<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
---------------------------
(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, 1997
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 (931) 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)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value based upon the last privately negotiated transaction
in the shares known to management (in that there exists no established public
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 1, 1998 is approximately $28,368,167. 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 472,704 shares held by non-affiliates at February 1,
1998.
The number of shares outstanding for each of the Registrant's classes of common
stock, as of February 1, 1998: 534,912.
DOCUMENTS INCORPORATED BY REFERENCE: None, except as set forth in the Exhibit
Index.
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<PAGE> 2
FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I..................................................................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS............................................................................... 1
ITEM 2. DESCRIPTION OF PROPERTY............................................................................... 13
ITEM 3. LEGAL PROCEEDINGS..................................................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................... 13
PART II.................................................................................................................... 13
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................................. 13
ITEM 6. SELECTED FINANCIAL DATA............................................................................ 18/45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.................................................................................. 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .................................................................................... 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................... 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................ 46
PART III................................................................................................................... 46
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. .................................................. 46
ITEM 11. EXECUTIVE COMPENSATION................................................................................ 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................................................. 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................ 55
PART IV.................................................................................................................... 56
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.............................................................................. 56
Signatures........................................................................................................... 58
Supplemental Information............................................................................................. 59
Exhibit Index........................................................................................................ 60
Index To Financial Statements....................................................................................... F-1
</TABLE>
(ii)
<PAGE> 3
PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
THE COMPANY
First McMinnville Corporation (the "Company") is a bank holding
company that, at February 20, 1998, owned all of the stock of The First
National Bank of McMinnville (the "Bank" or "The First National Bank"). At
December 31, 1997, the Company had total assets of approximately $212,765,000
and total Shareholders' equity of $32,557,000. The Company reported net
earnings of approximately $3,581,000 for fiscal 1997. 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 of the 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, 1997, the Bank's total loans (net
of allowance for possible loan losses of $1,314,000) were $110,159,000 and its
total deposits were $172,891,000.
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 (931) 473-4402.
(a) Business Development.
During 1997 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 since
the beginning of the last fiscal year for which this Annual Report on Form 10-K
(this "Report") is filed is set forth in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operation ("Managements
Discussion")," and in Item 8, "Financial Statements and Supplementary Data (the
"Consolidated Financial Statements")," in this Report as well as in "Business
of the Company" below in this Item.
(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 1997 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 to bank holding companies, either directly, through newly
formed subsidiaries, or through acquisitions. The Company intends to provide
banking and financial services in Tennessee, primarily in the Warren County
trade area, through the Bank's operations.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Potential software failures
due to processing errors arising from calculations using the Year 2000 date are
a known risk. Further discussion of this issue is presented below in this Item
under the caption "Computers and the Year 2000" and within "Item 7,
Management's Discussion and Analysis" appearing later in this Report.
The Company and the Bank are subject to extensive supervision and
regulation by federal banking agencies. Their respective operations are subject
to a wide array of federal and state laws applicable to banking and to bank
<PAGE> 4
holding companies. Certain of the laws and regulations that affect these
operations are outlined briefly below in this Item and in other portions of
this Report.
Please refer also to the Consolidated Financial Statements for
additional, important information concerning the Company and First National
Bank.
FINANCIAL SUMMARY OF THE COMPANY
A financial summary of the Company and its consolidated subsidiary,
The First National Bank, is detailed below (amounts are rounded):
<TABLE>
<CAPTION>
DECEMBER 31
(Dollars in Thousands Except Per Share)
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total Assets $212,765 $195,732 $190,663 $180,486 $170,913
Deposits 172,891 159,746 154,551 148,631 140,162
Shareholders' Equity 32,557 30,025 28,889 26,452 25,240
Gross Revenues 16,309 15,329 14,526 13,102 12,768
Net Earnings 3,581 3,444 3,106 3,077 3,187
Basic Earnings Per Share $ 6.68 $ 6.34 $ 5.62 $ 5.55 $ 5.72
Diluted Earnings Per Share $ 6.67 $ 6.34 $ 5.62 $ 5.55 $ 5.72
</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, Morrison,
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 five 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, real estate loans 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, Birmingham, Alabama. 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
<PAGE> 5
banks, and to bank holding companies. Certain of the laws and regulations that
affect these operations are outlined briefly below in this Item and in other
portions of this Report.
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 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.
SERVICES TO AND TRANSACTIONS WITH SUBSIDIARY
Intercompany transactions between the Company and its subsidiary,
The First National Bank, 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, debt collection laws, 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, The First
National Bank, will remain at all times in complete 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 (the Bank) 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.
<PAGE> 6
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 ("Riegle-Neal"), which is discussed below, removed most
restrictions to the expansion of interstate banking. Riegle-Neal 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 its subsidiary financial
institution, The First National Bank, exceed all applicable capital adequacy
minimums. Please refer to the Consolidated Financial Statements (Item 8 of this
Report) and to the Section entitled "Management's Discussion and Analysis and
Results of Operation," which appears as Item 7 of this Report, for additional
information.
Support of Subsidiary Banks. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to its subsidiary
(the Bank) and to commit resources to support the Bank 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 the Bank would also be subordinate in right
of payment to depositors and certain other indebtedness of such subsidiary
Bank. 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.
<PAGE> 7
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).
Management believes that as of December 31, 1997, The First National Bank, the
Company's subsidiary financial institution, met all of the financial criteria
to be categorized as "well capitalized" within the meaning of the capital
adequacy regulations.
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 shareholders.
FDIC Insurance Assessments. The Bank, as a subsidiary depository
institution of the Company, is 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 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
<PAGE> 8
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, 1997, none of The First National Bank'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 Financing
Corporation ("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. For 1997, the
effective BIF and SAIF assessment rates ranged from zero basis points for
well-capitalized institutions displaying little risk, to twenty-seven basis
points for undercapitalized institutions displaying high risk. Both BIF insured
banks and SAIF insured thrift institutions are also required to pay interest on
FICO bonds issued in connection with the federal government's bail out program
in connection with the thrift industry.
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. As noted above, as
of December 31, 1997, none of The First National Bank's deposits were insured
by the SAIF.
Please refer to the Section of this Report 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
<PAGE> 9
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.
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
<PAGE> 10
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, as
well as in response to other legal, regulatory, interest group, and economic
developments, the form or impact of which cannot be reliably predicted.
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.
The First National Bank is limited in the amount of dividends that it
may declare under federal law. Prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, and surplus is below
certain statutory limits. Please refer to the Consolidated Financial Statements
and to Item 5 of this Report, "Market for Registrant's Common Equity and
Related Stockholder Matters," for additional information on dividends.
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, as amended (the "Exchange Act"). Hence, in the future, the Company may
become subject to the provisions of the Business Combination Act.
<PAGE> 11
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 "formula 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 10, 1998, the maximum "formula
rate" of interest was approximately 12.5%. Specific usury laws may apply also
to particular classes of lenders (e.g., credit unions and savings and loan
associations) and transactions (e.g., bank installment loans and home
mortgages). The maximum possible nominal 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 The First National Bank 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 the Bank, its
sole 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 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, 1997, 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
<PAGE> 12
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 subsidiaries 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 various commercial
banks and other financial institutions 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, 1997. 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,
as well as with a variety of local and regional banks.
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 January 23, 1998, the Registrant and its banking subsidiary (the
Bank) employed sixty-three persons on a full-time, and ten 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 First National Bank, as is a 401(k)
profit-sharing plan adopted by the Bank as are certain benefit plans (described
elsewhere herein) adopted by the Bank. The Company believes its relations with
its employees are satisfactory.
ECONOMIC CONDITIONS AND GOVERNMENTAL POLICY
The Company's earnings are affected not only by the extensive
regulation described above, but also by general economic conditions. These
economic conditions influence, and are themselves influenced, by the monetary
and fiscal policies of the United States government and its various agencies,
particularly the FRB. The Registrant cannot predict changes in monetary
policies or their impact on its operations and earnings.
<PAGE> 13
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. However, the reader is referred to the following section on
"Computers and the Year 2000."
COMPUTERS AND THE YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Potential software failures
due to processing errors arising from calculations using the Year 2000 date are
a known risk. The Company has appointed its own task force (designated an
"Action Team"), and it is working with outside vendors, to evaluate and manage
the risks, solutions, and costs associated with addressing this issue. The
Company is coordinating closely with its outside electronic data processing
vendor to assure that both it and the Company are as adequately prepared as is
possible to deal with computer and data-processing issues related to the Year
2000. Of course, the Company must not only address the impact of these issues
on its own operations, but also on the operations and prospects of customers,
vendors, and other financial institutions and companies.
The costs incurred, except property and equipment writedowns, in
addressing the Year 2000 problem will be expensed as incurred in compliance
with generally accepted accounting principles. Management estimates the cost of
achieving Year 2000 compliance to be approximately $150,000 (pre-tax) over the
cost of normal software upgrades and replacements that would have been incurred
through the year 1999. (Of course, this number is subject to change to change.)
The Company anticipates that it will complete its own operational changes,
including its data processing changes, by December 31, 1998. Testing of
software and hardware will likely continue throughout calendar 1999.
The Company is actively working with its software and hardware
suppliers, as well as with those who supply data-processing services to the
Company, in connection with Year 2000 issues. Management believes, based on its
inquiries to them, that those vendors which are material to the Company are
generally on schedule to meet their and the Company's Year 2000 goals. The
Company assumes, but cannot be assured, that all applicable federal and state
governmental agencies, especially those which are important to the banking and
payment systems, will achieve Year 2000 compliance on time.
The Company's credit customers are also subject to potential loses as
a result of Year 2000 issues relating to their own businesses, computers,
customers, and vendors. The Company is studying this issue and expects to work
with its customers in addressing Year 2000 issues that could reasonably be
expected adversely to affect the Company. Any exposure that, in the opinion of
management of the Company, is not adequately addressed to management's
satisfaction, will be taken into consideration in assessing the risk and/or
loss potential, if any, associated with that credit relationship.
The Company does not anticipate that its expenditures in connection
with the remediation of Year 2000 issues will be material to its results of
operations, liquidity, and capital resources taken as a whole. The preceding
statements in this paragraph are forward looking, and the Company's actual
costs, experience, and results may differ due to, among other things, the
conversion of various data-processing systems, additional system testing,
vendor contract negotiations, and technological developments.
<PAGE> 14
In October 1997, the Accounting Standards Executive Committee of the
AICPA voted to issue a final Statement of Position ("Position Statement"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." However, the issuance of this Position Statement is subject to
approval by the Financial Accounting Standards Board ("FASB"). The AICPA has
expressed a hope to issue a final Position Statement in the first quarter of
1998. The Position Statement would be effective for financial statements for
fiscal years beginning after December 15, 1998, with earlier application
encouraged.
In summary, the Position Statement states that the following costs
incurred in developing internal-use software should be capitalized: direct
costs for materials and services paid to external parties for developing or
obtaining the software; payroll and payroll-related costs for employees' time
spent directly on the project; and interest costs incurred in developing the
software.
Currently, banks must expense such costs, which can be material to the
results of operation, in accordance with the guidance provided by banking
regulators such as the Office of the Comptroller of the Currency. The impact of
this Position Statement to the Company's results is currently being evaluated
and cannot currently be estimated.
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 ten percent (10%) 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 1997.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operation sand 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.
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 6 and Item 7, as well as other portions of this Report) is to
provide Form 10-KSB 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 undertakes no
obligation to publish revised forward- looking statements to reflect the
occurrence of changes or of unanticipated events, circumstances, or results.
<PAGE> 15
SELECTED FINANCIAL DATA AND STATISTICAL INFORMATION
Certain selected financial data and certain statistical data
concerning the Company that should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" is set forth as a part of Item 7 and is also presented in certain of
the Notes to the Consolidated Financial Statements included in Item 8 of this
Report.
ITEM 2. DESCRIPTION OF PROPERTY.
The First National Bank owns four parcels of property on which it has
established banking offices. The Bank leases the land (but owns the building)
for one of its branches at commercial leasing 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 Bank utilizes five
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, 1997,
against the Company or the Bank other than ordinary routine litigation
incidental to their respective businesses, to which the Company or its
subsidiary Bank is a party or of which any of their property is the subject. 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 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) MARKET INFORMATION
There is no established public trading market for 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 the first quarter of 1998
(through January 23, 1998) and for each quarter of fiscal 1997 and 1996. During
1997 the Company redeemed 1,679 shares of its Common Stock with a view toward
providing some liquidity in the stock. Certain of 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. Certain of
the transactions involved, or 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.)
<PAGE> 16
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Calendar Quarter Common Stock
- - ----------------------------------------------------------------------------------------------------
High Low
---- ---
1997
<S> <C> <C>
Fourth Quarter $61.80 $60.56
Third Quarter 60.10 58.82
Second Quarter 58.80 57.65
First Quarter 57.10 55.88
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
</TABLE>
The last trade known to management involved a redemption by the
Company of 1,192 shares at an estimated $60.01 per share in January of 1998.
Because there is no established public 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 public trading 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. (Unless otherwise stated, all
share and per share information in this Report has been adjusted to reflect
said stock split.) At February 1, 1998, the Company had 534,912 shares
outstanding (compared to 536,104 at December 31, 1997). No shares are reserved
for issuance except 57,500 shares reserved in connection with the 1997 First
McMinnville Corporation Stock Option Plan (the "Stock Option Plan") and the
number of shares needed to fulfill Rights Agreement described elsewhere herein.
Holders of the Company's Common Stock are entitled to (a) cumulate the
votes of each share held of record in connection with the election of directors
and (b) to cast one vote for each share held of record on all other matters
submitted to a vote of the shareholders. 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. Certain of the statutes and
regulations described in Item 1 and in other places in this Report may further
affect the matters described in this Item.
Stock Option Plan
Certain shares are reserved for issuance as set forth in the
description of the Stock Option Plan appearing elsewhere in this Report.
Shareholders Rights Agreement
Effective as of June 10, 1997, the Board of Directors of the Company
adopted a Shareholders Rights Agreement (the "Rights Agreement") and authorized
and declared a dividend of one common share purchase right (a
<PAGE> 17
"Right") for each outstanding share of the Company's Common Stock (the "Common
Shares"). The dividend was payable on June 10, 1997, to the shareholders of
record on that date (the "Record Date"), and with respect to Common Shares
issued thereafter until the Distribution Date (as hereinafter defined) or the
expiration or earlier redemption or exchange of the Rights. Except as set forth
below, each Right entitles the registered holder to purchase from the Company,
at any time after the Distribution Date one Common Share at a price per share
of $120, subject to adjustment (the "Purchase Price"). The description and
terms of the Rights are as set forth in the Rights Agreement. The following
description of the Rights is qualified by reference to the Rights Agreement,
which is an Exhibit to this Report.
Initially the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) ten (10) days after the public announcement of a person's or
group of affiliated or associated persons' having acquired beneficial ownership
of ten percent (10%) or more of the outstanding Common Shares (such person or
group being hereinafter referred to as an "Acquiring Person"); or (ii) ten (10)
days (or such later date as the Board may determine) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in a person or group's becoming an
Acquiring Person (the earlier of such dates being called the "Distribution
Date").
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with, and only with, the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or
a copy of this Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by
such certificate.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Shares
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 4, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a tender or exchange offer which is for all outstanding Common
Shares at a price and on terms which a majority of certain members of the Board
of Directors determines to be adequate and in the best interests of the
Company, its stockholders and other relevant constituencies, other than such
Acquiring Person, its affiliates and associates (a "Permitted Offer")), each
holder of a Right will thereafter have the right (the "Flip-In Right") to
acquire a Common Share for a purchase price equal to fifteen percent (15%) of
the then current market price, or at such greater price as the Rights Committee
shall determine (not to exceed thirty-three percent (33 1/3%) of such current
market price). Notwithstanding the foregoing, all Rights that are, or were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void and not exercisable.
In the event that, at any time following the Distribution Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Shares immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than fifty percent (50%) of
the Company's assets or earning power is sold or transferred, then each holder
of a Right (except Rights which have previously been voided as set forth above)
shall thereafter have the right (the "Flip-Over Right") to receive, upon
exercise and payment of the Purchase Price, common shares of the acquiring
company having a value equal to two times the Purchase Price. If a transaction
would otherwise result in a holder's having a Flip-In as well as a Flip-Over
Right, then only the Flip-Over Right will be exercisable; if a transaction
results
<PAGE> 18
in a holders having a Flip-Over Right subsequent to a transaction resulting in
a holders having a Flip-In Right, a holder will have Flip-Over Rights only to
the extent such holders Flip-In Rights have not been exercised.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of Common
Shares, (ii) upon the grant to holders of Common Shares of certain rights or
warrants to subscribe for or purchase Common Shares at a price, or securities
convertible into Common Shares with a conversion price, less than the then
current market price of Common Shares, or (iii) upon the distribution to
holders of Common Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Common Shares) or of subscription rights or warrants
(other than those referred to above). However, no adjustment in the Purchase
Price will be required until cumulative adjustments require an adjustment of at
least one percent (1%). No fractional Common Shares will be issued and in lieu
thereof, an adjustment in cash will be made based on the market price of Common
Shares on the last trading day prior to the date of exercise.
At any time prior to the time a person becomes an Acquiring Person,
the Board of Directors of the Company may redeem the Rights in whole, but not
in part, at a price of $.001 per Right, subject to adjustment by the Rights
Committee at a price between $.001 and $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish.
Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be
to receive the Redemption Price.
At any time after any person becomes an Acquiring Person and prior to
the acquisition by such person or group of Common Shares representing 50% or
more of the then outstanding Common Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights which have become null and
void), in whole or in part, at an exchange ratio of one Common Share per Right
(subject to adjustment).
All of the provisions of the Rights Agreement may be amended prior to
the Distribution Date by the Board of Directors of the Company for any reason
it deems appropriate. Prior to the Distribution Date, the Board is also
authorized, as it deems appropriate, to lower the thresholds for distribution
and Flip-In Rights to not less than the greater of (i) any percentage greater
than the largest percentage then held by any shareholder, or (ii) 10%. After
the Distribution Date, the provisions of the Rights Agreement may be amended by
the Board in order to cure any ambiguity, defect or inconsistency, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or, subject to certain
limitations, to shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to shareholders of the Company, shareholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
(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 1,
1998 was approximately 476.
(C) DIVIDENDS
The Company declared and paid semi-annual cash dividends on its Common
Stock of $2.50 per share in 1997, $2.40 per share in 1996, and $2.25 per share
in 1995. 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,
<PAGE> 19
but in all event subject to a wide variety of considerations and to the
discretion of the Board of Directors, the Company expects 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 7 of this Report ("Management's Discussion and
Analysis of Financial Condition and Results of Operation"), and to the
Consolidated Financial Statements.
(D) SALES OF UNREGISTERED SECURITIES
The Company has not sold any unregistered securities that were not
previously reported in a quarterly report on its quarterly Report on Form 10-Q
except as set forth in this paragraph. In 1997, the Company issued one thousand
(1,000) shares to certain of the participants in the Stock Option Plan at a
weighted average exercise price of $58.15 per share. Please refer to Note 17 of
the Consolidated Financial Statements for additional information on the Stock
Option Plan and to Note 16 thereof with respect to earnings per share. 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
general distribution of securities within the meaning of the Securities Act of
1933, as amended.
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA.
Certain selected financial data are included in this Report
immediately following Item 7 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS 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 the Bank, its subsidiary. This discussion should be read in
conjunction with the consolidated financial statements.
(Please turn to the following page.)
<PAGE> 21
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.
GENERAL
First McMinnville Corporation is a one bank holding company which owns
100% of First National Bank of McMinnville. First National Bank of McMinnville
("Bank") is a community bank headquartered in McMinnville, Tennessee 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 deposit base.
In a market such as Warren County, management believes there is an
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 as well as the desired loan to deposit
ratio 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, 1997, the
nursery industry constituted the largest single industry segment and accounted
for $10,737,000 (9.63% of the Company's loan portfolio) as compared to
$11,287,000 or 10.3% in 1996. 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 Office of the Comptroller of the Currency ("OCC")
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 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 risk-based
capital. The Company and its national bank subsidiary must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a Total risk-based capital to
risk-based assets ratio of at least 8.0% and a leverage capital ratio defined
as Tier 1 capital to adjusted total assets for the most recent quarter of at
least 4%. The same ratios are also required in order for a national bank to be
considered "adequately capitalized" under the OCC's "prompt corrective action"
regulations, which impose certain operating restrictions on institutions which
are not adequately
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
capitalized. The Company has a Tier 1 risk based ratio of 27.9%, a total
risk-based capital ratio of 28.9% and a leverage capital ratio of 15.2%, and
was therefore within the "well capitalized" category under the regulations. The
subsidiary bank's ratios were substantially the same as those setforth for the
Company.
Dividends of approximately $1,341,000 and $1,294,000 were declared during
1997 and 1996, 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 are anticipated to be increased in 1998 if profits increase. The
dividend payout ratio (dividends declared divided by net earnings) was 37.4%,
37.6% and 40.0% in 1997, 1996 and 1995, 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, 1997, under
the most restrictive of these regulatory limits, the Bank could declare in 1998
cash dividends in an aggregate amount of up to approximately $5.6 million, plus
any 1998 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 a significant
portion of this 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 1995. The Bank also completed remodeling a portion of the main office
during 1996 at a total cost of approximately $179,000 of which approximately
$48,000 was incurred during 1995. During 1997, the Bank opened a new branch at
a total cost of $100,000.
The Company has conducted a study of the data processing changes which will be
necessary as a result of The Year 2000 Issue which relates to the ability to
process year-date data accurately beyond 1999. Management estimates the cost to
become compliant is between $100,000 and $200,000. Management estimates that an
additional $300,000 may be spent on computer upgrades in the next two to three
years.
FINANCIAL CONDITION
During 1997, total assets increased $17,033,000 or 8.7% from $195,732,000
at December 31, 1996 to $212,765,000 at December 31, 1997. Loans, net of
allowance for possible loan losses, increased from $107,940,000 to $110,159,000
or 2.1% during fiscal year 1997. The aggregate increases in loans for 1997 was
due primarily to a 4.2% increase in real estate - mortgage loans accompanied by
a 4.6% decrease in commercial, financial and agricultural loans.
Securities increased 14.7% from $78,809,000 at December 31, 1996 to
$90,363,000 at December 31, 1997. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations increased $11,161,000,
obligations of state and political subdivisions increased $1,301,000, corporate
and other securities decreased $610,000 and there was a decrease in mortgage
backed securities of $298,000. At December 31, 1997 and 1996 the market value
of the Company's securities portfolio exceeded its amortized cost by $1,444,000
(1.6%) and $531,000 (.7%), 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, 1997 was 7.4% with an average maturity of 8.0 years,
as compared to an average yield of 7.8% and an average maturity of 7.0 years at
December 31, 1996.
Effective January 1, 1994 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115),
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"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; and
- - - 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.
The Company's classification of securities as of December 31, 1997 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 $ 21,094 21,490 39,506 39,860
Obligations of states and
political subdivisions 22,399 23,117 1,515 1,570
Corporate and other
securities 761 779 762 762
Mortgage-backed securities 2,241 2,198 1,730 1,676
------------- ------------ ------------ -----------
$ 46,495 47,584 43,513 43,868
============= ============ ============ ===========
</TABLE>
A portion of the capital increase in 1995 was $687,000 which represents
the unrealized losses in securities available-for-sale of $1,107,000 net of
applicable tax expense of $420,000. The net decrease in capital at December 31,
1996 totaled $233,000 which represents the unrealized appreciation in
securities available-for-sale of $375,000 net of applicable tax benefit of
$142,000. During the year ended December 31, 1997, the net increase in capital
totaled $331,000 which represents the unrealized appreciation in securities
available-for-sale of $534,000 net of applicable taxes of $203,000.
The increase in assets in 1997 was funded primarily by increases in
deposits. Total deposits increased from $159,746,000 at December 31, 1996 to
$172,891,000 at December 31, 1997 representing an increase of 8.2%. Demand
deposits increased 13.0% from $18,802,000 at December 31, 1996 to $21,241,000
at December 31, 1997. Additionally, increases in certificates of deposit and
individual retirement accounts of $10,106,000 (11.5%) contributed to the
increases in deposits for 1997. Securities sold under repurchase agreements
increased $1,819,000 during 1997 and were also
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
used to fund increases in assets. Federal funds purchased decreased $500,000 in
1997. The subsidiary bank has unused lines of credit of $10,000,000 and the
Company has an unused line of credit of $2,000,000 at December 31, 1997.
Management does not presently anticipate a need to use these lines.
The Company's allowance for loan losses at December 31, 1997 was
$1,314,000 as compared to $1,724,000 at December 31, 1996. Non-performing loans
amounted to $255,000 at December 31, 1997 compared to $1,000 at December 31,
1996. Non-performing loans are loans which have been placed on non-accrual
status, loans 90 days past due plus renegotiated loans. Net charge-offs to
average outstanding loans for 1997 was .57%. Net recoveries to average
outstanding loans for 1996 was .01%. Net charge-offs totaled $630,000 for 1997.
In 1997, net charge-offs exceeded the provision by $410,000. The net
charge-offs in 1997 relate primarily to one customer and is not considered by
management to be a trend.
The allowance for possible loan losses, amounting to $1,314,000 at
December 31, 1997, represents 1.18% of total loans outstanding. At December 31,
1996, the allowance for possible loan losses represented 1.57% 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, 1997 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 64% and 69% at December 31,
1997 and December 31, 1996, respectively.
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. The Company had no
Federal funds sold at December 31, 1996. Federal funds sold totaled $2,650,000
at December 31, 1997. There were no Federal funds purchased at December 31,
1997. Federal funds purchased were $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 Bank.
These meetings focus on the spread between the subsidiary bank's cost of funds
and interest yields generated primarily through loans and investments.
First McMinnville Corporation presently maintains a liability sensitive
position over the 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, 1997:
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
INTEREST-RATE SENSITIVITY ONE YEAR
GAPS: REPRICE 1-90 91-180 181-365 AND
(IN THOUSANDS) IMMEDIATELY DAYS DAYS DAYS LONGER TOTAL
------------------------------ ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $ 2,650 31,594 11,649 17,021 141,672 204,586
Interest-bearing liabilities 53,641 29,704 22,857 32,732 17,066 156,000
----------- ---------- ---------- ---------- ----------- ------------
Interest rate sensitivity $ (50,991) 1,890 (11,208) (15,711) 124,606 48,586
=========== ========== ========== ========== =========== ============
Cumulative gap $ (50,991) (49,101) (60,309) (76,020) 48,586
=========== ========== ========== ========== ===========
Interest rate sensitivity
gap as a % of total
assets (23.97)% .90% (5.27)% (7.38)% 58.56%
=========== ========== ========== ========== ===========
Cumulative gap as a
% of total assets (23.97)% (23.07)% (28.34)% (35.72)% 22.84%
=========== ========== ========== ========== ===========
------------------------------------------------------------------------------------------------------------------------
</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 does not
anticipate that there will be 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, demands,
events or uncertainties that will result in or that are reasonably likely to
result in the registrant's liquidity changing in any material way.
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 1997 were $3,581,000 an
increase of $137,000 or 4.0% from fiscal year 1996. Net earnings for 1996
totaled $3,444,000 which was an increase of $338,000 or 10.9% from $3,106,000
for 1995. Basic earning per common share was $6.68 in 1997, $6.34 in 1996 and
$5.62 in 1995 after giving retroactive effect to a two-for-one stock split
effective October 1, 1994. Diluted earnings per common share were $6.67, $6.34
and $5.62 in 1997, 1996 and 1995, respectively. Average earning assets
increased $13,480,000 for the year ended December 31, 1997 as compared to year
ended December 31, 1996. Average earning assets increased $8,061,000 for the
year ended December 31, 1996 as compared to year ended December 31, 1995.
Additionally, the net interest spread decreased from 4.19% in 1996 to 4.09% in
1997. The net interest spread was 4.05% in 1995. 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 1997 totaled
$8,610,000 as compared to $8,071,000 for 1996 and $7,474,000 for 1995. The
provision for loan losses was $220,000 in 1997 as compared to $150,000 in 1996
and $160,000 in 1995. Net charge-offs in 1997 were $630,000 as compared to net
recoveries of $12,000 in 1996 and net charge-offs of $46,000 in 1995. The 1997
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
charge-offs related primarily to one customer and is unrelated to the nursery
business. The increase in the provision in 1997 is primarily due to the
increase in net charge-offs.
Non-interest income decreased 6.2% to $618,000 in 1997 from $659,000 in
1996. This decrease was due primarily to decreases in service charges on
deposits of $24,000, other fees and commissions of $15,000 and commissions on
fiduciary activities of $17,000 which were off-set by an increase in other
income totaling $15,000. Non-interest income of $659,000 in 1996 was an
increase of approximately 3.9% from $634,000 in 1995. The increase in 1996
resulted primarily from an increase in service charges on deposits and in
securities gains.
Non-interest expense increased 4.1% to $3,850,000 in 1997 from $3,700,000
in 1996. Non-interest expense was $3,543,000 in 1995. 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 commensurate
with the continued growth of the Company. The increase in 1997 was primarily
attributable to an increase in salaries and employment benefits of $166,000
(7.7%), increases in occupancy expenses ($38,000 or 16.4%) and Federal Deposit
insurance premiums ($18,000). These increases in 1997 were offset by a decrease
of $20,000 in furniture and equipment expenses. The non-interest expense
increased approximately 4.4% from 1995 to 1996 and was due primarily to
increases in salaries and employees benefits, occupancy expenses, furniture and
equipment expenses and securities losses with an offset from the decrease in
Federal Deposit insurance premiums.
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.
The Company plans to adopt Statement of Financial Accounting Standards
No. 130 (SFAS 130) "Reporting Comprehensive Income". The new statement which
becomes effective for years beginning after December 15, 1997, requires a new
financial statement that includes unrealized gains and losses on certain assets
and liabilities. The statement will provide additional information but will not
impact existing statements.
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
since they impact both interest revenues and interest costs.
<PAGE> 27
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
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 expenses 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
category. Loan fees of $39,000, $42,000 and $34,000 for 1997, 1996 and
1995, respectively, are included in consumer loan income and represent an
adjustment of the yield on these loans. In 1996 loan fees of $11,000 are
included in real estate loan income and represent an adjustment of the
yield on these loans.
1
<PAGE> 28
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------------------------------------
1997 1996 1997/1996 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 $111,177 8.89 % 9,878 103,919 9.03 % 9,380 655 (157) 498
Investment securities - taxable 61,248 7.18 4,396 55,731 7.00 3,899 386 111 497
-------- ----- ------- -------- ------- ------- ------
Investment securities - tax exempt 22,113 5.34 1,180 23,994 5.41 1,299 (102) (17) (119)
Taxable equivalent adjustment - 2.75 608 - 2.79 669 (52) - (61)
-------- ----- ------- -------- ------- ------- ------
Total tax-exempt investment
securities 22,113 8.09 1,788 23,994 8.20 1,968 (154) (26) (180)
-------- ----- ------- -------- ------- ------- ------
Total investment securities 83,361 7.42 6,184 79,725 7.36 5,867 267 50 317
-------- ----- ------- -------- ------- ------- ------
Federal funds sold 4,203 5.50 231 1,617 5.32 86 137 8 145
Interest-bearing deposits in banks 100 6.00 6 100 6.00 6 - - -
-------- ----- ------- -------- ------- ------- ------
Total earning assets 198,841 8.20 16,299 185,361 8.28 15,339 1,116 (156) 960
-------- ----- ------- -------- ------- ------- ------
Cash and due from banks 4,041 4,243
Allowance for possible loan losses (1,775) (1,567)
Bank premises and equipment 2,314 2,115
Other assets 3,227 3,156
-------- --------
Total assets $206,648 193,308
======== ========
</TABLE>
2
<PAGE> 29
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------------------------------------
1997 1996 1997/1996 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 $ 19,309 2.47% 477 19,014 2.51% 478 7 (8) (1)
Money market demand accounts 10,276 2.92 300 10,249 2.82 289 1 10 11
Other savings accounts 23,434 3.54 829 23,215 3.55 824 7 (2) 5
Certificates of deposit,
$100,000 and over 30,437 5.67 1,726 26,938 5.71 1,538 200 (12) 188
Certificates of deposit
under $100,000 55,676 5.58 3,105 50,493 5.64 2,847 292 (34) 258
Individual retirement accounts 9,137 5.65 516 8,593 5.71 492 30 (6) 24
-------- ----- ------ ------- ------ ------ ------
Total interest-bearing
deposits 148,269 4.69 6,953 138,502 4.67 6,468 456 29 485
Demand 20,038 - - 18,375 - - -
-------- ----- ------ ------- ------ ------ ------
Total deposits 168,307 4.13 6,953 156,877 4.12 6,468 471 14 485
-------- ----- ------ ------- ------ ------ ------
Federal funds purchased, securities
sold under repurchase agreements
and short-term debt 4,149 3.09 128 4,304 3.04 131 (5) 2 (3)
-------- ----- ------ ------- ------ ------ ------
Total deposits and
borrowed funds 172,456 4.11 7,081 161,181 4.09 6,599 461 21 482
-------- ----- ------ ------- ------ ------ ------
Other liabilities 2,496 2,311
Stockholders' equity 31,696 29,816
-------- -------
Total liabilities and
stockholders' equity $206,648 193,308
======== =======
Net interest income 9,218 8,740 478
====== ====== ======
Net yield on earning assets 4.64% 4.72%
===== ======
Net interest spread 4.09% 4.19%
===== ======
</TABLE>
3
<PAGE> 30
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
<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>
4
<PAGE> 31
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
<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
Stockholders' 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>
5
<PAGE> 32
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
II. Investment Portfolio
A. Securities at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
-----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agencies
and corporations $21,094 419 23 21,490
Obligations of state and
political subdivisions 22,399 732 14 23,117
Corporate and
other securities 761 19 1 779
Mortgage-backed
securities 2,241 - 43 2,198
------- ----- -- ------
$46,495 1,170 81 47,584
======= ===== == ======
</TABLE>
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
-----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agencies
and corporations $39,506 371 17 39,860
Obligations of state and
political subdivisions 1,515 55 - 1,570
Corporate and
other securities 762 - - 762
Mortgage-backed
securities 1,730 - 54 1,676
------- --- -- ------
$43,513 426 71 43,868
======= === == ======
</TABLE>
6
<PAGE> 33
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
II. Investment Portfolio, Continued
A. Continued:
Securities at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
-----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agencies
and corporations $29,765 397 44 30,118
Obligations of state and
political subdivisions 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>
SECURITIES AVAILABLE-FOR-SALE
-----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agencies
and corporations $20,161 23 156 20,028
Obligations of state and
political subdivisions 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>
7
<PAGE> 34
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
II. Investment Portfolio, Continued
B. The following schedule details the estimated maturities and
weighted average yields of securities of the Company at
December 31, 1997.
<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 $ 2,005 1,999 5.9%
One to five years 6,896 6,918 5.9
Five to ten years 12,234 12,506 7.6
More than ten years 2,200 2,265 7.9
------- ------ -----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 23,335 23,688 7.0
------- ------ -----
Obligations of states and
political subdivisions*:
Less than one year 1,899 1,914 8.6
One to five years 8,059 8,258 9.2
Five to ten years 7,092 7,418 8.4
More than ten years 5,349 5,527 7.8
------- ------ -----
Total obligations of states
and political subdivisions 22,399 23,117 8.5
------- ------ -----
Other:
Corporate and other securities 761 779 7.3
------- ------ -----
Total held-to-maturity
securities $46,495 47,584 7.7%
======= ====== =====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
8
<PAGE> 35
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
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 $ 102 102 5.6%
One to five years 2,452 2,449 6.1
Five to ten years 29,863 30,151 7.1
More than ten years 8,819 8,834 7.2
------- ------ -----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 41,236 41,536 7.0
------- ------ -----
Obligations of states and
political subdivisions*:
Less than one year - - -
One to five years 185 187 9.9
Five to ten years 766 799 7.7
More than ten years 564 584 7.9
------- ------ -----
Total obligations of states
and political subdivisions 1,515 1,570 8.0
------- ------ -----
Other:
Federal Home Loan Bank stock 671 671 6.7
Federal Reserve Bank stock 91 91 -
------- ------ -----
Total available-for-sale
securities $43,513 43,868 7.1%
======= ====== =====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis,
assuming a weighted average Federal income tax rate of 34%.
9
<PAGE> 36
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
In Thousands
----------------------
1997 1996
------- -------
<S> <C> <C>
Commercial, financial and agricultural $ 28,833 30,232
Real estate - construction 2,405 2,224
Real estate - mortgage 77,393 74,290
Consumer 2,842 2,918
--------- --------
Total loans 111,473 109,664
Less unearned interest - -
--------- --------
Total loans, net of unearned interest 111,473 109,664
Less allowance for possible loan losses (1,314) (1,724)
--------- --------
Net loans $ 110,159 107,940
========= ========
</TABLE>
10
<PAGE> 37
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
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,
1997.
<TABLE>
<CAPTION>
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 $16,395 11,735 703 28,833
Real estate -
construction 2,405 - - 2,405
------- ------ --- ------
$18,800 11,735 703 31,238
======= ====== === ======
Interest-Rate Sensitivity:
Fixed interest rates $13,556 6,511 155 20,222
Floating or adjustable
interest rates 5,244 5,224 548 11,016
------- ------ --- ------
Total commercial,
financial and
agricultural
loans and
real estate -
construction
loans $18,800 11,735 703 31,238
======= ====== === ======
</TABLE>
* Includes demand loans, bankers acceptances, commercial paper and
overdrafts.
11
<PAGE> 38
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1997
III. Loan Portfolio, Continued
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Non-accrual loans:
Commercial, financial and agricultural $ - -
Real estate - construction - -
Real estate - mortgage - -
Consumer - -
Lease financing receivable - -
-------- ---------
Total non-accrual $ - -
======== =========
Loans 90 days past due:
Commercial, financial and agricultural $ 101 1
Real estate - construction - -
Real estate - mortgage 152 -
Consumer 2 -
Lease financing receivable - -
-------- ---------
Total loans 90 days past due $ 255 1
======== =========
Renegotiated loans:
Commercial, financial and agricultural $ - -
Real estate - construction - -
Real estate - mortgage - -
Consumer - -
Lease financing receivable - -
-------- ---------
Total renegotiated loans past due $ - -
======== =========
Loans current - considered uncollectible $ - -
======== =========
Total non-performing loans $ 255 1
======== =========
Total loans, net of unearned interest $111,473 109,664
======== =========
Percent of total loans outstanding,
net of unearned interest 0.23% -%
======== =========
Other real estate $ 11 69
======== =========
</TABLE>
12
<PAGE> 39
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
III. Loan Portfolio, Continued:
C. Risk Elements, Continued:
The accrual of interest income is discontinued when it is
determined that collection of interest is less than probable or the
collection of any amount of principal 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 evaluated 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 status at
December 31, 1997 and 1996.
At December 31, 1997, loans totaling $6,015,000 were included
in the Company's internal classified loan list. Of these loans,
$1,302,000 are real estate, $4,658,000 are commercial and $55,000 are
consumer. The collateral valuations received by management securing
these loans total approximately $9,339,000, ($1,952,000 related to
real estate, $7,377,000 related to commercial and $10,000 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 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, 1997 and 1996, there were loans to customers in the
nursery industry totaling approximately $10,737,000 and $11,287,000,
respectively, 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.
At December 31, 1997, other real estate totaled $11,000 and consisted
of one commercial property. The balance at December 31, 1997
decreased from December 31, 1996 by $58,000 due to the sale of two
properties during 1997. Management is attempting to sell the property
included in other real estate at December 31, 1997 and no loss is
anticipated thereon.
13
<PAGE> 40
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
III. Loan Portfolio, Continued:
D. Other Interest-Bearing Assets
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at
December 31, 1997 which would be required to be disclosed as past due,
non-accrual, restructured or potential problem loans, if such
interest-bearing assets were loans.
14
<PAGE> 41
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
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,
1997 and 1996 and the years then ended.
<TABLE>
<CAPTION>
In Thousands Except Percentages
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Allowance for possible loan losses at beginning of period $ 1,724 1,562
------------ -------------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial and agricultural (600) -
Real estate - construction - -
Real estate - mortgage - (55)
Consumer (60) (43)
Lease financing - -
------------ -------------
(660) (98)
------------ -------------
Recoveries:
Commercial, financial and agricultural - 15
Real estate - construction - -
Real estate - mortgage - 25
Consumer - 70
Lease financing 30 -
------------ -------------
30 110
------------ -------------
Net loan recoveries (charge-offs) (630) 12
------------ -------------
Provision for possible loan losses charged to expense 220 150
------------ -------------
Allowance for possible loan losses at end of period $ 1,314 1,724
============ =============
Total loans, net of unearned interest, at end of year $ 111,473 109,664
============ =============
Average total loans outstanding,
net of unearned interest, during year $ 111,177 103,919
============ =============
Net charge-offs (recoveries) as a percentage of
average total loans outstanding, net of unearned
interest, during year 0.57 % (0.01)%
============ =============
Ending allowance for possible loan losses as a
percentage of total loans outstanding
net of unearned interest, at end of year 1.18 % 1.57 %
============ =============
</TABLE>
15
<PAGE> 42
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
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
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. Loan classifications are reviewed periodically by a person
independent of the lending function. 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, 1997 December 31, 1996
-------------------------- -------------------------
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>
Commercial, financial
and agricultural $1,033 26 % $1,410 28 %
Real estate - construction - 2 1 2
Real estate - mortgage 223 69 250 68
Consumer 58 3 63 2
------ --- ------ ---
$1,314 100 % $1,724 100 %
====== === ====== ===
</TABLE>
16
<PAGE> 43
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
V. Deposits
The average amounts and average interest rates for deposits for 1997 and 1996
are detailed in the following schedule:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Average Average
Balance Balance
------------ Average ------------ Average
In Thousands Rate In Thousands Rate
------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 20,038 - % 18,375 - %
Negotiable order of withdrawal
accounts 19,309 2.47 % 19,014 2.51 %
Money market demand accounts 10,276 2.92 % 10,249 2.82 %
Other savings accounts 23,434 3.54 % 23,215 3.55 %
Certificates of deposit $100,000
and over 30,437 5.67 % 26,938 5.71 %
Certificates of deposit under
$100,000 55,676 5.58 % 50,493 5.64 %
Individual retirement savings
accounts 9,137 5.65 % 8,593 5.71 %
--------- ---- -------- ----
$ 168,307 4.13 % $156,877 4.12 %
========= ==== ======== ====
</TABLE>
The following schedule details the maturities of certificates of deposit and
individual retirement accounts of $100,000 and over at December 31, 1997.
<TABLE>
<CAPTION>
In Thousands
---------------------------------------
Certificates Individual
of Retirement
Deposit Accounts Total
------------ ----------- -------
<S> <C> <C> <C>
Less than three months $ 7,663 586 8,249
Three to six months 8,741 255 8,996
Six to twelve months 10,552 228 10,780
More than twelve months 4,722 890 5,612
-------- ------ ------
$ 31,678 1,959 33,637
======== ====== ======
</TABLE>
In addition, approximately $668,000 of other time deposits of $100,000 and over
are included in "other savings deposits," which are passbook accounts with a
90-day maturity.
18
<PAGE> 44
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at December
31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ -----
<S> <C> <C> <C>
Return on assets 1.73% 1.78% 1.67%
(Net income divided by average total assets)
Return on equity 11.30% 11.55% 11.03%
(Net income divided by average equity)
Dividend payout ratio 37.43% 37.85% 40.04%
(Dividends declared per share divided
by net income per share)
Equity to assets ratio 15.34% 15.42% 15.18%
(Average equity divided by average
total assets)
Leverage capital ratio 15.22% 15.34% 15.08%
(Equity divided by fourth quarter
average total assets, excluding the
net unrealized gain or loss on available-
for-sale securities)
</TABLE>
The minimum leverage capital ratio required by the regulatory agencies is 4%.
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.
18
<PAGE> 45
FIRST MCMINNVILLE CORPORATION
FORM 10-KSB
December 31, 1997
VI. Return on Equity and Assets, Continued
The following schedule details the Company's risk-based capital at
December 31, 1997 (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, excluding the net
unrealized gain on available-for-sale
securities $ 32,337
Total risk-based capital:
Allowable allowance for loan losses
(limited to 1.25% of risk-weighted
assets) 1,179
--------
Total capital $ 33,516
========
Risk-weighted assets $115,800
========
Risk-based capital ratios:
Tier I capital ratio 27.92%
========
Total risk-based capital ratio 28.94%
========
</TABLE>
The Company is required to maintain a total risk-based capital to risk
weighted asset ratio of 8% and a Tier I capital to risk weighted asset
ratio of 4%. At December 31, 1997, the Company and its subsidiary bank
were in compliance with these requirements.
19
<PAGE> 46
FIRST MCMINNVILLE CORPORATION
Form 10-KSB
December 31, 1997
VI. Return on Equity and Assets, Continued
The following schedule details the Company's interest rate sensitivity
at December 31, 1997:
<TABLE>
<CAPTION>
(In Thousands) 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 $ 111,473 19,927 6,539 8,231 11,832 64,944
Securities 90,363 2,696 2,432 3,418 5,089 76,728
Interest-bearing deposits - - - - - -
in financial institutions 100 - - - 100 -
Federal funds sold 2,650 2,650 - - - -
--------- ------- ------- ------- ------- -------
Total earning assets 204,586 25,273 8,971 11,649 17,021 141,672
--------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Negotiable order of
withdrawal accounts 19,479 19,479 - - - -
Money market demand
accounts 10,449 10,449 - - - -
Savings deposits 23,713 23,713 - - - -
Certificates of deposit,
$100,000 and over 31,678 2,657 5,006 8,741 10,552 4,722
Certificates of deposit,
under $100,000 56,674 5,284 10,228 12,788 19,713 8,661
Individual retirement
accounts 9,657 1,479 700 1,328 2,467 3,683
Securities sold under
repurchase agreements 4,350 4,350 - - - -
--------- ------- ------- ------- ------- -------
Total interest bearing
liabilities 156,000 67,411 15,934 22,857 32,732 17,066
--------- ------- ------- ------- ------- -------
Interest-sensitivity gap $ 48,586 (42,138) (6,963) (11,208) (15,711) 124,606
========= ======= ======= ======= ======= =======
Cumulative gap (42,138) (49,101) (60,309) (76,020) 48,586
======= ======= ======= ======= =======
Interest-sensitivity gap
as % of total assets (19.80)% (3.27)% (5.27)% (7.38)% 58.56%
======= ======= ======= ======= =======
Cumulative gap as % of
total assets (19.80)% (23.07)% (28.34)% (35.72)% 22.84%
======= ======= ======= ======= =======
</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.
20
<PAGE> 47
SELECTED FINANCIAL DATA (UNAUDITED)
The following schedule presents the results of operations, cash dividends
declared, total assets, stockholders' equity and per share information for the
Company for each of the five years ended December 31, 1997.
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
Year Ended December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
--------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 15,691 14,670 13,892 12,528 12,113
Interest expense 7,081 6,599 6,418 4,844 4,534
--------- ------- -------- -------- -------
Net interest income 8,610 8,071 7,474 7,684 7,579
Provision for possible loan losses 220 150 160 240 240
--------- ------- -------- -------- -------
Net interest income after provision
for possible loan losses 8,390 7,921 7,314 7,444 7,339
Non-interest income 618 659 634 574 655
Non-interest expense (3,850) (3,700) (3,543 (3,738) (3,604)
--------- ------- -------- -------- -------
Earnings before income taxes
and cumulative effect of
change in accounting principle 5,158 4,880 4,405 4,280 4,390
Income taxes 1,577 1,436 1,299 1,203 1,225
Cumulative effect of change in
accounting for income taxes - - - - 22
--------- ------- -------- -------- -------
Net earnings $ 3,581 3,444 3,106 3,077 3,187
========= ======= ======== ======== =======
Cash dividends declared $ 1,341 1,294 1,240 1,191 1,085
========= ======= ======== ======== =======
Total assets - end of year $ 212,765 195,732 190,663 180,486 170,913
========= ======= ======== ======== =======
Stockholders' equity - end of year $ 32,557 30,025 28,889 26,452 25,240
========= ======= ======== ======== =======
Per share information:
Basic earnings per common share* $ 6.68 6.34 5.62 5.55 5.72
========= ======= ======== ======== =======
Diluted earnings per common share* $ 6.67 6.34 5.62 5.55 5.72
========= ======= ======== ======== =======
Dividends per share* $ 2.50 2.40 2.25 2.15 1.95
========= ======= ======== ======== =======
Book value per share end of year* $ 60.73 55.94 52.41 45.64 45.42
========= ======= ======== ======== =======
Ratios:
Return on average
stockholders' equity 11.30% 11.55% 11.03% 11.57% 12.87%
========= ======= ======== ======== =======
Return on average assets 1.73% 1.78% 1.67% 1.73% 1.89%
========= ======= ======== ======== =======
Stockholders' equity to assets 15.30% 15.34% 15.15% 14.66% 14.77%
========= ======= ======== ======== =======
</TABLE>
* Per share data has been retroactively restated to reflect a two-for-one stock
split on October 1, 1994.
<PAGE> 48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Please refer to the Consolidated Financial Statements, the
Statistical Data, Item 6, Item 7, and Item 8 for the information called for by
this part of the Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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, 1997 and 1996;
- Consolidated Statements of Earnings - Three years ended
December 31, 1997;
- Consolidated Statements of Changes in Stockholders' Equity -
Three years ended December 31, 1997;
- Consolidated Statements of Cash Flows - Three years ended
December 31, 1997; and all
- Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND, EXECUTIVE OFFICERS OF THE REGISTRANT.
(A) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS.
The following tables identify, as of February 20, 1998, 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 II" are being
nominated for three year terms to the Board of Directors for consideration at
the 1998 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-K.
<PAGE> 49
DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- - ----------------------- ---------------------------------------------------------------- --------
<S> <C> <C>
CLASS I - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 2000):
Paul O. Barnes (64) Chairman and CEO, 1984
B & P Lamp Supply Co., Inc.
Henry N. Boyd (81) Chief Executive Officer, 1984
Boyd Bros. Nursery.
Dean I. Gillespie (64) President, 1984
Bridge Builders, Inc.
CLASS II - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1998):
J. G. Brock (42) Owner, 1993
Brock Construction Company.
G. B. Greene (58) President, 1984
Womack Printing Co., Inc.
Robert W. Jones (69) Chairman, First McMinnville 1984
Corporation, 1989 - present;
Chairman, The First National Bank,
1981 - present; Chief Executive Officer,
The First National Bank, 1976 - 1993.
CLASS III - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1999):
Charles C. Jacobs (59) President and Chief Executive Officer, First 1985
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 (51) General Manager and Vice President, 1995
Middle Tennessee Dr. Pepper Bottling Company.
John J. Savage, Jr. (76) Retired; Secretary of Board of Directors 1984
Executive Vice President and Trust Officer,
The First National Bank through September 1986.
C. M. Stanley (62) President, 1984
Burroughs-Ross-Colville, Co.
W. B. Whitson (82) Chairman, 1984
Burroughs-Ross-Colville, Co.
</TABLE>
<PAGE> 50
IDENTIFICATION OF EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Office and Business Experience
- - -------------------- ----- ------------------------------------------------------------
<S> <C> <C>
Charles C. Jacobs 59 President and Chief Executive Officer, First McMinnville
Corporation, January 1994 - present; President and Chief
Executive Officer, First National Bank, January 1994 -
present; President, First National Bank, 1988 - 1994.
Diane Bogle 50 Senior Vice President, First McMinnville Corporation, 1995
- present; Senior Vice President, First National Bank, 1995
- present; Vice President, First National Bank, 1988 - 1995.
Lester K. Cowell 61 Senior Vice President, First McMinnville Corporation,
and Senior Vice President of First National Bank, 1991
- present.
Kenny D. Neal 46 Senior Vice President and Treasurer of First McMinnville
Corporation, 1994 - present; Senior Vice President and
Cashier, First National Bank, 1990 - present.
C. P. Whisenhunt 52 Senior Vice President, First McMinnville Corporation, 1993
- present; Senior Vice President, First National Bank, 1993
- present.
</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 Assistant Vice
President Fred Greene.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None.
(E) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company is not registered pursuant to Section 12 of the
Exchange Act, 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
Exchange Act.
<PAGE> 51
ITEM 11. 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, 1997,
1996, and 1995 for (i) the Chief Executive Officer of the Registrant and (ii)
each of the other executive officers of the Registrant whose compensation
exceeded $100,000 (collectively, the "Named Executive Officers"):
EXECUTIVE COMPENSATION
REMUNERATION OF DIRECTORS AND OFFICERS
There were no changes in the Company's chief executive during the last
fiscal year. The following table sets forth the compensation of the Company's
Chief Executive Officer for 1997 and the other four most highly compensated
executive officers as of December 31, 1997 (if their total annual salary and
bonus equaled or exceeded $100,000). The figures below include all compensation
paid for all services to the Company for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------------------------------------
Awards Payouts
--------------------------- ------------------------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Award(s) Options/SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)(1) ($) (#)(2) Payouts($) Compensation($)(3)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Jacobs, 1997 $124,000 $18,600 $11,288 N/A 3,500 $ -0- $15,686
President/CEO 1996 114,000 17,100 11,288 N/A -0- -0- 17,034
1995 104,000 15,600 8,688 N/A -0- -0- 13,156
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees and insurance premiums.
(2) The amounts in this column reflect the number of unexercised
options granted to the named person(s) in the year(s) indicated.
(3) This amount represents the Company's contribution to the Company's
401(k) plan on behalf of the named executive(s) together with the estimated
contribution for the named person in respect of the Company's defined benefit
(pension) plan described in this Report.
***
STOCK OPTION GRANTS
The Company granted 1,500 stock options to the Directors, which
included each of the executive officer(s) named in the Summary Compensation
Table, and 2,000 options to the named officer in his capacity as such. (As
noted previously, all per share data have been adjusted to reflect the
two-for-one stock split that occurred on October 1, 1994.) Of these, 500 shares
granted to the named person as a Director became exercisable on May 13, 1997;
and the remaining two thirds are exercisable over the following two years. The
shares granted to the named person as an officer are exercisable ten percent
(10%) per year commencing on May 13, 1998, pursuant to certain terms and
subject to certain specified limitations. All options granted in 1997 were
granted at the then estimated fair market value of $58.15 per share at the date
of grant. The Company has granted no stock appreciation rights to the executive
officer(s) named in the Summary Compensation Table.
<PAGE> 52
1997 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's stock option plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s). (The Company grants no stock appreciation rights.)
OPTIONS/SARS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN FISCAL (DOLLARS PER EXPIRATION POTENTIAL
NAME (#) YEAR SHARE) DATE VALUE(2)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles C. Jacobs 3,500(1) 14.3%(1) $58.15 5-13-2007 $30,800
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PRECEDING TABLE
(1) The Company granted 1,500 options to this person as a Director.
This number represented 9.1% of the options granted to the Directors in 1997.
The grant to the named person as an officer was 2,000 shares, which represented
8.2% of all options granted to employees.
(2) The value of the stock options granted is based upon the minimum
value method as permitted in Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation." Under the minimum value method,
the volatility is assumed to approach zero and is appropriate in situations in
which there is no established public trading market for the stock.
These assumptions are included pursuant to 17 C.F.R. ss.229.402(c).
***
1997 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's stock option plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Securities
Underlying Value of
Unexercised Unexercised in-the-
Options/SARs Money
At Fiscal Year End Options/SARs At
(#) Fiscal Year End ($)
------------------ ------------------
Shares Acquired on Value Realized on Exercisable/ Exercisable/
Name and Title Exercise (#) Exercise ($) Nonexerciseable(2) Nonexerciseable(2)
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles C. Jacobs -0- $-0- 500/3,000 $930/$5,580
President/CEO
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 53
NOTES TO PRECEDING TABLE
(1) Unless otherwise expressly stated, all per share data in this
Report have been adjusted to reflect the two-for-one stock split that became
effective on October 1, 1994.
(2) This amount represents the difference between the estimated market
price on February 1, 1998 of approximately $60.01 per share and the respective
exercise price(s) of the options at the date(s) of grant. Such amounts may not
necessarily be realized. Actual values that may be realized, if any, upon the
exercise of such options will be based on the market price of the Common Stock
at the time of any such exercise(s) and thus are dependent upon future
performance of the Common Stock.
***
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has appointed a Compensation Committee, which
is comprised of three members. The Committee makes recommendations to the full
Board of Directors as to the compensation for executive officers, including the
Chief Executive Officer, as well as to compensation for other officers and
employees. The principal component of executive officer compensation is salary,
with secondary reliance on bonuses, stock option incentives, and other types of
long-term benefits such as participation in the Company's 401(k) plan and in
the Company's defined benefit ("pension") plan. The Committee utilizes
information concerning the performance of the Company as compared to its peer
group and in achieving its established goals in evaluating the overall
performance of its employees, including the Chief Executive Officer. The
Committee takes a long-term, as opposed to a short-term, view of compensation
and overall results of operations. The Company compares, among other factors,
the Bank's performance compared to other similarly situated commercial banks,
with primary emphasis given to banks located in Tennessee. Important factors
include return on average assets, return on equity, asset quality, comparisons
of executive compensation at other comparable institutions, and similar
objective criteria. Both overall profitability and increased earnings per share
figured into, but were not the exclusive criteria, in the Committee's
recommendation. Other factors included length and quality of service to the
Bank and to the Community, demonstrated leadership ability, the apparent trends
evident in the Bank's results of operations, and a variety of other subjective
and objective factors. The Committee was generally pleased with the performance
of the Company compared both to its peer group and to its goals. Accordingly
the Committee recommended, and the Board of Directors approved in all material
respects the levels of compensation recommended by the Committee. In addition,
the Committee considered the historical profitability, competitiveness, and
perceived prospects in arriving at this recommendation, as well as in
concurring in the stock option grants described elsewhere in this Report.
The foregoing report has been furnished by the members of the
Compensation Committee:
Robert W. Jones
G. B. Greene
Carl M. Stanley
BENEFITS
In April 1997, the stockholders of the Company approved the 1997 First
McMinnville Corporation Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan provides for the granting of stock options, and authorizes the
issuance of common stock upon the exercise of such options, for up to 57,500
shares of common stock, to employees, nonemployee directors and advisors of the
Company, of which 1,500 were specified in the Stock Option Plan to be granted
to each then-current Director of the Company.
Under the Stock Option Plan, stock option awards may be granted in the
form of incentive stock options or nonstatutory stock options, and are
generally exercisable for up to ten years following the date such option awards
are
<PAGE> 54
granted. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of common stock on the grant date.
The Stock Option Committee designated by the Board administers the
Stock Option Plan. The Stock Option Plan may be terminated at any time by the
Board of Directors. Options granted under the Stock Option Plan are exercisable
as determined by the Board of Directors and generally are expected to vest
approximately 10% per year over a ten year period and expire after ten years,
although this period may be shortened by the Board of Directors. According to
the plan, however, the options granted to the Directors in 1997 vested
one-third per year commencing on May 13, 1997. The Stock Option 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).
The Stock Option 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
any employee who owns more than 10% of the voting stock). The number of shares
which may be issued under the Stock Option Plan and the exercise prices for
outstanding options are subject to adjustment in the event that the number of
outstanding shares of Common Stock are changed by reason of stock splits, stock
dividends, reclassifications or recapitalizations. In addition, upon a merger
or consolidation involving the Company, participants may be entitled to shares
in the surviving corporation upon the terms set forth in the Stock Option Plan.
Options granted under the Stock Option 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.
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.
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
20% after three years of service and increasing 20% per year for the next four
years, with a participant fully vested at the end of year seven. Mr. Jacobs has
30 years of credited service under the Plan with current compensation covered
by the Plan of $149,691, and the estimated amount of the Company's 1997
contribution for Mr. Jacobs was $11,408, as is reflected in the Summary
Compensation Table appearing elsewhere in this Report. Mr. Jacobs' anticipated
monthly benefit at retirement based on 35 years of service is $5,546.05.
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.
<PAGE> 55
<TABLE>
<CAPTION>
Years of Service
----------------
Remuneration 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$100,000 $21,525 $28,700 $35,875 $ 43,051 $ 50,225
125,000 27,150 36,200 45,250 54,301 63,350
150,000 32,775 43,700 54,625 65,551 76,475
175,000 38,400 51,200 64,000 76,801 89,600
200,000 44,025 58,700 73,375 88,051 102,725
225,000 49,650 66,200 82,750 99,301 115,850
250,000 55,275 73,700 92,125 110,551 128,975
300,000 66,525 88,700 110,875 133,051 155,226
400,000 89,025 118,700 148,375 178,051 207,726
450,000 100,275 133,700 167,125 200,551 233,976
500,000 111,525 148,700 185,875 223,051 260,226
</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. Please refer to Note
9 of the Consolidated Financial Statements for additional information.
The Company also offers a 401(k) profit-sharing plan for eligible
employees, which was adopted in 1988. To be eligible, an employee must have
obtained the age of 21 and she or he must have completed one year of services.
The provisions of this plan provide for both employer and employee
contributions. In 1997, the Company contributed approximately $45,000 to the
plan, as compared to $41,000 in 1996 and $43,000 in 1995. Please refer to Note
9 of the Consolidated Financial Statements for additional information.
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. However, attendance at the December meeting is not required
for a Director to receive Board fees.
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.
ITEM 12. 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 1, 1998 there were
534,912 shares of the Company's Common Stock issued and outstanding.
<PAGE> 56
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by (1) directors of the Company, and
(2) 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. This information is based on
information filed with or provided to and by the Company as of approximately
February 1, 1998. This table includes, in the ownership and percentage
calculations, shares subject to options which may be exercised within the next
sixty days by all Directors and Executive Officers who are option holders in
accordance with Rule 13d-3(d)(1) under the Exchange Act. However, each
Director's percentage of ownership is based on such Director's pro forma
ownership (including shares subject to being obtained by the exercise of
options within the next 60 days) and the actual number of shares outstanding
(534,912) at said date plus the number of shares obtainable by such person with
the next sixty days.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Amount and
Nature of Percent
Name of Beneficial of
Beneficial Owner Ownership Class (1)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(i) Paul O. Barnes 11,828 (2) 2.21%
843 Old Morrison Road
McMinnville, TN 37110
Henry N. Boyd 8,980 1.68%
705 Country Club Drive
McMinnville, TN 37110
J. G. Brock 1,000 (3) *
P. O. Box 789
McMinnville, TN 37110
Dean I. Gillespie 2,180 (4) *
258 Lagniappe Lane
McMinnville, TN 37110
G. B. Greene 6,328 1.18%
608 W. Main Street
McMinnville, TN 37110
Charles C. Jacobs 4,746 *
3180 Vervilla Road
McMinnville, TN 37110
Robert W. Jones 9,594 (5) 1.79%
828 Lakeland Drive
McMinnville, TN 37110
J. Douglas Milner 700 *
227 Mountain Street
McMinnville, TN 37110
John J. Savage, Jr. 1,632 (6) *
104 Worley Street
McMinnville, TN 37110
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Amount and
Nature of Percent
Name of Beneficial of
Beneficial Owner Ownership Class (1)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C. M. Stanley 3,212 *
P. O. Box 52
McMinnville, TN 37110
W. B. Whitson 15,492 (7) 2.89%
P. O. Box 609
McMinnville, TN 37110
(ii) Directors and 66,688 12.45%
Executive Officers
as a Group
(15 individuals)
</TABLE>
- - ---------------------------
* Less than 1%.
NOTES TO TABLE
(1) Based on 534,912 shares of the Common Stock outstanding at
February 1, 1998, plus that number of shares obtainable by
the person named within the next 60 days pursuant to the
exercise of stock options. All Directors hold 1,500 options
pursuant to the Stock Option Plan except that Mr. Boyd and
Mr. Barnes each exercised 500 options in 1997. This
information is based in part on information supplied to the
Company by the persons named in the Table.
(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 also 4,446 shares held by Mr. Jones'
spouse, as to which Mr. Jones disclaims beneficial ownership.
(6) Includes 208 shares held jointly by Mr. Savage and his spouse.
(7) Includes 4,438 held by the W. B. Whitson Grandchildren Trust
of which Mr. Whitson is a Co-Trustee. This total includes
also 200 shares held by Mr. Whitson's spouse, as to which Mr.
Whitson disclaims beneficial ownership.
ITEM 13. 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 1997. At
December 31, 1997, the dollar amount of loans to the Company's Directors and
Executive Officers, and their respective affiliates, was approximately
$2,450,000. This approximated 7.53% of Shareholders equity and 2.22% of the
Company's total loans (net of the allowance for possible loan losses). All loan
transactions were made in the ordinary course of
<PAGE> 58
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. The Company relies upon
its Directors and executive officers for identification of their respective
associates and affiliates (as those terms are defined in the Exchange Act).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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-K:
a. Consolidated Balance Sheets as of December
31, 1997 and 1996;
b. Consolidated Statements of Earnings for the
three years ended December 31, 1997;
c. Consolidated Statements of Changes in
Stockholders' Equity for the three years
ended December 31, 1997;
d. Consolidated Statements of Cash Flows for
the three years ended December 31, 1997; and
e. All Notes to the foregoing Consolidated
Financial Statements.
2. Listing of Exhibits:
a. 3(i) Charter as amended.*
b. 3(ii) Bylaws.*
c. 4.1 Charter as amended.*
d. 4.2 Bylaws.*
e. 4.3 1997 First McMinnville Corporation
Stock Option Plan.
f. 4.4 Shareholders Rights Agreement dated
June 10, 1997.
g. 10.1 First National Bank of McMinnville
401(k) Retirement Plan.**
h. 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.***
i. 11 Statement re: computation of per
share earnings (Incorporated by
reference to Note 16 of the
Consolidated Financial Statements).
j. 21 Subsidiaries of the Registrant for
the year ended December 31, 1997.
k. 27 Financial Statement Schedule (for
SEC use only) [Omitted in Paper
Copies].
<PAGE> 59
(b) No reports on Form 8-K were filed for the quarter ended
December 31, 1997.
(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 1 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-K Annual Report under the Exchange Act for the fiscal year
ended December 31, 1994.
** Incorporated herein by reference to exhibits filed with Form
10-K Annual Report under the Exchange Act for the fiscal year
ended December 31, 1988.
*** Incorporated herein by reference to exhibits filed with Form
10-KSB Annual Report under the Exchange Act for the fiscal
year ended December 31, 1996.
<PAGE> 60
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 10, 1998
- - ----------------------------------- Director
Robert W. Jones
/s/ Paul O. Barnes Director March 10, 1998
- - -----------------------------------
Paul O. Barnes
/s/ Henry N. Boyd Director March 10, 1998
- - -----------------------------------
Henry N. Boyd
/s/ J. G. Brock Director March 10, 1998
- - -----------------------------------
J. G. Brock
/s/ Dean I. Gillespie Director March 10, 1998
- - -----------------------------------
Dean I. Gillespie
/s/ G. B. Greene Director March 10, 1998
- - -----------------------------------
G. B. Greene
/s/ J. Douglas Milner Director March 10, 1998
- - -----------------------------------
J. Douglas Milner
/s/ Charles C. Jacobs President, CEO March 10, 1998
- - ----------------------------------- and Director
Charles C. Jacobs
/s/ John J. Savage, Jr. Director March 10, 1998
- - -----------------------------------
John J. Savage, Jr.
/s/ Carl M. Stanley Director March 10, 1998
- - -----------------------------------
Carl M. Stanley
/s/ W. B. Whitson Director March 10, 1998
- - -----------------------------------
W. B. Whitson
/s/ Kenny D. Neal Treasurer/Chief March 10, 1998
- - ----------------------------------- Financial and
Kenny D. Neal Accounting Officer
</TABLE>
<PAGE> 61
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
1. Instructions.
(a) Except to the extent that the materials enumerated in (1) and/or
(2) below are specifically incorporated into this Form by reference (in which
case see Rule 12b-23(d)), every registrant which files an annual report on this
Form pursuant to Section 15(d) of the Act shall furnish to the Commission for
its information, at the time of filing its report on this Form, four copies of
the following:
(1) Any annual report to security holders covering the registrant's
last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security holders with respect
to any annual or other meeting of security holders.
(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of the Act,
except to the extent that the registrant specifically incorporates it in its
annual report on this Form by reference.
(c) If no such annual report or proxy material has been sent to
security holders, a statement to that effect shall be included under this
caption. If such report or proxy material is to be furnished to security holders
subsequent to the filing of the annual report of this Form, the registrant shall
so state under this caption and shall furnish copies of such material to the
Commission when it is sent to security holders.
2. Items Included:
(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-K, 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 1998 Annual Meeting of Shareholders
is furnished herewith to the Commission for its information
for its information, pursuant to the instructions to Form
10-K, BUT NOT INCORPORATED BY REFERENCE.
(These items appear commencing on page 126.)
<PAGE> 62
FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL NUMBERED
PAGE OR REFERENCE
<S> <C> <C>
3(i) Charter of First McMinnville (Note 1)
Corporation
3(ii) Bylaws of First McMinnville (Note 1)
Corporation
4.1 Charter of First McMinnville (Note 1)
Corporation (See Exhibit 3(i))
4.2 Bylaws of First McMinnville (Note 1)
Corporation (See Exhibit 3(ii))
4.3 First McMinnville Corporation 1997 62
Stock Option Plan
4.4 Shareholders Rights Agreement 75
Dated June 10, 1997
10.1 First National Bank of McMinnville (Note 2)
401(k) Plan
10.2 Consulting Agreement Dated (Note 3)
February 9, 1996, Between First
National Bank of McMinnville and
Robert W. Jones, as amended
11 Statement re: Computation of Per (Note 4)
Share Earnings
21 Subsidiary of First McMinnville 122
Corporation
27 Financial Statement Schedule (Note 5)
(for SEC use only)
</TABLE>
NOTES
(1) 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, 1994.
(2) 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.
(3) Incorporated herein by reference to exhibits filed with Form 10-KSB
Annual Report under the Exchange Act for the fiscal year ended
December 31, 1996.
(4) Incorporated by reference to Note 16 of First McMinnville Corporation's
Consolidated Annual Financial Statements for the year ended
December 31, 1997.
<PAGE> 63
(5) 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,
1997 and is qualified in its entirety by reference to such financial
statements as set forth in the Company's Annual Report on Form 10-K
for the period ending on December 31, 1997.
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST MCMINNVILLE CORPORATION PAGE
----
<S> <C>
Independent Auditor's Report F-3
Consolidated Balance Sheets
December 31, 1997 and 1996 F-4
Consolidated Statements of Earnings
Three Years Ended December 31, 1997 F-5
Consolidated Statement of Changes in Stockholder's Equity
Three Years Ended December 31, 1997 F-6
Consolidated Statements of Cash Flows F-7
Three Years Ended December 31, 1997
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 65
FIRST MCMINNVILLE CORPORATION
MCMINNVILLE, TENNESSEE
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
<PAGE> 66
MAGGART & ASSOCIATES, INC.
Certified Public Accountants
FIRST UNION TOWER
SUITE 2150
150 FOURTH AVENUE, NORTH
NASHVILLE, TENNESSEE 37219-2417
Telephone (615) 252-6100
Facsimile (615) 252-6105
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, 1997 and 1996, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
The audits referred to above were directed primarily toward formulating an
opinion on the consolidated financial statements taken as a whole. The
accompanying consolidating schedules are presented for supplementary analysis
purposes and are not intended to present the individual financial condition and
results of operations of the components of the consolidated group in accordance
with generally accepted accounting principles, nor are they necessary for a
fair presentation of the financial condition and the results of operations and
cash flows of the consolidated group. The consolidating schedules have been
subjected to the auditing procedures applied in the audits of the consolidated
financial statements and, in our opinion, are stated fairly in all material
respects only when considered in conjunction with the consolidated financial
statements taken as a whole.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 28, 1998
<PAGE> 67
FIRST MCMINNVILLE CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
In Thousands
----------------------
1997 1996
---- ----
ASSETS
<S> <C> <C>
Loans, less allowance for possible loan losses of $1,314,000
and $1,724,000, respectively $ 110,159 107,940
Securities:
Held-to-maturity, at amortized cost (market value $47,584,000
and $55,232,000, respectively) 46,495 54,521
Available-for-sale, at market (amortized cost $43,513,000 and
$24,468,000, respectively) 43,868 24,288
--------- --------
Total securities 90,363 78,809
--------- --------
Interest-bearing deposits in financial institutions 100 100
Federal funds sold 2,650 --
--------- --------
Total earning assets 203,272 186,849
--------- --------
Cash and due from banks 4,461 3,532
Premises and equipment, net 2,230 2,368
Accrued interest receivable 2,020 1,903
Deferred tax asset 39 405
Other real estate 11 69
Other assets 732 606
--------- --------
Total assets $ 212,765 195,732
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 172,891 159,746
Securities sold under repurchase agreements 4,350 2,531
Federal funds purchased -- 500
Accrued interest and other liabilities 2,967 2,930
--------- --------
Total liabilities 180,208 165,707
--------- --------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized 5,000,000,
issued 605,800 shares and 604,800, respectively 1,514 1,512
Additional paid-in capital 1,568 1,512
Retained earnings 31,561 29,321
Net unrealized gains (losses) on available-for-sale securities,
net of income taxes of $135,000 and income tax benefits of
$68,000, respectively 220 (111)
--------- --------
34,863 32,234
Less cost of treasury stock of 69,696 shares in 1997 and 68,017 shares in 1996 (2,306) (2,209)
--------- --------
Total stockholders' equity 32,557 30,025
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders' equity $ 212,765 195,732
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 68
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Earnings
Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands
Except Per Share Amount
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,878 9,380 8,802
Interest and dividends on securities:
Taxable securities 4,396 3,899 3,712
Exempt from Federal income taxes 1,180 1,299 1,217
Interest on Federal funds sold 231 86 156
Interest on interest-bearing deposits in financial
institutions 6 6 5
-------- ------- -------
Total interest income 15,691 14,670 13,892
-------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 477 478 556
Interest on money market demand and savings accounts 1,129 1,113 1,175
Interest on certificates of deposit 5,347 4,877 4,574
Interest on securities sold under repurchase agreements
and short-term debt 128 131 113
-------- ------- -------
Total interest expense 7,081 6,599 6,418
-------- ------- -------
Net interest income before provision for possible loan losses 8,610 8,071 7,474
Provision for possible loan losses 220 150 160
-------- ------- -------
Net interest income after provision for possible loan losses 8,390 7,921 7,314
Non-interest income 618 659 634
Non-interest expense (3,850) (3,700) (3,543)
-------- ------- -------
Earnings before income taxes 5,158 4,880 4,405
Income taxes 1,577 1,436 1,299
-------- ------- -------
Net earnings $ 3,581 3,444 3,106
======== ======= =======
Basic earnings per common share $ 6.68 6.34 5.62
======== ======= =======
Diluted earnings per common share $ 6.67 6.34 5.62
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 69
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Shares
----------------------------------------------------------------------------------
Net Unrealized
Common Stock Gains (Losses)
----------------------- Additional On 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, 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 -- -- -- (1,294) -- -- (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 29,321 (2,209) (111) 30,025
Net earnings for year -- -- -- 3,581 -- -- 3,581
Issuance of 1,000 shares of
common stock 1,000 2 56 -- -- -- 58
Cash dividends declared $2.50
per share -- -- -- (1,341) -- -- (1,341)
Cost of 1,679 shares of
treasury stock -- -- -- -- (97) -- (97)
Net change in unrealized gains
(losses) on available-for-sale-
securities during the year, net
of income taxes of $203,000 -- -- -- -- -- 331 331
------- ----- ----- ------ ------ --- ------
Balance December 31, 1997 580,537 $ 1,514 1,568 31,561 (2,306) 220 32,557
======= ======= ===== ====== ====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 70
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 15,517 14,727 13,762
Fees and commissions received 627 659 583
Interest paid (6,889) (6,773) (5,895)
Cash paid to suppliers and employees (3,665) (3,481) (3,345)
Income taxes paid (1,653) (1,416) (1,307)
-------- ------- -------
Net cash provided by operating activities 3,937 3,716 3,798
-------- ------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (39,669) (7,747) (21,835)
Proceeds from sales of available-for-sale securities 5,284 9,578 9,888
Proceeds from maturities of available-for-sale securities 15,376 5,723 4,677
Purchase of held-to-maturity securities (15,457) (21,491) (4,797)
Proceeds from maturities of held-to-maturity securities 23,495 15,820 12,432
Loans made to customers, net of repayments (2,439) (8,838) (9,067)
Purchase of premises and equipment (141) (676) (449)
Proceeds from sales of other real estate 58 281 574
-------- ------- -------
Net cash used in investing activities (13,493) (7,350) (8,577)
-------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in demand,
NOW and savings deposit accounts 3,039 1,122 (1,917)
Net increase in time deposits 10,106 4,073 7,837
Net increase (decrease) in securities sold under
repurchase agreements 1,819 (1,682) 1,921
Increase (decrease) in Federal funds purchased (500) 500 (600)
Proceeds from issuance of short-term notes payable -- 45 56
Repayment of short-term notes payable -- (45) (56)
Dividends paid (1,290) (1,238) (1,202)
Payments to acquire treasury stock (97) (781) (116)
Proceeds from issuance of common stock 58 -- --
-------- ------- -------
Net cash provided by financing activities 13,135 1,994 5,923
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 3,579 (1,640) 1,144
Cash and cash equivalents at beginning of year 3,532 5,172 4,028
-------- ------- -------
Cash and cash equivalents at end of year $ 7,111 3,532 5,172
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 71
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,581 3,444 3,106
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 236 219 222
Provision for possible loan losses 220 150 160
Provision for deferred taxes 163 (17) (24)
Securities gains related to available-for-sale securities (11) (54) (103)
Securities losses related to available-for-sale 20 147 52
FHLB dividend reinvestment (45) (42) (37)
Loss on disposal of premises and equipment 43 -- --
Increase (decrease) in taxes payable (239) 37 16
Decrease (increase) in interest receivable (117) 112 (93)
Increase (decrease) in interest payable 192 (174) 523
Decrease in other assets and liabilities, net (106) (106) (24)
-------- ------- -------
Total adjustments 356 272 692
-------- ------- -------
Net cash provided by operating activities $ 3,937 3,716 3,798
======== ======= =======
Supplemental Schedule of Non-Cash Activities:
Non-cash transfers from loans to other real estate $ --- 45 355
======== ======= =======
Unrealized gain (loss) in value of securities available-for-
sale net of income taxes of $203,000 in 1997,
income tax benefits of $142,000 in 1996 and income
taxes of $420,000 in 1995 $ 331 (233) 687
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 72
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First McMinnville Corporation
(the "Company") and its wholly-owned subsidiary, the First National
Bank of McMinnville ("Bank") are in accordance with generally accepted
accounting principles and conform to general practices within the
banking industry.
The following is a brief summary of the 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
The Company is registered as a one bank holding company under
the Bank Holding Company Act of 1956. The Bank operates under
a Federal Bank Charter and provides full banking services. As
a national bank, the subsidiary bank is subject to 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
Loans are stated at the principal amount outstanding. Unearned
discount, deferred loan fees net of loan acquisition costs,
and the allowance for possible loan losses are shown as
reductions of loans. Loan origination and commitment fees and
certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield
over the contractual life of the loan. Unearned discount
represents the unamortized amount of finance charges,
principally related to certain installment loans. Interest
income on most loans is accrued based on the principal amount
outstanding.
The Company adopted, on a prospective basis effective January
1, 1995, 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 residential mortgage and
installment loans.
<PAGE> 73
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(d) Loans, Continued
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 possible loan
losses or by adjusting an existing valuation allowance for the
impaired loan with a corresponding charge or credit to the
provision for possible loan losses.
The Company's consumer loans 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 along 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 and uncollected 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 possible 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 cash received is
applied as a reduction of principal. A nonaccrual loan may be
restored to an 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.
Loans not on nonaccrual status are classified as impaired in
certain cases when 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.
<PAGE> 74
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(d) Loans, Continued
Generally, the Company also classifies as impaired any loans
the terms of which have been modified in a troubled debt
restructuring. Interest is generally accrued on such loans
that continue to meet the modified terms of their loan
agreements.
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.
(e) Allowance for Possible Loan Losses
The provision for possible loan losses represents a charge to
earnings necessary, after loan charge-offs and recoveries, to
maintain the allowance for possible loan losses at an
appropriate level which is adequate to absorb estimated losses
inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from
other sources, including commitments to extend credit and
standby letters of credit. The level of the allowance is
determined on a quarterly basis using procedures which
include: (1) categorizing commercial and commercial real
estate loans into risk categories to estimate loss
probabilities based primarily on the historical loss
experience of those risk categories and current economic
conditions; (2) analyzing significant commercial and
commercial real estate credits and calculating specific
reserves as necessary; (3) assessing various homogeneous
consumer loan categories to estimate loss probabilities based
primarily on historical loss experience; (4) reviewing
unfunded commitments; and (5) considering various other
factors, such as changes in credit concentrations, loan mix,
and economic conditions which may not be specifically
quantified in the loan analysis process.
The allowance for possible loan losses consists of an
allocated portion and an unallocated, or general portion. The
allocated portion is maintained to cover estimated losses
applicable to specific segments of the loan portfolio. The
unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not
identified by the more objective processes used for the
allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an
allocated portion and an unallocated portion, these terms are
primarily used to describe a process. Both portions of the
allowance are available to provide for inherent loss in the
entire portfolio.
<PAGE> 75
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(e) Allowance for Possible Loan Losses, Continued
The allowance for possible loan losses is increased by
provisions for possible loan losses charged to expense and is
reduced (increased) by loans charged off net of recoveries on
loans previously charged off. The provision is based on
management's determination of the amount of the allowance
necessary to provide for estimated loan losses based on its
evaluation of the loan portfolio. Determining the appropriate
level of the allowance and the amount of the provision
involves uncertainties and matters of judgment and therefore
cannot be determined with precision.
(f) Debt and Equity Securities
The Company follows the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". 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 recognized by the interest method.
- Trading Securities
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term are classified as trading securities and reported
at fair value, with unrealized gains and losses included
in earnings.
- 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 by the interest method.
<PAGE> 76
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(f) Debt and Equity Securities, Continued
No securities have been classified as trading securities.
Realized gains or losses from the sale of debt and equity
securities were recognized based upon the specific
identification method.
(g) 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.
(h) Long-Lived Assets
In March, 1995, Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the 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.
(i) 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 to 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.
<PAGE> 77
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(j) 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.
(k) 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.
(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) Reclassifications
Certain reclassifications have been made to the 1996 and 1995
figures to conform to the presentation for 1997.
(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.
<PAGE> 78
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(2) Loans and Allowance for Possible Loan Losses
Loans and allowance for possible loan losses at December 31, 1997 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 28,833 30,232
Real estate - construction 2,405 2,224
Real estate - mortgage 77,393 74,290
Consumer 2,842 2,918
--------- --------
111,473 109,664
Less allowance for possible loan losses (1,314) (1,724)
--------- --------
$ 110,159 107,940
========= ========
</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 $2,450,000 and $2,842,000 at December 31, 1997 and
1996, respectively. During 1997, $1,295,000 of such loans were made and
repayments totaled $1,687,000. As of December 31, 1997, none of these
loans were restructured, nor were any related party loans charged off
during the past three years.
No loans had been placed on non-accrual status during 1997 and 1996.
The principal maturities on loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------------------------------------------------------
Commercial,
Financial
and Real Estate - Real Estate-
Agricultural Construction Mortgage Consumer Total
------------ ------------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
3 months or less $ 5,546 - 7,573 895 14,014
3 to 12 months 10,849 2,405 11,253 973 25,480
1 to 5 years 11,735 - 50,297 974 63,006
Over 5 Years 703 - 8,270 - 8,973
------------- ------------- ---------- --------- -----------
$ 28,833 2,405 77,393 2,842 111,473
============= ============= ========== ========= ===========
</TABLE>
At December 31, 1997, variable rate and fixed rate loans totaled
approximately $14,362,000 and $97,111,000, respectively. At December
31, 1996, variable rate loans were approximately $18,252,000 and fixed
rate loans totaled approximately $91,412,000.
<PAGE> 79
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 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, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 1,724 1,562 1,448
Provision charged to operating expense 220 150 160
-------- ------- -------
1,944 1,712 1,608
-------- ------- -------
Loans charged off (660) (98) (86)
Recoveries on losses 30 110 40
-------- ------- -------
Net loan recoveries (charge-offs) (630) 12 (46)
-------- ------- -------
Balance, end of year $ 1,314 1,724 1,562
======== ======= =======
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1997, the Company had loans to customers in the nursery industry
totaling approximately $10,737,000 as compared to $11,287,000 at
December 31, 1996. Credit is extended to businesses and individuals and
is evidenced by promissory notes. The terms and conditions of the loans
including collateral vary depending upon the purpose of the credit and
the borrower's financial condition.
Impaired loans and related loan loss reserve amounts at December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---- ----
<S> <C> <C>
Recorded investment $ 3,454 4,186
Loan loss reserve $ 675 1,200
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $4,116,000 and $3,832,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $393,000 and
$367,000 for 1997 and 1996, respectively.
<PAGE> 80
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities
Debt and equity securities have been classified in the balance sheet
according to management's intent. The Company's classification of
securities at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1997
----------------------------------------------------------------
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 $ 21,094 419 23 21,490
Obligations of states and political
subdivision 22,399 732 14 23,117
Corporate and other securities 761 19 1 779
Mortgage-backed securities 2,241 - 43 2,198
------------- ------------ ------------- ------------
$ 46,495 1,170 81 47,584
============= ============ ============= ============
<CAPTION>
Securities Available-For-Sale
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1997
----------------------------------------------------------------
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 $ 39,506 371 17 39,860
Obligations of states and political
subdivision 1,515 55 - 1,570
Corporate and other securities 762 - - 762
Mortgage-backed securities 1,730 - 54 1,676
------------- ------------- ------------ ------------
$ 43,513 426 71 43,868
============= ============= ============ ============
</TABLE>
<PAGE> 81
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
Debt and equity securities at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1996
----------------------------------------------------------------
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
============= ============ ============ ============
<CAPTION>
Securities Available-For-Sale
---------------------------------------------------------------
In Thousands
---------------------------------------------------------------
1996
---------------------------------------------------------------
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>
<PAGE> 82
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
The amortized cost and estimated market value of debt securities at
December 31, 1997, 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
-----------------------------------
Securities Held-To-Maturity Estimated
--------------------------- Amortized Market
Cost Value
------------- --------------
<S> <C> <C>
Due in one year or less $ 3,904 3,913
Due after one year through five years 14,955 15,176
Due after five years through ten years 19,326 19,924
Due after ten years 7,549 7,792
------------- --------------
45,734 46,805
Corporate and other securities 761 779
------------- --------------
$ 46,495 47,584
============= ==============
</TABLE>
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
Securities Available-For-Sale Estimated
----------------------------- Amortized Market
Cost Value
------------- --------------
<S> <C> <C>
Due in one year or less $ 102 102
Due after one year through five years 2,637 2,636
Due after five years through ten years 30,629 30,950
Due after ten years 9,383 9,418
------------- --------------
42,751 43,106
Federal Home Loan Bank stock 671 671
Federal Reserve Bank stock 91 91
------------- --------------
$ 43,513 43,868
============= ==============
</TABLE>
<PAGE> 83
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------
For the Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ 5,284 9,578 9,888
========= ========= ========
Gross realized gains $ 11 54 103
Gross realized losses (20) 147 52
--------- --------- --------
Net realized gains (losses) $ (9) (93) 51
========= ========= ========
</TABLE>
Included in the above gains and losses table is a realized loss of
$12,000 in 1997 and gains of $13,000 and $12,000 in 1996 and 1995,
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, 1997.
Securities with approximate carrying values of $15,251,000 (approximate
market value of $15,367,000) and $14,641,000 (approximate market value
of $14,730,000) at December 31, 1997 and 1996, 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 at December 31, 1997, are approximately
$14,717,000 at amortized cost (approximate market value of $15,094,000)
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.
Securities that have rates that adjust prior to maturity totaled
$3,489,000 (market value $3,415,000) at December 31, 1997 as compared
to $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 $672,000 and $626,000 at December 31, 1997 and 1996,
respectively. The stock can be sold back at par and only to the Federal
Home Loan Bank or to another member institution.
<PAGE> 84
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(4) Premises and Equipment
The detail of premises and equipment at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 426 426
Buildings 2,552 2,558
Furniture and equipment 1,722 2,148
--------- --------
4,700 5,132
Less accumulated depreciation (2,470) (2,764)
--------- --------
$ 2,230 2,368
========= ========
</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, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---- ----
<S> <C> <C>
Demand deposits $ 21,241 18,802
Negotiable order of withdrawals 19,479 19,359
Money market demand accounts 10,449 10,172
Savings deposits 23,713 23,510
Certificates of deposit $100,000 or greater 31,678 26,920
Other certificates of deposit 56,674 52,351
Individual retirement accounts $100,000 or greater 1,959 1,352
Other individual retirement accounts 7,698 7,280
--------- --------
$ 172,891 159,746
========= =======
</TABLE>
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1997 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 $ 17,105 8,249 25,354
3 to 6 months 13,861 8,996 22,857
6 to 12 months 21,952 10,780 32,732
1 to 5 years 11,454 5,612 17,066
-------- ------ ------
$ 64,372 33,637 98,009
======== ====== ======
</TABLE>
<PAGE> 85
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(5) Deposits, Continued
The Bank is required to maintain cash balances or balances with the
Federal Reserve Bank or other correspondent banks based on certain
percentages of deposit types. The average required amounts for the
years ended December 31, 1997 and 1996 were approximately $963,000 and
$908,000, respectively.
(6) Securities Sold Under Repurchase Agreements
The maximum amounts of outstanding repurchase agreements during 1997
and 1996 was $6,383,000 and $5,666,000, respectively. The average daily
balance outstanding during 1997, 1996 and 1995 was $3,968,000,
$3,529,000 and $3,579,000, respectively. The underlying securities are
typically held by other financial institutions and are designated as
pledged.
(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
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $ 369 393 351
Other fees and commissions 155 170 159
Commissions on fiduciary activities 49 66 19
Security gains, net -- -- 51
Other income 45 30 54
-------- ------- -------
Total non-interest income $ 618 659 634
======== ======= =======
Non-interest expense:
Salaries and employee benefits $ 2,310 2,144 2,036
Occupancy expenses, net 270 232 197
Furniture and equipment expenses 318 338 279
FDIC insurance 20 2 171
Security losses, net 9 93 --
Loss on disposal of premises and equipment 43 -- --
Other operating expenses 880 891 860
-------- ------- -------
Total non-interest expense $ 3,850 3,700 3,543
======== ======= =======
</TABLE>
<PAGE> 86
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(8) Income Taxes
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------
December 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 294 479
State 55 90
--------- --------
349 569
--------- --------
Deferred tax liability:
Federal (261) (138)
State (49) (26)
--------- --------
(310) (164)
--------- --------
$ 39 405
========= ========
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31 are:
<TABLE>
<CAPTION>
In Thousands
------------------
December 31,
--------------
1997 1996
---- ----
<S> <C> <C>
Financial statement allowance for possible loan losses
in excess of tax allowance $ 349 501
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (130) (148)
Book pension expense under the allowable tax deduction (45) (16)
Unrealized (gain) loss in investment securities
available-for-sale (135) 68
------ -----
$ 39 405
====== =====
</TABLE>
<PAGE> 87
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(8) Income Taxes, Continued
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1997
----
Current $ 1,130 284 1,414
Deferred 137 26 163
-------------- ------------- ------------
Total $ 1,267 310 1,577
============== ============= ============
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
============== ============= ============
</TABLE>
A reconciliation of actual income tax expense of $1,577,000, $1,436,000
and $1,299,000 for the years ended December 31, 1997, 1996 and 1995,
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
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,754 1,659 1,498
State income taxes, net of Federal
income tax benefit 206 192 173
Tax exempt interest, net of interest
expense exclusion (376) (414) (371)
Other, net (7) (1) (1)
---------- ---------- ---------
$ 1,577 1,436 1,299
========== ========== =========
</TABLE>
Total income tax expense for 1997 and 1996 includes income tax benefits
of $3,000 and $35,000, 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.
<PAGE> 88
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(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 $71,000 in 1997, $82,000 in 1996 and $99,000 in 1995. The
pension expense for 1997, 1996 and 1995 is comprised of the following
components.
<TABLE>
<CAPTION>
In Thousands
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 87 82 76
Interest cost on projected benefit
obligation 155 140 125
Expected return on plan assets (172) (144) (116)
Net amortization and deferral 1 4 14
-------- ------- -------
$ 71 82 99
======== ======= =======
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
In Thousands
-----------------------------
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,673,000 and $1,417,000, respectively $ 1,689 1,431
============== ============
Actuarial present value of projected benefits obligation $ 2,503 2,073
Plan assets at fair market value 2,502 2,159
-------------- ------------
Excess of plan assets (over) under the projected
benefit obligation 1 (86)
Unamortized net asset being recognized over 30 years (418) (440)
Unrecognized net gain 297 485
-------------- ------------
Net pension liability recognized in the
consolidated balance sheets $ (120) (41)
============== ============
Discount rate 6.5% 7.5%
============== ============
Rate of increase in compensation levels 5% 5%
============== ============
Long-term rate of return on assets 8% 8%
============== ============
</TABLE>
<PAGE> 89
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(9) Employee Benefit Plans, Continued
In December, 1988 the 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, 1997, 1996 and 1995, the Bank contributed $45,000,
$41,000 and $43,000, respectively, to the plan.
(10) Regulatory Matters and Restrictions on Dividends
The Company and its wholly-owned subsidiary are subject to regulatory
capital requirements administered by the Comptroller of the Currency,
the 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, 1997, management believes that the Company and the Bank meet all
such capital requirements to which they are subject.
The Company and the Bank are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1997, 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 27.9% and 28.9%, respectively. The leverage ratio at December
31, 1997 was 15.2% 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 liabilities, 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. The Bank has lines of credit with other
financial institutions totaling $10,000,000. At December 31, 1997 and
1996, there was no outstanding balances under these lines of credit.
(12) Concentration of Credit Risk
Substantially 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. Virtually all such customers are depositors of
the 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.
<PAGE> 90
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(12) Concentration of Credit Risk, Continued
At December 31, 1997, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $2,318,000 in excess of
the Federal Deposit Insurance Corporation limit of $100,000 per
institution.
In addition, Federal funds sold were deposited with two banks.
(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
-------------------------
1997 1996
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 1,309 1,157
Unfunded lines-of-credit 6,827 5,694
Letters of credit 1,379 1,493
---------- ----------
Total $ 9,515 8,344
========== ==========
</TABLE>
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.
<PAGE> 91
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
In Thousands
--------------------------
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Cash $ 1,328* 1,159*
Investment in commercial bank subsidiary 32,296* 29,886*
Due from commercial bank subsidiary 5* -
------------ -----------
Total assets $ 33,629 31,045
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Dividend payable $ 1,072 1,020
------------ -----------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized
5,000,000 shares, issued 605,800 shares and
604,800, respectively 1,514 1,512
Additional paid-in capital 1,568 1,512
Retained earnings 31,561 29,321
Net unrealized gains (losses) on available-for-sale securities,
net of income taxes of $135,000 and income tax benefit
of $68,000, respectively 220 (111)
------------ -----------
34,863 32,234
Less cost of treasury stock of 69,696 shares in
1997 and 68,017 in 1996 (2,306) (2,209)
------------ -----------
Total stockholders' equity 32,557 30,025
------------ -----------
Total liabilities and stockholders' equity $ 33,629 31,045
============ ===========
</TABLE>
*Eliminated in consolidation.
<PAGE> 92
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
---------------------------------------
In Thousands
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary $ 1,512* 2,126* 1,406*
Other expenses 14 13 9
---------- ---------- ----------
Earnings before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiary 1,498 2,113 1,397
Federal income tax benefits 5 5 3
---------- ---------- ----------
1,503 2,118 1,400
Equity in undistributed earnings of
commercial bank subsidiary 2,078* 1,326* 1,706*
---------- ---------- ----------
Net earnings $ 3,581 3,444 3,106
========== ========== ==========
</TABLE>
* Eliminated in consolidation.
<PAGE> 93
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Shares
--------------------------------------------------------------------------
Net
Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained Treasury For-Sale
Stock Capital Earnings Stock Securities Total
----- --------- --------- --------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $1,512 1,512 25,305 (1,312) (565) 26,452
Net earnings - - 3,106 - - 3,106
Cash dividends declared ($2.25 per
share - - (1,240) - - (1,240)
Cost of 2,249 shares of treasury stock - - - (116) - (116)
Net change in unrealized appreciation
loss during the year, net of income
taxes of $420,000 - - - - 687 687
------ --------- --------- ------ ---- -------
Balance December 31, 1995 1,512 1,512 27,171 (1,428) 122 28,889
Net earnings - - 3,444 - - 3,444
Cash dividends declared $2.40 per
share - - (1,294) - - (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 1,512 1,512 29,321 (2,209) (111) 30,025
Net earnings - - 3,581 - - 3,581
Issuance of 1,000 shares of common
stock 2 56 - - - 58
Cash dividends declared ($2.50 per
share) - - (1,341) - - (1,341)
Cost of 1,679 shares of treasury stock - - - (97) - (97)
Net change in unrealized gains (losses)
on available-for-sale securities during
the year, net of income taxes of
$203,000 - - - - 331 331
------ --------- --------- ------ ---- -------
Balance December 31, 1997 $1,514 1,568 31,561 (2,306) 220 32,557
====== ========= ========= ====== ==== =======
</TABLE>
<PAGE> 94
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (14) (13) (9)
Income tax benefit received from
commercial bank subsidiary -- 5 6
-------- ------- -------
Net cash used in operating activities (14) (8) (3)
-------- ------- -------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary 1,512 2,126 1,406
Proceeds from sales of available-for-sale securities -- -- 2
-------- ------- -------
Net cash provided by investing activities 1,512 2,126 1,408
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of short-term notes payable -- 45 56
Repayment of short-term notes payable -- (45) (56)
Dividends paid (1,290) (1,238) (1,202)
Payments made to acquire treasury stock (97) (781) (116)
Proceeds from issuance of common stock 58 -- --
-------- ------- -------
Net cash used in financing activities (1,329) (2,019) (1,318)
-------- ------- -------
Net increase in cash and cash equivalents 169 99 87
Cash and cash equivalents at beginning of year 1,159 1,060 973
-------- ------- -------
Cash and cash equivalents at end of year $ 1,328 1,159 1,060
======== ======= =======
</TABLE>
<PAGE> 95
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows, Continued
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used
in operating activities:
Net earnings $ 3,581 3,444 3,106
Adjustments to reconcile net earnings to
net cash used in operating activities:
Equity in earnings of commercial bank subsidiary (3,590) (3,452) (3,112)
Increase (decrease) in other assets, net (5) -- 3
-------- ------- -------
Total adjustments (3,595) (3,452) (3,109)
-------- ------- -------
Net cash used in operating activities $ (14) (8) (3)
======== ======= =======
</TABLE>
<PAGE> 96
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 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 securities approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
securities 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, credit card and other consumer. Each loan
category is further segmented into fixed and adjustable rate
interest terms.
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.
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 below would be indicative of the value negotiated in an
actual sale.
<PAGE> 97
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
Loans, Continued
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.
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, 1997 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant fair
value.
<PAGE> 98
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
The carrying value and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------------
1997 1996
----------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 7,211 7,211 3,632 3,632
Securities 90,363 91,452 78,809 79,520
Loans 111,473 109,664
Less: allowance for loan losses 1,314 1,724
-------- ------- ------- -------
Loans, net of allowance 110,159 110,404 107,940 108,210
-------- ------- ------- -------
Financial liabilities:
Deposits 172,891 173,194 159,746 160,007
Securities sold under
repurchase agreements 4,350 4,350 2,531 2,531
Federal funds purchased -- -- 500 500
Unrecognized financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
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.
<PAGE> 99
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
Limitations, Continued
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 Bank has a mortgage department that contributes net
fee income annually. The mortgage 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.
(16) Earnings Per Share (EPS)
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.
The following is a summary of components comprising basic and diluted
earnings per share (EPS):
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to
common shareholders $ 3,581 3,444 3,106
-------- ------- -------
Denominator - weighted average
number of common shares
outstanding 536,362 543,116 552,399
-------- ------- -------
Basic earnings per common share $ 6.68 6.34 5.62
======== ======= =======
Diluted EPS Computation:
Numerator $ 3,581 3,444 3,106
-------- ------- -------
Denominator:
Weighted average number of
common shares outstanding 536,362 543,116 552,399
Dilutive effect of stock options 154 -- --
-------- ------- -------
536,516 543,116 552,399
-------- ------- -------
Diluted earnings per common share $ 6.67 6.34 5.62
======== ======= =======
</TABLE>
<PAGE> 100
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(17) Stock Option Plan
In April, 1997, the stockholders of the Company approved the First
McMinnville Corporation 1997 Stock Option Plan (The "Stock Option
Plan"). The Stock Option Plan provides for the granting of stock
options, and authorizes the issuance of common stock upon the exercise
of such options for up to 57,500 shares of common stock to directors
and employees of the Company.
Under the Stock Option Plan awards may be granted in the form of
incentive stock options or nonstatutory stock options, and are
generally exercisable for up to ten years following the date such
option awards are granted. Exercise prices of incentive stock options
must be equal to or greater than 100% of the fair market value of the
common stock on the grant date.
In 1995, SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123)
changed the method for recognition of cost of plans similar to those of
the Company. As is permitted, management has elected to continue
accounting for the plan under APB Opinion 25 and related
Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for the stock option plan.
However, under SFAS 123, the Company is required to make proforma
disclosures as if cost had been recognized in accordance with the
pronouncement. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of SFAS 123, the
Company's net earnings and basic earnings per common share and diluted
earnings per common share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As Reported $ 3,581 3,444 3,106
Proforma $ 3,569 3,444 3,106
Basic earnings per common share:
As Reported $ 6.68 6.34 5.62
Proforma $ 6.65 6.34 5.62
Diluted earnings per common share:
As Reported $ 6.67 6.34 5.62
Proforma $ 6.65 6.34 5.62
</TABLE>
Accordingly, due to the initial phase-in period, the effects of
applying this statement for proforma disclosures are not likely to be
representative of the effects on reported net income for future years.
<PAGE> 101
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(17) Stock Option Plan, Continued
A summary of the stock option activity for 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------- ---------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 41,000 58.15
Exercised (1,000) 58.15
Forfeited -- --
------- ---------
Outstanding at end of year 40,000 $ 58.15
======= =========
Options exercisable at year end 5,400
=======
</TABLE>
The following table summarizes information about fixed stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ---------------------------
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/97 Price Life at 12/31/97 Price
-------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 58.15 40,000 $ 58.15 6.3 years 5,400 $ 58.15
</TABLE>
<PAGE> 102
SCHEDULE 1
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------------------------
First
First National Eliminations
McMinnville Bank of -------------------
Corporation McMinnville Debit Credit Consolidated
----------- ----------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Loans less allowance for possible loan losses $ -- 110,159 110,159
Securities held-to-maturity -- 46,495 46,495
Securities available-for-sale -- 43,868 43,868
Interest-bearing deposits in financial institutions -- 100 100
Federal funds sold -- 2,650 2,650
Cash and due from banks 1,328 4,461 (1) 1,326 4,461
Investment in commercial bank subsidiary 32,296 -- (2) 32,296 --
Premises and equipment, net -- 2,230 2,230
Accrued interest receivable -- 2,020 2,020
Deferred tax asset -- 39 39
Other real estate -- 11 11
Other assets 5 732 (3) 5 732
-------- ------- -------
$ 33,629 212,765 212,765
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $ -- 174,219 (1) 1,328 172,891
Securities sold under repurchase agreements -- 4,350 4,350
Accrued interest and other liabilities 1,072 1,900 (3) 5 2,967
-------- ------- -------
Total liabilities 1,072 180,469 180,208
-------- ------- -------
Stockholders' equity:
Common Stock 1,514 1,512 (2) 1,512 1,514
Additional paid-in capital 1,568 1,512 (2) 1,512 1,568
Retained earnings 31,561 29,052 (2) 29,052 31,561
Treasury stock (2,306) -- (2,306)
Unrealized gains in available-for-sale securities 220 220 (2) 220 220
-------- ------- -------
Total stockholders' equity 32,557 32,296 32,557
-------- ------- -------
$ 33,629 212,765 212,765
======== ======= =======
</TABLE>
(1) To eliminate deposits of subsidiary held by the parent company.
(2) To eliminate investment in subsidiary.
(3) To eliminate intercompany accounts.
<PAGE> 103
SCHEDULE 2
FIRST MCMINNVILLE CORPORATION
CONSOLIDATING STATEMENT OF EARNINGS
DECEMBER 31, 1997
<TABLE>
<CAPTION> In Thousands
--------------------------------------------------------------
First
First National Eliminations
McMinnville Bank of ----------------
Corporation McMinnville Debit Credit Consolidated
----------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ - 9,878 9,878
Interest and dividends on securities:
Taxable securities - 4,396 4,396
Exempt from Federal Income taxes - 1,180 1,180
Interest on Federal funds sold - 231 231
Interest on interest-bearing deposits
in financial institutions - 6 6
----------- ---------- ------------
Total interest income - 15,691 15,691
----------- ---------- ------------
Interest expense:
Interest on negotiable order of withdrawal accounts - 477 477
Interest on money market demand and
savings accounts - 1,129 1,129
Interest on certificates of deposit - 5,347 5,347
Interest on securities sold under repurchase
agreements and short-term debt - 128 128
----------- ---------- ------------
Total interest expense - 7,081 7,081
----------- ---------- ------------
Net interest income before provision for possible
loan losses - 8,610 8,610
Provision for possible loan losses - 220 220
----------- ---------- ------------
Net interest income after provision for possible
loan losses - 8,390 8,390
Non-Interest income - 618 618
Equity in earnings of commercial bank subsidiary 3,590 - (1) 3,590 -
Non-Interest expense (14) (3,836) (3,850)
----------- ---------- ------------
Earnings before income taxes 3,576 5,172 5,158
Income tax expense (benefit) (5) 1,582 1,577
----------- ---------- ------------
Net earnings $ 3,581 3,590 3,581
=========== ========== ============
</TABLE>
(1) To eliminate equity in earnings of the subsidiary.
<PAGE> 104
SUPPLEMENTAL INFORMATION
<PAGE> 105
SUPPLEMENTAL INFORMATION
1. Instructions
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) Except to the extent that the materials enumerated in (1) and/or
(2) below are specifically incorporated into this Form by reference (in which
case see Rule 12b-23(d)), every registrant which files an annual report on this
Form pursuant to Section 15(d) of the Act shall furnish to the Commission for
its information, at the time of filing its report on this Form, four copies of
the following:
(1) Any annual report to security holders covering the registrant's
last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security holders with respect
to any annual or other meeting of security holders.
(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of the Act,
except to the extent that the registrant specifically incorporates it in its
annual report on this Form by reference.
(c) If no such annual report or proxy material has been sent to
security holders, a statement to that effect shall be included under this
caption. If such report or proxy material is to be furnished to security holders
subsequent to the filing of the annual report of this Form, the registrant shall
so state under this caption and shall furnish copies of such material to the
Commission when it is sent to security holders.
2. Supplemental Information Included: Proxy Materials
<PAGE> 106
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
TELEPHONE (931) 473-4402
FACSIMILE (931) 473-6952
February 21, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of (the "Company") to be held on April 14, 1998, at 2:30 o'clock
p.m., local time, at the Main Office of The First National Bank of McMinnville,
200 East Main Street, McMinnville, Tennessee. At the 1998 Annual Meeting
Shareholders, of record as of February 27, 1998, will be entitled to vote (1)
upon the election of three Class II Members of the Board of Directors who will
serve a term of three years and until their successors have been elected and
duly qualified and (2) upon the ratification of the appointment of Maggart &
Associates, P.C. as the independent auditors for the Company for the fiscal year
ending December 31, 1998. The Shareholders also will vote upon any other
business that may properly come before the 1998 Annual Meeting.
The enclosed Proxy Statement describes the proposed election of
Directors and the appointment of independent auditors, and it contains other
information about the 1998 Annual Meeting of Shareholders. Please read these
materials carefully. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED WHETHER OR
NOT YOU PLAN TO ATTEND THE 1998 ANNUAL MEETING. PLEASE COMPLETE THE ENCLOSED
PROXY SHEET AND RETURN IT IN THE ENCLOSED ENVELOPE WITHOUT DELAY. IF YOU ATTEND
THE 1998 ANNUAL MEETING OF SHAREHOLDERS, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON IF YOU WISH AS SET FORTH IN THE ACCOMPANYING PROXY STATEMENT BY GIVING
APPROPRIATE NOTICE ANY TIME BEFORE THE VOTE IN RESPECT OF THE ELECTION OF
DIRECTORS IS TAKEN.
On behalf of your Board of Directors, we urge you to vote FOR the
election of Directors and the ratification of the independent auditors. We look
forward to seeing you at the Annual Meeting.
Sincerely,
Charles C. Jacobs
President
<PAGE> 107
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
-----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 14, 1998
-----------
Notice is hereby given that the Annual Meeting of Shareholders of FIRST
MCMINNVILLE CORPORATION (the "Company"), will be held on Tuesday, April 14,
1998, 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 II Directors (J. G. Brock, G. B.
Greene, and Robert W. Jones) whose terms currently expire in
1998 to serve a three-year term until the 2001 Annual Meeting
of Shareholders and until their successors have been elected
and duly qualified;
(2) To approve the selection of Maggart & Associates, P.C., as the
Company's independent auditors for the 1998 fiscal year; and
(3) To consider any other business that may properly come before
the 1998 Annual Meeting of Shareholders.
The Board of Directors has fixed the close of business on February 27,
1998, as the record date for the determination of which Shareholders are
entitled to notice of and to vote at the 1998 Annual Meeting of Shareholders.
All times are local time in McMinnville, Tennessee. There are approximately
534,912 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
1998 Annual Meeting of Shareholders.
By Order of the Board of Directors
John J. Savage, Jr., Secretary
February 21, 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, THE BOARD
OF DIRECTORS REQUESTS THAT YOU COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED
PROXY SHEET AND USE THE ENCLOSED PRE-ADDRESSED ENVELOPE THAT REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND IN PERSON, YOU MAY REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON BY NOTIFYING THE SECRETARY OF THE MEETING
THAT YOU INTEND SO TO DO (AND AS OTHERWISE PROVIDED IN THE PROXY STATEMENT).
<PAGE> 108
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 II 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.
CLASS II DIRECTORS ARE THOSE STANDING FOR ELECTION IN 1998.
THE BOARD RECOMMENDS A VOTE "FOR" ALL OF THESE NOMINEES.
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- - ----------------- ---------------------------------------------- --------
<S> <C> <C>
CLASS I - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 2000):
Paul O. Barnes Chairman, 1984
(64) B & P Lamp Supply Co., Inc.
Henry N. Boyd Chief Executive Officer, 1984
(81) Boyd Bros. Nursery.
Dean I. Gillespie President, 1984
(64) Bridge Builders, Inc.
CLASS II - (DIRECTORS WHOSE TERMS OF OFFICE WILL EXPIRE IN 1998):
J. G. Brock Owner, 1993
(42) Brock Construction Company.
G. B. Greene President, 1984
(58) Womack Printing Co., Inc.
Robert W. Jones Chairman, First McMinnville 1984
(69) Corporation, 1989 - present;
Chairman, First National Bank, 1981 -
present; Chief Executive Officer, First
National Bank, 1976 - 1993.
</TABLE>
Exhibit A
<PAGE> 109
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
(59) 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
(51) Middle Tennessee Dr. Pepper Bottling Company.
John J. Savage, Jr. Retired; Secretary of Board of Directors 1984
(76) Executive Vice President and Trust Officer,
First National Bank through September 1986.
C. M. Stanley President, 1984
(62) Burroughs-Ross-Colville, Co.
W. B. Whitson Chairman, 1984
(82) Burroughs-Ross-Colville, Co.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NAMED DIRECTOR NOMINEES.
PROPOSAL NUMBER 2--RATIFICATION OF APPOINTMENT OF AUDITORS
The Directors have appointed Maggart & Associates, P.C., to serve as
independent auditors for the Company for the fiscal year that ends December 31,
1998, 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, 1997. A
representative of Maggart & Associates, P.C. is expected to be present at the
1998 Annual Meeting of Shareholders to respond to Shareholders' questions and
such representative 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 1998 Annual Meeting of Shareholders.
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, 1998.
Exhibit A
<PAGE> 110
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 Company will bear the expense of solicitation of the proxies for
the 1998 Annual Meeting of Shareholders. The Company 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 1998 Annual
Meeting of Shareholders. In addition to solicitations by the mails, the
Company'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 Company does not intend to employ or to compensate
any other persons or entities to solicit proxies in connection with the 1998
Annual Meeting of Shareholders.
REVOCABILITY OF PROXY
A Shareholder of record who signs and returns a proxy in the
accompanying form may revoke the same at any time before the authority granted
thereby is exercised by attending the Annual Meeting and electing to vote in
person, by filing with the Secretary of the Company a written revocation, or by
duly executing a proxy bearing a later date. (Such later executed and dated
proxy, to be effective, must be delivered to the Chairperson of the Annual
Meeting before the vote in respect of Proposal No. 1 is taken.) Unless so
revoked, the shares represented by the proxy will be voted at the Annual
Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted for the election of all
Director nominees, and for the approval of Maggart & Associates, P.C., as the
Company's independent auditors for the 1998 fiscal year. Abstentions and broker
non-votes will not be counted as affirmative votes. Neither the Tennessee
Business Corporation Act, nor the Company's Charter or Bylaws, address the
treatment of abstentions and broker non-votes.
When a proxy is properly executed and returned, the shares of Common
Stock it represents will be voted in accordance with the directions indicated on
the proxy. IF NO DIRECTIONS ARE INDICATED IN THE PROXY, ALL DULY EXECUTED
PROXIES THAT HAVE NOT BEEN REVOKED WILL BE VOTED FOR PROPOSAL NUMBER 1 TO ELECT
ALL OF THE CLASS II NOMINEES TO THE BOARD OF DIRECTORS; AND FOR PROPOSAL NUMBER
2 TO RATIFY THE APPOINTMENT OF MAGGART & ASSOCIATES, P.C., AS THE BANK'S
INDEPENDENT AUDITORS FOR FISCAL YEAR 1998; AND, IN THE DISCRETION OF THE PROXY,
IN RESPECT OF ANY OTHER ITEM OF BUSINESS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING. Presently, other than such ministerial matters as approving of
the minutes of the most recent meeting of the Shareholders, the Board of
Directors knows of no other business that may properly come before the Annual
Meeting.
Exhibit A
<PAGE> 111
PROXY FIRST MCMINNVILLE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 14, 1998
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 27, 1998, at the 1998 Annual Meeting of Shareholders to be held at 200
East Main Street, McMinnville, Tennessee, on April 14, 1998, at 2:30 p.m. local
time, and any adjournment(s) or postponements thereof.
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
(1) ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed 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.)
J. G. Brock, G. B. Greene, and Robert W. Jones
(2) To approve the selection of Maggart and Associates, P.C., as the
Company's independent auditors for the fiscal year ending December 31,
1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion, on such other matters as may properly come before
the 1998 Annual Meeting of Shareholders.
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 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: , 1998
-------------- --------------------------------------------
DATED: , 1998
-------------- --------------------------------------------
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> 112
1997 ANNUAL REPORT
TO
STOCKHOLDERS
[GRAPHIC OF MAIN OFFICE]
FIRST MCMINNVILLE CORPORATION
MCMINNVILLE, TENNESSEE
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
In Memoriam .............................................. 2
To Our Shareholders ...................................... 3
Summary of Selected Financial Data (unaudited) ........... 4
Graphs ................................................... 5
Directors ................................................ 6-7
Officers ................................................. 8
Employees ................................................ 9-11
Hometown Spirit .......................................... 12
Management's Discussion and Analysis or Plan of Operation 13-16
Independent Auditor's Report ............................. 17
Consolidated Balance Sheets .............................. 18
Consolidated Statements of Earnings ...................... 19
Consolidated Statements of Changes in Stockholders' Equity 20
Consolidated Statements of Cash Flows .................... 21-22
Notes to Consolidated Financial Statements ............... 23-43
Line of Business ......................................... 44
Dividend and Market Information .......................... 44
Annual Report on Form 10-K ............................... 44
</TABLE>
<PAGE> 114
IN MEMORIAM
[PHOTOGRAPH]
WAYMAN E. HILLIS
Wayman E. Hillis served as a Director for First McMinnville Corporation
from January 20, 1984 and First National Bank from February 10, 1953 until
December 31, 1991. On January 1, 1992 he became an Honorary Director and served
in that capacity until his death on April 29, 1997. During his distinguished
tenure as a director he discharged his duties with enthusiasm, dedication and
loyalty.
Not only did Mr. Hillis contribute to the success of our company, his
contributions to our community are legendary. Many organizations recognized Mr.
Hillis with awards signifying his accomplishments. He took a special delight in
being involved with young men and women. For many years Mr. Hillis served the
Boy Scouts of America in numerous capacities, supported local sports programs
and instilled in each individual a commitment to excellence.
He was the owner of Hillis Hardware, a fixture on Main Street for many
years and a vital part of the economy of our community. Mr. Hillis was married
to the former Mary Bragg and the father of Ellen Finney and Susan Rambo.
First McMinnville Corporation and First National Bank will miss his
counsel, support and encouragement. He was truly an inspiration to all who knew
him, and the dedication of this annual report to him is only a small effort to
express the respect and admiration we had for Mr. Hillis.
<PAGE> 115
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
Dear Shareholder:
The assets of First McMinnville Corporation and its subsidiary, First National
Bank of McMinnville exceeded $200,000,000 for the first time in February of
1997. By year end assets had grown to almost $213,000,000. Our earnings per
share for 1997 were $6.68 with 37.43% being paid to you, our shareholder, as
dividends. For 1997 our return on assets was 1.73% and return on equity was
11.30%. The book value per share of our stock increased by 7.73% for the year
with the value being $60.01 as of December 31, 1997.
On August 4, 1997, we officially relocated our Northgate Branch to 9970
Manchester Highway in Morrison. We have been very pleased with the reception our
bank has been shown in the Morrison Community. This move was made possible by
the outstanding acceptance our Smithville Highway branch has received since
opening in August of 1996.
During 1997 we began offering estate planning and Mastermoney debit cards. The
initial response to these services make us optimistic about their continued
growth in the future. In 1998 we plan to establish a new department to offer
alternate investments to our community.
In November of 1997, three individuals became advisory directors for our
subsidiary. They are Arthur J. Dyer, President of Metal Products, Rufus Gonder,
CPA, and Levoy Knowles, General Manager of Ben Lomand Telephone Cooperative.
Each brings to our organization enthusiasm, integrity and expertise in their
chosen profession.
On December 31, 1997, Vice President and Trust Officer Eva Sue Bouldin retired
after forty-five years of dedicated service to our company. Many changes in
banking occurred during her career, but Ms. Bouldin's commitment to our
customers remained steadfast. Also retiring was Ethel Pierce who for almost a
decade brightened the day of all with whom she came in contact. We extend our
best wishes for a happy healthy retirement to each of them.
In April we were saddened by the death of Wayman E. Hillis. He was elected a
director in 1953 and throughout his tenure on our board his wise counsel,
loyalty and support were very beneficial.
As the value of your investment in First McMinnville Corporation continues to
grow, we are confident you will encourage your family and friends to utilize the
services First National Bank has to offer. With your support and loyalty, the
dedication of our staff and the financial strength we have maintained for 124
years we intend to continue to serve our community and enhance your investment.
/s/ Charles C. Jacobs
- - ---------------------
Charles C. Jacobs
CEO and President
<PAGE> 116
SELECTED FINANCIAL DATA (UNAUDITED)
The following schedule presents the results of operations, cash
dividends declared, total assets, stockholders' equity and per share information
for the Company for each of the five years ended December 31, 1997.
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
Year Ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 15,691 14,670 13,892 12,528 12,113
Interest expense 7,081 6,599 6,418 4,844 4,534
--------- -------- -------- -------- --------
Net interest income 8,610 8,071 7,474 7,684 7,579
Provision for possible loan losses 220 150 160 240 240
--------- -------- -------- -------- --------
Net interest income after provision
for possible loan losses 8,390 7,921 7,314 7,444 7,339
Non-interest income 618 659 634 574 655
Non-interest expense (3,850) (3,700) (3,543) (3,738) (3,604)
--------- -------- -------- -------- --------
Earnings before income taxes
and cumulative effect of
change in accounting principle 5,158 4,880 4,405 4,280 4,390
Income taxes 1,577 1,436 1,299 1,203 1,225
Cumulative effect of change in
accounting for income taxes -- -- -- -- 22
--------- -------- -------- -------- --------
Net earnings $ 3,581 3,444 3,106 3,077 3,187
========= ======== ======== ======== ========
Cash dividends declared $ 1,341 1,294 1,240 1,191 1,085
========= ======== ======== ======== ========
Total assets - end of year $ 212,765 195,732 190,663 180,486 170,913
========= ======== ======== ======== ========
Stockholders' equity - end of year $ 32,557 30,025 28,889 26,452 25,240
========= ======== ======== ======== ========
Per share information:
Basic earnings per common share* $ 6.68 6.34 5.62 5.55 5.72
========= ======== ======== ======== ========
Diluted earnings per common share* $ 6.67 6.34 5.62 5.55 5.72
========= ======== ======== ======== ========
Dividends per share* $ 2.50 2.40 2.25 2.15 1.95
========= ======== ======== ======== ========
Book value per share end of year* $ 60.73 55.94 52.41 45.64 45.42
========= ======== ======== ======== ========
Ratios:
Return on average
stockholders' equity 11.30% 11.55% 11.03% 11.57% 12.87%
========= ======== ======== ======== ========
Return on average assets 1.73% 1.78% 1.67% 1.73% 1.89%
========= ======== ======== ======== ========
Stockholders' equity to assets 15.30% 15.34% 15.15% 14.66% 14.77%
========= ======== ======== ======== ========
</TABLE>
* Per share data has been retroactively restated to reflect a two-for-one stock
split on October 1, 1994.
<PAGE> 117
ASSETS EQUITY
[GRAPH 1993-1997] [GRAPH 1993-1997]
DEPOSITS NET LOANS
[GRAPH 1993-1997] [GRAPH 1993-1997]
DIVIDENDS PER SHARE* BASIC EARNINGS PER SHARE*
[GRAPH 1993-1997] [GRAPH 1993-1997]
*Per share data has been retroactively restated to reflect a two-for-one stock
split on October 1, 1994.
<PAGE> 118
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
[PHOTOGRAPH] [PHOTOGRAPH]
ROBERT W. JONES CHARLES C. JACOBS
Chairman of the Board President , CEO and Secretary
First National Bank and First National Bank
First McMinnville Corporation President and CEO
First McMinnville Corporation
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
PAUL O. BARNES HENRY N. BOYD J. GREGORY BROCK
Chairman Owner Owner
B & P Lamp Supply, Inc. Boyd Nursery Brock Construction Company
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
DEAN I. GILLESPIE G. B. GREENE DOUG MILNER
President President General Manager and
Bridge Builders, Inc. Womack Printing Co., Inc. Vice President
Middle Tennessee
Dr. Pepper Bottling Company
<PAGE> 119
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
[PHOTOGRAPH]
H.L. Molloy**
Retired
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
John J. Savage, Jr. Carl M. Stanley W.B. Whitson
Former Executive Vice President President Chairman
and Trust Officer Burroughs-Ross-Colville Burroughs-Ross-Colville
First National Bank
Secretary
First McMinnville Corporation
[PHOTOGRAPH [PHOTOGRAPH] [PHOTOGRAPH]
Arthur J. Dyer* Rufus Gonder* Levoy Knowles*
President C.P.A. General Manager
Metal Products Company Ben Lomand Rural
Telephone Cooperative
*Advisory **Honorary
<PAGE> 120
OTHER OFFICERS OF FIRST MCMINNVILLE CORPORATION
[PHOTOGRAPH] [PHOTOGRAPH]
DIANE BOGLE LESTER COWELL
Sr. Vice President Sr. Vice President
[PHOTOGRAPH] [PHOTOGRAPH]
KENNY NEAL PHIL WHISENHUNT
Sr. Vice President Sr. Vice President
Treasurer
Chief Financial Officer
OFFICERS OF FIRST NATIONAL BANK OF McMINNVILLE
<TABLE>
<S> <C> <C>
CHARLES C. JACOBS FRANCES J. BAKER ARLA SIMMONS
Chief Executive Officer Vice President Assistant Vice President
and President Manager - Sparta Rd. Branch
DIANE BOGLE MARY JANE BELL GAIL YOUNGBLOOD
Sr. Vice President - Compliance Vice President Loans Assistant Vice President
Manager Data Processing
LESTER COWELL CINDY SWANN MELBA SLAUGHTER
Sr. Vice President - Loans Auditor Banking Officer - Operations
BRENT FOSTER CAROL LOCKE SHIRLEY MAXWELL
Sr. Vice President - Loans Secretary to the Board Administrative Assistant
Manager - Human Resources
DAVID MARTTALA NANCY MCBEE CONNIE BELL
Sr. Vice President-Legal Counsel Assistant to the President Assistant Trust Officer
Trust Administrator
KENNY NEAL FRED L. GREENE TAMMY LOVE
Sr. Vice President - Cashier Assistant Vice President Loan Officer
Manager-Viola-Morrison Branches
PHIL WHISENHUNT QUEITA ROBERTS MICHELLE GRISSOM
Sr. Vice President - Loans Assistant Vice President Director of Marketing
Manager - Smithville Hwy. Branch
</TABLE>
<PAGE> 121
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
[PHOTOGRAPH]
Left to right, Front row: Peggy Smith, Helen Martin, Kristy
Tate, Ellen Brazle. Back row: Leanne Fisher, Connie Bell,
David Marttala, Nettie Cutrell, Cindy Swann.
[PHOTOGRAPH]
Left to right, Front row: Susan Connelly, Carol Locke, Shirley
Maxwell, Tiffany Simpson. Back Row: Shannon Reed, Nancy McBee,
Michael Weeter, Shirley Reed, Michelle Grissom.
<PAGE> 122
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
[PHOTOGRAPH]
Left to right, Front row: Connie Sanders, Sherry Patterson,
Frances Baker, Dean Cantrell. Back row: Pam Turner, Glenda
Phillips, Brent Foster, Mary Jane Bell, Gail Youngblood.
[PHOTOGRAPH]
Left to right, Front row: Marian Jacobs, Charlotte Patterson,
Judy Rigsby, Mozelle Terry, Jill Griffin. Back Row: Melodie
Hawkins, Sue Jones, Fred Greene, Sue Heatherly, Arla Jean
Simmons, Jennifer Mullican.
<PAGE> 123
[VARIOUS PHOTOGRAPHS OF EMPLOYEES
AND CUSTOMERS]
<PAGE> 124
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
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.
GENERAL
First McMinnville Corporation is a one bank holding company which owns
100% of First National Bank of McMinnville. First National Bank of McMinnville
("Bank") is a community bank headquartered in McMinnville, Tennessee 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 deposit base.
In a market such as Warren County, management believes there is an
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 as well as the desired loan to deposit ratio
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, 1997, the
nursery industry constituted the largest single industry segment and accounted
for $10,737,000 (9.63% of the Company's loan portfolio) as compared to
$11,287,000 or 10.3% in 1996. 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 Office of the Comptroller of the Currency ("OCC")
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
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 risk-based capital. The Company and its national
bank subsidiary must maintain a Tier 1 capital to risk-based assets of at least
4.0%, a Total risk-based capital to risk-based assets ratio of at least 8.0% and
a leverage capital ratio defined as Tier 1 capital to adjusted total assets for
the most recent quarter of at least 4%. The same ratios are also required in
order for a national bank to be considered "adequately capitalized" under the
OCC's "prompt corrective action" regulations, which impose certain operating
restrictions on institutions which are not adequately
<PAGE> 125
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
capitalized. The Company has a Tier 1 risk based ratio of 27.9%, a total
risk-based capital ratio of 28.9% and a leverage capital ratio of 15.2%, and was
therefore within the "well capitalized" category under the regulations. The
subsidiary bank's ratios were substantially the same as those setforth for the
Company.
Dividends of approximately $1,341,000 and $1,294,000 were declared
during 1997 and 1996, 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 are anticipated to be increased in 1998 if profits
increase. The dividend payout ratio (dividends declared divided by net earnings)
was 37.4%, 37.6% and 40.0% in 1997, 1996 and 1995, 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, 1997, under the most
restrictive of these regulatory limits, the Bank could declare in 1998 cash
dividends in an aggregate amount of up to approximately $5.6 million, plus any
1998 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 a significant
portion of this 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 1995. The Bank also completed remodeling a portion of the main office
during 1996 at a total cost of approximately $179,000 of which approximately
$48,000 was incurred during 1995. During 1997, the Bank opened a new branch at a
total cost of $100,000.
The Company has conducted a study of the data processing changes which will be
necessary as a result of The Year 2000 Issue which relates to the ability to
process year-date data accurately beyond 1999. Management estimates the cost to
become compliant is between $100,000 and $200,000. Management estimates that an
additional $300,000 may be spent on computer upgrades in the next two to three
years.
FINANCIAL CONDITION
During 1997, total assets increased $17,033,000 or 8.7% from $195,732,000
at December 31, 1996 to $212,765,000 at December 31, 1997. Loans, net of
allowance for possible loan losses, increased from $107,940,000 to $110,159,000
or 2.1% during fiscal year 1997. The aggregate increases in loans for 1997 was
due primarily to a 4.2% increase in real estate - mortgage loans accompanied by
a 4.6% decrease in commercial, financial and agricultural loans.
Securities increased 14.7% from $78,809,000 at December 31, 1996 to
$90,363,000 at December 31, 1997. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations increased $11,161,000,
obligations of state and political subdivisions increased $1,301,000, corporate
and other securities decreased $610,000 and there was a decrease in mortgage
backed securities of $298,000. At December 31, 1997 and 1996 the market value of
the Company's securities portfolio exceeded its amortized cost by $1,444,000
(1.6%) and $531,000 (.7%), 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, 1997 was 7.4% with an average maturity of 8.0 years,
as compared to an average yield of 7.8% and an average maturity of 7.0 years at
December 31, 1996.
Effective January 1, 1994 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
<PAGE> 126
"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; and
- - - 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.
The Company's classification of securities as of December 31, 1997 is a 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 $ 21,094 21,490 39,506 39,860
Obligations of states and
political subdivisions 22,399 23,117 1,515 1,570
Corporate and other
securities 761 779 762 762
Mortgage-backed securities 2,241 2,198 1,730 1,676
------------- ------------ ------------ -----------
$ 46,495 47,584 43,513 43,868
============= ============ ============ ===========
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
A portion of the capital increase in 1995 was $687,000 which represents
the unrealized losses in securities available-for-sale of $1,107,000 net of
applicable tax expense of $420,000. The net decrease in capital at December 31,
1996 totaled $233,000 which represents the unrealized appreciation in securities
available-for-sale of $375,000 net of applicable tax benefit of $142,000. During
the year ended December 31, 1997, the net increase in capital totaled $331,000
which represents the unrealized appreciation in securities available-for-sale of
$534,000 net of applicable taxes of $203,000.
The increase in assets in 1997 was funded primarily by increases in
deposits. Total deposits increased from $159,746,000 at December 31, 1996 to
$172,891,000 at December 31, 1997 representing an increase of 8.2%. Demand
deposits increased 13.0% from $18,802,000 at December 31, 1996 to $21,241,000 at
December 31, 1997. Additionally, increases in certificates of deposit and
individual retirement accounts of $10,106,000 (11.5%) contributed to the
increases in deposits for 1997. Securities sold under repurchase agreements
increased $1,819,000 during 1997 and were also
<PAGE> 127
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
used to fund increases in assets. Federal funds purchased decreased $500,000 in
1997. The subsidiary bank has unused lines of credit of $10,000,000 and the
Company has an unused line of credit of $2,000,000 at December 31, 1997.
Management does not presently anticipate a need to use these lines.
The Company's allowance for loan losses at December 31, 1997 was
$1,314,000 as compared to $1,724,000 at December 31, 1996. Non-performing loans
amounted to $255,000 at December 31, 1997 compared to $1,000 at December 31,
1996. Non-performing loans are loans which have been placed on non-accrual
status, loans 90 days past due plus renegotiated loans. Net charge-offs to
average outstanding loans for 1997 was .57%. Net recoveries to average
outstanding loans for 1996 was .01%. Net charge-offs totaled $630,000 for 1997.
In 1997, net charge-offs exceeded the provision by $410,000. The net charge-offs
in 1997 relate primarily to one customer and is not considered by management to
be a trend.
The allowance for possible loan losses, amounting to $1,314,000 at
December 31, 1997, represents 1.18% of total loans outstanding. At December 31,
1996, the allowance for possible loan losses represented 1.57% 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, 1997 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 64% and 69% at December 31, 1997 and
December 31, 1996, respectively.
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. The Company had no
Federal funds sold at December 31, 1996. Federal funds sold totaled $2,650,000
at December 31, 1997. There were no Federal funds purchased at December 31,
1997. Federal funds purchased were $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 Bank.
These meetings focus on the spread between the subsidiary bank's cost of funds
and interest yields generated primarily through loans and investments.
First McMinnville Corporation presently maintains a liability sensitive
position over the 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, 1997:
<PAGE> 128
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
INTEREST-RATE SENSITIVITY ONE YEAR
GAPS: REPRICE 1-90 91-180 181-365 AND
(IN THOUSANDS) IMMEDIATELY DAYS DAYS DAYS LONGER TOTAL
------------------------------ ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $ 2,650 31,594 11,649 17,021 141,672 204,586
Interest-bearing liabilities 53,641 29,704 22,857 32,732 17,066 156,000
----------- ------- ------- ------- ------- -------
Interest rate sensitivity $ (50,991) 1,890 (11,208) (15,711) 124,606 48,586
=========== ======= ======= ======= ======= =======
Cumulative gap $ (50,991) (49,101) (60,309) (76,020) 48,586
=========== ======= ======= ======= =======
Interest rate sensitivity
gap as a % of total
assets (23.97)% .90% (5.27)% (7.38)% 58.56%
=========== ======= ======= ======= =======
Cumulative gap as a
% of total assets (23.97)% (23.07)% (28.34)% (35.72)% 22.84%
=========== ======= ======= ======= =======
------------------------------------------------------------------------------------------------------------------------
</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 does not
anticipate that there will be 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, demands, events
or uncertainties that will result in or that are reasonably likely to result in
the registrant's liquidity changing in any material way.
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 1997 were $3,581,000 an
increase of $137,000 or 4.0% from fiscal year 1996. Net earnings for 1996
totaled $3,444,000 which was an increase of $338,000 or 10.9% from $3,106,000
for 1995. Basic earning per common share was $6.68 in 1997, $6.34 in 1996 and
$5.62 in 1995 after giving retroactive effect to a two-for-one stock split
effective October 1, 1994. Diluted earnings per common share were $6.67, $6.34
and $5.62 in 1997, 1996 and 1995, respectively. Average earning assets increased
$13,480,000 for the year ended December 31, 1997 as compared to year ended
December 31, 1996. Average earning assets increased $8,061,000 for the year
ended December 31, 1996 as compared to year ended December 31, 1995.
Additionally, the net interest spread decreased from 4.19% in 1996 to 4.09% in
1997. The net interest spread was 4.05% in 1995. 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 1997 totaled
$8,610,000 as compared to $8,071,000 for 1996 and $7,474,000 for 1995. The
provision for loan losses was $220,000 in 1997 as compared to $150,000 in 1996
and $160,000 in 1995. Net charge-offs in 1997 were $630,000 as compared to net
recoveries of $12,000 in 1996 and net charge-offs of $46,000 in 1995. The 1997
<PAGE> 129
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
(CONTINUED)
charge-offs related primarily to one customer and is unrelated to the nursery
business. The increase in the provision in 1997 is primarily due to the increase
in net charge-offs.
Non-interest income decreased 6.2% to $618,000 in 1997 from $659,000 in
1996. This decrease was due primarily to decreases in service charges on
deposits of $24,000, other fees and commissions of $15,000 and commissions on
fiduciary activities of $17,000 which were off-set by an increase in other
income totaling $15,000. Non-interest income of $659,000 in 1996 was an increase
of approximately 3.9% from $634,000 in 1995. The increase in 1996 resulted
primarily from an increase in service charges on deposits and in securities
gains.
Non-interest expense increased 4.1% to $3,850,000 in 1997 from $3,700,000
in 1996. Non-interest expense was $3,543,000 in 1995. 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 commensurate
with the continued growth of the Company. The increase in 1997 was primarily
attributable to an increase in salaries and employment benefits of $166,000
(7.7%), increases in occupancy expenses ($38,000 or 16.4%) and Federal Deposit
insurance premiums ($18,000). These increases in 1997 were offset by a decrease
of $20,000 in furniture and equipment expenses. The non-interest expense
increased approximately 4.4% from 1995 to 1996 and was due primarily to
increases in salaries and employees benefits, occupancy expenses, furniture and
equipment expenses and securities losses with an offset from the decrease in
Federal Deposit insurance premiums.
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.
The Company plans to adopt Statement of Financial Accounting Standards
No. 130 (SFAS 130) "Reporting Comprehensive Income". The new statement which
becomes effective for years beginning after December 15, 1997, requires a new
financial statement that includes unrealized gains and losses on certain assets
and liabilities. The statement will provide additional information but will not
impact existing statements.
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 since
they impact both interest revenues and interest costs.
<PAGE> 130
MAGGART & ASSOCIATES, P.C.
Certified Public Accountants
FIRST UNION TOWER
SUITE 2150
150 FOURTH AVENUE, NORTH
NASHVILLE, TENNESSEE 37219-2417
Telephone (615) 252-6100
Facsimile (615) 252-6105
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First McMinnville Corporation:
We have audited the accompanying balance sheets of First McMinnville Corporation
and Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 28, 1998
<PAGE> 131
FIRST MCMINNVILLE CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
In Thousands
----------------------
1997 1996
---- ----
ASSETS
<S> <C> <C>
Loans, less allowance for possible loan losses of $1,314,000
and $1,724,000, respectively $ 110,159 107,940
Securities:
Held-to-maturity, at amortized cost (market value $47,584,000
and $55,232,000, respectively) 46,495 54,521
Available-for-sale, at market (amortized cost $43,513,000 and
$24,468,000, respectively) 43,868 24,288
--------- --------
Total securities 90,363 78,809
--------- --------
Interest-bearing deposits in financial institutions 100 100
Federal funds sold 2,650 --
--------- --------
Total earning assets 203,272 186,849
--------- --------
Cash and due from banks 4,461 3,532
Premises and equipment, net 2,230 2,368
Accrued interest receivable 2,020 1,903
Deferred tax asset 39 405
Other real estate 11 69
Other assets 732 606
--------- --------
Total assets $ 212,765 195,732
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 172,891 159,746
Securities sold under repurchase agreements 4,350 2,531
Federal funds purchased -- 500
Accrued interest and other liabilities 2,967 2,930
--------- --------
Total liabilities 180,208 165,707
--------- --------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized 5,000,000,
issued 605,800 shares and 604,800, respectively 1,514 1,512
Additional paid-in capital 1,568 1,512
Retained earnings 31,561 29,321
Net unrealized gains (losses) on available-for-sale securities,
net of income taxes of $135,000 and income tax benefits of
$68,000, respectively 220 (111)
--------- --------
34,863 32,234
Less cost of treasury stock of 69,696 shares in 1997 and 68,017 shares in 1996 (2,306) (2,209)
--------- --------
Total stockholders' equity 32,557 30,025
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders' equity $ 212,765 195,732
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 132
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Earnings
Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands
Except Per Share Amount
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,878 9,380 8,802
Interest and dividends on securities:
Taxable securities 4,396 3,899 3,712
Exempt from Federal income taxes 1,180 1,299 1,217
Interest on Federal funds sold 231 86 156
Interest on interest-bearing deposits in financial
institutions 6 6 5
-------- ------- -------
Total interest income 15,691 14,670 13,892
-------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 477 478 556
Interest on money market demand and savings accounts 1,129 1,113 1,175
Interest on certificates of deposit 5,347 4,877 4,574
Interest on securities sold under repurchase agreements
and short-term debt 128 131 113
-------- ------- -------
Total interest expense 7,081 6,599 6,418
-------- ------- -------
Net interest income before provision for possible loan losses 8,610 8,071 7,474
Provision for possible loan losses 220 150 160
-------- ------- -------
Net interest income after provision for possible loan losses 8,390 7,921 7,314
Non-interest income 618 659 634
Non-interest expense (3,850) (3,700) (3,543)
-------- ------- -------
Earnings before income taxes 5,158 4,880 4,405
Income taxes 1,577 1,436 1,299
-------- ------- -------
Net earnings $ 3,581 3,444 3,106
======== ======= =======
Basic earnings per common share $ 6.68 6.34 5.62
======== ======= =======
Diluted earnings per common share $ 6.67 6.34 5.62
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 133
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Shares
----------------------------------------------------------------------------------
Net Unrealized
Common Stock Gains (Losses)
----------------------- Additional On 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, 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 -- -- -- (1,294) -- -- (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 29,321 (2,209) (111) 30,025
Net earnings for year -- -- -- 3,581 -- -- 3,581
Issuance of 1,000 shares of
common stock 1,000 2 56 -- -- -- 58
Cash dividends declared $2.50
per share -- -- -- (1,341) -- -- (1,341)
Cost of 1,679 shares of
treasury stock -- -- -- -- (97) -- (97)
Net change in unrealized gains
(losses) on available-for-sale-
securities during the year, net
of income taxes of $203,000 -- -- -- -- -- 331 331
------- ----- ----- ------ ------ --- ------
Balance December 31, 1997 580,537 $ 1,514 1,568 31,561 (2,306) 220 32,557
======= ======= ===== ====== ====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 134
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 15,517 14,727 13,762
Fees and commissions received 627 659 583
Interest paid (6,889) (6,773) (5,895)
Cash paid to suppliers and employees (3,665) (3,481) (3,345)
Income taxes paid (1,653) (1,416) (1,307)
-------- ------- -------
Net cash provided by operating activities 3,937 3,716 3,798
-------- ------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (39,669) (7,747) (21,835)
Proceeds from sales of available-for-sale securities 5,284 9,578 9,888
Proceeds from maturities of available-for-sale securities 15,376 5,723 4,677
Purchase of held-to-maturity securities (15,457) (21,491) (4,797)
Proceeds from maturities of held-to-maturity securities 23,495 15,820 12,432
Loans made to customers, net of repayments (2,439) (8,838) (9,067)
Purchase of premises and equipment (141) (676) (449)
Proceeds from sales of other real estate 58 281 574
-------- ------- -------
Net cash used in investing activities (13,493) (7,350) (8,577)
-------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in demand,
NOW and savings deposit accounts 3,039 1,122 (1,917)
Net increase in time deposits 10,106 4,073 7,837
Net increase (decrease) in securities sold under
repurchase agreements 1,819 (1,682) 1,921
Increase (decrease) in Federal funds purchased (500) 500 (600)
Proceeds from issuance of short-term notes payable -- 45 56
Repayment of short-term notes payable -- (45) (56)
Dividends paid (1,290) (1,238) (1,202)
Payments to acquire treasury stock (97) (781) (116)
Proceeds from issuance of common stock 58 -- --
-------- ------- -------
Net cash provided by financing activities 13,135 1,994 5,923
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 3,579 (1,640) 1,144
Cash and cash equivalents at beginning of year 3,532 5,172 4,028
-------- ------- -------
Cash and cash equivalents at end of year $ 7,111 3,532 5,172
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 135
FIRST MCMINNVILLE CORPORATION
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,581 3,444 3,106
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 236 219 222
Provision for possible loan losses 220 150 160
Provision for deferred taxes 163 (17) (24)
Securities gains related to available-for-sale securities (11) (54) (103)
Securities losses related to available-for-sale 20 147 52
FHLB dividend reinvestment (45) (42) (37)
Loss on disposal of premises and equipment 43 -- --
Increase (decrease) in taxes payable (239) 37 16
Decrease (increase) in interest receivable (117) 112 (93)
Increase (decrease) in interest payable 192 (174) 523
Decrease in other assets and liabilities, net (106) (106) (24)
-------- ------- -------
Total adjustments 356 272 692
-------- ------- -------
Net cash provided by operating activities $ 3,937 3,716 3,798
======== ======= =======
Supplemental Schedule of Non-Cash Activities:
Non-cash transfers from loans to other real estate $ --- 45 355
======== ======= =======
Unrealized gain (loss) in value of securities available-for-
sale net of income taxes of $203,000 in 1997,
income tax benefits of $142,000 in 1996 and income
taxes of $420,000 in 1995 $ 331 (233) 687
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 136
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First McMinnville Corporation
(the "Company") and its wholly-owned subsidiary, the First National
Bank of McMinnville ("Bank") are in accordance with generally accepted
accounting principles and conform to general practices within the
banking industry.
The following is a brief summary of the 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
The Company is registered as a one bank holding company under
the Bank Holding Company Act of 1956. The Bank operates under
a Federal Bank Charter and provides full banking services. As
a national bank, the subsidiary bank is subject to 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
Loans are stated at the principal amount outstanding. Unearned
discount, deferred loan fees net of loan acquisition costs,
and the allowance for possible loan losses are shown as
reductions of loans. Loan origination and commitment fees and
certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield
over the contractual life of the loan. Unearned discount
represents the unamortized amount of finance charges,
principally related to certain installment loans. Interest
income on most loans is accrued based on the principal amount
outstanding.
The Company adopted, on a prospective basis effective January
1, 1995, 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 residential mortgage and
installment loans.
<PAGE> 137
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(d) Loans, Continued
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 possible loan
losses or by adjusting an existing valuation allowance for the
impaired loan with a corresponding charge or credit to the
provision for possible loan losses.
The Company's consumer loans 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 along 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 and uncollected 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 possible 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 cash received is
applied as a reduction of principal. A nonaccrual loan may be
restored to an 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.
Loans not on nonaccrual status are classified as impaired in
certain cases when 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.
<PAGE> 138
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(d) Loans, Continued
Generally, the Company also classifies as impaired any loans
the terms of which have been modified in a troubled debt
restructuring. Interest is generally accrued on such loans
that continue to meet the modified terms of their loan
agreements.
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.
(e) Allowance for Possible Loan Losses
The provision for possible loan losses represents a charge to
earnings necessary, after loan charge-offs and recoveries, to
maintain the allowance for possible loan losses at an
appropriate level which is adequate to absorb estimated losses
inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from
other sources, including commitments to extend credit and
standby letters of credit. The level of the allowance is
determined on a quarterly basis using procedures which
include: (1) categorizing commercial and commercial real
estate loans into risk categories to estimate loss
probabilities based primarily on the historical loss
experience of those risk categories and current economic
conditions; (2) analyzing significant commercial and
commercial real estate credits and calculating specific
reserves as necessary; (3) assessing various homogeneous
consumer loan categories to estimate loss probabilities based
primarily on historical loss experience; (4) reviewing
unfunded commitments; and (5) considering various other
factors, such as changes in credit concentrations, loan mix,
and economic conditions which may not be specifically
quantified in the loan analysis process.
The allowance for possible loan losses consists of an
allocated portion and an unallocated, or general portion. The
allocated portion is maintained to cover estimated losses
applicable to specific segments of the loan portfolio. The
unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not
identified by the more objective processes used for the
allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an
allocated portion and an unallocated portion, these terms are
primarily used to describe a process. Both portions of the
allowance are available to provide for inherent loss in the
entire portfolio.
<PAGE> 139
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(e) Allowance for Possible Loan Losses, Continued
The allowance for possible loan losses is increased by
provisions for possible loan losses charged to expense and is
reduced (increased) by loans charged off net of recoveries on
loans previously charged off. The provision is based on
management's determination of the amount of the allowance
necessary to provide for estimated loan losses based on its
evaluation of the loan portfolio. Determining the appropriate
level of the allowance and the amount of the provision
involves uncertainties and matters of judgment and therefore
cannot be determined with precision.
(f) Debt and Equity Securities
The Company follows the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". 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 recognized by the interest method.
- Trading Securities
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term are classified as trading securities and reported
at fair value, with unrealized gains and losses included
in earnings.
- 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 by the interest method.
<PAGE> 140
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(f) Debt and Equity Securities, Continued
No securities have been classified as trading securities.
Realized gains or losses from the sale of debt and equity
securities were recognized based upon the specific
identification method.
(g) 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.
(h) Long-Lived Assets
In March, 1995, Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the 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.
(i) 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 to 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.
<PAGE> 141
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
(j) 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.
(k) 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.
(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) Reclassifications
Certain reclassifications have been made to the 1996 and 1995
figures to conform to the presentation for 1997.
(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.
<PAGE> 142
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(2) Loans and Allowance for Possible Loan Losses
Loans and allowance for possible loan losses at December 31, 1997 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 28,833 30,232
Real estate - construction 2,405 2,224
Real estate - mortgage 77,393 74,290
Consumer 2,842 2,918
--------- --------
111,473 109,664
Less allowance for possible loan losses (1,314) (1,724)
--------- --------
$ 110,159 107,940
========= ========
</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 $2,450,000 and $2,842,000 at December 31, 1997 and
1996, respectively. During 1997, $1,295,000 of such loans were made and
repayments totaled $1,687,000. As of December 31, 1997, none of these
loans were restructured, nor were any related party loans charged off
during the past three years.
No loans had been placed on non-accrual status during 1997 and 1996.
The principal maturities on loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------------------------------------------------------
Commercial,
Financial
and Real Estate - Real Estate-
Agricultural Construction Mortgage Consumer Total
------------ ------------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
3 months or less $ 5,546 - 7,573 895 14,014
3 to 12 months 10,849 2,405 11,253 973 25,480
1 to 5 years 11,735 - 50,297 974 63,006
Over 5 Years 703 - 8,270 - 8,973
------------- ------------- ---------- --------- -----------
$ 28,833 2,405 77,393 2,842 111,473
============= ============= ========== ========= ===========
</TABLE>
At December 31, 1997, variable rate and fixed rate loans totaled
approximately $14,362,000 and $97,111,000, respectively. At December
31, 1996, variable rate loans were approximately $18,252,000 and fixed
rate loans totaled approximately $91,412,000.
<PAGE> 143
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 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, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 1,724 1,562 1,448
Provision charged to operating expense 220 150 160
-------- ------- -------
1,944 1,712 1,608
-------- ------- -------
Loans charged off (660) (98) (86)
Recoveries on losses 30 110 40
-------- ------- -------
Net loan recoveries (charge-offs) (630) 12 (46)
-------- ------- -------
Balance, end of year $ 1,314 1,724 1,562
======== ======= =======
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1997, the Company had loans to customers in the nursery industry
totaling approximately $10,737,000 as compared to $11,287,000 at
December 31, 1996. Credit is extended to businesses and individuals and
is evidenced by promissory notes. The terms and conditions of the loans
including collateral vary depending upon the purpose of the credit and
the borrower's financial condition.
Impaired loans and related loan loss reserve amounts at December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---- ----
<S> <C> <C>
Recorded investment $ 3,454 4,186
Loan loss reserve $ 675 1,200
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $4,116,000 and $3,832,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $393,000 and
$367,000 for 1997 and 1996, respectively.
<PAGE> 144
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities
Debt and equity securities have been classified in the balance sheet
according to management's intent. The Company's classification of
securities at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1997
----------------------------------------------------------------
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 $ 21,094 419 23 21,490
Obligations of states and political
subdivision 22,399 732 14 23,117
Corporate and other securities 761 19 1 779
Mortgage-backed securities 2,241 - 43 2,198
------------- ------------ ------------- ------------
$ 46,495 1,170 81 47,584
============= ============ ============= ============
<CAPTION>
Securities Available-For-Sale
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1997
----------------------------------------------------------------
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 $ 39,506 371 17 39,860
Obligations of states and political
subdivision 1,515 55 - 1,570
Corporate and other securities 762 - - 762
Mortgage-backed securities 1,730 - 54 1,676
------------- ------------- ------------ ------------
$ 43,513 426 71 43,868
============= ============= ============ ============
</TABLE>
<PAGE> 145
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
Debt and equity securities at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
----------------------------------------------------------------
In Thousands
----------------------------------------------------------------
1996
----------------------------------------------------------------
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
============= ============ ============ ============
<CAPTION>
Securities Available-For-Sale
---------------------------------------------------------------
In Thousands
---------------------------------------------------------------
1996
---------------------------------------------------------------
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>
<PAGE> 146
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
The amortized cost and estimated market value of debt securities at
December 31, 1997, 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
-----------------------------------
Securities Held-To-Maturity Estimated
--------------------------- Amortized Market
Cost Value
------------- --------------
<S> <C> <C>
Due in one year or less $ 3,904 3,913
Due after one year through five years 14,955 15,176
Due after five years through ten years 19,326 19,924
Due after ten years 7,549 7,792
------------- --------------
45,734 46,805
Corporate and other securities 761 779
------------- --------------
$ 46,495 47,584
============= ==============
</TABLE>
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
Securities Available-For-Sale Estimated
----------------------------- Amortized Market
Cost Value
------------- --------------
<S> <C> <C>
Due in one year or less $ 102 102
Due after one year through five years 2,637 2,636
Due after five years through ten years 30,629 30,950
Due after ten years 9,383 9,418
------------- --------------
42,751 43,106
Federal Home Loan Bank stock 671 671
Federal Reserve Bank stock 91 91
------------- --------------
$ 43,513 43,868
============= ==============
</TABLE>
<PAGE> 147
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(3) Debt and Equity Securities, Continued
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------
For the Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ 5,284 9,578 9,888
========= ========= ========
Gross realized gains $ 11 54 103
Gross realized losses (20) 147 52
--------- --------- --------
Net realized gains (losses) $ (9) (93) 51
========= ========= ========
</TABLE>
Included in the above gains and losses table is a realized loss of
$12,000 in 1997 and gains of $13,000 and $12,000 in 1996 and 1995,
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, 1997.
Securities with approximate carrying values of $15,251,000 (approximate
market value of $15,367,000) and $14,641,000 (approximate market value
of $14,730,000) at December 31, 1997 and 1996, 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 at December 31, 1997, are approximately
$14,717,000 at amortized cost (approximate market value of $15,094,000)
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.
Securities that have rates that adjust prior to maturity totaled
$3,489,000 (market value $3,415,000) at December 31, 1997 as compared
to $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 $672,000 and $626,000 at December 31, 1997 and 1996,
respectively. The stock can be sold back at par and only to the Federal
Home Loan Bank or to another member institution.
<PAGE> 148
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(4) Premises and Equipment
The detail of premises and equipment at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 426 426
Buildings 2,552 2,558
Furniture and equipment 1,722 2,148
--------- --------
4,700 5,132
Less accumulated depreciation (2,470) (2,764)
--------- --------
$ 2,230 2,368
========= ========
</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, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---- ----
<S> <C> <C>
Demand deposits $ 21,241 18,802
Negotiable order of withdrawals 19,479 19,359
Money market demand accounts 10,449 10,172
Savings deposits 23,713 23,510
Certificates of deposit $100,000 or greater 31,678 26,920
Other certificates of deposit 56,674 52,351
Individual retirement accounts $100,000 or greater 1,959 1,352
Other individual retirement accounts 7,698 7,280
--------- --------
$ 172,891 159,746
========= =======
</TABLE>
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1997 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 $ 17,105 8,249 25,354
3 to 6 months 13,861 8,996 22,857
6 to 12 months 21,952 10,780 32,732
1 to 5 years 11,454 5,612 17,066
-------- ------ ------
$ 64,372 33,637 98,009
======== ====== ======
</TABLE>
<PAGE> 149
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(5) Deposits, Continued
The Bank is required to maintain cash balances or balances with the
Federal Reserve Bank or other correspondent banks based on certain
percentages of deposit types. The average required amounts for the
years ended December 31, 1997 and 1996 were approximately $963,000 and
$908,000, respectively.
(6) Securities Sold Under Repurchase Agreements
The maximum amounts of outstanding repurchase agreements during 1997
and 1996 was $6,383,000 and $5,666,000, respectively. The average daily
balance outstanding during 1997, 1996 and 1995 was $3,968,000,
$3,529,000 and $3,579,000, respectively. The underlying securities are
typically held by other financial institutions and are designated as
pledged.
(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
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $ 369 393 351
Other fees and commissions 155 170 159
Commissions on fiduciary activities 49 66 19
Security gains, net -- -- 51
Other income 45 30 54
-------- ------- -------
Total non-interest income $ 618 659 634
======== ======= =======
Non-interest expense:
Salaries and employee benefits $ 2,310 2,144 2,036
Occupancy expenses, net 270 232 197
Furniture and equipment expenses 318 338 279
FDIC insurance 20 2 171
Security losses, net 9 93 --
Loss on disposal of premises and equipment 43 -- --
Other operating expenses 880 891 860
-------- ------- -------
Total non-interest expense $ 3,850 3,700 3,543
======== ======= =======
</TABLE>
<PAGE> 150
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(8) Income Taxes
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------
December 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 294 479
State 55 90
--------- --------
349 569
--------- --------
Deferred tax liability:
Federal (261) (138)
State (49) (26)
--------- --------
(310) (164)
--------- --------
$ 39 405
========= ========
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31 are:
<TABLE>
<CAPTION>
In Thousands
------------------
December 31,
--------------
1997 1996
---- ----
<S> <C> <C>
Financial statement allowance for possible loan losses
in excess of tax allowance $ 349 501
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (130) (148)
Book pension expense under the allowable tax deduction (45) (16)
Unrealized (gain) loss in investment securities
available-for-sale (135) 68
------ -----
$ 39 405
====== =====
</TABLE>
<PAGE> 151
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(8) Income Taxes, Continued
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1997
----
Current $ 1,130 284 1,414
Deferred 137 26 163
-------------- ------------- ------------
Total $ 1,267 310 1,577
============== ============= ============
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
============== ============= ============
</TABLE>
A reconciliation of actual income tax expense of $1,577,000, $1,436,000
and $1,299,000 for the years ended December 31, 1997, 1996 and 1995,
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
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,754 1,659 1,498
State income taxes, net of Federal
income tax benefit 206 192 173
Tax exempt interest, net of interest
expense exclusion (376) (414) (371)
Other, net (7) (1) (1)
---------- ---------- ---------
$ 1,577 1,436 1,299
========== ========== =========
</TABLE>
Total income tax expense for 1997 and 1996 includes income tax benefits
of $3,000 and $35,000, 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.
<PAGE> 152
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(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 $71,000 in 1997, $82,000 in 1996 and $99,000 in 1995. The
pension expense for 1997, 1996 and 1995 is comprised of the following
components.
<TABLE>
<CAPTION>
In Thousands
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 87 82 76
Interest cost on projected benefit
obligation 155 140 125
Expected return on plan assets (172) (144) (116)
Net amortization and deferral 1 4 14
-------- ------- -------
$ 71 82 99
======== ======= =======
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
In Thousands
-----------------------------
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,673,000 and $1,417,000, respectively $ 1,689 1,431
============== ============
Actuarial present value of projected benefits obligation $ 2,503 2,073
Plan assets at fair market value 2,502 2,159
-------------- ------------
Excess of plan assets (over) under the projected
benefit obligation 1 (86)
Unamortized net asset being recognized over 30 years (418) (440)
Unrecognized net gain 297 485
-------------- ------------
Net pension liability recognized in the
consolidated balance sheets $ (120) (41)
============== ============
Discount rate 6.5% 7.5%
============== ============
Rate of increase in compensation levels 5% 5%
============== ============
Long-term rate of return on assets 8% 8%
============== ============
</TABLE>
<PAGE> 153
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(9) Employee Benefit Plans, Continued
In December, 1988 the 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, 1997, 1996 and 1995, the Bank contributed $45,000,
$41,000 and $43,000, respectively, to the plan.
(10) Regulatory Matters and Restrictions on Dividends
The Company and its wholly-owned subsidiary are subject to regulatory
capital requirements administered by the Comptroller of the Currency,
the 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, 1997, management believes that the Company and the Bank meet all
such capital requirements to which they are subject.
The Company and the Bank are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1997, 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 27.9% and 28.9%, respectively. The leverage ratio at December
31, 1997 was 15.2% 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 liabilities, 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. The Bank has lines of credit with other
financial institutions totaling $10,000,000. At December 31, 1997 and
1996, there was no outstanding balances under these lines of credit.
(12) Concentration of Credit Risk
Substantially 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. Virtually all such customers are depositors of
the 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.
<PAGE> 154
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(12) Concentration of Credit Risk, Continued
At December 31, 1997, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $2,318,000 in excess of
the Federal Deposit Insurance Corporation limit of $100,000 per
institution.
In addition, Federal funds sold were deposited with two banks.
(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
-------------------------
1997 1996
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 1,309 1,157
Unfunded lines-of-credit 6,827 5,694
Letters of credit 1,379 1,493
---------- ----------
Total $ 9,515 8,344
========== ==========
</TABLE>
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.
<PAGE> 155
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
In Thousands
--------------------------
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Cash $ 1,328* 1,159*
Investment in commercial bank subsidiary 32,296* 29,886*
Due from commercial bank subsidiary 5* -
------------ -----------
Total assets $ 33,629 31,045
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Dividend payable $ 1,072 1,020
------------ -----------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized
5,000,000 shares, issued 605,800 shares and
604,800, respectively 1,514 1,512
Additional paid-in capital 1,568 1,512
Retained earnings 31,561 29,321
Net unrealized gains (losses) on available-for-sale securities,
net of income taxes of $135,000 and income tax benefit
of $68,000, respectively 220 (111)
------------ -----------
34,863 32,234
Less cost of treasury stock of 69,696 shares in
1997 and 68,017 in 1996 (2,306) (2,209)
------------ -----------
Total stockholders' equity 32,557 30,025
------------ -----------
Total liabilities and stockholders' equity $ 33,629 31,045
============ ===========
</TABLE>
*Eliminated in consolidation.
<PAGE> 156
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
---------------------------------------
In Thousands
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary $ 1,512* 2,126* 1,406*
Other expenses 14 13 9
---------- ---------- ----------
Earnings before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiary 1,498 2,113 1,397
Federal income tax benefits 5 5 3
---------- ---------- ----------
1,503 2,118 1,400
Equity in undistributed earnings of
commercial bank subsidiary 2,078* 1,326* 1,706*
---------- ---------- ----------
Net earnings $ 3,581 3,444 3,106
========== ========== ==========
</TABLE>
* Eliminated in consolidation.
<PAGE> 157
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Earnings
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Shares
--------------------------------------------------------------------------
Net
Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained Treasury For-Sale
Stock Capital Earnings Stock Securities Total
----- --------- --------- --------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $1,512 1,512 25,305 (1,312) (565) 26,452
Net earnings - - 3,106 - - 3,106
Cash dividends declared ($2.25 per
share - - (1,240) - - (1,240)
Cost of 2,249 shares of treasury stock - - - (116) - (116)
Net change in unrealized appreciation
loss during the year, net of income
taxes of $420,000 - - - - 687 687
------ --------- --------- ------ ---- -------
Balance December 31, 1995 1,512 1,512 27,171 (1,428) 122 28,889
Net earnings - - 3,444 - - 3,444
Cash dividends declared $2.40 per
share - - (1,294) - - (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 1,512 1,512 29,321 (2,209) (111) 30,025
Net earnings - - 3,581 - - 3,581
Issuance of 1,000 shares of common
stock 2 56 - - - 58
Cash dividends declared ($2.50 per
share) - - (1,341) - - (1,341)
Cost of 1,679 shares of treasury stock - - - (97) - (97)
Net change in unrealized gains (losses)
on available-for-sale securities during
the year, net of income taxes of
$203,000 - - - - 331 331
------ --------- --------- ------ ---- -------
Balance December 31, 1997 $1,514 1,568 31,561 (2,306) 220 32,557
====== ========= ========= ====== ==== =======
</TABLE>
<PAGE> 158
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation -
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (14) (13) (9)
Income tax benefit received from
commercial bank subsidiary -- 5 6
-------- ------- -------
Net cash used in operating activities (14) (8) (3)
-------- ------- -------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary 1,512 2,126 1,406
Proceeds from sales of available-for-sale securities -- -- 2
-------- ------- -------
Net cash provided by investing activities 1,512 2,126 1,408
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of short-term notes payable -- 45 56
Repayment of short-term notes payable -- (45) (56)
Dividends paid (1,290) (1,238) (1,202)
Payments made to acquire treasury stock (97) (781) (116)
Proceeds from issuance of common stock 58 -- --
-------- ------- -------
Net cash used in financing activities (1,329) (2,019) (1,318)
-------- ------- -------
Net increase in cash and cash equivalents 169 99 87
Cash and cash equivalents at beginning of year 1,159 1,060 973
-------- ------- -------
Cash and cash equivalents at end of year $ 1,328 1,159 1,060
======== ======= =======
</TABLE>
<PAGE> 159
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(14) First McMinnville Corporation
Parent Company Financial Information, Continued
FIRST MCMINNVILLE CORPORATION
(Parent Company Only)
Statements of Cash Flows, Continued
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used
in operating activities:
Net earnings $ 3,581 3,444 3,106
Adjustments to reconcile net earnings to
net cash used in operating activities:
Equity in earnings of commercial bank subsidiary (3,590) (3,452) (3,112)
Increase (decrease) in other assets, net (5) -- 3
-------- ------- -------
Total adjustments (3,595) (3,452) (3,109)
-------- ------- -------
Net cash used in operating activities $ (14) (8) (3)
======== ======= =======
</TABLE>
<PAGE> 160
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 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 securities approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
securities 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, credit card and other consumer. Each loan
category is further segmented into fixed and adjustable rate
interest terms.
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.
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 below would be indicative of the value negotiated in an
actual sale.
<PAGE> 161
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
Loans, Continued
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.
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, 1997 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant fair
value.
<PAGE> 162
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
The carrying value and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------------
1997 1996
----------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 7,211 7,211 3,632 3,632
Securities 90,363 91,452 78,809 79,520
Loans 111,473 109,664
Less: allowance for loan losses 1,314 1,724
-------- ------- ------- -------
Loans, net of allowance 110,159 110,404 107,940 108,210
-------- ------- ------- -------
Financial liabilities:
Deposits 172,891 173,194 159,746 160,007
Securities sold under
repurchase agreements 4,350 4,350 2,531 2,531
Federal funds purchased -- -- 500 500
Unrecognized financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
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.
<PAGE> 163
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(15) Disclosures About Fair Value of Financial Instruments, Continued
Limitations, Continued
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 Bank has a mortgage department that contributes net
fee income annually. The mortgage 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.
(16) Earnings Per Share (EPS)
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.
The following is a summary of components comprising basic and diluted
earnings per share (EPS):
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to
common shareholders $ 3,581 3,444 3,106
-------- ------- -------
Denominator - weighted average
number of common shares
outstanding 536,362 543,116 552,399
-------- ------- -------
Basic earnings per common share $ 6.68 6.34 5.62
======== ======= =======
Diluted EPS Computation:
Numerator $ 3,581 3,444 3,106
-------- ------- -------
Denominator:
Weighted average number of
common shares outstanding 536,362 543,116 552,399
Dilutive effect of stock options 154 -- --
-------- ------- -------
536,516 543,116 552,399
-------- ------- -------
Diluted earnings per common share $ 6.67 6.34 5.62
======== ======= =======
</TABLE>
<PAGE> 164
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(17) Stock Option Plan
In April, 1997, the stockholders of the Company approved the First
McMinnville Corporation 1997 Stock Option Plan (The "Stock Option
Plan"). The Stock Option Plan provides for the granting of stock
options, and authorizes the issuance of common stock upon the exercise
of such options for up to 57,500 shares of common stock to directors
and employees of the Company.
Under the Stock Option Plan awards may be granted in the form of
incentive stock options or nonstatutory stock options, and are
generally exercisable for up to ten years following the date such
option awards are granted. Exercise prices of incentive stock options
must be equal to or greater than 100% of the fair market value of the
common stock on the grant date.
In 1995, SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123)
changed the method for recognition of cost of plans similar to those of
the Company. As is permitted, management has elected to continue
accounting for the plan under APB Opinion 25 and related
Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for the stock option plan.
However, under SFAS 123, the Company is required to make proforma
disclosures as if cost had been recognized in accordance with the
pronouncement. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of SFAS 123, the
Company's net earnings and basic earnings per common share and diluted
earnings per common share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As Reported $ 3,581 3,444 3,106
Proforma $ 3,569 3,444 3,106
Basic earnings per common share:
As Reported $ 6.68 6.34 5.62
Proforma $ 6.65 6.34 5.62
Diluted earnings per common share:
As Reported $ 6.67 6.34 5.62
Proforma $ 6.65 6.34 5.62
</TABLE>
Accordingly, due to the initial phase-in period, the effects of
applying this statement for proforma disclosures are not likely to be
representative of the effects on reported net income for future years.
<PAGE> 165
FIRST MCMINNVILLE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1997, 1996 and 1995
(17) Stock Option Plan, Continued
A summary of the stock option activity for 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------- ---------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 41,000 58.15
Exercised (1,000) 58.15
Forfeited -- --
------- ---------
Outstanding at end of year 40,000 $ 58.15
======= =========
Options exercisable at year end 5,400
=======
</TABLE>
The following table summarizes information about fixed stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ---------------------------
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/97 Price Life at 12/31/97 Price
-------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 58.15 40,000 $ 58.15 6.3 years 5,400 $ 58.15
</TABLE>
<PAGE> 166
LINE OF BUSINESS
During 1997, the Company and its subsidiary, First National Bank of McMinnville
(the "Bank"), were engaged primarily in the general banking business and
activities closely related to banking or to managing or controlling banks, as
authorized by the laws of the United States and the State of Tennessee and
regulations pursuant thereto. Services offered by the Bank include checking,
passbook savings an certificate accounts, safe deposit box rental, personal,
commercial, agricultural, construction and real estate loans, traveler's checks,
cashier's checks, bank drafts, discount brokerage services, trust services,
estate planning and other banking services. The Bank renders other services in
connection with its general banking business such as individual credit and
financial counseling, automatic teller services, and credit card accounts.
DIVIDEND AND MARKET INFORMATION
As of December 31, 1997, there were 463 holders of First McMinnville Corporation
Common Stock. The following table sets forth the approximate prices at which
First McMinnville Corporation Common Stock was purchased and sold in privately
negotiated transactions in the Company's service area as reported to the Company
or as estimated by the Company during each calendar quarter in the preceding two
years.
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
I II III IV I II III IV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Representative Price $57 59 60 61 $53 55 56 57
</TABLE>
Holders of Company Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. First McMinnville Corporation paid cash dividends of $2.40
and $2.50 per share during 18996 and 1997, respectively. First McMinnville
Corporation expects comparable cash dividends in the future. The limitations on
the amounts available to First McMinnville Corporation for payment of dividends
to stockholders are discussed in Management's Discussion and Analysis or Plan of
Operations on page 10 and in the Notes to the Consolidated Financial Statements.
ANNUAL REPORT ON FORM 10-K
A copy of the 1997 Annual Report of First McMinnville Corporation, as filed with
the Securities and Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 on Form 10- K, will be provided to each stockholder free of
charge on written request. Copies of any exhibits filed as part of this annual
report will be provided on payment of a reasonable fee to cover reproduction
cost. All requests should be addressed to: Charles C. Jacobs, President, First
McMinnville Corporation, 200 East Main Street, McMinnville, TN 37110.
<PAGE> 167
MAIN OFFICE
200 EAST MAIN STREET
BRANCHES
SMITHVILLE HWY. SPARTA STREET
917 SMITHVILLE HWY. 1408 SPARTA STREET
FARMERS & MERCHANTS MORRISON
VIOLA, TENNESSEE 9970 MANCHESTER HWY.
OUR FIVE AUTOMATIC TELLER MACHINES MAKE IT POSSIBLE
FOR YOU TO DO YOUR BANKING 24 HOURS A DAY.
AND NOW WITH THE CIRRUS NETWORK YOU HAVE NATIONWIDE ACCESS.
OUR ATMS ARE LOCATED AT 200 EAST MAIN STREET,
917 SMITHVILLE HIGHWAY, 1408 SPARTA STREET,
9970 MANCHESTER HIGHWAY AND
THE LOBBY OF RIVER PARK HOSPITAL.
MEMBER FDIC
<PAGE> 1
EXHIBIT 4.3
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
<PAGE> 2
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
McMinnville, Tennessee
Approved by the Board of Directors: February 11, 1997
Approved by the Shareholders: April 8, 1997
<PAGE> 3
FIRST MCMINNVILLE CORPORATION
1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
<S> <C> <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>
<PAGE> 4
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
<PAGE> 5
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
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,
<PAGE> 6
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.
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
<PAGE> 7
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 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.
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.
<PAGE> 8
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 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.
<PAGE> 9
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 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).
<PAGE> 10
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:
<PAGE> 11
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, (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
<PAGE> 12
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.
FIRST MCMINNVILLE CORPORATION
By:
----------------------------------------
Title:
-------------------------------------
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS
The Undersigned Secretary or other authorized officer of First McMinnville
Corporation hereby certifies that the First McMinnville 1997 Stock Option Plan
was first adopted by the Board of Directors on February 11, 1997.
FIRST MCMINNVILLE CORPORATION
By:
----------------------------------------
Title:
-------------------------------------
CERTIFICATE OF ADOPTION BY THE SHAREHOLDERS
The Undersigned Secretary or other authorized officer of First McMinnville
Corporation hereby certifies that the First McMinnville 1997 Stock Option Plan
was first adopted by the Shareholders on April 8, 1997.
FIRST MCMINNVILLE CORPORATION
By:
----------------------------------------
Title:
--------------------------------------
<PAGE> 1
EXHIBIT 4.4
FIRST MCMINNVILLE CORPORATION
SHAREHOLDERS RIGHTS AGREEMENT
DATED JUNE 10, 1997
<PAGE> 2
SHAREHOLDER RIGHTS AGREEMENT
FIRST MCMINNVILLE CORPORATION
THE FIRST NATIONAL BANK OF MCMINNVILLE, RIGHTS AGENT
JUNE 10, 1997
June 10, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1 - CERTAIN DEFINITIONS....................................................1
SECTION 2 - APPOINTMENT OF RIGHTS AGENT............................................6
SECTION 3 - ISSUE OF RIGHTS CERTIFICATES...........................................6
SECTION 4 - FORM OF RIGHTS CERTIFICATES............................................8
SECTION 5 - COUNTERSIGNATURE AND REGISTRATION......................................8
SECTION 6 - TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE
OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED,
LOST OR STOLEN RIGHTS CERTIFICATES....................................9
SECTION 7 - EXERCISE OF RIGHTS; PURCHASE PRICE;
EXPIRATION DATE OF RIGHTS............................................10
SECTION 8 - CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES...................11
SECTION 9 - AVAILABILITY OF COMMON SHARES.........................................11
SECTION 10 - RECORD HOLDERS OF COMMON SHARES ISSUED
UPON EXERCISE OF RIGHTS.............................................12
SECTION 11 - ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND
OF COMMON SHARES OR NUMBER OF RIGHTS................................12
SECTION 12 - CERTIFICATE OF ADJUSTMENT...........................................18
SECTION 13 - CONSOLIDATION, SHARE EXCHANGE, MERGER OR SALE
OR TRANSFER OF ASSETS OR EARNING POWER..............................18
SECTION 14 - FRACTIONAL RIGHTS AND FRACTIONAL SHARES..............................21
SECTION 15 - RIGHTS OF ACTION.....................................................22
SECTION 16 - AGREEMENT OF RIGHT HOLDERS...........................................22
SECTION 17 - RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER...................23
SECTION 18 - CONCERNING THE RIGHTS AGENT..........................................24
SECTION 19 - MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT............24
</TABLE>
June 10, 1997
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 20 - DUTIES OF RIGHTS AGENT...............................................25
SECTION 21 - CHANGE OF RIGHTS AGENT...............................................27
SECTION 22 - ISSUANCE OF NEW RIGHTS CERTIFICATES..................................28
SECTION 23 - REDEMPTION...........................................................28
SECTION 24 - EXCHANGE.............................................................29
SECTION 25 - NOTICE OF CERTAIN EVENTS.............................................30
SECTION 26 - NOTICES..............................................................31
SECTION 27 - SUPPLEMENTS AND AMENDMENTS...........................................31
SECTION 28 - SUCCESSORS...........................................................32
SECTION 29 - DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS.................32
SECTION 30 - BENEFITS OF THIS RIGHTS AGREEMENT....................................33
SECTION 31 - SEVERABILITY.........................................................33
SECTION 32 - GOVERNING LAW........................................................33
SECTION 33 - COUNTERPARTS.........................................................34
SECTION 34 - DESCRIPTIVE HEADINGS.................................................34
SIGNATURES........................................................................34
EXHIBIT A - FORM OF RIGHTS CERTIFICATE............................................37
EXHIBIT B- FORM FOR EXERCISE OF RIGHTS CERTIFICATE................................40
EXHIBIT C - SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES...........................42
</TABLE>
June 10, 1997
<PAGE> 5
SHAREHOLDER RIGHTS AGREEMENT
This Shareholder Rights Agreement (the "Rights Agreement"), effective as of
June 10, 1997, between First McMinnville Corporation, a Tennessee corporation
(the "Company"), and The First National Bank of McMinnville, a national banking
association (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, on June 10, 1997, the Board of Directors of the Company authorized
and declared a dividend of one common share purchase right for each share of the
Company's common stock outstanding at the close of business on June 10, 1997
(the "Record Date"), each such right representing the right to purchase one
share of the Company's common stock upon the terms and subject to the conditions
therein set forth. At that time the Board further authorized and directed the
issuance of one common share purchase right with respect to each share of the
Company's common stock that became outstanding between the Record Date and the
Distribution Date (as hereinafter defined);
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1
CERTAIN DEFINITIONS
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall become, at any time after
the date of this Rights Agreement (whether or not such status continues for any
period), the Beneficial Owner of Common Shares representing Ten Percent (10%) or
more of the Common Shares then outstanding, other than as a result of a
Permitted Offer. Notwithstanding the foregoing, (A) the term "Acquiring Person"
shall not include (i) the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan or pursuant
to any trust agreement as to which the Company is a signatory ("Trust
Agreement"), or (ii) any Person, who or which together with all Affiliates and
Associates of such Person becomes the Beneficial Owner of Ten Percent (10%) or
more of the then outstanding Common Shares as a result of the acquisition of
Common Shares directly from the Company (provided, however, that if, after such
acquisition, such Person, or an Affiliate or Associate of such Person, becomes
the Beneficial Owner of any additional Common Shares in an acquisition not made
directly from the Company, then such Person shall be deemed an Acquiring
Person), and (B) no Person shall be deemed to be an "Acquiring Person" either
(X) as a result of the acquisition of Common Shares by the Company which, by
reducing the number of Common Shares outstanding,
June 10, 1997
<PAGE> 6
increases the proportional number of shares beneficially owned by such Person
together with all Affiliates and Associates of such Person; except that if (i) a
Person would become an Acquiring Person (but for the operation of this subclause
(X)) as a result of the acquisition of Common Shares by the Company, and (ii)
after such share acquisition by the Company, such Person, or an Affiliate or
Associate of such Person, becomes the Beneficial Owner of any additional Common
Shares, then such Person shall be deemed an Acquiring Person, or (Y) if (i) such
Person, or an Affiliate or Associate of such Person, inadvertently becomes the
Beneficial Owner of Ten Percent (10%) or more of the outstanding Common Shares,
(ii) within five (5) calendar days thereafter such Person notifies the Board of
Directors (and the Board actually received notice within such time frame) that
such Person did so inadvertently and (iii) within two (2) Trading Days after
such notification, such Person is the Beneficial Owner of less than Ten Percent
(10%) of the outstanding Common Shares.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to have acquired "beneficial ownership" of, or to "beneficially own", any
securities: (i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, as determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Exchange Act as of the
date hereof; (ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or (iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner"
June 10, 1997
<PAGE> 7
to the contrary, the phrase "then outstanding", when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(d) "Board" shall mean the Board of the Company.
(e) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in McMinnville, Tennessee are generally
obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 3:00 o'clock p.m.,
local time in McMinnville, Tennessee (Central Time) [herein, "Local Time"], on
such date; provided, however, that if such date is not a Business Day it shall
mean 3:00 o'clock p.m., Local Time, on the next succeeding Business Day.
(g) "Common Shares" when used with reference to the Company shall mean
shares of the Company's common voting stock, par value $2.50 per share, and any
other class or classes or series of common stock of the Company resulting from
any subdivision, combination, recapitalization or reclassification of shares of
such common stock. "Common Shares" when used with reference to any Person other
than the Company shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is a
Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.
(h) "Company" shall have the meaning set forth in the recitals to this
Rights Agreement.
(i) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as in effect on the date of this Rights Agreement.
(k) "Exchange Ratio" shall have the meaning set forth in Section 24 hereof.
(l) "Final Expiration Date" shall have the meaning set forth in Section
7(a)hereof.
(m) "NASDAQ" shall have the meaning set forth in Section 11(d) hereof.
(n) "Permitted Offer" shall mean a tender or exchange offer which is for
all outstanding Common Shares at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the Company and
who are not (or would not be, if the offer were consummated) Acquiring Persons
or Affiliates, Associates, nominees or representatives of an Acquiring Person,
to be adequate and otherwise in the best interests of the Company and its
stockholders (other than the
June 10, 1997
<PAGE> 8
Person or any Affiliate or Associate thereof on whose basis the offer is being
made). In determining whether an offer is adequate or in the best interests of
the Company and its shareholders, the Board may take into account all factors
that it deems relevant including, without limitation, (1) the consideration
being offered in the proposal in relation to the Board's estimate of: (i) the
current value of the Company in a freely negotiated sale of either the Company
by merger, consolidation or otherwise, or all or substantially all of the
Company's assets, (ii) the current value of the Company if orderly liquidated,
and (iii) the future value of the Company over a period of years as an
independent entity discounted to current value; (2) then existing political,
economic and other factors bearing on security prices generally or the current
market value of the Company's securities in particular; (3) whether the proposal
might violate federal, state or local laws; (4) social, legal and economic
effects on employees, suppliers, customers and others having similar
relationships with the Company, and the communities in which the Company
conducts its businesses; (5) the financial condition and earnings prospects of
the person making the proposal including the person's ability to service its
debt and other existing or likely financial obligations; and (6) the competence,
experience and integrity of the person making the acquisition proposal, and all
other facts and factors permitted by law including, without limitation, T.C.A.
ss.ss. 48-103-301, et seq., ss.ss.48-103-401, et seq., and ss.ss.48-103-501, et
seq.
(o) "Person" shall mean any individual, firm, partnership, limited
liability partnership, limited partnership, limited liability company,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of such entity.
(p) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(q) "Purchase Price" shall have the meaning set forth in Section 7(a)
hereof.
(r) "Record Date" shall have the meaning set forth in the recitals to this
Rights Agreement.
(s) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(t) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(u) "Rights" shall mean the rights to purchase Common Shares authorized by
the Board of Directors of the Company after the Record Date.
(v) "Rights Agent" shall have the meaning set forth in the recitals to this
Rights Agreement.
(w) "Rights Agreement" shall have the meaning set forth in the recitals to
this Rights Agreement.
(x) "Rights Committee" shall have the meaning set forth in Section 11(a)
hereof.
June 10, 1997
<PAGE> 9
(y) "Rights Certificates" shall have the meaning set forth in Section 3(a)
hereof.
(z) "Securities Act" shall mean the Securities Act of 1933, as amended, as
in effect from time to time during the term of this Rights Agreement.
(aa) "Shares Acquisition Date" shall mean the first date of a public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such;
provided, that, if such Person is determined not to have become an Acquiring
Person pursuant to Section 1(a) hereof, then no Shares Acquisition Date shall be
deemed to have occurred.
(bb) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(cc) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(dd) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
(ee) "Trust Agreement" shall have the meaning set forth in Section 1(a)
hereof.
(ff) "Voting Securities" shall have the meaning set forth in Section 13(a)
hereof.
SECTION 2
APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the Distribution Date also be the holders of the Common Shares)
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents and/or successor Rights Agents as it may deem necessary,
prudent and/or desirable.
SECTION 3
ISSUE OF RIGHTS CERTIFICATES
(a) Until the earlier of (i) the close of business on the tenth day after
the Shares Acquisition Date or (ii) the close of business on the tenth Business
Day (or such later date as may be determined by action of the Board of Directors
of the Company prior to such time as any Person
June 10, 1997
<PAGE> 10
becomes an Acquiring Person) after the date that a tender or exchange offer by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan or, pursuant
to the Trust Agreement) is first published or sent or given within the meaning
of Rule 14d-2 of the General Rules and Regulations under the Exchange Act, if
upon consummation thereof, such Person would be the Beneficial Owner of Ten
Percent (10%) or more of the shares of Common Stock then outstanding; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for the Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be certificates for Rights)
and not by separate certificates, and (y) the Rights (and the right to receive
separate certificates ("Rights Certificates")) will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Company) as more fully set out below. As soon as practicable
after the Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, postage-prepaid mail, to
each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Rights Certificate, which shall be in substantially the form of
Exhibit A hereto (the "Rights Certificate"), evidencing one Right for each
Common Share so held. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, or on request,
the Company will send a copy of a Summary of Rights to Purchase Common Shares,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding, with or without a copy of the Summary
of Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired shares which are subsequently disposed of by the
Company) after the Record Date but prior to the earliest of the Distribution
Date, the Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following legend:
"This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement, as it may from time to time be
supplemented or amended, between First McMinnville Corporation and The
First National Bank of McMinnville (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of First McMinnville Corporation.
Under certain circumstances, as set forth in the Rights Agreement, such
rights may be redeemed or exchanged, may expire, or may be evidenced by
separate certificates and no longer be
June 10, 1997
<PAGE> 11
evidenced by this certificate. First McMinnville Corporation will mail to
the holder of this certificate a copy of the Rights Agreement without
charge within five days after receipt of a written request therefor. Under
certain circumstances, rights issued to or held by Acquiring Persons or
their Affiliates or Associates (as defined in the Rights Agreement) and any
subsequent holder of such rights may become null and void."
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated therewith. In the event that the Company
purchases or acquires any Common Shares prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
unless and until such Common Shares are subsequently issued by the Company so
that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
SECTION 4
FORM OF RIGHTS CERTIFICATES
(a) The Rights Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall be substantially the same
as provided for in Section 3(a) hereof and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Rights Agreement, or as may be required to comply with any applicable
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Section 22 hereof,
the Rights Certificates shall entitle the holders thereof to purchase such
number and kind of Common Shares as shall be set forth therein at the price per
share set forth therein, but the number and kind of such Common Shares and the
price per share shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section
11(a)(ii) of this Rights Agreement and any Rights Certificate issued pursuant to
Section 6, Section 11 or Section 22 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend: "The Rights
represented by this Rights Certificate are or were beneficially owned by a
Person who was or became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement).
Accordingly, this Rights Certificate and the Rights represented hereby are null
and void. "Notwithstanding the above provision, failure to place such legend on
any Rights Certificate(s) representing Rights which are otherwise null and void
pursuant to the terms of this Rights Agreement, shall not affect or reverse the
null and void status of such Rights.
June 10, 1997
<PAGE> 12
SECTION 5
COUNTERSIGNATURE AND REGISTRATION
The Rights Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President, any of its
Vice Presidents, or its Treasurer, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof, and shall
be attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer. Following the Distribution Date, the Rights
Agent will keep or cause to be kept, at its principal office or offices
designated as the appropriate place for surrender of such Rights Certificate or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
SECTION 6
TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE
OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED,
LOST OR STOLEN RIGHTS CERTIFICATES
Subject to the provisions of Section 14 hereof, at any time after the Close
of Business on the Distribution Date, and at or prior to the Close of Business
on the earlier of the Redemption Date or the Final Expiration Date, any Rights
Certificate or Rights Certificates (other than Rights Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Rights Certificate or Rights Certificates,
respectively, entitling the registered holder to purchase a like number and kind
of Common Shares as the Rights Certificate or Rights Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Rights Certificate or Rights
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of
June 10, 1997
<PAGE> 13
the Rights Agent designated for such purpose. Thereupon, the Rights Agent shall
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates. Upon receipt by the Company and the Rights
Agent of evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Rights Certificate, and, in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to them, and,
at the Company's request, reimbursement to the Company and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Rights Certificate if mutilated, the Company will
make and deliver a new Rights Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Rights Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7
EXERCISE OF RIGHTS; PURCHASE PRICE;
EXPIRATION DATE OF RIGHTS
(a) Subject to Section 11(a)(ii) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the price per share (rounded upward to the
nearest cent in the event of a fractional price) provided for in paragraph (b)
below (the "Purchase Price") for each Common Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on Monday,
June 4, 2007 (the "Final Expiration Date"), (ii) the time at which the Rights
are redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii)
the time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each Common Share pursuant to the exercise of a
Right shall initially be One Hundred and Twenty ($120.00), subject to adjustment
from time to time as provided in Sections 11 and 13 hereof, and shall be payable
in lawful money of the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the Common Shares to be purchased and an amount equal to
any applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) requisition from any transfer agent of the Common Shares
certificates for the number and kind of Common Shares to be purchased (or
depository receipts when appropriate) and
June 10, 1997
<PAGE> 14
the Company hereby irrevocably authorizes its transfer agents to comply with all
such requests, (ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates, cause the same to
be delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Rights Certificate.
(d) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Rights Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 of this Agreement.
(e) So long as the Common Shares issuable upon the exercise of Rights may
be listed on any national securities exchange (including the NASDAQ), the
Company shall use its best efforts to cause all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(f) A form for exercise of a Rights Certificate is included as Exhibit B.
SECTION 8
CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES
All Rights Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or to any
of its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Rights Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such canceled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
SECTION 9
AVAILABILITY OF COMMON SHARES
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Common Shares or any Common
Shares held in its
June 10, 1997
<PAGE> 15
treasury, the number and kind of Common Shares that will be sufficient to permit
the exercise in full of all outstanding Rights in accordance with this Rights
Agreement.
(b) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Common Shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable Common Shares.
(c) The Company covenants and agrees that it will pay when due and payable
any and all federal and state transfer taxes and charges which may be payable in
respect of the issuance or delivery of the Rights Certificates or of any Common
Shares upon the exercise of Rights. The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a person other than, or the issuance or
delivery of certificates or depository receipts for the Common Shares in a name
other than that of, the registered holder of the Rights Certificate evidencing
Rights surrendered for exercise or to issue or to deliver any certificates for
Common Shares upon the exercise of any Rights until any such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
SECTION 10
RECORD HOLDERS OF COMMON SHARES
ISSUED UPON EXERCISE OF RIGHTS
Each person in whose name any certificate for Common Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Company's transfer
books for the Common Shares are closed, such person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which such transfer books are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a holder of Common Shares for which the
Rights evidenced thereby shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
June 10, 1997
<PAGE> 16
SECTION 11
ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND
OF COMMON SHARES OR NUMBER OF RIGHTS
(a)(i) The Purchase Price, the number of Common Shares or other securities
covered by each Right, and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11(a)(i). In the event
the Company shall at any time after the Record Date (A) declare a dividend on
the Common Shares payable in Common Shares, (B) subdivide or otherwise convert
the outstanding Common Shares into a greater number of such shares, (C) combine
or otherwise convert the outstanding Common Shares into a smaller number of such
shares, or (D) issue any shares of its capital stock in a reclassification of
Common Shares (including any such reclassification in connection with a share
exchange, consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a), the
Purchase Price in effect for Rights at the time of the record date for such
dividend or of the effective date of such subdivision, conversion, combination
or reclassification, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall, upon payment of the Purchase Price then in
effect, be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Common Shares transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, conversion, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one such Right be less than the per share par value
of the Common Shares unless (x) permitted by law and (y) authorized by the Board
of Directors or its committee designated to administer this Rights Plan (the
"Rights Committee"). If an event occurs which would require an adjustment under
both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Rights Agreement, in the event any
Person becomes an Acquiring Person, then the Purchase Price for each Common
Share issuable upon exercise of Rights shall be reduced to an amount equal to
Fifteen Percent (15%) of the current market price per share of such Common Share
(determined pursuant to Section 11(d)) on the Shares Acquisition Date or such
greater price (not to exceed one-third (33 1/3%) of the said current price) as
the Rights Committee shall determine. Notwithstanding the above, if the
transaction that would otherwise give rise to the foregoing adjustment is also
subject to the provisions of Section 13 hereof, then only the provisions of
Section 13 hereof shall apply and no adjustment shall be made pursuant to this
Section 11(a)(ii).
From and after the occurrence of the event described above, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to
June 10, 1997
<PAGE> 17
exercise such Rights under any provision of this Rights Agreement. No Rights
Certificate shall be issued pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose Rights would be void pursuant to
the preceding sentence or any Associate or Affiliate thereof; no Rights
Certificate shall be issued at any time upon the transfer of any Rights to or
from an Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof or to or from any nominee of such
Acquiring Person, Associate or Affiliate; and any Rights Certificate delivered
to the Rights Agent for transfer to or from an Acquiring Person (or any
Associate, Affiliate or nominee of such Acquiring Person) whose Rights would be
void pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company
shall, to the extent permitted by applicable law, take all such action as may be
necessary to authorize additional Common Shares for issuance upon exercise of
the Rights, including the calling of a meeting of shareholders; provided,
however, if the Company is unable to cause the authorization of additional
Common Shares then the Company, to the extent necessary and permitted by
applicable law and any agreements or instruments in effect on the date hereof to
which it is a party, shall, at its option (A) pay cash equal to twice the
applicable Purchase Price (as adjusted pursuant to this Section 11) in lieu of
issuing any such Common Shares and requiring payment therefor, or (B) issue
equity securities having a value equal to the market price of Common Shares
which otherwise would have been issuable pursuant to the foregoing subparagraph
(ii), which value shall be determined by the Rights Committee or by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent, or (C) distribute a combination of Common Shares,
cash and/or other equity securities having a value equal to the market price of
the shares of the Common Shares which otherwise would have been issuable
pursuant to the foregoing subparagraph (ii), determined in accordance with the
preceding clause (B), upon exercise of the related Rights.
(b) In case the Company shall fix a record date for the issuance of rights
(other than the Rights), options or warrants to all holders of Common Shares
entitling them (for a period expiring within Forty Five (45) calendar days after
such record date) to subscribe for or purchase Common Shares, or securities
convertible into Common Shares at a price per share (or having a conversion
price per share, if a security convertible into Common Shares) less than the
then current per share market price (as defined in Section 11(d)) of the Common
Shares on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Common Shares outstanding on such record date plus the number of
Common Shares which the aggregate offering price of the total number of shares
so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price and the denominator of which shall be the number of Common Shares
outstanding on such record date plus the number of additional Common Shares to
be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise
June 10, 1997
<PAGE> 18
of one Right be less than the per share par value of the shares of capital stock
of the Company issuable upon exercise of one Right (except as provided in
Section 11(a)(i) hereof). In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company or by the Rights Committee, whose determination shall
be described in a statement filed with the Rights Agent. Common Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights, options
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Shares (including any such distribution
made in connection with a consolidation, share exchange or merger in which the
Company is the continuing or surviving corporation), of evidences of
indebtedness or assets (other than a regular periodic cash dividend, a dividend
payable in Common Shares or other distribution referred to in Section 11(a)
hereof) or subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Common Shares on such record date,
less the fair market value (as determined in good faith by the Rights Committee
or by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent) of the portion of such assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to one
Common Share and the denominator of which shall be such current per share market
price of the Common Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the per
share par value of the shares of capital stock of the Company to be issued upon
exercise of one Right (except as provided in Section 11(a)(i) hereof). Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per share
market price" of a Common Share on any date shall be deemed to be the average of
the daily closing prices per share of a Common Share for the thirty (30)
consecutive Trading Days immediately prior to such date; provided, however, that
in the event that the current per share market price of a Common Share is
determined during a period following the announcement by the Company of (A) a
dividend or distribution on the Common Shares, payable in Common Shares or
securities convertible into Common Shares, or (B) any subdivision, conversion,
combination or reclassification of the Common Shares, and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share of a Common Share. The closing price for each day shall
June 10, 1997
<PAGE> 19
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Shares are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Shares are listed or admitted
to trading or, if Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, if on any
such date Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in Common Shares, selected by the Rights Committee or the Board
of Directors of the Company. If on any such date no market-maker is making a
market in Common Shares, the fair value of Common Shares on such date as
determined in good faith by Rights Committee or the Board of Directors of the
Company shall be used, whose determination shall be described in a statement
filed with the Rights Agent. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which Common Shares are listed or
admitted to trading is open for the transaction of business or, if Common Shares
are not listed or admitted to trading on any national securities exchange, a
Business Day. If Common Shares are not publicly held or so listed or traded,
"current per share market price" shall mean the fair value per share as
determined in good faith by the Rights Committee or by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least One Percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest one ten-thousandth of a share as the case
may be.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Common Shares, thereafter
the number of such other shares so receivable upon exercise of any Right shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Shares
contained in Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Common Shares shall apply on
like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder to the Purchase Price applicable thereto shall
evidence the right to purchase, at the adjusted Purchase Price, the number of
Common Shares or other capital stock purchasable from time to time hereunder
upon exercise of such Rights, all subject to further adjustment as provided
herein.
June 10, 1997
<PAGE> 20
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each related Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, the number of Common Shares
(calculated to the nearest one ten-thousandth of a share) obtained by (i)
multiplying (x) the number of shares covered by such Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior to such
Purchase Price adjustment and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such Purchase Price adjustment.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any adjustment
in the number of Common Shares purchasable upon the exercise of a Right. Each of
such Rights outstanding after such adjustment of the number of such Rights shall
be exercisable for the number of Common Shares for which such Right was
exercisable immediately prior to such adjustment. Each such Right held of record
prior to such adjustment of the number of Rights shall become that number of
such Rights (calculated to the nearest one ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of such Purchase
Price by the Purchase Price in effect immediately after such adjustment. The
Company shall make a public announcement of its election to adjust the number of
Rights indicating the record date for the adjustment, and, if known at the time,
the amount of the adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of such Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of such Rights Certificates on such record date additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for such Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of Common Shares issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in such
Rights Certificates theretofore issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Shares issuable
upon exercise of the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares at such
adjusted Purchase Price. In this regard, the Company relies expressly on T.C.A.
ss. 48-16-
June 10, 1997
<PAGE> 21
101(c)(5) providing that the mere recitation of par value does not
create a requirement of a minimum consideration for the issuance of shares.
(l) In this regard, the Company relies expressly on T.C.A. ss.48-16-101 (c)
(5) providing that the mere recitation of par value does not create a
requirement of a minimum consideration for the issuance of shares. In any case
in which this Section 11 shall require that an adjustment in the Purchase Price
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event the issuing to the holder of
any related Right exercised after such record date of the Common Shares and
other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Common Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Common Shares, (ii)
issuance wholly for cash of any Common Shares at less than the current market
price, (iii) issuance wholly for cash of Common Shares or securities which by
their terms are convertible into or exchangeable for Common Shares, (iv)
dividends on Common Shares payable in Common Shares or (v) issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of Common Shares, shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Sections 23 or 27 hereof, take (or permit any
Subsidiary to take) any action the purpose of which is to, or if at the time
such action is taken it is reasonably foreseeable that the effect of such action
is to, materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights.
SECTION 12
CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares a copy of
such certificate, and (c) include a brief summary thereof in the next quarterly
or current report filed pursuant to the Exchange Act by the Company, and,
following the Distribution Date, mail such summary to each holder of a Rights
Certificate in accordance with Section 25 hereof.
June 10, 1997
<PAGE> 22
SECTION 13
CONSOLIDATION, SHARE EXCHANGE, MERGER OR SALE OR TRANSFER
OF ASSETS OR EARNING POWER
(a) In the event that, on or following the Distribution Date, directly or
indirectly, (x) the Company shall consolidate with, engage in a share exchange
with, or merge with and into any other Person, (y) the Company shall consolidate
with, engage in a share exchange with, or merge with, any other Person, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger (other than, in a case of any transaction described in (x) or (y), a
merger, share exchange, or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("voting
securities") of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into securities
of the surviving entity) all of the voting securities of the Company or such
surviving entity outstanding immediately after such merger, share exchange, or
consolidation and the holders of such securities not having changed as a result
of such merger, share exchange, or consolidation), or (z) the Company shall sell
or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or a series of related transactions, assets or
earning power aggregating more than Fifty Percent (50%) of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other Person
(other than the Company or any Subsidiary of the Company in one or more
transactions each of which does not violate Section 11(n)hereof), then, and in
each such case (except as provided in Section 13(d) hereof), proper provision
shall be made so that (i) each holder of a Right, except as provided in Section
11(a) hereof, shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price (without giving
effect to any adjustment to such Purchase Price pursuant to Section 11(a)(ii))
multiplied by the number of Common Shares for which such Right is then
exercisable, in accordance with the terms of this Rights Agreement, such number
of freely tradable Common Shares of the Principal Party, not subject to any
liens, encumbrances, rights of first refusal or other adverse claims, as shall
equal the result obtained by (A) multiplying the then current Purchase Price
(without giving effect to any adjustment to such Purchase Price pursuant to
Section 11(a)(ii)) by the number of Common Shares for which such Right is then
exercisable and dividing that product by (B) Twenty-Five Percent (25%) of the
then current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Rights Agreement; (iii) the term "Company" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of an event described in this Section 13; and
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of its Common Shares in accordance with
Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter
June 10, 1997
<PAGE> 23
be applicable, as nearly as reasonably may be, in relation to the Common Shares
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean (i) in the case of any transaction
described in clause (x) or (y) of the first sentence of Section 13(a), the
Person that is the issuer of any securities into which Common Shares of the
Company are converted in such merger, share exchange, or consolidation, and if
no securities are so issued, the Person that is the other party to such merger
or consolidation (including, if applicable, the Company if it is the surviving
corporation); and (ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earnings power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
cases, (1) if the Common Shares of such Person are not at such time and have not
been continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint ventures as if such party were a
"Subsidiary" of both or all of such joint ventures and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Company shall not consummate any such consolidation, merger, share
exchange, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized Common Shares which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, share exchange, sale or transfer mentioned in paragraph
(a) of this Section 13, the Principal Party at its own expense shall: (i)
prepare and file a registration statement under the Securities Act with respect
to the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
such Act) until the Final Expiration Date; (ii) use its best efforts to qualify
or register the Rights and the securities purchasable upon exercise of the
Rights under the blue sky laws of such jurisdictions as may be necessary or
appropriate; and (iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act. The provisions
of this Section 13 shall similarly apply to successive mergers, share exchanges,
consolidations, sales or other transfers. In the event that the events
June 10, 1997
<PAGE> 24
described in this Section 13 shall occur at any time after the occurrence of the
events described in Section 11(a)(ii), the Rights which have not theretofore
been exercised shall thereafter become exercisable in the manner described in
Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and (y)
of Section 13(a) if (i) such transaction is consummated with a Person or Persons
who acquired Common Shares pursuant to a Permitted Offer (or a wholly owned
subsidiary of any such Person or Persons), (ii) the price per share of the
Common Shares offered in such transaction is not less than the price per share
of Common Shares whose shares were purchased pursuant to such tender offer or
exchange offer and (iii) the form of consideration being offered to the
remaining holders of shares of Common Shares pursuant to such transaction is the
same as the form of consideration paid pursuant to such tender offer or exchange
offer. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.
SECTION 14
FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company shall not be required to issue fractions of Rights or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of such Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if such Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Rights selected by the Board
of Directors of the Company. If on any such date no such market maker is making
a market in the Rights, the fair value of such Rights on such date as determined
in good faith by the Rights Committee or by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent, shall be used.
June 10, 1997
<PAGE> 25
(b) The Company shall not be required to issue fractions of Common Shares
upon (i) exercise of the Rights or exchange of the Rights for Common Shares
pursuant to Section 24 of this Rights Agreement, or to distribute certificates
which evidence fractional shares of such securities. Fractions of Common Shares
may, at the election of the Company, be evidenced by depository receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided that such agreement shall provide that the holders of
such depositary receipts shall have the rights, privileges and preferences to
which they are entitled as beneficial owners of the Common Shares represented by
such depositary receipts. In lieu of fractional Common Shares or depositary
receipts, the Company may pay to the registered holders of Rights Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Common Share. For the
purposes of this Section 14(b), the current market value of a Common Share shall
be the closing price of a Common Share (as determined pursuant to the second
sentence of Section 11(d) hereof) for the Trading Day immediately prior to the
date of such exercise.
(c) The holder of a Right by the acceptance of such Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15
RIGHTS OF ACTION
All rights of action in respect of this Rights Agreement, excepting the
rights of action given to the Rights Agent under Section 18 hereof, are vested
in the respective registered holders of the Rights Certificates (and, prior to
the Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Rights Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Rights Certificate (or, prior to the Distribution Date, of the
Common Shares), may, in such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Rights Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this Rights
Agreement.
June 10, 1997
<PAGE> 26
SECTION 16
AGREEMENT OF RIGHT HOLDERS
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose
name the Rights Certificate (or, prior to the Distribution Date, the associated
certificates for Common Shares ) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificates or the associated certificates for Common
Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) the Company shall not be required to register the Rights under the
Securities Act or any other applicable law, rule, or regulation until a
Distribution Date shall have occurred and shall not have been timely rescinded
and, accordingly, the Rights Agent may require any purported transfer to be
prohibited or restricted unless and until there is a registration and/or until
the Rights holder provides to the Rights Agent a legal opinion, satisfactory in
form and substance, and signed by counsel, acceptable to the Rights Agent; and
(e) notwithstanding anything in this Rights Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or a beneficial interest in a Right or other Person as a result of
its inability to perform any of its obligations under this Rights Agreement by
reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Company must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
June 10, 1997
<PAGE> 27
SECTION 17
RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER
No holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the Common Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
SECTION 18
CONCERNING THE RIGHTS AGENT
The Company agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Rights Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this Rights
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. The indemnity provided for herein shall survive the
expiration of the Rights and the termination of this Rights Agreement. The
Rights Agent shall be protected and shall incur no liability for, or in respect
of any action taken, suffered or omitted by it in connection with, its
administration of this Rights Agreement in reliance upon any Rights Certificate
or certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
June 10, 1997
<PAGE> 28
SECTION 19
MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or all or substantially all of the corporate trust business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Rights Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Rights Agreement any of the
Rights Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Rights Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Rights Agreement. In case at any
time the name of the Rights Agent shall be changed and at such time any of the
Rights Certificates shall have been countersigned but not delivered, the Rights
Agent may adopt the countersignature under its prior name and deliver Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, the Rights Agent may countersign
such Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Rights Agreement.
SECTION 20
DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company or its own in-house counsel), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
June 10, 1997
<PAGE> 29
(b) Whenever in the performance of its duties under this Rights Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chairman of the Rights Committee, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct. (d) The
Rights Agent shall not be liable for or by reason of any of the statements of
fact or recitals contained in this Rights Agreement or in the Rights
Certificates (except its countersignature on such Rights Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(d) The Rights Agent shall not be under any responsibility in respect of
the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Rights
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights(including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Common Shares to be
issued pursuant to this Rights Agreement or any Rights Certificate or as to
whether any Common Shares will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(e) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(f) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from anyone
of the Chairman of the Board, the Chairman of the Rights Committee, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions
June 10, 1997
<PAGE> 30
in connection with its duties, and it shall not be liable for any action taken
or suffered by it in good faith in accordance with instructions of any such
officer or for any delay in acting while waiting for those instructions.
(g) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Rights Agreement. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Company or for any other legal entity except in
direct conflict with the Purposes of this Rights Agreement (e.g., representing
an Acquiring Person in connection with the Company or the Common Stock).
(h) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
SECTION 21
CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be discharged
from its duties under this Rights Agreement upon sixty (60) days' notice in
writing mailed to the Company and to each transfer agent of the Common Shares by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon ten (10) days' notice in writing, mailed to the Rights Agent
or successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of sixty (60) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at
June 10, 1997
<PAGE> 31
the time of its appointment as Rights Agent a combined capital and surplus of at
least Twenty Million Dollars ($20,000,000.00), or (b) an affiliate of a
corporation described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent, and account to the Company for, any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
and mail a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of any successor
Rights Agent, as the case may be.
SECTION 22
ISSUANCE OF NEW RIGHTS CERTIFICATES
Notwithstanding any of the provisions of this Rights Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Rights
Certificates (or labels for existing Rights Certificates) evidencing Rights in
such form as may be approved by its Rights Committee or Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Rights Agreement. In
addition, in connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date, the Company (a) shall with respect to Common Shares so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities, notes
or debentures issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) the Company shall not be
obligated to issue any such Rights Certificates if, and to the extent that, the
Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
June 10, 1997
<PAGE> 32
SECTION 23
REDEMPTION
(a) The Board of Directors of the Company may, at its option, at any time
prior to such time as any Person becomes an Acquiring Person, redeem all but not
less than all of the then outstanding Rights at a redemption price to be set by
the Rights Committee or by the Board of Directors ("Redemption Price"). The
Redemption Price shall be not more than $.01 per Right and not less than .001
per Right. The initial Redemption Price subject to change without notice, is set
at $.001 per Right. The Redemption Price shall be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof. The redemption of the Rights by the Board of Directors may be
made effective at such time, on such basis and with such conditions as the Board
of Directors in its sole discretion may establish. The Rights Committee or the
Board of Directors may, without notice to any Rights holders, at any time adjust
the Redemption Price (up or down) within the foregoing parameters by written
statement filed with the Rights Agreement. No compensation shall ever be due to
a Rights holder in respect of any one or more adjustments.
(b) The Rights Committee or the Board of Directors may, without notice, to
any Rights holders, at any time adjust the Redemption Price within the foregoing
parameters by written statement filed with the Rights Agent. No compensation
shall ever be due to a Rights holder in respect of any one or more adjustments
(up or down). Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (b) of this
Section 23 and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within thirty (30) days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
June 10, 1997
<PAGE> 33
SECTION 24
EXCHANGE
(a) The Board of Directors of the Company may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan or any trust agreement
entered into by the Company to secure benefits payable under any employee
benefit plan of the Company or any Subsidiary of the Company), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of Common
Shares representing Fifty Percent (50%) or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company shall promptly mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number and kind of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights being
exchanged (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of such Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights.
June 10, 1997
<PAGE> 34
SECTION 25
NOTICE OF CERTAIN EVENTS
(a) In case the Company, following the Distribution Date, shall propose (i)
to pay any dividend payable in stock of any class or series to holders of Common
Shares or to make any other distribution to holders of Common Shares (other than
a regular quarterly cash dividend), (ii) to offer to holders of Common Shares
rights or warrants to subscribe for or to purchase any additional Common Shares
or any other securities, rights or options, (iii) to effect any reclassification
of Common Shares (other than a reclassification involving only the subdivision
of outstanding Common Shares), (iv) to effect any consolidation, share exchange,
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any such reorganization or sale or
other transfer), in one or more transactions, of Fifty Percent (50%) or more of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which does not violate Section
11(n) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of a
Rights Certificate, in accordance with Section 26 hereof, a notice of such
proposed action to the extent feasible, which shall specify the record date for
the purposes of such stock dividend, or distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by holders of Common Shares if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least ten (10) days prior to the record date for
determining holders of Common Shares for purposes of such action, and in the
case of any such other action, at least ten (10) days prior to the date of the
taking of such proposed action or the date of participation therein by holders
of Common Shares, whichever shall be the earlier. The failure to give notice
required by this Section 25 or any defect therein shall not affect the legality
or validity of the action taken by the Company or the vote upon any such action.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
SECTION 26
NOTICES
Notices or demands authorized by this Rights Agreement to be given or made
by the Rights Agent or by the holder of any Rights Certificate to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing
June 10, 1997
<PAGE> 35
with the Rights Agent) as follows: First McMinnville Corporation, 200 East Main
Street, McMinnville, Tennessee 37110, Attention: Secretary. Subject to the
provisions of Section 21 hereof, any notice or demand authorized by this Rights
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows: The First National Bank of
McMinnville, 200 East Main Street, McMinnville, Tennessee 37110, Attention:
Trust Department. Notices or demands authorized by this Rights Agreement to be
given or made by the Company or the Rights Agent to the holder of any Rights
Certificate shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company, or by other commonly recognized means,
such as by overnight courier.
SECTION 27
SUPPLEMENTS AND AMENDMENTS
Prior to the Distribution Date, the Company and the Rights Agent shall, if
the Company so directs, supplement or amend any provision of this Rights
Agreement without the approval of any holders of certificates representing
Common Shares. From and after the Distribution Date, the Company and the Rights
Agent shall, if the Company so directs, supplement or amend this Rights
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person); provided, however, that this Rights
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights.
Without limiting the foregoing, the Company may at any time prior to such time
as any Person becomes an Acquiring Person amend this Rights Agreement to lower
the thresholds set forth in Sections 1(a) and 3(a) hereof from Ten Percent (10%)
to not less than the greater of (i) any percentage greater than the largest
percentage of the then outstanding Common Shares then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of any
such plan or the Trust Agreement) together with all Affiliates or Associates of
such Person, or (ii) Five Percent (5%). Upon the delivery of a certificate from
an appropriate officer of the Company which states that the proposed supplement
or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment, provided that such supplement
or amendment does not adversely affect the rights or obligations of the Rights
Agent
June 10, 1997
<PAGE> 36
under Section 18 or Section 20 of this Rights Agreement. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
SECTION 28
SUCCESSORS
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent shall bind each of them and inure to
the benefit of the irrespective successors and assigns hereunder.
SECTION 29
DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS
For all purposes of this Rights Agreement, any calculation of the number of
Common Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act. The Board of Directors of the Company or its Rights Committee
shall have the exclusive power and authority to administer this Rights Agreement
and to exercise all rights and powers specifically granted to the Board or to
the Company, or as maybe necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including a determination to redeem or not redeem the Rights
or to amend the Rights Agreement or a determination that an adjustment to the
Redemption Price or Exchange Ratio is or is not appropriate). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board in good faith, shall (x) be final, conclusive and binding on
the Company, the Rights Agent, the holders of the Rights and all other parties,
and (y) not subject the Board or the Rights Committee (or any member of either
thereof) to any liability to any holders of the Rights.
SECTION 30
BENEFITS OF THIS RIGHTS AGREEMENT
Nothing in this Rights Agreement shall be construed to give to any person
or corporation other than the Company, the Rights Agent and the registered
holders of the Rights Certificates (and, prior to the Distribution Date, the
Common Shares) any legal or equitable right, remedy or claim
June 10, 1997
<PAGE> 37
under this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
SECTION 31
SEVERABILITY
If any term, provision, covenant or restriction of this Rights Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Rights Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
SECTION 32
GOVERNING LAW
This Rights Agreement and each Rights Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Tennessee and for
all purposes shall be governed by and construed in accordance with the
substantive, procedural, and other laws of such State applicable to contracts to
be made and performed entirely within such State.
SECTION 33
COUNTERPARTS
This Rights Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
SECTION 34
DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Rights Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
June 10, 1997
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to
be duly executed and attested, all as of the day and year first above written.
SIGNATURES
THE COMPANY:
FIRST MCMINNVILLE CORPORATION
By:
-----------------------------------
Title:
--------------------------------
ATTEST BY SECRETARY:
- - ----------------------------------
Secretary to the Board
THE RIGHTS AGENT:
THE FIRST NATIONAL BANK OF MCMINNVILLE
By:
-----------------------------------
Title:
--------------------------------
ATTEST BY SECRETARY:
- - ----------------------------------
Secretary to the Board
June 10, 1997
<PAGE> 39
EXHIBITS
June 10, 1997
<PAGE> 40
EXHIBIT A
[SPECIMEN]
RIGHTS CERTIFICATE
FIRST MCMINNVILLE CORPORATION
Certificate No. R- Number of Rights
---------- ----------
RIGHTS NOT EXERCISABLE AFTER JUNE 4, 2007 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT A REDEMPTION PRICE TO
BE SET BY THE BOARD OF DIRECTORS (OR COMMITTEE THEREOF) AT A PRICE UP TO $.01
PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
This certifies that or registered assigns, is the registered owner of the
number of Rights set forth above, each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement, dated
as of June 10, 1997 (the "First McMinnville Corporation Rights Agreement"),
between First McMinnville Corporation, a Tennessee corporation (the "Company"),
and The First National Bank of McMinnville, national banking association (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 3:00 o'clock
p.m., Local Time, on June 4, 2007, at the principal office of the Rights Agent,
or at the office of its successor as Rights Agent, one fully paid non-assessable
share of First McMinnville Corporation Common Stock, par value $2.50 per share
(the "Stock"), at a purchase price (subject to adjustment from time to time and
on one or more occasions) of One Hundred Twenty Dollars ($120.00) per share (the
"Purchase Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Rights Certificate (and the number of shares of Stock which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth above, are the number and Purchase Price as of June 10, 1997, (the
"Record Date") based on the shares of Stock of the Company as constituted at
such date. As provided in the Rights Agreement, the Purchase Price and the
number of shares of Stock which may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment
upon the happening of certain events. This Rights Certificate is subject to all
of the terms, provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Rights Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent. This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Rights Certificate or Certificates of like tenor and date evidencing
Rights entitling the holder to purchase a like aggregate number of shares of
Stock as the Rights evidenced by the Rights Certificate or Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Certificates for the number
of whole Rights not exercised. Subject to the provisions of the Rights
Agreement, the Rights evidenced by this Rights Certificate (i) may be redeemed
by the Company at its option at a redemption price of up to $.01 per Right or
(ii) may be exchanged in whole or in part for shares of Stock. No fractional
shares of Stock will be issued upon the exercise of any Right or Rights
evidenced hereby, but in lieu thereof a cash payment will be made, as provided
in the Rights Agreement. No holder of this Rights Certificate shall be entitled
to vote or receive dividends or be deemed for any purpose the holder of the
shares of Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
June 10, 1997
<PAGE> 41
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
Witness the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as June 10, 1997.
Company: Countersigned: Rights Agent:
FIRST MCMINNVILLE CORPORATION FIRST NATIONAL BANK OF MCMINNVILLE
By: By:
------------------------------- -------------------------
Title: Title:
---------------------------- ----------------------
*****
[REVERSE SIDE OF CERTIFICATE FOLLOWS]
June 10, 1997
<PAGE> 42
FORM OF ASSIGNMENT OF RIGHTS CERTIFICATE
(To be executed by the registered holder if such holder desires to transfer
the Rights Certificate.)
FOR VALUE RECEIVED, THE UNDERSIGNED hereby sells, assigns and transfers
unto _________________________________________________________________ (Please
print name and address of transferee) this Rights Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ____________________________________________________________, Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
---------------------------
Signature:
------------------------------------------------
Signature Guaranteed:
-------------------------------------
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
The undersigned hereby certifies to First McMinnville Corporation, to the
Rights Agent, and to all other Rights holders who are not Acquiring Persons,
that the Rights evidenced by this Rights Certificate are not beneficially owned
by an Acquiring Person or an Affiliate or Associate thereof (as defined in the
Rights Agreement).
- - -----------------------------------------------------------
Signature
Date:
----------------------------
The Rights represented by this certificate have not been registered under the
Securities Act of 1933 (as amended) or under the securities laws of any state,
territory, or other jurisdiction and therefore such Rights may not be resold,
transferred or hypothecated without (a) the registration of such Rights under
the Securities Act of 1933 or (b) an opinion of counsel satisfactory to the
corporation to the effect that such registration is not necessary and
appropriate transfers will be noted in the Corporation's stock records. Transfer
or encumbrance of these Rights is or may be subject to certain rights of the
corporation and/or other security holders. A copy of any such agreement may be
obtained upon written request by a bona fide Shareholder or Rights holder to the
Secretary of the Corporation.
June 10, 1997
<PAGE> 43
EXHIBIT B
FORM FOR EXERCISE OF RIGHTS CERTIFICATE
[To be attached to each Rights Certificate]
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: First McMinnville Corporation
The undersigned hereby irrevocably elects to exercise ____________________
whole Rights represented by the attached Rights Certificate to purchase the
shares of Common Stock issuable upon the exercise of such Rights and requests
that certificates for such shares be issued in the name of:
_______________________________________________________
NAME OF RIGHTS HOLDER
(As Set Forth On the Rights Certificate)
________________________________________________________
Current Address of Rights Holder
________________________________________________________
Social Security or other Taxpayer Identification Number:
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
_______________________________________________________
NAME
________________________________________________________
Current Address of Rights Holder
________________________________________________________
Social Security or other Taxpayer Identification Number:
_______________________________________________________
Signature
(Signature must correspond to name as written upon the
face of the attached Rights Certificate in every
particular without alteration or enlargement or any
change whatsoever)
Date:
-------------------------------------------------
[Continued on Reverse Side]
June 10, 1997
<PAGE> 44
[Reverse Side of Election Form]
SIGNATURE GUARANTEE:
-----------------------------------------------------------
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- - --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights
and shares of Common Stock, that the Rights evidenced by the attached Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
_______________________________________
Signature
================================================================================
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or Affiliate or Associate thereof (as defined in the Rights Agreement) or
a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
================================================================================
June 10, 1997
<PAGE> 45
EXHIBIT C
SUMMARY OF RIGHTS TO
PURCHASE COMMON SHARES
Effective as of June 10, 1997, the Board of Directors of First McMinnville
Corporation (the "Company") adopted a Shareholders Rights Agreement (the "Rights
Agreement") and authorized and declared a dividend of one common share purchase
right (a "Right") for each outstanding share of the Company's common voting
stock, par value $2.50 per share (the "Common Shares"). The dividend is payable
on June 30, 1997, to the Shareholders of record on that date (the "Record
Date"), and with respect to Common Shares issued thereafter until the
Distribution Date (as hereinafter defined) or the expiration or earlier
redemption or exchange of the Rights. Except as set forth below, each Right
entitles the registered holder to purchase from the Company, at any time after
the Distribution Date one Common Share at a price per share of One Hundred
Twenty Dollars ($120.00), subject to adjustment (the "Purchase Price"). The
description and terms of the Rights are as set forth in the Rights Agreement.
Initially the Rights will be attached to all certificates representing
Common Shares than outstanding, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Shares upon the earlier to
occur of (i) Ten (10) days after the public announcement of a person's or group
of affiliated or associated persons' having acquired beneficial ownership of Ten
Percent (10%) or more of the outstanding Common Shares (such person or group
being hereinafter referred to as an "Acquiring Person"); or (ii) Ten (10) days
(or such later date as the Board may determine) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in a person or group's becoming an Acquiring
Person (the earlier of such dates being called the "Distribution Date").
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with, and only with, the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Shares
issued after the Distribution Date), and such separate Rights Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on Monday, June 4, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of certain members of the Board of Directors
determines to be adequate and in the best interests of the Company, its
stockholders and other relevant constituencies, other than such Acquiring
Person, its affiliates and associates (a "Permitted Offer")), each holder of a
Right will thereafter have the right (the "Flip-In Right") to acquire a Common
Share for a purchase price equal to an amount of Fifteen Percent (15%)
(adjustable up to One-Third (33 1/3%)) of the then current market price.
Notwithstanding the foregoing, all Rights that are, or were, beneficially owned
by any Acquiring Person or any affiliate or associate thereof will be null and
void and not exercisable.
In the event that, at any time following the Distribution Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding Common Shares immediately prior to
June 10, 1997
<PAGE> 46
the consummation of the transaction are not the holders of all of the surviving
corporation's voting power, or (ii) more than Fifty Percent (50%) of the
Company's assets or earning power is sold or transferred, then each holder of a
Right (except Rights which have previously been voided as set forth above) shall
thereafter have the right (the "Flip-Over Right") to receive, upon exercise and
payment of the Purchase Price, common shares of the acquiring company having a
value equal to two times the Purchase Price. If a transaction would otherwise
result in a holder's having a Flip-In as well as a Flip-Over Right, then only
the Flip-Over Right will be exercisable; if a transaction results in a holder's
having a Flip-Over Right subsequent to a transaction resulting in a holder's
having a Flip-In Right, a holder will have Flip-Over Rights only to the extent
such holder's Flip-In Rights have not been exercised.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of Common Shares,
(ii) upon the grant to holders of Common Shares of certain rights or warrants to
subscribe for or purchase Common Shares at a price, or securities convertible
into Common Shares with a conversion price, less than the then current market
price of Common Shares, or (iii) upon the distribution to holders of Common
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
Common Shares) or of subscription rights or warrants (other than those referred
to above). However, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least One Percent (1%).
No fractional Common Shares will be issued and in lieu thereof, an
adjustment in cash will be made based on the market price of Common Shares on
the last trading day prior to the date of exercise if the Common Shares are
publicly traded or, if not, then as determined by the Board of Directors or
other authorized representative of the Company.
At any time prior to the time a person becomes an Acquiring Person, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of Common Shares representing Fifty Percent
(50%) or more of the then outstanding Common Shares, the Board of Directors of
the Company may exchange the Rights (other than Rights which have become null
and void), in whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).
All of the provisions of the Rights Agreement may be amended prior to the
Distribution Date by the Board of Directors of the Company for any reason it
deems appropriate. Prior to the Distribution Date, the Board is also authorized,
as it deems appropriate, to lower the thresholds for distribution and Flip-In
Rights to not less than the greater of (i) any percentage greater than the
largest percentage then held by any shareholder, or (ii) Ten Percent (10%).
After the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board in order to cure any ambiguity, defect or inconsistency, to
make changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or, subject to certain
limitations, to shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders of the Company, shareholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable or
upon the occurrence of certain events thereafter.
Unless and until registered under the Securities Act and all other
applicable laws, rules, and regulations, the Rights are non-transferable and,
accordingly, the Rights Agent may require any purported transfer or assignment
to be
June 10, 1997
<PAGE> 47
prohibited or restricted unless and until there is a registration and/or until
the Rights holder provides to the Rights Agent a legal opinion, satisfactory in
form and substance, and signed by counsel, acceptable to the Rights Agent.
A copy of the Rights Agreement has been or will be filed, as and when
determined by the Company, with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on an appropriate Form under the
Securities Act of 1933, as amended. A copy of the Rights Agreement is available
to bona fide Shareholders free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.
Questions concerning the Rights Agreement may be directed in writing to:
President, First McMinnville Corporation, 200 East Main Street, McMinnville,
Tennessee 37110.
June 10, 1997
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First McMinnville
Corporation at December 31, 1997. 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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,461
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 2,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,868
<INVESTMENTS-CARRYING> 46,495
<INVESTMENTS-MARKET> 47,584
<LOANS> 111,473
<ALLOWANCE> 1,314
<TOTAL-ASSETS> 212,765
<DEPOSITS> 172,891
<SHORT-TERM> 4,350
<LIABILITIES-OTHER> 2,967
<LONG-TERM> 0
0
0
<COMMON> 1,514
<OTHER-SE> 31,043
<TOTAL-LIABILITIES-AND-EQUITY> 212,765
<INTEREST-LOAN> 9,878
<INTEREST-INVEST> 5,576
<INTEREST-OTHER> 237
<INTEREST-TOTAL> 15,691
<INTEREST-DEPOSIT> 6,953
<INTEREST-EXPENSE> 7,081
<INTEREST-INCOME-NET> 8,610
<LOAN-LOSSES> 220
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 3,841
<INCOME-PRETAX> 5,158
<INCOME-PRE-EXTRAORDINARY> 5,158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,581
<EPS-PRIMARY> 6.68
<EPS-DILUTED> 6.67
<YIELD-ACTUAL> 4.64
<LOANS-NON> 0
<LOANS-PAST> 255
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,015
<ALLOWANCE-OPEN> 1,724
<CHARGE-OFFS> 660
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,314
<ALLOWANCE-DOMESTIC> 1,314
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
