FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-10974
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FIRST PULASKI NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Tennessee 62-1110294
- ------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
206 South First Street, Pulaski, Tennessee 38478
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 931-363-2585
---------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report:
Common Stock, $1.00 par value -- 1,587,885 Shares Outstanding
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
September 30, December 31,
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $8,840,268 $9,427,069
Federal funds sold 9,386,753 12,970,075
------------ ------------
Cash and cash equivalents 18,227,021 22,397,144
Securities available for sale 48,692,689 45,972,651
Securities held to maturity 31,302,083 25,589,675
Net loans and leases 170,561,177 166,715,527
Bank premises and equipment 7,279,029 7,521,071
Accrued interest receivable 3,580,612 3,340,417
Prepayments and other assets 3,026,464 3,275,581
Other real estate owned 105,124 192,911
------------ ------------
TOTAL ASSETS $282,774,199 $275,004,977
============ ============
LIABILITIES
-----------
Deposits
Non-interest bearing balances $36,887,593 $36,187,911
Interest bearing balances 204,197,335 197,611,615
------------ ------------
241,084,928 233,799,526
Other borrowed funds 1,894,902 2,028,120
Accrued taxes 343,053 111,768
Accrued interest on deposits 1,798,637 1,909,612
Accrued profit sharing expense 97,727 120,392
Other liabilities 383,151 349,364
------------ ------------
TOTAL LIABILITIES 245,602,398 238,318,782
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
Common Stock, $1.00 par; authorized 10,000,000
shares; 1,587,885 and 1,573,515 shares issued
and outstanding, respectively 1,587,885 1,573,515
Capital Surplus 7,578,344 7,105,124
Retained Earnings 28,479,603 27,590,464
Accumulated other comprehensive income, net
respectively in 1999 and 1998 (474,031) 417,092
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 37,171,801 36,686,195
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $282,774,199 $275,004,977
============ ============
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
For Three Months Ended For Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including
fees $4,361,306 $4,522,938 $12,879,332 $13,673,629
Investment
securities 1,231,734 1,037,509 3,474,801 3,146,495
Federal funds sold 69,268 197,273 391,356 523,162
---------- ---------- ---------- ----------
5,662,308 5,757,720 16,745,489 17,343,286
INTEREST EXPENSE:
Interest on deposits:
NOW accounts 102,949 99,344 311,620 294,251
Savings and MMDA 198,505 190,899 574,752 565,860
Time 1,959,286 2,040,340 5,867,429 6,147,436
Borrowed funds 31,215 33,949 95,734 103,807
---------- ---------- ---------- ----------
2,291,955 2,364,532 6,849,535 7,111,354
---------- ---------- ---------- ----------
NET INTEREST INCOME 3,370,353 3,393,188 9,895,954 10,231,932
Loan loss provision 177,238 590,447 506,566 1,003,965
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 3,193,115 2,802,741 9,389,388 9,227,967
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on
deposit accounts 465,101 421,931 1,311,824 1,227,217
Other service
charges and fees 90,549 93,776 272,714 292,505
Security gains
(losses) 16,345 0 16,345 0
Other 39,552 29,692 238,951 159,946
---------- ---------- ---------- ----------
611,547 545,399 1,839,834 1,679,668
---------- ---------- ---------- ----------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For Three Months Ended For Nine Months Ended
September 30, September 30,
----------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
OTHER EXPENSES:
Salaries and
employee benefits 1,265,225 1,071,603 3,477,877 3,291,721
Occupancy, net 251,735 232,421 697,291 646,999
Furniture and
equipment 173,334 202,395 508,387 586,772
Advertising and
public relations 108,236 108,471 328,622 354,024
Other operating 560,904 501,991 1,996,997 1,246,819
---------- ---------- ---------- ----------
2,359,434 2,116,881 7,009,174 6,126,335
---------- ---------- ---------- ----------
Income before
income taxes $1,445,228 $1,231,259 $4,220,048 $4,781,300
Applicable income
taxes 478,721 334,986 1,388,465 1,634,547
---------- ---------- ---------- ----------
NET INCOME $966,507 $896,273 $2,831,583 $3,146,753
========== ========== ========== ==========
PER SHARE DATA:
Net income per
share $0.61 $0.57 $1.80 $2.02
Dividends per share $0.41 $0.40 $1.23 $1.18
Number of shares 1,580,478 1,559,322 1,576,399 1,556,000
========== ========== ========== ==========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDER'S EQUITY
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For the Nine Months Ended September 30, 1999
Unrealized
Gains/<Losses>
Common Capital Retained on Securities Total
Stock Surplus Earnings Net of Taxes
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1998 $1,573,515 $7,105,124 $27,590,464 $417,092 $36,686,195
Comprehensive Income:
Net Income 2,831,583
Cchange in unrealized
gains (losses) on AFS
securities, net of tax (880,335)
Less reclassification
adjustment, net of deferred
income tax expense of $5,557 (10,788)
Comprehensive Income 1,940,460
Cash Dividends
($1.23 per share) (1,942,444) (1,942,444)
Common Stock Issued 14,370 473,220 487,590
---------- ---------- ----------- ----------- -----------
Balance,
September 30, 1999 $1,587,885 $7,578,344 $28,479,603 ($474,031) $37,171,801
========== ========== =========== =========== ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY (UNAUDITED)
For Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $2,831,583 $3,146,753
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Provision for loan losses 506,566 1,003,965
Depreciation of premises and equipment 536,760 567,287
Amortization and accretion of investment
securities, net 118,166 75,019
Deferred income taxes (benefits) (70,727) (212,818)
Security gains, net (16,345) 0
Gains from sale of other assets (306) (11,912)
Loans originated for sale 0 (2,344,492)
Proceeds from sale of loans 0 3,919,845
Increase in interest receivable (240,221) (157,365)
(Increase) decrease in prepayments/other 764,056 (1,128,721)
Decrease in accrued interest payable (110,975) (139,643)
Increase in accrued taxes 185,955 204,675
Increase (decrease) in other liabilities 43,794 (59,732)
----------- ------------
Net Cash From Operating Activities 4,548,306 4,862,861
Cash Flows for Investing Activities:
Proceeds from maturity of investment
securities 15,372,123 12,097,635
Proceeds from sale of investment securities 5,400,721 0
Purchase of investment securities (30,661,087) (9,010,655)
Net increase in loans (4,387,134) (3,605,558)
Capital expenditures (294,518) (958,548)
Proceed from sale of other assets 154,261 188,620
----------- ------------
Net Cash Used by Investing Activities (14,415,634) (1,288,506)
Cash Flows From Financing Activities:
Net increase in deposits 7,285,277 724,137
Cash dividends paid (1,942,443) (1,837,547)
Proceeds from issuance of common stock 487,590 290,095
Payments to repurchase shares 0 0
Proceeds from borrowings 0 0
Borrowings repaid (133,218) (125,144)
----------- -----------
Net Cash From Financing Activities 5,697,206 (948,459)
Net Increase (decrease) in Cash and
Cash Equivalents (4,170,122) 2,625,896
Cash and Cash Equivalents at Beginning
of Period 22,397,143 16,292,171
----------- ------------
Cash and Cash Equivalents at End of Period $18,227,021 $18,918,067
=========== ============
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements. (Continued)
Note to Consolidated Financial Statements
The interim financial statements furnished under this item reflect
all adjustments which are, in the opinion of management, necessary for
a fair presentation of the results of operations for the interim periods
presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting procedures have been condensed or omitted, as allowed under
rules and regulations of the Securities and Exchange Commission for
interim period presentation. The results for interim periods are not
necessarily indicative of results to be expected for the complete fiscal
year.
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations.
The following analysis should be read in conjunction with the
financial statements set forth in Part I, Item 1, immediately preceding
this section.
Reference is made to the report of the registrant on Form 10-K
for the year ending December 31, 1998, which report was filed with the
Securities and Exchange Commission on or about March 30, 1999.
This Form 10-Q contains certain forward-looking statements
regarding, among other things, the anticipated financial and operating
results of the registrant. Investors are cautioned not to place undue
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
reliance on these forward-looking statements, which speak only as of
the date hereof. The registrant undertakes no obligation to publicly
release any modifications or revisions of these statements to reflect
events or circumstances occurring after the day hereof, or to reflect
the occurrence of unanticipated events.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the registrant cautions
investors that future financial and operating results may differ
materially from those projected in forward-looking statements made by,
or on behalf of, the registrant. Such forward-looking statements
involve known and unknown risks and uncertainties, including, but not
limited to, adverse changes in interest rates, bad debt of a material
amount, loss of key personnel, and interruptions in operations caused
by the Y2K issue. These risks and uncertainties may cause the actual
results or performance of the registrant to be materially different
from any future results or performance expressed or implied by such
forward-looking statements.
(a) Results of Operations
Net income of the registrant was $2,831,583 in the first nine
months of 1999. This amounted to a decrease of $315,170, or 10.0%,
compared to the first nine months of 1998. For the three month period
ended September 30, 1999, net income increased $70,234, or 7.8%, as
compared to the three months ended September 30, 1998. Net income was
lower as compared to the same period last year largely due to an
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
approximately $750,000 increase in operating expenses, discussed
below, and an approximately $335,000 decrease in net interest income
(see below) offset by an approximately $246,000 decrease in income
taxes paid.
Net interest income, the largest component of net income for the
registrant, is the difference between income earned on loans and
investments and interest paid on deposits and other sources of funds.
Net interest income, exclusive of the provision for credit losses, of
the registrant for the nine month period ending September 30, 1999
decreased by $335,978, or 3.3%, as compared to the same period in 1998,
mainly due to a decrease in interest and fee income on loans resulting
from the lower interest rates during the period, and a decrease
in interest on federal funds sold. Likewise, for the three month period
ended September 30, 1999, net interest income decreased by $22,835, or
0.7% as compared to the three months ended September 30, 1998. Interest
income on investment securities increased approximately $328,300 for the
first nine months of 1999. The increase was mainly reflected by
increases of $167,571 in the second quarter and $194,225 in the third
quarter of 1999 as compared to the same period last year. Total interest
expense was lower in the first nine months of 1999 compared to the same
period in 1998 primarily because of a decrease in interest paid on time
deposits. This was also due to lower interest rates during the period.
These same factors attributed to the decrease in interest expense for the
three months ended September 30, 1999 compared to same quarter last year.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
Total other expenses increased $882,839, or 14.4%, for the nine
month period ending September 30, 1999 as compared to last year. For
the three months ended September 30, 1999, other expenses rose over
last year by $242,553, or 11.5 %. This was primarily due to increased
other operating costs, which included a loss from the uninsured
portion of an insurance claim for misappropriated funds and additional
costs involving pending litigation. Part II, Item 1 of this report
discusses this litigation further.
The provision for credit losses for the nine months ended
September 30, 1999, decreased $497,399, or 49.5%, from the same period
in 1998. The Company increased its provision for credit losses
substantially in the third quarter of 1998 mainly because of a group of
loans to certain entities or persons related to the former Chairman, which
loans were in default. For the three month period ended September 30,
1999, the decrease in the provision was $413,209, or 70.0% compared to
the same three months in 1998 due to the same factors mentioned above.
Income before taxes decreased by $561,252, or 11.7%, as compared
to the same period from the prior year. For the three month period,
income before taxes increased by $213,969, or 17.4%, as compared to the
third quarter in 1998. The decrease in applicable income taxes was
$246,082, or 15.1 % for the nine month period and an increase of
$143,735, or 42.9% for the three month period as compared to the same
periods in 1998.
On a per share basis, net income was $1.80 per share based on
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
1,576,399 shares for the first nine months of 1999 as compared to $2.02
per share on 1,556,000 shares for the first nine months of 1998.
(b) Financial Condition
The registrant's total assets increased 2.8% to $282,774,199
during the nine months ending September 30, 1999, from $275,004,977 at
December 31, 1998. Loans and leases, net of allowance for credit
losses, totaled $170,561,177 at September 30, 1999, a 2.3% increase
compared to $166,715,527 at December 31, 1998. Securities, both
available for sale and held to maturity, increased $8,432,446, or 11.8%,
to $79,994,772 at September 30, 1999, from $71,562,326 at year-end 1998.
The unrealized loss on securities of $474,031 at September 30, 1999
is simply a result of the rise in general interest rates. The increase
in securities was primarily a result of management's decision to shift
federal funds into the registrant's investment portfolio. Federal funds
sold decreased $3,583,322 to $9,386,753 at September 30, 1999, from
$12,970,075 at December 31, 1998.
Total liabilities increased by 3.1% to $245,602,398 for the nine
months ended September 30, 1999, compared to $238,318,782 at December 31,
1998. This increase was composed primarily of a $6,585,720 increase
in interest bearing deposits (a 3.3% increase).
Non-performing assets increased 6.0% to $3,835,031 for the nine
nine months ended September 30, 1999 compared to $3,618,655 at
December 31, 1998. Non-performing assets at December 31, 1998 included
$192,911 in other real estate owned, $3,173,107 in nonaccrual loans,
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
and $252,637 in loans past due ninety days or more as to interest or
principal payment. Additionally, there were no restructured loans at
December 31, 1998. At September 30, 1999, the corresponding figures
were $105,124 in other real estate owned, $3,426,211 in nonaccrual loans,
$303,697 in loans past due ninety days or more and no loans
restructured. Nonaccrual loans in both periods are largely due to the
result of the default on the loans to persons and entities related to
the registrant's former CEO. Management is reviewing problem loans
more closely and more frequently and as a result, additional loans have
been placed in nonaccrual status, thus accounting for the increase since
year-end 1998.
The registrant has computed allowances for credit losses which
management believes to be sufficient. Although there was an increase
in nonaccrual loans from December 31, 1998, the allowance for credit
losses totaling $3,178,453, or 1.83% of total loans outstanding is
deemed sufficient by management to cover potential losses in the loan
portfolio.
(c) Liquidity
Liquidity is the ability to fund increases in loan demand or to
compensate for decreases in deposits and other sources of funds, or
both. Maintenance of adequate liquidity is an essential component
of the financial planning process. The objective of asset/liability
management is to provide an optimum balance of liquidity and earnings.
The registrant seeks to generate adequate cash flows to meet its
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
needs without sacrificing income or taking undue risks. Cash and
cash equivalents decreased $4,170,123 as of the end of the third quarter
in 1999 due to management's decision to shift federal funds into the
registrant's investment portfolio.
Marketable investment securities, particularly those of short
maturities, are the principal source of asset liquidity. Securities
maturing in one year or less amounted to $19,285,439 at September 30,
1999, representing 16.1% of the registrant's investment portfolio as
compared to 22.7% one year earlier. Management classifies a majority
of the investment portfolio in the available-for-sale category and
reports these securities at fair value. These securites may be sold in
response to changes in interest rates, changes in prepayment risk, the
the need to increase regulatory capital, or asset/liability strategy.
Other sources of liquidity include maturing loans and federal funds
sold.
The registrant knows of no unusual demands, commitments, or
events which could adversely impact the liquidity of the registrant.
(d) Capital Adequacy
The Federal Reserve Board, the Office of the Comptroller of the
Currency and the FDIC have established risk-based capital guidelines for
U.S. banking organizations. These guidelines provide a uniform capital
framework that is sensitive to differences in risk profiles among banks.
Under these guidelines, total capital consists of Tier I capital
(core capital, primarily stockholders' equity) and Tier II capital
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
(supplementary capital, including certain qualifying debt instruments
and credit loss reserve). Assets are assigned risk weights ranging from
0 to 100% depending on the level of credit risk normally associated with
such assets. Off-balance sheet items (such as commitments to make loans)
are also included in assets through the use of conversion factors
established by regulators and are assigned risk weights in the same
manner as on-balance sheet items. Banking institutions are expected to
maintain a Tier I capital to risk-weighted assets ratio of at least
4.00%, a total capital (Tier I plus Tier II) to total risk-weighted
assets ratio of at least 8.00%, and a Tier I to total assets ratio
(leverage ratio) of at least 3.00 %. The following table sets out
the appropriate regulatory standards as well as First Pulaski National
Corporation's actual ratios at September 30, 1999 and December 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(in thousands of dollars)
<S> <C> <C>
Tier I Capital to Risk-Weighted Assets:
Tier I capital 37,646 36,267
Risk-weighted assets 204,765 191,059
Tier I capital to risk-weighted assets 18.38% 18.98%
Regulatory requirement 4.00% 4.00%
Total Capital to Risk-Weighted Assets:
Total capital (Tier I plus Tier II) 40,213 38,662
Risk-weighted assets 204,765 191,059
Total capital to risk-weighted assets 19.64% 20.24%
Regulatory requirement 8.00% 8.00%
Tier I Capital to Total Assets (Leverage Ratio)
Tier I capital 37,646 36,267
Total assets 282,774 275,005
Tier I capital to total assets 13.31% 13.19%
Regulatory requirement 3.00% 3.00%
</TABLE>
YEAR 2000
The registrant continues its effort to assure that it is ready
for Year 2000. The registrant has adopted a broad-based approach
designed to encompass all areas whereby the registrant must be
ready or have contingencies in place.
The registrant's Year 2000 Steering Committee, active since 1997,
meets monthly and reports on a quarterly basis to the Board of
Directors regarding the status of any of the registrant's Year 2000
risks. The areas being addressed by the Steering Committee include:
* Subsidary bank's primary data processing system. This software
and hardware is of the highest priority for day to day
operations, accounting and success of the subsidiary bank.
* Government systems, such as the Federal Reserve Bank for
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
check clearing, wire transfers and the free flow of exchange
of funds between institutions.
* The internal PC hardware and software systems within the
subsidiary bank.
* Credit administration, i.e., the risk associated with the
Year 2000 status of the subsidiary bank's loan customers and
depositors.
The Steering Committee has adopted a Year 2000 Plan which has
five phases: awareness, assessment and planning, renovation, testing,
and implementation. The registrant has completed the first four
of these phases and is currently in the Y2K Plan's final phase. The
registrant has completed its assessment of its hardware, software
and other information technologies system and has found no
irregularities. Consequently, at March 31, 1999, the Year 2000
Steering Committee has determined that substantially all of the
registrant's core systems will operate properly in the Year 2000.
The registrant has been in constant dialog with key vendors
and service providers with whom the registrant has a material
relationship and is performing due diligence over their redemption
and testing efforts in connection with their Y2K readiness. All
mission-critical vendors have informed the registrant that they
are Y2K compliant.
The registrant will continue to monitor its vendors and
suppliers to seek to minimize risks to the registrant and its
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
customers.
Customer awareness of the registrant's Y2k readiness is critical.
Steps taken by the registrant's subsidiary bank to prepare for the
Year 2000 will be shared with customers through newsletters,
statement stuffers, and the Y2K training of employees. The
registrant believes customers must have a high confidence level
in the subsidiary bank at the end of 1999 to avoid mass withdrawals
of funds from the registrant. The registrant is working toward
a comprehensive customer awareness program during the 1999 year.
The registrant has required Y2K readiness information from all
of its major borrowers and funds providers. The registrant
believes commercial borrowers must realize the impact that the Y2K
issue could have on their respective businesses. Based upon
information received from these borrowers, the registrant has both
designated a specific additional amount in its allowance for loan
losses and implemented a plan to monitor the Y2K readiness of
borrowers not currently in compliance.
Based on the registrant's current estimate, the registrant has
allocated $137,400 in total to fund testing and replacement costs
in connection with Year 2000 issues. This estimate excludes
internal personnel costs, as the registrant does not track and
specifically assign these costs. At this time, management
does not believe these costs will have a material effect on the
operations or financial performance of the registrant. The cost
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
expected to be incurred the remaining portion of the year will be
used to finalize and test the registrant's contingency plan and
to finalize Year 2000 compliance of any non-critical technology
systems currently not in compliance, if any.
The registrant believes that the reasonably likely worse case
scenario that could occur as a result of the year 2000 issue is loss
of electricity and telephone services. Deposit, withdrawal and
other transaction processing for customers of the subsidiary bank
depend directly on the registrant's information technology systems,
and also on the use of electricity as well as telephone services.
While the registrant believes its own systems to be Y2K ready,
loss of power could significantly delay the subsidiary bank's
ability to adequately process bank and customer transactions, thus
adversely impacting the registrant's operations. The registrant
has developed a Year 2000 Contingency Plan to address the possibility
of power outages and telephone service disruption, as well as other
operational risks that could occur as a result of the Y2K issue.
The Contingency Plan was approved by the Board of Directors
in January 1999 and has since been amended to add more detail. The
Plan was designed to assure that mission-critical systems will
continue in the event that one or more systems should fail. The
Contingency Plan addresses all aspects of the registrant's
operation systems identifying those systems as mission critical,
semi-critical, or non-critical. Alternatives are in place for
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
many of the systems identified detailing information on
contingency processes, their capabilities, and the personnel that
are responsible for addressing and correcting system issues and
supervising alternative plans. For example, certain personnel
are identified to test electricity and telephone services
Saturday, January 1, 2000. The Contingency Plan also identifies
contact individuals' phone numbers and addresses. The Plan further
provides both on-site and off-site locations, materials, personnel,
and procedures to implement back up transaction processing in the
event electricity is not restored by Monday, January 3, 2000, going
forward. The contingency plan will be updated continually as final
testing of each mission-critical and other system applications have
been completed.
The above discussion of Year 2000 as used includes numerous
forward-looking statements reflecting management's current
assessment and estimates with respect to the registrant's Year 2000
compliance efforts and the impact of Year 2000 issues on the
registrant's business and operations. Statements are based on
information currently available to management. Various factors
could cause actual results to differ materially from those
contemplated by such estimates and forward-looking statements,
including many factors that are beyond control of the registrant.
These factors include, but are not limited to the success of the
registrant in identifying systems and programs that are not Year 2000
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. (Continued)
compliant, the continuing availability of experienced consultants
and information technology personnel, the ability of third parties
to complete their own Year 2000 remediations, and the ability of
the registrant to implement contingency plans.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
The registrant's primary component of market risks is interest
rate volatility. Fluctuations in interest rates will ultimately impact
both the level of income and expense recorded on a large portion of the
registrant's assets and liabilities, and the market value of all
interest-earning assets and interest-bearing liabilities, other than
those which possess a short term to maturity. Based upon the nature
of the registrant's operations, the registrant is not subject to foreign
currency exchange or commodity price risk.
Interest rate risk management focuses on the earnings risk
associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management and interest rate risk management. The registrant's rate
sensitive position has an important impact on earnings. Management of
the registrant meets regularly to analyze the rate sensitivity position,
focusing on the spread between the cost of funds and interest yields
generated primarily through loans and investments.
There have been no material changes in reported market risks
during the nine months ended September 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
The registrant and its subsidiary are involved, from time to time,
in ordinary routine litigation incidental to the banking business.
Neither the registrant nor its subsidiary is involved in any material
pending legal proceedings, except as follows:
First National Bank of Pulaski(the "Bank") filed suits in Giles
County, Tennessee, Chancery Court against Carroll M. Curry, John T.
Curry, Connie Curry, Cathy Curry, C & C Partnership and C & T Partnership
(the "Curry Debtors") to collect promissory notes on which such persons
are liable as makers or guarantors. These cases have now been
consolidated in one action in the U.S. District Court in the Middle
District of Tennessee. Subsequently, the Bank filed suit against Johnnie
M. Curry who personally guaranteed the obligations of the Curry Debtors.
The Curry Debtors filed a counter-complaint against the registrant and
the Bank alleging (i) that the Bank knew or should have known of
certain activities of Mike Curry, the Bank's former Chairman and Chief
Executive Officer, and that the Bank had a duty to inform the Currys of
of these activities, (ii) that the Bank was negligent and reckless in
placing Mike Curry in a position to commit fraud on the Currys and
(iii) the Bank, through its officers, and directors and employees,
intentionally, recklessly and fraudulently concealed Mike Curry's
fraudulent conduct from the Currys. The counter claim also alleges
violations of Federal Banking Law, the Tennessee Consumer Protection
Act and alleges that certain Curry Debtor obligations were the result
of coersion and duress. The Curry Debtors have also filed a third party
complaint making these same allegations against 27 current and former
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings. (Continued)
officers and directors of the registrant. The registrant is obligated
to indemnify the individual defendants to the full extent provided under
Tennessee law. The counter claim and third party complaint seek
$8 million in compensatory and $20 million in punitive damages. Johnnie
M. Curry has filed a separate suit against the registrant, the Bank and
one former officer making identical allegations and damage claims. Her
case may or may not be consolidated with the Curry Debtor case. The
registrant will continue to vigorously contest all claims asserted by the
Currys in their counter-complaint and complaint , which the Bank believes
are totally without merit.
AmSouth Bank has filed suit in the United States Bankruptcy Court
case of Robert M. Curry to recover for alleged breaches of presentment
and warranty claims arising under the Uniform Commercial Code, for
conversion of collateral allegedly pledged to AmSouth and for an
equitable subordinate of the Bank's claims in the Curry bankruptcy case
and subordination of the Bank's security interest in Curry Debtors'
stock. The Bank will continue to vigorously contest all claims in this
case.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Following the signature page of this report on Form 10-Q is
an Index of Exhibits listed according to the numbers assigned to such
exhibits as shown on Table II of Regulation S-K.
(b) No Form 8-K Reports were required to be filed during the
third quarter of 1999.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of 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.
FIRST PULASKI NATIONAL CORPORATION
Date: November 12, 1999 /s/ James T. Cox
---------------- ---------------------------------------
James T. Cox, President and Chief
Executive Officer
Date: November 12, 1999 /s/ Harold Bass
---------------- ---------------------------------------
Harold Bass, Secretary/Treasurer
(The registrant's Principal Financial
Officer and Principal Accounting
Officer)
<PAGE>
INDEX TO EXHIBITS FOR THE FIRST PULASKI NATIONAL CORPORATION
------------------------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------
(3.1) Charter, incorporated by reference to the registrant's
Annual Report on Form 10-K for the year ended December
31, 1998 filed March 31, 1999.
(3.2) Bylaws, incorporated by reference to the registrant's
Annual Report on Form 10-K for the year ended December
31, 1998 filed March 31, 1999.
(4.1) Article 9 of the Charter (included in Exhibit 3.1).
(4.2) Articles II and VI of the Bylaws (included in Exhibit 3.2).
(11) Statement regarding computation of per share earnings
(27) Financial Data Schedules
<PAGE>
[TYPE] EX-11
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS OF
------------------------------------
FIRST PULASKI NATIONAL CORPORATION
----------------------------------
Computation of per share earnings relative to the common capital
stock of First Pulaski National Corporation is calculated by dividing
the net income of the registrant by the weighted average of the then
outstanding shares of common capital stock ($1.00 par value) during
the quarter.
For the quarter ended September 30, 1999, 1,576,399 shares were used
in the computation; 1,556,000 shares were used in the computation for
the quarter ended September 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR PERIOD ENDING SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES
THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,840,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,386,753
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,692,689
<INVESTMENTS-CARRYING> 31,302,083
<INVESTMENTS-MARKET> 31,010,127
<LOANS> 173,739,630
<ALLOWANCE> 3,178,453
<TOTAL-ASSETS> 282,774,199
<DEPOSITS> 241,084,928
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,622,568
<LONG-TERM> 1,894,902
0
0
<COMMON> 1,587,885
<OTHER-SE> 35,583,916
<TOTAL-LIABILITIES-AND-EQUITY> 282,774,199
<INTEREST-LOAN> 12,879,332
<INTEREST-INVEST> 3,474,801
<INTEREST-OTHER> 391,356
<INTEREST-TOTAL> 16,745,489
<INTEREST-DEPOSIT> 6,753,801
<INTEREST-EXPENSE> 6,849,535
<INTEREST-INCOME-NET> 9,895,954
<LOAN-LOSSES> 506,566
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,009,174
<INCOME-PRETAX> 4,220,048
<INCOME-PRE-EXTRAORDINARY> 2,831,583
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,831,583
<EPS-BASIC> 1.80
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> 3.81
<LOANS-NON> 3,426,211
<LOANS-PAST> 303,697
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,935,534
<CHARGE-OFFS> 503,057
<RECOVERIES> 239,383
<ALLOWANCE-CLOSE> 3,178,453
<ALLOWANCE-DOMESTIC> 3,178,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
