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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______.
Commission File number 0-20402
Murfreesboro Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1694317
(State or other jurisdiction of (IRS Employer Identification No.)
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incorporation or organization)
615 Memorial Boulevard, Murfreesboro, Tennessee 37129
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(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 890-1111
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $5.00 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 15, 2000 was: $9,195,336.
Number of shares of Common Stock outstanding as of March 15, 2000: 907,609.
Issuer's revenues for its most recent fiscal year were $6,266,000.
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS AND DEVELOPMENT OF THE COMPANY
Murfreesboro Bancorp, Inc. (the "Company") is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, and became so upon its
formation of the Bank of Murfreesboro (the "Bank"). An application was approved
by the Federal Reserve Bank of Atlanta ("FRB"). See SUPERVISION & REGULATION.
The Company was incorporated under the laws of the State of Tennessee as a
Tennessee corporation on October 21, 1996. The Company's activities are
conducted primarily through its subsidiary, the Bank. The Bank began its
operations on October 6, 1997. Except for the issuance of one share of common
stock to the organizer for $25, the Company was inactive prior to January 1,
1997. The offices of the Company are located at 607 and 615 Memorial Boulevard,
Murfreesboro, Tennessee 37129, and its telephone number is (615) 890-1111. Its
permanent offices will be the same as the offices of the Bank. See BUSINESS OF
THE BANK - General.
The Directors have determined that there are a number of advantages in forming
the Company to own the Bank. The first to be considered is the general planning
flexibility that a bank holding company offers. State and federal banking laws
restrict not only the activities in which banks are allowed to engage, but also
the general operations and procedures a bank may follow. The bank holding
company offers increased flexibility in such areas as estate planning,
acquisitions, expanded range of permissible activities to meet bank and non-bank
competition, capital formation options, and facilitation of a more rapid capital
generation through retained earnings. Basically, this corporate structure will
allow more options.
The formation of a bank holding company can also be an advantage to the whole
banking entity. A more efficient bank can offer services to its customers at a
lower price or can offer additional or better services at the same price.
Non-banking subsidiaries of a bank holding company can also offer services to
the community that the bank is unable to provide.
Other advantages include added tax strategies, the ability to acquire bank
assets in other states, and the opportunities to acquire thrift institutions
that might not be available without a holding company structure.
BUSINESS OF THE BANK
GENERAL
The Bank is an independent and locally oriented bank headquartered in
Murfreesboro, Rutherford County, Tennessee. The Company believes that the
existing and future banking market in Murfreesboro presents an excellent
opportunity for a new locally oriented bank for several reasons: (i) the sale of
community banks to out-of-county bank holding companies, (ii) a locally oriented
and managed institution can better assess the commercial banking needs of local
businesses and more timely respond to the needs of customers, and (iii) the
strength of the Murfreesboro economy can provide a solid foundation for growth
of local financial institutions. The Bank provides a full range of banking and
related financial services with a focus on service to local individual customers
and small businesses.
The Bank applies the same standards and requirements in the conduct of all
facets of its business to all of its customers. The general banking business
conducted includes the receipt of deposits, making of loans, issuance of checks,
acceptance of drafts, consumer credit operations, and all aspects of a full
service bank, including the authority to operate a trust department, as approved
by the Tennessee Department of Financial Institutions ("TDFI") and the Federal
Deposit Insurance Corporation ("FDIC.") The Bank also became a member of the
Federal Reserve Bank of Atlanta on November 22, 1999.
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DESCRIPTION OF BUSINESS
The mission of the Company is to enhance shareholder value while serving the
financial needs of the Rutherford County community, its businesses (including
minority-owned), and its citizens, (including low-income families). The Bank is
in the financial services business and charged with the responsibility of
serving the financial needs of businesses and families in the market area.
The primary mission of the Bank is to maximize its sustainable earnings.
Management wants to maximize the total earnings of the Bank over the long term.
When appropriate, the Bank will sacrifice short-term earnings for higher profits
in the future.
Providing financial services to the customers is the business of the Bank. The
products are designed to meet the financial needs of the customers, the hours
are to be set to meet the needs of customers, and the employees are hired to
meet the needs of the customers. High quality customer service is also a mission
of the Bank. It is only through the accomplishment of this mission that the
Bank's growth and profitability goals can be achieved.
The major asset with which to accomplish the Bank's mission is the employees.
Without dedicated and responsible employees, it would be impossible for the Bank
to be a responsible citizen of the community or to render high quality customer
service. A mission of the Bank, therefore, is to be a responsible employer. All
Bank employees will be treated with dignity and respect. All will be given equal
opportunity regardless of race, sex, age, or physical disability.
The directors believe that employees who are experienced local bankers with
experience in the Rutherford County market and have a customer base has allowed
the Bank to grow its deposits and loans in a manner to become cumulatively
profitable. It is the intent of management to concentrate on controlled growth
in a manner to build a network servicing a quality customer base in Rutherford
County. The focus is to serve Rutherford County from a centralized location in
Murfreesboro. The target customers are individuals having strong ties to the
local market. The Bank's marketing is directed toward these individuals.
It is the intent of the Bank to concentrate on the Murfreesboro/Rutherford
County market and to search for avenues to provide banking services at the least
possible cost. Full service brick and mortar branches carry the cost burden of
the opportunity cost on the investment, depreciation on the building and
equipment, and personnel cost. Instead of adding numerous branch locations, the
Bank has operated from one location and searched for ways to provide a network
to deliver service throughout the community by the use of Automated Teller
Machines ("ATM's"), credit cards, debit cards, home banking and the use of other
future electronic vehicles (including the internet.) A new limited service
branch opened in March 2000 to provide services to another area of Murfreesboro.
It is the objective to provide personal hometown banking by having bankers that
know the market and are sensitive to the financial needs of the customer.
Management selected computer services that allow the Bank to provide the state
of the art electronic products. It is the Bank's objective to maintain a
competitive advantage through cost control and by avoiding the costs associated
with a brick and mortar branch system.
Commercial Banking The range of services provided by the Bank in the commercial
banking area include business loans, both short and long term, secured and
unsecured, money management services and transaction services. Most of the
services offered in this market are proprietary, with some reliance upon
services developed by other financial service institutions.
The Bank's targeted market in the commercial banking area is small to
medium-sized businesses. Typically, these commercial customers have annual
revenues of $100 million or less and probably encompass most of the local
businesses in the Bank's market area. Certain not-for-profit and governmental
entities may also find the Bank's services attractive.
The Bank's focus in the commercial banking market is to provide intensive,
high-quality service for its customers. Particularly in the credit service area,
the Bank endeavors to give its commercial customers access to a highly-trained
servicing team of credit and deposit service specialists who remain with the
customer relationship for long periods of time. Credit decision-making is
customized to meet the borrower's financial needs and designed for rapid
response. Credit judgments involve the Bank's senior management and, where
legally required, involve the Directors of the Bank.
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Consumer Banking The Bank offers a broad range of financial services designed to
meet the credit, thrift, transaction and trust needs of the general consumer
market place. These services include traditional demand and time deposit
accounts, safe deposit facilities, automated teller facilities, credit card
services, traveler's checks, and consumer loans including mortgage loans.
Trust Services The Bank has trust powers but has not exercised the powers at
this time.
COMPETITION
The Bank is subject to intense competition from various financial institutions
and other companies or firms that offer financial services. The Bank competes
for deposits with other commercial banks, savings and loan associations, credit
unions, and issuers of commercial paper and other securities, such as money
market and mutual funds. In making loans, the Bank competes with other
commercial banks, savings and loan associations, consumer finance companies,
credit unions, leasing companies, and other lenders.
In Rutherford County, there are 11 commercial banks, with at least 40 offices
actively engaged in banking activities, including 8 major statewide financial
institutions. In addition, there is one savings and loan association with 8
locations and numerous credit unions, finance companies, and other financial
service providers. Total deposits held by banks and savings and loan
associations in Rutherford County as of June 30, 1999 were over $1.45 billion.
Of these deposits, banks held approximately 82% and savings and loans held
approximately 18%. The Bank held approximately 5% of these deposits. Of the
deposits held by banks, the offices of major bank holding companies held
approximately 90% and the Bank held approximately 6%.
REGULATORY APPROVALS
The Bank received a bank certificate of authority from the TDFI on September 30,
1997 and approval from the FDIC on September 5, 1997. The Bank has insurance on
deposits up to $100,000 by the Bank Insurance Fund. The Bank became a member of
the Federal Reserve Bank of Atlanta on November 22, 1999. The Bank is subject to
regulation by the TDFI and the FRB. The Company is subject to regulation by the
FRB and the laws of the state of Tennessee relating to corporations. See
SUPERVISION AND REGULATION.
EMPLOYEES
The Bank had a staff of approximately 14 employees at December 31, 1997, 28
employees at December 31, 1998 and 43 employees at December 31, 1999. The Bank
offers a typical health and disability insurance plan to its employees.
Beginning January 1, 1998, the Bank instituted a 401(k) employee benefit plan.
POLICIES AND PROCEDURES
The Board of Directors of the Bank established a statement of lending policies
and procedures, or loan policy, to be used by loan officers of the Bank when
making loans. The loan policy incorporates general lending principles and then
more specific principles/policies relating to specific departments within the
Bank's lending framework. The loan policy defines the trade area as the
Rutherford County market and surrounding counties, and any loan made outside
such area will require approval of the Bank's loan committee. The Bank's goal is
to achieve a loan to deposit ratio of 80% and a specific breakdown of the
targeted types of loans are included in the loan policy. Lending limits of
specific officers and the loan committee are included.
The Board of Directors of the Bank also established an investment policy which
guides Bank officers in determining the investment portfolio of the Bank. The
Bank's investment policy sets forth the general objectives and criteria for the
Bank in making investments in securities. The investment policy establishes and
sets forth the duties of an investment committee which shall control the
policies concerning the investment portfolio. A portfolio investment manager
shall be appointed to be responsible for the day to day operations and
implementation of the policies and strategies set forth by the investment
committee.
As banking has become more volatile, it has become increasingly more difficult
to produce adequate earnings on a consistent basis. In addition, federal
regulators have become quite interested in the asset/liability management of
banks; and examiners are strongly suggesting that written policies and
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procedures are necessary. Therefore, the Board of Directors of the Bank has
developed a written statement detailing the Bank's asset/liability policy and
procedures to minimize the Bank's interest rate risk. The goal of the policy is
to maintain adequate earnings in all future interest rate environments. The
asset/liability management policy establishes an asset/liability management
committee which is assigned the responsibility to establish procedures to
achieve the Bank's goals while adhering to prudent banking policies. The
analysis to be conducted by the committee is set forth in the policy as well as
other duties and responsibilities. One such duty is to address the liquidity
needs of the Bank to assure that sufficient funds are available to meet credit
demands and deposit withdrawals.
Other policies include an Interbank Liabilities Policy, Interest Rate Risk
Policy, Code of Ethics, and Audit Policy. In addition, the Bank has numerous
other policies and procures relating to compliance and operations.
THE MARKET
The Bank will focus its efforts and attention on serving consumers and
businesses in the Murfreesboro (the "City") and Rutherford County (the "County")
area. According to the Murfreesboro Chamber of Commerce, Rutherford County has
experienced a strong and steady growth pattern in the past several years. There
has been an excellent increase in new industry, new business, and population.
This is a result of the many advantages the community has to offer. There is a
desire on the part of the City and County officials to have the community grow
and prosper. An avid interest in the potential of the County by the business and
civic leaders as well as its residents makes this a progressive community.
Rutherford County is the geographic center of Tennessee, located Southeast of
Nashville on the major interstate (I-24) corridor between Nashville and
Chattanooga. It is also connected to I-40 via I-840. Chief topographic features
are the Stones River and J. Percy Priest Lake. Rutherford County encompasses 612
square miles and the average elevation is 619 feet above sea level. Rutherford
County is easily associated as a "bedroom" community for Nashville because of
its natural proximity, but this term is less and less accurate as more and more
people, companies, and diversified employment/career opportunities take root in
our area for local employment, educational and shopping interests, resulting in
less medium-haul commuting.
There are four incorporated municipalities in the County which are Murfreesboro,
Smyrna, LaVergne, and Eagleville. Many other smaller communities are
unincorporated but still rural centers for residential and agricultural life.
Rutherford County has a population estimated at 171,401 at July 1, 1999 by the
United States Census Bureau. The rate of growth (45% population increase since
1990) indicates the area is one of the fastest growing centers in Tennessee and
the Southeastern United States. Official population figures for the area are as
follows:
<TABLE>
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US Census Estimated
1990 1998
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Murfreesboro 44,922 59,506*
Smyrna 13,647 24,077*
LaVergne 7,499 16,001*
Eagleville 462 462
RUTHERFORD COUNTY 140,700 154,333
</TABLE>
* Denotes population based upon special census.
Murfreesboro and Smyrna both have a substantial downtown area and several
shopping centers, which provide a variety of commercial establishments for
shopping convenience. Specialty shops offer unique buying opportunities.
LaVergne has the county's largest industrial park, which functions in part as
one of the largest distribution centers in the Southeastern United States.
Murfreesboro is home to many antique and collectible item dealers. It holds the
reputation of being the "Antique Center of the South," in tandem with much of
its antebellum heritage.
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According to the Tennessee Department of Economic and Community Development the
ten largest manufacturing employers in Rutherford County include:
<TABLE>
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FIRM PRODUCT/SERVICE TOTAL EMPLOYMENT
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Nissan Motor Manufacturing Corp., USA Small car and truck manufacturing 6,070
Ingram Distribution Books, audiotapes and magazines 2,000
Whirlpool Corporation Refrigerators and room air conditioners 2,000
Bridgestone/Firestone Bus, truck, light truck and passenger car tires 1,900
Perrigo of Tennessee Plastic bottles and personal care products 1,000
Caradon Better-Bilt Aluminum storm doors and windows 850
Waldenbooks Books 721
Square D Company Large electrical switch gears 720
OMC Fishing Boat Group Fiberglas boats 500
General Electric Corporation Electric appliance motors 500
</TABLE>
According to the Tennessee Department of Economic and Community Development the
largest non-manufacturing employers in Rutherford County include:
<TABLE>
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FIRM PRODUCT/SERVICE TOTAL EMPLOYMENT
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Rutherford County Government Government 2,657
Middle Tennessee State University University 1,650
Alvin C. York V.A. Medical Center Hospital 1,260
City of Murfreesboro Municipality 1,232
Middle Tennessee Medical Center Hospital 1,100
National HealthCare, L.P. Health Care 800
State Farm Insurance Co. Insurance 742
</TABLE>
Per capita personal income in Rutherford County has grown 33.3% between 1990
through 1995 from $15,948 to $21,260. During the same period, total employment
has grown 34.7% from 62,723 to 84,940 according to the United States Department
of Commerce. Total employment has continued to grow to over 88,500 at the end of
December 1998. The unemployment rate for Rutherford County was 2.1% for December
1999 compared to 3.1% for Tennessee and a national average of 3.7%.
Middle Tennessee State University ("MTSU"), established in 1911, has a
significant impact on the community in the Rutherford County area. With an
enrollment of more than 18,432, MTSU offers 143 degree programs in six
undergraduate colleges and a graduate college. The college offers bachelor,
master, specialist and doctoral degrees. It is the fastest growing and third
largest university in Tennessee. MTSU is the site for many academic, cultural,
sporting, and entertainment events. MTSU's Murphy Center is a popular venue for
super star entertainment as well as college and high school sporting events.
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SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting banks and bank
holding companies do not purport to be complete; however, these summaries
include all the material aspects of the statutes and regulations. Such summaries
are qualified in their entirety by reference to the statutes and regulations
described.
BANK HOLDING COMPANY ACT OF 1956
The Company is a bank holding company registered under the provisions of the
federal Bank Holding Company Act of 1956, as amended (the "BHC Act"), and
consequently will be subject to examination by the Board of Governors of the
Federal Reserve System ("FRS").
A bank holding company is required to file with the Federal Reserve Bank annual
reports and other information regarding its business operations and those of its
subsidiaries. It is also subject to examination by the Federal Reserve Bank and
is required to obtain Federal Reserve Bank approval prior to acquiring, directly
or indirectly, ownership or control of any voting shares of any bank, if, after
such acquisition, it would own or control, directly or indirectly, more than 5%
of the voting stock of such bank unless it already owns a majority of the voting
stock of such bank. Furthermore, a bank holding company is, with limited
exceptions, prohibited from acquiring direct or indirect ownership or control of
any voting stock of any company which is not a bank or a bank holding company,
and must engage only in the business of banking or managing or controlling banks
or furnishing services to or performing services for its subsidiary banks. One
of the exceptions to this prohibition is the ownership of shares of a company
the activities of which the Federal Reserve Board has determined to be so
closely related to banking or management or controlling banks as to be proper
incident thereto.
A bank holding company and its subsidiaries are also prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provision of any property or service. Thus, an affiliate of a bank holding
company may not extend credit, lease, sell property, or furnish any services or
fix or vary the consideration for these on the condition that (i) the customer
must obtain or provide some additional credit, property, or services from or to
its bank holding company or subsidiaries thereof or (ii) the customer may not
obtain some other credit, property, or services from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of the credit
extended. Proposals to allow some exceptions to these rules recently have been
enacted, and additional regulatory relief on this issue is pending.
In approving acquisitions by bank holding companies of banks and companies
engaged in the banking-related activities described above, the Federal Reserve
considers a number of factors, including the expected benefits to the public
such as greater convenience, increased competition, or gains in efficiency, as
weighed against the risks of possible adverse effects such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve is also empowered to
differentiate between new activities and activities commenced through the
acquisition of a going concern.
The Attorney General of the United States may, within 15 days after approval by
the Federal Reserve Board of an acquisition, bring an action challenging such
acquisition under the federal antitrust laws, in which case the effectiveness of
such approval is stayed pending a final ruling by the courts. Failure of the
Attorney General to challenge an acquisition does not, however, exempt the
holding company from complying with both state and federal antitrust laws after
the acquisition is consummated or immunize the acquisition from future challenge
under the anti-monopolization provisions of the Sherman Act.
TENNESSEE BANKING ACT; FEDERAL DEPOSIT INSURANCE ACT
The Bank was incorporated under the banking laws of the State of Tennessee and,
as such, is subject to the applicable provisions of those laws. The Bank is
subject to the supervision of the TDFI and to regular examination by that
department. The Bank's deposits are insured by the FDIC through the Bank
Insurance Fund ("BIF"), and it is, therefore, subject to the provisions of the
Federal Deposit Insurance Act and to examination by the Federal Reserve Bank of
Atlanta ("FRB").
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Tennessee statutes and the Federal Deposit Insurance Act ("FDIA") regulate a
variety of the banking activities of the Bank, including required reserves,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, and establishment of branches. There are certain limitations under
federal and Tennessee law on the payment of dividends by banks. Under Tennessee
law, the directors of a state bank, after making proper deduction for all
expenditures, expenses, taxes, losses, bad debts, and any write-offs or other
deductions required by the TDFI, may credit net profits to the bank's undivided
profits account, and may quarterly, semi-annually, or annually declare a
dividend in such amount as they shall judge expedient after deducting any net
loss from the undivided profits account and transferring to the bank's surplus
account (1) the amount (if any) required to raise the surplus ("Additional
Paid-in-Capital Account") to 50% of the capital stock and (2) the amount
required (if any), but not more than 10% of net profits, until the
paid-in-surplus account equals the capital stock account, provided that the bank
is adequately reserved against deposits and such reserves will not be impaired
by the declaration of the dividend.
A state bank, with the approval of the TDFI, may transfer funds from its surplus
account to the undivided profits (retained earnings) account or any part of its
paid-in-capital account. The payment of dividends by any bank is dependent upon
its earnings and financial condition and, in addition to the limitations
referred to above, is subject to the statutory power of certain federal and
state regulatory agencies to act to prevent what they deem unsafe or unsound
banking practices. The payment of dividends could, depending upon the financial
condition of the Bank, be deemed to constitute such an unsafe or unsound
practice. Tennessee law prohibits state banks from paying dividends other than
from undivided profits, and when the surplus account is less than the capital
stock account, imposes certain other restrictions on dividends. The FDIA
prohibits a state bank, the deposits of which are insured by the FDIC, from
paying dividends if it is in default in the payment of any assessments due the
FDIC.
State banks also are subject to regulation respecting the maintenance of certain
minimum capital levels (see below), and the Bank will be required to file annual
reports and such additional information as the Tennessee Banking Act and FRB
regulations require. The Bank also is subject to certain restrictions on loan
amounts, interest rates, "insider" loans to officers, directors and principal
shareholders, tie-in arrangements, and transactions with affiliates, as well as
many other matters. Strict compliance at all times with state and federal
banking laws will be required.
Tennessee law contains limitations on the interest rates that may be charged on
various types of loans, and restrictions on the nature and amount of loans that
may be granted and on the types of investments which may be made. The operations
of banks are also affected by various consumer laws and regulations, including
those relating to equal credit opportunity and regulation of consumer lending
practices. All Tennessee banks, must become and remain insured banks under the
FDIA. (See 12 U.S.C. ss. 1811, et seq.).
Under Tennessee law, state banks are prohibited from lending to any one person,
firm or corporation amounts more than fifteen percent of its equity capital
accounts, except (i) in the case of certain loans secured by negotiable title
documents covering readily marketable nonperishable staples or (ii) with the
prior approval of the Bank's Board of Directors or finance committee (however
titled), the Bank may make a loan to one person, firm or corporation of up to
25% of its equity capital accounts.
Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") on August 9, 1989. FIRREA provides that a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC insured depository institution in danger of default. FIRREA provides that
certain types of persons affiliated with financial institutions can be fined by
the federal regulatory agency having jurisdiction over a depository institution
with federal deposit insurance (such as the Bank) could be fined up to $1
million per day for each violation of certain regulations related (primarily) to
lending to and transactions with executive officers, directors, and principal
shareholders, including the interests of these individuals. Other violations may
result in civil money penalties of $5,000 to $25,000 per day or in criminal
fines and penalties. In addition, the FDIC has been granted enhanced authority
to withdraw or to suspend deposit insurance in certain cases.
The Federal Deposit Insurance Bank Improvement Act of 1991 ("FDICIA") which was
enacted on December 19, 1991, substantially revised the depository institution
regulatory and funding provisions of the
<PAGE> 9
FDIA and made revisions to several other federal banking statutes. Among other
things, FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable
regulations, a FDIC-insured depository institution is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5%, a risk adjusted
Tier I Capital Ratio of at least 6% and a Total Capital Ratio of at least 10%
and is not subject to a directive, order or written agreement to meet and
maintain specific capital levels. An insured depository institution is defined
to be adequately capitalized if it meets all of its minimum capital
requirements. (See CAPITAL REQUIREMENTS for specifics). In addition, an insured
depository institution will be considered undercapitalized if it fails to meet
any minimum required measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
maintain a level of tangible equity equal to not less than 2% of total assets.
An insured depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
FDICIA contain numerous other provisions, including accounting, audit and
reporting requirements, beginning in 1995 termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of deposits
at foreign branches, new regulatory standards in such areas as asset quality,
earnings and compensation and revised regulatory standards for, among other
things, powers of state banks, real estate lending and capital adequacy. FDICIA
also requires that a depository institution provide 90 days prior notice of the
closing of any branches.
Various other legislation, including proposals to revise the bank regulatory
system and to limit or expand the investments that a depository institution may
make with insured funds, is from time to time introduced in Congress. The TDFI
and the FRB examine the Bank periodically for compliance with various regulatory
requirements. Such examinations, however, are for the protection of the BIF and
for depositors and not for the protection of investors and shareholders.
INTERSTATE ACT
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Act"), which was enacted on September 29, 1994, among other things
and subject to certain conditions and exceptions, (i) permits bank holding
company acquisitions commencing one year after enactment of banks of a minimum
age of up to five years as established by state law in any state, (ii) mergers
of national and state banks after May 31, 1997 across state lines unless the
home state of either bank has opted out of the interstate bank merger provision,
(iii) branching de novo by national and state banks into other states if the
state has elected to this provision of the Interstate Act, and (iv) certain
interstate bank agency activities after one year after enactment. Regulations
have not yet been issued under the Interstate Act. A bill has been enacted by
the Tennessee legislature which repeals the Tennessee Reciprocal Banking Act,
amends the Tennessee Bank Structure Act of 1974, and amends Tennessee's bank
branching laws by opting in to the Interstate Act. Management cannot predict the
extent to which the business of the Bank may be affected.
<PAGE> 10
BROKERED DEPOSITS
The FDIC has adopted regulations under FDICIA governing the receipt of brokered
deposits. Under the regulations, a bank cannot accept a rollover or renew
brokered deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDICIA. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain employee
benefit accounts. Whether or not it has obtained such a waiver, an adequately
capitalized bank may not pay an interest rate on any deposits in excess of .75%
over certain prevailing market rates specified by regulation. There are no such
restrictions on a bank that is well capitalized. These brokered deposit
regulations may have an affect on the funding or liquidity of the Bank.
FDIC INSURANCE PREMIUMS
The Bank is required to pay semiannual FDIC deposit insurance assessments to the
BIF. As required by FDICIA, the FDIC adopted a risk-based premium schedule that
increased the assessment rates for most FDIC-insured depository institutions.
Under the schedule, the premiums initially ranged from $.23 to $.31 for every
$100 of deposits. Based upon certain requirements of FDICIA, effective January
1, 1994, an institution's premium assessment is based on the probability that
the deposit insurance fund will incur a loss with respect to the institution,
the likely amount of any such loss, and the revenue needs of the deposit
insurance fund. Currently the assessment rate schedule for BIF members currently
range from no assessment to $.27 for every $100 of deposits. Any change in these
rates and the category of risk into which the Bank will fall could have an
adverse effect on the Bank's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Congress recently passed the Deposit Insurance Funds Act of 1996 to recapitalize
the Savings Association Insurance Fund ("SAIF"). The thrift industry is paying a
one-time assessment of $4.5 billion to capitalize the SAIF, and banks will bear
part of the cost of the Financing Corporation ("FICO") bonds sold from 1987-89
in an effort to shore up the former Federal Savings and Loan Insurance
Corporation. BIF-member institutions, such as the Bank, will pay one-fifth the
rate paid by SAIF members for the first three years. After January 1, 2000, BIF
and SAIF members will share the FICO payments on a pro-rata basis.
CAPITAL REQUIREMENTS
The federal regulatory agencies use capital adequacy guidelines in their
examination and regulation of banks. If the capital falls below the minimum
levels established by these guidelines, the Bank may be denied approval to
acquire or establish additional banks or non-bank businesses, or to open
facilities, or the Bank may be subject to other regulatory restrictions or
actions.
Banking organizations historically were required to maintain a minimum ratio of
primary capital to total assets of 5.5%, and a minimum ratio of total capital to
total assets of 6.0%. The primary and total capital ratio requirements have been
replaced by the adoption of risk-based and leverage capital requirements.
Risk-Based Capital Requirements The FDIC adopted risk-based capital guidelines
for banks effective after December 31, 1990. The risk-based capital guidelines
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The ratios
are minimums. The guidelines require all federally regulated banks to maintain a
minimum risk-based total capital ratio of 8%, of which at least 4% must be Tier
I capital (see the description of Tier I capital and Tier 2 capital below).
A banking organization's qualifying total capital consists of two components:
Tier I capital (core capital) and Tier II capital (supplementary capital). Tier
I capital is an amount equal to the sum of (i) common shareholders' equity
(including adjustments for any surplus or deficit); (ii) non-cumulative
perpetual preferred stock; and (iii) minority interests in the equity accounts
of consolidated subsidiaries. Intangible
<PAGE> 11
assets generally must be deducted from Tier I capital, subject to limited
exceptions for goodwill arising from certain supervisory acquisitions. Other
intangible assets may be included in an amount up to 25% of Tier I capital,
provided that the asset meets each of the following criteria: (i) the asset must
be able to be separated and sold apart from the banking organization or the bulk
of its assets; (ii) the market value of the asset must be established on an
annual basis through an identifiable stream of cash flows and there must be a
high degree of certainty that the asset will hold this market value
notwithstanding the future prospects of the banking organization; and (iii) the
banking organization must demonstrate that a liquid market exists for the asset.
Intangible assets in excess of 25% of Tier I capital generally are deducted from
a banking organization's regulatory capital. At least 50% of the banking
organization's total regulatory capital must consist of Tier I capital.
Tier II capital is an amount equal to the sum of (i) the allowance for possible
loan losses in an amount up to 1.25% of risk-weighted assets; (ii) cumulative
perpetual preferred stock with an original maturity of 20 years or more and
related surplus; (iii) hybrid capital instruments (instruments with
characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) in an amount up to 50% of Tier I capital,
eligible term subordinated debt and intermediate-term preferred stock with an
original maturity of five years or more, including related surplus. The
inclusion of the foregoing elements of Tier II capital are subject to certain
requirements and limitations of the FDIC.
Investments in unconsolidated banking and finance subsidiaries, investments in
securities subsidiaries and reciprocal holdings of capital instruments must be
deducted from capital. The federal banking regulators may require other
deductions on a case-by-case basis.
Under the risk-weighted capital guidelines, balance sheet assets and certain
off-balance sheet items, such as standby letters of credit, are assigned to one
of four risk weight categories (0%, 20%, 50%, or 100%) according to the nature
of the asset and its collateral or the identity of any obligor or guarantor. For
example, cash is assigned to the 0% risk category, while loans secured by
one-to-four family residences are assigned to the 50% risk category. The
aggregate amount of such asset and off-balance sheet items in each risk category
is adjusted by the risk weight assigned to that category to determine weighted
values, which are added together to determine the total risk-weighted assets for
the banking organization. Accordingly, an asset, such as a commercial loan,
which is assigned to a 100% risk category is included in risk-weighted assets at
its nominal face value, whereas a loan secured by a single-family home mortgage
is included at only 50% of its nominal face value. The application ratios are
equal to capital, as determined, divided by risk-weighted assets, as determined.
Leverage Capital Requirements The FDIC has issued a final regulation requiring
certain banking organizations to maintain additional capital of 1% to 2% above a
3% minimum Tier I Leverage Capital Ratio (Tier I capital, less intangible
assets, to total assets). In order for an institution to operate at or near the
minimum Tier I leverage capital requirement of 3%, the FDIC expects that such
institution would have well-diversified risk, no undue rate risk exposure,
excellent asset quality, high liquidity and good earnings. In general, the Bank
would have to be considered a strong banking organization, rated in the highest
category under the bank rating system and have no significant plans for
expansion. Higher Tier I leverage capital ratios of up to 5% will generally be
required if all of the above characteristics are not exhibited, or if the
institution is undertaking expansion, seeking to engage in new activities, or
otherwise faces unusual or abnormal risks.
The FDIC rule provides that institutions not in compliance with the regulation
are expected to be operating in compliance with a capital plan or agreement with
the regulator. If they do not do so, they are deemed to be engaging in an unsafe
and unsound practice and may be subject to enforcement action. Failure to
maintain capital of at least 2% of assets constitutes an unsafe and unsound
practice and may be subject to enforcement action including termination of FDIC
insurance.
FINANCIAL MODERNIZATION ACT
Under the BHC Act, bank holding companies generally may not acquire a direct or
indirect interest in or control of more than 5% of the voting shares of any
company that is not a bank or bank holding company or from engaging in
activities other than those of banking, managing or controlling banks or
furnishing services to or performing services for its subsidiaries, except that
it may engage in, directly or indirectly, certain activities that the FRS
determined to be closely related to banking or managing and controlling banks as
to be a proper incident thereto.
<PAGE> 12
On November 12, 1999, President Bill Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB Act" also known as the Financial Modernization
Law ) that eliminated many of the barriers to affiliations between and among
securities firms, insurance companies and other financial service providers. The
GLB Act permits bank holding companies to become financial holding companies
effective March 11, 2000 and thereby affiliate with securities firms and
insurance companies and engage in activities that are financial in nature. No
regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings association, engaged in activities that
are financial in nature, as determined by the FRS.
Under the GLB Act, a bank holding company may become a financial holding company
by filing a declaration with the FRS if each of its subsidiary banks is well
capitalized under FDICIA prompt corrective action provisions, is well managed,
and has at least a "Satisfactory" rating under the Community Reinvestment Act of
1977 ("CRA"). The GLB Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; and merchant banking activities
that the FRS has determined to be closely related to banking.
While the FRS will serve as the "umbrella" regulator for financial holding
companies and has the power to examine banking organizations engaged in new
activities, regulation and supervision of activities which are financial in
nature or determined to be incidental to such financial activities of
subsidiaries of a financial holding company will be regulated by the agency or
authorities with the most experience regulated as it is conducted in a financial
holding company.
SAFE AND SOUND BANKING PRACTICES
Bank holding companies are not permitted to engage in unsafe and unsound banking
practices. The FRS's Regulation Y, for example, generally requires a bank
holding company to give the FRS prior notice of any redemption or repurchase of
its own equity securities, if the consideration to be paid, together with
consideration paid for any repurchases or redemptions in the preceding year, is
equal to 10% or more of the bank holding company's consolidated net worth. The
FRS may oppose the transaction if it believes that the transaction would
constitute an unsafe and unsound practice or would violate any law or
regulation. Depending upon the circumstances, the FRS could take the position
that paying a dividend would constitute an unsafe and unsound banking practice.
The FRS has broad authority to prohibit activities of bank holding companies and
their non-bank subsidiaries which represent unsafe and unsound banking practices
or which constitute violations of laws or regulations, knowing or reckless
basis, if those activities caused a substantial loss to a depository
institution. These penalties can be as high as one million dollars for each day
the activity continues.
ANTI-TYING RESTRICTIONS
Bank holding companies and their affiliates are prohibited from tying the
provision of certain services, such as extensions of credit, to other services
offered by a bank holding company or its affiliates.
EFFECTS OF GOVERNMENTAL POLICIES
The Bank's earnings are affected by the difference between the interest earned
by the Bank on its loans and investments and the interest paid by the Bank on
its deposits or other borrowings. The yields on its assets and the rates paid on
its liabilities are sensitive to changes in prevailing market rates of interest.
Thus, the earnings and growth of the Bank are influenced by general economic
conditions, fiscal policies of the federal government, and the policies of
regulatory agencies, particularly the Federal Reserve, which establishes
national monetary policy. The nature and impact of any future changes in fiscal
or monetary policies cannot be predicted.
Commercial banks are affected by the credit policy of various regulatory
authorities, including the Federal Reserve. An important function of the Federal
Reserve is to regulate the national supply of bank credit. Among the instruments
of monetary policy used by the Federal Reserve to implement these objections are
open market operations in U.S. Government securities, changes in reserve
requirements on bank deposits, changes in the discount rate on bank borrowings,
and limitations on interest rates that banks may pay on
<PAGE> 13
time and savings deposits. The Federal Reserve uses these means in varying
combinations to influence overall growth of bank loans, investments and
deposits, and also to affect interest rates charged on loans, received on
investments or paid for deposits.
The monetary and fiscal policies of regulatory authorities, including the
Federal Reserve, also affect the banking industry. Through changes in the
reserve requirements against bank deposits, open market operations in U.S.
Government securities and changes in the discount rate on bank borrowings, the
Federal Reserve influences the cost and availability of funds obtained for
lending and investing. No prediction can be made with respect to possible future
changes in interest rates, deposit levels or loan demand or with respect to the
impact of such changes on the business and earnings of the proposed Bank.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities, or
affecting the competitive balance between banks and other financial
institutions. For example, the Depository Institutions Deregulation and Monetary
Control Act of 1980 (the "Deregulation Act") provided for the phasing out of
restrictions on deposit interest rate ceilings, the authorization of new
accounts and related services, and the expansion of the lending authority of
savings and loan associations. The Deregulation Act has altered, to a certain
extent, the competitive relationship that previously existed among financial
institutions, and it may result in a substantial reduction in the historical
distinction between the services offered by banks, savings and loan
associations, and other financial institutions.
<PAGE> 14
ITEM 2 - DESCRIPTION OF PROPERTY
The Company owns two one-story commercial buildings in Murfreesboro, Tennessee
located at 615 Memorial Boulevard and 607 Memorial Boulevard. The buildings are
located on approximately 2.5 acres of land. The main building is located at 615
Memorial Boulevard and contains approximately 2,168 square feet of office space.
It was constructed in 1977 and houses the Bank's new accounts, teller area,
vault and safe deposit boxes and serves as the main retail service center for
the Bank. The building located at 607 Memorial Boulevard serves as the loan
origination and operations area as well as housing the executive offices of the
Bank. It contains approximately 3,944 square feet of office space and was
constructed in 1976. Both sites have been renovated to meet the needs of the
Company. A new automated teller machine is located in a small facility adjacent
to and detached from the main office. The property also contains approximately
1.5 acres of paved parking lot.
During 1998 the Company developed plans to renovate the existing building at 607
Memorial Boulevard into one main office with construction beginning in March
1999. As of December 31, 1999, approximately $2,007,000 had been expended on
construction, architectural and engineering services. The original amount of the
contract was $2,059,000 and, with change orders included, the current amount at
March 15, 2000 was approximately $2,308,000. The building should be completed in
April 2000. The existing building located at 615 Memorial Boulevard will be
demolished and will provide additional parking for the Bank. It is estimated
that an additional $530,000 will be expended for equipment, furniture and
furnishings.
In 1999 the Company purchased a 6,500 square foot commercial building and lot at
1480 South Church Street for $427,000. It is the intention of management to
convert this into a limited service branch to provide banking services to
customers in another area of Murfreesboro. A contract to renovate the building
for approximately $169,000 was entered into by the Company. Final cost of the
contract was approximately $178,000. Renovation was completed and the branch
opened in March 2000 and the Company is occupying approximately 1,700 square
feet of the facility. It is the intention of management to sell the building and
lease back the space for a five year term with two five year renewal terms. At
the time of this filing negotiations are under way to complete the sale and
leaseback.
It is not the policy of the Company to acquire properties for possible capital
gains or income generation. Investments in real estate will be limited to
properties utilized for operational activities.
The Company offers loans secured by first and second real estate mortgages as a
component of its lending function. The Company will originate and may service
mortgage loans in connection with the lending function. Presently, the Company
is only servicing in-house generated mortgage loans.
The Company does not invest in securities of real estate entities or in
developed or undeveloped properties. In the future the Company may purchase
mortgage-backed securities as part of its investment portfolio; however, based
upon current market conditions, management does not presently intend to purchase
any mortgage-backed securities in the short-term or long-term.
ITEM 3 - LEGAL PROCEEDINGS
Currently the Company is not involved in any legal proceedings or lawsuits nor
has it been during the years ended December 31, 1998 or December 31, 1999.
Management is also unaware of any potential legal proceedings that may arise in
the future.
ITEM 4 -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders of the Company for a vote during
the fourth quarter of 1999.
<PAGE> 15
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Murfreesboro Bancorp, Inc. is not listed on a stock exchange
and no broker makes a market in the shares. The number of shareholders of record
at December 31, 1999 was 2,465. Holders of the Company's common stock are
entitled to receive dividends when declared by the Board of Directors out of
funds legally available. The Board of Directors does not anticipate paying cash
dividends in the near future. Dividends will be affected by other factors
including applicable government regulations and policies. See Note 12 to the
Consolidated Financial Statements for restrictions of dividends. The following
table shows the quarterly range of high and low sale prices for the Company's
common stock during 1998 from known trades to which the Bank functions as the
stock transfer agent. The sale prices do not necessarily represent all trading
transactions for the periods.
<TABLE>
<CAPTION>
1999 1998
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $12.50 $12.50 $11.00 $10.00
Second Quarter $12.50 $12.50 $12.50 $10.00
Third Quarter $13.00 $12.50 $12.50 $12.50
Fourth Quarter $12.50 $12.50 $12.50 $12.50
</TABLE>
<PAGE> 16
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the information and
tables which follow.
SUMMARY
Net income for the year ended December 31, 1999 was $293,000 and the net loss
for the year ended December 31, 1998 was $177,000.
FINANCIAL CONDITION
Earning Assets. Average earning assets for the year ended December 31, 1999
totaled $78,660,000, which represented 93.1% of average total assets. Earning
assets totaled $93,703,000 at December 31, 1999. Average earning assets for the
year ended December 31, 1998 totaled $52,311,000, which represented 94.1% of
average total assets. Earning assets totaled $71,443,000 at December 31, 1998.
Loan Portfolio. The Company's average loans for the year ended December 31, 1999
were $50,998,000 and for the year ended December 31, 1998 were $23,288,000. The
balance in total loans at December 31, 1999 was $65,045,000 and $37,670,000 at
December 31, 1998.
Investment Portfolio. The Company's investment securities portfolio averaged
$24,966,000 for the year ended December 31, 1999 and $23,422,000 for the year
ended December 31, 1998. The portfolio totaled $26,246,000 at December 31, 1999
and $26,582,000 at December 31, 1998.
The Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity. The Company maintains
two classifications of investment securities: "Held to Maturity" and "Available
for Sale." The "Available for Sale" securities are carried at fair market value,
whereas the "Held to Maturity" securities are carried at amortized book value.
At December 31, 1999, unrealized losses in the "Available for Sale" portfolio
amounted to $195,000 and there was an unrealized gain of $19,000 at December 31,
1998. The average balance of securities "Available for Sale" during the year
ended December 31, 1999 was $16,063,000 and the balance at December 31, 1999 was
$17,387,000. The average balance of securities "Available for Sale" during the
year ended December 31, 1998 was $19,337,000 and the balance at December 31,
1998 was $20,198,000. The average balance of securities "Held to Maturity"
during the year ended December 31, 1999 was $8,903,000 and the balance at
December 31, 1999 was $8,859,000. The average balance of securities "Held to
Maturity" during the year ended December 31, 1998 was $4,085,000 and the balance
at December 31, 1998 was $6,384,000.
Deposits. The Company's average deposits were $71,149,000 for the year ended
December 31, 1999. This included average non-interest-bearing deposits of
$3,859,000, average certificates of deposit of $41,353,000, average saving
deposits of $346,000 and average interest-bearing transaction accounts of
$25,591,000. The Company's average deposits for the year ended December 31, 1998
were $45,537,000. This included average non-interest-bearing deposits of
$1,803,000, average certificates of deposit of $21,174,000, average savings
deposits of $160,000 and average interest-bearing transaction accounts of
$22,400,000. Deposits at December 31, 1999 were $85,695,000 and $65,002,000 at
December 31, 1998.
Capital Resources. Shareholders' equity totaled $8,694,000 at of December 31,
1999. This included $9,068,000 of common stock and additional paid-in-capital
less a deficit of $253,000 and other comprehensive loss of unrealized loss on
securities available for sale of $121,000, which is net of tax effect of
$74,000. Shareholders' equity totaled $8,534,000 at December 31, 1998. This
included $9,068,000 of common stock and additional paid in capital less a
deficit of $546,000 and other comprehensive income in the form of an unrealized
gain on securities available for sale of $12,000, which is net of tax effect of
$7,000.
BALANCE SHEET MANAGEMENT
Liquidity Management. Liquidity is the ability of a company to convert assets
into cash without significant loss and to raise funds by increasing liabilities.
Liquidity management involves having the
<PAGE> 17
ability to meet the day-to-day cash flow requirements of its customers, whether
they are depositors wishing to withdraw funds or borrowers requiring funds to
meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Company to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Company can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
investments in federal funds and maturities of investment securities. Additional
sources of liquidity are loan repayments and possible prepayments from the
mortgage-backed securities from the investment portfolio.
The liability portion of the balance sheet provides liquidity through various
interest bearing and non-interest bearing deposit accounts. At December 31,
1999, the Company had $5,000,000 of federal funds lines available at three
correspondent banks and had drawn $2,000,000. At December 31, 1998, the Company
had $2,300,000 of federal funds purchase lines available at three correspondent
banks. None of these lines were drawn at December 31, 1998.
Because of the level of capital obtained information, no additional capital
funds or notes payable are anticipated to be deemed necessary during the next
twelve months.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income is the principal component of a
financial institution's income stream and represents the spread between interest
and fee income generated from earning assets and the interest expense paid on
deposits. The following discussion is on a fully taxable equivalent basis.
Net interest income for the year ended December 31, 1999 totaled $2,770,000.
This was the result of interest income of $5,898,000 and interest expense of
$3,128,000. Interest income produced by the loan portfolio totaled $4,330,000,
interest income on investment securities totaled $1,436,000, and interest income
on federal funds totaled $132,000. Interest expense included $2,133,000 of
interest expense on certificates of deposit, interest expense of $415,000 on
interest-bearing transaction accounts, interest expense of $408,000 on money
market demand accounts, interest expense on savings accounts of $7,000 and
interest expense of $165,000 on short-term borrowings.
Net interest income for the year ended December 31, 1998 totaled $1,257,000.
This was the result of interest income of $3,632,000 and interest expense of
$2,375,000. Interest income produced by the loan portfolio totaled $1,936,000,
interest income on investment securities totaled $1,387,000 and interest income
on federal funds totaled $309,000. Interest expense included $1,194,000 of
interest expense on certificates of deposit, interest expense of $859,000 on
interest-bearing transaction accounts, interest expense of $252,000 on money
market demand accounts, interest expense on savings accounts of $4,000 and
interest expense on short-term borrowings of $66,000.
The trend in net interest income is commonly evaluated in terms of average rates
using the net interest margin and the interest rate spread. The net interest
margin, or the net yield on earning assets, is computed by dividing fully
taxable equivalent net interest income by average earning assets. This ratio
represents the difference between the average yield on average earning assets
and the average rate paid for all funds used to support those earning assets.
The net interest margin for the year ended December 31, 1999 was 3.52%. The net
cost of funds, defined as interest expense divided by average-earning assets,
was 3.98% for 1999. The yield on earning assets was 7.50% for 1999. The net
interest margin for the year ended December 31, 1998 was 2.40%. The net cost of
funds for the year ended December 31, 1998 was 4.54% and the yield on earning
assets was 6.94%.
The interest rate spread measures the difference between the average yield on
earning assets and the average rate paid on interest bearing sources of funds.
The interest rate spread eliminates the impact of non-interest bearing funds and
gives a direct perspective on the effect of market interest rate movements.
During recent years, the net interest margins and interest rate spreads have
been under intense pressure to maintain historical levels, due in part to tax
laws that discouraged investment in tax-exempt securities and intense
<PAGE> 18
competition for funds with non-bank institutions. The interest rate spread for
the year ended December 31, 1999 was 3.13% and for the year ended December 31,
1998 was 1.67%.
Allowance for Possible Loan Losses. Lending officers are responsible for the
ongoing review and administration of each loan. They make the initial
identification of loans that present some difficulty in collection or where
there is an indication that the probability of loss exists. Lending officers are
responsible for the collection effort on a delinquent loan. Senior management is
informed of the status of delinquent and problem loans on a monthly basis.
Senior management makes recommendations monthly to the board of directors as to
charge-offs. Senior management reviews the allowance for possible loan losses on
a quarterly basis. The Company's policy is to discontinue interest accrual when
payment of principal and interest is 90 days or more in arrears, unless there is
sufficient collateral or other financial capacity to justify continued accrual.
The allowance for possible loan losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for possible loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the size,
quality and risk of loans in the portfolio. Management also considers such
factors as loan loss experience, the amount of past due and non-performing
loans, specific known risk, the status and amount of non-performing assets,
underlying collateral values securing loans, current and anticipated economic
conditions and other factors which affect the allowance for potential credit
losses.
While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses that cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
Management believes that the $817,000 at December 31, 1999 and $473,000 at
December 31, 1998 in the allowance for possible loan losses are adequate to
absorb known risks in the portfolio. No assurance can be given, however, that
adverse economic circumstances will not result in increased losses in the loan
portfolio, and require greater provisions for possible loan losses in the
future.
Non-performing Assets. Non-performing assets include non-performing loans and
foreclosed real estate held for sale. Non-performing loans include loans
classified as non-accrual or renegotiated. The Company's policy is to place a
loan on non-accrual status when it is contractually past due 90 days or more as
to payment of principal or interest unless there is reason to believe the
collection of principal and interest is fairly certain. At the time a loan is
placed on non-accrual status, interest previously accrued but not collected is
reversed and charged against current earnings. Recognition of any interest after
a loan has been placed on non-accrual is accounted for on a cash basis.
The Company had no impaired loans, loans on non-accrual status or foreclosed
real estate held for sale at December 31, 1999 or December 31, 1998. Loans past
due ninety days or more and still accruing interest at December 31, 1999 totaled
$34,000 and $3,000 at December 31, 1998.
Non-interest Income. Non-interest income consists of revenues generated from a
broad range of financial services and activities including fee-based services
and profits. In addition, any gains or losses realized from the sale of
investment portfolio securities available for sale are included in non-interest
income. Total non-interest income totaled $368,000 for the year ended December
31, 1999. This included $198,000 from service charges on deposit accounts, other
fees of $47,000, net gains on sales of investment securities of $2,000 and
$121,000 of other non-interest income which included a $75,000 increase in the
cash surrender value of officers life insurance.
Non-interest income totaled $151,000 for the year ended December 31, 1998. This
included $113,000 on service charge on deposit accounts, other fees of $12,000
and $26,000 of other non-interest income. There were no gains or losses on
securities during 1998.
Non-interest Expenses. Non-interest expense for the year ended December 31, 1999
totaled $2,346,000. Salaries and employee benefits for the year ended December
31, 1999 totaled $1,262,000. Occupancy
<PAGE> 19
expense for the year ended December 31, 1999 totaled $75,000 while furniture and
equipment expense totaled $150,000. All other non-interest expenses totaled
$859,000 for the year ended December 31, 1999.
Non-interest expense for the year ended December 31, 1998 totaled $1,471,000.
Salaries and employee benefits for the year ended December 31, 1998 totaled
$700,000. Occupancy expenses for the year ended December 31, 1998 totaled
$80,000 while furniture and equipment expenses totaled $113,000. Other
non-interest expenses totaled $578,000. Other non-interest expenses include
supplies and printing, data processing, advertising, telephone, postage and
legal and audit fees.
Non-recurring items. During the year ended December 31, 1998 the Company
expensed an additional $38,000 of previously capitalized organization costs
through a change in accounting principle. In addition, approximately $15,000 of
year 2000 testing expenses were incurred. During the year ended December 31,
1999, approximately $10,000 of year 2000 testing expenses were incurred.
Income Taxes. For the year ended December 31, 1999, the Company's income tax
expense was $146,000, or 33.3% of income before taxes. For the year ended
December 31, 1998 the Company recognized a tax benefit of $330,000, by recording
a deferred tax asset of which $200,000 related to recognition of net operating
loss.
During 1999, the Company has fully utilized net operating losses from previous
years to reduce current federal and state taxable income.
RETURN ON EQUITY AND ASSETS
Return on assets (net income divided by average total assets) for the year ended
December 31, 1999 was 0.35%. Return on equity (net income divided by average
equity) for the year ended December 31, 1999 was 3.46%. Equity to assets
(average equity divided by average total assets) for the year ended December 31,
1999 was 10.0%. There were no dividends paid during the year ended December 31,
1999, so no dividend payout ratio is presented.
Return on assets for the year ended December 31, 1998 was (0.32%). Return on
equity for the year ended December 31, 1998 was (2.08%). Equity to assets for
the year ended December 31, 1998 was 15.28%. There were no dividends paid during
the year ended December 31, 1998, so no dividend payout ratio is presented.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
<PAGE> 20
AVERAGE BALANCE SHEET AND NET INTEREST INCOME
The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the year ended December 31, 1999 and certain
other information:
<TABLE>
<CAPTION>
Interest
Average Income/ Average
Balances Expense Rates
-------- ------- -----
(Fully taxable equivalent -
dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans $ 50,998 $4,330 8.49%
U.S. Treasury and other U.S. government agencies 24,966 1,436 5.75%
States and municipalities -- -- N/A
Federal funds sold 2,696 132 4.90%
- ----------------------------------------------------------------------------------------
Total interest-earning assets/interest income 78,660 5,898 7.50%
- ----------------------------------------------------------------------------------------
Cash and due from banks 1,545
Other assets 4,893
Allowance for possible loan losses (627)
- ------------------------------------------------------------------
Total assets $ 84,471
==================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Demand deposits and savings accounts $ 25,937 830 3.20%
Certificates of deposit 41,353 2,133 5.16%
Short-term borrowings 3,566 165 4.63%
Subordinated convertible capital debentures 750 -- N/A
- ----------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 71,606 3,128 4.37%
- ----------------------------------------------------------------------------------------
Non-interest-bearing demand deposits 3,859
Other liabilities 527
Shareholders' equity 8,479
- -----------------------------------------------------------------
Total liabilities and shareholders' equity $ 84,471
=================================================================
Net interest earnings $ 2,770
==============================================================================
Net interest income on interest-earning assets 3.52%
========================================================================================
Taxable equivalent adjustment: N/A
==============================================================================
</TABLE>
<PAGE> 21
The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the year ended December 31, 1998 and certain
other information:
<TABLE>
<CAPTION>
Interest
Average Income/ Average
Balances Expense Rates
-------- ------- -----
(Fully taxable equivalent -
dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans $ 23,288 $1,936 8.31%
U.S. Treasury and other U.S. government agencies 23,422 1,387 5.92%
States and municipalities -- -- N/A
Federal funds sold 5,601 309 5.52%
- ----------------------------------------------------------------------------------------
Total interest-earning assets/interest income 52,311 3,632 6.94%
- ----------------------------------------------------------------------------------------
Cash and due from banks 1,260
Other assets 2,306
Allowance for possible loan losses (277)
- -----------------------------------------------------------------
Total assets $ 55,600
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Demand deposits and savings accounts $ 22,560 1,115 4.94%
Certificates of deposit 21,174 1,194 5.64%
Short-term borrowings 1,366 66 4.83%
- ----------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 45,100 2,375 5.27%
- ----------------------------------------------------------------------------------------
Non-interest-bearing demand deposits 1,803
Other liabilities 204
Shareholders' equity 8,493
- -----------------------------------------------------------------
Total liabilities and shareholders' equity $ 55,600
=================================================================
Net interest earnings $ 1,257
==============================================================================
Net interest income on interest-earning assets 2.40%
========================================================================================
Taxable equivalent adjustment: N/A
==============================================================================
</TABLE>
<PAGE> 22
The following table presents changes in the Company's various categories of
interest income and interest expense based upon the change in the average rate
and the change in the average volume from the year ended December 31, 1998 to
the year ended December 31, 1999 (in thousands).
<TABLE>
<CAPTION>
Increase
Increase Increase (Decrease)
(Decrease) (Decrease) Due to
Increase Due to Due to Rate and
(Decrease) Volume Rate Volume
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Federal funds sold $ (177) $ (35) $ (160) $ 18
Investment securities 49 (40) 91 (2)
Loans 2,394 42 2,303 49
- ----------------------------------------------------------------------------------------
Total interest earning assets 2,266 (33) 2,234 65
- ----------------------------------------------------------------------------------------
LIABILITIES
Demand deposits and savings accounts (285) (393) 167 (59)
Certificates of deposits 939 (102) 1,138 (97)
- ----------------------------------------------------------------------------------------
Total interest bearing deposits 654 (495) 1,305 (156)
- ----------------------------------------------------------------------------------------
Short-term borrowings 99 (3) 106
- ----------------------------------------------------------------------------------------
Total interest bearing liabilities 753 (498) 1,411 (160)
- ----------------------------------------------------------------------------------------
Total $ 1,513 $ 465 $ 823 $ 225
========================================================================================
</TABLE>
Amounts are adjusted to a fully taxable basis, based on the statutory Federal
income tax rates, adjusted for applicable state income taxes net of the related
Federal tax benefit. The effect of volume change is computed by multiplying the
change in volume by the prior year rate. The effect of rate change is computed
by multiplying the change in rate by the prior year volume. Rate/volume change
is computed by multiplying the change in volume by the change in rate.
ASSETS
The management of the Company considers many criteria in managing assets,
including creditworthiness, diversification and structural characteristics,
maturity and interest rate sensitivity. The following table sets forth the
Company's interest-earning assets by category at December 31, 1999 and December
31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998 1998
---- ----
<S> <C> <C>
Interest-bearing deposits with banks $ -- $ --
Investment securities 26,246 26,582
Federal funds sold 2,160 7,070
Loans:
Real estate 34,906 23,256
Commercial and other 30,139 14,414
- ------------------------------------------------------------
Total loans 65,045 37,670
- ------------------------------------------------------------
Interest-earning assets $93,451 $71,322
============================================================
</TABLE>
INVESTMENT PORTFOLIO
The Company has classified all investment securities as either available for
sale or held to maturity depending upon whether the Company has the intent and
ability to hold the investment securities to maturity. The classification of
certain investment securities as available for sale is consistent with the
Company's investment philosophy of maintaining flexibility to manage the
portfolio. At December 31,
<PAGE> 23
1998, approximately $20,198,000 of investment securities was classified as
available for sale and at December 31, 1999, approximately $17,387,000 of
investment securities was classified as available for sale. Approximately
$19,000 of unrealized gain and $195,000 of unrealized loss was included in
shareholders' equity related to the available for sale investment securities as
of December 31, 1998 and December 31, 1999, respectively. There was $6,384,000
and $8,859,000 of securities at December 31, 1998 and 1999, classified as held
to maturity, respectively.
At December 31, 1999 as well as December 31, 1998, obligations of the United
States Government or its agencies represented approximately 100% of the total
investment debt portfolio. The Company acquired restricted stock in the Federal
Home Loan Bank of Cincinnati during 1998, and it purchased restricted stock in
the Federal Reserve Bank of Atlanta in 1999.
The following table presents the carrying amounts of the Company's investment
portfolio at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury $ 2,997 $ 2,988
U.S. Government agencies 13,998 13,812
States and political subdivisions -- --
Other securities -- --
- ----------------------------------------------------------------
Total available for sale debt securities 16,995 16,800
Federal Home Loan Bank stock 244 244
Federal Reserve Bank stock 343 343
- ----------------------------------------------------------------
Total available for sale $17,582 17,387
================================================================
HELD TO MATURITY:
U.S. Treasury -- --
U.S. Government agencies 8,859 8,628
States and political subdivisions -- --
Other securities -- --
- ----------------------------------------------------------------
Total held to maturity 8,859 8,628
================================================================
Total investment portfolio $26,441 $26,015
================================================================
</TABLE>
The following table presents the carrying amounts of the Company's investment
portfolio at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury $ -- $ --
U.S. Government agencies 20,016 20,035
States and political subdivisions -- --
Other securities -- --
- ----------------------------------------------------------------
Total available for sale debt securities 20,016 20,035
Federal Home Loan Bank stock 163 163
- ----------------------------------------------------------------
Total available for sale $20,179 $20,198
================================================================
HELD TO MATURITY:
U.S. Treasury -- --
U.S. Government agencies 6,384 6,422
States and political subdivisions -- --
Other securities -- --
- ----------------------------------------------------------------
Total held to maturity 6,384 6,422
================================================================
Total investment portfolio $26,563 $26,620
================================================================
</TABLE>
<PAGE> 24
The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment debt portfolio at December 31,
1999. The weighted average yields on these instruments are presented based on
final maturity (dollars in thousands).
<TABLE>
<CAPTION>
Amortized Estimated Weighted
Cost Fair Value Average Yield
---- ---------- -------------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasuries:
Due within 1 year 2,997 2,988 5.39%
U.S. Government agencies:
Due within 1 year 3,999 3,968 5.15%
Due after 1 year but within 5 years 8,994 8,854 5.68%
Due after 5 years but within 10 years 1,005 990 6.18%
Due after 10 years -- -- N/A
- -----------------------------------------------------------------------------
Total 16,995 16,800 5.56%
- -----------------------------------------------------------------------------
States and political subdivisions -- -- N/A
Other -- -- N/A
- -----------------------------------------------------------------------------
Total investments available for sale-debt 16,995 16,800 5.53%
=============================================================================
HELD TO MATURITY:
U.S. Treasuries -- -- N/A
U.S. Government agencies:
Due within 1 year -- -- N/A
Due after 1 year but within 5 years 5,998 5,841 4.49%
Due after 5 years but within 10 years 2,861 2,787 6.17%
Due after 10 years -- -- N/A
- -----------------------------------------------------------------------------
Total 8,859 8,628 6.01%
- -----------------------------------------------------------------------------
States and political subdivisions -- -- N/A
Other -- -- N/A
- -----------------------------------------------------------------------------
Total held to maturity 8,859 8,628 6.00%
=============================================================================
Total investment portfolio $25,854 $25,428 5.70%
=============================================================================
</TABLE>
The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment debt portfolio at December 31,
1998. The weighted average yields on these instruments are presented based on
final maturity (dollars in thousands).
<TABLE>
<CAPTION>
Amortized Estimated Weighted
Cost Fair Value Average Yield
---- ---------- -------------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasuries $ -- $ -- N/A
U.S. Government agencies:
Due within 1 year 4,000 3,993 5.05%
Due after 1 year but within 5 years 15,002 15,011 5.61%
Due after 5 years but within 10 years 1,014 1,031 6.18%
Due after 10 years -- -- N/A
- -----------------------------------------------------------------------------
Total 20,016 20,035 5.52%
- -----------------------------------------------------------------------------
States and political subdivisions -- -- N/A
Other -- -- N/A
- -----------------------------------------------------------------------------
Total investments available for sale-debt 20,016 20,035 5.52%
=============================================================================
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasuries $ -- $ -- N/A
U.S. Government agencies:
Due within 1 year -- -- N/A
Due after 1 year but within 5 years 1,502 1,502 5.77%
Due after 5 years but within 10 years 4,882 4,920 6.07%
Due after 10 years -- -- N/A
- -----------------------------------------------------------------------------
Total 6,384 6,422 6.00%
- -----------------------------------------------------------------------------
States and political subdivisions -- -- N/A
Other -- -- N/A
- -----------------------------------------------------------------------------
Total held to maturity 6,384 6,422 6.00%
=============================================================================
Total investment portfolio $26,400 $26,457 5.64%
=============================================================================
</TABLE>
INVESTMENT POLICY
The objective of the Company's investment policy is to invest funds not
otherwise needed to meet the loan demand of the Bank's market area to earn the
maximum return for the Bank, yet still maintain sufficient liquidity to meet
fluctuations in the Bank's loan demand and deposit structure. In doing so, the
Company balances the market and credit risk against the potential investment
return, makes investments compatible with the pledge requirements of the Bank's
deposits of public funds, maintains compliance with regulatory investment
requirements, and assists the various public entities with their financing
needs. The Investment Committee is comprised of the president and three other
directors. The President is authorized to execute security transactions for the
investment portfolio and to make decisions on purchases and sales of securities.
All the investment transactions occurring since the previous board of directors'
meeting are reviewed by the board at its next monthly meeting. Limitations on
the Committee's investment authority include: (a) investment in any one
municipal security may not exceed 20% of equity capital; (b) the entire
investment portfolio may not increase or decrease by more than 10% in any one
month; (c) investments in obligations of the State of Tennessee may not exceed
30% of equity capital; and (d) investment in mortgage-backed securities may not
exceed more than 40% of equity capital. The investment policy allows portfolio
holdings to include short-term securities purchased to provide the Bank's needed
liquidity and longer term securities purchased to generate stable income for the
Bank during periods of interest rate fluctuations.
<PAGE> 26
LOAN PORTFOLIO
The following table sets forth the composition of the Company's loan portfolio
at December 31, 1999 (dollars in thousands).
<TABLE>
<CAPTION>
Percent of
Balance Total Loans
------- -----------
<S> <C> <C>
Real estate loans:
Construction and land development $ 2,702 4.1%
Secured by residential properties 22,457 34.5%
Secured by commercial real estate 18,839 29.0%
- ---------------------------------------------------------------------------
Total real estate loans 43,998 67.6%
- ---------------------------------------------------------------------------
Commercial and industrial loans 9,747 15.0%
Other consumer loans 11,300 17.4%
- ---------------------------------------------------------------------------
Total loans 65,045 100.0%
Unamortized premiums and net deferred loan costs 252 N/A
Allowance for possible loan losses (817) N/A
- ---------------------------------------------------------------------------
Net loans $ 64,480 N/A
===========================================================================
</TABLE>
The following table sets forth the composition of the Company's loan portfolio
at December 31, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
Percent of
Balance Total Loans
------- -----------
<S> <C> <C>
Real estate loans:
Construction and land development $ 1,286 3.4%
Secured by residential properties 12,307 32.7%
Secured by commercial real estate 9,663 25.7%
- ---------------------------------------------------------------------------
Total real estate loans 23,256 61.8%
- ---------------------------------------------------------------------------
Commercial and industrial loans 7,789 20.7%
Other consumer loans 6,625 17.5%
- ---------------------------------------------------------------------------
Total loans 37,670 100.0%
Unamortized premiums and net deferred loan costs 121 N/A
Allowance for possible loan losses (473) N/A
- ---------------------------------------------------------------------------
Net loans $ 37,318 N/A
===========================================================================
</TABLE>
<PAGE> 27
The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
December 31, 1999 (in thousands).
<TABLE>
<CAPTION>
Maturity Range
--------------------------------------------
One Year One Through Over
or Less Five Years Five Years Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
LOAN MATURITY:
Real estate construction loans $ 1,216 $ 426 $ 1,060 $ 2,702
Real estate mortgage loans 3,937 4,401 32,958 41,296
Commercial and industrial loans 7,611 1,856 280 9,747
All other loans 1,172 7,380 2,748 11,300
- -------------------------------------------------------------------------------------
Total loans $13,936 $14,063 $37,046 $65,045
=====================================================================================
LOAN INTEREST RATE SENSITIVITY:
Predetermined interest rates $ 950 $ 8,235 $36,367 $45,552
Floating or adjustable interest rates 12,986 5,828 679 19,493
- -------------------------------------------------------------------------------------
Total $13,936 $14,063 $37,046 $65,045
=====================================================================================
</TABLE>
The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
December 31, 1998 (in thousands).
<TABLE>
<CAPTION>
Maturity Range
--------------------------------------------
One Year One Through Over
or Less Five Years Five Years Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
LOAN MATURITY:
Real estate construction loans $ 1,188 $ 98 $ -- $ 1,286
Real estate mortgage loans 8,106 13,155 709 21,970
Commercial and industrial loans 3,134 3,924 731 7,789
All other loans 2,159 4,018 448 6,625
- -------------------------------------------------------------------------------------
Total loans $14,587 $21,195 $ 1,888 $37,670
=====================================================================================
LOAN INTEREST RATE SENSITIVITY:
Predetermined interest rates $ 5,598 $ 4,724 $ 1,434 $11,756
Floating or adjustable interest rates 8,989 16,471 454 25,914
- -------------------------------------------------------------------------------------
Total $14,587 $21,195 $ 1,888 $37,670
=====================================================================================
</TABLE>
LOAN POLICY
All lending activities of the Bank are under the direct supervision and control
of the Bank's Board with secondary authority vested in the Executive Committee.
The Senior Loan Committee, which consists of the president, one other director
and two senior lending officers, enforces loan authorizations for each officer,
decides on loans exceeding such limits, services all requests for officer
credits to the extent allowable under current laws and regulations, administers
all problem credits, and determines the allocation of funds for each lending
division. The loan portfolio consists primarily of real estate, commercial,
small business, residential construction and consumer installment loans.
Maturity of term loans is normally limited to 15 years. Conventional real estate
loans may be made up to 80% of the appraised value or purchase cost of the real
estate for no more than a 30-year term. Installment loans are based on the
earning capacity and vocational stability of the borrower.
The Bank board at its regularly scheduled meetings reviews all new loans made
the preceding month and discusses and approves any loans that exceed a loan
officer's authority. Loans that are 30 days or more past due are reviewed
monthly.
<PAGE> 28
The Loan Committee of the Bank periodically reviews the loan portfolio,
particularly nonaccrual and renegotiated loans. Each loan officer is responsible
for monitoring and collecting his or her own loan portfolio. Loan Committee
review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition, subject to Bank Board approval. In
addition, to the extent that management identifies potential losses in the loan
portfolio and reduces the book value of such loans through charge-offs, to their
estimated collectible value, the Company's policy is to classify as nonaccrual
any loan on which payment of principal or interest is 90 days or more past due,
unless there is adequate collateral to cover principal and accrued interest and
the loan is in the process of collection. In addition, a loan will be classified
as nonaccrual if, in the opinion of the Loan Committee, based upon a review of
the borrower's or guarantor's financial condition, collateral value or other
factors, payment is questionable, even though payments are not 90 days or more
past due.
When a loan is classified as nonaccrual, any unpaid interest is reversed against
current income. Interest is included in income thereafter only to the extent
received in cash. The loan remains in a nonaccrual classification until such
time as the loan is brought current, when it may be returned to accrual
classification. When principal or interest on a nonaccrual loan is brought
current, if in management's opinion future payments are questionable, the loan
would remain classified as nonaccrual. After a nonaccrual or renegotiated loan
is charged off, any subsequent payments of either interest or principal are
applied first to any remaining balance outstanding, then to recoveries and
lastly to income.
The large number of consumer installment loans and the relatively small dollar
amount of each make an individual review impracticable. It is the Company's
policy to charge off any consumer installment loan that is past due 90 days or
more and are not adequately collateralized unless the borrower has sufficient
financial capacity to retire the debt.
In addition, mortgage loans secured by real estate are placed on nonaccrual
status when the mortgagor is in bankruptcy, or foreclosure proceedings are
instituted.
CREDIT RISK MANAGEMENT AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Credit risk and exposure to loss are inherent parts of the banking business.
Management seeks to manage and minimize these risks through its loan and
investment policies and loan review procedures. Management establishes and
continually reviews lending and investment criteria and approval procedures that
it believes reflect the risk sensitive nature of the Company. The loan review
procedures are set to monitor adherence to the established criteria and to
ensure that on a continuing basis such standards are enforced and maintained.
Management's objective in establishing lending and investment standards is to
manage the risk of loss and to provide for income generation through pricing
policies. To effectuate this policy, the Company makes commercial real estate
loans with a three-year or less fixed maturity, which may be amortized over a
maximum of 15 years.
The loan portfolio is regularly reviewed and management determines the amount of
loans to be charged-off. In addition, such factors as the Company's previous
loan loss experience, prevailing and anticipated economic conditions, industry
concentrations and the overall quality of the loan portfolio are considered.
While management uses available information to recognize losses on loans and
real estate owned, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for possible losses on loans and real estate owned. Such agencies may require
the Company to recognize additions to the allowances based on their judgments
about information available at the time of their examinations. In addition, any
loan or portion thereof which is classified as a "loss" by regulatory examiners
is charged-off.
The allowance for possible loan losses is increased by provisions charged to
operating expense. The allowance for possible loan losses is reduced by charging
off loans or portions of loans at the time they are deemed by management to be
uncollectible and increased when loans previously charged off are recovered. The
resulting allowance for possible loan losses is viewed by management as a
single, unallocated reserve available for all loans and, in management's
opinion, is adequate to provide for reasonably foreseeable potential loan
losses. The risk associated with loans varies with the creditworthiness of the
borrower, the type of loan (consumer, commercial or real estate) and its
maturity. Cash flow adequate to support a
<PAGE> 29
repayment schedule is an element considered for all types of loans. Real
estate loans are impacted by market conditions regarding the value of the
underlying property used as collateral. Commercial loans are also impacted by
the management of the business as well as economic conditions. Management
believes the allowance for possible loan losses is adequate to absorb such
anticipated charge-offs.
Rules and formulas relative to the adequacy of the allowance for possible loan
losses, although useful as guidelines to management, are not rigidly applied.
The allowance for possible loan losses was $817,000 as of December 31, 1999 or
1.26% of loans outstanding. The allowance for possible loan losses was $473,000
as of December 31, 1998, or 1.25% of loans outstanding. The provision for
possible loan losses charged against earnings during 1999 was $353,000. Net
charge-offs during 1999 were $9,000 (consisting of charge-offs of $10,000 and
recoveries of $1,000.) The provision for possible loan losses charged against
earnings during the year ended December 31, 1998 was $406,000. Loans totaling
$1,000 were charged-off (with no recoveries made) during the year ended December
31, 1998.
There were no non-performing loans of the Company on at December 31, 1999 or at
December 31, 1998. This includes non-accrual loans and restructured loans.
Accrual of interest is discontinued when there is reasonable doubt as to the
full, timely collections of interest or principal. When a loan becomes
contractually past due ninety (90) days with respect to interest or principal,
it is reviewed and a determination is made as to whether it should be placed on
non-accrual status. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period interest
income. Income on such loans is then recognized only to the extent that cash is
received and where the future collection of principal is probable. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to principal and interest and when, in the judgment of management, the
loans are estimated to be fully collectible as to principal and interest.
Restructured loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms. There was no other real
estate owned or foreclosed, any repossessed assets or impaired loans at December
31, 1999 or at December 31, 1998. There were $34,000 and $3,000 of loans past
due ninety or more days and still accruing interest at December 31, 1999 and
1998, respectively.
DEPOSITS
The Company's primary sources of funds are interest-bearing deposits. The
following table sets forth the Company's deposit structure at December 31, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Non-interest-bearing deposits:
Individuals, partnerships and corporations $ 6,873 $ 2,567
U. S. Government and states and political subdivisions -- --
Certified and official checks 630 389
- ------------------------------------------------------------------------------
Total non-interest-bearing deposits 7,503 2,956
- ------------------------------------------------------------------------------
Interest-bearing deposits:
Interest-bearing demand accounts 21,794 29,557
Saving accounts 367 221
Certificates of deposit, less than $100,000 35,277 23,752
Certificates of deposit, $100,000 or greater 20,754 8,516
- ------------------------------------------------------------------------------
Total interest-bearing deposits 78,192 62,046
- ------------------------------------------------------------------------------
Total deposits $85,695 $65,002
==============================================================================
</TABLE>
<PAGE> 30
The following table presents a breakdown by category of the average amount of
deposits and the average rate paid on deposits for the year ended December 31,
1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Non-interest-bearing deposits $ 3,859 N/A $ 1,803 N/A
Interest-bearing demand deposits 25,591 3.22% 22,400 4.96%
Savings accounts 346 2.08% 160 2.51%
Certificates of deposit 41,353 5.16% 21,174 5.64%
- ---------------------------------------------------------------------------------
Total deposits $71,149 4.40% $45,537 5.28%
=================================================================================
</TABLE>
At December 31, 1999, certificates of deposits greater than $100,000 aggregated
approximately $20,754,000. The following table indicates, as of December 31,
1999, the dollar amount of $100,000 or more by the time remaining until maturity
(in thousands):
<TABLE>
<CAPTION>
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
------- ------ ----- -----
<S> <C> <C> <C> <C>
Certificates of deposit $10,643 $7,253 $ 2,858 -
==========================================================================================================
</TABLE>
At December 31, 1998, certificates of deposits greater than $100,000 aggregated
approximately $8,516,000. The following table indicates, as of December 31,
1998, the dollar amount of $100,000 or more by the time remaining until maturity
(in thousands):
<TABLE>
<CAPTION>
3 Months 3 to 12 1 to 5 Over 5
or less Months Years Years
------- ------ ----- -----
<S> <C> <C> <C> <C>
Certificates of deposit $1,722 $5,794 $ 1,000 -
==========================================================================================================
</TABLE>
LIQUIDITY
Of primary importance to depositors, creditors and regulators is the ability to
have readily available funds sufficient to repay fully maturing liabilities. The
Company's liquidity, represented by cash and cash due from banks, is a result of
its operating, investing and financing activities. In order to insure funds are
available at all times, the Company devotes resources to projecting on a monthly
basis the amount of funds that will be required and maintains relationships with
a diversified customer base so funds are accessible. Liquidity requirements can
also be met through short-term borrowings or the disposition of short-term
assets, which are generally matched to correspond to the maturity of
liabilities.
The Company has a formal liquidity policy, and in the opinion of management, its
liquidity levels are considered adequate. Neither the Company nor the Bank is
subject to any specific regulation liquidity requirements imposed by regulatory
authorities. The Bank is subject to general FDIC guidelines, which do not
require a minimum level of liquidity. Management believes its liquidity ratios
meet or exceed these guidelines. Management does not know of any trends or
demands that are reasonably likely to result in liquidity increasing or
decreasing in any material manner. The ratio for average loans to average
deposits for the year ended December 31, 1999 was 71.7% and for the year ended
December 31, 1998 was 51.1%.
CAPITAL ADEQUACY
Capital adequacy refers to the level of capital required to sustain asset growth
over time and to absorb losses. The objective of the Company's management is to
maintain a level of capitalization that is sufficient to take advantage of
profitable growth opportunities while meeting regulatory requirements. This is
achieved by improving profitability through effectively allocating resources to
more profitable businesses, improving asset quality, strengthening service
quality, and streamlining costs. The primary measures used by management to
monitor the results of these efforts are the ratios of average equity to average
assets, average tangible equity to average tangible assets, and average equity
to net loans. The Federal Reserve Board and FDIC have adopted capital guidelines
governing the activities of bank holding companies and banks. These guidelines
require the maintenance of an amount of capital based on risk-adjusted assets so
<PAGE> 31
that categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk. In addition, banks and bank holding
companies are required to maintain capital to support, on a risk-adjusted basis,
certain off-balance sheet activities such as loan commitments.
The capital guidelines classify capital into two tiers, referred to as Tier I
and Tier II. Under risk-based capital requirements, total capital consists of
Tier I capital, which is generally common shareholders' equity less goodwill and
excess tax assets, and Tier II capital which is primarily the qualifying portion
of the allowance for possible loan losses and certain qualifying debt
instruments. In determining risk-based capital requirements, assets are assigned
risk-weights of 0% to 100%, depending primarily on the regulatory assigned
levels of credit risk associated with such assets. Off-balance sheet items are
considered in the calculation of risk-adjusted assets through conversion factors
established by the regulators. The framework for calculating risk-based capital
requires banks and bank holding companies to meet the regulatory minimums of 4%
Tier I and 8% total risk-based capital. In 1990 regulators added a leverage
computation to the capital requirements, comparing Tier I capital to total
average assets less goodwill and excess tax assets.
The following table gives the various capital ratios and balances at December
31, 1999 and December 31, 1998 (dollars in thousands) for the Company:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CAPITAL:
Tier I capital:
Shareholders' equity $ 8,815 $ 8,522
Less excess tax assets 256 323
- -----------------------------------------------------------------------
Total Tier I capital 8,559 $ 8,199
- -----------------------------------------------------------------------
Tier II capital:
Qualifying debt 3,000 --
Qualifying allowance for loan losses 817 473
- -----------------------------------------------------------------------
Total Tier II capital 3,817 473
- -----------------------------------------------------------------------
Total capital $12,376 $ 8,672
=======================================================================
Risk-adjusted assets $76,553 $47,883
=======================================================================
Quarterly average assets $95,890 $76,255
=======================================================================
RATIOS:
Tier I capital to risk-adjusted assets 11.2% 17.1%
Tier II capital to risk-adjusted assets 5.0% 1.0%
Total capital to risk-adjusted assets 16.2% 18.1%
Leverage-- Tier I capital to quarterly
Average assets less disallowed intangibles 8.9% 10.8%
</TABLE>
<PAGE> 32
The following table gives the various capital ratios and balances at December
31, 1999 and December 31, 1998 (dollars in thousands) for the Bank:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CAPITAL:
Tier I capital:
Shareholders' equity $11,569 $ 8,356
Less excess tax assets 247 261
- -----------------------------------------------------------------------
Total Tier I capital 11,322 8,095
- -----------------------------------------------------------------------
Tier II capital:
Qualifying debt -- --
Qualifying allowance for loan losses 817 473
- -----------------------------------------------------------------------
Total Tier II capital 817 473
- -----------------------------------------------------------------------
Total capital $12,139 $ 8,568
=======================================================================
Risk-adjusted assets $76,497 $47,862
=======================================================================
Quarterly average assets $95,890 $76,255
=======================================================================
RATIOS:
Tier I capital to risk-adjusted assets 14.8% 16.9%
Tier II capital to risk-adjusted assets 1.1% 1.0%
Total capital to risk-adjusted assets 15.9% 17.9%
Leverage-- Tier I capital to quarterly
Average assets less disallowed intangibles 11.8% 10.6%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital categories for banks and bank holding companies. The
bank regulators adopted regulations defining these five capital categories in
September 1992. Under these new regulations each bank is classified into one of
the five categories based on its level of risk-based capital as measured by Tier
I capital, total risk-based capital, and Tier I leverage ratios and its
supervisory ratings. The following table lists the five categories of capital
and each of the minimum requirements for the three risk-based capital ratios.
<TABLE>
<CAPTION>
Total Risk-Based Tier I Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Well-capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- 2% or less
</TABLE>
On December 31, 1999 and December 31, 1998, the Company exceeded the regulatory
minimums and qualified as a well-capitalized institution under the regulations.
<PAGE> 33
SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 1999 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal funds purchased $2,000 $ --
Securities underlying the repurchase agreements obligations of U.S. Government
agencies and corporations with amortized cost of approximately $6,364,000 and
$5,400,000 at December 31, 1999 and 1998, respectively, and estimated fair
values of $6,211,000 and $5,467,000
at December 31, 1999 and 1998, respectively 2,889 3,590
- ----------------------------------------------------------------------------------------------------
Total $4,889 $3,590
====================================================================================================
</TABLE>
The Bank pays interest on these repurchase agreements at approximately 0.40%
below the federal funds rate. These repurchase agreements have maturities of one
day.
Securities sold under agreement to repurchase averaged approximately $3,309,000
and $1,347,000 during 1999 and 1998, respectively, and the maximum amount
outstanding at any month end during 1999 and 1998 was approximately $5,892,000
and 4,650,000, respectively.
The securities underlying the repurchase agreements are held in safekeeping by a
separate third party bank.
PROPERTY ACQUISITIONS:
During 1999, the Company began renovating its existing office premises and Bank
building into one combined main office. The cost of this renovation and
construction and related furnishings is estimated at $2,400,000. Completion is
expected to be in April 2000. An additional outlay of $427,000 has been expended
for the addition of a branch to be opened in March 2000. An additional $200,000
is anticipated to be spent to adapt the building for a limited services banking
facility. No other significant property acquisitions are planned for the next
year.
PERSONNEL:
The Company increased the number of employees from the level of twenty-eight at
December 31, 1998 to forty-three at December 31, 1999.
The Company anticipates increasing the number of employees during 1999 to
approximately fifty employees to service the anticipated loan and deposit growth
and related support services during the next twelve months including any
additional staffing for a branch to open in March 2000 as well as the new main
building which should be completed in April 2000.
RESEARCH AND DEVELOPMENT:
The Company does not engage in product research and development and does not
anticipate any such activities during the next twelve months.
FOREIGN TRANSACTIONS:
The Company and the Bank have not had any investment securities, loans or
deposits of foreign governments, corporations or other entities.
<PAGE> 34
ITEM 7 - FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
MURFREESBORO BANCORP, INC.
DECEMBER 31, 1999 AND 1998
<PAGE> 35
MURFREESBORO BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
C O N T E N T S
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Independent Auditors' Report ....................................... F-1
Consolidated Balance Sheets ........................................ F-2
Consolidated Statements of Operations .............................. F-3
Consolidated Statements of Changes in Shareholders' Equity ......... F-4
Consolidated Statements of Cash Flows .............................. F-5
Notes to Consolidated Financial Statements ......................... F-6-F-27
</TABLE>
<PAGE> 36
(Letterhead of Rayburn, Betts and Bates, P.C.)
Independent Auditors' Report
The Board of Directors
Murfreesboro Bancorp, Inc.
Murfreesboro, Tennessee
We have audited the consolidated balance sheets of Murfreesboro Bancorp, Inc.
(the Company) and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and subsidiary at December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Note 15 to the consolidated financial statements, the Company
adopted a new accounting standard in 1998 related to accounting for start-up
activities as required by generally accepted accounting principles.
/s/ Rayburn, Betts and Bates, P.C.
Nashville, Tennessee
February 11, 2000
F-1
<PAGE> 37
MURFREESBORO BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
<S> <C> <C> <C>
Cash and due from banks (note 2) $ 3,114 $ 2,402
Federal funds sold 2,160 7,070
- ---------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 5,274 9,472
- ---------------------------------------------------------------------------------------------------------
Securities available for sale (note 3) 17,387 20,198
Securities held to maturity (estimated fair value of
$8,628,000 and $6,422,000 for 1999 and 1998 - note 3) 8,859 6,384
- ---------------------------------------------------------------------------------------------------------
Total investment securities 26,246 26,582
- ---------------------------------------------------------------------------------------------------------
Loans, net (note 4) 64,480 37,318
Premises and equipment, net (note 5) 4,475 1,605
Accrued interest receivable 745 540
Deferred tax benefit (note 9) 342 323
Other assets (note 6) 1,684 1,583
- ---------------------------------------------------------------------------------------------------------
Total assets $ 103,246 $ 77,423
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (note 7) $ 85,695 $ 65,002
Short-term borrowings (note 8) 4,889 3,590
Accrued interest payable 344 205
Other liabilities 624 92
Subordinated convertible capital debentures (note 10) 3,000 --
- ---------------------------------------------------------------------------------------------------------
Total liabilities 94,552 68,889
- ---------------------------------------------------------------------------------------------------------
Contingencies (note 11)
Shareholders' equity (note 12):
Preferred stock, no assigned value or rights, 1,000,000 shares authorized,
no shares issued or outstanding at December 31, 1999 and 1998 -- --
Common stock, $5.00 par value, 2,000,000 shares authorized
and 907,609 shares issued and outstanding
at December 31, 1999 and 1998 4,538 4,538
Additional paid-in capital 4,530 4,530
Deficit (253) (546)
- ---------------------------------------------------------------------------------------------------------
Realized shareholders' equity 8,815 8,522
Accumulated other comprehensive income (loss), net of tax (121) 12
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 8,694 8,534
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 103,246 $ 77,423
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 38
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest on federal funds sold $ 132 $ 309
Interest and dividends on taxable investment securities 1,436 1,387
Interest and fees on loans 4,330 1,936
- --------------------------------------------------------------------------------------------------
Total interest income 5,898 3,632
- --------------------------------------------------------------------------------------------------
Interest expense:
Interest on negotiable order of withdrawal accounts 415 859
Interest on money market demand accounts 408 252
Interest on savings deposits 7 4
Interest on certificates of deposit 2,133 1,194
- --------------------------------------------------------------------------------------------------
Total interest expense on deposits 2,963 2,309
Interest on short-term borrowings 165 66
- --------------------------------------------------------------------------------------------------
Total interest expense 3,128 2,375
- --------------------------------------------------------------------------------------------------
Net interest income 2,770 1,257
Provision for possible loan losses (note 4) 353 406
- --------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 2,417 851
- --------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposits 198 113
Other fees and commissions 47 12
Securities gains (losses), net 2 --
Other non-interest income 121 26
- --------------------------------------------------------------------------------------------------
Total non-interest income 368 151
- --------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 1,262 700
Occupancy expenses, net (note 5) 75 80
Furniture and equipment expense (note 5) 150 113
Other non-interest expenses 859 578
- --------------------------------------------------------------------------------------------------
Total non-interest expense 2,346 1,471
- --------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative effect of a change
change in accounting principle 439 (469)
Income tax expense (benefit) (note 9) 146 (330)
- --------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change
in accounting principle 293 (139)
Cumulative effect of a change in accounting principle, removing
start-up costs (no tax effect required) (note 15) -- (38)
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 293 $ (177)
==================================================================================================
Earnings per share (note 20):
Basic:
Income (loss) before cumulative effect of a change in accounting $ 0.32 $ (0.15)
principle
Cumulative effect of a change in accounting principle -- (0.04)
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 0.32 $ (0.19)
==================================================================================================
Diluted:
Income (loss) before cumulative effect of a change in accounting
principle $ 0.30 $ (0.15)
Cumulative effect of a change in accounting principle -- (0.04)
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 0.30 $ (0.19)
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 39
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Shares)
<TABLE>
<CAPTION>
Common Stock
------------ Accumulated
Additional Realized Other
Par Paid-in Shareholders' Comprehensive
Shares Value Capital Deficit Equity Income(Loss) Total
------ ----- ------- ------- ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1998 907,609 $4,538 $4,530 $(369) $ 8,699 $ (9) $ 8,690
Comprehensive income:
Unrealized gain on
securities available for
sale, net of tax of $7,000 -- -- -- -- -- 21 21
Net loss -- -- -- (177) (177) -- (177)
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (156)
-----
Balance at
December 31, 1998 907,609 4,538 4,530 (546) 8,522 12 8,534
Comprehensive income:
Unrealized loss on
securities available for
sale, net of tax of $81,000 -- -- -- -- -- (133) (133)
Net income -- -- -- 293 293 -- 293
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income 160
---
Balance at
December 31, 1999 907,609 $4,538 $4,530 $(253) $ 8,815 $(121) $ 8,694
==========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 40
MURFREESBORO BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) $ 293 $ (177)
Adjustments to reconcile net income (loss) to net cash
provided (used) in operating activities:
Provision for possible loan losses 353 406
Provision for deferred tax expense (benefit) 62 (330)
Provision for depreciation, amortization and accretion, net 159 170
Gain on sale of investments securities available for sale (2) --
Stock dividend on Federal Home Loan Bank common stock (15) (1)
Changes in assets and liabilities:
Increase in accrued interest receivable (205) (391)
Increase in cash surrender value of officers life insurance (75) --
(Increase) decrease in other assets (26) 6
Increase in accrued interest payable 139 131
Increase in other liabilities 532 11
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,215 (175)
- --------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of securities available for sale (12,378) (22,687)
Purchase of securities held to maturity (4,501) (8,902)
Maturities and calls of securities available for sale 12,000 17,250
Maturities and calls of securities held to maturity 2,000 2,500
Proceeds from sale of securities available for sale 2,990 --
Increase in loans, net (27,515) (32,391)
Additions to premises and equipment (3,001) (160)
Outlays for other assets -- (1,500)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,405) (45,890)
- --------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of subordinated convertible capital debentures 3,000 --
Net increase in deposits 20,693 43,237
Net increase in short-term borrowings 1,299 3,590
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 24,992 46,827
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,198) 762
Cash and cash equivalents at beginning of the year $ 9,472 $ 8,710
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 5,274 $ 9,472
==============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,989 $ 2,241
==============================================================================================================
Non-cash transactions:
Change in unrealized gain (loss) on securities available for sale,
net of tax effect of ($81,000) and $7,000 for 1999 and
1998, respectively (133) 21
==============================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 41
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Murfreesboro Bancorp, Inc. (the Company)
conform to generally accepted accounting principles and to general
practices within the banking industry. The following represent the more
significant of those policies and practices:
(a) Basis of Consolidated Financial Statements
The consolidated financial statements include the accounts of
the Company's wholly owned subsidiary, Bank of Murfreesboro
(the Bank), which is a full service bank. Intercompany
accounts and transactions have been eliminated in
consolidation.
The Company derives substantially all of its revenues from the
Bank. The Bank is primarily engaged in the business of
attracting demand, savings and time deposits from the general
public in the Rutherford County, Tennessee market area and
investing these funds in investment securities and loans to
commercial and retail enterprises as well as individuals
located in the same general market area.
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates used in
the preparation of the consolidated financial statements are
based on various factors including the current interest rate
environment and the general strength of the local economy.
Changes in the overall interest rate environment can
significantly affect the Company's net interest income and the
value of its recorded assets and liabilities. Actual results
could differ from those estimates used in the preparation of
the financial statements.
(b) Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand and in
banks, federal funds sold and investment securities purchased
with an original ninety day or less remaining maturity.
(c) Investment Securities
The Company has adopted Statement of Financial Accounting
Standard ("SFAS") 115 Accounting for Certain Investments in
Debt and Equity Securities. SFAS 115 requires that all
investments in debt securities and all investments in equity
securities that have readily determinable fair values be
classified into three categories. Debt securities that
management has positive intent and ability to hold until
maturity will be classified as to be held to maturity.
Securities that are bought and held specifically for the
purpose of selling them in the near term will be classified as
trading securities. All other securities will be classified as
available for sale. Securities are designated as available for
sale if management intends to use such securities in its
asset/liability management strategy and therefore such
securities may be sold in response to changes in interest
rates. Securities classified as trading and available for sale
will be carried at market value.
Premiums and discounts on investment securities are amortized
using the level interest yield method over the life of the
security for discount and over the remaining term to call date
or maturity date, if no call date.
F-6
<PAGE> 42
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Unrealized holding gains and losses for available for sale
securities are reported as a separate component of
shareholders' equity until realized, net of the estimated tax
effect. Investments classified as to be held to maturity will
be carried at amortized cost. Realized gains and losses on any
sales of securities are computed on the basis of specific
identification of the adjusted cost of each security and
included in non-interest income.
(d) Loans, net
Loans are stated at the principal amount outstanding. Unearned
interest on certain loans, which relates principally to
installment loans, is shown as a reduction of loans. Interest
income on installment loans with related unearned interest is
recognized by a method that does not differ materially from
the level-yield method. Interest on all other loans is
computed on the outstanding loan balance.
Loan origination fees are recognized in amounts estimated to
be the Company's loan origination costs related to
underwriting and closing the loans at origination. Fees
received in excess of the amount recognized at origination are
deferred and amortized into income over the estimated average
life of the loans using the level-yield method. The
unamortized balance of deferred loan origination fees or costs
are reflected in earnings at the time a loan is sold or paid
off.
Loans, including impaired loans, are placed on a non-accrual
basis when payments of interest and/or principal have remained
delinquent for a period of over 90 days, unless the loan is
both well-secured and in the process of collection, or
management's evaluation indicates probable default prior to
the 90-day delinquency period.
Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are
assured of repayment within an acceptable period of time, and
there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest
and principal. While a loan is classified as nonaccrual,
interest income is generally recognized on a cash basis.
The decision to charge off a loan is based upon the borrower's
continued failure to pay principal or interest when due, or
circumstances indicating the payments will not or cannot be
made, along with evaluation of any collateral securing the
loan.
Consumer loans generally are charged off when contractually
delinquent 120 days or more, or when five payments have been
missed and there is no recent record of regular payment.
The allowance method is used by the Company to provide for
possible loan losses. Accordingly, all loan losses are charged
to the allowance for possible loan losses and all recoveries
are credited to it. The allowance is an amount that management
believes will be adequate to absorb possible losses on
existing loans that may become uncollectible. The provision
for possible loan losses charged to operating expense is based
on past loan loss experience and other factors, which, in
management's judgment, deserve current recognition in
estimating possible loan losses. Such other factors considered
by management include growth and composition of the loan
portfolio, the relationship of the
F-7
<PAGE> 43
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
allowance for possible loan losses to outstanding loans and
current economic conditions that may affect borrowers' ability
to repay.
The Financial Accounting Standards Board ("FASB") issued SFAS
114 Accounting by Creditors for Impairment of a Loan which
addresses the accounting by creditors for impairment of
certain loans. It is generally applicable for all loans,
except large groups of smaller-balance homogenous loans that
are collectively evaluated for impairment including
residential mortgage loans and consumer installment loans.
SFAS 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable
market price or the fair value of the collateral if the loan
is collateral dependent. A loan is considered impaired when,
based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement.
The FASB issued SFAS 118, which is effective concurrent with
the effective date of SFAS 114. This Statement amends SFAS 114
to allow a creditor to use existing methods for recognizing
interest income on impaired loans. Also, this statement
requires the disclosure about the recorded investment in
certain impaired loans and how the creditor recognizes
interest income related to those impaired loans.
(e) Premises and Equipment
Premises and equipment are stated at cost. Depreciation is
computed primarily by the straight-line method over the
estimated useful lives of the related assets, which primarily
range from 3 to 30 years. Gain or loss on items retired and
otherwise disposed of is credited or charged to operations and
cost and related accumulated depreciation are removed from the
asset and accumulated depreciation accounts.
(f) Other Real Estate
Properties acquired through foreclosure and unused premises
are stated at the lower of recorded amount of the loan or the
property's estimated net realizable value, reduced by
estimated selling costs. Write-down of the assets at, or prior
to, the date of foreclosure is charged to the allowance for
possible losses on loans. Subsequent write-downs, income and
expenses incurred in connection with holding such assets, and
gains and losses realized from the sales of such assets are
included in noninterest income and expense.
(g) Income Taxes
The FASB has issued SFAS 109 Accounting for Income Taxes. SFAS
109 required a change from the deferred method previously used
in the consolidated financial statements to the asset and
liability method of computing deferred income taxes. Under the
asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences
by applying future statutory tax rates to differences between
the financial statements carrying amounts and the tax basis of
existing assets and liabilities.
F-8
<PAGE> 44
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
Deferred income taxes arise from temporary differences between
financial and tax reporting, principally related to
depreciation and provision for possible loan losses, deferred
compensation and net operating losses.
The provision for income taxes relates to items of income and
expense after elimination of principally non-deductible
officers' life insurance premiums and disallowed expenditures
such as meals, entertainment and dues.
The Company will file a consolidated federal income tax return
and a combined state excise (income) tax return with its
wholly owned subsidiary. Income taxes are allocated on a
"separate entity" basis.
(h) Advertising Costs
Advertising costs are expensed as incurred and are not subject
to capitalization and amortization.
(2) CASH AND DUE FROM BANKS
At December 31, 1999 and 1998, the Company had deposits in other
financial institutions in excess of Federal Deposit Insurance
Corporation insurance coverage limits by approximately $1,657,000 and
$794,000, respectively.
The Bank is required to maintain cash balances with the Federal Reserve
Bank or other correspondent banks based on certain percentages of
deposit types. The approximate average amount for cash maintenance for
the years ended December 31, 1999 and 1998 was $154,000 and $25,000,
respectively.
(3) INVESTMENT SECURITIES
The amortized cost and approximate estimated fair value of securities
available for sale at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,997 $ -- $ 9 $ 2,988
Obligations of U.S
Government agencies
and corporations 13,998 -- 186 13,812
Equity securities 587 -- -- 587
----------------------------------------------------------------------------
Total $17,582 $ -- $ 195 $17,387
============================================================================
</TABLE>
F-9
<PAGE> 45
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
The amortized cost and approximate estimated fair value of securities
available for sale at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S
Government agencies
and corporations $20,016 $ 43 $ 24 $20,035
Equity securities 163 -- -- 163
-----------------------------------------------------------------------------------
Total $20,179 $ 43 $ 24 $20,198
===================================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities
available for sale at December 31, 1999 and 1998, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1999 1998
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,996 $ 6,956 $ 4,000 $ 3,993
Due after one year
through five years 8,994 8,854 15,002 15,011
Due after five years through
ten years 1,005 990 1,014 1,031
--------------------------------------------------------------------------------------------
Total debt securities available for sale $16,995 $16,800 $20,016 $20,035
============================================================================================
</TABLE>
Securities were sold in 1999 that resulted in gross proceeds of
$2,990,000 and a net gain on the sale of securities of $2,000. No
securities were sold in 1998.
The amortized cost and approximate estimated fair value of securities
held to maturity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S
Government agencies
and corporations $ 8,859 $- $ 231 $ 8,628
============================================================================================
</TABLE>
F-10
<PAGE> 46
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
The amortized cost and approximate estimated fair value of securities
held to maturity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Obligations of U.S
Government agencies
and corporations $ 6,384 $ 51 $ 13 $ 6,422
=====================================================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities held to
maturity at December 31, 1999 and 1998 by contractual maturity are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1999 1998
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ --
Due after one year
through five years 5,998 5,841 1,502 1,502
Due after five years through
ten years 2,861 2,787 4,882 4,920
--------------------------------------------------------------------------------------------
Total debt securities held to maturity $ 8,859 $ 8,628 $ 6,384 $ 6,422
============================================================================================
</TABLE>
Investment securities having an estimated fair value of approximately
$23,948,000 and $13,491,000 at December 31, 1999 and 1998,
respectively, were pledged to secure public and trust funds on deposit
and securities sold under agreements to repurchase.
The investment in equity securities in 1999 represents stock in the
Federal Home Loan Bank ("FHLB") of Cincinnati of $244,000 and stock in
the Federal Reserve Bank of Atlanta ("FRB") of $343,000. Both represent
restricted stock in that it lacks a market and can only be sold at its
par value to members of the FHLB or FRB or to the FHLB or FRB. The
investment in equity securities in 1998 represents stock in the FHLB.
No FRB stock was held at December 31, 1998.
F-11
<PAGE> 47
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
(4) LOANS, NET
Loans, net at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural $9,747 $7,789
Real estate - construction 2,702 1,286
Real estate - commercial 18,839 9,663
Real estate - mortgage 22,457 12,307
Consumer and other 11,300 6,625
-----------------------------------------------------------------------------
Total 65,045 37,670
Unamortized premiums
and net deferred loan costs 252 121
Less allowance for possible loan losses 817 473
-----------------------------------------------------------------------------
Total loans, net $64,480 $37,318
=============================================================================
</TABLE>
The Bank grants commercial, consumer, residential and agribusiness
loans to customers throughout southern middle Tennessee, but primarily
concentrated in Rutherford County, Tennessee. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the local economy.
As a normal course of business, the Company makes loans to its
directors, officers, and affiliates. In management's opinion, all such
loans were made in the ordinary course of business on substantially the
same terms as those prevailing at the time for comparable transactions
with unrelated parties.
The following is a summary of funds advanced to directors, officers and
affiliates of the Company, as well as, repayments for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance - beginning of year $3,222 $1,609
New loans and advances during the year 346 3,109
Repayments during the year (1,096) (1,496)
------------------------------------------------------------------------------
Balance - end of year $2,472 $3,222
=============================================================================
</TABLE>
At December 31, 1999 and 1998, loans past due ninety or more days and
still accruing interest totaled $34,000 and $3,000, respectively.
At December 31, 1999 and 1998, no loans were classified as impaired,
non-accrual nor deemed non-performing.
F-12
<PAGE> 48
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
Transactions in the allowance for possible loan losses for the years
ended December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance - beginning of year $ 473 $ 68
Provision for possible loan losses 353 406
---------------------------------------------------------
826 474
---------------------------------------------------------
Loans charged-off (10) (1)
Recoveries 1 --
---------------------------------------------------------
Net loans charged-off (9) (1)
---------------------------------------------------------
Balance - end of year $ 817 $ 473
=========================================================
</TABLE>
(5) PREMISES AND EQUIPMENT, NET
The detail of premises and equipment, net at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 1,004 $ 655
Construction in progress 2,007 27
Buildings 669 499
Furniture and equipment 1,056 557
--------------------------------------------------------
4,736 1,738
Less accumulated depreciation (261) (133)
--------------------------------------------------------
Premises and equipment, net $ 4,475 $ 1,605
========================================================
</TABLE>
Depreciation related to premises and equipment for the year ended
December 31, 1999 and December 31, 1998 was $131,000 and $111,000,
respectively.
The Company also acquired equipment, supplies and furnishings of
$51,000 and $38,000 from other directors in 1999 and 1998,
respectively.
During 1998, the Company developed plans to renovate the existing
buildings into one main office. As of December 31, 1999, approximately
$127,000 has been expended on architectural and engineering services.
Construction in progress amounted to approximately $1,858,000 for the
main office and is expected to be completed in April 2000. The cost of
the contract with most recent change orders is expected to be
$2,283,000. Capitalized interest for this project at December 31, 1999
was $22,000. The Company also developed plans to renovate an existing
commercial building for use as a limited services branch office to be
completed in March 2000. The estimated cost of the contract will be
$178,000. No payments had been made to the contract as of December 31,
1999. The Company paid $427,000 for the building and land.
(6) OTHER ASSETS
The Company has purchased life insurance on certain of its employees
and is the beneficiary of these policies. At December 31, 1999 and
1998, the cash surrender value of these policies, which is included in
"Other assets", was $1,575,000 and $1,500,000, respectively. There are
no
F-13
<PAGE> 49
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
restrictions on the proceeds from these benefits and the Company has
not borrowed against the cash surrender value of these policies.
(7) DEPOSITS
Deposits at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Non-interest bearing deposits:
Demand deposits $ 7,503 $ 2,956
Interest bearing deposits:
NOW and Super NOW accounts 11,064 22,393
Money market demand accounts 10,730 7,164
Savings 367 221
Certificates of deposit $100,000 or greater 20,754 8,516
Other certificates of deposit 35,277 23,752
--------------------------------------------------------------------------------
Total $85,695 $65,002
================================================================================
</TABLE>
At December 31, 1999 and 1998, the scheduled maturities of certificates
of deposit were:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
1 year $45,813 $27,789
2 years 4,322 42
3 years 3,046 1,362
4 years 2,835 179
5 years 15 2,896
-----------------------------------------------------------------------------------
Total $56,031 $32,268
=================================================================================
</TABLE>
(8) SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1999 and 1998 is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal funds purchased $ 2,000 $ --
Securities underlying the repurchase agreements -
obligations of U.S. Government agencies and
corporations with amortized cost of approximately
$6,364,000 and $5,400,000 at December 31, 1999
and 1998, respectively, and estimated fair values of
$6,211,000 and $5,467,000 at December 31, 1999
and 1998, respectively 2,889 3,590
-------------------------------------------------------------------------------------
Total $4,889 $3,590
=====================================================================================
</TABLE>
F-14
<PAGE> 50
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
The Bank pays interest on these repurchase agreements at approximately
0.40% below the federal funds rate. These repurchase agreements have
maturities of one day.
Securities sold under agreement to repurchase averaged approximately
$3,309,000 and $1,347,000 during 1999 and 1998, respectively, and the
maximum amount outstanding at any month end during 1999 and 1998 was
approximately $5,892,000 and 4,650,000, respectively.
The securities underlying the repurchase agreements are held in
safekeeping by a separate third party bank.
(9) INCOME TAXES
A reconciliation of income tax expense (benefit) for the years ended
December 31, 1999 and 1998 to the "expected" tax expense (benefit)
computed by applying the statutory federal income tax rate of 34
percent to income (loss) before income taxes and cumulative effect of a
change in accounting principle, is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 149 34% $(159) (34)%
Increase (reduction) in taxes
resulting from:
Valuation allowance related to deferred tax assets -- -- % (138) (29)%
State income taxes, net of federal tax effect 16 4% (35) (7)%
Other, net (19) (5)% 2 -- %
--------------------------------------------------------------------------------------------------
Income tax expense (benefit) $ 146 33% $(330) (70)%
==================================================================================================
</TABLE>
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1999
Current $ 70 $ 14 $ 84
Deferred 52 10 62
----------------------------------------------
Total $ 122 $ 24 $ 146
==============================================
1998
Current $ -- $ -- $ --
Deferred (277) (53) (330)
----------------------------------------------
Total $(277) $(53) $(330)
==============================================
</TABLE>
The sources of deferred income tax expenses (benefits) at December 31,
1999 and 1998 and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net operating losses $200 $ (83)
Provision for possible loan losses (109) (128)
Depreciation 19 33
Deferred compensation (45) --
Other, net (3) (14)
Valuation allowance related to deferred tax asset -- (138)
--------------------------------------------------------------------------------------------
Deferred taxes, net $ 62 $(330)
============================================================================================
</TABLE>
F-15
<PAGE> 51
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
Significant components of deferred tax assets on the balance sheets as
of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $260 $151
Deferred compensation 45 --
Unrealized loss on investment securities 74
Benefit of net operating losses -- 200
Other 22 12
---------------------------------------------------------------------------------------
401 363
---------------------------------------------------------------------------------------
Deferred tax liability:
Premises and equipment (52) (33)
Unrealized gain on investment securities -- (7)
Other (7) --
---------------------------------------------------------------------------------------
(59) (40)
---------------------------------------------------------------------------------------
Net deferred tax asset before
valuation allowance 342 323
Less valuation allowance -- --
---------------------------------------------------------------------------------------
Net deferred tax asset $342 $323
=======================================================================================
</TABLE>
During the fourth quarter of 1998, management determined that it is
more likely than not that the deferred tax asset will be realized.
The composition of deferred tax assets at December 31, 1999 and 1998,
by tax jurisdiction are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal $288 $270
State 54 53
---------------------------------------------------------------------------------------
Net tax deferred asset $342 $323
=======================================================================================
</TABLE>
(10) SUBORDINATED CONVERTIBLE CAPITAL DEBENTURES
The Company issued $3,000,000 of floating rate subordinated convertible
capital debentures ("debentures") on September 29, 1999. Issuance costs
related to the debentures is approximately $25,000 and is reflected in
other assets net of amortization. The debentures convert to common
stock of the Company on August 31, 2011 at a conversion factor based
upon the market value of the common stock on that date.
F-16
<PAGE> 52
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
If converted before that date, the conversion will be based upon one
share of common stock for every $12.50 of debentures held. The
debentures begin accruing interest on January 1, 2000 and pay interest
every December 15 with the final interest payment being made at
maturity. Interest payment is based upon a rate equal to the weighted
average prime rate less 0.5%.
The amount of debentures held by directors and officers of the Company
at December 31, 1999 totaled $2,004,000.
(11) CONTINGENCIES
In the normal course of business there are contingent liabilities such
as legal proceedings pending against the Company. In the opinion of
management, no material adverse effect on the consolidated financial
position of the Company is anticipated as a result of these items.
(12) SHAREHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid by
the Bank without prior approval of the Bank's regulatory agency, the
Tennessee Department of Financial Institutions. There were no retained
earnings against which dividends may be charged subsequent to December
31, 1999, without regulatory approval. This amount will be increased
based upon future earnings.
Effective March 18, 1998, the Board of Directors adopted a Shareholder
Protection Rights Plan. The Board of Directors has declared a dividend
of one right for each share of common stock as of March 18, 1998. The
distribution of the rights is designed to deter coercive takeover
tactics and help prevent partial tender offers and other abusive
tactics to gain control of the Company without dealing with all
shareholders on a fair and equal basis. Each right entitles
shareholders, under alternative circumstances, to buy either securities
of the Company or securities of the acquiring company (depending upon
the form of the transaction) at an exercise price that will be half the
market value of such securities at that time. The rights can be
exercised only if certain persons or groups acquire nineteen percent or
more of the Company's outstanding common stock or launch a tender or
exchange offer that would result in ownership of nineteen percent or
more of its common stock and for a period of ten days following the
public announcement of such acquisition, the Company will be entitled
to redeem the rights at one cent per right. The rights expire on March
18, 2008.
(13) CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific
capital guidelines that involve quantitative measures of the Company's
and the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Company's and
Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum ratios of
Tier 1 and total capital as a percentage of assets and
off-balance-sheet exposures, adjusted for risk weights ranging from 0%
to 100%.
F-17
<PAGE> 53
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Percentages)
Tier 1 capital consists of common shareholders' equity, excluding the
unrealized gain or loss on securities available for sale, minus certain
intangible assets. Tier 2 capital consists of the allowance for loan
losses and subordinated convertible capital debentures subject to
certain limitations.
Total capital for purposes of computing the capital ratios consists of
the sum of Tier 1 and Tier 2 capital. The regulatory minimum
requirements are 4% for Tier 1 and 8% for total risk-based capital.
The Company and Bank are also required to maintain capital at a minimum
level based on total assets, which is known as the leverage ratio. Only
the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios of 1%
to 2% above the minimum.
As of December 31, 1999, the most recent notifications from the Bank's
regulators categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no
conditions or events that management believes have changed the Bank's
categories.
The following table summarizes the estimated capital ratios and amounts
on a consolidated and Bank only basis and the regulatory minimum
requirements at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
---------- ---------- --------
<S> <C> <C> <C>
Consolidated:
------------
Actual ratio - December 31, 1999 11.180% 16.167% 8.926%
Actual ratio - December 31, 1998 17.123% 18.111% 10.752%
Regulatory minimum for capital adequacy purposes 4.000% 8.000% 4.000%
Calculated balance - December 31, 1999 $ 8,473 $12,290 $ 8,473
Calculated balance - December 31, 1998 $ 8,199 $ 8,672 $ 8,199
Regulatory minimum for capital adequacy purposes
December 31, 1999 $ 3,062 $ 6,124 $ 3,836
December 31, 1998 $ 1,915 $ 3,831 $ 3,050
</TABLE>
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
---------- ---------- --------
<S> <C> <C> <C>
Bank Only:
---------
Actual ratio - December 31, 1999 14.799% 15.861% 11.806%
Actual ratio - December 31, 1998 16.913% 17.901% 10.616%
Regulatory minimum:
For capital adequacy purposes 4.000% 8.000% 4.000%
To be well capitalized under prompt
corrective action provisions 6.000% 10.000% 5.000%
Calculated balance - December 31, 1999 $11,321 $12,138 $11,321
Calculated balance - December 31, 1998 $ 8,095 $ 8,568 $ 8,095
</TABLE>
F-18
<PAGE> 54
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Percentages)
<TABLE>
<S> <C> <C> <C>
Regulatory minimum:
For capital adequacy purposes-December 31, 1999 $ 3,060 $ 6,120 $ 3,836
For capital adequacy purposes-December 31, 1998 $ 1,914 $ 3,829 $ 3,050
To be well capitalized under prompt
corrective action provisions-December 31, 1999 $ 4,590 $ 7,650 $ 4,795
To be well capitalized under prompt
corrective action provisions-December 31, 1998 $ 2,872 $ 4,786 $ 3,813
</TABLE>
(14) OFF-BALANCE SHEET RISK
During the normal course of business, the Company and the Bank are
party to financial instruments with off-balance sheet risk. This is
done to meet the financing needs of customers and to reduce the
Company's and the Bank's exposure to fluctuations in interest rate
risk. These financial instruments include commitments to extend credit,
letters of credit, unadvanced loan principal, construction loan
commitments, home equity lines of credit and commitments to purchase
financial instruments at predetermined prices. Those instruments
contain, to varying degrees, elements of credit and market risk in
excess of the amounts recognized in the consolidated balance sheets.
The credit risk relates to the possibility that a loss may occur from
the failure of another party to perform according to the terms of a
contract. The market risk relates to the possibility that future
changes in market prices may make a financial instrument less valuable
or more onerous.
Commitments to extend credit are legally binding agreements to lend to
a customer. Commitments, with the exception of credit cards, generally
have variable rates, fixed expiration dates and may require payment of
a fee. The variable rates are tied to the Bank's index rate limiting
the Company's market risk. Remaining unadvanced loan principal of
commitments totaled $3,283,000 and $3,078,000 at December 31, 1999 and
1998, respectively. These balances do not necessarily represent actual
future cash requirements since many of the commitments are expected to
expire without being drawn upon. The Bank, for a majority of the
commitments, evaluates each customer's credit worthiness on a
case-by-case basis and collateral is obtained if deemed necessary.
Collateral includes accounts and notes receivable, inventory, plant and
equipment, marketable securities, and mortgages. Construction loan
commitments for both residential and commercial properties totaled
$6,084,000 and $2,344,000 at December 31, 1999 and December 31, 1998,
respectively, with $3,382,000 and $1,058,000 being undrawn,
respectively.
At December 31, 1999 and 1998, the Bank did not offer credit card lines
of credit. Home equity lines represent collateralized equity in single
family residences. At December 31, 1999 and 1998, the home equity lines
of credit totaled $1,697,000 and $840,000 with $448,000 and $298,000
undrawn, respectively.
Letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements, the purchase of domestic and international goods, and
required developer improvements to construction sites. Since most
letters of credit are not expected to be drawn upon, the total contract
amounts do not necessarily represent actual future cash requirements.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. When deemed
necessary, the Bank obtains marketable securities as collateral
supporting these letters of credit. Letters of credit totaled $179,000
and $160,000 at December 31, 1999 and 1998, respectively.
F-19
<PAGE> 55
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
The Bank had no commitments to purchase financial instruments at
predetermined prices at December 31, 1999 or 1998. The exposure to
credit risk resides with the inability to deliver these financial
instruments. The loss would be confined to any adverse change in the
market prices that took place between the time of initiation and
consummation of the transaction. Market risk consists of the normal
risk that resides with any portfolio held when interest rates rise.
(15) EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS
In June 1998 the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires an entity to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The accounting for changes in the fair value
of a derivative (that is, gains and losses) depends on the intended use
of the derivative. The statement is effective for the Company for the
fiscal year beginning after June 15, 1999 and may not be applied
retroactively; however, it may be applied to all quarters beginning in
July 1, 1999. In June 1999 the FASB issued SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, which changed the effective
date to fiscal years after June 15, 2000. At present, the Company holds
no derivative instruments and does not engage in hedging activities, so
this standard should have no effect on the Company.
In October 1998 the FASB issued SFAS 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise which was
an amendment to FASB 65 Accounting for Certain Mortgage Banking
Activities. This statement requires that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking
activities is required to classify the resulting mortgage-backed
securities or other related interests based upon its ability and intent
to sell or hold those investments. This statement is effective for the
first fiscal quarter beginning after December 15, 1998. The Company is
not engaged in the activity of securitizing mortgage loans held for
sale, so this statement had no effect on the Company.
During 1998, the Company adopted the provisions of Statement of
Position 98-5 (SOP 98-5) Reporting of the Costs of Start-Up Activities.
Under SOP 98-5, all start-up costs should be expensed as incurred which
differed from the prior method of capitalization of such costs and
amortizing using the straight-line-method over a sixty month term. In
accordance with SOP 98-5, the Company expensed organizational costs of
approximately $38,000 with no tax benefit recorded as a full allowance
had been established as of the beginning of the year.
F-20
<PAGE> 56
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
(16) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL
INFORMATION
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Balance Sheets
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash $ 159 $ 102*
Investment in subsidiary bank 11,448* 8,368*
Deferred tax benefit 8 62
Due from subsidiary 177* 2*
Other assets 13 --
--------------------------------------------------------------------------------
Total assets $ 11,805 $ 8,534
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other liabilities $ 111 $ --
Subordinated convertible capital debentures 3,000 --
--------------------------------------------------------------------------------
Total liabilities 3,111 --
--------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no assigned value or rights,
1,000,000 shares authorized, no shares issued
or outstanding at December 31, 1999 and 1998 -- --
Common stock, $5.00 par value,
2,000,000 shares authorized, 907,609 shares
issued and outstanding at
December 31, 1999 and 1998 4,538 4,538
Additional paid-in capital 4,530 4,530
Deficit (253) (546)
--------------------------------------------------------------------------------
Realized shareholders' equity 8,815 8,522
Other accumulated comprehensive income (121) 12
--------------------------------------------------------------------------------
Total shareholders' equity 8,694 8,534
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,805 $ 8,534
================================================================================
</TABLE>
* Eliminated in consolidation.
F-21
<PAGE> 57
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
(16) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL
INFORMATION (Continued)
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Statements of Operations
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income:
Interest income $ 8* $ 15*
Other non-interest income -- 3
--------------------------------------------------------------------------
Total 8 18
--------------------------------------------------------------------------
Expenses:
Professional fees 9 13
Other non-interest expenses 29 5
--------------------------------------------------------------------------
Total 38 18
--------------------------------------------------------------------------
Loss before income taxes and
cumulative effect of a change in
accounting principle and equity
in income (loss) of subsidiary bank (30) --
Income tax benefit 11 62
Cumulative effect of a change
in accounting principle (no tax effect required) -- (38)
--------------------------------------------------------------------------
Income (loss) before equity
in income (loss) of subsidiary bank (19) 24
Equity in income (loss) of subsidiary bank 312* (201)*
--------------------------------------------------------------------------
Net income (loss) $ 293 $(177)
==========================================================================
</TABLE>
* Eliminated in consolidation
F-22
<PAGE> 58
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
(16) MURFREESBORO BANCORP, INC. - CONDENSED PARENT COMPANY FINANCIAL
INFORMATION (Continued)
Murfreesboro Bancorp, Inc.
(Parent Company Only)
Statements of Cash Flows
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) $ 293 $(177)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for deferred tax benefit 53 (62)
Equity in (income) loss of subsidiary bank (312) 201
Provision for amortization -- 38
Changes in assets and liabilities:
(Increase) decrease in due from subsidiary (175) (2)
(Increase) decrease in other assets (13) --
Increase (decrease) in other liabilities 111 (5)
------------------------------------------------------------------------------------------
Net cash used by operating activities (43) (7)
------------------------------------------------------------------------------------------
Investing activities:
Investment in bank subsidiary (2,900) (800)
------------------------------------------------------------------------------------------
Net cash used by investing activities (2,900) (800)
------------------------------------------------------------------------------------------
Financing activities:
Issuance of subordinated convertible capital
debentures 3,000 --
------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,000 --
------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 57 (807)
Cash and cash equivalents at beginning of year 102 909
------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 159 $ 102
==========================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ -- $ --
==========================================================================================
Non-cash transactions:
Change in unrealized gain (loss) on securities
available for sale, net of tax effect of $(81,000)
and $7,000 in 1999 and 1998, respectively $ (133) $ (21)
==========================================================================================
</TABLE>
F-23
<PAGE> 59
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values of the Company's financial
instruments at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999: Carrying Estimated
Value Fair Value
----- ----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 5,274 $ 5,274
Securities available for sale 17,387 17,387
Securities held to maturity 8,859 8,628
Loans 64,480 64,850
--------------------------------------------------------------------------
Total $96,000 $96,139
==========================================================================
FINANCIAL LIABILITIES:
Deposits $85,695 $85,903
Short-term borrowings 4,889 4,889
Subordinated convertible capital debentures 3,000 3,000
--------------------------------------------------------------------------
Total $93,584 $93,792
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998: Carrying Estimated
Value Fair Value
----- ----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 9,472 $ 9,472
Securities available for sale 20,198 20,198
Securities held to maturity 6,384 6,422
Loans 37,318 37,394
--------------------------------------------------------------------------
Total $73,372 $73,486
==========================================================================
FINANCIAL LIABILITIES:
Deposits $65,002 $65,271
Short-term borrowings 3,590 3,590
--------------------------------------------------------------------------
Total $68,592 $68,861
==========================================================================
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount for cash and
short-term investments approximates the fair value of the assets.
Included in this classification are cash and due from banks
(non-earning assets) and federal funds sold.
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY - Fair
values of these instruments are based upon quoted market prices, where
available. If quoted market prices are not available, fair values are
based upon the quoted values of similar instruments.
LOANS - The fair values of loans are estimated using the discounted
cash flow analyses and using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality and
risk.
F-24
<PAGE> 60
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands)
DEPOSITS - The fair value of demand deposits, NOW and Super NOW
accounts, money market demand accounts and savings accounts are, by
definition, equal to the amount payable on demand at the reporting date
(i.e. their carrying amount). The fair values of certificates of
deposit are estimated using a discounted cash flow calculation that
applied interest rates currently being offered on these instruments to
a schedule of aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS - The fair value of short-term borrowings
approximates the carrying value due to the short-term nature of the
agreements.
SUBORDINATED CONVERTIBLE CAPITAL DEBENTURES - The fair value of
subordinated convertible capital debentures approximates par value due
to the variable interest rate of the security.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - Fair value of commitments to
extend credit and letters of credit is not presented, since management
believes the fair value to be insignificant.
(18) EMPLOYEE BENEFITS
The Bank has placed into effect a contributory profit-sharing 401(k)
plan that covers employees beginning January 1, 1998. The Bank's
contributions are made at the discretion of the Board of Directors. No
employer contributions were made during the years ended December 31,
1999 or 1998.
The shareholders of the Company approved the 1997
Statutory/Non-Statutory Stock option plan for granting of up to 90,000
stock options under this plan at the annual meeting of shareholders on
April 16, 1998. The Board of Directors of the Company granted incentive
stock options to fourteen employees of the Company totaling 73,000
options during 1998 (including 1,000 options that were forfeited) as
well 18,000 non-qualified stock options to six non-employee directors.
Of the options granted the employees, 72,000 were granted on April 29,
1998 having an exercise price of $10.00 per share and will expire on
April 28, 2008. An additional 1,000 shares were granted on December 9,
1998 with an exercise price of $12.50 per share and these options will
expire on December 8, 2008. Employees are vested in these options at a
rate of 20% each anniversary date of the date the options were granted.
The 18,000 options granted to the non-employee directors on April 29,
1998 have an exercise price of $10.00 per share and expire April 28,
2008.
The Company applies Accounting Principles Board Opinion 25 (APB 25) in
accounting for its stock option plan. Accordingly, compensation costs
are recognized as the difference between the exercise price of each
option and the market price of the Company's stock at the measurement
(grant) date. Had compensation for the Company's stock option plan been
determined based on the fair value at the grant dates for awards under
these plans consistent with the method of SFAS 123, Accounting for
Stock-Based Compensation, the proforma net income (loss) would be
$262,000 and ($197,000) and proforma basic earnings per share would be
$0.29 and ($0.22) and proforma diluted earnings per share would be
$0.27 and ($0.21), for the years ended December 31, 1999 and 1998,
respectively.
A summary of the Company's fixed stock option plan as of December 31,
1999 and changes during the year then ended is as follows:
F-25
<PAGE> 61
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Shares and Per Share Amounts)
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding, beginning of year 90,000 $10.03
Granted -- --
Forfeited -- --
------------------------------------------------------------------------------------------
Outstanding, end of year 90,000 $10.03
==========================================================================================
Options exercisable at end of year 18,000
=======================================================================
Weighted-average fair value of options
granted during the year $ 2.74
Range of exercise price
High $ 12.50
-----------------------------------------------------------------------
Low $ 10.00
-----------------------------------------------------------------------
Weighted-average remaining contractual life (in years) 8.68
=======================================================================
</TABLE>
A summary of the Company's fixed stock option plan as of December 31,
1998 and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding, beginning of year -- $ --
Granted 91,000 10.03
Forfeited (1,000) 10.00
------------------------------------------------------------------------------------------
Outstanding, end of year 90,000 $10.03
==========================================================================================
Option exercisable at end of year --
=======================================================================
Weighted-average fair value of options
granted during the year $ 3.08
Range of exercise price
High $ 12.50
-----------------------------------------------------------------------
Low $ 10.00
-----------------------------------------------------------------------
Weighted-average remaining contractual life (in years) 9.68
=======================================================================
</TABLE>
The weighted-average assumptions used in valuing the stock options
under the minimum value method are as follows:
<TABLE>
<CAPTION>
1999 1998
----- ------
<S> <C> <C>
Risk free interest rate during life of option 5.0% 5.0%
Expected life of option (in years) 6.5 7.5
</TABLE>
F-26
<PAGE> 62
MURFREESBORO BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Tabular Amounts Are In Thousands Except Shares and Per Share Amounts)
During January 1999, the Company established a deferred compensation
plan comprised of separate individual agreements for the benefit of
certain officers and directors. The benefits will be in the form of
supplemental retirement funds. Under the agreements, the benefits
accruing to each officer will increase based on the officer's pro-rata
share of the actual return of a portfolio of life insurance contracts'
cash surrender values less a minimum return to the Company, which is to
be the after tax yield of a one year constant maturity U.S. Treasury
note (CMT index). The benefits will be paid partially in a 10-year
period after termination and the remaining portion will be paid until
the death of the officer. Officers that were involved in the formation
of the Company fully vest on January 1, 2000 while other officers have
vesting schedules that vest over a seven year period beginning January
1, 2000. The Company will accrue the estimated present value of the
benefits during the anticipated employment period of the officer.
During 1999, the Company accrued deferred compensation expense of
$118,000.
(19) YEAR 2000 ISSUES
Since December 31, 1999, the Company has not experienced any
difficulties with the date change to year 2000 and does not anticipate
any future concerns.
(20) EARNINGS PER SHARE
The following presents the reconciliation of the basic and diluted
earnings per share computations for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income (loss) before cumulative effect of
a change in accounting principle $293 $(139)
===================================================================================
Average Shares:
Basic 908 908
Effect of dilutive common stock options 18 6
Effect of dilutive subordinated convertible
capital debentures 61 -
------------------------------------------------------------------------------------
Diluted 987 914
==================================================================================
Per share amounts:
Basic $0.32 $(0.15)
===================================================================================
Diluted $0.30 $(0.15)
===================================================================================
</TABLE>
F-27
<PAGE> 63
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE> 64
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table relates to directors, executive officers, promoters and
control persons of the Company at December 31, 1999:
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION(S)
WITH COMPANY AGE(1) BUSINESS AFFILIATIONS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William E. Rowland 52 Executive Vice President, Secretary and Director - First City
Chief Executive Officer, Bank (January 1986-March 1996); President, Chief Executive
President and Director Officer and Director - First City Bancorp, Inc. (May 1988-March
1996); President - Tennessee Credit Corporation (March 1996-June 1996);
President, Chief Executive Officer and Director - Bank of Murfreesboro
(October 1997 - Present); President, Chief Executive Officer and Director
- Murfreesboro Bancorp, Inc. (October 1997 - Present)
- -------------------------------------------------------------------------------------------------------------
Joyce Ewell 56 First Vice President and Director - First City Bank (January
Senior Vice President, 1986-March 1996); Vice President - First American National Bank
Secretary and Director (March 1996-January 1997); Senior Vice President and Director -
Bank of Murfreesboro (October 1997-Present)
- -------------------------------------------------------------------------------------------------------------
Olin O. Williams 69 Surgeon - Murfreesboro Medical Clinic (September 1967-January
Chairman of the Board of 1994); Director - National Health Care, L.P. (1971-Present);
Directors Director - First City Bank (January 1986-March 1996); Director
- First City Bancorp, Inc. (May 1988-March 1996)
- -------------------------------------------------------------------------------------------------------------
Melvin R. Adams 60 Agent - State Farm Insurance Company (1971-Present); Director -
Director First City Bank (January 1986-March 1996); Director - First
City Bancorp, Inc. (May 1988-March 1996)
- -------------------------------------------------------------------------------------------------------------
Thomas E. Batey 65 President/Owner - Batey's (office supply) (1957-Present);
Director Director - First City Bank (May 1988-March 1996); Director -
First City Bancorp, Inc. (May 1988-March 1996)
- -------------------------------------------------------------------------------------------------------------
John Stanley Hooper 67 President/Owner - Hooper Supply Co., Inc. (1957-95); Director -
Director First City Bank (May 1988-March 1996); Director - First City
Bancorp, Inc. (May 1988-March 1996)
- -------------------------------------------------------------------------------------------------------------
William H. Sloan 65 President/Owner - Sloan's Sales and Service, Inc. (motorcycle
Director sales, parts and service) (1960-Present); Director - First City
Bank (January 1994-March 1996)
- -------------------------------------------------------------------------------------------------------------
Joseph M. Swanson 61 President - Swanson, Inc. (1960-Present); Owner - Swanson
Director Developments (1983-Present); Director - First City Bank
(January 1986-March 1996); Director - First City Bancorp, Inc.
(May 1988-March 1996)
- -------------------------------------------------------------------------------------------------------------
Debbie Ferrell 46 Assistant Vice President-First City Bank(March 1986 - March
Corporate Secretary 1996) Vice President-Murfreesboro Bancorp, Inc. (June 1997 - Present)
- -------------------------------------------------------------------------------------------------------------
William L. Webb 40 Controller-First City Bank (August 1987-May 1994);
Vice President, Chief Treasurer-First City Bancorp, Inc. (March 1993-March 1996);
Financial Officer Assistant Vice President/Internal Auditor-Wilson Bank and Trust
(March 1996-January 1998); Vice President, Chief Financial
Officer-Murfreesboro Bancorp, Inc. (January 1998-Present)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) - As of December 31, 1999
The above directors have served as directors since commencement of operations on
October 6, 1997 and were re-elected at the shareholder meeting on April 13,
1999. The term is for one year with annual reappointment.
<PAGE> 65
At December 31, 1999, there were no family relationships among directors and
executive officers. Further, no director or executive officer has been involved
in any legal proceedings including bankruptcy, criminal proceedings or
injunction from involvement with any business, banking or securities activities.
ITEM 10 - EXECUTIVE COMPENSATION
There is currently no Executive Compensation Committee. Executive compensation
is determined by the board of directors exclusive of the directors (Mr. Rowland
and Ms. Ewell) who are also officers of the Company.
The following table sets forth a summary of compensation paid to or accrued on
behalf of the chief executive officer and any other officer of the Company whose
aggregate compensation exceeded $100,000 during the fiscal years 1999, 1998 and
1997 (No officer had compensation in excess of $100,000 during these periods.):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ ---------------------------------------------
SECURITIES
OTHER UNDER- ALL
ANNUAL RESTRICTED LYING OTHER
NAME AND COMPEN- STOCK OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARDS SAR'S PAYOUTS SATION
- ------------------ ---- ------ ----- ------ ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Rowland, 1999 $80,000 $ -- $ -- $ -- $ -- 20,000 $ 1,750(1)
Chief Executive Officer 1998 $40,962 $ -- $ -- $ -- $ -- 20,000 $ 1,750(1)
1997 $16,300 $ -- $ -- $ -- $ -- -- $ 750(1)
</TABLE>
(1) - Director fees.
All directors were paid $250 monthly through August 1998. The non-employee
directors are paid $500 per month. There is no other annual compensation for the
directors.
Currently there are no employment contracts between the Company and any of its
employees or the Bank and any of its employees.
During 1998, Mr. Rowland received a stock option grant of 20,000 options or
27.78% total options granted, with an exercise price of $10.00 per share with an
expiration date of April 28, 2008. These options were granted on April 29, 1998
and vest at a rate of 20% on each anniversary of the grant date beginning in
1999. For 1998 a total of 73,000 options were granted to employees including
1,000 options that were forfeited. 72,000 options had an exercise price of
$10.00 per share and 1,000 options had an exercise price of $12.50 per share.
All such options expire in 2008. Each non-employee director was granted 3,000
shares in 1998 with an exercise price of $10.00 per share for a total of 18,000
options. These options also expire in 2008 and the non-employee directors were
fully vested upon grant of the options.
No options were exercised in 1998 or 1999.
<PAGE> 66
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following individuals hold 5% or more of the outstanding voting (common)
stock of the Company as of March 1, 1999. No other individual hold 5% or more
of the outstanding voting (common) stock of the Company.
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS AMOUNT AND NATURE PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
----- ------------------- -------------------- --------
<S> <C> <C> <C>
Common William E. Rowland 143,087 (1) 14.67%
1110 Virginia Avenue
Murfreesboro, Tennessee 37130
Common Joseph M. Swanson 120,300 (2) 12.49%
100 East Vine Street - Suite 1500
Murfreesboro, Tennessee 37130
</TABLE>
(1) - Includes 40,000 shares held as trustee for two sons' trusts, stock options
for 4,000 shares that expire on April 28, 2008 and 64,087 shares from conversion
of debentures held in an individual retirement account and as trustee for sons'
trusts.
(2) - Includes 500 shares held jointly with daughter, stock options for 3,000
shares that expire April 28, 2008 and 52,800 shares from conversion of
debentures.
The following include all directors and officers of the Company and a total of
the common stock held by all directors and officers as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER POSITION BENEFICIAL OWNERSHIP OF CLASS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William E. Rowland President, 143,087 (1) 14.67%
1110 Virginia Avenue Chief Executive
Murfreesboro, Tennessee 37130 Officer and Director
Joyce Ewell Senior Vice President 42,547 (2) 4.54%
1835 Lexington Trace and Director
Murfreesboro, Tennessee 37130
Melvin R. Adams Director 31,000 (3) 3.37%
805 South Church Street
Murfreesboro, Tennessee 37130
Thomas E. Batey Director 11,045 (4) 1.21%
2802 East Main Street
Murfreesboro, Tennessee 37130
John Stanley Hooper Director 20,632 (5) 2.25%
3331 Siegal Lane
Murfreesboro, Tennessee 37129
William H. Sloan Director 17,000 (6) 1.86%
2523 Morgan Road
Murfreesboro, Tennessee 37129
</TABLE>
<PAGE> 67
<TABLE>
<S> <C> <C> <C>
Joseph M. Swanson Director 120,300 (7) 12.49%
100 East Vine Street - Suite 1500
Murfreesboro, Tennessee 37130
Olin Williams, M.D. Director 22,275 (8) 2.42%
2007 Riverview Drive
Murfreesboro, Tennessee 37129
Debbie R. Ferrell Secretary 38,307 (9) 4.12%
2621 Spalding Circle
Murfreesboro, Tennessee 37128
William L. Webb Chief Financial Officer 1,160 (10) 0.13%
1438 Amberwood Circle
Murfreesboro, Tennessee 37128
All directors and officers as a group 427,926 (11) 38.67%
</TABLE>
(1) Includes 40,000 shares held as trustee for two sons' trusts, options for
4,000 that expire on April 28, 2008 and 64,087 shares from conversion of
debentures.
(2) Includes 33 shares held as custodian for a minor, stock options for 2,800
that expire on April 28, 2008 and 31,257 shares from conversion of
debentures held individually, in individual retirement account and as
custodian for a minor.
(3) Includes stock options for 3,000 shares granted to each non-employee
director that expire April 28, 2008 and 8,000 shares from conversion of
debentures.
(4) Includes 250 shares held by wife, stock options for 3,000 shares granted to
each non-employee director that expire April 28, 2008 and 2,795 shares from
conversion of debentures.
(5) Includes 500 shares as custodian for minors, stock options for 3,000 shares
granted to each non-employee director that expire April 28, 2008 and 4,854
shares from conversion of debentures held jointly with wife, in individual
retirement account, in wife's individual retirement account and as
custodian for minors.
(6) Includes 5,000 shares held by wife, stock options for 3,000 shares granted
to non-employee directors that expire April 28, 2008 and 4,000 shares from
conversion of debentures held individually and by wife.
(7) Includes 500 shares held jointly with daughter, stock options for 3,000
shares granted to non-employee directors that expire April 28, 2008 and
52,800 shares from conversion of debentures.
(8) Includes 400 shares held as custodian for minors, stock options for 3,000
shares granted to non-employee directors that expire on April 28, 2008 and
8,795 shares from conversion of debentures held individually and as
custodian for minors.
(9) Includes 200 shares held by husband, 15 shares held as custodian for
minors, stock options for 1,800 shares that expire on April 28, 2008 and
12,992 shares from conversion of debentures held individually and as
custodian for minors.
(10) Includes 100 shares held as custodian for minor daughter, stock options for
1,000 shares that expire on April 28, 2008 and 60 shares from conversion of
debentures.
(11) Includes all shares listed in notes (1) through (10) above with conditions
listed above. In the event of a change in control, all stock options
become 100% vested.
There are currently no arrangements that may result in a change of ownership of
control of the Company. The above directors have served as directors since
commencement of operations October 6, 1997 and were re-elected at the
shareholder meeting on April 13, 1999. The term is for one year with annual
reappointment.
At December 31, 1999, there were no family relationships among directors and
officers. Further, no director or officer has been involved in any legal
proceedings including bankruptcy, criminal proceedings or
<PAGE> 68
injunctions from involvement with any business, banking or securities
activities. With the exception of Dr. Williams, none of the other directors of
the Company serve as directors of any other company which has a class of stock
registered under the Securities Exchange Act of 1934 or any other bank holding
company, bank (with the exception of the Bank), savings and loan association or
credit union. Dr. Williams is a director of National HealthCare Corporation and
National HealthRealty, Inc.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As previously mentioned, there are no family relationships between any of the
directors and officers of the Company or Bank.
Federal banking regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and must not involve more
than the normal risk of repayment or present other unfavorable features. The
Bank's policy is not to make any new loans or extensions of credit to the Bank's
executive officers and directors at different rates or terms than those offered
to the general public.
The following is a summary of funds advanced to directors, officers and
affiliates of the Company, as well as, repayments for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance - beginning of year $3,222 $1,609
New loans and advances during the year 346 3,109
Repayments during the year (1,096) (1,496)
- ---------------------------------------------------------------------------
Balance - end of year $2,472 $3,222
==========================================================================
</TABLE>
<PAGE> 69
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. (i) Charter
Incorporated by reference to Form 10-SB filed April 30, 1998.
(ii) By-laws
Incorporated by reference to Form 10-SB filed April 30, 1998.
4. Instruments defining rights of security holders
Incorporated by reference to Form 10-SB filed April 30, 1998.
11. Statement re: computation of per share earnings.
Incorporated by reference to footnote 20 of the consolidated financial
statements.
18. Letter on change in accounting principle
Not applicable as this was a change required by a new accounting
pronouncement.
21. Subsidiaries of Small Business Issuer
Incorporated by reference to footnote 1 of the consolidated financial
statements.
27. Financial Data Schedules
99. Additional Exhibits
None.
(b) Reports on Form 8-K
None
<PAGE> 70
SIGNATURES
In accordance with Section 13 or 15(d) 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.
Murfreesboro Bancorp, Inc.
- --------------------------------------------------------------------------------
(Registrant)
Date March 23,2000
------------------------------------
By /s/ William E. Rowland
--------------------------------------
(Signature) *
* Print the name and title of each signing officer under his or her signature.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MURFREESBORO BANCORP, INC. FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,114
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,160
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,387
<INVESTMENTS-CARRYING> 8,859
<INVESTMENTS-MARKET> 8,628
<LOANS> 65,297
<ALLOWANCE> 817
<TOTAL-ASSETS> 103,246
<DEPOSITS> 85,695
<SHORT-TERM> 4,889
<LIABILITIES-OTHER> 968
<LONG-TERM> 3,000
0
0
<COMMON> 9,068
<OTHER-SE> (253)
<TOTAL-LIABILITIES-AND-EQUITY> 103,246
<INTEREST-LOAN> 4,330
<INTEREST-INVEST> 1,436
<INTEREST-OTHER> 132
<INTEREST-TOTAL> 5,898
<INTEREST-DEPOSIT> 2,963
<INTEREST-EXPENSE> 3,128
<INTEREST-INCOME-NET> 2,770
<LOAN-LOSSES> 353
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 2,346
<INCOME-PRETAX> 439
<INCOME-PRE-EXTRAORDINARY> 439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 7.50
<LOANS-NON> 0
<LOANS-PAST> 34
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 473
<CHARGE-OFFS> 10
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 817
<ALLOWANCE-DOMESTIC> 473
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
