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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
----------------------
(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
OR
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Main Street
McMinnville, Tennessee 37110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (931) 473-4402
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which
registered:
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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. [X]
The aggregate market value based upon the last privately negotiated transaction
in the shares known to management (in that there exists no established public
trading market for registrant's shares and no bid or asked prices of such stock
are available) of the Registrant's common equity held by non-affiliates as of
February 29, 2000 is approximately $32,801,682. The market value calculation
assumes that all shares beneficially owned by members of the Board of Directors
and executive officers of the registrant are owned by "affiliates," a status
that each of such Directors and executive officers individually disclaims. This
is based on an estimated 461,216 shares held by non-affiliates at February 29,
2000. Such determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of February 29, 2000, 524,989 shares of the Registrant's common voting
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Security
Holders for fiscal year ended December
31, 1999, as set forth in the Exhibit
Index.
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FIRST MCMINNVILLE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I.........................................................................1
ITEM 1. BUSINESS............................................................1
ITEM 2. DESCRIPTION OF PROPERTY............................................35
ITEM 3. LEGAL PROCEEDINGS..................................................35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................35
PART II.......................................................................35
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........35
ITEM 6. SELECTED FINANCIAL DATA............................................35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION...........................................40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................41
PART III......................................................................41
ITEM 10. DIRECTORS AND, EXECUTIVE OFFICERS OF THE REGISTRANT................41
ITEM 11. EXECUTIVE COMPENSATION.............................................44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................50
PART IV.......................................................................50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K........................................................50
Signatures....................................................................52
Supplemental Information......................................................53
Exhibit Index.................................................................54
</TABLE>
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PART I
Discussions of certain matters contained in this Annual Report on Form
10-K may constitute "forward-looking statements" within the meaning of the
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, as such,
may involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which First
McMinnville Corporation (the "Company") and First National Bank of McMinnville
operate, projections of future performance, perceived opportunities in the
market and any statements regarding the Company's goals, business plans, and/or
areas of concern. The Company's actual results, performance and achievements may
differ materially from the results, performance and achievements expressed or
implied in such forward-looking statements. For a discussion of some of the
factors that might cause such a difference, see "Item 1. Business - Factors That
May Affect Future Results of Operation."
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
THE COMPANY
First McMinnville Corporation (the "Company") is a bank holding company
that, at February 28, 2000, owned all of the stock of the First National Bank of
McMinnville (the "Bank" or "First National Bank"). The Company is a financial
services corporation incorporated under the laws of the State of Tennessee. It
was formed in 1984 for the purpose of acquiring all of the issued and
outstanding common stock of the First National Bank and it is a bank holding
company within the meaning of the Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act").
The Company's principal business is its ownership of the Bank, which
engages in the commercial banking business. At December 31, 1999, the Company
had total assets of approximately $263,707,000 and total Shareholders' equity of
$33,600,000. The Company reported net earnings of approximately $4,216,000 for
fiscal 1999. At December 31, 1999, the Bank's total loans (net of allowance for
possible loan losses of $1,502,000) were $133,873,000 and its total deposits
were $195,924,000. As of that date, the Bank's Tier 1 capital ratio was 26.7%,
its total risk-based capital ratio was 27.8%, and its leverage ratio was 14.2%.
The principal executive offices of the Company and the First National Bank
are located at 200 East Main Street, McMinnville, Warren County, Tennessee
37110, telephone (931) 473-4402.
(a) Business Development.
During 1999 the Company and the Bank have continued to focus on developing
the financial services of the Bank in Warren County, Tennessee and in other
areas (generally, in those counties contiguous to Warren County). The Company
and the Bank provide a wide range of commercial banking services to small and
medium-sized businesses, including those engaged in the nursery business,
business executives, professionals and other individuals. The Company, through
First National Bank, operates throughout Warren County, Tennessee, with five
offices located in McMinnville, Morrison, and Viola. Additional information
concerning the general development of the Company's business since the beginning
of the last fiscal year for which this Annual Report on Form 10-K (this
"Report") is filed is set forth in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operation" ("Management's Discussion"),
and in Item 8, "Financial Statements and Supplementary Data" (the "Consolidated
Financial Statements"), in this Report as well as in "Business of the Company"
below in this Item. CERTAIN OF THE STATEMENTS IN THIS REPORT AND IN THE
CONSOLIDATED FINANCIAL STATEMENTS ARE "FORWARD LOOKING," AND THE COMPANY'S
ACTUAL COSTS, EXPERIENCE, AND RESULTS MAY DIFFER DUE TO, AMONG OTHER THINGS,
ACTUAL EXPERIENCE, GOVERNMENTAL REGULATIONS, OVERALL ECONOMIC CONDITIONS, AND
OTHER FACTORS THAT, AS TO OCCURRENCE OR IMPACT, CANNOT BE RELIABLY PREDICTED.
SEE "FORWARD-LOOKING STATEMENTS" BELOW.
<PAGE> 4
(b) Business of the Company.
The Company's principal business is the ownership of First National Bank.
The Company currently conducts all of its material operations through the Bank,
its wholly owned subsidiary. The Company and the Bank concentrate on developing
the financial service business of the Bank in Warren County, Tennessee and in
other trade areas (generally, in those counties contiguous to Warren County).
The Company's primary source of income in 1999 was the earnings of First
National Bank, which earnings are principally derived from interest income from
loans and returns from its investment portfolio. The availability of funds to
the Bank is primarily dependent upon the economic policies of the government,
the economy in general and the general credit market for loans. The Company may
in the future engage in various business activities permitted to bank holding
companies, either directly, through newly formed subsidiaries, or through
acquisitions. The Company intends to provide banking and financial services in
Tennessee, primarily in the Warren County trade area, through the Bank's
operations.
The Company recognized the need to ensure to the maximum practicable
extent that its operations would not be adversely impacted by Year 2000 software
failures. Potential software failures due to processing errors arising from
calculations using the Year 2000 date were identified as a known risk. Further
discussion of this issue is presented below in this Item under the caption
"Computers and the Year 2000" and within Item 7, Management's Discussion,
appearing later in this Report.
The Company and the Bank are subject to extensive supervision and
regulation by federal banking agencies. Their respective operations are subject
to a wide array of federal and state laws applicable to banking and to bank
holding companies. Certain of the laws and regulations that affect these
operations are outlined briefly below in this Item and in other portions of this
Report.
Please refer also to the Consolidated Financial Statements for additional,
important information concerning the Company and First National Bank.
FINANCIAL SUMMARY OF THE COMPANY
A financial summary of the Company and its consolidated subsidiary, the
First National Bank, is set forth below (amounts are rounded). Please refer to
the Consolidated Financial Statements for a more detailed presentation.
<TABLE>
<CAPTION>
DECEMBER 31
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS $263,707 $243,027 $212,765 $195,732 $190,663
TOTAL EARNING ASSETS 251,844 233,130 203,272 186,849 180,803
DEPOSITS 195,924 185,305 172,891 159,746 154,551
STOCKHOLDERS' EQUITY 33,600 34,886 32,557 30,025 28,889
GROSS REVENUES 19,239 18,078 16,309 15,329 14,526
NET EARNINGS 4,216 3,870 3,581 3,444 3,106
BASIC EARNINGS PER SHARE $ 7.91 $ 7.24 $ 6.68 $ 6.34 $ 5.62
DILUTED EARNINGS PER SHARE $ 7.88 $ 7.23 $ 6.67 $ 6.34 $ 5.62
</TABLE>
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THE BANK'S COMMERCIAL BANKING BUSINESS
The First National Bank operates five full-service banking offices located
in Warren County, Tennessee. Its main office is located in McMinnville,
Tennessee and it has additional branches in McMinnville, Morrison, and Viola,
Tennessee. The Bank provides banking, trust and other financial services
throughout the Tennessee markets of Warren County and other contiguous counties,
as well as, to a lesser extent, other areas. The First National Bank, a national
banking association, was originally established in 1874. The Bank operates four
automated teller machines ("ATMs").
For retail customers, the First National Bank offers a full range of
depository products including regular and money market checking accounts;
regular, special, and money market savings accounts; various types of
certificates of deposit and Individual Retirement Accounts, as well as safe
deposit facilities. The Bank also offers its retail customers consumer and other
installment loans and credit services. The Bank makes available to local
businesses and institutions traditional lending services, such as lines of
credit, real estate loans and real estate construction loans, as well as
standard depository services and certain other special services. Its principal
source of income is from interest earned on personal, commercial, agricultural,
and real estate loans of various types. The Bank is a correspondent bank of
First Tennessee Bank National Association, Chattanooga, Tennessee, and National
Bank of Commerce, Birmingham, Alabama. The Bank operates a trust department. The
Company and the Bank intend for the foreseeable future to concentrate their
efforts in their existing markets.
The Company and First National Bank are subject to extensive supervision
and regulation by federal banking agencies. Their respective operations are
subject to a wide array of federal and state laws applicable to financial
services, to banks, and to bank holding companies. Certain of the laws and
regulations that affect these operations are outlined briefly below in this Item
and in other portions of this Report.
There also have been a number of recent legislative and regulatory
proposals designed to overhaul or otherwise "strengthen" the federal deposit
insurance system and to improve the overall financial stability of the banking
system in the United States. Some of these proposals provide for other changes
in the bank regulatory structure, including proposals to reduce regulatory
burdens on banking organizations and to expand (or to limit) the nature of
products and services banks and bank holding companies may offer. It is not
possible to predict whether or in what form these proposals may be adopted in
the future, and, if adopted, their impact upon either the Company or the
financial services industries in which the Company and the Bank compete. The
enactment of the "Gramm-Leach-Bliley Act of 1999" in late 1999 was an important
development. See "Financial Services Modernization Act," below.
SUBSIDIARY
The First National Bank is the Company's sole subsidiary.
SERVICES TO AND TRANSACTIONS WITH SUBSIDIARY
Intercompany transactions between the Company and its subsidiary, the
First National Bank, are subject to restrictions of existing banking laws (such
as Sections 23A and 23B of the Federal Reserve Act) and accepted principles of
fair dealing. The Company can provide the Bank with advice and specialized
services in the areas of accounting and taxation, budgeting and strategic
planning, employee benefits and human resources, auditing, trust, and banking
and corporate law. The Company may elect to charge a fee for these services from
time to time. The responsibility for the management of the Bank, however,
remains with its Board of Directors and with the officers elected by the Bank's
Board.
FORWARD-LOOKING STATEMENTS
In this report and in documents incorporated herein by reference, the
Company may communicate statements relating to the future results of the Company
that may be considered "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from those included in the forward-looking statements.
Forward-looking statements are typically identified by the words "believe,
expect, anticipate, intend, estimate" and similar expressions. These statements
may relate to, among other things, Year 2000 issues and unforeseen or
unanticipated costs associated with Year 2000 compliance, loan loss reserve
adequacy, simulation of changes in interest rates and litigation results. Actual
results may differ materially from those expressed or implied as a result of
certain risks and uncertainties, including, but not limited to, social,
political and economic conditions, interest rate fluctuations, competition for
loans, mortgages, and other financial
<PAGE> 6
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 definitively identified. Many factors affecting the
Company's financial condition and profitability, including changes in economic
conditions, the volatility of interest rates, political events, equity and fixed
income market fluctuations, personal and corporate customers' bankruptcies,
inflation, technological change, changes in law, changes in fiscal, monetary,
regulatory and tax policies, monetary fluctuations, success in gaining
regulatory approvals when required as well as other risks and uncertainties 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 6 and Item 7, as well as other portions of this
Report) is to provide readers of this Report with information relevant to
understanding and assessing the financial condition and results of operations of
the Company and not to predict the future or to guarantee results. The Company
undertakes no obligation to publish revised forward-looking statements to
reflect the occurrence of changes or of unanticipated events, circumstances, or
results.
SUPERVISION AND REGULATION
General
The commercial banking business is highly regulated. Both the Company and
the First National Bank are subject to the supervision, examination, and
regulation of various federal and state agencies, including the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
Office of the Comptroller of the Currency (the "OCC"). The requirements and
restrictions imposed by the laws of the United States and the State of Tennessee
on the Bank and/or on the Company include requirements to maintain reserves
against deposits, 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 bank holding companies and banks are also affected by various consumer laws
and regulations, including those relating to equal credit opportunity, truth in
savings disclosures, debt collection laws, privacy regulations, and regulation
of consumer lending practices.
Congress and state legislatures periodically propose new legislation
affecting the operations of bank holding companies and banks, so no assurance
can be given that the statutes and regulations described below will remain in
effect or that the Company and its subsidiary, the First National Bank, will
remain at all times in complete compliance with applicable laws and regulations.
The Company and the Bank are subject also to extensive regulation, supervision,
and examination under state and federal statutes and regulations. Although the
Company is extensively regulated under both federal and state law, this
regulation is intended primarily for the protection of depositors and the
deposit insurance fund and not for the benefit of shareholders or customers of
the Company or First National Bank. The discussion in this section, which
briefly summarizes certain of such statutes, does not purport to be complete,
and it is qualified in its entirety by reference to such statutes and
regulations.
Major new legislation was enacted by Congress in November of 1999.
See "Financial Services Modernization Act," below.
First McMinnville Corporation
As a registered bank holding company, the Company is subject to regulation
under the Bank Holding Company Act. Thus it is required to file quarterly and
annual reports, and such additional information as may be requested, with the
Federal Reserve Board. The Federal Reserve Board may conduct examinations of the
Company and all of its subsidiaries, including First National Bank.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, the Company must
file written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.
Under the Bank Holding Company Act and regulations adopted by the Federal
Reserve Board, a bank holding company and its non-banking subsidiaries are
prohibited from requiring certain tie-in arrangements in connection with any
extension of credit, lease
<PAGE> 7
or sale of property, or furnishing of services. Further, the Company is required
by the Federal Reserve Board to maintain certain levels of capital. See "Capital
Adequacy," below.
The Company is required to obtain the prior approval of the Federal
Reserve Board for the acquisition of more than 5% of the outstanding shares of
any class of voting securities or substantially all of the assets of any bank or
bank holding company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company and another bank holding
company.
The Company is prohibited by the Bank Holding Company Act, except in
certain statutorily prescribed instances, from acquiring direct or indirect
ownership or control of more than 5% of the outstanding voting shares of any
company that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks, or furnishing services to its subsidiaries. However, the Company, subject
to the prior approval of the Federal Reserve Board, may engage in any, or
acquire shares of companies engaged in, activities that are deemed by the
Federal Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving as
a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
The Company is also a bank holding company within the meaning of T.C.A.
ss.45-2-1401 of the Tennessee Banking Act. As such, the Company and its
subsidiaries could be subject to examination by, and could be required to file
reports with, the Tennessee Department of Financial Institutions under specified
circumstances.
The Company is required to file quarterly, annual and other types of
reports with the Securities and Exchange Commission under Section 15(d) of the
Exchange Act. However, the Company's securities are not registered under the
Exchange Act and, accordingly, the Company is not subject to many of the
information, proxy solicitation, and other requirements and restrictions of the
Exchange Act.
First National Bank
The First National Bank of McMinnville, as a national banking association,
is subject to primary supervision, examination, and regulation by the OCC. To a
lesser extent, the Bank is also subject to certain regulations promulgated by
the Federal Reserve Board. If, as a result of an examination of the Bank, the
examining regulator should determine that the financial condition, capital
resources, asset quality, earnings prospects, management, liquidity, or other
aspects of the bank's operations are unsatisfactory or that the bank or its
management is violating or has violated any law or regulation, various remedies
are available to the regulatory agencies. Such remedies include the power to
enjoin "unsafe or unsound" practices, to require affirmative action to correct
any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict the growth of the bank, to assess civil monetary penalties,
to remove officers and directors, and ultimately to terminate the bank's deposit
insurance. The Bank has not been subject to any such actions by its regulatory
authorities.
Various requirements and restrictions under the laws of the State of
Tennessee and the United States affect the operations of the Bank. State and
federal statutes and regulations relate to many aspects of the Banks'
operations, including reserves against deposits, ownership of deposit accounts,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of branch offices, and capital
requirements. Further, the Bank is required to maintain certain levels of
capital. See "Capital Adequacy."
<PAGE> 8
Financial Services Modernization Act
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general intent of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the Bank Holding Company Act framework to permit a holding company
system to engage in a full range of financial activities through a new entity
known as a Financial Holding Company. "Financial activities" is broadly defined
to include not only banking, insurance, and securities activities, but also
merchant banking and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
Generally, the Financial Services Modernization Act, which is also known
as the "Gramm-Leach-Bliley Act of 1999":
- - Repeals historical restrictions on, and eliminates many federal and state
law barriers to, affiliations among banks, securities firms, insurance
companies, and other financial service providers;
- - Provides a uniform framework for the functional regulation of the
activities of banks, savings institutions, and their holding companies;
- - Broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies, and their financial subsidiaries;
- - Provides an enhanced framework for protecting the privacy of consumer
information;
- - Adopts a number of provisions related to the capitalization, membership,
corporate governance, and other measures designed to modernize the Federal
Home Loan Bank system;
- - Modifies the laws governing the implementation of the Community
Reinvestment Act ("CRA"); and
- - Addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
Presently, the Company does not plan to become a "Financial Holding
Company" within the meaning of the Financial Services Modernization Act. If the
Company were to decided to utilize the ability to affiliate with other financial
services providers, it would first have to become a "Financial Holding Company"
as permitted under an amendment to the Bank Holding Company Act. To become a
Financial Holding Company, the Company would file a declaration with the Federal
Reserve Board, electing to engage in activities permissible for Financial
Holding Companies and certifying that it is eligible to do so because First
National Bank (its sole financial institution subsidiary) is well-capitalized
and well-managed. In addition, the Federal Reserve Board must also determine
that the Bank, as the Company's only insured depository institution subsidiary,
has at least a "satisfactory" Community Reinvestment Act rating (which it does).
See "The Bank - Community Reinvestment Act and Fair Lending Developments,"
below. The Company believes that it meets the requirements to make an election
to become a Financial Holding Company. However, management has determined at
this time that the Company will not seek an election to become a Financial
Holding Company. The Company expects to continue to re-examine its decision
under the Financial Services Modernization Act from time to time. Presently,
however, given its current strategic business plan, market and financial
conditions, regulatory capital requirements, general economic conditions, and
other factors, the Company does not intent to utilize any of its expanded powers
provided in the Financial Services Modernization Act.
<PAGE> 9
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the Bank Holding Company Act or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and
"well-managed." The total assets of all financial subsidiaries may not exceed
the lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and protect the bank from such
risks and potential liabilities.
The Financial Services Modernization Act also includes a new section of
the Federal Deposit Insurance Act governing subsidiaries of state banks that
engage in "activities as principal that would only be permissible" for a
national bank to conduct in a financial subsidiary. It expressly preserves the
ability of a state bank to retain all existing subsidiaries. Because, under the
so-called "wild-card" or "parity" statute (T.C.A. ss.45-2-601), Tennessee
chartered commercial banks are generally permitted by the State of Tennessee to
engage in any activity permissible for national banks, competitor state banks
will also be permitted to form subsidiaries to engage in the activities
authorized by the Financial Services Modernization Act, to the same extent as a
national bank such as First National Bank. In order to form a financial
subsidiary, the bank must be well-capitalized, and the bank would be subject to
the same capital deduction, risk management and affiliate transaction rules as
applicable to national banks.
The Company and First National Bank do not believe that the Financial
Services Modernization Act will have a material adverse effect on its operations
in the near-term. However, to the extent that it permits banks, securities
firms, and insurance companies to affiliate, the financial services industry may
experience further consolidation. As a result, the Company and the Bank may find
that they are compelled to compete with even larger and more diversified
financial institutions than is currently the case. The Financial Services
Modernization Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, this new law may have the result of increasing the amount of
competition that the Company and First National Bank face from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than either the Company or
the Bank. The impact of this or any other development under the Financial
Services Modernization Act cannot be predicted.
Dividends and Other Transfers of Funds
Dividends from First National Bank constitute the principal source of
income to the Company. The Company is a legal entity separate and distinct from
First National Bank. The Bank is subject to various statutory and regulatory
restrictions on its ability to pay dividends to the Company. Under such
restrictions, the amount available for payment of dividends to the Company by
First National Bank totaled $9.6 million at December 31, 1999. In addition, the
OCC and the Federal Reserve Board have the authority to prohibit the Bank from
paying dividends, depending upon the Bank's financial condition, if such payment
is deemed to constitute an unsafe or unsound practice.
The bank regulatory activities also have authority to prohibit the Bank
from engaging in activities that, in their respective opinions, constitute
unsafe or unsound practices in conducting their business. It is possible,
depending upon the financial condition of the bank in question and other
factors, that the bank regulatory activities could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the bank regulatory authorities have established
guidelines with respect to the maintenance of appropriate levels of capital by
banks or bank holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that are or may be
imposed under the prompt corrective action provisions of federal law could limit
the amount of dividends which the Bank or the Company may pay. An insured
depository institution is prohibited from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. See "Prompt Corrective Regulatory Action and Other Enforcement
Mechanisms," "The Federal Deposit Insurance Improvement Act," and "Capital
Adequacy" in this Item 1 for a discussion of these additional restrictions on
capital distributions.
<PAGE> 10
The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of, or investments in,
stock or other securities thereof, the taking of such securities as collateral
for loans, and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless any such loan(s) is secured by marketable obligations of
designated amounts. Further, such secured loans and investments by First
National Bank to or in the Company or to or in any other affiliate are limited,
individually, to 10.0% of the Bank's capital and surplus (as defined by federal
regulations), and such secured loans and investments are limited, in the
aggregate, to 20.0% of the respective bank's capital and surplus (as defined by
federal regulations). Additional restrictions on transactions with affiliates
may be imposed on the Bank under the prompt corrective action provisions of
federal law. See "Prompt Corrective Action and Other Enforcement Mechanisms,"
"Federal Deposit Insurance Corporation Improvement Act," and "Bank and Bank
Holding Company Regulation; Restrictions on Dividends" in this Item 1.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve perceived problems of insured depository
institutions, including but not limited to those institutions that fall below
one or more prescribed minimum capital ratios. Each federal banking agency has
promulgated regulations defining the following five categories in which an
insured depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 1999, First
National Bank and the Company exceeded the required ratios for classification as
"well capitalized."
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation, or
any condition imposed in writing by the agency or any written agreement with the
agency.
The Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act ("FDIA") as well as
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure and significantly
undercapitalized if it is significantly below such measure. The critically
undercapitalized level occurs where tangible equity is less than 2% of total
tangible assets or less than 65% of the minimum leverage ratio to be prescribed
by regulation (except to the extent that 2% would be higher than such 65%
level). A 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 a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are also 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.
<PAGE> 11
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.
The five FDICIA capital categories described above will be used by the
banking regulators to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., bank holding companies) must guarantee compliance with
the plan until the institution has been adequately capitalized for four
consecutive calendar quarters. The liability of the holding company is limited
to the lesser of 5% of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions. Further, these
institutions will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business. As an institution drops to lower
capital levels, the extent of action to be taken by the appropriate regulator
increases, restricting the types of transactions in which the institution may
engage and ultimately providing for the appointment of a receiver for certain
institutions deemed to be critically undercapitalized.
In order to comply with the FDICIA, the Federal Reserve Board and the FDIC
have adopted regulations defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting criteria, interest
rate exposure, asset growth, and compensation, fees and benefits.
Capital Adequacy
Under the Federal Reserve Board's risk-based capital guidelines applicable
to the Company, the minimum ratio of capital to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. To be
considered a "well capitalized" bank under the guidelines, a bank must have a
total risk-based capital ratio in excess of 10%. Under these guidelines, at
least half of the total capital is to be comprised of common equity, retained
earnings and a limited amount of perpetual preferred stock, after subtracting
certain intangibles, and certain other adjustments ("Tier 1 capital"). The
remainder may consist of perpetual debt, mandatory convertible debt securities,
a limited amount of subordinated debt, other preferred stock not qualifying for
Tier 1 capital and a limited amount of loan loss reserves ("Tier 2 capital").
The First National Bank is subject to similar capital requirements adopted by
the OCC.
In addition, the Federal Reserve Board, the OCC and the Federal Deposit
Insurance Corporation ("FDIC") have adopted a minimum leverage ratio (Tier 1
capital to adjusted quarterly average assets) of 4%. Generally, banking
organizations are expected to operate well above the minimum required capital
level of 4% unless they meet certain specified criteria, including that they
have the highest regulatory ratings. Most banking organizations are required to
maintain a leverage ratio of 4% plus an additional cushion of at least 1% to 2%.
(For a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. In addition to these uniform risk-based
capital guidelines and leverage ratios that apply across the industry, the
regulators have the discretion to set individual minimum capital requirements
for specific institutions at rates significantly above the minimum guidelines
and ratios.) The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance upon intangible assets. Failure to meet capital guidelines
could subject a banking institution to a variety of enforcement remedies
available to federal regulatory authorities, including the termination of
deposit insurance by the FDIC, issuance of a capital directive, a prohibition on
the taking of brokered deposits and certain other restrictions.
On December 31, 1999 the Company's subsidiary bank exceeded the "well
capitalized" threshold per the guidelines, with a Tier 1 capital ratio of 26.7%,
a total risk-based capital ratio of 27.8%, and a leverage ratio of 14.2%.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines designed to assist
the federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
<PAGE> 12
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution should:
(i) conduct periodic asset quality reviews to identify problem assets, (ii)
estimate the inherent losses in problem assets and establish reserves that are
sufficient to absorb estimated losses, (iii) compare problem asset totals to
capital, (iv) take appropriate corrective action to resolve problem assets, (v)
consider the size and potential risks of material asset concentrations, and (vi)
provide periodic asset quality reports with adequate information for management
and the board of directors to assess the level of asset risk. These guidelines
also set forth standards for evaluating and monitoring earnings and for ensuring
that earnings are sufficient for the maintenance of adequate capital and
reserves.
Premiums for Deposit Insurance
The Bank's deposit accounts are insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC, up to the maximum permitted by law.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or 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 the FDIC or the institution's
primary regulator.
The FDIC charges an annual assessment for the insurance of deposits, which
as of December 31, 1999, ranged from 0 to 27 basis points per $100 of insured
deposits, based on the risk a particular institution poses to its deposit
insurance fund. The risk classification is based on an institution's capital
group and supervisory subgroup assignment. Pursuant to the Economic Growth and
Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at January 1,
1997, the Bank began paying, in addition to their normal deposit insurance
premium as a member of the BIF, an amount equal to approximately 1.3 basis
points per $100 of insured deposits toward the retirement of the Financing
Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Members of the Savings Association Insurance
Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 6.4 basis points. Under the Paperwork Reduction Act, the
FDIC is not permitted to establish SAIF assessment rates that are lower than
comparable BIF assessment rates. Effective January 1, 2000, the rate paid to
retire the Fico Bonds will be equal for members of the BIF and the SAIF. The
Paperwork Reduction Act also provided for the merging of the BIF and the SAIF by
January 1, 1999 provided there were no financial institutions still chartered as
savings associations at that time. However, as of January 1, 1999, there were
still financial institutions chartered as savings associations.
Interstate Banking and Branching
The Bank Holding Company Act permits bank holding companies from any state
to acquire banks and bank holding companies located in any other state, subject
to certain conditions, including certain nationwide- and state-imposed
concentration limits. The Company has the ability, subject to certain
restrictions, to acquire by acquisition or merger branches outside its home
state. The establishment of new interstate branches is also possible in those
states with laws that expressly permit it. Interstate branches are subject to
certain laws of the states in which they are located. Competition may increase
further as banks branch across state lines and enter new markets.
Federal law provides that, as of September 29, 1995, adequately
capitalized and managed bank holding companies are permitted to acquire banks in
any state. State laws prohibiting interstate banking or discriminating against
out-of-state banks were preempted as of the effective date, although states were
permitted to require that target banks located within the state be in existence
for a period of up to five years before such banks may be subject to the
Interstate Banking Act. The "Interstate Banking Act" established deposit caps
which prohibit acquisitions that would result in the acquirer controlling 30% or
more of the deposits of insured banks and thrifts held in the state in which the
acquisition or merger is occurring or in any state in which the target maintains
a branch or 10% or more of the deposits nationwide. State-level deposit caps are
not preempted as long as they do not discriminate against out-of-state
acquirers, and the federal deposit caps apply only to initial entry
acquisitions.
In addition, the Interstate Banking Act provided that as of June 1, 1997,
adequately capitalized and managed banks may engage in interstate branching by
merging banks in different states and allowing banks to maintain branches in
states other than the states where they maintain their principal place of
business. Various proposed new laws have been (and will likely be) introduced in
the Tennessee General Assembly in response to the Interstate Banking Act, as
well as in response to other legal, regulatory, interest group, and economic
developments, the form or impact of which cannot be reliably predicted.
<PAGE> 13
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low- and moderate-income
neighborhoods. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA obligations into account
when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a performance-
based evaluation system which bases CRA ratings on an institution's lending
service and investment performance. When a bank holding company applies for
approval to acquire a bank or other bank holding company, the Federal Reserve
Board will review the assessment of each subsidiary bank of the applicant bank
holding company, and such records may be the basis for denying the application.
In connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to
improve" or "substantial noncompliance." As of its most recent CRA examination,
conducted in 1998, the Bank was rated at least "satisfactory."
Year 2000 Compliance
The Federal Financial Institutions Examination Council issued an
interagency statement to the chief executive officers of all federally
supervised financial institutions regarding year 2000 project management
awareness. The statement provides guidance to financial institutions, providers
of data services, and all examining personnel of the federal banking agencies
regarding the potential year 2000 problem. The federal banking agencies
conducted year 2000 compliance examinations to ascertain whether a bank's year
2000 readiness presented an unsafe and unsound banking practice. The Company's
core banking systems successfully responded to the century date change. The
Company will continue to monitor its major vendors and clients throughout year
2000.
Bank Holding Company Act
As a registered bank holding company, the financial condition and
operations of the Company as well as those of its subsidiary (the Bank) are
subject to examination and supervision by the Federal Reserve Board. The Bank
Holding Company Act requires prior Federal Reserve Board approval for bank
acquisitions and prohibits a bank holding company from engaging in any business
other than banking or bank-related activities. Specifically, the Bank Holding
Company Act requires that a bank holding company obtain prior approval of the
Federal Reserve Board before (1) acquiring, directly or indirectly (except in
certain limited circumstances), ownership or control of more than 5% of the
voting stock of a bank, (2) acquiring all or substantially all of the assets of
a bank, or (3) merging or consolidating with another bank holding company. The
Bank Holding Company Act also generally limits the business in which a bank
holding company may engage to banking, managing or controlling banks, and
furnishing or performing services for the banks that it controls.
In addition, pursuant to the Bank Holding Company Act, a bank holding
company may engage in nonbanking activities, or may acquire shares in a company
engaged in nonbanking activities provided that the Federal Reserve Board has
determined by regulation or order that the activity is so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Except in certain circumstances, the Bank Holding Company Act has
historically prohibited a bank holding company from acquiring a bank outside the
state where the bank holding company's banking business is principally
conducted, unless the laws of the state where the bank is located specifically
authorize such acquisitions by out-of-state bank holding companies. Effective
September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 ("Riegle-Neal"), which is discussed below, removed most restrictions
to the expansion of interstate banking. Riegle-Neal has had far-reaching effects
on the historical rules applicable to interstate banking and interstate
branching.
Federal Reserve Act
The Federal Reserve Act imposes strict limitations on investments by
subsidiary banks in the stock or other securities of their parent bank holding
company or any of its other subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrowers. In addition, the Federal
Reserve Act imposes strict limitations on extensions of credit and other
transactions by and between subsidiary banks and their parent bank holding
company or any of its other subsidiaries or corporate affiliates. As a
<PAGE> 14
subsidiary of the Company, the First National Bank will be subject to
limitations under Sections 23A and 23B of the Federal Reserve Act with respect
to extensions of credit to, investments in, and certain other transactions with
the Company. Further, any loans and extensions of credit from the First National
Bank to the Company also would be subject to various loan-to-value collateral
requirements. The Bank Holding Company Act and regulations of the Federal
Reserve Board prohibit a bank holding company and its subsidiaries from engaging
in certain (but not all) tie-in arrangements in connection with any extension of
credit, lease, or sale of property or the furnishing of services.
Capital Adequacy. The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued standards
for banks that are similar to, but not identical with, the standards for bank
holding companies. In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain certain
capital levels based on "risk-adjusted" assets, so that categories of assets
with potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding companies
are required to maintain capital to support off-balance-sheet activities such as
loan commitments. The Company and its subsidiary financial institution, the
First National Bank, exceed all applicable capital adequacy minimums. Please
refer to the Consolidated Financial Statements (Item 8 of this Report) and to
the Section entitled "Management's Discussion and Analysis and Results of
Operation," which appears as Item 7 of this Report, for additional information.
Support of Subsidiary Banks. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to its subsidiary
(the Bank) and to commit resources to support the Bank in circumstances where it
might not choose to do so absent such a policy. This support may be required at
times when the Company may not find itself able to provide it. In addition, any
capital loans by the Company to the Bank would also be subordinate in right of
payment to depositors and certain other indebtedness of such subsidiary Bank.
Consistent with this policy regarding bank holding companies serving as a source
of financial strength for their subsidiary banks, the Federal Reserve Board has
stated that, as a matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless its net income available to
common shareholders has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears consistent with the bank holding
company's capital needs, asset quality and over all financial condition.
CHANGES IN LAWS AND REGULATIONS
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the impact such changes might have on the Company and its
subsidiaries, however, cannot be determined at this time.
DEPOSIT INSURANCE
The First National Bank is subject to charges for deposit insurance
coverage by the FDIC. The Bank's deposits are insured under the Bank Insurance
Fund, which is administered by the FDIC. The rates charged to the Bank for
deposit insurance vary from year to year and ARE EXPECTED TO INCREASE FOR THE
YEAR 2000.
BANK AND BANK HOLDING COMPANY REGULATION; RESTRICTIONS ON DIVIDENDS
Subject to certain exceptions and the ultimate impact of the Interstate
Banking Act, both a bank holding company and an out-of-state bank are prohibited
under Tennessee law from acquiring control of, merging, or consolidating with a
Tennessee bank, unless the Tennessee bank has been in operation for at least
five (5) years. Notwithstanding the above-described prohibition(s), a bank which
does not have its home state in Tennessee may establish or acquire a branch in
Tennessee through the acquisition of all or substantially all of the assets and
the assumption of all or substantially all of the liabilities of or related to a
branch located in Tennessee which has been in operation for at least five (5)
years, provided that the laws of the home state of the out-of-state bank permit
Tennessee banks to establish and maintain branches in that state through the
acquisition of a branch under substantially the same terms and conditions. A
bank or bank holding company is prohibited from acquiring any bank in Tennessee
if the bank or bank holding company (including all insured depository
institutions which are affiliates of the bank or bank holding company), upon
consummation of the acquisition, would control thirty percent (30%) or more of
the total amount of the deposits of the insured depository institutions in
Tennessee. Under Tennessee law, any Tennessee bank that has been in operation
for at least five years may be acquired, under certain circumstances, by banks
and bank holding companies from outside Tennessee. Acquisitions are subject
<PAGE> 15
to the approval of the Commissioner of the Tennessee Department of Financial
Institutions, the OCC, and the Federal Reserve Board based upon a variety of
statutory and regulatory criteria. Branching is regulated generally by the OCC
pursuant to certain state and federal law requirements and the Interstate
Banking Act.
A bank chartered under the National Bank Act, such as the First National
Bank, is subject to the applicable provisions of that Act and, to a lesser
degree, to certain of the limitations created by Tennessee law (such as, solely
by way of example and not limitation, in respect of usury and branching). All
national banks, and all subsidiary banks of a bank holding company, must become
and remain insured banks under the FDIA. As a national bank the First National
Bank is required to be a member of the Federal Reserve System. The First
National Bank is subject to the provisions of FDIA and to supervision and
regular examination by the OCC. Such examinations, however, are for the
protection of the bank insurance fund and, indirectly, for depositors, and are
not for the protection of borrowers, investors or shareholders. Certain
provisions of Tennessee law may be preempted by the Interstate Banking Act and
no prediction can be made as to its impact on Tennessee law or the Company's
regulation thereunder.
The Company is a legal entity separate and distinct from the Bank, its
sole financial institution subsidiary. The Company has derived and expects to
continue to derive most of its funds for operations and substantially all funds
available for the payment of dividends from the First National Bank. Both
federal and state laws impose restrictions on the ability of banks and bank
holding companies to pay dividends. State law restricts the ability of
corporations (such as the Company) to pay dividends, and federal law limits
dividends by the Bank. For example, prior regulatory approval must be obtained
before declaring any dividends if the amount of capital, and surplus is below
certain statutory limits. In addition, the approval of the OCC is required for
any dividend if the total of all dividends declared in any calendar year would
exceed the total of the institution's net profits, as defined by the OCC, for
such year combined with its retained net profits for the preceding two years. In
addition, a national bank may not pay a dividend in an amount greater than its
net profits then on hand. The payment of dividends by any financial institution
subsidiary may also be affected by other factors, such as the maintenance of
adequate capital. Please refer to the Consolidated Financial Statements and to
Item 5 of this Report, "Market for Registrant's Common Equity and Related
Stockholder Matters," for additional information on dividends. See also the
section of this Report entitled "Capital Adequacy."
Failure to meet capital requirements can initiate certain mandatory - and
possibly additional discretionary actions by regulators that could, in that
event, have a direct material effect on the institution's financial statements.
The relevant regulations require First Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Bank's assets and
liabilities as calculated under regulatory accounting principles. The
regulations also require the regulators to make qualitative judgments about the
Company and the Bank. Those qualitative judgments could also affect the
Company's and the Bank's capital status and the amounts of dividends the
subsidiary bank may distribute. At December 31, 1999, management believes that
the Company and the Bank meet all such capital requirements to which they are,
respectively, subject.
The Company and the Bank are subject to various legal restrictions on the
extent to which a bank holding company (such as the Company) and any nonbank
subsidiary that it might own or form in the future can borrow or otherwise
obtain credit from any bank subsidiary such as the Bank. For example, the First
National Bank is subject to limitations imposed by Section 23A of the Federal
Reserve Act with respect to extensions of credit to, investments in, and certain
other transactions with, the Company. In general, these restrictions require
that any such extensions of credit must be on non-preferential terms and secured
by designated amounts of specified collateral and be limited, as to the holding
company or any one of such nonbank subsidiaries, to 10% of the lending
institution's capital stock and surplus, and as to the holding company and all
such nonbank subsidiaries in the aggregate, to 20% of such capital stock and
surplus. Further, Section 23B of the Federal Reserve Act imposes restrictions on
"non-credit" transactions between the Bank and the Company (and nonbank Company
affiliates).
<PAGE> 16
BUSINESS COMBINATION ACT
The Tennessee Business Combination Act (the "Business Combination Act")
limits the ability of Tennessee corporations to engage in business combinations
with "interested shareholders". The Business Combination Act may significantly
impede, delay or prevent a purchaser's ability to acquire a significant equity
interest in the Company. In general, the Business Combination Act prevents an
"interested shareholder" (generally, a shareholder beneficially owning 10% or
more of a corporation's outstanding voting stock) or an affiliate or associate
thereof from engaging in a "business combination" (defined as a variety of
transactions including a merger as described generally below) with a Tennessee
corporation for a period of five years following the date on which the
shareholder became an interested shareholder. The Company's common stock
("Common Stock") may become registered with the Securities and Exchange
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Hence, in the future, the Company may become
subject to the provisions of the Business Combination Act. Constitutional
questions may serve to limit the effect of the Business Combinations Act and,
accordingly, the effect of the Business Combination Act on the Company and the
Company's Common Stock (if any) is uncertain.
USURY PROVISIONS
The Constitution of the State of Tennessee requires the state legislature
to fix interest rates in the state, and the legislature has adopted statutes to
accomplish this purpose. The general interest rate statutes currently in effect
establish a maximum "formula rate" of interest at 4% above the average prime
loan rate (or the average short-term business average rate, however denominated)
for the most recent week for which such average rate has been published by the
Federal Reserve Board, or 24% per annum, whichever is lower. In the event that
the Federal Reserve Board fails to publish the average rate for four consecutive
weeks or the maximum effective rate should be adjudicated or become inapplicable
for any reason whatsoever, the maximum effective rate is deemed to be 24% per
annum until the Tennessee General Assembly otherwise provides. As of February
23, 2000, the maximum "formula rate" of interest was 12.75%. Specific usury laws
may apply also to particular classes of lenders (e.g., credit unions and savings
and loan associations) and transactions (e.g., bank installment loans and home
mortgages). The maximum possible nominal rate of interest under these laws
generally cannot exceed (and may be less than) 24% per annum.
The relative importance of the usury laws to the financial operations of
the Company and the First National Bank varies from time to time, depending on a
number of factors, including conditions in the money markets, the cost and the
availability of funds, and prevailing interest rates. The management of the
Company is unable to state whether existing usury laws have had or will have a
material effect on its businesses or earnings.
RECENT DEVELOPMENTS
As noted previously, new laws and regulations are commonly prescribed by
governmental agencies that affect the Company and the Bank. The best known new
development was the enactment of the Gramm-Leach-Bliley Act of 1999, which is
expected to have an extensive impact on financial services in the United States.
Other developments include, for example, a recent change in Tennessee law
removed the prohibition against the acquisition of certain branches that have
been in existence for at least five years by out-of-state banks and bank holding
companies. It has also become possible to have "S corporation" tax status as a
bank under federal income tax laws, with the effect that the tax attributes of S
corporations are available, under federal law, to financial institutions.
Other developments include certain new accounting proposals. In June 1998,
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. This Statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this Statement to have a
material impact on financial condition or results of operation. At the initial
application of this Statement, the Company may elect to transfer any security
classified by the Company as held-to-maturity to the available-for-sale or
trading classification. In addition, the Company may elect to transfer any
security classified as available-for-sale to the trading classification.
Presently, management does not expect to elect these options.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other post-retirement benefit plans. The statement
does not change the measurement or recognition of those plans, but requires
additional information on changes in benefits obligations and fair values of
plan assets, and eliminates certain disclosures previously required by SFAS Nos.
87, 88 and 106. This statement is effective for fiscal
<PAGE> 17
years beginning after December 15, 1997. The Company does not expect the
adoption of this Statement to have a material effect on the Company's financial
reporting.
COMPETITION
The commercial banking business is highly competitive and the Company and
First National Bank compete actively with national and state banks and bank
holding company organizations for deposits, loans and trust accounts, and with
savings and loan associations and credit unions for deposits and loans. In
addition, the Bank competes with other financial institutions, including
securities brokers and dealers, personal loan companies, insurance companies,
finance companies, leasing companies and certain governmental agencies, all of
which actively engage in marketing various types of loans, deposit accounts and
other services. For example, one of the Company's competitors is a subsidiary of
a regional bank holding company system that may have greater financial and other
resources than the Company. The deregulation of depository institutions, as well
as the increased ability of nonbanking financial institutions to provide
services previously reserved for commercial banks, has intensified competition.
Because nonbanking financial institutions are not subject to the same regulatory
restrictions as banks and bank holding companies, in many instances they may
operate with greater flexibility because they may not be subject to the same
types of regulatory applications and processes as are the Company and the First
National Bank.
The principal geographic area of the Company's and the First National
Bank's operations encompasses McMinnville, other areas of Warren County, and
surrounding areas of Tennessee. In this area, there are various commercial banks
and other financial institutions operating approximately seventeen offices and
branches (exclusive of free-standing ATM's) and holding an aggregate
(reportedly) of more than $500 million in deposits as of approximately June 30,
1999 (based on data published by the Federal Deposition Insurance Corporation).
The Company competes with some of the largest bank holding companies in
Tennessee, which have or control businesses, banks or branches in the area,
including regional financial institutions such as Union Planters Bank, N.A.,
Star Bank, and First American National Bank (soon to be AmSouth Bank), as well
as with a variety of local and regional banks.
To compete with major financial institutions in its service area, the
Company and the First National Bank rely, in part, on specialized services,
local promotional activity, and personal contacts with customers by its
officers, directors, and employees. For customers whose loan demands exceed the
First National Bank's lending limit, the First National Bank seeks to arrange
for loans on a participation basis with correspondent banks. The First National
Bank also assists customers requiring services not offered by the First National
Bank in obtaining those services from its correspondent banks.
EMPLOYEES
At January 1, 2000, the Registrant and its banking subsidiary (the Bank)
employed sixty-one persons on a full-time, and eleven persons on a part-time,
basis. None of these employees is covered by a collective-bargaining agreement.
Group life, health, and disability insurance are maintained for or made
available to employees by First National Bank, as is a 401(k) profit-sharing
plan adopted by the Bank as are certain benefit plans (described elsewhere
herein) adopted by the Bank. The Company considers its employee relations to be
satisfactory.
ECONOMIC CONDITIONS AND GOVERNMENTAL POLICY; LAWS AND REGULATIONS
The Company's profitability, like most financial institutions, is
primarily dependent on interest rate differentials. In general, the difference
between the interest rates paid by the Bank on interest-bearing liabilities,
such as deposits and other borrowings, and the interest rates received by the
Bank on its interest-earning assets, such as loans extended to its borrowers,
together with securities held in its investment portfolio, comprise the major
portion of the Company's earnings. These rates are highly sensitive to many
factors that are beyond the control of the Company and First National Bank, such
as inflation, recession and unemployment, and the impact which future changes in
domestic and even in foreign economic conditions might have on the Company and
the Bank cannot be predicted.
The Company's business is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Federal Reserve Board. The Federal Reserve Board implements
national monetary policies (with objectives such as curbing inflation and
combating recession) through its open- market operations in U.S. Government
securities by adjusting the required level of reserves for depository
institutions subject to its reserve requirements, and by varying the target
federal funds and discount rates applicable to borrowings by depository
institutions. The actions of the Federal Reserve Board in these areas influence
the growth of bank loans, investments, and deposits and also affect interest
rates earned on interest-earning assets and paid
<PAGE> 18
on interest-bearing liabilities. The nature and impact on the Company and the
Bank of any future changes in monetary and fiscal policies cannot be predicted.
From time to time, legislative acts, as well as regulations, are enacted
which have the effect of increasing the cost of doing business, limiting or
expanding permissible activities, or affecting the competitive balance between
banks and other financial services providers. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies, and other financial institutions and financial services providers are
frequently made in the federal Congress, in the state legislatures, and before
various regulatory agencies. Please refer to "Item 1. Business - Supervision and
Regulation."
The Company's earnings are affected not only by the extensive regulation
described above, but also by general economic conditions. These economic
conditions influence, and are themselves influenced, by the monetary and fiscal
policies of the United States government and its various agencies, particularly
the Federal Reserve Board. The Registrant cannot predict changes in monetary
policies or their impact on its operations and earnings.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment. The
Company does not believe that it will be required to expend any material amounts
in order to comply with these laws and regulations by virtue of its and the
First National Bank's activities. However, such laws may from time to time
affect the Company and the Bank in the context of lending activities to
borrowers who may themselves engage in activities or encounter circumstances in
which the environmental laws, rules, and regulations are implicated.
RESEARCH
The Company makes no material expenditures for research and development.
However, the reader is referred to the following section on "Computers and the
Year 2000."
COMPUTERS AND THE YEAR 2000 - THE "Y2K" ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. 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). To
address the Year 2000 issue, the Company adopted a broad-based approach designed
to encompass the Company's total environment. To its best knowledge, neither the
Company nor the Bank experienced any material "Year 2000" issues. However, as
noted above, the Company intends to be aware that software and hardware computer
problems may arise at any time, and may or may not be related to "Year 2000"
(including the fact that Year 2000 is also a leap year).
Of course, the ultimate effect of the Y2K issues on the Company and the
Bank will depend not only on the Company's response, for itself and the Bank,
but also on the efforts of the Bank's vendors, customers, government agencies,
unaffiliated financial services companies (including other banks and including
those in the securities markets) and others. The foregoing notwithstanding,
management does not currently believe that the costs of assessment, remediation,
or replacement of the Company's systems, or the potential failure of third
parties' systems will have a material adverse effect on the Company's business,
financial condition, results of operations, or liquidity.
Effective for periods ending after December 15, 1998, the Accounting
Standards Executive Committee issued Statement of Position No. 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
Company plans to adopt the provisions of this statement and it has determined
that the adoption of this statement is not expected to have a material impact on
the Company.
In summary, the Position Statement states that the following costs
incurred in developing internal-use software should be capitalized: direct costs
for materials and services paid to external parties for developing or obtaining
the software; payroll and payroll-related costs for employees' time spent
directly on the project; and interest costs incurred in developing the software.
<PAGE> 19
Currently, banks must expense such costs, which can be material to the
results of operation, in accordance with the guidance provided by banking
regulators such as the OCC.
DEPENDENCE UPON A SINGLE CUSTOMER
The Bank's principal customers are generally located in the Middle
Tennessee area with a concentration in Warren County, Tennessee. Neither the
Company nor the First National Bank is dependent upon a single customer or a
very few customers. However, approximately ten percent (10%) of the Bank's total
loans were to customers in the nursery industry.
LINE OF BUSINESS
The Company operates under the Bank Holding Company Act of 1956 in the
area of finance. The Company derived 100% of its consolidated total operating
income from the commercial banking business in 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATION
In addition to the other information contained in this report, the
following risks may affect the Company. If any of these risks occurs, our
business, financial condition or operating results could be adversely affected.
The Company's financial performance and profitability will depend on its
ability to execute its corporate growth strategy and to manage recent and
anticipated future growth. The Company's success and profitability depend on the
Company's ability to maintain profitable operations through continued
implementation of the Company's community banking philosophy which emphasizes
personal service and customer attention.
Changes in market interest rates may adversely affect the Company's
performance. For instance, the Company's earnings are affected by changing
interest rates. Changes in interest rates affect the demand for new loans, the
credit profile of existing loans, the rates received on loans and securities and
rates paid on deposits and borrowings. The relationship between the rates
received on loans and securities and the rates paid on deposits and borrowings
is known as interest rate spread. Given the Company's current volume and mix of
interest-bearing liabilities and interest-earning assets, its interest rate
spread could be expected to decrease during times of rising interest rates and,
conversely, to increase during times of falling interest rates. Although
management believes that the current level of interest rate sensitivity is
reasonable, significant fluctuations and/or further increases in interest rates
may have an adverse effect on the Company's business, financial condition and
results of operations.
The Company's Warren County and Southern Middle Tennessee business focus
and economic conditions in these areas could adversely affect our operations.
This is true because our operations are centralized and focused on this narrowly
defined geographic area. As a result of this geographic concentration, the
Company's operating results depend largely upon economic conditions in these
areas. A deterioration in economic conditions in these market areas,
particularly in the nursery and real estate industries on which these areas
depend, could have a material adverse impact on the quality of the Bank's loan
portfolio and on the demand for the Company's products and services, which in
turn can be expected to have a negative, and perhaps material adverse, effect on
results of operations.
As discussed above, the Company is subject to government regulation that
could limit or restrict its activities. In turn, this could adversely impact
operations. The financial services industry is regulated extensively. Federal
and state regulation is designed primarily to protect the deposit insurance
funds and consumers, and not to benefit our shareholders. These regulations can
sometimes impose significant limitations on Company and Bank operations. In
addition, these regulations are constantly evolving and may change significantly
over time. Significant new laws or changes in existing laws or repeal of
existing laws may cause the Company's consolidated results to differ materially.
Further, federal monetary policy, particularly as implemented through the
Federal Reserve System, significantly affects credit conditions for us. The
ultimate impact of financial institution affiliations under the Financial
Services Modernization Act, and other aspects of that law, cannot yet be
predicted but could adversely affect First National Bank and the Company.
Competition may adversely affect the Company's performance. The financial
services business in the Company's market areas is highly competitive. It is
becoming increasingly competitive due to changes in regulation, technological
advances, and the accelerating pace of consolidation among financial services
providers. (For instance, AmSouth's recent acquisition of First American
National Bank is another example of consolidation in the financial services
business in the Company's market areas.) The Company
<PAGE> 20
faces competition both in attracting deposits and in making loans. The Company
competes for loans principally through the interest rates and loan fees charged
and the efficiency and quality of services provided. Increasing levels of
competition in the banking and financial services businesses may reduce the
Company's market share or cause the prices charged by the Company and/or the
Bank for services to fall. Thus results may differ in future periods depending
upon the nature or level of competition.
If a significant number of borrowers, guarantors and related parties fail
to perform as required by the terms of their loans, the Company will sustain
losses. A significant source of risk arises from the possibility that losses
will be sustained if a significant number of the Bank's borrowers, guarantors
and related parties fail to perform in accordance with the terms of their loans.
The Bank has adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying the Bank's credit portfolio. These policies and procedures,
however, may not prevent unexpected losses that could materially adversely
affect consolidated results of operations.
SELECTED FINANCIAL DATA AND STATISTICAL INFORMATION
Certain selected financial data and certain statistical data concerning
the Company that should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operation" is set
forth in the following pages.
[Remainder of page intentionally left blank.]
<PAGE> 21
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
I. Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rate and Interest Differential
The Schedule which follows indicates the average balances for each
major balance sheet item, an analysis of net interest income and the
change in interest income and interest expense attributable to changes
in volume and changes in rates.
The difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities is net interest
income, which is the Company's gross margin. Analysis of net interest
income is more meaningful when income from tax-exempt earning assets is
adjusted to a tax equivalent basis. Accordingly, the following schedule
includes a tax equivalent adjustment of tax-exempt earning assets,
assuming a weighted average Federal income tax rate of 34%.
In this Schedule "change due to volume" is the change in volume
multiplied by the interest rate for the prior year. "Change due to
rate" is the change in interest rate multiplied by the volume for the
current year. Changes in interest income and expense not due solely to
volume or rate changes are included in the "change due to rate"
category.
Non-accrual loans, if any, have been included in their respective the
loan category. Loan fees of $29,000, $37,000 and $39,000 for 1999, 1998
and 1997, respectively, are included in consumer loan income and
represent an adjustment of the yield on these loans.
1
<PAGE> 22
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
-------------------------------------------------------------------------------------------------
1999 1998 1999/1998 CHANGE
------------------------------ ------------------------------ ------------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
------------------------------ ------------------------------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $ 130,190 8.37% 10,892 115,394 8.74% 10,087 1,293 (488) 805
Investment securities - taxable 86,401 6.99 6,037 83,366 6.92 5,773 210 54 264
------------------------------ ----------------------------- -------
Investment securities -
tax exempt 29,779 4.88 1,452 26,378 5.19 1,369 177 (94) 83
Taxable equivalent adjustment -- 2.51 748 -- 2.67 705 91 (48) 43
------------------------------ ----------------------------- -------
Total tax-exempt
investment securities 29,779 7.39 2,200 26,378 7.86 2,074 267 (141) 126
------------------------------ ----------------------------- -------
Total investment
securities 116,180 7.09 8,237 109,744 7.15 7,847 460 (70) 390
------------------------------ ------------------------------ -------
Federal funds sold 188 6.38 12 3,330 5.17 172 162 (2) (160)
Interest-bearing deposits in
banks -- -- -- 82 6.10 5 (5) -- (5)
------------------------------ ----------------------------- -------
Total earning assets 246,558 7.76 19,141 228,550 7.92 18,111 1,426 (396) 1,030
------------------------------ ----------------------------- -------
Cash and due from banks 5,019 4,642
Allowance for possible loan
losses (1,583) (1,417)
Bank premises and equipment 1,962 2,150
Other assets 3,947 3,005
---------- --------
Total assets $ 255,903 236,930
========== ========
</TABLE>
2
<PAGE> 23
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
----------------------------------------------------------------------------------------------------
1999 1998 1999/1998 CHANGE
------------------------------- ------------------------------ -----------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
------------------------------ ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of
withdrawal accounts $ 25,699 2.75% 707 20,705 2.57% 533 128 46 174
Money market demand
accounts 8,169 2.89 236 8,988 2.95 265 (24) (5) (29)
Other savings accounts 27,487 3.51 966 24,688 3.53 872 99 (5) 94
Certificates of deposit
$100,000 and over 39,458 5.24 2,068 43,163 5.58 2,408 (207) (133) (340)
Certificates of deposit
under $100,000 62,855 5.21 3,275 58,329 5.53 3,223 250 (198) 52
Individual retirement
accounts 11,572 5.40 625 11,025 5.67 625 31 (31) --
------------------------------ ----------------------------- ------
Total interest-bearing
deposits 175,240 4.49 7,877 166,898 4.75 7,926 396 (445) (49)
Demand 19,002 -- -- 20,580 -- -- --
------------------------------ ----------------------------- ------
Total deposits 194,242 4.06 7,877 187,478 4.23 7,926 286 (335) (49)
------------------------------ ----------------------------- ------
Federal funds purchased,
securities under repurchase
agreements and short-term
debt 18,457 4.35 802 9,542 3.99 381 356 65 421
Advances from Federal Home
Loan Bank 5,175 5.41 280 2,811 5.23 147 124 9 133
------------------------------ ----------------------------- ------
Total deposits and
borrowed funds 217,874 4.11 8,959 199,831 4.23 8,454 763 (258) 505
------------------------------ ------------------------------ ------
Other liabilities -- 2,631
Stockholders' equity 38,029 34,468
----------- --------
Total liabilities and
stockholders' equity $ 255,903 236,930
========== ========
Net interest income 10,182 9,657 525
========= ======== ======
Net yield on earning assets 4.13% 4.23%
======= ========
Net interest spread 3.65% 3.69%
======= ========
</TABLE>
3
<PAGE> 24
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
-------------------------------------------------------------------------------------------------
1998 1997 1998/1997 CHANGE
------------------------------- ------------------------------ ---------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
------------------------------ ------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $ 115,394 8.74% 10,087 111,177 8.89% 9,878 375 (166) 209
Investment securities - taxable 83,366 6.92 5,773 61,248 7.18 4,396 1,588 (211) 1,377
------------------------------ ----------------------------- -------
Investment securities -
tax exempt 26,378 5.19 1,369 22,113 5.34 1,180 228 (39) 189
Taxable equivalent adjustment -- 2.67 705 -- 2.75 608 1117 (20) 97
------------------------------ ----------------------------- -------
Total tax-exempt
investment securities 26,378 7.86 2,074 22,113 8.09 1,788 345 (59) 286
------------------------------ ----------------------------- -------
Total investment
securities 109,744 7.15 7,847 83,361 7.42 6,184 1,958 (295) 1,663
------------------------------ ----------------------------- -------
Federal funds sold 3,330 5.17 172 4,203 5.50 231 (48) (11) (59)
Interest-bearing deposits in
banks 82 6.10 5 100 6.00 6 (1) -- (1)
------------------------------ ----------------------------- -------
Total earning assets 228,550 7.92 18,111 198,841 8.20 16,299 2,436 (624) 1,812
------------------------------ ----------------------------- -------
Cash and due from banks 4,642 4,041
Allowance for possible loan
losses (1,417) (1,775)
Bank premises and equipment 2,150 2,314
Other assets 3,005 3,227
---------- --------
Total assets $ 236,930 206,648
========== ========
</TABLE>
4
<PAGE> 25
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
----------------------------------------------------------------------------------------------------
1998 1997 1998/1997 CHANGE
------------------------------ ----------------------------- ----------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
------------------------------ ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of
withdrawal accounts $ 20,705 2.57% 533 19,309 2.47% 477 34 22 56
Money market demand
accounts 8,988 2.95 265 10,276 2.92 300 (38) 3 (35)
Other savings accounts 24,688 3.53 872 23,434 3.54 829 44 (1) 43
Certificates of deposit,
$100,000 and over 43,163 5.58 2,408 30,437 5.67 1,726 722 (40) 682
Certificates of deposit
under $100,000 58,329 5.53 3,223 55,676 5.58 3,105 148 (30) 118
Individual retirement
accounts 11,025 5.67 625 9,137 5.65 516 107 2 109
------------------------------ ----------------------------- ------
Total interest-bearing
deposits 166,898 4.75 7,926 148,269 4.69 6,953 874 99 973
Demand 20,580 -- -- 20,038 -- -- --
------------------------------ ------------------------------ ------
Total deposits 187,478 4.23 7,926 168,307 4.13 6,953 779 194 973
------------------------------ ------------------------------ ------
Federal funds purchased,
securities sold under
repurchase agreements
and short-term debt 9,542 3.99 381 4,149 3.09 128 167 86 253
Advances from Federal Home
Loan Bank 2,811 5.23 147 -- -- -- 147 -- 147
------------------------------ ------------------------------ ------
Total deposits and
borrowed funds 199,831 4.23 8,454 172,456 4.11 7,081 1,134 239 1,373
------------------------------ ------------------------------ ------
Other liabilities 2,631 2,496
Stockholders' equity 34,468 31,696
---------- --------
Total liabilities and
stockholders' equity $ 236,930 206,648
========== ========
Net interest income 9,657 9,218 439
======== ======== ======
Net yield on earning assets 4.23% 4.64%
======= ========
Net interest spread 3.69% 4.09%
======= ========
</TABLE>
5
<PAGE> 26
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
II. Investment Portfolio:
A. Securities at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
---------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agencies and
corporations $ 4,776 -- 339 4,437
Obligations of state and
political subdivisions 28,549 180 997 27,732
Mortgage-backed securities 2,244 -- 52 2,192
------- ----- ------ ------
$35,569 180 1,388 34,361
======= ===== ====== ======
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $83,525 -- 5,587 77,938
Obligations of state and
political subdivisions 1,139 11 2 1,148
Corporate and other securities 1,864 -- 160 1,704
Mortgage-backed securities 1,709 -- 97 1,612
------- ----- ------ ------
$88,237 11 5,846 82,402
======= ===== ====== ======
</TABLE>
6
<PAGE> 27
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
II. Investment Portfolio, Continued:
A. Continued
Investment securities at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
----------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $16,451 218 8 16,661
Obligations of state and
political subdivisions 26,761 995 26 27,730
Corporate and other securities 763 24 -- 787
Mortgage-backed securities 2,242 2 29 2,215
------- ----- ------ ------
$46,217 1,239 63 47,393
======= ===== ====== ======
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
--------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $57,056 626 197 57,485
Obligations of state and
political subdivisions 1,528 69 -- 1,597
Corporate and other securities 812 -- -- 812
Mortgage-backed securities 1,922 -- 73 1,849
------- --- ------ ------
$61,318 695 270 61,743
======= === ====== ======
</TABLE>
7
<PAGE> 28
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
II. Investment Portfolio, Continued:
B. The following schedule details the estimated maturities and weighted
average yields of securities of the Company at December 31, 1999.
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Held-To-Maturity Securities Cost Value Yields
--------------------------- ---------- -------- ---------
(In Thousands, Except Yields)
<S> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies and
corporations, including mortgage-backed
securities:
Less than one year $ -- -- -- %
One to five years 745 728 5.50
Five to ten years 2,582 2,526 5.38
More than ten years 3,693 3,375 7.14
------- ------ -----
Total securities of U.S. Treasury
and other U.S. Government
agencies and corporations 7,020 6,629 6.32
------- ------ -----
Obligations of states and political
subdivisions*:
Less than one year 1,588 1,590 7.71
One to five years 5,292 5,355 8.17
Five to ten years 8,583 8,637 8.30
More than ten years 13,086 12,150 7.68
------- ------ -----
Total obligations of states and
political subdivisions 28,549 27,732 7.96
------- ------ -----
Total held-to-maturity securities $35,569 34,361 7.64%
======= ====== =====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
8
<PAGE> 29
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
II. Investment Portfolio, Continued:
B. Continued
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Available-For-Sale Securities Cost Value Yields
----------------------------- ----------- ---------- ---------
(In Thousands, Except Yields)
<S> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies and
corporations, including mortgage-backed
securities:
Less than one year $ -- -- -- %
One to five years -- -- --
Five to ten years 42,631 40,547 6.60
More than ten years 42,603 39,003 7.70
------- ------ -----
Total securities of U.S. Treasury
and other U.S. Government
agencies and corporations 85,234 79,550 6.82
------- ------ -----
Obligations of states and political
subdivisions*:
Less than one year 185 187 10.65
One to five years 391 395 8.85
Five to ten years 309 311 8.31
More than ten years 254 255 9.68
------- ------ -----
Total obligations of states and
political subdivisions 1,139 1,148 9.18
------- ------ -----
Other:
Corporate and other 1,000 840 6.63
Federal Home Loan Bank stock 773 773 --
Federal Reserve Bank stock 91 91 --
------- ------ -----
Total available-for-sale securities $88,237 82,402 6.85%
======= ====== =====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
9
<PAGE> 30
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at December 31,
1999, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 38,013 37,011 28,833 30,232 22,327
Real estate - construction 1,802 2,339 2,405 2,224 2,217
Real estate - mortgage 92,515 84,136 77,393 74,290 73,444
Consumer 3,071 3,235 2,842 2,918 2,871
--------- -------- -------- -------- --------
Total loans 135,401 126,721 111,473 109,664 100,859
Less unearned interest (26) (56) -- -- --
--------- -------- -------- -------- --------
Total loans, net of
unearned interest 135,375 126,665 111,473 109,664 100,859
Less allowance for possible
loan losses (1,502) (1,495) (1,314) (1,724) (1,562)
--------- -------- -------- -------- --------
Net loans $ 133,873 125,170 110,159 107,940 99,297
========= ======== ======== ======== ========
</TABLE>
10
<PAGE> 31
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
III. Loan Portfolio, Continued:
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following schedule details maturities and sensitivity to interest
rates changes for commercial loans of the Company at December 31, 1999.
<TABLE>
<CAPTION>
1 Year to
Less Than Less Than After 5
1 Year * 5 Years Years Total
----------- --------- --------- -------
<S> <C> <C> <C> <C>
Maturity Distribution:
Commercial, financial
and agricultural $19,283 16,848 1,882 38,013
Real estate - construction 1,802 -- -- 1,802
------- ------ ------ ------
$21,085 16,848 1,882 39,815
======= ====== ====== ======
Interest-Rate Sensitivity:
Fixed interest rates $14,019 14,424 1,882 30,325
Floating or adjustable
interest rates 7,066 2,424 -- 9,490
------- ------ ------ ------
Total commercial,
financial and
agricultural loans
and real estate -
construction loans $21,085 16,848 1,882 39,815
======= ====== ====== ======
</TABLE>
*Includes demand loans, bankers acceptances, commercial paper and deposit notes.
11
<PAGE> 32
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
III. Loan Portfolio, Continued:
C. Risk Elements
The following schedule details selected information as to non-performing
loans of the Company at December 31, 1999, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
In Thousands, Except Percentages
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial, financial and
agricultural $ -- -- -- -- 55
Real estate - construction -- -- -- -- --
Real estate - mortgage -- -- -- -- --
Consumer -- -- -- -- --
Lease financing receivable -- -- -- -- --
----------- ------- ------- ------- -------
Total non-accrual $ -- -- -- -- 55
=========== ======= ======= ======= =======
Loans 90 days past due:
Commercial, financial and
agricultural $ -- -- 101 1 --
Real estate - construction -- -- -- -- --
Real estate - mortgage 148 224 152 -- 77
Consumer 34 49 2 -- 8
Lease financing receivable -- -- -- -- --
----------- ------- ------- ------- -------
Total loans 90
days past due $ 182 273 255 1 85
=========== ======= ======= ======= =======
Renegotiated loans:
Commercial, financial and
agricultural $ -- -- -- -- --
Real estate - construction -- -- -- -- --
Real estate - mortgage -- -- -- -- --
Consumer -- -- -- -- --
Lease financing receivable -- -- -- -- --
----------- ------- ------- ------- -------
Total renegotiated
loans past due $ -- -- -- -- --
=========== ======= ======= ======= =======
Loans current - considered
uncollectible $ -- -- -- -- --
=========== ======= ======= ======= =======
Total
non-performing loans $ 182 273 255 1 140
=========== ======= ======= ======= =======
Total loans, net of
unearned interest $ 135,375 126,665 111,473 109,664 100,859
=========== ======= ======= ======= =======
Percent of total loans
outstanding, net of
unearned interest 0.13% 0.22% 0.23% -- 0.14%
=========== ======= ======= ======= =======
Other real estate $ 74 11 11 69 305
=========== ======= ======= ======= =======
</TABLE>
12
<PAGE> 33
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
III. Loan Portfolio, Continued:
C. Risk Elements, Continued
The accrual of interest income is discontinued when it is determined
that collection of interest is less than probable or the collection
of any amount of principal is doubtful. The decision to place a loan
on a non-accrual status is based on an evaluation of the borrower's
financial condition, collateral liquidation value, economic and
business conditions and other factors that affect the borrower's
ability to pay. At the time a loan is placed on a non-accrual
status, the accrued but unpaid interest is also evaluated as to
collectibility. If collectibility is doubtful, the unpaid interest
is charged off. Thereafter, interest on non-accrual loans is
recognized only as received. There were no loans on non-accrual
status at December 31, 1999, 1998, 1997 and 1996. Non-accrual loans
totaled $55,000 at December 31, 1995. Gross interest income that
would have been recorded for the year ended December 31, 1995, if
the loans had been current totaled approximately $8,835,000.
At December 31, 1999, loans totaling $6,094,000 were included in the
Company's internal classified loan list. Of these loans, $1,840,000
are real estate, $4,198,000 are commercial and $56,000 are consumer.
The collateral valuations received by management securing these
loans total approximately $8,619,000, ($2,758,000 related to real
estate, $5,828,000 related to commercial and $33,000 related to
consumer 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 repayment terms of the loan agreement. The loan
classifications do not represent or result from trends or
uncertainties which management expects will materially impact future
operating results, liquidity or capital resources.
At December 31, 1999 and 1998, there were loans to customers in the
nursery industry totaling approximately $11,399,000 and $11,243,000,
respectively, which represents an industry concentration of
approximately 10% of total loans. Loan concentrations are amounts
loaned to a multiple number of borrowers engaged in similar
activities which would cause them to be similarly impacted by
economic or other conditions.
At December 31, 1999 and 1998, other real estate totaled $74,000 and
$11,000, respectively. The balance at December 31, 1999 consists of
two residential properties with carrying values of approximately
$38,000 and $36,000 that had loans foreclosed during 1999. The
balance at December 31, 1998 consisted of one commercial property
that the Company transferred to bank premises in 1999. Management is
attempting to sell the properties included in other real estate at
December 31, 1999 and no material loss is anticipated thereon.
13
<PAGE> 34
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
III. Loan Portfolio, Continued:
D. Other Interest-Bearing Assets
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.)
at December 31, 1999 which would be required to be disclosed as past
due, non-accrual, restructured or potential problem loans, if such
interest-bearing assets were loans.
14
<PAGE> 35
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
IV. Summary of Loan Loss Experience:
The following schedule details selected information related to the
allowance for possible loan loss account of the Company at December 31,
1999, 1998, 1997, 1996 and 1995 and the years then ended.
<TABLE>
<CAPTION>
In Thousands, Except Percentages
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
at beginning of period $ 1,495 1,314 1,724 1,562 1,448
--------- -------- -------- -------- --------
Less: net of loan
charge-offs:
Charge-offs:
Commercial, financial and
agricultural (174) -- (600) -- (67)
Real estate construction -- -- -- -- --
Real estate - mortgage -- -- -- (55) (5)
Consumer (35) (37) (60) (43) (14)
Lease financing -- -- -- -- --
--------- -------- -------- -------- --------
(209) (37) (660) (98) (86)
--------- -------- -------- -------- --------
Recoveries:
Commercial, financial and
agricultural 1 2 -- 15 28
Real estate construction -- -- -- -- --
Real estate - mortgage -- -- -- 25 --
Consumer 35 36 -- 70 12
Lease financing -- -- 30 -- --
--------- -------- -------- -------- --------
36 38 30 110 40
--------- -------- -------- -------- --------
Net loan recoveries
(charge-offs) (173) 1 (630) 12 (46)
--------- -------- -------- -------- --------
Provision for loan losses
charged to expense 180 180 220 150 160
--------- -------- -------- -------- --------
Allowance for loan losses
at end of period $ 1,502 1,495 1,314 1,724 1,562
========= ======== ======== ======== ========
Total loans, net of unearned
interest, at end of year $ 135,375 126,665 111,473 109,664 100,859
========= ======== ======== ======== ========
Average total loans out-
standing, net of unearned
interest, during year $ 130,190 115,394 111,177 103,919 96,773
========= ======== ======== ======== ========
Net charge-offs (recoveries)
as a percentage of average
total loans outstanding,
net of unearned interest,
during year 0.13% -- 0.57% (0.01)% .05%
========= ======== ======== ======== ========
Ending allowance for possible
loan losses as a
percentage of total loans
outstanding net of
unearned interest, at
end of year 1.11% 1.18 1.18 1.57 1.55
========= ======== ======== ======== ========
</TABLE>
15
<PAGE> 36
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
IV. Summary of Loan Loss Experience, Continued:
The allowance for possible loan losses 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, review of
specific loan problems, the relationship of the allowance for possible
loan losses to outstanding loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral and current economic conditions that may affect the borrower's
ability to pay.
Management conducts a continuous review of all loans that are delinquent,
previously charged down or loans which are determined to be potentially
uncollectible. Loan classifications are reviewed periodically by a person
independent of the lending function. The Board of Directors periodically
reviews the adequacy of the allowance for possible loan losses.
The breakdown of the allowance by loan category is based in part on
evaluations of specific loans, past history and economic conditions within
specific industries or geographic areas. Accordingly, since all of these
conditions are subject to change, the allocation is not necessarily
indicative of the breakdown of the future losses.
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------- -----------------------------
Percent of Percent of
Loans In Loans In
In Each Category In Each Category
Thousands To Total Loans Thousands To Total Loans
---------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $1,057 28% $1,120 29%
Real estate construction 5 1 6 2
Real estate mortgage 389 69 313 66
Consumer 51 2 56 3
------ ------ ------ -----
$1,502 100% $1,495 100%
====== ====== ====== =====
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------- ----------------------------
Percent of Percent of
Loans In Loans In
In Each Category In Each Category
Thousands To Total Loans Thousands To Total Loans
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $1,033 26% $1,410 28%
Real estate construction -- 2 1 2
Real estate mortgage 223 69 250 68
Consumer 58 3 63 2
------ ------ ------ -----
$1,314 100% $1,724 100%
====== ====== ====== =====
<CAPTION>
December 31, 1995
---------------------------
Percent of
Loans In
In Each Category
Thousands To Total Loans
--------- --------------
<S> <C> <C>
Commercial, financial
and agricultural $1,299 20%
Real estate construction 5 2
Real estate mortgage 246 73
Consumer 12 5
------ -----
$1,562 100%
====== =====
</TABLE>
16
<PAGE> 37
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
V. Deposits:
The average amounts and average interest rates for deposits for 1999 and
1998 are detailed in the following schedule:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Average Average
Balance Balance
------------ Average ------------ Average
In Thousands Rate In Thousands Rate
------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 19,002 -- % 20,580 -- %
Negotiable order of
withdrawal accounts 25,699 2.75% 20,705 2.57%
Money market demand
accounts 8,169 2.89% 8,988 2.95%
Other savings 27,487 3.51% 24,688 3.53%
Certificates of deposit
$100,000 and over 39,458 5.24% 43,163 5.58%
Certificates of deposit under
$100,000 62,855 5.21% 58,329 5.53%
Individual retirement savings
accounts 11,572 5.40% 11,025 5.67%
---------- ------ --------- -----
$ 194,242 4.06% 187,478 4.23%
========== ====== ========= =====
</TABLE>
The following schedule details the maturities of certificates of deposit
and individual retirement accounts of $100,000 and over at December 31,
1999.
<TABLE>
<CAPTION>
In Thousands
--------------------------------------
Certificates Individual
of Retirement
Deposit Accounts Total
------------ ---------- -------
<S> <C> <C> <C>
Less than three months $15,395 775 16,170
Three to six months 10,266 228 10,494
Six to twelve months 8,543 1,120 9,663
More than twelve months 5,153 557 5,710
------- ------ ------
$39,357 2,680 42,037
======= ====== ======
</TABLE>
In addition, approximately $728,000 of other time deposits of $100,000 and
over are included in "other savings deposits," which are passbook accounts
with a 90-day maturity.
17
<PAGE> 38
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
VI. Return on Equity and Assets:
The following schedule details selected key ratios of the Company at
December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Return on assets 1.65% 1.63% 1.73%
(Net income divided by average total assets)
Return on equity 11.09% 11.23% 11.30%
(Net income divided by average equity)
Dividend payout ratio 35.40% 36.50% 37.43%
(Dividends declared per share divided by
net income per share)
Equity to asset ratio 14.86% 14.55% 15.34%
(Average equity divided by average total
assets)
Leverage capital ratio 14.17% 14.07% 15.22%
(Equity divided by fourth quarter average
total assets, excluding the net unrealized
gain or loss on available-for-sale-
securities)
</TABLE>
The minimum leverage capital ratio required by the regulatory agencies is
4%.
Beginning January 1, 1991, new risk-based capital guidelines were adopted
by regulatory agencies. Under these guidelines, a credit risk is assigned
to various categories of assets and commitments ranging from 0% to 100%
based on the risk associated with the asset.
18
<PAGE> 39
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
VI. Return on Equity and Assets, Continued:
The following schedule details the Company's risk-based capital at
December 31, 1999, excluding the net unrealized gain on available-for-sale
securities which is shown as an addition in stockholders' equity in the
consolidated financial statements:
<TABLE>
<CAPTION>
In Thousands
-------------
<S> <C>
Tier I capital:
Stockholders' equity, excluding the net unrealized
gain on available-for-sale securities $ 37,220
Tier II capital:
Allowable allowance for loan losses (limited to 1.25%
of risk-weighted assets) 1,502
----------
Total risk-based capital $ 38,722
==========
Risk-weighted assets $ 139,191
==========
Risk-based capital ratios:
Tier I capital ratio 26.7%
==========
Total risk-based capital ratio 27.8%
==========
</TABLE>
The Company is required to maintain a total risk-based capital to risk
weighted asset rate of 8% and a Tier I capital to risk weighted asset
ratio of 4%. At December 31, 1999, the Company and its subsidiary bank
were in compliance with these requirements.
19
<PAGE> 40
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
VI. Return on Equity and Assets, Continued:
The following schedule details the Company's interest rate sensitivity at
December 31, 1999:
<TABLE>
<CAPTION>
Repricing Within
--------------------------------------------------------------------------------------------
(In Thousands) Total 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
----- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest $ 135,375 18,745 6,434 6,914 11,806 91,476
Securities 117,971 12,128 12,155 10,463 9,925 73,300
--------- -------- ------- ------- ------- -------
Total earning
assets 253,346 30,873 18,589 17,377 21,731 164,776
--------- -------- ------- ------- ------- -------
Interest-bearing
liabilities:
Negotiable order
of withdrawal
accounts 26,167 26,167 -- -- -- --
Money market demand
accounts 8,504 8,504 -- -- -- --
Savings deposits 27,914 27,914 -- -- -- --
Certificates of deposit,
$100,000 and over 39,358 4,440 10,955 10,266 8,543 5,154
Certificates of deposit,
under $100,000 64,943 10,095 11,653 18,775 13,330 11,090
Individual retirement
accounts 11,482 2,021 1,319 2,079 3,758 2,305
Securities sold
under repurchase
agreements 15,869 15,869 -- -- -- --
Advances from FHLB 7,200 3,200 -- -- -- 4,000
Federal funds
purchased 8,000 8,000 -- -- -- --
--------- -------- ------- ------- ------- -------
Total interest
bearing
liabilities 209,437 106,210 23,927 31,120 25,631 22,549
--------- -------- ------- ------- ------- -------
Interest-sensitivity gap $ 43,909 (75,337) (5,338) (13,743) (3,900) 142,227
========= ======== ======= ======= ======= =======
Cumulative gap (75,337) (80,675) (94,418) (98,318) 43,909
======== ======= ======= ======= =======
Interest-sensitivity gap
as % of total assets (28.57) (2.02) (5.21) (1.48) 53.93
======== ======= ======= ======= =======
Cumulative gap as %
of total assets (28.57) (30.59) (35.80) (37.28) 16.65
======== ======= ======= ======= =======
</TABLE>
The Company presently maintains a liability sensitive position over the
next twelve months. However, management expects that liabilities of a
demand nature will renew and that it will not be necessary to replace them
with significantly higher cost funds.
20
<PAGE> 41
FIRST MCMINNVILLE CORPORATION
Form 10-K
December 31, 1999
Item 7A. Return on Equity and Assets, Continued:
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. 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.
21
<PAGE> 42
ITEM 2. DESCRIPTION OF PROPERTY.
The First National Bank owns four parcels of property on which it has
established banking offices. The Bank leases the land (but owns the building)
for one of its branches at commercial leasing rates pursuant to a long-term
lease and owns one other parcel of property for future expansion. The Main
Office is located at 200 East Main Street, McMinnville. The Bank utilizes five
ATM's for the convenience of its customers. In the judgment of management, the
facilities of the Company and the First National Bank are generally suitable and
adequate for the current and reasonably foreseeable needs of the Company and the
Bank. However, new office sites are considered from time to time.
ITEM 3. LEGAL PROCEEDINGS.
There were no material legal proceedings pending at December 31, 1999,
against the Company or the Bank other than ordinary routine litigation
incidental to their respective businesses, to which the Company or its
subsidiary Bank is a party or of which any of their property is the subject. It
is to be expected that various actions and proceedings may be anticipated to be
pending or threatened against, or to involve, the Company and/or the First
National Bank from time to time in the ordinary course of business. Some of
these may from time to time involve large demands for compensatory and/or
punitive damages. At the present time, management knows of no pending or
threatened litigation the ultimate resolution of which would have a material
adverse effect on the Company's or the First National Bank's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) MARKET INFORMATION
There is no established public trading market for the Company's Common
Stock. Management, however, believes that Middle Tennessee is the principal
market area for the Common Stock. The following table sets forth the high and
low sales prices per share of the Common Stock for the first quarter of 2000
(through February 11, 2000) and for each quarter of fiscal 1999 and 1998. During
1999 the Company redeemed 3,851 shares of its Common Stock with a view toward
providing some liquidity in the stock. Certain of the other information included
below has been reported to the Company by certain selling or purchasing
Shareholders in privately negotiated transactions during the periods indicated.
Although management believes that the information supplied by purchasers and
sellers concerning their respective transactions is generally reliable, it has
not been verified. Such information may not include all transactions in the
Company's Common Stock for the respective periods shown, and it is possible that
transactions occurred during the periods reflected or discussed at prices higher
or lower than the prices set forth below. Certain of the transactions involved,
or may have involved, the Company or its principals.
<PAGE> 43
<TABLE>
<CAPTION>
CALENDAR QUARTER COMMON STOCK
2000 High Low
---- ---- ---
<S> <C>
First Quarter $71.12 $70.32
1999
----
Fourth Quarter $72.05 70.62
Third Quarter 69.92 68.24
Second Quarter 68.34 67.00
First Quarter 66.22 64.89
1998
----
Fourth Quarter $66.54 $65.15
Third Quarter 64.64 63.21
Second Quarter 63.21 61.84
First Quarter 61.33 60.01
</TABLE>
The last trade known to management involved 300 shares at an estimated
$70.32 per share in January of 2000. In February of 2000, the Company redeemed
shares at a price of $71.12 per share. Because there is no established public
trading market for the Company's Common Stock, and because the Company and those
closely affiliated with the Company may be involved in particular transactions,
the prices shown above may not necessarily be indicative of the fair market
value of the Common Stock or of the prices at which the Company's Common Stock
would trade if there were an established public trading market. Accordingly,
there can be no assurance that the Common Stock will subsequently be purchased
or sold at prices comparable to the prices set forth above.
THE COMPANY'S COMMON STOCK
The Company is authorized by its Charter to issue 5,000,000 shares of
Common Stock, par value of $2.50 per share. At February 29, 2000, the Company
had 524,989 shares outstanding. No shares are reserved for issuance except up to
57,500 shares reserved in connection with the 1997 First McMinnville Corporation
Stock Option Plan (the "Stock Option Plan") and the number of shares needed to
fulfill Rights Agreement described elsewhere herein.
Holders of the Company's Common Stock are entitled to (a) cumulate the
votes of each share held of record in connection with the election of directors
and (b) to cast one vote for each share held of record on all other matters
submitted to a vote of the shareholders. Holders of the Common Stock have no
preemptive rights to subscribe for or to purchase any additional shares of the
Company's Common Stock. In the event of liquidation, holders of the Company's
Common Stock are entitled to share in the distribution of assets remaining after
payment of debts and expenses. Holders of the Common Stock are entitled to
receive dividends when declared by the Company's Board of Directors out of funds
legally available therefor. Under its Charter, the Company is required to
indemnify its directors and officers for acts on behalf of the Company to the
fullest extent permitted under applicable law. Certain of the statutes and
regulations described in Item 1 and in other places in this Report may further
affect the matters described in this Item.
<PAGE> 44
Stock Option Plan
Certain shares are reserved for issuance as set forth in the description
of the Stock Option Plan appearing elsewhere in this Report.
Shareholders Rights Agreement
Effective as of June 10, 1997, the Board of Directors of the Company
adopted a Shareholders Rights Agreement (the "Rights Agreement") and authorized
and declared a dividend of one common share purchase right (a "Right") for each
outstanding share of the Company's Common Stock (the "Common Shares"). The
dividend was payable on June 10, 1997, to the shareholders of record on that
date (the "Record Date"), and with respect to Common Shares issued thereafter
until the Distribution Date (as hereinafter defined) or the expiration or
earlier redemption or exchange of the Rights. Except as set forth below, each
Right entitles the registered holder to purchase from the Company, at any time
after the Distribution Date one Common Share at a price per share of $120,
subject to adjustment (the "Purchase Price"). The description and terms of the
Rights are as set forth in the Rights Agreement. The following description of
the Rights is qualified by reference to the Rights Agreement, which is an
Exhibit to this Report.
Initially the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) ten (10) days after the public announcement of a person's or
group of affiliated or associated persons' having acquired beneficial ownership
of ten percent (10%) or more of the outstanding Common Shares (such person or
group being hereinafter referred to as an "Acquiring Person"); or (ii) ten (10)
days (or such later date as the Board may determine) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in a person or group's becoming an
Acquiring Person (the earlier of such dates being called the "Distribution
Date").
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with, and only with, the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new Common
Share certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Shares
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 4, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of certain members of the Board of Directors
determines to be adequate and in the best interests of the Company, its
stockholders and other relevant constituencies, other than such Acquiring
Person, its affiliates and associates (a "Permitted Offer")), each holder of a
Right will thereafter have the right (the "Flip-In Right") to acquire a Common
Share for a purchase price equal to fifteen percent (15%) of the then current
market price, or at such greater price as the Rights Committee shall determine
(not to exceed thirty-three percent (33 1/3%) of such current market price).
Notwithstanding the foregoing, all Rights that are, or were, beneficially owned
by any Acquiring Person or any affiliate or associate thereof will be null and
void and not exercisable.
<PAGE> 45
In the event that, at any time following the Distribution Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding Common Shares immediately prior to
the consummation of the transaction are not the holders of all of the surviving
corporation's voting power, or (ii) more than fifty percent (50%) of the
Company's assets or earning power is sold or transferred, then each holder of a
Right (except Rights which have previously been voided as set forth above) shall
thereafter have the right (the "Flip-Over Right") to receive, upon exercise and
payment of the Purchase Price, common shares of the acquiring company having a
value equal to two times the Purchase Price. If a transaction would otherwise
result in a holder's having a Flip-In as well as a Flip-Over Right, then only
the Flip-Over Right will be exercisable; if a transaction results in a holders
having a Flip-Over Right subsequent to a transaction resulting in a holders
having a Flip-In Right, a holder will have Flip-Over Rights only to the extent
such holders Flip-In Rights have not been exercised.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of Common Shares,
(ii) upon the grant to holders of Common Shares of certain rights or warrants to
subscribe for or purchase Common Shares at a price, or securities convertible
into Common Shares with a conversion price, less than the then current market
price of Common Shares, or (iii) upon the distribution to holders of Common
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
Common Shares) or of subscription rights or warrants (other than those referred
to above). However, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least one percent (1%). No
fractional Common Shares will be issued and in lieu thereof, an adjustment in
cash will be made based on the market price of Common Shares on the last trading
day prior to the date of exercise.
At any time prior to the time a person becomes an Acquiring Person, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.001 per Right, subject to adjustment by the Rights
Committee at a price between $.001 and $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of Common Shares representing 50% or more of
the then outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights which have become null and void), in
whole or in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).
All of the provisions of the Rights Agreement may be amended prior to the
Distribution Date by the Board of Directors of the Company for any reason it
deems appropriate. Prior to the Distribution Date, the Board is also authorized,
as it deems appropriate, to lower the thresholds for distribution and Flip-In
Rights to not less than the greater of (i) any percentage greater than the
largest percentage then held by any shareholder, or (ii) 10%. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders of the Company, shareholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable or
upon the occurrence of certain events thereafter.
(B) HOLDERS
The approximate number of record holders, including those shares held in
"nominee" or "street name," of the Company's Common Stock at January 31, 2000
was approximately 500.
<PAGE> 46
(C) DIVIDENDS
The Company declared semi-annual cash dividends on its Common Stock in the
aggregate amount of $2.80 per share in 1999, $2.65 per share in 1998, and $2.50
per share in 1997. Future dividends may be paid as determined by the Company's
Board of Directors from time to time in accordance with federal and state law.
To the extent practicable, but in all event subject to a wide variety of
considerations and to the discretion of the Board of Directors, the Company
expects to pay dividends semi-annually in accordance with past practices.
However, any dividends that may be declared and paid by the Company will depend
upon earnings, financial condition, regulatory and prudential considerations,
and or other factors affecting the Company that cannot be reliably predicted.
The Company, as a corporation governed in part by the Tennessee Business
Corporation Act ("TBCA"), as amended, is subject to the limitations on dividends
and other distributions set forth in the TBCA. The TBCA contains certain
statutory restrictions on the ability to make distributions, including the
payment of dividends. Tennessee law allows a for-profit corporation to pay
dividends under certain circumstances that might preclude payments of dividends
by a national bank. Under Tennessee law, a corporation, including a bank holding
company, may declare and pay dividends provided that (1) the payment of
dividends would not render the corporation unable to pay its debts as they
become due in the usual course of business; (2) the corporation's total assets
are less than the sum of its total liabilities plus (unless the charter permits
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy upon dissolution the
preferential rights of shareholders whose preferential rights are superior to
those receiving the distribution; or (3) the payment of dividends would not be
contrary to any restriction contained in the corporation's charter. At present,
the Company's charter does not expressly permit distributions described in (2)
above, nor does the Company have any shareholders with rights preferential to
holders of the Company's common equity. The Company has no restriction in its
charter concerning the payment of dividends.
The Company expects that funds for the payment of dividends and expenses
of the Company will come from dividends paid to the Company by the Bank. If the
Company requires additional funds for acquisitions or investments, it may be
able to obtain those funds from additional dividends paid by the Bank or from
external financing.
The National Bank Act and Related Regulations. The First National Bank's
ability to pay dividends is limited by the National Bank Act and related
regulations. Essentially, the Bank may pay dividends from its earnings for the
preceding period after deducting all loan losses, bad debts, current operating
expenses, actual losses, required transfers to surplus, accrued dividends on any
preferred stock then outstanding, and all federal and state taxes. Prior OCC
approval is required as to certain dividends. It is unlikely that the Bank will
pay out the maximum amount that it is permitted to pay in dividends as most of
the Bank's earnings are reinvested in its operations or added to capital to
support future growth.
The payment of dividends by any bank is, of course, dependent upon its
earnings and financial condition and, in addition to the limitations discussed
above, is subject to the statutory power of certain federal regulatory agencies
to act to prevent unsafe or unsound banking practices. Please refer also to the
discussion of "Restrictions on Dividends Paid by Subsidiary Bank" set forth in
Item 1 of this Report, to Item 7 of this Report ("Management's Discussion and
Analysis of Financial Condition and Results of Operation"), and to the
Consolidated Financial Statements.
(D) SALES OF UNREGISTERED SECURITIES
The Company has not sold any unregistered securities that were not
previously reported in a quarterly report on its quarterly Report on Form 10-Q
except as set forth in this paragraph. In 1999, the Company issued 2,355 shares
to certain of the participants in the Stock Option Plan at a weighted average
exercise price of $58.15 per share. Please refer to Note 18 of the Consolidated
Financial Statements for additional information on the Stock Option Plan and to
Note 17 thereof with respect to earnings per share. 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 general distribution of securities
within the meaning of the Securities Act of 1933, as amended.
<PAGE> 47
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this part of this Annual Report on
Form 10-K are incorporated into this Report by reference to page 4 of the
Company's 1999 Annual Report to Stockholders. Only the information set forth in
the said 1999 Annual Report to Stockholders on page 4 under the caption "SUMMARY
OF SELECTED FINANCIAL DATA (Unaudited)" is incorporated in response to this Part
of the Company's Annual Report on Form 10-K for the year ended December 31,
1999. No portion of the 1999 Annual Report to Stockholders is incorporated by
reference, however, except (as here) by express reference. The selected
financial data and certain statistical data concerning the Company that should
be read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operation" that is set forth as a part of
Item 7 and is also presented in certain of the Notes to the Consolidated
Financial Statements included in Item 8 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The "Management's Discussion and Analysis of Financial Condition and
Results of Operation" called for by this part is expressly incorporated herein
by reference to the section of the Company's 1999 Annual Report to Stockholders
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation". Only that portion of the said 1999 Annual Report to
Stockholders is incorporated as part of this Item of the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. No portion of the 1999 Annual
Report to Stockholders is incorporated by reference, however, except (as here)
by express reference.
The purpose of this discussion is to provide insight into the financial
condition and results of operations of the Company and the Bank, its subsidiary.
This discussion should be read in conjunction with the Company's Consolidated
Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Please refer to the Consolidated Financial Statements, the Statistical
Data, Item 6, Item 7, and Item 8 for the information called for by this part of
the Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Company and
subsidiary (commencing at page 20 of the Company's 1999 Annual Report to
Stockholders) are included in this Report:
- Independent Auditors' Report;
- Consolidated Balance Sheets - December 31, 1999 and 1998;
- Consolidated Statements of Earnings - Three years ended December 31,
1999;
- Consolidated Statements of Comprehensive Earnings - Three years
ended December 31, 1999;
- Consolidated Statements of Changes in Stockholders' Equity - Three
years ended December 31, 1999;
- Consolidated Statements of Cash Flows - Three years ended December
31, 1999; and all
- Notes to Consolidated Financial Statements.
The Consolidated Financial Statements called for by this Item are
incorporated by reference to the Consolidated Financial Statements section of
the Company's 1999 Annual Report to Stockholders, pages 25-45. No portion of the
1999 Annual Report to Stockholders is incorporated by reference, however, except
(as here) by express reference.
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND, EXECUTIVE OFFICERS OF THE REGISTRANT.
(A) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS.
The following tables identify, as of February 14, 2000, the names and ages
of the directors and executive officers of the Company, the year first elected,
and their respective business experience during the past five years. Directors
are elected to serve three year terms and until their successors have been
elected and duly qualified. Those persons named under "Class I" are being
nominated for three year terms to the Board of Directors for consideration at
the 2000 Annual Meeting of Stockholders of the Company. The following is a list
of the names and ages of the executive officers of the Company and all positions
and offices with the Company presently held by the person named. There is no
family relationship between any of the named persons except as disclosed
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS
OR NOMINEE BUSINESS EXPERIENCE DIRECTOR SINCE
CLASS I
(DIRECTORS WHOSE TERMS EXPIRE IN 2000)
<S> <C> <C>
Paul O. Barnes Chairman, B & P Lamp Supply Co., Inc. 1984
(66)
Henry N. Boyd Chief Executive Officer, Boyd Bros. Nursery 1984
(83)
Dean I. Gillespie Dean I. Gillespie, President, Bridge 1984
(66) Builders, Inc.
C. Levoy Knowles General Manager, Ben Lomond Rural 1999
(46) Telephone Cooperative
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS
OR NOMINEE BUSINESS EXPERIENCE DIRECTOR SINCE
CLASS II
(DIRECTORS WHOSE TERMS EXPIRE IN 2001)
<S> <C> <C>
J. G. Brock Owner, Apex Construction Company 1993
(44)
G. B. Greene President, Womack Printing Co., Inc. 1984
(60)
Rufus W. Gonder Owner, Rufus W. Gonder, CPA 1999
(45)
Robert W. Jones Chairman, First McMinnville Corporation, 1984
(71) 1989 - 2000; Chairman, First National Bank,
1981 - 2000; Chief Executive Officer, First
National Bank, 1976 - 1993
CLASS III
(DIRECTORS WHOSE TERMS EXPIRE IN 2002)
Charles C. Jacobs Chairman, First McMinnville Corporation and 1985
(61) First National Bank, January 2000-present;
President and Chief Executive Officer, First
McMinnville Corporation, January 1994-present;
President and Chief Executive Officer, First
National Bank, January 1994 - present
Arthur J. Dyer President, Metal Products Company 1999
(48)
J. Douglas Milner General Manager and Vice President, Middle 1995
(52) Tennessee Dr. Pepper Bottling Company
John J. Savage, Jr. Retired; Executive Vice President and Trust 1984
(78) Officer, First National Bank through
September 1986
Carl M. Stanley Chief Manager, The Burroughs-Ross-Colville 1984
(64) Company, LLC, 1998-present; President, The
Burroughs-Ross-Colville Co., 1995-1998
</TABLE>
<PAGE> 50
IDENTIFICATION OF EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
<S> <C> <C>
Charles C. Jacobs 61 Chairman, First McMinnville Corporation and First National Bank,
January 2000-present; President and Chief Executive Officer, First
McMinnville Corporation, January 1994 - present; President and Chief
Executive Officer, First National Bank, January 1994 - present;
President, First National Bank, 1988 - 1994.
P. Diane Bogle 53 Senior Vice President, First McMinnville Corporation, 1995 - present;
Senior Vice President, First National Bank, 1995 - present; Vice
President, First National Bank, 1988 - 1995.
Lester K. Cowell 64 Senior Vice President, First McMinnville Corporation, and Senior
Vice President of First National Bank, 1991 - present.
Kenny D. Neal 49 Senior Vice President and Treasurer of First McMinnville
Corporation, 1994 - present; Senior Vice President and Cashier,
First National Bank, 1990 - present.
C. P. Whisenhunt 55 Senior Vice President, First McMinnville Corporation, 1993 -
present; Senior Vice President, First National Bank, 1993 - present.
Larry B. Foster 41 Senior Vice President of the Company and the Bank, 1997-present;
Vice President of the Company and the Bank 1994-1997.
David W. Marttala 39 Senior Vice President of the Company and the Bank, Trust Officer of
the Bank, General Counsel of the Company and the Bank, 1996-present;
Attorney with Marttala & Marttala, 1994-1996.
</TABLE>
The executive officers were elected by, and they serve at the pleasure of, the
Board of Directors.
<PAGE> 51
(B) IDENTIFICATION OF SIGNIFICANT EMPLOYEES
Significant employees are identified in the preceding section under the
caption "Identification of Executive Officers."
(C) FAMILY RELATIONSHIPS.
There is no family relationship between any of the above officers or
between any officer, director or nominee for director, except that Mr. Henry
Boyd is the uncle by marriage of Mr. G. B. Greene, and Mr. G. B. Greene is the
brother of Bank Assistant Vice President Fred Greene.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None.
(E) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company has no class of securities registered pursuant to
Section 12 of the Exchange Act, is not a closed-end investment company
registered under the Investment Company Act of 1940, and is not a holding
company registered pursuant to the Public Utility Holding Company Act of
1935. Accordingly, the Company is not subject to Section 16(a) of the
Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Registrant during the most recent three fiscal years ended December 31, 1999,
1998, and 1997 for (i) the Chief Executive Officer of the Registrant and (ii)
each of the other executive officers of the Registrant whose compensation
exceeded $100,000 (collectively, the "Named Executive Officers"):
EXECUTIVE COMPENSATION
REMUNERATION OF DIRECTORS AND OFFICERS
There were no changes in the Company's chief executive during the last
fiscal year. The following table sets forth the compensation of the Company's
Chief Executive Officer for 1999 and the other four most highly compensated
executive officers as of December 31, 1999 (if their total annual salary and
bonus equaled or exceeded $100,000). The figures below include all compensation
paid for all services to the Company for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------------------------------------------
Awards Payouts
----------------------------- ---------------------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Award(s) Options/SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)(1) ($) (#)(2) Payouts($) Compensation($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Jacobs, 1999 $140,704 $21,106 $10,738 N/A -0- $ -0- $17,809
President/CEO 1998 131,500 19,725 11,414 N/A -0- -0- 16,746
1997 124,000 18,600 11,288 N/A 3,500 -0- 15,686
</TABLE>
<PAGE> 52
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees and insurance premiums.
(2) The amounts in this column reflect the number of unexercised options
granted to the named person(s) in the year(s) indicated.
(3) This amount represents the Company's contribution to the Company's
401(k) plan on behalf of the named executive(s) together with the estimated
contribution for the named person in respect of the Company's defined benefit
(pension) plan described in this Report.
***
STOCK OPTION GRANTS
The Company granted no stock options to the Directors, or to any executive
officer(s) named in the Summary Compensation Table in 1999. The Company grants
no stock appreciation rights.
1999 STOCK OPTION EXERCISES
The table below provides information as to exercises of options under the
Company's stock option plan by the named executive officer(s) reflected in the
Summary Compensation Table and the year-end value of unexercised options held by
such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs in-the-Money
At Fiscal Year End Options/SARs At
(#) Fiscal Year End ($)
------------------ --------------------
Shares Acquired on Value Realized on Exercisable/ Exercisable/
Name and Title Exercise (#) Exercise ($) Nonexerciseable(1) Nonexerciseable(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles C. Jacobs -0- $-0- 1,900/1,600 $24,643/$20,752
President/CEO
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PRECEDING TABLE
(1) This amount represents the difference between the estimated market
price on February 28, 2000 of approximately $71.12 per share and the respective
exercise price(s) of the options at the date(s) of grant ($58.15). Such amounts
may not necessarily be realized. Actual values that may be realized, if any,
upon the exercise of such options will be based on the market price of the
Common Stock at the time of any such exercise(s) and thus are dependent upon
future performance of the Common Stock. The value of the stock options granted
is based upon the minimum value method as permitted in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation." Under
the minimum value method, the volatility is assumed to approach zero and is
appropriate in situations in which there is no established public trading market
for the stock. These assumptions are included pursuant to 17 C.F.R.
ss.229.402(c).
***
<PAGE> 53
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has appointed a Compensation Committee comprised
of three members. The Committee makes recommendations to the full Board of
Directors as to the compensation for executive officers, including the Chief
Executive Officer, as well as to compensation for other officers and employees.
The principal component of executive officer compensation is salary, with
secondary reliance on bonuses, stock option incentives, and other types of
long-term benefits such as participation in the Company's 401(k) plan and in the
Company's defined benefit ("pension") plan. The Committee utilizes information
concerning the performance of the Company as compared to its peer group and in
achieving its established goals in evaluating the overall performance of its
employees, including the Chief Executive Officer. The Committee takes a
long-term, as opposed to a short-term, view of compensation and overall results
of operations. The Company compares, among other factors, the Bank's (and,
hence, the Company's) performance compared to other similarly situated
commercial banks, with primary emphasis given to comparable community banks
located in Tennessee. Important factors include return on average assets, return
on equity, asset quality, comparisons of executive compensation at other
comparable institutions, and similar objective criteria. Both overall
profitability and increased earnings per share figured into, but were not the
exclusive criteria, in the Committee's recommendation. Other factors important
to the Committee are length and quality of service to the Company, to the Bank
and to the Community, demonstrated leadership ability, the apparent trends
evident in the Bank's results of operations, and a variety of other subjective
and objective factors. The Committee was generally pleased with the performance
of the Company compared both to its peer group and to its goals. Accordingly the
Committee recommended, and the Board of Directors approved in all material
respects the levels of compensation recommended by the Committee. In addition,
the Committee considered the historical profitability, competitiveness, and
perceived prospects in arriving at this recommendation, as well as in concurring
in the stock option grants described elsewhere in this Report.
The foregoing report has been furnished by the members of the
Compensation Committee:
Robert W. Jones
G. B. Greene
J. Douglas Milner
Carl M. Stanley
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the members of the Company's Compensation Committee
during the last completed fiscal year were Directors Greene, Jones and Stanley.
None of these individuals was, during the last fiscal year, an officer or
employee of the Company or any of its subsidiaries, was formerly an officer of
the registrant or any of its subsidiaries, or had any relationship requiring
disclosure by the Company under any paragraph of Item 404 of the SEC's
Regulation S-K except that Director Jones serves as a consultant to the Company
and, as such consultant, as Chairman of the Company. (In addition, Director
Jones retired in 1993 as chief executive officer of the Company). During the
last completed fiscal year, no executive officer of the Company served as a
member of the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers served on the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of the
Company; or served as a director of another entity, one of whose executive
officers served on the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire board of directors) of the Company; or served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as a director of the
Company.
BENEFITS
In April 1997, the stockholders of the Company approved the 1997 First
McMinnville Corporation Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan provides for the granting of stock options, and authorizes the
issuance of common stock upon the exercise of such options, for up to 57,500
shares of common stock, to employees, nonemployee directors and advisors of the
Company, of which 1,500 were specified in the Stock Option Plan to be granted to
each then-current Director of the Company.
<PAGE> 54
Under the Stock Option Plan, stock option awards may be granted in the
form of incentive stock options or nonstatutory stock options, and are generally
exercisable for up to ten years following the date such option awards are
granted. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of common stock on the grant date.
The Stock Option Committee designated by the Board administers the
Stock Option Plan. The Stock Option Plan may be terminated at any time by the
Board of Directors. Options granted under the Stock Option Plan are exercisable
as determined by the Board of Directors and generally are expected to vest
approximately 10% per year over a ten year period and expire after ten years,
although this period may be shortened by the Board of Directors. According to
the plan, however, the options granted to the Directors in 1997 vested one-third
per year commencing on May 13, 1997. The Stock Option Plan provides that options
must be exercised no later than ten years after being granted (five years in the
case of incentive Stock Options granted to an employee who owns more than 10% of
the voting power of all stock).
The Stock Option Plan provides that the Board of Directors shall
approve the exercise price of options on the date of grant, which for incentive
stock options cannot be less than the fair market value of the Common Stock on
that date (110% of the fair market value for Incentive Stock Options granted to
any employee who owns more than 10% of the voting stock). The number of shares
which may be issued under the Stock Option Plan and the exercise prices for
outstanding options are subject to adjustment in the event that the number of
outstanding shares of Common Stock are changed by reason of stock splits, stock
dividends, reclassifications or recapitalizations. In addition, upon a merger or
consolidation involving the Company, participants may be entitled to shares in
the surviving corporation upon the terms set forth in the Stock Option Plan.
Options granted under the Stock Option Plan are nontransferable, other
than by will, the laws of descent and distribution or, for nonstatutory stock
options, pursuant to certain domestic relations orders. Payment for shares of
Common Stock to be issued upon exercise of an Option may, if permitted in the
option agreement, be made in cash, by delivery of Common Stock valued at its
fair market value on the date of exercise or delivery of a promissory note as
specified in the option agreement. Note 18 to the Consolidated Financial
Statements of the Company for the year ended December 31, 1999 contains
additional information concerning the Stock Option Plan.
Pension Plan. The Bank has a noncontributory pension plan for all
eligible employees. In order to be eligible, an employee must perform at least
1,000 or more hours of service within six (6) months of his or her date of
employment. The employee shall become eligible on the first day of May first
following the completion of one year of service and the attainment of age 21,
provided such person was hired prior to his or her 60th birthday.
The amount of a participant's monthly normal retirement annuity is
equal to .85% of the first $833 of the participant's average monthly
compensation plus 1.50% of the compensation in excess of the first $833,
multiplied by the number of years of credited service to the participant's
normal retirement date which is attainment of age 65. The number of years of
credited service used in the formula will be limited to a maximum of 35. Average
monthly compensation is defined as the sum of the participant's reported basic
earnings in the five consecutive plan years that produce the highest amount
divided by 60. Early retirement, postponed retirement and disability retirement
are also provided for in the plan.
A plan participant has a vested benefit equal to a percentage of his or
her accrued benefit based on the length of his or her service, beginning at 20%
after three years of service and increasing 20% per year for the next four
years, with a participant fully vested at the end of year seven. Mr. Jacobs has
32 years of credited service under the Plan with current compensation covered by
the Plan of $162,149 and the estimated amount of the Company's 1999 contribution
for Mr. Jacobs was $12,945, as is reflected in the Summary Compensation Table
appearing elsewhere in this Report. Mr. Jacobs' anticipated monthly benefit at
retirement at age 65 is currently estimated at $6,886.
<PAGE> 55
The following table sets forth the estimated annual retirement benefits
on a straight life annuity basis to participating employees, including the Named
Executive Officer, for designated years of service and remuneration levels.
<TABLE>
<CAPTION>
Years of Service
----------------
Remuneration 15 20 25 30 35
- ------------
<S> <C> <C> <C> <C> <C>
$100,000 $21,525 $28,700 $35,875 $43,051 $50,225
125,000 27,150 36,200 45,250 54,301 63,350
150,000 32,775 43,700 54,625 65,551 76,475
175,000 38,400 51,200 64,000 76,801 89,600
200,000 44,025 58,700 73,375 88,051 102,725
225,000 49,650 66,200 82,750 99,301 115,850
250,000 55,275 73,700 92,125 110,551 128,975
300,000 66,525 88,700 110,875 133,051 155,226
400,000 89,025 118,700 148,375 178,051 207,726
450,000 100,275 133,700 167,125 200,551 233,976
500,000 111,525 148,700 185,875 223,051 260,226
</TABLE>
Effective March 24, 1986, the Plan was amended by including, for
purposes of calculating a participant's compensation under the Plan, any and all
bonuses paid to the participant during the plan year. Please refer to Note 10 to
the Consolidated Financial Statements for additional information.
The Company also offers a 401(k) profit-sharing plan for eligible
employees, which was adopted in 1988. To be eligible, an employee must have
obtained the age of 21 and she or he must have completed one year of services.
The provisions of this plan provide for both employer and employee
contributions. In 1999, the Company contributed approximately $50,000 to the
plan, as compared to $43,000 in 1998 and $45,000 in 1997. Please refer to Note
10 of the Consolidated Financial Statements for additional information.
Director Compensation. Directors of the Bank receive $800 for each
meeting of the full Board of Directors attended plus $200 for each committee
meeting attended. However, attendance at the December meeting is not required
for a Director to receive Board fees.
Consultation Agreement. Pursuant to a consultation agreement, last
executed to be effective January 1, 1996, the Company has retained the services
of Robert W. Jones as a paid consultant, for which he receives a consultation
fee of $1,000 per month, plus reimbursement for documented expenses incurred for
the Company and/or the Bank. This Agreement continues for so long as Mr. Jones
continues to serve as Chairman of the Board of Directors. Pursuant to this
Agreement, Mr. Jones is not considered to be an employee of the Bank or of the
Company. Mr. Jones resigned as Chairman of the Company effective January 12,
2000, and the Consultation Agreement terminated at that time.
Employment Agreement. The Company executed an employment agreement with
Chairman and President Charles C. Jacobs dated the 11th day of June, 1999. The
agreement provides that Jacobs shall be employed by the Company to serve as the
President and Chief Executive Officer of the Company and First National Bank for
an initial term expiring December 31, 2003. Unless sooner terminated in
accordance with its terms, the agreement is automatically extended for one year
on each anniversary date. Mr. Jabobs' salary is to be set by the Board, to which
Mr. Jacobs reports, but it is not to be lowered unless certain performance
criteria are not met.
<PAGE> 56
The agreement provides certain protections for Mr. Jacobs in the event of a
change in control of the Company or the Bank, or for his termination other than
"for cause."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is authorized to issue 5,000,000 shares of its Common
Stock. (Please refer to Item 5 of this Report for additional discussion of the
Company's authorized classes of securities.) As of February 29, 2000, there were
524,989 shares of the Company's Common Stock issued and outstanding.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by (A) directors of the Company, and
(B) the directors and executive officers of the Company as a group. No person
known to the Company is the beneficial owner of more than 5% of the issued and
outstanding shares of the Company's Common Stock. This information is based on
information filed with or provided to and by the Company as of approximately
January 31, 2000. This table includes, in the ownership and percentage
calculations, shares subject to options which may be exercised within the next
sixty days by all Directors and Executive Officers who are option holders in
accordance with Rule 13d-3(d)(1) under the Exchange Act. However, each
Director's percentage of ownership is based on such Director's pro forma
ownership (including shares subject to being obtained by the exercise of options
within the next 60 days) and the actual number of shares outstanding as set
forth above at said date plus the number of shares obtainable by such person
with the next sixty days.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
<S> <C> <C>
(A) Paul O. Barnes 9,828(2) 2.06
Henry N. Boyd 9,980 1.90
J. G. Brock 2,000(3) *
Arthur J. Dyer 706 *
Dean I. Gillespie 3,180(4) *
Rufus W. Gonder 706 *
G.B. Greene 9,740 2.14
Charles C. Jacobs 6,146 1.53
Robert W. Jones 9,094(5) 1.73
C. Levoy Knowles 700 *
J. Douglas Milner 1,700 *
John J. Savage 2,632(6) *
C. M. Stanley 18,404 3.79
(B) Directors and Executive 77,293(1) 14.35%(1)
Officers as a Group (19 persons)
</TABLE>
* Less than 1%.
<PAGE> 57
NOTES TO TABLE
(1) Based on 524,989 shares of the Common Stock outstanding at February 29,
2000, plus that number of shares obtainable by each person named within
the next 60 days pursuant to the exercise of stock options. All Directors
hold 1,500 options pursuant to the Stock Option Plan except that Mr. Boyd
and Mr. Barnes each exercised options (1,000 and 500, respectively). This
information is based in part on information supplied to the Company by the
persons named in the Table. The other options held by executive officers
and exercisable within 60 days are Mr. Jacobs (400),Mrs. Bogle (240), Mr.
Cowell (160), Mr. Foster (240), Mr. Marttala (240), Mr. Neal (240), and
Mr. Whisenhunt (240).
(2) Includes 3,000 shares held by a corporation controlled by an interest of
Mr. Barnes.
(3) Includes 184 shares held on behalf of Mr. Brock's spouse.
(4) Includes 492 shares held jointly by Mr. Gillespie and his children. Also
includes 396 shares held by Mr. Gillespie's spouse, as to which Mr.
Gillespie disclaims beneficial ownership.
(5) This total includes also 4,446 shares held by Mr. Jones' spouse, as to
which Mr. Jones disclaims beneficial ownership.
(6) Includes 208 shares held jointly by Mr. Savage and his spouse.
***
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The First National Bank's directors and principal officers, as well as
business organizations and individuals associated with them, are customers of
the Bank and had normal banking transactions with the Bank during 1999. At
December 31, 1999, the dollar amount of loans to the Company's Directors and
Executive Officers, and their respective affiliates, was approximately
$2,764,000. This approximated 7.9% of Shareholders equity and 2.2% of the
Company's total loans (net of the allowance for possible loan losses). All loan
transactions were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated borrowers and did not
involve more than the normal risk of collectibility or present other unfavorable
features. The Company relies upon its Directors and executive officers for
identification of their respective associates and affiliates (as those terms are
defined in the Exchange Act).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
- The following statements and the Report of Maggart & Associates,
P.C., Independent Certified Public Accountants, appear on pages 20 -
48 of the 1999 Annual Report to Stockholders of this Annual Report
on Form 10-K, which portion of the 1999 Annual Report to
Stockholders is hereby incorporated herein by reference:
- Consolidated Balance Sheets as of December 31, 1999 and 1998;
- Consolidated Statements of Earnings for the three years ended
December 31, 1999;
- Consolidated Statements of Comprehensive Earnings for the three
years ended December 31, 1999;
- Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1999;
<PAGE> 58
- Consolidated Statements of Cash Flows for the three years ended
December 31, 1999; and
- All Notes to the foregoing Consolidated Financial Statements.
- -- Listing of Exhibits:
- 3(i) Charter as amended.(1)
- 3(ii) Bylaws.(1)
- 4.1 Charter as amended.(1)
- 4.2 Bylaws.(1)
- 4.3 1997 First McMinnville Corporation Stock Option Plan.(2)
- 4.4 Shareholders Rights Agreement dated June 10, 1997.(2)
- 10.1 First National Bank of McMinnville 401(k) Retirement Plan.(3)
- 10.2 Consulting Agreement dated February 9, 1996, between First
National Bank of McMinnville and Robert W. Jones, replacing
prior agreement dated December 14, 1993, as amended.
[Terminated January 2000](4)
- 10.3 Employment Agreement dated the 11th day of June, 1999, between
First McMinnville Corporation and Charles C. Jacob.(5)
- 11 Statement re: computation of per share earnings (Incorporated
by reference to Note 17 of the Consolidated Financial
Statements).
- 13 Portions of the Annual Report to Security Holders, as set
forth in the Exhibit Index. Omitted in paper copies.
- 21 Subsidiaries of the Registrant for the year ended December 31,
1999.
- 27 Financial Statement Schedule [Omitted in Paper Copies].
(b) No reports on Form 8-K were filed for the quarter ended December 31,
1999.
(c) Exhibits - The exhibits required to be filed with this Annual Report
are attached hereto as a separate section of this report.
(d) Financial Statement Schedules - All schedules have been omitted
since the required information is either not applicable, is
disclosed in Item 1 of this Report, or is disclosed in the
consolidated financial statements or related notes to such financial
statements.
- ---------------------------
(1) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act for
the fiscal year ended December 31, 1994.
(2) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act for the
fiscal year ended December 31, 1997.
(3) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act for the
fiscal year ended December 31, 1988.
(4) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act for
the fiscal year ended December 31, 1996.
<PAGE> 59
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 MCMINNVILLE CORPORATION
(REGISTRANT)
By: /s/ Charles C. Jacobs
--------------------------------------------
Charles C. Jacobs
Chairman, President and Chief Executive
Officer
March 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul O. Barnes Director March 14, 2000
- ---------------------------
Paul O. Barnes
/s/ Henry N. Boyd Director March 14, 2000
- ---------------------------
Henry N. Boyd
/s/ J. G. Brock Director March 14, 2000
- --------------------------
J. G. Brock
/s/ Arthur J. Dyer Director March 19, 2000
- ---------------------------
Arthur J. Dyer
/s/ Dean I. Gillespie Director March 14, 2000
- ---------------------------
Dean I. Gillespie
/s/ Rufus W. Gonder Director March 14, 2000
- ---------------------------
Rufus W. Gonder
/s/ G. B. Greene Director March 14, 2000
- ---------------------------
G. B. Greene
/s/ Charles C. Jacobs Chairman, President, March 14, 2000
- --------------------------- CEO, and Director
Charles C. Jacobs
/s/ Robert W. Jones Director March 14, 2000
- ---------------------------
Robert W. Jones
/s/ C. Levoy Knowles Director March 14, 2000
- ---------------------------
C. Levoy Knowles
/s/ J. Douglas Milner Director March 14, 2000
- ---------------------------
J. Douglas Milner
/s/ John J. Savage, Jr. Director March 14, 2000
- ---------------------------
John J. Savage, Jr.
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carl M. Stanley Director March 14, 2000
- ---------------------------
Carl M. Stanley
/s/ Kenny D. Neal Treasurer/Chief March 14, 2000
- --------------------------- Financial and
Kenny D. Neal Accounting Officer
</TABLE>
<PAGE> 61
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
1. Instructions.
(a) Except to the extent that the materials enumerated in (1) and/or (2)
below are specifically incorporated into this Form by reference (in which case
see Rule 12b-23(d)), every registrant which files an annual report on this Form
pursuant to Section 15(d) of the Act shall furnish to the Commission for its
information, at the time of filing its report on this Form, four copies of the
following:
(1) Any annual report to security holders covering the registrant's last
fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting material
sent to more than ten of the registrant's security holders with respect to any
annual or other meeting of security holders.
(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of the Act,
except to the extent that the registrant specifically incorporates it in its
annual report on this Form by reference.
(c) If no such annual report or proxy material has been sent to security
holders, a statement to that effect shall be included under this caption. If
such report or proxy material is to be furnished to security holders subsequent
to the filing of the annual report of this Form, the registrant shall so state
under this caption and shall furnish copies of such material to the Commission
when it is sent to security holders.
2. Items Included:
(a) Annual Reports, Proxy Statements, and Form of Proxy.
(1)A copy of the annual report to security holders for the Company's last
fiscal year is furnished herewith to the Commission for its
information, pursuant to the instructions to Form 10-K, BUT NOT
INCORPORATED BY REFERENCE (except that certain portions thereof have
been incorporated by reference in response to certain items of this
Annual Report on Form 10-K).
(2)A copy of the form of proxy to be sent to security holders in respect
of the Company's 2000 Annual Meeting of Shareholders is furnished
herewith to the Commission for its information for its information,
pursuant to the instructions to Form 10-K, BUT NOT INCORPORATED BY
REFERENCE.
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT LOCATION
-------------------------------------------------------------------------------------------------
<S> <C> <C>
3(i) Carter as amended. (1)
3(ii) Bylaws. (1)
4.1 Charter as amended. (1)
4.2 Bylaws. (1)
4.3 1997 First McMinnville Corporation Stock (2)
Option Plan.
4.4 Shareholders Rights Agreement dated June 10, 1997. (2)
10.1 First National Bank of McMinnville 401(k) (3)
Retirement Plan.
10.2 Consulting Agreement dated February 9, 1996, (4)
between First National Bank
of McMinnville and Robert W. Jones, replacing
prior agreement dated December 14, 1993, as
amended. <Terminated January 2000>
10.3 Employment Agreement dated the 11th day of After Exhibit Index
June, 1999, between First McMinnville
Corporation and Charles C. Jacobs.
11 Statement re: computation of per share earnings. (5)
13 Annual Report to Security Holders (Only those (6)
portions incorporated by reference) into the [Omitted in Paper
Report on Form 10-K. Copies]
21 Subsidiaries of the Registrant for the year After Exhibit Index
ended December 31, 1999.
27 Financial Statement Schedule. (7)
[Omitted in Paper
Copies]
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act for
the fiscal year ended December 31, 1994.
(2) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act for the
fiscal year ended December 31, 1997.
(3) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K under the Exchange Act for the
fiscal year ended December 31, 1988.
(4) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-KSB under the Exchange Act for
the fiscal year ended December 31, 1996.
(5) Incorporated by reference to Note 17 of the Consolidated Financial
Statements.
(6) Portions of the Annual Report to Security Holders are incorporated
by reference into the Form 10-K. These portions are "Selected
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operation," and the Company's Consolidated
Financial Statements for the year ended December 31, 1999 (Part II
and Part IV). This Exhibit is omitted in the paper copy pursuant to
Instruction G(2) of the Instructions to Form 10-K.
<PAGE> 63
(7) This Exhibit is solely for the use of the United States Securities
and Exchange Commission. No paper copy is being filed. This
Schedule, filed only in electronic format, contains summary
financial information extracted from the financial statements of the
Company at December 31, 1999 and is qualified in its entirety by
reference to such financial statements as set forth in the Company's
Annual Report on Form 10-K for the period ending on December 31,
1999.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
BETWEEN
FIRST MCMINNVILLE CORPORATION
AND
CHARLES C. JACOBS
<PAGE> 2
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 11th day of June, 1999, by and between FIRST MCMINNVILLE CORPORATION, a
Tennessee corporation that is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended, its successors and assigns
("Company"), and CHARLES C. JACOBS ("Jacobs"), an individual resident of
McMinnville, Tennessee.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Jacobs and Jacobs desires to be
employed by and to serve the Company and the First National Bank of McMinnville
("Bank") in the capacities and for the term and compensation and upon the terms
and conditions hereinafter set forth; and
WHEREAS, Jacobs has been an employee of the Company and/or its
subsidiary Bank for many years and currently serves as President and Chief
Executive Officer of the Company and the Bank; and
WHEREAS, as an incentive to Jacobs, and in order to promote continuity
in management for the Company, the Company desires to formalize the relationship
with Jacobs in order to assure itself of the continuity of management for itself
and the Bank, and also to obtain from him the agreements contained herein;
NOW, THEREFORE, in consideration of the premises and the terms and
agreements hereof, the Company and Jacobs agree that:
1. Employment of Jacobs. The Company hereby employs Jacobs and Jacobs
hereby accepts employment with the Company and agrees to serve the Company and
the Bank in the capacities, for the term and compensation, and upon and subject
to the terms and conditions hereinafter set forth.
2. Office and Duties of Jacobs; Place of Employment; Supervision.
A. Jacobs shall serve the Company and the Bank as the President and
Chief Executive Officer thereof; and, until a Change in Control (as defined
herein) occurs, he may serve also as a member of the Board of Directors. The
Company agrees that Jacobs shall not be required to serve in any other capacity
without his prior written consent and that he shall not be required by the
Company or the Bank to have or serve in a physical office location ("Office") of
the Company or any Affiliate of the Company without his prior written consent
unless such Office be within the City Limits of McMinnville, Tennessee. Jacobs
shall report and be responsible to the Boards of Directors of the Company and
the Bank.
B. Jacobs shall be subject to the Company's employment, personnel,
and all other policies as in effect on the date hereof and in effect from time
to time; provided that no changes in such policies shall be deemed to alter or
diminish Jacobs' rights hereunder.
3. Compensation
A. Subject to the provisions of this Agreement for resignation and
for termination by the Company for default, material breach and/or cause,
Jacobs's salary ("Salary") and bonus ("Bonus"), if a Bonus is to be paid, shall
be as provided in this Paragraph.
(i) Salary. Jacobs' Salary shall be as determined by the Board of
Directors from time to time. However, prior to a Change in Control (as
herein defined), so long as the Bank's return on average assets is not
less than one percent, such Salary shall not be lowered, and, after the
commencement of a Change in Control, Jacobs' Salary shall not be lower
than his annual Salary for the year in which any Change of Control
Transaction commences. Jacobs' annual Salary shall be paid in equal
increments not less frequently than monthly. Jacobs shall receive the
Annual Salary
<PAGE> 3
Adjustment. The Annual Salary Adjustment shall occur on January 1 of each
year (or part of a year) during the term hereof (applicable to the
remainder of such year and until the expiration or termination of this
Agreement), commencing January 1st of the year in which any Change of
Control is deemed to occur pursuant to this Agreement.
(ii) Annual Salary Adjustment. Commencing with any Change in
Control, Jacobs's Salary shall be increased annually by not less than an
amount equal to a percentage equal to 100% of the amount reasonably
determined by the Company to be the increase (if any) in the consumer
price index for the preceding year. (For example, the Salary would be
increased by 5% commencing on the first day of January next following a
Change of Control if the increase in the consumer price index for the
preceding year, as reasonably determined by the Company, were 5%; or 1%
where such increase were reasonably determined to be 1%, etc.). There
would be no increase (or decrease) in the event that such consumer price
index were determined by the Company not to have increased (or to have
declined).
(iii) Bonus. Jacobs shall have the right to receive a Bonus as
herein provided.
(a) Jacobs shall receive a Bonus for any year prior to a
Change in Control equal to an amount, if any, determined by the
Board of Directors.
(b) Jacobs shall receive a Bonus for any year in which a
Change in Control occurs, and for each year thereafter, equal to the
highest amount awarded by any Affiliate of the Company and/or the
Bank to any officer of any Financial Institution owned or otherwise
controlled, directly or indirectly, by such Affiliate or, if the
company then controlling the Bank or the Company does not at any
time own another Financial Institution other than the Bank, then the
Bonus shall be equal to the highest bonus paid to any officer,
director, or employee of such company or any Affiliate thereof, who
acts in the capacity of a regional and/or multi-bank administrator.
For purposes of this Agreement, "Salary" and "Bonus" include all amounts paid by
the Company and all (or any) of its subsidiaries (including the Bank) to Jacobs
as salary and bonus during the term hereof.
B. Expense Reimbursement. In addition to Salary and any Bonus,
Jacobs shall be reimbursed for all actual, normal out-of-pocket expenses that
he reasonably incurs in connection with his duties hereunder during the term
hereof.
C. Other Benefits. The Company shall provide to Jacobs, during his
employment under this Agreement, such non-salary benefits as are provided from
time to time to the senior management of the Company or the Bank, or any
Affiliate thereof, such as medical and hospitalization insurance, disability
insurance, retirement benefits, profit-sharing, life insurance, and comparable
non-salary items. The Company shall make available for Jacobs's use an
appropriate automobile.
D. Board of Directors, Etc. Prior to any Change in Control, Jacobs
shall serve on the Board. After a transaction that is calculated or designed to
result in a Change in Control commences, Jacobs shall serve on any such Board or
committee as to which he shall consent. Jacobs shall receive the same
compensation as other Board members for serving on the Board.
E. Professional Matters, Etc. The Company agrees to assist and
support Jacobs in maintaining and extending his professional education and
activities. In this regard, prior to the commencement of any Change in Control
Transaction, the Company shall reimburse Jacobs for all reasonable travel,
accommodations, and out-of-pocket expenses incurred in attending banking
conventions and educational programs to the extent permitted by the Board of
Directors. After a Change in Control commences, Jacobs shall be entitled to be
reimbursed for attending (in his discretion) at least such conventions and
educational programs (1) as was customary prior to the year in which a Change in
Control is deemed to have commenced and (2) as the Board of Directors or its
Chairman shall have approved in advance.
4. Term, Expiration and Termination.
A. The term of this Agreement shall be the period beginning on the
date first above written (the "Commencement Date") and expiring on December 31,
2003 ("Expiration Date") unless extended by the parties, except as provided
below in this Paragraph 4.
<PAGE> 4
B. Jacobs shall have the right to resign and to receive the
Termination Payment (as herein defined) based on any of the following:
(i) The Company commits a material breach or violation of this
Agreement, including a Company violation of Paragraph 4B(ii) hereof, which
is not cured before the expiration of thirty (30) calendar days after
written notice from Jacobs describing the facts and circumstances of the
breach or violation in reasonable detail. Such notice shall be deemed a
demand for cure of the breach or violation; and/or
(ii) The Company persists, for a period of thirty (30) calendar days
after written notice from Jacobs describing in reasonable detail the
matter as to which he is complaining, in any attempt to require Jacobs to
perform (or omit to perform) any act or engage (or omit to engage) in any
conduct that would constitute unethical or illegal conduct or omission.
Such notice shall be deemed a demand for the Company to cease any such
attempt; and/or
(iii) A Change in Control of the Company or the Bank occurs.
If Jacobs resigns for any reason other those specified in this Paragraph
4B, Jacobs shall be entitled to be paid only for earned but unpaid Salary and
unreimbursed expenses.
C. The Company may terminate Jacobs's employment under this
Agreement, subject to any applicable notice and cure provisions set forth below,
only for "Cause." As used herein, "Cause" means:
(i) Any one or more acts of theft, embezzlement, fraud or
dishonesty;
(ii) Any material uncured breach or violation of this Agreement,
including a Jacobs violation of Paragraph 6B hereof;
(iii) Any order issued by any federal banking agency requiring
Jacobs' termination;
(iv) Any willful, uncured failure by Jacobs to perform the duties
described above in Paragraph 2; and/or
(v) Any violation of the terms of Paragraph 6 hereof attributable to
a deliberate and knowing act by Jacobs that was intended to harm, and did,
harm the Company and/or the Bank in a materially demonstrable financial
manner.
Except for an occasion in which the Board, in its reasonable discretion
believes that Jacobs' immediate removal is necessary for the protection of the
Bank or the Company, the Company shall give Jacobs written notice of the
violation or reason that it desires to terminate him and at least sixty (60)
calendar days (exclusive of Federal and State holidays) to reasonably cure any
violation or to address any other ground stated by the Board of Directors in its
written notice. The Company's written notice shall describe the facts and
circumstances of the alleged breach or violation in reasonable detail.
Any notice from the Company to Jacobs concerning a "Cause" for removal
shall be deemed a demand for cure of the asserted breach or violation. The
Company may terminate Jacobs for the reasons specified in Subparagraph 4C(i) and
4C(iii) immediately upon sending Jacobs written notice describing the facts and
circumstances of the breach or violation in reasonable detail, but without
giving Jacobs the opportunity to cure such violation(s) or breach(es). If Jacobs
is acquitted, not convicted, or otherwise prevails in respect of the charges
described in Subparagraph 4C(i) or (iii), he shall be entitled to either (x)
back pay and reinstatement or (y) back pay plus the Termination Payment, at his
election.
Jacobs shall be entitled to the Termination Payment, together with
interest thereon at the judgment rate of interest, if the Company terminates
Jacobs's employment for any reason other than those set forth in this Paragraph
4C. For the purposes of this Agreement, a Change in Control shall be deemed to
have commenced not less than twelve (12) months prior to its actual
consummation.
D. In the event that Jacobs shall die or become substantially
mentally disabled and/or otherwise unable to perform his then assigned duties
before the Expiration Date, then the provisions of Paragraph 5 shall apply. As
to the disability
<PAGE> 5
referred to in this Subparagraph 4D, the Company agrees that if, at the
inception of the disability, it reasonably appears that the disability will
persist for less than six (6) months, then such disability shall be disregarded
for the purposes of this Subparagraph 4D unless, in fact, the disability
persists for more than six (6) months.
5. Salary Continuation Agreement. [RESERVED.]
6. Noncompetition and Non-Disclosure Agreement.
Jacobs acknowledges that the Company has advised him that a principal
reason for its entry into this Agreement is to obtain non-competition and
related agreements from him and that it would not enter into this Agreement
without the provisions of this Paragraph and that the agreements herein
contained are extremely material to the Company in entering into this Agreement.
The provisions of this Paragraph shall survive the expiration or termination of
this Agreement.
A. Noncompetition Agreement. During the term of this Agreement, or for
one (1) year following the good faith termination of Jacobs for valid Cause (or
Jacobs's voluntary resignation other than for the reasons specified in Paragraph
4B hereof) pursuant to this Agreement, Jacobs shall be subject to the
non-competition agreement set forth below.
Jacobs' non-competition agreement is set forth in this paragraph:
Jacobs agrees that he will not engage or be involved in, directly or indirectly,
any Competitor Business in any capacity whatsoever including, without
limitation, as owner, lender, employee, officer, director, advisor, consultant,
principal agent, trustee, member or any other capacity, or through the agency of
any corporation, partnership, association, agent or agency. Further, Jacobs
shall not, directly or indirectly, own nor lend money or guarantee borrowings
for the purpose of owning more than One Percent (1%) of the outstanding capital
stock or other investment in, or loan to, any Competitor Business. This
non-competition agreement applies to all of the Primary Service Area but not
elsewhere.
This non-competition agreement shall be of no further force and effect
if Jacobs resigns for any of the reasons described in Paragraph 4B or is
Jacobs's employment is terminated by the Company other than for Cause and, if
the basis is Subparagraph 4C(i) and/or 4C(iii), the dismissal is supported by a
final judgment substantially adverse to Jacobs, by a final order of conviction,
or by a debarment.
B. Non-Disclosure Agreement. Jacobs shall never disclose, except
pursuant to lawful order of a court of competent jurisdiction, or by an
administrative agency having jurisdiction, material non-public information about
the Company or the Bank. In the event that Jacobs is served with any notice,
subpoena, or other court or administrative order (all of the above referred to
herein as a "Court Order"), he shall immediately, if reasonably practicable,
before making any disclosure covered by this Paragraph, provide a copy thereof
to the Company in order to permit the Company and/or the Bank to object to such
Court Order or to resist the enforcement thereof by lawful means (at the Bank's
and/or the Company's expense). This provision shall be enforceable by the
Company or the Bank. However, nothing in this Subparagraph shall be understood
to limit Jacobs' ability to comply with any subpoena, or any court or
administrative order, believed by him to be genuine.
7. Other Material Terms.
A. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Tennessee.
B. Successors and Assigns; Assignment; Material Breach, Etc. All
covenants and agreements set forth in this Agreement by or on behalf of the
Company shall bind its successors and assigns, and all covenants and agreements
set forth in this Agreement by or on behalf of Jacobs shall inure to the benefit
of and be enforceable by the Company and its successors and assigns. Neither
party may assign any rights or delegate any duties under this Agreement without
the prior written consent of the other party, and such consent shall not be
unreasonably withheld. Any assignment of rights or delegation of duties without
an express, prior written consent will be of no force or effect.
C. Injunctive Relief; Standing. Jacobs agrees and acknowledges that the
Company's and the Bank's remedy of monetary damages will be insufficient to
compensate and protect the interests of the Company and/or the Bank in the event
of his
<PAGE> 6
violation of the noncompetition and/or non-disclosure provisions of this
Agreement. Accordingly, Jacobs agrees that the Company and/or the Bank which may
have been injured or adversely affected (or threatened with injury or adverse
effect) by his conduct shall be entitled to obtain injunctive relief to prevent
violations of this Agreement. The Bank, if affected by Jacobs's alleged breach
of this Agreement, shall have standing to seek injunctive, damages, and other
appropriate relief. This provisions of this Subparagraph shall survive the
expiration or termination of this Agreement.
D. Judicial Elision, Revision. The provisions of this Agreement,
including Paragraph 6, shall not be held invalid or unenforceable because of the
scope of the territory or actions subject thereto or restricted thereby, or the
period of time within which such agreement is operative; but any judgment of a
court of competent jurisdiction may define the maximum territory and actions
subject to any conduct or activity restricted by this and other Paragraphs and
the period of time during which such agreement is enforceable.
E. Integrated Agreement; Amendment; Etc. This Agreement expresses the
entire agreement between Jacobs and the Company with reference to the subject
mater hereof. No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid, unless in writing and
duly executed by the party to be charged therewith, and the parties further
agree that the provisions of this Paragraph 7E may not be waived except by
express terms in a written instrument signed by both parties hereto.
F. Notices, Etc. Any notice or communication hereunder must, in order
to be effective, be in writing and may be given by registered or certified mail,
and if given by registered or certified mail, shall be deemed to have been given
when delivered to and received by the party to whom it is addressed. Such notice
of communication shall be given to the parties hereto at their following
addresses:
If to the Company, to: First McMinnville Corporation
c/o The First National Bank of McMinnville
200 East Main Street
McMinnville, Tennessee 37110
Attention: Chairman
If to Jacobs, to: Mr. Charles C. Jacobs
3180 Vervilla Road
McMinnville, Tennessee 37110
Any party hereto may at any time, by giving ten (10) days written
notice to the other party hereto, designate any other address in substitution of
his or its respective address to which such notice or communication shall be
given.
In order for a notice described in Paragraph 4B or 4C to be effective,
it must be sent in accordance with this Paragraph 7F and contain sufficient
detail of the matter being described to allow a reasonable business person to
understand such matter.
G. Indemnification. Each of the Company and Jacobs hereby
agree to indemnify and hold the other harmless from and against any and all
losses, claims, damages, or expenses including, but not limited to, attorneys
fees and litigation expenses at all trial and appellate levels, arising from or
growing out of the other party's breach or threatened breach of this Agreement.
This provision shall survive the expiration or termination of this Agreement.
H. Certain Definitions and Intentions, Etc. As used herein the
following terms shall be understood to have the meanings set forth below:
(i) "Affiliate" means any "affiliate" or "associate" of any
person or entity as those terms are defined by the Securities Act of
1933 and/or the Securities Exchange Act of 1934, both as amended.
(ii) "Affiliated Person" means a person (or entity) who (or
which) is, at the time of a solicitation (direct or indirect) by Jacobs
or any Competitor Business, an employee, agent, officer, or director
of, or other person or entity (such as a vendor, realtor, real estate
developer, or mortgage loan investor), affiliated with the Company
and/or any Company Affiliate(s).
<PAGE> 7
(iii) "Bank" means and includes The First National Bank of
McMinnville and its successors and assigns.
(iv) "Change in Control" means (1) any "change in control" of
the Company or the Bank as such term is defined on the date hereof in
the Federal Change in Bank Control Act and any comparable laws, rules,
and regulations currently in effect, and/or (2) any merger,
reorganization, consolidation, substantial disposition of assets,
liquidation or comparable transaction affecting the Bank, the Company,
or any material Affiliate of either the Bank or the Company. The intent
of the Change in Control provisions in this Agreement is to provide
protection for Jacobs against changes in control and ownership, Jacobs
having contracted herein to be employed principally by local
Shareholders and Directors and having stated his desire to be protected
against changes in control. For the purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred (1) on the first
day of the calendar year in which either the Company's (and/or the
Bank's) Board of Directors or the Company's (and/or the Bank's)
Shareholder(s) approve the transaction resulting in or constituting a
Change in Control (whichever is first to occur) and (2) as otherwise
provided herein. In addition, a "Change in Control" shall be deemed to
have occurred in the event that a Distribution Date occurs under the
Shareholders Rights Agreement of the Company dated June 10, 1997, as
the term "Distribution Date" is defined in such Shareholders Rights
Agreement, or would have been deemed to have occurred but for an
amendment or termination of such Shareholders Rights Agreement at some
future time.
(v) "Company" means and includes First McMinnville Corporation
and its successors and assigns and all and each of the Company's
present and future subsidiaries (both direct and indirect), and its
present and future affiliates, and the successors and assigns of each
and all of these, so long as they are owned or in existence prior to
any Change in Control.
(vi) "Competitor Business" means any person or entity which
engages, or competes with the Company or any Company Affiliate, in any
part of the Primary Service Area, in any aspect of the commercial
banking business.
(vii) "Financial Institution" means any commercial bank or
thrift institution the deposits of which are insured by the Bank or
Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation (or any successor thereto), and any company controlling or
controlled by any such commercial bank or thrift institution.
(viii) "Primary Service Area" means Warren County, Tennessee,
and any other city or township in which the Bank (prior to the
commencement of any Change in Control) has a material branch.
(ix) "Termination Payment" means an amount equal to five times
Jacobs' Compensation. As used in this subparagraph, "Compensation"
means the sum of Jacobs' Salary and Bonus for the immediately preceding
calendar year (or, if greater, the sum of Jacobs' Salary and Bonus for
the then current calendar year). The Termination Payment shall be paid
to Jacobs in cash, in a lump sum, within five calendar days of his
written request therefor.
I. Captions. The captions set forth in this Agreement are for
the convenience of the parties only and shall not affect the substantive meaning
or interpretation of this Agreement.
J. Company Actions. The actions of the Company under this
Agreement shall be as determined reasonably in the exercise of good faith by the
Board of Directors.
K. Automatic Renewals. The expiration date of this Agreement,
currently set as December 31, 2003, shall automatically extend for one year
periods on each annual anniversary date hereof (i) unless the Board of Directors
shall promptly deliver Jacobs a copy of its resolution revoking such automatic
renewal on or before any such anniversary date or (ii) unless Jacobs shall
notify the Board of Directors in writing on or before any such anniversary date
that he is revoking such automatic renewal.
L. Mandatory Binding Arbitration. Any disputes under this
Agreement shall not be litigated but, rather, shall be subject to mandatory
binding arbitration in McMinnville, Tennessee before a panel of three neutral
arbitrators chosen by the American Arbitration Association ("AAA"). At least one
of the arbitrators shall be a licensed attorney in the State of Tennessee who
has specialized in banking law for at least five years. The arbitrators shall be
chosen, and the arbitration proceeding shall be held in accordance with, the
commercial arbitration rules of the AAA in effect at the time of the dispute.
The arbitrators are specifically authorized to award attorneys fees, costs, and
expenses to the parties measured by their relative success
<PAGE> 8
(or failure) in respect of the disputes arbitrated. The arbitrators shall award
only compensatory damages, plus any applicable interest at the judgment rate,
and they are not authorized to award punitive damages.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in McMinnville, Tennessee as of the day and year first above written.
EMPLOYER:
FIRST MCMINNVILLE CORPORATION
By: /s/ Robert W. Jones
---------------------------------------
Robert W. Jones, Chairman
EMPLOYEE:
/s/ Charles C. Jacobs
-------------------------------------------
CHARLES C. JACOBS
CAROL A. LOCKE
- -----------------------------------
WITNESS
DAVID W. MARTTALA
- -----------------------------------
WITNESS
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SECURITY HOLDERS
Portions of the Annual Report to Security Holders are incorporated herein
by reference. These portions are "Selected Financial Data," the Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
the Company's Consolidated Financial Statements for the year ended December 31,
1999. This Exhibit is omitted in the paper copy pursuant to Instruction G(2) of
the Instructions to Form 10-K.
<PAGE> 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.
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 condition 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 is to
provide readers with information relevant to understanding and assessing the
financial condition and results of operations of the Company, and not to predict
the future or to guarantee results. The Company is unable to predict the types
of circumstances, conditions, and factors that can cause anticipated results to
change. The Company undertakes no obligation to publish revised forward-looking
statements to reflect the occurrence of changes or unanticipated events,
circumstances, or results.
GENERAL
First McMinnville Corporation is a one bank holding company which owns
100% of First National Bank of McMinnville. First National Bank of McMinnville
("Bank") is a community bank headquartered in McMinnville, Tennessee serving
Warren County, Tennessee as its primary market area. The Company serves as a
financial intermediary whereby its profitability is determined to a large degree
by the interest spread it achieves and the successful measurement of risks. The
Company's management believes that Warren County offers an environment for
continued growth and the Company's target market is local consumers,
professionals and small businesses. The Company offers a wide range of banking
services, including checking, savings, and money market deposit accounts,
certificates of deposits, and loans for consumer, commercial and real estate
purposes. The Company also offers custodial and trust services. Deposit
instruments in the form of demand deposits, money market savings and
certificates of deposits are offered to customers to establish the Company's
core deposit base.
In a market such as Warren County, management believes there is an
opportunity to increase the loan portfolio. The Company has targeted commercial
business lending, commercial and residential real estate lending, and consumer
lending as areas of focus. It is the Company's intention to limit the size of
its loan portfolio to approximately 75% to 80% of deposit balances; however, the
quality of lending opportunities as
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
well as the desired loan to deposit ratio will determine the size of the loan
portfolio. As a practice, the Company generates substantially all of its own
loans and occasionally buys participations from other institutions. The Company
attempts, to the extent practical, to maintain a loan portfolio which is capable
of adjustment to swings in interest rates. The Company's policy is to have a
diverse loan portfolio. At December 31, 1999, the nursery industry constituted
the largest single industry segment and accounted for $11,399,000 (8.42% of the
Company's loan portfolio) as compared to $11,243,000 or 8.88% in 1998. No other
segment accounted for more than 10% of the portfolio. Management is not aware of
any adverse trends or expected losses in respect to the nursery industry.
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Regulations of the Office of the Comptroller of the Currency ("OCC")
establish required minimum capital levels for the Bank. Under these regulations,
national banks must maintain certain capital levels as a percentage of average
total assets (leverage capital ratio) and as a percentage of total risk-based
assets (risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to credit
risk ranging from 0% for assets backed by the full faith and credit of the
United States to 100% for loans other than residential real estate loans and
certain off-balance sheet commitments. Total capital is characterized as either
Tier 1 capital - common stockholders' 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 risk-based capital. The Company and its national
bank subsidiary must maintain a Tier 1 capital to risk-based assets of at least
4.0%, a Total risk-based capital to risk-based assets ratio of at least 8.0% and
a leverage capital ratio defined as Tier 1 capital to adjusted total average
assets for the most recent quarter of at least 4%. 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
Company has a Tier 1 risk based ratio of 26.7%, a total risk-based capital ratio
of 27.8% and a leverage capital ratio of 14.2%, and was therefore within the
"well capitalized" category under the regulations. The subsidiary bank's ratios
were substantially the same as those setforth for the Company.
Dividends of $1,491,000 and $1,414,000 were declared during 1999 and 1998,
respectively. Principally because of the high percent of equity capital, the
return on equity is lower than banks in the Company's peer group. Cash dividends
are anticipated to be increased in 2000 if profits increase. The dividend payout
ratio (dividends declared divided by net earnings) was 35.4%, 36.5% and 37.4% in
1999, 1998 and 1997, respectively. No material changes in the mix or cost of
capital is anticipated in the foreseeable future.
The dividends by the Company are primarily funded by dividends received by
the Company from the Bank. The Bank is limited by law, regulation and prudence
as to the amount of dividends it can pay. At December 31, 1999, under the most
restrictive of these regulatory limits, the Bank could declare in 2000 cash
dividends in an aggregate amount of up to approximately $9.6 million, plus any
2000 net earnings, without prior approval of the Comptroller of the Currency.
Because of sound business considerations and other Regulatory capital
requirements, it is unlikely that the Company would ever pay a significant
portion of this amount as dividends.
FINANCIAL CONDITION
During 1999, total assets increased $20,680,000 or 8.5% from $243,027,000
at December 31, 1998 to $263,707,000 at
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1999. Loans, net of allowance for possible loan losses, increased
from $125,170,000 to $133,873,000 or 7.0% during fiscal year 1999. The aggregate
increases in loans for 1999 was due primarily to a 10% increase in real estate -
mortgage loans accompanied by a 2.7% increase in commercial, financial and
agricultural loans.
Securities increased 9.3% from $107,960,000 at December 31, 1998 to
$117,971,000 at December 31, 1999. The carrying value of securities of U.S.
Treasury and other U.S. Government obligations increased $8,778,000, obligations
of state and political subdivisions increased $1,339,000, corporate and other
securities increased $129,000 and there was a decrease in mortgage backed
securities of $235,000. At December 31, 1999 the market value of the Company's
securities portfolio was less than its amortized cost by $7,043,000 (5.7%). At
December 31, 1998 the market value of the Company's securities portfolio
exceeded its amortized cost by $1,601,000 (1.5%). The weighted average yield
(stated on a tax-equivalent basis, assuming a Federal income tax rate of 34%) of
the securities at December 31, 1999 was 7.08% as compared to an average yield of
7.13% at December 31, 1998.
The Company applies the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities". Under the provisions of the Statement, securities are to
be classified in three categories and accounted for as follows:
- - Debt securities that the enterprise has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
- - Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings; and
- - Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity.
The Company's classification of securities as of December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
(In Thousands)
U.S. Treasury and
other U.S. government
agencies and corporations $ 4,776 4,437 83,525 77,938
Obligations of states and
political subdivisions 28,549 27,732 1,139 1,148
Corporate and other
securities -- -- 1,864 1,704
Mortgage-backed securities 2,244 2,192 1,709 1,612
------- ------ ------ ------
$35,569 34,361 88,237 82,402
======= ====== ====== ======
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 1997 the net increase in capital included $331,000 which represents
the unrealized appreciation in securities available-for-sale of $534,000 net of
applicable tax benefit of $203,000. During the year ended December 31, 1998, the
net increase in capital included $44,000 which represents the unrealized
appreciation in securities available-for-sale of $71,000 net of applicable taxes
of $27,000. During the year ended December 31, 1999, the net increase in capital
included $3,884,000 which represents the unrealized loss on securities
available-for-sale of $6,261,000 net of applicable taxes of $2,377,000.
The increase in assets in 1999 was funded primarily by increases in
deposits, securities sold under repurchase agreements, Federal funds purchased
and advances from the Federal Home Loan Bank. Total deposits increased from
$185,305,000 at December 31, 1998 to $195,924,000 at December 31, 1999
representing an increase of 5.7%. Demand deposits decreased 8.0% from
$19,085,000 at December 31, 1998 to $17,556,000 at December 31, 1999.
Additionally, increases in certificates of deposit and individual retirement
accounts of $6,701,000 (6.1%) contributed to the increases in deposits for 1999.
Securities sold under repurchase agreements increased $2,170,000 during 1999 and
were also used to fund increases in assets. Federal funds purchased and advances
from Federal Home Loan Bank increased $6,000,000 and $3,200,000, respectively,
in 1999. The subsidiary bank has unused lines of credit of $5,000,000 and the
Company has an unused line of credit of $2,000,000 at December 31, 1999.
The Company's allowance for loan losses at December 31, 1999 was
$1,502,000 as compared to $1,495,000 at December 31, 1998. Non-performing loans
amounted to $182,000 at December 31, 1999 compared to $273,000 at December 31,
1998. Non-performing loans are loans which have been placed on non-accrual
status, loans 90 days past due plus renegotiated loans. Net recoveries to
average outstanding loans totaled $1,000 for 1998. Net charge-off's totaled
$173,000 for 1999. The provision for possible loan losses was $180,000 in 1999
and 1998 and $220,000 in 1997. The net charge-off's in 1999 and 1997 are not
considered by management to be a trend. The net charge-offs in 1997 relate
primarily to one customer.
The allowance for possible loan losses, amounting to $1,502,000 at
December 31, 1999, represents 1.11% of total loans outstanding. At December 31,
1998, the allowance for possible loan losses represented 1.18% of total loans
outstanding. Management has in place a system to identify and monitor problem
loans. Management believes the allowance for possible loan losses at December
31, 1999 to be adequate.
LIQUIDITY
Liquidity represents the ability to efficiently and economically
accommodate decreases in deposits and other liabilities, as well as fund
increases in assets. A Company has liquidity potential when it has the ability
to obtain sufficient funds in a timely manner at a reasonable cost. The
availability of funds through deposits, the purchase and sales of securities in
the investment portfolio, the use of funds for consumer and commercial loans and
the access to debt markets affect the liquidity of the Company. The Company's
loan to deposit ratio was approximately 69.1% and 68.4% at December 31, 1999 and
December 31, 1998, respectively.
The Company's investment portfolio, as represented above, consists of
earning assets that provide interest income.
Funds management decisions must reflect management's intent to maintain
profitability in both the immediate and long-term earnings. 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 of the Bank.
These meetings
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
focus on the spread between the subsidiary bank's cost of funds and interest
yields generated primarily through loans and investments.
First McMinnville Corporation presently maintains a liability sensitive
position over the 2000 year or a negative gap. Liability sensitivity means that
more of the Company's liabilities are capable of repricing over certain time
frames than assets. The interest rates associated with these liabilities may not
actually change over this period but are capable of changing. For example, the
six month gap is a picture of the possible repricing over a six month period.
The following table shows the rate sensitivity gaps for different time periods
as of December 31, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
INTEREST-RATE SENSITIVITY ONE YEAR
GAPS: REPRICE 1-90 91-180 181-365 AND
(IN THOUSANDS) IMMEDIATELY DAYS DAYS DAYS LONGER TOTAL
------------------------------ -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets $ -- 49,462 17,377 21,731 164,776 253,346
Interest-bearing liabilities 8,000 122,137 31,120 25,631 22,549 209,437
------------ --------- ------- ------- -------- -------
Interest rate sensitivity $ (8,000) (72,675) (13,743) (3,900) 142,227 43,909
============ ========= ======= ======= ======== =======
Cumulative gap $ (8,000) (80,675) (94,418) (98,318) 43,909
============ ========= ======= ======== =======
Interest rate sensitivity
gap as a % of total
assets (3.03)% (27.56)% (5.21)% (1.48)% 53.93%
============ ========= ======== ======== =======
Cumulative gap as a
% of total assets (3.03)% (30.59)% (35.80)% (37.28)% 16.65%
============ ========= ======= ======== =======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal, money market
demand, demand deposit and regular savings accounts. Management does not
anticipate that there will be significant withdrawals from these accounts in the
future.
It is anticipated that with present maturities, the anticipated 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.
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 1999 were $4,216,000, an
increase of $346,000 or 8.9% from fiscal year 1998. Net earnings for 1998
totaled $3,870,000 which was an increase of $289,000 or 8.1% from $3,581,000 for
1997. Basic earning per common share was $7.91 in 1999, $7.24 in 1998 and $6.68
in 1997. Diluted earnings per common share were $7.88, $7.23 and $6.67 in 1999,
1998 and 1997, respectively. Average earning assets increased $18,008,000 for
the year ended December 31, 1999 as compared to the year ended December 31,
1998. Average earning assets increased $29,709,000 for the year ended December
31, 1998 as compared to year ended December 31, 1997. Additionally, the net
interest spread decreased from 3.69% in 1998 to 3.65% in
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999. The net interest spread was 4.09% in 1997. Net interest spread is defined
as the effective yield on earning assets less the effective cost of deposits and
borrowed funds, as calculated on a fully taxable equivalent basis. The decrease
in the net interest spread is attributable to funding of interest bearing assets
by increases in securities sold under repurchase agreements, Federal funds
purchased and advances from the Federal Home Loan Bank. These items typically
have higher interest rates than are paid on customer deposits. There was a
decrease in average non-interest bearing demand deposits in 1999 of $1,578,000.
Net interest income before provision for loan losses for 1999 totaled
$9,434,000 as compared to $8,952,000 for 1998 and $8,610,000 for 1997. The
provision for loan losses was $180,000 in 1999 and 1998 and $220,000 in 1997.
Net charge-off's in 1999 were $173,000 as compared to net recoveries of $1,000
in 1998 and net charge-offs of $630,000 in 1997. The 1999 and 1997 charge-offs
are unrelated to the nursery business and management does not consider the
charge-off's to be a trend.
Non-interest income increased 25.9% to $846,000 in 1999 from $672,000 in
1998. The increase is primarily the result of the sale of a former branch
facility at a gain of $166,000. Non-interest income of $672,000 in 1998 was an
increase of approximately 8.7% from $618,000 in 1997. The increase in 1998
resulted primarily from increases in service charges on deposits.
Non-interest expense increased 2.3% to $3,958,000 in 1999 from $3,869,000
in 1998. Non-interest expense was $3,850,000 in 1997. Non-interest expense which
includes, among other things, salaries and employee benefits, occupancy
expenses, furniture and fixtures expenses, data processing, Federal Deposit
Insurance premiums, supplies and general operating costs increased commensurate
with the continued growth of the Company. The increase in 1999 was primarily
attributable to an increase in salaries and employment benefits of $91,000
(3.8%) and increases in other operating expenses ($12,000 or 1.3%). These
increases in 1999 were offset by a decrease of $5,000 in occupancy expenses and
$11,000 furniture and equipment expenses. The non-interest expense increased
approximately 0.5% from 1997 to 1998 and was due primarily to increases in
salaries and employees benefits with an offset from the decrease in furniture
and equipment expenses, occupancy expenses and securities losses.
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.
YEAR 2000 ISSUES
The term "Year 2000 issues" 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). The Company has not identified any significant
problems related to the change to Year 2000. The Company estimates its cost for
becoming Year 2000 compliant totaled approximately $200,000 which consisted
primarily of personnel costs and promotion of customer awareness. There were
minimal costs related to renovations because there were no major renovations,
upgrades or software conversions needed. The personnel costs were expensed
through the regular salary structure.
Management is not aware of any of the Company's customers that have
experienced significant problems related to the Year 2000 Issue.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
effect on the Company's performance since they impact both interest revenues and
interest costs.
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. 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.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
HELD FOR PURPOSES EXPECTED MATURITY DATE - YEAR ENDING DECEMBER 31,
OTHER THAN TRADING --------------------------------------------------------- FAIR
(IN THOUSANDS) 2000 2001 2002 2004 2009 THEREAFTER TOTAL VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned interest $ 43,898 19,108 12,916 45,334 10,145 3,974 135,375 132,069
Average interest rate 8.41% 8.72% 8.19% 7.81% 7.89% 7.75% 8.12%
Securities 44,670 21,590 8,166 11,279 19,620 12,646 117,971 116,763
7.12% 6.94% 7.11% 7.18% 6.93% 6.76% 7.01%
INTEREST-BEARING LIABILITIES:
Interest-bearing time deposits 97,234 14,829 3,603 117 -- -- 115,783 115,874
Average interest rate 5.26% 5.64% 6.11% 5.58% -- -- 5.33%
Negotiable order of withdrawal 26,167 -- -- -- -- -- 26,167 26,167
accounts 2.71% -- -- -- -- -- 2.71%
Money market demand accounts 8,504 -- -- -- -- -- 8,504 8,504
Average interest rate 2.93% -- -- -- -- -- 2.93%
Savings deposits 27,914 -- -- -- -- -- 27,914 27,914
Average interest rate 3.49% -- -- -- -- -- 3.49%
Securities sold under repurchase 15,869 -- -- -- -- -- 15,869 15,869
agreements 4.17% -- -- -- -- -- 4.17%
Advances from Federal 3,200 -- -- -- 4,000 -- 7,200 7,232
Home Loan Bank 5.88% -- -- -- 5.27% -- 5.54%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First McMinnville Corporation:
We have audited the accompanying consolidated balance sheets of First
McMinnville Corporation and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, comprehensive earnings, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 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 First
McMinnville Corporation and Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Nashville, Tennessee
January 18, 2000
<PAGE> 10
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
In Thousands
------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Loans, less allowance for possible loan losses
of $1,502,000 and $1,495,000, respectively $ 133,873 125,170
Securities:
Held-to-maturity, at amortized cost (market value
$34,361,000 and $47,393,000, respectively) 35,569 46,217
Available-for-sale, at market (amortized cost
$88,237,000 and $61,318,000, respectively) 82,402 61,743
--------- --------
Total securities 117,971 107,960
--------- --------
Total earning assets 251,844 233,130
--------- --------
Cash and due from banks 4,665 5,241
Premises and equipment, net 1,904 2,058
Accrued interest receivable 2,327 2,034
Deferred tax asset 2,402 63
Other real estate 74 11
Other assets 491 490
--------- --------
Total assets $ 263,707 243,027
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 195,924 185,305
Securities sold under repurchase agreements 15,869 13,699
Federal funds purchased 8,000 2,000
Advances from Federal Home Loan Bank 7,200 4,000
Accrued interest and other liabilities 3,114 3,137
--------- --------
Total liabilities 230,107 208,141
--------- --------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized
5,000,000, issued 609,150 and 606,795 shares,
respectively 1,523 1,517
Additional paid-in capital 1,754 1,623
Retained earnings 36,742 34,017
Net unrealized (losses), gains on available-for-sale
securities, net of income tax benefit of $2,215,000
and income taxes of $162,000, respectively (3,620) 264
--------- --------
36,399 37,421
Less cost of treasury stock of 77,220 shares in 1999 and
73,369 shares in 1998 (2,799) (2,535)
--------- --------
Total stockholders' equity 33,600 34,886
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
Total liabilities and stockholders' equity $ 263,707 243,027
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
In Thousands,
Except Per Share Amount
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 10,892 10,087 9,878
Interest and dividends on securities:
Taxable securities 6,037 5,773 4,396
Exempt from Federal income taxes 1,452 1,369 1,180
Interest on Federal funds sold 12 172 231
Interest on interest-bearing deposits in financial
institutions -- 5 6
-------- ------- -------
Total interest income 18,393 17,406 15,691
-------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 707 533 477
Interest on money market demand and savings accounts 1,202 1,137 1,129
Interest on certificates of deposit 5,968 6,256 5,347
Interest on securities sold under repurchase agreements
and short-term debt 594 353 118
Interest on advances from Federal Home Loan Bank 280 147 --
Interest on Federal funds purchased 208 28 10
-------- ------- -------
Total interest expense 8,959 8,454 7,081
-------- ------- -------
Net interest income before provision for possible loan losses 9,434 8,952 8,610
Provision for possible loan losses 180 180 220
-------- ------- -------
Net interest income after provision for possible loan losses 9,254 8,772 8,390
Non-interest income 846 672 618
Non-interest expense (3,958) (3,869) (3,850)
-------- ------- -------
Earnings before income taxes 6,142 5,575 5,158
Income taxes 1,926 1,705 1,577
-------- ------- -------
Net earnings $ 4,216 3,870 3,581
======== ======= =======
Basic earnings per common share $ 7.91 7.24 6.68
======== ======= =======
Diluted earnings per common share $ 7.88 7.23 6.67
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 12
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
In Thousands
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 4,216 3,870 3,581
------- ------ -----
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during the year, net of tax
benefit of $2,365,000, and income tax expense
of $35,000 and $199,000, respectively (3,865) 58 325
Reclassification adjustments for losses (gains)
included in net earnings, net of tax expense of
$11,000 and $8,000 and income tax benefits
of $3,000, respectively (19) (14) 6
------- ------ -----
Other comprehensive earnings (loss) (3,884) 44 331
------- ------ -----
Comprehensive earnings $ 332 3,914 3,912
======= ====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------------------------------
Net Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained Treasury For-Sale
Stock Capital Earnings Stock Securities Total
----- ------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $1,512 1,512 29,321 (2,209) (111) 30,025
Net earnings -- -- 3,581 -- -- 3,581
Issuance of 1,000 shares of common stock 2 56 -- -- -- 58
Cash dividends declared $2.50 per share -- -- (1,341) -- -- (1,341)
Cost of 1,679 shares of treasury stock -- -- -- (97) -- (97)
Net change in unrealized gains
(losses) on available-for-sale-securities
during the year, net of income taxes
of $203,000 -- -- -- -- 331 331
------ ----- ------- ------ ------ -------
Balance December 31, 1997 1,514 1,568 31,561 (2,306) 220 32,557
Net earnings -- -- 3,870 -- -- 3,870
Issuance of 995 shares of common stock 3 55 -- -- -- 58
Cash dividends declared $2.65 per share -- -- (1,414) -- -- (1,414)
Cost of 3,673 shares of treasury stock -- -- -- (229) -- (229)
Net change in unrealized gains (losses)
on available-for-sale-securities during
the year, net of income taxes of $27,000 -- -- -- -- 44 44
------ ----- ------- ------ ------ -------
Balance December 31, 1998 1,517 1,623 34,017 (2,535) 264 34,886
Net earnings -- -- 4,216 -- -- 4,216
Issuance of 2,355 shares of common stock 6 131 -- -- -- 137
Cash dividends declared $2.80 per share -- -- (1,491) -- -- (1,491)
Cost of 3,851 shares of treasury stock -- -- -- (264) -- (264)
Net change in unrealized gains
(losses) on available-for-sale-securities
during the year, net of income tax
benefit of $2,377,000 -- -- -- -- (3,884) (3,884)
------ ----- ------- ------ ------ -------
Balance December 31, 1999 $1,523 1,754 36,742 (2,799) (3,620) 33,600
====== ===== ======= ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 18,048 17,322 15,517
Fees and commissions received 650 650 627
Interest paid (8,947) (8,296) (6,889)
Cash paid to suppliers and employees (3,830) (3,700) (3,665)
Income taxes paid (1,926) (1,503) (1,653)
-------- -------- -------
Net cash provided by operating activities 3,995 4,473 3,937
-------- -------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (49,196) (197,580) (39,669)
Proceeds from sales of available-for-sale securities 3,898 17,383 5,284
Proceeds from maturities of available-for-sale securities 18,439 162,464 15,376
Purchase of held-to-maturity securities (15,590) (21,357) (15,457)
Proceeds from maturities of held-to-maturity securities 26,260 21,655 23,495
Loans made to customers, net of repayments (8,957) (15,191) (2,439)
Purchase of premises and equipment (51) (43) (141)
Proceeds from sales of premises and equipment 204 -- --
Proceeds from sales of other real estate -- -- 58
Proceeds from maturities of interest bearing deposits
in financial institutions -- 100 --
-------- -------- -------
Net cash used in investing activities (24,993) (32,569) (13,493)
-------- -------- -------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposit accounts 3,918 1,341 3,039
Net increase in time deposits 6,701 11,073 10,106
Net increase in securities sold under repurchase agreements 2,170 9,349 1,819
Increase (decrease) in Federal funds purchased 6,000 2,000 (500)
Advances from Federal Home Loan Bank 3,200 4,000 --
Proceeds from issuance of short-term notes payable 6 -- --
Repayment of short-term notes payable (6) -- --
Dividends paid (1,440) (1,366) (1,290)
Payments to acquire treasury stock (264) (229) (97)
Proceeds from issuance of common stock 137 58 58
-------- -------- -------
Net cash provided by financing activities 20,422 26,226 13,135
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (576) (1,870) 3,579
Cash and cash equivalents at beginning of year 5,241 7,111 3,532
-------- -------- -------
Cash and cash equivalents at end of year $ 4,665 5,241 7,111
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
FIRST MCMINNVILLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 4,216 3,870 3,581
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 178 215 236
Provision for possible loan losses 180 180 220
Provision for deferred taxes 37 (51) 163
Securities gains (46) (31) (11)
Securities losses 16 9 20
FHLB dividend reinvestment (52) (50) (45)
Loss (gain) on disposal of premises and equipment (166) -- 43
Increase (decrease) in taxes payable (23) 253 (239)
Increase in interest receivable (293) (14) (117)
Increase in interest payable 12 158 192
Decrease in other assets and liabilities, net (64) (66) (106)
------- ------ ------
Total adjustments (221) 603 356
------- ------ ------
Net cash provided by operating activities $ 3,995 4,473 3,937
======= ====== ======
Supplemental Schedule of Non-Cash Activities:
Non-cash transfers from loans to other real estate $ 74 -- --
======= ====== ======
Unrealized gain (loss) in value of securities
available-for-sale net of income tax benefit
of $2,377,000 in 1999, income taxes of $27,000
in 1998 and income taxes of $203,000 in 1997 $(3,884) 44 331
======= ====== ======
Non-cash transfers from other real estate to bank
premises and equipment $ 11 -- --
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First McMinnville Corporation
(the "Company") and its wholly-owned subsidiary, the First National
Bank of McMinnville ("Bank") are in accordance with generally accepted
accounting principles and conform to general practices within the
banking industry. The following is a brief summary of the significant
policies.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, First National
Bank of McMinnville. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(B) NATURE OF OPERATIONS
The Company is registered as a one bank holding company under
the Bank Holding Company Act of 1956. The Bank operates under
a Federal Bank Charter and provides full banking services. As
a national bank, the subsidiary bank is subject to regulation
of the Office of the Comptroller of the Currency. The
principal area served by First National Bank of McMinnville is
Warren County, Tennessee and surrounding counties in Middle
Tennessee. Services are provided at the main office and four
branches.
(C) ESTIMATES
The preparation of 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. Actual results could differ from those
estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to
determination of the allowance for possible loan losses and
the valuation of debt and equity securities and the related
deferred taxes.
(D) LOANS
Loans are stated at the principal amount outstanding. Unearned
discount, deferred loan fees net of loan acquisition costs,
and the allowance for possible loan losses are shown as
reductions of loans. Loan origination and commitment fees and
certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield
over the contractual life of the loan. Unearned discount
represents the unamortized amount of finance charges,
principally related to certain installment loans. Interest
income on most loans is accrued based on the principal amount
outstanding.
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" apply to impaired loans
except for large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment including
residential mortgage and installment loans.
<PAGE> 17
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS, CONTINUED
A loan is 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 possible loan
losses or by adjusting an existing valuation allowance for the
impaired loan with a corresponding charge or credit to the
provision for possible loan losses.
The Company's consumer loans are divided into various groups
of smaller-balance homogeneous loans that are collectively
evaluated for impairment and, thus, are not subject to the
provisions of SFAS Nos. 114 and 118. Substantially all other
loans of the Company are evaluated for impairment under the
provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as
to timely collection of principal or interest exists, or when
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 along with
various other factors to determine if a loan is impaired.
Generally, delinquencies under 90 days are considered
insignificant unless certain other factors are present which
indicate impairment is probable. The decision to place a loan
on nonaccrual status is also based on an evaluation of the
borrower's financial condition, collateral, liquidation value,
and other factors that affect the borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status,
all interest accrued and uncollected 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 possible 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 cash received is
applied as a reduction of principal. A nonaccrual loan may be
restored to an 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.
Loans not on nonaccrual status are classified as impaired in
certain cases when 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.
<PAGE> 18
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS, CONTINUED
Generally, the Company also classifies as impaired any loans
the terms of which have been modified in a troubled debt
restructuring. Interest is generally accrued on such loans
that continue to meet the modified terms of their loan
agreements.
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.
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents a charge to
earnings necessary, after loan charge-offs and recoveries, to
maintain the allowance for possible loan losses at an
appropriate level which is adequate to absorb estimated losses
inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from
other sources, including commitments to extend credit and
standby letters of credit. The level of the allowance is
determined on a quarterly basis using procedures which
include: (1) categorizing commercial and commercial real
estate loans into risk categories to estimate loss
probabilities based primarily on the historical loss
experience of those risk categories and current economic
conditions; (2) analyzing significant commercial and
commercial real estate credits and calculating specific
reserves as necessary; (3) assessing various homogeneous
consumer loan categories to estimate loss probabilities based
primarily on historical loss experience; (4) reviewing
unfunded commitments; and (5) considering various other
factors, such as changes in credit concentrations, loan mix,
and economic conditions which may not be specifically
quantified in the loan analysis process.
The allowance for possible loan losses consists of an
allocated portion and an unallocated, or general portion. The
allocated portion is maintained to cover estimated losses
applicable to specific segments of the loan portfolio. The
unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not
identified by the more objective processes used for the
allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an
allocated portion and an unallocated portion, these terms are
primarily used to describe a process. Both portions of the
allowance are available to provide for inherent loss in the
entire portfolio.
<PAGE> 19
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
The allowance for possible loan losses is increased by
provisions for possible loan losses charged to expense and is
reduced by loans charged off net of recoveries on loans
previously charged off. The provision is based on management's
determination of the amount of the allowance necessary to
provide for estimated loan losses based on its evaluation of
the loan portfolio. Determining the appropriate level of the
allowance and the amount of the provision involves
uncertainties and matters of judgment and therefore cannot be
determined with precision.
(F) DEBT AND EQUITY SECURITIES
The Company follows the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the
provisions of the Statement, securities are classified in
three categories and accounted for as follows:
- Securities Held-to-Maturity
Debt securities that the enterprise has the positive
intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized
cost. Amortization of premiums and accretion of
discounts are recognized by the interest method.
- Trading Securities
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term are classified as trading securities and reported
at fair value, with unrealized gains and losses included
in earnings.
- Securities Available-for-Sale
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported
at estimated fair value, with unrealized gains and
losses excluded from earnings and reported in a separate
component of stockholders' equity. Amortization and
accretion of discounts are recognized by the interest
method.
<PAGE> 20
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(F) DEBT AND EQUITY SECURITIES, CONTINUED
No securities have been classified as trading securities.
Realized gains or losses from the sale of debt and equity
securities are recognized based upon the specific
identification method.
(G) 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. 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.
Expenditures for major renewals and improvements of premises
and equipment are capitalized and those for maintenance and
repairs are charged to earnings as incurred.
(H) LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that long-lived
assets and certain identifiable intangibles to be held and
used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management
has determined that no impairment loss need be recognized for
its long-lived assets.
(I) OTHER REAL ESTATE
Real estate acquired in settlement of loans is initially
recorded at the lower of cost (loan value of real estate
acquired in settlement of loans plus incidental expense) or
estimated fair value, less estimated cost of disposal. Based
on periodic evaluations by management, the carrying values are
reduced by a direct charge to earnings when they exceed net
realizable value. Costs relating to the development and
improvement of the property are capitalized, while holding
costs of the property are charged to expense in the period
incurred.
<PAGE> 21
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(J) INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of
non-taxable income such as interest on state and municipal
securities) and deferred taxes on temporary differences
between the amount of taxable and pretax financial income and
between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to
the period in which the deferred tax asset and liabilities are
expected to be realized or settled as prescribed in Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
The Company and its subsidiary file a consolidated Federal
income tax return. Each corporation provides for income taxes
on a separate-return basis.
(K) PENSION EXPENSE
Effective December 31, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No.
132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits". The provisions of SFAS revised
disclosures about pension and other postretirement benefit
plans including a reconciliation of beginning and ending
balances of the benefit obligation, the beginning and ending
balances of the fair value of plan assets, the discount rate,
the rate of compensation increase used to determine the
projected benefit obligation and the expected return on plan
assets. The provisions of SFAS 132 did not change the
measurement or recognition of the plan. Accordingly, the net
pension expense consists of service costs, interest cost,
return on pension assets and amortization of unrecognized
initial excess of projected benefits over plan assets and
actuarial gains and losses.
(L) ADVERTISING COSTS
Advertising costs are expensed when incurred.
(M) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and
Federal funds sold. Generally, Federal funds sold are
purchased and sold for one-day periods. The Bank maintains
deposits with other financial institutions in excess of the
Federal insurance amounts. Management makes deposits only with
financial institutions it considers to be financially sound.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997
figures to conform to the presentation for 1999.
<PAGE> 22
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(O) OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the subsidiary bank has
entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under
credit card arrangements, commercial letters of credit and
standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or
related fees are incurred or received.
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans and allowance for possible loan losses at December 31, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------------
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 38,013 37,011
Real estate - construction 1,802 2,339
Real estate - mortgage 92,515 84,136
Consumer 3,045 3,179
----------- ---------
135,375 126,665
Less allowance for possible loan losses (1,502) (1,495)
----------- ---------
$ 133,873 125,170
=========== =========
</TABLE>
In the normal course of business, the Company's subsidiary has made
loans at prevailing interest rates and terms to directors and officers
of the Company, and to their affiliates. The aggregate dollar amount of
these loans was $6,499,000 and $6,081,000 at December 31, 1999 and
1998, respectively. During 1999, $3,780,000 of such loans were made and
repayments totaled $3,362,000. During 1998, $3,735,000 of such loans
were made and repayments totaled $3,421,000. As of December 31, 1999,
none of these loans were restructured, nor were any related party loans
charged off during the past three years.
No loans had been placed on non-accrual status during 1999 and 1998.
The principal maturities on loans at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------------------------------------------
Commercial,
Financial
and Real Estate - Real Estate-
Agricultural Construction Mortgage Consumer Total
------------ ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C>
3 months or less $ 13,923 -- 10,744 861 25,528
3 to 12 months 5,360 1,802 10,375 1,182 18,719
1 to 5 years 16,848 -- 59,510 1,002 77,360
Over 5 Years 1,882 -- 11,886 -- 13,768
---------- -------- ---------- --------- ---------
$ 38,013 1,802 92,515 3,045 135,375
========== ======== ========== ========== =========
</TABLE>
<PAGE> 23
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
At December 31, 1999, variable rate and fixed rate loans totaled
approximately $9,490,000 and $125,885,000, respectively. At December
31, 1998, variable rate loans were approximately $9,912,000 and fixed
rate loans totaled approximately $116,753,000.
Transactions in the allowance for possible loan losses for the years
ended December 31, 1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 1,495 1,314 1,724
Provision charged to operating
expense 180 180 220
---------- -------- --------
1,675 1,494 1,944
---------- -------- --------
Loans charged off (209) (37) (660)
Recoveries on losses 36 38 30
---------- -------- --------
Net recoveries (charge-offs) (173) 1 (630)
---------- -------- --------
Balance, end of year $ 1,502 1,495 1,314
========== ======== ========
</TABLE>
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Warren County, Tennessee. At December 31,
1999, the Company had loans to customers in the nursery industry
totaling approximately $11,399,000 as compared to $11,243,000 at
December 31, 1998. Credit is extended to businesses and individuals and
is generally evidenced by promissory notes. The terms and conditions of
the loans including collateral vary depending upon the purpose of the
credit and the borrower's financial condition.
Impaired loans and related loan loss reserve amounts at December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------------
1999 1998
---- ----
<S> <C> <C>
Recorded investment $ 1,808 2,800
Loan loss reserve $ 535 709
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1999 and 1998 was $2,198,000 and $2,726,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $187,000 and
$263,000 for 1999 and 1998, respectively.
<PAGE> 24
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(3) DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the balance sheet
according to management's intent. The Company's classification of
securities at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
-------------------------------------------------------
In Thousands
-------------------------------------------------------
1999
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $ 4,776 -- 339 4,437
Obligations of states and political
subdivisions 28,549 180 997 27,732
Mortgage-backed securities 2,244 -- 52 2,192
----------- --------- -------- ---------
$ 35,569 180 1,388 34,361
=========== ======== ======== =========
<CAPTION>
Securities Available-For-Sale
----------------------------------------------------
In Thousands
----------------------------------------------------
1999
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $ 83,525 -- 5,587 77,938
Obligations of states and political
subdivisions 1,139 11 2 1,148
Corporate and other securities 1,864 -- 160 1,704
Mortgage-backed securities 1,709 -- 97 1,612
----------- --------- --------- ---------
$ 88,237 11 5,846 82,402
=========== ========= ========= =========
</TABLE>
<PAGE> 25
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(3) DEBT AND EQUITY SECURITIES, CONTINUED
Debt and equity securities at December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
-----------------------------------------------------------
In Thousands
-----------------------------------------------------------
1998
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $ 16,451 218 8 16,661
Obligations of states and political
subdivisions 26,761 995 26 27,730
Corporate and other securities 763 24 -- 787
Mortgage-backed securities 2,242 2 29 2,215
----------- -------- -------- --------
$ 46,217 1,239 63 47,393
=========== ======== ======== ========
<CAPTION>
Securities Available-For-Sale
------------------------------------------------------------
In Thousands
------------------------------------------------------------
1998
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $ 57,056 626 197 57,485
Obligations of states and political
subdivisions 1,528 69 -- 1,597
Corporate and other securities 812 -- -- 812
Mortgage-backed securities 1,922 -- 73 1,849
----------- --------- -------- --------
$ 61,318 695 270 61,743
=========== ======== ======== ========
</TABLE>
<PAGE> 26
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt securities at
December 31, 1999, 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>
In Thousands
---------------------------
Estimated
Amortized Market
Securities Held-To-Maturity Cost Value
--------------------------- ---- -----
<S> <C> <C>
Due in one year or less $ 1,588 1,590
Due after one year through five years 6,037 6,083
Due after five years through ten years 11,165 11,163
Due after ten years 16,779 15,525
---------- ----------
$ 35,569 34,361
========== ==========
<CAPTION>
In Thousands
-------------------------
Estimated
Amortized Market
Securities Available-For-Sale Cost Value
----------------------------- ---- -----
<S> <C> <C>
Due in one year or less $ 185 187
Due after one year through five years 391 395
Due after five years through ten years 42,940 40,858
Due after ten years 43,857 40,098
---------- ----------
87,373 81,538
Federal Home Loan Bank stock 773 773
Federal Reserve Bank stock 91 91
---------- ----------
$ 88,237 82,402
========== ==========
</TABLE>
<PAGE> 27
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(3) DEBT AND EQUITY SECURITIES, CONTINUED
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
For the Year Ended December 31,
-------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ 3,898 17,383 5,284
========== ========== =======
Gross realized gains $ 46 31 11
Gross realized losses (16) (9) (20)
---------- ---------- -------
Net realized gains
(losses) $ 30 22 (9)
========== ========== =======
</TABLE>
Included in the above gains and losses table are realized gains of
$22,000 in 1999 and realized losses of $5,000 in 1998 and $12,000 in
1997, respectively, related to calls of securities classified as
held-to-maturity.
Securities with approximate carrying values of $54,066,000 (approximate
market value of $53,915,000) and $34,245,000 (approximate market value
of $34,415,000) at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes required or permitted by law.
Included in the securities at December 31, 1999, are approximately
$14,430,000 at amortized cost (approximate market value of $14,139,000)
in obligations of political subdivisions located within the State of
Tennessee. Management purchases only obligations of such political
subdivisions it considers to be financially sound.
Securities that have rates that adjust prior to maturity totaled
$2,232,000 (market value $2,070,000) at December 31, 1999 as compared
to $1,925,000 (market value $1,839,000) at December 31, 1998.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $773,000 at December 31, 1999 and 1998. The stock can
be sold back at par and only to the Federal Home Loan Bank or to
another member institution.
Federal Reserve Bank stock totaling $91,000 at December 31, 1999 and
1998 can only be sold back at par and only to the Federal Reserve Bank
or to another member institution.
<PAGE> 28
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------
1999 1998
---- ----
<S> <C> <C>
Land $ 412 426
Buildings 2,504 2,568
Furniture and equipment 1,719 1,730
------- ------
4,635 4,724
Less accumulated depreciation (2,731) (2,666)
------- ------
$ 1,904 2,058
======= ======
</TABLE>
(5) DEPOSITS
Deposits at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------
1999 1998
---- ----
<S> <C> <C>
Demand deposits $ 17,556 19,085
Negotiable order of withdrawal accounts 26,167 23,401
Money market demand accounts 8,504 7,198
Savings deposits 27,914 26,539
Certificates of deposit $100,000 or greater 39,358 38,198
Other certificates of deposit 64,943 59,329
Individual retirement accounts $100,000 or
greater 2,679 2,947
Other individual retirement accounts 8,803 8,608
-------- -------
$195,924 185,305
======== =======
</TABLE>
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
-------- -------------- ------------- -----
<S> <C> <C> <C>
3 months or less $24,313 16,170 40,483
3 to 6 months 20,625 10,494 31,119
6 to 12 months 15,968 9,663 25,631
1 to 5 years 12,840 5,710 18,550
------- ------- -------
$73,746 42,037 115,783
======= ======= =======
</TABLE>
The Bank is required to maintain cash balances or balances with the
Federal Reserve Bank or other correspondent banks based on certain
percentages of deposit types. The average required amounts for the
years ended December 31, 1999 and 1998 were approximately $1,057,000
and $955,000, respectively.
<PAGE> 29
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The maximum amounts of outstanding repurchase agreements during 1999
and 1998 were $18,238,000 and $16,755,000, respectively. The average
daily balance outstanding during 1999, 1998 and 1997 was $15,044,000,
$9,011,000 and $3,968,000, respectively. The underlying securities are
typically held by other financial institutions and are designated as
pledged.
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from Federal Home Loan Bank (FHLB) at December 31, 1999
and 1998 consists of the following:
<TABLE>
<CAPTION>
In Thousands
------------------------
Initial 1999 1998
Original Fixed Rate ------------------------
Note Date Maturity Date Rate Period Amount Amount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 9, 1998 April 9, 2008 5.08% 12 Months $ 2,000 2,000
April 30, 1998 April 30, 2008 5.60 24 Months 1,000 1,000
April 30, 1998 April 30, 2008 5.31 12 Months 1,000 1,000
August 20, 1999 January 14, 2000 5.88 5 Months 3,200 --
---------- -------
$ 7,200 4,000
========== =======
</TABLE>
The FHLB has the right to convert the fixed rate on these advances at
the end of the initial fixed rate period and on a quarterly basis
thereafter with a one business day notice. If the conversion option is
exercised, the advance will be converted to a three month LIBOR-based
advance at a spread of zero basis points to the LIBOR index. Securities
totaling $11,000,000 and $8,000,000 were pledged to FHLB as collateral
at December 31, 1999 and 1998, respectively.
(8) NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The significant components of non-interest income and non-interest
expense for the years ended December 31 are presented below:
<TABLE>
<CAPTION>
In Thousands
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $ 465 510 487
Other fees and commissions 91 42 37
Commissions on fiduciary activities 62 27 49
Security gains, net 30 22 --
Gain on disposal of premise and
equipment 166 -- --
Other income 32 71 45
--------- --------- --------
Total non-interest income $ 846 672 618
========= ========= ========
</TABLE>
<PAGE> 30
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(8) NON-INTEREST INCOME AND NON-INTEREST EXPENSE, CONTINUED
<TABLE>
<CAPTION>
In Thousands
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Non-interest expense:
Salaries and employee benefits $2,513 2,422 2,310
Occupancy expenses, net 203 208 270
Furniture and equipment expenses 293 304 318
FDIC insurance 23 21 20
Security losses, net -- -- 9
Loss on disposal of premises and
equipment -- -- 43
Other operating expenses 926 914 880
------ ----- -----
Total non-interest expense $3,958 3,869 3,850
====== ===== =====
</TABLE>
(9) INCOME TAXES
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset:
Federal $ 2,219 352
State 417 66
------- ----
2,636 418
------- ----
Deferred tax liability:
Federal (197) (299)
State (37) (56)
------- ----
(234) (355)
------- ----
$ 2,402 63
======= ====
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31 are:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1999 1998
---- ----
<S> <C> <C>
Financial statement allowance for possible loan losses
in excess of tax allowance $ 421 418
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial
statements (100) (116)
Book pension expense under the allowable tax
deduction (63) (58)
Unrealized loss (gain) on investment securities
available-for-sale 2,215 (162)
FHLB stock dividends excluded for tax purposes (71) (19)
------- ----
$ 2,402 63
======= ====
</TABLE>
<PAGE> 31
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(9) INCOME TAXES, CONTINUED
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
In Thousands
------------------------------------
Federal State Total
<S> <C> <C> <C>
1999
Current $ 1,521 367 1,888
Deferred 32 6 38
------- ---- ------
Total $ 1,553 373 1,926
======= ==== ======
1998
Current $ 1,413 343 1,756
Deferred (43) (8) (51)
------- ---- ------
Total $ 1,370 335 1,705
======= ==== ======
1997
Current $ 1,130 284 1,414
Deferred 137 26 163
------- ---- ------
Total $ 1,267 310 1,577
======= ==== ======
</TABLE>
A reconciliation of actual income tax expense of $1,926,000, $1,705,000
and $1,577,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, to the "expected" tax expense (computed by applying the
statutory rate of 34% to earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,088 1,896 1,754
State income taxes, net of Federal
income tax benefit 246 221 206
Tax exempt interest, net of interest
expense exclusion (425) (406) (376)
Other, net 17 (6) (7)
------- ------ ------
$ 1,926 1,705 1,577
======= ====== ======
</TABLE>
Total income tax expense for 1999 and 1998 includes income tax expense
of $11,000 and $8,000, respectively, related to gains on sales of
securities. Income tax benefits of $3,000 related to losses on sales of
securities are included in the 1997 total income tax expense.
<PAGE> 32
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(10) EMPLOYEE BENEFIT PLANS
The subsidiary bank has in effect a defined benefit noncontributory
pension plan which covers substantially all employees over 21 years of
age after they have been employed one year. The subsidiary's funding
policy provides that payments to the pension trust shall be an amount
equal to the plan's actuarial determined normal cost plus an amount
required to amortize the prior service cost over ten years.
Reconciliation of the benefit obligation and the fair value of plan
assets is as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------
1999 1998
---- ----
<S> <C> <C>
Benefit obligation:
Obligation at January 1 $ 2,582 2,503
Service costs 112 107
Interest costs 181 169
Benefit payments (34) (205)
Actuarial gains 99 8
------- ------
Obligation at December 31 $ 2,940 2,582
======= ======
Fair value of plan assets:
Fair value at January 1 $ 2,678 2,502
Actual return on plan assets 226 254
Employer contributions 133 127
Benefit payments (34) (205)
------- ------
Fair value at December 31 $ 3,003 2,678
======= ======
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
In Thousands
------------------------
1999 1998
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $2,054,000 and $1,821,000, respectively $ 2,076 1,841
======= ======
Actuarial present value of projected benefits obligation $ 2,940 2,582
Plan assets at fair market value 3,003 2,678
------- ------
Excess of plan assets over the projected benefit
obligation (63) (96)
Unamortized net asset being recognized over 30 years (374) (396)
Unrecognized net gain 249 339
------- ------
Net pension liability recognized in the consolidated
balance sheets $ (188) (153)
======= ======
Discount rate 6.5% 6.5%
======= ======
Rate of increase in compensation levels 5.0% 5%
======= ======
Long-term rate of return on assets 8.0% 8%
======= ======
</TABLE>
<PAGE> 33
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(10) EMPLOYEE BENEFIT PLANS, CONTINUED
Total pension expense including prior service costs amortization
amounted to $97,000 in 1999, $95,000 in 1998 and $71,000 in 1997. The
pension expense for 1999, 1998 and 1997 is comprised of the following
components:
<TABLE>
<CAPTION>
In Thousands
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 112 107 87
Interest cost on projected benefit
obligation 181 169 155
Expected return on plan assets (213) (199) (172)
Net amortization and deferral 17 18 1
----- ---- ----
$ 97 95 71
===== ==== ====
</TABLE>
In December, 1988 the Bank adopted a 401(k) plan which covers eligible
employees. To be eligible, an employee must have obtained the age of 21
and must have completed 1 year of service. The provisions of the plan
provide for both employee and employer contributions. For the years
ended December 31, 1999, 1998 and 1997, the Bank contributed $50,000,
$43,000 and $45,000, respectively, to the plan.
(11) REGULATORY MATTERS AND RESTRICTIONS ON DIVIDENDS
The Company and its wholly-owned subsidiary are subject to regulatory
capital requirements administered by the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Federal Reserve.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary-actions by regulators
that, if undertaken, could have a direct material effect on the
Company's financial statements. The Company's capital classifications
are also subject to qualitative judgments by the Regulators about
components, risk weightings and other factors. Those qualitative
judgments could also affect the Company's and the Bank's capital status
and the amounts of dividends the subsidiary may distribute. At December
31, 1999, management believes that the Company and the Bank meet all
such capital requirements to which they are subject.
The Company and the Bank are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1999, the Company and its bank subsidiary
are required to have minimum Tier I and total risk-based capital ratios
of 4.0% and 8.0%, respectively. The Company's actual ratios at that
date were 26.7% and 27.8%, respectively. The leverage ratio at December
31, 1999 was 14.2% and the minimum requirement was 4%.
As of December 31, 1999, the Company is categorized as "well
capitalized" under the regulatory framework for prompt corrective
action. There are no conditions or events since the notification that
management believes have changed the Company's category.
<PAGE> 34
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(12) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has an unsecured $2,000,000 line of credit with another
financial institution. The Bank has lines of credit with other
financial institutions totaling $13,000,000. At December 31, 1999 there
was $8,000,000 outstanding under these lines of credit. At December 31,
1998, there was $2,000,000 outstanding under these lines of credit.
(13) CONCENTRATION OF CREDIT RISK
Substantially all of the Company's loans, commitments, and commercial
and standby letters of credit have been granted to customers in the
Company's market area. Virtually all such customers are depositors of
the Bank. Investment in state and municipal securities also include
governmental entities within the Company's market area. The
concentrations of credit by type of loan are set forth in note 2 to the
consolidated financial statements.
At December 31, 1999, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $3,036,000 in excess of
the Federal Deposit Insurance Corporation limit of $100,000 per
institution.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments consist primarily of
commitments to extend credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheets. The contract or notional amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
In Thousands
Contract or Notional Amount
---------------------------
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 1,640 377
Unfunded lines-of-credit 8,337 5,062
Letters of credit 2,123 1,309
----------- ---------
Total $ 12,100 6,748
=========== =========
</TABLE>
<PAGE> 35
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to be drawn upon, the total commitment amounts
generally represent future cash requirements. The Company evaluates
each customer's credit-worthiness on a case-by-case basis. The amount
of collateral, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral normally consists of real property.
<PAGE> 36
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
In Thousands
--------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash $ 1,224* 1,235*
Investment in commercial bank subsidiary 33,531* 34,762*
Due from commercial bank subsidiary 16* 9*
-------- -------
Total assets $ 34,771 36,006
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividend payable $ 1,171 1,120
-------- -------
Stockholders' equity:
Common stock, par value $2.50 per share, authorized
5,000,000 shares, issued 609,150 shares and
606,795, respectively 1,523 1,517
Additional paid-in capital 1,754 1,623
Retained earnings 36,742 34,017
Net unrealized (losses) gains on available-for-sale securities,
net of income tax benefit of $2,215,000 and income taxes
of $162,000, respectively (3,620) 264
-------- -------
36,399 37,421
Less cost of treasury stock of 77,220 shares in 1999 and
73,369 in 1998 (2,799) (2,535)
-------- -------
Total stockholders' equity 33,600 34,886
-------- -------
Total liabilities and stockholders' equity $ 34,771 36,006
======== =======
</TABLE>
*Eliminated in consolidation.
<PAGE> 37
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
In Thousands
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary $ 1,575* 1,467* 1,512*
Other expenses 19 31 14
------- ------ -----
Earnings before Federal income tax
benefits and equity in undistributed
earnings of commercial bank subsidiary 1,556 1,436 1,498
Federal income tax benefits 7 12 5
------- ------ -----
1,563 1,448 1,503
Equity in undistributed earnings of
commercial bank subsidiary 2,653* 2,422* 2,078*
------- ------ -----
Net earnings 4,216 3,870 3,581
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during the year, net of tax
benefit of $2,365,000 and income tax expense
of $35,000 and $199,000, respectively (3,865) 58 325
Less: reclassification adjustment for losses
(gains) included in net earnings, net of tax
expense of $11,000 and $8,000 and
income tax benefits of $3,000, respectively (19) (14) 6
------- ------ -----
Other comprehensive earnings (loss) (3,884) 44 331
------- ------ -----
Comprehensive earnings 332 3,914 3,912
======= ====== =====
</TABLE>
*Eliminated in consolidation.
<PAGE> 38
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------------------------------------
Net Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained Treasury For-Sale
Stock Capital Earnings Stock Securities Total
----- ------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $1,512 1,512 29,321 (2,209) (111) 30,025
Net earnings -- -- 3,581 -- -- 3,581
Issuance of 1,000 shares of common stock 2 56 -- -- -- 58
Cash dividends declared ($2.50 per share) -- -- (1,341) -- -- (1,341)
Cost of 1,679 shares of treasury stock -- -- -- (97) -- (97)
Net change in unrealized gains (losses) on
available-for-sale securities during
the year, net of income taxes of $203,000 -- -- -- -- 331 331
------ ----- ------- ------ ------ -------
Balance December 31, 1997 1,514 1,568 31,561 (2,306) 220 32,557
Net earnings -- -- 3,870 -- -- 3,870
Issuance of 995 shares of common stock 3 55 -- -- -- 58
Cash dividends declared ($2.65 per share) -- -- (1,414) -- -- (1,414)
Cost of 3,673 shares of treasury stock -- -- -- (229) -- (229)
Net change in unrealized gains (losses) on
available-for-sale securities during
the year, net of income taxes of $27,000 -- -- -- -- 44 44
------ ----- ------- ------ ------ -------
Balance December 31, 1998 1,517 1,623 34,017 (2,535) 264 34,886
Net earnings -- -- 4,216 -- -- 4,216
Issuance of 2,355 shares of common stock 6 131 -- -- -- 137
Cash dividends declared ($2.80 per share) -- -- (1,491) -- -- (1,491)
Cost of 3,851 shares of treasury stock -- -- -- (264) -- (264)
Net change in unrealized gains (losses) on
available-for-sale securities during the
year, net of income tax benefit of $2,377,000 -- -- -- -- (3,884) (3,884)
------ ----- ------- ------ ------ -------
Balance December 31, 1999 $1,523 1,754 36,742 (2,799) (3,620) 33,600
====== ===== ======= ====== ====== =======
</TABLE>
<PAGE> 39
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(15) FIRST MCMINNVILLE CORPORATION -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers $ (19) (31) (14)
Income tax benefit received from
commercial bank subsidiary -- 8 --
------- ------ ------
Net cash used in operating activities (19) (23) (14)
------- ------ ------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary 1,575 1,467 1,512
------- ------ ------
Net cash provided by investing activities 1,575 1,467 1,512
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term notes payable 6 -- --
Repayment of short-term notes payable (6) -- --
Dividends paid (1,440) (1,366) (1,290)
Payments made to acquire treasury stock (264) (229) (97)
Proceeds from issuance of common stock 137 58 58
------- ------ ------
Net cash used in financing activities (1,567) (1,537) (1,329)
------- ------ ------
Net (decrease) increase in cash and
cash equivalents (11) (93) 169
Cash and cash equivalents at beginning of year 1,235 1,328 1,159
------- ------ ------
Cash and cash equivalents at end of year $ 1,224 1,235 1,328
======= ====== ======
</TABLE>
<PAGE> 40
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(15) FIRST MCMINNVILLE CORPORATION
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
FIRST MCMINNVILLE CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net
cash used in operating activities:
Net earnings $ 4,216 3,870 3,581
Adjustments to reconcile net earnings to
net cash used in operating activities:
Equity in earnings of commercial bank subsidiary (4,228) (3,889) (3,590)
Increase in other assets, net (7) (4) (5)
------- ------ ------
Total adjustments (4,235) (3,893) (3,595)
------- ------ ------
Net cash used in operating activities $ (19) (23) (14)
======= ====== ======
</TABLE>
<PAGE> 41
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments" requires that
the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set
forth below for the Company's financial instruments.
Cash and short-term investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Investments and Mortgage-Backed Securities
The carrying amounts for short-term securities approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
securities and mortgage-backed securities, except certain state
and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal
securities is not readily available through market sources other
than dealer quotations, so fair value estimates are based on
quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments
being valued.
SFAS No. 107 specifies that fair values should be calculated based
on the value of one unit without regard to any premium or discount
that may result from concentrations of ownership of a financial
instrument, possible tax ramifications, or estimated transaction
costs. Accordingly, these considerations have not been
incorporated into the fair value estimates.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, mortgage, credit card and other consumer. Each loan
category is further segmented into fixed and adjustable rate
interest terms.
The fair value of the various categories of loans is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining average estimated maturities.
The estimated maturity for mortgages is modified from the
contractual terms to give consideration to management's experience
with prepayments. Management has made estimates of fair value
discount rates that it believes to be reasonable. However, because
there is no market for many of these financial instruments,
management has no basis to determine whether the fair value
presented below would be indicative of the value negotiated in an
actual sale.
<PAGE> 42
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Loans, Continued
The value of the loan portfolio is also discounted in
consideration of the credit quality of the loan portfolio as would
be the case between willing buyers and sellers. Particular
emphasis has been given to loans on the subsidiary bank's internal
watch list. Valuation of these loans is based upon borrower
performance, collateral values (including external appraisals),
etc.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
deposits of similar remaining maturities. Under the provision of
SFAS No. 107 the fair value estimates for deposits does not
include the benefit that results from the low cost funding
provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
Securities Sold Under Repurchase Agreements
The securities sold under repurchase agreements are payable upon
demand. For this reason the carrying amount is a reasonable
estimate of fair value.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Written
Loan commitments are made to customers generally for a period not
to exceed one year and at the prevailing interest rates in effect
at the time the loan is closed. Commitments to extend credit
related to construction loans are made for a period not to exceed
six months with interest rates at the current market rate at the
date of closing. In addition, standby letters of credit are issued
for periods up to three years with rates to be determined at the
date the letter of credit is funded. Fees are only charged for the
construction loans and the standby letters of credit and the
amounts unearned at December 31, 1999 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant fair
value.
<PAGE> 43
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The carrying value and estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------------------------------------
1999 1998
------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 4,665 4,665 5,241 5,241
Securities 117,971 116,763 107,960 109,136
Loans 135,375 126,665
Less: allowance for loan losses 1,502 1,495
------- ------- -------
Loans, net of allowance 133,873 132,069 125,170 125,685
-------- ------- ------- -------
Financial liabilities:
Deposits 195,924 194,709 185,305 185,963
Securities sold under
repurchase agreements 15,869 15,869 13,699 13,699
Federal funds purchased 8,000 8,000 2,000 2,000
Advances from FHLB 7,200 7,232 4,000 4,236
Unrecognized financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instruments. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
<PAGE> 44
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Limitations, Continued
Fair value estimates are based on estimating on-and-off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For
example, the Bank has a mortgage department that contributes net
fee income annually. The mortgage department is not considered a
financial instrument, and its value has not been incorporated into
the fair value estimates. Other significant assets and liabilities
that are not considered financial assets or liabilities include
deferred tax assets and liabilities and property, plant and
equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been
considered in the estimates.
(17) EARNINGS PER SHARE (EPS)
Statement of Financial Accounting Standards ("SFAS") 128 "Earnings Per
Share" established uniform standards for computing and presenting
earnings per share. SFAS 128 replaces the presentation of primary
earnings per share with the presentation of basic earnings per share
and diluted earnings per share. The computation of basic earnings per
share is based on the weighted average number of common shares
outstanding during the period. The computation of diluted earnings per
share for the Company begins with the basic earnings per share plus the
effect of common shares contingently issuable from stock options.
The following is a summary of components comprising basic and diluted
earnings per share (EPS):
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - income available to
common shareholders $ 4,216 3,870 3,581
-------- ------- -------
Denominator - weighted average
number of common shares
outstanding 532,795 534,479 536,362
-------- ------- -------
Basic earnings per common share $ 7.91 7.24 6.68
======== ======= =======
Diluted EPS Computation:
Numerator $ 4,216 3,870 3,581
-------- ------- -------
Denominator:
Weighted average number of
common shares outstanding 532,795 534,479 536,362
Dilutive effect of stock options 2,356 950 154
-------- ------- -------
535,151 535,429 536,516
-------- ------- -------
Diluted earnings per common share $ 7.88 7.23 6.67
======== ======= =======
</TABLE>
<PAGE> 45
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(18) STOCK OPTION PLAN
In April, 1997, the stockholders of the Company approved the First
McMinnville Corporation 1997 Stock Option Plan (The "Stock Option
Plan"). The Stock Option Plan provides for the granting of stock
options and authorizes the issuance of common stock upon the exercise
of such options for up to 57,500 shares of common stock to directors
and employees of the Company.
Under the Stock Option Plan awards may be granted in the form of
incentive stock options or nonstatutory stock options, and are
exercisable for up to ten years following the date such option awards
are granted. Exercise prices of incentive stock options must be equal
to or greater than 100% of the fair market value of the common stock on
the grant date.
SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123) sets
forth the method for recognition of cost of plans similar to those of
the Company. As is permitted, management has elected to continue
accounting for the plan under APB Opinion 25 and related
Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for the stock option plan.
However, under SFAS 123, the Company is required to make proforma
disclosures as if cost had been recognized in accordance with the
pronouncement. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of SFAS 123, the
Company's net earnings and basic earnings per common share and diluted
earnings per common share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As Reported $ 4,216 3,870 3,581
Proforma $ 4,182 3,836 3,569
Basic earnings per common share:
As Reported $ 7.91 7.24 6.68
Proforma $ 7.85 7.18 6.65
Diluted earnings per common share:
As Reported $ 7.88 7.23 6.67
Proforma $ 7.81 7.16 6.65
</TABLE>
Accordingly, due to the initial phase-in period, the effects of
applying this statement for proforma disclosures are not likely to be
representative of the effects on reported net earnings for future
years.
<PAGE> 46
FIRST MCMINNVILLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
(18) STOCK OPTION PLAN, CONTINUED
A summary of the stock option activity for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 38,285 $ 58.15 40,000 $ 58.15
Granted -- -- -- --
Exercised (2,355) 58.15 (995) 58.15
Forfeited (3,170) 58.15 (720) 58.15
------- --------- ------- ---------
Outstanding at end of year 32,760 $ 58.15 38,285 $ 58.15
======= ========= ======= =========
Options exercisable at year end 15,920
</TABLE>
The following table summarizes information about fixed stock options at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/99 Price Life at 12/31/99 Price
------ ----------- ----- ---- ----------- -----
$ 58.15 32,760 $ 58.15 4.8 years 15,920 $ 58.15
</TABLE>
<PAGE> 47
<PAGE> 48
SUPPLEMENTAL INFORMATION
<PAGE> 49
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
TELEPHONE (931) 473-4402
FACSIMILE (931) 473-6952
February 28, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of
Shareholders of (the "Company") to be held on April 11, 2000, at 2:30 p.m.,
local time, at the Main Office of The First National Bank of McMinnville, 200
East Main Street, McMinnville, Tennessee. At the 2000 Annual Meeting,
Shareholders of record as of February 29, 2000, will be entitled to vote (1)
upon the election of four Class I Members of the Board of Directors who will
serve a term of three years and until their successors have been elected and
duly qualified and (2) upon the ratification of the appointment of Maggart &
Associates, P.C. as the independent auditors for the Company for the fiscal year
ending December 31, 2000. The Shareholders also will vote upon any other
business that may properly come before the 2000 Annual Meeting. Presently, other
than such ministerial matters as approving of the minutes of the most recent
meeting of the Shareholders, the Board of Directors knows of no other business
that may properly come before the Annual Meeting.
The enclosed Proxy Statement describes the proposed election of
Directors and the appointment of independent auditors, and it contains other
information about the 2000 Annual Meeting of Shareholders. Please read these
materials carefully. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED WHETHER OR
NOT YOU PLAN TO ATTEND THE 2000 ANNUAL MEETING. PLEASE COMPLETE THE ENCLOSED
PROXY SHEET AND RETURN IT IN THE ENCLOSED ENVELOPE WITHOUT DELAY. IF YOU ATTEND
THE 2000 ANNUAL MEETING OF SHAREHOLDERS, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON IF YOU WISH AS SET FORTH IN THE ACCOMPANYING PROXY STATEMENT BY GIVING
APPROPRIATE NOTICE ANY TIME BEFORE THE VOTE IN RESPECT TO THE ELECTION OF
DIRECTORS IS TAKEN.
On behalf of your Board of Directors, we urge you to vote FOR the
election of Directors and the ratification of the independent auditors. We look
forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Charles C. Jacobs
Charles C. Jacobs
Chairman
<PAGE> 50
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
-----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 11, 2000
-----------
Notice is hereby given that the Annual Meeting of Shareholders of FIRST
MCMINNVILLE CORPORATION (the "Company"), will be held on Tuesday, April 11,
2000, at 2:30 p.m., in the Main Office of The First National Bank of
McMinnville, 200 East Main Street, McMinnville, Tennessee 37110, for the
following purposes:
(1) To elect four (4) Class I Directors (Paul O. Barnes, Henry N. Boyd,
Dean I. Gillespie, and C. Levoy Knowles) whose terms currently
expire in 2000 to serve a three-year term until the 2003 Annual
Meeting of Shareholders and until their successors have been elected
and duly qualified;
(2) To approve the selection of Maggart & Associates, P.C., as the
Company's independent auditors for the 2000 fiscal year; and
(3) To consider any other business that may properly come before the
2000 Annual Meeting of Shareholders.
The Board of Directors has fixed the close of business on February 29,
2000, as the record date for the determination of which Shareholders are
entitled to notice of and to vote at the 2000 Annual Meeting of Shareholders.
All times are local time in McMinnville, Tennessee. There are approximately
524,989 shares outstanding and entitled to vote.
Your attention is directed to Exhibit A to this Notice of Annual Meeting
for additional information regarding matters to be acted upon at the 2000 Annual
Meeting of Shareholders.
By Order of the Board of Directors
/s/ Carol Locke
Carol Locke, Secretary
February 28, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, THE BOARD
OF DIRECTORS REQUESTS THAT YOU COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED
PROXY SHEET AND USE THE ENCLOSED PRE-ADDRESSED ENVELOPE THAT REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND IN PERSON, YOU MAY REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON BY NOTIFYING THE SECRETARY OF THE MEETING
THAT YOU INTEND SO TO DO (AND AS OTHERWISE PROVIDED IN THE PROXY STATEMENT).
<PAGE> 51
EXHIBIT A
PROPOSAL NUMBER 1
NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
The following persons are members of the Board of Directors. Brief
biographical information concerning each one is included below. The four (4)
Directors listed in Class I are currently standing for election to the Board
and, if elected, will serve three year terms and serve until their successors
have been elected and duly qualified.
CLASS I DIRECTORS ARE THOSE STANDING FOR ELECTION IN 2000. THE BOARD
RECOMMENDS A VOTE "FOR" ALL OF THESE NOMINEES.
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS DIRECTOR
OR NOMINEE BUSINESS EXPERIENCE SINCE
<S> <C> <C>
CLASS I
(TERMS EXPIRE IN 2000)
Paul O. Barnes Chairman, B & P Lamp Supply Co., Inc. 1984
(66)
Henry N. Boyd Chief Executive Officer, Boyd Bros. Nursery 1984
(83)
Dean I. Gillespie Dean I. Gillespie, President, Bridge Builders, Inc. 1984
(66)
C. Levoy Knowles General Manager, Ben Lomond Rural Telephone 1999
(46) Cooperative
CLASS II
(TERMS EXPIRE IN 2001)
J. G. Brock Owner, Brock Construction Company 1993
(44)
G. B. Greene President, Womack Printing Co., Inc. 1984
(60)
Robert W. Jones Chairman, First McMinnville Corporation, 1989 - 2000; 1984
(71) Chairman, First National Bank, 1981 - 2000; Chief
Executive Officer, First National Bank, 1976 - 1993
Rufus W. Gonder Owner, Rufus W. Gonder, CPA 1999
(45)
</TABLE>
-1-
Exhibit A
<PAGE> 52
<TABLE>
<CAPTION>
NAME (AGE) OF DIRECTOR PREVIOUS FIVE YEARS SERVED AS DIRECTOR
OR NOMINEE BUSINESS EXPERIENCE SINCE
<S> <C> <C>
CLASS III
(TERMS EXPIRE IN 2002)
Charles C. Jacobs Chairman, First McMinnville Corporation, 2000 - 1985
(61) present; Chairman, First National Bank, 2000 -
present; President and Chief Executive Officer, First
McMinnville Corporation, January 1994 -present;
President and Chief Executive Officer, First National
Bank, January 1994 - present; President, First
National Bank, 1988-1994
J. Douglas Milner General Manager and Vice President, Middle Tennessee 1995
(52) Dr. Pepper Bottling Company
John J. Savage, Jr. Retired; Executive Vice President and Trust Officer, 1984
(78) First National Bank through September 1986
Carl M. Stanley Chief Manager, The Burroughs-Ross-Colville Company, LLC 1984
(64)
Arthur J. Dyer President, Metal Products Company 1999
(48)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NAMED DIRECTOR NOMINEES.
PROPOSAL NUMBER 2--RATIFICATION OF APPOINTMENT OF AUDITORS
The Directors have appointed Maggart & Associates, P.C., to serve as
independent auditors for the Company for the fiscal year that ends December 31,
2000, subject to ratification of such appointment by the Shareholders. This firm
served as the Corporation's accounting firm for the year ending December 31,
1999. A representative of Maggart & Associates, P.C. is expected to be present
at the 2000 Annual Meeting of Shareholders to respond to Shareholders' questions
and such representative will have the opportunity to make a statement if she or
he desires.
The appointment of the auditors must be ratified by a majority of the
votes cast by the Shareholders at the 2000 Annual Meeting of Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF MAGGART & ASSOCIATES, P.C. AS THE
CORPORATION'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
-2-
Exhibit A
<PAGE> 53
MISCELLANEOUS MATTERS
The Board knows of no other matter which may properly come before the
Annual Meeting for action. However, if any other matter does properly come
before the Annual Meeting, the persons named in the enclosed proxy will vote in
accordance with their judgment upon such other matter.
The Company will bear the expense of solicitation of the proxies for
the 2000 Annual Meeting of Shareholders. The Company will reimburse brokerage
firms and other custodians, nominees, and fiduciaries for their reasonable
expenses incurred in sending proxy materials to the beneficial
owners/Shareholders of the Common Stock in connection with the 2000 Annual
Meeting of Shareholders. In addition to solicitations by the mails, the
Company's Directors, officers, and regular employees may solicit proxies
personally or by telephonic or telegraphic means, for which they will receive no
additional compensation. The Company does not intend to employ or to compensate
any other persons or entities to solicit proxies in connection with the 2000
Annual Meeting of Shareholders.
REVOCABILITY OF PROXY
A Shareholder of record who signs and returns a proxy in the
accompanying form may revoke the same at any time before the authority granted
thereby is exercised by attending the Annual Meeting and electing to vote in
person, by filing with the Secretary of the Company a written revocation, or by
duly executing a proxy bearing a later date. (Such later executed and dated
proxy, to be effective, must be delivered to the Chairperson of the Annual
Meeting before the vote in respect of Proposal No. 1 is taken.) Unless so
revoked, the shares represented by the proxy will be voted at the Annual
Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted for the election of all
Director nominees, and for the approval of Maggart & Associates, P.C., as the
Company's independent auditors for the 2000 fiscal year. Abstentions and broker
non-votes will not be counted as affirmative votes. Neither the Tennessee
Business Corporation Act, nor the Company's Charter or Bylaws, address the
treatment of abstentions and broker non-votes.
When a proxy is properly executed and returned, the shares of Common
Stock it represents will be voted in accordance with the directions indicated on
the proxy. IF NO DIRECTIONS ARE INDICATED IN THE PROXY, ALL DULY EXECUTED
PROXIES THAT HAVE NOT BEEN REVOKED WILL BE VOTED FOR PROPOSAL NUMBER 1 TO ELECT
ALL OF THE CLASS III NOMINEES TO THE BOARD OF DIRECTORS; AND FOR PROPOSAL NUMBER
2 TO RATIFY THE APPOINTMENT OF MAGGART & ASSOCIATES, P.C., AS THE BANK'S
INDEPENDENT AUDITORS FOR FISCAL YEAR 2000; AND, IN THE DISCRETION OF THE PROXY,
IN RESPECT OF ANY OTHER ITEM OF BUSINESS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING. Presently, other than such ministerial matters as approving of
the minutes of the most recent meeting of the Shareholders, the Board of
Directors knows of no other business that may properly come before the Annual
Meeting.
-3-
Exhibit A
<PAGE> 54
PROXY FIRST MCMINNVILLE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 11, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) J. D. MILNER, J. J. SAVAGE, JR., AND
CARL M. STANLEY and each of them, as Proxies, each with full power to appoint
his substitute, and hereby authorize(s) any of them to represent and to vote, as
designated below, all of the shares of Common Stock of First McMinnville
Corporation held of record by the undersigned at the close of business on
February 29, 2000, at the 2000 Annual Meeting of Shareholders to be held at 200
East Main Street, McMinnville, Tennessee, on April 11, 2000, at 2:30 p.m. local
time, and any adjournment(s) or postponements thereof.
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
(1) ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
CHECK THE BOX TO VOTE "FOR" ALL NOMINEES AND STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST BELOW.)
Paul O. Barnes, Henry N. Boyd, Dean I. Gillespie, and C. Levoy Knowles
(2) To approve the selection of Maggart and Associates, P.C., as the Company's
independent auditors for the fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion, on such other matters as may properly come before the
2000 Annual Meeting of Shareholders.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION
OF DIRECTORS, FOR THE SELECTION AND RATIFICATION OF MAGGART & ASSOCIATES, P.C.,
AS INDEPENDENT AUDITORS, AND IN THE DISCRETION OF THE PROXY AS TO OTHER MATTERS.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
DATED: ____________, 2000
----------------------------------------------
DATED: ____________, 2000
----------------------------------------------
Signatures of Shareholder(s) should correspond
exactly with the name printed hereon. Joint
owners should each sign personally. Executors,
administrators, trustees, etc., should give
full title and authority.
<PAGE> 55
1999 ANNUAL REPORT
TO
STOCKHOLDERS
[GRAPHIC OF MAIN OFFICE]
FIRST MCMINNVILLE CORPORATION
MCMINNVILLE, TENNESSEE
Exhibit A
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
To Our Stockholders............................................................1
Summary of Selected Financial Data (unaudited).................................2
Graphs.........................................................................3
Directors....................................................................4-5
Officers.......................................................................6
Employees....................................................................7-9
Hometown Spirit............................................................10-11
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................12-17
Independent Auditor's Report..................................................18
Consolidated Balance Sheets...................................................19
Consolidated Statements of Earnings...........................................20
Consolidated Statements of Comprehensive Earnings.............................21
Consolidated Statements of Changes in Stockholders' Equity................... 22
Consolidated Statements of Cash Flows......................................23-24
Notes to Consolidated Financial Statements.................................25-45
Line of Business..............................................................46
Dividend and Market Information...............................................46
Annual Report on Form 10-K....................................................46
</TABLE>
Exhibit A
<PAGE> 57
FIRST MCMINNVILLE CORPORATION
200 EAST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
Dear Stockholder:
Preparations for Y2K was a dominating factor for your company and it customers
in 1999. Our dedicated staff worked diligently to meet this challenge. As a
result of their effort we experienced the smoothest year-end since we installed
our in-house computer system in 1989.
Financially your company and its subsidiary, First National Bank of McMinnville
had a successful year in 1999. Assets as of December 31, 1999 were $263,707,000.
Basic earnings per share increased to $7.91 with 35.40% being paid to you, our
shareholder, as dividends. For 1999, our return on assets was 1.65% and the
return on equity was 11.09%. On December 31, 1999 your company was paying $69.85
per share for its stock. This was a 6.80% increase from December lf 1998.
As the value of your investment in First McMinnville Corporation continues to
grow, we are confident you will encourage your family and friends to utilize the
services First National Bank has to offer. You can be confident as we begin a
new century, our staff remains committed to continue our tradition of being a
sound fiscal entity while offering innovative banking to our customers.
After serving with distinction as Chairman of the Board since 1981, Robert W.
Jones resigned this position effective January 12, 2000. However, he will remain
a member of your Board of Directors. The dedication, vision and leadership he
exhibited during his tenure enabled our company to continue to be recognized as
a leader in community banking.
/s/ Charles C. Jacobs
- ----------------------------
Charles C. Jacobs
CEO and President
Exhibit A
<PAGE> 58
ASSETS EQUITY
[GRAPH 1995-1999] [GRAPH 1995-1999]
DEPOSITS NET LOANS
[GRAPH 1995-1999] [GRAPH 1995-1999]
DIVIDENDS PER SHARE BASIC EARNINGS PER SHARE
[GRAPH 1995-1999] [GRAPH 1995-1999]
Exhibit A
<PAGE> 59
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
[PHOTOGRAPH] [PHOTOGRAPH]
ROBERT W. JONES CHARLES C. JACOBS
Chairman of the Board President, CEO and Secretary
First National Bank and First National Bank
First McMinnville Corporation President and CEO
First McMinnville Corporation
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
PAUL O. BARNES HENRY N. BOYD J. GREGORY BROCK
Chairman Owner Owner
B & P Lamp Supply, Inc. Boyd Nursery Brock Construction
Company
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
ARTHUR J. DYER DEAN I. GILLESPIE RUFUS GONDER
President President C.P.A.
Metal Products Bridge Builders, Inc.
Exhibit A
<PAGE> 60
DIRECTORS OF FIRST MCMINNVILLE CORPORATION
AND
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
G.B. GREENE LEVOY KNOWLES DOUG MILNER
President General Manager General Manager and
Womack Printing Co., Inc. Ben Lomond Rural Telephone Vice President
Cooperative Middle Tennessee
Dr. Pepper Bottling
Company
[PHOTOGRAPH]
H.L. MOLLOY*
Retired
[PHOTOGRAPH] [PHOTOGRAPH]
JOHN J. SAVAGE, JR. CARL M. STANLEY
Former Executive Vice President President and CEO
and Trust Officer Burroughs-Ross-Colville Co. LLC
First National Bank
*Honorary
Exhibit A
<PAGE> 61
OTHER OFFICERS OF FIRST MCMINNVILLE CORPORATION
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
DIANE BOGLE LESTER COWELL BRENT FOSTER
Sr. Vice President Sr. Vice President Sr. Vice President
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
DAVID MARTTALA KENNY NEAL PHIL WHISENHUNT CAROL LOCKE
Sr. Vice President Sr. Vice President Sr. Vice President Secretary
Treasurer
Chief Financial Officer
OFFICERS OF FIRST NATIONAL BANK OF McMINNVILLE
<TABLE>
<S> <C> <C>
CHARLES C. JACOBS MARY JANE BELL MELBA SLAUGHTER
Chief Executive Officer Vice President Loans Assistant Vice President
and President
DIANE BOGLE CINDY SWANN GAIL YOUNGBLOOD
Sr. Vice President - Loans Auditor & Compliance Assistant Vice President
Manager Data Processing
LESTER COWELL CAROL LOCKE MICHELLE GRISSOM
Sr. Vice President - Loans Secretary to the Board Manager - Smithville Hwy. Branch
Manager - Human Resources
BRENT FOSTER NANCY MCBEE CONNIE BELL
Sr. Vice President - Loans Assistant to the President Assistant Trust Officer
DAVID MARTTALA FRED L. GREENE THOMAS WARD
Sr. Vice President-Legal Counsel Assistant Vice President Alternative Investments
Trust Administrator Manager-Viola-Morrison Branches
KENNY NEAL QUEITA ROBERTS
Sr. Vice President - Cashier Assistant Vice President
PHIL WHISENHUNT ARLA J. SIMMONS
Sr. Vice President - Loans Assistant Vice President
Manager - Sparta Rd. Branch
</TABLE>
Exhibit A
<PAGE> 62
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
Left to right,
Standing:
Donna Myers,
Katherine Templeton,
Condy Swann,
[PHOTOGRAPH] Derita Reed.
Seated:
Helen Martin,
Hillari Hollis,
Dean Cantrell,
Ronalda Ralph.
Left to right,
Standing:
Mary Jane Bell,
Kristi Judkins,
Ardana Hughes,
[PHOTOGRAPH] Melissa Dunlap.
Seated:
Queita Roberts,
Doris Emberton,
Karen Miller,
Shirley Reed.
Left to right,
Standing:
Connie Bell,
Michael Weeter,
Cindy Pearson.
[PHOTOGRAPH]
Seated:
Patti Barnes,
Vickie Millraney,
Nancy McBee,
Sherri Blair.
Exhibit A
<PAGE> 63
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
Left to right,
Standing:
Tammy Horn
Tom Ward,
Melba Slaughter.
[PHOTOGRAPH] Seated:
Jennifer Boyd,
Vickie Mitchell,
Jennifer Patch.
Left to right,
Standing:
Felena Rains,
Libby Tompkins,
Peggy Smith.
[PHOTOGRAPH] Seated:
Stephanie Whitaker,
Nicole Bryan,
Loretta Evans.
Left to Right:
Standing:
Addie Fults,
Michelle Grissom,
Elaine Wilson, [PHOTOGRAPH]
Kristy Tate,
Stevi White,
Aimee Evans.
Seated:
Seth Wade,
Tara Alford,
LeeAnn Davis,
Heather Craddock.
Exhibit A
<PAGE> 64
EMPLOYEES OF
FIRST NATIONAL BANK OF MCMINNVILLE
CONTINUED
Left to right,
Standing:
Connie Sanders,
Jill Griffin,
Gail Youngblood,
[PHOTOGRAPH] Sherry Patterson,
Glenda Phillips.
Seated:
Donna Young,
Tina Graham,
Arla Simmons,
Becky Hash.
Left to right,
Standing:
Sue Heatherly,
Fred Greene,
Judy Rigsby.
[PHOTOGRAPH] Seated:
Melodie Hawkins,
Marlan Jacobs,
Mozelle Terry.
EMPLOYEES OF THE QUARTER
Left to right,
Standing:
Elaine Wilson, 2nd quarter;
Shirley Reed, 4th quarter.
Seated:
Patti Barnes, Employee of the Year [PHOTOGRAPH]
Vickie Millraney, 1st quarter;
Jennifer Patch, 3rd quarter.
Exhibit A
<PAGE> 65
[VARIOUS PHOTOGRAPHS OF EMPLOYEES
AND CUSTOMERS]
Exhibit A
<PAGE> 66
[VARIOUS PHOTOGRAPHS OF EMPLOYEES
AND CUSTOMERS]
Exhibit A
<PAGE> 67
LINE OF BUSINESS
During 1998, the Company and its subsidiary, First National Bank of McMinnville
(the "Bank"), were engaged primarily in the general banking business and
activities closely related to banking or to managing or controlling banks, as
authorized by the laws of the United States and the State of Tennessee and
regulations pursuant thereto. Services offered by the Bank include checking,
passbook savings an certificate accounts, safe deposit box rental, personal,
commercial, agricultural, construction and real estate loans, traveler's checks,
cashier's checks, bank drafts, discount brokerage services, trust services,
estate planning and other banking services. The Bank renders other services in
connection with its general banking business such as individual credit and
financial counseling, automatic teller services, and credit card accounts.
DIVIDEND AND MARKET INFORMATION
As of December 31, 1999, there were 526 holders of First McMinnville Corporation
Common Stock. There is no established trading market for shares of the Company
Common Stock. The following table sets forth the approximate prices at which
First McMinnville Corporation Common Stock was purchased and sold in privately
negotiated transactions in the Company's service area as reported to the Company
or as estimated by the Company during each calendar quarter in the preceding two
years.
1999 1998
--------------------- ---------------------
I II III IV I II III IV
Representative Price $66 68 69 71 $61 63 64 66
Holders of Company Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. First McMinnville Corporation paid cash dividends of $2.65
and $2.80 per share during 1998 and 1999, respectively. First McMinnville
Corporation expects comparable cash dividends in the future. The limitations on
the amounts available to First McMinnville Corporation for payment of dividends
to stockholders are discussed in Management's Discussion and Analysis of
Financial Condition. and Results of Operations and in the Notes to the
Consolidated Financial Statements.
ANNUAL REPORT ON FORM 10-K
A copy of the 1999 Annual Report of First McMinnville Corporation, as filed with
the Securities and Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 on Form 10-K, will be provided to each stockholder free of
charge on written request. Copies of any exhibits filed as part of this annual
report will be provided on payment of a reasonable fee to cover reproduction
cost. All requests should be addressed to: Charles C. Jacobs, President, First
McMinnville Corporation, 200 East Main Street, McMinnville, TN 37110.
Exhibit A
<PAGE> 68
MAIN OFFICE
200 EAST MAIN STREET
BRANCHES
SMITHVILLE HWY. SPARTA STREET
917 SMITHVILLE HWY. 1408 SPARTA STREET
FARMERS & MERCHANTS MORRISON
VIOLA, TN 9970 MANCHESTER HWY.
OUR FIVE AUTOMATIC TELLER MACHINES MAKE IT POSSIBLE
FOR YOU TO DO YOUR BANKING 24 HOURS A DAY.
AND NOW WITH THE CIRRUS NETWORK YOU HAVE NATIONWIDE ACCESS.
OUR ATMS ARE LOCATED AT 200 EAST MAIN STREET,
917 SMITHVILLE HIGHWAY, 1408 SPARTA STREET,
AND 9970 MANCHESTER HIGHWAY.
MEMBER FDIC
Exhibit A
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
<PAGE> 2
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First McMinnville
Corporation at December 31, 1999. Such subsidiary is wholly owned by the Company
and it is included in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE OF VOTING SECURITIES OWNED
<S> <C> <C>
The First National Bank of McMinnville Tennessee 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST MCMINNVILLE CORPORATION FOR THE YEAR ENDED
DEC-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> 4,665
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,402
<INVESTMENTS-CARRYING> 35,569
<INVESTMENTS-MARKET> 34,361
<LOANS> 135,375
<ALLOWANCE> 1,502
<TOTAL-ASSETS> 263,707
<DEPOSITS> 195,924
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 3,114
<LONG-TERM> 7,200
0
0
<COMMON> 1,523
<OTHER-SE> 32,077
<TOTAL-LIABILITIES-AND-EQUITY> 33,600
<INTEREST-LOAN> 10,892
<INTEREST-INVEST> 7,489
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 18,393
<INTEREST-DEPOSIT> 7,877
<INTEREST-EXPENSE> 8,959
<INTEREST-INCOME-NET> 9,434
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 30
<EXPENSE-OTHER> 3,958
<INCOME-PRETAX> 6,142
<INCOME-PRE-EXTRAORDINARY> 6,142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,216
<EPS-BASIC> 7.91
<EPS-DILUTED> 7.88
<YIELD-ACTUAL> 4.13
<LOANS-NON> 0
<LOANS-PAST> 182
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,094
<ALLOWANCE-OPEN> 1,495
<CHARGE-OFFS> 209
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 1,502
<ALLOWANCE-DOMESTIC> 1,502
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
