PART I
Item 1. Business.
Description of Business
First Farmers and
Merchants Corporation (the “Corporation”) was incorporated on March 31, 1982 as
a Tennessee corporation. As of December 31, 2013, the only direct subsidiary
of the Corporation was First Farmers and Merchants Bank, a Tennessee
state-chartered bank (the “Bank”). Management evaluates the financial
condition of the Corporation in terms of the Bank’s operations within its
service area in Middle Tennessee.
The operations of the
Bank are significantly affected by prevailing economic conditions, competition
and the monetary, fiscal and regulatory policies of governmental agencies.
Lending activities are influenced by the general credit needs of small
businesses in the Bank’s service area, competition among lenders, the level of
interest rates and the availability of funds. The Bank’s loan portfolio is
comprised of commercial, commercial and residential real estate, and retail
installment loans, which primarily originate within the Bank’s service area.
Deposits are the primary source of funds for the Bank. Such deposits consist
of checking accounts, regular savings deposits, negotiable order of withdrawal
accounts, money market accounts and market rate certificates of deposit.
Deposits are solicited from individuals and businesses in the Bank’s service
area, state and local entities and, to a lesser extent, United States government entities and other depository institutions. Deposit flows and costs of
funds are influenced by prevailing market rates of interest, primarily on
competing investments, account maturities and the levels of personal income and
savings in the Bank’s service area. All of the Corporation’s assets are
located in the United States and all of its revenues generated from external
customers originate within the United States.
The Bank’s net income is dependent
primarily on its net interest income, which is the difference between the
interest income earned on its loans, investment assets and other
interest-earning assets and the interest paid on deposits and other
interest-bearing liabilities. To a lesser extent, the Bank’s net income also
is affected by its noninterest income derived principally from service fees as well
as the level of noninterest expenses such as salaries and employee benefits.
For more information regarding the
business of the Corporation and the Bank, please refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations, which
is included in the Corporation’s 2013 Annual Report to Shareholders (the
“Annual Report to Shareholders”) attached as Exhibit 13 to this Annual Report
on Form 10-K and is incorporated herein by reference.
Availability of SEC Reports
The Corporation’s website is
www.myfirstfarmers.com. The Corporation makes available free of charge on this
website under the “About Us
-
Investor Services” link the
Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after the Corporation electronically files such materials with, or
furnishes them to, the Securities and Exchange Commission (the “SEC”). The SEC
maintains a website at
www.sec.gov
that also contains reports, proxy and information
statements and other information about the Corporation that are available free
of charge. In addition, copies of our reports are available, without charge,
by making a request through the “Contact Us” link on our website.
Regulation and Supervision
In
addition to the generally applicable state and federal laws governing
businesses and employers, the Corporation is subject to extensive regulation by
federal and state laws and regulations applicable to financial institutions and
their parent companies. Nearly all aspects of the business of the Corporation
are subject to specific requirements and restrictions and general regulatory
oversight. The principal objectives of state and federal laws regulating
financial institutions are the maintenance of the safety and soundness of the
institutions and the federal deposit insurance system, and the protection of
consumers or classes of consumers, rather than the specific protection of
shareholders of a bank or the parent company of a bank, such as the
Corporation. In addition, the supervision, regulation and examination of the
Corporation by the bank regulatory agencies is not intended to protect the
Corporation’s shareholders. Below is a brief summary of the regulatory
environment in which the Corporation and its subsidiaries operate, but it is
not designed to be a complete discussion of all statutes and regulations affecting
the Corporation or its subsidiaries.
3
The
Corporation is a bank holding company regulated under the Bank Holding Company
Act of 1956 (the “BHCA”) and is subject to regulation and supervision by the
Board of Governors of the Federal Reserve System (the “Federal Reserve”). The
Corporation is required to file various reports with, and is subject to
examination by, the Federal Reserve. The Federal Reserve has the authority to
issue orders to bank holding companies to cease and desist from unsound practices
and violations of conditions imposed by, or violations of agreements with, the
Federal Reserve. The Federal Reserve is also empowered to assess civil money
penalties against companies or individuals who violate the BHCA or orders or
regulations thereunder.
The
Federal Reserve has the authority to prohibit bank holding companies from
paying dividends if such payment is deemed to be an unsafe or unsound practice.
The Federal Reserve has indicated generally that it may be an unsafe or unsound
practice for bank holding companies to pay dividends unless a bank holding
company’s net income is sufficient to fund the dividends and the expected rate
of earnings retention is consistent with the organization’s capital needs,
asset quality and overall financial condition. The Bank is also subject to
regulatory limitations on the amount of dividends it may declare and pay. This
may limit income available to the Corporation, as the Corporation depends in
part upon dividends received from the Bank to fund its activities, including
the payment of dividends.
According
to Federal Reserve policy and the Dodd-Frank Wall Street Reform and Protection
Act of 2010 (the “Dodd-Frank Act”), a bank holding company is expected to act
as a source of financial and managerial strength to each of its subsidiary
banks and to commit resources to support each such subsidiary. This support may
be required at times when the bank holding company may not have the resources
to provide such support. Similarly, under the cross-guarantee provisions of the
Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation (the
“FDIC”) can hold any FDIC-insured depository institution liable for any loss
suffered or anticipated by the FDIC in connection with (i) the “default” of a
commonly controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution “in danger of default.”
The
Corporation owns the Bank, which is chartered under the laws of Tennessee and is a member of the Federal Reserve. The Bank is subject to extensive state
regulation and examination by the Tennessee Department of Financial
Institutions and the Federal Reserve as the primary regulators, and the FDIC as
the secondary regulator that insures the deposits of all banks to the maximum
extent permitted by law. The federal and state laws and regulations that are
applicable to banks regulate, among other matters, the scope of the Bank’s
business, the Bank’s investments, the Bank’s reserves against deposits, the
timing of the availability of deposited funds and the amount of loans and the
amount of interest that may be charged on loans. Various state consumer laws
and regulations also affect the Bank’s operations.
The
Corporation and the Bank are required to comply with capital guidelines issued
by the Federal Reserve and with other tests related to capital adequacy that
the Federal Reserve adopts from time to time.
The
Basel Committee on Banking Supervision (the “Basel Committee”) has announced
revised final frameworks, generally referred to as “Basel III,” for the
regulation of capital and liquidity of internationally active banking
organizations. Basel III would require capital to be held in the form of
tangible common equity, generally increase the required capital ratios, phase
out certain kinds of intangibles treated as capital and certain types of
instruments, like trust preferred securities, and change the risk weightings of
assets used to determine required capital ratios. Basel III is presently the
subject of notices of proposed rulemaking released in June 2012 by federal
banking agencies. The comment period for these notices of proposed rulemaking
ended on October 22, 2012. In July 2013, the Federal Reserve published final
rules (the “Basel III Capital Rules”) establishing a new comprehensive capital
framework for U.S. banking organizations. The Basel III Capital Rules implement
the Basel Committee’s Basel III capital framework. The Basel III Capital Rules
increase minimum requirements for both the quantity and the quality of capital
held by banking organizations. The Basel III Capital Rules include a new
minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%
and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted
assets, and adjust the methodology for calculating risk-weighted assets to
enhance risk sensitivity. Beginning January 1, 2015, the Corporation and the
Bank must be compliant with revised minimum regulatory capital ratios and will
begin the transitional period for definitions of regulatory capital and
regulatory capital adjustments and deductions established under the Basel III
Capital Rules. Compliance with the risk-weighted asset calculations will be
required on January 1, 2015. Management believes the Corporation’s and the
Bank’s current capital ratios exceed those required under the Basel III Capital
Rules.
4
The
Federal Community Reinvestment Act (the “CRA”) generally requires insured
depository institutions to make loans and investments and provide services that
meet the credit needs of the communities they serve. As a part of the CRA
program, the Bank is subject to periodic examinations by the Federal Reserve
and must maintain comprehensive records of its CRA activities. During these examinations,
the Federal Reserve rates such institutions’ compliance with the CRA as
“Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial
Noncompliance.” As of the last CRA examination on September 12, 2012, the Bank
received an “Outstanding” rating from the Federal Reserve.
Pursuant
to the authority granted under various statutes, the federal bank regulatory
agencies have adopted guidelines (the “Guidelines”) for safekeeping
confidential, personal customer information. The Guidelines require each
financial institution, under the supervision and ongoing oversight of its board
of directors or an appropriate committee thereof, to create, implement and
maintain a comprehensive written information security program designed to
ensure the security and confidentiality of customer information, protect
against any anticipated threats or hazards to the security or integrity of such
information and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any
customer. The Bank has adopted a customer information security program that has
been approved by the Board of Directors of both the Bank and the Corporation.
The
Bank is required to pay quarterly FDIC deposit insurance assessments to the
Deposit Insurance Fund (“DIF”). The FDIC maintains the DIF by assessing
depository institutions an insurance premium. The amount each institution is
assessed is based upon statutory factors that include the balance of insured
deposits as well as the degree of risk the institution poses to the insurance
fund. The FDIC uses a risk-based premium system that imposes insurance premiums
based upon a risk matrix that takes into account a bank’s capital level and
supervision rating.
The
passage of the Dodd-Frank Act brought about a major overhaul of the current
financial institution regulatory system. Among other things,
the Dodd-Frank Act
established
the independent Consumer Financial Protection Bureau tasked with protecting
consumers from unfair, deceptive and abusive financial products and practices.
The Dodd-Frank Act required the implementation of the “Volcker Rule” for banks
and bank holding companies, which prohibits with certain limited exceptions,
proprietary trading, investment in and sponsorship of hedge funds and private
equity funds, and otherwise limit the relationships with such funds. The
Dodd-Frank Act includes provisions that, among other things, reorganize bank
supervision and strengthen the Federal Reserve. The Dodd-Frank Act also
requires fees charged for debit card transactions, commonly referred to as
interchange fees, to be both “reasonable and proportional” to the cost incurred
by the card issuer.
Further,
the Dodd-Frank Act provides that the appropriate federal regulators must
establish standards prohibiting as an unsafe and unsound practice any
compensation plan of a bank holding company or other “covered financial
institution” that provides an insider or other employee with “excessive
compensation” or could lead to a material financial loss to such firm. Prior to
the implementation of the Dodd-Frank Act, the bank regulatory agencies
promulgated the Interagency Guidance on Sound Incentive Compensation Policies,
which requires that financial institutions establish metrics for measuring the
impact of activities to achieve incentive compensation with the related risk of
such behavior to the financial institution. The Dodd-Frank Act provides other
restrictions, including limiting the ability of financial institutions to
utilize trust preferred securities as Tier 1 capital going forward, and
requiring institutions to retain credit risk when selling loans to third
parties.
On July 31, 2010,
the Federal Reserve implemented revised Regulation E. The effect of this
revision was to allow customers of the Bank to opt out of overdraft protection
programs, and thereby potentially reduce fee income generated by the Bank. The
Bank has taken all steps necessary to be compliant with the revised Regulation
E.
5
The activities of the Corporation
and the Bank are also subject to regulation under other various federal laws
including the Gramm-Leach-Bliley Act of 1999, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism USA Patriot Act of 2001, the Truth-in-Lending Act, the
Trust-in-Savings Act, the Equal Credit Opportunity Act, the Fair Housing Act, ,
the Home Mortgage Disclosure Act, the National Flood Insurance Act, the Real
Estate Settlement Procedures Act, the Bank Secrecy Act, various laws and
regulations prohibiting unfair, deceptive or abusive acts and practices, the
Houston and Economic Recovery Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practice Act, the Electronic Funds Transfer Act and the Currency and
Foreign Transactions Reporting Act, among others, as well as various state
laws.
Competition
The business of providing financial services is highly
competitive. In addition to competing with other commercial banks in the Bank’s
service area, the Bank competes with savings and loan associations, insurance
companies, savings banks, small loan companies, finance companies, mortgage
companies, real estate investment trusts, certain governmental agencies, credit
card organizations, credit unions and other enterprises. None of these
competitors is dominant in the entire area served by the Bank.
In the Tennessee markets it serves, the Bank offers a typical mix of
interest-bearing transaction, savings and time deposit products as well as
traditional non-interest bearing deposit accounts. The Bank’s primary market
areas for these products are Dickson, Giles, Hickman, Lawrence, Marshall, Maury
and Williamson Counties in Tennessee. The Bank will be opening a new branch in
Davidson County in 2014.
Employees
The Corporation has no employees.
The Bank had approximately
244
full-time
employees and 26 part-time employees at December 31, 2013. Four of the Bank’s
officers are also officers of the Corporation. Employee benefit programs
provided by the Bank include a deferred profit-sharing plan, an annual
profit-sharing plan, lender production incentives, a salary continuation plan, long-term
disability insurance, a deferred compensation plan, an executive split-dollar
life insurance plan, a post-retirement medical benefits program, a Section 125
cafeteria plan, training programs, group life and accidental death insurance,
health and dental insurance and paid vacations.
Item 1A. Risk Factors.
An investment in our common stock
involves significant risks. The risks and uncertainties that management
believes affect or could affect us are described below. This listing should
not be considered as all-inclusive. You should carefully read and consider
these risks and uncertainties described below together with all of the other
information included or incorporated by reference in this report before you
decide to invest in our common stock. References to “we,” “us,” and “our” in
this section refer to the Corporation and the Bank, unless otherwise specified
or unless the context otherwise requires.
Our
business and credit quality may be adversely affected by conditions in the
financial market.
Beginning
in mid-2007, the financial services industry and the securities markets
generally were materially and adversely affected by significant declines in the
value of nearly all asset classes and by a serious lack of liquidity, and
economic conditions affecting the banking industry have not since fully
recovered. The global markets have been characterized by substantially
increased volatility and short-selling and an overall loss of investor
confidence.
Businesses
continue to experience serious difficulties resulting from restrained consumer
spending and the lack of credit market liquidity. Market conditions have also
led to the failure or merger of a number of prominent financial institutions
and competition for deposits and high quality loans has increased for those
that remain in business.
Overall,
during 2013 the business environment continued to be unfavorable for many
households and businesses in the United States and worldwide. Although the
business environment in middle Tennessee has been better than in the United
States generally, our customers continue to be impacted by reduced asset
values, a tightening credit environment, securities market volatility and other
factors. It is possible that the business environment in middle Tennessee, the
United States and worldwide will continue to experience weakness and uncertainty
for the foreseeable future. There can be no assurance that conditions will
improve in the near term. Such conditions could adversely affect the credit
quality of our loans, results of operations and financial condition.
6
A reduction of customer deposits
or an inability of our borrowers to repay loans could have a material adverse
effect on our liquidity.
We rely on dividends from the Bank
as our primary source of funds. The primary sources of funds of the Bank are
customer deposits and loan repayments. While scheduled loan repayments are a
relatively stable source of funds, they are subject to the ability of borrowers
to repay the loans. The ability of borrowers to repay loans can be adversely
affected by a number of factors, including changes in economic conditions,
adverse trends or events affecting business industry groups, reductions in real
estate values or markets, business closings or lay-offs, inclement weather,
natural disasters and international instability. Additionally, deposit levels may
be affected by a number of factors, including rates paid by competitors,
general interest rate levels, returns available to customers on alternative
investments and general economic conditions. Accordingly, we may be required
from time to time to rely on secondary sources of liquidity, such as Federal
Home Loan Bank advances, to meet withdrawal demands or otherwise fund
operations. While management believes that these sources are currently
adequate, there can be no assurance they will be sufficient to meet future
liquidity demands.
Our allowance for loan losses may
be insufficient, which could result in a reduction of net income and capital.
We maintain an allowance for loan
and lease losses, which is a reserve established through a provision for loan
and lease losses charged to expense, that represents management’s best estimate
of probable losses that have been incurred within the existing portfolio of loans
and leases. The allowance, in the judgment of management, is necessary to
reserve for estimated loan losses and risks inherent in the loan portfolio.
The level of the allowance reflects management’s continuing evaluation of:
-
portfolio quality trends;
-
changes in the nature and volume
of the portfolio;
-
present and prospective economic
and business conditions, locally and nationally;
-
management review systems and
board oversight;
-
changes in credit policy, credit
administration, portfolio management and procedures;
-
changes in personnel, management
and staff; and
-
the existence and effect of any
concentrations of credit.
The
determination of the appropriate level of the allowance for loan and lease
losses inherently involves a high degree of subjectivity and requires us to
make significant estimates of current credit risks using existing qualitative
and quantitative information, all of which may undergo material changes. An
increase in the allowance for loan and lease losses results in a decrease in
net income, and possibly capital, and may have a material adverse effect on our
financial condition and results of operations. For further discussion related
to our allowance for loan and lease losses, please refer to “Liquidity and
Capital Resources – Loans and Loan Quality” and “Critical Accounting Policies –
Allowance for Loan and Lease Losses” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations, which is included in the Annual
Report to Shareholders attached as Exhibit 13 to this Annual Report on Form
10-K and is incorporated herein by reference.
Our profitability depends
significantly on economic conditions in the communities in the States of
Tennessee where we do business.
Our success and profitability depend
on the general economic conditions in the specific local markets in middle
Tennessee where we do business. Local economic conditions have a significant
impact on the demand for our products and services as well as the ability of
our customers to repay loans, the value of the collateral securing loans and
the stability of our deposit funding sources. A favorable business environment
is generally characterized by, among other factors, economic growth, efficient
capital markets, low inflation, high business and investor confidence, and
strong business earnings. Unfavorable or uncertain economic and market
conditions can be caused by: declines in economic growth, business activity or
investor or business confidence; limitations on the availability or increases
in the cost of credit and capital; increases in inflation or interest rates;
natural disasters; or a combination of these or other factors. A significant
decline in general economic conditions could impact local economic conditions
and, in turn, have a material adverse effect on our financial condition and
results of operations.
7
We are subject to extensive
government regulation and supervision.
We are subject to extensive
regulation and supervision under federal and state laws and regulations. The
restrictions imposed by such laws and regulations limit the manner in which we
conduct business, undertake new investments and activities and obtain
financing. These regulations are designed primarily for the protection of the
deposit insurance funds and consumers and not to benefit our shareholders.
Congress and federal regulatory agencies continually review banking laws,
regulations and policies for possible changes. Most recently, the Dodd-Frank
Act has implemented sweeping reforms to the financial services industry. A
number of provisions of the Dodd-Frank Act remain to be implemented through the
rulemaking process at various regulatory agencies. We are unable to predict
what the final form of these rules will be when implemented by the respective
agencies, but management believes that certain aspects of the new legislation
including, without limitation, the additional cost of higher deposit insurance
and the costs of compliance with disclosure and reporting requirements and
examinations by the new Consumer Financial Protection Agency, could have a
significant impact on our business, financial condition and results of
operations. Further, federal monetary policies, particularly as implemented
through the Federal Reserve, significantly affect short-term interest rates and
credit conditions, and any unfavorable change in these conditions could have a
material adverse effect on our financial condition or results of operations.
It is possible that there will be
continued changes to the banking and financial institutions regulatory regimes
in the future. Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of statutes, regulations
or policies, could affect us in substantial and unpredictable ways. Such
changes could subject us to additional costs, limit the types of financial
services and products we may offer and/or increase the ability of non-banks to
offer competing financial services and products, among other things. We cannot
predict the extent to which the government and governmental organizations may
change any of these laws or controls. We also cannot predict how such changes
would adversely affect our business and prospects.
We are subject to interest rate
risk.
Our earnings and cash flows are
largely dependent upon our net interest income. Interest rates are highly
sensitive to many factors that are beyond our control, including general
economic conditions and policies of various governmental and regulatory
agencies and, in particular, the Federal Reserve. Changes in monetary policy,
including changes in interest rates, could influence not only the interest we
receive on loans and securities and the amount of interest we pay on deposits
and borrowings, but such changes could also affect (i) our ability to originate
loans and obtain deposits, (ii) the fair value of our financial assets and
liabilities, and (iii) the average duration of our securities portfolio and
other interest-earning rates received on loans and other investments, our net
interest income, and therefore, earnings could be adversely affected. Earnings
could also be adversely affected if the interest rates received on loans and
other investments fall more quickly than the interest rates paid on deposits
and other borrowings.
Although management believes it has
implemented effective asset and liability management strategies to reduce the
potential effects of changes in interest rates on our results of operations,
any substantial, unexpected, prolonged change in market interest rates could
have a material adverse effect on our financial condition and results of
operations. For further discussion related to our management of interest rate
risk, please refer to “Liquidity and Capital Resources – Interest Rate Risk” in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, which is included in the Annual Report to Shareholders attached as
Exhibit 13 to this Annual Report on Form 10-K and is incorporated herein by
reference.
We rely heavily on our management
team and on our ability to attract and retain key personnel.
We are a customer-focused and
relationship-driven organization. Future growth is expected to be driven in
large part by the relationships we maintain with our customers. Additionally,
it is important for us to continue to attract, hire, motivate and retain
skilled personnel to develop new customer relationships as well as new
financial products and services. The market for such people is competitive and
there is no assurance that we will be successful in attracting, hiring,
motivating or retaining them.
8
Competition from other financial
services providers could adversely impact our results of operation.
The banking and financial services
business is highly competitive. We face competition in making loans,
attracting deposits and providing trust services. Increased competition in the
banking and financial services business may reduce our market share, impair its
growth or cause the prices we charge for our services to decline. For further
discussion related to our competition in our market area, please refer to
“Competition” in Item 1 of this Annual Report on Form 10-K.
We obtain a significant portion of our noninterest
revenue through service fees on deposit accounts; legislation and regulations
impacting service fees could reduce our fee income.
A significant portion of our
noninterest revenue is derived from service fee income. One of the components of
this service fee income is overdraft-related fees. Management anticipates that
changes in banking regulations, and in particular the Federal Reserve’s rules
pertaining to certain overdraft payments on consumer accounts and the FDIC’s
Overdraft Payment Programs and Consumer Protection Final Overdraft Payment
Supervisory Guidance, will continue to have a significant adverse impact on our
service fee income and overall results. Additionally, management anticipates
that changes in customer behavior as well as increased competition from other
financial institutions will result in declines in deposit accounts or in
overdraft frequency resulting in a decline in service fee income. A reduction
in deposit account fee income could have a material adverse effect on our
earnings.
Our ability to declare and pay dividends is limited by
law.
We derive our income primarily from
dividends received from owning the Bank’s common stock. Federal and state law
limit the Bank’s ability to declare and pay dividends. In addition, the Federal
Reserve may impose restrictions on our ability to declare and pay dividends on
our common stock. For further discussion related to restrictions on our ability
to declare and pay dividends, please refer to “Regulation and Supervision” in
Item 1 of this Annual Report on Form 10-K.
We may
elect or be compelled to seek additional capital in the future, but that
capital may not be available on favorable terms when it is needed.
We are required by federal
regulatory authorities to maintain adequate levels of capital to support our
operations. In addition, we may elect to raise additional capital to support
our business or to finance any acquisitions or we may otherwise elect or be
required to raise additional capital. Our ability to raise additional capital,
if needed, will depend on conditions in the capital markets, economic
conditions and a number of other factors, many of which are outside our
control, and on our financial performance. Accordingly, we cannot provide
assurance of our ability to raise additional capital if needed or to be able to
do so on terms acceptable to us. If we cannot raise additional capital on
favorable terms when needed, it may have a material adverse effect on our
financial condition and results of operations.
Our common stock is not listed or traded on any
established securities market and is normally less liquid than securities
traded in those markets.
Our common stock is not listed or traded
on any established securities market and there are no plans to seek to list our
common stock on any recognized exchange. Accordingly, our common stock has
substantially less daily trading volume than the average securities listed on
any national securities exchange. Most transactions in our common stock are
privately negotiated trades and the shares are very thinly traded. There is no
dealer for our stock and no “market maker.” These factors can reduce the
marketability of our shares and the lack of a liquid market can produce
downward pressure on our stock price.
9
Maintaining
or increasing our market share may depend upon our ability to adapt our
products and services to evolving industry standards and consumer preferences.
Our success depends, in part, on our ability to adapt our products and
services as well as our distribution of them to evolving industry standards and
consumer preferences. Payment methods have evolved with the advancement of
technology, such as consumer use of smart phones and PayPal accounts to pay
bills, thereby increasing competitive pressure in the delivery of financial
products and services. The development and adoption by us of new technologies
could require us to make substantial expenditures to modify our existing
products and services. Further, we might not be successful in developing or
introducing new products and services, adapting to changing consumer
preferences and spending and saving habits, achieving market acceptance or
regulatory approval, or sufficiently maintaining and growing a loyal customer
base. Our inability to adapt to evolving industry standards and consumer
preferences could have an adverse impact on our financial condition or results of
operations.
Security
breaches and other disruptions could compromise our information and expose us
to liability, which would cause our business and reputation to suffer.
A failure of our operating
systems or infrastructure, or those of our third-party vendors, could disrupt
our business. Our business is dependent on our ability to process and monitor
large numbers of daily transactions in compliance with legal and regulatory
standards. As processing demands change and our loan portfolios grow in both volume
and differing terms and conditions, developing and maintaining our operating
systems and infrastructure becomes increasingly challenging and there is no
assurance that we can adequately or efficiently develop and maintain such
systems.
Our operations rely on the
secure processing, storage and transmission of personal, confidential and other
information in our computer systems and networks. Although we take protective
measures, our computer systems, software and networks may be vulnerable to
unauthorized access, computer viruses, malicious attacks and other events that
could have a security impact beyond our control. If one or more of such events
occur, personal, confidential and other information processed and stored in,
and transmitted through, our computer systems and networks could be jeopardized
or could cause interruptions or malfunctions in our operations that could
result in significant losses or reputational damage. We have put in place
secure transmission capability, and work to ensure third parties follow similar
procedures. An interception, misuse or mishandling of personal, confidential or
proprietary information being sent to or received from a customer or third
party could result in legal liability, regulatory action and reputational harm.
In the event personal, confidential or other information is jeopardized,
intercepted, misused or mishandled, we may be required to expend significant
additional resources to modify our protective measures or to investigate and
remediate vulnerabilities or other exposures, and we may be subject to fines,
penalties, litigation costs and settlements and financial losses that are
either not insured against or not fully covered through any insurance
maintained by us. Any of these events could have a material adverse effect on
our business, financial condition or results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
At December 31, 2013, the Bank
maintained a main office in Columbia, Tennessee, 17 other offices and 35 separate
automatic teller or cash dispensing machine locations. In addition to the main
office in Columbia, the Bank’s 16 other offices are located in the following
locations throughout Middle Tennessee:
10
|
|
|
|
|
Bon Aqua
|
Hickman
|
1
|
|
Centerville
|
Hickman
|
1
|
|
Columbia
|
Maury
|
4
|
|
Franklin
|
Williamson
|
2
|
|
Lawrenceburg
|
Lawrence
|
2
|
|
Lewisburg
|
Marshall
|
1
|
|
Loretto
|
Lawrence
|
1
|
|
Mt. Pleasant
|
Maury
|
1
|
|
Pulaski
|
Giles
|
1
|
|
Spring Hill
|
Maury
|
2
|
|
White Bluff
|
Dickson
|
1
|
|
|
Total:
|
17
|
The Bank’s office at S. James
Campbell Boulevard, Columbia, Tennessee is located on property that is leased
and the bank also leases space in a Kroger store in Columbia. The Bank
provides only automatic teller machine services at the following locations:
|
2223 Carmack Blvd (Quik Mart/Shell)
|
Columbia, TN
|
|
312 East James Campbell
(QuickMart/Shell)
|
Columbia, TN
|
|
1120 Hampshire Pike (Quik Mart/Shell)
|
Columbia, TN
|
|
1517 Hampshire Pike (Quik Mart/Shell)
|
Columbia, TN
|
|
1224 Trobtwood Ave. (Maury Regional)
|
Columbia, TN
|
|
147 Bear Creek Pike (Farm Bureau)
|
Columbia, TN
|
|
2577 Nashville Highway (Quik Mart/Shell)
|
Columbia, TN
|
|
5414 Main Street (Quik Mart/Shell)
|
Spring Hill, TN
|
|
9170 new Lawrenceburg Highway (Quik
Mart/Shell)
|
Mt. Pleasant, TN
|
|
121 2nd Ave. South
|
Lewisburg, TN
|
|
1748 Mooresville Rd (Shopping Center)
|
Lewisburg, TN
|
|
800 North Ellington Parkway(Quik
Mart/Shell)
|
Lewisburg, TN
|
|
710 East Gaines (Quik Mart/Shell)
|
Lawrenceburg, TN
|
|
2100 North Locust (Quik Mart/Shell)
|
Lawrenceburg, TN
|
|
1607 S. Locust Ave. (Crocket Hospital)
|
Lawrenceburg, TN
|
|
215 South Military(Quik Mart/Shell)
|
Loretto, TN
|
For more information on the
properties owned and leased by the Corporation and the Bank, please refer to
Notes 5 and 7 to the Consolidated Financial Statements, which are included in
the Annual Report to Shareholders attached as Exhibit 13 to this Annual Report
on Form 10-K and is incorporated herein by reference.
Item 3. Legal Proceedings.
The Corporation, the Bank and the
subsidiaries of the Bank are, from time to time, subject to claims or suits
arising in the ordinary course of business. The Corporation, the Bank and the
subsidiaries of the Bank currently are not a party to any legal proceeding
that, in management’s opinion, would have a material adverse effect on the
Corporation’s financial condition or results of operations.
Item 4.
Mine Safety Disclosures.
Not
applicable.
11