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 September 30, 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 October 24, 1997
Common stock ($5.00 par value) 3,394,656 shares
Page 1 of 16
<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 Flows 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
Exhibit 11 - Computation of Earnings Per Share 15
SIGNATURE 16
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Condition
(Unaudited)
September 30, December 31,
Assets 1997 1996 (1)
------ ------------- ------------
<S> <C> <C>
Cash and due from banks $ 26,011,778 $ 20,213,398
Interest bearing bank balances 1,225,275 149,794
Federal funds sold 3,900,000 500,000
Securities available for sale 108,334,168 86,443,833
Investment securities, market value of
$58,543,000 in 1997 and $57,536,000 in 1996 57,840,680 57,152,860
Loans 374,052,618 363,266,911
Unearned discount (16,547,780) (18,028,671)
Reserve for possible loan losses (5,207,989) (4,475,000)
----------- -----------
Net loans 352,296,849 340,763,240
----------- -----------
Bank premises and equipment 8,472,015 8,008,727
Accrued interest receivable 5,519,718 4,963,438
Other real estate 699,008 723,748
Intangible assets 2,561,683 2,688,974
Other assets 2,799,574 2,152,454
----------- -----------
$ 569,660,748 $ 523,760,466
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 60,915,881 $ 56,116,144
Interest bearing 447,663,052 407,977,979
----------- -----------
Total deposits 508,578,933 464,094,123
----------- -----------
Other borrowings 2,940,131 6,631,402
Accrued interest payable 2,831,872 2,434,230
Other liabilities 2,387,767 1,512,131
----------- -----------
Total liabilities 516,738,703 474,671,886
----------- -----------
Stockholders' equity:
Common stock, $5.00 par value, 15,000,000 shares
authorized, 3,394,656 issued and outstanding 16,973,280 16,973,280
Additional paid-in capital 10,698,388 10,698,388
Retained earnings 24,740,994 21,087,077
Net unrealized gain on securities available for
sale, net of income taxes 509,383 329,835
----------- -----------
Net stockholders' equity 52,922,045 49,088,580
----------- -----------
$ 569,660,748 $ 523,760,466
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
(1) Derived from audited financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,633,081 $ 8,075,596 $ 25,227,537 $ 22,873,723
Interest bearing bank balances 55,312 32,377 146,382 152,825
Taxable investments 1,896,127 1,704,843 5,299,360 5,754,887
Tax exempt investments 542,642 486,441 1,561,566 1,481,217
Federal funds sold 136,866 111,667 473,029 544,055
---------- ---------- ---------- ----------
Total interest income 11,264,028 10,410,924 32,707,874 30,806,707
---------- ---------- ---------- ----------
Interest expense:
Deposits 5,308,178 4,571,726 15,136,741 13,423,863
Short-term borrowings 159 25,955 3,624 958,311
Other borrowings 45,508 157,096 193,149 245,457
---------- ---------- ---------- ----------
Total interest expense 5,353,845 4,754,777 15,333,514 14,627,631
---------- ---------- ---------- ----------
Net interest income 5,910,183 5,656,147 17,374,360 16,179,076
Provision for possible loan losses 866,780 281,203 1,658,068 785,684
---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses 5,043,403 5,374,944 15,716,292 15,393,392
---------- ---------- ---------- ----------
Other operating income:
Service charges on deposits 841,484 921,349 2,500,830 2,649,671
Credit insurance income 664,192 118,605 854,307 365,087
Gains (losses) on AFS investments 11,989 (107) 18,701 21,844
Other income 45,505 141,658 409,491 464,745
---------- ---------- ---------- ----------
Total other operating income 1,563,170 1,181,505 3,783,329 3,501,347
---------- ---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 2,110,487 1,990,909 6,202,214 5,951,540
Net occupancy expense 256,521 236,731 731,055 758,798
Equipment and data processing
expenses 419,487 435,829 1,308,113 1,301,470
Regulatory insurance and fees 32,269 42,896 85,841 76,912
Other expenses 1,016,873 1,108,333 3,006,908 2,951,903
---------- ---------- ---------- ----------
Total other operating
expenses 3,835,637 3,814,698 11,334,131 11,040,623
---------- ---------- ---------- ----------
Income before income taxes 2,770,936 2,741,751 8,165,490 7,854,116
Income taxes 794,976 827,325 2,339,040 2,230,755
---------- ---------- ---------- ----------
Net income $ 1,975,960 $ 1,914,426 $ 5,826,450 $ 5,623,361
========== ========== ========== ==========
Earnings per share $ 0.58 $ 0.56 $ 1.72 $ 1.66
==== ==== ==== ====
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Additional
Common Paid-In Retained Treasury Unrealized
Stock Capital Earnings Stock Gain (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
January 1,
1996 $ 16,973,280 $ 10,653,316 $ 16,492,206 $ (48,828) $ 698,987 $ 44,768,961
Net income - - 5,623,361 - - 5,623,361
Cash
dividends
paid ($.55
per share) - - (1,866,111) - - (1,866,111)
Net change in
unrealized
gain - - - - (586,307) (586,307)
Sale of
treasury
stock - 45,072 - 48,828 - 93,900
---------- ---------- ---------- ------ ------- ----------
September 30,
1996 $ 16,973,280 $ 10,698,388 $ 20,249,456 $ - $ 112,680 $ 48,033,804
========== ========== ========== ====== ======= ==========
January 1,
1997 $ 16,973,280 $ 10,698,388 $ 21,087,077 $ - $ 329,835 $ 49,088,580
Net income - - 5,826,450 - - 5,826,450
Cash
dividends
paid ($.64
per share) - - (2,172,533) - - (2,172,533)
Net change in
unrealized
gain - - - - 179,548 179,548
---------- ---------- ---------- ---- ------- ----------
September 30,
1997 $ 16,973,280 $ 10,698,388 $ 24,740,994 $ - $ 509,383 $ 52,922,045
========== ========== ========== ==== ======= ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,826,450 $ 5,623,361
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 895,607 867,525
Provision for possible loan losses 1,658,068 785,684
Increase in interest receivable (556,280) (55,003)
Increase in interest payable 397,642 292,005
Other, net 253,308 (9,383)
---------- ----------
Net cash provided by operating activities 8,474,795 7,504,189
---------- ----------
Cash flows from investing activities: Net (increase) decrease in:
Interest bearing bank balances (1,075,481) (2,971,746)
Federal funds sold (3,400,000) (6,450,000)
Securities available for sale (21,710,787) 34,556,066
Investment securities (687,820) (365,466)
Loans (13,191,677) (40,238,167)
Bank premises and equipment (1,231,600) (1,124,292)
---------- ----------
Net cash used in investing activities (41,297,365) (16,593,605)
---------- ----------
Cash flows from financing activities: Net increase (decrease) in:
Deposits 44,484,754 58,575,758
Securities sold under agreements to repurchase - (47,358,602)
Other borrowings (3,691,271) 4,464,261
Proceeds of sale of treasury stock - 93,900
Cash dividends (2,172,533) (1,866,111)
---------- ----------
Net cash provided by financing activities 38,620,950 13,909,206
---------- ----------
Net increase in cash and due from banks 5,798,380 4,819,790
Cash and due from banks at January 1 20,213,398 18,823,519
---------- ----------
Cash and due from banks at September 30 $ 26,011,778 $ 23,643,309
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
-7-
<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 nine months ended September 30, 1997 and 1996, the Company had the
following payments:
1997 1996
---- ----
Income taxes $ 2,315,000 $ 2,573,000
Interest on deposit liabilities 14,724,000 14,101,000
Interest on other borrowings 211,000 1,170,000
========== ==========
-8-
<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 nine months ended September 30, 1997 was
$5,826,450, or $1.72 per share, compared to $5,623,361, or $1.66 per share, for
the same period of 1996. This represents an increase in earnings per share and
in net earnings of 3.6%. Return on average assets was 1.41% for the nine months
compared to 1.40% for 1996. Return on average equity was 15.34% as contrasted to
15.80% 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 good earnings for the Company. Quarterly earnings for the three months
ended September 30, 1997, contrasted to the same period of 1996 reflected net
income of $1,975,960 and earnings per share of $0.58 compared to $1,914,426 and
$0.56 per share for the 1996 quarter.
Other factors affecting earnings during the quarter and nine months ended
September 30, 1997, involve the Bank subsidiary's credit life company's
collection of $530,000 in settlement of computational errors and underpayments
of reinsurance commissions involving its third party management company. The
effect on 1997 earnings was approximately $390,000, net of taxes ($.11 per
common share). Management also decided to make additional bad debt provisions of
approximately $475,000 during the third quarter as a result of uncertainty in
the economy concerning consumer credit quality.
Net Interest Income
During the nine month period ending September 30, 1997, the level of net
interest income increased $1,195,284 or 7.39% 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 September 30, 1997 were approximately $528
million compared to approximately $489 million at December 31, 1996 (a
difference of $39 million). This excess of total earning assets over liabilities
contributed to the greater volume of net interest income during the period. Net
interest income (FTE) as a percent of average assets for the period ending
September 30, 1997, was 4.44%, contrasted to 4.40% for the same period of 1996.
-9-
<PAGE>
FIRST M & F CORPORATION
Provision for Loan Losses
During the nine month period ending September 30, 1997, the Company's provision
for loan losses was $1,658,068 contrasted to $785,684 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. The estimate for
1997 is $125,000 per month and has been provided primarily to raise the level of
the reserve for overall growth.
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 nine month period ending September 30, 1997, non
interest income was $3,783,329 as compared to $3,501,347 for 1996. For the
quarter ended September 30, 1997, this total non-interest income was impacted by
the collection of $530,000 at the Bank subsidiary credit life company, as a
result in errors and underpayment of commissions from prior years. Service
charges on deposits reflected an approximate $80,000 or 8.6% decrease for 1997,
primarily as a result of opportunity in the NSF check fee routine. 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 September 30, 1997, the Company's efficiency
ratio, an indicator of control of non interest expenses, was 55% 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 4.2% when compared to the same period of 1996 and approximately 2.0%
of that increase occurred in the third quarter of 1997 over 1996 levels.
Additional staffing has been required in several locations as a result of volume
and increased demand and added customer service facilities.
Income Taxes
For the nine months ended September 30, 1997, the Company's effective tax rate
was 28.6% as compared to 28.4% 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.
-10-
<PAGE>
FIRST M & F CORPORATION
Assets/Liabilities
Loans, net of unearned discount, increased to $357.5 million at September 30,
1997, as compared to $345.2 million at the end of 1996. This growth of 3.55% in
loans since December 31, 1996, has occurred primarily in the third quarter of
1997, and continues favorably in the fourth quarter of 1997. The overall
softness of our consumer loan demand during the first six months, however,
reduced loan volumes during that period.
The current level of the reserve for possible loan losses approximates 1.46% of
total loans outstanding. The Company's nonperforming loans past due 90 days or
more remain well controlled and continue 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 has continued to
monitor the consumer loan portfolio as softness in credit quality has begin to
show. An upward trend in charged off consumer loans in 1997 has confirmed
management's concern relating to this economic sector. 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 September 30,
1997, the total securities portfolio was approximately $166 million, up from the
December 31, 1996 level by approximately $23 million. Yield for the portfolio
was at 6.06% for the nine months ended September 30, 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 $45
million or 9.6% during the nine month period ended September 30, 1997,
consistent with growth plans for the year.
Other borrowings of $2,940,131 include approximately $2.6 million in advances
from the Federal Home Loan Bank of Dallas and are primarily funding sources tied
to specific loans.
-11-
<PAGE>
FIRST M & F CORPORATION
Equity
The Company's regulatory capital ratios at September 30, 1997, as shown below
are in excess of the minimum requirements and qualify the institution as "well
capitalized" under the definition of such.
($ in Thousands)
Tier 1 capital $ 49,851
Tier 2 capital element 4,442
------
Total qualifying capital $ 54,293
======
Risk weighted assets $ 354,888
=======
Total qualifying capital/risk weighted assets 15.30%
Leverage ratio 8.81%
The dividend payout ratio for the nine months ended September 30, 1997 was 37.3%
of net income reflecting total dividends of $.64 per share. Book value per share
at September 30, 1997 was $15.59 compared to a $30.00 per share market price.
-12-
<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 is
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.
-13-
<PAGE>
FIRST M & F CORPORATION
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
No new legal proceedings occurred in the third 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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 11 - Statement of computation of earnings per share
-14-
<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: November 7, 1997 /s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: November 7, 1997 /s/ Scott M. Wiggers
Scott M. Wiggers
President and Chief Accounting Officer
-15-
FIRST M & F CORPORATION
<TABLE>
<CAPTION>
Exhibit 11 - Computation of Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,975,960 $ 1,914,426 $ 5,826,450 $ 5,623,361
========= ========= ========= =========
Weighted average shares
outstanding $ 3,394,656 $ 3,394,656 $ 3,394,656 $ 3,392,723
========= ========= ========= =========
Earnings per share $ 0.58 $ 0.56 $ 1.72 $ 1.66
==== ==== ==== ====
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,012
<INT-BEARING-DEPOSITS> 1,225
<FED-FUNDS-SOLD> 3,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,334
<INVESTMENTS-CARRYING> 57,841
<INVESTMENTS-MARKET> 58,543
<LOANS> 357,505
<ALLOWANCE> 5,208
<TOTAL-ASSETS> 569,661
<DEPOSITS> 508,579
<SHORT-TERM> 2,940
<LIABILITIES-OTHER> 2,800
<LONG-TERM> 0
0
0
<COMMON> 16,973
<OTHER-SE> 35,949
<TOTAL-LIABILITIES-AND-EQUITY> 569,661
<INTEREST-LOAN> 25,228
<INTEREST-INVEST> 6,861
<INTEREST-OTHER> 619
<INTEREST-TOTAL> 32,708
<INTEREST-DEPOSIT> 15,137
<INTEREST-EXPENSE> 15,334
<INTEREST-INCOME-NET> 17,374
<LOAN-LOSSES> 1,658
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 11,334
<INCOME-PRETAX> 8,165
<INCOME-PRE-EXTRAORDINARY> 8,165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,826
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
<YIELD-ACTUAL> 0
<LOANS-NON> 284
<LOANS-PAST> 1,306
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,475
<CHARGE-OFFS> 1,039
<RECOVERIES> 114
<ALLOWANCE-CLOSE> 5,208
<ALLOWANCE-DOMESTIC> 4,250
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 958
</TABLE>
