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 June 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 June 30, 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 Income5 5
Condensed Consolidated Statements of Stockholders'
Equity 6
Condensed Consolidated Statements of Cash Flow 7
Notes to Condensed Consolidated Financial Statements8 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
-2-
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Condition
(Unaudited)
June 30, December 31,
Assets 1997 1996 (1)
------ ----------- ------------
<S> <C> <C>
Cash and due from banks $ 30,383,867 $ 20,213,398
Interest bearing bank balances 1,114,981 149,794
Federal funds sold 3,050,000 500,000
Securities available for sale 108,324,513 86,443,833
Investment securities, market value of
$58,296,000 in 1997 and $57,536,000 in 1996 57,997,239 57,152,860
Loans 361,720,430 363,266,911
Unearned discount (16,025,688) (18,028,671)
Reserve for possible loan losses (4,793,077) (4,475,000)
----------- -----------
Net loans 340,901,665 340,763,240
----------- -----------
Bank premises and equipment 8,237,689 8,008,727
Accrued interest receivable 5,479,391 4,963,438
Other real estate 592,176 723,748
Intangible assets 2,604,313 2,688,974
Other assets 2,568,969 2,152,454
----------- -----------
$ 561,254,803 $ 523,760,466
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 57,548,881 $ 56,116,144
Interest bearing 443,229,769 407,977,979
----------- -----------
Total deposits 500,778,650 464,094,123
----------- -----------
Other borrowings 3,548,647 6,631,402
Accrued interest payable 2,796,518 2,434,230
Other liabilities 2,792,490 1,512,131
----------- -----------
Total liabilities 509,916,305 474,671,886
----------- -----------
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 23,511,812 21,087,077
Net unrealized gain on securities available for
sale, net of income taxes 155,018 329,835
----------- -----------
Net stockholders' equity 51,338,498 49,088,580
----------- -----------
$ 561,254,803 $ 523,760,466
=========== ===========
The accompanying notes are an integral part of these financial statements.
<FN>
(1) Derived from audited financial statements.
</FN>
</TABLE> -4-
<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
----------------------- ----------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,378,678 $ 7,524,271 $ 16,594,456 $ 14,798,127
Interest bearing bank balances 40,484 61,819 91,070 120,448
Taxable investments 1,840,654 1,994,162 3,403,233 4,050,044
Tax exempt investments 521,745 492,563 1,018,924 994,776
Federal funds sold 148,418 202,774 336,163 432,388
---------- ---------- ---------- ----------
Total interest income 10,929,979 10,275,589 21,443,846 20,395,783
---------- ---------- ---------- ----------
Interest expense:
Deposits 5,029,762 4,500,529 9,828,563 8,852,137
Securities sold under agreements
to repurchase 3,465 379,466 3,465 932,356
Other borrowings 62,331 42,861 147,641 88,361
---------- ---------- ---------- ----------
Total interest expense 5,095,558 4,922,856 9,979,669 9,872,854
---------- ---------- ---------- ----------
Net interest income 5,834,421 5,352,733 11,464,177 10,522,929
Provision for possible loan losses 397,502 247,995 791,288 504,481
---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses 5,436,919 5,104,738 10,672,889 10,018,448
Other operating income:
Service charges on deposits 841,004 883,001 1,659,346 1,728,322
Credit insurance income 98,011 137,255 190,115 246,482
Gains (losses) on AFS investments 7,007 (5,365) 6,712
21,951
Other income 167,783 188,318 363,986 323,087
---------- ---------- ---------- ----------
Total other operating income 1,113,805 1,203,209 2,220,159 2,319,842
---------- ---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 2,079,564 2,028,263 4,091,727 3,960,631
Net occupancy expense 230,500 250,312 474,534 522,067
Equipment and data processing
expenses 442,382 445,460 888,626 865,641
Regulatory insurance and fees 33,389 21,244 53,572 34,016
Other expenses 1,015,458 965,520 1,990,035 1,843,570
---------- ---------- ---------- ----------
Total other operating
expenses 3,801,293 3,710,799 7,498,494 7,225,925
---------- ---------- ---------- ----------
Income before income taxes 2,749,431 2,597,148 5,394,554 5,112,365
Income taxes 793,534 731,415 1,544,064 1,403,430
---------- ---------- ---------- ----------
Net income $ 1,955,897 $ 1,865,733 $ 3,850,490 $ 3,708,935
========== ========== ========== ==========
Earnings per share $ 0.57 $ 0.55 $ 1.13 $ 1.09
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<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
------ ---------- --------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
January 1,
1996 $ 16,973,280 $ 10,653,316 $ 16,242,675 $ (48,828) $ 698,987 $ 44,519,430
Net income - - 3,708,935 - - 3,708,935
Cash
dividends
paid ($.36
per share) - - (1,221,126) - - (1,221,126)
Net change in
unrealized
gain (loss) - - - - (934,162) (934,162)
Sale of
treasury
stock - 45,072 - 48,828 - 93,900
---------- ---------- ---------- ------ ------- ----------
June 30,
1996 $ 16,973,280 $ 10,698,388 $ 18,730,484 $ - $ (235,175) $ 46,166,977
========== ========== ========== ====== ======= ==========
January 1,
1997 $ 16,973,280 $ 10,698,388 $ 21,087,077 $ - $ 329,835 $ 49,088,580
Net income - - 3,850,490 - - 3,850,490
Cash
dividends
paid ($.42
per share) - - (1,425,755) - - (1,425,755)
Net change in
unrealized
gain (loss) - - - - (174,817) (174,817)
---------- ---------- ---------- ---- ------- ---------
June 30,
1997 $ 16,973,280 $ 10,698,388 $ 23,511,812 $ - $ 155,018 $ 51,338,498
========== ========== ========== ==== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,850,490 $ 3,708,935
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 606,147 564,730
Provision for possible loan losses 791,288 504,481
(Increase) decrease in interest receivable (515,953) (301,424)
Increase (decrease) in interest payable 362,288 (8,765)
Other, net 995,414 (673,716)
---------- ----------
Net cash provided by operating activities 6,089,674 3,794,241
---------- ----------
Cash flows from investing activities: Net (increase)
decrease in:
Interest bearing bank balances (965,187) (4,872,245)
Federal funds sold (2,550,000) (19,600,000)
Securities available for sale (22,055,497) 21,390,650
Investment securities (844,379) 996,792
Loans (929,713) (25,905,910)
Bank premises and equipment (750,446) (794,267)
---------- ----------
Net cash used in investing activities (28,095,222) (26,784,980)
---------- ----------
Cash flows from financing activities: Net increase
(decrease) in:
Deposits 36,684,527 45,130,678
Securities sold under agreements to repurchase - (25,415,983)
Other borrowings (3,082,755) 10,742,431
Proceeds of sale of common stock - 93,900
Cash dividends (1,425,755) (1,221,126)
---------- ----------
Net cash provided by financing activities 32,176,017 29,329,900
---------- ----------
Net increase in cash and due from banks 10,170,469 4,339,161
Cash and due from banks at January 1 20,213,398 18,823,519
---------- ----------
Cash and due from banks at June 30 $ 30,383,867 $ 23,162,680
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-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 six months ended June 30, 1997 and 1996, the Company had the
following payments:
1997 1996
---- ----
Income taxes $ 1,400,000 $ 1,628,000
Interest on deposit liabilities 9,461,000 8,766,000
Interest on other borrowings 154,000 991,000
========= =========
-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 six months ended June 30, 1997 was $3,850,490,
or $1.13 per share, compared to $3,708,935, or $1.09 per share, for the same
period of 1996. This represents an increase in earnings per share of 3.7% and in
net earnings of 3.8%. Return on average assets was 1.42% for the six months
compared to 1.41% for 1996. Return on average equity was 15.51% as contrasted to
16.29% 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. Another factor during this period of 1997, as contrasted to
1996, has been the significant change in sources of deposit funding with the
pay-off of approximately $40 million in repurchase agreements in 1996, to more
traditional fund sources in 1997.
Net Interest Income
During the six month period ending June 30, 1997, the level of net interest
income increased $941,248 or 9.53% 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 June 30, 1997 were approximately $516 million compared to
approximately $489 million at December 31, 1996 (a difference of $27 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 assets for the period ending June 30, 1997, was approximately 4.46%,
contrasted to 4.20% for the same period of 1996.
Provision for Loan Losses
During the six month period ending June 30, 1997, the Company's provision for
loan losses was $791,288 contrasted to $504,481 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.
-9-
<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 six month period ending June 30, 1997, non
interest income was $2,220,159 as compared to $2,319,842 for 1996. Service
charges on deposits and credit insurance income reflected an approximate
$125,000 or 5.4% decrease for 1997. Other income reflect an approximate $41,000
or 1.8% 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 June 30, 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 3.3% when compared to the same period of 1996. Additional staffing has
been required in several locations as a result of volume and increased demand.
Other expense reflects an increase of approximately $272,000 or 3.7%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 six months ended June 30, 1997, the Company's effective tax rate was
28.6% as compared to 27.5% 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 $345.7 million at June 30, 1997,
as compared to $345.2 million at the end of 1996. This overall lack of growth in
loans since December 31, 1996, generally reflects the overall softness of the
economy during this period, however, loan volumes were increasing in June, 1997
of the year.
The current level of the reserve for possible loan losses approximates 1.39% 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. Regulatory examinations underway
during the second quarter of 1997 indicated superior performance and a quality
loan portfolio with few problems, if any. 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 June 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 six months ended June 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 $37
million or 7.9% during the six month period ended June 30, 1997, consistent with
growth plans for the year.
Other borrowings of $3,548,647 include approximately $3.2 million in advances
from the Federal Home Loan Bank of Dallas and are primarily funding sources for
specific loans.
-11-
<PAGE>
FIRST M & F CORPORATION
Equity
The Company's regulatory capital ratios at June 30, 1997, as shown below are in
excess of the minimum requirements and qualify the institution as "well
capitalized" under the definition of such.
($ in Thousands)
----------------
Tier 1 capital $ 48,579
Tier 2 capital element 4,500
------
Total qualifying capital $ 53,079
======
Risk weighted assets $ 359,975
=======
Total qualifying capital/risk weighted assets
14.75%
======
Leverage ratio 8.75%
=====
The dividend payout ratio for the six months ended June 30, 1997 was 37.0% of
net income reflecting total dividends of $.42 per share. Book value per share at
June 30, 1997 was $15.12 compared to a $28.00 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 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.
-13-
<PAGE>
FIRST M & F CORPORATION
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
No new legal proceedings occurred in the second 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. The State of
Mississippi subsequently approved this change in authorized shares.
Item 5 - Other Information
- --------------------------
On August 4, 1997, First M&F Life Insurance Company, the bank subsidiary's
credit life company, accepted $530,000 in settlement of computational errors
and underpayments of re-insurance commissions involving its third-party
management company during the period 1991-1997. The settlement will have the
effect of increasing 1997 earnings by approximately $390,000, net of taxes
($0.11 per common share) and will be accounted for in the third quarter of 1997.
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: August 8, 1997 /s/ Hugh S. Potts, Jr.
------------------------------------
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: August 8, 1997 /s/ Scott M. Wiggers
--------------------------------------
Scott M. Wiggers
President and Chief Accounting Officer
-16-
<TABLE>
<CAPTION>
FIRST M & F CORPORATION
Exhibit 11 - Computation of Earnings Per Share
- ----------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,955,897 $ 1,865,733 $ 3,850,490 $ 3,708,935
========= ========= ========= =========
Weighted average shares
outstanding $ 3,394,656 $ 3,392,592 $ 3,394,656 $ 3,391,746
========= ========= ========= =========
Earnings per share $ 0.57 $ 0.55 $ 1.13 $ 1.09
==== ==== ==== ====
</TABLE>
<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> JUN-30-1997
<CASH> 30,384
<INT-BEARING-DEPOSITS> 1,115
<FED-FUNDS-SOLD> 3,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,325
<INVESTMENTS-CARRYING> 57,997
<INVESTMENTS-MARKET> 58,296
<LOANS> 345,695
<ALLOWANCE> 4,793
<TOTAL-ASSETS> 561,255
<DEPOSITS> 500,779
<SHORT-TERM> 739
<LIABILITIES-OTHER> 3,076
<LONG-TERM> 2,810
0
0
<COMMON> 0
<OTHER-SE> 34,365
<TOTAL-LIABILITIES-AND-EQUITY> 561,255
<INTEREST-LOAN> 16,594
<INTEREST-INVEST> 4,422
<INTEREST-OTHER> 428
<INTEREST-TOTAL> 21,444
<INTEREST-DEPOSIT> 9,829
<INTEREST-EXPENSE> 9,980
<INTEREST-INCOME-NET> 11,464
<LOAN-LOSSES> 791
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 7,498
<INCOME-PRETAX> 5,395
<INCOME-PRE-EXTRAORDINARY> 5,395
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,850
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.46
<LOANS-NON> 321
<LOANS-PAST> 1,186
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,475
<CHARGE-OFFS> 512
<RECOVERIES> 79
<ALLOWANCE-CLOSE> 4,793
<ALLOWANCE-DOMESTIC> 4,269
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 524
</TABLE>
