SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000 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)
9 Court Square, 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
changed 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 November 9, 2000, there were 24,666,382 shares of the
Registrant's common stock outstanding.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
Sept. 30, December 31,
2000 1999
<S> <C> <C>
Assets:
Cash and due from banks 133,171 127,633
Interest-bearing deposits in other banks 171 225
Securities-held to maturity(market value
September 30, 2000-$521,188;
December 31, 1999-$437,538) 529,162 449,854
Securities-available for sale
(market value) 606,356 433,947
Federal funds sold and securities
purchased under agreements to resell 62,948 68,712
Loans held for sale 40,500 22,217
Loans 1,993,955 1,868,713
Unearned income (3,189) (3,615)
Loans (net of unearned income) 2,031,266 1,887,315
Allowance for loan losses (24,390) (24,050)
Net loans 2,006,876 1,863,265
Bank premises and equipment, net 87,032 74,501
Other assets 102,500 80,030
Total assets 3,528,216 3,098,167
Liabilities and Shareholders' Equity:
Liabilities:
Deposits
Non-interest bearing 641,094 541,417
Interest bearing 2,338,970 2,076,438
Total deposits 2,980,064 2,617,855
Federal funds purchased and securities
sold under agreements to repurchase 150,351 95,008
Other short-term borrowings 16,066 24,120
Long-term debt 21,966 25,443
Other liabilities 32,586 28,059
Total liabilities 3,201,033 2,790,485
</TABLE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
<CAPTION>
(Unaudited)
Sept. 30, December 31,
2000 1999
<S> <C> <C>
Shareholders' Equity
Preferred stock, no par value:
(Authorized 5,000,000 shares,
no shares outstanding) 0 0
Common stock par value $2.00 per
share, authorized 30,900,000 shares:
issued September 30, 2000-24,759,882
shares; issued December 31,
1999-24,896,500 shares 49,520 49,793
Capital surplus 91,009 93,679
Retained earnings 192,890 175,588
Accumulated other
comprehensive (loss) (6,236) (11,378)
Total shareholders' equity 327,183 307,682
Total liabilities and
shareholders' equity 3,528,216 3,098,167
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Nine For the Three
Months Ended Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans 125,454 118,796 43,007 39,903
Securities held to maturity:
Taxable interest income 20,967 17,492 7,390 6,171
Interest income exempt from
federal income taxes 1,159 1,134 385 380
Securities available for sale:
Taxable interest income 21,560 18,339 7,910 6,381
Interest income exempt from
federal income taxes 40 41 13 14
Dividend income 880 734 331 267
Total security interest income 44,606 37,740 16,029 13,213
Interest on federal funds sold
and securities purchased
under agreements to resell 4,955 3,826 1,655 977
Interest on deposits in banks 14 44 13 19
Total interest income 175,029 160,406 60,704 54,112
Interest Expense:
Interest on deposits 65,950 58,574 23,552 19,317
Interest on short-term borrowings 4,953 2,445 1,719 651
Interest on long-term debt 1,150 1,228 350 486
Total interest expense 72,053 62,247 25,621 20,454
Net interest income 102,976 98,159 35,083 33,658
Provision for loan losses 2,890 2,814 1,101 793
Net interest income after
provision for loan losses 100,086 95,345 33,982 32,865
Other Income:
Commissions and fees from
fiduciary activities 2,346 2,159 768 703
Service charges on
deposit accounts 13,260 11,484 4,735 3,981
Credit card fees 3,750 3,448 1,321 1,247
Fees for other customer services 10,151 6,143 3,851 2,518
Insurance commissions 7,521 6,969 2,710 2,441
Other operating income 4,232 3,608 708 1,263
Profits on securities
available for sale -- 3,113 -- --
Total other income 41,260 36,924 14,093 12,153
</TABLE>
<TABLE>
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
<CAPTION>
(Unaudited) (Unaudited)
For the Nine For the Three
Months Ended Months Ended
Sept. 30 Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Other Expenses:
Salaries and employees'
benefits 48,897 46,843 16,406 16,033
Net occupancy expense
of premises 7,320 6,755 2,427 2,263
Furniture and equipment expense 6,023 5,573 2,014 2,047
Credit card expense 2,731 2,701 970 991
Other operating expense 21,832 19,551 6,827 6,871
Total other expense 86,803 81,423 28,644 28,205
Income before income taxes 54,543 50,846 19,431 16,813
Income tax expense 18,976 17,703 6,782 5,686
Net income 35,567 33,143 12,649 11,127
Average shares:
Basic 24,873 25,051 24,830 24,977
Assuming dilution 25,013 25,180 24,963 25,070
Earnings per common share:
Basic $1.43 $1.32 $0.51 $0.45
Assuming dilution $1.42 $1.32 $0.51 $0.44
Dividends per share $0.735 $0.665 $0.25 $0.235
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(000 OMITTED)
<CAPTION>
Accumulated
Other
Compre- Compre-
Common Capital Retained hensive hensive
Stock Surplus Earnings Income Income Total
(Loss)
<S> <C> <C> <C> <C> <C> <C>
Balances -
January 1, 1999 48,845 81,910 174,777 6,416 311,948
Comprehensive
Income:
Net income 33,143 33,143 33,143
Other comprehensive
income-net of tax:
Unrealized loss on
available for sale
securities (11,218) (11,218)
Less: Reclassifi-
cation adjustment
for gains realized
in net income (2,023) (2,023)
Other comprehensive
income (loss),
net of tax (13,241) (13,241)
Total compre-
hensive income 19,902
Cash dividends (15,591) (15,591)
Stock dividend 1,339 19,291 (20,630) 0
Acquisition of common
stock (837) (11,657) (12,494)
Issuance of stock -
benefit plans 452 4,456 4,908
Balances -
September 30, 1999 49,799 94,000 171,699 (6,825) 308,673
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(000 OMITTED)
<CAPTION>
Accumulated
Other
Compre- Compre-
Common Capital Retained hensive hensive
Stock Surplus Earnings (Loss) Income Total
<S> <C> <C> <C> <C> <C> <C>
Balances -
January 1, 2000 49,793 93,679 175,588 (11,378) 307,682
Comprehensive
Income:
Net income 35,567 35,567 35,567
Other comprehensive
income net of tax:
Unrealized gain on
available-for-
sale securities 5,142 5,142
Less: Reclassifi-
cation adjustment
for gains realized
in net income -- --
Other compre-
hensive income,
net of tax 5,142 5,142
Total compre-
hensive income 40,709
Cash dividends (18,265) (18,265)
Acquisition of
common stock (598) (6,596) (7,194)
Issuance of stock-
benefit plans 325 3,926 4,251
Balances -
September 30, 2000 49,520 91,009 192,890 (6,236) 327,183
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
For the Nine Months Ended
Sept. 30, Sept. 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income 35,567 33,143
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,864 6,048
Provision for loan losses 2,890 2,814
Profit on securities available for sale -- 3,113
(Increase) decrease in other assets (27,201) 94
Increase in other liabilities 4,527 2,319
Net cash provided by operating activities 21,647 47,531
Cash Flows From Investing Activities
Decrease (increase) in interest-bearing
deposits in other banks 54 (211)
Proceeds from maturities and calls
of available for sale securities 28,272 123,846
Purchase of securities available for sale (192,770) (155,110)
Proceeds from maturities of investment
securities 41,360 64,946
Purchase of investment securities (120,668) (105,242)
Decrease in federal funds sold
and securities purchased under agreements
to resell 5,764 88,810
Net increase in loans (147,576) (53,272)
Purchases of bank premises and equipment (17,460) (9,032)
Proceeds from sale of other real estate owned 3,045 3,453
Net cash used in investing activities (399,979) (41,812)
Cash Flows From Financing Activities
Net increase (decrease) in noninterest-bearing
and interest-bearing demand deposits
and savings accounts (95,065) 4,177
Net increase (decrease) in certificates
of deposit 457,274 (36,435)
Dividends paid (18,265) (15,591)
Increase in other short-term borrowings 47,289 6,763
Increase (decrease) in long-term debt (3,477) 4,603
Acquisition of common stock (7,194) (12,494)
Net proceeds from issuance of common stock 3,308 3,905
</TABLE>
<PAGE>
<TABLE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
<CAPTION>
For the Nine Months Ended
Sept. 30, Sept. 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash provided by (used in)
financing activities 383,870 (45,072)
Increase (decrease) in cash and
cash equivalents 5,538 (39,353)
Cash and Cash Equivalents
Beginning 127,633 169,181
Ending 133,171 129,828
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 51,322 58,574
Interest paid on other short-term
borrowings 4,953 2,445
56,275 61,019
Income taxes 18,045 14,706
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
2000 - 68,500 shares;
1999 - 67,000 shares 943 1,003
Loan balances transferred to foreclosed
properties 1,075 2,993
Market value adjustment available for
sale securities (5,142) (13,241)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 2000, and December 31, 1999, and
the results of operations and changes in cash flows for the nine months
ended September 30, 2000 and 1999. 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, 1999.
The amounts previously reported for the periods presented have been
retroactively restated to reflect the acquisition of The State Bank of
the Alleghenies on January 3, 2000. The transaction was accounted for
under the pooling of interests method.
2. The results of operations for the nine-month periods ended
September 30, 2000 and 1999, 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
September 30, 2000, are as follows:
<TABLE>
<CAPTION>
September 30, 2000 (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 505,321 1,277 (9,289) 497,309
Obligations of states and
political subdivisions 22,782 150 (120) 22,812
Corporate securities 1,059 9 (1) 1,067
529,162 1,436 (9,410) 521,188
</TABLE>
<PAGE>
F&M's amortized cost and market value of the available for sale
securities as of September 30, 2000, are as follows:
<TABLE>
<CAPTION>
September 30, 2000 (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 592,800 1,868 (11,044) 583,624
Obligations of states and
political subdivisions 10,594 15 (179) 10,430
Other 12,042 260 0 12,302
615,436 2,143 (11,223) 606,356
</TABLE>
4. F&M's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
Sept. 30, December 31,
2000 1999
(000 Omitted)
<S> <C> <C>
Loans - held for sale 40,500 22,217
Commercial, financial and agricultural 302,582 300,015
Real estate-construction 114,079 108,631
Real estate-mortgage 1,291,164 1,192,015
Consumer loans to individuals 286,130 268,052
Total loans 2,034,455 1,890,930
Less: Unearned income (3,189) (3,615)
Allowance for loan losses (24,390) (24,050)
Loans, net 2,006,876 1,863,265
</TABLE>
F&M had $11,199,000 in loans in a non-accrual category at September 30,
2000.
5. Reserve for Loan Losses:
<TABLE>
<CAPTION>
Sept. 30, December 31,
2000 1999
(000 Omitted)
<C> <S> <S>
Balance at January 1 24,050 23,509
Provision charged to operating expense 2,890 4,021
Recoveries added to the reserve 497 850
Loan losses charged to the reserve (3,047) (4,330)
Balance at end of period 24,390 24,050
</TABLE>
6. Earnings and dividends paid per share:
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
(in 000s) Per Share (in 000s) Per Share
Shares Amount Shares Amount
<C> <S> <S> <S> <S>
Basic EPS 24,873 1.43 25,051 1.32
Effective of
dilutive securities:
Stock options 140 129
Diluted EPS 25,013 1.42 25,180 1.32
</TABLE>
7. F&M, on August 11, 1999, declared a 3% stock dividend payable on
October 26, 1999, to shareholders of record on September 24, 1999. F&M
issued approximately 665,806 shares of common stock with cash being
paid in lieu of fractional shares.
8. On January 3, 2000, the Corporation acquired The State Bank of the
Alleghenies, Covington, Virginia, for approximately 1,912,000 shares of
F&M common stock in a transaction accounted for as a pooling-of-
interests. Upon the effective date of the share exchange, The State
Bank of the Alleghenies changed its name to F&M Bank-Highlands.
9. On August 25, 2000, the Corporation completed the acquisition of 15
banking offices and approximately $300 million in deposits from
Wachovia Bank, N.A. The new locations were acquired by five of F&M's
community banks. F&M Bank-Winchester acquired two locations in Luray,
Virginia. F&M Bank-Massanutten acquired one location in Staunton. F&M
Bank-Highlands acquired one location in Vinton. F&M Bank-Central
Virginia acquired locations in Fork Union, Gordonsville, Mineral,
Palmyra, and Ruckersville, and two locations in Chatham. F&M Bank-
Emporia expanded their market area with new locations in Blackstone,
Drakes Branch, Franklin, and Kenbridge.
10. On July 13, 2000, the Corporation and Atlantic Financial Corp. of
Newport News, Virginia announced the signing of a definitive agreement
for the affiliation of Atlantic with F&M. Under terms of the
agreement, F&M will exchange 0.753 shares of its common stock for each
share of Atlantic stock. The transaction has an indicated value of
approximately $70.59 million, or $16.85 per Atlantic share. The
transaction is calculated at 1.55 times book value for 2000. The offer
is 14.0 times 2000 estimated earnings. The transaction is intended to
qualify as a tax-free exchange and be accounted for as a pooling of
interests. Atlantic's two bank subsidiaries, Peninsula Trust Bank and
United Community Bank, will be combined and will be operated as a
separate banking subsidiary of F&M under the name of F&M Bank-Atlantic.
The transaction is expected to be completed in the first quarter of
2001.
11. On August 23, 2000, the Corporation and Community Bankshares of
Maryland, Bowie, Maryland ("Community") announced the signing of a
definitive agreement for the affiliation of Community with F&M. Under
terms of the agreement, F&M will exchange 0.75 shares of its common
stock for each share of Community stock. The transaction has an
indicated value of approximately $13.1 million, or $18.05 per Community
share, based on F&M's closing price on August 22, 2000, of $24.06. The
transaction is calculated at 1.40 times the estimated book value for
2000. The offer is 17.3 times 2000 estimated earnings. The
transaction, expected to be completed in the first quarter of 2001, has
been approved by each companys Board of Directors and requires the
approval of various regulatory agencies and the shareholders of
Community and satisfaction of other standard conditions. The
transaction is intended to qualify as a tax-free exchange and be
accounted for as a pooling of interests. Community will merge with F&M
Bank-Allegiance to provide one bank financial services through its
Maryland markets upon completion of the transaction.
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
F & M National Corporation
Winchester, Virginia
We have reviewed the accompanying consolidated balance sheet of F&M
National Corporation and Subsidiaries as of September 30, 2000, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the nine-month periods ended September 30,
2000 and 1999. 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, 1999, 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
28, 2000, 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, 1999 is fairly
stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/
YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
November 13, 2000
<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").
FINANCIAL CONDITION
F&M's improved earnings for the third quarter 2000 was primarily
attributable to increased earnings associated with the acquisition of
15 branches, implementation of projects to improve operational
efficiencies, and increases in noninterest income. The following
discussion elaborates on balance sheet growth and earnings improvement.
On August 25, 2000, F&M acquired deposits of approximately $300 million
and 15 branch offices valued at approximately $8.0 million from
Wachovia Bank, N.A. F&M immediately invested approximately $242 million
of the acquired funds in U.S. Agency securities. Goodwill associated
with the acquisition was approximately $23 million, which will be
amortized. All former employees of the acquired branches were invited
to become employees of F&M after the acquisition.
F&M has implemented over the past year a program known as "Getting
Better Quicker" or GBQ. This program spearheaded by F&M's software
vendor established policies and procedures aimed at improving service
to bank customers. GBQ provided cross training of employees to better
serve customers and realign back office departments, thereby, reducing
overhead expenditures and improving earnings.
Noninterest income has increased $7.5 million or 22.0% for the first
nine months 2000 as compared to the first nine months 1999, if
nonrecurring security gains are eliminated. Revenues increased
primarily as a result of insurance commissions from nonbank insurance
subsidiaries, increased debit card fees, point of sale charges and
foreign ATM transactions.
Total assets on September 30, 2000, were $3.528 billion, up $449.9
million or 14.6% from $3.078 billion at September 30, 1999. Total
assets at December 31, 1999, were $3.098 billion. For the first nine
months of 2000, total assets averaged $3.278 billion, 7.2% above the
first nine months 1999 average of $3.060 billion.
Total loans, net of unearned income, amounted to $2.031 billion at
September 30, 2000, an increase of $158.0 million or 8.4% from $1.873
billion at September 30, 1999. At December 31, 1999, total loans, net,
were $1.887 billion. Total loans (net) as a percent of total assets
were 57.6% at September 30, 2000, compared to 60.9% at September 30,
1999, and December 31, 1999. Net loan volume for the first nine months
of 2000 was $144.0 million as compared to $47.5 million for the first
nine months of 1999. Loan volume has been strong despite increases in
the prime lending rate primarily due to confidence in the economy.
On September 30, 2000, the securities portfolio totaled $1.136 billion,
which was $258.6 million or 29.5% higher than the year before, and
$251.7 million or 28.5% higher than at December 31, 1999. Investment in
securities increased approximately $16.7 million or 1.9% for the nine-
month periods if investment in securities attributable to the branch
acquisitions were eliminated. Strong loan demand limited funds to be
invested in securities prior to the acquisition. Funds invested in the
securities portfolio were invested primarily in U. S. Agency
securities, which had attractive yield and maturity offerings. Federal
funds sold and securities purchased under agreement to resell were
$62.9 million at September 30, 2000, $5.8 million or 8.4% lower than
$68.7 million outstanding at December 31, 1999. Federal funds sold are
one-day sales of funds to large regional correspondent banks and are
the lowest earning pool of interest-earning funds. Federal funds have
decreased due to increased demand for short term loan funding.
The market value of available for sale ("AFS") securities at September
30, 2000, was $606.4 million as compared to $433.9 million at September
30, 1999. F&M increased the investment in AFS securities as a result of
attractive rates and the high quality of US agency securities. The
effect of the market value of AFS securities less the book value of AFS
securities, net of income taxes reflected in Shareholders' Equity was
$(6.2) million at September 30, 2000, a decrease from the September 30,
1999, which is an improvement of $589 thousand. Recent increases in
interest rates by the Federal Reserve have a converse relationship to
the market rates in the investment portfolio contributing to the
decline in market value of securities. The decline in value is a
"paper" loss, which is not realized unless the entire AFS portfolio
would be sold, which is not likely. The decline in the market value of
available for sale securities below book value is a temporary market
condition and is not indicative of a deterioration of asset rating or
quality.
Total deposits increased $391.9 million or 15.1% to $2.980 billion at
September 30, 2000, compared to one year earlier. At December 31, 1999,
total deposits were $2.618 billion. If the acquired $300 million
deposits were eliminated for the nine month periods, deposit growth
would have grown approximately $92 million or 3.5%. Noninterest-
bearing deposits increased $97.2 million or 17.9% from $543.9 million
at September 30, 1999, to $641.1 million at September 30, 2000.
Interest-bearing deposits increased $294.8 million or 14.4% from $2.044
billion at September 30, 1999, to $2.339 billion at September 30, 2000.
F&M customers are moving funds into interest bearing deposits to take
advantage of attractive interest rates. F&M offers attractive, yet
competitive, rates that are set to maintain a fair net interest margin.
Long-term debt was $22.0 million at September 30, 2000, down $3.7
million or 14.4% from $25.7 million at Sept 30, 1999. Long-term debt
was $25.4 million at year-end 1999. Long-term debt consists of borrowed
funds from Federal Home Loan Banks that supports loans to eligible bank
customers for a period of 10 to 15 years for low-income housing.
RESULTS OF OPERATIONS
Net income for the first nine months of 2000 amounted to $35.6 million,
increasing $2.4 million or 7.3% from $33.1 million for the first nine
months of 1999. Net income for the first nine months 2000 was $35.6
million increasing $4.4 million or 14.0% from $31.2 million for the
first nine months 1999 if nonrecurring items of income and expense were
eliminated.
The yield on interest-earning assets was 7.84% for the first nine
months 2000 as compared to 7.67% for the first nine months 1999, and
the yield on interest-bearing deposits was 4.12% for the first nine
months 2000 as compared to 3.80% for the first nine months 1999.
Return on average assets was 1.45% for the first nine months of 2000
and first nine months 1999 and 1.40% for the year 1999. F&M's return on
average equity was 14.86% for the first nine months of 2000, 14.16% for
the first nine months of 1999, and 13.99% for the year ended 1999.
Net interest income totaled $103.0 million for the first nine months of
2000, a $4.8 million or 4.9% increase over F&M's performance for the
first nine months of 1999. The net interest margin on a Federal tax
equivalent basis for the first nine months of 2000 was 4.63%, down 8
basis points from 4.71% for the first nine months of 1999. The decrease
in net interest margin is primarily the effect of higher net cost on
interest-bearing liabilities facilitated by recent increases in the
prime-lending rate.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $20.6 million at
September 30, 2000, a increase of $700 thousand or 3.5% from $19.9
million at December 31, 1999. Nonperforming assets are composed largely
of 1-4 family residential loans and commercial loans secured by real
property.
Nonperforming loans (nonaccrual loans and restructured loans) at
September 30, 2000, were $11.2 million or 0.6% of total loans, up $2.3
million from $8.9 million at December 31, 1999. Nonperforming loans are
those loans where, in the opinion of management, the full collection of
principal or interest is unlikely.
FASB 114 defines impaired loans as all loans excluding personal real
estate and consumer loans about which there is doubt as to the ability
of the customer to meet their contractual obligations.
September 30, 2000
Commercial nonaccrual loans $ 3,394
Commercial accrual loans 15,005
Total impaired loans $ 18,399
At September 30, 2000, impaired loans totaled $18.4 million upon which
an allowance of $2.9 million has been provided, which is included in
the total loan portfolio allowance for loan losses. Interest income
recognized on impaired loans as of September 30, 2000, was $1.5
million. The average balance of impaired loans for the first nine
months 2000 was $18.7 million. Loans past due 90 days or more and still
accruing interest because they were well secured and in the process of
collection were $6.3 million at September 30, 2000, and $4.3 million at
December 31, 1999.
Foreclosed properties consist of 23 parcels of real estate acquired
through debt previously contracted. These properties consist primarily
of commercial and residential real estate whose value is determined
through sale at public auction or fair market value, whichever is less.
At September 30, 2000, foreclosed properties were $9.4 million as
compared to $11.0 million at December 31, 1999.
The allowance for loan losses was $24.4 million at September 30, 2000,
as compared to $24.1 million at year-end 1999. The allowance for loan
losses increased $340 thousand in the first nine months of 2000 as
compared to a $513 thousand increase for the first nine months of 1999.
The amount provided for loan losses in 2000 and 1999 is an amount, in
management's judgment, is sufficient for the risk associated with the
loan portfolio. The ratio of allowance for loan losses to total loans
was 1.20% at September 30, 2000, as compared to 1.28% for Sept 30, 1999
and 1.27% at year-end 1999.
Total noninterest income increased $4.3 million or 11.7% from $36.9
million for the first nine months of 1999 to $41.3 million for the
first nine months of 2000. If security gains were eliminated for the
nine-month periods, noninterest income increased $7.5 million or 22.0%.
For the first nine months 1999, gains realized on securities available
for sale were $3.1 million or 8.4% of total noninterest income,
whereas, for the first nine months of 2000 there were no securities
gains taken. 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 $3.8 million for the first nine months of 2000,
up $302 thousand or 8.8% over the first nine months of 1999 as a result
of marketing efforts to attract new credit card customers and
additional customer activity. Insurance commission income for the first
nine months of 2000 was $7.5 million, up $552 thousand from the first
nine months of 1999 primarily as a result of increased business
activity of F&M's insurance agencies, whose primary sources of revenue
are derived from selling insurance policies to customers. Service
charges on deposit accounts were $13.3 million for the first nine
months 2000, up $1.8 million or 15.5% over the nine-month period 1999.
Revenues have increased from fees charged for debit card transactions,
point of sale charges, and ATM transactions. Revenues from fees for
other customer services increased $4.0 million or 65.2% from $6.1
million for the first nine months of 1999 to $10.2 million in 2000
primarily as a result of fees charged customers in the secondary
market. Other operating income increased $624 thousand or 17.3%, up
from $3.6 million for the first nine months of 1999 to $4.2 million for
the first nine months of 2000. The increase in other operating income
is a seasonal variation in other fees and charges.
Total noninterest expenses increased $5.4 million or 6.6% from $81.4
million for the first nine months of 1999 to $86.8 million for the
first nine months of 2000. Salary expense increased $2.1 million or
4.4% from $46.8 million for the first nine months of 1999 to $48.9
million for the first nine months of 2000 as a result of employing
additional personnel due to the branch expansion, certain employees who
are paid on a commission basis, and increases in costs associated with
salaries and benefits. The acquisition price associated with acquiring
15 branches was approximately $8.0 million, which will be amortized
over the appropriate depreciable life of each asset. The cost of net
occupancy expense has increased $565 thousand or 8.4% to $7.3 million
for the first nine months of 2000, as a result of acquiring new
branches and remodeling older branches. Furniture and equipment expense
increased $450 thousand or 8.1% to $6.0 million for the first nine
months of 2000, which is reflective of higher 2000 costs related to
equipment and software upgrades. Other operating expense increased
$2.3 million from $19.6 million for the first nine months of 1999 to
$21.8 million for the first nine months of 2000. Goodwill expense for
the first nine months 2000 was $935 thousand, which is included in
other operating expense.
Income taxes increased $1.3 million or 7.2% from $17.7 million for the
first nine months of 1999 to $19.0 million for the first nine months of
2000. The increase in income taxes is the result of larger 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 $2.6 million for the
first nine months of 2000, representing a ratio of net charge offs to
total average loans, net of unearned income, of 0.13%, annualized. This
compares to 1999 twelve-month net charge-offs of $3.5 million, or 0.19%
of average loans.
As of September 30, 2000, loans on non-accrual basis amounted to $11.2
million, or 0.55% of total loans, net of unearned discount, up from
$9.6 million for the same period 1999. Loans 90 days or more past due
and still accruing totaled $6.3 million, or 0.31% of total loans, net
of unearned discount. In management's judgment, the balance in the
reserve for loan losses is adequate to cover future losses in the
existing loan portfolio.
F&M closely monitors those loans that are deemed to be potential
problem loans. Loans are viewed as potential problem loans when
possible credit problems of the borrowers cause management to have
doubts as to the ability of such borrowers to comply with current
repayment terms. Those loans are subject to constant management
attention, and their classification is reviewed on a regular basis. At
September 30, 2000, the potential problem loans were $14.6 million and
included 10 lending relationships with principal balance in excess of
$500,000. Those 10 lending relationships had an aggregate principal
balance outstanding of $10.1 million.
LIQUIDITY
Liquidity requirements are measured by the need to meet deposit
withdrawals, fund loans, maintain reserve requirements and operate the
organization. To meet its liquidity needs, F&M maintains cash reserves
and has an adequate flow of funds from maturing loans, investment
securities, and short-term investments. In addition, F&M's affiliate
banks have the ability to borrow from the Federal Reserve Bank and the
Federal Home Loan Bank. F&M considers its sources of liquidity to be
ample to meet its estimated needs.
CAPITAL RESOURCES
F&M's strong capital position provides the resources and flexibility
for anticipated growth.
F&M's risk-based capital position at September 30, 2000 was $301.1
million, or 14.0% of risk-weighted assets, for Tier I capital and
$325.5 million, or 15.2% for total risk based capital.
Tier I capital consists primarily of common shareholders' equity, while
total risk-based capital adds the allowance for loan losses to Tier I.
Risk-weighted assets are determined by assigning various levels of risk
to different categories of assets and off-balance sheet activities.
Under current risk-based capital standards, banks are well capitalized
if they have Tier I capital of at least 6% and total risk-based capital
of 10%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in information reported as of
December 31, 1999, in Form 10-K.
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, 1999, filed
with the Commission on March 29, 2000, under Exhibit 10.
(11) Statement re Computation of Per Share Earnings.
Incorporated herein by reference to Note 11, page 37, of
Registrant's 1999 Annual Report to Shareholders filed as
Exhibit 13 to Form 10-K for the year ended December 31, 1999,
filed with the Commission on March 29, 2000.
(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 Notice of
Annual Meeting and Proxy Statement dated March 24, 2000,
filed with the Commission on March 22, 2000.
<PAGE>
(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.
(1) July 18, 2000, for event of July 12, 2000, under Item 5. to
report authorization of the Registrant's Board of Directors
for management to purchase 250,000 additional shares of the
Registrant's common stock on the open market.
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/ Alfred B. Whitt
Alfred B. Whitt
President/CEO, Vice Chairman, and Chief Financial Officer
/s/ Charles E. Curtis
Vice Chairman and Chief Administrative Officer
Date: November 14, 2000
