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 March 31, 1998
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 Registrant 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
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
M & M FINANCIAL CORPORATION
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1998 (unaudited) and
December 31, 1997...................................................... 3
Condensed Consolidated Statements of Income - Three months ended
March 31, 1998 and 1997 (unaudited )................................... 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
- Three months ended March 31, 1998 and 1997 (unaudited)............... 5
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 (unaudited) ............................. 6
Notes to Condensed Consolidated Financial Statements (unaudited) ...... 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. .......................................10-14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K. ................................. 15
(a) Exhibits. ..................................................... 15
(b) Reports on Form 8-K. .......................................... 15
2
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
ASSETS:
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks ................................................................ $ 6,593,305 $ 7,822,361
Interest-bearing demand accounts with other banks ...................................... 1,060,909 1,519,920
Federal funds sold ..................................................................... 4,500,000 -
------------- -------------
12,154,214 9,342,281
Time deposits with other banks ........................................................... 300,000 300,000
Securities held-to-maturity (estimated market value
of $2,330,510 and $3,031,496 at March 31, 1998 and
December 31, 1997, respectively) ........................................................ 2,279,228 2,973,837
Securities available-for-sale ............................................................ 31,363,789 29,901,275
Loans receivable ......................................................................... 113,152,575 105,427,377
Less allowance for loan losses ........................................................ (1,044,616) (926,635)
------------- -------------
Loans, net .......................................................................... 112,107,959 104,500,742
Premises, furniture & equipment, net ..................................................... 4,458,739 4,355,338
Accrued interest receivable .............................................................. 1,139,166 1,256,335
Other assets ............................................................................. 4,075,765 3,640,886
------------- -------------
Total assets ......................................................................... $ 167,878,860 $ 156,270,694
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits:
Non-interest bearing ................................................................... $ 18,272,459 $ 18,958,066
Interest bearing transaction accounts .................................................. 39,594,871 32,004,240
Savings deposits ....................................................................... 21,408,538 18,281,077
Time deposits .......................................................................... 63,043,658 61,238,686
------------- -------------
142,319,526 130,482,069
Short-term borrowings .................................................................... 1,923,947 2,461,432
Advances from the Federal Home Loan Bank ................................................. 10,000,000 10,000,000
Accrued interest and other liabilities ................................................... 1,739,136 1,638,835
------------- -------------
Total liabilities .................................................................... 155,982,609 144,582,336
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $5 par value, 3,000,000 shares authorized, 1,006,116 shares issued
and outstanding at March 31, 1998 and
December 31, 1997, respectively ........................................................ 5,030,580 5,030,580
Surplus .................................................................................. 2,483,783 2,483,783
Accumulated other comprehensive income ................................................... 162,320 248,721
Retained earnings ........................................................................ 4,219,568 3,925,274
------------- -------------
Total stockholders' equity ........................................................... 11,896,251 11,688,358
------------- -------------
Total liabilities and stockholders' equity ........................................... $ 167,878,860 $ 156,270,694
============= =============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
Interest income:
<S> <C> <C>
Loans, including fees .......................................................... $2,584,210 $2,085,068
Securities, taxable ............................................................ 438,743 521,931
Securities, tax-exempt ......................................................... 45,608 64,391
Other interest income .......................................................... 145,294 41,755
---------- ----------
3,213,855 2,713,145
---------- ----------
Interest expense:
Deposit accounts ............................................................... 1,431,210 951,404
Advances from the Federal Home Loan Bank ....................................... 147,565 109,167
Short-term borrowings .......................................................... 21,024 127,880
---------- ----------
1,599,799 1,188,451
---------- ----------
Net interest income .............................................................. 1,614,056 1,524,694
Provision for loan losses ........................................................ 114,000 84,000
---------- ----------
Net interest income after provision for loan losses .............................. 1,500,056 1,440,694
---------- ----------
Other operating income:
Service charges on deposit accounts ............................................ 254,441 190,129
Other charges, commissions and fees ............................................ 193,161 196,889
---------- ----------
447,602 387,018
---------- ----------
Other operating expenses:
Salaries and benefits .......................................................... 888,603 739,179
Net occupancy expense .......................................................... 190,119 191,653
Other operating expenses ....................................................... 454,383 369,498
---------- ----------
1,533,105 1,300,330
---------- ----------
Income before taxes .............................................................. 414,553 527,382
Income tax provision ............................................................. 120,259 164,552
---------- ----------
Net income ....................................................................... $ 294,294 $ 362,830
========== ==========
Earnings per share:
Basic .......................................................................... $ 0.29 $ 0.36
========== ==========
Diluted ........................................................................ $ 0.29 $ 0.36
========== ==========
Weighted average number of shares outstanding:
Basic .......................................................................... 1,006,116 1,006,116
Diluted ........................................................................ 1,013,747 1,006,116
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Retained Comprehensive Stockholders'
Shares Amount Surplus earnings income(loss) Equity
------ ------ ------- -------- ------------ ------
Balance,
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 ............. 335,372 $ 1,676,860 $ 2,483,783 $ 6,520,501 $ 140,568 $10,821,712
Comprehensive income
Net income .................... 362,830 362,830
Other comprehensive
income, net of tax
Unrealized losses
on investment
securities ................. (202,030) (202,030)
-----------
Comprehensive income ............ 60,800
-----------
Balance,
March 31, 1997 ................ 335,372 $ 1,676,860 $ 2,483,783 $ 6,883,331 $ (61,462) $10,982,512
========= =========== =========== =========== =========== ===========
Balance,
December 31, 1997 ............. 1,006,116 $ 5,030,580 $ 2,483,783 $ 3,925,274 $ 248,721 $11,688,358
Comprehensive income
Net income .................... 294,294 294,294
Other comprehensive
income, net of tax
Unrealized losses
on investment
securities ................ (86,401) (86,401)
-----------
Comprehensive income ............ 207,893
-----------
Balance,
March 31, 1998 ................ 1,006,116 $ 5,030,580 $ 2,483,783 $ 4,219,568 $ 162,320 $11,896,251
========= =========== =========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
M & M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income .................................................................... $ 294,294 $ 362,830
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............................................... 81,194 101,837
Provision for loan losses ................................................... 114,000 84,000
Other, net .................................................................. (169,970) 37,900
------------------ ------------------
Net cash provided by operating activities ............................... 319,518 586,567
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers ............................................ (7,721,217) (8,212,748)
Purchases of securities available-for-sale .................................... (4,516,562) (593,285)
Maturities of securities available-for-sale ................................... 2,912,386 1,288,581
Maturities of securities held-to-maturity ..................................... 692,199 193,403
Purchase of Federal Home Loan Bank stock ...................................... - (735,300)
Net (increase) decrease in time deposits
with other banks ........................................................... - 500,000
Purchases of premises and equipment ........................................... (174,363) (572,181)
------------------ ------------------
Net cash used by investing activities ................................... (8,807,557) (8,131,530)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits accounts ............................................. 11,837,457 1,547,200
Advances from Federal Home Loan Bank .......................................... - 5,000,000
Increase (decrease) in short-term borrowings .................................. (790,436) 528,519
Increase in repurchase agreements ............................................. 252,951 2,401,502
------------------ ------------------
Net cash provided by financing activities ............................... 11,299,972 9,477,221
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................ 2,811,933 1,932,258
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 9,342,281 7,963,828
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 12,154,214 $ 9,896,086
================== ==================
Cash paid during the period for:
Income taxes .................................................................. $ 145,844 $ 140,494
Interest ...................................................................... $ 1,698,822 $ 1,434,224
</TABLE>
See notes to condensed consolidated financial statements
6
<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 March 31, 1998 and for the interim periods ended
March 31, 1998 and 1997 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, 1997 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 1997 Annual Report.
Note 2 - Earnings Per Share
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share
<S> <C> <C> <C>
Income available to common stockholders ...................... $ 294,294 1,006,116 $ 0.29
==================
Effect of dilutive securities
Stock options ................................................ - 7,631
------------------ ------------------
Diluted earnings per share
Income available to common stockholders
plus assumed conversions ................................... $ 294,294 1,013,747 $ 0.29
================== ================== ==================
<CAPTION>
For the Quarter Ended March 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders ...................... $ 362,830 1,006,116 $ 0.36
==================
Effect of dilutive securities
Stock options ................................................ - -
------------------ ------------------
Diluted earnings per share
Income available to common stockholders
plus assumed conversions ................................... $ 362,830 1,006,116 $ 0.36
================== ================== ==================
</TABLE>
7
<PAGE>
M & M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3 - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income. Comprehensive income
includes net income and other comprehensive income which is defined as non-owner
related transactions in equity. Prior periods have been reclassified to reflect
the application of the provisions of SFAS 130. The following table sets forth
the amounts of other comprehensive income included in equity along with the
related tax effect for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1998
------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities
available for sale arising in 1998 ......................... $ (140,488) $ 54,087 $ (86,401)
------------------ ------------------ ------------------
Other comprehensive income ................................... $ (140,488) $ 54,087 $ (86,401)
================== ================== ==================
<CAPTION>
For the Quarter Ended March 31, 1997
------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities
available for sale arising in 1997 ......................... $ (328,504) $ 126,474 $ (202,030)
------------------ ------------------ ------------------
Other comprehensive income ................................... $ (328,504) $ 126,474 $ (202,030)
================== ================== ==================
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain
(loss)on securities available for sale, net of the deferred tax effects.
Note 4 - Stock Options
Effective January 12, 1998, the Company granted options to purchase up to 7,000
shares of the Company's common stock at a price of $15 per share which was the
fair market value on the date of grant.
On April 16, 1998, the Company granted options to purchase up to 5,000 shares of
the Company's common stock at a price of $17 per share which was the fair market
value on the date of grant. These options were excluded from the earnings-per-
share computations for the quarter ended March 31, 1998.
8
<PAGE>
M & M FINANCIAL CORPORATION
Note 5 - Subsequent Events
On May 1, 1998, the Company announced the signing of a letter of intent to merge
with Anchor Financial Corporation. The proposed merger is subject to due
diligence, execution of a definitive agreement by May 15, 1998, approval by the
boards of directors and stockholders of both companies, and approvals by
appropriate regulatory agencies. The transaction is expected to be completed
during the third quarter of 1998.
Under the terms of the Company's Salary Continuation Plan, which provides
certain officers with salary continuation benefits upon retirement, the officers
become immediately vested in the benefits upon a change of control in the
Company. Upon completion of the merger, approximately $500,000 to $525,000
additional pretax expense related to these benefits will be recorded.
The Company's's Incentive Stock Option Plan of 1997 (the Stock Plan) provides
that officers and employees become fully vested in stock options granted under
the Stock Plan upon a change of control of the Company. Accordingly, upon
completion of the merger, all 66,000 options granted under the Stock Plan will
be fully vested.
9
<PAGE>
M & M FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the Company's financial condition at March 31,
1998 compared to December 31, 1997, and the results of operations for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
These comments should be read in conjunction with the Company's condensed
consolidated financial statements and accompanying footnotes appearing in this
report.
Forward Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as 'forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
Results of Operations
Net Interest Income
For the quarter ended March 31, 1998, net interest income increased $89,362, or
5.86%, over the first quarter of 1997. The improvement in the three-month period
ended March 31, 1998, is related to an increase in the volume of
interest-earning assets. Average interest-earnings assets increased 21.73% to
$152,302,696 when compared to the corresponding quarter of 1997. Most of the
growth was in loan volume, which averaged $108,745,624 during the quarter ended
March 31, 1998 compared to $85,351,404 for the quarter ended March 31, 1997. The
yields on loans were 9.51% and 9.77% for the three months ended March 31, 1998
and 1997, respectively.
The growth in assets was primarily funded by interest-bearing liabilities,
particularly certificates of deposit, $5,000,000 of new borrowings from the
Federal Home Loan Bank, and deposits of local municipalities and hospitals.
Certificates of deposit and borrowings from the Federal Home Loan Bank are
typically more expensive funding sources than transaction and savings accounts.
Accordingly, the overall rate paid on interest-bearing liability accounts
increased to 4.73% for the quarter ended March 31, 1998 from 4.41% for the
comparable quarter of 1997.
The influence of the factors above had the effect of decreasing the interest
rate spread 55 basis points to 3.71% and decreasing the net yield on earning
assets 63 basis points to 4.24% for the three-month period ended March 31, 1998.
10
<PAGE>
M & M FINANCIAL CORPORATION
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 quarter ended March 31, 1998, the provision was
$114,000, an increase of $30,000, from the comparable 1997 period. The increase
does not reflect a negative trend in nonperforming or classified assets but is
indicative of management's decision to attain a target ratio for the allowance
for loan losses to total loans at or above 1.0%. Based on present information,
management believes the allowance for loan losses is adequate at March 31, 1998
to meet presently known and inherent risks in the loan portfolio.
Non-Interest Income
Total non-interest income during the three months ended March 31, 1998 was
$447,602, an increase of $60,584, or 15.65%, from the comparable period in 1997.
The increase is due primarily to higher income from service charges on a larger
deposit account base and to changes in the fee structures on overdrawn accounts
and checks drawn on nonsufficient funds.
Non-Interest Expense
Total non-interest expense for the three months ended March 31, 1998 was
$1,533,105, an increase of 15.18% compared to the three months ended March 31,
1997.
The increase in non-interest expense is attributable mainly to the continuing
growth of the Company. The primary component of non-interest expense is salaries
and benefits which increased to $888,603 in 1998 from $739,179 in 1997, an
increase of $151,424.
Income Taxes
The income tax provision for the three months ended March 31, 1998, was $120,259
compared to $164,552 for the comparable 1997 period. For the quarter ended March
31, 1998, the effective income tax rate was approximately 29% compared to 31%
for the same period in 1997.
Net Income
The combination of the factors described above resulted in net income for the
three months ended March 31, 1998 of $294,294 or $0.29 per share as compared to
$362,830 or $0.36 per share for the three months ended March 31, 1997.
Assets and Liabilities
During the first three months of 1998, total assets grew $11,608,166 or 7.43%
from the December 31, 1997 total. A large percentage of the growth was
attributable to the growth in loans which increased to $113,152,575 as of March
31, 1998 from $105,427,377 as of December 31, 1997. The increase in total assets
was substantially funded by an $11,837,457 increase in deposits during the
period.
Investment Securities
Investment securities increased by $767,905 since December 31, 1997. The
increase resulted from the reinvestment of maturing securities combined with
deploying some shorter-term liquid funds to fixed-income securities.
11
<PAGE>
M & M FINANCIAL CORPORATION
Loans
The Company's loan portfolio has continued to grow due to management's continued
emphasis on loan growth. Loan demand in the Florence and Myrtle Beach markets
remains strong.
Management believes that the loan portfolio is adequately diversified; however a
concentration does exist in the hotel/motel industry. Loans to borrowers in this
industry comprise approximately 10% of the total loan portfolio. There have been
no adverse economic developments that have affected these customers' repayment
capability. Loans in this industry are performing as agreed.
Management believes that commercial loan demand will remain strong in Horry and
Florence Counties for the foreseeable future. Construction and tourism
activities continue to increase in the Horry County market. Management evaluates
consumer loan demand in Horry, Florence, and Marion County markets as being
moderate. Balances within the major loan receivable categories as of March 31,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Commercial and agricultural ........................................ $ 93,881,978 $ 88,119,492
Real estate - construction ......................................... 4,460,840 4,012,807
Consumer and other ................................................. 14,809,757 13,295,078
------------ ------------
$113,152,575 $105,427,377
============ ============
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
March 31, December 31,
1998 1997
---- ----
Loans:
Nonaccrual loans ............................................................ $ 458,696 $ 473,103
Accruing loans more than 90 days past due ................................ $ 14,958 $ -
Loans identified by the internal review mechanism:
Criticized ................................................................ $5,839,524 $3,425,674
Classified ................................................................ $1,352,969 $1,478,809
Activity in the allowance for loan losses is as follows:
<CAPTION>
March 31,
1998 1997
---- ----
<S> <C> <C>
Balance, January 1, .......................................................... $ 926,635 $ 1,027,355
Provision for loan losses for the period ..................................... 114,000 84,000
Net loans (charged off) recovered for the period ............................. 3,981 6,107
------------ ------------
Balance, end of period ....................................................... $ 1,044,616 $ 1,117,462
============ ============
Gross loans outstanding, end of period ....................................... $113,152,575 $ 89,126,802
Allowance for loan losses to loans outstanding ............................... 0.92% 1.25%
</TABLE>
12
<PAGE>
M & M FINANCIAL CORPORATION
Deposits
Total deposits increased $11,837,457 or 9.07% from December 31, 1997. Expressed
in percentages, noninterest-bearing deposits decreased 3.62% and
interest-bearing deposits increased 11.23%. The majority of the increase
occurred in public funds deposits and money market demand accounts.
Balances within the major deposit categories as of March 31, 1998 and December
31, 1997 are as follows:
March 31, December 31,
1998 1997
---- ----
Non-interest bearing demand deposits ....... $ 18,272,459 $ 18,958,066
Interest bearing demand deposits ........... 39,594,871 32,004,240
Savings deposits ........................... 21,408,538 18,281,077
Certificates of deposit .................... 63,043,658 61,238,686
------------ ------------
$142,319,526 $130,482,069
============ ============
Long-term Debt
The Company has $10,000,000 of borrowings from the Federal Home Loan Bank. Of
this amount, $4,000,000 have scheduled maturities exceeding one year.
Liquidity
Funding loans and deposit withdrawals are two of the main uses of the Company's
liquidity. Liquidity needs are met by the Company through scheduled maturities
of loans and investments, borrowings, and through pricing policies for
interest-bearing deposit accounts.
Maturities and sales of securities are a ready source of liquidity. The Company
has a $20,000,000 line of credit with the Federal Home Loan Bank of Atlanta. As
of March 31, 1998, the Company has borrowed $10,000,000 on this line of credit.
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 $31,363,789 as of
March 31, 1998.
Capital Resources
Total stockholders' equity increased $207,893 to $11,896,251 since December
31,1997. The increase is due to earnings for the period ended March 31, 1998 of
$294,294 and an after tax reduction of $84,401 in the unrealized gain on
securities available-for-sale.
13
<PAGE>
M & M FINANCIAL CORPORATION
The Bank subsidiary and the Company are required by banking regulators to meet
certain minimum levels of capital adequacy, expressed in the form of certain
ratios. Capital is separated into Tier 1 capital (essentially common
stockholders' equity less intangible assets) and Tier 2 capital (essentially the
allowance for loan losses limited to 1.25% of risk-weighted assets). The ratio
of Tier 1 capital to risk-weighted assets must be at least 4.0% and the ratio of
total capital (Tier 1 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 and the Company are required to maintain a minimum ratio of
Tier 1 capital to adjusted quarterly average total assets of 4.0%. The Bank is
also required to meet specific capital guidelines to be well-capitalized under
the regulatory framework for prompt corrective action.
The following table summarizes the Company's and the Bank's capital ratios at
March 31, 1998:
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
---------- ---------- --------
Actual ratios:
<S> <C> <C> <C>
The Company ....................................................................... 9.53% 10.38% 7.00%
The Bank .......................................................................... 9.37 10.22 6.88
Minimum ratios for capital adequacy purposes:
The Company ....................................................................... 4.00% 8.00% 4.00%
The Bank .......................................................................... 4.00 8.00 4.00
To be well-capitalized under prompt corrective action provisions:
The Bank .......................................................................... 6.00% 10.00% 5.00%
</TABLE>
On April 16, 1998, the Company executed a $3,000,000 line of credit with Anchor
Bank, a wholly-owned subsidiary of Anchor Financial Corporation. The Company has
this line available for the capital needs of the Bank. The line of credit is
collateralized by the Company's investment in its Bank subsidiary. The debt
service if any, is expected to be paid from dividends from the Bank. There have
been no draws on this line.
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
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income. Comprehensive income
includes net income and other comprehensive income which is defined as non-owner
related transactions in equity. The Company reported comprehensive income in its
condensed consolidated financial statements as of March 31, 1998 and
reclassified prior periods to reflect the application of SFAS 130.
14
<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 March 31, 1998, the Company
did not file any reports on Form 8-K.
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: May 14, 1998 By: /s/Chester A. Duke
---------------------------------
Chester A. Duke
President & Chief Executive Officer
Date: May 14, 1998 By: /s/Richard C. Mathis
--------------------------------
Richard C. Mathis
Executive V.P. and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1998, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1998 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,593,305
<INT-BEARING-DEPOSITS> 1,360,909
<FED-FUNDS-SOLD> 4,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,363,789
<INVESTMENTS-CARRYING> 2,279,228
<INVESTMENTS-MARKET> 2,330,510
<LOANS> 113,152,575
<ALLOWANCE> 1,044,616
<TOTAL-ASSETS> 167,878,860
<DEPOSITS> 142,319,526
<SHORT-TERM> 7,923,947
<LIABILITIES-OTHER> 1,739,136
<LONG-TERM> 4,000,000
0
0
<COMMON> 5,030,580
<OTHER-SE> 6,865,671
<TOTAL-LIABILITIES-AND-EQUITY> 167,878,860
<INTEREST-LOAN> 2,584,210
<INTEREST-INVEST> 484,351
<INTEREST-OTHER> 145,294
<INTEREST-TOTAL> 3,213,855
<INTEREST-DEPOSIT> 1,431,210
<INTEREST-EXPENSE> 1,599,799
<INTEREST-INCOME-NET> 1,614,056
<LOAN-LOSSES> 114,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,980,707
<INCOME-PRETAX> 414,553
<INCOME-PRE-EXTRAORDINARY> 414,553
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,294
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.24
<LOANS-NON> 458,696
<LOANS-PAST> 14,958
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,352,969
<ALLOWANCE-OPEN> 926,635
<CHARGE-OFFS> 17,804
<RECOVERIES> 21,785
<ALLOWANCE-CLOSE> 1,044,616
<ALLOWANCE-DOMESTIC> 1,044,616
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
