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 September 30, 1995
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 organ-
ization)
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 September 30, 1995. 1,400,000 shares
This filing contains 11 pages.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited consolidated financial statements of
the registrant and its subsidiary for the nine months ended
September 30, 1995, are as follows:
Consolidated balance sheets - September 30, 1995, and December
31, 1994
Consolidated statements of income - For the three months and
nine months ended September 30, 1995, and September 30, 1994
Consolidated statements of cash flows - For the nine months
ended September 30, 1995, and September 30, 1994
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 and DECEMBER 31, 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 23,214,903 $ 26,735,526
Federal funds sold - -
Securities
Available for sale (amortized
cost $10,960,928 and
$12,646,156 respectively) 11,050,948 12,565,226
Held to maturity (fair value
$129,826,110 and $138,892,331
respectively) 128,696,976 143,061,031
Total securities 139,747,924 155,626,257
Loans, net of unearned income 287,152,888 262,694,120
Allowance for possible loan losses (2,612,572) (2,342,290)
Net loans 284,540,316 260,351,830
Bank premises and equipment, at cost
less allowance for depreciation
and amortization 6,221,955 6,193,080
Other assets 11,294,500 11,887,492
TOTAL ASSETS $ 465,019,598 $ 460,794,185
LIABILITIES
Deposits
Noninterest-bearing $ 59,565,599 $ 61,845,878
Interest-bearing (including
certificates of deposit over
$100,000: 1995 - $34,055,940;
1994 - $26,169,831) 350,689,333 343,306,545
Total deposits 410,254,932 405,152,423
Federal funds purchased 1,800,000 7,000,000
Dividends payable 0 574,000
Accounts payable and accrued
liabilities 5,199,039 4,239,636
TOTAL LIABILITIES 417,253,971 416,966,059
STOCKHOLDERS' EQUITY
Common stock - $10 par value,
authorized 4,000,000 shares;
1,400,000 shares issued and
outstanding 14,000,000 14,000,000
Retained earnings 33,711,614 29,876,683
Net unrealized loss on available-for-
sale securities, net of tax 54,013 (48,557)
TOTAL STOCKHOLDERS' EQUITY 47,765,627 43,828,126
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 465,019,598 $ 460,794,185
UNAUDITED (A)
<FN>
<F1>
(A) The Consolidated Balance Sheet at December 31, 1994, has
been taken from the audited financial statements at that date.
</FN>
</TABLE>
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans $ 6,619,392 $ 5,327,183 $ 19,030,696 $ 15,293,284
Interest on investment securities
Taxable interest
Available-for-sale 141,051 354,355 395,039 865,120
Held-to-maturity 1,370,750 1,503,464 4,344,285 4,604,808
Exempt from federal income tax 539,137 554,009 1,619,024 1,623,424
Dividends 41,895 35,945 136,080 161,213
2,092,833 2,447,773 6,494,428 7,254,565
Other interest income 7,987 25,451 80,085 94,300
TOTAL INTEREST INCOME 8,720,212 7,800,407 25,605,209 22,642,149
INTEREST EXPENSE
Interest on deposits 3,897,170 3,248,157 11,297,793 9,355,998
Interest on other short term
borrowings 41,430 24,060 151,886 50,540
TOTAL INTEREST EXPENSE 3,938,600 3,272,217 11,449,679 9,406,538
NET INTEREST INCOME 4,781,612 4,528,190 14,155,530 13,235,611
PROVISION FOR POSSIBLE LOAN LOSSES 180,000 225,000 465,000 540,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,601,612 4,303,190 13,690,530 12,695,611
NONINTEREST INCOME
Trust department income 256,724 252,292 926,143 804,787
Service charges on deposits accounts 682,633 585,239 1,949,693 1,742,001
Other service charges, commissions,
and fees 100,732 59,822 210,305 275,414
Other operating income 83,437 87,608 249,107 242,679
Investment securities gains (losses) 3,530 (161,012) 1,182 (229,598)
TOTAL NONINTEREST INCOME 1,127,056 823,949 3,336,430 2,835,283
NONINTEREST EXPENSES
Salaries and employee benefits 1,669,796 1,534,157 4,908,260 4,577,545
Net occupancy expense 316,028 302,501 910,608 928,976
Furniture and equipment expense 324,315 245,704 997,937 723,626
Loss on other real estate 0 0 50,724 4,000
Other operating expenses 1,247,383 1,218,211 3,939,467 3,592,522
TOTAL NONINTEREST EXPENSES 3,557,522 3,300,573 10,806,996 9,826,669
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,171,146 1,826,566 6,219,964 5,704,225
PROVISION FOR INCOME TAXES 680,609 508,942 1,783,034 1,604,073
NET INCOME $ 1,490,537 $ 1,317,624 $ 4,436,930 $ 4,100,152
EARNINGS PER COMMON SHARE
(1,400,000 outstanding shares) $ 1.06 $ 0.94 $ 3.17 $ 2.93
</TABLE>
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 4,436,930 $ 4,100,152
Adjustments to reconcile net income to net
cash provided by operating activities
Excess (deficiency) of provision for
possible loan losses over net charge offs 270,282 261,304
Provision for depreciation and amortization
of premises and equipment 484,654 398,968
Amortization of deposit base intangibles 126,015 126,015
Amortization of investment security premiums,
net of accretion of discounts 313,505 436,416
Increase in cash surrender value of life
insurance contracts (50,785) (67,759)
Deferred income taxes (106,248) (133,969)
(Increase) decrease in
Interest receivable (396,882) (781,218)
Other assets 1,123,463 1,414,095
Increase (decrease) in
Interest payable 260,517 (15,206)
Other liabilities 698,886 761,666
TOTAL ADJUSTMENTS 2,723,407 2,400,312
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,160,337 6,500,464
INVESTING ACTIVITIES
Proceeds from maturities, calls, and sales of
available-for-sale securities 7,210,554 16,586,963
Proceeds from maturities and calls of
held-to-maturity securities 14,748,992 7,358,830
Purchases of investment securities
Available-for-sale (3,143,100) (1,033,500)
Held-to-maturity (3,251,618) (29,740,043)
Net increase in loans (24,458,768) (11,429,030)
Purchases of premises and equipment (513,529) (316,840)
NET CASH USED BY INVESTING ACTIVITIES (9,407,469) (18,573,620)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 5,102,509 8,960,664
Net increase (decrease) in short term
borrowings (5,200,000) 5,390,958
Cash dividends (1,176,000) (1,071,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,273,491) 13,280,622
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,520,623) 1,207,466
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,735,526 23,042,168
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,214,903 $ 24,249,634
</TABLE>
<PAGE>
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
foornotes included in the Corporation's annual report on Form
10-K for the year ended December 31, 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
Material Changes in Financial Condition
Average total assets were $462 million at the end of the first
nine months of 1995 compared to $452 million at the end of the
first nine months of 1994. Period-end assets were $465 million
compared to $460.7 million at December 31, 1994, and $450.7 at
September 30, 1994. The following sections analyze the average
balance sheet and the major components of the period-end balance
sheet.
SECURITIES
At September 30, 1995, the Corporation's investment securities
portfolio had $11.1 million available-for-sale securities and
$128.7 million held-to-maturity securities. This compares to
$12.5 and $13.6 million available-for-sale securities and $143.0
and $142.8 million held-to-maturity securities at December 31,
1994, and September 30, 1994, respectively. The liquidity
portion of the current portfolio, $11.1 million or 8% 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
gains on available-for-sale securities were $90 thousand at
September 30, 1995. The management of the Corporation's
subsidiary bank has the positive intent and ability to hold to
maturity the 92% balance of the portfolio and these securities
are reported at amortized cost. The 8% liquidity portion of the
current portfolio is the same as it was at year end but down
slightly from 9% of the portfolio at the end of the third
quarter last year. The liquidity portion of the current
securities portfolio has declined during the first three
quarters of 1995 because those funds were used to fund expanding
loan growth.
LOANS
The average loan portfolio of the Corporation's subsidiary
increased $25 million or 10.1% in the first nine months of 1995
compared to an $11.7 million or 5% increase in the first nine
months of 1994. This growth reflects the expanded loan demand
in the service area. Commercial loans posted the largest
increase, 19.1% during the first three quarters of 1995.
Personal loans increased 13.9% during the first three quarters
of 1995, while loans secured by real estate posted a 7% growth
for the first nine months of 1995.
The Corporation's subsidiary loan review function and Special
Assets Committee reviewed approximately 50% of the average
dollar value of the loan portfolio during the first nine months
of 1995. After this review, loans totaling $2.4 million, .8% of
the portfolio, were classified as other assets especially
mentioned at September 30, 1995, which is down from the $3.9
million so classified at December 31, 1994. Loans totaling
$10.1 million, 3.5% of the portfolio, were
<PAGE>
classified as substandard at September 30, 1995, compared to
$12.5 million so classified at December 31, 1994. Loans totaling
$2.8 million, 1% of the portfolio, were classified as doubtful at
September 30, 1995, compared to $.9 million at December 31, 1994.
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 $5.5 million, 2% of the total
portfolio, were nonperforming at the end of the first nine
months of 1995 compared to $2.6 million at December 31, 1994.
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 $408.4
million for the first nine months of 1995 compared to $404.4 and
$404.7 for the year ended December 31, 1994 and for the first
nine months of 1994, respectively. Short and medium term rate
increases prompted depositors to move money out of interest-bearing
checking accounts which resulted in the average transaction
interest-bearing deposits to decrease 13.2% during the first
three quarters of 1995 while longer term interest-bearing
products like certificates showed increases. Certificates of
deposit under $100,000 increased 6.5% and certificates of
deposit over $100,000 increased 23.9% during the first three
quarters of 1995.
CAPITAL
Average shareholders' equity was $46.1 million at September
30, 1995, compared to $41.8 million at December 31, 1994, an
increase of 10.2%. This compares to an increase of 9.9% during
the first nine months of 1994. Most of the capital needs of the
Corporation's subsidiary bank have historically been financed
through internal growth.
At September 30, 1995, the Corporation had an equity capital to
asset ratio of 10.0% compared to a 9.3% ratio at December 31,
1994 and an 9.1% ratio at September 30, 1994. At the close of
the first nine months of 1995, additional dividends of
approximately $12.5 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
<PAGE>
capital ratio of 10%, and a core capital to
average total assets ratio of 5%. As of September 30, 1995,
the Bank's core and total risk-based ratios were 16.9% and 17.8%
respectively. The comparable ratios were 16.2% and 17.1% at
year end, 1994. At September 30, 1995, the Bank had a ratio of
average core capital to average total assets of 9.8% compared to
9.0% at December 31, 1994.
Material Changes in Results of Operations
During the first nine months of 1995, the Corporation's
consolidated income totaled $4.4 million compared to $4.1
million for the first nine months of 1994. The Corporation's
total interest income during the first nine months of 1995 was
$25.6 million compared to $22.6 million during the first nine
months of 1994. This was an increase of 13.1%. Loan income was
up 24.4%, while investment income showed a decrease of 10.5%.
Maturities and sales of securities have been a source of funds
for the strong loan growth discussed earlier.
Interest expense increased 21.7% during the first nine months
of 1995. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the
nine months ended September 30, 1995, was 4.8%, compared to 4.7%
at December 31, 1994, and 4.6% for the corresponding period in
1994.
The provision for loan losses was $465,000 for the first nine
months of 1995 compared to $540,000 for the first nine months of
1994, which was a 13.9% 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 governed by the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS
114/118), "Accounting for Impaired Loans". Charge offs of $394
thousand exceeded recoveries of $199 thousand resulting in net
charge offs of $195 thousand for the first nine months of 1995,
compared to net charge offs of $279 thousand for the first nine
months of 1994. 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.
There were no write downs of other real estate associated with
declines in real estate values subsequent to foreclosure and
disposition of the properties at less than their carrying value
during the third quarter of 1995. 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 or fair value
minus cost to sell. 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 September 30, 1995, and total $500 thousand which
compares to $545 thousand and $556 thousand at December 31,
1994, and September 30, 1994, respectively.
Non-interest income increased 17.7% during the first nine
months of 1995 compared to the same period of 1994. Fee income
from providing fiduciary services is included in this total
<PAGE>
and increased over 15% Non-interest expense increased 9.9% during
the first nine months of 1995 compared to the same period of
1993. The largest increase was in furniture and equipment
expense which increased 37.9% and includes expenses related to
the new data processing and communication network technology
upgrade completed in the last quarter of 1994.
<PAGE>
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 November 10, 1995 /s/ Waymon L. Hickman
Waymon L. Hickman,
President
(Chief Executive Officer)
Date November 10, 1995 /s/ Patricia N. McClanahan
Patricia N. McClanahan,
Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 22,214,430
<INT-BEARING-DEPOSITS> 471
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,050,948
<INVESTMENTS-CARRYING> 128,696,976
<INVESTMENTS-MARKET> 129,826,110
<LOANS> 287,152,888
<ALLOWANCE> (2,612,572)
<TOTAL-ASSETS> 465,019,598
<DEPOSITS> 410,254,932
<SHORT-TERM> 1,800,000
<LIABILITIES-OTHER> 5,199,039
<LONG-TERM> 0
<COMMON> 14,000,000
0
0
<OTHER-SE> 33,765,627
<TOTAL-LIABILITIES-AND-EQUITY> 465,019,598
<INTEREST-LOAN> 19,030,696
<INTEREST-INVEST> 6,494,428
<INTEREST-OTHER> 80,085
<INTEREST-TOTAL> 25,605,209
<INTEREST-DEPOSIT> 11,297,793
<INTEREST-EXPENSE> 11,449,679
<INTEREST-INCOME-NET> 14,155,530
<LOAN-LOSSES> 465,000
<SECURITIES-GAINS> 1,182
<EXPENSE-OTHER> 3,939,467
<INCOME-PRETAX> 6,219,964
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,436,930
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.37
<LOANS-NON> 5,492,556
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,342,290
<CHARGE-OFFS> 393,783
<RECOVERIES> 199,065
<ALLOWANCE-CLOSE> 2,614,572
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
