Add
FMFC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FMFC > SEC Filings for FMFC > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
The following provides a narrative discussion and analysis of significant changes in the Company's results of operations and financial condition. This discussion should be read in conjunction with the interim consolidated financial statements and supplemental financial data presented elsewhere in this report.
Forward Looking Statements
Certain of the information included in this discussion contains forward looking financial data and information that is based upon management's belief as well as certain assumptions made by, and information currently available to management. Should the assumptions prove to be significantly different, actual results may vary from those estimated, anticipated, projected or expected. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following:
· An economic slowdown could reduce loan originations and fee income volumes below expectations, could slow the pace of loan payments or could cause deposits to decrease.
· If the economy deteriorated and real estate values became depressed, the approximately 84% of the Company's loan portfolio that is secured by real estate could come under stress, thus possibly requiring additional loan loss accruals.
· Adverse changes in local real estate markets may affect the Company's ability to dispose of its foreclosed real estate at prices above the properties' carrying values, thus causing additional losses.
· Adverse changes in interest rates could cause the Company's net interest margins to decrease, thereby decreasing net interest revenues. A spike in interest rates could reduce the values of interest-sensitive assets such as investment securities and loans.
· Mortgage originations, and therefore mortgage revenues, could be hurt by interest rate changes as well as changes in the underwriting standards of investors who purchase originated mortgages.
· An unanticipated increase in inflation could cause the Company's operating costs related to salaries, technology, supplies and property taxes to increase.
· A poor stock market could reduce brokerage transactions, therefore reducing investment brokerage revenues.
· Adverse price changes or liquidity problems in the bond markets could reduce the values of the Company's assets as well as impede its ability to raise cash through security sales or additional borrowings.
· Investments in the portfolio of the Company's pension plan may not provide adequate returns to fund the accumulated and projected plan obligations, thus causing higher annual plan expenses and requiring additional contributions by the Company.
· Unfavorable judgments in ongoing litigation may result in additional expenses.
· Unanticipated catastrophic events could result in unusual loss claims that would reduce or eliminate the profit sharing revenues of the insurance agencies. Such claims may also affect the availability of insurance products for certain classes of customers, thereby reducing commission revenues available to the agencies.
· Unforeseen new competition from outside the traditional financial services industry could constrain the Company's ability to price its products profitably.
· Unanticipated changes in laws and regulations related to businesses that the Company is in or anticipates entering into or related to transactions that the Company engages in or anticipates engaging in could result in revenue reductions, expense increases or loss of business opportunities.
These examples are not intended to be exhaustive, and describe events, circumstances and contingencies that may never materialize. Nevertheless, the reader is cautioned that such types of occurrences, usually outside of the control of the Company, may cause financial results to be different than the reader or the Company's management had originally estimated.
Financial Summary
Net income for the third quarter of 2008 was $2.210 million, or $.24 basic and diluted earnings per share as compared to $3.808 million, or $.42 basic and diluted earnings per share for the same period in 2007 and a net loss of $466 thousand or $.05 basic and diluted loss per share for the second quarter of 2008. Net income for the first nine months of 2008 was $4.883 million, or $.54 basic and $.53 diluted earnings per share as compared to $10.897 million, or $1.20 basic and diluted earnings per share for the same period in 2007. Major factors contributing to the decrease in year-over-year earnings were (1) an additional loan loss accrual of $5.000 million during the second quarter of 2008, (2) a decrease of $13.222 million in loans outstanding during the first nine months of 2008 and (3) a net interest margin of 3.70% for the first nine months of 2008 as compared to 3.96% for the first nine months of 2007.
Highlights for the first nine months of 2008 and 2007 are as follows:
· Return on assets for the first nine months of 2008 was .40% and return on equity was 4.59%
· Return on assets for the first nine months of 2007 was .94% and return on equity was 11.01%
· The net interest margin decreased to 3.70% in the third quarter of 2008 from 3.73% in the second quarter
· The Tupelo and Desoto County Mississippi markets and the Memphis, Tennessee market showed the largest declines during 2008 as loans decreased by 1.08% during the first nine months of the year
· The Madison County, Mississippi, Memphis, Tennessee, Birmingham, Alabama and Crestview, Florida markets contributed most of the loan growth for the third quarter of 2007
· Nonaccrual loans were 1.82% of total loans at September 30, 2008 as compared to .53% at September 30, 2007
· Annualized net charge-offs were .41% for the first nine months of 2008 as compared to .22% for the first nine months of 2007
· Opened a full-service branch in Cordova, Tennessee in June 2007
· Opened a full-service branch in Brandon, Mississippi in July 2007 and opened a full-service branch in Ridgeland, Mississippi in August 2007
FIRST M & F CORPORATION
The following table shows the quarterly net loan, non-interest bearing deposit,
and interest bearing deposit growth for the last five quarters:
(Net change, in thousands)
Non-Interest Interest
Quarter Loans Bearing Deposits Bearing Deposits
3rd Qtr 2007 51,581 (1,481 ) 4,427
4th Qtr 2007 20,975 5,083 42,266
1st Qtr 2008 (13,267 ) (4,126 ) 55,246
2nd Qtr 2008 (10,966 ) 65 (45,263 )
3rd Qtr 2008 11,011 (8,165 ) (8,749 )
|
The following table shows the quarterly net interest income, loan loss accruals, non-interest income and non-interest expense amounts for the last five quarters:
(Net amount, in thousands)
Net Interest Loan Loss Non-Interest Non-Interest
Quarter Income Accruals Income Expense
3rd Qtr 2007 13,786 630 5,430 12,894
4th Qtr 2007 13,725 630 5,273 13,089
1st Qtr 2008 13,127 780 5,512 13,354
2nd Qtr 2008 13,100 6,080 5,270 13,460
3rd Qtr 2008 13,020 2,190 5,517 13,229
|
The following table shows the components of diluted earnings (loss) per share for the last five quarters:
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
2008 2008 2008 2007 2007
Net interest income $ 1.43 $ 1.45 $ 1.44 $ 1.51 $ 1.51
Loan loss expense .24 .67 .09 .07 .07
Noninterest income .61 .58 .61 .58 .59
Noninterest expense 1.46 1.49 1.47 1.44 1.41
Net income (loss) before taxes .34 (.13 ) .49 .58 .62
Income taxes .10 (.08 ) .15 .19 .20
Net income (loss) $ .24 $ (.05 ) $ .34 $ .39 $ .42
|
FIRST M & F CORPORATION
The following table shows performance ratios for the last five quarters:
3rd Qtr 2008 2nd Qtr 2008 1st Qtr 2008 4th Qtr 2007 3rd Qtr 2007
Net interest margin 3.70 % 3.73 % 3.66 % 3.83 % 3.94 %
Efficiency ratio 69.93 71.85 70.33 67.68 66.08
Return on assets .55 (.12 ) .76 .87 .96
Return on equity 6.27 (1.30 ) 8.87 10.13 11.18
Noninterest income to avg. assets 1.37 1.31 1.34 1.29 1.36
Noninterest income
to revenues (1) 29.16 28.13 29.03 27.31 27.83
Noninterest expense to avg assets 3.29 3.34 3.25 3.19 3.24
Salaries and benefits to total
noninterest expense 54.66 54.28 57.33 57.23 56.63
Contribution margin (2) 61.78 61.00 59.68 61.21 62.58
Nonaccrual loans to loans 1.82 .94 .78 .53 .53
90 day past due loans to loans .05 .33 .45 .09 .16
Annualized net charge offs as a
percent of average loans .49 .46 .27 .45 .25
|
(1) Revenues equal tax-equivalent net interest income before loan loss expense, plus noninterest income.
(2) Contribution margin equals revenues minus salaries & benefits, divided by revenues.
The following table shows revenue related performance statistics for the last five quarters:
(Dollars in thousands) 3rd Qtr 2008 2nd Qtr 2008 1st Qtr 2008 4th Qtr 2007 3rd Qtr 2007 Mortgage originations $ 12,926 $ 17,443 $ 17,697 $ 14,218 $ 19,924 Commissions from annuity sales 18 49 26 26 33 Trust revenues 56 86 72 77 85 Retail investment revenues 61 112 66 77 72 Revenues per FTE employee 34 33 34 34 35 Agency commissions per agency FTE employee (1) 29 25 25 17 30 |
(1) Agency commissions are property, casualty, life and health commissions produced by the insurance agency personnel.
The following table shows additional statistics for the Company at the end of the last five quarters:
3rd Qtr 2008 2nd Qtr 2008 1st Qtr 2008 4th Qtr 2007 3rd Qtr 2007
Full-time equivalent employees 548 556 565 564 555
Number of noninterest-bearing
deposit accounts 35,907 36,455 37,329 38,941 39,058
|
Net Interest Income
Net interest income before loan loss expense for the first nine months of 2008 was $39.247 million as compared to $40.315 million for the first nine months of 2007. For the first nine months of 2008 compared to 2007: earning asset yields decreased by 72 basis points, liability costs decreased by 52 basis points, the net interest spread decreased by 20 basis points and the net interest margin decreased by 26 basis points.
Net interest income before loan loss expense for the third quarter of 2008 was $13.020 million as compared to $13.786 million for the third quarter of 2007 and $13.100 million for the second quarter of 2008. For the third quarter of 2008 compared to the same quarter of 2007: earning asset yields decreased by 105 basis points, liability costs decreased by 93 basis points, the net interest spread decreased by 13 basis points and the net interest margin decreased by 24 basis points. For the third quarter of 2008 compared to the second quarter of 2008: earning asset yields decreased by 26 basis points, liability costs decreased by 27 basis points, the net interest spread remained unchanged and the net interest margin decreased by 3 basis points.
Balance sheet dynamics affecting the comparative net interest margins for the first nine months of 2008 compared to 2007 include (1) growth of 6.32% in average loans held for investment, (2) an increase in average loans as a percentage of earning assets from 81.20% in the first nine months of 2007 to 82.45% in the first nine months of 2008, (3) an increase in average interest-bearing deposits of 7.65%, (4) a decrease in average other borrowings of 8.91% and (5) a decrease in average noninterest-bearing deposits as a percentage of total assets from 11.61% in 2007 to 11.05% in 2008.
Balance sheet dynamics affecting the comparative net interest margins for the
third quarter of 2008 compared to 2007 include (1) growth of 2.75% in average
loans held for investment, (2) an increase in average loans as a percentage of
earning assets from 82.33% in the third quarter of 2007 to 83.30% in the third
quarter of 2008, (3) an increase in average interest-bearing deposits of 4.10%,
(4) a decrease in average other borrowings of 13.43% and (5) a decrease in
average noninterest-bearing deposits as a percentage of total assets from 11.51%
in 2007 to 11.11% in 2008.
Balance sheet dynamics affecting the comparative net interest margins for the third quarter of 2008 compared to the second quarter of 2008 include (1) an increase of .44% in average loans held for investment, (2) an increase in average loans as a percentage of earning assets from 82.16% in the second quarter of 2008 to 83.30% in the third quarter of 2008, (3) a decrease in average interest-bearing deposits of 1.98%, (4) an increase in average borrowings of 5.36% and (5) a decrease in average noninterest-bearing deposits as a percentage of total assets from 11.17% in the second quarter of 2008 to 11.11% in the third quarter of 2008.
Yield and cost dynamics affecting the comparative net interest margins for the first nine months of 2008 compared to 2007 include (1) a decrease of 94 basis points in yields on loans held for investment and for sale, (2) an increase of 15 basis points in investment and short-term funds yields, (3) a decrease of 48 basis points in costs of deposits and (4) a decrease of 56 basis points in costs of borrowings.
Yield and cost dynamics affecting the comparative net interest margins for the third quarter of 2008 compared to 2007 include (1) a decrease of 132 basis points in yields on loans held for investment and for sale, (2) an increase of 14 basis points in investment and short-term funds yields, (3) a decrease of 93 basis points in costs of deposits and (4) a decrease of 71 basis points in costs of borrowings.
Yield and cost dynamics affecting the comparative net interest margins for the
third quarter of 2008 compared to the second quarter of 2008 include (1) a
decrease of 32 basis points in yields on loans held for investment and for sale,
(2) a decrease of 5 basis points in investment and short-term funds yields, (3)
a decrease of 30 basis points in costs of deposits and (4) a decrease of 18
basis points in costs of borrowings.
The decrease in asset yields for the first nine months of 2008 as compared to the same period in 2007 can be attributed to (1) a decrease in the prime lending rate of 100 basis points during 2007 followed by a decrease of 225 basis points during the first four months of 2008, (2) a steady increase in short-term interest rates throughout 2006 that plateaued during the first and second quarters of 2007 and (3) a moderate level of floating-rate loans as a percent of loans of approximately 20% at September 30, 2008. Deposit costs for 2008 were primarily influenced by short-term interest rate decreases throughout most of 2007 and into 2008 combined with a strategy during 2008 to replace certificates of deposit with premium-rate money-market and NOW accounts. Loan yields have been influenced downward by the prime rate decreases during 2008. The effect of prime rate changes on loan yields has been mitigated by the volume of variable-rate loans that have reached their loan floor limits. The lack of any sustained loan growth during 2008 has also contributed to the lower net interest margins during 2008.
Net interest margins should be affected during the remainder of 2008 by the steepness of the yield curve, credit spreads that are being priced into the corporate markets, and a slowing in demand for commercial and consumer credit. The yield curve between the 3-month and 5-year Treasuries was inverted by 44 basis points during December 2006 and by 60 basis points during March 2007. However, by December 2007 the 3-month to 5-year Treasury spread was a positive 42 basis points and was 173 basis points during September 2008. The AAA corporate bond to 3-month Treasury spread was 35 basis points during December 2006 and had narrowed to 22 basis points during March 2007. This measure of credit spreads was 242 basis points during December 2007 and was 450 basis points during September 2008, a direct result of the tightened liquidity in the corporate debt markets. A contributing factor to the increased third quarter 2008 spreads of 450 basis points from the second quarter spreads of 379 basis points was the flight-to-quality inflow of funds into Treasury securities which lowered Treasury yields significantly. The economy has weakened since the second quarter of 2007 with a considerable slowing in the consumer real estate sector. The Federal Reserve Board has responded by providing liquidity facilities to the commercial and investment banking sectors as well as through discount rate reductions. The Federal Open Market Committee decreased its Fed funds target rate by 100 basis points during the second half of 2007, by 200 basis points during the first quarter of 2008 and by 25 basis points during the second quarter of 2008. Additionally, the Federal Reserve lowered the discount rate by 150 basis points during the second half of 2007, by 225 basis points during the first quarter of 2008 and by 25 basis points during the second quarter of 2008. Corporate bond yields, which hit 24-month highs during the second and third quarters of 2007, continue to reflect a lack of liquidity, concerns related to the ongoing effects of the sub-prime mortgage and credit crisis and uncertainty concerning the state of the economy.
Yields on loans held for investment declined from 7.74% during the fourth quarter of 2007 to 6.53% for the third quarter of 2008. Management expects loan yields to continue to decrease over the course of 2008. Deposit costs fell by 98 basis points during the first nine months of 2008 after steadily rising throughout 2007. Management expects deposit costs to continue to decrease as certificates of deposit mature and reprice in the current lower rate environment or are displaced by other competitive interest-bearing checking and money-market accounts. While certificates of deposit are not being aggressively marketed, the focus for 2008 and beyond has been and will continue to be the accumulation of core deposits and the building of customer relationships that accompany those deposits. The base product for this effort during 2008 has been the Summit interest-bearing checking account. Balances in this product have grown from $4.738 million at the end of 2007 to $53.235 million at September 30, 2008 with an average account size in excess of $9 thousand.
FIRST M & F CORPORATION
The following table shows the components of the net interest margin for the
second and third quarters of 2008 and 2007:
Yields/Costs Yields/Costs
3rd Quarter, 2008 2nd Quarter, 2008 3rd Quarter, 2007 2nd Quarter, 2007
Interest bearing bank balances 1.93 % 1.96 % 5.55 % 4.61 %
Federal funds sold 1.61 2.72 5.14 3.59
Taxable investments 5.04 5.18 4.81 4.80
Tax-exempt investments 6.08 6.21 6.22 6.26
Loans held for sale 3.68 5.29 5.16 5.59
Loans held for investment 6.55 6.86 7.87 7.90
Earning asset yield 6.32 6.58 7.37 7.36
Interest checking 1.55 1.49 1.44 1.35
Money market deposits 2.11 2.33 2.66 2.52
Savings 2.11 2.32 2.83 2.75
Certificates of deposit 3.42 3.87 4.64 4.62
Short-term borrowings 2.25 2.29 4.92 4.98
Other borrowings 4.61 4.82 5.12 5.12
Cost of interest-bearing liabilities 2.95 3.22 3.88 3.81
Net interest spread 3.37 3.36 3.49 3.55
Effect of non-interest bearing deposits .36 .40 .49 .49
Effect of leverage (.03 ) (.03 ) (.04 ) (.04 )
Net interest margin, tax-equivalent 3.70 3.73 3.94 4.00
Less: Tax equivalent adjustments:
Investments .09 .09 .07 .08
Loans .01 .01 .01 .01
Reported book net interest margin 3.60 % 3.63 % 3.86 % 3.91 %
|
The following table shows the components of the net interest margin for the first nine months of 2008 and 2007:
Yields/Costs
YTD September YTD September
2008 2007
Interest bearing bank balances 2.58 % 5.01 %
Federal funds sold 2.94 4.20
Taxable investments 5.08 4.81
Tax-exempt investments 6.17 6.25
Loans held for sale 4.96 5.33
Loans held for investment 6.92 7.86
Earning asset yield 6.62 7.34
Interest checking 1.50 1.39
Money market deposits 2.38 2.50
Savings 2.39 2.74
Certificates of deposit 3.95 4.61
Short-term borrowings 2.45 5.06
Other borrowings 4.73 5.13
Cost of interest-bearing liabilities 3.29 3.81
Net interest spread 3.33 3.53
Effect of non-interest bearing deposits .40 .49
Effect of leverage (.03 ) (.06 )
Net interest margin, tax-equivalent 3.70 3.96
Less: Tax equivalent adjustments:
Investments .09 .08
Loans .01 .01
Reported book net interest margin 3.60 % 3.87 %
|
FIRST M & F CORPORATION
The following table shows average balance sheets for the second and third
quarters of 2008 and 2007:
(Dollars in thousands)
3rd Quarter, 2008 2nd Quarter, 2008 3rd Quarter, 2007 2nd Quarter, 2007
Interest bearing bank balances $ 3,228 $ 5,627 $ 5,713 $ 4,726
Federal funds sold 2,400 6,783 2,752 6,247
Taxable investments 171,936 182,982 190,105 197,922
Tax-exempt investments 57,809 56,376 43,836 45,654
Loans held for sale 4,986 7,406 8,084 9,786
Loans held for investment 1,198,943 1,193,703 1,166,820 1,122,129
Earning assets 1,439,302 1,452,877 1,417,310 1,386,464
. . .
|
|
|