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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 JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM TO
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Commission File Number 2-90200
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FIRST MCMINNVILLE CORPORATION
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(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
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(Address of Principal Executive Offices and Zip Code)
(931) 473-4402
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(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 522,918 shares at August 9, 2001
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FIRST MCMINNVILLE CORPORATION
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 - June 30, 2001 and December 31, 2000.
Consolidated Statements of Earnings - For the three months and six
months ended June 30, 2001 and 2000.
Consolidated Statements of Comprehensive Earnings - For the three
months and six months ended June 30, 2001 and 2000.
Consolidated Statements of Cash Flows - For the six months ended June
30, 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.
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
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
June 30, December 31,
2001 2000
--------- ------------
(In Thousands)
Assets
Loans $135,160 136,046
Less: Allowance for loan losses (1,822) (1,711)
-------- --------
Net loans 133,338 134,335
Securities:
Held to maturity, at cost (market value $64,855,000 and
$39,475,000, respectively) 63,836 39,410
Available-for-sale, at market (amortized cost $59,877,000
and $85,666,000, respectively) 59,756 83,710
Federal funds sold 4,000 --
Interest bearing deposits in financial institutions 41 63
Other earning assets 1,119 1,082
-------- --------
Total earning assets 262,090 258,600
Cash and due from banks 6,040 4,364
Bank premises and equipment, net of accumulated depreciation 2,126 2,228
Accrued interest receivable 2,410 2,480
Deferred tax asset 235 932
Other real estate 62 70
Other assets 455 486
-------- --------
Total Assets $273,418 269,160
======== ========
Liabilities and Stockholders' Equity
Deposits $214,080 210,852
Securities sold under repurchase agreements 15,610 13,981
Federal funds purchased -- 2,000
Advances from Federal Home Loan Bank 1,000 1,000
Accrued interest and other liabilities 2,330 3,620
-------- --------
Total liabilities 233,020 231,453
-------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 610,155 shares and 609,225 shares, respectively 1,525 1,523
Additional paid-in capital 1,810 1,760
Retained earnings 40,658 39,121
Net unrealized losses on available-for-sale securities, net of income
tax benefits of $46,000 and $743,000, respectively (75) (1,213)
-------- --------
43,918 41,191
Less cost of treasury stock of 87,237 shares and 86,767 shares,
respectively (3,520) (3,484)
-------- --------
Total stockholders' equity 40,398 37,707
-------- --------
Total liabilities and stockholders' equity $273,418 269,160
======== ========
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
------ ----- ------ -----
(Dollars In Thousands, Except Per Share Amounts)
Interest income:
Interest and fees on loans $2,825 2,773 $5,653 5,536
Interest and dividends on securities:
Taxable securities 1,629 1,627 3,311 3,248
Tax exempt from Federal income taxes 405 347 763 704
Interest on federal funds sold 16 -- 49 --
Interest on interest-bearing deposits in other banks and
other interest -- -- 1 1
------ ----- ------ -----
Total interest income 4,875 4,747 9,777 9,489
------ ----- ------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 180 194 365 376
Interest on money market demand and savings accounts 259 274 534 552
Interest on certificates of deposit 1,992 1,750 4,072 3,370
Interest on securities sold under repurchase agreements
and short term borrowings 160 127 323 270
Interest on Federal funds purchased 16 94 43 237
Interest on advances from Federal Home Loan Bank 14 41 28 106
------ ----- ------ -----
Total interest expense 2,621 2,480 5,365 4,911
------ ----- ------ -----
Net interest income 2,254 2,267 4,412 4,578
Provision for loan losses 45 45 90 90
------ ----- ------ -----
Net interest income after provision for loan
losses 2,209 2,222 4,322 4,488
------ ----- ------ -----
Other income:
Service charges on deposit accounts 125 122 247 240
Other fees and commissions 73 73 129 133
Commissions and fees on fiduciary activities 9 5 24 48
Other income 7 7 14 14
------ ----- ------ -----
214 207 414 435
------ ----- ------ -----
Other expenses:
Salaries and employee benefits 616 613 1,301 1,288
Occupancy expenses, net 49 48 98 100
Furniture and equipment expense 16 19 33 36
Data processing expense 47 31 100 65
FDIC insurance 10 10 20 20
Other operating expenses 259 222 474 463
------ ----- ------ -----
997 943 2,026 1,972
------ ----- ------ -----
Earnings before income taxes 1,426 1,486 2,710 2,951
Income taxes 397 455 807 936
------ ----- ------ -----
Net earnings $1,029 1,031 $1,903 2,015
====== ===== ====== =====
Basic earnings per common share $ 1.97 1.96 $ 3.64 3.83
====== ===== ====== =====
Diluted earnings per common share $ 1.95 1.95 $ 3.61 3.81
====== ===== ====== =====
Dividends per share $ .70 .65 $ .70 .65
====== ===== ====== =====
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2001 2000 2001 2000
------- ------ ------ ------
(In Thousands)
Net earnings $ 1,029 1,031 $1,903 2,015
------- ------ ------ ------
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during period, net of income
taxes of $37,000, $220,000, $697,000 and
$92,000, respectively (60) (359) 1,138 (152)
------- ------ ------ ------
Other comprehensive earnings (loss) (60) (359) 1,138 (152)
------- ------ ------ ------
Comprehensive earnings $ 969 672 $3,041 1,863
======= ====== ====== ======
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2001 2000
-------- ------
(In Thousands)
Cash flows from operating activities:
Interest received $ 9,810 9,495
Fees and commissions received 414 435
Interest paid (5,634) (4,887)
Cash paid to suppliers and employees (1,796) (1,822)
Income taxes paid (749) (986)
-------- ------
Net cash provided by operating activities 2,045 2,235
-------- ------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 24,417 2,114
Proceeds from maturities of available-for-sale securities 40,678 203
Purchase of held-to-maturity securities (48,843) (936)
Purchase of available-for-sale securities (14,889) (505)
Loan repayments, net of advances to customers 915 267
Purchase of premise and equipment -- (37)
Decrease in interest bearing deposits at financial institutions 22 --
Proceeds from sale of other real estate -- 74
-------- ------
Net cash provided by investing activities 2,300 1,180
-------- ------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 472 432
Net increase in time deposits 2,756 8,588
Increase (decrease) in securities sold under repurchase agreement 1,629 (3,177)
Decrease in Federal funds purchased (2,000) (1,900)
Decrease in advances from Federal Home Loan Bank -- (5,200)
Dividends paid (1,542) (1,512)
Payments to acquire treasury stock (36) (631)
Proceeds from sales of common stock 52 1
-------- ------
Net cash (used in) provided by financing activities 1,331 (3,399)
-------- ------
Net increase in cash and cash equivalents 5,676 16
Cash and cash equivalents at beginning of period 4,364 4,665
-------- ------
Cash and cash equivalents at end of period $ 10,040 4,681
======== ======
See accompanying notes to consolidated financial statements (unaudited).
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FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2001 2000
------- ------
(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 1,903 2,015
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 99 57
Provision for loan losses 90 90
Loss on disposal of premises and equipment 3 --
FHLB dividend reinvestment (37) (29)
Decrease in other assets, net 31 65
Increase (decrease) in other liabilities 155 (22)
Decrease in interest receivable 70 35
Increase (decrease) in interest payable (269) 24
------- ------
Total adjustments 142 220
------- ------
Net cash provided by operating activities $ 2,045 2,235
======= ======
Supplemental schedule of non-cash activities:
Unrealized gain (loss) in value of securities available-for-sale,
net of income tax benefit of $697,000 in 2001 and income tax
benefit of $92,000 in 2000 $ 1,138 (152)
======= ======
Non-cash transfers from loans to other real estate $ 62 --
======= ======
Non-cash transfers from other real estate to loans $ 70 --
======= ======
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 June 30, 2001 and December 31, 2000, and the results of operations for
the three months and six months ended June 30, 2001 and 2000, comprehensive
earnings for the three months and six months ended June 30, 2001 and 2000 and
changes in cash flows for the six months ended June 30, 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 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, 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
condition and results of operations of the Company 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 stability 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 involve 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
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,
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 management's strategies, among
other factors.
Based on the results of the analysis as of June 30, 2001, the Company
would expect net interest income to decrease approximately $750,000 over a
twelve month period if rates increased 2%. Net interest income would be
expected to increase approximately $750,000 over a 12 month period should rates
decrease 2%. The rate sensitivity as of June 30, 2001 was 1.11 to 1.00 (0-91
days) and .68 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.
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 $1.8 million mature or reprice within the
next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At June
30, 2001 commercial, consumer and other loans of approximately $27.9 million
and mortgage loans of approximately $10.9 million either will become due or
will be subject to rate adjustments within twelve months. Emphasis is placed on
structuring adjustable rate 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
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $48.7 million will become due during the next twelve months. The
Bank's deposit base increased approximately $3.2 million during the six months
ended June 30, 2001. Securities sold under repurchase agreements increased
approximately $1.6 million during the six months ended June 30, 2001. The
deposit base increased approximately $1.4 million during the second quarter of
2001. Securities sold under repurchase agreements decreased approximately
$728,000 during the second three months of 2001. Federal funds sold were $4.0
million at June 30, 2001 and Federal funds purchased were $2.0 million at
December 31, 2000. Advances from the Federal Home Loan Bank were $1,000,000 at
June 30, 2001 and at December 31, 2000. These advances are scheduled to mature
during the next twelve months.
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 subsidiary Bank is limited by law, regulation and prudence as to
the amount of dividends that it can pay. At June 30, 2001, the Bank can declare
during the remainder of 2001 cash dividends in an aggregate amount not to
exceed approximately $7.0 million, exclusive of any 2001 net earnings, without
prior approval of the Comptroller of the Currency. However, most of these funds
will be retained for use in the Company'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 reasonably
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 14.8% at June
30, 2001 and 14.0% at December 31, 2000. Total assets increased approximately
$4.3 million during the six months ended June 30, 2001. The annualized rate of
return on stockholders' equity for the first six months of 2001 was 9.5%
compared to 12.0% for the comparable period in 2000. Average stockholders
equity increased during the six months ended June 30, 2001 partially as a
result of decrease of approximately $1.8 million in the net unrealized loss in
securities available-for-sale. This decrease together with a decrease in
earnings of $112,000 resulted in the lower ratio for 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.
Dividends of $366,000 and $341,000 or $.70 and $.65 per share were declared in
the six months ended June 30, 2001 and 2000, respectively. Cash dividends will
be increased in 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.
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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 Bank has decreased interest rates during the past
nine months resulting in lower interest rates on new issue debt securities. The
Company's securities portfolio consists primarily of debt securities with an
average yield greater than the current market rate. These factors contributed to
the decrease in the unrealized loss on securities available-for-sale of
$1,138,000 (net of income taxes of $697,000) during the six months ended June
30, 2001. The total unrealized loss on securities available for sale at June 30,
2001 is $75,000 which is net of income tax benefit of $46,000.
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 total risk based capital which includes the allowance for loan
losses up to 1.25% of risk weighted assets, perpetual preferred stock,
subordinated debt and various other hybrid capital instruments, subject to
various limits. Goodwill is not includable in Tier 1 or total 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. The Bank has
a Tier 1 risk-based ratio of 26.5%, a total capital to risk-based ratio of
27.7% and a leverage ratio of 14.7%, and thus falls within the "well
capitalized" category 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 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.
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. At June 30, 2001,
5,355 shares had been issued through exercise and 21,900 options remained
exercisable, a total of 4,560 options have forfeited. Forfeited shares are
eligible for re-granting under this plan. The shares granted to Directors
totaling 16,500 are exercisable over a three year period. Shares granted to
officers and employees are exercisable over a period of 10 years or until the
optionee reaches age 65, whichever is less. The Company has adopted the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). The impact of the adoption of SFAS
No. 123 has been reflected as a proforma disclosure in the notes to the annual
consolidated financial statements.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS
Net earnings were $1,903,000 for the six months ended June 30, 2001 as
compared to $2,015,000 for the same period in 2000. Net earnings were
$1,029,000 for the quarter ended June 30, 2001 as compared to $1,031,000 during
the same quarter 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 $288,000 or 3.0% and $686,000 or 7.8.% during the six months ended
June 30, 2001 and 2000, respectively. Interest income for the quarter ended
June 30, 2001 increased $128,000 or 2.7% over the quarter ended June 30, 2000,
and decreased $27,000 or 0.6% from the first quarter of 2001. The increases
were primarily attributable to an increase in average earning assets. The ratio
of average earning assets to total average assets was 97.0% for the six months
ended June 30, 2001 and 98.4% for the same period in 2000.
Interest expense increased by $454,000 for the six months ended June
30, 2001 or 9.2% compared to the same period in 2000. Interest expense for the
quarter ended June 30, 2001 increased $141,000 or 5.7% as compared to the
quarter ended June 30, 2000. Interest expense for the quarter ended June 30,
2001 decreased $123,000 or 4.5% compared to the first quarter of 2001. The
increase in interest expense for the six months ended June 30, 2001 as compared
to the same period in 2000 can be attributable to an increase in average
interest bearing liabilities. The decrease in interest expense for the quarter
ended June 30, 2001 as compared to the first quarter of 2000 is primarily the
result of lower interest rates.
The foregoing resulted in net interest income of $4,412,000 for the
six months ended June 30, 2001, a decrease of $166,000 or 3.6% compared to the
prior year period. Net interest income for the quarter ended June 30, 2001
decreased $13,000 or 0.6% over the second quarter of 2000 while there was an
increase of $96,000 or 4.4% over the first quarter in 2001.
The following schedule details the loans of the Company at June 30,
2001 and December 31, 2000:
June 30, December 31,
2001 2000
-------- ------------
(In Thousands)
Commercial, financial and agricultural $ 34,745 37,814
Real estate - construction 4,712 3,134
Real estate - mortgage 93,149 92,172
Consumer 2,554 2,926
-------- -------
$135,160 136,046
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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 provision for loan losses was $90,000 for the first six 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
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 monitor problems on a timely basis.
The Company accounts for impaired loans under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures". These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment including credit card, residential mortgage, and consumer
installment loans.
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 and consumer
loans which total approximately $61,863,000 and $2,554,000, respectively at
June 30, 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.
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 any required payment of 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, in the judgment of management, affect the
borrower's ability to pay.
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FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Generally, 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 June
30, 2001, the Company had no loans on nonaccrual status and there were no
nonaccrual loans outstanding at any time during the six months ended June 30,
2001 and year ended 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 June 30, 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.
Impaired loans and related allowance for loan loss amounts at June 30,
2001 and December 31, 2000 were as follows:
June 30, 2001 December 31, 2000
------------- -----------------
Recorded Recorded
(In Thousands) Investment Investment
------------- -----------------
Recorded investment $1,933 $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.
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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 average recorded investment in impaired loans for the six months
ended June 30, 2001 and 2000 was $2,020,000 and $2,764,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $90,000 and $129,000 for
2001 and 2000, respectively.
The following schedule details selected information as to
non-performing loans of the Company at June 30, 2001 and December 31, 2000:
June 30, 2001 December 31, 2000
------------------------ -----------------------
Past Due Past Due
90 Days Non-Accrual 90 Days Non-Accrual
-------- ----------- -------- -----------
In Thousands In Thousands
Real estate loans $324 -- 490 --
Installment loans 24 -- 4 --
Commercial 52 -- 2 --
---- -- --- --
$400 -- 496 --
==== == === ==
Renegotiated loans $ -- -- -- --
==== == === ==
Transactions in the allowance for loan losses were as follows:
Six Months Ended
June 30,
--------------------------
2001 2000
------- ------
(In Thousands)
Balance, January 1, 2001 and 2000, respectively $ 1,711 1,502
Add (deduct):
Losses charged to allowance (25) (29)
Recoveries credited to allowance 46 79
Provision for loan losses 90 90
------- ------
Balance, June 30, 2001 and 2000, respectively $ 1,822 1,642
======= ======
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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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 June
31, 2001 and December 31, 2000:
June 30, 2001
--------------
(In Thousands) Special
Total Mention Substandard Doubtful
-------------- ------- ----------- --------
Commercial, financial and
agricultural $6,489 3,357 3,096 36
Real estate mortgage 1,895 86 1,809 --
Real estate construction -- -- -- --
Consumer 95 -- 95 --
------ ----- ----- --
$8,479 3,443 5,000 36
====== ===== ===== ==
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
====== ===== ===== ==
The increase in the internally graded loans is concentrated in three
loans that were downgraded during the six months ended June 30, 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.
The collateral values, based on estimates received by management,
securing the above internally graded loans total approximately $10,500,000,
($2,819,000 related to real property and $7,681,000 related to commercial and
other loans). 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 agreed repayment terms.
The loan classifications do not represent or result from trends or
uncertainties which management expects will materially and adversely affect
future operating results, liquidity or capital resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at June 30,
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.
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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
Non-interest income was $414,000 for the six months ended June 30,
2001 as compared to $435,000 in 2000. Non-interest income increased $7,000 or
3.4% for the quarter ended June 30, 2001 as compared to the comparable quarter
in 2000. A decrease in commissions and fees of fiduciary activities totaling
$24,000 for the six months ended June 30, 2001 was the most significant amount
of the decrease in non-interest income. This resulted primarily from the
closing of one large trust account during the latter part of 2000. Commissions
and service charges are monitored continually to insure maximum return based on
costs and competition.
There were no securities gains or losses during the six month periods
ended June 30, 2001 and 2000.
Non-interest expense increased $54,000 or 2.7% during the first six
months of 2001 as compared to the same period in 2000. This increase was due
primarily to the installation during the third quarter of 2000 of new computer
equipment and software.
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.
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three and six months ended June 30, 2001 and
2000:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
(In Thousands, except share amounts) 2001 2000 2001 2000
-------- ------- ------- -------
Basic EPS Computation:
Numerator - income available to common
shareholders $ 1,029 1,031 1,903 2,015
-------- ------- ------- -------
Denominator - weighted average number
of common shares outstanding 523,086 524,738 522,792 526,368
-------- ------- ------- -------
Basic earnings per common share $ 1.97 1.96 3.64 3.83
======== ======= ======= =======
Diluted EPS Computation:
Numerator $ 1,029 1,031 1,903 2,015
-------- ------- ------- -------
Denominator:
Weighted average number of common
shares outstanding 523,086 524,738 522,792 526,368
Dilutive effect of stock options 4,576 3,051 4,576 3,051
-------- ------- ------- -------
527,662 527,789 527,368 529,419
-------- ------- ------- -------
Diluted earnings per common share $ 1.95 1.95 3.61 3.81
======== ======= ======= =======
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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
IMPACT OF INFLATION
The primary impact which inflation has on the results of the Company's
operations is evidenced by its effects on interest rates. Interest rates tend
to reflect, in part, the financial market's expectations of the level of
inflation and, therefore, will generally rise or fall as the level of expected
inflation fluctuates. To the extent interest rates paid on deposits and other
sources of funds rise or fall at a faster rate than the interest income earned
on funds, loans or invested, net interest income will vary. Inflation also
affects non-interest expenses as goods and services are purchased, although
this has not had a significant effect on net earnings in recent years. If the
inflation rate stays flat or increases slightly, the effect on profits is not
expected to be significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on a large portion of the Company's assets
and liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Such as Federal funds sold or purchased and loans, securities and
deposits as discussed in Item 2. Based upon the nature of the Company's
operations, the Company is not subject to foreign currency exchange or
commodity price risk.
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 six months ended June 30, 2001. Please refer to Item 2 of Part 1 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
Shares of the Company's common stock were issued to Directors and/or
Employees pursuant to the Company's Stock Option Plan as follows:
Date of Sale Number of Shares of Common Stock Sold Price Per Share
------------ ------------------------------------- ---------------
May 30, 2001 100 $ 58.15
The aggregate proceeds of the shares sold were $5,815.
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
(a) The annual meeting of stockholders was held April 10, 2001.
(b) Election of the following members of the board of directors:
J. Gregory Brock, Arthur J. Dyer, Rufus W. Gonder,
G.B. Greene and Robert W. Jones
(c) (1) Each of the above directors were elected by the following
tabulation:
Number
of Shares Broker
Voting For Against Withheld Non-Votes
--------- --- ------- -------- ---------
J. Gregory Brock 329,184 305,207 -- 23,977 0
Arthur J. Dyer 329,184 305,207 -- 23,977 0
Rufus W. Gonder 329,184 299,258 -- 29,926 0
G.B. Greene 329,184 305,207 -- 23,977 0
Robert W. Jones 329,184 313,816 -- 15,368 0
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PART II. OTHER INFORMATION, CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
(c) (1) Continued
The following directors terms of office were continued after the
meeting:
Paul O. Barnes, Dean I. Gillespie, C. Levoy Knowles, Charles C.
Jacobs Douglas Milner, John J. Savage, Jr., Carl M. Stanley
(2) The ratification of the selection of Maggart & Associates, P.C. as
independent auditors for the Company for the year ending December
31, 2001 was as follows:
Number of Broker
Shares Voting For Against Withheld Non-Votes
------------- --- ------- -------- ---------
329,184 304,743 23,793 648 0
(d) Not Applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) 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: August 9, 2001 /s/ Charles C. Jacobs
--------------------------- --------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: August 9, 2001 /s/ Kenny D. Neal
--------------------------- --------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
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