<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 MARCH 31, 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
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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: 535,712 shares at April 27, 1998
-------
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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 - March 31, 1998 and December 31, 1997.
Consolidated Statements of Earnings - For the three months ended March 31,
1998 and 1997.
Consolidated Statements of Comprehensive Earnings - For the three months
ended March 31, 1998 and 1997.
Consolidated Statements of Cash Flows - For the three months ended March
31, 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
Disclosures required by Item 3. are incorporated by reference to
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
2
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- --------
(In Thousands)
<S> <C> <C>
Assets
-------
Loans $ 112,226 111,473
Less: Allowance for loan losses (1,373) (1,314)
--------- --------
Net loans 110,853 110,159
Securities:
Held to maturity, at cost (market value - $50,949,000 and
$47,584,000, respectively) 49,789 46,495
Available-for-sale, at market (amortized cost - $45,491,000
and $43,513,000, respectively) 45,850 43,868
Interest-bearing deposits in other banks 100 100
Federal funds sold -- 2,650
--------- --------
Total earning assets 206,592 203,272
Cash and due from banks 5,063 4,461
Bank premises and equipment, net of accumulated depreciation 2,177 2,230
Accrued interest receivable 2,220 2,020
Deferred tax asset 37 39
Other real estate 11 11
Other assets 506 732
--------- --------
Total assets $ 216,606 212,765
========= ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 175,666 172,891
Securities sold under repurchase agreements 5,158 4,350
Accrued interest and other liabilities 2,301 2,967
--------- --------
Total liabilities 183,125 180,208
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 606,600 shares and 605,800, respectively 1,517 1,514
Additional paid-in capital 1,612 1,568
Retained earnings 32,507 31,561
Accumulated other comprehensive earnings:
Net unrealized gains on available-for-sale securities, net of
income taxes of $136,000 and $135,000, respectively 223 220
--------- --------
35,859 34,863
Less cost of treasury stock of 70,888 shares at March 31, 1998
and 69,696 shares at December 31, 1997 (2,378) (2,306)
--------- --------
Total stockholders' equity 33,481 32,557
--------- --------
$ 216,606 212,765
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------ -----
(Dollars In Thousands
Except Per Share Amount)
<S> <C> <C>
Interest income:
Interest and fees on loans $2,392 2,364
Interest and dividends on securities:
Taxable securities 1,234 1,001
Exempt from Federal income taxes 319 305
Interest on federal funds sold 27 29
Interest on interest-bearing deposits in other banks and other
interest 2 2
------ -----
Total interest income 3,974 3,701
------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 120 117
Interest on money market demand and savings accounts 278 272
Interest on certificates of deposit 1,383 1,253
Interest on securities sold under repurchase agreements and
short term borrowings 42 22
Interest on Federal funds purchased 2 10
------ -----
Total interest expense 1,825 1,674
------ -----
Net interest income 2,149 2,027
Provision for loan losses 45 30
------ -----
Net interest income after provision for loan losses 2,104 1,997
------ -----
Non-interest income:
Service charges on deposit accounts 119 121
Other fees and commissions 60 59
Commissions and fees on fiduciary activities 12 11
Security gains related to available-for-sale securities -- 9
Other income 13 10
------ -----
204 210
------ -----
Non-interest expense:
Salaries and employee benefits 634 553
Occupancy expenses, net 58 55
Furniture and equipment expense 22 21
Data processing expense 51 54
FDIC insurance 5 5
Other operating expenses 202 206
------ -----
972 894
------ -----
Earnings before income taxes 1,336 1,313
Income taxes 390 386
------ -----
Net earnings $ 946 927
====== =====
Basic earnings per common share $ 1.77 1.73
====== =====
Diluted earnings per common share $ 1.77 1.73
====== =====
Dividends per share $ -- $ --
====== =====
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- -------
(In Thousands)
<S> <C> <C>
Net earnings $ 946 927
-------- -------
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale securities
arising during period, net of taxes of $1,000 and
$79,000, respectively 3 (129)
Less: reclassification adjustment for gains included in
net earnings, net of taxes of $3,000 -- (6)
-------- -------
Other comprehensive earnings (loss) 3 (135)
-------- -------
Comprehensive earnings $ 949 792
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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 $ 3,762 3,356
Fees and commissions received 204 201
Interest paid (1,533) (1,330)
Cash paid to suppliers and employees (902) (869)
Income taxes paid (67) (94)
-------- -------
Net cash provided by operating activities 1,464 1,264
-------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 7,807 4,644
Proceeds from maturities of available-for-sale securities 7,578 163
Proceeds from sales of available-for-sale securities -- 1,323
Purchase of held-to-maturity securities (11,101) (1,679)
Purchase of available-for-sale securities (9,543) (4,516)
Loans made to customers, net of repayments (739) (500)
Purchase of premise and equipment -- (15)
-------- -------
Net cash used in investing activities (5,998) (580)
-------- -------
Cash flows from financing activities:
Net (decrease) increase in non-interest bearing, savings and
NOW deposit accounts (580) 2,577
Net increase in time deposits 3,355 5,137
Increase in securities sold under repurchase agreement 808 1,022
Decrease in Federal funds purchased -- (500)
Dividends paid (1,072) (1,020)
Proceeds from issuance of common stock 47 --
Payments to acquire treasury stock (72) (24)
-------- -------
Net cash provided by financing activities 2,486 7,192
-------- -------
Net (decrease) increase in cash and cash equivalents (2,048) 7,876
Cash and cash equivalents at beginning of period 7,111 3,532
-------- -------
Cash and cash equivalents at end of period $ 5,063 11,408
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 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 $ 946 927
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 53 57
Provision for loan losses 45 30
Gain on sale of available-for-sale securities -- (9)
FHLB dividend reinvestment (12) (11)
Decrease (increase) in other assets, net 226 (38)
Increase in other liabilities 114 296
Increase in interest receivable (200) (332)
Increase in interest payable 292 344
-------- -------
Total adjustments 518 337
-------- -------
Net cash provided by operating activities $ 1,464 1,264
======== =======
Supplemental schedule of non-cash activities:
Unrealized gain (loss) in value of securities
available-for- sale, net of income tax benefit
of $1,000 and $82,000 for the quarters ended
March 31,1998 and 1997, respectively $ 3 (135)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
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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 March 31, 1998 and December 31, 1997, the results of operations for the
three months ended March 31, 1998 and 1997, comprehensive earnings for the three
months ended March 31, 1998 and 1997 and changes in cash flows for the three
months ended March 31, 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>
Three Months Ended
March 31,
-----------------------
1998 1997
-------- -------
(In Thousands)
<S> <C> <C>
Balance, January 1, 1998 and 1997, respectively $ 1,314 1,724
Add (deduct):
Losses charged to allowance (5) (12)
Recoveries credited to allowance 19 7
Provision for loan losses 45 30
-------- -------
Balance, March 31, 1998 and 1997, respectively $ 1,373 1,749
======== =======
</TABLE>
8
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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
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 complete discussion of factors
that impact liquidity, capital and the results of operations.
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.
There can be no assurance that any forward-looking results will be realized. The
purpose of this discussion and analysis is to provide Form 10-Q readers with
information relevant to understanding and assessing the financial condition and
results of operations of the Company.
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 $6.1 million mature or reprice within the next
twelve months.
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
A secondary source of liquidity is the Bank's loan portfolio. At March
31, 1998 commercial loans of approximately $30.5 million and other loans
(mortgage and consumer) of approximately $8.5 million either will become due or
will be subject to rate adjustments within twelve months from the respective
date. Continued emphasis is placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $27.9 million will become due during the next twelve months. The
Bank's deposit base increased approximately $2.8 million during the quarter
ended March 31, 1998. Securities sold under repurchase agreements also increased
approximately $800,000 during the first three months of 1998.
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 does not
expect that there will be significant withdrawals from these accounts in the
future that are inconsistent with past experience.
The Bank is limited by banking regulatory agencies as to the amount of
dividends that it can pay. At March 31, 1998, the Bank can declare during the
remainder of 1998 cash dividends in an aggregate amount not to exceed
approximately $5.6 million, exclusive of any 1998 net earnings, without prior
approval of the office of the Comptroller of the Currency. However, most of
these funds will be retained for use in the Bank's operations rather than being
paid out in dividends. It is anticipated that with present maturities, the
anticipated growth in deposit base, and the efforts of management in its
asset/liability management program, liquidity will not pose a problem in the
foreseeable future. At the present time there are no known trends or any known
commitments, demands, events or uncertainties that will result in or that are
reasonable likely to result in the Company's liquidity changing in any material
way.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 15.5% at March
31, 1998 and 15.3% at December 31, 1997. Total assets increased 1.8% during the
three months ended March 31, 1998. The annualized rate of return on
stockholders' equity for the three months ended March 31, 1998 was 11.8%
compared to 12.5% for the comparable period in 1997. The high percentage of
equity capital to total assets contributes to a return on equity lower than the
average for banks in the Bank's peer group. Cash dividends will be paid in the
remainder of 1998 over 1997 only in the discretion of the Board of Directors and
to the extent of available profits increase. 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 - common shareholders' equity, noncumulative perpetual preferred
stock and a limited amount of cumulative perpetual preferred - or total 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 27.2%, a total
capital to risk-based ratio of 28.3% and a Tier 1 leverage ratio of 15.5%, and
fell within the category of "well capitalized" under the regulations.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies which have more than $150 million in consolidated assets.
These guidelines required bank holding companies to maintain consolidated
capital ratios which are essentially the same as the minimum capital levels
required for national banks. The Company's consolidated capital ratios were
substantially the same as those set forth above for the Bank, and 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 March 31, 1998, 1,800
shares had been obtained through exercise and 4,600 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. The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The impact of the adoption of SFAS No. 123 has been
reflected as a proforma disclosure in the notes to the annual consolidated
financial statements.
RESULTS OF OPERATIONS
Net earnings were $946,000 for the three months ended March 31, 1998 as
compared to $927,000 for the same period 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
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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
RESULTS OF OPERATIONS, CONTINUED
The Company's interest income, excluding tax equivalent adjustments,
increased by $273,000 or 7.4% during the three months ended March 31, 1998 as
compared to an increase of $132,000 or 3.7% for the same period in 1997. The
increase in 1998 was attributable primarily to an increase in average earning
assets together with a change in the mix of average earning assets with a higher
volume of loans. The ratio of average earning assets to total average assets was
95.5% for the quarter ended March 31, 1998 and 96.1% for the quarter ended March
31, 1997.
Interest expense increased by $151,000 for the three months ended March
31, 1998 or 9.0% compared to an increase of $28,000 or 1.7% for the same period
in 1997. Such increases in interest expense can be attributable primarily to an
increase in interest bearing liabilities.
The foregoing resulted in net interest income of $2,149,000 for the
three months ended March 31, 1998 an increase of $122,000 or 6.0% compared to
the same period in 1997.
The provision for loan losses was $45,000 and $30,000 for the first
three months of 1998 and 1997, respectively. The provision for loan losses is
based on past loan experience and other factors which, in management's judgment,
deserve current recognition in estimating possible loan losses. Such factors
include 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 for identifying and monitoring 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
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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
RESULTS OF OPERATIONS, CONTINUED
The Company's first mortgage single family residential, consumer and
credit card loans which total approximately $52,000,000, $2,400,000 and
$304,000, respectively at March 31, 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 is impaired. Generally, delinquencies under 90 days are
considered insignificant unless certain other factors are present which indicate
impairment is probable. The decision to place a loan on nonaccrual status is
also based on an evaluation of the borrower's financial condition, collateral,
liquidation value, and other factors that affect the borrower's ability to pay.
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 March
31, 1998, the Company had no loans on nonaccrual status and there were no
nonaccrual loans outstanding at any time during the three months and year ended
March 31, 1998 and 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 March 31, 1998, the Company had no loans that have had
the terms modified in a troubled debt restructuring.
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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
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
March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, 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 $3,391 675 3,454 675
Impaired loans with no allowance
for loan loss -- -- -- --
------ ----- ----- ----
$3,391 675 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 three
months ended March 31, 1998 and 1997 was $3,423,000 and $4,170,000,
respectively. The related amount of interest income recognized on the accrual
method for the period that such loans were impaired was approximately $81,000
and $99,000 for 1998 and 1997, respectively.
The following schedule details selected information as to non-performing
loans of the Company at March 31, 1998:
<TABLE>
<CAPTION>
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ -- --
Installment loans 1 --
Commercial 5 --
---- ---
$ 6 --
==== ===
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
RESULTS OF OPERATIONS, CONTINUED
At March 31, 1998, loans which include the above, totaling $5,620,000
were included in the Company's internal classified loan list. Of these loans
$1,166,000 are real estate and $4,454,000 are commercial and other. The
collateral values securing these loans total approximately $8,795,000
($1,676,000 related to real property and $7,119,000 related to commercial and
other). Such loans are listed as classified when information obtained about
possible credit problems of the borrower has prompted management to question the
ability of the borrower to comply with the repayment terms of the loan
agreement. The loan classifications do not represent or result from trends or
uncertainties which management expects will materially impact future operating
results, liquidity or capital resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March 31,
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 increased $3,000
or 1.5% during the three months ended March 31, 1998 compared to an increase of
$26,000 or 14.9% for the same period in 1997. The increase in 1997 was due
primarily to increases in service charges on deposit accounts.
There were no securities gains or losses during the three months ended
March 31, 1998. Securities gains during the three months ended 1997 amounted to
$9,000, and related to transactions in the available-for-sale category. The
gains during 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 increased $78,000 or 8.7% during the first three
months of 1998 compared to an increase of $54,000 or 6.5% during the same period
in 1997. The increases in 1998 and 1997 were due primarily to increases in
salaries and employee benefits. These increases relate to normal cost of living
and performance increases.
In 1997, Statement of Financial Accounting Standards ("SFAS") 128
"Earnings Per Share" established uniform standards for computing and presenting
earnings per share. SFAS 128 replaces the presentation of primary earnings per
share with the presentation of basic earnings per share and diluted earnings per
share. The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share for the Company begins with the basic earnings per
share plus the effect of common shares contingently issuable from stock options.
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
RESULTS OF OPERATIONS, CONTINUED
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1998 1997
-------- -------
<S> <C> <C>
Basic EPS Computation:
Numerator - income available to common
shareholders $ 946 927
-------- -------
Denominator - weighted average number of
common shares outstanding 535,426 536,411
-------- -------
Basic earnings per common share $ 1.77 1.73
======== =======
Diluted EPS Computation:
Numerator $ 946 927
-------- -------
Denominator:
Weighted average number of common shares
outstanding 535,426 536,411
Dilutive effect of stock options 192 --
-------- -------
535,618 536,411
-------- -------
Diluted earnings per common share $ 1.77 1.73
======== =======
</TABLE>
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
The primary impact which inflation has on the results of the Company's
operations is evidenced by its effects on interest rates. Interest rates tend to
reflect, in part, the financial market's expectations of the level of inflation
and, therefore, will generally rise or fall as the level of expected inflation
fluctuates. To the extent interest rates paid on deposits and other sources of
funds rise or fall at a faster rate than the interest income earned on funds,
loans or invested, net interest income will vary. Inflation also impacts on
non-interest expenses as goods and services are purchased, although this has not
had a significant effect on net earnings. If the inflation rate stays flat or
increases slightly, the effect on profits will not be significant.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This
schedule contains summary financial information extracted
from the consolidated financial statements of the Company at
March 31, 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 March 31, 1998.
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FIRST MCMINNVILLE CORPORATION
-----------------------------
(Registrant)
DATE: May 8, 1998 /s/ Charles C. Jacobs
---------------------- -----------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: May 8, 1998 /s/ Kenny D. Neal
---------------------- -------------------
Kenny D. Neal
Chief Financial and Accounting Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,063
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,850
<INVESTMENTS-CARRYING> 49,789
<INVESTMENTS-MARKET> 50,949
<LOANS> 112,226
<ALLOWANCE> 1,373
<TOTAL-ASSETS> 216,606
<DEPOSITS> 175,666
<SHORT-TERM> 5,158
<LIABILITIES-OTHER> 2,301
<LONG-TERM> 0
0
0
<COMMON> 1,517
<OTHER-SE> 31,964
<TOTAL-LIABILITIES-AND-EQUITY> 216,606
<INTEREST-LOAN> 2,392
<INTEREST-INVEST> 1,553
<INTEREST-OTHER> 29
<INTEREST-TOTAL> 3,974
<INTEREST-DEPOSIT> 1,781
<INTEREST-EXPENSE> 1,825
<INTEREST-INCOME-NET> 2,149
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 972
<INCOME-PRETAX> 1,336
<INCOME-PRE-EXTRAORDINARY> 1,336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 946
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 6
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,620
<ALLOWANCE-OPEN> 1,314
<CHARGE-OFFS> 5
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 1,373
<ALLOWANCE-DOMESTIC> 1,373
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
