<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
--------
[X] QUARTERLY REPORT PURSUANT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 2-90200
--------
FIRST MCMINNVILLE CORPORATION
------------------------------------------------------
(Exact Name of Registrant As Specified in its Charter)
Tennessee 62-1198119
- --------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
200 East Main Street, McMinnville, TN 37110
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(931) 473-4402
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: October 21, 1997 - 536,244.
---------------------------
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the registrant
and its wholly-owned subsidiary First National Bank of
McMinnville (the "Bank") are as follows:
Consolidated Balance Sheets - September 30, 1997 and December 31,
1996.
Consolidated Statements of Earnings - For the three months and
nine months ended September 30, 1997 and 1996.
Consolidated Statements of Cash Flows - For the nine months ended
September 30, 1997 and 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
2
<PAGE> 3
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
------------ -----------
(In Thousands)
<S> <C> <C>
Assets
Loans $ 113,159 109,664
Less: Allowance for loan losses (1,815) (1,724)
--------- --------
Net loans 111,344 107,940
Securities:
Held to maturity, at cost (market value $47,883,000 and
$55,232,000, respectively) 46,961 54,521
Available-for-sale, at market (amortized cost $40,048,000
and $24,468,000, respectively) 40,303 24,288
Interest-bearing deposits in other banks 100 100
Federal funds sold 300 --
--------- --------
Total earning assets 199,008 186,849
Cash and due from banks 5,365 3,532
Bank premises and equipment, net of accumulated depreciation 2,291 2,368
Accrued interest receivable 2,175 1,903
Deferred tax asset 240 405
Other real estate 11 69
Other assets 589 606
--------- --------
$ 209,679 195,732
========= ========
Liabilities and Stockholders' Equity
Deposits $ 170,224 159,746
Securities sold under repurchase agreements 4,189 2,531
Federal fund purchased -- 500
Other liabilities 2,551 2,930
--------- --------
Total liabilities 176,964 165,707
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares
issued 580,537 shares and 579,537 shares, respectively 1,514 1,512
Additional paid-in capital 1,568 1,512
Retained earnings 31,773 29,321
Net unrealized gains (losses) on available-for-sale securities,
net of income taxes of $97,000 and tax benefits of
$68,000, respectively 158 (111)
--------- --------
35,013 32,234
Less cost of treasury stock of 44,293 shares and 42,754 shares,
respectively (2,298) (2,209)
--------- --------
Total stockholders' equity 32,715 30,025
--------- --------
$ 209,679 195,732
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 4
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars In Thousands, Except Per Share Amount)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,447 2,304 7,221 6,862
Interest and dividends on securities:
Taxable securities 1,126 1,022 3,241 2,898
Tax exempt from Federal income taxes 298 331 875 984
Interest on federal funds sold 56 -- 166 74
Interest on interest-bearing deposits in other banks and
other interest 2 2 5 5
-------- ------- ------- -------
Total interest income 3,929 3,659 11,508 10,823
-------- ------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 119 119 356 356
Interest on money market demand and savings accounts 284 242 843 724
Interest on certificates of deposit 1,375 1,246 3,959 3,759
Interest on securities sold under repurchase agreements
and short term borrowings 34 23 81 64
Interest on Federal funds purchased -- 36 10 39
-------- ------- ------- -------
Total interest expense 1,812 1,666 5,249 4,942
-------- ------- ------- -------
Net interest income 2,117 1,993 6,259 5,881
Provision for loan losses 30 30 90 30
-------- ------- ------- -------
Net interest income after provision for loan losses 2,087 1,963 6,169 5,851
-------- ------- ------- -------
Other income:
Service charges on deposit accounts 119 127 366 390
Other fees and commissions 58 50 177 125
Commissions and fees on fiduciary activities 8 8 25 20
Security gains related to available-for-sale securities -- 49 9 53
Other income 12 5 32 22
-------- ------- ------- -------
Total other income 197 239 609 610
-------- ------- ------- -------
Other expenses:
Salaries and employee benefits 628 507 1,806 1,568
Occupancy expenses, net 82 60 192 167
Furniture and equipment expense 24 23 69 65
Data processing expense 50 69 157 180
Security losses related to available-for-sale securities 18 57 18 146
Other operating expenses 224 214 647 638
-------- ------- ------- -------
Total other expenses 1,026 930 2,889 2,764
-------- ------- ------- -------
Earnings before income taxes 1,258 1,272 3,889 3,697
Income taxes 370 337 1,169 1,059
-------- ------- ------- -------
Net earnings $ 888 935 2,720 2,638
======== ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding 536,863 538,635 536,626 545,242
======== ======= ======= =======
Per share amounts:
Net earnings $ 1.65 1.74 5.07 4.84
======== ======= ======= =======
Dividends $ -- -- .50 .50
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 11,191 10,605
Fees and commissions received 600 557
Interest paid (4,769) (4,877)
Cash paid to suppliers and employees (2,429) (2,286)
Income taxes paid (1,260) (1,025)
-------- -------
Net cash provided by operating activities 3,333 2,974
-------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 17,216 14,897
Proceeds from maturities of available-for-sale securities 10,313 4,549
Proceeds from sales of available-for-sale securities 5,284 8,944
Purchase of available-for-sale securities (31,153) (6,724)
Purchase of held-to-maturity securities (9,644) (21,324)
Loans made to customers, net of repayments (3,494) (4,865)
Purchase of premise and equipment (96) (571)
Proceeds from sales of other real estate 58 200
-------- -------
Net cash used in investing activities (11,516) (4,894)
-------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 435 770
Net increase in time deposits 10,043 2,520
Increase (decrease) in securities sold under repurchase
agreement 1,658 (23)
Increase (decrease) in Federal funds purchased (500) 1,800
Dividends paid (1,290) (1,239)
Payments to acquire treasury stock (88) (781)
Advances on line of credit -- 45
Repayment of advances on line of credit -- (45)
Proceeds from sales of common stock 58 --
-------- -------
Net cash provided by financing activities 10,316 3,047
-------- -------
Net increase in cash and cash equivalents 2,133 1,127
Cash and cash equivalents at beginning of period 3,532 5,172
-------- -------
Cash and cash equivalents at end of period $ 5,665 6,299
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 2,720 2,638
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 173 152
Provision for loan losses 90 30
Securities losses related to available-for-sale 18 146
Security gains related to available-for-sale (9) (53)
FHLB dividend reinvestment (33) (31)
Decrease in refundable income taxes 15 25
Increase in interest receivable (272) (174)
Increase (decrease) in taxes payable (106) 9
Increase in interest payable 480 65
Decrease (increase) in other assets 2 (35)
Increase in other liabilities 255 202
-------- ---------
Total adjustments 613 336
-------- ---------
Net cash provided by operating activities $ 3,333 2,974
======== =========
Supplemental schedule of non-cash activities:
Non-cash transfers from loans to other real estate $ -- $ 41
======== =========
Unrealized gain (loss) in value of securities available-for-
sale, net of income taxes of $165,000 in 1997 and
income tax benefits of $289,000 in 1996 $269,000 $(473,000)
======== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
McMinnville Corporation (Company) and its wholly-owned subsidiary, The First
National Bank of McMinnville (Bank).
The accompanying consolidated financial statements have been prepared, without
audit, in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of September 30, 1997 and December 31, 1996, and the results of operations
for the nine months and three months ended September 30, 1997 and 1996 and
changes in cash flows for the nine months ended September 30, 1997 and 1996. All
significant intercompany transactions have been eliminated. The interim
consolidated financial statements should be read in conjunction with the notes
to the consolidated financial statements presented in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996. The results for
interim periods are not necessarily indicative of results to be expected for the
complete fiscal year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Balance, January 1, 1997 and 1996, respectively $ 1,724 $1,562
Add (deduct):
Losses charged to allowance (24) (77)
Recoveries credited to allowance 25 48
Provision for loan losses 90 30
------- ------
Balance, September 30, 1997 and 1996, respectively $ 1,815 1,563
======= ======
</TABLE>
7
<PAGE> 8
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The purpose of this discussion is to provide insight into the
financial condition and results of operations of the Registrant and its
subsidiary. This discussion should be read in conjunction with the consolidated
financial statements. Reference should also be made to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996 for a complete
discussion of factors that impact liquidity, capital and the results of
operations.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and
its subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is designed to maintain
stability in the balance of interest-sensitive assets to interest-sensitive
liabilities in order to provide a stable growth in net interest margins.
Earnings on interest-sensitive assets such as loans tied to the prime rate of
interest and federal funds sold, may vary considerably from fixed rate assets
such as long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
Banks, in general, must maintain large cash balances to meet
day-to-day cash flow requirements as well as maintaining required reserves for
regulatory agencies. The cash balances maintained are the primary source of
liquidity. Federal funds sold, which are basically overnight or short-term loans
to other banks that increase the other bank's required reserves, are also a
major source of liquidity.
The Company's investment portfolio consists of earning assets that
provide interest income. For those securities classified as held-to-maturity the
Company has the ability and intention to hold these securities until maturity.
Securities classified as available for sale include securities intended to be
used as part of the Company's asset/liability strategy and/or securities that
may be sold in response to changes in interest rate, prepayment risk, the need
or desire to increase capital and similar economic factors. Securities totaling
approximately $4.4 million mature or reprice within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At
September 30, 1997 commercial loans of approximately $35.5 million and other
loans (mortgage and consumer) of approximately $6.6 million either will become
due or will be subject to rate adjustments within twelve months. Continued
emphasis will be placed on structuring adjustable rate loans.
8
<PAGE> 9
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
As for liabilities, certificates of deposit of $100,000 or greater
of approximately $26.6 million will become due during the next twelve months.
The Bank's deposit base increased approximately $10.5 million during the nine
months ended September 30, 1997. Securities sold under repurchase agreements
increased approximately $1.7 million during the nine months ended September 30,
1997 and decreased approximately $302,000 during the three months ended
September 30, 1996. The deposit base increased approximately $3,300,000 during
the nine months ended September 30, 1996.
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.
The Bank is limited by banking regulatory agencies as to the amount
of dividends that it can pay. At September 30, 1997, the Bank can declare during
the remainder of 1997 cash dividends in an aggregate amount not to exceed
approximately $5.6 million, exclusive of any 1997 net earnings, without prior
approval of the Comptroller of the Currency. However, most of these funds will
be retained for use in the Bank's operations rather than being paid out in
dividends. 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, demands,
events or uncertainties that management believes will result in or that are
reasonable likely to result in the Company's liquidity changing in any material
way.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholder's equity to total assets was 15.6% at
September 30, 1997 and 15.3% at December 31, 1996. Total assets increased 7.1%
during the nine months ended September 30, 1997. The annualized rate of return
on stockholders' equity for the first nine months of 1997 was 12.1% compared to
12.2% for the comparable period in 1996. The high percentage of equity capital
to total assets contributes to a return on equity lower than the average for
banks in the Bank's peer group. Dividends of $269,000 and $274,000 or $.50 per
share were declared in the nine months ended September 30, 1997 and 1996,
respectively. Cash dividends will be paid or increased in the remainder of 1997
over 1996 only in the discretion of the Board of Directors and as profits
permit. Dividends paid during 1996 were $2.40 per share. No material changes in
the mix or cost of capital is anticipated in the foreseeable future.
The subsidiary bank opened a new branch during the third quarter
of 1997 at a total cost of approximately $75,000. The Bank closed one branch
during the second quarter of 1997. The Bank also opened a new branch during the
third quarter of 1996 and completed the renovations of the main office during
the first quarter of 1996. At the present time, there are no other material
commitments for capital expenditures.
9
<PAGE> 10
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
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 which includes 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 total capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio defined as Tier 1
capital to average total assets of at least 4.0%. 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 27.6%, a total capital to risk-based ratio
of 28.8% and a Tier 1 leverage ratio of 15.6%, 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 require 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 exceeded the
minimums required under these Federal Reserve Board guidelines at September 30,
1997.
On April 8, 1997, the Company's stockholders approved the First
McMinnville Corporation 1997 Stock Option Plan. The Company has granted the
right to purchase 41,000 shares of stock to its directors, officers and
employees at an exercise price of $58.15 per share. At September 30, 1997 1,000
shares had been exercised and 5,400 shares were exercisable. The shares granted
to Directors totaling 16,500 are exercisable over a three year period. Shares
granted to officers and employees are exercisable over a period of 10 years or
the members years until the optionee reaches age 65, whichever is less. The
Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The
impact of the adoption of SFAS No. 123 will be reflected as a proforma
disclosure in the notes to the annual consolidated financial statements and will
be immaterial to the financial statements taken as a whole.
10
<PAGE> 11
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS
Net earnings were $2,720,000 for the nine months ended September
30, 1997 as compared to $2,638,000 for the same period in 1996. Net earnings
were $888,000 for the quarter ended September 30, 1997 as compared to $935,000
during the same quarter in 1996.
As in most financial institutions, a major element in analyzing
the statement of earnings is net interest income which is the excess of interest
earned over interest paid. This is particularly true with the volatility of
interest rates encountered in recent years.
The Company's interest income, excluding tax equivalent adjustments,
increased by $685,000 or 6.3% during the nine months ended September 30, 1997
as compared to the comparable period in 1996. Interest income for the quarter
ended September 30, 1997 increased $270,000 or 7.4% when compared to the
quarter ended September 30, 1996 and $415,000 or 5.79% as compared to the second
quarter of 1997. The increases were primarily attributable to an increase in
average earning assets. The ratio of average earning assets to total average
assets was 96.2% for the nine months ended September 30, 1997 as compared to
95.6% for the same period in 1996.
Interest expense increased by $307,000 for the nine months ended
September 30, 1997 or 6.2% as compared to the same period in 1996. Interest
expense for the quarter ended September 30, 1997 increased $146,000 or 8.8% as
compared to the quarter ended September 30, 1996. Interest expense for the
quarter ended September 30, 1997 increased $49,000 or 2.8% over the quarter
ended June 30, 1997. Such increases in interest expense can be attributable
primarily to an increase in average interest bearing liabilities.
The foregoing resulted in net interest income of $6,259,000 for
the nine months ended September 30, 1997, an increase of $378,000 or 6.4%
compared to the prior year period. Net interest income for the quarter ended
September 30, 1997 increased $124,000 or 6.2% as compared to the third quarter
of 1996 and increased $2,000 or .09% over the quarter ended June 30, 1997.
The provision for loan losses was $90,000 and $30,000 for the
first nine months of 1997 and 1996, respectively. The provision was $30,000 for
each of the quarters ended September 30, 1997 and 1996, respectively. The
provision for loan losses is based on past loan experience and other factors
which, in management's judgment, deserve current recognition in estimating
possible loan losses. Such factors include past loan loss experience, growth and
composition of the loan portfolio, review of specific loan problems, the
relationship of the allowance for loan losses to outstanding loans, and current
economic conditions that may affect the borrower's ability to repay. Management
has in place a system that is designed to identify and to monitor loan problems
on a timely basis.
11
<PAGE> 12
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". These pronouncements apply to
impaired loans except for large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment including credit card, residential
mortgage, and consumer installment loans. The adoption of the pronouncements had
no material impact on the Company's consolidated financial statements.
A loan is impaired when it is probable that the Company will be
unable to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with a corresponding
charge to the provision for loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $49,000,000, $2,500,000 and
$301,000, respectively at September 30, 1997, are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and thus are not subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for impairment under
the provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be impaired.
Loans are placed on nonaccrual status when doubt as to timely collection of
principal or interest exists, or when principal or interest is past due 90 days
or more unless such loans are well-secured and in the process of collection.
Delays or shortfalls in loan payments are evaluated with various other factors
to determine if a loan is impaired. Generally, delinquencies under 90 days are
considered insignificant unless certain other factors are present which indicate
impairment is probable. The decision to place a loan on nonaccrual status is
also based on an evaluation of the borrower's financial condition, collateral,
liquidation value, and other factors that affect the borrower's ability to pay.
12
<PAGE> 13
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At
September 30, 1997, the Company had no loans on nonaccrual status and there were
no nonaccrual loans outstanding at any time during the nine months and year
ended September 30, 1997 and December 31, 1996, respectively. Therefore, all
interest income during these periods was recognized on the accrual basis.
Loans not on nonaccrual status are classified as impaired in certain
cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the
terms of which have been modified in a troubled debt restructuring after January
1, 1995. Interest is accrued on such loans that continue to meet the modified
terms of their loan agreements. At September 30, 1997, the Company had no loans
that have had the terms modified in a troubled debt restructuring.
The Company's charge-off policy for impaired loans is similar to
its charge-off policy for all loans in that loans are charged-off in the month
when they are considered uncollectible.
Impaired loans and related allowance for loan loss amounts at
September 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
Allowance Allowance
Recorded for Recorded for
(In Thousands) Investment Loan Loss Investment Loan Loss
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Impaired loans with allowance for
loan loss $4,082 1,200 4,186 1,200
Impaired loans with no allowance
for loan loss -- -- -- --
------ ----- ----- -----
$4,082 1,200 4,186 1,200
====== ===== ===== =====
</TABLE>
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral.
13
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The average recorded investment in impaired loans for the nine
months ended September 30, 1997 and 1996 was $4,133,000 and $4,410,000,
respectively. The related amount of interest income recognized on the accrual
method for the period that such loans were impaired was $297,000 and $317,000
for 1997 and 1996, respectively.
The following schedule details selected information as to
non-performing loans of the Company at September 30, 1997:
<TABLE>
<CAPTION>
September 30, 1997
---------------------------
Past Due
90 Days Non-Accrual
-------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 171 -
Installment loans 14 -
Commercial 128 -
----- -----
$ 313 -
===== =====
Renegotiated loans $ - -
===== =====
</TABLE>
At September 30, 1997, loans which include the above, totaling
$7,711,000 were included in the Company's internal classified loan list. Of
these loans $1,117,000 are real estate and $6,594,000 are commercial and other.
The collateral values securing these loans total approximately $11,249,000,
($1,693,000 related to real property and $9,556,000 related to commercial and
other). 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 loan classifications do not represent or result from trends or
uncertainties which management expects will materially impact future operating
results, liquidity or capital resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at September
30, 1997 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
14
<PAGE> 15
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Non-interest income excluding securities transactions increased
$43,000 or 7.7% during the nine months ended September 30, 1997 as compared to
the same period in 1996. The increase for the quarter ended September 30, 1997
was $7,000 or 3.7% as compared to the comparable quarter in 1996. The increases
were due primarily to an increase in other fees and commissions of $52,000 or
41.6% for the nine months ended September 30, 1997 compared to the same period
in 1996. This increase was partially offset by a decrease of $24,000 or 6.2% in
service charges on deposit accounts for the nine month period ended September
30, 1997 compared to the same period in the prior year. The increases in other
fees and commissions consisted primarily of increases in document preparation
fees and abstract title fees. This was the result of the employment of an
in-house attorney who performs title related work related to mortgage loans. The
decrease in service charges on deposit accounts resulted primarily from
decreases in non-sufficient fund and returned check charges together with
decreases in service charges on deposit transaction accounts. Commissions and
service charges are monitored continually to seek maximum return based on costs
and competition.
Securities gains and losses during the nine months ended September
30, 1997 amounted to $9,000 and $18,000, respectively, as compared to gains of
$53,000 and $146,000 for the comparable period in 1996. The gains during 1997
and 1996 related to transactions in the available-for-sale category. These gains
and losses were incurred primarily in conjunction with management's strategies
to restructure the investment portfolio to improve the quality of the portfolio,
to improve maturity distribution and to maintain a flexible position to react to
market conditions.
Non-interest expense, excluding securities transactions, increased
$253,000 or 9.7% during the first nine months of 1997 as compared to the same
period in 1996. The increase for the quarter ended September 30, 1997 was
$135,000 or 15.5% as compared to the quarter ended September 30, 1996. The
increase during the nine months ended September 30, 1997 resulted primarily from
an increase in salary and employee benefits and increased occupancy expenses.
These increases relate to normal cost of living and performance increases along
with increases related to the opening of the new branch.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material adverse
effect on the Company's liquidity, capital resources or operations.
The Company will implement SFAS No. 128 - "Earnings Per Share" as
of December 31, 1997. Implementation of the pronouncement is not expected to
have a significant impact on reported earnings per share.
SFAS 130 - "Reporting Comprehensive Income" is effective for fiscal
years beginning after December 15, 1997. The Company has not determined the
effect of the adoption of SFAS 130.
15
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
FORM 10-Q CONTINUED
IMPACT OF INFLATION
The primary impact which inflation has on the results of the
Company's operations is evidenced by its effects on interest rates. Interest
rates tend to reflect, in part, the financial market's expectations of the level
of inflation and, therefore, will generally rise or fall as the level of
expected inflation fluctuates. To the extent interest rates paid on deposits and
other sources of funds rise or fall at a faster rate than the interest income
earned on funds, loans or invested, net interest income will vary. Inflation
also impacts non-interest expenses as goods and services are purchased, although
this has not had a significant effect on net earnings. If the inflation rate
stays flat or increases slightly, the effect on profits is not expected to be
significant.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This
schedule contains summary financial information extracted from the
consolidated financial statements of the Company at September 30,
1997 (unaudited) and is qualified in its entirety by reference to
such financial statements as set forth in the Company's quarterly
report on Form 10-Q for the period ending September 30, 1997.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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)
DATE: November 10, 1997 /s/ Charles C. Jacobs
-------------------------- --------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: November 10, 1997 /s/ Kenny D. Neal
-------------------------- --------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORPORATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,365
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,303
<INVESTMENTS-CARRYING> 46,961
<INVESTMENTS-MARKET> 47,883
<LOANS> 113,159
<ALLOWANCE> 1,815
<TOTAL-ASSETS> 209,679
<DEPOSITS> 170,224
<SHORT-TERM> 4,189
<LIABILITIES-OTHER> 2,551
<LONG-TERM> 0
0
0
<COMMON> 1,514
<OTHER-SE> 31,201
<TOTAL-LIABILITIES-AND-EQUITY> 209,679
<INTEREST-LOAN> 7,221
<INTEREST-INVEST> 4,116
<INTEREST-OTHER> 171
<INTEREST-TOTAL> 11,508
<INTEREST-DEPOSIT> 5,158
<INTEREST-EXPENSE> 5,249
<INTEREST-INCOME-NET> 6,259
<LOAN-LOSSES> 90
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 2,871
<INCOME-PRETAX> 3,889
<INCOME-PRE-EXTRAORDINARY> 3,889
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,720
<EPS-PRIMARY> 5.07
<EPS-DILUTED> 5.07
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 313
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,711
<ALLOWANCE-OPEN> 1,724
<CHARGE-OFFS> 24
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 1,815
<ALLOWANCE-DOMESTIC> 1,815
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,815
</TABLE>
