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, 1999 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 31, 1999
----- -------------------------------
Common stock ($5.00 par value) 3,692,376 shares
Page 1 of 20
<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 5-6
Condensed Consolidated Statements of Comprehensive
Income 7
Condensed Consolidated Statements of Stockholders'
Equity 8
Condensed Consolidated Statements of Cash Flows 9-10
Notes to Condensed Consolidated Financial Statements 11-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 17
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security
Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
Exhibit 11 - Computation of Earnings Per Share 19
SIGNATURE 20
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
-3-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Condition
(Unaudited)
September 30, December 31,
Assets 1999 1998 (1)
------ ------------- -------------
Cash and due from banks $ 28,649,508 $ 22,807,101
Interest bearing bank balances 1,930,929 6,485,441
Federal funds sold - 18,850,000
Securities available for sale (cost of
$207,792,000 and $207,794,000) 203,922,435 210,646,083
Loans 466,577,343 414,183,683
Allowance for loan losses (6,645,034) (5,835,000)
------------- -------------
Net loans 459,932,309 408,348,683
------------- -------------
Bank premises and equipment 13,856,657 11,372,484
Accrued interest receivable 6,388,513 6,489,178
Other real estate 1,275,323 1,122,625
Intangible assets 3,044,558 3,241,435
Other assets 16,616,086 12,643,194
------------- -------------
$ 735,616,318 $ 702,006,224
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 75,627,932 $ 78,492,190
Interest bearing 557,698,623 546,905,816
------------- -------------
Total deposits 633,326,555 625,398,006
------------- -------------
Federal funds and repurchase agreements 13,700,000 829,072
Other borrowings 20,442,917 8,570,778
Accrued interest payable 2,809,712 2,706,227
Other liabilities 2,307,616 990,564
------------- -------------
Total liabilities 672,586,800 638,494,647
------------- -------------
Stockholders' equity:
Common stock of $5.00 par value.
15,000,000 shares authorized;
3,709,776 and 3,639,779 shares
issued and outstanding 18,548,880 18,198,895
Additional paid-in capital 10,647,129 10,800,455
Retained earnings 36,255,113 32,722,727
Treasury stock, 1,600 shares, at cost (54,913) -
Net unrealized gain (loss) on securities
available for sale (2,366,691) 1,789,500
------------- -------------
Net stockholders' equity 63,029,518 63,511,577
------------- -------------
$ 735,616,318 $ 702,006,224
============= =============
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
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 9,888,212 $ 9,353,632 $ 28,556,563 $ 27,173,685
Interest bearing bank
balances 46,423 86,616 160,269 348,599
Taxable investments 2,220,810 2,118,666 7,048,921 6,478,678
Tax exempt investments 750,118 800,015 2,279,387 2,121,964
Federal funds sold 46,193 183,941 242,422 685,597
------------- ------------- ------------- -------------
Total interest income 12,951,756 12,542,870 38,287,562 36,808,523
------------- ------------- ------------- -------------
Interest expense:
Deposits 5,696,576 6,114,825 17,034,134 17,803,658
Short-term borrowings 29,841 7,261 107,205 7,261
Other borrowings 222,005 99,872 523,072 447,437
------------- ------------- ------------- -------------
Total interest expense 5,948,422 6,221,958 17,664,411 18,258,356
------------- ------------- ------------- -------------
Net interest income 7,003,334 6,320,912 20,623,151 18,550,167
Provision for possible loan
losses 641,000 521,302 1,742,920 1,465,648
------------- ------------- ------------- -------------
Net interest income after
provision for possible
loan losses 6,362,334 5,799,610 18,880,231 17,084,519
------------- ------------- ------------- -------------
Other operating income:
Service charges on deposits 1,109,210 1,001,942 3,086,151 2,830,514
Credit insurance income 87,097 189,629 284,546 391,768
Mortgage banking income 152,100 190,343 499,008 548,012
Agency commission income 967,738 20,865 1,074,278 79,896
Other fee income 93,552 79,120 330,609 278,013
Gains (losses) on AFS
investments (2,285) 44,644 25,682 32,900
Other income 334,414 204,617 640,969 420,887
------------- ------------- ------------- -------------
Total other operating
income 2,741,826 1,731,160 5,941,243 4,581,990
------------- ------------- ------------- -------------
</TABLE>
(Continued)
-5-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Other operating expenses:
<S> <C> <C> <C> <C>
Salaries and employee benefits 3,617,602 2,514,124 9,086,116 7,261,417
Net occupancy expense 350,794 303,744 954,483 852,559
Equipment and data processing
expenses 703,952 516,575 1,953,810 1,501,741
Intangible asset amortization 66,748 59,051 196,877 177,152
Other expenses 1,603,176 1,558,193 4,245,532 3,940,788
----------- ----------- ------------ -----------
Total other operating
expenses 6,342,272 4,951,687 16,436,818 13,733,657
----------- ----------- ------------ -----------
Income before income
taxes 2,761,888 2,579,083 8,384,656 7,932,852
Income taxes 658,443 613,008 2,105,342 1,979,851
----------- ----------- ------------ -----------
Net income $2,103,445 $1,966,075 $6,279,314 $5,953,001
=========== =========== ============ ===========
Weighted average shares 3,708,974 3,637,870 3,663,097 3,637,870
=========== =========== ============ ===========
Basic earnings per share $ 0.57 $ 0.54 $ 1.71 $ 1.64
====== ====== ====== ======
</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 Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,103,445 $ 1,966,075 $ 6,279,314 $ 5,953,001
----------- ----------- ----------- -----------
Other comprehensive income:
Unrealized holding gains
(losses) on securities,
net of taxes of
$(126,711) and $501,277
for the three months
ended September 30, and
$(2,462,459) and $480,253
for the nine months ended
September 30 (212,996) 842,630 (4,139,307) 806,989
Plus (minus) reclassification
adjustments for (gains)
losses included in net
income, net of taxes of
$711 and $(15,179) for
the three months ended
September 30 and $(9,509) and
$(11,186) for the nine months
ended September 30 1,574 (29,465) (16,884) (21,714)
----------- ----------- ----------- -----------
Other comprehensive
income (loss) (211,422) 813,165 (4,156,191) 785,275
----------- ----------- ----------- -----------
Total comprehensive
income $ 1,892,023 $ 2,779,240 $ 2,123,123 $ 6,738,276
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Unrealized Treasury
Stock Capital Earnings Gain (Loss) Stock Total
------------ ------------ ------------ ------------ --------- ------------
January 1,
<S> <C> <C> <C> <C> <C> <C>
1999 $ 18,198,895 $ 10,800,455 $ 32,722,727 $ 1,789,500 $ - $ 63,511,577
Net income - - 6,279,314 - - 6,279,314
Cash
dividends
paid ($.75
share) - - (2,746,928) - - (2,746,928)
Net change in
unrealized
gain (loss) - - - ( 4,156,191) - (4,156,191)
Shares issued
to acquire
insurance
agency 349,985 (153,326) - - - 196,659
Purchase
1,600
shares of
treasury
stock - - - - (54,913) (54,913)
------------ ------------ ------------ ------------ --------- ------------
September 30,
1999 $ 18,548,880 $ 10,647,129 $ 36,255,113 $ (2,366,691) $ (54,913) $ 63,029,518
============ ============ ============ ============ ========= ============
January 1,
1998 $ 18,189,350 $ 10,741,276 $ 28,139,330 $ 576,041 $ - $ 57,645,997
Net income - - 5,953,001 - - 5,953,001
Cash
dividends
paid ($.72)
per share) - - (2,444,152) - - (2,444,152)
Net change in
unrealized
gain
(loss) - - - 785,275 - 785,275
------------ ------------ ------------ ------------ --------- ------------
September 30,
1998 $ 18,189,350 $ 10,741,276 $ 31,648,179 $ 1,361,316 $ - $ 61,940,121
============ ============ ============ ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 6,279,314 $ 5,953,001
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,252,439 1,043,789
Provision for possible loan losses 1,742,920 1,465,648
Net investment amortization 405,826 548,100
(Gain) loss on sales of investments (25,682) (32,900)
Deferred income taxes (656,587) (245,157)
(Increase) decrease in:
Accrued interest receivable 100,665 (613,827)
Cash surrender value of bank owned life
insurance (341,840) (293,314)
Increase (decrease) in:
Accrued interest payable 103,485 14,038
Income taxes payable 63,803 (189,265)
Other, net 604,016 (2,029,591)
----------- -----------
Net cash provided by operating activities 9,528,359 5,620,522
----------- -----------
Cash flows from investing activities:
Purchases of securities available for sale (59,332,826) (67,939,075)
Sales of securities available for sale 13,013,282 13,863,405
Maturities of securities available for sale 46,171,842 29,726,334
Purchases of investment securities - (11,861,891)
Maturities of investment securities - 17,206,152
Net (increase) decrease in:
Interest bearing bank balances 4,554,512 (454,851)
Federal funds sold 18,850,000 (8,000,000)
Loans (54,860,935) (32,900,860)
Bank premises and equipment (3,287,217) (2,491,412)
Investment in bank owned life insurance - (10,000,000)
Proceeds from sales of other real estate
and other repossessed assets 1,335,615 920,539
----------- -----------
Net cash used in investing activities (33,555,727) (71,931,659)
----------- -----------
(Continued)
-9-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits $ (2,864,258) $ 6,567,463
Interest bearing deposits 10,792,807 67,723,479
Securities sold under agreements to
repurchase and other short-term borrowings 12,870,928 -
Proceeds from other borrowings 18,547,507 2,550,000
Repayments of other borrowings (6,675,368) (12,603,065)
Cash dividends (2,746,928) (2,444,152)
Treasury stock transactions (54,913) -
----------- -----------
Net cash provided by financing activities 29,869,775 61,793,725
----------- -----------
Net increase (decrease) in cash and
due from banks 5,842,407 (4,517,412)
Cash and due from banks at January 1 22,807,101 27,594,682
----------- -----------
Cash and due from banks at September 30 $ 28,649,508 $ 23,077,270
=========== ===========
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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., M & F Bank Securities Corporation
and Tyler, King & Ryder, Inc. 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, 1998.
Note 2: Statements of Cash Flows
- ---------------------------------
During the nine months ended September 30, 1999 and 1998, the Company had the
following payments:
1999 1998
---- ----
Interest $ 17,560,926 $ 18,243,495
Income taxes 2,698,126 2,343,256
========== ==========
Note 3: Bank Owned Life Insurance
- ----------------------------------
In March, 1998, Merchants and Farmers Bank invested $10,000,000 in corporate
owned life insurance policies covering approximately 160 employees. The policies
are designed to generate earnings through increases in cash surrender value,
thus covering costs of current and potential employee benefit plans. The cash
surrender value of the policies at September 30, 1999 and 1998 was $10,768,742
and $10,293,314.
Note 4: Acquisitions
- ---------------------
On July 8, 1999, the Company entered into a definitive agreement providing
for the merger of Community Federal Bancorp, Inc. (Community) into First M & F
Corporation. Terms of the agreement provide for Community shareholders to
receive 2.855 shares of the Company's common stock and $8.8457 in cash for each
outstanding share of Community stock. Community had 4,266,150 outstanding shares
at September 30, 1999. The merger will be accounted for as a purchase
transaction. Community Federal Bancorp is a savings bank headquartered in
Tupelo, Mississippi with three local branches and $298.72 million in assets at
September 30, 1999.
(Continued)
-11-
<PAGE>
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4: (Continued)
- --------------------
On October 15, 1999, both companies held special shareholder meetings to vote
on the merger. The merger was approved by both sets of shareholders and all
regulatory approvals have been obtained. The companies expect to close the
merger on November 22, 1999.
On September 22, 1999, Merchants and Farmers Bank acquired Tyler, King &
Ryder, Inc. and Heilbronner & Associates by issuing 69,997 shares of First M & F
Corporation stock in exchange for all of the shares of Tyler, King & Ryder, Inc.
and Heilbronner & Associates. The transaction was accounted for as a pooling of
interests. Prior period financial statements have not been adjusted due to the
immateriality of the effect of the acquisition on the total assets and net
income of First M & F Corporation. Tyler, King & Ryder, Inc. and Heilbronner &
Associates are Kosciusko, Mississippi based independent insurance agencies.
-12-
<PAGE>
FIRST M & F CORPORATION
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The following provides a narrative discussion and analyses of significant
changes in the Company's results of operations and financial condition.
This discussion should be read in conjunction with the interim consolidated
financial statements and supplemental financial data presented elsewhere in
this report.
Certain of the information included in this discussion contains forward
looking financial data and information that is based upon management's
belief as well as certain assumptions made by, and information currently
available to management. Specifically, this discussion includes statements
with respect to the adequacy of the reserve for possible loan losses; the
effect of legal proceedings against the Company's financial condition,
results of operations and liquidity; year 2000 compliance issues; and market
risk disclosures. Should one or more of these risks materialize or the
assumptions prove to be significantly different, actual results may vary
from those estimated, anticipated, projected or expected.
Financial Summary
- -----------------
Net income for the first nine months of 1999 was $6,279,314 or $1.71 per
share as compared to $5,953,001 or $1.64 per share in the first nine months
of 1998. This 5.48% increase was due to improved net interest margins and
strong loan growth. Net income for the third quarter of 1999 was $2,103,445
or $0.57 per share, as compared to $1,966,075 or $0.54 per share for 1998.
Return on assets for the first nine months of 1999 was 1.16%, while the
return on equity was 13.11%. In the first nine months of 1998, the return
on assets was 1.24%, with a return on equity of 13.75%. These ratios are
reflective of the strong asset growth that the Company achieved in the first
quarter of 1999. Total assets at September 30, 1999 were $735.62 million,
as compared $690.19 million at September 30, 1998. Average assets for the
first nine months of 1999 were $722.59 million.
Asset/Liability Management/Liquidity
- ------------------------------------
Responsibility 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, is vested in the
asset/liability committee. 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. These include analyses of the effects of changing interest
rates on the net interest income of the Company, as well as reviews of
economic conditions. Cash flow analyses are also used to determine
short-term interest rate risks as well as current liquidity risks.
Management believes, at September 30, 1999, there is adequate flexibility to
alter the current rate and maturity structure as necessary to minimize the
exposure to changes in interest rates, should they occur.
The asset/liability committee further 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 the funding structure that supports the earning assets of
the Company. These sources are primarily correspondent banks, the Federal
Home Loan Bank and the Federal Reserve.
-13-
<PAGE>
FIRST M & F CORPORATION
Net Interest Income
- -------------------
Net interest income for the first nine months of 1999 was up by $2.07
million or 11.18% over the first nine months of 1998. Interest income was
up while interest expenses were down. Average earning assets for the first
nine months of 1999 were $666.77 million as compared to $615.67 million for
the first nine months of 1998. The tax-equivalent net interest margin for
the first nine months of 1999 was 4.43% as compared to 4.33% in the first
nine months of 1998. This improvement was attributable primarily to
decreases in the cost of funds, as the Company began to manage deposit costs
more conservatively in the second half of 1998. Loans also grew by 12.65%
in the first nine months of 1999 and grew by 14.41% from September 30,
1998. The Company's strategy is to increase the loan component within the
earning assets portfolio as economic conditions and risk factors allow.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the first nine months of 1999 was
$1,742,920 as compared to $1,465,648 for the first nine months of 1998.
This increase is reflective primarily of the growth of the loan portfolio.
Nonaccrual loans and 90 days past due accruing loans as a percentage of
loans outstanding were .52% at September 30, 1999 as compared to .55% at
September 30, 1998. Annualized net charge-offs as a percentage of average
loans were .29% for the first nine months of 1999 as compared to .36% for
the first nine months of 1998. These statistics reflect the management's
conservative lending philosophy and its commitment to maintaining high asset
quality standards.
Non Interest Income
- -------------------
Non interest income for the first nine months of 1999 was 29.67% higher than
in the same period in 1998. The increase occurred in agency commissions
generated by insurance agencies acquired in 1999 and deposit income.
Another significant component of the other income increase was the increase
in cash surrender values of life insurance policies on employees of the
Company. This income amounted to $342 thousand in 1999 as compared to $293
thousand in the first nine months of 1998. Mortgage loan income decreased
from 1998 levels due to the decreased volumes of mortgage originations. The
amount of refinancing activity has slowed down as rates have leveled off.
Non Interest Expense
- --------------------
The Company continues to monitor non interest expenses as it continues to
grow and expand into new markets. Personnel expenses increased from the
first nine months of 1998 to the first nine months of 1999 due primarily to
expansion efforts as well as to salaries related to the acquired insurance
agencies. Annualized non interest expenses as a percentage of average
assets were 3.03% for the first nine months of 1999 as compared to 2.75% for
the first nine months of 1998. The Company's efficiency ratio was 58.78%
for the first nine months of 1999 as compared to 55.84% in the first nine
months of 1998. Intangible asset amortization was $196,152 in 1999 as
compared to $177,152 in the first nine months of 1998.
-14-
<PAGE>
FIRST M & F CORPORATION
Income Taxes
- ------------
Income taxes for 1999 were $125,491 more than in the first nine months of
1998, reflecting effective tax rates of 25.11% for the first nine months of
1999 and 24.96% for the first nine months of 1998. This increase in expense
was caused primarily by increases in pre-tax earnings.
Assets/Liabilities
- ------------------
Assets grew by 4.79% from December 31, 1998 and by 6.58% from September 30,
1998. Much of this increase has been driven by loan growth. Loans grew by
12.65% in the first nine months of 1999 as investments grew by 3.19%. The
competition for loans has been very strong in many of the Company's markets.
Deposit growth and increased borrowings have provided the funding for the
1999 loan growth. Loans as a percentage of assets were 63.43% at September
30, 1999 and 59.09% at September 30, 1998.
The Company occupied a new branch building in Clinton in the second quarter
of 1999. Also, an office building in Madison was completed in the third
quarter with the newly acquired insurance agencies establishing a presence
there. These expansions should provide additional earning assets as well as
opportunities for fee income. In the third quarter, the Company completed
construction of a new branch in Ackerman which replaced the formerly rented
location.
Equity
- ------
The Company's regulatory capital ratios at September 30, 1999, as shown
below are in excess of the minimum requirements and qualify the institution
as "well capitalized" under the risk-based capital regulations.
($ in Thousands)
----------------
Tier 1 capital $ 62,292
Tier 2 capital element 6,256
------
Total qualifying capital $ 68,548
======
Risk weighted assets $ 500,505
=======
Total qualifying capital/risk weighted assets 13.70%
=====
Leverage ratio 8.50%
====
The dividend payout ratio for the first nine months of 1999 was 43.86% based
upon a dividend of $.75 per share. The book value of the stock at September
30, 1999 was $17.00, with a traded market value of $31.69 per share.
-15-
<PAGE>
FIRST M & F CORPORATION
Year 2000
- ---------
The Company has established a task-force to review all computer based
systems and applications to ensure proper functioning in the year 2000. The
plan has been approved by the Board of Directors, and management believes
that implementation will not materially effect operations in the future.
Management has estimated the costs of year 2000 compliance, including direct
and indirect costs, to be approximately $50,000 to $100,000. The Company
has successfully completed the first four phases of a five phase year 2000
plan. The fifth phase, the implementation phase, was completed in October,
1999.
-16-
<PAGE>
FIRST M & F CORPORATION
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Market risk reflects the risk of economic los resulting rom changes in
interest rates and market prices. This risk of loss can be reflected in
either reduced potential net interest income in future periods or diminished
market values of financial assets.
The Company's market risk arises primarily from interest rate risk, which
the asset/liability management committee monitors and manages on a monthly
basis. The committee manages the interest rate risks inherent in the loan,
investment, deposit and borrowing portfolios of the Company. The
asset/liability management committee determines the risk profile of the
Company and determines strategies to maintain interest rate sensitivity at a
low level. As of September 30, the Company was in a risk neutral position.
The Company has off balance sheet risks to the extent that it has made
lending or investment purchase commitments. Total outstanding, unused loan
commitments were $45.19 million with $7.31 million of these commitments
maturing in over one year. The Company monitors these commitments with
respect to credit quality as well as funding-related risks.
-17-
<PAGE>
FIRST M & F CORPORATION
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
No new legal proceedings occurred in the third quarter of 1999.
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
A special shareholders' meeting was held on October 15, 1999. The
shareholders approved the plan to acquire Community Federal Bancorp, Inc. of
Tupelo, Mississippi. The details of the merger plan are outlined in the
Company's S-4 registration statement filed on September 7, 1999.
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 11 - Statement of computation of earnings per share
(b) A Form 8-K was filed on July 14, 1999, reporting the signing of a
definitive merger agreement whereby the Company would acquire Community
Federal Bancorp, Inc., Tupelo, Mississippi. A Form 8-K was filed on
October 21, 1999, reporting the approval of a merger by First M & F
Corporation's shareholders and Community Federal Bancorp's shareholders.
-18-
<PAGE>
FIRST M & F CORPORATION
Exhibit 11 - Computation of Earnings Per Share
- ----------------------------------------------
Three Months Ended
September 30,
------------------------
1999 1998
---- ----
Net income $ 2,103,445 $ 1,966,075
========= =========
Weighted average shares outstanding 3,708,974 3,637,870
Add dilutive effect of outstanding options 680 -
--------- ---------
Adjusted dilutive shares outstanding 3,709,654 3,637,870
========= =========
Earnings per share:
Basic $ .57 $ .54
Diluted .57 .54
=== ===
Nine Months Ended
September 30,
------------------------
1999 1998
---- ----
Net income $ 6,279,314 $ 5,953,001
========= =========
Weighted average shares outstanding 3,663,097 3,637,870
Add dilutive effect of outstanding options 33 -
--------- ---------
Adjusted dilutive shares outstanding 3,663,130 3,637,870
========= =========
Earnings per share:
Basic $ 1.71 $ 1.64
Diluted 1.71 1.64
==== ====
-19-
<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 15, 1999 /s/ Hugh S. Potts, Jr.
------------------------
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: November 15, 1999 /s/ Robert C. Thompson, III
---------------------------
Robert C. Thompson, III
Executive Vice President and Treasurer
-20-
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