UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File Number 0-13273
September 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 September 30, 1999
Common Stock, par value - $5 2,454,143 shares
<PAGE> 1
F & M BANK CORP.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Income - Nine Months
Ended September 30, 1999 and 1998 2
Consolidated Statements of Income - Three Months
Ended September 30, 1999 and 1998 3
Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 1998 5
Consolidated Statements of Changes in Stockholders'
Equity - Nine Months Ended September 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 8-K 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 Except per Share Amounts)
Nine Months Ended
September 30,
1999 1998
Interest Income
Interest and fees on loans $ 8,725 $ 8,734
Interest on federal funds sold 92 128
Interest on interest bearing deposits 28 43
Interest and dividends on investment securities
Taxable 1,822 1,574
Nontaxable 11
------ ------
Total Interest Income 10,667 10,490
------ ------
Interest Expense
Interest on demand deposits 349 367
Interest on savings accounts 726 722
Interest on time deposits 2,717 2,742
------ ------
Total interest on deposits 3,792 3,831
Interest on short-term debt 221 169
Interest on long-term debt 837 1,072
------ ------
Total Interest Expense 4,850 5,072
------ ------
Net Interest Income 5,817 5,418
Provision for Loan Losses 40 95
------ ------
Net Interest Income after Provision for Loan Losses 5,777 5,323
------ ------
Noninterest Income
Service charges 349 309
Other 201 90
Security gains 1,109 1,572
------ ------
Total Noninterest Income 1,659 1,971
------ ------
Noninterest Expense
Salaries 1,456 1,267
Employee benefits 473 325
Occupancy expense 144 139
Equipment expense 184 181
Other 877 905
------ ------
Total Noninterest Expense 3,134 2,817
------ ------
Income before Income Taxes 4,302 4,477
Provision for Income Tax 1,347 1,437
------ ------
Net Income $ 2,955 $ 3,040
====== ======
Per Share Data
Net Income $ 1.20 $ 1.24
======= -------
Cash Dividends $ .38 $ .61
======= -------
Equivalent Shares Outstanding 2,454,373 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
September 30,
1999 1998
Interest Income
Interest and fees on loans $ 2,941 $ 2,990
Interest on federal funds sold 14 51
Interest on interest bearing deposits 9 8
Interest and dividends on investment securities
Taxable 610 511
Nontaxable 3
------ ------
Total Interest Income 3,574 3,563
------ ------
Interest Expense
Interest on demand deposits 118 120
Interest on savings accounts 250 242
Interest on time deposits 904 947
------ ------
Total interest on deposits 1,272 1,309
Interest on short-term debt 76 60
Interest on long-term debt 270 462
------ ------
Total Interest Expense 1,618 1,831
------ ------
Net Interest Income 1,956 1,732
Provision for Loan Losses 15 15
------ ------
Net Interest Income after Provision for Loan Losses 1,941 1,717
------ ------
Noninterest Income
Service charges 129 106
Other 58 23
Security gains 264 2
------ ------
Total Noninterest Income 451 131
------ ------
Noninterest Expense
Salaries 505 436
Employee benefits 156 107
Occupancy expense 60 52
Equipment expense 63 58
Other 311 310
------ ------
Total Noninterest Expense 1,095 963
------ ------
Income before Income Taxes 1,297 885
Provision for Income Tax 392 251
------ ------
Net Income $ 905 $ 634
====== ======
Per Share Data
Net Income $ .37 $ .26
======= =======
Cash Dividends $ .13 $ .11
======= =======
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)
September 30,December 31,
ASSETS 1999 1998
------------------------
Cash and due from banks $ 4,598 $ 4,198
Federal funds sold 2,436
Interest bearing deposits in banks 738 2,145
Securities held to maturity (note 2) 4,603 9,715
Securities available for sale (note 2) 36,917 33,941
Other investments 4,057 2,701
Loans, net of unearned discount (note 3) 136,629 132,301
Less allowance for loan losses (note 4) (1,085) (1,162)
------- -------
Net Loans 135,544 131,139
Bank premises and equipment 3,067 2,080
Interest receivable 1,420 1,352
Other real estate 426 472
Other assets 1,121 1,316
------ ------
Total Assets $192,491 $191,495
======= =======
LIABILITIES
Deposits
Noninterest bearing demand $ 16,289 $ 16,232
Interest bearing
Demand 20,428 20,213
Savings deposits 29,532 27,443
Time deposits 70,907 71,251
------ ------
Total Deposits 137,156 135,139
Short-term debt 6,927 7,155
Long-term debt 19,296 21,854
Accrued expenses 4,453 3,269
------ ------
Total Liabilities 167,832 167,417
------- -------
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 2,454,143 and
2,455,962 issued and oustanding, in 1999
and 1998, respectively 12,280 12,280
Surplus 867 867
Retained earnings 11,080 9,057
Treasury stock (40)
Unrealized gain on securities available for sale 472 1,874
------ ------
Total Stockholders' Equity 24,659 24,078
------ ------
Total Liabilities and Stockholders' Equity $192,491 $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)
Nine Months Ended
September 30,
1999 1998
Cash Flows from Operating Activities:
Net income $ 2,955 $ 3,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 150 153
Amortization of security premiums 167 90
Gain on security transactions (1,109) (1,572)
Provision for loan losses 40 95
Increase in interest receivable (68) (40)
Decrease in other assets 195 195
Increase in accrued expenses 2,007 411
Gain on sale of land (1) (10)
Losses on limited partnership investments 91 94
------ ------
Total Adjustments 1,472 (584)
------ ------
Net Cash Provided by Operating Activities 4,427 2,456
------ ------
Cash Flows from Investing Activities:
Proceeds from sales of investments available
for sale 3,557 4,523
Proceeds from maturity of investments available for
sale 10,374 5,639
Proceeds from maturity of investments held to
maturity 4,065 10,551
Purchase of investments available for sale (17,837) (19,575)
Purchase of investments held to maturity (773) (2,426)
Net (increase) decrease in interest bearing bank
deposits 1,407 (373)
Net change in federal funds sold 2,436 890
Net increase in loans (4,445) (8,326)
Sale of other real estate 11
Purchase of property and equipment (1,134) (191)
------- ------
Net Cash Used in Investing Activities (2,350) (9,277)
------- ------
Cash Flows from Financing Activities:
Net increase in deposits 2,017 4,353
Net increase in short-term borrowings (228) 1,329
Additions to long-term borrowings 14,953
Repayment of long-term borrowings (2,558) (12,473)
Payment of dividends (908) (1,465)
------- ------
Net Cash Provided by (Used in) Financing Activities (1,677) 6,697
------- ------
Net Increase (Decrease) in Cash and Cash Equivalents 400 (124)
Cash and Cash Equivalents at Beginning of Period 4,198 3,574
------ ------
Cash and Cash Equivalents at End of Period $ 4,598 $ 3,450
====== ======
Supplemental Disclosure
Cash paid for:
Interest expense $ 4,856 $ 5,028
Income taxes 1,080 1,225
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)
Nine Months Ended
September 30,
1999 1998
Balance, beginning of period $24,078 $22,902
Net income for period 2,955 3,040
Change unrealized appreciation on securities
available for sale, net of taxes (1,401) (1,161)
------- ------
Total comprehensive income 1,554 1,879
Purchase of treasury stock (40)
Dividends declared (933) (1,498)
------- ------
Balance, end of period $24,659 $23,283
====== ======
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 September 30, 1999, and the results of operations for
the three and nine month periods ended September 30, 1999 and 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.
NOTE 2 INVESTMENT SECURITIES:
The amounts at which investment securities are carried in the
consolidated balance sheets and their approximate market values at
September 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 $ 2,473 $ 2,468 $ 4,986 $ 5,030
State and municipal 250 250
Other debt securities 1,783 1,739 3,259 3,311
Mortgage-backed securities 347 346 1,220 1,230
Total $ 4,603 $ 4,553 $ 9,715 $ 9,821
====== ======= ======= ======
1999 1998
------------------------------------------------
Market Market
Value Cost Value Cost
Securities Available for Sale
U. S. Treasury and
Agency obligations $15,879 $ 16,052 $ 13,886 $13,849
Equity securities 10,801 9,707 10,490 7,605
Mortgage-backed securities 2,784 2,797 3,883 3,870
Other debt securities 7,453 7,589 5,682 5,602
------ ------- ------- ------
Total $36,917 $ 36,145 $ 33,941 $30,926
====== ======= ======= ======
<PAGE> 8
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
September 30, December 31,
1999 1998
Real Estate
Construction $ 4,578 $ 4,376
Mortgage 82,860 78,349
Commercial and agricultural 30,356 31,567
Installment 17,437 17,125
Credit cards 885 832
Other 513 52
------ -------
Total $136,629 $132,301
======= =======
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the
periods ended September 30, 1999 and 1998 follows:
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
Balance, beginning of period $1,162 $1,121 $1,080 $1,184
Provisions charged to
operating expenses 40 95 15 15
Net (charge offs) recoveries
Loan recoveries 43 90 17 60
Loan charge-offs (160) (103) (27) (56)
------ ----- ------ -----
Total Net Charge-Offs * (117) (13) (10) 4
------ ----- ------ -----
Balance, End of Period $1,085 $1,203 $1,085 $1,203
===== ===== ===== =====
Components of Net Charge-Offs
Real Estate 2
Commercial (50) 3 (1) (1)
Installment (67) (16) (11) 5
------ ----- ------ -----
Total $ (117) $ (13) $ (10) $ 4
====== ===== ====== =====
NOTE 5 STOCK SPLIT EFFECTED IN THE FORM OF A DIVIDEND
In September 1998, the Company declared a three for one stock
split to be distributed in the form of a dividend. Two additional
shares were distributed for each share outstanding as of September
28, 1998, with no change in the par value of the stock. All per
share computations have been restated to reflect the stock split.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
F & M Bank Corp. continued to experience strong earnings, strong loan demand
and modest deposit growth in the first nine months of 1999. Annualized growth in
total assets was .69% and annualized growth in deposits was 1.99%. Net income
for the first nine months of 1999 decreased $85,000 or 2.80% compared to 1998.
The increase in stockholders' equity of 2.41% is attributed to the retention of
earnings, net of regular dividends of $933,000 and a $1,401,000 decrease in
unrealized gains on securities available for sale.
Results of Operations
Year to Date
The dollar amount of the tax equivalent, net interest margin increased 7.20%
($401,000) in the first nine months of 1999 compared to the first nine months of
1998. A decrease in the return on earning assets of .44%, combined with a
decrease in the cost of funds of .54% (equivalent to a $6,000 increase in the
net interest margin), combined with a $395,000 increase in the net interest
margin due to volume increases. Decreases in the return on earning assets and
cost of funds were spread across all asset and liability types. Prepayment
interest penalties incurred in 1998 to refinance long-term debt of the
subsidiary bank accounted for $340,000 of the $395,000 increase in the net
interest margin. A schedule of the net interest margin for 1999 and 1998 is
shown on page 15 as Table I.
Noninterest income decreased $312,000 in the first nine months of 1999.
Exclusive of securities gains, noninterest income increased $151,000. This
increase resulted primarily from additional fees generated from the sale of
investment products, credit life, accident & health, and title insurance.
Overall, noninterest expenses increased 11.25% in 1999 compared to 1998.
Salaries and employee benefits increased 21.17%. These increases can be
attributed to an increase of six full-time equivalent positions in various areas
of the bank; normal salary adjustments, and increases in employee benefits
related to higher health insurance premiums and costs of retirement plans. Other
noninterest expense decreased 1.63%. Factors contributing to this decrease
include: a reduction in fees associated with year 2000 testing and remediation,
reductions in advertising expense, legal & professional fees and training costs.
Quarter Ending September 30, 1999
Third quarter net income increased 42.74% compared to the same quarter of
1998. Prepayment penalties incurred in 1998 by the subsidiary bank to refinance
long-term debt totaled $167,000, while securities gains increased $262,000 in
1999. Exclusive of these non-recurring items, earnings from operations, net of
income tax expense, was virtually unchanged from 1998 to 1999.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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, 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 component of shareholders' equity.
As of September 30, 1999, the market value of all securities available for sale
exceeded their amortized cost by $762,000 ($472,000 after the consideration of
income taxes). This excess is the result of unrecognized gains in the value of
equity securities 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 securities to have a direct
impact on earnings.
The carrying value of securities available for sale and held to maturity
decreased $2,136,000 during the first nine months of 1999. Of the investments in
securities available for sale, 29.26% are invested in equities, which are
dividend producing and most are 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.
Loan Portfolio
The Company operates in an agriculturally dominated area, which includes the
counties of Rockingham, Page, Shenandoah and Augusta 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 small and medium
sized businesses 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 that can be traced to these
economic factors.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Loan Portfolio (Continued)
The first nine months of 1999 resulted in a slower increase in loan
portfolio, as loans grew at an annualized rate of 4.36%. 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 has not aggressively priced new loans
in order to achieve short-term loan growth, at the expense of the net interest
margin. In the most recent quarter, loan growth has picked back up, as loans
grew at an annualized rate of 10.22%. This growth appears to be a result of an
increase in overall market rates of interest, which has made the Bank's rates
relatively more attractive than in recent quarters.
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 had the original interest rate or repayment terms changed due to
financial hardship. Loans 90 days or more past due totaled $1,744,000 at
September 30, 1999 compared to $2,059,000 at December 31, 1998. Approximately
77% 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 its customers to effect payment. The
Company had no nonaccrual or restructured loans at September 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 or 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 loan losses of $1,085,000 at September 30, 1999 was down
$77,000 from its level at December 31, 1998. The allowance was equal to .79% of
total loans at September 30, 1999 and .88% at December 31, 1998. 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 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 annualized growth of deposits in the first nine
months of 1999 totaled 1.99%. Most of this growth was in savings deposits and
may be attributed to customers wanting greater liquidity due to uncertainties
regarding the direction of interest rates and year 2000 concerns. Deposit growth
has accelerated in the most recent quarter to an annualized rate of 6.67%. This
growth is primarily in the area of time deposits and appears to be related to
the offering of promotional products.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Deposits and Long-Term Debt (Continued)
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. As of September 30, 1999
balances in repo accounts total $6,746,000 and are included with short-term debt
on the balance sheet.
Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be
an important mechanism in funding real estate loan growth. 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 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 and unattractive rates of interest offered by the FHLB, no additional
funds have been borrowed in 1999. Normal repayments have totaled $2,558,000 this
year.
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 September 30, 1999, the Company's total risk based capital and
total capital to total assets ratios were 18.92% and 12.63%, respectively. Both
ratios are in excess of regulatory minimums and exceed the ratios of the
Company's peers. Earnings have been satisfactory to allow an increase in regular
dividends in 1999 over those levels experienced 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 has 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 interest
sensitive assets relative to interest sensitive liabilities over specific time
intervals.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Interest Rate Sensitivity (Continued)
At September 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 the 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.
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, validation and redeployment
phases of the project.
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 has developed contingency plans for implementation in the event
of failure of 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.
<PAGE> 14
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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.
Existence of 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)
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $132,773 $ 8,747 8.78% $127,378 $ 8,751 9.16%
Federal funds sold 2,526 92 4.86% 3,104 128 5.50%
Bank deposits 913 28 4.09% 1,127 43 5.13%
Investments
Taxable 33,787 1,516 5.98% 26,856 1,261 6.26%
Partially
taxable 1 9,396 435 6.17% 8,476 440 6.92%
Tax exempt 1 344 16 6.20%
----- ---- -- ----- --- -----
Total Earning
Assets 179,395 10,818 8.04% 167,285 10,639 8.48%
--------- ------ ------- --------- ------ ------
Interest Expense
Demand deposits 20,833 349 2.23% 19,609 367 2.50%
Savings 29,411 726 3.29% 27,148 722 3.55%
Time deposits 69,517 2,717 5.21% 67,574 2,742 5.41%
Other short-term
debt 6,762 221 4.36% 4,621 169 4.88%
Long-term debt 20,420 837 5.47% 17,848 1,072 8.01%
------ ---- ------ ------ ----- ------
Total Interest
Bearing
Liabilities 146,943 4,850 4.40% 136,800 5,072 4.94%
------- ------- ------ ---------- ----- ------
Net Interest Margin 1 $ 5,968 $ 5,567
======== =====
Net Yield on Interest
Earning Assets 1 4.44% 4.44%
======== =======
1 On a taxable equivalent basis assuming a 34% tax rate.
<PAGE> 15
Table I (Contineud)
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $133,782 $ 2,948 8.81% $130,550 $ 2,994 9.17%
Federal funds sold 968 14 5.78% 3,675 51 5.55%
Bank deposits 902 9 3.99% 582 8 5.50%
Investments
Taxable 34,249 514 6.00% 26,717 406 6.08%
Partially
taxable 1 9,506 137 5.76% 8,853 148 6.69%
Tax exempt 1 250 4 6.40%
----- ---- -- ----- --- ------
Total Earning
Assets 179,407 3,622 8.08% 170,627 3,611 8.46%
--------- ----- ------ ---------- ----- ------
Interest Expense
Demand deposits 20,719 118 2.28% 19,431 120 2.47%
Savings 30,107 250 3.32% 27,087 242 3.57%
Time deposits 69,938 904 5.17% 69,060 947 5.49%
Other short-term
debt 6,493 76 4.68% 5,272 60 4.55%
Long-term debt 19,585 270 5.51% 18,621 462 9.92%
------ ---- ------ ------ --- ------
Total Interest
Bearing
Liabilities 146,842 1,618 4.41% 139,471 1,831 5.25%
------- ------ ------ -------- ----- -----
Net Interest Margin 1 $ 2,004 $ 1,780
======== =====
Net Yield on Interest
Earning Assets 1 4.47% 4.17%
======= =====
1 On a taxable equivalent basis assuming a 34% tax rate.
<PAGE> 16
TABLE II
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
September 30, 1999
(In Thousands of Dollars)
The following table presents the Company's interest sensitivity.
0 - 3 4 - 12 1 - 5 Over 5 Not
Months Months Years Years Classified Total
Uses of Funds
Loans
Commercial $23,565 $1,799 $9,682 $ 401 $ $35,447
Installment 41 971 15,604 821 17,437
Real estate 2,404 11,413 51,494 17,549 82,860
Credit cards 885 885
Interest bearing
bank deposits 738 738
Investment securities 197 2,541 26,049 1,930 14,860 45,577
Total 27,830 16,724 102,829 20,701 14,860 182,944
------ ------ ------- ------ ------ -------
Sources of Funds
Interest bearing
demand deposits 20,428 20,428
Regular savings 29,532 29,532
Certificates of
deposit $100,000
and over 824 4,018 1,674 6,516
Other certificates
of deposit 7,740 41,426 15,225 64,391
Short-term borrowings 6,927 6,927
Long-term borrowings 2,845 16,451 19,296
Total 65,451 45,444 19,744 16,451 147,090
------ ------ ------- ------ ----- -------
Discrete Gap (37,621) (28,720) 83,085 4,250 14,860 35,854
Cumulative Gap (37,621) (66,341) 16,744 20,994 35,854
Ratio of Cumulative
Gap to Total
Earning Assets (20.56)% (36.26)% 9.15% 11.48% 19.60%
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities as of September 30, 1999. In preparing the above table,
no assumptions are made with respect to loan prepayments or deposit runoff. Loan
principal repayments are included in the earliest period in which the loan
matures or can reprice. 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 - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K
(a)Exhibits
3 i 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.
3 ii 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 1997 Form
10-KSB filed March 27, 1998.
27 Financial Data Schedule attached.
(b)Reports on Form 8-K
The Corporation did not file any reports on Form 8-K for the quarter
ending September 30, 1999.
<PAGE> 18
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter
ending September 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 November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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<INT-BEARING-DEPOSITS> 738
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,917
<INVESTMENTS-CARRYING> 4,603
<INVESTMENTS-MARKET> 4,553
<LOANS> 136,629
<ALLOWANCE> (1,085)
<TOTAL-ASSETS> 192,491
<DEPOSITS> 137,156
<SHORT-TERM> 6,927
<LIABILITIES-OTHER> 4,453
<LONG-TERM> 19,296
0
0
<COMMON> 12,280
<OTHER-SE> 12,379
<TOTAL-LIABILITIES-AND-EQUITY> 192,491
<INTEREST-LOAN> 8,725
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<INTEREST-DEPOSIT> 3,792
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<LOAN-LOSSES> 40
<SECURITIES-GAINS> 1,109
<EXPENSE-OTHER> 3,134
<INCOME-PRETAX> 4,302
<INCOME-PRE-EXTRAORDINARY> 1,347
<EXTRAORDINARY> 0
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<NET-INCOME> 2,955
<EPS-BASIC> 1.20
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<LOANS-NON> 0
<LOANS-PAST> 1,744
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</TABLE>
