<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
-----------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from -- to --
Commission file number 0-12638
F&M BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1316473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Thomas Johnson Drive
Frederick, Maryland 21702
(Address of principal executive offices) (zip code)
301-694-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $5 par value, 4,411,076 shares outstanding as of July 31, 1995.
Exhibit index located on page 19.
<PAGE> 2
2
F&M BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C>
Consolidated Balance Sheets (Unaudited),
June 30, 1995 and 1994 and December 31, 1994 3
Consolidated Statements of Income (Unaudited),
Three and Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows (Unaudited),
Six Months Ended June 30, 1995 and 1994 5
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited), Six Months Ended June 30, 1995
and Twelve Months Ended December 31, 1994 6
Notes to Consolidated Financial Statements (Unaudited) 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE> 3
3
CONSOLIDATED BALANCE SHEETS (Unaudited)(Note 2)
F&M Bancorp and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, June 30 June 30 December 31
except per share amounts) 1995 1994 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 24,602 $ 21,801 $ 23,326
Federal funds sold 7,000 2,929 2,100
-------- -------- --------
Total cash and cash equivalents 31,602 24,730 25,426
-------- -------- --------
Interest-bearing deposits with banks -- 789 100
-------- -------- --------
Loans held for sale 782 2,204 149
-------- -------- --------
Investment securities
Held-to-maturity, fair value
$84,183, $37,905, and $89,588,
respectively 82,713 38,679 91,654
Available-for-sale, at fair value 81,825 134,522 77,649
-------- -------- --------
Total investment securities 164,538 173,201 169,303
-------- -------- --------
Loans, net of unearned income 494,129 431,555 480,399
Less: Allowance for credit losses (5,995) (5,926) (5,793)
-------- -------- --------
Net loans 488,134 425,629 474,606
-------- -------- --------
Bank premises and equipment, net 15,685 12,774 13,714
Other real estate owned 2,784 3,633 3,559
Interest receivable 4,887 4,347 4,757
Intangible assets 5,553 596 4,501
Other assets 9,350 5,706 7,744
-------- -------- --------
Total assets $723,315 $653,609 $703,859
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 90,326 $ 79,419 $ 90,575
Interest-bearing 526,193 479,383 511,604
-------- -------- --------
Total deposits 616,519 558,802 602,179
Federal funds purchased and
securities sold under agreements
to repurchase 32,961 26,542 31,959
Other short-term borrowings 2,000 1,838 1,933
Accrued interest and other
liabilities 5,893 5,667 5,906
-------- -------- --------
Total liabilities 657,373 592,849 641,977
-------- -------- --------
Shareholders' equity
Common stock, par value $5 per
share; authorized 10,000,000
shares; issued and outstanding
4,410,458 shares, 4,195,990
shares, and 4,204,626 shares,
respectively 22,052 20,980 21,023
Surplus 24,576 19,860 20,126
Retained earnings 20,461 21,040 23,706
Net unrealized loss on
securities available for sale (1,147) (1,120) (2,973)
-------- -------- --------
Total shareholders' equity 65,942 60,760 61,882
-------- -------- --------
Total liabilities and shareholders'
equity $723,315 $653,609 $703,859
======== ======== ========
</TABLE>
<PAGE> 4
4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(Note 2)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
Six month period Three month period
(Dollars in thousands, ended June 30 ended June 30
except per share amounts) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $22,029 $17,735 $11,222 $ 9,065
Interest and dividends on investment
securities
Taxable 2,811 2,858 1,404 1,404
Tax-exempt 1,787 1,826 885 927
Interest on federal funds sold 21 175 18 66
Interest on deposits with banks 1 12 -- 9
------- ------- ------- -------
Total interest income 26,649 22,606 13,529 11,471
------- ------- ------- -------
Interest Expense
Interest on deposits 10,191 7,948 5,328 3,984
Interest on federal funds purchased
and securities sold under
agreements to repurchase 1,186 531 578 284
Interest on other short-term
borrowings 146 27 113 15
------- ------- ------- -------
Total interest expense 11,523 8,506 6,019 4,283
------- ------- ------- -------
Net interest income 15,126 14,100 7,510 7,188
Provision for credit losses 600 460 300 228
------- ------- ------- -------
Net interest income after provision
for credit losses 14,526 13,640 7,210 6,960
------- ------- ------- -------
Noninterest Income
Trust income 736 470 395 217
Service charges on deposit accounts 1,406 994 715 522
Gains (losses) on sales of property 11 681 -- 676
Other operating income 1,473 1,270 743 491
------- ------- ------- -------
Total noninterest income 3,626 3,415 1,853 1,906
------- ------- ------- -------
Noninterest Expenses
Salaries and employee benefits 6,523 6,057 3,327 3,086
Occupancy and equipment expense 1,469 1,372 754 696
Other operating expense 5,227 4,512 2,641 2,505
------- ------- ------- -------
Total noninterest expenses 13,219 11,941 6,722 6,287
------- ------- ------- -------
Income before provision for
income taxes 4,933 5,114 2,341 2,579
Provision for income taxes 1,226 1,371 574 688
------- ------- ------- -------
Net Income $ 3,707 $ 3,743 $ 1,767 $ 1,891
======= ======= ======= =======
Earnings per Common Share
Based on weighted average shares
outstanding of 4,405,971 for
1995, 4,389,618* for 1994 $ 0.84 $ 0.85* $ 0.40 $ 0.43*
======= ======= ======= =======
Dividends per Share $ .36 $ .35* $ .18 $ .17*
======= ======= ======= =======
</TABLE>
* Reflects restatement for stock dividend.
<PAGE> 5
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Note 2)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
June 30 June 30
(Dollars in thousands) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,707 $ 3,743
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 600 460
Provision for other real estate owned 318 110
Depreciation and amortization 564 543
Amortization of intangibles 244 33
Net premium amortization on investment securities 69 319
Increase in interest receivable (130) (111)
Increase (decrease) in interest payable 175 (73)
Accretion of net loan origination fees (96) (218)
Gain on sales of equipment (5) (9)
Gain on sales of other real estate owned (6) (672)
Decrease (increase) in loans held for sale (633) 6,492
Decrease (increase) in other assets (2,743) 917
Increase (decrease) in other liabilities (188) 505
------- -------
Net cash provided by operating activities 1,876 12,039
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities-held to maturity (2,129) (7,361)
Purchases of investment securities-available for sale (6,439) (20,012)
Proceeds from calls of securities-held to maturity 255 --
Proceeds from maturing securities-available for sale 10,997 22,938
Proceeds from maturing securities-held to maturity 5,075 656
Net increase in loans (14,032) (15,950)
Purchases of premises and equipment (2,555) (732)
Proceeds from sales of equipment 25 10
Intangible assets (1,296) 3
Proceeds from sales of other real estate owned 511 876
Other investing activities (48) (166)
------- -------
Net cash used in investing activities (9,636) (19,738)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing deposits,
interest-bearing checking, savings and money market
accounts (16,383) 17,655
Net increase (decrease) in certificates of deposit 30,723 (7,395)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 1,002 (3,835)
Net increase (decrease) in other short-term borrowings 67 (176)
Cash dividends paid (1,603) (1,525)
Dividend reinvestment plan (31) (35)
Proceeds from issuance of common stock 277 107
Repurchase of common stock (116) (29)
------- -------
Net cash provided by financing activities 13,936 4,767
------- -------
Net increase (decrease) in cash and cash equivalents 6,176 (2,932)
Cash and cash equivalents at beginning of period 25,426 27,662
------- ------
Cash and cash equivalents at end of period $31,602 $24,730
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $11,348 $8,579
Cash payments for income tax 1,399 1,352
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired with formation of
real estate partnership $ -- $ 644
Less: Minority interest in consolidated subsidiary -- (644)
------- -------
Net -- --
Fair value adjustment for securities available
for sale, net of deferred income taxes payable
(benefits) 1,826 (2,631)
</TABLE>
<PAGE> 6
6
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)(Note 2)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
on Securities
(Dollars in thousands Common Retained Available
except per share amounts) Stock Surplus Earnings for Sale Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $18,728 $15,811 $22,589 $ 1,511 $58,639
Effect of pooling (Note 2) 1,288 512 691 -- 2,491
Net income -- -- 8,151 -- 8,151
Dividend reinvestment plan -- -- (46) -- (46)
Stock dividend 933 3,473 (4,406) -- --
Cash dividends paid
($.70* per share) -- -- (3,132) -- (3,132)
Stock options exercised
(22,521 shares) 113 368 -- -- 481
Stock repurchased
(7,688 shares) (39) (38) (141) -- (218)
Fair value adjustment for
securities available
for sale, net -- -- -- (4,484) (4,484)
------- ------- ------- ------- -------
Balance at December 31, 1994 21,023 20,126 23,706 (2,973) 61,882
Net income -- -- 3,707 -- 3,707
Dividend reinvestment plan -- -- (31) -- (31)
Stock dividend 984 4,257 (5,241) -- --
Cash dividends paid
($.36 per share) -- -- (1,603) -- (1,603)
Stock options exercised
(12,884 shares) 65 212 -- -- 277
Stock repurchased
(3,917 shares) (20) (19) (77) -- (116)
Fair value adjustment for
securities available
for sale, net -- -- -- 1,826 1,826
------- ------- ------- ------- -------
Balance at June 30, 1995 $22,052 $24,576 $20,461 $(1,147) $65,942
======= ======= ======= ======= =======
</TABLE>
* Reflects restatement for stock dividend.
<PAGE> 7
7
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
The foregoing financial statements are unaudited; however, in the opinion of
management, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the financial statements have been
included. A summary of F&M Bancorp's significant accounting policies is set
forth in Note 1 to the consolidated financial statements in it's Annual Report
on Form 10-K for 1994.
Certain reclassifications to prior year balances have been made in the
accompanying consolidated financial statements to make disclosures consistent
with those of the current year.
Note 2. Acquisition
On May 31, 1995, F&M Bancorp consummated its merger with the Bank of Brunswick,
Brunswick, Maryland, in a tax-free exchange of stock. Shareholders of the Bank
of Brunswick received 10.74 shares of F&M Bancorp stock for each of the 24,000
shares of the Bank of Brunswick capital stock and cash in lieu of any
fractional share. The merger was accounted for as a pooling-of-interests.
Accordingly, the consolidated financial statements have been restated to
include the accounts of the Bank of Brunswick.
The combined and separate results of operations for the Bank of Brunswick and
F&M Bancorp preceding the merger are as follows:
<TABLE>
<CAPTION>
Bank
(Dollars in thousands) of F&M
For the Three Months Ended June 30, 1994 Brunswick Bancorp Combined
- ---------------------------------------- --------- ------- --------
<S> <C> <C> <C>
Total income $543 $12,834 $13,377
Net income 39 1,852 1,891
Net income per share .45 .43
</TABLE>
<TABLE>
<CAPTION>
Bank
of F&M
For the Six Months Ended June 30, 1994 Brunswick Bancorp Combined
- -------------------------------------- --------- ------- --------
<S> <C> <C> <C>
Total income $1,082 $24,939 $26,021
Net income 84 3,659 3,743
Net income per share .89 .85
</TABLE>
Total income and net income of the Bank of Brunswick for the periods during
1995 prior to affiliation totalled $563,000 and $55,000 through March 31, 1995
and $949,000 and $32,000 through May 31, 1995.
<PAGE> 8
8
Note 3. Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
June 30, 1995
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 50,789 $ 166 $ 389 $ 50,566
Obligations of states
and political sub-
divisions 3,235 42 19 3,258
Other 100 -- -- 100
Mortgage-backed
securities 25,036 53 364 24,725
----------------------------------------------------------------------------
Total-debt securities 79,160 261 772 78,649
Equity securities 3,176 -- -- 3,176
----------------------------------------------------------------------------
Total available-for-sale: 82,336 261 772 81,825
----------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 7,127 344 -- 7,471
Obligations of states
and political
subdivisions 64,542 957 409 65,090
Mortgage-backed
securities 11,044 578 -- 11,622
----------------------------------------------------------------------------
Total held-to-maturity 82,713 1,879 409 84,183
----------------------------------------------------------------------------
Total investment
securities $165,049 $2,140 $1,181 $166,008
============================================================================
</TABLE>
<PAGE> 9
9
Notes to Consolidated Financial Statements (continued)
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
June 30, 1994
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 58,664 $ 25 $1,291 $ 57,398
Obligations of states
and political sub-
divisions 35,209 1,091 47 36,253
Mortgage-backed
securities 40,320 61 1,663 38,718
----------------------------------------------------------------------
Total-debt securities 134,193 1,177 3,001 132,369
Equity securities 2,153 -- -- 2,153
----------------------------------------------------------------------
Total available-for-sale: 136,346 1,177 3,001 134,522
----------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 4,024 23 47 4,000
Obligations of states
and political
subdivisions 33,958 142 901 33,199
Other debt securities 525 6 -- 531
Mortgage-backed
securities 172 3 -- 175
----------------------------------------------------------------------
Total held-to-maturity 38,679 174 948 37,905
----------------------------------------------------------------------
Total investment
securities $175,025 $1,351 $3,949 $172,427
======================================================================
</TABLE>
<PAGE> 10
10
Notes to Consolidated Financial Statements (continued)
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
December 31, 1994
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 50,804 $ -- $1,573 $ 49,231
Obligations of states
and political sub-
divisions 2,234 11 20 2,225
Mortgage-backed
securities 25,696 1 1,730 23,967
----------------------------------------------------------------------
Total-debt securities 78,734 12 3,323 75,423
Equity securities 2,226 -- -- 2,226
----------------------------------------------------------------------
Total available-for-sale: 80,960 12 3,323 77,649
----------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 11,062 3 97 10,968
Obligations of states
and political
subdivisions 68,741 18 1,993 66,766
Other debt securities 200 1 -- 201
Mortgage-backed
securities 11,651 2 -- 11,653
----------------------------------------------------------------------
Total held-to-maturity 91,654 24 2,090 89,588
----------------------------------------------------------------------
Total investment
securities $172,614 $ 36 $5,413 $167,237
======================================================================
</TABLE>
<PAGE> 11
11
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Effective December 31, 1993, F&M Bancorp ("Bancorp") adopted Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires the use of fair
value accounting for certain investment categories. Applying the new
accounting and reporting standards prescribed in the Statement, Bancorp
classifies its investments in debt and equity securities into two categories:
held-to-maturity and available-for-sale.
Securities classified as held-to-maturity are those debt securities that
Bancorp has both the positive intent and ability to hold to maturity. These
securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustments to interest income
using the interest method.
Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that Bancorp intends to hold
for an indefinite period of time but not necessarily to maturity. These
securities may be sold as part of its asset/liability management strategy, or
in response to significant movements in interest rates, liquidity needs,
regulatory capital considerations, and other similar factors. These securities
are carried at fair value, with any unrealized gains and losses reported as a
separate component of shareholders' equity, net of the related deferred tax
effect.
Regardless of the classification, dividend and interest income, including
amortization of premiums and accretion of discounts arising at acquisition, is
included in interest income in the consolidated statements of income. Realized
gains and losses, if any, determined based on the adjusted cost of the specific
securities sold, are reported as a separate line item in noninterest income in
the consolidated statements of income.
<PAGE> 12
12
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The amortized cost and estimated fair values of investments at June 30, 1995 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
(in thousands) Cost Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Within 1 year $ 24,857 $ 24,828
After 1 but within 5 years 26,064 25,946
After 5 years but within 10 years 3,203 3,150
Mortgage-backed securities 25,036 24,725
Equity securities 3,176 3,176
- -----------------------------------------------------------------------------
Total available-for-sale 82,336 81,825
- -----------------------------------------------------------------------------
Held-to-maturity:
Within 1 year 7,905 7,955
After 1 but within 5 years 32,840 33,670
After 5 years but within 10 years 30,924 30,936
Mortgage-backed securities 11,044 11,622
- -----------------------------------------------------------------------------
Total held-to-maturity 82,713 84,183
- -----------------------------------------------------------------------------
Total investment securities $165,049 $166,008
=============================================================================
</TABLE>
The amortized cost of investment securities pledged to secure public deposits,
securities sold under repurchase agreements, and for other purposes as required
and permitted by law, totaled $75,599,000 at June 30, 1995.
Proceeds from calls of debt securities held to maturity for the period ended
June 30, 1995 were $255,000. No gains or losses were realized on those calls.
<PAGE> 13
13
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Note 4. Loans
Loans, net of unearned income, consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
June 30, December 31,
- ------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $ 21,206 $ 17,706 $ 21,193
Secured by farmland 6,176 5,978 6,132
Secured by 1 to 4 family
residential properties 116,459 112,754 115,873
Other 85,395 73,803 86,430
Loans to farmers 1,688 1,671 1,815
Commercial and industrial loans 50,491 41,920 44,584
Loans to individuals for household,
family, and other personal
expenditures 197,030 160,848 186,435
Credit card loans 10,983 11,593 12,199
All other loans and lease financing
receivables 4,701 5,282 5,738
- ------------------------------------------------------------------------------------------------
Totals $494,129 $431,555 $480,399
================================================================================================
</TABLE>
Loans to states, political subdivisions, and industrial revenue bonds are
included in all other loans in the schedule above and in total loans in the
statement of condition.
The allowance for credit losses is maintained at a level which, in management's
opinion, is considered adequate to provide for possible loan losses on loans
currently held in the loan portfolio.
Note 5. Bank Premises and Equipment
Investments in bank premises and equipment are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, December 31,
- -------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises and land $17,111 $14,290 $15,349
Furniture and equipment 10,417 9,398 9,733
Leasehold improvements 967 967 967
- -------------------------------------------------------------------------------------------------------
28,495 24,655 26,049
Less accumulated depreciation
and amortization (12,810) (11,881) (12,335)
- -------------------------------------------------------------------------------------------------------
Net premises and equipment $15,685 $12,774 $13,714
=======================================================================================================
</TABLE>
<PAGE> 14
14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
F&M Bancorp's net income for the second quarter of 1995 was $1,767,000
or 40 cents per share, a decrease of $124,000 or 6.6 percent compared with the
second quarter of last year. Year-to-date net income was $3,707,000 or $.84
per share and $3,743,000 or $.85 per share for the first six months of 1995 and
1994, respectively. Earnings per share for prior periods have been restated to
reflect the stock dividend distributed in May, 1995.
<TABLE>
<CAPTION>
Net Interest Income (Taxable-Equivalent Basis)
- ------------------------------------------------------------------------------------------------------------------------------------
Second Quarter Six Months
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Balance Rate Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 1,265 5.71% $ 6,632 3.99% $ 731 5.79% $ 10,181 3.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities(1)(2)
Taxable 98,477 5.69 110,100 5.13 99,725 5.64 111,206 5.16
Tax-exempt 67,712 7.93 69,884 8.03 68,609 7.89 68,835 8.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 166,189 6.61 179,984 6.26 168,334 6.56 180,041 6.26
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
interest 494,295 9.14 428,288 8.53 490,066 9.10 423,217 8.49
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 661,749 8.50 614,904 7.82 659,131 8.46 613,439 7.77
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Interest-bearing deposits
Checking 66,833 2.32 64,813 2.27 67,571 2.34 64,730 2.34
Savings 111,526 3.03 118,843 2.77 112,816 2.95 117,025 2.77
Money Market 84,255 3.63 92,341 2.94 87,503 3.57 91,474 2.92
Certificates of deposit
under $100,000 216,551 5.48 179,959 4.23 208,727 5.29 180,871 4.23
Certificates of deposit
$100,000 and over 25,712 5.82 22,677 4.00 26,713 5.48 23,937 3.94
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 504,877 4.23 478,633 3.37 503,330 4.08 478,037 3.35
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings
Federal funds purchased
and securities
sold under agreements
to repurchase 39,383 5.90 29,873 3.83 40,910 5.85 30,858 3.47
Other 6,860 6.61 1,609 3.74 4,621 6.37 1,672 3.26
- ------------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 46,243 6.00 31,482 3.81 45,531 5.90 32,530 3.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 551,120 4.38 510,115 3.37 548,861 4.23 510,567 3.36
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-free funds 110,629 -- 104,789 -- 110,270 -- 102,872 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total funding 661,749 3.64 614,904 2.79 659,131 3.52 613,439 2.80
====================================================================================================================================
Net interest earnings* $8,012 $7,707 $16,141 $15,121
====================================================================================================================================
Net interest spread 4.12% 4.45% 4.23% 4.41%
====================================================================================================================================
Net yield on earning assets 4.86% 5.03% 4.94% 4.97%
====================================================================================================================================
</TABLE>
*Includes the following taxable-equivalent adjustments: Second quarter - $502
thousand in 1995 and $519 thousand in 1994; six months - $1,015 thousand in
1995 and $1,021 thousand in 1994. Each represents a pro forma amount of net
interest income (above the amount reported in the income statement) that
adjusts the yield on tax-exempt assets to a basis equivalent to that of taxable
assets.
(1) Excludes fair value adjustments.
(2) Includes interest-bearing deposits with banks.
<PAGE> 15
15
During the quarter, the merger with the Bank of Brunswick was completed. The
merger was accounted for as a pooling-of interests. Accordingly, quarterly and
year-to-date earnings for both 1995 and 1994 include the operations of the Bank
of Brunswick. In addition, the acquisition of the deposits and facilities of
two branch offices from First Union National Bank of Maryland was completed in
June.
For the second quarter of 1995, net interest income on a taxable-equivalent
basis increased $305,000 or 4.0 percent compared with the same period last
year. Year-to-date net interest income on a taxable-equivalent basis increased
$1,020,000 or 6.7 percent. The net interest spread declined 33 basis points
and 18 basis points, respectively, for the quarter and year-to-date when
compared with the same periods last year. The net interest margin (net
interest income on a taxable-equivalent basis as a percent of earning assets)
for the quarter and year-to-date declined 17 basis points and 3 basis points,
respectively.
The average rate earned on earning assets was 69 basis points higher than last
year-to-date and 68 basis points higher for the quarter. The quarterly rate
earned of 8.50 percent was 4 basis points greater than the year-to-date rate of
8.46 percent, indicating a slightly positive trend. Average earning assets
increased by 7.6 percent for the current quarter compared with the same quarter
last year. For the year-to-date, average earning assets increased 7.4 percent.
Continuing a trend established in the last half of 1994, loan demand remained
strong. To partially fund this loan demand, proceeds from maturing investment
securities were utilized. As a result, the average balances of investment
securities declined 7.7 percent and 6.5 percent for the quarter and
year-to-date, respectively, while average loans increased 15.4 percent and 15.8
percent, respectively, for the same periods. The shift in the earning asset
mix coupled with higher market interest rates has acted to improve the earning
asset yield.
The average rate paid on interest-bearing liabilities was 87 basis points
higher than last year-to-date and 101 basis points higher for the quarter. The
quarterly rate paid of 4.38 percent for the quarter was 15 basis points higher
than the 4.23 percent paid year-to-date, indicating a negative trend. Average
deposits increased 5.5 percent for the quarter and 5.3 percent year-to-date.
The acquisition of deposits from three branches of the former Standard Federal
Savings Association completed in the last quarter of 1994 contributed
significantly to this increase. Reversing a trend of the last several years,
customers are now shifting their deposits to higher yielding certificates of
deposit from savings and money market accounts to lock-in higher yields. In
addition, competition between financial service providers to acquire and retain
deposits has acted to drive liability rates higher. An increased reliance
<PAGE> 16
16
on higher cost, short-term borrowing which was required to fund loan demand
also acted to drive the average rate paid on interest-bearing liabilities
upward. As of June 30, 1995, reliance on short-term funding decreased due to
the recent acquisition activity.
Management continually monitors Bancorp's balance sheet to insulate net
interest income from significant swings caused by interest rate volatility
using the concept of natural hedges. As market rates change, corresponding
changes in asset mix, funding sources and pricing are considered to avoid a
negative impact on net interest income.
Bancorp attempts to measure the interest rate sensitivity of its assets and
liabilities on the basis of when they will reprice as opposed to when they can
reprice. Since it is difficult to predict the movement of interest rates,
management's objective is to maintain a relatively balanced sensitivity
position, while not foregoing any opportunity to benefit from current rate
conditions. As indicated below, Bancorp had a net liability sensitive
position of $33,498,000 within the one year horizon at June 30, 1995. This
position would indicate that Bancorp has the potential for decreased earnings
if market rates were to rise in the next twelve months. Conversely, if market
rates were to decline in the next twelve months, an increase in earnings would
be anticipated.
INTEREST RATE SENSITIVITY ANALYSIS AT JUNE 30, 1995 (1)
<TABLE>
<CAPTION>
Total
Total Greater quarter
1-30 31-90 91-180 181-365 within than end
(In thousands) days days days days 1 year 1 year balance
- -------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
Assets:
Federal funds
sold $ 7,000 $ -- $ -- $ -- $ 7,000 $ -- $ 7,000
Investment
securities (2) 4,698 9,670 11,810 16,288 42,466 118,896 161,362
Loans, net 96,035 18,559 26,155 64,744 205,493 281,522 487,015
-------- -------- -------- -------- -------- -------- --------
Total $107,733 $ 28,229 $ 37,965 $ 81,032 $254,959 $400,418 $655,377
======== ======== ======== ======== ======== ======== ========
Interest-bearing
Liabilities:
Deposits $ 48,487 $ 52,448 $ 57,920 $ 94,641 $253,496 $272,580 $526,076
Short-term
borrowings 34,961 -- -- -- 34,961 -- 34,961
-------- -------- -------- -------- -------- -------- --------
Total $ 83,448 $ 52,448 $ 57,920 $ 94,641 $288,457 $272,580 $561,037
======== ======== ======== ======== ======== ======== ========
Interest
Sensitivity Gap:
Period $ 24,285 $(24,219) $(19,955) $(13,609) $(33,498) $127,838 $ 94,340
Cumulative 24,285 66 (19,889) (33,498) (33,498) 94,340 94,340
</TABLE>
(1) Excludes nonaccrual loans and other nonrate-sensitive assets.
(2) Reflects fair value adjustments for securities available for sale.
<PAGE> 17
17
Due to inherent limitations in this traditional gap analysis technique for
measuring interest rate sensitivity, management also utilizes simulation
modeling to analyze the volatility of net interest income as a result of
changes in interest rates. The effects of changes in interest rates on the
market value of assets, liabilities, and off-balance sheet contracts is also
measured. At June 30, 1995 the changes in net interest income and/or market
value calculated under these alternative methods were within established
parameters.
The allowance for credit losses was $5,995,000 or 1.2 percent of loans
outstanding as of June 30, 1995 compared with $5,793,000 or 1.2 percent of
loans outstanding as of December 31, 1994 and $5,926,000 or 1.4 percent of
loans outstanding as of June 30, 1994. The provision for credit losses for the
second quarter of 1995 was $72,000 greater than the same quarter last year and
$140,000 greater year-to-date. Net charge-offs for the second quarter
increased $208,000 when compared with the second quarter of 1994 and increased
$160,000 year-to-date. Total nonaccrual loans at the end of the second quarter
were $1,598,000 compared with $2,086,000 at December 31, 1994 and $1,392,000 at
June 30, 1994. Loans past due 90 days or more and still accruing were $418,000
at June 30, 1995 compared with $213,000 at December 31, 1994 and $162,000 at
June 30, 1994. Although there is no direct correlation between nonperforming
loans and ultimate loan losses, an analysis of the nonperforming loans may
provide some indication of the quality of the loan portfolio. Management
believes that the amounts of its nonperforming loans are modest in relation to
the size of the loan portfolio.
Based upon management's analysis and review of the loan portfolio, past loss
experience, and current economic conditions, the amount in the allowance for
credit losses at June 30, 1995 is considered adequate.
Noninterest income declined 2.8 percent for the second quarter and increased
6.2 percent year-to-date compared with the same periods last year. Exclusive
of gains on sales of property, including $676,000 realized on sales of former
bank premises that occurred in the second quarter of last year, noninterest
income increased $623,000 or 50.7 percent and $881,000 or 32.2 percent for the
quarter and year-to-date, respectively. Significant increases were achieved in
trust fees and service charges on deposit accounts. The increases result, in
large measure, from strategies undertaken in 1994 to increase noninterest
income coupled with higher deposits levels. Management continues to be
actively committed to increasing this source of revenue.
Noninterest expenses increased $435,000 or 6.9 percent for the second quarter
and $1,278,000 or 10.7 percent year-to-date compared with the same periods last
year. Expenses incurred in connection
<PAGE> 18
18
with Bancorp's acquisition activities contributed significantly to the
increase. In the fourth quarter of 1994, the bank's retail delivery system
expanded to include three branch offices acquired from the Standard Federal
Savings Association. Late in the second quarter of 1995, two additional branch
locations were acquired from First Union National Bank of Maryland.
Amortization of intangibles, included in other operating expense, increased
$117,000 and $212,000 for the quarter and year-to-date, respectively, as a
result of these acquisitions. Provisions for decline in value of other real
estate owned also increased $69,000 and $237,000 for the quarter and
year-to-date, respectively, when compared with the same periods last year.
The provision for income taxes decreased $114,000 for the quarter, and $145,000
for the year-to-date. The decrease was attributable to lower pre-tax income,
increased tax-exempt income as a percentage of pre-tax income, and the
realization of tax benefits from tax planning strategies implemented in the
second quarter of last year.
Shareholder's equity totaled $65,942,000 at June 30, 1995, an increase of 6.6
percent compared with the 1994 year end level of $61,882,000 and an increase of
8.5 percent from the year earlier level of $60,760,000. The fair value of the
available for sale portfolio increased $1,826,000 (net of deferred taxes) since
year end concurrent with the rebound in the bond market. Capital levels are
considered sufficient to absorb anticipated future price volatility. Although
capital ratios have declined due to the addition of intangible assets
associated with the recent branch acquisitions, both our risk-based capital and
our leverage capital ratios continue to exceed regulatory guidelines as of June
30, 1995, as follows:
<TABLE>
<CAPTION>
Risk-based Capital
----------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- --------
<S> <C> <C> <C>
Actual 11.62% 12.74% 8.74%
Minimum 4.00% 8.00% 3.00%
------- ------- --------
Excess 7.62% 4.74% 5.74%
======= ======= ========
</TABLE>
Fair value adjustments to shareholders' equity for changes in the fair value of
securities classified as available-for-sale are excluded from the calculation
of these capital ratios in accordance with regulatory guidelines.
<PAGE> 19
19
Item 6 Exhibits and Reports on Form 8-K
Page
----
(a) Exhibits
11 Statement Re: Computation of per share earnings. 21
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Corporation during the
quarter ended June 30, 1995.
<PAGE> 20
20
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 BANCORP
-----------
(Registrant)
August 9, 1995 /s/Kenneth M. Sabanosh
- -------------- -------------------------------
DATE KENNETH M. SABANOSH
VICE PRESIDENT AND TREASURER
<PAGE> 1
21
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six Month Period Ended, Quarter Ending
June 30, June 30,
1995 1994 1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per share:
Primary $ .83 $ .85 $ .40 $ .43
Fully
diluted $ .83 $ .85 $ .40 $ .43
</TABLE>
Primary and fully diluted earnings per share are calculated using the following
number of adjusted weighted average shares outstanding:
<TABLE>
<CAPTION>
Six Month Period Ended, Quarter Ending
June 30, June 30,
1995 1994 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C>
Primary 4,451,775 4,419,005 4,450,853 4,419,835
Fully
diluted 4,451,803 4,428,900 4,450,853 4,430,222
</TABLE>
The weighted average number of shares outstanding is adjusted to recognize the
dilutive effect, if any, of outstanding employee stock options on both a
primary and fully diluted basis.
The calculations of earnings per share above are based on the weighted average
number of shares outstanding including all common stock and common stock
equivalents in conformity with the instructions for Item 601 of Regulation S-K.
The calculation of earnings per share for financial reporting purposes is based
on the weighted average number of shares outstanding of 4,405,971 and 4,389,618
at June 30, 1995 and June 30, 1994, respectively, without giving effect to the
common stock equivalents resulting from the assumed exercise of stock options,
which do not dilute earnings per share by more than 3 percent, in conformity
with generally accepted accounting principles.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 24602
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81825
<INVESTMENTS-CARRYING> 82713
<INVESTMENTS-MARKET> 84183
<LOANS> 494129
<ALLOWANCE> 5995
<TOTAL-ASSETS> 723315
<DEPOSITS> 616519
<SHORT-TERM> 34961
<LIABILITIES-OTHER> 5893
<LONG-TERM> 0
<COMMON> 22052
0
0
<OTHER-SE> 43890
<TOTAL-LIABILITIES-AND-EQUITY> 723315
<INTEREST-LOAN> 22029
<INTEREST-INVEST> 4598
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 26649
<INTEREST-DEPOSIT> 10191
<INTEREST-EXPENSE> 11523
<INTEREST-INCOME-NET> 15126
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13219
<INCOME-PRETAX> 4933
<INCOME-PRE-EXTRAORDINARY> 4933
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3707
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<YIELD-ACTUAL> 4.86
<LOANS-NON> 1598
<LOANS-PAST> 418
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 25582
<ALLOWANCE-OPEN> 5793
<CHARGE-OFFS> 1111
<RECOVERIES> 713
<ALLOWANCE-CLOSE> 5995
<ALLOWANCE-DOMESTIC> 4808
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1187
</TABLE>
