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
September 30, 2000
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, 2000
------------------------------ ---------------------------------
Common Stock, par value - $5 2,435,264 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, 2000 and 1999 2
Consolidated Statements of Income - Three Months
Ended September 30, 2000 and 1999 3
Consolidated Balance Sheets - September 30, 2000
and December 31, 1999 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 5
Consolidated Statements of Changes in Stockholders'
Equity - Nine Months Ended September 30, 2000 and 1999 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 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibit and Reports on Form 8-K 16
SIGNATURES 18
<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,
2000 1999
---------- -------
Interest Income
Interest and fees on loans $ 9,566 $ 8,725
Interest on federal funds sold 17 92
Interest on interest bearing deposits 33 28
Interest and dividends on investment
securities 1,886 1,822
------ ------
Total Interest Income 11,502 10,667
------ ------
Interest Expense
Interest on demand deposits 350 349
Interest on savings accounts 721 726
Interest on time deposits 3,259 2,717
------ ------
Total interest on deposits 4,330 3,792
Interest on short-term debt 360 221
Interest on long-term debt 706 837
------ ------
Total Interest Expense 5,396 4,850
------ ------
Net Interest Income 6,106 5,817
Provision for Loan Losses 89 40
------ ------
Net Interest Income after Provision for
Loan Losses 6,017 5,777
------ ------
Noninterest Income
Service charges 405 349
Other 401 201
Security gains 771 1,109
------ ------
Total Noninterest Income 1,577 1,659
------ ------
Noninterest Expense
Salaries 1,579 1,456
Employee benefits 496 473
Occupancy expense 163 144
Equipment expense 214 184
Other 1,044 877
------ ------
Total Noninterest Expense 3,496 3,134
------ ------
Income before Income Taxes 4,098 4,302
Provision for Income Tax 1,141 1,347
------ ------
Net Income $ 2,957 $ 2,955
====== ======
Per Share Data
Net Income $ 1.21 $ 1.20
======= =======
Cash Dividends $ .44 $ .38
======= =======
Equivalent Shares Outstanding 2,449,421 2,454,373
========== =========
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,
2000 1999
---------- ------
Interest Income
Interest and fees on loans $ 3,284 $ 2,941
Interest on federal funds sold 14
Interest on interest bearing deposits 5 9
Interest and dividends on investment securities 633 610
------ ------
Total Interest Income 3,922 3,574
------ ------
Interest Expense
Interest on demand deposits 112 118
Interest on savings accounts 236 250
Interest on time deposits 1,227 904
------ ------
Total interest on deposits 1,575 1,272
Interest on short-term debt 146 76
Interest on long-term debt 226 270
------ ------
Total Interest Expense 1,947 1,618
------ ------
Net Interest Income 1,975 1,956
Provision for Loan Losses 30 15
------ ------
Net Interest Income after Provision for Loan Losses 1,945 1,941
------ ------
Noninterest Income
Service charges 138 129
Other 115 58
Security gains 264
------ ------
Total Noninterest Income 253 451
------ ------
Noninterest Expense
Salaries 508 505
Employee benefits 159 156
Occupancy expense 63 60
Equipment expense 74 63
Other 392 311
------ ------
Total Noninterest Expense 1,196 1,095
------ ------
Income before Income Taxes 1,002 1,297
Provision for Income Tax 264 392
------ ------
Net Income $ 738 $ 905
====== ======
Per Share Data
Net Income $ .30 $ .37
======= ======
Cash Dividends $ .15 $ .13
======= =======
Equivalent Shares Outstanding 2,441,118 2,454,143
========== =========
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 2000 1999
------------ -------
Cash and due from banks $ 3,871 $ 4,799
Interest bearing deposits in banks 263 462
Securities held to maturity (note 2) 4,132 4,330
Securities available for sale (note 2) 39,431 36,169
Other investments 3,900 3,923
Loans, net of unearned discount (note 3) 149,817 140,318
Less allowance for loan losses (note 4) (1,148) (1,090)
------- -------
Net Loans 148,669 139,228
Bank premises and equipment 3,325 3,158
Interest receivable 1,532 1,373
Other real estate 426 426
Other assets 1,387 1,470
------ ------
Total Assets $206,936 $195,338
======= =======
LIABILITIES
Deposits
Noninterest bearing demand $18,205 $17,193
Interest bearing
Demand 19,283 21,149
Savings deposits 27,432 29,566
Time deposits 83,906 71,599
------ ------
Total Deposits 148,826 139,507
Short-term debt 11,217 7,720
Long-term debt 16,134 18,548
Accrued expenses 4,032 4,277
------ ------
Total Liabilities 180,209 170,052
------- -------
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 2,435,264 and
2,454,143 issued and outstanding, in 2000
and 1999, respectively 12,176 12,280
Surplus 511 868
Retained earnings 13,468 11,587
Unrealized gain on securities available for sale 572 551
------ ------
Total Stockholders' Equity 26,727 25,286
------ ------
Total Liabilities and Stockholders' Equity $206,936 $195,338
======= =======
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,
2000 1999
---------- ----
Cash Flows from Operating Activities:
Net income $ 2,957 $ 2,955
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 194 150
Amortization of security premiums 16 167
Gain on security transactions (771) (1,109)
Provision for loan losses 89 40
Increase in interest receivable (159) (68)
Decrease in other assets 83 195
Increase (decrease) in accrued expenses (235) 2,047
Gain on sale of land (1)
Losses on limited partnership investments 158 91
------ ------
Total Adjustments (625) 1,512
------- ------
Net Cash Provided by Operating Activities 2,332 4,467
------ ------
Cash Flows from Investing Activities:
Proceeds from sales of investments available
for sale 2,185 3,557
Proceeds from maturity of investments
available for sale 2,466 10,374
Proceeds from maturity of investments held
to maturity 4,065
Purchase of investments available for sale (7,098) (17,837)
Purchase of investments held to maturity (7) (773)
Net decrease in interest bearing bank deposits 199 1,407
Net change in federal funds sold 2,436
Net increase in loans (9,532) (4,445)
Sale of other real estate 79
Purchase of property and equipment (440) (1,134)
------- ------
Net Cash Used in Investing Activities (12,148) (2,350)
-------- ------
Cash Flows from Financing Activities:
Net increase in deposits 9,319 2,017
Net decrease (increase) in short-term
borrowings 3,497 (228)
Repurchase of common stock (461) (40)
Repayment of long-term borrowings (2,414) (2,558)
Payment of dividends (1,053) (908)
------- ------
Net Cash Provided by (Used in) Financing
Activities 8,888 (1,717)
------ ------
Net Increase (Decrease) in Cash and Cash
Equivalents (928) 400
Cash and Cash Equivalents at Beginning of Period 4,799 4,198
------ ------
Cash and Cash Equivalents at End of Period $ 3,871 $ 4,598
====== ======
Supplemental Disclosure
Cash paid for:
Interest expense $ 5,269 $ 4,856
Income taxes 1,052 1,080
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,
2000 1999
---------- -------
Balance, beginning of period $25,286 $24,078
Net income for period 2,957 2,955
Net change in unrealized appreciation on
securities available for sale, net of taxes 21 (1,401)
------ ------
Total comprehensive income 2,978 1,554
Repurchase of common stock (461) (40)
Dividends declared (1,076) (933)
------- ------
Balance, end of period $26,727 $24,659
====== ======
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, 2000, and the results of operations for
the three and nine month periods ended September 30, 2000 and 1999.
The notes included herein should be read in conjunction with the notes
to financial statements included in the 1999 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, 2000 and December 31, 1999 follows:
2000 1999
--------------------- --------------
Carrying Market Carrying Market
Value Value Value Value
Securities Held to Maturity
U. S. Treasury and
Agency obligations $ 2,354 $ 2,346 $ 2,469 $ 2,444
Other debt securities 1,778 1,722 1,781 1,717
Mortgage-backed
securities 80 79
------ ------- ------- ------
Total $ 4,132 $ 4,068 $ 4,330 $ 4,240
====== ======= ======= ======
2000 1999
------------- -------------
Market Market
Value Cost Value Cost
Securities Available for Sale
U. S. Treasury and
Agency obligations $16,062 $ 16,182 $ 13,914 $14,274
Equity securities 12,000 10,805 12,339 10,811
Mortgage-backed
securities 2,008 2,026 2,571 2,584
Other debt securities 9,361 9,506 7,345 7,580
------ ------- ------- ------
Total $39,431 $ 38,519 $ 36,169 $35,249
====== ======= ======= ======
<PAGE> 8
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
September 30, December 31,
2000 1999
-------------- -----
Real Estate
Construction $ 5,473 $ 5,481
Mortgage 90,585 84,019
Commercial and agricultural 31,805 31,686
Installment 20,849 18,082
Credit cards 1,053 1,016
Other 52 34
------ -------
Total $149,817 $140,318
======= =======
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the
periods ended September 30, 2000 and 1999 follows:
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Balance, beginning of period $1,090 $1,162 $1,136 $1,080
Provisions charged to
operating expenses 89 40 30 15
Net (charge offs) recoveries
Loan recoveries 31 43 10 17
Loan charge-offs (62) (160) (28) (27)
------ ----- ------ -----
Total Net Charge-Offs * (31) (117) (18) (10)
------ ----- ------ -----
Balance, End of Period $1,148 $1,085 $1,148 $1,085
===== ===== ===== =====
*Components of Net Charge-Offs
Real Estate (2) 2
Commercial (4) (50 (2) (1)
Installment (25) (67) (16) (11)
------ ----- ------ -----
Total $ (31) $ (117) $ (18) $ (10)
====== ===== ====== =====
<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 nine months of 2000. Annualized growth in loans was 9.03% and annualized
growth in deposits was 8.91%. Net income for the first nine months of 2000
increased $2,000 or .07% compared to 1999. The increase in stockholders' equity
of 5.70% is attributed to the retention of earnings net of regular dividends and
a $21,000 increase 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 5.09%
($304,000) in the first nine months of 2000 compared to the first nine months of
1999. An increase in the return on earning assets of .21%, was offset by an
increase in the cost of funds of .26%. All of the increase in the net interest
margin was a result of increases in net earning assets (i.e. volume increases)
as interest rate margins declined slightly. Increases in the return on earning
assets and cost of funds were spread across all asset and liability types. A
schedule of the net interest margin for 2000 and 1999 is shown on page 14 as
Table I.
Noninterest income decreased $82,000 in the first nine months of 2000.
Exclusive of securities gains, noninterest income increased $256,000 (46.54%).
Increases in service charges on deposit accounts totaled $56,000, and were a
result of growth in the deposit base and changes on the service charge schedule.
Other income increased $200,000 as the result of increases in returns on
investments in low income housing projects. The increase in other income was
attained in spite of an after tax adjustment to income from insurance operations
of $64,000. This adjustment was necessary as a result of the discovery of errors
in the processing of premiums on sales of credit life and accident & health
insurance. The third-party insurance company, which handles underwriting and
policy issuance, mistakenly over booked premium income and related policy
claims. Management discovered this error in the third quarter of 2000 when a
single large life insurance claim was reported twice.
Overall, noninterest expenses increased 11.55% in 2000 compared to 1999.
Salaries and employee benefits increased 7.57%. These increases can be
attributed to increases in base salaries, employee benefits and increased
accruals for bonuses attributable to a new incentive program beginning in 2000.
Other noninterest expense increased 17.93% or $216,000. Factors contributing to
this increase include increased depreciation expense, accruals for year-end
contributions and higher professional fees. Professional fees have increased
primarily due to an efficiency study which was commissioned by the Board of
Directors and management. Results of this study are yielding cost savings and
increases in fee income that are in the process of being phased in and will
continue to yield results in future periods.
Quarter Ending September 30, 2000
Third quarter net income decreased 18.45% compared to the same quarter of
1999. Securities gains decreased $264,000 in 2000. Exclusive of this item,
earnings from operations, net of income tax expense, was virtually unchanged
from 1999 levels. Although average earning assets increased $12,172,000 over the
same period in 1999, the tax-equivalent net interest margin increased only
$34,000. This was a result of the cost of funds on interest bearing liabilities
increasing more rapidly than the increase in rates on earning assets (increase
of .52% vs. increase of .22%). Rate increases by the Fed and strong competition
for deposits were the factors causing these increases.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Noninterest income, exclusive of securities gains, increased 35.29% or
$66,000. This was in spite of the $64,000 adjustment in insurance income, as
explained in the previous section. Noninterest expenses increased 9.22% for the
third quarter of 2000. However, increases in personnel related expenses were up
only .91%. Staff reductions (through attrition) were realized in the quarter and
were based upon recommendations made in the previously mentioned efficiency
study. Other noninterest expenses were up 26.05% in the quarter and reflect the
professional fees cited in the year to date discussion.
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, 2000, the market value of all securities available for sale
exceeded their amortized cost by $912,000 ($572,000 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.
Although securities markets have been volatile throughout 2000, unrealized
holding losses on the bond portfolio have decreased as long-term interest rates
moderated during the third quarter. Overall, unrealized gains on equity
securities have decreased only $333,000 in spite of gains of $771,000 having
been realized within the year. The Company continues to hold equity investments
in a number of large, regional financial institutions and a variety of other
predominantly blue-chip securities. The Company continues to believe that these
investments offer adequate current returns (dividends) and have the potential
for future increases in value.
Loan Portfolio
The Company operates in an agriculturally dominated area in the western
portion of Virginia which includes the counties of Rockingham, Page, Shenandoah
and Augusta. 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.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Loan Portfolio (Continued)
While lending is geographically diversified within the service area, the
Company does have some concentration in agricultural loans (primarily poultry
farming). 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
monitors its past due loans closely and has not experienced higher loan
delinquencies in this sector compared to the overall loan portfolio.
The first nine months of 2000 resulted in a $9,499,000 increase in the loan
portfolio, as loans grew at an annualized rate of 9.03%. This increase is
indicative of the strength of the local economy. Approximately 70% of the
increase is in real estate loans. Although competition from other local banks
remains a concern, a general increase in secondary market interest rates has
resulted in the Bank funding more three and five year adjustable real estate
loans for its own portfolio.
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. Nonperforming loans totaled $1,346,000 at September 30, 2000
compared to $1,917,000 at December 31, 1999. Approximately 93% 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. As of September 30, 2000,
the Company did not hold any real estate that was acquired through foreclosure.
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 $1,148,000 at September 30, 2000 was up
$58,000 from its level at December 31, 1999. The allowance was equal to .77% of
total loans at September 30, 2000 and .78% at December 31, 1999. Loan losses,
net of recoveries total $31,000 through three quarters of 2000. This is
equivalent to an annualized loss rate of .03%. In recent years the Company has
had an average annual loss rate of approximately .06%, which is roughly
one-fourth the rate of similar-sized financial institutions. 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.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 2000 totaled 8.91%. This growth was concentrated in certificates of
deposit, and resulted primarily from promotional rate specials used to gather
deposits to support loan portfolio growth.
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,
2000, balances in repo accounts totaled $5,988,000 and are included with
short-term debt on the balance sheet.
The Company purchases federal funds from other financial institutions based
on liquidity needs. Total fed funds purchased as of September 30, 2000 totaled
$5,229,000. The Company expects to continue to purchase funds in the near
future.
Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be
an important mechanism in funding real estate loans. 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 reduce
its exposure to interest rate changes. Due to unattractive rates of interest
offered by the FHLB and funds generated from deposit growth, no additional funds
have been borrowed in 2000. Normal repayments have totaled $2,414,000 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, 2000, the Company's total risk based capital and
total capital to total assets ratios were 18.71% and 12.92%, 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 2000 of 15.79%.
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.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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. The Company monitors its interest rate sensitivity periodically and
makes adjustments as needed. There are no off balance sheet items that will
impair future liquidity.
A summary of asset and liability repricing opportunities is shown on page 15
as Table II.
Branch Acquisition
On September 14, 2000, the Company's subsidiary Bank signed an agreement with
First Union Bank to acquire two First Union Bank branch offices. These offices
are located in the towns of Edinburg and Woodstock, Shenandoah County, Virginia.
The Bank will be acquiring the installment loan portfolios of each office as
well as demand deposit, savings accounts, certificates of deposits and
individual retirement accounts. The Edinburg facility is a leased facility. All
other fixed assets along with the Woodstock facility will be purchased by the
Bank.
As of November 3, 2000, the obligations under this agreement are as
follows:
Deposits to be assumed $ 49,900,000
Premiums paid First Union on
deposits assumed $ 6,700,000
Installment loans to be assumed $ 12,000,000
On October 27, 2000 the Bank received Federal Reserve Bank approval of the
purchases and is awaiting approval by the State Corporation Commission's Bureau
of Financial Institutions. The closing date for the transfer of the two offices
is scheduled for February 23, 2001.
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> 14
Table I
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $144,659 $ 9,596 8.84% $ 132,773 $8,747 8.78%
Federal funds
sold 387 17 5.86% 2,526 92 4.86%
Bank deposits 862 33 5.10% 913 28 4.09%
Investments
Taxable 3 31,700 1,545 6.50% 33,787 1,516 5.98%
Partially
taxable 2,3 10,736 467 5.80% 9,396 435 6.17%
------ ---- ----- ----- --- -----
Total Earning
Assets 188,344 11,658 8.25% 179,395 10,818 8.04%
------- ------- ------ -------- ------ --------
Interest Expense
Demand deposits 20,626 350 2.26% 20,833 349 2.23%
Savings 28,908 721 3.33% 29,411 726 3.29%
Time deposits 79,093 3,259 5.49% 69,517 2,717 5.21%
Other short-
term debt 8,147 350 5.73% 6,762 221 4.36%
Long-term debt 17,218 706 5.47% 20,420 837 5.47%
------ ---- ------ ------ --- ------
Total Interest
Bearing
Liabilities 153,992 5,386 4.66% 146,943 4,850 4.40%
------- ------ ----- ------- ----- ------
Net Interest
Margin 1 $6,272 $5,968
===== =====
Net Yield on
Interest
Earning
Assets 1 4.44% 4.44%
====== ======
1 Interest income on loans includes loan fees.
2 An incremental tax rate of 34% was used to calculate the tax equivalent
income on nontaxable and partially taxable investments.
3 Average balance information is reflective of historical cost and has not
been adjusted for changes in market value.
<PAGE> 14
Table I (Continued)
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $148,311 $ 3,295 8.89% $ 133,782 $ 2,948 8.81%
Federal funds
sold 968 14 5.78%
Bank deposits 322 5 6.21% 902 9 3.99%
Investments
Taxable 3 31,851 534 6.71% 34,249 514 6.00%
Partially
taxable 2,3 11,095 141 5.08% 9,506 137 5.76%
------ ---- ----- ----- --- -----
Total Earning
Assets 191,579 3,975 8.30% 179,407 3,622 8.08%
------- ------ ------ ------- ----- --------
Interest Expense
Demand deposits 20,022 112 2.24% 20,719 118 2.28%
Savings 27,672 236 3.41% 30,107 250 3.32%
Time deposits 83,764 1,227 5.86% 69,938 904 5.17%
Other short-
term debt 9,181 136 5.93% 6,493 76 4.68%
Long-term debt 16,427 226 5.50% 19,585 270 5.51%
------ ----- ------ ------ --- ------
Total Interest
Bearing
Liabilities 157,066 1,937 4.93% 146,842 1,618 4.41%
------- ------ ----- ------- ----- ------
Net Interest
Margin 1 $2,038 $2,004
===== =====
Net Yield on
Interest
Earning Assets 1 4.26% 4.47%
====== ======
1 Interest income on loans includes loan fees.
2 An incremental tax rate of 34% was used to calculate the tax equivalent
income on nontaxable and partially taxable investments.
3 Average balance information is reflective of historical cost and has not
been adjusted for changes in market value.
<PAGE> 15
Table II
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
September 30, 2000
(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 $17,648 $2,621 $11,237 $ 299 $ $ 31,805
Installment 152 1,021 17,970 1,758 20,901
Real estate 13,369 11,720 54,666 16,303 96,058
Credit cards 1,053 1,053
Interest bearing
bank deposits 263 263
Investment
securities 111 2,761 28,585 106 15,900 47,463
----- ----- ------ ----- ------ ------
Total 32,596 18,123 112,458 18,466 15,900 197,543
------ ------ ------- ------ ------ -------
Sources of Funds
Interest bearing
demand deposits 5,522 8,269 5,492 19,283
Regular savings 5,486 10,973 10,973 27,432
Certificates of
deposit
$100,000 and
over 1,037 3,751 7,221 12,009
Other certificates
of deposit 9,555 27,792 34,550 71,897
Short-term
borrowings 11,217 11,217
Long-term
borrowings 160 1,749 14,225 16,134
----- ----- ----- ------ ----- ------
Total 21,809 42,711 62,762 30,690 157,972
------ ------ ------- ------ ----- -------
Discrete Gap 10,787 (24,588) 49,696 (12,224) 15,900 39,571
Cumulative Gap 10,787 (13,801) 35,895 23,671 39,571
Ratio of Cumulative
Gap to Total 5.46% (6.99)% 18.17% 11.98% 20.03%
Earning Assets
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities as of September 30, 2000. In preparing the above table,
no assumptions were made with respect to loan prepayments. Loan principal
payments are included in the earliest period in which the loan matures or can
reprice. 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. Estimated
maturities of deposits, which have no stated maturity dates, were derived from
guidance contained in FDICIA 305.
<PAGE> 16
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, 2000.
<PAGE> 17
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter ending
September 30, 2000 19
<PAGE> 18
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
November 13, 2000
