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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] 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
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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.
Common stock outstanding: 523,168 shares at May 5, 2001
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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 (Bank), are as
follows:
Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.
Consolidated Statements of Earnings - For the three months ended March 31,
2001 and 2000.
Consolidated Statements of Comprehensive Earnings - For the three months
ended March 31, 2001 and 2000.
Consolidated Statements of Cash Flows - For the three months ended March
31, 2001 and 2000.
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.
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
March 31, December 31,
2001 2000
--------- --------
(In Thousands)
Assets
Loans $ 134,276 136,046
Less: Allowance for loan losses (1,762) (1,711)
--------- --------
Net loans 132,514 134,335
Securities:
Held to maturity, at cost (market value - $66,172,000 and
$39,475,000, respectively) 64,958 39,410
Available-for-sale, at market (amortized cost - $65,282,000
and $85,666,000, respectively) 65,258 83,710
Interest bearing deposits in financial institutions 36 63
Other earning assets 1,101 1,082
--------- --------
Total earning assets 263,867 258,600
Cash and due from banks 4,485 4,364
Bank premises and equipment, net of accumulated depreciation 2,175 2,228
Accrued interest receivable 2,430 2,480
Deferred tax asset 198 932
Other real estate 43 70
Other assets 434 486
--------- --------
Total assets $ 273,632 269,160
========= ========
Liabilities and Stockholders' Equity
Deposits $ 212,700 210,852
Securities sold under repurchase agreements 16,338 13,981
Federal funds purchased 1,000 2,000
Advances from Federal Home Loan Bank 1,000 1,000
Accrued interest and other liabilities 2,777 3,620
--------- --------
Total liabilities 233,815 231,453
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 610,055 and 609,225, respectively 1,525 1,523
Additional paid-in capital 1,805 1,760
Retained earnings 39,995 39,121
Net unrealized losses on available-for-sale securities, net
of income tax benefit of $9,000 and $743,000, respectively (15) (1,213)
--------- --------
43,310 41,191
Less cost of treasury stock of 86,887 shares and 86,767 shares,
respectively (3,493) (3,484)
--------- --------
Total stockholders' equity 39,817 37,707
--------- --------
Total liabilities and stockholders' equity $ 273,632 269,160
========= ========
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
------ -----
(Dollars In Thousands
Except Per Share Amount)
Interest income:
Interest and fees on loans $2,828 2,763
Interest and dividends on securities:
Taxable securities 1,682 1,621
Exempt from Federal income taxes 358 357
Interest on federal funds sold 33 --
Interest on interest-bearing deposits in other banks
and other interest 1 1
------ -----
Total interest income 4,902 4,742
------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 185 182
Interest on money market demand and savings accounts 275 278
Interest on certificates of deposit 2,080 1,620
Interest on securities sold under repurchase agreements an
short term borrowings 163 143
Interest on Federal funds purchased 27 143
Interest on advances from Federal Home Loan Bank 14 65
------ -----
Total interest expense 2,744 2,431
------ -----
Net interest income 2,158 2,311
Provision for loan losses 45 45
------ -----
Net interest income after provision for
loan losses 2,113 2,266
------ -----
Non-interest income:
Service charges on deposit accounts 122 118
Other fees and commissions 56 60
Commissions and fees on fiduciary activities 15 43
Other income 7 7
------ -----
200 228
------ -----
Non-interest expense:
Salaries and employee benefits 685 675
Occupancy expenses, net 49 52
Furniture and equipment expense 17 17
Data processing expense 53 34
FDIC insurance 10 10
Other operating expenses 215 241
------ -----
1,029 1,029
------ -----
Earnings before income taxes 1,284 1,465
Income taxes 410 481
------ -----
Net earnings $ 874 984
====== =====
Basic earnings per common share $ 1.67 1.86
====== =====
Diluted earnings per common share $ 1.66 1.85
====== =====
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, 2001 AND 2000
(UNAUDITED)
2001 2000
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(In Thousands)
Net earnings $ 874 984
------ -----
Other comprehensive earnings, net of tax:
Unrealized gains on available-for-sale securities arising
during period, net of income taxes of $734,000 and
$127,000, respectively 1,198 207
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Other comprehensive earnings 1,198 207
------ -----
Comprehensive earnings $2,072 1,191
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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, 2001 AND 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2001 2000
-------- ------
(In Thousands)
Cash flows from operating activities:
Interest received $ 4,933 4,615
Fees and commissions received 200 228
Interest paid (2,842) (2,283)
Cash paid to suppliers and employees (903) (908)
Income taxes paid -- (218)
-------- ------
Net cash provided by operating activities 1,388 1,434
-------- ------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 19,994 1,661
Proceeds from maturities of available-for-sale securities 31,161 5
Purchase of held-to-maturity securities (45,542) (783)
Purchase of available-for-sale securities (10,777) (323)
Customer loan repayments, net of advances 1,776 1,539
Purchase of premise and equipment -- (3)
Proceeds from sales of other real estate 27 74
Decrease in interest bearing deposits in financial institutions 27 --
-------- ------
Net cash provided by (used in) investing activities (3,334) 2,170
-------- ------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing, savings and
NOW deposit accounts (3,008) 557
Net increase in time deposits 4,856 5,334
Increase (decrease) in securities sold under repurchase agreement 2,357 (1,503)
Decrease in Federal funds purchased (1,000) (1,500)
Repayment of advances from Federal Home Loan Bank -- (3,200)
Dividends paid (1,176) (1,171)
Proceeds from issuance of common stock 47 --
Payments to acquire treasury stock (9) (493)
-------- ------
Net cash (used in) provided by financing activities 2,067 (1,976)
-------- ------
Net increase in cash and cash equivalents 121 1,628
Cash and cash equivalents at beginning of period 4,364 4,665
-------- ------
Cash and cash equivalents at end of period $ 4,485 6,293
======== ======
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, 2001 AND 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2001 2000
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(In Thousands)
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 874 984
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 50 28
Provision for loan losses 45 45
FHLB dividend reinvestment (19) (14)
Decrease in other assets, net 55 13
Increase in other liabilities 431 343
Decrease (increase) in interest receivable 50 (113)
Increase (decrease) in interest payable (98) 148
------- ------
Total adjustments 514 450
------- ------
Net cash provided by operating activities $ 1,388 1,434
======= ======
Supplemental schedule of non-cash activities:
Unrealized gain in value of securities available-for-sale,
net of income taxes of $734,000 and income taxes of
$127,000, respectively $ 1,198 207
======= ======
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).
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, 2001 and December 31, 2000, the results of operations for the
three months ended March 31, 2001 and 2000, comprehensive earnings for the three
months ended March 31, 2001 and 2000 and changes in cash flows for the three
months ended March 31, 2001 and 2000. 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, 2000. 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, 2000 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, 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.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and its
subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is designed to maintain stability in
the balance of interest-sensitive assets to interest-sensitive liabilities in
order to provide a stable growth in net interest margins. Earnings on
interest-sensitive assets such as loans tied to the prime rate of interest and
federal funds sold, may vary considerably from fixed rate assets such as
long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
The Company maintains a formal asset and liability management process
to quantify, monitor and control interest rate risk and to assist management in
maintaining stability in the net interest margin under varying interest rate
environments. The Company accomplishes this process through the development and
implementation of lending, funding and pricing strategies designed to maximize
net interest income under varying interest rate environments subject to specific
liquidity and interest rate risk guidelines.
Analysis of rate sensitivity and rate gap analysis are the primary
tools used to assess the direction and magnitude of changes in net interest
income resulting from changes in interest rates. Included in the analysis are
cash flows and maturities of financial instruments held for purposes other than
trading, changes in market conditions, loan volumns and pricing and deposit
volumn and mix. These assumptions are inherently uncertain, and, as a result,
net interest income can not be precisely estimated nor can the impact of higher
or lower interest rates on net interest income be precisely predicted. Actual
results will differ due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and managements strategies, among other
factors.
Based on the results of the analysis as of March 31, 2001, the Company
would expect net interest income to decrease approximately $668,000 over a
twelve month period if rates increased 2%. Net interest income would be expected
to increase $668,000 over a 12 month period should rates decrease 2%. The rate
sensitivity as of March 31, 2000 was 1.35 to 1.00 (0-91 days) and .75 to 1.00
(0-365 days). This asset/liability mismatch in pricing is referred to as "gap"
and is measured as rate sensitive assets divided by rate sensitive liabilities
for a defined time period. A gap of 1.0 means that assets and liabilities are
perfectly matched as to pricing within a specific time period and interest rate
movements will not affect net interest margin, assuming all other factors hold
constant.
Banks, in general, must maintain large cash balances to meet day-to-day
cash flow requirements as well as maintaining required reserves for regulatory
agencies. The cash balances maintained are the primary source of liquidity.
Federal funds sold, which are basically overnight or short-term loans to other
banks that increase the other bank's required reserves, are also a major source
of liquidity.
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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 $2.2 million mature or reprice within the next
twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At March
31, 2001 commercial loans of approximately $32.8 million and other loans
(mortgage and consumer) of approximately $11.9 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 $50.0 million will become due during the next twelve months. The
Bank's deposit base increased approximately $1.8 million during the quarter
ended March 31, 2001. Securities sold under repurchase agreements increased
approximately $2.4 million and Federal funds purchased decreased $1.0 million
during the first three months of 2001. Advances from the Federal Home Loan Bank
were $1,000,000 at March 31, 2001 and December 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.
The Bank is limited by law, regulation and prudence as to the amount of
dividends that it can pay. At March 31, 2001, the Bank can declare during the
remainder of 2001 cash dividends in an aggregate amount not to exceed
approximately $7.4 million, exclusive of any 2001 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.
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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 loss on available-for-sale securities) was 14.6% at March 31, 2001
and 14.5% at December 31, 2000. Total assets increased $4.5 million during the
three months ended March 31, 2001. The annualized rate of return on
stockholders' equity for the three months ended March 31, 2001 was 9.2% compared
to 11.7% for the comparable period in 2000. 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 2001 over 2000 only in the discretion
of the Board of Directors and as profits permit. Dividends paid during 2000 were
$2.90 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, 2001 the Bank has a Tier 1 risk-based ratio
of 26.3%, a total capital to risk-based ratio of 27.5% and a Tier 1 leverage
ratio of 14.8%, and fell within the category of "well capitalized" under the
regulations.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies (such as the Company) which have more than $150 million
in consolidated assets. These guidelines required bank holding companies to
maintain consolidated capital ratios which are essentially the same as the
minimum capital levels required for national banks. The Company's consolidated
capital ratios were substantially the same as those set forth above for the
Bank, and exceeded the minimums required under these Federal Reserve Board
guidelines.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
CAPITAL RESOURCES, CONTINUED
On April 8, 1997, the Company's stockholders approved the First
McMinnville Corporation 1997 Stock Option Plan. The Company has granted the
right to purchase 46,000 shares of stock to its directors, officers and
employees at exercise prices ranging from $58.15 to $74.30 per share. At March
31, 2001, 5,255 shares had been exercised, 4,560 shares were forfeited and
22,000 shares were exercisable. The shares granted are exercisable over a period
of 10 years or until the optionee reaches age 65, whichever is less. The Company
has adopted the provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The impact of the
adoption of SFAS No. 123 has been reflected as a proforma disclosure in the
notes to the annual consolidated financial statements.
RESULTS OF OPERATIONS
Net earnings were $874,000 for the three months ended March 31, 2001 as
compared to $984,000 for the same period in 2000.
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 $160,000 or 3.4% during the three months ended March 31, 2000 as
compared to an increase of $373,000 or 8.5% for the same period in 2000. The
increases in 2001 and 2000 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 97.7% for the quarter ended March 31,
2001 and 98.4% for the quarter ended March 31, 2000.
Interest expense increased by $313,000 for the three months ended March
31, 2001 or 12.9% compared to an increase of $290,000 or 13.5% for the same
period in 2000. The increase in 2001 was the result of increases in interest
bearing liabilities and increases in interest rates due to increases in interest
rates by the Federal Reserve Bank in the latter part of 2000. The increase in
2000 can be attributable primarily to an increase in interest bearing
liabilities.
The foregoing resulted in net interest income of $2,158,000 for the
three months ended March 31, 2001 a decrease of $153,000 or 6.6% compared to the
same period in 2000.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The following schedule details the loans of the Company at March 31,
2001 and December 31, 2000:
(In Thousands)
-----------------------
March 31, December 31,
2001 2000
-------- -------
Commercial, financial & agricultural $ 37,064 37,814
Real estate - construction 2,779 3,134
Real estate - mortgage 91,530 92,172
Consumer 2,903 2,926
-------- -------
$134,276 136,046
======== =======
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 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 $63,044,000, $2,613,000 and
$290,000, respectively at March 31, 2001, 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.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company considers all nonaccrual loans evaluated under the
provisions of SFAS Nos. 114 and 118 to be impaired. Loans are placed on
nonaccrual status when doubt as to timely collection of principal or interest
exists, or when principal or interest is past due 90 days or more unless such
loans are well-secured and in the process of collection. Delays or shortfalls in
loan payments are evaluated with various other factors to determine if a loan is
impaired. Generally, delinquencies under 90 days are considered insignificant
unless certain other factors are present which indicate impairment is probable.
The decision to place a loan on nonaccrual status is also based on an evaluation
of the borrower's financial condition, collateral, liquidation value, and other
factors that, in the judgment of management, affect the borrower's ability to
pay.
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At March
31, 2001, 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, 2001 and December 31, 2000, respectively. Therefore, all interest
income during these periods was recognized on the accrual basis.
Loans not on nonaccrual status are classified as impaired in certain
cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the terms
of which have been modified in a troubled debt restructuring after January 1,
1995. Interest is accrued on such loans that continue to meet the modified terms
of their loan agreements. At March 31, 2001, 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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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
Impaired loans and related allowance for loan loss amounts at March 31,
2001 and December 31, 2000 were as follows:
March 31, December 31,
2001 2000
------ -----
(In Thousands)
Recorded investment $2,040 1,785
Allowance for loan losses 558 535
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, 2001 and 2000 was $2,069,000 and $1,905,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $48,000 and $43,000 for
2001 and 2000, respectively.
The following schedule details selected information as to
non-performing loans of the Company at March 31, 2001 and December 31, 2000:
March 31, 2001 December 31, 2000
----------------------- ---------------------
Past Due Past Due
90 Days Non-Accrual 90 Days Non-Accrual
------- ----------- ------- -----------
(In Thousands) (In Thousands)
Real estate loans $393 -- 490 --
Installment loans 13 -- 4 --
Commercial 52 -- 2 --
---- ---- ---- ----
$458 -- 496 --
==== ==== ==== ====
Renegotiated 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
Transactions in the allowance for loan losses were as follows:
Three Months Ended
March 31,
-------------------
2001 2000
------- ------
(In Thousands)
Balance, January 1, 2001 and 2000, respectively $ 1,711 1,502
Add (deduct):
Losses charged to allowance (21) (24)
Recoveries credited to allowance 27 60
Provision for loan losses 45 45
------- ------
Balance, March 31, 2001 and 2000, respectively $ 1,762 1,583
======= ======
The provision for loan losses was $45,000 for the first three months of
2001 and 2000, 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 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 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.
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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 following table presents total internally graded loans as of March
31, 2001 and December 31, 2000:
March 31, 2001
--------------
(In Thousands) Special
Total Mention Substandard Doubtful
----- ------- ----------- --------
Commercial, financial and
agricultural $4,453 1,081 3,335 37
Real estate mortgage 1,883 -- 1,883 --
Real estate construction -- -- -- --
Consumer 100 -- 100 --
------ ----- ----- ----
$6,436 1,081 5,318 37
====== ===== ===== ====
December 31, 2000
-----------------
(In Thousands) Special
Total Mention Substandard Doubtful
----- ------- ----------- --------
Commercial, financial and
agricultural $2,284 358 1,889 37
Real estate mortgage 1,538 -- 1,538 --
Real estate construction -- -- -- --
Consumer 108 -- 108 --
------ ----- ----- ----
$3,930 358 3,535 37
====== ===== ===== ====
At March 31, 2001, loans which include the above, totaling $6,436,000
were included in the Company's internal classified loan list. Of these loans
$1,883,000 are real estate and $4,553,000 are commercial and other. The
collateral values, based on estimates received by management, securing these
loans total approximately $9,150,000 ($2,789,000 related to real property and
$6,361,000 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.
The increase in the internally graded loans is concentrated in three
loans that were downgraded during the quarter ended March 31, 2001. All of the
loans are performing and management believes there is adequate collateral on
each loan. The loans were downgraded due to anticipated decreases in these
customers' projected cash flows primarily due to a slowing down economy. Two of
the loans are secured by commercial and residential rental property and one loan
is secured by property on which a restaurant is located.
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19
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
$1,883,000 and $1,538,000 at March 31, 2001 and December 31, 2000
consist of thirty six and thirty three 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.
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
March 31, 2001 December 31, 2000
------------------------ ---------------------------
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 $1,416 28% $1,280 28%
Real estate construction 8 2 8 2
Real estate mortgage 245 68 381 68
Consumer 93 2 42 2
------ ------ ------ ---
$1,762 100% $1,711 100%
====== ====== ====== ===
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March 31,
2001 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 decreased $28,000 or 12.3% during the three months
ended March 31, 2001 compared to an increase of $7,000 or 3.2% for the same
period in 2000. The decrease was primarily from decreases in commissions and
fees on fiduciary activities. There was a decrease of approximately $1,700,000
in trust assets during 2000 which was due to the closing of five trust accounts
with no new accounts opened during the year.
There were no securities gains or losses during the three months ended March 31,
2001 and 2000, respectively.
Non-interest expense was $1,029,000 for the first three months of 2001
and 2000, respectively, compared to an increase of $31,000 or 3.1% during the
same period in 2000. In 2001, data processing expenses increased $19,000 as a
result of the installation of a personal computer based network and salaries and
employee benefits increased $10,000. These increases were offset by decreases in
other expenses which in 2000 included $22,000 related to a donation to a local
historical society.
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.
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20
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, 2001 and 2000:
(In Thousands, except share amounts) 2001 2000
-------- -------
Basic EPS Computation:
Numerator - income available to common
shareholders $ 874 984
-------- -------
Denominator - weighted average number of
common shares outstanding 522,493 527,997
-------- -------
Basic earnings per common share $ 1.67 1.86
======== =======
Diluted EPS Computation:
Numerator $ 874 984
-------- -------
Denominator:
Weighted average number of common shares
outstanding 522,493 527,997
Dilutive effect of stock options 4,405 2,883
-------- -------
526,898 530,880
-------- -------
Diluted earnings per common share $ 1.66 1.85
======== =======
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.
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21
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, 2001. Please refer to Item 2 of Part I of this
Report for additional information related to market and other risks.
21
22
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 Price
Date of Sale Common Stock Sold Per Share
------------ ----------------- ---------
March 28, 2001 800 $ 58.15
The aggregate proceeds of the shares sold were $46,520.
There were no underwriters and no underwriting discounts or
commissions. All sales were for cash.
The Company believes that an exemption from registration of these
shares was available to the Company in that the issuance thereof did
not constitute a public offering of securities within the meaning of
the Securities Act of 1933, as amended.
The securities sold are not convertible.
The proceeds of the sales are being used by the Company for general
corporate purposes.
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) No reports on Form 8-K were 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: May 14, 2001 /s/ Charles C. Jacobs
- ------------------ --------------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: May 14, 2001 /s/ Kenny D. Neal
- ------------------ --------------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
23