1
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)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 2-90200
FIRST MCMINNVILLE CORPORATION
----------------------------------------------------
(Exact Name of Registrant As Specified in its Charter)
Tennessee 62-1198119
------------------------------ ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) 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.
YES [X] NO [ ]
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: 524,989 shares at May 10, 2000
-------
1
2
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), are as
follows:
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999.
Consolidated Statements of Earnings - For the three months ended March 31,
2000 and 1999.
Consolidated Statements of Comprehensive Earnings - For the three months
ended March 31, 2000 and 1999.
Consolidated Statements of Cash Flows - For the three months ended March
31, 2000 and 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 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.
2
3
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
March 31, December 31,
2000 1999
--------- ------------
(In Thousands)
Assets
------
Loans $ 133,872 135,375
Less: Allowance for loan losses (1,583) (1,502)
--------- --------
Net loans 132,289 133,873
Securities:
Held to maturity, at cost (market value - $33,638,000 and
$34,361,000, respectively) 34,691 35,569
Available-for-sale, at market (amortized cost - $88,569,000
and $88,237,000, respectively) 83,068 82,402
Interest bearing deposits in financial institutions 68 40
--------- --------
Total earning assets 250,116 251,884
Cash and due from banks 6,225 4,625
Bank premises and equipment, net of accumulated depreciation 1,857 1,904
Accrued interest receivable 2,440 2,327
Deferred tax asset 2,275 2,402
Other real estate -- 74
Other assets 500 491
--------- --------
Total assets $ 263,413 263,707
========= ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 201,815 195,924
Securities sold under repurchase agreements 14,366 15,869
Federal funds purchased 6,500 8,000
Advances from Federal Home Loan Bank 4,000 7,200
Accrued interest and other liabilities 2,434 3,114
--------- --------
Total liabilities 229,115 230,107
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 609,150 shares 1,523 1,523
Additional paid-in capital 1,754 1,754
Retained earnings 37,726 36,742
Net unrealized losses on available-for-sale securities, net
of income tax benefit of $2,088,000 and $2,215,000, respectively (3,413) (3,620)
--------- --------
37,590 36,399
Less cost of treasury stock of 84,161 shares at March 31, 2000
and 77,220 shares at December 31, 1999 (3,292) (2,799)
--------- --------
Total stockholders' equity 34,298 33,600
--------- --------
Total liabilities and stockholders' equity $ 263,413 263,707
========= ========
See accompanying notes to consolidated financial statements (unaudited).
3
4
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
(Dollars In Thousands
Except Per Share Amount)
Interest income:
Interest and fees on loans $2,763 2,594
Interest and dividends on securities:
Taxable securities 1,621 1,408
Exempt from Federal income taxes 357 366
Interest on federal funds sold -- 1
Interest on interest-bearing deposits in other banks and other
interest 1 --
------ -----
Total interest income 4,742 4,369
------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 182 161
Interest on money market demand and savings accounts 278 285
Interest on certificates of deposit 1,620 1,471
Interest on securities sold under repurchase agreements and
short term borrowings 143 132
Interest on Federal funds purchased 143 40
Interest on advances from Federal Home Loan Bank 65 52
------ -----
Total interest expense 2,431 2,141
------ -----
Net interest income 2,311 2,228
Provision for loan losses 45 45
------ -----
Net interest income after provision for loan losses 2,266 2,183
------ -----
Non-interest income:
Service charges on deposit accounts 118 108
Other fees and commissions 60 81
Commissions and fees on fiduciary activities 43 20
Security gains related to available-for-sale securities -- 5
Gain on sale of bank premises -- 166
Other income 7 12
------ -----
228 392
------ -----
Non-interest expense:
Salaries and employee benefits 675 666
Occupancy expenses, net 52 51
Furniture and equipment expense 17 19
Data processing expense 34 40
FDIC insurance 10 6
Other operating expenses 241 216
------ -----
1,029 998
------ -----
Earnings before income taxes 1,465 1,577
Income taxes 481 470
------ -----
Net earnings $ 984 1,107
====== =====
Basic earnings per common share $ 1.86 2.08
====== =====
Diluted earnings per common share $ 1.85 2.07
====== =====
Dividends per share $ -- --
====== =====
See accompanying notes to consolidated financial statements (unaudited).
4
5
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
(In Thousands)
Net earnings $ 984 1,107
------ ------
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities
arising during period, net of income taxes of $127,000 and
tax benefit of $376,000, respectively 207 (615)
Less: reclassification adjustment for gains included in
net earnings, net of taxes of $2,000 -- (3)
------ ------
Other comprehensive earnings (loss) 207 (618)
------ ------
Comprehensive earnings $1,191 489
====== ======
See accompanying notes to consolidated financial statements (unaudited).
5
6
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2000 1999
---- ----
(In Thousands)
Cash flows from operating activities:
Interest received $ 4,615 3,920
Fees and commissions received 228 221
Interest paid (2,283) (1,975)
Cash paid to suppliers and employees (908) (974)
Income taxes paid (218) (143)
------- -------
Net cash provided by operating activities 1,434 1,049
------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 1,661 7,431
Proceeds from maturities of available-for-sale securities 5 1,183
Proceeds from sales of available-for-sale securities -- 1,005
Purchase of held-to-maturity securities (783) (5,602)
Purchase of available-for-sale securities (323) (14,139)
Loans made to customers, net of repayments -- (1,399)
Customer loan repayments, net of advances 1,539 --
Purchase of premise and equipment (3) (13)
Proceeds from sale of premises and equipment -- 204
Proceeds from sales of other real estate 74 --
------- -------
Net cash provided by (used in) investing activities 2,170 (11,330)
------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 557 901
Net increase in time deposits 5,334 4,048
Increase (decrease) in securities sold under repurchase agreement (1,503) 2,503
Increase (decrease) in Federal funds purchased (1,500) 3,000
Repayment of advances from Federal Home Loan Bank (3,200) --
Dividends paid (1,171) (1,120)
Proceeds from issuance of common stock -- 5
Payments to acquire treasury stock (493) (15)
------- -------
Net cash (used in) provided by financing activities (1,976) 9,322
------- -------
Net increase (decrease) in cash and cash equivalents 1,628 (959)
Cash and cash equivalents at beginning of period 4,665 5,241
------- -------
Cash and cash equivalents at end of period $ 6,293 4,282
======= =======
See accompanying notes to consolidated financial statements (unaudited).
6
7
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2000 1999
---- ----
(In Thousands)
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 984 1,107
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 28 45
Provision for loan losses 45 45
Gain on sale of available-for-sale securities -- (5)
Gain on sale of premises and equipment -- (166)
FHLB dividend reinvestment (14) (13)
Decrease (increase) in other assets, net 13 (7)
Increase in other liabilities 343 313
Increase in interest receivable (113) (436)
Increase in interest payable 148 166
------- ------
Total adjustments 450 (58)
------- ------
Net cash provided by operating activities $ 1,434 1,049
======= ======
Supplemental schedule of non-cash activities:
Unrealized gain (loss) in value of securities available-for-
sale, net of income taxes of $127,000 and income
tax benefit of $379,000, respectively $ 207 (618)
======= ======
See accompanying notes to consolidated financial statements (unaudited).
7
8
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).
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, 2000 and December 31, 1999, the results of operations for the
three months ended March 31, 2000 and 1999, comprehensive earnings for the three
months ended March 31, 2000 and 1999 and changes in cash flows for the three
months ended March 31, 2000 and 1999. 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, 1999. The results for interim periods are not necessarily
indicative of results to be expected for the complete fiscal year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(In Thousands)
Balance, January 1, 2000 and 1999, respectively $ 1,502 1,495
Add (deduct):
Losses charged to allowance (24) (3)
Recoveries credited to allowance 60 20
Provision for loan losses 45 45
------- ------
Balance, March 31, 2000 and 1999, respectively $ 1,583 1,557
======= ======
8
9
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, 1999 for a complete discussion of factors
that impact 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, material unforeseen complications related to addressing
Year 2000 issues (both as to the Company and as to its customers, vendors,
consultants and governmental agencies), 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
10
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 Registrant 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.
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.
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 $3.6 million mature or reprice within the next
twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At March
31, 2000 commercial loans of approximately $29.9 million and other loans
(mortgage and consumer) of approximately $7.9 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 $37.2 million will become due during the next twelve months. The
Bank's deposit base increased approximately $5.9 million during the quarter
ended March 31, 2000. Securities sold under repurchase agreements decreased
approximately $1.5 million and Federal funds purchased decreased $1.5 million
during the first three months of 2000. There was also a decrease in advances
from the Federal Home Loan Bank of $3,200 during the three months ended March
31, 2000. The total decrease in interest bearing liabilities of approximately
$312,000 was partially the result of a decrease in interest bearing assets of
approximately $1.8 million during the quarter ended March 31, 2000.
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.
10
11
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 Bank is limited by law, regulation and prudence as to the amount of
dividends that it can pay. At March 31, 2000, the Bank can declare during the
remainder of 2000 cash dividends in an aggregate amount not to exceed
approximately $9.6 million, exclusive of any 2000 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.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets (excluding the
unrealized loss on available-for-sale securities) was 14.3% at March 31, 2000
and 14.1% at December 31, 1999. Total assets decreased $294,000 during the three
months ended March 31, 2000. The annualized rate of return on stockholders'
equity for the three months ended March 31, 2000 was 11.7% compared to 12.6% for
the comparable period in 1999. Principally because of the relatively high
percentage of equity capital, the return on equity is lower than the reported
average for many banks in the Bank's peer group. Cash dividends will be
increased during the remainder of 2000 over 1999 only in the discretion of the
Board of Directors and as profits permit. Dividends paid during 1999 were $2.80
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, 2000 the Bank has a Tier 1 risk-based ratio
of 27.0%, a total capital to risk-based ratio of 28.2% and a Tier 1 leverage
ratio of 14.3%, and fell within the category of "well capitalized" under the
regulations.
11
12
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
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.
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 41,000 shares of stock to its directors, officers and
employees at an exercise price of $58.15 per share. At March 31, 2000, 4,350
shares had been exercised, 3,890 shares were forfeited and 15,920 shares were
exercisable. The shares granted to Directors totaling 16,500 are exercisable
over a three year period. Shares granted to officers and employees 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.
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than two digits
to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g., 1900 and 2000). The Company has not identified
any significant problems related to the change to Year 2000. Management is not
aware of any of the Company's customer that have experienced significant
problems related to the Year 2000 Issue.
12
13
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 $984,000 for the three months ended March 31, 2000 as
compared to $1,107,000 for the same period in 1999.
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 $373,000 or 8.5% during the three months ended March 31, 2000 as
compared to an increase of $395,000 or 9.9% for the same period in 1999. The
increases in 2000 and 1999 were attributable primarily to an increase in average
earning assets over comparable periods in prior years. The ratio of average
earning assets to total average assets was 98.4% for the quarter ended March 31,
2000 and 96.4% for the quarter ended March 31, 1999.
Interest expense increased by $290,000 for the three months ended March
31, 2000 or 13.5% compared to an increase of $316,000 or 17.3% for the same
period in 1999. The increase in 2000 was the result of an increase in interest
rates which was due to increases in interest rates by the Federal Reserve Bank
in the latter part of 1999 and during the quarter ended March 31, 2000. The
increase in 1999 can be attributable primarily to an increase in interest
bearing liabilities.
The foregoing resulted in net interest income of $2,311,000 for the
three months ended March 31, 2000 an increase of $83,000 or 3.7% compared to the
same period in 1999.
The provision for loan losses was $45,000 for the first three months of
2000 and 1999. 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 problems on a timely basis.
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 credit card, residential mortgage, and consumer installment loans.
13
14
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 loan agreement. 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, consumer and
credit card loans which total approximately $63,736,000, $2,544,000 and
$300,000, respectively at March 31, 2000, 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 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, 2000, 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, 2000 and December 31, 1999, 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.
14
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
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, 2000, the Company had no loans that have had
the terms modified in a troubled debt restructuring.
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,
2000 and December 31, 1999 were as follows:
March 31, December 31,
2000 1999
--------- ------------
(In Thousands)
Recorded investment $ 1,881 1,808
Allowance for loan losses 538 535
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, 2000 and 1999 was $1,905,000 and $2,969,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $43,000 and $67,000 for
2000 and 1999, respectively.
The following schedule details selected information as to non-performing
loans of the Company at March 31, 2000:
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
Real estate loans $ 645 152
Installment loans 54 2
Commercial 84 --
---------- ----------
$ 783 154
========== ==========
Renegotiated loans $ -- --
========== ==========
15
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
At March 31, 2000, loans which include the above, totaling $4,677,000
were included in the Company's internal classified loan list. Of these loans
$1,326,000 are real estate and $3,351,000 are commercial and other. The
collateral values, based on estimates received by management, securing these
loans total approximately $6,443,000 ($2,041,000 related to real property and
$4,402,000 related to commercial and other). Such loans are listed as classified
when information obtained about possible credit problems of 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.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March 31,
2000 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 transactions and a gain on sale
of bank premises which totaled $166,000 in 1999, increased $7,000 or 3.2% during
the three months ended March 31, 2000 compared to an increase of $17,000 or 8.3%
for the same period in 1999. A newly constructed branch facility opened in 1996
which replaced the former branch which was sold in 1999 for a gain of $166,000.
Securities gains during the three months ended March 31, 1999 amounted
to $5,000, and related to transactions in the available-for-sale category. The
gains during 1999 were incurred primarily in conjunction with management's
strategies to restructure the investment portfolio to improve the quality of the
portfolio, to improve maturity distribution and to maintain a flexible position
to react to market conditions. There were no securities gains or losses during
the three months ended March 31, 2000.
Non-interest expense increased $31,000 or 3.1% during the first three
months of 2000 compared to an increase of $26,000 or 2.7% during the same period
in 1999. The increases in 2000 and 1999 were due primarily to increases in
salaries and employee benefits ($9,000 or 1.4%) and other operating expenses
($25,000 or 11.6%).
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.
16
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
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three months ended March 31, 2000 and 1999:
(In Thousands, except share amounts) 2000 1999
---- ----
Basic EPS Computation:
Numerator - income available to common
shareholders $ 984 1,107
---------- ---------
Denominator - weighted average number of
common shares outstanding 527,997 533,320
---------- ---------
Basic earnings per common share $ 1.86 2.08
========== =========
Diluted EPS Computation:
Numerator $ 984 1,107
---------- ---------
Denominator:
Weighted average number of common shares
outstanding 527,997 533,320
Dilutive effect of stock options 2,883 1,382
---------- ---------
530,880 534,702
---------- ---------
Diluted earnings per common share $ 1.85 2.07
========== =========
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.
17
18
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 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, 2000. Please refer to Item 2 of Part I of this
Report for additional information related to market and other risks.
18
19
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This
schedule contains summary financial information extracted
from the consolidated financial statements of the Company at
March 31, 2000 (unaudited) and is qualified in its entirety
by reference to such financial statements as set forth in
the Company's quarterly report on Form 10-Q for the period
ending March 31, 2000 (omitted in paper copy).
(b) No reports on Form 8-K were filed during the quarter for
which this Report is filed.
19
20
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 10, 2000 /s/ Charles C. Jacobs
------------------------- --------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: May 10, 2000 /s/ Kenny D. Neal
------------------------- --------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
20