<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
--------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 2-90200
FIRST MCMINNVILLE CORPORATION
----------------------------------------------------
(Exact Name of Registrant As Specified in its Charter)
Tennessee 62-1198119
------------------------------ ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
200 East Main Street, McMinnville, TN 37110
---------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(931) 473-4402
--------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding 523,118 shares at August 10, 2000
<PAGE> 2
FIRST MCMINNVILLE CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the registrant and its
wholly-owned subsidiary, First National Bank of McMinnville (Bank), are as
follows:
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999.
Consolidated Statements of Earnings - For the three months and six months
ended June 30, 2000 and 1999.
Consolidated Statements of Comprehensive Earnings - For the three months
and six months ended June 30, 2000 and 1999.
Consolidated Statements of Cash Flows - For the six months ended June 30,
2000 and 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures required by Item 3 are incorporated by reference
to Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE> 3
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
(In Thousands)
<S> <C> <C>
Assets
Loans $ 135,158 135,375
Less: Allowance for loan losses (1,642) (1,502)
--------- --------
Net loans 133,516 133,873
Securities:
Held to maturity, at cost (market value $33,554,000 and
$34,361,000, respectively) 34,391 35,569
Available-for-sale, at market (amortized cost $88,568,000
and $88,237,000, respectively) 82,489 82,402
Interest bearing deposits in financial institutions 79 40
--------- --------
Total earning assets 250,475 251,884
Cash and due from banks 4,602 4,625
Bank premises and equipment, net of accumulated depreciation 1,862 1,904
Accrued interest receivable 2,292 2,327
Deferred tax asset 2,495 2,402
Other real estate -- 74
Other assets 448 491
--------- --------
Total Assets $ 262,174 263,707
========= ========
Liabilities and Stockholders' Equity
Deposits $ 204,944 195,924
Securities sold under repurchase agreements 12,692 15,869
Federal funds purchased 6,100 8,000
Advances from Federal Home Loan Bank 2,000 7,200
Accrued interest and other liabilities 1,945 3,114
--------- --------
Total liabilities 227,681 230,107
--------- --------
Stockholders' equity:
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 609,165 shares and 609,150 shares, respectively 1,523 1,523
Additional paid-in capital 1,755 1,754
Retained earnings 38,417 36,742
Net unrealized losses on available-for-sale securities, net of income
tax benefits of $2,307,000 and $2,215,000, respectively (3,772) (3,620)
--------- --------
37,923 36,399
Less cost of treasury stock of 86,047 shares and 77,220 shares,
respectively (3,430) (2,799)
--------- --------
Total stockholders' equity 34,493 33,600
--------- --------
Total liabilities and stockholders' equity $ 262,174 263,707
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 4
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
------ ----- ------ -----
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,773 2,629 $5,536 5,223
Interest and dividends on securities:
Taxable securities 1,627 1,443 3,248 2,851
Tax exempt from Federal income taxes 347 353 704 719
Interest on federal funds sold -- 9 -- 10
Interest on interest-bearing deposits in other banks and
other interest -- -- 1 --
------ ----- ------ -----
Total interest income 4,747 4,434 9,489 8,803
------ ----- ------ -----
Interest expense:
Interest on negotiable order of withdrawal accounts 194 180 376 341
Interest on money market demand and savings accounts 274 237 552 522
Interest on certificates of deposit 1,750 1,523 3,370 2,994
Interest on securities sold under repurchase agreements
and short term borrowings 127 155 270 287
Interest on Federal funds purchased 94 24 237 64
Interest on advances from Federal Home Loan Bank 41 52 106 104
------ ----- ------ -----
Total interest expense 2,480 2,171 4,911 4,312
------ ----- ------ -----
Net interest income 2,267 2,263 4,578 4,491
Provision for loan losses 45 45 90 90
------ ----- ------ -----
Net interest income after provision for loan losses 2,222 2,218 4,488 4,401
------ ----- ------ -----
Other income:
Service charges on deposit accounts 122 109 240 217
Other fees and commissions 73 100 133 181
Commissions and fees on fiduciary activities 5 5 48 25
Security gains related to available-for-sale securities -- 3 -- 8
Gain on sale of bank premises -- -- -- 166
Other income 7 6 14 18
------ ----- ------ -----
207 223 435 615
------ ----- ------ -----
Other expenses:
Salaries and employee benefits 613 588 1,288 1,254
Occupancy expenses, net 48 50 100 101
Furniture and equipment expense 19 19 36 38
Data processing expense 31 46 65 86
FDIC insurance 10 5 20 11
Other operating expenses 222 245 463 461
------ ----- ------ -----
943 953 1,972 1,951
------ ----- ------ -----
Earnings before income taxes 1,486 1,488 2,951 3,065
Income taxes 455 456 936 926
------ ----- ------ -----
Net earnings $1,031 1,032 $2,015 2,139
====== ===== ====== =====
Basic earnings per common share $ 1.96 1.93 $ 3.83 4.01
====== ===== ====== =====
Diluted earnings per common share $ 1.95 1.93 $ 3.81 3.99
====== ===== ====== =====
Dividends per share $ .65 .60 $ .65 .60
====== ===== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
------- ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Net earnings $ 1,031 1,032 2,015 2,139
------- ------ ------ ------
Other comprehensive earnings (loss), net of tax:
Unrealized losses on available-for-sale
securities arising during period, net of income
tax benefit of $220,000, income tax benefit of
$884,000, income tax benefit of $92,000 and
income tax benefit of $1,260,000, respectively (359) (1,444) (152) (2,059)
Less: reclassification adjustment for gains included
in net earnings, net of income taxes of $1,000
and $3,000, respectively -- (2) -- (5)
------- ------ ------ ------
Other comprehensive earnings (loss) (359) (1,446) (152) (2,064)
------- ------ ------ ------
Comprehensive earnings (loss) $ 672 (414) 1,863 75
======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------- -------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 9,495 8,589
Fees and commissions received 435 441
Interest paid (4,887) (4,317)
Cash paid to suppliers and employees (1,822) (1,756)
Income taxes paid (986) (1,009)
------- -------
Net cash provided by operating activities 2,235 1,948
------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 2,114 17,798
Proceeds from maturities of available-for-sale securities 203 13,582
Proceeds from sales of available-for-sale securities -- 1,409
Purchase of held-to-maturity securities (936) (8,640)
Purchase of available-for-sale securities (505) (35,613)
Loan repayments, net of advances to customers 267 --
Loans made to customers, net of repayments -- (4,199)
Purchase of premise and equipment (37) (13)
Proceeds from sale of premises and equipment -- 204
Proceeds from sale of other real estate 74 --
------- -------
Net cash provided by (used in) investing activities 1,180 (15,472)
------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 432 3,238
Net increase in time deposits 8,588 8,549
Increase (decrease) in securities sold under repurchase agreement (3,177) 2,532
Decrease in Federal funds purchased (1,900) (400)
Decrease in advances from Federal Home Loan Bank (5,200) --
Dividends paid (1,512) (1,441)
Payments to acquire treasury stock (631) (15)
Proceeds from sales of common stock 1 66
------- -------
Net cash (used in) provided by financing activities (3,399) 12,529
------- -------
Net increase (decrease) in cash and cash equivalents 16 (995)
Cash and cash equivalents at beginning of period 4,665 5,241
------- -------
Cash and cash equivalents at end of period $ 4,681 4,246
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------- ------
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 2,015 2,139
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 57 90
Provision for loan losses 90 90
Security gains related to available-for-sale -- (8)
Gain on sale of premises and equipment -- (166)
FHLB dividend reinvestment (29) (25)
Decrease in other assets, net 65 --
Increase in other liabilities (22) 10
Decrease (increase) in interest receivable 35 (177)
Increase (decrease) in interest payable 24 (5)
------- ------
Total adjustments 220 (191)
------- ------
Net cash provided by operating activities $ 2,235 1,948
======= ======
Supplemental schedule of non-cash activities:
Unrealized loss in value of securities available-for-sale, net
of income tax benefit of $92,000 in 2000 and income tax
benefit of $1,260,000 in 1999 $ (152) (2,064)
======= ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
<PAGE> 8
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
McMinnville Corporation (Company or Registrant) and its wholly-owned subsidiary,
First National Bank of McMinnville (Bank).
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of June 30, 2000 and December 31, 1999, and the results of operations for the
three months and six months ended June 30, 2000 and 1999, comprehensive earnings
for the three months and six months ended June 30, 2000 and 1999 and changes in
cash flows for the six months ended June 30, 2000 and 1999. All significant
intercompany transactions have been eliminated. The interim consolidated
financial statements should be read in conjunction with the notes to the
consolidated financial statements presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. The results for interim periods
are not necessarily indicative of results to be expected for the complete fiscal
year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
------- ------
(In Thousands)
<S> <C> <C>
Balance, January 1, 2000 and 1999, respectively $ 1,502 1,495
Add (deduct):
Losses charged to allowance (29) (5)
Recoveries credited to allowance 79 23
Provision for loan losses 90 90
------- ------
Balance, June 30, 2000 and 1999, respectively $ 1,642 1,603
======= ======
</TABLE>
8
<PAGE> 9
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this discussion is to provide insight into the
financial condition and results of operations of the Company and its subsidiary.
This discussion should be read in conjunction with the consolidated financial
statements. Reference should also be made to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 for a more complete discussion of
factors that impact liquidity, capital and the results of operations.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operations and prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
The use of such words as expect, anticipate, forecast, and comparable terms
should be understood by the reader to indicate that the statement is "forward
looking" and thus subject to change in a manner that can be unpredictable.
Factors that could cause actual results to differ from the results anticipated,
but not guaranteed, in this Report, include (without limitation) economic and
social conditions, competition for loans, mortgages, and other financial
services and products, changes in interest rates, unforeseen changes in
liquidity, results of operations, and financial conditions affecting the
Company's customers, material unforeseen complications related to addressing
Year 2000 issues (both as to the Company and as to its customers, vendors,
consultants and governmental agencies), as well as other risks that cannot be
accurately quantified or completely identified. Many factors affecting the
Company's financial condition and profitability, including changes in economic
conditions, the volatility of interest rates, political events and competition
from other providers of financial services simply cannot be predicted. Because
these factors are unpredictable and beyond the Company's control, earnings may
fluctuate from period to period. The purpose of this type of information (such
as in Item 2, as well as other portions of this Report) is to provide Form 10-Q
readers with information relevant to understanding and assessing the financial
condition and results of operations of the Company not to predict the future or
to guarantee results. The Company is unable to predict the types of
circumstances, conditions, and factors that can cause anticipated results to
change. The Company undertakes no obligation to publish revised forward-looking
statements to reflect the occurrence of changes or of unanticipated events,
circumstances, or results.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and its
subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is designed to maintain stability
in the balance of interest-sensitive assets to interest-sensitive liabilities in
order to provide a stable growth in net interest margins. Earnings on
interest-sensitive assets such as loans tied to the prime rate of interest and
Federal funds sold, may vary considerably from fixed rate assets such as
long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
9
<PAGE> 10
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Banks, in general, must maintain large cash balances to meet
day-to-day cash flow requirements as well as maintaining required reserves for
regulatory agencies. The cash balances maintained are the primary source of
liquidity. Federal funds sold, which are basically overnight or short-term loans
to other banks that increase the other bank's required reserves, are also a
major source of liquidity.
The Company's investment portfolio consists of earning assets that
provide interest income. For those securities classified as held-to-maturity the
Company has the ability and intention to hold these securities until maturity.
Securities classified as available-for-sale include securities intended to be
used as part of the Company's asset/liability strategy and/or securities that
may be sold in response to changes in interest rate, prepayment risk, the need
or desire to increase capital and similar economic factors. Securities totaling
approximately $2.9 million mature or reprice within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At June
30, 2000 commercial, consumer and other loans of approximately $26.0 million and
mortgage loans of approximately $9.2 million either will become due or will be
subject to rate adjustments within twelve months. Emphasis continues to be
placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $38.3 million will become due during the next twelve months. The
Bank's deposit base increased approximately $9.0 million during the six months
ended June 30, 2000. Securities sold under repurchase agreements decreased
approximately $3.2 million during the six months ended June 30, 2000. The
deposit base increased approximately $3.1 million during the second quarter of
2000. Securities sold under repurchase agreements decreased approximately $1.7
during the second three months of 2000. Federal funds purchased were $6.1
million and $8.0 million at June 30, 2000 and December 31, 1999, respectively.
Advances from the Federal Home Loan Bank decreased to $2,000,000 at June 30,
2000 from $7,200,000 at December 31, 1999. These advances are scheduled to
mature during the next twelve months.
Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal accounts, money
market demand accounts, demand deposit and regular savings. Management does not
expect that there will be significant withdrawals from these accounts in the
future that are inconsistent with past experience.
The subsidiary Bank is limited by law, regulation and prudence as to
the amount of dividends that it can pay. At June 30, 2000, the Bank can declare
during the remainder of 2000 cash dividends in an aggregate amount not to exceed
approximately $9.3 million, exclusive of any 2000 net earnings, without prior
approval of the Comptroller of the Currency. However, most of these funds will
be retained for use in the Company's operations rather than being paid out in
dividends. It is anticipated that with present maturities, the expected growth
in deposit base, and the efforts of management in its asset/liability management
program, liquidity will not pose a problem in the foreseeable future. At the
present time there are no known trends or any known commitments, demands, events
or uncertainties that will result in or that are reasonably likely to result in
the Company's liquidity changing in any material way.
10
<PAGE> 11
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 13.2% at June
30, 2000 and 12.7% at December 31, 1999. Total assets decreased approximately
$1.5 million during the six months ended June 30, 2000. The annualized rate of
return on stockholders' equity for the first six months of 2000 was 12.0%
compared to 12.4% for the comparable period in 1999. Principally because of the
relatively high percentage of equity capital, the return on equity is lower than
the reported average for many banks in the Bank's peer group. Dividends of
$341,000 and $321,000 or $.65 and $.60 per share were declared in the six months
ended June 30, 2000 and 1999, respectively. Cash dividends will be increased in
the remainder of 2000 over 1999 only in the discretion of the Board of Directors
and as profits permit. Dividends paid during 1999 were $2.80 per share. No
material changes in the mix or cost of capital is anticipated in the foreseeable
future. At the present time there are no material commitments for capital
expenditures.
The Federal Reserve Bank has increased interest rates during the past
twelve months resulting in higher interest rates on new issue debt securities.
The Company's securities portfolio consists primarily of debt securities with an
average yield less than the current market rate. These factors contributed to an
unrealized loss on securities available-for-sale of $152,000 (net of income tax
benefit of $92,000) during the six months ended June 30, 2000. The total
unrealized loss on securities available for sale at June 30, 2000 is $3,772,000
(net of income tax benefit of $2,307,000).
Regulations of the Comptroller of the Currency establish required
minimum capital levels for the Bank. Under these regulations, national banks
must maintain certain capital levels as a percentage of average total assets
(leverage capital ratio) and as a percentage of total risk-based assets
(risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to credit
risk ranging from 0% for assets backed by the full faith and credit of the
United States to 100% for loans other than residential real estate loans and
certain off-balance sheet commitments. Total capital is characterized as either
Tier 1 capital which includes common shareholders' equity, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
- or total risk based capital which includes the allowance for loan losses up to
1.25% of risk weighted assets, perpetual preferred stock, subordinated debt and
various other hybrid capital instruments, subject to various limits. Goodwill is
not includable in Tier 1 or total capital. National banks must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a total capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio defined as Tier 1
capital to average total assets for the most recent quarter of at least 4.0%.
The same ratios are also required in order for a national bank to be considered
"adequately capitalized" under the OCC's "prompt corrective action" regulations,
which impose certain operating restrictions on institutions which are not
adequately capitalized. The Bank has a Tier 1 risk-based ratio of 27.5%, a total
capital to risk-based ratio of 28.6% and a leverage ratio of 14.6%, and thus
falls within the "well capitalized" category under the regulations.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies (such as the Company) which have more than $150 million
in consolidated assets. These guidelines require bank holding companies to
maintain consolidated capital ratios which are essentially the same as the
minimum capital levels required for national banks. The Company's consolidated
capital ratios were substantially the same as those set forth above for the
Bank, and exceeded the minimums required under these Federal Reserve Board
guidelines.
11
<PAGE> 12
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
CAPITAL RESOURCES, CONTINUED
On April 8, 1997, the Company's stockholders approved the First
McMinnville Corporation 1997 Stock Option Plan. The Company has granted the
right to purchase 41,000 shares of stock to its directors, officers and
employees at an exercise price of $58.15 per share. At June 30, 2000, 4,365
shares had been issued through exercise and 15,905 options remained exercisable.
The shares granted to Directors totaling 16,500 are exercisable over a three
year period. Shares granted to officers and employees are exercisable over a
period of 10 years or until the optionee reaches age 65, whichever is less. The
Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The
impact of the adoption of SFAS No. 123 has been reflected as a proforma
disclosure in the notes to the annual consolidated financial statements.
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than two digits
to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g., 1900 and 2000) and recognize that the Year 2000
is a leap year. The Company has not identified any significant problems related
to the change to Year 2000. Management is not aware of any of the Company's
customers that have experienced significant problems related to the Year 2000
issue.
RESULTS OF OPERATIONS
Net earnings were $2,015,000 for the six months ended June 30,
2000 as compared to $2,139,000 for the same period in 1999. Net earnings were
$1,031,000 for the quarter ended June 30, 2000 as compared to $1,032,000 during
the same quarter in 1999.
As in most financial institutions, a major element in analyzing
the statement of earnings is net interest income, which is the excess of
interest earned over interest paid. The net interest margin could be materially
affected during periods of volatility in interest rates.
The Company's interest income, excluding tax equivalent
adjustments, increased by $686,000 or 7.8% and $515,000 or 6.2% during the six
months ended June 30, 2000 and 1999, respectively. Interest income for the
quarter ended June 30, 2000 increased $313,000 or 7.1% over the quarter ended
June 30, 1999, and $5,000 from the first quarter of 2000. The increases were
primarily attributable to higher interest rates together with an increase in
average earning assets. The ratio of average earning assets to total average
assets was 98.4% for the six months ended June 30, 2000 and 96.6% for the same
period in 1999.
12
<PAGE> 13
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Interest expense increased by $599,000 for the six months ended
June 30, 2000 or 13.9% compared to the same period in 1999. Interest expense for
the quarter ended June 30, 2000 increased $309,000 or 14.2% as compared to the
quarter ended June 30, 1999. Interest expense for the quarter ended June 30,
2000 increased $49,000 or 2.0% compared to the first quarter of 2000. The
increase in interest expense can be attributable to higher interest rates
together with an increase in average interest bearing liabilities.
The foregoing resulted in net interest income of $4,578,000 for
the six months ended June 30, 2000, an increase of $87,000 or 1.9% compared to
the prior year period. Net interest income for the quarter ended June 30, 2000
increased $4,000 or .2% over the second quarter of 1999 while there was a
decrease of $44,000 or 1.9% over the first quarter in 2000.
The provision for loan losses was $90,000 for the first six months
of 2000 and 1999. The provision for loan losses is based on past loan experience
and other factors which, in management's judgment, deserve current recognition
in estimating possible loan losses. Such factors include past loan loss
experience, growth and composition of the loan portfolio, review of specific
loan problems, the relationship of the allowance for loan losses to outstanding
loans, and current economic conditions that may affect the borrower's ability to
repay. Management has in place a system that is designed to identify and monitor
problems on a timely basis.
The Company accounts for impaired loans under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures". These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
including credit card, residential mortgage, and consumer installment loans.
A loan is deemed to be impaired when it is probable that the
Company will be unable to collect the scheduled payments of principal and
interest due under the contractual terms of the loan agreement. Impaired loans
are measured at the present value of expected future cash flows discounted at
the loan's effective interest rate, at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent. If the
measure of the impaired loan is less than the recorded investment in the loan,
the Company shall recognize an impairment by creating a valuation allowance with
a corresponding charge to the provision for loan losses or by adjusting an
existing valuation allowance for the impaired loan with a corresponding charge
or credit to the provision for loan losses.
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $64,774,000, $2,550,000 and
$315,000, respectively at June 30, 2000, are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and thus are not subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for impairment under
the provisions of SFAS Nos. 114 and 118.
13
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as to timely
collection of principal or interest exists, or when principal or interest is
past due 90 days or more unless such loans are well-secured and in the process
of collection. Delays or shortfalls in loan payments are evaluated with various
other factors to determine if a loan should be considered to be impaired.
Generally, delinquencies under 90 days are considered insignificant unless
certain other factors are present which indicate impairment is probable. The
decision to place a loan on nonaccrual status is also based on an evaluation of
the borrower's financial condition, collateral, liquidation value, and other
factors that, in the judgment of management, affect the borrower's ability to
pay.
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At June
30, 2000, the Company had no loans on nonaccrual status and there were no
nonaccrual loans outstanding at any time during the six months ended June 30,
2000 and year ended December 31, 1999, respectively. Therefore, all interest
income during these periods was recognized on the accrual basis.
Loans not on nonaccrual status are classified as impaired in
certain cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the
terms of which have been modified in a troubled debt restructuring after January
1, 1995. Interest is accrued on such loans that continue to meet the modified
terms of their loan agreements. At June 30, 2000, the Company had no loans that
have had the terms modified in a troubled debt restructuring.
The Company's charge-off policy for impaired loans is similar to
its charge-off policy for all loans in that loans are charged-off in the month
when they are considered uncollectible.
14
<PAGE> 15
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Impaired loans and related allowance for loan loss amounts at June
30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
Recorded Recorded
(In Thousands) Investment Investment
------------- -----------------
<S> <C> <C>
Recorded investment $ 2,533 $ 1,808
Allowance for loan losses $ 519 $ 535
</TABLE>
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral.
The average recorded investment in impaired loans for the six
months ended June 30, 2000 and 1999 was $2,764,000 and $2,744,000, respectively.
The related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $129,000 and $123,000 for
2000 and 1999, respectively.
The following schedule details selected information as to
non-performing loans of the Company at June 30, 2000:
<TABLE>
<CAPTION>
June 30, 2000
-----------------------
Past Due
90 Days Non-Accrual
---------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 90 --
Installment loans 2 --
Commercial 2 --
---------- ---------
$ 94 --
========== =========
Renegotiated loans $ -- --
========== =========
</TABLE>
15
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
At June 30, 2000, loans which include the above, totaling
$4,357,000, were included in the Company's internal classified loan list. Of
these loans $1,309,000 are real estate and $3,048,000 are commercial and other.
The collateral values, based on estimates received by management, securing these
loans total approximately $6,481,000, ($2,087,000 related to real property and
$4,394,000 related to commercial and other loans). Such loans are listed as
classified when information obtained about possible credit problems of the
borrower has prompted management to question the ability of the borrower to
comply with the agreed repayment terms. The loan classifications do not
represent or result from trends or uncertainties which management expects will
materially and adversely affect future operating results, liquidity or capital
resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at June 30,
2000 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
Non-interest income excluding securities transactions and a gain
on the sale of branch totaling $166,000 in 1999, was $435,000 for the six months
ended June 30, 2000 as compared to $441,000 in 1999. Non-interest income
decreased $16,000 or 7.2% for the quarter ended June 30, 2000 as compared to the
comparable quarter in 1999. Included in non-interest income in 1999 is a gain on
the sale of a former branch facility totaling $166,000. A newly constructed
branch facility opened in 1996 which replaced the former branch. The property,
which was sold in 1999, had been leased to another company during the period
from the date of the closing to the date of the sale. Service charges on deposit
accounts increased $23,000 or 10.6% during the six months ended June 30, 2000 as
compared to the same period in 1999. This decrease was due primarily to
increased fees from insufficient funds and returned check charges. Other fees
and commissions decreased $48,000 or 26.5% to $133,000 for the period ended June
30, 2000 from $181,000 for the same period in 1999 consisting primarily of
decreases in appraisal fees ($18,000), document preparation fees ($18,000) and
title fees ($12,000). Commissions and service charges are monitored continually
to insure maximum return based on costs and competition.
There were no securities gains during the six months ended June
30, 2000 compared to securities gains of $8,000 during the same period in 1999
and related to transactions in the available-for-sale category. The gains and
losses during 1999 were incurred primarily in conjunction with management's
strategies to restructure the investment portfolio to improve the quality of the
portfolio, to improve maturity distribution and to maintain a flexible position
to react to market conditions.
Non-interest expense increased $21,000 or 1.1% during the first
six months of 2000 as compared to the same period in 1999. There was a decrease
of $10,000 or 1.0% for the three months ended June 30, 2000 as compared to the
same period in 1999 and a $86,000 decrease or 8.4% from $1,029,000 for the
quarter ended March 31, 2000. The increase in 2000 was primarily in salaries and
employee benefits.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material effect on
the Company's liquidity, capital resources or operations.
16
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
The following is a summary of components comprising basic and
diluted earnings per share (EPS) for the three and six months ended June 30,
2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
(In Thousands, except share amounts) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to common
shareholders $ 1,031 1,032 2,015 2,139
------------ ------------ ------------ ------------
Denominator - weighted average number
of common shares outstanding 524,738 533,583 526,368 533,453
------------ ------------ ------------ ------------
Basic earnings per common share $ 1.96 1.93 3.83 4.01
============ ============ ============ ============
Diluted EPS Computation:
Numerator $ 1,031 1,032 2,015 2,139
------------ ------------ ------------ ------------
Denominator:
Weighted average number of common
shares outstanding 524,738 533,583 526,368 533,453
Dilutive effect of stock options 3,051 2,368 3,051 2,368
------------ ------------ ------------ ------------
527,789 535,951 529,419 535,821
------------ ------------ ------------ ------------
Diluted earnings per common share $ 1.95 1.93 3.81 3.99
============ ============ ============ ============
</TABLE>
IMPACT OF INFLATION
The primary impact which inflation has on the results of the
Company's operations is evidenced by its effects on interest rates. Interest
rates tend to reflect, in part, the financial market's expectations of the level
of inflation and, therefore, will generally rise or fall as the level of
expected inflation fluctuates. To the extent interest rates paid on deposits and
other sources of funds rise or fall at a faster rate than the interest income
earned on funds, loans or invested, net interest income will vary. Inflation
also affects non-interest expenses as goods and services are purchased, although
this has not had a significant effect on net earnings in recent years. If the
inflation rate stays flat or increases slightly, the effect on profits is not
expected to be significant.
17
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
FORM 10-Q, CONTINUED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Such as Federal funds sold or purchased and loans, securities and
deposits as discussed in Item 2. Based upon the nature of the Company's
operations, the Company is not subject to foreign currency exchange or commodity
price risk.
Interest rate risk (sensitivity) management focuses on the
earnings risk associated with changing interest rates. Management seeks to
maintain profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus the
spread between the cost of funds and interest yields generated primarily through
loans and investments.
There have been no material changes in reported market risks
during the six months ended June 30, 2000. Please refer to Item 2 of Part 1 of
this Report for additional information related to market and other risks.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Shares of the Company's common stock were issued to Directors and/or
Employees pursuant to the Company's Stock Option Plan as follows:
<TABLE>
<CAPTION>
Date of Sale Number of Shares of Common Stock Sold Price Per Share
------------ ------------------------------------- ---------------
<S> <C> <C>
May 15, 2000 15 $ 58.15
</TABLE>
The aggregate proceeds of the shares sold were $872.
There were no underwriters and no underwriting discounts or
commissions. All sales were for cash.
The Company believes that an exemption from registration of these
shares was available to the Company in that the issuance thereof did
not constitute a public offering of securities within the meaning of
the Securities Act of 1933, as amended.
The securities sold are not convertible.
The proceeds of the sales are being used by the Company for
general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held April 11, 2000.
(b) Election of the following members of the board of directors:
Paul O. Barnes, Henry N. Boyd, Dean I. Gillespie and C. Levoy Knowles
(c) (1) Each of the above directors were elected by the following
tabulation:
<TABLE>
<CAPTION>
Number
of Shares Broker
Voting For Against Withheld Non-Votes
------ --- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Paul O. Barnes 318,666 317,764 600 302 0
Henry N. Boyd 318,666 317,620 744 302 0
Dean I. Gillespie 318,666 318,364 -- 302 0
C. Levoy Knowles 318,666 318,364 -- 302 0
</TABLE>
19
<PAGE> 20
PART II. OTHER INFORMATION, CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
(c) (1) Continued
The following directors terms of office were continued after the
meeting:
Robert W. Jones, J.G. Brock, A.J. Dyer, G.B. Greene, R.W. Gonder,
Charles C. Jacobs, Douglas Milner, John J. Savage, Jr.,
Carl M. Stanley
(2) The ratification of the selection of Maggart & Associates, P.C. as
independent auditors for the Company for the year ending December
31, 2000 was as follows:
<TABLE>
<CAPTION>
Number of Broker
Shares Voting For Against Withheld Non-Votes
------------- --- ------- -------- ---------
<S> <C> <C> <C> <C>
318,666 318,438 0 228 0
</TABLE>
(d) Not Applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This schedule
contains summary financial information extracted from the financial
statements of the Company at June 30, 2000 (unaudited) and is qualified
in its entirety by reference to such financial statements as set forth
in the Company's quarterly report on Form 10-Q for the period ending
June 30, 2000 (omitted in paper copy).
(b) No reports on Form 8-K were filed during the quarter for which this
Report is filed.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST MCMINNVILLE CORPORATION
(Registrant)
DATE: August 10, 2000 /s/ Charles C. Jacobs
---------------------- -------------------------------------
Charles C. Jacobs
President and Chief Executive Officer
DATE: August 10, 2000 /s/ Kenny D. Neal
---------------------- -------------------------------------
Kenny D. Neal
Chief Financial and Accounting Officer
21
