UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 159(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 (IRS 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(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorted periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (X) NO ( )
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 28, 1999
Common stock ($5.00 par value) 3,639,779 Shares
Based on bid price for shares on February 28, 1999, the aggregate market value
of the voting stock held by nonaffiliates of the Registrant was $81,876,800.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference to Part I, II,
and III of the Form 10-K report: (1) Registrant's 1998 Annual Report to
Shareholders (Parts I and II), and (2) Proxy Statement dated March 17, 1999, for
Registrant's Annual Meeting of Shareholders to be held April 14, 1999, (Part
III).
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FIRST M & F CORPORATION
FORM 10-K
INDEX
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 12
SIGNATURES 13-14
EXHIBIT INDEX 15
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FIRST M & F CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
First M & F Corporation (the 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 sixth largest bank in the state, having total
assets of approximately $702 million at December 31, 1998. The Bank offers a
complete range of commercial and consumer services through its main office and
two branches in Kosciusko and its branches within central Mississippi, including
Ackerman, Bruce, Brandon, Canton, Cleveland, Clinton, Durant, Lena, Madison,
Oxford, Pearl, Philadelphia, Puckett, Ridgeland, Starkville, Grenada and Weir,
Mississippi.
The Bank has four wholly-owned subsidiaries, M & F Financial Services, Inc.,
which operates one finance company office, First M & F Insurance Company, Inc.,
a credit life insurance company, M & F Insurance Agency, Inc., a general
insurance agency 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 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 of $32 million at December 31, 1995. Effective with the close of business
on December 31, 1998, the Company merged with First Bolivar Corporation of
Cleveland, Mississippi. This merger involved the exchange of 243,214 shares of
the Company's common stock for all of the issued and outstanding shares of First
Bolivar and has been accounted for as a pooling of interests. First Bolivar's
banking subsidiary, First National Bank of Bolivar County, was also merged with
the Bank. First Bolivar and subsidiary had total consolidated assets of $46
million at December 31, 1998.
The banking system offers a variety of deposit, investment and credit products
to customers. The Bank provides these services to middle market and professional
businesses, ranging from payroll checking, business checking, corporate savings
and secured and unsecured lines of credit. Additional services include direct
deposit payroll, sweep accounts and letters of credit. The Bank also offers
credit card services to its customers, to include check debit cards and
automated teller machine cards through several networks. Trust services are also
offered in the Kosciusko main office.
As of February 28, 1999, the Company and its subsidiary employed 314 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
As a bank holding company, First M & F Corporation is subject to regulation
under the Bank Holding Company Act of 1956, as amended, (the "BHCA") and the
examination and reporting requirements of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). Under the BHCA, a bank holding
company may not directly or indirectly acquire ownership or control of more than
5% of the voting shares or substantially all of the assets of any bank or merge
or consolidate with another bank holding company without the prior approval of
the Federal Reserve Board. The BHCA also generally limits the activities of a
bank holding company to that of banking, managing or controlling banks, or any
other activity which is determined to be so closely related to banking or
managing or controlling banks that an exception is allowed for those activities.
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As a state-chartered commercial bank, Merchants and Farmers Bank, First M & F
Corporation's banking subsidiary, is subject to regulation, supervision and
examination by the Mississippi Department of Banking and Consumer Finance.
Merchants and Farmers Bank ("M&F") is also subject to regulation, supervision
and examination by the Federal Deposit Insurance Corporation (the "FDIC"). State
and Federal law also govern the activities in which the Bank engages, the
investments it makes and the aggregate amount of loans that may be granted to
one borrower. The insurance company subsidiary of M&F is also regulated and
examined by the insurance Department of the State of Mississippi.
The earnings of First M & F Corporation's subsidiary bank and its subsidiaries
are affected by general economic condition, management policies, changes in
state and Federal legislation and actions of various regulatory authorities,
including those referred to above. The following description summarizes the
significant state and Federal laws to which First M & F Corp, M&F Bank and
subsidiaries are subject.
Capital
- -------
First M & F Corp and M&F Bank are required to comply with the capital adequacy
standards established by the Federal Reserve Board and the FDIC. There are two
basic measures of capital adequacy for bank holding companies and their banking
subsidiaries; a risk-based measure and a leverage measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among depository
institutions and bank holding companies, to account for off- balance sheet
exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The minimum guideline for the total capital to risk-weighted assets, including
certain off-balance sheet items such as standby letters of credit ("total
capital ratio") is 8.0 percent. At least half of total capital must be composed
of common equity, undivided profits, minority interests in the equity accounts
of consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 capital"). The remainder may consist of
subordinated debt, other preferred stock, a limited amount of loan loss
reserves, and unrealized gains on equity securities subject to limitations
("Tier 2 capital"). At December 31, 1998, First M & F Corp and M&F Bank were in
compliance with the total capital ratio and the Tier 1 capital ratio
requirements. Note 17 of the Notes to Consolidated Financial Statements presents
First M & F Corp's and M&F Bank's capital ratios.
Deposit Insurance Assessments
- -----------------------------
The deposits of M&F Bank are insured by the FDIC up to the limits set forth
under applicable law. A majority of the deposits of M&F Bank are subject to the
deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC.
However, a portion of the Bank's deposits, relating to a savings association
acquisition, are subject to assessments imposed by the Savings Association
Insurance Fund ("SAIF") of the FDIC. The FDIC equalized the assessment rates for
BIF-insured and SAIF-insured deposits effective January 1, 1997. The assessments
imposed on all FDIC deposits for deposit insurance have an effective rate
ranging from 0 to 27 basis points per $100 of insured deposits, depending on the
institution's capital position and other supervisory factors. Legislation was
enacted in 1996 requiring both SAIF-insured and BIF-insured deposits to pay a
pro rata portion of the interest due on the obligations issued by the Financing
Corporation ("FICO"). The FDIC is currently assessing, effective for the first
quarter of 1999, BIF-insured deposits totaling an additional 1.22 basis points
per $100 of deposits, and SAIF-insured deposits an additional 6.10 basis points
per $100 of deposits, to cover those obligations.
YEAR 2000
The "Year 2000" issue confronting First M & F Corporation and its customers and
suppliers centers on the inability of computer systems to recognize the year
2000, or to distinguish it from the year 1900. Computer programs are written
using dates to calculate and trigger events and actions. During the 1950's, in
the interest of saving valuable space in lengthy programs, the date fields were
shortened to 5 or 6 characters using Gregorian (MMDDYY) or Julian (YYDD)
formats. If computer systems are not adequately changed to identify the year
2000, many computer applications could fail or create erroneous results. Failure
to adequately address the year 2000 issue could adversely affect the viability
of our suppliers and creditors and the creditworthiness of our borrowers.
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The Company's plan to address the year 2000 issue is set out in five (5) phases,
(1) the awareness phase, (2) the assessment phase, (3) the renovation phase, (4)
the validation phase, and (5) the implementation phase. The awareness phase was
completed in the first quarter of 1998 and consisted of informing the Board of
Directors of year 2000 issues, creating an internal year 2000 committee, and
distributing information such as employee information sheets, customer
information sheets, and lending officer assistance guidelines. The assessment
phase is an ongoing process which was substantially complete by the end of the
second quarter of 1998. This phase consists of assessing the hardware and
software of the Company, and determining the degree to which items are critical
as well as the potential impact of the item on the operations of the Company.
All mission critical hardware and software has been identified and the degree of
necessary testing has been determined. The management of the Company constantly
evaluates the year 2000 effect on other strategic business initiatives such as
merger and acquisitions, corporate alliances, system interdependencies, and
potential issues that may arise from acquired systems. The renovation phase does
not require software re-programming on the part of Company personnel due to the
use of a third-party software vendor for our main processing systems. This third
party vendor has been tested, and has delivered programming to the Company for
the testing of year 2000 critical dates at our computer center. The validation
phase, which includes this testing, has been ongoing since the third quarter of
1998. The validation phase also includes our efforts to determine the year 2000
readiness of our customers and suppliers. The assessment of third parties is
expected to be completed by the end of the first quarter of 1999. The testing of
the Company's mission critical hardware and systems is expected to be completed
by the end of the first quarter of 1999. The final phase, the implementation
phase, is when all systems are certified as year 2000 compliant and all
contingency plans are in place. This should be complete by the end of the second
quarter of 1999. The Company has also designed contingency plans related to
potential credit problems of commercial customers who are at risk as well as
liquidity plans to provide for customer needs for additional liquidity in late
1999 and early 2000.
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., 54, 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, 54, Director, president, First M & F Corporation and
Merchants and Farmers Bank, since 1990.
Robert C. Thompson, III, 40, Treasurer, First M & F Corporation and
Executive Vice PResident and Chief Financial Officer, Merchants and Farmers
Bank, since 1997. Doctoral student, 1995-1997. Controller, Merchants and
Farmers Bank through 1994.
STATISTICAL DISCLOSURES
The statistical disclosures for the Company are contained in Tables 1 through
13.
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FIRST M & F CORPORATION
STATISTICAL DISCLOSURES
TABLE 1 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
The tables 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 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- --------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- ------ --------- -------- ------ -------- -------- ------
Interest bearing bank
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
balances $ 6,727 $ 403 5.99% $ 3,378 $ 192 5.68% $ 3,934 $ 208 5.28%
Federal funds sold 15,787 871 5.51% 11,245 626 5.57% 14,939 822 5.50%
Taxable investments 145,147 8,582 5.91% 135,229 8,419 6.23% 135,485 8,202 6.05%
Tax-exempt investments 59,968 4,650 7.75% 44,458 3,401 7.65% 41,525 3,310 7.97%
Loans 393,894 37,499 9.52% 365,252 35,601 9.75% 331,969 32,726 9.86%
------- ------ ----- ------- ------ ----- ------- ------ ------
Total earning assets 621,523 52,005 8.37% 559,562 48,239 8.62% 527,852 45,268 8.58%
Nonearning assets 50,528 ------ 43,571 ------ 38,424 ------
------- ------- -------
Total average assets $ 672,051 $ 603,133 $ 566,276
======= ======= =======
NOW, MMDA and savings $ 263,459 9,499 3.61% $ 218,428 7,897 3.62% $ 187,536 6,481 3.46%
Certificates of deposit 263,458 14,304 5.43% 254,820 13,764 5.40% 236,440 12,917 5.46%
Short-term borrowings 452 22 4.87% 264 17 6.44% 19,330 966 5.00%
Other borrowings 9,423 565 6.00% 7,302 507 6.94% 9,867 643 6.52%
------- ------ ----- ------- ------ ----- ------- ------ ------
Total interest bearing
liabilities 536,792 24,390 4.54% 480,814 22,185 4.61% 453,173 21,007 4.64%
Noninterest bearing ------ ------ ------
deposits 69,578 60,689 57,697
Noninterest bearing
liabilities 5,041 6,622 5,623
Capital 60,640 55,008 49,783
Total average ------- ------- -------
liabilities
and equity $ 672,051 $ 603,133 $ 566,276
======= ======= =======
Net interest margin 27,615 4.44% 26,054 4.66% 24,261 4.60%
Less tax equivalent
adjustment:
Investments 1,735 1,156 1,125
Loans 261 195 123
Reported net interest ------ ------ ------
margin $ 25,619 4.12% $ 24,703 4.41% $ 23,013 4.36%
====== ====== ======
</TABLE>
Tax equivalent adjustments for 1998 were made using a blended Federal/state rate
of 37.3%. Tax equivalent adjustments for 1997 and 1996 were made using a 34%
Federal rate.
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FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS
The volume and yield/rate tables 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 on a tax equivalent basis (in thousands):
<TABLE>
<CAPTION>
1998 Compared To 1997 1997 Compared To 1996
Increase (Decrease) Due To Increase (Decrease) Due To
------------------------------------- -----------------------------------
Yield/ Yield/
Volume Cost Net Volume Cost Net
------- --------- ------- -------- ------- --------
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest bearing bank balances $ 200 $ 11 $ 211 $ (34) $ 18 $ (16)
Federal funds sold 250 (6) 244 (206) 10 (196)
Taxable investments 519 (356) 163 (15) 232 217
Tax-exempt investments 1,202 47 1,249 212 (121) 91
Loans 2,700 (801) 1,899 3,239 (364) 2,875
----- ------- ----- ------- ----- ------
Total earning assets 4,871 (1,105) 3,766 3,196 (225) 2,971
----- ------- ----- ------- ----- ------
Interest paid on:
NOW, MMDA and savings 1,623 (21) 1,602 1,107 309 1,416
Certificates of deposit 468 72 540 991 (144) 847
Short-term borrowings 8 (3) 5 (1,342) 393 (949)
Other borrowings 110 (51) 59 (182) 46 (136)
Total interest bearing ----- ------- ----- ------- ----- ------
liabilities 2,209 (3) 2,206 574 604 1,178
Change in net interest income ----- ------- ----- ------- ----- ------
on a tax-equivalent basis $ 2,662 $ (1,102) $ 1,560 $ 2,622 $ (829) $ 1,793
===== ======= ===== ===== ===== =====
</TABLE>
TABLE 3 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
The table below indicates amortized cost of securities available for sale and
securities held to maturity by type at year-end for each of the last three years
(in thousands):
Amortized Cost of Securities
December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Securities available for sale:
U. S. Treasury $ 17,541 $ 23,575 $ 21,728
Government agencies 25,412 26,085 20,792
Mortgage-backed securities 91,154 55,060 42,910
Obligations of states and political
subdivisions 68,665 17,165 20,348
Other securities 5,022 4,922 2,393
------- ------- -------
Total securities available for sale $ 207,794 $ 126,807 $ 108,171
======= ======= =======
Securities held to maturity:
U. S. Treasury $ - $ 1,050 $ 1,050
Government agencies - 11,018 13,980
Mortgage-backed securities - 13,094 17,888
Obligations of states and political
subdivisions - 33,623 24,235
Other securities - - -
------- ------- -------
Total securities available for sale $ - $ 58,785 $ 57,153
======= ======= =======
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FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
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 tax equivalent
yield for each range of maturities of securities available for sale at December
31, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
After One
Within But Within After Five
One Five But Within Over
Year Yield Years Yield Ten Years Yield Ten Years Yield Total
------ ----- ---------- ----- ---------- ----- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury $ 9,503 5.78% $ 8,038 6.04% $ - 0.00% $ - 0.00% $ 17,541
Government agencies 14,161 6.28% 9,177 6.06% 2,074 6.49% - 0.00% 25,412
Mortgage-backed securities 30,139 6.23% 31,288 6.25% 17,229 6.13% 12,498 5.64% 91,154
Obligations of states and
political subdivisions 5,435 8.65% 31,875 7.57% 31,228 7.24% 127 6.83% 68,665
Other securities 515 6.52% 974 6.28% 1,466 7.07% - 0.00% 2,955
------ ----- ------ ----- ------ ----- ------ ----- -------
Total debt securities $ 59,753 6.39% $ 81,352 6.72% $ 51,997 6.84% $ 12,625 5.65% 205,727
====== ===== ====== ===== ====== ===== ====== =====
Equity securities 2,067
-------
Total securities $ 207,794
=======
</TABLE>
Tax equivalent adjustments for 1998 were made using a blended Federal/state rate
of 37.3%.
Nonmortgage-backed securities are categorized in the earlier of their maturity
dates or their call dates. Mortgaged-backed securities are distributed based
upon their estimated average lives.
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>
<CAPTION>
December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 55,177 $ 54,044 $ 47,861 $ 41,050 $ 41,077
Residential real estate 121,885 106,439 94,187 81,704 71,537
Non-residential real estate 142,027 124,369 116,337 100,204 86,995
Consumer loans 95,040 91,035 100,117 84,907 75,691
Lease financing 55 19 137 271 247
------- ------- ------- ------- -------
Total loans $ 414,184 $ 375,906 $ 358,639 $ 308,136 $ 275,547
======= ======= ======= ======= =======
</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,
1998, along with the schedule of repayments of principal in the periods
indicated (in thousands):
Maturity distribution of loans:
Within One to Five After Five
One Year Years Years Total
--------- ----------- ---------- ---------
Commercial and real estate loans $ 118,963 $ 163,262 $ 36,919 $ 319,144
Consumer loans 41,553 49,606 3,881 95,040
------- ------- ------ -------
Total loans $ 160,516 $ 212,868 $ 40,800 $ 414,184
======= ======= ====== =======
Rate sensitivity loans:
One to Five After Five
Years Years Total
----------- ---------- ---------
Fixed rate loans $ 181,948 $ 27,838 $ 209,786
Floating rate loans 30,920 12,962 43,882
------- ------ -------
$ 212,868 $ 40,800 $ 253,668
======= ====== =======
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FIRST M & F CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS
The table below shows the Company's nonperforming assets and past due loans at
the end of each of the last five years (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 852 $ 328 $ 206 $ 84 $ 279
Restructured loans - - - - -
----- ----- ----- --- -----
Total nonperforming loans 852 328 206 84 279
Other real estate owned 1,123 843 724 148 911
----- ----- ----- --- -----
Total nonperforming assets 1,975 1,171 930 232 1,190
Accruing loans past due 90 days or more 1,155 1,149 968 707 448
----- ----- ----- --- -----
Total nonperforming assets and loans $ 3,130 $ 2,320 $ 1,898 $ 939 $ 1,638
===== ===== ===== === =====
</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, 1998, 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, 1998, the Company had no loans about which Management had serious
doubts as to their collectibility other than those disclosed above.
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes the Company's loan loss experience for each of the
last five years (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,315 $ 4,610 $ 4,373 $ 3,449 $ 3,020
Adjustments for sale of finance company
office - (77) - - -
Charge offs:
Commercial, financial and agricultural (188) (365) (235) (117) (195)
Real estate (451) (185) (174) (53) (124)
Consumer (1,380) (914) (743) (709) (480)
----- ----- ----- ----- -----
Total (2,019) (1,464) (1,152) (879) (799)
----- ----- ----- ----- -----
Recoveries:
Commercial, financial and agricultural 52 23 13 18 16
Real estate 93 23 14 106 40
Consumer 429 138 129 124 201
----- ----- ----- ----- -----
Total 574 184 156 248 257
----- ----- ----- ----- -----
Net charge offs (1,445) (1,280) (996) (631) (542)
Provision for loan losses 1,965 2,062 1,233 1,555 971
----- ----- ----- ----- -----
Balance at end of year $ 5,835 $ 5,315 $ 4,610 $ 4,373 $ 3,449
===== ===== ===== ===== =====
</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.
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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, 1998. These allocations are
determined by internal formulas based upon an analysis of the various types of
risk associated with the loan portfolio (in thousands):
General reserves for past due and other classified loans $ 1,602
General reserves of finance company portfolio 135
Year 2000 risk reserve 150
Other general reserves 3,948
-----
Total reserve for loan losses $ 5,835
=====
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.
Allowances for consumer loans are determined through an analysis of past due
status, legal efforts to establish repayment schedules for bankruptcies,
charge-off trends, collateral value, and general economic conditions. Commercial
and real estate loans are evaluated through a "watch loan" methodology which
assigns risk ratings based upon a financial analysis of the borrower's ability
to provide sufficient cash flows, collateral value and liquidity, and past due
status. Allowances are also provided based upon economic trends that may affect
specific borrowers or industries, trends in past due statistics, and migration
analysis of historical charge-offs.
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, 1998 (in thousands):
Three months or less $ 27,389
Over three months through twelve months 20,612
Over one year through three years 12,661
Over three years 3,733
------
Total $ 64,395
======
TABLE 11 - SELECTED RATIOS
The following table reflects ratios for the Company for the last three years:
1998 1997 1996
---- ---- ----
Return on average assets 1.17% 1.35% 1.35%
Return on average equity 12.93% 14.81% 15.31%
Dividend payout ratio 44.44% 39.29% 35.71%
Equity to assets ratio 9.02% 9.12% 8.79%
TABLE 12 - SHORT-TERM BORROWINGS
The table below presents certain information regarding the Company's short-term
borrowings for each of the last three years (in thousands of dollars):
1998 1997 1996
---- ---- ----
Outstanding at end of period $ 829 $ - $ 70
Maximum outstanding at any
month-end during the period 2,384 - 51,236
Average outstanding during
the period 534 294 19,588
Interest paid 22 17 966
----- ---- ------
Weighted average rate during
each period 4.13% 5.65% 4.80%
===== ==== ====
10 of 15
<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 26 of its branch facilities. The remaining
facilities are occupied under lease agreements, terms of which range from month
to month to five years. It is anticipated that all leases will be renewed.
ITEM 3. LEGAL PROCEEDING
The Bank is involved in various legal matters and claims which are being
defended and handled in the ordinary course of business. None of these matters
are expected, in the opinion of Management, to have a material adverse effect on
the financial position or results of operations of the Bank or the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At February 28, 1999, there were 606 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. Other information for this item can be found in the
table captioned "Quarterly Closing Common Stock Price Ranges and Dividends Paid"
included in the Registrant's 1998 Annual Report to Shareholders and is
incorporated herein by reference (page 14).
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 1998 Annual Report to Shareholders
and is incorporated herein by reference (page 19).
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 Proxy Statement to Shareholders dated March 17, 1999, and is
incorporated herein by reference (pages 50-53). In June, 1997, the Financial
Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards (SFAS) No.'s 130 and 131 regarding the reporting of comprehensive
income and disclosures about segments of business enterprises. The Company
adopted both standards during 1998 without a material impact on the consolidated
financial statements. In February, 1998, FASB issued SFAS No. 132 "Employers
Disclosures About Pensions and Other Post Retirement Benefits". The Company
adopted SFAS No. 132 in 1998 without a material impact on the consolidated
financial statements. In June, 1998, FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities". The Company adopted SFAS No. 133 in 1998
without a material impact on the consolidated financial statements. As disclosed
in Note 3 to the consolidated financial statements, the Company reclassified its
portfolio of securities held to maturity as securities available for sale in
1998 under the provisions of SFAS No. 133.
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 Proxy Statement to
Shareholders dated March 17, 1999, and are incorporated herein by reference
(pages 21-49).
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, 1998.
11 of 15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the Directors of the Registrant can be found on pages 4-6,
"Election of Directors", and page 9, "Director Compensation", contained in the
Proxy Statement to Shareholders dated March 17, 1999, and is incorporated herein
by reference. Information on the Registrants executive officers is included on
pages 8- 9, "Executive Compensation", in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item can be found on pages 8-9, "Executive
Compensation", and page 9, "Directors Compensation", of the Proxy Statement
dated March 17, 1999, 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 Proxy Statement to Shareholders
dated March 17, 1999, 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 11 under the caption "Transactions with Management", in the proxy
Statement to Shareholders dated March 17, 1999, and is incorporated herein by
reference.
PART IV
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 Proxy Statement to Shareholders,
dated March 17, 1999, and are incorporated into Part II, Item 8, herein by
reference.
Report of Independent Certified Public Accountants Consolidated Statements
of Condition as of December 31, 1998 and 1997 Consolidated Statements of
Income for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for
the Years Ended December 31, 1998, 1997 and 1996 Notes to the Consolidated
Financial Statements Selected Financial Data, Summary of Quarterly Results
of Operations, and Principal Markets and Prices of the Corporation's Stock
A-2. Financial Statement Schedules
The schedules to the consolidated financial statements set forth by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.
A-3. Exhibits
The exhibits listed in the Exhibit Index are filed herewith or incorporated
herein by reference.
B. Reports on Form 8-K
None
12 of 15
<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/ Robert C. Thompson, III
-------------------------- -----------------------------
Hugh S. Potts, Jr. Robert C. Thompson, III
Chairman of the Board and Treasurer
Chief Executive Officer
DATE: March 26, 1999 DATE: March 26, 1999
------------------ -------------------
13 of 15
<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 26, 1999 BY: /S/ Hugh S. Potts, Jr.
--------------------- ---------------------------------
Hugh S. Potts, Jr., Director
DATE: March 26, 1999 BY: /S/ Scott M. Wiggers
--------------------- ---------------------------------
Scott M. Wiggers, Director
DATE: March 26, 1999 BY: /S/ Fred A. Bell, Jr.
--------------------- ---------------------------------
Fred A. Bell, Jr., Director
DATE: March 26, 1999 BY: /S/ Jon A. Crocker
--------------------- ---------------------------------
Jon A. Crocker, Director
DATE: March 26, 1999 BY: /S/ Charles T. England
--------------------- ---------------------------------
Charles T. England, Director
DATE: ____________________ BY:__________________________________
Toxey Hall, III, Director
DATE: ____________________ BY:__________________________________
Barbara K. Hammond, Director
DATE: ____________________ BY:__________________________________
J. Marlin Ivey, Director
DATE: ____________________ BY:__________________________________
Joe Ivey, Director
DATE: March 26, 1999 BY: /S/ R. Dale McBride
-------------------- ---------------------------------
R. Dale McBride
DATE: ____________________ BY:__________________________________
Susan P. McCaffery, Director
DATE: March 26, 1999 BY: /S/ Otho E. Pettit, Jr.
-------------------- ---------------------------------
Otho E. Pettit, Jr., Director
DATE: March 26, 1999 BY: /S/ Charles W. Ritter, Jr.
-------------------- ---------------------------------
Charles W. Ritter, Jr., Director
DATE: March 26, 1999 BY: /S/ W. C. Shoemaker
-------------------- ---------------------------------
W. C. Shoemaker, Director
DATE: March 26, 1999 BY: /S/ Edward G. Woodard
-------------------- ---------------------------------
Edward G. Woodard, Director
14 of 15
<PAGE>
EXHIBIT INDEX
3 (A) Articles of Incorporation, as amended. Filed as Exhibit 3 to the
Company's Form S-1 (File No. 33-08751) September 15, 1986, incorporated
herein by reference.
3 (B) Bylaws, as amended. Filed as Exhibit 3-b to the Company's Form S-1 (File
No. 33-08751) September 15, 1986, incorporated herein by reference.
13. Only those portions of the Registrant's Annual Report to Shareholders
expressly incorporated by reference herein are included in this exhibit
and, therefore, are filed as a party of this report of Form 10-K.
27. Financial Data Schedule. All other exhibits are omitted as they are
inapplicable or not required by the related instructions.
15 of 15
Exhibit 13
FINANCIAL HIGHLIGHTS
Five-Year
Compounded
(Dollars in Thousands, Percent Growth
except per share) 1998 1997 Change Rate
- --------------------------------------------------------------------------------
EARNINGS
Net interest income $ 25,619 $ 24,676 3.8% 7.7%
Noninterest income 5,501 5,241 5.0 10.1
Noninterest expense 18,718 16,416 14.0 6.0
Net income 7,842 8,146 (3.7) 11.5
AVERAGE BALANCES
Assets $ 672,051 $ 603,133 11.4% 10.2%
Earning assets 623,025 560,380 11.2 9.4
Loans 393,894 365,252 7.8 13.7
Deposits 596,495 533,937 11.7 10.3
Shareholders' equity 60,640 55,008 10.2 12.5
YEAR-END BALANCES
Assets $ 702,006 $ 621,458 13.0% 10.0%
Earning assets 650,165 576,715 12.7 10.2
Loans 414,184 375,906 10.2 13.2
Deposits 625,398 543,006 15.2 12.0
Shareholders' equity 63,512 57,646 10.2 12.3
PER COMMON SHARE
Net income $ 2.16 $ 2.24 (3.6%) 9.9%
Book value 17.45 15.85 10.1 10.5
Cash dividends paid 0.96 0.88 9.1 14.4
Closing market price 36.00 40.00 (10.0) 26.8
FINANCIAL RATIOS
Return on average assets 1.17% 1.35% - -
Return on average equity 12.93% 14.81% - -
Average equity to average assets 9.02% 9.12% - -
Price to earnings (x) 16.67x 17.86x - -
Price to book value (x) 2.06x 2.52x - -
NONFINANCIAL DATA
Shareholders 798 786 - -
Employees 303 278 - -
Financial service offices 32 30 - -
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
First M&F Corporation
Kosciusko, Mississippi
We have audited, in accordance with generally accepted auditing standards,
the consolidated statements of condition of First M&F Corporation and subsidiary
as of December 31, 1998 and 1997, and the related consolidated statements of
income, comprehensive income, stockholders' equity, and cash flows for each of
the years in the three-year period ended December 31, 1998 (not presented
herein), and in our report dated February 5, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying summary consolidated balance sheets
and statements of income (included on pages 17 and 18 herein) is fairly
presented, in all material respects, in relation to the consolidated financial
statements from which it has been derived.
Jackson, Mississippi
February 23, 1999
<PAGE>
FINANCIAL LAYOUT
SHAREHOLDER SUMMARY
December 31, 1998
- --------------------------------------------------------------------------------
Investment Data
52-week range $ 31.00 - $ 48.00
Closing stock price $ 36.00
Earnings per share $ 2.16
Book value per share $ 17.45
Shares outstanding 3,639,779
Stock appreciation since 12/93 227.3%
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Stock and Dividend
Performance
Price/earnings ratio 16.67x 17.86x 13.81x 12.22x 8.97x
Price/book value ratio 2.06x 2.52x 2.02x 1.69x 1.18x
Book value/share $ 17.45 $ 15.85 $ 14.35 $ 13.05 $ 10.98
Dividend payout ratio 44.4% 39.3% 35.7% 34.4% 33.8%
Historical dividend yield 2.4% 2.4% 2.8% 3.3% 3.8%
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Value Added
Invested capital $ 61,722 $ 57,070 $ 51,911 $ 46,739 $ 38,881
Market value of capital 131,032 145,515 105,498 79,951 43,733
--------------------------------------------------
Excess market value $ 69,310 $ 88,445 $ 53,587 $ 33,212 $ 4,852
Increase (decrease)
in value ($ 19,135) $ 34,858 $ 20,375 $ 28,360 $ -
First Second Third Fourth
- --------------------------------------------------------------------------------
Quarterly Closing Common
Stock Price Ranges and
Dividends Paid
1998:
High $ 45.00 $ 48.00 $ 44.50 $ 37.00
Low 37.75 42.00 33.50 31.00
Close 44.00 43.00 35.50 36.00
Dividend 0.24 0.24 0.24 0.24
- --------------------------------------------------------------------------------
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 0.20 0.22 0.22 0.24
<PAGE>
FINANCIAL REVIEW
BALANCE SHEET
The acquisition of First Bolivar Capital Corp as of December 31, 1998 pushed
First M&F's assets up to $702.0 million. Total assets grew by 13.0% in 1998 as
deposit volumes continued to grow. Loans increased by 10.2% in 1998 as the
economy remained steady and competition became more fierce.
Investment securities increased by 12.9% in 1998 as loan growth lagged
behind our deposit growth. Short-term funds in the form of interest bearing bank
balances and Federal funds sold also increased as the deposit growth remained
strong in 1998. Small business and real estate lending continued to grow in
1998. Consumer loans grew at a much slower pace than the commercial and real
estate loan sectors. First M&F has continued to try to use the small business
and consumer loans as a base upon which to build other banking relationships.
First M&F spent $2.830 million on fixed asset expansion in 1998 as compared
to $2.360 million in 1997. Expansion efforts in Grenada, Southaven, and Clinton
contributed the most to the 1998 spending. First M&F continues to look for
opportunities to expand in existing strong markets as well as to expand into new
growing markets. Computer enhancements were made in 1998 and will continue into
1999 as First M&F realizes the importance in processing speed and capacity in
serving our customers well.
Deposits grew by 15.2% in 1998 and by 9.3% in 1997. During the latter half
of 1998, management started reviewing deposit pricing and funding strategies in
order to create a sensible funding strategy for anticipated loan growth. As the
deposit base has grown, it has become imperative that this funding source be
properly managed.
Stockholders' equity grew by 10.2% in 1998 compared to 10.4% in 1997. Total
capital-to-assets was 9.1% at December 31, 1998, compared to 9.3% at year-end,
1997. This strong capital base allows the Company much flexibility in
designing expansion and acquisition strategies.
INCOME STATEMENT
Net income for 1998 decreased by 3.7%, as compared to a 6.9% increase in
1997. Net interest income grew by 3.8% in 1998 as compared to 7.2% in 1997.
Decreasing interest rates, and a slightly positive interest rate sensitivity in
1998 resulted in this margin flatness. The high deposit growth caused pressure
to be put on investment yields, which declined in 1998. Loan growth was not
sufficient to overcome the effect of the decreases in yields. This effect could
also be seen in the efficiency ratio, which increased from 52.4% in 1997 to
56.5% in 1998.
Noninterest income improved in 1998 as annuity sales were introduced, with
approximately $107 thousand in commission income being generated. The Company
also had over $400 thousand in increases in cash surrender values of insurance
policies in 1998. These policies were purchased in 1998 to provide tax free
returns to offset benefit plan expenses. Noninterest income improved in 1997
due to a one-time item in the credit insurance subsidiary related to
reinsurance revenues.
<PAGE>
INCOME STATEMENT (continued)
Noninterest expenses grew by 14.0% in 1998 and 2.2% in 1997, as the Company
continued to expand in personnel and facilities. Salaries and employee benefits
grew by 11.5% in 1998 after growing by 4.9% in 1997. The growth in salaries and
benefits has occurred naturally as the Company has expanded its operations in
current and new markets and added more lending staff as well as senior
administrative staff.
Solid growth in earnings and per-share earnings is a strategically important
issue for First M&F. The five year compounded growth rate for earnings from 1993
to 1998 was 11.5%. Our objective is to develop strategies that will allow us to
have consistently high future earnings growth.
CASH FLOWS
Generation of sufficient cash flows to sustain our growth and reinvestment
plans is a key to the enhancement of our shareholders' value. Earnings per
share, adjusted for goodwill amortization, were $2.22 in 1998, $2.30 in 1997,
and $2.16 in 1996. The following table shows how earnings per share change as
net charge offs are treated on a cash basis.
1998 1997 1996
- --------------------------------------------------------------------------------
Net income $ 7,842,267 $ 8,146,481 $ 7,623,041
Goodwill amortization 236,802 237,723 237,954
Loan loss accrual 1,964,746 2,062,085 1,232,536
Net charge offs (1,444,823) (1,279,510) (996,389)
------------------------------------------------
Adjusted earnings 8,598,992 9,166,779 8,097,142
Adjusted EPS* 2.36 2.52 2.23
* These earnings per share calculations are based upon estimated cash flows and
are not calculated in accordance with generally accepted accounting principles.
The earnings per share amounts found in the Financial Highlights, Selected
Financial Data, Shareholder Summary, Other Financial Data, and Income Statements
are calculated in accordance with generally accepted accounting principles.
In 1997, the accounting earnings hid the strength of the Company's cash
flows, thereby giving an incomplete picture of the operating results. In 1998,
net cash flows were lower due to interest margin pressures, increased expenses,
and the allocation of funds into fixed asset expansions. Financing activities
provided more funds than could be efficiently allocated, resulting in high
Federal funds and interest bearing bank balances at the end of 1998. Strategies
are in place to deploy these funds wisely as well as to take advantage of any
downward repricing opportunities.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31
1998 1997
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 22,807,101 $ 27,594,682
Interest-bearing bank balances 6,485,441 10,801,934
Federal funds sold 18,850,000 3,500,000
Investment securities:
Available for sale (amortized
cost of $207,794,000 and
$126,807,000) 210,646,083 127,721,719
Held to maturity (market value
of $59,696,000 in 1997) - 58,785,352
Loans 414,183,683 375,905,546
Less allowance for loan losses 5,835,000 5,315,077
----------------------------------
Net loans 408,348,683 370,590,469
----------------------------------
Premises and equipment 11,372,484 9,847,527
Accrued interest receivable 6,489,178 5,854,687
Other real estate 1,122,625 842,786
Intangible assets 3,241,435 3,434,426
Other assets 12,643,194 2,484,232
----------------------------------
Total assets $ 702,006,224 $ 621,457,814
================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 78,492,190 $ 65,605,946
Interest-bearing 546,905,816 477,399,742
----------------------------------
Total deposits 625,398,006 543,005,688
Borrowed funds 9,399,850 16,417,491
Accrued interest payable 2,706,227 2,783,377
Other liabilities 990,564 1,605,261
----------------------------------
Total liabilities 638,494,647 563,811,817
----------------------------------
SHAREHOLDERS' EQUITY
Preferred stock:
Class A, 1,000,000 shares authorized - -
Class B, 1,000,000 shares authorized - -
Common stock, $5 par value,
15,000,000 shares authorized,
3,639,779 and 3,637,870 shares
issued and outstanding 18,198,895 18,189,350
Additional paid-in capital 10,800,455 10,741,276
Retained earnings 32,722,727 28,139,330
Unrealized securities gains, net 1,789,500 576,041
---------------------------------
Total shareholders' equity 63,511,577 57,645,997
---------------------------------
Total liabilities and shareholders' equity $ 702,006,224 $ 621,457,814
================================================================================
<PAGE>
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31
1998 1997 1996
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 37,238,594 $ 35,378,995 $ 32,619,776
Interest on investment securities:
Taxable 8,582,067 8,418,728 8,201,904
Tax-exempt 2,915,578 2,244,399 2,184,676
Interest on bank balances 402,738 192,288 208,137
Interest on Federal funds sold 870,612 626,433 822,269
-----------------------------------------
Total interest income 50,009,589 46,860,843 44,036,762
-----------------------------------------
INTEREST EXPENSE
Interest on deposits 23,802,926 21,660,776 19,387,027
Interest on repurchase agreements 22,046 16,618 940,052
Interest on other debt 565,527 507,338 679,984
-----------------------------------------
Total interest expense 24,390,499 22,184,732 21,007,063
-----------------------------------------
Net interest income 25,619,090 24,676,111 23,029,699
Provision for loan losses 1,964,746 2,062,085 1,232,536
-----------------------------------------
Net interest income after
provision for loan losses 23,654,344 22,614,026 21,797,163
-----------------------------------------
NONINTEREST INCOME
Service charges on deposits 3,789,439 3,589,094 3,690,424
Credit insurance income 492,851 1,022,996 468,052
Other noninterest income 1,084,101 586,245 548,383
Securities gains (losses) 134,918 42,339 58,192
-----------------------------------------
Total noninterest income 5,501,309 5,240,674 4,765,051
-----------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 9,859,349 8,842,782 8,432,337
Net occupancy expense 1,183,238 1,035,126 1,048,602
Equipment and data processing expense 2,154,188 1,876,508 1,861,463
Other expenses 5,521,630 4,661,815 4,720,997
-----------------------------------------
Total noninterest expense 18,718,405 16,416,231 16,063,399
-----------------------------------------
Income before income taxes 10,437,248 11,438,469 10,498,815
Income taxes 2,594,981 3,291,988 2,875,774
-----------------------------------------
Net income $ 7,842,267 $ 8,146,481 $ 7,623,041
================================================================================
Basic earnings per share $ 2.16 $ 2.24 $ 2.10
-----------------------------------------
Average shares outstanding 3,637,875 3,637,870 3,636,423
================================================================================
<PAGE>
SELECTED FINANCIAL DATA
(Thousands, Except Per Share Data)
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
EARNINGS
Interest income $ 50,009 $ 46,861 $ 44,037 $ 39,723 $ 32,143
Interest expense 24,390 22,185 21,007 18,739 13,379
---------------------------------------------------
Net interest income 25,619 24,676 23,030 20,984 18,764
Provision for loan losses 1,965 2,062 1,233 1,555 971
Noninterest income 5,501 5,241 4,765 4,513 3,666
Noninterest expense 18,718 16,416 16,063 15,557 15,004
Income taxes 2,595 3,293 2,876 2,006 1,590
---------------------------------------------------
Net income $ 7,842 $ 8,146 $ 7,623 $ 6,379 $ 4,865
- --------------------------------------------------------------------------------
Net interest income,
taxable equivalent $ 27,615 $ 26,064 $ 24,278 $ 22,273 $ 19,986
- --------------------------------------------------------------------------------
Cash dividends paid $ 3,259 $ 2,987 $ 2,545 $ 2,031 $ 1,535
- --------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 2.16 $ 2.24 $ 2.10 $ 1.80 $ 1.45
Cash dividends paid 0.96 0.88 0.75 0.62 0.49
Book value 17.45 15.85 14.35 13.05 10.98
Closing stock price 36.00 40.00 29.00 22.00 13.00
SELECTED AVERAGE
BALANCES
Assets $ 672,051 $ 603,133 $ 566,276 $ 517,779 $ 462,849
Earning assets 623,025 560,380 527,822 483,182 428,060
Loans 393,894 365,252 331,969 290,595 245,144
Investments 206,617 179,598 176,980 177,226 172,852
Total deposits 596,495 533,937 481,672 397,021 378,242
Equity 60,640 55,008 49,783 42,272 36,178
SELECTED YEAR-END
BALANCES
Assets $ 702,006 $ 621,458 $ 563,677 $ 544,190 $ 481,940
Earning assets 650,165 576,715 525,067 509,073 447,942
Loans 414,184 375,906 358,639 308,136 275,547
Investments 210,646 186,507 165,778 195,423 169,739
Core deposits 561,003 484,159 440,963 387,749 350,429
Total deposits 625,398 543,006 496,793 437,270 389,017
Equity 63,512 57,646 52,211 47,429 36,953
SELECTED RATIOS
Return on average assets 1.17% 1.35% 1.35% 1.23% 1.05%
Return on average equity 12.93 14.81 15.31 15.09 13.45
Average equity to
average assets 9.02 9.12 8.79 8.16 7.82
Dividend payout ratio 44.44 39.29 35.71 34.44 33.79
Price to earnings (x) 16.67x 17.86x 13.81x 12.22x 8.97x
Price to book (x) 2.06x 2.52x 2.02x 1.69x 1.18x
<PAGE>
OTHER FINANCIAL DATA
(Dollars in Thousands)
Change
1998 vs. 1997 vs.
1998 1997 1996 1997 1996
- --------------------------------------------------------------------------------
COMPOSITION RATIOS
Earning assets to assets 92.62% 92.80% 93.15% (18)bp (35)bp
Loans to earning assets 63.70 65.18 68.30 (148) (312)
Interest-bearing liabilities
to earning assets 85.56 85.59 85.21 (3) 38
Loans to total deposits 66.23 69.23 72.19 (300) (296)
Noninterest-bearing
deposits to total deposits 12.55 12.08 12.05 47 3
- --------------------------------------------------------------------------------
ALLOWANCE FOR
LOAN LOSSES
Beginning balance $ 5,315 $ 4,610 $ 4,373 15.3% 5.4%
Provision for
loan losses 1,965 2,062 1,233 (4.7) 67.2
Allowance of sold
portfolios - (77) - - -
Charge-offs (2,019) (1,464) (1,152) 37.9 27.1
Recoveries 574 184 156 (212.0) 18.0
------------------------------------------------
Net charge-offs (1,445) (1,280) (996) 12.9 28.5
------------------------------------------------
Ending balance $ 5,835 $ 5,315 $ 4,610 9.8% 15.3%
- --------------------------------------------------------------------------------
COMPOSITION
OF RISK ASSETS
Nonaccrual loans $ 852 $ 328 $ 206 159.8% 59.2%
Foreclosed property 1,123 843 724 33.2 16.4
------------------------------------------------
Nonperforming assets $ 1,975 $ 1,171 $ 930 68.7% 25.9%
------------------------------------------------
Accruing loans past
due 90 days $ 1,155 $ 1,149 $ 968 18.7% 36.9%
- --------------------------------------------------------------------------------
ASSET QUALITY RATIOS
Net charge-offs
to average loans 0.37% 0.35% 0.30% 2bp 5bp
Nonaccrual loans
to total loans 0.22 0.09 0.06 13 3
Nonperforming assets to:
Loans and foreclosed
property 0.48 0.31 0.26 17 5
Total assets 0.28 0.19 0.16 9 3
Allowance for loan losses
to total loans 1.41 1.41 1.29 - 12
Allowance for loan losses
to nonperforming 6.85x 16.20x 22.38x (935) (618)
Loans (x)
- --------------------------------------------------------------------------------
<PAGE>
QUARTERLY FINANCIAL TRENDS
(Dollars in Thousands)
First Second Third Fourth 4th Qtr '98 vs.
1998 Quarter Quarter Quarter Quarter 4th Qtr '97
- --------------------------------------------------------------------------------
Interest income $ 12,196 $ 12,410 $ 12,729 $ 12,675 3.7%
Interest expense 5,927 6,109 6,222 6,132 6.5
-------------------------------------------------------
Net interest income 6,269 6,301 6,507 6,543 1.2
Provision for loan losses 462 482 521 499 26.3
Noninterest income 1,217 1,293 1,545 1,445 16.7
Noninterest expense 4,288 4,494 4,952 4,985 17.0
Income taxes 780 587 613 615 (33.1)
-------------------------------------------------------
Net income $ 1,956 $ 2,031 $ 1,966 $ 1,889 (11.2%)
- --------------------------------------------------------------------------------
Per common share:
Net income $ 0.54 $ 0.56 $ 0.54 $ 0.52 (10.3%)
Cash dividends 0.24 0.24 0.24 0.24 -
- --------------------------------------------------------------------------------
First Second Third Fourth 4th Qtr '97 vs.
1997 Quarter Quarter Quarter Quarter 4th Qtr '96
- --------------------------------------------------------------------------------
Interest income $ 11,143 $ 11,574 $ 11,919 $ 12,225 8.0%
Interest expense 5,233 5,452 5,739 5,760 9.1
------------------------------------------------------
Net interest income 5,910 6,122 6,180 6,465 7.0
Provision for loan losses 397 401 870 395 (10.0)
Noninterest income 1,163 1,193 1,646 1,238 21.9
Noninterest expense 3,962 4,074 4,118 4,262 2.4
Income taxes 760 811 801 919 44.3
------------------------------------------------------
Net income $ 1,954 $ 2,029 $ 2,037 $ 2,127 16.7%
- --------------------------------------------------------------------------------
Per common share:
Net income $ 0.54 $ 0.56 $ 0.56 $ 0.58 16.0%
Cash dividends 0.20 0.22 0.22 0.24 20.0
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management of First M&F Corporation and its subsidiary has prepared the
summary consolidated financial statements and other information in the annual
report in accordance with generally accepted accounting principles and is
responsible for its accuracy. The financial statements necessarily include
amounts that are based on management's best estimates and judgements.
In meeting its responsibility, management relies on internal accounting and
related control systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in the corporation's
financial records and to safeguard the corporation's assets from material loss
or misuse. Such assurance cannot be absolute because of inherent limitations in
any internal control system. The corporation's bank subsidiary maintains an
internal audit staff which monitors compliance with the corporation's and
subsidiary's systems of internal controls and reports to management and to the
Audit Committee of the Board of Directors.
The Audit Committee of First M&F's Board of Directors consists entirely
of outside directors. The Audit Committee meets periodically with the internal
auditor and the independent accountants to discuss audit, internal control,
financial reporting and related matters. Shearer, Taylor & Co., P.A. and the
internal audit staff have direct access to the Audit Committee.
Hugh S. Potts, Jr Robert C. Thompson, III
Chairman and Chief Executive Officer Executive Vice President and
Chief Financial Officer
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Corporate Directors
Fred A. Bell, Jr.
Manager, Mississippi Materials Corp.
Kosciusko, MS
Jon A. Crocker
Chairman and CEO, Farmers & Merchants Bank
Bruce, MS
Charles T. England
Supervisor, M&F Financial Services
Kosciusko, MS
Toxey Hall, III
President, Thomas-Walker-Lacey, Inc.
Canton, MS
Barbara K. Hammond
Retired
Jackson. MS
J. Marlin Ivey
President, Ivey National Corp.
Kosciusko, MS
Joe Ivey
President and CEO, Building One
Services Corporation
Washington, D.C.
R. Dale McBride
President, Merchants & Farmers Bank
Durant, MS
Susan P. McCaffery
Retired
Kosciusko, MS
Otho E. Pettit, Jr.
Partner, Thornton, Guyton, Dorrill & Pettit
Kosciusko, MS
Hugh S. Potts, Jr.
Chairman & CEO
First M&F Corp and Merchants & Farmers Bank
Kosciusko, MS
Charles W. Ritter, Jr.
President, The Attala Company
Kosciusko, MS
W.C. Shoemaker
Consultant, IMC Webb Graphics
Kosciusko, MS
Scott M. Wiggers
President
First M&F Corp and Merchant & Farmers Bank
Kosciusko, MS
Edward G. Woodard
President, K.M. Distributing Company
Kosciusko, MS
<PAGE>
Emeritus Directors
Robert Y. Hammond
William J. Hammond
William M. Myers, DDS
Hugh S. Potts
O.K. Power
Senior Management Team
Hugh S. Potts, Jr.
Chairman of the Board, Chief Executive Officer
Scott M. Wiggers
President
Robert K. Autry, Jr.
Executive Vice President and Divisional Sales Manager
Christopher M. Burgess
Executive Vice President and Divisional Sales Manager
Jeffrey A. Camp
Executive Vice President and Senior Credit Officer
Robert C. Thompson, III
Executive Vice President and Chief Financial Officer
<PAGE>
RETAIL ADMINISTRATION
Northern Sales Division
Robert K. Autry, Jr.
Executive Vice President and
Divisional Sales Manager
Douglas P. Daly
Manager
Ackerman, MS
G.C. Kinney, III
President
Oxford, MS
Jeffrey B. Lacey
President
Kosciusko, MS
Thomas A. McKelroy
President
Bruce, MS
Dwayne K. Myers
President
Starkville, MS
V. Doug Springer
President
Cleveland, MS
Richard A. Taylor
President
Southaven, MS
Richard D. Wilson
President
Philadelphia, MS
Southern Sales Division
Christopher M. Burgess
Executive Vice President and
Divisional Sales Manager
Timothy L. Alford
President
Clinton, MS
Michael E. Crandall
President
Madison/Ridgeland, MS
Donald G. Griffin
President
Brandon/Pearl, MS
Harry L. Lott, Jr.
President
Grenada, MS
R. Dale McBride
President
Durant, MS
Frank S. Street
President
Canton, MS
<PAGE>
CORPORATE AND INVESTOR INFORMATION
First M&F Corporation
Merchants & Farmers Bank
221 East Washington Street
P.O. Box 520
Kosciusko, MS 39090
(601) 289-5121
www.mfbank.com
Annual Meeting
First M&F Corporation's Annual Meeting of Shareholders will be held at 2:00
p.m., Wednesday, April 14, 1999, in the auditorium of the Mary Ricks Thornton
Cultural Center in Kosciusko, MS.
Financial Information
Analysts and investors seeking financial information about First M&F Corp. may
contact Robert C. Thompson, III, Chief Financial Officer.
Stock Listing
First M&F's common stock is traded on the NASDAQ National Market System under
the symbol FMFC.
Stock Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
1-800-368-5948
Financial Publications
Additional copies of the corporation's Annual Report, Form 10-K, quarterly
reports and other corporate publications are available on request by contacting
the Chief Financial Officer.
Independent Auditors
Shearer, Taylor & Co., P.A.
6360 I-55 North, Suite 330
P.O. Drawer 13157
Jackson, MS 39236-3157
(601) 956-0993
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