-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FV4idlrPkUH8QpampqoG4Sy1f1SorrZBYizJRtDxad3tXqDGuQKkPV5tw89e1D/1 650zWLO0BMLqra+TSgXpaw== /in/edgar/work/0000930609-00-000046/0000930609-00-000046.txt : 20001115 0000930609-00-000046.hdr.sgml : 20001115 ACCESSION NUMBER: 0000930609-00-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: F&M BANK CORP CENTRAL INDEX KEY: 0000740806 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 541280811 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13273 FILM NUMBER: 767195 BUSINESS ADDRESS: STREET 1: PO BOX F CITY: TIMBERVILLE STATE: VA ZIP: 22853 BUSINESS PHONE: 7038968941 MAIL ADDRESS: STREET 1: DRAWER F CITY: TIMBERVILLE STATE: VA ZIP: 22853 10-Q 1 0001.txt FILING FOR 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended Commission File Number 0-13273 September 30, 2000 F & M BANK CORP. Virginia 54-1280811 - ------------------------------------ ---------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Drawer F Timberville, Virginia 22853 (540) 896-8941 ------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ..X. No .... State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at September 30, 2000 - ------------------------------ --------------------------------- Common Stock, par value - $5 2,435,264 shares 1 F & M BANK CORP. INDEX Page PART I FINANCIAL INFORMATION 2 Item 1. Financial Statements Consolidated Statements of Income - Nine Months Ended September 30, 2000 and 1999 2 Consolidated Statements of Income - Three Months Ended September 30, 2000 and 1999 3 Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 5 Consolidated Statements of Changes in Stockholders' Equity - Nine Months Ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION 16 Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibit and Reports on Form 8-K 16 SIGNATURES 18 2 Part I Financial Information Item 1 Financial Statements F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars Except per Share Amounts) Nine Months Ended September 30, 2000 1999 ---------- ------- Interest Income Interest and fees on loans $ 9,566 $ 8,725 Interest on federal funds sold 17 92 Interest on interest bearing deposits 33 28 Interest and dividends on investment securities 1,886 1,822 ------ ------ Total Interest Income 11,502 10,667 ------ ------ Interest Expense Interest on demand deposits 350 349 Interest on savings accounts 721 726 Interest on time deposits 3,259 2,717 ------ ------ Total interest on deposits 4,330 3,792 Interest on short-term debt 360 221 Interest on long-term debt 706 837 ------ ------ Total Interest Expense 5,396 4,850 ------ ------ Net Interest Income 6,106 5,817 Provision for Loan Losses 89 40 ------ ------ Net Interest Income after Provision for Loan Losses 6,017 5,777 ------ ------ Noninterest Income Service charges 405 349 Other 401 201 Security gains 771 1,109 ------ ------ Total Noninterest Income 1,577 1,659 ------ ------ Noninterest Expense Salaries 1,579 1,456 Employee benefits 496 473 Occupancy expense 163 144 Equipment expense 214 184 Other 1,044 877 ------ ------ Total Noninterest Expense 3,496 3,134 ------ ------ Income before Income Taxes 4,098 4,302 Provision for Income Tax 1,141 1,347 ------ ------ Net Income $ 2,957 $ 2,955 ====== ====== Per Share Data Net Income $ 1.21 $ 1.20 ======= ======= Cash Dividends $ .44 $ .38 ======= ======= Equivalent Shares Outstanding 2,449,421 2,454,373 ========== ========= The accompanying notes are an integral part of these statements. 3 F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars Except per Share Amounts) Three Months Ended September 30, 2000 1999 ---------- ------ Interest Income Interest and fees on loans $ 3,284 $ 2,941 Interest on federal funds sold 14 Interest on interest bearing deposits 5 9 Interest and dividends on investment securities 633 610 ------ ------ Total Interest Income 3,922 3,574 ------ ------ Interest Expense Interest on demand deposits 112 118 Interest on savings accounts 236 250 Interest on time deposits 1,227 904 ------ ------ Total interest on deposits 1,575 1,272 Interest on short-term debt 146 76 Interest on long-term debt 226 270 ------ ------ Total Interest Expense 1,947 1,618 ------ ------ Net Interest Income 1,975 1,956 Provision for Loan Losses 30 15 ------ ------ Net Interest Income after Provision for Loan Losses 1,945 1,941 ------ ------ Noninterest Income Service charges 138 129 Other 115 58 Security gains 264 ------ ------ Total Noninterest Income 253 451 ------ ------ Noninterest Expense Salaries 508 505 Employee benefits 159 156 Occupancy expense 63 60 Equipment expense 74 63 Other 392 311 ------ ------ Total Noninterest Expense 1,196 1,095 ------ ------ Income before Income Taxes 1,002 1,297 Provision for Income Tax 264 392 ------ ------ Net Income $ 738 $ 905 ====== ====== Per Share Data Net Income $ .30 $ .37 ======= ====== Cash Dividends $ .15 $ .13 ======= ======= Equivalent Shares Outstanding 2,441,118 2,454,143 ========== ========= The accompanying notes are an integral part of these statements. 4 F & M BANK CORP. CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) September 30, December 31, ASSETS 2000 1999 ------------ ------- Cash and due from banks $ 3,871 $ 4,799 Interest bearing deposits in banks 263 462 Securities held to maturity (note 2) 4,132 4,330 Securities available for sale (note 2) 39,431 36,169 Other investments 3,900 3,923 Loans, net of unearned discount (note 3) 149,817 140,318 Less allowance for loan losses (note 4) (1,148) (1,090) ------- ------- Net Loans 148,669 139,228 Bank premises and equipment 3,325 3,158 Interest receivable 1,532 1,373 Other real estate 426 426 Other assets 1,387 1,470 ------ ------ Total Assets $206,936 $195,338 ======= ======= LIABILITIES Deposits Noninterest bearing demand $18,205 $17,193 Interest bearing Demand 19,283 21,149 Savings deposits 27,432 29,566 Time deposits 83,906 71,599 ------ ------ Total Deposits 148,826 139,507 Short-term debt 11,217 7,720 Long-term debt 16,134 18,548 Accrued expenses 4,032 4,277 ------ ------ Total Liabilities 180,209 170,052 ------- ------- STOCKHOLDERS' EQUITY Common stock, $5 par value, 2,435,264 and 2,454,143 issued and outstanding, in 2000 and 1999, respectively 12,176 12,280 Surplus 511 868 Retained earnings 13,468 11,587 Unrealized gain on securities available for sale 572 551 ------ ------ Total Stockholders' Equity 26,727 25,286 ------ ------ Total Liabilities and Stockholders' Equity $206,936 $195,338 ======= ======= The accompanying notes are an integral part of these statements. 5 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) Nine Months Ended September 30, 2000 1999 ---------- ---- Cash Flows from Operating Activities: Net income $ 2,957 $ 2,955 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 194 150 Amortization of security premiums 16 167 Gain on security transactions (771) (1,109) Provision for loan losses 89 40 Increase in interest receivable (159) (68) Decrease in other assets 83 195 Increase (decrease) in accrued expenses (235) 2,047 Gain on sale of land (1) Losses on limited partnership investments 158 91 ------ ------ Total Adjustments (625) 1,512 ------- ------ Net Cash Provided by Operating Activities 2,332 4,467 ------ ------ Cash Flows from Investing Activities: Proceeds from sales of investments available for sale 2,185 3,557 Proceeds from maturity of investments available for sale 2,466 10,374 Proceeds from maturity of investments held to maturity 4,065 Purchase of investments available for sale (7,098) (17,837) Purchase of investments held to maturity (7) (773) Net decrease in interest bearing bank deposits 199 1,407 Net change in federal funds sold 2,436 Net increase in loans (9,532) (4,445) Sale of other real estate 79 Purchase of property and equipment (440) (1,134) ------- ------ Net Cash Used in Investing Activities (12,148) (2,350) -------- ------ Cash Flows from Financing Activities: Net increase in deposits 9,319 2,017 Net decrease (increase) in short-term borrowings 3,497 (228) Repurchase of common stock (461) (40) Repayment of long-term borrowings (2,414) (2,558) Payment of dividends (1,053) (908) ------- ------ Net Cash Provided by (Used in) Financing Activities 8,888 (1,717) ------ ------ Net Increase (Decrease) in Cash and Cash Equivalents (928) 400 Cash and Cash Equivalents at Beginning of Period 4,799 4,198 ------ ------ Cash and Cash Equivalents at End of Period $ 3,871 $ 4,598 ====== ====== Supplemental Disclosure Cash paid for: Interest expense $ 5,269 $ 4,856 Income taxes 1,052 1,080 The accompanying notes are an integral part of these statements. 6 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars) Nine Months Ended September 30, 2000 1999 ---------- ------- Balance, beginning of period $25,286 $24,078 Net income for period 2,957 2,955 Net change in unrealized appreciation on securities available for sale, net of taxes 21 (1,401) ------ ------ Total comprehensive income 2,978 1,554 Repurchase of common stock (461) (40) Dividends declared (1,076) (933) ------- ------ Balance, end of period $26,727 $24,659 ====== ====== The accompanying notes are an integral part of these statements. 7 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ACCOUNTING PRINCIPLES: The consolidated financial statements conform to generally accepted accounting principles and to general industry practices. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2000, and the results of operations for the three and nine month periods ended September 30, 2000 and 1999. The notes included herein should be read in conjunction with the notes to financial statements included in the 1999 annual report to stockholders of the F&M Bank Corp. NOTE 2 INVESTMENT SECURITIES: The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at September 30, 2000 and December 31, 1999 follows: 2000 1999 --------------------- -------------- Carrying Market Carrying Market Value Value Value Value Securities Held to Maturity U. S. Treasury and Agency obligations $ 2,354 $ 2,346 $ 2,469 $ 2,444 Other debt securities 1,778 1,722 1,781 1,717 Mortgage-backed securities 80 79 ------ ------- ------- ------ Total $ 4,132 $ 4,068 $ 4,330 $ 4,240 ====== ======= ======= ====== 2000 1999 ------------- ------------- Market Market Value Cost Value Cost Securities Available for Sale U. S. Treasury and Agency obligations $16,062 $ 16,182 $ 13,914 $14,274 Equity securities 12,000 10,805 12,339 10,811 Mortgage-backed securities 2,008 2,026 2,571 2,584 Other debt securities 9,361 9,506 7,345 7,580 ------ ------- ------- ------ Total $39,431 $ 38,519 $ 36,169 $35,249 ====== ======= ======= ====== 8 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENT NOTE 3 LOANS: Loans outstanding are summarized as follows: September 30, December 31, 2000 1999 -------------- ----- Real Estate Construction $ 5,473 $ 5,481 Mortgage 90,585 84,019 Commercial and agricultural 31,805 31,686 Installment 20,849 18,082 Credit cards 1,053 1,016 Other 52 34 ------ ------- Total $149,817 $140,318 ======= ======= NOTE 4 ALLOWANCE FOR LOAN LOSSES: A summary of transactions in the allowance for loan losses for the periods ended September 30, 2000 and 1999 follows: Nine Months Ended Three Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Balance, beginning of period $1,090 $1,162 $1,136 $1,080 Provisions charged to operating expenses 89 40 30 15 Net (charge offs) recoveries Loan recoveries 31 43 10 17 Loan charge-offs (62) (160) (28) (27) ------ ----- ------ ----- Total Net Charge-Offs * (31) (117) (18) (10) ------ ----- ------ ----- Balance, End of Period $1,148 $1,085 $1,148 $1,085 ===== ===== ===== ===== *Components of Net Charge-Offs Real Estate (2) 2 Commercial (4) (50 (2) (1) Installment (25) (67) (16) (11) ------ ----- ------ ----- Total $ (31) $ (117) $ (18) $ (10) ====== ===== ====== ===== 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The financial condition of F & M Bank Corp. remained strong throughout the first nine months of 2000. Annualized growth in loans was 9.03% and annualized growth in deposits was 8.91%. Net income for the first nine months of 2000 increased $2,000 or .07% compared to 1999. The increase in stockholders' equity of 5.70% is attributed to the retention of earnings net of regular dividends and a $21,000 increase in unrealized gains on securities available for sale. Results of Operations Year to Date The dollar amount of the tax equivalent, net interest margin increased 5.09% ($304,000) in the first nine months of 2000 compared to the first nine months of 1999. An increase in the return on earning assets of .21%, was offset by an increase in the cost of funds of .26%. All of the increase in the net interest margin was a result of increases in net earning assets (i.e. volume increases) as interest rate margins declined slightly. Increases in the return on earning assets and cost of funds were spread across all asset and liability types. A schedule of the net interest margin for 2000 and 1999 is shown on page 14 as Table I. Noninterest income decreased $82,000 in the first nine months of 2000. Exclusive of securities gains, noninterest income increased $256,000 (46.54%). Increases in service charges on deposit accounts totaled $56,000, and were a result of growth in the deposit base and changes on the service charge schedule. Other income increased $200,000 as the result of increases in returns on investments in low income housing projects. The increase in other income was attained in spite of an after tax adjustment to income from insurance operations of $64,000. This adjustment was necessary as a result of the discovery of errors in the processing of premiums on sales of credit life and accident & health insurance. The third-party insurance company, which handles underwriting and policy issuance, mistakenly over booked premium income and related policy claims. Management discovered this error in the third quarter of 2000 when a single large life insurance claim was reported twice. Overall, noninterest expenses increased 11.55% in 2000 compared to 1999. Salaries and employee benefits increased 7.57%. These increases can be attributed to increases in base salaries, employee benefits and increased accruals for bonuses attributable to a new incentive program beginning in 2000. Other noninterest expense increased 17.93% or $216,000. Factors contributing to this increase include increased depreciation expense, accruals for year-end contributions and higher professional fees. Professional fees have increased primarily due to an efficiency study which was commissioned by the Board of Directors and management. Results of this study are yielding cost savings and increases in fee income that are in the process of being phased in and will continue to yield results in future periods. Quarter Ending September 30, 2000 Third quarter net income decreased 18.45% compared to the same quarter of 1999. Securities gains decreased $264,000 in 2000. Exclusive of this item, earnings from operations, net of income tax expense, was virtually unchanged from 1999 levels. Although average earning assets increased $12,172,000 over the same period in 1999, the tax-equivalent net interest margin increased only $34,000. This was a result of the cost of funds on interest bearing liabilities increasing more rapidly than the increase in rates on earning assets (increase of .52% vs. increase of .22%). Rate increases by the Fed and strong competition for deposits were the factors causing these increases. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Noninterest income, exclusive of securities gains, increased 35.29% or $66,000. This was in spite of the $64,000 adjustment in insurance income, as explained in the previous section. Noninterest expenses increased 9.22% for the third quarter of 2000. However, increases in personnel related expenses were up only .91%. Staff reductions (through attrition) were realized in the quarter and were based upon recommendations made in the previously mentioned efficiency study. Other noninterest expenses were up 26.05% in the quarter and reflect the professional fees cited in the year to date discussion. Financial Condition Securities The Company's securities portfolio is held to assist the Company in liquidity and asset liability management. The securities portfolio consists of investment securities (commonly referred to as "securities held to maturity") and securities available for sale. Securities are classified as investment securities when management has the intent and ability to hold the securities to maturity. Investment securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, liquidity needs and other similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and losses on available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of shareholders' equity. As of September 30, 2000, the market value of all securities available for sale exceeded their amortized cost by $912,000 ($572,000 after the consideration of income taxes). This excess is the result of unrecognized gains in the value of equity securities held by the Company. Management has traditionally held debt securities (regardless of classification) until maturity and thus it does not expect the minor fluctuations in the value of these securities to have a direct impact on earnings. Although securities markets have been volatile throughout 2000, unrealized holding losses on the bond portfolio have decreased as long-term interest rates moderated during the third quarter. Overall, unrealized gains on equity securities have decreased only $333,000 in spite of gains of $771,000 having been realized within the year. The Company continues to hold equity investments in a number of large, regional financial institutions and a variety of other predominantly blue-chip securities. The Company continues to believe that these investments offer adequate current returns (dividends) and have the potential for future increases in value. Loan Portfolio The Company operates in an agriculturally dominated area in the western portion of Virginia which includes the counties of Rockingham, Page, Shenandoah and Augusta. The Company does not make a significant number of loans to borrowers outside its primary service area. The Company is very active in local residential construction mortgages. Commercial lending includes small and medium sized businesses within its service area. An inherent risk in the lending of money is that the borrower will not be able to repay the loan under the terms of the original agreement. The allowance for loan losses (see subsequent section) provides for this risk and is reviewed periodically for adequacy. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies and consumer confidence. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Loan Portfolio (Continued) While lending is geographically diversified within the service area, the Company does have some concentration in agricultural loans (primarily poultry farming). In addition to direct agricultural loans, a significant percentage of residential real estate loans and consumer installment loans are made to borrowers employed in the agricultural sector of the economy. The Company monitors its past due loans closely and has not experienced higher loan delinquencies in this sector compared to the overall loan portfolio. The first nine months of 2000 resulted in a $9,499,000 increase in the loan portfolio, as loans grew at an annualized rate of 9.03%. This increase is indicative of the strength of the local economy. Approximately 70% of the increase is in real estate loans. Although competition from other local banks remains a concern, a general increase in secondary market interest rates has resulted in the Bank funding more three and five year adjustable real estate loans for its own portfolio. Nonperforming loans include nonaccrual loans, loans 90 days or more past due and restructured loans. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans, which have had the original interest rate or repayment terms changed due to financial hardship. Nonperforming loans totaled $1,346,000 at September 30, 2000 compared to $1,917,000 at December 31, 1999. Approximately 93% of these past due loans are secured by real estate. Although the potential exists for some loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment. As of September 30, 2000, the Company did not hold any real estate that was acquired through foreclosure. Allowance for Loan Losses Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance include internally generated loan review reports, past due reports, historical loan loss experience and individual borrowers financial health. This review also considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates nonperforming loans relative to their collateral value and makes the appropriate adjustments to the allowance for loan losses when needed. The provision for loan losses and changes in the allowance for loan losses are shown in note 4, page 8. The allowance for loan losses of $1,148,000 at September 30, 2000 was up $58,000 from its level at December 31, 1999. The allowance was equal to .77% of total loans at September 30, 2000 and .78% at December 31, 1999. Loan losses, net of recoveries total $31,000 through three quarters of 2000. This is equivalent to an annualized loss rate of .03%. In recent years the Company has had an average annual loss rate of approximately .06%, which is roughly one-fourth the rate of similar-sized financial institutions. The Company believes that its allowance should be viewed in its entirety and, therefore, is available for potential credit losses in its entire portfolio, including loans, credit-related commitments and other financial instruments. In the opinion of management, the allowance is adequate to absorb reasonably estimated credit losses inherent in the Company's portfolio. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Deposits and Long-Term Debt The Company's main source of funds is customer deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. The annualized growth of deposits in the first nine months of 2000 totaled 8.91%. This growth was concentrated in certificates of deposit, and resulted primarily from promotional rate specials used to gather deposits to support loan portfolio growth. The Company offers repurchase agreements (a/k/a "repos") to customers desiring such investments. Repos are designed for companies and individuals desiring a higher rate of return than traditional deposit accounts and who will accept the risk of not being covered by FDIC insurance. As of September 30, 2000, balances in repo accounts totaled $5,988,000 and are included with short-term debt on the balance sheet. The Company purchases federal funds from other financial institutions based on liquidity needs. Total fed funds purchased as of September 30, 2000 totaled $5,229,000. The Company expects to continue to purchase funds in the near future. Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be an important mechanism in funding real estate loans. The Company's subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to fund either a fifteen-year fixed rate loan or a twenty-year loan, of which the first ten years have a fixed rate. This program allows the Bank to match the maturity of its fixed rate real estate portfolio with the maturity of its debt and reduce its exposure to interest rate changes. Due to unattractive rates of interest offered by the FHLB and funds generated from deposit growth, no additional funds have been borrowed in 2000. Normal repayments have totaled $2,414,000 this year. Capital The Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and grow at a manageable level. As of September 30, 2000, the Company's total risk based capital and total capital to total assets ratios were 18.71% and 12.92%, respectively. Both ratios are in excess of regulatory minimums and exceed the ratios of the Company's peers. Earnings have been satisfactory to allow an increase in regular dividends in 2000 of 15.79%. Liquidity Liquidity is the 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, investments and loans maturing within one year. The Company's ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Company's management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds. To further meet its liquidity needs, the Company also maintains lines of credit with correspondent financial institutions. The Company's subsidiary bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings. In the past, growth in deposits and proceeds from the maturity of investment securities has been sufficient to fund most of the net increase in loans and investment securities. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Interest Rate Sensitivity In conjunction with maintaining a satisfactory level of liquidity, management must also control the degree of interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of interest sensitive assets relative to interest sensitive liabilities over specific time intervals. The Company monitors its interest rate sensitivity periodically and makes adjustments as needed. There are no off balance sheet items that will impair future liquidity. A summary of asset and liability repricing opportunities is shown on page 15 as Table II. Branch Acquisition On September 14, 2000, the Company's subsidiary Bank signed an agreement with First Union Bank to acquire two First Union Bank branch offices. These offices are located in the towns of Edinburg and Woodstock, Shenandoah County, Virginia. The Bank will be acquiring the installment loan portfolios of each office as well as demand deposit, savings accounts, certificates of deposits and individual retirement accounts. The Edinburg facility is a leased facility. All other fixed assets along with the Woodstock facility will be purchased by the Bank. As of November 3, 2000, the obligations under this agreement are as follows: Deposits to be assumed $ 49,900,000 Premiums paid First Union on deposits assumed $ 6,700,000 Installment loans to be assumed $ 12,000,000 On October 27, 2000 the Bank received Federal Reserve Bank approval of the purchases and is awaiting approval by the State Corporation Commission's Bureau of Financial Institutions. The closing date for the transfer of the two offices is scheduled for February 23, 2001. Effect of Newly Issued Accounting Standards The Company does not believe that any newly issued but as yet unapplied accounting standards will have a material impact on the Company's financial position or operations. Existence of Securities and Exchange Commission Web Site The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including F & M Bank Corp. and the address is (http: //www.sec.gov). 14 Table I F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (Dollar Amounts in Thousands) Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 Average Income/ Rates Average Income/ Rates Balance Expense Balance Expense Rate Related Income Loans 1 $144,659 $ 9,596 8.84% $ 132,773 $8,747 8.78% Federal funds sold 387 17 5.86% 2,526 92 4.86% Bank deposits 862 33 5.10% 913 28 4.09% Investments Taxable 3 31,700 1,545 6.50% 33,787 1,516 5.98% Partially taxable 2,3 10,736 467 5.80% 9,396 435 6.17% ------ ---- ----- ----- --- ----- Total Earning Assets 188,344 11,658 8.25% 179,395 10,818 8.04% ------- ------- ------ -------- ------ -------- Interest Expense Demand deposits 20,626 350 2.26% 20,833 349 2.23% Savings 28,908 721 3.33% 29,411 726 3.29% Time deposits 79,093 3,259 5.49% 69,517 2,717 5.21% Other short- term debt 8,147 350 5.73% 6,762 221 4.36% Long-term debt 17,218 706 5.47% 20,420 837 5.47% ------ ---- ------ ------ --- ------ Total Interest Bearing Liabilities 153,992 5,386 4.66% 146,943 4,850 4.40% ------- ------ ----- ------- ----- ------ Net Interest Margin 1 $6,272 $5,968 ===== ===== Net Yield on Interest Earning Assets 1 4.44% 4.44% ====== ====== 1 Interest income on loans includes loan fees. 2 An incremental tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially taxable investments. 3 Average balance information is reflective of historical cost and has not been adjusted for changes in market value. 14 Table I (Continued) F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (Dollar Amounts in Thousands) Three Months Ended Three Months Ended September 30, 2000 September 30, 1999 Average Income/ Rates Average Income/ Rates Balance Expense Balance Expense Rate Related Income Loans 1 $148,311 $ 3,295 8.89% $ 133,782 $ 2,948 8.81% Federal funds sold 968 14 5.78% Bank deposits 322 5 6.21% 902 9 3.99% Investments Taxable 3 31,851 534 6.71% 34,249 514 6.00% Partially taxable 2,3 11,095 141 5.08% 9,506 137 5.76% ------ ---- ----- ----- --- ----- Total Earning Assets 191,579 3,975 8.30% 179,407 3,622 8.08% ------- ------ ------ ------- ----- -------- Interest Expense Demand deposits 20,022 112 2.24% 20,719 118 2.28% Savings 27,672 236 3.41% 30,107 250 3.32% Time deposits 83,764 1,227 5.86% 69,938 904 5.17% Other short- term debt 9,181 136 5.93% 6,493 76 4.68% Long-term debt 16,427 226 5.50% 19,585 270 5.51% ------ ----- ------ ------ --- ------ Total Interest Bearing Liabilities 157,066 1,937 4.93% 146,842 1,618 4.41% ------- ------ ----- ------- ----- ------ Net Interest Margin 1 $2,038 $2,004 ===== ===== Net Yield on Interest Earning Assets 1 4.26% 4.47% ====== ====== 1 Interest income on loans includes loan fees. 2 An incremental tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially taxable investments. 3 Average balance information is reflective of historical cost and has not been adjusted for changes in market value. 15 Table II F & M BANK CORP. INTEREST SENSITIVITY ANALYSIS September 30, 2000 (In Thousands of Dollars) The following table presents the Company's interest sensitivity. 0 - 3 4 - 12 1 - 5 Over 5 Not Months Months Years Years Classified Total Uses of Funds Loans Commercial $17,648 $2,621 $11,237 $ 299 $ $ 31,805 Installment 152 1,021 17,970 1,758 20,901 Real estate 13,369 11,720 54,666 16,303 96,058 Credit cards 1,053 1,053 Interest bearing bank deposits 263 263 Investment securities 111 2,761 28,585 106 15,900 47,463 ----- ----- ------ ----- ------ ------ Total 32,596 18,123 112,458 18,466 15,900 197,543 ------ ------ ------- ------ ------ ------- Sources of Funds Interest bearing demand deposits 5,522 8,269 5,492 19,283 Regular savings 5,486 10,973 10,973 27,432 Certificates of deposit $100,000 and over 1,037 3,751 7,221 12,009 Other certificates of deposit 9,555 27,792 34,550 71,897 Short-term borrowings 11,217 11,217 Long-term borrowings 160 1,749 14,225 16,134 ----- ----- ----- ------ ----- ------ Total 21,809 42,711 62,762 30,690 157,972 ------ ------ ------- ------ ----- ------- Discrete Gap 10,787 (24,588) 49,696 (12,224) 15,900 39,571 Cumulative Gap 10,787 (13,801) 35,895 23,671 39,571 Ratio of Cumulative Gap to Total 5.46% (6.99)% 18.17% 11.98% 20.03% Earning Assets Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of September 30, 2000. In preparing the above table, no assumptions were made with respect to loan prepayments. Loan principal payments are included in the earliest period in which the loan matures or can reprice. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities of deposits, which have no stated maturity dates, were derived from guidance contained in FDICIA 305. 16 Part II Other Information Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities - Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders- Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on 8-K (a)Exhibits 3 i Articles of Incorporation of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s Form S14 filed February 17, 1984. 3 ii Bylaws of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s Form S14 filed February 17, 1984. 21 Subsidiaries of the small business issuers are incorporated by reference to Exhibits to F & M Bank Corp.'s 1997 Form 10-KSB filed March 27, 1998. 27 Financial Data Schedule attached. (b)Reports on Form 8-K The Corporation did not file any reports on Form 8-K for the quarter ending September 30, 2000. 17 EXHIBIT INDEX Exhibit Index Page Number 27 Financial Data Schedule for the quarter ending September 30, 2000 19 18 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. F & M BANK CORP. JULIAN D. FISHER Julian D. Fisher President and Chief Executive Officer NEIL W. HAYSLETT Neil W. Hayslett Vice President and Chief Financial Officer November 13, 2000 EX-27 2 0002.txt FDS --
9 This schedule contains summary financial information extracted from F & M Bank Corp., Form 10Q and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 3,871 263 0 0 39,431 4,132 4,068 149,817 (1,148) 206,936 148,826 11,217 4,032 16,134 0 0 12,176 14,551 206,936 9,566 1,886 50 11,502 4,330 5,396 6,106 89 771 3,496 4,098 2,957 0 0 2,957 1.21 1.21 4.44 688 658 0 0 1,090 62 31 1,148 1,148 0 0
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