<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-09424
FIRST M & F CORPORATION
(exact name of Registrant as specified in its charter)
MISSISSIPPI 64-0636653
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
221 East Washington Street, Kosciusko, Mississippi 39090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 289-5121
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act if
1934 during the preceding 12 months (or for such shorted period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES (X) NO ( )
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 15, 1996
Common stock ($5.00 par value) 3,390,900 Shares
Based on bid price for shares on February 15, 1996, the aggregate market value
of the voting stock held by nonaffiliates of the Registrant was $55,146,344
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference to Part I,
II, and III of the Form 10-K report: (1) Registrant's 1995 Annual Report to
Shareholders (Parts I and II), and (2) Proxy Statement dated March 21, 1996
for Registrant's Annual Meeting of Shareholders to be held April 10, 1996
(Part III).
1 of 25
<PAGE> 2
FIRST M & F CORPORATION
FORM 10-K
INDEX
<TABLE>
<S> <C> <C>
PART I
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Part II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
Part III
Item 10. Directors and Executive Officers of the
Registrant 14-15
Item 11. Executive Compensation 16-17
Item 12. Security Ownership of Certain Beneficial
Owners and Management 18-20
Item 13. Certain Relationships and Related Transactions 21
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 22
SIGNATURES 23-24
EXHIBIT INDEX 25
</TABLE>
2
<PAGE> 3
FIRST M & F CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
First M & F Corporation (Company) is a one-bank holding company
chartered and organized under Mississippi laws in 1979. The company engages
exclusively in the banking business through its wholly-owned subsidiary,
Merchants and Farmers Bank of Kosciusko (The Bank).
The Bank was chartered and organized under the laws of the State of
Mississippi in 1890, and accounts for substantially all of the total assets and
revenues of the Company. The Bank is the ninth largest bank in the state,
having total assets of approximately $504 million at December 31, 1995. The
Bank offers a complete range of commercial and consumer services through its
main office and two branches in Kosciusko and its branches in fourteen other
markets within central Mississippi. These markets include Ackerman, Bruce,
Brandon, Canton, Durant, Lena, Madison, Oxford, Pearl, Philidelphia, Puckett,
Ridgeland, Starkville, Grenada and Weir, Mississippi.
The Bank has three wholly-owned subsidiary operations, M & F Financial
Services, Inc., which operates four finance company operations; First M & F
Insurance Company, Inc., a credit life insurance company; and, Merchants and
Farmers Bank Securities Corporation, a real estate property management company.
The Company's primary means of growth over the past several years has
been an aggressive lending program funded by exceptional deposit growth.
Additionally, the Company acquired the deposits of several locations from the
Resolution Trust Corporation in 1994. Effective with the close of business on
December 31, 1995, the Company also merged with Farmers and Merchants Bank of
Bruce, Mississippi. This merger involved the exchange of 450,000 shares of the
Company's common stock for all of the issued and outstanding shares of Farmers
and Merchant's Bank and has been accounted for as a pooling of interests.
Farmers and Merchants had total assets at December 31, 1995 of $32 million.
The banking system offers a variety of deposit, investment and credit
products to customers. The Bank provides these services to middle market and
professional businesses, ranging from payroll checking, business checking,
corporate savings and secured and unsecured lines of credit. Additional
services include direct deposit payroll, sweep accounts and letters of credit.
The Bank also offers credit card services to its customers, to include check
debit cards and automated teller machine cards through several networks. Trust
services are also offered in the Kosciusko main office.
As of January 31, 1996, the Company and its subsidiary employed 243
full-time equivalent employees.
COMPETITION
The Company competes generally with other banking institutions, savings
associations, credit unions, mortgage banking firms, consumer finance
companies, mutual funds, insurance companies, securities brokerage firms, and
other finance related institutions, many of which have greater resources than
those available to the Company. The competition is primarily related to areas
of interest rates, the availability and quality of services and products, and
the pricing of those services and products.
3
<PAGE> 4
SUPERVISION AND REGULATION
The Company is a registered bank holding company under the Bank Holding
Act of 1956, as amended. As such, the Company is required to file an annual
report and such other information as the Board of Governors of the Federal
Reserve System may require. The Bank Holding Company Act generally prohibits
the Company from engaging in activities other than banking or managing or
controlling banks or other permissible subsidiaries or from acquiring or
obtaining direct or indirect control of any company engaged in activities not
closely related to banking. The Board of Governors has by regulation determined
that a number of activities are closely related to banking within the meaning
of the Act. In addition, the Company is subject to regulation by the State of
Mississippi under its laws of incorporation.
The Bank is subject to various requirements of federal and state
banking authorities including the Federal Deposit Insurance Corporation (FDIC)
and the Mississippi Department of Banking. Areas subject to regulation include
loans, reserves, investments, establishment of branches, loans to directors,
executive officers and their related interests, relationships with
correspondent banks, consumer and depositor protection, and others. In
addition, state banks such as the Bank are subject to state approval of the
amount of earnings that may be paid as dividends to shareholders.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA) was inacted. This Act substantially revised the funding
provisions of the Federal Deposit Insurance Act and required regulators to take
prompt corrective action whenever financial institutions failed to meet minimum
capital requirements. Also the Act created restrictions on capital
distributions that would leave a depository institution undercapitalized.
In May 1993, the FDIC adopted the final rule implementing Section 112
of FDICIA. This regulation and new requirements mandated new audit and
reporting procedures, as well as required certain documentation on existing
internal controls. This regulation became effective for fiscal years ending
after December 31, 1992.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant including their positions with
the Registrant, their ages and their principal occupations for the last five
years are as follows:
Hugh S. Potts, Jr., 50, Director, Chairman of the Board and Chief
Executive Officer, First M & F Corporation and Merchants and Farmers
Bank, since 1994. Vice Chairman, First M & F Corporation, prior to 1994.
Scott M. Wiggers, 51, Director, President, First M & F Corporation and
Merchants and Farmers Bank of Kosciusko, since 1990.
STATISTICAL DISCLOSURES
The statistical disclosures for the Company are contained in Tables 1
through 12.
4
<PAGE> 5
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES
TABLE 1 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
The table below shows the average balances for all assets and liabilities for
the Company at each year-end for the past three years, the interest income or
expense associated with these assets and liabilities and the computed yield or
rates for each.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average assets
Federal funds sold $9,846 $596 6.05% $6,813 $279 4.10% $8,917 $262 2.94%
Loans, net 275,422 27,347 9.93% 230,693 20,960 9.09% 193,943 17,660 9.11%
Bank balances 2,790 165 5.91% 2,376 82 3.45% 3,753 116 3.09%
Taxable securities 121,291 7,300 6.02% 122,003 6,983 5.72% 131,897 7,997 6.06%
Tax-exempt securities 40,472 3,221 7.96% 37,191 3,009 8.09% 32,210 2,814 8.74%
-----------------------------------------------------------------------------------------
Total interest earning 449,821 38,629 8.59% 399,076 31,313 7.85% 370,720 28,849 7.78%
Noninterest assets 30,800 30,774 28,271
-----------------------------------------------------------------------------------------
Total average assets $480,621 $38,629 8.04% $ 429,850 $31,313 7.28% $398,991 $28,849 7.23%
=========================================================================================
Liabilities and capital
DDA and savings $144,970 $4,578 3.16% $144,942 $3,772 2.60% $154,038 $4,164 2.70%
Time deposits 191,290 10,186 5.32% 160,288 6,985 4.36% 146,739 6,169 4.20%
Short-term funds 45,850 2,551 5.56% 36,213 1,448 4.00% 22,420 688 3.07%
FHLB advances 3,482 195 5.60% 4,868 259 5.32% 1,810 106 5.86%
-----------------------------------------------------------------------------------------
Total interest bearing 385,592 17,510 4.54% 346,311 12,464 3.60% 325,007 11,127 3.42%
Noninterest bearing
and capital 95,029 83,539 73,984
-----------------------------------------------------------------------------------------
Total average
Liabilities and
capital $480,621 $17,510 3.64% $ 429,850 $12,464 2.90% $398,991 $11,127 2.79%
========================================================================================
Net interest margin $21,119 4.69% $18,849 4.72% $17,722 4.78%
Less tax equiv adj
Investments 1,095 1,023 957
Loans 80 81 70
-----------------------------------------------------------------------------------------
Net interest margin
Per annual report $19,944 $17,745 $16,695
=========================================================================================
</TABLE>
Nonaccruing loans have been included in the average loan balances and interest
collected prior to these laons being placed on nonaccrual has been included in
interest income. Yield and rates have been calculated on a fully tax
equivalent basis using a tax rate of 34% for all years. All years have been
restated for the acquisition of Farmers and Merchants Bank of Bruce at December
31, 1995.
5
<PAGE> 6
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS
The Volume and Yield/Rate Table shown below reflects the change from year to
year for each component of the tax equivalent net interest margin classified
into those occurring as a result of changes in volume and those resulting from
yield/rate changes.
(Tax Equivalent Basis - $ in thousands)
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
-------------------------------------------------------------
YIELD/ YIELD/
-------------------------------------------------------------
VOLUME RATE NET VOLUME RATE NET
-------------------------------------------------------------
<S> <C>
Interest earned on:
Fed funds sold $124 $193 $317 ($62) $79 $17
Loans, net 4,064 2,323 $6,387 3,346 (46) $3,300
Bank balances 15 70 $85 (42) 8 ($34)
Taxable securities (41) 358 $317 (600) (414) ($1,014)
Tax-exempt securities 265 (53) $212 435 (241) $194
------------------------------------------------------------
Total interest-earning assets 4,427 2,891 $7,318 3,077 (614) $2,463
Interest paid on:
Demand deposits and savings 2 806 $808 (246) (146) ($392)
Time deposits 1,351 1,850 $3,201 570 246 $816
Short-term funds 385 718 $1,103 423 336 $759
FHLB advances (74) 10 ($64) 0 153 $153
-------------------------------------------------------------
Total interest-bearing liabilities 1,664 3,384 $5,048 747 589 $1,336
------------------------------------------------------------
Change in net income on a
tax equivalent basis $2,763 ($493) $2,270 $2,330 ($1,203) $1,127
============================================================
</TABLE>
Tax-exempt income has been adjusted to a tax equivalent basis using a tax rate
of 34%. The balances of nonaccrual loans and related income recognized have
been included for purposes of these computations.
6
<PAGE> 7
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 3 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
The table below indicates amortized cost or carrying value of securities
available for sale and those held to maturity by type at year-end for each of
the last three years ($ in thousands).
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994 1993
---- ---- ----
<S> <C>
Securities available for sale
- -----------------------------
U.S. Treasury $38,440 $25,991
Government agencies $39,028 $12,455
Obligations of states and political subdivisions 24,331 14,551
Other securities 26,391 21,202
---------------------------
Total securities available for sale $128,190 $74,199
===========================
December 31,
---------------------------
1995 1994 1993
---- ---- ----
Securities held to maturity
- ---------------------------
U.S. Treasury $1,051 $13,010 $42,125
Government agencies $14,152 $12,268 $23,780
Obligations of states and political subdivisions 18,321 27,402 34,898
Other securities 19,290 26,352 50,972
---------------------------
Total securities held to maturity $52,814 $79,032 $151,775
===========================
</TABLE>
TABLE 4 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
SECURITIES HELD TO MATURITY
The following table details the maturities and weighted average yield for each
range of maturities of securities December 31, 1995
(tax equivalent yield - $ in thousands).
<TABLE>
<CAPTION>
After One After Five
But Within But Within After
One Year Yield Five Years Yield Ten Years Yield Ten Years Yield
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale
- -----------------------------
U.S. Treasury $21,573 5.42% $16,867 5.54%
Government agencies 16,544 5.75% 22,484 6.00%
Obligations of states and
political subsdivisions 6,161 7.84% 11,421 7.01% 5,751 8.88% 998 9.12%
Other securities 5,055 6.66% 18,266 6.28% 1,067 9.30% 2,003 6.75%
---------------------------------------------------------------------------------
Total $49,333 5.95% $69,038 6.14% $6,818 8.91% $3,001 7.43%
=================================================================================
Securities held to maturity
- -----------------------------
U.S. Treasury $1,051 6.08%
Government agencies $1,803 7.60% 12,349 6.78%
Obligations of states and
political subdivisions 528 8.53% 8,911 6.73% 6,337 7.59% 2,545 8.46%
Other securities 2,909 5.57% 12,409 5.79% 2,467 6.29% 1,505 6.68%
---------------------------------------------------------------------------------
Total $5,240 6.23% $34,720 6.13% $8,804 7.27% $4,050 7.60%
=================================================================================
</TABLE>
At December 31, 1995 the Company did not hold any securities of any issuer with
a carrying value exceeding ten percent of total stockholders' equity.
7
<PAGE> 8
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO
The table below shows the carrying value of the loan portfolio at the end of
each of the last five years ($ in thousands).
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $94,906 $89,316 $75,685 $69,069 $63,396
Real estate-construction 27,194 18,749 8,328 5,996 5,472
Real estate-mortgage 85,497 77,568 67,092 56,246 49,337
Consumer loans 84,134 76,174 56,950 45,078 44,106
Lease financing 271 247 492 571 191
--------------------------------------------------
$292,002 $262,054 $208,547 $176,960 $162,502
==================================================
</TABLE>
TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The table below shows the amounts of loans in several categories at December
31, 1995, along with the scheduled repayments of principal in the periods
indicated ($ in thousands).
<TABLE>
<CAPTION>
Maturing
------------------------------------------
One Year
Within Through After
One Year Five Five
Or Less Years Years Total
------------------------------------------
<S> <C> <C> <C> <C>
Commercial and real estate $114,871 $64,792 $20,126 $199,789
Installment loans to individuals 32,312 55,877 4,024 $92,213
------------------------------------------
$147,183 $120,669 $24,150 $292,002
==========================================
</TABLE>
The following table shows all loans due after one year according to their
sensitivity to changes in interest rates ($ in thousands)
<TABLE>
<CAPTION>
Maturing
-------------------------------
One Year
Through After
Five Five
Years Years Total
-------------------------------
<S> <C> <C> <C>
Above loans due after one year which have:
Predetermined interest rates $120,517 $24,150 $144,667
Floating interest rates 152 0 152
--------------------------------
Total $120,669 $24,150 $144,819
================================
</TABLE>
8
<PAGE> 9
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS
The table below shows the Company's nonperforming assets and past due loans at
the end of each of the last five years ($ In thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $84 $253 $519 $730 $809
Restructured loans 0 0 0 0 0
----------------------------------------------
Total nonperforming loans 84 253 519 730 809
Other real estate owned 148 869 1,061 1,076 3,006
---------------------------------------------
Total nonperforming assets 232 1,122 1,580 1,806 3,815
Accruing loans past due 90 days or more 707 394 788 482 459
----------------------------------------------
Total nonperforming assets and loans $939 $1,516 $2,368 $2,288 $4,274
==============================================
</TABLE>
Interest which would have been accrued on nonaccrual loans had they been in
compliance with their original terms and conditions is immaterial.
At December 31, 1995, the Company did not have any concentration of loans
greater than ten percent of total loans except those shown in Table 5.
It is the Company's policy that interest not be accrued on any loan for which
payment in full of interest and principal is not expected, on any loan which is
seriously delinquent unless the obligation is both well secured and in the
process of collection, or on any loan that is maintained on a cash basis. At
December 31, 1995, the Company has no loans about which Management has serious
doubts as to their collectibility other than those disclosed above.
9
<PAGE> 10
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes the Company's loan loss experience for each of the
last five years ($ in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1994 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amount of loan loss reserve at beginning of period $3,374 $2,866 $2,451 $2,131 $2,120
Loans charged off
Commercial, financial and agricultural (117) (22) (95) (205) (98)
Real estate (53) (124) (391) (572) (776)
Consumer (707) (478) (458) (421) (730)
-----------------------------------------------------
Total (877) (624) (944) (1,198) (1,604)
Recoveries
Commercial, financial and agricultural 14 12 31 38 112
Real estate 106 40 44 33 46
Consumer 124 198 214 173 138
-----------------------------------------------------
Total 244 250 289 244 296
Net charge offs (633) (374) (655) (954) (1,308)
Provision for loan losses charged to expense 1,509 882 1,070 1,274 1,319
-----------------------------------------------------
Amount of loan loss reserve at end of period $4,250 $3,374 $2,866 $2,451 $2,131
=====================================================
</TABLE>
The allowance for loan losses is established through a provision charged to
expense. Loans are charged against the allowance when Management believes that
the collection of the principal is unlikely.
The allowance for loan losses is maintained at a level which Management and the
Board of Directors believe to be adequate to absorb estimated losses inherent
in the loan portfolio, and is reviewed quarterly using specific criteria
required by regulatory authority as well as various analytical devices which
incorporates historical loss experience, trends, and current economic
conditions.
10
<PAGE> 11
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The table below is a summary of the allocation categories used by the Company
for its allowance for loan loss at December 31,1995. These allocations are
determined by internal formulas based upon an analysis of the various types of
risk associated portfolio ($ in thousands).
<TABLE>
<S> <C>
Allocation for pools of
risk-rated loans $2,900
Additional allocation for
risk-rated loans 214
General allocation for all
other loans 150
Discretionary 986
-------
$4,250
=======
</TABLE>
The Company maintains the allowance at a level considered by Management and the
Board of Directors to be sufficient to absorb potential losses. Loss
percentages were uniformly applied to the various pools of risk that exist
within the loan portfolio based upon accepted analysis procedures and current
economic conditions. Additional allocations were made for particular areas based
upon recommendations of lending and asset review personnel.
The remaining $986,000 is discretionary and serves as added protection in the
event that any of the above specific components are determined to be
inadequate. Due to the imprecision in most estimates, Management continues to
take a prudent, yet conservative approach to the evaluation of the adequacy of
the allowance.
11
<PAGE> 12
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE
The table below shows maturities of outstanding time deposits of $100,000 or
more at December 31, 1995. ($ in thousands)
<TABLE>
<CAPTION>
Certificates
of deposits
------------
<S> <C>
Three months or less $15,869
Over three months through six months 6,422
Over six months through twelve months 8,502
Over twelve months 11,578
------------
Total $42,371
============
</TABLE>
TABLE 11 - SELECTED RATIOS
The following table reflects ratios for the Company for the last three years.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.32% 1.15% 1.12%
Return on average equity 15.79% 14.43% 13.80%
Dividend payout ratio 32.36% 31.47% 34.86%
Equity to assets ratio 8.35% 7.94% 8.11%
</TABLE>
TABLE 12 - SHORT-TERM BORROWING
The table below presents certain information regarding the Company's short-term
borrowing for each of the last three years ($ in thousands).
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding at end of period $48,294 $44,822 $37,804
Maximum outstanding at any month-end
during the period 58,482 48,082 47,183
Average outstanding during the period 46,785 36,213 22,420
Interest paid $2,746 $1,448 $688
Weighted average rate during each period 4.96% 4.00% 3.07%
</TABLE>
12
<PAGE> 13
ITEM 2. PROPERTIES
The Bank's main office, located at 221 East Jefferson Street,
Kosciusko, Mississippi, is a two story, brick building with drive-up
facilities. The Bank owns its main office building and nineteen of its branch
facilities. The remaining facilities are occupied under lease agreements,
terms of which range from month to month to five years. It is anticipated that
all leases will be renewed.
ITEM 3. LEGAL PROCEEDING
The Bank is involved in various legal matters and claims which are
being defended and handled in the ordinary course of business. None of these
matters are expected, in the opinion of Management, to have a material adverse
effect on the financial position or results of operations of the Bank or the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At February 15, 1996, there were 496 shareholders of record of the
Company's common stock. The stock is traded on a limited basis and no firm is
presently acting as a market maker. Other information for this item can be
found in Note 16, "Dividends" and the table captioned "Principal Markets and
Prices of the Company's Stock" included in the Registrant's 1995 Annual Report
to Shareholders and is incorporated herein by reference. (pages 26 and 30)
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item can be found in the table
captioned "Selected Financial Data" in the Registrant's 1995 Annual Report to
Shareholders and is incorporated herein by reference. (page 29)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item can be found in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Registrant's 1995 Annual Report to Shareholders and is
incorporated herein by reference. (pages 31-32)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and the
accompanying notes to the financial statements along with the report of the
independent public accountants are contained in the Registrant's 1995 Annual
Report to Shareholders and are incorporated herein by reference. (pages 9-28)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants within the two year period
ended December 31, 1995.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information concerning directors
and executive officers of the Company as of January 1, 1996.
<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; Manager, 1997
Mississippi Materials Corp.
Charles T. England, 59 Director since 1980; Manager 1997
Finance company subsidiaries of
bank
Toxey Hall, III, 56 Director since 1984; President 1997
Thomas-Walker-Lacy, Inc.
Barbara K. Hammond, Director since 1995; Specialist, 1998
Circuit Capacity Management,
Bell South
Joe Ivey, 37 Director since 1994; Chairman 1997
and CEO; Ivey Mechanical Corporation
*J. Marlin Ivey, 59 Director since 1979; President, 1997
Ivey National Corp.
R. Dale McBride, 56 Director since 1979; President, 1996
Durant Branch, Merchants and
Farmers Bank
*Susan P. McCaffery, 56 Director since 1987; Professor, 1997
Wood Junior College
Dr. William M. Myers, 67 Director since 1979; Dentist 1998
Otho E. Pettit, Jr., 50 Director since 1993; Attorney 1996
*Hugh S. Potts, Jr., 50 Director since 1979; Chairman 1996
and CEO since 1994; Vice-President
1979-1983; Vice-Chairman through 1993
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Position Held in Company Term as
Principal Occupation Director
Name and age During Last Five Years Expires
- ------------ ------------------------ --------
<S> <C> <C>
*Charles W. Ritter, Jr., 62 Director since 1979; President; 1996
The Attala Company
W. C. Shoemaker, 63 Director since 1979; Consultant 1998
IMC Webb Graphics
*Scott M. Wiggers, 51 Director since 1983; President since 1988 1998
Treasurer since 1979;
President & Treasurer, First M&F Corp
President, Merchants & Farmers Bank
*Edward G. Woodard, 40 Director since 1989; 1997
President, K&M Distributing, Inc.
</TABLE>
*Member of the Executive and Administrative
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.
15
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the cash compensation for 1995, 1994 and 1993 for
the chief executive officer of the Company and all executive officers of the
Company and the Bank, whose cash compensation exceeded $100,000.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary Bonus Other
<S> <C> <C> <C> <C>
Hugh S. Potts, Jr. 1995 $150,320 $21,300 $2,441 (1)
Chairman of the Board 1994 148,285 15,000 1,358 (1)
and CEO since 04/15/94: 1993 141,173 9,750 1,330 (1)
Vice Chairman until 04/15/94
Scott M. Wiggers 1995 110,260 15,620 1,613 (1)
President 1994 108,370 10,000 1,453 (1)
1993 101,686 12,000 636 (1)
Hugh S. Potts, Sr. 1995 74,658 10,585 2,482 (1)
Chairman of the Board 8,400 (2)
and CEO through 04/14/94: 4,230 (3)
Consultant to the Bank 1994 108,100 3,270 2,481 (1)
since 04/14/94 6,198 (2)
1993 148,171 11,000 2,482 (1)
</TABLE>
(1) Cost of excess life insurance
(2) Automobile allowance
(3) Ermeritus director compensation
Hugh S. Potts, Sr. retired as Chairman of the Board and Chief Executive Officer
of the Company effective April 15, 1994. Mr. Potts' son, Hugh S. Potts, Jr.,
currently serves as the Company's Chief Executive Officer and Chairman of the
Company's Board of Directors.
Included in the salary disclosure for Hugh S. Potts, Sr., for the 1995 & 1994
is $75,000 which is paid in the capacity as a consultant to the Bank. There is
no written agreement covering the terms of this consulting and there is no
current plan 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 term 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.
16
<PAGE> 17
Pension Plan
The following table indicates the estimated annual benefits payable to persons
in specified classification upon retirement at age 65.
<TABLE>
<CAPTION>
Average Annual Credited Years of Service
Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$25,000 $3,000 $4,000 $5,000 $6,000 $7,000
50,000 6,000 8,000 10,000 12,000 14,000
75,000 9,000 12,000 15,000 18,000 21,000
100,000 12,000 16,000 20,000 24,000 28,000
160,000 19,200 25,600 32,000 38,400 44,800
</TABLE>
Credited years of service for the individuals named in the Summary Compensation
Table above are anticipated to be as follows: Hugh S. Potts, Sr. - 58 years;
Hugh S. Potts, Jr. - 37 years; Scott M. Wiggers - 34 years.
A participant in the Company's Pension Plan whose service is terminated on or
after the date on which he attains his normal retirement age and on or before
his normal retirement date is eligible to retire and receive a normal
retirement benefit. The amount of the normal benefit under the Plan is equal
to 1/12 of the sum of the amounts described below in (1) and (2) multiplied by
(3) where:
(1) = eight-tenths of one percent (0.8%) of the participant's average
earnings;
(2) = twenty-five hundredths percent (0.25%) of the participant's average
earnings in excess of Twenty-Four Thousand and no/100 dollars
($24,000.00); and
(3) = the participant's benefit service as of his normal retirement date.
If a participant's annual benefit commences before the participant's social
security retirement age, but on or after age 62, the amount of the benefit is
reduced. If the annual benefit of a participant commences prior to age 62,
the amount of the benefit shall be the actuarial equivalent of an annual
benefit beginning at age 62 reduced for each month by which benefits commence
before the month in which the participant attains age 62. If the annual
benefit of a participant commences after the participant's social security
retirement age, the benefit amount is adjusted so that it is the actuarial
equivalent of an annual benefit beginning at the participant's social security
retirement age.
Director Compensation
Directors receive compensation in the amount of $700 per Board meeting attended
payable at the end of the year, plus an additional $20 for each committee
meeting attended.
17
<PAGE> 18
ITEM 12. EQUITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Management of the Company knows of no person who owns of record or
beneficially, directly or indirectly, more than 5% of the outstanding common
stock of the Company except as set forth below:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
<S> <C> <C>
Hugh S. Potts, Jr. 339,651 shares (1) 10.02%
1104 Walnut Grove Road
Kosciusko, MS 39090
</TABLE>
(1) Mr. Potts shares voting and investment power with respect to 41,500 of
these shares, which are held in two trusts.
The following table shows the number and percentage of shares of the Company's
common stock beneficially owned by each director and by all directors and
executive officers as a group, as of December 31, 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 0.44%
603 Hickory Hill Drive
P. O. Box 694
Kosciusko, MS 39090
Charles T. England 15,000 shares 0.44%
608 Smythe Street
P. O. Box 414
Kosciusko, MS 39090
Toxey Hall, III 2,112 shares 0.06%
1498 Sunset Drive
Canton, MS 39046
Barbara K. Hammond 2,000 shares 0.06%
1468 Roxbury Court
Jackson, Ms 39211
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
of Beneficial Owner Ownership of Common Stock Class
- ------------------- ------------------------- -----
<S> <C> <C>
J. Marlin Ivey (4) 112,000 shares 3.30%
309 East Jefferson St.
P. O. Box 610
Kosciusko, MS 39090
Joseph M. Ivey (4) 8,662 shares 0.26%
211 South Madison Street
P. O. Box 610
Kosciusko, MS 39090
R. Dale McBride 17,364 shares (6) 0.51%
Route 1, Box 179
Durant, MS 39063
Susan P. McCaffery (7) 113,822 shares (8) 3.36%
327 East Jefferson St.
Kosciusko, MS 39090
William M. Myers, DDS 21,520 shares (9) 0.63%
308 East Jefferson St.
Kosciusko, MS 39090
Otho E. Pettit, Jr. 10,754 shares (10) 0.32%
212 Oakland
Kosciusko, MS 39090
Hugh S. Potts, Jr. (7) 339,651 shares (11) 10.02%
1104 Walnut Grove Road
Kosciusko, MS 39090
Charles W. Ritter, Jr. 152,000 shares (12) 4.48%
Woodbrier Subdivision
P. O. Box 528
Kosciusko, MS 39090
W. C. Shoemaker 40,266 shares 1.19%
P. O. Box 550
Kosciusko, MS 39090
Scott M. Wiggers 11,908 shares (13) 0.35%
1204 Shady Oak Drive
Kosciusko, MS 39090
Edward G. Woodard 8,306 shares (2) 0.24%
P. O. Box 488
Kosciusko, MS 39090
Executive Officers of the Bank 5,298 shares 0.16%
Named Executive Officers 875,663 shares 25.82%
(including Executive Officers of the Bank
and Directors as a Group)
</TABLE>
19
<PAGE> 20
(1) Mr. England shares voting and investment power with respect to these
shares with his wife.
(2) Mr. Woodard shares voting and investment power with respect to 880 of
these shares with his wife.
(3) Left blank intentionally.
(4) Director J. Marlin Ivey is the father of director Joseph M. Ivey.
(5) Of these shares, 92,000 are registered in the name of Ivey National
Corp., of which Mr. Ivey is the President.
(6) Mr. McBride shares voting and investment power with respect to 12,780 of
these shares with his wife and children.
(7) Mrs. McCaffery and Hugh S. Potts, Jr. are brother and sister. Their
father is the Company's former Chief Executive Officer and Chairman of
the Board Hugh S. Potts, Sr.
(8) Mrs. McCaffery shares voting and investment power with respect to 19,785
of these shares with her husband and children.
(9) Dr. Myers shares voting and investment power with respect to 13,200 of
these shares with his children.
(10) Mr. Pettit shares voting and investment powers with respect to 3,726 of
these shares.
(11) Mr. Potts shares voting and investment power with respect to 41,500 of
these shares, which are held in two trusts.
(12) Mr. Ritter shares investment power with respect to 60,000 of these shares
with his wife and two children.
(13) Mr. Wiggers shares voting and investment power with respect to 1,134 of
these shares with his wife.
20
<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As discussed in Note 4 of the consolidated financial statements, through the
Bank, the Company makes loans to its directors and executive officers and their
associates. All such loans were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
and did not involve more than the normal risk of collectibility or present
other unfavorable features.
21
<PAGE> 22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A-1. Financial Statements
The report of Shearer, Taylor & Co., independent auditors, and the
following consolidated financial statements of First M & F Corporation and
Subsidiary are included in the Registrant's 1995 Annual Report to
Shareholders and are incorporated into Part II, Item 8, herein by reference.
Report of Independent Certified Public Accountants
Consolidated Statements of Condition as of December 31, 1995 and 1994
Consolidated Statements of Income for the Years ended December 31,
1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years ended December
31, 1995, 1994 and 1993
Notes to the Consolidated Financial Statements
Selected Financial Data and Principal Markets and Prices of the
Company's Stock
A-2. Financial Statement Schedules
The schedules to the consolidated financial statements set forth by
Article 9 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
A-3. Exhibits
The exhibits listed in the Exhibit Index are filed herewith or are
incorporated herein by reference.
B. Reports on Form 8-K
None
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST M & F CORPORATION
BY: /S/ HUGH S. POTTS, JR. BY: /S/ SCOTT M. WIGGERS
-------------------------------- ----------------------------------
HUGH S. POTTS, JR SCOTT M. WIGGERS
CHAIRMAN OF THE BOARD AND PRESIDENT
CHIEF EXECUTIVE OFFICER
DATE: MARCH 21, 1996 DATE: MARCH 21, 1996
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
DATE: March 21, 1996 BY: /S/
----------------------------------------------
HUGH S. POTTS, JR., DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
SCOTT M. WIGGERS, DIRECTOR
DATE: March 21, 1996 BY /S/
----------------------------------------------
FRED A. BELL, JR., DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
CHARLES T. ENGLAND, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
TOXEY HALL III, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
BARBARA K. HAMMOND, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
J. MARLIN IVEY, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
JOE IVEY, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
R. DALE McBRIDE, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
SUSAN P. McCAFFERY, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
WILLIAM M. MYERS, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
OTHO E. PETIT, JR., DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
CHARLES W. RITTER, JR., DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
W.C. SHOEMAKER, DIRECTOR
DATE: March 21, 1996 BY: /S/
----------------------------------------------
EDWARD G. WOODARD, DIRECTOR
</TABLE>
24
<PAGE> 25
EXHIBIT INDEX
3(A) Articles of Incorporation, as amended. Filed as Exhibit 3
to the Company's Form S-1(File no. 33-08751) September 15,
1986, incorporated herein by reference.
3(B) Bylaws, as amended. Filed as Exhibit 3-b to the Company's
Form S-1(File no. 33-08751) September 15, 1986, incorporated
herein by reference.
13 Only those portions of the Registrant's Annual Report to
Shareholders expressly incorporated by reference herein are
included in this exhibit and, therefore, are filed as a part
of this report of Form 10-K.
27 Financial Data Schedule.
All other exhibits are omitted as they are inapplicable or are
not required by the related instructions.
25
<PAGE> 1
EXHIBIT 13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
The Board of Directors and Shareholders SHEARER
First M & F Corporation TAYLOR
Kosciusko, Mississippi & CO.
A Professional Association
We have audited the accompanying consolidated statements of condition
of First M & F Corporation and subsidiary as of December 31, 1995 and 1994, 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, 1995.
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.
The consolidated financial statements as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
have been restated to reflect the pooling of interests with Farmers and
Merchants Bank as described in Note 2 to the financial statements. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Farmers
and Merchants Bank as of December 31, 1994, and for the years ended December
31, 1994 and 1993, is based solely on the report of the other auditors.
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, based on our audits and the report of other auditors,
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, 1995 and 1994, the results of
their consolidated operations and their consolidated cash flows for each of the
years in the three-year period ended December 31, 1995, 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 9, 1996
Certified Public Accountants
6360 I-55 North
Suite 330
P.O. Drawer 13157
Jackson, MS 39236-3157
Telephone 601/956-0993
9
<PAGE> 2
CONSOLIDATED STATEMENTS OF CONDITION
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
<TABLE>
<CAPTION>
December 31, 1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,823,519 $ 16,325,586
Interest bearing bank balances 314,603 406,234
Federal funds sold 1,000,000 1,000,000
Securities available for sale 128,189,968 74,198,619
Investment securities, market value of
$53,210,000 and $75,240,000 52,814,271 79,032,092
Loans 306,516,205 274,342,929
Unearned income (14,513,713) (12,289,379)
Allowance for possible loan losses (4,250,000) (3,374,234)
------------- -------------
Net loans 287,752,492 258,679,316
------------- -------------
Bank premises and equipment 7,536,916 6,672,863
Accrued interest receivable 4,975,448 4,004,542
Other assets 4,399,941 6,160,734
------------- -------------
$ 505,807,158 $ 446,479,986
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 405,862,826 $ 358,844,218
Securities sold under agreements to
repurchase and other short-term
borrowings 48,293,668 44,822,025
Other borrowings 3,005,497 5,231,695
Accrued interest payable 2,529,304 1,498,081
Other liabilities 1,346,902 1,375,143
------------- -------------
Total liabilities 461,038,197 411,771,162
------------- -------------
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; 3,394,656 and 3,124,656
shares issued 16,973,280 15,623,280
Additional paid-in capital 10,653,316 8,493,316
Retained earnings 16,492,206 12,248,289
Valuation allowance for securities available
for sale, net of income taxes 698,987 (1,607,233)
------------- -------------
44,817,789 34,757,652
Treasury stock, 3,756 shares, at cost (48,828) (48,828)
------------- -------------
Net stockholders' equity 44,768,961 34,708,824
------------- -------------
$ 505,807,158 $ 446,479,986
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest and fees on loans $ 27,267,506 $ 20,880,035 $ 17,589,849
Taxable investments 7,300,273 6,983,314 7,996,910
Tax-exempt investments 2,125,596 1,985,649 1,857,494
Federal funds sold 595,769 278,925 261,542
Interest bearing bank balances 165,365 81,528 115,759
------------ ------------ ------------
Total investment income 37,454,509 30,209,451 27,821,554
------------ ------------ ------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 1,684,676 1,355,013 1,129,216
Other deposits 13,079,184 9,401,723 9,203,832
Securities sold under agreements to
repurchase and other short-term
borrowings 2,551,256 1,447,990 688,192
Other borrowings 195,137 259,318 105,613
------------ ------------ ------------
Total interest expense 17,510,253 12,464,044 11,126,853
------------ ------------ ------------
Net investment income 19,944,256 17,745,407 16,694,701
Provision for possible loan losses 1,508,853 881,911 1,070,376
------------ ------------ ------------
Net investment income after
provision for possible loan
losses 18,435,403 16,863,496 15,624,325
------------ ------------ ------------
OTHER OPERATING INCOME:
Service charges on deposit accounts 3,116,512 2,765,695 2,395,647
Loss on investment securities - - (590)
Loss on securities available for sale (118,673) (231,966) -
Credit insurance income 428,929 432,223 373,699
Other income 813,521 478,104 453,114
------------ ------------ ------------
Total other operating income 4,240,289 3,444,056 3,221,870
------------ ------------ ------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 7,102,960 6,234,752 5,687,982
Net occupancy expenses 897,290 865,618 890,367
Equipment and data processing expenses 1,599,754 1,732,783 1,633,472
Regulatory insurance and fees 510,220 847,441 853,879
Other 4,260,020 4,141,128 3,991,819
------------ ------------ ------------
Total other operating expenses 14,370,244 13,821,722 13,057,519
------------ ------------ ------------
Income before income taxes 8,305,448 6,485,830 5,788,676
Income taxes 2,030,641 1,607,580 1,442,800
------------ ------------ ------------
Net income $ 6,274,807 $ 4,878,250 $ 4,345,876
============ ============ ============
Earnings per share $ 1.90 $ 1.56 $ 1.39
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31, 1995, 1994, and 1993
Additional
Common Paid-in Retained Valuation Treasury
Stock Capital Earnings Allowance Stock Net
------------ ------------ ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1993, as
originally reported $ 6,686,640 $ 8,441,016 $ 11,538,531 $ - $ (22,458) $ 26,643,729
Adjusted for two for
one stock split,
affected in the form
of a dividend on
August 9, 1995 6,686,640 - (6,686,640) - - -
Effect of pooling transaction 2,250,000 - 1,223,282 - - 3,473,282
------------ ------------ ------------ ----------- --------- ------------
January 1, 1993, as restated 15,623,280 8,441,016 6,075,173 - (22,458) 30,117,011
------------ ------------ ------------ ----------- --------- ------------
Net income - - 4,345,876 - - 4,345,876
Cash dividends ($0.49 per share) - - (1,515,560) - - (1,515,560)
Treasury stock:
Purchases - - - - (75,812) (75,812)
Sales - 44,788 - - 56,954 101,742
------------ ------------ ------------ ----------- --------- ------------
December 31, 1993 15,623,280 8,485,804 8,905,489 - (41,316) 32,973,257
------------ ------------ ------------ ----------- --------- ------------
Net adjustment to
beginning balance for change
in accounting method - - - 1,471,070 - 1,471,070
Net income - - 4,878,250 - - 4,878,250
Cash dividends ($0.49
per share) - - (1,535,450) - - (1,535,450)
Treasury stock:
Purchases - - - - (128,702) (128,702)
Sales - 7,512 - - 121,190 128,702
Net change in valuation
allowance for securities
available for sale - - - (3,078,303) - (3,078,303)
------------ ------------ ------------ ----------- --------- ------------
December 31, 1994 15,623,280 8,493,316 12,248,289 (1,607,233) (48,828) 34,708,824
------------ ------------ ------------ ----------- --------- ------------
Net income - - 6,274,807 - - 6,274,807
Cash dividends ($0.62
per share) - - (2,030,890) - - (2,030,890)
Sale of 270,000 shares
of common stock 1,350,000 2,160,000 - - - 3,510,000
Net change in valuation
allowance for securities
available for sale - - - 2,306,220 - 2,306,220
------------ ------------ ------------ ----------- --------- ------------
December 31, 1995 $ 16,973,280 $ 10,653,316 $ 16,492,206 $ 698,987 $ (48,828) $ 44,768,961
============ ============ ============ =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,274,807 $ 4,878,250 $ 4,345,876
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 981,396 1,088,286 1,245,419
Provision for possible loan losses 1,508,853 881,911 1,070,376
Deferred income taxes (194,772) (184,514) (166,500)
(Increase) decrease in interest receivable (970,906) (870,567) 373,532
Increase (decrease) in interest payable 1,031,223 345,075 (407,416)
Other, net 159,156 888,334 374,879
------------ ------------ ------------
Net cash provided by operating activities 8,789,757 7,026,775 6,836,166
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (35,055,066) (16,196,900) -
Sales of securities available for sale 8,658,674 8,714,823 -
Maturities of securities available for sale 13,868,734 23,994,689 -
Purchases of investment securities (15,725,275) (27,273,501) (84,551,957)
Sales of investment securities - - 9,120,688
Maturities of investment securities 3,645,734 6,233,324 86,778,900
Net (increase) decrease in:
Interest bearing bank balances 91,631 4,622,155 (23,942)
Federal funds sold - 11,950,000 (6,400,000)
Loans (30,809,198) (55,674,429) (33,134,714)
Bank premises and equipment (1,469,115) (1,127,513) (591,427)
Other, net 758,894 977,041 927,816
------------ ------------ ------------
Net cash used in investing activities (56,034,987) (43,780,311) (27,874,636)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Non-interest bearing deposits $ 2,084,752 $ 6,879,204 $ 7,370,768
Money market, NOW and savings deposits 9,202,701 (1,206,826) (19,104,972)
Certificates of deposit 35,731,155 23,663,601 (5,867,970)
Securities sold under agreements to repurchase and
other short-term borrowings 3,471,643 7,017,930 34,060,525
Proceeds from other borrowings - 3,500,000 3,500,000
Repayments of other borrowings (2,226,198) (1,677,138) (93,167)
Cash dividends (2,030,890) (1,535,450) (1,515,560)
Proceeds from sale of stock 3,510,000 - -
Treasury stock transactions - - 25,930
------------ ------------ ------------
Net cash provided by financing activities 49,743,163 36,641,321 18,375,554
------------ ------------ ------------
Net increase (decrease) in cash and due from banks 2,497,933 (112,215) (2,662,916)
Cash and due from banks at January 1 16,325,586 16,437,801 19,100,717
------------ ------------ ------------
Cash and due from banks at December 31 $ 18,823,519 $ 16,325,586 $ 16,437,801
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 6
NOTES TO CONSOLIDATED FNANCIAL STATEMENTS
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
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 and are carried at market value.
Unrealized holding gains and losses, are reported, net of taxes, as a separate
component of stockholders' equity. Realized 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 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 realized gain or loss on the sale of
investment securities.
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 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.
ALLOWANCE FOR LOAN LOSSES
The Bank provides for loan losses through an allowance for loan losses
established through a provision charged to expense. Accordingly, all loan
losses are charged to the allowance for loan losses and all recoveries are
credited to it. The allowance for 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 allowance 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.
14
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (continued)
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.
AMORTIZATION
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. Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. Deferred income tax expense (benefit) is the result of changes in
deferred tax assets and liabilities between reporting periods.
STOCK SPLIT
On August 9, 1995, the Company effected a two for one stock split in
the form of a dividend. All per share computations have been retroactively
restated.
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.
EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average
number of shares outstanding during the year of 3,294,736 in 1995, 3,120,786 in
1994, and 3,120,414 in 1993, adjusted retroactively for stock splits. Per share
data for all periods have been restated for the effect of a business
combination accounted for as a pooling of interest in 1995.
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>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Interest paid $ 16,479,000 $ 12,119,000 $ 11,534,000
Federal income taxes paid 2,333,000 1,638,000 1,825,000
Federal income tax refunds 162,000 - 19,000
Other real estate and repossessions
acquired in noncash foreclosures 227,000 1,185,000 944,000
============ ============ ============
</TABLE>
15
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 2: BUSINESS COMBINATION
On December 31, 1995, Farmers and Merchants Bank of Bruce, Mississippi
was merged with the Company. The stockholders of Farmers and Merchants received
450,000 shares of common stock of the Company in exchange for all of the issued
and outstanding common shares of Farmers and Merchants. All financial data of
the Company has been restated to reflect the business combination using the
pooling of interests method of accounting. There were no material adjustments
to the net assets of Farmers and Merchants as a result of adopting the same
accounting methods as the Company. The effect of the pooling of interests on
operations of the Company is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Farmers and Merchants $ 2,307,517 $ 2,240,260 $ 2,197,917
First M & F Corporation 35,146,992 27,969,191 25,623,637
Combined 37,454,509 30,209,451 27,821,554
=========== =========== ===========
OTHER OPERATING INCOME:
Farmers and Merchants $ 293,664 $ 248,939 $ 244,669
First M & F Corporation 3,946,625 3,195,117 2,977,201
Combined 4,240,289 3,444,056 3,221,870
=========== =========== ===========
NET INCOME:
Farmers and Merchants $ 575,338 $ 635,311 $ 593,414
First M & F Corporation 5,699,469 4,242,939 3,752,462
Combined 6,274,807 4,878,250 4,345,876
=========== =========== ===========
</TABLE>
NOTE 3: INVESTMENTS
The following is a summary of the amortized cost and market value
(book value) of securities available for sale:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------------- MARKET
COST GAIN LOSS VALUE
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995:
U. S. Treasury securities $ 38,310,000 $ 207,000 $ 77,000 $ 38,440,000
U. S. Government agencies and corporations 38,982,000 130,000 84,000 39,028,000
Mortgage-backed investments 24,482,000 209,000 129,000 24,562,000
Obligations of states and political
subdivisions 23,534,000 800,000 3,000 24,331,000
Other 1,822,000 7,000 - 1,829,000
------------- ----------- ----------- ------------
$ 127,130,000 $ 1,353,000 $ 293,000 $128,190,000
============= =========== =========== ============
DECEMBER 31, 1994:
U. S. Treasury securities $ 27,086,000 $ 12,000 $ 1,107,000 $ 25,991,000
U. S. Government agencies and corporations 12,976,000 11,000 532,000 12,455,000
Mortgage-backed investments 20,666,000 50,000 975,000 19,741,000
Obligations of states and political
subdivisions 14,356,000 214,000 19,000 14,551,000
Other 1,550,000 - 89,000 1,461,000
------------- ----------- ----------- ------------
$ 76,634,000 $ 287,000 $ 2,722,000 $ 74,199,000
============= =========== =========== ============
</TABLE>
16
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 3: INVESTMENTS (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, 1995:
U. S. Treasury securities $ 1,051,000 $ 12,000 $ 5,000 $ 1,058,000
U. S. Government agencies and corporations 14,152,000 328,000 39,000 14,441,000
Mortgage-backed investments 19,290,000 58,000 149,000 19,199,000
Obligations of states and political
subdivisions 18,321,000 276,000 85,000 18,512,000
------------- ----------- ----------- ------------
$ 52,814,000 $ 674,000 $ 278,000 $ 53,210,000
============= =========== =========== ============
DECEMBER 31, 1994:
U. S. Treasury securities $ 13,010,000 $ - $ 699,000 $ 12,311,000
U. S. Government agencies and corporations 12,268,000 46,000 532,000 11,782,000
Mortgage-backed investments 26,352,000 8,000 1,597,000 24,763,000
Obligations of states and political
subdivisions 27,402,000 70,000 1,088,000 26,384,000
------------- ----------- ----------- ------------
$ 79,032,000 $ 124,000 $ 3,916,000 $ 75,240,000
============= =========== =========== ============
</TABLE>
The amortized cost and market values of securities available for sale
and investment securities at December 31, 1995, 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 $ 49,266,000 $ 49,333,000 $ 5,240,000 $ 5,254,000
Over one through five years 68,556,000 69,038,000 34,720,000 35,028,000
Over five through ten years 6,384,000 6,818,000 8,804,000 8,814,000
After ten years 2,924,000 3,001,000 4,050,000 4,114,000
------------- ------------- ------------ ------------
$ 127,130,000 $ 128,190,000 $ 52,814,000 $ 53,210,000
============= ============= ============ ============
</TABLE>
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, 1995 $ 113,943,000 $ 114,692,000 $ 36,615,000 $ 36,752,000
============= ============= ============ ============
December 31, 1994 $ 57,883,000 $ 55,305,000 $ 60,532,000 $ 55,889,000
============= ============= ============ ============
</TABLE>
17
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 3: INVESTMENTS (continued)
The following is a summary of gross realized gains and losses on
investment transactions:
<TABLE>
<CAPTION>
Investment
Available for Sale Securities
----------------------------------- ----------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Gross realized gains $ 48,000 $ 19,000 $ 14,000
Gross realized losses (167,000) (251,000) (15,000)
---------- ---------- --------
$ (119,000) $ (232,000) $ (1,000)
========== ========== ========
</TABLE>
In accordance with "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (the Guide),
which was issued in November, 1995, by the Financial Accounting Standards
Board, the Bank reclassified certain investments classified as held to maturity
as securities available for sale in December, 1995. The amortized cost of
these investments was $38,145,000 and the market value was $38,545,000 at the
date of the reclassification.
NOTE 4: 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, 1995 and 1994, follows, net of unearned income:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Commercial, financial and agricultural $ 35,409,000 $ 36,322,000
Residential real estate 75,964,000 66,310,000
Non-residential real estate 96,782,000 83,878,000
Consumer loans 83,847,000 75,544,000
------------- -------------
$ 292,002,000 $ 262,054,000
============= =============
</TABLE>
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>
1995 1994
----------- -----------
<S> <C> <C>
Loans outstanding at January 1 $ 3,350,000 $ 2,314,000
New loans 2,432,000 2,063,000
Repayments and removals (3,221,000) (1,027,000)
----------- -----------
Loans outstanding at December 31 $ 2,561,000 $ 3,350,000
=========== ===========
</TABLE>
18
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 5: ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 3,374,234 $ 2,866,227 $ 2,450,918
Loans charged-off (876,588) (623,767) (944,235)
Recoveries 243,501 249,863 289,168
----------- ----------- -----------
Net charge-offs (633,087) (373,904) (655,067)
----------- ----------- -----------
Provision for possible loan losses 1,508,853 881,911 1,070,376
----------- ----------- -----------
Balance at December 31 $ 4,250,000 $ 3,374,234 $ 2,866,227
=========== =========== ===========
</TABLE>
NOTE 6: BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and buildings $ 8,875,315 $ 7,755,610
Furniture, fixtures and equipment 6,301,338 5,627,793
Leasehold improvements 334,079 314,078
----------- -----------
15,510,732 13,697,481
Less accumulated depreciation and
amortization 8,054,129 7,317,594
----------- -----------
7,456,603 6,379,887
Construction in progress, estimated
costs to complete of $ 660,000 in
1995 and $139,000 in 1994 80,313 292,976
----------- -----------
$ 7,536,916 $ 6,672,863
=========== ===========
</TABLE>
Amounts charged to other operating expenses for depreciation and
amortization of bank premises and equipment were approximately $800,000 in
1995, $864,000 in 1994, and $865,000 in 1993.
19
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOE 7: OTHER ASSETS
A summary of other assets follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Company's cost in excess of net Bank
assets acquired in 1980, less
accumulated amortization of
$1,533,900 and $1,436,839 $ 2,343,168 $ 2,440,229
Bank's costs in excess of net assets
acquired in branch acquisitions,
less accumulated amortization of
$1,134,692 and $1,050,419 515,931 600,204
Other real estate, net 148,176 868,732
Deferred income tax, net 507,422 1,500,502
Other 885,244 751,067
----------- -----------
$ 4,399,941 $ 6,160,734
=========== ===========
</TABLE>
Other expenses include amortization of intangible assets as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<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
deposit assumed - 23,185 139,112
Bank's costs in excess of net
assets acquired in branch
acquisitions 84,273 104,660 143,751
--------- --------- ---------
$ 181,334 $ 224,906 $ 379,924
========= ========= =========
</TABLE>
Changes in the valuation allowance for other real estate for the years
ended December 31, 1995, 1994 and 1993, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 35,500 $ 15,700 $ 20,000
Provision charged to expense 60,000 19,800 64,568
Writedowns (34,500) - (68,868)
-------- -------- --------
Balance at end of year $ 61,000 $ 35,500 $ 15,700
======== ======== ========
</TABLE>
20
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 8: DEPOSITS
The following is a summary of deposits at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Non-interest bearing $ 52,160,180 $ 50,075,428
Interest bearing:
Money market accounts 44,371,828 41,737,348
NOW accounts 54,832,550 58,463,673
Savings accounts 50,973,237 40,773,893
Time deposits of $100,000 or more 42,371,467 32,472,923
Other time deposits 161,153,564 135,320,953
------------- -------------
Total interest bearing 353,702,646 308,768,790
------------- -------------
Total deposits $ 405,862,826 $ 358,844,218
============= =============
</TABLE>
NOTE 9: 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, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Balance Outstanding Weighted Average Rate
------------------------------------------- ----------------------
Maximum Average At At
Month End Daily Year End During Year Year End
------------ ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
1995:
Federal funds purchased $ 2,700,000 $ 218,630 $ 2,700,000 5.62% 5.63%
Securities sold under agreements
to repurchase 54,847,108 45,631,025 44,658,602 5.32% 5.33%
Other short-term borrowings by
the Company 935,066 935,000 935,066 8.36% 8.25%
------------ ------------ ----------- ===== =====
$ 58,482,174 $ 46,784,655 $ 48,293,668
============ ============ ============
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
============ ============ ============
</TABLE>
21
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 9: SHORT-TERM BORROWINGS (continued)
<TABLE>
<CAPTION>
Balance Outstanding Weighted Average Rate
------------------------------------------- ----------------------
Maximum Average At
Month End Daily Year End During Year Year End
------------ ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
============ ============ ============
</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.
NOTE 10: OTHER BORROWINGS
The following is a summary of other borrowings at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Line of credit in the original amount of
$1,500,000, expiring on December 31,
1995; secured by approximately 22%
of the Bank's common stock; interest
payable semi-annually at the lender's
prime rate; renewed on January 6, 1996,
in the amount of $3,000,000, expiring
on December 31, 1996 $ - $ 502,000
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: 1996 -
$219,095; 1997 - $232,376; 1998 -
$246,464; 1999 - $261,404; 2,000 -
$277,252; after 2000 - $768,906 2,005,497 2,212,068
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
----------- -----------
$ 3,005,497 $ 5,231,695
=========== ===========
</TABLE>
22
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 11: 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 $80,000, $40,000 and $74,968 were made to the plan
in 1995, 1994 and 1993.
Net pension cost (benefit) included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Service cost $ 112,017 $ 103,993 $ 94,404
Interest cost 170,012 161,276 147,038
Actual return on plan assets (240,638) (195,175) (186,201)
Net amortization and deferral 29,618 (34,672) (34,672)
--------- --------- ----------
$ 71,009 $ 35,422 $ 20,569
========= ========= ==========
</TABLE>
The following table sets forth the plan's funded status and amounts
recorded in the consolidated statements of condition:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 1,818,872 $ 1,633,446
Non-vested benefit obligation 31,484 19,645
------------ ------------
Total benefit obligation $ 1,850,356 $ 1,653,091
============ =============
Projected benefit obligation $ (2,427,944) $ (2,173,281)
Market value of plan assets 2,388,025 2,128,251
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation (39,919) (45,030)
Unrecognized net loss during the year 400,510 391,302
Remaining unrecognized net asset at
transition date (208,028) (242,700)
Contributions after measurement date - 40,000
------------ ------------
Net pension asset $ 152,563 $ 143,572
============ =============
</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.
The Bank has a profit and savings plan which includes features such as
an Employee Stock Option Plan and a 401(k) plan which provides for certain
salary deferrals, covering substantially all full time employees of the Bank
and subsidiaries. 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 $40,000 in 1995, $25,000 in 1994 and $40,000 in
1993.
At December 31, 1995, the profit and savings plan owned 110,306 shares
of the Company's common stock and the pension plan owned 3,600 shares of the
Company's common stock.
23
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 12: INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current income taxes $ 2,225,413 $ 1,792,094 $ 1,609,300
Deferred income taxes (190,772) (184,514) (166,500)
----------- ----------- -----------
$ 2,030,641 $ 1,607,580 $ 1,442,800
=========== =========== ===========
</TABLE>
The differences between actual income tax expense and expected income
tax expense are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed using the
statutory rates on income
before income taxes $ 2,823,900 $ 2,205,200 $ 1,968,100
Increase (decrease) resulting from:
Tax exempt income, net of
disallowed interest deduction (662,100) (649,400) (611,100)
Small life insurance company deduction (68,100) (51,700) (57,400)
Amortization of intangible assets 36,900 54,600 116,300
Other, net (99,959) 48,880 (26,900)
----------- ----------- -----------
$ 2,031,641 $ 1,607,580 $ 1,442,800
=========== =========== ===========
</TABLE>
The components of deferred income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Financial loan loss provision
in excess of tax provision $ (279,600) $ (159,100) $ (101,100)
Tax depreciation greater (less) than
financial depreciation 8,100 (26,000) (28,100)
Life insurance income (19,200) 3,100 (9,400)
Other real estate 27,500 (3,800) (5,200)
Federal Home Loan Bank stock dividends 33,600 33,200 --
Other, net 34,828 (31,914) (22,700)
----------- ----------- -----------
$ (194,772) $ (184,514) $ (166,500)
=========== =========== ===========
</TABLE>
The components of the recorded net deferred tax asset at December 31,
1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Allowance for possible loan losses $ 1,058,000 $ 778,400
Depreciation (207,000) (198,900)
Prepaid pension asset (51,900) (48,800)
Life insurance income 49,400 30,200
Other real estate 21,000 48,500
Federal Home Loan Bank stock dividends (66,800) (33,200)
Market valuation for securities
available for sale (359,883) 827,969
Other, net 64,605 96,333
----------- -----------
$ 507,422 $ 1,500,502
=========== ===========
</TABLE>
24
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 13: 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 14: 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 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.
A summary of commitments and contingent liabilities at December 31,
1995, is as follows:
<TABLE>
<S> <C>
Commitments to extend credit $ 21,963,000
Standby letters of credit 505,000
Credit card arrangements 3,314,000
------------
$ 25,782,000
============
</TABLE>
NOTE 15: REGULATORY MATTERS
Federal banking regulations require that the Bank maintain certain
cash reserves based on a percent of deposits. This requirement was
approximately $5,160,000 at December 31, 1995.
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, 1995.
25
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 16: DIVIDENDS
Cash dividends as disclosed in the consolidated statements of
stockholders' equity include dividends paid by the Company to its shareholders
and by Farmers and Merchants Bank to its shareholders prior to the pooling
transaction. Per share amounts are based on the total combined dividend and
the weighted average number of shares outstanding after giving effect to the
1995 stock split and pooling transaction. A summary of dividends follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
First M & F Corporation $ 1,730,890 $ 1,335,450 $ 1,335,560
Farmers and Merchants Bank 300,000 200,000 180,000
----------- ----------- -----------
$ 2,030,890 $ 1,535,450 $ 1,515,560
=========== ============ ===========
</TABLE>
Dividends paid by the Bank are the primary source of funds available
to the Company for payment of dividends to its shareholders and other cash
needs. Applicable Federal and state statutes and regulations impose
restrictions on the amounts of dividends that may be declared by the Bank. In
addition to the formal statutes and regulations, regulatory authorities also
consider the adequacy of the Bank's total capital in relation to its assets,
deposits and other such items and, as a result, capital adequacy considerations
could further limit the availability of dividends from the Bank. These
restrictions are not anticipated to have a material effect on the ability of
the Bank to pay dividends to the Company.
NOTE 17: 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 3.
Loans - The fair value of variable rate loans that reprice frequently,
and with no significant changes in credit risk, are based on carrying values.
The fair value of fixed rate loans is estimated by discounting the future cash
flows, using the current rates at which these loans would currently be made to
borrowers with similar credit ratings and similar maturities. The carrying value
of loans, net of the reserve for possible loan losses, is approximately
$287,752,000 and $258,769,000 and the estimated net fair value of loans is
$285,556,000 and $253,847,000 at December 31, 1995 and 1994.
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 current market rates for deposits of similar maturities.
This rate should approximate current market rates for deposits of similar
maturities at the reporting date. The carrying value of deposits is
approximately $405,863,000 and $358,844,000 and the estimated net fair value of
deposits is $406,204,000 and $353,342,000 at December 31, 1995 and 1994.
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 14, the Bank has
certain commitments to extend credit at December 31, 1995. 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.
26
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
First M&F Corporation and Subsidiary
NOTE 18: SUMMARIZED FINANCIAL INFORMATION OF FIRST M & F CORPORATION
Summarized financial information of First M & F Corporation (parent
company only) is as follow:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION 1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 185,164 $ 154,222
Investment in subsidiary 45,460,985 35,999,065
Other investments 22,500 22,500
Land and building 73,476 76,395
------------ ------------
$ 45,742,125 $ 36,252,182
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 935,066 $ 932,947
Note payable to bank - 502,000
Other liabilities 38,098 108,411
Stockholders' equity 44,768,961 34,708,824
------------ ------------
$ 45,742,125 $ 36,252,182
============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Dividends received from subsidiary $ 2,450,000 $ 1,600,000 $ 1,600,000
Equity in undistributed earnings
of subsidiary, net of amortization 3,955,700 3,349,450 2,811,203
Other income 6,141 13,410 31,173
----------- ----------- -----------
Total income 6,411,841 4,962,860 4,442,376
----------- ----------- -----------
EXPENSES:
Interest 109,737 116,743 114,201
Other expenses 67,395 8,578 23,299
Total expenses 177,132 125,321 137,500
----------- ----------- -----------
Income before income taxes 6,234,709 4,837,539 4,304,876
Income tax benefit 40,098 40,711 41,000
----------- ----------- -----------
Net income $ 6,274,807 $ 4,878,250 $ 4,345,876
=========== =========== ===========
</TABLE>
27
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
NOTE 18: SUMMARIZED FINANCIAL INFORMATION OF FIRST M & F CORPORATION (Continued)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,274,807 $ 4,878,250 $ 4,345,876
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiary (3,955,700) (3,349,450) (2,811,203)
Other, net (67,394) (7,716) (220,693)
----------- ----------- -----------
Net cash provided by
operating activities 2,251,713 1,521,084 1,313,980
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in subsidiary (3,500,000) - -
Decrease in investments - - 1,003,000
----------- ----------- -----------
Net cash provided by (used in)
investing activities (3,500,000) - 1,003,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in:
Short-term borrowings 2,119 (1,144,643) (998,480)
Note payable to bank (502,000) 500,000 -
Proceeds from sale of stock 3,510,000 - -
Treasury stock transactions - - 25,930
Cash dividends (1,730,890) (1,335,450) (1,335,560)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,279,229 (1,980,093) (2,308,110)
----------- ----------- -----------
Net increase (decrease) in cash 30,942 (459,009) 8,870
Cash at January 1 154,222 613,231 604,361
----------- ----------- -----------
Cash at December 31 $ 185,164 $ 154,222 $ 613,231
=========== =========== ===========
</TABLE>
28
<PAGE> 21
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
(In Thousands, Except Per Share and Dividend Data)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
Total investment income $37,454 $30,209 $27,822 $29,200 $29,886
Total interest expense 17,510 12,464 11,127 12,711 16,424
Net investment income 19,944 17,745 16,695 16,489 13,460
Provision for loan losses 1,509 882 1,070 1,274 1,319
Other operating income 4,241 3,444 3,222 3,905 2,717
Other operating expense 14,370 13,821 13,058 12,999 11,007
Income taxes 2,031 1,608 1,443 635 960
Net income $6,275 $4,878 $4,346 $5,486 $2,892
Earnings per share(1) $1.90 $1.56 $1.39 $1.76 $0.93
Dividends per share(1) $0.62 $0.49 $0.49 $0.43 $0.28
Weighted shares outstanding(1) 3,294,736 3,120,786 3,120,414 3,109,194 3,120,376
SELECTED BALANCES
Total assets $505,807 $446,480 $406,151 $373,835 $360,616
Investment securities 181,004 153,231 151,875 163,747 159,105
Net loans 287,752 258,680 205,071 172,126 159,834
Earning assets 470,071 413,317 374,825 349,252 326,640
Deposits 405,863 358,844 329,509 347,110 327,563
Short-term borrowings 48,294 44,822 37,804 3,744 7,604
Debentures - - - - 184
Other borrowings 3,005 5,232 3,409 2 552
Stockholders' equity 44,769 34,709 32,974 30,117 25,950
SELECTED RATIOS
Return on average assets(2) 1.32% 1.15% 1.12% 1.49% 0.85%
Return on average equity(2) 15.79% 14.43% 13.80% 19.59% 11.61%
Average capital to average assets(2) 8.35% 7.94% 8.11% 7.64% 7.30%
Dividend payout 32.36% 31.47% 34.86% 23.97% 30.48%
</TABLE>
(1) As restated to reflect a two for one stock dividend on August 9, 1995
and the business combination occurring on December 31, 1995.
(2) Exclusive of valuation allowance for securities available for sale.
29
<PAGE> 22
PRINCIPAL MARKETS AND PRICES OF THE COMPANY'S COMMON STOCK
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
The Company's common stock is not actively traded in the public
market. The low and high sales prices reported below are based upon
transactions reported to the Company. (As restated to reflect the two for one
stock dividend on August 9, 1995)
<TABLE>
<CAPTION>
Low High
<S> <C> <C>
1995
First Quarter $13.00 $13.00
Second Quarter $13.00 $13.00
Third Quarter $13.00 $13.00
Fourth Quarter $20.00 $22.00
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
</TABLE>
30
<PAGE> 23
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
FINANCIAL REVIEW
The following discussion reviews the results of operations and
financial condition of First M&F Corporation and should be read in conjunction
with the consolidated financial statements included in this annual report to
shareholders.
The Company's results reflect record earnings for 1995 of $6.275
million compared to $4.878 million in 1994 and $4.346 million in 1993. Net
income per share for 1995 was $1.90 compared to $1.56 and $1.39 in 1994 and
1993, respectively.
The improvement in 1995's net income as compared to 1994 was primarily
the result of increases in net interest income as volume in both the loan and
investment portfolios increased and net margins held steady during the year.
Additionally, noninterest income increased during 1995 as a result of increased
focus and cross sell programs instituted in these areas. Noninterest expense,
although increasing during 1995 and 1994, reflects the results of the improved
budgeting and monitoring programs instituted during those years. Net income for
1995 was net of an increased provision for possible loan losses of $1.51
million. This was primarily to provide for the increased volume in the loan
portfolio, which increased 11.2% during 1995. This 1995 provision compares to
provisions of $882 thousand in 1994 and $1.1 million in 1993. Funding for these
increased volumes were as as result of increased levels of deposits. Deposits
increased $47.0 million or 13.1% over 1994. This compares to a $29.3 million or
8.9% increase in 1994. These increases were accomplished through several
targeted deposit marketing programs during 1995 and 1994.
At year end, the Company acquired the Farmers and Merchants Bank of
Bruce, Mississippi, in a pooling of interest transaction. This acquired
company, with assets of $32 million, is included in the Company's consolidated
financial statements. Under the terms of the Merger agreement, the Company
exchanged 450,000 shares of common stock for all of the issued and outstanding
shares of the acquired bank. As described in note 2 of the footnotes to the
consolidated financial statements, the consolidated financial statements
include earnings of $575.3 thousand for 1995 and $635.3 thousand for 1994
attributed to the acquired bank ($0.17 per share, 1995; $0.20 per share, 1994).
At year end 1995, total assets were $505.8 million, an increase of
13.3% over year end 1994. The return on average assets for 1995 was 1.32% as
compared to 1.15% for 1994 and 1.12% in 1993. The return on average equity in
1995 was 15.79% as compared to 14.43% in 1994 and 13.8% in 1993.
The capital ratios for the Company at December 31, 1995, reflecting
the additional capital infusion of approximately $3.5 million through the sale
of 270,000 shares of common stock during the year, are well above the minimum
regulatory guidelines. The tier-1 and total risk-based capital ratios were
13.37% and 14.62%, respectively at December 31, 1995. These capital ratios for
the banking subsidiary of the Company categorize it as "well capitalized"
according to the Federal Deposit Insurance Corporation Act of 1991 (FDICIA).
NET INTEREST INCOME
Net interest income is the largest component of the Company's net
income and represents the interest earned on interest earning assets less the
cost of interest bearing liabilities. Net interest income for 1995 was $19.9
million as compared to $17.7 million for 1994 and $16.7 million for 1993. The
approximate 12.5% increase for 1995 was attributed to several factors including
an increase in average loans, stable funding costs of deposits, and the
improved mix of funding sources. Additionally, during 1995 and 1994, a slight
liquidation and repositioning in the securities portfolio, in an attempt to
improve overall portfolio yield, was accomplished. All of these factors
contributed to the Company being able to control and monitor the net interest
margin, but perhaps the major contributors were the steady local economies in
which the Company participates and the steady demand for consumer and
commercial loans.
OTHER OPERATING INCOME AND EXPENSE
Other income for 1995 increased $797 thousand over 1994; 1994's other
income increased over 1993 by $222 thousand. The 1995 increase was primarily as
a result of the emphasis placed on cross sell opportunities in deposit
origination areas and the increased markets made available in 1995. The
subsidiary bank opened two additional branches during 1995 with excellent
customer response and participation. Services charge income increased
approximately $359 thousand over 1994 levels and service fees and commissions
increased approximately $332 thousand over 1994.
Other expense for 1995 resulted in an increase of $549 thousand or a 4.0%
increase over 1994. Other expense for 1994 reflected a $763 thousand increase
increase over 1993, a 7.6% increase over the prior year. Salaries and benefits
account for the majority of the increases in both years; $868 thousand in 1995
and $546 thousand in 1994. Other expenses reflected several reductions in 1995
expenses in categories such as equipment and data processing of $113 thousand
and regulatory insurance and fees of approximately $337 thousand, over levels
recorded in 1994. Management continues to promote those areas for improvement
in other income opportunities and efficiency in monitoring noninterest
expenses.
31
<PAGE> 24
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION
- --------------------------------------------------------------------------------
First M&F Corporation and Subsidiary
INTEREST RATE SENSITIVITY
The Company manages net interest income through its asset/liability
management process (ALM). The company's asset/liability committee, comprised of
executive management, sets the day to day operating guidelines and approves
strategies affecting net interest income and coordinates activities within
policy limits as approved by the Company's full Board of Directors. At December
31, 1995, the Company's interest sensitivity gap position was within those
approved guidelines.
USES AND SOURCES OF FUNDS
Loans are the Company's largest interest earning asset. Total loans
increased $32.1 million or 11.7% during 1995 as compared to $56.9 million in
1994, a 26.2% increase. These increases reflect a trend that began in mid 1994,
whereby specific marketing strategies were put in place to improve loan
delivery in the company's major market places. Higher loan demand contributed
to a large degree to the record increases in loan volume. Additionally, the
Company increased its involvement in credit card lending and introduced cash
flow factoring of accounts receivable with local merchants within the various
market places. At December 31, 1995 the Company has approximately $3.5 million
in such loans. Another component of earnings assets is the Company's securities
portfolio. During 1995 the portfolio grew approximately $27.8 million as
compared to growth of $1.5 million in 1994. This significant growth was
primarily related to the increase in deposits of approximately $47.0 million
during the same period.
LIQUIDITY
The Company relies largely on core deposits to fund loan and long-term
investments. Additional funding is provided from federal funds, lines of credit
with the Federal Home Loan Bank of Dallas and lines of credit with other
banking institutions. The Company's consolidated statements of cash flows can
be used to review the Company's cash flows from operating, investments and
financing activities.
CREDIT RISK MANAGEMENT AND ALLOWANCE/PROVISION FOR POSSIBLE LOAN LOSSES.
The Company has a credit administration function separate and apart
from the line lending function. Various loan committees review and approve
loans and passes on credit quality. A separate loan review function monitors
the overall credit quality and adequacy of the Company's allowance for possible
loan losses. The Company maintains its allowance for possible loan losses at a
level considered sufficient to absorb potential losses in the loan portfolio.
The allowance is adjusted through a provision to expense. As a result of man-
agement's assessment of the adequacy of the allowance in 1995, the Company
recorded a $1.51 million provision. This compared with provisions of $882
thousand in 1994 and $1.1 million in 1993. Management believes the current
level of the allowance to be adequate for future needs and will continue to
monitor in light of regulatory examinations, economic conditions and growth of
the loan portfolio.
CAPITAL AND DIVIDENDS
Capital adequacy is continuously monitored by the Company to insure
appropriate levels are maintained. As discussed earlier in this commentary, the
Company infused approximately $3.5 million of additional capital into equity
during 1995 through the sale of common stock. This infusion was passed on to
the bank subsidiary. Capital levels at both Company and bank subsidiary levels
are above peer groups.
As reflected in the selected financial data, dividends paid by the
Company continue to offer an attractive investment opportunity. It is the
intention of the board of directors to continue to pay cash dividends on a
quarterly basis, dependent of future earnings, the assessment of future capital
needs of the Company and such other factors affecting the ability to pay
dividends.
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM 1995 CONSOLIDATED
FINANCIAL STATEMENTS AND GUIDE 3 DATA FILED AS PART OF FORM 10-K FOR THE YEAR
ENDED DEC 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 18,824
<INT-BEARING-DEPOSITS> 315
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 128,190
<INVESTMENTS-CARRYING> 52,814
<INVESTMENTS-MARKET> 53,210
<LOANS> 292,002
<ALLOWANCE> 4,250
<TOTAL-ASSETS> 505,807
<DEPOSITS> 405,863
<SHORT-TERM> 48,294
<LIABILITIES-OTHER> 5,095
<LONG-TERM> 1,786
<COMMON> 16,673
0
0
<OTHER-SE> 28,096
<TOTAL-LIABILITIES-AND-EQUITY> 505,807
<INTEREST-LOAN> 27,268
<INTEREST-INVEST> 9,426
<INTEREST-OTHER> 761
<INTEREST-TOTAL> 37,455
<INTEREST-DEPOSIT> 14,764
<INTEREST-EXPENSE> 17,510
<INTEREST-INCOME-NET> 19,944
<LOAN-LOSSES> 1,509
<SECURITIES-GAINS> (119)
<EXPENSE-OTHER> 14,370
<INCOME-PRETAX> 8,305
<INCOME-PRE-EXTRAORDINARY> 8,305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,275
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 8.59
<LOANS-NON> 84
<LOANS-PAST> 707
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,374
<CHARGE-OFFS> 877
<RECOVERIES> 244
<ALLOWANCE-CLOSE> 4,250
<ALLOWANCE-DOMESTIC> 3,264
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 986
</TABLE>
