F & M BANK CORP.
Timberville, Virginia
Notice of Annual Meeting of Shareholders
To the Shareholders of F & M Bank Corp.
The annual meeting of shareholders of F & M Bank Corp. (the Company)
will be held on Saturday, May 8, 2004, at 5:30 P.M. at Broadway High School,
Broadway, Virginia, for the following purposes:
1. Election of three directors for three-year terms expiring in
2007.
2. Ratification of the appointment of S. B. Hoover & Company, L.L.P.
as independent auditors for 2004.
3. Transaction of such other business as may properly come before the
meeting. Management is not aware of any other business, other than
procedural matters incident to the conduct of the Annual Meeting.
Only shareholders of record at the close of business on March 19, 2004
are entitled to notice of and to vote at the annual meeting or any adjournments
thereof.
To assure that your shares are represented at the annual meeting,
please complete, date and sign the enclosed proxy, and return it as soon as
possible in the enclosed postage prepaid envelope. You may amend your proxy at
any time prior to the closing of the polls at the meeting.
By Order of the Board of Directors
Larry A. Caplinger, Secretary
April 2, 2004
F & M BANK CORP.
P. O. Box 1111
Timberville, Virginia 22853
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the annual meeting of shareholders of F & M Bank Corp.
(the Company) to be held Saturday, May 8, 2004 at 5:30 P.M. at Broadway High
School, Broadway, Virginia, and at any adjournments thereof (the Annual
Meeting). The principal executive offices of the Company are located on Main
Street, Timberville, Virginia 22853. The approximate mailing date of this Proxy
Statement and the accompanying proxy is April 2, 2004.
The accompanying proxy is solicited by the Board of Directors of the
Company (the Board). The cost of the solicitation of proxies will be borne by
the Company. Solicitations will be made only by the use of the mail, except
that, if necessary, officers, directors and regular employees of the Company, or
its affiliates, may make solicitations of proxies by telephone, telegraph or by
personal calls. Brokerage houses and nominees may be requested to forward the
proxy solicitation material to the beneficial owners of the stock held of record
by such persons, and the Company may reimburse them for their charges and
expenses in this regard.
All properly executed proxies delivered pursuant to this solicitation
will be voted at the Annual Meeting in accordance with any instructions thereon.
Any person signing and mailing the enclosed proxy may, nevertheless, revoke the
proxy at any time prior to the actual voting thereof by (i) filing written
notice thereof with the Secretary of the Company (Larry A. Caplinger, Secretary,
F & M Bank Corp., P. O. Box 1111, Timberville, Virginia 22853); (ii) submitting
a duly executed proxy bearing a later date; or (iii) appearing at the Annual
Meeting or any adjournment thereof and giving the Secretary notice of his or her
intention to vote in person.
An Annual Report to shareholders, including current financial
statements, is being mailed to the Company's shareholders concurrently with this
Proxy Statement, but is not part of the proxy solicitation materials.
Interested shareholders may obtain, without charge, a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2003, as filed with the Securities and Exchange Commission, upon written request
to Larry A. Caplinger, Secretary, F & M Bank Corp., P. O. Box 1111, Timberville,
Virginia 22853.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on March 19, 2004
will be entitled to vote at the Annual Meeting. As of March 19, 2004, the
Company had outstanding 2,420,478 shares of its common stock, $5 par value
(Common Stock), each of which is entitled to one vote at the Annual Meeting. A
majority of votes entitled to be cast on matters considered at the Annual
Meeting constitutes a quorum. If a share is represented for any purpose at the
Annual Meeting, it is deemed to be present for purposes of establishing a
quorum. Abstentions and shares held of record by a broker or its nominees
(Broker Shares) that are voted on any matter are included in determining the
number of votes present or represented at the Annual Meeting. Conversely, Broker
Shares that are not voted on any matter will not be included in determining
whether a quorum is present. If a quorum is established, directors will be
elected by a plurality of the votes cast by shareholders at the Annual Meeting.
Votes that are withheld or abstentions and Broker Shares that are not voted in
the election of directors or in the ratification of auditors will not be
included in determining the number of votes cast.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned, as of March 19, 2004, by each of the Company's
directors and nominees, each of the executive officers named in the "Summary
Compensation Table" below and all of the Company's directors and executive
officers as a group. For the purposes of this table, beneficial ownership has
been determined in accordance with the provisions of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, under which, in general, a person
is deemed to be a beneficial owner of a security if he or she 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 or she has the right to acquire
beneficial ownership of the security within 60 days.
1
Amount Beneficially Percent of
Name of Owner Owned Class
- -------------------------------------------------------------------------------
Larry A. Caplinger 122,273(1) 5.052%
Thomas L. Cline 7,601(2) .314%
John N. Crist 12,404(3) .512%
Julian D. Fisher 17,620(4) .728%
Ellen R. Fitzwater 3,582(5) .148%
Robert L. Halterman 29,348 1.212%
Daniel J. Harshman 550(6) .023%
Lawrence H. Hoover, Jr 39,315(7) 1.624%
Richard S. Myers 9,285(8) .384%
Michael W. Pugh 784(9) .032%
Ronald E. Wampler 10,553(10) .436%
Dean W. Withers 3,190(11) .132%
Directors and executive officers
as a group (13 persons) 256,505 10.597%
- -------------------------
(1) Includes 2,256 shares owned directly, 4,944 shares owned jointly with his
spouse, 216 shares indirectly held for Mr. Caplinger's children and 114,857
shares owned by the Company's Stock Bonus Plan over which Mr. Caplinger and
Neil W. Hayslett have voting power in their capacity as plan trustees.
(2) Includes 4,023 shares owned directly, 3,060 shares owned jointly with his
spouse, 168 shares owned by his spouse, 175 shares owned by Mr. Cline's
Roth IRA and 175 shares owned by his spouse's Roth IRA.
(3) Includes 4,563 shares owned directly, 2,000 shares owned by Mr. Crist's
IRA, 100 shares owned by Mr. Crist's Roth IRA, 2,500 shares owned by his
personal 401(k) plan, 1,141 shares owned by his spouse, 100 shares owned by
his spouse's Roth IRA, 1,000 shares owned by his spouse's IRA and 1,000
shares indirectly held for Mr. Crist's daughters.
(4) Includes 9,427 shares owned directly and 8,193 shares owned by his spouse.
(5) Includes 3,204 shares owned directly and 378 shares owned jointly with
another person.
(6) Includes 450 shares owned directly and 100 shares owned jointly with his
spouse.
(7) Includes 33,536 shares owned directly, 138 shares owned by his spouse and
5,641 shares owned by unitrusts of which he is one of the trustees.
(8) Includes 4,800 shares owned directly and 4,485 shares owned by Mr. Myers'
IRA.
(9) Includes 600 shares owned directly, 84 shares owned jointly with his spouse
and 100 shares held by a simplified employee plan for Mr. Pugh's benefit.
(10) Includes 10,053 shares owned directly and 500 shares owned by his spouse.
2
(11) Includes 910 shares owned directly, 1,500 shares owned by Mr. Withers' IRA,
600 shares owned by his spouse and 180 shares indirectly held for Mr.
Withers' sons.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS
Except for Larry A. Caplinger, as disclosed above under "Security
Ownership of Management," management of the Company knows of no person who has
beneficial ownership of 5% or more of the outstanding Common Stock as of March
19, 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and any persons who own
more than 10% of the Common Stock, to file with the Securities and Exchange
Commission (the "SEC") reports of ownership and changes in ownership of Common
Stock. Officers and directors are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on review
of the copies of such reports furnished to the Company or written representation
that no other reports were required, the Company believes that, during 2003, all
filing requirements applicable to its officers and directors were complied with
except that Lawrence H. Hoover, Jr., Chairman of the Board inadvertently failed
to file Form 4s for four sales (one by his unitrust and three by his mother's
unitrust) for August and September 2003. Corrective filings were made.
PROPOSAL ONE ELECTION OF DIRECTORS
The term of office for the current Class B directors expires at the
Annual Meeting. The Board has nominated such directors, namely Thomas L. Cline,
Robert L. Halterman and Michael W. Pugh, for election, for a three-year term, by
the shareholders at the Annual Meeting. The persons named as proxies in the
accompanying form of proxy, unless instructed otherwise, intend to vote for the
election of each of these nominees for directors. If any nominee should become
unavailable to serve, the proxy may be voted for the election of a substitute
nominee designated by the Board. The Board has no reason to believe that any of
the nominees will be unable to serve if elected.
The Board recommends election of the Class B
director nominees set forth in this Proxy Statement.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
The following information, including the principal occupation during
the past five years, is given with respect to the nominees, all of whom are
current directors, for election to the Board at the Annual Meeting, as well as
all directors continuing in office.
Name, Age and Position Director Principal Occupation During
with the Company Since the Last Five Years
- ---------------------- -------- ---------------------------
Director Nominees
CLASS B DIRECTORS
(to serve until the 2007 annual meeting of shareholders)
Thomas L. Cline (57) 1991 President of Truck & Equipment Corp. and Mac Lease, Inc.;
Secretary/Treasurer of Transport Repairs, Inc.; Secretary of Truck
Thermo King until Feb. 2003
Robert L. Halterman (68) 1980 President of Virginia Classic Mustang, Inc.; Partner, H & H Properties
Michael W. Pugh (49) 1994 President of Old Dominion Realty, Inc. and Colonial Appraisal
Service, Inc.
3
Directors Continuing in Office
CLASS C DIRECTORS
(to serve until the 2005 annual meeting of shareholders)
John N. Crist (54) 2001 Attorney, Partner in Hoover, Penrod, Davenport & Crist
Julian D. Fisher (63) 1990 CEO of Farmers & Merchants Bank (the Bank) since May 1996;
President and CEO and President of the Bank since Oct. 1991
Vice Chairman of the Board
Daniel J. Harshman (52) 2001 Manager of the Town of Edinburg; Owner/Manager of The Spring
House Restaurant from Jan. 1979 to Aug. 2000
CLASS A DIRECTORS
(to serve until the 2006 annual meeting of shareholders)
Ellen R. Fitzwater (57) 1999 Partner/Financial Manager of Fitzwater Trucking, L.L.C.;
Partner/Financial Manager of F & R Leasing, L.L.C. and Blue Ridge
Transportation Service, L.L.C. since June 2000;
Corporate accountant of Rocco, Inc. from Oct. 1968 to Dec. 2001
Lawrence H. Hoover, Jr. (69) 1981 Of Counsel, Hoover, Penrod, Davenport & Crist since Jan. 2004;
Chairman of the Board Attorney, Partner in Hoover, Penrod, Davenport & Crist until Jan.
2004
Richard S. Myers (56) 1988 President of Dick Myers Chevrolet-Pontiac
Ronald E. Wampler (56) 1991 Farmer and partner in Dove Ohio Farms, L.L.C., WWTD Ohio Farms,
L.L.C. and Dove Farms, Inc.
Corporate Governance and
The Board of Directors
General
The business and affairs of the Company are managed under the direction
of the Board of Directors in accordance with the Virginia Stock Corporation Act
and the Company's Articles of Incorporation and Bylaws. Members of the Board are
kept informed of the Company's business through discussions with the Chairman of
the Board, the President and Chief Executive Officer and other officers, by
reviewing materials provided to them and by participating in meetings of the
Board and its committees.
Code of Ethics
The Board of Directors has approved a Code of Business Conduct and
Ethics for directors, officers and employees of the Company and the Bank. This
document includes the Company's Chief Executive Officer and Principal Financial
Officer. It is available upon request to the Secretary of the Company at P. O.
Box 1111, Timberville, VA 22853.
Board and Committee Meeting Attendance
There were 13 meetings of the Board of Directors of the Company in
2003. Each director attended greater than 75% of the aggregate number of
meetings of the Board of Directors and meetings of committees of which the
director was a member in 2003. The Board of the Bank, which met 12 times in
2003, primarily manages all matters for the Bank. All the directors of the
Company are also directors of the Bank.
4
Committees of the Board
The Company has an Audit Committee and a Compensation Committee is
established at the Bank level. The Company does not have a standing Nominating
Committee but does appoint a committee each year to handle the nominations
process.
Audit Committee
The Audit Committee assists the Board of Directors in fulfilling the
Board's oversight responsibility to the shareholders relating to the integrity
of the Company's financial statements, the Company's compliance with legal and
regulatory requirements, the qualifications, independence and performance of the
Company's independent auditor and the performance of the internal audit
function. The Audit Committee is directly responsible for the appointment,
compensation, retention and oversight of the work of the independent auditor
engaged for the purpose of preparing or issuing an audit report or performing
other audit, review or attestation services for the Company. The Board of
Directors has adopted a written charter for the Audit Committee. The Audit
Committee Charter is set forth in Appendix A to this Proxy Statement.
The members of the Audit Committee are Thomas L. Cline, Ellen R.
Fitzwater, Robert L. Halterman, Daniel J. Harshman and Ronald E. Wampler, all of
whom the Board in its business judgment has determined are independent as
defined by the listing standards of the Nasdaq Stock Market ("Nasdaq"). The
Board of Directors also has determined that all of the members of the Audit
Committee have sufficient knowledge in financial and auditing matters to serve
on the Audit Committee and that Ms. Fitzwater qualifies as an audit committee
financial expert as defined by SEC regulations.
The Audit Committee met five times in 2003. For additional information
regarding the Audit Committee, see "Audit Information-Audit Committee Report" on
page 10 of this Proxy Statement.
Compensation Committee
The Compensation Committee reviews senior management's performance and
compensation and reviews and sets guidelines for compensation of all employees.
All decisions by the Compensation Committee relating to the compensation of the
Company's executive officers are reported to the full Board of Directors.
The members of the Compensation Committee are Robert L. Halterman,
Lawrence H. Hoover, Jr., Michael W. Pugh and Ronald E. Wampler, all of whom the
Board in its business judgment has determined are independent as defined by
Nasdaq's listing standards. The Compensation Committee met one time in 2003. For
additional information regarding the Compensation Committee, see "Compensation
Committee Report on Executive Compensation" on page 8 of this Proxy Statement.
Director Nomination Process
Each year, the Company appoints a nominating committee comprised of
independent directors to handle the nominations process. The nominating
committee for 2003 was composed of Directors Lawrence H. Hoover, Jr., Richard S.
Myers and Ronald E. Wampler. The Company does not have a separate charter
related to the nomination process. When these individuals perform the nominating
function, they act in accordance with the Company's Articles of Incorporation
and Bylaws.
Shareholders entitled to vote for the election of directors may submit
candidates for consideration by Company if the Company receives timely written
notice, in proper form, for each such recommended director nominee. If the
notice is not timely and in proper form, the nominee will not be considered by
the Company. To be timely for the 2005 annual meeting, the notice must be
received within the time frame set forth in "Shareholder Proposals" on page 11
of this Proxy Statement. To be in proper form, the notice must include each
nominee's written consent to be named as a nominee and to serve, if elected, and
information about the shareholder making the nomination and the person nominated
for election. These requirements are more fully described in Section 2.5 of the
Company's Bylaws, a copy of which will be provided, without charge, to any
shareholder upon written request to the Secretary of the Company, whose address
is P. O. Box 1111, Timberville, VA 22853.
5
The Company's independent directors consider, at a minimum, the
following factors in recommending to the Board potential new directors, or the
continued service of existing directors:
* The ability of the prospective nominee to represent the interests of
the shareholders of the Company;
* The prospective nominee's standards of integrity, commitment and
independence of thought and judgment;
* The prospective nominee's ability to dedicate sufficient time, energy
and attention to the diligent performance of his or her duties,
including the prospective nominee's service on other public company
boards; and
* The extent to which the prospective nominee contributes to the range
of talent, skill and expertise appropriate for the Board of Directors.
Annual Meeting Attendance
The Company encourages members of the Board of Directors to attend
the annual meeting of shareholders. Eight of the directors attended the 2003
annual meeting.
Communications with Directors
Any director may be contacted by writing to him or her c/o P. O. Box
1111, Timberville, VA 22853. Communications to the non-management directors as a
group may be sent to the same address, c/o the Secretary of the Company. The
Company promptly forwards, without screening, all such correspondence to the
indicated directors.
Director Compensation
All directors of the Company, who are also directors of the Bank, each
received $500 for attending each board meeting of the Bank in 2003. They
received no additional compensation as directors for Board meetings of the
Company. In addition, each director received a bonus of $5,500 for the year
ended 2003 and $100 for each Investment and Corporate Governance Committee
meeting attended, $150 for each Compensation Committee meeting attended and $200
for each Audit Committee meeting attended.
Executive Officers Information
The following information, including the principal occupation during
the past five years, is given with respect to each executive officer of the
Company, except for Julian D. Fisher, who is discussed above under "Information
Concerning Directors and Nominees."
Larry A. Caplinger, 51, has served as Senior Vice President of the Bank
since May 1990.
Neil W. Hayslett, 42, has served as Senior Vice President and Chief
Financial Officer of the Bank since January 2003. Prior to that time, he served
as Vice President and Chief Financial Officer.
Dean W. Withers, 47, has served as Executive Vice President and Chief
Operating Officer of the Bank since January 2003. Prior to that time, he served
as Vice President.
6
SUMMARY COMPENSATION
The Summary Compensation Table below sets forth the compensation of the
Company's named Executive Officers for all services rendered to the Company and
the Bank for the last three fiscal years. During 2003, no other executive
officer of the Company and the Bank received compensation in excess of $100,000.
Summary Compensation Table
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
Julian D. Fisher 2003 $160,000 $49,500 * $34,905(3)
President & Chief 2002 150,000 49,500 * 44,109(3)
Executive Officer 2001 140,000 48,750(2) * 40,935(3)
Larry A. Caplinger(1) 2003 83,000 18,000(2) * 17,725(4)
Senior Vice President 2002 79,000 17,500(2) * 19,551(4)
Dean W. Withers(1) 2003 83,000 18,000 * 17,374(5)
Executive Vice President & 2002 78,000 16,500(2) * 19,844(5)
Chief Operating Officer
*The value of perquisites and other personal benefits did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus.
1Mr. Caplinger and Mr. Withers became executive officers as of July
18, 2002.
2The amounts presented include compensation that was deferred at the
executive officer's election.
3The amounts presented include the Company's contribution for the
benefit of Mr. Fisher under the Company's Stock Bonus Plan ($15,345, $11,791,
and $10,806 in 2003, 2002, and 2001, respectively), the gross value of life
insurance premiums paid by the Company on behalf of Mr. Fisher ($1,350, $15,647
and $15,844 in 2003, 2002 and 2001, respectively) and the Company's contribution
for the benefit of Mr. Fisher under the Executive Deferred Compensation Plan for
Farmers & Merchants Bank ($18,210, $16,671, and $14,285 in 2003, 2002, and 2001,
respectively). Prior to 2003, the Company and Mr. Fisher were parties to
split-dollar life insurance policies. Under the terms of the policies, the
Company will be repaid the life insurance premium payments from the proceeds of
the insurance policies at Mr. Fisher's death or when cash surrender values are
sufficient to carry the policies through normal life expectancy, and Mr. Fisher
or his heirs would receive the remaining benefits. During 2003, these policies
were cancelled, and the Company provided Mr. Fisher with term life insurance
equal to five times his base salary. The amounts presented in the table
represent the split dollar premiums for 2001 and 2002 and the term life
insurance premium for 2003.
4The amounts presented include the Company's contribution for the
benefit of Mr. Caplinger under the Company's Stock Bonus Plan ($7,568 and $6,773
in 2003 and 2002, respectively), the gross value of life insurance premiums paid
by the Company on behalf of Mr. Caplinger ($711 and $3,998 in 2003 and 2002,
respectively) and the Company's contribution for the benefit of Mr. Caplinger
under the Executive Deferred Compensation Plan for Farmers & Merchants Bank
($9,446 and $8,780 in 2003 and 2002, respectively). Prior to 2003, the Company
and Mr. Caplinger were parties to split-dollar life insurance policies. Under
the terms of the policies, the Company will be repaid the life insurance premium
payments from the proceeds of the insurance policies at Mr. Caplinger's death or
when cash surrender values are sufficient to carry the policies through normal
life expectancy, and Mr. Caplinger or his heirs would receive the remaining
benefits. During 2003, these policies were cancelled, and the Company provided
Mr. Caplinger with term life insurance equal to five times his base salary. The
amounts presented in the table represent the split dollar premiums for 2001 and
2002 and the term life insurance premium for 2003.
5The amounts presented include the Company's contribution for the
benefit of Mr. Withers under the Company's Stock Bonus Plan ($7,226 and $6,405
in 2003 and 2002, respectively), the gross value of life insurance premiums paid
by the Company on behalf of Mr. Withers ($702 and $4,770 in 2003 and 2002,
respectively) and the Company's contribution for the benefit of Mr. Withers
under the Executive Deferred Compensation Plan for Farmers & Merchants Bank
($9,446 and $8,669 in 2003 and 2002, respectively). Prior to 2003, the Company
and Mr. Withers were parties to split-dollar life insurance policies. Under the
terms of the policies, the Company will be repaid the life insurance premium
payments from the proceeds of the insurance policies at Mr. Withers' death or
when cash surrender values are sufficient to carry the policies through normal
life expectancy, and Mr. Withers or his heirs would receive the remaining
benefits. During 2003, these policies were cancelled, and the Company provided
Mr. Withers with term life insurance equal to five times his base salary. The
amounts presented in the table represent the split dollar premiums for 2001 and
2002 and the term life insurance premium for 2003.
7
Severance Plan
In 1996, the Company and the Bank adopted a change in control
severance plan that became effective July 1, 1996. The plan covers employees
designated by the Company's Board of Directors, including Mr. Fisher, Mr.
Caplinger and Mr. Withers.
Under the plan, a "covered termination" is a cessation of employment
with the Company or its then affiliates within 36 months after a change in
control (as defined in the plan) on account of either (i) termination of
employment by the covered employee for good reason (defined to mean the
occurrence after a change in control of any of the following: the assignment of
duties inconsistent with prior duties, the diminution of responsibilities, a
reduction in base salary, a transfer of job location of more than 50 miles, a
failure to pay compensation or deferred compensation within seven days after
due, a failure to continue participation and benefits under any compensation or
benefits plan (or any successor or replacement plan) at as favorable a level, or
a failure of the Company to require any successor to the Company to comply with
the plan) or (ii) termination initiated by the Company or any of its affiliates
for any reason other than death, disability, mandatory retirement or cause (as
defined in the plan).
In the event of a covered termination, a covered employee will be
entitled to the following severance benefits: (i) continuation of the employee's
base pay (as defined in the plan) through the earlier of his or her death or the
third anniversary of the date of the change in control (the severance pay
period); (ii) continuation of the availability of coverage, and the employer's
regular contribution towards that coverage, under the employer's health care
plan during the severance pay period for the employee and his or her eligible
dependents; (iii) the right to buy any car that the employee is assigned by the
employer at its then fair market value; and (iv) a lump sum payment equal to the
value of any qualified or nonqualified retirement benefits forfeited by the
employee on account of his or her covered termination.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Bank has furnished the following
report on executive compensation. All executive compensation for the Company and
the Bank is determined and paid on the Bank level.
The Compensation Committee meets annually to review salaries, bonuses
and the contributions to the Employee Stock Ownership Plan (ESOP) (also known as
the Company's Stock Bonus Plan) and the Executive Deferred Compensation Plan.
The Compensation Committee recommends to the Board of Directors the annual
salary and bonuses of the Senior Management group.
The committee also recommends the annual contribution to the ESOP,
which is shared on a pro-rated basis by all eligible employees, and the
contribution to the Executive Deferred Compensation Plan, which was established
for the benefit of the Senior Management group. Finally, the committee
recommends a range of percentage increases in salary for the remaining staff.
Increases within the range established by the committee and board are then
recommended by department supervisors and approved by Mr. Fisher.
In establishing salaries and bonuses for the Senior Management group,
the committee attempts to provide competitive levels of compensation, which will
attract and retain corporate officers and key employees with outstanding
abilities and to motivate them through a combination of base salary, annual
incentives and deferred compensation. The committee uses the Virginia Bankers
Association Salary Survey of Virginia Banks for comparison of salaries paid for
similar positions and responsibilities. The Board, on at least an annual basis,
also reviews qualitative factors, such as Return on Average Assets (ROAA) and
Return on Average Equity (ROAE) relative to peer banks. A subjective approach is
used in this evaluation and therefore the committee does not rely on a formula
or weights of specific factors.
Compensation Committee
Robert L. Halterman
Lawrence H. Hoover, Jr.
Michael W. Pugh
Ronald E. Wampler
Compensation Committee Interlocks and Insider Participation
During 2003, no executive officer served on the Compensation Committee.
8
Indebtedness and Other Transactions
The Company's directors and officers, and other corporations, business
organizations, and persons with whom some of the Company's directors and
officers are associated, had loan transactions at December 31, 2003 with the
Bank totaling approximately $3,943,440 or about 12.90% of average shareholders'
equity for the year. All such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time in comparable transactions with
others and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Stock Performance
The following graph compares the cumulative total return to the
shareholders of the Company for the last five fiscal years with the total return
on the Russell 2000 Index and the Pink Banks ($100M to $500M) Index, as reported
by SNL Financial LC, assuming an investment of $100 in the Common Stock on
December 31, 1998, and the reinvestment of dividends.
[GRAPHIC OMITTED]
Period Ending
-----------------------------------------------------------------------
Index 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
- ---------------------------------------------------- ----------- ----------- ----------- ------------ ----------- -----------
F & M Bank Corp. 100.00 118.02 117.38 92.11 99.09 122.34
Russell 2000 100.00 121.26 117.59 120.52 95.83 141.11
SNL $100M-$500M OTC-BB & Pink Banks 100.00 91.07 76.98 88.68 106.37 144.49
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
S. B. Hoover & Company, L.L.P. of Harrisonburg, Virginia, was the
auditor for the Company for 2003 and is being recommended to the Company's
shareholders for the ratification of its appointment as auditor for 2004. A
representative of S. B. Hoover & Company, L.L.P. is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he desires
to do so, and is expected to be available to respond to appropriate questions
from shareholders.
The Board recommends a vote for Proposal Two.
9
AUDIT INFORMATION
Audit Committee
The Audit Committee operates under a written charter that the Board has
adopted and that is set forth as Appendix A to this Proxy Statement. The five
members of the Audit Committee are independent as that term is defined in
Nasdaq's listing standards.
Fees of Independent Public Accountants
Audit Fees
The aggregate fees billed by S. B. Hoover & Company, L.L.P. for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal years ended December 31, 2003 and 2002, and for the
review of the financial statements included in the Company's Quarterly Reports
on Form 10-Q, and services that are normally provided in connection with
statutory and regulatory filings and engagements, for those fiscal years were
$35,500 for 2003 and $27,800 for 2002.
Audit Related Fees
The aggregate fees billed by S. B. Hoover & Company, L.L.P. for
professional services for assurance and related services that are reasonably
related to the performance of the audit or review of the Company's financial
statements and not reported under the heading "Audit Fees" above for the fiscal
years ended December 31, 2003 and December 31, 2002 were $1,685 and $1,335,
respectively. During both years, these services included FHLB collateral
verification audits and consultation concerning financial accounting and
reporting standards and other related issues.
Tax Fees
The aggregate fees billed by S. B. Hoover & Company, L.L.P. for
professional services for tax compliance, tax advice and tax planning for the
fiscal years ended December 31, 2003 and December 31, 2002 were $3,000 and
$2,425, respectively. During both years, these services included preparation of
federal and state income tax returns.
All Other Fees
There were no fees billed by S. B. Hoover & Company, L.L.P. for any
other services rendered to the Company for the fiscal years ended December 31,
2003 and 2002.
Pre-Approved Services
All audit related services and tax services were pre-approved by the
Audit Committee, which concluded that the provision of such services by S. B.
Hoover & Company, L.L.P. was compatible with the maintenance of that firm's
independence in the conduct of its auditing functions. The Audit Committee's
Charter provides for pre-approval of audit, audit-related and tax services. The
Charter authorizes the Audit Committee to delegate to one or more of its members
pre-approval authority with respect to permitted services.
Audit Committee Report
Management is responsible for the Company's internal controls,
financial reporting process and compliance with laws and regulations and ethical
business standards. The independent auditor is responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and issuing a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes on behalf of the Board of Directors.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the audited financial statements. The
Audit Committee has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) and
discussed with them their independence
10
from the Company and its management. Moreover, the Audit Committee has
considered whether the independent auditor's provision of other non-audit
services to the Company is compatible with the auditor's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, for filing with the Securities and Exchange
Commission. By recommending to the Board of Directors that the audited financial
statements be so included, the Audit Committee is not opining on the accuracy,
completeness or fairness of the audited financial statements.
March 25, 2004 Audit Committee
Thomas L. Cline
Ellen R. Fitzwater
Robert L. Halterman
Daniel J. Harshman
Ronald E. Wampler
SHAREHOLDER PROPOSALS
Under SEC regulations, any shareholder desiring to make a proposal to
be acted upon at the 2005 annual meeting of shareholders must cause such
proposal to be delivered, in proper form, to the Secretary of the Company, at
its principal executive offices, P. O. Box 1111, Timberville, Virginia 22853, no
later than December 3, 2004, in order for the proposal to be considered for
inclusion in the Company's Proxy Statement for that meeting. The Company
anticipates holding the 2005 annual meeting of shareholders on May 14, 2005.
The Company's Bylaws also prescribe the procedure that a shareholder
must follow to nominate directors or to bring other business before
shareholders' meetings outside of the proxy statement process. For a shareholder
to nominate a candidate for director at the 2005 annual meeting of shareholders,
notice of the nomination must be received by the Secretary of the Company not
less than 60 days and not more than 90 days prior to the date of the 2005 annual
meeting. The notice must describe various matters regarding the nominee and the
shareholder giving the notice. For a shareholder to bring other business before
the 2005 annual meeting of shareholders, notice of the proposed business must be
received by the Secretary of the Company not less than 60 days and not more than
90 days prior to the date of the 2005 annual meeting. The notice must include a
description of the proposed business, the reasons therefor, and other specified
matters. Any shareholder may obtain a copy of the Company's Bylaws, without
charge, upon written request to the Secretary of the Company. Based upon an
anticipated date of May 14, 2005 for the 2005 annual meeting of shareholders,
the Company must receive any notice of nomination or other business no later
than March 15, 2005 and no earlier than February 13, 2005.
HOUSEHOLDING OF PROXY MATERIALS
SEC regulations permit the Company to send a single set of proxy
materials, including this Proxy Statement and an Annual Report to shareholders,
to two or more shareholders that share the same address. Each shareholder will
continue to receive his or her own separate proxy. The Company will deliver
promptly upon written or oral request a separate set of proxy materials to a
shareholder at a shared address that only received a single set of proxy
materials for this year. If the shareholder would prefer to receive his or her
own copy, please contact Sylvia Bowman. Ms. Bowman's phone number is (540)
896-8941, and her address is P. O. Box 1111, Timberville, Virginia 22853.
Similarly, if a shareholder would like to receive his or her own set of the
Company's proxy materials in future years or if a shareholder shares an address
with another shareholder and both would like to receive only a single set of the
Company's proxy materials in future years, please contact Ms. Bowman.
By Order of the Board of Directors
Larry A. Caplinger, Secretary
April 2, 2004
11
Appendix A
F & M Bank Corp.
Audit Committee Charter
I. Purpose
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibility by: reviewing the financial
reports and other financial information provided by the organization; assessing
the systems of internal controls; and monitoring the organization's auditing,
accounting, financial reporting and loan review functions. Consistent with this
function, the Audit Committee should encourage continuous improvement in and
should foster adherence to, the organization's policies, procedures, and
practices at all levels. The Audit Committee's primary duties and
responsibilities are to:
Serveas an independent and objective party to monitor the organization's
financial reporting process and internal control system.
Review and appraise the audit efforts of the organization's independent
accountants and internal auditing firm.
Review and approve the loan review function as conducted by the
organizations loan review officer(s).
Provide an open avenue of communication among the independent accountants,
senior management, the internal auditing firm, and the Board of Directors.
II. Composition
The Audit Committee shall be composed of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee. A
Director will be considered independent if, he or she:
Has not been employed by the Corporation or its affiliates in the current
or past three years;
Receives no significant compensation from the bank, other than Directors
fees.
Does not have an immediate family member who is, or has been in the past
three years, employed by the Corporation or its affiliates as an executive
officer;
Has not been a partner, controlling shareholder or an executive officer of
any for-profit business to which the Corporation made, or from which it
received, payments (other than those which arise solely from investments in
the Corporation's securities) for providing major services to the bank,
holding company or affiliates in any of the past three years; or
Has not been employed as an executive of another entity where any of the
Corporation's executives serve on that entity's compensation committee.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise. Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by the Corporation or an
outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
III. Meetings
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with the independent accountants to
discuss any matters that the Committee believes should be discussed privately.
A-1
IV. Responsibilities and Duties
To fulfill its responsibilities and duties the Audit Committee shall:
Review and update this Charter periodically, at least annually, as
conditions dictate.
Review quarterly financial information prior to filing with Securities &
Exchange Commission.
Review the organization's audited financial statements with Management and
the independent auditors.
Recommend to the Board of Directors that the audited financial statements
be included in the Company's Annual Report on Form 10-K.
Review the regular internal audit reports prepared by the internal auditing
firm as well as Management's responses.
Review the regular internal loan review reports prepared by the loan review
officer(s) as well as management's responses.
Recommend to the Board the selection of the independent accountants and the
internal audit firm, considering independence and effectiveness, and
approve the fees and other compensation to be paid to these firm(s).
On an annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with the
organization to determine the accountants' independence.
Review the performance of the independent accounting firm(s) and approve
any proposed discharge of the independent accountants when circumstances
warrant.
Periodically consult with the independent accounting firm(s) out of the
presence of Management about internal controls and the fairness and
accuracy of the organization's financial statements.
Periodically consult with internal loan review officer(s) out of the
presence of management about loan policies, procedures and credit
administration practices.
Consider and approve, if appropriate, major changes to the organization's
auditing and accounting principles and practices as suggested by the
independent accounting firm(s), Management, or the internal auditing
department.
Discuss with the independent auditors the "Matters Required To Be
Discussed" by the Statement of Auditing Standards No. 61 relating to the
conduct of the audit.
Review activities, organizational structure, and qualifications of the
internal audit firm.
Perform any other activities consistent with this Charter, the
organization's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditors. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations.
This Audit Committee Charter has been reviewed and approved by the Audit
Committee and Board of Directors of F & M Bank Corp. December 18, 2003.
A-2
PROXY
F & M BANK CORP.
Annual Meeting of Shareholders, May 8, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lawrence H. Hoover, Jr., Richard S.
Myers and Ronald E. Wampler, any or all of whom may act, with full power of
substitution, as proxies to vote, as designated below, at the Annual Meeting of
Shareholders to be held May 8, 2004 at 5:30 P.M. and at any adjournment thereof,
the shares of F & M Bank Corp. common stock held of record by the undersigned as
of March 19, 2004.
The shares to which this proxy relates will be voted as specified. If
no specification is made, such shares will be voted in favor of the proposals
set forth on this proxy.
PROPOSAL ONE
ELECTION OF DIRECTORS
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below) nominees listed below
Thomas L. Cline, Robert L. Halterman and Michael W. Pugh
for three-year terms to expire in 2007.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below.)
- --------------------------------------------------------------------------------
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF S. B. HOOVER & COMPANY, L.L.P.
AS INDEPENDENT PUBLIC ACCOUNTANTS
|_| FOR |_| AGAINST |_| ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
Please complete, date and sign the proxy and return it as soon as
possible in the enclosed postage prepaid envelope. Please sign the Proxy in the
name or names shown on your stock certificate. If signing as a trustee,
executor, etc., please so indicate.
Date Signed:
------------------------
- ----------------------------------- -----------------------------------
Print Name Signature
- ----------------------------------- -----------------------------------
Print Name Signature