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 SEPTEMBER 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>
<S> <C>
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996......................................... 3
Condensed Consolidated Statements of Income - Nine months ended
September 30, 1997 and 1996 and Three months ended
September 30, 1997 and 1996............................... 4
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 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 6. Exhibits and Reports on Form 8-K. .................... 14
(a) Exhibits. ........................................ 14
(b) Reports on Form 8-K. ............................. 14
</TABLE>
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1997 1996
-------------------- --------------------
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 5,449,991 $ 7,022,370
Interest-bearing demand accounts with other banks 4,239,929 241,458
Federal funds sold 3,940,000 700,000
--------------------- --------------------
13,629,920 7,963,828
Time deposits with other banks 300,000 800,000
Securities held-to-maturity (estimated market
value of $3,028,993 and $3,463,852 at September 30,
1997 and December 31, 1996, respectively) 2,948,585 3,344,422
Securities available-for-sale 29,262,948 34,997,823
Loans receivable 100,403,814 80,922,947
Less allowance for loan losses (1,235,256) (1,027,355)
--------------------- --------------------
Loans, net 99,168,558 79,895,592
Premises, furniture & equipment, net 4,292,211 3,708,575
Accrued interest receivable 1,167,353 1,207,411
Other assets 3,908,003 1,996,546
--------------------- --------------------
Total assets $ 154,677,578 $ 133,914,197
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing $ 17,048,569 $ 17,925,223
Interest-bearing 111,946,005 89,547,783
--------------------- --------------------
128,994,574 107,473,006
Short-term borrowings 1,098,405 549,095
Federal funds purchased and securities sold
under agreements to repurchase 796,829 8,534,279
Borrowings from the Federal Home Loan Bank 10,000,000 5,000,000
Accrued interest and other liabilities 2,028,975 1,536,105
--------------------- --------------------
Total liabilities 142,918,783 123,092,485
--------------------- --------------------
SHAREHOLDERS' EQUITY:
Common stock, $5 par value, 3,000,000 shares
authorized, 1,006,116 and 335,372 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively 5,030,580 1,676,860
Surplus 2,483,783 2,483,783
Unrealized gain on securities
available-for-sale, net of deferred taxes 245,775 140,568
Retained earnings 3,998,657 6,520,501
--------------------- --------------------
Total shareholders' equity 11,758,795 10,821,712
--------------------- --------------------
Total liabilities and shareholders' equity $ 154,677,578 $ 133,914,197
===================== ====================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
Interest income:
Loans, including fees $ 6,653,978 $ 4,893,730 $ 2,387,385 $ 1,732,879
Securities, taxable 1,570,665 1,563,819 519,812 555,748
Securities, tax-exempt 170,376 222,141 50,731 66,989
Other interest income 139,395 230,486 36,790 55,387
----------------- ----------------- ----------------- -----------------
8,534,414 6,910,176 2,994,718 2,411,003
----------------- ----------------- ----------------- -----------------
Interest expense:
Deposit accounts 3,274,004 2,723,957 1,253,651 948,650
Borrowings from the
Federal Home Loan Bank 401,979 106,700 146,917 75,926
Other interest expense 274,548 359,070 21,295 109,614
----------------- ----------------- ----------------- -----------------
3,950,531 3,189,727 1,421,863 1,134,190
----------------- ----------------- ----------------- -----------------
Net interest income 4,583,883 3,720,449 1,572,855 1,276,813
Provision for loan losses 292,000 135,000 114,000 45,000
----------------- ----------------- ----------------- -----------------
Net interest income after
provision for loan losses 4,291,883 3,585,449 1,458,855 1,231,813
----------------- ----------------- ----------------- -----------------
Other operating income:
Service charges on
deposit accounts 586,033 545,565 199,428 187,663
Other charges, commissions
and fees 641,519 427,153 249,356 121,501
Gain (loss) on sales
of securities 56,422 (8,408) 56,421 64
----------------- ----------------- ----------------- -----------------
1,283,974 964,310 505,205 309,228
----------------- ----------------- ----------------- -----------------
Other operating expenses:
Salaries and benefits 2,387,549 2,097,968 849,417 703,926
Net occupancy expense 608,746 612,686 210,665 224,340
Other operating expenses 1,240,128 997,362 431,675 372,540
----------------- ----------------- ----------------- -----------------
4,236,423 3,708,016 1,491,757 1,300,806
----------------- ----------------- ----------------- -----------------
Income before taxes 1,339,434 841,743 472,303 240,235
Income tax provision 390,178 202,000 118,156 58,000
----------------- ----------------- ----------------- -----------------
Net income $ 949,256 $ 639,743 $ 354,147 $ 182,235
================= ================= ================= =================
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) $ .94 $ .64 $ .35 $ .18
================= ================= ================= =================
Dividends paid per
common share (Note 2) $ .12 $ .10 $ .00 $ .00
================= ================= ================= =================
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
September 30,
-------------------------------------
1997 1996
------------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 949,256 $ 639,743
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 317,762 301,686
Provision for possible loan losses 292,000 135,000
(Gain) loss on sale of securities (56,421) 8,408
Other, net (745,726) 120,051
------------------ ------------------
Net cash provided by operating activities 756,871 1,204,888
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers (19,564,966) (12,869,040)
Purchases of securities available-for-sale (5,096,425) (6,964,375)
Sales of securities available-for-sale 5,027,290 832,078
Maturities of securities available-for-sale 6,060,861 7,028,733
Maturities of securities held-to-maturity 388,003 602,500
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 (886,290) (229,756)
------------------ ------------------
Net cash used by investing activities (14,306,827) (12,299,860)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (117,380) (100,612)
Net increase in deposits accounts 21,521,568 9,876,497
Advances from Federal Home Loan Bank 5,000,000 5,000,000
Increase in short-term borrowings 549,310 196,758
Decrease in securities sold
under agreements to repurchase (7,737,450) (400,043)
------------------ ------------------
Net cash provided by financing activities 19,216,048 14,572,600
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,666,092 3,477,628
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,963,828 9,348,244
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,629,920 $ 12,825,872
================== ==================
Cash paid during the period for:
Income taxes $ 310,294 $ 119,000
Interest $ 3,962,224 $ 3,063,144
</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 stockholders. The
financial statements as of September 30, 1997 and for the interim periods ended
September 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 September 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. On July 1, 1997, the Company transferred $3,353,720 from retained earnings
to common stock, representing the 670,744 additional shares of the Company's $5
par value stock which were issued.
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 each participant's 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
6
<PAGE>
M & M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - EMPLOYEE BENEFITS - CONTINUED
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, a salary continuation plan, a phantom stock plan, and a dividend
reinvestment program. The terms and details of the above actions have not yet
been fully implemented.
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.
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 September
30, 1997 compared to December 31, 1996, and the results of operations for the
three and nine months ended September 30, 1997 compared to the three and nine
months ended September 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 nine months ended September 30, 1997, net interest income increased
$863,434, or 23.21%, over the nine months ended September 30, 1996. For the
quarter ended September 30, 1997, net interest income increased $296,042, or
23.19%, over the third quarter of 1996.
The improvement in both the nine and three-month periods ended September 30,
1997, is related to an increase in the volume of interest earning assets and an
increase in the rates on interest earning assets due to an increase in the
percentage of loans to total earning assets. For the nine months ended September
30, 1997, average loans comprised 70% of earning assets compared to 61% for the
same period of 1996. The improvement in net interest income is partially offset
by the increase in the rates paid on interest-bearing liability accounts due to
a $20,015,558 increase in the average volume for the nine months ended September
30, 1997 compared to the nine months ended September 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 23.85% and 25.36% for the nine
months and for the quarter ended September 30, 1997. 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 nine
months and quarter ended September 30, 1997 was $3,274,004 and $1,253,651,
respectively, compared to $2,723,957 and $948,650 for the comparable periods of
1996.
The influence of the factors above had the effect of increasing the interest
rate spread 25 basis points to 4.02% and increasing the net yield on earning
assets 17 basis point to 4.62% for the nine month period ended September 30,
1997. The factors above also had the effect of increasing, for the quarter ended
September 30, 1997, the interest rate spread approximately 16 basis points to
3.95% and increasing the net yield on earning assets 13 basis points to 4.56%
when compared to the three months ended September 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 nine months and the quarter ended September 30,
1997, the provision was $292,000 and $114,000, an increase of $157,000 and
$69,000, 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. Management believes the allowance for loan losses
is adequate at September 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 nine months ended September 30, 1997 was
$1,283,974, an increase of $319,664, or 33.15%, from the comparable period in
1996. For the quarter ended September 30, 1997, total noninterest income was
$505,205, an increase of $195,977 or 63.38% 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 first quarter of 1997, the Company
began charging customers of other banks for use of its ATM's which generated
approximately $49,320 of fee income for the nine months ended September 30,
1997. Due to the continued growth of the discount brokerage department, fees
from sales increased to $121,732 and $50,268 for the nine-month and three-month
periods ended September 30, 1997 from $75,175 and $25,521 for the comparable
periods of 1996.
NONINTEREST EXPENSE
Total noninterest expense for the nine months ended September 30, 1997 was
$4,236,423, an increase of 14.25% compared to the nine months ended September
30, 1996. For the quarter ended September 30, 1997, noninterest expense was
$1,491,757, an increase of $190,951 when compared to noninterest expense of
$1,300,806 for the quarter ended September 30, 1996.
The increase in noninterest expense is attributable mainly to the continuing
growth of the Company. The primary component of noninterest expense is salaries
and benefits which increased $289,581 to $2,387,549 for the nine months ended
September 30, 1997 when compared to 1996. For the quarter ended September 30,
1997, salaries and employee benefits were $849,417, an increase of $145,491 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 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 nine months and quarter ended September 30,
1997, was $390,178 and $118,156, compared to $202,000 and $58,000 for the
comparable 1996 periods, respectively. For the nine months ended September 30,
1997, the effective income tax rate was approximately 29% 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 nine months
ended September 30, 1997 of $949,256 or $.94 per share as compared to $639,743
or $.64 per share for the nine months ended September 30, 1996. For the quarter
ended September 30, 1997, net income was $354,147 or $.35 per share as compared
to $182,235 or $.18 per share for the comparable period in 1996.
ASSETS AND LIABILITIES
During the first nine months of 1997, total assets grew $20,763,381, or 15.50%
when compared to December 31, 1996. The major percentage of the growth was
attributable to the growth in loans which increased 24.07% to 100,403,814 as of
September 30, 1997 from $80,922,947 as of December 31, 1996. The increase in
total assets was substantially funded by the $22,398,222 increase in
interest-bearing deposit
9
<PAGE>
M & M FINANCIAL CORPORATION
ASSETS AND LIABILITIES - CONTINUED
accounts and the $5,000,000 increase in borrowings from the Federal Home Loan
Bank, all having maturities of one year or less.
INVESTMENT SECURITIES
Investment securities have decreased $6,130,713 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 September 30, 1997 was 77.84%. 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 September 30, 1997 and December 31, 1996 are as
follows:
September 30, December 31,
1997 1996
-------------------- --------------------
Commercial and agricultural $ 69,321,850 $ 55,300,370
Real estate - construction 4,954,027 3,296,039
Consumer and other 26,127,937 22,326,538
-------------------- --------------------
$ 100,403,814 $ 80,922,947
==================== ====================
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1997 1996
---------------- -------------
Loans:
Nonaccrual loans $ 1,778,000 $ 710,834
Accruing loans more than 90
days past due $ 25,000 $ 11,916
Loans identified by the internal review mechanism:
Criticized $ 3,791,079 $ 1,751,459
Classified $ 2,495,682 $ 2,314,980
</TABLE>
The tobacco industry, in negotiations with state attorney generals, 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 also imposes new restrictions on advertising by tobacco companies.
10
<PAGE>
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 75% of the
Bank's capital structure and 9.29% of gross loans outstanding. Loans in the golf
course industry represent approximately 34% of the Bank's capital structure and
4.18% 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
September 30, 1997, total advances under this program totaled $1,775,950.
During the previous quarter, 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 September 30, 1997, the Company has provided a specific
allocation of $250,000 for loss exposure. 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>
<S> <C> <C>
September 30,
------------------------------------
1997 1996
--------------- ----------------
Balance, January 1, $ 1,027,355 $ 818,637
Provision for loan losses for the period 292,000 135,000
Loans recovered for the period 40,286
Loans charged off for the period (124,385) 34,287
--------------- ----------------
Balance, end of period $ 1,235,256 $ 987,924
=============== ================
Gross loans outstanding, end of period $ 100,403,814 $ 74,247,531
Allowance for Loan Losses to loans outstanding 1.23% 1.33%
</TABLE>
DEPOSITS
Total deposits increased $21,521,568 or 20.03% from December 31, 1996. Expressed
in percentages, noninterest-bearing deposits decreased 4.89% and
interest-bearing deposits increased 25.01%.
11
<PAGE>
M & M FINANCIAL CORPORATION
DEPOSITS - CONTINUED
Balances within the major deposit categories as of September 30, 1997 and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1997 1996
-------------------- --------------------
Noninterest-bearing demand deposits $ 17,048,569 $ 17,925,223
Interest-bearing demand deposits 34,978,675 23,412,310
Savings deposits 17,069,356 15,164,905
Certificates of deposit 59,897,974 50,970,568
-------------------- --------------------
$ 128,994,574 $ 107,473,006
==================== ====================
</TABLE>
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 71.26% at September 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 September 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 $9,500,000 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 $29,262,948 as of September 30,
1997.
CAPITAL RESOURCES
Total shareholders' equity increased $937,083 to $11,758,795 since December 31,
1996. The increase is due to earnings for the period of $949,256 less dividends
paid of $117,380 plus a positive net change of $105,208 in the fair value of
securities available-for-sale.
The Bank subsidiary 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%.
12
<PAGE>
M & M FINANCIAL CORPORATION
CAPITAL RESOURCES - CONTINUED
The Federal Reserve Board has similar requirements for bank holding companies
with consolidated assets $150,000,000 and over. During the quarter, the Company
reached $150,000,000 and became subject to the Federal Reserve Board
requirements.
The following table summarizes the Company's risk-based capital at September 30,
1997:
Risk based capital ratios Company Bank
-------------- ----------
Tier I 10.25% 9.96%
Total capital 11.35% 11.06%
Leverage ratio 7.44% 7.24%
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.
13
<PAGE>
M & M FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company did
not file any reports on Form 8-k.
Items 1, 2,3,4 and 5 are not applicable.
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: November 13, 1997 By: /s/
---------------------------------------------
Chester A. Duke
President & Chief Executive Officer
Date: November 13, 1997 By: /s/
---------------------------------------------
Marion E. Freeman
Chief Financial Officer
Date: November 13, 1997 By: /s/
---------------------------------------------
George H. Hardwick
Controller
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,689,920
<INT-BEARING-DEPOSITS> 300,000
<FED-FUNDS-SOLD> 3,940,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,262,948
<INVESTMENTS-CARRYING> 2,948,585
<INVESTMENTS-MARKET> 3,028,993
<LOANS> 100,403,814
<ALLOWANCE> 1,235,256
<TOTAL-ASSETS> 154,677,578
<DEPOSITS> 128,994,574
<SHORT-TERM> 11,895,234
<LIABILITIES-OTHER> 2,028,975
<LONG-TERM> 0
0
0
<COMMON> 5,030,580
<OTHER-SE> 6,728,215
<TOTAL-LIABILITIES-AND-EQUITY> 154,677,578
<INTEREST-LOAN> 6,653,978
<INTEREST-INVEST> 1,741,041
<INTEREST-OTHER> 139,395
<INTEREST-TOTAL> 8,534,414
<INTEREST-DEPOSIT> 3,274,004
<INTEREST-EXPENSE> 3,950,531
<INTEREST-INCOME-NET> 4,583,883
<LOAN-LOSSES> 292,000
<SECURITIES-GAINS> 56,422
<EXPENSE-OTHER> 4,236,423
<INCOME-PRETAX> 1,339,434
<INCOME-PRE-EXTRAORDINARY> 1,339,434
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 949,256
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 4.62
<LOANS-NON> 1,778,000
<LOANS-PAST> 25,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,495,682
<ALLOWANCE-OPEN> 1,027,355
<CHARGE-OFFS> 124,385
<RECOVERIES> 40,286
<ALLOWANCE-CLOSE> 1,235,256
<ALLOWANCE-DOMESTIC> 1,235,256
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
