FIRST M & F CORPORATION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1997 Commission File Number 0-9424
FIRST M & F CORPORATION
(Exact name of registrant as specified in its charter)
Mississippi 64-0636653
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Registrant's telephone number: (601) 289-5121
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such report), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
Common stock ($5.00 par value) 3,394,656 shares
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<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
FORM 10-Q
CONTENTS
Page
PART I: FINANCIAL INFORMATION 3
Item 1 - Financial Statements (unaudited):
Condensed Consolidated Statements of Condition 4
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Stockholders'
Equity 6
Condensed Consolidated Statements of Cash Flow 7
Notes to Condensed Consolidated Financial
Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security
Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURE 15
Exhibit 11 - Computation of Earnings Per Share 16
Exhibit 27 - Financial Data Schedule
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Condition
(Unaudited)
March 31, December 31,
Assets 1997 1996 (1)
------ ----------- ------------
Cash and due from banks $ 21,522,073 $ 20,213,398
Interest bearing bank balances 5,722,464 149,794
Federal funds sold 22,100,000 500,000
Securities available for sale 93,888,755 86,443,833
Investment securities, market value of
$54,914,000 in 1997 and $57,536,000 in 1996 55,142,127 57,152,860
Loans 359,020,304 363,266,911
Unearned discount (16,967,853) (18,028,671)
Reserve for possible loan losses (4,570,094) (4,475,000)
----------- -----------
Net loans 337,482,357 340,763,240
----------- -----------
Bank premises and equipment 8,044,202 8,008,727
Accrued interest receivable 4,924,459 4,963,438
Other real estate 705,368 723,748
Intangible assets 2,646,743 2,688,974
Other assets 2,666,518 2,152,454
----------- -----------
$ 554,845,066 $ 523,760,466
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 58,772,295 $ 56,116,144
Interest bearing 436,165,906 407,977,979
----------- -----------
Total deposits 494,938,201 464,094,123
----------- -----------
Other borrowings 5,106,307 6,631,402
Accrued interest payable 2,563,695 2,434,230
Other liabilities 2,474,949 1,512,131
----------- -----------
Total liabilities 505,083,152 474,671,886
----------- -----------
Stockholders' equity:
Common stock, $5.00 par value, 5,000,000 shares
authorized, 3,394,656 issued and 16,973,280 16,973,280
outstanding
Additional paid-in capital 10,698,388 10,698,388
Retained earnings 22,302,739 21,087,077
Net unrealized gain (loss) on securities
available for sale, net of income taxes (212,493) 329,835
Net stockholders' equity 49,761,914 49,088,580
$ 554,845,066 $ 523,760,466
============ ===========
The accompanying notes are an integral part of these financial statements.
(1) Derived from audited financial statements.
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<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Income
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Interest income:
Interest and fees on loans $ 8,215,778 $ 7,273,856
Interest bearing bank balances 50,586 58,626
Taxable investments 1,562,579 2,055,882
Tax exempt investments 497,179 502,213
Federal funds sold 187,745 229,614
---------- ----------
Total interest income 10,513,867 10,120,191
---------- ----------
Interest expense:
Deposits 4,798,801 4,351,608
Securities sold under agreements to
repurchase - 552,890
Other borrowings 85,310 45,500
---------- ----------
Total interest expense 4,884,111 4,949,998
---------- ----------
Net interest income 5,629,756 5,170,193
Provision for possible loan losses 393,786 256,486
---------- ----------
Net interest income after provision for
possible loan losses 5,235,970 4,913,707
---------- ----------
Other operating income:
Service charges on deposits 818,342 845,321
Credit insurance income 92,104 109,227
Gains (losses) on AFS investments (295) 27,316
Other income 196,203 134,769
---------- ----------
Total other operating income 1,106,354 1,116,633
---------- ----------
Other operating expenses:
Salaries and employee benefits 2,012,163 1,932,368
Net occupancy expense 244,034 271,755
Equipment and data processing expenses 446,244 420,181
Other expenses 994,760 890,822
---------- ----------
Total other operating expenses 3,697,201 3,515,126
Income before income taxes 2,645,123 2,515,214
Income taxes 750,530 672,015
---------- ----------
Net income $ 1,894,593 $ 1,843,199
========== ==========
Earnings per share $ 0.56 $ 0.54
==== ====
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
Additional
Common Paid-In Retained Treasury Unrealized
Stock Capital Earnings Stock Gain (Loss) Total
----- ---------- -------- ------- ----------- -----
January 1,
<S> <C> <C> <C> <C> <C> <C>
1996 $ 16,973,280 $ 10,653,316 $ 16,242,675 $ (48,828) $ 698,987 $ 44,519,430
Net income - - 1,843,199 - - 1,843,199
Cash
dividends
paid ($.17
per share) - - (576,396) - - (576,396)
Net change in
unrealized
gain (loss) - - - - (561,862) (561,862)
---------- ---------- ---------- ------ ------- ----------
March 31,
1996 $ 16,973,280 $ 10,653,316 $ 17,509,478 $ (48,828) $ 137,125 $ 45,224,371
========== ========== ========== ====== ======= ==========
January 1,
1997 $ 16,973,280 $ 10,698,388 $ 21,087,077 $ - $ 329,835 $ 49,088,580
Net income - - 1,894,593 - - 1,894,593
Cash
dividends
paid ($.20
per share) - - (678,931) - - (678,931)
Net change in
unrealized
gain (loss) - - - - (542,328) (542,328)
---------- ---------- ---------- ---- ------- ---------
March 31,
1997 $ 16,973,280 $ 10,698,388 $ 22,302,739 $ - $ (212,493) $ 49,761,914
========== ========== ========== ==== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31,
----------------------------
1997 1996
Cash flows from operating activities: ---- ----
Net income $ 1,894,593 $ 1,843,199
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 313,930 262,959
Provision for possible loan losses 393,786 256,486
(Increase) decrease in interest receivable 38,979 (157,797)
Increase (decrease) in interest payable 129,465 (239,662)
Other, net 467,133 751,389
---------- ----------
Net cash provided by operating activities 3,237,886 2,716,574
---------- ----------
Cash flows from investing activities:
Net (increase) decrease in:
Interest bearing bank balances (5,572,670) (3,750,654)
Federal funds sold (21,600,000) (22,200,000)
Securities available for sale (7,987,250) 894,924
Investment securities 2,010,733 (1,961,269)
Loans 2,887,097 (6,536,255)
Bank premises and equipment (307,173) (710,341)
---------- ----------
Net cash used in investing activities (30,569,263) (34,263,595)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 30,844,078 42,203,821
Securities sold under agreements to
Repurchase - (8,146,997)
Other borrowings (1,525,095) (176,204)
Cash dividends (678,931) (576,396)
---------- ----------
Net cash provided by financing activities 28,640,052 33,304,224
Net increase in cash and due from banks 1,308,675 1,757,203
Cash and due from banks at January 1 20,213,398 18,823,519
---------- ----------
Cash and due from banks at March 31 $ 21,522,073 $ 20,580,722
========== ==========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Note 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The condensed consolidated financial
statements of First M & F Corporation include the financial statements of
Merchants & Farmers Bank, a wholly owned subsidiary, and its wholly owned
subsidiaries, First M & F Insurance Co., M & F Financial Services, Inc. and M
& F Bank Securities Corporation. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
Note 2: STATEMENTS OF CASH FLOWS
During the three months ended March 31, 1997 and 1996, the Company had the
following payments:
1997 1996
---- ----
Income taxes $ 56,000 $ 383,000
Interest on deposit liabilities 4,663,000 4,495,000
Interest on other borrowings 86,000 584,000
========= =========
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<PAGE>
FIRST M & F CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS SUMMARY
The Company's net income for the three months ended March 31, 1997 was
$1,894,593, or $0.56 per share, compared to $1,843,199, or $0.54 per share, for
the same period of 1996. This represents an increase in earnings per share of
3.7% and in net earnings of 2.78%. Return on average assets was 1.44% compared
to 1.42% for 1996 and return on average equity was 15.55% as contrasted to
16.43% for 1996.
These two key measures of bank profitability and performance continue to reflect
the growth in net interest income and non interest income combined with emphasis
on the budgeting and control of non interest expenses to produce a good quarter
of earnings for the Company. Another factor during this period of 1997, as
contrasted to 1996, has been the significant change in sources of deposit
funding with the roll-out of approximately $40 million in repurchase agreements,
to more traditional fund sources in 1997.
NET INTEREST INCOME
During the three month period ending March 31, 1997, the level of net interest
income increased $459,563 or 8.83% over the comparable period for 1996. This was
the result of an increase in the overall volume of earning assets in excess of
interest bearing liabilities. To contrast the two periods, total earning assets
for the period ending March 31, 1997 were approximately $518 million compared to
approximately $489 million at December 31, 1996 (a difference of $29 million).
This excess of total earning assets over liabilities contributed to the greater
volume of net interest income during the period. The net interest margin for the
period ending March 31, 1997, was approximately 4.54%, contrasted to an
approximate margin of 4.43% for the same period of 1996.
PROVISION FOR LOAN LOSSES
During the three month period ending March 31, 1997, the Company's provision for
loan losses was $393,786 contrasted to $256,486 for the same period of 1996.
This provision reflects management's assessment of the adequacy of the reserve
for possible loan losses to absorb potential losses in the loan portfolio.
Factors considered involve an assessment of growth and composition of the
portfolio; historical credit loss experience; current and anticipated economic
conditions; and changes in the borrower's financial condition. During the first
eight months of 1996, the Company used $75,000 per month as its estimate of 1996
requirement. In September, 1996 the provision was increased to $100,000 for the
remainder of 1996 to provide for some sluggishness in collections and for
general overall growth of the portfolio. 1997's estimate is $125,000 per month
and has been provided primarily to raise the level of the reserve for overall
growth. The overall condition of the loan portfolio, considering past-dues,
collections and other evaluation factors was considered to be superior.
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<PAGE>
FIRST M & F CORPORATION
NON INTEREST INCOME
One of the Company's key long-term strategies is to continue to boost its growth
in non interest income. For the three month period ending March 31, 1997, non
interest income was $1,106,354 as compared to $1,163,633 for 1996. Service
charges on deposits and credit insurance income reflected an approximate $44,000
or 4.6% decrease for 1997. Other income reflect an approximate $61,000 or 4.55%
increase primarily in the area of fee income on non-deposit products. Management
continues to emphasize the non interest income area through increased focus and
budget/incentive processes.
NON INTEREST EXPENSE
Another strategy of the Company is to contain non interest expenses within an
overall growth discipline. At March 31, 1997, the Company's efficiency ratio, an
indicator of control of non interest expenses, was 54% contrasted to 56% for the
same period of 1996. However, improvements have been made in the overall
monitoring and control of expense through the budgeting and review process.
Salaries and benefits comprise the largest portion of non interest expense and
increased 4.1% when compared to the same period of 1996. Additional staffing has
also been required in several locations as a result of volume and increased
demand.
Other expense reflects an increase of approximately $96,000 in 1997 compared to
1996. This primarily represents the recovery in 1996 of property taxes paid in
prior years as a result of errors in the assessments by several local taxing
authorities.
INCOME TAXES
For the three months ended March 31, 1997, the Company's effective tax rate was
28.4% as compared to 26.7% for the same period of 1996. This increase in
effective rate is the result of the reduction of the level of tax-exempt
investment income and, for the first year ever, a provision for estimated
Mississippi corporate income taxes. The Mississippi 5% corporate tax rate has
been factored into the monthly accrual and estimated quarterly payments are
being made in compliance with the state taxing regulations.
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<PAGE>
FIRST M & F CORPORATION
ASSETS/LIABILITIES
Loans, net of unearned discount, decreased to $342.1 million at March 31, 1997,
as compared to $345 million at the end of 1996. This approximately $3 million,
or 0.9%, decrease in loans since December 31, 1996, generally reflects the
overall softness of the economy at this time of the year.
The current level of the reserve for possible loan losses approximates 1.34% of
total loans outstanding. The Company's nonperforming loans past due 90 days or
more remain well controlled and continues to compare favorably to peer levels.
The adequacy of the reserve is reviewed quarterly using criteria and guidance
provided by the appropriate regulatory agencies and is presented to the Board of
Directors for subsequent review and approval. Management will continue to
take a prudent approach in the evaluation of the reserve for loan losses.
The securities portfolio is utilized to provide quality investment alternatives
for available funds and a stable source of interest income. At March 31, 1997,
the total securities portfolio was approximately $149 million, up from the
December 31, 1996 level by approximately $5 million. Yield for the portfolio was
at 5.77% for the three months ended March 31, 1997 and is comparable to peer
groups. There were no sales of held to maturity securities during the period.
Deposits originating from the various communities served by the Company provide
the primary source of its funds. Total deposits increased approximately $31
million or 6.6% during the three month period ended March 31, 1997, consistent
with growth plans for the year.
Other borrowings of $5,106,307 include approximately $4.7 million in advances
from the Federal Home Loan Bank of Dallas and are primarily funding sources for
specific loans.
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<PAGE>
FIRST M & F CORPORATION
EQUITY
The Company's regulatory capital ratios at March 31, 1997, as shown below are in
excess of the minimum requirements and qualify the institution as "well
capitalized" under the definition of such.
($ in Thousands)
---------------
Tier 1 capital $ 47,327
Tier 2 capital element 4,464
------
Total qualifying capital $ 51,791
======
Risk weighted assets $ 357,154
=======
Total qualifying capital/risk weighted assets 14.50%
Leverage ratio 8.84%
The dividend payout ratio for the three months ended March 31, 1997 was 35.8% of
net income reflecting a dividend of $.20 per share. Book value per share at
March 31, 1997 was $14.66 compared to a $27.00 per share market price.
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<PAGE>
FIRST M & F CORPORATION
ASSET/LIABILITY MANAGEMENT/LIQUIDITY
The asset/liability committee is responsible for managing the Company's program
for controlling and monitoring interest rate risk and for maintaining income
stability, given the Company's exposure to changes in interest rates.
Appropriate policy and guidelines, approved by the board of directors, govern
these actions. Monitoring is primarily accomplished through weekly reviews and
analysis of asset/liability market conditions and gap analysis.
The asset/liability committee establishes guidelines, approved by appropriate
board action, by which the current liquidity position of the Company in
monitored to ensure adequate funding capacity. Accessibility to local, regional
and other funding sources is also maintained in order to actively manage both
the asset and liability sides of the balance sheet. These funding requirements
and the Company's ability to maintain liquidity is also enhanced by the
Company's consistent earning capacity and adequate capital.
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<PAGE>
FIRST M & F CORPORATION
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No new legal proceedings occurred in the first quarter.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual stockholders' meeting held April 10, 1997, the stockholders, in
addition to electing directors, approved the Company increasing its authorized
number of shares of common stock from 5 million to 15 million. Application with
the State of Mississippi to effect this change in process at the present time.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11 - Statement of computation of earnings per share
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<PAGE>
FIRST M & F CORPORATION
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.
FIRST M & F CORPORATION
(Registrant)
DATE: May 9, 1997
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: May 9, 1997
Scott M. Wiggers
President and Chief Accounting Officer
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FIRST M & F CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Net income $ 1,894,593 $ 1,843,199
========= =========
Weighted average shares outstanding $ 3,394,656 $ 3,390,900
========= =========
Earnings per share $ .56 $ .54
=== ===
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<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted
from audited financial statements and guide 3 summary
financial information and is qualified in its entirety by reference to
such data.
</LEGEND>
<CIK> 0000320387
<NAME> First M & F Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,522
<INT-BEARING-DEPOSITS> 5,722
<FED-FUNDS-SOLD> 22,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,889
<INVESTMENTS-CARRYING> 55,142
<INVESTMENTS-MARKET> 54,914
<LOANS> 342,052
<ALLOWANCE> 4,570
<TOTAL-ASSETS> 554,845
<DEPOSITS> 494,938
<SHORT-TERM> 2,612
<LIABILITIES-OTHER> 5,039
<LONG-TERM> 2,494
0
0
<COMMON> 16,973
<OTHER-SE> 32,789
<TOTAL-LIABILITIES-AND-EQUITY> 554,845
<INTEREST-LOAN> 8,216
<INTEREST-INVEST> 2,060
<INTEREST-OTHER> 238
<INTEREST-TOTAL> 10,514
<INTEREST-DEPOSIT> 4,799
<INTEREST-EXPENSE> 4,884
<INTEREST-INCOME-NET> 5,630
<LOAN-LOSSES> 394
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,697
<INCOME-PRETAX> 2,645
<INCOME-PRE-EXTRAORDINARY> 2,645
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,895
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 4.54
<LOANS-NON> 275
<LOANS-PAST> 910
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,475
<CHARGE-OFFS> 285
<RECOVERIES> 55
<ALLOWANCE-CLOSE> 4,570
<ALLOWANCE-DOMESTIC> 4,168
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 402
</TABLE>
