<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 2-90200
---------
FIRST MCMINNVILLE CORPORATION
------------------------------------------------------
(Exact Name of Registrant As Specified in its Charter)
Tennessee 62-1198119
- -------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
200 East Main Street, McMinnville, TN 37110
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(931) 473-4402
--------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding: 533,541 shares at August 3, 1998
-------
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the registrant and its
wholly-owned subsidiary, First National Bank of McMinnville (the "Bank"), are as
follows:
Consolidated Balance Sheets - June 30, 1998 and December 31, 1997.
Consolidated Statements of Earnings - For the three months and six months
ended June 30, 1998 and 1997.
Consolidated Statements of Comprehensive Earnings - For the three months
and six months ended June 30, 1998 and 1997.
Consolidated Statements of Cash Flows - For the six months ended June 30,
1998 and 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
2
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(In Thousands)
<S> <C> <C>
Assets
------
Loans $111,946 111,473
Less: Allowance for loan losses (1,416) (1,314)
-------- --------
Net loans 110,530 110,159
Securities:
Held to maturity, at cost (market value $50,849,000 and
$47,584,000, respectively) 50,101 46,495
Available-for-sale, at market (amortized cost $77,067,000
and $43,513,000, respectively) 77,452 43,868
Interest-bearing deposits in other banks 100 100
Federal funds sold -- 2,650
-------- --------
Total earning assets 238,183 203,272
Cash and due from banks 4,727 4,461
Bank premises and equipment, net of accumulated depreciation 2,149 2,230
Accrued interest receivable 2,314 2,020
Deferred tax asset 28 39
Other real estate 11 11
Other assets 463 732
-------- --------
$247,875 212,765
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $197,998 172,891
Securities sold under repurchase agreements 9,622 4,350
Advances from Federal Home Loan Bank 4,000 --
Accrued interest and other liabilities 2,126 2,967
-------- --------
Total liabilities 213,746 180,208
-------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 606,615 shares and 605,800 shares at June 30, 1998
and December 31, 1997, respectively 1,517 1,514
Additional paid-in capital 1,613 1,568
Retained earnings 33,208 31,561
Net unrealized gains on available-for-sale securities, net of
income taxes of $146,000 and $135,000, respectively 239 220
-------- --------
36,577 34,863
Less cost of treasury stock of 72,010 shares at June 30, 1998
and 69,696 shares at December 31, 1997 (2,448) (2,306)
-------- --------
Total stockholders' equity 34,129 32,557
--------- --------
$247,875 212,765
======== ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,398 2,410 $4,790 4,774
Interest and dividends on securities:
Taxable securities 1,520 1,114 2,754 2,115
Tax exempt from Federal income taxes 336 272 655 577
Interest on federal funds sold 59 81 86 110
Interest on interest-bearing deposits in other banks and
other interest 1 1 3 3
------ ------ ------ ------
Total interest income 4,314 3,878 8,288 7,579
------ ------ ------ ------
Interest expense:
Interest on negotiable order of withdrawal accounts 126 120 246 237
Interest on money market demand and savings accounts 280 287 558 559
Interest on certificates of deposit 1,627 1,331 3,010 2,584
Interest on securities sold under repurchase agreements
and short term borrowings 57 25 99 47
Interest on Federal funds purchased -- -- 2 10
Interest on advances from Federal Home Loan Bank 41 -- 41 --
------ ------ ------ ------
Total interest expense 2,131 1,763 3,956 3,437
------ ------ ------ ------
Net interest income 2,183 2,115 4,332 4,142
Provision for loan losses 45 30 90 60
------ ------ ------ ------
Net interest income after provision for loan
losses 2,138 2,085 4,242 4,082
------ ------ ------ ------
Other income:
Service charges on deposit accounts 131 126 250 247
Other fees and commissions 60 60 120 119
Commissions and fees on fiduciary activities 5 6 17 17
Security gains related to available-for-sale securities -- -- -- 9
Other income 12 10 25 20
------ ------ ------ ------
208 202 412 412
------ ------ ------ ------
Other expenses:
Salaries and employee benefits 581 625 1,215 1,178
Occupancy expenses, net 55 55 113 110
Furniture and equipment expense 22 24 44 45
Data processing expense 46 53 97 107
Security losses related to available-for-sale securities 4 -- 4 --
FDIC insurance 6 5 11 10
Other operating expenses 214 207 416 413
------ ------ ------ ------
928 969 1,900 1,863
------ ------ ------ ------
Earnings before income taxes 1,418 1,318 2,754 2,631
Income taxes 422 413 812 799
------ ------ ------ ------
Net earnings $ 996 905 $1,942 1,832
====== ====== ====== ======
Basic earnings per common share $ 1.86 1.69 $ 3.63 3.42
====== ====== ====== ======
Diluted earnings per common share $ 1.86 1.69 $ 3.62 3.42
====== ====== ====== ======
Dividends per share $ .55 .50 $ .55 .50
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
(In Thousands)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 996 905 1,942 1,832
------ ------ ------ ------
Other comprehensive earnings, net of tax:
Unrealized gains on available-for-sale securities
arising during period, net of taxes of $2,000,
$122,000, $10,000 and $43,000, respectively 4 200 17 71
Less: reclassification adjustment for losses
(gains) included in net earnings, net of taxes of
$2,000, $2,000 and $3,000, respectively 2 -- 2 (6)
------ ------ ------ ------
Other comprehensive earnings 6 200 19 65
------ ------ ------ ------
Comprehensive earnings $1,002 1,105 1,961 1,897
====== ====== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 7,970 7,427
Fees and commissions received 408 403
Interest paid (3,827) (3,119)
Cash paid to suppliers and employees (1,614) (1,614)
Income taxes paid (612) (822)
-------- --------
Net cash provided by operating activities 2,325 2,275
-------- --------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 11,893 8,027
Proceeds from maturities of available-for-sale securities 41,750 3,133
Proceeds from sales of available-for-sale securities 8,437 1,323
Purchase of held-to-maturity securities (15,499) (2,809)
Purchase of available-for-sale securities (83,722) (15,521)
Loans made to customers, net of repayments (461) (689)
Purchase of premise and equipment (25) (16)
Proceeds from sales of other real estate -- 14
-------- --------
Net cash used in investing activities (37,627) (6,538)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing, savings and
NOW deposit accounts (1,233) 1,570
Net increase in time deposits 26,340 8,348
Increase in securities sold under repurchase agreement 5,272 1,960
Increase (decrease) in Federal funds purchased 4,000 (500)
Dividends paid (1,366) (1,290)
Payments to acquire treasury stock (142) (49)
Proceeds from sales of common stock 47 58
-------- --------
Net cash provided by financing activities 32,918 10,097
-------- --------
Net increase (decrease) in cash and cash equivalents (2,384) 5,834
Cash and cash equivalents at beginning of period 7,111 3,532
-------- --------
Cash and cash equivalents at end of period $ 4,727 9,366
======== ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided
by operating activities:
Net earnings $ 1,942 1,832
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 106 115
Provision for loan losses 90 60
Securities losses related to available-for-sale 4 --
Security gains related to available-for-sale -- (9)
FHLB dividend reinvestment (24) (22)
Decrease in other assets, net 269 16
Increase in other liabilities 103 91
Increase in interest receivable (294) (126)
Increase in interest payable 129 318
------- -------
Total adjustments 383 443
------- -------
Net cash provided by operating activities $ 2,325 2,275
======= =======
Supplemental schedule of non-cash activities:
Unrealized gain in value of securities available-for-
sale, net of income taxes of $11,000 in 1998 and
$40,000 in 1997 $ 19 $ 66
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
<PAGE> 8
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
McMinnville Corporation ("Company") and its wholly-owned subsidiary, First
National Bank of McMinnville ("Bank").
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of June 30, 1998 and December 31, 1997, and the results of operations for the
three months and six months ended June 30, 1998 and 1997, comprehensive earnings
for the three months and six months ended June 30, 1998 and 1997 and changes in
cash flows for the six months ended June 30, 1998 and 1997. All significant
intercompany transactions have been eliminated. The interim consolidated
financial statements should be read in conjunction with the notes to the
consolidated financial statements presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results for interim periods
are not necessarily indicative of results to be expected for the complete fiscal
year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Balance, January 1, 1998 and 1997, respectively $ 1,314 1,724
Add (deduct):
Losses charged to allowance (11) (22)
Recoveries credited to allowance 23 13
Provision for loan losses 90 60
-------- -------
Balance, June 30, 1998 and 1997, respectively $ 1,416 1,775
======== =======
</TABLE>
8
<PAGE> 9
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion 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. Reference should also be made to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 for a more complete discussion of
factors that impact liquidity, capital and the results of operations.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operations and prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
The use of such words as expect, anticipate, forecast, and comparable terms
should be understood by the reader to indicate that the statement is
"forward-looking" and thus subject to change in a manner that can be
unpredictable. Factors that could cause actual results to differ from the
results anticipated, but not guaranteed, in this Report, include (without
limitation) economic and social conditions, competition for loans, mortgages,
and other financial services and products, changes in interest rates, unforeseen
changes in liquidity, results of operations, and financial conditions affecting
the Company's customers, material unforeseen complications related to addressing
Year 2000 issues (both as to the Company and as to its customers, vendors,
consultants and governmental agencies), as well as other risks that cannot be
accurately quantified or completely identified. Many factors affecting the
Company's financial condition and profitability, including changes in economic
conditions, the volatility of interest rates, political events and competition
from other providers of financial services simply cannot be predicted. Because
these factors are unpredictable and beyond the Company's control, earnings may
fluctuate from period to period. The purpose of this type of information (such
as in Item 2, as well as other portions of this Report) is to provide Form 10-Q
readers with information relevant to understanding and assessing the financial
condition and results of operations of the Company not to predict the future or
to guarantee results. The Company is unable to predict the types of
circumstances, conditions, and factors that can cause anticipated results to
change. The Company undertakes no obligation to publish revised forward-looking
statements to reflect the occurrence of changes or of unanticipated events,
circumstances, or results.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Registrant
and its subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is designed to maintain
stability in the balance of interest-sensitive assets to interest-sensitive
liabilities in order to provide a stable growth in net interest margins.
Earnings on interest-sensitive assets such as loans tied to the prime rate of
interest and Federal funds sold, may vary considerably from fixed rate assets
such as long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
Banks, in general, must maintain large cash balances to meet
day-to-day cash flow requirements as well as maintaining required reserves for
regulatory agencies. The cash balances maintained are the primary source of
liquidity. Federal funds sold, which are basically overnight or short-term loans
to other banks that increase the other bank's required reserves, are also a
major source of liquidity.
The Company's investment portfolio consists of earning assets that
provide interest income. For those securities classified as held-to-maturity the
Company has the ability and intention to hold these securities until maturity.
Securities classified as available-for-sale include securities intended to be
used as part of the Company's asset/liability strategy and/or securities that
may be sold in response to changes in interest rate, prepayment risk, the need
or desire to increase capital and similar economic factors. Securities totaling
approximately $18.4 million mature or reprice within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At
June 30, 1998 commercial, consumer and other loans of approximately $27.7
million and mortgage loans of approximately $5.7 million either will become due
or will be subject to rate adjustments within twelve months. Continued emphasis
will be placed on structuring adjustable rate loans.
9
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
As for liabilities, certificates of deposit of $100,000 or greater
of approximately $51.9 million will become due during the next twelve months.
The Bank's deposit base increased approximately $25.1 million during the six
months ended June 30, 1998. Securities sold under repurchase agreements
increased approximately $5.3 million during the six months ended June 30, 1998.
The deposit base increased approximately $22.3 million during the second quarter
of 1998. Securities sold under repurchase agreements also increased
approximately $4.5 million during the second three months of 1998. There were no
Federal funds sold or purchased at June 30, 1998 as compared to Federal funds
sold of $2,650,000 at December 31, 1997. Advances from the Federal Home Loan
Bank were $4,000,000 at June 30, 1998. These advances are scheduled to mature
over periods ranging from one to three years. The significant increase in
deposits during the three months ended June 30, 1998 was due primarily to a
deposit by one customer totaling approximately $21,000,000. Management
anticipates that these funds will be withdrawn on September 30, 1998 and
distributed to members of the customer's family. It is not known what amount, if
any, of this distribution will be redeposited in the Bank.
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 except as discussed in the preceding paragraph.
The subsidiary bank is limited by banking regulatory agencies as
to the amount of dividends that it can pay. At June 30, 1998, the Bank can
declare during the remainder of 1998 cash dividends in an aggregate amount not
to exceed approximately $5.3 million, exclusive of any 1998 net earnings,
without prior approval of the Comptroller of the Currency. However, most of
these funds will be retained for use in the Company's operations rather than
being paid out in dividends. It is anticipated that with present maturities, the
anticipated growth in deposit base, and the efforts of management in its
asset/liability management program, liquidity will not pose a problem in the
foreseeable future. At the present time there are no known trends or any known
commitments, demands, events or uncertainties that will result in or that are
reasonably likely to result in the Company's liquidity changing in any material
way.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 13.8% at June
30, 1998 and 15.3% at December 31, 1997. Total assets increased 16.5% during the
six months ended June 30, 1998. The annualized rate of return on stockholders'
equity for the first six months of 1998 was 11.7% compared to 12.3% for the
comparable period in 1997. Because of the relatively high percentage of equity
capital, the return on equity is lower than the reported average for many banks
in the Bank's peer group. Dividends of $294,000 and $269,000 or $.55 and $.50
per share were declared in the six months ended June 30, 1998 and 1997,
respectively. Cash dividends will be increased in the remainder of 1998 over
1997 only in the discretion of the Board of Directors and as profits permit.
Dividends paid during 1997 were $2.50 per share. No material changes in the mix
or cost of capital is anticipated in the foreseeable future. At the present time
there are no material commitments for capital expenditures.
10
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Regulations of the Comptroller of the Currency establish required
minimum capital levels for the Bank. Under these regulations, national banks
must maintain certain capital levels as a percentage of average total assets
(leverage capital ratio) and as a percentage of total risk-based assets
(risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to credit
risk ranging from 0% for assets backed by the full faith and credit of the
United States to 100% for loans other than residential real estate loans and
certain off-balance sheet commitments. Total capital is characterized as either
Tier 1 capital which includes common shareholders' equity, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
- - or total risk based 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 total capital. National banks must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a total capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio defined as Tier 1
capital to average total assets for the most recent quarter of at least 4.0%.
The same ratios are also required in order for a national bank to be considered
"adequately capitalized" under the OCC's "prompt corrective action" regulations,
which impose certain operating restrictions on institutions which are not
adequately capitalized. The Bank has a Tier 1 risk-based ratio of 26.4%, a total
capital to risk-based ratio of 27.5% and a leverage ratio of 14.1%, and is
classified as "well capitalized" under the regulations.
The Federal Reserve Board imposes consolidated capital guidelines
on bank holding companies which have more than $150 million in consolidated
assets. These guidelines require bank holding companies to maintain consolidated
capital ratios which are essentially the same as the minimum capital levels
required for national banks. The Company's consolidated capital ratios were
substantially the same as those set forth above for the Bank, and exceeded the
minimums required under these Federal Reserve Board guidelines.
On April 8, 1997, the Company's stockholders approved the First
McMinnville Corporation 1997 Stock Option Plan. The Company has granted the
right to purchase 41,000 shares of stock to its directors, officers and
employees at an exercise price of $58.15 per share. At June 30, 1998, 1,815
shares had been issued through exercise and 12,445 options remained exercisable.
The shares granted to Directors totaling 16,500 are exercisable over a three
year period. Shares granted to officers and employees are exercisable over a
period of 10 years or until the optionee reaches age 65, whichever is less.
RESULTS OF OPERATIONS
Net earnings were $1,942,000 for the six months ended June 30,
1998 as compared to $1,832,000 for the same period in 1997. Net earnings were
$996,000 for the quarter ended June 30, 1998 as compared to $905,000 during the
same quarter in 1997.
As in most financial institutions, a major element in analyzing
the statement of earnings is net interest income, which is the excess of
interest earned over interest paid. This is particularly true with the
volatility in interest rates encountered in recent years.
11
<PAGE> 12
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Registrant's interest income, excluding tax equivalent
adjustments, increased by $709,000 or 9.4% and $415,000 or 5.8% during the six
months ended June 30, 1998 and 1997, respectively. Interest income for the
quarter ended June 30, 1998 increased $436,000 or 11.2% over the quarter ended
June 30, 1997, and $340,000 or 8.6% from the first quarter of 1998. The
increases were primarily attributable to an increase in average earning assets.
The ratio of average earning assets to total average assets was 96.3% for the
six months ended June 30, 1998 and 96.3% for the same period in 1997.
Interest expense increased by $519,000 for the six months ended
June 30, 1998 or 15.1% compared to the same period in 1997. Interest expense for
the quarter ended June 30, 1998 increased $368,000 or 20.9% as compared to the
quarter ended June 30, 1997. Interest expense for the quarter ended June 30,
1998 increased $306,000 or 16.8% compared to the first quarter of 1998. The
increase in interest expense can be attributable to an increase in average
interest bearing liabilities.
The foregoing resulted in net interest income of $4,332,000 for
the six months ended June 30, 1998, an increase of $190,000 or 4.6% compared to
the prior year period. Net interest income for the quarter ended June 30, 1998
increased $68,000 or 3.2% over the second quarter of 1997 and $34,000 or 1.6%
over the first quarter in 1998.
The provision for loan losses was $90,000 for the first six months
of 1998. The Bank had a $60,000 provision for the first six months of 1997. The
provision for loan losses is based on past loan experience and other factors
which, in management's judgment, deserve current recognition in estimating
possible loan losses. Such factors include past loan loss experience, growth and
composition of the loan portfolio, review of specific loan problems, the
relationship of the allowance for loan losses to outstanding loans, and current
economic conditions that may affect the borrower's ability to repay. Management
has in place a system that is designed to identify and to monitor loan problems
on a timely basis.
Effective January 1, 1995, the Company adopted on a prospective
basis Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
including credit card, residential mortgage, and consumer installment loans.
A loan is impaired when it is probable that the Company will be
unable to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with a corresponding
charge to the provision for loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.
12
<PAGE> 13
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $53,500,000, $2,639,000 and
$257,000, respectively at June 30, 1998, are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and thus are not subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for impairment under
the provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as to timely
collection of principal or interest exists, or when principal or interest is
past due 90 days or more unless such loans are well-secured and in the process
of collection. Delays or shortfalls in loan payments are evaluated with various
other factors to determine if a loan should be considered to be impaired.
Generally, delinquencies under 90 days are considered insignificant unless
certain other factors are present which indicate impairment is probable. The
decision to place a loan on nonaccrual status is also based on an evaluation of
the borrower's financial condition, collateral, liquidation value, and other
factors that affect the borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At June
30, 1998, the Company had no loans on nonaccrual status and there were no
nonaccrual loans outstanding at any time during the six months ended June 30,
1998 and year ended December 31, 1997, respectively. Therefore, all interest
income during these periods was recognized on the accrual basis.
Loans not on nonaccrual status are classified as impaired in
certain cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the
terms of which have been modified in a troubled debt restructuring after January
1, 1995. Interest is accrued on such loans that continue to meet the modified
terms of their loan agreements. At June 30, 1998, the Company had no loans that
have had the terms modified in a troubled debt restructuring.
13
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's charge-off policy for impaired loans is similar to
its charge-off policy for all loans in that loans are charged-off in the month
when they are considered uncollectible.
Impaired loans and related allowance for loan loss amounts at June
30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------ ------------------------
Allowance Allowance
Recorded for Recorded for
(In Thousands) Investment Loan Loss Investment Loan Loss
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Impaired loans with allowance for
loan loss $2,727 600 3,454 675
Impaired loans with no allowance
for loan loss -- -- -- --
------ ----- ----- -----
$2,727 600 3,454 675
====== ===== ===== =====
</TABLE>
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral.
The average recorded investment in impaired loans for the six
months ended June 30, 1998 and 1997 was $3,386,000 and $4,153,000, respectively.
The related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $163,000 and $198,000 for
1998 and 1997, respectively.
The following schedule details selected information as to
non-performing loans of the Company at June 30, 1998:
<TABLE>
<CAPTION>
June 30, 1998
---------------------------
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 101,000 --
Installment loans -- --
Commercial -- --
--------- --------
$ 101,000 --
========= ========
Renegotiated loans $ -- --
========= ========
</TABLE>
14
<PAGE> 15
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
At June 30, 1998, loans which include the above, totaling
$5,611,000, were included in the Company's internal classified loan list. Of
these loans $1,117,000 are real estate and $4,494,000 are commercial and other.
The collateral values securing these loans are estimated at approximately
$8,963,000, ($1,644,000 related to real property and $7,319,000 related to
commercial and other 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 agreed
repayment terms. The loan classifications do not represent or result from trends
or uncertainties which management expects will materially impact future
operating results, liquidity or capital resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at June 30,
1998 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
Non-interest income excluding securities transactions was $412,000
for the six months ended June 30, 1998 as compared to $403,000 in 1997. The
increase for the quarter ended June 30, 1998 was $6,000 or 3.0% as compared to
the comparable quarter in 1997. The increase in the quarter ended June 30, 1998
was primarily in service charges on deposit accounts. Commissions and service
charges are monitored continually to insure maximum return based on costs and
competition.
There were no securities gains during the six months ended June
30, 1998. Securities gains during the six months ended June 30, 1997 amounted to
$9,000 and related to transactions in the available-for-sale category. The gains
and losses during 1998 and 1997 were incurred primarily in conjunction with
management's strategies to restructure the investment portfolio to improve the
quality of the portfolio, to improve maturity distribution and to maintain a
flexible position to react to market conditions.
Non-interest expense excluding securities transactions increased
$33,000 or 1.8% during the first six months of 1998 as compared to the same
period in 1997. There was a decrease of $41,000 or 4.2% for the three months
ended June 30, 1998 as compared to the same period in 1997 and a $44,000
decrease or 4.5% from $972,000 for the quarter ended March 31, 1998. These
decreases were primarily in salaries and employee benefits. Fixed assets costs
should increase slightly with the opening of the new branch.
Securities losses of $4,000 during the six months ended June, 1998
related to transactions in the available-for-sale category. The losses during
1998 were incurred primarily in conjunction with management's strategies to
restructure the investment portfolio to improve the quality of the portfolio, to
improve maturity distribution and to maintain a flexible position to react to
market conditions. There were no securities losses during the six months ended
June 30, 1997.
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.
15
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The following is a summary of components comprising basic and
diluted earnings per share (EPS) for the three and six months ended June 30,
1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
(In Thousands, except share amounts) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to common
shareholders $ 996 905 1,942 1,832
---------- ---------- ---------- ----------
Denominator - weighted average number
of common shares outstanding 535,319 536,122 535,373 536,267
---------- ---------- ---------- ----------
Basic earnings per common share $ 1.86 1.69 3.63 3.42
========== ========== ========== ==========
Diluted EPS Computation:
Numerator $ 996 905 1,942 1,832
---------- ---------- ---------- ----------
Denominator:
Weighted average number of common
shares outstanding 535,319 536,122 535,373 536,267
Dilutive effect of stock options 680 30 680 30
---------- ---------- ---------- ----------
535,999 536,152 536,053 536,297
---------- ---------- ---------- ----------
Diluted earnings per common share $ 1.86 1.69 3.62 3.42
========== ========== ========== ==========
</TABLE>
IMPACT OF INFLATION
The primary impact which inflation has on the results of the
Company's operations is evidenced by its effects on interest rates. Interest
rates tend to reflect, in part, the financial market's expectations of the level
of inflation and, therefore, will generally rise or fall as the level of
expected inflation fluctuates. To the extent interest rates paid on deposits and
other sources of funds rise or fall at a faster rate than the interest income
earned on funds, loans or invested, net interest income will vary. Inflation
also affects non-interest expenses as goods and services are purchased, although
this has not appeared to have a significant effect on net earnings. If the
inflation rate stays flat or increases slightly, the effect on profits will not
be significant.
16
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Based upon the nature of the Company's operations, the Company is not
subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the
earnings risk associated with changing interest rates. Management seeks to
maintain profitability in both immediate and long term earnings through funds
management/interest rate risk management. 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. These meetings focus the
spread between the cost of funds and interest yields generated primarily through
loans and investments.
There have been no material changes in reported market risks
during the six months ended June 30, 1998.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Shares of the Company's common stock were issued to Directors and/or
Employees pursuant to the Company's Stock Option Plan as follows:
<TABLE>
<CAPTION>
Date of Sale Number of Shares of Common Stock Sold Price Per Share
------------ ------------------------------------- ---------------
<S> <C> <C>
May 29, 1998 15 $58.15
</TABLE>
The aggregate proceeds of the shares sold were $872.25
There were no underwriters and no underwriting discounts or
commissions. All sales were for cash.
The Company believes that an exemption from registration of these
shares was available to the Company in that the issuance thereof did
not constitute a public offering of securities within the meaning of
the Securities Act of 1933, as amended.
The securities sold are not convertible.
The proceeds of the sales are being used by the Company for
general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held April 14, 1998.
(b) Election of the following members of the board of directors:
Robert W. Jones, J.G. Brock and G.B. Greene
(c) (1) Each of the above directors were elected by the following
tabulation:
<TABLE>
<CAPTION>
Number of Broker
Shares Voting For Against Withheld Non-Votes
------------- --- ------- -------- ---------
<S> <C> <C> <C> <C>
343,820 343,636 0 184 0
</TABLE>
The following directors terms of office were continued after the
meeting:
Charles C. Jacobs, Doug Milner, John J. Savage, Jr., Carl M.
Stanley, Paul O. Barnes, Henry N. Boyd, Dean I. Gillespie and
W.B. Whitson
(2) The ratification of the selection of Maggart & Associates, P.C.
as independent auditors for the Company for the year ending
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Number of Broker
Shares Voting For Against Withheld Non-Votes
------------- --- ------- -------- ---------
<S> <C> <C> <C> <C>
343,820 342,230 440 1,150 0
</TABLE>
(d) Not Applicable.
ITEM 5. OTHER INFORMATION
None
18
<PAGE> 19
PART II. OTHER INFORMATION, CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This schedule
contains summary financial information extracted from the financial
statements of the Company at June 30, 1998 (unaudited) and is qualified
in its entirety by reference to such financial statements as set forth
in the Company's quarterly report on Form 10-Q for the period ending
June 30, 1998.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST MCMINNVILLE CORPORATION
-----------------------------
(Registrant)
DATE: August 7, 1998 /s/ Charles C. Jacobs
-------------------------- -------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: August 7, 1998 /s/ Kenny D. Neal
-------------------------- -------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,727
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,452
<INVESTMENTS-CARRYING> 50,101
<INVESTMENTS-MARKET> 50,849
<LOANS> 111,946
<ALLOWANCE> 1,416
<TOTAL-ASSETS> 247,875
<DEPOSITS> 197,998
<SHORT-TERM> 9,622
<LIABILITIES-OTHER> 2,126
<LONG-TERM> 4,000
0
0
<COMMON> 1,517
<OTHER-SE> 32,612
<TOTAL-LIABILITIES-AND-EQUITY> 247,875
<INTEREST-LOAN> 4,790
<INTEREST-INVEST> 3,409
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 8,288
<INTEREST-DEPOSIT> 3,814
<INTEREST-EXPENSE> 3,956
<INTEREST-INCOME-NET> 4,332
<LOAN-LOSSES> 90
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 1,896
<INCOME-PRETAX> 2,754
<INCOME-PRE-EXTRAORDINARY> 2,754
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,942
<EPS-PRIMARY> 3.63
<EPS-DILUTED> 3.62
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 101
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,611
<ALLOWANCE-OPEN> 1,314
<CHARGE-OFFS> 11
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 1,416
<ALLOWANCE-DOMESTIC> 1,416
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
