SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission file number 0-10972
First Farmers and Merchants Corporation
(Exact name of registrant as specified in its
charter)
Tennessee 62-1148660
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
816 South Garden Street
Columbia, Tennessee 38402 - 1148
(Address of principal executive offices) (Zip Code)
(615) 388-3145
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that 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 the 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 the 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. X
The aggregate market value of the voting stock held by
non-affiliates of First Farmers and Merchants Corporation at
March 1, 1995, was none.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
issuer's common stock, as of March 1, 1995. 1,400,000
shares
This filing contains 65 pages.
<PAGE>
This report was on the letterhead of the accounting firm in the
information sent to our stockholders. The letter head
included the following information: KRAFTCPAs, Kraft Bros.,
Esstman, Patton & Harrell, Certified Public Accountants, Member
BKR International.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
Board of Directors
First Farmers and Merchants Corporation
Columbia, Tennessee
We have audited the accompanying consolidated balance sheets of
First Farmers and Merchants Corporation (the "Corporation") and
its wholly-owned subsidiary, First Farmers and Merchants
National Bank (the "Bank"), as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial
statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with general accepted
auditing standards. Those standards require that we plan and
perform the 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 that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of First Farmers and Merchants Corporation
and Subsidiary as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1, effective January 1, 1994, the
Corporation and the Bank changed their method of accounting for
investments in debt and equity securities.
/s/ Kraft Brothers, Esstman, Patton & Harrell
Nashville, Tennessee
February 3, 1995
The following address was on the bottom of the letterhead:
1200 Parkway Towers, 404 James Robertson Parkway, Nashville, TN
37219-1598, 615-242-7351 * FAX 256-1952, Also in Columbia,
Tennessee.
<PAGE>
PART I
Item 1. Business.
A discussion of the general development of the business is
included in Note 1 of the Notes to Consolidated Financial
Statements which is a part of the Annual Report to Stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Employees
FFMC has no employees. Its subsidiary, the Bank had
approximately one hundred ninety-four (194) full time employees
and fifty-eight (58) part time employees. Seven of the Bank's
officers also were officers of FFMC. Employee benefit programs
provided by the Bank include a deferred profit sharing plan, an
annual profit sharing plan, a salary continuation plan, a
deferred compensation plan, training programs, group life and
health insurance and paid vacations.
Item 2. Properties.
A discussion of the properties owned by the company is
included in Note 1 of the Notes to Consolidated Financial
Statements which is a part of then Annual Report to
Stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Item 3. Legal Proceedings.
There are no material pending legal proceedings known to the
Board of Directors in which any director or executive officer or
principal shareholder of the Corporation and its subsidiary or
any business in which such persons are participants as a
material interest adverse to the Corporation and its subsidiary.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the security holders during the
fourth quarter of the fiscal year ended December 31, 1994.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.
A discussion of the registrant's common stock and related
security holder matters is included in the Management's Discussion
and Analysis of Financial Conditions and Results of Operation which is part
of the Annual Report to Stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Item 6. Selected Financial Data.
The selected financial data is included in the Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Conditions and Results of Operation which is part of the Annual
Report to Stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management's discussion and analysis of financial conditions and
results of operations is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations which
is part of Annual Report to Stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data are included in Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Conditions and Results of Operation which are part of the Annual Report
to stockholders.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks $ 26,735,526 $ 22,642,168
Federal funds sold - 400,000
Securities
Available for sale (amortized cost $12,646,156 in 1994) 12,565,226 -
Held to maturity (fair value $138,892,331 and
$155,336,497 respectively) 143,061,031 150,110,295
Total securities - Note 2 155,626,257 150,110,295
Loans, net of unearned income - Note 3 262,694,120 243,915,462
Allowance for possible loan losses - Note 4 (2,342,290) (2,023,651)
Net loans 260,351,830 241,891,811
Bank premises and equipment, at cost less allowance for
depreciation and amortization - Note 5 6,193,080 6,363,539
Other assets 11,887,492 11,188,893
TOTAL ASSETS $ 460,794,185 $ 432,596,706
LIABILITIES
Deposits
Noninterest-bearing $ 61,845,878 $ 54,302,635
Interest-bearing (including certificates
of deposit over $100,000: 1994 - $26,169,831;
1993 - $25,104,901) 343,306,545 334,632,442
Total deposits 405,152,423 388,935,077
Federal funds purchased 7,000,000 -
Dividends payable 574,000 525,000
Accounts payable and accrued liabilities 4,239,636 3,729,056
TOTAL LIABILITIES 416,966,059 393,189,133
COMMITMENTS AND CONTINGENCIES - Notes 7 and 9
STOCKHOLDERS' EQUITY
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding - Note 1 14,000,000 7,000,000
Retained earnings - Note 6 29,876,683 32,407,573
Net unrealized loss on available-for-sale securities,
net of tax (48,557) -
TOTAL STOCKHOLDERS' EQUITY 43,828,126 39,407,573
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,794,185 $ 432,596,706
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) On
Common Retained Available-for-sale
Stock Earnings Securities Total
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ 7,000,000 $ 24,604,901 $ - $ 31,604,901
Net income for the year - 4,492,104 - 4,492,104
Cash dividends declared, $.64 per share - (896,000) - (896,000)
BALANCE AT DECEMBER 31, 1992 7,000,000 28,201,005 - 35,201,005
Net income for the year - 5,256,252 - 5,256,252
Cash dividends declared, $.73 per share - (1,022,000) - (1,022,000)
Net unrealized loss on mutual fund
investment - (27,684) - (27,684)
BALANCE AT DECEMBER 31, 1993 7,000,000 32,407,573 - 39,407,573
Cumulative effect of change in
accounting principle (net of deferred
income taxes of $171,405) - Note 1 - 27,684 229,424 257,108
Two-for-one stock split - Note 1 7,000,000 (7,000,000) - -
Net income for the year - 5,561,426 - 5,561,426
Cash dividends declared, $.80 per share - (1,120,000) - (1,120,000)
Net unrealized loss on available-for-
sale securities, net of tax - - (277,981) (277,981)
BALANCE AT DECEMBER 31, 1994 $ 14,000,000 $ 29,876,683 $ (48,557) $ 43,828,126
<FN>
<F1>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548
Interest on investment securities
Taxable interest
Available-for-sale 1,327,021 - -
Held-to-maturity 5,858,148 6,925,404 6,898,114
Exempt from federal income tax 2,184,666 1,857,168 1,825,869
Dividends 204,948 72,054 110,874
9,574,783 8,854,626 8,834,857
Other interest income 111,841 347,287 195,744
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557
Interest on other short term
borrowings 93,286 38,339 47,449
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143
PROVISION FOR POSSIBLE LOAN LOSSES
- Note 4 660,000 470,000 840,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143
NONINTEREST INCOME
Trust department income 1,249,359 863,952 753,239
Service charges on deposits accounts 2,317,992 2,206,026 2,123,096
Other service charges, commissions,
and fees 336,758 509,009 401,618
Other operating income 319,466 315,108 191,363
Investment securities gains (losses) (243,690) 23,896 28,434
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086
Net occupancy expense 1,190,678 1,070,971 984,650
Furniture and equipment expense 1,069,856 889,848 801,453
Loss on other real estate 4,000 103,122 312,064
Other operating expenses 4,996,107 4,903,949 4,460,696
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,765,172 7,477,217 6,260,944
PROVISION FOR INCOME TAXES - Note 8 2,203,746 2,220,965 1,768,840
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104
EARNINGS PER COMMON SHARE - Note 1
(1,400,000 outstanding shares) $ 3.97 $ 3.75 $ 3.21
<FN>
<F2>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 5,561,426 $ 5,256,252 $ 4,492,104
Adjustments to reconcile net income
to net cash provided by operating
activities
Excess (deficiency) of provision
for possible loan losses over net
charge offs 318,639 (230,083) 336,876
Provision for depreciation and
amortization of premises and equipment 589,045 591,486 544,896
Amortization of deposit base intangibles 168,020 168,020 157,180
Amortization of investment security
premiums, net of accretion of discounts 678,968 747,224 530,561
Donation of premises to municipalities - - 106,569
Increase in cash surrender value of
life insurance contracts (75,287) (103,175) -
Deferred income taxes (163,907) 24,080 (152,979)
(Increase) decrease in
Interest receivable (992,872) 364,303 (207,525)
Other assets 344,572 (1,171,225) (317,383)
Increase (decrease) in
Interest payable 222,605 (206,742) (773,927)
Other liabilities 287,975 38,024 315,094
TOTAL ADJUSTMENTS 1,377,758 221,912 539,362
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,939,184 5,478,164 5,031,466
INVESTING ACTIVITIES
Proceeds from maturities, calls, and
sales of available-for-sale securities 25,152,051 - -
Proceeds from maturities and calls of
held-to-maturity securities 5,092,000 30,497,983 17,446,753
Purchases of investment securities
Available-for-sale (16,942,994) - -
Held-to-maturity (19,495,987) (39,789,407) (61,797,126)
Acquisition of loans - Note 11 - - (13,715,703)
Net increase in loans (18,778,658) (18,710,584) (20,378,124)
Purchases of premises and equipment (418,586) (222,279) (1,758,009)
Purchases of deposit base intangibles - - (937,852)
Proceeds from redemption of annuities
and life insurance contracts - 229,275 -
Purchase of single premium life insurance
contracts - (730,000) (1,399,816)
NET CASH USED BY INVESTING ACTIVITIES (25,392,174) (28,725,012) (82,539,877)
FINANCING ACTIVITIES
Net increase in noninterest-bearing and
interest-bearing deposits 16,217,348 18,384,169 38,191,426
Assumption of deposit liabilities
- Note 11 - - 44,487,470
Net increase (decrease) in short
term borrowings 7,000,000 (77,537) (50,233)
Cash dividends (1,071,000) (966,000) (840,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,146,348 17,340,632 81,788,663
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,693,358 (5,906,216) 4,280,252
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384 24,668,132
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 26,735,526 $ 23,042,168 $ 28,948,384
<FN>
<F3>The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
First Farmers and Merchants Corporation (the Corporation) was
incorporated on March 31, 1982, as a Tennessee corporation. On
April 13, 1982, the Board of Directors of the Corporation
adopted a resolution to execute and deliver to the Board of
Governors of the Federal Reserve System an application pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended, for prior approval by the Board of action to be taken
by the Corporation which would result in its becoming a bank
holding company.
As of December 31, 1994, the only subsidiary of the
corporation was the Bank. The Bank is a national banking
association which was organized in 1954 as a successor to a
state bank organized in 1909. The Bank conducts a full-service
commercial banking business at its principal office at 816 South
Garden Street, Columbia, Tennessee and at thirteen (13)
branches: High Street Branch, Northside Branch, Shady Brook
Mall Branch, Hatcher Lane Branch, and Campbell Plaza Branch in
Columbia; Mt. Pleasant Branch in Mt. Pleasant; Spring Hill
Branch in Spring Hill; Lawrenceburg Branch in Lawrenceburg;
Leoma Branch in Leoma; Loretto Branch in Loretto; Lewisburg
Branch in Lewisburg; Chapel Hill Branch in Chapel Hill; and
Centerville Branch in Centerville. The Bank serves Saturn
Distribution Corporation at its fifteenth location in the
Northfield Complex at the Saturn location near Spring Hill.
The community service area of the Bank is comprised of Maury,
Lawrence, Marshall, Hickman, and adjacent counties. Commercial
banking in the marketing area served by the Bank is highly
competitive. Although the Bank is ranked as the largest bank in
the area, in terms of total deposits, the Bank faces substantial
competition from ten (10) other banks and three (3) savings and
loan associations located in the marketing area.
Accounting Policies
The accounting principles followed and the methods of applying
those principles conform with generally accepted accounting
principles and to general practices in the banking industry.
The significant policies are summarized as follows.
Principles of Consolidation
The accompanying consolidated financial statements present the
accounts of the Corporation and its wholly-owned subsidiary, the
Bank. Material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Due From Banks
Included in cash and due from banks are legally reserved
amounts which are required to be maintained on an average basis
in the form of cash and balances due from the Federal Reserve
Bank and other banks. Average reserve requirements for the year
ended December 31, 1994, amounted to approximately $9,579,000.
Cash Equivalents
Cash equivalents include cash on hand, cash due from banks,
and federal funds sold. Federal funds are sold for one-day
periods.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." In
accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting
principle. The cumulative effect of the adoption was an
increase in stockholders' equity of $257,108 (net of $171,405
in deferred income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale that were previously
classified as held-to-maturity. SFAS 115 establishes standards
of accounting and reporting for investments in equity securities
that have readily determinable fair values and all debt
securities. Under the Statement, all such investments are
classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost with premiums and discounts
recognized in interest income using the interest method over the
period to maturity.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of stockholders'
equity. Gains and losses realized on the sale of
available-for-sale securities are determined using the specific
identification method.
Declines in the fair value of individual available-for-sale
and held-to-maturity securities below their cost that are other
than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
Recognition of Interest Income
Interest on loans is computed daily based on the principal
amount outstanding. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected. Loan origination fees and
related direct costs are deferred and recognized as an
adjustment of yield on the interest method.
Other Real Estate
Other real estate, which is included in other assets,
represents real estate acquired through foreclosure and is
stated at the lower of cost or fair value minus estimated cost
to sell. The Bank's recorded value for other real estate was
approximately $544,540 at December 31, 1994, and $594,693 at
December 31, 1993. Other real estate owned by the Bank as of
December 31, 1994, included: (1) a 16.88 acre truck stop
located at the Bucksnort exit of I-40 and (2) a one-tenth
interest in one hundred acres known as Town Center, located in
the southern part of the town of Spring Hill, in northern Maury
County, Tennessee on US 31 Highway. The properties are not
depreciated.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Possible Loan Losses
The allowance for possible loan losses is established by
charges to operations based on the evaluation of the assets by
Loan Review and the Special Assets Committee, economic
conditions, and other factors considered necessary to maintain
the allowance at an adequate level. Uncollectible loans are
charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged
off are credited to the allowance account in the period
received. Effective January 1, 1995, the Corporation and the
Bank will adopt Statement of Financial Accounting Standards No.
114 (as amended by No. 118), "Accounting by Creditors for
Impairment of a Loan." The Bank established the position of
Credit Administrator to coordinate the results of Loan Review
and Special Assets Committee action for purposes of monitoring
and managing loan impairment and maintenance of the allowance at
required levels.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation
is computed principally on the straight-line method over the
estimated useful lives of the assets, which range as follows:
buildings - 15 to 50 years; equipment - 3 to 33 years.
Leasehold improvements are amortized over the lesser of the
lease terms or the estimated lives of the improvements. Costs
of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from the disposition of
property are reflected in operations, and the asset accounts and
related allowances for depreciation are reduced.
Trust Department Income
Trust department income is recognized on the accrual basis in
the applicable period earned.
Stock Split
During 1994, the Corporation amended its corporate charter to
increase the number of authorized shares of its common stock
from 2,000,000 to 4,000,000 shares and on April 12, 1994, the
Corporation's stockholders approved a two-for-one split effected
in the form of a 100% stock dividend distributable May 30, 1994,
to shareholders of record on April 12, 1994. In accordance with
State corporate legal requirements, the transaction was recorded
by a transfer from retained earnings to common stock in the
amount of $7,000,000 ($10 for each additional share issued).
All per share and share data in the accompanying consolidated
financial statements and footnotes have been restated to give
retroactive effect to the transaction.
Income Taxes
The companies file a consolidated federal income tax return.
They adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting For Income Taxes", effective January 1,
1993. SFAS 109 requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes (Continued)
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities. The cumulative effect, as of
January 1, 1993, of this change in the method of accounting for
income taxes was negligible.
Intangible Assets
Deposit base intangibles identified in merger transactions are
amortized over 42 to 70 months on the straight-line method.
Total amortization expense charged to operations amounted to:
1994 - $168,020; 1993 - $168,020; and 1992 - $157,180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of
its financial instrument assets and liabilities. For the Bank,
as for most financial institutions, almost all of its assets and
liabilities are considered financial instruments as defined in
SFAS 107. Many of the Bank's financial instruments, however,
lack an available trading market as characterized by a willing
buyer and willing seller engaging in an unforced, unforeclosed
transaction. Therefore, significant estimations and present
value calculations were used by the Bank for the purposes of
this disclosure.
Estimated fair values have been determined by the Bank using the
best available data, as generally provided in the Bank's
regulatory reports to the Comptroller of the Currency. For
those loans and deposits with floating interest rates it is
presumed that estimated fair values generally approximate the
recorded book balances. Changes in assumptions or the
estimation methodologies used may have a material effect on the
estimated fair values included in these notes. The Bank's
remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has
been customary with historical cost accounting. Management is
concerned that reasonable comparability between financial
institutions may be distorted due to the wide range of permitted
valuation techniques and numerous estimates which must be made
given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity
to these estimated fair values.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The following tables reflect the amortized value and fair
value of investment securities.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized Fair
Value Gain Loss Value
December 31, 1994
Available-for-sale securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,094,657 $ - $ 45,657 $ 7,049,000
U.S. Government Agencies 5,551,499 - 35,273 5,516,226
$ 12,646,156 $ - $ 80,930 $ 12,565,226
Held-to-maturity securities
U.S. Treasury $ 71,997,419 $ - $ 1,795,719 $ 70,201,700
U.S. Government Agencies 28,527,740 - 984,990 27,542,750
States and Political
Subdivisions 39,786,156 - 1,310,396 38,475,760
Other Securities 2,749,716 - 77,595 2,672,121
$143,061,031 $ - $ 4,168,700 $138,892,331
December 31, 1993
U.S. Treasury $ 78,320,499 $ 2,452,500 $ - $ 80,772,999
U.S. Government Agencies 25,745,517 835,623 - 26,581,140
States and Political
Subdivisions 35,622,983 1,915,102 - 37,538,085
Other Securities 10,421,296 22,977 - 10,444,273
$150,110,295 $ 5,226,202 $ - $155,336,497
</TABLE>
Securities carried at $81,583,779 and $65,067,259 at December
31, 1994 and 1993, respectively (fair value: 1994 - $80,148,047;
1993 - $68,257,884), were pledged to secure deposits and for
other purposes as required or permitted by law. The fair value
is established by an independent pricing service as of the
approximate dates indicated. The differences between the
amortized value and fair value reflect current interest rates
and represent the potential loss (or gain) had the portfolio
been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
The fair values of all securities at December 31, 1994, either
equaled or exceeded the cost of those securities, or the decline
in fair value is considered temporary.
A schedule of net gains and losses realized on the disposition
of investment securities, and the related tax effects, is
presented in the following table. All net losses realized in
1994 resulted from sales of securities which were classified as
available-for-sale.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Pre-tax gains (losses) $ (243,690) $ 23,896 $ 28,434
Tax effect 82,855 (8,125) (9,668)
After-tax gains (losses) $ (160,835) $ 15,771 $ 18,766
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
Proceeds from the call or sale of available-for-sale
securities were $25,152,051 and from the call of
held-to-maturity securities were $5,092,000 during 1994. Gross
gains of $-0- and gross losses of $243,690 were realized on the
dispositions 1994. Gross gains of $23,896 and gross losses of $
- - -0- were realized on the dispositions in 1993. Gross gains of
$28,434 and gross losses of $ -0- were realized on the
dispositions in 1992. At December 31, 1994, the Corporation did
not hold investment securities of any single issuer, other than
obligations of the U.S. Treasury and other U.S. Government
agencies, whose aggregate book value exceeded ten percent of
stockholders' equity.
The following table shows the amortized cost, fair value,
and weighted yields (for tax-exempt obligations on a fully
taxable basis assuming a 34% tax rate) of investment securities
at December 31, 1994, by contractual maturity. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair Yield
Cost Value (Unaudited)
Available-for-sale securities
U.S. Treasury
<S> <C> <C> <C>
Within one year $ 3,005,504 $ 3,010,200 6.21%
After one but within five years 4,089,154 4,038,800 6.88%
U.S. Government agencies
Within one year 1,000,807 1,004,700 8.41%
After one but within five years 3,996,913 3,975,712 6.12%
After ten years 553,778 535,814 5.61%
$ 12,646,156 $ 12,565,226
Held-to-maturity securities
U.S. Treasury
Within one year $ 10,042,337 $ 10,023,700 6.26%
After one but within five years 61,955,082 60,178,000 5.91%
U.S. Government agencies
Within one year 2,003,196 1,992,500 6.65%
After one but within five years 25,524,544 24,603,650 6.14%
After five but within ten years 1,000,000 946,600 4.75%
States and political subdivisions
Within one year 2,841,375 2,888,179 11.21%
After one but within five years 11,821,479 12,026,880 9.32%
After five but within ten years 22,810,062 21,371,598 7.66%
After ten years 2,313,240 2,189,103 8.23%
Other securities
After one but within five years 325,878 319,951 7.97%
Equity securities 2,423,838 2,352,170 8.06%
$143,061,031 $138,892,331
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
A summary of loans outstanding by category follows.
<TABLE>
<CAPTION>
1994 1993
Loans secured by real estate
<S> <C> <C>
Construction and land development $ 8,036,802 8,286,041
Farmland 7,942,187 6,628,903
Lines of credit 240,976 547,246
1-4 family residential property - first lien 100,548,761 91,383,671
1-4 family residential property - junior lien 7,219,546 8,161,278
Multifamily residential property 4,775,515 4,998,967
Non farm, non residential property 41,734,848 45,224,304
Subtotal 170,498,635 165,230,410
Commercial and industrial loans
Commercial and industrial 44,870,150 34,369,089
Taxable commercial loans 300,000 -
All other loans 187,405 1,649,884
Subtotal 45,357,555 36,018,973
Tax exempt commercial loans 748,116 407,895
Loans to individuals
Agricultural production 3,823,296 4,053,253
Lines of credit 103,249 91,294
Individuals for personal expenditures 42,341,597 38,358,452
Purchase or carry securities 655 59,560
Subtotal 46,268,797 42,562,559
Lease financing 1,408 9,716
262,874,511 244,229,553
Less:
Net unamortized loan origination fees (176,606) (307,507)
Unearned interest income (3,785) (6,584)
Allowance for possible loan losses (2,342,290) (2,023,651)
$260,351,830 $241,891,811
</TABLE>
A summary of loan maturities and the amounts of loans carrying
fixed and variable interest rates as of December 31, 1994,
follows.
<TABLE>
<CAPTION>
(In Thousands of Dollars)
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Fixed rate loans $ 54,004 $ 37,917 $ 31,866 $ 123,787
Variable rate loans 136,734 2,354 - 139,088
$ 190,738 $ 40,271 $ 31,866 $ 262,875
</TABLE>
Non-performing loans are those which are accounted for on a
non-accrual basis. Such loans had outstanding balances of
approximately $2,611,000 and $2,133,000 at December 31, 1994 and
1993, respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (Continued)
A present value discounted cash flow methodology was used to
value the net loan portfolio. The discount rate used in these
calculations was the current rate at which new loans in the same
classification for regulatory reporting purposes would be made.
This rate was adjusted for credit loss and assumed prepayment
risk. The estimated fair values and recorded book balances at
December 31, 1994 were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Net Loans $ 268,870,000 $ 260,351,830
</TABLE>
Certain parties (principally directors and senior officers of
the Corporation or the Bank, including their affiliates,
families, and companies in which they hold ten percent or more
ownership) were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
An analysis of activity with respect to such loans for the years
ended December 31, 1994 and 1993, follows.
<TABLE>
<CAPTION>
Balance at
Beginning Amount Amount Balance at
of Year Additions Collected Written Off End of Year
1994
<S> <C> <C> <C> <C> <C>
Aggregate of certain party loans $ 6,563,577 $ 5,081,776 $ 5,151,082 $ 0 $ 6,494,271
1993
Aggregate of certain party loans $ 3,925,500 $ 7,868,338 $ 5,230,261 $ 0 $ 6,563,577
</TABLE>
These totals exclude loans made in the ordinary course of
business to other companies with which neither the Corporation
nor the Bank has a relationship other than the association of
one of its directors in the capacity of officer or director.
These loan transactions were made on substantially the same
terms as those prevailing at the time for comparable loans to
other persons. They did not involve more than the normal risk
of collectiblity or present other unfavorable features.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 2,023,651 $ 2,253,735 $ 1,916,859
Provision charged to operating expenses 660,000 470,000 840,000
Loan losses:
Loans charged off (422,831) (847,535) (618,417)
Recoveries on loans previously
charged off 81,470 147,451 115,293
Balance at end of year $ 2,342,290 $ 2,023,651 $ 2,253,735
</TABLE>
For federal income tax purposes, the allowance for possible
loan losses is maintained at the maximum allowable by the
Internal Revenue Code.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 1,204,288 $ 1,204,288
Premises 6,629,567 6,626,487
Furniture and equipment 3,816,320 3,934,139
Leasehold improvements 474,770 458,696
12,124,945 12,223,610
Less allowance for depreciation and amortization (5,931,865) (5,860,071)
$ 6,193,080 $ 6,363,539
</TABLE>
Annual provisions for depreciation and amortization total
$589,045 for 1994, $591,486 for 1993, and $544,896 for 1992.
Included in premises and equipment cost and allowance for
depreciation and amortization are certain fully depreciated
assets totaling $1,843,000 at December 31, 1994.
NOTE 6 - LIMITATION ON SUBSIDIARY DIVIDENDS
The approval of the Comptroller of the Currency is required
before the Bank's dividends in a given year may exceed the total
of its net profit (as defined) for the year combined with
retained net profits of the preceding two years. As of December
31, 1994, additional dividends of approximately $12,220,000
could have been declared by the Bank to the Corporation without
regulatory agency approval.
NOTE 7 - LEASES
Real property for four of the Bank's office locations and
certain equipment are leased under noncancelable operating
leases expiring at various times through 2001. In most cases,
the leases provide for one or more renewal options of five to
ten years under the same or similar terms. In addition, various
items of teller and office equipment are leased under cancelable
and noncancelable operating leases. During 1994 the Bank
committed to a data processing and communication network
technology upgrade. An operating lease in excess of $1,600,000
for the equipment involved in this upgrade was closed in
December, 1994, and is included in the following table. Total
rental expense incurred under all operating leases, including
short-term leases with terms of less than one month, amounted to
$409,764, $254,121, and $245,991 for equipment leases, and
$97,966, $82,030, and $72,350 for building leases, in 1994,
1993, and 1992, respectively. Future minimum lease commitments
as of December 31, 1994, under all noncancelable operating
leases with initial terms of one year or more follow.
<TABLE>
<S> <C> <C>
1995 $ 463,061
1996 461,426
1997 426,003
1998 319,732
Total future minimum lease payments $ 1,670,222
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
Current:
<S> <C> <C> <C>
Federal $ 1,831,848 $ 1,754,003 $ 1,521,467
State 503,433 442,882 400,352
Total current 2,335,281 2,196,885 1,921,819
Deferred:
Federal (111,805) 20,468 (121,161)
State (19,730) 3,612 (31,818)
Total deferred (131,535) 24,080 (152,979)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
</TABLE>
The deferred tax effects of principal temporary differences
are shown in the following table:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Allowance for possible loan losses $ 682,877 $ 555,421
Installment loan reporting - 6,865
Write-down of other real estate 159,120 157,520
Deferred compensation 156,227 76,781
Direct lease financing 36,452 35,736
Unrealized loss on AFS securities 32,372 18,457
Deferred loan fees 24,546 76,907
Net deferred tax asset $ 1,091,594 $ 927,687
</TABLE>
The timing differences in 1992 related principally to the
provision for loan losses.
A reconciliation of total income taxes reported with the
amount of income taxes computed at the federal statutory rate
(34% each year) is shown below. Total income taxes paid in
1994, 1993, and 1992 amounted to $2,431,332, $2,564,887 and
$1,924,851, respectively.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 2,640,158 $ 2,542,254 $ 2,128,721
Increase (decrease) in taxes resulting from:
Tax-exempt interest (780,946) (647,575) (657,470)
Nondeductible interest expense 75,019 58,457 65,313
Other nondeductible expenses
(nontaxable income) - net (6,458) (19,962) 21,201
State income taxes, net of federal
tax benefit 319,244 292,263 243,232
Dividend income exclusion (29,571) (15,646) (24,888)
Other (13,700) 11,174 (7,269)
Total provision for income taxes $ 2,203,746 $ 2,220,965 $ 1,768,840
Effective tax rate 28.4% 29.7% 28.3%
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FEDERAL AND STATE INCOME TAXES (Continued)
A net deferred tax asset was included in other assets in the
accompanying consolidated balance sheet. The gross deferred tax
asset was $1,091,594 at December 31, 1994 and $927,687 at
December 31, 1993. There was no deferred tax liability or
valuation allowance in either year. The deferred tax asset
results mainly from the difference in the book basis and tax
basis of the allowance for loan losses.
NOTE 9 - COMMITMENTS
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement
the Bank has in those particular financial instruments.
The total outstanding loan commitments and stand-by letters of
credit in the normal course of business at December 31, 1994,
were $19,956,000 and $2,439,000, respectively. Loan commitments
are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in making a loan.
The loan portfolio is well diversified with loans generally
secured by tangible personal property, real property, or stock.
The loans are expected to be repaid from cash flow or proceeds
from the sale of selected assets of the borrowers. Collateral
requirements for the loan portfolio are based on credit
evaluation of the customer. It is management's opinion that
there is not a concentration of credit risk in the portfolio.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid on deposits and other borrowings during 1994,
1993, and 1992 amounted to $12,641,299, $12,243,317, and
$14,150,933, respectively.
NOTE 11 - ACQUISITIONS
On September 25, 1991, the Bank entered into a purchase and
assumption agreement with Sovran Bank/Tennessee to purchase
certain assets and assume certain deposit liabilities of Sovran
Bank/Tennessee, Nashville, Tennessee, in Centerville, Hickman
County, Tennessee, and Chapel Hill, Marshall County, Tennessee.
The Office of the Comptroller of the Currency granted official
authorization for this acquisition and it became effective
January 24, 1992. Deposit liabilities totaling $42,543,252
(including $2,392,071 in Individual Retirement Accounts assumed
prior to December 31, 1991) were assumed in the transaction in
exchange for loans and other assets acquired totaling
$14,254,385, and cash for the balance.
In March, 1992, the Bank entered into a purchase and
assumption agreement with Cavalry Banking FSB to purchase
certain assets and assume certain deposit liabilities of the
Chapel Hill office of Cavalry Banking FSB. The Office of the
Comptroller of the Currency granted official authorization for
this acquisition and it became effective October 31, 1992.
Deposit liabilities totaling $4,336,289 were assumed in the
transaction in exchange for the office building acquired for
$100,069 and cash for the balance.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the unaudited consolidated
quarterly results of operations.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1994
<S> <C> <C> <C> <C> <C>
Interest income $ 7,176,893 $ 7,664,849 $ 7,814,500 $ 8,161,296 $ 30,817,538
Interest expense 2,986,012 3,148,310 3,272,217 3,457,365 12,863,904
Net interest income 4,190,881 4,516,539 4,542,283 4,703,931 17,953,634
Provision for possible
loan losses 60,000 255,000 225,000 120,000 660,000
Noninterest expenses, net of
noninterest income 2,260,734 2,254,027 2,490,717 2,522,984 9,528,462
Income before income taxes 1,870,147 2,007,512 1,826,566 2,060,947 7,765,172
Income taxes 528,638 566,493 508,942 599,673 2,203,746
Net income $ 1,341,509 $ 1,441,019 $ 1,317,624 $ 1,461,274 $ 5,561,426
Earnings per common share
(1,400,000 shares) $ 0.96 $ 1.03 $ 0.94 $ 1.04 $ 3.97
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1993
<S> <C> <C> <C> <C> <C>
Interest income $ 7,228,627 $ 7,226,989 $ 7,048,132 $ 7,216,907 $ 28,720,655
Interest expense 2,962,100 3,018,782 3,043,913 3,011,779 12,036,574
Net interest income 4,266,527 4,208,207 4,004,219 4,205,128 16,684,081
Provision for possible loan
loan losses 170,000 180,000 90,000 30,000 470,000
Noninterest expenses, net of
noninterest income 2,187,860 2,134,759 2,064,417 2,349,828 8,736,864
Income before income taxes 1,908,667 1,893,448 1,849,802 1,825,300 7,477,217
Income taxes 592,499 577,836 574,118 476,512 2,220,965
Net income $ 1,316,168 $ 1,315,612 $ 1,275,684 $ 1,348,788 $ 5,256,252
Earnings per common share
(1,400,000 shares) $ 0.94 $ 0.94 $ 0.91 $ 0.96 $ 3.75
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Bank contributes to a defined contribution, profit-sharing
plan covering employees who meet participation requirements.
The amount of the contribution is discretionary as determined by
the Board of Directors up to the maximum deduction allowed for
federal income tax purposes. Contributions to the plan, that
amounted to $602,010, $529,324, and $482,645, in 1994, 1993, and
1992, respectively, are included in salaries and employee
benefits expense.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
In 1992, the Bank formalized a nonqualified salary
continuation plan for certain key officers. In connection with
this plan, the value of the assets (1994 - $580,088; 1993 -
$558,024) used to fund the plan and the related liability (1994
- - - $400,606; 1993 - $326,681) were included in other assets and
other liabilities respectively. Single premium universal life
insurance policies were purchased in 1993 to replace other
policies and annuities that were redeemed. Insurance premiums
of $515,000 were paid during 1993, of which $285,725 (net of the
redemption proceeds) was capitalized. Net non-cash income of
$22,448 in 1994 and $21,096 in 1993 is also included in the
above asset values. The principal cost of this plan will be
accrued over the anticipated remaining period of active
employment, based on the present value of the expected
retirement benefit. Expense related to this plan was $98,925 in
1994 and $91,916 in 1993.
The Bank also implemented a deferred compensation plan which
permitted directors, beginning in 1993, to defer their
director's fees and earn interest on the deferred amount. A
liability increase and expense of $126,262 for 1994 and $125,036
for 1993 were recognized in the accompanying financial
statements. In connection with this plan, a single premium
universal life insurance policy was purchased on the life of
each director who elected to participate. Insurance premiums of
$1,425,000 were paid at the end of 1992, of which $1,399,816 was
capitalized to reflect the cash surrender value at December 31,
1992. Additional single premium universal life insurance
policies were purchased in 1993 for new participants.
Insurance premiums of $215,000 were paid during 1993 and
capitalized. Net non-cash income of $ 82,079 in 1994 and
$82,079 in 1993 is also included in the cash surrender values of
$1,750,119 and $1,696,895 at December 31, 1994 and 1993,
respectively.
The Bank is beneficiary on the insurance policies that fund
the salary continuation plan and the deferred compensation plan.
These policies have an aggregate face amount of $2,425,000.
NOTE 14 - DEPOSITS
The Bank does not have any foreign offices and all deposits
are serviced in its fourteen domestic offices. The average
amounts of deposits and the average rates paid are summarized in
the following table
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,557 - % $ 48,697 - % $ 42,908 - %
NOW and money market accounts 161,244 3.25 147,246 3.16 114,482 3.74
Savings deposits 35,036 2.87 31,216 2.76 27,649 3.67
Time deposits of less than $100,000 126,523 4.27 128,021 4.26 129,620 5.15
Time deposits of $100,000 or more 26,053 4.32 23,602 4.33 28,469 4.76
Total In Domestic Offices $ 404,413 3.66 % $ 378,782 3.17 % $ 343,128 3.89 %
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DEPOSITS (Continued)
At December 31, time deposits of $100,000 or more had the
following maturities.
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
Under 3 months $ 3,117 $ 3,519 $ 5,962
3 to 12 months 18,250 17,081 8,857
Over 12 months 4,803 4,505 8,766
$ 26,170 $ 25,105 $ 23,585
</TABLE>
Deposits with stated maturities have been valued using a
present value discounted cash flow with a discount rate
approximating the current market for similar liabilities.
Financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance. The estimated fair values
and recorded book balances at December 31, 1994, were as follows.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
<S> <C> <C>
Deposits with stated maturities $ 149,305,000 $ 151,737,000
Deposits with no stated maturities 253,415,000 253,415,000
Federal funds purchased 7,000,000 7,000,000
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
This summarizes the Corporation's disclosure of fair values of
financial instruments made in accordance with the requirements
of Statement of Financial Accounting Standards No.107 (SFAS
107), "Disclosures about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
Value Value Value Value
Assets
<S> <C> <C> <C> <C>
Securities held to maturity $ 143,061 $ 138,961 $ 150,110 $ 155,337
Securities available for sale 12,646 12,565 - -
Loans, net 260,352 268,870 241,892 243,793
Federal funds sold - - 400 400
Liabilities
Deposits 405,152 402,720 388,935 387,841
Federal funds purchased 7,000 7,000 - -
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Balance Sheets
December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Assets
<S> <C> <C>
Cash $ 65 $ 2
Investment in bank subsidiary - at equity 43,310 38,950
Investment in credit life insurance company - at cost 50 50
Investment in other securities 25 43
Dividends receivable from bank subsidiary 574 525
Cash surrender value - life insurance 453 439
Total assets $44,477 $40,009
Liabilities and Stockholders' Equity
Liabilities
Payable to directors $ 75 $ 49
Dividends payable 574 525
Total liabilities 649 574
Stockholders' equity
Common stock - $10 par value, authorized
4,000,000 shares; 1,400,000 shares issued and
outstanding 14,000 7,000
Retained earnings 29,877 32,435
Net unrealized loss on available-for-sale
securities, net of tax (49) - (49) -
Total stockholders' equity 43,828 39,435
Total liabilities and stockholders' equity $44,477 $40,009
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION
(Continued)
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating income
<S> <C> <C>
Dividends from bank subsidiary $ 1,120 $ 1,072
Other dividend income 61 9
Interest income 1 1
Other 30 26
Operating expenses 60 54
Income before equity in undistributed net
income of bank subsidiary 1,152 1,054
Equity in undistributed net income of bank subsidiary 4,409 4,202
Net Income $ 5,561 $ 5,256
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
Years Ended December 31, 1994 and 1993
(In Thousands of Dollars)
<CAPTION>
1994 1993
Operating activities
<S> <C> <C>
Net income for the year $ 5,561 $ 5,256
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of bank subsidiary (4,409) (4,202)
Increase in other assets (62) (76)
Increase in payables 26 1
Total adjustments (4,445) (4,277)
Net cash provided by operating activities 1,116 979
Net cash provided by (used in) investing activities
Proceeds from sale or calls of investment securities 18 42
Purchase of single premium life insurance contracts - (75)
Net cash provided by (used in) investing activities 18 (33)
Net cash used in financing activities
Cash dividends paid (1,071) (966)
Increase (Decrease) in cash 63 (20)
Cash at beginning of year 2 22
Cash at end of year $ 65 $ 2
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
<TABLE>
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<CAPTION>
1994
Average Rate /
Balance Yield Interest
ASSETS
<S> <C> <C> <C>
Interest earning assets
Loans, net $ 247,791 8.54 % $ 21,156 *
Available-for-sale securities (AFS) 15,931 8.33 1,327
Held-to-maturity securities (HTM) 101,654 5.76 5,858
U.S. Treasury and Government agency securities
States and political subdivisions' securities (1994 HTM) 38,545 8.49 3,274 *
Other securities (Equity securities in 1994) 2,375 13.15 312 *
Federal funds sold 2,998 3.73 112
TOTAL EARNING ASSETS 409,294 7.83 $ 32,039
Noninterest earning assets
Cash and due from banks 25,945
Bank premises and equipment 6,350
Other assets 10,364
TOTAL ASSETS $ 451,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 161,244 3.25 % $ 5,239
Savings 35,036 2.87 1,006
Time 126,523 4.27 5,400
Time over $100,000 26,053 4.32 1,126
TOTAL INTEREST BEARING LIABILITIES 348,856 3.66 12,771
Federal funds purchased and repurchase agreements 1,462 4.86 71
Other short-term debt 568 3.92 22
TOTAL INTEREST BEARING LIABILITIES 350,886 3.67 $ 12,864
Noninterest bearing liabilities
Demand deposits 55,557
Other liabilities 3,690
TOTAL LIABILITIES 410,133
Stockholders' equity 41,820
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 451,953
Spread between combined rates earned and
combined rates paid* 4.16 %
Net yield on interest-earning assets* 4.68 %
<FN>
<F4>*Taxable equivalent basis
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1993
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 233,608 8.37 % $ 19,543 *
U.S. Treasury and Government agency securities 106,201 6.50 6,904
States and political subdivisions' securities 29,634 8.62 2,553 *
Other securities 6,164 5.34 329 *
Federal funds sold 4,665 2.92 136
TOTAL EARNING ASSETS 380,272 7.75 $ 29,465
Non-interest earning assets
Cash and due from banks 23,406
Bank premises and equipment 6,764
Other assets 10,318
TOTAL ASSETS $ 420,760
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 147,246 3.16 % $ 4,653
Savings 31,216 2.76 861
Time 128,021 4.26 5,459
Time over $100,000 23,602 4.34 1,025
TOTAL INTEREST BEARING LIABILITIES 330,085 3.63 11,998
Federal funds purchased and repurchase agreements 254 3.06 8
Other short-term debt 728 4.21 31
TOTAL INTEREST BEARING LIABILITIES 331,067 3.64 $ 12,037
Non-interest bearing liabilities
Demand deposits 48,697
Other liabilities 3,542
TOTAL LIABILITIES 383,306
Stockholders' equity 37,454
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 420,760
Spread between combined rates earned and 4.11 %
combined rates paid*
Net yield on interest-earning assets* 4.58 %
<FN>
<F5> * Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 1 - Distributions of Assets, Liabilities, and
Stockholders' Equity, Interest Rates and Interest Differential
(Continued)
<TABLE>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>
1992
Average Rate/
Balance Yield Interest
ASSETS
Interest earning assets
<S> <C> <C> <C>
Loans, net $ 215,158 9.22 % $ 19,847 *
U.S. Treasury and Government agency securities 97,196 7.02 6,823
States and political subdivisions' securities 26,557 9.32 2,475 *
Other securities 3,155 8.46 267 *
Federal funds sold 4,638 3.27 152
TOTAL EARNING ASSETS 346,704 8.53 $ 29,564
Non-interest earning assets
Cash and due from banks 19,950
Bank premises and equipment 6,716
Other assets 8,009
TOTAL ASSETS $ 381,379
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Time and savings deposits:
NOW and money market accounts $ 114,483 3.74 % $ 4,283
Savings 27,648 3.67 1,016
Time 129,620 5.15 6,677
Time over $100,000 28,469 4.76 1,354
TOTAL INTEREST BEARING LIABILITIES 300,220 4.44 13,330
Federal funds purchased and repurchase agreements 379 3.69 14
Other short-term debt 804 4.10 33
TOTAL INTEREST BEARING LIABILITIES 301,403 4.44 $ 13,377
Non-interest bearing liabilities
Demand deposits 42,908
Other liabilities 3,654
TOTAL LIABILITIES 347,965
Stockholders' equity 33,414
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 381,379
Spread between combined rates earned and 4.09 %
combined rates paid*
Net yield on interest-earning assets* 4.67 %
<FN>
<F6>
* Taxable equivalent basis.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
The following tables indicating the increase or decrease in net
interest income components that are due to column and rate
changes were shown on facing pages to facilitate comparison in
the materials sent to our stockholders.
<TABLE>
(Dollars in Thousands)
<CAPTION>
*
(A) * TOTAL TOTAL
* TAXABLE NONTAXABLE FEDERAL INTEREST
NET INVESTMENT INVESTMENT FUNDS EARNING
LOANS SECURITIES SECURITIES SOLD ASSETS
1994 compared to 1993:
Increase (decrease) due to:
<S> <C> <C> <C> <C> <C>
Volume $ 1,186 $ 537 $ 768 $ (49) $ 2,442
Rate 427 (273) (47) 25 132
NET INCREASE
(DECREASE) $ 1,613 $ 264 $ 721 $ (24) $ 2,574
1993 compared to 1992:
Increase (decrease) due to:
Volume $ 1,702 $ 887 $ 287 $ 1 $ 2,877
Rate (2,006) (744) (209) (17) (2,976)
NET INCREASE
(DECREASE) $ (304) $ 143 $ 78 $ (16) $ (99)
<FN>
<F7>
* Taxable equivalent basis
<F8>
(A) Available-for-sale and held-to-maturity securities were
compared in total taxable investment securities in 1993 for
purposes of this schedule.
</FN>
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 2 - Distribution of Assets, Liabilities, and Stockholders'
Equity, Interest Rates and Interest Differential (Continued)
<TABLE>
(Dollars in Thousands)
<CAPTION>
NOW AND TOTAL *
MONEY TIME FEDERAL SHORT INTEREST- NET
MARKET SAVINGS TIME OVER FUNDS TERM BEARING INTEREST
ACCOUNTS DEPOSITS DEPOSITS $100,000 PURCHASED DEBT FUNDS EARNINGS
1994 compared to 1993:
Increase (decrease)
due to:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume $ 442 $ 105 $ (64) $ 107 $ 37 $ (7) $ 620 $ 1,822
Rate 144 40 5 (5) 26 (2) 208 (76)
NET INCREASE
(DECREASE) $ 586 $ 145 $ (59) $ 102 $ 63 $ (9) $ 828 $ 1,746
1993 compared to 1992:
Increase (decrease)
due to:
Volume $ 1,226 $ 131 $ (82) $ (231) $ (5) $ (3) $ 1,036 $ 1,841
Rate (855) (286) (1,136) (98) (1) (0) (2,376) (600)
NET INCREASE
(DECREASE) $ 371 $ (155) $ (1,218) $ (329) $ (6) $ (3) $ (1,340) $ 1,241
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Farmers and Merchants Corporation, a one-bank holding
company, was formed during 1982. Its only subsidiary, First
Farmers and Merchants National Bank, is a community bank that
was established in 1909. The resulting financial condition of
the Corporation should be evaluated in terms of the Bank's
operations within its service area.
First Farmers and Merchants National Bank expanded its service
area in January, 1992, through the acquisition of two offices
of Sovran Bank/Tennessee in adjacent counties. During 1994, the
Bank strengthened its presence in those four counties in middle
Tennessee that it serves. Both deposits and loans in each of
the four counties either maintained the same levels or
increased. To more efficiently provide these expanding services
and offer the range of products that Bank customers need and
want, the Bank undertook a technology conversion involving data
processing and communication links between its fourteen offices.
The Bank is positioned to provide quality services in diverse
markets and a dynamic interest rate environment. Our customers
are already enjoying the "Impact" of this change as new services
such as combined, laser printed statements; inquiring about
balances, checks paid, deposits made, and making transfers
between accounts through phone bank; and extended banking hours.
A check card is being introduced in the first quarter of 1995.
The first of the preceding tables entitled DISTRIBUTION OF
ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL, presents average daily balances,
interest income on a fully taxable equivalent basis and interest
expense, as well as the average rates earned and paid on the
major balance sheet items for the years 1994, 1993, and 1992.
The second table sets forth, for the periods indicated, a
summary of changes in interest earned and interest paid
resulting from changes in volume and changes in rates. The
rate/volume variances are allocated between rate and volume
variances in proportion to the relationship of the absolute
dollar amounts of the change in each.
The preceding tables plus the following discussion and
financial information is presented to aid in understanding First
Farmers and Merchants' current financial position and results of
operations. The emphasis of this discussion will be on the
years 1994, 1993, and 1992; however, financial information for
prior years will also be presented when appropriate. This
discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this material.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
First Farmers and Merchants National Bank's financial condition
depends on the quality and nature of its assets, its liability
and capital structure, the market and economic conditions, and
the quality of its personnel. The following paragraphs provide
a unique perspective on the internal structures of the
Corporation and the Bank that provide the strength in our
organization.
The bank's average deposits grew during the last three years
reflecting a 6.8% growth from 1993 to 1994, a 10.4% growth from
1992 to 1993, and a 27.8% growth from 1991 to 1992. The
acquisitions in 1992 accounted for almost 13.0% of the growth
during 1992. Average transaction and limited transaction
accounts have shown the most growth during the last three years.
The average Chairman's Club, super negotiable orders of
withdrawal, insured money market deposits, and flexible
investment accounts increased 9.5 % in 1994 compared to a 28.6%
increase in 1993 and a 68.6 % increase in 1992. Average
savings deposits increased 12.2% in 1994 compared to a 12.9%
increase in 1993 and a 39.3% decrease in 1992. Average
certificates of deposit increased .6% in 1994 compared to a
4.1% decrease in 1993 and a 9.2% increase in 1992. The
increasing interest rate environment caused many customers to
use interest bearing transaction and limited transaction
accounts as holding vehicles while they watched rate movements
trying to determine the best time to lock in a rate on a longer
term product.
Average earning assets increased 7.6% in 1994 compared to an
9.7% increase in 1993 and a 24.6% increase in 1992. As a
financial institution, the Bank's primary investment is loans.
At December 31, 1994, average net loans represented 60.5% of
average earning assets. Total average net loans increased
during the last three years showing a 6.1% growth from 1993 to
1994, an 8.6% growth from 1992 to 1993, and a 17.9% growth from
1991 to 1992. The loans acquired in the acquisitions previously
mentioned accounted for 3.6% of the growth in 1992. Average
investments represented 38.7% of average earning assets at
December 31, 1994, and increased 11.6% in 1994, increased 11.9%
in 1993, and increased 39.8% in 1992. The majority of the
excess funds resulting from the acquisition of more deposits
than loans was invested in securities due to the absence of
increased loan demand in the new market areas in 1992. Average
total assets increased during the last three years as evidenced
by a 7.4% growth from 1993 to 1994, a 10.3% growth from 1992 to
1993, and a 25.5% growth from 1991 to 1992. Please refer to the
color graphs on page 43 that illustrate this growth.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management at the Bank
is to achieve reasonable stability in net interest income
throughout interest rate cycles. This objective is achieved by
monitoring the relationship of rate sensitive earning assets to
rate sensitive interest-beating liabilities (interest rate
sensitivity) which is the principal factor in determining the
effect that fluctuating interest rates will have on future net
interest income. Rate sensitive earning assets and
interest-bearing liabilities are those which can be repriced to
current market rates within a defined time period. The
accompanying table shows the Bank's rate sensitive position at
December 31, 1994, as measured by gap analysis (the difference
between the earning asset and interest-bearing liability amounts
scheduled to be repriced to current market rates in subsequent
periods).
As a policy, budgeted financial goals are monitored on a
monthly basis by the Asset/Liability Committee where the actual
dollar change in net interest income given different interest
rate movements is reviewed. A dollar change in net interest
income for a twelve month period of less than 3% of net interest
income given different rate scenarios is considered an
adequately flexible position. The net interest margin, on a tax
equivalent basis, at December 31, 1994, 1993, and 1992 was
4.68%, 4.58%, and 4.67% respectively.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (Continued)
TABLE-Rate Sensitivity of Earning Assets and Interest-bearing
Liabilities
<TABLE>
(Dollars in Thousands)
<CAPTION>
3 Months 3-6 6-12 Over 1
As of December 31, 1994 or Less Months Months Year Total
Earning assets
<S> <C> <C> <C> <C> <C>
Loans and leases, net of unearned $ 70,096 $ 44,499 $ 78,247 $ 69,852 $ 262,694
Taxable investment securities 4,544 7,000 5,000 97,002 113,546
Tax-exempt investment securities 1,155 600 1,085 39,240 42,080
Total earning assets 75,795 52,099 84,332 206,094 $ 418,320
Interest-bearing liabilities
NOW and money market accounts 43,237 113,250 $ 156,487
Savings 35,082 35,082
Time 21,658 26,881 51,211 25,818 125,568
Time over $100,000 3,767 6,610 11,640 4,153 26,170
Other short-term debt 7,600 7,600
Total interest-bearing liabilities 76,262 33,491 62,851 178,303 $ 350,907
Noninterest-bearing, net (67,413)
Net asset/liability funding gap (467) 18,608 21,481 (39,622)
Cumulative net asset/liability funding gap $ (467) $ 18,141 $ 39,622 $ 0
<FN>
<F9>
Available-for-sale and held-to-maturity securities sere combined
in the taxable investment securities category for purposes of
this table.
</FN>
</TABLE>
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Historically, internal growth has financed the capital needs
of the Bank. At December 31, 1994, the Corporation had a ratio
of average capital to average assets of 9.25%. This compares to
a ratio of average capital to average assets of 8.9% at December
31, 1993, and 8.8% at December 31, 1992.
Cash dividends paid in 1994 were 9.6% more than those paid in
1993. The dividend to net income ratio was 20%. Additional
dividends of approximately $12.3 million to the Corporation
could have been declared by the subsidiary bank without
regulatory agency approval. The Corporation plans to maintain
or increase the payout ratio while continuing to maintain a
capital to asset ratio reflecting financial strength and
adherence to regulatory guidelines.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1992. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries) and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk- based total capital ratio of 10%, and a core capital to
average total assets of 5%.
As of December 31, 1994, the Bank's core and total risk-based
ratios were 16.2% and 17.1% respectively. One year earlier, the
comparable ratios were 15.6% and 16.4%, respectively. At year
end 1994, the Bank had a ratio of average core equity to total
average assets of 9%, up slightly from 8.6% at year end 1993.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Interest Income
Total interest income increased 7.3% in 1994 compared to a .4%
decrease in 1993 and an increase of 6.6% in 1992. Interest and
fees earned on loans increased 8.3% in 1994 compared to a 1.4%
decrease in 1993 and a 1.1% increase in 1992. Interest earned
on investment securities and other investments increased 5.3% in
1994 compared to a 1.9% increase in 1993 and a 22.7% increase in
1992.
Interest Expense
Total interest expense increased 6.9% in 1994 compared to a
10.0% decrease in 1993 and a 6.3% decrease in 1992. The net
interest margin (tax equivalent net interest income divided by
average earning assets) has remained near 4.6% these last three
years as indicated in the LIQUIDITY AND INTEREST RATE
SENSITIVITY MANAGEMENT section above.
Net interest income on a fully taxable equivalent basis is
influenced primarily by changes in: (1) the volume and mix of
earning assets and sources of funding; (2) market rates of
interest, and (3) income tax rates. The impact of some of these
factors can be controlled by management policies and actions.
External factors also can have a significant impact on changes
in net interest income from one period to another. Some
examples of such factors are: (1) the strength of credit demands
by customers; (2) Federal Reserve Board monetary policy, and (3)
fiscal and debt management policies of the federal government,
including changes in tax laws.
Non-interest Income and Expense
Non-interest income increased 4.2% during 1994 versus a 12.0%
increase in 1993 and a 14.0% increase in 1992. Income earned by
the Trust Department increased 45% during 1994. Charges for
deposit services showed a 5% increase in 1994. The strategy to
meet market demand for mortgage loans, while not keeping all of
such loans in the bank's portfolio to protect asset flexibility,
resulted in an increase in fee income from the sale of mortgages
in the secondary market. Sales were at the strongest point
during the first quarter of 1994. This also contributed to the
increase in non-interest income in 1994. Also during the year,
the Bank realized a $244 thousand dollar loss on the sale of a
bond mutual fund investment.
Non-interest expenses, excluding the provision for possible
loan losses, increased 7.6% in 1994 compared to a 9.3% increase
in 1993 and a 18.7% increase in 1992. Increased productivity
and cost control efforts contributed to this improvement.
Included in this category is Federal Deposit Insurance
Corporation (FDIC) insurance premiums at the rate established
for "well capitalized" institutions. Please refer to the
discussion in the CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
section above for more information concerning the bank's
capitalization.
Provision for Possible Loan Losses
The provision for loan losses, representing amounts charged
against operating income, increased 40.4% in 1994 compared to a
44.1% decrease in 1993 and a 7.7% increase in 1992. Management
regularly monitors the allowance for possible losses and
considers it to be adequate. The amount of the additions to the
allowance for loan losses charged to operating expenses was
based on the following factors: (1) national and local economic
conditions, (2) past experience, and (3) Loan Review and Special
Assets Committee review. The tables on the next page summarize
average loan balances and reconciliations of the allowance for
loan losses for each year. Additions to the allowances, which
have been charged to operating expenses, are also disclosed.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Possible Loan Losses (Continued)
The next tables present any risk elements in the loan portfolio
and include all loans management considers to be potential
problem loans. Management does not believe that there is a
concentration of loans to a multiple number of borrowers engaged
in similar activities.
<TABLE>
<CAPTION>
December 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 247,791 $ 233,608 $ 215,158 $ 182,561 $ 172,749
Balance of allowance for loan
losses at beginning of year $ 2,024 $ 2,254 $ 1,917 $ 1,818 $ 1,709
Loans charged-off:
Loans secured by real estate 135 396 245 329 -
Commercial and industrial loans 42 222 124 192 485
Individuals 246 230 249 249 99
TOTAL LOANS CHARGED OFF 423 848 618 770 584
Recoveries of loans previously charged off:
Loans secured by real estate 9 56 3 - -
Commercial and industrial loans 36 52 80 56 54
Individuals 36 40 32 33 9
TOTAL RECOVERIES 81 148 115 89 63
NET LOANS CHARGED-OFF 342 700 503 681 521
Provision charged to operating expenses 660 470 840 780 630
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR 2,342 2,024 2,254 1,917 1,818
Ratio of net charge-offs during the
period to average loans outstanding 0.14% 0.30% 0.23% 0.37% 0.30%
</TABLE>
At December 31, 1994, non-accrual loans totaled $2.6 million or
1% of loans. Commercial loans comprised $.349 million of the
total, with loans secured by real estate accounting for $1.5
million and installment loans $.771 million. All loans that
are ninety days past due are placed in non-accrual status. The
gross interest income that would have been recorded in the
period then ended if the loans had been current in accordance
with their original terms and had been outstanding throughout
the period or since origination, if held for part of the period,
is $193, $189, and $155 for the years ended December 31, 1994,
1993, and 1992 respectively. Interest accruals are discontinued
when, in the opinion of management, it is not reasonable to
expect that such interest will be collected.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
FIVE YEAR COMPARISON
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans $ 21,130,914 $ 19,518,742 $ 19,791,548 $ 19,571,295 $ 19,623,201
Interest on investment securities
Taxable interest 7,012,626 6,925,404 6,898,114 5,218,446 4,574,130
Exempt from federal income taxes 2,184,666 1,857,168 1,825,869 1,828,738 1,687,072
Dividends 204,948 72,054 110,874 150,823 130,106
9,402,240 8,854,626 8,834,857 7,198,007 6,391,308
Other interest income 284,384 347,287 195,744 279,165 428,891
TOTAL INTEREST INCOME 30,817,538 28,720,655 28,822,149 27,048,467 26,443,400
INTEREST EXPENSE
Interest on deposits 12,770,618 11,998,235 13,329,557 14,212,771 15,014,327
Interest on other short-term borrowings 93,286 38,339 47,449 63,994 78,465
TOTAL INTEREST EXPENSE 12,863,904 12,036,574 13,377,006 14,276,765 15,092,792
NET INTEREST INCOME 17,953,634 16,684,081 15,445,143 12,771,702 11,350,608
PROVISION FOR LOAN LOSSES 660,000 470,000 840,000 780,000 630,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,293,634 16,214,081 14,605,143 11,991,702 10,720,608
NONINTEREST INCOME
Trust Department income 1,249,359 863,952 753,239 603,701 534,187
Service charges on deposit accounts 2,317,992 2,206,026 2,123,096 1,893,355 1,662,614
Other service charges, commissions,
and fees 336,758 509,009 401,618 237,755 275,015
Other operating income 319,466 315,108 191,363 91,440 141,176
Investment securities gains (losses) (243,690) 23,896 28,434 15,862 11,198
TOTAL NONINTEREST INCOME 3,979,885 3,917,991 3,497,750 2,842,113 2,624,190
NONINTEREST EXPENSES
Salaries and employee benefits 6,247,706 5,686,965 5,283,086 4,407,072 4,064,617
Net occupancy expense 1,190,678 1,070,971 984,650 797,466 700,589
Furniture and equipment expense 1,069,856 889,848 801,453 935,821 907,750
Loss on other real estate 4,000 103,122 312,064 48,398 -
Other operating expenses 4,996,107 4,903,949 4,460,696 3,572,881 2,921,846
TOTAL NONINTEREST EXPENSES 13,508,347 12,654,855 11,841,949 9,761,638 8,594,802
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,765,172 7,477,217 6,260,944 5,072,177 4,749,996
PROVISION FOR INCOME TAXES 2,203,746 2,220,965 1,768,840 1,341,130 1,249,284
NET INCOME $ 5,561,426 $ 5,256,252 $ 4,492,104 $ 3,731,047 $ 3,500,712
EARNINGS PER COMMON SHARE
(1,400,000 shares) $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
</TABLE>
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Income
Net income was 5.8% higher in 1994 than in 1993, 17.0% higher
in 1993 than in 1992, and 20.4% higher in 1992 than in 1991. As
indicated by the table of comparative data, the Corporation's
return on average assets was 1.23% in 1994, 1.25% in 1993, and
1.18% in 1992. The return on equity remains strong at 14.1% in
1994, 14.9% in 1993, and 14.21% in 1992.
Net Interest Margin
Mr. Waymon L. Hickman indicated in his opening message to
stockholders that 1994 was a difficult year for many forms of
investments. The stock market closed out its worst performance
and the bond market experienced its largest calendar year
decline in modern history. It was the first time since 1974
that both stock and bond funds fell in value during the same
year. Even with these unfavorable results, an investment in F&M
stock increased 18.4% in value, due primarily to very favorable
earnings and continued demand for stock.
A graph which illustrates an increasing net interest margin
during the five years shown was included at the bottom of this
page in the materials sent to our stockholders. As mentioned
in the LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT section
earlier, the Bank's Asset/Liability Committee monitors interest rate
sensitivity monthly. Through the use of simulation analysis to
estimate future net interest income under varying interest rate
conditions, the committee can establish pricing and maturity
strategies to maintain that steady net interest margin. The
simulation analysis uses the repricing information indicated in
the table on page 37 and adjusts the current balance sheet to
reflect the impact of different interest rate movements.
EFFECTS OF ECONOMY
Current economic conditions have had a definite effect on the
reported financial condition and results of operation. Market
interest rates declined in 1992 and 1993, resulting in lower
yields on earning assets and lower rates on interest-bearing
liabilities. The market interest rates increased in 1994,
resulting in higher yields on earning assets as well as higher
rates on interest-bearing liabilities. Historically,
noninterest-bearing demand deposits and regular savings accounts
provided a relatively fixed rate source of funding for earning
assets. This was illustrated again in 1993 and 1994 as these
fixed rate and noninterest-bearing deposits continued to provide
a relatively stable net yield from this funding source.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EFFECTS OF ECONOMY (Continued)
The closing of some industrial plants that have been long term
community neighbors and the reduction of operations in other
plants in the area have reduced the impact of increases in the
automotive industry in the area. First Farmers and Merchants
Corporation continues to work with local citizens to improve the
economic conditions of the area.
SHAREHOLDER INFORMATION
The 1,400,000 shares of common stock of First Farmers &
Merchants Corporation outstanding at December 31, 1994, had a
market value of $63 million and were held by 1,405 identifiable
individuals located mostly in the market area. A small number
of additional shareholders cannot be identified individually
since some bank nominees, including the bank's Trust Department,
are listed as single owners when, in fact, these holdings
represent large numbers of shareholders. No single
shareholder's ownership exceeded five percent at year end.
There is no established public trading market for the stock.
The following table lists the high and low price of the
Corporation's common stock, as well as the semiannual dividend
paid per share, in each of the last three years.
<TABLE>
<CAPTION>
Price Range of Dividends
Common Stock Paid
High Low Per Share
<C> <S> <C> <C> <C>
First Quarter $ 32.00 $ 31.00 $
Second Quarter 33.50 33.50 0.31
1992 Third Quarter 33.50 33.50
Fourth Quarter 34.50 33.50 0.34
$ 0.64
First Quarter $ 36.00 $ 36.00 $
Second Quarter 37.00 37.00 0.36
1993 Third Quarter 38.00 37.00
Fourth Quarter 38.00 38.00 0.38
$ 0.73
First Quarter $ 40.00 $ 39.00 $
Second Quarter 42.00 42.00 0.39
1994 Third Quarter 43.00 42.00
Fourth Quarter 45.00 43.00 0.41
$ 0.80
</TABLE>
Four color graphs are included on the left hand side of this
page in the materials sent to our stockholders. The first one
illustrates net income for the last five years using information
taken from the "FIVE YEAR COMPARISON" table included above. The
second one illustrates return on average assets for the last five
years using information from the "COMPARATIVE DATA" table on the
next page. The third and fourth graphs illustrate return on
stockholders' equity and earnings per share with cash dividends for
the last five years. The information for both of these graphs was
taken form the "COMPARATIVE DATA" table on the following pages.
<PAGE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
COMPARATIVE DATA (In Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE ASSETS $ 451,953 $ 420,760 $ 381,379 $ 303,851 $ 279,969
AVERAGE LOANS (NET) $ 247,791 $ 233,609 $ 215,158 $ 182,561 $ 172,749
AVERAGE DEPOSITS $ 404,412 $ 378,782 $ 343,128 $ 268,495 $ 247,461
RETURN ON EQUITY
AND ASSETS
Return on average assets 1.23% 1.25% 1.18% 1.23% 1.25%
Return on beginning equity 14.11% 14.93% 14.21% 13.01% 13.48%
Average equity to
average assets 9.25% 8.90% 8.76% 9.94% 9.77%
COMMON DIVIDEND
PAYOUT RATIO
Earnings per share $ 3.97 $ 3.75 $ 3.21 $ 2.67 $ 2.50
Cash dividends per share $ 0.80 $ 0.73 $ 0.64 $ 0.58 $ 0.56
Ratio 20% 19% 20% 22% 22%
</TABLE>
<TABLE>
NET INTEREST MARGIN
(in Thousands of Dollars)
<CAPTION>
1994 1993 1992 1991 1990
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
(TAX EQUIVALENT) $ 32,039 $ 29,465 $ 29,564 $ 27,736 $ 27,087
INTEREST EXPENSE 12,864 12,037 13,377 14,277 15,093
$ 19,175 $ 17,428 $ 16,187 $ 13,459 $ 11,994
NET INTEREST MARGIN* 4.68% 4.58% 4.67% 4.84% 4.69%
<FN>
<F10>
*Net interest margin is net interest income (tax equivalent)
divided by average earnings assets.
</FN>
</TABLE>
In summary, the above table and the graphs on these pages
summarize the presentation in the preceding pages, a unique
perspective on the internal structures of the Corporation and
the Bank that provide the strength in our organization. Each
stockholder can be proud of this performance. Our stockholders
are the real strength of our organization. Thank you for your
help and support.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors and Executive officers of the Corporation are included in
First Farmers and Merchants Corporation's definitive Proxy Statement
pursuant to Regulation 14 A, Solicitation of Proxies, which has been filed
since March 17, 1995 and which involves the election of Directors. The
present terms of Directors and officers extend to April 18, 1995.
<PAGE>
Executive Officers of Registrant
The following is a list as of March 8, 1995, showing the names
and ages of all executive officers of First Farmers and
Merchants Corporation ("FFMC"), the nature of any family
relationships between them, and all positions and offices with
the Corporation held by each of them:
<TABLE>
<CAPTION>
Family Positions and
Name Age Relationship Offices Held
<S> <C> <C> <C>
Virgil H. Moore, Jr. 69 None Chairman of the Board of Directors of FFMC and the Bank.
Employed in 1954 as Assistant to President. Named Vice-President
in 1955. Named Vice-President and Cashier in 1956. Promoted
to First Vice-President in 1958. Elected Director in 1959 and
President in 1965. Elected Chairman and Chief Executive Officer
of the Bank, August 1980. Elected Chairman of the Board of FFMC
April, 1982. Relinquished position as Chief Executive Officer of
the Bank on December 31, 1990. Relinquished position as an officer
of the Bank on December 31, 1992.
Waymon L. Hickman 60 None President and Chief Executive Officer and Director of the Bank and
President of FFMC. Employed in 1958. Named Assistant Cashier in 1959.
Named Assistant Vice-President in 1961, and promoted to Vice-President
in 1962. Elected First Vice-President and Trust Officer in 1969, and
promoted in 1973 to Executive Vice-President and Senior Trust Officer.
Elected President and Chief Administrative Officer, August 1980. Elected
President of FFMC April, 1982. Elected Chief Executive officer of the
Bank in December, 1990.
O'Neill D. Moore 63 None Senior Vice-President of Bank and Secretary to the Board of Directors
of FFMC and the Bank. Employed in 1955. Named Assistant Cashier in 1957,
and Cashier in 1958. Elected Secretary to the Board of Directors of the
Bank in 1959. In 1967 promoted to Vice-President and Cashier.
Promoted to Senior Vice-President in 1973. Elected Secretary of
FFMC in 1982.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Family Positions and
Name Age Relationship Offices Held
<S> <C> <C> <C>
David I. Wise 63 None Senior Vice-President, Loan Review Officer, Security Officer and
Director of the Bank and FFMC. Employed in 1957. Named Assistant
Cashier in 1957. Promoted to Assistant Vice-President in 1961.
Elected Director of the Bank in 1968. Promoted to Senior Vice-
President in 1973. Elected Director and Vice-President of FFMC
in April, 1982. Named Compliance Officer of the Bank in 1987.
Named Loan Review Officer of the Bank in 1993.
Thomas Randall Stevens 43 None Executive Vice President and Chief Administrative Officer and
Director of the Bank. Director and Vice President of FFMC.
Employed in 1973. Promoted to Commercial Bank Officer in 1974.
Promoted to Assistant Vice President in 1976. Promoted to Vice
President in 1979. Became Vice President and Trust Officer in
1982. Promoted to First Vice president in 1984. Promoted to
Executive Vice President and Chief Administrative officer in 1990.
Elected as Director of the Bank in 1991 and Director and Vice President
of FFMC in 1991.
Edward A. Cox 72 None Senior Vice President and Director of Planning and Training of the
Bank and Vice President of FFMC. Employed in 1982. In 1989 promoted
to Vice-President of Bank. Elected Assistant Secretary of FFMC in
March 1987. Promoted to Senior Vice President of the Bank in December,
1990. Elected Vice President of FFMC in 1991.
</TABLE>
<PAGE>
Executive Officers of Registrant - Continued
<TABLE>
<CAPTION>
Family Positions and
Name Age Relationship Offices Held
<S> <C> <C> <C>
Patricia N. McClanahan 51 None Senior Vice President and Controller/Cashier of the Bank and Treasurer
of FFMC. Employed in 1980. Promoted to Internal Bank Auditor in 1981.
Promoted to Bank Controller in 1984. Promoted to Bank Controller and
Cashier in 1987. Promoted to Bank Vice President and
Controller/Cashier in 1989. Promoted to Bank Senior Vice President and
Controller/Cashier in 1990. Elected as Treasurer of FFMC in 1991.
</TABLE>
Item 11. Executive Compensation and Transactions.
Information on executive compensation and transactions is included
First Farmers and Merchants Corporation's definitive Proxy Statement
pursuant to Regulation 14 A, Solicitation of Proxies, which has been
filed since March 17, 1995, and which involves the election of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Security ownership of certain beneficial owners and management is included
in First Farmers and Merchants Corporation's definitive Proxy Statement
pursuant to Regulation 14 A, Solicitation of Proxies, which has been filed
since March 17, 1995, and which involves the election of Directors.
Item 13. Certain Relationships and Related Transaction.
A discussion of certain relationships and related transaction is included
in First Farmers and Merchants Corporation's definitive Proxy Statement
pursuant to Regulation 14 A, Solicitation of proxies, which has been filed
since March 17, 1995, and which involves the election of directors.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.*
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) - The following modules are filed herewith:
ANNUAL_REPORT_S Annual Report to Stockholders
DEFINITIVE_PROX Definitive Proxy Statement
OPINION Report of Independent Certified Public Accountants
OFF_SIGNATURES Officer Signatures
DIR_SIGNATURES Director Signatures
(d) Financial Statement Schedules - The response to this
portion of Item 14 is submitted as a separate section of this
report.
*By-Laws remain the same as those included in the Form 10-K
submitted for the fiscal year ended December 31, 1990. In
addition, a Form 8-K was completed and submitted separately
regarding a purchase that was consummated January 24, 1992.
<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 FARMERS AND MERCHANTS CORPORATION
BY /s/ Waymon L. Hickman
Waymon L. Hickman, President
(Chief Executive Officer)
Date April 11, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s / Thomas Randall Stevens
Thomas Randall Stevens, Vice President
(Chief Administrative Officer)
Date April 11, 1995
/s / Patricia N. McClanahan
Patricia N. McClanahan, Treasurer
(Principal Accounting Officer)
Date April 11, 1995
<PAGE>
Signatures -- continued
/s/ Kenneth A. Abercrombie /s/ Sam D. Kennedy
Kenneth A. Abercrombie, Director Sam D. Kennedy, Director
Date April 11, 1995 Date April 11, 1995
/s/ James L. Bailey, Jr. /s/ Tillman Knox
James L. Bailey, Jr., Director Tillman Knox, Director
Date April 11, 1995 Date April 11, 1995
/s/ Harlan D. Bowsher /s/ Joe E. Lancaster
Harlan D. Bowsher, Director Joe E. Lancaster, Director
Date April 11, 1995 Date April 11, 1995
/s/ H. Terry Cook, Jr. /s/ Virgil H. Moore, Jr.
H. Terry Cook, Jr., Director Virgil H. Moore, Jr., Director
Date April 11, 1995 Date April 11, 1995
/s/ W. J. Davis, Jr. /s/ Thomas Randall Stevens
W. J. Davis, Jr., Director Thomas Randall Stevens, Director
Date April 11, 1995 Date April 11, 1995
/s/ Tom Napier Gordon /s/ Dan C. Wheeler
Tom Napier Gordon, Director Dan C. Wheeler, Director
Date April 11, 1995 Date April 11, 1995
/s/ Edwin W. Halliday /s/ David I. Wise
Edwin W. Halliday, Director David I. Wise, Director
Date April 11, 1995 Date April 11, 1995
/s/ Waymon L. Hickman /s/ W. Donald Wright
Waymon L. Hickman, Director W. Donald Wright, Director
Date April 11, 1995 Date April 11, 1995
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2) ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
FIRST FARMERS AND MERCHANTS CORPORATION
COLUMBIA, TENNESSEE
<PAGE>
FORM 10-K -- ITEM 14(a)(1) and (2)
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statements of First Farmers
and Merchants Corporation and Subsidiary, included in the annual
report of the registrant to its security holders for the year
ended December 31, 1994, are referenced in Item 8 and included in the Annual
Report to Stockholders:
Consolidated balance sheets -- December 31, 1994 and 1993
Consolidated statements of income -- Years ended December 31, 1994, 1993,
and 1992
Consolidated statements of cash flows -- Years ended December 31, 1994, 1993,
and 1992
Notes to consolidated financial statements -- December 31, 1994
The following financial statement schedules of First Farmers and
Merchants Corporation and subsidiary are included in Item 14(d):
None
All other schedules to the consolidated financial statements
required by Article 9 of Regulation S-X and all other schedules
to the financial statements of the registrant required by
Article 5 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore, have been
omitted.
<PAGE>
EXHIBIT INDEX
FIRST FARMERS AND MERCHANTS CORPORATION
Exhibit Number Title or Description
ANNUAL_REPORT_S Annual Report to Stockholders
OPINION Report of Independent Certified Public
Accountants
DEFINITIVE_PROX Definitive Proxy Statement
OFF_SIGNATURES Officer Signatures
DIR_SIGNATURES Director Signatures
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,735,526
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,565,226
<INVESTMENTS-CARRYING> 143,061,031
<INVESTMENTS-MARKET> 138,892,331
<LOANS> 262,694,120
<ALLOWANCE> (2,342,290)
<TOTAL-ASSETS> 460,794,185
<DEPOSITS> 405,152,423
<SHORT-TERM> 7,000,000
<LIABILITIES-OTHER> 4,813,636
<LONG-TERM> 0
<COMMON> 14,000,000
0
0
<OTHER-SE> 29,828,126
<TOTAL-LIABILITIES-AND-EQUITY> 460,794,185
<INTEREST-LOAN> 21,130,914
<INTEREST-INVEST> 9,574,783
<INTEREST-OTHER> 111,841
<INTEREST-TOTAL> 30,817,538
<INTEREST-DEPOSIT> 12,770,618
<INTEREST-EXPENSE> 12,863,904
<INTEREST-INCOME-NET> 17,953,634
<LOAN-LOSSES> 660,000
<SECURITIES-GAINS> (243,690)
<EXPENSE-OTHER> 13,508,347
<INCOME-PRETAX> 7,765,172
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,561,426
<EPS-PRIMARY> 3.97
<EPS-DILUTED> 3.97
<YIELD-ACTUAL> 7.83
<LOANS-NON> 2,611,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,023,651
<CHARGE-OFFS> 422,831
<RECOVERIES> 81,470
<ALLOWANCE-CLOSE> 2,342,290
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
