SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1994
Commission file number 0-10972
First Farmers and Merchants Corporation
(Exact name of registrant as specified in its charter)
Tennessee 62-1148660
(State or other jurisdiction (I.R.S. Employer Identification
No.)
of incorporation or organization)
816 South Garden Street
Columbia, Tennessee 38402 - 1148
(Address of principal executive offices) (Zip Code)
(615) 388-3145
(Registrant's telephone number, including area code)
(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 to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), 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
issuer's common stock, as of June 30, 1994. 1,400,000 shares
This filing contains 14 pages.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited consolidated financial statements of
the registrant and its subsidiary for the six months ended June
30, 1994, are as follows:
Consolidated balance sheets - June 30, 1994, and December
31, 1993
Consolidated statements of income - For the three
months and six months ended June 30, 1994, and June 30,
1993
Consolidated statements of cash flows - For the six
months ended June 30, 1994, and June 30, 1993
2
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1994 1993
Cash and due from banks $ 24,934,736 $ 22,642,168
Federal funds sold 0 400,000
Securities
Held to maturity (market
value $134,669,684 and
$126,824,320, respectively) 142,632,565 122,016,587
Available for sale
(amortized cost $26,656,903
in 1994 and market value
$28,512,178 in 1993) 24,601,492 28,093,708
Total securities 167,234,057 150,110,295
Loans, net of unearned
income 249,890,082 243,915,462
Allowance for possible
loan losses (2,140,088) (2,023,651)
Net loans 247,749,994 241,891,811
Bank premises and equipment,
at cost less allowance for
depreciation and amortization 6,393,841 6,363,539
Other assets 10,098,554 11,188,893
TOTAL ASSETS $ 456,411,182 $ 432,596,706
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 55,225,272 $ 54,302,635
Interest-bearing (including
certificates of deposit
over $100,000: 1994 -
$27,253,509; 1993 -
$25,104,901) 353,585,976 334,632,442
Total deposits 408,811,248 388,935,077
Dividends Payable 546,000 525,000
Accounts payable and accrued
liabilities 5,415,394 3,729,056
TOTAL LIABILITIES 414,772,642 393,189,133
STOCKHOLDERS' EQUITY
Common stock - $10 par value;
authorized 4,000,000 shares;
1,400,000 shares issued and
outstanding 14,000,000 7,000,000
Retained earnings 27,671,786 32,435,258
Realized stockholders' equity 41,671,786 39,435,258
Net unrealized gains (losses)
on securities available for sale,
net of tax (33,246) (27,685)
3
TOTAL STOCKHOLDERS' EQUITY 41,638,540 39,407,573
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 456,411,182 $ 432,596,706
UNAUDITED (A)
(A) The Consolidated Balance Sheet at December 31, l993, has been
taken from the audited financial statements at that date.
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<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY CONSOLIDATE
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
INTEREST INCOME
Interest and fees
<S> <C> <C> <C> <C>
on loans $ 5,133,008 $ 4,926,034 $ 9,966,101 $9,612,626
Interest on invest-
ment securities
Taxable Interest 1,796,839 1,741,191 3,446,882 3,774,636
Exempt from federal
income tax 538,480 462,971 1,069,416 932,378
Dividends 93,187 22,530 126,018 39,182
2,428,506 2,226,692 4,642,316 4,746,196
Other interest
income 103,335 75,451 233,325 107,304
TOTAL INTEREST
INCOME 7,664,849 7,228,177 14,841,742 14,466,126
INTEREST EXPENSE
Interest on
Deposits 3,130,081 3,004,157 6,107,841 5,959,172
Interest on other
short term bor-
rowings 18,229 14,624 26,481 21,710
TOTAL INTEREST
EXPENSE 3,148,310 3,018,781 6,134,322 5,980,882
NET INTEREST
INCOME 4,516,539 4,209,396 8,707,420 8,485,244
Provision for Pos-
sible Loan Losses 255,000 180,000 315,000 350,000
NET INTEREST
INCOME AFTER
PROVISION FOR
LOAN LOSSES 4,261,539 4,029,396 8,392,420 8,135,244
5
OTHER INCOME
Trust Department
Income 312,174 220,860 552,496
Service charges
on deposits accounts 608,715 563,225 1,156,763 1,093,257
Other service
charges, commissions,
and fees 81,000 85,748 215,592 165,321
Other operating income 66,937 80,337 155,071 157,456
Investment securities
gains (losses) (78,281) 9,219 (68,586) 16,563
TOTAL OTHER
INCOME 990,545 959,389 2,011,336 1,875,186
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
OTHER EXPENSES
Salaries and em-
ployee benefits $ 1,535,336 $ 1,420,964 $ 3,043,388 $ 2,815,951
Net occupancy
expense 308,523 241,235 626,476 514,635
Furniture and
equipment
expense 239,224 229,262 477,922 445,141
Loss on other
real estate 4,000 - 4,000 9,322
Other operating
expenses 1,157,489 1,203,877 2,374,311 2,423,267
Total Other
Expenses 3,244,572 3,095,338 6,526,097 6,208,316
Income Before
Provision for
6
Income Taxes 2,007,512 1,893,447 3,877,659 3,802,114 Provision For Income
Net Income (A) $ 1,441,019 $ 1,315,611 $ 2,782,528 $ 2,631,779
EARNINGS PER COMMON
SHARE (B) $ 1.03 $ 0.94 $ 1.99 $ 1.88
(1,400,000 outstanding shares)
(A) The information furnished reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results of operations. These
interim amounts are unaudited.
(B) All EPS information has been restated to give retroactive effect to the 100% stock
dividend paid to shareholders of record on April 12, 1994.
</TABLE>
7
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994, AND 1993
(Unaudited)
1994 1993
OPERATING ACTIVITIES
Net income $ 2,782,528 $ 2,631,779
Adjustments to reconcile net
income to net cash provided
by operating activities
Excess of provision for
possible loan losses over
net charge offs 116,437 174,042
Provision for depreciation
and amortization of premises
and equipment 265,978 283,874
Amortization of deposit base
intangibles 84,010 84,010
Amortization of investment
security premiums, net of
accretion of discounts 395,362 342,227
(Increase) decrease in
Interest receivable (470,159) 101,114
Other assets 1,470,926 (1,325,953)
Increase (decrease) in
Interest payable 31,953 (202,949)
Other liabilities 463,428 305,344
TOTAL ADJUSTMENTS 2,357,935 (238,291)
NET CASH PROVIDED BY
OPERATING ACT 5,140,463 2,393,488
INVESTING ACTIVITIES
Proceeds from maturities and
calls of investment securities 12,390,537 13,448,821
Purchases of investment
securities (29,909,661) (16,619,178)
Net increase in loans (5,974,620) (12,268,680)
Purchase of premises and
equipment (296,281) (418,701)
NET CASH USED BY INVESTING
ACTIVITIES (23,790,025) (15,857,738)
FINANCING ACTIVITIES
Net increase in noninterest-
bearing and interest-bearing
deposits 19,876,172 11,863,240
Net decrease in short term
borrowings 1,190,958 (8,519)
Cash dividends (525,000) (469,000)
8
NET CASH PROVIDED BY
FINANCING ACTIVITIES 20,542,130 11,385,721
INCREASE IN CASH AND
CASH EQUIVALENTS 1,892,568 (2,078,529)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384
CASH AND CASH EQUIVALENTS AT
END OF YEAR $24,934,736 $26,869,855
9
The unaudited consolidated financial statements have been
prepared on a consistent basis and in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a
fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes
included in the Corporation's annual report on Form 10-K for the
year ended December 31, 1993.
10
Item 2. Management's Discussion and Analysis of Financial
Condition
Material Changes in Financial Condition
Average total assets were $449.4 million for the first six
months of 1994 compared to $412 million for the first six months
of 1993. Period-end assets were $456.4 million and $432.5
million and $424.3 million at December 31, 1993, and June 30,
1993, respectively. The following sections analyze the average
balance sheet and the major components of the period-end balance
sheet.
SECURITIES At June 30, 1994, the Corporation's investment
securities portfolio was $167.2 million compared to $150.1
million and $144.4 million at December 31, 1993, and June 30,
1993, respectively. The liquidity portion of the securities
portfolio, $24.6 million or 15% of the total portfolio, is an
integral part of the asset/liability management process. As
such, it represents an important source of liquidity available to
fund loans and accommodate asset reallocation strategies dictated
by changes in bank operating and tax plans, shifting yield spread
relationships, and changes in configuration of the yield curve.
Items held for these purposes were classified as "available for
sale" after the adoption of Financial Accounting Standards No.
115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities", and are reported at fair value, with
unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity. Net unrealized
losses on securities available for sale were $33 thousand at June
30, 1994. The management of the Corporation's subsidiary bank
has the positive intent and ability to hold to maturity the
balance of the securities portfolio and these securities are
reported at amortized cost. The balance of held to maturity
securities at June 30, 1994, was $142.6 million. The liquidity
position of the Corporation's subsidiary has remained strong.
LOANS The average loan portfolio of the Corporation's
subsidiary increased $9.3 million or 4% in the first six months
of 1994 compared to a $13 million or 6% increase in the first six
months of 1993. Commercial loans and consumer loans posted the
largest increases compared to December 31, 1993, and June 30,
1993, with loans secured by real estate holding steady with
almost no growth for the first six months of 1994 and a slight
decline compared to June 30, 1993.
The Corporation's subsidiary loan review function and
Special Assets Committee reviewed over 28% of the loan portfolio
during the first six months of 1994. After this review, loans
totaling $2.7 million, 1.1% of the total portfolio, were
classified as other assets especially mentioned at June 30, 1994,
which is down from the $5.3 million so classified at December 31,
1993. Loans totaling $12 million, 4.8% of the total portfolio,
were classified as substandard at June 30, 1994, compared to $3.5
million so classified at December 31, 1993. Loans totaling $.445
million, .2% of the total portfolio, were classified as doubtful
at June 30, 1994, compared to $.5 million at December 31, 1993.
11
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention do not represent or result from
trends or uncertainties which management reasonably expects will
materially affect operating results, liquidity, or capital
resources. Neither do such loans represent material credits
about which management is aware of any information which causes
management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. Management is
not aware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on
the corporation's liquidity, capital resources or operations.
Loans totaling $1.1 million, .4% of the total portfolio, were
nonperforming at the end of the first six months of 1994 compared
to $ 2.1 million and $3.2 million at December 31, 1993, and June
30, 1993, respectively. Nonperforming loans are those which are
accounted for on a non-accrual basis. Interest accruals are
discontinued when, in the opinion of management, it is not
reasonable to expect that such interest will be collected.
DEPOSITS Average deposits of the Corporation's subsidiary were
$403.9 million for the first six months of 1994 compared to
$378.8 and $370.9 for the year ended December 31, 1993, and for
the first six months of 1993, respectively. Average rate
sensitive time deposits increased 5.5% for the period ending June
30, 1994, compared to an 8.0% increase for the period ending June
30, 1993.
CAPITAL Average shareholders' equity was $40.7 million at June
30, 1994, compared to $36.4 million at June 30, 1993, an increase
of 11.7%. Average shareholders' equity increased 8.6% during the
first six months of 1994 compared to an increase of 8.9% during
the first six months of 1993. Most of the capital needs of the
Corporation's subsidiary bank have historically been financed
through internal growth.
At June 30, 1994, the Corporation had an equity capital to
asset ratio of 9.1% compared to a 8.8% ratio at June 30, 1993 and
an 8.9% ratio at December 31, 1993. At the close of the first
six months of 1994, additional dividends of approximately $10
million to the Corporation could have been declared by the
subsidiary bank without regulatory agency approval.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1993. Equity capital (net of certain
adjustments for intangible assets and investments in non-
consolidated subsidiaries) and certain classes of preferred stock
are considered Tier 1 ("core") capital. Tier 2 ("total") capital
consists of core capital plus subordinated debt, some types of
preferred stock, and varying amounts of the Allowance for
Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk-based total capital ratio of 10%, and a core capital to
average total assets ratio of 5%.
As of June 30, 1994, the Bank's core and total risk-based
ratios were 17.7% and 18.6% respectively. The comparable ratios
were 15.6% and 16.4% at year end, 1993. At June 30, 1994, the
Bank had a ratio of average core capital to average total assets
12
of 8.8% compared to 8.6% at December 31, 1993.
13
Material Changes in Results of Operations
During the first six months of 1994, the Corporation's
consolidated income totaled $2.8 million compared to $2.6 million
for the first six months of 1993. The Corporation's total
interest income during the first six months of 1994 was $14.8
million compared to $14.5 million during the first six months of
1993. This was an increase of 2.6%. Loan income was up more
than 3.6% due mainly to increase in loan volume, while investment
income showed an increase of .5%.
Interest expense increased 2.6% during the first six months
of 1994. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the six
months ended June 30, 1994, was 4.6% compared to 4.8% for the
corresponding period in 1993.
The provision for loan losses was $315,000 for the first six
months of 1994 compared to $350,000 for the first six months of
1993, which was a 10% decrease. The amount of the additions to
the allowance for loan losses charged to operating expenses was
based on the following factors: (a) national and local economic
factors; (b) past experience; and (c) Loan Review and Special
Assets Committee review. Net charge offs for the first six
months of 1994 were $ 198 thousand or .08% of average net loans,
compared to $176 thousand or .08% of average net loans for the
first six months of 1993. The ratio of net charge offs to net
average loans outstanding has been less than .5% for the last
five years and below the usual ratio for the industry.
The $4,000 expense entitled Loss on Other Real Estate for
the first six months of 1994 compares to a $9,322 expense for the
first six months of 1993. These expenses were a result of write-
downs associated with declines in real estate values subsequent
to foreclosure and disposition of the properties at less than
their carrying value. The carrying value of Other Real Estate is
included in other assets on the face of the balance sheet and
represents real estate acquired through foreclosure and is stated
at the lower of cost, loan value, or appraisal value. An
allowance for other real estate owned is not maintained.
Historically, and at the present time, parcels have not remained
in this category for long periods of time and any decreases or
losses associated with the properties have been charged to
current income. Management evaluates properties included in this
category on a regular basis. Actual foreclosures are included in
the carrying value for Other Real Estate at June 30, 1994, and
total $555,540 which compares to $709,029 and $594,693 at June
30, 1993, and December 31, 1993, respectively.
Non-interest income increased 7.60% during the first six
months of 1994 compared to the same period of 1993. Income from
other service charges is included in this total and increased
30.5%. Non-interest expense increased 5.2% during the first six
months of 1994 compared to the same period of 1993. The largest
increase was in net occupancy expense which increased 21.7%.
Insurance on the banking offices, maintenance, and the new lease
at the Northside Bank Center are contributors to this increase.
14
SIGNATURES
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 FARMERS AND MERCHANTS CORPORATION
(Registrant)
Date August 15, 1994 /s/ Waymon L. Hickman
Waymon L. Hickman,
President
(Chief Executive Officer)
Date August 15, 1994 /s/ Patricia N. McClanahan
Patricia N. McClanahan,
Treasurer
(Principal Accounting Officer)
15
