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FMFC > SEC Filings for FMFC > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for FIRST M&F CORP/MS

Form 10-Q for FIRST M&F CORP/MS


14-Aug-2013

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

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:

A significant weakening of the economy.

A collapse of real estate values or the values of other assets that may serve as collateral on customers' borrowings.

Adverse changes in interest rates that could destabilize the Company's net interest margins.

An unanticipated inflationary spike or deflationary decline.

A market crash or a highly volatile market.

A loss of market liquidity for financial products.

Unfavorable judgments in ongoing litigation.

Technological disruptions or breaches.

Unanticipated catastrophic events or natural disasters.

Unforeseen new competition from outside the traditional financial services industry.

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.

The actual results of the merger with Renasant could vary materially as a result of a number of factors, such as (1) a delay of the merger transaction due to litigation, (2) the possibility that various closing conditions for the merger transaction may not be satisfied or may require more time and resources than expected to satisfy and (3) the possibility that the Merger Agreement may be terminated.

Financial Summary

Net income for the second quarter of 2013 was $222 thousand, or $0.03 basic and diluted loss per share after the effect of preferred stock dividends as compared to net income of $1.753 million, or $0.14 basic and diluted earnings per share for the same period in 2012 and net income of $2.598 million or $0.22 basic and diluted earnings per share for the first quarter of 2013. Net income for the first six months of 2013 was $2.820 million or $0.19 basic and diluted earnings per share as compared to net income of $3.360 million or $0.26 basic and diluted earnings per share for the same period in 2012. The major factors contributing to the decline in earnings for the second quarter of 2013 as compared to the second quarter of 2012 were (1) a $900 thousand decrease in the loan loss provisions, (2) a loss on extinguishment of debt of $1.511 million, (3) an increase of $1.377 million in gains on sales of investment securities, (4) an other-than-temporary impairment of certain investment securities of $2.038 million (5) a decrease of $1.187 million in mortgage banking income and (6) a decrease in noninterest expenses. The major factors contributing to the decrease in earnings for the second quarter of 2013 as compared to the first quarter of 2013 were (1) a decrease of $672 thousand in mortgage revenues, (2) a loss on extinguishment of debt of $1.511 million, (3) an increase in gains on sales of investment securities of $1.362 million (4) an other-than-temporary impairment of certain investment securities of $2.038 million and (5) an increase in noninterest expenses highlighted by an increase in foreclosed property expenses of $1.463 million.

Highlights for the first six months of 2013 and 2012 are as follows:

Debit card revenues increased by 2.00% for the second quarter of 2013 from the second quarter of 2012

The net interest margin decreased to 3.58% in the second quarter of 2013 from 3.72% in the second quarter of 2012

Loans held for investment decreased by $15.583 million from the June 30, 2012 balance

Nonaccrual loans were 0.62% of total loans at June 30, 2013 as compared to 0.64% at June 30, 2012

Annualized net charge-offs were 0.09% for the second quarter of 2013 as compared to 1.26% for the second quarter of 2012

As a result of branch closings and other cost-saving initiatives, full-time equivalent employees dropped from 468 employees at June 30, 2012 to 413 employees at June 30, 2013

On February 6, 2013 the Company entered into an agreement to be acquired by Renasant Corporation. The acquisition, which was approved in June by the shareholders of both companies, is expected to occur in the third quarter of 2013.


                            FIRST M & F CORPORATION


The following table shows the quarterly net loan, non-interest bearing deposit,
and interest bearing deposit changes for the last five quarters:

(Net change, in thousands)
                               Non-Interest           Interest
                 Loans       Bearing Deposits     Bearing Deposits
2nd Qtr 2012   $  3,101     $        (2,458 )    $        (46,712 )
3rd Qtr 2012      4,731              (2,461 )              (9,403 )
4th Qtr 2012    (11,854 )            42,611                10,590
1st Qtr 2013     12,184             (23,842 )             (26,058 )
2nd Qtr 2013    (20,644 )            52,281               (38,848 )

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
                   Income          Accruals         Income           Expense
2nd Qtr 2012   $       12,916    $     2,280    $       6,035    $       14,319
3rd Qtr 2012           12,872          1,980            5,607            14,060
4th Qtr 2012           12,641          1,980            5,735            13,913
1st Qtr 2013           12,227          1,280            5,702            12,939
2nd Qtr 2013           12,329          1,380            2,586            13,664

The following table shows the components of pre-tax basic earnings per share for the last five quarters:

                        2nd Qtr 2013      1st Qtr 2013       4th Qtr 2012       3rd Qtr 2012       2nd Qtr 2012
Net interest income    $       1.34     $         1.32     $         1.37     $         1.40     $         1.41
Loan loss expense              0.15               0.14               0.21               0.21               0.25
Noninterest income             0.28               0.62               0.62               0.61               0.66
Noninterest expense            1.48               1.40               1.51               1.53               1.56
Net income (loss)
before taxes           $      (0.01 )   $         0.40     $         0.27     $         0.27     $         0.26


                            FIRST M & F CORPORATION


The following table shows performance ratios for the last five quarters:

                        2nd Qtr 2013     1st Qtr 2013    4th Qtr 2012    3rd Qtr 2012    2nd Qtr 2012
Net interest margin          3.58  %           3.53 %          3.56 %          3.73 %          3.72 %
Efficiency ratio            90.24  %          71.25 %         74.83 %         75.21 %         74.70 %
Return on assets             0.06  %           0.67 %          0.46 %          0.46 %          0.45 %
Return on total
equity                       0.73  %           8.84 %          6.19 %          6.18 %          6.27 %
Return on common
equity                      (1.12 )%           8.51 %          5.40 %          5.38 %          5.46 %
Noninterest income
to avg. assets               0.67  %           1.47 %          1.44 %          1.44 %          1.54 %
Noninterest income
to revenues (1)             17.07  %          31.40 %         30.85 %         29.99 %         31.48 %
Noninterest expense
to avg assets                3.55  %           3.34 %          3.49 %          3.62 %          3.65 %
Salaries and
benefits to total
noninterest expense         46.67  %          49.17 %         45.91 %         49.07 %         47.05 %
Nonaccrual loans to
loans                        0.62  %           0.72 %          0.75 %          0.62 %          0.64 %
90 day past due
loans to loans               0.02  %           0.03 %          0.03 %          0.04 %          0.15 %
Annualized net
charge offs as a
percent of average
loans                        0.09  %           0.21 %          0.46 %          0.26 %          1.26 %

(1) Revenues equal tax-equivalent net interest income before loan loss expense, plus noninterest income.

The following table shows revenue related performance statistics for the last five quarters:

(Dollars in
thousands)               2nd Qtr 2013       1st Qtr 2013       4th Qtr 2012       3rd Qtr 2012       2nd Qtr 2012
Mortgage
originations           $       18,428     $       45,423     $       54,602     $       47,295     $       38,693
Trust revenues                     79                 50                 44                 43                 46
Retail investment
revenues                          124                110                127                 70                117
Revenues per FTE
employee                           36                 40                 40                 40                 41
Agency commissions
per agency FTE
employee (1)                       25                 24                 22                 27                 22

(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:

                        2nd Qtr 2013     1st Qtr 2013     4th Qtr 2012     3rd Qtr 2012     2nd Qtr 2012
Full-time equivalent
employees                       413              441              456              466              468
Number of
noninterest-bearing
deposit accounts             32,948           32,830           32,495           32,475           32,469


FIRST M & F CORPORATION

Net Interest Income

Net interest income before loan loss expenses for the first six months of 2013 was $24.556 million as compared to $25.880 million for the first six months of 2012. For the first six months of 2013 compared to 2012: earning asset yields decreased by 41 basis points, liability costs decreased by 27 basis points, the net interest spread decreased by 14 basis points and the net interest margin decreased by 14 basis points.
Net interest income before loan loss expenses for the second quarter of 2013 was $12.329 million as compared to $12.916 million for the second quarter of 2012 and $12.227 million for the first quarter of 2013. For the second quarter of 2013 compared to the same quarter of 2012: earning asset yields decreased by 40 basis points, liability costs decreased by 25 basis points, the net interest spread decreased by 15 basis points and the net interest margin decreased by 14 basis points. For the second quarter of 2013 compared to the first quarter of 2013: earning asset yields increased by 2 basis points, liability costs decreased by 1 basis point, the net interest spread increased by 3 basis points and the net interest margin increased by 5 basis points.

Balance sheet dynamics affecting the comparative net interest margins for the first six months of 2013 compared to 2012 include (1) a decrease of 0.36% in average loans held for investment, (2) an increase in average loans as a percentage of earning assets from 68.30% in the first six months of 2012 to 68.70% in the first six months of 2013, (3) a decrease in average interest-bearing deposits of 5.94%, (4) a decrease in average other borrowings of 11.50% and (5) an increase in average noninterest-bearing deposits as a percentage of total assets from 14.39% in 2012 to 16.80% in 2013. Balance sheet dynamics affecting the comparative net interest margins for the second quarter of 2013 compared to 2012 include (1) a decrease of 0.04% in average loans held for investment, (2) an increase in average loans held for investment as a percentage of earning assets from 68.54% in the second quarter of 2012 to 69.12% in the second quarter of 2013, (3) a decrease in average interest-bearing deposits of 6.04%, (4) a decrease in average other borrowings of 13.53% and (5) an increase in average noninterest-bearing deposits as a percentage of total assets from 14.75% in 2012 to 17.37% in 2013.

Balance sheet dynamics affecting the comparative net interest margins for the second quarter of 2013 compared to the first quarter of 2013 include (1) a decrease of 0.41% in average loans held for investment, (2) an increase in average loans held for investment as a percentage of earning assets from 68.29% in the first quarter of 2013 to 69.12% in the second quarter of 2013, (3) a decrease in average interest-bearing deposits of 3.33%, (4) a decrease in average other borrowings of 6.21% and (5) an increase in average noninterest-bearing deposits as a percentage of total assets from 16.23% in the first quarter of 2013 to 17.37% in the second quarter of 2013.

Yield and cost dynamics affecting the comparative net interest margins for the first six months of 2013 compared to 2012 include (1) a decrease of 46 basis points in yields on loans held for investment and for sale, (2) a decrease of 20 basis points in investment and short-term funds yields, (3) a decrease of 27 basis points in costs of deposits and (4) a decrease of 10 basis points in costs of borrowings.
Yield and cost dynamics affecting the comparative net interest margins for the second quarter of 2013 compared to 2012 include (1) a decrease of 40 basis points in yields on loans held for investment and for sale, (2) a decrease of 23 basis points in investment and short-term funds yields, (3) a decrease of 24 basis points in costs of deposits and (4) a decrease of 19 basis points in costs of borrowings.

Yield and cost dynamics affecting the comparative net interest margins for the second quarter of 2013 compared to the first quarter of 2013 include (1) a decrease of 2 basis points in yields on loans held for investment and for sale,
(2) an increase of 10 basis points in investment and short-term funds yields,
(3) a decrease of 1 basis point in costs of deposits and (4) an increase of 15 basis points in costs of borrowings.

Net interest income for the second quarter of 2013 as compared to the second quarter of 2012 decreased as average earning assets and earning asset yields declined. Funding costs continued to decrease, but were outpaced by earning asset yield decreases. Although the net interest spread - the difference between earning asset yields and interest-bearing liability costs - decreased by 15 basis points, the net interest margin declined by 14 basis points as funding provided by an increase in average noninterest-bearing deposits made a positive contribution. A lack of balance sheet growth, especially in average loan balances, has put additional pressure on net interest income. The yield curve began to steepen during 2013 after a steady flattening period since 2010. The spread between 10-year and 2-year Treasury rates widened by 51 basis points from December 2012 to June 2013 after declining by 26 basis points over the course of 2012. AAA corporate bond yields increased by 62 basis points from December 2012 to June 2013 after declining by 28 basis points from December 2011 to December 2012. As the economy picks up strength and the markets begin to anticipate a shift in the Federal Reserve's monetary policy, a steeper yield curve may be anticipated over the next year. It is difficult to project the effect of a steeper yield curve on the Company's asset and liability yields and costs as it depends on how quickly assets may re-price, the pace of new loan volumes and the sensitivity of interest-bearing deposits. The pace of loan growth will be critical going forward as a driver of any improvement in net interest income. The strength of the economy, especially with respect to how it affects consumer spending and the ability of small businesses to grow, will be a major driver of loan growth over the next year.


                            FIRST M & F CORPORATION


The following table shows the components of the net interest margin for the
first and second quarters of 2013 and 2012:
                                                 Yields/Costs                                Yields/Costs
                                    2nd Quarter, 2013     1st Quarter, 2013     2nd Quarter, 2012     1st Quarter, 2012
Interest bearing bank balances              0.26  %               0.31  %               0.37  %               0.26  %
Federal funds sold                          0.25                  0.24                  0.27                  0.25
Taxable investments                         1.71                  1.61                  1.88                  2.00
Tax-exempt investments                      5.04                  5.16                  5.59                  5.83
Loans held for sale                         2.08                  1.65                  3.22                  3.06
Loans held for investment                   5.22                  5.28                  5.69                  5.80
Earning asset yield                         4.17                  4.15                  4.57                  4.57
Interest checking                           0.23                  0.22                  0.43                  0.46
Money market deposits                       0.18                  0.18                  0.37                  0.52
Savings deposits                            0.76                  0.80                  0.95                  0.99
Certificates of deposit                     1.04                  1.08                  1.31                  1.39
Short-term borrowings                       0.20                  0.31                  0.62                  0.48
Other borrowings                            4.05                  4.01                  4.21                  3.97
Cost of interest-bearing
liabilities                                 0.73                  0.74                  0.98                  1.03
Net interest spread                         3.44                  3.41                  3.59                  3.54
Effect of non-interest bearing
deposits                                    0.14                  0.13                  0.16                  0.16
Effect of leverage                          0.00                 (0.01 )               (0.03 )               (0.03 )
Net interest margin,
tax-equivalent                              3.58                  3.53                  3.72                  3.67
Less: Tax equivalent
adjustments:
Investments                                 0.06                  0.05                  0.05                  0.05
Loans                                       0.01                  0.01                  0.01                  0.01
Reported book net interest
margin                                      3.51  %               3.47  %               3.66  %               3.61  %

The following table shows the components of the net interest margin for the first six months of 2013 and 2012:
                                                 Yields/Costs
                                           YTD                   YTD
                                        June 2013             June 2012
Interest bearing bank balances              0.29  %               0.29  %
Federal funds sold                          0.25                  0.26
Taxable investments                         1.66                  1.94
Tax-exempt investments                      5.10                  5.71
Loans held for sale                         1.76                  3.15
Loans held for investment                   5.25                  5.74
Earning asset yield                         4.16                  4.57
Interest checking                           0.23                  0.45
Money market deposits                       0.18                  0.45
Savings                                     0.78                  0.97
Certificates of deposit                     1.06                  1.35
Short-term borrowings                       0.27                  0.53
Other borrowings                            4.03                  4.09
Cost of interest-bearing
liabilities                                 0.74                  1.01
Net interest spread                         3.42                  3.56
Effect of non-interest bearing
deposits                                    0.14                  0.16
Effect of leverage                         (0.01 )               (0.03 )
Net interest margin,
tax-equivalent                              3.55                  3.69
Less: Tax equivalent
adjustments:
Investments                                 0.05                  0.05
Loans                                       0.01                  0.01
Reported book net interest
margin                                      3.49  %               3.63  %


                            FIRST M & F CORPORATION


The following table shows average balance sheets for the first and second
quarters of 2013 and 2012:
(Dollars in thousands)
                                    2nd Quarter,     1st Quarter,     2nd Quarter,     1st Quarter,
                                        2013             2013             2012             2012
Interest bearing bank balances     $     61,978     $     76,526     $     30,923     $     79,212
Federal funds sold                       10,000           10,000           15,082           25,000
Taxable investments                     313,887          309,373          333,794          299,622
Tax-exempt investments                   44,109           44,187           36,610           34,969
Loans held for sale                       4,889           13,770           30,416           22,729
Loans held for investment               973,160          977,198          973,545          983,800
Earning assets                        1,408,023        1,431,054        1,420,370        1,445,332
Other assets                            134,997          139,940          157,050          161,681
Total assets                       $  1,543,020     $  1,570,994     $  1,577,420     $  1,607,013
Interest checking                  $    411,929     $    422,966     $    404,958     $    419,260
Money market deposits                   200,444          212,106          217,533          226,602
Savings deposits                        120,227          118,719          121,778          120,835
Certificates of deposit                 345,147          361,037          402,703          417,086
Short-term borrowings                     2,862            5,337            2,974            5,054
Other borrowings                         62,062           66,173           71,771           73,107
Interest-bearing liabilities          1,142,671        1,186,338        1,221,717        1,261,944
Noninterest-bearing deposits            267,956          254,957          232,744          225,610
Other liabilities                        11,065           10,490           10,493            8,714
Stockholders' equity                    121,328          119,209          112,466          110,745
Liabilities and stockholders'
equity                             $  1,543,020     $  1,570,994     $  1,577,420     $  1,607,013
Loans to earning assets                   69.12 %          68.29 %          68.54 %          68.07 %
Loans to assets                           63.07 %          62.20 %          61.72 %          61.22 %
Earning assets to assets                  91.25 %          91.09 %          90.04 %          89.94 %
Noninterest-bearing deposits to
assets                                    17.37 %          16.23 %          14.75 %          14.04 %
Equity to assets                           7.86 %           7.59 %           7.13 %           6.89 %


                            FIRST M & F CORPORATION


The following table shows average balance sheets for the first six months of
2013 and 2012:
(Dollars in thousands)
                                          YTD June 2013      YTD June 2012
Interest bearing bank balances           $       69,212     $       55,067
Federal funds sold                               10,000             20,041
Taxable investments                             311,642            316,708
Tax-exempt investments                           44,148             35,790
Loans held for sale                               9,305             26,573
Loans held for investment                       975,168            978,672
Earning assets                                1,419,475          1,432,851
Other assets                                    137,455            159,365
Total assets                             $    1,556,930     $    1,592,216
Interest checking                        $      417,417     $      412,108
Money market deposits                           206,242            222,067
Savings deposits                                119,477            121,307
Certificates of deposit                         353,048            409,895
Short-term borrowings                             4,093              4,014
Other borrowings                                 64,107             72,439
Interest-bearing liabilities                  1,164,384          1,241,830
Noninterest-bearing deposits                    261,493            229,177
Other liabilities                                10,779              9,603
Stockholders' equity                            120,274            111,606
Liabilities and stockholders' equity     $    1,556,930     $    1,592,216
Loans to earning assets                           68.70 %            68.30 %
Loans to assets                                   62.63 %            61.47 %
Earning assets to assets                          91.17 %            89.99 %
Noninterest-bearing deposits to assets            16.80 %            14.39 %
Equity to assets                                   7.73 %             7.01 %

Provision for Loan Losses

The accrual for the provision for loan losses for the second quarter of 2013 was $1.380 million as compared to $1.280 million for the first quarter of 2013 and $2.280 million for the second quarter of 2012. Net charge-offs were $218 thousand for the second quarter of 2013 as compared to $503 thousand for the first quarter of 2013 and $3.054 million for the second quarter of 2012. The accrual for the provision for loan losses for the first half of 2013 was $2.660 million as compared to $4.560 million for the same period in 2012. Net charge-offs were $721 thousand for the first half of 2013 as compared to $4.203 million for the same period in 2012. The allowance for loan losses as a percentage of loans was 2.01% at June 30, 2013, 1.79% at December 31, 2012, and 1.56% at June 30, 2012.

. . .

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