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, 1995 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)
38 Rouss Avenue, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703-665-4200
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 XX No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the close of the period covered by this
report:
15,663,660 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
March 31, December 31,
1995 1994
Assets:
Cash and due from banks $ 70,611 $ 78,211
Interest-bearing deposits in other banks 249 202
Securities-held to maturity(market value
March 31, 1995-$260,262;
December 31, 1994, $263,643) 265,312 275,117
Securities - available for sale
(at fair value) 217,299 219,840
Federal funds sold and securities
purchased under agreements to resell 73,708 38,035
Loans - held to maturity 977,663 976,513
Loans - available for sale 7,467 7,255
Unearned income (5,973) (5,836)
Loans (net of unearned income) 979,157 977,932
Allowance for loan losses (15,330) (15,097)
Net loans 963,827 962,835
Bank premises and equipment, net 32,206 31,806
Other assets 47,645 44,858
Total assets $1,670,857 $1,650,904
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 205,947 $ 222,177
Interest bearing 1,246,663 1,219,015
Total deposits 1,452,610 1,441,192
Federal funds purchased and securities
sold under agreements to repurchase 16,741 20,543
Federal Home Loan Bank advance 892 875
Other short-term borrowings 16,292 14,879
Long-term debt 2,709 3,194
Other liabilities 12,395 8,786
Total liabilities $1,501,639 $1,489,469
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
March 31, December 31,
1995 1994
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 20,000,000 shares:
issued March 31, 1995 - 15,663,660
shares; issued December 31,
1994-15,610,408 shares 31,327 31,221
Capital surplus 52,960 52,137
Retained earnings 88,207 84,766
Unrealized (loss) on AFS securities, net (3,276) (6,689)
Total shareholders' equity 169,218 161,435
Total liabilities and
shareholders' equity $1,670,857 $1,650,904
See Accompanying Notes to Consolidated Financial Statements
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited)
For the Three Months Ended
March 31, March 31,
1995 1994
Interest income
Loans held to maturity:
Interest and fees $ 22,333 $ 19,108
Loans available for sale:
Interest and fees 223 280
Total loan interest income 22,556 19,388
Securities held to maturity:
Taxable interest income 3,607 2,961
Interest income exempt from
Federal income taxes 513 559
Securities available for sale:
Taxable interest income 3,463 3,680
Dividend income 84 125
Total security interest income 7,667 7,325
Interest on federal funds sold
and securities purchased
under agreements to resell 617 620
Interest on deposits in banks 11 19
Total interest income 30,851 27,352
Interest expense:
Interest on deposits 11,905 10,628
Interest on short-term
borrowings 350 195
Interest on long-term debt 58 0
Total interest expense 12,313 10,823
Net interest income 18,538 16,529
Provision for loan losses 265 659
Net interest income after
provision for loan losses 18,273 15,870
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited)
For the Three Months Ended
March 31, March 31,
1995 1994
Other Income:
Commissions and fees from
fiduciary activities $ 436 $ 376
Service charges on deposit accounts 1,420 1,345
Credit card fees 641 420
Fees for other customer services 259 482
Other operating income 932 1,350
Profits on securities available
for sale 7 615
Investment securities gains, net 8 63
Total other income 3,703 4,651
Other Expenses:
Salaries and employee benefits 7,002 6,682
Net occupancy expense of premises 996 967
Furniture and equipment expense 903 983
Deposit insurance 805 787
Credit card expense 353 352
Other operating expense 3,278 3,191
Total other expense 13,337 12,962
Income before income tax
expense 8,639 7,559
Income tax expense 2,857 2,567
Net income $ 5,782 $ 4,992
Earnings per average share:
(1995 - 15,621,337 shares;
1994 - 15,639,803 shares)
Net income per share $ 0.37 $ 0.32
Dividends per share $ 0.15 $ 0.12
See Accompanying Notes to Consolidated Financial Statements
/TABLE
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1994 (000 Omitted)
Unrealized
Gain
(Loss) on
Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale-Net Total
Balances:
January 1, 1994 $30,512 $47,277 $79,477 $157,266
Net income 4,992 4,992
Cash dividends (1,946) (1,946)
Issuance of authorized
common stock:
Dividend reinvestment
plan 55 358 413
Stock options 6 18 24
Stock options under
non-variable
compensatory plan 211 211
Market value adjusted
net of income taxes 703 703
Balances:
March 31, 1994 $30,573 $47,864 $82,523 $ 703 $161,663
Balances:
January 1, 1995 $31,221 $52,137 $84,766 $(6,689) $161,435
Net Income 5,782 5,782
Cash dividends (2,341) (2,341)
Acquisition of common
stock (89) (637) (726)
Issuance of authorized
common stock:
Dividend reinvestment
plan 72 491 563
Stock options 24 61 85
Stock options under
non-variable
compensatory plan 207 207
Sale of common stock 24 176 200
Employee stock
ownership plan 75 525 600
Market value adjustment,
net of income tax 3,413 3,413
Balances:
March 31, 1995 $31,327 $52,960 $88,207 $(3,276) $169,218
See Accompanying Notes to Consolidated Financial Statements
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
Consolidated for the
Three Months Ended
March 31, March 31,
1995 1994
Cash Flows From Operating Activities
Net income $ 5,782 $ 4,992
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 617 733
Provision for loan losses 265 659
Profits on securities available for sale (7) (615)
Profits on securities held to maturity (8) (63)
(Increase) decrease in other assets (6,356) 469
Increase in other liabilities 3,403 1,151
Net cash provided by operating activities 3,696 7,326
Cash Flows From Investing Activities
(Increase) decrease in interest-bearing
deposits in other bank (47) 1,504
Proceeds from maturities and calls
of available for sale securities 11,085 24,805
Purchase of securities available
for sale (5,124) (56,598)
Proceeds from maturities of investment
securities 15,240 24,881
Purchase of investment securities (5,427) (324)
Decrease in federal funds sold and
securities purchased under agreements
to resell (35,673) (17,605)
Net (increase) decrease in loans 4,275 (2,068)
Purchases of bank premises and equipment (1,120) (808)
Proceeds from sale of other real estate (1,860) --
Net cash (used in) investing activities (18,651) (26,213)
Cash Flows From Financing Activities
Net increase (decrease) in noninterest
-bearing and interest-bearing demand
deposits and savings accounts (43,785) 17,120
Net increase (decrease) in certificates
of deposit 55,203 (582)
Dividends paid (2,341) (1,946)
Increase (decrease) in other short-term
borrowings (3,264) 7,861
Increase in long-term debt 407 --
Acquisition of common stock (726) --
Net proceeds from issuance of common stock 1,861 859
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
Consolidated for the
Three Months Ended
March 31, March 31,
1995 1994
Net cash provided by financing activities $ 7,355 $ 23,312
Increase (decrease) in cash and
cash equivalents $ (7,600) $ 4,425
Cash and Cash Equivalents
Beginning 78,211 64,836
Ending $ 70,611 $ 69,261
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors $ 11,905 $ 12,118
Interest paid on other short-term
borrowings 350 195
$ 12,255 $ 12,313
Income taxes $ 10 $ 61
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
1995 - 26,000 shares;
1994 - 26,000 shares $ 207 $ 211
Loan balances transferred to foreclosed
properties $ 5,532 $ 1,315
Market value adjustment available for
sale securities $ 3,413 $ 703
See Accompanying Notes to Consolidated Financial Statements
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
l. 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, 1995, and December 31, 1994, and
the results of operations and changes in cash flows for the three
months ended March 31, 1995 and 1994. The statements should be read
in conjunction with the Consolidated Notes to Financial Statements
included in the Company's Annual Report for the year ended December
31, 1994.
2. The results of operations for the three-month periods ended March
31, 1995 and 1994, are not necessarily indicative of the results to
be expected for the full year.
3. The Corporation's amortized cost and market value of the
securities being held to maturity as of March 31, 1995, are as
follows:
March 31, 1995 (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 $226,702 $1,019 ($6,186) $221,535
Corporate securities 1,474 14 (36) 1,452
Obligations of states and
political subdivisions 37,136 713 (573) 37,276
$265,312 $1,746 ($6,795) $260,263
The Corporation's amortized cost and market value of the available
for sale securities as of March 31, 1995, are as follows:
March 31, 1995 (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 $208,413 $ 990 ($6,192) $203,211
Corporate securities 6,587 225 (41) 6,771
Other 7,314 3 0 7,317
$222,314 $1,218 ($6,233) $217,299
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
4. The Corporation's loan portfolio is composed of the following:
March 31, December 31,
1995 1994
(000 Omitted)
Loans - held to maturity(HTM):
Commercial, financial and
agricultural $ 115,230 $ 118,954
Real estate-construction 33,361 32,887
Real estate-mortgage 688,972 675,895
Installment loans to individuals 140,100 148,777
Total loans - HTM $ 977,663 $ 976,513
Loans - available for sale(AFS):
Real estate-construction 7,467 7,255
Total loans - AFS 7,467 7,255
Total loans 985,130 983,768
Less: Unearned income (5,973) (5,836)
Allowance for loan losses (15,330) (15,097)
Loans, net $ 963,827 $ 962,835
The Company had $11,900,000 in loans on a non-accrual category at
March 31, 1995.
5. Reserve for Loan Losses:
March 31, December 31,
1995 1994
(000 Omitted)
Balance at January 1 $ 15,097 $ 13,683
Provision charged to operating expense 265 2,587
Recoveries added to the reserve 286 728
Loan losses charged to the reserve (318) (1,901)
Balance at end of period $ 15,330 $ 15,097
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the three-month
periods ended March 31, 1995 and 1994 were 15,621,337 shares and
15,639,803 shares, respectively.
F & M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994
7. On February 7, 1994, PNB Financial Corporation ("PNB"),
Warrenton, Virginia, and F & M National Corporation ("F&M") entered
into a Definitive Agreement and Plan of Reorganization, and related
Plan of Merger, which provided for the affiliation of PNB with F&M.
The offer has been approved by regulatory authorities and
shareholders of PNB. The merger entitled shareholders of PNB to
receive, in a tax-free exchange, shares of F&M common stock having an
aggregate market value of $41.15 for each share of PNB. The merger
became effective on July 1, 1994.
8. On March 8, 1994, Hallmark Bank & Trust Company ("Hallmark"),
Springfield, Virginia, and F & M entered into a Definitive Agreement
and Plan of Reorganization, and related Plan of Share Exchange, which
provided for the affiliation of Hallmark with F&M. The offer was
subject to the approval of regulatory authorities and shareholders of
Hallmark. The share exchange entitled shareholders of Hallmark to
receive, in a tax-free exchange, shares of F&M common stock having an
aggregate market value of $11.13 for each share of Hallmark. The
share exchange became effective on July 1, 1994.
9. On November 18, 1994, Bank of the Potomac, Herndon, Virginia, and
the Corporation entered into a Definitive Agreement and Plan of
Reorganization which provided for the affiliation of Bank of the
Potomac with F&M National Corporation. The offer was subject to the
approval of regulatory authorities and shareholders of Bank of the
Potomac. Under the terms of the Agreement, F&M National Corporation
would exchange the number of its shares of common stock whose
aggregate market value as of the date of closing equaled 1.75 times
the book value per share of Bank of the Potomac common stock at the
month end immediately preceding the effective date of the share
exchange (March 31, 1995). The share exchange was intended to
qualify as a tax-free exchange and be accounted for as a pooling of
interests. The share exchange became effective on April 6, 1995,
with an exchange of 872,187 shares of F&M National Corporation common
stock.
10. On January 11, 1995, Farland Investment Management, Inc.
(Farland) and F&M National Corporation entered into a Plan of Merger.
The transaction, subject to the approval of regulatory authorities,
entitled the shareholders of Farland Investment to receive 11,980
shares of F&M National Corporation common stock. The merger became
effective on March 17, 1995.
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, 1995, and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the three-month periods ended March 31,
1995 and 1994. 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, 1994, 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 31, 1995, 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, 1994 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 10, 1995
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").
On July 1, 1994, PNB Financial Corporation, Warrenton, Virginia,
("PNB") became a wholly-owned subsidiary of the Corporation with a
tax-free exchange of 1,193,623 shares of F & M common stock having an
equivalent aggregate market value of $41.15 for each share of PNB.
The merger of PNB has been accounted for as a pooling of interests
and, therefore, all financial statements have been restated to
reflect the merger.
On July 1, 1994, Hallmark Bank & Trust Company, Springfield, Virginia
("Hallmark"), became a wholly-owned subsidiary of the Corporation
with a tax-free exchange of 1,107,846 shares of F & M common stock
having an equivalent aggregate market value of $11.13 for each share
of Hallmark. The share exchange of Hallmark has been accounted for
as a pooling of interests and, therefore, all financial statements
have been restated to reflect the share exchange.
On September 1, 1994, the Company paid a 2.5 percent stock dividend
with the issuance of 378,940 shares of common stock.
F&M Bank-Broadway was merged into F&M Bank-Massanutten on January 20,
1995.
The Company acquired Farland Investment Management, Inc., through the
exchange of 11,980 shares of F&M common stock on March 17, 1995.
FINANCIAL CONDITION
Total assets on March 31, 1995, amounted to $1.671 billion, up $23.0
million or 1.4% from $1.648 billion at March 31, 1994. Total assets
at December 31, 1994, were $1.651 billion. For the first three
months 1995, total assets averaged $1.671 billion, 1.4% above the
first three-months 1994 average of $1.648 billion.
Total loans, net of unearned income, amounted to $979.2 million at
March 31, 1995, an increase of $48.3 million (5.2%) from $930.9
million at March 31, 1994. At December 31, 1994, total loans, net
were $977.9 million. Total loans (net) as a percent of total assets
were 58.6% at March 31, 1995, as compared to 56.5% at March 31, 1994,
and 59.2% at December 31, 1994. Net loan volume for the first three
months 1995 was $1.2 million as compared to $1.9 million for the
first three months 1994.
On March 31, 1995, the securities portfolio totalled $482.6 million,
which was $8.6 million (-1.8%) lower than the year before and $12.3
million (-2.5%) lower than at December 31, 1994. The lower
outstanding balance in the securities portfolio was a result of to
improved loan demand, thereby utilizing investable funds in higher
yielding investments. Federal funds sold and securities purchased
under agreements to resell were $73.7 million on March 31, 1995,
$35.7 million (93.9%) higher than $38.0 million outstanding at
December 31, 1994. The large increase in federal funds sold is the
result of a special short-term time deposit promotion. It is
anticipated that as loan demand and securities yields improve, funds
will be invested in these higher yielding investments.
Financial Accounting Standards Board Pronouncement #115 effective
January 1, 1994, requires the Corporation to show the effect of
market changes in the value of securities available for sale (AFS).
The market value of AFS securities at March 31, 1995, was $217.3
million as compared to $219.8 million at year end 1994. The effect
of the market value of AFS securities less the book value of AFS
securities, net of income taxes is reflected as a new line in
Stockholders' Equity which was $-3.3 million at March 31, 1995, which
has improved from year end 1994 by $-6.7 million. The decline in the
market value of available for sale securities below book value is a
temporary market condition as a result of the inverse relationship of
loan rates versus bond rates. Loan rates have increased in 1994,
thereby causing bond portfolio yields to decline. First quarter 1995
market loan rates have decreased slightly, consequentially causing
bond yields to improve. The loss in the AFS securities portfolio is
due to interest rate fluctuations only and not a result of re-ratings
or down-grading of securities.
Total deposits increased $16.1 million (1.1%) to $1.453 billion at
March 31, 1995, compared to one year earlier. At December 31, 1994,
total deposits were $1.441 billion. F&M offers attractive, yet
competitive rates, that have contributed to the increase in deposits.
Long-term debt of $3.5 million consists of borrowed funds from
Federal Home Loan Banks that are lent 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 1995 amounted to $5.782
million, increasing $790 thousand or 15.8% from $4.992 million for
the first three months of 1994. The principal reason for the
increase in earnings was an increase in yield on interest-earning
assets which increased 97 basis points to 8.16% for the first quarter
1995 from 7.19% for the first three months 1994.
Return on average assets was 1.40% for the first three months of
1995, compared with 1.22% for the same period in 1994 and 1.22% for
the year 1994. F&M's return on average equity was 13.79% for the
first three months of 1995 and 12.50% for the year 1994. Return on
average equity was 12.42% for the first three months 1994.
Net interest income totalled $18.538 million for the first three
months of 1995, a $2.009 million (12.2%) increase over F&M's
performance for the first three months of 1994. The net interest
margin for the first three months 1995 was 4.90%, up 55 basis points
from 4.35% for the first three months of 1994. The increase in net
interest margin is the result of increases in the prime interest rate
affecting adjustable rate loans.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $26.974 million at
March 31, 1995, a decrease of $3.027 million (10.1%) from $30.001
million at December 31, 1994. 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, 1995, were $12.3 million, or 1.26% of total loans, compared
to $19.0 million, or 1.93% of total loans at December 31, 1994.
Loans past due 90 days or more and still accruing interest because
they were well secured and in the process of collection were $1.6
million at December 31, 1994, and also $1.7 million at March 31,
1995.
Foreclosed properties consists 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 March 31, 1995, foreclosed properties were
$14.7 million as compared to $11.0 million at December 31, 1994.
During the first quarter 1995, the Company acquired through
foreclosure approximately 1,000 acres of real estate located in
Jefferson County, West Virginia, valued in excess of $4 million. The
Company intends to market this property and dispose of it as
expediently as possible. The Company does not expect to realize any
material loss in the final disposition of this or any of its
foreclosed property.
The allowance for loan losses has increased to $15.3 million at March
31, 1995, as compared to $15.1 million at year end 1994. The
allowance for loan losses increased $233 thousand in the first three
months 1995 as compared to $461 thousand for the first three months
1994. The decrease in the allowance for loan losses was a result of
improvement in credit quality of the loan portfolio.
Total noninterest income decreased $948 thousand or -20.4% from
$4.651 million for the first three months of 1994 to $3.703 million
for the first three months of 1995. For the first three months 1995,
gains on securities available for sale were $15 thousand or 0.4% of
total noninterest income, whereas, for the first three months of 1994
securities gains were $678 thousand or 14.6% of total noninterest
income. Security gains are realized when market conditions exist
that are favorable to the corporation and/or conditions dictate
additional liquidity is desirable. Credit card fees were $641
thousand for the first quarter 1995, up $221 thousand (52.6%) over
the first quarter 1994 as a result of a marketing effort to attract
new credit card customers. Other operating income decreased $418
thousand, down from $1.350 million for the first three months 1994 to
$932 thousand for the first three months of 1995. Other operating
income consists of other fees and charges that have decreased due to
a change in the mix of charges for transactions.
Total noninterest expenses increased $375 thousand or 2.9% from
$12.962 million for the first three months 1994 to $13.337 million
for the first three months 1995. Salary expense increased $320
thousand or 4.8% from $6.682 million for the first three months 1994
to $7.002 million for the first three months 1995 as a result of
normal increases in salaries and benefits. The cost of net occupancy
expense has increased $29 thousand (3.0%) from $967 thousand for the
first three months of 1994 to $996 thousand for the first three
months of 1995, as a result of adding additional branch offices.
Furniture and equipment expense has decreased $80 thousand (-8.1%)
from $983 thousand for the first three months 1994 to $903 thousand
for the first three months 1995, which reflects a decrease in the
acquisition of new furniture and equipment. As total bank deposits
increase, the cost of deposit insurance will continue to increase.
Deposit insurance was $805 thousand for the first three months of
1995, up $18 thousand (2.3%) from $787 thousand for the same period
1994.
Income taxes increased $290 thousand (11.3%) from $2.567 million for
the first three months of 1994 to $2.857 million for the first three
months of 1995. The increase in income taxes is the result of
greater 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 $32 thousand for
the first three months of 1995, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.01%,
annualized. This compares to 1994 twelve-month net charge-offs of
$1.173 million, or 0.12% of average loans.
As of March 31, 1995, loans on a non-accrual basis amounted to $11.9
million, or 1.21% of total loans, net of unearned discount and loans
90 days or more past due and still accruing totaled $1.722 million,
or 0.17% 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, 1995, the potential problem loans included 11 lending
relationships with principal balances in excess of $500,000. Those
lending relationships had an aggregate principal balance
outstanding of $13.0 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, 1995 was $167.3
million, or 16.5% of risk-weighted assets, for Tier I capital and
$179.9 million, or 17.8% 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%.
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 the Company
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:
(1) Underwriting agreement - not applicable.
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession - not applicable.
(3)(i) Articles of Incorporation as amended April 25, 1995
(filed herewith).
(4) Instruments Defining the Rights of Security Holders
Including Indentures - not applicable.
(11) Statement re Computation of Per Share Earnings.
Incorporated herein by reference to Registrant's Form 10-K
Annual Report for the year ended December 31, 1994, filed
with the Commission on March 27, 1995, under Exhibit 11.
(15) Letter re Unaudited Interim Financial Information - not
applicable.
(16) Letter re change in certifying accountant - not applicable.
(17) Letter re director resignation - not applicable.
(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. Date of Report. April 12, 1995.
Item(s) Reported. The filing of Form 8-K as Item 2. relative
to the consummation of the acquisition and
share exchange of Bank of the Potomac,
Herndon, Virginia, with the Registrant.
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/
Jack R. Huyett, President, Chief Administrative Officer
/s/
Alfred B. Whitt
Senior Vice President, Secretary, Senior Financial Officer
Date: May 12, 1995