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, 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 August 7, 1997, there were 20,135,196 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)
June 30, December 31,
1997 1996
<S> <C> <C>
Assets:
Cash and due from banks $ 130,834 $ 112,866
Interest-bearing deposits in other banks 5,243 1,262
Securities-held to maturity(market value
June 30, 1997-$349,114;
December 31, 1996, $335,542) 347,713 333,565
Securities-available for sale
(at market value) 250,578 263,428
Federal funds sold and securities
purchased under agreements to resell 46,020 69,045
Loans-held to maturity 1,473,486 1,408,969
Loans-available for sale 29,086 35,858
Unearned income (4,310) (5,719)
Loans (net of unearned income) 1,498,262 1,439,108
Allowance for loan losses (18,006) (17,936)
Net loans 1,480,256 1,421,172
Bank premises and equipment, net 53,798 45,939
Other assets 61,885 56,474
Total assets $2,376,327 $2,303,751
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 356,443 $ 334,499
Interest bearing 1,669,044 1,632,439
Total deposits 2,025,487 1,966,938
Federal funds purchased and securities
sold under agreements to repurchase 65,262 51,536
Federal Home Loan Bank advances 0 8,297
Other short-term borrowings 16,000 14,876
Long-term debt 15,359 11,497
Other liabilities 19,176 19,883
Total liabilities $2,141,284 $2,073,027
</TABLE>
<PAGE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
June 30, 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 June 30, 1997 - 20,180,655
shares; issued December 31,
1996-20,373,697 shares 40,361 40,747
Capital surplus 65,393 69,197
Retained earnings 128,443 120,350
Unrealized gain on securities
available for sale, net 846 430
Total shareholders' equity 235,043 230,724
Total liabilities and
shareholders' equity $2,376,327 $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) (Unaudited)
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Loans held to maturity:
Interest and fees $ 66,617 $ 60,362 $33,677 $30,420
Loans available for sale:
Interest and fees 1,027 1,291 545 556
Total loan interest income 67,644 61,653 34,222 30,976
Securities held to maturity:
Taxable interest income 9,743 9,553 4,939 4,849
Interest income exempt from
Federal income taxes 788 787 392 384
Securities available for sale:
Taxable interest income 7,474 8,691 3,725 4,333
Dividend income 367 277 181 145
Total security interest income 18,372 19,308 9,237 9,711
Interest on federal funds sold
and securities purchased
under agreements to resell 1,762 2,098 880 1,065
Interest on deposits in banks 88 29 39 17
Total interest income 87,866 83,088 44,378 41,769
Interest expense:
Interest on deposits 34,628 34,114 17,556 17,000
Interest on short-term
borrowings 1,369 1,073 681 513
Interest on long-term debt 414 200 214 101
Total interest expense 36,411 35,387 18,451 17,614
Net interest income 51,455 47,701 25,927 24,155
Provision for loan losses 1,912 1,028 842 556
Net interest income after
provision for loan losses 49,543 46,673 25,085 23,599
/TABLE
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Other Income:
Commissions and fees from
fiduciary activities $ 1,187 $ 1,080 $ 578 $ 533
Service charges on deposit
accounts 4,696 4,260 2,440 2,217
Credit card fees 1,709 1,606 875 829
Fees for other customer services 1,164 906 518 408
Other operating income 1,472 2,117 707 858
Profits on securities available
for sale 428 26 335 1
Total other income 10,656 9,995 5,453 4,846
Other Expenses:
Salaries and employee benefits 19,659 18,048 10,016 8,919
Net occupancy expense of
premises 3,059 3,000 1,551 1,454
Furniture and equipment expense 2,857 2,627 1,472 1,395
Deposit insurance 113 43 71 20
Credit card expense 1,184 1,008 636 547
Other operating expense 9,946 9,841 5,051 4,696
Total other expense 36,818 34,567 18,797 17,031
Income before income taxes 23,381 22,101 11,741 11,414
Income tax expense 7,992 7,621 4,007 3,944
Net income $15,389 $14,480 $ 7,734 $ 7,470
Earnings per average share:
(1997 - 20,302,400 shares;
1996 - 20,418,672 shares)
Net income per share $ 0.76 $ 0.71 $0.38 $0.37
Dividends per share $ 0.36 $ 0.30 $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 SIX MONTHS ENDED JUNE 30, 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 14,480 14,480
Cash dividends (6,098) (6,098)
Acquisition of common
stock (415) (3,150) (3,565)
Issuance of authorized
common stock:
Stock options 260 342 602
Stock options under
non-variable
compensatory plan 500 500
Employee Stock
Ownership Plan 105 856 961
Market value adjustment,
net of income tax (4,737) (4,737)
Balances-June 30, 1996 $40,798 $71,263 $113,522 $ (1,394) $224,189
Balances-Jan. 1, 1997 $40,747 $69,197 $120,350 $ 430 $230,724
Net Income 15,389 15,389
Cash dividends (7,296) (7,296)
Acquisition of common
stock (573) (5,780) (6,353)
Issuance of authorized
common stock:
Stock options 87 294 381
Stock options under
non-variable
compensatory plan 732 732
Employee stock
ownership plan 100 950 1,050
Market value adjustment,
net of income tax 416 416
Balances-June 30, 1997 $40,361 $65,393 $128,443 $ 846 $235,043
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)
For the Six
Months Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 15,389 $ 14,480
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,487 1,453
Provision for loan losses 1,912 1,028
Profit on securities available for sale (428) (26)
Increase in other assets (7,956) (2,522)
Increase in other liabilities (708) 1,343
Net cash provided by operating activities 10,696 15,756
Cash Flows From Investing Activities
(Increase) decrease in interest-bearing
deposits in other banks (3,981) 96
Proceeds from maturities, calls and sales
of available for sale securities 30,438 36,689
Purchase of securities available for sale (16,516) (52,937)
Proceeds from maturities of investment
securities 33,372 61,312
Purchase of investment securities (47,522) (51,503)
Increase in federal funds sold
and securities purchased under agreements
to resell 23,025 36,383
Net (increase) in loans (63,354) (73,499)
Purchases of bank premises and equipment (9,853) (3,711)
Proceeds from sale of OREO 4,918 2,214
Net cash (used in) investing activities (49,473) (44,956)
Cash Flows From Financing Activities
Net increase in noninterest-bearing
and interest-bearing demand deposits
and savings accounts 16,824 18,102
Net increase in certificates of deposit 41,725 32,590
Dividends paid (7,296) (6,098)
Increase (decrease) in other
short-term borrowings 6,552 (14,931)
Increase in long-term debt 3,862 350
Acquisition of common stock (6,353) (3,565)
Net proceeds from issuance of common stock 1,431 1,563
</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,
1997 1996
<S> <C> <C>
Net cash provided by financing activities 56,745 28,011
Increase (decrease) in cash and
cash equivalents 17,968 (1,189)
Cash and Cash Equivalents
Beginning 112,866 112,690
Ending 130,834 111,501
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 35,152 35,183
Interest paid on other short-term
borrowings 1,369 1,073
36,521 36,256
Income taxes 8,132 6,211
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 2,358 1,072
Market value adjustment available for
sale securities 642 (7,288)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1997, and December 31, 1996, and
the results of operations and changes in cash flows for the six
months ended June 30, 1997 and 1996. The statements should be read
in conjunction with the Consolidated Notes to Financial Statements
included in F&M's Annual Report for the year ended December 31, 1996.
2. The results of operations for the six-month periods ended June 30,
1997 and 1996, are not necessarily indicative of the results to be
expected for the full year.
3. F&M National Corporation's ("F&M" or the "Corporation") amortized
cost and market value of securities being held to maturity as of June
30, 1997, are as follows:
<TABLE>
<CAPTION>
June 30, 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 $317,563 $2,782 ($1,763) $318,582
Corporate securities 978 37 - 1,015
Obligations of states and
political subdivisions 29,172 466 (121) 29,517
$347,713 $3,285 ($1,884) $349,114
</TABLE>
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
F&M's amortized cost and market value of the available for sale
securities as of June 30, 1997, are as follows:
<TABLE>
<CAPTION>
June 30, 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 $215,453 $ 717 ($1,286) $214,884
Corporate securities 14,465 2,216 (1) 16,680
Mortgage-backed securities 16,819 40 (249) 16,610
Other 2,404 -- -- 2,404
$249,141 $2,973 ($1,536) $250,578
</TABLE>
4. F&M's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(000 Omitted)
<S> <C> <C>
Commercial, financial and agricultural $ 253,643 $ 225,327
Real estate-construction 77,775 66,477
Real estate-mortgage 998,588 981,909
Installment loans to individuals 172,566 171,114
Total loans 1,502,572 1,444,827
Less: Unearned income (4,310) (5,719)
Allowance for loan losses (18,006) (17,936)
Loans, net $1,480,256 $1,421,172
</TABLE>
F&M had $8,109,000 in non-performing loans at June 30, 1997.
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
5. Reserve for Loan Losses:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(000 Omitted)
<S> <C> <C>
Balance at January 1 $ 17,936 $ 18,252
Provision charged to operating expense 1,912 2,050
Recoveries added to the reserve 791 518
Loan losses charged to the reserve (2,633) (2,884)
Balance at end of period $ 18,006 $ 17,936
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the six-month
periods ended June 30, 1997 and 1996 were 20,302,400 shares and
20,418,672 shares, respectively.
7. 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 June 30, 1997, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the six-month periods ended June 30, 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
August 8, 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 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 June 30, 1997, amounted to $2.376 billion, up $128.7
million or 5.7% from $2.248 billion at June 30, 1996. Total assets
at December 31, 1996, were $2.304 billion. For the first six months
of 1997, total assets averaged $2.329 billion, 4.6% above the first
six months of 1996 average of $2.227 billion.
Total loans, net of unearned income, amounted to $1.498 billion at
June 30, 1997, an increase of $130.6 million or 9.6% from $1.368
billion at June 30, 1996. At December 31, 1996, total loans, net,
were $1.439 billion. Total loans (net) as a percent of total assets
were 63.0% at June 30, 1997, as compared to 60.9% at June 30, 1996,
and 62.5% at December 31, 1996. Net loan volume for the first six
months of 1997 was $59.2 million as compared to $71.5 million for the
first six 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 six months of 1996.
On June 30, 1997, the securities portfolio totalled $598.3 million,
which was $35.6 million or 5.6% lower than the year before and $1.3
million or 0.2% lower than at December 31, 1996. In the first six
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 $46.0
million on June 30, 1997, $23.0 million or 33.4% lower than $69.0
million outstanding at December 31, 1996. As the demand for loans
increased in the first six months of 1997, funds were shifted from
nominal yielding federal funds to much higher yielding commercial and
mortgage loans.
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 June 30, 1997, was $250.6 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
$845.8 thousand at June 30, 1997, which has increased from year end
1996 by $416 thousand.
Total deposits increased $91.9 million or 4.8% to $2.025 billion at
June 30, 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 was $15.4 million at June 30, 1997, as compared to
$4.6 million at June 30, 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 six months of 1997 amounted to $15.389
million, increasing $909 thousand or 6.3% from $14.480 million for
the first six months of 1996. The yield on interest-earning assets
was 8.40% for the first six months 1997 as compared to 8.13% for the
first six months 1996 and the yield on interest-bearing deposits was
4.21% for the first six months 1997 as compared to 4.35% for the
first six months 1996.
Return on average assets was 1.33% for the first six months of 1997,
compared with 1.30% for the same period in 1996 and for the year
1996. F&M's return on average equity was 13.23% for the first six
months of 1997 and 12.89% for the first six months of 1996 and for
the year ended 1996.
Net interest income totaled $51.5 million for the first six months of
1997, a $3.8 million or 7.9% increase over F&M's performance for the
first six months of 1996. The net interest margin for the first six
months 1997 was 4.88%, up 17 basis points from 4.71% for the first
six months of 1996. The increase in net interest margin is the
result of an increase 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 $21.9 million at
June 30, 1997, a decrease of $1.7 million or 7.2% from $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 June
30, 1997, were $8.2 million, or 0.55% 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
June 30, 1997, impaired loans totaled $10.9 million upon which an
allowance of $1.9 million has been provided, which is included in the
total loan portfolio allowance for loan losses. Interest income
recognized on impaired loans as of June 30, 1997, was $328 thousand.
The average balance of impaired loans for the first six months 1997
was $9.1 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 December 31, 1996, and $10.2 million
at June 30, 1997.
Foreclosed properties consists of 33 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, 1997, foreclosed properties were
$13.7 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 $18.0 million at June
30, 1997, as compared to $17.9 million at year end 1996. The
allowance for loan losses increased $70 thousand in the first six
months 1997 as compared to $57 thousand for the first six 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 1.20% at June
30, 1997, as compared to 1.34% at June 30, 1996, and 1.25% at year
end 1996.
Total noninterest income increased $661 thousand or 6.6% from $10.0
million for the first six months of 1996 to $10.7 million for the
first six months of 1997. For the first six months 1997, gains on
securities available for sale were $430 thousand or 4.0% of total
noninterest income, whereas, for the first six months of 1996
securities gains were $26 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 and any gain or loss in this category is the
result of securities being called prior to maturity by the issuer.
Credit card fees were $1.7 million for the first six months 1997, up
$103 thousand or 6.4% over the first six months 1996 as a result of a
marketing effort to attract new credit card customers. Other
operating income decreased $645 thousand, down from $2.117 million
for the first six months 1996 to $1.472 million for the first six
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 $2.3 million or 6.5% from $34.6
million for the first six months 1996 to $36.8 million for the first
six months 1997. Salary expense increased $1.611 million or 8.9%
from $18.048 million for the first six months 1996 to $19.659 million
for the first six months 1997 as a result of normal increases in
salaries and benefits. The cost of net occupancy expense has
increased $59 thousand or 2.0% from $3.0 million for the first six
months of 1996 to $3.059 million for the first six months of 1997, as
a result of acquisition of new branches and remodeling of older
branches. Furniture and equipment expense has increased $230
thousand or 8.8% from $2.627 million for the first six months 1996 to
$2.857 million for the first six months 1997, which reflects an
increase in the acquisition of new furniture and equipment. Deposit
insurance was $113 thousand for the first six months 1997, an
increase of $70 thousand from $43 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 $176
thousand from $1.008 million for the first six months 1996 to $1.184
million for the first six months 1997 as a result of direct marketing
and offering new products. Other operating expense increased $105
thousand from $9.841 million for the first six months of 1996 to
$9.946 million for the first six months 1997.
Income taxes increased $371 thousand or 4.9% from $7.621 million for
the first six months of 1996 to $7.992 million for the first six
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 $1.842 million
for the first six months of 1997, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.28%,
annualized. This compares to 1996 twelve-month net charge-offs of
$2.366 million, or 0.17% of average loans.
As of June 30, 1997, loans on a non-accrual basis amounted to $8.109
million, or 0.5% of total loans, net of unearned discount and loans
90 days or more past due and still accruing totaled $10.2 million, or
0.8% 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, 1997, the potential problem loans included three lending
relationships with principal balances in excess of $500,000. Those
lending relationships had an aggregate principal balance outstanding
of $9.808 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 June 30, 1997 was $227.5
million, or 15.2% of risk-weighted assets, for Tier I capital and
$245.5 million, or 16.4% 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: August 11, 1997
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