<PAGE> 1
================================================================================
UNITED STATES
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 For The Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________ to
_______________
Commission File Number: 2-90200
FIRST MCMINNVILLE CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 62-1198119
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Main Street
McMinnville, Tennessee 37110
(Address of principal executive offices) (Zip Code)
Registrant'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 (SS229.405 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 28, 1999 is approximately $30,778,495. 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 474,318 shares held by non-affiliates at February 28,
1999.
The number of shares outstanding for each of the Registrant's classes of common
stock, as of February 28, 1999: 533,234.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to security
holders for fiscal year ended December 31,
1998, as set forth in the Exhibit Index.
================================================================================
<PAGE> 2
FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I......................................................................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS...................................................................................... 1
ITEM 2. DESCRIPTION OF PROPERTY...................................................................................... 35
ITEM 3. LEGAL PROCEEDINGS............................................................................................ 35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................... 35
PART II........................................................................................................................ 35
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................................... 35
ITEM 6. SELECTED FINANCIAL DATA...................................................................................... 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION......................... 40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK ........................................................................................... 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................. 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ...................................................................... 41
PART III ...................................................................................................................... 41
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .......................................................... 41
ITEM 11. EXECUTIVE COMPENSATION ...................................................................................... 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ....................................................................................... 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............................................................. 50
PART IV........................................................................................................................ 50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K ..................................................................................... 50
Signatures............................................................................................................... 52
Supplemental Information................................................................................................. 53
Exhibit Index............................................................................................................ 54
</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 28, 1999, owned all of the stock of The First National Bank of
McMinnville (the "Bank" or "The First National Bank"). The Company's principal
business is its ownership of the Bank, which engages in the commercial banking
business. At December 31, 1998, the Company had total assets of approximately
$243,027,000 and total Shareholders' equity of $34,886,000. The Company reported
net earnings of approximately $3,870,000 for fiscal 1998. 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, 1998, the Bank's total
loans (net of allowance for possible loan losses of $1,495,000) were
$125,170,000 and its total deposits were $185,305,000.
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 1998 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" ("Management's
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. CERTAIN OF THE STATEMENTS IN THIS REPORT AND IN
THE CONSOLIDATED FINANCIAL STATEMENTS ARE "FORWARD LOOKING," AND THE COMPANY'S
ACTUAL COSTS, EXPERIENCE, AND RESULTS MAY DIFFER DUE TO, AMONG OTHER THINGS,
ACTUAL EXPERIENCE, GOVERNMENTAL REGULATIONS, OVERALL ECONOMIC CONDITIONS, AND
OTHER FACTORS THAT, AS TO OCCURRENCE OR IMPACT, CANNOT BE RELIABLY PREDICTED.
(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 1998 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
1
<PAGE> 4
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
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):
DECEMBER 31
(Dollars in Thousands Except Per Share)
<TABLE>
<CAPTION>
-------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total Assets $ 243,027 $ 212,765 $ 195,732 $ 190,663 $ 180,486
Total Earning Assets 233,130 203,272 186,849 180,803 171,121
Deposits 185,305 172,891 159,746 154,551 148,631
Stockholders' Equity 34,886 32,557 30,025 28,889 26,452
Gross Revenues 18,078 16,309 15,329 14,526 13,102
Net Earnings 3,870 3,581 3,444 3,106 3,077
Basic Earnings Per Share $ 7.24 $ 6.68 $ 6.34 $ 5.62 $ 5.55
Diluted Earnings Per Share $ 7.23 $ 6.67 $ 6.34 $ 5.62 $ 5.55
</TABLE>
THE BANK'S COMMERCIAL BANKING BUSINESS
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
2
<PAGE> 5
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
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.
FORWARD-LOOKING STATEMENTS
In this report and in documents incorporated herein by reference, the
Company may communicate statements relating to the future results of the Company
that may be considered "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from those included in the forward-looking statements.
Forward-looking statements are typically identified by the words "believe,
expect, anticipate, intend, estimate" and similar expressions. These statements
may relate to, among other things, Year 2000 issues and unforeseen or
unanticipated costs associated with Year 2000 compliance, loan loss reserve
adequacy, simulation of changes in interest rates and litigation results. Actual
results may differ materially from those expressed or implied as a result of
certain risks and uncertainties, including, but not limited to, social,
political and economic conditions, interest rate fluctuations, 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 definitively identified. Many
factors affecting the Company's financial condition and profitability, including
changes in economic conditions, the volatility of interest rates, political
events, equity and fixed income market fluctuations, personal and corporate
customers' bankruptcies, inflation, technological change, changes
3
<PAGE> 6
in law, changes in fiscal, monetary, regulatory and tax policies, monetary
fluctuations, success in gaining regulatory approvals when required as well as
other risks and uncertainties 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-K readers with information
relevant to understanding and assessing the financial condition and results of
operations of the Company and 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.
SUPERVISION AND REGULATION
The commercial banking business is highly regulated. Both the Company
and The First National Bank are subject to the supervision, examination, and
regulation of various federal and state agencies, including the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
Office of the Comptroller of the Currency (the "OCC"). The requirements and
restrictions imposed by the laws of the United States and the State of Tennessee
on the Bank and/or on the Company include 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 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.
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
4
<PAGE> 7
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.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act ("FDIA") as well as
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure and significantly
undercapitalized if it is significantly below such measure. The critically
undercapitalized level occurs where tangible equity is less than 2% of total
tangible
5
<PAGE> 8
assets or less than 65% of the minimum leverage ratio to be prescribed by
regulation (except to the extent that 2% would be higher than such 65% level). A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are also subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
The five FDICIA capital categories described above will be used by the
banking regulators to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., bank holding companies) must guarantee compliance with
the plan until the institution has been adequately capitalized for four
consecutive calendar quarters. The liability of the holding company is limited
to the lesser of 5% of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions. Further, these
institutions will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business. As an institution drops to lower
capital levels, the extent of action to be taken by the appropriate regulator
increases, restricting the types of transactions in which the institution may
engage and ultimately providing for the appointment of a receiver for certain
institutions deemed to be critically undercapitalized.
In order to comply with the FDICIA, the Federal Reserve Board and the
FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting criteria,
interest rate exposure, asset growth, and compensation, fees and benefits.
CAPITAL ADEQUACY
Under the Federal Reserve Board's risk-based capital guidelines
applicable to the Company, the minimum ratio of capital to risk-weighted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8%. To be considered a "well capitalized" bank under the guidelines, a bank
must have a total risk-based capital ratio in excess of 10%. Under these
guidelines, at least half of the total capital is to be comprised of common
equity, retained earnings and a limited amount of perpetual preferred stock,
after subtracting certain intangibles, and certain other adjustments ("Tier 1
capital"). The remainder may consist of perpetual debt, mandatory convertible
debt securities, a limited amount of subordinated debt, other preferred stock
not qualifying for Tier 1 capital and a limited amount of loan loss reserves
("Tier 2 capital"). Bank is subject to similar capital requirements adopted by
the OCC. In addition, the Federal Reserve Board, the OCC and the Federal Deposit
Insurance Corporation ("FDIC") have adopted a minimum leverage ratio (Tier 1
capital to adjusted quarter average assets) of 4%. Generally, banking
organizations are expected to operate well above the minimum required capital
level of 4% unless they meet certain specified criteria, including that they
have the highest
6
<PAGE> 9
regulatory ratings. Most banking organizations are required to maintain a
leverage ratio of 4% plus an additional cushion of at least 1% to 2%. The
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
upon intangible assets. Failure to meet 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, issuance of a capital directive, a prohibition on the taking of brokered
deposits and certain other restrictions.
On December 31, 1998 the Company's subsidiary bank exceeded the "well
capitalized" threshold per the guidelines, with a Tier 1 capital ratio of 26.3%,
a total risk-based capital ratio of 27.4%, and a leverage ratio of 14.1%.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT
In September 1994, the Interstate Banking Act became law. The
Interstate Banking Act provides that as of September 29, 1995, adequately
capitalized and managed bank holding companies are permitted to acquire banks in
any state. State laws prohibiting interstate banking or discriminating against
out-of-state banks were preempted as of the effective date, although states were
permitted to require that target banks located within the state be in existence
for a period of up to five years before such banks may be subject to the
Interstate Banking Act. The Interstate Banking Act establishes deposit caps
which prohibit acquisitions that would result in the acquirer controlling 30% or
more of the deposits of insured banks and thrifts held in the state in which the
acquisition or merger is occurring or in any state in which the target maintains
a branch or 10% or more of the deposits nationwide. State-level deposit caps are
not preempted as long as they do not discriminate against out-of-state
acquirers, and the federal deposit caps apply only to initial entry
acquisitions.
In addition, the Interstate Banking Act provides that as of June 1,
1997, adequately capitalized and managed banks may engage in interstate
branching by merging banks in different states and allowing banks to maintain
branches in states other than the states where they maintain their principal
place of business. 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.
CHANGES IN LAWS AND REGULATIONS
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the impact such changes might have on the Company and its
subsidiaries, however, cannot be determined at this time.
COMPETITION
The commercial banking business is highly competitive and the Company
and First National Bank compete actively with national and state banks and bank
holding company organizations for deposits, loans and trust accounts, and with
savings and loan associations and credit unions for deposits and loans. In
addition, the Bank competes with other financial institutions, including
securities brokers and dealers, personal loan companies, insurance companies,
finance companies, leasing companies and certain governmental agencies, all of
which actively engage in marketing various types of loans, deposit accounts and
other services.
DEPOSIT INSURANCE
The First National Bank is subject to charges for deposit insurance
coverage by the FDIC. The Bank's deposits are insured under the Bank Insurance
Fund, which is administered by the FDIC. The rates charged to the Bank for
deposit insurance vary from year to year and are expected to increase for the
year 1999.
7
<PAGE> 10
BANK AND BANK HOLDING COMPANY REGULATION; RESTRICTIONS ON DIVIDENDS
Subject to certain exceptions and the ultimate impact of the Interstate
Banking Act, both a bank holding company and an out-of-state bank are prohibited
under Tennessee law from acquiring control of, merging, or consolidating with a
Tennessee bank, unless the Tennessee bank has been in operation for at least
five (5) years. Notwithstanding the above-described prohibition(s), a bank which
does not have its home state in Tennessee may establish or acquire a branch in
Tennessee through the acquisition of all or substantially all of the assets and
the assumption of all or substantially all of the liabilities of or related to a
branch located in Tennessee which has been in operation for at least five (5)
years, provided that the laws of the home state of the out-of-state bank permit
Tennessee banks to establish and maintain branches in that state through the
acquisition of a branch under substantially the same terms and conditions. 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 OCC, and the Federal Reserve Board based upon a variety of
statutory and regulatory criteria. Branching is regulated generally by the OCC
pursuant to certain state and federal law requirements and 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 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, for 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 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 and bank
holding companies to pay dividends. State law restricts the ability of
corporations (such as the Company) to pay dividends, and federal law limits
dividends by the Bank. For example, prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, and surplus is below
certain statutory limits. In addition, the approval of the OCC 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 the OCC, 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 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. See also the
section of this Report entitled "Capital Adequacy."
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 institution's financial statements.
The relevant regulations require First 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, 1998, management believes that
the Company and the Bank meet all such capital requirements to which they are,
respectively, subject.
8
<PAGE> 11
The Company and the Bank are subject to various legal restrictions on
the extent to which a bank holding company (such as the Company) and any nonbank
subsidiary that it might own or form in the future can borrow or otherwise
obtain credit from any bank subsidiary such as the Bank. For example, The First
National Bank is subject to limitations imposed by Section 23A of the Federal
Reserve Act with respect to extensions of credit to, investments in, and certain
other transactions with, the Company. In general, these restrictions require
that any such extensions of credit must be on non-preferential terms and secured
by designated amounts of specified collateral and be limited, as to the holding
company or any one of such nonbank subsidiaries, to 10% of the lending
institution's capital stock and surplus, and as to the holding company and all
such nonbank 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).
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. 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 March 9, 1999, the maximum "formula rate" of
interest was 11.5%. 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 effect on its businesses or earnings.
RECENT DEVELOPMENTS
As noted previously, new laws and regulations are commonly prescribed
by governmental agencies that affect the Company and the Bank. For example, a
recent change in Tennessee law removed the prohibition against the acquisition
of certain branches that have been in existence for at least five years by
out-of-state banks and bank holding companies. It is now possible to have "S
corporation" tax status as a bank under federal income tax laws, with the effect
that the tax attributes of S corporations are available, under federal law, to
financial institutions.
9
<PAGE> 12
Other developments include certain new accounting proposals. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This Statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
Statement to have a material impact on financial condition or results of
operation. At the initial application of this Statement, the Company may elect
to transfer any security classified by the Company as held-to-maturity to the
available-for-sale or trading classification. In addition, the Company may elect
to transfer any security classified as available-for-sale to the trading
classification. Presently, management does not expect to elect these options.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other post-retirement benefit plans. The statement
does not change the measurement or recognition of those plans, but requires
additional information on changes in benefits obligations and fair values of
plan assets, and eliminates certain disclosures previously required by SFAS Nos.
87, 88 and 106. This statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the adoption of this Statement to
have a material effect on the Company's financial reporting.
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, 1998. 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 Union Planters Bank, N.A., Star Bank, and 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 1, 1999, the Registrant and its banking subsidiary (the
Bank) employed fifty seven persons on a full-time, and fifteen 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
10
<PAGE> 13
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.
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 "Y2K" ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The term "Year 2000 issue"
refers to the necessity of converting computer information systems so that such
systems recognize more than two digits to identify a year in any given date
field, and are thereby able to differentiate between years in the twentieth and
twenty-first centuries ending with the same two digits (e.g., 1900 and 2000). To
address the Year 2000 issue, the Company has adopted a broad-based approach
designed to encompass the Company's total environment.
Potential software failures due to processing errors arising from
calculations using the Year 2000 date are a known risk. The Company has
appointed a Year 2000 committee which was established in mid-1997. The Y2K
Committee has representation from all affected areas for the purpose of managing
the process of assessing and correcting non-compliance throughout the
organization. Areas being addressed by the Y2K Committee include:
- Subsidiary bank's primary data processing system. Banctec, Inc., a
major data processor, provides the primary software and hardware for
the data processing system of the subsidiary banks. This software and
hardware is of the highest priority for day to day operations,
accounting and success of the subsidiary banks.
- Government systems, such as the Federal Reserve Bank for check
clearing, wire transfers, and the free flow and exchange of funds
between institutions are absolutely critical.
- The internal PC hardware and software systems within the subsidiary
banks, along with telecommunications systems.
- The primary securities portfolio accounting and safekeeping system for
the subsidiary banks.
- Credit administration-the committee is reviewing the risk associated
with Year 2000 status of the subsidiary bank's loan customers and
depositors.
11
<PAGE> 14
The Company's Y2K Committee is using a 4-phase approach in its Year 2000
project made up of awareness, assessment, renovation, and validation-testing.
The Company is currently in the final phase of the Y2K Plan.
The purpose of the Y2K committee is to assess, test and correct the
Company's hardware, software and equipment to ensure these systems operate
properly in the Year 2000. The Committee has substantially completed its
assessment of the company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the Year 2000 and has
remedied the problem with the replacement of hardware that is compliant. As of
December 31, 1998 the Y2K committee has determined that substantially all of the
Company's systems will operate properly in the Year 2000.
The Company expects that programming changes and software replacement for
systems that are not Year 2000 compliant will be completed during the first
quarter of 1999. Banctec, Inc. has tested the Access 8.0 Operating system and
the Company has documentation on file that the operating system is Y2K
compliant. However, the Company tested the software using its own database to
ensure the readiness of the Company to service its customer base into the Year
2000. The testing was completed during 1998.
The Company has requested written documentation from vendors and
suppliers with whom the Company has a material relationship regarding their
ability to operate properly in the Year 2000. The Company will consider
alternatives related to vendors and suppliers that do not confirm their Year
2000 readiness. There can be no assurance however, that all of the Company's
significant vendors and suppliers will have remedied their Year 2000 issues. The
Company will continue to monitor its significant vendors and suppliers to seek
to minimize the Company's risk.
The Company is requiring Y2K readiness information from all of its major
borrowers. The Company believes commercial borrowers must realize the impact
that the Y2K could have on their respective businesses. Seminars, questionnaires
and individual contact with loan customers will be continued as an ongoing
prevention measure during the 1999 year. The Company realizes the materially
adverse impact that the lack of Y2K preparation of loan customers would have on
the Company during the Year 2000.
Customer awareness of the Company's Y2K readiness is critical. The steps
taken by the Company to prepare for the Year 2000 will be shared with customers
through Quarterly Newsletters, statement stuffers and the Y2K training of
employees. The Company believes customers must have a high confidence level in
the Company at the end of 1999 to avoid mass withdrawals of funds from the
Company. The Company is working toward a comprehensive customer awareness
program during the 1999 year.
The Company estimates that the cost of its Year 2000 project will not
exceed $200,000 in the aggregate and that the cost will not be material to
earnings. Actual expenditures to date and currently anticipated future
expenditures are within this estimate. The Company's management believes its
approach to the Year 2000 issue to be comprehensive, and does not expect the
Year 2000 issue to have a material impact on its results of operations,
liquidity or financial condition. However, given the widespread nature of the
problem, and the number of factors outside of the Company's direct control,
management is continuously evaluating the risks associated with Year 2000.
Management believes, however, that the Company's ultimate ability to
successfully address Year 2000 issues will be significantly affected by external
factors such as the success of government agencies, suppliers, and customers to
address their own respective Year 2000 issues. Although management is actively
addressing and establishing contingency plans to deal with these external
factors, they ultimately are beyond management's control.
The Board of Directors is aware of the Y2K problem and is receiving
monthly updates on the Y2K Committee's progress. The board has approved the
Company's written contingency plan. The plan addresses all aspects of the
Company's operation systems identifying alternative solutions. The contingency
plan identifies all of the subsidiary banks' major processing systems as
critical, semi-critical and non-critical. A processing solution is in place on
each of these applications detailing information on alternative processors and
their capabilities. This plan will continually be updated as each critical and
semi-critical application has completed its final testing phase.
12
<PAGE> 15
Of course, the ultimate effect of the Y2K issues on the Company and the
Bank will depend not only on the Company's response, for itself and the Bank,
but also on the efforts of the Bank's vendors, customers, government agencies,
unaffiliated financial services companies (including other banks and including
those in the securities markets) and others. The foregoing notwithstanding,
management does not currently believe that the costs of assessment, remediation,
or replacement of the Company's systems, or the potential failure of third
parties' systems will have a material adverse effect on the Company's business,
financial condition, results of operations, or liquidity.
Effective for periods ending after December 15, 1998, the Accounting
Standards Executive Committee issued Statement of Position No. 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
Company plans to adopt the provisions of this statement and it has determined
that the adoption of this statement is not expected to have a material impact on
the Company.
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.
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 1998.
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 in the following pages.
[Remainder of page intentionally left blank.]
13
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
I. Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rate and Interest Differential
The Schedule which follows indicates the average balances for each major balance
sheet item, an analysis of net interest income and the change in interest income
and interest expense attributable to changes in volume and changes in rates.
The difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities is net interest income, which is the
Company's gross margin. Analysis of net interest income is more meaningful when
income from tax-exempt earning assets is adjusted to a tax equivalent basis.
Accordingly, the following schedule includes a tax-equivalent adjustment of
tax-exempt earning assets, assuming a weighted average Federal income tax rate
of 34%.
In this Schedule "change due to volume" is the change in volume multiplied by
the interest rate for the prior year. "Change due to rate" is the change in
interest rate multiplied by the volume for the current year. Changes in interest
income and expense not due solely to volume or rate changes are included in the
"change due to rate" category.
Non-accrual loans, if any, have been included in their respective loan category.
Loan fees of $37,000, $39,000 and $42,000 for 1998, 1997 and 1996, 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.
14
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
-----------------------------------------------------------------------------------------
1998 1997 1998/1997 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 $ 115,394 8.74% 10,087 111,177 8.89% 9,878 375 (166) 209
Investment securities - taxable 83,366 6.92 5,773 61,248 7.18 4,396 1,588 (211) 1,377
--------- -------- -------- --------- -------- -------- --------
Investment securities - tax exempt 26,378 5.19 1,369 22,113 5.34 1,180 228 (39) 189
Taxable equivalent adjustment - 2.67 705 - 2.75 608 117 (20) 97
--------- -------- -------- --------- -------- -------- --------
Total tax-exempt investment securities 26,378 7.86 2,074 22,113 8.09 1,788 345 (59) 286
--------- -------- -------- --------- -------- -------- --------
Total investment securities 109,744 7.15 7,847 83,361 7.42 6,184 1,958 (295) 1,663
--------- -------- -------- --------- -------- --------
Federal funds sold 3,330 5.17 172 4,203 5.50 231 (48) (11) (59)
Interest-bearing deposits in banks 82 6.10 5 100 6.00 6 (1) - (1)
--------- -------- -------- --------- -------- -------- --------
Total earning assets 228,550 7.92 18,111 198,841 8.20 16,299 2,436 (624) 1,812
--------- -------- -------- --------- -------- -------- --------
Cash and due from banks 4,642 4,041
Allowance for possible loan losses (1,417) (1,775)
Bank premises and equipment 2,150 2,314
Other assets 3,005 3,227
--------- ---------
Total assets $ 236,930 206,648
========= =========
</TABLE>
15
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------------------------------
1998 1997 1998/1997 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 $ 20,705 2.57% 533 19,309 2.47% 477 34 22 56
Money market demand accounts 8,988 2.95 265 10,276 2.92 300 (38) 3 (35)
Other savings accounts 24,688 3.53 872 23,434 3.54 829 44 (1) 43
Certificates of deposit,
$100,000 and over 43,163 5.58 2,408 30,437 5.67 1,726 722 (40) 682
Certificates of deposit
under $100,000 58,329 5.53 3,223 55,676 5.58 3,105 148 (30) 118
Individual retirement accounts 11,025 5.67 625 9,137 5.65 516 107 2 109
--------- -------- ------- --------- ------- ------- -----
Total interest-bearing
deposits 166,898 4.75 7,926 148,269 4.69 6,953 874 99 973
Demand 20,580 - - 20,038 - - -
--------- -------- -------- --------- ------- ------- -----
Total deposits 187,478 4.23 7,926 168,307 4.13 6,953 779 194 973
--------- -------- -------- --------- ------- ------- -----
Federal funds purchased, securities
sold under repurchase agreements
and short-term debt 9,542 3.99 381 4,149 3.09 128 167 86 253
Advances from Federal Home Loan Bank 2,811 5.23 147 - - - 147 - 147
--------- -------- -------- --------- ------- ------- -----
Total deposits and
borrowed funds 199,831 4.23 8,454 172,456 4.11 7,081 1,134 239 1,373
--------- -------- -------- --------- ------- ------- -----
Other liabilities 2,631 2,496
Stockholders' equity 34,468 31,696
--------- ---------
Total liabilities and
stockholders' equity $ 236,930 206,648
========= =========
Net interest income 9,657 9,218 439
======== ========= ======
Net yield on earning assets 4.23% 4.64%
======== ========
Net interest spread 3.69% 4.09%
======== ========
</TABLE>
16
<PAGE> 19
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
<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>
17
<PAGE> 20
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
<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>
18
<PAGE> 21
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
II. Investment Portfolio
A. Securities at December 31, 1998 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 $16,451 218 8 16,661
Obligations of state and
political subdivisions 26,761 995 26 27,730
Corporate and
other securities 763 24 -- 787
Mortgage-backed
securities 2,242 2 29 2,215
--------- ---------- ---------- ---------
$ 46,217 1,239 63 47,393
========= ========== ========== =========
<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 $ 57,056 626 197 57,485
Obligations of state and
political subdivisions 1,528 69 -- 1,597
Corporate and
other securities 812 -- -- 812
Mortgage-backed
securities 1,922 -- 73 1,849
--------- ---------- ---------- ---------
$ 61,318 695 270 61,743
========= ========== ========== =========
</TABLE>
19
<PAGE> 22
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
II. Investment Portfolio, Continued
A. Continued:
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
========= ========== ========== =========
<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>
20
<PAGE> 23
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
II. Investment Portfolio, Continued
B. The following schedule details the estimated maturities and
weighted average yields of securities of the Company at December
31, 1998.
<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 $ 3,662 3,698 7.21%
One to five years 2,742 2,744 6.25
Five to ten years 9,245 9,384 7.50
More than ten years 3,044 3,050 7.43
------- ------ ----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 18,693 18,876 7.25
------- ------ ----
Obligations of states and
political subdivisions*:
Less than one year 1,260 1,272 7.91
One to five years 6,853 7,045 8.97
Five to ten years 6,869 7,283 7.94
More than ten years 11,779 12,130 7.45
------- ------ ----
Total obligations of states
and political subdivisions 26,761 27,730 7.98
------- ------ ----
Other:
Corporate and other securities 763 787 7.31
------- ------ ----
Total held-to-maturity
securities $46,217 47,393 7.63%
======= ====== ====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming
a weighted average Federal income tax rate of 34%.
21
<PAGE> 24
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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 $ 1,176 1,190 6.31%
One to five years 1,000 1,000 6.01
Five to ten years 30,367 30,732 6.65
More than ten years 26,435 26,412 6.85
--------- --------- --------
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 58,978 59,334 6.72
--------- --------- --------
Obligations of states and
political subdivisions*:
Less than one year -- -- --
One to five years 285 295 10.33
Five to ten years 679 710 7.25
More than ten years 564 592 7.95
--------- --------- --------
Total obligations of states
and political subdivisions 1,528 1,597 8.06
--------- --------- --------
Other:
Federal Home Loan Bank stock 721 721 --
Federal Reserve Bank stock 91 91 --
--------- --------- --------
Total available-for-sale
securities $ 61,318 61,743 6.76%
========= ========= ========
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming
a weighted average Federal income tax rate of 34%.
22
<PAGE> 25
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
In Thousands
--------------------------
1998 1997
--------- --------
<S> <C> <C>
Commercial, financial and agricultural $ 37,011 28,833
Real estate - construction 2,339 2,405
Real estate - mortgage 84,136 77,393
Consumer 3,235 2,842
--------- --------
Total loans 126,721 111,473
Less unearned interest (56) --
--------- --------
Total loans, net of unearned interest 126,665 111,473
Less allowance for possible loan losses (1,495) (1,314)
--------- --------
Net loans $ 125,170 110,159
========= ========
</TABLE>
23
<PAGE> 26
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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, 1998.
<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 $17,502 17,012 2,497 37,011
Real estate -
construction 2,339 -- -- 2,339
------- ------ ------ ------
$19,841 17,012 2,497 39,350
======= ====== ====== ======
Interest-Rate Sensitivity:
Fixed interest rates $13,000 14,427 2,011 29,438
Floating or adjustable
interest rates 6,841 2,585 486 9,912
------- ------ ------ ------
Total commercial,
financial and
agricultural
loans and
real estate -
construction
loans $19,841 17,012 2,497 39,350
======= ====== ====== ======
</TABLE>
* Includes demand loans, bankers acceptances, commercial paper and
overdrafts.
24
<PAGE> 27
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
III. Loan Portfolio, Continued
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1998 and
1997.
<TABLE>
<CAPTION>
In Thousands
-----------------------
1998 1997
-------- -------
<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
Real estate - construction -- --
Real estate - mortgage 224 152
Consumer 49 2
Lease financing receivable -- --
-------- -------
Total loans 90 days past due $ 273 255
======== =======
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 $ 273 255
======== =======
Total loans, net of unearned interest $126,665 111,473
======== =======
Percent of total loans outstanding,
net of unearned interest 0.22% 0.23%
======== =======
Other real estate $ 11 11
======== =======
</TABLE>
25
<PAGE> 28
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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, 1998 and 1997.
At December 31, 1998, loans totaling $6,279,000 were included in
the Company's internal classified loan list. Of these loans,
$1,595,000 are real estate, $4,585,000 are commercial and $99,000
are consumer. The collateral valuations received by management
securing these loans total approximately $9,211,000, ($2,310,000
related to real estate, $6,898,000 related to commercial and
$3,000 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, 1998 and 1997, there were loans to customers in
the nursery industry totaling approximately $11,243,000 and
$10,737,000, 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, 1998 and 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,
1998 and no loss is anticipated thereon.
26
<PAGE> 29
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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, 1998 which would be required to be
disclosed as past due, non-accrual, restructured or potential
problem loans, if such interest-bearing assets were loans.
27
<PAGE> 30
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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,
1998 and 1997 and the years then ended.
<TABLE>
<CAPTION>
In Thousands Except Percentages
-------------------------------
1998 1997
--------- --------
<S> <C> <C>
Allowance for possible loan losses at beginning of period $ 1,314 1,724
--------- --------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial and agricultural -- (600)
Real estate - construction -- --
Real estate - mortgage -- --
Consumer (37) (60)
Lease financing -- --
--------- --------
(37) (660)
--------- --------
Recoveries:
Commercial, financial and agricultural 2 --
Real estate - construction -- --
Real estate - mortgage -- --
Consumer 36 --
Lease financing -- 30
--------- --------
38 30
--------- --------
Net loan recoveries (charge-offs) 1 (630)
--------- --------
Provision for possible loan losses charged to expense 180 220
--------- --------
Allowance for possible loan losses at end of period $ 1,495 1,314
========= ========
Total loans, net of unearned interest, at end of year $ 126,665 111,473
========= ========
Average total loans outstanding,
net of unearned interest, during year $ 115,394 111,177
========= ========
Net charge-offs (recoveries) as a percentage of
average total loans outstanding, net of unearned
interest, during year --% 0.57%
========= ========
Ending allowance for possible loan losses as a
percentage of total loans outstanding
net of unearned interest, at end of year 1.18% 1.18%
========= ========
</TABLE>
28
<PAGE> 31
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
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 lo an 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, 1998 December 31, 1997
------------------------ ----------------------
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 $1,120 29% $1,033 26%
Real estate - construction 6 2 -- 2
Real estate - mortgage 313 66 223 69
Consumer 56 3 58 3
------ ------ ------ -----
$1,495 100% $1,314 100%
====== ====== ====== =====
</TABLE>
29
<PAGE> 32
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1998
V. Deposits
The average amounts and average interest rates for deposits for 1998
and 1997 are detailed in the following schedule:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Average Average
Balance Balance
------------ Average ------------ Average
In Thousands Rate In Thousands Rate
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 20,580 --% 20,038 --%
Negotiable order of withdrawal
accounts 20,705 2.57% 19,309 2.47%
Money market demand accounts 8,988 2.95% 10,276 2.92%
Other savings accounts 24,688 3.53% 23,434 3.54%
Certificates of deposit $100,000
and over 43,163 5.58% 30,437 5.67%
Certificates of deposit under
$100,000 58,329 5.53% 55,676 5.58%
Individual retirement savings
accounts 11,025 5.67% 9,137 5.65%
-------- ---- ------- ----
$187,478 4.23% 168,307 4.13%
======== ==== ======= ====
</TABLE>
The following schedule details the maturities of certificates of
deposit and individual retirement accounts of $100,000 and over at
December 31, 1998.
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
Certificates Individual
of Retirement
Deposit Accounts Total
------------ ---------- ------
<S> <C> <C> <C>
Less than three months $ 7,266 299 7,565
Three to six months 9,875 1,519 11,394
Six to twelve months 9,679 308 9,987
More than twelve months 11,378 821 12,199
------- ------ ------
$38,198 2,947 41,145
======= ====== ======
</TABLE>
In addition, approximately $692,000 of other time deposits of $100,000
and over are included in "other savings deposits," which are passbook
accounts with a 90-day maturity.
30
<PAGE> 33
FIRST MCMINNVILLE CORPORATION
FORM 10-K
December 31, 1998
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at
December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Return on assets 1.63% 1.73% 1.78%
(Net income divided by average total assets)
Return on equity 11.23% 11.30% 11.55%
(Net income divided by average equity)
Dividend payout ratio 36.60% 37.43% 37.85%
(Dividends declared per share divided
by net income per share)
Equity to assets ratio 14.55% 15.34% 15.42%
(Average equity divided by average
total assets)
Leverage capital ratio 14.07% 15.22% 15.34%
(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.
31
<PAGE> 34
FIRST MCMINNVILLE CORPORATION
FORM 10-K
December 31, 1998
VI. Return on Equity and Assets, Continued
The following schedule details the Company's risk-based capital at
December 31, 1998 (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 $ 34,622
Tier II capital:
Allowable allowance for loan losses
(limited to 1.25% of risk-weighted
assets) 1,495
-------------
Total risk-based capital $ 36,117
=============
Risk-weighted assets $ 131,688
=============
Risk-based capital ratios:
Tier I capital ratio 26.3%
=============
Total risk-based capital ratio 27.4%
=============
</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, 1998, the Company and its subsidiary bank were in compliance with
these requirements.
32
<PAGE> 35
FIRST MCMINNVILLE CORPORATION
FORM 10-K
December 31, 1998
VI. Return on Equity and Assets, Continued
The following schedule details the Company's interest rate sensitivity
at December 31, 1998:
<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 $126,665 8,352 5,867 9,728 15,122 87,596
Securities 107,960 - 1,485 1,335 3,304 101,836
-------- --------- ---------- ----------- ------------ -----------
Total earning assets 234,625 8,352 7,352 11,063 18,426 189,432
-------- --------- ---------- ----------- ------------ -----------
Interest-bearing liabilities:
Negotiable order of
withdrawal accounts 23,401 23,401 - - - -
Money market demand
accounts 7,198 7,198 - - - -
Savings deposits 26,539 26,539 - - - -
Certificates of deposit,
$100,000 and over 38,198 3,261 4,005 9,875 9,679 11,378
Certificates of deposit,
under $100,000 59,329 5,380 8,445 10,880 14,182 20,442
Individual retirement
accounts 11,555 1,141 1,181 3,148 2,213 3,872
Securities sold under
repurchase agreements 13,699 13,699 - - - -
Advances from FHLB 4,000 - - - - 4,000
Federal funds purchased 2,000 2,000 - - - -
-------- --------- --------- ----------- ------------ -----------
Total interest bearing
liabilities 185,919 82,619 13,631 23,903 26,074 39,692
-------- --------- --------- ----------- ----------- -----------
Interest-sensitivity gap $ 48,706 (74,267) (6,279) (12,840) (7,648) 149,740
======== ========= ========= =========== =========== ===========
Cumulative gap (74,267) (80,546) (93,386) (101,034) 48,706
========= ========= =========== =========== ===========
Interest-sensitivity gap
as % of total assets (30.56)% (2.58)% (5.28)% (3.15)% 61.61%
========= ========= =========== =========== ===========
Cumulative gap as % of
total assets (30.56)% (33.14)% (38.42)% (41.57)% 20.04%
========= ========= =========== =========== ===========
</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.
33
<PAGE> 36
FIRST MCMINNVILLE CORPORATION
FORM 10-K
December 31, 1998
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
The Company's primary component of market risk is interest rate volatility.
Fluctuations in interest rates will ultimately impact both the level of income
and expense recorded on a large portion of the Company's assets and liabilities,
and the market value of all interest-earning asses and interest-bearing
liabilities, other than those which possess a short term to maturity. Based upon
the nature of the Company's operations, the Company is not subject to foreign
currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings risk
associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus the
spread between the cost of funds and interest yields generated primarily through
loans and investments.
34
<PAGE> 37
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, 1998,
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 1998.
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 1999
(through January 31, 1999) and for each quarter of fiscal 1998 and 1997. During
1998 the Company redeemed 3,673 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.)
35
<PAGE> 38
<TABLE>
<CAPTION>
CALENDAR QUARTER COMMON STOCK
1999 High Low
---- ---- ---
<S> <C> <C>
First Quarter $ 64.89 $ 64.89
1998
----
Fourth Quarter $66.54 $ 65.15
Third Quarter 64.64 63.21
Second Quarter 63.21 61.84
First Quarter 61.33 60.01
1997
----
Fourth Quarter $61.80 $ 60.56
Third Quarter 60.10 58.82
Second Quarter 58.80 57.65
First Quarter 57.10 55.88
</TABLE>
The last trade known to management involved 400 shares at an estimated
$64.89 per share in January of 1999. 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 28, 1999, the Company had 533,234 shares outstanding. 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.
36
<PAGE> 39
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 "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.
37
<PAGE> 40
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 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.
38
<PAGE> 41
(B) HOLDERS
The approximate number of record holders, including those shares held
in "nominee" or "street name," of the Company's Common Stock at January 31, 1999
was approximately 500.
(C) DIVIDENDS
The Company declared and paid semi-annual cash dividends on its Common
Stock in the aggregate amount of $2.65 per share in 1998, $2.50 per share in
1997, and $2.40 per share in 1996. 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, 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
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 18 of the
Consolidated Financial Statements for additional information on the Stock Option
Plan and to Note 17 thereof with respect to earnings per share. The Company
believes that an exemption from registration
39
<PAGE> 42
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.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data required by this part of this Annual Report
on Form 10-K are incorporated into this Report by reference to page 4 of the
Company's 1998 Annual Report to Stockholders. Only the information set forth in
the said 1998 Annual Report to Stockholders on page 4 under the caption "SUMMARY
OF SELECTED FINANCIAL DATA (Unaudited)" is incorporated in response to this Part
of the Company's Annual Report on Form 10-K for the year ended December 31,
1998. No portion of the 1998 Annual Report to Stockholders is incorporated by
reference, however, except (as here) by express reference. The 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" that 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The "Management's Discussion and Analysis of Financial Condition and
Results of Operation" called for by this part is expressly incorporated herein
by reference to the section of the Company's 1998 Annual Report to Stockholders
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation". Only that portion of the said 1998 Annual Report to
Stockholders is incorporated as part of this Item of the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. No portion of the 1998 Annual
Report to Stockholders is incorporated by reference, however, except (as here)
by express reference.
The purpose of this discussion 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 Company's Consolidated
Financial Statements.
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 20 of the Company's 1998 Annual Report to
Stockholders) are included in this Report:
- Independent Auditors' Report;
- Consolidated Balance Sheets - December 31, 1998 and 1997;
- Consolidated Statements of Earnings - Three years ended
December 31, 1998;
- Consolidated Statements of Comprehensive Earnings - Three
years ended December 31, 1998;
- Consolidated Statements of Changes in Stockholders'
Equity - Three years ended December 31, 1998;
- Consolidated Statements of Cash Flows - Three years ended
December 31, 1998; and all
40
<PAGE> 43
- Notes to Consolidated Financial Statements.
The Consolidated Financial Statements called for by this Item are
incorporated by reference to the Consolidated Financial Statements section of
the Company' 1998 Annual Report to Stockholders, pages 20-48. No portion of the
1998 Annual Report to Stockholders is incorporated by reference, however, except
(as here) by express reference.
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 28, 1999, 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 III" are being
nominated for three year terms to the Board of Directors for consideration at
the 1999 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.
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS DIRECTOR
OR NOMINEE BUSINESS EXPERIENCE SINCE
CLASS I
(DIRECTORS WHOSE TERMS EXPIRE IN 2000)
<S> <C> <C>
Paul O. Barnes Chairman, B & P Lamp Supply Co., Inc. 1984
(65)
Henry N. Boyd Chief Executive Officer, Boyd Bros. Nursery 1984
(82)
Dean I. Gillespie Dean I. Gillespie, President, Bridge Builders, Inc. 1984
(65)
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS DIRECTOR
OR NOMINEE BUSINESS EXPERIENCE SINCE
<S> <C> <C>
CLASS II
(DIRECTORS WHOSE TERMS EXPIRE IN 2001)
J. G. Brock Owner, Brock Construction Company 1993
(43)
G. B. Greene President, Womack Printing Co., Inc. 1984
(59)
Robert W. Jones Chairman, First McMinnville Corporation, 1989 - 1984
(70) present; Chairman, First National Bank, 1981 -
present; Chief Executive Officer, First National
Bank, 1976 - 1993
CLASS III
(DIRECTORS WHOSE TERMS EXPIRE IN 1999)
Charles C. Jacobs President and Chief Executive Officer, First 1985
(60) McMinnville Corporation, January 1994 -present;
President and Chief Executive Officer, First National
Bank, January 1994 - present
J. Douglas Milner General Manager and Vice President, Middle Tennessee 1995
(52) Dr. Pepper Bottling Company
John J. Savage, Jr. Retired; Executive Vice President and Trust Officer, 1984
(77) First National Bank through September 1986
Carl M. Stanley Chief Manager, The Burroughs-Ross-Colville Company, 1984
(63) LLC
</TABLE>
42
<PAGE> 45
IDENTIFICATION OF EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
<S> <C> <C>
Charles C. Jacobs 60 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.
P. Diane Bogle 51 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 62 Senior Vice President, First McMinnville Corporation, and Senior
Vice President of First National Bank, 1991 - present.
Kenny D. Neal 47 Senior Vice President and Treasurer of First McMinnville
Corporation, 1994 - present; Senior Vice President and Cashier,
First National Bank, 1990 - present.
C. P. Whisenhunt 53 Senior Vice President, First McMinnville Corporation, 1993 -
present; Senior Vice President, First National Bank, 1993 - present.
L. Brent Foster 39 Senior Vice President of the Company and the Bank, 1997-present;
Vice President of the Company and the Bank 1994-1997.
David W. Marttala 37 Senior Vice President of the Company and the Bank, Trust Officer of
the Bank, General Counsel of the Company and the Bank, 1996-present;
Attorney with Marttala & Marttala, 1994-1996.
</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."
43
<PAGE> 46
(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 has no class of securities 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.
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, 1998,
1997, and 1996 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 1998 and the other four most highly compensated
executive officers as of December 31, 1998 (if their total annual salary and
bonus equaled or exceeded $100,000). The figures below include all compensation
paid for all services to the Company for that fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------------------------------------------------------------------------------
Awards Payouts
---------------------------- ------------------------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Award(s) Options/SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)1 ($) (#)(2) Payouts($) Compensation($)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Jacobs, 1998 $131,500 $ 19,725 $11,414 N/A -0- $ -0- $16,746
President/CEO 1997 $124,000 18,600 11,288 N/A 3,500 -0- 15,686
1996 114,000 17,100 11,288 N/A -0- -0- 17,034
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees and insurance premiums.
44
<PAGE> 47
(2) The amounts in this column reflect the number of unexercised
options granted to the named person(s) in the year(s) indicated.
(3) This amount represents the Company's contribution to the Company's
401(k) plan on behalf of the named executive(s) together with the estimated
contribution for the named person in respect of the Company's defined
benefit (pension) plan described in this Report.
***
STOCK OPTION GRANTS
The Company granted no stock options to the Directors, or to any
executive officer(s) named in the Summary Compensation Table in 1998. The
Company grants no stock appreciation rights.
1998 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's stock option plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s).
1998 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's stock option plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs in-the-Money
At Fiscal Year End Options/SARs At
(#) Fiscal Year End ($)
Shares Acquired on Value Realized on --------------------- --------------------
Name and Title Exercise (#) Exercise ($) Exercisable/ Exercisable/
Nonexerciseable(1) Nonexerciseable(1)
------------------------ ---------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Charles C. Jacobs -0- $-0- 1,400/2,100 $9,436/$14,154
President/CEO
------------------------ ---------------------- ---------------------- --------------------- ---------------------
</TABLE>
NOTE TO PRECEDING TABLE
(1) This amount represents the difference between the estimated market
price on February 28, 1999 of approximately $64.89 per share and the respective
exercise price(s) of the options at the date(s) of grant ($58.15). 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. 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.
ss229.402(c).
***
45
<PAGE> 48
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has appointed a Compensation Committee 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 (and,
hence, the Company's) performance compared to other similarly situated
commercial banks, with primary emphasis given to comparable community 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 important
to the Committee are length and quality of service to the Company, 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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the members of the Company's Compensation Committee
during the last completed fiscal year were Directors Greene, Jones and Stanley.
None of these individuals was, during the last fiscal year, an officer or
employee of the Company or any of its subsidiaries, was formerly an officer of
the registrant or any of its subsidiaries, or had any relationship requiring
disclosure by the Company under any paragraph of Item 404 of the SEC's
Regulation S-K except that Director Jones serves as a consultant to the Company
and, as such consultant, as Chairman of the Company. (In addition, Director
Jones retired in 1993 as chief executive officer of the Company). During the
last completed fiscal year, no executive officer of the Company served as a
member of the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers served on the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of the
Company; or served as a director of another entity, one of whose executive
officers served on the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire board of directors) of the Company; or served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as a director of the
Company.
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
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).
46
<PAGE> 49
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. Note 18 to the Consolidated Financial
Statements of the Company for the year ended December 31, 1998 contains
additional information concerning the Stock Option Plan.
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
31 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 1998
contribution for Mr. Jacobs was $12,179, 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 $6,049.
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.
Years of Service
----------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
$ 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
</TABLE>
47
<PAGE> 50
Years of Service
----------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
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 10 to
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 1998, the Company contributed approximately $43,000 to the
plan, as compared to $45,000 in 1997 and $41,000 in 1996. Please refer to Note
10 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 28, 1999 there were
533,234 shares of the Company's Common Stock issued and outstanding.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by (A) directors of the Company, and
(B) 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
January 31, 1999. 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 as set
forth above at said date plus the number of shares obtainable by such person
with the next sixty days.
48
<PAGE> 51
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS (1)
OWNER OWNERSHIP
<S> <C> <C>
(A) Paul O. Barnes 9,328(2) 1.75
Henry N. Boyd 9,480 1.78
J. G. Brock 1,500(3) *
Dean I. Gillespie 2,680(4) *
G.B. Greene 6,996 1.31
Charles C. Jacobs 5,646 1.06
Robert W. Jones 10,094(5) 1.89
J. Douglas Milner 1,200 *
John J. Savage 2,132(6) *
C. M. Stanley 18,204 3.41
(B) Directors and Executive Officers as a 69,676 12.81%
Group (16 persons)
</TABLE>
* Less than 1%.
NOTES TO TABLE
(1) Based on 533,234 shares of the Common Stock outstanding at January 31,
1999, 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. The other options held by executive
officers and exercisable within 60 days are Mr. Jacobs (400),Mrs. Bogle
(240), Mr. Cowell (160), Mr. Foster (240), Mr. Marttala (240), Mr. Neal
(240), and Mr. Whisenhunt (240).
(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.
***
49
<PAGE> 52
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 1998. At
December 31, 1998, the dollar amount of loans to the Company's Directors and
Executive Officers, and their respective affiliates, was approximately
$2,764,000. This approximated 7.9% of Shareholders equity and 2.2% of the
Company's total loans (net of the allowance for possible loan losses). All loan
transactions were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated borrowers and did not
involve more than the normal risk of collectibility or present other unfavorable
features. 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, appear on pages 20 - 48 of the 1998
Annual Report to Stockholders of this Annual Report on
Form 10-K, which portion of the 1998 Annual Report to
Stockholders is hereby incorporated herein by
reference:
a. Consolidated Balance Sheets as of December
31, 1998 and 1997;
b. Consolidated Statements of Earnings for
the three years ended December 31, 1998;
c. Consolidated Statements of Comprehensive
Earnings for the three years ended December
31, 1998;
d. Consolidated Statements of Changes in
Stockholders' Equity for the three years
ended December 31, 1998;
e. Consolidated Statements of Cash Flows for
the three years ended December 31,
1998; and
f. All Notes to the foregoing Consolidated
Financial Statements.
2. Listing of Exhibits:
a. 3(i) Charter as amended.(1)
b. 3(ii) Bylaws.(1)
c. 4.1 Charter as amended.(1)
d. 4.2 Bylaws.(1)
e. 4.3 1997 First McMinnville Corporation
Stock Option Plan.(2)
f. 4.4 Shareholders Rights Agreement dated
June 10, 1997.(2)
50
<PAGE> 53
g. 10.1 First National Bank of McMinnville
401(k) Retirement Plan.(3)
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.(4)
i. 11 Statement re: computation of per
share earnings (Incorporated by
reference to Note 17 of the
Consolidated Financial Statements).
j. 13 Portions of the Annual Report to
Security Holders, as set forth in
the Exhibit Index. Omitted in paper
copies.
k. 21 Subsidiaries of the Registrant for
the year ended December 31, 1998.
l. 27 Financial Statement Schedule
[Omitted in Paper Copies].
(b) No reports on Form 8-K were filed for the quarter ended
December 31, 1998.
(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.
- --------------------------
(1) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act
for the fiscal year ended December 31, 1994.
(2) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act
for the fiscal year ended December 31, 1997.
(3) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act
for the fiscal year ended December 31, 1988.
(4) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act
for the fiscal year ended December 31, 1996.
51
<PAGE> 54
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 and Chief Executive Officer
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 9, 1999
- ----------------------------------- Director
Robert W. Jones
/s/ Paul O. Barnes Director March 9, 1999
- -----------------------------------
Paul O. Barnes
/s/ Henry N. Boyd Director March 9, 1999
- -----------------------------------
Henry N. Boyd
/s/ J. G. Brock Director March 9, 1999
- -----------------------------------
J. G. Brock
/s/ Dean I. Gillespie Director March 9, 1999
- -----------------------------------
Dean I. Gillespie
/s/ G. B. Greene Director March 9, 1999
- -----------------------------------
G. B. Greene
/s/ J. Douglas Milner Director March 9, 1999
- -----------------------------------
J. Douglas Milner
/s/ Charles C. Jacobs President, CEO March 9, 1999
- ----------------------------------- and Director
Charles C. Jacobs
/s/ John J. Savage, Jr. Director March 9, 1999
- -----------------------------------
John J. Savage, Jr.
/s/ Carl M. Stanley Director March 9, 1999
- -----------------------------------
Carl M. Stanley
/s/ Kenny D. Neal Treasurer/Chief March 9, 1999
- ----------------------------------- Financial and
Kenny D. Neal Accounting Officer
</TABLE>
52
<PAGE> 55
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 (except that
certain portions thereof have been incorporated by reference
in response to certain items of this Annual Report on Form
10-K.
(2) A copy of the form of proxy to be sent to security holders in
respect of the Company's 1999 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 ____.)
53
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT LOCATION
------ ---------------------- --------
<S> <C> <C>
3(i) Charter as amended. (1)
3(ii) Bylaws. (1)
4.1 Charter as amended. (1)
4.2 Bylaws. (1)
4.3 1997 First McMinnville Corporation Stock Option Plan. (2)
4.4 Shareholders Rights Agreement dated June 10, 1997. (2)
10.1 First National Bank of McMinnville 401(k) Retirement Plan. (3)
10.2 Consulting Agreement dated February 9, 1996, between First National (4)
Bank of McMinnville and Robert W. Jones, replacing prior
agreement dated December 14, 1993, as amended.
11 Statement re: computation of per share earnings. (5)
13 Annual Report to Security Holders (Only those portions incorporated by (6)
reference) into the Report on Form 10-K. [Omitted in Paper
Copies]
21 Subsidiaries of the Registrant for the year ended December 31, 1998. Page ___
27 Financial Statement Schedule. (7)
[Omitted in Paper
Copies]
</TABLE>
(1) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act
for the fiscal year ended December 31, 1994.
(2) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act
for the fiscal year ended December 31, 1997.
(3) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act
for the fiscal year ended December 31, 1988.
(4) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act
for the fiscal year ended December 31, 1996.
(5) Incorporated by reference to Note 17 of the Consolidated
Financial Statements.
(6) Portions of the Annual Report to Security Holders are
incorporated by reference into the Form 10-K. These portions
are "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operation," and
the Company's Consolidated Financial Statements for the
54
<PAGE> 57
year ended December 31, 1999. This Exhibit is omitted in the paper copy
pursuant to Instruction G(2) of the Instructions to Form 10-K.
(7) 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,
1998 and is qualified in its entirety by reference to such financial
statements as set forth in the Company's Annual Report on Form 10-KSB
for the period ending on December 31, 1998.
55
<PAGE> 58
SUPPLEMENTAL INFORMATION
<PAGE> 59
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
TELEPHONE (931) 473-4402
FACSIMILE (931) 473-6952
February 19, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of (the "Company") to be held on April 13, 1999, at 2:30 p.m.,
local time, at the Main Office of The First National Bank of McMinnville, 200
East Main Street, McMinnville, Tennessee. At the 1999 Annual Meeting,
Shareholders of record as of February 26, 1999, will be entitled to vote (1)
upon the election of four Class III 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, 1999. The Shareholders also will vote upon any other
business that may properly come before the 1999 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 1999 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 1999 ANNUAL MEETING. PLEASE COMPLETE THE ENCLOSED
PROXY SHEET AND RETURN IT IN THE ENCLOSED ENVELOPE WITHOUT DELAY. IF YOU ATTEND
THE 1999 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 TO 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,
/s/ Charles C. Jacobs
---------------------
Charles C. Jacobs
President
<PAGE> 60
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 13, 1999
Notice is hereby given that the Annual Meeting of Shareholders of FIRST
MCMINNVILLE CORPORATION (the "Company"), will be held on Tuesday, April 13,
1999, at 2:30 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 four (4) Class III Directors (Charles C. Jacobs, J.
Douglas Milner, John J. Savage, Jr., and Carl M. Stanley)
whose terms currently expire in 1999 to serve a three-year
term until the 2002 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 1999 fiscal year; and
(3) To consider any other business that may properly come before
the 1999 Annual Meeting of Shareholders.
The Board of Directors has fixed the close of business on February 26,
1999, as the record date for the determination of which Shareholders are
entitled to notice of and to vote at the 1999 Annual Meeting of Shareholders.
All times are local time in McMinnville, Tennessee. There are approximately
533,426 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
1999 Annual Meeting of Shareholders.
By Order of the Board of Directors
/s/ Carol Locke
---------------
Carol Locke, Secretary
February 19, 1999
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> 61
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 four (4)
Directors listed in Class III 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 III DIRECTORS ARE THOSE STANDING FOR ELECTION IN 1999. THE BOARD
RECOMMENDS A VOTE "FOR" ALL OF THESE NOMINEES.
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS
OR NOMINEE BUSINESS EXPERIENCE DIRECTOR SINCE
CLASS III
(TERMS EXPIRE IN 1999)
<S> <C> <C>
Charles C. Jacobs President and Chief Executive Officer, First 1985
(60) 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, Middle Tennessee 1995
(52) Dr. Pepper Bottling Company
John J. Savage, Jr. Retired; Executive Vice President and Trust Officer, 1984
(77) First National Bank through September 1986
Carl M. Stanley Chief Manager, The Burroughs-Ross-Colville Company, 1984
(63) LLC
</TABLE>
1
<PAGE> 62
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS
OR NOMINEE BUSINESS EXPERIENCE DIRECTOR SINCE
CLASS I
(TERMS EXPIRE IN 2000)
<S> <C> <C>
Paul O. Barnes Chairman, B & P Lamp Supply Co., Inc. 1984
(65)
Henry N. Boyd Chief Executive Officer, Boyd Bros. Nursery 1984
(82)
Dean I. Gillespie Dean I. Gillespie, President, Bridge Builders, Inc. 1984
(65)
</TABLE>
<TABLE>
<CAPTION>
CLASS II
(TERMS EXPIRE IN 2001)
<S> <C> <C>
J. G. Brock Owner, Brock Construction Company 1993
(43)
G. B. Greene President, Womack Printing Co., Inc. 1984
(59)
Robert W. Jones Chairman, First McMinnville Corporation, 1989 - 1984
(70) present; Chairman, First National Bank, 1981 -
present; Chief Executive Officer, First National
Bank, 1976 - 1993
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NAMED DIRECTOR NOMINEES.
2
<PAGE> 63
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,
1999, subject to ratification of such appointment by the Shareholders. This firm
served as the Corporation's accounting firm for the year ending December 31,
1998. A representative of Maggart & Associates, P.C. is expected to be present
at the 1999 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 1999 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, 1999.
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 1999 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 1999 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 1999
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
3
<PAGE> 64
for the election of all Director nominees, and for the approval of Maggart &
Associates, P.C., as the Company's independent auditors for the 1999 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 III 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 1999; 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.
4
<PAGE> 65
PROXY FIRST MCMINNVILLE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 13, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) PAUL O. BARNES, J. G. BROCK, AND G.
B. GREENE, 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 26, 1999, at the 1999 Annual Meeting of Shareholders to be held at 200
East Main Street, McMinnville, Tennessee, on April 13, 1999, at 2:30 p.m. local
time, and any adjournment(s) or postponements thereof.
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<CAPTION>
(1) ELECTION OF DIRECTORS
<S> <C> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed below
contrary below)
</TABLE>
(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.)
Charles C. Jacobs, J. Douglas Milner, John J. Savage, Jr., and Carl M. Stanley
(2) To approve the selection of Maggart and Associates, P.C., as the
Company's independent auditors for the fiscal year ending December 31,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion, on such other matters as may properly come before
the 1999 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: , 1999
--------------------- -------------------------------------------
DATED: , 1999
--------------------- -------------------------------------------
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> 66
1998 ANNUAL REPORT
TO
STOCKHOLDERS
[GRAPHIC OF MAIN OFFICE]
FIRST MCMINNVILLE CORPORATION
MCMINNVILLE, TENNESSEE
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
In Memoriam.......................................................................................................2
To Our Shareholders...............................................................................................3
Summary of Selected Financial Data................................................................................4
Graphs............................................................................................................5
Directors.......................................................................................................6-7
Officers..........................................................................................................8
Employees......................................................................................................9-11
Hometown Spirit..................................................................................................12
Management's Discussion and Analysis or Plan of Operation.....................................................13-19
Independent Auditor's Report.....................................................................................20
Consolidated Balance Sheets......................................................................................21
Consolidated Statements of Earnings..............................................................................22
Consolidated Statements of Comprehensive Earnings................................................................23
Consolidated Statements of Changes in Stockholders' Equity...................................................... 24
Consolidated Statements of Cash Flows.........................................................................25-26
Notes to Consolidated Financial Statements....................................................................27-48
Line of Business.................................................................................................49
Dividend and Market Information..................................................................................49
Annual Report on Form 10-K.......................................................................................49
</TABLE>
<PAGE> 68
IN MEMORIAM
[PHOTOGRAPH]
WILLIAM B. (BILLY) WHITSON
Mr. William B. (Billy) Whitson served as a director of First
McMinnville Corporation from 1984 and First National Bank from 1953 until his
death on December 25, 1998. Throughout his years of service his loyalty to our
company was unsurpassed. He dedicated his efforts to ensure our company was
fiscally sound, provided quality personal service to our customers and
contributed to the economic stability of our community.
For over sixty his various business enterprises provided jobs for
citizens of our community. The flagship of his companies was
Burroughs-Ross-Colville, of which he was chairman. Not only did this company
provide manufacturing jobs, but also was a source of revenue for the timber
industry.
Without fanfare, Mr. Whitson financially supported many worthwhile
community organizations. Among these were the First United Methodist Church, Boy
Scouts of America, the Noon Rotary Club, and Warren County General Hospital.
One of his favorite pastimes was to walk in the woods, and to ensure
this pleasure for future generations, he arranged for 3000 acres of land
adjacent to the Savage Gulf - Stone Door Park to be transferred to the state of
Tennessee.
Mr. Whitson is survived by his wife Mary Pope Whitson and two
daughters, Jane and Mary Gwynn Whitson.
Our company will miss his counsel, loyalty and support. His courage in
the face of declining health was an inspiration to all of us. The dedication of
this annual report to him is a small token to show the high esteem in which he
was held.
<PAGE> 69
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
Dear Stockholder:
1998 was a good year for First McMinnville Corporation and its subsidiary, First
National Bank of McMinnville. As you read this annual report, we believe you
will be pleased. As of December 31, 1998, our assets exceeded $243,000,000. Our
earnings per share were $7.23 with 36.65% being paid to you, our shareholder, as
dividends. For 1998, our return on assets was 1.63% and the return on average
equity was 11.23%. The book value per share of our stock increased by 7.69% for
the year with the value being $65.40 as of December 31, 1998.
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.
In April, 1998, we began to offer alternative investments. This gives our
customers more opportunities and options to invest their money.
Our organization lost a very loyal and dedicated supporter on December 25, 1998
with the death of William B. (Billy) Whitson. Mr. Whitson had served on our
board of directors since 1953. The contributions he made during those forty-five
years of service were enormous. We will miss his wise counsel and the
inspiration he provided.
On December 1, 1998, Vice President Frances Baker retired after thirty-eight
years of dedicated service to our company. The esteem in which she was held by
our customers was evidenced by the large turnout at her retirement reception.
Our wish for her is good health and ample time to spoil her grandchildren.
In 1999, our subsidiary, First National Bank will observe 125 years of service.
As we celebrate this historic occasion, our staff is committed to continue our
tradition of being a sound fiscal entity while offering innovative banking to
our customers.
With your support and loyalty, we believe we can continue to play a vital role
in the economic development of our community and enhance your investment.
/s/ Charles C. Jacobs
- ---------------------
Charles C. Jacobs
CEO and President
<PAGE> 70
ASSETS EQUITY
[GRAPH 1994-1998] [GRAPH 1994-1998]
DEPOSITS NET LOANS
[GRAPH 1994-1998] [GRAPH 1994-1998]
DIVIDENDS PER SHARE* BASIC EARNINGS PER SHARE*
[GRAPH 1994-1998] [GRAPH 1994-1998]
*Per share data has been retroactively restated to reflect a two-for-one stock
split on October 1, 1994.
<PAGE> 71
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH]
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
<S> <C> <C>
PAUL O. BARNES HENRY N. BOYD J. GREGORY BROCK
Chairman Owner Owner
B & P Lamp Supply, Inc. Boyd Nursery Brock Construction Company
</TABLE>
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
<S> <C> <C>
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
</TABLE>
<PAGE> 72
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
[PHOTOGRAPH]
H.L. MOLLOY**
Retired
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH]
<S> <C>
JOHN J. SAVAGE, JR. CARL M.STANLEY
Former Executive Vice President President and CEO
and Trust Officer Burroughs-Ross-Colville Co. LLC
First National Bank
</TABLE>
<TABLE>
<CAPTION>
[PHOTOGRAPH [PHOTOGRAPH] [PHOTOGRAPH]
<S> <C> <C>
ARTHUR J. DYER* RUFUS GONDER* LEVOY KNOWLES*
President C.P.A. General Manager
Metal Products Company Ben Lomand Rural
Telephone Cooperative
</TABLE>
*Advisory **Honorary
<PAGE> 73
<TABLE>
<CAPTION>
OTHER OFFICERS OF FIRST MCMINNVILLE CORPORATION
<S> <C> <C>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
DIANE BOGLE LESTER COWELL BRENT FOSTER
Sr. Vice President Sr. Vice President Sr. Vice President
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
DAVID MARTTALA KENNY NEAL PHIL WHISENHUNT CAROL LOCKE
Sr. Vice President Sr. Vice President Sr. Vice President Secretary
Treasurer
Chief Financial Officer
</TABLE>
<TABLE>
<CAPTION>
OFFICERS OF FIRST NATIONAL BANK OF McMINNVILLE
<S> <C> <C>
CHARLES C. JACOBS MARY JANE BELL MELBA SLAUGHTER
Chief Executive Officer Vice President Loans Assistant Vice President
and President
DIANE BOGLE CINDY SWANN GAIL YOUNGBLOOD
Sr. Vice President - Compliance Auditor Assistant Vice President
Manager Data Processing
LESTER COWELL CAROL LOCKE MICHELLE GRISSOM
Sr. Vice President - Loans Secretary to the Board Manager - Smithville Hwy. Branch
Manager - Human Resources
BRENT FOSTER NANCY MCBEE SHIRLEY MAXWELL
Sr. Vice President - Loans Assistant to the President Administrative Assistant
DAVID MARTTALA FRED L. GREENE CONNIE BELL
Sr. Vice President-Legal Counsel Assistant Vice President Assistant Trust Officer
Trust Administrator Manager-Viola-Morrison Branches
KENNY NEAL QUEITA ROBERTS TAMMY WARD
Sr. Vice President - Cashier Assistant Vice President Alternative Investments
PHIL WHISENHUNT ARLA J. SIMMONS
Sr. Vice President - Loans Assistant Vice President
Manager - Sparta Rd. Branch
</TABLE>
<PAGE> 74
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
Left to right,
Back row:
Shirley Maxwell,
Jaime Ledbetter,
Tom Ward,
[PHOTOGRAPH] Jennie McDowell
Kelly Colter,
Front row:
Tammy Horn,
Lori McBee
Kristy Tate.
Left to right,
Back row:
Addie Lee Fults,
Melba Slaughter,
Aaron Higley,
[PHOTOGRAPH] Nettie Cutrell,
Marian Jacobs.
Front row:
Jill Griffin,
Pam Turner,
Vicki Millraney,
Tina Graham.
Left to right,
Back row:
Jennifer Mullican,
Sue Heatherly,
Cindy Pearson,
Michelle Grissom, [PHOTOGRAPH]
Derita Reed,
Front row:
Sherri Blair,
Brad Pitmon,
Seth Wade,
Donna Mears.
<PAGE> 75
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
Left to right,
Back row:
Cathy Cox,
Ardana Hughes,
Elaine Wilson,
[PHOTOGRAPH] Doris Emberton,
Judy Rigsby,
Front row:
Patti Barnes,
Jennifer Patch,
Sherry Patterson,
Jenny Boyd.
Left to right,
Back row:
Peggy Smith,
Kristine Kennedy,
Shirley Reed,
Melodie Hawkins, [PHOTOGRAPH]
Front row:
Dean Cantrell,
Leane Davis,
Heather Craddock.
<PAGE> 76
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
Left to right,
Back row:
Nancy McBee,
Queita Roberts,
Michael Weeter,
[PHOTOGRAPH] Mary Jane Bell,
Glenda Phillips.
Front row:
Gail Youngblood,
Susan Connelly,
Ronalda Ralph,
Connie Sanders.
Left to right,
Back row:
Helen Martin,
Cindy Swann,
Fred Greene,
Connie Bell, [PHOTOGRAPH]
Arla Simmons.
Front row:
Kathy Templeton,
Billi Talley,
Vickie Mitchell,
Mozelle Terry.
<PAGE> 77
LINE OF BUSINESS
During 1998, 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, 1998, there were 500 holders of First McMinnville Corporation
Common Stock. There is no established trading market for shares of the Company
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>
1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I II III IV I II III IV
Representative Price $61 63 64 66 $57 59 60 61
</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 $2.50
and $2.65 per share during 1997 and 1998, 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 of
Financial Condition. and Results of Operations and in the Notes to the
Consolidated Financial Statements.
ANNUAL REPORT ON FORM 10-K
A copy of the 1998 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> 78
MAIN OFFICE
200 EAST MAIN STREET
<TABLE>
<CAPTION>
BRANCHES
SMITHVILLE HWY. SPARTA STREET
--------------- -------------
<S> <C>
917 SMITHVILLE HWY. 1408 SPARTA STREET
FARMERS & MERCHANTS MORRISON
------------------- --------
VIOLA, TENNESSEE 9970 MANCHESTER HWY.
</TABLE>
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 13
ANNUAL REPORT TO SECURITY HOLDERS
Portions of the Annual Report to Security Holders are incorporated herein by
reference. These portions are "Selected Financial Data," the Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
the Company's Consolidated Financial Statements for the year ended December 31,
1998. This Exhibit is omitted in the paper copy pursuant to Instruction G(2) of
the Instructions to Form 10-K.
<PAGE> 2
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, 1998.
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 17,406 15,691 14,670 13,892 12,528
Interest expense 8,454 7,081 6,599 6,418 4,844
--------- -------- -------- -------- --------
Net interest income 8,952 8,610 8,071 7,474 7,684
Provision for possible loan losses 180 220 150 160 240
--------- -------- -------- -------- --------
Net interest income after provision
for possible loan losses 8,772 8,390 7,921 7,314 7,444
Non-interest income 672 618 659 634 574
Non-interest expense (3,869) (3,850) (3,700) (3,543) (3,738)
--------- -------- -------- -------- --------
Earnings before income taxes 5,575 5,158 4,880 4,405 4,280
Income taxes 1,705 1,577 1,436 1,299 1,203
--------- -------- -------- -------- --------
Net earnings $ 3,870 3,581 3,444 3,106 3,077
========= ======== ======== ======== ========
Comprehensive earnings $ 3,914 3,912 3,211 3,793 1,520
========= ======== ======== ======== ========
Cash dividends declared $ 1,414 1,341 1,294 1,240 1,191
========= ======== ======== ======== ========
Total assets - end of year $ 243,027 212,765 195,732 190,663 180,486
========= ======== ======== ======== ========
Stockholders' equity - end of year $ 34,886 32,557 30,025 28,889 26,452
========= ======== ======== ======== ========
Per share information:
Basic earnings per common share* $ 7.24 6.68 6.34 5.62 5.55
========= ======== ======== ======== ========
Diluted earnings per common share* $ 7.23 6.67 6.34 5.62 5.55
========= ======== ======== ======== ========
Dividends per share* $ 2.65 2.50 2.40 2.25 2.15
========= ======== ======== ======== ========
Book value per share end of year* $ 65.40 60.73 55.94 52.41 45.64
========= ======== ======== ======== ========
Ratios:
Return on average
stockholders' equity 11.23% 11.30% 11.55% 11.03% 11.57%
========= ======== ======== ======== ========
Return on average assets 1.63% 1.73% 1.78% 1.67% 1.73%
========= ======== ======== ======== ========
Stockholders' equity to assets 14.35% 15.30% 15.34% 15.15% 14.66%
========= ======== ======== ======== ========
</TABLE>
* Per share data has been retroactively restated to reflect a two-for-one stock
split on October 1, 1994.
<PAGE> 3
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.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operations and prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
The use of such words as expect, anticipate, forecast, and comparable terms
should be understood by the reader to indicate that the statement is
"forward-looking" and thus subject to change in a manner that can be
unpredictable. Factors that could cause actual results to differ from the
results anticipated, but not guaranteed, in this Report, include (without
limitation) economic and social conditions, competition for loans, mortgages,
and other financial services and products, changes in interest rates, unforeseen
changes in liquidity, results of operations and financial condition 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 is to
provide readers with information relevant to understanding and assessing the
financial condition and results of operations of the Company, and not to predict
the future or to guarantee results. The Company is unable to predict the types
of circumstances, conditions, and factors that can cause anticipated results to
change. The Company undertakes no obligation to publish revised forward-looking
statements to reflect the occurrence of changes or unanticipated events,
circumstances, or results.
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
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1998, the nursery industry constituted the largest single industry
segment and accounted for $11,243,000 (8.88% of the Company's loan portfolio) as
compared to $10,737,000 or 9.63% in 1997. 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 stockholders 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 average
assets for the most recent quarter of at least 4%. The same ratios are also
required in order for a national bank to be considered "adequately capitalized"
under the OCC's "prompt corrective action" regulations, which impose certain
operating restrictions on institutions which are not adequately capitalized. The
Company has a Tier 1 risk based ratio of 26.3%, a total risk-based capital ratio
of 27.4% and a leverage capital ratio of 14.1%, 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 $1,414,000 and $1,341,000 were declared during 1998 and 1997,
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 1999 if profits increase. The dividend payout
ratio (dividends declared divided by net earnings) was 36.5%, 37.4% and 37.6% in
1998, 1997 and 1996, 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, 1998, under the most
restrictive of these regulatory limits, the Bank could declare in 1999 cash
dividends in an aggregate amount of up to approximately $6.2 million, plus any
1999 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.
FINANCIAL CONDITION
During 1998, total assets increased $30,262,000 or 14.2% from $212,765,000
at December 31, 1997 to $243,027,000 at
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1998. Loans, net of allowance for possible loan losses, increased
from $110,159,000 to $125,170,000 or 13.6% during fiscal year 1998. The
aggregate increases in loans for 1998 was due primarily to a 8.7% increase in
real estate mortgage loans accompanied by a 28.4% increase in commercial,
financial and agricultural loans.
Securities increased 19.5% from $90,363,000 at December 31, 1997 to
$107,960,000 at December 31, 1998. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations increased $12,982,000,
obligations of state and political subdivisions increased $4,389,000, corporate
and other securities decreased $52,000 and there was an increase in mortgage
backed securities of $174,000. At December 31, 1998 and 1997 the market value of
the Company's securities portfolio exceeded its amortized cost by $1,601,000
(1.5%) and $1,444,000 (1.6%), 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, 1998 was 7.13% with an average maturity of 11.0
years, as compared to an average yield of 7.4% and an average maturity of 8.0
years at December 31, 1997.
The Company applies the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities". Under the provisions of the Statement, securities are to
be classified in three categories and accounted for as follows:
- - Debt securities that the enterprise has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost.
- - Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings; 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
stockholders' equity.
The Company's classification of securities as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------------------- -------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(In Thousands)
U.S. Treasury and
other U.S. government
agencies and corporations $16,451 16,661 57,056 57,485
Obligations of states and
political subdivisions 26,761 27,730 1,528 1,597
Corporate and other
securities 763 787 812 812
Mortgage-backed securities 2,242 2,215 1,922 1,849
------- ------ ------ ------
$46,217 47,393 61,318 61,743
======= ====== ====== ======
</TABLE>
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A portion of the capital change in 1996 was a decrease of $233,000 which
represents the unrealized losses in securities available-for-sale of $375,000
net of applicable tax expense of $142,000. The net capital increased in 1997 by
$331,000 which represents the unrealized appreciation in securities
available-for-sale of $534,000 net of applicable tax benefit of $203,000. During
the year ended December 31, 1998, the net increase in capital included $44,000
which represents the unrealized appreciation in securities available-for-sale of
$71,000 net of applicable taxes of $27,000.
The increase in assets in 1998 was funded primarily by increases in
deposits. Total deposits increased from $172,891,000 at December 31, 1997 to
$185,305,000 at December 31, 1998 representing an increase of 7.2%. Demand
deposits decreased 10.2% from $21,241,000 at December 31, 1997 to $19,085,000 at
December 31, 1998. Additionally, increases in certificates of deposit and
individual retirement accounts of $11,073,000 (11.3%) contributed to the
increases in deposits for 1998. Securities sold under repurchase agreements
increased $9,349,000 during 1998 and were also used to fund increases in assets.
Federal funds purchased and advances from Federal Home Loan Bank increased
$2,000,000 and $4,000,000, respectively, in 1998. The subsidiary bank has unused
lines of credit of $8,000,000 and the Company has an unused line of credit of
$2,000,000 at December 31, 1998.
The Company's allowance for loan losses at December 31, 1998 was
$1,495,000 as compared to $1,314,000 at December 31, 1997. Non-performing loans
amounted to $273,000 at December 31, 1998 compared to $255,000 at December 31,
1997. 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 totaled $1,000 for
1998. The provision for possible loan losses was $180,000 in 1998, $220,000 in
1997 and $150,000 in 1996. 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 $1,495,000 at
December 31, 1998, represents 1.18% of total loans outstanding. At December 31,
1997, the allowance for possible loan losses represented 1.18% 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, 1998 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 68% and 64% at December 31, 1998 and
December 31, 1997, 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. Federal funds sold
totaled $2,650,000 at December 31, 1997. Federal funds purchased were $2,000,000
at December 31, 1998. There were no Federal funds purchased at December 31,
1997.
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
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1998 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, 1998:
<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 $ - 15,704 11,063 18,426 189,432 234,625
Interest-bearing liabilities 59,138 37,112 23,903 26,074 39,692 185,919
----------- ---------- ---------- ---------- ----------- ------------
Interest rate sensitivity $ (59,138) (21,408) (12,840) (7,648) 149,740 48,706
=========== ========== ========== ========== =========== ============
Cumulative gap $ (59,138) (80,546) (93,386) (101,034) 48,706
=========== ========== ========== ========== ===========
Interest rate sensitivity
gap as a % of total
assets (24.33)% (8.81)% (5.28)% (3.15)% 61.61%
=========== ========== ========== ========== ===========
Cumulative gap as a
% of total assets (24.33)% (33.14)% (38.42)% (41.57)% 20.04%
=========== ========== ========== ========== ===========
</TABLE>
Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal, money market
demand, demand deposit and regular savings accounts. 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 Company's liquidity changing in any material way.
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 1998 were $3,870,000, an
increase of $289,000 or 8.1% from fiscal year 1997. Net earnings for 1997
totaled $3,581,000 which was an increase of $137,000 or 4.1% from $3,444,000 for
1996. Basic earning per common share was $7.24 in 1998, $6.68 in 1997 and $6.34
in 1996. Diluted earnings per common share were $7.23, $6.67 and $6.34 in 1998,
1997 and 1996, respectively. Average earning assets increased $29,709,000 for
the year ended December 31, 1998 as compared to year
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ended December 31, 1997. Average earning assets increased $13,480,000 for the
year ended December 31, 1997 as compared to year ended December 31, 1996.
Additionally, the net interest spread decreased from 4.1% in 1997 to 3.7% in
1998. The net interest spread was 4.2% in 1996. 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 1998 totaled
$8,952,000 as compared to $8,610,000 for 1997 and $8,071,000 for 1996. The
provision for loan losses was $180,000 in 1998 as compared to $220,000 in 1997
and $150,000 in 1996. Net recoveries in 1998 were $1,000 as compared to net
charge-offs of $630,000 in 1997 and net recoveries of $12,000 in 1996. The 1997
charge-offs related primarily to one customer and is unrelated to the nursery
business. The decrease in the provision in 1998 is primarily due to the decrease
in net charge-offs.
Non-interest income increased 8.7% to $672,000 in 1998 from $618,000 in
1997. This increase was due primarily to increases in service charges on
deposits of $23,000, other fees and commissions of $5,000, securities gains of
$22,000 and other income of $26,000 which were off-set by a decrease in
commissions on fiduciary activities totaling $22,000. Non-interest income of
$618,000 in 1997 was a decrease of approximately 6.2% from $659,000 in 1996. The
decrease in 1997 resulted primarily from decreases in service charges on
deposits and commissions on fiduciary activities.
Non-interest expense increased .5% to $3,869,000 in 1998 from $3,850,000
in 1997. Non-interest expense was $3,700,000 in 1996. 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 1998 was primarily
attributable to an increase in salaries and employment benefits of $112,000
(4.8%) and increases in other operating expenses ($34,000 or 3.9%). These
increases in 1998 were offset by a decrease of $62,000 in occupancy expenses and
$14,000 furniture and equipment expenses. The non-interest expense increased
approximately 4.0% from 1996 to 1997 and was due primarily to increases in
salaries and employees benefits, occupancy expenses, Federal Deposit insurance
premiums and loss on disposal of premises and equipment with an offset from the
decrease in furniture and equipment expenses and securities losses.
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.
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting computer
information systems so that such systems recognize more than two digits to
identify a year in any given date field, and are thereby able to differentiate
between years in the twentieth and twenty-first centuries ending with the same
two digits (e.g., 1900 and 2000). To address the Year 2000 issue, the Company
has adopted a broad-based approach designed to encompass the Company's total
environment.
The Company has appointed a Year 2000 committee which was established in
mid-1997. The Y2K Committee has representation from all affected areas for the
purpose of managing the process of assessing and correcting non-compliance
throughout the organization. Areas being addressed by the Y2K Committee include:
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - Subsidiary bank's primary data processing system. Banctec, Inc., a major
data processor, provides the primary software and hardware for the data
processing system of the subsidiary banks. This software and hardware is
of the highest priority for day to day operations, accounting and success
of the subsidiary banks.
- - Government systems, such as the Federal Reserve Bank for check clearing,
wire transfers, and the free flow and exchange of funds between
institutions are absolutely critical.
- - The internal PC hardware and software systems within the subsidiary banks,
along with telecommunications systems.
- - The primary securities portfolio accounting and safekeeping system for the
subsidiary banks.
- - Credit administration - the committee is reviewing the risk associated
with Year 2000 status of the subsidiary bank's loan customers and
depositors.
The Company's Y2K Committee is using a 4-phase approach in its Year 2000
project made up of awareness, assessment, renovation, and validation-testing.
The Company is currently in the final phase of the Y2K Plan.
The purpose of the Y2K committee is to assess, test and correct the
Company's hardware, software and equipment to ensure these systems operate
properly in the Year 2000. The Committee has substantially completed its
assessment of the company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the Year 2000 and has
remedied the problem with the replacement of hardware that is compliant. As of
December 31, 1998 the Y2K committee has determined that substantially all of the
Company's systems will operate properly in the Year 2000.
The Company expects that programming changes and software replacement for
systems that are not Year 2000 compliant will be completed during the first
quarter of 1999. Banctec, Inc. has tested the Access 8.0 Operating system and
the Company has documentation on file that the operating system is Y2K
compliant. However, the Company tested the software using its own database to
ensure the readiness of the Company to service its customer base into the Year
2000. The testing was completed during 1998.
The Company has requested written documentation from vendors and
suppliers with whom the Company has a material relationship regarding their
ability to operate properly in the Year 2000. The Company will consider
alternatives related to vendors and suppliers that do not confirm their Year
2000 readiness. There can be no assurance however, that all of the Company's
significant vendors and suppliers will have remedied their Year 2000 issues. The
Company will continue to monitor its significant vendors and suppliers to seek
to minimize the Company's risk.
The Company is requiring Y2K readiness information from all of its major
borrowers. The Company believes commercial borrowers must realize the impact
that the Y2K could have on their respective businesses. Seminars, questionnaires
and individual contact with loan customers will be continued as an ongoing
prevention measure during the 1999 year. The Company realizes the materially
adverse impact that the lack of Y2K preparation of loan customers would have on
the Company during the Year 2000.
Customer awareness of the Company's Y2K readiness is critical. The steps
taken by the Company to prepare for the Year 2000 will be shared with customers
through Quarterly Newsletters, statement stuffers and the Y2K training of
employees. The Company believes customers must have a high confidence level in
the Company at the end of 1999 to avoid mass withdrawals of funds from the
Company. The
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company is working toward a comprehensive customer awareness program during the
1999 year.
The Company estimates that the cost of its Year 2000 project will not
exceed $200,000 in the aggregate and that the cost will not be material to
earnings. Actual expenditures to date and currently anticipated future
expenditures are within this estimate. The Company's management believes its
approach to the Year 2000 issue to be comprehensive, and does not expect the
Year 2000 issue to have a material impact on its results of operations,
liquidity or financial condition. However, given the widespread nature of the
problem, and the number of factors outside of the Company's direct control,
management is continuously evaluating the risks associated with Year 2000.
Management believes, however, that the Company's ultimate ability to
successfully address Year 2000 issues will be significantly affected by external
factors such as the success of government agencies, suppliers, and customers to
address their own respective Year 2000 issues. Although management is actively
addressing and establishing contingency plans to deal with these external
factors, they ultimately are beyond management's control.
The Board of Directors is aware of the Y2K problem and is receiving
monthly updates on the Y2K Committee's progress. The board has approved the
Company's written contingency plan. The plan addresses all aspects of the
Company's operation systems identifying alternative solutions. The contingency
plan identifies all of the subsidiary banks' major processing systems as
critical, semi-critical and non-critical. A processing solution is in place on
each of these applications detailing information on alternative processors and
their capabilities. This plan will continually be updated as each critical and
semi-critical application has completed its final testing phase.
The foregoing notwithstanding, management does not currently believe that
the costs of assessment, remediation, or replacement of the Company's systems,
or the potential failure of third parties' systems will have a material adverse
effect on the Company's business, financial condition, results of operations, or
liquidity.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Based upon the nature of the Company's operations, the Company is not
subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings risk
associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus the
spread between the cost of funds and interest yields generated primarily through
loans and investments.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1998.
<TABLE>
<CAPTION>
HELD FOR PURPOSES
OTHER THAN TRADING EXPECTED MATURITY DATE - YEAR ENDING DECEMBER 31,
---------------------------------------------------------- FAIR
(IN THOUSANDS) 1999 2000 2001 2003 2008 THEREAFTER TOTAL VALUE
- ----------------------------------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned interest $ 41,830 16,369 17,299 36,591 11,307 3,269 126,665 125,685
Average interest rate 8.35% 8.55% 8.26% 8.10% 8.02% 7.75% 8.26%
Securities 19,130 3,588 4,428 6,443 36,745 37,626 107,960 109,136
7.21% 7.32% 7.64% 7.38% 6.97% 6.97%
INTEREST-BEARING LIABILITIES:
Interest-bearing time deposits 73,222 35,331 245 254 - - 109,082 109,740
Average interest rate 5.32% 5.50% 5.95% 5.58% - - 5.38%
Negotiable order of withdrawal
accounts 23,401 - - - - - 23,401 23,401
Average interest rate 2.75% - - - - - 2.75%
Money market demand accounts 7,198 - - - - - 7,198 7,198
Average interest rate 2.90% - - - - - 2.90%
Savings deposits 26,539 - - - - - 26,539 26,539
Average interest rate 3.49% - - - - - 3.49%
Securities sold under repurchase 13,669 - - - - - 13,699 13,699
agreements 4.17% - - - - - 4.17%
Advances from Federal - - - - 4,000 - 4,000 4,236
Home Loan Bank - - - - 5.27% - 5.27%
</TABLE>
<PAGE> 12
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, 1998 and 1997, and the
related consolidated statements of earnings, comprehensive earnings, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Nashville, Tennessee
January 22, 1999
<PAGE> 13
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
In Thousands
----------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Loans, less allowance for possible loan losses of $1,495,000
and $1,314,000, respectively $ 125,170 110,159
Securities:
Held-to-maturity, at amortized cost (market value $47,393,000
and $47,584,000, respectively) 46,217 46,495
Available-for-sale, at market (amortized cost $61,318,000 and
$43,513,000, respectively) 61,743 43,868
--------- --------
Total securities 107,960 90,363
--------- --------
Interest-bearing deposits in financial institutions - 100
Federal funds sold - 2,650
--------- --------
Total earning assets 233,130 203,272
--------- --------
Cash and due from banks 5,241 4,461
Premises and equipment, net 2,058 2,230
Accrued interest receivable 2,034 2,020
Deferred tax asset 63 39
Other real estate 11 11
Other assets 490 732
--------- --------
Total assets $ 243,027 212,765
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 185,305 172,891
Securities sold under repurchase agreements 13,699 4,350
Federal funds purchased 2,000 -
Advances from Federal Home Loan Bank 4,000 -
Accrued interest and other liabilities 3,137 2,967
--------- --------
Total liabilities 208,141 180,208
--------- --------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized 5,000,000,
issued 606,795 shares and 605,800, respectively 1,517 1,514
Additional paid-in capital 1,623 1,568
Retained earnings 34,017 31,561
Net unrealized gains on available-for-sale securities, net of income
taxes of $162,000 and $135,000, respectively 264 220
--------- --------
37,421 34,863
Less cost of treasury stock of 73,369 shares in 1998 and 69,696 shares in 1997 (2,535) (2,306)
--------- --------
Total stockholders' equity 34,886 32,557
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders' equity $ 243,027 212,765
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
In Thousands
Except Per Share Amount
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 10,087 9,878 9,380
Interest and dividends on securities:
Taxable securities 5,773 4,396 3,899
Exempt from Federal Income taxes 1,369 1,180 1,299
Interest on Federal funds sold 172 231 86
Interest on interest-bearing deposits in financial
institutions 5 6 6
-------- ------- -------
Total interest income 17,406 15,691 14,670
-------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 533 477 478
Interest on money market demand and savings accounts 1,137 1,129 1,113
Interest on certificates of deposit 6,256 5,347 4,877
Interest on securities sold under repurchase agreements
and short-term debt 381 128 131
Interest on advances from Federal Home Loan Bank 147 - -
-------- ------- -------
Total interest expense 8,454 7,081 6,599
-------- ------- -------
Net interest income before provision for possible loan losses 8,952 8,610 8,071
Provision for possible loan losses 180 220 150
-------- ------- -------
Net interest income after provision for possible loan losses 8,772 8,390 7,921
Non-interest income 672 618 659
Non-interest expense (3,869) (3,850) (3,700)
-------- ------- -------
Earnings before income taxes 5,575 5,158 4,880
Income taxes 1,705 1,577 1,436
-------- ------- -------
Net earnings $ 3,870 3,581 3,444
======== ======= =======
Basic earnings per common share $ 7.24 6.68 6.34
======== ======= =======
Diluted earnings per common share $ 7.23 6.67 6.34
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
In Thousands
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 3,870 3,581 3,444
-------- ------- -------
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale securities
arising during the year, net of taxes of $35,000 and
$199,000 and tax benefits of $178,000, respectively 58 325 (291)
Less: reclassification adjustments for losses (gains)
included in net earnings, net of tax expense of $8,000,
and income tax benefits of $3,000 and $35,000,
respectively (14) 6 58
-------- ------- -------
Other comprehensive earnings (loss) 44 331 (233)
-------- ------- -------
Comprehensive earnings $ 3,914 3,912 3,211
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
In Thousands
--------------------------------------------------------------------
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, 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
Net earnings - - 3,870 - - 3,870
Issuance of 995 shares of common stock 3 55 - - - 58
Cash dividends declared $2.65 per share - - (1,414) - - (1,414)
Cost of 3,673 shares of treasury stock - - - (229) - (229)
Net change in unrealized gains (losses) on
available-for-sale-securities during the
year, net of income taxes of $27,000 - - - - 44 44
------ ----- ------ ------ --- ------
Balance December 31, 1998 $1,517 1,623 34,017 (2,535) 264 34,886
====== ===== ====== ====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 17,322 15,517 14,727
Fees and commissions received 650 627 659
Interest paid (8,296) (6,889) (6,773)
Cash paid to suppliers and employees (3,700) (3,665) (3,481)
Income taxes paid (1,503) (1,653) (1,416)
-------- ------- -------
Net cash provided by operating activities 4,473 3,937 3,716
-------- ------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (197,580) (39,669) (7,747)
Proceeds from sales of available-for-sale securities 17,383 5,284 9,578
Proceeds from maturities of available-for-sale securities 162,464 15,376 5,723
Purchase of held-to-maturity securities (21,357) (15,457) (21,491)
Proceeds from maturities of held-to-maturity securities 21,655 23,495 15,820
Loans made to customers, net of repayments (15,191) (2,439) (8,838)
Purchase of premises and equipment (43) (141) (676)
Proceeds from sales of other real estate - 58 281
Proceeds from maturities of interest bearing deposits
in financial institutions 100 - -
-------- ------- -------
Net cash used in investing activities (32,569) (13,493) (7,350)
-------- ------- -------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposit accounts 1,341 3,039 1,122
Net increase in time deposits 11,073 10,106 4,073
Net increase (decrease) in securities sold under
repurchase agreements 9,349 1,819 (1,682)
Increase (decrease) in Federal funds purchased 2,000 (500) 500
Advances from Federal Home Loan Bank 4,000 - -
Proceeds from issuance of short-term notes payable - - 45
Repayment of short-term notes payable - - (45)
Dividends paid (1,366) (1,290) (1,238)
Payments to acquire treasury stock (229) (97) (781)
Proceeds from issuance of common stock 58 58 -
-------- ------- -------
Net cash provided by financing activities 26,226 13,135 1,994
-------- ------- -------
Net increase (decrease) in cash and cash equivalents (1,870) 3,579 (1,640)
Cash and cash equivalents at beginning of year 7,111 3,532 5,172
-------- ------- -------
Cash and cash equivalents at end of year $ 5,241 7,111 3,532
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 3,870 3,581 3,444
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 215 236 219
Provision for possible loan losses 180 220 150
Provision for deferred taxes (51) 163 (17)
Securities gains related to available-for-sale securities (31) (11) (54)
Securities losses related to available-for-sale 9 20 147
FHLB dividend reinvestment (50) (45) (42)
Loss on disposal of premises and equipment - 43 -
Increase (decrease) in taxes payable 253 (239) 37
Decrease (increase) in interest receivable (14) (117) 112
Increase (decrease) in interest payable 158 192 (174)
Decrease in other assets and liabilities, net (66) (106) (106)
------- ------ ------
Total adjustments 603 356 272
------- ------ ------
Net cash provided by operating activities $ 4,473 3,937 3,716
======= ====== ======
Supplemental Schedule of Non-Cash Activities:
Non-cash transfers from loans to other real estate $ - - 45
======= ====== ======
Unrealized gain (loss) in value of securities available-for- sale net of
income taxes of $27,000 in 1998, income taxes of $203,000 in 1997 and
income
tax benefits of $142,000 in 1996 $ 44 331 (233)
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 19
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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.
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" 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> 20
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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> 21
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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> 22
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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 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.
Amortization and accretion of discounts are
recognized by the interest method.
<PAGE> 23
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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 are 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
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" 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. Management
has 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 of disposal. Based
on periodic evaluations by management, the carrying values are
reduced by a direct charge to earnings when they exceed net
realizable value. Costs relating to the development and
improvement of the property are capitalized, while holding
costs of the property are charged to expense in the period
incurred.
<PAGE> 24
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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 for 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) ADVERTISING COSTS
Advertising costs are expensed when incurred.
(M) 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.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996
figures to conform to the presentation for 1998.
(O) 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> 25
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans and allowance for possible loan losses at December 31, 1998 and
1997 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------
1998 1997
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 37,011 28,833
Real estate - construction 2,339 2,405
Real estate - mortgage 84,136 77,393
Consumer 3,179 2,842
--------- --------
126,665 111,473
Less allowance for possible loan losses (1,495) (1,314)
--------- --------
$ 125,170 110,159
========= ========
</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 $2,764,000 and $2,450,000 at December 31, 1998 and
1997, respectively. During 1998, $3,735,000 of such loans were made and
repayments totaled $3,421,000. During 1997, $1,295,000 of such loans
were made and repayments totaled $1,687,000. As of December 31, 1998,
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 1998 and 1997.
The principal maturities on loans at December 31, 1998 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 $ 4,876 - 8,502 841 14,219
3 to 12 months 12,626 2,339 8,893 992 24,850
1 to 5 years 17,012 - 54,487 1,346 72,845
Over 5 Years 2,497 - 12,254 - 14,751
------- ------ ------ ------- -------
$37,011 2,339 84,136 3,179 126,665
======= ====== ====== ======= =======
</TABLE>
At December 31, 1998, variable rate and fixed rate loans totaled
approximately $9,912,000 and $116,753,000, respectively. At December
31, 1997, variable rate loans were approximately $14,362,000 and fixed
rate loans totaled approximately $97,111,000.
<PAGE> 26
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
Transactions in the allowance for possible loan losses for the years
ended December 31, 1998, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 1,314 1,724 1,562
Provision charged to operating expense 180 220 150
------- ------ ------
1,494 1,944 1,712
------- ------ ------
Loans charged off (37) (660) (98)
Recoveries on losses 38 30 110
------- ------ ------
Net recoveries (charge-offs) 1 (630) 12
------- ------ ------
Balance, end of year $ 1,495 1,314 1,724
======= ====== ======
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1998, the Company had loans to customers in the nursery industry
totaling approximately $11,243,000 as compared to $10,737,000 at
December 31, 1997. 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,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------
1998 1997
---- ----
<S> <C> <C>
Recorded investment $2,800 3,454
Loan loss reserve $ 709 675
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1998 and 1997 was $2,726,000 and $4,116,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $263,000 and
$393,000 for 1998 and 1997, respectively.
<PAGE> 27
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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, 1998 is as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
---------------------------------------------------------
In Thousands
---------------------------------------------------------
1998
---------------------------------------------------------
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 $16,451 218 8 16,661
Obligations of states and political
subdivisions 26,761 995 26 27,730
Corporate and other securities 763 24 787
------
Mortgage-backed securities 2,242 2 29 2,215
------- ----- ------ ------
$46,217 1,239 63 47,393
======= ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Securities Available-For-Sale
-------------------------------------------------------
In Thousands
-------------------------------------------------------
1998
-------------------------------------------------------
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 $57,056 626 197 57,485
Obligations of states and political
subdivisions 1,528 69 - 1,597
Corporate and other securities 812 - - 812
Mortgage-backed securities 1,922 - 73 1,849
------- --- ------ ------
$61,318 695 270 61,743
======= === ====== ======
</TABLE>
<PAGE> 28
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(3) DEBT AND EQUITY SECURITIES, CONTINUED
Debt and equity securities at December 31, 1997 consist of the
following:
<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
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
---------------------------------------------------------------
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
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>
<PAGE> 29
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt securities at
December 31, 1998, 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 $ 3,944 3,984
Due after one year through five years 8,865 9,066
Due after five years through ten years 15,927 16,500
Due after ten years 16,718 17,056
------- ------
45,454 46,606
Corporate and other securities 763 787
------- ------
$46,217 47,393
======= ======
In Thousands
------------------------
Securities Available-For-Sale Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 2,207 2,180
Due after one year through five years 1,285 1,295
Due after five years through ten years 31,154 31,554
Due after ten years 25,860 25,902
------- ------
60,506 60,931
Federal Home Loan Bank stock 721 721
Federal Reserve Bank stock 91 91
------- ------
$61,318 61,743
======= ======
</TABLE>
<PAGE> 30
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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,
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ 17,383 5,284 9,578
======== ======= ======
Gross realized gains $ 31 $ 11 54
Gross realized losses (9) (20) (147)
-------- ------- ------
Net realized gains (losses) $ 22 (9) (93)
======== ======= ======
</TABLE>
Included in the above gains and losses table are realized losses of
$5,000 in 1998 and $12,000 in 1997 and realized gains of $13,000 in
1996, 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, 1998.
Securities with approximate carrying values of $34,245,000 (approximate
market value of $34,415,000) and $15,251,000 (approximate market value
of $15,367,000) at December 31, 1998 and 1997, 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, 1998, are approximately
$15,589,000 at amortized cost (approximate market value of $16,031,000)
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
$1,925,000 (market value $1,839,000) at December 31, 1998 as compared
to $3,489,000 (market value $3,415,000) at December 31, 1997.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $721,000 and $672,000 at December 31, 1998 and 1997,
respectively. The stock can be sold back at par and only to the Federal
Home Loan Bank or to another member institution.
<PAGE> 31
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1998 1997
---- ----
<S> <C> <C>
Land $ 426 426
Buildings 2,568 2,552
Furniture and equipment 1,730 1,722
------- ------
4,724 4,700
Less accumulated depreciation (2,666) (2,470)
------- ------
$ 2,058 2,230
======= ======
</TABLE>
(5) DEPOSITS
Deposits at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1998 1997
---- ----
<S> <C> <C>
Demand deposits $ 19,085 21,241
Negotiable order of withdrawal accounts 23,401 19,479
Money market demand accounts 7,198 10,449
Savings deposits 26,539 23,713
Certificates of deposit $100,000 or greater 38,198 31,678
Other certificates of deposit 59,329 56,674
Individual retirement accounts $100,000 or greater 2,947 1,959
Other individual retirement accounts 8,608 7,698
-------- -------
$185,305 172,891
======== =======
</TABLE>
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1998 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 $15,848 7,565 23,413
3 to 6 months 12,509 11,394 23,903
6 to 12 months 16,087 9,987 26,074
1 to 5 years 23,493 12,199 35,692
------- ------- -------
$67,937 41,145 109,082
======= ======= =======
</TABLE>
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, 1998 and 1997 were approximately $955,000 and
$963,000, respectively.
<PAGE> 32
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The maximum amounts of outstanding repurchase agreements during 1998
and 1997 were $16,755,000 and $6,383,000, respectively. The average
daily balance outstanding during 1998, 1997 and 1996 was $9,011,000,
$3,968,000 and $3,529,000, respectively. The underlying securities are
typically held by other financial institutions and are designated as
pledged.
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from Federal Home Loan Bank (FHLB) at December 31, 1998
consists of the following:
<TABLE>
<CAPTION>
Initial In Thousands
Original Fixed Rate ------------
Note Date Maturity Date Rate Period Amount
--------- ------------- ---- ---------- ------
<S> <C> <C> <C> <C>
April 9, 1998 April 9, 2008 5.08% 12 Months $2,000
April 30, 1998 April 30, 2008 5.60 24 Months 1,000
April 30, 1998 April 30, 2008 5.31 12 Months 1,000
------
$4,000
======
</TABLE>
The FHLB has the right to convert the fixed rate on these advances at
the end of the initial fixed rate period and on a quarterly basis
thereafter with a one business day notice. If the conversion option is
exercised, the advance will be converted to a three month LIBOR-based
advance at a spread of zero basis points to the LIBOR index. Securities
totaling $8,000,000 have been pledged to FHLB as collateral.
(8) 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
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $510 487 520
Other fees and commissions 42 37 43
Commissions on fiduciary activities 27 49 66
Security gains, net 22 - -
Other income 71 45 30
---- --- ---
Total non-interest income $672 618 659
==== === ===
</TABLE>
<PAGE> 33
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(8) NON-INTEREST INCOME AND NON-INTEREST EXPENSE, CONTINUED
<TABLE>
<CAPTION>
In Thousands
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Non-interest expense:
Salaries and employee benefits $2,422 2,310 2,144
Occupancy expenses, net 208 270 232
Furniture and equipment expenses 304 318 338
FDIC insurance 21 20 2
Security losses, net - 9 93
Loss on disposal of premises and equipment - 43 -
Other operating expenses 914 880 891
------ ----- -----
Total non-interest expense $3,869 3,850 3,700
====== ===== =====
</TABLE>
(9) INCOME TAXES
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 352 294
State 66 55
----- ----
418 349
----- ----
Deferred tax liability:
Federal (299) (261)
State (56) (49)
----- ----
(355) (310)
----- ----
$ 63 39
===== ====
</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,
------------
1998 1997
---- ----
<S> <C> <C>
Financial statement allowance for possible loan losses
in excess of tax allowance $ 418 349
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (116) (130)
Book pension expense under the allowable tax deduction (58) (45)
Unrealized gain on investment securities available-for-sale (162) (135)
FHLB stock dividends excluded for tax purposes (19) -
----- ----
$ 63 39
===== ====
</TABLE>
<PAGE> 34
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(9) 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>
1998
Current $ 1,413 343 1,756
Deferred (43) (8) (51)
------- ---- ------
Total $ 1,370 335 1,705
======= ==== ======
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
======= ==== ======
</TABLE>
A reconciliation of actual income tax expense of $1,705,000, $1,577,000
and $1,436,000 for the years ended December 31, 1998, 1997 and 1996,
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
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,896 1,754 1,659
State income taxes, net of Federal
income tax benefit 221 206 192
Tax exempt interest, net of interest
expense exclusion (406) (376) (414)
Other, net (6) (7) (1)
------- ------ ------
$ 1,705 1,577 1,436
======= ====== ======
</TABLE>
Total income tax expense for 1998 includes income tax expense of $8,000
related to gains on sales of securities. Income tax benefits of $3,000
and $35,000, respectively, related to losses on sales of securities are
included in the 1997 and 1996 total income tax expense.
<PAGE> 35
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(10) 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 one year. 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.
Reconciliation of the benefit obligation and the fair value of plan
assets is as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------
1998 1997
---- ----
<S> <C> <C>
Benefit obligation:
Obligation at January 1 $ 2,503 2,092
Service costs 107 87
Interest costs 169 155
Benefit payments (205) (232)
Actuarial gains 8 401
------- ------
Obligation at December 31 $ 2,582 2,503
======= ======
Fair value of plan assets:
Fair value at January 1 $ 2,502 2,159
Actual return on plan assets 254 425
Employer contributions 127 150
Benefit payments (205) (232)
------- ------
Fair value at December 31 $ 2,678 2,502
======= ======
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,731,000 and $1,673,000, respectively $ 1,754 1,689
======= ======
Actuarial present value of projected benefits obligation $ 2,582 2,503
Plan assets at fair market value 2,678 2,502
------- ------
Excess of plan assets (over) under the projected
benefit obligation (96) 1
Unamortized net asset being recognized over 30 years (396) (418)
Unrecognized net gain 339 297
------- ------
Net pension liability recognized in the
consolidated balance sheets $ (153) (120)
======= ======
Discount rate 6.5% 6.5%
======= ======
Rate of increase in compensation levels 5% 5%
======= ======
Long-term rate of return on assets 8% 8%
======= ======
</TABLE>
<PAGE> 36
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
Total pension expense including prior service costs amortization
amounted to $95,000 in 1998, $71,000 in 1997 and $82,000 in 1996. The
pension expense for 1998, 1997 and 1996 is comprised of the following
components:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 107 87 82
Interest cost on projected benefit
obligation 169 155 140
Expected return on plan assets (199) (172) (144)
Net amortization and deferral 18 1 4
----- ---- ----
$ 95 71 82
===== ==== ====
</TABLE>
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, 1998, 1997 and 1996, the Bank contributed $43,000,
$45,000 and $41,000, respectively, to the plan.
(11) 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, 1998, 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, 1998, the Company and its bank subsidiary
are required to have minimum Tier I and total risk-based capital ratios
of 4% and 8%, respectively. The Company's actual ratios at that date
were 26.3% and 27.4%, respectively. The leverage ratio at December 31,
1998 was 14.1% and the minimum requirement was 4%.
<PAGE> 37
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(12) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to litigation and claims arising in the normal
course of business. There is presently pending in Warren County Courts
two lawsuits in which the beneficiaries and co-trustees have objected
to fees charged to a trust and to the manner in which the trust was
handled. 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, 1998 there
was $2,000,000 outstanding balance under these lines of credit. At
December 31, 1997, there was no outstanding balances under these lines
of credit.
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than
two digits to identify a year in any given date field, and are thereby
able to differentiate between years in the twentieth and twenty-first
centuries ending with the same two digits (e.g., 1900 and 2000). To
address the Year 2000 issue, the Company has appointed a Year 2000
Committee to coordinate the identification, evaluation and
implementation of changes to computer systems and applications
necessary to achieve Year 2000 compliance.
Areas being addressed by the Committee include:
- Company's primary data processing system. This is of
the highest priority for day to day operations,
accounting and success of the Company.
- Government systems, such as the Federal Reserve Bank
for check clearing, wire transfers, and the free flow
and exchange of funds between institutions are
absolutely critical.
- The internal PC hardware and software systems within
the Company, along with telecommunications systems.
- The primary securities portfolio accounting and
safekeeping system for the Bank.
- Credit administration - the committee is reviewing
the risk associated with Year 2000 status of the
Company's loan customers and depositors.
- Status of Company's primary vendors' Year 2000
compliance.
Management does not currently believe that the costs of assessment,
remediation, or replacement of the Company's systems, or the potential
failure of third parties' systems will have a material adverse effect
on the Company's business, financial condition, results of operations,
or liquidity.
<PAGE> 38
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(13) 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.
At December 31, 1998, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $3,851,000 in excess of
the Federal Deposit Insurance Corporation limit of $100,000 per
institution.
(14) 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
---------------------
1998 1997
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 377 1,309
Unfunded lines-of-credit 5,062 6,827
Letters of credit 1,309 1,379
------ -----
Total $6,748 9,515
====== =====
</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> 39
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
In Thousands
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash $ 1,235* 1,328*
Investment in commercial bank subsidiary 34,762* 32,296*
Due from commercial bank subsidiary 9* 5*
-------- -------
Total assets $ 36,006 33,629
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividend payable $ 1,120 1,072
-------- -------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized
5,000,000 shares, issued 606,795 shares and
605,800, respectively 1,517 1,514
Additional paid-in capital 1,623 1,568
Retained earnings 34,017 31,561
Net unrealized gains on available-for-sale securities,
net of income taxes of $162,000 and $135,000, respectively 264 220
-------- -------
37,421 34,863
Less cost of treasury stock of 73,369 shares in
1998 and 69,696 in 1997 (2,535) (2,306)
-------- -------
Total stockholders' equity 34,886 32,557
-------- -------
Total liabilities and stockholders' equity $ 36,006 33,629
======== =======
</TABLE>
*Eliminated in consolidation.
<PAGE> 40
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
------------------------------------------
In Thousands
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary $ 1,467* 1,512* 2,126*
Other expenses 31 14 13
------- ----- ------
Earnings before Federal income tax
benefits and equity in undistributed
earnings of commercial bank subsidiary 1,436 1,498 2,113
Federal income tax benefits 12 5 5
------- ----- ------
1,448 1,503 2,118
Equity in undistributed earnings of
commercial bank subsidiary 2,422* 2,078* 1,326*
------- ----- ------
Net earnings 3,870 3,581 3,444
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during the year, net of taxes
of $35,000 and $199,000 and tax benefits of
$178,000, respectively 58 325 (291)
Less: reclassification adjustment for losses
(gains) included in net earnings, net of tax
expense of $8,000 and income tax benefits of
$3,000 and $35,000, respectively (14) 6 58
------- ----- ------
Other comprehensive earnings (loss) 44 331 (233)
------- ----- ------
Comprehensive earnings $ 3,914 3,912 3,211
======= ===== ======
</TABLE>
*Eliminated in consolidation.
<PAGE> 41
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
In Thousands
--------------------------------------------------------------------
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, 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
Net earnings - - 3,870 - - 3,870
Issuance of 995 shares of common stock 3 55 - - - 58
Cash dividends declared ($2.65 per share) - - (1,414) - - (1,414)
Cost of 3,673 shares of treasury stock - - - (229) - (229)
Net change in unrealized gains
(losses) on available-for-sale securities
during the year, net of income taxes of $27,000 - - - - 44 44
------ ----- ------- ------ ---- -------
Balance December 31, 1998 $1,517 1,623 34,017 (2,535) 264 34,886
====== ===== ======= ====== ==== =======
</TABLE>
<PAGE> 42
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(15) 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, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (31) (14) (13)
Income tax benefit received from
commercial bank subsidiary 8 - 5
------- ------ ------
Net cash used in operating activities (23) (14) (8)
------- ------ ------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary 1,467 1,512 2,126
------- ------ ------
Net cash provided by investing activities 1,467 1,512 2,126
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term notes payable - - 45
Repayment of short-term notes payable - - (45)
Dividends paid (1,366) (1,290) (1,238)
Payments made to acquire treasury stock (229) (97) (781)
Proceeds from issuance of common stock 58 58 -
------- ------ ------
Net cash used in financing activities (1,537) (1,329) (2,019)
------- ------ ------
Net (decrease) increase in cash and
cash equivalents (93) 169 99
Cash and cash equivalents at beginning of year 1,328 1,159 1,060
------- ------ ------
Cash and cash equivalents at end of year $ 1,235 1,328 1,159
======= ====== ======
</TABLE>
<PAGE> 43
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(15) 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, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings $ 3,870 3,581 3,444
Adjustments to reconcile net earnings to net cash used in operating
activities:
Equity in earnings of commercial bank subsidiary (3,889) (3,590) (3,452)
Decrease in other assets, net (4) (5) -
------- ------ ------
Total adjustments (3,893) (3,595) (3,452)
------- ------ ------
Net cash used in operating activities $ (23) (14) (8)
======= ====== ======
</TABLE>
<PAGE> 44
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) 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> 45
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) 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, 1998 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant fair
value.
<PAGE> 46
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The carrying value and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 5,241 5,241 7,211 7,211
Securities 107,960 109,136 90,363 91,452
Loans 126,665 111,473
Less: allowance for loan losses 1,495 1,314
------------ --------------- ------------ -------------
Loans, net of allowance 125,170 125,685 110,159 110,404
------------ --------------- ------------ -------------
Financial liabilities:
Deposits 185,305 185,963 172,891 173,194
Securities sold under
repurchase agreements 13,699 13,699 4,350 4,350
Federal funds purchased 2,000 2,000 - -
Advances from FHLB 4,000 4,236 - -
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> 47
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) 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.
(17) EARNINGS PER SHARE (EPS)
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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to
common shareholders $ 3,870 3,581 3,444
-------- ------- -------
Denominator - weighted average
number of common shares
outstanding 534,479 536,362 543,116
-------- ------- -------
Basic earnings per common share $ 7.24 6.68 6.34
======== ======= =======
Diluted EPS Computation:
Numerator $ 3,870 3,581 3,444
-------- ------- -------
Denominator:
Weighted average number of
common shares outstanding 534,479 536,362 543,116
Dilutive effect of stock options 950 154 -
-------- ------- -------
535,429 536,516 543,116
-------- ------- -------
Diluted earnings per common share $ 7.23 6.67 6.34
======== ======= =======
</TABLE>
<PAGE> 48
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(18) 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
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.
SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123)
setsforth 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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As Reported $ 3,870 3,581 3,444
Proforma $ 3,836 3,569 3,444
Basic earnings per common share:
As Reported $ 7.24 6.68 6.34
Proforma $ 7.18 6.65 6.34
Diluted earnings per common share:
As Reported $ 7.23 6.67 6.34
Proforma $ 7.16 6.65 6.34
</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 earnings for future
years.
<PAGE> 49
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(18) STOCK OPTION PLAN, CONTINUED
A summary of the stock option activity for 1998 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 40,000 $58.15 - $ -
Granted - - 41,000 58.15
Exercised (995) 58.15 (1,000) 58.15
Forfeited (720) 58.15 - -
------- ------ ------- ------
Outstanding at end of year 38,285 $58.15 40,000 $58.15
======= ====== ======= ======
Options exercisable at year end 12,265
=======
</TABLE>
The following table summarizes information about fixed stock options at
December 31, 1998:
<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 12/31/98 Price Life at 12/31/98 Price
--------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 58.15 38,285 $ 58.15 5.5 years 12,265 $ 58.15
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First McMinnville
Corporation at December 31, 1998. 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,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,241
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,743
<INVESTMENTS-CARRYING> 46,217
<INVESTMENTS-MARKET> 47,393
<LOANS> 126,665
<ALLOWANCE> 1,495
<TOTAL-ASSETS> 243,027
<DEPOSITS> 185,305
<SHORT-TERM> 15,699
<LIABILITIES-OTHER> 3,137
<LONG-TERM> 4,000
0
0
<COMMON> 1,517
<OTHER-SE> 33,369
<TOTAL-LIABILITIES-AND-EQUITY> 243,027
<INTEREST-LOAN> 10,087
<INTEREST-INVEST> 7,142
<INTEREST-OTHER> 177
<INTEREST-TOTAL> 17,406
<INTEREST-DEPOSIT> 7,926
<INTEREST-EXPENSE> 8,454
<INTEREST-INCOME-NET> 8,952
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 3,869
<INCOME-PRETAX> 5,575
<INCOME-PRE-EXTRAORDINARY> 5,575
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,870
<EPS-PRIMARY> 7.24
<EPS-DILUTED> 7.23
<YIELD-ACTUAL> 4.23
<LOANS-NON> 0
<LOANS-PAST> 949
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,279
<ALLOWANCE-OPEN> 1,314
<CHARGE-OFFS> 37
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,495
<ALLOWANCE-DOMESTIC> 1,495
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
