First Mcminnville 10-Q 2007 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

MARK ONE

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                    TO                    

Commission File Number2-90200

FIRST MCMINNVILLE CORPORATION

(Exact Name of Registrant As Specified in its Charter)

Tennessee	62-1198119
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

200 East Main Street, McMinnville, TN 37110

(Address of Principal Executive Offices and Zip Code)

(931) 473-4402

(Registrant’s Telephone Number, including area code)

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.

YESþ           NOo

Indicate by check mark whether the Registrant is a large accelerated filer, and accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero      Accelerated filero      Non-accelerated filerþ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YESo           NOþ

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: 1,045,826 shares at May 11, 2007

FIRST MCMINNVILLE CORPORATION

FORM 10Q

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

The 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:

*	Certain of the Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Ex-31.1 Section 302 Certification
Ex-31.2 Section 302 Certification
Ex-32.1 Section 906 Certification
Ex-32.2 Section 906 Certification

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FIRST MCMINNVILLE CORPORATION

Consolidated Balance Sheets

March 31, 2007 and December 31, 2006

(Unaudited)

	March 31,			December 31,
	2007			2006
	(In Thousands)
Assets
Loans, less allowance for possible loan losses of $1,824,000 and $1,812,000, respectively	$	158,852			160,425
Securities:
Held-to-maturity, at cost (market value — $46,362,000 and $50,170,000, respectively)		45,881			49,672
Available-for-sale, at market (amortized cost — $87,477,000 and $85,484,000, respectively)		85,484			84,277
Total securities		131,365			133,949
Federal funds sold		15,500			10,000
Interest-bearing deposits in financial institutions		121			60
Restricted equity securities		1,454			1,434
Total earning assets		307,292			305,868
Cash and due from banks		5,708			7,828
Premises and equipment, net		1,644			1,705
Accrued interest receivable		2,194			2,048
Deferred tax asset, net		706			405
Foreclosed assets		13			221
Other assets		648			370
Total assets	$	318,205			318,445
Liabilities and Stockholders’ Equity
Deposits	$	241,171			239,231
Securities sold under repurchase agreements		19,122			20,828
Advances from Federal Home Loan Bank		1,000			1,000
Accrued interest and other liabilities		2,400			3,563
Total liabilities		263,693			264,622
Stockholders’ equity:
Common stock, no par value; authorized 5,000,000 shares, issued 1,251,841 and 1,243,683 shares respectively		4,280			4,040
Additional paid-in capital		48			43
Retained earnings		56,727			55,759
Net unrealized losses on available-for-sale securities, net of income taxes of $763,000 and $462,000, respectively		(1,230	)		(745	)
		59,825			59,097
Less cost of treasury stock of 212,443 shares and 211,689 shares, respectively		(5,313	)		(5,274	)
Total stockholders’ equity		54,512			53,823
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders’ equity	$	318,205			318,445

See accompanying notes to consolidated financial statements (unaudited).

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FIRST MCMINNVILLE CORPORATION

Consolidated Statements of Earnings

Three Months Ended March 31, 2007 and 2006

(Unaudited)

	2007		2006
	(In Thousands
	Except Per Share Amounts)
Interest income:
Interest and fees on loans	$	2,914		2,644
Interest and dividends on securities:
Taxable securities		1,046		1,109
Exempt from Federal income taxes		324		353
Interest on federal funds sold		218		14
Interest on interest-bearing deposits in other banks and other interest		1		—
Total interest income		4,503		4,120
Interest expense:
Interest on negotiable order of withdrawal accounts		64		67
Interest on money market demand and savings accounts		154		156
Interest on certificates of deposit		1,719		1,332
Interest on securities sold under repurchase agreements and short term borrowings		145		114
Interest on advances from Federal Home Loan Bank		14		14
Total interest expense		2,096		1,683
Net interest income before provision for possible loan losses		2,407		2,437
Provision for possible loan losses		—		—
Net interest income after provision for possible loan losses		2,407		2,437
Non-interest income:
Service charges on deposit accounts		106		99
Other fees and commissions		43		40
Commissions and fees on fiduciary activities		11		10
		160		149
Non-interest expense:
Salaries and employee benefits		769		717
Occupancy expenses, net		54		51
Furniture and equipment expense		21		25
Data processing expense		78		79
FDIC insurance		7		8
Other operating expenses		243		247
		1,172		1,127
Earnings before income taxes		1,395		1,459
Income taxes		427		482
Net earnings	$	968		977
Basic earnings per common share	$	.94		.95
Diluted earnings per common share	$	.92		.93
Dividends per share	$	—		—

See accompanying notes to consolidated financial statements (unaudited).

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FIRST MCMINNVILLE CORPORATION

Consolidated Statements of Comprehensive Earnings

Three Months Ended March 31, 2007 and 2006

(Unaudited)

	2007			2006
	(In Thousands)
Net earnings	$	968			977
Other comprehensive earnings, net of tax:
Unrealized losses on available-for-sale securities arising during period, net of income taxes of $300,000 and $47,000, respectively		(485	)		(76	)
Comprehensive earnings	$	483			901

See accompanying notes to consolidated financial statements (unaudited).

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FIRST MCMINNVILLE CORPORATION

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2007 and 2006

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

	2007			2006
	(In Thousands)
Cash flows from operating activities:
Interest received	$	4,225			3,815
Fees and commissions received		160			149
Interest paid		(2,272	)		(1,525	)
Cash paid to suppliers and employees		(1,333	)		(1,056	)
Income taxes paid		(88	)		(97	)
Net cash provided by operating activities		692			1,286
Cash flows from investing activities:
Proceeds from maturities and calls of held-to-maturity securities		3,915			3,515
Proceeds from maturities and calls of available-for-sale securities		4,000			500
Purchase of available-for-sale securities		(6,005	)		—
Repayment of loans, net of advances to customers		1,702			3,517
Proceeds from sale of foreclosed assets		65			—
Decrease (increase) in interest bearing deposits in financial institutions		(61	)		15
Purchases of premises and equipment		—			(70	)
Net cash provided by investing activities		3,616			7,477
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW deposit accounts		1,389			212
Net increase in time deposits		551			2,005
Net decrease in securities sold under repurchase agreement		(1,706	)		(207	)
Repayment of federal funds purchased		—			(4,300	)
Dividends paid		(1,362	)		(1,360	)
Proceeds from issuance of common stock		240			52
Payments to acquire treasury stock		(40	)		(56	)
Net cash used in financing activities		(928	)		(3,654	)
Net increase in cash and cash equivalents		3,380			5,109
Cash and cash equivalents at beginning of period		17,828			5,649
Cash and cash equivalents at end of period	$	21,208			10,758

See accompanying notes to consolidated financial statements (unaudited).

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FIRST MCMINNVILLE CORPORATION

Consolidated Statements of Cash Flows, Continued

Three Months Ended March 31, 2007 and 2006

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

	2007			2006
	(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings	$	968			977
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		61			58
Amortization and accretion, net		(112	)		(56	)
Loss on sale of foreclosed assets		14			—
FHLB dividend reinvestment		(20	)		(19	)
Stock-based compensation expense		5			—
Decrease (increase) in other assets, net		(290	)		21
Increase (decrease) in other liabilities		388			377
Increase in interest receivable		(146	)		(230	)
Increase (decrease) in interest payable		(176	)		158
Total adjustments		(276	)		309
Net cash provided by operating activities	$	692			1,286
Supplemental schedule of non-cash activities:
Unrealized loss in value of securities available-for-sale, net of income taxes of $300,000 and $47,000, respectively	$	(485	)		(76	)
Other real estate transferred to loans	$	194			—

See accompanying notes to consolidated financial statements (unaudited).

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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, 2007 and December 31, 2006, the results of operations for the three months ended March 31, 2007 and 2006, comprehensive earnings for the three months ended March 31, 2007 and 2006 and changes in cash flows for the three months ended March 31, 2007 and 2006. 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, 2006. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

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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, 2006 for a more complete discussion of factors that affect liquidity, capital and the results of operations.

Cautionary Note Concerning Forward-Looking Statements

     In this Quarterly Report and in documents incorporated herein by reference, or to which we refer, the Company may communicate statements relating to anticipated future results of the Bank or the Company that may be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act). The Company’s consolidated actual results may differ materially from those included in such forward-looking statements, such as those described in Item 2 of Part I “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” Forward-looking statements are typically identified by the words “believe, expect, anticipate, intend, estimate” and similar expressions of belief, planning, and strategy. These statements may relate to, among other things, loan loss reserve adequacy, changes in interest rates, the impact of changes in interest rates, and litigation results. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, social, political and economic conditions, interest rate fluctuations, competition for loans, mortgages, and other financial services and products, unforeseen changes in liquidity, results of operations, and financial conditions affecting the Company and/or the Bank, and/or its customers, as well as other risks that cannot be accurately quantified or definitively identified. Many factors may affect our financial condition and profitability, including changes in economic conditions, the volatility of and relative impact of particular interest rates, political events, equity and fixed income market fluctuations, personal and corporate customers’ bankruptcies, inflation, technological change, changes in law and regulation, regulatory issues and concerns, changes in fiscal, monetary, natural disasters, regulatory and tax policies, monetary fluctuations, and success in gaining regulatory approvals when required, as well as other risks and uncertainties and competition from other providers of financial services simply cannot be predicted. Because these factors are unpredictable and beyond our control, earnings may fluctuate from period to period. The purpose of this type of information, such as that provided in this section, as well as other portions of this Quarterly Report, is to provide the reader of this report with information relevant to understanding and assessing the financial condition and results of operations of the consolidated Company and not to predict the future or to guarantee results. The Company does not intend, and expressly disclaims any obligation, to publish revised forward-looking statements to reflect the occurrence of changes or of unanticipated events, circumstances, or results.

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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 accounts, 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. (Please refer to item 3 of this Part I for additional information).

     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 cannot 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, 2007, the Company would expect net interest income to decrease approximately $76,000 over a twelve month period if rates decreased 2%. Net interest income would be expected to increase approximately $347,000 over a 12 month period should rates increase 2%. The rate sensitivity as of March 31, 2007 was 1.11 to 1 (0-91 days) and 0.99 to 1 (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. Federal funds sold were $15.5 million and $10.0 million as of March 31, 2007 and December 31, 2006, respectively. This increase in Federal funds sold related primarily to the funding which became available from the large number of securities that have been called or matured during the first quarter of 2007.

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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 $31.7 million mature or reprice within the next twelve months.

     A secondary source of liquidity is the Bank’s loan portfolio. At March 31, 2007 commercial, consumer and other loans of approximately $50.4 million and single family residential loans of approximately $18.3 million either will become due or will be subject to rate adjustments within twelve months.

     As for liabilities, certificates of deposit of $100,000 or greater of approximately $58.0 million will become due during the next twelve months. The Bank’s deposit base increased approximately $1.9 million during the quarter ended March 31, 2007. Securities sold under repurchase agreements decreased approximately $1.7 million. The net decrease in securities resulted primarily from calls and maturities. Advances from the Federal Home Loan Bank were $1,000,000 at March 31, 2007 and December 31, 2006. This balance may remain static for some time due to the fact that a pre-payment premium might apply in the event of a principal reduction before the April 30, 2008 maturity date.

     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.

     It is expected that with present maturities, the anticipated change 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.

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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 or loss on available-for-sale securities) was 17.5% at March 31, 2007 and 17.1% at December 31, 2006. The increase in the ratio resulted primarily from net earnings of $968,000 during the three months ended March 31, 2007. Total assets decreased $240,000 during the three months ended March 31, 2007. The annualized rate of return on stockholders’ equity for the three months ended March 31, 2007 was 7.1% compared to 7.4% for the comparable period in 2006. Cash dividends during the remainder of 2007 will be determined by the Board of Directors as profits permit. No dividends have been declared in 2007 and dividends declared during 2006 were $1.75 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 zero percent 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 which includes common shareholders’ equity, noncumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred — or total risk-based capital which includes the allowance for loan losses up to 1.25% of risk weighted assets, perpetual preferred stock, subordinated debt and various other hybrid capital instruments, subject to various limits. Goodwill is not includable in Tier 1 or total risk-based capital. 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, 2007 the Bank has a Tier 1 risk-based ratio of 32.2%, a total capital to risk-based ratio of 33.3% and a Tier 1 leverage ratio of 17.3%, these ratios fell within the category of “well capitalized” under the regulations.

     The Company is a legal entity separate and distinct from the Bank. The principal source of cash flow of the Company, including cash flow to pay dividends, is dividends from the Bank. There are statutory, regulatory and prudential limitations on the payment of dividends by the Bank to the Company, as well as by the Company to its shareholders. Dividends are never assured and remain both restricted by law and prudential considerations and subject to the discretion of the Company’s and the Bank’s respective Boards of Directors.

     The Federal Reserve Board imposes consolidated capital guidelines on certain bank holding companies (such as the Company), which have more than $150 million in consolidated assets. These guidelines require 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.

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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

     Net earnings were $968,000 for the three months ended March 31, 2007 as compared to $977,000 for the same period in 2006.

     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, increased by $383,000 or 9.3% during the three months ended March 31, 2007 as compared to the comparable period in 2006. The increase in 2007 was due primarily to the effect from recent increases in the interest rates by the Federal Reserve Bank. The ratio of average earning assets to total average assets was 96.8% and 97.2% for each of the quarters ended March 31, 2007 and 2006, respectively.

     Interest expense increased $413,000 for the three months ended March 31, 2007 or 24.5% compared to the same period in 2006. The increases in 2007 and 2006 relate to the changes in interest rates as previously discussed.

     The foregoing resulted in net interest income of $2,407,000 for the three months ended March 31, 2007 a decrease of $30,000 or 1.2% when compared to the same period in 2006.

     The following schedule details the loans of the Company at March 31, 2007 and December 31, 2006:

	(In Thousands)
	March 31,		December 31,
	2007		2006
Commercial, financial and agricultural	$	21,154		22,068
Real estate – construction		7,075		8,100
Real estate – mortgage		129,973		129,438
Consumer		2,474		2,631
	$	160,676		162,237

     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.

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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

     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 $73,336,000 and $2,474,000, respectively at March 31, 2007, are divided into various groups of smaller-balance homogeneous loans that are collectively evaluated for impairment and thus are not subject to the provisions of SFAS Nos. 114 and 118. Substantially all other loans of the Company are evaluated for impairment under the provisions of SFAS Nos. 114 and 118.

     The Company considers all loans on nonaccural status that are subject to 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. Past due status is based on contractual terms of a loan. 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 or the Bank’s anticipated ability to collect from apparently available sources such as the borrower, collateral, and/or third party obligors.

     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, 2007, the Company had no loans on nonaccrual status and there were no nonaccrual loans outstanding at any time during the three months ended March 31, 2007 or year ended December 31, 2006. 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.

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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

     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, 2007, the Company had no loans that had been restructured.

     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.

     Impaired loans and related allowance for loan loss amounts at March 31, 2007 and December 31, 2006 were as follows:

	(In Thousands)
	March 31,		December 31,
	2007		2006
Recorded investment	$	4,671		5,192
Allowance for loan losses	$	685		700

     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, 2007 and 2006 was $4,711,000 and $1,089,000, respectively. The related amount of interest income recognized on the accrual method for the period that such loans were impaired was approximately $79,000 and $21,000 for the three months ended March 31, 2007 and 2006, respectively. The increase in impaired loans and related interest income on the accrual method for impaired loans relates primarily to a single customer whose lack of profitability and recurring losses from operations resulted in an uncertainty related to the customers ability to service all future debt payment requirements.

     The following schedule details selected information as to non-performing loans of the Company at March 31, 2007 and December 31, 2006:

	March 31, 2007				December 31, 2006
	Past Due				Past Due
	90 Days		Non-Accrual		90 Days		Non-Accrual
	(In Thousands)				(In Thousands)
Real estate loans	$	149		—		78		—
Installment loans		—		—		—		—
Commercial		—		—		—		—
	$	149		—		78		—
Renegotiated loans	$	—		—		—		—

15

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 Ended
	March 31,
	2007		2006
	(In Thousands)
Balance, January 1, 2007 and 2006, respectively	$	1,812		1,816
Add (deduct):
Losses charged to allowance		—		—
Recoveries credited to allowance		8		10
Reclassification of allowance for off-balance sheet credit losses		4		—
Balance, March 31, 2007 and 2006, respectively	$	1,824		1,826

     There was no provision for loan losses during the first three months of 2007 nor was there a provision for the first three months of 2006. The provision for loan losses is based on past loan experience and other factors which, in management’s subjective judgment, deserve current recognition in estimating possible loan losses. Such factors include past loan loss experience, 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. This is not an exact science. Management has in place a system designed to identify and monitor potential problem loans on a timely basis, of course, no system is infallible or perfect. From time to time unscheduled developments, including requirements of bank regulatory agencies, may require additional contributions to the reserve.

     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 subsequently approved by the Board of Directors.

16

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, 2007 and December 31, 2006:

	March 31, 2007
	(In Thousands)
			Special
	Total		Mention		Substandard		Doubtful
Commercial, financial and agricultural	$	124		74		50		—
Real estate mortgage		13,497		5,362		8,135		—
Real estate construction		139		139		—		—
Consumer		34		—		34		—
	$	13,794		5,575		8,219		—

	December 31, 2006
	(In Thousands)
			Special
	Total		Mention		Substandard		Doubtful
Commercial, financial and agricultural	$	167		77		90		—
Real estate mortgage		13,401		5,366		8,035		—
Real estate construction		19		19		—		—
Consumer		46		—		46		—
	$	13,633		5,462		8,171		—

     The collateral values, based on estimates received by management, collateralizing the above internally classified loans total approximately $22,362,000 ($21,964,000 related to real estate and $398,000 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.

17

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 $13,497,000 and $13,401,000 at March 31, 2007 and December 31, 2006 consist of seventy-eight and sixty-five 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 recent and planned industrial plant closings and related higher than state average unemployment rates in Warren County, Tennessee.

     The following detail provides a breakdown of the allocation of the allowance for possible loan losses:

	March 31, 2007					December 31, 2006
			Percent of					Percent of
			Loans In					Loans In
	In		Each Category			In		Each Category
	Thousands		To Total Loans			Thousands		To Total Loans
Commercial, financial and agricultural	$	47		13	%	$	66		14	%
Real estate construction		15		4			3		5
Real estate mortgage		1,727		81			1,705		80
Consumer		35		2			38		1
	$	1,824		100	%	$	1,812		100	%

     There were no material amounts of other interest-bearing assets (interest-bearing deposits with other banks, municipal bonds, etc.) at March 31, 2007 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, exclusive of securities gains, was $160,000 for the three months ended March 31, 2007 as compared to $149,000 for the same period in 2006. The increase was primarily due to increases in service charges on deposits.

     There were no securities gains for the quarter ended March 31, 2007 and 2006.

     Non-interest expense was $1,172,000 and $1,127,000 for the first three months of 2007 and 2006, respectively, an increase of 4.0%. The increase was primarily due to increases in salaries and employee benefits.

     Management is not aware of any current recommendations by applicable regulatory authorities which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

18

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 federal regulatory agencies have also issued two “guidances” that could have a significant impact on real-estate related lending and, thus, on the operations of First National Bank of McMinnville and the Company. One part of the guidance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level of 300% of their capital or to raise additional captial. This could have the effect of causing the Bank to reorient its loan strategy away from, or limit its expansion of, commercial real estate lending, which has been a material part of the Bank’s lending strategies. This could also have a negative impact on the Bank’s lending and profitability. The other guidance relates to the structuring of certain types of mortgages that allows negative amortization of consumer mortgage loans. Although the Bank does not engage at present in a significant amount of lending using these types of instruments, the guidance could have the effect of making the Bank less competitive in consumer mortgage lending.

     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, 2007 and 2006:

(In Thousands, except share and per share amounts)	2007		2006
Basic EPS Computation:
Numerator — income available to common shareholders	$	968	$	977
Denominator — weighted average number of common shares outstanding		1,034,475		1,030,876
Basic earnings per common share	$	.94	$	.95
Diluted EPS Computation:
Numerator	$	968	$	977
Denominator:
Weighted average number of common shares outstanding		1,034,475		1,030,876
Dilutive effect of stock options		13,582		19,346
		1,048,057		1,050,222
Diluted earnings per common share	$	.92	$	.93

19

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

     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 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.

     In December, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised) (“SFAS No. 123(R)”) related to share based payments. For First McMinnville Corporation SFAS No. 123(R) applies to the accounting for stock options. The substance of the revised statement is to require companies to record as an expense amortization of the fair market value of stock options determined as of the grant date. The offsetting credit is to additional paid-in capital unless there is an obligation to buy back the stock or exchange other assets for the stock. If such an obligation exists the offsetting credit would be to a liability account. The statement is effective for the first interim reporting period after December 15, 2005. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R). The Company expensed $5,000 in the first three months ended March 31, 2007 related to the expensing of stock options.

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.

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.

20

FIRST MCMINNVILLE CORPORATION

FORM 10-Q, CONTINUED

Item 3.Quantitative and Qualitative Disclosures About Market Risk, Continued

     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.

     Managing interest rate risk is a very subjective exercise based on a wide variety of factors. This activity is based significantly on management’s subjective beliefs about future events (such as actions of the Federal Reserve Board and the conduct of competitors) and is never guaranteed.

     There have been no material changes in reported market risks during the three months ended March 31, 2007. 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 the period covered by 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 changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.

     The implementation of Section 404 of the Sarbanes-Oxley Act, and related matters, could result in significant costs for the Company on a consolidated basis. The Company will be required to provide management’s report on internal control over financial reporting in its first annual report for the fiscal year ending on or after December 15, 2007. In addition, the auditor’s attestation report on internal control over financial reporting will be required when the Company files an annual report for the fiscal year ending on or after December 15, 2008. At this time, such costs of implementation are not believed to be material.

21

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     None

Item 1A. RISK FACTORS

Registrant incorporates herein by reference “Item 1A. Risk Factors” from its most recently filed Annual Report on Form 10-K.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) 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 of
Date of Sale	Common Stock Sold		Price Per Share
January 22, 2007		118	$	29.08
February 2, 2007		2,000	$	29.08
February 14, 2007		2,160	$	29.08
February 21, 2007		100	$	29.08
March 1, 2007		180	$	29.08
March 13, 2007		500	$	34.93
March 16, 2007		100	$	29.08
March 20, 2007		3,000	$	29.08

	The aggregate proceeds of the shares sold were $240,160.
	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 Section 4 (2) 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.
(b)	Not Applicable.

22

PART II. OTHER INFORMATION, CONTINUED

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, CONTINUED

(c) The Issuer repurchased 754 of its common shares in the first quarter of this fiscal year, which ended March 31, 2007.

						(c)		(d)
						Total Number		Maximum
						of Shares		Number (or
Period Covered						(or Units)		Approximate
by this Report -	(a)					Purchased as		Dollar Value)
First Fiscal	Total Number			(b)		Part of Publicly		of Shares
Quarter of 2007	of Shares			Average Price		Announced		(or Units)
(January 1	(or Units)			Paid Per		Plans		that May Yet
through March 31)	Purchased			Share (or Unit)		or Programs		Be Purchased
January 1 - 31		750	*	$	52.82		*		*
February 1 - 28		4	*		53.17		*		*
March 1 - 31		—	*		—		*		*
Total		754	*	$	52.82		*		*

* The Issuer purchases shares of its stock from time to time in order to provide some liquidity in the stock. The Issuer does not solicit such purchases. There is no preset number of shares that the Issuer will purchase and no “plan” or “program” of repurchases. Because there is no established public trading market, the Issuer has historically acted as the purchaser of last resort to provide some liquidity in the shares, paying “book value,” as calculated by it, for shares based on the “book value” as of the immediately preceding month end (unaudited). The Issuer does not encourage such sales to it and does not compete in any manner in effecting such purchases.

     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.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a) None.

     (b) Not applicable.

     (c) Not applicable.

     (d) Not applicable.

23

PART II. OTHER INFORMATION, CONTINUED

Item 5. OTHER INFORMATION

     (a) None.

     (b) Not Applicable.

Item 6. EXHIBITS

     Exhibits 31.1 and 31.2 consist of Rule 13a-14(a)/15d-14(a) certifications.

     Exhibit 32.1 and 32.2 consist of Section 1350 certifications.

24

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 11, 2007	/s/ Thomas D. Vance
	Thomas D. Vance
	President and Chief Executive Officer
DATE: May 11, 2007	/s/ Kenny D. Neal
	Kenny D. Neal
	Chief Financial and Accounting Officer

25