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 March 31, 1996 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:
19,095,349 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
<S> <C> <C>
Assets:
Cash and due from banks $ 101,953 $ 107,642
Interest-bearing deposits in other banks 571 100
Securities-held to maturity(market value
March 31, 1996-$327,857;
December 31, 1995, $341,313) 325,763 331,550
Securities - available for sale
(at market value) 275,066 279,517
Federal funds sold and securities
purchased under agreements to resell 87,650 80,901
Loans 1,246,363 1,209,308
Unearned income (6,623) (6,418)
Loans (net of unearned income) 1,239,740 1,202,890
Allowance for loan losses (17,350) (17,211)
Net loans 1,222,390 1,185,679
Bank premises and equipment, net 40,932 38,405
Other assets 56,772 53,095
Total assets $2,111,097 $2,076,889
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 292,309 $ 292,200
Interest bearing 1,521,894 1,482,791
Total deposits 1,814,203 1,774,991
Federal funds purchased and securities
sold under agreements to repurchase 44,252 48,466
Federal Home Loan Bank advances 2,638 4,737
Other short-term borrowings 14,618 18,792
Long-term debt 3,675 3,225
Other liabilities 19,784 16,262
Total liabilities $1,899,170 $1,866,473
</TABLE>
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
<S> <C> <C>
Stockholders' 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 30,000,000 shares:
issued March 31, 1996 - 19,095,349
shares; issued December 31,
1995-19,069,901 shares 38,191 38,140
Capital surplus 63,751 63,087
Retained earnings 109,417 105,730
Unrealized gain (loss) on securities
available for sale, net 568 3,459
Total shareholders' equity 211,927 210,416
Total liabilities and
shareholders' equity $2,111,097 $2,076,889
See Accompanying Notes to Consolidated Financial Statements
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited)
For the Three Months
Ended March 31,
1996 1995
<S> <C> <C>
Interest and fees on loans $ 28,450 $ 26,424
Securities held to maturity:
Taxable interest income 4,572 4,265
Interest income exempt from
Federal income taxes 398 518
Securities available for sale:
Taxable interest income 4,197 3,592
Dividend income 121 114
Total security interest income 9,288 8,489
Interest on federal funds sold
and securities purchased
under agreements to resell 1,008 669
Interest on deposits in banks 5 11
Total interest income 38,751 35,593
Interest expense:
Interest on deposits 16,166 13,452
Interest on short-term
borrowings 446 535
Interest on long-term debt 82 58
Total interest expense 16,694 14,045
Net interest income 22,057 21,548
Provision for loan losses 472 362
Net interest income after
provision for loan losses 21,585 21,186
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited)
For the Three Months
Ended March 31,
1996 1995
<S> <C> <C>
Other Income:
Commissions and fees from
fiduciary activities $ 547 $ 436
Service charges on deposit
accounts 1,849 1,808
Credit card fees 777 756
Fees for other customer services 458 349
Other operating income 1,259 1,125
Profits on securities available
for sale 25 7
Investment securities gains, net 0 8
Total other income 4,915 4,489
Other Expenses:
Salaries and employee benefits 8,516 8,269
Net occupancy expense of premises 1,320 1,333
Furniture and equipment expense 1,156 1,008
Deposit insurance 23 832
Credit card expense 461 353
Other operating expense 4,765 4,173
Total other expense 16,241 15,968
Income before income tax expense 10,259 9,707
Income tax expense 3,529 3,186
Net income $ 6,730 $ 6,521
Earnings per average share:
(1996 - 19,056,428 shares;
1995 - 19,027,476 shares)
Net income per share $ 0.35 $ 0.34
Dividends per share $ 0.16 $ 0.14
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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(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, 1995 $37,638 $61,408 $ 92,753 (6,942) $184,857
Net income 6,521 6,521
Cash dividends (2,571) (2,571)
Acquisition of common
stock (101) (629) (730)
Issuance of authorized
common stock:
Dividend reinvestment
plan 72 491 563
Stock options 24 61 85
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 3,478 3,478
Balances:
March 31, 1995 $37,732 $62,239 $ 96,703 $(3,464) $193,210
Balances:
January 1, 1996 $38,140 $63,087 $105,730 $ 3,459 $210,416
Net Income 6,730 6,730
Cash dividends (3,043) (3,043)
Acquisition of common
stock (85) (734) (819)
Issuance of authorized
common stock:
Stock options 38 101 139
Stock options under
non-variable
compensatory plan 500 500
Employee stock
ownership plan 98 797 895
Market value adjustment,
net of income tax (2,891) (2,891)
Balances:
March 31, 1996 $38,191 $63,751 $109,417 $ 568 $211,927
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
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 6,730 $ 6,521
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,138 895
Provision for loan losses 472 362
Profits on securities available for sale (25) (7)
Profits on securities held to maturity 0 (8)
Increase (decrease) in other assets (3,739) 612
Increase in other liabilities 3,522 3,630
Net cash provided by operating activities 8,098 12,005
Cash Flows From Investing Activities
Increase in interest-bearing
deposits in other banks (471) (70)
Proceeds from maturities, calls, and sales
of available for sale securities 15,838 12,405
Purchase of securities available for sale (14,253) (5,124)
Proceeds from maturities and calls of investment
securities 34,181 23,391
Purchase of investment securities (28,394) (5,427)
Increase in federal funds sold
and securities purchased under agreements
to resell (6,749) (38,541)
Net increase in loans (38,255) (14,338)
Purchases of bank premises and equipment (3,469) (1,514)
Proceeds from sale of OREO 1,438 1,861
Net cash (used in) investing activities (40,134) (27,357)
Cash Flows From Financing Activities
Net (decrease) increase in noninterest-
bearing and interest-bearing demand
deposits and savings accounts 418 (64,529)
Net increase in certificates of deposit 38,794 80,416
Dividends paid (3,043) (2,571)
Decrease in other short-term borrowings (10,487) (5,422)
Increase in long-term debt 450 407
Acquisition of common stock (819) (730)
Net proceeds from issuance of common stock 1,034 1,448
</TABLE>
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
(Unaudited)
Consolidated for the
Three Months Ended
March 31, March 31,
1995 1995
<S> <C> <C>
Net cash provided by financing activities 26,347 9,019
(Decrease) in cash and
cash equivalents (5,689) (6,333)
Cash and Cash Equivalents
Beginning 107,642 94,508
Ending 101,953 88,175
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 16,926 13,453
Interest paid on other short-term
borrowings 446 535
17,372 13,988
Income taxes -- 10
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
1996 - 50,000 shares;
1995 - 26,000 shares 500 207
Loan balances transferred to foreclosed
properties 1,072 5,532
Market value adjustment available for
sale securities (4,448) 5,351
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
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 March 31, 1996, and December 31, 1995, and
the results of operations and changes in cash flows for the three
months ended March 31, 1996 and 1995. The statements should be read
in conjunction with the Notes to Financial Statements included in the
F&M's Annual Report for the year ended December 31, 1995.
2. F&M acquired FB&T Financial Corporation effective March 29, 1996.
The transaction was accounted for using the pooling-of-interest
method of accounting. Accordingly, the financial statements of F&M
have been restated for all periods presented to reflect the
acquisition. See Note 8 for further details.
3. The results of operations for the three-month periods ended March
31, 1996 and 1995, are not necessarily indicative of the results to
be expected for the full year.
4. F&M National Corporation's ("F&M" or the "Corporation") amortized
cost and market value of securities being held to maturity as of
March 31, 1996, are as follows:
<TABLE>
<CAPTION>
March 31, 1996 (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 $293,254 $3,651 ($2,065) $294,840
Corporate securities 984 51 -- 1,035
Obligations of states and
political subdivisions 31,525 654 (197) 31,982
$325,763 $4,356 ($2,262) $327,857
</TABLE>
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
F&M's amortized cost and market value of the available for sale
securities as of March 31, 1996, are as follows:
<TABLE>
<CAPTION>
March 31, 1996 (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 $259,544 $2,384 ($2,046) $259,882
Corporate securities 7,608 554 (5) 8,157
Obligations of states and
political subdivisions 7,007 20 -- 7,027
$274,159 $2,958 ($2,051) $275,066
</TABLE>
5. F&M's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(000 Omitted)
<S> <C> <C>
Loans
Commercial, financial and agricultural $ 176,565 $ 161,798
Real estate-construction 51,651 51,900
Real estate-mortgage 863,044 838,630
Installment loans to individuals 155,103 156,980
Total loans 1,246,363 1,209,308
Less: Unearned income (6,623) (6,418)
Allowance for loan losses (17,350) (17,211)
Loans, net $1,222,390 $1,185,679
</TABLE>
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
6. Reserve for Loan Losses:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(000 Omitted)
<S> <C> <C>
Balance at January 1 $ 17,211 $ 16,795
Provision charged to operating expense 472 2,148
Recoveries added to the reserve 184 882
Loan losses charged to the reserve (517) (2,614)
Balance at end of period $ 17,350 $ 17,211
</TABLE>
Information about impaired loans as of March 31, 1996 is as follows:
Impaired loans for which an allowance
has been provided $ 5,207,000
Impaired loans for which no allowance
has been provided 2,914,000
Total impaired loans $ 8,121,000
Allowance provided for impaired loans,
included in the allowance for loan
losses $ 1,055,000
Average balance in impaired loans $ 8,186,000
Interest income recognized $ 25,000
Nonaccrual loans excluded from impaired loan disclosure under FASB
114 amounted to $2,899,000.
7. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the three-
month periods ended March 31, 1996 and 1995 were 19,056,428 shares
and 19,027,476 shares, respectively.
8. FB&T Financial Corporation ("FB&T") and F&M National Corporation
entered in to a Definitive Agreement and Plan of Reorganization dated
November 22, 1995, and a related Plan of Merger (collectively, the
Merger Agreement). The merger entitled the shareholders of FB&T to
receive, in a tax-free exchange shares of F&M common stock with an
aggregate market value equal to $35.00,<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
with cash being paid in lieu of issuing fractional shares. The
market value of F&M common stock was the average closing price as
reported on the New York Stock Exchange for each of the ten trading
days immediately preceding the closing date. The merger became
effective on March 29, 1996, with an exchange of 2,517,577 shares of
F&M National Corporation common stock.
9. Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of", which established standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived
assets, certain identifiable intangibles to be disposed of became
effective for fiscal years beginning after December 15, 1995. The
implementation of the Statement did not have a material impact on the
Corporation.
10. Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgages Servicing Rights", which amended FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities", required that a
mortgage banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are
acquired. A mortgage banking enterprise that acquires mortgage
servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing
rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable
to estimate the fair value of the mortgage servicing rights and the
mortgage loans (without the mortgage servicing rights), the entire
cost of purchasing or originating the loans should be allocated to
the mortgage loans (without the mortgage servicing rights) and no
cost should be allocated to the mortgage servicing rights. The
Statement became effective for transactions in fiscal years beginning
after December 15, 1995. The implementation of the Statement did not
have a material impact on the Corporation.
11. Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-based Compensation", establishes financial accounting and
reporting standards for stock-based employee compensation plans.
Those plans include all arrangements by which employees receive
shares of stock or other equity instruments of the employer or the
employer incurs liabilities to employees in amounts based on the
price of the employer's stock. Examples are stock purchase plans,
stock options, restricted stock and stock appreciation rights.
<PAGE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
This Statement also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from
nonemployees. Those transactions must be accounted for based on the
fair value of the consideration received or the fair value of the
equity instruments issued, which ever is more reliably measurable.
This Statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees". The fair
value based method is preferable to the Opinion 25 method for
purposes of justifying a change in accounting principle under APB
Opinion 20, "Accounting Changes". Entities electing to remain with
the accounting in Opinion 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value
based method of accounting defined in this Statement had been
applied.
Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under
the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock option plans, the most
common type of stock compensation, have no intrinsic value at grant
date, and under Opinion 25 no compensation cost is recognized for
them. Compensation cost is recognized for other types of stock based
compensation plans under Opinion 25, including plans with variable,
usually performance-based features.
The Statement became effective for fiscal years beginning after
December 15, 1995. The disclosures must include the pro forma
effects of other awards granted in fiscal years beginning after
December 31, 1994. The implementation of the Statement did not have
a material impact on the Corporation.
12. On April 22, 1996, Allegiance Banc Corporation ("Allegiance"),
Bethesda, Maryland, and F&M announced that they have entered into a
Definitive Agreement and a Plan of Reorganization and a related Plan
of Merger (collectively, the Merger Agreement). The transaction is
subject to the approval of regulatory authorities and shareholders of
Allegiance. The proposed merger will entitle the shareholders of
Allegiance to receive, in a tax-free exchange, shares of F&M common
stock with an aggregate market value equal to $15.00, with cash being
paid in lieu of issuing fractional shares. The market value of F&M
common stock will be its average closing price as reported on the New
York Stock Exchange for each of the ten trading days immediately
preceding the closing date. It is anticipated that the merger will
be effective during the fourth quarter 1996. As of March 31, 1996,
Allegiance's total assets were $137.5 million, total deposits were
$112.9 million and total shareholders' equity was $11.2 million.<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 March 31, 1996, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the three-month periods ended March 31,
1996 and 1995. 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, 1995, 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, 1996, 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, 1995 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
May 13, 1996
<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 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.
On March 29, 1996, FB&T Financial Corporation ("FB&T"), Fairfax,
Virginia, became a wholly-owned subsidiary of the Corporation with a
tax-free exchange of 2,517,577 shares of F&M common stock for all of
the outstanding shares of FB&T. The merger of FB&T has been
accounted for as a pooling of interests and, therefore, all financial
statements have been restated to reflect the merger.
FINANCIAL CONDITION
Total assets on March 31, 1996, amounted to $2.111 billion, up $174.1
million or 9.0% from $1.937 billion at March 31, 1995. Total assets
at December 31, 1995, were $2.077 billion. For the first three
months 1996, total assets averaged $2.078 billion, 9.0% above the
first three months 1995 average of $1.907 billion.
Total loans, net of unearned income, amounted to $1.240 billion at
March 31, 1996, an increase of $87.8 million (7.6%) from $1.152
billion at March 31, 1995. At December 31, 1995, total loans, net,
were $1.203 billion. Total loans (net) as a percent of total assets
were 58.7% at March 31, 1996, as compared to 59.5% at March 31, 1995,
and 57.9% at December 31, 1995. Net loan volume for the first three
months 1995 was $36.9 million as compared to $8.8 million for the
first three months 1995. The 1996 increase in loan volume is related
to secondary market funding of $30.4 million invested in FHA and VA
government guaranteed residential real estate.
On March 31, 1996, the securities portfolio totalled $600.8 million,
which was $60.2 million (11.1%) higher than the year before and $10.2
million (1.7%) lower than at December 31, 1995. The additional funds
invested in the securities portfolio is an effort to balance the
asset risk portfolio by acquiring U. S. government and U. S. Agency
securities. Federal funds sold and securities purchased under
agreements to resell were $87.7 million on March 31, 1996, $6.7
million (8.3%) higher than $80.9 million outstanding at December 31,
1995. The large increase in federal funds sold is the result of a
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 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 March 31, 1996, was $275.1 million as compared to
$279.5 million at year end 1995. 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 $568
thousand at March 31, 1996, which has decreased from year end 1995 by
$2.9 million. Loan rates increased slightly in 1996, thereby causing
bond portfolio yields to decline resulting in a reduction in the
securities portfolio market value.
Total deposits increased $137.3 million (8.2%) to $1.814 billion at
March 31, 1996, compared to one year earlier. At December 31, 1995,
total deposits were $1.775 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 three months of 1996 amounted to $6.730
million, increasing $209 thousand or 3.2% from $6.521 million for the
first three months of 1995. The yield on interest-earning assets was
8.17% for the first quarter 1996 as compared to 8.27% for 1995 and
the yield on interest-bearing liabilties was 4.27% for the first
quarter 1996 as compared to 3.88% for the first quarter 1995. Net
interest income was positively affected by the collection of interest
and fees on real estate which had previously been on nonaccrual of
interest.
Return on average assets was 1.30% for the first three months of
1996, compared with 1.37% for the same period in 1995 and 1.26% for
the year 1995. F&M's return on average equity was 12.64% for the
first three months of 1996 and 12.44% for the year 1995. Return on
average equity was 13.59% for the first three months 1995.
Net interest income totaled $22.1 million for the first three months
of 1996, a $509 thousand (2.4%) increase over F&M's performance for
the first three months of 1995. The net interest margin for the
first three months 1996 was 4.68%, down 34 basis points from 5.02%
for the first three months of 1995. The decrease in net interest
margin is the result of a reduction in the prime interest rate
affecting adjustable rate loans and the delayed effect on a reduction
in rates on fixed rate interest-bearing deposits.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $24.3 million at
March 31, 1996, a decrease of $3.1 million (11.3%) from $27.4 million
at December 31, 1995. 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
March 31, 1996, were $10.7 million, or 0.86% of total loans, compared
to $13.3 million, or 1.10% of total loans at December 31, 1995.
Loans past due 90 days or more and still accruing interest because
they were well secured and in the process of collection were $3.8
million at December 31, 1995, and also $5.2 million at March 31,
1996.
Foreclosed properties consists of 31 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 March 31, 1996, foreclosed properties were
$10.8 million as compared to $14.0 million at December 31, 1995.
During the first quarter 1995, F&M acquired through foreclosure
approximately 1,000 acres of real estate located in Jefferson County,
West Virginia, valued in excess of $4 million. F&M intends to market
this property and dispose of it as expediently as possible. F&M does
not expect to realize any material loss in the final disposition of
this or any of its foreclosed property.
In March 1996, F&M National Corporation acquired approximately 247
acres in Jefferson County, West Virginia, for development purposes.
The development project consists of single family residential lots
with sales to be directed towards the commuter market. F&M National
Corporation has established a $500 thousand contingency reserve to
account for development costs such as installing roads and utilities
associated with the project.
The allowance for loan losses was $17.4 million at March 31, 1996, as
compared to $17.2 million at year end 1995. The allowance for loan
losses increased $139 thousand in the first three months 1996 as
compared to $307 thousand for the first three months 1995. The
decrease in the allowance for loan losses was a result of improvement
in credit quality of the loan portfolio.
Total noninterest income decreased $426 thousand or 9.5% from $4.489
million for the first three months of 1995 to $4.915 million for the
first three months of 1996. For the first three months 1996, gains
on securities available for sale were $25 thousand or 0.5% of total
noninterest income, whereas, for the first three months of 1995
securities gains were $15 thousand or 0.3% 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. It is the intent of the
Corporation not to sell any security that is held in its "held to
maturity" portfolio. Credit card fees were $777 thousand for the
first quarter 1996, up $21 thousand (2.8%) over the first quarter
1995 as a result of a marketing effort to attract new credit card
customers. Other operating income increased $134 thousand, up $1.125
million for the first three months 1995 to $1.259 million for the
first three months of 1996. Other operating income consists of other
fees and charges that have increased due to a change in the mix of
charges for transactions.
Total noninterest expenses increased $273 thousand or 1.7% from $16.0
million for the first three months 1995 to $16.2 million for the
first three months 1996. Salary expense increased $247 thousand or
3.0% from $8.3 million for the first three months 1995 to $8.5
million for the first three months 1996 as a result of normal
increases in salaries and benefits. The cost of net occupancy
expense has decreased $13 thousand (-0.1%) from $1.333 million for
the first three months of 1995 to $1.320 million for the first three
months of 1996, as a result of some branches becoming fully
depreciated. Furniture and equipment expense has increased $148
thousand (14.7%) from $1.0 million for the first three months 1995 to
$1.2 million for the first three months 1996, which reflects an
increase in the acquisition of new furniture and equipment. Deposit
insurance was $23 thousand for the first three months 1996, down $809
thousand for the same period 1995 as a result of the FDIC deposit
insurance fund achieving a level deemed to be adequate to protect
deposits; therefore, premiums were adjusted to reflect this
achievement. Credit card expense was up $108 thousand from $353
thousand for the first three months 1995 to $461 thousand for the
first three months 1996 as a result of direct marketing and offering
new products. Other operating expense increased $592 thousand from
$4.2 million for the first three months of 1995 to $4.8 million for
the first three months 1996 primarily due to a $500 thousand
contingency reserve established to account for developmental costs in
Jefferson County, West Virginia.
Income taxes increased $343 thousand (10.8%) from $3.2 million for
the first three months of 1995 to $3.5 million for the first three
months of 1996. 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 $333 thousand for
the first three months of 1996, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.10%,
annualized. This compares to 1995 twelve-month net charge-offs of
$1.7 million, or 0.15% of average loans.
As of March 31, 1996, loans on a non-accrual basis amounted to $10.5
million, or 0.9% of total loans, net of unearned discount and loans
90 days or more past due and still accruing totaled $5.2 million, or
0.4% 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 March 31, 1996, the potential problem loans included six lending
relationships with principal balances in excess of $500,000 which had
an aggregate principal balance outstanding of $10.813 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 March 31, 1996 was $200.0
million, or 15.7% of risk-weighted assets, for Tier I capital and
$216.0 million, or 16.9% 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 F&M 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, 1995, filed
with the Commission on March 28, 1996 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.
<PAGE>
FORM 10-Q PART II - OTHER INFORMATION
(b) Reports on Form 8-K.
1. Date of Report. April 11, 1996.
Item(s) Reported. The filing of Form 8-K as Items 2. and 7.
relative to the consummation of the
acquisition and merger of FB&T Financial
Corporation, Fairfax, Virginia, with the
Registrant.
2. Date of Report. April 22, 1996.
Item(s) Reported. The filing of Form 8-K as Item 5. relative
to the announcement that the Registrant
had entered into an Agreement and Plan of
Reorganization with Allegiance Banc
Corporation, Bethesda, Maryland.
3. Date of Report. May 10, 1996
Item(s) Reported. The filing of Form 8-K as Item 5. relative
to the announcement that the Board of
Directors of the Registrant had approved
purchase of up to 150,000 shares of the
Registrant's common stock in the open
market.
<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: May 14, 1996
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