UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File Number: 0-13273
June 30, 1999
F & M BANK CORP.
Virginia 54-1280811
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Drawer F
Timberville, Virginia 22853
(540) 896-8941
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 June 30, 1999
Common Stock, par value - $5 2,454,143 shares
F & M BANK CORP.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Income - Six Months
Ended June 30, 1999 and 1998 2
Consolidated Statements of Income - Three Months
Ended June 30, 1999 and 1998 3
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 5
Consolidated Statements of Changes in Stockholders'
Equity - Six Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibit and Reports on Form 8K 17
SIGNATURES 19
<PAGE> 2
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Six Months Ended
June 30,
1999 1998
Interest Income
Interest and fees on loans $ 5,784 $ 5,744
Interest on federal funds sold 78 77
Interest on interest bearing deposits 19 35
Interest and dividends on investment securities
Taxable 1,212 1,063
Nontaxable 8
------- ------
Total Interest Income 7,093 6,927
------- ------
Interest Expense
Interest on demand accounts 231 247
Interest on savings deposits 476 480
Interest on time deposits 1,813 1,795
------- ------
Total interest on deposits 2,520 2,522
Interest on short-term debt 145 109
Interest on long-term debt 567 610
------- ------
Total Interest Expense 3,232 3,241
------- ------
Net Interest Income 3,861 3,686
Provision for Loan Losses 25 80
------- ------
Net Interest Income after Provision for Loan Losses 3,836 3,606
------- ------
Noninterest Income
Service charges 220 203
Other 143 67
Security gains (losses) 845 1,570
------- ------
Total Noninterest Income 1,208 1,840
------- ------
Noninterest Expense
Salaries 951 831
Employee benefits 317 218
Occupancy expense 84 87
Equipment expense 121 123
Other 566 595
------- ------
Total Noninterest Expense 2,039 1,854
------- ------
Income before Income Taxes 3,005 3,592
Provision for Income Taxes 955 1,186
------- ------
Net Income $ 2,050 $ 2,406
======= ======
Per Share Data
Net Income $ .83 $ .98
======= ======
Cash Dividends $ .25 $ .50
======= ======
Equivalent Shares Outstanding 2,454,490 2,455,962
========= =========
The accompanying notes are an integral part of these statements.
<PAGE> 3
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Amounts)
Three Months Ended
June 30,
1999 1998
Interest Income
Interest and fees on loans $ 2,897 $ 2,906
Interest on federal funds sold 40 20
Interest on interest bearing deposits 9 16
Interest and dividends on investment securities 614
Taxable 548
Nontaxable 4
Total Interest Income 3,560 3,494
------- ------
Interest Expense
Interest on demand deposits 117 124
Interest on savings accounts 245 239
Interest on time deposits 886 913
------- ------
Total interest on deposits 1,248 1,276
Interest on short-term debt 76 54
Interest on long-term debt 279 271
------- ------
Total Interest Expense 1,603 1,601
------- ------
Net Interest Income 1,957 1,893
Provision for Loan Losses 15 35
------- ------
Net Interest Income after Provision for Loan Losses 1,942 1,858
------- ------
Noninterest Income
Service charges 118 108
Other 61 29
Security gains 277 72
------- ------
Total Noninterest Income 456 209
------- ------
Noninterest Expense
Salaries 491 423
Employee benefits 157 108
Occupancy expense 45 43
Equipment expense 60 60
Other 313 327
------- ------
Total Noninterest Expense 1,066 961
------- ------
Income before Income Taxes 1,332 1,106
Provision for Income Tax 415 327
------- ------
Net Income $ 917 $ 779
======= ======
Per Share Data
Net Income $ .37 $ .32
======= ======
Cash Dividends $ .13 $ .40
======= ======
Equivalent Shares Outstanding 2,454,143 2,455,962
========= =========
The accompanying notes are an integral part of these statements.
<PAGE> 4
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
June 30, December 31,
ASSETS 1999 1998
--------------------------
Cash and due from banks $ 3,673 $ 4,198
Federal funds sold 2,436
Interest bearing deposits in banks 1,342 2,145
Securities held to maturity (note 2) 6,688 9,715
Securities available for sale (note 2) 37,200 33,941
Other investments 4,064 2,701
Loans, net of unearned discount (note 3) 133,226 132,301
Less reserve for loan losses (note 4) (1,080) (1,162)
-------- --------
Net Loans 132,146 131,139
Bank premises and equipment 2,648 2,080
Other real estate 426 472
Interest receivable 1,366 1,352
Other assets 1,451 1,316
------- -------
Total Assets $191,004 $191,495
======= =======
LIABILITIES
Deposits
Noninterest bearing demand $ 15,959 $ 16,232
Interest bearing
Demand 20,368 20,213
Savings deposits 30,085 27,443
Time deposits 68,494 71,251
------- -------
Total Deposits 134,906 135,139
Short-term debt 6,379 7,155
Long-term debt 20,129 21,854
Accrued expenses 4,851 3,269
------- -------
Total Liabilities 166,265 167,417
------- -------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 2,454,143 and
2,455,962 shares issued and outstanding
in 1999 and 1998, respectively 12,280 12,280
Surplus 867 867
Retained earnings 10,495 9,057
Treasury stock (40)
Unrealized gain on securities available for sale 1,137 1,874
------- -------
Total Stockholders' Equity 24,739 24,078
------- -------
Total Liabilities and Stockholders' Equity $191,004 $191,495
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)
Six Months Ended
June 30,
1999 1998
Cash Flows from Operating Activities:
Net income $ 2,050 $ 2,406
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 93 105
Amortization of security premiums 122 54
Gain on security transactions (845) (1,570)
Provision for loan losses 25 80
(Increase) decrease in interest receivable (14) 33
Decrease (increase) in other assets (174) 120
Increase in accrued expenses 2,060 440
Losses on limited partnership investments 61 62
Gain on sale of land (1) (10)
-------- -------
Total Adjustments 1,327 (686)
------- -------
Net Cash Provided by Operating Activities 3,377 1,720
------- -------
Cash Flows from Investing Activities:
Proceeds from sales of investments
available for sale 2,032 4,323
Proceeds from maturity of investments
available for sale 8,008 3,161
Proceeds from maturity of investments
held to maturity 2,844 7,057
Purchase of investments available for sale (14,259) (9,879)
Purchase of investments held to maturity (750) (2,370)
Net decrease in federal funds sold 2,436 2,141
Net increase in loans (1,032) (6,529)
Purchase of property and equipment (661) (133)
Net decrease (increase) in interest
bearing bank deposits 803 (719)
Sale of other real estate 11
Net Cash Used in Investing Activities (579) (2,937)
-------- -------
Cash Flows from Financing Activities:
Net increase in demand and savings deposits 2,524 206
Net increase (decrease) in time deposits (2,757) 1,753
Net decrease in short-term debt (776) (732)
Increase in long-term debt 5,147
Repayment of long-term debt (1,725) (3,936)
Payment of dividends (589) (1,212)
-------- -------
Net Cash Provided by (Used in) Financing Activities (3,323) 1,226
-------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (525) 9
Cash and Cash Equivalents, Beginning of Period 4,198 3,574
------- -------
Cash and Cash Equivalents, End of Period $ 3,673 $ 3,583
======= =======
Supplemental Disclosure
Cash paid for:
Interest expense $ 3,250 $ 3,228
Income taxes 740 800
The accompanying notes are an integral part of these statements.
<PAGE> 6
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Six Months Ended
June 30,
1999 1998
Balance, beginning of period $ 24,078 $ 22,902
Comprehensive Income:
Net income 2,050 2,406
Net change in unrealized appreciation on securities
available for sale, net of taxes (735) (1,125)
-------- -------
Total comprehensive income 1,315 1,281
Purchase of treasury stock (40)
Dividends declared (614) (1,228)
-------- -------
Balance, end of period $ 24,739 $ 22,955
======= =======
The accompanying notes are an integral part of these statements.
<PAGE> 7
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 June 30, 1999 and the results of operations for the
six-month periods ended June 30, 1999 and June 30, 1998. The notes
included herein should be read in conjunction with the notes to
financial statements included in the 1998 annual report to
stockholders of the F & M Bank Corp.
The Company does not expect the anticipated adoption of any newly
issued accounting standards to have a material impact on future
operations or financial position.
NOTE 2 INVESTMENT SECURITIES:
The amounts at which investment securities are carried in the
consolidated balance sheets and their approximate market values at
June 30, 1999 and December 31, 1998 follows:
1999 1998
Carrying Market Carrying Market
Value Value Value Value
Securities Held to Maturity
U. S. Treasury and
Agency obligations $ 3,481 $ 3,485 $ 4,986 $ 5,030
State and municipal 250 250
Other securities 2,753 2,728 3,259 3,311
Mortgaged-backed securities 454 456 1,220 1,230
Total $ 6,688 $ 6,669 $ 9,715 $ 9,821
======= ======= ======= =======
1999 1998
Market Market
Value Cost Value Cost
Securities Available for Sale
U. S. Treasury and
Agency obligations $ 15,966 $ 16,078 $ 13,886 $ 13,849
Equity securities 11,103 9,057 10,490 7,605
Mortgage-backed securities 3,116 3,123 3,883 3,870
Other securities 7,015 7,118 5,682 5,602
------- ------- ------- -------
Total $ 37,200 $ 35,376 $ 33,941 $ 30,926
======= ======= ======= =======
<PAGE> 8
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
June 30, December 31,
1999 1998
Real Estate
Construction $ 4,818 $ 4,376
Mortgage 79,431 78,349
Commercial and agricultural 30,240 31,567
Installment and consumer demand notes 17,423 17,125
Credit cards 798 832
Other 516 52
------ -------
Total $133,226 $132,301
======= =======
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the
periods ended June 30, 1999 and 1998 follows:
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
Balance, beginning of period $1,162 $ 1,121 $1,153 $ 1,055
Provisions charged to operating
expenses 25 80 15 45
Net (charge offs) recoveries
Loan recoveries 26 30 9 2
Loan charge-offs (133) (47) (97) (14)
------ ------ ------ ------
Total Net Charge-offs* (107) (17) (88) (12)
------ ------ ------ ------
Balance, End of Period $1,080 $ 1,184 $1,080 $ 1,088
===== ====== ===== ======
* Components of net charge-offs:
Real estate - Construction $ - $ - $ $ -
Real estate - Mortgages (2) - (2) -
Commercial (49) 4 (49) (5)
Installment (56) (21) (37) (7)
------ ------ ------ ------
Total $(107) $(17) $(88) $ (12)
<PAGE> 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The financial condition of F & M Bank Corp. remained strong throughout the
first six months of 1999. On an annualized basis, both total assets and total
deposits decreased slightly through the first six months. Net income for the
first six months of 1999 decreased $356,000 or 14.80% as a result of a $450,000
after tax change in security gains and losses. The increase in capital of 2.45%
is attributed to the retention of earnings, net of regular dividends of $614,000
and a $737,000 decrease in unrealized gains on securities available for sale.
Results of Operations - Six Months Ending June 30, 1999
The dollar amount of the tax equivalent net-interest-margin increased
$177,000 or 4.67% compared to the same period in 1998. Yields on earning assets
were down forty-seven basis points, while the cost of funds decreased
thirty-four basis points. The decrease in yield on earning assets was across all
asset types and is reflective of lower rates in the national economy and
stronger competition within the local market. The decrease in the cost of funds
is a result of decreases in rates paid on all deposit types and a reduction in
the average rate paid on long-term debt. A portion of these long-term debts were
refinanced in 1998 resulting in higher expense during that period from the
payment of prepayment penalties. A schedule of the net interest margin for 1999
and 1998 is shown on page 15 as Table 1.
Noninterest income decreased $632,000 in the first six months of 1999. This
decrease is attributed to reduction of $725,000 in gains realized on securities
transactions in 1999 compared to 1998. Other noninterest income increased
$93,000 or 34.44% in 1999 and is the result of increases in income from deposit
account service charges and increased revenue from sales of insurance products.
Noninterest expense increased 9.98% in 1999. The principal reason for this
was a 20.88% increase in salaries and employee benefits expenses. These
increases can be attributed to increases in base salaries, a net increase of six
full-time equivalent positions in various areas of the bank and the expiration
of benefit cost savings that resulted in 1998 from the sale of stock received in
the Trigon stock demutualization. Other noninterest expenses decreased 4.22% or
$34,000. Areas affecting this decrease include a reduction in advertising
expense and the cessation of expense accrual for Year 2000 related expenditures.
Result of Operations - Quarter Ending June 30, 1999
Net income for the quarter ending June 30, 1999 increased 20.43% over
earnings in the same quarter of 1998. Net interest income increased due to
increases in the level of earning assets. Noninterest income increased during
1999 due to increased securities gains compared to 1998. Although the Company's
overhead costs increased due to the factors noted above, they continue to be low
relative to its peer group.
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 on available for sale securities are excluded from earnings and
reported (net of deferred income taxes) as a separate
<PAGE> 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Securities (Continued)
component of shareholders' equity. As of June 30, 1999, the market value of all
securities available for sale exceeded their amortized cost by $2,045,000
($1,137,000 after the consideration of income taxes). This excess is the result
of unrecognized gains in the value of equity securities, primarily stocks of
financial institutions held by the Company. Management has traditionally held
debt securities (regardless of classification) until maturity and thus it does
not expect the minor fluctuations in the value of these debt securities to have
a direct impact on earnings.
Investments in securities increased $1,595,000 (3.44%) in the first six
months of 1999. The Company has invested in relatively short-term maturities due
to uncertainty in the direction of rates. This philosophy allows for greater
flexibility in an environment of rapidly changing rates and has served the
Company well over the years. Of the investments in securities available for
sale, 30% are invested in equities which are dividend producing and subject to
the dividend exclusion for taxation purposes. The Company believes these
investments render adequate returns and have resulted in significant increases
in value.
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. Commercial lending includes loans to small and medium
sized business within its service area.
An inherent risk in the lending of money is that the borrower will not be
able to repay the loan under the terms of the original agreement. The allowance
for loan losses (see subsequent section) provides for this risk and is reviewed
periodically for adequacy. The risk associated with real estate and installment
notes to individuals is based upon employment, the local and national economies
and consumer confidence. All of these affect the ability of borrowers to repay
indebtedness. The risk associated with commercial lending is substantially based
on the strength of the local and national economies.
While lending is geographically diversified within the service area, the
Company does have some concentration in agricultural loans (primarily poultry
farming). In the past two and a half years, the poultry industry has suffered
due to high grain prices, excess supplies of all types of meat and high
mortality rates among poults. Recently there has been a sharp improvement in
grain prices and some improvement in mortality rates. However, these
improvements have not been sufficient to completely offset depressed turkey
prices caused by an over supply of meat. In addition to direct agricultural
loans, a significant percentage of residential real estate loans and consumer
installment loans are made to borrowers employed in the agricultural sector of
the economy. The Company continues to monitor its past due loans closely and has
not experienced an increase in loan delinquencies as a result of these economic
factors.
The first six months of 1999 resulted in a slight increase of $925,000 in the
loan portfolio. This increase is significantly less than in recent years and it
appears that the loan portfolio's rate of growth has been affected by increased
competition from new banks entering the market area. The influx of new banks
caused a substantial amount of pressure on loan rates. The Bank has chosen to
attempt to retain as much of its existing loan portfolio as possible, but it has
not been aggressively pricing loans to achieve loan growth in the short-term.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Loan Portfolio (Continued)
Non-performing loans include non-accrual loans, loans 90 days or more past
due and restructured loans. Non-accrual loans are loans on which interest
accruals have been suspended or discontinued permanently. Restructured loans are
loans on which the original interest rate or repayment terms have changed due to
financial hardship. Loans 90 days or more past due totaled $742,000 at June 30,
1999 compared to $2,059,000 at December 31, 1998. Approximately 75% of these
past due loans are secured by real estate. Although the potential exists for
some loan losses, management believes the bank is generally well secured and
continues to actively work with these customers to effect payment. The Company
had no non-accrual or restructured loans at June 30, 1999.
Allowance for Loan Losses
Management evaluates the loan portfolio in light of national and local
economic trends, changes in the nature and value of the portfolio and industry
standards. Specific factors considered by management in determining the adequacy
of the level of the allowance include internally generated loan review reports,
past due reports, historical loan loss experience and individual borrowers
financial health. This review also considers concentrations of loans in terms of
geography, business type and level of risk. Management evaluates nonperforming
loans relative to their collateral value and makes the appropriate adjustments
to the allowance for loan losses when needed.
The provision for loan losses and changes in the allowance for loan losses
are shown in note 4, page 8.
The allowance for credit losses of $1,080,000 at June 30, 1999 was down
$82,000 from its level at December 31, 1998. The allowance was equal to .81% and
.88% of total loans at June 30, 1999 and December 31, 1998, respectively. The
Company believes that its allowance should be viewed in its entirety and,
therefore, is available for potential credit losses in its entire portfolio,
including loans, credit-related commitments and other financial instruments. In
the opinion of management, the allowance, when taken as a whole, is adequate to
absorb reasonably estimated credit losses inherent in the Company's portfolio.
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. The Company experienced a very slight decrease in
deposits in the first six months of 1999. Deposit growth continues to be
difficult to achieve due to the increasing number of financial institutions
competing in the Bank's primary service area. The decrease in deposits was
primarily in time deposits and was substantially offset by increase in lower
cost demand and savings deposits.
The Company offers repurchase agreements (a/k/a "repos") to customers
desiring such investments. Repos are designed for companies and individuals
desiring a higher rate of return than traditional deposit accounts and who will
accept the risk of not being covered by FDIC insurance.
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
Company's subsidiary bank borrows funds on a fixed rate basis. These borrowings
are used to fund either a fifteen-year fixed rate loan or a twenty-year loan, of
which the first ten years have a fixed rate. This program allows the bank to
match
<PAGE> 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Deposits and Long-Term Debt (Continued)
the maturity of its fixed rate real estate portfolio with the maturity of
its debt and thus reduce its exposure to interest rate changes. Due to
reduced loan demand, no additional funds have been borrowed in 1999. Normal
repayments have totaled $1,725,000 so far this year.
Capital
The Company seeks to maintain a strong capital position to expand
facilities, promote public confidence, support current operations and grow at a
manageable level. As of June 30, 1999, the Company's total risk based capital
and total capital to total assets ratios were 18.53% and 12.92%, respectively.
Both ratios are in excess of regulatory minimums and exceed the ratios of the
Company's peers. Earnings have been sufficient to allow an increase in regular
quarterly dividends in 1999 over those in 1998.
Liquidity
Liquidity is the ability to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management. Liquid assets include cash,
interest-bearing deposits with banks, federal funds sold, investments and loans
maturing within one year. The Company's ability to obtain deposits and purchase
funds at favorable rates determines its liquidity exposure. As a result of the
Company's management of liquid assets and the ability to generate liquidity
through liability funding, management believes that the Company maintains
overall liquidity sufficient to satisfy its depositors' requirements and meet
its customers' credit needs.
Additional sources of liquidity available to the Company include, but are
not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also maintains lines of credit with
correspondent financial institutions. The Company's subsidiary bank also has a
line of credit with the Federal Home Loan Bank of Atlanta that allows for
secured borrowings. In the past, growth in deposits and proceeds from the
maturity of investment securities have been sufficient to fund most of the net
increase in loans and investment securities.
Interest Rate Sensitivity
In conjunction with maintaining a satisfactory level of liquidity,
management must also control the degree of interest rate risk assumed on the
balance sheet. Managing this risk involves regular monitoring of the interest
sensitive assets relative to interest sensitive liabilities over specific time
intervals.
At June 30, 1999 the Company is in an asset sensitive position. This asset
sensitive position typically produces an unfavorable contribution to earnings
during a period of decreasing rates. With the largest amount of interest
sensitive assets and liabilities repricing within five years, the Company
monitors these areas very closely. Early withdrawal of deposits, prepayments of
loans and loan delinquencies are some of the factors that could affect actual
versus expected cash flows. In addition, changes in rates on interest sensitive
assets and liabilities may not be equal, which could result in a change in net
interest margin. While the Company does not match each of its interest sensitive
assets against specific interest sensitive liabilities, it does monitor closely
the maturities of loans, investments and time deposits to limit interest rate
risk and the financial effect of market rate changes.
<PAGE> 13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Interest Rate Sensitivity, (Continued)
A summary of asset and liability repricing opportunities is shown on page 16
as Table II.
Disclosure of Year 2000 Issues
The following statements are being designated as Year 2000 Readiness
Disclosures under the Year 2000 Information and Readiness Disclosure Act,
enacted by the 105th Congress on October 19, 1998.
The Company has formed a year 2000 project team to identify information
technology and non-technology systems that require modification for the year
2000. A project plan has been established with goals and target dates. The
Company has completed the assessment, renovation and validation phases of the
project. Substantially all mission critical systems have been tested.
Redeployment of renovated or new equipment will continue through late-1999.
The impact of year 2000 issues on the Company depends not only on corrective
actions that the Company takes, but also on the actions of governmental
agencies, businesses and other third parties that provide services to, or
receive services from, the Company. The Company has implemented an ongoing
process of identifying and contacting mission critical third parties to
determine their year 2000 readiness. Although the Company has undertaken these
measures, there can be no assurance that mission critical third parties will
adequately address their year 2000 issues.
The Company is developing contingency plans for implementation in the event
that testing of alternate vendors to provide mission critical systems. There may
be certain mission critical third parties, such as utilities or
telecommunications companies, where alternative arrangements or sources are
limited or unavailable.
The Company has reviewed its significant loan customers to assess the risk of
increased problem loans and credit losses due to borrowers failure to adequately
address year 2000 issues. Although it is not possible to quantify the potential
impact of such credit losses at this time, management has designated a portion
of the allowance for loan losses as an undesignated reserve which can be used to
absorb uncertainties, including year 2000 problems, within the loan portfolio.
The Company has incurred expenses throughout 1998 and 1999 related to its
year 2000 project. Additional funds have been budgeted in anticipation of costs
that may be incurred during the remainder of 1999. At the present time,
management of the Company does not believe that the costs of addressing this
issue will have a material adverse impact on the Company's financial condition.
If, however, the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. The Company plans to continue to devote all resources
necessary to resolve any significant year 2000 issues in a timely manner.
Effect of Newly Issued Accounting Standards
The Company does not believe that any newly issued but as yet unapplied
accounting standards will have a material impact on the Company's financial
position or operations.
<PAGE> 14
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Securities and Exchange Commission Web Site
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including F & M Bank
Corp., and the address is (http://www.sec.gov).
<PAGE> 15
TABLE I
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
<S> <C> <C> <C> <C> <C> <C>
Rate Related Income
Loans 1 $132,268 $ 5,799 8.84% $125,792 $ 5,757 9.15%
Federal funds sold 3,386 78 4.64% 2,819 77 5.46%
Bank deposits 918 19 4.17% 1,399 35 5.00%
Investments
Taxable 33,556 1,002 5.97% 26,926 855 6.35%
Partially taxable 1 9,342 298 6.38% 8,288 292 7.05%
Tax exempt 1 391 12 6.14%
----- ----- - ----- ----- ----
Total Earning Assets 179,470 7,196 8.02% 165,615 7,028 8.49%
--------- ----- ------- -------- ----- -------
Interest Expense
Demand deposits 20,890 231 2.21% 19,699 247 2.51%
Savings 29,753 476 3.20% 27,178 480 3.53%
Time deposits 68,283 1,813 5.31% 66,831 1,795 5.37%
Short-term debt 7,117 145 4.07% 4,296 109 5.07%
Long-term debt 20,846 567 5.48% 17,461 610 6.99%
------ ----- ----- ------ ----- ----
Total Interest Bearing
Liabilities 146,889 3,232 4.44% 135,465 3,241 4.78%
------- -------- ------ ---------- ----- -------
Net Interest Margin 1 $ 3,964 $3,787
======== =====
Net Yield on Interest
Earning Assets 1 4.42% 4.57%
===== ====
1 On a taxable equivalent basis assuming a 34% tax rate.
</TABLE>
<PAGE> 15
TABLE I (cONTINUED)
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
<S> <C> <C> <C> <C> <C> <C>
Rate Related Income
Loans 1 $132,636 $ 2,896 8.66% $ 127,155 $2,913 9.16%
Federal funds sold 3,524 40 4.50% 1,464 20 5.46%
Bank deposits 885 9 4.04% 1,224 16 5.23%
Investments
Taxable 33,064 498 6.02% 27,525 442 6.42%
Partially taxable 1 10,198 162 6.35% 9,336 144 6.17%
Tax exempt 1 377 6 6.37%
----- ----- - ----- ----- ----
Total Earning Assets 180,307 3,605 8.00% 167,081 3,541 8.48%
--------- ----- ---------- ---------- ----- -------
Interest Expense
Demand deposits 21,282 117 2.18% 19,865 124 2.50%
Savings 31,154 245 3.12% 26,835 239 3.56%
Time deposits 66,234 886 5.31% 67,451 913 5.41%
Short-term debt 7,576 76 3.98% 4,369 54 4.94%
Long-term debt 20,388 279 5.47% 17,472 271 6.20%
------ ----- ----- ------ ----- ----
Total Interest Bearing
Liabilities 146,634 1,603 4.40% 135,992 1,601 4.71%
------- ------- ------- ---------- ----- ------
Net Interest Margin 1 $ 2,002 $ 1,940
======== =====
Net Yield on Interest
Earning Assets 1 4.44% 4.64%
===== ====
1 On a taxable equivalent basis assuming a 34% tax rate.
</TABLE>
<PAGE> 16
TABLE II
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
JUNE 30, 1999
(In Thousands of Dollars)
0 - 3 4 - 12 1 - 5 Over 5 Not
Months Months Years Years Classified Total
Uses of Funds
Loans:
Commercial $25,291 $ 2,085 $ 8,481 $ 418 $ $36,275
Installment 108 817 14,428 661 16,014
Real estate 6,075 6,321 50,225 17,518 80,139
Credit cards 798 798
Interest bearing
bank deposits 1,342 1,342
Investment securities 1,475 2,915 23,145 5,248 15,169 47,952
Federal funds sold
------ ------ ------ ------ ----- ------
Total 35,089 12,138 96,279 23,845 15,169 182,520
Sources of Funds
Interest bearing deposits 20,368 20,368
Regular savings 30,085 30,085
Certificates of deposit
$100,000 and over 104 2,549 3,366 6,019
Other certificates of
deposit 8,541 24,825 29,013 62,379
Short-term borrowings 6,379 6,379
Long-term debt 4,179 15,950 20,129
------ ------ ------ ------ ----- ------
Total 65,477 27,374 36,558 15,950 145,359
Discrete Gap (30,388) (15,236) 59,721 7,895 15,169 37,161
Cumulative Gap (30,388) (45,624) 14,097 21,992 37,161
Ratio of Cumulative Gap (16.65)% (25.00)% 7.72% 12.05% 20.36%
to Total Earning Assets
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities at June 30, 1999. In preparing the above table no
assumptions are made with respect to loan prepayments or deposit runoffs. Loan
principal payments are included in the earliest period in which the loan matures
or can be repriced. Principal payments on installment loans scheduled prior to
maturity are included in the period of maturity or repricing. Proceeds from the
redemption of investments and deposits are included in the period of maturity.
<PAGE> 17
Part II Other Information
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - On April 10, 1999, the
stockholders held their annual meeting. The
following item was approved by the
shareholders by the required majority:
1) Election of the Board of Directors as
proposed in the proxy material without
any additions or exceptions.
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K
(a)Exhibits
3i Articles of Incorporation of F & M Bank Corp. are
incorporated by reference to Exhibits to F & M Bank Corp.'s
Form S14 filed February 17, 1984.
3ii Bylaws of F & M Bank Corp. are incorporated by reference
to Exhibits to F & M Bank Corp.'s Form S14 filed February
17, 1984.
21 Subsidiaries of the small business issuers are incorporated
by reference to Exhibits to F & M Bank Corp.'s 1995 Form
10-KSB filed March 26, 1996.
27 Financial Data Schedule attached.
(b)Reports on Form 8-K
The Company did not file any reports on form 8-K for the quarter
ended June 30, 1999.
<PAGE> 18
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter ending
June 30, 1999 20
<PAGE> 19
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.
JULIAN D. FISHER
Julian D. Fisher
President and Chief Executive Officer
NEIL W. HAYSLETT
Neil W. Hayslett
Vice President and Chief Financial Officer
Date August 12,1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from F & M
Bank Corp, Form 10QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 3,673
<INT-BEARING-DEPOSITS> 1,342
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,200
<INVESTMENTS-CARRYING> 6,688
<INVESTMENTS-MARKET> 6,669
<LOANS> 133,226
<ALLOWANCE> (1,080)
<TOTAL-ASSETS> 191,004
<DEPOSITS> 134,906
<SHORT-TERM> 6,379
<LIABILITIES-OTHER> 4,851
<LONG-TERM> 20,129
0
0
<COMMON> 12,280
<OTHER-SE> 12,459
<TOTAL-LIABILITIES-AND-EQUITY> 191,004
<INTEREST-LOAN> 5,784
<INTEREST-INVEST> 1,212
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 7,093
<INTEREST-DEPOSIT> 2,520
<INTEREST-EXPENSE> 3,232
<INTEREST-INCOME-NET> 3,861
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 845
<EXPENSE-OTHER> 2,039
<INCOME-PRETAX> 3,005
<INCOME-PRE-EXTRAORDINARY> 955
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,050
<EPS-BASIC> .83
<EPS-DILUTED> .83
<YIELD-ACTUAL> 4.42
<LOANS-NON> 0
<LOANS-PAST> 742
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,162
<CHARGE-OFFS> 133
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 1,080
<ALLOWANCE-DOMESTIC> 1,080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
