<PAGE>
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, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($5 PAR VALUE)
(TITLE OF CLASS)
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 / /
Common Stock of 8,753,026 shares outstanding as of April 30, 1999.
Exhibit index on page 30.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
F&M Bancorp's net income for the first quarter of 1999 was $4.180 million, or
$0.48 basic earnings per share, an increase of 13% compared with earnings before
special items of $3.711 million, or $0.42 basic earnings per share, for the
first quarter of 1998. Per share amounts reported previously have been restated
to give effect to a 5% stock dividend declared in June 1998 and the acquisitions
of Keller-Stonebraker, Inc., completed in May 1998, and Monocacy Bancshares,
Inc., completed in November 1998, both accounted for as a pooling-of-interests.
Including special items, net income of $4.180 million for the first quarter of
1999 decreased slightly from $4.189 million, or $0.48 basic earnings per share
for the first quarter of 1998. Special items, consisting entirely of net gains
on sales of securities, increased prior period earnings by $478 thousand after
tax, or $0.06 per share. First quarter 1999 earnings were favorably impacted by
a decrease in noninterest expense of $817 thousand, or 7%, compared to the first
quarter of 1998. This reduction largely reflects the benefits of synergies from
recent acquisitions. Also impacting first quarter 1999 earnings was a reduction
in the provision for credit losses of $106 thousand or 17% compared to first
quarter of 1998.
Returns on average assets and average equity were 1.18% and 12.80%,
respectively, for the first quarter of 1999 compared with 1.13% and 11.91%,
respectively, before special items and 1.27% and 13.44% after special items for
the first quarter of 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
principal source of Bancorp's earnings, representing approximately 75% of gross
revenue through the first three months of 1999. Net interest income is
influenced by a number of external economic and competitive factors such as
Federal Reserve Board monetary policy and its influence on market interest
rates; loan demand and competition from nonbank lenders; and competition with
investment managers, brokerage firms and investment bankers for consumer and
commercial business assets that might otherwise be deposited in banks. Internal
factors impacting levels and changes in net interest income are attributed to
Bancorp's interest rate risk management policies, which address a variety of
issues including loan and deposit pricing strategies, funding alternatives, and
maturity schedules. Bancorp has not made use of derivatives, interest rate
hedges, or similar instruments or transactions to manage interest rate risk.
Average balances and rates for each major category of interest-earning assets
and interest-bearing liabilities for the first quarter are presented on a
year-to-year comparative basis in Table 1. Net interest income on a
taxable-equivalent basis increased slightly by $57 thousand, compared with the
first quarter of last year. Average earning assets increased $95.5 million, or
8%, for the first quarter of 1999 compared with the first quarter of 1998. Loan
demand was slow, resulting in only a slight increase in the average loan
portfolio balance of $7.2 million, or .8%. The average balance in the investment
portfolio increased $87.0 million as Bancorp positioned itself to meet
forecasted loan demand. The yield on earning assets across all sectors decreased
forty-nine basis points to 7.75% compared with the first quarter of last year.
Average interest-bearing deposits increased $65.3 million or 7%. Growth occurred
in nearly all deposit products assisted by the introduction of new deposit
products and pricing methods throughout the last twelve months. Additional
funding was provided principally by Federal Home Loan Bank advances, which
increased $38.4 million or 70% compared with the first quarter of 1998.
2
<PAGE>
Table 1. Consolidated Average Balances, Interest and Average Rates (Taxable
Equivalent Basis)
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
YTD Average Average YTD Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
------------ ----------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Short-term funds $ 29,246 $ 336 4.60% $ 27,920 $ 376 5.39%
------------ ----------- --------- ------------ ---------- --------
Investment securities: (1)
Tax-exempt (2) 127,709 2,230 6.98 91,460 1,611 7.05
Taxable 288,749 4,332 6.00 237,988 3,756 6.31
------------ ----------- --------- ------------ ---------- --------
Total investment securities 416,458 6,562 6.30 329,448 5,367 6.52
------------ ----------- --------- ------------ ---------- --------
Loans, net, including loans held for sale 893,455 18,699 8.49 886,262 19,520 8.93
------------ ----------- --------- ------------ ---------- --------
Total interest-earning assets and average yield 1,339,159 25,597 7.75 1,243,630 25,263 8.24
------------ ----------- --------- ------------ ---------- --------
TOTAL NONINTEREST-EARNING ASSETS 95,919 93,216
------------ ------------
Total assets $1,435,078 $1,336,846
------------ ------------
------------ ------------
LIABILITIES
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings $ 151,308 $ 874 2.34% $157,585 $ 981 2.52%
Checking 148,794 861 2.35 137,630 878 2.59
Money market accounts 163,738 1,156 2.86 136,641 898 2.67
Certificates of deposit 522,644 6,835 5.30 489,295 6,623 5.49
------------ ----------- --------- ------------ ---------- --------
Total interest-bearing deposits 986,484 9,726 4.00 921,151 9,380 4.13
------------ ----------- --------- ------------ ---------- --------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 52,659 545 4.20 43,819 549 5.08
Other short-term borrowings 13,606 184 5.48 47,370 666 5.70
------------ ----------- --------- ------------ ---------- --------
Total short-term borrowings 66,265 729 4.46 91,189 1,215 5.40
------------ ----------- --------- ------------ ---------- --------
Long-term borrowings 93,458 1,198 5.20 55,040 781 5.75
------------ ----------- --------- ------------ ---------- --------
Total borrowed funds 159,723 1,927 4.89 146,229 1,996 5.54
------------ ----------- --------- ------------ ---------- --------
Total interest-bearing liabilities 1,146,207 11,653 4.12 1,067,380 11,376 4.32
------------ ----------- --------- ------------ ---------- --------
NONINTEREST-BEARING LIABILITIES
Demand deposits 141,431 130,960
Other liabilities 15,018 12,125
Shareholders' equity 132,422 126,381
------------ ------------
Total liabilities and equity $1,435,078 $1,336,846
------------ ------------
------------ ------------
Net interest income $13,944 $13,887
----------- ----------
----------- ----------
Net interest spread 3.63% 3.92%
--------- --------
--------- ---------
Net interest margin 4.22% 4.53%
--------- --------
--------- --------
</TABLE>
(1) Average Balances and the related average rate are based on amortized costs.
(2) Based on an effective federal tax rate of 35% for 1999 and 1998.
3
<PAGE>
Challenged by the decline in market interest rates between the comparable
periods, and low growth in loans, the net interest margin, which is the ratio of
taxable-equivalent net interest income to average earning assets, decreased 31
basis points to 4.22% compared with the first quarter of last year.
PROVISION FOR CREDIT LOSSES.
Bancorp decreased the provision for credit losses by 17% to $525 thousand for
the first quarter of 1999 compared with $631 thousand for the first quarter of
1998. The decrease is largely attributable to an improvement in credit quality.
NONINTEREST INCOME.
Noninterest income decreased $760 thousand, or 15%, for the first quarter of
1999 compared with the first quarter of 1998. Excluding gains from sales of
securities realized in 1998, which are considered a special item, noninterest
income decreased $22 thousand. Increases in trust income of $72 thousand or
10% over first quarter 1998 were effectively offset by decreases in service
charges on deposit accounts of $70 thousand or 5% below the first quarter of
1998. Gains on sales of loans decreased $333 thousand for the first quarter
of 1999 compared with the same quarter last year due to the more favorable
rate environment and high refinance activity that occurred the first quarter
of 1998.
NONINTEREST EXPENSE.
Noninterest expense decreased $817 thousand, or 7%, for the first quarter of
1999 compared with the first quarter of last year. Salaries and benefits
decreased $626 thousand, or 9%, largely due to synergies being realized through
recent acquisitions. Occupancy and equipment expense decreased $150 thousand, or
8%. Other operating expense decreased $41 thousand, or 1%. Bancorp's efficiency
ratio (the ratio of adjusted noninterest expense to the sum of net interest
income on a tax equivalent basis and recurring noninterest income) declined from
63.6% for the period ended March 31, 1998, to 59.2% for the period ended March
31, 1999, largely evidencing improved control of operating expenses.
INCOME TAXES.
The provision for income taxes increased to $1.747 million for the first quarter
of 1999, from $1.738 million for the first quarter of 1998. 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 income, and the relationship of these
changes to each other. Bancorp's effective tax rate for the first quarter of
1999 and 1998 was 29%. Bancorp's income tax expense differs from the amount
computed at statutory rates primarily due to tax-exempt interest from certain
loans and investment securities.
NONPERFORMING ASSETS
Table 3 summarizes Bancorp's nonperforming assets and contractually past-due
loans. Through asset resolutions and sales, total nonperforming assets at March
31, 1999 declined $7.0 million compared with year earlier levels and declined
$800 thousand since year-end 1998. Loans past due 90 days or more as to interest
or principal increased $2.0 million compared with prior year levels and
increased $1.4 million since year-end.
4
<PAGE>
Although there is no direct correlation between nonperforming loans and ultimate
loan losses, an analysis of nonperforming loans may provide some indication of
the quality of the loan portfolio
POTENTIAL PROBLEM LOANS
At March 31, 1999, Bancorp had $24.0 million in loans to borrowers who were
currently experiencing financial difficulties such that management had
reasonable concerns that such loans might become contractually past due or be
classified as a nonperforming asset. This amount includes $5.1 million in loans
to borrowers who may not be able to meet the contractual terms of their
obligations because of uncertainties pertaining to their state of readiness for
Year 2000 issues as disclosed under the caption, Year 2000 Computer Readiness,
which follows.
These loans are subject to the same close attention and regular credit reviews
as extended to loans past due 90 days or more and nonperforming assets. At
December 31, 1998, potential problem loans totaled $23.1 million.
TABLE 3. NONPERFORMING ASSETS AND CONTRACTUALLY PAST-DUE LOANS
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------- ------------
(Dollars in thousands) 1999 1998 1998
--------- --------- ------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans(1) $ 3,795 $ 6,648 $ 4,196
Other real estate owned net of valuation allowance(2) 1,306 5,453 1,705
--------- --------- -----------
Total nonperforming assets $ 5,101 $12,101 $ 5,901
--------- --------- -----------
Loans past due 90 or more days as to interest or principal(3) $ 3,345 $ 1,308 $ 1,991
--------- --------- -----------
Nonperforming loans to total loans 0.43% 0.76% 0.47%
Nonperforming assets to total loans and other real estate owned 0.57% 1.37% 0.66%
Nonperforming assets to total assets 0.35% 0.83% 0.41%
Allowance for credit losses times nonperforming loans 3.40x 1.86x 3.05x
Allowance for credit losses times nonperforming assets 2.53x 1.02x 2.17x
</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.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level, which in management's
judgement, is adequate to absorb losses inherent in the loan portfolio. The
adequacy of the allowance for credit losses is reviewed
5
<PAGE>
regularly by management. Additions to the allowance are made by charges to the
provision for credit losses. On a quarterly basis, a comprehensive review of the
adequacy of the allowance is performed considering factors such as historical
relationships among loans outstanding, loss experience, delinquency levels,
individual loan reviews, and evaluation of the present and future local and
national economic environment. While management believes the allowance for
credit losses is adequate at March 31, 1999, the estimate of losses and related
allowance are subject to change due to economic and other uncertainties inherent
in the estimation process.
As reflected in Table 4, the allowance for credit losses as a percentage of
loans increased to 1.45% as of March 31, 1999 from 1.41% at March 31, 1998.
Total loans charged-off during the first quarter 1999 decreased by $50,000
principally attributed to improved credit quality.
Bancorp had loans amounting to approximately $2.2 million and $4.5 million at
March 31, 1999 and March 31, 1998, respectively, that were specifically
classified as impaired and included in nonaccrual loans in Table 3. The average
balance of impaired loans for the three months ended March 31, 1999 and 1998
amounted to $2.3 million and $4.2 million, respectively. Cash receipts for these
same periods were $303 thousand and $181 thousand, respectively. Of these
receipts, $37 thousand was recognized as interest income during the three months
ended March 31, 1999. All other cash receipts were applied to reduce the
principal balance of the impaired loans. The specific allowance for credit
losses related to these impaired loans was $122 thousand and $778 thousand, at
March 31, 1999 and March 31, 1998, respectively.
6
<PAGE>
TABLE 4. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Period ended
----------------------------------------------
March 31, December 31,
(Dollars in thousands) 1999 1998 1998
-------- -------- ------------
<S> <C> <C> <C>
Average loans outstanding less average unearned income (1) $892,056 $880,880 $875,196
-------- -------- ------------
-------- -------- ------------
Allowance for credit losses at beginning of year $12,817 $ 12,069 $ 12,069
-------- -------- ------------
Charge-offs:
Real estate 91 108 1,053
Commercial and industrial 2 -- 273
Consumer 923 958 4,010
-------- -------- ------------
Total loans charged-off 1,016 1,066 5,336
-------- -------- ------------
Recoveries:
Real estate 2 84 430
Commercial and industrial 2 -- 104
Consumer 558 636 2,494
-------- -------- ------------
Total recoveries 562 720 3,028
-------- -------- ------------
Net charge-offs 454 346 2,308
-------- -------- ------------
Provisions for credit losses 525 631 3,056
-------- -------- ------------
Allowance for credit losses at end of period $12,888 $ 12,354 $ 12,817
-------- -------- ------------
-------- -------- ------------
Net charge-offs to average loans outstanding, annualized 0.20% 0.16% 0.26%
-------- -------- ------------
-------- -------- ------------
Allowance for credit losses to period-end loans 1.45% 1.41% 1.44%
-------- -------- ------------
-------- -------- ------------
</TABLE>
(1) Exclusive of loans held for sale.
Table 5 presents an allocation of the allowance for credit losses to various
loan categories. This allocation does not limit the amount of the allowance
available to absorb losses from any type of loan and should not be viewed as an
indicator of the specific amount or specific loan categories in which future
charge-offs may ultimately occur.
7
<PAGE>
TABLE 5. ALLOCATION OF ALLOWANCES FOR CREDIT LOSSES
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------------------- -------------------
1999 1998 1998
-------------------- ------------------- -------------------
% Gross % Gross % Gross
(Dollars in thousands) Amount Loans(1) Amount Loans(1) Amount Loans(1)
-------- ---------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Real estate
Construction and land development $1,541 6.4% $2,385 7.8% $1,767 6.9%
Residential mortgage 523 29.8 672 29.1 920 29.8
Other mortgage 3,103 22.9 2,912 19.9 3,419 22.2
Commercial and industrial 1,347 10.7 1,182 11.1 1,764 10.3
Consumer 3,157 28.4 3,831 30.8 3,599 28.9
Unallocated 3,217 1.8 1,372 1.3 1,348 1.9
-------- ---------- ------- -------- ------- --------
Total allowance for credit losses $12,888 100.0% $12,354 100.0% $12,817 100.0%
-------- ---------- ------- -------- ------- --------
-------- ---------- ------- -------- ------- --------
</TABLE>
(1) Excludes loans held for sale.
YEAR 2000 COMPUTER READINESS
This disclosure is provided pursuant to the Securities and Exchange Commission's
Interpretation entitled "Disclosure of Year 2000 Issues and Consequences by
Public Companies, Investment Advisors, Investment Companies and Municipal
Securities Issuers" effective August 4, 1998.
The Year 2000 issue arose because many existing date-sensitive computer
programs, hardware, software, and other devices relying on imbedded chip
technology do not recognize a year that begins with "2" because traditional
programming has been limited to utilization of a two-digit code for a year
(such as "98" for the year 1998). F&M Bancorp and its subsidiaries have
undertaken to review their operating and information technology systems and
other mechanical equipment such as elevators to identify systems in which the
Year 2000 issue exists and to undertake the necessary renovation or
replacement of these systems so that the companies will continue to operate
as usual after January 1, 2000.
In July 1997, F&M Bancorp established a Year 2000 issue task team comprised of
representatives across functional lines representing all of its subsidiaries.
The Year 2000 issue task team developed a Year 2000 issue assurance plan to
coordinate and direct its efforts. The plan was approved by the board of
directors on September 11, 1997. The task team provides quarterly reports to the
board outlining the status of its efforts and its anticipated work in the coming
quarter.
The assurance plan is composed of five phases: 1) awareness; 2) assessment;
3) renovation; 4) validation; and, 5) implementation, which mirror guidelines
developed by the Federal Financial Institutions Examination Council (FFIEC)
to deal with the Year 2000 issue. The assurance plan includes a timeline for
completion of all tasks identified. As of March 31, 1999, all critical tasks
are current according to the timeline. Activities under each of the phases
are ongoing as new vendor and customer relationships are created.
The task team has received guidance from various regulators including the Office
of the Comptroller of the Currency (OCC), Securities and Exchange Commission
(SEC), Office of Thrift Supervision (OTS), and FFIEC.
8
<PAGE>
The task team established a program to educate all associates regarding the Year
2000 issue both for internal systems and as the problem may affect customers.
Education of customers is continuing through periodic information in the form of
brochures, seminars, a toll free information line, our web page, and
participation in community forums. Both activities are consistent with the Year
2000 customer communication outline issued by the FFIEC on February 17, 1999.
All vendors who supply hardware, software and/or services of any type which may
be affected by this issue have been identified and contacted. A total of four
hundred ninety-eight (498) products and services are represented by this vendor
listing and have been categorized as either mission critical (those that
directly impact daily operations), concern (those that can be replaced with
manual processes), or low priority (little or no impact on daily operations).
Vendors have been surveyed as to their Year 2000 issue readiness. The task team
has confirmed vendor responses by testing products and services where possible
to verify their readiness.
Of the one hundred twenty-five (125) products and services identified as mission
critical:
A. Thirty-six (36) are not date sensitive and are deemed Year 2000
issue ready.
B. Twenty-six (26) cannot be tested internally. The progress of these
service providers' efforts addressing the Year 2000 issue are being
closely monitored. All twenty-six (26) advise that their products
and/or services are either Year 2000 issue ready now or will be in
advance of January 1, 2000. Examples of products and/or services
that are not capable of internal testing include, utilities and
communications services.
C. Sixty-three (63) have been successfully tested.
Bancorp relies on Kirchman Corporation's Dimension 3000 software for maintaining
customer accounting records. Kirchman is a provider of accounting systems for
more than 1,000 banking clients worldwide. Kirchman's internal methodologies
addressing Year 2000 issues have been reviewed and have received ITAA*2000
certification by the Information Technology Association of America, an
independent non-profit organization. Further, Kirchman systems have passed all
internal tests and testing is complete.
The task team has developed procedures for assessing Year 2000 issue risk for
its funds providers including, depositors, which are intended to manage and
limit potential risks associated with large or significant concentrations of
retail and commercial deposits. The Year 2000 issue readiness of providers of
lines of credit have been reviewed.
The task team has also established procedures, utilizing the standard risk
classifications employed to manage credit risk, for reviewing the Year 2000
issue readiness of borrowers. Loan relationships with balances exceeding
$250,000, or which are particularly computer reliant, have been reviewed.
Thirteen (13) relationships totaling $3,034,765 have been risk rated "watch" two
(2) totaling $394,579 have been risk rated "OLEM" and two (2) totaling
$2,243,328 have been risk rated "substandard". The total value of these
seventeen (17) relationships is $5,672,672.
Bancorp's existing contingency plan has been enhanced to provide responses for
Year 2000 issues. The contingency planning committee adopted the five phase
model as recommended by the FFIEC and OCC advisory letter 98-7 and had an
updated plan by December 31, 1998, as required by the regulators. Testing of
business resumption plans was substantially complete at March 31, 1999.
To date, Bancorp has spent a total of $183,000 addressing Year 2000 issues and
anticipates additional out-of-pocket expenses of $123,000 to complete. Work is
done predominantly by existing associates as part of their
9
<PAGE>
normal work responsibilities. Bancorp does not separately track these internal
costs which are principally payroll related. Costs for dealing with Year 2000
issues are being provided from operating revenues.
Bancorp believes its efforts, and those of its third-party providers will
effectively address Year 2000 issues before January 1, 2000. Because Bancorp is
so reliant on third-party providers (whose products and services cannot be
effectively tested such as, utilities and telecommunications services) for
support, our normal business operations could be disrupted in the event one or
more third-party providers fail to provide products and services as contracted.
The most reasonably likely worst case Year 2000 issue scenario identified to
date involves Bancorp's inability, for short periods, to provide services to
customers. The worst case scenario is mitigated somewhat by an ability to
manually process customer transactions, by the geographic penetration of our
branch network, and by alternative service delivery methods, which include both
proprietary and network ATMs, PC banking, telephone banking, and Express Bank, a
full-service mobile branch. Power and telecommunication services are critical,
but might be interrupted for only a part of the branch network. Bancorp has a
generator to provide power to operate computer systems and, by contract, has
geographically remote facilities served by alternative sources of power to
process work, if needed. Longer periods of disruption could affect Bancorp's
ability to develop new business and could increase costs of operation and
decrease revenues.
CAPITAL RESOURCES
Shareholders' equity totaled $132.3 million at March 31, 1999, an increase of 1%
compared with the 1998 year-end level of $130.8 million, and an increase of 3%
from the year earlier level of $128.3 million. The fair value of the
available-for-sale portfolio declined $1.3 million (net of deferred taxes) since
year-end. Capital levels were considered sufficient to absorb anticipated future
price volatility in the available-for-sale portfolio.
Bancorp's risk-based capital and leverage capital ratios continue to exceed
regulatory guidelines as of March 31, 1999, as follows:
TABLE 6. CAPITAL RATIOS
<TABLE>
<CAPTION>
Risk-based Capital
---------------------------------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- ---------
<S> <C> <C> <C>
Actual 13.03% 14.29% 8.89%
Regulatory Minimum 4.00% 8.00% 3.00%
------- ------- ---------
Excess 9.03% 6.29% 5.89%
------- ------- ---------
------- ------- ---------
</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.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of F&M Bancorp with all Articles of
Amendment. Filed as Exhibit 3.1 to the company's quarterly
report on Form 10-Q for the period ended September 30, 1997
and incorporated herein by reference.
3.2 By-Laws of F&M Bancorp with all amendments. Filed as Exhibit
3.2 to the Company's quarterly report on Form 10-Q for the
period ended September 30, 1997 and incorporated herein by
reference.
4. Description of F&M Bancorp common stock and rights of security
holders. Filed as Exhibit 4 to the Company's quarterly report
on Form 10-Q for the period ended September 30, 1997 and
incorporated herein by reference.
10.1 1983 Stock Option Plan of F&M Bancorp as amended in April,
1996. Filed as Exhibit 10.1 to Registration Statement on Form
S-8 (File #002-88390) and incorporated herein by reference.
10.2 Unfunded Deferred Compensation Plan for Non-Employee Directors
of F&M Bancorp as amended and restated effective August 18,
1998. Filed as Exhibit 10.2 to the Company's annual report on
Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
10.3 Farmers and Mechanics National Bank Executive Supplemental
Income Plan as amended and restated effective August 18, 1998.
Filed as Exhibit 10.3 to the Company's annual report on Form
10-K for the year ended December 31, 1998 and incorporated
herein by reference.
10.4 F&M Bancorp Employee Stock Purchase Plan. Filed as Prospectus
to Registration Statement on Form S-8 (File #33-39941) and
incorporated herein by reference.
10.5 F&M Bancorp Dividend Reinvestment and Stock Purchase Plan.
Filed as Prospectus to Registration Statement on Form S-3
(File #33-39940) and incorporated herein by reference.
10.6 1995 Stock Option Plan of F&M Bancorp. Filed as Exhibit 10.1
to Registration Statement on Form S-8 (File #333-02433) and
incorporated herein by reference.
10.7 Employment Agreement between F&M Bancorp, Home Federal Savings
Bank and Richard W. Phoebus, Sr. Filed as Exhibit 10.7 to the
Company's annual report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.8 Employment Agreement between F&M Bancorp, Home Federal Savings
Bank and Steven G. Hull. Filed as Exhibit 10.8 to the
Company's annual report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
11
<PAGE>
10.9 Employment Agreement between F&M Bancorp, Home Federal Savings
Bank and Salvatore M. Savino. Filed as Exhibit 10.9 to the
Company's annual report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.10 Employment Agreement between F&M Bancorp, Home Federal Savings
Bank and Celia S. Ausherman. Filed as Exhibit 10.10 to the
Company's annual report on Form 10K for the year ended
December 31, 1996 and incorporated herein by reference.
10.11 Form of F&M Bancorp stock options substituted for Home Federal
Corporation stock options granted under the Home Federal
Corporation 1988 Stock Option and Stock Appreciation Rights
Plan filed as Exhibit 99.3 to Registration Statement on Form
S-8 (File #333-16709) and incorporated herein by reference.
10.12 Form of F&M Bancorp stock options substituted for Monocacy
Bancshares, Inc. stock options granted under the Monocacy
Bancshares, Inc. 1994 Stock Incentive Plan and the Monocacy
Bancshares Inc, 1997 Independent Director Stock Option Plan.
Filed as an exhibit hereto and incorporated herein by
reference.
10.13 F&M Bancorp Executive Deferred Compensation Plan adopted April
21, 1998. Filed as Exhibit 10.13 to the Company's annual
report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
10.14 F&M Bancorp Change in Control Employment Agreement. Filed as
an exhibit hereto and incorporated herein by reference.
10.15 Employment Agreement for Michael K. Walsch dated as of July
31,1998. Filed as Exhibit 10.15 to the Company's annual report
on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
10.16 Supplemental Retirement Plan Agreement dated November 17, 1994
by and between Taneytown Bank & Trust Company and Michael K.
Walsch. Filed as Exhibit 10.16 to the Company's annual report
on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
10.17 Taneytown Bank & Trust Company Key Employee life insurance
program. Filed as Exhibit 10.17 to the Company's annual report
on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference.
10.18 Home Federal Corporation Deferred Compensation Plan for
Non-Employee Directors. Filed as Exhibit 10.18 to the
Company's annual report on From 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.19 F&M Bancorp 1999 Employee Stock Option Plan. Filed as an
exhibit hereto and incorporated herein by reference.
10.20 F&M Bancorp 1999 Stock Option Plan for Non-Employee Directors.
Filed as an exhibit hereto and incorporated herein by
reference.
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<PAGE>
11. Statement re: computation of per share earnings. Filed as an
exhibit hereto and incorporated herein by reference.
27. Financial Data Schedule. Filed as an exhibit hereto and
incorporated herein by reference.
(b) Reports on Form 8-K
1. A report on Form 8-K Item 5. Other event was filed on January
20, 1999 to publish 30 days of post-merger combined operations
to satisfy the risk-sharing rules set forth in SEC Accounting
Series Release 135. (File #000-12638).
Under Part II, items 1 through 3 and item 5 have been omitted since the item is
either inapplicable or the answer is negative.
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 18, 1999 /s/ David L. Spilman
------------------------ ------------------------
Date DAVID L. SPILMAN
TREASURER
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