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 June 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:
16,544,980 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
June 30, December 31,
1995 1994
<S> <C> <C>
Assets:
Cash and due from banks $ 84,964 $ 80,283
Interest-bearing deposits in other banks 316 229
Securities-held to maturity(market value
June 30, 1995-$291,051;
December 31, 1994, $281,325) 288,478 293,459
Securities - available for sale
(market value) 222,490 221,029
Federal funds sold and securities
purchased under agreements to resell 82,885 42,035
Loans - held to maturity 1,019,062 1,007,895
Loans - available for sale 7,720 7,255
Unearned income (6,222) (5,926)
Loans (net of unearned income) 1,020,560 1,009,224
Allowance for loan losses (15,316) (15,463)
Net loans 1,005,244 993,761
Bank premises and equipment, net 32,908 32,112
Other assets 46,556 45,585
Total assets $1,763,841 $1,708,493
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 228,504 $ 230,678
Interest bearing 1,303,013 1,260,394
Total deposits 1,531,517 1,491,072
Federal funds purchased and securities
sold under agreements to repurchase 10,756 16,474
Federal Home Loan Bank advance 2,335 875
Other short-term borrowings 17,690 18,948
Long-term debt 3,731 3,194
Other liabilities 13,531 8,941
Total liabilities $1,579,560 $1,539,504
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
June 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 June 30, 1995 - 15,663,660
shares; issued December 31,
1994-15,610,408 shares 33,090 32,966
Capital surplus 57,841 56,892
Retained earnings 92,683 85,914
Unrealized gain (loss) on
AFS securities, net 667 (6,783)
Total shareholders' equity 184,281 168,989
Total liabilities and
shareholders' equity $1,763,841 $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 Six For the
Months Ended Quarter Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest income
Loans held to maturity:
Interest and fees $ 46,824 $ 40,381 $ 23,738 $ 20,628
Loans available for sale:
Interest and fees 472 517 249 237
Total loan interest income 47,296 40,898 23,987 20,865
Securities held to maturity:
Taxable interest income 7,760 5,894 3,919 2,739
Interest income exempt from
Federal income taxes 1,016 1,149 498 585
Securities available for sale:
Taxable interest income 6,908 8,291 3,436 4,593
Dividend income 197 80 110 (48)
Total security interest income 15,881 15,414 7,963 7,869
Interest on federal funds sold
and securities purchased
under agreements to resell 1,769 1,464 1,127 823
Interest on deposits in banks 18 30 7 11
Total interest income 64,964 57,806 33,084 29,568
Interest expense:
Interest on deposits 26,131 22,176 13,847 11,219
Interest on short-term
borrowings 671 427 321 232
Interest on long-term debt 127 10 69 10
Total interest expense 26,929 22,613 14,237 11,461
Net interest income 38,035 35,193 18,847 18,107
Provision for loan losses 474 1,136 197 468
Net interest income after
provision for loan losses 37,561 34,057 18,650 17,639
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Six For the
Months Ended Quarter Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Other Income:
Commissions and fees from
fiduciary activities $ 886 $ 795 $ 450 $ 418
Service charges on deposit
accounts 2,931 2,808 1,477 1,433
Credit card fees 1,269 1,041 628 621
Fees for other customer services 501 270 221 177
Other operating income 2,304 2,678 1,362 915
Profits on securities available
for sale 339 683 331 620
Investment securities gains, net 17 21 10 (594)
Total other income 8,247 8,296 4,479 3,590
Other Expenses:
Salaries and employee benefits 14,586 14,045 7,361 7,149
Net occupancy expense of
premises 1,982 1,942 925 914
Furniture and equipment expense 1,935 2,085 1,013 1,067
Deposit insurance 1,664 1,669 832 857
Credit card expense 757 891 404 539
Other operating expense 7,496 6,947 4,090 3,615
Total other expense 28,420 27,579 14,625 14,141
Income before income tax
expense 17,388 14,774 8,504 7,088
Income tax expense 5,793 5,060 2,878 2,462
Net income $11,595 $ 9,714 $ 5,626 $ 4,626
Earnings per average share:
(1995 - 16,514,198 shares;
1994 - 16,519,554 shares)
Net income per share $ 0.70 $ 0.59 $ 0.34 $ 0.28
Dividends per share $ 0.29 $ 0.25 $ 0.15 $ 0.13
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 SIX MONTHS ENDED JUNE 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 9,714 9,714
Cash dividends (4,052) (4,052)
Acquisition of common
stock (60) (433) (493)
Issuance of authorized
common stock:
Dividend reinvestment
plan 115 741 856
Stock options 6 18 24
Stock options under
non-variable
compensatory plan 211 211
Market value adjusted
net of income taxes (2,605) (2,605)
Balances:
June 30, 1994 $32,317 $52,570 $85,867 $(2,605) $168,149
Balances:
January 1, 1995 $32,966 $56,892 $85,914 $(6,783) $168,989
Net Income 11,595 11,595
Cash dividends (4,826) (4,826)
Acquisition of common
stock (144) (1,049) (1,193)
Issuance of authorized
common stock:
Dividend reinvestment
plan 145 991 1,136
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 7,450 7,450
Balances:
June 30, 1995 $33,090 $57,841 $92,683 $ 667 $184,281
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
Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 11,595 $ 9,714
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,279 2,159
THREE5 Provision for
loan losses 474 1,136
Profits on securities available for sale (339) (683)
Profits on securities held to maturity (17) (21)
(Increase) decrease in other assets 5,198 5,075
Increase in other liabilities 4,383 603
Net cash provided by operating activities 22,573 17,983
Cash Flows From Investing Activities
(Increase) decrease in interest-bearing
deposits in other bank (87) 1,936
Proceeds from maturities and calls
of available for sale securities 29,079 41,935
Purchase of securities available
for sale (22,751) (32,225)
Proceeds from maturities of investment
securities 28,007 28,813
Purchase of investment securities (23,009) (67,438)
(Increase) decrease in federal funds sold
and securities purchased under agreements
to resell (40,850) 9,978
Net (increase) in loans (17,907) (31,606)
Purchases of bank premises and equipment (2,294) (2,010)
Net cash (used in) investing activities (49,812) (50,617)
Cash Flows From Financing Activities
Net increase (decrease) in noninterest-
bearing and interest-bearing demand
deposits and savings accounts (40,200) 26,759
Net increase in certificates
of deposit 80,645 7,696
Dividends paid (4,826) (4,052)
Increase (decrease) in other short-term
borrowings (5,516) 4,009
Increase in long-term debt 537 --
Acquisition of common stock (1,193) (493)
Net proceeds from issuance of common stock 2,473 880
</TABLE>
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
(Unaudited)
Consolidated for the
Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Net cash provided by financing activities $ 31,920 $ 34,799
Increase in cash and
cash equivalents $ 4,681 $ 2,165
Cash and Cash Equivalents
Beginning 80,283 66,770
Ending $ 84,964 $ 68,935
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors $ 27,263 $ 23,323
Interest paid on other short-term
borrowings 671 215
$ 27,934 $ 23,538
Income taxes $ 3,105 $ 5,819
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 $ 5,950 $ 6,674
Market value adjustment available for
sale securities $ 7,450 $ (2,605)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1995, and December 31, 1994, and
the results of operations and changes in cash flows for the six
months ended June 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 six-month periods ended June
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 June 30, 1995, are as follows:
<TABLE>
<CAPTION>
June 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 $251,094 $4,003 ($2,227) $252,870
Corporate securities 1,471 53 (22) 1,502
Obligations of states and
political subdivisions 35,913 778 (12) 36,679
$288,478 $4,834 ($2,261) $291,051
</TABLE>
The Corporation's amortized cost and market value of the available
for sale securities as of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
June 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 $207,571 $2,992 ($2,032) $208,531
Corporate securities 6,517 71 (14) 6,574
Other 7,337 50 (2) 7,385
$221,425 $3,113 ($2,048) $222,490
/TABLE
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
4. The Corporation's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(000 Omitted)
<S> <C> <C>
Loans - held to maturity(HTM):
Commercial, financial and
agricultural $ 125,539 $ 125,442
Real estate-construction 36,845 26,133
Real estate-mortgage 714,289 706,383
Installment loans to individuals 142,389 149,937
Total loans - HTM $1,019,062 $1,007,895
Loans - available for sale(AFS):
Real estate-construction 7,720 7,255
Total loans - AFS 7,720 7,255
Total loans 1,026,782 1,015,150
Less: Unearned income (6,222) (5,926)
Allowance for loan losses (15,316) (15,463)
Loans, net $1,005,244 $ 993,761
</TABLE>
The Company had $12,416,000 in loans on a non-accrual category at
June 30, 1995.
5. Reserve for Loan Losses:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(000 Omitted)
<S> <C> <C>
Balance at January 1 $ 15,463 $ 14,040
Provision charged to operating expense 474 2,535
Recoveries added to the reserve 563 817
Loan losses charged to the reserve (1,184) (1,929)
Balance at end of period $ 15,316 $ 15,463
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the six-month
periods ended June 30, 1995 and 1994 were 16,514,198 shares and
16,519,554 shares, respectively.<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
7. On February 7, 1994, PNB Financial Corporation ("PNB"),
Warrenton, Virginia, and F & M National Corporation ("F&M") entered
into a Definitive Agreement and Plan of Reorganization, and related
Plan of Merger, which provided for the affiliation of PNB with F&M.
The offer has been approved by regulatory authorities and
shareholders of PNB. The merger entitled shareholders of PNB to
receive, in a tax-free exchange, shares of F&M common stock having an
aggregate market value of $41.15 for each share of PNB. The merger
became effective on July 1, 1994.
8. On March 8, 1994, Hallmark Bank & Trust Company ("Hallmark"),
Springfield, Virginia, and F & M entered into a Definitive Agreement
and Plan of Reorganization, and related Plan of Share Exchange, which
provided for the affiliation of Hallmark with F&M. The offer was
subject to the approval of regulatory authorities and shareholders of
Hallmark. The share exchange entitled shareholders of Hallmark to
receive, in a tax-free exchange, shares of F&M common stock having an
aggregate market value of $11.13 for each share of Hallmark. The
share exchange became effective on July 1, 1994.
9. 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.
10. 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 June 30, 1995, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the six-month periods ended June 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
August 10, 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 July 1, 1994, PNB Financial Corporation, Warrenton, Virginia,
("PNB") became a wholly-owned subsidiary of the Corporation with a
tax-free exchange of 1,193,623 shares of F & M common stock having an
equivalent aggregate market value of $41.15 for each share of PNB.
The merger of PNB has been accounted for as a pooling of interests
and, therefore, all financial statements have been restated to
reflect the merger.
On July 1, 1994, Hallmark Bank & Trust Company, Springfield, Virginia
("Hallmark"), became a wholly-owned subsidiary of the Corporation
with a tax-free exchange of 1,107,846 shares of F & M common stock
having an equivalent aggregate market value of $11.13 for each share
of Hallmark. The share exchange of Hallmark has been accounted for
as a pooling of interests and, therefore, all financial statements
have been restated to reflect the share exchange.
On September 1, 1994, the Company paid a 2.5 percent stock dividend
with the issuance of 378,940 shares of common stock.
F&M Bank-Broadway was merged into F&M Bank-Massanutten on January 20,
1995.
The Company acquired Farland Investment Management, Inc., through the
exchange of 11,980 shares of F&M common stock on March 17, 1995.
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 June 30, 1995, amounted to $1.764 billion, up $50
million or 3.0% from $1.713 billion at June 30, 1994. Total assets
at December 31, 1994, were $1.708 billion. For the first six months
1995, total assets averaged $1.725 billion, 1.0% above the first six-
months 1994 average of $1.708 billion.
Total loans, net of unearned income, amounted to $1.021 billion at
June 30, 1995, an increase of $36.4 million (3.7%) from $984.1
million at June 30, 1994. At December 31, 1994, total loans, net,
were $1.009 billion. Total loans (net) as a percent of total assets
were 57.9% at June 30, 1995, as compared to 58.1% at June 30, 1994,
and 59.1% at December 31, 1994. Net loan volume for the first six
months 1995 was $11.3 million as compared to $24.7 million for the
first six months 1994.
On June 30, 1995, the securities portfolio totalled $511.0 million,
which was $18.9 million (-3.6%) lower than the year before and $3.5
million (-0.7%) lower than at December 31, 1994. The lower
outstanding balance in the securities portfolio was a result, in
part, of improved loan demand, thereby utilizing investable funds in
higher yielding investments. Federal funds sold and securities
purchased under agreements to resell were $82.9 million on June 30,
1995, $40.9 million (97.4%) higher than $42.0 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.
Financial Accounting Standards Board Pronouncement #115 effective
January 1, 1994, 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 June 30, 1995, was $222.5
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 $667 thousand at June 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 six months 1995, market loan rates have decreased,
consequentially causing bond yields to improve.
Total deposits increased $31.8 million (2.1%) to $1.532 billion at
June 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 $3.7 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 six months of 1995 amounted to $11.595
million, increasing $1.881 million or 19.4% from $9.714 million for
the first six months of 1994. The principal reason for the increase
in earnings was an increase in yield on interest-earning assets which
increased 88 basis points to 8.25% for the first six months 1995 from
7.37% for the first six months 1994.
Return on average assets was 1.34% for the first six months of 1995,
compared with 1.14% for the same period in 1994 and 1.21% for the
year 1994. F&M's return on average equity was 12.95% for the first
six months of 1995 and 12.23% for the year 1994. Return on average
equity was 11.55% for the first six months 1994.
Net interest income totalled $38.035 million for the first six months
of 1995, a $2.842 million (8.1%) increase over F&M's performance for
the first six months of 1994. The net interest margin for the first
six months 1995 was 4.89%, up 40 basis points from 4.49% for the
first six months of 1994. The increase in net interest margin is the
result of increases in the prime interest rate affecting adjustable
rate loans.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $26.871 million at
June 30, 1995, a decrease of $3.130 million (-10.4%) 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 June
30, 1995, were $12.4 million, or 1.21% 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 June 30, 1995.
Foreclosed properties consists of 30 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 June 30, 1995, foreclosed properties were
$14.1 million as compared to $11.0 million at December 31, 1994.
During the first quarter 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 $15.3 million at June 30, 1995, as
compared to $15.5 million at year end 1994. The allowance for loan
losses decreased $2 thousand in the first six months 1995 as compared
to $924 thousand increase for the first six 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 $49 thousand or -8.6% from $8.296
million for the first six months of 1994 to $8.247 million for the
first six months of 1995. For the first six months 1995, gains on
securities available for sale were $339 thousand or 4.1% of total
noninterest income, whereas, for the first six months of 1994
securities gains were $683 thousand or 8.2% 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. Credit card fees were $1.269
million for the first six months 1995, up $228 thousand (21.9%) over
the first six months 1994 as a result of a marketing effort to
attract new credit card customers. Other operating income decreased
$374 thousand, down from $2.678 million for the first six months 1994
to $2.304 million for the first six months of 1995. Other operating
income consists of other fees and charges that have decreased due to
a change in the mix of charges for transactions.
Total noninterest expenses increased $841 thousand or 3.1% from
$27.579 million for the first six months 1994 to $28.420 million for
the first six months 1995. Salary expense increased $541 thousand or
3.9% from $14.0 million for the first six months 1994 to $14.6
million for the first six months 1995 as a result of normal increases
in salaries and benefits. The cost of net occupancy expense has
increased $40 thousand (2.1%) from $1.942 million for the first six
months of 1994 to $1.982 million for the first six months of 1995, as
a result of adding additional branch offices. Furniture and
equipment expense has decreased $150 thousand (-7.2%) from $2.085
million for the first six months 1994 to $1.935 million for the first
six months 1995, which reflects a decrease in the acquisition of new
furniture and equipment. As total bank deposits increase, the cost
of deposit insurance will continue to increase. Deposit insurance
was $1.664 million for the first six months of 1995, down $5 thousand
(0.3%) from $1.669 million for the same period 1994.
Income taxes increased $733 thousand (14.5%) from $5.060 million for
the first six months of 1994 to $5.793 million for the first six
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 $621 thousand for
the first six months of 1995, representing a ratio of net charge-offs
to total average loans, net of unearned income, of 0.12%, annualized.
This compares to 1994 twelve-month net charge-offs of $1.112 million,
or 0.11% of average loans.
As of June 30, 1995, loans on a non-accrual basis amounted to $12.4
million, or 1.22% of total loans, net of unearned discount and loans
90 days or more past due and still accruing totaled $3.173 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.
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 June 30, 1995, the potential problem loans included 10 lending
relationships with principal balances in excess of $500,000. Those
lending relationships had an aggregate principal balance
outstanding of $13.6 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 June 30, 1995 was $178.4
million, or 16.9% of risk-weighted assets, for Tier I capital and
$191.6 million, or 18.2% 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.
ITEM 6. EXHIBITS AND 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: August 11, 1995
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