Credit Quality drives quarterly earnings improvement for First M&F

Apr 18, 2013, 16:30 ET from First M&F Corp.

KOSCIUSKO, Miss., April 18, 2013 /PRNewswire/ -- First M&F Corp. (NASDAQ: FMFC) reported a profit today for the first quarter ended March 31, 2013 of $2.598 million.  Net income allocated to common shareholders was $2.020 million or $0.22 basic and diluted earnings per share compared to a profit of $1.139 million or $0.12 basic and diluted earnings per share for the first quarter of 2012.  Hugh S. Potts, Jr., CEO and Chairman of the Board, commented, "This quarter is reflective of the established trends of previous quarters and the current state of the economy." Continuing further Potts said, "That is, our improving asset quality metrics, a trend started many quarters ago, and the stabilization of real estate values, has allowed meaningful reductions in credit-related expenses and the current profitable quarter."

Net Interest Income

Net interest income was down by 5.69% compared to the first quarter of 2012, with the net interest margin falling to 3.53% on a tax equivalent basis in the first quarter of 2013 as compared to 3.67% in the first quarter of 2012. The most significant contributor to the decrease in net interest income was the erosion in net interest spreads as the opportunities to re-price deposits waned even as earning asset yields continued downward.  Mr. Potts commented, "Also reflective of current economic realities is the compression of the net interest margin arising from continued low rates, diminishing spreads and trends toward flat or modest loan growth." 

The net interest margin for the fourth quarter of 2012 was 3.56% as compared to 3.73% for the third quarter of 2012 and 3.72% for the second quarter of 2012. Loans Held for Investment yields decreased to 5.28% in the first quarter of 2013 from 5.80% in the first quarter of 2012.   Overall loan yields fell also from the fourth quarter of 2012 to the first quarter. Average total loans were $990.968 million for the first quarter of 2013 as compared to $1.008 billion for the fourth quarter of 2012 and $1.007 billion during the first quarter of 2012. Loans Held for Investment increased by $12.184 million in the first quarter of 2013 but fell by $11.854 million in the fourth quarter of 2012.  Deposit costs decreased in the first quarter of 2013 from the fourth quarter of 2012, continuing a trend in declining deposit costs dating back to the fourth quarter of 2007 as costs have reflected the low-rate environment since then. Deposit costs were 0.55% in the first quarter of 2013 as compared to 0.85% in the first quarter of 2012. Deposits fell by $49.900 million, or 3.56% during the first quarter of 2013, primarily from one large depositor. Loans Held for Investment as a percentage of assets were 63.70% at March 31, 2013 as compared to 60.95% at March 31, 2012 and 60.90% at December 31, 2012. Loans grew by less than 1.00% since the first quarter of 2012 while deposits fell by 4.09%.

Non-interest Income

Non-interest income, excluding securities transactions, for the first quarter of 2013 increased by 17.72% compared to the first quarter of 2012, with deposit-related income down 3.50% and mortgage income, bolstered by a somewhat improving housing market and refinancings, up 127.69%.  Insurance agency commissions were down slightly, by 1.09%.  Mr. Potts commented, "Mortgage volumes and revenues have been a bright spot in the last few quarters.  M&F Bank was successful in gearing up to take advantage of the opportunities presented."

Non-interest Expenses

Non-interest expenses were lower by 7.49% in the first quarter of 2013 as compared to the first quarter of 2012.  Salaries and benefits expense decreased by 7.30%, mostly due to lower medical benefits costs, while the major contributor to the overall non-interest expense decrease was the 59.62% fall in foreclosed property expense as credit issues began to dissipate, as property values continued to stabilize and as new credit issues continued to wane.  "M&F continues to manage its portfolio of Other Real Estate downward," said Mr. Potts, "as we're still dealing with the residual aftermath of the real estate collapse."    

Credit Quality

Annualized net loan charge-offs as a percent of average loans for the first quarter of 2013 were 0.21% as compared to 0.47% for the same period in 2012. Non-accrual and 90-day past due loans as a percent of total loans were 0.75% at the end of the first quarter of 2013 as compared to 1.47% at the end of the 2012 quarter.

The allowance for loan losses as a percentage of loans was 1.85% at March 31, 2013 as compared to 1.64% at March 31, 2012. The provision for loan losses fell to $1.280 million in the first quarter of 2013 from $2.280 million in the first quarter of 2012.  Mr. Potts commented, "The trend of decreasing credit-related expenses, primarily through lower provisions for loan losses, is the result of quarters and years of credit remediation and recovery by M&F associates.  This gratifying pattern of improvement and contribution to earnings, though, will soon run its course and the Company will have to look to profitable asset growth and increased operating efficiencies to spur long-term earnings growth."

Balance Sheet

Total assets at March 31, 2013 were $1.551 billion as compared to $1.602 billion at the end of 2012 and $1.607 billion at March 31, 2012. Total Loans Held for Investment were $987.657 million compared to $975.473 million at the end of 2012 and $979.495 million at March 31, 2012. Deposits were $1.353 billion compared to $1.403 billion at the end of 2012 and $1.411 billion at March 31, 2012. Total capital was $120.771 million, while common equity was $101.558 million, or $11.00 in book value per share, at March 31, 2013. 

Conclusion   

Looking forward, Mr. Potts said, "The challenges ahead for First M&F are common to the banking sector as a whole: profitable growth in a low rate environment complicated by a still struggling economy, modest loan demand and narrowing spreads.  The potential merger with Renasant, announced in February, should open up greater growth markets and opportunities with higher efficiencies, creating improved shareholder value.  M&F associates look forward to the challenge and the change."  In conclusion, Mr. Potts said, "While we await various approvals from regulators and shareholders, we have a patient, thankful and optimistic comfort in the Providential orchestration of the future of M&F, Renasant and the U.S.A.  A thorough discussion of the merger will be forthcoming for shareholder enlightenment and decision.  Meanwhile, M&F associates are committed to serving well, as always."

About First M&F Corporation

First M&F Corp., the parent of M&F Bank, is committed to proceed with its mission of making the mid-south better through the delivery of excellence in financial services to 26 communities in Mississippi, Alabama and Tennessee.

Caution Concerning Forward‑Looking Statements

This document includes certain "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market and regulatory factors. More detailed information about those factors is contained in First M&F Corporation's filings with the Securities and Exchange Commission.

 

First M&F Corporation

Condensed Consolidated Statements of Condition (Unaudited)

(In thousands, except share data)

March 31

December 31

March 31

2013

2012

2012

Cash and due from banks

$           32,543

$           54,811

$           38,688

Interest bearing bank balances

31,590

94,313

51,900

Federal funds sold

10,000

10,000

25,000

Securities available for sale (cost of

  $370,679, $341,273 and $361,199)

377,051

348,562

365,970

Loans held for sale

17,573

21,014

28,684

Loans

987,657

975,473

979,495

Allowance for loan losses

18,269

17,492

16,084

     Net loans

969,388

957,981

963,411

Bank premises and equipment

36,871

37,264

37,831

Accrued interest receivable

5,863

5,683

6,098

Other real estate

24,820

25,970

34,636

Other intangible assets

4,053

4,159

4,479

Other assets

40,768

41,926

50,445

     Total assets

$      1,550,520

$       1,601,683

$       1,607,142

Non-interest bearing deposits

$         252,453

$          276,295

$          238,603

Interest bearing deposits

1,100,322

1,126,380

1,171,905

     Total deposits

1,352,775

1,402,675

1,410,508

Federal funds and repurchase agreements

2,250

3,720

3,738

Other borrowings

34,877

36,007

41,673

Junior subordinated debt

30,928

30,928

30,928

Accrued interest payable

628

661

868

Other liabilities

8,291

9,249

8,072

     Total liabilities

1,429,749

1,483,240

1,495,787

Preferred stock, 30,000 shares issued and outstanding

19,213

18,865

17,877

Common stock, 9,233,917, 9,230,799 and 9,162,721)

     shares issued & outstanding

46,170

46,154

45,814

Additional paid-in capital

32,497

32,469

31,892

Nonvested restricted stock awards

325

244

700

Retained earnings

21,184

19,180

15,508

Accumulated other comprehensive income  (loss)

1,382

1,531

(436)

     Total equity

120,771

118,443

111,355

     Total liabilities & equity

$      1,550,520

$       1,601,683

$       1,607,142

First M&F Corporation and Subsidiary

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except share data)

Three Months Ended March 31

2013

2012

Interest and fees on loans

$           12,698

$           14,158

Interest on loans held for sale

56

173

Taxable investments

1,231

1,490

Tax exempt investments

352

318

Federal funds sold

6

15

Interest bearing bank balances

58

51

     Total interest income

14,401

16,205

Interest on deposits

1,516

2,513

Interest on fed funds and repurchase agreements

4

6

Interest on other borrowings

371

451

Interest on subordinated debt

283

271

     Total interest expense

2,174

3,241

     Net interest income

12,227

12,964

Provision for possible loan losses

1,280

2,280

     Net interest income after loan loss

10,947

10,684

Service charges on deposits

2,371

2,457

Mortgage banking income

1,291

567

Agency commission income

820

829

Fiduciary and brokerage income

160

140

Other income

1,044

837

Gains on AFS securities

16

591

     Total noninterest income

5,702

5,421

Salaries and employee benefits

6,362

6,863

Net occupancy expense

865

908

Equipment expenses

432

463

Software and processing expenses

356

362

FDIC insurance assessments

348

514

Foreclosed property expenses

588

1,456

Intangible asset amortization and impairment

106

107

Other expenses

3,882

3,313

     Total noninterest expense

12,939

13,986

     Net income before taxes

3,710

2,119

Income tax expense

1,112

512

     Net income

$            2,598

$             1,607

Earnings Per Common Share Calculations:

     Net income

$            2,598

$             1,607

Dividends and accretion on preferred stock

(497)

(463)

     Net income applicable to common stock

2,101

1,144

Earnings attributable to participating securities

81

5

     Net income allocated to common shareholders

$            2,020

$             1,139

Weighted average shares (basic)

9,231,457

9,156,476

Weighted average shares (diluted)

9,345,384

9,156,476

Basic earnings per share

$              0.22

$               0.12

Diluted earnings per share

$              0.22

$               0.12

First M&F Corporation

Financial Highlights

YTD Ended

YTD Ended

YTD Ended

YTD Ended

March 31

December 31

March 31

December 31

2013

2012

2012

2011

Performance Ratios:

Return on assets (annualized)

0.67%

0.44%

0.40%

0.27%

Return on equity (annualized)  (a)

8.84%

6.12%

5.84%

4.00%

Return on common equity (annualized)  (a)

8.51%

5.30%

4.95%

2.81%

Efficiency ratio (c)

71.25%

74.98%

75.18%

78.47%

Net interest margin (annualized, tax-equivalent)

3.53%

3.67%

3.67%

3.68%

Net charge-offs to average loans (annualized)

0.21%

0.61%

0.47%

1.05%

Nonaccrual loans to total loans

0.72%

0.75%

1.45%

1.68%

90 day accruing loans to total loans

0.03%

0.03%

0.02%

0.06%

QTD Ended

QTD Ended

QTD Ended

QTD Ended

March 31

December 31

September 30

June 30

2013

2012

2012

2012

Per Common Share (diluted):

Net income

$              0.22

$               0.14

$               0.14

$              0.14

Cash dividends paid

0.01

0.01

0.01

0.01

Book value

11.00

10.79

10.69

10.44

Closing stock price

14.15

6.98

7.42

5.18

Loan Portfolio Composition: (in thousands)

Commercial, financial and agricultural

$         150,125

$          153,550

$          155,890

$         147,773

Non-residential real estate

557,453

542,859

554,475

567,184

Residential real estate

203,260

200,992

197,629

189,927

Home equity loans

39,047

37,736

37,196

36,183

Consumer loans

37,772

40,336

42,137

41,529

   Total loans

$         987,657

$          975,473

$          987,327

$         982,596

Deposit Composition: (in thousands)

Noninterest-bearing deposits

$         252,453

$          276,295

$          233,684

$         236,145

NOW deposits

419,376

423,461

386,371

391,726

MMDA deposits

207,931

214,091

216,620

211,447

Savings deposits

119,728

118,123

117,404

116,598

Core certificates of deposit under $100,000

182,245

188,733

201,361

208,684

Core certificates of deposit $100,000 and over

159,913

165,979

177,084

178,926

Brokered certificates of deposit under $100,000

3,295

3,549

3,417

3,393

Brokered certificates of deposit $100,000 and over

7,834

12,444

13,533

14,419

   Total deposits

$      1,352,775

$       1,402,675

$       1,349,474

$      1,361,338

Nonperforming Assets: (in thousands)

Nonaccrual loans

$            7,277

$             7,444

$             6,219

$            6,443

Other real estate

24,820

25,970

28,002

31,077

Investment securities

604

733

644

639

   Total nonperforming assets

$           32,701

$           34,147

$           34,865

$           38,159

Accruing loans past due 90 days or more

$                268

$                321

$                408

$             1,537

Restructured loans (accruing)

$           21,657

$           21,800

$           16,784

$           18,372

Total nonaccrual loan to loans

0.72%

0.75%

0.62%

0.64%

Total nonperforming credit assets to loans and ORE

3.12%

3.27%

3.29%

3.62%

Total nonperforming assets to assets ratio

2.11%

2.13%

2.24%

2.44%

Allowance For Loan Loss Activity: (in thousands)

Beginning balance

$           17,492

$           16,656

$           15,310

$           16,084

Provision for loan loss

1,280

1,980

1,980

2,280

Charge-offs

(747)

(1,584)

(1,035)

(3,460)

Recoveries

244

440

401

406

Ending balance

$           18,269

$           17,492

$           16,656

$           15,310

First M&F Corporation

Financial Highlights

QTD Ended

QTD Ended

QTD Ended

QTD Ended

March 31

December 31

September 30

June 30

2013

2012

2012

2012

Condensed Income Statements: (in thousands)

Interest income

$           14,401

$           15,186

$           15,625

$           15,906

Interest expense

2,174

2,545

2,753

2,990

   Net interest income

12,227

12,641

12,872

12,916

Provision for loan losses

1,280

1,980

1,980

2,280

Noninterest revenues

5,702

5,735

5,607

6,035

Noninterest expenses

12,939

13,913

14,060

14,319

   Net income before taxes

3,710

2,483

2,439

2,352

Income tax expense

1,112

652

645

599

   Net income

$            2,598

$             1,831

$             1,794

$            1,753

Preferred dividends

(497)

(488)

(479)

(471)

   Net income applicable to common stock

2,101

1,343

1,315

1,282

Earnings attributable to participating securities

81

53

51

56

   Net income allocated to common shareholders

$            2,020

$             1,290

$             1,264

$            1,226

Tax-equivalent net interest income

$           12,458

$           12,859

$           13,088

$           13,134

Selected Average Balances: (in thousands)

Assets

$      1,570,994

$       1,585,467

$       1,546,416

$      1,577,420

Loans held for investment

977,198

982,894

984,282

973,545

Earning assets

1,431,054

1,436,348

1,396,824

1,420,370

Deposits

1,369,784

1,381,667

1,343,559

1,379,716

Equity

119,209

117,529

115,544

112,466

Common equity

100,171

98,837

97,186

94,430

Selected Ratios:

Return on average assets (annualized)

0.67%

0.46%

0.46%

0.45%

Return on average equity (annualized)  (a)

8.84%

6.19%

6.18%

6.27%

Return on average common equity (annualized)  (a)

8.51%

5.40%

5.38%

5.46%

Average equity to average assets

7.59%

7.41%

7.47%

7.13%

Tangible equity to tangible assets  (b)

7.55%

7.15%

7.28%

7.04%

Tangible common equity to tangible assets  (b)

6.31%

5.97%

6.08%

5.87%

Net interest margin (annualized, tax-equivalent)

3.53%

3.56%

3.73%

3.72%

Efficiency ratio (c)

71.25%

74.83%

75.21%

74.70%

Net charge-offs to average loans (annualized)

0.21%

0.46%

0.26%

1.26%

Nonaccrual loans to total loans

0.72%

0.75%

0.62%

0.64%

90 day accruing loans to total loans

0.03%

0.03%

0.04%

0.15%

Price to book

1.29x

0.65x

0.69x

0.50x

Price to earnings

16.08x

12.46x

13.25x

9.25x

First M&F Corporation

Financial Highlights

Historical Earnings Trends:

Earnings

Earnings

Applicable to

Allocated to

Common

Common

Earnings

Stock

Shareholders

EPS

(in thousands)

(in thousands)

(in thousands)

(diluted)

1Q 2013

$            2,598

$             2,101

$             2,020

$              0.22

4Q 2012

1,831

1,343

1,290

0.14

3Q 2012

1,794

1,315

1,264

0.14

2Q 2012

1,753

1,282

1,226

0.14

1Q 2012

1,607

1,144

1,139

0.12

4Q 2011

987

533

530

0.05

3Q 2011

1,330

882

878

0.10

2Q 2011

1,106

666

661

0.07

1Q 2011

950

518

515

0.06

Revenue Statistics:

Non-interest

Non-interest

Revenues

Revenues to

Revenues to

Per FTE

Ttl. Revenues

Avg. Assets

(thousands)

(percent)

(percent)

1Q 2013

$              40.4

31.40%

1.47%

4Q 2012

40.2

30.85%

1.44%

3Q 2012

39.9

29.99%

1.44%

2Q 2012

41.1

31.48%

1.54%

1Q 2012

40.5

29.14%

1.36%

4Q 2011

39.0

31.48%

1.50%

3Q 2011

36.6

27.96%

1.30%

2Q 2011

36.6

25.88%

1.18%

1Q 2011

37.9

30.67%

1.43%

Expense Statistics:

Non-interest

Expense to

Efficiency

Avg. Assets

Ratio

(percent)

(percent)  (c)

1Q 2013

3.34%

71.25%

4Q 2012

3.49%

74.83%

3Q 2012

3.62%

75.21%

2Q 2012

3.65%

74.70%

1Q 2012

3.50%

75.18%

4Q 2011

3.82%

80.29%

3Q 2011

3.52%

75.76%

2Q 2011

3.59%

78.56%

1Q 2011

3.70%

79.26%

First M&F Corporation

Average Balance Sheets/Yields and Costs (tax-equivalent)

(In thousands with yields and costs annualized)

QTD March 2013

QTD March 2012

Average

Average

Balance

Yield/Cost

Balance

Yield/Cost

Interest bearing bank balances

$           76,526

0.31%

$           79,212

0.26%

Federal funds sold

10,000

0.24%

25,000

0.25%

Taxable investments (amortized cost)

309,373

1.61%

299,622

2.00%

Tax-exempt investments (amortized cost)

44,187

5.16%

34,969

5.83%

Loans held for sale

13,770

1.65%

22,729

3.06%

Loans held for investment

977,198

5.28%

983,800

5.80%

   Total earning assets

1,431,054

4.15%

1,445,332

4.57%

Non-earning assets

139,940

161,681

   Total average assets

$      1,570,994

$       1,607,013

NOW

$         422,966

0.22%

$          419,260

0.46%

MMDA

212,106

0.18%

226,602

0.52%

Savings

118,719

0.80%

120,835

0.99%

Certificates of Deposit

361,037

1.08%

417,086

1.39%

Short-term borrowings

5,337

0.31%

5,054

0.48%

Other borrowings

66,173

4.01%

73,107

3.97%

   Total interest bearing liabilities

1,186,338

0.74%

1,261,944

1.03%

Non-interest bearing deposits

254,957

225,610

Non-interest bearing liabilities

10,490

8,714

Preferred equity

19,038

17,720

Common equity

100,171

93,025

   Total average liabilities and equity

$      1,570,994

$       1,607,013

Net interest spread

3.41%

3.54%

Effect of non-interest bearing deposits

0.13%

0.16%

Effect of leverage

-0.01%

-0.03%

   Net interest margin, tax-equivalent

3.53%

3.67%

Less tax equivalent adjustment:

   Investments

0.05%

0.05%

   Loans

0.01%

0.01%

Reported book net interest margin

3.47%

3.61%

First M&F Corporation

Notes to Financial Schedules

(a)  Return on equity is calculated as: (Net income attributable to First M&F Corp) divided by (Total equity)

      Return on common equity is calculated as: (Net income attributable to First M&F Corp minus preferred dividends) divided by

      (Total First M&F Corp equity minus preferred stock)

(b)  Tangible equity to tangible assets is calculated as: (Total equity minus goodwill and other intangible assets) divided by

      (Total assets minus goodwill and other intangible assets)

      Tangible common equity to tangible assets is calculated as: (Total First M&F Corp equity minus preferred stock minus

      goodwill and other intangible assets) divided by (Total assets minus goodwill and other intangible assets)

(c)  Efficiency ratio is calculated as: (Noninterest expense) divided by (Tax-equivalent net interest income plus

      noninterest revenues)

SOURCE First M&F Corp.