-----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, WMUFJKdwCPFFO9P1pox33G0L9vUhaKIE8heq7hnoeUNcuvl1ySUGw0JL7eGJ5tCU FgR2C25Oi+ddGysQLHEyaQ== 0000930609-99-000022.txt : 19990817 0000930609-99-000022.hdr.sgml : 19990817 ACCESSION NUMBER: 0000930609-99-000022 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: F&M BANK CORP CENTRAL INDEX KEY: 0000740806 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541280811 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13273 FILM NUMBER: 99690632 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 10QSB 1 FILING FOR 10QSB 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 June 30, 1999 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 June 30, 1999 Common Stock, par value - $5 2,454,143 shares F & M BANK CORP. INDEX Page PART I FINANCIAL INFORMATION 2 Item 1. Financial Statements Consolidated Statements of Income - Six Months Ended June 30, 1999 and 1998 2 Consolidated Statements of Income - Three Months Ended June 30, 1999 and 1998 3 Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 5 Consolidated Statements of Changes in Stockholders' Equity - Six Months Ended June 30, 1999 and 1998 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 17 Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibit and Reports on Form 8K 17 SIGNATURES 19 2 Part I Financial Information Item 1 Financial Statements F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars) Six Months Ended June 30, 1999 1998 Interest Income Interest and fees on loans $ 5,784 $ 5,744 Interest on federal funds sold 78 77 Interest on interest bearing deposits 19 35 Interest and dividends on investment securities Taxable 1,212 1,063 Nontaxable 8 ------- ------ Total Interest Income 7,093 6,927 ------- ------ Interest Expense Interest on demand accounts 231 247 Interest on savings deposits 476 480 Interest on time deposits 1,813 1,795 ------- ------ Total interest on deposits 2,520 2,522 Interest on short-term debt 145 109 Interest on long-term debt 567 610 ------- ------ Total Interest Expense 3,232 3,241 ------- ------ Net Interest Income 3,861 3,686 Provision for Loan Losses 25 80 ------- ------ Net Interest Income after Provision for Loan Losses 3,836 3,606 ------- ------ Noninterest Income Service charges 220 203 Other 143 67 Security gains (losses) 845 1,570 ------- ------ Total Noninterest Income 1,208 1,840 ------- ------ Noninterest Expense Salaries 951 831 Employee benefits 317 218 Occupancy expense 84 87 Equipment expense 121 123 Other 566 595 ------- ------ Total Noninterest Expense 2,039 1,854 ------- ------ Income before Income Taxes 3,005 3,592 Provision for Income Taxes 955 1,186 ------- ------ Net Income $ 2,050 $ 2,406 ======= ====== Per Share Data Net Income $ .83 $ .98 ======= ====== Cash Dividends $ .25 $ .50 ======= ====== Equivalent Shares Outstanding 2,454,490 2,455,962 ========= ========= 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 June 30, 1999 1998 Interest Income Interest and fees on loans $ 2,897 $ 2,906 Interest on federal funds sold 40 20 Interest on interest bearing deposits 9 16 Interest and dividends on investment securities 614 Taxable 548 Nontaxable 4 Total Interest Income 3,560 3,494 ------- ------ Interest Expense Interest on demand deposits 117 124 Interest on savings accounts 245 239 Interest on time deposits 886 913 ------- ------ Total interest on deposits 1,248 1,276 Interest on short-term debt 76 54 Interest on long-term debt 279 271 ------- ------ Total Interest Expense 1,603 1,601 ------- ------ Net Interest Income 1,957 1,893 Provision for Loan Losses 15 35 ------- ------ Net Interest Income after Provision for Loan Losses 1,942 1,858 ------- ------ Noninterest Income Service charges 118 108 Other 61 29 Security gains 277 72 ------- ------ Total Noninterest Income 456 209 ------- ------ Noninterest Expense Salaries 491 423 Employee benefits 157 108 Occupancy expense 45 43 Equipment expense 60 60 Other 313 327 ------- ------ Total Noninterest Expense 1,066 961 ------- ------ Income before Income Taxes 1,332 1,106 Provision for Income Tax 415 327 ------- ------ Net Income $ 917 $ 779 ======= ====== Per Share Data Net Income $ .37 $ .32 ======= ====== Cash Dividends $ .13 $ .40 ======= ====== Equivalent Shares Outstanding 2,454,143 2,455,962 ========= ========= The accompanying notes are an integral part of these statements. 4 F & M BANK CORP. CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) June 30, December 31, ASSETS 1999 1998 -------------------------- Cash and due from banks $ 3,673 $ 4,198 Federal funds sold 2,436 Interest bearing deposits in banks 1,342 2,145 Securities held to maturity (note 2) 6,688 9,715 Securities available for sale (note 2) 37,200 33,941 Other investments 4,064 2,701 Loans, net of unearned discount (note 3) 133,226 132,301 Less reserve for loan losses (note 4) (1,080) (1,162) -------- -------- Net Loans 132,146 131,139 Bank premises and equipment 2,648 2,080 Other real estate 426 472 Interest receivable 1,366 1,352 Other assets 1,451 1,316 ------- ------- Total Assets $191,004 $191,495 ======= ======= LIABILITIES Deposits Noninterest bearing demand $ 15,959 $ 16,232 Interest bearing Demand 20,368 20,213 Savings deposits 30,085 27,443 Time deposits 68,494 71,251 ------- ------- Total Deposits 134,906 135,139 Short-term debt 6,379 7,155 Long-term debt 20,129 21,854 Accrued expenses 4,851 3,269 ------- ------- Total Liabilities 166,265 167,417 ------- ------- STOCKHOLDERS' EQUITY Common stock $5 par value, 2,454,143 and 2,455,962 shares issued and outstanding in 1999 and 1998, respectively 12,280 12,280 Surplus 867 867 Retained earnings 10,495 9,057 Treasury stock (40) Unrealized gain on securities available for sale 1,137 1,874 ------- ------- Total Stockholders' Equity 24,739 24,078 ------- ------- Total Liabilities and Stockholders' Equity $191,004 $191,495 The accompanying notes are an integral part of these statements. 5 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) Six Months Ended June 30, 1999 1998 Cash Flows from Operating Activities: Net income $ 2,050 $ 2,406 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 93 105 Amortization of security premiums 122 54 Gain on security transactions (845) (1,570) Provision for loan losses 25 80 (Increase) decrease in interest receivable (14) 33 Decrease (increase) in other assets (174) 120 Increase in accrued expenses 2,060 440 Losses on limited partnership investments 61 62 Gain on sale of land (1) (10) -------- ------- Total Adjustments 1,327 (686) ------- ------- Net Cash Provided by Operating Activities 3,377 1,720 ------- ------- Cash Flows from Investing Activities: Proceeds from sales of investments available for sale 2,032 4,323 Proceeds from maturity of investments available for sale 8,008 3,161 Proceeds from maturity of investments held to maturity 2,844 7,057 Purchase of investments available for sale (14,259) (9,879) Purchase of investments held to maturity (750) (2,370) Net decrease in federal funds sold 2,436 2,141 Net increase in loans (1,032) (6,529) Purchase of property and equipment (661) (133) Net decrease (increase) in interest bearing bank deposits 803 (719) Sale of other real estate 11 Net Cash Used in Investing Activities (579) (2,937) -------- ------- Cash Flows from Financing Activities: Net increase in demand and savings deposits 2,524 206 Net increase (decrease) in time deposits (2,757) 1,753 Net decrease in short-term debt (776) (732) Increase in long-term debt 5,147 Repayment of long-term debt (1,725) (3,936) Payment of dividends (589) (1,212) -------- ------- Net Cash Provided by (Used in) Financing Activities (3,323) 1,226 -------- ------- Net Increase (Decrease) in Cash and Cash Equivalents (525) 9 Cash and Cash Equivalents, Beginning of Period 4,198 3,574 ------- ------- Cash and Cash Equivalents, End of Period $ 3,673 $ 3,583 ======= ======= Supplemental Disclosure Cash paid for: Interest expense $ 3,250 $ 3,228 Income taxes 740 800 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) Six Months Ended June 30, 1999 1998 Balance, beginning of period $ 24,078 $ 22,902 Comprehensive Income: Net income 2,050 2,406 Net change in unrealized appreciation on securities available for sale, net of taxes (735) (1,125) -------- ------- Total comprehensive income 1,315 1,281 Purchase of treasury stock (40) Dividends declared (614) (1,228) -------- ------- Balance, end of period $ 24,739 $ 22,955 ======= ======= 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 June 30, 1999 and the results of operations for the six-month periods ended June 30, 1999 and June 30, 1998. The notes included herein should be read in conjunction with the notes to financial statements included in the 1998 annual report to stockholders of the F & M Bank Corp. The Company does not expect the anticipated adoption of any newly issued accounting standards to have a material impact on future operations or financial position. NOTE 2 INVESTMENT SECURITIES: The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at June 30, 1999 and December 31, 1998 follows: 1999 1998 Carrying Market Carrying Market Value Value Value Value Securities Held to Maturity U. S. Treasury and Agency obligations $ 3,481 $ 3,485 $ 4,986 $ 5,030 State and municipal 250 250 Other securities 2,753 2,728 3,259 3,311 Mortgaged-backed securities 454 456 1,220 1,230 Total $ 6,688 $ 6,669 $ 9,715 $ 9,821 ======= ======= ======= ======= 1999 1998 Market Market Value Cost Value Cost Securities Available for Sale U. S. Treasury and Agency obligations $ 15,966 $ 16,078 $ 13,886 $ 13,849 Equity securities 11,103 9,057 10,490 7,605 Mortgage-backed securities 3,116 3,123 3,883 3,870 Other securities 7,015 7,118 5,682 5,602 ------- ------- ------- ------- Total $ 37,200 $ 35,376 $ 33,941 $ 30,926 ======= ======= ======= ======= 8 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 LOANS: Loans outstanding are summarized as follows: June 30, December 31, 1999 1998 Real Estate Construction $ 4,818 $ 4,376 Mortgage 79,431 78,349 Commercial and agricultural 30,240 31,567 Installment and consumer demand notes 17,423 17,125 Credit cards 798 832 Other 516 52 ------ ------- Total $133,226 $132,301 ======= ======= NOTE 4 ALLOWANCE FOR LOAN LOSSES: A summary of transactions in the allowance for loan losses for the periods ended June 30, 1999 and 1998 follows: Six Months Ended Three Months Ended June 30, June 30, 1999 1998 1999 1998 Balance, beginning of period $1,162 $ 1,121 $1,153 $ 1,055 Provisions charged to operating expenses 25 80 15 45 Net (charge offs) recoveries Loan recoveries 26 30 9 2 Loan charge-offs (133) (47) (97) (14) ------ ------ ------ ------ Total Net Charge-offs* (107) (17) (88) (12) ------ ------ ------ ------ Balance, End of Period $1,080 $ 1,184 $1,080 $ 1,088 ===== ====== ===== ====== * Components of net charge-offs: Real estate - Construction $ - $ - $ $ - Real estate - Mortgages (2) - (2) - Commercial (49) 4 (49) (5) Installment (56) (21) (37) (7) ------ ------ ------ ------ Total $(107) $(17) $(88) $ (12) 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 six months of 1999. On an annualized basis, both total assets and total deposits decreased slightly through the first six months. Net income for the first six months of 1999 decreased $356,000 or 14.80% as a result of a $450,000 after tax change in security gains and losses. The increase in capital of 2.45% is attributed to the retention of earnings, net of regular dividends of $614,000 and a $737,000 decrease in unrealized gains on securities available for sale. Results of Operations - Six Months Ending June 30, 1999 The dollar amount of the tax equivalent net-interest-margin increased $177,000 or 4.67% compared to the same period in 1998. Yields on earning assets were down forty-seven basis points, while the cost of funds decreased thirty-four basis points. The decrease in yield on earning assets was across all asset types and is reflective of lower rates in the national economy and stronger competition within the local market. The decrease in the cost of funds is a result of decreases in rates paid on all deposit types and a reduction in the average rate paid on long-term debt. A portion of these long-term debts were refinanced in 1998 resulting in higher expense during that period from the payment of prepayment penalties. A schedule of the net interest margin for 1999 and 1998 is shown on page 15 as Table 1. Noninterest income decreased $632,000 in the first six months of 1999. This decrease is attributed to reduction of $725,000 in gains realized on securities transactions in 1999 compared to 1998. Other noninterest income increased $93,000 or 34.44% in 1999 and is the result of increases in income from deposit account service charges and increased revenue from sales of insurance products. Noninterest expense increased 9.98% in 1999. The principal reason for this was a 20.88% increase in salaries and employee benefits expenses. These increases can be attributed to increases in base salaries, a net increase of six full-time equivalent positions in various areas of the bank and the expiration of benefit cost savings that resulted in 1998 from the sale of stock received in the Trigon stock demutualization. Other noninterest expenses decreased 4.22% or $34,000. Areas affecting this decrease include a reduction in advertising expense and the cessation of expense accrual for Year 2000 related expenditures. Result of Operations - Quarter Ending June 30, 1999 Net income for the quarter ending June 30, 1999 increased 20.43% over earnings in the same quarter of 1998. Net interest income increased due to increases in the level of earning assets. Noninterest income increased during 1999 due to increased securities gains compared to 1998. Although the Company's overhead costs increased due to the factors noted above, they continue to be low relative to its peer group. 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, general 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 10 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Securities (Continued) component of shareholders' equity. As of June 30, 1999, the market value of all securities available for sale exceeded their amortized cost by $2,045,000 ($1,137,000 after the consideration of income taxes). This excess is the result of unrecognized gains in the value of equity securities, primarily stocks of financial institutions 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 debt securities to have a direct impact on earnings. Investments in securities increased $1,595,000 (3.44%) in the first six months of 1999. The Company has invested in relatively short-term maturities due to uncertainty in the direction of rates. This philosophy allows for greater flexibility in an environment of rapidly changing rates and has served the Company well over the years. Of the investments in securities available for sale, 30% are invested in equities which are dividend producing and subject to the dividend exclusion for taxation purposes. The Company believes these investments render adequate returns and have resulted in significant increases in value. Loan Portfolio The Company operates in an agriculturally dominated area, which includes the counties of Rockingham, Page and Shenandoah in the western portion of Virginia. 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 loans to small and medium sized business 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. While lending is geographically diversified within the service area, the Company does have some concentration in agricultural loans (primarily poultry farming). In the past two and a half years, the poultry industry has suffered due to high grain prices, excess supplies of all types of meat and high mortality rates among poults. Recently there has been a sharp improvement in grain prices and some improvement in mortality rates. However, these improvements have not been sufficient to completely offset depressed turkey prices caused by an over supply of meat. 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 continues to monitor its past due loans closely and has not experienced an increase in loan delinquencies as a result of these economic factors. The first six months of 1999 resulted in a slight increase of $925,000 in the loan portfolio. This increase is significantly less than in recent years and it appears that the loan portfolio's rate of growth has been affected by increased competition from new banks entering the market area. The influx of new banks caused a substantial amount of pressure on loan rates. The Bank has chosen to attempt to retain as much of its existing loan portfolio as possible, but it has not been aggressively pricing loans to achieve loan growth in the short-term. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Loan Portfolio (Continued) Non-performing loans include non-accrual loans, loans 90 days or more past due and restructured loans. Non-accrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans on which the original interest rate or repayment terms have changed due to financial hardship. Loans 90 days or more past due totaled $742,000 at June 30, 1999 compared to $2,059,000 at December 31, 1998. Approximately 75% 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 these customers to effect payment. The Company had no non-accrual or restructured loans at June 30, 1999. 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 and 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 credit losses of $1,080,000 at June 30, 1999 was down $82,000 from its level at December 31, 1998. The allowance was equal to .81% and .88% of total loans at June 30, 1999 and December 31, 1998, respectively. 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, when taken as a whole, is adequate to absorb reasonably estimated credit losses inherent in the Company's portfolio. 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 Company experienced a very slight decrease in deposits in the first six months of 1999. Deposit growth continues to be difficult to achieve due to the increasing number of financial institutions competing in the Bank's primary service area. The decrease in deposits was primarily in time deposits and was substantially offset by increase in lower cost demand and savings deposits. 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. Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be an important mechanism in funding real estate loan growth in the area. 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 12 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Deposits and Long-Term Debt (Continued) the maturity of its fixed rate real estate portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes. Due to reduced loan demand, no additional funds have been borrowed in 1999. Normal repayments have totaled $1,725,000 so far this year. Capital The Company seeks to maintain a strong capital position to expand facilities, promote public confidence, support current operations and grow at a manageable level. As of June 30, 1999, the Company's total risk based capital and total capital to total assets ratios were 18.53% and 12.92%, respectively. Both ratios are in excess of regulatory minimums and exceed the ratios of the Company's peers. Earnings have been sufficient to allow an increase in regular quarterly dividends in 1999 over those in 1998. 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 have been sufficient to fund most of the net increase in loans and investment securities. 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 the interest sensitive assets relative to interest sensitive liabilities over specific time intervals. At June 30, 1999 the Company is in an asset sensitive position. This asset sensitive position typically produces an unfavorable contribution to earnings during a period of decreasing rates. With the largest amount of interest sensitive assets and liabilities repricing within five years, the Company monitors these areas very closely. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that could affect actual versus expected cash flows. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net interest margin. While the Company does not match each of its interest sensitive assets against specific interest sensitive liabilities, it does monitor closely the maturities of loans, investments and time deposits to limit interest rate risk and the financial effect of market rate changes. 13 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Interest Rate Sensitivity, (Continued) A summary of asset and liability repricing opportunities is shown on page 16 as Table II. Disclosure of Year 2000 Issues The following statements are being designated as Year 2000 Readiness Disclosures under the Year 2000 Information and Readiness Disclosure Act, enacted by the 105th Congress on October 19, 1998. The Company has formed a year 2000 project team to identify information technology and non-technology systems that require modification for the year 2000. A project plan has been established with goals and target dates. The Company has completed the assessment, renovation and validation phases of the project. Substantially all mission critical systems have been tested. Redeployment of renovated or new equipment will continue through late-1999. The impact of year 2000 issues on the Company depends not only on corrective actions that the Company takes, but also on the actions of governmental agencies, businesses and other third parties that provide services to, or receive services from, the Company. The Company has implemented an ongoing process of identifying and contacting mission critical third parties to determine their year 2000 readiness. Although the Company has undertaken these measures, there can be no assurance that mission critical third parties will adequately address their year 2000 issues. The Company is developing contingency plans for implementation in the event that testing of alternate vendors to provide mission critical systems. There may be certain mission critical third parties, such as utilities or telecommunications companies, where alternative arrangements or sources are limited or unavailable. The Company has reviewed its significant loan customers to assess the risk of increased problem loans and credit losses due to borrowers failure to adequately address year 2000 issues. Although it is not possible to quantify the potential impact of such credit losses at this time, management has designated a portion of the allowance for loan losses as an undesignated reserve which can be used to absorb uncertainties, including year 2000 problems, within the loan portfolio. The Company has incurred expenses throughout 1998 and 1999 related to its year 2000 project. Additional funds have been budgeted in anticipation of costs that may be incurred during the remainder of 1999. At the present time, management of the Company does not believe that the costs of addressing this issue will have a material adverse impact on the Company's financial condition. If, however, the Company and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to the Company. The Company plans to continue to devote all resources necessary to resolve any significant year 2000 issues in a timely manner. 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. 14 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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). 15 TABLE I F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (Dollar Amounts in Thousands)
Six Months Ended Six Months Ended June 30, 1999 June 30, 1998 Average Income/ Rates Average Income/ Rates Balance Expense Balance Expense Rate Related Income Loans 1 $132,268 $ 5,799 8.84% $125,792 $ 5,757 9.15% Federal funds sold 3,386 78 4.64% 2,819 77 5.46% Bank deposits 918 19 4.17% 1,399 35 5.00% Investments Taxable 33,556 1,002 5.97% 26,926 855 6.35% Partially taxable 1 9,342 298 6.38% 8,288 292 7.05% Tax exempt 1 391 12 6.14% ----- ----- - ----- ----- ---- Total Earning Assets 179,470 7,196 8.02% 165,615 7,028 8.49% --------- ----- ------- -------- ----- ------- Interest Expense Demand deposits 20,890 231 2.21% 19,699 247 2.51% Savings 29,753 476 3.20% 27,178 480 3.53% Time deposits 68,283 1,813 5.31% 66,831 1,795 5.37% Short-term debt 7,117 145 4.07% 4,296 109 5.07% Long-term debt 20,846 567 5.48% 17,461 610 6.99% ------ ----- ----- ------ ----- ---- Total Interest Bearing Liabilities 146,889 3,232 4.44% 135,465 3,241 4.78% ------- -------- ------ ---------- ----- ------- Net Interest Margin 1 $ 3,964 $3,787 ======== ===== Net Yield on Interest Earning Assets 1 4.42% 4.57% ===== ==== 1 On a taxable equivalent basis assuming a 34% tax rate.
15 TABLE I (cONTINUED) F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (Dollar Amounts in Thousands)
Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 Average Income/ Rates Average Income/ Rates Balance Expense Balance Expense Rate Related Income Loans 1 $132,636 $ 2,896 8.66% $ 127,155 $2,913 9.16% Federal funds sold 3,524 40 4.50% 1,464 20 5.46% Bank deposits 885 9 4.04% 1,224 16 5.23% Investments Taxable 33,064 498 6.02% 27,525 442 6.42% Partially taxable 1 10,198 162 6.35% 9,336 144 6.17% Tax exempt 1 377 6 6.37% ----- ----- - ----- ----- ---- Total Earning Assets 180,307 3,605 8.00% 167,081 3,541 8.48% --------- ----- ---------- ---------- ----- ------- Interest Expense Demand deposits 21,282 117 2.18% 19,865 124 2.50% Savings 31,154 245 3.12% 26,835 239 3.56% Time deposits 66,234 886 5.31% 67,451 913 5.41% Short-term debt 7,576 76 3.98% 4,369 54 4.94% Long-term debt 20,388 279 5.47% 17,472 271 6.20% ------ ----- ----- ------ ----- ---- Total Interest Bearing Liabilities 146,634 1,603 4.40% 135,992 1,601 4.71% ------- ------- ------- ---------- ----- ------ Net Interest Margin 1 $ 2,002 $ 1,940 ======== ===== Net Yield on Interest Earning Assets 1 4.44% 4.64% ===== ==== 1 On a taxable equivalent basis assuming a 34% tax rate.
16 TABLE II F & M BANK CORP. INTEREST SENSITIVITY ANALYSIS JUNE 30, 1999 (In Thousands of Dollars) 0 - 3 4 - 12 1 - 5 Over 5 Not Months Months Years Years Classified Total Uses of Funds Loans: Commercial $25,291 $ 2,085 $ 8,481 $ 418 $ $36,275 Installment 108 817 14,428 661 16,014 Real estate 6,075 6,321 50,225 17,518 80,139 Credit cards 798 798 Interest bearing bank deposits 1,342 1,342 Investment securities 1,475 2,915 23,145 5,248 15,169 47,952 Federal funds sold ------ ------ ------ ------ ----- ------ Total 35,089 12,138 96,279 23,845 15,169 182,520 Sources of Funds Interest bearing deposits 20,368 20,368 Regular savings 30,085 30,085 Certificates of deposit $100,000 and over 104 2,549 3,366 6,019 Other certificates of deposit 8,541 24,825 29,013 62,379 Short-term borrowings 6,379 6,379 Long-term debt 4,179 15,950 20,129 ------ ------ ------ ------ ----- ------ Total 65,477 27,374 36,558 15,950 145,359 Discrete Gap (30,388) (15,236) 59,721 7,895 15,169 37,161 Cumulative Gap (30,388) (45,624) 14,097 21,992 37,161 Ratio of Cumulative Gap (16.65)% (25.00)% 7.72% 12.05% 20.36% to Total Earning Assets Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities at June 30, 1999. In preparing the above table no assumptions are made with respect to loan prepayments or deposit runoffs. Loan principal payments are included in the earliest period in which the loan matures or can be repriced. 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. 17 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 - On April 10, 1999, the stockholders held their annual meeting. The following item was approved by the shareholders by the required majority: 1) Election of the Board of Directors as proposed in the proxy material without any additions or exceptions. Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on 8-K (a)Exhibits 3i 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. 3ii 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 1995 Form 10-KSB filed March 26, 1996. 27 Financial Data Schedule attached. (b)Reports on Form 8-K The Company did not file any reports on form 8-K for the quarter ended June 30, 1999. 18 EXHIBIT INDEX Exhibit Index Page Number 27 Financial Data Schedule for the quarter ending June 30, 1999 20 19 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 Date August 12,1999 EX-27 2 FDS --
9 This schedule contains summary financial information extracted from F & M Bank Corp, Form 10QSB and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1999 JAN-01-1999 Jun-30-1999 3,673 1,342 0 0 37,200 6,688 6,669 133,226 (1,080) 191,004 134,906 6,379 4,851 20,129 0 0 12,280 12,459 191,004 5,784 1,212 97 7,093 2,520 3,232 3,861 25 845 2,039 3,005 955 0 0 2,050 .83 .83 4.42 0 742 0 0 1,162 133 26 1,080 1,080 0 0
-----END PRIVACY-ENHANCED MESSAGE-----