<PAGE> 1
FIRST M & F CORPORATION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994 Commission File Number 0-9424
FIRST M & F CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Mississippi 64-0636653
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization Identification No.)
</TABLE>
Registrant's telephone number: 601-289-5121
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 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 registrant's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at February 10, 1995
----- --------------------------------
<S> <C>
Common stock ($5.00 par value) 1,335,450 shares
</TABLE>
State the aggregate market value of voting stock held by non-affiliates of the
registrant.
$22,509,000 at February 10, 1995, based on bid price for shares of $26.00 on
February 10, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Page 1 of 70 Pages
<PAGE> 2
FIRST M & F CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 1994
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1 - Business 3
Item 2 - Properties 12
Item 3 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of Security
Holders 12
PART II
Item 5 - Market for Registrants Common Stock and Related
Stockholder Matters 13
Item 6 - Selected Financial Data 14
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 8 - Financial Statements 32
Item 9 - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 60
PART III
Item 10 - Directors and Officers 60
Item 11 - Executive Compensation 62
Item 12 - Equity Ownership of Management and Principal
Stockholders 64
Item 13 - Certain Relationships and Related Transactions 67
PART IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K 68
</TABLE>
-2-
<PAGE> 3
PART I
ITEM 1 - BUSINESS
General
The Company is a bank holding company under the Bank Holding Company Act. It
engages exclusively in the banking business through its subsidiary, Merchants
and Farmers Bank (the Bank). The principal executive offices of the Company
and the Bank are located at 221 East Washington Street, Kosciusko, Mississippi.
The Company was incorporated in 1979 by management of the Bank and became the
parent of the Bank through an exchange offer pursuant to which the Company
issued shares of common stock and debentures in exchange for the then
out-standing shares of the Bank. The Company presently owns 100% of the
outstanding stock of the Bank.
The Bank was chartered and organized under the laws of the State of Mississippi
in 1890. The Bank offers a complete range of commercial and consumer banking
services through its main office and two branch offices in Kosciusko and its
branch offices in Ackerman, Brandon, Canton, Durant, Lena, Madison, Oxford,
Pearl, Philadelphia, Puckett, Ridgeland, Starkville and Weir, Mississippi. The
Bank makes commercial, real estate, consumer and agricultural loans and offers
a variety of trust services.
The Bank has three wholly-owned finance company subsidiaries - State Financial
Services, Inc., M & F Financial Services, Inc. and Family Budget Service of
Carthage, Inc. - which have offices in Kosciusko, Jackson, Pearl and Carthage,
Mississippi. The Bank also has a wholly-owned credit insurance subsidiary,
First M & F Insurance Company, Inc., based in Kosciusko. The Bank also has a
wholly-owned real estate property management subsidiary, Merchants and Farmers
Bank Securities Corp., Inc., based in Kosciusko.
As of December 31, 1994, the Bank had approximately 193 full-time equivalent
employees.
On February 12, 1992, the Board of Directors approved a four to one stock split
effected in the form of a dividend. The financial information disclosed in
this report has been restated to reflect the stock split.
Recent Acquisition Activities
On June 15, 1990, the Bank acquired the Kosciusko and Philadelphia, Mississippi
branches of Unifirst Bank for Savings, F.S.B. from the Resolution Trust
Corporation (RTC). This transaction increased the Bank's total assets by
approximately $21,100,000 and its total deposit liabilities by approximately
$21,200,000. On December 27, 1991, the Bank assumed approximately $14,397,000
of deposits and acquired certain assets of OmniBank's Rankin County operations.
This Rankin County acquisition was made to complement the Bank's opening of a
Rankin County branch in 1990. In April, 1994, the Bank acquired approximately
$5,100,000 in deposit liabilities of Security Federal Savings Association from
the RTC.
-3-
<PAGE> 4
Competition
The deregulation of the financial services industry, the elimination of many
previous distinctions between commercial banks and other types of financial
institutions and the enactment in Mississippi and other states of legislation
permitting state-wide branching or multi-bank holding companies as well as
regional interstate banking, has created a highly competitive environment for
commercial banking in the Company's market area. The principal competitive
factors in the markets for deposits and loans are interest rates paid and
charged. The Company also competes through the efficiency, quality, range of
services and products it provides, convenience of the Bank's offices and ATM
locations and office hours.
In attracting deposits and in its lending activities, the Company competes
generally with other commercial banks, savings associations, credit unions,
mortgage banking firms, consumer finance companies, securities brokerage firms,
mutual funds, insurance companies and other financial institutions, many of
which have greater resources than those available to the Company.
Supervision and Regulation
Bank Holding Company Regulation
General: As a bank holding company, the Company is subject to extensive
regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve") pursuant to the Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"). The Company also is required to file certain
reports with, and otherwise comply with the rules and regulations of, the
Securities and Exchange Commission ("the Commission") under Federal securities
laws.
Federal Regulation: The Bank Holding Company Act generally prohibits the
Company from engaging in activities other than banking or managing or
controlling banks or other permissible subsidiaries or from acquiring or
obtaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices. For
example, making, acquiring or servicing loans, leasing personal property,
providing certain investment or financial advice, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions and
certain insurance underwriting activities have all been determined by
regulations of the Federal Reserve to be permissible activities. The Bank
Holding Company Act does not place territorial limitations on permissible
bank-related activities of bank holding companies. However, despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity, or terminate its ownership or control
of any subsidiary, when it has reasonable cause to believe that continuation of
such activity or ownership of such subsidiary or control constitutes a serious
risk to the financial safety, soundness or stability of any bank subsidiary of
that holding company.
-4-
<PAGE> 5
The Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve: (1) before it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after such
acquisition, such bank holding company will directly or indirectly own or
control more than 5% of the voting shares of such bank, (2) before it or any
of its subsidiaries other than a bank may acquire all or substantially all of
the assets of a bank, or (3) before it may merge or consolidate with any other
bank holding company. In reviewing a proposed acquisition, the Federal Reserve
considers financial, managerial and competitive aspects, and must take into
consideration the future prospects of the companies and banks concerned and the
convenience and needs of the community to be served. As part of its review,
the Federal Reserve reviews the indebtedness to be incurred by a bank holding
company in connection with the proposed acquisition to ensure that the bank
holding company can service such indebtedness in a manner that does not
adversely affect the capital requirements of the holding company or its
subsidiaries. The Bank Holding Company Act further requires that consummation
of approved acquisitions or mergers be delayed for a period of not less than 30
days following the date of such approval. During such 30-day period,
complaining parties may obtain a review of the Federal Reserve's order granting
its approval by filing a petition in the appropriate United States Court of
Appeals petitioning that the order be set aside.
The Federal Reserve has adopted capital adequacy guidelines for use in its
examination and regulation of bank holding companies. The regulatory capital
of a bank holding company under applicable Federal capital adequacy guidelines
is particularly important in the Federal Reserve's evaluation of a bank holding
company and any applications by the bank holding company to the Federal
Reserve. If regulatory capital falls below minimum guideline levels, a bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open additional facilities. In
addition, a financial institution's failure to meet minimum regulatory capital
standards can lead to other penalties, including termination of deposit
insurance or appointment of a conservator or receiver for the financial
institution. There are two measures of regulatory capital presently applicable
to bank holding companies, (1) risk-based capital and (2) leverage capital
ratios.
The Federal Reserve rates bank holding companies by a component and composite
1-5 rating system ("BOPEC"). The leverage ratio recently adopted by the
Federal Reserve requires all but the most highly rated bank holding companies
to maintain Tier 1 Capital at 4% to 5% of total assets. Certain bank holding
companies having a composite 1 BOPEC rating and not experiencing or
anticipating significant growth may satisfy the Federal Reserve guidelines by
maintaining Tier 1 Capital of at least 3% of total assets. Tier 1 Capital for
bank holding companies includes: equity; minority interest in equity accounts
of consolidated subsidiaries; and qualifying perpetual preferred stock. In
addition, Tier 1 Capital excludes goodwill.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under the risk-based capital
guidelines, assets are assigned to one of four risk categories; these are 0%,
20%, 50% and 100%. As an example, U.S. Treasury securities are assigned to the
0% risk category while most categories of loans are assigned to the 100% risk
category. The risk weight of off-balance sheet items such as standby letters
of credit is determined by a two-step process. First, the amount of the
off-balance sheet item is multiplied by a credit conversion factor of either
0%, 20%, 50% or 100%. Then, the result is assigned to one of the four risks
categories.
-5-
<PAGE> 6
The primary component of risk-based capital is defined as Tier 1 Capital, which
is essentially equal to common stockholders' equity, plus a certain portion of
perpetual preferred stock. Tier 2 Capital, which consists primarily of the
excess of any perpetual preferred stock, mandatory convertible securities,
subordinated debt and general reserves for loan losses, is a secondary
component of risk-based capital. The risk-weighted asset base is equal to the
sum of the aggregate dollar values of assets and off-balance sheet items in
each risk category, multiplied by the weight assigned to that category. Under
these guidelines, at the end of 1992, bank holding companies will be required
to maintain a ratio of Tier 1 Capital to risk-weighted assets of at least 4%
and a ratio of Total Capital (Tier 1 and Tier 2) to risk-weighted assets of at
least 8%; lower phase-in requirements were effective at the end of 1990.
The Company, as a bank holding company within the meaning of the Bank Holding
Company Act, is required to obtain the prior approval of the Federal Reserve
before it may acquire substantially all the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank. In no case, however, may the Federal Reserve approve the
acquisition by the Company of the voting shares, or substantially all the
assets, of any bank located outside Mississippi unless such acquisition is
specifically authorized by the laws of the state in which the bank to be
acquired is located. The banking laws of Mississippi presently permit
out-of-state banking organizations, provided the out-of-state banking
organization's home state grants similar privileges to banking organizations in
Mississippi. This reciprocity privilege is restricted to banking organizations
in a specified geographic region which encompasses the states of Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North
Carolina, South Carolina, Tennessee, Texas, Virginia and West Virginia. In
addition, Mississippi banking organizations are permitted to acquire certain
out-of-state financial institutions. A bank holding company is additionally
prohibited from itself engaging in, or acquiring direct or indirect control of
more than 5% of the voting shares of any company engaged in, non-banking
activities.
As a bank holding company, the Company is required to give the Federal Reserve
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of the Company's
consolidated net worth. The Federal Reserve may disapprove such a purchase or
redemption if it determines that the proposal constitutes an unsafe or unsound
practice, would violate any law, regulation, Federal Reserve order or directive
or any condition imposed by, or written agreement with, the Federal Reserve.
In November 1985, the Federal Reserve adopted its Policy Statement on Cash
Dividends Not Fully Covered by Earnings (the "Policy Statement"). The Policy
Statement sets forth various guidelines that the Federal Reserve believes that
a bank holding company should follow in establishing its dividend policy. In
general, the Federal Reserve stated that bank holding companies should not pay
dividends except out of current earnings and unless the prospective rate of
earnings retention by the holding company appears consistent with its capital
needs, asset quality and overall financial condition.
-6-
<PAGE> 7
The activities of the Company are also restricted by the provisions of the
Glass-Stegall Act of 1933 (the "Act"). The Act prohibits the Company from
owning subsidiaries engaged principally in the issue, flotation, underwriting,
public sale or distribution of securities. The interpretation, scope and
application of the provisions of the Act currently are being reviewed by
regulators and legislators. The outcome of the current examination and
appraisal of the provisions in the Act and the effect of such outcome on the
ability of bank holding companies to engage in securities-related activities
cannot be predicted.
The Company is legal entity separate and distinct from the Bank. There are
various restrictions which limit the ability of the Bank to finance, pay
dividends or otherwise supply funds to the Company or other affiliates. In
addition, subsidiary banks of holding companies are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, on investments in the
stock or other securities thereof and on the taking of such stock or securities
as collateral for loans to any borrower. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with extensions of credit, or leases or sales of property or
furnishing of services.
Bank Regulation
The operations of the Bank are subject to state and Federal statues applicable
to state banks and the regulations of the Federal Reserve and of the Federal
Deposit Insurance Corporation (FDIC). Such statues and regulations relate to,
among other things, required reserves,investments, loans, mergers and
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the Bank's operations.
Merchants & Farmers Bank is subject to regulation and periodic examination by
the FDIC and the State of Mississippi Department of Banking and Consumer
Finance. These regulatory authorities examine such areas as reserves, loan and
investment quality, management policies, procedures and practices and other
aspects of operations. These examinations are designed for the protection of
the Bank's depositors, rather than its stockholder. In addition to these
regular examinations, the Company and the Bank must furnish periodic reports to
their respective regulatory authorities containing a full and accurate
statement of their affairs.
The Bank is a member of the FDIC, and their deposits are insured as provided by
law by the Bank Insurance Fund ("BIF"). As of December 31, 1994, the annual
BIF premium was 0.23% of the Bank's deposits. The Company expects BIF
insurance costs to continue to remain at current levels or to possibly decrease
based on the current level of the BIF fund. The Company's assessments are
currently determined by the level of its risk-based capital and the latest
examination grading by the FDIC.
The Bank is subject to capital regulations promulgated by the FDIC for insured
state banks. The FDIC's minimum capital requirements for an insured state
nonmember bank establishes a minimum leverage standard of 3%. Tier I Capital
to total assets for the most highly rated banks under the Uniform Interagency
Bank rating system. All other state nonmember banks are required to meet a
minimum leverage ratio of at least 4% to 5%.
-7-
<PAGE> 8
In addition, to regulating capital, the FDIC has broad authority to prevent the
development or continuance of unsafe or unsound banking practices. Pursuant to
this authority, the FDIC has adopted regulations which, among other things,
restrict preferential loans and loan amounts by banks to "affiliates" and
"insiders" of banks, require banks to keep information on loans to major
stockholders and executive officers and bar certain director and officer
interlocks between financial institutions. The FDIC also is authorized to
approve mergers, consolidations and assumption of deposit liability
transactions between insured banks and between insured banks and uninsured
banks or institutions to prevent capital or surplus depletion in such
transactions where the resulting, continuing or assumed bank is an insured
nonmember state bank, like the Bank.
Although, the Bank is not a member of the Federal Reserve System, it is subject
to Federal Reserve regulations that require the Bank to maintain reserves
against transaction accounts (primarily checking accounts), money market
deposit accounts and nonpersonal time deposits. Because reserves generally
must be maintained in cash or in noninterest-bearing accounts, the effect of
the reserve requirements is to increase the cost of funds for the Bank.
Subject to an exemption from reserve requirements on a limited amount of an
institution's transaction accounts, the Federal Reserve regulations currently
require that reserves be maintained against net transaction accounts in the
amount of 3% of the aggregate of such accounts up to $38.6 million, or, if the
aggregate of such accounts exceeds $38.6 million, $1.158 million plus 10% of
the total in excess of $38.6 million.
The foregoing is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank and is not intended to be an exhaustive
discussion of all the statutes and regulations having an impact on the
operations of such entities.
Recent Legislation
On August 9, 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted, substantially reorganizing Federal
regulation of financial institutions. Although adopted primarily to address
problems in the savings and loan industry, FIRREA made significant changes in
the regulation of financial institutions generally, including a substantial
increase in deposit insurance premiums, significant strengthening in regulatory
authority and penalties (including the imposition of liability on an
FDIC-insured institution for any losses the FDIC incurs in connection with the
default or imminent default of any FDIC-insured institutions under common
control with such institution) and new authority for bank holding companies and
banks to acquire thrifts. Deposit insurance was reorganized into two funds,
the Savings Association Insurance Fund and the Bank Insurance Fund, both of
which were made subject to management by the FDIC.
On October 22, 1990, the Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990 ("TPRA") was adopted. The most significant
provisions of this legislation imposed higher penalties for bank and thrift
fraud and broadly authorized the FDIC to increase deposit insurance premiums.
In December, 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") became law. FDICIA substantially revised the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act and made revisions to several other Federal banking statutes.
-8-
<PAGE> 9
Among other things, FDICIA requires the Federal banking regulators to take
prompt corrective action in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "Well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A depository institution
is well capitalized if it exceeds the minimum level required by regulation for
each relevant capital measure, adequately capitalized if it meets each such
measure, undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The critically undercapitalized level occurs where tangible
equity is less than 2% of total tangible assets or less than 65% of the minimum
leverage ratio to be prescribed by regulation (except to the extent that 2%
would be higher than such 65% level). A depository institution may be deemed
to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
FDICIA general prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Effective December 19, 1993, undercapitalized depository
institutions also became subject to restrictions on borrowing from the Federal
Reserve System. In addition, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. A depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The Federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. If a depository
institution fails to submit an acceptable plan, it is treated as if is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
FDICIA required the Federal banking agencies to develop, within one year of the
date of enactment, uniform accounting standards and requirements that are
consistent with, or no less stringent than, generally accepted accounting
principles. The Federal banking agencies also were required by FDICIA to
develop a method for insured depository institutions to provide supplemental
disclosure of contingent liabilities and the estimated fair market value of
assets and liabilities, to the extent feasible and practicable, for any balance
sheet, financial statement, report or condition or other report required to be
filed with a Federal banking agency. FDICIA required that the Federal banking
agencies prescribe new safety and soundness standards.
FDICIA provides authority for special assessments against insured deposits and
for the development of a general risk-based deposit insurance assessment
system. The risk-based insurance assessment system would be used to calculate
a depository institution's semiannual deposit insurance assessment based on the
probability (as defined in the statute) that the deposit insurance fund will
incur a loss with respect to the institution. In accordance with FDICIA the
FDIC approved a transitional risk-based insurance premium system and an
increase in the deposit insurance premium for commercial banks and thrifts to
an average of 25.4 basis points which became effective January 1, 1993.
-9-
<PAGE> 10
Effective with fiscal years beginning after December 31, 1992, each insured
institution having over $500 million in total assets is required to submit to
the FDIC and make available to the public an annual report on the institution's
financial condition and management's responsibility and assessment of the
internal controls over financial reporting. The institution's independent
public accountant will be required to audit and attest to certain of the
statements made in that annual report.
FDICIA amended prior law with respect to the acceptance of brokered deposits by
insured depository institutions to permit only a "well capitalized" (as defined
in the statute as significantly exceeding each relevant minimum capital level)
depository institution to accept brokered deposits without prior regulatory
approval. A depository institution which has a capital level category of
"undercapitalized" may not accept brokered deposits without prior regulatory
approval. A depository institution which has a capital level category of
"undercapitalized" may not accept brokered deposits without prior regulatory
approval. FDICIA also established new uniform disclosure requirements for the
interest rates and terms of deposit accounts.
FDICIA also contains various provisions related to an institution's interest
rate risk. Under certain circumstances, an institution may be required to
provide additional capital or maintain higher capital levels to address
interest rate risks.
The foregoing necessarily is a general description of certain provisions of
FDICIA and does not purport to be complete. Several of the provisions of
FDICIA are being implemented through the adoption of regulations by various
Federal banking agencies. FDICIA is not expected to have a material effect on
the results of operations of the Company.
The Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") was signed by the President on September 23, 1994. The Riegle
Act contains community development provisions which are designed to enhance
lending to underdeveloped areas through matching grants. The Riegle Act
attempts to streamline regulations of financial institutions through
coordinated examinations and elimination of certain publication requirements
and includes provisions on money laundering reform and national flood insurance
reform. The Riegle Act will permit bank holding companies domiciled in any
state to acquire banks and bank holding companies located in any other state
one year after the effective date of the Act. Further, unless state
legislatures elect otherwise, under the new law banks will be allowed to
establish interstate branches beginning June 1, 1997. Finally additional bills
may be introduced in the future in the United States Congress and state
legislatures to alter the structure, regulation and competitive relationships
of financial institutions. It cannot be predicted whether and what form any of
these proposals will be adopted or the extent to which the business of the
Company and the Bank may be affected thereby.
Effect of Governmental Policies
In general, the difference between the interest rate paid by a bank on its
deposits and its other borrowings, and the interest rate received by a bank on
loans extended to its customers and securities held in its investment
portfolio, will comprise a major portion of the bank's earnings. However, due
to recent deregulation of the industry, the banking business is becoming
increasingly dependent on the generation of fees and service charges.
-10-
<PAGE> 11
The earnings and growth of a bank will be affected not only by general economic
conditions, both domestic and foreign, but also by the monetary and fiscal
policy of the United States Government and its agencies, particularly the
Federal Reserve. The Federal Reserve can and does implement national monetary
policy, such as seeking to curb inflation and combat recession by its
open-market operations in United States Government securities, adjustments in
the amount of reserves that banks and other financial institutions are required
to maintain and adjustments to the discount rates applicable to borrowings by
banks which are members of the Federal Reserve System and target rates for
Federal funds transactions. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits, and also affect
interest rates charged on loans and paid on deposits. The nature and timing of
any future changes in monetary policies and their potential impact on the
Company cannot be predicted.
Impact of New Accounting Standards
In May, 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 115 (SFAS 115), "Accounting For Certain
Investments in Debt and Equity Securities". SFAS 115 is effective for fiscal
years beginning after December 15, 1993, and requires that debt and equity
securities be classified into one of three categories; held-to-maturity,
available-for- sale, or trading. Investments classified as available-for-sale
or trading are to be recorded at their fair value. Unrealized gains and losses
for trading investments shall be included in current earnings, net of
applicable income taxes. Unrealized gains and losses for available-for-sale
investments shall be excluded from earnings and reported as a separate
component of stockholders' equity, net of applicable income taxes. As
discussed in the notes to the consolidated financial statements, the Company
adopted SFAS 115 effective January 1, 1994.
In May, 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS 114 requires a creditor to measure impaired and
restructured loans at the present value of expected future cash flows,
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. For purposes of this Statement, a loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS 114 is effective for fiscal years beginning after December 15,
1994. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." This Statement
amends SFAS 114 by eliminating the income recognition provisions outlined in
SFAS 114 and allowing creditors to use existing methods for recognizing
interest income on impaired loans. SFAS 118 is effective concurrent with the
effective date of SFAS 114. The adoption of these Statements will not have a
material impact on the consolidated financial statements.
In June, 1993, the FASB issued SFAS No. 116, "Accounting for Contributions
Received and Contributions Made." SFAS 116 requires that contributions made by
the Company, including unconditional promises to give, be recognized as
expenses at their fair values in the period made. Conditional promises to give
are recognized when the conditions are substantially met. SFAS 116 is
effective for fiscal years beginning after December 15, 1994 and for interim
periods within those fiscal years. Adoption of this Statement will not have a
material impact on the consolidated financial statements.
-11-
<PAGE> 12
Internal Revenue Service Audit
As discussed in note 11 to the consolidated financial statements, as a result
of an examination of consolidated income tax returns and resulting litigation,
on September 23, 1991, the United States District Court for the Northern
District of Mississippi ruled in favor of the Company in a suit filed against
the Internal Revenue Service seeking refunds of taxes assessed and paid for
1982-1984 as a result of the disallowance, as a deductible expense of interest
payments on the Company's debentures (which have been retired). The Internal
Revenue Service appeal was dismissed by the Fifth Circuit Court on December 5,
1991. As a result of this ruling, in 1992, the Company received a refund of
taxes paid for 1982-1984 amounting to $683,952, plus interest of $841,391. In
addition, in 1992, the Company reversed of approximately $291,900 in potential
taxes that had been accrued for 1985-1990.
ITEM 2 - PROPERTIES
The Bank's main office, located at 221 East Washington Street, Kosciusko,
Mississippi, is a two-story, brick building with drive-up facilities. The Bank
owns its main office building and seventeen of its branch bank facilities. The
remaining seven branch facilities (four of which are finance company offices)
are occupied under leases, two of which are month-to-month leases, and the
remainder of which have terms expiring through 2000. It is anticipated that
all leases will be renewed.
ITEM 3 - LEGAL PROCEEDINGS
The Bank is periodically involved in routine litigation arising in the normal
course of business. In the opinion of management, there is no proceeding
pending, or to the knowledge of management, any proceeding threatened, in which
an adverse decision could result in material adverse change in the business or
financial condition of the Company or the Bank.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-12-
<PAGE> 13
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At December 31, 1994, there were 360 holders of record of the Company's common
stock. The Company's common stock is traded "over the counter". In 1987, a
Mississippi brokerage firm acted as a market maker for the stock. However, the
Company's common stock has traded on a limited basis and no firm is presently
acting as a market maker for the Company's common stock.
To the best of management's knowledge, the prevailing trading ranges for the
Company's common stock were as follows (as restated to reflect a four for one
stock split effected in the form of a dividend on February 12, 1992):
<TABLE>
<CAPTION>
Low Bid High Bid
or Last or Last
Sale Price Sale Price
---------- ----------
<S> <C> <C>
1992:
First quarter $ 9.97 $ 10.00
Second quarter 10.00 15.00
Third quarter 13.00 15.00
Fourth quarter 15.00 20.00
1993:
First quarter $ 18.00 $ 21.00
Second quarter 18.00 22.00
Third quarter 18.00 22.00
Fourth quarter 20.00 22.00
1994:
First quarter $ 25.50 $ 25.50
Second quarter 25.50 26.00
Third quarter 25.50 26.00
Fourth quarter 26.00 26.00
</TABLE>
The following is a summary of cash dividends per share (as restated to reflect
a four for one stock split effected in the form of a dividend on February 12,
1992):
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
First quarter $ .20 $ .25 $ .25
Second quarter .20 .25 .25
Third quarter .22 .25 .25
Fourth quarter .25 .25 .25
--- ---- ----
$ .87 $ 1.00 $ 1.00
=== ==== ====
</TABLE>
The ability of the Company to pay dividends is dependent upon dividends and
income tax benefits paid to the Company by the Bank. The Bank is also subject
to capital maintenance requirements imposed by regulatory authorities.
-13-
<PAGE> 14
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
Statement of Income 1994 1993 1992 1991 1990
- ------------------- ---------------------------------------------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total investment income $ 27,969 $ 25,624 $ 27,029 $ 27,735 $ 27,562
Total interest expense 11,594 10,309 11,740 15,177 16,653
------- ------- ------- ------- -------
Net investment income 16,375 15,315 15,289 12,558 10,909
Provision for possible
loan losses 808 1,015 1,209 1,253 1,377
------- ------- ------- ------- -------
Net investment income
after provision for
possible loan losses 15,567 14,300 14,080 11,305 9,532
Other operating income 3,195 2,977 3,686 2,413 2,439
Other operating expense 13,075 12,273 12,370 10,394 9,816
------- ------- ------- ------- -------
Income before income taxes 5,687 5,004 5,396 3,324 2,155
Income taxes 1,444 1,251 436 848 581
------- ------- ------- ------- -------
Net income $ 4,243 $ 3,753 $ 4,960 $ 2,476 $ 1,574
======= ======= ======= ======= =======
Earnings per share (1) $ 3.81 $ 2.81 $ 3.73 $ 1.85 $ 1.18
Dividends per share (1) $ 1.00 $ 1.00 $ .87 $ .56 $ .49
==== ==== ==== ==== ====
Selected Year-End Balances
- --------------------------
Total assets $ 415,913 $ 376,123 $ 355,952 $ 335,128 $ 300,152
Investment securities 133,013 130,905 144,574 141,347 117,196
Net loans 251,182 198,781 167,994 153,809 146,514
Earning assets 384,601 346,615 323,373 302,856 272,558
Deposits 332,701 303,573 322,987 305,858 272,962
Short-term borrowings 44,822 37,804 3,744 7,604 2,607
Debentures - - - 184 297
Other borrowings 5,232 3,409 2 552 52
Stockholders' equity $ 30,515 $ 29,087 $ 26,644 $ 22,842 $ 21,119
======= ======= ======= ======= =======
Selected Ratios
- ---------------
Return on average assets (2) 1.15% 1.02% 1.43% .79% .54%
Return on average equity (2) 15.32% 13.56% 19.44% 11.16% 7.62%
Average capital to
average assets (2) 7.52% 7.52% 7.35% 7.04% 7.13%
Dividend payout 31.45% 35.59% 23.32% 30.27% 41.53%
===== ===== ===== ===== =====
</TABLE>
(1) As restated to reflect a four for one stock split effected in the form of a
dividend on February 12, 1992.
(2) Exclusive of valuation allowance for securities available for sale.
-14-
<PAGE> 15
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides information supplemental to the audited
consolidated financial statements found elsewhere in this annual report. For a
complete understanding of this discussion, reference should be made to the
consolidated financial statements, the accompanying notes, and other financial
data presented in this report.
Results of Operations
Net income for 1994 was $4,242,939, a 13.1% increase from 1993. Net income for
1993 was $3,752,462, a decrease from 1992. However, net income for 1992 was
significantly increased due to the Company's settlement of IRS litigation.
Other income for 1992 included $841,391 in interest income from the IRS, and
income tax expense for 1992 was reduced by $975,852 related to this settlement.
As a result, 1992 net income included $1,531,170 of nonrecurring income, after
giving tax effect to the IRS interest income. Income from normal recurring
operations was $3,428,724 in 1992. Net income for 1993 increased by 9.4% over
1992 net income from normal recurring operations. Other items affecting income
are discussed in the following paragraphs.
Net Investment Income
Net interest income is the largest component of the Company's net income and
represents the income earned on interest-earning assets less the cost of
interest-bearing liabilities. This major source of income represents the
earnings from the Company's primary business of gathering funds from deposit
sources and investing those funds in loans and securities. The Company's
long-term objective is to manage those assets and liabilities to provide the
largest possible amount of income, while balancing interest-rate, credit,
liquidity and capital risks.
Net interest income increased by 6.9% in 1994. Earning assets and interest
bearing liabilities both increased in 1994, and interest income and interest
expense both increased, reflecting primarily the increase in volume and also
the increase in short-term interest rates toward the end of the year. The
26.3% increase in loans in 1994, and the related pricing of these loans
contributed to the increase in net interest income.
Net interest income remained relatively stable in 1993, with an increase of
approximately $25,000 from 1992. Although earning assets and interest bearing
liabilities both increased in 1993, interest income and interest expense both
decreased, reflecting a continued decline in short-term interest rates.
-15-
<PAGE> 16
Provision and Reserve for Possible Loan Losses
The estimate of the loan loss reserve and provision for possible loan losses is
determined by management after considering the following factors: (1)
analytical review of loan loss experience in relation to outstanding loans; (2)
internal reviews of problem loans and overall portfolio quality; (3)
examinations of the loan portfolio conducted by Federal and state supervisory
authorities; (4) management's judgment with respect to current and expected
economic conditions and their impact on the loan portfolio and borrowers
ability to pay; and (5) the relationship of the reserve for possible loan
losses to outstanding loans. The provision for loan losses was $808,192 in
1994 as compared to $1,015,166 in 1993 and $1,208,969 in 1992. The Bank has
continued to make significant efforts to strengthen the loan portfolio through
sound lending practices and careful monitoring of existing loans.
A summary of the reserve for possible loan losses follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 2,700 $ 2,300 $ 2,000 $ 2,000 $ 1,850
Charge-offs:
Commercial, financial
and agricultural 22 79 186 93 743
Real estate 105 358 535 714 71
Consumer loans 402 417 412 697 588
----- ----- ----- ----- -----
529 854 1,133 1,504 1,402
----- ----- ----- ----- -----
Recoveries:
Commercial, financial
agricultural 7 31 38 112 62
Real estate 34 44 21 11 -
Consumer loans 180 164 165 128 113
----- ----- ----- ----- -----
221 239 224 251 175
----- ----- ----- ----- -----
Net charge-offs 308 615 909 1,253 1,227
----- ----- ----- ----- -----
Provision for possible
loan losses 808 1,015 1,209 1,253 1,377
----- ----- ----- ----- -----
Balance at end of
period $ 3,200 $ 2,700 $ 2,300 $ 2,000 $ 2,000
===== ===== ===== ===== =====
</TABLE>
A summary of selected ratios follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net charge-offs to average
net loans .12% .33% .57% .84% .84%
Net charge-offs to reserve
for loan losses 9.63% 22.78% 39.52% 62.65% 68.83%
Reserve for loan losses to
net year end loans 1.26% 1.34% 1.35% 1.28% 1.35%
</TABLE>
-16-
<PAGE> 17
Non-Interest Income
Other operating income, exclusive of the effect of security transactions and
interest received from the IRS, increased by 15.4% from 1994 to 1993 and by
5.7% from 1992 to 1993. Other operating income was significantly impacted in
1992 due to the settlement of litigation with the Internal Revenue Service.
The Company received refunds of approximately $684,000 in back taxes and
$841,000 in interest on those taxes. The IRS interest was credited to
non-interest income and the taxes were credited to income tax expense.
Deposit income has increased due mainly to increased volumes in deposit account
service charges. Credit insurance income showed increases as volumes of
insurance written significantly improved.
A summary of non-interest income follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service charges on deposit accounts $ 2,606 $ 2,250 $ 2,107
Credit insurance income 390 323 271
Other fee income 260 227 218
Trust department income 49 49 61
Safe deposit income 71 71 68
Other 60 58 93
----- ----- -----
3,436 2,978 2,818
Investment transactions (241) (1) 27
IRS interest - - 841
----- ----- -----
$ 3,195 $ 2,977 $ 3,686
===== ===== =====
</TABLE>
Non-Interest Expense
Other operating expenses increased by 6.5% in 1994 and decreased by 0.8% in
1993. Payments in settlement of litigation accounted for 2.4% of the increase
in 1994. In spite of the costs involved in operating an expanded branch
network, the Company continues to focus its efforts on the control of all areas
of operating expenses.
A summary of non-interest expense follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits $ 5,859 $ 5,318 $ 5,276
Net occupancy expenses 846 879 803
Equipment and data processing expenses 1,675 1,557 1,455
Advertising and promotion 371 286 239
Postage and other carriers 387 352 359
Professional and consulting fees 291 353 465
Regulatory insurance and fees 784 795 760
Supplies and printing 404 370 401
Telephone 433 316 284
Amortization of intangible assets 225 380 401
Litigation settlement 295 - -
Other 1,505 1,667 1,926
------ ------ ------
$ 13,075 $ 12,273 $ 12,369
====== ====== ======
</TABLE>
-17-
<PAGE> 18
Income Taxes
Income tax expense was $1,443,772 in 1994, $1,251,200 in 1993 and $436,495 in
1992. However, income tax expense for 1993 operations decreased 11.4% from
income tax expense from 1992 operations, reflecting the 7.3% decrease in income
before taxes. As discussed in note 11 to the consolidated financial
statements, 1992 income tax expense includes the effects of the conclusion the
successful litigation against the Internal Revenue Service as follows:
<TABLE>
<S> <C>
Income tax expense based on 1992 operations $ 1,412,347
Effect of IRS litigation:
Refund of prior taxes paid (683,952)
Refund of prior taxes accrued (291,900)
---------
$ 436,495
=========
</TABLE>
The effective tax rate, based on normal operations, was 25.4% in 1994, 25.0% in
1993, and 26.2% in 1992. The Company's investment in state and political
subdivision bonds has increased to 26.0% of the investment portfolio in 1994
and from 17.6% in 1992. The Company does not plan to significantly increase
the proportion of the investment portfolio committed to these investments
solely for income tax considerations. However, the Company will continue to
evaluate tax-exempt investment opportunities based on the Company's tax
position and some additional investment in tax-exempt securities could be
expected.
Financial Condition
Net loans increased by 26.3% in 1994 and by 18.3% in 1993. The amortized cost
of the investment portfolio increased by 3.3% in 1994 and decreased by 9.5% in
1993, and has made more liquid as maturing securities were replaced with
shorter term instruments. These trends reflect the Company's efforts to invest
new and available funds in loans to enhance the yield on earning assets while
meeting the credit needs of its customers.
The funding of earning assets in 1994 and 1993 was made primarily through
increases in interest bearing deposits and short-term borrowings. The
following table shows the 1994 increases by type of account (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1994 1993 Change
---- ---- ------
<S> <C> <C> <C>
Non-interest bearing deposits $ 48,301 $ 41,769 $ 6,532
------- ------- ------
NOW accounts 53,036 58,097 (5,061)
MMDA and savings deposits 78,758 74,525 4,233
Certificates of deposits 152,606 129,181 23,425
------- ------- ------
Total interest bearing
deposits 284,400 261,803 22,597
------- ------- ------
Total deposits $ 332,701 $ 303,572 $ 29,129
======= ======= ======
Short-term borrowings $ 44,822 $ 37,804 $ 7,738
====== ====== =====
</TABLE>
-18-
<PAGE> 19
A comparison of the percentage composition of the investment portfolio at
December 31, follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
U. S. Treasury:
Available for sale 17.4% -
Held to maturity 9.6% 29.5%
----- -----
` 27.0% 29.5%
----- -----
U. S. Government agencies and corporations:
Available for sale 6.5% -
Held to maturity 5.3% 10.3%
----- -----
11.8% 10.3%
----- -----
Mortgage-backed investments:
Available for sale 14.5% -
Held to maturity 19.5% 37.2%
----- -----
34.0% 37.2%
----- -----
States and political subdivisions:
Available for sale 10.6% -
Held to maturity 15.4% 21.9%
----- -----
26.0% 21.9%
----- -----
Other:
Available for sale 1.2% -
Held to maturity - 1.1%
----- -----
1.2% 1.1%
----- -----
Total available for sale 50.2% -
Total held to maturity 49.8% 100.0%
----- -----
100.0% 100.0%
===== =====
</TABLE>
-19-
<PAGE> 20
Loans
The Company's primary use of funds in 1994 and 1993 was increased loan volume.
Average loans increased by 19.1% in 1994 and by 17.1% in 1993.
A summary of the loan portfolio, net of unearned income, at December 31,
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 86,769 $ 72,633 $ 67,047 $ 61,021 $ 55,256
Real estate -
construction 18,749 8,328 5,996 5,472 5,500
Real estate -
mortgage 77,568 67,092 56,246 49,337 47,257
Consumer loans 71,049 52,936 40,434 39,788 40,501
Lease financing 247 492 571 191 -
------- ------- ------- ------- -------
$ 254,382 $ 201,481 $ 170,294 $ 155,809 $ 148,514
======= ======= ======= ======= =======
</TABLE>
A schedule of loan maturities at December 31, 1994, follows (in thousands):
<TABLE>
<CAPTION>
One Year After One but After
or Less Within Five Five Years Total
-------- ------------- ---------- -----
<S> <C> <C> <C> <C>
Commercial and real estate $ 74,850 $ 95,192 $ 13,291 $ 183,333
Installment loans to
individuals 26,912 43,305 832 71,049
------- ------- ------ -------
$ 101,762 $ 138,497 $ 14,123 $ 254,382
======= ======= ====== =======
</TABLE>
A summary of interest rate sensitivity at December 31, 1994, follows (in
thousands):
<TABLE>
<CAPTION>
Fixed Rate Variable Rate Total
---------- ------------- -----
<S> <C> <C> <C>
Due after one but
within five years $ 100,676 $ 37,821 $ 138,497
Due after five years 8,186 5,937 14,123
------- ------ -------
$ 108,862 $ 43,758 $ 152,620
======= ====== =======
</TABLE>
-20-
<PAGE> 21
A summary of nonaccrual and past due loans at December 31, follows (in
thousands):
<TABLE>
<CAPTION>
Past due Percentage of Loans,
Year Nonaccrual 90 Days or More Total Net of Unearned Discount
---- ---------- --------------- ----- ------------------------
<S> <C> <C> <C> <C>
1990 $ 1,425 $ 1,416 $ 2,841 1.91%
1991 809 458 1,267 .81%
1992 730 418 1,148 .72%
1993 519 723 1,242 .62%
1994 253 392 645 .25%
===== ===== ===== ====
</TABLE>
If interest due on all nonaccrual loans had been earned at the stated loan
rates, it is estimated that investment income would have been increased by
approximately $22,000 in 1994, $86,000 in 1993 and $100,000 in 1992.
Investments
A summary of the market value (book value) of securities available for sale
at December 31, 1994, follows (in thousands):
<TABLE>
<S> <C>
U. S. Treasury $ 22,583
U. S. government agencies and corporations 8,359
Mortgage-backed investments 18,689
State and political subdivisions 14,552
Other 1,461
------
$ 65,644
======
</TABLE>
A summary of the amortized cost (book value) of investment securities at
December 31, follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U. S. Treasury $ 13,010 $ 38,553 $ 38,595
U. S. government agencies and
corporations 7,206 13,543 22,003
Mortgage-backed investments 26,352 48,630 52,311
State and political subdivisions 20,801 28,709 25,424
Other - 1,470 6,241
------ ------- -------
$ 67,369 $ 130,905 $ 144,574
====== ======= =======
</TABLE>
-21-
<PAGE> 22
The following table sets forth the market value (book value) of maturities of
securities available for sale at December 31, 1994 (in thousands), and the
weighted average yields of such securities. Tax equivalent adjustments (using
a 34% rate) have been made in calculating yields on obligations of state and
political subdivisions.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------------- --------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,495 6.33% $ 20,082 6.38% $ 1,005 6.23% $ - -%
U.S. govern-
ment agencies
and corpor-
ations 4,176 5.81% 4,183 4.97% - - - -
Mortgage-backed
securities 528 4.09% 16,564 5.39% 1,598 5.53% - -
State and
political
subdivisions 4,336 9.06% 8,955 8.11% 844 11.11% 417 11.40%
Other - - - - - - 1,461 4.50%
------ ---- ------ ---- ----- ----- ----- -----
$ 10,535 7.14% $ 49,784 6.24% $ 3,447 7.10% $ 1,878 6.03%
====== ==== ====== ==== ===== ===== ===== =====
</TABLE>
The following table sets forth the amortized cost (book value) of maturities of
investment securities at December 31, 1994 (in thousands), and the weighted
average yields of such securities. Tax equivalent adjustments (using a 34%
rate) have been made in calculating yields on obligations of state and
political subdivisions.
<TABLE>
<CAPTION>
Maturing
----------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------------- --------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ - -% $ 13,010 5.42% $ - -% $ - -%
U.S. govern-
ment agencies
and corpor-
ations - -% 5,513 5.76% 1,694 5.03% - -%
Mortgage-backed
securities 414 7.38% 19,625 5.82% 3,605 6.16% 2,708 6.59%
State and
political
subdivisions 998 7.34% 8,680 7.14% 7,302 7.37% 3,820 8.45%
----- ---- ------ ---- ------ ---- ----- ----
$ 1,412 7.35% $ 46,828 5.95% $ 12,601 6.71% $ 6,528 7.69%
===== ==== ====== ==== ====== ==== ===== ====
</TABLE>
-22-
<PAGE> 23
Deposits
As a primary source of funds, average total deposits increased by 9.6% in 1994
and decreased by 0.6% in 1993. The decrease in 1993 was primarily due to the
transfer of deposits from a public university to securities sold under
agreements to repurchase. Average interest bearing deposits increased by 1.6%
in 1994 and decreased by 1.3% in 1993. Management expects deposit growth to
continue to be the primary source of funds.
A summary of the average daily balances of deposits is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Non-interest bearing demand
deposits $ 43,594 $ 37,469 $ 35,638
Interest bearing demand and
savings deposits 135,765 144,481 142,616
Time deposits 145,096 131,787 137,266
------- ------- -------
$ 324,455 $ 313,737 $ 315,520
======= ======= =======
</TABLE>
Time deposits in excess of $100,000 as a percentage of total deposits were 8.4%
and 8.3% at December 31, 1994 and 1993. Maturities of time deposits of
$100,000 or more at December 31, 1994, are as follows (in thousands):
<TABLE>
<S> <C>
Three months or less $ 11,062
Over three through twelve months 5,209
Over twelve months 11,796
------
$ 28,067
======
</TABLE>
-23-
<PAGE> 24
Short-term Borrowings
Short-term borrowings are used by the Company as a temporary funding source.
Average balances increased significantly by $13,792,563 in 1994 and $19,554,471
in 1993.
The following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Year end balance $ 44,822,025 $ 37,804,095 $ 3,743,570
Average balance 36,212,900 22,420,337 2,865,866
Maximum month end balance
during the year 48,081,856 47,182,872 3,745,570
Interest paid 1,447,990 688,192 156,281
Average rate 4.00% 3.07% 5.45%
</TABLE>
Liquidity and Capital Resources
The primary objective of asset/liability management is to provide a balance
between safety, liquidity and impact on net investment income. Asset/liability
management remained a priority in 1994 and 1993 as management worked toward
decreasing the impact of fluctuating short-term interest rates. Management
continued to address liquidity, and available funds were used to fund continued
loan growth.
-24-
<PAGE> 25
The GAP position of the Company at December 31, 1994, is set forth in the
following table:
<TABLE>
<CAPTION>
0-3 4-12 1-5 Over
Months Months Years 5 Years
------ ------ ----- -------
<S> <C> <C> <C> <C>
Interest-bearing bank balances $ 406 $ - $ - $ -
Securities available for sale 5,429 8,309 49,314 2,592
Investment securities 581 4,702 46,060 16,046
Loans, net of unearned income 100,942 47,791 93,792 11,857
------- ------ ------- ------
Total interest-earning
assets 107,358 60,802 189,166 30,495
------- ------ ------- ------
Interest-bearing deposits 152,883 55,800 71,608 4,109
Securities sold under agreements
to repurchase and other short-term
borrowings 44,822 - - -
Other borrowings 1,310 917 959 2,046
------- ------ ------- ------
Total interest-bearing
liabilities 199,015 56,717 72,567 6,155
------- ------ ------- ------
Interest sensitivity
gap $ (91,657) $ 4,085 $ 116,599 $ 24,340
======= ====== ======= ======
</TABLE>
Variable rate instruments are presented based on repricing frequency.
Mortgage-backed investments are included in the schedule by contractual
maturity dates. Interest earning assets and interest bearing liabilities that
do not have contractual maturity dates are included in the 0-30 day category.
On a long-term basis, the ability of the Company to pay its expenses and retire
its debt is dependent upon dividends and income tax benefits paid to the
Company by the Bank. The Bank is also subject to capital maintenance
requirements imposed by regulatory authorities. At December 31, 1994, the Bank
was in compliance with such requirements and management anticipates that such
requirements will continue to be met while funding the Company through the
payment of dividends and income tax benefits.
In January 1989, the Federal Reserve Board released new standards for measuring
capital adequacy for U.S. banking organizations. These standards require banks
and bank holding companies to maintain capital based on risk-adjusted assets so
that assets with potentially higher credit risk will require more capital
backing than assets with lower risk. The standards classify capital into two
tiers. Tier one capital generally consists of common stockholders' equity less
goodwill. Tier two capital consists generally of the Tier one capital plus the
reserve for loan losses and subordinated debt. At December 31, 1992, all banks
are required to meet a minimum ratio of 8% of qualifying total capital to
risk-adjusted assets with at least 4% Tier one capital. In 1993, the capital
to assets ratio increased to 7.73% and decreased to 7.66%, exclusive of the
effect of the valuation allowance for securities available for sale by year end
1994. The risk-based capital ratios for the Company at December 31, 1994 and
1993, were far in excess of the minimum required regulatory levels. The Tier
one capital ratio was 10.74% and 12.20% while the total risk-based capital
ratio was 11.93% and 13.46%. The decreases in 1994 were due to increased loan
volume. Management expects the capital position to remain strong and to
improve during 1995, through earnings retention and the issuance of common
stock.
-25-
<PAGE> 26
The following table illustrates the Company's regulatory capital ratios at
December 31, under the year-end requirements (in thousands).
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tier one Capital $ 28,954 $ 26,171 $ 23,348
Tier two Capital adjustment 3,200 2,700 2,300
------ ------ ------
Total qualifying capital $ 32,154 $ 28,871 $ 25,648
====== ====== ======
Risk adjusted total assets $ 269,434 $ 214,445 $ 200,571
======= ======= =======
Tier one risk-based capital ratio 10.74% 12.20% 11.64%
Total risk-based capital ratio 11.93% 13.46% 12.79%
Leverage ratio 7.01% 7.01% 6.62%
===== ===== =====
</TABLE>
The Company has not been informed by any regulatory agencies that it is to
comply with any other standards than the minimum standards required in the
regulations.
-26-
<PAGE> 27
1994 Average Balance Sheets and Interest Data (In 1,000's)
<TABLE>
<CAPTION>
Average Average
Balance Interest Yield or Rate
------- -------- -------------
<S> <C> <C> <C>
Interest-bearing bank balances $ 2,276 $ 82 3.58%
Taxable investments 107,804 5,926 5.50%
Non-taxable investments 30,464 1,641 5.39%
Federal funds sold 6,064 240 3.97%
Loans, net of unearned discount 223,275 20,080 8.99%
------- ------ -----
Total interest earning assets 369,883 $ 27,969 7.56%
------- ====== =====
Cash and due from banks 15,010
Fixed assets 6,429
Other assets 9,966
Reserve for loan losses (2,983)
------
$ 398,305
=======
Interest-bearing demand and
savings deposits $ 135,765 3,528 2.60%
Time deposits 145,097 6,359 4.38%
Securities sold under agreements
to repurchase and other
short-term borrowings 36,213 1,448 4.00%
Other borrowings 4,871 259 5.32%
------- ------ -----
Total interest-bearing liabilities 321,946 $ 11,594 3.60%
------- ====== =====
Non-interest bearing demand deposits 43,594
Other liabilities 2,225
-------
367,765
Stockholders' equity 30,540
-------
$ 398,305
=======
Average yield on earning assets 7.56%
Average rate on interest-bearing
liabilities 3.60%
Interest rate spread 3.96%
Cost of total funds supporting earning assets 3.13%
Net yield on earning assets 4.43%
</TABLE>
Yields and corresponding income amounts for non-taxable investments are not
presented on a tax-equivalent basis. Average balances are computed on a
monthly basis. Non-accrual loans, the amount of which is not considered
material, have been included in the average loan amounts outstanding.
-27-
<PAGE> 28
1993 Average Balance Sheets and Interest Data (In 1,000's)
<TABLE>
<CAPTION>
Average Average
Balance Interest Yield or Rate
------- -------- -------------
<S> <C> <C> <C>
Interest-bearing bank balances $ 3,653 $ 116 3.18%
Taxable investment securities 117,136 6,877 5.87%
Non-taxable investment securities 26,020 1,537 5.91%
Federal funds sold 7,867 238 3.03%
Loans, net of unearned discount 187,521 16,856 8.99%
------- ------ ----
Total interest earning assets 342,197 $ 25,624 7.49%
------- ====== ====
Cash and due from banks 14,321
Fixed assets 6,419
Other assets 8,012
Reserve for loan losses (2,668)
-------
$ 368,281
=======
Interest-bearing demand and
savings deposits $ 144,481 3,922 2.71%
Time deposits 131,787 5,593 4.24%
Securities sold under agreements
to repurchase and other
short-term borrowings 22,420 688 3.07%
Other borrowings 1,810 106 5.86%
------- ------ ----
Total interest-bearing liabilities 300,498 $ 10,309 3.43%
------- ====== =====
Non-interest bearing demand deposits 37,469
Other liabilities 2,632
-------
340,599
Stockholders' equity 27,682
-------
$ 368,281
=======
Average yield on earning assets 7.49%
Average rate on interest-bearing
liabilities 3.43%
Interest rate spread 4.06%
Cost of total funds supporting earning assets 3.01%
Net yield on earning assets 4.48%
</TABLE>
Yields and corresponding income amounts for non-taxable investments are not
presented on a tax-equivalent basis. Average balances are computed on a
monthly basis. Non-accrual loans, the amount of which is not considered
material, have been included in the average loan amounts outstanding.
-28-
<PAGE> 29
1992 Average Balance Sheets and Interest Data (In 1,000's)
<TABLE>
<CAPTION>
Average Average
Balance Interest Yield or Rate
------- -------- -------------
<S> <C> <C> <C>
Interest-bearing bank balances $ 2,997 $ 105 3.50%
Taxable investment securities 127,349 9,256 7.27%
Non-taxable investment securities 23,254 1,516 6.52%
Federal funds sold 5,292 183 3.46%
Loans, net of unearned discount 160,120 15,969 9.97%
------- ------ ----
Total interest earning assets 319,012 $ 27,029 8.47%
------- ====== ====
Cash and due from banks 13,023
Fixed assets 6,798
Other assets 10,315
Reserve for loan losses (2,144)
-------
$ 347,004
=======
Interest-bearing demand and
savings deposits $ 142,616 4,736 3.32%
Time deposits 137,266 6,840 4.98%
Securities sold under agreements
to repurchase and other
short-term borrowings 2,866 164 5.72%
------- ------ ----
Total interest-bearing liabilities 282,748 $ 11,740 4.15%
------- ====== ====
Non-interest bearing demand deposits 35,638
Other liabilities 3,107
-------
321,493
Stockholders' equity 25,511
-------
$ 347,004
=======
Average yield on earning assets 8.47%
Average rate on interest-bearing
liabilities 4.15%
Interest rate spread 4.32%
Cost of total funds supporting earning assets 3.68%
Net yield on earning assets 4.79%
</TABLE>
Yields and corresponding income amounts for non-taxable investments are not
presented on a tax-equivalent basis. Average balances are computed on a
monthly basis. Non-accrual loans, the amount of which is not considered
material, have been included in the average loan amounts outstanding.
-29-
<PAGE> 30
Rate - Volume Analysis
<TABLE>
<CAPTION>
1994 Compared to 1993
Increase (Decrease) Due to
-------------------------------------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
Investment income:
Interest bearing bank balances $ (43,617) $ 9,386 $ (34,231)
Taxable investments (547,886) (403,138) (951,024)
Tax-exempt investments 262,541 (158,534) 104,007
Federal funds sold (54,627) 56,792 2,165
Loans, net of unearned discount 3,213,803 10,834 3,224,637
--------- ------- ---------
Total investment income 2,830,214 (484,660) 2,345,554
--------- ------- ---------
Interest expense:
Interest bearing deposits and
savings deposits (236,601) (157,341) (393,942)
Time deposits 564,875 200,883 765,758
Securities sold under agreements
to repurchase and other short-
term borrowings 423,363 336,435 759,798
Other borrowings 178,616 (24,911) 153,705
--------- ------- ---------
Total interest expense 930,253 355,066 1,285,319
--------- ------- ---------
Change in net investment
income $ 1,899,961 $ (839,726) $ 1,060,235
========= ======= =========
</TABLE>
-30-
<PAGE> 31
Rate - Volume Analysis
<TABLE>
<CAPTION>
1993 Compared to 1992
Increase (Decrease) Due to
-------------------------------------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
Investment income:
Interest bearing bank balances $ 22,947 $ (11,974) $ 10,973
Taxable investment securities (742,378) (1,637,247) (2,379,625)
Tax-exempt investment securities 180,295 (159,111) 21,184
Federal funds sold 89,178 (34,092) 55,086
Loans, net of unearned discount 2,914,682 (2,027,912) 886,770
--------- --------- ---------
Total investment income 2,464,724 (3,870,336) (1,405,612)
--------- --------- ---------
Interest expense:
Interest bearing deposits and
savings deposits 61,949 (875,628) (813,679)
Time deposits (273,033) (973,648) (1,246,681)
Securities sold under agreements
to repurchase and other short-
term borrowings 1,066,342 (534,431) 531,911
Debentures payable 83,445 14,059 97,504
--------- --------- ---------
Total interest expense 938,703 (2,369,648) (1,430,945)
--------- --------- ---------
Change in net investment
income $ 1,526,021 $ (1,500,688) $ 25,333
========= ========= =========
</TABLE>
-31-
<PAGE> 32
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public
Accountants 33
Consolidated Statements of Condition -
December 31, 1994 and 1993 34
Consolidated Statements of Income -
Years Ended December 31, 1994, 1993, 1992 35-36
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, 1993, 1992 37-38
Consolidated Statements of Cash Flows -
Years Ended December 31, 1994, 1993, 1992 39-40
Note to Consolidated Financial Statements 41-59
</TABLE>
-32-
<PAGE> 33
SHEARER
TAYLOR
& CO.
A Professional Association
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
First M & F Corporation
Kosciusko, Mississippi
We have audited the accompanying consolidated statements of condition of First
M & F Corporation and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
M & F Corporation and subsidiary as of December 31, 1994 and 1993, the results
of their consolidated operations and their consolidated cash flows for each of
the years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investment securities in 1994, to adopt the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting For Certain
Investments in Debt and Equity Securities."
/s/ SHEARER, TAYLOR & CO., P.A.
Jackson, Mississippi
February 10, 1995
Certified Public Accountants
6360 I-55 North
Suite 330
P.O. Drawer 13157
Jackson, MS 39236-3157
Telephone 601/956-0993
-33-
<PAGE> 34
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Condition
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 15,077,808 $ 15,203,929
Interest bearing bank balances 406,234 5,028,389
Federal funds sold - 11,900,000
Securities available for sale 65,643,738 -
Investment securities, market value of
$63,857,485 and $132,724,666 67,369,016 130,905,308
Loans 266,045,862 210,341,583
Unearned income (11,664,079) (8,860,515)
Reserve for possible loan losses (3,200,000) (2,700,000)
----------- -----------
Net loans 251,181,783 198,781,068
----------- -----------
Bank premises and equipment 6,569,984 6,287,735
Accrued interest receivable 3,602,636 2,699,453
Other assets 6,061,681 5,317,254
----------- -----------
$ 415,912,880 $ 376,123,136
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $ 332,701,288 $ 303,572,567
Securities sold under agreements to
repurchase and other short-term
borrowings 44,822,025 37,804,095
Other borrowings 5,231,695 3,408,833
Accrued interest payable 1,427,416 1,091,473
Other liabilities 1,215,487 1,159,607
----------- -----------
Total liabilities 385,397,911 347,036,575
----------- -----------
Stockholders' equity:
Preferred stock:
Class A; 500,000 shares authorized - -
Class B; 500,000 shares authorized - -
Common stock of $5.00 par value. 5,000,000
shares authorized; 1,337,328 shares issued 6,686,640 6,686,640
Additional paid-in capital 8,493,316 8,485,804
Retained earnings 16,862,922 13,955,433
Valuation allowance for securities available
for sale, net of income taxes (1,479,081) -
----------- -----------
30,563,797 29,127,877
Treasury stock, 1,878 shares, at cost (48,828) (41,316)
----------- -----------
Net stockholders' equity 30,514,969 29,086,561
----------- -----------
$ 415,912,880 $ 376,123,136
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-34-
<PAGE> 35
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Investment income:
Interest and fees on loans $ 20,080,016 $ 16,855,379 $ 15,968,609
Taxable securities available for sale 3,570,186 - -
Tax-exempt securities available for sale 885,420 - -
Taxable investment securities 2,355,615 6,876,825 9,256,450
Tax-exempt investment securities 755,910 1,537,323 1,516,139
Federal funds sold 240,516 238,351 183,265
Interest bearing bank balances 81,528 115,759 104,786
---------- ---------- ----------
Total investment income 27,969,191 25,623,637 27,029,249
---------- ---------- ----------
Interest expense:
Time deposits of $100,000 or more 1,118,013 972,216 924,008
Other deposits 8,769,254 8,543,235 10,651,803
Securities sold under agreements to
repurchase and other short-term
borrowings 1,447,990 688,192 156,281
Other borrowings 259,318 105,613 8,109
---------- ---------- ----------
Total interest expense 11,594,575 10,309,256 11,740,201
---------- ---------- ----------
Net investment income 16,374,616 15,314,381 15,289,048
Provision for possible loan losses 808,192 1,015,166 1,208,969
---------- ---------- ----------
Net investment income after
provision for possible loan
losses 15,566,424 14,299,215 14,080,079
---------- ---------- ----------
Other operating income:
Service charges on deposit accounts 2,606,019 2,250,263 2,106,914
Gain (loss) on investment securities - (590) 26,985
Loss on securities available for sale (240,935) - -
Credit insurance income 390,082 323,176 271,215
Other income 439,951 404,352 1,280,395
---------- ---------- ----------
Total other operating income 3,195,117 2,977,201 3,685,509
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 5,859,032 5,317,618 5,276,541
Net occupancy expenses 845,732 878,790 803,120
Equipment and data processing expenses 1,675,294 1,557,045 1,454,636
Advertising and promotion 370,962 286,008 238,800
Postage and other carriers 387,175 352,366 358,600
Professional and consulting fees 291,301 353,036 465,498
Regulatory insurance and fees 783,441 794,879 760,446
Supplies and printing 404,106 369,871 400,569
Telephone 433,067 315,948 283,798
Amortization of intangible assets 224,906 379,924 400,855
Other 1,799,814 1,667,269 1,926,336
---------- ---------- ----------
Total other operating expenses 13,074,830 12,272,754 12,369,199
---------- ---------- ----------
Income before income taxes 5,686,711 5,003,662 5,396,389
---------- ---------- ----------
</TABLE>
(Continued)
-35-
<PAGE> 36
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 5,686,711 $ 5,003,662 $ 5,396,389
Income taxes 1,443,772 1,251,200 436,495
---------- ---------- ----------
Net income $ 4,242,939 $ 3,752,462 $ 4,959,894
========== ========== ==========
Earnings per share $ 3.18 $ 2.81 $ 3.73
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-36-
<PAGE> 37
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Valuation Treasury
Stock Capital Earnings Allowance Stock Net
------ ---------- -------- --------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
January 1,
1992 $ 6,686,640 $ 8,441,016 $ 7,733,661 $ - $ (19,320) $ 22,841,997
Net income - - 4,959,894 - - 4,959,894
Cash dividends
($.87 per
share) - - (1,155,024) - - (1,155,024)
Treasury stock:
Purchases - - - - (290,067) (290,067)
Sales - - - - 286,929 286,929
--------- --------- ---------- --------- ------- ----------
December 31,
1992 6,686,640 8,441,016 11,538,531 - (22,458) 26,643,729
--------- --------- ---------- --------- ------- ----------
Net income - - 3,752,462 - - 3,752,462
Cash dividends
($1.00 per
share) - - (1,335,560) - - (1,335,560)
Treasury stock:
Purchases - - - - (75,812) (75,812)
Sales - 44,788 - - 56,954 101,742
--------- --------- ---------- --------- ------- ----------
December 31,
1993 6,686,640 8,485,804 13,955,433 - (41,316) 29,086,561
--------- --------- ---------- --------- ------- ----------
</TABLE>
(Continued)
-37-
<PAGE> 38
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Valuation Treasury
Stock Capital Earnings Allowance Stock Net
------ ---------- -------- --------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
December 31,
1993 $ 6,686,640 $ 8,485,804 $ 13,955,433 $ - $ (41,316) $ 29,086,561
Net adjustment
to beginning
balance for
change in
accounting
method - - - 1,233,553 - 1,233,553
Net income - - 4,242,939 - - 4,242,939
Cash dividends
($1.00 per
share) - - (1,335,450) - - (1,335,450)
Treasury stock:
Purchases - - - - (128,702) (128,702)
Sales - 7,512 - - 121,190 128,702
Net change in
valuation
allowance for
securities
available
for sale - - - (1,479,081) - (1,479,081)
--------- --------- ---------- --------- ------- ----------
December 31,
1994 $ 6,686,640 $ 8,493,316 $ 16,862,922 $ (1,479,081) $ (48,828) $ 30,514,969
========= ========= ========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-38-
<PAGE> 39
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,242,939 $ 3,752,462 $ 4,959,894
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,069,770 1,224,968 1,190,555
Provision for possible loan losses 808,192 1,015,166 1,208,969
Deferred income taxes (184,514) (166,500) (190,174)
(Increase) decrease in interest
receivable (903,183) 414,090 194,334
Increase (decrease) in interest payable 335,943 (391,483) (466,494)
Other, net 943,552 432,703 (15,366)
---------- ---------- ----------
Net cash provided by operating
activities 6,312,699 6,281,406 6,881,718
---------- ---------- ----------
Cash flows from investing activities:
Purchases of securities available for
sale (13,438,900) - -
Sales of securities available for sale 7,864,823 - -
Maturities of securities available
for sale 20,994,689 - -
Purchases of investment securities (25,393,501) (81,180,578) (46,534,604)
Sales of investment securities - 9,120,688 9,789,115
Maturities of investment securities 4,921,340 85,204,310 33,405,010
Net (increase) decrease in:
Interest bearing bank balances 4,622,155 (23,942) (854,767)
Federal funds sold 11,900,000 (6,100,000) (2,250,000)
Loans (54,393,417) (32,746,144) (14,372,622)
Bank premises and equipment (1,127,113) (575,464) (638,074)
Other, net 977,041 927,816 993,066
---------- ---------- ----------
Net cash used in investing
activities (43,072,883) (25,373,314) (20,462,876)
---------- ---------- ----------
</TABLE>
(Continued)
-39-
<PAGE> 40
FIRST M & F CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in:
Non-interest bearing deposits $ 6,531,946 $ 7,360,106 $ 4,359,448
Money market, NOW and savings deposits (826,826) (20,673,972) 18,797,708
Certificates of deposit 23,423,601 (6,100,970) (6,028,153)
Securities sold under agreements to
repurchase and other short-term
borrowings 7,017,930 34,060,525 1,139,321
Proceeds from other borrowings 3,500,000 3,500,000 -
Repayments of other borrowings (1,677,138) (93,167) (550,000)
Cash dividends (1,335,450) (1,335,560) (1,155,024)
Redemptions of debentures - - (183,630)
Treasury stock transactions - 25,930 (3,138)
---------- ---------- ----------
Net cash provided by financing
activities 36,634,063 16,742,892 16,376,532
---------- ---------- ----------
Net increase (decrease) in cash
and due from banks (126,121) (2,349,016) 2,795,374
Cash and due from banks at January 1 15,203,929 17,552,945 14,757,571
---------- ---------- ----------
Cash and due from banks at December 31 $ 15,077,808 $ 15,203,929 $ 17,552,945
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-40-
<PAGE> 41
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting and Reporting Policies
The accounting and reporting policies of First M & F Corporation (the
Company) which materially affect the determination of financial position
and results of operations conform to generally accepted accounting
principles and general practices within the banking industry. A summary
of these significant accounting and reporting policies is presented below.
Organization and Operations
The Company is a one-bank holding company that owns 100% of the common
stock of Merchants and Farmers Bank (the Bank) of Kosciusko, Mississippi.
The Bank is a commercial Bank and provides a full range of banking
services through its offices in central Mississippi. As a state chartered
commercial bank, the Bank is subject to Federal and state regulations and
undergoes periodic examinations by those regulatory authorities.
Principles of Consolidation
The consolidated financial statements of First M & F Corporation include
the accounts of the Company and its wholly owned subsidiary, Merchants and
Farmers Bank, and the accounts of the Bank's wholly owned finance
subsidiaries, credit insurance subsidiary and real estate subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Investments
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting For Certain
Investments in Debt and Equity Securities." SFAS 115 is effective for
fiscal years beginning after December 15, 1993, and requires that debt and
equity securities be classified into one of three categories; held to
maturity, available for sale, or trading. The Company adopted SFAS 115
effective January 1, 1994.
Securities held, which are available to be sold prior to maturity, are
classified as securities available for sale. These securities are carried
at market value. Unrealized holding gains and losses, are reported, net
of tax, as a separate component of stockholders' equity. Gains and losses
on the sale of securities available for sale are determined using the
specific identification method.
Investment securities are those securities which the Company has the
ability and intent to hold until maturity. These securities are carried
at cost, adjusted for amortization of premiums and accretion of discounts.
The adjusted cost of the specific security sold is used to compute gain or
loss on the sale of investment securities.
(Continued)
-41-
<PAGE> 42
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1: (Continued)
Loans
Loans are stated at the principal amount outstanding. Unearned income on
installment loans is recognized as income using a method that approximates
the interest method. Interest on all other loans is calculated by using
the simple interest method on daily balances of the principal amount
outstanding. The Bank's policy regarding recognition of loan fee income
and origination costs is materially in compliance with Statement of
Financial Accounting Standards No. 91, which requires that fees be
deferred and that costs be capitalized and amortized over the lives of the
respective loans.
The Bank discontinues the accrual of interest on loans and recognizes
income only as received when, in the judgment of management, the
collection of interest, but not necessarily principal, is doubtful.
Reserve for Possible Loan Losses
The Bank provides for possible loan losses on the reserve method.
Accordingly, all loan losses are charged to the reserve for possible loan
losses and all recoveries are credited to it. The reserve for possible
loan losses is based on the evaluation of the collectibility of loans,
past loan loss experience and other factors which, in management's
judgment, deserve consideration in estimating possible loan losses. Such
other factors considered by management include changes in the nature and
volume of the loan portfolio, current economic conditions that may affect
a borrower's ability to pay, review of specific problem loans, and the
relationship of the reserve for possible loan losses to outstanding loans.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Provisions for depreciation and
amortization are computed principally using the straight-line method and
charged to operating expenses over the estimated useful lives of the
assets. Costs of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Other Real Estate
Other real estate acquired through partial or total satisfaction of loans
is carried at the lower of market or the recorded loan balance at date of
acquisition (foreclosure). Any loss incurred at the date of acquisition
is charged to the reserve for possible loan losses. Gains or losses
incurred subsequent to the date of acquisition are reported in current
operations. Related operating income and expenses are reported in current
operations.
(Continued)
-42-
<PAGE> 43
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1: (Continued)
Amortization
The Bank's costs of asset acquisitions allocated to values associated with
the future earning potential of deposits assumed in 1983 and 1984 are
being amortized over a ten year period. The Company's costs in excess of
net Bank assets acquired in 1980 are being amortized on a straight-line
basis over forty years. The Bank's costs in excess of net assets acquired
in branch acquisitions are being amortized on a straight-line basis over
five and ten years.
Income Taxes
The Company, the Bank and the Bank's finance and real estate subsidiaries
file consolidated Federal and state income tax returns. The Company
adopted Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes," for the year ended December 31, 1992. The
adoption of SFAS 109 did not have a material effect on consolidated net
income.
Deferred income taxes are computed using the liability method as required
by SFAS 109. Deferred tax assets and liabilities are determined based on
the differences between the financial statement basis and income tax basis
of assets and liabilities as measured using the enacted rates which are
expected to be in effect when these differences reverse. Deferred income
tax expense (benefit) is the result of changes in deferred tax assets and
liabilities.
Stock Split
On February 12, 1992, the Company effected a four for one stock split in
the form of a dividend.
Treasury Stock
The Company accounts for treasury stock at cost, using the first-in
first-out basis of accounting. The excess of sales proceeds on treasury
stock sales over the cost of the shares sold is recorded as additional
paid in capital. The following is a summary of treasury stock share
transactions for the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
1994 5,004 5,004
1993 3,556 5,003
1992 18,901 18,468
====== ======
</TABLE>
Earnings Per Share
Earnings per share calculations are based on the weighted average number
of shares outstanding during the year of 1,335,393 in 1994, 1,335,207 in
1993, and 1,329,597 in 1992.
(Continued)
-43-
<PAGE> 44
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1: (Continued)
Statements of Cash Flows
In the accompanying consolidated statements of cash flows, the Company and
subsidiary have defined cash equivalents as those amounts included in the
statement of condition caption "Cash and Due from Banks." The following
supplemental disclosures are made related to the consolidated statements
of cash flows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest paid $ 11,259,000 $ 10,701,000 $ 12,207,000
Federal income taxes paid 1,470,000 1,570,000 1,395,000
Federal income tax refunds - 19,000 702,000
Other real estate and
repossessions acquired in
noncash foreclosures 1,185,000 944,000 898,000
========== ========== ==========
</TABLE>
Note 2: Investments
The following is a summary of the amortized cost and market value (book
value) of securities available for sale at December 31, 1994:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------------- Market
Cost Gain Loss Value
--------- ---- ---- ------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 23,520,103 $ 11,659 $ 949,397 $ 22,582,365
U. S. Government agencies
and corporations 8,832,771 5,542 479,050 8,359,263
Mortgage-backed investments 19,625,518 38,673 974,978 18,689,213
Obligations of states and
political subdivisions 14,356,184 214,344 18,971 14,551,557
Other 1,550,195 - 88,855 1,461,340
---------- ------- --------- ----------
$ 67,884,771 $ 270,218 $ 2,511,251 $ 65,643,738
========== ======= ========= ==========
</TABLE>
(Continued)
-44-
<PAGE> 45
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2: (Continued)
The following is a summary of the amortized cost (book value) and market
value of investment securities:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------------- Market
Cost Gain Loss Value
--------- ---- ---- ------
<S> <C> <C> <C> <C>
December 31, 1994:
U. S. Treasury securities $ 13,009,761 $ - $ 698,852 $ 12,310,909
U. S. Government agencies
and corporations 7,206,578 38,227 432,396 6,812,409
Mortgage-backed
investments 26,351,980 8,125 1,597,359 24,762,746
Obligations of states
and political
subdivisions 20,800,697 46,173 875,449 19,971,421
---------- ------ --------- ----------
$ 67,369,016 $ 92,525 $ 3,604,056 $ 63,857,485
========== ====== ========= ==========
December 31, 1993:
U. S. Treasury securities $ 38,553,245 $ 517,585 $ 15,240 $ 39,055,590
U. S. Government agencies
and corporations 13,542,946 157,134 23,868 13,676,212
Mortgage-backed
investments 48,630,378 587,054 170,196 49,047,236
Obligations of states
and political
subdivisions 28,708,544 978,928 151,258 29,536,214
Other 1,470,195 - 60,781 1,409,414
----------- --------- ------- -----------
$ 130,905,308 $ 2,240,701 $ 421,343 $ 132,724,666
=========== ========= ======= ===========
</TABLE>
The amortized cost and market values of securities available for sale and
investment securities at December 31, 1994, by contractual maturity, are
shown below. Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay certain obligations
with, or without, call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Investment Securities
-------------------------- ---------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
One year or less $ 10,559,327 $ 10,534,767 $ 1,411,749 $ 1,413,116
Over one through five
years 51,152,580 49,783,820 46,828,635 44,663,278
Over five through ten
years 4,245,679 3,446,961 12,600,711 11,632,062
After ten years 1,927,185 1,878,190 6,527,921 6,149,029
---------- ---------- ---------- ----------
$ 67,884,771 $ 65,643,738 $ 67,369,016 $ 63,857,485
========== ========== ========== ==========
</TABLE>
(Continued)
-45-
<PAGE> 46
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2: (Continued)
The following is a summary of the amortized cost and market value of
securities available for sale and investment securities which were pledged
to secure public deposits, short-term borrowings and for other purposes
required or permitted by law.
<TABLE>
<CAPTION>
Available for Sale Investment Securities
-------------------------- ---------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
December 31, 1994 $ 57,883,179 $ 55,304,807 $ 51,934,075 $ 48,292,577
========== ========== ========== ==========
December 31, 1993 $ - $ - $125,442,582 $126,433,992
========== ========== =========== ===========
</TABLE>
The following is a summary of gross realized gains and losses on
investment transactions:
<TABLE>
<CAPTION>
Available
for Sale Investment Securities
--------- -------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross realized gains $ 9,669 $ 14,356 $ 85,072
Gross realized losses (250,604) (14,946) (58,087)
------- ------ ------
$ (240,935) $ (590) $ 26,985
======= ====== ======
</TABLE>
Note 3: Loans
The Bank's loan portfolio includes commercial, consumer, agribusiness and
residential loans throughout the State of Mississippi, but primarily in
its market area in Central Mississippi. The composition of the Company's
loan portfolio at December 31, 1994 and 1993, follows, net of unearned
income.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commercial, financial and
agricultural $ 33,645,306 $ 30,882,911
Residential real estate 65,815,030 57,459,976
Non-residential real estate 83,872,888 60,202,620
Consumer loans 71,048,559 52,935,561
----------- -----------
$ 254,381,783 $ 201,481,068
=========== ===========
</TABLE>
(Continued)
-46-
<PAGE> 47
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3: (Continued)
The Bank has made, and expects in the future to continue to make, in
the ordinary course of business, loans to directors and executive
officers of the Company and the Bank and to affiliates of these
directors and officers. In the opinion of management, these
transactions were made on substantially the same terms as those
prevailing at the time for comparable transactions with other persons
and did not involve more than normal risk of collectibility or contain
any other unfavorable features. An analysis of such outstanding loans
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Loans outstanding at January 1 $ 2,133,804 $ 2,234,355
New loans 2,063,013 911,869
Repayments and removals (1,012,193) (1,012,420)
--------- ---------
Loans outstanding at December 31 $ 3,184,624 $ 2,133,804
========= =========
</TABLE>
Note 4: Reserve for Possible Loan Losses
Transactions in the reserve for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 2,700,000 $ 2,300,000 $ 2,000,000
Loans charged-off (528,767) (854,235) (1,133,489)
Recoveries 220,575 239,069 224,520
--------- --------- ---------
Net charge-offs (308,192) (615,166) (908,969)
--------- --------- ---------
Provision for possible loan
losses 808,192 1,015,166 1,208,969
--------- --------- ---------
Balance at December 31 $ 3,200,000 $ 2,700,000 $ 2,300,000
========= ========= =========
</TABLE>
-47-
<PAGE> 48
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5: Bank Premises and Equipment
A summary of bank premises and equipment follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land and buildings $ 7,607,498 $ 7,357,661
Furniture, fixtures and equipment 5,357,421 4,855,380
Leasehold improvements 314,078 311,066
---------- ----------
13,278,997 12,524,107
Less accumulated depreciation and
amortization 7,001,989 6,236,372
---------- ----------
6,277,008 6,287,735
Construction in progress, estimated
costs to complete of $139,000 292,976 -
---------- ----------
$ 6,569,984 $ 6,287,735
========== ==========
</TABLE>
Amounts charged to other operating expenses for depreciation and
amortization of bank premises and equipment were approximately $845,000
in 1994, $845,000 in 1993, and $789,700 in 1992.
Note 6: Other Assets
A summary of other assets follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Company's cost in excess of net Bank
assets acquired in 1980, less
accumulated amortization of $1,436,839
and $1,340,768 $ 2,440,229 $ 2,537,290
Bank's costs of asset acquisitions in
1983 and 1984 allocated to values
associated with the future earning
potential of deposits assumed, less
accumulated amortization of $2,306,014
and $2,282,829 - 23,185
Bank's costs in excess of net assets
acquired in branch acquisitions, less
accumulated amortization of $1,050,419
and $945,759 600,204 354,864
Other real estate, net 868,732 1,061,218
Deferred income tax 1,422,966 476,500
Other 729,550 864,197
--------- ---------
$ 6,061,681 $ 5,317,254
========= =========
</TABLE>
(Continued)
-48-
<PAGE> 49
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6: (Continued)
Other expenses include amortization of intangible assets as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Company's costs in excess of net
Bank assets acquired in 1980 $ 97,061 $ 97,061 $ 97,061
Bank's cost of asset acquisitions
in 1983 and 1984 allocated to
values associated with the
future earning potential of
deposits assumed 23,185 139,112 160,043
Bank's costs in excess of net
assets acquired in branch
acquisitions 104,660 143,751 143,751
------- ------- -------
$ 224,906 $ 379,924 $ 400,855
======= ======= =======
</TABLE>
Changes in the valuation allowance for other real estate for the years
ended December 31, 1994, 1993 and 1992, are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 15,700 $ 20,000 $ 19,845
Provision charged to expense 19,800 64,568 74,601
Writedowns - (68,868) (74,446)
------ ------ ------
Balance at end of year $ 35,500 $ 15,700 $ 20,000
====== ====== ======
</TABLE>
Note 7: Deposits
The following is a summary of deposits at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Non-interest bearing $ 48,301,348 $ 41,769,402
Interest bearing:
Money market accounts 39,319,107 34,428,805
NOW accounts 53,036,673 58,097,222
Savings accounts 39,439,093 40,095,672
Time deposits of $100,000 or more 28,066,923 25,194,512
Other time deposits 124,538,144 103,986,954
----------- -----------
Total interest bearing 284,399,940 261,803,165
----------- -----------
Total deposits $ 332,701,288 $ 303,572,567
=========== ===========
</TABLE>
-49-
<PAGE> 50
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8: Short-Term Borrowings
The following is a summary of information related to securities sold
under agreements to repurchase and other short-term borrowings for the
years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Weighted
Balance Outstanding Average Rate
--------------------------------------- ---------------------
Maximum Average At At
Month End Daily Year End During Year Year End
--------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1994:
Federal funds
purchased $ 2,650,000 $ 360,000 $ 1,950,000 4.38% 5.50%
Securities sold
under agreements
to repurchase 43,404,266 33,998,172 41,939,078 3.87% 5.34%
Other short-term
borrowings by
the Company 2,027,590 1,854,728 932,947 6.29% 7.85%
---------- ---------- ---------- ==== ====
$ 48,081,856 $ 36,212,900 $ 44,822,025
========== ========== ==========
1993:
Federal funds
purchased $ 1,000,000 $ 51,919 $ - 2.51% -
Securities sold
under agreements
to repurchase 43,106,802 19,918,241 35,726,505 2.88% 3.19%
Other short-term
borrowings by
the Company 3,076,070 2,450,177 2,077,590 4.66% 5.03%
---------- ---------- ---------- ==== ====
$ 47,182,872 $ 22,420,337 $ 37,804,095
========== ========== ==========
1992:
Other short-term
borrowings by
the Company $ 3,745,570 $ 2,865,866 $ 3,743,570 5.74% 4.77%
========= ========= ========= ==== ====
</TABLE>
Federal funds purchased represent primarily overnight borrowings.
Securities sold under agreements to repurchase primarily represent a
relationship with a public university under a contract that expires on
June 30, 1996. These borrowings reprice on a monthly basis. The
nature of this relationship changed from a deposit relationship in
1993. Other short-term borrowings by the Company represent unsecured
borrowings from various individuals and entities.
(Continued)
-50-
<PAGE> 51
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9: Other Borrowings
The following is a summary of other borrowings at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Line of credit in the original amount of
$2,500,000; secured by approximately 22%
of the Bank's common stock; interest
payable semi-annually at the lender's
prime rate; maximum allowable borrowing
is as follows:
1993 1,225,000
1994 884,350
1995 543,700 $ 502,000 $ 2,000
Advances from Federal Home Loan Bank of
Dallas secured by first mortgage loans
and Federal Home Loan Bank stock:
5.56% advance in the amount of $1,000,000;
interest is payable monthly and
principal is payable on September 23,
2000 1,000,000 1,000,000
5.90% advance in the amount of $2,500,000;
principal and interest are payable in
monthly installments of approximately
$28,000 through June 1, 2003; future
maturities are as follows: 1995 -
$206,571; 1996 - $219,095; 1997 -
$232,376; 1998 - $246,464; 1999 -
$261,404; after 1999 - $1,046,158 2,212,068 2,406,833
4.71% advance in the amount of $3,000,000;
principal and interest payable in
monthly installments of approximately
$256,000 through June 1, 1995 1,517,627 -
--------- ---------
$ 5,231,695 $ 3,408,833
========= =========
</TABLE>
-51-
<PAGE> 52
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10: Employee Benefit Plans
The Bank has a defined benefit pension plan covering substantially all
full time employees of the Bank and subsidiaries. Benefits under this
plan are based on years of service and average annual compensation for
a five year period. The Bank's funding policy for the plan is to
contribute annually in an amount not to exceed the amount that can be
deducted for Federal income tax purposes. Contributions of $40,000 and
$74,968 were made to the plan in 1994 and 1993.
Net pension cost (benefit) included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost $ 103,993 $ 94,404 $ 87,507
Interest cost 161,276 147,038 135,004
Actual return on plan assets (195,175) (186,201) (171,017)
Net amortization and deferral (34,672) (34,672) (31,120)
------- ------- -------
$ 35,422 $ 20,569 $ 20,374
======= ======= =======
</TABLE>
The following table sets forth the plan's funded status and amounts
recorded in the consolidated statements of condition:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 1,633,446 $ 1,444,662
Non-vested benefit obligation 19,645 13,625
--------- ---------
Total benefit obligation $ 1,653,091 $ 1,458,287
========= =========
Projected benefit obligation $ (2,173,281) $ (2,064,282)
Market value of plan assets 2,128,251 2,161,194
--------- ---------
Plan assets in excess of (less than)
projected benefit obligation (45,030) 96,912
Unrecognized net loss during the year 391,302 244,486
Remaining unrecognized net asset at
transition date (242,700) (277,372)
Contributions after measurement date 40,000 74,968
--------- ---------
Net pension asset $ 143,572 $ 138,994
========= =========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 8% and 6%, respectively. The
expected long-term rate of return on plan assets was 9%. Plan assets
consist primarily of U. S. Government securities and bank certificates
of deposit.
(Continued)
-52-
<PAGE> 53
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10: (Continued)
The Bank has a profit and savings plan covering substantially all full
time employees of the Bank and subsidiaries. Effective April 1, 1987,
the plan was amended to an Employee Stock Option Plan (ESOP). This
amended plan provides for employee salary deferrals of not more than
$2,000 per year. The Bank does not match employee contributions, but
makes contributions to the plan at the discretion of the Board of
Directors. Contributions to this plan were $25,000 in 1994, $40,000 in
1993, and $75,000 in 1992.
At December 31, 1994, the ESOP owned 47,269 shares of the Company's
common stock and the pension plan owned 1,800 shares of the Company'
common stock.
Note 11: Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current income taxes $ 1,628,286 $ 1,417,700 $ 626,669
Deferred income taxes (184,514) (166,500) (190,174)
--------- --------- -------
$ 1,443,772 $ 1,251,200 $ 436,495
========= ========= =======
</TABLE>
The differences between actual income tax expense and expected income
tax expense are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Amount computed using the
statutory rates on income
before income taxes $ 1,933,500 $ 1,701,200 $ 1,834,800
Increase (decrease) resulting
from:
Tax exempt income, net of
disallowed interest
deduction (547,600) (515,300) (523,500)
Amortization of intangible
assets 54,600 116,300 136,300
Small life insurance company
deduction (51,700) (57,400) (48,100)
Effect of IRS litigation:
Refund of prior taxes paid - - (683,952)
Reversal of prior taxes
accrued - - (291,900)
Other, net 54,972 6,400 12,847
--------- --------- ---------
$ 1,443,772 $ 1,251,200 $ 436,495
========= ========= =========
</TABLE>
(Continued)
-53-
<PAGE> 54
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11: (Continued)
The components of deferred income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Financial loan loss provision
in excess of tax provision $ (159,100) $ (101,100) $ (80,100)
Tax depreciation less than
financial depreciation (26,000) (28,100) (33,600)
Life insurance income 3,114 (9,400) (40,174)
Fee income 24,800 (10,900) (10,400)
Other, net (27,328) (17,000) (25,900)
------- ------- -------
$ (184,514) $ (166,500) $ (190,174)
======= ======= =======
</TABLE>
The components of the recorded net deferred tax asset at December 31,
1994 and 1993, consist of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Reserve for possible loan losses $ 766,900 $ 607,800
Depreciation (198,900) (224,900)
Prepaid pension asset (48,800) (47,300)
Life insurance income 30,214 27,100
Other real estate 48,500 44,700
Fee income 18,900 43,700
Market valuation for securities available
for sale 761,952 -
Other, net 44,200 25,400
--------- -------
$ 1,422,966 $ 476,500
========= =======
</TABLE>
On September 23, 1991, the United States District Court for the
Northern District of Mississippi ruled in favor of the Company in a
suit filed against the Internal Revenue Service seeking refunds of
taxes assessed and paid for 1982-1984 as a result of the disallowance,
as a deductible expense, of interest payments on the Company's
debentures (which have been retired). The Internal Revenue Service
appeal was dismissed by the Fifth Circuit Court on December 5, 1991.
As a result of this ruling, the Company received a refund of taxes paid
for 1982-1984 amounting to $683,952 in 1992, plus interest of $841,391.
This interest income from the Internal Revenue Service is included in
other income on the accompanying 1992 consolidated statement of income.
In addition, as a result of this ruling, the Company reversed $291,900
of income taxes in 1992 that had been accrued, for 1985 and later
years, related to this issue.
-54-
<PAGE> 55
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12: Preferred Stock
The Company is authorized to issue 500,000 shares of cumulative Class A
voting preferred stock of no par value and 500,000 shares of cumulative
Class B non-voting preferred stock of no par value. Dividend rates,
redemption terms and conversion terms may be set by the Board of
Directors.
Note 13: Commitments and Contingencies
The Company and Bank, in the normal course of business, are defendants
in certain legal claims. Management and legal counsel are of the
opinion that these actions will not have a material effect on the
Company's consolidated financial position.
The Bank paid $295,000 in an agreed settlement of a legal action in
1994. This payment is included in other expenses in the accompanying
1994 consolidated statement of income.
The consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course
of business and which involve elements of credit risk, interest rate
risk and liquidity risk. The Bank makes commitments to extend credit
and issues standby and commercial letters of credit in the normal
course of business to fulfill the financing needs of its customers.
Commitments to extend credit are agreements to lend money to customers
pursuant to certain specified conditions and generally have fixed
expiration dates or other termination clauses. Credit card
arrangements represent the amount that preapproved credit limits exceed
actual balances. Since many of these commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. When making these
commitments, the Bank applies the same credit policies and standards as
it does in the normal lending process. Collateral is obtained based
upon the Bank's assessment of a customer's credit worthiness.
Standby and commercial letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. When issuing letters of credit, the Bank applies the same
credit policies and standards as it does in the normal lending process.
Collateral is obtained based upon the Bank's assessment of a customer's
credit worthiness.
The maximum credit exposure in the event of nonperformance for loan
commitments and standby letters of credit and credit card arrangements
is represented by the contract amount of the instruments.
(Continued)
-55-
<PAGE> 56
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13: (Continued)
A summary of commitments and contingent liabilities at December 31,
1994, is as follows:
<TABLE>
<S> <C>
Commitments to extend credit $ 20,630,277
Standby letters of credit 1,092,476
Credit card arrangements 3,066,101
----------
$ 24,788,854
==========
</TABLE>
Note 14: Regulatory Matters
Federal banking regulations require that the Bank maintain certain cash
reserves based on a percent of deposits. This requirement was
approximately $5,450,000 at December 31, 1994.
The ability of the Company to pay future dividends is dependent upon
dividends to be paid to the Company by the Bank. The Bank is subject
to dividend restrictions as imposed by Federal and state regulatory
authorities. These restrictions are not anticipated to have a material
effect on the ability of the Bank to pay dividends to the Company.
The Bank is required to maintain minimum amounts of capital to average
assets and to average "risk weighted assets", as defined and determined
by banking regulators. The Bank's regulatory capital was in excess of
minimum capital levels required by regulatory authorities at December
31, 1994.
Note 15: Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Value of Financial Instruments" requires that
the Company disclose estimated fair value for its financial
instruments. However, such disclosures may be deemed not to be
practicable for certain classes of financial instruments. A summary of
financial instruments and related disclosures follows:
Cash and due from banks, interest bearing deposits with banks and
Federal funds sold - The net book value of these financial instruments
approximates fair value due to the immediate availability on short
maturity of these investments.
Investments - Fair value of these financial instruments is considered
to be their quoted market value as disclosed in note 2.
(Continued)
-56-
<PAGE> 57
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15: (Continued)
Loans - The fair value of loans is estimated by discounting the future
cash flows using a constructed rate consisting of four factors: (1) a
risk-free yield, (2) a credit risk component, (3) an operating expense
component and (4) a prepayment risk component. This constructed rate
should approximate rates at which these loans would currently be made
to borrowers with similar credit ratings and for similar maturity and
repricing characteristics. The carrying value of loans, net of the
reserve for possible loan losses, is approximately $251,182,000 and
$198,781,000 and the estimated net fair value of loans is $246,490,000
and $202,938,000 at December 31, 1994 and 1993.
Deposits - The fair value of demand deposits, NOW accounts, money
market accounts and savings deposits is the carrying amount at the
reporting date. The fair value of certificates of deposit is estimated
by discounting the future cash flows using a constructed rate
consisting of two factors: (1) a risk-free rate and (2) an operating
expense component. This rate should approximate current market rates
for deposits of similar maturities at the reporting date. The carrying
value of deposits is approximately $332,701,000 and $303,573,000 and
the estimated net fair value of deposits is $327,600,000 and
$304,389,000 at December 31, 1994 and 1993.
Short-term and other borrowings - The net book value of these financial
instruments approximates fair value due to the short term nature of
these items or their applicable interest rates and repayment terms.
Commitments to extend credit - As disclosed in note 13, the Bank has
certain commitments to extend credit at December 31, 1994. These
commitments include different types of borrowers, collateral
requirements, maturity dates, interest rates and repricing schedules.
Due to the effort and difficulty in implementing a valuation model to
estimate the fair value of these commitments, the Bank does not
consider the disclosure to be practicable for these items. However,
due to the pricing, terms and conditions for the outstanding
commitments to extend credit, in the opinion of management, the
estimated fair value of commitments to extend credit is not materially
different from the stated amounts as disclosed in note 13.
-57-
<PAGE> 58
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 16: Summarized Financial Information of First M & F Corporation
Summarized financial information of First M & F Corporation (parent company
only) is as follow:
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Cash $ 154,222 $ 613,231
Investment in subsidiary 31,805,210 30,570,152
Other investments 22,500 22,500
Land and building 76,395 79,314
---------- ----------
$ 32,058,327 $ 31,285,197
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Short-term borrowings $ 932,947 $ 2,077,590
Note payable to bank 502,000 2,000
Other liabilities 108,411 119,046
Stockholders' equity 30,514,969 29,086,561
---------- ----------
$ 32,058,327 $ 31,285,197
========== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends received from
subsidiary $ 1,600,000 $ 1,600,000 $ 1,300,000
Equity in undistributed
earnings of subsidiary, net
of amortization 2,714,139 2,217,789 2,314,924
Other income 13,410 31,173 854,768
--------- --------- ---------
Total income 4,327,549 3,848,962 4,469,692
--------- --------- ---------
Expenses:
Interest 116,743 114,201 146,943
Other expenses 8,578 23,299 148,255
--------- --------- ---------
Total expenses 125,321 137,500 295,198
--------- --------- ---------
Income before
income taxes 4,202,228 3,711,462 4,174,494
Income tax benefit 40,711 41,000 785,400
--------- --------- ---------
Net income $ 4,242,939 $ 3,752,462 $ 4,959,894
========= ========= =========
</TABLE>
(Continued)
-58-
<PAGE> 59
FIRST M & F CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 16: (Continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 4,242,939 $ 3,752,462 $ 4,959,894
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiary (2,714,139) (2,217,789) (2,314,924)
Other, net (7,716) (220,693) (241,582)
--------- --------- ---------
Net cash provided by
operating activities 1,521,084 1,313,980 2,403,388
--------- --------- ---------
Cash flows from investing activities -
(increase) decrease in investments - 1,003,000 (1,000,000)
--------- --------- ---------
Cash flows from financing
activities:
Increase (decrease) in:
Short-term borrowings (1,144,643) (998,480) 421,821
Note payable to bank 500,000 - -
Redemptions of debentures - - (183,630)
Treasury stock transactions - 25,930 (3,138)
Cash dividends (1,335,450) (1,335,560) (1,155,024)
--------- --------- ---------
Net cash used in financing
activities (1,980,093) (2,308,110) (919,971)
--------- --------- ---------
Net increase in cash (459,009) 8,870 483,417
Cash at January 1 613,231 604,361 120,944
--------- --------- ---------
Cash at December 31 $ 154,222 $ 613,231 $ 604,361
========= ========= =========
</TABLE>
-59-
<PAGE> 60
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND OFFICERS
The following table provides certain information concerning directors and
executive officers of the Company as of January 1, 1995:
<TABLE>
<CAPTION>
Position Held in Company Term as
Principal Occupation Director
Name and Age During Last Five Years Expires
------------ ------------------------ --------
<S> <C> <C>
Fred A. Bell, Jr., 53 Director since 1981; 1997
Manager, Mississippi
Materials Corp.
(concrete and building
materials manufacturer/
distributor)
Charles T. England, 58 Director since 1980; 1997
Supervisor of Finance Company
subsidiaries of Bank
beginning in 1995; Registered
Representative Security Financial
Network in 1994; Farmer; Formerly
Chancery Clerk, Attala County
Toxey Hall, III, 55 Director since 1984; 1997
President, Thomas-Walker-Lacy, Inc.
(retail discount store)
*Robert Y. Hammond, 71 Director since 1979; 1995
Member, Audit Committee;
Retired; formerly President of Bank
Joe Ivey, 36 Director since 1994; Chairman and 1997
CEO, Ivey Mechanical (plumbing
and electrical contractors)
J. Marlin Ivey, 58 Director since 1979; Member, Audit 1997
Committee;
President, Ivey National Corp.
(holding company for various
businesses, including an antique
store and rental properties)
R. Dale McBride, 55 Director since 1979; 1996
President of the Durant Branch of
the Bank
</TABLE>
-60-
<PAGE> 61
<TABLE>
<CAPTION>
Position Held in Company Term as
Principal Occupation Director
Name and Age During Last Five Years Expires
------------ ------------------------ --------
<S> <C> <C>
*Susan P. McCaffery, 55 Director since 1987; 1997
Professor, Wood Junior College
Dr. William M. Myers, 66 Director since 1979; 1995
Dentist
Otho E. Pettit, Jr., 45 Director since 1993; 1996
Attorney
*Hugh S. Potts, Jr., 49 Director since 1979; 1996
Chairman and CEO since 1994,
Vice-President 1979-1983,
Vice-Chairman of the Bank through
1993
*Charles W. Ritter, Jr., 61 Director since 1979; 1996
Chairman, Audit Committee;
President, The Attala Company
(feed manufacturing company)
*W. C. Shoemaker, 62 Director since 1979; 1995
Consultant, IMC Webb Graphics
(printing company)
*Scott M. Wiggers, 49 Director since 1983; 1995
President since 1988; Treasurer
since 1979; President of the Bank
Edward G. Woodard, 39 Director since 1989; 1997
Member, Audit Committee;
President, K. M. Distributing, Inc.
(wholesaler of chainsaws, lawn and
garden products)
</TABLE>
*Member of the Executive
Committee of the Bank
Hugh S. Potts, Jr. and Susan P. McCaffery are brother and sister. J. Marlin
Ivey is the father of Joe Ivey.
-61-
<PAGE> 62
ITEM 11-EXECUTIVE COMPENSATION
The following tables shows the cash compensation for 1994, 1993 and 1992 for
the chief executive officer of the Company and all executive officers of the
Company and the Bank) whose cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------------------------------------------
Other All
Name and Annual Other
Principal Position Year Salary Bonus Compensation Compensation
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hugh S. Potts, Jr. 1994 $ 149,643 $ 15,000 $ 1,358 (1) $ -
Chairman of the ---------------------------------------------------------------
Board and CEO 1993 141,173 9,750 1,330 (1) -
since 4/15/94; ---------------------------------------------------------------
Vice Chairman 1992 130,167 12,903 1,136 (1) -
until 4/15/94
--------------------------------------------------------------------------------------
Scott M. Wiggers 1994 109,823 10,000 1,453 (1) -
---------------------------------------------------------------
President 1993 101,686 12,000 636 (1) -
---------------------------------------------------------------
1992 93,503 9,274 759 (1) -
--------------------------------------------------------------------------------------
Hugh S. Potts, Sr. 1994 108,100 3,270 2,481 (1) -
Chairman of the 6,198 (2)
Board and CEO ---------------------------------------------------------------
through 4/14/94; 1993 148,171 11,000 2,482 (1) -
Consultant to ---------------------------------------------------------------
Bank since 4/14/94 1992 136,610 13,413 2,472 (1) -
--------------------------------------------------------------------------------------
</TABLE>
(1) Cost of excess life insurance
(2) Automobile allowance
Hugh S. Potts, Sr. retired as Chairman of the Board and Chief Executive Officer
of the Company effective April 15, 1994. Mr. Potts' son, Hugh S. Potts, Jr.,
currently serves as the Company's Chief Executive Officer and Chairman of the
Company's Board of Directors.
Included in the salary disclosure for Hugh S. Potts, Sr., for the year 1994 is
$75,000 which was paid to him in his capacity as a consultant to the Bank.
There is no written agreement covering the terms of this consulting arrangement
and there are no current plans to reduce the agreement to writing. Hugh S.
Potts, Sr. served as Chairman of the Board of Directors and Chief Executive
Officer of the Bank for approximately 24 years, during which time he developed
numerous business relationships on behalf of the Bank and gained knowledge in
the day-to-day management and operations of the Bank. Pursuant to the terms of
the Mr. Potts' consulting agreement with the Bank, he is regularly (almost
daily) at the Bank where he advises management on a variety of topics,
including business development. With his years of experience in bank
management, Mr. Potts acts as an adviser on how to solve the various problems
and issues that arise in the Bank's operations, including customer relations,
personnel matters, strategic planning, and regulatory concerns. The Bank
anticipates that this consulting agreement with Mr. Potts will continue as long
as Mr. Potts is physically able to be present at the Bank and contribute his
experience and knowledge.
-62-
<PAGE> 63
Pension Plan
The following table indicates the estimated annual benefits payable to persons
in specified classifications upon retirement at age 65.
<TABLE>
<CAPTION>
Average Annual
Compensation Credited Years of Service
-------------- -------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 3,000 $ 4,000 $ 5,000 $ 6,000 $ 7,000
50,000 6,000 8,000 10,000 12,000 14,000
75,000 9,000 12,000 15,000 18,000 21,000
100,000 12,000 16,000 20,000 24,000 28,000
160,000 19,200 25,600 32,000 38,400 44,800
======= ====== ====== ====== ====== ======
</TABLE>
Credited years of service for the individuals named in the Summary Compensation
Table above are anticipated to be as follows: Hugh S. Potts, Sr. - 58 years;
Hugh S. Potts, Jr. - 37 years; Scott M. Wiggers - 34 years.
A participant in the Company's Pension Plan whose service is terminated on or
after the date on which he attains his normal retirement age and on or before
his normal retirement date is eligible to retire and receive a normal
retirement benefit. The amount of the normal benefit under the Plan is equal
to 1/12 of the sum of the amounts described below in (1) and (2) multiplied by
(3) where:
(1) = eight-tenths of one percent (0.8%) of the participant's average
earnings;
(2) = twenty-five hundredths percent (0.25%) of the participant's average
earnings in excess of Twenty-Four Thousand and no/100 dollars
($24,000.00); and
(3) = the participant's benefit service as of his normal retirement date.
If a participant's annual benefit commences before the participant's social
security retirement age, but on or after age 62, the amount of the benefit is
reduced. If the annual benefit of a participant commences prior to age 62, the
amount of the benefit shall be the actuarial equivalent of an annual benefit
beginning at age 62 reduced for each month by which benefits commence before
the month in which the participant attains age 62. If the annual benefit of a
participant commences after the participant's social security retirement age,
the benefit amount is adjusted so that it is the actuarial equivalent of an
annual benefit beginning at the participant's social security retirement age.
Director Compensation
Directors receive compensation in the amount of $570 per Board meeting attended
payable at the end of the year, plus an additional $20 for each committee
meeting attended.
-63-
<PAGE> 64
Item 12 - EQUITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Management of the Company knows of no person who owns of record or
beneficially, directly or indirectly, more than 5% of the outstanding common
stock of the Company except as set forth below:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
- ------------------------------------------------------------------------------
<S> <C> <C>
Hugh S. Potts, Sr. 75,349 shares 5.6%
325 East Jefferson
Kosciusko, MS 39090
- ------------------------------------------------------------------------------
Hugh S. Potts, Jr. 152,790 shares (1) 11.40%
1104 Walnut Grove Rd.
Kosciusko, MS 39090
- ------------------------------------------------------------------------------
Charles W. Ritter, Jr. 71,000 shares (2) 5.3%
Woodbrier Subdivision
Kosciusko, MS 39090
</TABLE>
(1) Mr. Potts shares voting and investment power with respect to 19,000 of
these shares, which are held in two trusts.
(2) Mr. Ritter shares investment power with respect to 35,000 of these
shares with his wife and two children.
The following table shows the number and percentage of shares of the Company's
common stock beneficially owned by each director and by all directors and
executive officers as a group, as of December 31, 1994. Except as otherwise
indicated, each director has sole voting and investment power with respect to
the shares shown on the table.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
- ------------------- ------------------------------- ----------
<S> <C> <C>
Fred A. Bell, Jr. 5,256 shares 0.39%
603 Hickory Hill Dr.
P. O. Box 694
Kosciusko, MS 39090
Charles T. England 6,776 shares (1) 0.5%
608 Smythe Street
P. O. Box 414
Kosciusko, MS 39090
Toxey Hall, III 960 shares .07%
1498 Sunset Dr.
Canton, MS 39046
Robert Y. Hammond 35,000 shares (3) 2.6%
200 Cedar Lane
Kosciusko, MS 39090
</TABLE>
-64-
<PAGE> 65
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
- ------------------- ------------------------------- ----------
<S> <C> <C>
J. Marlin Ivey (4) 15,600 shares (5) 1.2%
309 East Jefferson St.
P. O. Box 610
Kosciusko, MS 39090
Joseph M. Ivey (4) 831 shares .06%
211 S. Madison
P. O. Box 610
Kosciusko, MS 39090
R. Dale McBride 8,217 shares (6) 0.61%
Route 1, Box 179
Durant, MS 39063
Susan P. McCaffery (7) 55,398 shares (8) 4.1%
327 East Jefferson St.
Kosciusko, MS 39090
William M. Myers, DDS 10,100 shares (9) 0.75%
308 East Jefferson St.
Kosciusko, MS 39090
Otho E. Pettit, Jr. 4,000 shares (10) 0.29%
212 Oakland
Kosciusko, MS 39090
Hugh S. Potts, Jr. (7) 152,790 shares (11) 11.4%
1104 Walnut Grove Road
Kosciusko, MS 39090
Charles W. Ritter, Jr. 71,000 shares (12) 5.3%
Woodbrier Subdivision
P. O. Box 538
Kosciusko, MS 39090
W. C. Shoemaker 16,030 shares 1.2%
P. O. Box 550
Kosciusko, MS 39090
Scott M. Wiggers 5,746 shares (13) 0.43%
1207 East South St.
Kosciusko, MS 39090
Edward G. Woodard 2,600 shares (2) 0.19%
P. O. Box 488
Kosciusko, MS 39090
3 Named Executive Officers
(including Executive Officers
of the Bank) and Directors
as a Group 420,640 shares 31.5%
======= ====
</TABLE>
-65-
<PAGE> 66
(1) Mr. England shares voting and investment power with respect to these
shares with his wife.
(2) Mr. Woodard shares voting and investment power with respect to 400 of
these shares with his wife.
(3) Mr. Hammond shares voting and investment power with respect to 6,408 of
these shares with his wife.
(4) Director J. Marlin Ivey is the father of director Joseph M. Ivey.
(5) Of these shares, 6,000 are registered in the name of Ivey National Corp.,
of which Mr. Ivey is the President.
(6) Mr. McBride shares voting and investment power with respect to 4,900 of
these shares with his wife and children.
(7) Mrs. McCaffery and Hugh S. Potts,Jr. are brother and sister. Their
father is the Company's former Chief Executive Officer and Chairman of
the Board Hugh S. Potts, Sr.
(8) Mrs. McCaffery shares voting and investment power with respect to 6,544
of these shares with her husband and children.
(9) Dr. Myers shares voting and investment power with respect to 8,000 of
these shares with his children.
(10) Of these shares, 1,000 are registered in the name of Mr. Pettit's wife.
(11) Mr. Potts shares voting and investment power with respect to 19,000 of
these shares, which are held in two trusts.
(12) Mr. Ritter shares investment power with respect to 35,000 of these shares
with his wife and two children.
(13) Mr. Wiggers shares voting and investment power with respect to 530 of
these shares with his wife.
-66-
<PAGE> 67
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As discussed in the notes to the consolidated financial statements, through the
Bank, the Company makes loans to its directors and executive officers and their
associates. All such loans were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
and did not involve more than the normal risk of collectibility or present
other unfavorable features.
-67-
<PAGE> 68
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
Report of Independent Certified Public Accountants
A(1) Financial Statements:
First M & F Corporation and Subsidiary
Consolidated Statements of Condition - December 31, 1994 and 1993
Consolidated Statements of Income - Years Ended December 31, 1994,
1993 and 1992
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years Ended December 31, 1994,
1993, and 1992
Notes to Consolidated Financial Statements
A(2) Schedules:
All Schedules are omitted since the required information is either
not applicable, not deemed material or is shown in the respective
financial statements or in the notes thereto.
A(3) Exhibits:
3(A) - Articles of incorporation of the Corporation, as amended (*)
3(B) - Bylaws of the Corporation (*)
4 - Instruments defining the rights of security holders including
indentures:
First M & F Corporation has various instruments outstanding
which define the rights of security holders and agrees
to furnish a copy of any such instrument to the Securities
and Exchange Commission upon request.
10 - Material contracts:
Documents relating to lines of credit(*)
11 - Statement regarding computation of per share earnings.
Computation can be readily determined from the consolidated
financial statements, including note 1.
13(A) - Annual report to security holders;
submitted as supplemental material.
22 - Subsidiaries of the registrant (*)
27 - Financial Data Schedule
(B) Reports on For 8-K:
Not applicable.
(*) These documents were filed as Exhibits 3(a), 3(b), 10 and 22,
respectively, on Form S-1 (File No. 33-08751) filed with the
Commission on September 15, 1986, and are hereby specifically
incorporated by reference herein.
-68-
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), 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 M & F CORPORATION
By: /s/ HUGH S. POTTS, JR.
-------------------------------
Hugh S. Potts, Jr., Chairman of
the Board and Chief Executive
Officer
Date: April 12, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ HUGH S. POTTS, JR. Chairman of the Board April 12, 1995
- ----------------------------- and Director (Principal
Hugh S. Potts, Jr. Executive Officer
/s/ SCOTT M. WIGGERS President, Treasurer and April 12, 1995
- ----------------------------- Director (Principal
Scott M. Wiggers Financial and Accounting
Officer)
/s/ FRED A. BELL, JR. Director April 12, 1995
- -----------------------------
Fred A. Bell, Jr.
/s/ CHARLES T. ENGLAND Director April 12, 1995
- -----------------------------
Charles T. England
/s/ TOXEY HALL, III Director April 12, 1995
- -----------------------------
Toxey Hall, III
/s/ ROBERT Y. HAMMOND Director April 12, 1995
- -----------------------------
Robert Y. Hammond
/s/ JOE IVEY Director April 12, 1995
- -----------------------------
Joe Ivey
/s/ J. MARLIN IVEY Director April 12, 1995
- -----------------------------
J. Marlin Ivey
/s/ R. DALE McBRIDE Director April 12, 1995
- -----------------------------
R. Dale McBride
/s/ SUSAN P. McCAFFERY Director April 12, 1995
- -----------------------------
Susan P. McCaffery
</TABLE>
-69-
<PAGE> 70
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ DR. WILLIAM M. MYERS Director April 12, 1995
- -----------------------------
Dr. William M. Myers
/s/ OTHO E. PETTIT, JR. Director April 12, 1995
- -----------------------------
Otho E. Pettit, Jr.
/s/ CHARLES W. RITTER, JR. Director April 12, 1995
- -----------------------------
Charles W. Ritter, Jr.
/s/ W. C. SHOEMAKER Director April 12, 1995
- -----------------------------
W. C. Shoemaker
/s/ EDWARD G. WOODARD Director April 12, 1995
- -----------------------------
Edward G. Woodard
</TABLE>
-70-
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3(A) - Articles of incorporation of the Corporation, as amended (*)
3(B) - Bylaws of the Corporation (*)
4 - Instruments defining the rights of security holders including
indentures:
First M & F Corporation has various instruments outstanding
which define the rights of security holders and agrees
to furnish a copy of any such instrument to the Securities
and Exchange Commission upon request.
10 - Material contracts:
Documents relating to lines of credit(*)
11 - Statement regarding computation of per share earnings.
Computation can be readily determined from the consolidated
financial statements, including note 1.
13(A) - Annual report to security holders;
submitted as supplemental material.
22 - Subsidiaries of the registrant (*)
27 - Financial Data Schedule
</TABLE>
(B) Reports on For 8-K:
Not applicable.
(*) These documents were filed as Exhibits 3(a), 3(b), 10 and 22,
respectively, on Form S-1 (File No. 33-08751) filed with the
Commission on September 15, 1986, and are hereby specifically
incorporated by reference herein.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) 1994
FORM 10-K AND AUDITED FINANCIAL STATEMENTS AS OF AND FOR YEAR ENDED DECEMBER 31,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 15,078
<INT-BEARING-DEPOSITS> 406
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,644
<INVESTMENTS-CARRYING> 67,369
<INVESTMENTS-MARKET> 63,857
<LOANS> 254,382
<ALLOWANCE> (3,200)
<TOTAL-ASSETS> 415,913
<DEPOSITS> 332,701
<SHORT-TERM> 44,822
<LIABILITIES-OTHER> 2,643
<LONG-TERM> 5,232
<COMMON> 6,687
0
0
<OTHER-SE> 23,828
<TOTAL-LIABILITIES-AND-EQUITY> 415,913
<INTEREST-LOAN> 20,080
<INTEREST-INVEST> 7,567
<INTEREST-OTHER> 322
<INTEREST-TOTAL> 27,969
<INTEREST-DEPOSIT> 9,887
<INTEREST-EXPENSE> 11,594
<INTEREST-INCOME-NET> 16,375
<LOAN-LOSSES> 808
<SECURITIES-GAINS> (241)
<EXPENSE-OTHER> 13,075
<INCOME-PRETAX> 5,687
<INCOME-PRE-EXTRAORDINARY> 4,243
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,243
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.18
<YIELD-ACTUAL> 7.56
<LOANS-NON> 253
<LOANS-PAST> 392
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,700
<CHARGE-OFFS> 529
<RECOVERIES> 221
<ALLOWANCE-CLOSE> 3,200
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,200
</TABLE>
