<PAGE> 1
As filed with the Securities and Exchange Commission on November 9, 1995
Registration No. 33-63919
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
-------------------------------
FIRST M&F CORPORATION
(Exact name of registrant as specified in its charter)
MISSISSIPPI 6712 64-0636653
(State or other jurisdiction (Primary Standard (IRS Employer Identi-
of incorporation or Industrial Classification fication Number)
organization) Code Number)
HUGH S. POTTS, JR.
221 WASHINGTON STREET 221 WASHINGTON STREET
KOSCIUSKO, MISSISSIPPI 39090 KOSCIUSKO, MISSISSIPPI 39090
TELEPHONE NUMBER: (601) 289-5121 TELEPHONE NUMBER:(601) 289-5121
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code of registrant's including area code, of agent
principal executive offices) for service)
Copies to:
CRAIG N. LANDRUM, ESQ.
CHERYN L. NETZ, ESQ.
Watkins Ludlam & Stennis
633 North State Street
Post Office Box 427
Jackson, Mississippi 39205-0427
Telephone Number: (601) 949-4973
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
At the Effective Time of the merger of Farmers and Merchants Bank into
Merchants and Farmers Bank as described in the attached Proxy
Statement/Prospectus.
If the securities being registered on this form are being offered in
conjunction with the formation of a holding company and there is compliance
with General Instruction G, check the following box. /__/
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
FIRST M&F CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION OR LOCATION
IN PROXY
ITEMS IN FORM S-4 STATEMENT/PROSPECTUS
- ----------------- --------------------
<S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Cover Page of Registration Statement;
Cross Reference Sheet; Cover Page of the Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information...................... Summary; Investment Considerations
4. Terms of the Transaction......... Summary; The Merger; Comparison of the Rights of
Holders of F&M Common Stock and First M&F Common
Stock
5. Pro Forma Financial Information.. Pro Forma Combined Consolidated Financial
Statements
6. Material Contracts with the
Company Being Acquired........... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Under-
writers.......................... Not Applicable
8. Interest of Named Experts and
Counsel.......................... Legal Opinion; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities... Not Applicable
10. Information with Respect to
S-3 Registrants.................. Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
11. Incorporation of Certain Infor-
mation by Reference.............. Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............... Not Applicable
13. Incorporation of Certain Infor-
mation by Reference.............. Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants.................. Information Concerning First M&F; Market Prices of
and Dividends on First M&F Common Stock; Selected
Financial Data - First M&F; Management's Discussion
and Analysis of Financial Condition and Results of
Operations of First M&F; Index to Financial
Statements
15. Information with Respect to S-3
Companies........................ Not Applicable
16. Information with Respect to S-2
or S-3 Companies................. Not Applicable
17. Information with Respect to
Companies Other Than S-3 or
S-2 Companies.................... Information Concerning F&M; Market Prices of and
Dividends on F&M Common Stock; F&M - Selected
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations of F&M; Index to Financial Statements
18. Information if Proxies, Consents
or Authorizations Are to be
Solicited........................ Summary; Introduction; The Merger--Interests of
Certain Persons in the Merger; Information
Concerning First M&F - Directors and Officers,
Executive Compensation, Certain Relationships and
Transactions; Stock Ownership of Management of
First M&F and Principal Shareholders of First M&F;
Stock Ownership of Management of F&M; Principal
Shareholders of F&M; Experts
19. Information if Proxies, Consents
or Authorizations Are Not to be
Solicited or in an Exchange
Offer............................ Not Applicable
</TABLE>
<PAGE> 4
FARMERS AND MERCHANTS BANK
101 CITY SQUARE
BRUCE, MISSISSIPPI 38915
To Our Shareholders:
You are cordially invited to attend a Special Meeting (the "Meeting")
of Shareholders of Farmers and Merchants Bank ("F&M") to be held at F&M, 101
City Square, Bruce, Mississippi 38915, 5:15 p.m. local time, on December 12,
1995 at the main office of F&M, 101 City Square, Bruce, Mississippi 38915.
At the Meeting you will be asked to consider and vote upon a proposal
to approve the merger (the "Merger") of F&M with and into Merchants and Farmers
Bank (the "Bank"), a wholly-owned subsidiary of First M&F Corporation ("First
M&F") and the related Agreement and Plan of Reorganization. If the Merger is
consummated, F&M will be merged into the Bank, and you will receive shares of
common stock of First M&F for each share of common stock of F&M which you own
at the effective time of the Merger.
The affirmative vote of the holders of at least two-thirds of the
total voting power of the shares of common stock of F&M, present or represented
by proxy at the Meeting, must approve the Merger. Consummation of the Merger
also requires certain regulatory approvals.
THE BOARD OF DIRECTORS OF F&M BELIEVES THE MERGER IS IN THE BEST
INTERESTS OF F&M AND ITS SHAREHOLDERS AND RECOMMENDS WITHOUT OPPOSITION THAT
YOU VOTE FOR APPROVAL OF THE MERGER. The reasons for such recommendation are
set forth in the accompanying Proxy Statement/Prospectus.
We believe that the Merger represents an exceptional opportunity for
F&M shareholders to join on favorable terms in a combined enterprise with
greater financial resources and a more geographically diversified business. As
a result of the proposed Merger, you, as a shareholder of First M&F, will own
common stock in a bank holding company whose shares are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and offer more liquidity because of a larger shareholder base. Combining F&M
with First M&F through the Merger should thus provide F&M shareholders with a
continued equity interest in a larger, more diversified banking company.
We urge you to read the enclosed materials carefully so that you can
evaluate the Merger for yourself.
All shareholders are invited to attend the Meeting in person.
However, in order to ensure that your shares will be represented at the
Meeting, please date, sign and promptly return the enclosed proxy in the
enclosed postage-paid envelope whether or not you plan to attend the Meeting.
If you attend the Meeting in person, you may, if you wish, vote personally on
all matters brought before the Meeting.
November 13, 1995 Jon A. Crocker
Chairman of the Board and
Chief Executive Officer
<PAGE> 5
FARMERS AND MERCHANTS BANK
101 CITY SQUARE
BRUCE, MISSISSIPPI 38915
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF FARMERS AND MERCHANTS BANK
TO BE HELD DECEMBER 12, 1995
To the Shareholders of Farmers and Merchants Bank:
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Farmers and Merchants Bank ("F&M") will be held at the main
office of F&M, 101 City Square, Bruce, Mississippi 38915 on December 12,
1995 at 101 City Square, Bruce, Mississippi 38915, 5:15 p.m. local time, for the
purpose of considering and voting upon the following matters:
1. To consider and vote upon the proposal to approve an Agreement
and Plan of Reorganization (the "Merger Agreement"), dated as
of September 1, 1995, by and among First M&F Corporation, a
Mississippi corporation ("First M&F"), Merchants and Farmers
Bank ("Bank"), a Mississippi banking corporation and a
wholly-owned bank subsidiary of First M&F, and Farmers and
Merchants Bank, a Mississippi banking corporation ("F&M"),
conformed copies of which are attached to the accompanying
Proxy Statement/Prospectus as Exhibit A and incorporated
herein by this reference, and pursuant to which (a) F&M will
merge into Bank (the "Merger"), and (b) except as provided in
the Merger Agreement, each share of common stock of F&M ("F&M
Common Stock") issued and outstanding at the effective time of
the Merger will be converted into and exchangeable for shares
of common stock of First M&F.
2. To transact such other business as may lawfully come before
the meeting or any adjournment or postponement thereof.
Pursuant to Article 13 of the Mississippi Business Corporation Act
("Mississippi BCA"), shareholders of F&M are entitled to dissent from the
transactions contemplated by the Merger Agreement. A copy of the provisions of
the Mississippi BCA regarding such rights of dissent is attached hereto as
Exhibit B.
The affirmative vote of the holders of two-thirds of the total voting
power of the shares of F&M Common Stock, present or represented by proxy at the
Meeting, is required for approval of the Merger.
Only shareholders of record as of the close of business on
November 9, 1995, are entitled to vote at the Meeting.
Action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date to which the Meeting may be adjourned or
postponed. All shareholders are invited to attend the Meeting in person.
However, in order to ensure that your shares will be represented at the
Meeting, please date, sign and promptly return the enclosed proxy in the
enclosed postage-paid envelope, whether or not you plan to attend the Meeting.
Your proxy may be revoked by appropriate notice to the Secretary of F&M at any
time prior to the voting thereof. If you attend the Meeting in person, you
may, if you wish, vote personally on all matters brought before the Meeting.
By Order of the Board of Directors
Robert Lee Logan
Secretary
November 13, 1995
Bruce, Mississippi
***************************************************************************
* *
* YOUR VOTE IS IMPORTANT *
* PLEASE SIGN, DATE AND RETURN YOUR PROXY *
* *
***************************************************************************
<PAGE> 6
PROSPECTUS PROXY STATEMENT
FIRST M&F CORPORATION FARMERS AND MERCHANTS BANK
___________________ ______________
450,000 SHARES OF SPECIAL MEETING OF
COMMON STOCK, $5.00 PAR VALUE SHAREHOLDERS TO BE HELD
DECEMBER 12, 1995
This Proxy Statement/Prospectus is being furnished to the shareholders
of Farmers and Merchants Bank ("F&M") in connection with the solicitation of
proxies by the Board of Directors of F&M for use at its Special Meeting (the
"Meeting") of Shareholders to be held on December 12, 1995. This Proxy
Statement/Prospectus was first mailed to shareholders of F&M on or about
November 13, 1995.
At the Meeting, the holders of F&M Common Stock, par value $10.00 per
share ("F&M Common Stock"), will be asked to approve the Agreement and Plan of
Reorganization (the "Merger Agreement"), dated as of September 1, 1995, by and
among First M&F Corporation ("First M&F"), a Mississippi corporation, Merchants
and Farmers Bank ("Bank"), a Mississippi banking corporation and a wholly-owned
subsidiary of First M&F, and F&M, pursuant to which F&M will merge into Bank
(the "Merger"). Upon consummation of the Merger, each outstanding share of F&M
Common Stock, other than shares held by F&M shareholders who perfect
dissenters' rights, will be converted into shares of First M&F common stock,
$5.00 par value per share ("First M&F Common Stock"). For a more complete
description of the Merger Agreement and the terms of the Merger, see "The
Merger." A conformed copy of the Merger Agreement is attached to this Proxy
Statement/Prospectus as Exhibit A. For a more complete description of
dissenters' rights see "Appraisal Rights."
First M&F has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission (the "Commission"), pursuant to the
Securities Act of 1933, as amended, covering up to 450,000 shares of First M&F
Common Stock to be issued in connection with the Merger.
No person is authorized to give any information or to make any
representation concerning the Merger not contained in this Proxy
Statement/Prospectus and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to
or from any person to whom it is unlawful to make such offer or solicitation of
an offer or proxy solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of the securities made
under this Proxy Statement/Prospectus shall, under any circumstances, create
any implication that there has been no change in the information set forth
herein since the date of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus does not cover any resales of First
M&F Common Stock to be received by F&M shareholders upon consummation of the
Merger, and no person is authorized to make use of this Proxy
Statement/Prospectus in connection with any such resale.
_________________________
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
The date of this Proxy Statement/Prospectus is November 13, 1995.
<PAGE> 7
AVAILABLE INFORMATION
First M&F is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports and other information with the
Commission. Such reports and other information filed by First M&F can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street NW, Washington, D.C.
20549 and at its Regional Offices located in the Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661 and 5 Park Place, New York,
New York 10007. Copies of such material can also be obtained from the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street NW,
Washington, D.C. 20549, at prescribed rates.
This Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 covering the securities
offered hereby which has been filed with the Commission, certain portions of
which have been omitted pursuant to the Rules and Regulations of the
Commission, and to which portions reference is hereby made for further
information with respect to First M&F and the securities offered hereby.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Date, Time, Place and Purpose of Meeting;
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recommendation of the F&M and First M&F
Boards of Directors; Reasons for the Merger . . . . . . . . . . . . . . . . . . 2
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 2
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 2
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange of F&M Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . 3
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparison of the Rights of Holders
of F&M Common Stock and First M&F
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparative Per Share Information . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Record Date; Voting Rights; Proxies . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Background of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Recommendation of the F&M and First M&F
Boards of Directors; Reasons for the Merger . . . . . . . . . . . . . . . . . . 10
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 10
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 10
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Exchange of F&M Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Resales of First M&F Common Stock Issued
in the Merger; Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Filing Written Objection and Vote Against
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Notice by F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Written Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Description of First M&F Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Authorized and Outstanding Capital Stock . . . . . . . . . . . . . . . . . . . . . 17
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Fully Paid and Nonassessable . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Indemnification of Directors, Officers and Employees . . . . . . . . . . . . . . . 18
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Changes in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Comparison of the Rights of Holders of F&M
Common Stock and First M&F Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 20
Authorized Shares of Capital Stock;
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Supermajority Voting Requirements; Business Combinations . . . . . . . . . . . . . 21
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Vacancies in the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 22
Amendment of the Articles of Incorporation . . . . . . . . . . . . . . . . . . . . 22
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 22
Information Concerning First M&F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 33
Stock Ownership of Management of First M&F and Principal
Shareholders of First M&F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Market Prices of and Dividends on First M&F Common Stock . . . . . . . . . . . . . . . . . 37
Selected Financial Data - First M&F and Bank . . . . . . . . . . . . . . . . . . . . . . . 38
Pro Forma Selected Financial Data-First M&F . . . . . . . . . . . . . . . . . . . . . . . . 39
Management's Discussion and Analysis of Financial Condition and
Results of Operations of First M&F . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
1994 Compared with 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . 40
Comparison of Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . 55
Pro Forma Combined Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 57
Information Concerning F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Market Prices of and Dividends on F&M
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Stock Ownership of Management of F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Principal Shareholders of F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Selected Financial Data - F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Management's Discussion and Analysis of Financial
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
Condition and Results of Operations of F&M . . . . . . . . . . . . . . . . . . . . . . . 69
1994 Compared with 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . 69
Comparison of Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . 70
Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
EXHIBIT A Agreement and Plan of Reorganization
EXHIBIT B Article 13 of Mississippi Business Corporation Act
(Dissenter's Rights Statute)
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
herein by reference. This summary does not contain a complete statement of all
material information relating to the proposed Merger and is subject to and
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Proxy Statement/Prospectus,
including the Exhibits and the documents incorporated in this Proxy
Statement/Prospectus by reference. Certain capitalized terms used in this
summary are defined elsewhere in this Proxy Statement/Prospectus.
THE MERGER
The shareholders of F&M are being asked to consider and vote upon a
proposal to approve the Merger Agreement pursuant to which F&M will be merged
into a bank subsidiary of First M&F and each share of F&M Common Stock issued
and outstanding immediately prior to the Effective Date of the Merger (except
shares held directly or indirectly by First M&F other than in a fiduciary
capacity and except Dissenting Shares) will be converted into and exchangeable
for forty- five (45) shares of First M&F Common Stock. As a result of the
Merger, the shareholders of F&M will become shareholders of First M&F. A
conformed copy of the Merger Agreement is attached hereto as Exhibit A.
THE PARTIES
First M&F Corporation. First M&F is a bank holding company
headquartered at 221 Washington Street, Kosciusko, Mississippi 39090, telephone
(601) 289-5121. Its principal subsidiary is Merchants and Farmers Bank, a
Mississippi banking corporation, with its principal office in Kosciusko,
Mississippi. First M&F, through its subsidiary, provides comprehensive
corporate, commercial, correspondent and individual banking services, and
personal and corporate trust services.
As of June 30, 1995, First M&F had total assets of approximately
$450,030,000, total deposits of approximately $360,739,000, net loans of
approximately $263,552,000 and shareholders' equity of approximately
$37,278,000.
Merchants and Farmers Bank. Merchants and Farmers Bank is a
Mississippi banking corporation and is a wholly owned banking subsidiary of
First M&F.
Farmers and Merchants Bank. F&M is a Mississippi banking corporation
headquartered at 101 City Square, Bruce, Mississippi 38915, telephone number
(601) 983-4368 F&M provides a full complement of consumer and commercial
banking services in Bruce and Pittsboro, Mississippi.
As of June 30, 1995, F&M had total assets of approximately
$31,885,000, total deposits of approximately $27,195,000, net loans of
approximately $7,165,000 and shareholders' equity of approximately $4,586,000.
DATE, TIME, PLACE AND PURPOSE OF MEETING; RECORD DATE
A Special Meeting (the "Meeting") of the Shareholders of F&M will be
held on December 12, 1995, at 5:15 p.m. at the main office of F&M at
101 City Square, Bruce, Mississippi 38915, to consider and vote upon the
proposal to approve the Merger Agreement. The Board of Directors of F&M has
fixed the close of business on November 9, 1995, as the record date (the
"Record Date") for determining holders of outstanding shares of F&M Common
Stock entitled to notice of and to vote at the Meeting. Only holders of F&M
Common Stock of record on the books of F&M at the close of business on the
Record Date are entitled to vote at the Meeting or at any adjournment or
postponement thereof. As of the Record Date, there were 10,000 shares of F&M
Common Stock issued and outstanding, each of which is entitled to one vote.
See "Introduction -- General" and "Introduction -- Record Date; Voting Rights;
Proxies."
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<PAGE> 12
VOTE REQUIRED
Approval of the Merger Agreement requires the affirmative vote at the
Meeting of the holders of two-thirds of the total voting power of the shares of
F&M Common Stock. Executive officers, directors and affiliates of F&M are
entitled to vote approximately 6,308 shares of F&M Common Stock, representing
approximately 63.08% of the outstanding shares, all of which are expected to be
voted in favor of the Merger.
RECOMMENDATION OF THE F&M AND FIRST M&F BOARDS OF DIRECTORS; REASONS FOR THE
MERGER
The F&M Board has approved the Merger without opposition and the
Merger Agreement and has determined that the Merger is in the best interests of
F&M and its shareholders because it will enhance shareholders' value and
provide additional services to the community. In approving the Merger, F&M's
directors considered, among other factors, the financial terms of the
transaction; the possible liquidity afforded to shareholders of F&M through
ownership of a company with a larger shareholder base and subject to the
informational requirements of the Exchange Act; a review of the business and
prospects of F&M and First M&F; the effect on the communities served by F&M;
the federal income tax consequences of the Merger; and the likelihood of the
Merger being approved by regulatory authorities without undue conditions or
delays. THE F&M BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST INTEREST
OF F&M'S SHAREHOLDERS AND RECOMMENDS WITHOUT OPPOSITION THAT F&M'S SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
The Board of Directors of First M&F has approved the Merger Agreement
because it believes that the Merger will enhance First M&F's earnings capacity
by enabling it to deliver products and provide services to a larger geographic
customer base and that the combination of First M&F and F&M can take advantage
of increased overall efficiencies and economies of scale which should enhance
shareholder value. See "The Merger -- Recommendation of the F&M and First M&F
Boards of Directors; Reasons for the Merger."
REGULATORY APPROVALS
It is a condition to the consummation of the Merger that all required
regulatory approvals, including the approval of the Federal Deposit Insurance
Corporation (the "FDIC") and the Mississippi Department of Banking and Consumer
Finance (the "Department"), be obtained. An application was submitted to the
FDIC on October 6, 1995. An application will be submitted to the Department
immediately after obtaining F&M shareholder approval. See "The Merger - -
Conditions" and "The Merger -- Regulatory Approvals."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of F&M's management have interests in the Merger in
addition to their interests as shareholders of F&M generally. Those interests
relate to continued employment as well as to provisions in the Merger Agreement
regarding eligibility to participate in the First M&F group health and life
benefit plan. See "The Merger - Interests of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon receipt of an opinion
of counsel substantially to the effect that the Merger will be treated, for
federal income tax purposes, as a tax-free reorganization, with the result
that, no gain or loss will be recognized by F&M or by holders of F&M Common
Stock who exchange all of their F&M Common Stock solely for First M&F Common
Stock pursuant to the Merger (except with respect to cash, if any, received in
exercise of dissenter's rights). F&M shareholders are urged to consult their
own tax advisors as to the specific tax consequences to them of the Merger.
See "The Merger -- Certain Federal Income Tax Consequences."
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<PAGE> 13
EFFECTIVE DATE
If the Merger Agreement is approved by the requisite vote of the
shareholders of F&M and the Merger is approved by all required regulatory
agencies and other conditions to the Merger are satisfied or waived (where
permissible), the Articles of Merger shall be certified, executed, acknowledged
and delivered to the Mississippi Department of Banking and Consumer Finance for
filing pursuant to and in accordance with the provisions of Miss. Code Ann.
Section 81-5-85 (Supp. 1995). The Bank Merger shall become effective as of
the date and time specified or permitted by the Department in a Certificate of
Merger or other written records issued by the Department. It is expected that
the Effective Date will occur in December, 1995; however, there can be no
assurance that the conditions to the Merger will be satisfied or waived so that
the Merger can be consummated. See "The Merger -- Effective Date" and "The
Merger -- Conditions."
AFFILIATES
It is a condition to First M&F's obligation to consummate the Merger
that, at or prior to the Effective Date, each person who may be deemed to be an
"affiliate" (as such term is defined by Rule 145 of the Securities Act of 1933)
of F&M shall have executed and delivered to First M&F an agreement which
provides, among other things, that such affiliate will not sell, transfer or
otherwise dispose of any First M&F Common Stock to be received by such
affiliate pursuant to the Merger in violation of the Securities Act of 1933 and
the rules and regulations thereunder. For a further discussion of the
provisions of the agreements between First M&F and such affiliates, see "The
Merger -- Resales of First M&F Common Stock Issued in the Merger; Affiliates."
ACCOUNTING TREATMENT
The pooling method of accounting will be used to reflect the Merger
upon consummation. "The Merger -- Accounting Treatment."
EXCHANGE OF F&M CERTIFICATES
Immediately after the Effective Date, First M&F will mail to each
holder of record of F&M Common Stock, a letter of transmittal and instructions
for use in effecting the surrender of the certificates which, immediately prior
to the Effective Date, represented outstanding shares of F&M Common Stock in
exchange for certificates representing First M&F Common Stock. See "The Merger
- -- Exchange of F&M Certificates." Certificates representing F&M Common Stock
should not be surrendered until the transmittal form is received.
APPRAISAL RIGHTS
Under certain conditions and by complying with the specific procedures
required by Mississippi law and described herein, F&M's shareholders will have
the right to dissent from the Merger, in which event, if the Merger is
consummated, such shareholders may be entitled to receive in cash the fair
value of their shares of F&M Common Stock. See "Appraisal Rights" and Exhibit
B hereto.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party under the Merger Agreement
are subject, among other conditions, to approval of the Merger Agreement by the
affirmative vote of the holders of at least two-thirds of the total voting
power of the shares of F&M Common Stock, the receipt of all necessary
regulatory approvals, a declaration by the Securities and Exchange Commission
that the registration statement is effective and the receipt of all state
securities and blue sky permits or approvals required to consummate the Merger.
See "The Merger -- Conditions" for a fuller discussion of the conditions to
consummation.
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<PAGE> 14
TERMINATION
Among other reasons, the Merger Agreement may be terminated by either
party at any time prior to the Effective Date, in the event any consent or
approval of any regulatory authority required for consummation of the Merger
and the other related transactions has been denied by final nonappealable
action of such authority; the shareholders of F&M fail to vote their approval
of the Merger Agreement and the related transactions as required by the
Mississippi BCA at the Meeting; if holders of ten percent (10%) or more of the
outstanding F&M common stock exercise statutory rights of dissent and appraisal
pursuant to Miss. Code Ann. 79-4-13.01 et. seq. (Supp. 1995); or if the Closing
has not occurred by June 30, 1996. See "The Merger -- Amendment and
Termination."
COMPARISON OF THE RIGHTS OF HOLDERS OF F&M COMMON STOCK AND FIRST M&F COMMON
STOCK
For a comparison of the charter and bylaw provisions of F&M and First
M&F governing the rights of holders of F&M Common Stock and First M&F Common
Stock, see "Comparison of the Rights of Holders of F&M Common Stock and First
M&F Common Stock."
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<PAGE> 15
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
----------------------------------------------------------
1995 1994 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First M&F Corporation
---------------------
Net Income Per Share
Historical $1.00 $0.75 $1.59 $1.41 $1.87
Pro Forma 0.95 0.75 1.56 1.39 1.76
Cash Dividends Per Share
Historical 0.27 0.25 0.50 0.50 0.43
Pro Forma 0.26 0.24 0.50 0.50 0.43
Book Value Per Share
Historical 13.57 11.14 11.43 10.89 10.02
Pro Forma 13.09 10.85 11.12 10.57 9.69
Farmers and Merchants Bank
--------------------------
Net Income Per Share
Historical 28.60 33.70 63.53 59.40 52.56
Equivalent Pro Forma 42.75 33.75 70.20 62.55 79.20
Cash Dividends Per Share
Historical 10.00 9.00 20.00 18.00 16.00
Equivalent Pro Forma 11.70 10.80 22.50 22.50 19.35
Book Value Per Share
Historical 458.60 411.60 419.40 388.70 347.30
Equivalent Pro Forma 589.27 488.40 500.48 475.52 435.89
</TABLE>
Equivalent pro forma per share amounts for Farmers and Merchants Bank are
calculated by multiplying the pro forma income per share, pro forma dividends
per share and pro forma book value per share of First M&F Corporation by an
exchange ratio of 45.
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<PAGE> 16
INVESTMENT CONSIDERATIONS
In addition to the other information contained in this Proxy
Statement/Prospectus, in considering whether to approve the Merger Agreement,
F&M shareholders should carefully consider the following investment
considerations and risk factors.
GROWTH THROUGH ACQUISITIONS
Since 1990, a substantial percentage of First M&F's growth in assets
has resulted from the acquisition of branches of one (1) commercial bank and
three (3) savings association branches in purchase transactions. The
risk-based capital and leverage guidelines of the Board of Governors of the
Federal Reserve System applicable to First M&F require First M&F to deduct for
regulatory capital purposes all goodwill in connection with future
acquisitions. This requirement could adversely affect the ability of First M&F
to make acquisitions in the future that would be accounted for using the
purchase method of accounting. First M&F's ability to make acquisitions using
the pooling of interests method of accounting, however, would not be affected.
Further, First M&F's ability to grow through acquisitions in the future may be
limited by First M&F's capital position at the time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
First M&F" and "Information Concerning First M&F--Business -- Supervision and
Regulation".
NO ESTABLISHED TRADING MARKET
While First M&F's Common Stock is traded locally in the
over-the-counter market there is no established trading market for the Common
Stock. No brokerage firm currently makes a market in First M&F's Common Stock
and the trading volume of First M&F's Common Stock has historically been light.
Thus, an investor may not be able to quickly resell any shares acquired in the
Offering. See "Market Prices of and Dividends on First M&F Common Stock".
ANTI-TAKEOVER PROVISIONS
The Articles of Incorporation of First M&F, as amended, contain
certain provisions which, among other things: (1) provide for the election of
directors to three-year staggered terms; and (2) provide for supermajority vote
and fair price provisions relating to certain business combinations with any
person who owns beneficially more than ten percent (10%) of the outstanding
Common Stock of First M&F. These provisions may have the effect of deterring
certain offers, including tender offers and merger offers, to acquire a
controlling interest in First M&F. These provisions also may have the effect
of maintaining incumbent management or of discouraging or defeating proposals,
such as tender offers or mergers, that may be viewed as favorable by the
holders of a majority of First M&F's Common Stock. See "Description of First
M&F Capital Stock".
CONTROL
As of October 1, 1995, First M&F executive officers, directors and
affiliates beneficially owned approximately 1,214,299 shares (41.29%) of First
M&F's outstanding Common Stock, which includes 288,543 shares (9.8%) held by
the Trust Department of the Bank in plans for the benefit of employees. See
"Stock Ownership of Management of First M&F and Principal Shareholders of First
M&F".
PENDING LITIGATION
The Bank is a defendant in three (3) lawsuits pending in the Circuit
Court of Lafayette County, Mississippi:, Rayner v. Merchants and Farmers Bank,
(instituted on March 29, 1993); Smith v. Merchants and Farmers Bank (instituted
on February 4, 1994); and Miller v. Merchants and Farmers Bank (instituted on
February 4, 1994). The lawsuits allege fraud and misappropriation by a former
Bank employee. Claims against the Bank are based upon the payment of checks
with forged endorsements and the authority of the former employee to endorse
such checks. The plaintiffs allege actual damages of approximately $600,000 in
the aggregate and seek unspecified punitive damages. The Bank is vigorously
defending these lawsuits and has asserted defenses it believes are meritorious;
however, the likelihood of ultimate success cannot be measured at this time.
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<PAGE> 17
The Bank is also a defendant in a lawsuit styled Mahaffey v. Merchants
and Farmers Bank and Mark Baird pending in the Circuit Court of Madison County,
Mississippi which was instituted on July 22, 1991. The lawsuit alleges
numerous wrongful acts by the Bank which allegedly give rise to claims for
damages of approximately $247,000 and punitive damages of $2,650,000. This
case is currently in the process of discovery; therefore, the Bank lacks
sufficient information regarding the nature of the claims to comment on the
likelihood of successfully defending the action.
The Bank is also a defendant in a lawsuit styled Phelps v. Merchants
and Farmers Bank which was instituted on November 7, 1994, in the Circuit Court
of Oktibbeha County but removed to the Bankruptcy Court for the Northern
District of Mississippi where it is now pending as an adversary proceeding.
The lawsuit alleges that a foreclosure sale at which the Bank purchased certain
property that it sold to Mr. Phelps was void and violated an automatic stay.
Mr. Phelps seeks the return of the amount he paid for the property purchased
from the Bank and $1,000,000 in punitive damages. The Bank commenced an
adversary proceeding against Mr. Phelps and others seeking a declaration that
the foreclosure sale was valid. This adversary proceeding is pending in the
Bankruptcy Court for the Northern District of Mississippi. While the Bank
believes its defenses to be good, the litigation is in early stages and the
outcome cannot be determined.
LOSS OF MAJOR CUSTOMER
The operating account of Mississippi State University, Starkville,
Mississippi, is held by the Bank pursuant to a contract which expires June 30,
1996. This relationship represents a year to date average of $46,098,000 in
liabilities, which is approximately 11.3% of the Bank's total liabilities. The
Bank's investment strategy accommodates the possible loss of this relationship
in 1996 by managing investment maturities and such event should not have a
materially adverse effect on the business of the Bank.
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<PAGE> 18
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of
F&M in connection with the solicitation by the Board of Directors of F&M of
proxies for use at a Special Meeting of Shareholders (the "Meeting") to be held
on December 12, 1995 at 5:15 p.m. local time, at the main office of
F&M, 101 City Square, Bruce, Mississippi 38915, and at any adjournment or
postponement thereof. At the Meeting, shareholders will consider and vote upon
a proposal to approve the Merger Agreement, by and among First M&F, Bank and
F&M, pursuant to which F&M will be merged into Bank (the "Merger") and each
share of F&M Common Stock issued and outstanding immediately prior to the
Effective Date of the Merger (except Dissenting Shares, as hereinafter defined)
will be converted into and exchangeable for a number of shares of common stock,
$5.00 par value, of First M&F Common Stock. See "The Merger."
This Proxy Statement/Prospectus constitutes a prospectus of First M&F
with respect to the shares of First M&F Common Stock to be issued in connection
with the Merger. The information in this Proxy Statement/Prospectus concerning
First M&F and its subsidiaries and F&M and its subsidiary has been furnished by
each of such entities, respectively.
The principal executive office of First M&F is located at 221
Washington Street, Kosciusko, Mississippi 39090, and its telephone number is
(601) 289-5121. The principal executive office of F&M is located at 101 City
Square, Bruce, Mississippi 38915, telephone number (601) 983-4368.
This Proxy Statement/Prospectus is first being mailed to shareholders
of F&M on or about November 13, 1995.
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors of F&M has fixed the close of business on
November 9, 1995 as the Record Date for determining holders of outstanding
shares of F&M Common Stock entitled to notice of and to vote at the Meeting.
Only holders of F&M Common Stock of record on the books of F&M at the close of
business on the Record Date are entitled to vote at the Meeting or at any
adjournment or postponement thereof. As of the Record Date, there were 10,000
shares of F&M Common Stock issued and outstanding, each of which is entitled to
one vote. Shares of F&M Common Stock represented by properly executed proxies
will be voted in accordance with the instructions indicated on the proxies or,
if no instructions are indicated, will be voted FOR the proposal to approve the
Merger Agreement and, in the discretion of the proxy holders, as to any other
matter which may properly come before the Meeting or any adjournment or
postponement thereof. A shareholder who has given a proxy may revoke it at any
time before it is voted by filing with the Secretary of F&M a notice in writing
revoking it or a duly executed proxy bearing a later date.
Under Miss. Code Ann. Section 81-5-85 (Supp. 1995), approval of the
Merger Agreement requires the affirmative vote at the Meeting of the holders of
two-thirds of the total voting power of the F&M Common Stock. Executive
officers, directors, their affiliates and affiliates of F&M are entitled to
vote approximately 6,308 approximately 63.08% of the outstanding shares. The
obligations of the parties to the Merger Agreement are subject to the condition
that such affirmative vote shall have been obtained. See "The Merger --
Conditions."
F&M will bear the costs of soliciting proxies from its shareholders.
In addition to the use of the mail, proxies may be solicited by the directors,
officers and employees of F&M in person, or by telephone or telegram. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements will also be made with custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of F&M Common Stock held of record by such persons, and F&M may
reimburse such custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
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<PAGE> 19
THE MERGER
GENERAL
The Merger Agreement provides that, subject to the satisfaction or
waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of
all related waiting periods and the approval by the shareholders of F&M, F&M
will be merged with and into Bank. See "The Merger -- Conditions" and "The
Merger -- Regulatory Approvals." As a result of the Merger, the separate
corporate existence of F&M will cease and the shareholders of F&M will become
shareholders of First M&F. The date and time when the Merger will be
consummated is herein referred to as the "Effective Date." See "The Merger --
Effective Date."
The description of the Merger Agreement included in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and a copy of which is
attached hereto as Exhibit A.
EXCHANGE RATIO
Upon consummation of the Merger, F&M will be merged with and into Bank
and each share of F&M Common Stock issued and outstanding at the Effective Date
(other than shares owned by shareholders who, pursuant to the Mississippi BCA,
perfect any right to receive the fair value of such shares ("Dissenting
Shares")) will be converted into and exchangeable for forty-five (45) shares of
First M&F Common Stock (the "Exchange Ratio").
In the event that First M&F should split or combine First M&F Common
Stock, or pay a dividend or other distribution in First M&F Common Stock, the
Exchange Ratio will be appropriately adjusted.
The Exchange Ratio was determined by a process of arm's length
negotiations involving the managements of F&M and First M&F and their
respective financial advisors. As explained above, pursuant to the Merger,
First M&F will be required to issue to F&M shareholders 450,000 shares of First
M&F Common Stock, which will constitute approximately ten percent (10%) of the
shares of First M&F Common Stock outstanding immediately after the Effective
Date. This calculation does not make any adjustment for Dissenting Shares and
is based upon the number of shares of F&M Common Stock and First M&F Common
Stock outstanding on the Record Date.
BACKGROUND OF MERGER
A number of years ago management of the Bank expressed an interest in
merging F&M into the Bank. At the time management of F&M was not interested,
but stated that the Bank would be given an opportunity when and if F&M decided
to sell or merge. Since January, 1994, the Bank had provided electronic data
processing services for F&M.
In late July, 1995, F&M was approached by another financial
institution that was interested in acquiring F&M. That institution gave an
estimate of what it thought the worth of F&M's stock would be in the event of a
merger with it. Jon Crocker, Chairman of the Board of F&M contacted several
banks, including the Bank, about the possibility of a merger. Mr. Crocker and
the Board of F&M felt that to remain competitive, offer more services and
enhance shareholders' value, it would be necessary to merge with a larger
institution. Mr. Crocker called Mr. Hugh S. Potts, Jr., CEO of the Bank
stating that he had been presented with an offer to merge with another bank and
requested the Bank make an offer if First M&F was interested.
The Bank's Executive Committee on August 30, 1995, approved offering
forty-five (45) shares of First M&F for each share of F&M for a total of
450,000 shares of First M&F.
This offer and the Agreement and Plan of Reorganization was approved
by F&M's Board of Directors on August 31, 1995 and was ratified by the Bank's
Board on September 1, 1995.
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<PAGE> 20
RECOMMENDATION OF THE F&M AND FIRST M&F BOARDS OF DIRECTORS; REASONS FOR THE
MERGER
F&M'S REASONS FOR THE MERGER. In authorizing the execution of the
Merger Agreement, the F&M Board considered a number of factors. Without
assigning any relative or specific weights to the factors, the F&M Board of
Directors considered the following material factors:
The competitive position, capital position and growth prospects of F&M
independently and as part of a larger institution, considering the
technological and regulatory changes in the banking industry; the opportunity
to enhance shareholders' value through an institution which is well known to
management of F&M and possesses a more diverse shareholder and earnings base;
the continued ability of F&M to provide additional services to the community in
an era of increasing technological sophistication of bank delivery systems and
customers; the ability of F&M to offer more security and benefits to employees;
and the opportunity to provide F&M with a broader financial and management
base, which will result in better services to the customers of F&M.
The terms of the Merger were the result of arms-length negotiations
between representatives of F&M and representatives of First M&F. Based upon
its consideration of the foregoing factors, the Board of Directors of F&M
approved the Merger (with one director abstaining) as being in the best
interest of F&M and its shareholders.
F&M'S BOARD OF DIRECTORS RECOMMENDS WITHOUT OPPOSITION THAT F&M
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
FIRST M&F'S REASONS FOR THE MERGER. First M&F considered the
proximity of F&M's market to existing markets of First M&F in Oxford and
Grenada which facilitate efficient use of current marketing programs and
courier routes; the strong competitive and capital position of F&M in its
market; facilitating access to the Bruce and Pittsboro, Calhoun County,
Mississippi market; and First M&F's ability to productively utilize excess loan
capacity and liquidity of F&M to the benefit of the shareholders of First M&F.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
OWNERSHIP OF FIRST M&F STOCK. As of the Record Date, directors and
executive officers of F&M and their affiliates owned no shares of First M&F
Common Stock.
EMPLOYEE BENEFITS. The Merger Agreement provides that, after the
Effective Date of the Merger, First M&F will, subject to compliance with
applicable legal and regulatory requirements, provide coverage for all
employees of F&M under First M&F's group health and life benefit plan for which
they are eligible or would be eligible if such employees were employees of
First M&F. For purposes of participation and vesting under health and life
plans, the service of employees of F&M before the Merger will be treated as
service with members of First M&F's consolidated group participating in such
employee benefit plans. For purposes of participation and vesting in the
First M&F Pension Plan, employees of F&M will be treated as new employees of
First M&F subject to the vesting and participating schedule of such Plans.
Therefore there will not be any unfunded pension liability as a resuilt of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal federal income tax
consequences of the Merger is based on provisions of the Internal Revenue Code
of 1986 (the "Code"), the regulations thereunder, judicial authority, and
administrative rulings and practice as of the date hereof. First M&F and F&M
have received an opinion of counsel to First M&F to the effect that the Merger
will be treated, for federal income tax purposes, as a tax-free reorganization
under Section 368(a) of the Code.
Any F&M shareholder who, pursuant to the Merger, exchanges all of the
F&M Common Stock that such holder owns solely for First M&F Common Stock will
not recognize any gain or loss upon such exchange. The aggregate tax basis of
First M&F Common Stock received by such a holder in exchange for F&M Common
Stock will equal such holder's tax basis in the F&M Common Stock surrendered.
If such shares of F&M Common Stock are held as capital assets at the Effective
Date, the holding period of the First M&F Common Stock received will include
the holding period of the F&M
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<PAGE> 21
Common Stock surrendered therefor. F&M shareholders should consult their tax
advisors as to the determination of their tax basis and holding period in any
one share of First M&F Common Stock, as several methods of determination may be
available.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER WITHOUT REGARD TO THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH F&M SHAREHOLDER. F&M SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
EFFECTIVE DATE
If the Merger Agreement is approved by the requisite vote of the
shareholders of F&M and the Merger is approved by required regulatory
authorities and the other conditions to the Merger are satisfied or waived
(where permissible), the Merger will be consummated and become effective at the
time the Articles of Merger are filed with the Mississippi Department of
Banking and Consumer Finance, or as of such later date in time to which First
M&F and F&M agree, which may be specified in the Merger Agreement. It is
expected that the Effective Date will occur in December, 1995; however, there
can be no assurance that the conditions to the Merger will be satisfied or
waived so that the Merger can be consummated. See "The Merger -- Conditions"
and "The Merger -- Amendment and Termination."
EXCHANGE OF F&M CERTIFICATES
As soon as practicable after the Effective Date, First M&F will mail
to each holder of record of certificates of F&M Common Stock (the
"Certificates"), a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to First M&F) and instructions for use
in effecting the surrender of the Certificates which, immediately prior to the
Effective Date, represented outstanding shares of F&M Common Stock in exchange
for Certificates representing shares of First M&F Common Stock (the "First M&F
Certificates"). Shareholders of F&M are requested not to surrender their F&M
Certificates for exchange until such letter of transmittal and instructions are
received. Upon surrender of a Certificate for exchange and cancellation to
First M&F, together with a duly executed letter of transmittal, the holder of
such F&M Certificate shall be entitled to receive in exchange therefor a First
M&F Certificate representing the number of shares of First M&F Common Stock to
which such holder of F&M Common Stock shall have become entitled pursuant to
the Merger Agreement, and the F&M Certificate so surrendered shall forthwith be
canceled. Lost F&M Certificates shall be treated in accordance with the
existing procedures of F&M.
No dividends or other distributions with respect to First M&F Common
Stock and payable to the holders of record thereof after the Effective Date
shall be paid to the holder of any unsurrendered F&M Certificate until the
holder thereof shall surrender such F&M Certificate. Subject to the effect, if
any, of applicable law, after the subsequent surrender and exchange of any F&M
Certificate, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable in respect of shares of First M&F Common Stock
represented by such F&M Certificate.
If any First M&F Certificate representing shares of First M&F Common
Stock is to be issued in a name other than that in which the F&M Certificate
surrendered in exchange therefor is registered then the signatures on the
certificates must be guaranteed by a Medallion Member.
After the Effective Date, there will be no transfers on the stock
transfer books of F&M of Common Stock which were outstanding immediately prior
to the Effective Date. If, after the Effective Date, F&M Certificates
representing such shares are presented for transfer to First M &F, they shall
be canceled and exchanged for First M&F Certificates representing shares of
First M&F Common Stock pursuant to the terms of the Merger Agreement.
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CONDITIONS
The respective obligations of each party under the Merger Agreement
are subject, among other conditions, to (1) approval of the Merger Agreement by
the affirmative vote of the holders of at least two-thirds of the total voting
power of F&M Common Stock, (2) the receipt of all necessary regulatory
approvals, (3) the registration statement shall have been declared effective
and shall not be subject to a stop order, and the receipt of all state
securities and blue sky permits or approvals required to consummate the
transactions contemplated by the Merger Agreement, and (4) receipt of an
opinion of Watkins Ludlam & Stennis substantially to the effect that the
transactions contemplated by the Merger Agreement will be treated for federal
income tax purposes as a tax-free reorganization under Section 368 of the Code.
The obligations of First M&F under the Merger Agreement are
conditioned, among other conditions, on (1) receipt of an opinion from Ottis B.
Crocker, counsel to F&M, primarily regarding certain corporate matters and (2)
the absence of any material adverse change from June 30, 1995 to the Effective
Date in the financial condition, results of operations, business, or prospects
of F&M.
The obligations of F&M are conditioned, among other conditions, on (1)
receipt of an opinion of Watkins Ludlam & Stennis, counsel to First M&F,
primarily regarding certain corporate matters, and (2) the absence of any
material adverse change from June 30, 1995 to the Effective Date in the
financial condition, results of operations, business, or prospects of First
M&F.
AMENDMENT AND TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Date (a) by mutual written consent; (b) by the Board of Directors of
either F&M or First M&F in the event of a breach by the other of any covenant
or agreement or of any representation or warranty in the Merger Agreement, if
(i) the facts constituting such breach reflect a material adverse change in the
financial condition, results of operations, business or prospects, taken as a
whole, of the breaching party or of any material agreement in the Merger
Agreement, which in either case, cannot be cured within sixty (60) days or
(ii) in the event of a breach of a warranty or covenant, such breach results in
a material increase in the cost of the non-breaching party's performance of the
Merger Agreement; (c) by the Board of Directors of either F&M or First M&F in
the event any consent or approval of any regulatory authority required for
consummation of the Merger and the other related transactions shall have been
denied by final nonappealable action of such authority, (d) the shareholders
of F&M fail to vote their approval of the Merger Agreement as required by the
Mississippi BCA at the shareholders' meeting; (e) by the Board of Directors of
either F&M or First M&F in the event that the Merger shall not have consummated
by June 30, 1996 unless the absence of such occurrence shall be due to the
failure of the Party seeking to terminate the Merger Agreement to perform each
of its obligations under the Merger Agreement required to be performed by it on
or prior to the Effective Date; and (f) by First M&F, if holders of ten percent
(10%) or more of the outstanding F&M common stock exercise statutory rights of
dissent and appraisal pursuant to Miss. Code Ann. Section 79-4-13.01 through
79-4-13.31 (Supp. 1995).
COVENANTS
F&M covenants and agrees that it will operate its business solely in
the ordinary course consistent with prudent business practices and in
compliance with all applicable laws, regulations and rules; and, without prior
written consent of First M&F, F&M will not amend or otherwise change its
articles of incorporation or bylaws; issue or sell, or authorize for issuance
or sale, the shares of F&M or any additional shares of any class of capital
stock of F&M; issue, grant, or enter into any subscription, option, warrant,
right, convertible security, declare, set aside, make, or pay any dividend or
other distribution with respect to its capital stock, provided, however, that,
if the Bank Merger does not occur prior to the record date for First M&F's
fourth quarter, 1995 dividend, F&M shall to the extent lawfully permitted
declare and pay dividends for the purpose of allowing F&M's stockholders to
receive the normal and customary second semi annual, 1995 dividend in the
amount of $20.00 per outstanding share of F&M common stock; redeem, purchase,
or otherwise acquire, directly or indirectly, any of its capital stock;
authorize any capital expenditure(s) which, individually or in the aggregate,
exceed $20,000; extend any new, or renew any existing, loan, credit, lease, or
other type of financing unless such is consistent with F&M's normal lending
practices; except in the ordinary course of business, sell, pledge, dispose of,
or encumber, or agree to sell, pledge, dispose of, or encumber, any assets of
F&M; establish or add any automated teller machines or branch or
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other banking offices; take any action that would materially and adversely
affect the ability to obtain the approvals necessary for consummation of the
transactions contemplated hereby or that would materially and adversely affect
F&M's ability to perform its covenants and agreements hereunder; acquire (by
merger, consolidation, lease or other acquisition of stock, ownership interests
or assets) any corporation, partnership, or other business organization or
division thereof, or enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing; excluding normal and
customary banking transactions, incur any indebtedness for borrowed money,
issue any debt securities, or enter into or modify any contract, agreement,
commitment, or arrangement with respect thereto; enter into, amend, or
terminate any employment agreement, relationship or responsibilities with any
director, officer, or key employee or representative of F&M; or enter into,
amend, or terminate any employment agreement with any other person otherwise
than in the ordinary course of business, or take any action with respect to the
grant or payment of any severance or termination pay except as expressly
consented to in writing by First M&F; enter into, extend, or renew any lease
for office or other space, except as required by law; enter into, adopt or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment, or other employee benefit plan,
agreement, trust, fund, or arrangement for the benefit or welfare of any
officer, employee or representative of F&M, or grant any increase in
compensation to any director, officer, or employee or representative of F&M
except in the ordinary course of business consistent with past practice;
provided, however, that if the Bank Merger does not occur by December 31, 1995,
year end 1995 bonuses may be paid which shall not exceed, in the aggregate,
$12,000. F&M will use its best efforts to preserve its existing business and
to keep its business organization intact, including its present relationships
with its employees and customers and others having business relations with it.
F&M shall cause the real property owned by F&M to be insured reasonably against
all insurable risks under policies with reasonable deductibles and in full
compliance with any co-insurance provision. F&M will promptly give proper
notice of a stockholders' meeting for the purpose of approving this Agreement.
F&M and its directors and principal stockholders will support and vote in favor
of a stockholder resolution approving this Agreement. The officers and
directors of F&M last in office shall execute and deliver such deeds and other
instruments and shall take or cause to be taken such further or other actions
as shall be necessary in order to vest or perfect in or to confirm of record or
otherwise to Bank title to, and possession of, all the property, interests,
assets, rights, privileges, immunities, powers, franchises, and authorities of
F&M, and otherwise to carry out the purposes of the Merger Agreement. F&M
shall make available to First M&F and Bank the following statements and other
reports and documents: F&M's Consolidated Balance Sheets as of June 30, 1995
and 1994 (unaudited) and December 31, 1994, 1993 and 1992 (audited);
Consolidated Statements of Income and Changes in Stockholders' Equity and
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992 (audited); Consolidated Statements of Income for the six-month
periods ended June 30, 1995 and 1994 (unaudited) ("F&M Financial Statements");
and, Federal Tax Returns for the years ended December 31, 1994, 1993 and 1992;
and all correspondence with the Department, the FDIC and the Internal Revenue
Service from January 1, 1994 through the date of Closing (for inspection, but
copying may be restricted by legal limitations).
F&M shall, upon reasonable notice, afford First M&F access to all of
its properties; books, contracts, commitments, loan files, litigation files and
records (including, but not limited to, the minutes of the Board of Directors
of F&M and all committees thereof), and it shall, upon reasonable notice and to
the extent consistent with applicable law, furnish promptly to First M&F such
information as First M&F may reasonably request to perform such review.
F&M shall not authorize or knowingly permit any of its officers,
directors, employees, representatives, agents or other persons controlled by
F&M to directly or indirectly, encourage or solicit or, hold any discussions or
negotiations with, or provide any information to, any persons, entity or group
concerning any merger, consolidation, sale of substantial assets, sale of
shares of capital stock or similar transactions involving, directly or
indirectly, F&M except as contemplated by the Merger Agreement. F&M shall
promptly communicate to First M&F the identity and terms of any proposal which
they may receive with respect to any such transaction.
First M&F agrees to operate its business solely in the ordinary course
consistent with prudent business practices and in compliance with all
applicable laws, regulations, and rules; but nothing in the Merger Agreement
shall be construed as limiting or restricting First M&F in its assets,
liability, or capital structure or limiting any action of First M&F or its
affiliates, nor shall anything in the Agreement be construed as limiting the
future number and amount of outstanding shares of First M&F stock pending
settlement of the Merger Agreement provided, however, there will be no dilution
by First M&F of F&M shareholders of the First M&F Common Stock to be received
in the Bank Merger, through any stock dividends, splits, warrants or options to
be issued by First M&F unless First M&F receives relative value for the same.
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First M&F shall (and shall cause Bank to), (a) upon reasonable notice,
afford F&M access to its premises, properties, books and records, and to
furnish F&M and such representatives with such financial and operating data and
other information of any kind respecting its business and properties as F&M
shall from time to time reasonably request to perform such review, (b) furnish
F&M with copies of all reports filed by First M&F with the Commission
throughout the period after the date hereof prior to the Effective Date
promptly after such reports are so filed, and (c) promptly advise F&M of the
occurrence before the Effective Date of any event or condition of any character
(whether actual or to the knowledge of First M&F, threatened or contemplated)
that has had or can reasonably be anticipated to have, or that, if concluded or
sustained adversely to First M&F, would reasonably be anticipated to have, a
material adverse effect on the financial condition, results of operations,
business or prospects of its consolidated group as a whole.
First M&F agrees to register the shares to be issued to F&M
stockholders pursuant to the Merger Agreement with the Commission.
It is the present intention of First M&F to continue at least one
significant historic business line of F&M, namely, financial services, and to
use at least a significant portion of F&M's historic business assets in a
business within the meaning of Treasury Regulation Section 1.368-1(d).
EMPLOYEE BENEFITS
From and after the Effective Date, First M&F will, subject to
compliance with applicable legal and regulatory requirements, provide coverage
for all F&M employees under First M&F's group health and life benefit plan, as
soon as practicable after the Effective Date. For purposes of participation
and vesting (but not accrual of benefits) under such employee benefit plans,
the service of the employees of F&M prior to the Effective Date shall be
treated as service with members of First M&F's consolidated group
participating in such employee benefit plans. For purposes of participation and
vesting in the First M&F Pension Plan, employees of F&M will be treated as new
employees of First M&F subject to the vesting and participating schedule of
such Plans.
RESALES OF FIRST M&F COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
First M&F Common Stock to be issued to shareholders of F&M in
connection with the Merger will be freely transferable under the Securities
Act, except for shares issued to any affiliate (as such term is defined by Rule
145 of the Securities Act) of F&M (the "F&M Affiliates"). It is a condition
to First M&F's obligation to consummate the Merger that, at or prior to the
Effective Date, each person who may be deemed to be a F&M Affiliate shall have
executed and delivered to First M&F an agreement (an "Affiliate's Agreement")
providing that such F&M Affiliate will not sell, transfer or otherwise dispose
of any First M&F Common Stock obtained as a result of the Merger in violation
of the Securities Act and the rules and regulations of the Commission
thereunder. See "The Merger -- Conditions."
ACCOUNTING TREATMENT
The Merger, if consummated as proposed, will qualify as a pooling of
interests for accounting and financial reporting purposes. Accordingly, under
generally accepted accounting principles, the assets and liabilities of F&M
will be combined with those of First M&F and carried forward at book values.
In addition, the statements of operations of F&M will be combined with the
statements of operations of First M&F on a retroactive basis. The obligations
of F&M and First M&F to consummate the Merger are conditioned, among other
matters, upon neither the Securities and Exchange Commission nor First M&F's
independent auditors concluding that the Merger will not qualify for pooling
of interests accounting treatment under generally accepted accounting
principles.
EXPENSES AND FEES
All legal and other costs and expenses incurred in connection with the
Merger and the transactions contemplated thereby will be paid by the party
incurring such costs and expenses.
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REGULATORY APPROVALS
It is a condition to the consummation of the Merger that all required
regulatory approvals, including the approval of the Federal Deposit Insurance
Corporation (the "FDIC") and the Mississippi Department of Banking and Consumer
Finance (the "Department"), be obtained. An application was submitted to the
FDIC on October 6, 1995. An application will be submitted to the Department
immediately after obtaining F&M shareholder approval. See "The Merger - -
Conditions" and "The Merger -- Regulatory Approvals."
APPRAISAL RIGHTS
Under Section 79-4-13.01 et seq. of the Mississippi BCA (a copy of
which is attached hereto as Exhibit B), any holder of record of shares of F&M
Common Stock, who files a written objection to the Merger prior to or at the
Meeting at which the vote on the Merger is taken, and who does not vote in
favor of the Merger, may demand in writing that F&M pay to such shareholder the
fair cash value of such shares ("Appraisal Rights"). A person who is a
beneficial owner, but not a registered owner, of shares of F&M Common Stock who
wishes to exercise the rights of a dissenting shareholder under the Mississippi
BCA must submit to F&M the record shareholder's written consent to the dissent
not later than the time the beneficial owner asserts dissenter's rights and he
must do so with respect to all shares of which he is the beneficial
shareholder.
Any shareholder of record contemplating making a demand for appraisal
is urged to review carefully the provisions of Section 79-4-13.21 of the
Mississippi BCA, particularly the procedural steps required to perfect
Appraisal Rights thereunder. APPRAISAL RIGHTS WILL BE LOST IF THE PROCEDURAL
REQUIREMENTS OF SECTION 79-4-13.21 ARE NOT FULLY SATISFIED.
Set forth below is a summary of the procedures relating to the
exercise of Appraisal Rights. The following summary does not purport to be a
complete statement of the provisions of Article 13 of the Mississippi BCA and
is qualified in its entirety by reference to Exhibit B hereto and to any
amendments to such sections as may be adopted after the date of this Proxy
Statement/Prospectus.
FILING WRITTEN OBJECTION AND VOTE AGAINST THE MERGER
Before the shareholders' vote is taken on the proposal to approve the
Merger, a shareholder of record who intends to exercise Appraisal Rights (a
"Dissenter") must deliver to F&M a written notice of his intent to demand
payment for his shares if the proposed Merger is effectuated and must not vote
the shares of F&M Common Stock held by such Dissenter (the "Shares") in favor
of the proposed Merger. Such written notice may be sent to F&M at 101 City
Square, Bruce, Mississippi 38915, telephone number (601) 983-4368 to the
attention of Jon Crocker. The return of a proxy by a Dissenter with
instructions to vote the Shares represented thereby against the Merger (or
abstaining from voting) is not sufficient to satisfy the requirement of
delivering written objection to F&M. The submission of a signed blank proxy
will serve to waive Appraisal Rights.
NOTICE BY F&M
Within ten (10) days after the Effective Date F&M will notify each
Dissenter who has purported to comply with the provisions of Section 79-4-13.21
of the Mississippi BCA that the Merger has become effective (the "F&M Notice").
The F&M Notice shall be sent by registered mail, addressed to the Dissenter at
such Dissenter's last address on F&M's records immediately prior to the
Effective Date.
WRITTEN DEMAND
Within thirty (30) days after the delivery to the Dissenter of the F&M
Notice, any Dissenter must file with F&M a demand for payment (the "Demand")
for their Dissenter's Shares as of the day prior to the Meeting. The Demand
must comply with the provisions of Article 13 and must specify the Dissenter's
name and mailing address, the number of shares of F&M stock owned and state
that the Dissenter is demanding payment of his or her shares. The Dissenter
must also certify
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that the Dissenter had beneficial ownership of the shares before the date set
forth in the F&M Notice, which is September 7, 1995, the date of the first
announcement of the proposed Merger to the news media. Simultaneously with
the filing of the Demand, the Dissenter shall also deposit the certificate in
accordance with the terms of the F&M Notice. A Dissenter who fails to satisfy
any of the foregoing conditions within the proper time periods will
conclusively be presumed to have acquiesced in the Merger and will lose his
Appraisal Rights. The Demand may be sent to F&M at 101 City Square, Bruce,
Mississippi 38915, telephone number (601) 983-4368 to the attention of Jon
Crocker.
PAYMENT
Upon receipt of the Demand, F&M shall pay Dissenters who complied with
Article 13 the amount F&M estimates to be the fair value of the Dissenter's
Shares plus accrued interest. Certain financial information concerning F&M,
its estimate of the value of the shares, an explanation of how interest was
calculated, and a statement of rights to demand payment along with a copy of
Article 13, must accompany such offer or payment.
APPRAISAL
A Dissenter may notify F&M in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of his
estimate or a Dissenter may reject F&M's payment and demand in writing payment
based on his own estimate of the fair value of his shares and amount of
interest due. To be entitled to such rights, the Dissenter must notify F&M of
his demand in writing within thirty (30) days after F&M made payment for the
shares. If a Dissenter has rejected F&M's payment and demanded payment of the
fair value of the shares and interest due and the demand for payment remains
unsettled, F&M shall commence a judicial proceeding within sixty (60) days
after receiving the payment demand and petition an appropriate court, as
described in Article 13, to determine the fair value of the shares and accrued
interest. If F&M does not commence such action within the required sixty (60)
day period, it shall pay each Dissenter whose demand remains unsettled the
amount demanded.
F&M shall make all Dissenters whose demands remain unsettled parties
to the proceeding and all parties must be served with a copy of the petition.
Each Dissenter made a party to the proceeding is entitled to judgment for
either the amount by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by F&M or for the fair value of his shares,
plus accrued interest, after acquired shares for which F&M elected to withhold
payment under Section 79-4-13.27.
Dissenters considering exercising Appraisal Rights should bear in mind
that the fair cash value of their Shares determined under Section 79-4-13.30 of
the Mississippi BCA could be more than, the same as or less than the
consideration they would otherwise receive pursuant to the Merger Agreement if
they do not seek appraisal of their Shares.
COSTS
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. Additionally, the court may assess fees of legal
counsel and of experts for the respective parties. The court shall assess the
costs against F&M, except that the court may assess costs against all or some
of the Dissenters to the extent the court finds the Dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment under
Article 13, or the court may assess counsel fees against the Dissenters who
were benefited.
ANY F&M SHAREHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS SHOULD
CAREFULLY REVIEW THE MISSISSIPPI BCA AND IS URGED TO CONSULT SUCH SHAREHOLDER'S
LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
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DESCRIPTION OF FIRST M&F CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The amended Articles of Incorporation (the "Articles") of First M&F
authorize the issuance of 5,000,000 shares of Common Stock, par value $5.00 per
share. On October 4, 1995, there were 2,940,900 shares of Common Stock
outstanding (excluding 3,756 shares held by First M&F as Treasury shares).
In addition, the Articles authorize First M&F to issue 500,000 shares
of Class A voting preferred stock, no par value, and 500,000 shares of Class B
non-voting preferred stock, no par value. On October 4, 1995, there were no
shares of either class of preferred stock outstanding. The shares of each class
of preferred stock may be issued from time to time by the Board of Directors in
one or more series, and the variations, relative rights and preferences as
between different series of each class may be fixed and determined by
resolution of the Board of Directors with respect to the rate of dividend,
redemption, liquidation payments, sinking fund provisions and conversion.
VOTING RIGHTS
The holders of First M&F's Common Stock are entitled to one vote for
each share of Common Stock held. Holders of Common Stock have cumulative
voting rights in the election of directors.
A holder of Class A voting preferred stock would be entitled to voting
rights equivalent to those of a holder of Common Stock, including one vote per
share on matters submitted to a vote at a meeting of stockholders and
cumulative voting in the election of directors. A holder of Class B non-voting
preferred stock would have no voting rights as a holder of such stock, except
as specifically required by law.
DIVIDEND RIGHTS
The holders of Common Stock are entitled to receive such dividends as
may be declared, from time to time, by the Board of Directors out of funds
legally available therefor. Substantially all of the funds available to First
M&F for payment of dividends on the Common Stock are derived from dividends
paid by Bank. The payment of dividends by First M&F is subject to the
restrictions of Mississippi law applicable to the declaration of dividends by a
business corporation. Under such provisions, no distribution may be made if,
after giving it effect (1) First M&F would not be able to pay its debts as they
become due in the usual course of business; or (2) First M&F's total assets
would be less than the sum of its total liabilities plus the amount that would
be needed, if First M&F were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distributions.
The holders of Class A voting preferred stock and Class B non-voting
preferred stock would be entitled to receive fully cumulative dividends, when
and as declared by the Board of Directors, payable at periods fixed by the
Board of Directors at the rates specified in the issuing resolution of the
Board of Directors for the particular series thereof, and no more, before any
dividend could be paid or set apart for payment upon the Common Stock.
Additionally, the Federal Reserve, in its Policy Statement on Cash
Dividends Not Fully Covered by Earnings, has 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.
PREEMPTIVE RIGHTS
The holders of Common Stock do not have any preemptive or preferential
right to purchase or to subscribe for any additional shares of Common Stock
that may be issued.
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FULLY PAID AND NONASSESSABLE
The shares of Common Stock presently outstanding are, and those shares
of Common Stock to be issued in connection with the Offering will be when
issued, fully paid and nonassessable. Such shares do not have any redemption
provisions.
CUMULATIVE VOTING
First M&F's Bylaws provide that in the election of directors, each
shareholder entitled to vote has the right to vote in person or by proxy the
number of shares owned by him for as many persons as there are directors to be
elected for whose election he has a right to vote, or to cumulate his votes by
giving one candidate as many votes as the number of such directors multiplied
by the number of his shares shall equal, or by distributing such votes on the
same principle among any number of candidates.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding-up of First M&F,
whether voluntary or involuntary, the holders of Common Stock will be entitled
to share ratably in any of the net assets or funds which are available for
distribution to stockholders after the satisfaction of all liabilities or after
adequate provision is made therefor and after payment of any preferences on
liquidation of preferred stock, if any.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
First M&F's Articles and Bylaws provide for indemnification by First
M&F, to the fullest extent permitted by the Mississippi BCA, of directors,
officers, employees and agents for expenses, judgments, fines and amounts paid
in settlement by such persons.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling First M&F pursuant to the foregoing provisions, First M&F has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
TRANSFER AGENT AND REGISTRAR
The registered transfer agent and registrar for the Common Stock is
Merchants and Farmers Bank, Kosciusko, Mississippi.
CHANGES IN CONTROL
Certain provisions of First M&F's Articles and Bylaws may have the
effect of preventing, discouraging or delaying any change in the control of
First M&F. The classification of the Board of Directors would delay any attempt
by dissatisfied stockholders or anyone who obtains a controlling interest in
the Common Stock to elect a new Board of Directors. The classes serve
staggered three year terms so that one-third of the Directors are elected each
year. These staggered terms of service may make it more difficult for First
M&F's stockholders to effect a change in the majority of First M&F's Directors,
because replacement of a majority of the directors will normally require two
annual meetings of stockholders. Accordingly, this provision also may have the
effect of discouraging hostile attempts to gain control of First M&F.
The Articles contain in Article Nine provisions regarding the vote
required to approve certain business combinations or other significant
corporate transactions involving First M&F and a substantial stockholder.
Mississippi law generally requires the affirmative vote of the holders of a
majority of shares entitled to vote at a meeting to approve a merger,
consolidation or dissolution of First M&F or a disposition of all or
substantially all of First M&F's assets. The Articles require the affirmative
vote of 80% of the total number of votes entitled to be cast to approve these
and other significant corporate transactions ("business combinations") if an
"Interested Stockholder" (as defined) is a party to the transaction or
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its percentage equity interest in First M&F will be increased by the
transaction. A majority of the "Continuing Directors" (as defined) of the Board
of Directors may, in all such cases, determine not to require such 80%
affirmative vote. The required 80% approval of any such business combination
includes all votes entitled to be cast with respect to voting shares not
beneficially owned by any Interested Stockholder. In addition, such 80%
affirmative vote will not be required if certain price criteria and procedural
requirements are satisfied.
An "Interested Stockholder" generally is defined under Article Nine as
the "beneficial owner" of 10% or more of the outstanding shares of stock of
First M&F entitled to vote generally in the election of Directors ("voting
shares"). "Beneficial ownership" generally is defined in accordance with the
definition of beneficial ownership in Rule 13d-3 under the Securities Exchange
Act of 1934 and includes all shares to which the Interested Stockholder in
question has sole or shared voting or investment power. However, for purposes
of Article Nine, an Interested Stockholder is also deemed to own beneficially
shares owned, directly or indirectly, by an "Affiliate" or "Associate" (each as
defined in paragraph (C)(7) of Article Nine) of the Interested Stockholder, as
well as (1) shares of which it or any such Affiliate or Associate has a right
to acquire, (2) shares issuable upon the exercise of options or rights, or upon
conversion of convertible securities, held by the Substantial Stockholder and
(3) shares beneficially owned by any other person with whom the Substantial
Stockholder or any of his Affiliates or Associates acts as a partnership,
syndicate or other group pursuant to an agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of shares of capital
stock of First M&F.
A "business combination" subject to Article Nine includes: a merger or
consolidation involving First M&F or any of its subsidiaries and an Interested
Stockholder; a sale, lease or other disposition of a "substantial part" of the
assets of First M&F or any of its subsidiaries (that is, assets constituting in
excess of 5% of the book value of the total consolidated assets of First M&F)
to an Interested Stockholder; an issuance of equity securities of First M&F or
any of its subsidiaries to an Interested Stockholder for consideration
aggregating 5% of the shareholders' equity; a liquidation or dissolution of
First M&F (if, as of the record date for the determination of stockholders
entitled to vote with respect thereto, any person is an Interested
Stockholder); and a reclassification or recapitalization of securities
(including any reverse stock split) of First M&F or any of its subsidiaries or
a reorganization, in any case having the effect, directly or indirectly, of
increasing the percentage interest of an Interested Stockholder in any class of
equity securities of First M&F or such subsidiary.
A "Continuing Director" is defined as one serving as a director, or
one elected or appointed prior to the time the Interested Stockholder in
question acquires such status, or one designated as a Continuing director
(prior to his initial election or appointment) by a majority of the whole Board
of Directors, but only if a majority of the whole Board shall then consist of
Continuing Directors, by a majority of the then Continuing Directors.
Under those circumstances in which Article Nine would apply, a
minority of First M&F's stockholders may prevent the consummation of a
transaction favored by a majority of stockholders. As a practical matter, the
requirement of an 80% vote may also mean that the type of business combination
to which Article Nine is addressed might not be accomplished by the controlling
entity while there remains any widely dispersed public market in First M&F's
voting shares. All directors and officers as a group may be deemed to
beneficially own, as of October 1, 1995, approximately 31.48% of the
outstanding Common Stock, excluding shares to which beneficial ownership is
disclaimed. Thus, management and these persons could themselves, by failing to
vote, defeat such a proposed transaction. Article Nine may deter unsolicited
tender offers for First M&F, even if such tender offers are favored by and
beneficial to the holders of a majority of First M&F's shares. The Board of
Directors has no knowledge of any proposed tender offer for First M&F or other
acquisition offer.
Article Nine may not be amended or repealed without the affirmative
vote of 80% or more of the votes entitled to be cast by all holders of voting
shares (which 80% vote must also include the affirmative vote of a majority of
the votes entitled to be cast by all holders of voting shares not beneficially
owned by any Interested Stockholder).
Article Seven of the Articles provides that the number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by Bylaw adopted by a majority of the Board of Directors (but in no event
less than nine). This provision enables the Board of Directors to increase the
size of the Board during the period between annual meetings of stockholders to
accommodate the inclusion of persons it concludes would be valuable additions
to the Board. It also enables the Board to decrease the number of
directorships in order to respond to circumstances under which the Board deems
a lower number of directors to be desirable, such as when a director
unexpectedly dies or resigns and a qualified
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candidate to replace the departing director is not immediately available. It
should be noted that, under the Mississippi BCA, the Board may only increase or
decrease by 80% or less the number of directors last approved by the
stockholders; the stockholders must approve any proposal by the Board to
increase or decrease by more than 30% the number of directors last approved by
the stockholders.
Article Seven of the Articles also provides that (1) vacancies
occurring on the Board of Directors may be filled only by the shareholders at
an Annual Meeting, (2) directors may be removed with or without cause only by
the holders of 80% of the shares eligible to vote and no individual director
may be removed if the number of votes cast against removal would be sufficient
to elect the director if such shares were voted cumulatively, and (3) Article
Seven may not be amended or repealed without the approval of the holders of 80%
of the outstanding Common Stock.
These provisions may have the effect of making it more difficult for
stockholders to replace or add directors, or to otherwise influence actions
taken by Directors, which may discourage attempts to acquire control of First
M&F which may (or may not) be in the best interests of the majority of the
stockholders.
COMPARISON OF THE RIGHTS OF HOLDERS OF
F&M COMMON STOCK AND FIRST M&F COMMON STOCK
F&M and First M&F are both incorporated in the State of Mississippi.
Shareholders of F&M, whose rights as shareholders are currently governed by
Mississippi law and by F&M's Articles of Incorporation (the "F&M Articles") and
Bylaws, will, upon consummation of the Merger, become shareholders of First M&F
and their rights as such will be governed by Mississippi law and by First M&F's
Articles of Incorporation (the "First M&F Articles") and Bylaws.
Certain significant differences between the rights of shareholders of
F&M and shareholders of First M&F are set forth below. This summary is not
intended to be relied upon as an exhaustive list or a detailed description of
the provisions discussed and is qualified in its entirety by the Articles of
Incorporation and Bylaws of F&M and First M&F, respectively, to which F&M
shareholders are referred.
AUTHORIZED SHARES OF CAPITAL STOCK; DIVIDEND RIGHTS
F&M. F&M's Articles authorize the issuance of 10,000 shares of F&M
Common Stock. As of the date of this Proxy Statement/Prospectus, 10,000 shares
were issued, of which 10,000 were outstanding.
FIRST M&F. First M&F's Articles authorize the issuance of 5,000,000
shares of First M&F Common Stock and 500,000 shares of Class A voting preferred
stock no par value and 500,000 shares of Class B Non-Voting Preferred Stock no
par value (together, "First M&F Preferred Stock"). On October 4, 1995 there
were 2,940,900 shares of Common Stock outstanding (excluding 3,756 shares held
by First M&F as Treasury shares) and there were no shares of either class of
preferred stock outstanding. The shares of each class of preferred stock may be
issued from time to time by the Board of Directors in one or more series, and
the variations, relative rights and preferences as between different series of
each class may be fixed and determined by resolution of the Board of Directors
with respect to the rate of dividend, redemption, liquidation payments, sinking
fund provisions and conversion.
Additionally, the Federal Reserve, in its Policy Statement on Cash
Dividends Not Fully Covered by Earnings, has 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.
During the time that any series of First M&F Preferred Stock is
outstanding, no dividends may be declared or paid on First M&F Common Stock,
unless dividends on all outstanding shares of First M&F Preferred Stock for the
current and all past dividend periods have been declared and paid or provision
made for the payment thereof. Dividends with respect to First M&F Preferred
Stock are required to be cumulative.
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VOTING RIGHTS
F&M. F&M has one authorized class of stock and, under F&M's Bylaws,
each outstanding share of F&M stock is entitled to one (1) vote on each matter
submitted to a vote. Holders of Common Stock have cumulative voting rights in
the election of directors.
FIRST M&F. Pursuant to the Mississippi BCA and First M&F's Bylaws,
each outstanding share of First M&F stock is entitled to one (1) vote on each
matter submitted to a vote. Holders of Common Stock have cumulative voting
rights in the election of directors. A holder of Class A voting preferred
stock would be entitled to voting rights equivalent to those of a holder of
Common Stock, including one vote per share on matters submitted to a vote at a
meeting of stockholders and cumulative voting in the election of directors. A
holder of Class B Non-Voting Preferred Stock would have no voting rights as a
holder of such stock, except as specifically required by law.
INDEMNIFICATION
F&M. F&M's Articles and Bylaws do not contain a provision for
indemnification of directors, officers, employees or agents for expenses,
judgments, fines and amounts paid in settlement by such persons.
FIRST M&F. First M&F's Articles and Bylaws provide for
indemnification by First M&F, to the fullest extent permitted by the
Mississippi BCA, of directors, officers, employees and agents for expenses,
judgments, fines and amounts paid in settlement by such persons.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, officers or persons
controlling First M&F pursuant to the foregoing provisions, First M&F has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
SUPERMAJORITY VOTING REQUIREMENTS; BUSINESS COMBINATIONS
F&M. F&M's Articles and Bylaws do not have supermajority voting
requirements for business combinations or other matters.
FIRST M&F. First M&F's Articles contain provisions regarding the vote
required to approve certain business combinations or other significant
corporate transactions involving First M&F and a substantial stockholder.
Mississippi law generally requires the affirmative vote of the holders of a
majority of shares entitled to vote at a meeting to approve a merger,
consolidation or dissolution of First M&F or a disposition of all or
substantially all of First M&F's assets. The Articles require the affirmative
vote of 80% of the total number of votes entitled to be cast to approve these
and other significant corporate transactions ("business combinations") if an
"Interested Stockholder" (as defined) is a party to the transaction or its
percentage equity interest in First M&F will be increased by the transaction. A
majority of the "Continuing Directors" (as defined) of the Board of Directors
may, in all such cases, determine not to require such 80% affirmative vote. The
required 80% approval of any such business combination includes all votes
entitled to be cast with respect to voting shares not beneficially owned by any
Interested Stockholder. In addition, such 80% affirmative vote will not be
required if certain price criteria and procedural requirements are satisfied.
See "Description of First M&F Capital Stock--Changes in Control" for a fuller
discussion of this provision and for definitions of such terms.
REMOVAL OF DIRECTORS
F&M. F&M's Bylaws provide that any director may be removed at any
time without cause or changes, at any meeting of the shareholders called for
that purpose, by vote of a majority of all of the shares of stock issued and
outstanding.
FIRST M&F. First M&F's Articles provide that directors may be removed
with or without cause only by the holders of 80% of the shares eligible to vote
and no individual director may be removed if the number of votes cast against
removal would be sufficient to elect the director if such shares were voted
cumulatively.
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VACANCIES IN THE BOARD OF DIRECTORS
F&M. F&M's Bylaws provide that when any vacancy occurs in the Board
of Directors, whether by reason of increase in the number of members composing
the Board, or otherwise, the remaining members of the Board may appoint a
director or directors to fill such vacancy or vacancies at any regular meeting
of the Board, or at a special meeting of the Board called for that purpose.
FIRST M&F. First M&F's Articles provide that vacancies occurring on
the Board of Directors may be filled only by shareholders at an annual meeting.
AMENDMENT OF THE ARTICLES OF INCORPORATION
F&M. F&M's Articles may be amended pursuant to Miss. Code Ann. Section
81-3-15 by a majority vote of F&M's shareholders.
FIRST M&F. Articles Seven and Nine of First M&F's Articles may not be
amended or repealed without the affirmative vote of 80% or more of the votes
entitled to be cast by all holders of voting shares. See "Description of First
M&F's Common Stock--Changes in Control" for a fuller discussion of the terms of
Articles Seven and Nine and the restrictions on their amendment or repeal.
SPECIAL MEETINGS OF SHAREHOLDERS
F&M. The Bylaws provide that special meetings may be called by the
Board of Directors or by any three or more shareholders owning twenty-five
percent (25%) of the stock of F&M.
FIRST M&F. The Bylaws provide that special meetings may be called by
the Chairman, Vice Chairman or at the request of the holders of not less than
thirty-three and one-third percent (33 1/3%) of all the outstanding shares of
First M&F entitled to vote at the meeting.
INFORMATION CONCERNING FIRST M&F
BUSINESS
GENERAL. First M&F 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 First M&F and the Bank are located at 221 East Washington Street,
Kosciusko, Mississippi.
First M&F was incorporated in 1979 by management of the Bank and
became the parent of the Bank through an exchange offer pursuant to which First
M&F issued shares of common stock and debentures in exchange for the then
outstanding shares of the Bank. First M&F 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, Grenada,
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.
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As of October 4, 1995, the Bank had approximately 190 full-time
equivalent employees.
On February 12, 1992, the Board of Directors approved a four to one
stock dividend and on August 9, 1995 approved a two for one stock dividend. The
financial information disclosed in this report has been restated to reflect the
stock dividends.
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 at Kosciusko, Attala County
and Starkville, Oktibbeha County, Mississippi.
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 interstate banking, has created a highly competitive
environment for commercial banking in First M&F's market area. The principal
competitive factors in the markets for deposits and loans are interest rates
paid and charged. First M&F 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, First M&F
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
First M&F.
DEPOSITS. The Bank has a number of programs designed to attract
depository accounts which are offered to consumers and to small and middle size
businesses at interest rates generally consistent with market conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of First M&F".
The Bank offers twelve (12) ATMs at its twenty-five (25) banking
offices of which two (2) are free-standing. The Bank is a member of regional
and international networks such as Plus, Gulfnet and Money Belt, which allow
ATM customers to access their depository accounts from regional, national and
international ATM facilities. The Bank controls deposit flows primarily
through the pricing of such deposits and to a certain extent through
promotional activities. As of September 30, 1995, the Bank maintained no
brokered deposits and $38,300,000 of certificates of deposit greater than
$100,000. Management believes that the rates it offers, which are posted
weekly on its deposit accounts, are generally competitive with or, in some
cases, slightly below other financial institutions in the Bank's market areas.
The operating account of Mississippi State University is held by the
Bank pursuant to a contract which expires June 30, 1996. This relationship
represents approximately a year to date average of $46,098,000 in liabilities
(11.3% of the Bank's total liabilities). The Bank's investment strategy
accommodates the possible loss of this relationship in 1996 by managing
investment maturities. Such event should not have a materially adverse effect
on the business of the Bank.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION. General: As a bank holding company,
First M&F 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"). First M&F
also is required to file certain reports with, and otherwise comply with the
rules and regulations of, the Commission under Federal securities laws.
Federal Regulation: The Bank Holding Company Act generally prohibits
First M&F 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
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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.
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 15
days following the date of such approval. During such 15-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.
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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, bank holding companies are 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%.
First M&F, 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 First M&F 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 was 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.
However, effective September 29, 1995, such regional limitation was expanded by
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 to a
nationwide basis. 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, First M&F 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 First
M&F'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.
The activities of First M&F are also restricted by the provisions of
the Glass-Stegall Act of 1933 (the "Act"). The Act prohibits First M&F 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.
First M&F is a 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 First M&F 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 statutes applicable to state banks and the regulations of the Federal
Reserve and of the Federal Deposit Insurance Corporation (FDIC). Such statutes
and
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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.
The Bank is subject to regulation and periodic examination by the FDIC
and the 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, First M&F 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. On August 8, 1995,
the FDIC announced a reduction of the annual BIF premium to .045% of the Bank's
deposits. First M&F's assessments are currently determined by the level of its
risk-based capital and the latest examination grading by the FDIC. The
assessment may range from a minimum of .045% to a maximum of .31% of deposits.
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%.
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 $54 million, or, if
the aggregate of such accounts exceeds $54 million, $1.620 million plus 10% of
the total in excess of $54 million.
The foregoing is a brief summary of certain statutes, rules and
regulations affecting First M&F 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.
26
<PAGE> 37
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.
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 generally 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 it 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.
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
27
<PAGE> 38
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. 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 First M&F.
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-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") was signed by the President on September 29, 1994.
The Riegle-Neal Act permits bank holding companies domiciled in any state to
acquire banks and bank holding companies located in any other state after
September 29, 1995. Further, unless state legislatures elect otherwise, under
the Riegle-Neal Act banks will be allowed to establish interstate branches
beginning June 1, 1997. Finally, the Riegle-Neal Act permits any bank
subsidiary of a bank holding company to act as agent for depository institution
affiliates with respect to receipt of deposits, renewal of time deposits,
closing of loans, receipt of loan payment and servicing of loans.
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 First M&F 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.
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
28
<PAGE> 39
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
First M&F 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, First M&F 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 First M&F, 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.
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 First M&F 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 First M&F'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, First M&F received a refund of taxes paid for 1982-1984
amounting to $683,952, plus interest of $841,391. In addition, in 1992, First
M&F reversed approximately $291,900 in potential taxes that had been accrued
for 1985-1990.
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 eighteen of its branch
bank facilities. The remaining six branch facilities (three 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.
LEGAL PROCEEDINGS
The Bank is a defendant in three (3) lawsuits pending in the Circuit
Court of Lafayette County, Mississippi:, Rayner v. Merchants and Farmers Bank,
(instituted on March 29, 1993); Smith v. Merchants and Farmers Bank (instituted
on February 4, 1994); and Miller v. Merchants and Farmers Bank (instituted on
February 4, 1994). The lawsuits allege fraud and misappropriation by a former
Bank employee. Claims against the Bank are based upon the payment of checks
with
29
<PAGE> 40
forged endorsements and the authority of the former employee to endorse such
checks. The plaintiffs allege actual damages of approximately $600,000 in the
aggregate and seek unspecified punitive damages. The Bank is vigorously
defending these lawsuits and has asserted defenses it believes are meritorious;
however, the likelihood of ultimate success cannot be measured at this time.
The Bank is also a defendant in a lawsuit styled Mahaffey v. Merchants
and Farmers Bank and Mark Baird pending in the Circuit Court of Madison County,
Mississippi which was instituted on July 22, 1991. The lawsuit alleges
numerous wrongful acts by the Bank which allegedly give rise to claims for
damages of approximately $247,000 and punitive damages of $2,650,000. This
case is currently in the process of discovery; therefore, the Bank lacks
sufficient information regarding the nature of the claims to comment on the
likelihood of successfully defending the action.
The Bank is also a defendant in a lawsuit styled Phelps v. Merchants
and Farmers Bank which was instituted on November 7, 1994, in the Circuit Court
of Oktibbeha County but removed to the Bankruptcy Court for the Northern
District of Mississippi where it is now pending as an adversary proceeding.
The lawsuit alleges that a foreclosure sale at which the Bank purchased certain
property that it sold to Mr. Phelps was void and violated an automatic stay.
Mr. Phelps seeks the return of the amount he paid for the property purchased
from the Bank and $1,000,000 in punitive damages. The Bank commenced an
adversary proceeding against Mr. Phelps and others seeking a declaration that
the foreclosure sale was valid. This adversary proceeding is pending in the
Bankruptcy Court for the Northern District of Mississippi. While the Bank
believes its defenses to be good, the litigation is in early stages and the
outcome cannot be determined.
DIRECTORS AND OFFICERS
The following table provides certain information concerning directors
and executive officers of First M&F as of October 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., 54 Director since 1981; 1997
Manager, Mississippi Materials Corp.
(concrete and building materials manufacturer/
distributor)
Charles T. England, 58 Director since l980; 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)
Barbara K. Hammond, 50 Director since 1995; 1998
Specialist Circuit Capacity
Management, Bell South Communications
Joe Ivey, 37 Director since 1994; Chairman and 1997
CEO, Ivey Mechanical (plumbing
and electrical contractors)
</TABLE>
30
<PAGE> 41
<TABLE>
<CAPTION>
Position Held in Company Term as
Principal Occupation Director
Name and Age During Last Five Years Expires
------------ ---------------------- -------
<S> <C> <C>
*J. Marlin Ivey, 59 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, 56 Director since 1979; 1996
President of the Durant Branch of
the Bank
*Susan P. McCaffery, 56 Director since 1987; Member, Audit Committee; 1997
Professor, Wood Junior College
Dr. William M. Myers, 68 Director since 1979; 1998
Dentist
Otho E. Pettit, Jr., 45 Director since 1993; 1996
Attorney
*Hugh S. Potts, Jr., 50 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, 63 Director since 1979; 1998
President, W.C. Shoemaker, Inc.
(investments and real estate company)
*Scott M. Wiggers, 51 Director since 1983; 1998
President since 1988; Treasurer
since 1979; President of the Bank
*Edward G. Woodard, 41 Director since 1989; 1997
President, K. M. Distributing, Inc.
(wholesaler of chain saws, lawn and
garden products)
</TABLE>
Upon the Effective Date the following person will become a director of First
M&F:
<TABLE>
<S> <C> <C>
Jon A. Crocker, 53 Currently Chairman of the Board and 1998
Chief Executive Officer of F&M
</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.
31
<PAGE> 42
EXECUTIVE COMPENSATION
The following tables show the cash compensation for 1994, 1993 and
1992 for the chief executive officer of First M&F and all executive officers of
First M&F and the Bank whose cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Annual Compensation
- ------------------------------------------------------------------------------------------------------------
Other Annual All Other
Name and 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) $ -0-
Chairman of the Board and --------------------------------------------------------------------------
CEO since 4/15/94; Vice 1993 141,173 9,750 1,330 (1) -0-
Chairman until 4/15/94 --------------------------------------------------------------------------
1992 130,167 12,903 1,136 (1) -0-
- ------------------------------------------------------------------------------------------------------------
Scott M. Wiggers 1994 109,823 10,000 1,453 (1) -0-
President --------------------------------------------------------------------------
1993 101,686 12,000 636 (1) -0-
--------------------------------------------------------------------------
1992 93,503 9,274 759 (1) -0-
- ------------------------------------------------------------------------------------------------------------
Hugh S. Potts, Sr. 1994 108,100 3,270 2,481 (1) -0-
Chairman of the Board 6,198 (2)
and CEO through 4/14/94; --------------------------------------------------------------------------
Consultant to Bank since 1993 148,171 11,000 2,482 (1) -0-
4/14/94 --------------------------------------------------------------------------
1992 136,610 13,413 2,482 (1) -0-
- ------------------------------------------------------------------------------------------------------------
</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 First M&F effective April 15, 1994. Mr. Potts' son, Hugh
S. Potts, Jr., currently serves as First M&F's Chief Executive Officer and
Chairman of First M&F'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.
32
<PAGE> 43
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 First M&F'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 (l) 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 participants
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. Non-Officer Directors receive annual
compensation in the amount of $600 per Board meeting attended payable at
the end of the year, plus an additional $20 for each committee meeting attended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As discussed in the notes to the consolidated financial statements,
through the Bank, First M&F 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.
33
<PAGE> 44
STOCK OWNERSHIP OF MANAGEMENT OF FIRST M&F AND PRINCIPAL
SHAREHOLDERS OF FIRST M&F
Management of First M&F knows of no person who owns of record or
beneficially, directly or indirectly, more than 5% of the outstanding common
stock of First M&F except as set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of
of Common Stock Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hugh S. Potts, Jr. 364,836 shares (1) 12.40%
1104 Walnut Grove Rd.
Kosciusko, MS 39090
- -------------------------------------------------------------------------------------------------------------
Charles W. Ritter, Jr. 170,000 shares (2) 5.78%
Woodbrier Subdivision
Kosciusko, MS 39090
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Potts shares voting and investment power with respect to 84,752 of
these shares, which are held in three trusts.
(2) Mr. Ritter shares investment power with respect to 78,000 of these shares
with his wife and two children.
The following table shows the number and percentage of shares of First
M&F's common stock beneficially owned by each director and by all directors and
executive officers as a group, as of October 1, 1995. 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. 15,000 shares *
603 Hickory Hill Dr.
P. O. Box 694
Kosciusko, MS 39090
Charles T. England 15,000 shares *
608 Smythe Street
P. O. Box 414
Kosciusko, MS 39090
Toxey Hall, III 1,920 shares *
1498 Sunset Dr.
Canton, MS 39046
Barbara K. Hammond 2,000 shares *
1468 Roxbury Court
Jackson, MS 39211
J. Marlin Ivey (1) 112,000 shares (2) 3.81%
309 East Jefferson St.
P. O. Box 610
Kosciusko, MS 39090
</TABLE>
34
<PAGE> 45
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
------------------- ------------------------------- -------------
<S> <C> <C>
Joseph M. Ivey (1) 100,062 shares (2) 3.40%
211 S. Madison
P. O. Box 610
Kosciusko, MS 39090
R. Dale McBride 18,624 shares (3) *
Route 1, Box 179
Durant, MS 39063
Susan P. McCaffery (4) 113,822 shares (5) 3.87%
327 East Jefferson St.
Kosciusko, MS 39090
William M. Myers, DDS 28,000 shares (6) *
308 East Jefferson St.
Kosciusko, MS 39090
Otho E. Pettit, Jr. 10,754 shares (7) *
212 Oakland
Kosciusko, MS 39090
Hugh S. Potts, Jr. (4) 364,836 shares (8) 12.40%
1104 Walnut Grove Road
Kosciusko, MS 39090)
Charles W. Ritter, Jr. 170,000 shares (9) 5.78%
Woodbrier Subdivision
P. O. Box 538
Kosciusko, MS 39090
W. C. Shoemaker 40,266 shares 1.37%
P. O. Box 550
Kosciusko, MS 39090
Scott M. Wiggers 11,696 shares (10) *
1207 East South St.
Kosciusko, MS 39090
Edward G. Woodard 8,306 shares (11) *
P. O. Box 488
Kosciusko, MS 39090
Executive Officers
(including Executive Officers
of the Bank) and Directors
as a Group 925,756 shares 31.48%
======= =====
</TABLE>
* less than one percent (1%)
35
<PAGE> 46
(1) Director J. Marlin Ivey is the father of director Joseph M. Ivey.
(2) Of these shares, 92,000 are registered in the name of Ivey National Corp.,
of which J. Marlin Ivey is the President and Joseph M. Ivey is an officer.
(3) Mr. McBride shares voting and investment power with respect to 12,740 of
these shares with his wife and children.
(4) Mrs. McCaffery and Hugh S. Potts, Jr. are brother and sister. Their
father is First M&F's former Chief Executive Officer and Chairman of the
Board Hugh S. Potts, Sr.
(5) Mrs. McCaffery shares voting and investment power with respect to 9,094 of
these shares with her husband and children.
(6) Dr. Myers shares voting and investment power with respect to 23,500 of
these shares with his children, which are held in a trust.
(7) Of these shares, 3,326 are registered in the name of Mr. Pettit's wife,
and 400 shares are held by Mr. Pettit as custodian for his minor
children.
(8) Mr. Potts shares voting and investment power with respect to 84,752 of
these shares, which are held in three trusts.
(9) Mr. Ritter shares investment power with respect to 78,000 of these shares
with his wife and two children.
(10) Mr. Wiggers shares voting and investment power with respect to 1,134 of
these shares with his wife.
(11) Mr. Woodard shares voting and investment power with respect to 880 of
these shares with his wife.
36
<PAGE> 47
MARKET PRICES OF AND DIVIDENDS ON FIRST M&F COMMON STOCK
At October 4, 1995, there were 439 holders of record of First M&F's common
stock. First M&F's common stock is traded "over the counter". In 1987, a
Mississippi brokerage firm acted as a market maker for the stock. However,
First M&F's common stock has traded on a limited basis and no firm is presently
acting as a market maker for First M&F's common stock.
To the best of management's knowledge, the prevailing trading ranges for
First M&F's common stock were as follows (as restated to reflect a two for one
stock dividend on August 9, 1995):
<TABLE>
<CAPTION>
Low Bid High Bid
or Last or Last
Sale Price Sale Price
---------- ----------
<S> <C> <C>
1992:
First quarter $ 4.99 $ 5.00
Second quarter 5.00 7.50
Third quarter 6.50 7.50
Fourth quarter 7.50 10.00
1993:
First quarter $ 9.00 $ 10.50
Second quarter 9.00 11.00
Third quarter 9.00 11.00
Fourth quarter 10.00 11.00
1994:
First quarter $ 12.75 $ 12.75
Second quarter 12.75 13.00
Third quarter 12.75 13.00
Fourth quarter 13.00 13.00
1995:
First quarter $ 13.00 $ 13.00
Second quarter 13.00 13.00
Third quarter 13.00 13.00
</TABLE>
The following is a summary of cash dividends per share (as restated to
reflect a two for one stock dividend on August 9, 1995):
<TABLE>
<CAPTION>
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
First quarter $ .10 $ .125 $ .125 $ .125
Second quarter .10 .125 .125 .135
Third quarter .11 .125 .125 .17
Fourth quarter .125 .125 .125 .__
----- ----- ----- -----
$.435 $.50 $.50 $ .43
===== ==== ==== =====
</TABLE>
The ability of First M&F to pay dividends is dependent upon dividends and
income tax benefits paid to First M&F by the Bank. The Bank is also subject to
capital maintenance requirements imposed by regulatory authorities.
37
<PAGE> 48
SELECTED FINANCIAL DATA-FIRST M&F
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
Statement of Income 1995 1994 1994 1993 1992 1991 1990
- ------------------- ---- ---- ---------------------------------------------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Total investment income $ 16,636 $ 13,023 $ 27,969 $ 25,624 $ 27,029 $ 27,735 $ 27,562
Total interest expense 7,694 5,237 11,594 10,309 11,740 15,177 16,653
-------- --------- -------- -------- -------- -------- --------
Net investment income 8,942 7,786 16,375 15,315 15,289 12,558 10,909
Provision for possible
loan losses 604 526 808 1,015 1,209 1,253 1,377
-------- --------- -------- -------- -------- -------- --------
Net investment income
after provision for
possible loan losses 8,338 7,260 15,567 14,300 14,080 11,305 9,532
Other operating income 2,235 1,724 3,195 2,977 3,686 2,413 2,439
Other operating expense 6,928 6,353 13,075 12,273 12,370 10,394 9,816
-------- --------- -------- -------- -------- -------- --------
Income before income taxes 3,645 2,631 5,687 5,004 5,396 3,324 2,155
Income taxes 892 632 1,444 1,251 436 848 581
-------- --------- -------- -------- -------- -------- --------
Net income $ 2,753 $ 1,999 $ 4,243 $ 3,753 $ 4,960 $ 2,476 $ 1,574
======== ========= ======== ======== ======== ======== ========
Earnings per share (l) $ 1.00 $ 0.75 $ 1.91 $ 1.41 $ 1.86 $ .93 $ .59
Dividends per share (1) $ 0.26 $ .25 $ .50 $ .50 $ .43 $ .28 $ .25
======== ========= ======== ======== ======== ======== ========
Selected Balances
- -----------------
Total assets $450,030 $ 410,098 $415,913 $376,123 $355,952 $335,128 $300,152
Investment securities 137,133 134,839 133,013 130,905 144,574 141,347 117,196
Net loans 263,552 216,548 251,182 198,781 167,994 153,809 146,514
Earning assets 411,496 373,187 384,601 346,615 323,373 302,856 272,558
Deposits 360,738 333,375 332,701 303,573 322,987 305,858 272,962
Short-term borrowings 44,964 36,064 44,822 37,804 3,744 7,604 2,607
Debentures 0 0 - - - 184 297
Other borrowings 3,512 6,313 5,232 3,409 2 552 52
Stockholders' equity $ 37,278 $ 29,755 $ 30,515 $ 29,087 $ 26,644 $ 22,842 $ 21,118
======== ========= ======== ======== ======== ======== ========
Selected Ratios
- ---------------
Return on average assets (2) 1.27% 1.02% 1.15% 1.02% 1.43% .79% .54%
Return on average equity (2) 16.24% 13.60% 15.32% 13.56% 19.44% 11.16% 7.62%
Average capital to
average assets (2) 7.83% 7.49% 7.52% 7.52% 7.35% 7.04% 7.13%
Dividend payout 26.70% 33.33% 31.45% 35.59% 23.32% 30.27% 41.53%
======= ======== ======= ======= ======= ======= =======
</TABLE>
(1) As restated to reflect a two for one stock dividend on August 9, 1995.
(2) Exclusive of valuation allowance for securities available for sale.
38
<PAGE> 49
PRO FORMA SELECTED FINANCIAL DATA-FIRST M&F
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
--------------------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
- -------------------
Total investment income $17,752 $14,137 $30,209 $27,822 $29,200 $29,886 $29,619
Total interest expense 8,195 5,656 12,464 11,128 12,711 16,424 17,990
Net investment income 9,557 8,481 17,745 16,694 16,489 13,460 11,629
Provision for possible loan losse 621 568 882 1,070 1,274 1,319 1,442
Other operations income 2,358 1,854 3,444 3,222 3,905 2,717 2,666
Other operations expenses 7,301 6,702 13,821 13,058 12,999 11,007 10,312
Income taxes 954 729 1,608 1,442 635 960 657
--------------------------------------------------------------------------------------
Net income $3,039 $2,336 $4,878 $4,346 $5,486 $2,892 $1,884
======================================================================================
Per Share Data
- --------------
Earnings per share $0.95 $0.75 $1.56 $1.39 $1.76 $0.93 $0.59
======================================================================================
Dividends per share $0.26 $0.24 $0.50 $0.50 $0.43 $0.28 $0.24
======================================================================================
Selected Ratios
- ---------------
Total assets $481,915 $441,572 $446,480 $406,151 $373,835 $360,616 $323,366
Investment securities 159,040 156,327 153,231 151,875 163,747 159,105 132,261
Net loans 270,717 223,280 258,680 205,071 172,126 159,834 153,008
Earnings Assets 441,419 402,370 413,317 374,825 349,252 326,640 294,118
Deposits 387,934 360,587 358,844 329,509 347,110 327,563 293,031
Short-term borrowing 44,964 36,064 44,822 37,804 3,744 7,604 2,607
Debentures 184 297
Other borrowings 3,512 6,313 5,232 3,09 2 552 52
Stockholders' equity 41,905 33,980 34,709 32,974 30,117 25,950 23,950
Selected Ratios
- ---------------
Return on Average Assets 1.31% 1.10% 1.15% 1.15% 1.49% .85% .63%
Return on Average Equity 15.86% 13.95% 14.43% 13.80% 19.59% 11.61% 8.08%
Average Capital to Average Assets 8.25% 7.90% 7.94% 8.11% 7.64% 7.30% 7.77%
Dividend Payout 24.05% 28.55% 31.47% 34.86% 23.97% 30.48% 40.92%
</TABLE>
39
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FIRST M&F
The following discussion and analysis of the financial condition and
results of operations of First M&F should be read in conjunction with the
consolidated financial statements, the accompanying notes, and other financial
data appearing elsewhere in this Proxy Statement/Prospectus.
1994 COMPARED WITH 1993 AND 1992
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 First M&F'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 terms affecting income are discussed in the following
paragraphs.
NET INTEREST INCOME. Net interest income is the largest component of
First M&F'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 First M&F's primary business of gathering
funds from deposit sources and investing those funds in loans and securities.
First M&F'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.
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.
40
<PAGE> 51
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 and 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
======= ======= ======= ====== =======
A summary of selected ratios follows:
<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>
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. First M&F 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.
41
<PAGE> 52
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, First M&F 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>
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>
42
<PAGE> 53
The effective tax rate, based on normal operations, was 25.4% in 1994,
25.0% in 1993, and 26.2% in 1992. First M&F'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. First M&F does not plan to significantly
increase the proportion of the investment portfolio committed to these
investments solely for income tax considerations. However, First M&F will
continue to evaluate tax-exempt investment opportunities based on First M&F'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 First M&F'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>
43
<PAGE> 54
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>
LOANS. First M&F'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>
44
<PAGE> 55
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>
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>
45
<PAGE> 56
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>
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. government
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>
46
<PAGE> 57
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. government
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>
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>
47
<PAGE> 58
SHORT-TERM BORROWINGS. Short-term borrowings are used by First M&F 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.
The GAP position of First M&F 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 107,35 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 First M&F to pay its expenses and
retire its debt is dependent upon dividends and income tax benefits paid to
First M&F 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 First M&F through the
payment of dividends and income tax benefits.
48
<PAGE> 59
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 First
M&F 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.
The following table illustrates First M&F'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>
First M&F 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.
49
<PAGE> 60
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.
50
<PAGE> 61
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.
51
<PAGE> 62
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.
52
<PAGE> 63
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>
53
<PAGE> 64
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>
54
<PAGE> 65
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
RESULTS OF OPERATIONS. Net income for the six months ended June 30,
1995 was $2,752,511, a 37.7% increase over the comparable period for 1994. The
following is a summary of the net change in several broad categories of income
and expense.
<TABLE>
<CAPTION>
Six Months Ended June 30
1995 1994 $ Change % Change
<S> <C> <C> <C> <C>
Net interest income $8,941,680 7,785,690 1,155,990 14.85%
Provision for loan loss 604,016 525,988 78,028 14.83%
Other operating income 2,234,907 1,723,556 511,351 29.68%
Other operating expense 6,927,880 6,352,516 575,365 9.06%
Net income before tax 3,644,691 2,630,742 1,013,949 38.55%
</TABLE>
Net interest income continues to reflect positive loan growth and
increased levels of investment income in a static short term interest rate
scenario. Interest expense has not increased proportionally with interest
income primarily due to the short duration of the deposits. In late 1994,
First M&F began to protect itself from the negative impact of possible rising
interest rates by promoting longer term deposit accounts, and shortening the
duration of investment securities. The provision for loan losses, some 14.8%
higher than the same period of 1994 is considered adequate to allow the
allowance for doubtful accounts to grow to a level sufficient to provide for
the loan growth occurring in 1994 - 1995.
Other operating income increased approximately 30.0% in 1995,
primarily as a result of a one time recovery on a real estate loss from a prior
year which occurred in the first quarter. Service charges on deposit accounts
increased $143,000 during the first quarter over 1994 and $55,000 in the second
quarter versus prior year periods due to increased volumes. Insurance
commission income increased $22,000 in the first quarter and $25,000 in the
second quarter as compared to prior periods of 1994 due to the growth of
premiums written.
Other operating expenses increased approximately 9% in 1995 as
compared to 1994 with no major factor indicating change. Although expenses
have stabilized, management continues to emphasize the reduction of non
interest expense of First M&F.
FINANCIAL CONDITION. At June 30, 1995, loans, net of unearned
discount. were $267,166,519, a 5.0% increase over December 31, 1994, and a
21.7% increase over June 30, 1994. Investment securities held to maturity and
securities available for sale remain constant as compared to December 31, 1994,
at 1994 levels.
55
<PAGE> 66
The following table shows the balances of earning assets and interest
bearing liabilities for June 30, 1995 and 1994, and for December 31, 1994 (in
thousands).
<TABLE>
<CAPTION>
06/30/95 12/31/94 06/30/94
-------- -------- --------
<S> <C> <C> <C>
Interest bearing bank balances $ 6,561 $ 406 $ 5,008
Investment securities 137,133 135,253 134,839
Federal funds sold 4,250 0 21,800
Net loans 263,552 251,181 216,548
Total earning assets $ 411,496 $ 386,840 $ 378,195
Interest bearing deposits $ 307,050 $ 284,399 $ 287,009
Short term borrowings 44,964 44,822 41,050
Long term debt 3,512 5,231 3,313
Total interest bearing liabilities $ 355,526 $ 334,452 $ 331,372
Net earning assets $ 55,970 $ 52,388 $ 46,823
Earning assets/interest bearing liabilities 115.7% 115.7% 114.1%
Net loans/earning assets 64.0% 64.9% 57.3%
Net earning assets/total assets 13.6% 9.3% 11.4%
</TABLE>
CAPITAL ADEQUACY. As discussed in Note 2 to the condensed
consolidated financial statements, as a result of the stock offering completed
May 10, 1995, capital adequacy is in excess of 8% (leverage ratio), which
places First M&F's capital at or over peer bank levels. First M&F, through
normal banking relationship's, has superior relationships with its
correspondents and also is a member of the Federal Home Loan Bank of Dallas.
These relationships provide additional funding levels should the need arise.
First M&F has complied with all risk based capital ratios as required
by its various regulators.
56
<PAGE> 67
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma financial information gives effect to the
Merger as if the Merger had occurred on June 30, 1995 and all prior financial
data restated to adjust for the issuance of 450,000 shares of First M&F Common
Stock. The Pro Forma Financial Statements and accompanying notes should be
read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Proxy Statement/Prospectus.
57
<PAGE> 68
================================================================================
PROFORMA COMBINATION OF FIRST M&F CORPORATION AND SUBSIDIARIES
WITH FARMERS AND MERCHANTS BANK
PROFORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
( IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA )
================================================================================
<TABLE>
<CAPTION>
----------------------------------
FIRST M&F FARMERS AND PROFORMA
CORPORATION MERCHANTS COMBINED
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $20,080 $800 $20,880
Interest on interest bearing bank balances $82 $0 $82
Interest and dividends on securities 7,567 1,401 $8,968
Interest on federal funds sold 240 39 $279
----------------------------------
TOTAL INTEREST INCOME 27,969 2,240 30,209
INTEREST EXPENSE
Interest on deposits 9,887 869 10,756
Interest on federal funds purchased and
securities sold under repurchase agreements 1,449 1,449
Interest on other borrowings 259 259
----------------------------------
TOTAL INTEREST EXPENSE 11,595 869 12,464
NET INTEREST INCOME 16,374 1,371 17,745
Provision for possible loan losses 808 74 882
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 15,566 1,297 16,863
OTHER INCOME 0
Service charges on deposit accounts 2,606 160 2,766
Credit insurance income 390 390
Gains (losses) on sale of securities (241) 9 (232)
Other 440 80 520
----------------------------------
TOTAL OTHER INCOME 3,195 249 3,444
OTHER EXPENSES 0
Salaries and employee benefits 5,859 376 6,235
Net occupancy expenses 846 44 890
Equipment and data processing expenses 1,675 38 1,713
Regulatory insurance and fees 783 64 847
Other 3,911 225 4,136
----------------------------------
TOTAL OTHER EXPENSES 13,074 747 13,821
----------------------------------
----------------------------------
INCOME BEFORE INCOME TAXES 5,687 799 6,486
INCOME TAXES 1,444 164 1,608
----------------------------------
----------------------------------
NET INCOME $4,243 $635 $4,878
==================================
NET INCOME PER SHARE $1.59 $63.50 $1.56
==================================
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,670,786 10,000 3,120,786
==================================
</TABLE>
(1) First M&F Corporation's financial statements at December 31, 1994
have been adjusted to reflect a two-for-one stock dividend occurring
August 9, 1995
58
<PAGE> 69
================================================================================
PROFORMA COMBINATION OF FIRST M&F CORPORATION AND SUBSIDIARIES
WITH FARMERS AND MERCHANTS BANK
PROFORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
( IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA )
================================================================================
<TABLE>
<CAPTION>
------------------------------------
FIRST M&F FARMERS AND PROFORMA
CORPORATION MERCHANTS COMBINED
------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $16,855 $735 $17,590
Interest on interest bearing bank balances $116 $0 $116
Interest and dividends on securities 8,414 1,440 $9,854
Interest on federal funds sold 239 23 $262
------------------------------------
TOTAL INTEREST INCOME 25,624 2,198 27,822
INTEREST EXPENSE
Interest on deposits 9,515 818 10,333
Interest on federal funds purchased and
securities sold under repurchase agreements 688 688
Interest on other borrowings 107 107
------------------------------------
TOTAL INTEREST EXPENSE 10,310 818 11,128
NET INTEREST INCOME 15,314 1,380 16,694
Provision for possible loan losses 1,015 55 1,070
------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 14,299 1,325 15,624
OTHER INCOME 0
Service charges on deposit accounts 2,250 145 2,395
Credit insurance income 323 323
Gains (losses) on sale of securities (1) 0 (1)
Other 405 100 505
------------------------------------
TOTAL OTHER INCOME 2,977 245 3,222
OTHER EXPENSES 0
Salaries and employee benefits 5,318 370 5,688
Net occupancy expenses 879 48 927
Equipment and data processing expenses 1,557 55 1,612
Regulatory insurance and fees 795 59 854
Other 3,724 253 3,977
------------------------------------
TOTAL OTHER EXPENSES 12,273 785 13,058
------------------------------------
------------------------------------
INCOME BEFORE INCOME TAXES 5,003 785 5,788
INCOME TAXES 1,251 191 1,442
------------------------------------
------------------------------------
NET INCOME $3,752 $594 $4,346
====================================
NET INCOME PER SHARE $1.41 $59.40 $1.39
====================================
====================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,670,414 10,000 3,120,414
====================================
</TABLE>
(1) First M&F Corporation's financial statements at December 31, 1993
have been adjusted to reflect a two-for-one stock dividend occurring
August 9, 1995
59
<PAGE> 70
================================================================================
PROFORMA COMBINATION OF FIRST M&F CORPORATION AND SUBSIDIARIES
WITH FARMERS AND MERCHANTS BANK
PROFORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
( IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA )
================================================================================
<TABLE>
<CAPTION>
----------------------------------
FIRST M&F FARMERS AND PROFORMA
CORPORATION MERCHANTS COMBINED
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $15,969 $653 $16,622
Interest on interest bearing bank balances $105 $0 $105
Interest and dividends on securities 10,772 1,500 $12,272
Interest on federal funds sold 183 18 $201
----------------------------------
TOTAL INTEREST INCOME 27,029 2,171 29,200
INTEREST EXPENSE
Interest on deposits 11,576 971 12,547
Interest on federal funds purchased and
securities sold under repurchase agreements 156 156
Interest on other borrowings 8 8
----------------------------------
TOTAL INTEREST EXPENSE 11,740 971 12,711
NET INTEREST INCOME 15,289 1,200 16,489
Provision for possible loan losses 1,209 65 1,274
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 14,080 1,135 15,215
OTHER INCOME 0
Service charges on deposit accounts 2,107 161 2,268
Credit insurance income 271 271
Gains (losses) on sale of securities 27 0 27
Other 1,281 58 1,339
----------------------------------
TOTAL OTHER INCOME 3,686 219 3,905
OTHER EXPENSES 0
Salaries and employee benefits 5,277 280 5,557
Net occupancy expenses 803 28 831
Equipment and data processing expenses 1,455 50 1,505
Regulatory insurance and fees 760 55 815
Other 4,075 216 4,291
----------------------------------
TOTAL OTHER EXPENSES 12,370 629 12,999
----------------------------------
----------------------------------
INCOME BEFORE INCOME TAXES 5,396 725 6,121
INCOME TAXES 436 199 635
----------------------------------
----------------------------------
Net income $4,960 $526 $5,486
==================================
NET INCOME PER SHARE $1.87 $52.60 $1.76
==================================
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,659,194 10,000 3,109,194
==================================
</TABLE>
(1) First M&F Corporation's financial statements at December 31, 1992
have been adjusted to reflect a two-for-one stock dividend occurring
August 9, 1995.
60
<PAGE> 71
================================================================================
PROFORMA COMBINATION OF FIRST M&F CORPORATION AND SUBSIDIARIES
WITH FARMERS AND MERCHANTS BANK
PROFORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
( IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA )
================================================================================
<TABLE>
<CAPTION>
----------------------------------
FIRST M&F FARMERS AND PROFORMA
CORPORATION MERCHANTS COMBINED
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $12,482 $437 $12,919
Interest on interest bearing bank balances $80 $2 $82
Interest and dividends on securities 3,799 641 $4,440
Interest on federal funds sold 275 36 $311
----------------------------------
TOTAL INTEREST INCOME 16,636 1,116 17,752
INTEREST EXPENSE
Interest on deposits 6,308 501 6,809
Interest on federal funds purchased and
securities sold under repurchase agreements 1,276 1,276
Interest on other borrowings 110 110
----------------------------------
TOTAL INTEREST EXPENSE 7,694 501 8,195
NET INTEREST INCOME 8,942 615 9,557
Provision for possible loan losses 604 (4) 600
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 8,338 619 8,957
OTHER INCOME 0
Service charges on deposit accounts 1,432 71 1,503
Credit insurance income 291 291
Gains (losses) on sale of securities 3 7 10
Other 509 45 554
----------------------------------
TOTAL OTHER INCOME 2,235 123 2,358
OTHER EXPENSES 0
Salaries and employee benefits 3,131 197 3,328
Net occupancy expenses 391 24 415
Equipment and data processing expenses 843 18 861
Regulatory insurance and fees 413 32 445
Other 2,150 123 2,273
----------------------------------
TOTAL OTHER EXPENSES 6,928 394 7,322
----------------------------------
----------------------------------
INCOME BEFORE INCOME TAXES 3,645 348 3,993
INCOME TAXES 892 62 954
----------------------------------
----------------------------------
NET INCOME $2,753 $286 $3,039
==================================
NET INCOME PER SHARE $1.00 $28.60 $0.95
==================================
==================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,746,977 10,000 3,196,977
==================================
</TABLE>
(1) First M&F Corporation's financial statements at June 30, 1995 have
been adjusted to reflect a two-for-one stock dividend occurring
August 9, 1995.
61
<PAGE> 72
================================================================================
PRO FORMA COMBINATION OF FIRST M & F CORPORATION AND SUBSIDIARIES
WITH FARMERS AND MERCHANTS BANK
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1995
(UNAUDITED)
( IN THOUSANDS OF DOLLARS)
================================================================================
<TABLE>
<CAPTION>
------------------------------------------------
FIRST M&F FARMERS AND PRO FORMA PRO FORMA
CORPORATION MERCHANTS ADJUSTMENTS COMBINED
------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $29,339 $1,371 $30,710
Federal funds sold 4,250 850 5,100
Securities 137,133 21,907 159,040
Loans, net 263,552 7,165 270,717
Property plant and equipment, net 6,846 95 6,941
Other assets 8,910 499 9,409
================================================
TOTAL ASSETS $450,030 $31,887 $0 $481,917
================================================
LIABILITIES
Deposits $360,739 $27,148 387,887
Federal funds purchased and securities sold
under agreements to repurchase 44,029 44,029
Accrued expenses and other liabilities 7,984 112 8,096
------------------------------------------------
TOTAL LIABILITIES 412,752 27,260 0 440,012
STOCKHOLDERS' EQUITY
Common stock 14,724 100 2,150 16,974
Surplus 11,328 4,180 (2,150) 13,358
Retained earnings 11,522 327 0 11,849
Unrealized securities gains/(losses) (247) 20 (227)
------------------------------------------------
37,327 4,627 0 41,954
Treasury stock,at cost (49) (49)
------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 37,278 4,627 0 41,905
------------------------------------------------
TOTAL LIABILITIES AND
================================================
STOCKHOLDERS' EQUITY $450,030 $31,887 $0 $481,917
================================================
</TABLE>
(1) First M&F Corporation's financial statements at June 30, 1995 have
been adjusted to reflect a two-for-one stock dividend occcurring
August 9, 1995
(2) The pro forma adjustment reflects the issuance of 450,000 shares of
common stock, par value $5 per share, in exchange for all of the
outstanding 10,000 shares of common stock, par value $10 per share, of
Farmers and Merchants Bank
62
<PAGE> 73
INFORMATION CONCERNING F&M
F&M, a Mississippi banking corporation, was incorporated in October
1969. As of June 30, 1995, F&M had total assets of $31,885,000, total deposits
of $27,195,000, net loans of $7,165,000 and shareholders' equity of $4,586,000.
F&M's executive offices are located at 101 City Square, Bruce, Mississippi
38915. F&M which has ten full-time employees is a full service commercial bank
offering commercial and consumer banking services offered through its Bruce and
Pittsboro offices to the people in Calhoun County, Mississippi. It operates a
main office at 201 City Square, Bruce, Mississippi and has one branch bank in
Pittsboro, Mississippi on Highway 9. F&M also owns and operates Community
Finance Company, a small loan company located in Bruce. Major services
provided by F&M include consumer financing, commercial lending, savings and
checking accounts for individuals, businesses and public bodies and the
offering of certificates of deposit and individual retirement accounts. All
deposit accounts are insured by the FDIC to the maximum legal limits. Credit
services offered by F&M include secured and unsecured commercial loans, Small
Business Administration loans, agricultural loans, real estate loans and
consumer loans.
F&M's deposits represent a cross-section of the area's economy and
there is no material concentration of deposits from any single customer or
group of customers. No significant portion of F&M's loans is concentrated
within a single industry or group of related industries. There are no material
seasonal factors that would have any adverse effect on F&M. F&M does not rely
on foreign sources of funds or income.
MARKET PRICES OF AND DIVIDENDS ON F&M COMMON STOCK
F&M Common Stock is not traded on any established securities market.
As of October 6, 1995, there were 10,000 holders of record of F&M Common Stock.
The following table sets forth, for the indicated periods, the high and low
sales prices for F&M Common Stock, the number of transactions in each such
period, the aggregate number of shares involved in such transactions, and the
cash dividends declared per share of F&M Common Stock. The prices indicated
for F&M Common Stock are based on actual transactions in F&M Common Stock of
which F&M management is aware; however, no assurance can be given that the
indicated prices represent the actual market value of F&M Common Stock or that
all transactions in F&M Common Stock have come to the attention of F&M's
management.
<TABLE>
<CAPTION>
Cash
Price Range Total No. of Dividends
----------- Total No. of Shares Declared
Period High Low Transactions Sold Per Share
------ ---- --- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
1993
First Quarter $300 $300 1 1 -0-
Second Quarter 300 300 1 25 $8
Third Quarter N/A N/A * N/A -0-
Fourth Quarter N/A N/A * N/A 10
1994
First Quarter 325 325 1 50 -0-
Second Quarter N/A N/A * N/A 9
Third Quarter N/A N/A * N/A -0-
Fourth Quarter N/A N/A * N/A 11
1995
First Quarter 310 310 * N/A -0-
Second Quarter 310 310 2 4 10
Third Quarter N/A N/A * N/A -0-
</TABLE>
* No known transactions
63
<PAGE> 74
The price of F&M Common Stock in the last known transactions, which
occurred on May 1, 1995, was $310 and involved two sales of 2 shares each.
These sales are the last known transactions in F&M Common Stock prior to the
public announcement of the proposed Merger.
The holders of F&M Common Stock are entitled to receive dividends when
and if declared by the F&M Board out of funds that are legally available
therefor. F&M has paid regular semi-annual dividends for many years. If the
merger were not consummated, it would be the intention of the F&M Board to
continue declaring semi-annual cash dividends. However, there can be no
assurance that F&M's dividend policy would remain unchanged. For F&M, retained
earnings is the primary source of additional capital and the level of cash
dividends paid is determined only after a careful review of capital needs to
support asset growth.
64
<PAGE> 75
STOCK OWNERSHIP OF MANAGEMENT OF F&M
The following table indicates the beneficial ownership as of October
6, 1995 unless otherwise indicated below, of F&M's Common Stock by each
director, each executive officer, and by all directors and executive officers
of F&M as a group.
<TABLE>
<CAPTION>
CLASS OF AMOUNT AND NATURE OF PERCENT OF
NAME SECURITIES BENEFICIAL OWNERSHIP CLASS
---- ---------- -------------------- -------
<S> <C> <C> <C>
Jerry Bowles Common Stock 308 (1) 3.08
131 Woodson
Bruce, MS 38915
Jon A. Crocker Common Stock 1,285 12.85
P.O. Box 566
Bruce, MS 38915
Ottis B. Crocker, Jr. Common Stock 1,024 (2) 10.24
P.O. Box 666
Bruce, MS 38915
C. R. Easley, Jr. Common Stock 77 (3) .77
P.O. Box 607
Bruce, MS 38915
C.C. Edwards Common Stock 443 (4) 4.43
P.O. Box 192
Bruce, MS 38915
Joe Grist Common Stock 173 1.73
P.O. Box 47
Bruce, MS 38915
Wanda A. Hurst Common Stock 170 (5) 1.70
Route 2, Box 23A
Bruce, MS 38915
Robert Lee Logan, Sr. Common Stock 143 (6) 1.43
P.O. Box 697
Bruce, MS 38915
Ed W. Quillen Common Stock 287 2.87
P.O. Box 983
Bruce, MS 38915
All Directors and Executive Common Stock 3,910 39.10%
Officers as a group (9 persons)
</TABLE>
(1) Of these shares, 48 are owned jointly with his wife and 240 shares are
held by his mother with which he shares voting power.
(2) Mr. Crocker holds 120 of these shares as custodian for his children.
(3) Mr. Easley owns 19 of these shares jointly with his wife.
65
<PAGE> 76
(4) Mr. Edwards owns 439 of these shares jointly with his wife and 4 of these
shares are held by Mr. Edwards as custodian for his children with whom he
shares voting and investment power.
(5) Ms. Hurst owns 150 of these shares jointly with her husband and son.
(6) Mr. Logan owns 123 of these shares jointly with his wife.
66
<PAGE> 77
PRINCIPAL SHAREHOLDERS OF F&M
The following table presents the persons who, to the knowledge of F&M,
beneficially owned more than five percent (5%) of the outstanding voting shares
of F&M as of October 6, 1995. Except as otherwise noted, beneficial ownership
consists of sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF CLASS OF BENEFICIAL OF
BENEFICIAL OWNER SECURITIES OWNERSHIP CLASS
---------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Jon A. Crocker Common Stock 1,285 12.85
P.O. Box 566
Bruce, MS 38915
Ottis B. Crocker, Jr. Common Stock 1,024 (1) 10.24
P.O. Box 666
Bruce, MS 38915
Charles H. Crocker Common Stock 830 8.30
4904 Chrestwood
Little Rock, AR 72207
Samuel K. Crocker Common Stock 1,355 13.55
Suite 2909 Stouffer Tower
611 Commerce Street
Nashville, TN 37203
Henry Hutton Common Stock 500 5.00
2471 Mt. Moriah
Memphis, TN 38115
</TABLE>
(1) Mr. Crocker holds 120 of these shares as custodian for his children.
67
<PAGE> 78
SELECTED FINANCIAL DATA - F&M
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
June 30, Years Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
Consolidated Statements of Income -----------------------------------------------------------------------------
--------------------------------- (In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $1,116 $1,114 $2,240 $2,198 $2,171 $2,151 $2,058
Total interest expense 501 419 869 818 971 1,247 1,338
Net interest income 615 695 1,371 1,380 1,200 903 720
Provision for loan losses 17 42 74 55 65 66 65
Other income 123 130 249 245 219 231 227
Other expenses 373 349 747 785 629 540 496
Income taxes 62 97 164 191 199 112 76
-----------------------------------------------------------------------------
Net income $286 $337 $635 $594 $526 $416 $310
=============================================================================
Per Share Data
--------------
Earnings per share $28.60 $33.70 $63.53 $59.40 $52.56 $41.60 $30.98
=============================================================================
Dividends per share $10.00 $9.00 $20.00 $18.00 $16.00 $14.00 $12.00
=============================================================================
Selected Balances
-----------------
Total assets $31,885 $31,474 $30,567 $30,028 $27,883 $25,488 $23,214
Investment securities 21,907 21,488 20,218 20,970 19,173 17,759 15,065
Net loans 7,165 6,732 7,498 6,290 5,957 6,025 6,494
Earning assets 29,922 29,183 28,716 28,210 25,879 23,784 21,560
Deposits 27,195 27,212 26,143 25,935 24,123 21,705 20,069
Short-term borrowing
Debentures
Other borrowing
Stockholders' equity 4,627 4,225 4,194 3,887 3,473 3,108 2,832
Selected Ratios
---------------
Return on Average Assets(1) 1.83% 2.20% 2.10% 2.05% 1.97% 1.71% 1.38%
Return on Average Equity(1) 12.97% 16.01% 15.72% 16.13% 15.97% 14.01% 11.32%
Average Capital to Average 14.3% 13.71% 13.34% 12.71% 12.33% 12.22% 12.16%
Assets(1)
Dividend Payout 35.00% 26.70% 31.48% 30.33% 30.44% 33.6% 38.8%
</TABLE>
(1) Exclusive of valuation allowance for securities available for sale.
68
<PAGE> 79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF F&M
1994 COMPARED WITH 1993 AND 1992
The following discussion and analysis of financial condition and
results of operation of F&M should be read in conjunction with the consolidated
financial statements, the accompanying notes, and other financial data
appearing elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS. Net income for 1994 was $635,311, a 7.1%
increase from 1993. Net income for 1993 was $593,414, a 12.9% increase from
1992. The 1994 net income is the best in the history of F&M.
NET INTEREST INCOME. Net interest income was relatively unchanged in
1994. Earning assets and interest bearing liabilities both increased slightly
in 1994, and interest income and interest expense both increased, reflecting
the increase in volume. Net interest income increased 15% in 1993 due to the
continued decline in short-term interest rates and growth in earning assets of
9.4%.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES. The provision for
loan losses was $73,719 in 1994, $55,210 in 1993, and $64,696 in 1992. Net
loan losses were $65,712 in 1994, $39,901 in 1993 and $44,824 in 1992
reflecting continued success in minimizing credit losses. F&M maintains its
reserve for loan losses at a level that is considered sufficient to absorb
potential losses in the loan portfolio.
NON-INTEREST INCOME. Other operating income was relatively unchanged
in 1994 after increasing by 11.8% in 1993.
NON-INTEREST EXPENSE. Other operating expenses decreased by 4.8% in
1994 reflecting success in cost control and the closing of a finance company
branch office. The 24.8% increase in 1993 resulted primarily from a full year
operation of the finance company subsidiary which began in late 1992.
FINANCIAL CONDITION. At December 31, 1994, total assets were
$30,567,106, an increase of $538,717, or 1.8% from December 31, 1993. Total
assets increased $2,145,720, or 7.7% from December 31, 1992 to December 1993.
At December 31, 1994, loans, net of unearned discount, increased by 18.8% from
1993. At December 31, 1993, net loans increased by 5.8% from 1992.
Investments decreased by 3.1% from 1993 to 1994 and increased by 8.8% from 1992
to 1993. These trends reflect F&M'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.
DEPOSITS. Total deposits increased by .8% in 1994 after a 7.5%
increase in 1993.
LIQUIDITY AND CAPITAL RESOURCES. The primary objective of
asset/liability management is to provide a balance between safety, liquidity,
and impact on net interest income. Management addresses liquidity by
maintaining funds in liquid assets such as federal funds sold and other
short-term investments while monitoring the maturities of investment
securities. Funds are provided primarily by deposits.
F&M had a book capital to asset ratio, excluding the effect of the
valuation allowance for securities available for sale, of 14.1% December 31,
1994. At December 31, 1993, the book capital to asset ratio was 12.9%. In
addition, F&M has capital to asset and capital to "risk based asset" ratios in
excess of all applicable regulatory requirements.
69
<PAGE> 80
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
RESULTS OF OPERATIONS. Net income for 1995 was $285,613, a 15.3%
decrease from 1994. The decrease in net income is primarily attributable to
the decrease in net interest income described in the following paragraph.
Net interest income decreased $80,000 in 1995 from 1994, a 12.2%
decrease. Interest bearing liabilities increased reflecting a change in
deposit mix by F&M's customers. Interest rates also significantly increased
from 1994 to 1995 resulting in an increase in cost of funds.
The provision for loan losses was $(3,922) in 1995 and $9,397 in 1994.
Net loan losses were $12,595 in 1995 and $24,702 in 1994 reflecting continued
success in minimizing credit losses. F&M maintains its reserve for loan losses
at a level that is considered sufficient to absorb potential losses in the loan
portfolio.
Other operating income was relatively unchanged in 1995 as compared to
1994. Other operating expenses were substantially the same in 1995 as in 1994
as F&M had continued success in controlling costs.
FINANCIAL CONDITION. At June 30, 1995, total assets were $31,954,913,
an increase of $362,640, or 1.1% from June 30, 1994. At June 30, 1995, loans,
net of unearned discount, increased by 6.3% from June 30, 1994. These trends
reflect F&M'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.
Total deposits decreased by $17,793 from June 30, 1994 to June 30,
1995.
LIQUIDITY & CAPITAL RESOURCES. The primary objective of
assets/liability management is to provide a balance between safety, liquidity,
and impact on net interest income. Management addresses liquidity by
maintaining funds in liquid assets such as federal funds sold and other
short-term investments while monitoring the maturities of investment
securities. Funds are provided primarily by deposits.
F&M had a capital to asset ratio, excluding the effect of the
valuation allowance for securities available for sale, of 14.4% at June 30,
1995. At June 30, 1994, the book capital to asset ratio was 13.4%. In
addition, F&M has capital to asset and capital to "risk based asset" ratios in
excess of all applicable regulatory requirements.
70
<PAGE> 81
LEGAL OPINION
The validity of the shares of First M&F Common Stock offered hereby
will be passed upon for First M&F by Watkins Ludlam & Stennis of Jackson,
Mississippi.
EXPERTS
The consolidated financial statements of First M&F as of December 31,
1994 and 1993, and for each of the years in the three-year period ended
December 31, 1994, have been included herein and in the registration statement
in reliance upon the report of Shearer Taylor & Co., P.A., independent
certified public accountants, also incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of F&M as of December 31, 1994
and 1993, and for each of the years in the three-year period ended December 31,
1994, have been included herein and in the registration statement in reliance
upon the report of Watkins, Ward and Stafford, independent certified public
accountants, also incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of
Directors of F&M knows of no matters which will be presented for consideration
at the Meeting other than as set forth in the Notice of such meeting attached
to this Proxy Statement/Prospectus. However, if any other matters shall come
before the Meeting or any adjournment or postponement thereof and be voted upon
the enclosed proxy shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
71
<PAGE> 82
INDEX TO FINANCIAL STATEMENTS
FIRST M&F CORPORATION AND SUBSIDIARIES AND
FARMERS AND MERCHANTS BANK AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
First M&F Corporation and Subsidiaries
Report of Independent Certified Public
Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Condition -
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Condition - June 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . F-26
Consolidated Statements of Income - Six Months Ended June 30, 1995 and 1994 (unaudited) . . . . . F-27
Consolidated Statements of Stockholders' Equity - Six Months Ended June 30, 1995 and 1994
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 (unaudited) . . . F-29
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . F-30
Farmers and Merchants Bank and Subsidiary
Report of Independent Certified Public
Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Condition -
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Consolidated Statements of Income -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Consolidated Statements of Cash Flows -
Years Ended December 31, 1994, 1993, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
</TABLE>
72
<PAGE> 83
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
Consolidated Statements of Condition - June 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . F-43
Consolidated Statements of Income - Six Months Ended June 30, 1995 and 1994 (unaudited) . . . . . F-44
Consolidated Statements of Stockholders' Equity -
Six Months Ended June 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . . F-45
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 (unaudited) . . . F-46
</TABLE>
77
<PAGE> 84
[SHEARER TAYLOR & CO. LETTERHEAD]
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
F-1
<PAGE> 85
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.
F-2
<PAGE> 86
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)
F-3
<PAGE> 87
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.
F-4
<PAGE> 88
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)
F-5
<PAGE> 89
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.
F-6
<PAGE> 90
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)
F-7
<PAGE> 91
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.
F-8
<PAGE> 92
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)
F-9
<PAGE> 93
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)
F-10
<PAGE> 94
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)
F-11
<PAGE> 95
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)
F-12
<PAGE> 96
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)
F-13
<PAGE> 97
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)
F-14
<PAGE> 98
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>
F-15
<PAGE> 99
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)
F-16
<PAGE> 100
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>
F-17
<PAGE> 101
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)
F-18
<PAGE> 102
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>
F-19
<PAGE> 103
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)
F-20
<PAGE> 104
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)
F-21
<PAGE> 105
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.
F-22
<PAGE> 106
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)
F-23
<PAGE> 107
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)
F-24
<PAGE> 108
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.
F-25
<PAGE> 109
================================================================================
FIRST M&F CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
================================================================================
<TABLE>
<CAPTION>
=======================================
ASSETS June 30, 1995 December 31 ,1994
=======================================
<S> <C> <C>
Cash and due from banks $22,777,459 $15,077,808
Interest bearing bank balances 6,561,291 406,234
Investment securities, market value of
$68,102,965 And $63,857,000 68,664,110 67,369,016
Securities available for sale 68,469,389 65,643,738
Federal funds sold 4,250,000 0
Loans 280,575,625 266,045,862
Unearned discount (13,409,106) (11,664,079)
Reserve for possible loan losses (3,614,702) (3,200,000)
---------------------------------------
Net loans 263,551,817 251,181,783
Bank premises and equipment 6,845,782 6,569,984
Accrued interest receivable 3,839,193 3,602,636
Other assets 5,071,084 6,061,681
---------------------------------------
$450,030,125 $415,912,880
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest bearing $53,689,275 $48,301,348
Interest bearing 307,049,699 284,399,940
---------------------------------------
Total deposits 360,738,974 332,701,288
---------------------------------------
Securities sold under agreements to
repurchase and other short-term borrowings 44,963,742 44,822,025
Long term debt 3,512,302 5,231,695
Accrued interest payable 1,869,098 1,427,416
Other liabilities 1,667,850 1,215,487
---------------------------------------
Total liabilities 412,751,966 385,397,911
=============================================================================================
Stockholders' equity
Common stock of $5.00 par value. 5,000,000 shares
authorized, 1,472,328 issued (1995); 1,337,328
(1994) 7,361,640 6,686,640
Additional paid-in capital 11,328,316 8,493,316
Retained earnings 18,884,507 16,862,922
Market valuation for securities available for sale,
net of income taxes (247,476) (1,479,081)
---------------------------------------
37,326,987 30,563,797
Less treasury shares, 1,878 shares, at cost for
1995 and 1994 (48,828) (48,828)
---------------------------------------
Net stockholders' equity 37,326,987 30,514,969
=============================================================================================
$450,078,953 $415,912,880
=============================================================================================
</TABLE>
Note: The balance sheet at December 31,1994 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 110
================================================================================
FIRST M&F CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
=========================================================================
Three Months Ended Six Months Ended
=========================================================================
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
=========================================================================
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $6,435,080 $4,679,920 $12,481,683 $9,071,950
Interest on interest bearing bank balances 47,859 25,565 79,614 45,494
Taxable income on investment securities 1,509,558 1,504,589 2,896,593 2,975,752
Tax-exempt income on investment securities 444,837 435,116 902,506 818,407
Interest on Federal funds sold 158,159 60,993 275,242 111,681
-------------------------------------------------------------------------
Total interest income 8,595,493 6,706,183 16,635,638 13,023,284
-------------------------------------------------------------------------
Interest expense:
Interest on deposits 3,331,204 2,399,330 6,307,622 4,544,020
Interest on securities sold under agreements
to repurchase and other short-term borrowings 632,759 288,425 1,276,442 597,141
Interest on long term debt 52,700 48,132 109,894 96,433
-------------------------------------------------------------------------
Total interest expense 4,016,663 2,735,887 7,693,958 5,237,594
-------------------------------------------------------------------------
Net interest income 4,578,830 3,970,296 8,941,680 7,785,690
Provision for possible loan losses 279,718 240,685 604,016 525,988
-------------------------------------------------------------------------
Net interest income after
provision for possible loan losses 4,299,112 3,729,611 8,337,664 7,259,702
Other operating income:
Service charges on deposits 716,375 651,471 1,431,621 1,223,582
Credit insurance income 168,698 143,756 290,962 244,205
Gains on sales of investment securities 0 0 3,000 905
Gains on sales of available for sale investments 0 1,962 0 1,962
Other income 178,371 165,507 509,324 252,902
-------------------------------------------------------------------------
Total other operating income 1,063,444 962,696 2,234,907 1,723,556
-------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 1,620,821 1,444,518 3,131,458 2,813,743
Net occupancy expense 189,092 200,381 391,244 420,852
Equipment and data processing expenses 391,441 394,538 842,948 831,496
Regulatory insurance and fees 208,283 190,656 412,901 381,215
Other expenses 1,191,613 1,094,874 2,149,329 1,905,210
-------------------------------------------------------------------------
Total other operating expenses 3,601,250 3,324,967 6,927,880 6,352,516
-------------------------------------------------------------------------
Income before income taxes 1,761,306 1,367,340 3,644,691 2,630,742
Income taxes 364,929 330,884 892,180 632,003
================================================================================================================================
Net income $1,396,377 $1,036,456 $2,752,511 $1,998,739
================================================================================================================================
================================================================================================================================
Earnings per share $0.99 $0.78 $2.00 $1.50
================================================================================================================================
</TABLE>
Note: The accompanying notes are an integral part of these financial
statements.
F-27
<PAGE> 111
================================================================================
FIRST M&F CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
==================================================================================================================================
ADDITIONAL MARKET VALUE
COMMON PAID-IN RETAINED TREASURY ADJUSTMENTS
STOCK CAPITAL EARNINGS STOCK ON SECURITIES TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994 6,686,640 8,485,804 13,955,433 (41,316) 0 29,086,561
Net income 1,998,739 1,998,739
Cash dividends paid,
$0.25 per share (667,725) (667,725)
Purchase 2,804 shares of
treasury stock (71,502) (71,502)
Sell 2,804 shares of
treasury stock 6,573 64,929 71,502
Market valuation of
available for sale securities (662,466) (662,466)
================================================================================================
June 30, 1994 6,686,640 8,492,377 15,286,447 (47,889) (662,466) 29,755,109
==================================================================================================================================
January 1, 1995 6,686,640 8,493,316 16,862,922 (48,828) (1,479,081) 30,514,969
Net income 2,752,511 2,752,511
Sale of 135,000 shares of
Common Stock 675,000 2,835,000 3,510,000
Cash dividends paid,
$0.25 per share (730,926) (730,926)
Market valuation of
available for sale securities 1,231,605 1,231,605
================================================================================================
June 30, 1995 7,361,640 11,328,316 18,884,507 (48,828) (247,476) 37,278,159
==================================================================================================================================
</TABLE>
Note: The accompanying notes are an integral part of these financial
statements.
F-28
<PAGE> 112
================================================================================
FIRST M&F CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
=================================
Six Months Ended
=================================
Cash Flows From Operating Activities: 1995 1994
=================================
<S> <C> <C>
Net income $2,752,511 $1,998,739
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 525,457 526,847
Provisions for possible loan losses 604,000 525,988
Increase in interest receivable (236,557) (494,791)
Net increase (decrease) in accounts payable 441,682 187,200
Other, net 1,442,960 20,699
---------------------------------
Net cash provided by operating activities 5,530,053 2,764,682
---------------------------------
Cash flows from investing activities:
Net decrease in interest bearing bank balances (6,155,057) 20,887
Purchases of investment securities (2,735,247) (21,182,210)
Sales and maturities of investment securities 1,440,153 10,736,864
Purchases of securities available for sale (7,430,248) (5,039,565)
Sales and maturities of securities available for sale 5,836,202 10,303,668
Net (increase) decrease in Federal Funds sold (4,250,000) (9,900,000)
Net increase in loans (12,974,034) (18,452,390)
Net increase in bank premises and equipment (801,255) (763,981)
Net cash received - Acquisition 4,740,793
---------------------------------
Net cash used in investing activities (27,069,486) (29,535,934)
---------------------------------
Cash flows from financing activities:
Net increase deposits 28,037,686 24,718,780
Net increase (decrease) in securities sold under agree-
ments to repurchase and other short-term borrow 139,598 3,246,316
Net increase (decrease) in long term debt (1,717,274) (95,950)
Proceeds of Sale of Common Stock 3,510,000
Cash dividends (730,926) (666,725)
Treasury stock sales, net 0 0
---------------------------------
Net cash provided by financing activities 29,239,084 27,202,421
---------------------------------
Net increase in cash and due from banks 7,699,651 430,169
Cash and due from banks at January 1 15,077,808 15,203,929
==================================================================================================
Cash and due from banks at March 31 $22,777,459 $15,634,098
==================================================================================================
</TABLE>
Note: The accompanying notes are an integral part of these financial
statements.
F-29
<PAGE> 113
FIRST M&F CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1995
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The condensed consolidated financial
statements of First M&F Corporation include the financial statements of
Merchants & Farmers Bank, a wholly owned subsidiary, and its wholly owned
subsidiaries, First M&F Insurance Co., State Financial Services, Family Budget
Service, M&F Financial Service and M&F Bank Securities Corporation. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1994.
NOTE 2: COMMON STOCK
On February 10, 1995, the Company issued a prospectus to shareholders of record
as of January 31, 1995, whereby, on a prorata basis, 135,000 shares of the
Company's common stock ($5.00 par value) were offered at a price of $26 per
share. The offering was terminated on May 10, 1995. Proceeds to the company
was $3,510,000 with all shares acquired. Approximately $30,000 was expended by
the Company in connection with the legal and accounting fees associated with
the offering.
As a result of these additional capital, stockholders' equity increased to
approximately 8.10% of total assets, compared to approximately 7.35%
previously.
F-30
<PAGE> 114
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Farmers and Merchants Bank
Bruce, Mississippi
We have audited the accompanying consolidated statements of condition
of the Farmers and Merchants Bank and subsidiary as of December 31, 1994 and
1993, and the related consolidated statements of income, changes in
stockholders equity and cash flows for each of the years in the three-year
period ended December 31, 1994. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express
an opinion on these consolidated 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 financial position of the
Farmers and Merchants Bank and subsidiary as of December 31, 1994 and 1993, and
the consolidated results of their operations and cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Watkins, Ward and Stafford
Columbus, Mississippi
January 26, 1995
F-31
<PAGE> 115
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
Assets
- ------
December 31,
---------------------------------
1994 1993
------------ -----------
<S> <C> <C>
Cash and due from banks $ 1,247,778 1,233,872
Federal funds sold 1,000,000 1,050,000
Securities available for sale 8,554,881 -
Securities to be held to maturity 11,663,076 20,870,094
Loans:
Total loans 8,297,067 7,066,153
Less: Unearned discount (625,300) (609,686)
Reserve for loan losses (174,234) (166,227)
------------ -----------
Net Loans 7,497,533 6,290,240
Bank premises and equipment, net of
accumulated depreciation 102,879 120,995
Accrued interest receivable 401,906 434,522
Other assets 99,053 28,666
------------ -----------
Total Assets $ 30,567,106 30,028,389
- ------------ ============ ==========
Liabilities
- -----------
Deposits:
Demand deposits $ 7,201,080 7,898,412
Savings deposits 3,753,041 3,989,353
Time deposits 15,188,809 14,047,908
------------ -----------
Total Deposits 26,142,930 25,935,673
Accrued interest payable 70,665 61,533
Other liabilities 159,656 144,487
------------ -----------
Total Liabilities 26,373,251 26,141,693
------------ -----------
Stockholders' Equity
- --------------------
Common stock, $10 par value, 10,000 shares
authorized, issued and outstanding 100,000 100,000
Surplus 4,180,000 3,750,000
Retained earnings 42,007 36,696
Unrealized loss on available-for-sale
securities net of tax benefit of $66,017 (128,152) -
------------ -----------
Total Stockholders' Equity 4,193,855 3,886,696
------------ -----------
Total Liabilities and Stockholders' Equity $ 30,567,106 30,028,389
- ------------------------------------------ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 116
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
Interest Income: 1994 1993 1992
- ---------------- ----------- ---------- ----------
<S> <C> <C> <C>
Interest and fees on loans $ 800,019 734,470 653,195
Interest on federal funds sold 38,409 23,191 17,495
Interest on Securities:
U.S. Treasury securities 195,394 150,242 118,056
Securities of other U.S.
Government agencies 785,898 857,217 1,012,246
Obligations of state and
political subdivisions 344,319 320,171 196,212
Other securities 76,221 112,626 173,446
----------- ---------- ----------
Total Interest Income 2,240,260 2,197,917 2,170,650
----------- ---------- ----------
Interest Expense:
- ----------------
Interest on savings and demand
deposits 243,282 241,328 281,613
Interest on time deposits 626,187 576,269 689,268
----------- ---------- ----------
Total Interest Expense 869,469 817,597 970,881
----------- ---------- ----------
Net Interest Income 1,370,791 1,380,320 1,199,769
- -------------------
Provision for Loan Losses 73,719 55,210 64,696
- ------------------------- ----------- ---------- ----------
Net Interest Income after
- -------------------------
Provision for Loan Losses 1,297,072 1,325,110 1,135,073
------------------------- ----------- ---------- ----------
Other Income:
- ------------
Service and overdraft charges 159,676 145,384 161,199
Fees and commissions 74,207 83,308 36,138
Other income 6,087 15,977 21,467
Net realized gain on sale of
available for sale securities 8,969 - -
----------- ---------- ----------
Total Other Income 248,939 244,669 218,804
----------- ---------- ----------
Other Expenses:
- --------------
Salaries and employee benefits 375,720 370,364 279,875
Depreciation and amortization 18,516 20,451 13,890
Occupancy expenses 44,384 48,297 41,614
Other operating expenses 308,272 345,653 293,361
----------- ---------- ----------
Total Other Expenses 746,892 784,765 628,740
----------- ---------- ----------
Income before Income Taxes 799,119 785,014 725,137
- --------------------------
Income Tax Expense 163,808 191,600 199,500
- ------------------ ----------- ---------- ----------
Net Income $ 635,311 593,414 525,637
- ---------- =========== ========== ==========
Earnings Per Share $ 63.53 59.34 52.56
- ------------------ =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 117
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Unrealized
Loss on Total
Available- Stock-
Common Retained for-sale holders'
Stock Surplus Earnings Securities Equity
-------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
January 1, 1992 $100,000 2,950,000 57,645 - 3,107,645
---------------
Net income - 375,000 150,637 - 525,637
Cash dividends,
$16 per
share - - (160,000) - (160,000)
-------- --------- --------- --------- ---------
Balance,
- ---------
December 31, 1992 100,000 3,325,000 48,282 - 3,473,282
- -----------------
Net income - 425,000 168,414 - 593,414
Cash dividends,
$18 per
share - - (180,000) - (180,000)
-------- --------- --------- --------- ---------
Balance,
- --------
December 31, 1993 100,000 3,750,000 36,696 - 3,886,696
- -----------------
Net adjustment to
beginning balance for
change in accounting
method - - - 237,517 237,517
Net income - 430,000 205,311 - 635,311
Cash dividends - - (200,000) - (200,000)
Net change in unrealized
loss on available-for-
sale securities - - - (365,669) (365,669)
-------- --------- --------- --------- ---------
Balance,
- -------
December 31, 1994 $100,000 4,180,000 42,007 (128,152) 4,193,855
- ----------------- ======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 118
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net income $ 635,311 593,414 525,637
Adjustments to reconcile net income
to cash:
Depreciation and amortization 18,516 20,451 13,890
Loss on sale of asset - 2,311 -
Provision for loan losses 73,719 55,210 64,696
(Increase) decrease in other assets (70,387) 4,288 16,144
(Increase) decrease in accrued
interest receivable 32,616 (40,558) 37,367
Increase (decrease) in other liabilities 15,169 (64,423) (334,747)
Increase (decrease) in accrued interest
payable 9,132 (15,933) (54,379)
----------- ----------- -----------
Net Cash Provided by Operating
Activities 714,076 554,760 268,608
----------- ----------- -----------
Cash Flows from Investing Activities:
- ------------------------------------
(Increase) decrease in investment
securities 523,984 (1,796,789) (1,413,815)
(Increase) decrease in loans (1,281,012) (388,570) 3,298
Purchases of equipment (400) (18,763) (41,259)
Proceeds from sale of equipment - 2,800 -
----------- ----------- -----------
Net Cash Used in Investing
Activities (757,428) (2,201,322) (1,451,776)
----------- ----------- -----------
Cash Flows from Financing Activities:
- ------------------------------------
Net increase in deposits 207,258 1,812,662 2,417,882
Cash dividends paid (200,000) (180,000) (160,000)
----------- ----------- -----------
Net Cash Provided by Financing
Activities 7,258 1,632,662 2,257,882
----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents (36,094) (13,900) 1,074,714
----------------
Cash and Cash Equivalents at
- ----------------------------
Beginning of Year 2,283,872 2,297,772 1,223,058
----------------- ----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 2,247,778 2,283,872 2,297,772
=========== =========== ===========
Cash Paid During the Year for:
- -----------------------------
Interest on deposits $ 860,337 833,530 1,025,260
=========== =========== ===========
Income taxes $ 167,783 254,826 135,577
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 119
FARMERS AND MERCHANTS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Farmers and Merchants Bank and its wholly- owned subsidiary,
Community Finance Company of Mississippi, Inc. Intercompany
profits, balances and transactions have been eliminated in
consolidation.
Investments
The Bank's investment securities are classified in two
categories and are accounted for as follows:
Securities to be Held to Maturity - Bonds, notes and debentures
for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in
interest income using the interest method over the period to
maturity.
Available-for-Sale Securities - Available-for-sale securities
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as
securities to be held to maturity.
Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in a
separate component of shareholders' equity until realized.
Gains and losses on the sale of available-for-sale securities
are determined using the specific- identification method.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. The provision for depreciation is computed
primarily by use of the straight-line method. Major
replacements and refurbishings are capitalized in the property
accounts while replacements, maintenance and repairs which do
not improve or extend the life of the respective assets are
expensed currently.
Income Taxes
Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable
income such as interst on state and municipal securities) and
deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported
F-36
<PAGE> 120
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in FASB Statement No. 109,
Accounting for Income Taxes. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Loans and Allowance for Loans
Loans are stated at the amount of unpaid principal, net of
unearned discount and the allowance for loan losses. Unearned
discount on installment loans is recognized as interest income
using the sum-of-the- months' digits method. Interest on other
loans is calculated by using the simple interest method on daily
balances of the principal amount outstanding.
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior
loan experience.
The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers' ability to
pay. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business
conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful.
Off-balance Sheet Financial Instruments
In the ordinary course of business the Bank entered into
off-balance sheet financial instruments consisting of
commitments to extend credit, commercial letters of credit and
commitments to purchase securities. Such financial instruments
are recorded in the financial statements when they are
exercised.
Other Assets
This consists of prepaid expenses, other real estate owned and
the unamortized excess of cost over book value of the
subsidiary.
Statement of Cash Flows
For purposes of reporting the consolidated statement of cash
flows, cash and cash equivalents include cash on hand, amounts
due from banks and federal funds sold. Generally, federal funds
are sold for one day periods.
F-37
<PAGE> 121
Earnings Per Share
Earnings per share are calculated based on the number of shares
outstanding which was 10,000 shares in 1994, 1993 and 1992.
Accounting Pronouncements
In December, 1991, FASB issued Statement No. 107, Disclosures
About Fair Value of Financial Instruments. The Statement
requires all entities to disclose, in financial statements or
the notes thereto, the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the
statement of financial condition, for which it is practicable to
estimate fair value. For institutions with total assets less
than $150 million, the Statement is effective for years ending
after December 15, 1995. Substantially all of the Bank's assets
and liabilities are financial instruments and, as a result, it
requires the fair value of such assets and liabilities to be
disclosed. Management has not yet determined the impact the
adoption of the Statement may have on its financial statements.
In May, 1993, FASB issued Statement No. 114, Accounting by
Creditors for Impairment of a Loan. The Statement requires that
impaired loans, as defined, be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or, if more practical, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. The provisions of the
Statement apply to financial statements for fiscal years
beginning after December 15, 1994. Management of the Bank does
not anticipate that the Statement will have a significant impact
on the financial statements when adopted.
The FASB also issued Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in May, 1993. The
Statement requires that investments be classified into three
categories; held-to- maturity securities, trading securities,
and available-for-sale securities. Held-to-maturity securities
are to be accounted for at their amortized cost, trading
securities and available-for-sale securities at their fair
values. Unrealized gains and losses on trading securities are
to be included in earnings whereas unrealized gains and losses
on available-for-sale securities are to be excluded from
earnings and reported in a separate component of stockholders'
equity. The Statement was effective for fiscal years beginning
after December 15, 1993, and was adopted by the Bank effective
January 1, 1994. In accordance with the Statement, the Bank
accounted for the change with a cumulative effect adjustment of
retained earnings as of January 1, 1994.
F-38
<PAGE> 122
Note 2: Investment Securities
The amortized cost and estimated market values of investment
securities, as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amor- Unreal- Unreal- Estimated
Available-for- tized ized ized Market
Sale Securities Cost Gains Losses Value
--------------- ------------ ------ ------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury
Securities $ 3,566,165 - 157,852 3,408,313
U.S. Agencies 4,142,834 5,740 52,840 4,095,734
State, County and
Municipal - - - -
Mortgage-backed
Securities 1,040,051 11,097 314 1,050,834
------------ ------ ------- ----------
$ 8,749,050 16,837 211,006 8,554,881
============ ====== ======= ==========
Securities to be
Held to Maturity
----------------
U.S. Treasury
Securities $ - - - -
U.S. Agencies 5,061,249 7,513 99,803 4,968,959
State, County and
Municipal 6,601,827 24,778 212,858 6,413,747
Mortgage-backed
Securities - - - -
------------ ------ ------- ----------
$ 11,663,076 32,291 312,661 11,382,706
============ ====== ======= ==========
</TABLE>
The amortized cost and estimated market values of investments as
of December 31, 1993, are as follows:
<TABLE>
<S> <C> <C> <C> <C>
U.S. Treasury
Securities $ 3,571,628 104,872 8,297 3,668,203
U.S. Agencies 10,236,841 576,128 - 10,812,969
State, County and
Municipal 6,189,639 163,185 27,038 6,325,786
Mortgage-backed and
Other Securities 871,986 59,982 - 931,968
------------ ------- ------ ----------
$ 20,870,094 904,167 35,335 21,738,926
============ ======= ====== ==========
</TABLE>
The amortized cost and estimated market value of
available-for-sale securities to be held to maturity at December
31, 1994, by contractual maturity are shown below. Expected
F-39
<PAGE> 123
maturities will differ from contractual maturities because
borrowers may have the right to call or pre-pay the obligation
with or without call or pre-payment penalties.
<TABLE>
<CAPTION>
Securities to be Available-for-Sale
Held to Maturity Securities
------------------------------- --------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Due in one year
or less $ 583,852 591,959 2,650,047 2,651,313
Due after one year
through five years 9,043,742 8,865,215 5,162,563 4,956,282
Due after five years
through ten years 2,035,482 1,925,532 300,830 304,360
Due after ten years - - 635,610 642,926
------------ ---------- ---------- ---------
$ 11,663,076 11,382,706 8,749,050 8,554,881
============ ========== ========= =========
</TABLE>
Investment securities with an amortized cost of $8,597,463 and
$7,118,473 and a market value of $7,596,241 and $7,517,432 were
pledged for various purposes required by law at December 31, 1994
and 1993, respectively.
Note 3: Loans
The Bank makes commercial, financial, agri-business, real estate
and consumer loans to customers. Although the Bank has a
diversified loan portfolio, the loan portfolio is concentrated in
Calhoun County in the State of Mississippi.
Loans by major business activity were as follows at December 31,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Real estate $ 2,677,115 2,588,715
Commercial and industrial 494,606 463,409
Auto 324,045 290,921
Consumer finance 847,034 830,193
Other individual loans 3,954,267 2,892,915
----------- ---------
$ 8,297,067 7,066,153
=========== =========
</TABLE>
Loans on which the accrual of interest has been discontinued
amounted to $0 as of December 31, 1994 and 1993.
F-40
<PAGE> 124
Transactions during 1994 and 1993 in the reserve for loan losses
were as follows:
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Balance at January 1 $ 166,227 150,918
Loans charged off, net (65,712) (39,901)
Provision for possible loan losses 73,719 55,210
--------- --------
Balance at December 31 $ 174,234 166,227
========= ========
</TABLE>
Note 4: Bank Premises and Equipment
Bank premises and equipment, stated at cost, is summarized below
at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Land $ 20,000 20,000
Bank premises 128,112 128,112
Equipment, furniture and fixtures 270,372 269,972
Less: Accumulated depreciation and
amortization (315,605) (297,089)
--------- ---------
$ 102,879 120,995
========= =========
</TABLE>
Provision for depreciation and amortization totaled $18,516 in
1994, $20,451 in 1993 and $13,890 in 1992.
Note 5: Income Taxes
The consolidated provision for taxes is composed as follows at
December 31:
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Current tax expense $ 163,808 191,600
Deferred tax (benefit) - -
--------- -------
$ 163,808 191,600
========= =======
</TABLE>
The difference in tax expense and the amount computed applying the
statutory federal income tax rates is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- --------
<S> <C> <C> <C>
Federal tax expense at statutory rate $ 271,700 266,905 246,547
Changes in Taxes Resulting From:
Tax exempt interest income (103,468) (108,858) (66,712)
Other, net (4,424) 33,553 19,665
---------- --------- --------
$ 163,808 191,600 199,550
========== ========= ========
</TABLE>
F-41
<PAGE> 125
Note 6: Related Party Transactions
Certain bank officers and directors and their companies were
customers of, and had other transactions with, the bank during
1994 and 1993. In the opinion of management, these transactions
were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers and did not involve
more than normal risk of collectibility or present other
unfavorable features.
Note 7: Contingencies
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as letters of credit,
commitments to extend credit, etc., which are not reflected in the
accompanying financial statements. The amount of outstanding
letters of credit issued by the Bank was $0 at December 31, 1994
and 1993, and loan commitments were also $0. The Bank's exposure
to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and
letters of credit is represented by the contractual amount of the
instrument. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for its lending
activities. No significant losses are anticipated as a result of
these transactions.
Note 8: Concentration of Credit
Most of the Bank's loans, commitments, and letters of credit have
been granted to customers in the Bank's primary market area.
Generally, such customers are depositors of the Bank. Investments
in states and municipal securities also involve governmental
entities within the Bank's market area. The concentrations of
credit by type of loan are set forth in Note 3. The distribution
of commitments to extend credit approximates the distribution of
loans outstanding. Letters of credit were granted primarily to
commercial borrowers.
F-42
<PAGE> 126
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30,
1995 1994
--------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $1,371 $1,765
Federal funds sold 850 950
Securities 21,907 21,488
Loans, net 7,165 6,745
Property plant and equipment, net 95 113
Other assets 499 442
--------------------------
TOTAL ASSETS $31,887 $31,503
==========================
LIABILITIES
Deposits $27,148 $27,180
Federal funds purchased and securities sold under
agreements to repurchase
Accrued expenses and other liabilities 112 98
--------------------------
TOTAL LIABILITIES 27,260 27,278
STOCKHOLDERS' EQUITY
Common stock 100 100
Surplus 4,180 3,750
Retained earnings 327 374
Unrealized securities gains/(losses) 20 1
--------------------------
TOTAL STOCKHOLDERS' EQUITY 4,627 4,225
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,887 $31,503
==========================
</TABLE>
F-43
<PAGE> 127
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30,
(unaudited)
(In thousands of dollars except per share data)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Interest income
Interest and fees on loans $437 $383
Interest on interest bearing bank balances 2 2
Interest and dividends on securities 641 711
Interest on federal funds sold 36 18
--------------------------
Total interest income 1,116 1,114
Interest expense
Interest on deposits 501 419
--------------------------
Net interest income 615 695
Provision for possible loan losses (4) 9
--------------------------
Net interest income after provision for possible loan losses 619 686
Other income
Service charges on deposit accounts 71 68
Gains (losses) on sale of securities 7 19
Other 45 43
--------------------------
Total other income 123 130
Other expenses
Salaries and employee benefits 197 184
Net occupancy expenses 24 26
Equipment and data processing expenses 18 21
Regulatory insurance and fees 32 31
Other 123 120
--------------------------
Total other expenses 394 382
Income before income taxes 348 434
Income taxes 62 97
==========================
Net income $286 $337
==========================
Net income per share $28.60 $33.70
==========================
Weighted average shares outstanding 10,000 10,000
==========================
</TABLE>
F-44
<PAGE> 128
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Unrealized
Loss on
Available Total
Common Retained For Sale Stockholders'
Stock Surplus Earnings Securities Equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $100 $3,750 $37 $3,887
Change in Accounting for
Securities 238 238
Net Income 337
Cash Dividends
Net Change Unrealized
Loss on Available For
Sale Securities (237) (237)
------------------------------------------------------------------------
Balance, June 30, 1994 $100 $3,750 $374 $1 $4,225
========================================================================
Balance, January 1, 1995 $100 $4,180 $41 ($128) $4,194
Net Income 286 286
Cash Dividends
Net Change Unrealized
Loss on Available For
Sale Securities 148 148
------------------------------------------------------------------------
Balance, June 30, 1995 $100 $4,180 $327 $20 $4,627
========================================================================
</TABLE>
F-45
<PAGE> 129
FARMERS AND MERCHANTS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1995 1994
--------------------------
<S> <C> <C>
Cash Flows From Operations
Net Income $286 $337
Adjustments
Depreciation 8 9
Provision for Loan Losses (4) 9
(Increase) Decrease in Other Assets 2 21
--------------------------
Increase (Decrease) in Other Liabilities (118) (108)
--------------------------
Net Cash From Operations 174 268
Cash Flows From Investments
Available For Sale Securities
Purchases (800)
Sales 528
Maturities 1,400
Held to Maturity Securities
Purchases (2,975) (2,270)
Sales 400
Maturities 305 1,254
(Increase) Decrease in Loans 336 (464)
Purchase of Equipment (1)
--------------------------
Net Cash Used in Investments (1,206) (1,081)
--------------------------
Cash Flows From Financing
Net Increase in Deposits 1,005 1,244
--------------------------
Net Cash From Financing 1,005 1,244
Increase (Decrease) in Cash and Cash Equivalents (27) 431
Cash and Cash Equivalents at Beginning of Period 2,248 2,284
--------------------------
Cash and Cash Equivalents at End of Period $2,221 $2,715
==========================
Cash Paid During Period
Interest on Deposits $480 $414
Income Taxes $57 $100
</TABLE>
F-46
<PAGE> 130
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
FIRST M&F CORPORATION,
MERCHANTS AND FARMERS BANK
AND
FARMERS AND MERCHANTS BANK
<PAGE> 131
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 132
AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "F&M" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 "FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "FRB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "First M&F Corp." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 "Merchants and Farmers Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 "Department" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 "Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE MERGER AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ACCOUNTING AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Accounting and Tax Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
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ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
F&M'S COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Property Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 F&M Financial and Other Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
F&M'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.3 Capital Structure of F&M. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 F&M Financial and Other Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.6 Tax Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.7 Tax Returns: Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.8 Litigation and Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.9 Brokers' or Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.10 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.11 Title to Assets; Adequate Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.14 Allowance for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Registration and Proxy Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.17 Commitments and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.18 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Plan Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.20 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.21 Continuity of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.22 Continuity of Business Enterprise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.23 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.24 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.25 Compliance with Laws and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
FIRST M&F CORP.'S REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Organization and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Shares Fully Paid and Non Assessable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.7 Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.8 Allowances for Possible Loan Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.9 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.10 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.11 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.12 Registration of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.13 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.1 Conditions to Each Party's Obligations to Effect the Merger. . . . . . . . . . . . . . . . . . 18
8.2 Conditions to Obligations of F&M to Effect the Merger. . . . . . . . . . . . . . . . . . . . . 19
8.3 Conditions to Obligations of First M&F Corp. to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.2 Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.3 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EMPLOYMENT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.1 Parties' Joint Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 F&M's Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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11.3 First M&F Corp.'s Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.4 Attorney Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.1 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.2 Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . . . . 24
13.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.4 Duplicate Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.6 Successors: No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.7 Modification; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.8 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.10 Costs, Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.11 Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.13 Mutual Covenant of Best Efforts and Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 136
EXHIBITS
Exhibit A Bank Merger Agreement
Exhibit B Letter of Transmittal
Exhibit C Form of Affiliate Agreement
<PAGE> 137
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as
of the ____ day of ____________, 1995, is made between Farmers and Merchants
Bank, Bruce, Mississippi, a Mississippi banking corporation ("F&M"), as party
of the first part, and First M&F Corp., Kosciusko, Mississippi, a Mississippi
corporation ("First M&F Corp.") and Merchants and Farmers Bank, Kosciusko,
Mississippi, a Mississippi banking corporation, as parties of the second part.
The Boards of Directors of F&M, First M&F Corp. and Merchants and
Farmers Bank have duly approved this Agreement and have authorized the
execution hereof by F&M's President, First M&F Corp.'s Chairman and Merchants
and Farmers Bank's President. F&M has directed that this Agreement be
submitted to a vote of its shareholders in accordance with Section 81-5-85 of
the Miss. Code of 1972, as amended and the terms of this Agreement.
In consideration of their mutual promises and obligations, the parties
hereto adopt and make this Agreement for the merger of F&M with and into
Merchants and Farmers Bank and prescribe the terms and conditions of such
merger and the mode of carrying it into effect, which shall be as follows:
ARTICLE 1
DEFINITIONS
Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meaning to be equally applicable to
both the singular and plural forms of the terms defined):
1.1 "Agreement" shall mean this Agreement and Plan of
Reorganization by and between F&M, on the one hand, and First M&F Corp. and
Merchants and Farmers Bank, on the other hand, and any amendments thereto.
References to Articles, Sections, Schedules and the like refer to the Articles,
Sections, Schedules and the like of this Agreement unless otherwise indicated.
1.2 "F&M" means Farmers and Merchants Bank, a Mississippi banking
corporation duly chartered, organized and existing under and pursuant to the
laws of the State of Mississippi and maintaining its principal place of
business at 101 City Square, Bruce, Calhoun County, Mississippi.
1.3 "Business Day" shall mean a day on which Merchants and Farmers
Bank is open for business and which is not a Saturday, Sunday or legal bank
holiday.
1.4 "Closing" The closing (the "Closing") of the transactions
contemplated herein will take place at Merchants and Farmers Bank in Kosciusko,
Mississippi, on a date that is mutually agreed to by both parties ("Closing
Date") that is within thirty (30) days following the later of the date of
receipt of all applicable regulatory approvals relating to the transactions
contemplated herein, the
<PAGE> 138
expiration of all applicable statutory and regulatory waiting periods relative
thereto, or the date the Registration Statement (the "Registration Statement")
filed with the SEC is declared effective, or such later date as may be agreed
to by the parties. At the Closing the parties shall each deliver to the other
such evidence of the satisfaction of the conditions to the Merger as may
reasonably be required (including material required to be delivered under this
Agreement).
1.5 "Effective Date" Immediately upon consummation of the Closing,
or on such other later date as the parties hereto may agree, the Bank Merger
Agreement (as defined in Section 2.1 hereof shall be certified, executed,
acknowledged and delivered to the Mississippi Department of Banking and
Consumer Finance (the "Department") for filing pursuant to and in accordance
with the provisions of Miss. Code Ann. Section 81-5-85 (Supp. 1995). The Bank
Merger shall become effective as of the date and time specified or permitted by
the Department in a Certificate of Merger or other written record issued by the
Department.
1.6 "FDIC" means that agency of the United States of America known
as the Federal Deposit Insurance Corporation, or any successor United States
governmental agency which insures deposits of commercial banks.
1.7 "FRB" means that agency of the United States of America which
acts in the capacity of a governmental central bank known as the Federal
Reserve System represented by actions of its Board of Governors, having
regulatory authority over bank holding companies, or any successor United
States governmental agency performing the function of exercising such
regulatory authority.
1.8 "First M&F Corp." means First M&F Corp., a corporation duly
chartered, organized and existing under and pursuant to the laws of the State
of Mississippi; maintaining its principal place of business at 221 E.
Washington Street, in Kosciusko, Attala County, Mississippi; and is a bank
holding company within the meaning of the Bank Holding Company Act of 1956, as
amended.
1.9 "Merchants and Farmers Bank" means Merchants and Farmers Bank,
a Mississippi banking corporation, duly chartered, organized and existing under
and pursuant to the laws of the State of Mississippi and maintaining its
principal place of business at 221 East Washington Street in Kosciusko, Attala
County, Mississippi.
1.10 "Department" means the Department of Banking and Consumer
Finance of the State of Mississippi having regulatory authority over Merchants
and Farmers Bank and F&M or any successor Mississippi governmental agency
exercising such regulatory authority.
1.11 "Party" shall mean First M&F Corp., Merchants and Farmers
Bank, or F&M and "Parties" shall mean First M&F Corp., Merchants and Farmers
Bank and F&M.
1.12 "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
<PAGE> 139
1.13 "SEC" means that agency of the United States of America known
as the Securities and Exchange Commission.
ARTICLE 2
THE MERGER AND RELATED MATTERS
2.1 Merger. On the Effective Date, F&M shall be merged with and
into Merchants and Farmers Bank under the Articles of Incorporation of
Merchants and Farmers Bank, pursuant to the provisions of this Agreement, the
provisions of and with the effect provided in Miss. Code Ann. Section 81-5-85
(the "Bank Merger") and the Bank Merger Agreement in substantially the form of
Exhibit A hereto (the "Bank Merger Agreement"). For federal income tax
purposes, it is intended that the Bank Merger shall qualify as a non-taxable
reorganization under and in accordance with Section 368(a)1(A) and Section 368
(a)(2)(D) of the Internal Revenue Code of 1986, as amended, and the applicable
IRS regulations. The Parties expect that the Merger will further certain of
their business objectives, including, and without limitation, the expansion of
operations as a financial institution.
2.2 Effect of Bank Merger. Upon consummation of the Bank Merger,
the separate corporate existence of F&M shall cease and Merchants and Farmers
Bank shall continue as the surviving corporation. The name of Merchants and
Farmers Bank, as the surviving corporation, shall by virtue of the Bank Merger
remain unchanged. On the Effective Date, as hereinabove provided, all of the
assets and property of every kind and character, real, personal and mixed,
tangible and intangible, choses in action, rights, and credits then owned by
F&M, or which would inure to it, shall immediately by operation of law and
without any conveyance or transfer or without any further action or deed, be
vested in and become the property of Merchants and Farmers Bank, which shall
have, hold, and enjoy the same in its own right as fully and to the same extent
as the same were possessed, held, and enjoyed by F&M prior to such merger; and
Merchants and Farmers Bank shall be deemed to be and shall be a continuation of
the original entities and all of the rights and obligations of F&M shall remain
unimpaired, and Merchants and Farmers Bank, on the Effective Date of the Bank
Merger shall succeed to all such rights, obligations, duties and liabilities
connected therewith.
ARTICLE 3
CONVERSION OF STOCK
3.1 Conversion. The Parties agree that, by virtue of the Bank
Merger, shares of F&M common stock shall be converted into shares of First M&F
Corp. common stock.
3.2 Issuance. Shares of common stock of First M&F Corp. shall be
issued to holders of F&M common stock as follows:
a. First M&F Corp. shall issue to each F&M stockholder
for each F&M share held forty-five (45) shares of First M&F Corp.'s common
stock.
b. On or after the Effective Date, each holder of a
certificate or certificates theretofore representing outstanding shares of
F&M's common stock (any such certificate
<PAGE> 140
being hereinafter referred to as a "Certificate") other than a holder of
Certificates who has elected to exercise dissenters' rights pursuant to Miss.
Code Ann. Sections 79-4-13.01 through 79-4-13.31 (Supp. 1995), shall surrender
the same to First M&F Corp. or its agent for cancellation and each such holder
shall be entitled upon such surrender to receive in exchange therefor
certificate(s) representing the number of shares of First M&F Corp. common stock
to which such holder is entitled as provided herein. Immediately after the
Effective Date, First M&F Corp. shall mail to each holder of record of F&M's
common stock a form letter of transmittal and instructions, in the form of that
set forth in Exhibit B, for use in effecting the surrender of the Certificates
representing shares of F&M common stock to be exchanged for shares of First M&F
Corp. common stock pursuant to this Agreement. Until so surrendered, each
Certificate shall be deemed for all purposes to evidence ownership of the number
of shares of First M&F Corp. common stock into which the shares represented by
such Certificates have been changed or converted as aforesaid. Certificates
surrendered for exchange by any person who is an "affiliate" of F&M for purposes
of Rule 145(c) or Rule 144 (as applicable) under the Securities Act of 1933, as
amended, shall not be exchanged for certificates representing shares of First
M&F Corp. common stock until F&M has received the written agreement of such
person contemplated by Article 4 of this Agreement. If any certificate for
shares of F&M common stock is to be issued in a name other than that in which a
Certificate surrendered for exchange is issued, the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer.
c. First M&F Corp. reserves the right to withhold any
cash dividends payable in respect to Certificates not surrendered by the holder
thereof after the sixth (6th) month following the Effective Date. Cash
dividends so withheld will be paid to the holder thereof, without interest and
less the amount of taxes, if any, that may have been withheld, imposed or paid
thereon, upon proper presentation as provided in this Section 3.2. In the event
that any such holder fails to surrender either such Certificate or the
documents and information contemplated by the letter of transmittal and
instructions, set forth in Exhibit B attached hereto, on or before the fifth
(5th) anniversary of the Effective Date, First M&F Corp. shall not have any
obligation to deliver the amount to which any such holder would have been
entitled in-accordance with the provisions of this Agreement and any such
holder shall not be entitled to receive from First M&F Corp. any amount in
substitution and exchange for each share cancelled and extinguished in
accordance with this Agreement.
d. Upon the Effective date, the stock transfer books of
F&M shall be closed and no transfer of F&M common stock shall thereafter be
made or recognized. Any other provision of this Agreement notwithstanding,
neither First M&F Corp. or its agent nor any party to the Bank Merger shall be
liable to a holder of F&M common stock for any amount paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
e. Shares of F&M common stock held by any holder having
rights of a dissenting shareholder as provided in Miss. Code Ann. Sections
79-4-13.01 through 79-4-13.30 (Supp. 1995), who shall have properly objected to
the Bank Merger and who shall have properly demanded payment on his stock in
accordance with and subject to the provisions of Miss. Code Ann. Section
79-4-13.21, shall not be converted as provided under this Article 3 until such
time as such holder shall have failed to
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perfect, or shall have effectively lost his right to appraisal of and payment
for his shares of F&M common stock, at which time such shares shall be
converted as provided in Section 3.2 hereof.
ARTICLE 4
ACCOUNTING AND TAX MATTERS
4.1 Affiliates. F&M and First M&F Corp. shall cooperate and use
their best efforts to identify those persons who may be deemed to be
"affiliates" of F&M within the meaning of Rule 145(c) or Rule 144 (as
applicable) under the Securities Act of 1933 (the "Securities Act"). F&M shall
use its best efforts to cause each person so identified to deliver to First M&F
Corp., no later than 30 days prior to the Effective Date, a written agreement
in substantially the form set forth in Exhibit C attached hereto, satisfactory
to First M&F Corp. that such person will not sell, pledge, transfer or
otherwise dispose of the shares of First M&F Corp.'s common stock to be
received by such person pursuant to this Agreement except in compliance with
applicable provisions of the Securities Act and rules and regulations
thereunder and until such time as financial results covering at least 30 days
of combined operations of First M&F Corp. and F&M have been published within
the meaning of Section 201.01 of the Securities and Exchange Commission's
Codification of Financial Reporting Policies. Shares of First M&F Corp.'s
common stock received pursuant to this Agreement by such affiliates shall not
be transferable until such time as financial results covering at least 30 days
of combined operations of First M&F Corp. and F&M have been published within
the meaning of Section 201.01 of the Securities and Exchange Commission's
Codification of Financial Reporting Policies, regardless of whether each such
affiliate has provided the written agreement referred to in this section. First
M&F Corp. shall be entitled to place appropriate legends on the certificates
evidencing shares of First M&F Corp.'s common stock to be received pursuant to
this Agreement by such affiliates and to issue appropriate stop transfer
instructions to the transfer agent for First M&F Corp.'s common stock.
4.2 Accounting and Tax Representations. The Parties hereto
represent and warrant that the Statement of Representations attached hereto on
Schedule 4.2 and made a part hereof, are true and correct to the best of their
knowledge.
ARTICLE 5
F&M'S COVENANTS AND AGREEMENTS
5.1 Operation of Business. Between the date hereof and the
Effective Date, or until the termination of this Agreement, F&M covenants and
agrees that it will operate its business solely in the ordinary course
consistent with prudent business practices and in compliance with all
applicable laws, regulations and rules; and, without prior written consent of
First M&F Corp., F&M will not:
a. Amend or otherwise change its articles of
incorporation or bylaws, as each such document is in effect on the date hereof;
b. Issue or sell, or authorize for issuance or sale, the
shares of F&M or any additional shares of any class of capital stock of F&M;
<PAGE> 142
c. Issue, grant, or enter into any subscription, option,
warrant, right, convertible security, or other agreement or commitment of any
character obligating F&M to issue securities;
d. Declare, set aside, make, or pay any dividend or
other distribution with respect to its capital stock, provided, however, that,
if the Bank Merger does not occur prior to the record date for First M&F
Corp.'s fourth quarter, 1995 dividend, F&M shall to the extent lawfully
permitted declare and pay dividends for the purpose of allowing F&M's
stockholders to receive the normal and customary second semi annual, 1995
dividend in the amount of $20.00 per outstanding share of F&M common stock.
e. Redeem, purchase, or otherwise acquire, directly or
indirectly, any of its capital stock;
f. Authorize any capital expenditure(s) which,
individually or in the aggregate, exceed $20,000;
g. Extend any new, or renew any existing, loan, credit,
lease, or other type of financing unless such is consistent with F&M's normal
lending practices;
h. Except in the ordinary course of business, sell,
pledge, dispose of, or encumber, or agree to sell, pledge, dispose of, or
encumber, any assets of F&M;
i. Establish or add any automated teller machines or
branch or other banking offices; take any action that would materially and
adversely affect the ability of any Party hereto to obtain the approvals
necessary for consummation of the transactions contemplated hereby or that
would materially and adversely affect F&M's ability to perform its covenants
and agreements hereunder;
j. Acquire (by merger, consolidation, lease or other
acquisition of stock, ownership interests or assets) any corporation,
partnership, or other business organization or division thereof, or enter into
any contract, agreement, commitment, or arrangement with respect to any of the
foregoing;
k. Excluding normal and customary banking transactions,
incur any indebtedness for borrowed money, issue any debt securities, or enter
into or modify any contract, agreement, commitment, or arrangement with respect
thereto;
l. Enter into, amend, or terminate any employment
agreement, relationship or responsibilities with any director, officer, or key
employee or representative of F&M, or enter into, amend, or terminate any
employment agreement with any other person otherwise than in the ordinary
course of business, or take any action with respect to the grant or payment of
any severance or termination pay except as expressly consented to in writing by
First M&F Corp.;
<PAGE> 143
m. Enter into, extend, or renew any lease for office or
other space;
n. Except as required by law, enter into, adopt or amend
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment, or other employee benefit plan, agreement,
trust, fund, or arrangement for the benefit or welfare of any officer, employee
or representative of F&M;
o. Grant any increase in compensation to any director,
officer, or employee or representative of F&M except in the ordinary course of
business consistent with past practice; provided, however, that if the Bank
Merger does not occur by December 31, 1995, year end 1995 bonuses may be paid
which shall not exceed, in the aggregate, $12,000;
p. Take any action or omit to take any action which
would cause any of F&M's representations or warranties to be untrue or
misleading in any material respect or any covenant of F&M under this Agreement
incapable of being performed; or
q. Agree in writing or otherwise to do any of the
foregoing.
5.2 Preservation of Business. Between the date hereof and the
Effective Date, F&M will use its best efforts to preserve its existing business
and to keep its business organization intact, including its present
relationships with its employees and customers and others having business
relations with it.
5.3 Insurance. Pending the Closing, F&M shall cause the real
property owned by F&M to be insured reasonably against all insurable risks
under policies with reasonable deductibles and in full compliance with any
co-insurance provision.
5.4 Stockholders' Meeting. F&M will promptly give proper notice of
a stockholders' meeting for the purpose of approving this Agreement. Said
notice shall include notice of dissenter's rights, if any, and shall solicit
stockholders' proxies in favor of this Agreement, and all notices shall be
given in accordance with all applicable laws, regulations, and rules. F&M and
its directors and principal stockholders will support and vote in favor of a
stockholder resolution approving this Agreement.
5.5 Property Transfers. From time to time, as and when requested
by Merchants and Farmers Bank and to the extent permitted by Mississippi law,
the officers and directors of F&M last in office shall execute and deliver such
deeds and other instruments and shall take or cause to be taken such further or
other actions as shall be necessary in order to vest or perfect in or to
confirm of record or otherwise to Merchants and Farmers Bank title to, and
possession of, all the property, interests, assets, rights, privileges,
immunities, powers, franchises, and authorities of F&M, and otherwise to carry
out the purposes of this Agreement.
5.6 F&M Financial and Other Reports. F&M shall make available to
First M&F Corp. and Merchants and Farmers Bank the following statements and
other reports and documents:
<PAGE> 144
a. F&M's Consolidated Balance Sheets as of June 30, 1995
and 1994 (unaudited) and December 31, 1994, 1993 and 1992 (audited);
Consolidated Statements of Income and Changes in Stockholders' Equity and
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992 (audited); Consolidated Statements of Income for the six-month
periods ended June 30, 1995 and 1994 (unaudited) ("F&M Financial Statements");
and, Federal Tax Returns for the years ended December 31, 1994, 1993 and 1992;
b. All correspondence with the Department, the FDIC and
the Internal Revenue Service from January 1, 1994 through the date of Closing
(for inspection, but copying may be restricted by legal limitations); and
c. Such additional financial or other information as may
be required for the regulatory applications and Registration Statement in
connection with the consummation of the Merger (subject to any legal
limitations).
5.7 Due Diligence. In order to afford First M&F Corp. access to
such information as it may reasonably deem necessary to perform any due
diligence review with respect to the assets of F&M to be acquired as a result
of the Merger, F&M shall, upon reasonable notice, afford First M&F Corp. and
its officers, employees, counsel, accountants, and other authorized
representatives access, during normal business hours throughout the period
prior to the Effective Date, to all of its properties; books, contracts,
commitments, loan files, litigation files and records (including, but not
limited to, the minutes of the Board of Directors of F&M and all committees
thereof), and it shall, upon reasonable notice and to the extent consistent
with applicable law, furnish promptly to First M&F Corp. such information as
First M&F Corp. may reasonably request to perform such review.
5.8 No Solicitation. Prior to the Effective Date, F&M shall not
authorize or knowingly permit any of its officers, directors, employees,
representatives, agents or other persons controlled by F&M to directly or
indirectly, encourage or solicit or, hold any discussions or negotiations with,
or provide any information to, any persons, entity or group concerning any
merger, consolidation, sale of substantial assets, sale of shares of capital
stock or similar transactions involving, directly or indirectly, F&M except as
contemplated by this Agreement. F&M shall promptly communicate to First M&F
Corp. the identity and terms of any proposal which they may receive with
respect to any such transaction.
ARTICLE 6
F&M'S REPRESENTATIONS AND WARRANTIES
F&M represents and warrants to First M&F Corp. and Merchants and
Farmers Bank as follows:
6.1 Organization and Authority. F&M is a bank duly organized,
validly existing and in good standing under the laws of the State of
Mississippi and has the corporate power and authority
<PAGE> 145
to own, lease and operate its properties and assets and to carry on its
business as it is now being conducted.
6.2 Authorization. The execution, delivery and performance of this
Agreement by F&M and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors of F&M, subject to
regulatory approval. No other corporate proceedings on the part of F&M are
necessary to authorize consummation of this Agreement, except for the approval
of the transaction by F&M's stockholders, and the performance by F&M of the
terms hereof. This Agreement is a valid and binding obligation of F&M
enforceable against F&M in accordance with its terms except as may be limited
by applicable bankruptcy, insolvency, reorganization or moratorium or other
similar laws affecting creditors' rights generally and except that the
availability of equitable remedies is within the discretion of the appropriate
court and except that it is subject to approval by its stockholders and
applicable regulatory agencies.
Neither the execution, delivery or performance of this Agreement by
F&M, nor the consummation of the transactions contemplated hereby, nor
compliance by F&M with any of the provisions hereof, will (a) in any material
respect violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of F&M under any terms,
conditions or provisions of (i) F&M's Charter or Bylaws or other charter
documents of F&M or (ii) any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which F&M
is a party or by which F&M may be bound, or to which F&M or the properties or
assets of it may be subject, or (b) violate in any material respect any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to F&M or any of its properties or assets.
6.3 Capital Structure of F&M. As of the date hereof, the
authorized capital of F&M consists solely of 10,000 shares of common stock of
the par value of $10.00 each. As of the date hereof 10,000 shares of such
authorized common stock were issued and outstanding. The outstanding shares of
capital stock of F&M are validly issued and outstanding, fully paid and
nonassessable. There are no outstanding options, conversion rights, warrants,
calls, rights, commitments or agreements to issue any form of stock or other
security of F&M. There are no outstanding obligations or commitments to
purchase, redeem or otherwise acquire any outstanding shares of common stock of
F&M.
6.4 F&M Financial and Other Reports. F&M's Financial Statements
(i) will have been prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied, (ii) will present fairly the
consolidated results of operations and financial position of F&M for the
periods and at the times indicated, and (iii) will be true and correct in all
material respects for the periods and at the times indicated.
<PAGE> 146
6.5 No Material Adverse Change. Since June 30, 1995, there has
been no event or condition of any character (whether actual, or to the
knowledge of F&M, threatened or contemplated) that has had or can reasonably be
anticipated to have, or that, if concluded or sustained adversely to F&M would
reasonably be anticipated to have, a material adverse effect on the financial
condition, results of operations, business or prospects of F&M, excluding
changes in laws or regulations that affect banking institutions generally.
6.6 Tax Liability. The amounts set up as liabilities for taxes in
the F&M Financial Statements are sufficient for the payment of all respective
taxes (including, without limitation, federal, state, local, and foreign
excise, franchise, property, payroll, income, capital stock, and sales and use
taxes) accrued in accordance with GAAP and unpaid at the respective dates
thereof.
6.7 Tax Returns: Payment of Taxes. All federal, state, local, and
foreign tax returns (including, without limitation, estimated tax returns,
withholding tax returns with respect to employees, and FICA and FUTA returns)
required to be filed by or on behalf of F&M have been timely filed or requests
for extensions have been timely filed and granted and have not expired for
periods ending on or before December 31, 1994, and all returns filed are
complete and accurate to the best information and belief of their respective
managements and all taxes shown on filed returns have been paid. As of the date
hereof, there is no audit, examination, deficiency or refund litigation or
matter in controversy with respect to any taxes that might result in a
determination materially adverse to F&M except as reserved against in the F&M
Financial Statements. All taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid, and F&M's tax reserves for bad debts at December 31, 1994, as filed with
the Internal Revenue Service were not greater than the maximum amounts
permitted under the provisions of Section 585 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code").
6.8 Litigation and Proceedings. Except as set forth on Schedule
6.8 hereto, no litigation, proceeding or controversy before any court or
governmental agency is pending against F&M that in the opinion of its
management is likely to have a material and adverse effect on the business,
results of operations or financial condition of F&M taken as a whole, and, to
the best of its knowledge, no such litigation, proceeding or controversy has
been threatened or is contemplated.
6.9 Brokers' or Finders' Fees. Except for advisory and legal fees
in connection with the transactions contemplated herein, no agent, broker,
investment banker, investment or financial advisor or other person acting on
behalf of F&M or under its authority is entitled to any commission, broker's or
finder's fee from any of the Parties hereto in connection with any of the
transactions contemplated by this Agreement.
6.10 Contingent Liabilities. Except as disclosed on Schedule 6.10
hereto or as reflected in the F&M Financial Statements and except for unfunded
loan commitments made in the ordinary course of business consistent with past
practices, as of June 30, 1995, F&M has no obligation or liability (contingent
or otherwise) that was material, or that when combined with all similar
obligations or liabilities would have been material, to F&M taken as a whole
and there does not exist a set of circumstances resulting from transactions
effected or events occurring prior to, on, or after
<PAGE> 147
June 30, 1995, or from any action omitted to be taken during such period
that, to the knowledge of F&M, could reasonably be expected to result in any
such material obligation or liability.
6.11 Title to Assets; Adequate Insurance Coverage.
Except as described on Schedule 6.11:
a. As of June 30, 1995, F&M had, and except with respect
to assets disposed of for adequate consideration in the ordinary course of
business since such date, now have, good and merchantable title to all real
property and good and merchantable title to all other material properties and
assets reflected in the F&M Financial Statements, free and clear of all
mortgages, liens, pledges, restrictions, security interests, charges and
encumbrances of any nature except for (i) mortgages and encumbrances which
secure indebtedness which is properly reflected in the F&M Financial Statements
or which secure deposits of public funds as required by law; (ii) liens for
taxes accrued by not yet payable; (iii) liens arising as a matter of law in the
ordinary course of business with respect to obligations incurred after June 30,
1995, provided that the obligations secured by such liens are not delinquent or
are being contested in good faith; (iv) such imperfections of title and
encumbrances, if any, as do not materially detract from the value or materially
interfere with the present use of any of such properties or assets or the
potential sale of any such owned properties or assets; and (v) capital leases
and leases, if any, to third parties for fair and adequate consideration. F&M
owns, or has valid leasehold interests in, all material properties and assets,
tangible or intangible, used in the conduct of its business. Any real property
and other material assets held under lease by F&M are held under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made or proposed to be made by First M&F Corp. in
such lease of such property.
b. With respect to each lease of any real property or a
material amount of personal property to which F&M is a party, except for
financing leases in which F&M is lessor, (i) such lease is in full force and
effect in accordance with its terms; (ii) all rents and other monetary amounts
that have been due and payable thereunder have been paid; (iii) there exists no
default or event, occurrence, condition or act which with the giving of notice,
the lapse of time or the happening of any further event, occurrence, condition
or act would become a default under such lease; and (iv) the Merger will not
constitute a default or a cause for termination or modification of such lease.
c. F&M has no legal obligation, absolute or contingent,
to any other person to sell or otherwise dispose of any substantial part of its
assets or to sell or dispose of any of its assets except in the ordinary course
of business consistent with past practices.
d. To the knowledge and belief of its management, the
policies of fire, theft, liability and other insurance maintained with respect
to the assets or businesses of F&M provide adequate coverage against loss and
the fidelity bonds in effect as to which F&M is named insured meet the
applicable standards of the American Bankers Association.
<PAGE> 148
6.12 Liabilities. To the best of F&M's and its officers' and
directors' knowledge, all liabilities of F&M were, and will be created, for
good, valuable and adequate consideration in accordance with prudent business
standards and in substantial compliance with all laws, regulations and rules
and the accounts or evidence of ownership of accounts are and will be genuine,
true, valid and enforceable in accordance with their written terms. F&M has
not agreed to any modification or extension of accounts or account terms or
otherwise made any agreements regarding such accounts except as disclosed in
writing on the books and records of F&M; and F&M has no knowledge of any claim
of ownership to any account other than as shown on the written ownership
records of F&M for each account, and F&M has no knowledge of any alleged
improper or wrongful withdrawal or payment of any such account.
6.13 Loans. To the best knowledge and belief of its management,
each loan reflected as an asset of F&M in the F&M Financial Statements, as of
June 30, 1995, or acquired since that date, is the legal, valid, and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, and no loan is subject to any asserted defense, offset or counterclaim
known to F&M, except as disclosed in writing to First M&F Corp. on or prior to
the date hereof.
6.14 Allowance for Loan Losses. The allowances for possible loan
losses shown on the consolidated balance sheets of F&M as of June 30, 1995 are
adequate in all material respects under the requirements of GAAP to provide for
possible losses, net of recoveries, relating to loans previously charged off,
on loans outstanding (including accrued interest receivable) as of June 30,
1995, and each such allowance has been established in accordance with GAAP.
6.15 Investments. Except for investments classified as
held-to-maturity as prescribed under the Financial Accounting Standards Board
Statement Number 115, and pledges to secure public or trust deposits, none of
the investments reflected in the F&M Financial Statements under the heading
"Investment Securities", and none of the investments made by F&M since June 30,
1995, and none of the assets reflected in the F&M Financial Statements under
the heading "Cash and Due From Banks," is subject to any restriction, whether
contractual or statutory, that materially impairs the ability of F&M freely to
dispose of such investment at any time. With respect to all repurchase
agreements to which F&M is a party, F&M has a valid, perfected first lien or
security interest in the government securities or other collateral securing
each such repurchase agreement which equals or exceeds the amount of debt
secured by such collateral under such agreement.
6.16 Registration and Proxy Statements. None of the information
supplied or to be supplied by F&M for inclusion in (a) the Registration
Statement to be filed by First M&F Corp. with the SEC, (b) the Notice of
Meeting and Proxy Statement to be mailed by F&M to its stockholders in
connection with the meeting referred to in Section 5.4 hereof (the "Proxy
Statement"), and (c) any other documents to be filed with the SEC or any
regulatory agency in connection with the transactions contemplated hereby,
will, as amended or supplemented at the time the Registration Statement is
filed with the SEC, at the time it becomes effective, at the time the Proxy
Statement is mailed to holders of F&M's stock, at the time of F&M Stockholders'
Meeting, and at the time of filing of such other documents, respectively,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein in order to make the statements therein, in
light
<PAGE> 149
of the circumstances under which they were made, not misleading. All documents,
financial statements, or other information or materials which F&M shall provide
for filing with the SEC and any regulatory agency in connection with the Merger
will comply with generally accepted accounting principles.
6.17 Commitments and Contracts. F&M is not a party or subject to
any of the following (whether written or oral, express or implied):
a. Except as listed on Schedule 6.17a attached hereto
and with a complete copy provided to First M&F Corp., any employment contract
(including any obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director,
employee or consultant (other than those which are terminable at will by F&M);
b. Except as listed on Schedule 6.17b attached hereto
and with a complete copy provided to First M&F Corp., any plan or contract
providing for any bonus, pension, option, deferred compensation, retirement
payment, profit sharing or similar arrangement with respect to any present or
former officer, director, employee or consultant; or
c. Any contract not made in the ordinary course of
business containing covenants which limit the ability of F&M to compete in any
line of business or with any person or which involves any restriction of the
geographical area in which, or method by which, F&M may carry on its respective
business (other than as may be required by law or applicable regulatory
authorities).
6.18 Employee Plans. To the best of F&M's knowledge and belief, it,
and all "employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), that cover one or
more employees employed by F&M:
i. is in compliance with all laws, regulations,
reporting and licensing requirements and orders applicable to its business or
to such plan or any of its employees (because of such employee's activities on
behalf of it), the breach or violation of which could have a material and
adverse effect on such business; and
ii. has received no notification from any agency
or department of federal, state or local government or the staff thereof
asserting that any such entity is not in compliance with any of the statutes,
regulations or ordinances that such governmental authority enforces, or
threatening to revoke any license, franchise, permit or governmental
authorization, and is subject to no agreement with any such governmental
authority with respect to its assets or business.
6.19 Plan Liability. Except for liabilities to the Pension Benefit
Guaranty Corporation pursuant to Section 4007 of ERISA, all of which have been
fully paid, and except for liabilities to the Internal Revenue Service under
Section 4971 of the Internal Revenue Code, all of which have been fully paid,
F&M has no liability to the Pension Benefit Guaranty Corporation or to the
Internal Revenue Service with respect to any pension plan qualified under
Section 401 of the Internal Revenue Code.
<PAGE> 150
6.20 Vote Required. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of F&M common stock outstanding, is the
only vote of the stockholders of F&M necessary to approve the Bank Merger and
other transactions contemplated hereby.
6.21 Continuity of Interest. To the best knowledge of F&M, there is
no plan or intention by the F&M shareholders who own one-percent (1%) or more
of the F&M Common Stock, and to the best of the knowledge of management of F&M,
there is no plan or intention on the part of the remaining F&M shareholders to
sell, exchange or otherwise dispose of a number of shares of First M&F Corp.
common stock to be received in the Bank Merger that would reduce F&M
stockholders' ownership of the First M&F Corp. common stock to a number of
shares having a value, as of the date of the Bank Merger, of less than 50% of
the value of all of the formerly outstanding F&M common stock as of the same
date. For purposes of this representation, shares of F&M common stock
surrendered by dissenters will be treated as outstanding F&M common stock on
the date of the Bank Merger. Furthermore, shares of F&M common stock and shares
of First M&F Corp. common stock held by F&M stockholders and otherwise sold,
redeemed, or disposed of prior to or subsequent to the Bank Merger are
considered in this assumption. See Exhibit C for additional representations
regarding continuity of shareholder interest under Section 368(a)(1)(A) and
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended.
6.22 Continuity of Business Enterprise. F&M operates at least one
significant historic business line, namely, financial services, and owns at
least a significant portion of its historic business assets within the meaning
of Treasury Regulation Section 1.368-1(d).
6.23 Environmental Matters. Except as set forth on Schedule 6.23;
Neither F&M nor, to the best of F&M's knowledge, any previous owner or operator
of any properties at any time owned (including any properties owned or
subsequently resold) leased, or occupied by F&M or used by F&M in its
respective business ("F&M Properties") used, generated, treated, stored, or
disposed of any hazardous waste, toxic substance, or similar materials on,
under, or about F&M Properties except in compliance with all applicable
federal, state, and local laws, rules and regulations pertaining to air and
water quality, hazardous waste, waste disposal, air omissions, and other
environmental matters ("Environmental Laws"). F&M has received no notice of
noncompliance with Environmental Laws, applicable laws, orders, or regulations
of any governmental authorities relating to waste generated by any such party
or otherwise or notice that any such party is liable or responsible for the
remediation, removal, or clean-up of any site relating to F&M Properties.
6.24 Accuracy of Information. To the best of F&M's and its
officers' and directors' knowledge, all information furnished by F&M to First
M&F Corp. and Merchants and Farmers Bank relating to the assets, liabilities,
and this Agreement is accurate, and F&M has not omitted to disclose any
information which is or would be material to this Agreement.
6.25 Compliance with Laws and Contracts. To the best of F&M's and
its officers' and directors' knowledge, F&M is not in violation of any laws,
regulations, or agreements to which it
<PAGE> 151
is a party and have failed to file any material reports required by any
governmental or other regulatory body.
ARTICLE 7
FIRST M&F CORP.'S REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
First M&F Corp. represents and warrants to F&M as follows: for
purposes of this Agreement, except in Section 7.1 and where the context
requires otherwise, any reference to First M&F Corp. in this Article 7 shall be
deemed to include First M&F Corp. and Merchants and Farmers Bank and any
reference to "material", material adverse effect or a similar standard shall
refer to the financial condition, operations or other aspects of First M&F
Corp. and its subsidiaries including Merchants and Farmers Bank taken as a
whole.
7.1 Organization and Authority. First M&F Corp. is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Mississippi and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being
conducted.
7.2 Shares Fully Paid and Non Assessable. The outstanding shares
of capital stock of First M&F Corp. are validly issued and outstanding, fully
paid and nonassessable and all of such shares of Merchants and Farmers Bank are
owned directly or indirectly by First M&F Corp. free and clear of all liens,
claims, and encumbrances. The shares of First M&F Corp. common stock to be
issued in connection with the Bank Merger pursuant to this Agreement have been
duly authorized and, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid, and nonassessable.
7.3 Authorization. The execution, delivery and performance of this
Agreement by First M&F Corp. and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
First M&F Corp. and Merchants and Farmers Bank, subject to regulatory approval.
No other corporate proceedings on the part of First M&F Corp. are necessary to
authorize the execution and delivery of this Agreement and the performance by
First M&F Corp. of the terms hereof. This Agreement is a valid and binding
obligation of First M&F Corp. enforceable against First M&F Corp. in accordance
with its terms except as may be limited by applicable bankruptcy, insolvency,
reorganization or moratorium or other similar laws affecting creditors' rights
generally and except that the availability of equitable remedies is within the
discretion of the appropriate court and except that it is subject to approval
of applicable regulatory agencies.
7.4 No Material Adverse Change. Since June 30, 1995, there has
been no event or condition of any character (whether actual, or to the
knowledge of First M&F Corp. or Merchants and Farmers Bank, threatened or
contemplated) that has had or can reasonably be anticipated to have, or that,
if concluded or sustained adversely to First M&F Corp. would reasonably be
anticipated to have, a material adverse effect on the financial condition,
results of operations, business or prospects
<PAGE> 152
of First M&F Corp. or Merchants and Farmers Bank excluding changes in laws or
regulations that affect banking institutions generally.
7.5 Loans. To the best knowledge and belief of its management, and
management of Merchants and Farmers Bank, each loan reflected as an asset of
First M&F Corp. in the unaudited consolidated balance sheet contained in First
M&F Corp.'s quarterly report to shareholders for the period ended June 30,
1995, or acquired since that date, is the legal, valid and binding obligation
of the obligor named therein, enforceable in accordance with its terms, and no
loan is subject to any asserted defense, offset, or counterclaim known to First
M&F Corp., except as disclosed on Schedule 7.5 hereto.
7.6 Litigation. Except as disclosed on Schedule 7.6 hereto, no
litigation, proceeding or controversy before any court or governmental agency
is pending that in the opinion of its management is likely to have a material
and adverse effect on the business, results of operations or financial
condition of First M&F Corp. and its subsidiaries taken as a whole, and, to the
best of its knowledge, no such litigation, proceeding or controversy has been
threatened or is contemplated.
7.7 Contingent Liabilities. Except as disclosed on Schedule 7.7
hereto or reflected in the First M&F Corp. reports filed with the SEC and
except in the case of First M&F Corp.'s subsidiaries for unfunded loan
commitments made in the ordinary course of business consistent with past
practices, as of June 30, 1995, neither First M&F Corp. nor any of its
subsidiaries had any obligation or liability (contingent or otherwise) that was
material, or that when combined with all similar obligations or liabilities
would have been material, to First M&F Corp. and its subsidiaries taken as a
whole.
7.8 Allowances for Possible Loan Losses. The allowances for
possible loan losses shown on the balance sheet of First M&F Corp. contained in
the First M&F Corp. reports filed with the SEC as of June 30, 1995, were or
will be, as the case may be, adequate in all material respects under the
requirements of GAAP to provide for possible loan losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of the respective date of such balance sheet
and such allowance has been or will have been established in accordance with
GAAP. To the knowledge of First M&F Corp.'s and Merchants and Farmers Bank's
management, First M&F Corp. is not likely to be required to materially increase
the provision for loan losses between the date hereof and the Effective Date.
7.9 Benefit Plans. To the knowledge and belief of First M&F
Corp.'s senior management, First M&F Corp., each of its subsidiaries and all
"employee benefit plans," as defined in Section 3(3) of ERISA, that cover one
or more employees employed by First M&F Corp. or any of its subsidiaries:
a. is in compliance with all laws, regulations,
reporting and licensing requirements and orders applicable to its business or
to such plan or any of its employees (because such employee's activities on
behalf of it), the breach or violation of which could have a material and
adverse effect on such business; and
<PAGE> 153
b. has received no notification from any agency or
department of federal, state or local government or the staff thereof asserting
that any such entity is not in compliance with any of the statutes; regulations
or ordinances that such governmental authority enforces, or threatening to
revoke any license, franchise or permit or governmental authorization, and is
subject to no agreement or written understanding with any such governmental
authorities with respect to its assets or business.
First M&F Corp. covenants and agrees as follows:
7.10 Conduct of Business. First M&F Corp. agrees to operate its
business solely in the ordinary course consistent with prudent business
practices and in compliance with all applicable laws, regulations, and rules;
but nothing herein shall be construed as limiting or restricting First M&F
Corp. in its assets, liability, or capital structure or limiting any action of
First M&F Corp. or its affiliates, nor shall anything in this Agreement be
construed as limiting the future number and amount of outstanding shares of
First M&F Corp. stock pending settlement of this transaction provided, however,
there will be no dilution by First M&F Corp. of F&M shareholders of the First
M&F Corp. Common Stock to be received in the Bank Merger, through any stock
dividends, splits, warrants or options to be issued by First M&F Corp. unless
First M&F Corp. receives relative value for the same.
7.11 Due Diligence. In order to afford F&M access to such
information as it may reasonably deem necessary to perform its due diligence
review with respect to First M&F Corp. and its assets in connection with the
Merger, First M&F Corp. shall (and shall cause Merchants and Farmers Bank to),
(a) upon reasonable notice, afford F&M and its officers, employees, counsel,
accountants and other authorized representatives, during normal business hours
throughout the period prior to the Effective Date and to the extent consistent
with applicable law, access to its premises, properties, books and records, and
to furnish F&M and such representatives with such financial and operating data
and other information of any kind respecting its business and properties as F&M
shall from time to time reasonably request to perform such review, (b) furnish
F&M with copies of all reports filed by First M&F Corp. with the Securities and
Exchange Commission ("SEC") throughout the period after the date hereof prior
to the Effective Date promptly after such reports are so filed, and (c)
promptly advise F&M of the occurrence before the Effective Date of any event or
condition of any character (whether actual or to the knowledge of First M&F
Corp., threatened or contemplated) that has had or can reasonably be
anticipated to have, or that, if concluded or sustained adversely to First M&F
Corp., would reasonable be anticipated to have, a material adverse effect on
the financial condition, results of operations, business or prospects of its
consolidated group as a whole.
7.12 Registration of Stock. First M&F Corp. agrees to register the
shares to be issued to F&M stockholders pursuant to this Agreement with the
Securities and Exchange Commission.
7.13 Continuity of Business Enterprise. It is the present intention
of First M&F Corp. to continue at least one significant historic business line
of F&M, namely, financial services, and to use
<PAGE> 154
at least a significant portion of F&M's historic business assets in a business
within the meaning of Treasury Regulation Section 1.368-1(d).
ARTICLE 8
CONDITIONS TO CLOSING
The obligations of F&M, First M&F Corp. and Merchants and Farmers Bank
under this Agreement, except as otherwise provided herein, shall be subject to
the satisfaction or waiver of the following conditions on or prior to the
Closing:
8.1 Conditions to Each Party's Obligations to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject
to the following conditions:
a. Stockholder Approval. The Bank Merger shall have been
approved by the requisite vote of the holders of the outstanding shares of F&M
common stock at F&M's Stockholders' Meeting.
b. Regulatory Approvals. The transactions contemplated
by this Agreement shall have been approved by all governing regulatory
authorities, without any condition or requirement that either First M&F Corp.
or F&M deem burdensome, or which otherwise would have a material adverse effect
on the business, operations, properties, assets or financial condition of First
M&F Corp., Merchants and Farmers Bank or F&M after the Effective Date, all
conditions required to be satisfied shall have been satisfied, and all waiting
periods relating to such approvals shall have expired.
c. Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order or
any threatened stop order, and all state securities and blue sky permits or
approvals required to consummate the transactions contemplated by this
Agreement shall have been received.
d. Tax Opinion. First M&F Corp. and F&M shall have
received an opinion from Watkins Ludlam & Stennis to the effect that for
federal income tax purposes (i) the Merger will constitute a reorganization
within the meaning of Section 368 of the Internal Revenue Code, (ii) no gain or
loss will be recognized by those F&M stockholders who exchange their F&M common
stock for First M&F Corp. common stock, and (iii) cash paid to dissenting F&M
stockholders will be subject to tax.
8.2 Conditions to Obligations of F&M to Effect the Merger. The
obligations of F&M to effect the Merger shall be subject to the following
additional conditions:
a. Representations and Warranties. The representations
and warranties of First M&F Corp. set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing as though made at and as of the Closing, except as otherwise
contemplated by this Agreement or consented to in writing by F&M.
<PAGE> 155
b. Performance of Obligations. First M&F Corp. shall
have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing.
c. Legal Opinion. An opinion of First M&F Corp.'s legal
counsel shall be delivered to F&M dated the Closing Date and in form and
substance reasonably satisfactory to F&M and its counsel to the effect that:
i. First M&F Corp. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Mississippi, and has corporate authority to own and operate its businesses
and properties and to carry on its business as presently conducted by it;
ii. Merchants and Farmers Bank is a Mississippi
banking corporation, duly organized and validly existing and in good standing
under the laws of the State of Mississippi, and has corporate authority to own
and operate its businesses and properties and to carry on its business as
presently conducted by it;
iii. First M&F Corp. had and has corporate
authority to make, execute and deliver this Agreement, it has been duly
authorized and approved by all necessary corporate action of First M&F Corp.
and has been duly executed and delivered and is as of the Closing Date its
valid and binding obligation subject, however, to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights generally and to
the availability of equitable remedies in general;
iv. All required regulatory approvals have been
obtained; and
v. To such counsel's knowledge after inquiry,
there is no litigation or proceeding pending or threatened against First M&F
Corp. relating to the participation in or consummation of this Agreement by
First M&F Corp. and consummation will not violate any other contract,
agreement, charter or bylaw of First M&F Corp.
8.3 Conditions to Obligations of First M&F Corp. to Effect the
Merger. The obligations of First M&F Corp. to effect the Merger shall be
subject to the following additional conditions:
a. Representations and Warranties. The representations
and warranties of F&M set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing as
though made at and as of the Closing, except as otherwise contemplated by this
Agreement or consented to in writing by First M&F Corp.
b. Performance of Obligations. F&M shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Closing.
<PAGE> 156
c. Legal Opinion. An Opinion of F&M's legal counsel
shall be delivered to First M&F Corp. dated the Closing Date, and in form and
substance reasonably satisfactory to First M&F Corp. to the effect that:
i. F&M is a banking corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Mississippi, and has corporate authority to own and operate its businesses
and properties and to carry on its business as presently conducted by it;
ii. F&M had and has corporate authority to make,
execute and deliver this Agreement, it has been duly authorized and approved by
all necessary corporate action of F&M and has been duly executed and delivered
and is as of the Closing Date its valid and binding obligation subject,
however, to bankruptcy, insolvency and similar laws affecting the enforcement
of creditors' rights generally and to the availability of equitable remedies in
general;
iii. To such counsel's knowledge after inquiry,
there is no litigation or proceeding pending or threatened against F&M relating
to the participation in or consummation of this Agreement by F&M and
consummation will not violate any other contract, agreement, charter or bylaw
of F&M; and
iv. F&M has complied with all laws and
regulations relating to dissenters' rights and all stock in F&M will be
acquired by First M&F Corp. pursuant to the terms of this Agreement and that
the title and/or ownership interest in the shares of F&M stock are as
represented in F&M's certificates at Closing and that no known dispute exists
as to the title and/or ownership of any such shares.
ARTICLE 9
CLOSING
9.1 Closing. The Closing shall be held at the offices of Merchants
and Farmers Bank or such other place as First M&F Corp. and F&M shall mutually
designate.
9.2 Deliveries at Closing. At the Closing, all documents and
instruments shall be duly and validly executed and delivered by all the Parties
hereto, and possession of all liabilities and assets shall be transferred and
delivered accordingly.
9.3 Documents. The Parties shall execute any and all documents
reasonably requested by them or their legal counsel for the purpose of
effecting the transaction contemplated, including but not limited to the
following:
a. endorsement, negotiation, and/or assignment of all
original notes and Security Agreements relating to all loans;
b. warranty deeds for the real property;
c. commitments for owners title insurance for the real
property;
<PAGE> 157
d. such other endorsements, assignments or other
conveyances as may be appropriate or necessary to effect the transfer to First
M&F Corp. and Merchants and Farmers Bank of the assets, duties,
responsibilities and obligations as referred to herein; and
e. listing of dissenting stockholders, if any, including
name, address, and number of shares owned.
ARTICLE 10
EMPLOYMENT MATTERS
10.1 Employees. Neither First M&F Corp. nor Merchants and Farmers
Bank shall be obligated to retain in any capacity any of F&M's officers or
employees or to pay any stipulated compensation to any employees. First M&F
Corp. will make reasonable efforts to maintain compensation levels for any
retained personnel commensurate with the employees' experience and
qualifications, and in accordance with First M&F Corp. and Merchants and
Farmers Bank's salary administration program. With regard to any retained
employee, First M&F Corp. and Merchants and Farmers Bank shall be free of any
obligation to honor any past agreement of F&M to such person.
F&M's group health and life benefit plan will be continued through the
Effective Date of the Merger. Thereafter, all retained employees will be
eligible to participate in Merchants and Farmers Bank's group health and life
benefit plan based on the provisions in the plan. The ninety (90) day
employment period will be waived for eligible retained employees in accordance
with Merchants and Farmers Bank's plan. Merchants and Farmers Bank will waive
pre-existing medical conditions for health insurance purposes as to all
retained personnel.
10.2 Notices. F&M shall be responsible for notifying its employees
of the terms of this Agreement as it affects and/or relates to them and for
complying with any applicable laws regarding such notices.
ARTICLE 11
REMEDIES
For purposes of this Agreement, any reference to First M&F Corp. in
this Article 11 shall be deemed to include First M&F Corp. and Merchants and
Farmers Bank.
11.1 Parties' Joint Remedies. In the event regulatory authorities
impose requirements which do not materially alter this Agreement and which are
not otherwise burdensome or objectionable to the Parties, then the Parties
agree to amend this Agreement to conform to such regulatory requirements, and
specific performance shall be available as a remedy for this purpose.
11.2 F&M's Remedies. In the event First M&F Corp. breaches this
Agreement, then F&M shall give First M&F Corp. notice of the breach, and First
M&F Corp. shall have a reasonable amount of time to cure the breach, and First
M&F Corp. shall be liable for such economic damages
<PAGE> 158
that are the direct result of any uncured breach, but First M&F Corp. shall not
be liable for consequential or punitive damages. If First M&F Corp. breaches a
warranty, representation, covenant or agreement that does not materially affect
the entire transaction, then the amount of the damages shall be mutually agreed
upon by the Parties, and if they cannot agree as to the damage, then by an
arbitrator mutually agreeable to them, and the damage determined shall be
conclusively binding on both Parties and shall be treated as an adjustment to
the shares issued in the Conversion.
11.3 First M&F Corp.'s Remedies. In the event F&M breaches this
Agreement, then First M&F Corp. shall give F&M notice of the breach, and F&M
shall have a reasonable amount of time to cure the breach, and F&M shall be
liable for such economic damages that are the direct result of any uncured
breach, but F&M shall not be liable for consequential or punitive damages. If
F&M breaches a warranty, representation, covenant or agreement that does not
materially affect the entire transaction, then the amount of the damages shall
be mutually agreed upon by the Parties, and if they cannot agree as to the
damage, then by an arbitrator mutually agreeable to them, and the damage
determined shall be conclusively binding on both Parties and shall be treated
as an adjustment to the shares issued in the Conversion.
11.4 Attorney Fees. Each Party shall bear its own attorney fees
except attorney fees may be awarded by the presiding judge if the trier of fact
finds that the other Party has committed fraud against the other Party.
ARTICLE 12
TERMINATION
12.1 Termination. This Agreement may be terminated, either before
or after approval by the stockholders of F&M as follows:
a. Mutual Consent. At any time on or prior to the
Effective Date, by the mutual consent in writing of a majority of the members
of each of the Board of Directors of the Parties hereto;
b. Expiration of Time. By the Board of Directors of
First M&F Corp. in writing or by the Board of Directors of F&M in writing, if
the Mergers shall have not become effective on or before June 30, 1996, unless
the absence of such occurrence shall be due to the failure of the Party seeking
to terminate this Agreement to perform each of its obligations under this
Agreement required to be performed by it on or prior to the Effective Date;
c. Breach of Representation, Warranty or Covenant. By
either Party hereto, in the event of a breach by the other Party (a) of any
covenant or agreement contained herein or (b) of any representation or warranty
herein, if (i) the facts constituting such breach reflect a material and
adverse change in the financial condition, results of operations, business, or
prospects taken as a whole, of the breaching Party, which in either case cannot
be or is not cured within 60 days after written notice of such breach is given
to the Party committing such breach, or (ii) in the event of a
<PAGE> 159
breach of a warranty or covenant, such breach results in a material increase in
the cost of the non-breaching Party's performance of this Agreement.
d. Regulatory Approval. By either Party hereto, at any
time after the FRB, FDIC, or Department has denied any application for any
approval or clearance required to be obtained as a condition to the
consummation of the Merger and the time-period for all appeals or requests for
reconsideration thereof has run.
e. Shareholder Approval. By either Party hereto, if the
Bank Merger is not approved by the required vote of shareholders of F&M.
f. Dissenters. By First M&F Corp., if holders of ten
percent (10%) or more of the outstanding F&M common stock exercise statutory
rights of dissent and appraisal pursuant to Miss. Code Ann. Sections 79-4-13.01
through 79-4-13.31 (Supp. 1995).
ARTICLE 13
MISCELLANEOUS
13.1 Entire Agreement. This Agreement embodies the entire
understanding of the Parties in relation to the subject matter herein and
supersede all prior understandings or agreements, oral or written, between the
Parties hereto.
13.2 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements made herein shall survive the
Closing.
13.3 Headings. The headings and subheadings in this Agreement,
except the terms identified for definition in Article 1 and elsewhere in this
Agreement, are inserted for convenience only and shall not affect the meaning
or interpretation of this Agreement or any provision hereof.
13.4 Duplicate Originals. This Agreement may be executed in any
number of duplicate originals, any one of which when fully executed by all
Parties shall be deemed to be an original without having to account for the
other originals.
13.5 Governing Law. This Agreement and the rights and obligations
hereunder shall be governed and construed by the laws of the State of
Mississippi.
13.6 Successors: No Third Party Beneficiaries. All terms and
conditions of this Agreement shall be binding on the successors and assigns of
F&M and First M&F Corp.. Except as otherwise specifically provided in this
Agreement, nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person other than F&M and First M&F Corp. any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provisions contained herein, it being the intention of the Parties
hereto that this Agreement, the obligations and statements of responsibilities
hereunder, and all other conditions and provisions hereof are for the sole and
exclusive benefit of F&M and First M&F Corp. and for the benefit of no other
person.
<PAGE> 160
13.7 Modification; Assignment. No amendment or other modification
of any part of this Agreement shall be effective except pursuant to a written
agreement subscribed by the duly authorized representatives of all of the
Parties hereto. This Agreement may not be assigned without the express written
consent of both Parties.
13.8 Notice. Any notice, request, demand, consent, approval or
other communication to any Party hereof shall be effective when received and
shall be given in writing, and delivered in person against receipt thereof, or
sent by certified mail, postage prepaid or courier service at its address set
forth below or at such other address as it shall hereafter furnish in writing
to the others. All such notices and other communications shall be deemed given
on the date received by the addressee or its agent.
F&M
Farmers & Merchants Bank
101 City Square
Bruce, Mississippi 38915
Attn: Jon Crocker, Chairman of the Board
Copy to: ___________________________________
___________________________________
___________________________________
First M&F Corp.
First M&F Corp.
Post Office Box 520
Kosciusko, Mississippi 39090
Attn: Hugh S. Potts, Jr., Chairman
Copy to: Craig N. Landrum, Esquire
Watkins Ludlam & Stennis
P. O. Box 427
Jackson, MS 39202-0427
or
633 North State Street
Jackson, Mississippi 39205
13.9 Waiver. F&M and First M&F Corp. may waive their respective
rights, powers or privileges under this Agreement; provided that such waiver
shall be in writing; and further provided that no failure or delay on the part
of F&M or First M&F Corp. to exercise any right, power or privilege under this
Agreement will operate as a waiver thereof, nor will any single or partial
exercise of any right, power or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege by F&M or First M&F Corp. under
<PAGE> 161
the terms of this Agreement, nor will any such waiver operate or be construed
as a future waiver of such right, power or privilege under this Agreement.
13.10 Costs, Fees and Expenses. Each Party hereto agrees to pay all
costs, fees and expenses which it has incurred in connection with or incidental
to the matters contained in this Agreement, including without limitation any
fees and disbursements to its accountants and counsel. First M&F Corp. will be
responsible for preparing the applications, regulatory filings and registration
statement necessary to obtain approval of the Mergers and the issuance of the
First M&F Corp. common stock. F&M will be responsible for the cost of its
accountants and legal counsel and will bear all costs related to conducting its
stockholders' meeting and obtaining stockholders' approval of the Bank Merger.
13.11 Press Releases. F&M and First M&F Corp. shall consult with
each other as to the form and substance of any press release related to this
Agreement or the transactions contemplated hereby, and shall consult each other
as to the form and substance of other public disclosures related thereto,
provided, however, that nothing contained herein shall prohibit First M&F
Corp., following notification to F&M, from making any disclosures which its
counsel deems necessary to conform with requirements- of law or the rules of
the National Association of Securities Dealers Automated Quotation System.
13.12 Severability. If any provision of this Agreement is invalid or
unenforceable then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the Parties hereto.
13.13 Mutual Covenant of Best Efforts and Good Faith. The Parties
mutually covenant and agree with each other that they will use their best
efforts to consummate the transactions herein contemplated and that they will
act and deal with each other in good faith as to this Agreement and all matters
arising from or related to it.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
FARMERS AND MERCHANTS BANK
By: ___________________________________
Name: JON CROCKER
Attest: Title: CHAIRMAN OF THE BOARD
___________________________________
<PAGE> 162
FIRST M&F CORP.
By: ___________________________________
Name: HUGH S. POTTS, JR.
Title: CHAIRMAN OF THE BOARD
Attest:
___________________________________
MERCHANTS AND FARMERS BANK
By: ___________________________________
Name: SCOTT M. WIGGERS
Title: PRESIDENT
Attest:
___________________________________
<PAGE> 163
SCHEDULES
4.2 Statement of Representations
6.8 F & M Litigation
6.10 F & M Contingent liabilities
6.11 F & M Title to Assets and Adequate Insurance Coverage
6.17a F & M Employment Contracts
6.17b F & M Benefit Plan or Contracts
6.23 F & M Environmental Matters
7.5 First M & F Corp. Loans
7.6 First M & F Corp. Litigation
7.7 First M & F Contingent Liabilities
First M & F and F & M agree to furnish a copy of any schedule to the Securities
and Exchange Commission upon request.
<PAGE> 164
EXHIBIT A
PLAN OF REORGANIZATION AND BANK MERGER AGREEMENT
This Plan of Reorganization and Bank Merger Agreement ("Bank Merger
Agreement") is made and entered into as of August __, 1995, by and between
FARMERS AND MERCHANTS BANK, Bruce, Mississippi, a Mississippi banking
corporation ("F&M") and MERCHANTS AND FARMERS BANK, Kosciusko, Mississippi, a
Mississippi banking corporation ("Merchants and Farmers"), each corporation
acting by and through its Board of Directors, and joined in by First M&F Corp.,
Kosciusko, Mississippi, a Mississippi business corporation ("First M&F Corp.").
PREAMBLE
WHEREAS a majority of the respective Boards of Directors of F&M,
Merchants and Farmers and First M&F Corp. have approved this Plan of
Reorganization and Bank Merger Agreement (the "Agreement") together with that
certain Agreement and Plan of Reorganization (the "Agreement") of even date
herewith, the terms and conditions of which are incorporated herein by
reference thereto as if fully copied herein in words and figures, providing for
the merger of F&M into Merchants and Farmers in consideration of the issuance
of common stock of First M&F Corp.
W I T N E S S E T H:
In consideration of the premises, and the covenants contained herein
and in that certain Agreement, F&M, Merchants and Farmers and First M&F Corp.
hereby make, adopt and approve this Bank Merger Agreement and prescribe the
terms and conditions of the merger and the mode of carrying the merger into
effect, as follows:
SECTION 1. On the date and at the time (hereinafter sometimes
called the "Effective Date") agreed upon by F&M and Merchants and Farmers and
subject to the terms and conditions hereof, F&M shall be merged with and into
Merchants and Farmers under Merchants and Farmers's Articles of
<PAGE> 165
Incorporation and Charter (hereinafter called "Resulting Bank" when in
connection with events following the merger).
SECTION 2. Upon the Effective Date the Board of Directors of the
Resulting Bank shall consist of the Board of Directors of Merchants and
Farmers and one representative of F&M from the F&M Board immediately preceding
the Effective Date, the remaining members of the Board of Directors of F&M
shall constitute an Advisory Board of the Resulting Bank branch with an initial
term of three (3) years and whose number during that period of time may be
reduced only by a majority vote of such Advisory Board, the officers of the
Resulting Bank shall be the officers of Merchants and Farmers and F&M
immediately preceding the Effective Date, the By-Laws of Merchants and Farmers
shall be the By-Laws of the Resulting Bank, the main office of the Resulting
Bank shall be 221 East Washington Street, Kosciusko, Mississippi, each branch
of Merchants and Farmers and the main office of F&M and each branch of F&M
shall be branch offices of the Resulting Bank, and the resolutions, guidelines
and policies heretofore adopted by the Board of Directors of Merchants and
Farmers and in effect on the Effective Date shall continue in full force and
effect after the merger.
SECTION 3. (a) Upon the Effective Date, the corporate
existence of F&M shall be merged into Merchants and Farmers and continued in
the Resulting Bank, thereafter known as Merchants and Farmers Bank and the
Resulting Bank shall be deemed to be the same business and corporate entity as
Merchants and Farmers and F&M. All rights, franchises and interests of
Merchants and Farmers and F&M, respectively, in and to every type of property
(real, personal and mixed) and choses in action shall be deemed to be
transferred to and vested in the Resulting Bank without any deed or other
transfer, and the Resulting Bank, without any order or other action on the part
of any court or otherwise, shall hold and enjoy the same and all rights of
property, franchises and interests, including appointments, designations and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar or transfer agent of stocks and bonds, guardian,
conservator, assignee, receiver, and in every
<PAGE> 166
other fiduciary capacity, in the same manner and to the same extent as was held
or enjoyed by Merchants and Farmers and F&M, respectively, at the Effective
Date.
(b) Upon the Effective Date, the Resulting Bank
shall be liable for all liabilities of Merchants and Farmers and F&M; and all
deposits, debts, liabilities, obligations and contracts of Merchants and
Farmers and F&M, respectively, matured or unmatured, whether accrued, absolute,
contingent or otherwise, and whether or not reflected or reserved against on
balance sheets, books of account, records of Merchants and Farmers or F&M, as
the case may be, shall be those of the Resulting Bank, thereafter known as
Merchants and Farmers Bank, and shall not be released or impaired by the
merger; and all rights of creditors and other obligees and all liens or
property of either Merchants and Farmers or F&M shall be preserved unimpaired.
(c) Upon the Effective Date, each branch office
maintained by Merchants and Farmers or F&M as a branch office immediately
before the merger becomes effective, as well as the Main Office of F&M, shall
become a branch office of the Resulting Bank.
SECTION 4. Upon the Effective Date:
(a) Each common shareholder of F&M of record at the Effective Date
shall be allocated and receive forty- five (45) common shares of First M&F
Corp. in exchange for each common share of F&M which such shareholder then
holds.
(b) The common shareholders of F&M of record at the Effective Date
shall be allocated and shall receive (i) common shares of First M&F Corp.
aggregating 450,000 common shares, which is equivalent to forty-five (45) times
the number of shares of common capital stock of F&M owned by shareholders of
F&M on date hereof; and
(c) First M&F Corp. at the Effective Time shall be allocated and
shall receive 219 shares of common stock of the Resulting Bank of $5,000 par
value aggregating $1,095,000 stated capital which
<PAGE> 167
shall be equal to the amount of capital stock of Merchants and Farmers
immediately before the Effective Date.
SECTION 5. This Bank Merger Agreement shall be submitted to the
shareholders of F&M and Merchants and Farmers for ratification and confirmation
at meetings to be called and held in accordance with the applicable provisions
of law and with the respective Articles of Incorporation and By-Laws of
Merchants and Farmers and F&M. Merchants and Farmers and F&M shall proceed
expeditiously and shall cooperate fully in the procurement of any other
consents and approvals and in the taking of any other action, and the
satisfaction of all other requirements prescribed by law or otherwise,
necessary for consummation of the merger on the terms herein provided,
including, without being limited to, the preparation and submission of an
application to the Federal Deposit Insurance Corporation and the Department of
Banking and Consumer Finance.
SECTION 6. Effectuation of the merger and the obligations of
Merchants and Farmers and F&M to close the merger are subject to the following
conditions, any of which, however, may be waived to the extent permitted by law
by F&M and Merchants and Farmers:
(a) This Bank Merger Agreement and the merger contemplated hereby
shall have been ratified and confirmed by the votes of shareholders of
Merchants and Farmers and F&M as and to the extent required by law;
(b) All consents and approvals, including those of all regulatory
agencies having jurisdiction, shall have been procured, and all other
requirements prescribed by law which are necessary for consummation of the
merger shall have been satisfied; and
(c) All conditions of the parties' respective obligations under
the Agreement, the terms and conditions of which are incorporated herein by
reference thereto as if copied herein in words and figures, shall have been
satisfied, or to the extent permitted by law, waived in writing.
<PAGE> 168
SECTION 7. This Bank Merger Agreement may be executed in two or
more counterparts, each of which when executed and delivered by the parties
hereto shall be an original, but all of which together shall constitute a
single agreement.
SECTION 8. Merchants and Farmers and F&M by mutual consent of
their respective Boards of Directors, to the extent permitted by law, may amend,
modify, supplement and interpret this Bank Merger Agreement in such a manner as
may be mutually agreed upon by them in writing at any time before or after
adoption thereof by shareholders of Merchants and Farmers or F&M; provided,
however, that no such amendment, modification or supplement shall change the
amount or kind of consideration to be issued by First M&F Corp. to the
shareholders of F&M or Merchants and Farmers, except by the affirmative written
consent of F&M's or Merchants and Farmers's common shareholders.
IN WITNESS WHEREOF, First M&F Corp., Merchants and Farmers and F&M
have caused this Bank Merger Agreement to be executed in counterparts by their
respective duly authorized officers and their corporate seals to be hereunto
affixed as of the date first abovewritten, and a majority of the entire Boards
of Directors of First M&F Corp., Merchants and Farmers and F&M have hereunto
subscribed their names.
FARMERS AND MERCHANTS BANK
BY: ___________________________________
Title: Chairman and CEO
ATTEST:
By: ______________________________
Title: ___________________________
___________________________________ _______________________________________
<PAGE> 169
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
constituting a majority of the Board of Directors of Farmers and Merchants
Bank, Bruce, Mississippi.
______________________________________
BY: __________________________________
Title: Chairman and CEO
ATTEST:
By: _______________________________
Title: ____________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
constituting a majority of the Board of Directors of Merchants and Farmers
Bank, Kosciusko, Mississippi.
FIRST M&F CORP.
BY: ___________________________________
Title: CEO
<PAGE> 170
ATTEST:
By: _______________________________
Title: ____________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
constituting a majority of the Board of Directors of First M&F Corp.,
Kosciusko, Mississippi.
<PAGE> 171
EXHIBIT B
LETTER OF TRANSMITTAL
FOR COMMON STOCK OF FARMERS AND MERCHANTS BANK
BRUCE, MISSISSIPPI
(Please read carefully the Instructions on the Reverse Side of this Letter)
(Affix Label)
______________________________
Mail or Deliver Letters of Transmittal to:
Merchants and Farmers Bank
ATTN:
Post Office Box 520
Kosciusko, Mississippi 39090
______________________, 1995
(Please print date)
Dear Sir:
The undersigned hereby delivers to Merchants and Farmers Bank, as
Transfer Agent, all shares of common stock of Farmers and Merchants Bank
("F&M") owned by the undersigned, which are evidenced by the certificates
enclosed herewith, for exchange and conversion into shares of First M&F Corp.
("First M&F") common stock, pursuant to the terms of the Agreement and Plan of
Reorganization dated ________________, 1995 and adopted by F&M's stockholders
on __________________, 1995.
======================================================================
FILL IN ONLY IF DELIVERY IS TO BE MADE
TO DIFFERENT ADDRESS THAN SHOWN ON THE ABOVE LABEL
SPECIAL MAILING INSTRUCTIONS
Name:_________________________________________________
(Type or print)
Address:______________________________________________
(Number) (Street)
______________________________________________________
(City) (State) (Zip)
======================================================================
Witnessed: Signature of Stockholder(s)
___________________________________ ______________________________________
______________________________________
(Sign exactly as name appears on stock
certificate or assignment)
<PAGE> 172
INSTRUCTIONS
1. Completion and Delivery of Letter of Transmittal
This Letter of Transmittal must be filled in properly, signed and delivered or
forwarded with the certificate(s) of stock to Merchants and Farmers Bank, Attn:
_______________, Post Office Box 520, Kosciusko, Mississippi 39090. SINCE THE
RISK OF LOSS IN TRANSIT IS YOURS, THE USE OF INSURED REGISTERED MAIL IS
SUGGESTED IN TRANSMITTING YOUR CERTIFICATE(S).
2. Signing Letter of Transmittal
The stockholder's name on the Letter of Transmittal should be signed in exactly
the same manner as the name appears on the stock certificate(s). If the
certificate(s) is to be registered in a name other than that currently
appearing on the certificate(s) then the signatures on the certificate(s) must
be guaranteed by a Medallion Member. Signatures by the stockholder(s) should be
witnessed by another person, who shall sign this Letter of Transmittal. When
the Letter of Transmittal is signed by an attorney, administrator, trustee or
guardian, or anyone acting in a fiduciary capacity, or by an officer of a
corporation, the person executing the letter must give his full title in such
capacity, and proper certified evidence of authority to act in such capacity,
reasonably satisfactory to Merchants and Farmers Bank, must be forwarded with
the Letter of Transmittal. If a certificate is in the name of more than one
holder, each holder named in the certificate should sign. (This shall apply in
the event your certificate is registered in an "and", "or" or "joint tenants
with right of survivorship" capacity.) If a joint tenant has deceased, the
surviving joint tenant must submit to Merchants and Farmers Bank a certified
death certificate.
3. Lost or Destroyed Certificates
If the certificate(s) representing your shares have been either lost or
destroyed, notify Merchants and Farmers Bank of this fact promptly at its
address set forth on the reverse side hereof. In the event of lost or destroyed
certificate(s), you will be required to take the following steps prior to the
transmission and issuance of new First M&F Corp. certificates to you:
(a) The delivery of an indemnity bond in an amount equal to or
greater than the current market value of the securities, to
indemnify and hold Merchants and Farmers Bank harmless; and
(b) The presentation of evidence to First M&F Corp.'s reasonable
satisfaction that you are the owner of the shares theretofore
represented by the certificate(s) claimed by you to be lost,
wrongfully taken or destroyed and that you are the person who
would be entitled to present each such certificate for exchange
pursuant to the terms of the Agreement and Plan of
Reorganization.
4. Dividends Withheld
In accordance with Section of the Agreement and Plan of Reorganization, all
dividends and similar distributions of First M&F Corp. payable to stockholders
after _____________, 1995, may be withheld by First M&F Corp. until you have
properly surrendered your F&M share certificate(s) for conversion into shares
of First M&F Corp.
5. Delivery of New Certificates
Upon receipt of the properly executed Letter of Transmittal and related stock
certificate(s), Merchants and Farmers Bank will mail to the address indicated
hereon, new stock certificate(s) of First M&F Corp. within five (5) business
days of such receipt.
6. Questions or Clarifications
Any questions regarding the completion of the Letter of Transmittal should be
directed to __________ at (601) 289-5121.
<PAGE> 173
EXHIBIT C
FORM OF AFFILIATE AGREEMENT
_______________________, 1994
First M&F Corp.
P. O. Box 520
Kosciusko, Mississippi 39090
Gentlemen:
I, the undersigned director, executive officer or significant
stockholder of Farmers and Merchants Bank, Bruce, Mississippi ("F&M"),
acknowledge and understand that, as an affiliate of F&M, Rule 145 promulgated
under the Securities Act of 1933, as amended (the "Act"), restricts my ability
to sell, pledge, transfer or otherwise dispose of the shares of First M&F Corp.
("First M&F Corp.") common stock to be issued to me in the Agreement and Plan
of Reorganization ("Merger") between First M&F Corp. and F&M, unless the
requirements of Rule 145(d) are satisfied or the sale, pledge, transfer or
disposition is otherwise in compliance with the Act.
Accordingly, I represent and agree that:
1. I will not sell, pledge, transfer or otherwise dispose of any
shares of First M&F Corp. common stock received in the Merger
during the period beginning on the effective date of the Merger
and ending 30 days following First M&F Corp.'s publication
(within the meaning of Section 201.01 of the Securities and
Exchange Commission's Codification of Financial Reporting
Policies) of the results of combined operations of First M&F
Corp. and F&M;
2. I will not sell, pledge, transfer or otherwise dispose of said
securities unless in accordance with the provisions of
paragraphs (c), (e), (f) and (g) of Rule 144 under the Act or
otherwise in compliance with the Act;
3. I have no plan or intention to sell, pledge, transfer or
otherwise dispose of a number of said securities to be received
in the Merger that would reduce F&M stockholders' ownership of
the First M&F Corp. common stock to a number of shares having a
value, as of the date of the Merger, of less than 50% of the
value of all of the formerly outstanding F&M common stock as of
the same date.
4. I understand that the certificates for shares of First M&F
Corp. received pursuant to the Merger will bear a restrictive
legend, to the effect that the shares were received in a
transaction to which Rule 145 applies, as follows:
"The shares represented by this certificate have been
issued or transferred to the registered holder as a
result of a transaction to which Rule 145 under the
Securities Act of 1933, as amended (the "Act"), applies.
The shares represented by this certificate may not be
sold, transferred, pledged or assigned, and the issuer
shall not be required to give effect to any attempted
sale, transfer, pledge or assignment, except in
accordance with the requirements of the Act and the other
conditions specified in that certain Affiliates Agreement
dated as of _______________, 1995 between the issuer and
the shareholder, a copy of which Agreement will be
furnished, without charge, by First M&F Corp. to the
holder of this certificate upon written request
therefor."
5. I agree to be bound by the terms of this letter until the
expiration of the time period set forth in Rule 145(d)(2) or
(3), whichever may apply.
<PAGE> 174
Sincerely,
___________________________________
Title: ____________________________
Accepted and agreed to:
FIRST M&F CORP.
By: ______________________________
Title: ___________________________
<PAGE> 175
EXHIBIT B
ARTICLE 13
DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
79-4-13.01 DEFINITIONS--ln this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 79-4-13.02 and who exercises that right when and
in the manner required by Sections 79-4-13.20 through 79-4-13.28.
(3) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
79-4-13.02 RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
79-4-11.03 or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under Section 79-4-11.04;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale;
<PAGE> 176
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fraction share so created is to be acquired for cash
under Section 79-4-6.04; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) Nothing in subsection (a)(4) shall entitle a shareholder of a
corporation to dissent and obtain payment for his shares as a result of an
amendment of the articles of incorporation exclusively for the purpose of
either (i) making such corporation subject to application of the Mississippi
Control Share Act, or (ii) making such act inapplicable to a control share
acquisition of such corporation.
(c) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
79-4-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
SUBARTICLE B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
79-4-13.20 NOTICE OF DISSENTERS' RIGHTS. --(a) If proposed corporate
action creating dissenters' rights under Section 79-4-13.02 is submitted to a
vote at a shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
<PAGE> 177
(b) If corporate action creating dissenters' rights under Section
79-4-13.02 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in Section
79-4-13.22.
79-4-13.21 NOTICE OF INTENT TO DEMAND PAYMENT.-- (a) If proposed
corporate action creating dissenters' rights under Section 79-4-13.02 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (1) must deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated, and (2) must not vote his shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirement of subsection
(a) is not entitled to payment for his shares under this article.
79-4-13.22 DISSENTERS' NOTICE.--(a) If proposed corporate action
creating dissenters' rights under Section 79- 4-13.02 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Section
79-4-13.21.
(b) The dissenters' notice must be sent no later than ten (10) days
after the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more that sixty (60)
days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
79-4-13.23 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a
dissenters' notice described in Section 79-4-13.22 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenter's notice pursuant to Section 79-13.22(b)(3),
and deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his shares under
subsection (a) retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required. each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
79-4-13.24 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertified shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under Section 79-4-13.26.
<PAGE> 178
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
79-4-13.25 PAYMENT.--(a) Except as provided in Section 79-4-13.27, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with Section 79-
4-13.23 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under
Section 79-4-13.28; and
(5) A copy of this article.
79-4-13.26 FAILURE TO TAKE ACTION.--(a) If the corporation does not
take the proposed action within sixty (60) days after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 79-4-13.22 and repeat the payment demand
procedure.
79-4-13.27 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to
withhold payment required by Section 79- 4-13.25 from a dissenter unless he was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated and
a statement of the dissenter's right to demand payment under Section
79-4-13.28.
79-4-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 79-4-13.25), or reject
the corporation's offer under Section 79- 4-13.27 and demand payment of the
fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section
79-4-13.25 or offered under Section 79-4-13.27 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 79-4-13.25
within sixty (60) days after the date set for demanding payment; or
<PAGE> 179
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection
(a) within thirty (30) days after the corporation made or offered payment for
his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
79-4-13.30 COURT ACTION.--(a) If a demand for payment under Section
79-4-13.28 remains unsettled, the corporation shall commence a proceeding
within sixty (60) days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the 60-day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the chancery
court of the county where a corporation's principal office (or, if none in this
state, its registered office) is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 79-4-13.27.
79-4-13.31 COURT COSTS AND COUNSEL FEES.--(a) The court in an
appraisal proceeding commenced under Section 79- 4-13.30 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment under Section 79-4-13.28.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 79-4-13.20 through 79-4-13.28; or
<PAGE> 180
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
<PAGE> 181
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
First M&F's Articles provide for indemnification to the fullest extent
allowed by law. The Articles of First M&F provide in Article Eleven certain
provisions regarding the extent to which First M&F will provide indemnification
of and advancement of expenses to its Directors, officers, employees and agents
as well as persons serving at the request of First M&F as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust
employee benefit plan or other enterprise (collectively referred to as
"Eligible Persons").
First M&F's Bylaws currently contain a provision requiring First M&F
to indemnify any Director, officer, employee or agent who is made a party or
threatened to be made a party to any threatened, pending or completed claim,
action, suit or proceeding, other than an action by or in the right of First
M&F, by reason of the fact that such person is or was a Director, officer,
employee or agent of First M&F, or is or was serving at the request of First
M&F as a Director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against reasonably
incurred expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, but only if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of First
M&F, and, in criminal actions, he had no reasonable cause to believe his
conduct was unlawful.
Unless limited by its Articles of Incorporation the Mississippi BCA
mandates that First M&F indemnify any Director who is successful, on the
merits or otherwise, in the defense of any proceeding to which he was a party,
against reasonable expenses incurred by him in connection with the proceeding
(the "Mandatory Provision"). The Mississippi BCA permits First M&F to
indemnify a Director who is made a party to a proceeding against liability
(including reasonable expenses) incurred in connection with such proceeding
provided (1) the Director's conduct was in good faith, (2) in the case of
conduct in his official capacity, the Director reasonably believed his conduct
was in the best interests of First M&F , (3) in the case of conduct not in his
official capacity, the Director reasonably believed his conduct was not opposed
to the best interests of First M&F, (4) in the case of any criminal proceeding,
the Director had no reasonable cause to believe that his conduct was unlawful,
(5) in the case of claims by or in the right of First M&F, the Director is not
adjudged liable to First M&F, and (6) in the case of third-party claims, the
Director is not adjudged liable on the basis that he derived an improper
personal benefit (the "Permissive Provision"). Statutory indemnification is
permitted under the Permissive Provision, however, only if indemnification is
authorized in a specific case after a determination is made by the Board of
Directors (by majority vote of a quorum consisting of directors not at the time
parties to the proceeding), by a majority of a special committee of
disinterested directors (if such quorum of directors is unobtainable), by
special legal counsel or by the shareholders (a "Disinterested Party"), that
the director has met the applicable standard of conduct. The Mississippi BCA
also provides that unless First M&F's Articles of Incorporation provide
otherwise, a court may order indemnification of a director even if it finds he
has not met the applicable standard of conduct, or in the case of third-party
claims, involving action where the director acted within or without of his
official capacity, the director is adjudged liable on the basis that he derived
an improper personal benefit, the director was adjudged liable to First M&F in
a proceeding by or in the right of First M&F, if the court determines that the
director is reasonably entitled to indemnification in view of all the relevant
circumstances; provide, however, that if the director was adjudged liable to
First M&F, his indemnification is limited to reasonable expenses. The
Mississippi BCA permits First M&F to pay for or reimburse the reasonable
expenses incurred by a director in advance of final disposition of the
proceeding, provided the director affirms that he reasonably believes he has
met the applicable standard of conduct, the director agrees to repay the
advance if it is ultimately determined that he did not meet the standard of
conduct, and a determination is made by a Disinterested Party that the facts
then known to the person(s) making the determination would not preclude
indemnification. The Mississippi BCA also permits First M&F to indemnify
officers, employees and agents of First M&F to the same extent permitted for
directors. Finally, the Mississippi BCA allows indemnification beyond the
scope of the Amended and Restated Mandatory and Permissive Provisions.
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<PAGE> 182
Article Eleven of First M&F's Articles of Incorporation does not limit
the applicability of the indemnification provisions contained in the
Mississippi BCA and, as permitted by the Mississippi BCA, requires First M&F to
indemnify Eligible Persons beyond the scope of such provisions. First M&F must
indemnify an Eligible Person, despite the fact that such person has not met the
standard of conduct set forth in the Permissive Provision or would be
disqualified for indemnification under the Permissive Provision because such
person was either found liable to First M&F in a suit brought by or in the
right of First M&F or was found liable in a third-party action on the basis
that he received an improper personal benefit, if a determination is made by a
Disinterested Party, or a court, that the act or omissions of the person
seeking indemnification did not constitute gross negligence or willful
misconduct. Article Eleven also provides for mandatory advancement of
reasonable expenses to a person seeking indemnification, without an affirmation
by such person that he believes he has met the applicable standard of conduct,
as long as he agrees to repay the advance if it is ultimately determined that
he has not met the standard of conduct and a Disinterested Party determines
that the facts then known to such Disinterest Party would not preclude
indemnification.
Article Eleven further provides that no amendment or repeal of its
provisions maybe applied retroactively with respect to any event that occurred
prior to such amendment or appeal. The effect of such provision is that the
protection of Article Eleven may not be taken away or diminished by an
amendment in the event of a change in control of First M&F.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any such action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are furnished (or incorporated by reference) as
a part of this Registration Statement:
Exhibit Number Description
-------------- -----------
2** Agreement and Plan of Reorganization dated as of
September 1, 1995, included as Exhibit A to the Proxy
Statement/Prospectus contained herein.
3(A) Articles of Incorporation of First M&F, as amended (*)
3(B) Bylaws of First M&F (*)
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.
5** Opinion of Watkins Ludlam & Stennis regarding
legality of common stock registered hereby.
8** Form of Opinion of Watkins Ludlam & Stennis regarding
tax matters.
II-2
<PAGE> 183
10 Master Repurchase Agreement dated as of June 30,
1993, between Merchants and Farmers Bank and
Mississippi State University (**)
11 Statement regarding computation of per share earnings.
Computation can be readily determined from the
consolidated financial statements, including note
1.
21 Subsidiaries of the Registrant (*)
23(A)** Consent of Shearer Taylor & Co., P.A., independent
public accountants.
23(B)** Consent of Watkins, Ward and Stafford independent
public accountants.
23(C)** Consent of Watkins Ludlam & Stennis is contained in
their opinion filed as Exhibit 5 to this Registration
Statement.
24** Power of attorney included as part of signature page.
99 Revised Form of Proxy.
** Previously filed.
(*) These documents were filed as Exhibits 3(a), 3(b), 10 and 21, 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.
(**) This document was filed as Exhibit 10 on Amendment No. 3 to Form S-1 (File
No. 33-86288) filed with the Commission on February 9, 1995, and is hereby
specifically incorporated by reference herein.
(b) Financial Statement Schedules
No Financial Statement Schedules are required to be filed.
(c) Report, Opinion or Appraisal.
Not applicable.
ITEM 22. UNDERTAKINGS
(1) The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and issued in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt
II-3
<PAGE> 184
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(4) The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First M&F
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Kosciusko, State of Mississippi on this the 8th day of November, 1995.
FIRST M&F CORPORATION
Registrant
BY: Hugh S. Potts, Jr.*
-----------------------------------
Hugh S. Potts, Jr.
Chairman of the Board and Chief Executive Officer
Date: November 8, 1995
-----------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
By: Hugh S. Potts, Jr. * Chairman of the Board and 11/08/95
----------------------------------- Director (Principal
Hugh S. Potts, Jr. Executive Officer)
By: /s/ Scott M. Wiggers President, Treasurer and 11/08/95
----------------------------------- Director (Principal Financial
Scott M. Wiggers and Accounting Officer)
By: Fred A. Bell * Director 11/08/95
-----------------------------------
Fred A. Bell
By: Charles T. England * Director 11/08/95
-----------------------------------
Charles T. England
</TABLE>
II-5
<PAGE> 186
<TABLE>
<S> <C> <C> <C>
By: Director
-----------------------------------
Toxey Hall, III
By: Director
-----------------------------------
Barbara K. Hammond
By: J. Marlin Ivey * Director 11/08/95
-----------------------------------
J. Marlin Ivey
By: Joseph M. Ivey * Director 11/08/95
-----------------------------------
Joseph M. Ivey
By: Director
-----------------------------------
R. Dale McBride
By: Director
-----------------------------------
Susan P. McCaffery
By: William M. Myers, DDS * Director 11/08/95
-----------------------------------
William M. Myers, DDS
By: Director
-----------------------------------
Otho E. Pettit, Jr.
By: Director
-----------------------------------
Charles W. Ritter, Jr.
By: W. C. Shoemaker * Director 11/08/95
-----------------------------------
W. C. Shoemaker
By: Edward G. Woodard * Director 11/08/95
-----------------------------------
Edward G. Woodard
* By: /s/ Scott M. Wiggers
-----------------------------------
Scott M. Wiggers
Attorney-in-fact
</TABLE>
II-6
<PAGE> 187
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
2** Agreement and Plan of Reorganization dated as of
September 1, 1995, included as Exhibit A to the Proxy
Statement/Prospectus contained herein.
3(A) Articles of Incorporation of First M&F, as amended (*)
3(B) Bylaws of First M&F (*)
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.
5** Opinion of Watkins Ludlam & Stennis regarding
legality of common stock registered hereby.
8** Form of Opinion of Watkins Ludlam & Stennis regarding
tax matters.
10 Master Repurchase Agreement dated as of June 30,
1993, between Merchants and Farmers Bank and
Mississippi State University (**)
11 Statement regarding computation of per share earnings.
Computation can be readily determined from the
consolidated financial statements, including note
1.
21 Subsidiaries of the Registrant (*)
23(A)** Consent of Shearer Taylor & Co., P.A., independent
public accountants.
23(B)** Consent of Watkins, Ward and Stafford independent
public accountants.
23(C)** Consent of Watkins Ludlam & Stennis is contained in
their opinion filed as Exhibit 5 to this Registration
Statement.
24** Power of attorney included as part of signature page.
99 Revised Form of Proxy.
** Previously filed.
(*) These documents were filed as Exhibits 3(a), 3(b), 10 and 21, 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.
(**) This document was filed as Exhibit 10 on Amendment No. 3 to Form S-1 (File
No. 33-86288) filed with the Commission on February 9, 1995, and is hereby
specifically incorporated by reference herein.
II-7
<PAGE> 1
EXHIBIT 99
FARMERS AND MERCHANTS BANK
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE FARMERS AND MERCHANTS BANK
The undersigned shareholder of FARMERS AND MERCHANTS BANK ("F&M"), a
Mississippi banking corporation, hereby appoints Jon A. Crocker and Collins
Edwards, and each of them, proxies with power of substitution to vote and act
for the undersigned, as designated below, with respect to the number of shares
of F&M Common Stock the undersigned would be entitled to vote if personally
present at the Special Meeting of Shareholders of F&M, which will be held at
101 City Square, Bruce, Mississippi 38915, on December 12, 1995, at 5:15 p.m.
(the "Special Meeting"), and at any adjournments or postponements thereof, and,
at their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE DULY EXECUTED PROXY
IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF
THE BOARD OF DIRECTORS OF F&M.
The Board of Directors of F&M recommends that you vote FOR approval of
the Agreement and Plan of Reorganization dated as of September 1, 1995, among
F&M, First M & F Corporation and Merchants and Farmers Bank, and the related
Bank Merger Agreement.
PLEASE SIGN BELOW AND RETURN PROMPTLY
PLEASE MARK YOUR CHOICE LIKE
THIS [x] IN BLUE OR BLACK INK
Item: Approval of the Agreement and Plan of Merger dated as of
September 1, 1995, among F&M, First M & F Corporation and
Merchants and Farmers Bank, and the related Bank Merger
Agreement.
For Against Abstain
[ ] [ ] [ ]
The undersigned hereby acknowledges receipt of a copy of the
accompanying Notice of Special Meeting of Shareholders and Proxy
Statement/Prospectus and hereby revokes any proxy or proxies heretofore given.
Date ____________________________
Signature _______________________
Please mark, date and sign as your account name appears and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian or
in a similar capacity, you should so indicate when signing. If the person
signing is a corporation, partnership or other entity, please sign the full
name of the corporation, partnership or other entity by a duly authorized
officer, partner or other person. If the shares are held jointly, each
shareholder named should sign.
