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, 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
816 South Garden Street
Columbia, Tennessee 38402 - 1148
(Addres 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, 1995. 1,400,000 shares
This filing contains 10 pages.
<PAGE>
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, 1995, are as follows:
Consolidated balance sheets - June 30, 1995, and December 31,
1994.
Consolidated statements of income - For the three months and
six months ended June 30, 1995, and June 30, 1994.
Consolidated statements of cash flows - For the six months
ended June 30, 1995, and June 30, 1994.
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 and DECEMBER 31, 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 23,345,140 $ 26,735,526
Federal funds sold - -
Securities
Available for sale (amortized cost $11,117,128
and $12,646,156 respectively) 11,192,428 12,565,226
Held to maturity (fair value $132,086,088 and
$138,892,331 respectively) 131,520,698 143,061,031
Total securities 142,713,126 155,626,257
Loans, net of unearned income 280,288,137 262,694,120
Allowance for possible loan losses (2,630,466) (2,342,290)
Net loans 277,657,671 260,351,830
Bank premises and equipment, at cost less
allowance for depreciation and amortization 6,193,894 6,193,080
Other assets 10,926,843 11,887,492
TOTAL ASSETS $ 460,836,674 $ 460,794,185
LIABILITIES
Deposits
Noninterest-bearing $ 57,561,550 $ 61,845,878
Interest-bearing (including certificates of
deposit over $100,000: 1995 - $32,841,057;
1994 - $26,169,831) 349,094,761 343,306,545
Total deposits 406,656,311 405,152,423
Federal funds purchased 2,400,000 7,000,000
Dividends payable 602,000 574,000
Accounts payable and accrued liabilities 4,912,106 4,239,636
TOTAL LIABILITIES 414,570,417 416,966,059
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 32,221,077 29,876,683
Net unrealized loss on available-for-sale
securities, net of tax 45,180 (48,557)
TOTAL STOCKHOLDERS' EQUITY 46,266,257 43,828,126
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,836,674 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans $ 6,415,087 $ 5,133,008 $ 12,411,304 $ 9,966,101
Interest on investment securities
Taxable interest
Available-for-sale 121,034 424,424 253,988 857,052
Held-to-maturity 1,470,362 1,451,301 2,973,535 2,755,056
Exempt from federal income tax 535,627 538,480 1,079,887 1,069,416
Dividends 59,098 92,437 94,185 125,268
2,186,121 2,506,642 4,401,595 4,806,792
Other interest income 39,561 25,199 72,098 68,849
TOTAL INTEREST INCOME 8,640,769 7,664,849 16,884,997 14,841,742
INTEREST EXPENSE
Interest on deposits 3,802,293 3,130,081 7,400,623 6,107,841
Interest on other short term
borrowings 54,301 18,229 110,456 26,481
TOTAL INTEREST EXPENSE 3,856,594 3,148,310 7,511,079 6,134,322
NET INTEREST INCOME 4,784,175 4,516,539 9,373,918 8,707,420
PROVISION FOR POSSIBLE LOAN LOSSES 140,000 255,000 285,000 315,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,644,175 4,261,539 9,088,918 8,392,420
NONINTEREST INCOME
Trust department income 310,747 312,174 669,419 552,496
Service charges on deposits
accounts 667,212 608,715 1,267,060 1,156,763
Other service charges, commissions,
and fees 55,518 81,000 109,573 215,591
Other operating income 73,519 66,937 165,670 155,071
Investment securities gains (losses) 0 (78,281) (2,348) (68,585)
TOTAL NONINTEREST INCOME 1,106,996 990,545 2,209,374 2,011,336
NONINTEREST EXPENSES
Salaries and employee benefits 1,633,842 1,535,336 3,238,464 3,043,388
Net occupancy expense 291,736 308,523 594,580 626,476
Furniture and equipment expense 395,437 239,224 673,622 477,922
Loss on other real estate 50,724 4,000 50,724 4,000
Other operating expenses 1,282,852 1,157,490 2,692,084 2,374,311
TOTAL NONINTEREST EXPENSES 3,654,591 3,244,573 7,249,474 6,526,097
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,096,580 2,007,511 4,048,818 3,877,659
PROVISION FOR INCOME TAXES 589,977 566,493 1,102,425 1,095,131
NET INCOME $ 1,506,603 $ 1,441,018 $ 2,946,393 $ 2,782,528
EARNINGS PER COMMON SHARE
(1,400,000 outstanding shares) $ 1.08 $ 1.03 $ 2.10 $ 1.99
</TABLE>
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,946,393 $ 2,782,528
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over
net charge offs 288,175 116,437
Provision for depreciation and
amortization of premises and
equipment 298,962 265,978
Amortization of deposit base
intangibles 84,010 84,010
Amortization of investment security
premiums, net of accretion of
discounts 181,912 395,362
Increase in cash surrender value of
life insurance contracts (33,857) (57,422)
Deferred income taxes (95,434) (86,411)
(Increase) decrease in
Interest receivable (15,648) (470,159)
Other assets 1,115,315 1,614,759
Increase (decrease) in
Interest payable 407,310 31,953
Other liabilities 265,160 463,428
TOTAL ADJUSTMENTS 2,495,905 2,357,935
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,442,298 5,140,463
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 7,044,872 5,125,537
Proceeds from maturities and calls of
held-to-maturity securities 10,751,992 7,265,000
Purchases of investment securities
Available-for-sale (3,118,400) (1,033,500)
Held-to-maturity (1,947,244) (28,876,161)
Net increase in loans (17,594,016) (5,974,620)
Purchases of premises and equipment (299,776) (296,281)
NET CASH USED BY INVESTING
ACTIVITIES (5,162,572) (23,790,025)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 1,503,888 19,876,172
Net increase (decrease) in short term
borrowings (4,600,000) 1,190,958
Cash dividends (574,000) (525,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES (3,670,112) 20,542,130
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,390,386) 1,892,568
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 26,735,526 23,042,168
CASH AND CASH EQUIVALENTS AT END OF
YEAR $ 23,345,140 $ 24,934,736
</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
footnotes 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
six months of 1995 compared to $449 million at the end of the
first six months of 1994. Period-end assets were $460.8 million
compared to $460.7 million at December 31, 1994, and $456.4 at
June 30, 1994. The following sections analyze the average
balance sheet and the major components of the period-end balance
sheet.
SECURITIES
At June 30, 1995, the Corporation's investment securities
portfolio had $11.2 million available-for-sale securities and
$131.5 million held-to-maturity securities. This compares to
$12.5 and $24.5 million available-for-sale securities and $143.0
and $142.6 million held-to-maturity securities at December 31,
1994, and June 30, 1994, respectively. The liquidity portion of
the current portfolio, $11.2 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 $75 thousand at June
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 same percent as it was at year end but down from
15% of the portfolio at the end of the second quarter last year.
The liquidity portion of the current securities portfolio has
declined during the first two quarters of 1995 because those
funds were used to fund expanding loan growth in the expanded
service area.
LOANS
The average loan portfolio of the Corporation's subsidiary
increased $20.9 million or 8.5% in the first six months of 1995
compared to a $9.3 million or 4.0% increase in the first six
months of 1994. This growth reflects the expanded loan demand
in the service area. Commercial loans posted the largest
increase, 16.4% during the first two quarters of 1995 and 23.0%
since June 30, 1994. Personal loans increased 11.1% during the
first two quarters of 1995 and 13.8% since June 30, 1994, while
loans secured by real estate posted a 5.9% growth for the first
six months of 1995 and 7.1% growth since June 30, 1994.
The Corporation's subsidiary loan review function and Special
Assets Committee reviewed approximately 32% of the average
dollar value of the loan portfolio during the first six months
of 1995. After this review, loans totaling $5.5 million, 2.0%
of the portfolio, were classified as other assets especially
mentioned at June 30, 1995, which is up from the $3.9 million so
classified at December 31, 1994. Loans totaling $6.1 million,
2.3% of the portfolio, were classified as substandard at June
30, 1995, compared to $12.5 million so classified at December
31, 1994.
<PAGE>
Loans totaling $5.2 million, 1.9% of the portfolio,
were classified as doubtful at June 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 $5.3
million, 2.0% of the total portfolio, were nonperforming at the
end of the first six months of 1995 compared to $2.6 million and
$1.1 million at December 31, 1994 and June 30, 1994,
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 $408.1
million for the first six months of 1995 compared to $404.4 and
$403.9 for the year ended December 31, 1994 and for the first
six months of 1994, respectively. Short and medium term rate
increases caused depositors to move money from interest-bearing
checking accounts, which decreased 6.8% during the first half of
1995, to longer term interest-bearing products like
certificates. Certificates of deposit under $100,000 increased
5.0% and certificates of deposit over $100,000 increased 22.7%
during the first half of 1995.
CAPITAL
Average shareholders' equity was $45.5 million at June 30,
1995, compared to $40.1 million at June 30, 1994, an increase of
13.5%. Average shareholders' equity increased 8.8% during the
first six months of 1995 compared to an increase of 8.6% during
the first six months of 1994. Most of the capital needs of the
Corporation's subsidiary bank have historically been financed
through internal growth.
At June 30, 1995, the Corporation had an equity capital to
asset ratio of 9.9% compared to a 9.3% ratio at December 31,
1994 and an 9.1% ratio at June 30, 1994. At the close of the
first six months of 1995, additional dividends of approximately
$11 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, 1995, the
Bank's risk-based core and total capital ratios were 16.1% and
17.1% respectively. The comparable ratios were 16.2% and 17.1%
at year end, 1994. At June 30, 1995, the Bank had a
<PAGE>
ratio of average core capital to average total assets of 9.7% compared to
9.0% at December 31, 1994.
Material Changes in Results of Operations
During the first six months of 1995, the Corporation's
consolidated income totaled $2.9 million compared to $2.8
million for the first six months of 1994. The Corporation's
total interest income during the first six months of 1995 was
$16.9 million compared to $14.8 million during the first six
months of 1994. This was a increase of 13.8%. Loan income was
up 24.5%, while investment income showed a decrease of 8.2%.
Interest expense increased 22.4% during the first six months of
1995. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the six
months ended June 30, 1995, was 4.8%, compared to 4.6% for the
corresponding period in 1994.
The provision for loan losses was $285,000 for the first six
months of 1995 compared to $315,000 for the first six months of
1994, which was a 9.5% 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". Recoveries of $178 thousand
exceeded charge offs of $168 thousand for the first six months
of 1995, compared to net charge offs of $198 thousand for the
first six 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.
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
first half of 1995 amounted to $54 thousand. 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 June 30, 1995, and total $534 thousand which compares
to $545 thousand and $556 thousand at December 31, 1994, and
June 30, 1994, respectively.
Non-interest income increased 9.9% during the first six months
of 1995 compared to the same period of 1994. Fee income from
providing fiduciary services is included in this total and
increased over 21%. Non-interest expense increased 11.1% during
the first six months of 1995 compared to the same period of
1994. The largest increase was in furniture and equipment
expense which increased 40.9%.
<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 August 10, 1995
/s/ Waymon L. Hickman
Waymon L. Hickman,
President
(Chief Executive Officer)
Date August 10, 1995
/s/ Patricia N. McClanahan
Patricia N. McClanahan,
Treasurer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 23,344,678
<INT-BEARING-DEPOSITS> 462
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,192,428
<INVESTMENTS-CARRYING> 131,520,698
<INVESTMENTS-MARKET> 132,086,088
<LOANS> 280,288,137
<ALLOWANCE> (2,630,466)
<TOTAL-ASSETS> 460,836,674
<DEPOSITS> 406,656,311
<SHORT-TERM> 2,400,000
<LIABILITIES-OTHER> 5,514,106
<LONG-TERM> 0
<COMMON> 14,000,000
0
0
<OTHER-SE> 32,266,257
<TOTAL-LIABILITIES-AND-EQUITY> 460,836,674
<INTEREST-LOAN> 12,411,305
<INTEREST-INVEST> 4,401,594
<INTEREST-OTHER> 72,098
<INTEREST-TOTAL> 16,884,997
<INTEREST-DEPOSIT> 7,400,623
<INTEREST-EXPENSE> 7,511,079
<INTEREST-INCOME-NET> 9,373,918
<LOAN-LOSSES> 285,000
<SECURITIES-GAINS> (2,348)
<EXPENSE-OTHER> 2,692,084
<INCOME-PRETAX> 4,048,818
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,946,393
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.21
<LOANS-NON> 5,322,979
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,342,290
<CHARGE-OFFS> 159,181
<RECOVERIES> 162,356
<ALLOWANCE-CLOSE> 2,630,466
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
