SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File No. 0-5929
F & M NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Commonwealth of Virginia 54-0857462
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
38 Rouss Avenue, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 540-665-4200
NO CHANGES
(Former name, former address and former fiscal year, if
changes since last report)
Indicate by check mark whether the registrant (l) has filed all
reports 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 requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the close of the period covered by this
report:
16,551,077 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
Sept. 30, December 31,
1995 1994
<S> <C> <C>
Assets:
Cash and due from banks $ 73,143 $ 80,283
Interest-bearing deposits in other banks 262 229
Securities-held to maturity(market value
September 30, 1995-$305,437;
December 31, 1994, $281,325) 302,403 293,459
Securities - available for sale
(market value) 245,969 221,029
Federal funds sold and securities
purchased under agreements to resell 97,193 42,035
Loans - held to maturity 1,024,794 1,007,895
Loans - available for sale 6,728 7,255
Unearned income (6,441) (5,926)
Loans (net of unearned income) 1,025,079 1,009,224
Allowance for loan losses (15,374) (15,463)
Net loans 1,009,707 993,761
Bank premises and equipment, net 34,154 32,112
Other assets 45,569 45,585
Total assets $1,808,400 $1,708,493
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 231,446 $ 230,678
Interest bearing 1,335,527 1,260,394
Total deposits 1,566,973 1,491,072
Federal funds purchased and securities
sold under agreements to repurchase 9,535 16,474
Federal Home Loan Bank advance 2,435 875
Other short-term borrowings 22,406 18,948
Long-term debt 3,510 3,194
Other liabilities 15,509 8,941
Total liabilities $1,620,368 $1,539,504
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
Sept. 30, December 31,
1995 1994
<S> <C> <C>
Shareholders' Equity
Preferred stock, no par value:
(Authorized 5,000,000 shares,
no shares outstanding) 0 0
Common stock par value $2.00 per
share, authorized 20,000,000 shares:
issued September 30, 1995 - 16,551,077
shares; issued December 31,
1994-16,482,595 shares 33,103 32,966
Capital surplus 57,852 56,892
Retained earnings 96,133 85,914
Unrealized gain (loss) on
AFS securities, net 944 (6,783)
Total shareholders' equity 188,032 168,989
Total liabilities and
shareholders' equity $1,808,400 $1,708,493
See Accompanying Notes to Consolidated Financial Statements
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Nine For the
Months Ended Quarter Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest income
Loans held to maturity:
Interest and fees $ 70,898 $ 62,080 $ 24,074 $ 21,699
Loans available for sale:
Interest and fees 727 749 255 232
Total loan interest income 71,625 62,829 24,329 21,931
Securities held to maturity:
Taxable interest income 11,948 9,233 4,188 3,339
Interest income exempt from
Federal income taxes 1,455 1,696 439 547
Securities available for sale:
Taxable interest income 10,406 12,218 3,498 3,927
Dividend income 275 151 78 71
Total security interest income 24,084 23,298 8,203 7,884
Interest on federal funds sold
and securities purchased
under agreements to resell 2,987 2,223 1,218 759
Interest on deposits in banks 24 34 6 4
Total interest income 98,720 88,384 33,756 30,578
Interest expense:
Interest on deposits 40,757 33,572 14,626 11,396
Interest on short-term
borrowings 960 725 289 298
Interest on long-term debt 201 35 74 25
Total interest expense 41,918 34,332 14,989 11,719
Net interest income 56,802 54,052 18,767 18,859
Provision for loan losses 709 1,570 235 434
Net interest income after
provision for loan losses 56,093 52,482 18,532 18,425
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Nine For the
Months Ended Quarter Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Other Income:
Commissions and fees from
fiduciary activities $ 1,359 $ 1,228 $ 473 $ 433
Service charges on deposit
accounts 4,412 4,226 1,481 1,418
Credit card fees 1,980 1,664 711 623
Fees for other customer services 733 402 232 132
Other operating income 3,294 4,405 990 1,727
Profits on securities available
for sale 337 741 (2) 58
Investment securities gains, net 20 18 3 (3)
Total other income 12,135 12,684 3,888 4,388
Other Expenses:
Salaries and employee benefits 21,820 21,408 7,234 7,363
Net occupancy expense of
premises 3,002 2,886 1,020 944
Furniture and equipment expense 3,075 3,001 1,140 916
Deposit insurance 1,577 2,520 (87) 851
Credit card expense 1,187 1,325 430 434
Other operating expense 10,990 10,678 3,494 3,731
Total other expense 41,651 41,818 13,231 14,239
Income before income tax
expense 26,577 23,348 9,189 8,574
Income tax expense 8,884 8,110 3,091 3,050
Net income $17,693 $15,238 $ 6,098 $ 5,524
Earnings per average share:
(1995 - 16,529,097 shares;
1994 - 16,522,807 shares)
Net income per share $ 1.07 $ 0.92 $ 0.37 $ 0.33
Dividends per share $ 0.45 $ 0.40 $ 0.16 $ 0.15
See Accompanying Notes to Consolidated Financial Statements
/TABLE
<PAGE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPT. 30, 1995 AND 1994
(000 Omitted)
<CAPTION>
Unrealized
Gain
(Loss) on
Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale-Net Total
<S> <C> <C> <C> <C> <C>
Balances:
January 1, 1994 $32,256 $52,033 $80,205 $164,494
Net income 15,238 15,238
Cash dividends (6,577) (6,577)
Acquisition of common
stock (150) (1,109) (1,259)
Issuance of authorized
common stock:
Dividend reinvestment
plan 172 1,138 1,310
Stock options 6 18 24
Stock options under
non-variable
compensatory plan 211 211
Market value adjusted
net of income taxes (4,230) (4,230)
2.5% stock dividend 758 5,243 (6,001) 0
Fractional share cash
distribution related
to 2.5% stock dividend (58) (58)
Balances:
September 30, 1994 $33,042 $57,534 $82,807 $(4,230) $169,153
Balances:
January 1, 1995 $32,966 $56,892 $85,914 $(6,783) $168,989
Net Income 17,693 17,693
Cash dividends (7,474) (7,474)
Acquisition of common
stock (204) (1,559) (1,763)
Issuance of authorized
common stock:
Dividend reinvestment
plan 218 1,512 1,730
Stock options 24 99 123
Stock options under
non-variable
compensatory plan 207 207
Sale of common stock 24 176 200
Employee stock
ownership plan 75 525 600
Market value adjustment,
net of income tax 7,727 7,727
Balances:
September 30, 1995 $33,103 $57,852 $96,133 $ 944 $188,032
See Accompanying Notes to Consolidated Financial Statements
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
(Unaudited)
Consolidated for the
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 17,693 $ 15,238
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,046 2,170
Provision for loan losses 709 1,570
Profits on securities available for sale (337) (741)
Profits on securities held to maturity (20) (18)
Decrease in other assets 6,687 7,559
Increase in other liabilities 6,361 7,183
Net cash provided by operating activities 33,139 32,961
Cash Flows From Investing Activities
(Increase) decrease in interest-bearing
deposits in other bank (33) 2,003
Proceeds from sale of securities available
for sale 18,863 26,432
Proceeds from maturities and calls
of available for sale securities 24,699 68,082
Purchase of securities available for sale (60,438) (73,351)
Proceeds from maturities and calls of
investment securities 46,136 57,220
Purchase of investment securities (55,060) (90,324)
(Increase) decrease in federal funds sold
and securities purchased under agreements
to resell (55,158) 18,088
Net (increase) in loans (22,995) (59,908)
Purchases of bank premises and equipment (4,419) (1,898)
Net cash (used in) investing activities (108,405) (53,656)
Cash Flows From Financing Activities
Net (decrease) increase in noninterest-
bearing and interest-bearing demand
deposits and savings accounts (44,523) 18,396
Net increase in certificates of deposit 120,424 7,142
Dividends paid (7,474) (6,577)
(Decrease) increase in other short-term
borrowings (1,921) 816
Increase in long-term debt 316 3,825
Acquisition of common stock (1,763) (1,259)
Net proceeds from issuance of common stock 3,067 1,334
Fractional share cash distribution related
to 2.5% stock dividend (58)
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
(Unaudited)
Consolidated for the
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<S> <C> <C>
Net cash provided by financing activities $ 68,126 $ 23,619
(Decrease) increase in cash and
cash equivalents $ (7,140) $ 2,924
Cash and Cash Equivalents
Beginning 80,283 66,770
Ending $ 73,143 $ 69,694
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors $ 42,757 $ 34,514
Interest paid on other short-term
borrowings 960 725
$ 43,717 $ 35,239
Income taxes $ 6,086 $ 7,699
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
1995 - 26,000 shares;
1994 - 26,000 shares $ 207 $ 211
Loan balances transferred to foreclosed
properties $ 6,340 $ 11,287
Market value adjustment available for
sale securities $ 7,727 $ (4,230)
2.5% common stock dividend $ -- $ 6,001
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
l. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 1995, and December 31, 1994,
and the results of operations and changes in cash flows for the nine
months ended September 30, 1995 and 1994. The statements should be
read in conjunction with the Consolidated Notes to Financial
Statements included in the Company's Annual Report for the year ended
December 31, 1994.
2. The results of operations for the nine-month periods ended
September 30, 1995 and 1994, are not necessarily indicative of the
results to be expected for the full year.
3. The Corporation's amortized cost and market value of securities
being held to maturity as of September 30, 1995, are as follows:
<TABLE>
<CAPTION>
September 30, 1995 (000 omitted)
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and Agencies $266,698 $4,345 ($1,976) $269,067
Corporate securities 1,468 57 (24) 1,501
Obligations of states and
political subdivisions 34,237 803 (171) 34,869
$302,403 $5,205 ($2,171) $305,437
</TABLE>
The Corporation's amortized cost and market value of the available
for sale securities as of September 30, 1995, are as follows:
<TABLE>
<CAPTION>
September 30, 1995 (000 omitted)
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $231,789 $2,707 ($1,748) $232,748
Corporate securities 7,277 242 (10) 7,509
Other 5,482 231 (1) 5,712
$244,548 $3,180 ($1,759) $245,969
/TABLE
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
4. The Corporation's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
Sept. 30, December 31,
1995 1994
(000 Omitted)
<S> <C> <C>
Loans - held to maturity(HTM):
Commercial, financial and
agricultural $ 127,851 $ 125,442
Real estate-construction 43,068 26,133
Real estate-mortgage 709,707 706,383
Installment loans to individuals 144,168 149,936
Total loans - HTM $1,024,794 $1,007,894
Loans - available for sale(AFS):
Real estate-construction 6,728 7,255
Total loans - AFS 6,728 7,255
Total loans 1,031,522 1,015,149
Less: Unearned income (6,441) (5,926)
Allowance for loan losses (15,374) (15,463)
Loans, net $1,009,707 $ 993,760
</TABLE>
The Company had $12,831,000 in loans on a non-accrual category at
September 30, 1995.
5. Reserve for Loan Losses:
<TABLE>
<CAPTION>
Sept. 30, December 31,
1995 1994
(000 Omitted)
<S> <C> <C>
Balance at January 1 $ 15,463 $ 14,040
Provision charged to operating expense 709 2,535
Recoveries added to the reserve 695 817
Loan losses charged to the reserve (1,493) (1,929)
Balance at end of period $ 15,374 $ 15,463
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the nine-month
periods ended September 30, 1995 and 1994 were 16,529,097 shares and
16,522,807 shares, respectively.<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
7. On November 18, 1994, Bank of the Potomac, Herndon, Virginia, and
the Corporation entered into a Definitive Agreement and Plan of
Reorganization which provided for the affiliation of Bank of the
Potomac with F&M National Corporation. The offer was subject to the
approval of regulatory authorities and shareholders of Bank of the
Potomac. Under the terms of the Agreement, F&M National Corporation
would exchange the number of its shares of common stock whose
aggregate market value as of the date of closing equaled 1.75 times
the book value per share of Bank of the Potomac common stock at the
month end immediately preceding the effective date of the share
exchange (March 31, 1995). The share exchange was intended to
qualify as a tax-free exchange and be accounted for as a pooling of
interests. The share exchange became effective on April 6, 1995,
with an exchange of 872,187 shares of F&M National Corporation common
stock.
8. On January 11, 1995, Farland Investment Management, Inc.
(Farland) and F&M National Corporation entered into a Plan of Merger.
The transaction, which was approved by regulatory authorities,
entitled the shareholders of Farland Investment to receive 11,980
shares of F&M National Corporation common stock. The merger became
effective on March 17, 1995.
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
F & M National Corporation
Winchester, Virginia
We have reviewed the accompanying consolidated balance sheet of F & M
National Corporation and Subsidiaries as of September 30, 1995, and
the related consolidated statements of income, changes in
shareholders' equity and cash flows for the nine-month periods ended
September 30, 1995 and 1994. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of F & M National Corporation
and Subsidiaries as of December 31, 1994, and the related statements
of income, changes in shareholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated
January 31, 1995, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of December 31, 1994 is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
/s/
YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
November 13, 1995
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial information is
presented to aid the reader in understanding and evaluating the
financial condition and results of operations of F&M National
Corporation ("F & M" or the "Corporation").
On January 20, 1995, F&M Bank-Broadway was merged into F&M Bank-
Massanutten.
On March 17, 1995, the Company acquired Farland Investment
Management, Inc., through the exchange of 11,980 shares of F&M common
stock.
On April 6, 1995, Bank of the Potomac ("Potomac"), Herndon, Virginia,
became a wholly-owned subsidiary of the Corporation with a tax-free
exchange of 872,187 shares of F&M common stock for all of the
outstanding shares of Potomac. The share exchange of Potomac has
been accounted for as a pooling of interests and, therefore, all
financial statements have been restated to reflect the share
exchange.
FINANCIAL CONDITION
Total assets on September 30, 1995, amounted to $1.808 billion, up
$95.9 million or 5.6% from $1.712 billion at September 30, 1994.
Total assets at December 31, 1994, were $1.708 billion. For the
first nine months 1995, total assets averaged $1.747 billion, 2.2%
above the first nine months 1994 average of $1.709 billion.
Total loans, net of unearned income, amounted to $1.025 billion at
September 30, 1995, an increase of $17.6 million (1.8%) from $1.007
billion at September 30, 1994. At December 31, 1994, total loans,
net, were $1.009 billion. Total loans (net) as a percent of total
assets were 50.8% at September 30, 1995, as compared to 58.8% at
September 30, 1994, and 58.1% at December 31, 1994. Net loan volume
for the first nine months 1995 was $15.9 million as compared to $48.1
million for the first nine months 1994.
On September 30, 1995, the securities portfolio totalled $548.4
million, which was $37.1 million (7.3%) higher than the year before
and $33.9 million (6.6%) higher than at December 31, 1994. The
higher outstanding balance in the securities portfolio was a result
of sluggish loan demand and increased competition in consumer and
residential lending; thereby, investable funds were employed in
primarily U. S. Government investments. Federal funds sold and
securities purchased under agreements to resell were $97.2 million on
September 30, 1995, $35.8 million (58.3%) higher than $79.5 million
outstanding at December 31, 1994. The large increase in federal
funds sold is the result of a special short-term time deposit
promotion. It is anticipated that as loan demand and securities
yields improve, funds will be invested in these higher yielding
investments.<PAGE>
Financial Accounting Standards Board Pronouncement #115 requires the
Corporation to show the effect of market changes in the value of
securities available for sale (AFS). The market value of AFS
securities at September 30, 1995, was $246.0 million as compared to
$221.0 million at year end 1994. The effect of the market value of
AFS securities less the book value of AFS securities, net of income
taxes, is reflected as a line in Stockholders' Equity which was $944
thousand at September 30, 1995, which has improved from year end 1994
$-6.8 million. The year end 1994 decline in the market value of
available for sale securities below book value was a temporary market
condition as a result of the inverse relationship of loan rates
versus bond rates. Loan rates increased in 1994, thereby causing
bond portfolio yields to decline. For the first nine months 1995,
market loan rates have decreased, consequentially causing bond yields
to improve.
Total deposits increased $76.1 million (5.1%) to $1.567 billion at
September 30, 1995, compared to one year earlier. At December 31,
1994, total deposits were $1.491 billion. F&M offers attractive, yet
competitive rates, that have contributed to the increase in deposits.
Long-term debt of $3.5 million consists of borrowed funds from
Federal Home Loan Banks that are lent to eligible bank customers for
a period of 10 to 15 years for low income housing.
RESULTS OF OPERATIONS
Net income for the first nine months of 1995 amounted to $17.693
million, increasing $2.455 million or 16.1% from $15.238 million for
the first nine months of 1994. The principal reason for the increase
in earnings was an increase in yield on interest-earning assets which
increased 75 basis points to 8.24% for the first nine months 1995
from 7.49% for the first nine months 1994.
Return on average assets was 1.35% for the first nine months of 1995,
compared with 1.19% for the same period in 1994 and 1.21% for the
year 1994. F&M's return on average equity was 12.97% for the first
nine months of 1995 and 12.50% for the year 1994. Return on average
equity was 12.03% for the first nine months 1994.
Net interest income totalled $56.802 million for the first nine
months of 1995, a $2.750 million (5.1%) increase over F&M's
performance for the first nine months of 1994. The net interest
margin for the first nine months 1995 was 4.80%, up 22 basis points
from 4.58% for the first nine months of 1994. The increase in net
interest margin is the result of increases in the prime interest rate
affecting adjustable rate loans.<PAGE>
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $26.478 million at
September 30, 1995, a decrease of $3.523 million (-11.7%) from
$30.001 million at December 31, 1994. Nonperforming assets are
composed largely of 1-4 family residential loans and commercial loans
secured by real property.
Nonperforming loans (nonaccrual loans and restructured loans) at
September 30, 1995, were $12.8 million, or 1.27% of total loans,
compared to $21.2 million, or 2.10% of total loans at December 31,
1994. Loans past due 90 days or more and still accruing interest
because they were well secured and in the process of collection were
$1.6 million at December 31, 1994, and also $3.2 million at September
30, 1995.
Foreclosed properties consists of 27 parcels of real estate acquired
through debt previously contracted. These properties consist
primarily of commercial and residential real estate whose value is
determined through sale at public auction or fair market value,
whichever is less. At September 30, 1995, foreclosed properties were
$13.3 million as compared to $11.0 million at December 31, 1994. In
1995, the Company acquired through foreclosure approximately 1,000
acres of real estate located in Jefferson County, West Virginia,
valued in excess of $4 million. The Company intends to market this
property and dispose of it as expediently as possible. The Company
does not expect to realize any material loss in the final disposition
of this or any of its foreclosed property.
The allowance for loan losses was $15.4 million at September 30,
1995, as compared to $15.5 million at year end 1994. The allowance
for loan losses decreased $1 thousand in the first nine months 1995
as compared to $1.044 million increase for the first nine months
1994. The decrease in the allowance for loan losses was a result of
improvement in credit quality of the loan portfolio.
Total noninterest income decreased $549 thousand or -4.3% from
$12.684 million for the first nine months of 1994 to $12.135 million
for the first nine months of 1995. For the first nine months 1995,
gains on securities available for sale were $337 thousand or 2.8% of
total noninterest income, whereas, for the first nine months of 1994
securities gains were $741 thousand or 5.8% of total noninterest
income. Security gains are realized when market conditions exist
that are favorable to the corporation and/or conditions dictate
additional liquidity is desirable. Fees and commissions from Trust
Department activities increased $131 thousand (10.7%) from $1.228
million for the first nine months 1994 to $1.359 million for the
first nine months 1995 as a result of increased fiduciary activities
and the acquisition of Farland Investment Management, Inc. Credit
card fees were $1.980 million for the first nine months 1995, up $316
thousand (19.0%) over the first nine months 1994 as a result of a
marketing effort to attract new credit card customers. Other
operating income decreased $1.111 million (-25.2%), down from $4.405<PAGE>
million for the first nine months 1994 to $3.294 million for the
first nine months of 1995. In 1994, other operating income included
$1.736 million from the settlement of problem loans as compared to
$913 thousand in 1995.
Total noninterest expenses increased $167 thousand or -0.4% from
$41.818 million for the first nine months 1994 to $41.651 million for
the first nine months 1995. Salary expense increased $412 thousand
or 1.9% from $21.4 million for the first nine months 1994 to $21.8
million for the first nine months 1995 as a result of normal
increases in salaries and benefits. The cost of net occupancy
expense has increased $116 thousand (4.0%) from $2.886 million for
the first nine months of 1994 to $3.002 million for the first nine
months of 1995, as a result of adding additional branch offices.
Furniture and equipment expense has increased $74 thousand (2.5%)
from $3.001 million for the first nine months 1994 to $3.075 million
for the first nine months 1995, which reflects an increase in the
acquisition of new furniture and equipment. Deposit insurance was
$1.577 million for the first nine months 1995, down $943 thousand
(-37.4%) from $2.520 million for the same period 1994. The FDIC
deposit insurance fund achieved a level deemed to be adequate to
protect deposits; therefore, premiums were adjusted in the third
quarter 1995.
Income taxes increased $774 thousand (9.5%) from $8.110 million for
the first nine months of 1994 to $8.884 million for the first nine
months of 1995. The increase in income taxes is the result of
greater amounts of income subject to income taxes.
ASSET QUALITY
Loan quality continues to be good based on reviews by management.
Loan quality is the result of management employing conservative
principles of lending while meeting the needs of customers. Good
loan quality results in reduced need for additional provision for
loan losses and efforts to collect past due loans which has a
positive impact on net income.
Total loan charge-offs less recoveries, amounted to $800 thousand for
the first nine months of 1995, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.10%,
annualized. This compares to 1994 twelve-month net charge-offs of
$1.112 million, or 0.11% of average loans.
As of September 30, 1995, loans on a non-accrual basis amounted to
$12.8 million, or 1.25% of total loans, net of unearned discount and
loans 90 days or more past due and still accruing totaled $3.179
million, or 0.31% of total loans, net of unearned discount. In
management's judgment, the balance in the reserve for loan losses is
adequate to cover future losses in the existing loan portfolio.<PAGE>
F&M closely monitors those loans that are deemed to be potential
problem loans. Loans are viewed as potential problem loans when
possible credit problems of the borrowers cause management to have
doubts as to the ability of such borrowers to comply with current
repayment terms. Those loans are subject to constant management
attention, and their classification is reviewed on a regular basis.
At September 30, 1995, the potential problem loans included eight
lending relationships with principal balances in excess of $500,000
which had an aggregate principal balance
outstanding of $11.423 million.
LIQUIDITY
Liquidity requirements are measured by the need to meet deposit
withdrawals, fund loans, maintain reserve requirements and operate
the organization. To meet its liquidity needs, F&M maintains cash
reserves and has an adequate flow of funds from maturing loans,
investment securities, and short-term investments. In addition,
F&M's affiliate banks have the ability to borrow from the Federal
Reserve Bank and the Federal Home Loan Bank. F&M considers its
sources of liquidity to be ample to meet its estimated needs.
CAPITAL RESOURCES
F&M's strong capital position provides the resources and flexibility
for anticipated growth.
F&M's risk-based capital position at September 30, 1995 was $181.7
million, or 17.1% of risk-weighted assets, for Tier I capital and
$195.0 million, or 18.3% for total risk based capital.
Tier I capital consists primarily of common shareholders' equity,
while total risk-based capital adds the allowance for loan losses to
Tier I. Risk-weighted assets are determined by assigning various
levels of risk to different categories of assets and off-balance
sheet activities. Under current risk-based capital standards, all
banks are required to have Tier I capital of at least 4% and total
capital of 8%.<PAGE>
FORM 10-Q PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Registrant or
any of its subsidiaries, directors or officers is a party or by which
they, or any of them, are threatened. All legal proceedings
presently pending or threatened against F & M and its subsidiaries
involve routine litigation incidental to the business of the Company
or the subsidiary involved and are either not material in respect to
the amount in controversy or fully covered by insurance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(1) Underwriting agreement - not applicable.
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession - not applicable.
(4) Instruments Defining the Rights of Security Holders
Including Indentures - not applicable.
(11) Statement re Computation of Per Share Earnings.
Incorporated herein by reference to Registrant's Form 10-K
Annual Report for the year ended December 31, 1994, filed
with the Commission on March 27, 1995, under Exhibit 11.
(15) Letter re Unaudited Interim Financial Information - not
applicable.
(16) Letter re change in certifying accountant - not applicable.
(17) Letter re director resignation - not applicable.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders - not applicable.
(23) Consent of Experts and Counsel - not applicable.
(24) Power of Attorney - not applicable.
(27) Financial Data Schedules - Included herein as Exhibit 27.
(99) Additional Exhibits - None.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
F & M NATIONAL CORPORATION
/s/
Jack R. Huyett, President, Chief Administrative Officer
/s/
Alfred B. Whitt
Senior Vice President, Secretary, Senior Financial Officer
Date: November 13, 1995
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