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 March 31, 2000 Commission File No. 0-5929
F & M NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Commonwealth of Virginia 54-0857462
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9 Court Square, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 540-665-4200
NO CHANGES
(Former name, former address and former fiscal year, if
changes since last report)
Indicate by check mark whether the registrant (l) has filed all
reports to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of May 5, 2000, there were 24,860,526 shares of the
Registrant's common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
March 31, December 31,
2000 1999
Assets:
Cash and due from banks 120,275 127,633
Interest-bearing deposits in other banks 341 225
Securities-held to maturity(market value
March 31, 2000-$439,032;
December 31, 1999-$437,538) 452,566 449,854
Securities-available for sale
(market value) 449,272 433,947
Federal funds sold and securities
purchased under agreements to resell 107,310 68,712
Loans held for sale 18,474 22,217
Loans 1,913,923 1,868,713
Unearned income (3,396) (3,615)
Loans (net of unearned income) 1,929,001 1,887,315
Allowance for loan losses (24,520) (24,050)
Net loans 1,904,481 1,863,265
Bank premises and equipment, net 74,925 74,501
Other assets 82,847 80,030
Total assets 3,192,017 3,098,167
Liabilities and Shareholders' Equity:
Liabilities:
Deposits
Non-interest bearing 558,876 541,417
Interest bearing 2,147,183 2,076,438
Total deposits 2,706,059 2,617,855
Federal funds purchased and securities
sold under agreements to repurchase 95,826 95,008
Other short-term borrowings 20,221 24,120
Long-term debt 24,642 25,443
Other liabilities 31,251 28,059
Total liabilities 2,877,999 2,790,485
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
March 31, December 31,
2000 1999
Shareholders' Equity
Preferred stock, no par value:
(Authorized 5,000,000 shares,
no shares outstanding) 0 0
Common stock par value $2.00 per
share, authorized 30,900,000 shares:
issued March 31, 2000-24,899,382
shares; issued December 31,
1999-25,169,480 shares 49,799 49,793
Capital surplus 94,357 93,679
Retained earnings 180,784 175,588
Accumulated other
comprehensive income (loss) (10,922) (11,378)
Total shareholders' equity 314,018 307,682
Total liabilities and
shareholders' equity 3,192,017 3,098,167
See Accompanying Notes to Consolidated Financial Statements
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2000 1999
Interest Income:
Interest and fees on loans 40,123 39,211
Securities held to maturity:
Taxable interest income 6,684 5,655
Interest income exempt from
Federal income taxes 372 376
Securities available for sale:
Taxable interest income 6,713 5,806
Interest income exempt from
Federal income taxes 13 58
Dividend income 266 231
Total security interest income 14,048 12,126
Interest on federal funds sold
and securities purchased
under agreements to resell 1,625 1,162
Interest on deposits in banks 2 281
Total interest income 55,798 52,780
Interest Expense:
Interest on deposits 20,651 19,678
Interest on short-term borrowings 1,199 845
Interest on long-term debt 394 346
Total interest expense 22,244 20,869
Net interest income 33,554 31,911
Provision for loan losses 763 920
Net interest income after
provision for loan losses 32,791 30,991
Other Income:
Commissions and fees from
fiduciary activities 786 730
Service charges on deposit accounts 3,883 3,620
Credit card fees 1,165 1,043
Fees for other customer services 2,656 1,605
Insurance commissions 2,339 2,311
Other operating income 710 406
Profits on securities available for sale -- 3,105
Total other income 11,539 12,820
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2000 1999
Other Expenses:
Salaries and employees' benefits 15,715 14,413
Net occupancy expense of premises 2,543 2,251
Furniture and equipment expense 2,033 1,913
Credit card expense 851 767
Other operating expense 6,311 6,462
Total other expense 27,453 25,806
Income before income taxes 16,877 18,005
Income tax expense 5,827 6,344
Net income 11,050 11,661
Average shares:
Basic 24,922 25,056
Assuming dilution 25,072 25,267
Earnings per common share:
Basic $0.44 $0.47
Assuming dilution $0.44 $0.46
Dividends per share $0.235 $0.195
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(000 OMITTED)
Accumulated
Other
Compre- Compre-
Common Capital Retained hensive hensive
Stock Surplus Earnings Income Income Total
(Loss)
Balances -
January 1, 1999 48,845 81,910 174,777 6,416 311,948
Comprehensive
Income:
Net income 11,661 11,661 11,661
Other comprehensive
income-net of tax:
Unrealized loss on
available for sale
securities (6,875) (6,875)
Less: Reclassifi-
cation adjustment
for gains realized
in net income 2,018 2,018
Other comprehensive
income (loss),
net of tax (4,857) (4,857)
Total compre-
hensive income 6,804
Cash dividends (4,619) (4,619)
Acquisition of common
stock (252) (3,330) (3,582)
Issuance of stock -
benefit plans 225 3,231 3,456
Balances -
March 31, 1999 48,818 81,811 181,819 1,559 314,007
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED March 31, 2000 AND 1999
(000 OMITTED)
Accumulated
Other
Compre- Compre-
Common Capital Retained hensive hensive
Stock Surplus Earnings Income Income Total
(Loss)
Balances -
January 1, 2000 49,793 93,679 175,588 (11,378) 307,682
Comprehensive
Income:
Net income 11,050 11,050 11,050
Other comprehensive
income net of tax:
Unrealized gain on
available-for-
sale securities 456 456
Less: Reclassifi-
cation adjustment
for gains realized
in net income -- --
Other compre-
hensive income,
net of tax 456 456
Total compre-
hensive income 11,505
Cash dividends (5,854) (5,854)
Acquisition of
common stock (270) (2,975) (3,245)
Issuance of
stock-benefit plans 276 3,653 3,929
Balances -
March 31, 2000 49,799 94,357 180,784 (10,922) 314,018
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2000 1999
Cash Flows From Operating Activities
Net income 11,050 11,661
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,931 1,763
Provision for loan losses 763 920
Profit on securities available for sale -- 3,105
Increase in other assets (2,424) (3,356)
Increase in other liabilities 3,192 5,338
Net cash provided by operating activities 14,512 19,431
Cash Flows From Investing Activities
Increase in interest-bearing
deposits in other banks (116) (107)
Proceeds from maturities and calls
of available for sale securities 7,892 24,564
Proceeds from sales of available for sale
securities -- 53,718
Purchase of securities available for sale (22,515) (86,316)
Proceeds from maturities of investment
securities 16,267 31,038
Purchase of investment securities (18,979) (10,307)
(Increase) decrease in federal funds sold
and securities purchased under agreements
to resell (38,598) 7,266
Net increase in loans (42,733) (33,183)
Purchases of bank premises and equipment (2,063) (3,890)
Proceeds from sale of other real estate owned 766 6
Net cash used in investing activities (100,079) (17,211)
Cash Flows From Financing Activities
Net increase (decrease) in noninterest-bearing
and interest-bearing demand deposits
and savings accounts 43,832 (30,457)
Net increase (decrease) in certificates
of deposit 44,372 (1,011)
Dividends paid (5,854) (4,619)
Decrease in other short-term borrowings (3,081) (7,632)
Increase (decrease) in long-term debt (801) 2,729
Acquisition of common stock (3,245) (3,582)
Net proceeds from issuance of common stock 2,986 2,453
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2000 1999
Net cash provided by (used in)
financing activities 78,209 (42,119)
Decrease in cash and
cash equivalents (7,358) (39,899)
Cash and Cash Equivalents
Beginning 127,633 169,181
Ending 120,275 129,282
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 20,655 19,759
Interest paid on other short-term
borrowings 1,199 845
21,854 20,604
Income taxes 1,180 6,120
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
2000 - 68,500 shares;
1999 - 67,000 shares 943 1,003
Loan balances transferred to foreclosed
properties 754 1,682
Market value adjustment available for
sale securities 702 (4,857)
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
March 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 2000, and December 31, 1999, and
the results of operations and changes in cash flows for the three
months ended March 31, 2000 and 1999. The statements should be read
in conjunction with the Consolidated Notes to Financial Statements
included in F&M's Annual Report for the year ended December 31, 1999.
The amounts previously reported for the periods presented have been
retroactively restated to reflect the acquisition of The State Bank
of the Alleghenies on January 3, 2000. The transaction was accounted
for under the pooling of interests method.
2. The results of operations for the three-month periods ended March
31, 2000 and 1999, are not necessarily indicative of the results to
be expected for the full year.
3. F&M National Corporation's ("F&M" or the "Corporation") amortized
cost and market value of securities being held to maturity as of
March 31, 2000, are as follows:
March 31, 2000 (000 omitted)
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 408,789 870 (13,975) 395,684
Obligations of states and
political subdivisions 24,650 98 (220) 24,528
Corporate securities 19,127 7 (314) 18,820
452,566 975 (14,509) 439,032
F&M's amortized cost and market value of the available for sale
securities as of March 31, 2000, are as follows:
March 31, 2000 (000 omitted)
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 436,153 990 (16,580) 420,563
Obligations of states and
political subdivisions 10,450 2 (302) 10,150
Other 19,507 193 (1,141) 18,559
466,110 1,185 (18,023) 449,272
4. F&M's loan portfolio is composed of the following:
March 31, December 31,
2000 1999
(000 Omitted)
Loans - held for sale 18,474 22,217
Commercial, financial and agricultural 290,329 300,015
Real estate-construction 113,914 108,631
Real estate-mortgage 1,238,904 1,192,015
Consumer loans to individuals 270,776 268,052
Total loans 1,932,397 1,890,930
Less: Unearned income (3,396) (3,615)
Allowance for loan losses (24,520) (24,050)
Loans, net 1,904,481 1,863,265
F&M had $9,059,000 in loans in a non-accrual category at March 31,
2000.
5. Reserve for Loan Losses:
March 31, December 31,
2000 1999
(000 Omitted)
Balance at January 1 24,050 23,509
Provision charged to operating expense 763 4,021
Recoveries added to the reserve 153 850
Loan losses charged to the reserve (446) (4,330)
Balance at end of period 24,520 24,050
6. Earnings and dividends paid per share:
March 31, 2000 March 31, 1999
Per Per
(in 000s) Share (in 000s) Share
Shares Amount Shares Amount
Basic EPS 24,922 0.44 25,056 0.47
Effective of
dilutive securities:
Stock options 150 211
Diluted EPS 25,072 0.44 25,267 0.46
7. F&M, on August 11, 1999, declared a 3% stock dividend payable on
October 26, 1999, to shareholders of record on September 24, 1999.
F&M issued approximately 665,806 shares of common stock with cash
being paid in lieu of fractional shares.
8. On January 3, 2000, the Corporation acquired The State Bank of
the Alleghenies, Covington, Virginia, for approximately 1,912,000
shares of F&M common stock in a transaction accounted for as a
pooling-of-interests. Upon the effective date of the share exchange,
The State Bank of the Alleghenies changed its name to F&M Bank-
Highlands.
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
F & M National Corporation
Winchester, Virginia
We have reviewed the accompanying consolidated balance sheet of F&M
National Corporation and Subsidiaries as of March 31, 2000, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the three-month periods ended March 31,
2000 and 1999. These financial statements are the responsibility of
the Corporation's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of F&M National Corporation and
Subsidiaries as of December 31, 1999, and the related statements of
income, changes in shareholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated January
28, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
/s/
YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
May 9, 2000
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial information is
presented to aid the reader in understanding and evaluating the
financial condition and results of operations of F&M National
Corporation ("F&M" or the "Corporation").
FINANCIAL CONDITION
Total assets on March 31, 2000, were $3.192 billion, up $120.9
million or 3.9% from $3.071 billion at March 31, 1999. Total assets
at December 31, 1999, were $3.098 billion. For the first three months
of 2000, total assets averaged $3.143 billion, 3.8% above the first
three months 1999 average of $3.027 billion.
Total loans, net of unearned income, amounted to $1.929 billion at
March 31, 2000, an increase of $72.6 million or 3.9% from $1.856
billion at March 31, 1999. At December 31, 1999, total loans, net,
were $1.887 billion. Total loans (net) as a percent of total assets
were 60.5% at March 31, 2000, as compared to 60.4% at March 31, 1999,
and 60.9% at December 31, 1999. Net loan volume for the first three
months of 2000 increased $41.7 million as compared to $61.9 million
for the first three months of 1999. The change in loan volume is a
result of increases in the prime lending rate slowing the demand for
loans and the effect of competition in the market place vying for
loan customers.
On March 31, 2000, the securities portfolio totaled $901.8 million,
which was $93.6 million or 11.6% higher than the year before, and
$18.0 million or 2.0% higher than at December 31, 1999. Funds
invested in the securities portfolio were invested in U. S.
Government and U. S. Agency securities in an effort to balance the
asset risk portfolio between available for sale and held to maturity
securities. Federal funds sold and securities purchased under
agreement to resell were $107.3 million at March 31, 2000, $38.6
million or 56.2% higher than $68.7 million outstanding at December
31, 1999. Federal funds sold are one-day sales of funds to large
regional correspondent banks and are the lowest earning pool of
interest-earning funds. Federal funds have increased due to the
decrease in demand for funding loans.
The market value of available for sale ("AFS") securities according
to FASB 115 at March 31, 2000, was $449.3 million as compared to
$433.9 million at March 31, 1999. F&M increased the investment in AFS
securities as a result of attractive rates and the high quality of
U.S. Government securities. The effect of the market value of AFS
securities less the book value of AFS securities, net of income taxes
reflected in Shareholders' Equity was $(10.9) million at March 31,
2000, a decrease from the March 31, 1999 balance of $1.6 million.
Recent increases in interest rates by the Federal Reserve have a
converse relationship to the market rates in the investment portfolio
contributing to the decline in market value of securities. The
decline in the market value of available for sale securities below
book value is a temporary market condition and is not indicative of a
deterioration of asset rating or quality.
Total deposits increased $117.1 million or 4.5% to $2.706 billion at
March 31, 2000, compared to one year earlier. At December 31, 1999,
total deposits were $2.618 billion. Noninterest-bearing deposits
increased $37.3 million or 7.2% from $521.6 million at March 31,
1999, to $558.9 million at March 31, 2000. Interest-bearing deposits
increased $79.8 million or 3.9% from $2.067 billion at March 31,
1999, to $2.147 billion at March 31, 2000. F&M customers are
balancing the liquidity of a demand deposit position with investing
in short-term time deposits in anticipation of the possibility of
higher interest rates in the near term by the Federal Reserve. F&M
offers attractive, yet competitive, rates that are set to maintain a
fair net interest margin.
Long-term debt was $24.6 million at March 31, 2000, up $855 thousand
or 3.6% as compared to $23.8 million at March 31, 1999. Long-term
debt was $25.4 million at year-end 1999. Long-term debt consists of
borrowed funds from Federal Home Loan Banks that supports loans to
eligible bank customers for a period of 10 to 15 years for low-income
housing.
RESULTS OF OPERATIONS
Net income for the first three months of 2000 amounted to $11.1
million, decreasing $611 thousand or (5.3)% from $11.7 million for
the first three months of 1999. The decline in net income was the
result of $2.0 million in security gains, net of income tax, taken in
the first quarter 1999 offset by $473 thousand of other real estate
expenses, net of income tax, that was also taken in the first quarter
1999. Net income for the first three months of 2000 was $11.1
million, increasing $1.4 million or 14.4% from $9.7 million for the
first three months of 1999, if these nonrecurring income and
nonrecurring expenses were eliminated.
The yield on interest-earning assets was 7.84% for the first three
months 2000 as compared to 7.60% for the first three months 1999, and
the yield on interest-bearing deposits was 3.98% for the first three
months 2000 as compared to 3.83% for the first three months 1999.
Return on average assets was 1.41% for the first three months of
2000, compared with 1.56% for the same period in 1999 and for the
year 1999. F&M's return on average equity was 14.13% for the first
three months of 2000, 15.06% for the first three months of 1999, and
13.99% for the year ended 1999.
Net interest income totaled $33.6 million for the first three months
of 2000, a $1.6 million or 5.1% increase over F&M's performance for
the first three months of 1999. The net interest margin on a Federal
tax equivalent basis for the first three months of 2000 was 4.73%, up
2 basis points from 4.71% for the first three months of 1999. The
increase in net interest margin is primarily the effect of higher net
yield on variable rate interest-bearing assets facilitated by recent
increases in the prime lending rate.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $21.0 million at
March 31, 2000, a increase of $1.1 million or 5.5% from $19.9 million
at December 31, 1999. Nonperforming assets are composed largely of 1-
4 family residential loans and commercial loans secured by real
property.
Nonperforming loans (nonaccrual loans and restructured loans) at
March 31, 2000, were $9.2 million or 0.5% of total loans, up $300
thousand from $8.9 million at December 31, 1999. Nonperforming loans
are those loans where, in the opinion of management, the full
collection of principal or interest is unlikely.
FASB 114 defines impaired loans as all loans excluding personal real
estate and consumer loans about which there is doubt as to the
ability of the customer to meet their contractual obligations.
March 31, 2000
Commercial nonaccrual loans $ 2,612
Commercial accrual loans 14,383
Total impaired loans $16,995
At March 31, 2000, impaired loans totaled $17.0 million upon which an
allowance of $2.9 million has been provided, which is included in the
total loan portfolio allowance for loan losses. Interest income
recognized on impaired loans as of March 31, 2000, was $354,000. The
average balance of impaired loans for the first three months 2000 was
$15.9 million. Loans past due 90 days or more and still accruing
interest because they were well secured and in the process of
collection were $3.0 million at March 31, 2000, and $4.3 million at
December 31, 1999.
Foreclosed properties consists of 31 parcels of real estate acquired
through debt previously contracted. These properties consist
primarily of commercial and residential real estate whose value is
determined through sale at public auction or fair market value,
whichever is less. At March 31, 2000, foreclosed properties were
$11.8 million as compared to $11.0 million at December 31, 1999.
The allowance for loan losses has increased to $24.5 million at March
31, 2000, as compared to $24.1 million at year end 1999. The
allowance for loan losses increased $470 thousand in the first three
months of 2000 as compared to $392 thousand for the first three
months of 1999. The amount provided for loan losses in 2000 and 1999
is an amount, in management's judgment, is sufficient for the risk
associated with the loan portfolio. The ratio of allowance for loan
losses to total loans was 1.27% at March 31, 2000, as compared to
1.29% for both March 31, 1999 and 1.27% at year-end 1999.
Total noninterest income decreased $1.3 million or 10.0% from $12.8
million for the first three months of 1999 to $11.5 million for the
first three months of 2000. For the first three months of 2000, gains
realized on securities available for sale were $3.1 million or 24.2%
of total noninterest income, whereas, for the first three months of
2000 there were no securities gains taken. Security gains are
realized when market conditions exist that are favorable to the
Corporation and/or conditions dictate additional liquidity is
desirable. It is the intent of the Corporation not to sell any
security that is held in its "held to maturity" portfolio and any
gain or loss in this category is the result of securities being
called prior to maturity by the issuer.
Credit card fees were $1.2 million for the first three months of
2000, up $122 thousand or 11.7% over the first three months of 1999
as a result of marketing efforts to attract new credit card customers
and additional customer activity. Insurance commission income for the
first three months of 2000 was $2.3 million, up $28 thousand from the
first three months of 1999 primarily as a result of increased
business activity of F&M's insurance agencies, whose primary sources
of revenue are derived from selling insurance policies to customers.
Revenues from fees for other customer services increased $1.1 million
or 65.5% from $1.6 million for the first three months of 1999 to $2.7
million in 2000 primarily as a result of fees charged customers in
the secondary market. Other operating income increased $304 thousand
or 74.9%, up from $406 thousand for the first three months of 1999 to
$710 thousand for the first three months of 2000. The increase in
other operating income is a seasonal variation in other fees and
charges.
Total noninterest expenses increased $1.6 million or 6.4% from $25.8
million for the first three months of 1999 to $27.5 million for the
first three months of 2000. Salary expense increased $1.3 million or
9.0% from $14.4 million for the first three months of 1999 to $15.7
million for the first three months of 2000 as a result of employing
additional personnel due to branch expansion, certain employees who
are paid on a commission basis, and increases in costs associated
with salaries and benefits. The cost of net occupancy expense has
increased $292 thousand or 13.0% to $2.5 million for the first three
months of 2000, as a result of acquiring new branches and remodeling
older branches. Furniture and equipment expense increased $120
thousand or 6.3% from $2.0 million for the first three months of
2000, which is reflective of higher 2000 costs related to equipment
and software upgrades. Credit card expense was up $84 thousand or
11.0% from $767 thousand for the first three months of 1999 to $851
thousand for the first three months of 2000 as a result of direct
marketing and additional card customer activity. Other operating
expense decreased $151 thousand from $6.5 million for the first three
months of 1999 to $6.3 million for the first three months of 2000.
Income taxes decreased $517 thousand or 8.2% from $6.3 million for
the first three months of 1999 to $5.8 million for the first three
months of 2000. The decrease in income taxes is the result of smaller
amounts of income subject to income taxes.
ASSET QUALITY
Loan quality continues to be good based on reviews by management.
Loan quality is the result of management employing conservative
principles of lending while meeting the needs of customers. Good loan
quality results in reduced need for additional provision for loan
losses and efforts to collect past due loans, which has a positive
impact on net income.
Total loan charge offs less recoveries amounted to $293 thousand for
the first three months of 2000, representing a ratio of net charge
offs to total average loans, net of unearned income, of 0.06%,
annualized. This compares to 1999 twelve-month net charge-offs of
$3.5 million, or 0.19% of average loans.
As of March 31, 2000, loans on non-accrual basis amounted to $9.1
million, or 0.9% of total loans, net of unearned discount, down from
$11.9 million for the same period 1999. Loans 90 days or more past
due and still accruing totaled $3.0 million, or 0.15% of total loans,
net of unearned discount. In management's judgment, the balance in
the reserve for loan losses is adequate to cover future losses in the
existing loan portfolio.
F&M closely monitors those loans that are deemed to be potential
problem loans. Loans are viewed as potential problem loans when
possible credit problems of the borrowers cause management to have
doubts as to the ability of such borrowers to comply with current
repayment terms. Those loans are subject to constant management
attention, and their classification is reviewed on a regular basis.
At March 31, 2000, the potential problem loans were $18.7 million and
included eight lending relationships with principal balance in excess
of $500,000. Those eight lending relationships had an aggregate
principal balance outstanding of $9.5 million.
LIQUIDITY
Liquidity requirements are measured by the need to meet deposit
withdrawals, fund loans, maintain reserve requirements and operate
the organization. To meet its liquidity needs, F&M maintains cash
reserves and has an adequate flow of funds from maturing loans,
investment securities, and short-term investments. In addition, F&M's
affiliate banks have the ability to borrow from the Federal Reserve
Bank and the Federal Home Loan Bank. F&M considers its sources of
liquidity to be ample to meet its estimated needs.
CAPITAL RESOURCES
F&M's strong capital position provides the resources and flexibility
for anticipated growth.
F&M's risk-based capital position at March 31, 2000 was $314.9
million, or 15.7% of risk-weighted assets, for Tier I capital and
$339.4 million, or 16.9% for total risk based capital.
Tier I capital consists primarily of common shareholders' equity,
while total risk-based capital adds the allowance for loan losses to
Tier I. Risk-weighted assets are determined by assigning various
levels of risk to different categories of assets and off-balance
sheet activities. Under current risk-based capital standards, all
banks are required to have Tier I capital of at least 4% and total
capital of 8%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in information reported as of
December 31, 1999, in Form 10-K.
FORM 10-Q PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Registrant or
any of its subsidiaries, directors or officers is a party or by which
they, or any of them, are threatened. All legal proceedings presently
pending or threatened against F & M and its subsidiaries involve
routine litigation incidental to the business of F&M or the
subsidiary involved and are either not material in respect to the
amount in controversy or fully covered by insurance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession - not applicable.
(3) (i) Articles of Incorporation - not applicable.
(ii) By-laws - not applicable.
(4) Instruments Defining the Rights of Security Holders
Including Indentures - not applicable.
(10) Material Contracts.
Incorporated herein by reference to Registrant's Form 10-K
Annual Report for the year ended December 31, 1999, filed
with the Commission on March 29, 2000, under Exhibit 10.
(11) Statement re Computation of Per Share Earnings.
Incorporated herein by reference to Note 11, page 37, of
Registrant's 1999 Annual Report to Shareholders filed as
Exhibit 13 to Form 10-K for the year ended December 31,
1999, filed with the Commission on March 29, 2000.
(15) Letter re Unaudited Interim Financial Information - not
applicable.
(18) Letter re change in accounting principles - not applicable.
(19) Reports furnished to security holders.
Incorporated herein by reference to Registrant's Notice of
Annual Meeting and Proxy Statement dated March 24, 2000,
filed with the Commission on March 22, 2000.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders - not applicable.
(23) Consent of Experts and Counsel - not applicable.
(24) Power of Attorney - not applicable.
(27) Financial Data Schedules - Included herein as Exhibit 27.
(99) Additional Exhibits - None.
(b) Reports on Form 8-K.
(1) January 3, 2000, for event of January 3, 2000, under Item 5.
to announce the completion of the affiliation of The State
Bank of the Alleghenies, Covington, Virginia, by the
Registrant.
(2) January 20, 2000, for event of January 13, 2000, under ITEM
5. to report authorization by the Registrant's Board of
Directors for management to purchase 175,000 additional
shares of the Registrant's common stock on the open market.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
F & M NATIONAL CORPORATION
/s/ Alfred B. Whitt
Alfred B. Whitt
President/CEO, Vice Chairman, and Chief Financial Officer
/s/ Charles E. Curtis
Vice Chairman and Chief Administrative Officer
Date: May 10, 2000