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, 1997 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
As of May 12, 1997, there were 20,258,067 shares of the Registrant's
common stock outstanding.
<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,
1997 1996
<S> <C> <C>
Assets:
Cash and due from banks $ 115,335 $ 112,866
Interest-bearing deposits in other banks 1,464 1,262
Securities-held to maturity(market value
March 31, 1997-$330,802;
December 31, 1996, $335,542) 333,471 333,565
Securities-available for sale
(at market value) 246,335 263,428
Federal funds sold and securities
purchased under agreements to resell 83,104 69,045
Loans-held to maturity 1,439,262 1,408,969
Loans-available for sale 29,039 35,858
Unearned income (4,971) (5,719)
Loans (net of unearned income) 1,463,330 1,439,108
Allowance for loan losses (18,311) (17,936)
Net loans 1,445,019 1,421,172
Bank premises and equipment, net 51,972 45,939
Other assets 59,909 56,474
Total assets $2,336,609 $2,303,751
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 336,077 $ 334,499
Interest bearing 1,660,342 1,632,439
Total deposits 1,996,419 1,966,938
Federal funds purchased and securities
sold under agreements to repurchase 54,652 51,536
Federal Home Loan Bank advances 3,500 8,297
Other short-term borrowings 15,241 14,876
Long-term debt 12,242 11,497
Other liabilities 21,945 19,883
Total liabilities $2,103,999 $2,073,027
</TABLE>
<PAGE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
<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, 1997 - 20,338,081
shares; issued December 31,
1996-20,373,697 shares 40,676 40,747
Capital surplus 68,789 69,197
Retained earnings 124,343 120,350
Unrealized gain (loss) on securities
available for sale, net (1,198) 430
Total shareholders' equity 232,610 230,724
Total liabilities and
shareholders' equity $2,366,609 $2,303,751
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,
1997 1996
<S> <C> <C>
Interest Income
Loans held to maturity:
Interest and fees $ 32,940 $ 29,942
Loans available for sale:
Interest and fees 482 735
Total loan interest income 33,422 30,677
Securities held to maturity:
Taxable interest income 4,804 4,704
Interest income exempt from
Federal income taxes 396 403
Securities available for sale:
Taxable interest income 3,749 4,358
Dividend income 186 132
Total security interest income 9,135 9,597
Interest on federal funds sold
and securities purchased
under agreements to resell 882 1,033
Interest on deposits in banks 49 12
Total interest income 43,488 41,319
Interest expense:
Interest on deposits 17,072 17,114
Interest on short-term
borrowings 688 560
Interest on long-term debt 200 99
Total interest expense 17,960 17,773
Net interest income 25,528 23,546
Provision for loan losses 1,070 472
Net interest income after
provision for loan losses 24,458 23,074
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited)
For the Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Other Income:
Commissions and fees from
fiduciary activities $ 609 $ 547
Service charges on deposit
accounts 2,256 2,043
Credit card fees 834 777
Fees for other customer services 646 498
Other operating income 765 1,259
Profits on securities available
for sale 95 25
Investment securities gains, net (2) -
Total other income 5,203 5,149
Other Expenses:
Salaries and employee benefits 9,643 9,129
Net occupancy expense of premises 1,508 1,546
Furniture and equipment expense 1,385 1,232
Deposit insurance 42 23
Credit card expense 548 461
Other operating expense 4,895 5,145
Total other expense 18,021 17,536
Income before income tax expense 11,640 10,687
Income tax expense 3,985 3,677
Net income $ 7,655 $ 7,010
Earnings per average share:
(1997 - 20,347,855 shares;
1996 - 20,425,975 shares)
Net income per share $ 0.38 $ 0.34
Dividends per share $ 0.18 $ 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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(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-Jan. 1, 1996 $40,848 $72,715 $105,140 3,343 $222,046
Net income 7,010 7,010
Cash dividends (3,044) (3,044)
Acquisition of common
stock (85) (734) (819)
Issuance of authorized
common stock:
Stock options 88 236 324
Stock options under
non-variable
compensatory plan 500 500
Employee Stock Ownership
Plan 98 797 895
Market value adjustment,
net of income tax (2,974) (2,974)
Balances-Mar. 31, 1997 $40,949 $73,514 $109,106 $ 369 $223,938
Balances-Jan. 1, 1997 $40,747 $69,197 $120,350 $ 429 $230,723
Net Income 7,655 7,655
Cash dividends (3,662) (3,662)
Acquisition of common
stock (232) (2,288) (2,520)
Issuance of authorized
common stock:
Stock options 61 198 259
Stock options under
non-variable
compensatory plan 732 732
Employee stock
ownership plan 100 950 1,050
Market value adjustment,
net of income tax (1,627) (1,627)
Balances-Mar. 31, 1997 $40,676 $68,789 $124,343 $(1,198) $232,610
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,
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 7,655 $ 7,010
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,227 1,190
Provision for loan losses 1,070 472
Profit on securities available for sale (95) (25)
Loss on securities held to maturity 2 0
Increase in other assets (1,398) (1,880)
Increase in other liabilities 2,062 3,424
Net cash provided by operating activities 10,523 10,191
Cash Flows From Investing Activities
Increase in interest-bearing
deposits in other banks (202) (11)
Proceeds from maturities, calls and sales
of available for sale securities 20,671 15,971
Purchase of securities available for sale (5,970) (15,854)
Proceeds from maturities of invesment
securities 16,797 34,180
Purchase of investment securities (16,705) (28,394)
Increase in federal funds sold
and securities purchased under agreements
to resell (14,059) (7,844)
Net increase in loans (26,076) (39,889)
Purchases of bank premises and equipment (7,021) (3,469)
Proceeds from sale of OREO 474 1,438
Net cash (used in) investing activities (32,091) (43,872)
Cash Flows From Financing Activities
Net increase in noninterest-
bearing and interest-bearing demand
deposits and savings accounts 8,104 2,926
Net increase in certificates of deposit 21,378 41,145
Dividends paid (3,662) (3,044)
Decrease in other
short-term borrowings (1,317) (8,639)
Increase in long-term debt 745 450
Acquisition of common stock (2,520) (819)
Net proceeds from issuance of common stock 1,309 1,219
</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,
1997 1996
<S> <C> <C>
Net cash provided by financing activities 24,037 33,238
Increase (decrease) in cash and
cash equivalents 2,469 (443)
Cash and Cash Equivalents
Beginning 112,866 112,690
Ending 115,335 112,247
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 16,807 17,039
Interest paid on other short-term
borrowings 688 560
17,495 17,599
Income taxes 11 -
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
1997 - 68,500 shares;
1996 - 50,000 shares 732 500
Loan balances transferred to foreclosed
properties 1,159 1,072
Market value adjustment available for
sale securities (2,487) (4,575)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
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, 1997, and December 31, 1996, and
the results of operations and changes in cash flows for the three
months ended March 31, 1997 and 1996. The statements should be read
in conjunction with the Notes to Financial Statements included in
F&M's Annual Report for the year ended December 31, 1996.
2. F&M acquired Allegiance Banc Corporation effective October 1,
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 9 for further details.
3. The results of operations for the three-month periods ended March
31, 1997 and 1996, 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, 1997, are as follows:
<TABLE>
<CAPTION>
March 31, 1997 (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 $302,015 $1,397 ($4,304) $299,108
Corporate securities 1,573 46 (1) 1,618
Obligations of states and
political subdivisions 29,883 404 (211) 30,076
$333,471 $1,847 ($4,516) $330,802
</TABLE>
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
F&M's amortized cost and market value of the available for sale
securities as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
March 31, 1997 (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 $213,205 $ 553 ($3,390) $210,368
Corporate securities 14,201 1,608 (3) 15,806
Mortgage-backed securities 18,169 48 (452) 17,765
Other 2,396 -- -- 2,396
$247,971 $2,209 ($3,845) $246,335
</TABLE>
5. F&M's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(000 Omitted)
<S> <C> <C>
Commercial, financial and agricultural $ 242,993 $ 225,327
Real estate-construction 68,704 66,477
Real estate-mortgage 986,821 981,909
Installment loans to individuals 169,783 171,114
Total loans 1,468,301 1,444,827
Less: Unearned income (4,971) (5,719)
Allowance for loan losses (18,311) (17,936)
Loans, net $1,445,019 $1,421,172
</TABLE>
F&M had $10,265,000 in non-performing loans at March 31, 1997.
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
6. Reserve for Loan Losses:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(000 Omitted)
<S> <C> <C>
Balance at January 1 $ 17,936 $ 18,252
Provision charged to operating expense 1,070 2,050
Recoveries added to the reserve 490 518
Loan losses charged to the reserve (1,185) (2,884)
Balance at end of period $ 18,311 $ 17,936
</TABLE>
7. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the three-month
periods ended March 31, 1997 and 1996 were 20,347,855 shares and
20,425,975 shares, respectively.
8. On March 29, 1996, the Corporation completed its acquisition of
FB&T Financial Corporation, the holding company for Fairfax Bank &
Trust Company. A total of 2,517,577 shares of the Corporation's
common stock was issued in the transaction which was accounted for as
a pooling-of-interests.
9. On October 1, 1996, the Corporation completed its acquisition of
Allegiance Banc Corporation, the holding company for Allegiance Bank,
N. A.. A total of 1,455,628 shares of the Corporation's common stock
was issued in the transaction which was accounted for as a pooling-
of-interests.
<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, 1997, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the three-month periods ended March 31,
1997 and 1996. 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, 1996, 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 29, 1997, 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, 1996 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 12, 1997
<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 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.
On October 1, 1996, Allegiance Banc Corporation ("ABC"), Bethesda,
Maryland, became a wholly-owned subsidiary of the Corporation with a
tax-free exchange of 1,455,628 shares of F&M common stock for all of
the outstanding shares of ABC. The merger of ABC 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, 1997, amounted to $2.337 billion, up $87.4
million or 3.9% from $2.249 billion at March 31, 1996. Total assets
at December 31, 1996, were $2.304 billion. For the first three
months of 1997, total assets averaged $2.304 billion, 4.2% above the
first three months of 1996 average of $2.210 billion.
Total loans, net of unearned income, amounted to $1.463 billion at
March 31, 1997, an increase of $128.7 million or 9.6% from $1.335
billion at March 31, 1996. At December 31, 1996, total loans, net,
were $1.439 billion. Total loans (net) as a percent of total assets
were 62.6% at March 31, 1997, as compared to 59.3% at March 31, 1996,
and 62.5% at December 31, 1996. Net loan volume for the first three
months of 1997 was $26.1 million as compared to $39.9 million for the
first three months of 1996. The decrease in loan volume is related
to securing secondary market funding of $19.3 million, and investment
of $19.7 million in FHA and VA government guaranteed residential real
estate in the first quarter 1996.
On March 31, 1997, the securities portfolio totalled $579.8 million,
which was $44.5 million or 7.1% lower than the year before and $17.2
million or 2.9% lower than at December 31, 1996. In the first three
months 1997, as funds became available they were utilized for lending
activities in lieu of investing in securities as a result of
increased lending demand. Funds that were invested in the securities
portfolio were 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 $83.1
million on March 31, 1997, $14.1 million or 20.4% higher than $69.0
million outstanding at December 31, 1996. The large increase in
federal funds sold is primarily the result of short-term time deposit
promotion and slowing of loan demand. 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, 1997, was $246.3 million as compared to
$263.4 million at year end 1996. 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
$(1.2) million at March 31, 1997, a decline from year end 1996 by
$1.6 million. Loan rates have increased by 25 basis points in the
first quarter 1997, thereby causing bond portfolio yields to decline
resulting in a reduction in the securities portfolio market value.
The decline in the market value of available for sale securities
below book value is a temporary market condition.
Total deposits increased $69.5 million or 3.6% to $1.996 billion at
March 31, 1997, compared to one year earlier. At December 31, 1996,
total deposits were $1.967 billion. F&M offers attractive, yet
competitive rates, that have contributed to the increase in deposits.
Long-term debt of $12.2 million at March 31, 1997, as compared to
$4.7 million at March 31, 1996, and $11.5 million at year end 1996.
Long-term debt 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 1997 amounted to $7.655
million, increasing $645 thousand or 9.2% from $7.010 million for the
first three months of 1996. The yield on interest-earning assets was
8.32% for the first three quarter 1997 as compared to 8.18% for the
first quarter 1996 and the yield on interest-bearing liabilities was
4.15% for the first quarter 1997 as compared to 4.24% for the first
quarter 1996.
Return on average assets was 1.33% for the first three months of
1997, compared with 1.27% for the same period in 1996 and 1.30% for
the year 1996. F&M's return on average equity was 13.11% for the
first three months of 1997 and 12.89% for the year 1996. Return on
average equity was 12.47% for the first three months 1996.
Net interest income totaled $25.5 million for the first three months
of 1997, a $2.0 million or 8.4% increase over F&M's performance for
the first three months of 1996. The net interest margin for the
first three months 1997 was 4.91%, up 23 basis points from 4.68% for
the first three months of 1996. The increase in net interest margin
is the result of a reduction in the prime interest rate affecting
adjustable rate loans and new loans and the delayed effect on the
increase in rates on fixed rate interest-bearing deposits.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $23.8 million at
March 31, 1997, and $23.6 million at December 31, 1996.
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, 1997, were $10.3 million, or 0.70% of total loans, compared
to $11.2 million, or 0.78% of total loans at December 31, 1996. Also
included in nonperforming loans are loans considered impaired which
management is concerned about the ability of the customer to repay
the loan and related interest at the original contractual terms. At
March 31, 1997, impaired loans totaled $11.2 million upon which an
allowance of $2.4 million has been provided, which is included in the
total loan portfolio allowance for loan losses. Interest income
recognized on impaired loans as of March 31, 1997, was $42 thousand.
The average balance of impaired loans for the first three months 1997
was $11.2 million. Loans past due 90 days or more and still accruing
interest because they were well secured and in the process of
collection were $4.5 million at March 31, 1997, and $4.5 million at
December 31, 1996.
Foreclosed properties consists of 41 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, 1997, foreclosed properties were
$13.5 million as compared to $12.4 million at December 31, 1996. 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 is marketing this property and intends to 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 (the parent company) 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. The parent corporation has established a
contingency reserve of $500 thousand to account for development costs
such as installing roads and utilities associated with the project.
The allowance for loan losses has increased to $18.3 million at March
31, 1997, as compared to $17.9 million at year end 1996. The
allowance for loan losses increased $375 thousand in the first three
months 1997 as compared to $105 thousand for the first three months
1996. The increase in the allowance for loan losses in 1997 is a
result of increased lending activity in the loan portfolio. The
ratio of allowance for loan losses to total loans was 1.25% at March
31, 1997, as compared to 1.38% at March 31, 1996, and 1.25% at year
end 1996.
Total noninterest income increased $54 thousand or 1.1% from $5.1
million for the first three months of 1996 to $5.2 million for the
first three months of 1997. For the first three months 1997, gains
on securities available for sale were $95 thousand or 1.8% of total
noninterest income, whereas, for the first three months of 1996
securities gains were $25 thousand or 0.5% 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 $834 thousand for the
first quarter 1997, up $57 thousand or 7.3% over the first quarter
1996 as a result of a marketing effort to attract new credit card
customers. Other operating income decreased $494 thousand, down from
$1.259 million for the first three months 1996 to $765 thousand for
the first three months of 1997. 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 $485 thousand or 2.8% from $17.5
million for the first three months 1996 to $18.0 million for the
first three months 1997. Salary expense increased $514 thousand or
5.6% from $9.1 million for the first three months 1996 to $9.6
million for the first three months 1997 as a result of normal
increases in salaries and benefits. The cost of net occupancy
expense has decreased $38 thousand or 2.5% from $1.5 million for the
first three months of 1996 to $1.5 million for the first three
months of 1997, as a result of some branches becoming fully
depreciated. Furniture and equipment expense has increased $153
thousand or 12.4% from $1.2 million for the first three months 1996
to $1.4 million for the first three months 1997, which reflects an
increase in the acquisition of new furniture and equipment. Deposit
insurance was $42 thousand for the first three months 1997, an
increase of $19 thousand from $23 thousand for the same period 1996
as a result of the FDIC deposit insurance fund increasing charges to
all banks to pay for FICO bonds. Credit card expense was up $87
thousand from $461 thousand for the first three months 1996 to $548
thousand for the first three months 1997 as a result of direct
marketing and offering new products. Other operating expense
decreased $250 thousand from $5.1 million for the first three months
of 1996 to $4.9 million for the first three months 1997 primarily due
to a $500 thousand contingency reserve established to account for
developmental costs in Jefferson County, West Virginia, in the first
quarter 1996.
Income taxes increased $308 thousand or 8.4% from $3.7 million for
the first three months of 1996 to $4.0 million for the first three
months of 1997. 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 $695 thousand for
the first three months of 1997, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.19%,
annualized. This compares to 1996 twelve-month net charge-offs of
$2.4 million, or 0.17% of average loans.
As of March 31, 1997, loans on a non-accrual basis amounted to $10.2
million, or 0.70% of total loans, net of unearned discount and loans
90 days or more past due and still accruing totaled $4.5 million, or
0.30% 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, 1997, the potential problem loans included 5 lending
relationships with principal balances in excess of $500,000. Those
lending relationships had an aggregate principal balance outstanding
of $10.402 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 correspondent
banks, 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, 1997 was $226.8
million, or 15.4% of risk-weighted assets, for Tier I capital and
$245.2 million, or 16.7% 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:
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession - not applicable.
(3) (i) Articles of Incorporation - not applicable.
(ii) By-laws - not applicable.
(4) Instruments Defining the Rights of Security Holders
Including Indentures - not applicable.
(10) Material Contracts.
Incorporated herein by reference to Registrant's Form 10-K
Annual Report for the year ended December 31, 1996, filed
with the Commission on March 27, 1997, under Exhibit 10.
(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, 1996, filed
with the Commission on March 27, 1997 under Exhibit 11.
(15) Letter re Unaudited Interim Financial Information - not
applicable.
(18) Letter re change in accounting principles - not applicable.
(19) Reports furnished to security holders.
Incorporated herein by reference to Registrant's 1997 Notice
of Annual Meeting and Proxy Statement dated March 21, 1997,
filed with the Commission on March 19, 1997.
(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.
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
Jack R. Huyett, President, Chief Administrative Officer
/s/ Alfred B. Whitt
Alfred B. Whitt
Senior Vice President, Secretary, Senior Financial Officer
Date: March 14, 1997
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