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 March 31, 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 of
incorporation or organization) (I.R.S. Employer Identification No.)
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 March 31, 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 three months ended
March 31, 1995, are as follows:
Consolidated balance sheets - March 31, 1995, and December 31,
1994.
Consolidated statements of income - For the three months ended
March 31, 1995, and March 31, 1994.
Consolidated statements of cash flows - For the three months
ended March 31, 1995, and March 31, 1994.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 and DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 25,065,698 $ 26,735,526
Federal funds sold 6,750,000 -
Securities
Available for sale (amortized cost
$7,052,011 and $12,646,156 respectively ) 6,959,434 12,565,226
Held to maturity (fair value $137,882,175
and $138,892,331 respectively) 139,520,229 143,061,031
Total securities 146,479,663 155,626,257
Loans, net of unearned income 270,891,568 262,694,120
Allowance for possible loan losses (2,523,486) (2,342,290)
Net loans 268,368,082 260,351,830
Bank premises and equipment, at cost less
allowance for depreciation and amortization 6,216,985 6,193,080
Other assets 11,711,064 11,887,492
TOTAL ASSETS $ 464,591,492 $ 460,794,185
LIABILITIES
Deposits
Noninterest-bearing $ 61,338,076 $ 61,845,878
Interest-bearing (including certificates
of deposit over $100,000:
1995 - $35,122,549; 1994 - $26,169,831) 352,885,826 343,306,545
Total deposits 414,223,902 405,152,423
Federal funds purchased - 7,000,000
Dividends payable - 574,000
Accounts payable and accrued liabilities 5,106,663 4,239,636
TOTAL LIABILITIES 419,330,565 416,966,059
COMMITMENTS AND CONTINGENCIES
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 31,316,473 29,876,683
Net unrealized loss on available-for-sale
securities, net of tax (55,546) (48,557)
TOTAL STOCKHOLDERS' EQUITY 45,260,927 43,828,126
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 464,591,492 $ 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>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1995 1994
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 5,996,217 $ 4,833,093
Interest on investment securities
Taxable interest
Available-for-sale 132,954 432,628
Held-to-maturity 1,503,173 1,303,755
Exempt from federal income tax 544,260 530,936
Dividends 35,087 32,831
2,215,474 2,300,150
Other interest income 32,537 43,650
TOTAL INTEREST INCOME 8,244,228 7,176,893
INTEREST EXPENSE
Interest on deposits 3,598,330 2,977,760
Interest on other short term borrowings 56,155 8,252
TOTAL INTEREST EXPENSE 3,654,485 2,986,012
NET INTEREST INCOME 4,589,743 4,190,881
PROVISION FOR POSSIBLE LOAN LOSSES 145,000 60,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,444,743 4,130,881
NONINTEREST INCOME
Trust department income 358,672 240,322
Service charges on deposits accounts 599,848 548,048
Other service charges, commissions, and fees 54,055 134,592
Other operating income 92,151 88,134
Investment securities gains (losses) (2,348) 9,695
TOTAL NONINTEREST INCOME 1,102,378 1,020,791
NONINTEREST EXPENSES
Salaries and employee benefits 1,604,622 1,508,052
Net occupancy expense 302,844 317,953
Furniture and equipment expense 278,185 238,698
Other operating expenses 1,409,232 1,216,822
TOTAL NONINTEREST EXPENSES 3,594,883 3,281,525
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,952,238 1,870,147
PROVISION FOR INCOME TAXES 512,448 528,638
NET INCOME $ 1,439,790 $ 1,341,509
EARNINGS PER COMMON SHARE
(1,400,000 outstanding shares) $ 1.03 $ 0.96
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,439,790 $ 1,341,508
Adjustments to reconcile net income to net
cash provided by operating activities
Excess (deficiency) of provision for possible
loan losses over net charge offs 181,196 41,858
Provision for depreciation and amortization of
premises and equipment 145,893 132,989
Amortization of deposit base intangibles 42,005 42,005
Amortization of investment security premiums,
net of accretion of discounts 186,428 23,637
Increase in cash surrender value of life insurance
contracts (16,928) (31,863)
Deferred income taxes (70,805) 30,050
(Increase) decrease in
Interest receivable (80,101) (450,865)
Other assets 295,268 1,274,869
Increase (decrease) in
Interest payable 331,357 56,897
Other liabilities 535,670 533,101
TOTAL ADJUSTMENTS 1,549,983 1,652,678
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,989,773 2,994,186
INVESTING ACTIVITIES
Proceeds from maturities, calls, and sales of
available-for-sale securities 8,039,866 -
Proceeds from maturities and calls of
held-to-maturity securities 1,155,000 3,973,153
Purchases of investment securities
Available-for-sale (34,700) -
Held-to-maturity (200,000) (14,283,732)
Net increase in loans (8,197,448) (985,105)
Purchases of premises and equipment (169,798) (213,786)
NET CASH USED BY INVESTING ACTIVITIES 592,920 (11,509,470)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 9,071,479 20,414,374
Net increase (decrease) in short term borrowings (7,000,000) (109,042)
Cash dividends (574,000) (525,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,497,479 19,780,332
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,080,172 11,265,048
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,735,526 23,042,168
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 31,815,698 $ 34,307,216
</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 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 $458 million at the end of the first
three months of 1995 compared to $442 million at the end of the
first three months of 1994. Period-end assets were $464.5
million compared to $460.7 million at December 31, 1994, and
$454.3 at March 31, 1994. The following sections analyze the
average balance sheet and the major components of the period-end
balance sheet.
SECURITIES
At March 31, 1995, the Corporation's investment securities
portfolio had $6.9 million available-for-sale securities and
$139.5 million held-to-maturity securities. This compares to
$12.5 and $26.7 million available-for-sale securities and $143.0
and $133.6 million held-to-maturity securities at December 31,
1994, and March 31, 1994, respectively. The liquidity portion
of the current portfolio, $6.9 million or 5% 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 available-for-sale securities were $89 thousand at
March 31, 1995. The management of the Corporation's subsidiary
bank has the positive intent and ability to hold to maturity the
95% balance of the portfolio and these securities are reported
at amortized cost. The 5% liquidity portion of the current
portfolio is down from 8% of the portfolio at year end and 17%
of the portfolio at the end of the first quarter last year. The
liquidity portion of the current securities portfolio has
declined during the first quarter of 1995 because those funds
were used to fund expanding loan growth.
LOANS
The average loan portfolio of the Corporation's subsidiary
increased $16.1 million or 6.5% in the first three months of
1995 compared to a $7.9 million or 3.4% increase in the first
three months of 1994. This growth reflects the expanded loan
demand in the service area. Commercial loans posted the largest
increase, 13.8% during the first quarter of 1995 and 25.0% since
March 31, 1994. Personal loans increased 6.9% during the first
quarter of 1995 and 11.3% since March, 1994, while loans secured
by real estate posted a 4.6% growth for the first three months
of 1995 and 5.6% growth since March, 1994.
The Corporation's subsidiary loan review function and Special
Assets Committee reviewed approximately 7% of the average
dollar value of the loan portfolio during the first three months
of 1995. After this review, loans totaling $4.8 million, 1.8%
of the portfolio, were classified as other assets especially
mentioned at March 31, 1995, which is up from the $3.9 million
so classified at December 31, 1994. Loans totaling $10.4
million, 3.9% of the portfolio, were classified as substandard
at March 31, 1995, compared to $12.5 million so classified at
December
<PAGE>
31, 1994. Loans totaling $.5 million, .2% of the
portfolio, were classified as doubtful at March 31, 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 $2.1 million, .8% of the total
portfolio, were nonperforming at the end of the first three
months of 1995 compared to $2.6 million and $2.0 million at
December 31, 1994 and March 31, 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 $406.1
million for the first three months of 1995 compared to $404.4
and $398.4 for the year ended December 31, 1994 and for the first
three months of 1994, respectively. Short and medium term rate
increases caused depositors to move money from interest-bearing
checking accounts which decreased 4.6% during the first quarter
of 1995 to longer term interest-bearing products like certificates.
Certificates of deposit under $100,000 increased 2.6% and certificates
of deposit over $100,000 increased 22.8% during the first quarter
of 1995.
CAPITAL
Average shareholders' equity was $44.8 million at March 31,
1995, compared to $40.0 million at March 31, 1994, an increase
of 12.0%. Average shareholders' equity increased 7.1% during
the first three months of 1995 compared to an increase of 6.8%
during the first three months of 1994. Most of the capital
needs of the Corporation's subsidiary bank have historically
been financed through internal growth.
At March 31, 1995, the Corporation had an equity capital to
asset ratio of 9.8% compared to a 9.3% ratio at December 31,
1994 and an 9.0% ratio at March 31, 1994. At the close of the
first three months of 1995, additional dividends of
approximately $10.1 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 March 31, 1995, the
Bank's core and total risk-based ratios were 16.2% and 17.1%
respectively. The comparable ratios were 16.2% and 17.1% at
year end, 1994. At March 31, 1995, the Bank had a
<PAGE>
ratio of average core capital to average total assets of 9.5% compared to
9.0% at December 31, 1994.
Material Changes in Results of Operations
During the first three months of 1995, the Corporation's
consolidated income totaled $1.4 million compared to $1.3
million for the first three months of 1994. The Corporation's
total interest income during the first three months of 1995 was
$8.2 million compared to $7.2 million during the first three
months of 1994. This was a increase of 14.9%. Loan income was
up 24.1%, while investment income showed a decrease of 4.1%.
Interest expense increased 22.4% during the first three months
of 1995. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the
three months ended March 31, 1995, was 4.7%, compared to 4.4%
for the corresponding period in 1994.
The provision for loan losses was $145,000 for the first three
months of 1995 compared to $60,000 for the first three months of
1994, which was a 141.7% increase. 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 $99
thousand exceeded charge offs of $62 thousand for the first
three months of 1995, compared to net charge offs of $21
thousand for the first three 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 first 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 March 31, 1995, and total $555 thousand which compares
to $545 thousand and $561 thousand at December 31, 1994, and
March 31, 1994, respectively.
Non-interest income increased 8.0% during the first three
months of 1995 compared to the same period of 1994. Fee income
from providing fiduciary services is included in this total and
increased over 49%. Non-interest expense increased 9.6% during
the first three months of 1995 compared to the same period of
1993. The largest increase was in furniture and equipment
expense which increased 16.5%.
<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 May 8, 1995 /s/ Waymon L. Hickman
Waymon L. Hickman,
President
(Chief Executive Officer)
Date May 8, 1995 /s/ Patricia N. McClanahan
Patricia N. McClanahan,
Treasurer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 25,065,698
<INT-BEARING-DEPOSITS> 280
<FED-FUNDS-SOLD> 6,750,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,959,434
<INVESTMENTS-CARRYING> 139,520,229
<INVESTMENTS-MARKET> 137,882,175
<LOANS> 270,891,568
<ALLOWANCE> (2,523,486)
<TOTAL-ASSETS> 464,591,492
<DEPOSITS> 414,223,902
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,106,663
<LONG-TERM> 0
<COMMON> 14,000,000
0
0
<OTHER-SE> 31,260,927
<TOTAL-LIABILITIES-AND-EQUITY> 464,591,492
<INTEREST-LOAN> 5,996,217
<INTEREST-INVEST> 2,215,474
<INTEREST-OTHER> 32,537
<INTEREST-TOTAL> 8,244,228
<INTEREST-DEPOSIT> 3,598,330
<INTEREST-EXPENSE> 3,654,485
<INTEREST-INCOME-NET> 4,589,743
<LOAN-LOSSES> 145,000
<SECURITIES-GAINS> (2,348)
<EXPENSE-OTHER> 3,594,883
<INCOME-PRETAX> 1,952,238
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,439,790
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 8.13
<LOANS-NON> 2,078,784
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,342,290
<CHARGE-OFFS> 62,877
<RECOVERIES> 99,070
<ALLOWANCE-CLOSE> 2,523,486
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
