FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended March 31, 2002 Commission File Number
0-14289
GREENE COUNTY BANCSHARES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1222567
------------------------------- ----------------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporated or organization) Number)
Main & Depot Street
Greeneville, Tennessee 37743
--------------------------------- ----------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 423-639-5111
------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 6,818,890.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
The unaudited condensed consolidated financial statements of the Registrant and
its wholly owned subsidiaries are as follows:
Condensed Consolidated Balance Sheets - March 31, 2002 and December 31,
2001.
Condensed Consolidated Statements of Income and Comprehensive Income - For
the three months ended March 31, 2002 and 2001.
Condensed Consolidated Statement of Stockholders' Equity - For the three
months ended March 31, 2002.
Condensed Consolidated Statements of Cash Flows - For the three months
ended March 31, 2002 and 2001.
Notes to Condensed Consolidated Financial Statements.
2
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001*
---------- ------------
ASSETS
------
Cash and due from banks $ 18,802 $ 22,432
Federal funds sold 46,087 25,621
Interest bearing deposits in other banks 0 1,100
Securities available-for-sale ("AFS") 46,157 28,567
Securities held-to-maturity (with a market value of $698
on March 31, 2002 and $840 on December 31, 2001) 693 833
FHLB and Bankers Bank stock, at cost 4,587 4,538
Loans held for sale 2,536 7,945
Loans 686,321 682,547
Less: allowance for loan losses (11,412) (11,221)
--------- ---------
NET LOANS 674,909 671,326
--------- ---------
Bank premises and equipment, net of
accumulated depreciation 25,640 25,611
Other assets 23,686 23,639
--------- ---------
TOTAL ASSETS $ 843,097 $ 811,612
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $ 680,478 $ 653,913
Repurchase agreements 12,685 10,375
Notes payable 67,890 67,978
Accrued interest payable and other liabilities 11,740 10,719
--------- ---------
TOTAL LIABILITIES 772,793 742,985
--------- ---------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, authorized 15,000,000 shares;
issued and outstanding 6,818,890 shares at
March 31, 2002 and December 31, 2001 13,638 13,638
Paid in Capital 4,854 4,854
Retained Earnings 51,822 50,071
Accumulated Other Comprehensive Income (Loss) (10) 64
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 70,304 68,627
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 843,097 $ 811,612
========= =========
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
3
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
------------------
2002 2001
------- -------
INTEREST INCOME:
----------------
Interest and Fees on Loans $14,290 $17,484
Interest on Investment Securities 383 469
Interest on Federal Funds Sold and Interest-earning
Deposits 249 229
------- -------
TOTAL INTEREST INCOME 14,922 18,182
------- -------
INTEREST EXPENSE:
-----------------
Interest on Deposits 4,211 7,081
Interest on Borrowings 897 841
------- -------
TOTAL INTEREST EXPENSE 5,108 7,922
------- -------
NET INTEREST INCOME 9,814 10,260
Provision for Loan Losses 1,307 1,439
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,507 8,821
------- -------
NONINTEREST INCOME:
-------------------
Service Charges, Commissions and Fees 1,918 1,730
Other Income 669 586
------- -------
TOTAL NONINTEREST INCOME 2,587 2,316
------- -------
NONINTEREST EXPENSE:
--------------------
Salaries and Benefits 4,228 4,124
Occupancy and Furniture and Equipment Expense 1,032 954
Other Expenses 1,775 1,457
------- -------
TOTAL NONINTEREST EXPENSE 7,035 6,535
------- -------
INCOME BEFORE INCOME TAXES 4,059 4,602
Income Taxes 1,490 1,694
------- -------
NET INCOME $ 2,569 $ 2,908
======= =======
COMPREHENSIVE INCOME $ 2,495 $ 2,974
======= =======
PER SHARE OF COMMON STOCK:
Basic Earnings $ 0.38 $ 0.43
======= =======
Diluted Earnings $ 0.38 $ 0.42
======= =======
Dividends $ 0.12 $ 0.12
======= =======
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
4
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON PAID IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
------------ ---------- ---------- ------------ -----------
JANUARY 1, 2002 $ 13,638 $ 4,854 $ 50,071 $ 64 $ 68,627
Net income - - 2,569 - 2,569
Change in unrealized gain on AFS
securities, net of tax: - - - (74) (74)
----------
Comprehensive income 2,495
Dividends paid - - (818) - (818)
------------ ---------- ----------- ---------- ----------
MARCH 31, 2002 $ 13,638 $ 4,854 $ 51,822 $ (10) $ 70,304
============ ========== =========== ========== ==========
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
5
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, MARCH 31,
2002 2001
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 2,569 $ 2,908
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,307 1,439
Depreciation and amortization 484 372
Amortization of premiums on securities, net of accretion (62) 38
FHLB stock dividends (49) (73)
Loans originated for sale (12,569) (14,655)
Proceeds from loans originated for sale 18,073 12,730
Net realized (gain) on sale of loans originated for sale (95) (74)
Loss on other real estate owned 23 56
Net Changes:
Accrued interest receivable and other assets, net of intangibles (547) 2,383
Accrued interest payable and other liabilities 1,023 (1,251)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,157 3,873
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in interest-bearing deposits with banks 1,100 0
Net (increase) decrease in securities and other interest-earning investments (17,507) 28,485
Net originations of loans held-to-maturity (6,002) (19,011)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 1,481 1,125
Fixed asset additions and proceeds from sales of fixed assets, net (361) (1,424)
-------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (21,289) 9,175
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 26,564 (17,311)
Increase (decrease) in securities sold under repurchase agreements 2,310 (80)
(Decrease) increase in notes payable, net (88) 8,917
Cash dividends paid (818) (818)
-------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 27,968 (9,292)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,836 3,756
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,053 32,168
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,889 $ 35,924
======== ========
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
6
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1-PRINCIPLES OF CONSOLIDATION
-----------------------------
The accompanying unaudited condensed consolidated financial statements of Greene
County Bancshares, Inc. (the "Company") and its wholly owned subsidiary, Greene
County Bank (the "Bank"), have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X as promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. All interim amounts are subject to year-end
audit and the results of operations for the interim period herein are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001. Certain amounts from prior period
financial statements have been reclassified to conform to the current year's
presentation.
7
2-ALLOWANCE FOR LOAN LOSSES
---------------------------
Transactions in the Allowance for Loan Losses for the three months ended March
31, 2002 and twelve months ended December 31, 2001 were as follows:
MARCH 31, DECEMBER 31,
2002 2001
---------- -----------
(IN THOUSANDS)
Balance at beginning of year $ 11,221 $ 11,728
Add (Deduct):
Charge-offs (1,780) (7,830)
Recoveries 664 1,364
Provisions 1,307 5,959
-------- --------
ENDING BALANCE $ 11,412 $ 11,221
======== ========
MARCH 31, DECEMBER 31,
2002 2001
---------- -----------
(IN THOUSANDS)
Loans past due 90 days still on accrual $ 145 $ 871
Nonaccrual Loans 3,703 5,857
-------- --------
TOTAL $ 3,848 $ 6,728
======== ========
8
3-EARNINGS PER SHARE OF COMMON STOCK
------------------------------------
Basic earnings per share (EPS) of common stock is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share of common stock is computed by dividing net
income by the weighted average number of common shares and potential common
shares outstanding during the period. Stock options are regarded as potential
common shares. Potential common shares are computed using the treasury stock
method. 113,870 options are excluded from the effect of dilutive securities
because they are anti-dilutive.
The following is a reconciliation of the numerators and denominators used in the
basic and diluted earnings per share computations for the three months ended
March 31, 2002 and 2001:
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
2002 2001
--------------------------- ---------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $2,569 6,818,890 $2,908 6,818,890
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 22,868 - 60,275
-------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,569 6,841,758 $2,908 6,879,165
=======================================================
9
4-SEGMENT INFORMATION
---------------------
The Company's operating segments include banking, mortgage banking, consumer
finance, subprime automobile lending and title insurance. The reportable
segments are determined by the products and services offered, and internal
reporting. Loans, investments, and deposits provide the revenues in the banking
operation, loans and fees provide the revenues in consumer finance, mortgage
banking, and subprime lending and insurance commissions provide revenues for the
title insurance company. Mortgage banking, consumer finance, subprime automobile
lending and title insurance do not meet the quantitative threshold on an
individual basis, and are therefore shown below in "other". All operations are
domestic.
Segment performance is evaluated using net interest income and noninterest
income. Income taxes are allocated based on income before income taxes and
indirect expenses (includes management fees) are allocated based on time spent
for each segment. Transactions among segments are made at fair value.
Information reported internally for performance assessment follows.
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
SEGMENT INFORMATION:
--------------------
THREE MONTHS ENDED MARCH 31, 2002 BANK OTHER TOTAL
--------------------------------- --------- --------- ---------
Net interest income $ 8,124 $ 1,690 $ 9,814
Provision for loan losses 418 889 1,307
Noninterest income 2,205 382 2,587
Noninterest expense 5,949 1,086 7,035
Income tax expense 1,515 (25) 1,490
--------- --------- ---------
SEGMENT PROFIT $ 2,447 $ 122 $ 2,569
========= ========= =========
SEGMENT ASSETS AT MARCH 31, 2002 $ 805,106 $ 37,991 $ 843,097
========= ========= =========
THREE MONTHS ENDED MARCH 31, 2001 BANK OTHER TOTAL
--------------------------------- --------- --------- ---------
Net interest income $ 8,658 $ 1,602 $ 10,260
Provision for loan losses (87) 1,526 1,439
Noninterest income 1,645 671 2,316
Noninterest expense 5,350 1,185 6,535
Income tax expense 1,945 (251) 1,694
--------- --------- ---------
SEGMENT PROFIT $ 3,095 $ (187) $ 2,908
========= ========= =========
SEGMENT ASSETS AT MARCH 31, 2001 $ 740,079 $ 41,468 $ 781,547
========= ========= =========
10
5-INTANGIBLE ASSETS
-------------------
Intangible assets are as follows:
GROSS ACCUMULATED
AMOUNT AMORTIZATION
----------------- ------------------
Goodwill with finite life $ 0 $ 0
Goodwill with indefinite life 954 530
Core deposit 3,363 958
----------------- ------------------
TOTALS $ 4,317 $ 1,488
================= ==================
Amortization expense for the first quarter 2002 was $84. Annual estimated
amortization expense for the next five years is:
2002 $ 325
2003 322
2004 322
2005 322
2006 212
----------------
TOTAL $ 1,503
================
There were no impairment losses recognized during the first quarter 2002, since
the fair value of the entity acquired was greater than the book value.
Information about the impact of goodwill with an indefinite life on net income
is as follows:
MARCH 31, MARCH 31,
2002 2001
-------------- -------------
Reported net income $ 2,569 $ 2,908
Add back: goodwill amortization 0 27
-------------- ------------
ADJUSTED NET INCOME $ 2,569 $ 2,935
============== ============
Reported basic earnings per share $ 0.38 $ 0.43
Add back: goodwill amortization per share 0.00 0.00
-------------- ------------
ADJUSTED BASIC EARNINGS PER SHARE $ 0.38 $ 0.43
============== ============
Reported diluted earnings per share $ 0.38 $ 0.42
Add back: goodwill amortization per share 0.00 0.00
-------------- ------------
ADJUSTED DILUTED EARNINGS PER SHARE $ 0.38 $ 0.42
============== ============
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ALL DOCUMENTS INCORPORATED
HEREIN BY REFERENCE, CONTAINS FORWARD-LOOKING STATEMENTS. ADDITIONAL WRITTEN OR
ORAL FORWARD-LOOKING STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME IN
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHERWISE. THE WORDS
"BELIEVE", "EXPECT", "SEEK", AND "INTEND" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT IS
MADE. SUCH FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF THAT TERM IN
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE, BUT
ARE NOT LIMITED TO, PROJECTIONS OF INCOME OR LOSS, EXPENDITURES, ACQUISITIONS,
PLANS FOR FUTURE OPERATIONS, FINANCING NEEDS OR PLANS RELATING TO SERVICES OF
THE COMPANY, AS WELL AS ASSUMPTIONS RELATING TO THE FOREGOING. FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH
CANNOT BE PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS.
ALL DOLLAR AMOUNTS SET FORTH BELOW, OTHER THAN PER-SHARE AMOUNTS AND
PERCENTAGES, ARE IN THOUSANDS UNLESS OTHERWISE NOTED. DURING MAY 2001, THE
COMPANY AFFECTED A FIVE-FOR-ONE STOCK SPLIT IN THE FORM OF A DIVIDEND. EARNINGS
AND DIVIDENDS PER SHARE ARE RESTATED FOR ALL STOCK SPLITS AND DIVIDENDS.
GENERAL
Greene County Bancshares, Inc. (the "Company") is the bank holding company
for Greene County Bank ("the Bank"), a Tennessee-chartered commercial bank that
conducts the principal business of the Company. In addition to its commercial
banking operations, the Bank conducts separate businesses through its three
wholly-owned subsidiaries: Superior Financial Services, Inc. ("Superior
Financial"), a consumer finance company; GCB Acceptance Corporation ("GCB
Acceptance"), a subprime automobile lending company; and Fairway Title Co., a
title company formed in 1998. The Bank also operates a mortgage banking
operation through its main office in Knox County, Tennessee and it also has
representatives located through out the Company's branch system.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of depositors and borrowers and fund
operations. Maintaining appropriate levels of liquidity allows the Company to
have sufficient funds available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of deposits and other
liabilities. The Company's liquid assets include investment securities, federal
funds sold and other interest-earning deposits, and cash and due from
12
banks. Including securities pledged to collateralize municipal deposits, these
assets represented 15.3% of the total liquidity base at March 31, 2002, as
compared to 11.3% at December 31, 2001. The liquidity base is generally defined
to include deposits, securities sold under repurchase agreements and short-term
borrowed funds and other borrowings. In addition, the Company maintains lines of
credit totaling $20 million with the Federal Home Loan Bank of Cincinnati
("FHLB"), of which $20 million was available at March 31, 2002. The Company also
maintains federal funds lines of credit totaling $70.9 million at seven
correspondent banks. The Company believes it has sufficient liquidity to satisfy
its current operating needs.
For the three months ended March 31, 2002, operating activities of the
Company provided $10,157 of cash flows. Net income of $2,569 adjusted for
non-cash operating activities, including $5,504 in net proceeds from loans
originated for sale, $1,307 in provision for loan losses, depreciation and
amortization of $422 and the $476 in cash flows provided from the net change in
interest receivable and other assets, net of intangibles and accrued interest
payable and other liabilities comprised the majority of the cash generated from
operations.
The Company's increase in investment securities and other interest-earning
investments used $17,507 in cash flows, while the net increase in
held-to-maturity loans originated, net of principal collected, used $6,002 in
cash flows.
The net increase in deposits and securities sold under repurchase
agreements provided $26,564 and $2,310 in cash flows, respectively. These
increases in cash flows were offset, in part, by quarterly dividends paid in the
amount of $818 and by the $88 decrease in notes payable, net.
CAPITAL RESOURCES. The Company's capital position is reflected in its
shareholders' equity, subject to certain adjustments for regulatory purposes.
Shareholders' equity, or capital, is a measure of the Company's net worth,
soundness and viability. The Company continues to exhibit a strong capital
position while consistently paying dividends to its stockholders. Further, the
capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Company's
daily operations.
Shareholders' equity on March 31, 2002 was $70,304, an increase of $1,677,
or 2.44%, from $68,627 on December 31, 2001. The increase in shareholders'
equity primarily reflects net income for the three months ended March 31, 2002
of $2,569 ($0.38 per share, assuming dilution). This increase was offset by
quarterly dividend payments during the three months ended March 31, 2002
totaling $818 ($0.12 per share).
The Company's primary source of liquidity is dividends paid by the Bank.
Applicable Tennessee statutes and regulations impose restrictions on the amount
of dividends that may be declared by the Bank. Further, any dividend payments
are subject to the continuing ability of the Bank to maintain its compliance
with minimum federal
13
regulatory capital requirements and to retain its characterization under federal
regulations as a "well-capitalized" institution.
Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation
require bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of stockholders' equity, less goodwill).
At March 31, 2002, the Company and the Bank each satisfied their respective
minimum regulatory capital requirements, and the Bank was "well-capitalized"
within the meaning of federal regulatory requirements. The capital ratios of the
Bank contained within the table below do not differ materially from those of the
Company.
==========================================================================
Capital Ratios at March 31, 2002
--------------------------------------------------------------------------
Required
Minimum Bank
Ratio
--------------------------------------------------------------------------
Tier 1 risk-based capital 4.00% 10.20%
--------------------------------------------------------------------------
Total risk-based capital 8.00% 11.45%
--------------------------------------------------------------------------
Leverage Ratio 4.00% 8.11%
==========================================================================
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended March 31, 2002 was
$2,569, a decrease of $339, or 11.7%, as compared to net income of $2,908,
respectively, for the same period in 2001. The decrease for the three months
ended March 31, 2002 resulted principally from a decrease in net interest income
of $446, or 4.3%, to $9,814 for the three months ended March 31, 2002 from
$10,260 for the same period in 2001. This reduction primarily reflects the full
effect of the significant decline in interest rates during the entire course of
2001. In addition, non-interest expense increased $500, or 7.6%, to $7,035 for
the three months ended March 31, 2002 from $6,535 for the same period in 2001,
with the majority of this increase occurring in other expenses and resulting
primarily from non-recurring reductions in certain expenses in the first quarter
of 2001, increased ATM expenses, additional legal fees and other professional
services, increases in loss on sale of other repossessed assets and additional
amortization expense related to intangibles recorded as a result of recent
branch acquisitions. Offsetting these expense increases, in part, was an
increase in non-interest income of $271, or 11.7%, to $2,587 for the three
months ended March 31, 2002 from $2,316 for the same period in 2001. This
increase was primarily the result of an increase in service charges, commissions
and fees of $188, or 10.8%, to $1,918 for the three months ended
14
March 31, 2002 from $1,730 for the same period in 2001. This increase primarily
reflects growth in service charges associated with the Company's checking
account programs, principally as a result of increases in volume, as well as
additional fees generated by the Company's mortgage banking division.
NET INTEREST INCOME. The largest source of earnings for the Company is net
interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other interest-bearing
liabilities. The primary factors which affect net interest income are changes in
volume and yields of interest-earning assets and interest-bearing liabilities,
which are affected in part by management's responses to changes in interest
rates through asset/liability management. During the three months ended March
31, 2002, net interest income was $9,814, as compared to $10,260 for the same
period in 2001, representing a decrease of $446, or 4.3%. While increases in the
average balances of interest-earning assets provided a positive contribution to
net interest income, a significant decline in the yield on interest-earning
assets more than offset the decline in the cost of interest-bearing liabilities,
resulting in an overall negative contribution to net interest income from change
in rates in the three months ended March 31, 2002 as compared to the same period
in 2001. This negative contribution from change in rates more than offset the
positive contribution provided from the increase in the average balances of
interest-earning assets. Further, the Company, which has an asset sensitive
interest rate risk posture, continued its sequential quarterly decline in net
interest margin due to the decrease in interest rates beginning in early 2001.
This decline in net interest margin began in early 2001. If interest rates do
not decline further, the Company believes its net interest margin has stabilized
and will increase if interest rates begin to rise, based on the current mix of
interest-earning assets and interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. During the three month period ended March 31,
2002, loan charge-offs were $1,780 and recoveries of charged-off loans were
$664. The Company's provision for loan losses decreased by $132, or 9.2%, to
$1,307 for the three months ended March 31, 2002 from $1,439 for the same period
in 2001. Despite these lower provisions, the Company's allowance for loan losses
increased by $191 to $11,412 at March 31, 2002 from $11,221 at December 31,
2001, with the ratio of the allowance for loan losses to total loans remaining
essentially constant from period to period. As of March 31, 2002, indicators of
credit quality, as discussed below, appear favorable compared to December 31,
2001. The ratio of allowance for loan losses to nonperforming assets was 171.17%
and 112.89% at March 31, 2002 and December 31, 2001, respectively, and the ratio
of nonperforming assets to total assets was .79% and 1.22% at March 31, 2002 and
December 31, 2001, respectively. The ratio of nonperforming loans to total loans
was .55% and .97% at March 31, 2002 and December 31, 2001, respectively.
The Company's annualized net charge-offs for the three months ended March
31, 2002 were $4,464 compared to actual net charge-offs of $6,466 for the year
ended December 31, 2001. Annualized net charge-offs in Superior Financial for
the three months ended March 31, 2002 were $1,864 compared to actual net
charge-offs of $2,818 for the year ended December 31, 2001. Annualized net
charge-offs in the Bank for the three months ended March 31, 2002 were $1,160
compared to actual net charge-offs of $2,610 for the year ended
15
December 31, 2001. At this point, management is unable to predict whether these
favorable trends will continue during the remainder of 2002. If such trends do
not continue, net charge-offs in the Bank, Superior Financial and/or GCB
Acceptance could increase.
NON-INTEREST INCOME. Income that is not related to interest-earning assets,
consisting primarily of service charges, commissions and fees, has become an
important supplement to the traditional method of earning income through
interest rate spreads.
Total non-interest income for the three months ended March 31, 2002 was
$2,587, as compared to $2,316 for the same period in 2001. The largest component
of non-interest income, i.e., service charges, commissions and fees totaled
$1,918 for the three months ended March 31, 2002, as compared to $1,730 for the
same period in 2001. This increase of $188, or 10.8%, primarily reflects growth
in service charges associated with the Company's checking account programs
principally as a result of increases in volume, as well as additional fees
generated by the Company's mortgage banking operation. Other income also
increased by $83, or 14.2%, to $669 for the three months ended March 31, 2002
from $586 for the same period in 2001. Most of this increase resulted from
commissions generated from annuity products and a gain on the sale of fixed
assets, offset, in part, by lower revenue from insurance activities.
NON-INTEREST EXPENSE. Control of non-interest expense also is an important
aspect in enhancing income. Non-interest expense includes personnel, occupancy,
and other expenses such as data processing, printing and supplies, legal and
professional fees, postage, Federal Deposit Insurance Corporation assessment,
etc. Total non-interest expense was $7,035 for the three months ended March 31,
2002 compared to $6,535 for the same period in 2001. The majority of this
increase occurred in other expenses and resulted primarily from non-recurring
reductions in certain expenses in the first quarter of 2001, increased ATM
expenses, additional legal fees and other professional services, increases in
loss on sale of other repossessed assets and additional amortization expense
related to intangibles recorded as a result of recent branch acquisitions.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three months ended March 31, 2002 and 2001, salaries and
benefits represented $4,228, or 60.10%, and $4,124, or 63.11%, respectively, of
total non-interest expense. This was an increase of $104, or 2.5%, for the three
months ended March 31, 2002 as compared to the same period in the prior year. As
the Company decreased its size to 42 branches at March 31, 2002 from 44 branches
at March 31, 2001, the number of full-time equivalent employees declined 4.3%
from 394 at March 31, 2001 to 377 at March 31, 2002. This decrease in employees
was primarily the result of consolidating certain Superior Financial offices
into other, more centrally-located branches for the purpose of achieving greater
operating efficiencies as well as certain position eliminations in the Bank.
Occupancy and furniture and equipment expense increased by $78, or 8.2%, to
$1,032 for the three months ended March 31, 2002, as compared to $954 for the
same period in 2001. Although the actual number of Company branches declined,
increased depreciation
16
expense associated with technology expenditures and branches placed in service
during early and mid 2001, as well as higher operating costs, put upward
pressure on these expenses.
Primarily as a result of this overall increase in non-interest expense, the
Company's efficiency ratio was negatively affected, as the ratio increased from
51.96% at March 31, 2001 to 56.73% at March 31, 2002. The efficiency ratio
illustrates how much it cost the Company to generate revenue; for example, it
cost the Company 56.73 cents to generate one dollar of revenue for the three
months ended March 31, 2002.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 2002 were $843,097, an increase of $31,485, or
3.9%, from total assets of $811,612 at December 31, 2001. The increase in assets
was primarily reflective of the $20,466 increase in federal funds sold and the
$17,450 net increase in securities, offset, in part, by the $5,409 decline in
loans held for sale as set forth on the Condensed Consolidated Balance Sheet.
At March 31, 2002, loans, net of unearned income and allowance for loan
losses, were $674,909 compared to $671,326 at December 31, 2001, an increase of
$3,583, or .5%, from December 31, 2001. The increase in loans during the first
three months of 2002 primarily reflects an increase in commercial and
residential real estate loans. The somewhat small 2% annualized rate of loan
increase reflects overall weaker loan demand in the Company's major markets and
is attributable to the slower economy as compared to the first quarter of 2001.
Non-performing loans include non-accrual loans and loans 90 or more days past
due. All loans that are 90 days past due are considered non-accrual unless they
are adequately secured and there is reasonable assurance of full collection of
principal and interest. Non-accrual loans that 120 days past due without
assurance of repayment are charged off against the allowance for loan losses.
The Company has aggressive collection practices in which senior management is
heavily involved. Nonaccrual loans and loans past due 90 days and still accruing
decreased by $2,880 during the three months ended March 31, 2002 to $3,848.
Management attributes this reduction in nonperforming assets to the payoff of
two non-accrual commercial relationships during the quarter ended March 31,
2002. Management does not anticipate that this positive trend in non-accrual
loan reductions will continue at the same pace during the remainder of 2002. At
March 31, 2002, the ratio of the Company's allowance for loan losses to
non-performing assets (which include non-accrual loans) was 171.17%.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at March 31, 2002 with an amortized cost of $46,866 had a
market value of $46,855. At year-end 2001, investments with an amortized cost of
$29,297 had a market value of $29,407. This increase consists primarily of
short-term agency securities purchased with funds obtained via the increase in
deposits referenced below.
Deposits increased $26,565, or 4.1%, to $680,478 at March 31, 2002 from
$653,913 at December 31, 2001. Most of the increase in deposits was in lower
costing, interest-bearing transaction accounts as opposed to higher costing
certificates of deposits.
17
EFFECT OF NEW ACCOUNTING STANDARDS
A new accounting standard dealing with asset retirement obligations will
apply for 2003. The Company does not believe this standard will have a material
affect on its financial position or results of operations.
Effective January 1, 2002, the Company adopted a new standard on impairment
and disposal of long-lived assets. The effect of this on the financial position
and results of operations of the Company is not material.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A comprehensive qualitative and quantitative analysis regarding market risk
was disclosed in the Company's December 31, 2001 Form 10-K. No material changes
in the assumptions used or results obtained from the model have occurred since
December 31, 2001.
Actual results for the year ending December 31, 2002 will differ from
simulated results due to timing, magnitude, and frequency of interest rate
changes, as well as changes in market conditions and management strategies.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. Management
currently is not aware of any material legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of their
property is subject.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
None
(b)Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 05/09/02 Greene County Bancshares, Inc.
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Registrant
Date: 05/09/02 By: /s/ R. Stan Puckett
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R. Stan Puckett
President and Chief Executive Officer
(Duly authorized representative)
Date: 05/09/02 /s/ William F. Richmond
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William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
20