SELECTED FINANCIAL DATA
Year Ended December 31,
1995 1994 1993 1992 1991
------------- ------------- ------------ ------------ ------------
(In thousands, except ratios and per share amounts)
Income Statement Data:
Interest income................ $ 133,262 $ 119,613 $ 107,534 $ 103,381 $ 111,848
Interest expense............... 57,297 46,430 43,615 46,058 60,749
------------- ------------- ------------ ------------ ------------
Net interest income............ 75,965 73,183 63,919 57,323 51,099
Provision for loan losses...... 1,081 2,535 2,857 3,623 6,962
------------- ------------- ------------ ------------ ------------
Net interest income after
provision for loan losses... 74,884 70,648 61,062 53,700 44,137
Noninterest income............. 15,854 15,564 13,063 11,504 10,207
Securities gains............... 366 748 1,781 1,020 1,271
Noninterest expense............ 55,995 56,283 48,330 43,207 40,043
------------- ------------- ------------ ------------ ------------
Income before income taxes..... 35,109 30,677 27,576 23,017 15,572
Income taxes................... 11,677 9,976 8,844 6,733 4,262
------------- ------------- ------------ ------------ ------------
Net income..................... $ 23,432 $ 20,701 $ 18,732 $ 16,284 $ 11,310
============= ============= ============ ============ ============
Per Share Data:
Net income..................... $ 1.42 $ 1.25 $ 1.16 $ 1.09 $ 0.77
Cash dividends ................ 0.61 0.54 0.58 (1) 0.41 0.39
Book value at period end....... 11.69 10.25 9.97 9.17 8.30
Tangible book value............ 11.37 9.92 9.60 9.13 8.25
Balance Sheet Data:
Assets......................... $1,833,820 $ 1,708,493 $1,670,657 $1,409,814 $1,301,720
Loans, net of unearned income.. 1,053,829 1,009,223 959,052 781,292 766,053
Securities..................... 569,269 514,488 502,855 434,039 354,792
Deposits....................... 1,583,477 1,491,072 1,465,287 1,228,404 1,150,557
Shareholders' equity........... 193,482 168,989 164,494 146,161 122,115
Average shares outstanding..... 16,529 16,517 16,124 14,961 14,669
Performance Ratios:
Return on average assets....... 1.33% 1.21% 1.23% 1.22% 0.91%
Return on average equity....... 12.70% 12.23% 12.03% 12.40% 9.54%
Dividend payout................ 43.17% 43.15% 49.93% 37.87% 50.49%
Efficiency (2)................. 60.15% 62.43% 61.25% 60.88% 63.01%
Asset Quality Ratios:
Allowance for loan losses to
period end loans, net....... 1.42% 1.53% 1.46% 1.45% 1.51%
Allowance for loan losses to
nonaccrual loans............ 131.16% 83.01% 51.34% 76.65% 94.27%
Nonperforming assets to
period end loans and
foreclosed properties (3)... 2.24% 2.94% 3.94% 2.54% 1.85%
Net charge-offs to average
loans....................... 0.15% 0.11% 0.18% 0.50% 0.50%
Capital and Liquidity Ratios:
Leverage....................... 10.46% 9.94% 10.41% 10.90% 9.79%
Risk-based capital ratios:
Tier 1 capital.............. 16.97% 16.40% 15.75% 17.97% 15.70%
Total capital............... 18.22% 17.65% 17.00% 19.22% 16.95%
Average loans to average
deposits.................... 66.70% 65.99% 64.07% 66.09% 69.37%
Note: The amounts previously reported in Form 10Q and Form 10K for the periods
presented have been retroactively restated to reflect the acquisitions of
Bank of the Potomac on April 6, 1995, PNB Financial Corporation on July 1,
1994 and Hallmark Bank & Trust on July 1, 1994 and a 2.5% stock dividend
effective September 1, 1994.
(1) Includes first quarter 1994 dividend declared in 1993.
(2) Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, net of securities gains or
losses.
(3) Nonperforming assets do not include loans past due 90 days accruing
interest.
[caption - W.M. Feltner]
[caption - "...in the past five years, our assets have doubled, our net income
has doubled and our equity capital has doubled."]
"We endeavor to have our banks operate as independent community banks, retaining
their board of directors, employees and remaining as a vital and integral part
of the community they serve."
To Our Shareholders, Customers and Friends:
Total assets $1,833,820,000, up 7.34% -- total net income $23,432,000, up 13.2%
- -- return on average assets 1.33% -- total dividend payout $10,116,043, up 19.5%
- -- book value per share $11.69, up 14% -- market price per share $20.00, up 26%.
That's the 1995 performance of the Big Apple. How sweet it is!
Our 26th year of operation was superb and showed a continuation of
the outstanding progress we have made the past several years. For instance in
the past five years, our assets have doubled, our net income has doubled and
our equity capital has doubled.
During the same period, we made giant strides in the area served by
the Corporation's banks. In Virginia, our acquisitions of Farmers and Merchants
Bank of Hamilton, Peoples Bank of Warrenton, Hallmark Bank of Springfield and
Potomac Bank of Herndon opened up the entire area east of Clarke County to the
District of Columbia line. Our acquisition of the Bank of Emporia also gave us
access to the southern most part of the state. In West Virginia, our
acquisition of the Bank of Keyser expanded our service area in the eastern
panhandle from Jefferson County on the east to Mineral County on the west.
On November 22, 1995, we signed an agreement whereby, subject to
their shareholders' approval and the regulatory agencies, Fairfax Bank and
Trust will join our "Family of Banks." This fine organization has $243.1
million in assets and 11 locations in Northern Virginia. Once the acquisition
is completed, we will have an outstanding presence in that area. We are looking
forward to a long and pleasant relationship with the employees, officers,
directors, shareholders and customers of this excellent financial
institution. We anticipate this transaction to be completed during the first
half of 1996.
Merger mania seems to be the order of the day throughout the nation,
and particularly so within the banking industry. Over regulation of banks
brought about by punitive laws passed by Congress in the past five or six years
has led to the situation whereby small banks find it almost prohibitive to
comply with them. They are time consuming, very costly and of questionable
value to the consumer.
In many instances, particularly with the mega banks, consolidation has
led to employee lay-offs, branch closings and limited access to banking
services. Fortunately for your company, we do not fall into that category.
Whenever and wherever possible through our multi-bank holding company
philosophy, we endeavor to have our banks operate as independent community
banks, retaining their board of directors, employees and remaining as a
vital and integral part of the community they serve. While this type of
operation may be more costly, it not only has served us well but also has aided
our acquisition program and has been well received in the communities we are
privileged to serve. Since all of our 11 banks are earning over 1% on
assets, you will have to admit it has its advantages. Besides, regardless
of what large banks would have you believe, small banks do a better job of
serving their community than do the large ones.
The land transactions that we had with Winchester and Frederick
County are now complete and the renovation of 9 Court Square, which is due for
completion around Labor Day, will afford us the additional space we need
since we have outgrown most of our banking departments. We anticipate
moving F&M Bank-Winchester's Trust and Credit Card Departments to the new
location.
As most of you probably know, in 1991 Congress passed FDICIA (Federal
Deposit Insurance Corporation Improvement Act). In addition to the many
complicated and punitive features contained therein, was the extreme increase
in the insurance premiums we were required to pay. For example, the rate was
increased on well capitalized banks from 8 cents per hundred dollars on
deposit to 23 cents per hundred and to give you a better idea of how it affected
our earnings, in 1990 prior the new law, we paid insurance premiums totaling
$857,742. Last year we paid $3,268,586. All of this was brought on because
Representative Gonzalez and his cronies said the banks were going to belly up
like the savings and loans had. Well, needless to say, they were wrong (as
usual) and during 1995, the rate was reduced to 4 cents per hundred. 1996's
total premium will be $2,000 for each of our 11 banks. How's that for
emphasizing how wrong our Congress can be. Now if we can just get the other
devastating effects of FDICIA off the books, bankers might be able to
breathe a little more freely. We're not expecting that to happen because quite
frankly, our Congress is so confused that we're not sure they know which end is
up!
Today's banking environment represents a difficult challenge and
we are pleased with the manner in which our 11 banks are meeting them.
We are particularly proud of the manner in which our dedicated people are
meeting the needs of the public throughout the area we serve. Still,
difficult and trying days lie ahead and not only do we intend to meet them head
on, but look forward to the challenges they might bring. The "Big Apple" is
prepared to take full advantage of the opportunities that lie ahead and with
the continued support of our shareholders and customers, we will do so with
vigor and enthusiasm.
[caption - "We are particularly proud of the manner in which our dedicated
people are meeting the needs of the public throughout the area we serve."]
Sincerely yours,
/s/ W.M. FELTNER
W.M. Feltner
Chairman of the Board
and Chief Executive Officer
/s/ JACK R. HUYETT
Jack R. Huyett
President and Chief
Administrative Officer
[Jack R. Huyett Caption]
1995 Highlights
1995 -- A Very Good Year
1995 was a very good year for F&M National Corporation. We surpassed all
previous years in total assets, net income, net income per share, total
deposits, total loans and stock price.
Total assets hit an all-time high of $1,833,820,000 as did net
income of $23,432,000 and net income per share of $1.42. Total
deposits were $1,583,477,000 and total loans were $1,053,829,000 as of
December 31. On December 29, your stock closed at $20 per share and if
you take our total outstanding shares of 16,552,324, this was an all-time high.
The total amount of shares traded on the New York Stock Exchange in 1995 was
1,704,000 shares.
January 1, saw the merger of F&M Bank-Broadway into F&M
Bank-Massanutten. The decision to do this was two-fold. Robert Driver,
the President of F&M Bank-Broadway, retired and since both banks were in
Rockingham County, Virginia, it brought about an economy of savings.
On April 7, we affiliated with Bank Of The Potomac in Herndon, Virginia.
This bank, with $57.6 million in assets, now made a total of 11 banks for
your corporation.
[caption - F&M Bank-Potomac in Herndon, Virginia.]
[caption - F&M Bank-Winchester's Senseny Road branch opening. Left to right:
Thomas Thayer, Branch Manager; John Riley, Frederick County Administrator;
W.M Feltner, Chairman of the Board, F&M-Bank-Winchester; Richard Dick,
Chairman, Frederick County Board of Supervisors; Betty Carroll, President, F&M
Bank-Winchester; and George Romine, F&M Bank Director.]
In order to expand our downtown F&M Bank-Winchester operation, we
traded property with Frederick County, Virginia, and acquired the historic
Frederick County Court Square offices. These offices are now being renovated,
along with a city parking lot located on North Cameron Street. We also
acquired the vacant Solenberger Hardware Store building and lot. This lot,
along with the city parking lot, is being made into an employee parking lot.
To further serve our customers, F&M Bank-Winchester opened a
branch at Westminster Canterbury in Winchester to serve the residents of this
retirement community. F&M Bank-Winchester also opened a full-service branch
in eastern Frederick County, Virginia, on Senseny Road. F&M
Bank-Massanutten opened a full-service branch in Timberville, Virginia.
F&M Bank-Peoples began construction on a full-service branch in Falmouth,
Virginia.
On November 22, a Plan of Affiliation was announced between F&M
National Corporation and Fairfax Bank & Trust of Fairfax, Virginia. This
institution, with $243.1 million in assets and 11 banking offices, will give
your corporation a total of 19 banking offices in Northern Virginia.
New services implemented during 1995 were Fixed Rate Annuities in the
State of Virginia, where this service is legal--Discount Brokerage Service,
which will save our customers brokerage fees--and an expansion of our ATM
system. We now operate 68 ATMs throughout the corporation.
From an operational standpoint, we have converted all of our banks'
data processing systems, except one, and that will be converted to our Data
Center in Middletown, Virginia, in February of 1996. This will produce a
substantial savings to your corporation.
Many of you remember a song entitled, "It Was A Very Good Year." Well,
1995 was a very good year for your corporation.
[caption - F&M Bank-Massanutten's Timberville Branch]
[caption - Ground breaking for Court Square properties]
[F&M Logo] F&M Bank - Winchester
Total Assets Return on Average Assets Locations
$781,033,000 1.28% 31
[Caption]
Board of Directors
Left to right, seated: George L. Romine, Jack R. Huyett, W.M. Feltner, Chairman
of the Board, Betty H. Carroll, President & C.E.O., and Mary M. Henkel. Left to
right, standing: Ray Robinson, Jr., F. Dixon Whitworth, Jr., Joseph E. Kalbach,
I. Clinton Miller, J.D. Shockey, Jr., Alfred B. Whitt, and William A. Truban,
D.V.M. Not shown: Frank Armstrong, III, and W. H. Clement.
[F&M Logo] F&M Bank - Central Virginia
Total Assets Return on Average Assets Locations
$74,268,000 1.41% 7
[Caption]
Board of Directors
Left to right, seated: Robert C. Raynor, M.D., Wayne L. Turner, President &
C.E.O., Jacob P. Bailey, Chairman of the Board, and Thomas H. Romer. Left to
right, standing: William B. Pollard, M.D., Ronald L. Moyer, Walter L. Tucker,
Jr., James N. Fleming, and Larry J. McElwain. Not shown: William J. Camden, S.W.
Heischman, and F. Dixon Whitworth, Jr.
[F&M Logo] F&M Bank - Emporia
Total Assets Return on Average Assets Locations
$63,676,000 1.54% 3
[Caption]
Board of Directors
Left to right, seated: Bobby L. Flippen, Arthur H. Kreienbaum, Jr., Dr.
Theopolis Gilliam, Wayne P. Leath, C. Butler Barrett, and Stephen D. Bloom. Left
to right, standing: Robert H. Grizzard, Jr., Chariman of the Board, and O.Wayne
Hanks, President & C.E.O.
[F&M Logo] F&M Bank - Hallmark
Total Assets Return on Average Assets Locations
$126,873,000 1.28% 5
[Caption]
Board of Directors
Left to right, seated: John P. DiGiulian, Hugh W. Compton, President, and Reed
E. Larson, Chariman of the Board. Left to right, standing: Robert H. Bird, F.
Dixon Whitworth, Jr., James C. Davis, John T. Rohrback, and Michael M. Webb.
[F&M Logo] F&M Bank - Massanutten
Total Assets Return on Average Assets Locations
$160,934,000 1.52% 8
[Caption]
Board of Directors
Left to right, seated: Russell K. Henry Jr., W. Wallace Hatcher, William A.
Julias, Chairman of the Board, and Wayne L. Smith, President & C.E.O. Left to
right, standing: Dwight W. Hartman, J. Robert Black, Garnett R. Turner, Edward
P. Shank, Marian G. Jenkins, Robert E. Driver, Homer M. Fulk, Curtis F. Kite,
Nancy H. Whitmore, Alfred B. Whitt, Emmet C. Stroop, and Harry L. Rawley. Not
Shown: Robert W. Drechsler.
[F&M Logo] F&M Bank - Peoples
Total Assets Return on Average Assets Locations
$96,804,000 1.26% 4
[Caption]
Board of Directors
Left to right, seated: Mark C. Riley, President and CEO, Alice Jane Childs,
Chairman, Jack R. Huyett, and Fred G. Wayland, Jr. Left to right, standing:
George F. Downes, Lewis N. Springer, Edward C. A. Wachtmeister, Thomas H. Kirk,
T. Christopher Jenkins, and Alan L. Day, Jr. Not Shown: Marshall DeF. Doeller.
[F&M Logo] F&M Bank - Potomac
Total Assets Return on Average Assets Locations
$61,919,000 1.08% 1
[Caption]
Board of Directors
Left to right, first row: Robert R. Sevila, David E. Feldman, Howard R. Green,
Alfred B. Whitt, and Norman P. Horn. Left to right, second row: Henry C.
Mackall, Thomas Davis Rust, Chairman of the Board, Thomas F. Hanes, President &
CEO, and Daniel R. Baker.
[F&M Logo] F&M Bank - Richmond
Total Assets Return on Average Assets Locations
$153,157,000 1.09% 9
[Caption]
Board of Directors
Left to right, seated: James R. Reames, Richard H. Hamlin, Lewis T. Cowardin,
and James E. Howard. Left to right, standing: Zane G. Davis, Jeff C. Bane,
Stephen C. Conte, James H. Atkinson, Jr., President & CEO, William R. Harris,
Chariman of the Board, and F. Dixon Whitworth, Jr.
[F&M Logo] F&M Bank - Blakeley
Total Assets Return on Average Assets Locations
$96,864,000 1.38% 3
[Caption]
Board of Directors
Seated: J. Blakcwell Davis, Sr., Chairman of the Board. Left to right, standing:
Paul L. Reid, Charles C. Conrad, Jack R. Huyett, and Denver L. Hipp, President &
CEO. Not shown: Dr. James Moler.
[F&M Logo] F&M Bank - Keyser
Total Assets Return on Average Assets Locations
$89,501,000 1.57% 3
[Caption]
Board of Directors
Left to right, seated: Joseph W. Kessel, Harlan M. Bell, President & CEO, and
William C. Knott. Left to right, standing: William M. Bane, Richard B.
Schwinabart, Harland D. Ridder, and Rudy R. Sites. Not shown: Glen A. Ryan,
Chairman of the Board, Jack R. Huyett, and Alfred B. Whitt.
[F&M Logo] F&M Bank - Martinsburg
Total Assets Return on Average Assets Locations
$93,797,000 1.20% 3
[Caption]
Board of Directors
Left to right, seated: Betty H. Carroll, Evelyn S. Oates, and Donald L. Sperow.
Left to right, standing: C. William Hammond, President and CEO, J. Wayne
Lancaster, James L. Bowman, Chairman of the Board, and Billy J. Tisinger.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major components
of the results of operations and financial condition, liquidity and capital
resources of F&M. This discussion and analysis should be read in conjunction
with "Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements.
Overview
F&M produced record earnings during 1995, performing well in a highly
complex, competitive business environment. Continued high asset quality, an
excellent interest margin and improved management efficiencies contributed to
net income of $23.4 million, a return on assets of 1.33% and an efficiency ratio
of 60.2%.
On March 17, 1995, F&M acquired Farland Investment Management, Inc.
("Farland") through the exchange of 11,980 shares of F&M common stock. Farland
was merged into F&M Bank-Winchester as a part of its Trust Department. The
merger of Farland provides experienced, expert Trust counseling in securities
investments.
On April 6, 1995, Bank of The Potomac ("Potomac"), Herndon, Virginia, with
assets of $54.3 million, became a wholly-owned subsidiary of F&M with a tax-free
exchange of 872,187 shares of F&M common stock for all of the outstanding shares
of Potomac. The share exchange of Potomac has been accounted for as a pooling of
interests and, therefore, all finacial statements have been restated to reflect
the share exchange.
Results of Operations
Net income increased 13.2% in 1995 to $23.4 million, compared with $20.7
million earned in 1994 and $18.7 million earned in 1993. Earnings per share was
$1.42 per share in 1995 compared to $1.25 and $1.16 per share for 1994 and 1993,
respectively.
Return on average equity on an annualized basis for 1995 was 12.7%
compared to 12.2% for the same period for the prior year. Return on average
assets on an annualized basis for 1995 was 1.33%, compared to 1.21% for 1994 and
1.23% for 1993. These performance ratios have varied since 1991, with return on
average equity rebounding from 9.54% in 1991 to 12.40% in 1992, dropping to
12.03% in 1993 and then increasing to 12.23% in 1994. Return on average assets
rebounded from 0.91% in 1991 to 1.22% in 1992, increasing slightly to 1.23% in
1993 and decreasing slightly to 1.21% in 1994.
Net interest margin, on a tax-equivalent basis, was 4.75% for 1995
compared to 4.74% for 1994 and 4.67% for 1993. Net interest income and net
interest margin are influenced by fluctuations in market rates and changes in
both the volume and mix of average earning assets and the liabilities that fund
those assets. Market rates declined in the fourth quarter of 1995 due to a
decrease in the prime lending rate of 25 basis points. For the first three
quarters of 1995, F&M's prime lending rate increased approximately 2% which is
reflected in the yield on loans increasing from 8.66% in 1994 to 9.42% in 1995.
In 1995 and 1994, loan demand declined and competition increeased for
potential loan customers, causing a shift in the mix in earning assets from
loans to investment securities. The securities portfolio represents the second
largest component of earning assets. At December 31, 1995, F&M's securities
portfolio totaled $569.3 million, $54.8 million (10.6%) higher than year end
1994 and $11.6 million (2.3%) higher than year end 1993.
F&M's efficiency ratio, a measure of its performance based upon the
relationship between non-interest expense and income less securities gains,
compares favorably to other Virginia financial institutions. F&M's efficiency
ratio for 1995, 1994 and 1993 was 60.2%, 62.4% and 61.3%, respectively. A lower
percentage of the efficiency ratio represent a greater control of non-interest
related costs. A fluctuation in the efficiency ratio can be attributed to
relative changes in both noninterest income and net interest income.
Since the beginning of 1988, F&M has acquired approximately $817.6 million
in assets and $725.1 million in deposits through ten bank acquisitions. Nine of
these acquisitions were accounted for as a pooling-of-interests and one as a
purchase, which enabled F&M to expand its market into the eastern panhandle of
West Virginia, northern Virginia market of Loudoun, Fauquier, Fairfax and Prince
William counties, southern Virginia market of Greensville County and increase
its market share in two of its other Virginia markets.
F&M is not aware of any current recommendations by any regulatory
authorities which, if they were implemented, would have a material effect on the
registrant's liquidity, capital resources, or results of operations.
The following table sets forth, for the periods indicated, selected
quarterly results of F&M's operations.
Summary of Financial Results By Quarter
1995* 1994*
----------------------------------- -----------------------------------
Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Interest income................................... $34,542 $33,756 $33,084 $31,880 $31,221 $30,578 $29,568 $28,246
Interest expense.................................. 15,379 14,989 14,237 12,692 12,098 11,718 11,462 11,152
--------------------------------- -------------------------------------
Net interest income............................... 19,163 18,767 18,847 19,188 19,123 18,860 18,106 17,094
Provision for loan losses......................... 372 235 197 277 964 435 466 670
--------------------------------- -------------------------------------
Net interest income after provision for loan
losses 18,791 18,532 18,650 18,911 18,159 18,425 17,640 16,424
Noninterest income................................ 4,085 3,888 4,479 3,768 3,636 4,388 3,589 4,699
Noninterest expense............................... 14,344 13,231 14,625 13,795 14,466 14,239 14,142 13,436
Income before income taxes........................ 8,532 9,189 8,504 8,884 7,329 8,574 7,087 7,687
Applicable income taxes........................... 2,793 3,091 2,878 2,915 1,866 3,050 2,462 2,598
--------------------------------- ------------------------------------
Net income........................................ $ 5,739 $ 6,098 $ 5,626 $ 5,969 $ 5,463 $ 5,524 $ 4,625 $ 5,089
================================= ====================================
Net income per share.............................. $ 0.35 $ 0.37 $ 0.34 $ 0.36 $ 0.33 $ 0.33 $ 0.28 $ 0.31
* The amounts previously reported on Form 10Q for the periods presented have
been retroactively restated to reflect the acquisitions of Bank of the
Potomac on April 6, 1995, PNB Financial Corporation on July 1, 1994 and
Hallmark Bank & Trust on July 1, 1994 and a 2.5% stock dividend effective
September 1, 1994.
On July 1, 1994, F&M issued a total of 2,301,469 shares of its common
stock to account for the merger of two banks. F&M issued 1,107,846 shares of
common stock to effect the merger of Hallmark Bank and Trust Company,
Springfield, Virginia and 1,193,623 shares of common stock to effect the merger
of PNB Financial Corporation, Warrenton, Virginia.
On September 1, 1994, F&M issued 378,690 shares of common stock to
account for the issuance of a 2.5% stock dividend.
On December 28, 1994, F&M joined the New York Stock Exchange under the
trading symbol FMN. Prior to this date, F&M's stock was traded on the NASDAQ
(National Association of Securities Dealers Automated Quotation System) under
the trading symbol FMNT.
Net Interest Income
Net interest income represents the principal source of earnings for F&M.
Net interest income equals the amount by which interest income exceeds interest
expense. Changes in the volume and mix of interest-earning assets and
interest-bearing liabilities, as well as their respective yields and rates, have
a significant impact on the level of net interest income.
Net interest income was $76.0 million for the year ended December 31,
1995, up 3.8% over the $73.2 million reported for the same period in 1994 and up
14.5% in 1994 over the $63.9 million reported for 1993. Net interest income in
1995 was affected by a greater investment in securities and lower market rates.
Loans grew $44.6 million (4.4%) to $1.054 billion in 1995 from $1.009 billion in
1994. In 1995, total interest bearing deposits provided the source of funds
increasing to $1.347 billion, up $86.5 million (6.9%) from $1.260 billion in
1994. Interest-bearing deposits increased $2.7 million in 1994 from $1.258
billion in 1993. The growth was a result of offering attractive market rates
coupled with customers' desires to place investments in a strong, highly
capitalized financial corporation.
Net interest income for 1994 was $73.2 million, compared to $63.9
million for 1993. Net interest income in 1994 was affected by improved loan
demand and higher market rates, while deposits demonstrated only a relatively
small increase. Loans grew $50.2 million (5.2%) to $1.009 billion in 1994 from
$959.1 million in 1993. Depositors, in 1994, chose to remain in a liquid
position in order to take advantage of alternative or higher yielding
investments as indicated by interest-bearing deposits increasing only $2.7
million (0.2%) while noninterest-bearing deposits increased $23.1 million
(11.1%). Increased loan demand and shifting in type of deposit investment
resulted in total interest income increasing $12.1 million (11.2%) from $107.5
million in 1993 to $119.6 million in 1994 and total interest expense increasing
$2.8 million (6.5%) from $43.6 million in 1993 to $46.4 million in 1994. During
1994, funds previously invested in lower yielding federal funds ($37.4 million)
were shifted to much higher yielding loan and investment securities, therefore,
contributing to the increase in net interest margin from 4.67% in 1993 to 4.74%
in 1994.
Net interest income for 1993 was $63.9 million, compared to $57.3
million for 1992. Although loan demand demonstrated some improvement in 1993,
the increase in net interest income was due primarily to increases in the size
of the investment in the securities portfolio.
Average Balances, Income and Expense, Yields and Rates (1)
Twelve Months Ended December 31,
1995
Annual
Average Income/ Yield/
Balance Expense Rate
(Dollars in thousands)
ASSETS
Securities:
Taxable............................................................ $ 490,061 $ 30,976 6.32%
Tax-exempt (1)..................................................... 37,625 2,888 7.67%
Total securities................................................. 527,686 33,864 6.42%
Loans (net of unearned income):
Taxable............................................................ 1,015,715 95,587 9.41%
Tax-exempt (1)..................................................... 7,229 760 10.51%
Total loans...................................................... 1,022,944 96,347 9.42%
Federal funds sold and repurchase agreements......................... 74,588 4,302 5.77%
Interest-bearing deposits in other banks............................. 342 26 7.60%
Total earning assets............................................. 1,625,560 134,539 8.28%
Less: allowance for loan losses...................................... (15,431)
Total nonearning assets.............................................. 156,196
Total assets..................................................... $1,766,325
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Checking........................................................... $ 242,826 $ 5,922 2.44%
Regular savings.................................................... 189,220 6,191 3.27%
Money market savings.............................................. 156,507 4,757 3.04%
Certificates of deposit:
Less than $100,000............................................... 601,823 32,263 5.36%
$100,000 and more................................................ 118,818 6,669 5.61%
Total interest-bearing deposits.................................. 1,309,194 55,802 4.26%
Short-term borrowings................................................ 31,392 1,252 3.99%
Long-term borrowings................................................. 3,513 243 6.92%
Total interest-bearing liabilities............................... 1,344,099 57,297 4.26%
Noninterest-bearing liabilities:
Demand deposits.................................................... 224,433
Other liabilities.................................................. 13,328
Total liabilities.................................................... 1,581,860
Stockholders' equity................................................. 184,465
Total Liabilities and shareholders` equity........................... $1,766,325
Net interest income.................................................. $ 77,242
Interest rate spread................................................. 4.02%
Interest expense as a percent of average earning assets.............. 3.52%
Net interest margin.................................................. 4.75%
(1) Income and yields are reported on a taxable-equivalent basis.
Average Balances, Income and Expense, Yields and Rates (1) (continued)
Twelve Months Ended December 31,
1994
Annual
Average Income/ Yield/
Balance Expense Rate
(Dollars in thousands)
ASSETS
Securities:
Taxable............................................................ $ 471,577 $ 29,008 6.15%
Tax-exempt (1)..................................................... 43,156 3,425 7.94%
Total securities................................................. 514,733 32,433 6.30%
Loans (net of unearned income):
Taxable............................................................ 977,690 84,843 8.68%
Tax-exempt (1)..................................................... 8,669 608 7.01%
Total loans...................................................... 986,359 85,451 8.66%
Federal funds sold and repurchase agreements......................... 73,400 3,105 4.23%
Interest-bearing deposits in other banks............................. 521 38 7.29%
Total earning assets............................................. 1,575,013 121,027 7.68%
Less: allowance for loan losses...................................... (14,911)
Total nonearning assets.............................................. 153,003
Total assets..................................................... $1,713,105
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Checking........................................................... $ 252,583 $ 6,055 2.40%
Regular savings.................................................... 219,458 6,779 3.09%
Money market savings.............................................. 192,638 5,521 2.87%
Certificates of deposit:
Less than $100,000............................................... 517,910 22,620 4.37%
$100,000 and more................................................ 94,307 4,312 4.57%
Total interest-bearing deposits.................................. 1,276,896 45,287 3.55%
Short-term borrowings................................................ 35,794 1,053 2.94%
Long-term borrowings................................................. 1,835 91 4.96%
Total interest-bearing liabilities............................... 1,314,525 46,431 3.53%
Noninterest-bearing liabilities:
Demand deposits.................................................... 217,883
Other liabilities.................................................. 11,494
Total liabilities.................................................... 1,543,902
Stockholders' equity................................................. 169,203
Total Liabilities and shareholders` equity........................... $1,713,105
Net interest income.................................................. $ 74,596
Interest rate spread................................................. 4.15%
Interest expense as a percent of average earning assets.............. 2.95%
Net interest margin.................................................. 4.74%
(1) Income and yields are reported on a taxable-equivalent basis.
Average Balances, Income and Expense, Yields and Rates (1) (continued)
Twelve Months Ended December 31,
1993
Annual
Average Income/ Yield/
Balance Expense Rate
(Dollars in thousands)
ASSETS
Securities:
Taxable............................................................ $ 426,107 $ 27,094 6.36%
Tax-exempt (1)..................................................... 44,351 4,813 10.85%
Total securities................................................. 470,458 31,907 6.78%
Loans (net of unearned income):
Taxable............................................................ 844,350 74,176 8.78%
Tax-exempt (1)..................................................... 5,395 677 12.55%
Total loans...................................................... 849,745 74,853 8.81%
Federal funds sold and repurchase agreements......................... 87,483 2,591 2.96%
Interest-bearing deposits in other banks............................. 1,108 105 9.48%
Total earning assets............................................. 1,408,794 109,456 7.77%
Less: allowance for loan losses...................................... (12,534)
Total nonearning assets.............................................. 125,667
Total assets..................................................... $1,521,927
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Checking........................................................... $ 196,378 $ 5,360 2.73%
Regular savings.................................................... 177,883 5,699 3.20%
Money market savings.............................................. 187,145 5,038 2.69%
Certificates of deposit:
Less than $100,000............................................... 488,055 22,924 4.70%
$100,000 and more................................................ 91,488 3,906 4.27%
Total interest-bearing deposits.................................. 1,140,949 42,927 3.76%
Short-term borrowings................................................ 28,059 688 2.45%
Long-term borrowings................................................. - - -
Total interest-bearing liabilities............................... 1,169,008 43,615 3.73%
Noninterest-bearing liabilities:
Demand deposits.................................................... 217,883
Other liabilities.................................................. 11,494
Total liabilities.................................................... 1,543,902
Stockholders' equity................................................. 169,203
Total Liabilities and shareholders` equity........................... $1,713,105
Net interest income.................................................. $ 65,841
Interest rate spread................................................. 4.04%
Interest expense as a percent of average earning assets.............. 3.10%
Net interest margin.................................................. 4.67%
(1) Income and yields are reported on a taxable-equivalent basis.
The balance of the securities portfolio was $502.9 million at year end 1993,
up $68.9 million (15.9%) over the same period 1992. Also a major factor
contributing to the improvement in net interest expense was due to lower
interest rates, which offset the effect of a $136.0 million increase in
average interest-bearing liabilities during 1993. While the tax equivalent
yield on interest-earning assets declined 77 basis points from 8.54% during
1992 to 7.77% for 1993, net interest margin decreased during that period due
to a larger decrease in total funding costs. Net interest margin fell 13 basis
points from 4.80% during 1992 to 4.67% for 1993. The decline in the yield
on interest-earning assets and total funding costs was due to lower, but more
stable interest rate levels during 1993 than during 1992.
The table on Pages 14 and 15 depicts interest income on earning assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated. Loans
placed on a nonaccrual status are included in the balances and were included in
the computation of yields, upon which they had no material effect.
The following table analyzes changes in net interest income attributable
to changes in the volume of interest-bearing assets and liabilities compared to
changes in interest rates. Nonaccruing loans are included in average loans
outstanding.
Volume and Rate Analysis
Tax equivalent basis
1995 1994
------------------------------ ------------------------------
Change in Change in
Volume Rate Income/ Volume Rate Income/
Effect Effect Expense Effect Effect Expense
---------- --------- --------- -------- --------- ----------
(Dollars in thousands)
Earning Assets:
Taxable securities.................................... $ 1,154 $ 814 $ 1,968 $ 2,772 $ (858) $ 1,914
Tax-exempt securities................................. (424) (113) (537) (127) (1,261) (1,388)
Taxable loans......................................... 3,397 7,347 10,744 11,496 (829) 10,667
Tax-exempt loans...................................... (76) 228 152 (253) 184 (69)
Federal funds sold and repurchase agreements.......... 51 1,146 1,197 (309) 823 514
Interest-bearing deposits in other banks.............. (14) 2 (12) (47) (20) (67)
---------- --------- --------- -------- --------- ---------
Total earning assets............................. $ 4,088 $ 9,424 $13,512 $13,532 $(1,961) $11,571
---------- --------- --------- -------- --------- ---------
Interest-Bearing Liabilities:
Checking deposits..................................... $ (234) $ 101 $ (133) $ 1,203 $ (508) $ 695
Savings deposits - regular............................ (1,019) 431 (588) 1,266 (186) 1,080
Savings deposits - money market....................... (1,117) 353 (764) 147 336 483
CD's & other time deposits - $100,000 & over.......... 4,021 5,622 9,643 2,057 (2,361) (304)
CD's & other time deposits - under $100,000........... 1,257 1,100 2,357 124 282 406
---------- --------- --------- -------- --------- ---------
Total interest-bearing deposits.................. 2,908 7,607 10,515 4,797 (2,437) 2,360
Borrowed funds short-term........................ (105) 304 199 212 153 365
Borrowed funds long-term......................... 106 46 152 91 0 91
---------- --------- --------- -------- --------- ---------
Total interest-bearing liabilities............... 2,909 7,957 10,866 5,100 (2,284) 2,816
---------- --------- --------- -------- --------- ---------
Change in net interest income.................... $ 1,179 $ 1,467 $ 2,646 $ 8,432 $ 323 $ 8,755
========== ========= ========= ======== ========= =========
Note: The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the relationship of
the absolute dollar amounts of the change in each.
Interest Sensitivity
The primary goals of interest rate risk management are to minimize
fluctuations in net interest margin as a percentage of earning assets and to
increase the dollars of net interest margin at a growth rate consistent with the
growth rate of total assets. These goals are accomplished by balancing the
volume of floating-rate liabilities with a similar volume of floating-rate
assets, by keeping the average maturity of fixed rate asset and liability
contracts reasonably consistent and short, and by routinely adjusting pricing
rates to market conditions on a weekly basis.
The goal of F&M is to generally maintain a position that is to provide
flexibility enough to move to an equality between rate sensitive assets and rate
sensitive liabilities, which may be desirable when there are wide and frequent
fluctuations in interest rates. Interest rate gaps are managed through
investments, loan pricing and deposit pricing. When an unacceptable positive gap
within a one-year time frame occurs, maturities can be extended by selling
shorter term investments and buying longer maturities. The same effect can also
be accomplished by reducing emphasis on variable rate loans. When an
unacceptable negative gap occurs, variable rate loans can be increased and more
investment in shorter term investments can be made. Pricing policies on either
or both loans and deposits can be changed to accomplish any of the goals. F&M
reviews the interest sensitivity position of each Subsidiary Bank at least once
a quarter.
F&M manages the gap between rate-sensitive assets and rate-sensitive
liabilities to expand and contract with the rate cycle phase. The traditional
targeted gap should be between a negative 15% and a positive 15%. The one year
income statement gap at December 31, 1995 was 9.2% which is within the targeted
gap.
At December 31, 1995, F&M had $97.6 million more in interest sensitive
assets than interest-sensitive liabilities subject to repricing within one year
and was, therefore, in an asset-sensitive position. At December 31, 1994, F&M
had $129.2 million more in interest sensitive assets than interest sensitive
liabilities subject to repricing within one year. An asset-sensitive
institution's net interest margin and net interest income generally will be
impacted favorably by rising interest rates, while that of a liability-sensitive
institution generally will be impacted favorably by declining interest rates.
F&M utilizes shock analysis to project the estimated effect on net
interest income at various interest rate scenarios. This analysis reflects
interest rate changes and the related impact on net income on interest sensitive
assets and liabilities over specified periods. At December 31, 1995, a 3%
increase in the prime rate is projected to increase net interest income $4.6
million. Conversely, if the prime rate decreases 3%, projected net interest
income would decrease similarly.
The following table analyzes F&M's rate interest sensitivity at December
31, 1995. This is a one-day position which is continually changing and is not
necessarily indicative of F&M's position at any other time.
Rate Sensitivity Analysis
December 31, 1995
Repricing Time Frame Income Statement Gap
---------------------------------------------------------------------------------------------------------
One Year
Over 5 Years One Year Earnings Income 3%
1-90 Day 91-365 Day 1 to 5 Years or Not Balance Change Statement Prime Rate
Sensitivity Sensitivity Sensitivity Sensitive Total Sheet Gap Ratio Gap Change
----------- ----------- ------------ ----------- ---------- --------- -------- --------- ----------
(Dollars in thousands) (Dollars in thousands)
ASSETS
Loans, net unearned (1)
Fixed rate............... $ 54,182 $102,859 $327,598 $ 78,001 $ 562,640 $157,041 75.00% $ 117,781 $ 3,533
Floating rate............ 296,106 106,834 76,801 -- 479,741 402,940 100.00% 402,940 12,088
-------- -------- -------- -------- ---------- -------- --------- -------
Total loans.............. 350,288 209,693 404,399 78,001 1,042,381 559,981 92.99% 520,721 15,621
Investment securities
Treasuries-HTM........... 4,188 31,611 63,008 40,163 138,970 35,799 75.00% 26,849 805
Treasuries-AFS........... 4,021 13,125 78,651 19,212 115,009 17,146 75.00% 12,860 386
Agencies-HTM............. 20,825 13,780 58,363 27,345 120,313 34,605 75.00% 25,954 779
Agencies-AFS............. 1,965 10,993 82,440 51,867 147,265 12,958 75.00% 9,719 292
Tax free municipals...... 1,857 2,747 12,045 12,717 29,366 4,604 37.00% 1,703 51
Federal funds sold and
other 73,555 3,026 3,661 2,612 82,854 76,581 93.00% 71,220 2,137
-------- -------- -------- --------- ---------- -------- --------- -------
Total securities......... 106,411 75,282 298,168 153,916 633,777 181,693 81.62% 148,305 4,450
-------- -------- -------- --------- ----------- -------- --------- -------
Total rate sensitive
assets................... 456,699 284,975 702,567 231,917 1,676,158 741,674 90.20% 669,026 20,071
-------- -------- -------- --------- --------- -------- --------- -------
LIABILITIES
Interest checking......... $ 29,024 $ 97,425 $105,653 $ 17,629 $ 249,731 $126,449 87.50% $ 110,643 $ 3,319
Money market deposits..... 14,579 58,320 72,903 -- 145,802 72,899 77.50% 56,497 1,695
Regular savings........... -- -- 147,533 36,885 184,418 -- -- -- --
Time deposits > $100,000.. 44,280 28,353 62,497 -- 135,130 72,633 76.70% 55,710 1,671
Time deposits < $100,000.. 165,577 167,508 298,681 -- 631,766 333,085 76.70% 255,476 7,664
Short-term borrowings..... 38,281 337 -- -- 38,618 38,618 93.00% 35,915 1,077
Long-term borrowings...... -- -- -- 3,225 3,225 -- -- -- --
-------- -------- ------- -------- ---------- -------- --------- -------
Total rate sensitive
liabilities.............. 291,741 351,943 687,267 57,739 1,388,690 643,684 79.89% 514,241 15,426
-------- -------- -------- -------- ---------- -------- --------- -------
Rate sensitivity gap...... 164,958 (66,968) 15,300 174,178 287,468 97,990 154,785 4,645
Cumulative gap............ 164,958 97,990 113,290 287,468 97,990
Risk to interest margin:
Gap as a % of rate
sensitive assets......... 9.84% 5.85% 6.76% 17.15% 5.85% 9.23%
% of Annualized Income.... 12.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Risk to Capital Account... 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Excludes non-accrual loans
Noninterest Income
Noninterest income for 1995 decreased $92 thousand, or -0.6%, over the
same period in 1994. Trust Department income increased $170 thousand or 10.3%
from $1.6 million for 1994 to $1.8 million for 1995 as a result of increased
fiduciary activities and the acquisition of Farland. Service charges on deposit
accounts, the largest single item of noninterest income, were $6.0 million for
1995, up 5.9% over the comparable period a year ago. Credit card fees were $2.7
million for 1995 as compared to $2.2 million for 1994 as a result of increased
card loan activity. Fees for other customer services were $1.4 million for 1995,
which declined $479 thousand (-25.1%) from 1994 as a result of a reduction in
refinancing activity. Gains on sale of securities were $366 thousand for 1995 as
compared to $748 thousand for 1994. Security gains are realized when market
conditions exist that are favorable to F&M and/or conditions dictate additional
liquidity is desirable. In 1995 and 1994, market interest rates were generally
not favorable which reduced the appeal to reposition. Other operating income
decreased $167 thousand (-4.1%), down from $4.1 million for 1994 to $3.9 million
for 1995. In 1994, other operating income included $2.4 million from the
settlement of problem loans compared to $948 thousand in 1995.
Noninterest income increased $1.5 million or 9.9% from $14.8 million in
1993 to $16.3 million in 1994. Trust Department income increased $215 thousand
or 15.1% from $1.4 million for 1993 to $1.6 million for 1994 as a result of
increased fiduciary activities. Service charges on deposit accounts, were $5.7
million for 1994, up 8.9% over the previous year. Credit card fees were $2.2
million and $1.8 million for 1994 and 1993, up $400 thousand as a result of
increased card lending activities. Fees for other customer services were $1.9
million for 1994, which declined $327 thousand (-14.6%) from 1993 as a result of
a reduction in loan refinancing activity. Gains on sale of securities were $748
thousand for 1994 as compared to $1.8 million for 1993. Security gains are
realized when market conditions exist that are favorable to F&M and/or
conditions dictate additional liquidity is desirable. In 1993, interest rates
were favorable for F&M to reposition some securities at more attractive rates,
whereas, in 1994 market interest rates began rising reducing the appeal to
reposition.
Noninterest Income
Year ended December 31,
--------------------------------
1995 1994 1993
--------- ---------- ----------
(Dollars in thousands)
Commissions and fees from fiduciary activities............ $ 1,812 $ 1,642 $ 1,427
Service charges on deposit accounts....................... 6,011 5,676 5,212
Credit card fees.......................................... 2,679 2,247 1,844
Fees for other customer services.......................... 1,426 1,905 2,230
Other operating income.................................... 3,926 4,094 2,350
---------- ---------- ----------
Noninterest income................................ 15,854 15,564 13,063
Profits on securities available for sale.................. 366 728 1,617
Investment securities gains, net.......................... -- 20 164
---------- ---------- ----------
Total noninterest income.......................... $ 16,220 $ 16,312 $ 14,844
========== ========== ==========
Noninterest Expense
Total noninterest expense decreased $289 thousand (-0.5%), from $56.3
million in 1994 to $56.0 million in 1995. Salaries and employee benefits
increased $538 thousand or 1.9%, net occupancy expense including furniture and
equipment expense increased $219 thousand or 2.7%, credit card expense decreased
$106 thousand or -6.1% and other operating expense increased $693 thousand or
4.8%. The primary reason for the decrease in total noninterest expense was a
reduction in deposit insurance from $3.4 million in 1994 to $1.7 million in 1995
as a result of the FDIC deposit insurance fund achieving a level deemed to be
adequate to protect deposits, therefore, premiums were adjusted in the third
quarter 1995 to reflect this achievement.
For 1994, noninterest expense increased by $8.0 million, or 16.5%, over
1993. This increase was primarily due to a $4.5 million, or 18.3% increase in
salary and employee benefits and a $1.7 million, or 13.5% increase in other
operating expenses. The primary reason for the increase in salary and benefits
was personnel costs associated with the purchase of substantially all the assets
and assumption of certain liabilities of Farmers and Merchants Bank of Hamilton
("Hamilton") in September 1993. Other operating expenses increased for several
reasons. First, the purchase of Hamilton and the merger of First National Bank
of Emporia resulted in increased professional fees. Second, F&M purchased a new
mainframe computer with related mainframe software which required additional
employee training, thereby, increasing operating expenses.
Noninterest Expense
Year ended December 31,
--------------------------------
1995 1994 1993
--------- ---------- ----------
(Dollars in thousands)
Salaries and employee benefits............................ $ 29,362 $ 28,824 $ 24,361
Net occupancy expense of premises......................... 3,982 3,959 3,575
Furniture and equipment expense........................... 4,253 4,057 3,649
Deposit insurance......................................... 1,740 3,372 2,841
Credit card expense....................................... 1,626 1,732 1,267
Other operating expenses.................................. 15,032 14,339 12,637
---------- ---------- ----------
Total.............................................. $ 55,995 $ 56,283 $ 48,330
========== ========== ==========
Income Taxes
Reported income tax expense at December 31, 1995 was $11.7 million, up
from $10.0 million for 1994 and up from $8.8 million for 1993. The increase in
income taxes is attributable to increased taxable earnings at the federal
statutory income tax rate of 35%. This corresponds to an effective tax rate of
33.3%, 32.5% and 32.1% for the three years ended December 31, 1995, 1994, and
1993, respectively. Note 15 to the Consolidated Financial Statements for year
end provide a reconciliation between the amount of income tax expense computed
using the federal statutory income tax rate and F&M's actual income tax expense.
Also included in Note 15 to the Consolidated Financial Statements is information
regarding the principal items giving rise to deferred taxes for each of the
three years ended December 31.
Loan Portfolio
Loans, net of unearned income, were $1.054 billion at December 31, 1995,
up $44.6 million or 4.4% from $1.009 billion at year end 1994 and up $50.2
million or 5.2% from $959.1 million at year end 1993. The increase in loan
activity for 1995 is indicative of depositors willingness to incur new and/or
additional debt following a period of reluctance and uncertainty about the
economy. The purchase of $116.0 million of Hamilton loans is included in the
increase of net loans ($177.8 million) from 1992 to 1993.
All of the Subsidiary Banks offer both commercial and consumer loans, but
lending activity is generally focused on consumers and small to middle-market
businesses within the Subsidiary Banks' respective market regions. Seven of the
Subsidiary Banks, F&M Bank-Massanutten, F&M Bank-Potomac, F&M Bank-Blakeley, F&M
Bank-Emporia, F&M Bank-Peoples, F&M Bank-Martinsburg, and F&M Bank-Keyser,
emphasize consumer lending, with activities focused primarily on residential
real estate and consumer lending. F&M Bank-Richmond, F&M Bank-Hallmark and F&M
Bank-Central Virginia are based in larger markets where the commercial loan
demand is stronger and, as a result, their lending activities place a greater
emphasis on small to medium-size business. F&M Bank-Winchester, because of its
size and dominant position in its market, has a greater opportunity to appeal to
larger commercial customers in addition to consumers.
Approximately 44.7% of F&M's loan portfolio at December 31, 1995 was
comprised of commercial loans, which includes certain loans secured by real
estate in categories of multifamily, non-farm, non-residential and agricultural
where real estate is among the sources of collateral securing the loan. The
Subsidiary Banks offer a variety of commercial loans within their market
regions, including revolving lines of credit, working capital loans, equipment
financing loans and letters of credit. Although the Subsidiary Banks typically
look to the borrower's cash flow as the principal source of repayment for such
loans, many of the loans within this category are secured by assets, such as
real property, accounts receivable, inventory and equipment. In addition, a
number of commercial loans are secured by real estate used by such businesses
and are generally personally guaranteed by the principals of the business. F&M's
commercial loans generally bear a floating rate of interest tied to a
system-wide prime rate set by F&M Bank-Winchester.
F&M's residential real estate loan portfolio (including home equity lines)
was 38.2% of total loans at December 31, 1995. The residential mortgage loans
made by the Subsidiary Banks and Big Apple Mortgage Company are made only for
single family, owner-occupied residences within their respective market regions.
The residential mortgage loans offered by the Subsidiary Banks are either
adjustable rate loans or fixed rate loans with 20 to 30 year amortization
schedules that mature with a balloon payment on the third or fifth year
anniversary of the loan.
Big Apple Mortgage offers both fixed and adjustable rate loans, while the
Subsidiary Banks generally hold residential mortgage loans in their loan
portfolios. Big Apple Mortgage (also t.a. F&M Mortgage Company) sells into the
secondary market all the permanent mortgage loans it originates. Big Apple
Mortgage purchases government insured 1-4 family FHA and VA loans which it may
warehouse and sell when the market rates are attractive. At December 31, 1995,
Big apple Mortgage had $7.8 million in loans that it had committed to purchase,
but had not settled upon and $16.0 million residential loans were warehoused,
available for sale.
F&M's real estate construction portfolio historically has been a
relatively small portion of the total loan portfolio. At December 31, 1995, the
construction loans were $40.7 million, or 3.9% of the total loan portfolio. Of
this amount, $22.0 million was originated by Big Apple Mortgage, all made to
finance owner-occupied properties with permanent financing commitments in place.
The Subsidiary Banks make a limited number of loans for acquisition, development
and construction of residential real estate. F&M's construction loans, including
its acquisition and development loans, generally bear a floating rate of
interest and mature in one year or less. Loan underwriting standards for such
loans generally limit the loan amount to 75% of the finished appraised value of
the project. As a result of strict underwriting guidelines, F&M has experienced
no charge-offs involving residential construction loans since 1987.
Consumer loans were 18.4% of F&M's total loan portfolio at December 31,
1995, if home equity lines are included in this category. The Subsidiary Banks
offer a wide variety of consumer loans, which include installment loans, credit
card loans, home equity lines and other secured and unsecured credit facilities.
The performance of the consumer loan portfolio is directly tied to and dependent
upon the general economic conditions in the Subsidiary Banks' respective market
regions.
Loans secured by real estate consist of a diverse portfolio of
predominantly single family residential loans, which at December 31, 1995
comprised 33.0% of the loan portfolio. Loans secured by commercial real estate
comprised 31.9% of the loan portfolio at December 31, 1995 and consist
principally of commercial and industrial loans where real estate constitutes a
source of collateral (28.4%) (shown in the following table under the category of
"Non-farm, non-residential"), multifamily loans (1.9%) and agricultural loans
(1.6%). F&M attempts to reduce its exposure to the risks of the local real
estate market by limiting the aggregate size of its commercial real estate
portfolio and by making such loans primarily on owner-occupied properties. F&M
has historically engaged in limited mortgage lending on multifamily and
agricultural properties. Real estate construction loans accounted for only 3.9%
of total loans outstanding at December 31, 1995. F&M's charge-off rate for all
loans secured by real estate was 0.06% of period end loans. This is consistent
with 1994 when the charge-off rate for all loans secured by real estate was
0.02% of period end loans outstanding. F&M's consumer loan portfolio, its second
largest loan category, consists principally of personal loans
Consistent with its focus on providing community-based financial services,
F&M generally does not make loans outside its principal market regions. F&M does
not engage in foreign lending activities, consequently, the loan portfolio is
not exposed to risk from foreign credits. F&M maintains a policy not to
originate or purchase loans classified by regulators as highly leveraged
transactions or loans to foreign entities or individuals.
F&M's unfunded loan commitments (excluding unused home equity lines of
credit and credit card lines) amounted to $165.3 million at December 31, 1995,
compared to $133.8 million at December 31, 1994. This increase is due to
stronger seasonal demands on lines of credit during the summer months than at
year end.
On December 31, 1995, F&M had no concentration of loans in any one
industry in excess of 10 percent of its loan portfolio. Because of the nature of
F&M's market, however, loan collateral is predominantly real estate related.
A number of economic factors in conjunction with loan activity in
1995 suggest that loan growth in 1996 should be more vibrant than it was in 1994
and 1993. Although interest rates are above the floors they reached in 1994,
they remain at reasonable levels for borrowers. New home construction is
increasing as are home sales. Auto sales were up sharply in 1995, and the
forecast is for continued strength. The economy is creating new jobs and
absorbing the unemployment that was created during the recession and business
restructuring in 1994 and 1993. Importantly, reports suggest that borrowers
are showing new confidence and a willingness to incur new debt after a period
of low confidence in the economy. These factors resulted in a positive loan
growth trend in 1995 and represent the necessary elements for growth in 1996.
Loan Portfolio
December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- -------- -------- --------
(Dollars in thousands)
Commercial, financial and agricultural..... $ 135,208 $ 136,989 $107,664 $110,289 $109,761
Real estate construction................... 40,723 33,388 40,198 23,614 23,741
Real estate mortgage:
Residential (1-4 family).................. 347,584 331,484 334,406 285,478 270,070
Home equity lines......................... 55,054 55,794 45,960 45,215 47,835
Multifamily............................... 20,015 19,610 17,597 14,272 14,085
Non-farm, non-residential(1).............. 299,096 270,740 253,607 163,801 147,556
Agricultural.............................. 17,204 17,213 16,615 13,951 12,704
---------- -------- -------- --------
Real estate subtotal...................... 738,953 694,841 668,185 522,717 492,250
Loans to individuals:
Consumer.................................. 125,773 134,184 135,655 120,884 138,328
Credit card............................... 19,590 15,747 13,645 12,083 12,633
---------- ---------- -------- -------- --------
Loans to individuals subtotal............. 145,363 149,931 149,300 132,967 150,961
Total loans.............................. 1,060,247 1,015,149 965,347 789,587 776,713
Less unearned income....................... (6,418) (5,926) (6,295) (8,295) (10,660)
---------- ---------- -------- -------- --------
Loans--net of unearned income.............. $1,053,829 $1,009,223 $959,052 $781,292 $766,053
========== ========== ======== ======== ========
(1) This category generally consists of commercial and industrial loans where
real estate constitutes a source of collateral.
Remaining Maturities of Selected Loans
December 31, 1995
---------------------------
Commercial,
Financial and Real Estate-
Agricultural Construction
------------- ------------
(Dollars in thousands)
Within 1 year......................... $ 91,412 $ 38,527
------------ ------------
Variable Rate:
1 to 5 years...................... 1,678 202
After 5 years..................... 190 --
------------ ------------
Total............................. $ 1,868 $ 202
------------ ------------
Fixed Rate:
1 to 5 years...................... 33,340 1,994
After 5 years..................... 8,588 --
------------ ------------
Total............................. $ 41,928 $ 1,994
------------ ------------
Total Maturities.................. $ 135,208 $ 40,723
============ ============
Asset Quality
Allowance for Loan Losses. The allowance for loan losses is an estimate of
an amount adequate to provide for potential losses in the loan portfolio of each
Subsidiary Bank. The amount of the allowance is based on management's evaluation
of the collectability of the loan portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is increased
by a provision for loan losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowances relating to impaired
loans are charged or credited to the provision for loan losses. Each Subsidiary
Bank has a formal loan review function which consists of a committee of bank
officers that regularly reviews loans and assigns a classification, if required,
based on current perceived credit risk. In addition, the holding company has an
independent loan review team that performs a detailed on-site review and
analysis of each Subsidiary Bank's portfolio on at least an annual basis
reviewing 60% to 75% of the total principal amount of each Subsidiary Bank's
loan portfolio. In addition, all lending relationships involving a classified
loan are reviewed regardless of size. The review team has the authority to
classify any loan it determines is not satisfactory or to change the
classification of a loan within F&M's grading system. All classified loans are
reviewed at least quarterly by F&M's senior officers and monthly by the
Subsidiary Banks' board of directors. All past due and nonaccrual loans are
reviewed monthly by the Subsidiary Bank's boards of directors. As a matter of
policy, the Subsidiary Banks place loans on nonaccrual status when management
determines that the borrower can no longer service debt from current cash flows
and/or collateral liquidation. This generally occurs when a loan becomes 90 days
past due as to principal and interest. This detailed management analysis forms
the basis for determining the amount needed in the allowance for loan losses.
Also included in nonaccrual loans at year end 1995 are $3.4 million in loans
that have been written down to market values where no allowance is required
which contributes to F&M's ratio of allowance to total loans of 1.42% and ratio
of allowance to nonaccrual loans of 131.16% being substantially less than its
peers of 1.66% and 316.4%, respectively. Although the ratio of the allowance to
total loans and nonaccrual loans may be substantially less than its peers, F&M
believes the ratio to be adequate based on this loan risk review analysis.
The provision for loan losses in 1995, 1994 and 1993 were $1.1 million,
$2.5 million and $2.9 million, respectively. In 1995, 1994 and 1993, slow loan
growth in F&M's markets and improved underwriting standards for loan losses
permitted F&M to reduce its provision. The ratio of allowance to total loans for
1995, 1994 and 1993 were 1.42%, 1.53% and 1.46%, respectively. In 1995, 1994 and
1993, the ratio of allowance for loan losses to nonaccrual loans were 131.16%,
83.01% and 51.34%, respectively.
The allowance is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance and the size of the allowance in
comparison to peer companies identified by regulatory agencies. The Subsidiary
Banks are examined at different times, but the Virginia Bureau of Financial
Institutions examined all Virginia banking subsidiaries and the West Virginia
Division of Banking examined all West Virginia banking subsidiaries during 1995.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention, do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources or represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
F&M maintains a general allowance for loan losses and does not allocate
its allowance for loan losses to individual categories for management purposes.
The following Table shows an allocation among loan categories based upon
analysis of the loan portfolio's composition, historical loan loss experience,
and other factors and the ratio of the related outstanding loan balances to
total loans.
Allocation of Allowance for Loan Losses
1995 1994 1993
------------------------- -------------------------- --------------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Allowance Total Loans Allowance Total Loans Allowance Total Loans
---------- ------------ ---------- ----------- ----------- -----------
(Dollars in thousands)
December 31:
Commercial, financial and
agriculture............. $ 5,373 12.8% $ 5,510 13.6% $ 4,996 11.2%
Real estate-construction.. 585 3.9 619 3.3 562 4.2
Real estate-mortgage...... 5,466 70.1 5,635 68.8 5,133 69.6
Consumer.................. 3,592 13.2 3,699 14.3 3,349 15.0
---------- ------------ ---------- ----------- ----------- -----------
$ 15,016 100.0% $ 15,463 100.0% $ 14,040 100.0%
========== ============ ========== =========== =========== ===========
Slow loan growth in F&M's markets and improved underwriting standards,
have permitted F&M to reduce its provision for loan losses at December 31, 1995
to $1.1 million from the $2.5 million for the year 1994. The 1994 provision was
also a reduction from the 1993 provision of $2.9 million.
F&M had net charge-offs in 1995 of $1.5 million, higher than the 1994
level of $1.1 million, but lower than 1993 net charge-offs of $1.6 million The
higher net charge-offs was due to a few customers inability to cope with the
recent recessionary period. Net charge-offs to average loans was 0.15% for the
year 1995, compared with 0.11% for the same period 1994 and 0.18% for the same
period 1993.
Allowance for Loan Losses
December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- --------- --------- --------- ---------
(Dollars in thousands)
Balance, beginning of period............................... $ 15,463 $ 14,040 $ 11,309 $ 11,563 $ 8,435
Loans charged-off:
Commercial, financial and agriculture.............. 509 878 845 2,185 2,592
Real estate construction........................... 74 45 4 -- --
Real estate mortgage:
Residential (1-4 family)....................... 583 280 366 914 82
Home equity lines.............................. -- 14 239 25 --
Multifamily.................................... -- -- -- -- --
Non-farm, non-residential (1).................. 95 -- 89 170 --
Agricultural................................... -- -- -- -- --
---------- --------- --------- --------- ---------
Real estate subtotal................... 678 294 694 1,109 82
Consumer............................................... 785 566 962 1,156 1,223
Credit card............................................ 343 146 144 162 238
---------- --------- --------- --------- ---------
Loans to individuals subtotal.......... 1,128 712 1,106 1,318 1,461
Total loans charged-off................ 2,389 1,929 2,649 4,612 4,135
Recoveries:
Commercial, financial and agriculture.............. 508 397 409 333 81
Real estate construction........................... -- -- 8 -- --
Real estate mortgage:
Residential (1-4 family)....................... 60 125 292 109 4
Home equity lines.............................. 56 22 -- 25 --
Multifamily.................................... -- -- -- -- --
Non-farm, non-residential (1).................. 19 4 31 -- --
Agricultural................................... -- -- -- -- --
---------- --------- --------- --------- ---------
Real estate subtotal................... 135 151 323 134 4
Loans to individuals:
Consumer........................................... 206 257 318 243 206
Credit card........................................ 12 12 22 25 10
---------- --------- --------- --------- ---------
Loans to individuals subtotal.......... 218 269 340 268 216
Total recoveries....................... 861 817 1,080 735 301
---------- --------- --------- --------- ---------
Net charge-offs............................................ 1,528 1,112 1,569 3,877 3,834
Provision for loan losses.................................. 1,081 2,535 2,857 3,623 6,962
Increase from purchase..................................... -- -- 1,433 -- --
---------- --------- --------- --------- ---------
Balance, end of period..................................... $ 15,016 $ 15,463 $ 14,040 $ 11,309 $ 11,563
========== ========= ========= ========= =========
Ratio of allowance for loan losses to loans outstanding
at end of period......................................... 1.42% 1.53% 1.46% 1.45% 1.51%
Ratio of net charge-offs to average loans outstanding
during period............................................. 0.15% 0.11% 0.18% 0.50% 0.50%
(1) This category generally consists of commercial and industrial loans where
real estate constitutes a source of collateral.
Impaired Loans
On January 1, 1995, F&M adopted FASB No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement has been amended by FASB No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." Statement 114, as amended, requires that the impairment of loans
that have been separately identified for evaluation is to be measured based on
the present value of expected future cash flows or, alternatively, the
observable market price of the loans or the fair value of the collateral.
However, for those loans that are collateral dependent (that is, if repayment of
those loans is expected to be provided solely by the underlying collateral) and
for which management has determined foreclosure is probable, the measure of
impairment of those loans is to be based on the fair value of the collateral.
Statement 114, as amended, also requires certain disclosures about investments
in impaired loans and the allowance for credit losses and interest income
recognized on loans.
Information about impaired loans as of and for the year ended December 31,
1995 is as follows:
Impaired loans for which an allowance has been provided............. $ 7,676,449
------------
Impaired loans for which no allowance has been provided............. 3,029,014
------------
Total impaired loans............................................ $ 10,705,463
============
Allowance provided for impaired loans, included in the allowance
for loan losses................................................. $ 1,400,961
============
Average balance in impaired loans................................... $ 10,828,971
============
Interest income recognized.......................................... $ 209,087
============
Nonperforming Assets. Total nonperforming assets, which consist of
nonaccrual loans, restructured loans and foreclosed properties, were $23.9
million at December 31, 1995, a decrease of $6.1 million (-20.3%) from December
31, 1994. Total nonperforming assets do not include loans past due 90 days
accruing interest. Total nonperforming assets at December 31, 1994 decreased
$8.3 million over year end 1993. The purchase of assets of Hamilton increased
nonperforming assets at September 30, 1993, $27.9 million of which $21.3 million
were nonaccrual loans and $6.6 million were foreclosed properties. At December
31, 1995, these Hamilton nonaccrual loans and foreclosed properties have been
reduced to $3.4 million and $4.6 million, respectively. On the purchase date,
loans acquired from Hamilton were booked at fair market value according to
purchase accounting rules. Management does not anticipate any material loss in
the final disposition of the remaining loans.
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. In 1995, F&M acquired
through foreclosure approximately 1,000 acres of real estate located in
Jefferson County, West Virginia, valued in excess of $4 million. F&M intends to
market this property and dispose of it as expediently as possible. At December
31, 1995, F&M had $12.1 million in foreclosed property upon which it does not
anticipate incurring any material loss on the final disposition.
Nonperforming loans (nonaccrual loans and restructured loans) at December
31, 1995 were $11.8 million, or 1.1% of total loans, down from $19.0 million, or
1.9% of total loans at December 31, 1994 and $28.1 million, or 2.9% of total
loans, at December 31, 1993. Nonperforming loans at the year end 1995 were
composed largely of 1-4 family residential loans amounting to $1.8 million,
construction and land development amounting to $4.2 million and commercial loans
secured by real estate amounting to $3.3 million.
Nonperforming Assets
December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------- ------------ ------------ -------------
(Dollars in thousands)
Nonaccrual loans................................... $ 11,448 $ 18,627 $ 27,344 $ 14,754 $ 12,265
Restructured loans................................. 358 325 770 22 22
Foreclosed property................................ 12,075 11,049 10,143 5,232 1,942
------------ ------------- ------------ ------------ -------------
Total nonperforming assets................. $ 23,881 $ 30,001 $ 38,257 $ 20,008 $ 14,229
============ ============= ============ ============ =============
Loans past due 90 days accruing interest........... $ 2,789 $ 1,781 $ 2,001 $ 5,283 $ 5,068
Allowance for loan losses to period end loans...... 1.42% 1.53% 1.46% 1.45% 1.51%
Allowance for loan losses to nonaccrual loans...... 131.16% 83.01% 51.34% 76.65% 94.27%
Nonperforming assets to period end loans and
foreclosed properties............................ 2.24% 2.94% 3.94% 2.54% 1.85%
Net charge-offs to average loans................... 0.15% 0.11% 0.18% 0.50% 0.50%
The loss of income associated with nonperforming loans at December 31 were:
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------- ------------ ------------ -------------
(Dollars in thousands)
Income that would have been recorded in accordance
with original terms:
Nonaccrual loans and restructured loans...... $ 1,080 $ 1,356 $ 1,084 $ 922 $ 661
Income actually recorded:
Nonaccrual and restructured loans............ 175 145 33 -- --
On December 31, 1995, there were no material outstanding commitments to lend
additional funds with respect to nonperforming loans.
Loans are placed on nonaccrual status when collection of interest and
principal is doubtful, generally when loans become 90 days past due. There are
three negative implications for earnings when a loan is placed on nonaccrual
status. First, all interest accrued but unpaid at the date the loan is placed on
nonaccrual status is either deducted from interest income or written off as a
loss. Second, accruals of interest are discontinued until it becomes certain
that both principal and interest can be repaid. Third, there may be actual
losses which necessitate additional provisions for loan losses charged against
earnings.
At December 31, 1995, loans past due 90 days or more and still accruing
interest because they are both well secured and in the process of collection
were $2.8 million, compared to $1.8 million at December 31, 1994 and $2.0
million at December 31, 1993.
Potential Problem Loans. At December 31, 1995, potential problem loans
were approximately $21.4 million, including 6 lending relationships with
principal balances in excess of $500,000, which had an aggregate principal
balance outstanding of $10.5 million. Loans are viewed as potential problem
loans according to the ability of such borrowers to comply with current
repayment terms. These loans are subject to constant management attention, and
their status is reviewed on a regular basis. The potential problem loans
identified at December 31, 1995 are generally secured by residential and
commercial real estate with appraised values that exceed the principal balance.
Although trends for credit quality factors, such as loan losses and
non-performing assets, continue to improve, it is likely that F&M will continue
modest provisions for loan losses in 1996. The principal factor for additional
provisions is expected growth in the loan portfolio as the result of continued
improvement in economic conditions.
Continued positive economic conditions and an assessment of the loan
portfolio and problem assets suggest that loan losses in 1996 should not be
materially greater than those in 1995. At such relatively low levels of loan
losses as were experienced in 1995, however, a minor dollar fluctuation in
losses could represent a large percentage increase. Loan loss expectations for
1996 are influenced by economic forecasts of continued growth and moderate
interest rates. Financial circumstances of individual borrowers also will affect
loan loss results. Unforeseen changes, either in economic conditions or
borrowers' financial conditions, could also impact actual loan losses in 1996.
F&M will maintain and follow its policies and practices intended to minimize
future credit losses.
Securities
The book value of the securities portfolio was $569.3 million at December
31, 1995, compared to $514.5 million at December 31, 1994. The securities
portfolio increased $54.8 million in 1995 over 1994, which followed an increase
of $11.6 million in 1994 over 1993. Investment in U.S. Government securities
increased $62.9 million, or 13.7%, for the year 1995, and increased $18.7
million, or 4.2%, for the year 1994, while investment in states and political
subdivisions declined during the same periods. F&M has generally not reinvested
funds in securities issued by states and political subdivisions, because those
securities do not have the same tax benefits that they have had in the past.
The securities portfolio consists of two components, securities held to
maturity and securities available for sale. Securities are classified as held to
maturity when management has the intent and F&M has the ability at the time of
purchase to hold the securities to maturity. Securities held to maturity are
carried at cost adjusted for amortization of premiums and accretion of
discounts. Securities to be held for indefinite periods of time are classified
as available for sale and accounted for at the lower of cost or market value.
Securities available for sale include securities that may be sold in response to
changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, general liquidity needs and other similar factors.
Financial Accounting Standards Board Pronouncement No. 115 effective
January 1, 1994, required F&M to show the effect of market changes in the value
of securities available for sale (AFS). The market value of AFS securities at
December 31, 1995 was $276.4 million. The effect of the market value of AFS
securities less the book value of AFS securities, net of income taxes is
reflected as a line in Stockholders' Equity as unrealized gain of $3.5 million
at December 31, 1995 and a unrealized loss of $6.8 million at December 31, 1994.
Investment rates have decreased in 1995, thereby, causing currently held bond
portfolio market values to increase. In 1994, the decline in market yields was
due to interest rate fluctuations only and not a result of re-ratings or down
grading of securities. The 1994 decline in the market value of AFS securities
below book value was a temporary market condition as a result of the inverse
relationship of loan rates versus bond rates.
It is F&M's policy not to engage in activities considered to be derivative
in nature such as futures, option contracts, swaps, caps, floors, collars, or
forward commitments. F&M considers derivatives as speculative which is contrary
to F&M's historical or prospective philosophy. F&M does not hold or issue
financial instruments for trading purposes. F&M does hold in its loan and
security portfolio investments that adjust or float according to changes in the
"prime" lending rate which is not considered speculative, but necessary for good
asset/liability management. Off-balance sheet risks such as committments to
exceed credit, standby letters of credit, and other items are discussed in Note
17 in the Notes to Consolidated Financial Statements.
Investment Portfolio and Securities Available For Sale
The carrying value of investment securities at the dates indicated was:
December 31,
--------------------------------
1995 1994 1993
--------- -------- ---------
(Dollars in thousands)
U.S. Government securities................................ $ 259,282 $252,366 $ 242,017
States and political subdivisions......................... 32,598 39,617 46,696
Other securities.......................................... 985 1,671 3,795
--------- -------- ---------
Total investment securities....................... $ 292,865 $293,654 $ 292,508
========= ======== =========
The carrying value of securities available for sale at the dates indicated
was:
December 31,
--------------------------------
1995 1994 1993
--------- ---------- ----------
(Dollars in thousands)
U.S. Government securities................................ $ 262,276 $206,328 $ 197,984
Other securities.......................................... 14,128 14,506 12,363
---------- ---------- ----------
Total securities available for sale............... $ 276,404 $220,834 $ 210,347
========== ========== ==========
Maturity Distribution and Yields of Securities
December 31, 1995
Taxable-Equivalent Basis
Due after 1 Due after 5 Due after 10
Due in 1 year through 5 through 10 years and
or less years years Equity Securities Total
----------------- ----------------- ----------------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------- ------ --------- ------ -------- ------ -------- ------ --------- ------
(Dollars in thousands)
Securities held for
investment:
U.S. Government securities $ 70,404 6.07% $ 121,371 6.01% $ 47,196 6.80% $ 20,311 7.49% $ 259,282 6.29%
Other taxable securities... 1,300 5.48% 1,320 6.78% 1,388 7.35% 209 6.75% 4,217 6.64%
--------- --------- -------- -------- ---------
Total taxable.......... 71,704 6.06% 122,691 6.02% 48,584 6.82% 20,520 7.48% 263,499 6.32%
Tax-exempt securities (1).. 4,605 8.55% 12,044 7.95% 10,096 8.10% 2,621 8.71% 29,366 8.03%
--------- --------- -------- -------- ---------
Total ................. $ 76,309 6.21% $ 134,735 6.19% $ 58,680 7.04% $ 23,141 7.62% $ 292,865 6.47%
--------- --------- -------- -------- ---------
Securities held for sale:
U.S. Government securities. $ 30,503 6.77% $ 168,524 6.21% $ 44,684 6.69% $ 18,569 6.69% $ 262,280 6.26%
Other taxable securities... 6,252 3.04% 2,001 6.68% 625 6.96% 5,246 7.44% 14,124 5.27%
--------- --------- -------- -------- ---------
Total ................. $ 36,755 6.14% $ 170,525 6.22% $ 45,309 6.69% $ 23,815 6.86% $ 276,404 6.21%
--------- --------- -------- -------- ---------
Total securities............. $ 113,064 6.19% $ 305,260 6.20% $103,989 6.89% $ 46,956 7.23% $ 569,269 6.34%
========= ========= ======== ======== =========
(1) Yields on tax-exempt securities have been computed on a
tax-equivalent basis.
See Note 2 to the Consolidated Financial Statements as of December
31, 1995 for an analysis of gross unrealized gains and losses in the securities
portfolio.
Deposits
F&M has made an effort in recent years to increase core deposits and
reduce cost of funds. Deposits provide funding for F&M's investments in loans
and securities, and the interest paid for deposits must be managed carefully to
control the level of interest expense.
Deposits at December 31, 1995 grew $92.4 million or 6.2% to $1.583 billion
from $1.491 billion at year end 1994. Non-interest bearing demand deposits
increased $5.9 million (2.6%) from $230.7 million in 1994 to $236.6 million in
1995. Interest bearing deposits increased $86.5 million (6.9%) to $1.3 billion
in 1995. Savings deposits, interest checking and money market deposits
experienced a reduction in deposits, whereas, certificates of deposit under and
over $100,000 experienced a 24.6% or $151.5 million increase in deposits. Unlike
deposit growth in 1994 which was affected by comparatively low interest rates
and the consequent movement of funds out of deposit accounts and into
alternative investments, depositors in 1995 were seeking attractive guaranteed
rates provided by certificates of deposits.
F&M does not have any other time deposits, other than certificates of
deposits, over $100,000.
Deposits at December 31, 1994 grew $25.8 million or 1.8% to $1.491
billion. Non-interest bearing demand deposits increased $23.1 million (11.1%)
from $207.6 million in 1993 to $230.7 million in 1994. Interest bearing deposits
increased $2.7 million (0.2%) to $1.260 billion in 1994. Savings deposits, money
market deposits and certificates of deposit over $100,000 experienced a
reduction in deposits, whereas, only interest checking and certificates of
deposit under $100,000 experienced an increase in deposits. Deposit growth in
1994 was affected by comparatively low interest rates and the consequent
movement of funds out of deposit accounts and into alternative investments. In
addition to moving funds out of deposit accounts, depositors continued to shift
funds into more liquid accounts.
Deposits and Rates Paid
December 31,
--------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------- -------------------------- --------------------------
Amount Rate Amount Rate Amount Rate
----------- ------------ ------------ ----------- ------------ ------------
(Dollars in thousands)
Noninterest-bearing accounts... $ 236,630 $ 230,678 $ 207,613
----------- ------------ ------------
Interest-bearing accounts:
Interest checking.......... 249,731 2.44% 255,400 2.29% 244,200 2.73%
Regular savings............ 184,418 3.04% 210,831 2.79% 214,681 3.20%
Money-market............... 145,802 3.27% 178,781 2.83% 191,991 2.69%
Time deposits:
Less than $100,000... 631,766 5.36% 524,271 4.31% 515,220 4.70%
$100,000 and more.... 135,130 5.61% 91,111 4.51% 91,582 4.27%
----------- ------------ ------------
Total interest-bearing......... 1,346,847 4.26% 1,260,394 3.44% 1,257,674 3.76%
----------- ------------ ------------
Total.................. $ 1,583,477 $ 1,491,072 $ 1,465,287
=========== ============ ============
Maturities of CD's of $100,000 and More
Within Three to Six to One to Over
Three Six Twelve Five Five
Months Months Months Years Years Total
------------ ------------ ------------- ------------ ------------ -------------
(Dollars in thousands)
At December 31, 1995................ $ 39,325 $ 12,270 $ 21,038 $ 62,497 $ -- $ 135,130
Capital Resources
The adequacy of F&M's capital is reviewed by management on an ongoing
basis with reference to the size, composition and quality of F&M's asset and
liability levels and consistent with regulatory requirements and industry
standards. Management seeks to maintain a capital structure that will assure an
adequate level of capital to support anticipated asset growth and absorb
potential losses.
The Federal Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, have adopted capital guidelines to
supplement the definitions of capital for regulatory purposes and to establish
minimum capital standards. Specifically, the guidelines categorize assets and
off-balance sheet items into four risk-weighted categories. The minimum ratio of
qualifying total capital to risk-weighted assets is 8.0%, of which at least 4.0%
must be Tier I capital, composed of common equity, retained earnings and a
limited amount of perpetual preferred stock, less certain goodwill items. F&M
had a ratio of risk-weighted assets to total capital of 18.2% at December 31,
1995 and a ratio of risk-weighted assets to Tier I capital of 17.0%. Both of
these exceed the capital requirements adopted by the federal bank regulatory
agencies.
The following Table reflects the cash dividends per share paid during each
quarter of the periods indicated. The information in the table below may vary
for certain periods from the dividends declared during the quarter in cases
where the dividend was paid in the quarter following its declaration. In
addition, the amounts shown have not been restated and adjusted to reflect (i)
the acquisition on April 6, 1995 of Bank of the Potomac and on July 1, 1994 of
both PNB Financial Corporation and Hallmark Bank and Trust Company, and (ii) a
2.5% stock dividend effective September 1, 1994.
Common Stock Performance and Dividends
Common Stock Price
-------------------------------------------------------
1995 1994 Dividends Declared
---------------------------
High Low High Low 1995 1994
------------ ------------ ------------- ------------ ------------ -------------
First quarter....................... $ 17.12 $ 15.75 $ 16.50 $ 15.75 $ 0.15 $ 0.145
Second quarter...................... 17.37 15.50 16.25 15.50 0.15 0.145
Third quarter....................... 18.12 15.62 17.37 16.00 0.15 0.145
Fourth quarter...................... 20.00 17.25 17.25 14.75 0.16 0.150
Years ended December 31............. $ 20.00 $ 19.00 $ 16.00 $ 15.63 $ 0.61 $ 0.585
F&M National Corporation common stock is traded on the New York Stock Exchange
(NYSE) under the symbol FMN. On December 31, 1995 there were approximately 7,821
shareholders of record.
Analysis of Capital
December 31,
--------------------------------
1995 1994 1993
--------- ---------- ----------
(Dollars in thousands)
Tier 1 Capital:
Common stock.......................................... $ 33,105 $ 32,965 $ 32,257
Additional paid in capital............................ 57,680 56,893 52,033
Retained earnings..................................... 99,230 85,914 80,205
Less: Goodwill........................................ 5,279 5,551 5,984
---------- ---------- ----------
Total Tier 1 capital.................................. 184,736 170,221 158,511
Tier 2 Capital:
Allowance for loan losses............................. 13,607 12,975 12,581
Allowable long term debt.............................. -- -- --
---------- ---------- ----------
Total Tier 2 capital.................................. 13,;607 12,975 12,581
Total risk-based capital.............................. $ 198,343 $ 183,196 $ 171,092
========== ========== ==========
Risk-weighted assets...................................... $1,088,525 $1,037,997 $1,006,446
CAPITAL RATIOS:
Tier 1 risk-based capital ratio....................... 16.97% 16.40% 15.75%
Total risk-based capital ratio........................ 18.22% 17.65% 17.00%
Tier 1 capital to average total assets................ 10.46% 9.94% 10.41%
Liquidity
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest-bearing deposits with banks, federal funds sold,
securities and loans classified as available for sale and loans and investment
securities maturing within one year. As a result of F&M's management of liquid
assets and the ability to generate liquidity through liability funding,
management believes that F&M maintains overall liquidity sufficient to satisfy
its depositors' requirements and meet its customers' credit needs.
At December 31, 1995, approximately $756.0 million or 44.8% of total
earning assets is due to mature or reprice within the next year.
F&M also maintains additional sources of liquidity through a variety of
borrowing arrangements. The Subsidiary Banks maintain federal fund lines with a
number of larger regional and money-center banking institutions totaling in
excess of $66.5 million, of which $4.9 million was borrowed at December 31,
1995. Federal funds borrowed by the Subsidiary Banks during 1995 averaged less
than $500,000. At December 31, 1995, certain of the Subsidiary Banks had
outstanding $10.2 million of borrowings pursuant to securities repurchase
agreement transactions, ranging in maturity from one day to three months. Also,
F&M has credit lines totaling $233.8 million from the Federal Home Loan Bank
that can be utilized for short and/or long-term borrowing.
F&M engages in short-term borrowings at the parent company level, as well.
At December 31, 1995, F&M had $18.5 million outstanding in short-term
obligations issued to selected customers of the Subsidiary Banks pursuant to a
master agreement. As a back-up source of funds, F&M has approved bank lines of
credit totaling $9.0 million. At December 31, 1995, there were no outstanding
balances under these lines, however, the lines are used irregularly and the
average aggregate balance outstanding under the lines has not exceeded $1.0
million since they have been in place.
In 1994, some of F&M's subsidiary banks joined the Federal Home Loan Bank
system in order to enter a program of long-term borrowing which is restricted to
be invested in Residential Housing Finance Assets (RHFA). RHFA are defined as
(1) Loans secured by residential real property; (2) Mortgage-backed securities;
(3) Participations in loans secured by residential real property; (4) Loans
financed by Community Investment Program advances; (5) Loans secured by
manufactured housing, regardless of whether such housing qualifies as
residential real property; or (6) Any loans or investments which the Federal
Housing Finance Board and the Bank, in their discretion, otherwise determine to
be residential housing finance assets. In 1995, long-term borrowings from the
Federal Home Loan Bank system for RHFA investments were $3.2 million maturing
through 2006.
Accounting Rule Changes
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
establishes standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Statement is effective
for fiscal years beginning after December 15, 1995. The Statement is not
expected to have a material impact on F&M.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights," amends FASB Statement No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values if it is practicable to estimate
those fair values. If it is not practicable to estimate the fair value of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing or originating the loans should be
allocated to the mortgage loans (without the mortgage servicing rights) and no
cost should be allocated to the mortgage servicing rights. The Statement is
effective for transactions in fiscal years beginning after December 15, 1995.
The Statement is not expected to have a material impact on F&M.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Examples are stock purchase
plans, stock options, restricted stock and stock appreciation rights.
This Statement also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from nonemployees. Those
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable.
This Statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The fair value based method is preferable to the Opinion 25 method for purposes
of justifying a change in accounting principle under APB Opinion 20, "Accounting
Changes." Entities electing to remain with the accounting in Opinion 25 must
make pro forma disclosures of net income and, if presented, earnings per share,
as if the fair value based method of accounting defined in this Statement had
been applied.
Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire stock. Most fixed stock option plans--the most common type
of stock compensation plan--have no intrinsic value at grant date, and under
Opinion 25 no compensation cost is recognized for them. Compensation cost is
recognized for other types of stock-based compensation plans under Opinion 25,
including plans with variable, usually performance-based, features.
The Statement is effective for fiscal years beginning after December 15,
1995. The disclosures must include the pro forma effects of other awards granted
in fiscal years beginning after December 31, 1994. The Statement is not expected
to have a material impact on F&M.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
December 31,
----------------------------------
1995 1994
--------------- ---------------
Assets
Cash and due from banks (Notes 1, 14 and 18)........................................ $ 81,626,102 $ 80,282,933
Interest-bearing deposits in other banks............................................ 100,000 229,211
Securities (fair value: 1995, $577,439,207; 1994, $502,354,294)
(Notes 1 and 2).................................................................. 569,268,650 514,488,222
Federal funds sold and securities purchased under
agreements to resell............................................................. 64,408,000 42,035,000
Loans (Notes 1, 3 and 5)........................................................... 1,060,247,289 1,015,149,024
Unearned income.................................................................. (6,418,449) (5,926,326)
--------------- ---------------
Loans (net of unearned income)......................................... 1,053,828,840 1,009,222,698
Allowance for loan losses (Note 4)............................................... (15,015,909) (15,462,719)
--------------- ---------------
Net loans.............................................................. 1,038,812,931 993,759,979
Bank premises and equipment, net (Notes 1 and 6)................................... 34,881,884 32,153,423
Other assets....................................................................... 44,722,813 45,543,740
--------------- ---------------
Total assets........................................................... $1,833,820,380 $1,708,492,508
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing.............................................................. $ 236,629,942 $ 230,677,853
Interest bearing................................................................. 1,346,846,609 1,260,393,847
--------------- ---------------
Total deposits (Note 7)................................................ $1,583,476,551 $1,491,071,700
Federal funds purchased and securities sold under
agreements to repurchase......................................................... 15,088,887 20,542,960
Federal Home Loan Bank advances.................................................... 4,737,275 875,294
Other short-term borrowings (Notes 5 and 8)........................................ 18,792,294 14,878,857
Long-term debt (Note 9)............................................................ 3,225,000 3,193,573
Other liabilities.................................................................. 15,017,878 8,941,151
Commitments and contingent liabilities
(Notes 14, 17 and 19)............................................................ -- --
--------------- ---------------
Total liabilities...................................................... $1,640,337,885 $1,539,503,535
--------------- ---------------
Shareholders' Equity
Preferred stock, no par value, authorized 5,000,000 shares,
no shares outstanding............................................................ $ -- $ --
Common stock, par value $2 per share, authorized 30,000,000 shares,
issued 1995, 16,552,324 shares; issued 1994, 16,482,595 shares................... 33,104,648 32,965,190
Capital surplus.................................................................... 57,680,810 56,893,066
Retained earnings.................................................................. 99,229,815 85,913,709
Unrealized gain (loss) on securities available for sale, net...................... 3,467,222 (6,782,992)
--------------- ---------------
Total shareholders' equity............................................. $ 193,482,495 $ 168,988,973
--------------- ---------------
Total liabilities and shareholders' equity............................. $1,833,820,380 $1,708,492,508
=============== ===============
- -----------------
See Notes to Consolidated Financial Statements.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For Each of the Three Years in the Period Ended December 31, 1995
December 31,
------------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Interest Income
Interest and fees on loans......................................... $ 96,081,361 $ 85,237,775 $ 74,616,190
Interest and dividends on investment securities:
Taxable interest income......................................... 16,158,250 12,869,091 14,396,502
Interest income exempt from federal income taxes................ 1,876,600 2,225,641 3,128,504
Dividends....................................................... -- -- 65,971
Interest and dividends on securities available for sale:
Taxable interest income......................................... 14,424,029 15,885,912 12,630,661
Dividends....................................................... 393,750 252,610 --
Interest income on federal funds sold and securities
purchased under agreements to resell............................ 4,301,567 3,104,812 2,590,830
Interest on deposits in banks..................................... 26,006 37,744 105,215
--------------- --------------- ---------------
Total interest income.......................... $ 133,261,563 $ 119,613,585 $ 107,533,873
--------------- --------------- ---------------
Interest Expense
Interest on deposits (Note 7)...................................... $ 55,801,690 $ 45,287,084 $ 42,927,164
Interest on short-term borrowings................................. 1,252,526 1,053,264 688,082
Interest on long-term debt........................................ 242,631 90,634 --
--------------- --------------- ---------------
Total interest expense......................... $ 57,296,847 $ 46,430,982 $ 43,615,246
--------------- --------------- ---------------
Net interest income............................ $ 75,964,716 $ 73,182,603 $ 63,918,627
Provision for loan losses (Notes 1 and 4)......................... 1,080,748 2,534,666 2,856,875
--------------- --------------- ---------------
Net interest income after provision
for loan losses............................. $ 74,883,968 $ 70,647,937 $ 61,061,752
--------------- --------------- ---------------
Other Income
Commissions and fees from fiduciary activities..................... $ 1,811,631 $ 1,642,010 $ 1,426,526
Service charges on deposit accounts................................ 6,010,565 5,676,383 5,211,748
Credit card fees................................................... 2,679,530 2,247,432 1,844,084
Fees for other customer services................................... 1,425,811 1,904,721 2,231,349
Other operating income............................................. 3,926,438 4,093,803 2,349,815
Profits on securities available for sale (Note 2).................. 366,133 728,239 1,616,791
Investment securities gains, net (Note 2).......................... 236 19,895 163,987
--------------- --------------- ---------------
Total other income............................. $ 16,220,344 $ 16,312,483 $ 14,844,300
--------------- --------------- ---------------
Other Expenses
Salaries and employees' benefits (Notes 11, 12 and 13)............. $ 29,362,410 $ 28,824,024 $ 24,360,853
Net occupancy expense of premises (Notes 6 and 14)................. 3,981,914 3,959,251 3,575,578
Furniture and equipment expenses (Notes 6 and 14).................. 4,253,214 4,056,908 3,648,999
Deposit insurance.................................................. 1,740,109 3,372,304 2,841,261
Credit card expense................................................ 1,625,438 1,731,838 1,266,780
Other operating expenses........................................... 15,031,641 14,339,051 12,636,903
--------------- --------------- ---------------
Total other expenses........................... $ 55,994,726 $ 56,283,376 $ 48,330,374
--------------- --------------- ---------------
Income before income taxes..................... $ 35,109,586 $ 30,677,044 $ 27,575,678
Income tax expense (Notes 1 and 15)................................. 11,677,437 9,976,168 8,844,179
--------------- --------------- ---------------
Net income..................................... $ 23,432,149 $ 20,700,876 $ 18,731,499
=============== =============== ===============
Earnings Per Share (Note 1)
Per average share outstanding, net income.......................... $ 1.42 $ 1.25 $ 1.16
=============== =============== ===============
- ------------------
See Notes to Consolidated Financial Statements.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
For Each of the Three Years in the Period Ended December 31, 1995
Unrealized Gain
(Loss) on Secur-
Common Capital Retained ities Available
Stock Surplus Earnings for Sale, Net Total
------------- ------------- -------------- ------------- -------------
Balance--December 31, 1992.................. $ 31,137,838 $ 44,196,974 $ 70,826,338 $ -- $146,161,150
Net income--1993.......................... -- -- 18,731,499 -- 18,731,499
Cash dividends declared ($0.58 per share). -- -- (9,352,791) -- (9,352,791)
Issuance of common stock-- dividend
reinvestment plan (73,592 shares)....... 147,184 944,899 -- -- 1,092,083
Issuance of common stock-- exercise of
employee stock options (17,464 shares).. 34,928 102,634 -- -- 137,562
Issuance of stock options under non-vari-
able compensatory plan (10,000 shares).. -- 86,200 -- -- 86,200
Issuance of common stock to acquire
investment (19,877 shares).............. 39,754 298,155 -- -- 337,909
Retirement of stock options (2,000 shares) -- (8,000) -- -- (8,000)
Issuance of common stock in exchange
for net assets in bank acquisition
(432,989 shares)........................ 865,978 6,229,642 -- -- 7,095,620
Issuance of common stock for employee
stock discount plan (15,458 shares)..... 30,916 182,598 -- -- 213,514
------------- ------------- -------------- ------------- -------------
Balance-- December 31, 1993................. $ 32,256,598 $ 52,033,102 $ 80,205,046 $ -- $164,494,746
Net income-- 1994......................... -- -- 20,700,876 -- 20,700,876
Cash dividends declared
($0.54 per share)...................... -- -- (8,933,174) -- (8,933,174)
Issuance of common stock-- dividend
reinvestment plan (118,288 shares)...... 236,576 1,670,226 -- -- 1,906,802
Issuance of common stock-- exercise of
employee stock options (5,563 shares)... 11,126 27,628 -- -- 38,754
Issuance of stock options under
nonvariable compensatory plan
(26,000 shares).......................... -- 211,120 -- -- 211,120
Acquisition of common stock
(165,000 shares)........................ (330,000) (2,485,487) -- -- (2,815,487)
Issuance of common stock - 2 1/2% stock
dividend (378,690 shares)............... 757,380 5,243,898 (6,001,278) -- --
Cash paid in lieu of fractional shares.... -- -- (57,761) -- (57,761)
Issuance of common stock for employee
stock discount plan (16,755 shares)..... 33,510 192,579 -- -- 226,089
Change in unrealized gain (loss) on secur-
ities available for sale, net of
deferred income taxes of $3,658,562..... -- -- -- (6,782,992) (6,782,992)
------------- ------------- -------------- ------------- -------------
Balance-- December 31, 1994................. $ 32,965,190 $ 56,893,066 $ 85,913,709 $ (6,782,992) $168,988,973
Net income-- 1995......................... -- -- 23,432,149 -- 23,432,149
Cash dividends declared
($0.61 per share)....................... -- -- (10,116,043) -- (10,116,043)
Issuance of common stock-- dividend
reinvestment plan (149,443 shares)...... 298,886 2,090,992 -- -- 2,389,878
Acquisition of common stock
(177,767 shares)........................ (355,534) (2,716,683) -- -- (3,072,217)
Issuance of common stock-- employee
stock ownership plan (37,393 shares).... 74,786 525,219 -- -- 600,005
Issuance of common stock-- exercise of
employee stock options (13,323 shares).. 26,646 100,657 -- -- 127,303
Issuance of stock options under non-vari-
able compensatory plan (26,000 shares).. -- 206,440 -- -- 206,440
Issuance of common stock to acquire
investment (11,980 shares).............. 23,960 176,040 -- -- 200,000
Issuance of common stock for employee
stock discount plan (35,357 shares)..... 70,714 405,079 -- -- 475,793
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $5,623,601..... -- -- -- 10,250,214 10,250,214
------------- ------------- -------------- ------------- -------------
Balance-- December 31, 1995................. $ 33,104,648 $ 57,680,810 $ 99,229,815 $ 3,467,222 $193,482,495
============= ============= ============== ============= =============
See Notes to Consolidated Financial Statements.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Three Years in the Period Ended December 31, 1995
December 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Cash Flows From Operating Activities
Net income......................................................... $ 23,432,149 $ 20,700,876 $ 18,731,499
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 3,766,905 3,815,564 3,011,680
Provision for loan losses..................................... 1,080,748 2,534,666 2,856,875
Deferred income taxes (credits)............................... (996) 1,270,662 (764,501)
Profits on securities available for sale...................... (366,133) (728,239) (1,616,791)
Investment securities gains, net.............................. (236) (19,895) (163,987)
Gain on sale of other real estate............................. (304,552) (49,447) --
Net amortization and accretion of securities.................. 386,927 776,726 662,310
(Increase) decrease in other assets........................... (2,893,543) 1,058,988 794,991
Increase (decrease) in other liabilities...................... 5,785,057 (4,308,427) 1,547,211
--------------- --------------- ---------------
Net cash provided by operating activities....... $ 30,886,326 $ 25,051,474 $ 25,059,287
--------------- --------------- ---------------
Cash Flows From Investing Activities
Decrease in interest-bearing deposits in other banks.............. $ 129,211 $ 2,013,704 $ 268,954
Proceeds from sales and calls of securities available for sale.... 27,482,815 48,911,189 29,504,330
Proceeds from maturities of securities available for sale......... 31,368,930 29,902,250 16,742,000
Proceeds from principal repayments and calls of investment
securities...................................................... 20,736,543 14,165,988 --
Proceeds from maturities of investment securities................. 54,845,000 63,247,000 77,358,803
Proceeds from sales and calls of investment securities............ -- -- 33,501,638
Purchase of securities available for sale......................... (96,131,240) (50,710,889) (77,713,536)
Purchase of investment securities................................. (77,367,860) (127,618,796) (120,906,843)
(Increase) decrease in federal funds sold and securities
purchased under agreements to resell............................ (22,373,000) 37,441,000 15,263,000
Net (increase) in loans........................................... (52,715,582) (56,354,423) (64,791,243)
Purchases of bank premises and equipment.......................... (6,052,856) (3,870,767) (3,602,449)
Proceeds from sale of other real estate........................... 5,080,870 3,138,593 2,432,112
Cash acquired in acquisition...................................... -- -- 6,622,857
--------------- --------------- ---------------
Net cash (used in) investing activities......... $ (114,997,169) $ (39,735,151) $ (85,320,377)
--------------- --------------- ---------------
Cash Flows From Financing Activities
Net increase (decrease) in noninterest-bearing and interest-bearing
demand deposits and savings accounts............................ $ (59,109,483) $ 17,205,819 $ 76,631,802
Net increase (decrease) in certificates of deposit................. 151,514,334 8,578,583 (9,027,871)
Dividends paid..................................................... (9,824,373) (8,457,479) (7,476,664)
Increase (decrease) in federal funds purchased and securities sold.
under agreements to repurchase................................... (5,454,073) 6,271,481 (153,867)
Increase in other short-term borrowings............................ 3,913,437 1,265,430 1,470,576
Net proceeds from issuance and sale of common stock................ 3,592,979 2,171,645 1,443,159
Acquisition of common stock........................................ (3,072,217) (2,815,487) --
Increase in Federal Home Loan bank advances........................ 3,861,981 875,294 --
Proceeds from long-term debt....................................... 1,000,000 3,279,743 --
Principal payments on long-term debt............................... (968,573) (86,170) --
Cash paid in lieu of fractional shares on 2 1/2% stock dividend.... -- (57,761) --
--------------- --------------- ---------------
Net cash provided by financing activities...... $ 85,454,012 $ 28,231,098 $ 62,887,135
--------------- --------------- ---------------
Increase in cash and cash equivalents.......... $ 1,343,169 $ 13,547,421 $ 2,626,045
Cash and Cash Equivalents
Beginning.......................................................... 80,282,933 66,735,512 64,109,467
--------------- --------------- ---------------
Ending............................................................ $ 81,626,102 $ 80,282,933 $ 66,735,512
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors..................................... $ 54,177,118 $ 44,828,822 $ 42,352,302
Interest paid on short-term borrowings.......................... 1,268,178 1,052,160 681,834
Interest paid on long-term borrowings........................... 242,631 90,635 --
--------------- --------------- ---------------
$ 55,687,927 $ 45,971,617 $ 43,034,136
=============== =============== ===============
Income taxes.................................................... $ 9,547,581 $ 10,169,899 $ 9,383,056
=============== =============== ===============
Supplemental Schedule of Noncash Investing and Financing Activities
Issuance of stock options under nonvariable compensatory plan..... $ 206,440 $ 211,120 $ 86,200
=============== =============== ===============
Retirement of stock options under nonvariable compensatory plan... $ -- $ -- $ 8,000
=============== =============== ===============
Issuance of common stock in exchange for net assets in bank
acquisition...................................................... $ -- $ -- $ 7,095,620
=============== =============== ===============
Issuance of common stock to acquire investment.................... $ 200,000 $ -- $ 337,909
=============== =============== ===============
Loan balances transferred to foreclosed properties................ $ 6,581,882 $ 5,429,240 $ 2,335,356
=============== =============== ===============
Common stock issued for 2 1/2% stock dividend..................... $ -- $ 6,001,278 $ --
=============== =============== ===============
Unrealized gain (loss) on securities available for sale........... $ 15,873,815 $ (10,441,551) $ --
=============== =============== ===============
- ------------------
See Notes to Consolidated Financial Statements.
F&M NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994 and 1993
Note 1 -- Nature of Banking Activities and Significant Accounting Policies
F&M National Corporation and Subsidiaries (the Corporation) grant
commercial, financial, agricultural, residential and consumer loans to customers
in Virginia and West Virginia. The loan portfolio is well diversified and
generally is collateralized by assets of the customers. The loans are expected
to be repaid from cash flow or proceeds from the sale of selected assets of the
borrowers.
The accounting and reporting policies of F&M National Corporation and
Subsidiaries conform to generally accepted accounting principles and to the
reporting guidelines prescribed by regulatory authorities. The following is a
description of the more significant of those policies and practices.
Principles of Consolidation
The consolidated financial statements include the accounts of F&M
National Corporation and all of its banking and nonbanking affiliates. In
consolidation, significant intercompany accounts and transactions have been
eliminated.
Securities
The Corporation adopted FASB No. 115, "Accounting for Certain Investment
in Debt and Equity Securities" effective beginning January 1, 1994. This
statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. Those investments are classified in three categories and are
accounted for as follows:
a. Securities Held to Maturity
Securities classified as held to maturity are those debt securities the
Corporation has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the
interest method over their contractual lives.
b. Securities Available for Sale
Securities classified as available for sale are those debt securities that
the Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of
the Corporation's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors. Securities available
for sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in shareholders' equity, net of the
related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in earnings.
c. Trading Securities Trading
securities, which are generally held for the short term in anticipation
of market gains, are carried at fair value. Realized and unrealized
gains and losses on trading account assets are included in interest
income on trading account securities. The Corporation had no trading
securities at December 31, 1995 and 1994. Prior to 1994, the
Corporation's accounting policy for securities was as follows:
Securities were classified as investment securities when management had
the intent and the Corporation had the ability at the time of purchase to hold
them until maturity or on a long-term basis. These securities were carried
at cost adjusted for amortization of premiums and accretion of discounts.
Premiums were amortized (deducted) and discounts were accreted (added) to
interest income on investment securities using methods that approximate the
level yield method.
Securities to be held for indefinite periods of time and not intended to
be held to maturity or on a long-term basis were classified as available for
sale and accounted for at the lower of cost or market value. These included
securities used as part of the Corporation's asset/liability management strategy
and may have been sold in response to changes in interest rates, prepayment
risk, the need or desire to increase capital, to satisfy regulatory requirements
and other similar factors. Gains and losses arising from the sale of securities
available for sale or adjustments for lower of cost or market were included in
"Profits on securities available for sale" in the Consolidated Statements of
Income.
Loans
Loans are shown on the balance sheets net of unearned income and allowance
for loan losses. Interest income on commercial and real estate mortgage loans is
computed on the loan balance outstanding. Interest income on installment loans
is computed on the sum-of-the-months digits and actuarial methods.
On January 1, 1995, the Corporation adopted FASB No. 114, "Accounting by
Creditors for Impairment of a Loan." This statement has been amended by FASB
Statement No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." Statement 114, as amended, requires that the
impairment of loans that have been separately identified for evaluation is to be
measured based on the present value of expected future cash flows or,
alternatively, the observable market price of the loans or the fair value of the
collateral. However, for those loans that are collateral dependent (that is, if
repayment of those loans is expected to be provided solely by the underlying
collateral) and for which management has determined foreclosure is probable, the
measure of impairment of those loans is to be based on the fair value of the
collateral. Statement 114, as amended, also requires certain disclosures about
investments in impaired loans and the allowance for credit losses and interest
income recognized on loans.
Loans are placed on nonaccrual when a loan is specifically determined to
be impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in
management's judgment is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the provision
for loan losses. Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the loan portfolio and the
related allowance may change in the near term.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Premises and equipment are depreciated over their estimated
useful lives; leasehold improvements are amortized over the lives of the
respective leases or the estimated useful life of the leasehold improvement,
whichever is less. Depreciation and amortization are recorded on the
straight-line and declining-balance methods.
Costs of maintenance and repairs are charged to expense as incurred. Costs
of replacing structural parts of major units are considered individually and are
expensed or capitalized as the facts dictate.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, operating loss
carryforwards and tax credit carryforwards. Deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Pension Plan
The Corporation has a trusteed, noncontributory defined contribution
pension plan covering substantially all full-time employees.
Earnings and Dividends Paid Per Share
Earnings and dividends paid per share of Common Stock are based on the
weighted average number of shares outstanding during each year after giving
retroactive effect to the equivalent shares exchanged in acquisition of Bank of
Potomac in 1995, in acquisition of PNB Financial Corporation and Hallmark Bank &
Trust Company in 1994, the 2 1/2% stock dividend in 1994, and in acquisition of
First National Bankshares, Inc. in 1993.
Trust Division
Securities and other property held by the Trust Division in a fiduciary or
agency capacity are not assets of the Corporation and are not included in the
accompanying consolidated financial statements.
Loan Fees and Costs
Loan origination and commitment fees and direct loan origination costs are
being recognized as collected and incurred. The use of this method of
recognition does not produce results that are materially different from results
which would have been produced if such costs and fees were deferred and
amortized as an adjustment of the loan yield over the life of the related loan.
Other Real Estate
Other real estate, classified in "other assets" in the accompanying
balance sheets, consists primarily of real estate held for resale which was
acquired through foreclosure on loans secured by real estate. Other real estate
is carried at the lower of cost or appraised market value less an allowance for
estimated selling expenses on the future disposition of the property. Writedowns
to market value at the date of foreclosure are charged to the allowance for loan
losses. Subsequent declines in market value are charged to expense.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2 -- Securities
The amortized cost and fair values of securities being held to
maturity as of December 31, 1995 and 1994 are as follows:
December 31, 1995
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- --------------- --------------- ---------------
U.S. Treasury securities and obligations of
U.S. government corporations and agencies....... $ 259,281,218 $ 7,764,096 $ (442,035) $ 266,603,279
Obligations of states and political
subdivisions.................................... 32,598,686 854,416 (92,075) 33,361,027
Corporate securities.............................. 985,200 86,155 -- 1,071,355
--------------- --------------- --------------- ---------------
$ 292,865,104 $ 8,704,667 $ (534,110) $ 301,035,661
=============== =============== =============== ===============
Caption>
December 31, 1994
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- --------------- -------------- ---------------
U.S. Treasury securities and obligations of
U.S. government corporations and agencies....... $ 252,365,986 $ 232,684 $ (11,874,322) $ 240,724,348
Obligations of states and political
subdivisions.................................... 39,616,717 584,956 (1,034,819) 39,166,854
Corporate securities.............................. 1,671,750 9,000 (51,427) 1,629,323
--------------- --------------- -------------- ---------------
$ 293,654,453 $ 826,640 $ (12,960,568) $ 281,520,525
=============== =============== ============== ===============
The amortized cost and fair value of securities being held to maturity as
of December 31, 1995, by contractual maturity are shown below. Maturities may
differ from contractual maturities because the corporate securities may be
called or repaid without any penalties. Therefore, these securities are not
included in the maturity categories in the maturity summary.
Amortized Fair
Cost Value
--------------- ---------------
Due in one year or less.................................................. $ 76,309,029 $ 76,602,349
Due after one year through five years.................................... 134,534,033 136,531,083
Due after five years through ten years................................... 57,896,216 60,553,164
Due after ten years...................................................... 23,140,626 26,277,710
Corporate securities..................................................... 985,200 1,071,355
--------------- ---------------
$ 292,865,104 $ 301,035,661
=============== ===============
The amortized cost and fair value of securities available for sale as of
December 31, 1995 and 1994, are as follows:
December 31, 1995
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- --------------- -------------- ---------------
U.S. Treasury securities and obligations of
U.S. government corporations and agencies....... $ 257,649,832 $ 5,533,316 $ (907,092) $ 262,276,056
Corporate securities.............................. 7,026,408 514,373 (1,804) 7,538,977
Mortgage-backed securities........................ 736,222 39,976 (514) 775,684
Other............................................. 5,558,820 254,009 -- 5,812,829
--------------- --------------- -------------- ---------------
$ 270,971,282 $ 6,341,674 $ (909,410) $ 276,403,546
=============== =============== ============== ===============
December 31, 1994
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------- --------------- --------------- ---------------
U.S. Treasury securities and obligations of
U.S. government corporations and agencies....... $ 216,857,754 $ 369,534 $ (10,899,154) $ 206,328,134
Corporate securities.............................. 8,962,542 21,772 (90,500) 8,893,814
Mortgage-backed securities........................ 887,955 -- (13,881) 874,074
Other............................................. 4,567,069 170,678 -- 4,737,747
--------------- --------------- -------------- ---------------
$ 231,275,320 $ 561,984 $ (11,003,535) $ 220,833,769
=============== =============== ============== ===============
The amortized cost and fair value of securities available for sale, as of
December 31, 1995 by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because the corporate securities and
mortgage-backed securities may be called or prepaid without any penalties.
Therefore, these securities are not included in the maturity categories in the
maturity summary.
Amortized Fair
Cost Value
--------------- ---------------
Due in one year or less..................................................... $ 29,896,031 $ 30,111,582
Due after one year through five years....................................... 167,246,448 170,024,611
Due after five years through ten years...................................... 45,690,285 46,856,013
Due after ten years......................................................... 14,817,068 15,283,850
Corporate securities........................................................ 7,026,408 7,538,977
Mortgage-backed securities.................................................. 736,222 775,684
Other....................................................................... 5,558,820 5,812,829
--------------- ---------------
$ 270,971,282 $ 276,403,546
=============== ===============
Proceeds from principal repayments and calls of securities held to
maturity during 1995 and 1994 were $20,736,543 and $14,165,988. Gross gains of
$26,862 and $27,452 and gross losses of $26,626 and $7,557 were realized on
those principal repayments and calls during 1995 and 1994, respectively. There
were no sales of securities held to maturity during 1995 and 1994.
Proceeds from sales and calls of securities available for sale during 1995
and 1994 were $27,482,815 and $48,911,189. Gross gains of $371,182 and $960,137
and gross losses of $5,049 and $231,898 were realized on those sales and calls
during 1995 and 1994, respectively.
Proceeds from sales and calls of securities during 1993 were $63,005,968.
Gross gains of $1,808,394 and gross losses of $27,616 were realized on those
sales.
As allowed by the Question and Answer Guide to FASB No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" issued in November of
1995, debt securities with an amortized cost of $2,451,366 were transferred from
held-to-maturity to available-for-sale in December 1995. The securities had an
unrealized loss of approximately $93,153. There were no securities transferred
between classifications during 1994.
The book value of securities pledged to secure deposits and for other
purposes amounts to $94,357,378 and $72,649,913 at December 31, 1995 and 1994,
respectively.
Note 3 --Loans
Major classifications of loans are as follows:
December 31,
------------------------------------
1995 1994
--------------- ---------------
Commercial, financial and agricultural................................... $ 135,208,000 $ 136,989,000
Real estate-- construction............................................... 40,723,000 33,388,000
Real estate-- mortgage................................................... 738,953,000 694,841,000
Consumer loans to individuals............................................ 145,363,289 149,931,024
--------------- ---------------
$ 1,060,247,289 $ 1,015,149,024
=============== ===============
Note 4 --Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
December 31,
------------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Balance at beginning of year........................................ $ 15,462,719 $ 14,039,859 $ 11,308,736
Provision charged to operating expense.............................. 1,080,748 2,534,666 2,856,875
Recoveries added to the reserve..................................... 861,116 817,390 1,080,156
Increase from acquisition........................................... -- -- 1,443,169
Loan losses charged to the reserve.................................. (2,388,674) (1,929,196) (2,649,077)
--------------- --------------- ---------------
Balance at end of year.............................................. $ 15,015,909 $ 15,462,719 $ 14,039,859
=============== =============== ===============
Information about impaired loans as of and for the year ended December 31,
1995 is as follows:
Impaired loans for which an allowance has been provided..... $ 7,676,449
Impaired loans for which no allowance has been provided..... 3,029,014
---------------
Total impaired loans........................................ $ 10,705,463
===============
Allowance provided for impaired loans, included in
the allowance for loan losses............................. $ 1,400,961
===============
Average balance in impaired loans........................... $ 10,828,971
===============
Interest income recognized.................................. $ 209,087
===============
Nonaccrual loans excluded from impaired loan disclosure under FASB 114 amounted
to $1,649,688 and $18,627,000. If interest on these loans had been accrued, such
income would have approximated $128,816 and $1,356,053, respectively.
Note 5 -- Related Party Transactions
The Securities and Exchange Commission requires disclosure of loans which
exceed $60,000 to executive officers and directors of the Corporation or to
their associates. Such loans were made on substantially the same terms as those
prevailing for comparable transactions with similar risk. At December 31, 1995
and 1994, these loans totaled $45,959,874 and $44,998,082, respectively. During
1995, total principal additions were $5,259,658 and total principal payments
were $4,297,866.
The Corporation was indebted to related parties for short-term
borrowings totaling $6,515,000 and $4,026,000 at December 31, 1995 and 1994,
respectively.
The Corporation paid $2,400 in 1995 to the law firm of a director who
serves as legal counsel for a bank subsidiary.
Note 6 --Bank Premises and Equipment, Net
Premises and equipment are summarized as follows:
December 31,
------------------------------------
1995 1994
--------------- ---------------
Premises.................................................. $ 35,694,001 $ 34,958,654
Leasehold improvements.................................... 1,498,946 1,158,583
Furniture and equipment................................... 21,396,524 18,110,250
Construction in progress.................................. 1,697,011 1,132,883
--------------- ---------------
$ 60,286,482 $ 55,360,370
Less accumulated depreciation and amortization............ (25,404,598) (23,206,947)
--------------- ---------------
$ 34,881,884 $ 32,153,423
=============== ===============
Depreciation and amortization of bank premises and equipment included in
operating expenses for the years ended December 31, 1995, 1994 and 1993, were
$3,324,395, $3,406,387 and $2,849,241, respectively.
Note 7 -- Deposits
Deposits outstanding at December 31, 1995, 1994 and 1993, and the related
interest expense for the periods then ended are summarized as follows:
December 31, 1995 December 31, 1994
------------------------------------ ------------------------------------
Amount Expense Amount Expense
---------------- ---------------- --------------- ---------------
Noninterest bearing.......................... $ 236,629,942 $ -- $ 230,677,853 $ --
---------------- ---------------- --------------- ---------------
Interest bearing:
Interest checking.......................... $ 249,730,679 $ 5,922,093 $ 255,400,188 $ 6,055,642
Money market accounts...................... 145,801,585 4,756,607 178,780,922 5,521,296
Regular savings............................ 184,418,437 6,191,079 210,831,163 6,778,585
Certificates of deposit:
Less than $100,000....................... 631,766,052 32,263,058 524,270,459 22,619,731
$100,000 and more........................ 135,129,856 6,668,853 91,111,115 4,311,830
---------------- ---------------- --------------- ---------------
Total interest bearing................. $ 1,346,846,609 $ 55,801,690 $1,260,393,847 $ 45,287,084
---------------- ---------------- --------------- ---------------
Total deposits......................... $ 1,583,476,551 $ 55,801,690 $1,491,071,700 $ 45,287,084
================ ================ =============== ===============
December 31, 1993
-----------------------------------
Amount Expense
---------------- ----------------
Noninterest bearing.......................... $ 207,612,849 $ --
---------------- ----------------
Interest bearing:
Interest checking.......................... $ 244,199,787 $ 5,359,548
Money market accounts...................... 191,990,777 5,037,999
Regular savings............................ 214,680,894 5,699,203
Certificates of deposit:
Less than $100,000....................... 515,220,658 22,923,820
$100,000 and more........................ 91,582,333 3,906,594
---------------- ----------------
Total interest bearing................. $ 1,257,674,449 $ 42,927,164
---------------- ----------------
Total deposits......................... $ 1,465,287,298 $ 42,927,164
================ ================
Note 8 -- Short-Term Borrowings
The Corporation had unused lines of credit totaling $9,000,000 with
nonaffiliated banks at December 31, 1995. In addition, the Corporation has
unused lines of credit totaling $225,883,775 with the Federal Home Loan Bank.
Note 9 -- Long-Term Debt
In 1994, some of the Corporation's subsidiary banks joined the Federal
Home Loan Bank system in order to enter a program of long-term borrowing which
is restricted to be invested in Residential Housing Finance Assets (RHFA). RHFA
are defined as (1) Loans secured by residential real property; (2)
Mortgage-backed securities; (3) Participations in loans secured by residential
real property; (4) Loans financed by Community Investment Program advances; (5)
Loans secured by manufactured housing, regardless of whether such housing
qualifies as residential real property; or (6) Any loans or investments which
the Federal Housing Finance Board and the Bank, in their discretion, otherwise
determine to be residential housing finance assets. Borrowings from the Federal
Home Loan Bank system for RHFA investments totaled $3,225,000 at December 31,
1995, maturing through 2006. The interest rate on the notes payable range from
7.32% to 8.19% at December 31, 1995. Principal payments on the notes are due as
follows:
1996 $ 350,000
1997 350,000
1998 350,000
1999 350,000
2000 350,000
Later years 1,475,000
--------------
$ 3,225,000
==============
Note 10 -- Business Combinations
On April 6, 1995, F&M completed its acquisition of Bank of the Potomac,
Inc. (Potomac). Potomac was a state-chartered commercial bank. F&M issued
872,187 shares of common stock based on an exchange ratio of 2.5168 shares of
F&M common shares for each share of Potomac common stock. The transaction was
accounted for using the pooling-of-interests method of accounting. Accordingly,
the financial statements of F&M have been restated for all reported periods to
reflect the acquisition. Total assets and the results of operations of the
separate entities prior to the combination are summarized as follows:
March 31,
1995 December 31,
(Unaudited) 1994
-------------- --------------
Total assets:
F&M National Corporation........................ $1,670,856,870 $1,650,903,642
Bank of Potomac.................................. 54,330,572 57,588,866
-------------- --------------
$1,725,187,442 $1,708,492,508
============== ==============
March 31, Years Ended December 31,
1995 --------------------------------
(Unaudited) 1994 1993
--------------- -------------- --------------
Net interest income:
F&M National Corporation....... $ 18,538,407 $ 70,792,933 $ 61,583,480
Bank of Potomac................ 649,325 2,389,670 2,335,147
--------------- -------------- --------------
$ 19,187,732 $ 73,182,603 $ 63,918,627
=============== ============== ==============
Net income:
F&M National Corporation....... $ 5,781,787 $ 20,233,231 $ 18,269,804
Bank of Potomac................ 187,416 467,645 461,695
--------------- -------------- --------------
$ 5,969,203 $ 20,700,876 $ 18,731,499
=============== ============== ==============
On July 1, 1994, F&M completed its acquisitions of PNB Financial
Corporation (PNB) and Hallmark Bank & Trust Company (Hallmark). PNB was a bank
holding company organized under Virginia law which conducted a commercial
banking business through its wholly-owned subsidiary, The Peoples National Bank
of Warrenton. F&M issued 1,193,431 shares of common stock based on an exchange
ratio of 2.3683 shares of F&M common shares for each share of PNB common stock.
Hallmark was a state-chartered commercial bank. F&M issued 1,107,414 shares of
common stock based on an exchange ratio of 0.6406 shares of F&M common shares
for each share of Hallmark common stock. The transactions were accounted for
using the pooling-of-interests method of accounting. Accordingly, the financial
statements of F&M have been restated for all reported periods to reflect the
acquisition.
On September 1, 1993, F&M completed its acquisition of First National
Bankshares, Inc. (First National). First National was a bank holding company
organized under Virginia law which conducted a commercial banking business
through its wholly-owned national banking association subsidiary, First National
Bank of Emporia. F&M issued 665,568 shares of common stock based on an exchange
ratio of 3.096 shares of F&M common shares for each share of First National
common stock. The transaction was accounted for using the pooling-of-interests
method of accounting. Accordingly, the financial statements of F&M have been
restated for all reported periods to reflect the acquisition.
On September 18, 1993, F&M completed its acquisition of substantially all
the assets and assumed certain liabilities of Farmers & Merchants National Bank
of Hamilton (Hamilton Bank) in exchange for $7,095,620 worth of F&M common
stock. The excess of the total acquisition cost over the fair value of the net
assets acquired of $5,239,496 is being amortized over 15 years by the
straight-line method. The acquisition has been accounted for as a purchase and
results of operations of Hamilton Bank since the date of acquisition are
included in the consolidated financial statements.
Note 11 -- Stock Options
The Corporation sponsors a stock option plan, which provides for the
granting of both incentive and nonqualified stock options to executive officers
and key employees of the Company and its Subsidiaries. The option price of
incentive options will not be less than the fair market value of the stock at
the time an option is granted. Nonqualified options may be granted at a price
established by the Board of Directors including prices less than the fair market
value on the date of grant. There were no incentive stock options outstanding
during 1995, 1994 and 1993. The plan expense for 1995, 1994, and 1993 was
$102,806, $125,422, and $100,910, respectively.
Stock Option Plan Summary (adjusted for 1994 2 1/2% stock dividend)
1995 1994 1993
------- ------- -------
Options outstanding beginning of year............................... 92,363 71,276 78,490
Options granted..................................................... 26,000 26,650 10,250
Options exercised (none expired).................................... 13,323 5,563 17,464
------- ------- -------
Options outstanding and exercisable................................. 105,040 92,363 71,276
Options available for grant......................................... 193,350 219,350 246,000
At December 31, 1995, options outstanding ranged in price from $4.88 to $8.42
per share.
Note 12 -- Employee Benefit Plans
F&M National Corporation and its affiliates have a defined contribution
retirement plan covering substantially all full-time employees and provides that
employees automatically become eligible to participate on January 1 or July 1 as
of the date they reach age 18 and complete 12 months of service, whichever
occurs last. The plan was amended in 1989 to add a 401(k) or deferred feature.
Under the plan, a participant may contribute to the plan an amount up to 10% of
his covered compensation for the year, subject to certain limitations. For each
year in which the employee makes a contribution to the plan, the Corporation
will make a matching contribution. The Corporation may also make, but is not
required to make, a discretionary contribution for each participant out of its
current or accumulated net profits. The amount of the matching contribution and
discretionary contribution, if any, is determined on an annual basis by the
Board of Directors.
The total plan expense for 1995, 1994 and 1993, was $181,850, $115,300,
and $732,350, respectively.
In 1994, the Corporation adopted an Employee Stock Ownership Plan (ESOP)
covering substantially all full-time employees and providing that employees
automatically become eligible to participate on January 1 or July 1 as of the
date they reach age 18 and complete 12 months of service, whichever occurs
last. The Corporation may make, but is not required to make, a discretionary
contribution for each participant out of its current or accumulated net
profits. The total contribution may be contributed in cash or corporate
common stock. The amount of the discretionary contribution, if any, is
determined on an annual basis by the Board of Directors.
The total plan expense for 1995 and 1994 was $917,600, and $699,800,
respectively.
In 1993, the Corporation adopted an Employee Stock Discount Plan. The Plan
offers eligible employees of the Corporation the opportunity to purchase common
stock through payroll deduction. The price of the shares purchased is the lesser
of 85% of the market price of the shares as determined under the plan at January
1 of the calendar year of purchase or 85% of the market price of the shares as
determined under the plan at December 31 of the calendar year of purchase.
Employees automatically become eligible to participate on January 1 or July 1 as
of the date they reach age 18 and complete 12 months of service, whichever
occurs last. A regular employee is one who is customarily employed for more than
20 hours per week and more than five months per year. All officers and directors
who are eligible employees may participate. 35,357 shares were issued during
1995 at a discount of $84,192. 16,755 shares were issued during 1994 at a
discount of $39,897. 15,458 shares were issued during 1993 at a discount of
$37,679. The number of shares available to be issued in future years totals
188,293.
Note 13 -- Executive Incentive Compensation Plan and Deferred
Compensation Plan
The Executive Incentive Compensation Plan of F&M National Corporation was
established for the purpose of attracting and retaining key executives. The
executives and the amounts of the awards (subject to limits as set forth in the
Plan) are determined by a Committee composed of members of the Corporation's
Board of Directors who are not employees. The aggregate cash awards amounted to
$844,772 in 1995, $644,768 in 1994, and $542,457 in 1993.
In addition, deferred compensation plans have been adopted for certain key
employees which provide that benefits are to be paid in monthly installments for
15 years following retirement or death. The agreement provides that if
employment is terminated for reasons other than death or disability prior to age
65, the amount of benefits would be reduced or forfeited. The deferred
compensation expense for 1995, 1994, and 1993, based on the present value of the
retirement benefits, amounted to approximately $517,981, $240,315 and $331,753,
respectively. The plan is unfunded. However, life insurance has been acquired on
the lives of these employees in amounts sufficient to discharge the obligations
thereunder.
Note 14 -- Lease Commitments and Contingent Liabilities
The Corporation and Subsidiaries were obligated under a number of
noncancelable leases mainly for various banking premises and equipment.
Facilities leases, including renewal options, expire through 2008. Total rental
expense for operating leases for 1995, 1994 and 1993, was $1,158,160, $1,194,774
and $1,192,141, respectively. Minimum rental commitments under noncancelable
leases with terms in excess of one year as of December 31, 1995, were as
follows:
Year Operating Leases
-------------------------------- --------------------
1996............................ $ 736,035
1997............................ 678,282
1998............................ 667,597
1999............................ 542,449
2000............................ 442,412
Later years..................... 699,486
-----------------
Total minimum payments.......... $ 3,766,261
=================
In the normal course of business, there are other outstanding commitments
and contingent liabilities which are not reflected in the accompanying financial
statements. The Corporation does not anticipate losses as a result of these
transactions.
As members of The Federal Reserve System, the Corporation's subsidiary
banks are required to maintain certain average reserve balances. For the final
weekly reporting period in the years ended December 31, 1995 and 1994, the
aggregate amounts of daily average required balances were approximately
$18,491,000 and $10,400,000, respectively.
Note 15 -- Income Taxes
Effective January 1, 1993, the Corporation adopted FASB No. 109,
"Accounting for Income Taxes." The adoption of this statement changes the
Corporation's method of accounting for income taxes from the deferred method to
a liability method. Under the deferred method, the Corporation deferred the past
tax effects of timing differences between financial reporting and taxable
income. As explained in Note 1, the liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the reported amounts of assets and liabilities and
their tax bases. The cumulative effect of the change in accounting principle is
immaterial in determining net income for the year ended December 31, 1993.
Net deferred tax assets consist of the following components as of December
31, 1995 and 1994:
1995 1994
----------------- ------------------
Deferred tax assets:
Provision for loan losses...................................... $ 4,980,713 $ 5,027,276
Salary continuation plan....................................... 901,926 733,871
Nonaccrual interest............................................ 281,960 304,169
Insurance commissions.......................................... 85,412 113,370
Securities available for sale.................................. -- 3,658,562
Other.......................................................... 327,931 315,920
----------------- ------------------
$ 6,577,942 $ 10,153,168
----------------- ------------------
Deferred tax liabilities:
Depreciation................................................... $ 788,926 $ 737,590
Bond discount accretion........................................ 25,931 57,662
Excess tax basis - acquisition................................. 486,323 421,956
Securities available for sale.................................. 1,965,040 --
Other.......................................................... 23,843 25,475
----------------- ------------------
$ 3,290,063 $ 1,242,683
----------------- ------------------
$ 3,287,879 $ 8,910,485
================= ==================
The provision for income taxes charged to operations for the years ended
December 31, 1995, 1994 and 1993 consist of the following:
1995 1994 1993
--------------- --------------- ---------------
Current tax expense................................................. $ 11,678,433 $ 8,705,506 $ 9,689,680
Deferred tax (benefit).............................................. (996) 1,270,662 (845,501)
--------------- --------------- ---------------
$ 11,677,437 $ 9,976,168 $ 8,844,179
=============== =============== ===============
The income tax provision differs from the amount of income tax determined
by applying the federal income tax rate to pretax income for the years ended
December 31, 1995, 1994 and 1993 due to the following:
1995 1994 1993
--------------- --------------- ---------------
Computed "expected" tax expense..................................... 35.0% 35.0% 35.0%
Increase (decrease) in income taxes resulting from:
Tax-exempt interest............................................... (2.3) (3.1) (3.8)
Nondeductible merger expenses..................................... .2 .5 .6
Other, net........................................................ .4 .1 .3
--------------- --------------- ---------------
33.3% 32.5% 32.1%
=============== =============== ===============
Note 16 -- Restrictions on Transfers to Parent
Transfer of funds from banking subsidiaries to the Parent Corporation in
the form of loans, advances and cash dividends, are restricted by federal and
state regulatory authorities. As of December 31, 1995, the aggregate amount of
unrestricted funds which could be transferred from the Corporation's
subsidiaries to the Parent Corporation, without prior regulatory approval,
totaled $35,405,811 or 18.3% of the consolidated net assets.
Note 17 -- Financial Instruments With Off-Balance-Sheet Risk
The Corporation and Subsidiaries are party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheet. The contract or notional amounts
of those instruments reflect the extent of involvement the Corporation and
Subsidiaries have in particular classes of financial instruments.
The Corporation and Subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit and financial guarantees written is
represented by the contractual notional amount of those instruments. The
Corporation and Subsidiaries use the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Corporation and Subsidiaries do not require
collateral or other security to support financial instruments with credit risk.
A summary of the contract or notional amount of the Corporation and
Subsidiaries' exposure to off-balance-sheet risk as of December 31, 1995 and
1994, is as follows:
1995 1994
--------------- ---------------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit....................................................... $ 270,275,196 $ 221,489,016
Standby letters of credit and financial guarantees written......................... $ 12,436,159 $ 10,219,138
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation and Subsidiaries evaluate
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation and Subsidiaries
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Corporation and Subsidiaries to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation and Subsidiaries hold
marketable securities as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1995, varies from 0 percent to 100 percent; the
average amount collateralized is 53 percent.
Note 18 -- Credit Risk
As of December 31, 1995, the Corporation had a concentration of loans in
non-farm, non-residential loans, consisting primarily of commercial loans
secured by real estate of $299,096,000 which were in excess of 10 percent of the
total loan portfolio. The Corporation does not engage in any foreign lending
activities.
As of December 31, 1995, the Corporation had $17,243,628 in deposits in
financial institutions in excess of amounts insured by the Federal Deposit
Insurance Corporation (FDIC).
Note 19 -- Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities and Securities Available for Sale
For securities and marketable equity securities held for investment
purposes, fair values are based on quoted market prices or dealer quotes. For
other securities held as investments, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loan Receivables
For certain homogeneous categories of loans, such as some residential
mortgages, credit card receivables, and other consumer loans, fair value is
estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
The fair value of stand-by letters of credit is based on fees currrently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting date.
The carrying amount is a reasonable estimate of the fair value of
securities loaned.
At December 31, 1995 and 1994, the carrying amounts and fair values of
loan commitments, stand-by letters of credit, and securities loaned were
immaterial.
The estimated fair values of the Corporation's financial instruments are
as follows:
1995 1994
----------------------------------- ------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ----------------- --------------- ---------------
(Dollars in thousands)
Financial assets:
Cash and short-term investments.............. $ 146,134 $ 146,134 $ 122,547 $ 122,547
Investments securities....................... 292,865 301,036 293,654 281,521
Securities available for sale................ 276,404 276,404 220,834 220,834
Loans........................................ 1,053,829 1,062,259 1,009,223 987,281
Less: allowance for loan losses.............. (15,016) -- (15,463) --
---------------- ----------------- ---------------- ---------------
Total financial assets................. $ 1,754,216 $ 1,785,833 $ 1,630,795 $ 1,612,183
================ ================= ================ ===============
Financial liabilities:
Deposits..................................... $ 1,583,477 $ 1,583,511 $ 1,491,072 $ 1,486,459
Federal funds purchased and securities sold
under agreement to repurchase.............. 15,089 15,089 20,543 20,543
Other short-term borrowings.................. 18,792 18,792 14,879 14,879
Federal home loan bank advances.............. 4,737 4,737 875 875
Long-term debt............................... 3,225 2,930 3,194 3,194
---------------- ----------------- ---------------- ---------------
Total financial liabilities............ $ 1,625,320 $ 1,625,059 $ 1,530,563 $ 1,525,950
================ ================= ================ ===============
Note 20 -- Derivative Financial Instruments
In October, 1994, FASB No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" was issued. The statement
is effective for financial statements issued for fiscal years ending after
December 15, 1994. It requires various disclosures for derivative financial
instruments which are futures, forward, swap, or option contract, or other
financial instruments with similar characteristics. The Corporation does not
have any derivative financial instruments as defined under this statement.
Note 21 -- Proposed Merger
FB&T Financial Corporation (FB&T) and the Corporation have entered into a
Definitive Agreement and Plan of Reorganization, dated November 22, 1995, and a
related Plan of Share Exchange (collectively, the Merger Agreement). The
transaction is subject to the approval of regulatory authorities and
shareholders of FB&T. The proposed merger will entitle the shareholders of FB&T
to receive, in a tax-free exchange, shares of F&M common stock with an aggregate
market value equal to $35.00, with cash being paid in lieu of issuing fractional
shares. The market value of F&M common stock will be its average closing price
as reported on the New York Stock Exchange for each of the ten trading days
immediately preceding the closing date. As of December 31, 1995, FB&T's total
assets were $243,069,000, total loans were $149,062,000, total deposits were
$191,514,000 and total shareholders' equity was $16,934,000.
Note 22 -- Condensed Financial Information -- Parent Company Only
F&M NATIONAL CORPORATION
(Parent Corporation Only)
BALANCE SHEETS
December 31, 1995 and 1994
December 31,
------------------------------------
1995 1994
--------------- ---------------
Assets
Cash on deposit with subsidiary banks.............................................. $ 174,705 $ 62,427
Investment in subsidiaries, at cost, plus equity in undistributed net income....... 180,525,423 158,358,982
Securities available for sale, at lower of cost or market.......................... 8,876,336 6,128,599
Other short-term investments....................................................... 22,415,000 15,036,000
Bank premises and equipment, net................................................... 1,408,160 3,988,661
Intangible, goodwill, at amortized cost............................................ 668,516 757,246
Other assets....................................................................... 3,256,584 3,209,946
--------------- ---------------
Total assets........................................................ $ 217,324,724 $ 187,541,861
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Short-term borrowings.............................................................. $ 18,462,000 $ 14,671,000
Dividends payable.................................................................. 2,643,492 2,351,822
Other liabilities.................................................................. 2,736,737 1,530,066
--------------- ---------------
Total liabilities.................................................... $ 23,842,229 $ 18,552,888
--------------- ---------------
Shareholders' Equity
Preferred stock.................................................................... $ -- $ --
Common stock....................................................................... 33,104,648 32,965,190
Capital surplus.................................................................... 57,680,810 56,893,066
Retained earnings, which are substantially undistributed earnings
of subsidiaries.................................................................. 99,229,815 85,913,709
Unrealized gain (loss) on securities available for sale, net....................... 3,467,222 (6,782,992)
--------------- ---------------
Total shareholders' equity........................................... $ 193,482,495 $ 168,988,973
--------------- ---------------
Total liabilities and shareholders' equity........................... $ 217,324,724 $ 187,541,861
=============== ===============
F&M NATIONAL CORPORATION
(Parent Corporation Only)
STATEMENTS OF INCOME
For Each of the Three Years in the Period Ended December 31, 1995
December 31,
------------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Revenue
Dividends from subsidiaries....................................... $ 10,980,591 $ 8,658,100 $ 6,842,800
Interest on other short-term investments.......................... 769,557 644,529 392,493
Interest and dividends on securities available for sale........... 342,713 317,948 303,810
Management fees from subsidiaries................................. 2,115,916 1,166,400 759,500
Rental income from subsidiaries................................... 402,550 426,300 426,100
Other revenue..................................................... 4,523 16,050 9,713
--------------- --------------- ---------------
Total revenue...................................... $ 14,615,850 $ 11,229,327 $ 8,734,416
--------------- --------------- ---------------
Expenses
Salaries and employee benefits.................................... $ 1,817,236 $ 990,377 $ 528,536
Directors` fees................................................... 188,408 204,050 228,867
Taxes (other than income)......................................... 41,124 42,577 45,245
Bank building rental expense...................................... -- -- 36,454
Interest.......................................................... 367,097 346,421 306,157
Amortization of goodwill.......................................... 59,877 59,877 65,843
Depreciation...................................................... 100,881 96,780 97,083
Merger expenses................................................... 269,958 461,195 288,568
Other expenses.................................................... 491,206 715,747 257,331
--------------- --------------- ---------------
Total expenses..................................... $ 3,335,787 $ 2,917,024 $ 1,854,084
--------------- --------------- ---------------
Income before income taxes and equity
in undistributed net income of subsidiaries..... $ 11,280,063 $ 8,312,303 $ 6,880,332
Income Tax Expense.................................................. 309,292 84,854 147,963
--------------- --------------- ---------------
Income before equity in undistributed
net income of subsidiaries...................... $ 10,970,771 $ 8,227,449 $ 6,732,369
Equity in Undistributed Net Income of Subsidiaries.................. 12,461,378 12,473,427 11,999,130
--------------- --------------- ---------------
Net income.......................................... $ 23,432,149 $ 20,700,876 $ 18,731,499
=============== =============== ===============
F&M NATIONAL CORPORATION
(Parent Corporation Only)
STATEMENTS OF CASH FLOWS
For Each of the Three Years in the Period Ended December 31, 1995
December 31,
------------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Cash Flows From Operating Activities
Net income......................................................... $ 23,432,149 $ 20,700,876 $ 18,731,499
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.................................................. 100,881 96,780 97,083
Amortization.................................................. 59,877 59,877 65,843
Deferred income taxes (credits)............................... (159,274) (182,986) 30,665
Discount accretion............................................ (3,383) (3,183) (2,870)
Undistributed net income of subsidiaries...................... (12,461,378) (12,473,427) (11,999,130)
(Increase) decrease in goodwill............................... 28,853 23,864 (357,962)
(Increase) decrease in other assets........................... 519,076 (2,364,144) 27,984
Increase in other liabilities................................. 1,206,671 1,626,463 106,679
--------------- --------------- ---------------
Net cash provided by operating activities................. $ 12,723,472 $ 7,484,120 $ 6,699,791
--------------- --------------- ---------------
Cash Flows From Investing Activities
(Increase) decrease in investment in subsidiaries................. $ (396,808) $ 525,390 $ 116,142
Purchase of securities available for sale......................... (1,802,395) (734,438) (15,000)
(Increase) decrease in other short-term investments............... (7,379,000) 31,000 (2,391,000)
Proceeds from sale of equipment to subsidiaries................... 2,771,841 387,000 --
Purchase of bank premises and equipment........................... (292,221) (89,650) (95,272)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities....... $ (7,098,583) $ 119,302 $ (2,385,130)
--------------- --------------- ---------------
Cash Flows From Financing Activities
Increase in short-term borrowings................................. $ 3,791,000 $ 1,488,000 $ 1,263,000
Net proceeds from issuance and sale of common stock............... 3,592,979 2,171,645 1,443,159
Acquisition of common stock....................................... (3,072,217) (2,815,487) --
Cash dividends paid............................................... (9,824,373) (8,408,729) (6,940,289)
Cash paid for fractional shares................................... -- (57,761) --
--------------- --------------- ---------------
Net cash (used in) financing activities................... $ (5,512,611) $ (7,622,332) $ (4,234,130)
--------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents.......... $ 112,278 $ (18,910) $ 80,531
Cash and Cash Equivalents
Beginning.......................................................... 62,427 81,337 806
--------------- --------------- ---------------
Ending............................................................. $ 174,705 $ 62,427 $ 81,337
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information
Cash payments for interest......................................... $ 367,097 $ 346,421 $ 306,157
=============== =============== ===============
Supplemental Schedule of Noncash Investing and
Financing Activities
Issuance of stock options under nonvariable compensatory plan...... $ 206,440 $ 211,120 $ 86,200
=============== =============== ===============
Retirement of stock options under nonvariable compensatory
plan............................................................ $ -- $ -- $ 8,000
=============== =============== ===============
Common stock issued in exchange for net assets in bank
acquisition..................................................... $ -- $ -- $ 7,095,620
=============== =============== ===============
Issuance of common stock to acquire investment..................... $ 200,000 $ -- $ 337,909
=============== =============== ===============
Common stock issued for 2 1/2% stock dividend...................... $ -- $ 6,001,278 $ --
=============== =============== ===============
Unrealized gain (loss) on securities available for sale............ $ 941,959 $ (350,506) $ --
=============== =============== ===============
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Directors
of F&M National Corporation
Winchester, Virginia
We have audited the accompanying consolidated balance sheets of F&M
National Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of F&M National
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years ended December 31, 1995, 1994
and 1993, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Corporation changed its method of accounting
for investments in debt and equity securities to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" in 1994.
Winchester, Virginia /s/ YOUNT, HYDE & BARBOUR, P.C.
January 31, 1996 YOUNT, HYDE & BARBOUR, P.C.
F&M NATIONAL CORPORATION
DIRECTORS:
Frank Armstrong, III
Chairman, President, and Chief Executive Officer,
National Fruit Product Company, Inc.
James L. Bowman
Real Estate Developer
Betty H. Carroll
Senior Vice President, F&M National Corporation;
President and Chief Executive Officer,
F&M Bank-Winchester
W. H. Clement
Vice Chairman, Hidden Creek
Industries, Inc.
W. M. Feltner
Chairman of the Board and Chief Executive Officer,
F&M National Corporation;
Chairman of the Board, F&M Bank-Winchester
William R. Harris
President and Chairman of the Board,
Harris Heating and Plumbing, Inc.
L. David Horner, III
Chairman, Horner Properties, Inc.
Jack R. Huyett
President and Chief Administrative Officer,
F&M National Corporation;
Vice Chairman of the Board,
F&M Bank-Winchester
William A. Julias
Senior Member, Julias, Blatt & Wolfe, P.C., Attorneys at Law
George L. Romine
Consultant, Sales Management
John S. Scully, III
President, Winchester Cold Storage Co., Inc.
J. D. Shockey, Jr.
President, Shockey Industries, Inc.
Fred G. Wayland, Jr.
Retired President, Peoples National Bank of Warrenton
C. Ridgely White
Vice Chairman of the Board, F&M National Corporation
F. Dixon Whitworth, Jr.
Executive Vice President, F&M National Corporation
OFFICERS:
W. M. Feltner
Chairman of the Board and
Chief Executive Officer
C. Ridgely White
Vice Chairman of the Board
Jack R. Huyett
President and Chief Administrative Officer
F. Dixon Whitworth, Jr.
Executive Vice President
Betty H. Carroll
Senior Vice President
Alfred B. Whitt
Senior Vice President,
Senior Financial Officer, Secretary
Barbara H. Ward
Treasurer
M. Lee Boppe
Independent Loan Review Officer
Jack W. Lee, Jr.
Vice President-Auditor
Sally B. Stryker
Assistant Vice President-Audit
Penny E. Myers
EDP Auditor
F&M BANK-WINCHESTER
DIRECTORS:
Frank Armstrong, III
Betty H. Carroll
W. H. Clement
W. M. Feltner
Mary M. Henkel
Jack R. Huyett
Joseph E. Kalbach
I. Clinton Miller
Ray Robinson, Jr.
George L. Romine
J. D. Shockey, Jr.
William A. Truban, DVM
Alfred B. Whitt
F. Dixon Whitworth, Jr.
Directors Emeriti:
B.B. Byrd
J. Lee Miller
OFFICERS:
W. M. Feltner
Chairman of the Board
Jack R. Huyett
Vice Chairman of the Board
Betty H. Carroll
President and Chief Executive Officer
ADMINISTRATIVE:
Alfred B. Whitt
Senior Vice President,
Senior Financial Officer, Secretary
Robert W. Lake
Senior Vice President
Business Development
Barbara H. Ward
Senior Vice President
LOANS:
Richard B. Wiltshire, Jr.
Senior Vice President-Loans
Frances H. Fortune
Senior Vice President-Credit
Robert E. Lee
Senior Vice President-Loans
Fay H. DeHaven
Vice President-Loans
Luther F. Dorsey
Vice President-Loans
Romaine S. Hess
Vice President-Loan Operations
Steven D. Tavenner
Vice President-Loans
OPERATIONS:
Peggy J. Marcus
Senior Vice President-Cashier
Bruce B. Barley
Security Officer
Colleen M. Bly
Director of Human Resources
Shelby C. Hodgson
Vice President-Branch Coordinator
Gregory D. Price
Compliance Officer
Arvilla B. Rinker
Vice President-Operations
Linda P. Russell
Vice President
Roger W. Shenk
Manager-Printing Department
Paul E. Shifflett
Vice President-Controller
J. Michael Snapp
ATM Coordinator
CHARGE CARDS:
Charles R. Roberson
Senior Vice President-Charge Cards
C. Ridgely White, Jr.
Vice President-Charge Cards
Margaret J. Linster
Assistant Vice President-
Charge Cards
DATA PROCESSING:
G. Hollis Mock
Vice President-Data Processing
MONEY MANAGEMENT:
Linda G. Jones
Vice President
MARKETING:
Jill A. Feltner
Marketing Director
Miles R. Orndorff, Jr.
Public Relations Director
TRUSTS:
Marshall J. Beverley, Jr.
Senior Vice President-Trust
Richard A. Farland
Senior Vice President-Trust-
Investments
W. Blake Curtis
Trust Officer
J. Blackwell Davis, Jr.
Trust Officer
Martha J. Burroughs
Assistant Vice President-
Trust Officer
Sarah V. Propps
Assistant Vice President-
Trust Officer
Dena J. Parsons
Employee Benefit Officer
BRANCH OFFICES:
WINCHESTER:
Main Office:
Cindy C. Jeter
Branch Manager
Apple Blossom Mall:
Steven T. Jones
Branch Manager-Day
Patricia L. Copp
Branch Manager-Night
Berryville Avenue:
Mollie H. Cain
Branch Manager
Fort Collier:
Larry P. Anderson
Vice President and
Branch Manager
Willa M. Banks
Assistant Branch Manager
James Wood:
Mary C. Allowatt
Branch Manager
Loudoun Street:
Phyllis M. Kaval
Branch Manager
Piccadilly Street:
Betty C. Martin
Branch Manager
Pleasant Valley:
Robbin P. McKee
Branch Manager
Pleasant Valley
Drive-In:
Sharon W. Harris
Branch Manager
Senseny Road:
Thomas E. Thayer
Branch Manager
Shawnee:
James L. Dix
Vice President-Loans
Louise B. Cheely
Branch Manager
Westminster Canterbury:
Margaret S. Carpenter
Branch Manager
CLARKE COUNTY:
Berryville:
William W. Fuller
Vice President and Branch Manager
FREDERICK COUNTY:
Gore:
Nancy L. Largent
Branch Manager
Middletown:
Judy A. Paige-Grim
Branch Officer and Manager
Stephens City:
Nancy S. Slonaker
Branch Manager
LOUDOUN COUNTY:
Hamilton:
Alice W. Farris
Vice President-Operations
Loudoun County Division
B. J. Trussell
Vice President-Branch Coordinator
Loudoun County Division
Dennis M. East
Marketing Director
Loudoun County Division
Leesburg/Market Street:
Dorothy J. Lehr
Assistant Branch Manager
Leesburg/Catoctin Circle:
Dale L. Fritts
Vice President-Loans
Loudoun County Division
Nan C. Havens
Branch Manager
Lovettsville:
Faye A. McKimmey
Branch Manager
Middleburg:
John E. Hanna
Loan Officer
Joyce F. Sours
Branch Manager
Round Hill:
Doris E. Hardy
Branch Manager
Sterling:
Darcus E. Breneman
Branch Manager
RAPPAHANNOCK COUNTY:
Flint Hill:
Alice S. Kresge
Vice President and Branch Manager
SHENANDOAH COUNTY:
Mount Jackson:
Dennis L. Snyder
Vice President and Manager
Shenandoah County Division
Cathy S. Lindamood
Assistant Branch Manager
Woodstock:
Alfred R. Heishman, Jr.
Vice President and Branch Manager
New Market:
Tony A. Mongold
Assistant Vice President and
Branch Manager
WARREN COUNTY:
FRONT ROYAL:
East Main:
Robert E. Aylor, III
Vice President-Manager
Front Royal Division
Walter H. Bursey, Jr.
Vice President-Loans
John E. Burke
Marketing Officer
Joyce H. Sutherland
Assistant Vice President-Operations
North Royal:
Edith R. Reil
Branch Officer and Manager
John Marshall:
Joyce C. Davis
Branch Manager
Sixth Street:
Ruth Ann Smoot
Branch Manager
F&M BANK-
CENTRAL VIRGINIA
DIRECTORS:
Jacob P. Bailey
William J. Camden
James N. Fleming
S. W. Heischman
Larry J. McElwain
Ronald L. Moyer
William B. Pollard, M.D.
Robert C. Raynor, M.D.
Thomas H. Romer
Walter L.Tucker, Jr.
Wayne L. Turner
F. Dixon Whitworth, Jr.
OFFICERS:
Wayne L.Turner
President and
Chief Executive Officer
William K. King
Senior Vice President and Secretary
Pamela T. Anderson
Vice President and Cashier
BRANCH OFFICES:
Main:
William K. King
Senior Vice President
Afton:
Jeannette F. Rittenhouse
Branch Manager and Loan Officer
Amherst:
Donnie L. Snead
Vice President and
Branch Manager
Ivy Road:
Danita D. Harris
Branch Manager
Lovingston:
O. Guy Gruber
Vice President and
Branch Manager
5th Street:
Scottsville:
James A. Farmer
Assistant Vice President and
Branch Manager
F&M BANK-EMPORIA
DIRECTORS:
C. Butler Barrett
Stephen D. Bloom
Bobby L. Flippen
Dr. Theopolis Gilliam
Robert H. Grizzard, Jr.
Arthur H. Kreienbaum, Jr.
Wayne P. Leath
O. Wayne Hanks
OFFICERS:
O. Wayne Hanks
President and Chief Executive Officer
Samuel W. Adams, III
Senior Vice President and Secretary
Ryland A. Winston
Vice President
BRANCH OFFICES:
West Atlantic:
David E. Collins
Vice President and Branch Manager
South Main:
Rose D. Clements
Branch Supervisor
F&M BANK-HALLMARK
DIRECTORS:
Robert H. Bird
Hugh W. Compton
James A. Davis
John P. DiGiulian
Walter H. Durum
Reed E. Larson
John T. Rohrback
Michael M. Webb
F. Dixon Whitworth, Jr.
OFFICERS:
Hugh W. Compton
President and Chief Executive Officer
John T. Rohrback
Executive Vice President
Karin M. Johns
Senior Vice President-Cashier
Alice B. Williams
Senior Vice President-Loan Department
Robert E. Duvall
Vice President-Trust Officer
Alex Solis
Vice President-Loan Department
James M. Weaver
Vice President-Loan Department
Kathleen B. Mangano
Assistant Vice President-Loan Department
Jeffrey M. Rosati
Assistant Vice President-Loan Department
William D. Stoneman
Security Officer
Matthew S. Impson
Assistant Cashier-Bookkeeping
Janis K. Bradley
Compliance Officer
Julia H. Stapor
Assistant Cashier
BRANCH OFFICES:
Main Office:
Linda D. Nordin
Assistant Cashier and Branch Manager
Alexandria:
Joann R. Strain
Assistant Cashier and Branch Manager
Annandale:
Margaret M. Lane
Assistant Cashier and Branch Manager
Newington:
Melvia J. Rescigno
Assistant Cashier and Branch Manager
Woodbridge:
Judith A. DeViney
Assistant Cashier and Branch Manager
F&M BANK-
MASSANUTTEN
DIRECTORS:
J. Robert Black
Robert W. Drechsler
Robert E. Driver
Homer M. Fulk
Dwight W. Hartman
W. Wallace Hatcher
Russell K. Henry, Jr.
Marian G. Jenkins
William A. Julias
Curtis F. Kite
Harry L. Rawley
Edward P. Shank
Wayne L. Smith
Emmet C. Stroop
Garnett R. Turner
Nancy H. Whitmore
Alfred B. Whitt
OFFICERS:
Wayne L. Smith
President and Chief Executive Officer
Russell K. Henry, Jr.
Senior Vice President
James G. Link
Vice President
Writa D. Hill
Vice President and Cashier
Edward A. Strunk
Vice President
BRANCH OFFICES:
Main:
Donna S. Sheppard
Assistant Vice President and Office Manager
South:
Ian Robin Dalrymple
Assistant Vice President
and Branch Manager
Parkview:
Donnie E. Ritchie
Vice President and Branch Manager
Grottoes:
Wanda N. Spitzer
Assistant Branch Manager
Dayton Pike:
William M. Groseclose, Jr.
Branch Manager and
Collection Manager
Bridgewater:
Houston T. Dickenson, Jr.
Assistant Vice President and
Branch Manager
Broadway:
Larry S. Bowman
Vice President and
Branch Manager
Timberville:
Robert R. Reedy
Assistant Vice President and
Branch Manager
F&M-PEOPLES
DIRECTORS:
Alice Jane Childs
Alan L. Day, Jr.
Marshall DeF. Doeller
George F. Downes
Jack R. Huyett
T. Christopher Jenkins
Thomas H. Kirk
Mark C. Riley
Lewis N. Springer
Edward C. A. Wachtmeister
Fred G. Wayland, Jr.
Directors Emeriti:
Edward L. Stephenson
Vincent L. Tolson
OFFICERS:
Mark C. Riley
President and Chief Executive Officer
Thomas H. Kirk
Senior Vice President-
Trust and Investments
Warren L. Bane
Vice President-Stafford Region
Theodore R. Coleman
Vice President-Loans
Caren M. Eastham
Vice President-
Administrative Services
Ronnie A. Jenkins
Vice President-Retail Banking
and Sales Management
Joan B. Oliver
Vice President and
Director of Data Processing
Daryl A. Urnosky
Vice President-
Chief Financial Officer and Cashier
BRANCH OFFICES:
Main:
Richard L. Monahan
Assistant Vice President and
Branch Manager
Warrenton Center:
Nancy W. Clatterbuck
Assistant Vice President and
Branch Manager
Marshall:
Peggy A. Smith
Assistant Cashier and Branch Manager
Stafford:
Brenda A. Hisghman
Assistant Cashier and Branch Manager
F&M BANK-POTOMAC
DIRECTORS:
Daniel R. Baker
David E. Feldman
Howard R. Green
Thom F. Hanes
Norman P. Horn
Henry C. Mackall
Thomas D. Rust
Robert E. Sevila
Alfred B. Whitt
OFFICERS:
Thomas D. Rust
Chairman of the Board
Thom F. Hanes
President and Chief Executive Officer
Wayne R. Garcia
Vice President-Loan Administration
Mason L. Kimble
Vice President and Cashier
Patsy I. Rust
Vice President
B. Drew Brown
Assistant Vice President
Dianne S. Capilongo
Assistant Cashier
David W. Hauck
Assistant Cashier
Cynthia S. Peacock
Assistant Cashier
F&M BANK-RICHMOND
DIRECTORS:
James H. Atkinson, Jr.
Jeff C. Bane
Stephen C. Conte
Lewis T. Cowardin
Zane G. Davis
Richard H. Hamlin
William R. Harris
James E. Howard
James R. Reames
F. Dixon Whitworth, Jr.
Director Emeritus:
David M. White
OFFICERS:
James H. Atkinson, Jr.
President and Chief Executive Officer
Wayne D. Eaves
Senior Vice President
K. Bradley Hildebrandt
Vice President-Commercial Lending
Donna D. Sorrell
Vice President
Daily H. Stern
Vice President and Compliance Officer
Gene T. Jones
Assistant Vice President and
Collections Officer
Timmie Lee Cartwright
Operations Officer
Pamela M. Coleman
Administrative Officer
Lynda J. Conklyn
Loan Operations Officer
BRANCH OFFICES:
Main:
Marshall E. McCall
Assistant Vice President and
Branch Manager
Chester:
Martha G. Buchanan
Branch Officer and Branch Manager
Courthouse:
Carolyn Gregg
Branch Officer and Branch Manager
Lakeside:
Nancye Jo Poff
Assistant Vice President and
Branch Manager
Midlothian:
Duncan G. Cooke III
Vice President and Branch Manager
Parham Road:
Upton S. Martin III
Vice President and Branch Manager
Staples Mill Road:
Robyn C. Foster
Assistant Vice President and
Branch Manager
Debra K. Unger
Branch Officer and Assistant
Branch Manager
Three Chopt Road:
Kevin L. Ford
Branch Officer and Branch Manager
Marie H. Ladd
Branch Officer and Assistant Manager
Franklin:
Michelle L. Martin
Branch Manager
F&M BANK-BLAKELEY
DIRECTORS:
Charles C. Conrad
J. Blackwell Davis, Sr.
Denver L. Hipp
Jack R. Huyett
Dr. James M. Moler
Paul L. Reid
OFFICERS:
Denver L. Hipp
President and Chief Executive
Officer
Ida M. Hull
Cashier and Vice Presidentt
Reginald C. Kimble
Vice President-Senior
Lending Officer
Virginia M. Longerbeam
Assistant Vice Presidentt
Vonda K. Miller
Assistant Vice President
and Compliance Officer
Donna W. Phipps
Assistant Vice Presidentt
Laveania M. Hamilton
Assistant Vice Presidentt
Marilyn A. Williams
Assistant Vice Presidentt
Kathleen N. Vaughan
Collection Manager
BRANCH OFFICES:
Hilldale:
Patricia S. Collis
Assistant Vice President and
Branch Manager
Somerset:
Brenda K. Poston
Assistant Vice President and
Branch Manager
F&M BANK-KEYSER
DIRECTORS:
William M. Bane
Harlan M. Bell
Jack R. Huyett
Joseph W. Kessel
William C. Knott
Harland D. Ridder
Glen A. Ryan
Richard B. Schwinabart
Rudy R. Sites
Alfred B. Whitt
OFFICERS:
Harlan M. Bell
President and Chief Executive Officer
Douglas E. Haines
Executive Vice President and Cashier
David E. Harr, Jr.
Vice President-Senior Loan Officer
Dwight C. Metcalf
Vice President
Chargenia S. Kasmier
Trust Officer
BRANCH OFFICES:
Express Office:
Dorothy E. Schmidlen
Branch Manager
Fort Ashby:
Leon W. Arnold
Branch Manager
F&M BANK-
MARTINSBURG
DIRECTORS:
James L. Bowman
Betty H. Carroll
C. William Hammond
J. W. Lancaster
Evelyn S. Oates
Donald L. Sperow
Billy J. Tisinger
Directors Emeriti:
G. Francis Caton
William R. McCune
OFFICERS:
C. William Hammond
President and Chief Executive Officer
David C. Jeffcoat
Senior Vice President-Loans
Rick C. Manning
Vice President-Loans
Susan M. Wenger
Compliance/Bank Secrecy
Jodi A. Frankenberry
Assistant Vice President-Administration
BRANCH OFFICES:
Burke Street:
Lvonne H. Effland
Assistant Vice President and Branch Manager
Old Courthouse Square:
Mary K. Hayward
Vice President-Retail Banking
Inwood:
Debbie J. Dodd
Branch Manager
BIG APPLE
MORTGAGE COMPANY
DIRECTORS AND OFFICERS:
Vergil H. Bates
President and Director
James M. O'Brien
Executive Vice President
Beverly A. Alexander
Vice President
Betty H. Carroll
Vice President and Director
Alfred B. Whitt
Secretary-Treasurer and Director
WINCHESTER
CREDIT CORPORATION
DIRECTORS:
Betty H. Carroll
Edwin B. Clevenger
Jack R. Huyett
J. Randolph Larrick
F. Dixon Whitworth, Jr.
OFFICERS:
Jack R. Huyett
President
Richard V. Reedy
Vice President
Special Assets Division-Loudoun County
Betty H. Carroll
Vice President
Alfred B. Whitt
Secretary
Barbara H. Ward
Treasurer
CREDIT BUREAU OF
WINCHESTER, INC.
Sandra K. Hart
Manager
APPLE TITLE COMPANY
DIRECTORS:
Betty H. Carroll
Jack R. Huyett
Barbara H. Ward
Alfred B. Whitt
OFFICERS:
Jack R. Huyett
President
Betty H. Carroll
Vice President
Alfred B. Whitt
Secretary
Frances H. Fortune
Treasurer
Corporate Headquarters
F&M NATIONAL CORPORATION
38 Rouss Avenue
Winchester, Virginia
F&M BANK-WINCHESTER
Main Office
115 North Cameron Street
Winchester, Virginia
Other Banking Offices:
Winchester:
100 North Loudoun Street
509A Amherst Street
2252 Valley Avenue
829 North Loudoun Street
1850 Apple Blossom Drive
748 Berryville Avenue
124 West Piccadilly Street
2082 South Pleasant Valley Road
2004 South Pleasant Valley Road
Clarke County:
23 North Church Street
Berryville, Virginia
Frederick County:
6701 Northwestern Pike
Gore, Virginia
7800 Main Street
Middletown, Virginia
5306 Main Street
Stephens City, Virginia
1855 Senseny Road
Winchester, Virginia
300 Westminster Canterbury Drive
Winchester, Virginia
Loudoun County:
38997 East Colonial Highway
Hamilton, Virginia
101 Catoctin Circle, SE
Leesburg, Virginia
7 West Market Street
Leesburg, Virginia
7 Broad Way
Lovettsville, Virginia
202 West Washington Street
Middleburg, Virginia
21 Main Street
Round Hill, Virginia
22550 Davis Drive
Sterling, Virginia
Rappahannock County:
Flint Hill, Virginia
Shenandoah County:
Apple Avenue and U.S. Route 11
Mount Jackson, Virginia
158 South Main Street
Woodstock, Virginia
9383 Congress Street
New Market, Virginia
Warren County:
102 East Main Street
Front Royal, Virginia
215 North Royal Avenue
Front Royal, Virginia
Royal Plaza Shopping Center
Front Royal, Virginia
123 East Sixth Street
Front Royal, Virginia
F&M BANK-CENTRAL VIRGINIA
425 Seminole Trail
Charlottesville, Virginia
Virginia Route 151
Afton, Virginia
Ambriar Shopping Center
Amherst, Virginia
2208 Ivy Road
Charlottesville, Virginia
1113 5th Street Extended
Charlottesville, Virginia
93 Front Street
Lovingston, Virginia
Valley Street
Scottsville, Virginia
F&M BANK-EMPORIA
401 Halifax Street
Emporia, Virginia
301 West Atlantic Street
Emporia, Virginia
431 South Main Street
Emporia, Virginia
F&M BANK-HALLMARK
6810 Commerce Street
Springfield, Virginia
4115 Annandale Road
Annandale, Virginia
7027-A Manchester Boulevard
Alexandria, Virginia
14339 Potomac Mills Road
Woodbridge, Virginia
7830 Backlick Road
Springfield, Virginia
F&M BANK-MASSANUTTEN
U.S. Route 33, East
Harrisonburg, Virginia
U.S. Route 11, South
Harrisonburg, Virginia
611 Mount Clinton Pike
Harrisonburg, Virginia
157 N. Main Street
Broadway, Virginia
U.S. Route 340 and 2nd Street
Grottoes, Virginia
1900 South High Street
Dayton, Virginia
317 North Main Street
Bridgewater, Virginia
American Legion Drive and State Street
Timberville, Virginia
F&M BANK-PEOPLES
21 Main Street
Warrenton, Virginia
251 West Lee Highway
Warrenton, Virginia
8318 East Main Street
Marshall, Virginia
760 Warrenton Road
Fredericksburg, Virginia
F&M BANK-POTOMAC
230 Herndon Parkway
Herndon, Virginia
F&M BANK-RICHMOND
9401 West Broad Street
Richmond, Virginia
1776 Staples Mill Road
Richmond, Virginia
209 West Franklin Street
Richmond, Virginia
5001 Lakeside Avenue
Richmond, Virginia
9960 Midlothian Turnpike
Richmond, Virginia
1300 East Parham Road
Richmond, Virginia
9012 Three Chopt Road
Richmond, Virginia
4310 West Hundred Road
Chester, Virginia
9440 Ironbridge Road
Chesterfield, Virginia
F&M BANK-BLAKELEY
Corner Mildred Street
and Lancaster Circle
Ranson, West Virginia
Somerset Village Shopping Center
Charles Town, West Virginia
Hilldale Shopping Center
Charles Town, West Virginia
F&M BANK-KEYSER
87 N. Main Street
Keyser, West Virginia
Express Office
Florida & Southern Drive
Keyser, West Virginia
Fort Ashby Office
Fort Ashby, West Virginia
F&M BANK-MARTINSBURG
301 W. Burke Street
Martinsburg, West Virginia
1321 Edwin Miller Boulevard
Martinsburg, West Virginia
Route 51 West
Inwood, West Virginia
BIG APPLE MORTGAGE COMPANY
124 West Piccadilly Street
Winchester, Virginia
12 Rouss Avenue
Winchester, Virginia
102 East Main Street
Front Royal, Virginia
Apple Avenue and U.S. Route 11
Mount Jackson, Virginia
F&M Mortgage Company
22550 Davis Drive
Sterling, Virginia
1321 Edwin Miller Boulevard
Martinsburg, West Virginia
APPLE TITLE COMPANY
12 Rouss Avenue
Winchester, Virginia
WINCHESTER CREDIT CORPORATION
12 Rouss Avenue
Winchester, Virginia
CREDIT BUREAU OF WINCHESTER, INC.
12 Rouss Avenue
Winchester, Virginia
GENERAL INFORMATION
Annual Meeting
The annual meeting of shareholders will be held at the TraveLodge Banquet
Room, 1825 Dominion Avenue, Winchester, Virginia, Tuesday, April 23, at 10:00
a.m.
Stock Transfer Agent
American Stock Transfer and Trust Company
46th Floor
40 Wall Street
New York, New York 10005
F&M National Corporation Common Stock is traded on the New York Stock
Exchange under the symbol FMN.
Information
For additional information, contact Alfred B. Whitt, Corporate Secretary,
F&M National Corporation, (540) 665-4200.
A copy of the Corporation's Form 10-K annual report to the Securities and
Exchange Commission may be obtained without charge upon written request to
Alfred B. Whitt, F&M National Corporation.
Mailing Address
F&M National Corporation
P.O. Box 2800
Winchester, Virginia 22604
F&M NATIONAL CORPORATION
CORPORATE PROFILE
F&M National Corporation is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. It was incorporated under the laws
of Virginia on November 26, 1968, and commenced business on December 31, 1969.
The Corporation operates eleven commercial banks in Virginia and West Virginia.
The banks in Virginia are: F&M Bank-Central Virginia, Charlottesville; F&M
Bank-Emporia, Emporia; F&M Bank-Hallmark, Springfield; F&M Bank-Massanutten,
Harrisonburg; F&M Bank-Peoples, Warrenton; F&M Bank-Potomac, Herndon; F&M
Bank-Richmond, Richmond and F&M Bank-Winchester, Winchester. The banks in West
Virginia are: F&M Bank-Blakeley, Ranson; F&M Bank-Keyser, Keyser and F&M
Bank-Martinsburg, Martinsburg.
Its indirect subsidiaries are Apple Title Company, Big Apple Mortgage
Company, Credit Bureau of Winchester, Incorporated, and Winchester Credit
Corporation. The Corporation was organized primarily as a financial holding
company which operates through subsidiary organizations or establishments which
are engaged in banking and in bank and finance related businesses.