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 September 30, 1997 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: 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 November 10, 1997, there were 20,317,960 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)
Sept. 30, December 31,
1997 1996
Assets:
Cash and due from banks $ 120,857 $ 112,866
Interest-bearing deposits in other banks 738 1,262
Securities-held to maturity(market value
September 30, 1997-$377,632;
December 31, 1996, $335,542) 373,177 333,565
Securities-available for sale
(at market value) 243,691 263,428
Federal funds sold and securities
purchased under agreements to resell 80,157 69,045
Loans-held to maturity 1,488,514 1,408,969
Loans-available for sale 43,517 35,858
Unearned income (4,002) (5,719)
Loans (net of unearned income) 1,528,029 1,439,108
Allowance for loan losses (18,262) (17,936)
Net loans 1,509,767 1,421,172
Bank premises and equipment, net 55,384 45,939
Other assets 61,131 56,474
Total assets $2,444,902 $2,303,751
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Non-interest bearing $ 399,458 $ 334,499
Interest bearing 1,681,615 1,632,439
Total deposits 2,081,073 1,966,938
Federal funds purchased and securities
sold under agreements to repurchase 72,472 51,536
Federal Home Loan Bank advances 0 8,297
Other short-term borrowings 16,474 14,876
Long-term debt 16,374 11,497
Other liabilities 21,867 19,883
Total liabilities $2,208,260 $2,073,027
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited)
Sept. 30, December 31,
1997 1996
Stockholders' 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 30,000,000 shares:
issued September 30, 1997 - 20,054,931
shares; issued December 31,
1996-20,373,697 shares 40,110 40,747
Capital surplus 61,893 69,197
Retained earnings 132,615 120,350
Unrealized gain on securities
available for sale, net 2,024 430
Total shareholders' equity 236,642 230,724
Total liabilities and
shareholders' equity $2,444,902 $2,303,751
See Accompanying Notes to Consolidated Financial Statements
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited) (Unaudited)
For the Nine Months For the Quarter
Ended Sept. 30, Ended Sept. 30,
1997 1996 1997 1996
Interest Income
Loans held to maturity:
Interest and fees $100,732 $ 91,377 $34,115 $31,015
Loans available for sale:
Interest and fees 1,670 1,898 643 607
Total loan interest income 102,402 93,275 34,758 31,622
Securities held to maturity:
Taxable interest income 15,020 14,269 5,277 4,716
Interest income exempt from
Federal income taxes 1,162 1,171 374 384
Securities available for sale:
Taxable interest income 10,991 13,173 3,517 4,482
Dividend income 551 425 184 148
Total security interest income 27,724 29,038 9,352 9,730
Interest on federal funds sold
and securities purchased
under agreements to resell 2,606 2,885 844 787
Interest on deposits in banks 158 43 70 14
Total interest income 132,890 125,241 45,024 42,153
Interest expense:
Interest on deposits 52,554 51,165 17,926 17,051
Interest on short-term
borrowings 2,242 1,677 873 604
Interest on long-term debt 630 316 216 116
Total interest expense 55,426 53,158 19,015 17,771
Net interest income 77,464 72,083 26,009 24,382
Provision for loan losses 2,691 1,590 779 562
Net interest income after
provision for loan losses 74,773 70,493 25,230 23,820
/TABLE
F & M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED)
(Unaudited) (Unaudited)
For the Nine Months For the Quarter
Ended Sept. 30, Ended Sept. 30,
1997 1996 1997 1996
Other Income:
Commissions and fees from
fiduciary activities $ 1,757 $ 1,628 $ 570 $ 548
Service charges on deposit
accounts 7,272 6,731 2,576 2,471
Credit card fees 2,691 2,511 982 905
Fees for other customer services 1,699 1,406 535 500
Other operating income 2,256 2,839 784 722
Profits on securities available
for sale 1,824 24 1,396 (2)
Total other income 17,499 15,139 6,843 5,144
Other Expenses:
Salaries and employee benefits 29,814 27,395 10,155 9,347
Net occupancy expense of
premises 4,762 4,490 1,703 1,490
Furniture and equipment expense 4,338 4,042 1,481 1,415
Deposit insurance 174 177 61 134
Credit card expense 1,860 1,618 676 610
Other operating expense 15,944 14,978 5,998 5,137
Total other expense 56,892 52,700 20,074 18,133
Income before income taxes 35,380 32,932 11,999 10,831
Income tax expense 12,106 11,266 4,114 3,645
Net income $23,274 $21,666 $ 7,885 $ 7,186
Earnings per average share:
(1997 - 20,239,148 shares;
1996 - 20,412,199 shares)
Net income per share $ 1.15 $ 1.06 $0.39 $0.35
Dividends per share $ 0.54 $ 0.48 $0.18 $0.18
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES-CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996 (000 OMITTED)
Unrealized
Gain
(Loss) on
Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale-Net Total
Balances-Jan. 1, 1996 $40,848 $72,715 $105,140 3,343 $222,046
Net income 21,666 21,666
Cash dividends (9,772) (9,772)
Acquisition of common
stock (481) (3,680) (4,161)
Issuance of authorized
common stock:
Stock options 406 674 1,080
Stock options under
non-variable
compensatory plan 500 500
Employee Stock
Ownership Plan 105 852 957
Market value adjustment,
net of income tax (3,803) (3,803)
Balances-Sept. 30, 1996 $40,878 $71,061 $117,034 $ ( 460) $228,513
Balances-Jan. 1, 1997 $40,747 $69,197 $120,350 $ 430 $230,724
Net Income 23,274 23,274
Cash dividends (11,009) (11,009)
Acquisition of common
stock (860) (9,391) (10,251)
Issuance of authorized
common stock:
Stock options 123 405 528
Stock options under
non-variable
compensatory plan 732 732
Employee stock
ownership plan 100 950 1,050
Market value adjustment,
net of income tax 1,594 1,594
Balances-Sept. 30, 1997 $40,110 $61,893 $132,615 $ 2,024 $236,642
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
For the Nine
Months Ended
Sept. 30, Sept. 30,
1997 1996
Cash Flows From Operating Activities
Net income $ 23,274 $ 21,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,034 3,338
Provision for loan losses 2,691 1,590
Profit on securities available for sale (1,824) (24)
Increase in other assets (6,224) (5,488)
Increase in other liabilities 82 3,515
Net cash provided by operating activities 22,033 24,597
Cash Flows From Investing Activities
(Increase) decrease in interest-bearing
deposits in other banks 524 (378)
Proceeds from maturities, calls and sales
of available for sale securities 57,469 69,985
Purchase of securities available for sale (32,412) (50,923)
Proceeds from maturities of investment
securities 62,760 54,707
Purchase of investment securities (102,372) (61,340)
(Increase) decrease in federal funds sold
and securities purchased under agreements
to resell (11,112) 31,047
Net (increase) in loans (93,644) (101,479)
Purchases of bank premises and equipment (12,762) (6,509)
Proceeds from sale of OREO 3,940 4,217
Net cash (used in) investing activities (127,609) (60,673)
Cash Flows From Financing Activities
Net increase in noninterest-bearing
and interest-bearing demand deposits
and savings accounts 71,593 14,504
Net increase in certificates of deposit (42,543) 51,757
Dividends paid (11,009) (9,772)
Increase (decrease) in other
short-term borrowings 14,236 (18,018)
Increase in long-term debt 4,877 7,475
Acquisition of common stock (10,251) (4,161)
Net proceeds from issuance of common stock 1,578 2,037
F&M NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted)
(Unaudited)
Consolidated for the
Nine Months Ended
Sept. 30, Sept. 30,
1997 1996
Net cash provided by financing activities 113,567 43,822
Increase in cash and
cash equivalents 7,991 7,746
Cash and Cash Equivalents
Beginning 112,866 112,690
Ending 120,857 120,436
Supplemental Disclosures of Cash Flows
Information
Cash payments for:
Interest paid to depositors 54,395 53,566
Interest paid on other short-term
borrowings 2,342 1,677
56,737 55,243
Income taxes 12,252 9,717
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock options under
nonvariable compensatory plan:
1997 - 68,500 shares;
1996 - 50,000 shares 732 500
Loan balances transferred to foreclosed
properties 2,358 1,072
Market value adjustment available for
sale securities 3,496 5,851
See Accompanying Notes to Consolidated Financial Statements
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
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 September 30, 1997, and December 31, 1996,
and the results of operations and changes in cash flows for the nine
months ended September 30, 1997 and 1996. 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, 1996.
2. The results of operations for the nine-month periods ended
September 30, 1997 and 1996, 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
September 30, 1997, are as follows:
September 30, 1997 (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 $343,732 $4,806 ($ 991) $347,547
Corporate securities 1,575 73 - 1,648
Obligations of states and
political subdivisions 27,870 625 (58) 28,437
$373,177 $5,504 ($1,049) $377,632
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
F&M's amortized cost and market value of the available for sale
securities as of September 30, 1997, are as follows:
September 30, 1997 (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 $213,427 $4,146 $ (604) $216,969
Corporate securities 10,640 12 - 10,652
Mortgage-backed securities 11,899 79 (137) 11,841
Other 4,229 -- -- 4,229
$240,195 $4,237 $ (741) $243,691
4. F&M's loan portfolio is composed of the following:
Sept. 30, December 31,
1997 1996
(000 Omitted)
Loans-held to maturity (HTM):
Commercial, financial and agricultural $ 248,687 $ 225,327
Real estate-construction 80,903 66,477
Real estate-mortgage 1,027,963 981,909
Installment loans to individuals 174,478 171,114
Total loans 1,532,031 1,444,827
Less: Unearned income (4,002) (5,719)
Allowance for loan losses (18,262) (17,936)
Loans, net $1,509,767 $1,421,172
F&M had $10,472,000 in non-performing loans at September 30, 1997.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
5. Reserve for Loan Losses:
Sept. 30, December 31,
1997 1996
(000 Omitted)
Balance at January 1 $ 17,936 $ 18,252
Provision charged to operating expense 2,691 2,050
Recoveries added to the reserve 958 518
Loan losses charged to the reserve (3,323) (2,884)
Balance at end of period $ 18,262 $ 17,936
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the nine-month
periods ended September 30, 1997 and 1996 were 20,239,148 shares and
20,412,199 shares, respectively.
7. On September 11, 1997, the Corporation and Shomo & Lineweaver
Insurance Agency, Inc., announced that their respective Board of
Directors have approved an agreement for the affiliation of Shomo &
Lineweaver Insurance Agency, Inc., with F&M Bank-Winchester. The
transaction is expected to be completed in the fourth quarter 1997.
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 September 30, 1997, and
the related consolidated statements of income, changes in
shareholders' equity and cash flows for the nine-month periods ended
September 30, 1997 and 1996. 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, 1996, 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
29, 1997, 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, 1996 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
November 10, 1997
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 September 30, 1997, amounted to $2.445 billion, up
$171.2 million or 7.5% from $2.274 billion at September 30, 1996.
Total assets at December 31, 1996, were $2.304 billion. For the
first nine months of 1997, total assets averaged $2.354 billion, 5.1%
above the first nine months of 1996 average of $2.239 billion.
Total loans, net of unearned income, amounted to $1.528 billion at
September 30, 1997, an increase of $133.0 million or 9.5% from $1.395
billion at September 30, 1996. At December 31, 1996, total loans,
net, were $1.439 billion. Total loans (net) as a percent of total
assets were 62.5% at September 30, 1997, as compared to 61.4% at
September 30, 1996, and 62.5% at December 31, 1996. Net loan volume
for the first nine months of 1997 was $88.9 million as compared to
$98.9 million for the first nine months of 1996. The decrease in
loan volume is related to securing secondary market funding of $19.3
million, and investment of $19.7 million in FHA and VA government
guaranteed residential real estate in the first nine months of 1996.
On September 30, 1997, the securities portfolio totalled $616.9
million, which was $377 thousand or 0.6% higher than the year before
and $19.9 million or 3.3% higher than at December 31, 1996. In the
first nine months 1997, as funds became available they were primarily
utilized for lending activities in lieu of investing in the
securities portfolio as a result of increased lending demand. Funds
that were invested in the securities portfolio were an effort to
balance the asset risk portfolio by acquiring U.S. government and
U.S. Agency securities. Federal funds sold and securities purchased
under agreements to resell were $80.2 million on September 30, 1997,
$11.1 million or 16.1% higher than $69.0 million outstanding at
December 31, 1996. The large increase in federal funds sold is the
result of a special short-term time deposit promotion. It is
anticipated that as interest rates improve, these funds will be
invested in higher yielding financial instruments.
Financial Accounting Standards Board Pronouncement #115 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 September 30, 1997, was $243.7 million as compared to
$263.4 million at year end 1996. The decrease in the amount of
securities invested in AFS securities ($22.6 million) is the result
of shifting investment in securities to held to maturity securities
which increased $22.9 million. The effect of the market value of AFS
securities less the book value of AFS securities, net of income
taxes, is reflected in Stockholders' Equity which was $2.0 million
at September 30, 1997, and which has increased from year end 1996 by
$1.6 million.
Total deposits increased $132.0 million or 6.8% to $2.081 billion at
September 30, 1997, compared to one year earlier. At December 31,
1996, total deposits were $1.967 billion. F&M offers attractive, yet
competitive, rates that have contributed to the increase in deposits.
Long-term debt was $16.4 million at September 30, 1997, as compared
to $11.7 million at September 30, 1996, and $11.5 million at year end
1996. Long-term debt 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 nine months of 1997 amounted to $23.274
million, increasing $1.608 million or 7.4% from $21.666 million for
the first nine months of 1996. The yield on interest-earning assets
was 8.34% for the first nine months 1997 as compared to 8.18% for the
first nine months 1996 and the yield on interest-bearing deposits was
4.22% for the first nine months 1997 and 1996.
Return on average assets was 1.32% for the first nine months of 1997,
compared with 1.29% for the same period in 1996 and 1.30% for the
year 1996. F&M's return on average equity was 13.22% for the first
nine months of 1997 and 12.80% for the first nine months of 1996 and
for the year ended 1996.
Net interest income totaled $77.5 million for the first nine months
of 1997, a $5.4 million or 7.5% increase over F&M's performance for
the first nine months of 1996. The net interest margin for the first
nine months 1997 was 4.82%, up 13 basis points from 4.69% for the
first nine months of 1996. The increase in net interest margin is
the result of an increase in the prime interest rate affecting
adjustable rate loans and new loans and the delayed effect on the
increase in rates on fixed rate interest-bearing deposits.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans, and foreclosed properties were $24.1 million at
September 30, 1997, an increase of $500 thousand or 2.1% from $23.6
million at December 31, 1996. 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
September 30, 1997, were $10.6 million, or 0.69% of total loans,
compared to $11.2 million, or 0.78% of total loans at December 31,
1996. Also included in nonperforming loans are loans considered
impaired which management is concerned about the ability of the
customer to repay the loan and related interest at the original
contractual terms. At September 30, 1997, impaired loans totaled
$6.4 million upon which an allowance of $1.7 million has been
provided, which is included in the total loan portfolio allowance for
loan losses. Interest income recognized on impaired loans as of
September 30, 1997, was $265 thousand. The average balance of
impaired loans for the first nine months 1997 was $7.2 million.
Loans past due 90 days or more and still accruing interest because
they were well secured and in the process of collection were $4.5
million at December 31, 1996, and $9.9 million at September 30, 1997.
Foreclosed properties consists of 33 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 September 30, 1997, foreclosed properties were
$13.5 million as compared to $12.4 million at December 31, 1996.
The allowance for loan losses has increased to $18.3 million at
September 30, 1997, as compared to $17.9 million at year end 1996.
The allowance for loan losses increased $326 thousand in the first
nine months 1997 as compared to an increase of $362 thousand for the
first nine months 1996. The amount provided for loan losses in 1996
and 1997 is an amount, in management's judgment, sufficient for the
risk associated with the loan portfolio. The ratio of allowance for
loan losses to total loans was 1.20% at September 30, 1997, as
compared to 1.31% at September 30, 1996, and 1.25% at year end 1996.
Total noninterest income increased $2.360 million or 15.6% from $15.1
million for the first nine months of 1996 to $17.5 million for the
first nine months of 1997. For the first nine months 1997, gains on
securities available for sale were $1.824 million or 10.4% of total
noninterest income, whereas, for the first nine months of 1996
securities gains were $24 thousand or 0.2% 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. 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 $2.691 million for the first nine months 1997,
up $180 thousand or 7.2% over the first nine months 1996 as a result
of a marketing effort to attract new credit card customers. Other
operating income decreased $583 thousand, down from $2.839 million
for the first nine months 1996 to $2.256 million for the first nine
months of 1997. 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 $4.2 million or 8.0% from $52.7
million for the first nine months 1996 to $56.9 million for the first
nine months 1997. Salary expense increased $2.419 million or 8.8%
from $27.395 million for the first nine months 1996 to $29.814
million for the first nine months 1997 as a result of normal
increases in salaries and benefits. The cost of net occupancy
expense has increased $272 thousand or 6.1% from $4.490 million for
the first nine months of 1996 to $4.762 million for the first nine
months of 1997, as a result of acquisition of new branches and
remodeling of older branches. Furniture and equipment expense has
increased $296 thousand or 7.3% from $4.042 million for the first
nine months 1996 to $4.338 million for the first nine months 1997,
which reflects an increase in the acquisition of new furniture and
equipment. Deposit insurance was $174 thousand for the first nine
months 1997, a decrease of $3 thousand from $177 thousand for the
same period 1996. Credit card expense was up $242 thousand from
$1.618 million for the first nine months 1996 to $1.860 million for
the first nine months 1997 as a result of direct marketing and
offering new products. Other operating expense increased $966
thousand from $14.978 million for the first nine months of 1996 to
$15.944 million for the first nine months 1997.
Income taxes increased $840 thousand or 7.5% from $11.266 million for
the first nine months of 1996 to $12.106 million for the first nine
months of 1997. 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 $2.365 million
for the first nine months of 1997, representing a ratio of net
charge-offs to total average loans, net of unearned income, of 0.21%,
annualized. This compares to 1996 twelve-month net charge-offs of
$2.366 million, or 0.17% of average loans.
As of September 30, 1997, loans on a non-accrual basis amounted to
$10.472 million, or 0.7% of total loans, net of unearned discount and
loans 90 days or more past due and still accruing totaled $9.9
million, or 0.6% 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 September 30, 1997, the potential problem loans included six
lending relationships with principal balances in excess of $500,000.
Those lending relationships had an aggregate principal balance
outstanding of $12.1 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 correspondent
banks, 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 September 30, 1997 was $228.1
million, or 14.9% of risk-weighted assets, for Tier I capital and
$246.4 million, or 16.1% 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 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, 1996, filed
with the Commission on March 27, 1997, under Exhibit 10.
(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, 1996, filed
with the Commission on March 27, 1997 under Exhibit 11.
(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 1997 Notice
of Annual Meeting and Proxy Statement dated March 21, 1997,
filed with the Commission on March 19, 1997.
(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.
None.
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
Jack R. Huyett, President, Chief Administrative Officer
/s/ Alfred B. Whitt
Alfred B. Whitt
Senior Vice President, Secretary, Senior Financial Officer
Date: November 12, 1997