UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange of 1934 for the transition period from to .
Commission File Number: 0-13273
F & M Bank Corp.
Virginia 54-1280811
Drawer F, Timberville, Virginia 22853
(703) 896-8941
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 requirement for the past 90 days. Yes ..X. No ....
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at March 31, 1995
Common Stock, par value - $5 814,288 shares
F & M BANK CORP.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item I Financial Statements
Consolidated Statements of Income - Three Months
Ended March 31, 1995 and 1994 2
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Consolidated Statements of Changes in Stockholders'
Equity - Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item II Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
SIGNATURE 14
Page 2
Part I Financial Information
Item I Financial Statements
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Three Months Ended
March 31,
1995 1994
Interest Income
Interest and fees on loans $ 1,927 $ 1,699
Interest on federal funds sold 6 25
Interest on interest bearing deposits 4 5
Interest and dividends on investment securities
Taxable 583 583
Nontaxable 17 39
Total Interest Income 2,537 2,351
Interest Expense
Interest on demand accounts 160 164
Interest on savings deposits 301 254
Interest on time deposits 451 435
Total interest on deposits 912 853
Interest on short-term debt 3 2
Interest on long-term debt 284 231
Total Interest Expense 1,199 1,086
Net Interest Income 1,338 1,265
Provision for Loan Losses 16 15
Net Interest Income after
Provision for Loan Losses 1,322 1,250
Noninterest Income
Service charges 60 50
Other 38 48
Security gains (losses) 152 (24)
Total Noninterest Income 250 74
Noninterest Expense
Salaries 364 321
Employee benefits 140 131
Occupancy expense 32 34
Equipment expense 43 54
FDIC insurance 55 55
Other 204 164
Total Noninterest Expense 838 759
Income before Income Taxes 734 565
Income Taxes 216 151
Net Income $ 518 $ 414
Per Share Data
Net Income $ .64 $ .51
Cash Dividends $ .20 $ .15
Equivalent Shares Outstanding 814,288 814,288
The accompanying notes are an integral part of these statements.
Page 3
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
March 31, December 31,
ASSETS 1995 1994
Cash and due from banks $ 2,455 $ 2,921
Federal funds sold 2,080
Interest bearing deposits in banks 586 58
Securities held to maturity (note 3) 30,013 34,855
Securities available for sale (note 3) 9,698 9,137
Other investments 1,357 1,766
Loans, net of unearned discount (note 4) 85,469 81,362
Less reserve for loan losses (note 5) (756) (744)
Net Loans 84,713 80,618
Bank premises and equipment 1,859 1,560
Interest receivable 1,197 1,002
Other assets 638 732
Total Assets $ 134,596 $ 132,649
LIABILITIES
Deposits
Noninterest bearing demand $ 9,647 $ 10,299
Interest bearing
Demand 20,082 21,304
Savings deposits 28,653 29,308
Time deposits 41,073 37,843
Total Deposits 99,455 98,754
Short-term debt 78 533
Long-term debt 18,447 17,957
Accrued expenses 1,073 509
Total Liabilities 119,053 117,753
STOCKHOLDERS' EQUITY
Common stock $5 par value, 814,288 shares
issued and outstanding 4,071 4,071
Surplus 747 747
Retained earnings 10,550 10,194
Unrealized gain (loss) on securities
available for sale 175 (116)
Total Stockholders' Equity 15,543 14,896
Total Liabilities and Stockholders' Equity $ 134,596 $ 132,649
The accompanying notes are an integral part of these statements.
Page 4
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Three Months
Ended
March 31,
1995 1994
Balance, beginning of period $ 14,896 $ 13,634
Dividends declared (162) (122)
Cumulative effect of change in accounting for
securities available for sale (note 2) 757
Change in unrealized gain (loss) on securities
available for sale 291 (11)
Net income for period 518 414
Balance, end of period $ 15,543 $ 14,672
The accompanying notes are an integral part of these statements.
Page 5
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Three Months
Ended
March 31,
1995 1994
Cash Flows from Operating Activities:
Net income $ 518 $ 414
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 35 48
Amortization of security premiums 42 56
Provision for loan losses 16 15
Increase in interest receivable (195) (32)
Decrease in other assets 94 42
Increase in accrued expenses 450 193
Loss (gain) on security transactions (152) 24
Net adjustments 290 346
Net Cash Provided by Operating Activities 808 760
Cash Flows from Investing Activities:
Purchase of investments available for sale (819)
Proceeds from sales of investments
available for sale 1,174 50
Proceeds from maturity of investments
available for sale 1,054 956
Proceeds from maturity of investments
held to maturity 5,815 2,946
Purchase of investments held to maturity (2,547) (5,892)
Net increase in loans (4,111) (817)
Purchase of property and equipment (334) (33)
Increase in federal funds sold (2,080) (4,150)
Net Cash Used in Investing Activities (1,848) (6,940)
Cash Flows from Financing Activities:
Net increase in deposits 701 2,389
Net decrease in short-term borrowings (455) (520)
Cash dividends paid (162) (122)
Increase in long-term debt 1,000 4,000
Repayment of long-term debt (510) (322)
Net Cash Provided by Financing Activities 574 5,425
Net Decrease in Cash and Cash Equivalents (466) (755)
Cash and Cash Equivalents, Beginning of Period 2,921 2,745
Cash and Cash Equivalents, End of Period $ 2,455 $ 1,990
Supplemental Disclosure:
Cash paid for:
Interest expense $ 1,165 $ 1,098
Income taxes 10 6
The accompanying notes are an integral part of these statements.
Page 6
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The consolidated financial statements conform to generally
accepted accounting principles and to general industry
practices. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of March
31, 1995 and the results of operations for the three month
periods ended March 31, 1995 and March 31, 1994. The notes
included herein should be read in conjunction with the notes to
financial statements included in the 1994 annual report to
stockholders of the F & M Bank Corp.
NOTE 2 CHANGE IN ACCOUNTING PRINCIPLE:
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standard No. 115, "Accounting For Certain
Investments in Debt and Equity Securities." The statement
requires that all investments in securities be classified as
either trading, available for sale or held to maturity. The
Company only invests in securities that are available for sale
or held to maturity. Those that are classified as available for
sale are carried on the balance sheet at their fair market value
and the unrecognized gain or loss is reflected as a component of
stockholders' equity. Such gains and losses are excluded from
earnings until realized. Those investments that are classified
as held to maturity are carried on the balance sheet at cost and
the gains or losses are recognized as income only when realized.
The adoption of this statement increased total stockholders'
equity by $757,000 as of January 1, 1994.
NOTE 3 INVESTMENT SECURITIES:
The amounts at which investment securities are carried in
the consolidated balance sheets and their approximate market
values at March 31, 1995 and December 31, 1994 follows:
1995 1994
Carrying Market Carrying Market
Value Value Value Value
Securities Held to Maturity
U. S. Treasury
and Agency
obligations $ 24,003 $ 23,422 $ 28,529 $ 27,318
State and municipal 1,291 1,285 1,314 1,304
Other securities 4,719 4,736 5,012 5,010
Total $ 30,013 $ 29,443 $ 34,855 $ 33,632
Page 7
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 INVESTMENT SECURITIES (CONTINUED):
1995 1994
Market Market
Value Cost Value Cost
Securities Available for Sale
U. S. Treasury
and Agency
obligations $ 3,039 $ 3,184 $ 3,089 $ 3,281
Equity securities 6,659 6,224 6,048 6,035
Total $ 9,698 $ 9,408 $ 9,137 $ 9,316
NOTE 4 LOANS:
Loans outstanding are summarized as follows:
March 31, December 31,
1995 1994
Real Estate
Construction $ 3,050 $ 2,123
Mortgage 50,494 49,564
Commercial and agricultural 22,370 20,474
Installment 8,829 8,427
Credit cards 689 753
Other 37 21
Total $ 85,469 $ 81,362
NOTE 5 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses
for the three months ended March 31, 1995 and 1994 follows:
1995 1994
Balance, beginning of period $ 744 $ 700
Provisions charged to
operating expenses 16 15
Loan recoveries 2 3
Loan charge-offs (6) (12)
Balance, End of Period $ 756 $ 706
Page 8
Item II Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The financial condition of F & M Bank Corp. remained strong in the
first quarter of 1995. Annualized growth in total assets was 5.87% and
annualized growth in deposits was 2.84%. The increase in capital of 4.34%
for the quarter was the result of retained operating income and a
significant increase in the unrealized gain on securities available for
sale. This increase was due to gains on equities held by the parent
company and a recovery in the market value of fixed rate investments due to
lower overall market rates.
Results of Operations
The dollar amount of the tax equivalent, net interest margin
increased 4.68% in the first quarter of 1995 compared to the first quarter
of 1994. An increase in the return on earning assets (.41%) was offset by
a similar increase in the cost of funds (.41%). The increase in net
interest margin income is primarily attributable to an increase in net
earning assets (i.e., volume increases). A schedule of the net interest
margin for 1995 and 1994 is shown on page 12 as Table I.
Noninterest income increased in the first quarter of 1995 compared to
the first quarter of 1994 due to security gains of $152,000 in 1995
compared to security losses of $24,000 in 1994. Service charges on
deposits increased in 1995 due to an increase in the deposit base while
other noninterest income decreased due primarily to a decline in income
from insurance operations.
Noninterest expenses increased 10.41% in 1995 compared to 1994.
Noninterest expenses included an increase in salaries and employee benefits
of 11.50% and an increase in other noninterest expense of 24.39%. In the
first quarter of 1995 the Company opened a new branch office in
Bridgewater, Virginia and this accounted for a substantial portion of the
increase in salaries, employee benefits and noninterest expenses.
Expenditures for supplies, stationary and advertising incurred as part of
the branch opening will continue throughout 1995, although at a much slower
pace. Management believes the overall increase in noninterest expense to
be in line with asset growth and 1995 expectations.
Financial Condition
Securities
The Company's securities portfolio is held to assist the Company in
liquidity and asset liability management. The securities portfolio
consists of investment securities (commonly referred to as "securities held
to maturity") and securities available for sale. Securities are classified
as investment securities when management has the intent and ability to hold
the securities to maturity. Investment securities are carried at amortized
cost. Securities available for sale include securities that may be sold in
response to general market fluctuations, general liquidity needs and other
similar factors. Securities available for sale are recorded at market
value. Unrealized holding gains and losses of available for sale
securities are excluded from earnings and reported (net of deferred income
taxes) as a separate component of shareholders' equity. As of March 31,
1995, the market value of all securities available for sale exceeded their
amortized cost by $289,000 ($175,000 after the consideration of income
taxes). Management has traditionally held debt securities (regardless of
classification) until maturity and thus it does not expect the fluctuation
in the value of the securities to have a direct impact on earnings.
Page 9
Item II Management's Discussion and Analysis of Financial
Condition and Results of Operations
Securities (Continued)
Investments in debt securities declined in the first quarter of 1995
as loan demand was very strong and proceeds from maturities of investments
were reinvested in new loans rather than securities. The Company has kept
many of its maturities relatively short in anticipation of rising rates in
1994 and 1995. This philosophy allows for greater flexibility in an
environment of rapidly changing rates and has served the Company well over
the years. The Company's available for sale securities benefitted from
increases in the stock market and increases in the fixed rate investment
market. The result was an after tax increase in the unrealized gain on
these securities of $291,000 for the quarter. Of the investments in
securities available for sale, 69% are invested in equities which are
dividend producing and subject to the dividend exclusion for taxation
purposes. The Company believes these investments render adequate current
returns and have the potential for future increases in value.
New investments in debt securities within the quarter continue to be
in maturities of short to intermediate terms in an effort to better match
interest rate sensitivity. At March 31, 1995, the Company had 35% of its
interest bearing investment in maturities of one year or less and 65% in
maturities exceeding one year. As of March 31, 1995, investments of all
types comprised 31% of total assets compared to 35% of total assets at
December 31, 1994.
Loan Portfolio
The Company operates in an agriculturally dominated area which
includes the counties of Rockingham, Page and Shenandoah in the western
portion of Virginia. The Company does not make a significant number of
loans to borrowers outside its primary service area. The Company is very
active in local residential construction mortgages. The commercial lending
includes small and medium sized businesses within its service area.
The principal economic risk associated with the loan portfolio is the
ability of its borrowers to repay. The risk associated with real estate
and installment notes to individuals is based upon employment, the local
and national economics and consumer confidence. All of these affect the
ability of borrowers to repay indebtedness. The risk associated with
commercial lending is based on the strength of the local and national
economies.
The first quarter saw an unusually strong loan demand as loans grew
at an annualized rate of 20.19%. The Bank has made a conscious effort to
increase lending locally as loans represent the best return available in
the present investment market. Funding of the new loans was made possible
by a decline in investment securities, retained income from operations and
increases in deposits and long term debt outstanding. Overall, management
has been quite pleased with the loan program and believes that loan growth
will continue into 1995 but at a slower pace than the first quarter of
1995.
Nonperforming loans include nonaccrual loans, loans 90 days or more
past due and restructured loans. Nonaccrual loans are loans on which
interest accruals have been suspended or discontinued permanently.
Restructured loans are loans which have changed the original interest rate
or repayment terms due to financial hardship. The loans on nonaccrual
status consist of real estate mortgages and commercial loans. The Company
had no nonaccrual loans at March 31, 1995.
Page 10
Item II Management's Discussion and Analysis of Financial
Condition and Results of Operations
Allowance for Loan Losses
Management evaluates the loan portfolio in light of national and
local economic changes, changes in the nature and value of the portfolio
and industry standards. The Company's loan classification system, which
rates existing loans, provides the basis for adjusting the allowance for
loan loss. Management reviews these classification totals, along with
internally generated loan review reports, past due reports, historical loan
loss experience and individual borrower's financial health to determine the
necessary amount to be provided in the allowance for loan losses.
Management evaluates nonperforming loans relative to their collateral value
and makes the appropriate adjustments to the loan portfolio when needed.
Management believes, based on its review, that the Company has an adequate
allowance to absorb any losses in the loan portfolio.
The gross amount of charge-offs for three months ended March 31,
1995, was $6,000 compared to $12,000 for the three months ended March 31,
1994. The allowance for loan losses was $756,000 at March 31, 1995
representing .88% of period ending loans outstanding. The provision for
loan losses for the three months ended March 31, 1995 was $16,000 compared
to $15,000 for the same period in 1994.
Deposits and Long Term Debt
The Company's main source of funds is customer deposits received from
individuals, governmental entities and businesses located within the
Company's service area. Deposit accounts include demand deposits, savings,
money market and certificates of deposit.
Deposit growth was slight in the first quarter of 1995 as the Bank
had no special deposit promotions and customers changed from investments in
lower yielding transaction accounts to higher yielding time deposits. In
prior years, the Bank had aggressively pursued savings deposits through
above market interest rates and has been able to retain many of these new
deposits subsequent to the program. As part of the promotions involving
the new Bridgewater branch, the Bank has begun a certificate of deposit
program with an above average interest rate and alternative maturity
ranges. The Company believes that this promotion will increase deposits in
the second quarter of 1995 and allow it to retain deposits for longer
terms.
Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue
to be an important mechanism in funding real estate loan growth in the
area. The Bank borrows funds on a fixed rate basis and uses these
borrowings to fund loans on a fixed rate basis with repayments over a
fifteen year term. The program allows the Bank to match the maturity of
its fixed rate real estate portfolio with the maturity of its debt and thus
reduce exposure to interest rate changes.
Capital
The Company seeks to maintain a strong capital base to expand
facilities, promote public confidence, support current operations and grow
at a manageable level. As of March 31, 1995, the Company's total risk
based capital ratio was 19.32%, far above the regulatory minimum of 8.00%.
The ratio of total capital to total assets was 11.55% at March 31, 1995
which exceeds that of the Company's peers. Earnings have been satisfactory
to allow an increase in dividends in 1995 over those levels experienced in
1994 and management has no reason to believe this will not continue.
Page 11
Item II Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity
Liquidity is the ability to meet present and future obligations
through the management of maturing assets or use of additional liabilities.
Federal funds sold, loans and investments maturing within one year are the
primary source of liquid assets. Management feels its ability to manage
assets and liabilities will maintain the overall liquidity sufficient to
meet customers' needs on a continuing basis.
As a secondary source of funds, the Company's subsidiary bank
maintains lines of credit with correspondent financial institutions that
allows it to borrow funds on an overnight basis. In the past, these lines
have been utilized sparingly as bank deposits have been more than
sufficient to fund loan demands. The Company does not foresee any change
in this philosophy in the near future.
Interest Rate Sensitivity
Management of liquidity involves controlling the degree of interest
rate risk the Company is willing to accept. Interest rate risk is the risk
that interest sensitive liabilities will reprice at a faster rate than
interest sensitive assets. The Company estimates that the point at which
its cumulative repricing opportunities for assets and liabilities are equal
is about five years.
A summary of asset and liability repricing opportunities is shown on
page 13 as Table II.
Page 12
<TABLE>
TABLE I F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
Average Income/ Average Income/
Balance Expense Rates Balance Expense Rates
<S> <C> <C> <C> <C> <C> <C>
Rate Related Income
Loans 1 $ 83,132 $ 1,930 9.29% $ 74,087 $ 1,702 9.19%
Federal funds sold 409 6 5.87 3,159 25 3.17
Interest bearing
deposits 215 4 7.44 357 5 5.60
Investments
Taxable 33,965 483 5.48 36,959 482 5.22
Partially taxable 6,826 139 8.15 5,998 142 9.47
Tax exempt 1 1,295 22 6.80 2,921 53 7.26
Total Earning Assets 125,842 2,584 8.21 123,481 2,409 7.80
Interest Expense
Demand deposits 21,114 160 3.03 21,886 164 3.00
Savings 29,223 301 4.12 30,281 254 3.36
Time deposits 38,554 451 4.68 39,519 435 4.40
Short-term debt 275 3 4.36 305 2 2.62
Long-term debt 17,940 284 6.33 14,626 231 6.32
Total Interest Bearing
Liabilities $107,106 1,199 4.48 $106,617 1,086 4.07
Net Interest Margin 1 $ 1,385 $ 1,323
Net Yield on Interest
Earning Assets 4.40% 4.29%
1 On a taxable equivalent basis.
</TABLE>
Page 13
<TABLE>
TABLE II F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 1995
(In Thousands of Dollars)
<CAPTION>
0 - 3 4 - 12 1 - 5 5 -10 Over 10 Not
Months Months Years Years Years Classified Total
<S> <C> <C> <C> <C> <C> <C> <C>
Uses of Funds
Loans:
Commercial $ 21,704 $ $ $ 437 $ 343 $ $ 22,484
Installment 31 544 7,694 480 8,749
Real estate 5,265 7,211 23,480 7,554 10,046 53,556
Credit cards 680 680
Interest bearing
bank deposits 586 586
Investment securities 6,860 4,878 18,193 2,383 883 7,871 41,068
Federal funds sold 2,080 2,080
Total $ 37,206 $ 12,633 $ 49,367 $ 10,854 $ 11,272 $ 7,871 $129,203
Sources of Funds
Interest bearing
deposits $ 20,082 $ $ $ $ $ $ 20,082
Regular savings 28,653 28,653
Certificates of deposit
$100,000 and over 590 654 1,211 2,455
Other certificates
of deposit 7,076 14,765 16,777 38,618
Short-term borrowings 78 78
Long-term debt 653 1,815 9,870 6,109 18,447
Total $ 57,132 $ 17,234 $ 27,858 $ 6,109 $ $ $108,333
Discrete Gap $(19,926) $ (4,601) $ 21,509 $ 4,745 $ 11,272 $ 7,871 $ 20,870
Cumulative Gap (19,926) (24,527) (3,018) 1,727 12,999 20,870 20,870
Ratio of Cumulative
Assets to Cumulative
Liabilities 65.12% 67.02% 97.05% 101.59% 112.00% 119.26%
</TABLE>
Page 14
Signature
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 BANK CORP.
Dan B. Todd
Chairman of the Board and Principal Financial Officer
Ralph C. Foltz, Jr.
Controller and Chief Accounting Officer
Date
Page 14
Signature
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 BANK CORP.
DAN B. TODD
Dan B. Todd
Chairman of the Board and Principal Financial Officer
RALPH C. FOLTZ, JR.
Ralph C. Foltz, Jr.
Controller and Chief Accounting Officer
Date
