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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1996
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, 1996 were
$15,329,000.
(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, 1997 is approximately $27,152,321. 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 475,439 shares held by
non-affiliates at February 14, 1997.
The number of shares outstanding for each of the Registrant's classes
of common stock, as of February 14, 1997: 536,377.
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, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I ............................................................................................. 1
ITEM 1 DESCRIPTION OF BUSINESS .............................................................. 1
ITEM 2 DESCRIPTION OF PROPERTY .............................................................. 32
ITEM 3 LEGAL PROCEEDINGS .................................................................... 32
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................................. 32
PART II ............................................................................................ 32
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............................. 32
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION* ........................... 35
ITEM 7 FINANCIAL STATEMENTS ................................................................. 44
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ............................................... 44
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 ........................................................................... 50
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................................... 52
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ..................................................... 52
Signatures ................................................................................... 54
Supplemental Information ..................................................................... 56
Exhibit Index ................................................................................ 58
Index To Financial Statements ................................................................ F-1
</TABLE>
*Management's discussion and analysis may include forward-looking
statements. Many factors affect First McMinnville Corporation's (the "Company")
financial condition and profitability, including changes in economic conditions,
the volatility of interest rates, political events and competition from other
providers of financial services. Because these factors are unpredictable and
beyond the Company's control, earnings may fluctuate from period to period. The
purpose of this discussion and analysis is to provide Form 10-KSB readers with
information relevant to understanding and assessing the financial condition and
results of operations of the Company.
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
THE COMPANY
First McMinnville Corporation (the "Company") is a bank holding company
that, at February 28, 1997, owned all of the stock of The First National Bank of
McMinnville (the "Bank" or "The First National Bank"). At December 31, 1996, the
Company had total assets of approximately $195,732,000 and total Shareholders'
equity of $30,025,000. The Company reported net earnings of approximately
$3,444,000 for fiscal 1996. The Company, a financial services corporation
incorporated under the laws of the State of Tennessee, was formed in 1984 for
the purpose of acquiring all issued and outstanding common stock of The First
National 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").
At December 31, 1996, the Bank's total loans (net of reserve for possible loan
losses) were $107,940,000 and its total deposits were $159,746,000.
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.
(a) Business Development.
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).
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.
(b) Business of the Company.
The Company's principal business is the ownership of the Bank. The Company
currently conducts all of its material operations 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 Company's principal source of income in 1996 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.
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FINANCIAL SUMMARY OF THE COMPANY
A financial summary of the Company and its consolidated Subsidiary is
detailed below (amounts are rounded):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total Assets $195,732,000 $190,663,000 $180,486,000 $170,913,000 $169,144,000
Deposits $159,746,000 $154,551,000 $148,631,000 $140,162,000 $134,377,000
Shareholders' Equity $ 30,025,000 $ 28,889,000 $ 26,452,000 $ 25,240,000 $ 23,278,000
</TABLE>
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, trust and other financial services throughout the
Tennessee markets of Warren County and other contiguous counties, as well as, to
a lesser extent, other areas. The First National Bank, a national banking
association, was originally established in 1874. The Bank operates four
automated teller machines ("ATMs").
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
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 National Bank of Commerce, Memphis, Tennessee. The
Bank operates a trust department. 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 financial services, to
banks, and to bank holding companies. Certain of the laws and regulations that
affect these operations are outlined briefly below.
There also have been a number of recent legislative and regulatory
proposals designed to overhaul or otherwise "strengthen" the federal deposit
insurance system and to improve the overall financial stability of the banking
system in the United States. Some of these proposals provide for other changes
in the bank regulatory structure, including proposals to reduce regulatory
burdens on banking organizations and to expand (or to limit) the nature of
products and services banks and bank holding companies may offer. It is not
possible to predict whether or in what form these
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proposals may be adopted in the future, and, if adopted, their impact upon
either the Company or the financial services industries in which the Company and
the Bank compete.
SUBSIDIARY
The Bank is the Company's sole subsidiary (the "Subsidiary").
SERVICES AND TRANSACTIONS WITH SUBSIDIARY
Intercompany transactions between the Company and its Subsidiary are
subject to restrictions of existing banking laws (such as Sections 23A and 23B
of the Federal Reserve Act) and accepted principles of fair dealing. The Company
can provide the Bank with advice and specialized services in the areas of
accounting and taxation, budgeting and strategic planning, employee benefits and
human resources, auditing, trust, and banking and corporate law. The Company may
elect to charge a fee for these services from time to time. The responsibility
for the management of the Bank, however, remains with its Board of Directors and
with the officers elected by the Bank's Board.
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.
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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.
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.
Capital Adequacy. The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued standards
for banks that are similar to, but not identical with, the standards for bank
holding companies. In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain certain
capital levels based on "risk-adjusted" assets, so that categories of assets
with potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding companies
are required to maintain capital to support off-balance-sheet activities such as
loan commitments. The Company and each of its subsidiary financial institutions
exceed all applicable capital adequacy standards.
Support of Subsidiary Banks. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to its Subsidiary
and to commit resources to support the Subsidiary in circumstances where it
might not choose to do so absent such a policy. This support may be required at
times when the Company may not find itself able to provide it. In addition, any
capital loans by the Company to its Subsidiary would also be subordinate in
right of payment to deposits and certain other indebtedness of such Subsidiary.
Consistent with this policy regarding bank holding companies serving as a source
of financial strength for their subsidiary banks, the Federal Reserve Board has
stated that, as a matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless its net income available to
common shareholders has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears consistent with the bank holding
company's capital needs, asset quality and over all financial condition.
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FIRREA and FDICIA.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a cross-guarantee provision which could result in insured
depository institutions owned by the Company being assessed for losses incurred
by the FDIC in connection with assistance provided to, or the failure of, any
other insured depository institution owned by the Company. Under FIRREA, failure
to meet the capital guidelines could subject a banking institution to a variety
of enforcement remedies available to federal regulatory authorities, including
the termination of deposit insurance by the FDIC. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") made extensive changes to the
federal banking laws. FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory agency actions
against undercapitalized institutions within specified time limits. FDICIA
contains various other provisions that may affect the operations of banks and
savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if it:(i)
had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier I
capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier I
capital to adjusted total assets of 5% or greater; and (iv) was 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.
An association will be adequately capitalized if it was not "well capitalized"
and: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of
Tier I capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio
of Tier I capital to adjusted total assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking agencies' CAMEL(S)
rating system may be adequately capitalized if their ratios of core capital to
adjusted total assets were 3% or greater). The Company's Subsidiary financial
institution as of December 31, 1996 was categorized as "well capitalized".
FDICIA made extensive changes in then-existing rules regarding
audits,examinations and accounting. It generally requires annual on-site, full
scope examinations by each bank's primary federal regulator. It also imposed new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance-sheet liabilities and
assets.
Depositor Preference Statute. Legislation enacted in August 1993 provides
a preference for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution in the
liquidation or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, as
well as any obligation to shareholders of such an institution in their capacity
as such.
FDIC Insurance Assessments. The subsidiary depository institutions of the
Company are subject to FDIC deposit insurance assessments. The FDIC has adopted
a risk-based premium schedule. Each financial institution is assigned to one of
three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further
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assigned to one of three subgroups within a capital group, on the basis of
supervisory evaluations by the institution's primary federal and, if applicable,
state supervisors, and on the basis of other information relevant to the
institution's financial condition and the risk posed to the applicable insurance
fund. The actual assessment rate applicable to a particular institution will,
therefore, depend in part upon the risk assessment classification so assigned to
the institution by the FDIC. See "FIRREA and FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of insolvent
savings associations, required the FDIC to establish separate deposit insurance
funds--the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations. FIRREA also required the FDIC
to set deposit insurance assessments at such levels as would cause BIF and SAIF
to reach their "designated reserve ratios" of 1.25 percent of the deposits
insured by them within a reasonable period of time. Due to low costs of
resolving bank insolvencies in the last few years, BIF reached its designated
reserve ratio in May 1995. As a result, effective January 1, 1996, the FDIC
eliminated deposit insurance assessments (except for the minimum $2,000 payment
required by law) for banks that are well capitalized and well managed and
reduced the deposit insurance assessments for all other banks. As of January 1,
1996, the SAIF had not reached the designated reserve ratio. The Company has not
acquired any SAIF-insured deposits during the years from 1989 to the present,
and as of December 31, 1996, none of the Company's banking Subsidiary's deposits
were insured by the SAIF.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as part
of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC to
take immediate steps to recapitalize the SAIF and to change the basis on which
funds are raised to make the scheduled payments on the FICO bonds issued in 1987
to replenish the Federal Savings and Loan Insurance Corporation. The new
legislation, combined with regulations issued by the FDIC immediately after
enactment of the Funds Act, provided for a special assessment in the amount of
65.7 basis points per $100 of insured deposits on SAIF-insured deposits held by
depository institutions on March 31, 1995 (the special assessment was required
by the Funds Act to recapitalize the SAIF to the designated reserve ratio of
1.25 percent of the deposits insured by SAIF). Payments of this assessment were
made in November 1996, but were accrued by financial institutions in the third
calendar quarter of 1996.
Institutions that have deposits insured by both the BIF and the SAIF
("Oakar Banks") were required to pay the special assessment on 80% of their
"adjusted attributable deposit amounts"("AADA"). In addition, for purposes of
future regular deposit insurance assessments, the AADA on which Oakar Banks pay
assessments to SAIF was also reduced by 20%. Commencing January 1, 1997, BIF
insured institutions are responsible for a portion of the annual carrying costs
of the FICO bonds. Such institutions will be assessed at 80% of the rate
applicable to SAIF-insured institutions until December 31, 1999. Effective
January 1, 1997, the Funds Act also reduced ongoing SAIF deposit insurance
assessment rates to a range from 6.4 cents to 23 cents (from previous rates of
23 cents to 31 cents) per $100 of insured deposits and increased ongoing BIF
deposit insurance assessment rates to a range from zero to 1.3 cents per $100 of
insured deposits. Additionally, pursuant to the Funds Act, if the reserves in
the BIF at the end of any semiannual assessment period exceed 1.25% of insured
deposits, the FDIC is required to refund the excess to the BIF-insured
institutions.
The Funds Act contemplates the merger of the SAIF and BIF by 1999,
provided the consolidation/merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such time,
however, depository institutions will continue to be prohibited from shifting
deposits from SAIF insurance coverage to BIF insurance coverage in an attempt to
avoid the higher SAIF assessments. The FDIC is required to issue regulations to
guard against the shifting of deposits from SAIF to BIF. A report to Congress
regarding the merger of the SAIF and the BIF is required from the Treasury
Department by March 31, 1997. As of December 31, 1996, none of the Company's
banking Subsidiary's deposits were insured by the SAIF.
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Please refer to the section hereinbelow entitled "Restrictions on
Dividends Paid by the Bank as a Company Subsidiary," to Item 5(c) "Dividends,"
and to the Consolidated Financial Statements.
Interstate Banking and Other Recent Legislation. In September 1994,
legislation was enacted that is expected to have a significant effect in
restructuring the banking industry in the United States. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal")
facilitates the interstate expansion and consolidation of banking organizations
by permitting (i) bank holding companies that are adequately capitalized and
managed to acquire banks located in states outside their home states regardless
of whether such acquisitions are authorized under the law of the host state,
(ii) interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date, (iii) banks to establish new branches on an interstate basis provided that
such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v)
banks to receive deposits, renew time deposits, close loans, service loans and
receive payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a different
state. One effect of Riegle-Neal is to permit the Company to acquire banks
located in any state and to permit bank holding companies located in any state
to acquire banks and bank holding companies in Tennessee. Overall, Riegle-Neal
is expected to have the effect of increasing competition and promoting
geographic diversification in the banking industry.
In addition, the Funds Act contains a variety of regulatory relief
measures affecting banks and thrifts, including provisions modifying some of the
more onerous requirements imposed under federal banking laws passed in the late
1980s and early 1990s. Among the measures are provisions reducing certain
regulatory burdens imposed upon bank holding companies. For example, the Funds
Act eliminates the requirement that a bank holding company file an application
with the OTS to (i) acquire control of a thrift, or (ii) become a unitary
savings and loan holding company as a result of such acquisition.
The law requires each Federal banking agency to prescribe uniform
regulations including guidelines ensuring that interstate branches operated by
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.
The Funds Act also provides that a bank holding company owning or
controlling a thrift will no longer be subject to the supervision and regulation
of the OTS. The OTS will continue to regulate and supervise all thrifts acquired
in such transactions.
Riegle-Neal provided also for certain community investment and development
programs. The "Community Development Financial Institutions Fund" portion of the
legislation is supposed to promote economic revitalization and community
development through investment in "Community Development Financial
Institutions." Subtitle B, 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.
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In addition, Riegle-Neal contains provisions intended to enhance small
business capital formation. In part, the law 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.
Finally, Riegle-Neal contained a number of initiatives to lessen the
regulatory burden placed upon depository institutions, to improve consumer
protection areas of advertizing, to deal further with money laundering and to
improve the financial condition of the National Flood Insurance Program (the
"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.
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 in
operation for at least five (5) years. A bank or bank holding company is
prohibited from acquiring any bank in Tennessee if the bank or bank holding
company (including all insured depository institutions which are affiliates of
the bank or bank holding company), upon consummation of the acquisition, would
control thirty percent (30%) or more of the total amount of the deposits of the
insured depository institutions in Tennessee. Under Tennessee law, any Tennessee
bank that has been in operation for at least 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.
8
<PAGE> 12
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
("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, 1997, the maximum effective rate contract interest rate was approximately
12.25%. 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 is a legal entity separate and distinct from its financial
institution 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 (such as the Company) 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. Various federal and state
statutory provisions limit the amount of dividends an affiliate financial
institution can pay to the Company without regulatory approval. The approval of
federal and state bank regulatory agencies, as appropriate, is required for any
dividend if the total of all dividends declared in any calendar year would
exceed the total of the institution's net profits, as defined by regulatory
agencies, for such year combined with its retained net profits for the preceding
two years. In addition, a national bank may not pay a dividend in an
9
<PAGE> 13
amount greater than its net profits then on hand. The payment of dividends by
any financial institution subsidiary may also be affected by other factors, such
as the maintenance of adequate capital. Please refer to Item 5 of this Report,
"Market for Registrant's Common Equity and Related Stockholder Matters," for
additional information on dividends.
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.
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, 1996, management believes that
the Company and the Bank meet all such capital requirements to which they are,
respectively, subject.
Certain Transactions with Affiliates. The Company is a legal entity
separate and distinct from The First National Bank. There are various legal
restrictions on the extent to which a bank holding company (such as the Company)
and any nonbank subsidiary that it might form or own in the future can borrow or
otherwise obtain credit from any bank subsidiary such as the Bank. For example,
The First National Bank is subject to limitations imposed by Section 23A of the
Federal Reserve Act with respect to extensions of credit to, investments in, and
certain other transactions with, the Company. In general, these restrictions
require that any such extensions of credit must be on non-preferential terms and
secured by designated amounts of specified collateral and be limited, as to the
holding company or any one of such nonbank subsidiaries, to 10% of the lending
institution's capital stock and surplus, and as to the holding company and all
such nonbank Subsidiary in the aggregate, to 20% of such capital stock and
surplus. Further, Section 23B of the Federal Reserve Act imposes restrictions on
"non-credit" transactions between the Bank and the Company (and nonbank Company
affiliates).
COMPETITION
The banking business in the areas served by the Company and The First
National Bank is highly competitive. 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
other area state and national banks, as well as with other financial services
organizations, such as thrift institutions, brokerage houses and government
agencies, for deposits and/or loans. The First National Bank also competes for
funds with savings and loan associations and credit unions. 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 (exclusive of free-standing ATM's)
and holding an aggregate (reportedly) of more than $400 million in deposits as
of approximately December 31, 1996. The Company competes with some of the
largest bank holding companies in Tennessee, which have or control businesses,
banks or branches in the area, including regional financial institutions such as
First American National Bank.
10
<PAGE> 14
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, 1997, the Registrant and its banking subsidiary employed
sixty-three persons on a full-time, and seven persons on a part-time, basis.
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
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 1996.
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."
11
<PAGE> 15
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, 1996.
<TABLE>
<CAPTION>
In Thousands, Except Per Share Information
------------------------------------------------------------------
Year ended December 31
------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income $ 14,670 $ 13,892 $ 12,528 $ 12,113 $ 12,450
Interest expense 6,599 6,418 4,844 4,534 5,185
--------- --------- --------- --------- ---------
Net interest income 8,071 7,474 7,684 7,579 7,265
Provision for possible
loan losses 150 160 240 240 485
--------- --------- --------- --------- ---------
Net interest income after
provision for possible
loan losses 7,921 7,314 7,444 7,339 6,780
Non-interest income 659 686 574 655 718
Non-interest expense (3,700) (3,595) (3,738) (3,604) (3,304)
--------- --------- --------- --------- ---------
Earnings before income taxes
and cumulative effect of
change in accounting principle 4,880 4,405 4,280 4,390 4,194
Income taxes 1,436 1,299 1,203 1,225 1,139
Cumulative effect of change in
accounting for income taxes -- -- -- 22 --
--------- --------- --------- --------- ---------
Net earnings $ 3,444 3,106 3,077 3,187 3,055
========= ========= ========= ========= =========
Cash dividends declared $ 1,294 1,240 1,191 1,085 978
========= ========= ========= ========= =========
Total assets - end of year $ 195,732 190,663 180,486 170,913 164,144
========= ========= ========= ========= =========
Stockholders' equity - end
of year $ 30,025 28,889 26,452 25,240 23,278
========= ========= ========= ========= =========
Per share information:
Earnings per share* $ 6.34 5.62 5.55 5.72 5.46
========= ========= ========= ========= =========
Dividends per share* $ 2.40 2.25 2.15 1.95 1.75
========= ========= ========= ========= =========
Book value per share* $ 55.94 52.41 45.64 45.42 41.66
========= ========= ========= ========= =========
Ratios:
Return on average
stockholders' equity 11.55% 11.03% 11.57% 12.87% 13.47%
========= ========= ========= ========= =========
Return on average
assets 1.78% 1.67% 1.73% 1.89% 1.93%
========= ========= ========= ========= =========
Stockholders' equity
to assets 15.34% 15.15% 14.66% 14.77% 14.18%
========= ========= ========= ========= =========
</TABLE>
*Per share data has been retroactively restated to reflect a 2 for 1 stock split
on October 1, 1994.
12
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
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 $42,000, $34,000 and $35,000 for 1996, 1995
and 1994, respectively, are included in consumer loan income and
represent an adjustment of the yield on these loans. In 1996 and 1994
loans fees of $11,000 are included in real estate loan income and
represent an adjustment of the yield on these loans.
13
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1996
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------
1996 1995 1996/1995 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 $ 103,919 9.03 9,380 96,773 9.10 8,802 650 (72) 578
Investment securities - taxable 55,731 7.00 3,899 55,221 6.72 3,712 34 153 187
--------------------------- ------------------------- ---
Investment securities - tax exempt 23,994 5.41 1,299 22,553 5.40 1,217 78 4 82
Taxable equivalent adjustment 2.79 669 2.78 627 40 2 42
--------------------------- ------------------------- ---
Total tax-exempt investment
securities 23,994 8.20 1,968 22,553 8.18 1,844 118 6 124
--------------------------- ------------------------- ---
Total investment securities 79,725 7.36 5,867 77,774 7.14 5,556 139 172 311
--------------------------- ------------------------- ---
Federal funds sold 1,617 5.32 86 2,653 5.88 156 (61) (9) (70)
Interest-bearing deposits in banks 100 6.00 6 100 5.00 5 - 1 1
--------------------------- ------------------------- ---
Total earning assets 185,361 8.28 15,339 177,300 8.19 14,519 660 160 820
--------------------------- ------------------------- ---
Cash and due from banks 4,243 4,202
Allowance for possible loan losses (1,567) (1,563)
Bank premises and equipment 2,115 1,677
Other assets 3,156 3,827
--------- -------
Total assets $ 193,308 185,443
========= =======
</TABLE>
14
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1996
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
------------------------------------------------------------------
1996 1995 1996/1995 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 $ 19,014 2.51 % 478 18,894 2.94 % 556 4 (82) (78)
Money market demand accounts 10,249 2.82 289 11,816 3.22 380 (50) (41) (91)
Other savings accounts 23,215 3.55 824 21,805 3.65 795 51 (22) 29
Certificates of deposit, $100,000
and over 26,938 5.71 1,538 26,074 5.68 1,482 49 7 56
Certificates of deposit under
$100,000 50,493 5.64 2,847 46,751 5.63 2,634 211 2 213
Individual retirement accounts 8,593 5.71 492 8,275 5.53 458 18 16 34
-------------------------------- ------------------------------ ---
Total interest-bearing
deposits 138,502 4.67 6,468 133,615 4.72 6,305 231 (68) 163
Demand 18,375 - - 17,899 - - -
-------------------------------- ------------------------------ ---
Total deposits 156,877 4.12 6,468 151,514 4.16 6,305 223 (60) 163
-------------------------------- ------------------------------ ---
Federal funds purchased,
securities sold under
repurchase agreements and
short-term debt 4,304 3.04 131 3,579 3.16 113 23 (5) 18
-------------------------------- ------------------------------ ---
Total deposits and
borrowed funds 161,181 4.09 6,599 155,093 4.14 6,418 252 (71) 181
-------------------------------- ------------------------------ ---
Other liabilities 2,311 2,193
Stockholder's equity 29,816 28,157
------------ -------
Total liabilities and
stockholders' equity $ 193,308 185,443
------------ -------
Net interest income 8,740 8,101 639
===== ===== ===
Net yield on earning assets 4.72% 4.57%
---- ----
Net interest spread 4.19% 4.05%
==== ====
</TABLE>
15
<PAGE> 19
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<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>
16
<PAGE> 20
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<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>
17
<PAGE> 21
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
II. Investment Portfolio
A. Securities at December 31, 1996 cosist 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 $29,765 397 44 30,118
Obligations of states
and political
subdivision 21,101 493 59 21,535
Corporate and other
securities 1,416 29 7 1,438
Mortgage backed
securities 2,239 -- 98 2,141
------- --- ------ ------
$54,521 919 208 55,232
======= === ====== ======
</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 $20,161 23 156 20,028
Obligations of states
and political
subdivision 1,547 30 10 1,567
Corporate and other
securities 717 -- -- 717
Mortgage backed
securities 2,043 1 68 1,976
------- -- --- ------
$24,468 54 234 24,288
======= == === ======
</TABLE>
18
<PAGE> 22
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
II. Investment Portfolio, Continued
A. Continued
Securities at December 31, 1996 cosist 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 $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>
<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>
19
<PAGE> 23
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
II. Investment Portfolio, Continued
B. The following schedule details the maturities and weighted average
yields of securities of the Company at December 31, 1996.
<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 $ 1,784 1,796 6.6%
One to five years 10,192 10,290 6.6
Five to ten years 16,294 16,532 7.7
More than ten years 1,495 1,500 8.2
------- ------ ---
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 29,765 30,118 7.3
------- ------ ---
Obligations of states and political subdivisions*:
Less than one year 1,433 1,435 8.2
One to five years 7,620 7,770 9.2
Five to ten years 7,695 7,900 8.5
More than ten years 4,353 4,430 8.1
------- ------ ---
Total obligations of states
and political subdivisions 21,101 21,535 8.6
------- ------ ---
Other:
Corporate and other securities 3,655 3,579 6.1
------- ------ ---
Total held-to-maturity
securities $54,521 55,232 7.8%
======= ====== ===
</TABLE>
*Weighted average yield is stated on a tax-equivalent basis, assuming a weighted
average Federal income tax rate of 34%.
20
<PAGE> 24
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
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 $ -- -- --
One to five years 1,953 1,908 5.3
Five to ten years 14,708 14,667 6.9
More than ten years 3,500 3,453 7.2
------- ------ ----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 20,161 20,028 6.8
------- ------ ----
Obligations of states and political subdivisions*:
Less than one year -- -- --
One to five years 297 300 10.1
Five to ten years 503 521 7.9
More than ten years 747 746 7.8
------- ------ ----
Total obligations of states
and political subdivisions 1,547 1,567 8.3
------- ------ ----
Other:
Mortgage backed securities 2,043 1,976 5.7
Federal Home Loan Bank stock 626 626 --
Federal Reserve Bank stock 91 91 --
------- ------ ----
Total available-for-sale
securities $24,468 24,288 6.8
======= ====== ====
</TABLE>
*Weighted average yield is stated on a tax-equivalent basis, assuming a weighted
average Federal income tax rate of 34%.
21
<PAGE> 25
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at December
31, 1996 and 1995.
<TABLE>
<CAPTION>
In Thousands
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Commercial, financial and
agricultural $ 30,232 22,327
Real estate - construction 2,224 2,217
Real estate - mortgage 74,290 73,444
Consumer 2,918 2,871
--------- --------
Total loans 109,664 100,859
Less unearned interest -- --
--------- --------
Total loans, net of
unearned interest 109,664 100,859
Less allowance for possible
loan losses (1,724) (1,562)
--------- --------
Net loans $ 107,940 99,297
========= ========
</TABLE>
22
<PAGE> 26
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
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, 1996.
<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 $21,435 8,722 75 30,232
Real estate -
construction 2,224 -- -- 2,224
------- ----- ------ ------
$23,659 8,722 75 32,456
======= ===== ====== ======
Interest-Rate Sensitivity:
Fixed interest rates $17,019 2,224 75 19,318
Floating or adjustable
interest rates 6,640 6,498 -- 13,138
------- ----- ------ ------
Total commercial,
financial and
agricultural
loans and
real estate
construction
loans $23,659 8,722 75 32,456
======= ===== ====== ======
</TABLE>
*Includes demand loans, bankers acceptances, commercial paper and
overdrafts.
23
<PAGE> 27
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
III. Loan Portfolio, Continued:
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
In Thousands
-------------------------
1996 1995
---- ----
<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 $ 1 --
Real estate - construction -- --
Real estate - mortgage -- 77
Consumer -- 8
Lease financing receivable -- --
------------ -------
Total loans 90 days
past due $ 1 85
============ =======
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 $ 1 140
============ =======
Total loans, net of unearned
interest $ 109,664 100,859
============ =======
Percent of total loans
outstanding, net of
unearned interest --% .14%
============ =======
Other real estate $ 69 305
============ =======
</TABLE>
24
<PAGE> 28
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
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. There were no loans on non-accrual at
December 31, 1996. Non-accrual loans totaled $55,000 at December
31, 1995. 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 $8,835,000.
At December 31, 1996, loans totaling $7,851,000 were included in
the Company's internal classified loan list. Of these loans
$1,083,000 are real estate, $6,699,000 are commercial and $69,000
are consumer. The collateral valuations received by management
which secure these loans total approximately $11,043,000,
($1,559,000 related to real property, $9,470,000 related to
commercial and $14,000 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 $881,000 to a manufacturing company and a
stockholder of the manufacturing company for $183,000 and $698,000,
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 $593,000 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 three loans relating
to the nursery industry totaling approximately $2,486,000. There is
also a loan to a dairy farm company totaling approximately $726,000
that has been classified substandard due to the company's filing
for reorganization under Chapter 12 of the bankruptcy laws. 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, 1996 there were loans to customers in the nursery
industry totaling approximately $11,287,000 which represents an
industry concentration of approximately 10% 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.
25
<PAGE> 29
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
III. Loan Portfolio, Continued:
C. Risk Elements, Continued
At December 31, 1996 other real estate totaled $69,000 and
consisted primarily of two residential and one commercial property.
The balance at December 31, 1996 decreased from $305,000 at
December 31, 1995 due to the sale of four properties during 1996.
Management is attempting to sell the properties included in other
real estate at December 31, 1996 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, 1996 which would be required
to be disclosed as past due, non-accrual, restructured or potential
problem loans, if such interest-bearing assets were loans.
26
<PAGE> 30
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
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, 1996 and 1995 and the years then ended.
<TABLE>
<CAPTION>
In Thousands
Except Percentages
-------------------------
1996 1995
---- ----
<S> <C> <C>
Allowance for loan losses at
beginning of period $ 1,562 1,448
--------- --------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial
and agricultural -- (67)
Real estate - construction -- --
Real estate - mortgage (55) (5)
Consumer (43) (14)
Lease financing -- --
--------- --------
(98) (86)
--------- --------
Recoveries:
Commercial, financial and agricultural 15 28
Real estate - construction -- --
Real estate - mortgage 25 --
Consumer 70 12
Lease financing -- --
--------- --------
110 40
--------- --------
Net loan recoveries (charge-offs) 12 (46)
--------- --------
Provision for loan losses charged
to expense 150 160
--------- --------
Allowance for loan losses at
end of period $ 1,724 1,562
========= ========
Total loans, net of unearned
interest, at end of year $ 109,664 100,859
========= ========
Average total loans outstanding,
net of unearned interest,
during year $ 103,919 96,773
========= ========
Net charge-offs (recoveries) as a
percentage of average total loans
outstanding, net of unearned interest,
during year (.01)% .05%
========= ========
Ending allowance for loan losses
as a percentage of total loans
outstanding net of unearned interest,
at end of year 1.57% 1.55%
========= ========
</TABLE>
27
<PAGE> 31
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
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, 1996 December 31, 1995
---------------------- -------------------
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 $1,410 28% 1,299 20%
Real estate
construction 1 2% 5 2%
Real estate mortgage 250 68% 246 73%
Consumer 63 2% 12 5%
------ --- ----- ---
$1,724 100% 1,562 100%
====== === ===== ===
</TABLE>
28
<PAGE> 32
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
V. Deposits
The average amounts and average interest rates for deposits for 1996
and 1995 are detailed in the following schedule:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Average Average
Balance Balance
------- -------
In Average In Average
Thousands Rate Thousands Rate
--------- ---- --------- ----
<S> <C> <C> <C> <C>
Non-interest bearing
deposits $ 18,375 -- 17,899 -- %
Negotiable order of
withdrawal accounts 19,014 2.51% 18,894 2.94%
Money market demand
accounts 10,249 2.82% 11,816 3.22%
Other savings accounts 23,215 3.55% 21,805 3.65%
Certificates of deposit
$100,000 and over 26,938 5.71% 26,074 5.68%
Certificates of deposit
under $100,000 50,493 5.64% 46,751 5.63%
Individual retirement
accounts 8,593 5.71% 8,275 5.53%
-------- ---- ------- ----
$156,877 4.12% 151,514 4.16%
======== ==== ======= ====
</TABLE>
The following schedule details the maturities of certificates of
deposit and individual retirement accounts of $100,000 and over at
December 31, 1996.
<TABLE>
<CAPTION>
In Thousands
---------------------------------
Individual
Certificates Retirement
of Deposit Accounts Total
---------- -------- -----
<S> <C> <C> <C>
Less than three months $ 6,925 -- 6,925
Three to six months 4,345 257 4,602
Six to twelve months 6,045 381 6,426
More than twelve months 9,605 714 10,319
------- ------ ------
$26,920 1,352 28,272
======= ====== ======
</TABLE>
In addition, approximately $611,000 of other time deposits of $100,000
and over are included in "other savings deposits," which are passbook
accounts with a 90 day maturity.
29
<PAGE> 33
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on assets
(Net income divided by average
total assets) 1.78% 1.67% 1.73%
Return on equity
(Net income divided by average
equity) 11.55% 11.03% 11.57%
Dividend payout ratio
(Dividends declared per share
divided by net income
per share) 37.85% 40.04% 38.74%
Equity to assets ratio
(Average equity divided by
average total assets) 15.42% 15.18% 14.94%
Leverage capital ratio (equity divided by fourth quarter average total
assets, excluding the net unrealized gain
or loss on available-for-sale securities) 15.34% 15.08% 14.93%
</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, 1996, 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 $ 30,136
Tier II capital:
Allowable allowance for loan losses,
limited to 1.25% of risk-weighted assets 1,394
--------
Total capital $ 31,530
========
Risk-weighted assets $111,187
========
Risk-based capital ratios:
Tier I capital ratio 27.10%
========
Total risk-based capital ratio 28.36%
========
</TABLE>
The Company is required to maintain a total risk-based capital ratio
of 8% and a Tier I capital to risk based asset ratio of 4%. At
December 31, 1996 the Company and its subsidiary bank were in
compliance with this requirement.
30
<PAGE> 34
FIRST MCMINNVILLE COPORATION
FORM 10-KSB
December 31, 1996
VI. Return on Equity and Assets, Continued
The following schedule details the Company's interest rate sensitivity
at December 31, 1996:
<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 $ 109,664 23,986 5,815 5,851 9,950 64,062
Securities 78,809 3,665 3,367 4,768 2,504 64,505
Interest-bearing
deposits in financial
institutions 100 -- -- -- -- 100
--------- ------- ------- ------- ------- -------
Total earning assets 188,573 27,651 9,182 10,619 12,454 128,667
--------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Negotiable order of
withdrawal accounts 19,359 19,359 -- -- -- --
Money market demand
accounts 10,172 10,172 -- -- -- --
Other savings deposits 23,510 23,510 -- -- -- --
Certificates of deposit
$100,000 and over 26,920 2,008 4,917 4,345 6,045 9,605
Certificates of deposit
under $100,000 52,351 5,422 6,798 11,740 10,513 17,878
Individual retirement
accounts 8,632 1,342 541 1,633 2,678 2,438
Federal funds purchased 500 500 -- -- -- --
Securities sold under
repurchase agreements 2,531 2,531 -- -- -- --
--------- ------- ------- ------- ------- -------
143,975 64,844 12,256 17,718 19,236 29,921
--------- ------- ------- ------- ------- -------
Interest-sensitivity gap $ 44,598 (37,193) (3,074) (7,099) (6,782) 98,746
========= ======= ======= ======= ======= =======
Cumulative gap (37,193) (40,267) (47,366) (54,148) 44,598
======= ======= ======= ======= =======
Interest-sensitivity gap
as % of total assets (19.00)% (1.57)% (3.63)% (3.46)% 50.45%
======= ======= ======= ======= =======
Cumulative gap as % of total
assets (19.00)% (20.57)% (24.20)% (27.66)% 22.79%
======= ======= ======= ======= =======
</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.
31
<PAGE> 35
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. During 1996 the Plaza Branch was relocated to a newly constructed
building located at 917 New Smithville Highway in McMinnville. The old branch
facility is currently for sale. 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 four ATM's for the convenience of its customers.
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, 1996,
against the Company or the Bank. It is to be expected that 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. Some of these may from time to time involve large
demands for compensatory and/or punitive damages. At the present time,
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 1996.
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 1996.
During 1996 the Company redeemed 14,388 shares of its Common Stock with a view
toward 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.)
32
<PAGE> 36
<TABLE>
<CAPTION>
Calendar Quarter Common Stock
---------------- ------------------------------
High Low
---- ---
<S> <C> <C>
1996
Fourth Quarter $57.70 $56.52
Third Quarter 55.97 54.75
Second Quarter 54.84 53.82
First Quarter 53.35 52.02
1995
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>
The last trade known to management involved a redemption by the Company
of 206 shares at an estimated $55.88 per share in January of 1997. 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 February 14, 1997, the Company had
536,377 shares outstanding. No shares are reserved for issuance. However,
commencing in 1997, if one certain stock option plan is approved by the
Shareholders of the Company as proposed (which is expected to be submitted to
the Company's Shareholders for approval at the 1997 Annual Meeting of
Shareholders), up to an estimated 57,500 shares will be reserved for issuance
pursuant to such plan.
Holders of the Company's Common Stock are entitled to (a) cast one vote
for each share held of record on all matters submitted to a vote of shareholders
and (b) 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.
(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,
1997 was approximately 463.
33
<PAGE> 37
(C) DIVIDENDS
The Company declared semi-annual cash dividends on its Common Stock of
$2.40 in 1996, $2.25 per share in 1995 and $2.15 per share in 1994 (the 1994
per-share amount [as well as all subsequent amounts] adjusted to reflect the
2-for-1 stock split that occurred in 1994). 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
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.
34
<PAGE> 38
(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.
The purpose of the discussion that begins on the next page is to
provide insight into the financial condition and results of operations of the
Company and its subsidiary. This discussion should be read in conjunction with
the consolidated financial statements.
[Remainder of page left blank intentionally.]
35
<PAGE> 39
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,
1996, the nursery industry constituted the largest single industry segment
and accounted for $11,287,000 (10.29% 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. The Company and its national bank subsidiary must maintain a Tier
1 capital to risk-based assets of at least 4.0%, a Tier 2 capital to
36
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Capital Resources, Capital and Dividends, Continued
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
Company has a Tier 1 risk based ratio of 27.10%, a Tier II capital to risk
based ratio of 28.36% and a Tier 1 leverage ratio of 15.34%, and was
considered "well capitalized" under the regulations. The subsidiary bank's
ratios were substantially the same as those setforth for the Company.
Dividends of approximately $1,294,000 and $1,240,000 were declared during
1996 and 1995, 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 1997 if profits
increase. The dividend payout ratio (dividends declared divided by net
earnings) was 37.9%, 40.0% and 38.7% in 1996, 1995 and 1994, 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, 1996,
under the most restrictive of these regulatory limits, the Bank could
declare in 1997 cash dividends in an aggregate amount of up to
approximately $5.9 million, plus any 1997 net earnings, without prior
approval of the Comptroller of the Currency. Because of sound business
considerations and other Regulatory capital requirements, it is unlikely
that the Company would ever pay this restrictive amount as dividends.
During 1996, the Bank completed construction of a new branch at a total
cost of approximately $910,000 of which approximately $657,000 was
incurred during 1996. The Bank also completed remodeling a portion of the
main office at a total cost of approximately $179,000 of which
approximately $48,000 was incurred during 1996. At the present time, there
are no other material commitments for capital expenditures.
Financial Condition
During 1996, total assets increased $5,069,000 or 2.7% from $190,663,000
at December 31, 1995 to $195,732,000 at December 31, 1996. Loans, net of
allowance for possible loan losses, increased from $99,297,000 to
$107,940,000 or 8.7% during fiscal year 1996. The aggregate increases in
loans for 1996 was due primarily to a 35.4% increase in commercial,
financial and agricultural loans.
37
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
Securities decreased 2.8% from $81,106,000 at December 31, 1995 to
$78,809,000 at December 31, 1996. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations increased $49,000,
obligations of state and political subdivisions decreased $1,793,000,
corporate and other securities decreased $211,000 and there was a decrease
in mortgage backed securities of $342,000. At December 31, 1996 and 1995
the market value of the Company's securities portfolio exceeded its
amortized cost by $531,000 (.7%) and $1,198,000 (1.5%), respectively. The
weighted average yield (stated on a tax-equivalent basis, assuming a
Federal income tax rate of 34%) of the securities at December 31, 1996 was
7.8% with an average maturity of 7.0 years, as compared to an average
yield of 7.3% and an average maturity of 5.83 years at December 31, 1995.
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.
38
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
The Company's classification of securities as of December 31, 1996 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 $29,765 30,118 20,161 20,028
Obligations of states
and political
subdivision 21,101 21,535 1,547 1,567
Corporate and other
securities 1,416 1,438 717 717
Mortgage backed
securities 2,239 2,141 2,043 1,976
------- ------ ------ ------
$54,521 55,232 24,468 24,288
======= ====== ====== ======
</TABLE>
The effect of the adoption of SFAS No. 115 was to increase the capital of
the Company 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 of applicable tax benefit of
$346,000. The net increase in capital at December 31, 1995 totaled
$687,000 which represents the unrealized appreciation in securities
available-for-sale of $1,107,000 net applicable tax expense of $420,000.
During the year ended December 31, 1996, the net decrease in capital
totaled $233,000 which represents a decrease in unrealized appreciation in
securities available-for-sale of $375,000 net of applicable tax benefit of
$142,000.
The increase in assets in 1996 was funded primarily by increases in
deposits. Total deposits increased from $154,551,000 at December 31, 1995
to $159,746,000 at December 31, 1996 representing an increase of 3.4%.
Demand deposits decreased 1.1% from $19,002,000 at December 31, 1995 to
$18,802,000 at December 31, 1996. Additionally, increases in certificates
of deposit and individual retirement accounts of $4,073,000 (4.9%)
contributed to the increases in deposits for 1996. Securities sold under
repurchase agreements decreased $1,682,000 during 1996. Federal funds
purchased increased $500,000 in 1996 and were also used to fund increases
in assets. The subsidiary bank has unused lines of credit of $9,500,000
and the Company has an unused line of credit of $2,000,000 at December 31,
1996.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Financial Condition, Continued
The Company's allowance for loan losses at December 31, 1996 was
$1,724,000 as compared to $1,562,000 at December 31, 1995. Non-performing
loans amounted to $1,000 at December 31, 1996 compared to $140,000 at
December 31, 1995. Non-performing loans are loans which have been placed
on non-accrual status, loans 90 days past due plus renegotiated loans. Net
recoveries to average outstanding loans for 1996 was .01%. Net charge-offs
to average outstanding loans for 1995 was .05%. Net recoveries totaled
$12,000 for 1996. In 1995, the provision exceeded net charge-offs by
$114,000.
The allowance for possible loan losses, amounting to $1,724,000 at
December 31, 1996, represents 1.57% of total loans outstanding. At
December 31, 1995, the allowance for possible loan losses represented
1.55% of total loans outstanding. Management has in place a system to
identify and monitor problem loans. Management believes the allowance for
possible loan losses at December 31, 1996 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. The Company's loan to deposit ratio was approximately 69%
and 65% at December 31, 1996 and December 31, 1995, 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, 1996. Federal funds purchased totaled $500,000
at December 31, 1996.
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.
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Liquidity, Continued
First McMinnville Corporation presently maintains a liability sensitive
position over the 1997 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.
The following table shows the rate sensitivity gaps for different time
periods as of December 31, 1996:
<TABLE>
<CAPTION>
Interest rate sensitivity gaps: 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 $ -- 36,833 10,619 12,454 128,667 188,573
Interest-bearing liabilities $ 53,541 23,559 17,718 19,236 29,921 143,975
-------- ------ ------ ------ ------ ------
Interest-rate sensitivity gap $(53,541) 13,274 (7,099) (6,782) 98,746 44,598
======== ====== ====== ====== ====== ======
Cumulative gap $(53,541) (40,267) (47,366) (54,148) 44,598
======== ====== ====== ====== ======
Interest-rate sensitivity gap
as a % of total assets (27.35)% 6.78% (3.63)% (3.46)% 50.45%
======== ====== ====== ====== ======
Cumulative gap as a % of total
assets (27.35)% (20.57)% (24.20)% (27.66)% 22.79%
======== ====== ====== ====== ======
</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.
41
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Results of Operations
Net earnings for the year ended December 31, 1996 were $3,444,000 an
increase of $338,000 or 10.9% from fiscal year 1995. Net earnings for 1995
totaled $3,106,000 which was an increase of $29,000 or .9% from $3,077,000
for 1994. On a per share basis net earnings equaled $6.34 in 1996, $5.62
in 1995 and $5.55 in 1994 after giving retroactive effect to a two-for-one
stock split effective October 1, 1994. Average earning assets increased
$8,061,000 for the year ended December 31, 1996 as compared to year ended
December 31, 1995. Average earning assets increased $7,547,000 for the
year ended December 31, 1995 as compared to year ended December 31, 1994.
Additionally, the net interest spread increased from 4.05% in 1995 to
4.19% in 1996. The net interest spread was 4.54% in 1994. 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 1996 totaled
$8,061,000 as compared to $7,474,000 for 1995 and $7,684,000 for 1994. The
provision for loan losses was $150,000 in 1996 as compared to $160,000 in
1995 and $240,000 in 1994. Net recoveries in 1996 were $12,000 as compared
to net charge-offs of $46,000 in 1995 and $14,000 in 1994. The reduction
in the provision in 1996 and 1995 was due to the small percentage of net
charge-offs to average loans outstanding over the past three years.
Non-interest income increased 3.9% to $659,000 in 1996 from $634,000 in
1995. This increase was due primarily to increases in service charges on
deposits of $42,000 and increased commissions on fiduciary activities of
$47,000 which were off-set by a decrease in other fees and commissions and
other income totaling $13,000. Non-interest income of $634,000 in 1995 was
an increase of approximately 10.5% from $574,000 in 1994. The increase in
1995 resulted primarily from an increase in service charges on deposits
and in securities gains.
Non-interest expense increased 4.4% to $3,700,000 in 1996 from $3,543,000
in 1995. Non-interest expense was $3,738,000 in 1994. 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 increase in
1996 was primarily attributable to an increase in salaries and employment
benefits of $108,000 (5.3%), increases in occupancy expenses ($35,000 or
17.8%) and furniture and equipment expenses ($59,000 or 21.1%) related
primarily to the opening of a new branch and an increase in securities
losses of $93,000. These increases in 1996 were offset by a decrease of
$169,000 in FDIC insurance premiums. Due to the full capitalization of the
FDIC insurance fund, effective January 1, 1996 premiums have been
suspended to a minimum of $2,000 annually for an indefinite period. The
non-interest expense decreased approximately 5.2% from 1994 to 1995 and
was due primarily to the decrease in FDIC insurance premiums beginning
July 1, 1995.
42
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
Results of Operations, Continued
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.
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.
43
<PAGE> 47
ITEM 7. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and
subsidiary (commencing at page F-1 are included in this Report:
- Independent Auditors' Report;
- Consolidated Balance Sheets - December 31, 1996 and 1995;
- Consolidated Statements of Earnings - Three years ended December
31, 1996;
- Consolidated Statements of Changes in Stockholders' Equity -
Three years ended December 31, 1996;
- Consolidated Statements of Cash Flows - Three years ended
December 31, 1996; and all
- Notes to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
[Remainder of page left blank intentionally.]
44
<PAGE> 48
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, as of February 28, 1997, the names and
ages of the directors and executive officers of the Company, the year first
elected, and their respective 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 I" are being
nominated for three year terms to the Board of Directors for consideration at
the 1997 Annual Meeting of Stockholders of the Company. The following is a list
of the names and ages of the executive officers of the Company and all positions
and offices with the Company presently held by the person named. There is no
family relationship between any of the named persons except as disclosed
elsewhere in this Annual Report on Form 10-KSB.
DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
---------- ---------------------------- -----
CLASS I - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1997):
<S> <C> <C>
Paul O. Barnes Chairman, 1984
(63) B & P Lamp Supply Co., Inc.
Henry N. Boyd Chief Executive Officer, 1984
(80) Boyd Bros. Nursery.
Dean I. Gillespie President, 1984
(63) Bridge Builders, Inc.
CLASS II - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1998):
J. G. Brock Owner, 1993
(41) Brock Construction Company.
G. B. Greene President, 1984
(57) Womack Printing Co., Inc.
Robert W. Jones Chairman, First McMinnville 1984
(68) Corporation, 1989 - present;
Chairman, The First National Bank, 1981 -
present; Chief Executive Officer,
The First National Bank, 1976 - 1993.
</TABLE>
45
<PAGE> 49
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
--------- ---------------------------- --------
CLASS III - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1999):
<S> <C> <C>
Charles C. Jacobs President and Chief Executive Officer, First 1985
(58) McMinnville Corporation, January 1994 - present;
President and Chief Executive Officer, The
First National Bank, January 1994 - present;
President, The First National Bank,
1988-1994.
J. Douglas Milner General Manager and Vice President, 1995
(50) Middle Tennessee Dr. Pepper Bottling Company.
John J. Savage, Jr. Retired; Secretary of Board of Directors 1984
(75) Executive Vice President and Trust Officer,
The First National Bank through September 1986.
C. M. Stanley President, 1984
(61) Burroughs-Ross-Colville, Co.
W. B. Whitson Chairman, 1984
(81) Burroughs-Ross-Colville, Co.
</TABLE>
IDENTIFICATION OF EXECUTIVE OFFICERS.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Name Age Office and Business Experience
---- --- ------------------------------
<S> <C> <C>
Charles C. Jacobs 58 President and Chief Executive Officer, First
McMinnville Corporation, January 1994 - present;
President and Chief Executive Officer, The First
National Bank, January 1994 - present; President,
The First National Bank, 1988 - 1994.
Diane Bogle 50 Senior Vice President, First McMinnville Corporation,
1995 - present; Senior Vice President, The First
National Bank, 1995 - present; Vice President, The
First National Bank, 1988 - present.
Lester K. Cowell 61 Senior Vice President, First McMinnville Corporation,
Senior Vice President of The First National Bank, 1991
- present; Vice President of The First National Bank,
1976 - 1991.
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
Name Age Office and Business Experience
---- --- ------------------------------
<S> <C> <C>
Kenny D. Neal 46 Senior Vice President and Treasurer of First
McMinnville Corporation, 1994 - present; Senior Vice
President and Cashier of The First National Bank, 1990
- present.
C. P. Whisenhunt 52 Senior Vice President, First McMinnville Corpora-
tion, 1993 - present; Senior Vice President, The First
National Bank, 1993 - present; Vice President -
Loans, The First National Bank, 1991 - 1993;
Regional President, Mid-South Bank & Trust, 1986-
1991.
</TABLE>
The executive officers were elected by, and they 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, and Mr. G. B.
Greene is the brother of Bank officer Fred Greene.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None.
(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.
47
<PAGE> 51
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Registrant during the most recent three fiscal years ended December 31 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 Position Year Salary Bonus Compensation(1)
- ----------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Charles C. Jacobs, 1996 $114,000 $17,100 $ 25,709
President-CEO 1995 104,000 15,600 12,051
1994 98,000 28,474 8,699
</TABLE>
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 first day of 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 29 years of credited service under the Plan
with current compensation covered by the Plan of $156,425.
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.
- ------------------------------
(1) Amounts of "All Other Compensation" are amounts contributed or accrued
for the respective fiscal years for the Named Executive Officer(s) under the
401(k) Retirement Plan, insurance premiums paid by the Registrant on behalf of
the Named Executive Officer(s), and Director and Committee fees.
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 7,174 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 $800 for each meeting
of the full Board of Directors attended plus $200 for each committee meeting
attended. Attendance at the December meeting is optional.
Consultation Agreement. Pursuant to a consultation agreement, last
executed to be effective January 1, 1996, the Company has retained the services
of Robert W. Jones as a paid consultant, for which he receives a consultation
fee of $1,000 per month, plus reimbursement for documented expenses incurred for
the Company and/or the Bank. This Agreement continues for so long as Mr. Jones
continues to serve as Chairman of the Board of Directors. Pursuant to this
Agreement, Mr. Jones is not considered to be an employee of the Bank or of the
Company.
49
<PAGE> 53
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, 1997 there were
536,377 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 (its only class of common equity). This information is based on
information filed with or provided to the Company as of approximately February
14, 1997.
<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) 2.1%
843 Old Morrison Road
McMinnville, TN 37110
Henry N. Boyd 8,480 1.6%
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 5,828 1.1
608 W. Main Street
McMinnville, TN 37110
Charles C. Jacobs 4,000 *
3180 Vervilla Road
McMinnville, TN 37110
Robert W. Jones 9,094(5) 1.7%
828 Lakeland Drive
McMinnville, TN 37110
J. Douglas Milner 200 *
227 Mountain Street
McMinnville, TN 37110
</TABLE>
[Table cont'd on next page]
50
<PAGE> 54
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Amount and
Nature of Percent
Name of Beneficial of
Beneficial Owner Ownership Class (1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 14,992(7) 2.8%
P. O. Box 609
McMinnville, TN 37110
(ii) Directors and 60,938 11.47%
Executive Officers
as a Group
(15 individuals)
</TABLE>
- ---------------------------
* Less than 1%.
NOTES TO TABLE
(1) Based on 536,377 shares of the Common Stock outstanding at
February 14, 1997.
(2) Includes 3,000 shares held by a corporation controlled by an
interest of Mr. Barnes.
(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 4,468 shares held by Mr. Jones and his
spouse. 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.
51
<PAGE> 55
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 1996. 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, commence on page F-1 of this Annual
Report on Form 10-KSB:
(-a-) Consolidated Balance Sheets as of December
31, 1996 and 1995;
(-b-) Consolidated Statements of Earnings for the
three years ended December 31, 1996;
(-c-) Consolidated Statements of Changes in
Stockholders' Equity for the three years
ended December 31, 1996;
(-d-) Consolidated Statements of Cash Flows for
the three years ended December 31, 1996;
(-e-) Notes to the foregoing Consolidated
Financial Statements.
(2) Listing of Exhibits:
(-a-) 3(i) Charter as amended.*
(-b-) 3(ii) Bylaws.*
(-c-) 10.1 First National Bank of McMinnville
401(k) Retirement Plan.**
(-d-) 10.2 Consulting Agreement dated
February 9, 1996, between First
National Bank of McMinnville and
Robert W. Jones, replacing prior
agreement dated December 14, 1993,
as amended.
(-e-) 11 Statement re: computation of per
share earnings.***
(-f-) 21 Subsidiaries of the Registrant for
the year ended December 31, 1996.
(-g-) 27 Financial Statement Schedule
[Omitted in Paper Copies].
(b) No reports on Form 8-K were filed for the quarter ended
December 31, 1996.
52
<PAGE> 56
(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.
- ------------------
* Incorporated herein by reference to exhibits filed with Form
10-KSB Annual Report under the Securities Exchange Act of 1934
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
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,
1996.
53
<PAGE> 57
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 Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Jones Chairman and March 11, 1997
- ----------------------------------- Director
Robert W. Jones
/s/ Paul O. Barnes Director March 11, 1997
- -----------------------------------
Paul O. Barnes
/s/ Henry N. Boyd Director March 11, 1997
- -----------------------------------
Henry N. Boyd
/s/ J. G. Brock Director March 11, 1997
- -----------------------------------
J. G. Brock
</TABLE>
{SIGNATURES CONTINUED ON FOLLOWING PAGE}
54
<PAGE> 58
{SIGNATURES CONTINUED FROM PRECEDING PAGE}
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dean I. Gillespie Director March 11, 1997
- -----------------------------------
Dean I. Gillespie
/s/ G. B. Greene Director March 11, 1997
- -----------------------------------
G. B. Greene
/s/ J. Douglas Milner Director March 11, 1997
- -----------------------------------
J. Douglas Milner
/s/ Charles C. Jacobs President, CEO March 11, 1997
- ----------------------------------- and Director
Charles C. Jacobs
/s/ John J. Savage, Jr. Director March 11, 1997
- -----------------------------------
John J. Savage, Jr.
/s/ Carl M. Stanley Director March 11, 1997
- -----------------------------------
Carl M. Stanley
/s/ W. B. Whitson Director March 11, 1997
- -----------------------------------
W. B. Whitson
/s/ Kenny D. Neal Treasurer/Chief March 12, 1997
- ----------------------------------- Financial and
Kenny D. Neal Accounting Officer
</TABLE>
55
<PAGE> 59
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) A copy of the annual report to security holders for the
Company's last fiscal year is furnished herewith to the
Commission for its information, pursuant to the instructions
to Form 10-KSB, BUT NOT INCORPORATED BY REFERENCE.
(2) A copy of the form of proxy to be sent to security holders in
respect of the Company's 1997 Annual Meeting of Shareholders
is furnished herewith to the Commission for its information
for its information, pursuant to the instructions to Form
10-KSB, BUT NOT INCORPORATED BY REFERENCE.
(These items appear at the end of this Document in both the Paper and
Electronic Formats.)
56
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST MCMINNVILLE CORPORATION PAGE
- ----------------------------- ----
<S> <C>
Independent Auditor's Report F-3
Consolidated Balance Sheets F-4
December 31, 1996 and 1995
Consolidated Statements of Earnings F-5
Three Years Ended December 31, 1996
Consolidated Statement of Changes in Stockholders' Equity F-6
Three Years Ended December 31, 1996
Consolidated Statements of Cash Flows F-7
Three Years Ended December 31, 1996
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 61
FIRST MCMINNVILLE CORPORATION
McMinnville, Tennessee
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditor's Report Thereon)
F-2
<PAGE> 62
[MAGGART & ASSOCIATES LETTERHEAD]
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, 1996 and 1995, and
the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December31, 1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, 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".
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 24, 1997
F-3
<PAGE> 63
FIRST MCMINNVILLE CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
In Thousands
------------
1996 1995
---- ----
<S> <C> <C>
Assets
Loans, less allowance for possible loan losses
of $1,724,000 and $1,562,000, respectively $ 107,940 99,297
Securities:
Held-to-maturity, at amortized cost (market value
$55,232,000 and $49,839,000, respectively) 54,521 48,837
Available-for-sale, at market (amortized cost
$24,468,000 and $32,073,000, respectively) 24,288 32,269
--------- -------
Total securities 78,809 81,106
Interest-bearing deposits in banks 100 100
Federal funds sold -- 300
--------- -------
Total earning assets 186,849 180,803
Cash and due from banks 3,532 4,872
Premises and equipment, net 2,368 1,881
Accrued interest receivable 1,903 2,015
Deferred tax asset 405 245
Other real estate 69 305
Other assets 606 542
--------- -------
Total assets $ 195,732 190,663
========= =======
Liabilities and Stockholders' Equity
Deposits $ 159,746 154,551
Securities sold under repurchase agreements 2,531 4,213
Federal funds purchased 500 --
Accrued interest and other liabilities 2,930 3,010
--------- -------
Total liabilities 165,707 161,774
--------- -------
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 29,321 27,171
Net unrealized gains (losses) onavailable-for-sale
securities, net of income tax benefits of $68,000
and income taxes of $74,000, respectively (111) 122
--------- -------
32,234 30,317
Less cost of treasury stock of 42,754 shares
in 1996 and 28,366 shares in 1995 (2,209) (1,428)
--------- -------
Total stockholders' equity 30,025 28,889
--------- -------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities andstockholders' equity
$ 195,732 190,663
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 64
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Earnings
Three Years Ended December 31, 1996
<TABLE>
<CAPTION>
In Thousands,
Except Per Share Amount
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans 9,380 8,802 7,417
Interest and dividends on securities:
Taxable securities 3,899 3,712 3,679
Exempt from Federal income taxes 1,299 1,217 1,314
Interest on Federal funds sold 86 156 111
Interest on interest-bearing deposits
in financial institutions 6 5 7
--------- ------- -------
Total interest income 14,670 13,892 12,528
--------- ------- -------
Interest expense:
Interest on negotiable order of
withdrawal accounts 478 556 536
Interest on money market demand and savings
accounts 1,113 1,175 1,197
Interest on certificates of deposit 4,877 4,574 3,024
Interest on securities sold under
repurchase agreements and short-term debt 131 113 87
--------- ------- -------
Total interest expense 6,599 6,418 4,844
--------- ------- -------
Net interest income before provision
for loan losses 8,071 7,474 7,684
Provision for possible loan losses 150 160 240
--------- ------- -------
Net interest income after provision for
possible loan losses 7,921 7,314 7,444
Non-interest income 659 634 574
Non-interest expense (3,700) (3,543) (3,738)
--------- ------- -------
Earnings before income taxes 4,880 4,405 4,280
Income taxes 1,436 1,299 1,203
--------- ------- -------
Net earnings $ 3,444 3,106 3,077
========= ======= =======
Earnings per share $ 6.34 5.62 5.55
========= ======= =======
Weighted average number of shares outstanding 543,116 552,399 554,837
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 65
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Changes in Stockholder's Equity
Three Years Ended December 31, 1996
<TABLE>
<CAPTION>
In Thousands, Except Shares
---------------------------------------------------------------------------------
Not
Unrealized
Gains
(Losses)
Common Stock On
----------------- Additional Available
Par Paid-In Retained Treasury For-Sale
Shares Value Capital Earnings Stock Securities Total
------ ------ ---------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 302,400 $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 277,137 --- --- --- --- --- ---
Net earnings --- --- --- 3,077 --- --- 3,077
Cash dividends declared
$2.16 per share --- --- --- (1,191) --- --- (1,191)
Cost of 1,556 shares of
treasury stock --- --- --- --- (108) --- (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 gains (losses)
on available-for-sale securities
during the year, net of Income tax
benefits of $953,000 --- --- --- --- --- (1,557) (1,557)
------- ------ ----- ------ ----- ------ ------
Balance December 31, 1994 579,537 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 gains (losses)
on available-for-sale securities
during the year, net of income taxes
of $420,000 --- --- --- --- --- 687 687
------- ----- ----- ------- ------ --- ------
Balance December 31, 1995 579,537 1,512 1,512 27,171 (1,428) 122 28,889
Net earnings --- --- --- 3,444 --- --- 3,444
Cash dividends declared
$2.40 per share --- --- --- (1,234) --- --- (1,294)
Cost of 14,388 shares of
treasury stock --- --- --- --- (781) --- (781)
Net change in unrealized gains (losses)
on available-for-sale securities
during the year, net of income tax
benefits of $142,000 --- --- --- --- --- (233) (233)
------- ------ ----- ------ ------ ---- ------
Balance December 31, 1996 579,537 $1,512 1,512 20,321 (2,209) (111) 30,025
======= ====== ===== ====== ====== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 66
FIRST MCMINNVILLE CORPORATED
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 14,727 13,762 12,332
Fees and commissions received 659 583 566
Interest paid (6,773) (5,895) (4,552)
Cash paid to suppliers and employees (3,481) (3,345) (3,587)
Income taxes paid (1,416) (1,307) (1,275)
-------- ------ ------
Net cash provided by operating activities 3,716 3,798 3,484
-------- ------ ------
Cash flows from investing activities:
Purchase of available-for-sale securities (7,747) (21,835) (9,776)
Proceeds from sales of available-for-sale securities 9,578 9,888 21,885
Proceeds from maturities of available-for-sale
securities 5,723 4,677 4,855
Purchase of held-to-maturity securities (21,491) (4,797) (40,960
Proceeds from maturities of held-to-maturity securities 15,820 12,432 23,383
Proceeds from maturities of interest bearing
deposits in bank -- -- 100
Loans made to customers, net of repayments (8,838) (9,067) (11,668
Purchase of premises and equipment (676) (449) (389)
Proceeds from sales of other real estate 281 574 249
-------- ------ ------
Net cash used in investingactivities (7,350) (8,577) (12,321)
-------- ------ ------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW and savings
deposits 1,122 (1,917) 3,744
Net increase in time deposits 4,073 7,837 4,725
Net increase (decrease) in securities sold under
repurchase agreement (1,682) 1,921 (949)
Increase (decrease) in Federal funds purchased 500 (600) 600
Proceeds from issuance of short-term notes payable 45 56 42
Repayment of short-term notes payable (45) (56) (42)
Dividends paid (1,238) (1,202) (1,112)
Payments to acquire treasury stock (781) (116 (109)
-------- ------ ------
Net cash provided by financing activities
1,994 5,923 6,899
-------- ------ ------
Net increase (decrease) in cash and cash equivalents (1,64) 1,144 (1,938)
Cash and cash equivalents at beginning of year 5,172 4,028 5,966
-------- ------ ------
Cash and cash equivalents at end of year $ 3,532 5,172 4,028
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 67
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,444 3,106 3,077
------- ------ ------
Adjustments to reconcile net earningsto net
cash provided by operating activities:
Depreciation 219 222 183
Provision for loan losses 150 160 240
Provision for deferred taxes (17) (24) (71)
Securities gains related to available-for sale (54) (103) (225)
Securities losses related to available-for-sale 147 52 297
FHLB dividend reinvestment (42 (37) (28)
Increase (decrease) in taxes payable 37 16 (1)
Decrease (increase) in interest receivable 112 (93) (168)
Increase (decrease)in interest payable (174) 523 292
Decrease in otherassets and liabilities, net (106) (24) (112)
------- ------ ------
Total adjustments 272 692 407
------- ------ ------
Net cash provided by operating activities $ 3,716 3,798 3,484
======= ====== ======
Supplemental Schedule of Noncash Activities:
Non-cash transfers from loans to other real estate $ 45 355 --
======= ====== ======
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 tax benefits
of $142,000 in 1996, income taxes of $420,000
in 1995 and income tax benefits of $953,000 in
1994 $ (233) 687 (1,557)
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 68
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(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-9
<PAGE> 69
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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
allowance 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 affect the borrowers' ability to repay, the
estimated value of underlying collateral and current economic
conditions that may affect the borrower's ability to repay. Impaired
loans that are within the scope of Statement of Financial Accounting
Standards (SFAS) No.114, "Accounting by Creditors for Impairment of a
Loan", as amended by SFAS No. 118, are measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the
loan is collateral dependent.
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 (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.
F-10
<PAGE> 70
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(e) Debt and Equity Securities, Continued
. 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.
. 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.
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.
F-11
<PAGE> 71
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(g) Long-Lived Assets
In March, 1995, Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles
to be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. During 1996,
the company adopted this statement and determined that no impairment
loss need be recognized for its long-lived assets.
(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 Statement of Financial Accounting Standards
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 corporation provides for income taxes on a
separate-return basis.
F-12
<PAGE> 72
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(j) Pension Expense
The Subsidiary accounts for its defined benefit pension plan under
the provisions of Statement of Financial Accounting Standards No.87,
"Employers' Accounting for Pensions". 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.
(k) Earnings Per Common Share
Earnings per share is computed based upon the weighted average number
of common shares outstanding during the year. On September13, 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 1995 and 1994 figures
to conform to the presentation for 1996.
(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-13
<PAGE> 73
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(2) Loans and Allowance for Possible Loan Losses
Loans and allowance for possible loan losses at December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------
1996 1995
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 30,232 22,327
Real estate - construction 2,224 2,217
Real estate - mortgage 74,290 73,444
Consumer 2,918 2,871
--------- -------
109,664 100,859
Less allowance for possible loan losses (1,724) (1,562)
--------- -------
$ 107,940 99,297
========= =======
</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
$2,842,000 and $2,947,000 at December 31, 1996 and 1995, respectively. During
1996, $2,091,000 of such loans were made and repayments totaled $2,196,000. As
of December 31, 1996, 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 $33,000 in 1995. No loans had been placed on non-accrual
status during 1996.
<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 $16,228 -- 12,741 832 29,801
3 to 12 months 5,207 2,224 7,245 1,125 15,801
a1 to 5 years 8,722 -- 45,908 961 55,591
Over 5 years 75 -- 8,396 -- 8,471
------- ----- ------ ----- -------
$30,232 2,224 74,290 2,918 109,664
======= ===== ====== ===== =======
</TABLE>
At December 31, 1996, variable rate and fixed rate loans total approximately
$18,252,000 and $91,412,000, respectively. At December31, 1995, variable rate
loans were $19,323,000 and fixed rate loans totaled $81,536,000.
F-14
<PAGE> 74
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(2) Loans and Allowance for Possible Loan Losses, Continued
Transactions in the allowance for possible loan losses for the years ended
December 31, 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of year $ 1,562 1,448 1,222
Provision charged to
operating expenses 150 160 240
------- ----- -----
1,712 1,608 1,462
------- ----- -----
Loans charged-off (98) (86) (37)
Recoveries on losses 110 40 23
------- ----- -----
Net loan recoveries
(charge-offs) 12 (46) (14)
------- ----- -----
Balance - end of year $ 1,724 1,562 1,448
======= ===== =====
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1996, the Company had loans to customers in the nursery industry totaling
approximately $11,287,000. 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, 1996 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 $29,765 397 44 30,118
Obligations of states
and political
subdivision 21,101 493 59 21,535
Corporate and other
securities 1,416 29 7 1,438
Mortgage backed
securities 2,239 -- 98 2,141
------- --- --- ------
$54,521 919 208 55,232
======= === === ======
</TABLE>
F-15
<PAGE> 75
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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 $20,161 23 156 20,028
Obligations of states
and political
subdivision 1,547 30 10 1,567
Corporate and other
securities 717 -- -- 717
Mortgage backed
securities 2,043 1 68 1,976
------- -- --- ------
$24,468 54 234 24,288
======= == === ======
</TABLE>
Debt and equity securities at December 31, 1995 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 $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-16
14
<PAGE> 76
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
<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>
The amortized cost and estimated market value of debt securities at
December 31, 1996, 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 $ 3,768 3,790
Due after one year through five years 18,623 18,869
Due after five years through ten years 24,362 24,852
Due after ten years 5,529 5,580
------- ------
52,282 53,091
Mortgage backed securities 2,239 2,141
------- ------
$54,521 55,232
======= ======
</TABLE>
F-17
15
<PAGE> 77
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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 $ 1,000 1,000
Due after one year through five years 5,789 5,737
Due after five years through ten years 10,779 10,772
Due after ten years 4,140 4,086
------- ------
21,708 21,595
Mortgage backed securities 2,043 1,976
Federal Home Loan Bank stock 626 626
Federal Reserve Bank stock 91 91
------- ------
$24,468 24,288
======= ======
</TABLE>
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------------
For the Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ 9,578 9,888 21,885
======= ===== =======
Gross realized gains $ 54 103 225
Gross realized losses 147 52 297
------- ----- -------
Net realized gains (losses) $ (93) 51 (72)
======= ===== =======
</TABLE>
The Company also realized a gain of $13,000, $12,000 and $8,000 in
1996, 1995 and 1994, respectively related to calls of 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, 1996.
Securities with approximate carrying values of $14,641,000
(approximate market value of $14,730,000) and $17,818,000 (approximate
market value of $18,119,000) at December 31, 1996 and 1995,
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, 1996, are
approximately $16,271,000 at amortized cost (approximate market value
of $16,575,000) 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-18
16
<PAGE> 78
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(3) Debt and Equity Securities, Continued
Securities that have rates that adjust prior to maturity totaled
$4,004,000 (market value $3,869,000) at December 31, 1996.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $626,000 and $584,000 at December 31, 1996 and 1995,
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, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------
1996 1995
------- ------
<S> <C> <C>
Land $ 426 426
Buildings 2,558 2,010
Furniture and equipment 2,148 1,990
------- ------
5,132 4,426
Less accumulated depreciation (2,764) (2,545)
------- ------
$ 2,368 1,881
======= ======
</TABLE>
During 1996, the Company constructed a branch facility on Smithville
Highway in McMinnville, Tennessee at a building cost of $522,000. The
contractor, who is a director of the Company, was paid construction
costs of $478,000.
(5) Deposits
Deposits at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
1996 1995
-------- -------
<S> <C> <C>
Demand deposits $ 18,802 19,002
Negotiable order of withdrawals 19,359 18,500
Money market demand accounts 10,172 11,087
Savings deposits 23,510 22,132
Certificates of deposit $100,000
or greater 26,920 26,274
Other certificates of deposit 52,351 49,043
Individual retirement accounts $100,000
or greater 1,352 1,388
Other individual retirement accounts 7,280 7,125
-------- -------
$159,746 154,551
======== =======
</TABLE>
F-19
17
<PAGE> 79
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(5) Deposits, Continued
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1996 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 $14,103 6,925 21,028
3 to 6 months 13,116 4,602 17,718
6 to 12 months 12,810 6,426 19,236
1 to 5 years 19,602 10,319 29,921
------- ------ ------
$59,631 28,272 87,903
======= ====== ======
</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, 1996 was approximately $908,000.
(6) Securities Sold Under Repurchase Agreements
The maximum amounts of outstanding repurchase agreements at any month
end during 1996 and 1995 was $5,666,000 and $4,421,000, respectively.
The average daily balance outstanding during 1996, 1995 and 1994 was
$3,529,000, $3,579,000 and $3,097,000, respectively. The underlying
securities are typically held by other financial institutions and are
designated as pledged.
F-20
18
<PAGE> 80
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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,
-------------------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $ 393 351 312
Other fees and commissions 170 159 146
Commissions on fiduciary activities 66 19 45
Securities gains -- 51 --
Other income 30 54 71
------ ----- -----
Total non-interest income $ 659 634 574
====== ===== =====
Non-interest expense:
Salaries and employee benefits $2,144 2,036 1,997
Occupancy expenses, net 232 197 200
Furniture and equipment expense 338 279 229
FDIC insurance 2 171 323
Securities losses 93 -- 72
Other operating expenses 891 860 917
------ ----- -----
Total non-interest expense $3,700 3,543 3,738
====== ===== =====
</TABLE>
(8) Income Taxes
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
December 31,
--------------------
1996 1995
----- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 479 390
State 90 73
----- ----
569 463
Deferred tax liability:
Federal (138) (184)
State (26) (34)
----- ----
(164) (218)
$ 405 245
===== ====
</TABLE>
F-21
19
<PAGE> 81
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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,
--------------------
1996 1995
----- ----
<S> <C> <C>
Financial statement allowance for
loan losses in excess of tax allowance $ 501 444
Excess of depreciation deducted for tax
purposes over the amounts deducted
in the financial statements (148) (144)
Book pension expense over (under) the
allowable tax deduction (16) 19
Unrealized (gain) loss in investment securities
available-for-sale 68 (74)
----- ----
$ 405 245
===== ====
</TABLE>
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------------
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1996
Current $ 1,160 293 1,453
Deferred (14) (3) (17)
------- ---- ------
Total $ 1,146 290 1,436
======= ==== ======
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
======= ==== ======
</TABLE>
F-22
20
<PAGE> 82
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(8) Income Taxes, Continued
A reconciliation of actual income tax expense of $1,436,000,
$1,299,000 and $1,203,000 for the years ended December 31, 1996, 1995
and 1994, respectively, to the "expected" tax expense (computed by
applying the statutory rate of 34% to earnings before income taxes) is
as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,659 1,498 1,455
State income taxes, net of Federal
income tax benefit 192 173 169
Tax exempt interest, net of interest
expense exclusion (414) (371) (430)
Other, net (1) (1) 9
------- ------ ------
$ 1,436 1,299 1,203
======= ====== ======
</TABLE>
Total income tax expense for 1996 and 1994 includes income tax
benefits of $35,000 and $27,000, respectively, related to losses on
sales of securities. A tax expense of $19,000 related to gains on
sales of securities is included in the 1995 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 $82,000 in 1996, $99,000 in 1995 and $125,000 in 1994. The
pension expense for 1996, 1995 and 1994 is comprised of the following
components.
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 82 76 80
Interest cost on projected
benefit obligation 140 125 129
Expected return on plan assets (144) (116) (101)
Net amortization and deferral 4 14 17
------- ------ ------
$ 82 99 125
======= ====== ======
</TABLE>
F-23
21
<PAGE> 83
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(9) Employee Benefit Plans, Continued
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1996 1995
------- ------
<S> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefit obligation, including
vested benefits of $1,417,000 and $1,232,000
respectively $ 1,431 1,247
======= ======
Actuarial present value of projected benefits
obligation $ 2,073 1,867
Plan assets at fair market value 2,159 1,798
------- ------
Excess of plan assets (over) under the
projected benefit obligation (86) 69
Unamortized net asset being recognized over
30 years (440) (462)
Unrecognized net gain 485 444
------- ------
Net pension (asset) liability recognized
in the consolidated balance sheets $ (41) 51
======= ======
Discount rate 7.5% 7.5%
======= ======
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, 1996, 1995 and 1994,
the subsidiary bank contributed $41,000, $43,000 and $40,000,
respectively, to the plan.
F-24
22
<PAGE> 84
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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, 1996, 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, 1996, the Company and its bank
subsidiary are required to have minimum Tier I and total risk-based
capital ratios of 4.0% and 8.0%, respectively. The Company's actual
ratios at that date were 27.1% and 28.3%, respectively. The leverage
ratio at December 31, 1996 was 15.3% and the minimum requirement was
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, 1996 and 1995, there was no
outstanding balance under the line of credit. The subsidiary bank has
lines of credit with other financial institutions totaling
$10,000,000. The balance at December 31, 1996 under the subsidiary's
lines of credit totaled $500,000, and is included in the accompanying
financial statements as Federal funds purchased. There was no balance
outstanding under these lines of credit at December 31, 1995.
F-25
23
<PAGE> 85
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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, 1996, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $1,567,000 in excess of
the Federal Deposit Insurance Corporation limit of $100,000 per
institution.
(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
----------------------
1996 1995
------ -----
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk:
Commercial loan commitments $1,157 5,205
Unfunded lines-of-credit 5,694 3,644
Letters of credit 1,493 1,059
------ -----
Total $8,344 9,908
====== =====
</TABLE>
F-26
24
<PAGE> 86
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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-27
25
<PAGE> 87
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
In Thousands
---------------------------
1996 1995
-------- -------
Assets
<S> <C> <C>
Cash $ 1,159* 1,060*
Investment in commercial bank subsidiary 29,886* 28,793*
-------- -------
Total assets $ 31,045 29,853
======== =======
Liabilities and Stockholders' Equity
Dividend payable $ 1,020 964
-------- -------
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 29,321 27,171
Net unrealized gains (losses) on
available-for-sale securities, net
of income tax benefits of $68,000 and income
taxes of $74,000, respectively (111) 122
-------- -------
32,234 30,317
Less cost of treasury stock of 42,754
shares in 1996 and 28,366 in 1995 (2,209) (1,428)
-------- -------
Total stockholders' equity 30,025 28,889
-------- -------
Total liabilities and
stockholders' equity $ 31,045 29,853
======== =======
</TABLE>
*Eliminated in consolidation.
F-28
26
<PAGE> 88
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
Three Years Ended December 31, 1996
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank
subsidiary $2,126* 1,406* 1,300*
------ ----- -----
Expenses:
Other 13 9 5
------ ----- -----
13 9 5
------ ----- -----
Earnings before Federal income
tax benefits and equity in
undistributed earnings of
commercial bank subsidiary 2,113 1,397 1,295
Federal income tax benefit 5 3 2
------ ----- -----
2,118 1,400 1,297
Equity in undistributed earnings of
commercial bank subsidiary 1,326* 1,706* 1,780*
------ ----- -----
Net earnings $3,444 3,106 3,077
====== ===== =====
</TABLE>
*Eliminated in consolidation.
F-29
27
<PAGE> 89
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 1996
<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, 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 - - (1,191) - - (1,181)
$2.15 per share
Cost of 1,558 shares of - - - (108) - (109)
treasury stock
Effect of change to market value - - - - 992 992
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 - - - - (1,557) (1,577)
------ ----- ------ ------ ------ ------
Balance December 31, 1994 1,512 1,512 23,305 (1,312) (565) 26,452
Net earnings - - 3,108 - - 3,108
Cash dividends declared - - (1,240) - - (1,240)
$2.25 per share
Cost of 2,248 shares of
treasury stock - - - (116) - (116)
Net change in unrealized appreciation
loss during the year, net of income
taxes of $420,000 - - - - 667 887
Balance December 31, 1995 1,512 1,512 27,171 (1,428) 122 25,888
------ ----- ------ ------ ------ ------
Net earnings - - 3,444 - - 3,444
Cash dividends declared - - (1,294) - - (1,294)
$2.40 per share
Cost of 14,388 shares of - - - (781) - (761)
treasury stock
Net change in unrealized gains (losses) - - - - (233) (233)
on available-for-sale securities
during the war, net of income tax
benefit of $142,000
------ ----- ------ ------ ------ ------
Balance December 31, 1996 $1,512 1,512 29,321 (2,209) (111) 30,025
------ ----- ------ ------ ------ ------
</TABLE>
F-30
28
<PAGE> 90
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows
Three Years Ended December 31, 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (13) (9) (5)
Income tax benefit received from
commercial bank subsidiary 5 6 --
------- ------ ------
Net cash used in operating
activities (8) (3) (5)
------- ------ ------
Cash flows from investing activities:
Dividend received from commercial
bank subsidiary 2,126 1,406 1,300
Purchase of available-for-sale securities -- -- (2)
Proceeds from sales of available-for-sale
securities -- 2 --
------- ------ ------
Net cash provided by
investing activities 2,126 1,408 1,298
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term
notes payable 45 56 42
Repayment of short-term
notes payable (45) (56) (42)
Dividends paid (1,238) (1,202) (1,112)
Payments made to acquire Treasury
stock (781) (116) (109)
------- ------ ------
Net cash used in financing
activities (2,019) (1,318) (1,221)
------- ------ ------
Net increase in cash and cash
equivalents 99 87 72
Cash and cash equivalents at
beginning of year 1,060 973 901
------- ------ ------
Cash and cash equivalents at
end of year $ 1,159 1,060 973
======= ===== ======
</TABLE>
F-31
29
<PAGE> 91
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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, 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings $ 3,444 3,106 3,077
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in earnings of
commercial bank subsidiary (3,452) (3,112) (3,080)
Increase (decrease) in other
assets, net -- 3 (2)
------- ------ ------
Total adjustments (3,452) (3,109) (3,082)
------- ------ ------
Net cash used in operating
activities $ (8) (3) (5)
======= ====== ======
</TABLE>
F-32
30
<PAGE> 92
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments", 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.
SFAS No. 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-33
31
<PAGE> 93
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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
SFAS No. 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-34
32
<PAGE> 94
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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, 1996 and 1995 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>
1996 1995
--------------------------- --------------------------
Carrying Carrying
Amount Fair Value Value Fair Value
------ ---------- ----- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 3,632 3,632 5,272 5,272
Securities 78,809 79,520 81,106 82,108
Loans 109,664 100,859
Less: allowance for
loan losses 1,724 1,562
-------- ------- ------- -------
Loans, net of
allowance 107,940 108,210 99,297 99,486
-------- ------- ------- -------
Financial liabilities:
Deposits 159,746 160,007 154,551 154,999
Securities sold
under repurchase
agreements 2,531 2,531 4,213 4,213
Federal funds
purchased 500 500 -- --
Unrecognized financial
instruments:
Commitments to extend
credit -- -- -- --
Standby letters of
credit -- -- -- --
</TABLE>
F-35
33
<PAGE> 95
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1996 and 1995
(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-36
34
<PAGE> 96
SUPPLEMENTAL INFORMATION
<PAGE> 97
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
February 21, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of First McMinnville Corporation (the "Company") to be
held on April 8, 1997, at 2:30 o'clock p.m., local time, at the Main Office of
The First National Bank of McMinnville located at 200 East Main Street,
McMinnville, Tennessee 37110.
The purposes of the Annual Meeting are to consider and to vote upon the
following:
Proposal Number 1. The election of three (3) Class I Members
of the Board of Directors (Paul O. Barnes,
Henry N. Boyd, and Dean I. Gillespie) who
will serve until the 2000 Annual Meeting of
Shareholders and until their successors
have been elected and duly qualified;
Proposal Number 2. The adoption, approval, and ratification of
the First McMinnville Corporation 1997
Stock Option Plan;
Proposal Number 3. The ratification of the appointment of
Maggart & Associates, P.C., as the
independent auditors of the Company for
fiscal year 1997; and
Proposal Number 4. Such other business as may properly come
before the Annual Meeting. (The Board of
Directors knows of no such other business
at the present time.)
Shareholders of record as of February 28, 1997, will be entitled to notice of
and to vote at the Annual Meeting. These matters are more fully discussed in the
accompanying material. WE URGE YOU TO READ THE ENCLOSED MATERIAL CAREFULLY AND
REQUEST THAT YOU COMPLETE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE. A
copy of the 1996 Annual Report of First McMinnville Corporation is included for
your information.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING. PLEASE COMPLETE THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE WITHOUT DELAY. IF YOU ATTEND THE ANNUAL MEETING, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON IF YOU WISH AT ANY TIME PRIOR TO THE
VOTE IN RESPECT OF PROPOSAL NUMBER 1 IS TAKEN.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSALS NUMBER 1,
2 AND 3. I look forward to seeing you at the Annual Meeting. There are
approximately 536,783 shares outstanding and entitled to vote.
Sincerely,
First McMinnville Corporation
Charles C. Jacobs, President
<PAGE> 98
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
-----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 8, 1997
-----------
Notice is hereby given that the Annual Meeting of Shareholders of FIRST
MCMINNVILLE CORPORATION (the "Company"), will be held on Tuesday, April 8, 1997,
at 2:30 o'clock p.m., in the Main Office of The First National Bank of
McMinnville, 200 East Main Street, McMinnville, Tennessee 37110, for the
following purposes:
(1) To elect three (3) Class I Directors (Paul O. Barnes, Henry
N. Boyd, and Dean I. Gillespie) whose terms currently expire
in 1997 to serve a three-year term until the 2000 Annual
Meeting and until their successors are duly elected and
qualified;
(2) The adoption, approval, and ratification of the First
McMinnville Corporation 1997 Stock Option Plan;
(3) To approve the selection of Maggart & Associates, P.C., as
the Company's independent auditors for the 1997 fiscal year;
and
(4) To consider any other business that may properly come before
the Annual Meeting.
The Board of Directors has fixed the close of business on February 28,
1997, as the record date for the determination of Shareholders entitled to
notice of and to vote at the Annual Meeting. All times are local time in
McMinnville, Tennessee. There are approximately 536,783 shares outstanding and
entitled to vote.
Your attention is directed to Exhibit A to this Notice of Annual
Meeting for additional information regarding matters to be acted upon at the
Annual Meeting.
By Order of the Board of Directors
John J. Savage, Jr., Secretary
McMinnville, Tennessee
February 21, 1997
<PAGE> 99
EXHIBIT A
PROPOSAL NUMBER 1
NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
The following persons are members of the Board of Directors. Brief
biographical information concerning each one is included below. The three (3)
Directors listed in Class I are currently standing for election to the Board
and, if elected, will serve three year terms and serve until their successors
have been elected and duly qualified. THE BOARD RECOMMENDS A VOTE "FOR" ALL OF
THESE NOMINEES.
CLASS I DIRECTORS ARE THOSE STANDING FOR ELECTION IN 1997.
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- ---------- ---------- -----
<S> <C> <C> <C>
CLASS I - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1997):
Paul O. Barnes Chairman, 1984
(63) B & P Lamp Supply Co., Inc.
Henry N. Boyd Chief Executive Officer, 1984
(80) Boyd Bros. Nursery.
Dean I. Gillespie President, 1984
(63) Bridge Builders, Inc.
CLASS II - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1998):
J. G. Brock Owner, 1993
(41) Brock Construction Company.
G. B. Greene President, 1984
(57) Womack Printing Co., Inc.
Robert W. Jones Chairman, First McMinnville 1984
(68) Corporation, 1989 - present;
Chairman, First National Bank, 1981 -
present; Chief Executive Officer, First
National Bank, 1976 - 1993.
</TABLE>
1
<PAGE> 100
EXHIBIT A [CONTINUED]
NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
CLASS III - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1999):
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- ---------- ---------- -----
<S> <C> <C>
Charles C. Jacobs President and Chief Executive Officer, First 1985
(58) 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
(50) Middle Tennessee Dr. Pepper Bottling Company.
John J. Savage, Jr. Retired; Secretary of Board of Directors 1984
(75) Executive Vice President and Trust Officer,
First National Bank through September 1986.
C. M. Stanley President, 1984
(61) Burroughs-Ross-Colville, Co.
W. B. Whitson Chairman, 1984
(81) Burroughs-Ross-Colville, Co.
</TABLE>
PROPOSAL NUMBER 2--RATIFICATION AND APPROVAL
OF STOCK OPTION PLAN
In an effort to assist the Corporation and the Bank to attract and
retain top quality management, the Board of Directors has considered a variety
of ideas. One approach is to offer stock options to key personnel, including
employees and Directors, pursuant to a stock option plan. In accordance with the
Board's planning, the Board of Directors of the Corporation adopted the First
McMinnville Corporation 1997 Stock Option Plan (the "Plan") to enhance the
Corporation's ability to attract and retain employees of the Corporation and the
Bank through the grant of options to purchase the Corporation's common stock.
The Plan is to be effective April 7, 1997, subject to approval of the
Shareholders. Options granted under the Plan may qualify as incentive stock
options ("Incentive Stock Options") under Section 422 of the Internal Revenue
Code of 1986, as amended ("Internal Revenue Code") or may be non-qualified stock
options ("Nonstatutory Stock Options"). All key employees of the Corporation and
the Bank, and future affiliates, if any, are eligible to receive Incentive Stock
Options. The Corporation anticipates that there will be approximately twenty-two
(22) participants eligible to receive Incentive Stock Options. The Nonstatutory
Stock Options may be granted to directors. It is anticipated that there will be
approximately eleven participants eligible to receive Nonstatutory Stock
Options. It is intended that the Board of Directors will have the greatest
possible latitude in amending the Plan, but any increase in the number of shares
allocated to the Plan will be approved by the Board of Directors and, to the
extent required by applicable law, rule or regulation, submitted to Shareholder
vote.
2
<PAGE> 101
The Board has authorized 57,500 shares of the Common Stock for the
purposes of the Plan. Shares subject to Options granted under the Plan which
expire, terminate or are cancelled, without having been exercised in full become
available again for option grants. No options to purchase shares under the Plan
have been granted to date.
Pursuant to this Plan, each Director serving (or nominated to serve) at
the time of the Shareholder approval of the Plan shall receive an Award of (that
is, a grant of an option for) Fifteen Hundred (1,500) Shares. These options
shall vest as follows: Five Hundred (500) shares shall vest immediately upon
grant; Five Hundred (500) shares shall vest on the first anniversary of the
initial grant; and Five Hundred (500) shares shall vest on the second
anniversary of the initial grant.
The Board of Directors anticipates that the full Board, or a committee
of the Board, will administer the Plan. The Plan may be terminated at any time
by the Board of Directors although such termination would not affect options
that had been granted prior to such termination. Options that will be granted
to the key employees may be granted to vest as quickly as permissible and
still qualify as statutory Incentive Stock Options. The Plan provides that
options must be exercised no later than ten years after being granted (five
years in the case of Incentive Stock Options granted to an employee who owns
more than 10% of the voting power of all stock). A person shall not be deemed to
be "not disinterested" solely because of participating in the Plan so long as
such person is "disinterested" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended.
The Plan provides that the Board of Directors shall approve the
exercise price of options on the date of grant, which for Incentive Stock
Options cannot be less than the fair market value of the Common Stock on that
date (110% of the fair market value for Incentive Stock Options granted to
employees who own more than 10% of the voting stock). The number of shares which
may be issued under the Plan and the exercise prices for outstanding options are
subject to adjustment in the event that the number of outstanding shares of
Common Stock will be changed by reason of stock splits, stock dividends,
reclassifications or recapitalizations. In addition, upon a merger or
consolidation involving the Corporation, participants may be entitled to shares
in the surviving Corporation upon the terms set forth in the Plan.
Options granted under the Plan are nontransferable, other than by will,
the laws of descent and distribution or, for Nonstatutory Stock Options,
pursuant to certain domestic relations orders. Payment for shares of Common
Stock to be issued upon exercise of an Option may, if permitted in the option
agreement, be made in cash, by delivery of Common Stock valued at its fair
market value on the date of exercise or delivery of a promissory note as
specified in the option agreement.
EXERCISE OF OPTIONS
No Incentive Stock Option may be exercised unless the employee is
employed by the Corporation or a parent or subsidiary of the Corporation at the
time of the exercise (or was so employed not more than three months before the
time of the exercise) and has been employed by the Corporation or a parent or
subsidiary of the Corporation at all times since the date of grant. If an
employee's employment is terminated other than by reason of her or his
disability or death at a time when the employee holds an Incentive Stock Option
that is exercisable (in whole or in part), the employee may exercise any or all
of the exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of termination) within three months after the employee's
termination of employment. If an employee's employment is terminated by reason
of her or his disability at a time when the employee holds an Incentive Stock
Option that is exercisable (in whole or in part), the employee may exercise any
or all of the exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of disability) within one year after the employee's
termination of employment. If an employee's employment is terminated by reason
of his death at a time when the employee holds an Incentive Stock Option that is
exercisable (in whole or in part), the Incentive Stock Option may be exercised
(to the extent exercisable on the date of death) within one year after the
employee's death by the person to whom the employee's rights under the Incentive
Stock Option shall have passed by will or
3
<PAGE> 102
by the laws of descent and distribution. In no event under any of these
provisions, may any option be exercised beyond the expiration of the term of the
option.
Nonstatutory Stock Options shall contain such terms including
employment requirements, noncompetition provisions, restrictions on the option
stock and other matters as the Board of Directors or its designated Committee
shall in its discretion impose. The Board or Committee may vary the terms and
provisions of individual Nonstatutory Stock Option agreements on a case by case
basis and shall not be required to make all Nonstatutory Stock Option agreements
uniform. No Nonstatutory Stock Option shall be exercised by a grantee unless he
or she shall have executed and delivered an option agreement satisfactory to the
Corporation.
The Board of Directors, or its designated Committee may, in its
discretion, grant Options which by their terms become fully exercisable upon a
Change of Control (within the meaning of the Plan), notwithstanding other
conditions on exercisability in the stock option agreement. Changes in control
may include such things as significant changes in share ownership, mergers, and
other types of acquisitions or reorganizations, among others.
FEDERAL TAX CONSEQUENCES
The Corporation's grant or issuance of an Incentive Stock Option has no
federal income tax consequences to either the Corporation or the optionee. Nor
do any federal income tax consequences occur to either the Corporation or the
optionee upon the optionee's exercise of his or her Incentive Stock Option and
purchase of Common Stock, except that the difference between the fair market
value of the stock purchased pursuant to the exercise of the Incentive Stock
Option and the amounts paid upon the option's exercise would be included in the
optionee's alternative minimum taxable income for alternative minimum tax
purposes.
If the optionee holds the stock purchased upon the exercise of the
Incentive Stock Option for the requisite period under the Internal Revenue Code,
then upon the optionee's disposition of the stock he or she will recognize a
capital gain for federal income tax purposes in an amount equal to the
difference between the amount received upon such disposition and the amounts
paid by the optionee upon the exercise of the Incentive Stock Option. The
Corporation would not be entitled to a deduction upon such a disposition. To be
entitled to such capital gains treatment the optionee must not dispose of the
stock within two (2) years after the date the Incentive Stock Option is granted
or one (1) year after the Incentive Stock Option is exercised.
If the optionee disposes of the stock prior to such time, then the
optionee will recognize ordinary income in an amount equal to the lesser of (i)
the difference between the sales proceeds and the optionee's cost, or (ii) the
difference between the fair market value of the stock on the date of exercise
and the optionee's cost. The balance of the gain on a premature disposition of
the stock, if any, will be capital gain for federal income tax purposes. Such a
premature disposition will entitle the Corporation to a deduction equal to the
amount of ordinary income recognized by the optionee.
No federal income tax consequences occur to either the Corporation or
the optionee upon the Corporation's grant or issuance of a Nonstatutory Stock
Option. Upon an optionee's exercise of a Nonstatutory Stock Option, the optionee
will recognize ordinary income in an amount equal to the difference between the
fair market value of the stock purchased pursuant to the exercise of the
Nonstatutory Stock Option and the exercise price of the Nonstatutory Stock
Option. However, if the stock purchased upon exercise of the Nonstatutory Stock
Option is not transferable or is subject to a substantial risk of forfeiture,
then the optionee will not recognize income until the stock becomes transferable
or is no longer subject to such a risk of forfeiture (unless the optionee makes
an election under Internal Revenue Code Section 83(b) to recognize the income in
the year of exercise, which election must be made within thirty days of the
Nonstatutory Stock Option exercise). The Corporation will be entitled to a
deduction in an amount equal to the ordinary income recognized by the optionee
in the year in which such income is recognized by the optionee. Upon a
subsequent disposition of the stock, the optionee will recognize capital gain
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<PAGE> 103
to the extent the sales proceeds exceed the optionee's cost of the stock plus
the previously recognized ordinary income.
The foregoing discussion of the Plan is a summary only and it is
qualified by reference to the Plan itself. A copy of the Plan is included
herewith for your information.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ADOPTION, APPROVAL AND RATIFICATION OF THE PLAN.
PROPOSAL NUMBER 3--RATIFICATION OF APPOINTMENT OF AUDITORS
The Directors have appointed Maggart & Associates, P.C., to serve as
independent auditors for the Corporation for the fiscal year that ends December
31, 1997, subject to ratification of such appointment by the Shareholders.
Maggart & Associates, P.C. served as the Corporation's accounting firm during
the formation of the Corporation and for the year ending December 31, 1996. A
representative of Maggart & Associates, P.C. is expected to be present at the
1997 Annual Meeting to respond to Shareholders' questions and will have the
opportunity to make a statement if she or he desires.
The appointment of the auditors must be ratified by a majority of the
votes cast by the Shareholders at the 1997 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF MAGGART & ASSOCIATES, P.C. AS THE
CORPORATION'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
MISCELLANEOUS MATTERS
The Board knows of no other matter which may properly come before the
Annual Meeting for action. However, if any other matter does properly come
before the Annual Meeting, the persons named in the enclosed proxy will vote in
accordance with their judgment upon such other matter.
The Corporation will bear the expense of solicitation of the proxies
for the 1997 Annual Meeting. The Corporation will reimburse brokerage firms and
other custodians, nominees, and fiduciaries for their reasonable expenses
incurred in sending proxy materials to the beneficial owners/Shareholders of the
Common Stock in connection with the Annual Meeting. In addition to solicitations
by the mails, the Corporation's Directors, officers, and regular employees may
solicit proxies personally or by telephonic or telegraphic means, for which they
will receive no additional compensation. The Corporation does not intend to
employ or to compensate any other persons or entities to solicit proxies in
connection with the 1997 Annual Meeting.
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<PAGE> 104
PROXY FIRST MCMINNVILLE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 8, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) C. M. STANLEY, J. J. SAVAGE, and W.
B. WHITSON, JR., and each of them, as Proxies, each with full power to appoint
his substitute, and hereby authorize(s) any of them to represent and to vote,
as designated below, all of the shares of Common Stock of First McMinnville
Corporation held of record by the undersigned at the close of business on
February 28, 1997, at the Annual Meeting of Shareholders to be held at 200 East
Main Street, McMinnville, Tennessee, on April 8, 1997, at 2:30 p.m. local time,
and any adjournment(s) or postponements thereof.
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<CAPTION>
<S> <C>
(1) ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed below
contrary below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
CHECK THE BOX TO VOTE "FOR" ALL NOMINEES AND STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST BELOW.)
Paul O. Barnes, Henry N. Boyd, and Dean I. Gillespie
(2) To adopt, approve and ratify the First McMinnville Corporation 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(3) To approve the selection of Maggart and Associates, P.C., as the Company's independent auditors for the fiscal year
ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
(4) In their discretion, on such other matters as may properly come before the Meeting.
</TABLE>
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION
OF DIRECTORS, FOR THE FIRST MCMINNVILLE CORPORATION 1997 STOCK OPTION PLAN, FOR
THE SELECTION AND RATIFICATION OF MAGGART & ASSOCIATES, P.C., AS INDEPENDENT
AUDITORS, AND IN THE DISCRETION OF THE PROXY AS TO OTHER MATTERS.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
DATED: , 1997 -------------------------------------------
------------------
DATED: , 1997 ------------------------------------------
------------------ Signatures of Shareholder(s) should
correspond exactly with the name printed
hereon. Joint owners should each sign
personally. Executors, administrators,
trustees, etc., should give full title and
authority.
<PAGE> 105
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
McMinnville, Tennessee
Approved by the Board of Directors: February 11, 1997
Approved by the Shareholders:
---------------------------
Scheduled to be considered: April 8, 1997
<PAGE> 106
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
<TABLE>
<S> <C>
1. Purpose....................................................................................................1
2. General Terms and Definitions..............................................................................1
3. General....................................................................................................3
4. Reservation of Shares of Company Stock.....................................................................4
5. Eligibility................................................................................................4
6. Director Award.............................................................................................4
7. Stock Options..............................................................................................5
8. Method of Exercise of Options..............................................................................6
9. Nontransferability of Awards and Options...................................................................7
10. Effective Date of the Plan.................................................................................7
11. Termination, Modification, Change..........................................................................7
12. Change in Capital Structure................................................................................8
13. Administration of the Plan.................................................................................8
14. Disputes; Mandatory Binding Arbitration....................................................................9
15. Notice.....................................................................................................9
16. Interpretation............................................................................................10
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS.....................................................................10
CERTIFICATE OF ADOPTION BY THE SHAREHOLDERS.......................................................................10
</TABLE>
ii
<PAGE> 107
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
1. Purpose. The purpose of this First McMinnville Corporation 1997
Stock Option Plan (the "Plan") is enhance Shareholder value. The Plan is
intended to further the long term stability and financial success of First
McMinnville Corporation (the "Company") by attracting and retaining key
personnel, including employees and non-employees, of the Company through the use
of stock incentives. It is believed that ownership of Company Stock will
stimulate the efforts of those employees and other persons, such as non-employee
Directors, of the Company upon whose judgment and interest the Company is and
will be largely dependent for the successful conduct of its business. It is also
believed that awards granted to such persons under this Plan will strengthen
their desire to remain with the Company and will further the identification of
those persons' interests with those of the Company's Shareholders.
2. General Terms and Definitions. As used in the Plan, the
following terms and definitions shall apply:
a. "Affiliate" means "affiliate" as defined pursuant to
the Exchange Act.
b. "Award" means the grant of an Option under the Plan.
c. "Board" means the board of directors of the Company.
d. "Change of Control" means:
i. The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors; but, provided however, there shall be
excluded for this purpose, any such acquisition by the Company or any
of its subsidiaries, or any employee benefit plan (or related trust) of
the Company or its subsidiaries, or any corporation with respect to
which, following such acquisition, more than fifty percent (50%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial
owners, respectively, of the common stock and voting securities of the
Company immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition,
of the then outstanding shares of common stock of the Company or the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors, as the
case may be; or
ii. Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that
any individual becoming a director subsequent to the date hereof whose
election or nomination for election by the Company's Shareholders was
approved by a vote of at least a majority of the directors then
comprising the then Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but, provided however,
for this purpose, there shall be excluded any such individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors
of the Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, and/or in any securities law in
effect in any jurisdiction in which the business conducted or the
property owned by the Company is material); or
<PAGE> 108
iii. Any event, occurrence, or circumstance (individually or
in the aggregate) that would be deemed to be a "change in control"
within the meaning of the Bank Holding Company Act of 1956, as
amended, 12 U.S.C. ss.ss. 1841 et seq. (the "Bank Holding Company Act")
or the Change in Bank Control Act of 1978, as amended, 12 U.S.C.
ss.1817(j); or
iv. Approval by the Shareholders of the Company of a
reorganization, merger or consolidation, or any comparable transaction
(any of these being referred to herein as a "Reorganization"), in each
case, with respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting securities
of the Company immediately prior to such Reorganization do not,
following such Reorganization beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Reorganization, or a complete liquidation or
dissolution of the Company or of any sale or other disposition of all
or a material portion of the assets of the Company (which, as to such
sale of less than all of the assets, is not in the ordinary course of
the Company's principal business).
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Company" means First McMinnville Corporation, a Tennessee business
corporation that is registered as a bank holding company under the Bank Holding
Company Act.
g. "Company Stock" or "Common Stock" means the common voting stock of
the Company. If the par value of the Company Stock is changed, or in the event
of a change in the capital structure of the Company (as provided in Section 12),
the shares resulting from such a change shall be deemed to be Company Stock
within the meaning of the Plan.
h. "Date of Grant" means the date on which an Award is granted by the
Board.
i. "Disability" or "Disabled" means, as to an Incentive Stock Option,
a Disability within the meaning of Code ss. 22(e)(3). As to all other Awards,
the Committee shall determine whether a Disability exists and such
determination shall be conclusive.
j. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
k. "Fair Market Value" means, if the Common Stock is not publicly
traded, the value of a share of Common Stock determined in good faith by the
Board in accordance with any one or more processes, procedures or methods that
the said Board determines in good faith to use. If Company Stock is publicly
traded, the term means, on any given date, the average of the high and low
price (or the bid and asked price) on such date, or if shares were not traded
on that date, the last date on which shares were traded, as reported in the
Wall Street Journal for the stock exchange on which the shares are traded. For
the purposes of this provision, it is assumed that the shares were publicly
traded as of the most recent business day of the Company next preceding the
date upon which value is to be established. For the purposes of this provision,
it is further assumed that the term "stock exchange" is broadly construed to
include, by way of example, not only the New York Stock Exchange and the
American Stock Exchange but also the over-the-counter market of the National
Association of Securities Dealers, Inc.
l. "Incentive Stock Option" means an Option intended to meet the
requirements of, and qualify for favorable Federal income tax treatment under,
Code ss. 422.
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<PAGE> 109
m. "Nonstatutory Stock Option" means an Option, which does not meet
the requirements of Code ss.422, or even if meeting the requirements of Code
ss.422, is not intended to be an Incentive Stock Option and is so designated.
n. "Option" means a right to purchase Company Stock granted under the
Plan, at a price determined in accordance with the Plan.
o. "Parent" means, with respect to any corporation, a "parent
corporation" of that corporation within the meaning of Code ss.424(e).
p. "Participant" means any eligible employee, director, advisor,
consultant, institutional lender or investor of the Company or any Parent or
Subsidiary who receives an Award under the Plan.
q. "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
r. "Stock Option Committee" or "Committee" means the committee
appointed by the Board as described under Section 13.
s. "Subsidiary" means, with respect to any corporation, a "subsidiary
corporation" of that corporation within the meaning of Code ss.424(f).
t. "Ten Percent (10%) Shareholder" means a person who owns, directly or
indirectly, stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company. Indirect ownership of stock shall be determined in accordance
with Code ss.424(d).
3. General. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options.
4. Reservation of Shares of Company Stock. Subject to Section 12 of the
Plan, there shall be reserved for issuance under the Plan an aggregate of
Fifty-Seven Thousand Five Hundred (57,500) shares of Company Stock, which shall
be authorized, but unissued shares. Shares allocable to Options or portions
thereof granted under the Plan that expire or otherwise terminate unexercised
may again be subjected to an Award under the Plan.
5. Eligibility.
a. Any employee of the Company (or Parent or Subsidiary of the Company)
who, in the judgment of the Committee has contributed or can be expected to
contribute to the profits or growth of the Company (or Parent or Subsidiary)
shall be eligible to receive Incentive Stock Options under the Plan. Directors
of the Company are eligible to participate in the Plan; provided, however, that
Directors who are employees may not both serve on the Committee and participate
in the Plan if such combined service and participation would prevent such person
from being "disinterested" within the meaning of Rule 16b-3 of the Exchange Act
(to the extent that the Exchange Act is applicable to the Company). The
Committee shall have the power and complete discretion, as provided in Section
13, to select eligible employees to receive Awards and to determine for each
employee the terms and conditions, the nature of the award and the number of
shares to be allocated to each employee as part of each Award.
b. Any employee of the Company (or Parent or Subsidiary of the
Company), or any director, advisor, consultant, institutional lender or
investor of the Company or any Parent or Subsidiary, whether or not an
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<PAGE> 110
employee of the Company or any Parent or Subsidiary, who, in the judgment of the
Committee has contributed or can be expected to contribute to the profits or
growth of the Company (or Parent or Subsidiary) shall be eligible to receive
Nonstatutory Stock Options under the Plan. The Committee shall have the power
and complete discretion, as provided in Section 13, to select participants to
receive Awards and to determine for each Participant the terms and conditions,
the nature of the award and the number of shares to be allocated to each
Participant as part of each Award.
c. The grant of an Award shall not obligate the Company or any Parent
or Subsidiary of the Company to pay an employee any particular amount of
remuneration, to continue the employment of the employee after the grant or to
make further grants to the employee at any time thereafter. In no event shall
the Company be liable to any person for any tax or other liability resulting
from any grant or denial of any option under this Plan.
d. A person shall not be deemed to be "not disinterested" solely
because of participating in the Plan so long as such person is "disinterested"
within the meaning of Rule 16b-3 of the Exchange Act.
6. Director Award. Pursuant to this Plan, each Director serving (or
nominated to serve) at the time of the Shareholder approval of the Plan shall
receive an Award of Fifteen Hundred (1,500) Shares. These options shall vest as
follows: Five Hundred (500) shares shall vest immediately upon grant; Five
Hundred (500) shares shall vest on the first anniversary of the initial grant;
and Five Hundred (500) shares shall vest on the second anniversary of the
initial grant.
Future Directors would receive Awards only as granted by the Board of
Directors.
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<PAGE> 111
7. Stock Options.
a. Whenever the Committee deems it appropriate to grant Options, notice
shall be given to the eligible Participant stating the number of shares for
which Options are granted, the Option price per share, whether the Options are
Incentive Stock Options or Nonstatutory Stock Options, and the conditions to
which the grant and exercise of the Options are subject. This, notice, when duly
accepted in writing by the Participant, shall become a stock option agreement
between the Company and the Participant.
b. The exercise price of shares of Company Stock covered by an
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of such shares on the Date of Grant. If the Participant is a
ten percent (10%) Shareholder and the Option is an Incentive Stock Option, the
exercise price shall be not less than one hundred ten percent (110%) of the Fair
Market Value of such shares on the Date of Grant. The exercise price of Company
Stock covered by a Nonstatutory Option shall be set by the Board of Directors on
the Date of Grant.
c. Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that the exercise provisions for Incentive Stock Options shall in all events not
be more liberal than the following provisions:
i. No Incentive Stock Option may be exercised after the first to
occur of (x) ten years (or, in the case of an Incentive Stock
Option granted to a ten percent (10%) Shareholder, five
years) from the Date of Grant, (y) three months from the
employee's retirement or termination of employment with the
Company and its Parent and Subsidiary corporations for
reasons other than Disability or death, or (z) one year from
the employee's termination of employment on account of
Disability or death.
ii. Except as otherwise provided in this paragraph, no Incentive
Stock Option may be exercised unless the employee is employed
by the Company or a parent or Subsidiary of the Company at
the time of the exercise (or was so employed not more than
three months before the time of the exercise) and has been
employed by the Company or a Parent or Subsidiary of the
Company at all times since the Date of Grant. If an
employee's employment is terminated other than by reason of
his Disability or death at a time when the employee holds an
Incentive Stock Option that is exercisable (in whole or in
part), the employee may exercise any or all of the
exercisable portion of the Incentive Stock Option (to the
extent exercisable on the date of termination) within three
months after the employee's termination of employment. If an
employee's employment is terminated by reason of his
Disability at a time when the employee holds an Incentive
Stock Option that is exercisable (in whole or in part), the
employee may exercise any or all of the exercisable portion
of the Incentive Stock Option (to the extent exercisable on
the date of Disability) within one year after the employee's
termination of employment. If an employee's employment is
terminated by reason of his death at a time when the employee
holds an Incentive Stock Option that is exercisable (in whole
or in part), the Incentive Stock Option may be exercised (to
the extent exercisable on the date of death) within one year
after the employee's death by the person to whom the
employee's rights under the Incentive Stock Option shall have
passed by will or by the laws of descent and distribution.
iii. An Incentive Stock Option by its terms, shall be exercisable
in any calendar year only to the extent that the aggregate
Fair Market Value (determined at the Date of Grant) of the
Company Stock with respect to which incentive stock options
are exercisable for the first time during the calendar year
does not exceed $100,000 (the "Limitation Amount"). Incentive
Stock Options granted under the Plan and similar incentive
options granted under all other plans of the Company and any
Parent or Subsidiary of the Company shall be aggregated for
purposes of determining whether the Limitation
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<PAGE> 112
Amount has been exceeded. The Board may impose such conditions as
it deems appropriate on an Incentive Stock Option to ensure
that the foregoing requirement is met. If Incentive Stock Options
that first become exercisable in a calendar year exceed the
Limitation Amount, the excess Options will be treated as
Nonstatutory Stock Options to the extent permitted by law.
d. The Committee may, in its discretion, grant Options which by their
terms become fully exercisable upon a Change of Control, notwithstanding other
conditions on exercisability in the stock option agreement.
8. Method of Exercise of Options.
a. Options may be exercised by the Participant giving written notice of
the exercise to the Company, stating the number of shares the Participant has
elected to purchase under the Option. In the case of the purchase of shares
under an Option, such notice shall be effective only if accompanied by the
exercise price in full in cash; provided that if the terms of an Option so
permit, the Participant (i) may deliver, or cause to be withheld from the Option
Shares, shares of Company Stock (valued at their Fair Market Value on the date
of exercise) in satisfaction of all or any part of the exercise price, or (ii)
deliver an interest bearing promissory note, payable to the Company, in payment
of all or part of the exercise price together with such collateral as may be
required by the Committee at the time of exercise. The interest rate under any
such promissory note shall be equal to the minimum interest rate required at the
time to avoid imputed interest to the Participant under the Code.
b. The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with Federal or state securities laws, and the
Company may require of the Participant a customary written indication of his
investment intent. Until the Participant has made any required payment,
including any applicable withholding taxes, and has had issued to him a
certificate for the shares of Company Stock acquired, he shall possess no
Shareholder rights with respect to the shares.
c. As an alternative to making a cash payment to the company to satisfy
his tax withholding obligations, if the Option agreement so provides, the
Participant may, subject to the provisions set forth below, elect to (i) deliver
shares of already owned Company Stock or (ii) have the Company retain that
number of shares of Company Stock that would satisfy applicable Federal, state
and local tax liabilities required to be withheld by the Company from the
Participant arising in the year of its exercise upon the exercise of a
Nonstatutory Stock Option. The Committee shall have sole discretion to approve
or disapprove any such election.
9. Nontransferability of Awards and Options. Incentive Stock Options by
their terms, shall not be transferable or assignable by the Participant except
by will or by the laws of descent and distribution and shall be exercisable,
during the Participant's lifetime, only by the Participant or by his guardian or
legal representative. Nonstatutory Stock Options by their terms, shall not be
transferable or assignable by the Participant except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code, Title I of the Employee Retirement Income Security Act, 29
U.S.C. ss.ss. 1144, et seq., as amended, or the rules thereunder, and shall be
exercisable, during the Participant's lifetime, only by the Participant or by
his guardian or legal representative.
10. Effective Date of the Plan. This Plan shall be effective on the
latter of April 8, 1997 or the date on which it is actually approved by the
Company's Shareholders. The Plan shall be submitted to the Shareholders of the
Company for approval. Until (i) the Plan has been approved by the Company's
Shareholders, and (ii) the requirements of any applicable state securities laws
have been met, no Option shall be exercisable.
In no event shall any option be exercisable, or shall the Company be
deemed required to issue any shares as a result of any purported exercise,
unless the Company shall have received, if it elects within a reasonable time
6
<PAGE> 113
not to exceed sixty (60) days to receive, from counsel of its choice any opinion
on the legality of the issuance of the shares subject to the exercise of an
Award. This includes, specifically, compliance with the Securities Act and any
applicable state laws (such as State "Blue Sky" laws).
11. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on April 7, 2007. No
Awards shall be made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided, that in the event the Company registers its stock under
ss.12 of the Exchange Act, and thereby becomes a "Public Company", no change
shall be made that would result in the Plan no longer being in compliance with
Rule 16b-3, as promulgated under the Exchange Act, as such rule may be amended
from time to time, or with any successor of the rule or other comparable
regulatory requirement. The Company will use its best efforts to maintain the
Plan and to assure that options are granted and exercised under the Plan in
accordance with Rule 16b-3, including, without limitation, the seeking of any
appropriate modifications or amendments to the Plan and all requisite approvals
and consents of the same. No changes to the Plan shall be made which increases
the total number of shares of Company Stock reserved for issuance pursuant to
Awards granted under the Plan (except pursuant to Section 12), expands the class
of persons eligible to receive Awards, or materially increases the benefits
accruing to Participants under the Plan, unless such change is authorized by the
Shareholders of the Company. A termination or amendment of the Plan shall not,
without the consent of the Participant, detrimentally affect a Participant's
rights under an Award previously granted to him.
12. Change in Capital Structure.
a. In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but not
limited to, the creation or issuance to Shareholders generally of rights,
options or warrants for the purchase of common stock or preferred stock of the
Company), the number and kind of shares of stock or securities of the Company to
be subject to the Plan and to Options then outstanding or to be granted
thereunder, the maximum number of shares or securities which may be delivered
under the Plan, the exercise price and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be binding on
all persons. If the adjustment would produce fractional shares with respect to
any unexercised Option, the committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
b. If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding Awards
as the Committee deems appropriate.
c. Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
13. Administration of the Plan. The Plan shall be administered by the
Committee consisting of not less than two directors of the Company, who shall be
appointed by the Board. In the event the Company becomes a Public Company, then
the Committee shall be so constituted as to permit the plan to comply with Rule
16b-3 as defined in Section 11 above. The Committee shall have general authority
to impose any limitation or condition upon an Award the Committee deems
appropriate to achieve the objectives of the Award and the Plan and, in
addition, and without limitation and in addition to powers set forth elsewhere
in the Plan, shall have the following specific authority:
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<PAGE> 114
a. The Committee shall have the power and complete discretion to
determine (i) which eligible participants shall receive an Award, (ii) the
number of shares of Company Stock to be covered by each Award, (iii) whether
Options shall be Incentive Stock Options or Nonstatutory Stock Options, (iv) the
fair market value of Company Stock, (v) the time or times when an Award shall be
granted, (vi) whether an Award shall become vested over a period of time and
when it shall be fully vested, (vii) when options may be exercised, (viii)
whether a Disability exists, (ix) the manner in which payment will be made upon
the exercise of Options, (x) conditions relating to the length of time before
disposition of Company Stock received upon the exercise of Options is permitted,
(xi) whether to approve a Participant's election (x) to deliver shares of
already owned Company Stock to satisfy tax liabilities arising upon the exercise
of a Nonstatutory Stock Option or (y) to have the Company withhold from the
shares to be issued upon the exercise of a Nonstatutory Stock Option that number
of shares necessary to satisfy tax liabilities arising from such exercise, (xii)
notice provisions relating to the sale of Company Stock acquired under the Plan,
and (xiii) any additional requirements relating to Awards that the Committee
deems appropriate. Notwithstanding the foregoing, no "tandem stock options"
(where two stock options are issued together and the exercise of one option
affects the right to exercise the other option) may be issued in connection with
Incentive Stock Options. The Committee shall also have the power to amend the
terms of previously granted Awards so long as the terms as amended are
consistent with the terms of the Plan and provided that the consent of the
Participant is obtained with respect to any amendment that would be detrimental
to him.
b. Administrative discretion regarding the selection of any director of
the Corporation to whom options may be granted pursuant to this Plan, or the
determination of the number of shares of common stock which may be allocated
under such options, will be exercised by a Committee of two or more directors
having full authority to act in the matter, all of whom must be, if the
Corporation is a Public Company, Disinterested (as that term is defined in Rule
16b-3). Administrative discretion regarding the selection of any officer of the
Corporation (who is not a director) to whom options may be granted pursuant to
this Plan once the Corporation becomes a Public Company, or the determination of
the number of shares of common stock which may be allocated under such options,
will be exercised by (a) the Board of Directors, if each of its members is
Disinterested, or (b) a committee of two or more directors, all of whom are
Disinterested.
c. The Committee may adopt rules and regulations for carrying out the
Plan. The interpretation and construction of any provision of the Plan by the
Committee shall be final and conclusive. The Committee may consult with counsel,
who may be counsel to the Company, and shall not incur any liability for any
action taken in good faith in reliance upon the advice of counsel.
d. A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by all
of the members, and any action so taken shall be fully effective as if it had
been taken at a meeting.
14. Disputes; Mandatory Binding Arbitration. Any disputes in respect of
the Plan, or in respect of any grant or failure to grant options, or otherwise
in connection with the Plan and/or any Option (each and every such instance
being referred to herein as a "Dispute"), shall be, at the demand of any party
to such Dispute, subject to mandatory binding arbitration in accordance with the
terms of this Section 14. Each Dispute shall be arbitrated pursuant to the terms
of the Federal Arbitration Act, 9 U.S.C. ss.ss. 101, et seq., as amended, before
an arbitrator selected by the American Arbitration Association (or other group,
academy, or entity selected by the Company from time to time, in each case
referred to herein as the "AAA") pursuant to the Commercial Arbitration Rules
(or comparable rules) of the AAA. The Arbitrator shall be entitled to award (a)
actual, but not punitive, damages,
8
<PAGE> 115
(b) attorneys fees, (c) out-of-pocket expenses and costs, (d) other
monetary relief deemed appropriate by the arbitrator, and (e) such other relief
as the arbitrator shall deem appropriate. This provision shall not prevent any
party from seeking injunctive or other extraordinary relief from a court of
competent jurisdiction located in Warren County, Tennessee, but such application
shall not be permitted by the court to avoid or to defeat the agreement of the
parties to resolve their disputes by arbitration. Any court shall be entitled to
enter judgment on the award of the arbitrator.
15. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at its principal business address to the
attention of the Treasurer; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
16. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as
of February 11, 1997, to be effective on the later of April 8, 1997 or the date
upon which the Shareholders of the Company actually approve the Plan.
9
<PAGE> 116
FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
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 February 9, 1996, between First 57
National Bank of McMinnville and Robert W. Jones, replacing
prior agreement dated December 14, 1993, as amended.
11 Statement re computation of per share earnings ***
21 Subsidiary of First McMinnville Corporation 61
27 Financial Statement Schedule ****
</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, 1996.
**** This Exhibit is solely for the use of the United States Securities and
Exchange Commission. No paper copy is being filed. This Schedule, filed
only in electronic format, contains summary financial information
extracted from the financial statements of the Company at December 31,
1996 and is qualified in its entirety by reference to such financial
statements as set forth in the Company's Annual Report on Form 10-KSB
for the period ending on December 31, 1996.
<PAGE> 1
EXHIBIT 10.2
CONSULTING AGREEMENT - ROBERT W. JONES
<PAGE> 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;
(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-employed 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 its 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.
<PAGE> 3
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 costs including, but not
limited to dues associated with said organizations.
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 Consultants'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 and the following
addresses:
If to Consultant:
Robert Jones
If to Bank:
First National Bank of McMinnville
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 changes 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 the Agreement on the date first
written above.
FIRST NATIONAL BANK OF MCMINNVILLE
By:/s/ Charles C. Jacobs
-------------------------------------
Title:President
----------------------------------
/s/ Robert W. Jones
---------------------------------------
Robert W. Jones
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
<PAGE> 2
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First McMinnville
Corporation at December 31, 1996. Such subsidiary is wholly owned by the Company
and it is included in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
Jurisdiction Percentage of
of Voting Securities
Subsidiary Incorporation Owned
---------- ------------- -----
<S> <C> <C>
The First National Bank of McMinnville Federal 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORP. FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,532
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,288
<INVESTMENTS-CARRYING> 54,521
<INVESTMENTS-MARKET> 55,232
<LOANS> 109,664
<ALLOWANCE> 1,724
<TOTAL-ASSETS> 195,732
<DEPOSITS> 159,746
<SHORT-TERM> 3,031
<LIABILITIES-OTHER> 2,930
<LONG-TERM> 0
0
0
<COMMON> 1,512
<OTHER-SE> 28,513
<TOTAL-LIABILITIES-AND-EQUITY> 195,732
<INTEREST-LOAN> 9,380
<INTEREST-INVEST> 5,198
<INTEREST-OTHER> 92
<INTEREST-TOTAL> 14,670
<INTEREST-DEPOSIT> 6,468
<INTEREST-EXPENSE> 6,599
<INTEREST-INCOME-NET> 8,071
<LOAN-LOSSES> 150
<SECURITIES-GAINS> (93)
<EXPENSE-OTHER> 3,607
<INCOME-PRETAX> 4,880
<INCOME-PRE-EXTRAORDINARY> 4,880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,444
<EPS-PRIMARY> 6.34
<EPS-DILUTED> 6.34
<YIELD-ACTUAL> 4.72
<LOANS-NON> 0
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,851
<ALLOWANCE-OPEN> 1,562
<CHARGE-OFFS> 98
<RECOVERIES> 110
<ALLOWANCE-CLOSE> 1,724
<ALLOWANCE-DOMESTIC> 1,724
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
