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, 1996
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, 1996. 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, 1996, are as follows:
Consolidated balance sheets - March 31, 1996, and December 31,
1995.
Consolidated statements of income - For the three months ended
March 31, 1996, and March 31, 1995.
Consolidated statements of cash flows - For the three months
ended March 31, 1996, and March 31, 1995.
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 and DECEMBER 31, 1995
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 23,502,980 $ 31,281,706
Securities
Available for sale (amortized cost
$40,191,550 and $10,875,527 respectively) 40,197,363 11,269,006
Held to maturity (fair value $117,151,666
and $128,829,961 respectively) 116,467,674 127,662,682
Total securities 156,665,037 138,931,688
Loans, net of unearned income 289,688,096 291,930,311
Allowance for possible loan losses (2,677,762) (2,678,386)
Net loans 287,010,334 289,251,925
Bank premises and equipment, at cost less
allowance for depreciation and amortization 6,541,107 6,397,936
Other assets 12,200,775 11,171,993
TOTAL ASSETS $ 485,920,233 $ 477,035,248
LIABILITIES
Deposits
Noninterest-bearing $ 58,477,553 $ 67,420,536
Interest-bearing (including certificates
of deposit over $100,000:
1996 - $35,086,133; 1995 - $30,593,803) 370,907,050 343,357,525
Total deposits 429,384,603 410,778,061
Federal funds purchased - 10,000,000
Dividends payable - 630,000
Accounts payable and accrued liabilities 6,063,838 6,630,712
TOTAL LIABILITIES 435,448,441 428,038,773
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 36,468,304 34,760,389
Net unrealized gain on available-for-sale
securities, net of tax 3,488 236,086
TOTAL STOCKHOLDERS' EQUITY 50,471,792 48,996,475
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 485,920,233 $ 477,035,248
UNAUDITED (A)
<FN>
<F1>
(A) The Consolidated Balance Sheet at December 31, 1995, 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>
March 31,
1996 1995
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,931,271 $ 5,996,217
Interest on investment securities
Taxable interest 1,478,864 1,636,127
Exempt from federal income tax 580,183 544,260
Dividends 37,951 35,087
2,096,998 2,215,474
Other interest income 23,955 32,537
TOTAL INTEREST INCOME 9,052,224 8,244,228
INTEREST EXPENSE
Interest on deposits 3,948,769 3,598,330
Interest on other short term borrowings 40,617 56,155
TOTAL INTEREST EXPENSE 3,989,386 3,654,485
NET INTEREST INCOME 5,062,838 4,589,743
PROVISION FOR POSSIBLE LOAN LOSSES 250,000 145,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,812,838 4,444,743
NONINTEREST INCOME
Trust department income 335,208 358,672
Service fees on deposits accounts 743,096 599,848
Other service fees and commissions 149,736 54,055
Other operating income 91,605 92,151
Investment securities gains (losses) - (2,348)
TOTAL NONINTEREST INCOME 1,319,645 1,102,378
NONINTEREST EXPENSES
Salaries and employee benefits 1,752,484 1,604,622
Net occupancy expense 271,894 302,844
Furniture and equipment expense 370,423 278,185
Other operating expenses 1,252,448 1,409,232
TOTAL NONINTEREST EXPENSES 3,647,249 3,594,883
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,485,234 1,952,238
PROVISION FOR INCOME TAXES 777,319 512,448
NET INCOME $ 1,707,915 $ 1,439,790
EARNINGS PER COMMON SHARE
(1,400,000 outstanding shares) $ 1.22 $ 1.03
</TABLE>
<PAGE>
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,707,915 $ 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 (624) 181,196
Provision for depreciation and amortization
of premises and equipment 163,911 145,893
Amortization of deposit base intangibles 42,005 42,005
Amortization of investment security premiums,
net of accretion of discounts 135,993 186,428
Increase in cash surrender value of life
insurance contracts (25,128) (16,928)
Deferred income taxes (19,815) (70,805)
(Increase) decrease in
Interest receivable (458,746) (80,101)
Other assets (412,031) 295,268
Increase (decrease) in
Interest payable 35,345 331,357
Other liabilities 750,284 535,670
TOTAL ADJUSTMENTS 211,194 1,549,983
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,919,109 2,989,773
INVESTING ACTIVITIES
Proceeds from maturities, calls, and sales of
available-for-sale securities 15,405 8,039,866
Proceeds from maturities and calls of
held-to-maturity securities 14,298,000 1,155,000
Purchases of investment securities
Available-for-sale (29,356,073) (34,700)
Held-to-maturity (3,214,341) (200,000)
Net (increase) decrease in loans 2,242,215 (8,197,448)
Purchases of premises and equipment (307,082) (169,798)
NET CASH USED BY INVESTING ACTIVITIES (16,321,876) 592,920
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing
and interest-bearing deposits 18,606,541 9,071,479
Net increase (decrease) in short term
borrowings (11,352,500) (7,000,000)
Cash dividends (630,000) (574,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,624,041 1,497,479
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (7,778,726) 5,080,172
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,281,706 26,735,526
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,502,980 $ 31,815,698
</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, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
Material Changes in Financial Condition
Average total assets were $477 million at the end of the first
three months of 1996 compared to $458 million at the end of the
first three months of 1995. Period-end assets were $485.9
million compared to $477.0 million at December 31, 1995, and
$464.5 at March 31, 1995. The following sections analyze the
average balance sheet and the major components of the period-end
balance sheet.
SECURITIES
At March 31, 1996, the Corporation's investment securities
portfolio had $40.2 million available-for-sale securities and
$116.4 million held-to-maturity securities. This compares to
$11.2 and $6.9 million available-for-sale securities and $127.6
and $139.5 million held-to-maturity securities at December 31,
1995, and March 31, 1995, respectively. The liquidity portion
of the current portfolio, $40.2 million or 26% 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 $4 thousand at March
31, 1996. The management of the Corporation's subsidiary bank
has the positive intent and ability to hold to maturity the 74%
balance of the portfolio and these securities are reported at
amortized cost. The 26% liquidity portion of the current
portfolio is up from 6% of the portfolio at year end and 5% of
the portfolio at the end of the first quarter last year. The
liquidity portion of the current securities portfolio has
increased during the first quarter of 1996 as a result of
placing current purchases in this category to replace funds that
were used to fund expanding loan growth during 1995.
LOANS
The average loan portfolio of the Corporation's subsidiary
increased $12.6 million or 4.6% in the first three months of
1996 compared to a $16.1 million or 6.5% increase in the first
three months of 1995. This growth reflects the consistent loan
demand in the service area. Commercial loans increased 10.7%
during the first quarter of 1996 compared to a 13.9% increase
the previous year. Personal loans increased 12.0% during the
first quarter of 1996 compared to a 6.9% increase last March,
while loans secured by real estate posted a .8% growth for the
first three months of 1996 compared to a 4.6% growth for the
first quarter of 1995.
The Corporation's subsidiary loan review function and Special
Assets Committee reviews lines of credit over $50,000. After
this review during the first quarter of 1996, loans totaling
$1.5 million, .5% of the portfolio, were classified as other
assets especially mentioned at March 31, 1996, which is down
from the $2.1 million so classified at December 31, 1995. Loans
totaling $12.2 million, 4.3% of the portfolio, were classified
as substandard at March 31, 1996, compared
<PAGE>
to $10.9 million so classified at December 31, 1995. Loans totaling
$1.3 million, .5% of the portfolio, were classified as doubtful at March 31,
1996, compared to $2.7 million at December 31, 1995. 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 having recorded investments of $6.5 million,
2.2% of the total portfolio, were identified as impaired at the
end of the first three months of 1996 compared to $5.9 and $6.0
million at December 31, 1995, March 31, 1995, respectively.
Prior to adoption of Statement of Financial Accounting Standards
No. 114 (SFAS 114, as amended by SFAS 118), "Accounting by
Creditors for Impairment of a Loan", nonperforming loans were
those which were accounted for on a non-accrual basis.
DEPOSITS
Average deposits of the Corporation's subsidiary were $420.1
million for the first three months of 1996 compared to $409.4
and $406.1 for the year ended December 31, 1995 and for the
first three months of 1995, respectively. Average transaction
and limited transaction interest bearing accounts grew during
the prior two years but declined in 1995 as investors took
advantage of higher certificate of deposit rates. The average
Chairman's Club, super negotiable orders of withdrawal, insured
money market deposits, and flexible investment accounts have
remained steady compared to year end averages that had
decreased 7.6 % compared to the prior year. Average savings
deposits actually declined .9% during the first quarter of 1996
compared to a 1.2% decline in 1995. Certificates of deposit
under $100,000 increased 4.8% and certificates of deposit over
$100,000 increased 7.7% during the first quarter of 1996.
CAPITAL
Average shareholders' equity was $49.9 million at March 31,
1996, compared to $44.8 million at March 31, 1995, an increase
of 11.5%. Average shareholders' equity increased 6.8% during
the first three months of 1996 compared to an increase of 7.1%
during the first three months of 1995. Most of the capital
needs of the Corporation's subsidiary bank have historically
been financed through internal growth.
At March 31, 1996, the Corporation had an equity capital to
asset ratio of 10.5% compared to a 10.1% ratio at December 31,
1995 and an 9.8% ratio at March 31, 1995. At the close of the
first three months of 1996, additional dividends of
approximately $11.0 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 March 31, 1996, the
Bank's core and total risk-based ratios were 16.5% and 17.4%
respectively. The comparable ratios were 16.8% and 17.7% at
year end, 1995. At March 31, 1996, the Bank had a ratio of
average core capital to average total assets of 10.4% compared
to 9.9% at December 31, 1995.
Material Changes in Results of Operations
During the first three months of 1996, the Corporation's
consolidated income totaled $1.7 million compared to $1.4
million for the first three months of 1995. The Corporation's
total interest income during the first three months of 1996 was
$9.1 million compared to $8.2 million during the first three
months of 1995. This was a increase of 9.8%. Loan income was
up 15.6%, while investment income showed a decrease of 5.7%.
Interest expense increased 9.2% during the first three months
of 1996. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the
three months ended March 31, 1996, was 4.9%, compared to 4.7%
for the corresponding period in 1995.
The provision for loan losses was $250,000 for the first three
months of 1996 compared to $145,000 for the first three months
of 1995, which was a 72.4% 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 by Creditors for Impairment of a Loan".
Net charge offs of $250 thousand for the first three months of
1996, compared to recoveries exceeding charge offs by $37
thousand for the first three months of 1995. 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 1996. 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, 1996, and total $462 thousand which compares
to $483 thousand and $555 thousand at December 31, 1995, and
March 31, 1995, respectively.
Non-interest income increased 19.7% during the first three
months of 1996 compared to the same period of 1995. Fee income
from providing depository services is included in this total and
increased over 23%. Non-interest expense increased 1.5% during
the first three months of 1996 compared to the same period of
1995. The largest increase was in furniture and equipment
expense which increased 33.2%.
<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 15, 1996 /s/ Waymon L. Hickman
Waymon L. Hickman,
Chairman of the Board
(Chief Executive Officer)
Date May 15, 1996 /s/ Patricia N. McClanahan
Patricia N. McClanahan,
Treasurer
(Principal Accounting Officer)
[ARTICLE] 9
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 23,502,339
[INT-BEARING-DEPOSITS] 641
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 40,197,363
[INVESTMENTS-CARRYING] 116,467,674
[INVESTMENTS-MARKET] 117,151,666
[LOANS] 289,688,096
[ALLOWANCE] (2,677,762)
[TOTAL-ASSETS] 485,920,233
[DEPOSITS] 429,384,603
[SHORT-TERM] 602,500
[LIABILITIES-OTHER] 5,461,338
[LONG-TERM] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 14,000,000
[OTHER-SE] 36,471,792
[TOTAL-LIABILITIES-AND-EQUITY] 485,920,233
[INTEREST-LOAN] 6,931,271
[INTEREST-INVEST] 2,096,998
[INTEREST-OTHER] 23,955
[INTEREST-TOTAL] 9,052,224
[INTEREST-DEPOSIT] 3,948,769
[INTEREST-EXPENSE] 3,989,386
[INTEREST-INCOME-NET] 5,062,838
[LOAN-LOSSES] 250,000
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 3,647,249
[INCOME-PRETAX] 2,485,234
[INCOME-PRE-EXTRAORDINARY] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,707,915
[EPS-PRIMARY] 1.22
[EPS-DILUTED] 0
[YIELD-ACTUAL] 8.51
[LOANS-NON] 6,541,554
[LOANS-PAST] 361
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 2,678,386
[CHARGE-OFFS] 279,207
[RECOVERIES] 28,584
[ALLOWANCE-CLOSE] 2,677,762
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
