SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1997
Commission File Number O-18460
M & M FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0771433
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
307 N. Main Street
Marion, SC 29571
(Address of principal executive
offices, including zip code)
(803) 431-1000
(Registrant's telephone number, including area code)
------------------------------------------------
Check whether the issuer: (1) 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 issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
YES X NO____
State the number of shares outstanding of each of the issuer's classes of common
equity as of the date of this filing.
1,006,116 shares of common stock, $5.00 par value
Traditional Small Business Disclosure Format: YES X NO ______
<PAGE>
M & M FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996............................................................. 3
Condensed Consolidated Statements of Income - Six months ended June 30,
1997 and 1996 and Three months ended June 30, 1997
and 1996...................................................................... 4
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1996.................................................. 5
Notes to Condensed Consolidated Financial Statements.......................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 8-13
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders....................... 14
Item 6. Exhibits and Reports on Form 8-K.......................................... 14
(a) Exhibits.............................................................. 14
(b) Reports on Form 8-K................................................... 14
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 5,952,453 $ 7,022,370
Interest-bearing demand accounts with other banks 166,883 241,458
Federal funds sold -- 700,000
------------- -------------
6,119,336 7,963,828
Time deposits with other banks 300,000 800,000
Securities held-to-maturity (estimated market
value of $3,028,600 and $3,463,852 at June 30,
1997 and December 31, 1996, respectively) 2,955,004 3,344,422
Securities available-for-sale 34,189,986 34,997,823
Loans receivable 96,312,213 80,922,947
Less allowance for loan losses (1,146,520) (1,027,355)
------------- -------------
Loans, net 95,165,693 79,895,592
Premises, furniture and equipment, net 4,343,162 3,708,575
Accrued interest receivable 1,261,276 1,207,411
Other assets 2,934,358 1,996,546
------------- -------------
Total assets $ 147,268,815 $ 133,914,197
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 16,394,858 $ 17,925,223
Interest-bearing 104,682,408 89,547,783
------------- -------------
121,077,266 107,473,006
Short-term borrowings 1,123,590 549,095
Federal funds purchased and securities sold
under agreements to repurchase 2,397,987 8,534,279
Borrowings from the Federal Home Loan Bank 10,000,000 5,000,000
Accrued interest and other liabilities 1,581,448 1,536,105
------------- -------------
Total liabilities 136,180,291 123,092,485
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $5 par value, 3,000,000 shares
authorized, 335,372 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 1,676,860 1,676,860
Surplus 2,483,783 2,483,783
Unrealized gain (loss) on securities
available-for-sale, net of deferred taxes (70,348) 140,568
Common stock dividends distributable 3,353,720 --
Retained earnings 3,644,509 6,520,501
------------- -------------
Total shareholders' equity 11,088,524 10,821,712
------------- -------------
Total liabilities and shareholders' equity $ 147,268,815 $ 133,914,197
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,266,593 $ 3,160,852 $ 2,181,525 $ 1,641,772
Securities, taxable 1,050,853 1,008,071 528,922 518,497
Securities, tax-exempt 119,645 155,152 55,254 73,820
Other interest income 102,605 175,098 60,850 44,439
----------------- ----------------- ----------------- -----------------
5,539,696 4,499,173 2,826,551 2,278,528
----------------- ----------------- ----------------- -----------------
Interest expense:
Deposit accounts 2,020,353 1,775,307 1,068,949 885,820
Borrowings from the Federal
Home Loan Bank 255,062 30,774 145,895 30,774
Other interest expense 253,253 249,456 125,373 116,495
----------------- ----------------- ----------------- -----------------
2,528,668 2,055,537 1,340,217 1,033,089
----------------- ----------------- ----------------- -----------------
Net interest income 3,011,028 2,443,636 1,486,334 1,245,439
Provision for loan losses 178,000 90,000 94,000 45,000
----------------- ----------------- ----------------- -----------------
Net interest income after
provision for loan losses 2,833,028 2,353,636 1,392,334 1,200,439
----------------- ----------------- ----------------- -----------------
Other operating income:
Service charges on
deposit accounts 386,605 357,902 196,476 187,865
Other charges, commissions
and fees 392,163 305,652 195,274 115,532
Loss on sales of securities - (8,472) - (8,472)
----------------- ----------------- ----------------- -----------------
778,768 655,082 391,750 294,925
----------------- ----------------- ----------------- -----------------
Other operating expenses:
Salaries and benefits 1,538,132 1,394,042 798,954 695,921
Net occupancy expense 398,081 388,346 206,429 196,709
Other operating expenses 808,453 624,822 438,953 339,104
----------------- ----------------- ----------------- -----------------
2,744,666 2,407,210 1,444,336 1,231,734
----------------- ----------------- ----------------- -----------------
Income before taxes 867,130 601,508 339,748 263,630
Income tax provision 272,022 144,000 107,470 62,900
----------------- ----------------- ----------------- -----------------
Net income $ 595,108 $ 457,508 $ 232,278 $ 200,730
================= ================= ================= =================
Weighted average common
shares outstanding (Note 2) 1,006,116 1,006,116 1,006,116 1,006,116
================= ================= ================= =================
Net income per
common share (Note 2) $ .59 $ .45 $ .23 $ .20
================= ================= ================= =================
Dividends paid per
common share (Note 2) $ .12 $ .10 $ .12 $ .10
================= ================= ================= =================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------------------
1997 1996
--------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 595,108 $ 457,508
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 209,132 197,281
Provision for possible loan losses 178,000 90,000
Loss on sales of securities - 8,472
Other, net (87,648) (289,786)
------------------ ------------------
Net cash provided by operating activities 894,592 463,475
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (15,448,101) (9,229,765)
Purchases of securities available-for-sale (1,587,624) (6,964,384)
Sales of securities available-for-sale - 501,183
Maturities of securities available-for-sale 2,056,330 5,218,920
Maturities of securities held-to-maturity 385,504 600,000
Net (increase) decrease in time deposits
with other banks 500,000 (700,000)
Purchase of Federal Home Loan Bank stock (735,300) -
Purchases of premises and equipment (834,976) (132,420)
------------------ ------------------
Net cash provided by financing activities (15,664,167) (10,706,466)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (117,380) (100,612)
Net increase in deposits accounts 13,604,260 2,880,612
Advances from Federal Home Loan Bank 5,000,000 5,000,000
Increase in short-term borrowings 574,495 335,003
Decrease in federal funds purchased and
securities sold under agreements to repurchase (6,136,292) (504,719)
------------------ ------------------
Net cash provided by financing activities 12,925,083 7,610,284
------------------ ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,844,492) (2,632,707)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,963,828 9,348,244
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,119,336 $ 6,715,537
================== ==================
Cash paid during the period for:
Income taxes $ 251,094 $ 94,100
Interest $ 2,740,766 $ 2,073,777
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
M & M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of June 30, 1997 and for the interim periods ended June
30, 1997 and 1996 are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation. The financial information as of December 31, 1996 has been
derived from the audited financial statements as of that date. For further
information, please refer to the financial statements and the notes included in
the Company's 1996 Annual Report.
Note 2 - Significant Accounting Policies
On May 5, 1997, the Company authorized a three-for-one stock split effective
July 1, 1997. All references in the condensed consolidated financial statements
referring to shares, share prices, per-share amounts and stock plans have been
adjusted retroactively for the three-for-one stock split. Additional information
is presented in Note 4.
Note 3 - Borrowings from the Federal Home Loan Bank
As of June 30, 1997, the Company had short-term, fixed rate advances of
$10,000,000 on its $20,000,000 credit availability line with the Federal Home
Loan Bank of Atlanta. As collateral, the Company has pledged first mortgage
loans on one to four family residential properties and $1,600,000 of debt
securities. In addition, the Company's Federal Home Loan Bank stock, which is
included in other assets, is pledged to secure the borrowings. Advances on the
credit availability line may require the Company to pledge further collateral.
Note 4 - Shareholders' Equity
On April 17, 1997, the shareholders approved an amendment to the Articles of
Incorporation increasing the number of authorized shares outstanding from
800,000 shares to 3,000,000 shares. On May 5, 1997, the Company declared a $.12
per share, or $117,380, cash dividend to shareholders of record on May 5, 1997.
The dividend was paid on June 2, 1997.
On May 5, 1997, the Company also declared a three-for-one stock split effected
in the form of a 200 percent stock dividend to shareholders of record on June 2,
1997. As of June 30, 1997, the Company has transferred $3,353,720 from retained
earnings to common stock dividends distributable, representing the 670,744
additional shares of the Company's $5 par value stock which were issued on July
1, 1997.
6
<PAGE>
M & M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5 - Employee Benefits
Effective April 17, 1997, the Company, upon receiving shareholder approval,
adopted an Incentive Stock Option Plan which provides for the granting of
options to purchase up to 78,000 shares of the Company's common stock to
officers and employees of the Company. The per-share exercise price of an option
may not be less than the fair market value of a share of common stock on the
date the option is granted. Participants become vested in options granted based
on the participants' years of service to the Company. At no time shall an option
be exercised more than ten years from the date of grant. Options that expire
unexercised or are canceled become available for issuance. On May 5, 1997, the
Company granted 54,000 options at an exercise price of $13.33 per share pursuant
to the terms of the Incentive Stock Option Plan. The number of shares approved
for granting of options, the number of options granted, and the exercise price
of options are adjusted for changes in capital structure.
The Company has voted in favor of terminating its noncontributory defined
benefit pension plan. The Company has also approved a money purchase pension
plan, an executive supplemental pension plan and a phantom stock plan. The terms
and details of the above actions have not yet been finalized.
Note 6 - Branch in Florence, South Carolina
The Company has received regulatory approval for its banking subsidiary to open
a branch on its lot in Florence, South Carolina, which was purchased February
28, 1997 for $441,000. The Company does not have any commitments for the
construction of the building. The Company expects to open the branch in a
temporary facility during the third quarter of 1997.
7
<PAGE>
M & M FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
The following is a discussion of the Company's financial condition at June 30,
1997 compared to December 31, 1996, and the results of operations for the three
and six months ended June 30, 1997 compared to the three and six months ended
June 30, 1996. These comments should be read in conjunction with the Company's
condensed consolidated financial statements and accompanying footnotes appearing
in this report.
Results of Operations
Net Interest Income
For the six months ended June 30, 1997, net interest income increased $567,392,
or 23.22%, over the six months ended June 30, 1996. For the quarter ended June
30, 1997, net interest income increased $240,895, or 19.34%, over the second
quarter of 1996.
The improvement in both the six and three-month periods ended June 30, 1997, is
related to an increase in both the volume of and yields on interest-earning
assets due to the growth in loans and an increase in the percentage of loans to
total earning assets. For the six months ended June 30, 1997, average loans
comprised 69% of earning assets compared to 59% for the same period of 1996. The
improvement in interest income is partially offset by the increase in interest
paid on interest-bearing liability accounts due to a $19,656,089 increase in the
average volume for the six months ended June 30, 1997 compared to the six months
ended June 30, 1996. The increase in the volume of both assets and liabilities
is attributable to management's ability to strengthen its influence in the
Company's market area and the Company's emphasis on growth.
Interest expense on liability accounts increased 23.02% and 29.73% for the six
months and for the quarter ended June 30, 1997, from the six months and quarter
ended June 30, 1996. The increase was due mainly to an increase in the volume of
interest-bearing deposits over the comparable periods in 1996 and the Company's
increased use of borrowings from the Federal Home Loan Bank as a funding source.
Interest expense on deposits for the six months and quarter ended June 30, 1997
were $2,020,353 and $1,068,950, respectively, compared to $1,775,307 and
$885,820 for the comparable periods of 1996.
The influence of the factors above had the effect of increasing the interest
rate spread 27 basis points to 4.00% and increasing the net yield on earning
assets 19 basis points to 4.63% for the six-month period ended June 30, 1997.
The factors above also had the effect of increasing, for the quarter ended June
30, 1997, the interest rate spread approximately 25 basis points to 4.20% and
increasing the net yield on earning assets 7 basis points to 4.65%, when
compared to the three months ended June 30, 1996.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management feels is necessary to maintain the allowance for possible loan losses
at an adequate level. For the six months and the quarter ended June 30, 1997,
the provision was $178,000 and $94,000, respectively, an increase of $88,000 and
$49,000, respectively, from the comparable 1996 periods. The increase in the
provision for loan losses is due to the growth in the loan portfolio,
particularly commercial loans. Based on present information, management believes
the allowance for loan losses is adequate at June 30, 1997 to meet presently
known and inherent risks in the loan portfolio.
8
<PAGE>
M & M FINANCIAL CORPORATION
Noninterest Income
Total noninterest income during the six months ended June 30, 1997 was $778,768,
an increase of $123,686, or 18.88%, from the comparable period in 1996. For the
quarter ended June 30, 1997, total noninterest income was $391,750, an increase
of $96,825, or 32.83%, from the comparable quarter of 1996.
The Company purchased additional Federal Home Loan Bank stock during 1997 in
order to meet the borrowing requirements of the Federal Home Loan Bank resulting
in an increase in dividend income. During the fourth quarter of 1997, the
Company began charging customers of other banks for use of its ATM's which
generated approximately $33,000 of fee income for the six months ended June 30,
1997. Due to the continued growth of the discount brokerage department, fees
from sales increased to $71,465 and $35,573 for the six-month and three-month
periods ended June 30, 1997 from $49,654 and $17,683 for the comparable periods
of 1996.
Noninterest Expense
Total noninterest expense for the six months ended June 30, 1997 was $2,744,666,
an increase of 14.02% compared to the six months ended June 30, 1996. For the
quarter ended June 30, 1997, noninterest expense was $1,444,336, an increase of
$212,602 when compared to noninterest expense of $1,231,734 for the quarter
ended June 30, 1996.
The increase in noninterest expense is attributable mainly to the continuing
growth of the Company. The primary component of non-interest expense is salaries
and benefits which increased $144,070 to $1,538,132 for the six months ended
June 30, 1997 when compared to 1996. For the quarter ended June 30, 1997,
salaries and employee benefits were $798,954, an increase of $103,033 when
compared to the same period of 1996. The increases were due to the hiring of new
employees to staff the new branch in Florence, which is expected to open during
the third quarter, and to the hiring of several experienced loan officers from
larger regional banks to generate loan business.
Income Taxes
The income tax provision for the six months and quarter ended June 30, 1997, was
$272,022 and $107,470, compared to $144,100 and $62,900 for the comparable 1996
periods, respectively. For the six months ended June 30, 1997, the effective
income tax rate was approximately 31% compared to 24% for the same period in
1996. The increase is partially due to a decrease in tax-exempt income as a
percentage of income before income taxes.
Net Income
The combination of the above factors resulted in net income for the six months
ended June 30, 1997 of $595,108 or $.59 per share as compared to $457,508 or
$.45 per share for the six months ended June 30, 1996. For the quarter ended
June 30, 1997, net income was $232,277 or $.23 per share as compared to $200,730
or $.20 per share for the comparable period in 1996.
9
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M & M FINANCIAL CORPORATION
Assets and Liabilities
During the first six months of 1997, total assets grew $13,354,618, or 9.97%,
when compared to December 31, 1996. The major percentage of the growth was
attributable to the growth in loans which increased 19.02% to $96,312,213 as of
June 30, 1997 from $80,922,947 as of December 31, 1996. The increase in total
assets was substantially funded by the $15,134,626 increase in interest-bearing
deposit accounts and the $5,000,000 increase in borrowings from the Federal Home
Loan Bank, all having maturities in one year or less.
Investment Securities
Investment securities decreased by $1,197,255 since December 31, 1996, which is
in accordance with management's efforts to shift investable funds to loans,
which traditionally have higher yields.
Loans
In order to improve earnings and shift investable funds to loans, the Board of
Directors has recommended an increase in the loan-to-deposit ratio to 85% from
80%. The loan-to-deposit ratio at June 30, 1997 was 78.60%. Additionally,
management has emphasized its commitment to loan growth and the recommendations
of the Board by hiring several experienced loan officers within the past year.
Management believes that commercial loan demand will remain strong in Horry and
Florence Counties for the foreseeable future. Construction and tourism
activities are increasing in the Horry County market. Balances within the major
loan receivable categories as of June 30, 1997 and December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Commercial and agricultural $62,373,844 $55,300,370
Real estate - construction 5,441,642 3,296,039
Consumer and other 28,496,727 22,326,538
----------- -----------
$96,312,213 $80,922,947
=========== ===========
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the
loan portfolio: June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Loans:
Nonaccrual loans $ 648,000 $ 710,834
Accruing loans more than 90
days past due $ 39,000 $ 11,916
Loans identified by the internal review mechanism:
Criticized $ 2,211,987 $ 1,751,459
Classified $ 1,785,498 $ 2,314,980
</TABLE>
The tobacco industry, in negotiations with state attorneys general, has agreed
to major regulatory concessions. Tobacco companies have agreed to pay
approximately $370 billion over the next 25 years for public health efforts and
will submit to nicotine regulation by the U.S. Food and Drug Administration. The
settlement will also impose new restrictions on advertising by tobacco
companies. The tentative agreement needs approval by both Congress and the
President.
10
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M & M FINANCIAL CORPORATION
Risk Elements in the Loan Portfolio - continued
Although the Company's geographic marketplace is largely rural and has tobacco
farmers, management does not believe the settlement by the tobacco industry will
have a direct material effect on the Company's loan portfolio because
agricultural lending has been limited. The agreement could have an indirect
impact if the local economy is adversely affected.
Under Comptroller of the Currency guidelines, "a concentration of credit
consists of direct, indirect, or contingent obligations exceeding 25% of a
bank's capital structure." Under this definition, the Company's banking
subsidiary has a concentration of credit in both the hotel/motel and golf course
industries. Loans in the hotel/motel industry represent approximately 86% of the
Bank's capital structure and 10.62% of gross loans outstanding. Loans in the
golf course industry represent approximately 35% of the Bank's capital structure
and 4.37% of gross loans outstanding.
During 1996, the Company implemented a credit program in which it advances money
to small businesses based on the outstanding accounts receivable of the business
("Business Manager"). Payments on the receivables are collected directly by the
Bank. Per the credit agreements, the respective businesses are required to
reduce the outstanding balances based on the aging of the receivables. As of
June 30, 1997, total advances under this program totaled $3,225,375.
During the quarter ended June 30, 1997, the Company became aware of one Business
Manager account that was not being collected as agreed. The business was not
financially able to reduce its loan commitment as the receivables became
increasingly past due leaving the Company with an exposure of $791,000. In July,
the Company restructured the loan into a $850,000 promissory note with a one
year maturity, monthly interest payments, and a principal reduction to $700,000
in 120 days. Additionally, a financial guarantee surety bond was issued for
$850,000 in favor of the Bank to secure the note. The surety bond was issued by
a private surety and asset management firm with which the Company had no
previous experience or knowledge. The Company believes that its position has
been strengthened by the surety bond but recognizes that this loan will require
continual monitoring and attention. As of June 30, 1997, the Company had not
provided a specific allocation for any loss exposure; however, if the customer
is unable to meet its obligation and the surety does not pay, the Company will
make additional charges to the allowance for loan losses, which may be material
to the financial statements. This loan has been rated sub-standard by the
Company and was placed on non-accrual status in July 1997.
Activity in the Allowance for Loan Losses is as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Balance, January 1, $ 1,027,355 $ 818,637
Provision for loan losses for the period 178,000 90,000
Loans recovered for the period 30,592 38,677
Loans charged off for the period (89,427) (11,655)
------------ ------------
Balance, end of period $ 1,146,520 $ 935,659
============ ============
Gross loans outstanding, end of period $ 96,312,213 $ 70,600,991
Allowance for Loan Losses to loans outstanding 1.19% 1.33%
</TABLE>
Deposits
Total deposits increased $13,604,260 or 12.66% from December 31, 1996. Expressed
in percentages, noninterest-bearing deposits decreased 8.54% and
interest-bearing deposits increased 16.90%.
11
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M & M FINANCIAL CORPORATION
Deposits - continued
Balances within the major deposit categories as of June 30, 1997 and December
31, 1996 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Non-interest bearing demand deposits $ 16,394,858 $ 17,925,223
Interest bearing demand deposits 30,226,883 23,412,310
Savings deposits 17,046,920 15,164,905
Certificates of deposit 57,408,605 50,970,568
-------------------- --------------------
$ 121,077,266 $ 107,473,006
==================== ====================
</TABLE>
During the second quarter of 1997, the Company modified the terms of repurchase
agreements with several large customers. These accounts are now interest-bearing
demand accounts for which the Company has pledged investment securities.
Liquidity
Funding loans and deposit withdrawals utilizes the Company's liquidity. The
level of liquidity is measured by the loan-to-total borrowed funds ratio, which
was 70.70% at June 30, 1997 and 65.73% at December 31, 1996. Liquidity needs are
met by the Company through scheduled maturities of loans and investments,
borrowings, and through pricing policies for interest-bearing deposit accounts.
Management believes the Company's liquidity is adequate to meet the expected
strong loan demand in its marketplace.
The Company has a $20,000,000 line of credit with the Federal Home Loan Bank of
Atlanta. As of June 30, 1997, the Company has borrowed $10,000,000 on this line
of credit with scheduled maturities of one year or less. The Company also has
$7,770,000 of unused lines of credit with correspondent banks to purchase
federal funds. As a secondary source of liquidity, the Company has securities
available-for-sale with a carrying value of $34,189,986 as of June 30, 1997.
Capital Resources
Total shareholders' equity increased $266,812 to $11,088,524 since December
31,1996. The increase is due to earnings through June 30, 1997 of $595,108 less
dividends of $117,380 and a $210,916 decrease in the unrealized gain (loss) on
securities available-for-sale.
The Bank subsidiary of the Company is required by banking regulators to meet
certain minimum levels of capital adequacy. These are expressed in the form of
certain ratios. Capital is separated into Tier I capital (essentially common
shareholders' equity less intangible assets) and Tier II capital (essentially
the allowance for loan losses limited to 1.25% of risk-weighted assets). The
first two ratios, which are based on the degree of credit risk in the Bank's
assets, provide the weighting of assets based on assigned risk factors and
include off-balance sheet items such as loan commitments and stand-by letters of
credit. The ratio of Tier I capital to risk-weighted assets must be at least
4.0% and the ratio of total capital (Tier I capital plus Tier 2 capital) to
risk-weighted assets must be at least 8.0%. The capital leverage ratio
supplements the risk-based capital guidelines. The Bank is required to maintain
a minimum ratio of Tier I capital to adjusted quarterly average total assets of
3.0%.
The following table summarizes the Bank's risk-based capital at June 30, 1997:
Risk based capital ratios:
Tier I 10.24%
Total capital 11.26%
Leverage ratio 7.34%
12
<PAGE>
M & M FINANCIAL CORPORATION
Capital Resources - continued
The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies with less
than $150,000,000 in consolidated assets.
Regulatory Matters
The management of the Company is not aware of any current recommendations by
regulatory authorities which, if they were to be implemented, would have a
material effect on liquidity, capital resources, or operations.
Accounting Rule Changes
During the first quarter of 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share", which addresses the computation,
presentation, and disclosure requirements for earnings per share by entities
with publicly held common stock or potential common stock. Statement No. 128 is
effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted.
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<PAGE>
M & M FINANCIAL CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 17, 1997, the Company held its annual meeting of shareholders. The
Company's shareholders elected the following five persons as directors, each to
serve until the next annual meeting of shareholders or until his successor is
elected and qualified. The Company's shareholders also voted to amend Article I
of the Company's Articles of Incorporation to increase the authorized shares of
common stock with a par value of $5.00 per share to 3,000,000 shares and to
increase the total authorized capital stock to $15,000,000. In addition, the
Company's shareholders voted to adopt the M & M Financial Corporation and First
National South Incentive Stock Option Plan of 1997, as well as to ratify the
appointment of Tourville, Simpson & Henderson as the independent auditors for
the Company for the year ended December 31, 1997.
The number of shares voted for or against each item are as follows:
------------------------------------ -------------- -------------------
Election of Directors For Withheld
------------------------------------ -------------- -------------------
Chester A. Duke 281,787 2,843
J.M. McLendon 281,332 3,298
Charles B. McElveen 281,387 3,243
Bruce Siegal 278,922 5,708
Nancy B. Williams 280,962 3,668
------------------------------------ -------------- -------------------
Approval to amend Article I of the Company's Articles of Incorporation to
increase the authorized shares of common stock with a par value of $5.00 per
share to 3,000,000 shares and to increase the total authorized capital stock to
$15,000,000:
------------------- ------------------------ --------------------------
For Against Abstained
------------------- ------------------------ --------------------------
277,364 6,491 775
------------------- ------------------------ --------------------------
Approval to adopt the M&M Financial Corporation and First National South Stock
Option Plan of 1997:
------------------- ------------------------ --------------------------
For Against Abstained
------------------- ------------------------ --------------------------
279,192 4,443 995
------------------- ------------------------ --------------------------
Ratify the appointment of Tourville, Simpson & Henderson as the independent
auditors for the Company for the year ended December 31, 1997:
------------------- ------------------------ --------------------------
For Against Abstained
------------------- ------------------------ --------------------------
282,589 781 1,260
------------------- ------------------------ --------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Material contracts
M&M Financial Corporation and First National South
Incentive Stock Option Plan of 1997.
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1997, the Company did not
file any reports on Form 8-K.
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M & M FINANCIAL CORPORATION
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
M & M FINANCIAL CORPORATION
Date: August 8, 1997 By: /s/
________________________________________
Chester A. Duke
President & Chief Executive Officer
Date: August 8, 1997 By: /s/
________________________________________
Marion E. Freeman
Chief Financial Officer
Date: August 8, 1997 By: /s/
________________________________________
George H. Hardwick
Controller
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