FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended March 31, 2001 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: 1,363,778.
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, 2001 and December 31,
2000.
Condensed Consolidated Statements of Income - For the three months ended
March 31, 2001 and 2000.
Condensed Consolidated Statement of Stockholders' Equity - For the three
months ended March 31, 2001.
Condensed Consolidated Statements of Cash Flows - For the three months
ended March 31, 2001 and 2000.
Notes to Condensed Consolidated Financial Statements.
2
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000*
--------- ------------
ASSETS
------
Cash and due from banks $ 22,996 $ 24,038
Federal funds sold 12,928 8,130
Securities available-for-sale ("AFS") 18,341 46,658
Securities held-to-maturity (with a market value of $1,774
on March 31, 2001 and $1,869 on December 31, 2000) 1,767 1,866
FHLB and Bankers Bank stock, at cost 4,327 4,254
Loans held for sale 3,724 1,725
Loans 683,900 667,068
Less: allowance for loan losses 12,271 11,728
-------- --------
NET LOANS 671,629 655,340
-------- --------
Bank premises and equipment, net of
accumulated depreciation 24,986 23,934
Other assets 20,849 23,172
-------- --------
TOTAL ASSETS $781,547 $789,117
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $631,329 $648,641
Federal funds purchased and repurchase agreements 4,634 4,713
Notes payable 68,836 59,949
Accrued interest payable and other liabilities 11,582 12,804
-------- --------
TOTAL LIABILITIES 716,381 726,107
-------- --------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1,363,778 shares at
March 31, 2001 and December 31, 2000 13,638 13,638
Paid in Capital 4,854 4,854
Retained Earnings 46,557 44,467
Accumulated Other Comprehensive Income (Loss) 117 51
-------- --------
TOTAL SHAREHOLDERS' EQUITY 65,166 63,010
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $781,547 $789,117
======== ========
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
3
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2001 2000
---------------- ----------------
INTEREST INCOME:
----------------
Interest and Fees on Loans $ 17,484 $ 14,627
Interest on Investment Securities 469 859
Interest on Federal Funds Sold and Other
Interest-earning Deposits 229 44
---------------- ----------------
TOTAL INTEREST INCOME 18,182 15,530
---------------- ----------------
INTEREST EXPENSE:
-----------------
Interest on Deposits 7,081 5,229
Interest on Borrowings 841 849
---------------- ----------------
TOTAL INTEREST EXPENSE 7,922 6,078
---------------- ----------------
NET INTEREST INCOME 10,260 9,452
Provision for Loan Losses 1,439 1,717
---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,821 7,735
---------------- ----------------
NONINTEREST INCOME:
-------------------
Service Charges, Commissions and Fees 1,730 1,112
Other Income 586 445
---------------- ----------------
TOTAL NONINTEREST INCOME 2,316 1,557
---------------- ----------------
NONINTEREST EXPENSE:
--------------------
Salaries and Benefits 4,124 3,870
Occupancy and Furniture and Equipment Expense 954 858
Other Expenses 1,457 1,556
---------------- ----------------
TOTAL NONINTEREST EXPENSE 6,535 6,284
---------------- ----------------
INCOME BEFORE INCOME TAXES 4,602 3,008
Income Taxes 1,694 851
---------------- ----------------
NET INCOME $ 2,908 $ 2,157
================ ================
PER SHARE OF COMMON STOCK:
--------------------------
Net Income, Basic $2.13 $1.59
===== =====
Net Income, Assuming Dilution $2.11 $1.57
===== =====
Dividends $0.60 $0.60
===== =====
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, 2001
(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, 2001 $ 13,638 $ 4,854 $ 44,467 $ 51 $ 63,010
Net income -- -- 2,908 -- 2,908
Change in unrealized gain on AFS
securities, net of tax: -- -- -- 66 66
--------
Comprehensive income 2,974
Dividends paid -- -- (818) -- (818)
-------- -------- -------- -------- --------
MARCH 31, 2001 $ 13,638 $ 4,854 $ 46,557 $ 117 $ 65,166
======== ======== ======== ======== ========
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, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, MARCH 31,
2001 2000
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 2,908 $ 2,157
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,439 1,717
Depreciation and amortization 372 345
Amortization of premiums on securities, net of accretion 38 (61)
FHLB stock dividends (73) (61)
Loans originated for sale (14,655) (7,296)
Proceeds from loans originated for sale 12,730 6,663
Net realized (gain) loss on sale of loans originated for sale (74) (48)
Loss on other real estate owned 56 59
Net Changes:
Accrued interest receivable and other assets, net of intangibles 2,383 149
Accrued interest payable and other liabilities (1,251) (1,938)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,873 1,686
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in securities and other interest-earning investments 28,485 (24,337)
Net originations of loans held-to-maturity (19,011) (30,586)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 1,125 868
Fixed asset additions and proceeds from sales of fixed asset, net (1,424) (2,615)
-------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 9,175 (56,670)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (17,311) 56,015
Decrease in federal funds purchased 0 (11,620)
(Decrease) increase in securities sold under repurchase agreements (80) 2,621
Increase in notes payable, net 8,917 33,882
Proceeds from issuance of common stock 0 350
Cash dividends paid (818) (816)
-------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (9,292) 80,432
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,756 25,448
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,168 44,555
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,924 $ 70,003
======== ========
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 generally
accepted accounting principles 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 generally accepted accounting principles
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, 2001. 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, 2000. Certain amounts from prior period
financial statements have been reclassified to conform to the current year's
presentation.
2-ALLOWANCE FOR LOAN LOSSES
---------------------------
Transactions in the Allowance for Loan Losses for the three months ended March
31, 2001 and twelve months ended December 31, 2000 were as follows:
March 31, December 31,
2001 2000
----------- ------------
(in thousands)
Balance at beginning of year $ 11,728 $ 10,332
Add (Deduct):
Charge-offs (1,276) (7,788)
Recoveries 380 1,175
Provisions 1,439 8,009
------------- -----------
Ending Balance $ 12,271 $ 11,728
============= ===========
March 31, December 31,
2001 2000
------------- -------------
(in thousands)
Loans past due 90 days still on accrual $ 791 $ 475
Nonaccrual Loans 5,218 4,813
------------- -----------
Total $ 6,009 $ 5,288
============= ===========
7
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 common stock
equivalents outstanding during the period. Stock options are regarded as common
stock equivalents. Common stock equivalents are computed using the treasury
stock method.
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, 2001 and 2000:
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
2001 2000
-------------------------------- ----------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $2,908 1,363,778 $2,157 1,360,431
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding -- 12,055 -- 11,206
-----------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,908 1,375,833 $2,157 1,371,637
=======================================================================
8
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, 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 $ 740,196 $ 41,351 $ 781,547
================ ================ =================
THREE MONTHS ENDED MARCH 31, 2000 BANK OTHER TOTAL
--------------------------------- ---------------- ---------------- -----------------
Net interest income $ 7,809 $ 1,643 $ 9,452
Provision for loan losses 300 1,417 1,717
Noninterest income 998 559 1,557
Noninterest expense 4,816 1,468 6,284
Income tax expense 1,156 (305) 851
---------------- ---------------- -----------------
SEGMENT PROFIT $ 2,535 $ (378) $ 2,157
================ ================ =================
SEGMENT ASSETS $ 747,805 $ 41,312 $ 789,117
================ ================ =================
9
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.
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.
BRANCH PURCHASE AND SALE
On March 8, 2001, the Bank acquired a bank branch located in Hot Springs,
North Carolina (the "North Carolina Branch") from Wachovia Bank, N.A.
("Wachovia") and sold its bank branch located in Farragut, Tennessee (the
"Farragut Branch") to Wachovia. As a result of the acquisition of the North
Carolina Branch and the attendant sale of the Farragut Branch, the Company's
deposits decreased by approximately $7,600. Other than the reduction in deposits
referenced above, the effect of this transaction on the Company's financial
condition and results of operations was not material.
10
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 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 regulatory capital requirements and to retain
its characterization under federal regulations as a "well-capitalized"
institution. In addition, the Company maintains lines of credit totaling $40
million with the Federal Home Loan Bank of Cincinnati ("FHLB") , of which $25
million was available at March 31, 2001. The Company also maintains federal
funds lines of credit totaling $80.9 million at eight correspondent banks.
The Company's liquid assets include investment securities, federal funds
sold and other interest-earning deposits, and cash and due from banks. Including
securities pledged to collateralize municipal deposits, these assets represented
8.6% of the total liquidity base at March 31, 2001, as compared to 11.9% at
December 31, 2000. The liquidity base is generally defined to include deposits,
securities sold under repurchase agreements and short-term borrowed funds and
other borrowings.
For the three months ended March 31, 2001, operating activities of the
Company provided $3,873 of cash flows. Net income of $2,908 adjusted for
non-cash operating activities, including $1,439 in provision for loan losses and
depreciation of $410 provided the majority of the cash generated from
operations. These cash flows were offset, in part, by the $1,925 in funds
received from loans originated for sale, net of proceeds from the sale of such
loans
The Company's decrease in investment securities and other interest-earning
deposits provided $28,485 in cash flows, while the net increase in
held-to-maturity loans originated, net of principle collected, used $19,011 in
cash flows.
The net reduction in deposits and cash dividends paid to shareholders used
$17,311 and $818 in cash flows, respectively. These uses of cash flows were
offset, in part, by the $8,917 increase 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
11
operations. At the Company's annual shareholder meeting on April 25, 2001,
shareholders approved an increase in the number of authorized shares of common
stock from five million shares to fifteen million shares. Also, on April 25,
2001, the Company declared a 5-for-1 stock split, effected as a dividend,
payable on May 29, 2001 to shareholders of record as of the close of business on
May 15, 2001.
Shareholders' equity on March 31, 2001 was $65,166, an increase of $2,156,
or 3.42%, from $63,010 on December 31, 2000. The increase in shareholders'
equity primarily reflects net income for the three months ended March 31, 2001
of $2,908 ($2.11 per share, assuming dilution). This increase was offset by a
quarterly dividend payment during the three months ended March 31, 2001 totaling
$818 ($.60 per share).
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, 2001, 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.
=====================================================================
Capital Ratios at March 31, 2001
---------------------------------------------------------------------
Required
Minimum Company Bank
Ratio
----------------------------------------------------------------------
Tier 1 risk-based capital 4.00% 9.99% 10.11%
----------------------------------------------------------------------
Total risk-based capital 8.00% 11.25% 11.37%
----------------------------------------------------------------------
Leverage Ratio 4.00% 8.20% 8.28%
======================================================================
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended March 31, 2001 was
$2,908, an increase of $751, or 34.8%, as compared to net income of $2,157, for
the same period in 2000. The increase for the three months ended March 31, 2001
resulted primarily from an increase in non-interest income of $759 or 48.7%, to
$2,316 for the three months ended March 31, 2001 from $1,557 for the same period
in 2000. This increase primarily reflects growth in service charges associated
with the Company's new checking account programs, as well as additional fees
generated by the Company's mortgage banking operation. Further contributing to
the increase in net income was the $808, or 8.5%, increase in net interest
12
income to $10,260 for the three months ended March 31, 2001 from $9,452 for the
same period in 2000. The increase in net interest income primarily reflects the
Company's continued growth in loan production for the three months ended March
31, 2001, as compared to the same period in 2000, through its expanded branch
network, primarily through increases in commercial and residential real estate
loans.
Income taxes increased $843, or 99.1%, to $1,694 for the three months ended
March 31, 2001 from $851 for the same period in 2000. The difference in tax
expense from 2000 to 2001 reflects the Company's revision during the first
quarter of 2000 of its estimate of corporate income tax liability for 2000,
primarily from its then-current analysis of loan charge-offs and tax examination
results.
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, 2001, net interest income was $10,260, as compared to $9,452 for the same
period in 2000, representing an increase of 8.5%. This increase was due
primarily to an increase in volume of average interest-earning assets, including
an increase in loan originations, primarily in the Bank.
PROVISION FOR LOAN LOSSES. During the three month period ended March 31,
2001, loan charge-offs were $1,276 and recoveries of charged-off loans were
$380. The Company's provision for loan losses decreased by $278, or 16.2%, to
$1,439 for the three months ended March 31, 2001, from $1,717 for the same
period in 2000. The decrease is primarily reflective of lower provisions in the
Bank based on management's assessment of the risk of collection inherent in its
existing loan portfolio. Offsetting, in part, these lower provisions in the Bank
were slightly higher provisions in Superior Financial and GCB Acceptance,
indicative of both higher loan balances in both subsidiaries, as compared to the
same quarter in 2000, and also management's evaluation of the loan quality in
both portfolios. Despite this decrease in provisions, the Company's allowance
for loan losses increased by $543 to $12,271 at March 31, 2001 from $11,728 at
December 31, 2000, with the ratio of the allowance for loan losses to total
loans remaining essentially constant from period to period. The ratio of
allowance for loan losses to nonperforming assets was 146.14% and 154.83% at
March 31, 2001 and December 31, 2000, respectively, and the ratio of
nonperforming assets to total assets was 1.07% and .96% at March 31, 2001 and
December 31, 2000, respectively. The ratio of nonperforming loans to total loans
was .86% and .78% at March 31, 2001 and December 31, 2000, respectively.
Annualized net charge-offs in Superior Financial for the quarter ended
March 31, 2001 were $1,817 versus $1,182 in the Bank. This compares with $3,210
and $2,625, respectively, for 2000.
13
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, 2001 was
$2,316, as compared to $1,557 for the same period in 2000. The largest component
of non-interest income, i.e., service charges, commissions and fees totaled
$1,730 for the three months ended March 31, 2001, as compared to $1,112 for the
same period in 2000. This increase of $618, or 55.6%, primarily reflects growth
in service charges associated with the Company's new checking account programs,
as well as additional fees generated by the Company's mortgage banking
operation. Other income also increased by $141, or 31.7%, to $586 for the three
months ended March 31, 2001 from $445 for the same period in 2000. Most of this
increase resulted from fees and commissions generated from insurance products
and from the Bank's trust operation.
Primarily as a result of this increase in non-interest income along with
the increase in net interest income and minimal increase in non-interest
expense, as discussed below, the Company's efficiency ratio was positively
affected, as the ratio decreased from 57.01% at March 31, 2000 to 51.96% at
March 31, 2001. The efficiency ratio illustrates how much it cost the Company to
generate revenue; for example, it cost the Company 51.96 cents to generate one
dollar of revenue for the three months ended March 31, 2001.
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 $6,535 for the three months ended March 31,
2001 compared to $6,284 for the same period in 2000.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three months ended March 31, 2001, salaries and benefits
represented $4,124, or 63.1%, of total non-interest expense. This was an
increase of $254, or 6.6%, over the $3,870 for the three months ended March 31,
2000. While the Company decreased its size to 44 branches at March 31, 2001 from
47 branches at March 31, 2000, the number of full-time equivalent employees was
394 versus 378 at March 31, 2000, representing an increase of 4.2%. This
increase in employees was primarily due to strengthening certain operational
areas, which required increased staff at varying experience and compensation
levels. Further, the reduction in the number of the Company's branches did not
create a proportional decline in the number of employees, as some of the related
employees were consolidated into other areas of the Company.
Occupancy and furniture and equipment expense increased by $96, or 11.2%,
to $954 for the three months ended March 31, 2001, as compared to $858 for the
some period in 2000. Although the actual number of Company branches declined,
increased depreciation expense associated with technology expenditures and
branches previously placed in service
14
during early 2000, as well as higher utility costs associated with increased
energy prices, put upward pressure on these expenses.
Income taxes increased $843, or 99.1%, to $1,694 for the three months ended
March 31, 2001 from $851 for the same period in 2000. The difference in tax
expense from 2000 to 2001 reflects the Company's revision during the first
quarter of 2000 of its estimate of corporate income tax liability for 2000,
primarily from its then-current analysis of loan charge-offs and tax examination
results.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 2001 were $781,547, a decrease of $7,570, or
1.0%, from 2000's year-end total assets of $789,117. The decrease in assets was
reflective of the substantial reduction in securities available-for-sale,
offset, in part, by the increase in loans.
At March 31, 2001, loans, net of unearned income and allowance for loan
losses, were $671,629 compared to $655,340 at December 31, 2000, an increase of
$16,289, or 2.5%, from December 31, 2000. The increase in loans during the first
three months of 2001 is primarily due to an increase in commercial and
residential real estate loans resulting primarily from increased loan demand.
Non-performing loans include non-accrual and classified loans. The Company has a
policy of placing loans 90 days delinquent in non-accrual status and charging
them off at 120 days past due. Other loans past due that are well secured and in
the process of collection continue to be carried on the Company's balance sheet.
The Company has aggressive collection practices in which senior management is
heavily involved. Nonaccrual loans and loans past due 90 days and still accruing
increased by $405 and $316, respectively, during the three months ended March
31, 2001 to $5,218 and $791, respectively. The increase in nonaccrual loans
consisted primarily of one commercial real estate and one consumer loan. The
increase in loans past due 90 days and still accruing consisted primarily of two
commercial real estate loans and one consumer loan. Management believes they
have adequately provided for any potential losses related to these loans as of
March 31, 2001. At March 31, 2001, the ratio of the Company's allowance for loan
losses to non-performing assets (which include non-accrual loans) was 146.14%.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at March 31, 2001 with an amortized cost of $19,920 had a
market value of $20,115. At year-end 2000, investments with an amortized cost of
$48,441 had a market value of $48,527. This decrease resulted primarily from the
calling, at par, of a $25,000 security as interest rates began to decline in the
first part of 2000.
Deposits declined $17,312, or 2.7%, to $631,329 at March 31, 2001 from
$648,641 at December 31, 2000. As the Company downsized its balance sheet
slightly in order to effectively manage its capital position, it sought to do so
in the most cost-effective manner possible. Accordingly, most of the decrease in
deposits was in higher-costing certificates of deposits. The Company also
increased its notes payable, consisting primarily of borrowings from the FHLB,
by $8,887 in order to offset some of the deposit reduction and to partially fund
the increase in loans.
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EFFECT OF NEW ACCOUNTING STANDARDS
Effective January 1, 2001, a new accounting standard required all
derivatives to be recorded at fair value. Fair value changes involving hedges
will generally be recorded by offsetting gains and losses on the hedge and on
the hedged item, even if the fair value of the hedged item is not otherwise
recorded. Adoption of this statement on January 1, 2001 did not have a material
effect.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated herein by reference to
the "Interest Rate Sensitivity" and "Asset/Liability Management" Subsections of
the Management's Discussion and Analysis section contained in the Company's 2000
Annual Report to shareholders.
Management believes there has been no material change in either interest rate
risk or market risk since December 31, 2000.
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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
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
The Company filed two Reports on Form 8-K during the quarter
ended March 31, 2001. The first Form 8-K was filed on February
28, 2001 to report that the Bank had amended its branch purchase
agreement with Wachovia Bank, N.A., on February 7, 2001 to
acquire only the Hot Springs, North Carolina bank branch from
Wachovia and not Wachovia's Abingdon, Virginia branch. The second
Form 8-K was filed on March 27, 2001 to report that it had issued
a press release that
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day announcing its engagement of Morgan Keegan and Company, Inc.
to enhance the ability of the Company's stockholders to identify
potential purchasers or sellers of the Company's common stock. No
financial statements were filed with either Form 8-K.
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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: 05/11/01 Greene County Bancshares, Inc.
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Registrant
Date: 05/11/01 /s/ R. Stan Puckett
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R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 05/11/01 /s/ William F. Richmond
--------- -------------------------------------------------
William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
20