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Previous: INTELLIGENT SYSTEMS CORP, 10-Q, 2000-05-12 |
Next: INTERNATIONAL THOROUGHBRED BREEDERS INC, 10-K, 2000-05-12 |
For the quarter ended March 31, 2000 Commission File Number 0-9424
FIRST M amp; 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: (662) 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, 2000
----- -----------------------------
Common stock ($5.00 par value) 4,650,984 shares
FIRST M & F CORPORATION AND SUBSIDIARY
FORM 10-Q
CONTENTS
--------
Page
----
PART I: FINANCIAL INFORMATION 3
Item 1 - Financial Statements (unaudited):
Consolidated Statements of Condition 4
Consolidated Statements of Income 5
Consolidated Statements of Comprehensive Income 6
Consolidated Statements of Stockholders' Equity 7
Consolidated Statements of Cash Flows 8-9
Notes to Consolidated Financial Statements 10
Independent Accountants' Review Report 11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 15
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security
Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
Exhibit 11 - Computation of Earnings Per Share 17
SIGNATURE 18
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Condition
(In Thousands, Except Share Data)
(Unaudited)
March 31, December 31,
Assets 2000 1999 (1)
------ ----------- -----------
Cash and due from banks $ 29,106 $ 42,497
Interest bearing bank balances 11,826 13,611
Federal funds sold 23,000 3,900
Securities available for sale (amortized
cost of $293,192 and $306,717) 284,337 299,534
Loans, net of unearned income 618,662 608,950
Allowance for loan losses (7,949) (7,629)
----------- -----------
Net loans 610,713 601,321
----------- -----------
Bank premises and equipment 18,950 18,781
Accrued interest receivable 7,944 7,855
Other real estate 1,014 1,150
Intangible assets 18,741 17,966
Other assets 17,755 16,422
----------- -----------
$ 1,023,386 $ 1,023,037
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 93,219 $ 87,378
Interest bearing 713,875 702,563
----------- -----------
Total deposits 807,094 789,941
Federal funds and repurchase agreements 3,153 12,298
Other borrowings 115,556 121,251
Accrued interest payable 3,980 3,956
Other liabilities 3,437 4,914
----------- -----------
Total liabilities 933,220 932,360
----------- -----------
Stockholders' equity:
Common stock of $5.00 par value. 15,000,000
shares authorized; 4,650,984 and 4,672,662
shares issued and outstanding 23,255 23,363
Additional paid-in capital 34,425 34,845
Retained earnings 38,034 36,969
Net unrealized loss on securities available for
sale (5,548) (4,500)
----------- -----------
Net stockholders' equity 90,166 90,677
----------- -----------
$ 1,023,386 $ 1,023,037
=========== ===========
The accompanying notes are an integral part of these financial statements.
(1) Derived from audited financial statements.
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
Interest income:
Interest and fees on loans $ 13,131 $ 9,241
Taxable investments 3,669 2,402
Tax exempt investments 716 769
Federal funds sold 188 177
Interest bearing bank balances 135 78
------- -------
Total interest income 17,839 12,667
------- -------
Interest expense:
Deposits 7,903 5,764
Short-term borrowings 46 7
Other borrowings 1,570 120
------- -------
Total interest expense 9,519 5,891
------- -------
Net interest income 8,320 6,776
Provision for possible loan losses 750 511
------- -------
Net interest income after provision
for possible loan losses 7,570 6,265
------- -------
Non interest income:
Service charges on deposits 1,388 953
Credit insurance income 84 107
Mortgage banking income 94 169
Agency commission income 797 53
Other fee income 136 113
Gains (losses) on AFS investments (54) 18
Other income 335 153
------- -------
Total non interest income 2,780 1,566
------- -------
Non interest expenses:
Salaries and employee benefits 4,187 2,657
Net occupancy expense 418 287
Equipment and data processing expenses 786 658
Intangible asset amortization 335 64
Other expenses 1,400 1,353
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Total non interest expenses 7,126 5,019
------- -------
Income before income taxes 3,224 2,812
Income taxes 996 730
------- -------
Net income $ 2,228 $ 2,082
======= =======
Weighted average shares 4,666,711 3,639,779
Basic earnings per share $ 0.48 $ 0.57
==== ====
The accompanying notes are an integral part of these financial statements.
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Net income $ 2,228 $ 2,082
----- -----
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses), net (1,082) (869)
Plus (minus) reclassification adjustment
for (gains) losses included in net income 34 (11)
----- -----
Other comprehensive income (1,048) (880)
----- -----
Total comprehensive income $ 1,180 $ 1,202
===== =====
The accompanying notes are an integral part of these financial statements.
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
(Unaudited)
Additional
Common Paid-In Retained Unrealized
Stock Capital Earnings Gain (Loss) Total
------ ---------- -------- ----------- -----
January 1, 1999 $ 18,199 $ 10,800 $ 32,723 $ 1,789 $ 63,511
Net income - - 2,082 - 2,082
Cash dividends ($.25
per share) - - (910) - (910)
Net change in
unrealized gain
(loss) - - - (880) (880)
------ ------ ------ ------ ------
March 31, 1999 $ 18,199 $ 10,800 $33,895 $ 909 $ 63,803
====== ====== ====== ====== ======
January 1, 2000 $ 23,363 $ 34,845 $ 36,969 $ (4,500) $ 90,677
Net income - - 2,228 - 2,228
Cash dividends ($.25
per share) - - (1,163) - (1,163)
35,359 common shares
issued in
acquisition 177 774 - - 951
57,037 common shares
repurchased (285) (1,194) - - (1,479)
Net change in
unrealized gain
(loss) - - - (1,048) (1,048)
------ ------ ------ ------ ------
March 31, 2000 $ 23,255 $ 34,425 $ 38,034 $ (5,548) $ 90,166
====== ====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 2,228 $ 2,082
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 767 407
Provision for possible loan losses 750 511
Net investment amortization 70 134
(Gain) loss on sales of investments 54 (18)
Deferred income taxes (600) (49)
(Increase) decrease in:
Accrued interest receivable (89) 76
Cash surrender value of bank owned life
insurance (167) (115)
Increase (decrease) in accrued interest
payable 24 (345)
Other, net 796 1,022
------- -------
Net cash provided by operating activities 3,833 3,705
------- -------
Cash flows from investing activities:
Purchases of securities available for sale - (69,633)
Sales of securities available for sale 3,800 1,513
Maturities of securities available for sale 9,707 35,218
Net (increase) decrease in:
Interest bearing bank balances 1,785 481
Federal funds sold (19,100) 8,850
Loans (10,636) (8,554)
Bank premises and equipment (221) (860)
Investment in joint venture (260) -
Proceeds from sales of other real estate and
other repossessed assets 592 308
Net cash paid for current year acquisitions (85) -
Net cash paid related to prior year acquisitions (1,919) -
------- -------
Net cash used in investing activities (16,337) (32,677)
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(Continued)
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits $ 5,840 $ 3,533
Interest bearing deposits 11,232 28,833
Securities sold under agreements to
repurchase and other short-term borrowings (9,145) (315)
Proceeds from other borrowings 10,406 450
Repayments of other borrowings (16,578) (286)
Cash dividends (1,163) (910)
Common shares repurchased (1,479) -
------- -------
Net cash provided by (used in)
financing activities (887) 31,305
------- -------
Net increase (decrease) in cash and
due from banks (13,391) 2,333
Cash and due from banks at January 1 42,497 22,807
------- -------
Cash and due from banks at March 31 $ 29,106 $ 25,140
======= =======
The accompanying notes are an integral part of these financial statements.
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In Thousands, Except Share Data)
(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 the Bank's wholly owned subsidiaries, First M & F
Insurance Co., M & F Financial Services, Inc.; M & F Bank Securities
Corporation, Tyler, King & Ryder, Inc., Reynolds Insurance Agency, Inc. and
Insurance Services, 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, 1999.
Note 2: Statements of Cash Flows
During the three months ended March 31, 2000 and 1999, the Company had the
following payments:
2000 1999
---- ----
Interest $ 9,495 $ 6,236
Income taxes 215 32
====== ======
Note 3: Acquisitions
On January 14, 2000, Merchants and Farmers Bank acquired Insurance Services, Inc.
by issuing 35,359 shares of First M & F Corporation stock in exchange for all
of the shares of Insurance Services, Inc. The acquisition was accounted for as
a purchase transaction. Insurance Services, Inc. was an independent insurance
agency based in Tupelo, Mississippi.
We have reviewed the accompanying consolidated statement of condition of First M & F Corporation and subsidiary as of March 31, 2000, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the three-month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.</P>
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of condition of First M & F Corporation and subsidiary as of December 31, 1999, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and in our report dated January 31, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of condition as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.
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.
Net income for the first three months of 2000 was $2,228,650, or $.48 per basic and diluted share as compared to $2,081,811, or $.57 per basic and diluted share in the first three months of 1999. The decrease in earnings per share is primarily due to the 1999 fourth quarter acquisition of Community Federal Bancorp. Return on assets for the first three months of 2000 was .88%, while the return on equity was 9.81%. In the first three months of 1999, the return on assets was 1.18%, with a return on equity of 13.53%. These ratios are influenced by the purchase accounting adjustments related to the Community Federal acquisition. Total assets at March 31, 2000 were $1.023 billion, as compared to $735.36 million at March 31, 1999. Average assets for the first three months of 2000 were $1.014 billion as compared to $717.67 million in the first three months of 1999.
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 March 31, 2000, there is adequate flexibility to alter the rate 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.
Net interest income for the first three months of 2000 was $8.32 million, representing a tax-equivalent net interest margin of 3.74% as compared to 4.48% in the first three months of 1999. The decrease in the net interest margin was primarily due to a leveraged mortgage-backed securities portfolio that was part of the 1999 acquisition. The approximately $85 million portfolio of mortgage-backed securities, funded by Federal Home Loan Bank advances, was part of a Community Federal program to leverage their capital base. The tax-equivalent net interest margin on the leverage portfolio was .75% for the first quarter of 2000. Excluding the leverage portfolio, the tax-equivalent net interest margin for the first quarter of 2000 was 4.03%. Earning assets grew by 1.28% in the first quarter of 2000, while loans grew by 1.59% during the same period.
The provision for loan losses for the first three months of 2000 was $750,000 as compared to $510,920 for the first three months of 1999. This increase is reflective primarily of the increased size of the loan portfolio. Nonaccrual loans and 90 days past due accruing loans as a percentage of loans outstanding was .36% at March 31, 2000 as compared to .52% at December 31, 1999. Annualized net charge-offs as a percentage of average loans were .28% for the first three months of 2000 as compared to .32% for the 1999 fiscal year. These statistics reflect management’s conservative lending philosophy, and its commitment to maintaining high asset quality standards.
Non interest income for the first three months of 2000 was 20.80% higher than in the same period in 1999. The largest increase occurred in agency commissions generated by insurance agencies acquired during the last half of 1999. Deposit service charges also increased by 45.6% in the first quarter of 2000 as compared to the first quarter of 1999. This was due to a combination of growth in volumes and pricing increases during 1999.
Non interest expenses increased from the first quarter of 1999 to the first quarter of 2000 due to the Community Federal acquisition. Annualized non interest expenses as a percentage of average assets were 2.81% for the first three months of 2000 as compared to 2.80% for the first three months of 1999. The Company’s efficiency ratio was 61.64% for the first three months of 2000 as compared to 56.67% in the first three months of 1999. Intangible asset amortization was $335,294 in 2000 as compared to $63,691 in the first three months of 1999.
Income taxes for 2000 were $995,145 as compared to $730,129 in the first three months of 1999, reflecting effective tax rates of 30.87% for the first three months of 2000 and 25.97% for the first three months of 1999. This increase in expense was caused primarily by increases in pre-tax earnings, the non-deductibility of the goodwill amortization for 2000, and the tax attributes brought over in the Community Federal acquisition.
Assets were flat compared to December 31, 1999 and grew by 39.17% from March 31, 1999. Loans grew by 1.59% in the first three months of 2000 as investments decreased by 5.07%. The competition for loans has continued very strong in many of the Company’s markets. Deposit growth of 2.17% provided funding as borrowings decreased by 11.11% in the first quarter of 2000. Loans as a percentage of assets were 60.45% at March 31, 2000, 59.52% at December 31, 1999, and 57.45% at March 31, 1999.
The Company’s regulatory capital ratios at March 31, 2000, as shown below are in excess of the minimum requirements and qualify the institution as “well capitalized” under the risk-based capital regulations.
($ in thousands)
----------------
Tier 1 capital $ 74,718
Tier 2 capital 7,900
-------
Total risk-based capital $ 82,618
=======
Risk weighted assets $ 635,625
=======
Total risk-based capital ratio 13.00%
=====
Leverage ratio 7.44%
====
The dividend payout ratio for the first three months of 2000 was 52.08%, based upon a dividend of $.25 per share. The book value of the Company’s common stock at March 31, 2000 was $19.39, with a traded market value of $23.00 per share.
Market risk reflects the risk of economic loss resulting from 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 March 31, 2000 the institution was in a negative repricing gap position of approximately 7% of assets.
The Company has off balance sheet risks to the extent that it has made lending or investment purchase commitments. Total outstanding and unused loan commitments were $45.60 million with $12.36 million of those commitments maturing in over one (1) year. The Company monitors these commitments with respect to credit quality as well as funding-related risks.
In March, 2000, the Company entered into a collar to protect certain equity investments in Fannie Mae and Freddie Mac stocks. At March 31, the prices of both stocks were within the range delineated by the collar.
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
Net income $ 2,228,650 $ 2,081,811
========= =========
Weighted average shares outstanding 4,666,711 3,639,779
========= =========
Earnings per share:
Basic $ .48 $ .57
==== ====
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 12, 2000 /s/ Hugh S. Potts, Jr.
____________________________________
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: May 12, 2000 /s/ Robert C. Thompson, III
______________________________________
Robert C. Thompson, III
Executive Vice President and
Chief Financial Officer
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