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 SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 2-90200
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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: November 10, 2000 - 522,696.
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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 (the "Bank") are as follows:
Consolidated Balance Sheets - September 30, 2000 and December
31, 1999.
Consolidated Statements of Earnings - For the three months and
nine months ended September 30, 2000 and 1999.
Consolidated Statements of Comprehensive Earnings - For the
three months and nine months ended September 30, 2000 and
1999.
Consolidated Statements of Cash Flows - For the nine months
ended September 30, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
September 30 December 31,
2000 1999
---- ----
(In Thousands)
Assets
Loans $ 136,604 135,375
Less: Allowance for loan losses (1,695) (1,502)
--------- --------
Net loans 134,909 133,873
Securities:
Held to maturity, at cost (market value $33,682,000 and
$34,361,000, respectively) 34,224 35,569
Available-for-sale, at market (amortized cost $88,754,000
and $88,237,000, respectively) 83,814 82,402
Interest-bearing deposits in other banks 45 40
--------- --------
Total earning assets 252,992 251,884
Cash and due from banks 4,347 4,625
Bank premises and equipment, net of accumulated depreciation 2,134 1,904
Accrued interest receivable 2,412 2,327
Deferred tax asset 2,062 2,402
Other real estate 30 74
Other assets 430 491
--------- --------
Total assets $ 264,407 263,707
========= ========
Liabilities and Stockholders' Equity
Deposits $ 206,325 195,924
Securities sold under repurchase agreements 15,314 15,869
Federal funds purchased 2,200 8,000
Advances from Federal Home Loan Bank 2,000 7,200
Accrued interest and other liabilities 2,420 3,114
--------- --------
Total liabilities 228,259 230,107
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 609,165 shares and 609,150 shares, respectively 1,523 1,523
Additional paid-in capital 1,755 1,754
Retained earnings 39,398 36,742
Net unrealized losses on available-for-sale securities, net of
income tax benefits of $1,875,000 and $2,215,000, respectively (3,065) (3,620)
--------- --------
39,611 36,399
Less cost of treasury stock of 86,499 shares and 77,220 shares,
respectively (3,463) (2,799)
--------- --------
Total stockholders' equity 36,148 33,600
--------- --------
Total liabilities and stockholders' equity $ 264,407 263,707
========= ========
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
(Dollars In Thousands, Except Per Share Amount)
Interest income:
Interest and fees on loans $2,828 2,688 8,364 7,911
Interest and dividends on securities:
Taxable securities 1,626 1,570 4,874 4,421
Tax exempt from Federal income taxes 345 372 1,049 1,091
Interest on federal funds sold -- -- -- 10
Interest on interest-bearing deposits in other banks and
other interest 1 1 2 1
------ ----- ------ ------
Total interest income 4,800 4,631 14,289 13,434
------ ----- ------ ------
Interest expense:
Interest on negotiable order of withdrawal accounts 194 186 570 527
Interest on money market demand and savings accounts 261 275 813 797
Interest on certificates of deposit 1,921 1,532 5,291 4,526
Interest on securities sold under repurchase agreements
and short term borrowings 149 156 419 443
Interest on Federal funds purchased 77 58 314 122
Interest on advances from Federal Home Loan Bank 31 75 137 179
------ ----- ------ ------
Total interest expense 2,633 2,282 7,544 6,594
------ ----- ------ ------
Net interest income 2,167 2,349 6,745 6,840
Provision for loan losses 45 45 135 135
------ ----- ------ ------
Net interest Income after provision for loan losses 2,122 2,304 6,610 6,705
------ ----- ------ ------
Other income:
Service charges on deposit accounts 129 116 369 333
Other fees and commissions 117 99 250 280
Commissions and fees on fiduciary activities 16 8 64 33
Security gains related to available-for-sale securities -- -- -- 8
Gain on sale of bank premises -- -- -- 166
Other income 7 7 21 25
------ ----- ------ ------
Total other income 269 230 704 845
------ ----- ------ ------
Other expenses:
Salaries and employee benefits 681 669 1,969 1,923
Occupancy expenses, net 56 53 156 154
Furniture and equipment expense 17 25 53 63
Data processing expense 30 65 95 151
FDIC insurance 11 6 31 17
Other operating expenses 203 203 666 664
------ ----- ------ ------
Total other expenses 998 1,021 2,970 2,972
------ ----- ------ ------
Earnings before income taxes 1,393 1,513 4,344 4,578
Income taxes 411 470 1,347 1,396
------ ----- ------ ------
Net earnings $ 982 1,043 2,997 3,182
====== ===== ====== ======
Basic earnings per common share $ 1.88 1.96 5.71 5.97
====== ===== ====== ======
Diluted earnings per common share $ 1.86 1.95 5.67 5.94
====== ===== ====== ======
Dividends per share $ -- -- .65 .60
====== ===== ====== ======
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
(In Thousands)
2000 1999 2000 1999
---- ---- ---- ----
Net earnings $ 982 1,043 2,997 3,182
------ ------ ----- ------
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during period, net of income
taxes of $432,000, income tax benefit of
$564,000, income taxes of $340,000 and
income tax benefit of $1,823,000, respectively 707 (921) 555 (2,980)
Less: reclassification adjustment for gains
included in net earnings, net of tax of $3,000 -- -- -- (5)
------ ------ ----- ------
Other comprehensive earnings (loss) 707 (921) 555 (2,985)
------ ------ ----- ------
Comprehensive earnings $1,689 122 3,552 197
====== ====== ===== ======
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
2000 1999
---- ----
(In Thousands)
Cash flows from operating activities:
Interest received $ 14,157 12,955
Fees and commissions received 704 671
Interest paid (7,095) (6,429)
Cash paid to suppliers and employees (2,669) (2,571)
Income taxes paid (1,452) (1,466)
-------- -------
Net cash provided by operating activities 3,645 3,160
-------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 2,437 24,845
Proceeds from maturities of available-for-sale securities 212 17,790
Proceeds from sales of available-for-sale securities -- 3,898
Purchase of available-for-sale securities (682) (48,018)
Purchase of held-to-maturity securities (1,092) (15,232)
Loans made to customers, net of repayments (1,201) (5,497)
Purchase of premise and equipment (337) (25)
Proceeds from sale of premises and equipment -- 204
Proceeds from sale of other real estate 74 --
-------- -------
Net cash used in investing activities (589) (22,035)
-------- -------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing, savings
and NOW deposit accounts (5,048) 5,529
Net increase in time deposits 15,449 9,086
Increase (decrease) in securities sold under repurchase agreement (555) 1,438
Increase (decrease) in Federal funds purchased (5,800) 1,100
Dividends paid (1,512) (1,441)
Payments to acquire treasury stock (664) (248)
Advances from Federal Home Loan Bank -- 3,200
Proceeds from sales of common stock 1 137
Repayment of advances from Federal Home Loan Bank (5,200) --
-------- -------
Net cash provided by financing activities (3,329) 18,801
-------- -------
Net decrease in cash and cash equivalents (273) (74)
Cash and cash equivalents at beginning of period 4,665 5,241
-------- -------
Cash and cash equivalents at end of period $ 4,392 5,167
======== =======
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 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 $ 2,997 3,182
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 85 134
Provision for loan losses 135 135
Security gains related to available-for-sale -- (8)
Gain on sale of premises and equipment -- (166)
FHLB dividend reinvestment (47) (38)
Decrease in refundable income taxes 58 43
Increase in interest receivable (85) (429)
Decrease in taxes payable (163) (113)
Increase in interest payable 449 165
Decrease (increase) in other assets 25 (4)
Increase in other liabilities 191 259
------- -------
Total adjustments 648 (22)
------- -------
Net cash provided by operating activities $ 3,645 3,160
======= =======
Supplemental schedule of non-cash activities:
Unrealized gain (loss) in value of securities available-for-
sale, net of income taxes of $340,000 and income
tax benefit of $1,827,000, respectively $ 555 $(2,985)
======= =======
Transfer of loans to other real estate $ 30 $ --
======= =======
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) and its wholly-owned subsidiary, The First
National Bank of McMinnville (Bank).
The accompanying consolidated financial statements have been prepared, without
audit, in accordance with 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 September 30, 2000 and December 31, 1999, the results of operations for
the nine months and three months ended September 30, 2000 and 1999,
comprehensive earnings for the nine months and three months ended September 30,
2000 and 1999 and changes in cash flows for the nine months ended September 30,
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:
Nine Months Ended
September 30,
---------------------
2000 1999
---- ----
(In Thousands)
Balance, January 1, 2000 and 1999, respectively $ 1,502 1,495
Add (deduct):
Losses charged to allowance (42) (17)
Recoveries credited to allowance 100 27
Provision for loan losses 135 135
--------- --------
Balance, September 30, 2000 and 1999, respectively $ 1,695 1,640
========= ========
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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 Registrant 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 more 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.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and its
subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is designed to maintain stability in
the balance of interest-sensitive assets to interest-sensitive liabilities in
order to provide a stable growth in net interest margins. Earnings on
interest-sensitive assets such as loans tied to the prime rate of interest and
federal funds sold, may vary considerably from fixed rate assets such as
long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
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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
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 $3.0 million mature or reprice within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At
September 30, 2000 commercial loans of approximately $28.7 million and other
loans (mortgage and consumer) of approximately $8.6 million either will become
due or will be subject to rate adjustments within twelve months. Emphasis
continues to be placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit of $100,000 or greater
of approximately $43.1 million will become due during the next twelve months.
The Bank's deposit base increased approximately $10.4 million during the nine
months ended September 30, 2000. Securities sold under repurchase agreements
decreased approximately $.56 million during the nine months ended September 30,
2000. The increase in securities sold under agreements to resale was
approximately $2.6 million during the quarter ended September 30, 2000. The
deposit base increased approximately $14.6 million during the nine months ended
September 30, 1999. The Company did not have Federal funds sold at September 30,
2000, or at December 31, 1999. Federal funds purchased were $2.2 million and $8
million at September 30, 2000 and December 31, 1999, respectively, and $6.1
million at June 30, 2000. Advances from the Federal Home Loan Bank were $2
million at September 30, 2000 and June 30, 2000 and $7.2 million at December 31,
1999. These advances are scheduled to mature over periods ranging from one to
two years.
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
anticipates that there will be no significant withdrawals from these accounts
except as discussed in the preceding paragraph.
The Subsidiary Bank is limited by banking regulatory agencies as to the
amount of dividends that it can pay. At September 30, 2000, the Bank can declare
during the remainder of 2000 cash dividends in an aggregate amount not to exceed
approximately $9.3 million, exclusive of any 2000 net earnings, without prior
approval 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 anticipated
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
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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
present time there are no known trends or any known commitments, demands, events
or uncertainties that management believes 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 was 13.7% at
September 30, 2000 and 12.7% at December 31, 1999. The increase in the ratio
resulted primarily from a decrease in the net unrealized loss on securities
available for sale of approximately $555,000 and net earnings of $2,997,000
during the nine months ended September 30, 2000. Total assets increased .3%
during the nine months ended September 30, 2000. The annualized rate of return
on stockholders' equity for the first nine months of 2000 was 11.5% compared to
12.1% 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. Dividends of $341,000
and $321,000 or $.65 and $.60 per share were declared in the nine months ended
September 30, 2000 and 1999, respectively. Cash dividends will be increased in
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.
The Federal Reserve Bank increased interest rates during 1999 and 2000
resulting in higher interest rates on new issue debt securities. The Company's
securities portfolio consists primarily of debt securities with an average yield
less than the current market rate. These factors have contributed to an
unrealized loss on securities available-for-sale of $3,065,000 (net of income
tax benefit of $1,875,000) at September 30, 2000.
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 which includes common shareholders' equity, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
- - or Tier 2 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 Tier 2 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 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. The
Bank has a Tier 1 risk-based ratio of 27.6%, a total capital to risk-based ratio
of 28.8% and a Tier 1 leverage ratio of 14.9%, and was thus in the "well
capitalized" category under the regulations.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
CAPITAL RESOURCES, CONTINUED
The Federal Reserve Board imposes consolidated capital guidelines
on bank holding companies 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 at September 30,
2000.
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 46,000 shares of stock to its directors, officers and
employees at exercise prices ranging from $58.15 to $74.30 per share. At
September 30, 2000, 4,365 shares had been exercised and 22,330 shares were
exercisable. The shares granted to Directors totaling 21,000 are fully vested.
Shares granted to officers and employees are exercisable over a period of 10
years or the number of years until the optionee reaches age 65, whichever is
less.
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) and recognize that the Year 2000
is a leap year. 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
customers that have experienced significant problems related to the Year 2000
issue.
RESULTS OF OPERATIONS
Net earnings were $2,997,000 for the nine months ended September
30, 2000 as compared to $3,182,000 for the same period in 1999. Net earnings
were $982,000 for the quarter ended September 30, 2000 as compared to $1,043,000
during the same quarter 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 $855,000 or 6.4% during the nine months ended September 30, 2000 as
compared to the comparable period in 1999. Interest income for the quarter ended
September 30, 2000 increased $169,000 or 3.6% when compared to the quarter ended
September 30, 1999 and $53,000 or 1.1% as compared to the second quarter of
2000. The increases were primarily attributable to an increase in interest rates
during the fourth quarter of 1999 and during 2000 and average earning assets.
The ratio of average earning assets to total average assets was 98.4% for the
nine months ended September 30, 2000 as compared to 96.1% for the same period in
1999.
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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
Interest expense increased by $950,000 for the nine months ended
September 30, 2000 or 14.4% as compared to the same period in 1999. Interest
expense for the quarter ended September 30, 2000 increased $351,000 or 15.4% as
compared to the quarter ended September 30, 1999. Interest expense for the
quarter ended September 30, 2000 increased $153,000 or 6.2% over the quarter
ended June 30, 2000. The increases in interest expense can be attributable
primarily to an increase in interest rates together with an increase in average
interest bearing liabilities.
The foregoing resulted in net interest income of $6,745,000 for the
nine months ended September 30, 2000, a decrease of $95,000 or 1.4% compared to
the prior year period. Net interest income for the quarter ended September 30,
2000 decreased $182,000 or 7.7% as compared to the third quarter of 1999 and
$100,000 or 4.4% over the quarter ended June 30, 2000.
The provision for loan losses was $135,000 for the first nine months of
2000 and 1999, respectively. The provision was $45,000 for each of the quarters
ended September 30, 2000 and 1999, respectively. 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 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. Management has in place a system that is
designed to identify and to monitor loan 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.
A loan is 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.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's first mortgage single family residential, consumer and
credit card loans which total approximately $64,492,000, $2,627,000 and
$326,000, respectively at September 30, 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 loans on nonaccrual status 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 should be considered to be 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
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
September 30, 2000, the Company had no loans on nonaccrual status and there were
no nonaccrual loans outstanding at any time during the nine months then ended.
At September 30, 1999, the Company had one loan with a balance of approximately
$98,000 and which was placed on nonaccrual status during the latter part of the
third quarter 1999. All interest income during these periods was recognized on
the accrual basis.
Loans not on nonaccrual status are classified as impaired in certain
cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally, the Company also classifies as impaired any loans the terms
of which have been modified in a troubled debt restructuring after January 1,
1995. Interest is accrued on such loans that continue to meet the modified terms
of their loan agreements. At September 30, 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.
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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
Impaired loans and related allowance for loan loss amounts at September
30, 2000 and December 31, 1999 were as follows:
September 30, December 31,
2000 1999
------------- -------------
Recorded Recorded
(In Thousands) Investment Investment
---------- ----------
Recorded investment $ 2,782 $ 1,808
Allowance for loan losses $ 519 $ 535
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral. The estimation of
collateral "fair value" is not an exact science and involves subjective
judgments which are not guaranteed.
The average recorded investment in impaired loans for the nine months
ended September 30, 2000 and 1999 was $2,822,000 and $2,619,000, respectively.
The related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $195,000 and $173,000 for
2000 and 1999, respectively.
The following schedule details selected information as to
non-performing loans of the Company at September 30, 2000:
September 30, 2000
-----------------------------
Past Due
90 Days Non-Accrual
------- -----------
Real estate loans $ 153 --
Installment loans 3 --
Commercial -- --
---------- ---------
$ 156 --
========== ==========
Renegotiated loans $ -- --
========== ==========
At September 30, 2000, loans which include the above, totaling
$4,575,000 were included in the Company's internal classified loan list. Of
these loans $1,326,000 are real estate and $3,249,000 are commercial and other.
The collateral values, based on estimates received by management, securing these
loans total approximately $6,509,000 ($2,115,000 related to real property and
$4,394,000 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
impact future operating results, liquidity or capital resources.
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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
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at September
30, 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 the sale of bank premises in 1999 of $166,000 increased $33,000 or 4.9%
during the nine months ended September 30, 2000 as compared to the same period
in 1999. There was an increase during the quarter ended September 30, 2000 of
$39,000 or 17% as compared to the comparable quarter in 1999. The increases
consisted primarily of increases in service charges on deposit accounts and fees
on fiduciary activities. Commissions and service charges are monitored
continually to seek maximum return based on costs and competition.
There were no securities gains during 2000. Securities gains during the
nine months ended September 30, 1999 amounted to $8,000 The gains during 1999
related to transactions in the available-for-sale category. These gains 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.
Non-interest expense was $2,970,000 and $2,972,000 for the nine months
ended September 30, 2000 and 1999, respectively. Non-interest expense was
$998,000 and $1,021,000 for each quarter ended September 30, 2000 and 1999,
respectively. These variances were due to normal cost of living and performance
increases in employee salaries and benefits which were offset by decreases in
data processing expense resulting from certain equipment and software becoming
fully depreciated during 2000.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material adverse
effect on the Company's liquidity, capital resources or operations.
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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
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three and nine months ended September 30, 2000
and 1999:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
(In Thousands, except share amounts) 2000 1999 2000 1999
---- ---- ---- ----
Basic EPS Computation:
Numerator - income available to common
shareholders $ 982 1,043 2,997 3,182
-------- ------- ------- -------
Denominator - weighted average number
of common shares outstanding 523,020 532,300 525,244 533,064
-------- ------- ------- -------
Basic earnings per common share $ 1.88 1.96 5.71 5.97
======== ======= ======= =======
Diluted EPS Computation:
Numerator $ 982 1,043 2,997 3,182
-------- ------- ------- -------
Denominator:
Weighted average number of common
shares outstanding 523,020 532,300 525,244 533,064
Dilutive effect of stock options 3,747 2,375 3,747 2,375
-------- ------- ------- -------
526,767 534,675 528,991 535,439
-------- ------- ------- -------
Diluted earnings per common share $ 1.86 1.95 5.67 5.94
======== ======= ======= =======
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
appeared to have a significant effect on net earnings. If the inflation rate
stays flat or increases slightly, the effect on profits is not expected to be
significant.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. 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
nine months ended September 30, 2000. Please refer to Item 2 of Part I of this
report for additional information related to market and other risks.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) None
(d) The only restrictions on working capital and/or dividends are those
reported in Part I.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) None
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
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 September 30,
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 September 30, 2000.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MCMINNVILLE CORPORATION
----------------------------------------
(Registrant)
DATE: November 10, 2000 /s/ Charles C. Jacobs
--------------------- ----------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: November 10, 2000 /s/ Kenny D. Neal
--------------------- ----------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
20