KOSCIUSKO, Miss., July 18 /PRNewswire-FirstCall/ -- First M&F Corp. reported today that net income for the quarter ended June 30, 2008 was a loss of $.466 million, or $(.05) basic and diluted earnings per share, compared to $3.535 million, or $.39 basic and diluted earnings per share for the second quarter of 2007. Excluding the $5 million extraordinary loan loss provision announced June 20, the Company earned $2.669 million, or $.29 for the quarter.
For the second quarter of 2008 the annualized return on assets excluding the effect of the extraordinary provision was .66%, while return on equity was 7.45%. Comparatively, the return on assets for the second quarter of 2007 was .92%, with a return on equity of 10.69%.
Hugh Potts, Jr., Chairman and CEO commented, "As previously reported on June 20th, an extraordinary provision of $5 million was made to the allowance for possible loan loss. This was a recognition of both the economic and market impact on primarily our residential construction and development portfolio. It was also a precautionary action reflecting the uncertainty in the economy, sales and values of finished projects. We believe this provision to be adequate and reasonable. Regular quarterly provisions have also increased, reflecting the increased risk in our portfolio as the economy continues to drag. These increases in the provision return the reserve to levels more in line with historic levels than to recent lower levels while the economy was growing and real estate values were climbing. This higher level of reserves bolsters the strength of the balance sheet while still leaving a strong capital position."
Mr. Potts further commented, "The core earnings of the company exclusive of the special provision was almost $2.7 million for the quarter which, while lower than the same period a year ago due to higher regular quarterly provisioning, margin compression and higher non-interest expenses, still reflects a promising earnings stream."
Net Interest Income
Reported net interest income was down by 3.1% compared to the second quarter of 2007, with the net interest margin decreasing to 3.73% on a tax equivalent basis in the second quarter of 2008 as compared to 4.00% in the second quarter of 2007. The significant contributor to the decrease in net interest income year over year was the erosion in spreads as prime dropped through the third and fourth quarters of 2007 and the first quarter of 2008. The net interest margin for the first quarter of 2008 was 3.66% as compared to 3.83% for the fourth quarter of 2007 and 3.94% for the third quarter of 2007. The margin did improve in the second quarter of 2008 as deposit repricing opportunities widened spreads. Loan yields decreased to 6.85% in the second quarter of 2008 from 7.88% in the second quarter of 2007. Loan yields also decreased from the first quarter of 2008 to the second quarter as the prime rate dropped through the first and second quarters. Average loans were $1.194 billion for the second quarter of 2008 as compared to $1.213 billion for the first quarter of 2008 and $1.122 billion during the second quarter of 2007. Loans decreased by $11 million in the second quarter of 2008 and fell by $13.3 million in the first quarter. Mr. Potts stated further, "Loan volume has declined during the year and each quarter. This is a reflection of economic activity and certain credits moving out of the bank or paying off as planned. We believe this fortifies and bolsters the balance sheet."
Deposit costs decreased in the second quarter of 2008 from the first quarter of 2008 and from the second quarter of 2007, in response to the overall fall in rates as the higher rate environment through much of 2007 gave way to Fed rate cuts in late 2007 and early 2008. Deposit costs were 2.99% in the second quarter of 2008 as compared to 3.53% in the second quarter of 2007. Deposits fell by $45.2 million during the second quarter of 2008, including $20 million in brokered certificates of deposit with the remaining decrease in higher priced retail certificates offset by healthy growth in demand deposits. Management plans to continue to focus on core deposit growth for 2008 to encourage relationship-driven deposits as a stable source of low cost funding. Mr. Potts added, "Deposits have remained steady with slight growth over last year. More expensive funding sources and deposits have been allowed to exit. Our focus on core deposits has significantly increased this lower cost funding source."
Loans as a percentage of assets were 73.90% at June 30, 2008 as compared to 72.38% at June 30, 2007 and 73.74% at December 31, 2007. Loans grew by 4.21% since the second quarter of 2007 while deposits grew by 4.64%.
Non-interest Income
Non-interest income, excluding securities transactions, for the second quarter of 2008 grew by 6.95% compared to the second quarter of 2007, with deposit-related income up 8.60%. Insurance agency commissions were up by 2.88%.
A major part of non-interest income is from deposit sources. Deposit revenues continue to be supported by debit card fee income, which increased by 23.45% in the second quarter of 2008 over 2007, while overdraft fee income increased by 7.22%.
Non-interest Expenses
Non-interest expenses were up by 7.12% in the second quarter of 2008 as compared to the second quarter of 2007 largely due to increases in de novo branches, Other Real Estate losses, debit card fraud and robberies. Salaries and benefits were flat year over year.
Credit Quality
Annualized net loan charge-offs as a percent of average loans for the second quarter of 2008 were .46% as compared to .30% for the same period in 2007. Non-accrual and 90-day past due loans as a percent of total loans were 1.27% at the end of the second quarter of 2008 as compared to .55% at the end of the 2007 quarter. The allowance for loan losses as a percentage of loans was 1.58% at June 30, 2008 as compared to 1.31% at June 30, 2007, reflecting increased provisioning. The provision for loan losses increased to $6.08 million in the second quarter of 2008 from $.630 million in the second quarter of 2007 due to increased quarterly provisions and an extraordinary $5 million provision in June, 2008. The increased provision expense was a reaction to continued distress in real estate markets, and in construction and development loans in particular, as sales of existing inventory continued to slow. Mr. Potts commented, "With regard to underwriting, standards have been tightened and exceptions have been reduced. Concentration risks are being managed down."
Balance Sheet
Total assets at June 30, 2008 were $1.617 billion as compared to $1.654 billion at the end of 2007 and $1.585 billion at June 30, 2007. Total loans were $1.195 billion compared to $1.219 billion at the end of 2007 and $1.147 billion at June 30, 2007. Deposits were $1.268 billion compared to $1.262 billion at the end of 2007 and $1.212 billion at June 30, 2007. Total capital was $139.373 million, or $ 15.38 in book value per share at June 30, 2008. Mr. Potts further added, "Capital levels are strong. By all measures the capital of First M&F remains solid and adequate to support reasonable growth and to absorb the effects of a real estate market in the doldrums and related credit issues."
Growth
In June 2007 the Company opened a full-service banking location in Cordova, Tennessee, the fourth branch in the Memphis metro market. Mr. Potts added in closing, "With regard to growth, M&F remains engaged in pursuing business opportunities which serve our communities and the companies and individuals that serve as the engines of economic growth throughout our service area. We realize the combination of real estate declines and economic slowdown have affected First M&F. We believe the negative reaction by the market, or over-reaction, to the financial services sector is unwarranted as prudent underwriting and the gradual work out of residential inventories will eventually show the sector to be healthy and vibrant. We remain focused on service, risk management, building core funding, improving profits and the value proposition of increasing shareholder value."
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 33 communities in Mississippi, Alabama, Tennessee and Florida.
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) June 30 December 31 June 30 2008 2007 2007 Cash and due from banks 52,983 54,240 47,966 Interest bearing bank balances 1,378 3,480 19,390 Federal funds sold - 2,000 - Securities available for sale (cost of $238,072, $236,575 and $237,571 ) 236,936 237,138 235,290 Loans held for sale 6,327 5,571 6,659 Loans 1,195,202 1,219,435 1,146,879 Allowance for loan losses 18,901 14,217 15,059 Net loans 1,176,301 1,205,218 1,131,820 Bank premises and equipment 45,022 45,545 42,920 Accrued interest receivable 11,031 12,434 12,499 Other real estate 6,545 6,232 3,652 Goodwill 32,572 32,572 32,572 Other intangible assets 7,369 7,612 7,807 Other assets 40,891 41,709 44,132 Total assets 1,617,355 1,653,751 1,584,707 Non-interest bearing deposits 187,145 191,206 187,604 Interest bearing deposits 1,081,232 1,071,249 1,024,556 Total deposits 1,268,377 1,262,455 1,212,160 Federal funds and repurchase agreements 17,945 9,676 12,877 Other borrowings 152,367 201,312 186,762 Junior subordinated debt 30,928 30,928 30,928 Accrued interest payable 3,523 5,151 4,219 Other liabilities 4,824 4,131 5,141 Total liabilities 1,477,964 1,513,653 1,452,087 Noncontrolling interest in subsidiaries 18 18 19 Common stock, 9,060,080, 9,067,580 and 9,061,080 shares issued & outstanding 45,300 45,338 45,305 Additional paid-in capital 30,395 30,475 30,389 Nonvested restricted stock awards 743 643 507 Retained earnings 64,683 64,395 59,412 Accumulated other comprehensive income (1,748) (771) (3,012) Total equity 139,373 140,080 132,601 Total liabilities & equity 1,617,355 1,653,751 1,584,707 First M&F Corporation and Subsidiary Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share data) Three Months Ended Six Months Ended June 30 June 30 2008 2007 2008 2007 Interest and fees on loans 20,330 22,065 42,485 43,284 Interest on loans held for sale 98 136 195 248 Taxable investments 2,357 2,367 4,714 4,851 Tax exempt investments 546 447 1,053 909 Federal funds sold 46 56 134 68 Interest bearing bank balances 28 54 105 97 Total interest income 23,405 25,125 48,686 49,457 Interest on deposits 8,149 8,848 17,870 17,519 Interest on fed funds and repurchase agreements 101 149 161 337 Interest on other borrowings 1,563 2,114 3,439 4,084 Interest on subordinated debt 492 492 989 988 Total interest expense 10,305 11,603 22,459 22,928 Net interest income 13,100 13,522 26,227 26,529 Provision for possible loan losses 6,080 630 6,860 1,260 Net interest income after loan loss 7,020 12,892 19,367 25,269 Service charges on deposits 2,930 2,698 5,723 5,197 Mortgage banking income 232 358 625 774 Agency commission income 1,037 1,008 2,038 2,049 Fiduciary and brokerage income 198 150 336 287 Other income 862 829 2,038 2,435 Loss on extinguishment of debt - (126) - (126) Gains (losses) on AFS investments 11 - 22 - Total noninterest income 5,270 4,917 10,782 10,616 Salaries and employee benefits 7,307 7,303 14,963 14,554 Net occupancy expense 1,026 902 2,031 1,769 Equipment expenses 898 918 1,789 1,815 Software and processing expenses 526 360 957 704 Intangible asset amortization 121 121 242 306 Other expenses 3,582 2,961 6,832 6,241 Total noninterest expense 13,460 12,565 26,814 25,389 Net income before taxes (1,170) 5,244 3,335 10,496 Income taxes (707) 1,702 657 3,393 Noncontrolling interest in earnings (losses) of subsidiaries, net of income taxes of $2, $5, $3 and $9 3 7 5 14 Net income (466) 3,535 2,673 7,089 Weighted average shares (basic) 9,060,080 9,057,948 9,062,195 9,055,302 Weighted average shares (diluted) 9,060,080 9,116,691 9,098,024 9,110,113 Basic earnings per share ($0.05) $0.39 $0.30 $0.78 Diluted earnings per share ($0.05) $0.39 $0.29 $0.78 Return on assets (annualized) -0.12% 0.92% 0.33% 0.93% Return on equity (annualized) -1.30% 10.69% 3.75% 10.93% Efficiency ratio 71.85% 67.02% 71.08% 67.22% Net interest margin (annualized, tax-equivalent) 3.73% 4.00% 3.69% 3.97% Net charge-offs to average loans (annualized) 0.46% 0.30% 0.36% 0.21% Nonaccrual loans to total loans 0.94% 0.51% 0.94% 0.51% 90 day accruing loans to total loans 0.33% 0.04% 0.33% 0.04% First M&F Corporation Financial Highlights QTD Ended QTD Ended QTD Ended QTD Ended June 30 March 31 Dec. 31 Sept. 30 2008 2008 2007 2007 Per Common Share (diluted): Net income (0.05) 0.34 0.39 0.42 Cash dividends paid 0.13 0.13 0.13 0.13 Book value 15.38 15.83 15.45 15.06 Closing stock price 12.55 14.50 15.80 17.55 Loan Portfolio Composition: (in thousands) Commercial, financial and agricultural 139,933 165,605 169,447 164,866 Non-residential real estate 752,437 737,964 731,595 713,619 Residential real estate 210,813 211,205 223,614 221,915 Home equity loans 45,623 45,796 45,987 44,964 Consumer loans 39,501 39,478 40,860 40,374 Other loans 6,895 6,120 7,932 12,722 Total loans 1,195,202 1,206,168 1,219,435 1,198,460 Deposit Composition: (in thousands) Noninterest-bearing deposits 187,145 187,080 191,206 186,123 NOW deposits 215,521 210,295 190,067 186,944 MMDA deposits 192,372 182,824 156,364 129,505 Savings deposits 117,645 117,532 105,924 105,819 Certificates of deposit under $100,000 273,213 289,531 301,298 287,899 Certificates of deposit $100,000 and over 274,807 299,394 289,533 292,477 Brokered certificates of deposit 7,674 26,919 28,063 26,339 Total deposits 1,268,377 1,313,575 1,262,455 1,215,106 Nonperforming Assets: (in thousands) Nonaccrual loans 11,317 9,472 6,524 6,334 Other real estate 6,545 6,927 6,232 4,926 Total nonperforming assets 17,862 16,399 12,756 11,260 Accruing loans past due 90 days or more 4,013 5,451 1,093 1,955 Total nonaccrual loan to loans 0.94% 0.78% 0.53% 0.53% Total nonperforming assets to loans and other real estate 1.48% 1.34% 1.04% 0.93% Total nonperforming assets to assets ratio 1.10% 1.00% 0.77% 0.69% Allowance For Loan Loss Activity: (in thousands) Beginning balance 14,196 14,217 14,941 15,059 Provision for loan loss 6,080 780 630 630 Charge-offs (1,516) (1,041) (1,905) (920) Recoveries 141 240 551 172 Ending balance 18,901 14,196 14,217 14,941 First M&F Corporation Financial Highlights QTD Ended QTD Ended QTD Ended QTD Ended June 30 March 31 Dec. 31 Sept. 30 2008 2008 2007 2007 Condensed Income Statements: (in thousands) Interest income 23,405 25,281 26,414 26,045 Interest expense 10,305 12,154 12,689 12,259 Net interest income 13,100 13,127 13,725 13,786 Provision for loan losses 6,080 780 630 630 Noninterest revenues 5,270 5,512 5,273 5,431 Noninterest expenses 13,460 13,354 13,089 12,895 Net income before taxes (1,170) 4,505 5,279 5,692 Income taxes (707) 1,364 1,716 1,879 Noncontrolling interest 3 2 2 5 Net income (466) 3,139 3,561 3,808 Tax-equivalent net interest income 13,464 13,475 14,039 14,084 Selected Average Balances: (in thousands) Assets 1,621,565 1,654,951 1,625,756 1,580,780 Loans held for investment 1,193,703 1,213,122 1,200,977 1,166,820 Earning assets 1,452,877 1,481,144 1,453,458 1,417,310 Deposits 1,279,024 1,295,443 1,234,452 1,215,724 Equity 144,050 142,371 139,438 135,157 Selected Ratios: Return on average assets (annualized) -0.12% 0.76% 0.87% 0.96% Return on average equity (annualized) -1.30% 8.87% 10.13% 11.18% Average equity to average assets 8.88% 8.60% 8.58% 8.55% Net interest margin (annualized, tax-equivalent) 3.73% 3.66% 3.83% 3.94% Efficiency ratio 71.85% 70.33% 67.78% 66.08% Net charge-offs to average loans (annualized) 0.46% 0.27% 0.45% 0.25% Nonaccrual loans to total loans 0.94% 0.78% 0.53% 0.53% 90 day accruing loans to total loans 0.33% 0.45% 0.09% 0.16% Price to book (x) 0.82 0.92 1.02 1.17 Price to earnings (x) N/A 10.66 10.13 10.45 First M&F Corporation Financial Highlights Historical Earnings Trends: EPS (in thousands) (diluted) 2Q 2008 (466) (0.05) 1Q 2008 3,139 0.34 4Q 2007 3,561 0.39 3Q 2007 3,808 0.42 2Q 2007 3,535 0.39 1Q 2007 3,554 0.39 4Q 2006 3,739 0.41 3Q 2006 3,665 0.40 2Q 2006 3,251 0.36 1Q 2006 3,270 0.36 4Q 2005 3,065 0.34 Revenue Statistics: Non- Non- interest interest Revenues Revenues to to Contri- Revenues Ttl. Avg. bution Per FTE Revenues Assets Margin (thousands) (percent) (percent) (percent) 2Q 2008 33.4 28.13% 1.31% 61.00% 1Q 2008 33.7 29.03% 1.34% 59.68% 4Q 2007 34.3 27.31% 1.29% 61.21% 3Q 2007 35.0 27.83% 1.36% 62.58% 2Q 2007 33.4 26.23% 1.28% 61.04% 1Q 2007 33.7 29.96% 1.50% 61.88% 4Q 2006 33.5 28.03% 1.38% 62.47% 3Q 2006 34.0 28.63% 1.44% 62.98% 2Q 2006 33.1 26.31% 1.28% 61.35% 1Q 2006 33.7 26.14% 1.32% 63.64% 4Q 2005 33.8 25.39% 1.30% 62.64% Expense Statistics: Non-interest Expense to Efficiency Avg. Assets Ratio (percent) (percent) 2Q 2008 3.34% 71.85% 1Q 2008 3.25% 70.33% 4Q 2007 3.19% 67.78% 3Q 2007 3.24% 66.08% 2Q 2007 3.26% 67.02% 1Q 2007 3.37% 67.41% 4Q 2006 3.38% 68.48% 3Q 2006 3.28% 65.11% 2Q 2006 3.27% 66.99% 1Q 2006 3.27% 64.61% 4Q 2005 3.36% 65.70% Contribution Margin: (Tax-equivalent net interest income + noninterest revenues - salaries and benefits) divided by (Tax-equivalent net interest income + noninterest revenues) Efficiency Ratio: Noninterest expense divided by (Tax-equivalent net interest income + noninterest revenues) First M&F Corporation Average Balance Sheets/Yields and Costs (tax-equivalent) (In thousands with yields and costs annualized) QTD June 2008 QTD June 2007 Average Yield/ Average Yield/ Balance Cost Balance Cost Interest bearing bank balances 5,627 1.96% 4,726 4.61% Federal funds sold 6,783 2.72% 6,247 3.59% Taxable investments (amortized cost) 182,982 5.18% 197,922 4.80% Tax-exempt investments (amortized cost) 56,376 6.21% 45,654 6.26% Loans held for sale 7,406 5.29% 9,786 5.59% Loans held for investment 1,193,703 6.86% 1,122,129 7.90% Total earning assets 1,452,877 6.58% 1,386,464 7.36% Non-earning assets 168,688 159,594 Total average assets 1,621,565 1,546,058 NOW 211,590 1.49% 190,049 1.35% MMDA 186,740 2.33% 136,525 2.52% Savings 116,720 2.32% 99,997 2.75% Certificates of Deposit 582,841 3.87% 578,631 4.62% Short-term borrowings 17,693 2.29% 12,069 4.98% Other borrowings 171,600 4.82% 204,199 5.12% Total interest bearing liabilities 1,287,184 3.22% 1,221,470 3.81% Non-interest bearing deposits 181,134 181,819 Non-interest bearing liabilities 9,197 10,133 Capital 144,050 132,636 Total average liabilities and equity 1,621,565 1,546,058 Net interest spread 3.36% 3.55% Effect of non-interest bearing deposits 0.40% 0.49% Effect of leverage -0.03% -0.04% Net interest margin, tax- equivalent 3.73% 4.00% Less tax equivalent adjustment: Investments 0.09% 0.08% Loans 0.01% 0.01% Reported book net interest margin 3.63% 3.91% First M&F Corporation Average Balance Sheets/Yields and Costs (tax-equivalent) (In thousands with yields and costs annualized) YTD June 2008 YTD June 2007 Average Average Balance Yield/Cost Balance Yield/Cost Interest bearing bank balances 7,760 2.72% 4,213 4.64% Federal funds sold 8,624 3.13% 3,576 3.83% Taxable investments (amortized cost) 185,703 5.11% 203,571 4.81% Tax-exempt investments (amortized cost) 54,257 6.22% 46,599 6.27% Loans held for sale 7,255 5.40% 9,254 5.41% Loans held for investment 1,203,412 7.11% 1,112,060 7.86% Total earning assets 1,467,011 6.77% 1,379,273 7.32% Non-earning assets 171,247 164,228 Total average assets 1,638,258 1,543,501 NOW 207,114 1.48% 197,780 1.37% MMDA 176,223 2.52% 131,938 2.42% Savings 114,346 2.54% 98,478 2.69% Certificates of Deposit 608,903 4.19% 582,546 4.60% Short-term borrowings 12,506 2.59% 13,302 5.12% Other borrowings 186,225 4.78% 199,183 5.13% Total interest bearing liabilities 1,305,317 3.46% 1,223,227 3.78% Non-interest bearing deposits 180,647 179,900 Non-interest bearing liabilities 9,083 9,558 Capital 143,211 130,816 Total average liabilities and equity 1,638,258 1,543,501 Net interest spread 3.31% 3.54% Effect of non-interest bearing deposits 0.42% 0.48% Effect of leverage -0.04% -0.05% Net interest margin, tax-equivalent 3.69% 3.97% Less tax equivalent adjustment: Investments 0.08% 0.08% Loans 0.01% 0.01% Reported book net interest margin 3.60% 3.88%
