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, 1997
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)
Registrants telephone number, including area code: (601) 289-5121
Securities registered pursuant to section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF CLASS WHICH REGISTERED
NONE NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock $5.00 par value
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 shorter 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes( ) 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 March 3, 1998
Common stock ( $5.00 par value ) 3,394,656 Shares
Based on bid price for shares on March 3, 1998, the aggregate market
value of the voting stock held by nonaffiliates of the Registrant was
$92,521,040.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference to Part I, II,
III and IV of the Form 10-K report: (1) Registrant's 1997 Annual Report
to Shareholders (containing selected and summary financial information) (Parts
II and IV), and (2) Registrant's Combined 1997 Annual Report and Proxy
Statement dated March 18, 1998, for Registrant's Annual Meeting of Shareholders
to be held April 8, 1998 (which contains Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition), (Parts II, III
and IV).
1 of 20
<PAGE>
FIRST M & F CORPORATION
FORM 10-K
INDEX
Part I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Part II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the
Registrant 15
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 16
SIGNATURES 18-19
EXHIBIT INDEX 20
2
<PAGE>
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 seventh largest bank in the state,
having total assets of approximately $580 million at December 31, 1997. 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, Clinton, 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 two 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.
3
<PAGE>
As of January 31, 1998, the Company and its subsidiary employed 259 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.
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 enacted. 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.
4
<PAGE>
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., 52, 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, 53, 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 13.
5
<PAGE>
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 yields or
rates for each.
<TABLE>
DECEMBER 31ST
1997 1996 1995
---- ---- ----
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BAL INTEREST RATE BAL INTEREST RATE BAL INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average assets
- ------------------
Federal funds sold $ 10,782 $ 567 5.26 $ 12,839 $ 685 5.34% $ 9,846 $ 596 6.05%
Loans, net 349,684 34,279 9.80% 317,013 31,346 9.89% 275,422 27,310 9.92%
Bank balances 3,378 190 5.62% 3,934 205 5.21% 2,790 165 5.91%
Taxable securities 117,064 7,280 6.22% 120,356 7,394 6.14% 121,291 7,300 6.02%
Tax-exempt securities 41,941 3,215 7.67% 38,324 2,988 7.80% 40,472 3,221 7.96%
------------------------------------------------------------------------------------------------
Total int. earnings 522,849 45,531 8.71% 492,466 42,618 8.65% 449,821 38,592 8.58%
Noninterest assets 39,888 34,535 30,800
------------------------------------------------------------------------------------------------
Total average assets 562,737 45,531 8.09% 527,001 42,618 8.09% 480,621 38,592 8.03%
------------------------------------------------------------------------------------------------
Liabilities & capital
- ---------------------
DDA and savings 207,098 7,560 3.65% 175,383 6,140 3.50% 144,970 4,578 3.16%
Time deposits 237,123 12,889 5.44% 220,038 12,082 5.49% 191,290 10,186 5.32%
Short-term funds 64 4 6.25% 19,330 965 4.99% 45,850 2,551 5.56%
FHLB advances 3,628 240 6.62% 5,937 354 5.96% 3,482 195 5.60%
-----------------------------------------------------------------------------------------------
Total interest bearing 447,913 20,693 4.62% 420,688 19,541 4.65% 385,592 17,510 4.54%
Noninterest bearing
and capital 114,824 106,313 95,029
-----------------------------------------------------------------------------------------------
Total average
Liabilities & Capital 562,737 20,693 3.68% 527,001 19,541 3.71 480,621 17,510 3.64%
-----------------------------------------------------------------------------------------------
Net interest margin 24,838 4.75% 23,077 4.69% 21,082 4.69%
Less tax equiv adj
Investments 1,093 1,016 1,095
Loans 222 106 80
-----------------------------------------------------------------------------------------------
Net interest margin
Per annual report $ 23,523 $ 21,955 $ 19,907
------------------------------------------------------------------------------------------------
</TABLE>
Nonaccruing loans have been included in the average loan balances and interest
collected prior to these loans 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.
6
<PAGE>
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 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>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
---------------------------------------------------------------
YIELD/ YIELD/
VOLUME RATE NET VOLUME RATE NET
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Fed funds sold $ (110) $ (8) $ (118) $ 181 $ (92) $ 89
Loans, net 3,230 (297) 2,933 4,124 (88) 4,036
Bank balances (29) 14 (15) 68 (28) 40
Taxable securities (202) 88 (114) (56) 157 101
Tax-exempt securities 282 (55) 227 (171) (62) (233)
---------------------------------------------------------------
Total interest-earning assets 3,171 (258) 2,913 4,146 (113) 4,033
Interest paid on:
Demand deposits & savings 1,110 310 1,420 960 602 1,562
Time deposits 938 (131) 807 1,531 365 1,896
Short-term funds (962) 1 (961) (1,476) (103) (1,579)
FHLB advances (138) 24 (114) 138 21 159
---------------------------------------------------------------
Total interest-bearing liab 948 204 1,152 1,153 885 2,038
---------------------------------------------------------------
Change in net income on a
tax equivalent basis $ 2,223 $ (462) $ 1,761 $ 2,993 $ (998) $ 1,995
---------------------------------------------------------------
</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.
7
<PAGE>
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>
December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Securities available for sale
U.S. Treasury $ 23,656 $ 21,682 $ 38,440
Government agencies 21,732 15,922 39,028
Obligations of states and political subdivisions 15,571 18,230 24,331
Other securities 48,044 30,610 26,391
------------------------------
Total securities available for sale $109,003 $ 86,444 $128,190
------------------------------
December 31,
------------------------------
1997 1996 1995
-------- -------- --------
Securities held to maturity
U.S. Treasury $ 1,050 $ 1,050 $ 1,051
Government agencies 11,018 13,980 14,152
Obligations of states and political subdivisions 33,623 24,235 18,321
Other securities 13,094 17,888 19,290
------------------------------
Total securities held to maturity $ 58,785 $ 57,153 $ 52,814
------------------------------
</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, 1997. (tax equivalent yield - $
in thousands)
<TABLE>
After One After Five
But Within But Within After
One Year Yield Five Year Yield Ten Years Yield Ten Years Yield
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury $ 6,088 5.63% $ 17,567 6.22% $ 23,655
Government agencies 10,589 5.56% 9,641 6.23% $ 1,502 7.28% 21,732
Obligations of states and
political subdivisi ons 4,694 7.19% 8,071 7.86% 3,051 8.97% 15,816
Other securities 14,395 6.87% 23,068 6.75% 2,932 6.81% 7,405 6.73% 47,800
--------------------------------------------------------------------------------------------
Total $35,766 6.31% $ 58,347 6.65% $ 7,485 7.78% $7,405 6.73% $109,003
--------------------------------------------------------------------------------------------
Securities held to maturit
U.S. Treasury $ 1,050 6.08% $ 1,050
Government agencies 5,669 7.01% $ 3,637 6.92% $ 1,713 6.98% 11,019
Obligations of states and
political subdivisions 2,566 6.92% 16,806 7.11% 12,905 7.29% 1,245 9.09% 33,522
Other securities 3,140 6.76% 4,319 6.61% 4,139 6.14% 1,596 6.34% 13,194
--------------------------------------------------------------------------------------------
Total $12,425 6.84% $ 24,762 6.99% $18,757 7.01% $2,841 7.54% $ 58,785
--------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Company had securities issued by the State of
Mississippi and its political subdivisions and agencies with a carrying value of
$37,134 and a market value of $38,166.
8
<PAGE>
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO
The table below shows the carrying value of the loan portfolio at the end of
each year for the last five years. ($ in thousands)
<TABLE>
December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 122,635 $113,909 $ 94,906 $ 89,316 $ 75,685
Real estate-construction 32,520 26,356 27,194 18,749 8,328
Real estate-mortgage 116,395 106,198 85,497 77,568 67,092
Consumer loans 88,623 98,638 84,134 76,174 56,950
Lease financing 19 137 271 247 492
-------------------------------------------------------
$ 360,192 $345,238 $292,002 $262,054 $208,547
-------------------------------------------------------
</TABLE>
TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST
RATES
The table below shows the amounts of loans in several categories at December 31,
1997, along with the schedule of repayments of principal in the periods
indicated. ($ in thousands)
<TABLE>
Maturing
-------------------------------------------------
Within One/Five After Five
One Year Years Years Total
-------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and real estate $ 137,306 $ 103,378 $ 30,885 $ 271,569
Installment loans to individuals 20,709 65,314 2,600 88,623
-------------------------------------------------
$ 158,015 $ 168,692 $ 33,48 $ 360,192
--------------------------------------------------
</TABLE>
The following table shows all loans due after one year according to their
sensitivity to changes in interest rates. ($ in thousands)
Maturing
-------------------------------
One/Five After Five
Years Years Total
-------------------------------
Above loans due after one year which have:
Predetermined interest rates $167,754 $ 33,184 $200,938
Floating interest rates 938 0 938
-------------------------------
Total $168,692 $ 33,184 $201,876
------------------------------
9
<PAGE>
FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS
The table below shows the Company's nonperforming assets and past due loans at
the end of each of the last five years. ($ in thousands)
<TABLE>
December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 328 $ 206 $ 84 $ 253 $ 519
Restructured loans 0 0 0 0 0
----------------------------------------------------
Total nonperforming loans 328 206 84 253 519
Other real estate owned 843 724 148 869 1,061
----------------------------------------------------
Total nonperforming assets 1,171 930 232 1,122 1,580
Accruing loans past due 90 days or more 1,149 968 707 394 788
----------------------------------------------------
Total nonperforming assets and loans $ 2,320 $ 1,898 $ 939 $1,516 $ 2,368
----------------------------------------------------
</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, 1997, 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, 1997, the Company had no loans about which Management had serious
doubts as to their collectibility other than those disclosed above.
10
<PAGE>
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 thousand)
<TABLE>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loan loss reserve at beginning of period $ 4,475 $ 4,250 $ 3,374 $ 2,866 $ 2,451
Adjustment for sale of finance company branch (77)
Loans charged off
Commercial, financial and agricultural (365) (235) (117) (22) (95)
Real estate (185) (174) (53) (124) (391)
Consumer (897) (738) (707) (478) (458)
----------------------------------------------------
Total (1,447) (1,147) (877) (624) (944)
----------------------------------------------------
Recoveries
Commercial, financial and agricultural 23 8 14 12 31
Real estate 23 14 106 40 44
Consumer 126 129 124 198 214
----------------------------------------------------
Total 169 151 244 250 289
Net charge offs (1,278) (996) (633) (374) (655)
Provision for loan losses charged to expense 2,050 1,221 1,509 882 1,070
----------------------------------------------------
Amount of loan loss reserve at end of period $ 5,170 $ 4,475 $ 4,250 $ 3,374 $ 2,866
----------------------------------------------------
</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.
11
<PAGE>
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, 1997. These allocations are
determined by internal formulas based upon an analysis of the various types of
risk associated with the loan portfolio. ($ in thousands)
Allocation for pools of
risk-rated loans $ 4,186
Additional allocation for
risk-rated consumer loans 107
Discretionary-unallocated 877
---------
$ 5,170
---------
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 $877 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.
12
<PAGE>
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 $100,000 or
more at December 31, 1997. ($ in thousands)
Certificates
of deposits
Three months or less $ 17,051
Over three months through six months 4,797
Over six months through twelve month 14,552
Over twelve months 13,921
--------
Total $ 50,321
--------
TABLE 11 - SELECTED RATIOS
The following table reflects ratios for the Company for the last three years.
1997 1996 1995
-------- ------- -----
Return on average assets 1.41% 1.40% 1.30%
Return on average equity 15.28% 15.80% 15.79%
Dividend payout ratio 37.77% 34.40% 32.63%
Equity to assets ratio 9.20% 8.87% 8.24%
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)
1997 1996 1995
------- -------- ---------
Outstanding at end of period $ 0 $ 70 48,294
Maximum outstanding at any month-end
during the period 0 51,236 58,482
Average outstanding during the period 66 19,576 46,785
Interest paid 4 939 2,551
Weighted average rate during each period 5.69% 4.80% 5.45%
13
<PAGE>
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 PROCEEDINGS
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 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
At March 4, 1998, there were 565 shareholders of record of the
Company's common stock. Effective September 1, 1996, the Company's common stock
was listed with the National Association of Securities Dealers, Inc. Automated
Quotation National Market System (NASDAQ) and became subject to trading and
reporting over the counter with most securities dealers. Prior to the date of
registration with NASDAQ, the stock was traded on a limited basis and no
securities firm was acting as a market maker.
First Second Third Fourth
------- ------- ------- --------
Quarterly Closing Common
Stock Price Ranges and
Dividends Paid
1997:
High $ 28.00 $ 29.25 $ 30.00 $ 44.00
Low 25.00 26.50 27.50 30.50
Close 27.00 28.00 30.00 40.00
Dividend .20 .22 .22 .24
- -------------------------------------------------------------------
1996:
High $ 24.00 $ 26.00 $ 27.00 $ 29.00
Low 22.00 24.00 25.00 29.00
Close 24.00 25.00 26.00 29.00
Dividend .17 .19 .19 .20
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 1997 Annual Report to Shareholders
and is incorporated herein by reference. (page 14)
14
<PAGE>
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 Combined 1997 Annual Report and Proxy Statement
to Shareholders dated March 18, 1998, and is incorporated herein by reference.
(pages 40-45) In June, 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards Nos 130 and 131 regarding the
reporting of comprehensive income and disclosures about segments of business
enterprises. The Company will be required to adopt both standards during
1998, however, such will not have a material impact on the consolidated
financial statements.
During 1997, and continuing into the next few years is the discussion
of the year 2000 and the technical issues relating to computer software. The
Company primarily uses third-party vendors for its mainframe software banking
applications. The vendor has been 2000 compliant since 1995. The Company
continues to monitor and study its relationships with all vendors and majors
customers. The cost of assuring year 2000 compliance will not be material to
financial statements of the Company.
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 Combined 1997
Annual Report and Proxy Statement to Shareholders dated March 18, 1998, and are
incorporated herein by reference. (Pages 14-39) The Selected Quarterly
Financial Data is contained in the Registrant's 1997 Annual Report to
Shareholders (Page 16) under the caption "Quarterly Financial Trends."
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, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the directors of the Registrant can be found on pages 5
- - 7, "Election of Directors," and page 9, "Director Compensation," contained in
the Combined 1997 Annual Report and Proxy Statement to Shareholders dated
March 18, 1998, and is incorporated herein by reference. Information on the
Registrant's executive officers is included on pages 8-9, "Executive
Compensation," in the Combined 1997 Annual Report and Proxy Statement and in
Part I, Item 1 Business, page 5 of this Annual Report on Form 10-K.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item can be found on pages 8-9, "Executive
Compensation," and page 9, "Director Compensation," of the Combined 1997 Annual
Report and Proxy Statement dated March 18, 1998, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners
and Management can be found on page 7, "Beneficial Ownership Reporting
Compliance," and page 7, "Principal Shareholder," in the Combined 1997
Annual Report and Proxy Statement to Shareholders dated March 18, 1998, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
can be found on page 12 under the caption "Transactions with Management," in the
Combined 1997 Annual Report and Proxy Statement to Shareholders dated March 18,
1998, and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A-1. Financial Statements
The report of Shearer, Taylor & Co., P. A., independent auditors, and the
following consolidated financial statements of First M & F Corporation and
Subsidiary are included in the Registrant's Combined 1997 Annual Report and
Proxy Statement to Shareholders, dated March 18, 1998, and are
incorporated into Part II, Item 8, herein by reference.
Report of Independent Certified Public Accountants PAGE 14
Consolidated Statements of Condition as of December 31, 1997, and 1996
PAGE 15
Consolidated Statements of Income for the Years ended
December 31, 1997, 1996, and 1995 PAGE 16
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1997, 1996, and 1995 PAGE 17
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996, and 1995 PAGE 18
Notes to the Consolidated Financial Statements PAGE 20
The Selected Financial Data and the Selected Quarterly Financial Data
are included in the Registrant's 1997 Annual Report to
Shareholders on pages 14 and 16, respectively
16
<PAGE>
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
incorporated herein by reference.
B. Reports on Form 8-K
None
17
<PAGE>
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 17, 1998 DATE: MARCH 17, 1998
18
<PAGE>
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:
DATE: March 17, 1998 BY: /S/ Hugh S. Potts, Jr.
--------------------------------
HUGH S. POTTS, JR., DIRECTOR
DATE: March 17, 1998 BY: /S/ Scott M. Wiggers
--------------------------------
SCOTT M. WIGGERS, DIRECTOR
DATE: March 17, 1998 BY: /S/ Fred A. Bell, Jr.
--------------------------------
FRED A. BELL, JR., DIRECTOR
DATE: March 17, 1998 BY: /S/ Jon A. Crocker
--------------------------------
JON A. CROCKER, DIRECTOR
DATE: March 17, 1998 BY: /S/ Charles T. England
--------------------------------
CHARLES T. ENGLAND, DIRECTOR
DATE: March 17, 1998 BY: /S/ Toxey Hall, III
--------------------------------
TOXEY HALL III, DIRECTOR
DATE: March 17, 1998 BY: /S/ Barbara K. Hammond
--------------------------------
BARBARA K. HAMMOND, DIRECTOR
DATE: March 17, 1998 BY: /S/ J. Marlin Ivey
--------------------------------
J. MARLIN IVEY, DIRECTOR
DATE: March 17, 1998 BY: /S/ Joe Ivey
--------------------------------
JOE IVEY, DIRECTOR
DATE: March 17, 1998 BY: /S/ R. Dale McBride
--------------------------------
R. DALE McBRIDE, DIRECTOR
DATE: March 17, 1998 BY: /S/ Susan P. McCaffery
--------------------------------
SUSAN P. McCAFFERY, DIRECTOR
DATE: March 17, 1998 BY: /S/ William M. Myers
--------------------------------
WILLIAM M. MYERS, DIRECTOR
DATE: March 17, 1998 BY: /S/ Otho E. Petit, Jr.
--------------------------------
OTHO E. PETIT, JR., DIRECTOR
DATE: March 17, 1998 BY: /S/ Charles W. Ritter, Jr.
--------------------------------
CHARLES W. RITTER, JR., DIRECTOR
DATE: March 17, 1998 BY: /S/ W.C. Shoemaker
--------------------------------
W. C. SHOEMAKER, DIRECTOR
DATE: March 17, 1998 BY: /S/ Edward G. Woodard
--------------------------------
EDWARD G. WOODARD, DIRECTOR
19
<PAGE>
EXHIBIT INDEX
2 Agreement and Plan of Reorganization dated September 1, 1995 among
First M&F Corporation, Merchants & Farmers Bank and Farmers & Merchants Bank
filed as Exhibit 2 to the Registrant's Form S-4, Registration Number 33-63919,
dated November 2, 1995 incorporated herein by reference.
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.
13.1 Only pages 14 and 16 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.
13.2 First M&F Corporation's Combined 1997 Annual Report and Proxy
Statement dated March 18, 1998.
27 Financial Data Schedule. All other exhibits are omitted as they are
inapplicable or not required by the related instructions.
20
Page 14
Selected Financial Data (Thousands except per share data)
First M&F Corporation and Subsidiary
<TABLE>
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EARNINGS
Interest income $ 44,216 $41,496 $37,417 $30,157 $27,739
Interest expense 20,693 19,541 17,510 12,464 11,127
----------------------------------------------------
Net interest income 23,523 21,955 19,907 17,693 16,612
Provision for loan losses 2,050 1,221 1,509 882 1,070
Noninterest income 4,965 4,436 4,240 3,444 3,222
Noninterest expense 15,312 14,916 14,370 13,821 13,058
Income taxes 3,212 2,864 2,018 1,590 1,418
---------------------------------------------------
Net income $ 7,914 $ 7,390 $ 6,250 $ 4,844 $ 4,288
---------------------------------------------------
Net interest income,
taxable equivalent $ 24,838 $23,077 $21,082 $18,796 $17,669
---------------------------------------------------
Cash dividends paid $ 2,987 $ 2,545 $ 2,031 $ 1,535 $ 1,516
---------------------------------------------------
PER COMMON SHARE
Net income $ 2.33 $ 2.18 $ 1.90 $ 1.55 $ 1.37
Cash dividends paid .88 .75 .62 .49 .49
Book value 15.97 14.46 13.13 11.05 10.50
Closing stock price 40.00 29.00 22.00 13.00 11.00
SELECTED AVERAGE BALANCES
Assets $ 562,737 $ 527,001 $ 480,621 $ 429,852 $ 382,943
Earning assets 523,757 492,466 449,821 399,076 370,720
Loans 349,684 317,013 275,422 230,693 193,943
Investments 159,005 158,680 161,763 159,194 164,107
Total deposits 500,910 449,619 366,231 350,495 338,766
Equity 51,789 46,766 39,582 33,559 31,072
SELECTED YEAR-END BALANCES
Assets $ 580,901 $ 523,760 $ 505,558 $ 446,255 $ 405,961
Earning assets 540,782 489,485 473,943 416,350 374,537
Loans 360,192 345,238 291,624 261,713 207,649
Investments 167,788 143,597 181,004 153,231 151,875
Core deposits 459,462 415,868 363,491 326,371 300,398
Total deposits 509,783 464,094 405,863 358,844 329,509
Equity 54,206 49,089 44,519 34,484 32,784
SELECTED RATIOS
Return on average assets 1.41% 1.40% 1.30% 1.13% 1.12%
Return on average equity 15.28% 15.80% 15.79% 14.43% 13.80%
Average equity to average assets 9.20% 8.87% 8.24% 7.81% 8.11%
Dividend payout ratio 37.77% 34.40% 32.63% 31.61% 35.77%
Price to earnings (x) 17.17x 13.30x 11.58x 8.39x 8.03x
Price to book (x) 2.50x 2.01x 1.68x 1.18x 1.05x
</TABLE>
Page 16
Quarterly Financial Trends (Dollars in Thousands)
First M&F Corporation and Subsidiary
First Second Third Fourth 4th Qtr 97 vs.
1997 Quarter Quarter Quarter Quarter 4th Qtr 96
- -------------------------------------------------------------------------------
Interest income $10,514 $10,930 $11,264 $11,508 $ 7.7%
Interest expense 4,884 5,096 5,354 5,359 9.1
-------------------------------------------------
Net interest income 5,630 5,834 5,910 6,149 6.5
Provision for loan losses 394 397 867 392 (10.1)
Noninterest income 1,106 1,114 1,563 1,182 26.6
Noninterest expense 3,697 3,801 3,836 3,978 2.7
Income taxes 750 794 795 873 37.7
-------------------------------------------------
Net income $ 1,895 $ 1,956 $ 1,975 $ 2,088 18.3%
- -----------------------------------------------------------------------------
Per common share:
Net income $ .56 $ .58 $ .58 $ .61 17.3%
Cash dividends .20 .22 .22 .24 20.0
- -----------------------------------------------------------------------------
First Second Third Fourth 4th Qtr 96 vs.
1996 Quarter Quarter Quarter Quarter 4th Qtr 95
- -------------------------------------------------------------------------------
Interest income $10,120 $10,276 $10,411 $10,689 7.2%
Interest expense 4,950 4,923 4,755 4,913 2.8
--------------------------------------------------
Net interest income 5,170 5,353 5,656 5,776 11.2
Provision for loan losses 256 248 281 436 (8.0)
Noninterest income 1,117 1,203 1,182 934 (5.6)
Noninterest expense 3,515 3,711 3,815 3,875 12.9
Income taxes 672 731 827 634 1.1
-------------------------------------------------
Net income $ 1,844 $ 1,866 $ 1,915 $ 1,765 6.9%
- -----------------------------------------------------------------------------
Per common share:
Net income $ .54 $ .55 $ .57 $ .52 6.1%
Cash dividends .17 .19 .19 .20 17.7
- -----------------------------------------------------------------------------
FIRST M & F CORPORATION
Post Office Box 520
KOSCIUSKO, MISSISSIPPI 39090
1997 Annual Report for First M & F Corporation
Notice of the Annual Shareholders' Meeting for 1998
Proxy Statement
Proxy
<PAGE>
Proxy Statement Table of Contents
1 Letter To Our Shareholders
2 Notice of Annual Shareholders' Meeting
3 Proxy Statement
4 Proposal No. 1 Election of Directors (Item I on Proxy Card)
5 - 6 Information Concerning Nominees and Directors
7 Section 16(a) Beneficial Ownership Reporting Compliance
7 Principal Shareholder
8 - 9 Executive Compensation
10 Five Year Shareholder Return Comparison
11 Independent Public Accountants
11 - 12 Salary and Committee Benefit Report on Executive Compensation
12 Transactions With Management
12 - 13 Committees of the Board of Directors
13 Other Matters
13 Proposals for 1999 Annual Meeting
14 Report of Independent Certified Accountants
15 Consolidated Statements of Condition
16 Consolidated Statements of Income
17 Consolidated Statements of Stockholders' Equity
18 - 19 Consolidated Statements of Cash Flows
20 - 39 Notes to Consolidated Financial Statements
40 - 44 Management's Discussion and Analysis of Financial Condition and
Operation
44 - 45 Results of Operations
<PAGE>
Page 1
FIRST M & F CORPORATION
Post Office Box 520
KOSCIUSKO, MISSISSIPPI 39090
March 18, 1998
Dear Shareholder:
Enclosed you will find a 1997 Annual Report for First M & F Corporation, a
Notice of the Annual Shareholders' Meeting for 1998, a Proxy Statement, and a
Proxy.
This institution is grateful for the loyalty and support of you, our friends and
shareholders. The Annual Shareholders' Meeting is to be held on Wednesday, April
8, 1998, at 2:00 P.M. at the Mary Ricks Thornton Cultural Center, located at the
corner of East Washington Street and North Huntington Street, Kosciusko,
Mississippi. We encourage you to mark this date on your calendar and make plans
to attend, and share further in the affairs of your corporation.
I urge you to complete the enclosed Proxy promptly and return it in the enclosed
self-addressed postage paid envelope, even if you plan to attend the meeting. If
you attend the meeting, you may withdraw your Proxy and vote in person.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
FIRST M & F CORPORATION
/s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
<PAGE>
Page 2
FIRST M & F CORPORATION
Post Office Box 520
KOSCIUSKO, MISSISSIPPI 39090
March 18, 1998
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
To the Shareholders of
First M & F Corporation
Kosciusko, Mississippi 39090
NOTICE IS HEREBY GIVEN that, pursuant to call of its Directors and in compliance
with the Bylaws, the regular annual meeting of shareholders of the FIRST M & F
CORPORATION (the "Company"), KOSCIUSKO, MISSISSIPPI, will be held at the
Mary Ricks Thornton Cultural Center at 204 North Huntington Street,
Kosciusko, Mississippi, on Wednesday, April 8, 1998, at 2:00 P.M. for the
purpose of considering and voting on the following proposals:
1. ELECTION OF DIRECTORS: The election of five (5) persons listed in the
Proxy Statement dated March 18, 1998, accompanying this notice, as
members of the Board of Directors for a term of three years.
2. Whatever other business may be properly brought before the meeting or
any adjournment thereof.
Whether or not you contemplate attending the meeting, it is requested that you
complete and return the enclosed Proxy as soon as possible. If you attend the
meeting, you may withdraw your Proxy and vote in person.
Only those shareholders of record at the close of business on February 28, 1998
shall be entitled to notice of and to vote at this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
Dated and mailed at
Kosciusko, Mississippi
On or about March 18, 1998
Enclosures: 1. Proxy
2. Business Reply Envelope
3. Annual Report
<PAGE>
Page 3
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
PROXY STATEMENT
DATED MARCH 18, 1998
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 8, 1998
SOLICITATION BY BOARD OF DIRECTORS OF FIRST M & F CORPORATION
This statement is furnished to the shareholders of First M & F Corporation (the
Company) in connection with the solicitation by the Board of Directors of
Proxies to be voted at the Annual Meeting of Shareholders to be held at the Mary
Ricks Thornton Cultural Center at 204 North Huntington Street, Kosciusko,
Mississippi, on Wednesday, April 8, 1998, at 2:00 P. M., local time or any
adjournment (s) thereof, for the matters set out in the foregoing notice of
Annual Shareholders' Meeting. The approximate date on which this Proxy Statement
and form of proxy are first being sent or given to shareholders is March 18,
1998.
Only those shareholders of record on the books of the Company at the close of
business on February 28, 1998, (the "Record Date") are entitled to notice of and
to vote at the meeting. On that date, the Company had outstanding of record
3,394,656 shares of common stock. Each share is entitled to one (1) vote. In the
election of Directors, each shareholder has cumulative voting rights, so that a
shareholder may vote the number of shares owned by him for as many persons as
there are Directors to be elected, or he may multiply the number of shares by
the number of Directors to be elected and allocate the resulting votes to one or
any number of candidates. For example, if the number of Directors to be elected
is five (5), a shareholder owning ten (10) shares may cast ten (10) votes for
each of five (5) nominees, or cast 50 votes for any one (1) nominee or allocate
the fifty (50) votes among several nominees.
The cost of soliciting proxies from shareholders will be borne by the Company.
The initial solicitation will be by mail. Thereafter, proxies may be solicited
by Directors, officers and regular employees of the Company, by means of
telephone, telegraph or personal contact, but without additional compensation
therefor. The Company will reimburse brokers and other persons holding shares as
nominees for their reasonable expenses in sending proxy soliciting material to
the beneficial owners.
Any shareholder giving a Proxy has the right to revoke it at anytime before it
is exercised. A shareholder may revoke his Proxy (1) by personally appearing at
the Annual Meeting, (2) by written notification to the Company which is received
prior to the exercise of the Proxy or (3) by a subsequent Proxy executed by the
person executing the prior Proxy and presented at the Annual Meeting. All
properly executed Proxies, if not revoked, will be voted as directed on all
matters proposed by the Board of Directors, and, if the shareholder does not
direct to the contrary, the shares will be voted "For" each of the proposals
described below.
<PAGE>
Page 4
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
SOLICITATION BY BOARD OF DIRECTORS OF FIRST M & F CORPORATION (continued)
The presence at the Annual Meeting, in person or by Proxy, of a majority
of the shares of Common Stock outstanding on February 28, 1998, and entitled to
vote, will constitute a quorum.
The 1997 Annual Report to shareholders of the Company is enclosed for the
information of the shareholders. The audited financial statements of the Company
are attached to the proxy soliciting material for the information of the
shareholders. The Annual Report and audited financial statements are not a part
of the proxy soliciting material.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)
The Board of Directors of the Company is divided into three (3) classes - Class
I, Class II and Class III. Classes I and III consist of five (5) Directors each
and Class II consists of six (6) Directors. The term of Class II Directors
expires at the 1998 Annual Meeting. The term of Class III Directors will expire
at the 1999 Annual Meeting. The term of Class I Directors will expire at the
2000 Annual Meeting.
The Board of Directors has nominated Barbara K. Hammond, R. Dale McBride, Hugh
S. Potts, Jr., W. C. Shoemaker and Scott M. Wiggers for election as Class II
Directors to serve until the 2001 Annual Meeting. Barbara K. Hammond, R. Dale
McBride, Dr. W. M. Myers, Hugh S. Potts, Jr., W. C. Shoemaker and Scott M.
Wiggers are currently serving as Class II Directors.
Unless authority is expressly withheld, the proxy holders will vote the proxies
received by them for the five (5) nominees for Class II Directors listed above,
reserving the right, however, to cumulate their votes and distribute them among
the nominees, in their discretion. Although each nominee has consented to being
named in this Proxy Statement and to serve if elected, if any nominee should
prior to the Annual Meeting decline or become unable to serve as a Director, the
proxies will be voted by the proxy holders for such other persons as may be
designated by the present Board of Directors. During 1997, the Company's Board
of Directors had twelve (12) meetings. No incumbent Director attended less than
75% of the total number of meetings of the Board of Directors or committees upon
which he served. The following table provides certain information about the
nominees and the other current Directors of the Company.
Pursuant to Mississippi Law and the Company's Bylaws, Directors are elected by
a plurality of the votes cast in the election of Directors. A plurality means
that the individuals with the largest number of favorable votes are
elected as Directors, up to the maximum number of Directors to be chosen at the
meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL THE NOMINEES
<PAGE>
Page 5
<TABLE>
<CAPTION>
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
INFORMATION CONCERNING NOMINEES AND DIRECTORS
Amount and Nature of
Positions & Offices Beneficial Ownership Percent of Common
With Company or/and Director Of Common Stock as of Stock Beneficially
Name and Age Employment Since February 28, 1998 Owned (a)
CLASS I
<S> <C> <C> <C> <C> <C>
Fred A. Bell, Jr., 56 District manager, 1981 20,036 (1) .59%
Mississippi Materials
Corp. (Concrete and
building materials
manufacturer/distributor
Charles T. England, 61 Supervisor of Finance 1980 15,208 (2) .45%
Company subsidiaries of
Merchants and Farmers
Bank beginning in 1995;
Registered Representative
of Security Financial
Network in 1994; Farmer;
formerly Chancery Clerk,
Attala County
Joseph M. Ivey, 39 Chairman and CEO, 1994 103,022 (3) (4) (12) 3.03%
Ivey Mechanical Company
(plumbing and electrical
contractors)
Susan McCaffery, 58 Member of Audit 1987 115,774 (5) (6) 3.41%
Committee; Professor,
Wood College
Edward G. Woodard, 43 Member of Audit 1989 8,306 (7) .24%
Committee; President,
K. M. Distributing
Company, Inc. (whole-
saler of chain saws, lawn
and gardening equipment)
CLASS II
Barbara K. Hammond, 53 Member of Audit 1995 2,000 .06%
Committee; Specialist,
Circuit Capacity
Management, BellSouth
R. Dale McBride, 58 President, Merchants 1979 17,764 (9) .52%
and Farmers Bank, Durant
Hugh S. Potts, Jr., 53 Chairman of the Board 1979 387,304 (5) (10) 11.41%
and CEO of the Company
since 1994; Vice Chairman,
1983-1993; Vice President,
1979-1983
W. C. Shoemaker, 65 Consultant, IMC Webb 1979 40,266 1.19%
Graphics (Printing);
President, W.C. Shoemaker,
Inc. (investments & real estate)
Scott M. Wiggers, 53 President since 1988 and 1983 6,300 (8) .19%
Treasurer since 1979;
Company President,
Merchants & Farmers Bank
<PAGE>
Page 6
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
INFORMATION CONCERNING NOMINEES AND DIRECTORS (continued)
Amount and Nature of
Positions & Offices Beneficial Ownership Percent of Common
With Company or/and Director Of Common Stock as Stock Beneficially
Name and Age Employment Since February 28, 1998 of Owned (a)
CLASS III
Jon A. Crocker, 55 Chairman & CEO, 1996 62,595 (11) 1.84%
Merchants & Farmers
Bank, Bruce Branch
Toxey Hall, III 58 Member of Audit 1984 2,112 .06%
Committee; President,
Thomas-Walker-Lacey
(retail discount store)
J. Marlin Ivey, 61 Member of Audit 1979 112,512 (3) (12) 3.31%
Committee; President,
Ivey National Corporation
(holding company for
various businesses)
Otho E. Pettit, Jr., 47 Attorney at Law, 1993 12,179 (13) .36%
Thornton, Guyton,
Dorrill & Pettit
Charles W. Ritter, Jr., 64 Chairman of Audit 1979 152,000 (14) 4.48%
Committee; President,
The Attala Company
(feed manufacturing
company)
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 968,148 78.5%
GROUP (20 PERSONS)
</TABLE>
(a) Constitutes sole ownership unless otherwise indicated.
(1) Includes 200 shares owned by Mr. Bell's wife.
(2) Mr. England shares voting and investment power with respect to these
shares with his wife.
(3) Director J. Marlin Ivey is the father of director Joseph M. Ivey.
(4) Includes 225 shares owned by Mr. Joseph Ivey's minor children.
(5) Mrs. McCaffery and Hugh S. Potts, Jr. are sister. Their father is the
Company's former Chief Executive Officer and Chairman of the Board, Hugh
S. Potts, Sr.
(6) Mrs. McCaffery shares voting and investment power with respect to 5,437
of these shares with her husband and children and includes 15,500 shares
owned by Mrs. McCaffery's husband.
(7) Includes 880 shares owned by Mr. Woodard's wife.
(8) Includes 1,134 shares owned by Mr. Wigger's wife.
(9) Mr. McBride shares voting and investment power with respect to 13,840 of
these shares with his wife and children.
(10) Mr. Potts, Jr. shares voting and investment power with respect to 69,500
of these shares, which are held in two trusts and includes 36,234 shares
owned by his wife and minor children. Mr. Potts, Jr. is the trustee over
The Salt & Light Foundation which owns 36,754 shares.
(11) Of these shares, 5,070 are registered in the name of BellAire
Corporation, of which Mr. Crocker's wife is a director.
(12) Of these shares, 92,512 are registered in the name of Ivey National
Corporation, of which Mr. J. Marlin Ivey is the President and Mr. Joseph
M. Ivey is an officer.
(13) Includes 3,726 owned by Mr. Pettit's wife and children.
(14) Includes 60,000 shares owned by Mr. Ritter's wife.
Charles W. Ritter, Jr. is a director of Sanderson Farms, Inc., Laurel,
Mississippi. None of the other Directors are a director of another company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the reporting requirements of Section 15(d)
of the Act, or registered as an investment company under the Investment Company
Act of 1940.
<PAGE>
Page 7
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
common stock. Executive officers and directors are required by Securities and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, during the fiscal year ended December 31,
1997, all Section 16(a) filing requirements applicable to the Company's
executive officers and directors were complied with, except for the following:
Jon A. Crocker reported two(2) days late on a Form 4 a disposition of shares.
This was due to an oversight by the reporting person, with no intent to delay.
Otho E. Pettit, Jr. reported the acquisition of shares to First M & F
Corporation four (4) days late for the month required. This was due to an
oversight by the reporting person, with no intent to delay.
PRINCIPAL SHAREHOLDER
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:
Amount and Nature of Beneficial Ownership Percent of
Name and Address of of Common Stock Class
Beneficial Owner
Hugh S. Potts, Jr. 387,304 shares (1) 11.41%
1104 Walnut Road
Kosciusko, MS 39090
(1) Mr. Potts shares voting and investment power with respect to 69,500 of
these shares, which are held in two trusts.
<PAGE>
Page 8
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
EXECUTIVE COMPENSATION
The following tables show the annual compensation for 1997, 1996 and
1995 for the Chief Executive Officer of the Company and all Executive Officers
of the Company and the Bank whose cash compensation for 1997 exceeded $100,000.
<TABLE>
Other Annual All Other (3)
Name and Principal Position Year Salary Bonus Compensation Compensation
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,317 (1)
Hugh S. Potts, Jr 1997 $167,308 $ 15,000 3,219 (3) $ 4,183
Chairman of the Board and 2,016 (1)
CEO since 4/15/94 1996 153,653 12,292 887 (2) 3,841
1995 150,320 21,300 2,441 (1) 0
Scott M. Wiggers 1997 121,731 15,000 1,640 (1) 3,043
President 1996 113,654 9,092 1,613 (1) 2,841
1995 110,260 15,620 1,613 (1) 0
<FN>
(1) Cost of excess life insurance
(2) Automobile allowance
(3) Cost of country club memberships
(4) All other compensation consists of "Company Contribution" of the 401k plan
</FN>
</TABLE>
PENSION PLAN. The following table indicates the estimated annual benefits
payable to persons in specified classifications upon retirement at age 65.
Five Years
Average Annual Credited Years of Service
Compensation 15 20 25 30 35
- -----------------------------------------------------------
$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
Credited years of service for the individuals named in the Summary Compensation
Table above are anticipated to be as follows: Hugh S. Potts, Jr. - 37 years;
Scott M. Wiggers - 34 years.
<PAGE>
Page 9
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
EXECUTIVE COMPENSATION (continued)
A participant in First M&F's Pension Plan whose service is terminated 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 average earnings;
(2) = twenty-five hundredths percent (0.25%) of the participants 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. Non-officer Directors receive annual compensation in
the amount of $900 per Board Meeting attended payable at the end of the year,
plus an additional $20 for each committee meeting attended.
<PAGE>
Page 10
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
FIVE YEAR SHAREHOLDER RETURN COMPARISON
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the NASDAQ Market US Index and the NASDAQ Bank Index
which consists of the period of five (5) years beginning in 1992.
Comparison of Five Year Cumulative Total Return*
Among First M&F Corporation, The NASDAQ Stock Market (U.S.) Index and The
NASDAQ Bank Index
[LINE GRAPH]
Cumulative Total Return 12/92 12/93 12/94 12/95 12/96 12/97
- ----------------------------------------------------------------------------
First M&F Corporation 100 131 141 249 337 479
NASDAQ Bank 100 114 114 169 223 377
NASDAQ Stock Market (U.S.) 100 115 112 159 195 240
<PAGE>
Page 11
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
INDEPENDENT PUBLIC ACCOUNTANTS
Shearer, Taylor & Co., P.A. were the independent accountants for the Company
during the most recently completed fiscal year and will serve as the independent
accountants for the Company during the current fiscal year. Representatives of
this firm will be present at the Annual Meeting and have an opportunity to make
statements if they so desire and are expected to be available to respond to
appropriate questions.
SALARY AND BENEFIT COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report reflects the Company's compensation philosophy for all executive
officers, as endorsed by the Board of Directors and the Salary and Benefits
Committee. The committee is comprised of Directors: Hugh S. Potts, Jr., J.
Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward G. Woodard and
determines annual base salary adjustments and annual pay for performance bonus
awards.
In determining the compensation to be paid to the Company's executive officers
in 1997, the Salary and Benefit Committee employed compensation policies
designed to align the compensation of Mr. Potts and Mr. Wiggers with the
Company's overall business strategy, values and management initiatives. These
policies are intended to reward executives for strategic management and the
enhancement of shareholder value and support a performance-oriented environment
that rewards achievement of internal goals.
In 1997, Messrs. Potts and Wiggers received an increase in base salary of 8.9%
and 7.1% respectively, from their 1996 base salary. The increases were
consistent with the 18% improvement in company profits for 1996 over 1995.
The Company has established a bonus structure based upon performance goals in
four categories which are to be met by improvements in ratios or amounts as
applicable from the last fiscal year. The four categories are: GROWTH, which is
measured by increases in loan volume and core deposit volume; PROFITS, measured
by increases in net interest margin (%) and an increase in non-interest income;
QUALITY, the goal of which is to maintain the previous year's percentage of
nonperforming assets and net charge-offs, with a penalty factor if the
percentage increases from the previous year; and PRODUCTIVITY, measured by an
increase over 1996 in the Company's pre-tax income for 1997 divided by the
Company's salaries and benefits expense for 1997.
The model calculates the bonus by weighting the categories according to their
contribution to the Company's net income and combining the results in each
category to arrive at a bonus as a percentage of base salary. A bonus is awarded
if the 1997 Company results in any category were an improvement over 1996
results. If the 1997 results were an improvement over 1996 results in each
category, a bonus of approximately 3% of base salary would be awarded. If the
1997 Company budget was met in each category, the bonus is approximately 11%. If
budget is exceeded in one or more categories, the bonus increases on a sliding
scale, with the maximum bonus of approximately 27.4% of base salary.
The Company's loan volume and corresponding deposit volume for 1997 were below
the budgeted amounts by 1.4% and .3% respectively. The investment portfolio
yield and noninterest expense coverage were higher than the budgeted amounts in
1997. The calculated model results reflected an 8.99% bonus for Mr. Potts. Based
upon the model, a bonus of $15,000 was awarded to Mr. Potts.
<PAGE>
Page 12
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
SALARY AND BENEFIT COMMITTEE REPORT ON EXECUTIVE COMPENSATION (continued)
Additionally, the Company subscribes to and participates in the Mississippi
Bankers Association survey, which provides the Committee with comparative
compensation data from the Company's market areas and its peer groups. This
information is used by the committee to ensure that it is providing compensation
opportunities comparable to its peer group, thereby allowing the Company to
retain talented executive officers who contribute to the Company's overall and
long-term success.
Submitted by the Company's Salary and Benefit Committee: Hugh S. Potts, Jr.,
Chairman, J. Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward G.
Woodard.
TRANSACTIONS WITH MANAGEMENT
First M & F Corporations' subsidiary, Merchants and Farmers Bank, Kosciusko,
Mississippi, (the "Bank") has had, and expects to have in the future, banking
transactions in the ordinary course of its business with directors, officers,
principal shareholders, and their associates. Such transactions are completed on
the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with others, and do not
involve more than the normal risk of collectibility or present other unfavorable
features. Such loans are extended on a secured basis. The aggregate amount of
loans outstanding to directors, principal officers and their interests to the
Bank as of December 31, 1997, totaled $2,833,000. Other than these transactions,
there were no material transactions during 1997 between directors and officers
and the Bank or the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee of its Board of Directors which met
two (2) times during 1997. Presently Charles W. Ritter, Jr. serves as Chairman
and other members are Barbara K. Hammond, J. Marlin Ivey, Susan P. McCaffery,
Edward G. Woodard and Toxey Hall III. The Audit Committee reviews audit plans,
examination results of both independent and internal auditors and makes
recommendations to the Board of Directors concerning independent auditors.
The Company has a standing Salary and Benefit Committee which met five (5) times
during 1997 and makes recommendations to the Board of Directors on all
officers' salaries and compensation. Presently Hugh S. Potts, Jr. serves as
Chairman and other members are J. Marlin Ivey, Charles W. Ritter, Jr., W. C.
Shoemaker, and Edward G. Woodard.
<PAGE>
Page 13
FIRST M & F CORPORATION
1997 Annual Report Proxy Statement
COMMITTEES OF THE BOARD OF DIRECTORS (continued)
The Company does not have a standing Nominating Committee. The Company's
Bylaws are silent as to nominations to the Board of Directors, other than those
made by or at the direction of the Board of Directors.
Merchants & Farmers Bank has among other committees, an Investment Committee
which meets quarterly, a Loan and Policy Committee which meets weekly, an
Executive and Administrative committee which meets bi-annually, a Trust
Committee which meets monthly and an Electronic Data Processing Steering
Committee which meets quarterly.
OTHER MATTERS
Management at present knows of no other business to be brought before the
meeting. However, if other business is properly brought before the meeting, it
is the intention of the management to vote the accompanying Proxies in
accordance with its judgement.
PROPOSALS FOR 1999 ANNUAL MEETING
Any shareholder who wishes to present a proposal at the Company's next Annual
Meeting and who wishes to have the proposal included in the Company's Proxy
Statement and form of proxy for the meeting must submit the proposal to the
undersigned at the address of the Company not later than November 20, 1998.
The accompanying Proxy is solicited by Management.
By Order of THE BOARD OF DIRECTORS,
/s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer
Dated and mailed at
Kosciusko, Mississippi
On or about March 18, 1998
<PAGE>
Page 14
FIRST M & F CORPORATION
First M & F Corporation and Subsidiary
Report of Independent Certified Public Accountants
SHEARER
TAYLOR
& CO.
A Professional Association
The Board of Directors and Shareholders
First M & F Corporation
Kosciusko, Mississippi
We have audited the accompanying consolidated statements of condition of First M
& F Corporation and subsidiary as of December 31, 1997 and 1996, 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, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First M
& F Corporation and subsidiary as of December 31, 1997 and 1996, the results of
their consolidated operations and their consolidated cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Shearer, Taylor & Co., P.A.
Jackson, Mississippi
January 23, 1998
Certified Public Accountants
6350 I-55 North
Suite 330
P.O. Drawer 13157
Jackson, MS 39236-3157
Telephone 601/956-0993
<PAGE>
Page 15
<TABLE>
<CAPTION>
Consolidated Statements of Condition
First M & F Corporation and Subsidiary
December 31, 1997 1996
- ---------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and due from banks $ 24,719,193 $ 20,213,398
Interest bearing bank balances 10,801,934 149,794
Federal funds sold 2,000,000 500,000
Securities available for sale, amortized
cost of $108,173,000 and $85,944,000 109,002,998 86,443,833
Investment securities, market value of
$59,696,000 and $57,536,000 58,785,352 57,152,860
Loans, net of unearned income 360,192,125 345,238,240
Allowance for possible loan losses (5,170,000) (4,475,000)
--------------------------------
Net loans 355,022,125 340,763,240
--------------------------------
Bank premises and equipment 9,326,709 8,008,727
Accrued interest receivable 5,492,942 4,963,438
Other assets 5,749,261 5,565,176
------------------------------
$ 580,900,514 $ 523,760,466
==============================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 509,782,762 $ 464,094,123
Federal funds purchased and other
short-term borrowings - 70,000
Other borrowings 12,860,760 6,561,402
Accrued interest payable 2,563,911 2,434,230
Other liabilities 1,487,359 1,512,131
------------------------------
Total liabilities 526,694,792 474,671,886
------------------------------
Stockholders' equity:
Preferred stock:
Class A: 500,000 shares authorized - -
Class B: 500,000 shares authorized - -
Common stock of $5.00 par value
15,000,000 shares authorized;
3,394,656 shares issued 16,973,280 16,973,280
Additional paid-in capital 10,698,388 10,698,388
Retained earnings 26,013,973 21,087,077
Net unrealized gain on securities available
for sale, net of income taxes 520,081 329,835
------------------------------
Net stockholders' equity 54,205,722 49,088,580
------------------------------
$ 580,900,514 $ 523,760,466
==============================
</TABLE>
<PAGE>
Page 16
<TABLE>
Consolidated Statements of Income
First M & F Corporation and Subsidiary
Years Ended December 31, 1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 34,056,878 $ 31,239,462 $ 27,230,315
Taxable investments 7,279,986 7,393,926 7,300,273
Tax-exempt investments 2,121,879 1,972,186 2,125,596
Federal funds sold 566,951 684,974 595,769
Interest bearing bank balances 190,325 205,377 165,365
------------------------------------------
Total interest income 44,216,019 41,495,925 37,417,318
------------------------------------------
Interest expense:
Time deposits of $100,000 or more 2,370,205 1,703,444 1,684,676
Other deposits 18,079,011 16,507,650 13,079,184
Securities sold under agreements to
repurchase and other
short-term borrowings 3,624 939,123 2,551,256
Other borrowings 240,263 391,091 195,137
------------------------------------------
Total interest expense 20,693,103 19,541,308 17,510,253
------------------------------------------
Net interest income 23,522,916 21,954,617 19,907,065
Provision for possible loan losses 2,050,085 1,220,536 1,508,853
------------------------------------------
Net interest income after provision
for possible loan losses 21,472,831 20,734,081 18,398,212
------------------------------------------
Other operating income:
Service charges on deposit accounts 3,392,019 3,457,679 3,116,512
Gain (loss) on securities available for sale 18,701 12,877 (118,673)
Credit insurance income 1,019,452 465,323 428,929
Other income 535,133 499,822 813,521
------------------------------------------
Total other operating income 4,965,305 4,435,701 4,240,289
------------------------------------------
Other operating expenses:
Salaries and employee benefits 8,254,436 7,865,799 7,102,960
Net occupancy expenses 980,162 989,017 897,290
Equipment and data processing expenses 1,758,309 1,751,978 1,599,754
Other 4,319,278 4,309,153 4,770,240
------------------------------------------
Total other operating expenses 15,312,185 14,915,947 14,370,244
------------------------------------------
Income before income taxes 11,125,951 10,253,835 8,268,257
Income taxes 3,211,757 2,864,335 2,017,996
------------------------------------------
Net income $ 7,914,194 $ 7,389,500 $ 6,250,261
==========================================
Earnings per share $ 2.33 $ 2.18 $ 1.90
==========================================
</TABLE>
<PAGE>
Page 17
Consolidated Statements of Stockholders' Equity
First M & F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31,
Additional
Common Paid-in Retained Unrealized Treasury
Stock Capital Earnings Gain (Loss) Stock Net
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1995 $ 15,623,280 $ 8,493,316 $ 12,023,304 $ (1,607,233) $ (48,828) $ 34,483,839
Net income - - 6,250,261 - - 6,250,261
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
unrealized gain (loss) - - - 2,306,220 - 2,306,220
-------------------------------------------------------------------------------------------
December 31, 1995 16,973,280 10,653,316 16,242,675 698,987 (48,828) 44,519,430
- ------------------------------------------------------------------------------------------------------------------------------
Net income - - 7,389,500 - - 7,389,500
Cash dividends
($0.75 per share) - - (2,545,098) - - (2,545,098)
Sale of treasury stock - 45,072 - - 48,828 93,900
Net change in
unrealized gain (loss) - - - (369,152) - (369,152)
-------------------------------------------------------------------------------------------
December 31, 1996 16,973,280 10,698,388 21,087,077 329,835 - 49,088,580
- ------------------------------------------------------------------------------------------------------------------------------
Net income - - 7,914,194 - - 7,914,194
Cash dividends
($0.88 per share) - - (2,987,298) - - (2,987,298)
Net change in
unrealized gain (loss) - - - 190,246 - 190,246
--------------------------------------------------------------------------------------------
December 31, 1997 $ 16,973,280 $ 10,698,388 $ 26,013,973 $ 520,081 $ - $ 54,205,722
==============================================================================================================================
</TABLE>
<PAGE>
Page 18
Consolidated Statements of Cash Flows
First M & F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 7,914,194 $ 7,389,500 $ 6,250,261
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,209,290 1,174,809 981,396
Provision for possible loan losses 2,050,085 1,220,536 1,508,853
Deferred income taxes (235,353) (150,786) (207,417)
(Increase) decrease in interest receivable (529,504) 12,010 (970,906)
Increase (decrease) in interest payable 129,681 (95,074) 1,031,223
Other, net 464,432 250,732 159,156
-----------------------------------------------------
Net cash provided by
operating activities 11,002,825 9,801,727 8,752,566
-----------------------------------------------------
Cash flows from investing activities:
Purchases of securities available for sale (53,564,167) (52,497,658) (35,055,066)
Sales of securities available for sale 3,099,966 12,462,456 8,658,674
Maturities of securities available for sale 27,886,793 81,031,995 13,868,734
Purchases of investment securities (12,538,559) (11,756,845) (15,725,275)
Maturities of investment securities 10,837,441 7,322,310 3,645,734
Net (increase) decrease in:
Interest bearing bank balances (10,652,140) 164,809 91,631
Federal funds sold (1,500,000) 500,000 -
Loans (18,120,524) (56,484,357) (30,772,007)
Bank premises and equipment (2,357,346) (1,476,495) (1,469,115)
Other, net 1,480,807 1,209,601 758,894
----------------------------------------------------
Net cash used in investing activities (55,427,729) (19,524,184) (55,997,796)
-----------------------------------------------------
</TABLE>
<PAGE>
Page 19
Consolidated Statements of Cash Flows (continued)
First M & F Corporation and Subsidiary
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in:
<S> <C> <C> <C>
Non-interest bearing deposits $ 4,226,406 $ 3,955,964 $ 2,084,752
Money market, NOW and
savings deposits 24,131,927 32,288,569 9,202,701
Certificates of deposit 17,330,306 21,986,764 35,731,155
Securities sold under agreements
to repurchase and other
short-term borrowings (70,000) (48,223,668) 3,471,643
Proceeds from other borrowings 10,101,723 11,848,000 -
Repayments of other borrowings (3,802,365) (8,292,095) (2,226,198)
Cash dividends (2,987,298) (2,545,098) (2,030,890)
Proceeds from sale of stock - - 3,510,000
Treasury stock transactions - 93,900 -
---------------------------------------------
Net cash provided by
financing activities 48,930,699 11,112,336 49,743,163
---------------------------------------------
Net increase in cash and
due from banks 4,505,795 1,389,879 2,497,933
Cash and due from banks at January 1 20,213,398 18,823,519 16,325,586
--------------------------------------------
Cash and due from banks at December 31 $ 24,719,193 $ 20,213,398 $ 18,823,519
=============================================
</TABLE>
<PAGE>
Page 20
Notes to Consolidated Financial 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 subsidiary,
credit insurance subsidiary and real estate subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments
Securities, 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 and are carried at cost, adjusted for amortization
of premiums and accretion of discounts.
Loans
Loans are stated at the principal amount outstanding. Unearned income on
installment loans is recognized as income principally using 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.
<PAGE>
Page 21
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 1: Summary of Significant Accounting and Reporting Policies (continued)
Allowance for Possible Loan Losses
The Bank provides for loan losses through an allowance for possible loan losses
established through a provision charged to expense. Accordingly, all loan losses
are charged to the allowance for possible loan losses and all recoveries are
credited to it. The allowance for possible loan losses is based on the
evaluation of the collectibility of loans, past loan loss experience and other
factors which, in managements 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 borrowers 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.
Other Real Estate
Other real estate acquired through partial or total satisfaction of loans is
carried at the lower of market value or the recorded loan balance at date of
acquisition (foreclosure). Any loss incurred at the date of acquisition is
charged to the allowance 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.
Earnings Per Share
Earnings per share calculations are based on the weighted average number of
shares outstanding during the year of 3,394,656 in 1997, 3,393,209 in 1996, and
3,294,736 in 1995.
<PAGE>
Page 22
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 1: Summary of Significant Accounting and Reporting Policies (continued)
Statements of Cash Flows
In the accompanying consolidated statements of cash flows, the Company and
subsidiary have defined cash equivalents as those amounts included in the
statement of condition caption Cash and Due from Banks. The following
supplemental disclosures are made related to the consolidated statements of cash
flows:
<TABLE>
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Interest paid $20,563,000 $19,636,000 $16,479,000
Federal and state income taxes paid 3,026,000 3,242,000 2,333,000
Federal income tax refunds - 60,000 162,000
Other real estate and repossessions
acquired in noncash foreclosures 1,812,000 1,875,000 227,000
=======================================
</TABLE>
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to be consistent with 1997 presentation.
Note 2: Investments
The following is a summary of the amortized cost and market value (book value)
of securities available for sale:
Amortized Gross Unrealized Market
Cost Gain Loss Value
- -----------------------------------------------------------------------------
December 31, 1997:
U. S. Treasury
securities $ 23,575,000 $ 105,000 $ 24,000 $ 23,656,000
U. S. Government
agencies and
corporations 21,709,000 59,000 36,000 21,732,000
Mortgage-backed
investments 43,750,000 182,000 51,000 43,881,000
Obligations of states
and political
subdivisions 15,032,000 541,000 2,000 15,571,000
Other 4,107,000 56,000 - 4,163,000
-----------------------------------------------------
$108,173,000 $943,000 $113,000 $109,003,000
=====================================================
<PAGE>
Page 23
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 2: Investments (continued)
<TABLE>
Amortized Gross Unrealized Market
Cost Gain Loss Value
-----------------------------------------------------
December 31, 1996:
<S> <C> <C> <C> <C>
U. S. Treasury
securities $21,728,000 $ 44,000 $ 90,000 $ 21,682,000
U. S. Government
agencies and
corporations 15,961,000 29,000 68,000 15,922,000
Mortgage-backed
investments 29,086,000 116,000 112,000 29,090,000
Obligations of
states and political
subdivisions 17,649,000 587,000 6,000 18,230,000
Other 1,520,000 - - 1,520,000
-----------------------------------------------------
$85,944,000 $ 776,000 $ 276,000 $ 86,444,000
=====================================================
</TABLE>
The following is a summary of the amortized cost (book value) and market value
of investment securities:
<TABLE>
Amortized Gross Unrealized Market
Cost Gain Loss Value
-------------------------------------------------------
December 31, 1997:
<S> <C> <C> <C> <C>
U. S. Treasury
securities $ 1,050,000 $ 4,000 $ 2,000 $ 1,052,000
U. S. Government
agencies and
corporations 11,018,000 109,000 4,000 11,123,000
Mortgage-backed
investments 13,094,000 47,000 52,000 13,089,000
Obligations of states
and political
subdivisions 33,623,000 818,000 9,000 34,432,000
-------------------------------------------------------
$58,785,000 $ 978,000 $ 67,000 $59,696,000
=======================================================
</TABLE>
<PAGE>
Page 24
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 2: Investments (continued)
<TABLE>
Amortized Gross Unrealized Market
Cost Gain Loss Value
--------------------------------------------------------
December 31, 1996:
<S> <C> <C> <C> <C>
U. S. Treasury
securities $ 1,050,000 $ 8,000 $ 4,000 $ 1,054,000
U. S. Government
agencies and
corporations 13,980,000 185,000 25,000 14,140,000
Mortgage-backed
investments 17,888,000 34,000 140,000 17,782,000
Obligations of
states and political
subdivisions 24,235,000 373,000 48,000 24,560,000
--------------------------------------------------------
$57,153,000 $ 600,000 $ 217,000 $57,536,000
========================================================
</TABLE>
The amortized cost and market values of securities available for sale and
investment securities at December 31, 1997, 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>
Available for Sale Investment Securities
Amortized Market Amortized Market
Cost Value Cost Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
One year or less $ 35,836,000 $ 35,766,000 $ 12,425,000 $ 12,469,000
Over one through
five years 57,722,000 58,347,000 24,762,000 25,220,000
Over five through
ten years 7,220,000 7,485,000 18,757,000 19,048,000
After ten years 7,395,000 7,405,000 2,841,000 2,959,000
---------------------------------------------------------
$108,173,000 $109,003,000 $ 58,785,000 $ 59,696,000
=========================================================
</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>
Available for Sale Investment Securities
Amortized Market Amortized Market
Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997 $ 73,173,000 $ 73,719,000 $ 40,937,000 $ 41,427,000
==================================================================================================================
December 31, 1996 $ 54,394,000 $ 54,592,000 $ 33,770,000 $ 34,025,000
==================================================================================================================
</TABLE>
<PAGE>
Page 25
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 2: Investments (continued)
The following is a summary of gross realized gains and losses on sales of
securities available for sale:
1997 1996 1995
- -------------------------------------------------------------------------------
Gross realized gains $ 19,000 $ 30,000 $ 48,000
Gross realized losses - (17,000) (167,000)
- -------------------------------------------------------------------------------
$ 19,000 $ 13,000 $ (119,000)
===============================================================================
Note 3: Loans
The Bank's loan portfolio includes commercial, consumer, agribusiness
and residential loans throughout the State of Mississippi, but primarily in
its market area in Central Mississippi. The composition of the Company's
loan portfolio, net of unearned income of $15,250,000 and $16,555,000, follows:
1997 1996
---------------------------
Commercial, financial and agricultural $ 50,107,000 $ 44,409,000
Residential real estate 100,581,000 88,601,000
Non-residential real estate 120,881,000 113,590,000
Consumer loans 88,623,000 98,638,000
----------------------------
$360,192,000 $345,238,000
============================
The Bank's finance company subsidiary sold all of the loans at two of
its branches in 1997 and closed these branches. Net loans sold amounted
to $2,300,000 and the sales price approximated net loan value.
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:
1997 1996
--------------------------
Loans outstanding at January 1 $ 2,948,000 $ 2,561,000
New loans 2,302,000 2,098,000
Repayments and removals (2,417,000) (1,711,000)
---------------------------
Loans outstanding at December 31 $ 2,833,000 $ 2,948,000
===========================
<PAGE>
Page 26
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 4: Allowance for Possible Loan Losses
Transactions in the allowance for possible loan losses are summarized as
follows:
1997 1996 1995
------------------------------------------
Balance at January 1 $ 4,475,000 $ 4,250,000 $ 3,374,000
Loans charged-off (1,447,000) (1,147,000) (877,000)
Recoveries 169,000 151,000 244,000
------------------------------------------
Net charge-offs (1,278,000) (996,000) (633,000)
------------------------------------------
Provision for possible loan losses 2,050,000 1,221,000 1,509,000
Sales of finance company branches (77,000) - -
------------------------------------------
Balance at December 31 $ 5,170,000 $ 4,475,000 $ 4,250,000
==========================================
Note 5: Bank Premises and Equipment
A summary of bank premises and equipment follows:
1997 1996
-------------------------
Land and buildings $ 9,762,000 $ 9,049,000
Furniture, fixtures and equipment 8,008,000 7,323,000
Leasehold improvements 308,000 334,000
-------------------------
18,078,000 16,706,000
Less accumulated depreciation and
amortization 9,655,000 8,921,000
-------------------------
8,423,000 7,785,000
Construction in progress, estimated costs to
complete of $382,000 in 1997 and $889,000 in 1996 904,000 224,000
-------------------------
$ 9,327,000 $ 8,009,000
=========================
Amounts charged to operating expenses for depreciation and amortization of bank
premises and equipment were $1,039,000 in 1997, $1,005,000 in 1996, and $800,000
in 1995.
<PAGE>
Page 27
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 6: Other Assets
A summary of other assets follows:
1997 1996
-----------------------
Company's cost in excess of net
Bank assets acquired in 1980,
less accumulated amortization
of $1,728,000 and $1,631,000 $2,149,000 $2,246,000
Bank's costs in excess of net assets
acquired in branch acquisitions,
less accumulated amortization
of $359,000 and $286,000 370,000 443,000
Other real estate, net 843,000 724,000
Deferred income tax 1,073,000 977,000
Other 1,314,000 1,175,000
-----------------------
$5,749,000 $5,565,000
=======================
Other expenses include amortization of intangible assets as follows:
1997 1996 1995
------------------------------
Company's costs in excess of net
Bank assets acquired in 1980 $ 97,000 $ 97,000 $ 97,000
Bank's costs in excess of net assets
acquired in branch acquisitions 73,000 73,000 84,000
------------------------------
$170,000 $ 170,000 $ 181,000
==============================
Changes in the valuation allowance for other real estate are summarized as
follows:
1997 1996 1995
---------------------------------
Balance at beginning of year $ 50,000 $ 61,000 $ 36,000
Provision charged to expense 24,000 9,000 60,000
Writedowns - (20,000) (35,000)
---------------------------------
Balance at end of year $ 74,000 $ 50,000 $ 61,000
=================================
<PAGE>
Page 28
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 7: Deposits
The following is a summary of deposits at December 31, 1997 and 1996:
<TABLE>
1997 1996
---------------------------
<S> <C> <C>
Non-interest bearing $ 60,343,000 $ 56,116,000
Interest bearing:
Money market accounts 48,102,000 41,880,000
NOW accounts 79,869,000 68,299,000
Savings accounts 78,627,000 72,287,000
Certificates of deposit of $100,000 or more 50,321,000 48,226,000
Other certificates of deposit 192,521,000 177,286,000
---------------------------
Total interest bearing 449,440,000 407,978,000
---------------------------
Total deposits $509,783,000 $464,094,000
===========================
</TABLE>
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:
1998 $ 162,235,000
1999 42,699,000
2000 24,408,000
2001 2,993,000
2002 10,269,000
After 2002 238,000
--------------
$ 242,842,000
=============
Note 8: Short-Term Borrowings
The following is a summary of information related to securities sold under
agreements to repurchase and other short-term borrowings:
<TABLE>
Weighted
Balance Outstanding Average Rate
Maximum Average At At
Month End Daily Year End During Year Year End
-------------------------------------------------------------------
1997:
<S> <C> <C> <C> <C>
Federal funds purchased $ - $ 64,000 $ - 5.69% -%
Securities sold under
agreements to repurchase - - - - -
Other short-term
borrowings by the
Company - 2,000 - 6.50% -
----------------------------------------------------------------
$ - $ 66,000 -
=================================================================
</TABLE>
<PAGE>
Page 29
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 8: Short-Term Borrowings (continued)
<TABLE>
Weighted
Balance Outstanding Average Rate
Maximum Average At At
Month End Daily Year End During Year Year End
----------------------------------------------------------------------------
1996:
<S> <C> <C> <C> <C>
Federal funds purchased $ - $ 58,000 $ - 6.95% -%
Securities sold under
agreements to repurchase 50,986,000 19,272,000 - 4.78 -
Other short-term borrowings
by the Company 250,000 245,000 70,000 6.41 6.50
--------------------------------------------------------------------------
$ 51,236,00 $ 19,575,000 $ 70,000
==========================================================================
1995:
Federal funds purchased $ 2,700,000 $ 219,000 $ 2,700,000 5.62% 5.63%
Securities sold under
agreements to repurchase 54,847,000 45,631,000 44,659,000 5.32 5.33
Other short-term borrowings
by the Company 935,000 935,000 935,000 8.36 8.25
--------------------------------------------------------------------------
$ 58,482,000 $ 46,785,000 $48,294,000
==========================================================================
</TABLE>
Federal funds purchased represent primarily overnight borrowings. Securities
sold under agreements to repurchase primarily represented a relationship with a
public university under a contract that expired on June 30, 1996. These
borrowings repriced on a monthly basis. Other short-term borrowings by the
Company represent unsecured borrowings from various individuals and entities.
<PAGE>
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 9: Other Borrowings
<TABLE>
<CAPTION>
The following is a summary of other borrowings at December 31, 1997 and 1996:
1997 1996
----------------------------
<S> <C> <C>
Line of credit in the amount of $9,000,000, renewable
annually; secured by approximately 29% of the Bank's
common stock; interest payable quarterly at the lenders
base rate $ 327,000 $ 275,000
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 1,534,000 1,786,000
Variable rate advance in the amount of $10,000,000; interest is
payable monthly and is adjusted monthly to 21 basis
points over LIBOR; principal is payable on December 30,
2004 10,000,000 -
6.05% advance in the amount of $6,000,000; payable in
monthly installments of $500,000, plus interest through
July 1, 1997 - 3,500,000
-----------------------------
$ 12,861,000 $ 6,561,000
============================
</TABLE>
Scheduled principal payments on the advances from Federal Home Loan Bank of
Dallas are as follows:
1998 $ 227,000
1999 261,000
2000 1,277,000
2001 294,000
2002 312,000
After 2002 10,163,000
--------------
$ 12,534,000
===============
<PAGE>
Page 30
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 10: Employee Benefit Plans
The Bank has a defined benefit pension plan covering substantially all full time
employees of the Bank and subsidiaries. Benefits under this plan are based on
years of service and average annual compensation for a five year period. The
Bank's funding policy for the plan is to contribute annually in an amount
not exceeding the allowable Federal income tax deduction. Contributions of
$157,000, $120,000 and $80,000 were made to the plan in 1997, 1996 and 1995,
respectively.
Net pension cost (benefit) included the following components:
1997 1996 1995
----------------------------------------------
Service cost $ 132,000 $ 128,000 $ 112,000
Interest cost 210,00 190,000 170,000
Actual return on plan assets (407,000) (199,000) (241,000)
Net amortization and deferral 188,000 (35,000) 30,000
----------------------------------------------
$ 123,000 $ 84,000 $ 71,000
==============================================
The following table sets forth the plans funded status and amounts recorded in
the consolidated statements of condition:
1997 1996
-----------------------------------
Actuarial present value of:
Vested benefit obligation $ 2,628,000 $ 2,239,000
Non-vested benefit obligation 47,000 30,000
-----------------------------------
Total benefit obligation $ 2,675,000 $ 2,269,000
===================================
Projected benefit obligation $ (3,234,000) $ (2,681,000)
Market value of plan assets 3,022,000 2,473,000
-----------------------------------
Plan assets in excess of (less than) (212,000) (208,000)
projected benefit obligation
Unrecognized net loss 573,000 450,000
Remaining unrecognized net asset at (139,000) (174,000)
transition date
Contributions after measurement date - 120,000
-----------------------------------
Net pension asset $ 222,000 $ 188,000
===================================
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 4%, respectively. The expected long-term rate of return
on plan assets was 8%.
<PAGE>
Page 31
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 10: Employee Benefit Plans (continued)
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. Prior to 1996 the Bank did not match employee contributions, but
made contributions to the plan only at the discretion of the Board of Directors.
Discretionary contributions accrued for this plan were $25,000 in 1997, $25,000
in 1996 and $40,000 in 1995. In addition, in 1996 the Bank began to match
employee 401(k) contributions equal to 50% of an employees first 5% of salary
deferral. Total matching contributions accrued for this plan were $90,000 in
1997 and $89,000 in 1996.
At December 31, 1997, the profit and savings plan owned 109,882 shares of the
Company's common stock and the pension plan owned 3,600 shares of the
Company's common stock.
Note 11: Other Operating Expense
Significant components of other operating expense are summarized as follows:
1997 1996 1995
-------------------------------
Advertising and promotion $ 454,000 $ 501,000 $ 399,000
Communications 484,000 475,000 428,000
Postage and carriers 532,000 521,000 438,000
Professional fees 413,000 321,000 533,000
Regulatory insurance and fees 118,000 89,000 510,000
Stationery and supplies 429,000 494,000 418,000
Other 1,889,000 1,908,000 2,044,000
--------------------------------
$4,319,000 $4,309,000 $4,770,000
================================
Note 12: Income Taxes
The components of income tax expense (benefit) are as follows:
Federal State Total
--------------------------------------------------
1997:
Current $ 3,126,000 $ 321,000 $ 3,447,000
Deferred (205,000) (30,000) (235,000)
--------------------------------------------------
Total $ 2,921,000 $ 291,000 $ 3,212,000
==================================================
1996:
Current $ 2,929,000 $ 86,000 $ 3,015,000
Deferred (4,000) (147,000) (151,000)
--------------------------------------------------
Total $ 2,925,000 $ (61,000) $ 2,864,000
==================================================
<PAGE>
Page 32
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 12: Income Taxes (continued)
Federal State Total
--------------------------------------------------------
1995:
Current $ 2,225,000 $ - $ 2,225,000
Deferred (207,000) - (207,000)
---------------------------------------------------------
Total $ 2,018,000 $ - $ 2,018,000
=========================================================
The differences between actual income tax expense and expected income tax
expense are summarized as follows:
<TABLE>
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Amount computed using the
Federal statutory rates on
income before income taxes $ 3,783,000 $ 3,486,000 $ 2,811,000
Increase (decrease) resulting from:
Tax exempt income, net of
disallowed interest deduction (690,000) (609,000) (662,000)
State income tax expense (benefit),
net of Federal effect 192,000 (40,000) -
Small life insurance company deduction
(on amended returns in 1997) (67,000) - (68,000)
Amortization of intangible assets 33,000 33,000 37,000
Other, net (39,000) (6,000) (100,000)
-----------------------------------------------------------
$ 3,212,000 $ 2,864,000 $ 2,018,000
===========================================================
</TABLE>
The components of deferred income tax expense (benefit) are as follows:
<TABLE>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Financial loan loss provision in excess
of tax provision $(344,000) $(229,000) $(280,000)
Tax depreciation greater (less) than
financial depreciation 28,000 (1,000) 8,000
Prepaid pension asset 13,000 18,000 3,000
Life insurance income 18,000 13,000 (19,000)
Other real estate (17,000) 2,000 28,000
Federal Home Loan Bank stock dividends 35,000 38,000 34,000
Accrued expenses 47,000 (71,000) (32,000)
Prior period adjustment - 129,000 (13,000)
Other, net (15,000) (50,000) 64,000
--------------------------------------------
$(235,000) $(151,000) $(207,000)
============================================
</TABLE>
<PAGE>
Page 33
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 12: Income Taxes (continued)
The components of the recorded net deferred tax asset at December 31, 1997 and
1996, consist of the following:
1997 1996
---------------------------
Allowance for possible loan losses $ 1,631,000 $ 1,287,000
Life insurance income 19,000 37,000
Other real estate 36,000 19,000
Accrued expenses 75,000 122,000
Other, net 78,000 63,000
Depreciation (234,000) (206,000)
Prepaid pension asset (83,000) (70,000)
Federal Home Loan Bank stock dividends (140,000) (105,000)
Unrealized gain on securities available for sale (309,000) (170,000)
---------------------------
$ 1,073,000 $ 977,000
===========================
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. In the opinion of management, and based on the advice of
legal counsel, the ultimate resolution of these matters is not anticipated to
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 customers credit worthiness.
<PAGE>
Page 34
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 14: Commitments and Contingencies (continued)
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 customers 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, 1997, is as
follows:
Commitments to extend credit $ 27,500,000
Standby letters of credit 2,545,000
Credit card arrangements 3,524,000
------------------
$ 33,569,000
==================
Note 15: Regulatory Matters
Federal banking regulations require that the Bank maintain certain cash reserves
based on a percent of deposits. This requirement was $9,702,000 at December 31,
1997.
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, 1997.
The Company and its subsidiary bank are subject to various regulatory capital
requirements administered by Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items are calculated under regulatory accounting practices
must be met. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of Total Capital and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that all
capital adequacy requirements have been met.
As of April 7, 1997, the date of the most recent examination by the Federal
Deposit Insurance Corporation, the Bank was categorized as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
<PAGE>
Page 35
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 15: Regulatory Matters (continued)
The Company's actual capital amounts and ratios as of December 31, 1997 and
1996, are also presented in the table (in thousands of dollars):
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997:
Total capital
(to risk weighted assets) $55,791 15.08% $29,597 8.00% $36,997 10.00%
Tier I capital
(to risk weighted assets) 51,167 13.83 14,799 4.00 22,198 6.00
Tier I capital
(to average assets) 51,167 8.89 23,029 4.00 28,786 5.00
================================================================================================
December 31, 1996:
Total capital
(to risk weighted assets) $50,509 14.22% $28,410 8.00% $35,512 10.00%
Tier I capital
(to risk weighted assets) 46,070 12.97 14,205 4.00 21,307 6.00
Tier I capital
(to average assets) 46,070 8.73 21,098 4.00 26,372 5.00
================================================================================================
</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.
<PAGE>
Page 36
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 16: 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 or short maturity of these investments.
Investments - Fair value of these financial instruments is considered to be
their quoted market value as disclosed in note 2.
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 $355,022,000 and
$340,763,000 and the estimated net fair value of loans is $353,521,000 and
$339,399,000 at December 31, 1997 and 1996.
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. The
carrying value of deposits is $509,783,000 and $464,094,000 and the estimated
net fair value of deposits is $510,561,000 and $463,428,000 at December 31, 1997
and 1996.
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 repricing and repayment terms.
Commitments to extend credit - As disclosed in note 14, the Bank has certain
commitments to extend credit at December 31, 1997. 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 14.
<PAGE>
Page 37
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 17: Summarized Financial Information of First M & F Corporation
Summarized financial information of First M & F Corporation (parent company
only) is as follow:
STATEMENTS OF CONDITION
Assets 1997 1996
---------------------------
Cash $ 246,639 $ 5,038
Investment in subsidiary 54,171,760 49,317,454
Other investments 22,500 22,500
Land and building 67,639 70,558
Other assets 52,393 18,030
---------------------------
$54,560,931 $49,433,580
===========================
Liabilities and Stockholders Equity
Short-term borrowings $ - $ 70,000
Note payable to bank 326,723 275,000
Other liabilities 28,486 -
Stockholders equity 54,205,722 49,088,580
-------------------------
$54,560,931 $49,433,580
========================
STATEMENTS OF INCOME
<TABLE>
1997 1996 1995
------------------------------------
Income:
<S> <C> <C> <C>
Dividends received from subsidiary $3,350,000 $3,000,000 $2,450,000
Equity in undistributed earnings of
subsidiary, net of amortization 4,664,004 4,475,208 3,931,154
Other income 7,174 6,770 6,141
------------------------------------
Total income 8,021,178 7,481,978 6,387,295
------------------------------------
Expenses:
Interest 31,216 53,341 109,737
Other expenses 127,861 79,51 67,395
------------------------------------
Total expenses 159,077 132,852 177,132
------------------------------------
Income before income taxes 7,862,101 7,349,126 6,210,163
Income tax benefit 52,093 40,374 40,098
------------------------------------
Net income $7,914,194 $7,389,500 $6,250,261
====================================
</TABLE>
<PAGE>
Page 38
Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary
Note 17: Summarized Financial Information of First M & F Corporation (continued)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,914,194 $ 7,389,500 $ 6,250,261
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings
of subsidiary (4,664,004) (4,475,208) (3,931,154)
Other, net (3,014) (53,154) (67,394)
------------------------------------------------------------
Net cash provided by operating activities 3,247,176 2,861,138 2,251,713
------------------------------------------------------------
Cash flows from investing activities -
additional investment in subsidiary - - (3,500,000)
------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in:
Short-term borrowings (70,000) (865,066) 2,119
Note payable to bank 51,723 275,000 (502,000)
Cash dividends (2,987,298) (2,545,098) (1,730,890)
Proceeds from sale of stock - - 3,510,000
Treasury stock transactions - 93,900 -
------------------------------------------------------------
Net cash provided by (used in)
financing activities (3,005,575) (3,041,264) 1,279,229
------------------------------------------------------------
Net increase (decrease) in cash 241,601 (180,126) 30,942
Cash at January 1 5,038 185,164 154,222
------------------------------------------------------------
Cash at December 31 $ 246,639 $ 5,038 $ 185,164
===========================================================
</TABLE>
<PAGE>
Page 39
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
First M & F Corporation and Subsidiary
Financial Condition
The purpose of this discussion is to focus on significant changes in financial
condition and results of operations of the Company and its banking subsidiary
during the past three years. The discussion and analysis is intended to
supplement and highlight information contained in the accompanying consolidated
financial statements and selected financial data presented elsewhere in this
report and in the enclosed Financial Summary - First M & F Corporation and
Subsidiary.
Summary
The performance for the Company during 1997 was the best in the history of the
organization. Net income for 1997 was $7.914 million, a 9.7% increase over the
previous high of $7.390 million in 1996. Net income for 1996 was 18.2% higher
than 1995 net income of $6.250 million. The increases in net income per common
share for 1997 and 1996 were 6.9% and 14.7%, respectively. Net income per common
share increased 22.6% during 1995. Pretax income for 1997 was up $872 thousand,
or 8.5%, over 1996 while income tax expense increased $347 thousand, or 12.1%,
partly due to the increase in the effective tax rate to 28.9%. Pretax income for
1996 was up $1.99 million, or 24.0%, over 1995 while income tax expense
increased $846 thousand, or 41.9%, partly due to increase in the effective tax
rate from 24.4% in 1995 to 27.9% in 1996.
A significant factor in the growth of the Company was the acquisition of Farmers
and Merchants Bank of Bruce, Mississippi on December 31, 1995, which increased
assets by approximately $32 million. Additionally, 1996 operations include the
full years performance of new branch locations constructed, staffed and opened
in the Starkville, Philadelphia, and Grenada market areas in 1995 which have
contributed to the loan and deposit growth of the Company. These growth trends
continued in 1997.
At year end 1997, total assets were $581 million, an increase of 10.91% over
year end 1996 and 14.90% over 1995. The return on average assets for 1997 was
1.41% as compared to 1.40% for 1996 and 1.30% in 1995. The return on average
equity in 1997 was 15.28% as compared to 15.80% in 1996 and 15.79% in 1995.
The average equity to average assets ratio for the Company at December 31, 1997,
of 9.20% places the Company well above the minimum capital guidelines. The
Company's Tier-I and total capital ratios (to risk weighted assets) of 13.03%
and 15.08%, respectively, at December 31, 1997, categorize the banking
subsidiary of the Company as well capitalized according to Federal
Deposit Insurance Corporation regulations.
Earning Assets
Average earning asset mix for 1997 was 66.9% for loans and 30.4% for investment
securities. This mix compared to 64.4% for loans and 32.2% for investment
securities in 1996 and 61.2% loans and 36.0% investments in 1995. The shift in
average earning assets has been a result of the Company being able to increase
and expand its operations in several key Mississippi markets - Oxford,
Starkville, Philadelphia and Madison/Rankin counties - while reducing the
investment securities portfolio. These trends slowed somewhat in 1997, and the
Company began to increase investments in securities as loan demand slowed.
Average balances of Federal funds sold decreased in 1997 after a two year
increase based on funding requirements necessitated by changes in investment
mix.
<PAGE>
Page 40
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary
Earning Assets (continued)
The Company experienced continued growth in deposits in 1997 as a result of
system wide marketing effects and continued growth in newer market areas. During
1996, the Company absorbed the loss of a major state university
deposit/overnight repurchase relationship that had existed over a six-year
period and had provided a significant source of funding for the Company. The
payout of this relationship involved securities specifically purchased with
maturities in June, July and August, 1996, to effect the roll-out of
approximately $47 million in funds during those months.
The mix of earning assets is monitored on a continuous basis in order to react
to interest rate movements and to maximize returns on earnings assets.
Financial Condition
The Company's trend in growth and mix of assets and liabilities is illustrated
by the following summary of average balances by major portfolios and components
of interest earning assets and interest bearing liabilities
(in thousands of dollars):
<TABLE>
1997 1996
Average Increase Percent Average Increase Percent
Balance (Decrease) Change Balance (Decrease) Change
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Assets
Federal funds sold $ 10,782 $ (2,057) -16.0% 12,839 $ 2,993 30.40%
Loans, net of unearned
discount 349,684 32,671 10.31 317,013 41,591 15.10
Interest bearing
bank balances 3,378 (556)-14.13 3,934 1,144 41.00
Taxable investments 117,064 (3,292) -2.73 120,356 (935) -0.77
Tax-exempt investments 41,941 3,617 9.44 38,324 (2,148) -5.13
--------------------------------------------------------------
Total interest
earning assets 522,849 30,383 6.17 492,466 42,645 9.48
Non interest
earning assets 39,888 5,353 15.50 34,535 3,735 12.13
--------------------------------------------------------------
Total average
assets $ 562,737 $ 35,736 6.79% $ 527,001 $ 46,380 9.65%
==============================================================
Average Liabilities and Capital
DDA and savings $ 207,098 $ 31,715 18.08% $ 175,383 $ 30,413 20.98%
Time deposits 237,123 17,085 7.76 220,038 28,748 15.03
Short-term funds 64 (19,266)-99.67 19,330 (26,520) -57.84
Federal Home Loan
Bank advances 3,628 (2,309) -46.7 5,937 2,455 70.51
--------------------------------------------------------------
Total interest bearing
liabilities 447,913 27,225 6.47 420,688 35,096 9.10
Non interest bearing
liabilities and capital 114,824 8,511 8.01 106,313 11,284 11.87
-------------------------------------------------------------
Total average liabilities
and capital $ 562,737 $ 35,736 6.79% $527,001 $ 46,380 9.65%
==============================================================
</TABLE>
<PAGE>
Page 41
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary
Loans
Average loans in 1997 increased 10.3% over 1996 and average loans in 1996
increased 15.1% over 1995. Total loans outstanding at year end 1997 increased by
4.3% from 1996 while increasing by 18.4% at year end 1996 as compared to year
end 1995. The 1996 growth in the portfolio resulted from the Company's
ongoing efforts to increase the portfolio through concerted loan origination
programs. A slow down in consumer lending was the primary factor in the lower
growth rate for 1997. Consumer loans decreased by 10.2% from December 31,
1996 to December 31, 1997, with much of the decrease due to reductions in
indirect lending.
In 1997, commercial, financial and agricultural lending increased 12.8% over
1996, residential real estate increased 13.5% and non-residential real estate
increased 6.4%. These trends continue to reflect the diversity of the markets
served and the general condition of the economy during the year. Although solid
loan growth is important to the Company, management does not anticipate past
levels of lending growth to continue.
Investment Securities
The composition of the total investment securities portfolio reflects the
Company's strategy of maximizing portfolio yields commensurate with risk
and liquidity considerations. The primary objectives of this strategy
are to maintain an appropriate level of liquidity and provide a tool to
assist in controlling the Company's interest rate position while producing
an adequate level of interest income. Investment year end balances increased
by 16.8% from 1996 to 1997 as loan demand lagged behind prior years. As
discussed above, the 1997 and 1996 average balances of the portfolio were
significantly influenced by the loss of a major contractual deposit
relationship which was paid out over approximately three to four months in
1996 as securities purchased for this purpose matured. The portfolio,
reconstructed through an aggressive deposit gathering campaign and
advances from the Federal Home Loan Bank of Dallas, performed well during
1997, contributing interest income at a fully taxable equivalent rate of
6.60%, as compared to 6.55% for 1996 and 6.50% for 1995.
The Company continues to place emphasis on tax-exempt investments and believes
this investment strategy will continue to have merit in light of tax planning
objectives and local community and statewide tax-exempt investment
opportunities. The Company's tax equivalent yield on this component of
the portfolio was 7.67% for 1997, compared to 7.80% in 1996 and 7.96% in 1995.
The mix of the portfolio continues to reflect diversity in strategy. At December
31, 1997, the mix reflected 14.7% in treasuries, 19.5% in agencies, 29.3% in
municipals and 34.0% in mortgage-backs. Gains and losses in the securities
available for sale segment of the portfolio reflected a minor amount of gain for
1997 and 1996 as compared to 1995 where repositioning losses were taken as a
strategy to improve overall long-term yields. Summaries of amortized cost and
market values by major components of the portfolio can be found in the footnotes
to the consolidated financial statements. The footnotes also reflect summaries
of maturities in the portfolio by years.
<PAGE>
Page 42
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary
Deposits and Borrowed Funds
The Company experienced steady deposit growth in 1997. Total deposits increased
by 9.8% from December 31, 1996 to December 31, 1997, while interest-bearing
deposits increased by 10.2%. Average interest-bearing deposit and savings
accounts increased by 18.1% and average time deposits increased by 7.8% during
1997. Changes in the Company's markets, the loss of the contractual
funds relationship in 1996, and the overall good economy enjoyed by most
banking institutions, influenced not only the asset mix, but the deposit
mix of the Company. Average interest-bearing deposit and savings accounts
increased 20.9% and average time deposits increased 15.0% during 1996.
Short-term funds, represented by the contract overnight repurchase agreement,
as explained above, terminated July 1, 1996, and resulted in a loss of
approximately $47 million in funds. To respond, the Company introduced a new
savings product, The Liberty Fund, in July, 1996, and a certificate of
deposit sales campaign in late fall 1996, both of which were highly successful
in attracting new deposit monies.
Cost of funds were not materially affected as a result of this repositioning of
the mix of deposits. The average cost of interest bearing funds for 1997,
including advances from The Federal Home Loan Bank of Dallas, was 4.62%. This
compared to 4.65% for 1996 and 4.54% for 1995. Data relative to short-term
borrowings are shown in the footnotes to the consolidated financial statements.
Liquidity Management
Liquidity is the ability of a bank to convert assets into cash and cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining the Company's ability
to meet the day-to-day cash flow requirements of customers, whether they
wish to withdraw funds or to borrow funds to meet their capital needs. Asset
liability management functions not only assure adequate liquidity in order for
the Bank to meet the needs of customers, but also to maintain the appropriate
sensitivity between interest earning assets and interest bearing
liabilities. Daily monitoring of the sources and uses of funds is
necessary to maintain an acceptable cash position that meets these
requirements. As disclosed in the consolidated statements of cash flows, the
cash provided and cash used in the various activities of bank operations is
reflected for the years 1997, 1996 and 1995.
Interest Rate Sensitivity Management
Interest rate sensitivity is a function of the repricing characteristics of the
Company's portfolio of assets and liabilities. Interest rate
sensitivity management focuses on repricing relationships of these assets and
liabilities during periods of changing market interest rates. Management seeks
to minimize the effect of interest rate movement on net interest income. At
December 31, 1997, the Company's various assets and liabilities that were
subject to repricing indicated a cumulative gap of liabilities net of assets
of $29.741 million or 5.12% repricing within 90-days. At the 91 to 180-day
time frame, the Company's cumulative gap of liabilities net of assets
repricing was $31.227 million or 5.38%. The Company's asset liability
committee, comprised of executive management, sets the day-to-day guidelines
and approves strategies affecting net interest income within the policy limits
approved by the board of directors.
<PAGE>
Page 43
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary
Capital Resources
Capital adequacy is continuously monitored by the Company to promote depositor
and investor confidence and provide a solid foundation for future growth of the
organization. Dividends paid investors of $2.987 million or $0.88 per common
share during 1997 represent a 17.3% increase over 1996 and a dividend payout
ratio of 37.8%. The dividend payout for 1996 was 34.4%. The Company intends to
continue a dividend payout ratio that is competitive in the banking industry,
dependent on future earnings, the assessment of future capital needs, and such
other factors which may affect the Company.
The Company has satisfied its capital requirements principally through the
retention of earnings. However, the acquisition at December 31, 1995 and the
1995 capital infusion assisted in strengthening this position. Average
shareholder equity for 1997 was 9.20% compared to 8.87% for 1996.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the largest component of the Company's net income
and represents income from interest earning assets less the cost of interest
bearing liabilities. Net interest income for 1997 was $23.5 million as compared
to $20.0 million for 1996 and $19.9 million for 1995. The 7.1% increase for
1997 and 10.3% increase for 1996 were attributable to several factors
including an increase in average loans, a closer attention to funding costs of
deposits, and the improved mix of funding sources. Additionally, as a result
of the loss of the contract deposit relationship, a slight improvement in net
margin occurred in 1996. During 1995 and 1994, repositioning in the securities
portfolio, in an attempt to improve overall portfolio yield, was
accomplished. Although these factors contributed to the Company being able
to control and monitor the net interest margin, the other contributors have
been the stable local economies in which the Company participates and the
steady demand for loans over the past several years.
Provision For Loan Losses
During 1997, the Company's provision for loan losses was $2.050 million,
an increase of 70.0% over the 1996 provision of $1.221 million. The 1996
provision for loan losses reflected a decrease of 19.1% from the 1995 provision
of $1.509 million. The total provision for 1997 was approximately $470
thousand over estimated budget targets for 1997 as net charge-offs increased by
$282 thousand from 1996 to 1997 as consumer losses increased. Nonperforming
loans increased lightly from 0.27% of loans to 0.32% of loans. The total
provision for 1996 was approximately $300 thousand over estimated budget
targets for 1996, as credit quality deteriorated slightly in the fourth quarter
of 1996 as past dues, charge-offs and bankruptcies increased.
The overall condition of the loan portfolio from a credit quality standpoint is
better than peer averages considering the various indicators available, such as
past dues, collections, and other factors. The ratio of the allowance for
possible loan losses to outstanding loans at December 31, 1997, was 1.44%,
compared to 1.30% for 1996, and 1.46% for 1995.
<PAGE>
Page 44
RESULTS OF OPERATIONS (continued)
First M & F Corporation and Subsidiary
Noninterest Income
One of the Company's key long-term strategies is to boost its growth
in noninterest income. Management continues to emphasize this area of
operations through increased focus and budget/incentive programs. Total
other operating income for 1997 was $4.965 million as compared to $4.436
million for 1996 and $4.240 million for 1995. Service charge on deposit
related products, which accounted for the majority of this category in all
years presented, decreased 1.9% in 1997 and increased 10.9% over 1995.
Credit insurance income was $1.019 million in 1997 and included a one time
collection of reinsurance settlement by the Bank's insurance subsidiary in the
amount of $530 thousand. Credit insurance income, exclusive of this
reinsurance income, was $489 thousand in 1997, which was a 5.2% increase over
1996. Had this reinsurance settlement not been received in 1997, noninterest
income would have remained flat when compared to 1996. Noninterest income
increased by 4.6% from 1995 to 1996.
Noninterest Expense
Another strategy of the Company is to contain noninterest expense within an
overall company growth discipline. Noninterest expenses increased by $396
thousand from 1996 to 1997, an increase of 2.7%. Noninterest expense increased
by $546 thousand from 1995 to 1996, an increase of 3.8%.
Salaries and benefits comprise the largest portion of noninterest expenses and
reflected an increase of 4.9% for 1997. This compared to an increase of 10.7%
for 1996 and 13.9% for 1995. Both 1996 and 1995 reflect the increases in
staffing and compliment required as the result of new branch facilities
completed in late 1995. Additional staffing has also been required in several
locations as a result of increased volume and demand. Details of additional
changes in levels of other expenses have been shown in the footnotes to the
consolidated financial statements and in the statements themselves.
Income Taxes
The Company's effective tax rate was 28.9% in 1997, 27.97% in 1996 and 24.4%
in 1995. The 1997 increase was due to the fact that the Company had state
income tax expense for the first time in 1997. The increase was partially
offset by an increased investment in tax-exempt securities. The 1996 increase
was primarily the result of a reduction in tax-exempt income and the loss of
the small life insurance company exemption in 1996 as a result of the Company
exceeding $500 million in consolidated assets.
<PAGE>
PROXY FIRST M & F CORPORATION, KOSCIUSKO, MISSISSIPPI
PROXY SOLICITED BY MANAGEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS, APRIL 8, 1998
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned
Shareholder of First M & F Corporation, Kosciusko, Mississippi,
do hereby nominate, constitute and appoint Hugh S. Potts, Jr., J.
Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward
G. Woodard, or any one of them (with full power to act alone), my
true and lawful attorney(s) with full power of substitution, for
me and in my name, place and stead to vote all the common stock
of said corporation, standing in my name on its books on the day
of election at the annual meeting of its shareholders to be held
at the Mary Ricks Thornton Cultural Center, 204 North Huntington
Street, Kosciusko, Mississippi, on April 8, 1998, at 2:00 P.M.;
or at any adjournments thereof with all the powers the
undersigned would possess if personally present, as follows:
(1) WITH ( ) WITHOUT ( ) Authority to vote for the election of
the five (5) directors listed as nominees in the Proxy Statement,
dated March 18, 1998, accompanying notice of said meeting for a
term of three years.
(2) Upon whatever other business may be properly brought before
the meeting or any adjournments thereof in accordance with
recommendation of Management. Management at present knows of no
other business to be presented by or on behalf of the corporation
or its management at the meeting.
This Proxy will be voted in accordance with the instructions
above. Where no contrary specification is made, it will be voted
FOR proposal One (1) and proposal Two (2). If
any other business is presented at said meeting, or any
adjournment thereof, this Proxy will be voted in accordance with
the recommendations of Management.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
IN WITNESS WHEREOF, I have hereunto
set my hand this 19
--------- -------- ---
Month Day
NOTE: When signing as Attorney,
Executor, Administrator, Trustee
or Guardian, please give title.
If more than one Trustee, all should
sign. All joint owners must sign.
------------------------------
Signature(s) of Shareholder(s)
PLEASE SIGN PROMPTLY AND RETURN IN THE ENCLOSED RETURN ENVELOPE
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM AUDITED FINANCIAL DATA AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,719
<INT-BEARING-DEPOSITS> 10,802
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,003
<INVESTMENTS-CARRYING> 58,785
<INVESTMENTS-MARKET> 59,696
<LOANS> 360,192
<ALLOWANCE> (5,170)
<TOTAL-ASSETS> 580,901
<DEPOSITS> 509,783
<SHORT-TERM> 348
<LIABILITIES-OTHER> 1,487
<LONG-TERM> 12,513
0
0
<COMMON> 16,973
<OTHER-SE> 37,233
<TOTAL-LIABILITIES-AND-EQUITY> 580,901
<INTEREST-LOAN> 34,057
<INTEREST-INVEST> 9,968
<INTEREST-OTHER> 190
<INTEREST-TOTAL> 44,216
<INTEREST-DEPOSIT> 20,449
<INTEREST-EXPENSE> 20,693
<INTEREST-INCOME-NET> 23,523
<LOAN-LOSSES> 2,050
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 15,312
<INCOME-PRETAX> 11,126
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,914
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
<YIELD-ACTUAL> 4.50
<LOANS-NON> 328
<LOANS-PAST> 1,149
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,475
<CHARGE-OFFS> 1,447
<RECOVERIES> 169
<ALLOWANCE-CLOSE> 5,170
<ALLOWANCE-DOMESTIC> 4,293
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 877
</TABLE>
