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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Washington, D.C.
20549
 FORM 10-Q MARK ONE x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
   FROM _______________ TO _______________ Commission File Number 2-90200 FIRST MCMINNVILLE CORPORATION 
 Tennessee
    
    62-1198119(State or Other Jurisdiction of
Incorporation or Organization)
    
    (IRS Employer Identification
Number)
 200 East Main Street, McMinnville, TN 37110 
 (931) 473-4402 
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x
      NO o Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Common stock outstanding: 1,044,668 shares at May 14, 2004 Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES o       NO x 1




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PART I: FINANCIAL INFORMATIONItem 1. Financial StatementsThe unaudited consolidated financial statements of the registrant and its
wholly-owned subsidiary, First National Bank of McMinnville (Bank) and the
Banks wholly-owned subsidiary, First Community Title & Escrow Company, are as
follows:Consolidated Balance Sheets - March 31, 2004 and December 31, 2003.Consolidated Statements of Earnings - For the three months ended March 31, 2004 and 2003.Consolidated Statements of Comprehensive Earnings - For the three months ended March 31, 2004 and 2003.Consolidated Statements of Cash Flows - For the three months ended March 31, 2004 and 2003.Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market Risk** Disclosures required by Item 3 are incorporated by reference to
Managements Discussion and Analysis of Financial Condition and
Results of Operations.Item 4. Controls and ProceduresPART II: OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSignaturesEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32 Section 906 Certification of the CEO & CFO
  2




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FIRST MCMINNVILLE CORPORATION Consolidated Balance Sheets March 31, 2004 and December 31, 2003 (Unaudited) March 31,
    
    December 31,2004
    
    2003(In Thousands)AssetsLoans
    
    $
    148,437
    
    
    
    148,520Less: Allowance for loan losses
    
    
    (1,885
    )
    
    
    (1,909
    )Net loans
    
    
    146,552
    
    
    
    146,611Securities:Held to maturity, at cost (market value - $54,580,000 and
$57,503,000, respectively)
    
    
    51,915
    
    
    
    55,379Available-for-sale, at market (amortized cost - $85,395,000
and $83,234,000, respectively)
    
    
    86,128
    
    
    
    83,478Restricted equity securities
    
    
    1,266
    
    
    
    1,254Federal funds sold
    
    
    11,000
    
    
    
    6,000Interest bearing deposits in financial institutions
    
    
    50
    
    
    
    86Total earning assets
    
    
    296,911
    
    
    
    292,808Cash and due from banks
    
    
    5,969
    
    
    
    7,084Bank premises and equipment, net of accumulated depreciation
    
    
    2,008
    
    
    
    2,066Accrued interest receivable
    
    
    1,742
    
    
    
    1,803Deferred tax asset
    
    
    -
    
    
    
    10Other real estate
    
    
    65
    
    
    
    220Other assets
    
    
    407
    
    
    
    408Total assets
    
    $
    307,102
    
    
    
    304,399Liabilities and Stockholders EquityDeposits
    
    $
    225,793
    
    
    
    224,221Securities sold under repurchase agreements
    
    
    29,189
    
    
    
    28,782Advances from Federal Home Loan Bank
    
    
    1,000
    
    
    
    1,000Deferred tax liability, net
    
    
    176
    
    
    
    -Accrued interest and other liabilities
    
    
    1,513
    
    
    
    2,436Total liabilities
    
    
    257,671
    
    
    
    256,439Stockholders equity:Common stock, no par value and $2.50 par value, respectively;
authorized 5,000,000 shares, issued 1,231,037 and 1,231,022
shares, respectively (reflects 2 for 1 stock split)
    
    
    3,662
    
    
    
    3,662Retained earnings
    
    
    49,392
    
    
    
    48,207Net unrealized gains on available-for-sale securities, net of
income taxes of $281,000 and $94,000, respectively
    
    
    452
    
    
    
    15153,506
    
    
    
    52,020Less cost of treasury stock of 187,829 shares and 187,489 shares,
respectively
    
    
    (4,075
    )
    
    
    (4,060
    )Total stockholders equity
    
    
    49,431
    
    
    
    47,960Total liabilities and stockholders equity
    
    $
    307,102
    
    
    
    304,399
 See accompanying notes to consolidated financial statements (unaudited). 3




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FIRST MCMINNVILLE CORPORATION Consolidated Statements of Earnings Three Months Ended March 31, 2004 and 2003 (Unaudited) 2004
    
    2003(Dollars In ThousandsExcept Per Share Amount)Interest income:Interest and fees on loans
    
    $
    2,455
    
    
    
    2,696Interest and dividends on securities:Taxable securities
    
    
    837
    
    
    
    909Exempt from Federal income taxes
    
    
    397
    
    
    
    399Interest on federal funds sold
    
    
    29
    
    
    
    59Total interest income
    
    
    3,718
    
    
    
    4,063Interest expense:Interest on negotiable order of withdrawal accounts
    
    
    50
    
    
    
    76Interest on money market demand and savings accounts
    
    
    88
    
    
    
    126Interest on certificates of deposit
    
    
    821
    
    
    
    986Interest on securities sold under repurchase agreements and
short term borrowings
    
    
    71
    
    
    
    88Interest on advances from Federal Home Loan Bank
    
    
    14
    
    
    
    14Total interest expense
    
    
    1,044
    
    
    
    1,290Net interest income before provision for possible loan losses
    
    
    2,674
    
    
    
    2,773Provision for possible loan losses
    
    
    
    
    
    
    44Net interest income after provision for possible loan losses
    
    
    2,674
    
    
    
    2,729Non-interest income:Service charges on deposit accounts
    
    
    110
    
    
    
    110Other fees and commissions
    
    
    40
    
    
    
    26Commissions and fees on fiduciary activities
    
    
    9
    
    
    
    6Securities gains
    
    
    21
    
    
    
    ` Gain on sale of fixed assets
    
    
    
    
    
    
    30180
    
    
    
    172Non-interest expense:Salaries and employee benefits
    
    
    748
    
    
    
    722Occupancy expenses, net
    
    
    51
    
    
    
    53Furniture and equipment expense
    
    
    20
    
    
    
    16Data processing expense
    
    
    65
    
    
    
    53FDIC insurance
    
    
    9
    
    
    
    9Other operating expenses
    
    
    249
    
    
    
    2451,142
    
    
    
    1,098Earnings before income taxes
    
    
    1,712
    
    
    
    1,803Income taxes
    
    
    527
    
    
    
    573Net earnings
    
    $
    1,185
    
    
    
    1,230Basic earnings per common share
    
    $
    1.14
    
    
    
    1.18Diluted earnings per common share
    
    $
    1.12
    
    
    
    1.17Dividends per share
    
    $
    
    
    
    
    
 See accompanying notes to consolidated financial statements (unaudited). 4




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FIRST MCMINNVILLE CORPORATION Consolidated Statements of Comprehensive Earnings Three Months Ended March 31, 2004 and 2003 (Unaudited) 2004
    
    2003(In Thousands)Net earnings
    
    $
    1,185
    
    
    
    1,230Other comprehensive earnings, net of tax:Unrealized gains (losses) on available-for-sale securities arising
during period, net of income taxes of $195,000 and
$57,000, respectively
    
    
    314
    
    
    
    (91
    )Reclassification adjustment for gains included in net
earnings, net of taxes of $8,000 in 2003
    
    
    (13
    )
    
    
    Other comprehensive earnings loss
    
    
    301
    
    
    
    (91
    )Comprehensive earnings
    
    $
    1,486
    
    
    
    1,139
 See accompanying notes to consolidated financial statements (unaudited). 5




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FIRST MCMINNVILLE CORPORATIONConsolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003 Increase (Decrease) in Cash and Cash Equivalents (Unaudited) 2004
    
    2003(In Thousands)Cash flows from operating activities:Interest received
    
    $
    3,767
    
    
    
    3,919Fees and commissions received
    
    
    159
    
    
    
    201Interest paid
    
    
    (1,063
    )
    
    
    (1,345
    )Cash paid to suppliers and employees
    
    
    (893
    )
    
    
    (870
    )Income taxes paid
    
    
    (245
    )
    
    
    (384
    )Net cash provided by operating activities
    
    
    1,725
    
    
    
    1,521Cash flows from investing activities:Proceeds from maturities of held-to-maturity securities
    
    
    3,485
    
    
    
    8,063Proceeds from maturities of available-for-sale securities
    
    
    21,049
    
    
    
    30,432Purchase of held-to-maturity securities
    
    
    
    
    
    
    (3,923
    )Purchase of available-for-sale securities
    
    
    (23,210
    )
    
    
    (28,082
    )Repayment of loans, net of advances to customers
    
    
    183
    
    
    
    Loans to customers, net of repayments
    
    
    
    
    
    
    (1,575
    )Decrease (increase) in interest bearing deposits in financial
institutions
    
    
    36
    
    
    
    (32
    )Proceeds from sale of other real estate
    
    
    24
    
    
    
    Purchases of equipment
    
    
    (14
    )
    
    
    (296
    )Proceeds from sale of equipment
    
    
    
    
    
    
    30Net cash provided by investing activities
    
    
    1,553
    
    
    
    4,617Cash flows from financing activities:Net increase in non-interest bearing, savings and NOW
deposit accounts
    
    
    2,247
    
    
    
    556Net increase (decrease) in time deposits
    
    
    (675
    )
    
    
    661Increase in securities sold under repurchase agreement
    
    
    407
    
    
    
    1,164Dividends paid
    
    
    (1,357
    )
    
    
    (1,276
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    66Payments to acquire treasury stock
    
    
    (15
    )
    
    
    Net cash provided by financing activities
    
    
    607
    
    
    
    1,171Net increase in cash and cash equivalents
    
    
    3,885
    
    
    
    7,309Cash and cash equivalents at beginning of period
    
    
    13,084
    
    
    
    27,285Cash and cash equivalents at end of period
    
    $
    16,969
    
    
    
    34,594
 See accompanying notes to consolidated financial statements (unaudited). 6




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FIRST MCMINNVILLE CORPORATION Consolidated Statements of Cash Flows, Continued Three Months Ended March 31, 2004 and 2003 Increase (Decrease) in Cash and Cash Equivalents (Unaudited) 2004
    
    2003(In Thousands)Reconciliation of net earnings to net cash provided by
operating activities:Net earnings
    
    $
    1,185
    
    
    
    1,230Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    72
    
    
    
    51Provision for loan losses
    
    
    
    
    
    
    44FHLB dividend reinvestment
    
    
    (12
    )
    
    
    (13
    )Securities gains
    
    
    (21
    )
    
    
    Gain on sale of equipment
    
    
    
    
    
    
    (30
    )Decrease in other assets, net
    
    
    28
    
    
    
    48Increase in other liabilities
    
    
    431
    
    
    
    318Decrease (increase) in interest receivable
    
    
    61
    
    
    
    (72
    )Decrease in interest payable
    
    
    (19
    )
    
    
    (55
    )Total adjustments
    
    
    540
    
    
    
    291Net cash provided by operating activities
    
    $
    1,725
    
    
    
    1,521Supplemental schedule of non-cash activities:Unrealized
gain (loss) in value of securities available-for-sale,
net of income taxes of $187,000 and income taxes of
$57,000, respectively.
    
    $
    301,000
    
    
    
    (91,000
    )Loans transferred to other real estate
    
    $
    65
    
    
    
    80Other real estate transferred to loans
    
    $
    189
    
    
    
    
 See accompanying notes to consolidated financial statements (unaudited). 7




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FIRST MCMINNVILLE CORPORATION Notes to Consolidated Financial Statements (Unaudited) Basis of Presentation The unaudited consolidated financial statements include the accounts of First
McMinnville Corporation (Company or Registrant) and its wholly-owned
subsidiary, First National Bank of McMinnville (Bank) and the Banks
wholly-owned subsidiary, First Community Title & Escrow Company. The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of March 31, 2004 and December 31, 2003, the results of operations for the
three months ended March 31, 2004 and 2003, comprehensive earnings for the
three months ended March 31, 2004 and 2003 and changes in cash flows for the
three months ended March 31, 2004 and 2003. All significant intercompany
transactions have been eliminated. The interim consolidated financial
statements should be read in conjunction with the notes to the consolidated
financial statements presented in the Companys Annual Report on Form 10-K for
the year ended December 31, 2003. The results for interim periods are not
necessarily indicative of results to be expected for the complete fiscal year. Stock Split and Elimination of Par Value In December of 2002, the Companys Board of Directors declared a two-for-one
stock split effective February 1, 2003. As a result, shareholders as of the
record date received one additional share for each share that they already
owned. Accordingly, the number of outstanding shares doubled from 520,794 to
1,041,588. In addition, the Board authorized a charter amendment to eliminate
par value, which was deemed an unnecessary accounting convention. All per
share amounts in this Report have been restated to reflect the stock split. 8




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations The purpose of this discussion is to provide insight into the financial
condition and results of operations of the Company and its subsidiary. This
discussion should be read in conjunction with the consolidated financial
statements. Reference should also be made to the Companys Annual Report on
Form 10-K for the year ended December 31, 2003 for a more complete discussion
of factors that affect liquidity, capital and the results of operations. Forward-Looking Statements Managements discussion of the Company, and managements analysis of the
Companys operations and prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
The use of such words as expect, anticipate, forecast, and comparable terms
should be understood by the reader to indicate that the statement is
forward-looking and thus subject to change in a manner that can be
unpredictable. Factors that could cause actual results to differ from the
results anticipated, but not guaranteed, in this Report, include (without
limitation) economic and social conditions, competition for loans, mortgages,
and other financial services and products, changes in interest rates,
unforeseen changes in liquidity, results of operations, and financial
conditions affecting the Companys customers, as well as other risks that
cannot be accurately quantified or completely identified. Many factors
affecting the Companys financial condition and profitability, including
changes in economic conditions, the volatility of interest rates, political
events and competition from other providers of financial services simply cannot
be predicted. Because these factors are unpredictable and beyond the Companys
control, earnings may fluctuate from period to period. The purpose of this
type of information (such as in Item 2, as well as other portions of this
Report) is to provide Form 10-Q readers with information relevant to
understanding and assessing the financial conditions and results of operations
of the Company, and not to predict the future or to guarantee results. The
Company is unable to predict the types of circumstances, conditions, and
factors that can cause anticipated results to change. The Company undertakes
no obligation to publish revised forward-looking statements to reflect the
occurrence of changes or of unanticipated events, circumstances, or results. 9




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Liquidity and Interest Rate Sensitivity Management The concept of liquidity involves the ability of the Company and its
subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs. Proper asset/liability management is designed to maintain stability in the
balance of interest-sensitive assets to interest-sensitive liabilities in order
to provide a stable growth in net interest margins. Earnings on
interest-sensitive assets such as loans tied to the prime rate of interest and
federal funds sold, may vary considerably from fixed rate assets such as
long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market
certificates, generally require higher costs than fixed rate instruments such
as passbook savings. The Company maintains a formal asset and liability management process that
is designed to quantify, monitor and control interest rate risk and to assist
management in maintaining stability in the net interest margin under varying
interest rate environments. The Company accomplishes this process through the
development and implementation of lending, funding and pricing strategies
designed to maximize net interest income under varying interest rate
environments subject to specific liquidity and interest rate risk guidelines. Analysis of rate sensitivity and rate gap analysis are the primary tools
used to assess the direction and magnitude of changes in net interest income
resulting from changes in interest rates. Included in the analysis are cash
flows and maturities of financial instruments held for purposes other than
trading, changes in market conditions, loan volumes and pricing and deposit
volume and mix. These assumptions are inherently uncertain, and, as a result,
net interest income can not be precisely estimated nor can the impact of higher
or lower interest rates on net interest income be precisely predicted. Actual
results will differ due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and managements strategies, among
other factors. Based on the results of the analysis as of March 31, 2004, the Company
would expect net interest income to decrease approximately $855,000 over a
twelve month period if rates decreased 2%. Net interest income would be
expected to increase approximately $107,000 over a 12 month period should rates
increase 2%. The rate sensitivity as of March 31, 2004 was 1.22 to 1.0 (0-91
days) and 1.05 to 1.00 (0-365 days). This asset/liability mismatch in pricing
is referred to as gap and is measured as rate sensitive assets divided by
rate sensitive liabilities for a defined time period. A gap of 1.0 means that
assets and liabilities are perfectly matched as to pricing within a specific
time period and interest rate movements will not affect net interest margin,
assuming all other factors hold constant. Banks, in general, must maintain large cash balances to meet day-to-day
cash flow requirements as well as maintaining required reserves for regulatory
agencies. The cash balances maintained are the primary source of liquidity.
Federal funds sold, which are basically overnight or short-term loans to other
banks that increase the other banks required reserves, are also a major source
of liquidity. 10




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Liquidity and Interest Rate Sensitivity Management, Continued The Companys investment portfolio consists of earning assets that provide
interest income. For those securities classified as held to maturity, the
Company has the ability and intention to hold these securities until maturity.
Securities classified as available-for-sale include securities intended to be
used as part of the Companys asset/liability strategy and/or securities that
may be sold in response to changes in interest rate, prepayment risk, the need
or desire to increase capital and similar economic factors. Securities
totaling approximately $4.9 million mature or reprice within the next twelve
months. A secondary source of liquidity is the Banks loan portfolio. At March
31, 2004 commercial loans of approximately $39.6 million and other loans
(mortgage and consumer) of approximately $10.9 million either will become due
or will be subject to rate adjustments within twelve months from the respective
date. Emphasis is placed on structuring adjustable rate loans. As for liabilities, certificates of deposit of $100,000 or greater of
approximately $40.3 million will become due during the next twelve months. The
Banks deposit base increased approximately $1.6 million during the quarter
ended March 31, 2004. Securities sold under repurchase agreements increased
approximately $407,000. Federal funds sold were $11.0 million at March 31,
2004 and $6.0 million at December 31, 2003. The increase in Federal funds sold
was funded primarily by the $1.6 million increase in deposits, a $1.1 million
decrease in cash and due from banks and a $.8 million decrease in securities.
The decrease in securities resulted primarily from calls and maturities.
Advances from the Federal Home Loan Bank were $1,000,000 at March 31, 2004 and
December 31, 2003. Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal accounts, money
market demand accounts, demand deposit and regular savings. Management does
not expect that there will be significant withdrawals from these accounts in
the future that are inconsistent with past experience. The Bank is limited by law, regulation and prudence as to the amount of
dividends that it can pay. At March 31, 2004, the Bank could under the most
restrictive of these regulatory limits declare during the remainder of 2004
cash dividends in an aggregate amount up to approximately $8.9 million,
exclusive of any 2004 net earnings, without prior approval of the office of the
Comptroller of the Currency. However, most of these funds will be retained for
use in the Banks operations rather than being paid out in dividends. It is
anticipated that with present maturities, the expected growth in deposit base,
and the efforts of management in its asset/liability management program,
liquidity will not pose a problem in the foreseeable future. At the present
time there are no known trends or any known commitments, demands, events or
uncertainties that will result in or that are reasonable likely to result in
the Companys liquidity changing in any material way. 11




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Capital Resources A primary source of capital is internal growth through retained earnings.
The ratio of stockholders equity to total assets (excluding the unrealized
gain on available-for-sale securities) was 15.9% at March 31, 2004 and 15.7% at
December 31, 2003. Total assets increased $2,703,000 during the three months
ended March 31, 2004. The annualized rate of return on stockholders equity
for the three months ended March 31, 2004 was 9.9% compared to 11.0% for the
comparable period in 2003. Cash dividends will be increased during the
remainder of 2004 over 2003 only in the discretion of the Board of Directors
and as profits permit. No dividends have been declared in 2004 and dividends
declared during 2003 were $1.70 per share. No material changes in the mix or
cost of capital is anticipated in the foreseeable future. At the present time
there are no material commitments for capital expenditures. Regulations of the Comptroller of the Currency establish required minimum
capital levels for the Bank. Under these regulations, national banks must
maintain certain capital levels as a percentage of average total assets
(leverage capital ratio) and as a percentage of total risk-based assets
(risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to
credit risk ranging from 0% for assets backed by the full faith and credit of
the United States to 100% for loans other than residential real estate loans
and certain off-balance sheet commitments. Total capital is characterized as
either Tier 1 capital - common shareholders equity, noncumulative perpetual
preferred stock and a limited amount of cumulative perpetual preferred - or
total capital which includes the allowance for loan losses up to 1.25% of risk
weighted assets, perpetual preferred stock, subordinated debt and various other
hybrid capital instruments, subject to various limits. Goodwill is not
includable in Tier 1 or total capital. National banks must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a total capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio (defined as Tier 1
capital to average total assets for the most recent quarter) of at least 4.0%.
The same ratios are also required in order for a national bank to be considered
adequately capitalized under the OCCs prompt corrective action
regulations, which impose certain operating restrictions on institutions which
are not adequately capitalized. At March 31, 2004 the Bank has a Tier 1
risk-based ratio of 29.0%, a total capital to risk-based ratio of 30.1% and a
Tier 1 leverage ratio of 16.1%, and fell within the category of well
capitalized under the regulations. The Federal Reserve Board imposes consolidated capital guidelines on bank
holding companies (such as the Company) which have more than $150 million in
consolidated assets. These guidelines required bank holding companies to
maintain consolidated capital ratios which are essentially the same as the
minimum capital levels required for national banks. The Companys consolidated
capital ratios were substantially the same as those set forth above for the
Bank, and exceeded the minimums required under these Federal Reserve Board
guidelines. 12




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Capital Resources, Continued On April 8, 1997, the Companys stockholders approved the First
McMinnville Corporation 1997 Stock Option Plan. The Company has granted the
right to purchase 92,000 (46,000 before 2 for 1 stock split) shares of stock to
its directors, officers and employees at exercise prices ranging from $29.08 to
$37.15 ($58.15 to $74.30 before stock split) per share. At March 31, 2004,
21,437 options had been exercised, 5,090 options were forfeited and 48,463
options were exercisable. The options granted are exercisable over a period of
10 years or until the optionee reaches age 65, whichever is less. The Company
has adopted the provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123). The impact of the
adoption of SFAS No. 123 has been reflected as a proforma disclosure in the
notes to the annual consolidated financial statements. Results of Operations Net earnings were $1,185,000 for the three months ended March 31, 2004 as
compared to $1,230,000 for the same period in 2003. As in most financial institutions, a major element in analyzing the
statement of earnings is net interest income which is the excess of interest
earned over interest paid. The net interest margin could be materially
affected during periods of volatility in interest rates. The Companys interest income, excluding tax equivalent adjustments,
decreased by $345,000 or 8.5% during the three months ended March 31, 2004 as
compared to a decrease of $477,000 or 10.0% for the same period in 2003. The
decreases in 2004 and 2003 were due to decreases in interest rates which
resulted from significant decreases in rates by the Federal Reserve Bank during
2003 and 2002. The ratio of average earning assets to total average assets was
96.7% for the quarter ended March 31, 2004 and 95.0% for the quarter ended
March 31, 2003. The increase in this ratio was due primarily to a decrease in
the average balance of cash and due from banks ($4.2 million in 2004 compared
to $8.4 million in 2003). These funds were invested in interest earning
assets. Interest expense decreased $246,000 for the three months ended March 31,
2004 or 19.1% compared to a decrease of $385,000 or 23.0% for the same period
in 2003. The decreases were the result of decreases in interest rates as
previously discussed. The foregoing resulted in net interest income of $2,674,000 for the three
months ended March 31, 2004 a decrease of $55,000 or 2.0% compared to the same
period in 2003. 13




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued The following schedule details the loans of the Company at March 31, 2004
and December 31, 2003: (In Thousands)March 31,
    
    December 31,2004
    
    2003Commercial, financial & agricultural
    
    $
    47,537
    
    
    
    44,988Real estate  construction
    
    
    4,139
    
    
    
    5,630Real estate  mortgage
    
    
    94,136
    
    
    
    95,097Consumer
    
    
    2,625
    
    
    
    2,805$
    148,437
    
    
    
    148,520
 The Company accounts for impaired loans under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan  Income Recognition and Disclosures. These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment including residential mortgage, and consumer installment loans. A loan is deemed to be impaired when it is probable that the Company will
be unable to collect the scheduled payments of principal and interest due under
the contractual terms of the lending contract. Impaired loans are measured at
the present value of expected future cash flows discounted at the loans
effective interest rate, at the loans observable market price, or the fair
value of the collateral if the loan is collateral dependent. If the measure of
the impaired loan is less than the recorded investment in the loan, the Company
shall recognize an impairment by creating a valuation allowance with a
corresponding charge to the provision for loan losses or by adjusting an
existing valuation allowance for the impaired loan with a corresponding charge
or credit to the provision for loan losses. The Companys first mortgage single family residential and consumer loans
which total approximately $59,664,000 and $2,625,000, respectively at March 31,
2004, are divided into various groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment and thus are not subject to the
provisions of SFAS Nos. 114 and 118. Substantially all other loans of the
Company are evaluated for impairment under the provisions of SFAS Nos. 114 and
118. 14




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued The Company considers all nonaccrual loans evaluated under the provisions
of SFAS Nos. 114 and 118 to be impaired. Loans are placed on nonaccrual status
when doubt as to timely collection of principal or interest exists, or when
principal or interest is past due 90 days or more unless such loans are
well-secured and in the process of collection. Delays or shortfalls in loan
payments are evaluated with various other factors to determine if a loan is
impaired. Generally, delinquencies under 90 days are considered insignificant
unless certain other factors are present which indicate impairment is probable.
The decision to place a loan on nonaccrual status is also based on an
evaluation of the borrowers financial condition, collateral, liquidation
value, and other factors that, in the judgment of management, affect the
borrowers ability to pay. Generally, at the time a loan is placed on nonaccrual status, all interest
accrued on the loan in the current fiscal year is reversed from income, and all
interest accrued and uncollected from the prior year is charged off against the
allowance for loan losses. Thereafter, interest on nonaccrual loans is
recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At
March 31, 2004, the Company had no loans on nonaccrual status and there were no
nonaccrual loans outstanding at any time during the three months and year ended
March 31, 2004 and December 31, 2003, respectively. Therefore, all interest
income during these periods was recognized on the accrual basis. Loans not on nonaccrual status are classified as impaired in certain cases
where there is inadequate protection by the current net worth and financial
capacity of the borrower or of the collateral pledged, if any. In those cases,
such loans have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt, and if such deficiencies are not corrected, there is a
probability that the Company will sustain some loss. In such cases, interest
income continues to accrue as long as the loan does not meet the Companys
criteria for nonaccrual status. Generally the Company also classifies as impaired any loans the terms of
which have been modified in a troubled debt restructuring after January 1,
1995. Interest is accrued on such loans that continue to meet the modified
terms of their loan agreements. At March 31, 2004, the Company had one loan
totaling $493,000 that had been restructured. This loan was in compliance with
the modified terms. The Companys charge-off policy for impaired loans is similar to its
charge-off policy for all loans in that loans are charged-off in the month when
they are considered uncollectible. 15




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##### Table of Contents



FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued Impaired loans and related allowance for loan loss amounts at March 31,
2004 and December 31, 2003 were as follows: March 31,
    
    December 31,2004
    
    2003(In Thousands)Recorded investment
    
    $
    2,111
    
    
    
    2,808Allowance for loan losses
    
    $
    480
    
    
    
    530
 The allowance for loan loss related to impaired loans was measured based
upon the estimated fair value of related collateral. The average recorded investment in impaired loans for the three months
ended March 31, 2004 and 2003 was $2,467,000 and $1,729,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $45,000 and $36,000 for
the three months ended March 31, 2004 and 2003, respectively. The following schedule details selected information as to non-performing
loans of the Company at March 31, 2004 and December 31, 2003: March 31, 2004
    
    December 31, 2003Past Due
    
    
    
    
    
    Past Due90 Days
    
    Non-Accrual
    
    90 Days
    
    Non-Accrual(In Thousands)
    
    (In Thousands)Real estate loans
    
    $
    120
    
    
    
    
    
    
    
    289
    
    
    
    Installment loans
    
    
    42
    
    
    
    
    
    
    
    23
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    162
    
    
    
    
    
    
    
    312
    
    
    
    Renegotiated loans
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
 16




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued Transactions in the allowance for loan losses were as follows: Three Months EndedMarch 31,2004
    
    2003(In Thousands)Balance, January 1, 2004 and 2003, respectively
    
    $
    1,909
    
    
    
    1,908Add (deduct):Losses charged to allowance
    
    
    (32
    )
    
    
    (24
    )Recoveries credited to allowance
    
    
    8
    
    
    
    8Provision for loan losses
    
    
    
    
    
    
    44Balance, March 31, 2003 and 2002, respectively
    
    $
    1,885
    
    
    
    1,936
 There was no provision for loan losses for the first three months of 2004.
The provision for loan losses was $44,000 for the first three months of 2003.
The provision for loan losses is based on past loan experience and other
factors which, in managements judgment, deserve current recognition in
estimating possible loan losses. Such factors include growth and composition
of the loan portfolio, review of specific loan problems, the relationship of
the allowance for loan losses to outstanding loans, and current economic
conditions that may affect the borrowers ability to repay. Management has in
place a system designed to identify and monitor potential problem loans on a
timely basis. Management believes the allowance for possible loan losses at
March 31, 2004 to be adequate. The Company maintains an allowance for loan losses which management
believes is adequate to absorb loses inherent in the loan portfolio. A formal
review is prepared bi-monthly by the Loan Review Committee to assess the risk
in the portfolio and to determine the adequacy of the allowance for loan
losses. The review includes analysis of historical performance, the level of
non-performing and adversely rated loans, specific analysis of certain problem
loans, loan activity since the previous assessment, reports prepared by the
Loan Review Committee, consideration of current economic conditions, and other
pertinent information. The level of the allowance to net loans outstanding
will vary depending on the overall results of this bi-monthly assessment. The
review is presented to and subject to approval by the Board of Directors. 17




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued The following table presents total internally graded loans as of March 31,
2004 and December 31, 2003: March 31, 2004(In Thousands)SpecialTotal
    
    Mention
    
    Substandard
    
    DoubtfulCommercial, financial and
agricultural
    
    $
    5,573
    
    
    
    2,544
    
    
    
    3,029
    
    
    
    Real estate mortgage
    
    
    2,568
    
    
    
    
    
    
    
    2,568
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    132
    
    
    
    
    
    
    
    132
    
    
    
    $
    8,273
    
    
    
    2,544
    
    
    
    5,729
    
    
    
    
 December 31, 2003(In Thousands)SpecialTotal
    
    Mention
    
    Substandard
    
    DoubtfulCommercial, financial and
agricultural
    
    $
    6,189
    
    
    
    2,586
    
    
    
    3,603
    
    
    
    Real estate mortgage
    
    
    2,636
    
    
    
    
    
    
    
    2,636
    
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    142
    
    
    
    
    
    
    
    142
    
    
    
    $
    8,967
    
    
    
    2,586
    
    
    
    6,381
    
    
    
    
 The collateral values, based on estimates received by management, securing
the internally classified loans total approximately $16,061,000 ($2,843,000
related to real property and $13,218,000 related to commercial and other).
Such loans are listed as classified when information obtained about possible
credit problems related to the borrower has prompted management to question the
ability of the borrower to comply with the repayment terms of the loan
agreement. The loan classifications do not represent or result from trends or
uncertainties which management expects will materially and adversely affect
impact future operating results, liquidity or capital resources. 18




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued Residential real estate loans that are graded substandard totaling
$2,568,000 and $2,636,000 at March 31, 2004 and December 31, 2003 consist of
thirty eight individual loans, respectively, that have been graded accordingly
due to bankruptcies, inadequate cash flows and delinquencies. No material
losses on these loans is anticipated by management. Management is unable to
predict the impact, if any, of a recent plant closing in Warren County,
Tennessee. The following detail provides a breakdown of the allocation of the
allowance for possible loan losses: March 31, 2004
    
    December 31, 2003Percent of
    
    
    
    
    
    Percent ofLoans In
    
    
    
    
    
    Loans InIn
    
    Each Category
    
    In
    
    Each CategoryThousands
    
    To Total Loans
    
    Thousands
    
    To Total LoansCommercial, financial and
agricultural
    
    $
    1,267
    
    
    
    32
    %
    
    $
    1,274
    
    
    
    30
    %Real estate construction
    
    
    10
    
    
    
    3
    
    
    
    14
    
    
    
    4Real estate mortgage
    
    
    558
    
    
    
    63
    
    
    
    567
    
    
    
    64Consumer
    
    
    50
    
    
    
    2
    
    
    
    54
    
    
    
    2$
    1,885
    
    
    
    100
    %
    
    $
    1,909
    
    
    
    100
    %
 There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March
31, 2004 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans. Non-interest income, excluding securities gains and a gain on sale of
fixed assets of $30,000 in 2003, was $159,000 for the three months ended March
31, 2004 as compared to $142,000 for the same period in 2003. The increase was
primarily due to increases in miscellaneous customer service fees. Securities gains totaled $21,000 for the quarter ended March 31, 2004.
There were no securities gains for the quarter ended March 31, 2003. Non-interest expense was $1,142,000 and $1,098,000 for the first three
months of 2004 and 2003, respectively, an increase of 4.0%. Insignificant
increases in several non-interest expense classifications, including a 3.6%
increase in salaries and employee benefits, comprise the increase. 19




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Results of Operations, Continued The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share for the Company begins with the basic earnings
per share plus the effect of common shares contingently issuable from stock
options. The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three months ended March 31, 2004 and 2003: (In Thousands, except share amounts)
    
    2004
    
    2003Basic EPS Computation:Numerator - income available to common
shareholders
    
    $
    1,185
    
    
    
    1,230Denominator - weighted average number of
common shares outstanding
    
    
    1,043,410
    
    
    
    1,041,704Basic earnings per common share
    
    $
    1.14
    
    
    
    1.18Diluted EPS Computation:Numerator
    
    $
    1,185
    
    
    
    1,230Denominator:Weighted average number of common shares
outstanding
    
    
    1,043,410
    
    
    
    1,041,704Dilutive effect of stock options
    
    
    17,036
    
    
    
    12,6991,060,446
    
    
    
    1,054,403Diluted earnings per common share
    
    $
    1.12
    
    
    
    1.17
 Stock Option Plan In April, 1997, the stockholders of the Company approved the First
McMinnville Corporation 1997 Stock Option Plan (The Stock Option Plan). The
Stock Option Plan provides for the granting of stock options and authorizes the
issuance of common stock upon the exercise of such options for up to 115,000
(57,500 before 2 for 1 split) shares of common stock to directors and employees
of the Company. Under the Stock Option Plan awards may be granted in the form of incentive
stock options or nonstatutory stock options, and are exercisable for up to ten
years following the date such option awards are granted. Exercise prices of
incentive stock options must be equal to or greater than 100% of the fair
market value of the common stock on the grant date. 20




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Continued Stock Option Plan, Continued SFAS No. 123, Accounting for Stock Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, sets forth the method for recognition of cost of plans similar to
those of the Company. As is permitted, management has elected to continue
accounting for the plan under APB Opinion 25 and related Interpretations in
accounting for its plan. Accordingly, no compensation cost has been recognized
for the stock option plan. However, under SFAS No. 123, the Company is
required to make proforma disclosures as if cost had been recognized in
accordance with the pronouncement. Had compensation cost for the Companys
stock option plan been determined based on the fair value at the grant dates
for awards under the plan consistent with the method of SFAS No. 123, the
Companys net earnings and basic earnings per common share and diluted earnings
per common share for the quarters ended March 31, 2004 and 2003, respectively,
would have been reduced to the proforma amounts indicated below: (In Thousands)
    
    2004
    
    2003Net earnings:As Reported
    
    $
    1,185
    
    
    
    1,230Proforma
    
    $
    1,182
    
    
    
    1,227Basic earnings per common share:As Reported
    
    $
    1.14
    
    
    
    1.18Proforma
    
    $
    1.13
    
    
    
    1.16Diluted earnings per common share:As Reported
    
    $
    1.12
    
    
    
    1.17Proforma
    
    $
    1.11
    
    
    
    1.16
 Accordingly, due to the initial phase-in period, the effects of applying
this statement for proforma disclosures are not likely to be representative of
the effects on reported net earnings for future years. Management is not aware of any current recommendations by the regulatory
authorities which, if implemented, would have a material effect on the
Companys liquidity, capital resources or operations. Impact of Inflation The primary impact which inflation has on the results of the Companys
operations is evidenced by its effects on interest rates. Interest rates tend
to reflect, in part, the financial markets expectations of the level of
inflation and, therefore, will generally rise or fall as the level of expected
inflation fluctuates. To the extent interest rates paid on deposits and other
sources of funds rise or fall at a faster rate than the interest income earned
on funds, loans or invested, net interest income will vary. Inflation also
affects non-interest expenses as goods and services are purchased, although
this has not had a significant effect on net earnings in recent years. If the
inflation rate stays flat or increases slightly, the effect on profits is not
expected to be significant. 21




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FIRST MCMINNVILLE CORPORATION FORM 10-Q CONTINUED 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Companys primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on a large portion of the Companys assets
and liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity such as Federal funds sold or purchased and loans, securities and
deposits as discussed in Item 2. Based upon the nature of the Companys
operations, the Company is not subject to foreign currency exchange or
commodity price risk. Interest rate risk (sensitivity) management focuses on the earnings risk
associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Companys rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus
on the spread between the cost of funds and interest yields generated primarily
through loans and investments. There have been no material changes in reported market risks during the
three months ended March 31, 2004. Please refer to Item 2 of Part I of this
Report for additional information related to market and other risks. 
 Item 4. Controls and Procedures Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information that we are required to disclose in the reports we file under
the Securities Exchange Act of 1934, within the time periods specified in the
SECs rules and forms. Our Chief Executive Officer and Chief Financial Officer
also concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to our Company required
to be included in our periodic SEC filings. In connection with the new rules,
we are in the process of further reviewing and documenting our disclosure
controls and procedures, including our internal controls and procedures for
financial reporting, and may from time to time make changes designed to enhance
their effectiveness and to ensure that our systems evolve with our business. There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of this evaluation. 22




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PART II. OTHER INFORMATION 
 Item 1. LEGAL PROCEEDINGS None 
 Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS  (a)
    
    Not applicable.(b)
    
    Not applicable.(c)
    
    Shares of the Companys common stock were issued to
Directors and/or Employees pursuant to the Companys Stock Option
Plan as follows: Number of Shares ofDate of Sale
    
    Common Stock Sold
    
    Price Per ShareFebruary 20, 2004
    
    
    15
    
    
    $
    29.08
  The aggregate proceeds of the shares sold were $436.20.There were no underwriters and no underwriting discounts or
commissions. All sales were for cash.The Company believes that an exemption from registration of these
            shares was available to the Company in that the issuance thereof
did not constitute a public offering of securities within the
meaning of the Securities Act of 1933, as amended.The securities sold are not convertible.The proceeds of the sales are being used by the Company for
general corporate purposes.(d)
    
    The only restrictions on working capital and/or dividends are
those reported in Part I. 
 Item 3. DEFAULTS UPON SENIOR SECURITIES  (a)
    
    None.(b)
    
    Not applicable. 23




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PART II. OTHER INFORMATION,
CONTINUED 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  (a)
    
    None.(b)
    
    Not applicable.(c)
    
    Not applicable.(d)
    
    Not applicable. 
 Item 5. OTHER INFORMATION  (a)
    
    None.(b)
    
    Not applicable. 
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)(1) Exhibits 31.1 and 31.2 consist of Rule 13a-14(a)/15d-14(a) certifications.(2)
    
    Exhibit 32 consists of Section 1350 certifications.(b)
    
    No reports on Form 8-K were filed during the quarter for which this
Report is filed. 24




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SIGNATURES Pursuant to 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. FIRST MCMINNVILLE CORPORATION
(Registrant)DATE: May 14, 2004
    
    /s/ Charles C. JacobsCharles C. JacobsChairman and Chief Executive OfficerDATE: May 14, 2004
    
    /s/ Kenny D. NealKenny D. NealChief Financial and Accounting Officer
 25