<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 March 31, 1996
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, 4,422,536 shares outstanding as of May 7, 1996.
Exhibit index located on page 21.
<PAGE> 2
2
F&M BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C>
Consolidated Balance Sheets (Unaudited),
March 31, 1996 and 1995 and December 31, 1995 3
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited), Three Months Ended March 31, 1996
and Twelve Months Ended December 31, 1995 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 4. Submission of Matters to Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
<PAGE> 3
3
CONSOLIDATED BALANCE SHEETS (Unaudited)
F&M Bancorp and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, March 31 March 31 December 31
except per share amounts) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 22,954 $ 20,872 $ 26,811
Federal funds sold 21,800 -- 18,500
-------- -------- --------
Total cash and cash equivalents 44,754 20,872 45,311
-------- -------- --------
Interest-bearing deposits with banks -- 100 --
-------- -------- --------
Loans held for sale 597 193 841
-------- -------- --------
Investment securities
Held-to-maturity, fair value
$62,773, $89,353, and $61,299,
respectively 62,299 89,375 60,146
Available-for-sale, at fair value 122,652 74,929 116,988
-------- -------- --------
Total investment securities 184,951 164,304 177,134
-------- -------- --------
Loans, net of unearned income 476,432 489,601 484,694
Less: Allowance for credit losses (6,013) (5,947) (6,164)
-------- -------- --------
Net loans 470,419 483,654 478,530
-------- -------- --------
Bank premises and equipment, net 16,929 14,650 16,391
Other real estate owned 2,458 3,311 2,351
Interest receivable 5,301 4,629 5,357
Intangible assets 4,325 4,384 4,451
Other assets 9,386 7,689 9,488
-------- -------- --------
Total assets $739,120 $703,786 $739,854
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 94,785 $ 87,207 $ 96,266
Interest-bearing 532,259 503,715 524,791
-------- -------- --------
Total deposits 627,044 590,922 621,057
Federal funds purchased and
securities sold under agreements
to repurchase 32,127 35,362 40,158
Other short-term borrowings 1,649 6,922 1,392
Accrued interest and other
liabilities 7,383 6,562 7,228
-------- -------- --------
Total liabilities 668,203 639,768 669,835
-------- -------- --------
Shareholders' equity
Common stock, par value $5 per
share; authorized 10,000,000
shares; issued and outstanding
4,421,337 shares, 4,210,287
shares, and 4,413,600 shares,
respectively 22,107 21,051 22,068
Surplus 24,782 20,268 24,625
Retained earnings 24,284 24,765 23,169
Net unrealized gain (loss) on
securities available for sale (256) (2,066) 157
-------- -------- --------
Total shareholders' equity 70,917 64,018 70,019
-------- -------- --------
Total liabilities and shareholders'
equity $739,120 $703,786 $739,854
======== ======== ========
</TABLE>
<PAGE> 4
4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
Quarter ended
(Dollars in thousands, March 31
except per share amounts) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $10,545 $10,807
Interest and dividends on investment
securities
Taxable 1,594 1,407
Tax-exempt 928 902
Interest on deposits with banks -- 1
Interest on federal funds sold 217 3
------- -------
Total interest income 13,284 13,120
------- -------
Interest Expense(1)
Interest on deposits 5,346 4,863
Interest on federal funds purchased
and securities sold under
agreements to repurchase 425 608
Interest on other short-term
borrowings 19 33
------- -------
Total interest expense 5,790 5,504
------- -------
Net interest income 7,494 7,616
Provision for credit losses 300 300
------- -------
Net interest income after provision
for credit losses 7,194 7,316
------- -------
Noninterest Income
Trust income 427 341
Service charges on deposit accounts 799 691
Gains on sales of securities 2 --
Gains on sales of property -- 11
Other operating income 765 730
------- -------
Total noninterest income 1,993 1,773
------- -------
Noninterest Expenses
Salaries and employee benefits 3,350 3,196
Occupancy and equipment expense 877 715
Other operating expense 2,144 2,586
------- -------
Total noninterest expenses 6,371 6,497
------- -------
Income before provision for
income taxes 2,816 2,592
Provision for income taxes 727 652
------- -------
Net Income $ 2,089 $ 1,940
======= =======
Earnings per Common Share
Based on weighted average shares
outstanding of 4,419,189 for
1996, 4,403,399 for 1995 $ .47 $ .44
======= =======
Dividends per Share $ .20 $ .18
======= =======
</TABLE>
(1)Net of $15,000 in capitalized construction period interest in 1996.
<PAGE> 5
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
March 31 March 31
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,089 $ 1,940
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 300 300
Provision for other real estate owned -- 168
Depreciation and amortization 318 270
Amortization of intangibles 126 117
Net premium amortization on investment securities 118 51
Decrease in interest receivable 56 125
Increase (decrease) in interest payable (2) 117
Amortization of net loan origination costs (fees) 64 10
Loss (gain) on sales of property 1 (11)
Gain on sales/calls of securities (2) --
Decrease (increase) in loans held for sale 244 (44)
Decrease (increase) on other assets 347 (498)
Increase in other liabilities 157 530
------- -------
Net cash provided by operating activities 3,816 3,075
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities to be held to maturity (2,176) (100)
Purchases of investment securities available for sale (20,156) (2,238)
Proceeds from calls of securities to be held to maturity -- 255
Proceeds from sales/calls of securities available for sale 4,507 --
Proceeds from maturing securities available for sale 9,234 6,658
Proceeds from maturing securities to be held to maturity -- 1,845
Net decrease (increase) in loans 7,747 (9,358)
Purchases of premises and equipment (951) (1,206)
Proceeds from sales of property -- 121
Other investing activities (13) (30)
------- -------
Net cash used in investing activities (1,808) (4,053)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing
deposits, interest-bearing checking, savings
and money market accounts 4,091 (16,767)
Net increase in certificates of deposit 1,896 5,510
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase (8,031) 3,403
Net increase in other short-term borrowings 257 4,989
Cash dividends paid (884) (799)
Dividend reinvestment plan -- (5)
Proceeds from issuance of common stock 106 93
------- -------
Net cash used in financing activities (2,565) (3,576)
------- -------
Net decrease in cash and cash equivalents (557) (4,554)
Cash and cash equivalents at beginning of period 45,311 25,426
------- -------
Cash and cash equivalents at end of period $44,754 $20,872
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 5,807 $ 5,387
Cash payments for income tax 795 59
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available
for sale, net of applicable deferred income tax
effects (413) 907
</TABLE>
<PAGE> 6
6
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
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, 1994 $21,023 $20,126 $23,706 $(2,973) $61,882
Net income -- -- 8,199 -- 8,199
Dividend reinvestment plan -- -- (46) -- (46)
Stock dividend (196,865 shares) 984 4,257 (5,241) -- --
Cash dividends paid
($.76 per share) -- -- (3,368) -- (3,368)
Stock options exercised
(16,217 shares) 82 262 -- -- 344
Stock consideration for options
exercised (4,108 shares) (21) (20) (81) -- (122)
Fair value adjustment for
securities available
for sale, net -- -- -- 3,130 3,130
------- ------- ------- ------- -------
Balance at December 31, 1995 22,068 24,625 23,169 157 70,019
Net income -- -- 2,089 -- 2,089
Cash dividends paid
($.20 per share) -- -- (884) -- (884)
Stock options exercised
(12,181 shares) 61 181 -- -- 242
Stock consideration for options
exercised (4,444 shares) (22) (24) (90) -- (136)
Fair value adjustment for
securities available
for sale, net -- -- -- (413) (413)
------- ------- ------- ------- -------
Balance at March 31, 1996 $22,107 $24,782 $24,284 $ (256) $70,917
======= ======= ======= ======= =======
</TABLE>
<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 ("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 the year ended December 31, 1995.
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. Pending Acquisition
On April 2, 1996, Bancorp announced it had reached a definitive agreement to
acquire all of the outstanding capital stock of Home Federal Corporation,
Hagerstown, Maryland, in a tax-free transaction. Under the terms of the
agreement, Home Federal Corporation will merge with and into Bancorp. On the
effective date of the merger, each share of Home Federal Corporation's Common
Stock will be converted into a number of shares of Bancorp's Common Stock whose
aggregate value (based on the average closing price of Bancorp's Common Stock
on NASDAQ for the 20 business days preceding the date of calculation) is 1.65
times the book value of a share of Home Federal Corporation Common Stock. The
transaction is subject to the approval of federal regulatory authorities, Home
Federal stockholders, and Bancorp stockholders and is expected to be
consummated during the fourth quarter of 1996.
Home Federal Corporation had total assets as of December 31, 1995 of
approximately $214,615,000. Home Federal Savings Bank, the primary subsidiary
of Home Federal Corporation currently operates eight banking offices and eleven
ATMs in Washington County and Allegheny County, Maryland.
<PAGE> 8
8
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Note 3. Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
March 31, 1996
-----------------------------------------------------------------------------------------------------
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 $ 59,372 $ 97 $ 271 $ 59,198
Obligations of states
and political sub-
divisions 14,547 322 1 14,868
Mortgage-backed
securities 38,443 42 489 37,996
-----------------------------------------------------------------------------------------------------
Total-debt securities 112,362 461 761 112,062
Equity securities 10,590 -- -- 10,590
-----------------------------------------------------------------------------------------------------
Total available-for-sale: 122,952 461 761 122,652
-----------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 4,944 58 24 4,978
Obligations of states
and political
subdivisions 57,355 887 447 57,795
-----------------------------------------------------------------------------------------------------
Total held-
to-maturity 62,299 945 471 62,773
-----------------------------------------------------------------------------------------------------
Total investment
securities $185,251 $1,406 $1,232 $185,425
=====================================================================================================
</TABLE>
<PAGE> 9
9
Notes to Consolidated Financial Statements (continued)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
March 31, 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 $ 46,823 $ 43 $ 882 $ 45,984
Obligations of states
and political sub-
divisions 2,232 21 4 2,249
Mortgage-backed
securities 25,313 15 1,113 24,215
--------------------------------------------------------------------------------------------
Total-debt securities 74,368 79 1,999 72,448
Equity securities 2,481 -- -- 2,481
--------------------------------------------------------------------------------------------
Total available-for-sale: 76,849 79 1,999 74,929
--------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 11,115 167 44 11,238
Obligations of states
and political
subdivisions 66,716 533 946 66,303
Other debt securities 100 1 -- 101
Mortgage-backed
securities 11,444 267 -- 11,711
--------------------------------------------------------------------------------------------
Total held-
to-maturity 89,375 968 990 89,353
--------------------------------------------------------------------------------------------
Total investment
securities $166,224 $1,047 $2,989 $164,282
============================================================================================
</TABLE>
<PAGE> 10
10
Notes to Consolidated Financial Statements (continued)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
December 31, 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 $ 59,896 $ 245 $ 118 $ 60,023
Obligations of states
and political sub-
divisions 16,979 385 1 17,363
Mortgage-backed
securities 34,041 63 214 33,890
-------------------------------------------------------------------------------------------------
Total-debt securities 110,916 693 333 111,276
Equity securities 5,712 -- -- 5,712
-------------------------------------------------------------------------------------------------
Total available-for-sale: 116,628 693 333 116,988
-------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 4,940 57 -- 4,997
Obligations of states
and political
subdivisions 55,206 1,185 89 56,302
-------------------------------------------------------------------------------------------------
Total held-
to-maturity 60,146 1,242 89 61,299
-------------------------------------------------------------------------------------------------
Total investment
securities $176,774 $1,935 $ 422 $178,287
=================================================================================================
</TABLE>
<PAGE> 11
11
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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 March 31, 1996
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 $ 32,269 $ 32,401
After 1 but within 5 years 36,656 36,742
After 5 years but within 10 years 4,994 4,923
Mortgage-backed securities 38,443 37,996
Equity securities 10,590 10,590
- ------------------------------------------------------------------------------------------------------------------
Total available-for-sale 122,952 122,652
- ------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
After 1 but within 5 years 27,504 28,002
After 5 years but within 10 years 34,685 34,662
After ten years 110 109
- ------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 62,299 62,773
- ------------------------------------------------------------------------------------------------------------------
Total investment securities $185,251 $185,425
==================================================================================================================
</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 $85,626,000 at March 31, 1996.
Proceeds from sales/calls of debt securities available for sale totaled
$4,507,000 for the period ended March 31, 1996. Gross gains of $2,000 were
realized on those sales/calls.
Proceeds from calls of debt securities classified as held to maturity for the
period ended March 31, 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>
- ---------------------------------------------------------------------------------------
March 31, December 31,
- ---------------------------------------------------------------------------------------
(In thousands) 1996 1995 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $ 17,708 $ 21,969 $ 19,326
Secured by farmland 6,156 6,072 6,212
Secured by 1 to 4 family
residential properties 106,080 117,611 111,109
Other 89,259 85,689 87,706
Loans to farmers 1,296 1,662 1,493
Commercial and industrial loans 49,765 46,283 55,622
Loans to individuals for household,
family, and other personal
expenditures 200,994 194,132 197,348
Credit card loans 485 10,947 1,057
All other loans and lease financing
receivables 4,689 5,236 4,821
- ---------------------------------------------------------------------------------------
Totals $476,432 $489,601 $484,694
=======================================================================================
</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>
- --------------------------------------------------------------------------------------
March 31, December 31,
- --------------------------------------------------------------------------------------
(In thousands) 1996 1995 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises and land $16,477 $16,235 $15,961
Furniture and equipment 11,302 10,026 10,968
Leasehold improvements 993 967 993
- --------------------------------------------------------------------------------------
28,772 27,228 27,922
Less accumulated depreciation
and amortization (11,843) (12,578) (11,531)
- --------------------------------------------------------------------------------------
Net premises and equipment $16,929 $14,650 $16,391
======================================================================================
</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 first quarter of 1996 was $2,089,000
or 47 cents per share compared with $1,940,000 or 44 cents per share for the
same period last year. Return on average assets and return on average equity
was 1.15 percent and 11.87 percent, respectively, in the first
<TABLE>
<CAPTION>
Net Interest Income (Taxable-Equivalent Basis)
- ----------------------------------------------------------------------------------------------------------
Three Months
- -----------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------
Average Average
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands) Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 15,784 5.53% $ 191 6.37%
- -----------------------------------------------------------------------------------------------------------
Investment securities(1)
Taxable 108,683 5.87 100,988 5.58
Tax-exempt 72,801 7.73 69,516 7.87
- -----------------------------------------------------------------------------------------------------------
Total investment securities 181,484 6.61 170,504 6.51
- -----------------------------------------------------------------------------------------------------------
Loans, net of unearned interest 480,131 8.87 485,813 9.06
- -----------------------------------------------------------------------------------------------------------
Total interest-earning assets 677,399 8.19 656,508 8.42
- -----------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Interest-bearing deposits
Checking 69,868 2.01 70,511 2.28
Savings 110,343 2.67 114,118 2.87
Money Market 84,702 2.98 93,688 3.41
Certificates of deposit
under $100,000 232,218 5.59 200,818 5.09
Certificates of deposit
$100,000 and over 29,199 5.65 27,725 5.16
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 526,330 4.09 506,860 3.89
- -----------------------------------------------------------------------------------------------------------
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 34,213 5.00 42,454 5.80
Other 1,395 5.48 2,359 5.67
- -----------------------------------------------------------------------------------------------------------
Total short-term borrowings 35,608 5.02 44,813 5.79
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 561,938 4.14 551,673 4.05
- -----------------------------------------------------------------------------------------------------------
Interest-free funds 115,461 -- 104,835 --
- -----------------------------------------------------------------------------------------------------------
Total funding 677,399 3.44 656,508 3.40
===========================================================================================================
Net interest earnings* $8,012 $8,129
===========================================================================================================
Net interest spread 4.05% 4.37%
===========================================================================================================
Net yield on earning assets 4.76% 5.02%
===========================================================================================================
</TABLE>
*Includes the following taxable-equivalent adjustments: First Quarter - $518
thousand in 1996 and $513 thousand in 1995. 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.
<PAGE> 15
15
quarter of 1996 compared with 1.12 percent and 12.57 percent, respectively, in
the same period last year. Increases in noninterest income and a decrease in
noninterest expenses were the principal factors in the 7.7 percent increase in
earnings.
For the first quarter of 1996, net interest income on a taxable-equivalent
basis declined $117,000 or 1.4 percent compared with the same period last year.
The net interest margin (net interest income as a percent of earning assets)
decreased 26 basis points to 4.76 percent compared with the same period last
year.
The average rate earned on earning assets was 23 basis points lower compared
with the same period last year. Although average earning assets increased by
3.2 percent compared with the same period last year, the increase occurred in
lower yielding investments and federal funds sold due to reduced consumer and
real estate loan demand and the effects of the sale of the credit card
portfolio in the fourth quarter of 1995. Average loans decreased 1.2 percent
compared with the first quarter of 1995 while the average investment in federal
funds sold and investment securities increased 15.6 percent during the same
period.
The average rate paid on interest-bearing liabilities increased 9 basis points
compared with the same period in 1995. Customers are continuing to shift their
deposits to higher-yielding certificates of deposit from money market, savings,
and checking accounts. Intense competition between financial institutions for
core deposit retention and acquisition has also acted to drive liability rates
higher. Average certificates of deposit were 49.7 percent of total
interest-bearing deposits in the first quarter of 1996 compared with 45.1
percent in the first quarter of 1995. Average deposit balances increased 3.8
percent when compared with the same period last year assisted by the
acquisition of two branch offices of First Union National Bank of Maryland,
Rockville, Maryland, in the second quarter of 1995 which added $16.1 million in
deposits. Reliance on short-term funding sources and the rate paid thereon
improved in 1996 compared with the same period last year which partially offset
the 20 basis point increase in the average rate paid on interest-bearing
deposits.
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, a process of adjusting balance sheet
positions having individual interest rate risks to control the net interest
rate risk as a whole. Derivative financial instruments, such as futures,
forwards, swaps, option contracts, or other financial instruments with similar
characteristics are not utilized. As market rates change, corresponding
changes in asset mix and 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
<PAGE> 16
16
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 in the table below, Bancorp had a net
liability sensitive position of $36,978,000 within the one year horizon at
March 31, 1996. This position would indicate that Bancorp has the potential
for decreased earnings if market interest rates rise in the next twelve months.
Due to inherent limitations in this traditional gap analysis technique for
measuring interest rate sensitivity, management also employs more sophisticated
interest sensitivity measurement tools to analyze the volatility of net
interest income as a result of changes in interest rates. Simulation models
are used to subject the current repricing gap positions to rising and falling
incremental changes in interest rates of 100, 200, and 300 basis points, and to
forecast how net interest income varies under alternative interest rate and
business activity scenarios. The effects of changes in interest rates on the
market value of assets, liabilities, and off-balance-sheet contracts is also
measured. At March 31, 1996, the changes in net interest income and/or market
value calculated under these alternative methods were within established
parameters.
TABLE 1. INTEREST RATE SENSITIVITY ANALYSIS AT MARCH 31, 1996 (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 $ 21,800 $ -- $ -- $ -- $ 21,800 $ -- $ 21,800
Investment
securities (2) 3,457 8,785 12,080 19,492 43,814 130,547 174,361
Loans, net 92,276 24,103 29,526 63,101 209,006 259,054 468,060
-------- -------- -------- -------- -------- -------- --------
Total $117,533 $ 32,888 $ 41,606 $ 82,593 $274,620 $389,601 $664,221
======== ======== ======== ======== ======== ======== ========
Interest-bearing
Liabilities:
Deposits $ 45,785 $ 56,459 $ 75,916 $ 99,662 $277,822 $254,437 $532,259
Short-term
borrowings 33,776 -- -- -- 33,776 -- 33,776
-------- -------- -------- -------- -------- -------- --------
Total $ 79,561 $ 56,459 $ 75,916 $ 99,662 $311,598 $254,437 $566,035
======== ======== ======== ======== ======== ======== ========
Interest
Sensitivity Gap:
Period $ 37,972 $(23,571) $(34,310) $(17,069) $(36,978) $135,164 $ 98,186
Cumulative 37,972 14,401 (19,909) (36,978) (36,978) 98,186 98,186
</TABLE>
(1) Excludes nonaccrual loans and other nonrate-sensitive assets.
(2) Reflects fair value adjustments for securities available for sale.
<PAGE> 17
17
The allowance for credit losses was $6,013,000 or 1.3 percent of loans
outstanding as of March 31, 1996 compared with $6,164,000 or 1.3 percent of
loans outstanding as of December 31, 1995 and $5,947,000 or 1.2 percent of
loans outstanding as of March 31, 1995. The provision for credit losses was
$300,000 for both the first quarter of 1996 and the first quarter of 1995. Net
charge-offs for the first quarter were $451,000 compared with $146,000 for the
first quarter of last year. Net charge-offs as a percent of total loans were
0.09 percent this quarter compared with 0.03 percent for the same period last
year. Table 2 summarizes Bancorp's nonperforming assets and contractually past
due loans.
TABLE 2. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS
<TABLE>
<CAPTION>
March 31 March 31 December 31
(Dollars in thousands) 1996 1995 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming Assets:
Nonaccrual loans(1) $1,210 $1,867 $1,163
Other real estate owned
net of valuation allowance(2) 2,458 3,311 2,351
------ ------ ------
Total nonperforming assets $3,668 $5,178 $3,514
====== ====== ======
Loans past due 90 or more days
as to interest or principal(3) $1,117 $298 $744
====== ==== ====
Nonperforming loans to
period-end loans 0.25% 0.38% 0.24%
Nonperforming assets to
period-end loans and
other real estate owned 0.77% 1.05% 0.72%
Period-end allowance for credit
losses times nonperforming loans 4.97x 3.19x 5.30x
Period-end allowance for credit
losses times nonperforming assets
1.64x 1.15x 1.75x
- ---------------------
</TABLE>
(1)Loans are placed on nonaccrual status when, in the opinion of
management, reasonable doubt exists as to the full, timely collection of
interest or principal or a specific loan meets the criteria for nonaccrual
status established by regulatory authorities. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed against current period interest income. No interest is taken into
income on nonaccrual loans unless received in cash or until such time the
borrower demonstrates sustained performance over a period of time in accordance
with contractual terms.
(2)Other real estate owned includes: banking premises no longer used
for business purposes and real estate acquired by foreclosure (in partial or
complete satisfaction of debt) or otherwise surrendered by the borrower to
Bancorp's possession. Other real estate owned is recorded at the lower of cost
or fair value on the date of acquisition or transfer from loans. Write-downs
to fair value at the date of acquisition are charged to the allowance for
credit losses. Subsequent to transfer, these assets are adjusted through a
valuation allowance to the lower of the net carrying value or the fair value
(net of estimated selling expenses) based on periodic appraisals.
(3)Nonaccrual loans are not included.
<PAGE> 18
18
At March 31, 1996, Bancorp had loans amounting to approximately $853,000 that
were specifically classified as impaired and included in non-accrual loans in
Table 2. At March 31, 1996, no specific allowance for credit losses related to
impaired loans was required. The average balance of impaired loans for the
period ended March 31, 1996 was $887,000. During the first quarter, cash
receipts totaling $37,000 were applied to reduce the principal balance of these
impaired loans and no interest income was recognized.
At March 31, 1996, Bancorp had performing loans amounting to $11,814,000
compared with $21,003,000 at December 31, 1995, that were identified as
potential problem loans because the borrowers were currently experiencing
financial difficulties such that management had concerns that such loans might,
in the future, become classified as nonaccrual or delinquent. The decrease in
the amount of these loans in 1996 is a reflection of an improvement in credit
quality. At March 31, 1996, management does not believe that these loans
present any significant risk of loss.
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 March 31, 1996 is considered adequate. Management's estimate
of credit losses inherent in the credit extension process and the related
allowance may change in the near term due to uncertainties inherent in the
estimation process.
Noninterest income increased $220,000 or 12.4 percent compared with the first
quarter of last year. Contributing significantly to the increase was income
from deposit services, which increased $108,000 or 15.6 percent and Trust
income, which increased $86,000 or 25.2 percent compared with the same period
last year. The increases are reflective of Management's continued focus on
business lines which present opportunities for increasing noninterest income.
Noninterest expenses decreased $126,000 or 1.9 percent compared with the same
period last year. Increases in salaries and employee benefits and occupancy
and equipment expense of $154,000 and $162,000, respectively, compared with the
same period last year, were offset by a decrease in other operating expense of
$442,000. Lower FDIC insurance premiums of $315,000 compared with the first
quarter of last year was the single largest component contributing to the
overall decline in noninterest expenses. Congress is still considering
legislation that will increase FDIC insurance assessments in the near term on
deposits insured by the Bank
<PAGE> 19
19
Insurance Fund and impose a one-time assessment on deposits insured by the
Savings Association Insurance Fund.
The provision for income taxes amounted to $727,000 in the first quarter of
1996 compared with $652,000 in the first quarter of 1995. Tax expense varies
from one period to the next with changes in the level of income before taxes,
changes in the amount of tax-exempt interest income, and the relationship of
these changes to each other. Bancorp's effective tax rate increased slightly
in the first quarter of 1996 to 25.8 percent compared with 25.2 percent in the
first quarter of 1995.
Shareholder's equity totaled $70,917,000 at March 31, 1996, an increase of 1.3
percent compared with the 1995 year end level of $70,019,000 and an increase of
10.8 percent from the year earlier level of $64,018,000. The fair value of the
available-for-sale portfolio has decreased $413,000 (net of deferred taxes)
since year end. Our capital levels are considered sufficient to absorb
anticipated future price volatility in the available-for-sale portfolio.
Bancorp's risk-based capital and leverage capital ratios exceed regulatory
guidelines as of March 31, 1996, as follows:
<TABLE>
<CAPTION>
Risk-based Capital
----------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- --------
<S> <C> <C> <C>
Actual 12.98% 14.14% 9.30%
Minimum 4.00% 8.00% 3.00%
------- ------- --------
Excess 8.98% 6.14% 6.30%
======= ======= ========
</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. Risk-based
capital and leverage ratios will continue to exceed regulatory guidelines after
the Home Federal acquisition is finalized.
<PAGE> 20
20
PART II - Other Information
Item 4 Submission of Matters to Vote of Security Holders
(a) The annual meeting of stockholders of F&M Bancorp
was held April 16, 1996.
(b) Proxies for the meeting were solicited pursuant
to Regulation 14A under the Securities and
Exchange Act of 1934. There was no solicitation
in opposition to management's nominees as listed
in the proxy statement, and all such nominees
were re-elected.
(c) Election of Directors
<TABLE>
<CAPTION>
Name For Withheld Against
---- --------- -------- -------
<S> <C> <C> <C>
R. Carl Benna 3,623,324 19,041 --
John D. Brunk 3,605,086 37,279 --
Beverly B. Byron 3,500,842 141,523 --
Faye E. Cannon 3,624,570 17,795 --
Martha E. Church 3,609,801 32,564 --
Albert H. Cohen 3,621,426 20,939 --
George B. Delaplaine, Jr. 3,626,295 16,070 --
Maurice A. Gladhill 3,624,956 17,409 --
Charles W. Hoff, III 3,627,650 14,715 --
Robert K. Moler 3,622,395 19,970 --
Charles A. Nicodemus 3,626,582 15,784 --
H. Deets Warfield, Jr. 3,625,428 16,937 --
John C. Warfield 3,596,222 46,143 --
Thomas R. Winkler 3,604,603 37,762 --
</TABLE>
<PAGE> 21
21
Item 6 Exhibits and Reports on Form 8-K Page
----
(a) Exhibits
11 Statement Re: Computation of per share earnings. 23
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Corporation during the
quarter ended March 31, 1996.
<PAGE> 22
22
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)
May 10, 1996 /s/Kenneth M. Sabanosh
- ------------ --------------------------------
DATE KENNETH M. SABANOSH
VICE PRESIDENT AND TREASURER
<PAGE> 1
23
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ending
March 31,
1996 1995
-------------------
<S> <C> <C>
Earnings Per share:
Primary $ .47 $ .44
Fully
diluted $ .47 $ .44
</TABLE>
Primary and fully diluted earnings per share are calculated using the following
number of adjusted weighted average shares outstanding:
<TABLE>
<CAPTION>
Quarter Ending
March 31,
1996 1995
----------------------
<S> <C> <C>
Primary 4,464,131 4,454,080
Fully
diluted 4,464,127 4,454,312
</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 4,419,189 and 4,403,399
at March 31, 1996 and March 31, 1995, 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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 22,954
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 122,652
<INVESTMENTS-CARRYING> 62,299
<INVESTMENTS-MARKET> 62,773
<LOANS> 476,432
<ALLOWANCE> 6,013
<TOTAL-ASSETS> 739,120
<DEPOSITS> 627,044
<SHORT-TERM> 33,776
<LIABILITIES-OTHER> 7,383
<LONG-TERM> 0
0
0
<COMMON> 22,107
<OTHER-SE> 48,810
<TOTAL-LIABILITIES-AND-EQUITY> 739,120
<INTEREST-LOAN> 10,545
<INTEREST-INVEST> 2,522
<INTEREST-OTHER> 217
<INTEREST-TOTAL> 13,284
<INTEREST-DEPOSIT> 5,346
<INTEREST-EXPENSE> 5,790
<INTEREST-INCOME-NET> 7,494
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 6,371
<INCOME-PRETAX> 2,816
<INCOME-PRE-EXTRAORDINARY> 2,816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,089
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<YIELD-ACTUAL> 4.76
<LOANS-NON> 1,210
<LOANS-PAST> 1,117
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,814
<ALLOWANCE-OPEN> 6,164
<CHARGE-OFFS> 1,054
<RECOVERIES> 603
<ALLOWANCE-CLOSE> 6,013
<ALLOWANCE-DOMESTIC> 4,464
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,549
</TABLE>
