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 June 30, 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 August 8, 2000, there were 24,851,026 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)
June 30, December 31,
2000 1999
Assets:
Cash and due from banks 149,794 127,633
Interest-bearing deposits in other banks 1,899 225
Securities-held to maturity(market value
June 30, 2000-$446,703;
December 31, 1999-$437,538) 460,503 449,854
Securities-available for sale
(market value) 452,552 433,947
Federal funds sold and securities
purchased under agreements to resell 86,064 68,712
Loans held for sale 32,380 22,217
Loans 1,975,157 1,868,713
Unearned income (3,392) (3,615)
Loans (net of unearned income) 2,004,145 1,887,315
Allowance for loan losses (23,871) (24,050)
Net loans 1,980,274 1,863,265
Bank premises and equipment, net 76,324 74,501
Other assets 81,131 80,030
Total assets 3,288,541 3,098,167
Liabilities and Shareholders' Equity:
Liabilities:
Deposits
Non-interest bearing 613,877 541,417
Interest bearing 2,131,233 2,076,438
Total deposits 2,745,110 2,617,855
Federal funds purchased and securities
sold under agreements to repurchase 149,137 95,008
Other short-term borrowings 22,539 24,120
Long-term debt 23,711 25,443
Other liabilities 29,935 28,059
Total liabilities 2,970,432 2,790,485
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
June 30, 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 June 30, 2000-24,854,026
shares; issued December 31,
1999-24,896,500 shares 49,708 49,793
Capital surplus 93,367 93,679
Retained earnings 186,440 175,588
Accumulated other
comprehensive income (loss) (11,406) (11,378)
Total shareholders' equity 318,109 307,682
Total liabilities and
shareholders' equity 3,288,541 3,098,167
See Accompanying Notes to Consolidated Financial Statements
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited) (Unaudited)
For the Six For the Three
Months Ended Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Interest Income:
Interest and fees on loans 82,447 78,893 42,324 39,682
Securities held to maturity:
Taxable interest income 13,577 11,321 6,893 5,666
Interest income exempt from
Federal income taxes 774 754 402 378
Securities available for sale:
Taxable interest income 13,650 11,958 6,937 6,108
Interest income exempt from
Federal income taxes 27 27 14 13
Dividend income 549 467 283 236
Total security interest income 28,577 24,527 14,529 12,401
Interest on federal funds sold
and securities purchased
under agreements to resell 3,300 2,849 1,675 418
Interest on deposits in banks 1 25 (1) 13
Total interest income 114,325 106,294 58,527 53,514
Interest Expense:
Interest on deposits 42,398 39,257 21,747 19,579
Interest on short-term borrowings 3,234 1,794 2,035 949
Interest on long-term debt 800 742 406 396
Total interest expense 46,432 41,793 24,188 20,924
Net interest income 67,893 64,501 34,339 32,590
Provision for loan losses 1,789 2,021 1,026 1,101
Net interest income after
provision for loan losses 66,104 62,480 33,313 31,489
Other Income:
Commissions and fees from
fiduciary activities 1,578 1,456 792 726
Service charges on
deposit accounts 8,525 7,503 4,642 3,883
Credit card fees 2,429 2,201 1,264 1,158
Fees for other customer services 6,300 3,625 3,644 2,020
Insurance commissions 4,811 4,528 2,472 2,217
Other operating income 3,524 2,345 2,814 1,939
Profits on securities
available for sale -- 3,113 -- 8
Total other income 27,167 24,771 15,628 11,951
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited) (Unaudited)
For the Six For the Three
Months Ended Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Other Expenses:
Salaries and employees' benefits 32,491 30,810 16,776 16,396
Net occupancy expense of premises 4,893 4,492 2,350 2,241
Furniture and equipment expense 4,009 3,526 1,976 1,613
Credit card expense 1,761 1,710 910 943
Other operating expense 15,005 12,680 8,694 6,218
Total other expense 58,159 53,218 30,706 27,411
Income before income taxes 35,112 34,003 18,235 16,028
Income tax expense 12,194 12,017 6,367 5,693
Net income 22,918 22,016 11,868 10,355
Average shares:
Basic 24,894 25,032 24,866 25,007
Assuming dilution 25,039 25,215 25,006 25,241
Earnings per common share:
Basic $0.92 $0.88 $0.48 $0.41
Assuming dilution $0.92 $0.87 $0.47 $0.41
Dividends per share $0.485 $0.43 $0.25 $0.235
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 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 22,016 22,016 22,016
Other comprehensive
income-net of tax:
Unrealized loss on
available for sale
securities (12,392) (12,392)
Less: Reclassifi-
cation adjustment
for gains realized
in net income 2,023 2,023
Other comprehensive
income (loss),
net of tax (10,369) (10,369)
Total compre-
hensive income 1,278
Cash dividends (10,115) (10,115)
Acquisition of common
stock (580) (7,744) (8,324)
Issuance of stock -
benefit plans 244 3,331 3,575
Balances -
June 30, 1999 48,509 77,497 186,678 (3,953) 308,731
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 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 22,918 22,918 22,918
Other comprehensive
income net of tax:
Unrealized gain on
available-for-
sale securities (28) (28)
Less: Reclassifi-
cation adjustment
for gains realized
in net income -- --
Other compre-
hensive income,
net of tax (28) (28)
Total compre-
hensive income 22,890
Cash dividends (12,066) (12,066)
Acquisition of
common stock (364) (3,975) (4,339)
Issuance of
stock-benefit plans 279 3,663 3,942
Balances -
June 30, 2000 49,708 93,367 186,440 (11,406) 318,109
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
For the Six Months Ended
June 30, June 30,
2000 1999
Cash Flows From Operating Activities
Net income 22,918 22,016
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,857 3,606
Provision for loan losses 1,789 2,021
Profit on securities available for sale -- 3,113
Increase in other assets (1,548) (4,587)
Increase (decrease) in other liabilities 1,876 (2,124)
Net cash provided by operating activities 28,892 24,045
Cash Flows From Investing Activities
Increase in interest-bearing
deposits in other banks (1,674) (1,183)
Proceeds from maturities and calls
of available for sale securities 18,315 111,368
Purchase of securities available for sale (36,963) (139,428)
Proceeds from maturities of investment
securities 26,076 47,678
Purchase of investment securities (36,725) (70,160)
(Increase) decrease in federal funds sold
and securities purchased under agreements
to resell (17,352) 78,306
Net increase in loans (119,835) (52,445)
Purchases of bank premises and equipment (5,103) (6,715)
Proceeds from sale of other real estate owned 1,865 2,004
Net cash used in investing activities (171,396) (30,575)
Cash Flows From Financing Activities
Net increase in noninterest-bearing
and interest-bearing demand deposits
and savings accounts 82,267 8,037
Net increase (decrease) in certificates
of deposit 44,988 (30,488)
Dividends paid (12,066) (10,115)
Increase (decrease) in other
short-term borrowings 52,548 (3,722)
Increase (decrease) in long-term debt (1,732) 7,118
Acquisition of common stock (4,339) (8,324)
Net proceeds from issuance of common stock 2,999 2,572
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
For the Six Months Ended
June 30, June 30,
2000 1999
Net cash provided by (used in)
financing activities 164,665 (34,922)
Increase (decrease) in cash and
cash equivalents 22,161 (41,452)
Cash and Cash Equivalents
Beginning 127,633 169,181
Ending 149,794 127,729
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 44,046 41,793
Interest paid on other short-term
borrowings 3,235 1,794
47,281 43,587
Income taxes 10,952 12,280
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 1,037 2,258
Market value adjustment available for
sale securities (43) (14,556)
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 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 June 30, 2000, and December 31, 1999, and
the results of operations and changes in cash flows for the six
months ended June 30, 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 six-month periods ended June
30, 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 June
30, 2000, are as follows:
June 30, 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 435,318 861 (14,561) 421,618
Obligations of states and
political subdivisions 24,124 90 (190) 24,024
Corporate securities 1,061 2 (2) 1,061
460,503 953 (14,753) 446,703
F&M's amortized cost and market value of the available for sale
securities as of June 30, 2000, are as follows:
June 30, 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 439,376 839 (17,209) 423,006
Obligations of states and
political subdivisions 10,451 2 (291) 10,162
Other 20,331 - (947) 19,384
470,158 841 (18,447) 452,552
4. F&M's loan portfolio is composed of the following:
June 30, December 31,
2000 1999
(000 Omitted)
Loans - held for sale 32,380 22,217
Commercial, financial and agricultural 312,699 300,015
Real estate-construction 113,074 108,631
Real estate-mortgage 1,271,095 1,192,015
Consumer loans to individuals 278,289 268,052
Total loans 2,007,537 1,890,930
Less: Unearned income (3,392) (3,615)
Allowance for loan losses (23,871) (24,050)
Loans, net 1,980,274 1,863,265
F&M had $11,822,000 in loans in a non-accrual category at June 30,
2000.
5. Reserve for Loan Losses:
June 30, December 31,
2000 1999
(000 Omitted)
Balance at January 1 24,050 23,509
Provision charged to operating expense 1,789 4,021
Recoveries added to the reserve 280 850
Loan losses charged to the reserve (2,248) (4,330)
Balance at end of period 23,871 24,050
6. Earnings and dividends paid per share:
June 30, 2000 June 30, 1999
Per Per
(in 000s) Share (in 000s) Share
Shares Amount Shares Amount
Basic EPS 24,894 0.92 25,032 0.88
Effective of
dilutive securities:
Stock options 145 183
Diluted EPS 25,039 0.92 25,215 0.87
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.
9. On May 4, 2000, the Corporation agreed to acquire $310 million in
deposits and 15 banking offices from Wachovia Bank, N.A. The new
locations will be acquired by five of F&M's community banks. F&M
Bank-Winchester will acquire two locations in Luray, Virginia. F&M
Bank-Massanutten will acquire one location in Staunton. F&M Bank-
Highlands will acquire one location in Vinton. F&M Bank-Central
Virginia will acquire locations in Fork Union, Gordonsville, Mineral,
Palmyra, and Ruckersville, and two locations in Chatham. F&M Bank-
Emporia will expand with new locations in Blackstone, Drakes Branch,
Franklin, and Kenbridge. The transfer is scheduled for the third
quarter 2000 and will be accretive for F&M in the first twelve
months.
10. On July 13, 2000, the Corporation and Atlantic Financial Corp. of
Newport News, Virginia announced the signing of a definitive
agreement for the affiliation of Atlantic with F&M. Under terms of
the agreement, F&M will exchange 0.753 shares of its common stock for
each share of Atlantic stock. The transaction has an indicated value
of approximately $70.59 million, or $16.85 per Atlantic share. The
transaction is calculated at 1.55 times book value for 2000. The
offer is 14.0 times 2000 estimated earnings. The transaction is
intended to qualify as a tax-free exchange and be accounted for as a
pooling of interests. Atlantic's two bank subsidiaries, Peninsula
Trust Bank and United Community Bank, will be combined and will be
operated as a separate banking subsidiary of F&M under the name of
F&M Bank-Atlantic. The transaction is expected to be completed no
later than the first quarter of 2001.
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 June 30, 2000, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the six-month periods ended June 30, 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
August 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 June 30, 2000, were $3.289 billion, up $212.8 million
or 6.9% from $3.076 billion at June 30, 1999. Total assets at
December 31, 1999, were $3.098 billion. For the first six months of
2000, total assets averaged $3.199 billion, 4.9% above the first six
months 1999 average of $3.049 billion.
Total loans, net of unearned income, amounted to $2.004 billion at
June 30, 2000, an increase of $130.4 million or 7.0% from $1.874
billion at June 30, 1999. At December 31, 1999, total loans, net,
were $1.887 billion. Total loans (net) as a percent of total assets
were 60.9% at June 30, 2000, June 30, 1999, and December 31, 1999.
Net loan volume for the first six months of 2000 was $116.8 million
as compared to $48.3 million for the first six months of 1999. The
change in loan volume is a result of an increase in volume of
primarily business and commercial real estate lending.
On June 30, 2000, the securities portfolio totaled $913.1 million,
which was $47.1 million or 5.4% higher than the year before, and
$29.3 million or 3.3% higher than at December 31, 1999. Funds
invested in the securities portfolio were invested primarily in U. S.
Agency securities, which had attractive yield and maturity offerings.
Federal funds sold and securities purchased under agreement to resell
were $86.1 million at June 30, 2000, $17.4 million or 25.3% 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 special certificate of deposit promotions
by F&M subsidiary banks.
The market value of available for sale ("AFS") securities at June 30,
2000, was $452.6 million as compared to $440.7 million at June 30,
1999. F&M increased the investment in AFS securities as a result of
attractive rates and the high quality of US agency 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 $(11.4) million at June 30, 2000, a $7.4 million decrease from
the June 30, 1999 balance of $(4.0) 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 value is a
"paper" loss, which is not realized unless the entire AFS portfolio
would be sold, which is not likely. 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 $147.2 million or 5.7% to $2.745 billion at
June 30, 2000, compared to one year earlier. At December 31, 1999,
total deposits were $2.618 billion. Noninterest-bearing deposits
increased $41.9 million or 7.3% from $572.0 million at June 30, 1999,
to $613.9 million at June 30, 2000. Interest-bearing deposits
increased $105.3 million or 5.2% from $2.026 billion at June 30,
1999, to $2.131 billion at June 30, 2000. F&M customers were
especially attracted to the special promotion certificates of
deposit, which began, in the fourth quarter of 1999 due to premium
rates being offered. F&M offers attractive, yet competitive, rates
that are set to maintain a fair net interest margin.
Long-term debt was $23.7 million at June 30, 2000, down $4.5 million
or 15.8% from $28.2 million at June 30, 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 six months of 2000 amounted to $22.9
million, increasing $902 thousand or 4.1% from $22.0 million for the
first six months of 1999. If nonrecurring items of income and expense
were eliminated, net income for the first six months 2000 would have
been $22.9 million as compared to $20.1 million for the first six
months 1999, increasing $2.9 million or 14.4%.
The yield on interest-earning assets was 7.90% for the first six
months 2000 as compared to 7.61% for the first six months 1999, and
the yield on interest-bearing deposits was 4.09% for the first six
months 2000 as compared to 3.83% for the first six months 1999.
Return on average assets was 1.44% for the first six months of 2000,
compared with 1.46% for the same period in 1999 and 1.40% for the
year 1999. F&M's return on average equity was 14.58% for the first
six months of 2000, 14.15% for the first six months of 1999, and
13.78% for the year ended 1999.
Net interest income totaled $67.9 million for the first six months of
2000, a $3.4 million or 5.3% increase over F&M's performance for the
first six months of 1999. The net interest margin on a Federal tax
equivalent basis for the first six months of 2000 was 4.71%, up 4
basis points from 4.67% for the first six 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 $22.0 million at
June 30, 2000, a decrease of $2.1 million or 10.6% 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 June
30, 2000, were $11.9 million or 0.6% of total loans, up $3.0 million
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.
June 30, 2000
Commercial nonaccrual loans $ 3,861
Commercial accrual loans 13,907
Total impaired loans $ 17,768
At June 30, 2000, impaired loans totaled $17.8 million upon which an
allowance of $3.1 million has been provided, which is included in the
total loan portfolio allowance for loan losses. Interest income
recognized on impaired loans as of June 30, 2000, was $798,000. The
average balance of impaired loans for the first six months 2000 was
$18.5 million. Loans past due 90 days or more and still accruing
interest because they were well secured and in the process of
collection were $4.7 million at June 30, 2000, and $4.3 million at
December 31, 1999.
Foreclosed properties consist of 26 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 June 30, 2000, foreclosed properties were $11.4
million as compared to $11.0 million at December 31, 1999.
The allowance for loan losses was $23.9 million at June 30, 2000, as
compared to $24.1 million at year-nd 1999. The allowance for loan
losses decreased $179 thousand in the first six months of 2000 as
compared to a $406 thousand increase for the first six 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 1.19% at June 30, 2000, as compared to
1.26% for both June 30, 1999 and 1.27% at year-end 1999.
Total noninterest income increased $2.4 million or 9.7% from $24.8
million for the first six months of 1999 to $27.2 million for the
first six months of 2000. Gains realized on securities available for
sale in the first six months of 1999 were $3.1 million or 12.6% of
total noninterest income, whereas, for the first six 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 $2.4 million for the first six months of 2000,
up $228 thousand or 10.4% over the first six 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 six months of 2000 was $4.8 million, up $283 thousand from the
first six 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 $2.7 million
or 73.8% from $3.6 million for the first six months of 1999 to $6.3
million in 2000 primarily as a result of fees charged customers in
the secondary market. Other operating income increased $1.2 million
or 50.3%, up from $2.3 million for the first six months of 1999 to
$3.5 million for the first six months of 2000. The increase in other
operating income is a seasonal variation in other fees and charges.
Total noninterest expenses increased $4.9 million or 9.3% from $53.2
million for the first six months of 1999 to $58.2 million for the
first six months of 2000. Salary expense increased $1.7 million or
5.5% from $30.8 million for the first six months of 1999 to $32.5
million for the first six 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 $401 thousand or 8.9% to $4.9 million for the first six
months of 2000, as a result of acquiring new branches and remodeling
older branches. Furniture and equipment expense increased $483
thousand or 13.7% to $4.0 million for the first six months of 2000,
which is reflective of higher 2000 costs related to equipment and
software upgrades. Credit card expense increased $51 thousand or 3.0%
from $1.7 million for the first six months of 1999 to $1.8 million
for the first six months of 2000. The increase in credit card
expense was reduced by a reduction per item cost charged by the
credit card processor due to a volume discount. Other operating
expense increased $2.3 million from $12.7 million for the first six
months of 1999 to $15.0 million for the first six months of 2000.
Income taxes increased $177 thousand or 1.5% from $12.0 million for
the first six months of 1999 to $12.2 million for the first six
months of 2000. The increase in income taxes is the result of larger
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 $2.0 million for
the first six months of 2000, representing a ratio of net charge offs
to total average loans, net of unearned income, of 0.20%, annualized.
This compares to 1999 twelve-month net charge-offs of $3.5 million,
or 0.19% of average loans.
As of June 30, 2000, loans on non-accrual basis amounted to $11.8
million, or 0.6% of total loans, net of unearned discount, up from
$10.2 million for the same period 1999. Loans 90 days or more past
due and still accruing totaled $4.7 million, or 0.24% 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 June 30, 2000, the potential problem loans were $16.8 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 June 30, 2000 was $319.7
million, or 15.4% of risk-weighted assets, for Tier I capital and
$343.6 million, or 16.5% 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) July 18, 2000, for event of July 12, 2000, under Item 5. to
report authorization of the Registrant's Board of Directors
for management to purchase 250,000 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: August 10, 2000