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Previous: INTELLIGENT SYSTEMS CORP, 10-Q, EX-27, 2000-08-14 |
Next: FIRST M&F CORP/MS, 10-Q, EX-27, 2000-08-14 |
For the quarter ended June 30, 2000 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: (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 July 31, 2000
Common stock ($5.00 par value) 4,614,784 shares
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
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Condition
(In Thousands, Except Share Data)
(Unaudited)
June 30, December 31,
Assets 2000 1999 (1)
Cash and due from banks $ 28,877 $ 42,497
Interest bearing bank balances 1,994 13,611
Federal funds sold 6,300 3,900
Securities available for sale (cost of
$286,082 and $306,717) 276,988 299,534
Loans 639,618 608,950
Allowance for loan losses (8,186) (7,629)
Net loans 631,432 601,321
Bank premises and equipment 18,638 18,781
Accrued interest receivable 8,214 7,855
Other real estate 993 1,150
Intangible assets 18,994 17,966
Other asset 17,886 16,422
$ 1,010,316 $ 1,023,037
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 88,920 $ 87,378
Interest bearing 704,432 702,563
Total deposits 793,352 789,941
Federal funds and repurchase agreement 1,793 12,298
Other borrowings 116,842 121,251
Accrued interest payable 4,988 3,956
Other liabilities 2,929 4,914
Total liabilities 919,904 932,360
Stockholders' equity:
Common stock of $5.00 par value. 15,000,000
shares authorized; 4,623,284 and 4,672,662
shares issued and outstanding 23,116 23,363
Additional paid-in capital 34,015 34,845
Retained earnings 38,981 36,969
Net unrealized loss on securities available
for sale (5,700) (4,500)
Net stockholders' equity 90,412 90,677
$ 1,010,316 $ 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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
Interest income:
Interest and fees on loans $ 13,475 $ 9,428 $ 26,606 $ 18,669
Taxable investments 3,678 2,426 7,347 4,828
Tax exempt investments 702 760 1,418 1,529
Federal funds sold 120 19 308 196
Interest bearing bank
balances 120 36 254 114
Total interest income 18,095 12,669 35,933 25,336
Interest expense:
Deposits 8,163 5,574 16,066 11,338
Short-term borrowings 34 70 80 77
Other borrowings 1,958 181 3,527 301
Total interest expense 10,155 5,825 19,673 11,716
Net interest income 7,940 6,844 16,260 13,620
Provision for possible loan
losses 750 591 1,500 1,102
Net interest income after
provision for possible
loan losses 7,190 6,253 14,760 12,518
Noninterest income:
Service charges on deposits 1,664 1,024 3,052 1,977
Credit insurance income 78 90 162 197
Mortgage banking income 151 178 246 347
Agency commission income 713 54 1,510 106
Other fee income 129 124 265 237
Gains (losses) on AFS
investments - 10 (55) 28
Other income 248 153 583 307
Total noninterest
income 2,983 1,633 5,763 3,199
Noninterest expenses:
Salaries and employee benefits 3,506 2,811 7,692 5,468
Net occupancy expense 426 317 844 604
Equipment and data processing
expenses 824 592 1,611 1,250
Intangible asset amortization 351 66 686 130
Other expenses 2,126 1,289 3,525 2,642
Total noninterest
expenses 7,233 5,075 14,358 10,094
Income before income
taxes 2,940 2,811 6,165 5,623
Income taxes 838 717 1,834 1,447
Net income $ 2,102 $ 2,094 $ 4,331 $ 4,176
Weighted average shares 4,639,920 3,639,779 4,653,319 3,639,779
Basic earnings per share $ 0.45 $ 0.57 $ 0.93 $ 1.14
====== ====== ====== ======
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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
Net income $ 2,102 $ 2,094 $ 4,331 $ 4,176
Other comprehensive income (loss):
Unrealized holding gains
(losses) on securities,
net of taxes of
$(90) and $(1,819)
for the three months
ended June 30, and
$(734) and $(2,337) for
the six months ended
June 30 (151) (3,057) (1,234) (3,927)
Plus (minus) reclassification
adjustments for (gains)
losses included in net
income, net of taxes of
$0 and $(3) for the three
months ended June 30 and
$21 and $(10) for the six
months ended June 30 - (7) 34 (18)
Other comprehensive
income (loss) (151) (3,064) (1,200) (3,945)
Total comprehensive
income (loss) $ 1,951 $ (970) $ 3,131 $ 231
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 - - 4,176 - 4,176
Cash dividends ($.50
per share) - - (1,820) -
(1,820)
Net change in
unrealized gain
(loss) - - - (3,945)
(3,945)
June 30, 1999 $ 18,199 $ 10,800 $ 35,079 $ (2,156) $ 61,922
January 1, 2000 $ 23,363 $ 34,845 $ 36,969 $ (4,500) $ 90,677
Net income - - 4,331 - 4,331
Cash dividends ($.50
per share) - - (2,319) -
(2,319)
35,359 common shares
issued in
acquisition 177 774 - - 951
57,037 common shares
repurchased (424) (1,604) - -
(2,028)
Net change in
unrealized gain
(loss) - - - (1,200)
(1,200)
June 30, 2000 $ 23,116 $ 34,015 $ 38,981 $ (5,700) $ 90,412
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)
Six Months Ended June 30,
2000 1999
Cash flows from operating activities:
Net income $ 4,331 $ 4,176
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,563 820
Provision for possible loan losses 1,500 1,102
Net investment amortization 321 310
(Gain) loss on sales of investments 55 (28)
Deferred income taxes (593) (186)
Increase in:
Accrued interest receivable (359) (42)
Cash surrender value of bank owned life
insurance (296) (228)
Increase (decrease) in:
Accrued interest payable 1,032 (130)
Income taxes payable 392 (98)
Other, net (608) 205
Net cash provided by operating activities 7,338 5,901
Cash flows from investing activities:
Purchases of securities available for sale - (70,333)
Sales of securities available for sale 3,800 12,458
Maturities of securities available for sale 17,005 46,270
Net (increase) decrease in:
Interest bearing bank balances 11,617 4,444
Federal funds sold (2,400) 17,350
Loans (32,241) (25,896)
Bank premises and equipment (352) (2,142)
Investment in joint venture (260) -
Proceeds from sales of other real estate
and other repossessed assets 878 588
Net cash paid for current year acquisitions (313) -
Net cash paid related to prior year acquisitions (2,065) -
Net cash used in investing activities (4,331) (17,261)
(Continued)
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands, Except Share Data)
(Unaudited)
Six Months Ended June 30,
2000 1999
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits $ 1,543 $ (1,257)
Interest bearing deposits 1,708 13,313
Securities sold under agreements to
repurchase and other short-term borrowings (10,506) (329)
Proceeds from other borrowings 20,406 7,892
Repayments of other borrowings (25,431) (2,885)
Cash dividends (2,319) (1,820)
Common shares repurchased (2,028) -
Net cash provided by (used in)
financing activities (16,627) 14,914
Net increase (decrease) in cash and
due from banks (13,620) 3,554
Cash and due from banks at January 1 42,497 22,807
Cash and due from banks at June 30 $ 28,877 $ 26,361
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
(In Thousands, Except Share Data)
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 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 six months ended June 30, 2000 and 1999, the Company had the following
payments:
2000 1999
Interest $ 18,641 $ 11,847
Income taxes 2,144 1,732
Note 3: Acquisitions
On January 14, 2000, Merchants & 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.
On April 1, 2000, Merchants & Farmers Bank acquired all of the outstanding shares
of House of Insurance, Inc. for $230 in cash. The acquisition was accounted for
as a purchase. House of Insurance, Inc., based in Tupelo, Mississippi, was
merged into Insurance Services, Inc.
We have reviewed the accompanying consolidated statement of condition of First M & F Corporation and subsidiary as of June 30, 2000, and the related consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2000 and 1999 and the related consolidated statements of stockholders’ equity and cash flows for the six-month periods ended June 30, 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.
Based on our review, we are not aware of any material modifications that should be make 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 te 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.
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.
Net income for the first six months of 2000 was $4,330,666 or $.93 per basic and diluted share as compared to $4,175,869 or $1.14 per basic and diluted share for the same period in 1999. The decrease in earnings per share is primarily due to the 1999 fourth quarter acquisition of Community Federal Bancorp as well as narrowing interest margins in 2000. Return on assets for the first six months of 2000 was .86%, while the return on equity was 9.54%. In the first six months of 1999, the return on assets was 1.16%, with a return on equity of 13.03%. These comparative ratios are influenced by the purchase accounting adjustments related to the Community Federal acquisition. Total assets at June 30, 2000 were $1.010 billion, as compared to $717.29 million at June 30, 1999.
Net income for the three months ended June 30, 2000 was $2,102,016 or $.45 per share as compared to $2,094,058 or $.57 per share for the same period in 1999. The most significant difference between the two periods was the goodwill amortization in 2000 that was related to the 1999 acquisition.
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 and liability repricing opportunities, market conditions and expectations for the economy. Cash flow analyses are also used to project short-term interest rate risks and liquidity risks. Management believes, at June 30, 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 six months of 2000 was $16.26 million, representing a tax-equivalent net interest margin of 3.70% as compared to 4.44% in the first six 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 .79% for the first half of 2000. Excluding the leverage portfolio, the tax equivalent net interest margin for the first half of 2000 was 3.99%. The Company came under pricing pressures during 2000 due to the Federal Reserve interest rate increases. This caused the tax-equivalent net interest margin to decrease to 3.64% for the second quarter of 2000 from 3.77% in the first quarter of 2000.
The provision for loan losses for the first six months of 2000 was $1,500,000 as compared to $1,101,920 for the first six months of 1999. This increase is due mainly to the increased size of the loan portfolio. Nonaccrual loans and 90 days past due accruing loans as a percentage of loans outstanding were .42% at June 30, 2000 as compared to .52% at December 31, 1999 and .49% at June 30, 1999. Annualized net charge-offs as a percentage of average loans were .30% for the first six months of 2000 as compared to .32% for the first six months of 1999.
Noninterest income for the first six months of 2000 was 80.15% 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 and the first two quarters of 2000. Deposit service charges also increased by 54.38% in the first half of 2000 as compared to the first half of 1999. This was primarily due to additional volumes attributable to a new no-fee checking account with overdraft privileges that was introduced in the fourth quarter of 1999.
Noninterest expenses increased from the first half of 1999 to the first half of 2000 due to the Community Federal acquisition and the insurance agency acquisitions. Excluding goodwill amortization, noninterest expenses were up by 37.21% in the first half of 2000 as compared to the first half of 1999. The largest increase was in salaries and benefits, with approximately half of the increase due to the Community Federal acquisition and the other half attributable to the insurance agency acquisitions. Annualized noninterest expenses as a percentage of average assets were 2.85% for the first half of 2000 as compared to 2.80% for the first half of 1999. The Company’s efficiency ratio was 62.56% for the first half of 2000 as compared to 57.10% for the first half of 1999. Intangible asset amortization was $686,366 in 2000 as compared to $130,129 in the first half of 1999.
Income taxes for 2000 were $1,833,539 as compared to $1,446,899 in the first six months of 1999, reflecting effective tax rates of 30.56% for the first six months of 2000 and 25.73% for the first six 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 down by 1.24% from December 31, 1999 and up by 40.85% from June 30, 2000. Loans grew by 5.04% in the first half of 2000 as compared to 5.82% in the first half of 1999. Investments were down by 7.53% in 2000 as those funds were used to fund loans and to pay down debt. Loan demand and bank competition for commercial loans remained strong in the first half of 2000. Loans as a percentage of assets were 63.31% at June 30, 2000 as compared to 59.52% at December 31, 1999 and 61.11% at June 30, 1999.
The Company’s regulatory capital ratios at June 30, 2000, as shown below, are in excess of the minimum requirements and qualify the institution as “well capitalized” under the risk-based capital regulations.
Tier 1 capital $ 74,031
Tier 2 capital 8,056
Total risk-based capital $ 82,087
Risk weighted assets $ 644,369
Total risk-based capital ratio 12.74%
Leverage ratio 7.47%
The dividend payout ratio for the first six months of 2000 was 53.76% based upon a dividend of $.50 per share. The book value of the Company’s common stock at June 30, 2000 was $19.39, with a traded market value of $20.63 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 June 30, the institution was in a negative repricing gap position of approximately 6% of assets.
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 $38.04 million with $7.15 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.
In March, 2000, the Company entered into a collar to protect certain equity investments in Fannie Mae and Freddie Mac stocks. At June 30, the prices of both stocks were within the range delineated by the collar.
The annual stockholders’ meeting was held on April 12, 2000. The stockholders elected five directors to serve a term of three years, two directors to serve a term of one year, and one director to serve a term of two years. These matters are outlined in more detail in the Company’s proxy statement.
FIRST M & F CORPORATION
Exhibit 11 - Computation of Earnings Per Share
Three Months Ended June 30,
2000 1999
Net income $ 2,102,016 $ 2,094,058
Weighted average shares outstanding 4,639,928 3,639,779
Earnings per share:
Basic $ .45 $ .57
Six Months Ended June 30,
2000 1999
Net income $ 4,330,666 $ 4,175,869
Weighted average shares outstanding 4,653,319 3,639,779
Earnings per share:
Basic $ .93 $ 1.14
There is no dilutive effect from stock options.
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 11, 2000 /s/ Hugh S. Potts, Jr.
----------------------------
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
DATE: August 11, 2000 /s/ Robert C. Thompson, III
----------------------------
Robert C. Thompson, III
Executive Vice President and
Chief Financial Officer
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