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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
_______________ TO _______________
Commission File Number: 2-90200
FIRST MCMINNVILLE CORPORATION
(Name of Small Business Issuer in its charter)
Tennessee 62-1198119
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Main Street
McMinnville, Tennessee 37110
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (615) 473-4402
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. X
-----
The issuer's revenues for the year ended December 31, 1995 were $14.578
million.
(FACING SHEET CONTINUED ON NEXT SEQUENTIAL PAGE)
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(FACING SHEET CONTINUED)
The aggregate market value based upon the last privately negotiated
transaction in the shares known to management (in that there exists no
established trading market for registrant's shares and no bid or asked prices
of such stock are available) of the Registrant's common voting stock held by
nonaffiliates as of February 14, 1996 is approximately $25,072,098.75. The
market value calculation assumes that all shares beneficially owned by members
of the Board of Directors and executive officers of the registrant are owned by
"affiliates," a status that each of such Directors and executive officers
individually disclaims. This is based on an estimated 484,485 shares held by
non-affiliates at February 14, 1996.
The number of shares outstanding for each of the Registrant's classes of
common stock, as of February 14, 1996: 551,171.
DOCUMENTS INCORPORATED BY REFERENCE: None, except as set forth in the
Exhibit Index.
Transitional Small Business Disclosure Format (check one). Yes No X
--- ---
(END OF FACING SHEET)
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FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . 30
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . 30
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . 32
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . 45
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 51
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Supplemental Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index To Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development.
First McMinnville Corporation (the "Company" or "Registrant") is a
financial services corporation incorporated under the laws of the State of
Tennessee in 1984 for the purpose of becoming a bank holding company by
acquiring all issued and outstanding common stock of The First National Bank of
McMinnville ("The First National Bank" or the "Bank"). The Company is a bank
holding company within the meaning of the Bank Holding Company Act of 1956, as
amended (the "Bank Holding Company Act").
During the past five years the Company and the Bank have focused on
developing the financial services of the Bank in Warren County, Tennessee and
in other areas (generally, in those counties contiguous to Warren County). At
December 31, 1995, the Company had total assets of $190.66 million and the Bank
had total deposits of $154.55 million. The Company reported net earnings of
approximately $3.11 million in 1995. Additional information concerning the
general development of the Company's business during the past three years is
set forth in Item 6, "Management's Discussion and Analysis or Plan of
Operation," and in Item 7, "Financial Statements," in this Annual Report on
Form 10-KSB ("Report") and in "Business of the Company" below.
The principal executive offices of the Company and The First National
Bank are located at 200 East Main Street, McMinnville, Warren County, Tennessee
37110, telephone (615) 473-4402.
(b) Business of the Company.
The Company's principal business is the ownership of the Bank. All
material operations of the Company are currently conducted through The First
National Bank, its wholly owned subsidiary. The Company and the Bank
concentrate on developing the financial service business of the Bank in Warren
County, Tennessee and in other trade areas (generally, in those counties
contiguous to Warren County). The First National Bank is a national banking
association originally established in 1874. The Bank conducts a full-service
commercial banking business centered principally in Warren County, Tennessee.
The Company's principal source of income in 1995 was the earnings of
the Bank. The First National Bank's earnings are primarily derived from
interest income from loans and returns from its investment portfolio. The
availability of funds to the Bank is primarily dependent upon the economic
policies of the government, the economy in general and the general credit
market for loans. The Company may in the future engage in various business
activities permitted of bank holding companies, either directly, through newly
formed subsidiaries, or through acquisitions. The Company intends to provide
banking and financial services in Tennessee, primarily in the Warren County
trade area, through the Bank's operations.
The First National Bank operates five full-service banking offices
located in Warren County, Tennessee. Its principal office is located in
McMinnville, Tennessee and it has additional branches in McMinnville and Viola,
Tennessee. The Bank provides banking and financial services throughout the
Tennessee markets of Warren County and other contiguous counties, as well as,
to a lesser extent, other areas.
For retail customers, The First National Bank offers a full range of
depository products including regular and money market checking accounts;
regular, special, and money market savings accounts; various types of
certificates of deposit and Individual Retirement Accounts, as well as safe
deposit facilities. The Bank also offers its retail customers consumer and
other
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installment loans and credit services. The Bank makes available to local
businesses and institutions traditional lending services, such as lines of
credit, accounts receivable and floor plan loans, and real estate and real
estate construction loans, as well as standard depository services and certain
other special services. Its principal source of income is from interest earned
on personal, commercial, agricultural, and real estate loans of various types.
The Bank is a correspondent bank of First Tennessee Bank National Association,
Chattanooga, Tennessee, and AmSouth Bank, N.A., Birmingham, Alabama. The Bank
operates a trust department with approximately $8.4 million under management.
The Company and The First National Bank intend for the foreseeable future to
concentrate their efforts in their existing markets.
The Company and the Bank are subject to extensive supervision and
regulation by federal banking agencies. Their respective operations are
subject to a wide array of federal and state laws applicable to banking and to
bank holding companies. Certain of the laws and regulations that affect these
operations are outlined briefly below.
Supervision and Regulation
The operations of any bank holding company and banking subsidiary are
affected by various requirements and restrictions imposed by the laws of the
United States and the State of Tennessee, including requirements to maintain
reserves against deposits, limitations on the interest rates that may be
charged on various types of loans, and restrictions on the nature and amount of
loans that may be granted and on the types of investments which may be made.
The operations of bank holding companies and banks are also affected by various
consumer laws and regulations, including those relating to equal credit
opportunity, truth in savings disclosures, and regulation of consumer lending
practices. Congress and state legislatures periodically propose new
legislation affecting the operations of bank holding companies and banks, so no
assurance can be given that the statutes and regulations described below will
remain in effect or that the Company and its subsidiary will remain in
compliance with applicable laws and regulations. The Company and the Bank are
subject also to extensive regulation under state and federal statutes and
regulations. The discussion in this section, which briefly summarizes certain
of such statutes, does not purport to be complete, and it is qualified in its
entirety by reference to such statutes and regulations.
Bank Holding Company Act
As a registered bank holding company, the financial condition and
operations of the Company as well as those of its subsidiary are subject to
examination and supervision by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). The Bank Holding Company Act requires
prior Federal Reserve Board approval for bank acquisitions and prohibits a bank
holding company from engaging in any business other than banking or
bank-related activities. Specifically, the Bank Holding Company Act requires
that a bank holding company obtain prior approval of the Federal Reserve Board
before (1) acquiring, directly or indirectly (except in certain limited
circumstances), ownership or control of more than 5% of the voting stock of a
bank, (2) acquiring all or substantially all of the assets of a bank, or (3)
merging or consolidating with another bank holding company. The Bank Holding
Company Act also generally limits the business in which a bank holding company
may engage to banking, managing or controlling banks, and furnishing or
performing services for the banks that it controls.
In addition, pursuant to the Bank Holding Company Act, a bank holding
company may engage in nonbanking activities, or may acquire shares in a company
engaged in nonbanking activities provided that the Federal Reserve Board has
determined by regulation or order that the activity is so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
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Except in certain circumstances, the Bank Holding Company Act has
historically prohibited a bank holding company from acquiring a bank outside
the state where the bank holding company's banking business is principally
conducted, unless the laws of the state where the bank is located specifically
authorize such acquisitions by out-of-state bank holding companies. Effective
September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, which is discussed below, removed most restrictions to the
expansion of interstate banking. The Interstate Banking Act is likely to have
far-reaching effects on the historical rules applicable to interstate banking
and interstate branching.
Federal Reserve Act
The Federal Reserve Act imposes strict limitations on investments by
subsidiary banks in the stock or other securities of their parent bank holding
company or any of its other subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrowers. In addition, the Federal
Reserve Act imposes strict limitations on extensions of credit and other
transactions by and between subsidiary banks and their parent bank holding
company or any of its other subsidiaries or corporate affiliates. As a
subsidiary of the Company, The First National Bank will be subject to
limitations under Sections 23A and 23B of the Federal Reserve Act with respect
to extensions of credit to, investments in, and certain other transactions with
the Company. Further, any loans and extensions of credit from The First
National Bank to the Company also would be subject to various loan-to-value
collateral requirements. The Bank Holding Company Act and regulations of the
Federal Reserve Board prohibit a bank holding company and its subsidiaries from
engaging in certain (but not all) tie-in arrangements in connection with any
extension of credit, lease, or sale of property or the furnishing of services.
The First National Bank is limited in the amount of dividends that it
may declare under Federal law. Prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, and surplus is below
certain statutory limits. Please refer to Item 5 of this Report, "Market for
Registrant's Common Equity and Related Stockholder Matters," for additional
information on dividends.
Financial Institutions Reform, Recovery and Enforcement Act of 1989
In 1989 Congress enacted the Financial Institutions Reform, Recovery &
Enforcement Act of 1989 ("FIRREA"). FIRREA contains major regulatory reforms
and it is expected to continue to have broad impact on the financial services
industry. Among other important areas, FIRREA provides for generally more
stringent capital requirements for financial institutions and their holding
companies, such as the Company, increased regulatory powers and enforcement
authority, a restructuring of the deposit insurance fund administered by the
Federal Deposit Insurance Corporation (the "FDIC"), and acquisitions by and
between banks and thrift institutions.
With certain qualifications, FIRREA allows bank holding companies to
merge acquired savings and loans into their existing commercial bank
subsidiaries. FIRREA also provides that a depository institution insured by
the FDIC can be held liable for any loss incurred by, or reasonably expected to
be incurred by, the FDIC after August 9, 1989 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.
FIRREA provides that certain types of persons affiliated with
financial institutions can be fined by the federal regulatory agency having
jurisdiction over a depository institution with federal deposit insurance (such
as The First National Bank). Fines can range up to $1 million per day for each
violation of certain regulations. These regulations are related (primarily) to
lending and
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other transactions with executive officers, directors, and principal
shareholders, including the interests of these persons. Other violations may
result in civil money penalties of $5,000 to $25,000 per day or in criminal
fines and penalties. In addition, the FDIC has been granted enhanced authority
to withdraw or to suspend deposit insurance in certain cases.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") became effective in December 1991. FDICIA revises the bank
regulatory insurance coverage and funding provisions of the Federal Deposit
Insurance Act (the "FDIA"), and makes changes to the regulatory structures
found in several other banking statutes. Various sections of FDICIA were
designed to recapitalize the Bank Insurance Fund and provide for increased
funding of the Bank Insurance Fund by insured banks. The FDIC's capacity to
borrow from the United States Treasury was increased. FDICIA requires the FDIC
to develop and implement a system of risk-based premiums for federal deposit
insurance under which the semi-annual rates at which a depository institution
is assessed will be based on a probability that the depository institution fund
will incur a loss with respect to the institution. Various sections of FDICIA
impose substantial audit and reporting requirements on certain insured
depository institutions. All insured banks will generally be subject to an
annual on-site examination by their primary federal regulatory agency. (In the
Bank's case, this agency is the Office of the Comptroller of the Currency
("OCC").) The reporting obligations of independent public accountants will be
increased, and there are additional reporting requirements imposed on
depository institutions. The federal regulatory agency must devise rules
requiring banks and thrift institutions to disclose the fair market value of
their assets. The agencies must also devise rules for banks and thrift
institutions to report off-balance sheet items on financial statements, such as
letters of credit. To supplement the present rating systems, banks are to be
rated according to a new scheme of capital adequacy. Better-capitalized
institutions will generally be subject to less onerous regulation and
supervision than more poorly-capitalized institutions. Under FDICIA, each
federal banking agency must prescribe standards for depository institutions and
depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares, and other standards as the agency deems appropriate.
The monetary and fiscal policies of regulatory authorities, including
the Federal Reserve Board, also affect the banking industry. Through changes
in the reserve requirements against bank deposits, open market operations in
U.S. Government securities and changes in the discount rate on bank
borrowings, the Federal Reserve Board influences the cost and availability of
funds obtained for lending and investing.
Prompt Corrective Action
In November of 1992, the guidelines and requirements concerning
capital were amended by joint action of the federal banking regulators,
including the OCC, the Federal Reserve Board, the Office of Thrift Supervision,
and the FDIC. Capital thresholds have been adopted for five capital
categories. Under these new rules, an institution will be deemed to be:
(a) well-capitalized if the institution has a total risk-based
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of
6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the
institution is not subject to an order, written agreement, capital directive,
or prompt corrective action directive to meet and maintain a specific capital
level for any capital measure;
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(b) adequately capitalized if the institution has a total risk-based
capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of
4.0 percent or greater, and a leverage ratio of 4.0 percent or greater (or a
leverage ratio of 3.0 percent or greater if the institution is rated composite
1 in its most recent report of examination, subject to appropriate federal
banking agency guidelines), and the institution does not meet the definition of
a well-capitalized institution;
(c) undercapitalized if the institution has a total risk-based
capital ratio that is less than 8.0 percent, a Tier 1 risk-based capital ratio
that is less than 4.0 percent, or a leverage ratio that is less than 4.0
percent (or a leverage ratio that is less than 3.0 percent if the institution
is rated composite 1 in its most recent report of examination, subject to
appropriate federal banking agency guidelines);
(d) significantly undercapitalized if the institution has a total
risk-based capital ratio that is less than 6.0 percent, a Tier 1 risk-based
capital ratio that is less than 3.0 percent, or a leverage ratio that is less
than 3.0 percent; and
(e) critically undercapitalized if the institution has a ratio of
tangible equity to total assets that is equal to or less than 2.0 percent.
Federal law prohibits an insured depository institution from declaring
any dividends, making any other capital distribution, or paying a management
fee to a controlling person if, following the distribution or payment, the
institution would be within any of the three undercapitalized categories. The
FDIA provides a limited exception to this prohibition for stock redemptions
that do not result in any decrease in an institution's capital and which would
improve the institution's financial condition, provided that the redemption has
been approved by the institution's appropriate federal banking agency after
consultation with the FDIC. Special rules apply to each level of the three
lowest classifications. Institutions that are classified as undercapitalized
are subject to additional mandatory supervisory actions.
The FDIA also provides that the appropriate federal banking agency for
an undercapitalized institution may take any of a number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution to raise additional
capital, restricting transactions with affiliates, restricting interest rates
paid by the institution on deposits, requiring replacement of senior executive
officers and directors, restricting activities of the institution and its
affiliates requiring divestiture of the institution or the sale of the
instruction to a willing purchaser, and any other supervisory action that the
agency believes would better carry out the purpose of the statute. These
discretionary actions are also applicable to significantly undercapitalized
institutions (as well as to critically undercapitalized institutions).
Please refer to the section below entitled "Restrictions on Dividends
Paid by Subsidiary Bank" and to Item 5(c) "Dividends" and to the Consolidated
Financial Statements. Recent Legislation - Riegle Community Development and
Regulatory Improvement Act of 1994 ("Community Development Act"); Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking
Act").
Community Development Act.
Community Development and Home Ownership Protection. Title I of the
"Riegle Community Development and Regulatory Improvement Act of 1994" contains
two Subtitles. Subtitle A, the "Community Development and Financial
Institutions Act," establishes the "Community Development Financial
Institutions Fund" which is supposed to promote economic revitalization and
community development through investment in "Community Development Financial
Institutions." Subtitle B,
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entitled "The Home Ownership and Equity Protection Act of 1994," has the stated
purpose of increasing the protections afforded to individuals most at risk from
abusive lending practices. This section applies particularly to high-interest
mortgages secured by the borrowers' homes.
Small Business Capital Formation. Small business access to capital is
to be encouraged by Title II of the Community Development Act, which seeks to
remove impediments in existing law to the securitization of small business
loans and leases. The Small Business Loan Securitization and Secondary Market
Enhancement Act of 1994 creates a secondary market framework for small business
related securities, with the goal of stimulating the flow of funds to small
businesses, thus creating new jobs and stimulating economic growth. The Small
Business Capital Enhancement Act provides for the use of $50 million in Federal
funds to encourage and expand certain defined Capital Access Programs
administered by states and other localities.
Paperwork Reduction and Regulatory Improvement. Title III of the
Community Development Act provides a number of initiatives to lessen the
regulatory burden placed upon depository institutions. Title III also affects
a number of the consumer compliance laws by allowing ostensibly streamlined
disclosures for radio advertising of consumer leases, providing consumers with
information necessary to challenge an "adverse characterization" due to a
credit reporting agency report and by seeking to clarify the disclosure
requirements under the Real Estate Settlement Procedures Act regarding the
transfer of serviced mortgaged loans.
Money Laundering; Flood Insurance. Title IV addresses reform of
Currency Transaction Reports to increase their usefulness to the federal
government and to various law enforcement agencies in combating money
laundering. Title V, the "National Flood Insurance Reform Act of 1994"
contains reforms to improve the financial condition of the National Flood
Insurance Program (NFIP). This legislation is designed to improve compliance
with the mandatory purchase requirements of the NFIP by lenders and secondary
market purchasers, which is anticipated to increase participation nationally by
individuals with mortgaged homes or businesses in special flood hazard areas.
Interstate Banking Act.
Mergers and Acquisitions. Title I of the Interstate Banking Act
permits adequately capitalized and managed bank holding companies to acquire
banks in any State starting one year after enactment. The Act also allows
interstate merger transactions beginning June 1, 1997. States are permitted,
however, to pass legislation providing for either earlier approval of mergers
with out-of-State banks, or "opting-out" of interstate mergers entirely.
Through interstate merger transactions, banks will be able acquire branches of
out-of-State banks by converting their offices into branches of the resulting
bank. The Interstate Banking Act provides that it will be the exclusive means
for bank holding companies to obtain interstate branches. The Act provides
that required conditions and commitments made relating to interstate mergers
that predate the Act's effective date will remain in force. After the
Interstate Banking Act becomes effective, State taxation, community
reinvestment, antitrust, deposit concentration caps and minimum age provisions
will be honored unless preempted.
Branching and Community Guidelines. Banks may establish and operate a
"de novo branch" in any State that "opts-in" to de novo branching. Foreign
banks are allowed to operate branches, either de novo or by merger. These
branches can operate to the same extent that the establishment and operation of
such branches would be permitted if the foreign bank were a national bank or
State bank. Interstate banks proposing to close any branch in low-or moderate
income areas are now required to provide notice to customers of the proposed
closing.
Title I requires each Federal banking agency to prescribe uniform
regulations including guidelines ensuring that interstate branches operated by
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out-of-State banks are reasonably helping to meet the credit needs of
communities where they operate. These agencies are required to conduct
evaluations of overall Community Reinvestment Act performance of institutions
with interstate branches. New procedural requirements are also required of the
Federal banking agencies pertaining to agency preemption opinion letters and
interpretive rules in connection with community reinvestment, consumer
protection, fair lending and establishment of intrastate branches.
Revival of Statute of Limitations. The Act permits the FDIC or
Resolution Trust Corporation, in certain circumstances, acting as conservator
or receiver of a failed depository institution to "revive" tort claims that had
expired under a State statute of limitations within five years of the
appointment of a receiver or conservator.
Various proposed new laws have been (and will likely be) introduced in
the Tennessee General Assembly in response to the Interstate Banking Act.
Tennessee Bank and Bank Holding Company Regulation
Subject to certain exceptions and the ultimate impact of the
Interstate Banking Act, a Tennessee bank holding company is prohibited under
Tennessee law from acquiring a bank outside the four major metropolitan areas
(Shelby, Davidson, Knox, and Hamilton Counties in which Memphis, Nashville,
Knoxville, and Chattanooga are located, respectively), unless the bank has been
incorporated more than five years. A bank holding company is prohibited from
acquiring any Tennessee bank if it directly or indirectly controls as much as
16-1/2% of total deposits in Tennessee. Under Tennessee law, any Tennessee
bank that has been in operation for five years may be acquired, under certain
circumstances, by banks and bank holding companies from outside Tennessee.
Acquisitions are subject to the approval of the Commissioner of the Tennessee
Department of Financial Institutions (the "TDFI"), the FDIC, and the Federal
Reserve Board based upon a variety of statutory and regulatory criteria.
Branching is regulated generally by the OCC, subject to certain state law
requirements and provisions of the Interstate Banking Act.
A bank chartered under the National Bank Act, such as The First
National Bank, is subject to the applicable provisions of that Act and, to a
lesser degree, to certain of the limitations created by Tennessee law (such as,
solely by way of example and not limitation, in respect of usury and
branching). All national banks, and all subsidiary banks of a bank holding
company, must become and remain insured banks under the Federal Deposit
Insurance Act ("FDIA"). As a national bank The First National Bank is required
to be a member of the Federal Reserve System. The First National Bank is
subject to the provisions of FDIA and to supervision and regular examination by
the OCC. Such examinations, however, are for the protection of the bank
insurance fund and, indirectly depositors, and are not for the protection of
investors and shareholders. Certain provisions of Tennessee law may be
preempted by the Interstate Banking Act and no prediction can be made as to its
impact on Tennessee law or the Company's regulation thereunder.
Business Combination Act
The Tennessee Business Combination Act (the "Business Combination
Act") limits the ability of Tennessee corporations to engage in business
combinations with "interested shareholders". The Business Combination Act may
significantly impede, delay or prevent a purchaser's ability to acquire a
significant equity interest in the Company. In general, the Business
Combination Act prevents an "interested shareholder" (generally, a shareholder
beneficially owning 10% or more of a corporation's outstanding voting stock) or
an affiliate or associate thereof from engaging in a "business combination"
(defined as a variety of transactions including a merger as described generally
below) with a Tennessee corporation for a period of five years following the
date on which the shareholder became an interested shareholder. The Company's
common stock
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("Common Stock") may become registered with the Securities and Exchange
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934.
Hence, in the future, the Company may become subject to the provisions of the
Business Combination Act. Constitutional questions may serve to limit the
effect of the Business Combinations Act and, accordingly, the effect of the
Business Combination Act on the Company and the Company's Common Stock (if any)
is uncertain.
Usury Provisions
The Constitution of the State of Tennessee requires the state
legislature to fix interest rates in the state, and the legislature has adopted
statutes to accomplish this purpose. The general interest rate statutes
currently in effect establish a maximum rate of interest at 4% above the
average prime loan rate (or the average short-term business average rate,
however denominated) for the most recent week for which such average rate has
been published by the Federal Reserve Board, or 24% per annum, whichever is
lower. In the event that the Federal Reserve Board fails to publish the
average rate for four consecutive weeks or the maximum effective rate should be
adjudicated or become inapplicable for any reason whatsoever, the maximum
effective rate is deemed to be 24% per annum until the Tennessee General
Assembly otherwise provides. As of February 14, 1996, the maximum effective
rate contract interest rate was approximately 12.5%. Specific usury laws may
apply also to particular classes of lenders (e.g., credit unions and savings
and loan associations) and transactions (e.g., bank installment loans and home
mortgages). The maximum possible rate of interest under these laws generally
cannot exceed (and may be less than) 24% per annum.
The relative importance of the usury laws to the financial operations
of the Company and its subsidiary varies from time to time, depending on a
number of factors, including conditions in the money markets, the cost and the
availability of funds, and prevailing interest rates. The management of the
Company is unable to state whether existing usury laws have had or will have a
material adverse effect on its businesses or earnings.
Restrictions on Dividends Paid by the Bank as a Company Subsidiary
The Company has derived and expects to continue to derive most of its
funds for operations and substantially all funds available for the payment of
dividends from The First National Bank. Both federal and state laws impose
restrictions on the ability of banks to pay dividends. State law restricts the
ability of corporations to pay dividends, as is more fully discussed in Item 5
of this Report and federal law limits dividends by the Bank. The Company and
the Bank are subject to regulatory capital requirements administered by the OCC
and the Federal Reserve Board. Failure to meet capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that could, in that event, have a direct material effect on the
institutions financial statements. (Please refer to "Prompt Corrective Action"
above.) The relevant regulations require The First National Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets and liabilities as calculated under regulatory accounting
principles. The regulations also require the regulators to make qualitative
judgments about the Company and the Bank. Those qualitative judgments could
also affect the Company's and the Bank's capital status and the amounts of
dividends the subsidiary bank may distribute. At December 31, 1995, management
believes that the Company and the Bank meet all such capital requirements to
which they are, respectively, subject.
Competition
The banking business in the areas served by the Company and The First
National Bank is highly competitive. At least one of the Company's competitors
is a subsidiary of a regional Tennessee bank holding company system and may
have greater financial and other resources than the Company. Competition
exists with
8
<PAGE> 12
other area state and national banks for deposits, loans, and, with larger banks
located in some of the principal cities within Tennessee, for commercial loans.
The First National Bank also competes for funds with savings and loan
associations, credit unions, certain government agencies and in the open money
market. Competition also exists for loans from other financial institutions,
such as savings and loan associations, insurance companies, small loan
companies, credit unions, and certain governmental agencies. The deregulation
of depository institutions, as well as the increased ability of nonbanking
financial institutions to provide services previously reserved for commercial
banks, has intensified competition. Because nonbanking financial institutions
are not subject to the same regulatory restrictions as banks and bank holding
companies, in many instances they may operate with greater flexibility because
they may not be subject to the same types of regulatory applications and
processes as are the Company and The First National Bank.
The principal geographic area of the Company's and The First National
Bank's operations encompasses McMinnville, other areas of Warren County, and
surrounding areas of Tennessee. In this area, there are six commercial banks,
operating more than ten offices and branches and holding an aggregate
(reportedly)of more than $400 million in deposits as of approximately December
31, 1995. The Company competes with some of the largest bank holding companies
in Tennessee, which have or control business, banks or branches in the area,
including regional financial institutions such as First American National Bank.
To compete with major financial institutions in its service area, the
Company and The First National Bank rely, in part, on specialized services,
local promotional activity, and personal contacts with customers by its
officers, directors, and employees. For customers whose loan demands exceed
The First National Bank's lending limit, The First National Bank seeks to
arrange for loans on a participation basis with correspondent banks. The First
National Bank also assists customers requiring services not offered by The
First National Bank in obtaining those services from its correspondent banks.
Employees
At February 14, 1996, the Registrant and its banking subsidiary
employed 66 persons (62 of which are full-time employees). None of these
employees is covered by a collective-bargaining agreement. Group life, health,
and disability insurance are maintained for or made available to employees by
The First National Bank, as are certain benefit plans (described elsewhere
herein) adopted by The First National Bank. The Company believes its relations
with its employees are satisfactory.
Environmental Matters
The Company is subject to various federal, state and local statutes
and ordinances regulating the discharge of materials into the environment. The
Company does not believe that it will be required to expend any material
amounts in order to comply with these laws and regulations by virtue of its and
The First National Bank's activities. However, such laws may from time to time
affect the Company and the Bank in the context of lending activities to
borrowers who may themselves engage in activities or encounter circumstances in
which the environmental laws, rules, and regulations are implicated.
Research
The Company makes no material expenditures for research and development.
Dependence Upon a Single Customer
The Bank's principal customers are generally located in the Middle
Tennessee area with a concentration in Warren County, Tennessee. Neither the
9
<PAGE> 13
Company nor The First National Bank is dependent upon a single customer or a
very few customers. However, approximately eleven percent (11%) of the Bank's
total loans were to customers in the nursery industry.
Line of Business
The Company operates under the Bank Holding Company Act of 1956 in the
area of finance. The Company derived 100% of its consolidated total operating
income from the commercial banking business in 1995.
SELECTED FINANCIAL DATA AND STATISTICAL INFORMATION
The following section presents selected financial data and certain
statistical data concerning the Company that should be read in conjunction
with Item 6, "Management's Discussion and Analysis or Plan of Operation."
10
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
Selected Financial Data (Unaudited)
The following schedule presents the results of operations, cash dividends
declared, total assets, stockholders' equity and per share information for each
of the five years ended December 31, 1995.
<TABLE>
<CAPTION>
In Thousands, Except Per Share Information
-------------------------------------------------------------------------
Year ended December 31
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income $ 13,892 $ 12,528 $ 12,113 $ 12,450 $ 13,091
Interest expense 6,418 4,844 4,534 5,185 7,007
--------- --------- --------- --------- ---------
Net interest income 7,474 7,684 7,579 7,265 6,084
Provision for possible loan losses 160 240 240 485 135
--------- --------- --------- --------- ---------
Net interest income after provision for
possible loan losses 7,314 7,444 7,339 6,780 5,949
Non-interest income 686 574 655 718 652
Non-interest expense (3,595) (3,738) (3,604) (3,304) (3,058)
--------- --------- --------- --------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principle 4,405 4,280 4,390 4,194 3,543
Income taxes 1,299 1,203 1,225 1,139 865
Cumulative effect of change in
accounting for income taxes - - 22 - -
--------- --------- --------- --------- ---------
Net earnings $ 3,106 3,077 3,187 3,055 2,678
========= ========= ========= ========= =========
Cash dividends declared $ 1,240 1,191 1,085 978 840
========= ========= ========= ========= =========
Total assets - end of year $ 190,663 180,486 170,913 164,144 151,558
========= ========= ========= ========= =========
Stockholders' equity - end of year $ 28,889 26,452 25,240 23,278 21,238
========= ========= ========= ========= =========
Per share information:
Earnings per share* $ 5.62 5.55 5.72 5.46 4.70
========= ========= ========= ========= =========
Dividends per share* $ 2.25 2.15 1.95 1.75 1.50
========= ========= ========= ========= =========
Book value per share* $ 52.41 45.64 45.42 41.66 37.94
========= ========= ========= ========= =========
Ratios:
Return on average
stockholders' equity 11.03% 11.57% 12.87% 13.47% 12.71%
========= ========= ========= ========= =========
Return on average assets 1.67% 1.73% 1.89% 1.93% 1.75%
========= ========= ========= ========= =========
Stockholders' equity to assets 15.15% 14.66% 14.77% 14.18% 14.01%
========= ========= ========= ========= =========
</TABLE>
*Per share data has been retroactively restated to reflect a 2 for 1 stock
split on October 1, 1994.
11
<PAGE> 15
I. Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rate and Interest Differential
The Schedule which follows indicates the average balances for each major
balance sheet item, an analysis of net interest income and the change in
interest income and interest expense attributable to changes in volume
and changes in rates.
The difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities is net interest income,
which is the Company's gross margin. Analysis of net interest income is
more meaningful when income from tax-exempt earning assets is adjusted
to a tax equivalent basis. Accordingly, the following schedule includes
a tax-equivalent adjustment of tax-exempt earning assets, assuming a
weighted average Federal income tax rate of 34%.
In this schedule "change due to volume" is the change in volume
multiplied by the interest rate for the prior year. "Change due to
rate" is the change in interest rate multiplied by the volume for the
current year. Changes in interest income and expense not due solely to
volume or rate changes are included in the "change due to rate"
category.
Non-accrual loans, if any, have been included in their respective loan
categories. Loan fees of $34,000, $35,000 and $45,000 for 1995, 1994
and 1993, respectively, are included in consumer loan income and
represent an adjustment of the yield on these loans. In 1994 loans fees
of $11,000 are included in real estate loan income and represent an
adjustment of the yield on these loans.
12
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------
1995 1994 1995/1994 Change
----------------------------- ---------------------------- ------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
----------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 96,773 9.10% 8,802 86,684 8.56% 7,417 864 521 1,385
Securities - taxable 55,221 6.72 3,712 61,604 5.97 3,679 (381) 414 33
----------------------------- ---------------------------- -----
Securities - tax exempt 22,553 5.40 1,217 18,520 7.10 1,314 286 (383) (97)
Taxable equivalent adjustment - 2.78 627 - 3.66 677 148 (198) (50)
----------------------------- ---------------------------- -----
Total tax-exempt investment
securities 22,553 8.18 1,844 18,520 10.76 1,991 434 (581) (147)
----------------------------- ---------------------------- -----
Total securities 77,774 7.14 5,556 80,124 7.08 5,670 (166) 52 (114)
----------------------------- ----------------------------
Federal funds sold 2,653 5.88 156 2,818 3.94 111 (7) 52 45
Interest-bearing deposits in
financial institutions 100 5.00 5 127 5.51 7 (1) (1) (2)
----------------------------- ---------------------------- -----
Total earning assets 177,300 8.19 14,519 169,753 7.78 13,205 587 727 1,314
----------------------------- ---------------------------- -----
Cash and due from banks 4,202 4,738
Allowance for possible loan losses (1,563) (1,321)
Bank premises and equipment 1,677 1,463
Other assets 3,827 3,247
--------- -------
Total assets $ 185,443 177,880
========= =======
</TABLE>
13
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------
1995 1994 1994/1993 Change
----------------------------- ---------------------------- ------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
----------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of
withdrawal accounts $ 18,894 2.94% 556 19,120 2.80% 536 (6) 26 20
Money market demand accounts 11,816 3.22 380 14,468 3.06 443 (81) 18 (63)
Other savings accounts 21,805 3.65 795 22,964 3.28 754 (38) 79 41
Certificates of deposit,
$100,000 and over 26,074 5.68 1,482 26,538 4.21 1,117 (20) 385 365
Certificates of deposit
under $100,000 46,751 5.63 2,634 39,416 4.00 1,576 293 765 1,058
Individual retirement accounts 8,275 5.53 458 7,578 4.37 331 30 97 127
----------------------------- --------------------------- -----
Total interest-bearing
deposits 133,615 4.72 6,305 130,084 3.66 4,757 129 1,419 1,548
Demand 17,899 - - 16,417 - - -
----------------------------- --------------------------- -----
Total deposits 151,514 4.16 6,305 146,501 3.25 4,757 163 1,385 1,548
----------------------------- --------------------------- -----
Federal funds purchased,
securities sold under
repurchase agreements and
short-term debt 3,579 3.16 113 3,097 2.81 87 13 13 26
----------------------------- --------------------------- -----
Total deposits and
borrowed funds 155,093 4.14 6,418 149,598 3.24 4,844 178 1,396 1,574
----------------------------- --------------------------- -----
Other liabilities 2,193 1,698
Stockholder's equity 28,157 26,584
--------- -------
Total liabilities and
stockholders' equity $ 185,443 177,880
========= =======
Net interest income 8,101 8,361 260
===== ===== =====
Net yield on earning assets 4.57% 4.93%
==== ====
Net interest spread 4.05% 4.54%
==== ====
</TABLE>
14
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------
1994 1993 1994/1993 Change
----------------------------- ---------------------------- ------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
----------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $ 86,684 8.56 7,417 77,356 8.62 6,671 804 (58) 746
Investment securities - taxable 61,604 5.97 3,679 55,364 7.06 3,906 441 (668) (227)
------------------------------ ---------------------------- ----
Investment securities - tax exempt 18,520 7.10 1,314 21,868 6.26 1,369 (210) 155 (55)
Taxable equivalent adjustment - 3.66 677 - 3.22 705 (108) 80 (28)
------------------------------ ---------------------------- ----
Total tax-exempt investment
securities 18,520 10.76 1,991 21,868 9.48 2,074 (318) 235 (83)
------------------------------ ---------------------------- ----
Total investment securities 80,124 7.08 5,670 77,232 7.74 5,980 224 (534) (310)
------------------------------ ----------------------------
Federal funds sold 2,818 3.94 111 5,012 2.87 144 (63) 30 (33)
Interest-bearing deposits in banks 127 5.51 7 317 7.26 23 (14) (2) (16)
------------------------------ ---------------------------- ----
Total earning assets 169,753 7.78 13,205 159,917 8.02 12,818 789 402 387
------------------------------ ---------------------------- ----
Cash and due from banks 4,738 4,822
Allowance for possible loan losses (1,321) (1,103)
Bank premises and equipment 1,463 1,483
Other assets 3,247 3,511
--------- -------
Total assets $ 177,880 168,630
========= =======
</TABLE>
15
<PAGE> 19
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------
1994 1993 1994/1993 Change
----------------------------- ---------------------------- ------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
----------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of
withdrawal accounts $ 19,120 2.80% 536 18,920 2.89% 547 6 (17) (11)
Money market demand accounts 14,468 3.06 443 13,137 3.12 410 41 (8) 33
Other savings accounts 22,964 3.28 754 21,741 3.35 728 28 2 26
Certificates of deposit,
$100,000 and over 26,538 4.21 1,117 26,127 4.09 1,069 17 31 48
Certificates of deposit
under $100,000 39,416 4.00 1,576 36,731 3.69 1,354 99 123 222
Individual retirement accounts 7,578 4.37 331 7,278 4.33 315 13 3 16
----------------------------- --------------------------- ---
Total interest-bearing
deposits 130,084 3.66 4,757 123,934 3.57 4,423 219 115 334
Demand 16,417 - - 14,410 - - -
----------------------------- --------------------------- ---
Total deposits 146,501 3.25 4,757 138,344 3.20 4,423 261 73 334
----------------------------- --------------------------- ---
Federal funds purchased,
securities sold under
repurchase agreements and
short-term debt 3,097 2.81 87 3,890 2.85 111 (23) (1) (24)
----------------------------- --------------------------- ---
Total deposits and
borrowed funds 149,598 3.24 4,844 142,234 3.19 4,534 235 75 310
----------------------------- --------------------------- ---
Other liabilities 1,698 1,639
Stockholder's equity 26,584 24,757
========= =======
Total liabilities and
stockholders' equity $ 177,880 168,630
========= =======
Net interest income 8,361 8,284 77
===== ===== ===
Net yield on earning assets 4.93% 5.18%
==== ====
Net interest spread 4.54% 4.83%
==== ====
</TABLE>
16
<PAGE> 20
II. Investment Portfolio
A. Securities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------------------
Securities Held-To-Maturity
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $ 24,138 516 43 24,611
Obligations of
state and
political
subdivisions 20,792 591 32 21,351
Corporate and
other securities 1,669 56 2 1,723
Mortgage-backed
securities 2,238 - 84 2,154
-------------- --------------- ----------------- --------------
$ 48,837 1,163 161 49,839
============== =============== ================= ==============
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------------------
Securities Held-To-Maturity
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $ 25,411 292 97 25,606
Obligations of
state and
political
subdivisions 3,597 114 42 3,669
Corporate and
other securities 675 - - 675
Mortgage-backed
securities 2,390 5 76 2,319
-------------- --------------- ----------------- --------------
$ 32,073 411 215 32,269
============== =============== ================= ==============
</TABLE>
17
<PAGE> 21
II. Investment Portfolio, Continued
A. Continued:
Securities at December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------------------
Securities Held-To-Maturity
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $ 32,522 - 1,428 31,094
Obligations of
states and
political
subdivision 20,012 195 463 19,744
Corporate and
other securities 1,701 24 62 1,663
Mortgage-backed
securities 2,237 - 281 1,956
-------------- --------------- ---------------- ----------------
$ 56,472 219 2,234 54,457
============== =============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------------------
Securities Available-For-Sale
----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $ 18,270 36 873 17,433
Obligations of
states and
political
subdivision 2,329 87 3 2,413
Corporate and
other securities 572 - 2 570
Mortgage-backed
securities 3,544 11 167 3,388
-------------- --------------- ---------------- ----------------
$ 24,715 134 1,045 23,804
============== =============== ================ ================
</TABLE>
18
<PAGE> 22
II. Investment Portfolio, Continued
B. The following schedule details the maturities and weighted average
yields of securities of the Company at December 31, 1995.
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Held-To-Maturity Securities Cost Value Yields
--------------------------- -------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies
and corporations, including
mortgage-backed securities:
Less than one year $ - - -
One to five years 14,502 14,696 6.3
Five to ten years 11,874 12,069 6.7
More than ten years - - -
-------------- -------------- ------------
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 26,376 26,765 6.5
-------------- -------------- ------------
Obligations of states and
political subdivisions*:
Less than one year 1,433 1,472 9.2
One to five years 7,683 7,891 8.5
Five to ten years 9,002 9,264 8.3
More than ten years 2,674 2,724 8.2
-------------- -------------- ------------
Total obligations of states
and political subdivisions 20,792 21,351 8.4
-------------- -------------- ------------
Other:
Corporate and other securities 1,669 1,723 6.9
-------------- -------------- ------------
Total securities $ 48,837 49,839 7.4
============== ============== ============
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
19
<PAGE> 23
II. Investment Portfolio, Continued
B. Continued:
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Available-For-Sale Securities Cost Value Yields
----------------------------- -------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies
and corporations, including
mortgage-backed securities:
Less than one year $ 1,000 989 4.7
One to five years 7,999 7,930 5.6
Five to ten years 14,997 15,236 7.2
More than ten years 3,805 3,770 6.8
-------------- -------------- ------------
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 27,801 27,925 6.6
-------------- -------------- ------------
Obligations of states and
political subdivisions*:
Less than one year - - -
One to five years 681 717 9.6
Five to ten years 1,124 1,188 8.8
More than ten years 1,792 1,764 7.6
-------------- -------------- ------------
Total obligations of states
and political subdivisions 3,597 3,669 8.4
-------------- -------------- ------------
Other:
Federal Home Loan Bank stock 584 584 -
Federal Reserve Bank stock 91 91 -
-------------- -------------- ------------
Total securities $ 32,073 32,269 7.1
============== ============== ============
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
20
<PAGE> 24
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at December
31, 1995 and 1994.
<TABLE>
<CAPTION>
In Thousands
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Commercial, financial and
agricultural $ 19,993 22,616
Real estate - construction 2,217 3,245
Real estate - mortgage 73,444 61,802
Consumer 5,205 4,531
-------------- -------------
Total loans 100,859 92,194
Less unearned interest - (1)
-------------- -------------
Total loans, net of
unearned interest 100,859 92,193
Less allowance for possible
loan losses (1,562) (1,448)
-------------- -------------
Net loans $ 99,297 90,745
============== =============
</TABLE>
21
<PAGE> 25
III. Loan Portfolio, Continued:
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following schedule details maturities and sensitivity to
interest rates changes for commercial loans of the Company at
December 31, 1995.
<TABLE>
<CAPTION>
In Thousands
------------------------------------------------------------------
1 Year to
Less Than Less Than After 5
1 Year* 5 Years Years Total
-------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Maturity Distribution:
Commercial, financial
and agricultural $ 12,884 6,721 388 19,993
Real estate -
construction 2,217 - - 2,217
------------- ----------------- ----------- -------------
$ 15,101 6,721 388 22,210
============= ================= ============ =============
Interest-Rate Sensitivity:
Fixed interest rates $ 11,636 2,741 388 14,765
Floating or adjustable
interest rates 3,465 3,980 - 7,445
------------- ----------------- ------------ -------------
Total commercial,
financial and
agricultural
loans and
real estate
construction
loans $ 15,101 6,721 388 22,210
============= ============ ============== =============
</TABLE>
* Includes demand loans, bankers acceptances, commercial paper and
overdrafts.
22
<PAGE> 26
III. Loan Portfolio, Continued:
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
In Thousands
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Non-accrual loans:
Commercial, financial and agricultural $ 55 -
Real estate - construction - -
Real estate - mortgage - -
Consumer - -
Lease financing receivable
- -
- -
--------- -----------
Total non-accrual $ 55 -
========= ===========
Loans 90 days past due:
Commercial, financial and agricultural $ - 2
Real estate - construction - -
Real estate - mortgage 77 32
Consumer 8 6
Lease financing receivable - -
--------- -----------
Total loans 90 days past due $ 85 40
========= ===========
Renegotiated loans:
Commercial, financial and agricultural $ - -
Real estate - construction - -
Real estate - mortgage - -
Consumer - -
Lease financing receivable - -
--------- -----------
Total renegotiated loans $ - -
========= ===========
Loans current - considered uncollectible $ - -
========= ===========
Total non-performing loans $ 140 40
========= ===========
Total loans, net of unearned
interest $ 100,859 92,193
========= ==========
Percent of total loans
outstanding, net of
unearned interest .14% .04%
========= ==========
Other real estate $ 305 524
========= ==========
</TABLE>
23
<PAGE> 27
III. Loan Portfolio, Continued:
C. Risk Elements, Continued
Accrual of interest is discontinued, and previously accrued
interest is reversed on a loan when management believes that
collection of interest is doubtful. The decision to place a
loan on a non- accrual status is based on an evaluation of the
borrower's financial condition, collateral liquidation value,
economic and business conditions and other factors that affect
the borrower's ability to pay. At the time a loan is placed on
a non-accrual status, the accrued but unpaid interest is also
calculated as to collectibility. If collectibility is doubtful,
the unpaid interest is charged off. Thereafter, interest on
non-accrual loans is recognized only as received. Non-accrual
loans totaled $55,000 at December 31, 1995 and $270,000 at
December 31, 1993. There were no loans on non-accrual in 1994.
Gross interest income on loans that would have been recorded for
the year ended December 31, 1995, if the loans had been current
totaled approximately $8,821,000.
At December 31, 1995, loans, which include the above, totaling
$8,165,000 were included in the Company's internal classified
loan list. Of these loans $1,218,000 are real estate,
$6,876,000 are commercial and $71,000 are consumer. The
collateral values securing these loans total approximately
$12,723,000, ($1,893,000 related to real property, $10,810,000
related to commercial and $20,000 related to consumer loans).
Such loans are listed as classified when information obtained
about possible credit problems of the borrower has prompted
management to question the ability of the borrower to comply
with the repayment terms of the loan agreement. The
classification includes two related loans totaling approximately
$766,000 to a manufacturing company and a stockholder of the
manufacturing company for $551,000 and $215,000, respectively.
Both of these loans have been classified as substandard
primarily as a result of the borrowers operating losses and
related cash flow deficiencies in recent years. Also included
is a loan totaling approximately $642,000 to a company that
operates a local radio station. This loan has been classified
as doubtful due to the borrowers operating losses and cash flow
deficiencies. The classification also includes four loans
relating to the nursery industry totaling approximately
$2,670,000. Two of these loans totaling approximately $253,000
have been classified as doubtful. The remaining two loans
totaling approximately $2,417,000 have been classified as
substandard. The loan classifications do not represent or
result from trends or uncertainties which management expects
will materially impact future operating results, liquidity or
capital resources.
At December 31, 1995 there were loans to customers in the
nursery industry totaling approximately $10,723,000 which
represents an industry concentration of approximately 11% of
total loans. Loan concentrations are amounts loaned to a
multiple number of borrowers engaged in similar activities which
would cause them to be similarly impacted by economic or other
conditions.
At December 31, 1995 other real estate totaled $305,000 and
consisted primarily of three residential and two commercial
properties. The balance at December 31, 1995 decreased from
$524,000 at December 31, 1994 due to the sale of one property
during 1995. Management is attempting to sell the properties
included in other real estate at December 31, 1995 and no loss
is anticipated thereon.
D. Other Interest-Bearing Assets
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other financial institutions,
municipal bonds, etc.) at December 31, 1995 which would be required
to be disclosed as past due, non-accrual, restructured or potential
problem loans, if such interest-bearing assets were loans.
24
<PAGE> 28
IV. Summary of Loan Loss Experience
The following schedule details selected information related to the
allowance for possible loan loss account of the Company at December
31, 1995 and 1994 and the years then ended.
<TABLE>
<CAPTION>
In Thousands
Except Percentages
------------------------------
1995 1994
---- ----
<S> <C> <C>
Allowance for loan losses at
beginning of period $ 1,448 1,222
-------------- -------------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial
and agricultural (67) -
Real estate - construction
- -
Real estate - mortgage (5) -
Consumer (14) (37)
Lease financing - -
-------------- -------------
(86) (37)
-------------- -------------
Recoveries:
Commercial, financial and agricultural
28 -
Real estate - construction - -
Real estate - mortgage - 3
Consumer 12 20
Lease financing - -
-------------- -------------
40 23
--------------- -------------
Net loan charge-offs (46) (14)
-------------- -------------
Provision for loan losses charged
to expense 160 240
-------------- -------------
Allowance for loan losses at
end of period $ 1,562 1,448
============== =============
Total loans, net of unearned
interest, at end of year $ 100,859 92,193
============== =============
Average total loans outstanding,
net of unearned interest,
during year $ 96,773 86,684
============== =============
Net charge-offs as a percentage
of average total loans outstanding,
net of unearned interest, during
year .05% .02%
============== =============
Ending allowance for loan losses
as a percentage of total loans
outstanding net of unearned interest,
at end of year 1.55% 1.57%
============== =============
</TABLE>
25
<PAGE> 29
IV. Summary of Loan Loss Experience, Continued
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans
or loan commitments that may become uncollectible. The provision for
possible loan losses charged to operating expense is based on past
loan loss experience and other factors which, in management's
judgment, deserve current recognition in estimating possible loan
losses. Such other factors considered by management include growth
and composition of the loan portfolio, review of specific loan
problems, the relationship of the allowance for possible loan losses
to outstanding loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral and current economic conditions that may affect the
borrower's ability to pay.
Management conducts a continuous review of all loans that are
delinquent, previously charged down or loans which are determined to
be potentially uncollectible. The Board of Directors periodically
reviews the adequacy of the allowance for possible loan losses.
The breakdown of the allowance by loan category is based in part on
evaluations of specific loans, past history and economic conditions
within specific industries or geographic areas. Accordingly, since
all of these conditions are subject to change, the allocation is not
necessarily indicative of the breakdown of the future losses.
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------------- --------------------------------
Percent Percent
of Loans of Loans
In Each In Each
Category Category
In To Total In To Total
Thousands Loans Thousands Loans
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total
Commercial, financial
and agricultural $ 1,299 20 % 1,152 25%
Real estate
construction 5 2 % - 3%
Real estate mortgage 246 73 % 286 67%
Consumer 12 5 % 10 5%
------------- ------------ -------------- -------------
$ 1,562 100 % 1,448 100%
============= ============ ============== =============
</TABLE>
26
<PAGE> 30
V. Deposits
The average amounts and average interest rates for deposits for 1995
and 1994 are detailed in the following schedule:
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
Average Average
Balance Balance
------------- --------------
In Average In Average
Thousands Rate Thousands Rate
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Non-interest bearing
deposits $ 17,899 - % 16,417 - %
Negotiable order of
withdrawal accounts 18,894 2.94 % 19,120 2.80%
Money market demand
accounts 11,816 3.22 % 14,468 3.06%
Other savings accounts 21,805 3.65 % 22,964 3.28%
Certificates of deposit
$100,000 and over 26,074 5.68 % 26,538 4.21%
Certificates of deposit
under $100,000 46,751 5.63 % 39,416 4.00%
Individual retirement
accounts 8,275 5.53 % 7,578 4.37%
------------- ------------ -------------- ------------
$ 151,514 4.16 % 146,501 3.25%
============= ============ ============== ============
</TABLE>
The following schedule details the maturities of certificates of
deposit and individual retirement accounts of $100,000 and over at
December 31, 1995.
<TABLE>
<CAPTION>
In Thousands
---------------------------------------------------------
Individual
Certificates Retirement
of Deposit Accounts Total
----------------- ---------- -------
<S> <C> <C> <C>
Less than three months $ 8,288 248 8,536
Three to six months 6,241 542 6,783
Six to twelve months 9,886 126 10,012
More than twelve months 1,859 472 2,331
----------------- ---------- ------
$ 26,274 1,388 27,662
================= ========== ======
</TABLE>
In addition, approximately $481,000 of other time deposits of $100,000
and over are included in "other savings deposits," which are passbook
accounts with a 90 day maturity.
27
<PAGE> 31
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at
December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on assets
(Net income divided by average
total assets) 1.67% 1.73% 1.89%
Return on equity
(Net income divided by average
equity) 11.03% 11.57% 12.87%
Dividend payout ratio
(Dividends declared per share
divided by net income
per share) 40.04% 38.74% 34.10%
Equity to assets ratio
(Average equity divided by
average total assets) 15.18% 14.94% 14.68%
Leverage capital ratio (equity divided
by fourth quarter average total
assets, excluding the net unrealized gain
or loss on available-for-sale securities) 15.08% 14.93% 14.53%
</TABLE>
Beginning January 1, 1991, new risk-based capital guidelines were
adopted by regulatory agencies. Under these guidelines, a credit risk
is assigned to various categories of assets and commitments ranging from
0% to 100% based on the risk associated with the asset.
The following schedule details the Company's risk-based capital at
December 31, 1995, excluding the net unrealized gain on
available-for-sale securities which is shown as an addition to
stockholders equity in the consolidated financial statements:
<TABLE>
<CAPTION>
In Thousands
-----------------
<S> <C>
Tier I capital:
Stockholders' equity $ 28,767
Tier II capital:
Allowable allowance for loan losses,
limited to 1.25% of risk-weighted assets 1,210
-----------------
Total capital $ 29,977
=================
Risk-weighted assets $ 96,836
=================
Risk-based capital ratios:
Tier I capital ratio 29.71%
=================
Tier II capital ratio 30.96%
=================
</TABLE>
The Company is required to maintain a Tier II risk-based capital ratio
of 8% and a Tier I capital to risk based asset ratio of 4%. At December
31, 1995 the Company and its subsidiary bank were in compliance with
this requirement.
28
<PAGE> 32
VI. Return on Equity and Assets, Continued
The following schedule details the Company's interest rate sensitivity
at December 31, 1995:
<TABLE>
<CAPTION>
Repricing Within
----------------------------------------------------------------------------------------
Total 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
----- --------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest $100,859 25,036 5,164 6,340 6,658 57,661
Securities 81,106 5,979 2,498 7,346 5,125 60,158
Federal Funds sold 300 300 - - - -
Interest-bearing
deposits in financial
institutions 100 - - - - 100
-------- ------- ------- ------- ------- -------
Total earning assets 182,365 31,315 7,662 13,686 11,783 117,919
-------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Negotiable order of
withdrawal accounts 18,500 18,500 - - - -
Money market demand
accounts 11,087 11,087 - - - -
Other savings deposits 22,132 22,132 - - -
Certificates of deposit
$100,000 and over 26,274 2,123 6,165 6,241 9,886 1,859
Certificates of deposit
under $100,000 49,043 4,700 9,340 13,150 16,808 5,045
Individual retirement
accounts 8,513 1,111 828 2,031 1,788 2,755
-------- ------- ------- ------- ------- -------
135,549 59,653 16,333 21,422 28,482 9,659
-------- ------- ------- ------- ------- -------
Interest-sensitivity gap $ 46,816 (28,338) (8,671) (7,736) (16,699) 108,260
======== ======= ======= ======= ======= =======
Cumulative gap (28,338) (37,009) (44,745) (61,444) 46,816
======= ======= ======= ======= =======
Interest-sensitivity gap
as % of total assets (14.86)% (4.55)% (4.06)% (8.76)% 56.78%
======= ======= ======= ======= =======
Cumulative gap as % of total
assets (14.86)% (19.41)% (23.47)% (32.23)% 24.55%
======= ======= ======= ======= =======
</TABLE>
The Company presently maintains a liability sensitive position over the
next twelve months. However, management expects that liabilities of a demand
nature will renew and that it will not be necessary to replace them with
significantly higher cost funds.
29
<PAGE> 33
ITEM 2. DESCRIPTION OF PROPERTY.
The First National Bank owns four parcels of property on which it has
established banking offices. The Bank leases property for its Northgate branch
at commercial rates pursuant to a long-term lease and owns one other parcel of
property for future expansion. The Main Office is located at 200 East Main
Street, McMinnville. The banking building located on this lot was built in
1923. Since that time, two buildings have been purchased adjacent to the
original building. The Plaza Branch is located at 117 New Smithville Highway
in McMinnville. The building located there was built in 1968. The Northgate
branch is located in Northgate Shopping Center in McMinnville and that building
was built in 1989. The Bank's Viola, Tennessee, branch was constructed in
1966. The Sparta Road branch is located at 1408 Sparta Street in McMinnville
and was built in 1987. The Bank utilizes automated teller machines at its Main
Office and certain of its Branch Offices.
The Bank is currently building a replacement branch for the Plaza
Branch. Otherwise, in the judgment of management, the facilities of the
Company and The First National Bank are generally suitable and adequate for the
current and reasonably foreseeable needs of the Company and the Bank. However,
new office sites are considered from time to time.
ITEM 3. LEGAL PROCEEDINGS.
There were no material legal proceedings pending at December 31, 1995,
against the Company or the Bank. Although other various actions and
proceedings may be anticipated to be pending or threatened against or to
involve the Company and/or The First National Bank from time to time in the
ordinary course of business, management knows of no pending or threatened
litigation the ultimate resolution of which would have a material adverse
effect on the Company's or The First National Bank's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
There is no established public trading market in the Company's Common
Stock. Management, however, believes that Middle Tennessee is the principal
market area for the Common Stock. The following table sets forth the high and
low sales prices per share of the Common Stock for each quarter of fiscal 1995.
During 1995 the Company redeemed 2,249 shares of its Common Stock at prices of
$48.75 to $51.75 per share to assist in providing some liquidity in the stock.
The other information included below has been reported to the Company by
certain selling or purchasing shareholders in privately negotiated transactions
during the periods indicated. Although management believes that the
information supplied by purchasers and sellers concerning their respective
transactions is generally reliable, it has not been verified. Such information
may not include all transactions in the Company's Common Stock for the
respective periods shown, and it is possible that transactions occurred during
the periods reflected or discussed at prices higher or lower than the prices
set forth below. Some of the transactions may have involved the Company or its
principals. (The stated prices have been adjusted to reflect a two-for-one
stock split that occurred effective October 1, 1994 by dividing the price
reported to the Company by two.)
<TABLE>
<CAPTION>
Calendar Quarter Common Stock
--------------- -------------------------------
High Low
---- ---
1995
<S> <C> <C>
Fourth Quarter $ 53.50 $ 52.52
Third Quarter $ 51.96 $ 50.90
Second Quarter $ 50.99 $ 50.15
First Quarter $ 49.73 $ 48.75
</TABLE>
30
<PAGE> 34
<TABLE>
<CAPTION>
1994
<S> <C> <C>
Fourth Quarter $ 50.05 $ 49.31
Third Quarter $ 48.80 $ 47.70
Second Quarter $ 47.67 $ 46.77
First Quarter $ 46.35 $ 45.28
</TABLE>
The last trade known to management involved a redemption by the
Company of ten shares at $51.75 per share in December of 1995. Because there
is no established trading market for the Company's Common Stock, and because
the Company and those closely affiliated with the Company may be involved in
particular transactions, the prices shown above may not necessarily be
indicative of the fair market value of the Common Stock or of the prices at
which the Company's Common Stock would trade if there were an established
market. Accordingly, there can be no assurance that the Common Stock will
subsequently be purchased or sold at prices comparable to the prices set forth
above.
The Company's Common Stock
The Company is authorized by its Charter to issue 5,000,000 shares of
Common Stock, par value of $2.50 per share. The Company declared a 2-for-1
stock split that was effective October 1, 1994. At December 31, 1995, the
Company had 551,171 shares outstanding. No shares are reserved for issuance.
Holders of the Company's Common Stock are entitled to (1) cast one
vote for each share held of record on all matters submitted to a vote of
shareholders and (2) are entitled to cumulate votes for the election of
directors. Holders of the Common Stock have no preemptive rights to subscribe
for or to purchase any additional shares of the Company's Common Stock. In the
event of liquidation, holders of the Company's Common Stock are entitled to
share in the distribution of assets remaining after payment of debts and
expenses. Holders of the Common Stock are entitled to receive dividends when
declared by the Company's Board of Directors out of funds legally available
therefor. Under its Charter, the Company is required to indemnify its
directors and officers for acts on behalf of the Company to the fullest extent
permitted under applicable law.
The Company is a legal entity separate and distinct from The First
National Bank. There are various legal and regulatory limitations under
federal and state law on the extent to which a bank holding company subsidiary
such as The First National Bank can finance or otherwise supply funds to the
Company. The First National Bank is also subject to limitations under Section
23A of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with, the Company. Loans and
extensions of credit are also subject to various collateral requirements.
(b) Holders
The approximate number of record holders, including those shares held
in "nominee" or "street name," of the Company's Common Stock at February 14,
1996 was approximately 464.
(c) Dividends
The Company declared semi-annual cash dividends on its Common Stock of
$2.25 per share in 1995 and $2.15 per share in 1994 (the 1994 per-share amount
adjusted to reflect the 2-for-1 stock split that occurred in that year).
Future dividends may be paid as determined by the Company's Board of Directors
from time to time in accordance with federal and state law. To the extent
practicable, the Company intends to pay dividends semi-annually in accordance
with past practices. However, any dividends that may be declared and paid by
the Company will depend upon earnings, financial condition, regulatory and
prudential considerations, and or other factors affecting the Company that
cannot be reliably predicted.
The Company, as a corporation governed in part by the Tennessee
Business Corporation Act ("TBCA"), as amended, is subject to the limitations on
dividends and other distributions set forth in the TBCA. The TBCA contains
certain statutory restrictions on the ability to make distributions, including
the payment of dividends. Tennessee law allows a for-profit corporation to pay
dividends under certain circumstances that might preclude payments of dividends
by a national bank. Under Tennessee law, a corporation, including a bank
holding
31
<PAGE> 35
company, may declare and pay dividends provided that (1) the payment of
dividends would not render the corporation unable to pay its debts as they
become due in the usual course of business; (2) the corporation's total assets
are less than the sum of its total liabilities plus (unless the charter permits
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy upon dissolution the
preferential rights of shareholders whose preferential rights are superior to
those receiving the distribution; or (3) the payment of dividends would not be
contrary to any restriction contained in the corporation's charter. At
present, the Company's charter does not expressly permit distributions
described in (2) above, nor does the Company have any shareholders with rights
preferential to holders of the Company's common equity. The Company has no
restriction in its charter concerning the payment of dividends.
The Company expects that funds for the payment of dividends and
expenses of the Company will come from dividends paid to the Company by the
Bank. If the Company requires additional funds for acquisitions or
investments, it may be able to obtain those funds from additional dividends
paid by the Bank or from external financing.
The National Bank Act and Related Regulations. The First National
Bank's ability to pay dividends is limited by the National Bank Act and related
regulations. Essentially, the Bank may pay dividends from its earnings for the
preceding period after deducting all loan losses, bad debts, current operating
expenses, actual losses, required transfers to surplus, accrued dividends on
any preferred stock then outstanding, and all federal and state taxes. Prior
OCC approval is required as to certain dividends. It is unlikely that the Bank
will pay out the maximum amount that it is permitted to pay in dividends as
most of the Bank's earnings are reinvested in its operations or added to
capital to support future growth.
The payment of dividends by any bank is, of course, dependent upon its
earnings and financial condition and, in addition to the limitations discussed
above, is subject to the statutory power of certain federal regulatory agencies
to act to prevent unsafe or unsound banking practices. Please refer also to
the discussion of "Restrictions on Dividends Paid by Subsidiary Bank" set forth
in Item 1 of this Report, to Item 6 of this Report ("Management's Discussion
and Analysis of Financial Conditions and Results of Operations"), and to the
Consolidated Financial Statements.
(d) Sales of Unregistered Securities
The Company has not sold any unregistered securities that were not
previously reported in a quarterly report on Form 10-QSB or Form 10-Q.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
First McMinnville Corporation is a one bank holding company which owns
100% of First National Bank of McMinnville. First National Bank of McMinnville
is a community bank headquartered in McMinnville, Tennessee and serving Warren
County, Tennessee as its primary market area. The Company serves as a
financial intermediary whereby its profitability is determined to a large
degree by the interest spread it achieves and the successful measurement of
risks. The Company's management believes that Warren County offers an
environment for continued growth and the Company's target market is local
consumers, professionals and small businesses. The Company offers a wide range
of banking services, including checking, savings, and money market deposit
accounts, certificates of deposits, and loans for consumer, commercial and real
estate purposes. The Company also offers custodial and trust services.
Deposit instruments in the form of demand deposits, money market savings and
certificates of deposits are offered to customers to establish the Company's
core deposits base.
In a market such as Warren County, management believes there is a
significant opportunity to increase the loan portfolio. The Company has
targeted commercial business lending, commercial and residential real estate
lending and consumer lending as areas of focus. It is the Company's intention
to limit the
32
<PAGE> 36
size of its loan portfolio to approximately 75% to 80% of deposit balances;
however, the quality of lending opportunities will determine the size of the
loan portfolio. As a practice, the Company generates substantially all of its
own loans and occasionally buys participations from other institutions. The
Company attempts to maintain a loan portfolio which is capable of adjustment to
swings in interest rates. The Company's policy is to have a diverse loan
portfolio. At December 31, 1995, the nursery industry constituted the largest
single industry segment and accounted for $10,723,000 (10.63% of the Company's
loan portfolio). No other segment accounted for more than 10% of the
portfolio. Management is not aware of any adverse trends or expected losses in
respect to the nursery industry.
Capital Resources, Capital and Dividends
Regulations of the Comptroller of the Currency establish required
minimum capital levels for the Bank. Under these regulations, national banks
must maintain certain capital levels as a percentage of average total assets
(leverage capital ratio) and as a percentage of total risk-based assets
(risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to
credit risk ranging from 0% for assets backed by the full faith and credit of
the United States to 100% for loans other than residential real estate loans
and certain off-balance sheet commitments. Total capital is characterized as
either Tier 1 capital - common shareholders equity, noncumulative perpetual
preferred stock and a limited amount of cumulative perpetual preferred - or
Tier 2 capital which includes the allowance for loan losses up to 1.25% of risk
weighted assets, perpetual preferred stock, subordinated debt and various other
hybrid capital instruments, subject to various limits. Goodwill is not
includable in Tier 1 or Tier 2 capital. National banks must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a Tier 2 capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio defined as Tier 1
capital to adjusted total assets for the most recent quarter of at least 4%.
The same ratios are also required in order for a national bank to be considered
"adequately capitalized" under the OCC's "prompt corrective action"
regulations, which impose certain operating restrictions on institutions which
are not adequately capitalized. The Bank has a Tier 1 risk based ratio of
29.71%, a Tier II capital to risk based ratio of 30.96% and a Tier 1 leverage
ratio of 15.08%, and was considered "well capitalized" under the regulations.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies which have more than $150 million in consolidated
assets. These guidelines required bank holding companies to maintain
consolidated capital ratios which are essentially the same as the minimum
capital levels required for national banks. The Company's consolidated capital
ratios were substantially the same as those set forth above for the Bank, and
substantially exceeded the minimums required under these Federal Reserve Board
guidelines.
Dividends of approximately $1,240,000 and $1,191,000 were declared
during 1995 and 1994, respectively. Principally because of the high percent of
equity capital the return on equity is lower than banks in the Company's peer
group. Cash dividends will likely be increased in 1996 if profits increase.
The dividend payout ratio (dividends declared divided by net earnings) was
40.0%, 38.7% and 34.0% in 1995, 1994 and 1993, respectively. No material
changes in the mix or cost of capital is anticipated in the foreseeable future.
The dividends by the Company are primarily funded by dividends
received by the Company from the Bank. The Bank is limited by law, regulation
and prudence as to the amount of dividends it can pay. At December 31, 1995,
under the most restrictive of these regulatory limits, the Bank could declare
in 1996 cash dividends in an aggregate amount of up to approximately $5.8
million, plus any 1996 net earnings, without prior approval of the Comptroller
of the Currency. Because of sound business considerations, it is unlikely that
the Company would ever pay this restrictive amount as dividends.
33
<PAGE> 37
Capital Resources, Capital and Dividends, Continued
The Bank currently has plans to build a new branch at a total
estimated cost of $800,000. At December 31, 1995, approximately $253,000 has
been incurred related to this project. The Bank is also remodeling the main
office at a total estimated cost of $165,000 of which $131,000 has been
incurred at December 31, 1995. At the present time there are no other material
commitments for capital expenditures.
Financial Condition
During 1995, total assets increased $10,177,000 or 5.6% from
$180,486,000 at December 31, 1994 to $190,663,000 at December 31, 1995. Loans,
net of allowance for possible loan losses, increased from $90,745,000 to
$99,297,000 or 9.4% during fiscal year 1995. The aggregate increases in loans
for 1995 was due primarily to a 18.8% increase in loans secured by real estate.
Securities increased 1.0% from $80,276,000 at December 31, 1994 to
$81,106,000 at December 31, 1995. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations decreased $211,000, obligations
of state and political subdivisions increased $2,036,000, corporate securities
increased $73,000 and there was a decrease in mortgage backed securities of
$1,068,000. At December 31, 1995 the market value of the Company's securities
portfolio exceeded its amortized cost by $1,198,000 (1.5%). At December 31,
1994, the amortized cost value exceeded the market value by $2,926,000 (3.6%).
The weighted average yield (stated on a tax-equivalent basis, assuming a
Federal income tax rate of 34%) of the securities at December 31, 1995 was 7.3%
with an average maturity of 5.83 years, as compared to an average yield of 6.2%
and an average maturity of 5.75 years at December 31, 1994.
Effective January 1, 1994 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Securities". Under the
provisions of the Statement, securities are to be classified in three
categories and accounted for as follows:
. Debt securities that the enterprise has the positive intent
and ability to hold to maturity are classified as held-to-maturity securities
and reported at amortized cost.
. 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 excluded from earnings and reported in a separate component of
shareholders' equity.
34
<PAGE> 38
The Company's classification of securities as of December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
-----------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ -------------- ------------- ------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $ 24,138 24,611 25,411 25,606
Obligations of states
and political
subdivisions 20,792 21,351 3,597 3,669
Corporate securities 1,669 1,723 675 675
Mortgage-backed
securities 2,238 2,154 2,390 2,319
------------ ---------- ---------- ----------
$ 48,837 49,839 32,073 32,269
============ ========== ========== ==========
</TABLE>
The classification of a portion of the securities portfolio as available
for sale was made to provide for more flexibility in asset/liability management
and capital management. No securities have been classified as trading
securities.
The effect of the adoption of SFAS No. 115 was to increase the capital of
the Bank as of January 1, 1994 by $992,000 which represents the unrealized
appreciation in securities available-for-sale of $1,599,000 less applicable
taxes of $607,000. The net decrease in capital at December 31, 1994 totaled
$565,000 which represents the unrealized losses in securities
available-for-sale of $911,000 net applicable tax benefit of $346,000. During
the year ended December 31, 1995, the net increase in capital totaled $687,000
which represents the unrealized appreciation in securities available-for-sale
of $1,107,000 less applicable tax expense of $420,000.
The increase in assets in 1995 was funded primarily by increases in
deposits. Total deposits increased from $148,631,000 at December 31, 1994 to
$154,551,000 at December 31, 1995 representing an increase of 4.0%. Demand
deposits increased 4.4% from $18,207,000 at December 31, 1994 to $19,002,000 at
December 31, 1995. Additionally, increases in certificates of deposit and
individual retirement accounts of $7,837,000 (10.3%) contributed to the
increases in deposits for 1995. Securities sold under repurchase agreements
increased $1,921,000 during 1995. Federal funds purchased decreased $600,000
in 1995. The subsidiary bank has unused lines of credit of $5,000,000 and the
Company has an unused line of credit of $2,000,000 at December 31, 1995.
The Company's allowance for loan losses at December 31, 1995 was
$1,562,000 as compared to $1,448,000 at December 31, 1994. Non-performing
loans amounted to $140,000 at December 31, 1995 compared to $40,000 at December
31, 1994. Non-performing loans are loans which have been placed on non-accrual
status, loans 90 days past due plus renegotiated loans. Net charge-offs to
average outstanding loans for 1995 and 1994 was .05% and .02%, respectively.
The provision for loan losses in 1995 exceeded net charge-offs by $114,000. In
1994, the provision exceeded net charge-offs by $226,000.
The allowance for possible loan losses, amounting to $1,562,000 at
December 31, 1995, represents 1.55% of total loans outstanding. At December
31, 1994, the allowance for possible loan losses represented 1.57% of total
loans outstanding. Management believes the allowance for possible loan losses
at December 31, 1995 to be adequate.
35
<PAGE> 39
Liquidity
Liquidity represents the ability to efficiently and economically
accommodate decreases in deposits and other liabilities, as well as fund
increases in assets. A Company has liquidity potential when it has the ability
to obtain sufficient funds in a timely manner at a reasonable cost. The
availability of funds through deposits, the purchase and sales of securities in
the investment portfolio, the use of funds for consumer and commercial loans
and the access to debt markets affect the liquidity of the Company. In order
to properly maintain an adequate liquidity position, the Company's practice is
to limit the size of its loan portfolio to 75% to 80% of deposit balances. The
Company's loan to deposit ratio was approximately 65% and 62% at December 31,
1995 and December 31, 1994, respectively. Management is aware of the rapid
increase in loans and the liquidity issues relating to such increases.
The Company's investment portfolio, as represented above, consists of
earning assets that provide interest income. Federal Funds sold which are
invested overnight are the most liquid of the investments. Federal funds sold
totaled $300,000 at December 31, 1995. The Company had no Federal funds sold
at December 31, 1994. Federal funds purchased totaled $600,000 at December 31,
1994.
Funds management decisions must reflect management's intent to maintain
profitability in both the immediate and long-term earnings. The Company's rate
sensitivity position has an important impact on earnings. Senior management of
the Company meets monthly to analyze the rate sensitivity position of the
subsidiary bank. These meetings focus on the spread between the subsidiary
bank's cost of funds and interest yields generated primarily through loans and
investments.
First McMinnville Corporation presently maintains a liability sensitive
position over the 1995 year or a negative gap. Liability sensitivity means
that more of the Company's liabilities are capable of repricing over certain
time frames than assets. The interest rates associated with these liabilities
may not actually change over this period but are capable of changing. For
example, the six month gap is a picture of the possible repricing over a six
month period.
36
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
First McMinnville Corporation is a one bank holding company which owns
100% of First National Bank of McMinnville. First National Bank of
McMinnville is a community bank headquartered in McMinnville,
Tennessee and serving Warren County, Tennessee as its primary market
area. The Company serves as a financial intermediary whereby its
profitability is determined to a large degree by the interest spread
it achieves and the successful measurement of risks. The Company's
management believes that Warren County offers an environment for
continued growth and the Company's target market is local consumers,
professionals and small businesses. The Company offers a wide range
of banking services, including checking, savings, and money market
deposit accounts, certificates of deposits, and loans for consumer,
commercial and real estate purposes. The Company also offers
custodial and trust services. Deposit instruments in the form of
demand deposits, money market savings and certificates of deposits are
offered to customers to establish the Company's core deposits base.
In a market such as Warren County, management believes there is a
significant opportunity to increase the loan portfolio. The Company
has targeted commercial business lending, commercial and residential
real estate lending and consumer lending as areas of focus. It is the
Company's intention to limit the size of its loan portfolio to
approximately 75% to 80% of deposit balances; however, the quality of
lending opportunities will determine the size of the loan portfolio.
As a practice, the Company generates substantially all of its own
loans and occasionally buys participations from other institutions.
The Company attempts to maintain a loan portfolio which is capable of
adjustment to swings in interest rates. The Company's policy is to
have a diverse loan portfolio. At December 31, 1995, the nursery
industry constituted the largest single industry segment and accounted
for $10,723,000 (10.63% of the Company's loan portfolio). No other
segment accounted for more than 10% of the portfolio. Management is
not aware of any adverse trends or expected losses in respect to the
nursery industry.
Capital Resources, Capital and Dividends
Regulations of the Comptroller of the Currency establish required
minimum capital levels for the Bank. Under these regulations,
national banks must maintain certain capital levels as a percentage of
average total assets (leverage capital ratio) and as a percentage of
total risk-based assets (risk-based capital ratio). Under the
risk-based requirements, various categories of assets and commitments
are assigned a percentage related to credit risk ranging from 0% for
assets backed by the full faith and credit of the United States to
100% for loans other than residential real estate loans and certain
off-balance sheet commitments. Total capital is characterized as
either Tier 1 capital - common shareholders equity, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual
preferred - or Tier 2 capital which includes the allowance for loan
losses up to 1.25% of risk weighted assets, perpetual preferred stock,
subordinated debt and various other hybrid capital instruments,
subject to various limits. Goodwill is not includable in Tier 1 or
Tier 2 capital. National banks must maintain a Tier 1 capital to
risk-based assets of at least 4.0%, a Tier 2 capital to risk- based
assets ratio of at least 8.0% and a leverage capital ratio defined as
Tier 1 capital to
37
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Capital Resources, Capital and Dividends, Continued
adjusted total assets for the most recent quarter of at least 4%. The
same ratios are also required in order for a national bank to be
considered "adequately capitalized" under the OCC's "prompt corrective
action" regulations, which impose certain operating restrictions on
institutions which are not adequately capitalized. The Bank has a
Tier 1 risk based ratio of 29.71%, a Tier II capital to risk based
ratio of 30.96% and a Tier 1 leverage ratio of 15.08%, and was
considered "well capitalized" under the regulations.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies which have more than $150 million in
consolidated assets. These guidelines required bank holding companies
to maintain consolidated capital ratios which are essentially the same
as the minimum capital levels required for national banks. The
Company's consolidated capital ratios were substantially the same as
those set forth above for the Bank, and substantially exceeded the
minimums required under these Federal Reserve Board guidelines.
Dividends of approximately $1,240,000 and $1,191,000 were declared
during 1995 and 1994, respectively. Principally because of the high
percent of equity capital the return on equity is lower than banks in
the Company's peer group. Cash dividends will likely be increased in
1996 if profits increase. The dividend payout ratio (dividends
declared divided by net earnings) was 40.0%, 38.7% and 34.0% in 1995,
1994 and 1993, respectively. No material changes in the mix or cost
of capital is anticipated in the foreseeable future.
The dividends by the Company are primarily funded by dividends
received by the Company from the Bank. The Bank is limited by law,
regulation and prudence as to the amount of dividends it can pay. At
December 31, 1995, under the most restrictive of these regulatory
limits, the Bank could declare in 1996 cash dividends in an aggregate
amount of up to approximately $5.8 million, plus any 1996 net
earnings, without prior approval of the Comptroller of the Currency.
Because of sound business considerations, it is unlikely that the
Company would ever pay this restrictive amount as dividends.
The Bank currently has plans to build a new branch at a total
estimated cost of $800,000. At December 31, 1995, approximately
$253,000 has been incurred related to this project. The Bank is also
remodeling the main office at a total estimated cost of $165,000 of
which $131,000 has been incurred at December 31, 1995. At the present
time there are no other material commitments for capital expenditures.
Financial Condition
During 1995, total assets increased $10,177,000 or 5.6% from
$180,486,000 at December 31, 1994 to $190,663,000 at December 31,
1995. Loans, net of allowance for possible loan losses, increased
from $90,745,000 to $99,297,000 or 9.4% during fiscal year 1995. The
aggregate increases in loans for 1995 was due primarily to a 18.8%
increase in loans secured by real estate.
38
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
Securities increased 1.0% from $80,276,000 at December 31, 1994 to
$81,106,000 at December 31, 1995. The carrying value of securities of
U.S. Treasury and other U.S. Government obligations decreased
$211,000, obligations of state and political subdivisions increased
$2,036,000, corporate securities increased $73,000 and there was a
decrease in mortgage backed securities of $1,068,000. At December 31,
1995 the market value of the Company's securities portfolio exceeded
its amortized cost by $1,198,000 (1.5%). At December 31, 1994, the
amortized cost value exceeded the market value by $2,926,000 (3.6%).
The weighted average yield (stated on a tax-equivalent basis, assuming
a Federal income tax rate of 34%) of the securities at December 31,
1995 was 7.3% with an average maturity of 5.83 years, as compared to
an average yield of 6.2% and an average maturity of 5.75 years at
December 31, 1994.
Effective January 1, 1994 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Securities".
Under the provisions of the Statement, securities are to be classified
in three categories and accounted for as follows:
- Debt securities that the enterprise has the positive intent
and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost.
- 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 excluded from
earnings and reported in a separate component of shareholders'
equity.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
The Company's classification of securities as of December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
--------------------------------- -----------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government
agencies and
corporations $24,138 24,611 25,411 25,606
Obligations of states
and political
subdivisions 20,792 21,351 3,597 3,669
Corporate securities 1,669 1,723 675 675
Mortgage-backed
securities 2,238 2,154 2,390 2,319
------- ------ ------ ------
$48,837 49,839 32,073 32,269
======= ====== ====== ======
</TABLE>
The classification of a portion of the securities portfolio as
available for sale was made to provide for more flexibility in
asset/liability management and capital management. No securities have
been classified as trading securities.
The effect of the adoption of SFAS No. 115 was to increase the capital
of the Bank as of January 1, 1994 by $992,000 which represents the
unrealized appreciation in securities available-for-sale of $1,599,000
less applicable taxes of $607,000. The net decrease in capital at
December 31, 1994 totaled $565,000 which represents the unrealized
losses in securities available-for-sale of $911,000 net applicable tax
benefit of $346,000. During the year ended December 31, 1995, the net
increase in capital totaled $687,000 which represents the unrealized
appreciation in securities available-for-sale of $1,107,000 less
applicable tax expense of $420,000.
The increase in assets in 1995 was funded primarily by increases in
deposits. Total deposits increased from $148,631,000 at December 31,
1994 to $154,551,000 at December 31, 1995 representing an increase of
4.0%. Demand deposits increased 4.4% from $18,207,000 at December 31,
1994 to $19,002,000 at December_31, 1995. Additionally, increases in
certificates of deposit and individual retirement accounts of
$7,837,000 (10.3%) contributed to the increases in deposits for 1995.
Securities sold under repurchase agreements increased $1,921,000
during 1995. Federal funds purchased decreased $600,000 in 1995. The
subsidiary bank has unused lines of credit of $5,000,000 and the
Company has an unused line of credit of $2,000,000 at December 31,
1995.
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
The Company's allowance for loan losses at December 31, 1995 was
$1,562,000 as compared to $1,448,000 at December 31, 1994.
Non-performing loans amounted to $140,000 at December 31, 1995
compared to $40,000 at December 31, 1994. Non-performing loans are
loans which have been placed on non-accrual status, loans 90 days past
due plus renegotiated loans. Net charge-offs to average outstanding
loans for 1995 and 1994 was .05% and .02%, respectively. The
provision for loan losses in 1995 exceeded net charge-offs by
$114,000. In 1994, the provision exceeded net charge-offs by
$226,000.
The allowance for possible loan losses, amounting to $1,562,000 at
December 31, 1995, represents 1.55% of total loans outstanding. At
December 31, 1994, the allowance for possible loan losses represented
1.57% of total loans outstanding. Management believes the allowance
for possible loan losses at December 31, 1995 to be adequate.
Liquidity
Liquidity represents the ability to efficiently and economically
accommodate decreases in deposits and other liabilities, as well as
fund increases in assets. A Company has liquidity potential when it
has the ability to obtain sufficient funds in a timely manner at a
reasonable cost. The availability of funds through deposits, the
purchase and sales of securities in the investment portfolio, the use
of funds for consumer and commercial loans and the access to debt
markets affect the liquidity of the Company. In order to properly
maintain an adequate liquidity position, the Company's practice is to
limit the size of its loan portfolio to 75% to 80% of deposit
balances. The Company's loan to deposit ratio was approximately 65%
and 62% at December 31, 1995 and December 31, 1994, respectively.
Management is aware of the rapid increase in loans and the liquidity
issues relating to such increases.
The Company's investment portfolio, as represented above, consists of
earning assets that provide interest income. Federal Funds sold which
are invested overnight are the most liquid of the investments.
Federal funds sold totaled $300,000 at December 31, 1995. The Company
had no Federal funds sold at December 31, 1994. Federal funds
purchased totaled $600,000 at December 31, 1994.
Funds management decisions must reflect management's intent to
maintain profitability in both the immediate and long-term earnings.
The Company's rate sensitivity position has an important impact on
earnings. Senior management of the Company meets monthly to analyze
the rate sensitivity position of the subsidiary bank. These meetings
focus on the spread between the subsidiary bank's cost of funds and
interest yields generated primarily through loans and investments.
First McMinnville Corporation presently maintains a liability
sensitive position over the 1995 year or a negative gap. Liability
sensitivity means that more of the Company's liabilities are capable
of repricing over certain time frames than assets. The interest rates
associated with these liabilities may not actually change over this
period but are capable of changing. For example, the six month gap is
a picture of the possible repricing over a six month period.
41
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Liquidity, Continued
The following table shows the rate sensitivity gaps for different time
periods as of December 31, 1995:
<TABLE>
<CAPTION>
Interest rate sensitivity gaps
December 31, 1994: Reprice 1-90 91-180 181-365 One Year
(in thousands) Immediately Days Days Days and Longer Total
- ------------------------------- ----------- ------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $ 300 38,677 13,686 11,783 117,919 182,365
Interest-bearing liabilities 51,719 24,267 21,422 28,482 9,659 135,549
---------- ------- ------- ------- ------- -------
Interest-rate sensitivity gap $ (51,419) 14,410 (7,736) (16,699) 108,260 46,816
========== ======= ======= ======= ======= =======
Cumulative gap $ (51,419) (37,009) (44,745) (61,444) 46,816
========== ======= ======= ======= =======
Interest-rate sensitivity gap
as a % of total assets (26.97)% 7.56 % (4.06)% (8.76)% 56.78 %
========== ======= ======= ======= =======
Cumulative gap as a % of total
assets (26.97)% (19.41)% (23.47)% (32.23)% 24.55 %
========== ======= ======= ======= =======
</TABLE>
Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal accounts,
money market demand accounts, demand deposit and regular savings.
Management anticipates that there will be no significant withdrawals
from these accounts in the future.
It is anticipated that with present maturities, the anticipated growth
in deposit base, and the efforts of management in its asset/liability
management program, liquidity will not pose a problem in the
foreseeable future. At the present time there are no known trends or
any known commitments, demand, events or uncertainties that will
result in or that are reasonably likely to result in the registrant's
liquidity changing in any material way.
42
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Results of Operations
Net earnings for the year ended December 31, 1995 were $3,106,000 an
increase of $29,000 or .9% from fiscal year 1994. Net earnings for
1994 totaled $3,077,000 which was a decrease of $110,000 or 3.5% from
$3,187,000 for 1993. On a per share basis net income equaled $5.62 in
1995, $5.55 in 1994 and $5.72 in 1993 after giving retroactive effect
to a two-for-one stock split effective October 1, 1994. Average
earning assets increased $7,547,000 for the year ended December 31,
1995 as compared to year ended December 31, 1994. Average earning
assets increased $9,836,000 for the year ended December 31, 1994 as
compared to year ended December_31, 1993. Additionally, the net
interest spread decreased from 4.54% in 1994 to 4.05% in 1995. The
net interest spread was 4.83% in 1993. Net interest spread is defined
as the effective yield on earning assets less the effective cost of
deposits and borrowed funds, as calculated on a fully taxable
equivalent basis.
Net interest income before provision for loan losses for 1995 totaled
$7,474,000 as compared to $7,684,000 for 1994 and $7,579,000 for 1993.
The provision for loan losses was $160,000 in 1995 as compared to
$240,000 in 1994 and 1993. The net charge-offs in 1995 were $46,000
as compared to $14,000 in 1994 and $10,000 in 1993. The reduction in
the provision in 1995 was due to the small percentage of net
charge-offs to average loans outstanding over the past three years.
Non-interest income increased 19.5% to $686,000 in 1995 from $574,000
in 1994. This increase was due primarily to increases in gains
related to available-for-sale securities of $95,000 and service
charges on deposits of $39,000. Non-interest income of $574,000 in
1994 was a decrease of approximately 12.4% from $655,000 in 1993. The
decrease in 1994 resulted primarily from a decrease in service charges
on deposits and a decrease in securities gains.
Non-interest expense decreased 3.8% to $3,595,000 in 1995 from
$3,738,000 in 1994. Non-interest expense was $3,604,000 in 1993.
Non-interest expense which includes, among other things, salaries and
employee benefits, occupancy expenses, furniture and fixtures
expenses, data processing, Federal Deposit Insurance premiums,
supplies and general operating costs, increased as a result of
continued growth of the Company. The decrease in 1995 was primarily
attributable to a decrease in FDIC insurance premiums from $323,000 in
1994 to $171,000 in 1995. This decrease resulted from a reduction in
the assessment rate from .23% to .04% of eligible deposits (the lowest
rate under the newly enacted risk based assessment regulations)
effective June 1, 1995. Due to the full capitalization of the FDIC
insurance fund, premiums have been suspended January 1, 1996 for an
indefinite period. The non-interest expense increased approximately
3.7% from 1993 to 1994 and was due primarily to growth of the Company
and consulting fees of approximately $100,000 paid to the Company's
Chairman of the Board of Directors who retired as the Chief Executive
Officer in December 31, 1993.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material
effect on the Company's liquidity, capital resources or operations.
43
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Impact of Inflation
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company are primarily monetary in
nature. Therefore, interest rates have a more significant effect on
the Company's performance.
44
<PAGE> 48
ITEM 7. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and
subsidiary (pages F-1 through F-35 are included in this Report:
- Independent Auditors' Report;
- Consolidated Balance Sheets - December 31, 1995 and 1994;
- Consolidated Statements of Earnings - Three years ended December 31, 1995;
- Consolidated Statements of Changes in Stockholders' Equity - Three years
ended December 31, 1995;
- Consolidated Statements of Cash Flows - Three years ended December 31, 1995;
and all
- Notes to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) Identification of Directors and Executive Officers
Identification of Directors.
The following tables identify the directors and executive officers of
the Company, the year first elected, and their business experience during the
past five years. Directors are elected to serve three year terms and until
their successors have been elected and duly qualified. Those persons named
under "Class III" are being nominated to the Board of Directors for
consideration at the 1996 Annual Meeting of Stockholders of the Company.
45
<PAGE> 49
<TABLE>
<CAPTION>
DIRECTORS OF THE REGISTRANT
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
---------- ---------- --------
<S> <C>
Class I - (Directors whose Terms of Office will Expire in 1997):
Paul O. Barnes Chairman, 1984
(62) B & P Lamp Supply Co., Inc.
Henry N. Boyd Chief Executive Officer, 1984
(79) Boyd Bros. Nursery.
Dean I. Gillespie President, 1984
(62) Bridge Builders, Inc.
Class II - (Directors whose Terms of Office will Expire in 1998):
J. G. Brock Owner, 1993
(40) Brock Construction Company.
G. B. Greene President, 1984
(56) Womack Printing Co., Inc.
Robert W. Jones Chairman, First McMinnville 1984
(67) Corporation, 1984 - present;
Chairman, First National Bank,
1981 - present; Chief Executive Officer,
First National Bank, 1976 - 1993.
H. L. Molloy Retired. 1984
(89)
Class III - (Directors whose Terms of Office will Expire in 1996):
Charles C. Jacobs President and Chief Executive 1984
(57) Officer, First McMinnville
Corporation, January 1994
- present; President and Chief
Executive Officer, First National
Bank, January 1994 - present;
President, First National
Bank, 1988-1994.
J. Douglas Milner General Manager and Vice President, 1995
(49) Middle Tennessee Dr. Pepper Bottling Company.
John J. Savage, Jr. Retired; Secretary of Board of Directors 1984
(74) Executive Vice President and Trust Officer,
First National Bank (retired September 1986).
C. M. Stanley President, 1984
(60) Burroughs-Ross-Colville, Co.
W. B. Whitson Chairman, 1984
(80) Burroughs-Ross-Colville, Co.
</TABLE>
46
<PAGE> 50
Identification of Executive Officers.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Office and Business Experience
---- ------- ------------------------------
<S> <C> <C>
Charles C. Jacobs 57 President and Chief Executive
Officer, First McMinnville
Corporation, January 1994 -
present; President and Chief
Executive Officer, First National Bank,
January 1994 - present; President, First
National Bank, 1988 - 1994.
Diane Bogle 49 Senior Vice President, First McMinnville
Corporation, 1995 - present; Senior Vice
President, First National Bank, 1995 -
present; Vice President, First
National Bank, 1988 - present.
Lester K. Cowell 60 Senior Vice President of First
McMinnville Corporation, Senior Vice
President of First National Bank, 1991 -
present; Vice President of First National
Bank, 1976 - 1991.
Kenny D. Neal 45 Senior Vice President and
Treasurer of First McMinnville
Corporation, 1994 - present; Senior
Vice President and Cashier of
First National Bank, 1990
- present.
C. P. Whisenhunt 51 Senior Vice President, First McMinnville
Corporation, 1993 - present; Senior Vice
President, First National Bank, 1993 -
present; Vice President - Loans, First
National Bank, 1991 - 1993; Regional
President, Mid-South Bank & Trust, 1986-
1991.
</TABLE>
Officers are elected annually and serve at the pleasure of the Board
of Directors.
(b) Identification of Significant Employees
Significant employees are identified in the preceding section under
the caption "Identification of Executive Officers."
(c) Family Relationships.
There is no family relationship between any of the above officers or
between any officer, director or nominee for director, except that Mr. Henry
Boyd is the uncle by marriage of Mr. G. B. Greene.
(d) Involvement in Certain Legal Proceedings.
None.
47
<PAGE> 51
(e) Compliance with Section 16(a) of the Securities Exchange Act
The Company is not registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, is not a closed-end investment
company registered under the Investment Company Act of 1940, and is not a
holding company registered pursuant to the Public Utility Holding Company Act
of 1935. Accordingly, the Company is not subject to Section 16(a) of the
Securities Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid or accrued by the
Registrant during the three fiscal years ended December 31, 1995 for (i) the
Chief Executive Officer of the Registrant and (ii) each of the other executive
officers of the Registrant whose compensation exceeded $100,000 (collectively,
the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Principal Position Year Salary Bonus Compensation(1)
- --------------------------- ---- ---------- ------- ------------
<S> <C> <C> <C> <C>
Charles C. Jacobs 1995 $104,000 $15,600 $12,051
President/CEO 1994 98,000 28,474 8,699
1993 91,825 12,994 8,463
</TABLE>
(1) Amounts in this column are those contributed or accrued for the
respective fiscal years for the Named Executive Officer(s) under the Bank
401(k) Retirement Plan, Director's fees, and insurance premiums paid by the
Company on behalf of the Named Executive Officer(s).
xxxxx
Pension Plan. The Bank has a noncontributory pension plan for all
eligible employees. In order to be eligible, an employee must perform at least
1,000 or more hours of service within six (6) months of his or her date of
employment. The employee shall become eligible on the May first following the
completion of one year of service and the attainment of age 21, provided such
person was hired prior to his or her 60th birthday.
The amount of a participant's monthly normal retirement annuity is
equal to .85% of the first $833 of the participant's average monthly
compensation plus 1.50% of the compensation in excess of the first $833,
multiplied by the number of years of credited service to the participant's
normal retirement date which is attainment of age 65. The number of years of
credited service used in the formula will be limited to a maximum of 35. The
minimum monthly retirement benefit is $150. Average monthly compensation is
defined as the sum of the participant's reported basic earnings in the five
consecutive plan years that produce the highest amount divided by 60. Early
retirement, postponed retirement and disability retirement are also provided
for in the plan.
A plan participant has a vested benefit equal to a percentage of his
or her accrued benefit based on the length of his or her service, beginning at
25% after five years of service and increasing 5% per year for the next five
years and 10% per year for the following five years to a maximum of 100% vested
after 15 years of service. Mr. Jacobs has 28 years of credited service under
the Plan with current compensation covered by the Plan of $119,600.
The following table sets forth the estimated annual retirement
benefits on a straight life annuity basis to participating employees, including
the Named Executive Officer, for designated years of service and remuneration
levels.
48
<PAGE> 52
<TABLE>
<CAPTION>
Years of Service
----------------
Remuneration 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 12,000 $ 1,800 $ 2,299 $ 2,874 $ 3,449 $ 4,024
24,000 4,424 5,899 7,374 8,849 10,324
36,000 7,124 9,499 11,874 14,249 16,624
48,000 9,824 13,099 16,374 19,649 22,924
60,000 12,524 16,699 20,874 25,049 29,224
72,000 15,224 20,299 25,374 30,449 35,524
84,000 17,924 23,899 29,874 35,849 41,824
96,000 20,624 27,499 34,374 41,249 48,124
108,000 23,324 31,099 38,874 46,649 54,424
120,000 26,024 34,699 43,374 52,049 60,724
132,000 28,724 37,299 47,874 57,449 67,024
144,000 31,424 41,899 52,374 62,849 73,324
156,000 34,124 45,499 56,874 68,249 76,624
</TABLE>
Effective March 24, 1986, the Plan was amended by including, for
purposes of calculating a participant's compensation under the Plan, any and
all bonuses paid to the participant during the plan year.
Director Compensation. Directors of the Bank receive $600 for each
meeting of the full Board of Directors attended plus $100 for each committee
meeting attended.
Consultation Agreement. Pursuant to a consultation agreement, as
amended, the Company paid Mr. Jones a consultation fee of $110,139, plus the
usual Director's fee for meetings actually attended, to serve the Company as
Chairman of the Board. This amount reduces sharply for years after 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company is authorized to issue 5,000,000 shares of its Common
Stock. (Please refer to Item 5 of this Report for additional discussion of the
Company's authorized classes of securities.) As of February 14, 1996 there
were 551,171 shares of the Company's Common Stock issued and outstanding.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by (i) directors of the Company, and
(ii) the directors and executive officers of the Company as a group. No person
known to the Company is the beneficial owner of more than 5% of the issued and
outstanding shares of the Company's Common Stock. The Company has no present
commitments to these persons with respect to the issuance of shares of its
Common Stock (it's only class of common equity). This information is based on
information filed with or provided to the Company as of approximately February
14, 1996.
_______________________________________________________________________________
49
<PAGE> 53
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name of Beneficial of
Beneficial Owner Ownership Class(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(i) Paul O. Barnes 11,328(2) 2.06%
843 Old Morrison Road
McMinnville, TN 37110
Henry N. Boyd 8,480 1.54%
705 Country Club Drive
McMinnville, TN 37110
J. G. Brock 500(3) *
P. O. Box 789
McMinnville, TN 37110
Dean I. Gillespie 1,680(4) *
258 Lagniappe Lane
McMinnville, TN 37110
G. B. Greene 5,228 *
608 W. Main Street
McMinnville, TN 37110
Charles C. Jacobs 4,000 *
3180 Vervilla Road
McMinnville, TN 37110
Robert W. Jones 9,714(5) 1.76%
828 Lakeland Drive
McMinnville, TN 37110
H. L. Molloy 5,228 *
101 Oak Hill Drive
McMinnville, TN 37110
John J. Savage, Jr. 1,132(6) *
104 Worley Street
McMinnville, TN 37110
C. M. Stanley 2,712 *
P. O. Box 52
McMinnville, TN 37110
W. B. Whitson 14,892(7) 2.70%
P. O. Box 609
McMinnville, TN 37110
(ii) Directors and 66,686 12.10%
Executive Officers
as a Group
(15 individuals)
- ---------------------------
* Less than 1%.
</TABLE>
NOTES
(1) Based on 551,171 shares of the Common Stock outstanding at
December 31, 1995.
(2) Includes 3,000 shares held by a corporation controlled by an
interest of Mr. Barnes.
50
<PAGE> 54
(3) Includes 184 shares held on behalf of Mr. Brock's spouse, as to
which Mr. Brock disclaims beneficial ownership.
(4) Includes 492 shares held jointly by Mr. Gillespie and his
children. Also includes 396 shares held by Mr. Gillespie's spouse, as to
which Mr. Gillespie disclaims beneficial ownership.
(5) This total includes also 4,446 shares held by Mr. Jones' spouse,
as to which Mr. Jones disclaims beneficial ownership.
(6) Includes 208 shares held jointly by Mr. Savage and his spouse.
(7) Includes 4,438 held by the W. B. Whitson Grandchildren Trust of
which Mr. Whitson is a Co-Trustee. This total includes also 200 shares held by
Mr. Whitson's spouse, as to which Mr. Whitson disclaims beneficial ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The First National Bank's directors and principal officers, as well as
business organizations and individuals associated with them, are customers of
the Bank and had normal banking transactions with the Bank during 1995. All
loan transactions were made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated borrowers and
did not involve more than the normal risk of collectibility or present other
unfavorable features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) The following statements and the Report of Maggart & Associates,
P.C., Independent Certified Public Accountants, are on pages F-1 through F-32
of this Annual Report on Form 10-KSB.
(a) Consolidated Balance Sheets as of December 31, 1995 and
1994;
(b) Consolidated Statements of Earnings for the three years
ended December 31, 1995;
(c) Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1995;
(d) Consolidated Statements of Cash Flows for the three years
ended December 31, 1995;
(e) Notes to the foregoing Consolidated Financial Statements.
(2) Listing of Exhibits:
3(i) Charter as amended.*
3(ii) Bylaws.*
10.1 First National Bank of McMinnville 401(k) Retirement
Plan.**
10.2 Consulting Agreement dated December 14, 1993 between First
National Bank of McMinnville and Robert W. Jones, as amended.
11 Statement re computation of per share earnings.***
21 Subsidiaries of the Registrant for the year ended December
31, 1995.
51
<PAGE> 55
27 Financial Statement Schedule (for SEC use only).
___________
* Incorporated herein by reference to exhibits filed with Form
10-KSB Annual Report under the Securities Act of 1933 for the fiscal year ended
December 31, 1994.
** Incorporated herein by reference to exhibits filed with Form 10-K
Annual Report under the Securities Act of 1933 for the fiscal year ended
December 31, 1988.
*** Incorporated by reference to the Consolidated Statements of
Earnings of First McMinnville Corporation's Consolidated Annual Financial
Statements for the year ended December 31, 1994.
(b) No reports on Form 8-K were filed for the quarter ended December 31,
1995.
(c) Exhibits - The exhibits required to be filed with this Annual Report are
attached hereto as a separate section of this report.
(d) Financial Statement Schedules - All schedules have been omitted since
the required information is either not applicable, is disclosed in Item I of
this Report, or is disclosed in the consolidated financial statements or
related notes to such financial statements.
52
<PAGE> 56
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 McMinnville Corporation
(Registrant)
By: /s/ Charles C. Jacobs
----------------------------
Charles C. Jacobs, President
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert W. Jones Chairman and March 12, 1996
- -------------------------- Director
Robert W. Jones
/s/ Paul O. Barnes Director March 12, 1996
- --------------------------
Paul O. Barnes
/s/ Henry N. Boyd Director March 12, 1996
- --------------------------
Henry N. Boyd
/s/ J. G. Brock Director March 12, 1996
- --------------------------
J. G. Brock
/s/ Dean I. Gillespie Director March 12, 1996
- --------------------------
Dean I. Gillespie
/s/ G. B. Greene Director March 12, 1996
- --------------------------
G. B. Greene
/s/ J. Douglas Milner Director March 12, 1996
- --------------------------
J. Douglas Milner
/s/ Charles C. Jacobs President, CEO March 12, 1996
- -------------------------- and Director
Charles C. Jacobs
Director March __, 1996
- --------------------------
H. L. Molloy
/s/ John J. Savage, Jr. Director March 12, 1996
- --------------------------
John J. Savage, Jr.
/ / Carl M. Stanley Director March 12, 1996
- --------------------------
Carl M. Stanley
/s/ W. B. Whitson Director March 12, 1996
- --------------------------
W. B. Whitson
/s/ Kenny D. Neal Treasurer/Chief March 12, 1996
- -------------------------- Financial and
Kenny D. Neal Accounting Officer
</TABLE>
53
<PAGE> 57
Supplemental Information to be
Furnished with Reports filed Pursuant
to Section 15(d) of the Act by
Registrants Which Have Not Registered
Securities Pursuant to Section 12 of
the Act
(a) Annual Reports, Proxy Statements, and Form of Proxy.
(1) Four copies of the annual report to security holders for the
Company's last fiscal year will be furnished to the Commission for its
information under separate cover.
(2) Four copies of the form of proxy to be sent to security holders
in respect of the Company's 1996 Annual Meeting of Shareholders will be
furnished to the Commission for its information under separate cover.
54
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
First McMinnville Corporation Page
----
Independent Auditor's Report F-2
Consolidated Balance Sheets
December 31, 1995 and 1994 F-3
Consolidated Statements of Earnings
Three Years Ended December 31, 1995 F-4
Consolidated Statement of Changes in Stockholders' Equity
Three Years Ended December 31, 1995 F-5
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1995 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE> 59
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First McMinnville Corporation:
We have audited the accompanying consolidated balance sheets of First
McMinnville Corporation and Subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December#31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
McMinnville Corporation and Subsidiary as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements effective
January 1, 1993, the Company changed its method of accounting to comply with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and effective January 1, 1994, the Company
changed its method of accounting for debt and equity securities to comply with
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Nashville, Tennessee /s/ Maggart & Association, P.C.
January 17, 1996
F-2
<PAGE> 60
FIRST MCMINNVILLE CORPORATION
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
In Thousands
--------------------------------
1995 1994
--------- --------
<S> <C> <C>
Assets
Loans, less allowance for possible loan losses
of $1,562,000 and $1,448,000, respectively $ 99,297 90,745
Securities:
Held-to-maturity, at cost (market value
$49,839,000 and $54,457,000, respectively) 48,837 56,472
Available-for-sale, at market (amortized cost
$32,073,000 and $24,715,000, respectively) 32,269 23,804
-------- -------
Total securities 81,106 80,276
-------- -------
Interest-bearing deposits in banks 100 100
Federal funds sold 300 -
-------- -------
Total earning assets 180,803 171,121
-------- -------
Cash and due from banks 4,872 4,028
Premises and equipment, net 1,881 1,654
Accrued interest receivable 2,015 1,922
Deferred tax asset 245 641
Other real estate 305 524
Other assets 542 596
-------- -------
Total assets $190,663 180,486
======== =======
Liabilities and Stockholders' Equity
Deposits $154,551 148,631
Securities sold under repurchase agreements 4,213 2,292
Federal funds purchased - 600
Accrued interest and other liabilities 3,010 2,511
-------- -------
Total liabilities 161,774 154,034
-------- -------
Stockholders' equity:
Common stock, par value $2.50 per share,
authorized 5,000,000, issued 579,537 shares 1,512 1,512
Additional paid-in capital 1,512 1,512
Retained earnings 27,171 25,305
Net unrealized gains (losses) on available-for-sale
securities, net of income taxes of $74,000 and
income tax benefits of $346,000, respectively 122 (565)
-------- -------
30,317 27,764
Less cost of treasury stock of 28,366 shares
in 1995 and 26,117 shares in 1994 (1,428) (1,312)
-------- -------
Total stockholders' equity 28,889 26,452
-------- -------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders'
equity $190,663 180,486
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 61
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Earnings
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
In Thousands,
Except Per Share Amount
1995 1994 1993
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,802 7,417 6,671
Interest and dividends on securities:
Taxable securities 3,712 3,679 3,906
Exempt from Federal income taxes 1,217 1,314 1,369
Interest on Federal funds sold 156 111 144
Interest on interest-bearing deposits
in financial institutions 5 7 23
-------- ------- -------
Total interest income 13,892 12,528 12,113
-------- ------- -------
Interest expense:
Interest on negotiable order of
withdrawal accounts 556 536 547
Interest on money market demand and savings
accounts 1,175 1,197 1,138
Interest on certificates of deposit 4,574 3,024 2,738
Interest on securities sold under
repurchase agreements and short-term debt 113 87 111
-------- ------- -------
Total interest expense 6,418 4,844 4,534
-------- ------- -------
Net interest income before provision
for loan losses 7,474 7,684 7,579
Provision for possible loan losses 160 240 240
-------- ------- -------
Net interest income after provision for
possible loan losses 7,314 7,444 7,339
Non-interest income 686 574 655
Non-interest expense (3,595) (3,738) (3,604)
-------- ------- -------
Earnings before income taxes
and cumulative effect of
change in accounting principle 4,405 4,280 4,390
Income taxes 1,299 1,203 1,225
-------- ------- -------
Net earnings before cumulative
effect of a change in accounting
principles 3,106 3,077 3,165
Cumulative effect on prior years (to
December 31, 1992) of changing to a
different method of accounting for
income taxes - - 22
-------- ------- -------
Net earnings $ 3,106 3,077 3,187
======== ======= =======
Per share amounts:
Net earnings before cumulative effect
of change in accounting principle $ 5.62 5.55 5.68
Cumulative effect on prior years of
change in accounting principle - - .04
-------- ------- -------
Net earnings $ 5.62 5.55 5.72
======== ======= =======
Weighted average number of shares outstanding 552,399 554,837 557,252
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 62
FIRST MCMINNVILLE CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Shares
---------------------------------------------------------
Common Stock
-------------------- Additional
Par Paid-In Retained
Shares Value Capital Earnings
------ ----- ---------- --------
<S> <C> <C> <C> <C>
Balance December 31, 1992 302,400 $ 1,512 1,512 21,317
Net earnings - - - 3,187
Cash dividends declared,
$1.95 per share - - - (1,085)
Cost of 1,583 shares of
treasury stock - - - -
------- ----- ----- ------
Balance December 31, 1993 302,400 1,512 1,512 23,419
Issuance of 277,137 shares
of stock pursuant to a
2 for 1 stock split 277,137 - - -
Net earnings - - - 3,077
Cash dividends declared
$2.15 per share - - - (1,191)
Cost of 1,556 shares of
treasury stock - - - -
Effect of change to market value
method of accounting for debt and
equity securities as of January 1, 1994 - - - -
Net change in unrealized loss during the
year, net of tax benefits of $953,000 - - - -
------- ----- ----- ------
Balance December 31, 1994 579,537 1,512 1,512 25,305
Net earnings - - - 3,106
Cash dividends declared
$2.25 per share - - - (1,240)
Cost of 2,249 shares of
treasury stock - - - -
Net change in unrealized appreciation
during the year, net of taxes of
$420,000 - - - -
------- ----- ----- ------
Balance December 31, 1995 579,537 $ 1,512 1,512 27,171
======= ===== ===== ======
<CAPTION>
In Thousands, Except Shares
---------------------------------------
Net
Unrealized
Gains
(Losses)
On
Available
Treasury For-Sale
Stock Securities Total
-------- ---------- -----
<S> <C> <C> <C>
Balance December 31, 1992 (1,063) - 23,278
Net earnings - - 3,187
Cash dividends declared,
$1.95 per share - - (1,085)
Cost of 1,583 shares of
treasury stock (140) - (140)
------- ------- ------
Balance December 31, 1993 (1,203) - 25,240
Issuance of 277,137 shares
of stock pursuant to a
2 for 1 stock split - - -
Net earnings - - 3,077
Cash dividends declared
$2.15 per share - - (1,191)
Cost of 1,556 shares of
treasury stock (109) - (109)
Effect of change to market value
method of accounting for debt and
equity securities as of January 1, 1994 - 992 992
Net change in unrealized loss during the
year, net of tax benefits of $953,000 - (1,557) (1,557)
------- ------- ------
Balance December 31, 1994 (1,312) (565) 26,452
Net earnings - - 3,106
Cash dividends declared
$2.25 per share - - (1,240)
Cost of 2,249 shares of
treasury stock (116) - (116)
Net change in unrealized appreciation
during the year, net of taxes of
$420,000 - 687 687
------- ------- ------
Balance December 31, 1995 (1,428) 122 28,889
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 63
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1995
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 13,762 12,332 12,256
Fees and commissions received 583 566 597
Interest paid ( 5,895) (4,552) (4,560)
Cash paid to suppliers and employees ( 3,345) (3,587) (3,383)
Income taxes paid ( 1,307) (1,275) (1,370)
------- ------- -------
Net cash provided by operating activities 3,798 3,484 3,540
------- ------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (21,835) (9,776) -
Proceeds from sales of available-for-sale securities 9,888 21,885 -
Proceeds from maturities of available-for-sale
securities 4,677 4,855 -
Purchase of held-to-maturity securities (4,797) (40,960) (32,781)
Proceeds from maturities of held-to-maturity
securities 12,432 23,383 24,097
Proceeds from sales of held-to-maturity securities - - 2,284
Proceeds from maturities of interest bearing
deposits in bank - 100 101
Loans made to customers, net of repayments (9,067) (11,668) (4,793)
Purchase of premise and equipment (449) (389) (92)
Proceeds from sales of other real estate 574 249 -
------- ------- -------
Net cash used in investing activities (8,577) (12,321) (11,184)
------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW and savings
deposits (1,917) 3,744 4,601
Net increase in time deposits 7,837 4,725 1,184
Net increase (decrease) in securities sold under
repurchase agreement 1,921 (949) (983)
Increase (decrease) in Federal funds purchased (600) 600 -
Proceeds from issuance of short-term notes payable 56 42 3
Repayment of short-term notes payable (56) (42) (3)
Dividends paid (1,202) (1,112) (1,005)
Payments to acquire Treasury stock (116) (109) (140)
------- ------- -------
Net cash provided by financing activities 5,923 6,899 3,657
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,144 (1,938) (3,987)
Cash and cash equivalents at beginning of year 4,028 5,966 9,953
------- ------- -------
Cash and cash equivalents at end of year $ 5,172 4,028 5,966
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statments.
F-6
<PAGE> 64
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 1995
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,106 3,077 3,187
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 222 183 174
Provision for loan losses 160 240 240
Provision for deferred taxes (24) (71) (77)
Securities gains related to available-for sale (103) (8) -
Securities losses related to available-for-sale 52 72 -
FHLB dividend reinvestment (37) (28) (22)
Cumulative effect of change in accounting for
income taxes - - (22)
Increase (decrease) in taxes payable 16 (1) (11)
Decrease (increase) in interest receivable (93) (168) 129
Increase (decrease) in interest payable 523 292 (26)
Decrease in other assets and liabilities, net (24) (104) (32)
--------- --------- ---------
Total adjustments 692 407 353
--------- --------- ---------
Net cash provided by operating activities $ 3,798 3,484 3,540
========= ========= =========
Supplemental Schedule of Noncash Activities:
Non-cash transfers from loans to other real estate $ 355 - -
========= ========= =========
Investment securities transferred to
available-for-sale $ - 61,719 -
========= ========= =========
Investment securities transferred to
held-to-maturity $ - 20,004 -
========= ========= =========
Unrealized gain (loss) in value of securities
available-for-sale, net of income taxes of
$420,000 in 1995 and income tax benefits of
$953,000 in 1994 $ 687 (1,557) -
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 65
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
The accounting policies of First McMinnville Corporation and Subsidiary
are in accordance with generally accepted accounting principles and
conform to generally accepted accounting principles and to general
practices within the banking industry. The following is a brief summary
of the more significant policies.
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, First National Bank of
McMinnville. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Nature of Operations
--------------------
First National Bank of McMinnville operates under a Federal Bank
Charter and provides full banking services, including trust
services. As a national bank, the subsidiary bank is subject to
the regulation of the Office of the Comptroller of the Currency.
The area served by First National Bank of McMinnville is Warren
County, Tennessee and surrounding counties in Middle Tennessee.
Services are provided at the main office and four branches.
(c) Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Loans and Allowance for Possible Loan Losses
--------------------------------------------
Loans are stated at the principal amount outstanding. Interest
income on loans is computed on the outstanding loan balance. Fees
and incremental direct costs in excess of the direct cost
associated with the loan origination and pricing process are
deferred and amortized as yield adjustments over the respective
loan lives.
F-8
<PAGE> 66
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(d) Loans and Allowance for Possible Loan Losses, Continued
-------------------------------------------------------
The allowance method is used by the Company to provide for possible
loan losses. Accordingly, all loan losses are charged to the
reserve for possible loan losses and all recoveries are credited to
it. Management's periodic evaluation of the allowance is based on
past loan experience and other factors which, in management's
judgment, deserve current recognition in estimating possible loan
losses. Such other factors considered by management include growth
and composition of the loan portfolio, the relationship of the
allowance for possible loan losses to outstanding loans, adverse
situations that may effect the borrowers' ability to repay, the
estimated value of underlying collateral and current economic
conditions that may affect the borrower's ability to repay.
Accrual of interest is discontinued, and previously accrued
interest is reversed, on a loan when management believes, after
considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Management may elect to
continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the principal balance
and accrued interest.
(e) Debt and Equity Securities
--------------------------
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for
Certain Investments in Debt and Equity Securities", effective
January 1, 1994. Under the provisions of the Statement, securities
are classified in three categories and accounted for as follows:
- Securities Held-to-Maturity
---------------------------
Debt securities that the enterprise has the positive intent
and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost.
Amortization of premiums and accretion of discounts are
calculated by the interest method.
- Trading Securities
------------------
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.
F-9
<PAGE> 67
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(e) Debt and Equity Securities, Continued
-------------------------------------
- Securities Available-for-Sale
-----------------------------
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 estimated fair
value, with unrealized gains and losses excluded from earnings
and reported in a separate component of stockholders' equity.
Gains or losses from the sale of available-for-sale securities
are recognized based upon the specific identification method.
Premiums and discounts are recognized in interest income using
the interest method.
No securities have been classified as trading securities.
On January 1, 1994, the Company transferred $61,719,000 (market
value $63,318,000) of investment securities to the
available-for-sale classification. The effect of the adoption of
SFAS No. 115 was to increase the capital of the Company by $992,000
which represents the unrealized appreciation in available-for-sale
securities of $1,599,000 less applicable taxes of $607,000.
Realized gains or losses from the sale of debt and equity
securities were recognized based upon the specific identification
method.
(f) Premises and Equipment
----------------------
Premises and equipment are stated at cost. Depreciation is
computed primarily by the straight-line method over the estimated
useful lives of the related assets. Gain or loss on items retired
and otherwise disposed of is credited or charged to operations and
cost and related accumulated depreciation are removed from the
asset and accumulated depreciation accounts.
Expenditures for major renewals and improvements of premises and
equipment are capitalized and those for maintenance and repairs are
charged to earnings as incurred.
(g) Change in Method of Accounting for Income Taxes
-----------------------------------------------
During the year ended December 31, 1993 the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The adjustment of $22,000 to apply
retroactively the new method (to December 31, 1992) is included in
income in 1993.
F-10
<PAGE> 68
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(h) Other Real Estate
-----------------
Real estate acquired in settlement of loans is initially recorded
at the lower of cost (loan value of real estate acquired in
settlement of loans plus incidental expense) or estimated fair
value, less estimated cost of disposal. Based on periodic
evaluations by management, the carrying values are reduced by a
direct charge to earnings when they exceed net realizable value.
Costs relating to the development and improvement of the property
are capitalized, while holding costs of the property are charged to
expense in the period incurred.
(i) Income Taxes
------------
Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable
income such as interest on state and municipal securities) and
deferred taxes on temporary differences between the amount of
taxable and pretax financial income and between the tax bases of
assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax asset and
liabilities are expected to be realized or settled as prescribed in
FASB Statement No. 109, "Accounting for Income Taxes." As changes
in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision of income taxes.
The Company and its subsidiary file a consolidated Federal income
tax return. Each subsidiary provides for income taxes on a
separate-return basis.
(j) Pension Expense
---------------
The Subsidiary accounts for its defined benefit pension plan under
the provisions of Financial Accounting Standards Board No. 87,
"Employers' Accounting for Pensions" (FAS 87). Accordingly, the
net pension expense consists of service costs, interest cost,
return on pension assets and amortization of unrecognized initial
excess of projected benefits over plan assets and actuarial gains
and losses.
F-11
<PAGE> 69
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(k) Earnings Per Common Share
-------------------------
Earnings per share is computed based upon the weighted average
number of common shares outstanding during the year. On September
13, 1994, the Board of Directors declared a two-for-one stock
split, effected in the form of a 100% stock dividend payable
October 1, 1994 to shareholders of record on September 13, 1994.
The weighted average number of shares outstanding used in the
computation of earnings per share and dividends per share has been
retroactively adjusted to reflect the stock split.
(l) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and Federal funds
sold. Generally, Federal funds sold are purchased and sold for
one-day periods. The Bank maintains deposits with other financial
institutions in excess of the Federal insurance amounts.
Management makes deposits only with financial institutions it
considers to be financially sound.
(m) Reclassification
----------------
Certain reclassifications have been made to the 1994 and 1993
figures to conform to the presentation for 1995.
(n) Off-Balance-Sheet Financial Instruments
---------------------------------------
In the ordinary course of business the subsidiary bank has entered
into off balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters of
credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or
received.
F-12
<PAGE> 70
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(2) Loans and Allowance for Possible Loan Losses
--------------------------------------------
Loans and allowance for possible loan losses at December 31, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1995 1994
------- ------
<S> <C> <C>
Commercial, financial and agricultural $19,993 22,616
Real estate - construction 2,217 3,245
Real estate - mortgage 73,444 61,802
Consumer 5,205 4,530
------- ------
100,859 92,193
Less allowance for possible loan losses (1,562) (1,448)
------- ------
$99,297 90,745
======= ======
</TABLE>
In the normal course of business, the Company's subsidiary has made loans
at prevailing interest rates and terms to directors and officers of the
Company, and to their affiliates. The aggregate dollar amount of these
loans was $2,947,000 and $2,678,000 at December 31, 1995 and 1994,
respectively. During 1995, $2,293,000 of such loans were made and
repayments totaled $2,024,000. As of December 31, 1995, none of these
loans were restructured, nor were any related party loans charged-off
during the past three years.
During 1995, loans which had been placed on non-accrual status totaled
$407,000 and the amount on non-accrual status as of December 31, 1995
totaled $55,000. Had interest on these loans been accrued, interest
income would have increased by approximately $19,000 in 1995. No loans
had been placed on non-accrual status during 1994.
<TABLE>
<CAPTION>
Commercial,
Financial Real
and Real Estate Estate
Maturity Agricultural Construction Mortgage Consumer Total
-------- ------------- ------------ -------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
3 months or
less $ 9,648 - 19,023 1,529 30,200
3 to 12 months 3,236 2,217 4,829 2,716 12,998
1 to 5 years 6,721 - 41,118 960 48,799
Over 5 years 388 - 8,474 - 8,862
----------- --------- ------ ----- -------
$19,993 2,217 73,444 5,205 100,859
=========== ========= ====== ===== =======
</TABLE>
At December 31, 1995, variable rate and fixed rate loans total
approximately $19,323,000 and $81,536,000, respectively. At December 31,
1994, variable rate loans were $21,598,000 and fixed rate loans totaled
$70,595,000.
F-13
<PAGE> 71
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(2) Loans and Allowance for Possible Loan Losses, Continued
-------------------------------------------------------
Transactions in the allowance for possible loan losses for the years
ended December 31, 1995, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of year $ 1,448 1,222 992
Provision charged to
operating expenses 160 240 240
---------- ----- -----
1,608 1,462 1,232
---------- ----- -----
Loans charged-off (86) (37) (55)
Recoveries on losses 40 23 45
---------- ----- -----
Net loans charged off (46) (14) (10)
---------- ----- -----
Balance - end of year $ 1,562 1,448 1,222
========== ===== =====
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1995, the Company had loans to customers in the nursery industry totaling
approximately $10,723,000. Credit is extended to businesses and
individuals and is evidenced by promissory notes. The terms and
conditions of the loans including collateral varies depending upon the
purpose of the credit and the borrower's financial condition.
(3) Debt and Equity Securities
Debt and equity securities have been classified in the balance sheet
according to management's intent. The Bank's classification of
securities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
In Thousands
Securities Held-To-Maturity
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government agencies
and corporations $ 24,138 516 43 24,611
Obligations of states
and political
subdivision 20,792 591 32 21,351
Corporate and other
securities 1,669 56 2 1,723
Mortgage backed
securities 2,238 - 84 2,154
-------- -------- ------ ------
$ 48,837 1,163 161 49,839
======== ======== ====== ======
</TABLE>
F-14
<PAGE> 72
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(3) Debt and Equity Securities, Continued
-------------------------------------
<TABLE>
<CAPTION>
In Thousands
Securities Available-For-Sale
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government agencies
and corporations $ 25,411 292 97 25,606
Obligations of states
and political
subdivision 3,597 114 42 3,669
Corporate and other
securities 675 - - 675
Mortgage backed
securities 2,390 5 76 2,319
---------- ---- ---- ------
$ 32,073 411 215 32,269
========== ==== ==== ======
</TABLE>
Debt and equity securities at December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
In Thousands
Securities Held-To-Maturity
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government agencies
and corporations $ 32,522 - 1,428 31,094
Obligations of states
and political
subdivision 20,012 195 463 19,744
Corporate and other
securities 1,701 24 62 1,663
Mortgage backed
securities 2,237 - 281 1,956
--------- ------ ------ -------
$ 56,472 219 2,234 54,457
========= ====== ====== =======
</TABLE>
F-15
<PAGE> 73
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(3) Debt and Equity Securities, Continued
--------------------------------------
<TABLE>
<CAPTION>
In Thousands
Securities Available-For-Sale
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and
other U.S.
Government agencies
and corporations $18,270 36 873 17,433
Obligations of states
and political
subdivision 2,329 87 3 2,413
Corporate and other
securities 572 - 2 570
Mortgage backed
securities 3,544 11 167 3,388
------- -- --- -----
$24,715 134 1,045 23,804
======== === ===== ======
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
In Thousands
--------------------
Estimated
Amortized Market
Securities Held-To-Maturity Cost Value
-------------------------------------- --------- ---------
<S> <C> <C>
Due in one year or less $ 1,570 1,584
Due after one year through five years 23,795 24,222
Due after five years through ten years 18,693 19,293
Due after ten years 2,541 2,586
--------- ---------
46,599 47,685
Mortgage backed securities 2,238 2,154
--------- ---------
$ 48,837 49,839
========= =========
</TABLE>
F-16
<PAGE> 74
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(3) Debt and Equity Securities, Continued
-------------------------------------
<TABLE>
<CAPTION>
In Thousands
------------------------
Estimated
Amortized Market
Securities Available-For-Sale Cost Value
----------------------------- --------- ---------
<S> <C> <C>
Due in one year or less $ 3,002 2,986
Due after one year through five years 11,525 11,595
Due after five years through ten years 11,295 11,525
Due after ten years 3,186 3,169
--------- ------
29,008 29,275
Mortgage backed securities 2,390 2,319
Federal Home Loan Bank stock 584 584
Federal Reserve Bank stock 91 91
--------- ------
$ 32,073 32,269
========= ======
</TABLE>
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------------------
For the Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $9,888 21,885 2,342
====== ======= =====
Gross realized gains $ 103 225 58
Gross realized losses 52 297 -
------ ------- -----
Net realized gains (losses) $ 51 (72) 58
====== ======= =====
</TABLE>
The Company also realized a gain of $12,000 and $8,000 in 1995 and 1994,
respectively related to calls of a securities classified as
held-to-maturity.
The Company periodically applies the stress test to its securities
portfolio. To meet the stress test a security's estimated market value
should not decline more than certain percentages given certain assumed
interest rate increases. The Company had no securities to fail the
stress test at December 31, 1995.
Securities with approximate carrying values of $17,818,000 (approximate
market value of $18,119,000) and $16,018,000 (approximate market value of
$15,502,000) at December 31, 1995 and 1994, respectively, were pledged to
secure public deposits, securities sold under agreements to repurchase
and for other purposes required or permitted by law.
Included in the securities above at December 31, 1995, are approximately
$19,688,000 at amortized cost (approximate market value of $20,222,000)
in obligations of political subdivisions located within the State of
Tennessee. Management purchases only obligations of such political
subdivisions it considers to be financially sound.
F-17
<PAGE> 75
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(3) Debt and Equity Securities, Continued
-------------------------------------
Securities that have rates that adjust prior to maturity totaled
$13,862,000 (market value $12,962,000) at December 31, 1995.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $584,000 and $556,000 at December 31, 1995 and 1994,
respectively. The stock can be sold back at par and only to the Federal
Home Loan Bank or to another member institution.
(4) Premises and Equipment
----------------------
The detail of premises and equipment at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
1995 1994
------ ------
<S> <C> <C>
Land $426 180
Buildings 2,010 1,933
Furniture and equipment 1,990 1,864
------ ------
4,426 3,977
Less accumulated depreciation (2,545) (2,323)
------ ------
$1,881 1,654
====== ======
</TABLE>
(5) Deposits
--------
Deposits at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------
1995 1994
-------- -------
<S> <C> <C>
Demand deposits $19,002 18,207
Negotiable order of withdrawals 18,500 19,343
Money market demand accounts 11,087 12,890
Savings deposits 22,132 22,198
Certificates of deposit $100,000
or greater 26,274 25,796
Other certificates of deposit 49,043 42,620
Individual retirement accounts $100,000
or greater 1,388 939
Other individual retirement accounts 7,125 6,638
-------- -------
$154,551 148,631
======== =======
</TABLE>
F-18
<PAGE> 76
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(5) Deposits, Continued
-------------------
Principal maturities of certificates of deposit and individual retirement
accounts at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
---------------- --------------- --------------- ------
<S> <C> <C> <C>
3 months or less $15,731 8,536 24,267
3 to 6 months 14,639 6,783 21,422
6 to 12 months 18,470 10,012 28,482
1 to 5 years 7,328 2,331 9,659
------- ------ ------
$56,168 27,662 83,830
======= ====== ======
</TABLE>
The subsidiary bank is required to maintain cash balances with the
Federal Reserve Bank or other correspondent banks based on certain
percentages of deposit types. The average required amounts for the year
ended December 31, 1995 was approximately $903,000.
(6) Securities Sold Under Repurchase Agreements
-------------------------------------------
The maximum amounts of outstanding repurchase agreements at any month end
during 1995 and 1994 was $4,421,000 and $3,461,000, respectively. The
average daily balance outstanding during 1995, 1994 and 1993 was
$3,579,000, $3,097,000 and $3,890,000, respectively. The underlying
securities are typically held by other financial institutions and are
designated as pledged.
F-19
<PAGE> 77
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(7) Non-Interest Income and Non-Interest Expense
--------------------------------------------
The significant components of non-interest income and non-interest
expense for the years ended December 31 are presented below:
<TABLE>
<CAPTION>
In Thousands
------------------------------------------
For the Year Ended
December 31,
------------------------------------------
1995 1994 1993
------ ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $ 351 312 347
Other fees and commissions 159 146 145
Commissions on fiduciary activities 19 45 65
Securities gains 103 8 58
Other income 54 63 40
------- ------ -----
Total non-interest income $ 686 574 655
======= ====== =====
Non-interest expense:
Salaries and employee benefits $ 2,036 1,997 2,081
Occupancy expenses, net 197 200 240
Furniture and equipment expense 279 229 210
FDIC insurance 171 323 302
Securities losses 52 72 -
Other operating expenses 860 917 771
------- ----- ----
Total non-interest expense $ 3,595 3,738 3,604
======= ====== =====
</TABLE>
(8) Income Taxes
------------
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
December 31,
--------------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 390 662
State 73 124
------ ----
463 786
------ ----
Deferred tax liability:
Federal (184) (122)
State (34) (23)
------ ----
(218) (145)
------ ----
$ 245 641
====== ====
</TABLE>
F-20
<PAGE> 78
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(8) Income Taxes, Continued
-----------------------
The tax effects of each type of significant item that gave rise to
deferred taxes are:
<TABLE>
<CAPTION>
In Thousands
----------------------
December 31,
----------------------
1995 1994
----- -----
<S> <C> <C>
Financial statement allowance for
loan losses in excess of tax allowance $ 444 400
Excess of depreciation deducted for tax
purposes over the amounts deducted
in the financial statements (144) (145)
Excess of book pension expense over
the allowable tax deduction 19 40
Unrealized (gain) loss in investment securities
available-for-sale (74) 346
------ ----
$ 245 641
====== ====
</TABLE>
The components of income tax expense (benefit) are summarized as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1995
----
Current $ 1,054 269 1,323
Deferred (20) (4) (24)
-------- ----- -----
Total $ 1,034 265 1,299
======== ===== =====
1994
-----
Current $ 1,008 266 1,274
Deferred (60) (11) (71)
-------- ----- -----
Total $ 948 255 1,203
======== ===== =====
1993
----
Current $ 1,028 274 1,302
Deferred (65) (12) (77)
-------- ----- -----
Total $ 963 262 1,225
======== ===== =====
</TABLE>
F-21
<PAGE> 79
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(8) Income Taxes, Continued
-----------------------
A reconciliation of actual income tax expense of $1,299,000, $1,203,000
and $1,225,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, to the "expected" tax expense (computed by applying the
statutory rate of 34% to earnings before income taxes and cumulative
effect on prior years of a change in accounting principle) is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,498 1,455 1,493
State income taxes, net of Federal
income tax benefit 173 169 173
Tax exempt interest, net of interest
expense exclusion (371) (430) (436)
Other, net (1) 9 (5)
------- ----- -----
$ 1,299 1,203 1,225
======= ===== =====
</TABLE>
Total income tax expense for 1995 and 1993 includes income tax expense of
$19,000 and $22,000, respectively, related to gains on sales of
securities. A tax benefit of $24,000 related to losses on sales of
securities is included in the 1994 total income tax expense.
(9) Employee Benefit Plans
----------------------
The subsidiary bank has in effect a defined benefit noncontributory
pension plan which covers substantially all employees over 21 years of
age after they have been employed six months. The subsidiary's funding
policy provides that payments to the pension trust shall be an amount
equal to the plan's actuarial determined normal cost plus an amount
required to amortize the prior service cost over ten years.
Total pension expense including prior service costs amortization amounted
to $99,000 in 1995, $125,000 in 1994 and $131,000 in 1993. The pension
expense for 1995, 1994 and 1993 is comprised of the following components.
<TABLE>
<CAPTION>
In Thousands
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 76 80 83
Interest cost on projected
benefit obligation 125 129 140
Expected return on plan assets (116) (101) (109)
Net amortization and deferral 14 17 17
---- ---- ----
$99 125 131
==== ==== ====
</TABLE>
F-22
<PAGE> 80
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(9) Employee Benefit Plans, Continued
---------------------------------
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
In Thousands
------------------------
1995 1994
------------------------
<S> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefit obligation, including
vested benefits of $1,232,000 and $1,648,000
respectively $ 1 ,247 1,239
========= =========
Actuarial present value of projected benefits
obligation $ 1 ,867 1,906
Plan assets at fair market value 1 ,798 1,449
--------- ---------
Projected benefit obligation in
excess of plan assets 69 457
Unamortized net asset being recognized over
30 years (462) (484)
Unrecognized net gain 444 132
--------- ---------
Pension liability (net) recognized in
the consolidated balance sheets $ 51 105
========= =========
Discount rate - pre-retirement 7.5% 7.5%
========= =========
Discount rate - post-retirement 6% 6%
========= =========
Rate of increase in compensation levels 5% 5%
========= =========
Long-term rate of return on assets 8% 8%
========= =========
</TABLE>
In December, 1988 the subsidiary bank adopted a 401(k) plan which covers
eligible employees. To be eligible, an employee must have obtained the
age of 21 and must have completed 1 year of service. The provisions of
the plan provide for both employee and employer contributions. For the
years ended December 31, 1995, 1994 and 1993, the subsidiary bank
contributed $43,000, $40,000 and $43,000, respectively, to the plan.
F-23
<PAGE> 81
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(10) Regulatory Matters and Restrictions on Dividends
------------------------------------------------
The Company and its wholly-owned bank subsidiary are subject to
regulatory capital requirements administered by the Comptroller of the
Currency, Federal Deposit Insurance Corporation and the Federal Reserve.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary-actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements. The Company's capital classifications are also
subject to qualitative judgments by the Regulators about components, risk
weightings and other factors. Those qualitative judgments could also
affect the Company's and the Bank's capital status and the amounts of
dividends the subsidiary may distribute. At December 31, 1995,
management believes that the Company and its subsidiary meet all such
capital requirements to which they are subject.
The Company and its subsidiary bank are required to maintain minimum
amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. At December 31, 1995, the Company and its bank
subsidiary are required to have minimum Tier I and Tier II (total
capital) ratios of 4.0% and 8.0%, respectively. The actual ratios at
that date were 29.71% and 30.96%, respectively. The leverage ratio at
December 31, 1995 was 15.08% and the minimum requirements were 4.0%.
(11) Commitments and Contingent Liabilities
--------------------------------------
The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liability, if any, arising from such litigation and
claims will not be material to the consolidated financial position.
The Company has an unsecured $2,000,000 line of credit with another
financial institution. At December 31, 1995 and 1994, there was no
outstanding balance under the line of credit. The subsidiary bank has
lines of credit with other financial institutions totaling $5,000,000.
There was no balance outstanding under these lines of credit at December
31, 1995. The outstanding balance under these lines of credit at
December 31, 1994 was $600,000.
F-24
<PAGE> 82
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(12) Concentration of Credit Risk
----------------------------
Practically all of the Company's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the Company's
market area. Practically all such customers are depositors of the
subsidiary bank. Investment in state and municipal securities also
include governmental entities within the Company's market area. The
concentrations of credit by type of loan are set forth in note 2 to the
consolidated financial statements.
At December 31, 1995, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $2,815,000 in excess of the
Federal Deposit Insurance Corporation limit of $100,000 per institution.
In addition, Federal funds sold were deposited with one bank.
(13) Financial Instruments with Off-Balance-Sheet Risk
-------------------------------------------------
The Company is 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 consist primarily of commitments
to extend credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
In Thousands
------------------
Contract or
Notional Amount
------------------
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $5,205 4,120
Unfunded lines-of-credit 3,644 2,903
Letters of credit 1,059 2,106
-------- --------
Total $9,908 9,129
======== ========
</TABLE>
F-25
<PAGE> 83
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(13) Financial Instruments with Off-Balance-Sheet Risk, Continued
------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to be drawn upon, the total commitment amounts generally
represent future cash requirements. The Company evaluates each
customer's credit-worthiness on a case-by-case basis. The amount of
collateral, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the counterparty.
Collateral normally consists of real property.
F-26
<PAGE> 84
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(14) First McMinnville Corporation -
Parent Company Financial Information
----------------------------------------
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
In Thousands
------------------------
1995 1994
------ ------
<S> <C> <C>
Assets
------
Cash $ 1,060* 973*
Securities, available-for-sale, at market
(cost $2,000) - 2
Investment in commercial bank subsidiary 28,793* 26,401*
Due from commercial bank subsidiary - 3*
--------- ------
Total assets $ 29,853 27,379
========= ======
Liabilities and Stockholders' Equity
- -------------------------------------
Dividend payable $964 927
--------- ------
Stockholders' equity:
Common stock, par value $2.50 per share,
authorized 5,000,000, issued 579,537 shares 1,512 1,512
Additional paid-in capital 1,512 1,512
Retained earnings 27,171 25,305
Net unrealized gains (losses) on
available-for-sale securities, net
of income taxes of $74,000 and income tax
benefits of $346,000, respectively 122 (565)
--------- ------
30,317 27,764
Less cost of treasury stock of 28,366
shares in 1995 and 26,117 in 1994 (1,428) (1,312)
--------- ------
Total stockholders' equity 28,889 26,452
--------- ------
Total liabilities and
stockholders equity $ 29,853 27,379
========= ======
*Eliminated in consolidation.
</TABLE>
F-27
<PAGE> 85
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(14) First McMinnville Corporation -
Parent Company Financial Information
-----------------------------------------
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
In Thousands
------------------------------
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Income:
Dividends from commercial bank
subsidiary $ 1,406* 1,300* 1,180*
------- ----- -----
Expenses:
Other 9 5 3
------- ----- -----
9 5 3
------- ----- -----
Earnings before Federal income
tax benefits and equity in
undistributed earnings of
commercial bank subsidiary 1,397 1,295 1,177
Federal income tax benefit 3 2 1
------- ----- -----
1,400 1,297 1,178
Equity in undistributed earnings of
commercial bank subsidiary 1,706* 1,780* 2,009*
------- ----- -----
Net earnings $ 3,106 3,077 3,187
======= ===== =====
*Eliminated in consolidation.
</TABLE>
F-28
<PAGE> 86
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(14) First McMinnville Corporation -
Parent Company Financial Information
--------------------------------------
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statement of Changes in Stockholders' Equity
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
In Thousands, Except Shares
----------------------------------------------------------------------------------------
Net
Unrealized
Gains
(Losses)
On
Additional Available
Common Paid-In Retained Treasury For-Sale
Stock Capital Earnings Stock Securities Total
--------- ---------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 $ 1,512 1,512 21,317 (1,063) - 23,278
Net earnings - - 3,187 - - 3,187
Cash dividends declared,
$1.95 per share - - (1,085) - - (1,085)
Cost of 1,583 shares of
treasury stock - - - (140) - (140)
-------- ----- ------- ------- -------- ------
Balance December 31, 1993 1,512 1,512 23,419 (1,203) - 25,240
Issuance of 277,137 shares
of stock pursuant to a
2 for 1 stock split - - - - - -
Net earnings - - 3,077 - - 3,077
Cash dividends declared
$2.15 per share - - (1,191) - - (1,191)
Cost of 1,556 shares of
treasury stock - - - (109) - (109)
Effect of change to market value
method of accounting for debt and
equity securities as of January 1, 1994 - - - - 992 992
Net change in unrealized loss during the
year, net of tax benefits of $953,000 - - - - (1,557) (1,557)
-------- ----- ------- ------- -------- ------
Balance December 31, 1994 1,512 1,512 25,305 (1,312) (565) 26,452
Net earnings - - 3,106 - - 3,106
Cash dividends declared
$2.25 per share - - (1,240) - - (1,240)
Cost of 2,249 shares of
treasury stock - - - (116) - (116)
Net change in unrealized appreciation
loss during the year, net of income
taxes of $420,000 - - - - 687 687
-------- ----- ------ ------- -------- ------
Balance December 31, 1995 $ 1,512 1,512 27,171 (1,428) 122 28,889
======== ===== ====== ======= ======== ======
</TABLE>
F-29
<PAGE> 87
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(14) First McMinnville Corporation -
Parent Company Financial Information
-----------------------------------------
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows
Three Years Ended December 31, 1995
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
--------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (9) (5) (3)
Income tax benefit received from
commercial bank subsidiary 6 - -
------ ------ ------
Net cash used in operating
activities (3) (5) (3)
------ ------ ------
Cash flows from investing activities:
Dividend received from commercial
bank subsidiary 1,406 1,300 1,180
Purchase of available-for-sale securities - (2) -
Proceeds from sales of available-for-sale
securities 2 - -
------ ------ ------
Net cash provided by
investing activities 1,408 1,298 1,180
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term
notes payable 56 42 3
Repayment of short-term
notes payable (56) (42) (3)
Dividends paid (1,202) (1,112) (1,005)
Payments made to acquire Treasury
stock (116) (109) (140)
------ ------ ------
Net cash used in financing
activities (1,318) (1,221) (1,145)
------ ------ ------
Net increase in cash and cash
equivalents 87 72 32
Cash and cash equivalents at
beginning of year 973 901 869
------ ------ ------
Cash and cash equivalents at
end of year $1,060 973 901
====== ====== ======
</TABLE>
F-30
<PAGE> 88
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
--------------------------------------------------
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows, Continued
Three Years Ended December 31, 1995
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
--------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Reconciliation of net earnings to
net cash used in operating activities:
Net earnings $3,106 3,077 3,187
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Equity in earnings of
commercial bank subsidiary (3,112) (3,080) (3,189)
Increase (decrease) in other
assets, net 3 (2) (1)
------ ------ ------
Total adjustments (3,109) (3,082) (3,190)
------ ------ ------
Net cash used in operating
activities $(3) (5) (3)
====== ====== ======
</TABLE>
F-31
<PAGE> 89
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(15) Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (Statement 107), requires that the
Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods, and assumptions are set forth below for
the Company's financial instruments.
Cash and short-term investments
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investments and Mortgage-Backed Securities
The carrying amounts for short-term investments approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
investments and mortgage-backed securities, except certain state and
municipal securities, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is
not readily available through market sources other than dealer
quotations, so fair value estimates are based on quoted market prices
of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
Statement 107 specifies that fair values should be calculated based
on the value of one unit without regard to any premium or discount
that may result from concentrations of ownership of a financial
instrument, possible tax ramifications, or estimated transaction
costs. Accordingly, these considerations have not been incorporated
into the fair value estimates.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, mortgage, real estate construction and consumer.
The fair value of the various categories of loans is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining average estimated maturities.
F-32
<PAGE> 90
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(15) Disclosures About Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
Loans, Continued
----------------
The estimated maturity for mortgages is modified from the
contractual terms to give consideration to management's
experience with prepayments. Management has made estimates of
fair value discount rates that it believes to be reasonable.
However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair
value presented above would be indicative of the value negotiated
in an actual sale.
The value of the loan portfolio is also discounted in consideration
of the credit quality of the loan portfolio as would be the case
between willing buyers and sellers. Particular emphasis has been
given to loans on the subsidiary bank's internal watch list.
Valuation of these loans is based upon borrower performance,
collateral values (including external appraisals), etc.
Deposit Liabilities
-------------------
The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits
of similar remaining maturities. Under the provision of Statement
107 the fair value estimates for deposits does not include the
benefit that results from the low cost funding provided by the
deposit liabilities compared to the cost of borrowing funds in the
market.
Securities Sold Under Repurchase Agreements
-------------------------------------------
The securities sold under repurchase agreements are payable upon
demand. For this reason the carrying amount is a reasonable
estimate of fair value.
F-33
<PAGE> 91
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(15) Disclosures About Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
Commitments to Extend Credit, Standby Letters of Credit and
------------------------------------------------------------
Financial Guarantees Written
----------------------------
Loan commitments are made to customers generally for a period not
to exceed one year and at the prevailing interest rates in effect at
the time the loan is closed. Commitments to extend credit related
to construction loans are made for a period not to exceed six months
with interest rates at the current market rate at the date of
closing. In addition, standby letters of credit are issued for
periods up to three years with rates to be determined at the date
the letter of credit is funded. Fees are only charged for the
construction loans and the standby letters of credit and the amounts
unearned at December 31, 1995 and 1994 are insignificant.
Accordingly, these commitments have no carrying value and management
estimates the commitments to have no significant fair value.
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Value Value
-------- --------- --------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 5,272 5,272 4,128 4,128
Securities 81,106 82,108 80,276 78,261
Loans 100,859 92,193
Less: allowance for
loan losses 1,562 1,448
-------- ------- ------- -------
Loans, net of
allowance 99,297 99,486 90,745 88,807
-------- ------- ------- -------
Financial liabilities:
Deposits 154,551 154,999 148,631 148,285
Securities sold
under repurchase
agreements 4,213 4,213 2,292 2,292
Federal funds
purchased - - 600 600
Unrecognized financial
instruments:
Commitments to extend
credit - - - -
Standby letters of
credit - - - -
</TABLE>
F-34
<PAGE> 92
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1995 and 1994
(15) Disclosures About Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on estimating on-and-off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For
example, the subsidiary Bank has a trust department that
contributes net fee income annually. The trust department is not
considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant
assets and liabilities that are not considered financial assets or
liabilities include deferred tax assets and liabilities and
property, plant and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
F-35
<PAGE> 93
FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-KSB
For the Year Ended December 31, 1995
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Numbered
Exhibit Description Page
------- ----------- ------------
<S> <C> <C>
3(i) Charter of First McMinnville Corporation *
3(ii) Bylaws of First McMinnville Corporation *
4.1 Charter of First McMinnville Corporation (See Exhibit *
3(i))
4.2 Bylaws of First McMinnville Corporation (See Exhibit *
3(ii))
10.1 First National Bank of McMinnville 401(k) Retirement **
Plan.
10.2 Consulting Agreement dated December 14, 1993 between
First National Bank of McMinnville and Robert W. Jones,
as amended.
11 Statement re computation of per share earnings ***
21 Subsidiary of First McMinnville Corporation
27 Financial Data Schedule (for SEC use only)
____________________________
</TABLE>
* Incorporated herein by reference to exhibits filed with Form
10-KSB Annual Report under the Securities Exchange Act of 1934, as amended, for
the fiscal year ended December 31, 1994.
** Incorporated herein by reference to exhibits filed with Form
10-K Annual Report under the Securities Exchange Act of 1934, as amended, for
the fiscal year ended December 31, 1988.
*** Incorporated by reference to the Consolidated Statements of
Earnings of First McMinnville Corporation's Consolidated Annual Financial
Statements for the year ended December 31, 1994.
<PAGE> 1
Exhibit 10.2
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT made and entered into this 9th day of
February, 1996, by and between FIRST NATIONAL BANK OF MCMINNVILLE (the "Bank")
and ROBERT W. JONES ("Consultant");
WHEREAS, Consultant has agreed to perform certain consulting services
for the Bank; and
WHEREAS, the Bank desires to retain the services of Consultant; and
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. CONSULTING SERVICES. Consultant agrees to provide the
following services:
(a) to serve as Chairman of the Board of Directors;
(b) act as liaison between the Board of Directors, Senior
Management and the Bank staff;
(c) recruit new Board members as needed;
(d) to attend Bank related functions as is deemed necessary by the
Board of Directors.
2. COMPENSATION. As compensation for the consulting services
provided by Consultant, the Bank agrees to pay the Consultant on the first
(1st) of every month the amount of $1,000.00, which equates to an annual
consulting fee of $12,000.00. The first payment shall be due February 1, 1996.
The Consultant shall under no circumstances be deemed an employee of the Bank
and Consultant shall be responsible for self-employment tax on all consulting
fees received. The Consultant shall not be eligible to participate in any
employee pension or profit sharing plans.
3. ATTENDANCE TO NATIONAL, STATE AND LOCAL MEETINGS. The Bank
and the Consultant mutually agree that in order for the Consultant to properly
perform his consulting services, the Consultant shall attend meetings. For
example
(a) Tennessee Bankers Association;
(b) American Bankers Association; and
(c) Other Bank related meetings.
The Consultant and his employees shall attend the meetings set out
above unless it is deemed unnecessary by Consultant. All expenses of
attendance of the meetings including travel, lodging, meals and entertainment
expenses shall be reimbursed to the Consultant by the Bank.
4. ENTERTAINMENT EXPENSES. The Consultant shall be expected to
perform a limited amount of entertaining in his role as Chairman of the Board
of Directors with said expenses being reimbursed by the Bank. The Consultant
shall provide full documentation of all expenditures when submitting any
request for reimbursement.
5. CIVIC ORGANIZATIONS. The Bank believes that it is
necessary in order for the Consultant to fulfill his consulting obligations for
the Consultant to be an active member in various civic and community
organizations such as Rotary, etc. The Consultant shall pay all the costs
including, but not limited to, dues associated with said organizations.
<PAGE> 2
6. SECRETARIAL AND OFFICE SPACE. The Bank shall provide an
office for the Chairman to use on an as-needed basis at the Bank and shall
provide secretarial services and other support services as are necessary for
the Consultant to properly perform his consulting services.
7. TERM. This Consulting Agreement shall begin on January 1,
1996 and shall be renewed annually as long as Robert W. Jones serves as
Chairman of the Board. This Consulting Agreement shall automatically be
terminated upon the death of the Consultant. The Consultant's estate shall be
entitled to receive payment for all expenditures incurred by the Consultant on
behalf of the Bank for which Consultant is entitled to reimbursement.
8. Any notice required or desired to be given pursuant to this
Agreement shall be in writing and mailed to the parties at the following
addresses:
If to Consultant:
Mr. Robert W. Jones
If to Bank:
First National Bank
200 East Main Street
McMinnville, TN 37110
9. GOVERNING LAW. This Agreement shall be governed by Tennessee
Law.
10. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
IN WITNESS WHEREOF; the parties have executed this Agreement on the
date first written above.
FIRST NATIONAL BANK OF MCMINNVILLE
By:/s/ Charles Jacobs
----------------------------------
Title: Pres.
------------------------------
/s/ Robert W. Jones
------------------------------------
Robert W. Jones
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First McMinnville
Corporation at December 31, 1995. Such subsidiary is wholly owned by the
Company and it is included in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
Percentage of Voting
Name of Subsidiary Jurisdiction of Incorporation Securities Owned
- ------------------ ----------------------------- -----------------
<S> <C> <C>
The First National Federal 100%
Bank of McMinnville
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORPORATION FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,872
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 48,837
<INVESTMENTS-MARKET> 49,839
<LOANS> 100,859
<ALLOWANCE> 1,562
<TOTAL-ASSETS> 190,663
<DEPOSITS> 154,551
<SHORT-TERM> 4,213
<LIABILITIES-OTHER> 3,010
<LONG-TERM> 0
0
0
<COMMON> 1,512
<OTHER-SE> 27,377
<TOTAL-LIABILITIES-AND-EQUITY> 190,663
<INTEREST-LOAN> 8,802
<INTEREST-INVEST> 4,929
<INTEREST-OTHER> 161
<INTEREST-TOTAL> 13,892
<INTEREST-DEPOSIT> 6,305
<INTEREST-EXPENSE> 6,418
<INTEREST-INCOME-NET> 7,474
<LOAN-LOSSES> 160
<SECURITIES-GAINS> 51
<EXPENSE-OTHER> 3,543
<INCOME-PRETAX> 4,405
<INCOME-PRE-EXTRAORDINARY> 4,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,106
<EPS-PRIMARY> 5.62
<EPS-DILUTED> 5.62
<YIELD-ACTUAL> 4.57
<LOANS-NON> 407
<LOANS-PAST> 85
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,165
<ALLOWANCE-OPEN> 1,448
<CHARGE-OFFS> 86
<RECOVERIES> 40
<ALLOWANCE-CLOSE> 1,562
<ALLOWANCE-DOMESTIC> 1,562
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
