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, 2003
[ ] 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: 1,043,484 shares at May 12, 2003
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
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1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the registrant and its
wholly-owned subsidiary, First National Bank of McMinnville (Bank) and the
Bank's wholly-owned subsidiary, First Community Title & Escrow Company, are as
follows:
Consolidated Balance Sheets - March 31, 2003 and December 31, 2002.
Consolidated Statements of Earnings - For the three months ended March 31,
2003 and 2002.
Consolidated Statements of Comprehensive Earnings - For the three months
ended March 31, 2003 and 2002.
Consolidated Statements of Cash Flows - For the three months ended March
31, 2003 and 2002.
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.
Item 4. Controls and Procedures
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
Signatures
2
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
March 31, December 31,
2003 2002
--------- ------------
(In Thousands)
Assets
Loans $151,060 149,581
Less: Allowance for loan losses (1,936) (1,908)
-------- -------
Net loans 149,124 147,673
Securities:
Held to maturity, at cost (market value - $48,859,000 and
$52,968,000, respectively) 46,816 50,956
Available-for-sale, at market (amortized cost - $70,878,000
and $73,215,000, respectively) 71,957 74,442
Federal funds sold 22,500 17,000
Interest bearing deposits in financial institutions 140 108
-------- -------
Total earning assets 290,537 290,179
Cash and due from banks 12,094 10,285
Bank premises and equipment, net of accumulated depreciation 2,226 1,981
Accrued interest receivable 1,928 1,856
Other real estate 80 -
Other assets 412 459
-------- -------
Total assets $307,277 304,760
======== =======
Liabilities and Stockholders' Equity
Deposits $230,481 229,264
Securities sold under repurchase agreements 27,158 25,994
Advances from Federal Home Loan Bank 1,000 1,000
Deferred tax liability, net 263 319
Accrued interest and other liabilities 1,772 2,785
-------- -------
Total liabilities 260,674 259,362
======== =======
Stockholders' equity:
Common stock, no par value and $2.50 par value, respectively; authorized
5,000,000 shares, issued 1,229,440 and 613,575
shares, respectively (reflects 2 for 1 stock split) 3,601 1,534
Additional paid-in capital - 2,001
Retained earnings 46,312 45,082
Net unrealized gains on available-for-sale securities, net of
income taxes of $413,000 and $470,000, respectively 666 757
-------- -------
50,579 49,374
Less cost of treasury stock of 185,658 shares and 92,826 shares,
respectively (3,976) (3,976)
-------- -------
Total stockholders' equity 46,603 45,398
-------- -------
Total liabilities and stockholders' equity $307,277 304,760
======== =======
See accompanying notes to consolidated financial statements (unaudited)
3
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------ -----
(Dollars In Thousands
Except Per Share Amount)
Interest income:
Interest and fees on loans $2,637 2,675
Interest and dividends on securities:
Taxable securities 909 1,313
Exempt from Federal income taxes 399 453
Interest on federal funds sold 59 10
------ -----
Total interest income 4,004 4,451
------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 76 112
Interest on money market demand and savings accounts 126 193
Interest on certificates of deposit 986 1,237
Interest on securities sold under repurchase agreements and
short term borrowings 88 109
Interest on Federal funds purchased - 10
Interest on advances from Federal Home Loan Bank 14 14
------ -----
Total interest expense 1,290 1,675
------ -----
Net interest income before provision for possible loan losses 2,714 2,776
Provision for possible loan losses 44 44
------ -----
Net interest income after provision for possible loan losses 2,670 2,732
------ -----
Non-interest income:
Service charges on deposit accounts 110 111
Other fees and commissions 77 90
Commissions and fees on fiduciary activities 6 13
Securities gains - 3
Gain on sale of fixed assets 30 -
Other income 8 11
------ -----
231 228
------ -----
Non-interest expense:
Salaries and employee benefits 722 681
Occupancy expenses, net 53 51
Furniture and equipment expense 16 13
Data processing expense 53 63
FDIC insurance 9 10
Other operating expenses 245 234
------ -----
1,098 1,052
------ -----
Earnings before income taxes 1,803 1,908
Income taxes 573 528
------ -----
Net earnings $1,230 1,380
====== =====
Basic earnings per common share $ 1.18 1.32
====== =====
Diluted earnings per common share $ 1.17 1.31
====== =====
Dividends per share $ - -
====== =====
See accompanying notes to consolidated financial statements (unaudited)
4
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------ -----
(In Thousands)
Net earnings $1,230 1,380
------ -----
Other comprehensive earnings, net of tax:
Unrealized losses on available-for-sale securities arising
during period, net of income taxes of $57,000 and
$400,000, respectively (91) (653)
Reclassification adjustment for gains included in net
earnings, net of taxes of $1,000 in 2002 - (2)
------ -----
Other comprehensive earnings loss (91) (655)
------ -----
Comprehensive earnings $1,139 725
====== =====
See accompanying notes to consolidated financial statements (unaudited)
5
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2003 2002
-------- ------
(In Thousands)
Cash flows from operating activities:
Interest received $ 3,919 4,413
Fees and commissions received 201 225
Interest paid (1,345) (1,928)
Cash paid to suppliers and employees (870) (1,023)
Income taxes paid (384) (129)
-------- ------
Net cash provided by operating activities 1,521 1,558
-------- ------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 8,063 4,195
Proceeds from maturities of available-for-sale securities 30,432 4,950
Proceeds from sales of available-for-sale securities - 288
Purchase of held-to-maturity securities (3,923) (358)
Purchase of available-for-sale securities (28,082) (100)
Loans to customers, net of repayments (1,575) (677)
Decrease (increase) in interest bearing deposits in financial
institutions (32) 74
Purchases of equipment (296) -
Proceeds from sale of equipment 30 -
-------- ------
Net cash provided by investing activities 4,617 8,372
-------- ------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 556 1,166
Net increase in time deposits 661 4,138
Increase (decrease) in securities sold under repurchase agreement 1,164 (697)
Decrease in Federal funds purchased - (5,000)
Dividends paid (1,276) (1,198)
Proceeds from issuance of common stock 66 -
Payments to acquire treasury stock - (7)
-------- ------
Net cash (used in) provided by financing activities 1,171 (1,598)
-------- ------
Net increase in cash and cash equivalents 7,309 8,332
Cash and cash equivalents at beginning of period 27,285 7,046
-------- ------
Cash and cash equivalents at end of period $ 34,594 15,378
======== ======
See accompanying notes to consolidated financial statements (unaudited)
6
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2003 2002
-------- --------
(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 1,230 1,380
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 51 49
Provision for loan losses 44 44
FHLB dividend reinvestment (13) (4)
Securities gains - (3)
Gain on sale of equipment (30) -
Decrease (increase) in other assets, net 48 (37)
Increase in other liabilities 318 416
Increase in interest receivable (72) (34)
Decrease in interest payable (55) (253)
-------- --------
Total adjustments 291 178
-------- --------
Net cash provided by operating activities $ 1,521 1,558
======== ========
Supplemental schedule of non-cash activities:
Unrealized loss in value of securities available-for-sale,
net of income taxes of $57,000 and income taxes of
$400,000, respectively $(91,000) (655,000)
======== ========
Loans transferred to other real estate $ 80 54
======== ========
See accompanying notes to consolidated financial statements (unaudited)
7
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
McMinnville Corporation (Company or Registrant) and its wholly-owned subsidiary,
First National Bank of McMinnville (Bank) and the Bank's wholly-owned
subsidiary, First Community Title & Escrow Company.
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of March 31, 2003 and December 31, 2002, the results of operations for the
three months ended March 31, 2003 and 2002, comprehensive earnings for the three
months ended March 31, 2003 and 2002 and changes in cash flows for the three
months ended March 31, 2003 and 2002. 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, 2002. The results for interim periods are not necessarily
indicative of results to be expected for the complete fiscal year.
STOCK SPLIT AND ELIMINATION OF PAR VALUE
In December of 2002, the Company's Board of Directors declared a two-for-one
stock split. As a result, shareholders as of the record date received one
additional share for each share that they already owned. Accordingly, the number
of outstanding shares doubled from 520,794 to 1,041,588. In addition, the Board
authorized a charter amendment to eliminate "par value," which was deemed an
unnecessary accounting convention. All per share amounts in this Report have
been restated to reflect the stock split.
8
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, 2002 for a more complete discussion of
factors that affect 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.
9
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 volumes and pricing and deposit
volume 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, 2003, the Company
would expect net interest income to decrease approximately $172,000 over a
twelve month period if rates increased 2%. Net interest income would be expected
to increase approximately $172,000 over a 12 month period should rates decrease
2%. The rate sensitivity as of March 31, 2003 was 1.18 to 1.00 (0-91 days) and
1.05 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.
10
FIRST MCMINNVILLE CORPORATION
FORM 10-Q CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, 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 $3.0 million mature or reprice within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At March 31,
2003 commercial loans of approximately $38.3 million and other loans (mortgage
and consumer) of approximately $11.6 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 $35.0 million will become due during the next twelve months. The
Bank's deposit base increased approximately $1.2 million during the quarter
ended March 31, 2003. Securities sold under repurchase agreements increased
approximately $1.2 million. Federal funds sold were $22.5 million at March 31,
2003 and $17.0 million at December 31, 2002. The increase in Federal funds sold
was funded primarily by the $1.2 million increase in deposits and a $6.6 million
decrease in securities. The decrease in securities resulted primarily from calls
and maturities. Advances from the Federal Home Loan Bank were $1,000,000 at
March 31, 2003 and December 31, 2002.
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, 2003, the Bank can declare during the
remainder of 2003 cash dividends in an aggregate amount not to exceed
approximately $8.2 million, exclusive of any 2003 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.
11
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 14.95% at March 31, 2003 and 14.65% at
December 31, 2002. Total assets increased $2,517,000 during the three months
ended March 31, 2003. The annualized rate of return on stockholders' equity for
the three months ended March 31, 2003 was 11.0% compared to 13.5% for the
comparable period in 2002. Cash dividends will be increased during the remainder
of 2003 over 2002 only in the discretion of the Board of Directors and as
profits permit. No dividends have been declared in 2003 and dividends declared
during 2002 were $3.20 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, 2003 the Bank has a Tier 1 risk-based ratio
of 26.76%, a total capital to risk-based ratio of 27.19% and a Tier 1 leverage
ratio of 14.96%, 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.
12
FIRST MCMINNVILLE CORPORATION
FORM 10-Q CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
CAPITAL RESOURCES, CONTINUED
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 92,000 (46,000 before 2 for 1 stock split) shares of stock to its
directors, officers and employees at exercise prices ranging from $29.08 to
$37.15 ($58.15 to $74.30 before stock split) per share. At March 31, 2003,
19,840 options had been exercised, 10,180 options were forfeited and 43,380
options were exercisable. The options 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 $1,230,000 for the three months ended March 31, 2003 as
compared to $1,380,000 for the same period in 2002.
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,
decreased by $477,000 or 10.0% during the three months ended March 31, 2003 as
compared to a decrease of $451,000 or 9.2% for the same period in 2002. The
decreases in 2003 and 2002 were due to decreases in interest rates which
resulted from significant decreases in rates by the Federal Reserve Bank during
2002. The ratio of average earning assets to total average assets was 95.0% for
the quarter ended March 31, 2003 and 95.9% for the quarter ended March 31, 2002.
The decrease in this ratio was due primarily to an increase in the average
balance of cash and due from banks ($8.4 million in 2003 compared to $5.2
million in 2002). Average securities were $119.1 million in 2003 and $127.1
million in 2002. Securities were called in 2002 and 2003 quicker than the
proceeds could be reinvested in earning assets.
Interest expense decreased $385,000 for the three months ended March 31,
2003 or 23.0% compared to a decrease of $1,069,000 or 39.0% for the same period
in 2002. The decreases were the result of decreases in interest rates as
previously discussed.
The foregoing resulted in net interest income of $2,714,000 for the three
months ended March 31, 2003 a decrease of $62,000 or 2.2% compared to the same
period in 2002.
13
FIRST MCMINNVILLE CORPORATION
FORM 10-Q CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The following schedule details the loans of the Company at March 31, 2003
and December 31, 2002:
(In Thousands)
--------------------------------
March 31, December 31,
2003 2002
-------- ------------
Commercial, financial & agricultural $ 49,675 44,451
Real estate - construction 5,009 5,674
Real estate - mortgage 93,915 96,960
Consumer 2,461 2,496
-------- -------
$151,060 149,581
======== =======
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 $63,569,000 and $2,461,000, respectively at March 31,
2003, 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.
14
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
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, 2003, 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, 2003 and December 31, 2002, 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, 2003, 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.
15
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Impaired loans and related allowance for loan loss amounts at March 31,
2003 and December 31, 2002 were as follows:
March 31, December 31,
2003 2002
--------- ------------
(In Thousands)
Recorded investment $1,723 1,740
Allowance for loan losses 530 533
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, 2003 and 2002 was $1,729,000 and $1,823,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $36,000 and $38,000 for
the three months ended March 31, 2003 and 2002, respectively.
The following schedule details selected information as to non-performing
loans of the Company at March 31, 2003 and December 31, 2002:
March 31, 2003 December 31, 2002
------------------------- -------------------------
Past Due Past Due
90 Days Non-Accrual 90 Days Non-Accrual
-------- ----------- -------- -----------
(In Thousands) (In Thousands)
Real estate loans $124 - 57 -
Installment loans 1 - 12 -
Commercial - - - -
---- ---- -- ----
$125 - 69 -
==== ==== == ====
Renegotiated loans - - - -
==== ==== == ====
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
Transactions in the allowance for loan losses were as follows:
Three Months Ended
March 31,
-------------------
2003 2002
------ -----
(In Thousands)
Balance, January 1, 2003 and 2002, respectively $1,908 1,804
Add (deduct):
Losses charged to allowance (24) (17)
Recoveries credited to allowance 8 3
Provision for loan losses 44 44
------ -----
Balance, March 31, 2002 and 2001, respectively $1,936 1,834
====== =====
The provision for loan losses was $44,000 for the first three months of
2003 and 2002. 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 potential problem loans 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 subject to approval by the Board of Directors.
17
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The following table presents total internally graded loans as of March 31,
2003 and December 31, 2002:
MARCH 31, 2003
------------------------------------------------
Special
Total Mention Substandard Doubtful
------- ------- ----------- --------
(IN THOUSANDS)
Commercial, financial and
agricultural $ 8,223 6,450 1,741 32
Real estate mortgage 1,864 11 1,853 -
Real estate construction - - - -
Consumer 182 - 181 1
------- ----- ----- --
$10,269 6,461 3,775 33
======= ===== ===== ==
DECEMBER 31, 2002
-------------------------------------------------
Special
Total Mention Substandard Doubtful
------- ------- ----------- --------
(IN THOUSANDS)
Commercial, financial and
agricultural $ 7,930 6,141 1,756 33
Real estate mortgage 2,063 481 1,582 -
Real estate construction - - - -
Consumer 150 8 142 -
------- ----- ----- --
$10,143 6,630 3,480 33
======= ===== ===== ==
The collateral values, based on estimates received by management, securing
the internally classified loans total approximately $20,015,000 ($2,538,000
related to real property and $17,477,000 related to commercial and other). Such
loans are listed as classified when information obtained about possible credit
problems related to the borrower has prompted management to question the ability
of the borrower to comply with the repayment terms of the loan agreement. The
loan classifications do not represent or result from trends or uncertainties
which management expects will materially and adversely affect impact future
operating results, liquidity or capital resources.
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
Residential real estate loans that are graded substandard totaling
$1,853,000 and $1,582,000 at March 31, 2003 and December 31, 2002 consist of
thirty five and thirty four 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, 2003 December 31, 2002
---------------------------- ---------------------------
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 $1,454 33% $1,426 30%
Real estate construction 13 3 14 4
Real estate mortgage 416 62 419 65
Consumer 53 2 49 1
------ ------ ------ ---
$1,936 100% $1,908 100%
====== ====== ====== ===
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March 31,
2003 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
Non-interest income, excluding securities gains and a gain on sale of fixed
assets of $30,000 in 2003, decreased $24,000 or 10.7% during the three months
ended March 31, 2003 compared to an increase of $25,000 or 12.5% for the same
period in 2002. The decrease in 2003 was in appraisal fees ($4,000), credit life
fees ($12,000) and miscellaneous fees ($8,000). Non-interest income increased
$25,000 or 12.5% during the three months ended March 31, 2002 with increases in
appraisal fees ($8,000), credit life fees ($10,000), title fees ($10,000) and
miscellaneous fees ($6,000). Slower loan demand in 2003 was the primary reason
for these decreases. Service charges on deposit accounts decreased $11,000
during the quarter ended March 31, 2002.
There were no securities gains for the quarter ended March 31, 2003.
Securities gains totaled $3,000 for the quarter ended March 31, 2002.
Non-interest expense was $1,098,000 and $1,052,000 for the first three
months of 2003 and 2002, respectively, an increase of 4.4%. Insignificant
increases in several non-interest expense classifications comprise the increase.
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
The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share for the Company begins with the basic earnings per
share plus the effect of common shares contingently issuable from stock options.
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three months ended March 31, 2003 and 2002:
2003 2002
----------- ---------
(In Thousands, except share amounts)
Basic EPS Computation:
Numerator - income available to common shareholders $ 1,230 1,380
Denominator - weighted average number of common shares
outstanding 1,041,704 1,041,812
---------- ---------
Basic earnings per common share $ 1.18 1.32
========== =========
Diluted EPS Computation:
Numerator $ 1,230 1,380
---------- ---------
Denominator:
Weighted average number of common shares
outstanding 1,041,704 1,041,812
Dilutive effect of stock options 12,699 11,402
---------- ---------
1,054,403 1,053,214
---------- ---------
Diluted earnings per common share $ 1.17 1.31
========== =========
STOCK OPTION PLAN
In April, 1997, the stockholders of the Company approved the First
McMinnville Corporation 1997 Stock Option Plan (The "Stock Option Plan"). The
Stock Option Plan provides for the granting of stock options and authorizes the
issuance of common stock upon the exercise of such options for up to 115,000
(57,500 before 2 for 1 split) shares of common stock to directors and employees
of the Company.
Under the Stock Option Plan awards may be granted in the form of incentive
stock options or nonstatutory stock options, and are exercisable for up to ten
years following the date such option awards are granted. Exercise prices of
incentive stock options must be equal to or greater than 100% of the fair market
value of the common stock on the grant date.
20
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
STOCK OPTION PLAN, CONTINUED
SFAS No. 123, "Accounting for Stock Based Compensation", as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure",
sets forth the method for recognition of cost of plans similar to those of the
Company. As is permitted, management has elected to continue accounting for the
plan under APB Opinion 25 and related Interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for the stock option
plan. However, under SFAS No. 123, the Company is required to make proforma
disclosures as if cost had been recognized in accordance with the pronouncement.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant dates for awards under the plan consistent with
the method of SFAS No. 123, the Company's net earnings and basic earnings per
common share and diluted earnings per common share for the quarters ended March
31, 2003 and 2002, respectively, would have been reduced to the proforma amounts
indicated below:
2003 2002
------ -----
(In Thousands)
Net earnings:
As Reported $1,230 1,380
Proforma $1,227 1,377
Basic earnings per common share:
As Reported $1.18 1.32
Proforma $1.16
Diluted earnings per common share:
As Reported $1.17 1.31
Proforma $1.16 1.31
Accordingly, due to the initial phase-in period, the effects of applying
this statement for proforma disclosures are not likely to be representative of
the effects on reported net earnings for future years.
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.
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, 2003. Please refer to Item 2 of Part I of this
Report for additional information related to market and other risks.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information that we are required to disclose in the reports we file under
the Securities Exchange Act of 1934, within the time periods specified in the
SEC's rules and forms. Our Chief Executive Officer and Chief Financial Officer
also concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to our Company required to
be included in our periodic SEC filings. In connection with the new rules, we
are in the process of further reviewing and documenting our disclosure controls
and procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes designed to enhance their
effectiveness and to ensure that our systems evolve with our business.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of this evaluation.
22
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Shares of the Company's common stock were issued to Directors and/or
Employees pursuant to the Company's Stock Option Plan as follows:
Number of Shares of
Date of Sale Common Stock Sold Price Per Share
- ------------ ------------------- ---------------
January 16, 2003 30 $29.08
January 30, 2003 60 $29.08
February 5, 2003 200 $29.08
March 31, 2003 2,000 $29.08
The aggregate proceeds of the shares sold were $66,592.75.
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.
(d) The only restrictions on working capital and/or dividends are those
reported in Part I.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b). Not applicable.
23
PART II. OTHER INFORMATION,
CONTINUED
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the period
covered by this Report.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99.1 consists of certifications required by Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the quarter for which this
Report is filed.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MCMINNVILLE CORPORATION
--------------------------------------
(Registrant)
DATE: May 14, 2003 /s/ Charles C. Jacobs
------------ --------------------------------------
Charles C. Jacobs
Chairman and Chief Executive Officer
DATE: May 14, 2003 /s/ Kenny D. Neal
------------ --------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
25
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Charles C. Jacobs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First
McMinnville Corporation (the "Company").
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report.
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which would adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
26
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002, CONTINUED
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective sections with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Charles C. Jacobs
------------------------------------
Charles C. Jacobs
Chairman and Chief Executive Officer
27
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Kenny D. Neal, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First
McMinnville Corporation (the "Company").
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report.
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which would adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
28
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002, CONTINUED
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective sections with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Kenny D. Neal
-----------------------------------
Kenny D. Neal
Chief Financial Officer
29