: Mr.
Baran, 2,116 shares; Mr. Phillips, 2,516 shares; Mr. Pool, 26,952 shares; Mr.
Rogers, 1,796 shares; and Mr. Tydings, 2,516 shares.
THE OPTION AGREEMENT
The Option Agreement was entered into as a condition to F&M's entering
into the Merger Agreement and is intended to increase the probability that the
Merger will be consummated. Exercise of the FB&T Option may tend to make the
acquisition of a controlling interest in FB&T more expensive to any prospective
acquiror other than F&M even if such an acquisition would be beneficial to
FB&T's stockholders. The existence of the FB&T Option is intended to make it
less likely that a prospective acquiror, other than F&M, will seek a business
combination with FB&T. The following is a brief summary of the FB&T Option and
is qualified in its entirety by reference to the Option Agreement, a copy of
which is attached to this Proxy Statement/Prospectus as Appendix II and
incorporated by reference herein.
The Option Agreement permits the exercise by F&M of the FB&T Option to
acquire up to 252,000 shares of FB&T Common Stock at a price of $22.75 per share
(which is subject to adjustments and which was the per share market price of
FB&T Common Stock on the trading day immediately before the public announcement
of the Merger Agreement) upon the occurrence of certain events described below.
The shares subject to the FB&T Option represent approximately 19.8% of the
outstanding shares of FB&T Common Stock. For the reason described below, the
Option Agreement provides that the exercise price shall be payable by F&M by the
tender to FB&T of readily marketable securities consisting exclusively of U.S.
Government and Agency securities (the "Securities") with an aggregate market
value (determined in the reasonable good faith judgment of F&M) as of the date
of tender equal to or greater than the aggregate exercise price. F&M shall
effect the tender of the Securities by transferring on the exercise date such
Securities to an account or accounts maintained on behalf of and designated by
FB&T.
The reason the Option Agreement provides for the payment of the
exercise price through the tender of the Securities is because the Articles of
Incorporation of FB&T do not deny preemptive rights. Under Virginia law, unless
denied in the articles of incorporation and subject to certain statutory
exceptions, shareholders have a preemptive right, granted on uniform terms and
conditions, to acquire proportional amounts of the corporation's unissued shares
upon the decision of the board of directors to issue them. One of the statutory
exceptions provides that preemptive rights do not apply with respect to shares
sold other than for money. See "Comparative Rights of Shareholders."
F&M may exercise the FB&T Option, in whole or in part, at any time or
from time to time, upon or after the occurrence of a "Purchase Event." As used
in the Option Agreement, a "Purchase Event" means:
(a) FB&T shall have entered into an agreement with a person (other than
F&M or its affiliates) to: (i) acquire, merge or consolidate with, or enter into
any similar transaction with FB&T or Fairfax Bank, (ii) purchase, lease or
otherwise acquire all or substantially all of the assets of FB&T or Fairfax
Bank, or (iii) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing more than 10% of the voting power of FB&T or Fairfax Bank;
(b) any person shall have acquired beneficial ownership of more than
15% of the outstanding shares of FB&T Common Stock; or
(c) a bona fide proposal is made by any person (other than F&M or its
affiliates) by public announcement or written communication that is or becomes
the subject of public disclosure to acquire, merge or consolidate with, or enter
into any similar transaction with FB&T or Fairfax Bank, and following such
proposal the stockholders of FB&T vote not to approve the Merger Agreement.
In the event that FB&T's capitalization changes by reason of stock
dividend, split-up merger, recapitalization, combination, exchange of shares or
the like, the number of shares subject to the FB&T Option and the purchase price
per share thereof will be adjusted so that the economic value of the FB&T Option
remains unaltered.
CERTAIN FEDERAL INCOME TAX MATTERS
F&M and FB&T have received an opinion from LeClair Ryan, counsel for
F&M, to the effect that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368 of the Code;
2. No gain or loss will be recognized by F&M or FB&T as a result of the
Merger;
3. No gain or loss will be recognized by a FB&T shareholder to the
extent he or she receives F&M Common Stock solely in exchange for his FB&T
Common Stock pursuant to the Merger;
4. The tax basis of the F&M Common Stock received by each FB&T
shareholder will be the same as the tax basis of the FB&T stock surrendered in
exchange therefor; and
5. The holding period for each share of F&M Common Stock received by
each FB&T shareholder in exchange for FB&T Common Stock will include the period
for which such shareholder held the FB&T Common Stock exchanged therefore,
provided such FB&T Common Stock is a capital asset in the hands of such holder
at the Effective Date.
The opinion from LeClair Ryan has been filed as an exhibit to the
Registration Statement, and receipt of substantially the same opinion as of the
Effective Date is a non-waivable condition to consummation of the Merger. The
opinion from LeClair Ryan is based on, and the opinion to be given at the
Effective Date will be based on, certain customary assumptions and
representations regarding, among other things, the lack of previous dealings
between F&M and FB&T, the existing and future ownership of FB&T and F&M Common
Stock and the future business plans of F&M.
Any cash received by shareholders, whether as a result of an exercise
of their dissenters' rights or in lieu of the issuance of fractional shares,
could result in taxable income to the shareholders. The receipt of such cash
generally will be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations. In the case of cash payments in lieu of fractional shares,
however, such payments will be small in amount and not a material concern to
FB&T shareholders. Shareholders should consult their own tax advisors concerning
proper treatment of such cash amounts.
The preceding discussion summarizes for general information the
material federal income tax consequences of the Merger to FB&T shareholders. It
does not discuss all potentially relevant federal income tax matters or
consequences to any foreign or other shareholders subject to special tax
treatment, nor does it discuss, and no opinion has been requested regarding, any
state or local tax consequences of the Merger. The tax consequences to any
particular shareholder may depend on the shareholder's circumstances. FB&T
shareholders are urged to consult their own tax advisors concerning federal,
state and local tax consequences of the Merger with respect to their particular
tax situation.
RIGHTS OF DISSENTING SHAREHOLDERS
A shareholder of FB&T Common Stock who objects to the Merger (a
"Dissenting Shareholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Merger is consummated, for the fair value of his or her
stock immediately before the Effective Date, exclusive of any appreciation or
depreciation in anticipation of the Merger unless such exclusion would be
inequitable. In order to receive payment, a Dissenting Shareholder must deliver
to FB&T before the vote is taken at the Special Meeting a written notice of
intent to demand payment for his or her shares if the Merger is effectuated (an
"Intent to Demand Payment') and must not vote his or her shares in favor of the
Merger. The Intent to Demand Payment should be delivered to Charles E. Curtis,
President, FB&T Financial Corporation, 4117 Chain Bridge Road, Fairfax, Virginia
22030. A VOTE AGAINST THE MERGER WILL NOT ITSELF CONSTITUTE SUCH WRITTEN NOTICE
AND A FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO
DEMAND PAYMENT.
A shareholder of record of FB&T Common Stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies FB&T in writing of the name and address of each person on
whose behalf he asserts dissenters' rights. The rights of such a partial
dissenter are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. A beneficial
shareholder of FB&T Common Stock may assert dissenters' rights as to shares held
on his behalf by a shareholder of record only if (i) he submits to FB&T the
record shareholder's written consent to the dissent not later than the time when
the beneficial shareholder asserts dissenters' rights, and (ii) he dissents with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
Within 10 days after the Effective Date, FB&T is required to deliver a
notice in writing (a "Dissenter's Notice") to each Dissenting Shareholder who
has filed an Intent to Demand Payment and who has not voted such shares in favor
of the Merger. The Dissenter's Notice shall (i) state where the demand for
payment (the "Payment Demand") shall be sent and where and when stock
certificates shall be deposited; (ii) supply a form for demanding payment; (iii)
set a date by which FB&T must receive the Payment Demand; and (iv) be
accompanied by a copy of Article 15. A Dissenting Shareholder who is sent a
Dissenter's Notice must submit the Payment Demand and deposit his or her stock
certificates in accordance with the terms of, and within the time frames set
forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Shareholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the terms of the proposed Merger (the "Announcement Date"),
which was November 22, 1995. FB&T will specify the Announcement Date in the
Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date,
FB&T shall pay a Dissenting Shareholder the amount FB&T estimates to be the fair
value of his or her shares, plus accrued interest. Such payment shall be made
within 30 days of receipt of the Dissenting Shareholder's Payment Demand. As to
shares acquired after the Announcement Date, FB&T is only obligated to estimate
the fair value of the shares, plus accrued interest, and to offer to pay this
amount to the Dissenting Shareholder conditioned upon the Dissenting
Shareholder's agreement to accept it in full satisfaction of his or her claim.
If a Dissenting Shareholder believes that the amount paid or offered by
FB&T is less than the fair value of his or her shares, or that the interest due
is incorrectly calculated, that Dissenting Shareholder may notify FB&T of his or
her own estimate of the fair value of his shares and amount of interest due and
demand payment of such estimate (less any amount already received by the
Dissenting Shareholder) (the "Estimate and Demand"). The Dissenting Shareholder
must notify FB&T of the Estimate and Demand within 30 days after the date FB&T
makes or offers to make payment to the Dissenting Shareholder.
Within 60 days after receiving the Estimate and Demand, FB&T must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the Dissenting Shareholder's shares and accrued interest, or FB&T
must pay each Dissenting Shareholder whose demand remains unsettled the amount
demanded. If a proceeding is commenced, the court must determine all costs of
the proceeding and must assess those costs against FB&T, except that the court
may assess costs against all or some of the Dissenting Shareholders to the
extent the court finds that the Dissenting Shareholders did not act in good
faith in demanding payment of the Estimate and Demand.
The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Appendix VII to this Proxy
Statement/Prospectus. The provisions of Article 15 are technical and complex,
and a shareholder failing to comply strictly with them may forfeit his or her
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
Merger should review the full text of those provisions carefully and also should
consult with his or her attorney. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO
DISSENTERS RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO FB&T
SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
Any Dissenting Shareholder who perfects his right to be paid the fair
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Merger - Certain Federal Income Tax Consequences."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Both F&M and FB&T are corporations subject to the provisions of the
Virginia SCA. Shareholders of FB&T, whose rights are governed by FB&T's Articles
of Incorporation and Bylaws, will, upon consummation of the Merger, become
shareholders of F&M. The rights of the former FB&T shareholders will then be
governed by the Articles of Incorporation and Bylaws of F&M.
There are no material differences between the rights of a FB&T
shareholder under FB&T's Articles of Incorporation and Bylaws, on the one hand,
and the rights of an F&M shareholder under the Articles of Incorporation and
Bylaws of F&M, on the other hand, except as disclosed in the section
"Comparative Rights of Shareholders."
EXPENSES OF THE MERGER
Whether or not the Merger is consummated, FB&T and F&M will pay their
own expenses incident to preparing, entering into and carrying out the Merger
Agreement, preparing and filing the Registration Statement of which this Proxy
Statement/Prospectus is a part, except under circumstances involving willful
breaches of certain provisions of the Merger Agreement. In general, the Merger
Agreement provides for each party to pay its own expenses in this regard.
If, however, either party materially breaches the Merger Agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If Merger Agreement is terminated by FB&T because it is not
approved by the FB&T shareholders, FB&T must pay 50% of F&M's costs in this
transaction, provided that the maximum amount that FB&T may be responsible to
F&M for shall be limited to $50,000.
FB&T and F&M have incurred and will continue to incur expenses related
to the Merger, which expenses include, among other things, legal fees, filing
fees, accounting fees, investment banking fees, printing charges and costs of
mailing.
MARKET PRICES AND DIVIDENDS
MARKET PRICES
F&M Common Stock has been listed for trading on the NYSE under the
symbol "FMN" since December 28, 1994. Prior thereto, F&M Common Stock was traded
in the over-the-counter market and quoted on the Nasdaq National Market under
the symbol "FMNT". Since December 15, 1993, FB&T Common Stock has traded in the
over-the-counter market and been quoted on the Nasdaq National Market under the
symbol "FBTC".
The following tables set forth: (i) in the case of F&M, the high and
low closing sales prices for F&M Common Stock as quoted on the Nasdaq National
Market for the periods indicated through December 27, 1994, and subsequent
thereto the high and low closing sales prices as reported on the NYSE Composite
Transactions List; and (ii) in the case of FB&T, the high and low closing sales
prices for FB&T Common Stock as quoted on the Nasdaq National Market for the
periods indicated.
F&M
TABLE OF CLOSING PRICES
1996 1995 1994
-------------- --------------- --------------
HIGH LOW HIGH LOW HIGH LOW
1st Quarter (through Feb. 29, 1996) $19.75 $18.62 $17.12 $15.75 $16.50 $15.75
2nd Quarter............................ 17.37 15.50 16.25 15.50
3rd Quarter............................ 18.12 15.62 17.37 16.00
4th Quarter............................ 20.00 17.25 17.25 14.75
The market value of F&M Common Stock on November 21, 1995, the last
full trading day preceding the public announcement of the execution of the
Merger Agreement and based on closing price of F&M Common Stock on the NYSE
Composite Transactions List, was $18.25 per share. The market value of F&M
Common Stock on February 29, 1996, the latest practicable date prior to the date
of the Proxy Statement/Prospectus and based on the closing price on the NYSE
Composite Transactions List, was $19.00 per share.
FB&T
TABLE OF CLOSING PRICES
1996 1995 1994
------------------- ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
1st Quarter (through Feb. 29, 1996) 34.50 32.25 $17.25 $16.00 $15.75 $14.00
2nd Quarter............................. 18.00 16.00 16.00 14.00
3rd Quarter............................. 19.75 17.00 16.50 16.25
4th Quarter............................. 33.00 18.50 17.25 15.25
As of September 30, 1995, there were 7,653 record holders of F&M Common
Stock. As of January 25, 1996, the record date set for the FB&T Special Meeting,
there were approximately 494 record holders of FB&T Common Stock.
DIVIDENDS
The following tables reflect the cash dividends per share paid during
each quarter on F&M Common Stock and FB&T Common Stock for the periods
indicated. In the case of F&M, the information in the table below may vary for
certain periods from the dividends declared during the quarter in cases where
the dividend was paid in the quarter following its declaration. In addition,
the amounts shown for F&M have not been restated and adjusted to reflect (i) the
acquisitions on April 6, 1995 of Bank of the Potomac and on July 1, 1994 of both
PNB Financial Corporation and Hallmark Bank and Trust Company, and (ii) a 2.5%
stock dividend effective September 1, 1994. See "Selected Financial Data" for
such restated dividend information for F&M.
F&M
1995 1994 1993
---- ---- ----
1st Quarter........................... $0.15 $0.145 $0.140
2nd Quarter........................... 0.15 0.145 0.140
3rd Quarter........................... 0.15 0.145 0.140
4th Quarter........................... 0.16 0.150 0.145
On February 21, 1996, F&M declared a cash dividend of $0.16 per share payable
on April 23, 1996 to shareholders of record on March 25, 1996.
FB&T
1996 1995 1994 1993
---- ---- ---- ----
1st Quarter (through Feb. 29, 1996)... $0.154 $0.154 $0.14 $0.00
2nd Quarter........................... 0.154 0.14 0.00
3rd Quarter........................... 0.154 0.14 0.25
4th Quarter........................... 0.154 0.14 0.00
The Merger Agreement provides that FB&T may declare and pay its regular
quarterly cash dividends in an amount not to exceed $0.154 per share per
quarterly dividend, subject to the reasonable determination of F&M that no
material change has occurred in the financial condition or results of operation
of FB&T since December 31, 1994.
F&M or F&M Bank-Winchester has paid regular cash dividends for more
than 50 consecutive years.
F&M is a legal entity separate and distinct from its subsidiaries, and
its revenues depend primarily on the payment of dividends from its subsidiary
banks. F&M's subsidiary banks are subject to certain legal restrictions on the
amount of dividends they are permitted to pay to F&M. For example, a Virginia
chartered bank, of which there are eight within the F&M system, is prohibited
from paying a dividend that would impair its paid-in capital. In addition, the
Virginia SCC may limit the payment by any Virginia chartered bank if it
determines that the limitation is in the public interest and is necessary to
ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as the
Subsidiary Banks, are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is defined in federal law). Based
on the Subsidiary Banks current financial condition, F&M does not expect that
this provision will have any impact on its ability to obtain dividends from its
insured depository institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by F&M's bank subsidiaries. The final
determination of the timing, amount and payment of dividends on F&M Common Stock
is at the discretion of F&M's Board of Directors and will depend upon the
earnings of F&M and its subsidiaries, principally its subsidiary banks, the
financial condition of F&M and other factors, including general economic
conditions and applicable governmental regulations and policies.
PRO FORMA CONDENSED FINANCIAL INFORMATION
(Unaudited)
PRO FORMA CONDENSED BALANCE SHEET
The following unaudited pro forma condensed balance sheet combines the
consolidated historical balance sheets of F&M and FB&T on the assumption that
the Merger had been effective as of September 30, 1995, giving effect to the
transaction on a pooling of interests accounting basis. The unaudited pro forma
condensed balance sheet should be read in conjunction with the consolidated
historical financial statements of F&M and FB&T, including the respective notes
thereto, included elsewhere in this Proxy Statement/Prospectus or in documents
incorporated herein by reference. See "Incorporation of Certain Information by
Reference" and "Certain Information Regarding FB&T."
F&M AND FB&T
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
PRO FORMA PRO FORMA
F&M FB&T ADJUSTMENTS COMBINED
(IN THOUSANDS)
ASSETS
Cash and due from banks...................... $ 73,143 $ 27,590 $ 100,733
Interest-bearing deposits
in other banks............................. 262 -- 262
Securities................................... 548,372 37,946 586,318
Other short-term investments................. 97,193 23,664 120,857
Loans, net of unearned income................ 1,025,081 144,038 1,169,119
Less allowance for loan losses............... 15,374 1,416 16,790
-------------- -------------- ----------------
Net loans.............................. 1,009,707 142,622 -- 1,152,329
Other assets................................. 79,723 12,819 -- 92,542
-------------- -------------- ---------------- --------------
Total assets........................... $ 1,808,400 $ 244,641 -- $ 2,053,041
============== ============== ================ ==============
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing........................ $ 231,446 $ 85,164 $ 316,610
Interest bearing........................... 1,335,527 115,781 -- 1,451,308
--------------- -------------- ---------------- --------------
Total deposits......................... 1,566,973 200,945 -- 1,767,918
Short-term borrowings........................ 34,376 25,482 -- 59,858
Long-term debt............................... 3,510 -- -- 3,510
Other liabilities............................ 15,509 985 -- 16,494
--------------- -------------- ---------------- --------------
Total liabilities...................... 1,620,368 227,412 -- 1,847,780
--------------- -------------- ---------------- --------------
Shareholders' Equity
Preferred Stock.............................. -- -- -- --
Common stock, par value
$2.00 per share............................ 33,103 -- 4,581(1) 37,684
Common stock, par value
$1.25 per share............................ -- 1,547 (1,547)(1) --
Capital surplus.............................. 57,852 8,723 (3,034)(1) 63,541
Unrealized gain (loss) on securities
available for sale, net.................... 944 (23) -- 921
Retained earnings............................ 96,133 6,982 -- 103,115
--------------- -------------- ---------------- --------------
Total shareholders' equity............. 188,032 17,229 -- 205,261
--------------- -------------- ---------------- --------------
Total liabilities and
shareholders' equity................. $ 1,808,400 $ 244,641 $ -- $ 2,053,041
=============== ============== ================ ==============
(1) See Note (b) of Notes to Pro Forma Condensed Financial Information.
See Notes to Pro Forma Condensed Financial Information.
PRO FORMA CONDENSED STATEMENTS OF INCOME
The following unaudited pro forma condensed statements of income
present the combined statements of income of F&M and FB&T assuming that FB&T was
combined at the beginning of each period presented on a pooling of interests
accounting basis. These unaudited pro forma condensed statements of income
should be read in conjunction with the consolidated historical financial
statements of F&M and FB&T, including the respective notes thereto, included
elsewhere in this Proxy Statement/Prospectus or in documents incorporated herein
by reference. See "Incorporation of Certain Information by Reference" and
"Certain Information Regarding FB&T." The pro forma information is not
necessarily indicative of the results of operations that would have resulted had
the Merger been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations of future periods.
F&M AND FB&T
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
-------------------------------------------------------
SEPTEMBER 30,
1995 1994 1993 1992
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
INTEREST INCOME
Interest and fees on loans................ $ 81,111 $ 95,406 $ 82,535 $ 80,572
Interest and dividends on securities...... 25,815 33,420 31,648 29,257
Federal funds sold and securities
purchased under agreements
to resell............................... 3,369 3,162 2,744 2,627
Interest-bearing deposits in
other banks............................... 24 38 105 145
------------- ------------- ------------- -------------
Total interest income............... 110,319 132,026 117,032 112,601
INTEREST EXPENSE
Deposits.................................. 44,608 48,903 45,442 48,471
Short-term borrowings..................... 1,480 1,609 931 968
Long-term debt............................ 201 91 -- --
------------- ------------- ------------- -------------
Total interest expense.............. 46,289 50,603 46,373 49,439
------------- ------------- ------------- -------------
Net interest income................. 64,030 81,423 70,659 63,162
Provision for loan losses................. 844 2,600 3,205 4,424
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses......... 63,186 78,823 67,454 58,738
OTHER INCOME
Service charges on deposit accounts....... 5,516 8,045 6,447 5,289
Securities gains, net..................... 357 746 1,796 1,055
Other operating income.................... 8,042 10,216 8,351 7,208
------------- ------------- ------------- -------------
Total other income.................. 13,915 19,007 16,594 13,552
OTHER EXPENSES
Salaries and employee benefits............ 24,344 32,309 26,331 23,967
Net occupancy expense..................... 3,867 4,854 4,264 4,456
Furniture and equipment expense........... 3,381 4,372 3,925 2,934
Other operating expenses.................. 16,212 22,087 19,021 16,398
------------- ------------- ------------- -------------
Total other expenses................ 47,804 63,622 53,541 47,755
Income before income taxes................ 29,297 34,208 30,507 24,535
Income tax expense........................ 9,791 11,143 9,770 7,246
------------- ------------- ------------- -------------
Net income.......................... $ 19,506 $ 23,065 $ 20,737 $ 17,289
============= ============= ============= =============
PER SHARE DATA
Net income................................ $ 1.03 $ 1.22 $ 1.15 $ 1.03
Cash dividends............................ .45 .54 .58 .41
Average common shares outstanding......... 18,854 18,860 18,073 16,781
See Notes to Pro Forma Condensed Financial Information.
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
(a) The pro forma information presented is not necessarily indicative of
the results of operations or the financial position that would have
resulted had the Merger been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities.
(b) It is assumed that the Merger will be accounted for on a pooling of
interests accounting basis and, accordingly, the related pro forma
adjustments have been calculated using an assumed Exchange Ratio,
whereby F&M will issue 1.851 shares of F&M Common Stock for each share
of FB&T Common Stock, which has been computed as follows: $35.00
divided by the average closing price of F&M Common Stock on the NYSE
Composite Transactions List for the ten trading days extending from
February 14 through February 28, 1996 ($18.913) to arrive at an assumed
Exchange Ratio of 1.851 shares of F&M Common Stock for each share of
FB&T Common Stock.
As a result, information was appropriately adjusted for the Merger by
the (i) addition of 2,290,581 shares of F&M Common Stock amounting to
$4,581,000; (ii) elimination of 1,237,483 shares of FB&T Common Stock
amounting to $1,547,000; and (iii) recordation of the remaining amount
of $3,034,000 as a decrease in capital surplus at September 30, 1995.
(c) Per share data has been computed based on the combined historical net
income applicable to common shareholders of F&M and FB&T using the
historical weighted average shares outstanding of F&M Common Stock and
the weighted average shares, adjusted to equivalent shares of F&M
Common Stock, of FB&T, as of the earliest period presented.
INFORMATION CONCERNING FB&T
GENERAL
Financial and other important information concerning FB&T is set forth
in the FB&T Form 10-KSB (including FB&T's Proxy Statement for its 1995 Annual
Meeting that contains, among other things, certain information concerning the
directors of FB&T and annual executive compensation matters), the FB&T Annual
Report (including the audited financial statements of FB&T and notes thereto),
and FB&T's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1995 (which includes, among other information, unaudited financial
information as of and for the nine months ended September 30, 1995), included
as Appendices IV, V and VI, respectively, to this Proxy Statement/Prospectus.
In addition to a more detailed description of the general business operations
of FB&T, the FB&T Form 10-KSB contains an extensive discussion of FB&T's
financial condition, changes in financial condition and results of operations
for the three year period ended December 31, 1994. Shareholders of FB&T
are urged to refer to the more detailed information on FB&T contained in
Appendices IV, V and VI.
HISTORY AND BUSINESS
FB&T is a one bank holding company formed in 1994 and headquartered in
the City of Fairfax, Virginia. FB&T owns all of the outstanding stock of its
sole subsidiary, Fairfax Bank. Fairfax Bank operates ten full-service banking
offices in Fairfax and Prince William Counties in Northern Virginia. Since
opening for business in 1985, Fairfax Bank has grown to $244.6 million in
assets, $200.9 million in deposits and $17.2 million in stockholders' equity at
September 30, 1995.
Fairfax Bank is a community oriented bank that provides a broad range
of banking services to small and medium-sized businesses and individuals located
within its market area. These services include free consumer checking accounts,
commercial checking accounts, savings programs, automated teller facilities and
cash management services. Lending services include commercial, residential,
construction, real estate, term and installment loans, consumer loan programs,
home equity lines of credit, overdraft checking and credit card services.
Although Fairfax Bank has authority to do so, it does not currently provide
trust services.
Fairfax Bank is chartered under the laws of the Commonwealth of
Virginia and is a member bank of the Federal Reserve System. Fairfax Bank's
deposits are insured by the Federal Deposit Insurance Corporation, and Fairfax
Bank is subject to the supervision, examination and regulation of the Board of
Governors of the Federal Reserve and the Virginia SCC.
Fairfax Bank's market area covers Fairfax County, where seven of its
eleven banking offices are located, and adjacent Prince William County. With a
population of approximately 848,000, Fairfax County, including the City of
Fairfax and Falls Church, is among the most densely populated counties in
Virginia. Fairfax County's median household income is the highest in the country
at $59,284 per household, nearly double the national median of $30,056. Prince
William County, which borders Fairfax County to the south and is approximately
the same geographic size, has also experienced rapid population growth. The
population of Prince William County, including Manassas and Manassas Park, grew
by 49% to approximately 250,000 between 1980 and 1990 and is projected to grow
by another 29% between 1990 and the year 2000. The population and business
growth in Prince William County has centered along the I-95 and I-66 corridors.
Bank Title Company, Inc., a wholly-owned subsidiary of Fairfax Bank,
was incorporated on December 31, 1988, under the laws of the Commonwealth of
Virginia to engage in the land title insurance business. Bank Title Company
participates in the business of land title insurance via its partnership
interest in the Virginia Title Center, L.L.C. (VTC). Bank Title Company receives
dividends based on its ownership interest in the VTC. VTC is engaged in selling
title insurance underwritten by Investors Title Company of Chapel Hill, North
Carolina. At September 30, 1995, Bank Title Company had total assets of $23,000.
Since filing the FB&T 10-KSB, FB&T has opened its eleventh banking
office in the Fair Oaks section of Fairfax County. Fairfax Bank entered into a
land lease for the Fair Oaks location with a term of twenty years. In addition,
Fairfax Bank extended the initial term of the lease for its Main Office located
at 4117 Chain Bridge Road in the City of Fairfax on substantially similar
terms as the prior lease. The lease period was extended to December 31, 2005,
with four options to renew for five years each. See "The Merger--Interests of
Certain Persons in the Merger."
FB&T employed 105 full-time persons at December 31, 1995.
COMPETITION
In its market area, Fairfax Bank is subject to intense competition from
a number of local, regional and super-regional banking organizations, along with
other financial institutions and companies that offer financial services, such
as savings and loans associations, credit unions, securities firms, insurance
companies, small loan companies, mortgage companies and other financial service
enterprises. Competition among financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans and other
credit and service charges, the quality of services rendered, the convenience of
banking facilities and, in the case of loans to large commercial borrowers,
relative lending limits. Additional competition for depositors' funds comes from
U.S. Government securities, private issuers of debt obligations and suppliers of
other investment alternatives for depositors. Many of Fairfax Bank's nonbank
competitors are not subject to the same extensive federal regulations that
govern federally-insured banks and state regulations governing state chartered
banks. As a result, such nonbank competitors may have certain advantages over
Fairfax Bank in providing certain services. Many of the financial organizations
in competition with Fairfax Bank have greater financial resources than Fairfax
Bank and are able to offer similar services at varying costs with greater loan
capacities.
OWNERSHIP OF FB&T COMMON STOCK
The following table sets forth, as of December 31, 1995, certain
information as to the shares of FB&T Common Stock beneficially owned by the FB&T
directors individually and by all directors and executive officers of FB&T as a
group.
NUMBER OF SHARES BENEFICIALLY
OWNED AS OF DECEMBER 31, 1995
NAME (PERCENT OF CLASS) (1)
Allen L. Baran................................. 55,546 (4.4%)(2)(3)
Warren E. Barry................................ 7,768 *(2)(3)
Charles E. Curtis.............................. 85,805 (6.6%)(2)(4)
James C. Hughes................................ 55,857 (4.4%)(2)(3)
Jerry M. Phillips.............................. 10,642 *(3)
Otis R. Pool................................... 82,888 (6.5%)(2)(3)
T. Earl Rogers................................. 48,056 (3.7%)(2)(4)
Ronald W. Tydings.............................. 86,714 (6.8%)(2)(3)
All Directors and Executive Officers........... 440,600 (33%)
as a Group (8 persons)
- ---------------------
* Indicates beneficial ownership of less than 1% of the outstanding
shares of FB&T Common Stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities Act.
Under this rule, in general, a person is deemed to be the beneficial
owner of security if he or she has or shares the power to vote or
direct the voting of the security or the power to dispose or direct the
disposition of the security, of if he has the right to acquire
beneficial ownership of the security within 60 days.
(2) Includes shares held by affiliated corporations, close relatives and
children, and shares held jointly with spouses or as custodians or
trustees, as follows: Mr. Baran, 52,614 shares; Mr. Barry, 2,205
shares; Mr. Curtis, 22,612 shares; Mr. Hughes, 901 shares; Mr. Pool,
5,691 shares; Mr. Rogers, 9,562 shares; and Mr. Tydings, 7,513 shares.
(3) Includes a total of 2,050 shares that may be acquired pursuant to
currently exercisable stock options granted in June 1994 and 1995
(1,000 shares in each year, with 1994's grant adjusted for a 5% stock
dividend paid on May 15, 1994) to each non-employee director pursuant
to FB&T's Non-Employee Director Stock Compensation Plan.
(4) Includes shares that may be acquired pursuant to currently exercisable
stock options granted under FB&T's Incentive Stock Option Plan: Mr.
Rogers, 23,680 shares; and Mr. Curtis, 30,870 shares.
Except for Messrs. Curtis, Pool and Tydings, whose beneficial ownership
is shown in the table above, the only other shareholder of FB&T who beneficially
owns more than 5% of the outstanding shares is Jacques Rebibo, who beneficially
owned 71,011 shares (or 5.6%) of FB&T Common Stock. Mr. Rebibo is a former
director of FB&T and Fairfax Bank.
BUSINESS OF F&M
HISTORY AND BUSINESS
F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired fourteen banks, which expanded its market area
and increased market share in Virginia and West Virginia. F&M has eleven
subsidiary banks (the "Subsidiary Banks") that operate 78 banking offices
offering a full range of banking services principally to individuals and small
and middle-market businesses in the Shenandoah Valley, central and northern
Virginia, Southside Virginia, and the eastern panhandle of West Virginia.
The Subsidiary Banks are community-oriented and offer services
customarily provided by full-service banks, including individual and commercial
demand and time deposit accounts, commercial and consumer loans, residential
mortgages, credit card services and safe deposit boxes. Lending is focused on
individuals and small and middle-market businesses in the local market regions
of the Subsidiary Banks. In addition, F&M Bank-Winchester, F&M Bank-Blakeley and
F&M Bank-Keyser operate trust departments offering a range of fiduciary
services. F&M also operates Big Apple Mortgage which engages in residential
mortgage origination and servicing in the Shenandoah Valley and the eastern
panhandle of West Virginia.
F&M has maintained its community orientation by allowing the Subsidiary
Banks latitude to tailor products and services to meet community and customer
needs. While F&M has preserved the autonomy of its Subsidiary Banks, it has
established system-wide policies governing, among other things, lending
practices, credit analysis and approval procedures, as well as guidelines for
deposit pricing and investment portfolio management. In addition, F&M has
established a centralized loan review team that regularly performs a detailed,
on-site review and analysis of each Subsidiary Bank's loan portfolio to ensure
the consistent application of credit policies and procedures system-wide. One or
more senior holding company officers serve on the board of directors of each
Subsidiary Bank to monitor operations and to serve as a liaison to F&M.
F&M operates in six market regions: the Shenandoah Valley and Loudoun
County; the eastern panhandle of West Virginia; Charlottesville/Albemarle County
and surrounding areas; Greenville County in southside Virginia; suburban
Richmond, primarily Henrico and Chesterfield Counties; the northern Virginia
area that includes the eastern portions of Fairfax and Prince William Counties,
Loudoun County and the Warrenton and surrounding Fauquier County area. F&M
operates 39 banking offices in the Shenandoah Valley from Winchester to
Harrisonburg and in Loudoun County with deposits of $843 million at September
30, 1995, nine banking offices in the eastern panhandle of West Virginia with
deposits of $241 million at September 30, 1995, seven banking offices in the
Charlottesville/Albemarle County and surrounding area with deposits of $60
million at September 30, 1995, three banking offices in Emporia, Virginia and
surrounding Greenville County with deposits of $55 million at September 30,
1995, nine banking offices in suburban Richmond with deposits of $131 million at
September 30, 1995, seven banking offices in the Fairfax and Prince William
County area of northern Virginia area with deposits of $154 million at September
30, 1995 and four offices in the Warrenton and surrounding Fauquier County area
with deposits of $86 million at September 30, 1995. F&M's total deposits were
$1.57 billion at September 30, 1995. F&M's principal banking market is
Winchester and the surrounding five Virginia counties where its lead bank, F&M
Bank-Winchester, is the dominant financial institution in terms of deposit
market share.
At September 30, 1995, F&M had total consolidated assets of
approximately $1.81 billion, total consolidated deposits through its banking
subsidiaries of approximately $1.57 billion and consolidated shareholders'
equity of approximately $188 million. F&M's total consolidated net income for
the nine months ended September 30, 1995, was approximately $17.7 million, or
$1.07 per share.
F&M'S ACQUISITION PROGRAM
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. Since the beginning of 1988,
F&M has acquired approximately $800 million in assets and approximately $716
million in deposits through ten bank acquisitions. Management believes there are
additional opportunities to acquire financial institutions or to acquire assets
and deposits that will allow F&M to enter new markets or increase market share
in existing markets. Management intends to pursue acquisition opportunities in
strategic markets where its managerial, operational and capital resources will
enhance the performance of acquired institutions and may, after the date of this
Proxy Statement/Prospectus, enter into agreements to acquire one or more
financial institutions.
For additional information about F&M's business, see "Incorporation of
Certain Information by Reference."
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
F&M and FB&T are corporations subject to the provisions of the Virginia
Stock Corporation Act (the "Virginia SCA"). Shareholders of FB&T, whose rights
are governed by FB&T's Articles of Incorporation and Bylaws and by the Virginia
SCA, will become shareholders of F&M upon consummation of the Merger. The rights
of such shareholders as shareholders of F&M will then be governed by the
Articles of Incorporation and Bylaws of F&M and by the Virginia SCA.
The following is a summary of the material differences in the rights of
shareholders of FB&T and F&M. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE ARTICLES OF INCORPORATION AND BYLAWS OF EACH CORPORATION AND TO
THE VIRGINIA SCA.
AUTHORIZED CAPITAL
F&M. F&M is authorized to issue (i) 30,000,000 shares of Common Stock,
par value $2.00 per share, of which 16,551,077 shares were issued and
outstanding as of September 30, 1995, and (ii) 5,000,000 shares of serial
Preferred Stock, without par value, of which no shares were issued and
outstanding as of September 30, 1995. F&M's Articles of Incorporation authorize
the F&M Board, without shareholder approval, to fix the preferences, limitations
and relative rights of the preferred stock and to establish series of such
preferred stock and determine the variations between each series. If any shares
of preferred stock are issued, the rights of holders of F&M Common Stock would
be subject to the rights and preferences conferred to holders of such preferred
stock. See "Description of F&M Capital Stock" for additional information.
FB&T. FB&T is authorized to issue (i) 5,000,000 shares of FB&T Common
Stock, par value $1.25 per share, of which 1,237,483 shares were issued and
outstanding as of September 30, 1995, and (ii) 3,000,000 shares of serial
Preferred Stock, par value $1.25 per share, of which no shares were issued and
outstanding as of September 30, 1995. FB&T's Articles of Incorporation authorize
the FB&T Board, without shareholder approval, to fix the preferences,
limitations and relative rights of the preferred stock and to establish series
of such preferred stock and determine the variations between each series. Unlike
the shareholders of F&M who do not have preemptive rights, the shareholders of
FB&T do have preemptive rights. Accordingly and subject to certain statutory
exceptions, the shareholders of FB&T are entitled to subscribe for and purchase
any shares of FB&T Common Stock issued for cash in order to retain their
proportionate ownership in FB&T.
DIVIDEND RIGHTS
F&M. The holders of F&M Common Stock are entitled to share ratably in
dividends when and as declared by the F&M Board of Directors out of funds
legally available therefor. One of the principal sources of income to F&M is
dividends from its subsidiary banks. For a description of certain restrictions
on the payment of dividends by banks, see "Market Prices and Dividends." F&M's
Articles of Incorporation permit the F&M Board to issue preferred stock with
terms set by the F&M Board, which terms may include the right to receive
dividends ahead of the holders of F&M Common Stock. No shares of preferred stock
are presently outstanding.
FB&T. The holders of FB&T Common Stock also are entitled to share
ratably in dividends when and as declared by the FB&T Board of Directors out of
funds legally available therefor. The principal source of income to FB&T is
dividends from Fairfax Bank. Similar to F&M, FB&T's Articles of Incorporation
permit the FB&T Board to issue preferred stock with terms set by the FB&T Board,
which terms may include the right to receive dividends ahead of the holders of
FB&T Common Stock. No shares of preferred stock are presently outstanding.
VOTING RIGHTS
The holders of both F&M and FB&T Common Stock have one vote for each
share held on any matter presented for consideration by the shareholders.
Neither the holders of F&M nor FB&T Common Stock are entitled to cumulative
voting in the election of directors.
DIRECTORS AND CLASSES OF DIRECTORS
F&M. All of F&M's directors are elected each year. F&M's Articles of
Incorporation do not include a provision relating to the removal of directors.
Accordingly, the removal of F&M directors is governed by the Virginia SCA which
provides that shareholders may remove directors with or without cause if, in the
case of F&M, the number of votes cast to remove him constitutes a majority of
the outstanding shares of F&M Common Stock.
FB&T. The FB&T Board is divided into three classes so that each
director serves for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. In the event of
any increase in the authorized number of directors, the newly created
directorships resulting from such increase would be apportioned among the three
classes of directors so as to maintain such classes as nearly equal as possible.
Because of the classification of directors, unless the shareholders act to
remove directors from office, two annual meetings generally would be required to
elect a majority of the FB&T Board. Under FB&T's Articles of Incorporation,
directors may only be removed for cause and with the affirmative vote of at
least two-thirds of the outstanding shares entitled to vote.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Virginia SCA and the Articles of
Incorporation and Bylaws of F&M and FB&T may discourage an attempt to acquire
control of F&M or FB&T, respectively, that a majority of either corporation's
shareholders determined was in their best interests. These provisions also may
render the removal of one or all directors more difficult or deter or delay
corporate changes of control that the F&M Board or FB&T Board, respectively, did
not approve.
Classified Board of Directors; Removal of Directors. The provisions of
FB&T's Articles providing for classification of the Board of Directors into
three separate classes and removal of directors only for cause and with the
affirmative vote of the holders of at least two-thirds of the outstanding shares
may have certain anti-takeover effects.
Authorized Preferred Stock. The Articles of Incorporation of both F&M
and FB&T authorize the issuance of preferred stock. The F&M and FB&T Boards may,
subject to applicable law and the rules of the NYSE in the case of F&M and the
Nasdaq National Market in the case of FB&T, authorize the issuance of preferred
stock at such times, for such purposes and for such consideration as they may
deem advisable without further shareholder approval. The issuance of preferred
stock under certain circumstances may have the effect of discouraging an attempt
by a third party to acquire control of either F&M or FB&T by, for example,
authorizing the issuance of a series of preferred stock with rights and
preferences designed to impede the proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that, unless
a corporation's articles of incorporation provide for a higher or lower vote,
certain significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be cast on the
matter. Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of both F&M and FB&T provide that a
Fundamental Action shall be approved by a vote of a majority of all votes
entitled to be cast on such transactions by each voting group entitled to vote
on the transaction, provided that the transaction has been approved and
recommended by at least two-thirds of the directors in office at the time of
such approval and recommendation. If the transaction is not so approved and
recommended, then the transaction shall be approved by the vote of 80% or more
of all votes entitled to be cast on such transactions by each voting group
entitled to vote on the transaction.
These provisions could tend to make the acquisition of either F&M or
FB&T more difficult to accomplish without the cooperation or favorable
recommendation of either the F&M or FB&T Board, as the case may be.
Shareholder Meetings. Shareholders of both F&M and FB&T may not request
that a special meeting of shareholders be called.
State Anti-Takeover Statutes. Virginia has two anti-takeover statutes
in force, the Affiliated Transaction Statute and the Control Share Acquisitions
Statute.
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
neither F&M nor FB&T have done so. Therefore, the provisions of the Affiliated
Transactions Statute and the Control Share Acquisition Statute apply in the same
manner to F&M and FB&T.
DIRECTOR AND OFFICER EXCULPATION
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
F&M. The Articles of Incorporation of F&M provide that to the full
extent that the Virginia SCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of F&M shall not be
liable to F&M or its shareholders for monetary damages in excess of one dollar
($1.00).
FB&T. The Articles of Incorporation of FB&T provide that to the full
extent that the Virginia SCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of FB&T shall not be
liable to FB&T or its shareholders for monetary damages.
INDEMNIFICATION
F&M. The Articles of Incorporation of F&M provide that to the full
extent permitted by the Virginia SCA and any other applicable law, F&M is
required to indemnify a director or officer of F&M who is or was a party to any
proceeding by reason of the fact that he is or was such a director or officer or
is or was serving at the request of the corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. The board of directors is
empowered, by majority vote of a quorum of disinterested directors, to contract
in advance to indemnify any director or officer.
FB&T. Similar to F&M, the Articles of Incorporation of FB&T provide
that to the full extent permitted by the Virginia SCA and any other applicable
law, FB&T is required to indemnify a director or officer of FB&T who is or was a
party to any proceeding by reason of the fact that he is or was such a director
or officer or is or was serving at the request of the corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The board of
directors is empowered, by majority vote of a quorum of disinterested directors,
to contract in advance to indemnify any director or officer
DISSENTERS' RIGHTS
The provisions of Article 15 of the Virginia SCA provide shareholders
of a Virginia corporation the right to dissent from, and obtain payment of the
fair value of their shares in the event of mergers, consolidations and certain
other corporate transactions. However, because F&M has more than 2,000 record
shareholders, unlike FB&T, shareholders of F&M are less likely to have rights to
dissent from mergers, consolidations and certain other corporate transaction to
which F&M is a party because Article 15 of the Virginia SCA provides that
holders of shares of a Virginia corporation which has shares listed on a
national securities exchange or which has at least 2,000 record shareholders are
not entitled to dissenters' rights unless certain requirements are met. For
additional information in this regard, see "The Merger - Rights of Dissent and
Appraisal."
DESCRIPTION OF F&M CAPITAL STOCK
F&M is authorized to issue (i) 30,000,000 shares of Common Stock, par
value $2.00 per share, and (ii) 5,000,000 shares of serial Preferred Stock,
without par value, which may be issued in series with such powers, designations,
and rights as may be established from time to time by the Board of Directors. On
September 30, 1995, F&M had issued and outstanding 16,551,077 shares of F&M
Common Stock held by 7,653 shareholders of record. All outstanding shares of F&M
Common Stock are fully paid and nonassessable. No shares of Preferred Stock have
been issued.
COMMON STOCK
Holders of shares of F&M Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
therefor. F&M's ability to pay dividends is dependent upon its earnings and
financial condition of F&M and certain legal requirements. Specifically, the
Federal Reserve has stated that bank holding companies should not pay dividends
except out of current earnings and unless the prospective rate of earnings
retention by the company appears consistent with its capital needs, asset
quality and overall financial condition. In addition, Virginia law precludes any
distribution to shareholders if, after giving it effect, (a) F&M would not be
able to pay its debts as they become due in the usual course of business; or (b)
F&M's total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if F&M were to be dissolved at the time of the
distribution to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution. Upon
the liquidation, dissolution or winding up of F&M, whether voluntary or
involuntary, holders of F&M Common Stock are entitled to share ratably, after
satisfaction in full of all liabilities, in all remaining assets of F&M
available for distribution. The dividend and liquidation rights of F&M Common
Stock are subject to the rights of any Preferred Stock that may be issued and
outstanding.
Holders of F&M Common Stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in the
election of directors or preemptive rights to purchase additional shares of any
class of F&M's capital stock. Holders of F&M Common Stock have no conversion or
redemption rights. The shares of F&M Common Stock presently outstanding are, and
those shares of F&M Common Stock to be issued in connection with the Merger will
be when issued, fully paid and nonassessable. Since December 28, 1994, F&M
Common Stock has been listed for trading on the NYSE. Prior to its listing on
the NYSE, F&M Common Stock was traded on the Nasdaq National Market.
F&M maintains an Employee Stock Purchase Plan (the "ESP Plan")
providing that all F&M employees who have served F&M full time for over twelve
months may purchase shares of F&M Common Stock through payroll deduction. An
eligible employee who wishes to participate elects to contribute from 2% to 15%
of his or her actual adjusted base pay (actual base pay plus overtime and shift
premiums) by payroll deduction. In November, a participant may elect to bring
his or her total actual contribution up to 15% of his or her annual base pay.
Shares are sold by F&M to the ESP Plan fund on behalf of those participating
employees at 85% of the lesser market value on January 1 or December 31 of the
year. The maximum number of shares is limited for any calendar year to 50,000
plus shares available to be offered but not purchased in prior years. A total of
67,570 shares of F&M Common Stock have been issued under the ESP Plan since its
inception in 1993, and a maximum of 86,180 shares are available for issuance in
1996. The administrator may decide to offer fewer than the maximum available
number.
PREFERRED STOCK
The Board of Directors, without shareholder approval, is empowered to
authorize the issuance, in one or more series, of shares of Preferred Stock at
such times, for such purposes and for such consideration as it may deem
advisable. The Board of Directors is also authorized to fix before the issuance
thereof the designations, voting, conversion, preference and other relative
rights, qualifications and limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of F&M
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of F&M.
The creation and issuance of any additional series of Preferred Stock,
and the relative rights, designations and preferences of such series, if and
when established, will depend upon, among other things, the future capital needs
of F&M, then existing market conditions and other factors that, in the judgment
of the Board of Directors, might warrant the issuance of Preferred Stock.
EXPERTS
The consolidated financial statements of F&M incorporated in this Proxy
Statement/Prospectus by reference to F&M's Annual Report on Form 10-K for the
year ended December 31, 1994 have been so incorporated in reliance upon the
report of Yount, Hyde & Barbour, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in auditing and accounting.
The historical financial statements of FB&T contained in the FB&T
Annual Report included in this Proxy Statement/Prospectus as Appendix V have
been so included in reliance upon the report of Thompson & Greenspon & Co.,
P.C., independent certified public accountants, given on their authority as
experts in auditing and accounting.
LEGAL OPINIONS
The validity of the shares of F&M Common Stock offered hereby is being
passed upon for F&M by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. LeClair Ryan will deliver opinions to F&M and FB&T, respectively,
concerning certain federal income tax consequences of the Merger. See "The
Merger - Certain Federal Income Tax Consequences."
Certain matters relating to the Merger will be passed upon for FB&T by
Mays & Valentine, Richmond, Virginia.
SHAREHOLDER PROPOSALS
It is not anticipated that FB&T will hold a 1996 Annual Meeting of
Shareholders unless the Merger is not consummated prior to September 30, 1996.
If it is not consummated within that time period, the regular Annual Meeting of
FB&T will be held. Any shareholder proposals to be made at such Annual Meeting
must be in accordance with the Bylaws of FB&T.
OTHER MATTERS
The FB&T Board of Directors does not intend to bring any matter before
the Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Shareholders, nor does it know of any matter to be brought
before the Special Meeting by others. If, however, any other matters properly
come before the Special Meeting, it is the intention of each of the proxyholders
to vote such proxy in accordance with the decision of a majority of the FB&T
Board of Directors.
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of November 22, 1995, by and between F&M NATIONAL CORPORATION, a
Virginia corporation ("F&M"), and FB&T FINANCIAL CORPORATION, a Virginia
corporation ("FB&T").
WITNESSETH:
WHEREAS, the respective Boards of Directors of F&M and FB&T have
approved the affiliation of their companies through the merger of FB&T with and
into F&M pursuant to and subject to the terms and conditions of this Agreement
and the Plan of Merger in the form attached hereto as Exhibit A (the "Plan of
Merger"); and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual warranties, covenants
and agreements set forth herein, the parties agree as follows.
ARTICLE 1
THE MERGER AND RELATED MATTERS
1.1 THE MERGER
Subject to the terms and conditions of this Agreement, at the Effective
Date as defined in Section 1.4 hereof, FB&T shall be merged with and into F&M
pursuant to the Plan of Merger (the "Merger"). The separate corporate existence
of FB&T shall thereupon cease, and F&M will be the surviving corporation in the
Merger.
1.2 CONVERSION OF FB&T STOCK
At the Effective Date, by virtue of the Merger and without any action
on the part of the holders thereof, each share of common stock, par value $1.25
per share, of FB&T ("FB&T Common Stock") issued and outstanding immediately
prior to the Effective Date (other than shares held by dissenting shareholders
and fractional share interests) shall cease to be outstanding and shall be
converted into and exchanged for shares of common stock, par value $2.00 per
share, of F&M ("F&M Common Stock") whose aggregate market value equals $35.00,
plus cash for fractional shares, pursuant to the terms and conditions set forth
in the Plan of Merger. Each share of F&M Common Stock issued and outstanding
immediately prior to the Effective Date shall continue unchanged as an
outstanding share common stock of F&M, as the successor corporation.
1.3 MEMBERSHIP ON THE BOARD OF DIRECTORS; OFFICERS AND EMPLOYEES
(a) Upon consummation of the Merger, F&M shall cause two members of the
Board of Directors of FB&T, designated by the Board of Directors of FB&T prior
to the Effective Date and subject to the approval of F&M, to become members of
the Board of Directors of F&M.
(b) The officers and employees of Fairfax Bank & Trust Company, the
banking subsidiary of FB&T ("Fairfax Bank"), will not change as a result of the
Merger.
(c) F&M agrees to provide Charles E. Curtis and T. Earl Rogers,
President and Executive Vice-President, respectively, of Fairfax Bank, with a
severance agreement containing terms and conditions consistent with those
severance agreements authorized for certain of the senior executive officers of
the subsidiary banks of F&M.
1.4 THE CLOSING AND EFFECTIVE DATE
Subject to Section 6.1, the closing of the transactions contemplated by
this Agreement and the Plan of Merger shall take place at such place as may be
mutually agreed upon by the parties (the "Closing"). The Merger will become
effective on the date shown on the Certificate of Merger issued by the State
Corporation Commission of Virginia (the "SCC") effecting the Merger (the
"Effective Date"). After all of the conditions set forth in this Agreement have
been satisfied or waived, the Effective Date will be the earliest practical date
that is the last business day of a month, or such other date as may be
acceptable to F&M and FB&T.
1.5 DEFINITIONS
Any term defined in this Agreement and the Plan of Merger shall have
the meaning ascribed to it for purposes of this Agreement. In addition:
(a) the term "best knowledge" when used with respect to a party shall
mean the knowledge, after due and diligent inquiry, of any "Executive Officer"
of such party, as such term is defined in Regulation O of the Federal Reserve
Board;
(b) the term "Material Adverse Effect", when applied to a party, shall
mean any condition, event, change or occurrence (including, without limitation,
(i) the making of any provisions for possible loan and lease losses, write-downs
of other real estate and taxes and (ii) any breach of a representation or
warranty by such party) that individually, or in the aggregate with any other
condition, event, change or occurrence, has or is reasonably likely to have a
negative material effect upon (i) the financial condition, results of operations
or business of the party and its subsidiaries, taken as a whole, or (ii) the
ability of a party to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement.
(c) the term "Previously Disclosed" shall mean information set forth in
a letter from one party to the other party delivered and dated not later than
December 1, 1995 specifically designated as information "Previously Disclosed"
pursuant to this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF FB&T
FB&T represents and warrants to F&M as follows:
2.1 ORGANIZATION, STANDING AND POWER
FB&T is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia with full corporate
power and authority to carry on its business as now conducted. FB&T is duly
registered as a bank holding company under the Bank Holding Company Act of 1956.
2.2 ORGANIZATION, STANDING AND POWER OF FB&T SUBSIDIARIES
Each subsidiary of FB&T (the "FB&T Subsidiaries" and, collectively with
FB&T, the "FB&T Companies") is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia with full
corporate power and authority to carry on its business as now conducted and does
not do business in any other states or other jurisdictions of the United States
where its ownership or leasing of property or the conduct of its business
requires qualification to do business. Except as Previously Disclosed, FB&T does
not own, directly or indirectly, any outstanding capital stock or other voting
securities or ownership interests of any corporation, bank or savings
association, partnership or other organization, except for Fairfax Bank and Bank
Title Company. The outstanding shares of capital stock of each of the FB&T
Subsidiaries are validly issued and outstanding, fully paid and nonassessable
and all such shares are directly or indirectly owned by FB&T free and clear of
all liens, claims and encumbrances or preemptive rights of any person.
2.3 AUTHORIZED AND EFFECTIVE AGREEMENT; AFFILIATED TRANSACTION
APPROVAL
(a) FB&T has all requisite corporate power and authority to enter into
and (subject to the receipt of all necessary governmental approvals and the
approval of the shareholders of FB&T of this Agreement and the Plan of Merger)
to perform all of its obligations under this Agreement, the Plan of Merger and
the Stock Option Agreement of even date herewith between FB&T and F&M (the
"Option Agreement"). The execution, adoption and delivery of this Agreement, the
Plan of Merger and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of FB&T, except, in the case of this
Agreement and the Plan of Merger, the approval of shareholders. This Agreement,
the Plan of Merger and the Option Agreement represent the legal, valid, and
binding obligations of FB&T, enforceable against FB&T in accordance with their
respective terms, in each case subject as to enforceability to (i) bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium conservatorship,
receivership and similar laws affecting the enforcement of rights of creditors
of FDIC-insured institutions or the enforcement of creditors' rights generally,
(ii) laws relating to the safety and soundness of depository institutions and
their holding companies, and (iii) general principles of equity.
(b) Neither the execution and delivery of this Agreement the Plan of
Merger and the Option Agreement nor the consummation of the transactions
contemplated herein or therein, nor compliance by FB&T with any of the
provisions hereof or thereof will: (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of FB&T or any FB&T
subsidiary; (ii) except as Previously Disclosed, constitute or result in the
breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon, any
property or asset of FB&T or any FB&T subsidiary pursuant to any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation, or
(iii) subject to the receipt of all required regulatory approvals, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to FB&T
or any FB&T subsidiary.
(c) The Board of Directors of FB&T, by resolution adopted by a majority
of the "disinterested directors" of FB&T, as defined in Article 14 of the
Virginia Stock Corporation Act (the "Affiliated Transactions Statute"), has
approved this Agreement and the Option Agreement, and has given prior approval
of F&M's becoming an "interested shareholder" in accordance with Section
13.1-727(B)(1)(iv) of the Affiliated Transactions Statute. Accordingly,
notwithstanding the Option Agreement or any exercise of the option provided for
therein, the provisions of the Affiliated Transactions Statute shall not apply
to the Agreement, the Option Agreement, or the transactions contemplated by such
agreements. Article 14.1 of the Virginia Stock Corporation Act relating to
control share acquisition transactions has no application to this Agreement, the
Option Agreement or any transaction contemplated by such agreements.
2.4 CAPITAL STRUCTURE
The authorized capital stock of FB&T consists of (i) 5,000,000 shares
of common stock, par value $1.25 per share, and (ii) 3,000,000 shares of
preferred stock, par value $1.25 per share. As of the date hereof, there were
1,266,634 shares of FB&T Common Stock issued and outstanding and no shares of
preferred stock outstanding. All outstanding shares of FB&T Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable and
have not been issued in violation of the preemptive rights of any person. Except
as Previously Disclosed, there are no outstanding options, warrants or other
rights to subscribe for or purchase from FB&T any capital stock of FB&T or
securities convertible into or exchangeable for capital stock of FB&T. No shares
of capital stock have been reserved for any purpose, except for (i) 105,000
shares of FB&T Common Stock in connection with the Incentive Stock Option Plan
(the "Stock Option Plan"); (ii) 200,000 shares of FB&T Common Stock in
connection with FB&T's Dividend Reinvestment and Stock Purchase Plan; (iii)
40,000 shares of FB&T Common Stock in connection with FB&T's Non-Employee
Director Stock Compensation Plan (the "Director Stock Option Plan"), (iv) 50,000
shares of FB&T Common Stock in connection with FB&T's Employee Stock Discount
Plan, and (v) 252,000 shares of FB&T Common Stock in connection with the Option
Agreement.
2.5 FINANCIAL STATEMENTS; MINUTE BOOKS
The FB&T Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of FB&T
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect) in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis. The minute books of FB&T and the FB&T
Subsidiaries contain legally sufficient records of all meetings and other
corporate actions of its shareholders and Boards of Directors (including
committees of its Board of Directors). The FB&T Financial Statements shall mean
(i) the consolidated balance sheets of FB&T as of December 31, 1994 and 1993 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years ended December 31, 1994, 1993 and 1992
(including related notes and schedules, if any) and (ii) the consolidated
balance sheets of FB&T and related consolidated statements of income,
shareholders' equity and cash flows (including related notes and schedules, if
any) with respect to periods ended subsequent to December 31, 1994.
2.6 MATERIAL ADVERSE EFFECT
Since December 31, 1994 and except as Previously Disclosed, there has
not been any change in the financial condition or results of operations of FB&T
or Fairfax Bank which, individually or in the aggregate, has had a Material
Adverse Effect (other than as a result of changes in banking laws or regulations
of general applicability or interpretations thereof).
2.7 ABSENCE OF UNDISCLOSED LIABILITIES
Neither FB&T nor any FB&T Subsidiary has any liability (contingent or
otherwise) that is material to FB&T on a consolidated basis or that, when
combined with all similar liabilities, would be material to FB&T on a
consolidated basis, except as Previously Disclosed or as disclosed in the FB&T
Financial Statements and except for liabilities incurred in the ordinary course
of business consistent with past practice since the date of the most recent FB&T
Financial Statements.
2.8 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
Except as Previously Disclosed, there are no actions, suits or
proceedings instituted or pending or, to the best knowledge of FB&T's
management, threatened against any of the FB&T Companies or against any
property, asset, interest or right of any of the FB&T Companies, or against any
officer, director or employee of the FB&T Companies that would, if determined
adversely to FB&T or any FB&T Subsidiary, have a Material Adverse Effect on FB&T
on a consolidated basis. To the best knowledge of FB&T, the FB&T Companies have
complied in all material respects with all laws, ordinances, requirements,
regulations or orders applicable to its business (including environmental laws,
ordinances, requirements, regulations or orders).
2.9 TAX MATTERS
FB&T has filed all federal, state and local tax returns and reports
required to be filed, and all taxes shown by such returns to be due and payable
have been paid or are reflected as a liability in the FB&T Financial Statements
or are being contested in good faith and have been Previously Disclosed. Except
to the extent that liabilities therefor are specifically reflected in the FB&T
Financial Statements, there are no federal, state or local tax liabilities of
FB&T other than liabilities that have arisen since December 31, 1994, all of
which have been properly accrued or otherwise provided for on the books and
records of FB&T. Except as Previously Disclosed, no tax return or report of FB&T
or any FB&T Subsidiary is under examination by any taxing authority or the
subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against any of the FB&T Companies by any taxing
authority.
2.10 PROPERTY
Except As Previously Disclosed or reserved against in the FB&T
Financial Statements, the FB&T Companies have good and marketable title free and
clear of all material liens, encumbrances, charges, defaults or equitable
interests to all of the properties and assets, real and personal, reflected in
the balance sheet included in the FB&T Financial Statements as of December 31,
1994 or acquired after such date. To the best knowledge of FB&T, all buildings,
and all fixtures, equipment, and other property and assets which are material to
its business, held under leases or subleases, are held under valid instruments
enforceable in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws. To the best knowledge
of FB&T, the buildings, structures, and appurtenances owned, leased, or occupied
by FB&T and Fairfax Bank are in good operating condition and in a state of good
maintenance and repair, comply with applicable zoning and other municipal laws
and regulations, and there are no latent defects therein.
2.11 EMPLOYEE BENEFIT PLANS
(a) FB&T will deliver to F&M as soon as practicable true and complete
copies of all material retirement, profit-sharing, stock option, bonus, vacation
or other material incentive plans or agreements, all material medical, dental or
other health plans, all life insurance plans and all other material employee
benefit plans or fringe benefit plans, including, without limitation, all
"employee benefit plans" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by the FB&T
Companies for the benefit of employees, retirees or other beneficiaries eligible
to participate (collectively, the "FB&T Benefit Plans"). Any of the FB&T Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as an "FB&T ERISA Plan." No FB&T
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of the ERISA.
(b) Except as Previously Disclosed, all FB&T Benefit Plans are in
compliance with the applicable terms of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other applicable laws, rules and regulations, the
breach or violation of which could result in a material liability to FB&T on a
consolidated basis.
(c) No FB&T ERISA Plan that is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan exceeds
the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if the plan
was terminated in accordance with all applicable legal requirements.
2.12 INSURANCE
Each of the FB&T Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the best knowledge of FB&T,
similar in scope and coverage to that maintained by other entities similarly
situated. None of the FB&T Companies has received any notice of a premium
increase or cancellation or a failure to renew with respect to any insurance
policy or bond and, within the last three years, none of the FB&T Companies has
been refused any insurance coverage sought or applied for, and FB&T has no
reason to believe that existing insurance coverage cannot be renewed as and when
the same shall expire upon terms and conditions as favorable as those presently
in effect, other than possible increases in premiums or unavailability of
coverage that do not result from any extraordinary loss experience on the part
of the FB&T Companies.
2.13 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the balance sheets included
in the FB&T Financial Statements, as of their respective dates, is adequate in
all material respects under the requirements of generally accepted accounting
principles and regulatory accounting principles to provide for reasonably
anticipated losses on outstanding loans.
2.14 ENVIRONMENTAL MATTERS
(a) Except as Previously Disclosed, FB&T and Fairfax Bank are in
substantial compliance with all Environmental Laws (as defined below). Neither
FB&T nor Fairfax Bank has received any communication alleging that FB&T or
Fairfax Bank is not in such compliance and, to the best knowledge of FB&T, there
are no present circumstances that would prevent or interfere with the
continuation of such compliance.
(b) FB&T and Fairfax Bank have not received notice of pending, and are
not aware of any threatened, legal, administrative, arbitral or other
proceedings, asserting Environmental Claims (as defined below) or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition of, any material liability
arising under any Environmental Laws upon (i) FB&T or Fairfax Bank, (ii) any
person or entity whose liability for any Environmental Claim (as defined below)
FB&T or Fairfax Bank has or may have retained either contractually or by
operation of law, (iii) any real or personal property owned or leased by FB&T or
Fairfax Bank, or any real or personal property which FB&T or Fairfax Bank has
been, or is, judged to have managed or to have supervised or to have
participated in the management of, or (iv) any real or personal property in
which Fairfax Bank holds a security interest securing a loan recorded on the
books of Fairfax Bank. Neither FB&T nor Fairfax Bank is subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
(c) With respect to all real and personal property owned or leased by
FB&T or Fairfax Bank, or all real and personal property which FB&T or Fairfax
Bank has been, or is, judged to have managed or to have supervised or to have
participated in the management of, FB&T will promptly provide F&M with access to
copies of any environmental audits, analyses and surveys that have been prepared
relating to such properties (a list of which will be been Previously Disclosed).
To the best of FB&T's knowledge, FB&T and Fairfax Bank are in compliance in all
material respects with all recommendations contained in any such environmental
audits, analyses and surveys.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against FB&T or Fairfax Bank or against any person or entity whose
liability for any Environmental Claim FB&T or Fairfax Bank has or may have
retained or assumed either contractually or by operation of law.
(e) For purposes of this Agreement, the following terms shall have
the following meanings:
(1) "Environmental Claim" means any written notice from any
governmental authority or third party alleging potential liability
(including, without limitation, potential liability for investigatory
costs, clean-up, governmental response costs, natural resources
damages, property damages, personal injuries or penalties) arising our
of, based upon, or resulting from the presence, or release into the
environment, of any Materials of Environmental Concern.
(2) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, that relate to pollution or protection of human health or the
environment.
(3) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum
products and any other materials regulated under Environmental Laws.
2.15 BROKERS AND FINDERS
Neither FB&T nor any of its officers, directors or employees has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with transactions contemplated by this
Agreement, except for Scott & Stringfellow, Inc.
2.16 STATEMENTS TRUE AND CORRECT
When the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by F&M with the Securities and Exchange Commission (the
"SEC") shall become effective, and at all times subsequent thereto up to and
including the FB&T shareholders' meeting to vote upon the Merger, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished by FB&T relating to the FB&T
Companies, (i) shall comply in all material respects with the applicable
provisions of the federal and state securities laws, and (ii) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF F&M
F&M represents and warrants to FB&T as follows:
3.1 ORGANIZATION, STANDING AND POWER
F&M is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia, with full corporate
power and authority to carry on its business as now conducted. F&M is duly
registered as a bank holding company under the Bank Holding Company Act of 1956.
3.2 ORGANIZATION, STANDING AND POWER OF F&M SUBSIDIARIES
Each subsidiary of F&M (the "F&M Subsidiaries" and, collectively with
F&M, the "F&M Companies") is a duly organized corporation, validly existing and
in good standing in their respective states of incorporation. Each F&M
Subsidiary (i) has full corporate power and authority to carry on its business
as now conducted and (ii) is duly qualified to do business in the states where
its ownership or leasing of property or the conduct of its business requires
such qualification and where the failure to so qualify would have a material
adverse effect on F&M on a consolidated basis. The outstanding shares of capital
stock of each of the F&M Subsidiaries are validly issued and outstanding, fully
paid and nonassessable and all such shares are directly or indirectly owned by
F&M free and clear of all liens, claims and encumbrances or preemptive rights of
any person.
3.3 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) F&M has all requisite corporate power and authority to enter into
and to perform all of its obligations under this Agreement and the Plan of
Merger. The execution, adoption and delivery of this Agreement and the Plan of
Merger and the consummation of the Merger have been duly and validly authorized
by all necessary corporate action on the part of F&M. This Agreement and the
Plan of Merger represent the legal, valid, and binding obligations of F&M,
enforceable against F&M in accordance with their respective terms, in each case
subject as to enforceability to (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, conservatorship, receivership or other similar laws
affecting the enforcement of rights of creditors of FDIC-insured institutions or
the enforcement of creditors' rights generally, (ii) laws relating to the safety
and soundness of depository institutions and their holding companies, and (iii)
general principles of equity.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by F&M with
any of the provisions hereof will: (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of F&M or any F&M
Subsidiary; (ii) constitute or result in the breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or asset of F&M
or any F&M Subsidiary pursuant to any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation which would have a material adverse
effect on the business, operations or financial condition of F&M on a
consolidated basis, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to F&M or any F&M Subsidiary.
3.4 CAPITAL STRUCTURE
The authorized capital stock of F&M consists of: (i) 5,000,000 shares
of preferred stock, no par value per share, of which none are issued and
outstanding; and (ii) 30,000,000 shares of common stock, par value $2.00 per
share, of which 16,551,077 shares were issued and outstanding on September 30,
1995. All outstanding shares of F&M Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable. The shares of F&M Common
Stock to be issued in exchange for shares of FB&T Common Stock upon consummation
of the Merger will have been duly authorized and, when issued in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable and will be duly registered under the applicable federal and state
securities laws.
3.5 FINANCIAL STATEMENTS
The F&M Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of F&M
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect) in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis. The minute books of the F&M Companies contain
legally sufficient records of all meetings and other corporate actions of its
shareholders and Boards of Directors (including committees of its Board of
Directors). The F&M Financial Statements shall mean (i) the consolidated balance
sheets of F&M as of December 31, 1994 and 1993 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years ended December 31, 1994, 1993 and 1992 (including related notes and
schedules, if any) and (ii) the consolidated balance sheets of F&M and related
consolidated statements of income, shareholders' equity and cash flows
(including related notes and schedules, if any) with respect to periods ended
subsequent to December 31, 1994.
3.6 MATERIAL ADVERSE CHANGE
Since December 31, 1994, there has not been any change in the financial
condition or results of operations of F&M or the F&M Subsidiaries which,
individually or in the aggregate, has had a Material Adverse Effect (other than
as a result of changes in banking laws or regulations of general applicability
or interpretations thereof).
3.7 ABSENCE OF UNDISCLOSED LIABILITIES
Neither F&M nor any F&M Subsidiary has any liability (contingent or
otherwise) that is material to F&M on a consolidated basis or that, when
combined with all similar liabilities, would be material to F&M on a
consolidated basis, except as disclosed in the F&M Financial Statements and
except for liabilities incurred in the ordinary course of business consistent
with past practice since the date of the most recent F&M Financial Statements.
3.8 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
There are no actions, suits or proceedings instituted or pending or, to
the best knowledge of F&M, threatened against any of the F&M Companies or
against any property, asset, interest or right of any of the F&M Companies or
against any officer, director or employee of any of the F&M Companies that
would, if determined adversely to F&M or any F&M Subsidiary, have a material
adverse effect on F&M on a consolidated basis. To the best knowledge of F&M, the
F&M Companies have complied in all material respects with all laws, ordinances,
requirements, regulations or orders applicable to their respective businesses
(including environmental laws, ordinances, requirements, regulations or orders).
3.9 TAX MATTERS
F&M has filed all federal, state and local tax returns and reports
required to be filed, and all taxes shown by such returns to be due and payable
have been paid or are reflected as a liability in the F&M Financial Statements
or are being contested in good faith and have been Previously Disclosed. Except
to the extent that liabilities therefor are specifically reflected in the F&M
Financial Statements, there are no federal, state or local tax liabilities of
F&M other than liabilities that have arisen since December 31, 1993, all of
which have been properly accrued or otherwise provided for on the books and
records of F&M. Except as Previously Disclosed, no tax return or report of F&M
or any F&M Subsidiary is under examination by any taxing authority or the
subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against any of the F&M Companies by any taxing
authority.
3.10 EMPLOYEE BENEFIT PLANS
(a) All F&M employee benefit plans are in compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to F&M on a consolidated basis.
(b) No F&M employee benefit plan subject to ERISA that is a defined
benefit pension plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of
the assets of any such plan exceeds the plan's 'benefit liabilities,' as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan was terminated in accordance with all
applicable legal requirements.
3.11 INSURANCE
Each of the F&M Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the best knowledge of F&M,
similar in scope and coverage to that maintained by other entities similarly
situated. None of the F&M Companies has received any notice of a premium
increase or cancellation or a failure to renew with respect to any insurance
policy or bond and, within the last three years, none of the F&M Companies has
been refused any insurance coverage sought or applied for, and F&M has no reason
to believe that existing insurance coverage cannot be renewed as and when the
same shall expire upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability of coverage
that do not result from any extraordinary loss experience on the part of the F&M
Companies.
3.12 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the balance sheets included
in the F&M Financial Statements, as of their respective dates, is adequate in
all material respects under the requirements of generally accepted accounting
principles and regulatory accounting principles to provide for reasonably
anticipated losses on outstanding loans.
3.13 ENVIRONMENTAL MATTERS
Except as Previously Disclosed, the F&M Companies are in substantial
compliance with all Environmental Laws (as defined in Section 2.14). None of the
F&M Companies has received any communication alleging that F&M or any F&M
Subsidiary is not in such compliance and, to the best knowledge of F&M, there
are no present circumstances that would prevent or interfere with the
continuation of such compliance.
3.14 STATEMENTS TRUE AND CORRECT
When the Registration Statement to be filed by F&M with the SEC shall
become effective, and at all times subsequent thereto up to and including the
FB&T shareholders' meeting to vote upon the Merger, such Registration Statement
and all amendments or supplements thereto, with respect to all information set
forth therein furnished by F&M relating to F&M (i) shall comply in all material
respects with the applicable provisions of the federal and state securities
laws, and (ii) shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 INVESTIGATION AND CONFIDENTIALITY
FB&T will keep F&M advised of all material developments relevant to its
business and to consummation of the Merger, and F&M will advise FB&T of any
material adverse change in its financial condition or operations and all
material developments that are likely to adversely affect consummation of the
Merger. F&M and FB&T each may make or cause to be made such further
investigation of the financial and legal condition of the other as such party
reasonably deems necessary or advisable in connection with the Merger, provided,
however, that such investigation shall not interfere unnecessarily with normal
operations. F&M and FB&T agree to furnish the other and the other's advisors
with such financial data and other information with respect to its business and
properties as such other party shall from time to time reasonably request. Each
party hereto shall, and shall cause each of its directors, officers, attorneys
and advisors, to maintain the confidentiality of all information obtained in
such investigation which is not otherwise publicly disclosed by the other party,
such undertaking with respect to confidentiality to survive any termination of
this Agreement. In the event of the termination of this Agreement, each party
shall return to the furnishing party or, at the request of the furnishing party,
destroy and certify the destruction of all confidential information previously
furnished in connection with the transactions contemplated by this Agreement.
4.2 REGISTRATION STATEMENT; SHAREHOLDER APPROVAL
(a) FB&T shall submit this Agreement and the Plan of Merger to its
shareholders for approval at an annual or special meeting to be held on or
before April 15, 1996 or as soon thereafter as practicable (the "FB&T Meeting").
Subject to the fiduciary duties of the Board of Directors of FB&T (as advised in
writing by its counsel), the FB&T Board of Directors shall unanimously recommend
approval of the Merger and shall use its best efforts to solicit and obtain
votes of the holders of FB&T Common Stock in favor of the Merger. Each member of
the FB&T Board of Directors agrees to vote all shares of FB&T Common Stock under
his control (and not held in a fiduciary capacity) in favor of the Merger.
(b) F&M and FB&T will prepare jointly the proxy statement/prospectus to
be used in connection with the FB&T Meeting (the "Proxy Statement/Prospectus").
F&M will prepare and file with the SEC a Registration Statement, of which such
Proxy Statement/Prospectus shall be a part, and will use its best efforts to
have the Registration Statement declared effective as promptly as possible. When
the Registration Statement or any post-effective amendment or supplement thereto
shall become effective and at all times subsequent to such effectiveness, up to
and including the date of the FB&T Meeting, such Registration Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by FB&T relating to the FB&T Companies and
by F&M relating to the F&M Companies, will conform in all material respects with
the provisions of the Securities Act of 1933 and any other applicable statutory
or regulatory requirements.
4.3 OPERATION OF THE BUSINESS OF FB&T
Between the date of this Agreement and the Effective Date, FB&T agrees
that each of the FB&T Companies will operate its business substantially as
presently operated and only in the ordinary course and will use its best efforts
to preserve its properties, business and relationships with customers, employees
and other persons having business dealings with it. Without limiting the
generality of the foregoing, FB&T agrees that it will not, without the prior
written consent of F&M:
(a) Make any change in its authorized capital stock, or issue or sell
any additional shares of, securities convertible into or exchangeable for, or
options (except pursuant to plans now in existence), warrants or rights to
purchase, its capital stock, nor shall it purchase, redeem or otherwise acquire
any of its outstanding shares of capital stock, except that FB&T shall not be
restricted from acquiring any shares of FB&T Common Stock that secure an
extension of credit made by FB&T that is in default or selling, in the ordinary
course, any such re-acquired shares;
(b) Increase the rate of compensation of any of its directors, officers
or employees, or pay or agree to pay any bonus to, or provide any other employee
benefit or incentive to, any of its directors, officers or employees, except in
a manner and amount consistent with past practice, any of which changes shall be
reported promptly to F&M;
(c) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit plan or any employment or consulting agreement;
(d) Incur any obligation or liability (whether absolute or contingent,
excluding suits instituted against it), make any pledge, or encumber any of its
assets, nor dispose of any of its assets in any other manner, except in the
ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;
(e) Solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, FB&T or Fairfax
Bank or any business combination with FB&T other than as contemplated by this
Agreement; (except where the failure to furnish such information or participate
in such negotiations or discussions would, on the advice of counsel, constitute
a breach of the fiduciary or legal obligations of FB&T's Board of Directors to
its shareholders); or authorize or permit any officer, director, agent or
affiliate of FB&T or Fairfax Bank to do any of the above; or fail to notify F&M
immediately if any such inquiries or proposals are received by FB&T;
(f) Change its lending, investment, asset/liability management or
other material banking policies in any material respect, except as may be
required by applicable law;
(g) Alter, amend or repeal its Bylaws or Articles of Incorporation; or
(h) Propose or take any other action which would make any
representation or warranty in Article 2 hereof untrue.
Notwithstanding the foregoing, Fairfax Bank shall be permitted to
extend the initial term for a ten year period ending on December 31, 2005 under
that certain Office Lease for the real property located at 4117 Chain Bridge
Road, dated as of August 5, 1988, by and between Fairfax Bank and 4117 Chain
Bridge Road Associates, a Virginia general partnership, on the same terms and
conditions as currently in effect, subject to the approval of F&M.
4.4 OPERATION OF THE BUSINESS OF F&M
Between the date of this Agreement and the Effective Date, F&M agrees
that each of the F&M Companies will operate its business substantially as
presently operated and only in the ordinary course and will use its best efforts
to preserve its properties, business and relationships with customers, employees
and other persons having business dealings with it. In addition, F&M agrees that
it will not solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, F&M or any business combination
with F&M which may, as a condition thereof, result in the termination of this
Agreement and the Plan of Merger (except where the failure to furnish such
information or participate in such negotiations or discussions would, on the
advice of counsel, constitute a breach of the fiduciary or legal obligations of
F&M's Board of Directors to its shareholders); or authorize or permit any
officer, director, agent or affiliate of F&M to do any of the above.
4.5 DIVIDENDS
F&M agrees that prior to the Effective Date FB&T may declare and pay
its regular quarterly cash dividends in an amount not to exceed $0.154 per share
per quarterly dividend. Notwithstanding the foregoing, FB&T may change its
dividend record and payment dates to dates consistent with F&M's dividend record
and payment dates, and the payment of each such dividend shall be subject to the
reasonable determination of F&M that no material change has occurred in the
financial condition or results of operation of FB&T since December 31, 1994.
4.6 REGULATORY FILINGS
F&M and FB&T shall use their best efforts to prepare and file as soon
as practicable after the date hereof all required applications for regulatory
approval of the Merger. F&M shall use its best efforts to obtain prompt approval
of each required application.
4.7 PUBLIC ANNOUNCEMENTS
Each party will consult with the other before issuing any press release
or otherwise making any public statements with respect to the Merger and shall
not issue any such press release or make any such public statement prior to such
consultations, except as may be required by law.
4.8 ACCOUNTING TREATMENT
F&M and FB&T shall each use their best efforts to ensure that the
Merger qualifies for pooling-of-interests accounting treatment.
4.9 AFFILIATES
FB&T shall identify those persons who may deemed to be "affiliates" of
FB&T with the meaning of Rule 145 promulgated under the Securities Act. FB&T
shall cause each person so identified to deliver to F&M at least 30 days prior
to the Effective Date a written agreement providing that such person will not
dispose of F&M Common Stock received in the Merger, except in a manner that (i)
complies with the Securities Act of 1933 and the rules and regulations
promulgated thereunder, and (ii) is consistent with the qualification of the
transactions contemplated hereby for pooling of interests accounting treatment.
4.10 BENEFIT PLANS
Upon consummation of the Merger, as soon as administratively
practicable, employees of FB&T shall be entitled to participate in the F&M
pension, severance, benefit and similar plans on the same terms and conditions
as employees of the F&M Companies, giving effect to years of service with FB&T
as if such service were with F&M.
4.11 NYSE LISTING
F&M shall list on the New York Stock Exchange the shares of F&M Common
Stock to be issued in the Merger.
4.12 INDEMNIFICATION
F&M agrees that following the Effective Date, it shall indemnify,
defend and hold harmless any person who has rights to indemnification from FB&T,
to the same extent and on the same conditions as such person is entitled to
indemnification pursuant to Virginia law and FB&T's Articles of Incorporation or
Bylaws, as in effect on the date of this Agreement, to the extent legally
permitted to do so with respect to matters occurring on or prior to the
Effective Date. Without limiting the foregoing, in any case in which corporate
approval may be required to effectuate any indemnification, F&M shall direct, at
the election of the party to be indemnified, that the determination of
permissibility of indemnification shall be made by independent counsel mutually
agreed upon between F&M and the indemnified party. F&M shall use its reasonable
best efforts to maintain FB&T's existing directors' and officers' liability
policy, or some other policy, including F&M's existing policy, providing at
least comparable coverage, covering persons who are currently covered by such
insurance of FB&T for a period of three years after the Effective Date on terms
no less favorable than those in effect on the date hereof.
4.13 FB&T STOCK OPTIONS
From and after the Effective Date, all employee and director stock
options to purchase shares of FB&T Common Stock (each, an "FB&T Stock Option"),
which are then outstanding and unexercised, shall be converted into and become
options to purchase shares of F&M Common Stock, and F&M shall assume each such
FB&T Stock Option in accordance with the terms of the plan and agreement by
which it is evidenced; provided, however, that from and after the Effective Date
(i) each such FB&T Stock Option assumed by F&M may be exercised solely to
purchase shares of F&M Common Stock, (ii) the number of shares of F&M Common
Stock purchasable upon exercise of such FB&T Stock Option shall be equal to the
number of shares of FB&T Common Stock that were purchasable under such FB&T
Stock Option immediately prior to the Effective Date multiplied by the Exchange
Ratio and rounding down to the nearest whole share, with cash being paid for any
fractional share interest that otherwise would be purchasable, and (iii) the per
share exercise price under each such FB&T Stock Option shall be adjusted by
dividing the per share exercise price of each such FB&T Stock Option by the
Exchange Ratio, and rounding to the nearest cent. The terms of each FB&T Stock
Option shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction with respect to F&M Common Stock on or subsequent to
the Effective Date. It is intended that the foregoing assumption shall be
effected in a manner which is consistent with the requirements of Section 424 of
the Code as to any FB&T Stock Option that is an "incentive stock option" (as
defined in Section 422 of the Code) or is issued under an "employee stock
purchase plan" (as defined in Section 423 of the Code). F&M reserves the right
to terminate as of the Effective Date the Employee Stock Purchase Plan of FB&T.
4.14 STOCK OPTION AGREEMENT
FB&T shall grant to F&M an option to acquire such number of shares of
FB&T Common Stock that would equate to 19.9% of the issued and outstanding
common stock of FB&T, all in accordance with the Option Agreement.
ARTICLE 5
CONDITIONS TO THE MERGER
5.1 GENERAL CONDITIONS
The respective obligations of each of F&M and FB&T to effect the Merger
shall be subject to the fulfillment or waiver at or prior to the Effective Date
of the following conditions:
(a) Corporate Action. All corporation action necessary to authorize the
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby shall have been duly and validly taken,
including without limitation the approval of the shareholders of FB&T.
(b) Registration Statement. The Registration Statement shall have
been declared effective and shall not be subject to a stop order or any
threatened stop order of the SEC or any state securities commissioner.
(c) Regulatory Approvals. F&M and FB&T shall have received all
regulatory approvals required in connection with the transactions contemplated
by this Agreement, all notice periods and waiting periods required after the
granting of any such approvals shall have passed, and all such approvals shall
be in effect; provided, however, that no such approvals shall have imposed any
condition or requirement which, in the reasonable opinion of the Boards of
Directors of F&M or FB&T, would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement as to
render consummation of the Merger inadvisable or unduly burdensome.
(d) Tax Opinion. F&M and FB&T shall have received an opinion of F&M's
counsel in form and substance satisfactory to F&M and FB&T to the effect that
the Merger will constitute a reorganization within the meaning of Section 368 of
the Code and that no gain or loss will be recognized by the shareholders of FB&T
to the extent they receive F&M Common Stock solely in exchange for their FB&T
Common Stock in the Merger.
(e) Opinions of Counsel. FB&T shall have delivered to F&M and F&M shall
have delivered to FB&T opinions of counsel, dated as of the Effective Date, as
to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(f) Legal Proceedings. Neither F&M nor FB&T shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger.
5.2 CONDITIONS TO OBLIGATIONS OF F&M
The obligations of F&M to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of FB&T set forth in Article 2 shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Date as though
made on the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise expressly contemplated by this Agreement or consented to in
writing by F&M.
(b) Performance of Obligations. FB&T shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. FB&T shall have delivered to F&M a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.2(a) and
5.2(b) have been satisfied.
(d) Affiliate Letters. F&M shall have received the written
agreements from the affiliates as specified in Section 4.9 hereof.
(e) Accountants' Letters. F&M shall have received a letter, dated as of
the Effective Date, from Yount, Hyde & Barbour, P.C., satisfactory in form and
substance to F&M, that the Merger will qualify for pooling-of-interests
accounting treatment.
5.3 CONDITIONS TO OBLIGATIONS OF FB&T
The obligations of FB&T to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of F&M set forth in Article 3 shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Date as though made on
the Effective Date (or on the date when made in the case of any representation
and warranty which specifically relates to an earlier date), except as otherwise
expressly contemplated by this Agreement or consented to in writing by FB&T.
(b) Performance of Obligations. F&M shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. F&M shall have delivered to FB&T a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c),
5.3(a) and 5.3(b) have been satisfied.
(d) Investment Banking Letter. FB&T shall have received an updated
fairness opinion from Scott & Stringfellow, Inc., financial advisor to FB&T,
addressed to FB&T and dated on or about the date the Proxy Statement/Prospectus
is mailed to shareholders of FB&T, to the effect that the terms of the Merger
are fair to the shareholders of FB&T from a financial standpoint
ARTICLE 6
TERMINATION
6.1 TERMINATION
This Agreement and the Plan of Merger may be terminated at any time
before the Effective Date, whether before or after approval thereof by the
shareholders of FB&T, as provided below:
(a) Mutual Consent. By mutual consent of the parties, evidenced
by their written agreement.
(b) Closing Delay. At the election of either party, evidenced by
written notice, if the Closing shall not have occurred on or before September
30, 1996, or such later date as shall have been agreed to in writing by the
parties; provided, however, that the right to terminate under this Section
6.1(b) shall not be available to either party whose failure to perform an
obligation hereunder has been the cause of, or has resulted in, the failure of
the Closing to occur on or before such date.
(c) Conditions to F&M Performance Not Met. By F&M upon delivery of
written notice of termination to FB&T if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of F&M to effect the Merger set forth in Sections
5.1 and 5.2, and such noncompliance is not waived by F&M.
(d) Conditions to FB&T Performance Not Met. By FB&T upon delivery of
written notice of termination to F&M if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of FB&T to effect the Merger set forth in Sections
5.1 and 5.3, and such noncompliance is not waived by FB&T.
(e) Due Diligence Review of FB&T. By F&M in writing at any time prior
to December 11, 1995 if F&M determines in its sole good faith judgment that the
financial condition, business or prospects of FB&T are materially adversely
different from what was reasonably expected by F&M after the performance of its
due diligence prior to the execution of this Agreement; provided that F&M shall
inform FB&T upon such termination of the reasons for F&M's determination and,
provided further, that this Section 6.1(e) shall not limit in any way the due
diligence investigation of FB&T which F&M may perform or otherwise affect any
other rights which F&M has after the date hereof and after December 11, 1995,
under the terms of this Agreement.
(f) Due Diligence Review of F&M. By FB&T in writing at any time prior
to December 11, 1995 if FB&T determines in its sole good faith judgment that the
financial condition, business or prospects of F&M (as such condition, business
or prospects may affect the market price of F&M Common Stock) are materially
adversely different from what was reasonably expected by FB&T after the
performance of its due diligence prior to the execution of this Agreement;
provided that FB&T shall inform F&M upon such termination of the reasons for
FB&T's determination and, provided further, that this Section 6.1(f) shall not
limit in any way the due diligence investigation of F&M which FB&T may perform
or otherwise affect any other rights which FB&T has after the date hereof and
after December 11, 1995, under the terms of this Agreement.
6.2 EFFECT OF TERMINATION
In the event this Agreement is terminated pursuant to Section 6.1
hereof, both this Agreement and the Plan of Merger shall become void and have no
effect, except that (i) the provisions hereof relating to confidentiality, press
releases and expenses set forth in Sections 4.1, 4.7 and 6.4, respectively,
shall survive any such termination and (ii) a termination pursuant to 6.1(c) or
6.1(d) hereof shall not relieve the breaching party from liability for an
uncured intentional breach of any provision of this Agreement giving rise to
such termination.
6.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement and the
Plan of Merger shall not survive the Effective Date and shall be terminated and
extinguished at the Effective Date. From and after the Effective Date, the
parties hereto shall have no liability to the other on account of any breach of
any of those representations, warranties and covenants; provided, however, that
the foregoing clause shall not (i) apply to agreements of the parties which by
their terms are intended to be performed after the Effective date, and (ii)
shall not relieve any person for liability for fraud, deception or intentional
misrepresentation.
6.4 EXPENSES
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that F&M agrees to bear and pay the
cost of printing and mailing the Proxy Statement/Prospectus.
(b) Notwithstanding the provisions of Section 6.4(a) hereof, if for any
reason the Merger is not approved by FB&T's shareholders at the FB&T Meeting or
any adjournment thereof, FB&T shall reimburse F&M for one-half of all reasonable
out-of-pocket expenses incurred by F&M in connection with the transactions
contemplated by this Agreement, provided that the maximum amount that FB&T shall
be responsible to F&M for under this Section 6.4(b) shall be limited to $50,000.
(c) If this Agreement is terminated by F&M or FB&T because of a willful
and material breach by the other of any representation, warranty, covenant,
undertaking or restriction set forth herein, and provided that the terminating
party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall reimburse the other party of all
reasonable out-of-pocket expenses incurred by it in connection with the
transactions contemplated by this Agreement.
(d) Final settlement with respect to the reimbursement of such fees and
expenses by the parties shall be made within thirty days after the termination
of this Agreement.
ARTICLE 7
GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT
This Agreement contains the entire agreement among F&M and FB&T with
respect to the Merger and the related transactions and supersedes all prior
arrangements or understandings with respect thereto.
7.2 BINDING EFFECT; NO THIRD PARTY RIGHTS
This Agreement shall bind F&M and FB&T and their respective successors
and assigns. Other than Section 4.10, nothing in this Agreement is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights or remedies under or by reason of this Agreement.
7.3 WAIVER AND AMENDMENT
Any term or provision of this Agreement may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof, and this Agreement may be amended or supplemented by written
instructions duly executed by the parties hereto at any time, whether before or
after the FB&T Meeting, except statutory requirements and requisite approvals of
shareholders and regulatory authorities.
7.4 GOVERNING LAW
Except as required otherwise or otherwise indicated herein, this
Agreement shall be construed and enforced according to the laws of the
Commonwealth of Virginia.
7.5 NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to F&M:
Alfred B. Whitt
F&M National Corporation
38 Rouss Avenue
P. 0. Box 2800
Winchester, Virginia 22604
Copy to:
George P. Whitley
LeClair Ryan
707 East Main Street; 11th Floor
Richmond, Virginia 23219
If to FB&T:
Charles E. Curtis
Fairfax Bank & Trust Company
4117 Chain Bridge Road
P.O. Box 1087
Fairfax, Virginia 22030
Copy to:
Ronald W. Tydings
Tydings, Bryan & Adams, P.C.
4117 Chain Bridge Road
Post Office Box 250
Fairfax, Virginia 22030-0250
Hugh B. Wellons
Mays & Valentine
NationsBank Center
1111 East Main Street
P.O. Box 1122
Richmond, Virginia 23208
7.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same agreement.
7.7 SEVERABILITY
In the event that any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof. Any provision of
this Agreement held invalid or unenforceable only in part or degree shall remain
in full force and effect to the extent not held invalid or unenforceable.
Further, the parties agree that a court of competent jurisdiction may reform any
provision of this Agreement held invalid or unenforceable so as to reflect the
intended agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the date first written above.
F&M NATIONAL CORPORATION
Winchester, Virginia
By: /s/ JACK R. HUYETT
Jack R. Huyett
President and Chief
Administrative Officer
ATTEST:
By: /s/ ALFRED B. WHITT
Alfred B. Whitt
Secretary
FB&T FINANCIAL CORPORATION.
Fairfax, Virginia
By: /s/ CHARLES E. CURTIS
Charles E. Curtis
President
ATTEST:
By: /s/ T. EARL ROGERS
T. Earl Rogers
Assistant Corporate Secretary
FB&T FINANCIAL CORPORATION
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of FB&T Financial
Corporation agrees to be bound by his personal obligations as provided in
Section 4.2 and 4.3(e) of the Agre0ement and Plan of Reorganization.
Allen L. Baran Otis R. Pool
Warren E. Barry T. Earl Rogers
Charles E. Curtis Ronald W. Tydings
Jerry M. Phillips
EXHIBIT A
To the Agreement and
Plan of Reorganization
PLAN OF MERGER
BETWEEN
FB&T FINANCIAL CORPORATION
AND
F&M NATIONAL CORPORATION
Pursuant to this Plan of Merger ("Plan of Merger"), FB&T Financial
Corporation, a Virginia corporation ("FB&T"), shall merge with and into F&M
National Corporation, a Virginia corporation ("F&M").
ARTICLE I
TERMS OF THE MERGER
1.1 THE MERGER
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of November 22, 1995 (the "Agreement"), between F&M and
FB&T, at the Effective Date FB&T shall be merged with and into F&M in accordance
with the provisions of Article 12 of the Virginia Stock Corporation Act (the
"Act") and with the effect specified in Section 13.1-721 of the Act (the
"Merger"). F&M shall be the surviving corporation of the Merger. The Merger
shall become effective (the "Effective Date") on the date shown on the
Certificate of Merger issued by the Virginia State Corporation Commission (the
"SCC").
1.2 ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation and Bylaws of F&M in effect immediately
prior to the consummation of the Merger shall remain in effect following the
Effective Date until otherwise amended or repealed.
ARTICLE II
MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES
Upon and by reason of the Merger becoming effective pursuant to the
issuance of a Certificate of Merger by the SCC and except as set forth in
Section 2.3 below, no cash shall be allocated to the shareholders of FB&T and
stock shall be issued and allocated as follows:
(a) Each share of common stock, par value $1.25 per share, of FB&T
("FB&T Common Stock") issued and outstanding immediately prior to the Effective
Date shall, by operation of law, be automatically exchanged for the number of
shares of F&M Common Stock whose aggregate market value equals $35.00. The
market value of F&M Common Stock will be its average closing price as reported
on the New York Stock Exchange (the "NYSE") for each of the ten trading days
immediately preceding the Effective Date (the "Average Closing Price"), except
as the Average Closing Price may be adjusted as provided below. The ratio of
shares of F&M Common Stock that will be exchanged for each outstanding share of
FB&T Common Stock shall be referred to herein as the "Exchange Ratio," which
shall be rounded to the nearest one-one thousandth of a share. Notwithstanding
the foregoing, in the event: (A) F&M shall have entered into an agreement with
any person to (i) acquire, merge or consolidate, or enter into any similar
transaction, with F&M, (ii) purchase, lease or otherwise acquire all or
substantially all of the assets of F&M or (iii) purchase or otherwise acquire
securities representing 10% or more of the voting power of F&M; or (B) any
person shall have made a bona fide proposal to F&M by public announcement or
written communication that is or becomes the subject of public disclosure to
acquire F&M by merger, share exchange, consolidation, purchase of all or
substantially all of its assets or any similar transaction, the Average Closing
Price will be based on the average closing price of F&M Common Stock for each of
the ten trading days immediately preceding the public announcement of a
transaction or event described in either (A) or (B).
(b) Each holder of a certificate representing shares of FB&T Common
Stock upon the surrender of his FB&T stock certificates to F&M, duly endorsed
for transfer in accordance with Section 2.2 below, will be entitled to receive
in exchange therefor a certificate or certificates representing the number of
shares of F&M Common Stock that his shares shall be converted into pursuant to
the Exchange Ratio. Each such holder of FB&T Common Stock shall have the right
to receive any dividends previously declared but unpaid as to such stock and the
consideration described in this Section 2.1 and Section 2.3 upon the surrender
of such certificate in accordance with Section 2.2. In the event F&M changes the
number of shares of F&M Common Stock issued and outstanding prior to the
Effective Date as a result of any stock split, stock dividend, recapitalization
or similar transaction with respect to the outstanding shares of F&M Common
Stock and the record date therefor shall be prior to the Effective Date, the
Exchange Ratio shall be proportionately adjusted.
(c) Shares of F&M Common Stock issued and outstanding immediately prior
to the Effective Date shall continue unchanged as an outstanding share of Common
Stock of F&M, as the successor corporation.
(d) From and after the Effective Date, all employee and director stock
options to purchase shares of FB&T Common Stock (each, an "FB&T Stock Option"),
which are then outstanding and unexercised, shall be converted into and become
options to purchase shares of F&M Common Stock, and F&M shall assume each such
FB&T Stock Option in accordance with the terms of the plan and agreement by
which it is evidenced; provided, however, that from and after the Effective Date
(i) each such FB&T Stock Option assumed by F&M may be exercised solely to
purchase shares of F&M Common Stock, (ii) the number of shares of F&M Common
Stock purchasable upon exercise of such FB&T Stock Option shall be equal to the
number of shares of FB&T Common Stock that were purchasable under such FB&T
Stock Option immediately prior to the Effective Date multiplied by the Exchange
Ratio and rounding down to the nearest whole share, with cash being paid for any
fractional share interest that otherwise would be purchasable, and (iii) the per
share exercise price under each such FB&T Stock Option shall be adjusted by
dividing the per share exercise price of each such FB&T Stock Option by the
Exchange Ratio, and rounding to the nearest cent. The terms of each FB&T Stock
Option shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction with respect to F&M Common Stock on or subsequent to
the Effective Date. It is intended that the foregoing assumption shall be
effected in a manner which is consistent with the requirements of Section 424 of
the Internal Revenue Code of 1986, as amended (the "Code") as to any FB&T Stock
Option that is an "incentive stock option" (as defined in Section 422 of the
Code) or is issued under an "employee stock purchase plan" (as defined in
Section 423 of the Code).
2.2 MANNER OF EXCHANGE OF FB&T STOCK CERTIFICATES
As promptly as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent ("Exchange
Agent"), to send to each former shareholder of record of FB&T immediately prior
to the Effective Date transmittal materials for use in exchanging such
shareholder's certificates of FB&T Common Stock (other than shares held by
shareholders who perfect their dissenters' rights as provided under Section 2.5
hereof) for the consideration set forth in Section 2.1 above and Section 2.3
below. Any fractional share checks which a FB&T shareholder shall be entitled to
receive in exchange for such shareholder's shares of FB&T Common Stock, and any
dividends paid on any shares of F&M Common Stock, that such shareholder shall be
entitled to receive prior to the delivery to the Exchange Agent of such
shareholder's certificates representing all of such shareholder's shares of FB&T
Common Stock will be delivered to such shareholder only upon delivery to the
Exchange Agent of the certificates representing all of such shares (or indemnity
satisfactory to F&M and the Exchange Agent, in their judgment, if any of such
certificates are lost, stolen or destroyed). No interest will be paid on any
such fractional share checks or dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
2.3 NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of F&M Common Stock will
be issued. In lieu thereof, F&M will pay the value of such fractional shares in
cash on the basis of the Average Closing Price of F&M Common Stock as determined
pursuant to Section 2.1(a) hereof.
2.4 DIVIDENDS
No dividend or other distribution payable to the holders of record of
F&M Common Stock at or as of any time after the Effective Date shall be paid to
the holder of any certificate representing shares of FB&T Common Stock issued
and outstanding at the Effective Date until such holder physically surrenders
such certificate for exchange as provided in Section 2.2 of this Plan of Merger,
promptly after which time all such dividends or distributions shall be paid
(without interest).
2.5 RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of FB&T who object to the Merger will be entitled to the
rights and remedies set forth in sections 13.1-729 through 13.1-741 of the Act.
ARTICLE III
TERMINATION
This Plan of Merger may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 6 of the Agreement
between the parties.
APPENDIX II
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 22, 1995 (the "Option
Agreement"), by and between FB&T FINANCIAL CORPORATION, a Virginia corporation
("FB&T"), and F&M NATIONAL CORPORATION, a Virginia corporation("F&M").
WITNESSETH
WHEREAS, the Boards of Directors of the parties hereto approved an
Agreement and Plan of Reorganization (the "Reorganization Agreement") and have
adopted a related Plan of Merger, dated as of the date hereof (together referred
to herein as the "Merger Agreements"), providing for the merger of FB&T with and
into F&M (the "Merger"); and
WHEREAS, as a condition to and as consideration for F&M's entry into
the Merger Agreements and to induce such entry, FB&T has agreed to grant to F&M
the option set forth herein to acquire authorized but unissued shares of FB&T
Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS
Capitalized terms defined in the Merger Agreements and used herein
shall have the same meanings as in the Merger Agreements.
2. GRANT OF OPTION
Subject to the terms and conditions set forth herein, FB&T hereby
grants to F&M an option (the "Option") to acquire up to 252,000 shares of FB&T
Common Stock at a price of $22.75 per share (the "Exercise Price") in exchange
for the consideration provided in Section 4 hereof; provided, however, that in
the event FB&T issues or agrees to issue any shares of FB&T Common Stock (other
than as permitted under the Merger Agreements) at a price less than $22.75 per
share (as adjusted pursuant to Section 6 hereof), the Exercise Price shall be
equal to such lesser price. Notwithstanding anything else in this Option
Agreement to the contrary, the number of shares of FB&T Common Stock subject to
the Option shall be reduced if and to the extent necessary so that the number of
shares for which this Option is exercisable shall not exceed 19.9% of the issued
and outstanding shares of FB&T Common Stock, before giving effect to the
exercise of the Option. The number of shares of FB&T Common Stock that may be
received upon the exercise of the Option is subject to adjustment as set forth
herein.
3. EXERCISE OF OPTION
(a) Subject to compliance with applicable law and regulation, F&M may
exercise the Option, in whole or part, at any time or from time to time if a
Purchase Event (as defined below) shall have occurred and be continuing.
(b) FB&T shall notify F&M promptly in writing of the occurrence of any
transaction, offer or event giving rise to a Purchase Event. If more than one of
the transactions, offers or events giving rise to a Purchase Event is undertaken
or effected by the same person or occurs at the same time, then all such
transactions, offers and events shall give rise only to one Purchase Event,
which Purchase Event shall be deemed continuing for all purposes hereof until
all such transactions are terminated or abandoned by such person and all such
events have ceased or ended.
(c) In the event that F&M wishes to exercise the Option, it shall send
FB&T a written notice (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of shares it will acquire pursuant to
such exercise, and (ii) a place and date not earlier than three business days
nor later than 60 business days from the Notice Date for the closing of such
transaction (the "Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such acquisition, F&M shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of: (i) the Effective Date of the Merger; (ii) upon
termination of the Merger Agreements in accordance with the provisions thereof,
other than a termination based upon, following or in connection with either (A)
a material breach by FB&T of a Specified Covenant (as defined below) or (B) the
failure of FB&T to obtain shareholder approval of the Merger Agreements by the
vote required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or (iii) 12 months after termination of the
Merger Agreements based upon a material breach by FB&T of a Specified Covenant
or the failure of FB&T to obtain shareholder approval of the Merger Agreements
by the vote required under applicable law, in either case following the
occurrence of a Purchase Event.
(e) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(1) FB&T or Fairfax Bank & Trust Company (the "Bank"), without
having received F&M's prior written consent, shall have entered into an
agreement with any person to (i) acquire, merge or consolidate, or
enter into any similar transaction, with FB&T or the Bank, (ii)
purchase, lease or otherwise acquire all or substantially all of the
assets of FB&T or the Bank or (iii) purchase or otherwise acquire
securities representing 10% or more of the voting power of FB&T or the
Bank;
(2) any person shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the outstanding
shares of FB&T Common Stock after the date hereof (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder); or
(3) any person shall have made a bona fide proposal to FB&T by
public announcement or written communication that is or becomes the
subject of public disclosure to acquire FB&T or the Bank by merger,
share exchange, consolidation, purchase of all or substantially all of
its assets or any other similar transaction, and following such bona
fide proposal the shareholders of FB&T vote not to approve the Merger
Agreements; or
(f) As used herein, "Specified Covenant" means any covenant or
agreement contained in the Merger Agreements.
4. PAYMENT AND DELIVERY OF CERTIFICATES
(a) At the Closing Date, F&M shall tender to FB&T readily marketable
securities consisting exclusively of U.S. Government and Agency securities (the
"Securities") with an aggregate market value (determined in the reasonable good
faith judgment of F&M) as of the date of tender equal to or greater than the
Exercise Price. Within a reasonable period of time, not to exceed 60 days after
the date of exercise, FB&T shall refund to F&M the excess, if any, of the
aggregate market value of the Securities tendered by F&M over the exercise
price. F&M shall effect the tender of the Securities by transferring on the
Closing Date such Securities to an account or accounts maintained on behalf of
and designated by FB&T.
(b) At such closing, simultaneously with the tender of the Securities
as provided in subsection (a), FB&T shall deliver to F&M a certificate or
certificates representing the number of shares of FB&T Common Stock exchanged
for the Securities tendered by F&M, and F&M shall deliver to FB&T a letter
agreeing that F&M will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
(c) Certificates for FB&T Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend which shall read substantially as
follows:
"The transfer of the shares represented by this
Certificate is subject to certain provisions of an agreement
between the registered holder hereof and FB&T Financial
Corporation and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement
is on file at the principal office of FB&T Financial
Corporation. A copy of such agreement will be provided to the
holder thereof without charge upon receipt by FB&T Financial
Corporation of a written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if F&M shall have delivered to
FB&T a copy of a letter from the staff of the Securities and Exchange Commission
(the "Commission"), or an opinion of counsel, in form and substance satisfactory
to FB&T, to the effect that such legend is not required for purposes of the
Securities Act of 1933 (the "Securities Act").
5. REPRESENTATIONS
FB&T hereby represents, warrants and covenants to F&M as follows:
(a) FB&T shall at all times maintain sufficient authorized but unissued
shares of FB&T Common Stock so that the Option may be exercised without
authorization of additional shares of FB&T Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of any change in FB&T Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of FB&T Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement), the number of shares of FB&T Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
19.9% of the number of shares of FB&T Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 6 shall be deemed to authorize FB&T to breach
any provision of the Merger Agreements.
7. REGISTRATION RIGHTS
FB&T shall, if requested by F&M, as expeditiously as possible file a
registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of FB&T
Common Stock that are acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by F&M. F&M shall
provide all information reasonably requested by FB&T for inclusion in any
registration statement to be filed hereunder. FB&T will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 270 days from the date on which such
registration statement first becomes effective as may be reasonably necessary to
effect such sales or other dispositions. The first registration effected under
this Section 7 shall be at FB&T's expense except for underwriting commissions
and the fees and disbursements of F&M's counsel attributable to the registration
of such FB&T Common Stock. A second registration statement may be requested
hereunder at F&M's expense. In no event shall FB&T be required to effect more
than two registrations hereunder. The filing of any registration statement
hereunder may be delayed for such period of time as may reasonably be required
to facilitate any public distribution by FB&T of FB&T Common Stock. If requested
by F&M, in connection with any such registration, FB&T will become a party to
any underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. Upon receiving any request from F&M or an assignee of F&M under this
Section 7, FB&T agrees to send a copy thereof to F&M and to any assignee of F&M
known to FB&T, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
8. SEVERABILITY
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option will not permit the holder to acquire the full
number of shares of FB&T Common Stock provided in Section 2 hereof (as adjudged
pursuant to Section 6 hereof), it is the express intention of FB&T to allow the
holder to acquire or to require FB&T to repurchase such lesser number of shares
as may be permissible, without any amendment or modification hereof.
9. MISCELLANEOUS
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation to any of its wholly-owned
subsidiaries, and F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation in the event a Purchase
Event shall have occurred and F&M shall have delivered to FB&T a copy of a
letter from the staff of the Commission, or an opinion of counsel, in form and
substance reasonably satisfactory to FB&T, to the effect that such assignment
will not violate the requirements of the Securities Act; provided that prior to
any such assignment, F&M shall give written notice of the proposed assignment to
FB&T, and within 24 hours of such notice of a bona fide proposed assignment,
FB&T may purchase the Option at a price and on other terms at least as favorable
to F&M as that set forth in the notice of assignment.
(d) Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the address provided for in or pursuant to Section 7.5 of the
Reorganization Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Option Agreement as of the day and year first written above.
FB&T FINANCIAL CORPORATION
By: /s/ CHARLES E. CURTIS
Charles E. Curtis
President
F&M NATIONAL CORPORATION
By: /s/ ALFRED B. WHITT
Alfred B. Whitt
Senior Vice President
APPENDIX III
SCOTT & STRINGFELLOW, INC.
[DRAFT -- FOR SEC FILING PURPOSES ONLY]
___________, 1996
Board of Directors
FB&T Financial Corporation
4117 Chain Bridge Road
Fairfax, Virginia 22030
Gentlemen:
You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of FB&T Financial Corporation
("FB&T") of the terms of an Agreement and Plan of Reorganization between F&M
National Corporation ("F&M") and FB&T dated November 22, 1995 and a related Plan
of Merger (collectively the "Merger Agreement"). The Merger Agreement provides
for the merger of FB&T with and into F&M (the "Merger") and further provides
that each share of Common Stock of FB&T which is issued and outstanding
immediately prior to the Effective Date of the Merger shall be converted into
and shall become the number of shares of F&M Common Stock whose aggregate market
value equals $35.00, such market value to be the average of the closing prices
of F&M Common Stock as reported on the New York Stock Exchange for the trades
reported during the ten trading days immediately preceding the Effective Date.
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Merger Agreement; (2) FB&T's financial statements for the
three years ended December 31, 1994; (3) FB&T's unaudited financial statements
for the nine months ended September 30, 1994 and 1995, and other internal
information relating to FB&T prepared by FB&T's management; (4) information
regarding the trading market for the common stocks of FB&T and F&M and the price
ranges within which the respective stocks have traded; (5) the relationship of
prices paid to relevant financial data such as net worth, loans, deposits and
earnings in certain bank and bank holding company mergers and acquisitions in
Virginia in recent years; (6) F&M's annual reports to shareholders and its
financial statements for the three years ended December 31, 1994; and (7) F&M's
unaudited financial statements for the nine months ended September 30, 1994 and
1995, and other internal information relating to F&M prepared by F&M's
management. We have discussed with members of management of FB&T and F&M the
background to the Merger, reasons and basis for the Merger and the business and
future prospects of FB&T and F&M individually and as a combined entity. Finally,
we have conducted such other studies, analyses and investigations, particularly
of the banking industry, and considered such other information as we deemed
appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of FB&T and F&M. We have not attempted independently to
verify such information, nor have we made any independent appraisal of the
assets of FB&T or F&M. We have taken into account our assessment of general
economic, financial market and industry conditions as they exist and can be
evaluated at the date hereof, as well as our experience in business valuation in
general.
On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof, the terms
of the Merger Agreement are fair from a financial point of view to the
shareholders of FB&T Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By: _________________________________
Gary S. Penrose
Managing Director, Financial
Institutions Group
APPENDIX IV
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
Commission file number 33-87156
FB&T FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1624195
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
4117 Chain Bridge Road, Fairfax, Virginia 22030
(Address of principal executive office) (Zip Code)
(Registrant's Telephone number, including area code) (703)359-9090
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
$1.25 Par Value Common Capital Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of the Form 10-KSB or any amendment to
this Form 10-KSB (X).
At March 20, 1994 the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately
$19,389,266 computed at $16.50 per share. The number of shares outstanding of
the registrant's Common Stock ($1.25 Par Value) was 1,175,107 shares at March
20, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the year ended December 31, 1994 - Part I
and II.
2. Proxy Statement furnished to shareholders in connection with the Annual
Meeting of Shareholders scheduled for May 17,1995 - Part III.
2
PART I
ITEM 1. - BUSINESS
GENERAL
FB&T Financial Corporation (the "Company') is a one bank holding
company formed in 1994 and headquartered in the City of Fairfax, Virginia. The
Company, owns all of the outstanding stock of its sole subsidiary, Fairfax Bank
& Trust Company (the "Bank"). The Bank operates ten full-service banking offices
in Fairfax and Prince William Counties in northern Virginia. Since opening for
business in 1985, the Bank has grown to $205.7 million in assets, $170.0 million
in deposits and $15.9 million in stockholders' equity at December 31, 1994.
Fairfax Bank & Trust Company is a community oriented bank that provides
a broad range of banking services to small and medium-sized businesses and
individuals located within its market area. These services include free consumer
checking accounts, commercial checking accounts, savings programs, automated
teller facilities and cash management services. Lending services include
commercial, residential, construction, real estate, term and installment loans,
consumer loan programs, home equity lines of credit, overdraft checking and
credit card services. Although the Bank has authority to do so, it does not
currently provide trust services.
The Bank strives to provide its customers with the breadth of products
comparable to a regional bank, while maintaining the quick response and level of
service of a community bank. To implement this strategy, the Bank maintains a
highly-trained professional staff. Senior management has an average of 23 years
of banking experience and an average age of only 47, while the remaining
officers of the Bank have an average of 20 years of banking experience.
The Bank's strategy for growth is primarily based on the continued
development of its community-based branch banking network through internal
growth or acquisition. After earning approximately $225,000 in 1986, its first
full year of operations, the Bank embarked on a four-year branch expansion
program during which time it opened five full-service offices in high-growth
business and residential areas. During this period, the Bank also moved from its
temporary location into its current headquarters office in the City of Fairfax.
Throughout this expansion period, the Bank remained profitable reflecting
management's conservative approach to growth. For the five-year period ended
December 31, 1994, the Bank's deposits and assets have each grown at an average
annual rate of approximately 20%.
In keeping with the Bank's strategy for continued growth, during 1994
the Bank acquired a total of $29.3 million in deposits from the Resolution Trust
Corporation in connection with the receivership of the Federal Savings
Association of Virginia (Federal) and Commonwealth Federal Savings Bank
(Commonwealth). The Bank also acquired four branch locations in connection with
those two transactions. These purchases were made in fulfillment of management's
desire to increase market penetration in Fairfax County and in the rapidly
growing Prince William County. With these acquisitions, the Bank assumed the
leases on branch locations in Falls Church, Gainesville Woodbine, and purchased
an 11,789 square foot building in Manassas, Virginia which serves as the Bank's
Prince William County regional headquarters. Additionally, the Bank will be
opening its eleventh location in the Fair Oaks area of Fairfax County in March
of 1995.
Beginning in mid-1994, management began implementing a plan to
significantly upgrade the level of technology within the Bank. By December 31,
1994, the Bank had installed a fully integrated personal computer network at all
of its locations and rolled out platform automation software, loan origination
software, and a system to store information on optical disk. Through these
technology upgrades the Bank will be able to provide its customers with the most
advanced products and services available in the market and concurrently, will
significantly increase staff productivity and efficiency. Therefore, by
providing state of the art products and services and maximize staff
productivity, combined with a continued emphasis on providing the highest
quality personal service, management believes the Bank will enhance its
competitiveness in its market area and provide a solid base for future growth.
To service the Bank's increased deposit base and the expanded branch
network, the number of full-time employees had increased from 68 at December 31,
1993 to 107 at December 31, 1994.
Management plans to continue to review future opportunities for growth
by acquisition, including the acquisition of well-priced branches and deposit
franchises offered for sale in its market area by the Resolution Trust
Corporation and the Federal Deposit Insurance Corporation and by other banking
and thrift institutions, as well as opportunities for starting new branches in
rapidly growing areas of Northern Virginia.
Bank Title Company, Inc., a wholly-owned subsidiary of the Bank, was
incorporated on December 31, 1988, under the laws of the Commonwealth of
Virginia to engage in the land title insurance business. Bank Title Company
participates in the business of land title insurance via its partnership in the
Virginia Title Center, L.L.C. (VTC). Bank Title Company receives dividends based
on its ownership interest in the VTC. VTC is engaged in selling title insurance
underwritten by Investors Title Company of Chapel Hill, North Carolina. At
December 31, 1994, Bank Title Company had total assets of $74 thousand.
The Bank is chartered under the laws of the Commonwealth of
Virginia and is a member bank of the Federal Reserve System. The Bank's
deposits are insured by the FDIC, and the Bank is subject to the supervision,
examination and regulation of the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and the State Corporation Commission of the
Commonwealth of Virginia (the "Virginia SCC").
COMPETITION
In its market area, the Bank is subject to intense competition from a
number of local, regional and super-regional banking organizations, along with
other financial institutions and companies that offer financial services, such
as savings and loans associations, credit unions, securities firms, insurance
companies, small loan companies, mortgage companies and other financial service
enterprises. Competition among financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans and other
credit and service charges, the quality of services rendered, the convenience of
banking facilities and, in the case of loans to large commercial borrowers,
relative lending limits. Additional competition for depositors' funds comes from
U.S. Government securities, private issuers of debt obligations and suppliers of
other investment alternatives for depositors. Many of the Bank's nonbank
competitors are not subject to the same extensive federal regulations that
govern federally-insured banks and state regulations governing state chartered
banks. As a result, such nonbank competitors may have certain advantages over
the Bank in providing certain services.
Many of the financial organizations in competition with the Bank have
greater financial resources than the Bank and are able to offer similar services
at varying costs with greater loan capacities.
MARKET AREA
The Bank's market area covers Fairfax County, where six of its ten
banking offices are located, and adjacent Prince William County. With a
population of approximately 848,000, Fairfax County, including the City of
Fairfax and Falls Church, is among the most densely populated counties in
Virginia. According to the 1990 census, the population of Fairfax County,
together with the Cities of Fairfax and Falls Church, increased by 35% between
1980 and 1990, and it is projected to grow by another 19% between 1990 and the
year 2000. Fairfax County's median household income is the highest in the
country at $59,284 per household, nearly double the national median of $30,056.
A skilled and educated labor force, coupled with a well-integrated
transportation network including access to three major airports, helps position
Fairfax County for continued business expansion. The County is regarded as a
major center for research and development facilities, corporate headquarters,
including Mobil Corp., General Dynamics and Electronic Data Systems, technical
and professional services, and trade and professional associations.
Prince William County, which borders Fairfax County to the south and is
approximately the same geographic size, has also experienced rapid population
growth. The population of Prince William County, including Manassas and Manassas
Park, grew by 49% to approximately 250,000 between 1980 and 1990 and is
projected to grow by another 29% between 1990 and the year 2000. The population
and business growth in Prince William County has centered along the I-95 and
I-66 corridors. Similar to Fairfax County, it is included in the
Washington-Baltimore Combined Metropolitan Statistical Area.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following description briefly discusses certain
provisions of federal and state laws and certain regulations and proposed
regulations and the potential impact of such provisions on the Company and the
Bank.
Bank Holding Companies. As a bank holding company registered under the
Bank Holding Company Act of 1956 (the "BHCA"), the Company is subject to
regulation by the Federal Reserve. The Federal Reserve has jurisdiction under
the BHCA to approve any bank or nonbank acquisition, merger or consolidation
proposed by a bank holding company. The BHCA generally limits the activities of
a bank holding company and its subsidiaries to that of banking, managing or
controlling banks, or any other activity which is so closely related to banking
or to managing or controlling banks as to be a proper incident thereto.
The BHCA currently prohibits the Federal Reserve from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank whose shares
are to be acquired is located. However, under recently enacted federal
legislation, the restriction on interstate acquisitions will be abolished
effective one year from enactment of such legislation, and thereafter, bank
holding companies from any state will be able to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
nationwide and state imposed concentration limits. Banks also will be able to
branch across state lines effective June 1, 1997, provided certain conditions
are met, including that applicable state law must expressly permit such
interstate branching. Virginia has adopted legislation that will permit
branching across state lines effective July 1, 1995, provided there is
reciprocity with the state in which the out-of-state bank is based.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve with respect to bank holding
company operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. In addition, the "cross-guarantee" provisions of federal
law, require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") as a
result of the default of a commonly controlled insured depository institution or
for any assistance provided by the FDIC to a commonly controlled insured
depository institution in danger of default. The FDIC may decline to enforce the
cross-guarantee provisions if it determines that a waiver is in the best
interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution of any insured depository
institution by any receiver must be distributed (after payment of secured
claims) to pay the deposit liabilities of the institution prior to payment of
any other general or unsecured senior liability, subordinated liability, general
creditor or stockholder. This provision would give depositors a preference over
general and subordinated creditors and stockholders in the event a receiver is
appointed to distribute the assets of the Bank.
The Company is registered under the bank holding company laws of
Virginia. Accordingly, the Company and the Bank are subject to regulation and
supervision by the Virginia SCC.
Capital Requirements. The Federal Reserve, the Office of the
Comptroller of the Currency (the "OCC") and the FDIC have issued substantially
similar risk-based and leverage capital guidelines applicable to United States
banking organizations. In addition, those regulatory agencies may from time to
time require that a banking organization maintain capital above the minimum
levels because of its financial condition or actual or anticipated growth. Under
the risk-based capital requirements of these federal bank regulatory agencies,
the Company and the Bank are required to maintain a minimum ratio of total
capital to risk-weighted assets of at least 8%. At least, half of the total
capital is required to be "Tier 1 capital", which consists principally of common
and certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder ("Tier 2 capital") consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of Company as of
December 31, 1994 were 10.25% and 11.30%, respectively, exceeding the minimums
required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The leverage ratio
of Company as of December 31, 1994, was 6.32%, which is above the minimum
requirement. The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multi-family mortgages. The Federal Reserve, the FDIC and the OCC have issued a
joint advance notice of proposed rulemaking, and have issued a revised proposal,
soliciting comments on a proposed framework for implementing the interest rate
risk component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighed by risk factors that approximate the instruments' price sensitivity to a
100 basis point change in interest rates. Institutions with interest rate risk
exposure in excess of a threshold level would be required to hold additional
capital proportional to that risk. The Federal Reserve, the FDIC, the OCC and
Office of Thrift Supervision (the "OTS") also issued a joint notice of proposed
rulemaking soliciting comments on a proposed revision to the risk-based capital
guidelines to take account of concentration of credit risk and the risk of
non-traditional activities. The proposal would amend each agency's risk-based
capital standards by explicitly identifying concentration of credit risk and the
risk arising from non-traditional activities, as well as an institution's
ability to manage those risks, as important factors to be taken into account by
the agency in assessing an institution's overall capital adequacy. The Company
does not expect the final rule to have a material impact on its capital
requirements.
Limits on Dividends and Other Payments. The Company is a legal entity
separate and distinct from its subsidiary institutions. Substantially all of the
revenues of the Company result from dividends paid to it by the Bank. There are
various legal limitations applicable to the payment of dividends to Company as
well as the payment of dividends by Company to its respective shareholders.
Under federal law, the Bank may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, the Company or take securities of the Company as collateral for
loans to any borrower. The Bank is also subject to collateral security
requirements for any loans or extensions of credit permitted by such exceptions.
The Bank is subject to various statutory restrictions on its ability to
pay dividends to the Company. Under the current supervisory practices of the
Bank's regulatory agencies, prior approval from those agencies is required if
cash dividends declared in any given year exceed net income for that year plus
retained earnings of the two preceding years. The payment of dividends by the
Bank or the Company may also be limited by other factors, such as requirements
to maintain capital above regulatory guidelines. Bank regulatory agencies have
authority to prohibit the Bank or the Company from engaging in an unsafe or
unsound practice in conducting their business. The payment of dividends,
depending upon the financial condition of the Bank, or the Company, could be
deemed to constitute such an unsafe or unsound practice.
Under the FDIA, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial condition, the Company does not expect that this provision
will have any impact on its ability to obtain dividends from the Bank.
The Bank. The Bank is supervised and regularly examined by the Federal
Reserve and the Virginia SCC. The various laws and regulations administered by
the regulatory agencies affect corporate practices, such as payment of
dividends, incurring debt and acquisition of financial institutions and other
companies, and affect business practices, such as payment of interest on
deposits, the charging of interest on loans, types of business conducted and
location of offices.
The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of the local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
As an institution with deposits insured by the BIF, the Bank also is
subject to insurance assessments imposed by the FDIC. The FDIC has implemented a
risk-based assessment schedule, imposing assessments ranging from 0.23% to 0.31%
of an institution's average assessment base. The actual assessment to be paid by
each BIF member is based on the institution's assessment risk classification,
which is determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or undercapitalized," as such terms have
been defined in applicable federal regulations, and whether such institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns.
Other Safety and Soundness Regulations. The federal banking agencies
have broad powers under current federal law to take prompt corrective action to
resolve problems of insured depository institutions. The extent of these powers
depends upon whether the institutions in question are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized," all such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies.
In addition, FDIC regulations now require that management report on its
institution's responsibility for preparing financial statements, and
establishing and maintaining an internal control structure and procedures for
financial reporting and compliance with designated laws and regulations
concerning safety and soundness; and that independent auditors attest to and
report separately on assertions in management's reports concerning compliance
with such laws and regulations, using FDIC-approved audit procedures.
Current federal law also requires each of the federal banking agencies
to develop regulations addressing certain safety and soundness standards for
insured depository institutions and depository institution holding companies,
including operational and managerial standards, asset quality, earnings and
stock valuation standards, as well as compensation standards (but not dollar
levels of compensation). Each of the federal banking agencies have issued a
joint notice of proposed rulemaking, which requested comment on the
implementation of these standards. The proposed rule sets forth general
operational and managerial standards in the areas of internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. The proposal contemplates that each federal agency would determine
compliance with these standards through the examination process, and if
necessary to correct weaknesses, require an institution to file a written safety
and soundness compliance plan. The Company has not yet determined the effect
that the proposed rule would have on its operations if it is enacted
substantially as proposed.
ITEM 2. - PROPERTIES
The Bank's Main Office and nine of its ten branches and one future
location are leased under agreements expiring at various dates from 1992 through
2014. The Chantilly branch office lease has a two-year term with options to
renew for three additional one-year terms. The Centreville and Lake Ridge branch
office leases have five-year terms. The Tysons Corner branch office lease has a
five-year term with an option to renew for one additional five-year term. The
Sully Station branch office lease has a ten-year term. The Main Office lease has
a ten-year term with an option to renew for at least four additional five-year
terms. The Gainesville branch office lease has a five-year term with an option
to renew for three five-year terms. The Woodbine branch office lease has a
ten-year term. The Falls Church branch office lease has a twenty-year term with
an option to renew for two successive five-year terms. The Bank leases land in
Fair Oaks in Fairfax County where the eleventh branch location is scheduled to
open in March, 1995. The term of the Fair Oaks land lease is for twenty years.
The Bank owns the building which contains the Manassas branch. This two-story
building also contains the regional offices for the Mortgage Department and
Consumer Lending Department. Of the 11,789 square feet of finished space, 7,218
square feet are currently occupied by the Bank, with the remaining space
available to lease.
Properties:
Approx.
Square foot Type Owned or lease
Location Address Use occupied construction expiration date
Fairfax Office 4117 Chain Bridge Rd. banking 19,063 brick (L) 1998
Fairfax, VA 22030
Tysons Office 8221 Old Court House Rd banking 2,152 brick (L) 1997
Vienna, VA 22182
Chantilly Office 14006 Lee Jackson Hwy. banking 1,800 brick (L) 1997
Chantilly, VA 22021
Sully Office 5105 Westfields Blvd. banking 1,770 brick (L) 1998
Centreville, VA 22020
Centreville Office 14260J Centreville Square banking 2,077 brick (L) 1998
Centreville, VA 22020
Lake Ridge Office 12493 Dillingham Square banking 2,939 brick (L) 1999
Lake Ridge, VA 22192
Falls Church Office 133 South Washington St. banking 2,895 brick (L) 2001
Falls Church, VA 22046
Manassas Office 9201 Church St. banking 7,218 brick Owned
Manassas, VA 22110
Gainesville Office 14091 John Marshall Hwy. banking 3,500 brick (L) 1998
Gainesville, VA 22065
Woodbine Office 13414 Dumfries Rd. banking 2,400 brick (L) 1998
Manassas, VA 22111
Fair Oaks Office (1) 12220 Fairfax Towne Center banking 2,687 - (L) 2014
Fairfax, VA 22033
(1) The Bank leases the land on which the Fair Oaks office will be
constructed. The office is scheduled to open in March of 1995.
ITEM 3. - LEGAL PROCEEDINGS
The Bank is a party to various legal proceedings in the ordinary course
of its business. Based on information presently available, and after
consultation with legal counsel, management believes that the ultimate outcome
in such proceedings, in the aggregate, will not have a material adverse effect
on the Company's business, financial position or results of operation.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to stockholders during the last
quarter of 1994.
PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On December 15, 1993, the Company's Common Stock began trading in the
over-the-counter market and was approved for quotation on NASDAQ under the
symbol "FBTC". The table below sets forth the per share high and low closing bid
prices for the Common Stock as reported on NASDAQ, and the cash dividends
declared for the periods indicated. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
LOW HIGH DIVIDEND
1994
1st Quarter $14.00 $15.75 $.14
2nd Quarter 14.00 16.00 .14
3rd Quarter 16.25 16.50 .14
4th Quarter 15.25 17.25 .14
Prior to its approval for quotation on NASDAQ, the Common Stock was not
traded on an exchange or in any established public trading market. Trades in the
Common Stock occurred infrequently on a local basis and generally involved a
relatively small number of shares. Based on information made available to it,
the Company believes that the selling prices for the Common Stock ranged from
$11.00 to $13.29 during 1993 up until its approval for quotation on NASDAQ. For
the 12 trading days during 1993 it was quoted on NASDAQ, the high and low
closing bid prices were $16.00 and $15.75, respectively.
At December 31, 1994, there were 1,178,257 shares of Common Stock
outstanding held by 513 shareholders of record.
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding
and evaluating the financial condition and results of operations of the Company.
This review should be read in conjunction with the Company's Consolidated
Financial Statements and accompanying notes included herein which are
incorporated by reference from the 1994 Annual Report to Shareholders. This
analysis provides an overview of the significant changes that occurred during
the period presented.
OVERVIEW
Results of Operations. The Company's performance for 1994 showed
healthy improvement over the same period a year ago. Net income increased 17.9%
to a record $2.4 million compared to $2.0 million earned during the same period
in 1993. This increase represented the second consecutive year of record
earnings. Despite the increase in net income, earnings per share decreased
slightly from $2.00 per share in 1993 to $1.96 per share at year end 1994,
reflecting the additional 200,000 shares issued during the public offering in
December, 1993 when $2.9 million was raised in new capital. The increased
earnings in 1994 were primarily due to higher levels of net interest income and
other income and a reduction in the provision for loan losses.
Return on average assets and average equity for 1994 were 1.27% and
15.91%, respectively, compared to 1.37% and 19.10% for 1993.
The improved earnings during 1994 continued the upward trend set in
1992 when the Bank earned $1.0 million, or $1.10 per share for the year. The
higher earnings since 1992 were primarily attributable to increases in net
interest income and improved asset quality. By the end of 1992, the Bank had
reduced its nonperforming assets to $3.6 million, a 45.8% decrease from the $6.7
million in nonperforming assets reported at December 31, 1991. The improvement
in asset quality continued in 1993, when nonperforming assets decreased to $2.0
million, or 1.4% of average assets. Despite the sale of several foreclosed
properties in 1994, nonperforming assets increased $1.1 million in 1994 to $3.1
million or 1.7% of average assets which was due primarily to the acquisition of
one residential property valued at $1.0 million and an increase in loans for
which interest has been discontinued from $30 thousand at December 31, 1993 to
$834 thousand at December 31, 1994. As a result of successful loan recovery
activity, the provision expense for loan losses declined from $801 thousand in
1992 to $348 thousand in 1993 and $65 thousand in 1994.
Also contributing to the improved earnings since 1992 was management's
ability to maintain a relatively stable net interest margin. The Bank's net
interest margin improved from 5.05% at December 31, 1992 to 5.15% at December
31, 1993, during a period of falling interest rates. Throughout 1994, the Bank
operated in a market of rapidly escalating interest rates. Traditionally, such
an environment produces a tightening of the interest rate spread as liability
accounts reprice more rapidly than assets due to competitive pressure. The
Bank's net interest margin declined from 5.15 % in 1993 to 4.89% in 1994.
The Bank has also managed to increase its other income, which reached
$2.7 million for 1994, up 53.9% over the $1.8 million reported in 1993. This
increase in other income was primarily due to service charges and fees on an
increased volume of deposit accounts. The increase in 1994 followed a 70.4%
increase in other income for 1993 over 1992, which was due to the implementation
of service charges on business accounts and an ATM transaction fee, as well as
increased income generated from the brisk mortgage refinancing business in 1993.
The Bank continues to closely monitor service charges and fees to reduce waivers
of income and maximize revenue.
Financial Condition. Total assets increased to $205.7 million at
December 31, 1994 compared to $164.8 million at year-end 1993, representing an
increase of $40.8 million, or 24.8%. During 1994 earning assets grew to $181.9
million, a $29.2 million, or 19.1% increase over 1993 year-end earning assets.
This followed an increase in earning assets of 19.9% in 1993 over 1992. The
primary components of the increase in earning assets in 1994 were as follows:
loans, net of unearned income increased 22.7%, and investment securities and
securities available for sale increased 10.1%.
Deposits, the primary source of funds supporting earning assets,
increased 28.0%, or $37.1 million, in 1994 over 1993, following a 9.6% increase
in 1993 over 1992. In March, 1994, the Bank purchased approximately $1.4 million
in deposits from the former Federal Savings Association of Falls Church,
Virginia. In May, the Bank purchased approximately $27.9 million in deposits
form the former Commonwealth Federal Savings Bank of Manassas, Virginia.
Stockholders' equity at December 31, 1994 was $15.9 million, up 11.1%
over the 1993 year-end level, following a 51.9% increase in 1993 over 1992. The
larger increase in 1993 reflected the injection of approximately $2.9 million in
capital created by the Bank's public offering of 200,000 shares at $16.00 per
share in December of 1993. The Company's capital ratios continue to be well in
excess of the regulatory minimums.
Summary Financial Information
Year Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Summary of Operations:
Net interest income ............... $ 8,240 $ 6,739 $ 5,839 $ 4,594 $ 4,864
Provision for loan losses ......... 65 348 801 900 937
Other income ...................... 2,695 1,752 1,028 1,378 457
Other expenses .................... 7,339 5,211 4,548 4,391 3,604
Income taxes ...................... 1,167 927 513 226 265
Net income ........................ $ 2,364 $ 2,005 $ 1,005 $ 455 $ 515
Per Share Data:
Net income ........................ $ 1.96 $ 2.00 $ 1.10 $ 0.46 $ 0.53
Book value at period end .......... 13.47 12.16 9.83 9.26 8.80
Cash dividends .................... 0.56 0.25 0.00 0.00 0.15
Weighted average shares
outstanding .................... 1,206,120 1,002,895 936,162 988,807 971,892
Actual number of shares
outstanding .................... 1,178,257 1,174,057 956,865 855,634 869,834
Selected Performance Ratios:
Return on average assets .......... 1.27% 1.37% 0.76% 0.43% .%57%
Return on average equity .......... 15.91 19.10 11.92 5.82 6.72
Net interest margin (2) ........... 4.89 5.15 5.05 4.89 5.90
Balance Sheet Data at
Period End:
Assets ............................ $ 205,672 $ 164,836 $ 141,488 $ 129,693 $ 95,438
Loans, net of
unearned income (1) ............ 133,988 109,172 88,101 80,890 73,919
Securities ........................ 47,891 43,488 28,594 20,872 9,706
Deposits .......................... 169,952 132,820 121,233 115,783 83,516
Stockholders' equity .............. 15,868 14,282 9,403 7,925 7,650
Asset Quality Ratios:
Allowance for loan losses
to period end loans (1) ........ 1.00% 1.00% 1.03% 1.00% 1.09%
Nonperforming assets to
total assets ................... 1.52 1.21 2.56 5.14 3.75
Net charge-offs (recovery)
to average loans ............... (0.14) 0.16 0.81 1.23 0.77
Capital Ratios:
Leverage (Equity to Assets) (3) ... 6.32% 8.66% 6.64% 6.11% 8.02%
Risk-based:
Tier 1 capital (3) ............. 10.25 13.48 11.66 9.78 10.80
Total capital (3) .............. 11.30 14.52 12.79 10.78 11.93
(1) Loans are reported net of unearned income and include mortgage loans
held for sale.
(2) Net interest margin is calculated on a tax equivalent basis.
(3) Equity reported is net of intangible assets.
EARNINGS ANALYSIS
Net Interest Income. Net interest income represents the principal
source of earnings for the Bank and is equal to the amount by which interest
income exceeds interest expense. The net interest margin is a measure of net
income performance. It represents the difference between interest income,
including net loans fees earned and interest expense, expressed as a percentage
of average earning assets. Changes in the volume and mix of interest-earning
assets and interest-bearing liabilities, as well as the respective yields and
rates, have significant impact on the level of net interest income.
Net interest income was $8.2 million for 1994, up 22.5% over the $6.7
million reported for 1993. The primary factor contributing to the improvement in
net interest income was an increase in the volume of earning assets. Earning
assets increased 19.1% from $152.7 million at December 31, 1993 to $181.9
million at December 31, 1994. In 1994's environment of rapidly rising interest
rates, the Bank experienced a relatively minor decline in net interest margin
from the 1993 level of 5.15 % to 4.89% for 1994. Another significant factor
which impacted net interest income and net interest margin was a change in the
mix of deposit accounts resulting from the Bank's purchase of approximately
$29.4 million in deposits from two failed savings institutions. Prior to these
purchases, at December 31, 1993, the Bank's mix of interest-bearing deposits and
non-interest bearing deposits to total deposits was 67.1% and 32.9%,
respectively. After these purchases, at December 31, 1994, the mix was 75.4% and
24.6%, respectively. The Bank continues to emphasize programs to increase
non-interest bearing deposits, particularly in the expanding market of Prince
William County.
Net interest income for 1993 increased 15.4%, or $900 thousand over the
$5.8 million reported for 1992. This increase can largely be attributable to a
decline in interest expense of $624 thousand, or 18.4% compared to 1992. Due to
the low interest rate environment of 1993, the Bank was able to reduce rates
paid on customer deposits to a greater extent than the decline in yields on
earning assets. This rapid decrease in funding costs contributed to an increase
in the net interest margin from 5.05% in 1992 to 5.15 % in 1993.
The following table sets forth the Bank's average interest earning
assets (on a tax equivalent basis), average interest bearing liabilities, the
average yields on such assets and rates paid on such liabilities, and the net
interest margin, for the periods indicated.
Average Balances, Income and Expenses, Yields and Rates
Year Ended December 31,
1994 1993
--------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets (1):
Securities:
Taxable ................... $ 47,110 $ 2,182 4.63% $ 30,972 $ 1,417 4.58%
Tax-exempt (2) ............ 103 5 4.85 161 9 4.59
Total securities ............. 47,213 2,187 4.63 31,133 1,426 4.58
Loans (net of unearned
income) .................... 120,476 10,168 8.44 94,507 7,919 8.38
Federal Funds sold ........... 891 57 6.40 5,113 153 2.99
Total earning assets ......... 168,580 12,412 7.36% 130,753 9,498 7.26%
Less: allowance for losses ... (1,238) (925)
Total nonearn. assets ........ 18,339 16,966
Total assets ................. $ 185,681 $ 146,794
Liabilities (1):
Interest bearing dep:
Checking .................. $ 18,871 $ 708 3.75% $ 13,847 $ 498 3.60%
Regular savings ........... 23,219 663 2.86 17,045 499 2.93
Money market svgs ......... 29,294 772 2.64 20,998 554 2.64
Certificates of deposit
$100,000 and over ......... 9,750 396 4.06 9,313 355 3.81
Under $100,000 ............ 15,606 1,077 6.90 9,645 609 6.31
Total interest-
bearing deposits .......... 96,740 3,616 3.74 70,848 2,515 3.55
Short-term borrowings ........ 14,995 556 3.71 11,733 244 2.08
Total interest-
bearing liabilites ........ 111,735 4,172 3.73% 82,581 2,759 3.34%
Noninterest bearing
liabilities:
Demand deposits ........... 55,235 51,804
Other liabilities ......... 3,854 1,907
Total liabilities ............ 170,824 136,292
Stockholder's equity ......... 14,857 10,502
Total liabilities and
Stockholder's equity ....... $ 185,681 $ 146,794
Net interest income .......... $ 8,240 $ 6,739
Interest rate spread ......... 3.63% 3.92%
Interest rate expense
as a percent of avg
earnings assets ........... 2.47% 2.11%
Net interest margin .......... 4.89% 5.15%
1992
----------------------------------
Average Income/ Yield/
Balance Expense Rate
Assets (1):
Securities:
Taxable ............................. $ 24,407 $1,258 5.15%
Tax-exempt (2) ...................... 160 9 5.63
Total securities ....................... 24,567 1,267 5.16
Loans (net of unearned
income) .............................. 86,861 7,811 8.99
Federal Funds sold ..................... 4,253 143 3.36
Total earning assets ................... 115,681 9,221 7.97%
Less: allowance for
losses .............................. (874)
Total nonearn. assets .................. 16,717
Total assets ........................... $ 131,524
Liabilities (1):
Interest bearing dep:
Checking ............................ $ 15,464 $ 511 3.30%
Regular savings ..................... 11,631 436 3.75
Money market svgs ................... 23,622 794 3.36
Certificates of deposit
$100,000 and over ................... 11,636 554 4.76
Under $100,000 ...................... 16,239 886 5.46
Total interest-
bearing deposits .................... 78,592 3,181 4.05
Short-term borrowings .................. 8,464 202 2.39
Total interest-
bearing liabilites .................. 87,056 3,383 3.89%
Noninterest bearing
liabilities:
Demand deposits ..................... 34,240
Other liabilities ................... 1,790
Total liabilities ...................... 123,086
Stockholder's equity ................... 8,438
Total liabilities and
Stockholder's equity ................. $ 131,524
Net interest income .................... $ 5,838
Interest rate spread ................... 4.09%
Interest rate expense
as a percent of avg
earnings assets ..................... 2.92%
Net interest margin .................... 5.05%
Average balances are derived from month-end balances.
Income and yields are reported on a tax-equivalent basis assuming a federal tax
rate of 34%
Net interest income is affected by changes in both average interest
rates and average volumes of earning assets and interest-bearing liabilities.
The following table analyzes changes in net interest income attributable to
changes in the volume of earning assets and interest-bearing liabilities
compared to changes in interest rates. Nonaccruing loans are included in average
loans outstanding. The amount of change not solely due to rate or volume changes
was allocated to change due to rate and change due to volume in proportion to
the relationship of the absolute dollar amounts of the change in each.
Volume and Rate Analysis
Year Ended December 31,
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
Volume Rate Total Volume Rate Total
--------- ------ ------- --------- ------ -------
Earning Assets:
Securities:
Taxable ....................... $ 730 $ 35 $ 765 $ 344 $(185) $ 159
Tax-exempt .................... 0 0 0 7 (7) 0
Total securities ........... 730 35 765 351 (192) 159
Loans ............................. 2,176 73 2,249 687 (579) 108
Federal funds sold ................ (126) 30 (96) 29 (19) 10
Total earning assets ....... $ 2,780 $ 138 $ 2,918 $ 1,067 $(790) $ 277
Interest-Bearing Liabilities:
Interest checking ............. $ 181 $ 29 $ 210 $ (53) $ 40 $ (13)
Regular savings ............... 181 (17) 164 203 (140) 63
Money market savings .......... 218 0 218 (88) (152) (240)
Time deposits ................. 393 116 509 (741) 265 (476)
Total interest-bearing
deposits ................ 973 128 1,101 (679) 13 (666)
Short-term borrowings ............. 68 244 312 78 (36) 42
Total interest-bearing
liabilities ............. 1,041 372 1,413 (601) (23) (624)
Change in net interest
income ........................ $ 1,739 $(234) $ 1,505 $ 1,668 $(767) $ 901
1992 vs. 1991
Increase (Decrease)
Due to Changes in:
Volume Rate Total
------ ------ ------
Earning Assets:
Securities:
Taxable ....................... $ 650 $ (483) $ 167
Tax-exempt .................... (14) (1) (15)
Total securities ........... 636 (484) 152
Loans ............................. 1,386 (1,209) 177
Federal funds sold ................ (125) (131) (256)
Total earning assets ....... $ 1,897 $(1,824) $ 73
Interest-Bearing Liabilities:
Interest checking ............. $ (11) $ (232) $ (243)
Regular savings ............... 415 (148) 267
Money market savings .......... 284 (328) (44)
Time deposits ................. (525) (637) (1,162)
Total interest-bearing
deposits ................ 163 (1,345) (1,182)
Short-term borrowings ............. 121 (110) 11
Total interest-bearing
liabilities ............. 284 (1,455) (1,171)
Change in net interest
income ........................ $ 1,613 $ (369) $ 1,244
TOTAL OTHER INCOME
Total other income for 1994 increased $943 thousand, or 53.9% over that
earned in 1993. Service charges on deposit accounts, the largest single
component of total other income were $2.4 million, up 91.8% over 1993 levels. On
October 31, 1993, the Bank implemented service charges on most commercial
transaction accounts. This implementation resulted in $105 thousand in other
income in 1993 and $198 thousand in 1994. Additionally, the Bank continues to
strenuously monitor service charges in order to reduce waivers and maximize
income. The Bank recognized $15 thousand in gains on securities available for
sale traded in 1993 and recognized a net loss of $2 thousand on securities
available for sale traded in 1994.
From 1992 to 1993, total other income increased 70.4% from $1.0 million
to $1.8 million. In addition to the increased service charges from commercial
accounts, as noted above, in 1993 the Bank implemented a fee for the use on ATMs
not owned by the Bank which generated $141 thousand in 1993. Contributing to the
increase in 1993 was an increase of $191 thousand, or 69.0%, in gains on sale of
mortgages, reflecting the increased volume of mortgage refinancings spurred by
the lower interest rate environment of 1993.
TOTAL OTHER EXPENSES
In support of the Bank's continued asset growth, other operating
expenses consisting of employee related cost and occupancy and other overhead
expenses totaled $7.3 million for 1994, compared to $5.2 million for 1993. This
increase was attributable to the staffing of the four new branches acquired in
the first and second quarters of 1994, as well as, the addition of qualified
personnel necessary to continue to provide operational support to the rapidly
expanding deposit base. Additionally, the acquisitions completed in 1994 created
an intangible asset of $3.1 million which will be amortized over fifteen years,
resulting in an expense of $103 thousand for 1994 and $204 thousand annually
thereafter until the year 2009. Other significant components of other operating
expenses are computer services expense and FDIC insurance expense, which totaled
$329 thousand and $311 thousand, respectively. Both computer expense and FDIC
insurance expense are tied to increases in the volume of deposits. As a
well-capitalized institution, the Bank currently pays the lowest rate of FDIC
insurance available.
For 1993, total other expenses increased $663 thousand, or 14.6%, over
the same period in 1992. This increase was primarily attributable to a $85
thousand, or 21.2% increase in computer service expense, combined with increases
of $47 thousand, or 86.8% in consulting expense and $33 thousand, or 13.2%
increase in FDIC insurance premiums. In addition, the Bank paid $103 thousand to
consultants in 1993 for their advice to improve fee and service charge income.
INCOME TAXES
Reported income tax expense for 1994 was $1.2 million, $927 thousand in
1993, and $513 thousand in 1992. These increases were attributable to the
increases in pretax earnings. Refer to Note 8 to the Consolidated Financial
Statements for a reconciliation of income tax expense and an explanation of the
components of deferred taxes.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO. Loans, net of unearned income, were $134.0 million at
December 31, 1994, a 22.7% increase over 1993 year-end loans, marking the second
consecutive year of significant growth in the loan portfolio. Net loans
increased 23.9% in 1993 over 1992 and 8.9% in 1992 over 1991.
The Bank's primary market focus is on making loans to small and
medium-sized businesses, professional groups and individuals in its market area.
While the Bank's commercial loans represent the largest portfolio of the loan
portfolio and have experienced the most growth over the past five years, the
Bank also offers a full range of consumer loans.
The Bank's commercial loans include loans made primarily to service,
retail and wholesale businesses for a variety of purposes, including revolving
lines of credit, working capital loans, equipment financing loans and letters of
credit. Although the Bank typically looks to the borrower's cash flow as the
principal source of repayment of such loans, the majority of the commercial
loans are secured by equipment, accounts receivable and other forms of
collateral, including commercial and residential real estate.
The Bank had $25.6 million in commercial loans at December 31, 1994
that were secured by nonresidential real estate properties (shown in the table
below under the category of "Non-Farm, non-residential"), representing 19.1% of
the portfolio. These loans generally have 20-year amortization schedules and
mature in five years. The Bank limits the loan amounts on credits secured by
nonresidential real estate to 75% of the appraised value of the property. While
the Bank's residential mortgage portfolio, which include residential (1-4
family) and home equity lines, comprised 44.0% of total loans at December 31,
1994, the majority of the residential mortgage portfolio consisted of business
related loans secured by the owner's personal residence. These loans are fixed
or adjustable rate loans with 15- to 20-year amortization schedules that mature
with a balloon payment on the third or fifth anniversary of the loan. The
balance of the residential mortgage portfolio consists of fixed and adjustable
rate mortgages that conform to GNMA and FNMA underwriting guidelines. The Bank
sells into the secondary market approximately 95% of the conforming fixed rate
loans it originates. The Bank has historically engaged in limited mortgage
lending on multifamily and agricultural properties. Real estate construction
loans were $11.8 million, or 8.8% of total loans, at December 31, 1994. The
majority of the Bank's real estate construction loans are for 1 to 4 family
residences which are either pre-sold or contract homes with permanent financing
prearranged.
The Bank attempts to reduce its exposure to the risks of the local real
estate market by making mortgage loans primarily on owner-occupied properties.
The Bank's charge-off rate for all loans secured by real estate has been
relatively low, with 1992 being the only year during the past five years in
which the Bank had net charge-offs (.35% of average loans in 1992).
The Bank's consumer loan portfolio represents approximately 8.1% of the
total loan portfolio. The performance of the consumer loan portfolio is directly
related to and dependent upon the general economic conditions in the Bank's
market area.
Consistent with its focus on providing community-based financial
services, the Bank generally does not make loans outside its market area of
Fairfax County, Prince William County, and portions of Loudoun and Fauquier
Counties. The Bank maintains a policy not to originate or purchase loans
classified by regulators as highly leveraged transactions or loans to foreign
entities or individuals.
The Bank's unfunded loan commitments (excluding unused home equity
lines of credit and credit card lines) and standby letters of credit amounted to
$33.9 million at December 31, 1994, compared to $35.4 million at December 31,
1993.
The following table provides a breakdown of the Bank's various loan
categories, net of unearned income.
Loan Portfolio
Year Ended December 31,
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
Commercial ....................................... $ 25,380 $ 22,835 $23,588 $25,168 $20,157
Real estate construction ......................... 11,823 8,598 4,005 4,283 4,999
Real estate mortgage:
Residential (1-4 family) ................... 50,902 35,150 35,967 23,924 19,520
Home equity lines .......................... 8,075 8,903 7,894 8,174 7,691
Multifamily ................................ 1,164 1,455 0 194 416
Non-farm, non-residential(1) ............... 25,581 21,517 7,084 9,929 11,690
Agricultural ............................... 251 0 344 344 0
Real estate mortgage
subtotal ............................... 85,973 67,025 51,289 42,565 39,317
Consumer loans ................................... 10,812 10,714 9,219 8,874 9,446
Total loans - net of unearned
income ..................................... $133,988 $109,172 $88,101 $80,890 $73,919
(1) In the first quarter of 1993, the Bank reviewed its loan
classification procedure which resulted in the reclassification of
approximately 36 loans totaling $10.8 million from the commercial
category to the non-farm, non-residential category.
The following table shows the remaining maturities of loans in certain
related loan categories.
Remaining Maturities of Selected Loans
December 31, 1994
Real Estate
(1)Commercial Construction
Within 1 year........................................ $30,873 $11,823
Variable Rate:.......................................
1 to 5 years.................................. 0 0
After 5 years................................. 0 0
Total.................................... $0 $0
Fixed
Rate:.............................................
1 to 5 years.......................... 20,088 0
After 5 years......................... 0 0
Total................................. $20,088 0
Total Maturities...................... $50,961 $11,823
(1) Includes to categories of commercial and non-farm, non-residential real
estate loans as noted on the previous table.
ASSET QUALITY
Allowance for Loan Losses. The allowance for loan losses is an estimate
of an amount adequate to provide for potential losses in the loan portfolio of
the Bank. The level of loan losses in affected by general economic trends as
well as specific conditions affecting individual borrowers. Management evaluates
nonperfoming loans relative to their collectibility and collateral value and
makes provisions for reserves to cover any future loan charge-offs that may be
required. The allowance is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance and the size of the allowance in
comparison to peer banks identified by regulatory agencies.
The allowance for loan losses was $1.3 million at December 31, 1994, up
$230 thousand over the $1.1 million allowance at December 31, 1993. The
allowance was $909 thousand at December 31, 1992, compared to $809 thousand at
December 31, 1991.
The provision for loan losses in 1992 was $801 thousand down from $900
thousand in 1991. The decreases in 1993 and 1992 were primarily due to improved
collection efforts and the improved financial condition of several borrowers due
to stabilization of the real estate market. This favorable trend permitted the
Bank to reduce its provision for loan losses at December 31, 1993, to $348
thousand and $65 thousand for December 31, 1994.
Net charge-offs for 1992 were $701 thousand down 21.6% from $894
thousand in 1991. Similarly, the net charge-offs for 1993 were $155 thousand
compared to a net recovery of $165 thousand for 1994. Net charge-offs
(recoveries) to average loans was (0.14%) for 1994, compared to 0.16% for 1993
and 0.81% for 1992.
The following table summarizes changes in the allowances for loan
losses.
Loan Portfolio
Year Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
Balance, begining of period ................. $ 1,102 $ 809 $809 $803 $428
Loans charged off:
Commercial ............................ 76 0 425 765 482
Real estate construction .............. 0 0 0 0 0
Real estate mortgage .................. 0 10 313 0 0
Consumer loans ........................ 103 354 100 214 81
Total charge-offs ................. 179 364 838 979 563
Recoveries:
Commercial ............................ 300 0 135 26 1
Real estate construction .............. 0 0 0 0 0
Real estate mortgage .................. 0 40 0 0 0
Consumer loans ........................ 44 169 2 59 0
Total recoveries .................. 344 209 137 85 1
Net charge-offs ............................. (165) 155 701 894 562
Provision for loan losses ................... 65 448 801 900 937
Balance, end of period ...................... $ 1,332 $1,102 $909 $809 $803
Ratio of allowance for loan losses
to loans outstanding at end
of period ............................. 0.99% 1.01% 1.03% 1.00% 1.09%
Ratio of net charge-offs to average
loans outstanding during period ....... (0.14%) 0.16% 0.81% 1.23% 0.77%
The Bank has allocated the allowance according to the amount deemed
necessary to provide for the possibility of losses within each of the above loan
categories. The allocation of allowance as shown in the table below should
neither be interpreted as an indication that loan losses in future years will
occur in the same proportions nor that the allocation is indicative of
anticipated 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 pool of reserves
applicable to the entire portfolio.
Allocation of Allowance for Loan Losses
Real Estate Real Estate
Commercial Mortgage Construction Consumer
Reserve Percentage Reserve Percentage Reserve Percentage Reserve Percentage
for loan of for loan of for loan of for loan of
Losses Allowance Losses Allowance Losses Allowance Losses Allowance
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
December 31, 1994 ............ $252 18.9% $886 66.5% $ 86 6.5% $108 8.1%
December 31, 1993 ............ 230 20.9 704 63.9 60 5.4 108 9.8
December 31, 1992 ............ 243 26.8 545 6.0 26 2.9 95 10.5
Nonperforming Assets. Nonperforming assets include nonaccrual loans,
restructured loans and foreclosed properties. Nonaccrual loans are loans on
which interest accruals have been discontinued and restructured loans are loans
whereby a borrower has been granted a concession on the interest rate or the
original repayment terms because of a deteriorating financial condition.
Securities Portfolio
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
U.S. Government securities:
Held to maturity .......................... $30,016 $15,139 $18,907
Available for sale ........................ 9,852 13,993 3,853
U.S. Agency and other securities:
Held to maturity .......................... 6,117 12,211 3,845
Available for sale ........................ 1,906 1,986 1,960
States and political subdivisions:
Held to maturity .......................... 0 0 0
Available for sale ........................ 0 159 0
Total securities ........................ $47,891 $43,488 $28,565
Total nonperforming assets were $3.1 million at December 31, 1994, an
increase of $1.1 million, or 55.0%, from December 31, 1993. This follows a
decrease of $1.6 million or 44.4% in 1993 over 1992, and a $3.1 million or 45.8%
decrease in 1992 over 1991. At December 31, 1994, nonperforming assets consisted
entirely of seven OREO properties in the aggregate amount of $2.3 million and
three nonaccrual loans totaling $834 thousand. Nonperforming assets as a
percentage of total assets was 1.52% at December 31, 1994, compared to 1.21%,
and 2.56% at December 31, 1993, and 1992, respectively. The decreases in total
nonperforming assets experienced in 1992 and 1993 resulted from the sale of
several foreclosed properties during these periods.
All seven of the OREO properties are in the Bank's primary service
area. These properties consist of the following: an unimproved commercial
property containing approximately 31 acres; five unimproved residential parcels
each consisting of less than ten acres, one single family residential property.
The Bank's practice is to value real estate acquired through foreclosure at the
lower of cost or current appraised value less anticipated cost of disposal. The
Bank is actively marketing all foreclosed real estate.
The Bank had three nonaccrual loans at December 31, 1994, amounting in
the aggregate to $834 thousand or 0.06% of total loans, compared to $30 thousand
and $477 thousand in nonaccrual loans at December 31, 1993 and 1992,
respectively. The largest single nonperforming loan at December 31, 1994, was a
credit for $765 thousand for which a workout agreement has been signed. The
borrowers are performing in compliance with the workout arrangements and are
current for all principal and interest payments.
Loans are placed on nonaccrual status when they become 90 days past due
unless the loan is determined to be both well-collateralized and in the process
of collection or other mitigating factors are known to management. There are
three negative implications for earnings when a loan is placed on nonaccrual
status. All interest accrued but unpaid at the date the loan is placed on
nonaccrual status is either deducted from interest income or charged against the
allowance for loan losses. Second, accruals of interest are discontinued until
all delinquent principal and interest has been paid or the loan becomes both
well-secured and in the process of collection. Finally, there may be actual
losses which necessitate additions to the allowance for loan losses charged
against earnings.
At December 31, 1994, loans past due 90 days and still accruing
interest, because they were deemed by management to be both well-secured and in
the process of collection, were $192 thousand, compared to $886 thousand and
$145 thousand at December 31, 1993, and 1992, respectively.
During 1994, $12 thousand in additional interest income would have been
recorded if the Bank's nonaccrual loans had been current in accordance with
their original terms. This amount would have been $2 thousand in 1993 and $13
thousand in 1992.
There were no commitments to lend additional funds to customers whose
loans were classified as nonperforming on December 31, 1994.
Potential Problem Loans. At December 31, 1994, potential problem loans
were approximately $4.8 million, including four lending relationships with
principal balances in excess of $500 thousand which had an aggregate principal
balance outstanding of $3.9 million. Loans are viewed as potential problem loans
when possible credit problems of the borrowers or industry viewed as potential
problem loans when possible credit problems of the borrowers or industry trends
cause management to have doubts as to the ability of the borrower to comply with
current repayment terms. These loans are subject to management's diligent
attention, and their status is reviewed on a regular basis. The potential
problem loans identified at December 31, 1994 are generally secured by
residential or commercial real estate with appraised values that exceed the
principal balance of the loan.
SECURITIES
The Bank's securities portfolio serves several purposes. Portions of
the portfolio are held for investment, while the remaining portions are used for
liquidity and asset liability management. At December 31, 1994, total securities
were $47.9 million, an increase of $4.4 million, or 10.1% from December 31,
1993. The securities portfolio was $43.5 million at December 31, 1993 compared
to $28.6 million at December 31, 1992. Investments in U.S. Government Treasury
and Agency securities comprised 97.9% of the total portfolio at December 31,
1994; 98.1% at December 31, 1993 and 97.3% at December 31, 1992.
In June 1993, the Financial Accounting Standards Board adopted
Statement No. 115, which stipulates changes in the manner in which financial
institutions classify and account for their securities portfolio beginning
December 15, 1993. The Bank elected to adopt this rule in advance of the
December 15, 1993 deadline. In September, 1993, the Bank revised its securities
policies and divided its portfolio into two segments (i) "Investment Securities"
and (ii) "Securities Available for Sale".
Securities are classified as Investment Securities when management has
both the intent and the ability at the time of purchase to hold the securities
until maturity. Investment Securities are carried at cost adjusted for
amortization of premiums and accretion of discounts. Securities which are held
for an indefinite period of time are classified as Securities Available for Sale
and are marked to market at each financial reporting date, i.e., at each
month-end. Unrealized gains or losses resulting from the difference between the
market value of the security and its book value are recorded in the capital
section of the Bank's financial statements. Securities Available for Sale
include securities that may be sold in response to changes in interest rates,
changes in the security's prepayment risk, increases in loan demand, general
liquidity needs and other similar factors.
At December 31, 1993 and December 31, 1994, this reclassification
resulted in $16.1 million and $11.8 million in Securities Available for Sale,
respectively. As of December 31, 1994, the market value of those Securities Held
for Sale was $159 thousand lower than the book value, resulting in a decrease to
capital of this amount. See Note 2 to the Bank's Consolidated Financial
Statements for December 31, 1994 and 1993.
Nonperforming Assets
Year Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
Nonaccrual loans ............................ $ 834 $ 30 $ 477 $ 405 $ 2,232
Restructured loans .......................... 0 0 0 0 0
Foreclosed property ......................... 2,301 1,970 3,139 6,264 1,344
Total nonperforming assets ............ $ 3,135 $ 2,000 $ 3,616 $ 6,669 $ 3,576
Allowance for loan losses
to period end loans ................... 1.00% 1.00% 1.03% 1.00% 1.09%
Nonperforming assets to
total assets .......................... 1.52% 1.21% 2.56% 5.14% 3.75%
Net charge-offs to average
loans ................................. (0.14%) 0.16% 0.81% 1.23% 0.77%
The Bank's recent purchase of securities have been limited to
securities of high quality with short to medium term maturities. At December 31,
1994, $24.9 million or 51.9% of the total portfolio, matured within one year
while $19.9 million, or 41.7%, matured after one year but within five years. The
fully taxable equivalent yield on the entire portfolio was 5.02% at December 31,
1994, compared to 4.33% for year end 1993, and 4.6% for year end 1992. This
change reflects generally increasing level of interest rates.
Maturity Analysis as of December 31, 1994
One One Five Over
Year to Five to Ten Ten
or Less Years Years Years Total
(Dollars in thousands)
U.S. Treasury Securities:
Book value ............... $24,998 $15,016 -- -- $40,014
Market value ............. 24,726 14,650 -- -- $39,376
Weighted average yield ... 3.87% 6.37% 4.81%
U.S. Agency and
Other Securities (1):
Book value ............... -- $ 7,078 $ 1,040 -- $ 8,118
Market value ............. -- 6,832 1,040 -- $ 7,872
Weighted average yield (2) 6.05% 6.00% 6.04%
Total Securities:
Book value ............... $24,998 $22,094 $ 1,040 -- $48,132
Market value ............. 24,726 $21,482 $ 1,040 -- $47,248
Weighted average yield ... 3.87% 6.26% 6.00% 5.02%
(1) Other securities consists of Federal Reserve Stock, FHLB-equity securities
and Virginia Bankers Bank equity securities.
(2) Yields on tax-exempt securities have been computed on a tax-equivalent
basis.
DEPOSITS AND SHORT-TERM BORROWINGS
The Bank's predominate source of funds is depository accounts. The
deposit base is comprised of demand deposits, interest checking accounts,
savings and money market accounts and time deposits. The Bank's deposits are
provided substantially by individuals and businesses located within the
communities served. In the past, the Bank had accepted a modest amount of
brokered certificates of deposit in denominations of less than $100,000. These
brokered deposits account for only 0.7% of the total deposits outstanding as of
December 31, 1994, and are being allowed to run off at maturity. The Bank no
longer accepts brokered deposits.
Total deposits at December 31, 1994 were $170.0 million, an increase of
$37.1 million, or 28.0%, over the same period in 1993. All deposits account
categories increased over 1993 year-end levels, with the greatest increase seen
in total time deposits which increased $19.1 million or 81.2% over year-end 1993
levels. This increase primarily resulted from the deposit base purchased from
two failed savings and loans in the first and second quarter of 1994.
Total deposits at December 31, 1993 were $132.8 million, a 9.6%
increase over 1992. Demand deposits, interest checking accounts, and regular
savings increased over 1992 levels, while certificates of deposit, both over and
under $100,000, decreased during this period. Most of the funds withdrawn from
certificates of deposit were transferred to other types of deposit accounts
within the Bank which provided rates competitive to the rates paid on
certificate of deposit, but with no penalty for withdrawal.
Maturities of CD's of $100,000 and Over
Within Three to Six to Over Precent
Three Six Twelve One of Total
Months Months Months Year Total Deposits
(Dollars in thousands)
December 31, 1994 ........ $6,226 $2,761 $2,793 $3,043 $14,823 8.72%
During 1992, total deposits grew 4.7%. With the exception of
certificates of deposit both over and under $100 thousand, and money market
savings which decreased 33.8% and 6.9%, respectively.
Deposits and Rates Paid
Year Ended December 31,
1994 1993 1992
--------------- ---------------- ----------------
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Noninterest-bearing accounts ........... $ 41,881 -- $ 43,715 -- $ 41,571 --
Interest-bearing accounts:
Interest checking ................ 28,423 2.49% 24,417 2.04% 19,292 2.73%
Money-market invest .............. 32,536 2.18 21,639 2.56 21,679 2.73
Regular savings .................. 24,580 2.70 19,573 2.55 14,735 3.22
Time deposits:
Less than $100,000 .......... 27,708 3.76 14,220 4.28 13,734 4.95
$100,000 and over ........... 14,823 2.67 9,256 3.84 10,222 3.90
Total interest-bearing accounts .. 128,070 2.84 89,105 2.82 79,662 3.19
Total .................................. $169,951 2.11% $132,820 1.89% $121,233 2.20%
When expressed as a percent of total deposits, the Bank's
noninterest-bearing demand deposits were 24.6% of total deposits at December 31,
1994, compared to 32.9% at year end 1993 and 34.2% in 1992. The effect of
declining interest rates in 1992 and 1993 resulted in a relatively low cost of
funds for the Bank. The average interest rate paid on interest-bearing deposits
was 2.8% for 1994 and 1993, compared to 3.2% for 1992. The shift in the deposit
mix to more interest bearing deposits and the generally rising level of interest
rates resulted in a higher cost of funds for the Bank in 1994 compared to 1993.
In addition to its deposits, the Bank utilizes periodic short-term borrowings in
the form of federal funds purchased to meet liquidity needs. The Bank's
overnight repurchase agreements are also categorized as short-term borrowings.
The Bank's repurchase agreements are provided as an additional service to some
of its larger customers in order that they may earn income on their excess
demand deposit balances. Customer funds that are invested in repurchase
agreements are fully collateralized by U.S. Government an Agency securities.
CAPITAL RESOURCES
The adequacy of the Bank's capital depends on a number of factors such
as asset quality, liquidity, earnings performance, changes in competitive
conditions and market forces. The Bank's capital position is reviewed by
management on an ongoing basis with consideration given to the size, composition
and quality of the Bank's assets and liabilities. The Bank's capital level is
maintained in strict compliance with regulatory requirements and industry
standards. The Bank seeks to maintain strong capital base in order to support
growth and expansion activities, to provide stability to current operations and
promote public confidence.
The Bank's capital position continues to exceed regulatory guidelines.
The primary indicators relied upon by the Federal Reserve Board and other bank
regulators in measuring the strength of a Bank's capital position include the
following: (1) tangible Tier 1 capital as a percentage of risk-weighted assets,
(2) total tangible capital as a percentage of risk-weighted assets, and (3) the
leverage ratio, which compares tangible Tier 1 capital to total assets.
Analysis of Capital
Year Ended December 31, Minimum Capital
--------------------- Regulatory Excess as of
1994 1993 1992 Requirements December 31, 1994
---- ---- ---- ------------ -----------------
(In thousands)
Risk based capital ratios:
Tier 1 ........... 10.25% 13.44% 11.66% 4.00% $7,923
Total capital .... 11.30 14.48 12.79 8.00 4,183
Leverage ratio ........... 6.32 8.64 6.64 4.00 4,768
At December 31, 1994, the Bank's ratio of total tangible capital to
risk-weighted assets was 11.30%. Tangible Tier 1 capital to risk-weighted assets
as 10.25% and the leverage ratio was 6.32%. These ratios are well above the
regulatory minimum requirement of 8.0%, 4.0% and 4.0%, respectively. The Bank is
classified as a "well-capitalized" institution under federal banking
regulations.
The return on average equity was 15.91% for 1994 compared to 19.10%
for 1993 and 11.92% for 1992. The decrease from 1993 to 1994 primarily
reflects the increased capital resulting from the public offering on December
22, 1993.
ASSET/LIABILITY MANAGEMENT
Liquidity Management. Liquidity represents a banking institution's
ability to meet present and future financial obligations through either the sale
or maturity of existing assets or the acquisition of additional funds through
liability management. Liquid assets include cash, interest-bearing deposits with
banks, federal funds sold, and investments and loans maturing within one year.
The Bank's ability to obtain deposits and purchase funs at favorable rates
determines its liability liquidity. As a result of the Bank's management of
liquid assets and the ability to generate liquidity through liability funding,
management believes the Bank maintains overall liquidity sufficient to satisfy
its depositor's requirements and meet its customer's credit needs
Additional sources of liquidity available to the Bank include, but are
not limited to loan repayment, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds or longer term
borrowing through its correspondent relationships. To further meet its liquidity
needs, the Bank also has access to the Federal Reserve System. In the past,
growth in deposits and proceeds from the maturity of investment securities and
loans have been sufficient to fund the net increase in credit demand.
At December 31, 1994, cash and investments and loans maturing within
one year were 78.8% of total earning assets, compared to 62.6% at December 31,
1993 and 62.3% at year end 1992. The Bank has no long-term debt, but as of
December 31, 1994, did have short-term borrowings in the form of overnight
repurchase agreements of $13.6 million, federal funds purchased from
correspondent banks in the amount of $3.9 million, and one fixed-rate credit
with a three month term in the amount of $1.7 million which matured and will be
renewed in February, 1995.
Interest Rate Sensitivity Management. An important element of both
earnings performance and the maintenance of sufficient liquidity is management
of the interest sensitivity gap. The interest sensitivity gap is the difference
between interest sensitive assets and interest sensitive liabilities in a
specific time interval. The gap can be managed by repricing assets or
liabilities, by replacing an asset or liability at maturity or by adjusting the
interest rate during the life of an asset or liability. Matching the amounts of
assets and liabilities repricing in the same time interval helps to hedge
interest rate risk and minimize the impact of net interest income in periods of
rising or falling interest rates.
In order to minimize interest sensitivity risk, the Bank evaluates its
interest sensitivity and then formulates strategies regarding asset generation,
funding sources, deposit and loan pricing, and off-balance sheet commitments.
These strategies are based on management's outlook regarding future interest
rate movements, the state of the regional and national economies and other
financial and business risk factors. The Bank reviews its interest sensitivity
position at least quarterly, in accordance with internal management policies.
At December 31, 1994, the Bank had $2.9 million more in assets than
liabilities subject to repricing within one year and was, therefore, in an asset
sensitive position. This is similar to the Bank's position at December 31, 1993,
when it had $5.5 million more in assets than in liabilities subject to repricing
within one year. A asset-sensitive institution's net interest margin and net
interest income generally will be impacted favorably by rising interest rates,
while that of a liability-sensitive institution generally will be impacted
favorably by declining interest rates.
The following table presents the Bank's interest sensitivity position
at December 31, 1994. This is a one-day position which is continually changing
and is not necessarily indicative of the Bank's position at any other time.
Interest Sensitivity Analysis
December 31, 1994
Within 90-365 1 to 5 Over
90 days days Years 5 Years Total
------- ---- ----- ------- -----
(Dollars in thousands)
Earning assets:
Loans (net of unearned income) (1) ......... $ 87,038 $ 7,861 $ 31,549 $ 7,540 $ 133,988
Securities ................................. 10,005 14,847 22,000 1,039 $ 47,891
Federal funds sold and other
short term investments ................ -- -- -- -- --
Total earnings assets ...................... 97,043 22,708 53,549 8,579 $ 181,879
Interest-bearing liabilities:
Interest checking .......................... 28,423 -- -- -- $ 28,423
Regular savings ............................ 24,580 -- -- -- $ 24,580
Money market savings ....................... 32,536 -- -- -- $ 32,536
Certificates of deposit:
$100,000 and over ..................... 6,226 5,554 3,043 -- $ 14,823
Under $100,000 ........................ 6,964 14,199 6,545 -- $ 27,708
Short-term borrowings ...................... 19,206 -- -- -- $ 19,206
Total interest-bearing
liabilities ........................... 117,935 19,753 9,588 0 $ 147,276
Period gap ....................................... (20,892) 2,955 43,961 8,579 $ 34,603
Cumulative gap ................................... (20,892) (17,937) 26,024 34,603 --
Ratio of cumulative gap to
total earnings assets ...................... (11.49)% (9.86)% 14.31% 19.03%
Rate sensitive assets/
rate sensitive liabilities ................. 82.29% 114.96% 558.50% 0.00%
(1) Includes past due and nonaccrual loans.
ITEM 7. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 8. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information related to the Directors as required in this Item is
incorporated herein by reference to pages 2 to 4 of the Company's Proxy
Statement for the Annual Meeting of Shareholders. The following table lists
non-director executive officers of the Company.
Present Business Experience
Name and Age Position During Past Five Years
Charles E. Curtis, 56 President & Chief Executive President & Chief Executive Officer
Officer of the Bank since 1985.
T. Earl Rogers, 55 Executive Vice President Executive Vice President of the Bank
since 1989.
Steven R. Wilson, 49 Senior Vice President Senior Vice President of the Bank
since 1989.
Donald E. Strehle, 38 Senior Vice President Senior Vice President of the Bank
since 1993; Senior Vice President of
Commercial and Consumer Lending for
Continental Federal Savings Bank
from 1979-1993.
Ramona W. Rodriguez, 33 Chief Financial Officer Cashier and Chief Financial Officer
of the Bank since 1992. Auditor for
the Bank 1991-1992. Systems Auditor
for Dominion Bankshares 1989-1991.
ITEM 9. - EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to page 5 of the Company's Proxy Statement for the Annual Meeting of
Shareholders.
ITEM 10. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information called for by this Item is incorporated herein by
reference to pages 2 to 4 of the Company's Proxy Statement for the Annual
Meeting of Shareholders.
ITEM 11. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by
reference to the material under the caption "Transactions with Directors and
Management" on pages 5 and 6 in the Company's Proxy Statement for the Annual
Meeting of Shareholders.
ITEM 12. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following exhibits required to be filed by Item 601 of Regulation
S-K are filed herewith.
Exhibit 2 Plan of reorganization to FB&T Financial Corporation
(incorporated herein by reference to Exhibit 2 to
the Company's Registration Statement on Form S-4,
no. 33-87156).
Exhibit 3 Articles of Incorporation and Bylaws of FB&T Financial
Corporation, (incorporated herein by reference to
Exhibit 3.1 and Exhibit 3.2 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 4 Instruments defining rights of holder of securities
of FB&T Financial Corporation (incorporated herein
by reference to Exhibit 4 to the Company's Registration
Statement on Form S-4, no. 33-87156).
Exhibit 9 Not Applicable.
Exhibit 10A Lease for the Fairfax branch site (incorporated herein
by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10B Lease for the Tysons branch site (incorporated herein
by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10C Lease for the Chantilly branch site (incorporated herein
by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10D Lease for the Sully branch site (incorporated herein
by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10E Lease for the Centreville branch site (incorporated
herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10F Lease for the Lake Ridge branch site (incorporated
herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-4, no. 33-87156).
Exhibit 10G Lease for the Falls Church branch site.
Exhibit 10H Lease for the Gainesville branch site.
Exhibit 10I Lease for the Woodbine branch site.
Exhibit 10J Lease for the Fair Oaks branch site.
Exhibit 10K Bill of Sale from the Resolution Trust Corporation
for the purchase of the Manassas branch site.
Exhibit 10L Purchase & Assumption Agreement with the Resolution
Trust Corporation for Federal Savings Association
of Virginia.
Exhibit 10M Purchase & Assumption Agreement with the Resolution
Trust Corporation for Commonwealth Federal Savings Bank.
Exhibit 11 Reference is made to the Company's 1994 Annual Report
to Shareholders.
Exhibit 12 Not Applicable.
Exhibit 13 The Company's 1994 Annual Report to Shareholders.
Exhibit 16 Not Applicable.
Exhibit 18 Not Applicable.
Exhibit 21 Subsidiaries of the registrant.
Exhibit 22 None.
Exhibit 23 Not Applicable.
Exhibit 24 Not Applicable.
Exhibit 27 Not Applicable.
Exhibit 28 Not Applicable.
Exhibit 99 Not Applicable.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
fourth quarter of 1994.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 31st day of
March, 1995.
FB&T FINANCIAL CORPORATION
(registrant)
/S/ CHARLES E. CURTIS
(Charles E. Curtis, President & CEO)
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 on the dates indicated:
Signature Capacity Date
/s/ RONALD W. TYDINGS Director, March 23, 1995
Chairman of the Board
/s/ CHARLES E. CURTIS Director, President March 31, 1995
Chief Executive Officer
(Principal Executive
Officer)
/s/ ALLEN L. BARAN Director March 23, 1995
/s/ WARREN E. BARRY Director
/s/ JAMES C. HUGHES Director
/s/ JERRY M. PHILLIPS Director
/s/ OTIS R. POOL Director
/s/ JACQUES REBIBO Director
/s/ T. EARL ROGERS Director
/s/ RAMONA W. RODRIGUEZ Chief Financial Officer March 31, 1995
(Ramona W. Rodriguez) (Principal Accounting
and Financial Officer)
[FB&T LOGO]
April 10, 1995
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of FB&T Financial Corporation. The meeting will be held on Wednesday, May 17,
1995, at 3:00 p.m. at the Main Office of Fairfax Bank & Trust Company located at
4117 Chain Bridge Road, Fairfax, Virginia.
The primary business of the meeting will be the election of directors.
We also will report to you on the condition and performance of the Company, and
you will have an opportunity to question management on matters that affect the
interests of all shareholders.
This is our first annual meeting of shareholders following the
reorganization of the Bank into a holding company structure. It is important
that your shares be represented at the Annual Meeting, whether or not you plan
to attend in person. Please complete, sign and date the enclosed proxy card and
return it as soon as possible in the postage-paid envelope provided. We hope you
will be with us on May 17th. In the meantime, if you have any questions or
comments, please contact either of us or any of the Directors.
We appreciate your continued loyalty and support.
Sincerely,
/s/ RONALD W. TYDINGS /s/ CHARLES E. CURTIS
Ronald W. Tydings Charles E. Curtis
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
FB&T FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
TO BE HELD ON MAY 17, 1995
The Annual Meeting of Shareholders of FB&T Financial Corporation will
be held at the Main Office of Fairfax Bank & Trust Company located at 4117 Chain
Bridge Road, Fairfax, Virginia, at 3:00 p.m. on Wednesday, May 17, 1995 for the
following purposes:
1. To elect three directors to serve until the 1998 Annual
Meeting of Shareholders;
2. To ratify the appointment of Thompson, Greenspon & Co.,
P.C., as independent certified public accountants for the
Company for 1995; and
3. To transact such other business as may properly come
before the Annual Meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed March 24, 1995, as the record date for
determination of shareholders entitled to notice of and to vote at the Annual
Meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ T. EARL ROGERS
T. Earl Rogers
ASSISTANT SECRETARY
Fairfax, Virginia
April 10, 1995
PLEASE PROMPTLY COMPLETE AND RETURN THE ENCLOSED PROXY WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU ATTEND THE ANNUAL MEETING IN
PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE YOUR OWN SHARES.
4117 Chain Bridge Road, P.O. Box 1087, Fairfax, Virginia 22030
3
FB&T FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 1995
GENERAL
The enclosed proxy is solicited by the Board of Directors of FB&T
Financial Corporation (the "Company") for the Annual Meeting of Shareholders
(the "Annual Meeting") of the Company to be held on Wednesday, May 17, 1995, at
the time and place and for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders or any adjournment or postponements thereof. The
approximate mailing date of this Proxy Statement and accompanying proxy is April
10, 1995.
USE AND REVOCATION OF PROXIES
If the enclosed proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with the instructions shown thereon. If no instructions are given,
the proxy will voted for the election of the three nominees to the Board of
Directors, and in the discretion of the proxy holders as to any other matters
that may properly come before the Annual Meeting. Proxies will extend to, and
will be voted at, any adjourned session of the Annual Meeting.
Execution of a proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy may revoke it by attending the Annual Meeting and requesting to
vote in person. A shareholder may also revoke his proxy at any time before it is
exercised by filing a written notice with the Company or by submitting a proxy
bearing a later date.
VOTING RIGHTS OF SHAREHOLDERS
Only shareholders of record at the close of business on March 24, 1995,
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. On the record date, there were 1,175,107 shares of Company Common Stock
outstanding and entitled to vote at the Annual Meeting. The Company has no other
class of stock outstanding. Each share of Company Common Stock entitles the
record holder thereof to one vote upon each matter to be voted upon at the
Annual Meeting. A majority of the votes entitled to be cast, represented in
person or by proxy, will constitute a quorum for the transaction of business.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Company.
Solicitation is being made by mail, and if necessary, may be made in person or
by telephone, or special letter by officers and regular employees of the Company
and its subsidiary bank, Fairfax Bank & Trust Company (the "Bank"), acting
without compensation other than regular compensation.
PRINCIPAL SHAREHOLDERS
As of February 28, 1995, the following individuals, each of whom is a
director of the Company, owned beneficially 5% or more of the Company's Common
Stock: Charles E. Curtis, Otis R. Pool, Jacques Rebibo, and Ronald W. Tydings.
Information with respect to their beneficial ownership is shown in the table
that begins below. As of that same date, the directors and executive officers of
the Company and the Bank beneficially owned as a group 479,041 shares (or
approximately 37.6% of the Company's Common Stock (including shares for which
they hold presently exercisable stock options).
ELECTION OF DIRECTORS -- PROPOSAL ONE
DIRECTORS
The Board of Directors of the Company's is comprised of nine members.
The Board is divided into three classes, with each class consisting of three
directors whose terms expire at the respective annual meetings set forth in the
table below. The three persons named immediately below, each of whom currently
serves as a director of the Company, will be nominated to serve until the 1998
Annual Meeting of Shareholders. The persons named in the proxy will vote for the
election of the nominees named below unless authority is withheld. If, for any
reason, any of the nominees named should become unavailable to serve, an event
which management does not anticipate, proxies will be voted for the remaining
nominees and such other person or persons as the Board of Directors of the
Company may designate.
Certain information concerning the three nominees for election at the
Annual Meeting is set forth below, as well as certain information about the
other two classes of directors who will continue in office until the 1996 and
1997 annual meeting of shareholders, respectively.
Number of Shares
Beneficially Owned as
Director Principal Occupation of February 28, 1995
Name (Age) Since (1) For the Past Five Years (Percent of Class) (2)
---------- --------- ----------------------- ----------------------
1995 Class (Nominees):
Warren E. Barry (61) 1988 Virginia State Senator from 37th Electoral 6,446*
District since November, 1991; Barry (3)(4)
Associates (commercial real estate
brokerage and manage- ment), Springfield,
Virginia; Clerk of Circuit Court of
Fairfax County from 1983 to 1991
Otis R. Pool (56) 1985 Independent businessman; formerly a 77,992
co-owner of O&R Utilities, Inc. (6.6%)(3)(4)
Jacques Rebibo (55) 1986 President, Mortgage Investment Company 61,230
(mortgage brokerage), McLean, Va. (5.2%)(3)(4)
Number of Shares
Beneficially Owned as
Director Principal Occupation of February 28, 1995
Name (Age) Since (1) For the Past Five Years (Percent of Class) (2)
---------- --------- ----------------------- ----------------------
1996 Class (Directors):
Allen L. Baran (47) 1985 President, Baran Dental Laboratory, Inc., 51,949
Annandale, Va. (4.4%)(3)(4)
Jerry M. Phillips (50) 1986 Attorney, Phillips, Beckwith & Hall, 9,183*
Fairfax, Virginia, since 1991 and prior (4)
thereto practiced as a sole practitioner.
T. Earl Rogers (55) 1986 Executive Vice President of the Company 45,534
and the Bank (3.8%)(3)(5)
1997 Class (Directors):
Charles E. Curtis (56) 1985 President and Chief Executive Officer of 81,721
the Company and the Bank (6.6%)(3)(5)
James C. Hughes (50) 1985 Attorney, Dickstein, Shapiro and Morin, 52,247
Washington, D.C.; formerly served as (4.4%)(3)(4)
President and CEO of C3, Inc. (computer
systems integrator), Herndon, Va.
Ronald W. Tydings (55) 1985 Chairman of the Board of the Company and 81,636
the Bank; President and Senior Attorney, (6.9%)(3)(4)
Tydings, Bryan & Adams, P.C., Fairfax, Va.
- ------------------
* Represents less than 1% of Company Common Stock.
(1) Refers to the year in which the director was first elected to the Board
of Directors of the Bank.
(2) For purposes of this table, beneficial ownership has been determined
in accordance with the provisions of Rule 13d-3 of the Securities
Exchange Act of 1934 under which, in general, a person is deemed to
be the beneficial owner of a security if he has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within sixty days.
(3) Includes shares held by affiliated corporations, close relatives and
children, and shares held jointly with spouses or as custodians or
trustees, as follows: Mr. Barry, 2,100 shares; Mr. Pool, 5,422
shares; Mr. Rebibo, 6,421 shares; Mr. Baran, 50,109 shares; Mr. Rogers,
9,089 shares; Mr. Curtis, 21,612 shares; Mr. Hughes, 859 shares; and
Mr. Tydings, 7,158 shares.
(4) Includes 1,000 shares that may be acquired pursuant to a currently
exercisable stock option granted in June 1994 to each non-employee
director pursuant to the Company's Non-Employee Director Stock
Compensation Plan.
(5) Includes shares that may be acquired pursuant to currently
exercisable stock options granted under the Company's Incentive Stock
Option Plan: Mr. Rogers, 33,077 shares; and Mr. Curtis, 50,400 shares.
The Board of Directors recommends that shareholders vote for the
nominees set forth above. The three nominees receiving the greatest number of
affirmative votes cast at the Annual Meeting will be elected.
Upon consummation last year of the reorganization of the Bank into a
holding structure, each director of the Bank was appointed a director of the
Company. As the parent company of the Bank, the Company will appoint the
directors of the Bank. In accordance with current practice, it is anticipated
that the directors of the Company will also comprise the Board of Directors of
the Bank.
The Board of Directors of the Company met three times in 1994. Each
director attended greater than 75% of the aggregate number of meetings of the
Board of Directors and its committees of which he was a member in 1994.
There are no family relationships among any of the directors or between
any of the directors and executive officers of the Company or Bank, except that
Mr. Curtis and Mr. Rogers are brothers-in-law. None of the directors serves as a
director of another publicly-held company.
BOARD COMMITTEES
The Board of Directors has a standing Audit Committee, and the Board of
Directors of the Bank has, among others, a standing Compensation Committee.
The Audit Committee is comprised of Messrs. Baran, Barry, Phillips and
Pool. The functions of the Audit Committee are to recommend selection of
independent certified public accountants, to approve the scope of the
independent accountants' audit, to review the reports of the independent
accountants and the internal audit staff and to convey their findings to the
Board of Directors of the Company and the Bank. The Audit Committee met four
times in 1994.
The Compensation Committee consists of Messrs. Baran, Hughes and
Pool. The function of this committee is to recommend the compensation to be
paid to the executive officers of the Company and Bank. It also administers
certain benefit plans for the employees. The Compensation Committee met three
times in 1994.
DIRECTOR COMPENSATION
Directors of the Company are not paid directors' fees by the Company.
Instead, they receive from the Bank for their service as directors of the Bank
an annual retainer of $1,000, plus $400 for each meeting attended. In addition,
standing committee members receive $150 for each committee meeting attended.
At the 1994 annual meeting, shareholders approved the Non-Employee
Director Stock Compensation Plan. Under this plan, each non-employee director of
the Company and Bank receives on June 15 of each year for the five year period
from 1994 through 1998 an option for 1,000 shares of the Company's Common Stock.
All options under the plan are granted at exercise prices equal to the fair
market value of the Common Stock on the date of grant and are exercisable
immediately. Options covering an aggregate of 7,000 shares were granted to the
seven non-employee directors in June 1994.
EXECUTIVE COMPENSATION
The following table presents information concerning the annual and
long-term compensation of Messrs. Curtis and Rogers, who were the only executive
officers of the Company and the Bank whose salary and bonus exceeded $100,000
for each of the listed years.
Summary Compensation Table
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary (1) Bonus Compensation (2)(3) Compensation (4)
------------------ ---- ---------- ----- ------------------- ----------------
Charles E. Curtis 1994 $146,600 $ 25,000 $ 7,389 $ 14,503
President/Chief 1993 142,694 20,000 7,389 14,503
Executive Officer 1992 137,900 0 0 0
T. Earl Rogers 1994 $113,650 $15,000 $5,373 $9,892
Executive Vice 1993 112,300 10,000 5,373 9,892
President 1992 107,600 0 0 0
- ------------------
(1) Includes directors' fees paid by the Bank.
(2) Each of Mr. Curtis and Mr. Rogers received certain perquisites and
other personal benefits, the amounts of which are not shown because the
aggregate amount of such compensation during the year did not exceed
the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.
(3) The amounts shown represent reimbursements made by the Bank for the
payment of taxes related to the life insurance premiums paid by the
Bank on behalf of each officer. See footnote (4) below.
(4) Amounts of All Other Compensation consist entirely of whole life
insurance premiums paid by the Bank on behalf of Messrs. Curtis and
Rogers.
No stock options were granted to, and no stock options were exercised
by, Messrs. Curtis or Rogers during the three year period shown in the table
above. The Company's employee stock option plan does not permit the granting of
stock appreciation rights or restricted stock awards.
TRANSACTIONS WITH DIRECTORS AND MANAGEMENT
Certain directors and officers of the Company and the Bank and members
of their immediate families, and corporations, partnerships and other entities
with which such persons are associated are customers of the Bank. As such, they
engaged in transactions with the Bank in the ordinary course of business during
1994, and will have additional transactions with the Bank in the future. All
loans extended and commitments to lend by the Bank to such persons were made in
the ordinary course of business upon substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and do not involve more than the normal
risk of collectibility or present other unfavorable features.
The Bank has engaged the law firm of Tydings, Bryan & Adams, P.C., of
which Mr. Tydings is a principal, to perform certain legal services for the Bank
and to serve as its general counsel. During 1994, the Bank paid $164,853 in
professional fees to the law firm. The Bank has leased property for its Main
Office from a limited partnership of which Mr. Tydings is a general and limited
partner and Mr. Phillips is one of 23 limited partners. The lease requires
monthly rental payments of $31,363, subject to certain adjustments, and expires
on December 31, 1998, with options to renew for four consecutive five-year
terms.
RATIFICATION OF SELECTION OF ACCOUNTANTS - PROPOSAL TWO
Thompson, Greenspon & Co., P.C., has been selected as independent
accountants for the Company for the fiscal year ending December 31, 1995,
subject to ratification by the shareholders.
If not otherwise specified, proxies will be voted in favor of
ratification of the appointment. Representatives of Thompson, Greenspon & Co.,
P.C., are expected to be present at the Annual Meeting
SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for possible inclusion
in the 1996 Proxy Statement, it must be received on or before December 15, 1995
by the Company's Corporate Assistant Secretary, T. Earl Rogers, FB&T Financial
Corporation, 4117 Chain Bridge Road, P.O. Box 1087, Fairfax, Virginia 22030
ANNUAL REPORT ON FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for 1994,
excluding exhibits, as filed with the Securities and Exchange Commission can be
obtained without charge by writing to Ramona W. Rodriguez, Chief Financial
Officer, FB&T Financial Corporation, 4117 Chain Bridge Road, P.O. Box 1087,
Fairfax, Virginia 22030.
APPENDIX V
[FB&T LOGO]
[COVER ARTWORK]
FB&T FINANCIAL CORPORATION
1994 ANNUAL REPORT
FB&T Financial Corporation is a holding company for Fairfax Bank & Trust Company
and its subsidiary, Bank Title Company.
Fairfax Bank & Trust Company is a community-oriented bank providing strong
customer service and a full range of banking services to businesses and
individuals in Fairfax and Prince William Counties, Virginia. Bank Title Company
was incorporated in 1988 to engage in the land title insurance business.
Our goal is to grow by helping our community grow--through outstanding service,
efficient operations, and close, personal ties to depositors and borrowers.
MESSAGE TO SHAREHOLDERS FB&T LOGO
ASSETS, DEPOSITS & LOANS
($ MILLIONS)
[GRAPH APPEARS HERE]
1994 1993 1992 1991 1990
ASSETS $205,672 $164,836 $141,488 $129,693 $95,438
DEPOSITS 169,952 132,820 121,233 115,783 83,516
LOANS 133,744 109,172 88,101 80,890 73,919
EARNINGS HISTORY
($ MILLIONS)
[GRAPH APPEARS HERE]
1994 1993 1992 1991 1990
DEPOSITS $ 2,364 $ 2,005 $ 1,005 $ 455 $ 515
EARNINGS PER SHARE
($ MILLIONS)
[GRAPH APPEARS HERE]
1994 1993 1992 1991 1990
ASSETS $ 1.96 $ 2.00 $ 1.10 $ .46 $ .55
"THE YEAR 1994 WAS ANOTHER YEAR OF RECORD EARNINGS FOR YOUR BANK."
Dear Shareholder:
The year 1994 was another year of record earnings for your bank. Since
startup ten years ago, the earnings performance of Fairfax Bank & Trust Co. has
been truly extraordinary. The Bank has remained profitable in every year of its
existence, and frequently earnings have grown at rates well above industry
norms. Our assets have grown from zero to more than $200 million. The Bank has
averaged more than 20% growth per year in assets and deposts over the last seven
years.
This pattern continued in 1994. The graphs and pictures tell the story.
During 1994 our total assets grew 24.8%, to $205.7 million. Deposits grew 27.9%,
to $169.9 million. Loans grew 22.7% to $134.0 million. Our earnings grew 17.9%,
to $2.4 million. The weighted average number of outstanding shares grew by
20.3%, bringing our earning per share to $1.96, compared with $2.00 at the end
of 1993.
How have we achieved this remarkable record? In three ways:
[bullet] Personal contact--giving close personal attention to the banking needs
of our customers and our community.
[bullet] Opening new branches in promising areas.
[bullet] Keeping operations lean and efficient.
These principles have been the key to our success, and they continue to be the
basis of our community-based, full-service-banking business strategy.
1994 HIGHLIGHTS
[bullet] HOLDING COMPANY.
On July 1 we became a holding company, FB&T Financial Corporation, with
Fairfax Bank & Trust Company as a wholly owned subsidiary. This change
reflects the fact that our company does more than banking, a fact that will
become even more evident in the future.
[bullet] NASDAQ LISTING.
Effective October 21, 1994, FB&T Financial Corporation's common stock began
trading on the NASDAQ National Market under the symbol FBTC. This listing will
provide broader investor exposure, to the benefit of both our shareholders and
the investment community.
[PHOTO APPEARS HERE]
Caption under photo:
Dr. Joseph P. Grieco shows equipment purchased with the aid of an FB&T business
loan to Executive Vice President Earl Rogers and Assistant Vice President Arlene
Haley.
[PHOTO APPEARS HERE]
Caption under photo:
FB&T President Charles Curtis and Branch Manager Cathy Aubrey view construction
of the new Fair Oaks Branch.
[bullet] NEW BRANCHES.
We added four new branches, bringing the total to ten and expanding our
penetration of the fast-growing northern Virginia market. The new offices are in
Falls Church, Manassas, Gainesville, and Woodbine.
We began construction of an eleventh branch at Fairfax Towne Center, in the Fair
Oaks area of Fairfax County. This office will open in March 1995.
[bullet] NEW MARKETS.
We acquired approximately $29 million in deposits from Commonwealth
Federal Savings Bank in Manassas and Federal Savings Association of Virginia in
Falls Church. These purchases added valuable deposits and enabled us to open the
four new branches.
[bullet] AUTOMATION.
FB&T operations are now automated to an extent probably unmatched by any
other bank our size. This year we installed a state-of-the-art computer network
linking all branches and the main office into one operating unit. This network
enables us to have instant access to any bank record from any office and to give
better personal attention to customers system-wide. In early 1995 we will add
systems to automate loan documents and the process of opening deposit
accounts. We will also make it possible for customers to query their accounts
directly via telephone and to initiate account transfers, wire
transfers, and certain loan transactions themselves via personal computer.
[bullet] COMMERCIAL LOANS.
In 1994 we continued to respond rapidly to loan requests. Our real estate,
demand, and time loans rose from $64.4 million at the end of 1993 to $69.7
million at the end of 1994. We participated in loans sponsored by the Northern
Virginia Community Development Corporation, Fairfax County Housing and
Redevelopment Authority, City of Fairfax Home Pride Program, Virginia
Community Development Corporation, and Virginia Asset Financing Corporation.
[PHOTO APPEARS HERE]
Caption under photo:
Outstanding business and civic leaders on FB&T's Fairfax and Prince William
Advisory Boards give FB&T a strategic advantage in identifying banking needs and
new business opportunities.
[bullet] MORTGAGE LOANS.
Residential loan originations increased more than 17%, to $37.5 million. This
increase was accomplished despite rising interest rates and disappearance of the
refinance market.
[PHOTO APPEARS HERE]
Caption under photo:
FB&T President Charles Curtis greets Prince William Advisory Board Member Mark
Mosely.
[bullet] CONSTRUCTION LOANS.
In June, the Bank added John Djuric as Vice President. John has more than 20
years of banking experience. Through a program of expediting construction loans,
we expanded our lending to small and mid-size home builders throughout our
service area.
[bullet] ADVISORY BOARDS.
FB&T's close knowledge of business in the communities we serve is a major
competitive advantage and a key element of our business strategy. To help
maintain this competitive advantage, we have created two Advisory Boards of
Directors, one in Fairfax County and one in Prince William County. The Advisory
Boards are composed of outstanding business and civic leaders in each community.
They meet regularly to help us identify business trends, prospects, and new
banking needs. Individually and together they already have produced numerous
new business leads and have proven to be an invaluable vehicle for
gathering strategic business information and strengthening our outreach
to new customers.
COMMITMENT TO GROWTH
FB&T is moving actively to strengthen our value to customers and
shareholders. There are three main planks in our strategy:
1. Continually strengthen customer contacts.
2. Market aggressively in the rapidly growing northern Virginia area.
3. Acquire additional assets at favorable prices whenever possible.
The year 1994 was another outstanding one for FB&T shareholders, and we are
determined to make 1995 even better.
Sincerely,
/s/ RONALD W. TYDINGS /s/ CHARLES E. CURTIS
Ronald W. Tydings Charles E. Curtis
Chairman of the Board President and
Chief Executive
Officer
FB&T GROWTH STRATEGY FB&T LOGO
THE FB&T GROWTH STRATEGY
FBT Financial Corporation has evolved a highly effective strategy for growth. It
is based on sound business fundamentals and is producing results for
shareholders that are substantially above industry norms. The strategy has three
main elements:
1. Superior customer service
2. Active, one-to-one cultivation of customers in the fast-growing areas of
Fairfax and Prince William counties of Virginia.
3. Active development of new branch banks
This highly personal strategy is in keeping with the mission of our corporation.
It requires continual, active commitment by all our personnel, and our personnel
are selected with this requirement in mind. Consequently, all FB&T officers and
staff are remarkably self-directed toward this goal.
SUPERIOR CUSTOMER SERVICE
FB&T places more than ordinary emphasis on customer service. As a growing
financial corporation in a highly desirable local marketplace, we know that we
can grow only if we offer value and service that other institutions do not
offer. The continued growth of our company is the proof that our approach works.
We achieve superior customer service by countless steps in everyday operations.
We select only service-oriented personnel for FB&T staff. We train all personnel
in the effective customer-service techniques that we have developed and that
have been successful. We instill a focus on customer service into all aspects of
management and operations.
To improve our service even further, this year we have installed the most
extensive and advanced computer system of any bank our size. This system puts
all offices in instantaneous communication with each other and gives every
branch access to all the information in the headquarters office and in every
other branch.
In early 1995 our state-of-the art technology will give customers access to
their account balances by telephone, will enable customers to perform many
transactions via personal computer, and will enable bank personnel to speed
applications, loan processing, and other services for customers through
automated techniques.
CULTIVATION OF NEW CUSTOMERS IN NORTHERN VIRGINIA
FB&T is fortunate to be able to offer its services in one of the most affluent
and rapidly developing areas in the nation: Northern Virginia. The regional
economy is now growing and diversifying at near-record rates. Commercial
activity and construction, especially, are growing. Through its locations in key
growth areas of Northern Virginia, FB&T is well positioned to take advantage of
this economic upsurge and expansion, and by aggressive attention to
contacting small and medium-sized businesses personally, FB&T is achieving this
aim.
To cultivate new customers, all FB&T branch managers make personal calls on
prospective customers on a daily basis. In addition, the Bank has established
two active Advisory Boards composed of Fairfax and Prince William business and
civic leaders, to advise the bank of business opportunities and to refer new
customers. Each new prospect is contacted by a bank manager or officer within 24
hours of referral. This aggressive use of Advisory Boards is already paying off
with substantial increases in business and individual banking customers.
ACTIVE DEVELOPMENT OF NEW BRANCHES
FB&T has developed new branch banks in two ways: by purchasing deposits of other
financial institutions from the Resolution Trust Corporation at attractive
prices, and by starting new branches from scratch in actively growing
communities within our service area. These approaches have enabled us to grow
from six offices to ten offices during the last year and will enable us to open
our eleventh office early in 1995.
We will actively continue to seek opportunities to purchase financial assets at
attractive prices and to open new branch offices in Northern Virginia
communities where there are above-average opportunties for economic growth.
Using this approach, we expect to be able to continue to improve market share in
in our area of operation.
FIVE-YEAR FINANCIAL SUMMARY
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
The following is a more detailed discussion of the results of operations and the
financial condition of FB&T Financial Corporation. This discussion should be
read in conjunction with the Consolidated Financial Statement.
YEAR ENDED DECEMBER 31:
1994 1993 1992 1991 1990
SUMMARY OF OPERATIONS:
Net interest income.......................................... $ 8,240 $ 6,739 $ 5,839 $ 4,594 $ 4,864
Provision for loan losses.................................... 65 348 801 900 937
Other income................................................. 2,695 1,752 1,028 1,378 457
Other expenses............................................... 7,339 5,211 4,548 4,391 3,604
Income taxes................................................. 1,167 926 513 226 265
Net income................................................... $ 2,364 $ 2,005 $ 1,005 $ 455 $ 515
PER SHARE DATA:
Net income................................................... $ 1.96 $ 2.00 $ 1.10 $ .46 $ .53
Book value at period end..................................... 13.47 12.16 9.83 9.26 8.80
Cash dividends............................................... .56 .25 0 0 .15
SELECTED PERFORMANCE RATIOS:
Return on average assets..................................... 1.27% 1.37% .76% .43% .57%
Return on average equity..................................... 15.91 19.10 11.92 5.82 6.72
Net interest margin.......................................... 4.90 5.20 5.05 4.89 5.90
BALANCE SHEET DATA AT PERIOD END:
Assets....................................................... $205,672 $164,836 $141,488 $129,693 $95,438
Loans, net of unearned income................................ 133,744 109,172 88,101 80,890 73,919
Securities................................................... 47,841 43,488 28,594 20,872 9,706
Deposits..................................................... 169,952 132,820 121,233 115,783 83,516
Stockholders' equity......................................... 15,868 14,282 9,403 7,925 7,650
CAPITAL RATIOS:
Leverage (Equity to Assets).................................. 6.32 8.66 6.64 6.11 8.02
Risk-based:
Tier 1 capital............................................ 10.25 13.48 11.66 9.78 10.80
Total capital............................................. 11.30 14.52 12.79 10.78 11.93
(1) Loans are reported net of unearned income and include mortgage loans held
for sale.
(2) Net interest margin is calculated on a tax equivalent basis.
7
DISCUSSION OF FINANCIAL RESULTS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
RESULTS OF OPERATIONS
FB&T Financial Corporation recorded net income of $2.4 million for the year
ended December 31, 1994 compared to $2.0 million for the year-end 1993. This
17.9% increase represented the Company's second consecutive year of record
earnings. Despite this significant increase in net income, earnings per share
decreased slightly from $2.00 per share at year-end 1993 to $1.96 per share at
the end of 1994 due to the increased number of weighted average shares
outstanding. The increased earnings in 1994 were primarily a result of higher
net interest income, a reduction in the provision for loan loss, and higher
non-interest income.
Return on average assets and equity for 1994 were 1.27% and 15.91% respectively,
compared to 1.37% and 19.10% for 1993.
Net interest income for the year ended December 31, 1994 increased 22.3% to $8.2
million, up from $6.7 million for the same period in 1993. This increase in net
interest income was primarily attributable to a higher volume of earning assets.
The rapidly increasing interest rate environment of 1994 resulted in a slight
deterioration in the Company's net interest margin. At year-end 1994, the net
interest margin was 4.9%, compared to 5.2% at year-end 1993.
Due to continuing improvement in the quality of the Company's loan portfolio and
significant recoveries of loans that had been charged off in previous years, the
provision for loan losses for 1994 was $65 thousand, compared to $348 thousand
for 1993. For the year, the Company had net recoveries of $163 thousand. Despite
sales of several foreclosed properties, other real estate owned increased from
$2.0 million at year-end 1993 to $2.3 million at the end of 1994 due to the
acquisition of one residential property valued at $1.0 million.
Non-interest income increased a substantial 53.8%, from $1.8 million at year-end
1993 to $2.7 million at the end of the current year. This increase is primarily
attributable to service charges and fees from the increased volume of deposit
accounts.
In March, 1994 the Company purchased approximately $1.4 million in deposits from
the former Federal Savings Association of Falls Church, Virginia. In May, the
Company purchased approximately $28.0 million in deposits from the former
Commonwealth Federal Savings Bank of Manassas, Virginia. In addition to the new
deposit base, these purchases resulted in the acquisition of four new branch
locations and the expansion of the Company's market area to the city of Falls
Church and northern Prince William County in Virginia. In support of the
Company's continued asset growth, other operating expenses consisting of
employee-related cost and occupancy and other overhead expenses totaled $7.3
million for 1994, compared to $5.2 million for 1993. This increase is
attributable to the staffing of four new branches acquired in the first and
second quarters of 1994, as well as the addition of qualified personnel
necessary to continue to provide operational support to the rapidly expanding
deposit base.
FINANCIAL CONDITION
Total assets increased to $205.7 million at December 31, 1994, compared to
$164.8 million at year-end 1993, representing an increase of $40.8 million, or
24.8%. Loans net of unearned income increased by $24.8 million, or 22.7%.
Investment securities and securities available for sale increased $4.4 million,
or 10.1% from year-end 1993 to year-end 1994. At December 31, 1994, 75.4% of the
Company's portfolio was composed of investment securities, while the remaining
24.6% was composed of securities considered available for sale. At year-end
1993, 62.9% of total securities were investment securities. Total deposits rose
by 28.0% to $170.0 million, compared to $132.8 million at December 21, 1993.
Core deposits, consisting of all interest-bearing and non-interest-bearing
deposits except for certificates of deposit $100 thousand and over, at December
31, 1994 totaled $155.1 million, representing 91.3% of total deposits.
Certificates of deposit $100 thousand and over at December 31, 1994 totaled
$14.8 million and represented the remaining 8.7% of deposits.
Shareholders' equity at December 31, 1994 was $15.9 million, compared to $14.3
million at December 31, 1993. The primary source of growth to shareholders'
equity was earnings of $2.4 million reduced by the Company's regular quarterly
dividend, which totaled $659 thousand, or $.56 per share. Book value per share
of common stock at December 31, 1994 was $13.47, compared to $12.16 per share at
December 31, 1993.
8
CONSOLIDATED BALANCE SHEETS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
YEAR ENDED DECEMBER 31,
1994 1993
ASSETS
Cash and Due from Banks............................................................... $ 14,225,350 $ 7,764,950
Investment Securities (Note 2)........................................................ 36,132,828 27,350,123
Securities Available for Sale (Note 2)................................................ 11,757,970 16,138,124
Loans Receivable (Notes 3 and 13)..................................................... 133,988,121 109,171,710
Less Allowance for Possible Loan Losses (Note 3)...................................... (1,332,118) (1,102,155)
Net Loans...................................................................... 132,656,003 108,069,555
Accrued Interest Receivable........................................................... 1,548,205 1,099,673
Bank Premises and Equipment, net (Note 4)............................................. 3,045,822 1,797,552
Other Real Estate Owned (Note 5)...................................................... 2,301,499 1,970,452
Intangible Assets, net (Note 6)....................................................... 3,073,298 --
Prepaid and Other Assets.............................................................. 930,952 645,485
Total Assets................................................................... $205,671,927 $164,835,914
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Demand deposits..................................................................... $ 41,881,181 $ 43,715,286
Interest checking................................................................... 28,423,068 24,416,822
Savings deposits.................................................................... 57,116,333 41,211,824
Time deposits (Note 7).............................................................. 42,531,106 23,475,760
Total Deposits................................................................. 169,951,688 132,819,692
Securities sold under agreements to repurchase and other borrowed funds............. 15,344,476 13,950,635
Federal funds purchased (Note 3).................................................... 3,862,000 3,000,000
Accrued interest payable............................................................ 289,808 205,645
Accrued expenses and other liabilities.............................................. 355,493 577,793
Total Liabilities.............................................................. 189,803,465 150,553,765
Shareholders' Equity (Notes 14, 15 and 16)
Preferred stock, $1.25 par value, 3,000,000 shares authorized
Common stock, $1.25 par value, 5,000,000 shares authorized; 1,178,257 shares issued
and outstanding in 1994 and 1,174,057 shares issued and outstanding in 1993...... 1,472,821 1,467,571
Surplus............................................................................. 7,715,123 7,693,323
Net unrealized loss on securities available for sale (Note 2)....................... (159,266) (12,757)
Retained Earnings..................................................................... 6,839,784 5,134,012
Total Shareholders' Equity..................................................... 15,868,462 14,282,149
Total Liabilities and Shareholders' Equity............................................ $205,671,927 $164,835,914
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
9
CONSOLIDATED STATEMENTS OF OPERATIONS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
YEAR ENDED DECEMBER 31,
1994 1993 1992
Interest Income
Interest and fees on loans...................................... $ 10,168,149 $ 7,918,547 $ 7,810,808
Interest on Federal funds sold.................................. 56,696 153,421 142,818
Interest on investment securities............................... 1,612,441 1,426,327 1,267,802
Interest on securities available for sale....................... 574,662 -- --
Total Interest Income...................................... 12,411,948 9,498,295 9,221,428
Interest Expense
Interest on deposits............................................ 3,615,985 2,515,242 3,184,024
Interest on repurchase agreements............................... 324,817 230,479 184,880
Interest on Federal funds purchased............................. 230,855 13,541 15,639
Total Interest Expense..................................... 4,171,657 2,759,262 3,382,543
Net Interest Income........................................ 8,240,291 6,739,033 5,838,885
Provision for Possible Loan Losses (Note 3)....................... 64,714 348,238 800,720
Net Interest Income after Provision for
Possible Loan Losses.................................... 8,175,577 6,390,795 5,038,165
Other Income
Service charges................................................. 2,368,990 1,235,040 859,254
Other........................................................... 325,755 516,657 168,967
2,694,745 1,751,697 1,028,221
10,870,322 8,142,492 6,066,386
Operating Expenses
Compensation and benefits....................................... 3,484,698 1,969,890 1,733,549
Occupancy expense (Note 10)..................................... 1,210,663 965,110 869,439
Other (Note 9).................................................. 2,643,915 2,275,909 1,944,886
Total Operating Expenses................................... 7,339,276 5,210,909 4,547,874
Income before Income Taxes................................. 3,531,046 2,931,583 1,518,512
Income Taxes (Note 8)............................................. 1,166,626 926,144 513,091
Net Income................................................. $ 2,364,420 $ 2,005,439 $ 1,005,421
Net Income per Common Share (Note 1).............................. $ 1.96 $ 2.00 $ 1.07
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
10
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NUMBER PAR VALUE NET UNREALIZED
OF AND TREASURY RETAINED LOSS ON AVAILABLE
SHARES WARRANTS SURPLUS STOCK EARNINGS FOR SALE SECURITIES TOTAL
Balance, December 31,
1991................... 855,634 $1,088,932 $4,668,609 $(199,420) $2,367,046 $ -- $ 7,925,167
Sale of Treasury Stock.... 816 -- -- 11,441 -- -- 11,441
Acquisition of Treasury
Stock.................. (3,008) -- -- -- (33,584) -- (33,584)
Exercise of Stock
Warrants............... 103,423 128,639 365,692 -- -- -- 494,331
Net Income for 1992....... -- -- -- -- 1,005,421 -- 1,005,421
Balance, December 31,
1992................... 956,865 1,217,571 5,034,301 (221,563) 3,372,467 -- 9,402,776
Sale of Treasury Stock.... 20,545 -- (1,840) 259,714 -- -- (40,371)
Acquisition of Treasury
Stock.................. (3,353) -- (1,840) (38,151) (380)
Dividend Paid (Note 18)... -- -- -- -- (243,514) -- (243,514)
Net Unrealized Loss on
Available for Sale
Securities............. -- -- -- -- -- (12,757) (12,757)
Sale of Common Stock...... 200,000 250,000 2,660,862 -- -- -- 2,910,862
Net Income for 1993....... -- -- -- -- 2,005,439 -- 2,005,439
Balance, December 31,
1993................... 1,174,571 1,467,571 7,693,323 -- 5,134,012 (12,757) 14,282,149
Dividend Paid (Note 18)... -- -- -- -- (658,648) -- (658,648)
Exercise of Stock
Options................ 4,200 5,250 21,800 -- -- -- 27,050
Net Unrealized Loss on
Available for Sale
Securities............. -- -- -- -- -- (146,509) (146,509)
Net Income for 1994....... -- -- -- -- 2,364,420 -- 2,364,420
1,178,257 $1,472,821 $7,715,123 $ -- $6,839,784 $ (159,266) $15,868,462
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
YEAR ENDED DECEMBER 31,
1994 1993 1992
Cash Flows from Operating Activities
Net income....................................................... $ 2,364,420 $ 2,005,439 $ 1,005,421
Noncash items included in net income
Depreciation and amortization................................. 347,484 263,025 204,407
Loss (gain) on sale of securities............................. 2,417 (15,028) (35,103)
(Gain) loss on sale and write-down of other real estate
owned....................................................... (61,712) 74,239 222,259
Net accretion of discount on investment securities............ (10,045) 32,069 (36,307)
Provision for possible loan losses............................ 64,714 348,238 800,720
(Increase) Decrease in
Accrued interest receivable................................. (448,532) (216,035) (111,329)
Prepaid expenses and other.................................. (203,421) (162,647) 332,776
Increase (Decrease) in
Accrued interest payable.................................... 84,163 (43,121) (392,954)
Other accrued expenses...................................... (222,300) 141,237 406,036
Net Cash Provided by Operating Activities............. 1,917,188 2,427,416 2,395,926
Cash Flows from Investing Activities
Proceeds from maturity of investment securities.................. 5,500,000 11,730,415 3,500,000
Proceeds from sale of investment securities...................... -- 12,500,000 1,257,783
Proceeds from sale of securities available for sale.............. 1,376,522 -- --
Proceeds from maturity of securities available for sale.......... 4,000,000 -- --
Loans, net....................................................... (25,606,282) (21,937,389) (9,078,457)
Purchase of securities........................................... (15,500,000) (39,150,000) (12,407,512)
Acquisition of Bank premises and equipment....................... (1,493,254) (365,598) (66,638)
Other real estate owned
Capitalized expenses.......................................... (54,623) (25,907) (89,042)
Proceeds from sale............................................ 740,408 1,693,178 4,132,177
Acquisition of intangible assets................................. (3,175,798) -- --
Net Cash Used by Investing Activities................. (34,213,027) (35,555,301) (12,751,689)
Cash Flows from Financing Activities
Net increase in Federal funds sold/purchased..................... 862,000 13,775,000 (375,000)
Net securities sold under repurchase agreements.................. 1,393,841 3,783,915 4,876,142
Net increase in demand, saving and time deposits................. 37,131,996 11,586,170 5,428,770
Proceeds from sale of treasury stock............................. -- 259,714 11,441
Proceeds from sale of stock warrants............................. -- -- 494,331
Dividends paid................................................... (658,648) (243,514) --
Proceeds from sale of common stock............................... 27,050 2,910,862 --
Net Cash Provided by Financing Activities............. 38,756,239 32,072,147 10,435,684
Net Increase (Decrease) in Cash and Cash Equivalents............... 6,460,400 (1,055,738) 79,921
Cash and Due from Banks, beginning of year......................... 7,764,950 8,820,688 8,740,747
Cash and Due from Banks, end of year............................... $ 14,225,350 $ 7,764,950 $ 8,820,668
Schedule of Noncash Investing and Financing Activities
Acquisition of other real estate owned in satisfaction of loan
receivable.................................................... $ 955,120 $ 573,181 $ 1,140,623
Acquisition of treasury stock in satisfaction of loan
receivable.................................................... $ -- $ 40,373 $ 33,584
Net unrealized loss on available for sale securities............. $ (241,312) $ (12,757) $ --
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
DECEMBER 31, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation follows generally accepted accounting principles and reporting
practices applicable to the banking industry. Significant accounting practices
are summarized below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of FB&T Financial Corporation (the
Corporation) include the accounts of the corporation and its subsidiary, Fairfax
Bank & Trust Company (the Bank), and Fairfax Bank & Trust Company s wholly-owned
subsidiary, Bank Title Company. All significant intercompany transactions have
been eliminated.
FB&T Financial Corporation, a holding company, is the successor to Fairfax Bank
& Trust Company after a tax-free exchange of stock which occurred on July 1,
1994. Shares of Fairfax Bank & Trust Company were exchanged for an equivalent
number of FB&T Financial Corporation shares. The parent company, FB&T Financial
Corporation carries its investment in the bank at cost adjusted for earnings and
dividends of the subsidiary.
INVESTMENT SECURITIES
Securities are classified as investment securities when management has the
intent and the Bank has the ability at the time of purchase to hold them until
maturity or on a long-term basis. These securities are carried at cost adjusted
for amortization of premium and accretion of discount, computed by the
straight-line method over their contractual lives. If the interest method of
accounting for amortization of premiums and accretion of discounts was used, it
would not have a material effect on the consolidated financial statements. Gains
and losses on the sale of such securities are determined by the specific
identification method.
Securities to be held for indefinite periods of time and not intended to be held
to maturity or on a long-term basis are classified as available for sale and
accounted for at fair value on an aggregate basis. These include securities used
as part of the Bank's asset/liability management strategy and may be sold in
response to changes in interest rates, prepayment risk, the need or desire to
increase capital, to satisfy regulatory requirements and other similar factors.
Unrealized gains and losses of securities available for sale are excluded from
earnings and shown as a separate component of stockholders' equity, net of
related income taxes. Realized gains and losses of securities available for sale
are included in net securities gains (losses) based on the specific
identification method.
LOANS AND LOAN FEES
Loans are stated at the principal amount outstanding, net of deferred loan fees.
Interest on loans is generally computed using the simple interest method. Loan
fees and related direct loan origination costs are deferred and recognized as an
adjustment of yield over the life of the loan or currently upon the sale or
repayment of the loans.
Interest on all categories of loans is accrued based upon the principal amounts
outstanding. The accrual of interest income is discontinued on loans which are
past due ninety or more days as to principal or interest payments, except for
certain guaranteed loans and other limited exceptions. When loans are placed on
nonaccrual status, interest accrued in the current year is charged against
interest income, and interest accrued in prior years is charged to the allowance
for loan losses. Loans may be reinstated to accrual status when all payments are
brought current, and, in the opinion of management, collection of the remaining
balance can reasonably be expected. The classification of a loan as nonaccrual
is not necessarily indicative of a potential loan loss.
Gains or losses on sales of residential mortgage loans, including unearned
discounts, are recognized when the loans are sold to investors. The loans are
carried at the lower of cost or market, determined on the aggregate basis.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Bank grants loans to customers located in Northern Virginia. The Bank has a
diversified portfolio, however, a substantial number of loans are secured by
real estate or are unsecured.
13
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The allowance is established to absorb possible future losses on existing loans.
It is maintained at a level considered adequate by management to provide for
potential losses based on management's evaluation of the loan portfolio,
historical loan loss experience and prevailing and anticipated economic
conditions.
The allowance is increased by provisions for loan losses charged to operating
expense and reduced by net chargeoffs. The provisions are based on management's
estimate of net realizable value or fair value of the collateral, as applicable,
considering the current and future operating or sales conditions. These
estimates are susceptible to changes that could result in a material adjustment
to future results of operations.
BANK PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Leasehold improvements are amortized over their estimated useful
lives using the straight-line method. Furniture, equipment and automobiles are
depreciated over their estimated useful lives using straight-line methods.
FEDERAL FUNDS PURCHASED/SOLD
The Bank is required to maintain legal cash reserves, computed by applying
prescribed percentages to its various types of deposits. When the Bank's cash
reserves are in excess of that required, it may lend the excess to other banks
on a daily basis. Conversely, when cash reserves are less than required, the
Bank borrows funds on a daily basis.
The Bank has $37,000,000 of Federal fund lines of credit with correspondent
banks, of which $25,000,000 is secured. Continued availability of the lines are
at the correspondent banks' discretion. The rate of interest charged fluctuates
daily in response to market conditions. Borrowings on these lines amounted to
$3,862,000 at December 31, 1994 and $3,000,000 at December 31, 1993.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Other borrowed funds consist of a
$1,700,000 fixed rate credit with a three month maturity from Federal Home Loan
Bank of Atlanta. The credit matures in February, 1995.
SHAREHOLDERS' EQUITY
In September 1993, the Bank's shareholders approved an increase in the
authorized common shares for the Bank from 2,000,000 shares to 5,000,000 shares.
Additionally, the shareholders approved the authorization of 3,000,000 shares of
Preferred Stock with a par value of $1.25 per share. No Preferred Stock is
issued or outstanding at December 31, 1994 and 1993.
In December 1993, the Bank completed a public offering of 200,000 shares of
common stock at $16 per share. The offering generated net proceeds of $2,910,862
after deducting underwriting discounts and other offering expenses. Prior to the
offering, there was no public market for the Bank's common stock. The Company s
common stock trades on the Nasdaq Stock Market under the symbol: FBTC
State banking laws restrict the availability of surplus for the payment of
dividends. Such restrictions have been outlined in the By-Laws, which
incorporate the appropriate provisions of Section 6.1-56 of the 1940 Code of
Virginia.
INCOME TAXES
The Bank utilizes an asset and liability approach to accounting for income
taxes. The objective is to recognize the amount of income taxes payable or
refundable in the current year based on the Bank s income tax return and the
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Bank s financial statements or tax
returns. The asset and liability method accounts for deferred income taxes by
applying enacted statutory rates to temporary differences, the difference
between financial statement amounts and tax bases of assets and liabilities.
Deferred income tax liabilities or assets are adjusted to reflect changes in tax
laws or rates in the year of enactment.
The Bank pays state franchise tax in lieu of state income taxes.
14
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME PER COMMON SHARE
Income per common share for 1994 and 1993 is based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares result from the assumed exercise of outstanding stock options that have a
dilutive effect when applying the treasury stock method. Weighted average number
of shares amounted to 1,206,120 in 1994, 1,002,895 in 1993 and 936,162 in 1992.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Cash paid for interest amounted to $4,087,494 in 1994 and $2,785,719 in 1993 and
$3,784,361 in 1992.
Net income taxes paid in 1994, 1993 and 1992 amounted to $1,681,713, $818,298
and $98,400, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, (SFAS 107). SFAS 107 requires entities to
disclose the fair value of financial instruments, both assets and liabilities,
in the statement of financial condition, for which it is practicable to estimate
fair values. SFAS 107 is effective and will be implemented by the Bank in 1995
and is not expected to have a material impact on the Company.
Statement for Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan, (SFAS No. 114). SFAS No. 114 will be effective for
fiscal years beginning after December 15, 1994, and requires that certain
impaired loans be valued based on the expected future cash flows discounted at
the loan s effective interest rate. SFAS 114 is not expected to have a material
impact on the Company.
REQUIRED DEPOSITORY RESERVES AND CAPITAL RATIOS
The Bank is required by regulatory authorities to maintain a specified portion
of its assets in the form of reserves. Such reserves consist of vault cash and
balances maintained at the Federal Reserve Bank. The average balance required to
be maintained at the Federal Reserve Bank at December 31, 1994, was
approximately $880,000.
All banks are required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the Federal Deposit Insurance Corporation. At
December 31, 1994, banks are required to have minimum Tier 1 and Total capital
ratios of 4.00 percent and 8.00 percent, respectively. The Bank's actual ratios
at that date were 10.25 percent and 11.30 percent, respectively. The Bank's
leverage ratio at December 31, 1994, was 6.32 percent.
2. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The carrying amounts as shown in the balance sheets of the Bank and their
approximate market values are as follows:
INVESTMENT SECURITIES
DECEMBER 31, 1994
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Government and agency securities................... $33,043,393 $ -- $560,737 $32,482,656
Mortgage-backed securities.............................. 2,049,795 -- 81,746 1,968,049
Other securities........................................ 1,039,650 -- -- 1,039,650
$36,132,838 $ -- $642,483 $35,490,355
15
2. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE (CONTINUED)
DECEMBER 31, 1993
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Government and Agency securities................... $23,655,054 $267,651 $ 49,752 $23,872,953
Mortgage-backed Securities.............................. 3,030,619 34,756 -- 3,065,375
Other securities........................................ 664,450 -- -- 664,450
$27,350,123 $302,407 $ 49,752 $27,602,778
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1994
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Government and agency securities................... $11,999,282 $ -- $241,312 $11,757,970
DECEMBER 31, 1993
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Government and agency securities................... $15,996,797 $ -- $ 17,913 $15,978,884
Municipal securities.................................... 154,084 5,156 -- 159,240
$16,150,881 $ 5,156 $ 17,913 $16,138,124
Gross realized gains and losses for the years ended December 31, are as follows:
1994 1993 1992
Realized gains.......................................................... $ 2,022 $15,028 $35,103
Realized losses......................................................... $ 4,439 $ -- $ --
The scheduled maturities of investment securities and securities available for
sale at December 31, 1994 were as follows:
Investment Securities
Securities Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less.......................................... $14,999,339 $14,874,216 $ 9,999,282 $ 9,852,345
Due from one year to five years.................................. 18,044,054 17,608,440 2,000,000 1,905,625
Due from five years to ten years................................. -- -- -- --
Mortgage-backed securities....................................... 2,049,795 1,968,049 -- --
Federal Reserve Board common stock and other equity securities... 1,039,650 1,039,650 -- --
$36,132,838 $35,490,355 $11,999,282 $11,757,970
Maturities may differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or repaid without
any penalties.
16
2. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE (CONTINUED)
Investment securities with a carrying amount of $18,047,358 and $22,573,560 at
December 31, 1994 and 1993, respectively, were pledged as collateral on public
deposits, repurchase agreements, and for other purposes as required or permitted
by law.
3. LOANS RECEIVABLE
Loans receivable include the following at December 31:
1994 1993
Real Estate Loans
Construction................................................................... $ 11,822,967 $ 8,597,731
Farm........................................................................... 250,916 --
1-4 family residential......................................................... 58,978,194 44,005,515
Multifamily.................................................................... 1,163,687 1,455,061
Non-farm nonresidential........................................................ 25,580,662 21,516,985
Commercial....................................................................... 25,380,555 22,835,416
Credit card...................................................................... 2,647,571 2,535,180
Installment and Other............................................................ 8,163,569 8,225,822
Totals.................................................................... $133,988,121 $109,171,710
At December 31, 1994, mortgages with unpaid balances of $21,042,876 were pledged
as collateral for a line of credit facility in the amount of $25,000,000 to a
financial institution. Gains on sale of mortgages held for sale amounted to
$161,000 in 1994 and $468,000 in 1993 and are included in other income.
Loans on which the accrual of interest has been discontinued amounted to
$834,480 at December 31, 1994, and $29,920 at December 31, 1993. Had interest
been accrued on those loans, such income would have approximated $11,988 for the
year ended December 31, 1994, and $2,166 for the year ended December 31, 1993.
A summary of transactions in the allowance for possible loan losses for the
years ended December 31, follows:
1994 1993
Balance at beginning of year..................................................... $1,102,155 $ 909,304
Provision charged to operations.................................................. 64,714 348,238
Loans charged off, net of recoveries............................................. 165,249 (155,387)
Balance at end of year........................................................... $1,332,118 $1,102,155
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are as follows:
1994 1993
Furniture and equipment.......................................................... $ 2,264,603 $ 1,863,918
Leasehold improvements........................................................... 1,171,894 906,884
Building......................................................................... 459,187 --
Land............................................................................. 322,748 --
Automobiles...................................................................... 140,005 127,217
4,358,437 2,898,019
Less accumulated depreciation.................................................... (1,312,615) (1,100,467)
Totals.................................................................... $ 3,045,822 $ 1,797,552
17
4. BANK PREMISES AND EQUIPMENT (CONTINUED)
Depreciation of bank premises and equipment charged to expense amounted to
$241,198 for 1994, $224,289 for 1993 and $204,407 for 1992.
5. OTHER REAL ESTATE OWNED
Other real estate owned includes properties acquired through foreclosure or
other proceedings in full or partial satisfaction of indebtedness. At the date
of acquisition, such property is recorded at the lower of the recorded
investment in the related receivable, net realizable value for single family
residential, or fair value. Write-downs at the date of acquisition are charged
to the allowance for loan losses. Subsequent declines in market value and/or
losses on disposition of other real estate are reflected in other income.
Expenses related to other real estate are included in other operating expenses
and amounted to $63,485 in 1994 and $105,764 in 1993.
A summary of transactions in the other real estate owned for the years ended
December 31, follows:
1994 1993
Balance at beginning of year..................................................... $1,970,452 $ 3,138,781
Acquired......................................................................... 955,120 524,627
Capitalized expenses............................................................. 54,623 74,461
Write-downs...................................................................... -- (48,943)
Sales............................................................................ (740,408) (1,693,178)
Net gain (loss) on sales......................................................... 61,712 (25,296)
$2,301,499 $ 1,970,452
6. INTANGIBLE ASSETS
During the year ended December 31, 1994, the Bank acquired the deposits of the
Federal Savings Association of Virginia (Federal) and Commonwealth Federal
Savings Bank (Commonwealth) from the Resolution Trust Corporation. The Bank paid
a premium of $46,043 and assumed liabilities of approximately $1,407,000 and one
branch location in connection with the Federal acquisition. The Bank paid a
premium of $3,015,000 and assumed liabilities of approximately $27,923,000 and
three branch locations in connection with the Commonwealth acquisition. The
premiums are being amortized over a 15-year period and total amortization
charged to income amounted to $102,500 for 1994.
7. TIME DEPOSITS
The following is a maturity distribution of time certificates of deposit in
denominations of $100,000 or more:
1994 1993
Three months or less............................................................. $ 6,225,670 $5,554,072
Over three months through twelve months.......................................... 5,554,439 1,857,541
Over twelve months............................................................... 3,043,178 1,844,648
Totals.................................................................... $14,823,287 $9,256,261
8. INCOME TAXES
Income tax expense (benefit) is composed of the following:
1994 1993 1992
Current.......................................................................... $1,240,012 $1,012,485 $ 456,959
Deferred......................................................................... (73,386) (86,341) 56,132
$1,166,626 $ 926,144 $ 513,091
18
8. INCOME TAXES (CONTINUED)
A reconciliation between the amount of reported Federal income tax expense and
the amount computed by multiplying the applicable statutory Federal income tax
rate is as follows:
1994 1993 1992
Income before income taxes....................................................... $3,531,046 $2,931,608 $1,518,512
Computed "expected" Federal tax expense.......................................... $1,200,556 $ 996,747 $ 516,294
Adjustments to Federal income tax resulting from:
Tax exempt income.............................................................. -- (3,203) (3,203)
Other.......................................................................... (33,930) (67,400) --
Provision for Federal income taxes............................................... $1,166,626 $ 926,144 $ 513,091
The deferred tax asset (liability) for the years ended December 31, are
applicable to the following items:
DEFERRAL SOURCE 1994 1993
Depreciation..................................................................... $(168,270) $(168,936)
Allowance for credit losses...................................................... 250,323 192,828
Deferred loan fees............................................................... 42,906 27,681
Net unrealized loss on securities available for sale............................. 82,046 --
Net deferred tax asset......................................................... $ 207,005 $ 51,573
The deferred tax asset in 1994 and 1993 are included in Other Assets.
9. OPERATING EXPENSES - OTHER
Significant amounts included in other operating expense for the years ended
December 31, are as follows:
1994 1993 1992
Advertising and Promotion........................................................ $ 105,399 $ 41,796 $ 10,832
Amortization - Goodwill.......................................................... 102,546 -- --
Credit Card Expenses............................................................. 218,609 9,976 3,353
Data Processing.................................................................. 328,994 485,826 400,759
Directors Fees................................................................... 97,449 84,900 78,100
FDIC Insurance................................................................... 311,087 284,468 251,313
Insurance........................................................................ 114,650 113,544 101,032
Legal and Professional fees...................................................... 170,759 166,870 102,569
Postage.......................................................................... 115,750 99,177 83,958
Printing and Supplies............................................................ 238,379 161,110 116,693
Virginia Bank Franchise Tax...................................................... 17,282 78,186 81,264
Other............................................................................ 823,011 750,056 715,013
Totals......................................................................... $2,643,915 $2,275,909 $1,944,886
10. OPERATING LEASES
The Bank leases facilities for its headquarters and branches under
non-cancelable operating leases expiring from 1992 through 2014 with current
monthly rental payments of $72,992. The headquarters facility, which is leased
from a partnership including certain partners who also serve on the Bank's Board
of Directors, requires monthly payments of $27,337 and expires December 31,
1998. At expiration, the Bank has an option to renew the lease for four
additional five-year terms at market rates. Rental expense of $792,084 and
$639,627 was charged to operations for the years ended December 31, 1994 and
1993.
19
10. OPERATING LEASES (CONTINUED)
The following is a schedule, by years, of future minimum rental payments
required under operating leases that have a noncancelable lease term in excess
of one year as of December 31, 1994:
YEAR ENDING DECEMBER 31:
1995................................. $ 921,607
1996................................. 918,865
1997................................. 903,090
1998................................. 872,169
1999................................. 298,382
Thereafter........................... 1,971,389
Total......................... $5,885,502
11. EMPLOYEE BENEFIT PLAN
Effective January 1, 1993, the Bank adopted a noncontributory, defined
contribution plan. The plan is established in accordance with IRS Code Section
401(K) and employees are eligible to participate after three months of
employment. The Bank did not make a contribution for December 31, 1994 and 1993.
12. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to directors,
executive officers, employees, and their associates. These transactions have
been made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons. Directors and executive officers were indebted to the Bank
for loans totaling $4,924,079 at December 31, 1994, and $4,213,181 at December
31, 1993. These amounts include loans of family members or businesses indirectly
associated with directors or officers. Similarly the Bank occasionally contracts
for services from certain companies related indirectly or directly to board
members.
13. COMMITMENTS AND CONTINGENCIES
At December 31, 1994 and 1993, the Bank was contingently liable for undrawn loan
commitments and outstanding letters of credit amounting to approximately
$41,740,227 and $37,925,816, respectively. Included in the total is stand-by
letters of credit of $1,845,285 in 1994 and $2,435,643 in 1993.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counter-party. Collateral held
varies but may include cash, securities, accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties and
residential properties.
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Commercial and standby letters of credit were granted
primarily to commercial borrowers. The Bank does not extend credit to any single
borrower or group of related borrowers in excess of their legal lending limit.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position.
14. INCENTIVE STOCK OPTION PLAN
On October 31, 1985, the shareholders approved a qualified incentive stock
option plan and reserved 105,000 shares of the Bank's common stock for the
granting of options to key employees. Under the terms of the plan, options may
be granted at not less than fair market value at date of the grant. Individual
employees may not be granted options in excess of $100,000 per year. The options
are exercisable for a period of ten years from the date of the grant and may not
be exercised before a specified date.
20
14. INCENTIVE STOCK OPTION PLAN (CONTINUED)
As of December 31, 1994, options granted for the purchase of 104,988 shares
under the plan, adjusted for the stock split and for the 5 percent stock
dividend, are as follows:
EARLIEST YEAR SHARES SUBJECT OPTION PRICE
EXERCISABLE TO OPTION PER SHARE
1986 6,300 $ 4.76
1987 7,980 $ 4.76 - $ 6.44
1988 10,920 $ 4.76 - $17.35
1989 12,600 $ 4.76 - $20.04
1990 13,229 $ 4.76 - $20.04
1991 17,407 $ 6.44 - $22.81
1992 16,409 $ 6.44 - $22.81
1993 13,889 $ 6.44 - $22.81
1994 3,389 $ 6.44 - $22.81
1995 2,865 $16.00 - $22.81
15. STOCK PLANS
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase Plan ("DRSP") of FB&T Financial
Corporation (the "Company") provides each registered holder of Company common
stock with a simple and convenient method of investing cash dividends in
additional shares of Company common stock without fees of any kind at a 5
percent discount from the market price. Participants also may make optional cash
payments to purchase shares of Company common stock at 100 percent of market
value. The Company reserved for issuance 200,000 shares of Company common stock
for use under the DRSP and registered such shares with the Securities and
Exchange Commission (the "Commission"). Two investment options are available to
shareholders: (1) the Company may be directed to invest cash dividends on all of
the shares then or subsequently held by the shareholder for the purchase of
additional shares or (ii) the Company may be directed to invest cash dividends
on all of the shares then or subsequently held by the shareholder, and also to
purchase additional shares with optional cash payments by the shareholder of at
least $100 but not more than $5,000 per quarter.
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
Effective June 15, 1994, the Company implemented a Non-Employee Director Stock
Compensation Plan (the "Option Plan"). Under this plan each Director who is not
an employee of the Company or its subsidiary will receive an option grant
covering 1,000 shares of Company common stock on June 15, of each year during
the five-year term of the Plan. The first grant under the Plan was made on June
15, 1994. The exercise price of awards are fixed at the fair market value of the
shares on the date the option is granted. A total of 40,000 shares of common
stock have been registered with the Commission and may be granted under the
option plan during its term. The options granted under the Option Plan are not
exercisable for six months from the date of grant except in the case of death or
disability. Options that are not exercisable at the time a director s services
on the Board terminates for reasons other than death, disability or retirement
in accordance with the Companys policy will be forfeited. The purpose of the
plan is to promote a greater identity of interest between non-employee directors
and the Company s shareholders by increasing each participant s proprietary
interest in the Company through the award of options to purchase Company common
stock.
1995 EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1995, the Company implemented its 1995 Employee Stock
Discount Plan (the "Discount Plan"). This plan provides eligible employees with
a simple and convenient method for investing in Company common stock at a 15
percent discount. The purpose of the Plan is to increase employee interest and
productivity through ownership of common stock. The Discount Plan will be in
effect for the calendar years 1995 through 1999. A total of 50,000 shares of
common stock have been registered with the Commission for issuance under the
Discount Plan. Eligible employees of the Company and its participating
subsidiaries may purchase common stock through payroll deduction. The price of
the shares purchased will be the lesser of 85 percent of the market price of the
shares as determined under the Discount Plan at January 1 of the calendar year
of purchase or 85 percent of the market price of the shares as determined under
the Discount Plan at December
21
15. STOCK PLANS (CONTINUED)
31 of the calendar year of purchase. The Discount Plan operates on a calendar
year basis. Eligible employees are determined at each January 1 and provided
with the right to purchase shares of common stock at the following December 31
with their payroll deductions made for the calendar year. Payroll deductions may
be made at any rate from 2 percent through 15 percent of base pay and may also
be made from bonuses paid in December. Shares of Common Stock are purchased as
of December 31 of each calendar year the Discount Plan is in effect.
16. STOCK SALES FOR THE LAST TWO YEARS
The common stock of the Corporation is traded on the Nasdaq Stock Market under
the symbol FBTC. The prices listed below are the high and low sales prices for
common shares during the last two years.
DATED LOW PRICE HIGH
1/1/93 - 3/31/93..................... $11.03 $13.29
4/1/93 - 6/30/93..................... $11.03 $11.03
7/1/93 - 9/30/93..................... $11.00 $13.00
10/1/93 - 12/31/93..................... $15.75 $16.00
1/1/94 - 3/31/94..................... $14.00 $15.75
4/1/94 - 6/30/94..................... $14.00 $16.00
7/1/94 - 9/30/94..................... $16.25 $16.50
10/1/94 - 12/31/94..................... $15.25 $17.25
The shares traded prior to the December 22, 1993 public offering were not traded
on Nasdaq and occurred infrequently on a local basis and generally involved a
small number of shares. Such transactions may not be representative of all
transactions during the indicated periods or the actual fair market value of the
common stock at the time of such transactions due to the infrequency of trades
and the limited market for the common stock.
17. FIVE-YEAR SUMMARY OF OPERATIONS
1994 1993 1992 1991 1990
Operating income.................................. $10,870,322 $8,142,492 $6,066,386 $5,071,897 $4,384,871
Operating expenses................................ 7,339,276 5,210,909 4,547,874 4,390,539 3,604,416
Income before taxes............................... 3,531,046 2,931,583 1,518,512 681,358 780,455
Income taxes...................................... 1,166,626 926,144 513,091 226,507 265,352
Net income........................................ $ 2,364,420 $2,005,439 $1,005,421 $ 454,851 $ 515,103
Net income per share.............................. $ 1.96 $ 2.00 $ 1.07 $ 0.46 $ 0.53
Weighted average number of shares................. 1,206,120 1,002,895 936,162 988,807 971,892
Earnings per common share were computed based on the assumption that all stock
dividends issued or declared and stock splits for the periods covered were
outstanding for the entire period.
18. CASH DIVIDENDS
During 1994, the Board of Directors declared four quarterly cash dividends of
$.14 per share.
During 1993, the Board of Directors declared a semi-annual cash dividend of $.25
per share for shareholders of record on August 1, 1993, payable on August 15,
1993.
22
19. SUBSEQUENT EVENTS
The Corporation declared a dividend of 15.4 cents a share on January 19, 1995.
The dividend is payable to shareholders of record on February 1, 1995, and
payable on February 15, 1995.
The Bank declared a dividend of 19.9 cents per share on January 19, 1995. The
dividend is payable to shareholders of record on February 1, 1995, and payable
on February 15, 1995.
20. CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY
Balance Sheets
December 31, 1994 and 1993
1994 1993
ASSETS
Cash...................................................... $ -- $ --
Investment in bank subsidiary............................. 15,868,462 --
Total Assets....................................... $15,868,462 $ --
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders Equity
Common stock.............................................. $ 1,472,821 $ --
Surplus................................................... 7,715,123 --
Retained Earnings......................................... 6,839,784 --
Net Unrealized Loss on Available For Sale Securities...... (159,266) --
Total Shareholders' Equity......................... 15,868,462 --
Total Liabilities and Shareholders' Equity................ $15,868,462 $ --
Statements of Income
December 31, 1994, 1993 and 1992
1994 1993 1992
Dividend Income.......................................... $ 329,912 $ -- $ --
Equity in Undistributed Income in Bank Subsidiary........ 951,388 -- --
Net Income........................................ $1,281,300 $ -- $ --
Statements of Cash Flows
December 31, 1994, 1993 and 1992
1994 1993 1992
Cash Flows from Operating Activities Net income.......... $1,281,300 $ -- $ --
Undistributed earnings in bank subsidiary................ (951,388) -- --
Net Cash Provided by Operating Activities................ 329,912 -- --
Cash Flows from Financing Activities
Cash dividends paid...................................... (329,912) -- --
Net Increase in Cash..................................... -- -- --
Cash, beginning of year.................................. -- -- --
Cash, end of year........................................ $ -- $ -- $ --
23
INDEPENDENT AUDITOR'S REPORT
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
To the Board of Directors and Shareholders
FB&T Financial Corporation and Subsidiary
Fairfax, Virginia
We have audited the accompanying consolidated balance sheets of FB&T Financial
Corporation and Subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years ended December 31, 1994, 1993 and 1992. 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 have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 FB&T Financial
Corporation and Subsidiary as of December 31, 1994 and 1993, and the results of
its operations, shareholders equity, and its cash flows for the years ended
December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
Fairfax, Virginia
January 25, 1995
24
DIRECTORS AND OFFICERS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
CORPORATE OFFICERS
RONALD W. TYDINGS
CHAIRMAN OF THE BOARD
CHARLES E. CURTIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
T. EARL ROGERS
EXECUTIVE VICE-PRESIDENT AND ASSISTANT SECRETARY
JAMES C. HUGHES
DIRECTOR, SECRETARY AND TREASURER
DIRECTORS
ALLEN L. BARAN
PRESIDENT AND OWNER
BARAN DENTAL LABORATORY, INC.
ANNANDALE, VIRGINIA
HONORABLE WARREN E. BARRY
VIRGINIA STATE SENATOR, 37TH DISTRICT
CHARLES E. CURTIS
PRESIDENT & CHIEF EXECUTIVE OFFICER
FB&T FINANCIAL CORPORATION
FAIRFAX, VIRGINIA
JAMES C. HUGHES
DICKSTEIN, SHAPIRO & MORIN
WASHINGTON, D.C.
JERRY M. PHILLIPS
PHILLIPS, BECKWITH & HALL
FAIRFAX, VIRGINIA
OTIS R. POOL
INDEPENDENT INVESTOR
FAIRFAX, VIRGINIA
JACQUES REBIBO
PRESIDENT
MORTGAGE INVESTMENT CORPORATION
MCLEAN, VIRGINIA
T. EARL ROGERS
EXECUTIVE VICE PRESIDENT AND
ASSISTANT SECRETARY
FB&T FINANCIAL CORPORATION
FAIRFAX, VIRGINIA
RONALD W. TYDINGS
CHAIRMAN
TYDINGS, BRYAN & ADAMS, P.C.
FAIRFAX, VIRGINIA
OFFICERS
RAMONA W. RODRIGUEZ
CASHIER
J. DAVID HOLDEN
SENIOR VICE-PRESIDENT
DONALD E. STREHLE
SENIOR VICE-PRESIDENT
STEVEN R. WILSON
SENIOR VICE-PRESIDENT
CATHERINE AUBREY
ASSISTANT CASHIER & MANAGER,
FAIR OAKS BRANCH
THOMAS F. BRADLEY
VICE-PRESIDENT
JOHN DJURIC
VICE-PRESIDENT
GEORGE C. CARSON
VICE-PRESIDENT & MANAGER,
TYSONS BRANCH
KAREN M. CLINTON
ASSISTANT CASHIER
HELENE FENWICK
ASSISTANT VICE PRESIDENT & MANAGER,
LAKE RIDGE BRANCH
CYNTHIA C. FISHER
VICE-PRESIDENT
DEBORAH A. FREE
ASSISTANT VICE-PRESIDENT & MANAGER,
CENTREVILLE BRANCH
PETER FUGE
VICE-PRESIDENT
PAULA GROTZINGER
VICE PRESIDENT & MANAGER, FAIRFAX BRANCH
ARLENE F. HALEY
ASSISTANT VICE-PRESIDENT
PHYLLIS KENNERKNECHT
ASSISTANT VICE PRESIDENT & MANAGER,
CHANTILLY BRANCH
ROBERT H. KIRK
ASSISTANT VICE PRESIDENT & MANAGER,
WOODBINE BRANCH
NANCY J. KRAUSE
ASSISTANT VICE-PRESIDENT
DONNA D. MACK
ASSISTANT VICE-PRESIDENT
CYNTHIA MCGLUMPHY
ASSISTANT VICE-PRESIDENT
JAMES E. MERRITT
VICE-PRESIDENT
WAYNE A. MORRIS
ASSISTANT VICE-PRESIDENT & MANAGER,
FALLS CHURCH BRANCH
DEBRA A. SATTLER
ASSISTANT VICE-PRESIDENT & MANAGER,
SULLY STATION BRANCH
SUE SEYMOUR
ASSISTANT VICE-PRESIDENT & MANAGER,
GAINESVILLE BRANCH
CAROL STINEMEYER
AUDITOR
CHARLES WHITTAKER
VICE PRESIDENT
25
FAIRFAX COUNTY ADVISORY BOARD
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
WILLIAM G. BEALE, CPA, P.C.
ACCOUNTANT
CHARLES A. BEAULIEU
BENCHMARK SYSTEMS, INC.
RICHARD BRIGLEB, D.D.S.
GARDNER M. BRITT, JR.
TED BRITT FORD SALES, INC.
DALE A. BRUNNER
BENCHMARK SYSTEMS, INC.
ANDY BRUSMAN
SCOTT & STRINGFELLOW
JOHN B. CONNOR
VERNER, LIPERT, BERNHART, MCPHERSON & HAND
TIMOTHY A. DANEHOWER
INSURANCE BROKER
GUY LEWIS
GUY LEWIS CONSTRUCTION
LEWIS MICHAELS, D.V.M.
HERNDON-RESTON ANIMAL HOSPITAL
JAMES J. MILANO
INVESTOR
CARL PEED
SHERIFF, FAIRFAX COUNTY
JON M. PETERSON
HAZEL PETERSON COMPANY
WHEELER RODGERS
BRADDOCK SUPPLY COMPANY
JULIAN EVERLY
EVERLY FUNERAL HOME
MARILYN FARRISH
FARRISH OLDSMOBILE
JOHN T. FREY
CIRCUIT COURT OF FAIRFAX COUNTY
MARTHA A. FURST
COMMONWEALTH LAND TITLE INSURANCE COMPANY
ROBERT G. GRIFFITH
R.G. GRIFFITH, INC.
HAROLD A. SCHAITBERGER
INTERNATIONAL ASSOCIATION OF FIRE FIGHTERS
RONALD K. HARRELL
RAVENSWORTH MOBIL STATION
JOHN JOANNOU
INVESTOR
JAMES ROMANO
ELECTRICAL CONTRACTOR
JEFFREY A. SMITH, C.P.A.
BURDETTE & FRITZ, LTD.
STANLEY E. TAYLOR
GEORGE MASON UNIVERSITY
JEFFREY T. TWARDY,
ATTORNEY
ALAN WALKER
WALKER TITLE AND ESCROW INC.
JOSEPH L. WHITCRAFT
EVERGREEN INDUSTRIES
26
PRINCE WILLIAM COUNTY ADVISORY BOARD
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
LESTER W. BOLTON
WEICHERT REALTY
PETER N. CHASE, C.P.A.
CHASE AND ASSOCIATES
PATRICIA DAVIS
REAL ESTATE BROKER
SALLY Z. DIMIERO
LONG & FOSTER REALTY
LILLIAN DOHERTY
TEACHER, PRINCE WILLIAM COUNTY SCHOOL SYSTEM
GARY EDDY
GEM CONSTRUCTION
MARY FINNIGAN
COLGAN AIRWAYS
JOE H. FRANCE
ROSS FRANCE & RATLIFF, INC.
ROGER J. FREEMAN
JOHN J. NORMAN, JR.
REAL ESTATE BROKER
CRESTON OWEN
SUPERIOR COMMUNICATIONS, INC.
KEITH PUFFENBARGER
NATIONWIDE INSURANCE
CHARLES W. RECTOR
RECTOR CONSTRUCTION COMPANY, INC.
GEORGE J. RIPOL
GEORATOR CORPORATION
JAMES B. ROBESON
ROBESON, ROBESON & VANDOREN
MARVIN L. GILLUM
SCOTT AND STRINGFELLOW
MATTHEW HIGGINS
COLOR-AD
LARRY HOUSDEN
LARRY'S HAIR DESIGNERS
HON. JOHN KAPP
MAYOR, HAYMARKET
DANIEL J. KRUPP
KRUPP'S RACING
ROBERT A. MAYER
REAL ESTATE INVESTOR
STEVEN MEINECKE
INDEPENDENT ABSTRACT
MARK MOSELY
MARK MOSELY TRAVEL
LORI NALLS
ALL POINTS RESEARCH & INVESTIGATION
PAXTON K. SPENCER
SANDCASTLE CORPORATION
E. RIGG WAGNER
RIGG'S COMPANY
STEVE WALDRON
RYSTE & RICAS, INC.
MICHAEL R. VANDERPOOL
VANDERPOOL, FROSTICK & MASSEY, P.C.
JOHN WEBER
REAL ESTATE BROKER
J. EDWARD WOOD
BRAXTON ELECTRIC SERVICES
JANA YEATES
TEMPORARY SOLUTIONS
27
FB&T LOCATIONS
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
CENTREVILLE OFFICE
14260J CENTREVILLE SQUARE
CENTREVILLE, VA 22020
(703) 359-9387
CHANTILLY OFFICE
14006 LEE JACKSON HIGHWAY
CHANTILLY, VA 22021
(703) 359-9397
FAIRFAX OFFICE
4117 CHAIN BRIDGE ROAD
FAIRFAX, VA 22030
(703) 359-3335
FAIR OAKS OFFICE
12220 FAIRFAX TOWNE CENTER
FAIRFAX, VA 22033
(703) 359-7556
FALLS CHURCH OFFICE
133 SOUTH WASHINGTON STREET
FALLS CHURCH, VA 22046
(703) 352-6194
GAINESVILLE OFFICE
14091 JOHN MARSHALL HIGHWAY
GAINESVILLE, VA 22065
(703) 754-8520
LAKE RIDGE OFFICE
12493 DILLINGHAM SQUARE
LAKE RIDGE, VA 22192
(703) 590-8700
MANASSAS OFFICE
9201 CHURCH STREET
MANASSAS, VA 22110
(703) 368-1101
SULLY STATION OFFICE
5105 WESTFIELDS BOULEVARD
CENTREVILLE, VA 22020
(703) 359-9393
TYSONS OFFICE
8221 OLD COURTHOUSE ROAD
VIENNA, VA 22182
(703) 359-9390
WOODBINE OFFICE
13414 DUMFRIES ROAD
MANASSAS, VA 22111
(703) 791-2265
28
FB&T CUSTOMER SERVICE GUIDE
FB&T FINANCIAL CORPORATION AND SUBSIDIARY
EXECUTIVE OFFICES
Charles E. Curtis
President & Chief Executive Officer
Direct phone: (703) 359-9380
COMMERCIAL AND REAL ESTATE LOANS
Steven R. Wilson
Senior Vice President
Direct phone: (703) 359-9373
CONSTRUCTION LOANS
John Djuric
Vice President
Direct phone: (703) 359-7555
MORTGAGE LOANS
Donald E. Strehle
Senior Vice President
Direct phone: (703) 352-6199
BRANCH ADMINISTRATION
T. Earl Rogers
Executive Vice President
Direct phone: (703) 359-9380
INVESTMENTS
Ramona W. Rodriguez
Cashier
Direct phone: (703) 359-9090
ANNUAL MEETING EXCHANGE LISTING
The Annual Meeting of the Shareholders will be held at 3:00 FB&T Financial Corporation common stock is traded on the
p.m. on May 17, 1995 at Fairfax Bank & Trust Company, 4117 over-the-counter market and is quoted on the NASDAQ National
Chain Bridge Road, Fairfax, Virginia 22030. Market System under the symbol FBTC.
TRANSFER AGENT
American Stock Transfer and Trust Co.
40 Wall Street
New York, NY 10005
FORM 10-K
Copies of the 1994 annual report filed with the Securities and Exchange
Commission on Form 10KSB and supplemental quarterly information may be obtained
by writing: FB&T Financial Corporation, Attn: Cashier's Department, 4117 Chain
Bridge Road, Fairfax, VA 22030.
APPENDIX VI
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-47421
FB&T Financial Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
4117 Chain Bridge Road, Fairfax, Viriginia 22030 54-1624195
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes No X
As of September 30, 1995, the registrant had 1,237,483 shares of Common
Stock outstanding.
This document contains 29 pages.
===============================================================================
FAIRFAX BANK & TRUST COMPANY
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
September 30, 1995 and 1994 1
Consolidated Statement of Operations -
September 30, 1995, 1994 and 1993 2
Consolidated Statement of Changes in Stockholders' Equity -
September 30, 1995, 1994 and 1993 3
Consolidated Statement of Cash Flows 4 - 5
Notes to Consolidated Financial Statements 6 - 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations 25 - 27
Part II Other Information
Item 1 - Legal Proceedings 28
Item 2 - Changes in Securities 28
Item 3 - Defaults Upon Senior Securities 28
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 5 - Other Information 28
Item 6 - Exhibits and Reports on Form 8-K 28
Part I - Financial Information
FB&T FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
(Unaudited)
September 30,
1995 1994
Assets
Cash and Due from Banks $ 27,589,830 $ 15,826,313
Investment Securities (Note 2) 35,969,044 35,835,244
Securities Available for Sale (Note 2) 1,977,190 11,786,875
Federal Funds Sold 23,663,944 -
Loans Receivable (Notes 3 and 12) 144,038,468 129,953,325
Less Allowance for Possible Loan Losses (Note 3) (1,416,179) (1,296,749)
Net Loans 142,622,289 128,656,576
Accrued Interest Receivable 1,397,949 1,204,995
Bank Premises and Equipment, net (Note 4) 3,585,186 2,884,352
Other Real Estate Owned (Note 5) 2,925,445 2,299,796
Prepaid and Other Assets 1,989,364 1,338,505
Intangible Assets (Note 6) 2,920,301 3,128,055
Total Assets $ 244,640,542 $ 203,314,359
Liabilities and Stockholders' Equity
Liabilities
Demand Deposits $ 85,164,308 $ 71,828,509
Savings Deposits 55,749,771 63,866,849
Time Deposits (Note 7) 60,030,611 39,091,603
Total Deposits 200,944,690 174,786,961
Securities Sold under Agreements to Repurchase 25,481,385 9,751,484
Federal Funds Purchased - 1,065,000
Other Borrowed Funds - 1,700,000
Accrued Interest Payable and Other Liabilities 985,154 600,054
Total Liabilities $ 227,411,229 $ 187,903,499
Stockholders' Equity (Notes 14, 15 and 16)
Preferred Stock, $1.25 par value,
3,000,000 shares authorized
Common Stock, $1.25 par value, 5,000,000
shares authorized; 1,233,643 shares
issued and outstanding in 1995
and 1,178,257 shares issued and
outstanding in 1994 $ 1,546,854 $ 1,472,821
Surplus 8,722,850 7,715,123
Market Value Adjustment for Securities
Available for Sale (Note 2) (22,810) (140,663)
Retained earnings 6,982,419 6,363,579
Total Stockholders' Equity $ 17,229,313 $ 15,410,860
Total Liabilities and Stockholders' Equity $ 244,640,542 $ 203,314,359
FB&T FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30, 1995, 1994 AND 1993
(Unaudited)
Period ending September 30,
1995 1994 1993
Interest Income
Interest and Fees on Loans $ 9,485,780 $ 7,221,199 $ 5,770,443
Interest on Federal Funds Sold 381,875 44,430 86,291
Interest on Securities
U.S. Treasury and Government Securities 1,185,947 1,227,281 504,514
U.S. Agency Issues and Municipal Issues 493,802 326,355 521,805
Federal Reserve Stock and Other Equity Securities 51,632 32,848 26,820
Total Interest Income $ 11,599,036 $ 8,852,113 $ 6,909,873
Interest Expense
Interest on Deposits $ 3,850,981 $ 2,523,159 $ 2,006,910
Interest on Federal Funds Purchased & Repurchase Agreements 520,295 383,326 12,020
Total Interest Expense $ 4,371,276 $ 2,906,485 $ 2,018,930
Net Interest Income $ 7,227,760 $ 5,945,628 $ 4,890,943
Provision for Possible Loan Losses (Note 3) 135,037 33,864 192,920
Net Interest Income After Provision
for Possible Loan Losses $ 7,092,723 $ 5,911,764 $ 4,698,023
Other Income
Service Charges $ 1,104,253 $ 834,387 $ 690,135
Securities Gains (Note 2) - - -
Other 675,090 629,812 490,531
Total Other Income $ 1,779,343 $ 1,464,199 $ 1,180,666
$ 8,872,066 $ 7,375,963 $ 5,878,689
Operating Expenses
Compensation and Benefits $ 2,524,050 $ 2,016,278 $ 1,447,197
Occupancy Expense (Note 9) 1,171,020 872,159 714,405
Other 2,457,694 1,958,804 1,669,495
Total Operating Expense $ 6,152,764 4,847,241 3,831,097
Income Before Income Taxes $ 2,719,302 $ 2,528,722 $ 2,047,592
Income Tax Expense (Benefit) (Note 8)
Current $ 945,303 $ 889,130 $ 687,671
Deferred (38,535) (83,669) (33,469)
$ 906,768 $ 805,461 $ 654,202
Net Income $ 1,812,536 $ 1,723,261 $ 1,393,390
Net Income Per Common Share (Note 1) $ 1.44 $ 1.36 $ 1.36
*The Notes to Financial Statements are an integral part of these statements.
FB&T FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIODS ENDED September 30, 1995, 1994 AND 1993
(Unaudited)
Net Unrealized
Par Value Treasury Retained Loss on Available
and Warrants Surplus Stock Earnings for Sale Securities Total
Balance, December 31, 1992 $ 1,217,571 $ 5,034,301 $ (221,563) $ 3,372,467 - $ 9,402,776
Sale of Treasury Stock - - 188,505 - - 188,505
Acquisition of Treasury Stock - (1,840) 38,151) (380) - (40,371)
Exercise of Stock Warrants - - - - -
Dividend - - - (243,514) - (243,514)
Net Unrealized Loss
on Available for Sale - - - - 28,609 28,609
Net Income - - - 1,393,390 - 1,393,390
Balance, September 30, 1993 $ 1,217,571 $ 5,032,461 $ (71,209) $ 4,521,963 $ 28,609 $ 10,729,395
Balance, December 31, 1993 $ 1,467,571 $ 7,693,323 $ - $ 5,134,012 $ (12,757) $ 14,282,149
Dividend - - - (493,694) - (493,694)
Net unrealized Loss
on Available for Sale
Securities - - - - (127,906) (127,906)
Option Exercised 5,250 21,800 27,050
Net Income - - - 1,723,261 - 1,723,261
Balance, September 30, 1994 $ 1,472,821 $ 7,715,123 $ 6,363,579 $ (140,663) $ 15,410,860
Balance, December 31, 1994 $ 1,472,821 $ 7,715,123 - $ 6,839,784 $ (159,266) $ 15,868,462
Repurchase Company Stock (3,937) - - (49,219) - (53,156)
Cash Dividend - - - (552,400) - (552,400)
Stock Dividend 73,170 995,112 - (1,068,282) - -
Options Exercised 4,800 12,615 - - - 17,415
Net Unrealized Loss
on Available for Sale
Securities - - - - 136,456 136,456
Net Income - - - 1,812,536 - 1,812,536
Balance, September 30, 1995 $ 1,546,854 $ 8,722,850 $ - $ 6,982,419 $ (22,810) $ 17,229,313
*The Notes to Consolidated Financial Statements are an integral part of these statements.*
FB&T FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, 1995, 1994, AND 1993
(UNAUDITED)
Period Ending September 30,
1995 1994 1993
Cash Flows from Operating Activities:
Net Income $ 1,812,536 $ 1,723,261 $ 1,393,390
NonCash Items included in Net Income
Depreciation and amortization 241,379 225,616 164,212
Loss (Gain) on sale of securities - - -
Loss (Gain) on sale and write-down of
other real estate owned 372 (61,712) 27,363
Net accretion of discount on securities (32,703) 3,052 220,875
Provision for possible loan losses 135,037 194,594 192,920
(Increase) Decrease in:
Accrued interest receivable 150,256 (105,322) 28,475
Prepaid expenses and other (905,415) (694,522) (306,923)
Increase (Decrease) in:
Accrued interest payable 299,179 30,997 4,390
Other accrued expenses 40,673 (214,382) (22,235)
Net Cash Provided by Operating Activities $ 1,741,314 $ 1,101,582 $ 1,702,467
Cash Flows from Investing Activities:
Net decrease (increase) in Federal Funds
sold/purchased $(27,525,944) $ (235,000) $ (9,156,712)
Proceeds from maturity of securities 25,000,000 5,500,000 10,633,575
Proceeds from sale of securities 1,719,317 2,214,522 -
Loans, net (11,652,673) (21,736,735) (11,940,634)
Purchase of securities (16,605,965) (12,338,000) (14,150,000)
Acquisition of Bank premises and equipment (780,743) (1,254,384) (258,825)
Other real estate owned
Capitalized expenses (187,185) (52,920) -
Proceeds from sale 1,114,589 740,408 1,502,324
Acquisition of intangible assets - (3,179,584) -
Net Cash Used by Investing Activities $(28,918,604) $(30,341,693) $(23,370,272)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Cash Flows from Financing Activities:
Net securities sold under repurchase agreements $ 10,136,909 $ (4,199,151) $ 5,050,532
Demand deposits, net 14,860,059 3,696,401 15,250,429
Savings deposits, net (1,366,562) 18,357,629 6,623,979
Time deposits, net 17,499,505 19,913,239 (347,047)
Proceeds from sale of treasury stock - - 148,133
Proceeds from sale of stock warrants - - -
Proceeds from exercise of stock options 17,415 - -
Dividends paid (552,400) 27,050 -
Repurchase of common stock (53,156) (493,694) (243,514)
Net Cash Provided by Financing Activities $ 40,541,770 $ 37,301,474 $ 26,482,512
Net (Decrease) Increase in Cash & Cash Equivalents $ 13,364,480 $ 8,061,363 $ 4,814,707
Cash and Due from Banks, beginning of year 14,225,350 7,764,950 8,820,668
Cash and Due from Banks, end of year $ 27,589,830 $ 15,826,313 $ 13,635,375
Schedule of NonCash Investing and
Financing Activities:
Acquisition of other real estate owned in
satisfaction of loan receivable $ 1,551,350 $ 955,120 $ 573,181
Acquisition of treasury stock in satisfaction
of loan receivable $ - $ - $ -
Market value adjustments of securities
available for sale $ (136,456) $ (127,906) $ 28,609
*The notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FB&T Financial Corporation and Subsidiary (Unaudited)
September 30, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation follows generally accepted accounting principles and reporting
practices applicable to the banking industry. Significant account practices are
summarized below.
Principles of Consolidation
The consolidated financial statement of FB&T Financial Corporation (the
Corporation) included the accounts of the corporation and its subsidiary,
Fairfax Bank & Trust Company (the Bank), and Fairfax Bank & Trust Company's
wholly-owned subsidiary, Bank Title Company.
All significant intercompany transactions have been eliminated.
FB&T Financial Corporation, a holding company, is the successor to Fairfax Bank
& Trust Company after a tax-free exchange of stock which occurred on July 1,
1994. Shares of Fairfax Bank & Trust Company were exchanged for an equivalent
number of FB&T Financial Corporation shares. The parent company, FB&T Financial
corporation carries its investment in the bank at cost adjusted for earnings and
dividends of the subsidiary.
Investment Securities
Securities are classified as investment securities when management has the
intent and the Bank has the ability at the time of purchase to hold them until
maturity or on a long-term basis. These securities are carried at cost adjusted
for amortization of premium and accretion of discount, computed by the
straight-line method over their contractual lives. If the interest method of
accounting for amortization of premiums and accretion of discounts was used, it
would not have a material effect on the consolidated financial statements. Gains
and losses on the sale of such securities are determined by the specific
identification method.
Securities to be held for indefinite periods of time and not intended to be held
to maturity or on a long-term basis are classified as available for sale and
accounted for at fair value on an aggregate basis. These include securities used
as part of the Bank's asset/liability management strategy and may be sold in
response to changes in interest rates, prepayment risk, the need or desire to
increase capital, to satisfy regulatory requirements and other similar factors.
Unrealized gains and losses of securities available for sale are excluded from
earnings and shown as a separate component of stockholders' equity, net of
related income taxes. Realized gains and losses of securities available for sale
are included in net securities gains (losses) based on the specific
identification method.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Loan Fees
Loans are stated at the principal amount outstanding, net of deferred loan fees.
Interest on loans is generally computed using the simple interest method. Loan
fees and related direct loan origination costs are deferred and recognized as an
adjustment of yield over the life of the loan or currently upon the sale or
repayment of the loans.
Interest on all categories of loans is accrued based upon the principal amounts
outstanding. The accrual of interest income is discontinued on loans which are
past due ninety or more days as to principal or interest payments, except for
certain guaranteed loans and other limited exceptions. When loans are placed on
non accrual status, interest accrued in the current year is charged against
interest income, and interest accrued in prior years is charged to the allowance
for loan losses. Loans may be reinstated to accrual status when all payments are
brought current, and, in the opinion of management, collection of the remaining
balance can reasonably be expected. The classification of a loan as non accrual
is not necessarily indicative of a potential loan loss.
Gains or losses on sales of residential mortgage loans, including unearned
discounts, are recognized when the loans are sold to investors. The loans are
carried at the lower of cost or market, determined on the aggregate basis.
Allowance for Possible Loan Losses
The Bank grants loans to customers located in Northern Virginia. The Bank has a
diversified portfolio, however, a substantial number of loans are secured by
real estate or are unsecured.
The allowance is established to absorb possible future losses on existing loans.
It is maintained at a level considered adequate by management to provide for
potential losses based on management's evaluation of the loan portfolio,
historical loan loss experience and prevailing and anticipated economic
conditions.
The allowance is increased by provisions for loan losses charged to operating
expense and deducted by net chargeoffs. The provisions are based on management's
estimated of net realizable value or fair value of the collateral, as
applicable, considering the current and future operating or sales conditions.
These estimates are susceptible to changes that could result in a material
adjustment to future results of operations.
Bank Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Leasehold improvements are amortized over their estimated useful
lives using the straight-line method. Furniture, equipment and automobiles are
depreciated over their estimated useful lives using straight-line methods.
Federal Funds Purchased/Sold
The Bank is required to maintain legal cash reserves, computed by applying
prescribed percentages to its various types of deposits. When the Bank's cash
reserves are in excess of that required, it may lend the excess to other banks
on a daily basis. Conversely, when cash reserve are less than required, the Bank
borrows funds on a daily basis.
The Bank has $37,000,000 of Federal funds lines of credit with correspondent
banks, of which $25,000,000 is secured. Continued availability of the lines are
at the correspondent banks' discretion. The rate of interest charged fluctuates
daily in response to market conditions. There were no borrowing on these lines
at September 30, 1995. At September 30, 1994, borrowings totaled $2,765,000.
Securities Sold Under Agreements to Repurchase and Other Borrowings
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Other borrowed funds at September 30, 1994,
consists of a $1,700,000 fixed rate credit with a three month maturity from
Federal Home Loan Bank of Atlanta. The credit matured on August 8, 1995, and
will not be renewed.
Shareholders' Equity
In September 1993, the Bank's shareholders approved an increase in the
authorized common shares for the Bank from 2,000,000 shares to 5,000,000 shares.
Additionally, the shareholders approved the authorization of 3,000,000 shares of
Preferred Stock with a par value $1.25 per share. No Preferred Stock is issued
or outstanding at September 30, 1995 and 1994.
In December 1993, the Bank completed a public offering of 200,000 shares of
common stock at $16 per share. The offering generated net proceeds of
$2,910,862 after deducting underwriting discounts and other offering
expenses. Prior to the offering, there was no public market for the Bank's
common stock. The Company's common stock trades on the Nasdaq Stock Market
under the symbol: FBTC State banking laws restrict the availability of
surplus for the payment of dividends. Such restrictions have been outlined
in the By-Laws, which incorporated the appropriate provisions of Section
6.1-56 of the 1940 Code of Virginia.
Income Taxes
The Bank utilizes an asset and liability approach to accounting for income
taxes. The objective is to recognize the amount of income taxes payable or
refundable in the current year based on the Bank's income tax return and the
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Bank's financial statements or tax
returns. The assets and liability method accounts for deferred income taxes by
applying enacted statutory rates to temporary differences, the difference
between financial statement amounts and tax bases of assets and liabilities.
Deferred income tax liabilities or assets are adjusted to reflect changes in tax
laws or rates in the year of enactment.
The Bank pays state franchise tax in lieu of state income taxes.
Income Per Common Share
Income per common share for 1995 and 1994 is based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares result from the assumed exercise of outstanding stock options that have a
dilutive effect when applying the treasury stock method. Weighted average number
of shares amounted to 1,256,384 in 1995, 1,268,485 in 1994, and 1,026,049 in
1993.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Cash paid for interest through September 30, amounted to $4,072,097 in 1995 and
$2,875,489 in 1994 and $2,014,435 in 1993.
Net income taxes paid through September 30, 1995, 1994 and 1993 amounted to
$941,469, $1,354,492 and $693,162 respectively.
Impaired Loans
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, as amended by SFAS 118. SFAS No. 114, as amended
provided that a loan is impaired when, based on current information and events,
it is probable that the creditor will be unable to collect all principal and
interest amounts due according to the contractual terms of the loan agreement.
SFAS No. 114, as amended provides guidelines relating to recognition of interest
income on impaired loans and requires that impaired loans be measured based on
the present value of the expected future cash flows, discounted at the loan's
effective interest rate. The effective rate of a loan is defined as the
contractual interest rate adjusted for any deferred loan fees or costs, premiums
or discounts existing at the inception or acquisition of the loan. If the loan
is collateral dependent, as a practical expedient, impairment can be based on a
loan's observable market price or the fair value of the collateral. The value of
the loan is adjusted through a valuation allowance created through a charge
against income. Residential mortgages, consumer installment obligations and
credit cards are excluded. Loans that were treated as in-substance foreclosures
under previous accounting pronouncements are considered to be impaired loans and
under SFAS 114 will remain in the loan portfolio.
A loan may be placed on non-accrual status and not classified as an impaired
loan when in the opinion of management, based on current information and events,
it is probable that the Bank will eventually collect all principal and interest
amounts due according to the contractual terms of the loan agreement. Interest
income for impaired loans is generally recognized on an accrual basis unless it
is deemed inappropriate to do so. In those cases which the receipt of interest
payments is deemed more uncertain, the cash basis on income recognition is
utilized. Loans are placed on non-accrual status when, in the judgment of
management, the probability of timely collection of interest is deemed to be
insufficient to warrant further accrual. As a matter of policy, the Bank does
not accrue interest on loans past due 90 days or more except when the estimated
value of the collateral and collection efforts are deemed sufficient to ensure
full recovery. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is deducted from interest income.
As of the nine months ended September 30, 1995, the Bank had no loans which the
management considered impaired.
Required Depository Reserves and Capital Ratios
The Bank is required by regulatory authorities to maintain a specified portion
of its assets in the form of reserves. Such reserves consist of vault cash and
balances maintained at the Federal Reserve Bank. The average balance required to
be maintained at the Federal Reserve Bank at September 30, 1995, was
approximately $132,000.
All banks are required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the Federal Deposit Insurance Corporation. At
September 30, 1995, banks are required to have minimum Tier 1 and Total capital
ratios of 4.00 percent and 8.00 percent, respectively. The Bank's actual ratios
at this date were 9.98 percent and 10.97 percent, respectively. The Bank's
leverage ratio at September 30, 1995 was 5.85 percent.
2. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The carrying amounts as shown in the balance sheets of the Bank and their
approximate market values are as follows:
Securities Available for Sale
September 30, 1995
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government and Agency Securities $ 2,000,000 $ - $ 22,810 $ 1,977,190
September 30, 1994
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government and Agency Securities $ 12,000,002 $ - $ 213,127 $11,786,875
Municipal Securities $ - $ - $ - $ -
$ 12,000,002 $ - $ 213,127 $11,786,875
Gross realized gains and losses for the periods ended September 30, are
as follows:
1995 1994 1993
Realized Gains $ - $ - $ -
Realized Losses $ - $ - $ -
Investment Securities
September 30,1995
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government and Agency Securities $33,001,262 $ 262,627 $ 6,446 $33,257,443
Mortgage-Backed Securities 1,842,032 2,027 3,298 1,840,761
Other Securities 1,125,750 - - 1,125,750
$35,969,044 $ 264,654 $ 9,744 $36,223,954
September 30, 1994
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government and Agency Securities $33,057,818 $ 1,110 $ 305,490 $32,753,438
Mortgage-Backed Securities 2,133,524 - 49,268 2,084,256
Other Securities 997,550 - - 997,550
$36,188,892 $ 1,110 $ 354,758 $35,835,244
The scheduled maturities of investment securities and securities available for
sale at September 30, 1995 were as follows:
Investment Securities
Securities Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $10,514,3$7 $10,548,065 $ $ 2,000,000 $ 1,977,190
Due from one year to five years 22,486,875 22,709,378
Due from five years to ten years - - - -
Mortgage-Backed Securities 1,842,032 1,840,761 - -
Federal Reserve Board Common Stock
Other Equity Securities 1,125,750 1,125,750 - -
$35,969,044 $36,223,954 $ 2,000,000 $ 1,977,190
Maturities may differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or repaid without
any penalties.
Investment securities with a carrying amount of $7,004,694 and $8,323,195 at
September 30, 1995, and 1994 respectively, were pledged as collateral on public
deposits, repurchase agreements, and for other purposes as required or permitted
by law.
3. LOANS RECEIVABLE
Loans receivable include the following at September 30:
1995 1994
Real Estate Loans
Construction $ 11,814,903 $ 10,105,435
Farm 339,434 253,636
1-4 Family Residential 65,609,577 61,508,113
Multifamily 707,367 1,206,779
Non-Farm Nonresidential 29,203,986 24,445,977
Commercial 24,754,725 21,556,201
Credit Card 2,143,181 2,824,657
Installment and Other 9,465,295 8,052,528
Totals $144,038,468 $129,953,326
At September 30, 1995, mortgages with unpaid balances of $18,940,153 were
pledged as collateral for a line of credit facility in the amount of $25,000,000
to a financial institution. Gains on sale of mortgages held for sale amounted to
$108,592 in 1995 and $121,926 in 1994 and are included in other income.
Loans on which the accrual of interest has been discontinued amounted to
$1,679,029 at September 30, 1995, and $814,913 at September 30, 1994. Had
interest been accrued on those loans, such income would have approximated
$240,134 for the year ended December 31, 1994, and $55,146 for the period ended
September 30, 1995.
A summary of transactions in the allowance for possible loan losses for the
period ended September 30, follows:
1995 1994
Balance at Beginning of Year $ 1,332,118 $ 1,102,155
Provision Charges to Operations 135,037 33,864
Loans Charged Off, Net of Recoveries (50,976) 160,730
Balance at End of Period $ 1,416,179 $ 1,296,749
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are as follows:
1995 1994
Furniture and Equipment $ 2,843,931 $ 322,748
Leasehold Improvements 1,361,843 459,187
Building 460,204 2,318,385
Land 322,748 889,533
Automobiles 150,454 140,006
$ 5,139,180 $ 4,129,859
Less Accumulated Depreciation (1,553,994) (1,245,507)
Totals $ 3,585,186 $ 2,884,352
Depreciation of bank premises and equipment charged to expense amounted to
$241,378 for 1995, $174,086 for 1994 and $164,212 for 1993.
5. OTHER REAL ESTATE OWNED
Other real estate owned includes properties acquired through foreclosure or
other proceedings in full or partial satisfaction of indebtedness. At the date
of acquisition, such property is recorded at the lower of the recorded
investment in the related receivable, net realizable value for single family
residential, or fair value. Write-downs at the date of acquisition are charged
to the allowance for loan losses. Subsequent declines in market value and/or
losses on disposition of other real estate are reflected in other income.
Expenses related to other real estate are included in other operating expenses
and amounted to $33,756 in 1995, $77,114 in 1994, and $101,981 in 1993.
A summary of transactions in the other real estate owned for the period ended
September 30, follows:
1995 1994
Balance at Beginning of Year $ 2,301,499 $ 1,970,452
Acquired 1,551,350 955,120
Capitalized Expenses 187,185 52,920
Write-Downs - -
Sales (1,114,217) (740,408)
Net Gain (Loss) on Sales (372) 61,712
$ 2,925,445 $ 2,299,796
6. INTANGIBLE ASSETS
During the second quarter of the year ended December 31, 1994, the Bank acquired
the deposits of the Federal Savings Association of Virginia (Federal) and
Commonwealth Federal Savings Bank (Commonwealth) from the Resolution Trust
Corporation. The Bank paid a premium of $46,043 and assumed liabilities of
approximately $1,407,000 and one branch location in connection with the Federal
acquisition. The Bank paid a premium of $3,015,000 and assumed liabilities of
approximately $27,923,000 and three branch locations in connection with the
Commonwealth acquisition. Intangible assets represent the excess of the fair
value of liabilities assumed over the fair value of tangible assets acquired in
branch acquisitions. These intangible assets are being amortized by systematic
charges against income over the periods in which the benefits are expected to
arise, but not exceeding 10 years.
7. TIME DEPOSITS
The following is a maturity distribution of time certificates of deposit in
denominations of $100,000 or more:
1995 1994
Three Months or Less $ 5,423,279 $ 6,657,556
Over Three Months through Twelve Months 11,769,464 3,361,171
Over Twelve Months 2,834,023 2,892,620
Totals $20,026,766 $12,911,347
8. INCOME TAXES
Income tax expense (benefit) is composed of the following:
1995 1994 1993
Current $ 945,303 $ 889,130 $ 687,671
Deferred (38,535) (83,669) (33,469)
$ 906,768 $ 805,461 $ 654,202
8. INCOME TAXES (Continued)
A reconciliation between the amount of reported Federal income tax expense and
the amount computed by multiplying the applicable statutory Federal income tax
rate is as follows:
1995 1994 1993
Income Before Income Taxes $ 2,719,302 $ 2,528,722 $ 2,047,592
Computed "expected" Federal Tax Expense $ 924,566 $ 859,765 $ 696,181
Adjustments to Federal Income Tax resulting from:
Tax Exempt Income - (4,640) (2,402)
Other (17,788) (49,664) (39,577)
Provision for Federal Income Taxes $ 906,778 $ 805,461 $ 654,202
The Deferred Tax Asset (Liability) for the periods ended September 30, are
applicable to the following items:
Deferral Source
1995 1994
Depreciation $ (219,715) $ (171,214)
Allowance for Credit Losses 243,279 268,732
Deferred Loan Fees 75,778 37,724
Net Unrealized Loss on Securities Available for Sale - 72,464
Net Deferred Tax Asset $ 99,342 $ 207,706
The Deferred Tax Asset in 1995 and 1994 are included in Other Assets.
9. OPERATING EXPENSES - OTHER
Significant amounts included in other operating expense for the period ended
September 30, are as follows:
1995 1994 1993
Amortization - Goodwill $ 153,052 $ 51,529 $ -
Credit Card Expenses 289,572 181,261 16,855
Data Processing 353,931 252,357 355,010
FDIC Insurance 186,281 226,758 217,978
Insurance 90,232 77,855 90,900
Legal and Professional Fees 225,153 113,981 143,272
Consulting Fees 37,788 - 81,509
Loss on Sale of REO Property 23,736 19,549 43,462
Other 1,097,949 1,035,514 720,509
Totals $ 2,457,694 $ 1,958,804 $ 1,669,495
10. OPERATING LEASES
The Bank leases facilities for its headquarters and branches under
non-cancelable operating leases expiring from 1992 through 2014 with current
monthly rental payments of $85,179. The headquarters facility, which is leased
from a partnership including certain partners who also serve on the Bank's Board
of Directors, requires monthly payment of $35,363 and expires December 31, 1998.
At expiration, the Bank has an option to renew the lease for two additional
five-year terms at market rates. Rental expenses of $730,886 and $574,483 was
charged to operations for the period ended September 30, 1995 and 1994.
The following is a schedule, by years, of future minimum rental payments
required under operating leases that have a non cancelable lease term in excess
of one year as of September 30, 1995:
Year ending December 31:
1995........................... $ 921,607
1996........................... 918,865
1997........................... 903,090
1998........................... 872,169
1999........................... 298,382
Thereafter..................... 1,971,389
Total....................... $5,885,502
11. EMPLOYEE BENEFIT PLAN
Effective January 1, 1993, the Bank adopted a noncontributory, defined
contribution plan. The plan is established in accordance with IRS code Section
401(K) and employees are eligible to participate after three months of
employment. The Bank did not make a contribution for the periods ending
September 30, 1995 and 1994.
12. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to directors,
executive officers, employees, and their associates. These transactions have
been made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons. Directors and executive officers were indebted to the Bank
for loans totaling $7,178,576 at September 30, 1995, and $4,463,170 at September
30, 1994. These amounts include loans of family members or businesses indirectly
associated with directors or officers. Similarly the Bank occasionally contracts
for services from certain companies related indirectly or directly to board
members.
13. COMMITMENTS AND CONTINGENCIES
At September 30, 1995 and 1994, the Bank was contingently liable for undrawn
loan commitments and outstanding letters of credit amounting to $47,507,03713
and $45,708,594, respectively. Included in the total are stand-by letters of
credit of $2,606,281 in 1995 and $2,636,484 in 1994.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counter-party. Collateral held
varies but may include cash, securities, accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties and
residential properties.
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Commercial and stand-by letters of credit were granted
primarily to commercial borrowers. The Bank does not extend credit to any single
borrower or group or related borrowers in excess of their legal lending limit.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position.
14. INCENTIVE STOCK OPTION PLAN
On October 31, 1985, the shareholders approved a qualified incentive stock
option plan and reserved 105,000 shares of the Bank's common stock for the
granting of options to key employees. Under the terms of the plan, options may
be granted at not less than fair market value at date of the grant. Individual
employees may not be granted options in excess of $100,000 per year. The options
are exercisable for a period of ten years from the date of the grant and may not
be exercised before a specified date.
As of September 30, 1995, options granted for the purchase of 101,987 shares
under the plan, adjusted for the 1987 four-for-one stock split, the 1989 five
percent stock dividend, the 1995 five percent stock dividend and options
exercised, are as follows:
Earliest Year Shares Subject Option Price
Exercisable to Option Per Share
1986 2,775 $ 4.53
1987 7,497 $ 4.53 - $ 6.13
1988 10,584 $ 4.53 - $16.52
1989 12,348 $ 4.53 - $19.09
1990 13,008 $ 4.53 - $19.09
1991 17,396 $ 6.13 - $21.72
1992 17,230 $ 6.13 - $21.72
1993 14,583 $ 6.13 - $21.72
1994 3,558 $ 6.13 - $21.72
1995 3,008 $15.24 - $21.72
15. STOCK PLANS
Dividend Reinvestment and Stock Purchase Plan
The Dividend Reinvestment and Stock Purchase Plan (DRSP) of FB&T Financial
Corporation (the Company) provides each registered holder of Company common
stock with a simple and convenient method of investing cash dividends in
additional shares of Company common stock without fees of any kind at a 5
percent discount from the market price. Participants also may make optional cash
payments to purchase shares of Company common stock at 100 percent of market
value. The Company reserved for issuance 200,000 shares of Company common stock
for use under the DRSP and registered such shares with the Securities and
Exchange Commission (the Commission). Two investment options are available to
shareholders: (1) the Company may be directed to invest cash dividends on all of
the shares then or subsequently held by the shareholder for the purchase of
additional shares of (ii) the Company may be directed to invest cash dividends
on all of the shares then or subsequently held by the shareholder, and also to
purchase additional shares with optional cash payment by the shareholder of at
least $100 but not more than $5,000 per quarter.
Non-Employee Director Stock Compensation Plan
Effective June 15, 1994, the Company implemented a Non-Employee Director Stock
Compensation Plan (the "Option Plan"). Under this plan, each Director who is not
an employee of the Company or its subsidiary will receive an option grant
covering 1,000 shares of Company common stock on June 15, of each year during
the five-year term of the Plan. The first grant under the Plan was made on June
15, 1994. The exercise price of awards are fixed at the fair market value of the
shares on the date the option is granted. A total of 40,000 shares of common
stock have been registered with the Commission and may be granted under the
option plan during its term. The options granted under the Option Plan are not
exercisable for six months from the date of grant except in the case of death or
disability. Options that are not exercisable at the time a director's services
on the Board terminated for reasons other than death, disability or
retirement in accordance with the Company's policy will be forfeited. The
purpose of the plan is to promote a greater identity of interest between
non-employee directors and the Company's shareholders by increasing each
participant's proprietary interest in the Company through the award of options
to purchase Company common stock.
1995 Employee Stock Purchase Plan
Effective January 1, 1995, the Company implemented its 1995 Employee Stock
Discount Plan (the "Discount Plan"). This plan provides eligible employees with
a simple and convenient method for investing in Company common stock at a 15
percent discount. The purpose of the Plan is to increase employee interest and
productivity through ownership of common stock. The Discount Plan will be in
effect for the calendar years 1995 through 1999. A total of 50,000 shares of
common stock have been registered with the Commission for issuance under the
Discount Plan. Eligible employees of the Company and its participating
subsidiaries may purchase common stock through payroll deduction. The price of
the shares purchased will be the lesser of 85 percent of the market price of the
shares as determined under the Discount Plan at January 1 of the calendar year
of purchase of 85 percent of the market price of the shares as determined under
the Discount Plan at December 31 of the calendar year of purchase. The Discount
Plan operates on a calendar year basis. Eligible employees are determined at
each January 1 and provided with the right to purchase shares of common stock at
the following December 31 with their payroll deductions made for the calendar
year. Payroll deductions may be made at any rate from 2 percent through 15
percent of base pay and may also be made from bonuses paid in December. Shares
of Common Stock are purchased as of December 31 of each calendar year the
Discount Plan is in effect.
16. STOCK SALES FOR THE LAST TWO YEARS
The common stock of the Corporation is traded on the Nasdaq Stock Market under
the symbol FBTC. The prices listed below are the high and low sales prices for
common shares during the last two years.
Price
Dated Low High
07/01/93 - 09/30/93 .......................... $ 11.00 $ 13.00
10/01/93 - 12/31/93 .......................... $ 15.75 $ 16.00
01/01/94 - 03/31/94 .......................... $ 14.00 $ 15.75
04/01/94 - 06/30/94 .......................... $ 14.00 $ 16.00
07/01/94 - 09/30/94 .......................... $ 16.25 $ 16.50
10/01/94 - 12/31/94 .......................... $ 15.25 $ 17.25
01/01/95 - 03/31/95 .......................... $ 16.00 $ 17.25
04/01/95 - 06/30/95 .......................... $ 16.00 $ 18.00
07/01/95 - 09/30/95 .......................... $ 17.00 $ 19.75
The shares traded prior to the December 22, 1993 public offering were not traded
on Nasdaq and occurred infrequently on a local basis and generally involved a
small number of shares. Such transactions may not be representative of all
transactions during the indicated periods or the actual fair market value of the
common stock at the time of such transactions due to the infrequency of trades
and the limited market for the common stock.
17. FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands)
For the periods ended September 30, 1995 1994 1993 1992 1991
Operating Income $ 13,379 $ 10,316 $ 8,091 $ 7,637 $ 7,466
Operating Expenses 10,659 7,787 6,043 7,046 7,426
Income Before Taxes 2,720 2,529 2,048 591 40
Income Taxes 907 806 655 198 8
Net Income $ 1,813 $ 1,723 $ 1,393 $ 393 $ 32
Net Income Per Share $ 1.44 $ 1.36 $ 1.36 $ 0.40 $ 0.04
Weighted Average Number of Shares 1,256,384 1,268,485 1,026,049 994,698 914,170
*Earnings per Common Share were computed based on the assumption that all stock
dividends issued or declared and stock splits for the periods covered were
outstanding for the entire period.
18. CASH DIVIDENDS
During the first nine months of 1995, The Board of Directors declared three
quarterly cash dividends of $0.154 per share each, for a year-to-date total of
$0.462 per share.
During 1994, the Board of Directors declared four quarterly cash dividends of
$0.56 per share.
19. STOCK DIVIDENDS
On April 20, 1995, the Board of Directors declared a five percent stock dividend
on its Common Stock. On May 15, 1995, shareholders received one additional share
of stock for each twenty shares held. Earnings per share and weighted average
shares outstanding have been restated to reflect the five percent stock
dividend.
20. SUBSEQUENT EVENTS
At it's regular Board of Directors meeting on October 19, 1995 FB&T Financial
Corporation declared a quarterly cash dividend of $0.154 per share to
stockholders of record November 1, 1995 payable on November 15, 1995.
21. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and Short-Term Investment
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Investment Securities and Securities Available for Sale
Fair value are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans Receivable
For certain homogeneous categories of loans, such as some residential mortgages
and other consumer loans, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings account, and certain month market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
21. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Commitments to Extend Credit, Stand-by Letters of Credit, and Financial
Guarantees Written
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
Unrecognized financial instrument accrual and deferral fees were not considered
material.
The estimated fair value of the Bank's financial instruments are as follows:
1995 (In Thousands) 1994 (In Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and short term
investments $ 51,254 $ 51,254 $ 15,826 $ 15,826
Securities 37,946 38,201 47,976 47,622
$ 89,200 $ 89,455 $ 63,802 $ 63,448
Loans 144,038 139,798 129,953 126,333
Less allowance for
loan losses (1,416) - (1,297) -
Net loans $142,622 $139,798 $128,656 $126,333
Total financial assets $231,822 $229,253 $192,458 $189,781
Financial liabilities:
Deposits $ 200,945 196,314 174,787 171,898
Short-term borrowings - - 2,765 2,765
Securities sold not owned 25,481 25,481 9,751 9,751
Total financial liabilities 226,426 221,795 187,303 184,414
22. CONDENSED FINANCIAL STATEMENT - PARENT COMPANY ONLY
Balance Sheets
September 30, 1995 and 1994
(Unaudited)
1995 1994
Assets
Cash $ 17,858 $ -
Investment in Bank Subsidiary 17,211,455 15,410,860
Total Assets $17,229,313 $15,410,860
Liabilities and Shareholders' Equity
Shareholders Equity
Common Stock $ 1,546,854 1,472,821
Surplus 7,993,460 7,715,123
Retained Earnings 7,711,809 6,363,579
Net Unrealized Loss on Available for Sale Securities (22,810) (140,663)
Total Shareholders' Equity 17,229,313 15,410,860
Total Liabilities and Shareholders' Equity $17,229,313 $15,410,860
Statements of Income
September 30, 1995 and 1994
1995 1994
Dividend Income $ 606,000 $ 164,956
Equity in Undistributed Income in Bank Subsidiary 1,206,536 1,558,305
Net Income $ 1,812,536 1,723,261
Statements of Cash Flows
September 30, 1995 and 1994
1995 1994
Cash Flows from Operating Activities:
Net Income $ 1,812,536 $ 1,723,261
Undistributed Earnings in Bank Subsidiary (1,206,536) (1,558,305)
Net Cash Provided by Operating Activities $ 606,000 $ 164,956
Cash Flows from Financing Activities
Cash Dividends Paid (552,400) (164,956)
Exercise of Stock Options 17,415 -
Repurchase of Company Stock - -
Net Increase in Cash (53,157) -
Cash, Beginning of Period - -
Cash, End of Period $ 17,858 -
Schedule of NonCash Investing and Financing Activities:
Stock dividend $ 1,068,282 $ -
*The Holding Company was formed on July 1, 1994.
FORM 10-QSB
FB&T FINANCIAL CORPORATION
MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the period included in accompanying consolidated financial
statements.
Results of Operations
For the three month period ended September 30, 1995, the Company recorded
quarterly earnings of $663 thousand, or $0.53 per share. This compares with $643
thousand or $0.51 per share for the third quarter of 1994. For the year to date,
the Company posted net income of $1,813 thousand or $1.44 per share compared to
$1,723 thousand, or $1.36 per share, for the same period in 1994. Per share
calculations reflect a five percent stock dividend issued on May 15, 1995.
Shareholders received one additional share of stock for each twenty shares held.
Earnings per share and weighted average shares outstanding have been restated to
reflect the five percent stock dividend.
Net interest income for the quarter ended September 30, 1995 was $2,478 thousand
compared with $2,118 thousand for the same period in 1994, an increase of 17.0%.
Year to date, the Company recorded net interest income of $7,228 thousand
compared to $5,946 thousand for the period ended September 30, 1994. This
represents an increase of 21.6%. This increase can primarily be attributed to
growth in earning assets and effective management of interest rate margins. The
environment of stable interest rates and effective asset/liability management
have created a positive affect on the net interest margin, which increased from
4.8% at September 30, 1994 to 5.2% at September 30, 1995, as earning assets have
tended to reprice at a faster rate than interest bearing liabilities.
Additionally, average earning assets for the quarter grew from $176.6 thousand
to $205.6 thousand, an increase of 16.4%, compared to the third quarter of 1994.
Total non-interest income for the quarter increased 25.8% from $488 thousand at
September 30, 1994 to $614 thousand at September 30, 1995. The primary
components of this increase are service charges and fees on deposit accounts
resulting from the growth in volume of deposit accounts. For the nine month
period ended September 30, 1995, total non-interest income was $1,780 thousand
compared to $1,464 thousand at September 30, 1994, this represents an increase
of 21.6%. These increases offset a decrease in gains earned on mortgages sold
during this same time period. Gain on sale of mortgages contributed $122
thousand to non-interest income in the first nine months of 1994 compared to
$106 thousand in the first nine months of 1995. This decline reflects the
negative affect of increased interest rates on mortgage refinancing. There were
no securities gains or losses realized in the first six months of 1995.
Compared to the third quarter 1994, non interest expense increased $2528,000, or
33.7% at September 30, 1995. The primary components of increased other operating
expenses is personnel and occupancy expense which increased 25.2% and 34.3%,
respectively compared to the third quarter of 1994. For the year to date,
non-interest expense increased 26.9% from $4,847 thousand at September 30, 1994
to $6,153 at September 30, 1995.
This increase reflects the significant expansion of the Company's branch network
and the attendant increases in staff necessary to support the expanded deposit
base. The Company has expanded from seven branches at March 31, 1994 to eleven
branches today. This expansion has enhanced coverage of the Company's primary
market areas of Fairfax and Prince William Counties.
Financial Condition
FB&T Financial Corporation has attained annual growth rates averaging above 20%
for the last seven years attributed to maintaining strong internal growth and
undertaking select acquisitions. As of September 30, 1995, total assets were
$244.6 million, an increase of 20.3% from the comparable period in 1994. Total
deposits were $200.9 million at September 30, 1995 compared to $175 million at
September 30, 1994, an increase of 15.0%. This increased funding base has
supported substantial growth in the portfolio of earning assets. When compared
to September 30, 1994, loans outstanding have increased 12.0% to $144 million
while investments in securities have decreased 20.5% from $48 million to $37.9
million during this same time period. Average earning assets year to date
increased 16.4% compared to September 30, 1994.
Non-performing assets include non-accrual loans, restructured loans and
foreclosed properties. Non-accrual loans are loans on which interest accruals
have been discontinued and restructured loans are loans whereby a borrower has
been granted a concession on the interest rate or the original repayment terms
because of the deteriorating financial condition of the borrower. Total non
performing assets were $4.6 million at September 30, 1995, an increase of 47.7%
from September 30, 1994. At September 30, 1995, non-performing assets consisted
entirely of twelve OREO properties in the aggregate amount of $2.9 and eight
non-accrual loans totaling $1.7 million. Non-performing assets as percentage of
total assets was 1.9% at September 30, 1995, which is a slight increase from
September 30, 1994, ratio of 1.5%.
Capital Resources
The Company's capital position continues to exceed regulatory guidelines and the
Company is classified as a "well capitalized institution" under federal banking
regulations. At September 30, 1995 the Company's ratio of total capital to
risk-weighted assets was 10.96%, Tier-1 Capital to risk weighted assets was
9.97% and the leverage ratio, which compared Tier-1 Capital to total assets was
5.84%. These ratios are well above the regulatory minimum of 8.0%, 4.0% and
4.0%, respectively. Book value at September 30, 1995 was $13.92 compared to
$12.46 at September 30, 1994, and the Company's third quarter cash dividend of
$0.154 per share was paid in August. The Company paid a five percent stock
dividend May 15 to shareholders of record on May 1. This plus a modest amount of
stock options exercised, increased the shares outstanding to 1,237,483.
Part II - Other Information
Item 1 - Legal Proceedings
The Company is party to legal proceedings in the normal course of business.
Item 2 - Changes in Securities
On February 3, 1994, 3,150 shares of common stock were purchased by the company
and retired. This purchase represents less than five percent of total shares
outstanding. This total number of shares outstanding to 1,175,107. On May 15,
1995 the Company paid a five percent stock dividend shareholders of record on
May 1, received one additional share of stock for each twenty shares held, which
increased the total shares outstanding to 1,233,643 as of June 30, 1995. In
August, a 3840 shares were issued to exercise options which have been granted
pursuant to the Company's Incentive Stock Option Plan.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of
1934. Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FB&T FINANCIAL CORPORATION
Dated: November 13, 1995 By:
Ramona W. Rodriguez
Chief Financial Officer
APPENDIX VII
APPENDIX VII
ARTICLE 15.
DISSENTERS' RIGHTS
(SECTION MARK)13.1-729. DEFINITIONS. -- In this article:
"CORPORATION" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"DISSENTER" means a shareholder who is entitled to dissent from corporate
action under (section mark)13.1-730 and who exercises that right when and in
the manner required by (section mark)13.1-732 through (section mark)13.1-739.
"FAIR VALUE," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"INTEREST" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
"RECORD SHAREHOLDER," means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
"BENEFICIAL SHAREHOLDER" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"SHAREHOLDER" means the record shareholder or the beneficial shareholder.
(SECTION MARK)13.1-730. RIGHT TO DISSENT. -- A. A shareholder is entitled
to dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by
(section mark)13.1-718 or the articles of incorporation and the shareholder
is entitled to vote on the merger or (ii) if the corporation is a
subsidiary that is merged with its parent under (section mark)13.1-719;
2. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such
shares provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share
exchange to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership
interests and cash in lieu of fractional shares (i) of the surviving
or acquiring corporation or limited liability company or (ii) of any
other corporation or limited liability company which, at the record
date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share
exchange is to be acted on, were either listed subject to notice of
issuance on a national securities exchange or held of record by at
least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as
set forth in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and
is not approved by a majority of "disinterested directors" as such terms
are defined in (section mark)13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
(SECTION MARK)13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- A. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
(SECTION MARK)13.1-732. NOTICE OF DISSENTERS' RIGHTS. -- A. If proposed
corporate action creating dissenters' rights under (section mark)13.1-730 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under
(section mark)13.1-730 is taken without a vote of shareholders, the corporation,
during the ten-day period after the effectuation of such corporate action, shall
notify in writing all record shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described in
(section mark)13.1-734.
(SECTION MARK)13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT. -- A. If
proposed corporate action creating dissenters' rights under
(section mark)13.1-730 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (i) shall deliver to the
corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and (ii) shall not
vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
(SECTION MARK)13.1-734. DISSENTERS' NOTICE. -- A. If proposed corporate
action creating dissenters' rights under (section mark)13.1-730 is authorized at
a shareholders' meeting, the corporation, during the ten-day period after the
effectuation of such corporate action, shall deliver a dissenters' notice in
writing to all shareholders who satisfied the requirements of
(section mark)13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before or after that date;
4. Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
(SECTION MARK)13.1-735. DUTY TO DEMAND PAYMENT. -- A. A shareholder sent a
dissenters' notice described in (section mark)13.1-734 shall demand payment,
certify that he acquired beneficial ownership of the shares before or after the
date required to be set forth in the dissenters' notice pursuant to paragraph 3
of subsection B of (section mark)13.1-734, and, in the case of certificated
shares, deposit his certificates in accordance with the terms of the notice.
B. The shareholder who deposits his share pursuant to subsection A of this
section retains all other rights of the shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(SECTION MARK)13.1-736. SHARE RESTRICTIONS. -- A. The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that these
rights are canceled or modified by the taking of the proposed corporate action.
(SECTION MARK)13.1-737. PAYMENT. -- A. Except as provided in
(section mark)13.1-738, within thirty days after receipt of a payment demand
made pursuant to (section mark)13.1-735, the corporation shall pay the dissenter
the amount the corporation estimates to be the fair value of his shares, plus
accrued interest. The obligation of the corporation under this paragraph may be
enforced (i) by the circuit court in the city or county where the corporation's
principal office is located, or, if none in this Commonwealth, where its
registered office is located or (ii) at the election of any dissenter residing
or having its principal office in the Commonwealth, by the circuit court in the
city or county where the dissenter resides or has its principal office. The
court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the
corporate action creating dissenters' rights, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of
the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
(section mark)13.1-739; and
4. A copy of this article.
(SECTION MARK)13.1-738. AFTER-ACQUIRED SHARES. -- A. A corporation may
elect to withhold payment required by (section mark)13.1-737 from a dissenter
unless he was the beneficial owner of the shares on the date of the first
publication by news media or the first announcement to shareholders generally,
whichever is earlier, of the terms of the proposed corporate action, as set
forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount of each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (section mark)13.1-739.
(SECTION MARK)13.1-739. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER. -- A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate (less any payment under (section mark)13.1-737),
or reject the corporation's offer under (section mark)13.1-738 and demand
payment of the fair value of his shares and interest due, if the dissenter
believes that the amount paid under (section mark)13.1-737 or offered under
(section mark)13.1-738 is less than the fair value of his shares or that the
interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for his
shares.
(SECTION MARK)13.1-740. COURT ACTION. -- A. If a demand for payment under
(section mark)13.1-739 remains unsettled, the corporation shall commence a
proceeding within sixty days after receiving the payment demand and petition the
circuit court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth were the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provision of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under (section mark)13.1-738.
(SECTION MARK)13.1-741. COURT COSTS AND COUNSEL FEES. -- A. The court in an
appraisal proceeding commenced under (section mark)13.1-740 shall determine all
costs of the proceeding, including the reasonable compensation and expense of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under
(section mark)13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of (section mark)13.1-732 through (section mark)13.1-739; or
2. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the right
provided by this article.
C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D. In a proceeding commenced under subsection A of (section mark)13.1-737
the court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceedings, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.