FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended June 30, 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 Number)
incorporated or organization)
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 - June 30, 2001 and December 31,
2000.
Condensed Consolidated Statements of Income - For the three and six months
ended June 30, 2001 and 2000.
Condensed Consolidated Statement of Stockholders' Equity - For the six
months ended June 30, 2001.
Condensed Consolidated Statements of Cash Flows - For the six months ended
June 30, 2001 and 2000.
Notes to Condensed Consolidated Financial Statements.
2
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000*
----------- --------------
ASSETS
------
Cash and due from banks $ 22,362 $ 24,038
Federal funds sold 2,004 8,130
Securities available-for-sale ("AFS") 14,279 46,658
Securities held-to-maturity (with a market value of $1,555
on June 30, 2001 and $1,869 on December 31, 2000) 1,543 1,866
FHLB and Bankers Bank stock, at cost 4,403 4,254
Loans held for sale 5,892 1,725
Loans 679,957 667,068
Less: allowance for loan losses 11,876 11,728
-------- --------
NET LOANS 668,081 655,340
-------- --------
Bank premises and equipment, net of
accumulated depreciation 25,357 23,934
Other assets 21,041 23,172
-------- --------
TOTAL ASSETS $764,962 $789,117
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $612,868 $648,641
Federal funds purchased and repurchase agreements 6,173 4,713
Notes payable 68,770 59,949
Accrued interest payable and other liabilities 10,425 12,804
-------- --------
TOTAL LIABILITIES 698,236 726,107
-------- --------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, authorized 15,000,000 shares; issued and
outstanding 6,818,890 shares at June 30, 2001 and
and December 31, 2000 13,638 13,638
Paid in Capital 4,854 4,854
Retained Earnings 48,179 44,467
Accumulated Other Comprehensive Income (Loss) 55 51
-------- --------
TOTAL SHAREHOLDERS' EQUITY 66,726 63,010
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $764,962 $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 AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
2001 2000 2001 2000
---------- ---------- --------- ----------
INTEREST INCOME:
Interest and Fees on Loans $16,706 $15,275 $34,190 $29,902
Interest on Investment Securities 389 879 858 1,738
Interest on Federal Funds Sold and Other
Interest-earning Deposits 55 383 284 427
------- ------- ------- -------
TOTAL INTEREST INCOME 17,150 16,537 35,332 32,067
------- ------- ------- -------
INTEREST EXPENSE:
Interest on Deposits 6,360 5,934 13,441 11,163
Interest on Borrowings 996 1,005 1,837 1,854
------- ------- ------- -------
TOTAL INTEREST EXPENSE 7,356 6,939 15,278 13,017
------- ------- ------- -------
NET INTEREST INCOME 9,794 9,598 20,054 19,050
Provision for Loan Losses 1,168 1,077 2,607 2,794
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,626 8,521 17,447 16,256
------- ------- ------- -------
NONINTEREST INCOME:
Service Charges, Commissions and Fees 1,991 1,261 3,721 2,373
Other Income 400 294 986 739
------- ------- ------- -------
TOTAL NONINTEREST INCOME 2,391 1,555 4,707 3,112
------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and Benefits 4,200 4,172 8,324 8,042
Occupancy and Furniture and Equipment Expense 980 924 1,934 1,782
Other Expenses 1,772 1,861 3,229 3,417
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE 6,952 6,957 13,487 13,241
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 4,065 3,119 8,667 6,127
Income Taxes 1,624 1,225 3,318 2,076
------- ------- ------- -------
NET INCOME $ 2,441 $ 1,894 $ 5,349 $ 4,051
======= ======= ======= =======
PER SHARE OF COMMON STOCK:
Net Income, Basic $0.36 $0.28 $0.79 $0.60
====== ====== ====== ======
Net Income, Assuming Dilution $0.36 $0.28 $0.78 $0.59
====== ====== ====== ======
Dividends $0.12 $0.12 $0.24 $0.24
====== ====== ====== ======
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
4
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 - - 5,349 - 5,349
Change in unrealized gain
on AFS securities,
net of tax: - - - 4 4
------------
Comprehensive income 5,353
Dividends paid - - (1,637) - (1,637)
-------- ---------- ----------- --------- -----------
JUNE 30, 2001 $ 13,638 $ 4,854 $ 48,179 $ 55 $ 66,726
======== ========== =========== ========= ===========
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
5
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, JUNE 30,
2001 2000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 5,349 $ 4,051
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,607 2,794
Depreciation and amortization 776 754
Amortization of premiums on securities, net of accretion 78 111
FHLB stock dividends (149) (132)
Loans originated for sale (36,944) (18,653)
Proceeds from loans originated for sale 32,944 17,363
Net realized (gain) on sale of loans originated for sale (168) (93)
Loss on other real estate owned 64 0
Net Changes:
Accrued interest receivable and other assets, net of intangibles 2,250 248
Accrued interest payable and other liabilities (2,391) (3,165)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,416 3,278
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in securities and other interest-earning investments 32,630 (23,012)
Net originations of loans held-to-maturity (17,592) (50,158)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 2,058 1,500
Fixed asset additions and proceeds from sales of fixed assets, net (2,197) (4,292)
----------- ---------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 14,899 (75,962)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (35,772) 59,135
Decrease in federal funds purchased 0 (11,620)
Increase in securities sold under repurchase agreements 1,459 1,431
Increase in notes payable, net 8,833 15,802
Proceeds from issuance of common stock 0 381
Cash dividends paid (1,637) (1,634)
----------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (27,117) 63,495
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS (7,802) (9,189)
----------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,168 44,555
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,366 $ 35,366
=========== =========
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, 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.
7
2-ALLOWANCE FOR LOAN LOSSES
---------------------------
Transactions in the Allowance for Loan Losses for the six months ended June 30,
2001 and twelve months ended December 31, 2000 were as follows:
June 30, December 31,
2001 2000
---------------- ---------------
(in thousands)
Balance at beginning of year $ 11,728 $ 10,332
Add (Deduct):
Charge-offs (3,182) (7,788)
Recoveries 723 1,175
Provisions 2,607 8,009
--------------- --------------
Ending Balance $ 11,876 $ 11,728
=============== ==============
June 30, December 31,
2001 2000
--------------- --------------
(in thousands)
Loans past due 90 days still on accrual $ 1,317 $ 475
Nonaccrual Loans 4,806 4,813
--------------- --------------
Total $ 6,123 $ 5,288
=============== ==============
8
3-EARNINGS PER SHARE OF COMMON STOCK
------------------------------------
At the Company's annual shareholder meeting on April 25, 2001, the Company
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.
All share and per share data have been retroactively restated.
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 and six months
ended June 30, 2001 and 2000:
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------
2001 2000
------------------------------------ -----------------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $2,441 6,818,890 $1,894 6,817,455
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 39,976 - 50,470
----------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,441 6,858,866 $1,894 6,867,925
==================================================================================
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------
2001 2000
-------------------------------------- --------------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $5,349 6,818,890 $4,051 6,809,805
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 39,772 - 53,250
----------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $5,349 6,858,662 $4,051 6,863,055
==================================================================================
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 JUNE 30, 2001 BANK OTHER TOTAL
-------------------------------- ------------- ------------ -----------
Net interest income $ 8,369 $ 1,425 $ 9,794
Provision for loan losses (53) 1,221 1,168
Noninterest income 1,973 418 2,391
Noninterest expense 5,724 1,228 6,952
Income tax expense 1,806 (182) 1,624
------------ ----------- -----------
SEGMENT PROFIT $ 2,865 $ (424) $ 2,441
============ =========== ===========
SEGMENT ASSETS AT JUNE 30, 2001 $ 725,179 $ 39,783 $ 764,962
============ =========== ===========
THREE MONTHS ENDED JUNE 30, 2000 BANK OTHER TOTAL
-------------------------------- ------------- ------------ -----------
Net interest income $ 8,193 $ 1,405 $ 9,598
Provision for loan losses 300 777 1,077
Noninterest income 1,000 555 1,555
Noninterest expense 5,439 1,518 6,957
Income tax expense 1,395 (170) 1,225
------------ ----------- -----------
SEGMENT PROFIT $ 2,059 $ (165) $ 1,894
============ =========== ===========
SEGMENT ASSETS AT JUNE 30, 2000 $ 675,957 $ 45,656 $ 721,613
============ =========== ===========
10
SIX MONTHS ENDED JUNE 30, 2001 BANK OTHER TOTAL
------------------------------ ------------- ------------ -----------
Net interest income $ 17,027 $ 3,027 $ 20,054
Provision for loan losses (140) 2,747 2,607
Noninterest income 3,618 1,089 4,707
Noninterest expense 11,074 2,413 13,487
Income tax expense 3,751 (433) 3,318
------------ ----------- -----------
SEGMENT PROFIT $ 5,960 $ (611) $ 5,349
============ =========== ===========
SEGMENT ASSETS AT JUNE 30, 2001 $ 725,179 $ 39,783 $ 764,962
============ =========== ===========
SIX MONTHS ENDED JUNE 30, 2000 BANK OTHER TOTAL
------------------------------ ------------- ------------ -----------
Net interest income $ 16,002 $ 3,048 $ 19,050
Provision for loan losses 600 2,194 2,794
Noninterest income 1,998 1,114 3,112
Noninterest expense 10,255 2,986 13,241
Income tax expense 2,551 (475) 2,076
------------ ----------- -----------
SEGMENT PROFIT $ 4,594 $ (543) $ 4,051
============ =========== ===========
SEGMENT ASSETS AT JUNE 30, 2000 $ 675,957 $ 45,656 $ 721,613
============ =========== ===========
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.
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.
12
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 $40
million was available at June 30, 2001. The Company also maintains federal funds
lines of credit totaling $70.9 million at seven 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
6.5% of the total liquidity base at June 30, 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 six months ended June 30, 2001, operating activities of the Company
provided $4,416 of cash flows. Net income of $5,349 adjusted for non-cash
operating activities, including $2,607 in provision for loan losses and
depreciation of $776 provided the majority of the cash generated from
operations. These cash flows were offset, in part, by the $4,000 in funds used
for 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 $32,630 in cash flows, while the net increase in
held-to-maturity loans originated, net of principal collected, used $17,592 in
cash flows.
The net reduction in deposits and cash dividends paid to shareholders used
$35,772 and $1,637 in cash flows, respectively. These uses of cash flows were
offset, in part, by the $8,833 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
13
management of the Company to address business risks inherent in the Company's
daily 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. All share and per share data have been retroactively restated.
Shareholders' equity on June 30, 2001 was $66,726, an increase of $3,716,
or 5.90%, from $63,010 on December 31, 2000. The increase in shareholders'
equity primarily reflects net income for the six months ended June 30, 2001 of
$5,349 ($0.78 per share, assuming dilution). This increase was offset by
quarterly dividend payments during the six months ended June 30, 2001 totaling
$1,637 ($0.24 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 June 30, 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 June 30, 2001
--------------------------------------------------------------------------------
Required
Minimum Company Bank
Ratio
--------------------------------------------------------------------------------
Tier 1 risk-based capital 4.00% 10.19% 10.29%
--------------------------------------------------------------------------------
Total risk-based capital 8.00% 11.45% 11.55%
--------------------------------------------------------------------------------
Leverage Ratio 4.00% 8.47% 8.59%
================================================================================
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three and six months ended June 30, 2001 was
$2,441 and $5,349, respectively, an increase of $547, or 28.9% and $1,298, or
32.0%, as compared to net income of $1,894 and $4,051, respectively, for the
same periods in 2000. The increase for the three months ended June 30, 2001
resulted primarily from an increase in non-interest income of $836, or 53.8%, to
$2,391 for the three months ended June 30, 2001
14
from $1,555 for the same period in 2000. This increase primarily reflects growth
in service charges associated with the Company's new checking account programs
as a result of both increases in rates and volume, as well as additional fees
generated by the Company's mortgage banking operation.
The increase for the six months ended June 30, 2001 resulted primarily from
an increase in non-interest income of $1,595 or 51.3%, to $4,707 for the six
months ended June 30, 2001 from $3,112 for the same period in 2000. This
increase in non-interest income for the six months ended June 30, 2001 is
primarily reflective of the same factors discussed above related to the three
months ended June 30, 2001.
Income taxes increased $399, or 32.6% and $1,242, or 59.8%, to $1,624 and
$3,318 for the three and six months ended June 30, 2001 from $1,225 and $2,076
for the same periods in 2000. The increase associated with the three months
ended June 30, 2001 as compared to the same period in the prior year is
primarily associated with the increase in income before income taxes, as the
effective tax rate remained essentially unchanged. The increase in tax expense
associated with the six months ended June 30, 2001 compared to the same period
in the prior year 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 and six months ended
June 30, 2001, net interest income was $9,794 and $20,054, respectively, as
compared to $9,598 and $19,050, respectively, for the same periods in 2000,
representing an increase of 2.0% and 5.3%, respectively. 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 and six month periods ended
June 30, 2001, loan charge-offs were $1,906 and $3,182, and recoveries of
charged-off loans were $343 and $723, respectively. Despite lower provisions in
the Bank for both the three and six months ended June 30, 2001 compared to the
same periods in 2000, the Company's provision for loan losses increased by $91,
or 8.4%, to $1,168, and slightly decreased by $187, or 6.7%, to $2,607, for the
three and six months ended June 30, 2001, respectively, from $1,077 and $2,794
for the same periods in 2000. The decrease in the Bank is reflective of
management's assessment of the risk of collection inherent in its existing loan
portfolio. Offsetting, in part, these lower provisions in the Bank were higher
provisions in Superior Financial and GCB Acceptance, indicative of both higher
loan balances in GCB Acceptance, as compared to the same quarter in 2000, and
also management's evaluation of the loan quality in both portfolios. The
Company's allowance for loan losses increased by $148 to
15
$11,876 at June 30, 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 139.18% and 154.83% at June 30, 2001 and December 31, 2000, respectively,
and the ratio of nonperforming assets to total assets was 1.12% and .96% at June
30, 2001 and December 31, 2000, respectively. The ratio of nonperforming loans
to total loans was .88% and .78% at June 30, 2001 and December 31, 2000,
respectively.
The Company's annualized net charge-offs for the six months ended June 30,
2001 were $4,918 compared to actual charge-offs of $6,613 for the year ended
December 31, 2000. Annualized net charge-offs in Superior Financial for the six
months ended June 30, 2001 were $3,192 compared to actual net charge-offs of
$3,210 for the year ended December 31, 2000. Annualized net charge-offs in the
Bank for the six months ended June 30, 2001 were $1,028 compared to actual net
charge-offs of $2,625 for the year ended December 31, 2000.
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 and six months ended June 30, 2001
was $2,391 and $4,707, as compared to $1,555 and $3,112 for the same period in
2000. The largest component of non-interest income, i.e., service charges,
commissions and fees totaled $1,991 and $3,721 for the three and six months
ended June 30, 2001, as compared to $1,261 and $2,373 for the same periods in
2000. This increase of $730, or 57.9%, and $1,348, or 56.8%, primarily reflects
growth in service charges associated with the Company's new checking account
programs as a result of both increases in rates and volume, as well as
additional fees generated by the Company's mortgage banking operation. Other
income also increased by $106, or 36.1%, and $247, or 33.4%, to $400 and $986
for the three and six months ended June 30, 2001 from $294 and $739 for the same
periods in 2000. Most of this increase resulted from fees and commissions
generated from insurance and annuity 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 59.68% at June 30, 2000 to 54.47% at June
30, 2001. The efficiency ratio illustrates how much it cost the Company to
generate revenue; for example, it cost the Company 54.47 cents to generate one
dollar of revenue for the three months ended June 30, 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 $6,952 and $13,487 for the three and six
months ended June 30, 2001 compared to $6,957 and $13,241 for the same periods
in 2000.
16
Personnel costs are the primary element of the Company's non-interest
expenses. For the three and six months ended June 30, 2001, salaries and
benefits represented $4,200, or 60.4%, and $8,324, or 61.7%, of total
non-interest expense, respectively. This was an increase of $28, or .7%, and
$282, or 3.5%, over the $4,172 and $8,042 for the three and six months ended
June 30, 2000. As the Company decreased its size to 39 branches at June 30, 2001
from 45 branches at June 30, 2000, the number of full-time equivalent employees
was 358 versus 384 at June 30, 2000, representing a decrease of 6.8%. 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. Because some of the related employees
were consolidated into other areas of the Company, the reduction in the number
of the Company's branches did not create a proportional decline in the number of
employees.
Occupancy and furniture and equipment expense increased by $56, or 6.1%,
and $152, or 8.5%, to $980 and $1934 for the three and six months ended June 30,
2001, as compared to $924 and $1782 for the some periods in 2000. Although the
actual number of Company branches declined, increased depreciation expense
associated with technology expenditures and branches previously placed in
service during early 2000, as well as higher utility and other operating costs,
put upward pressure on these expenses.
Income taxes increased $399, or 32.6% and $1,242, or 59.8%, to $1,624 and
$3,318 for the three and six months ended June 30, 2001 from $1,225 and $2,076
for the same periods in 2000. The increase associated with the three months
ended June 30, 2001 as compared to the same period in the prior year is
primarily associated with the increase in income before income taxes, as the
effective tax rate remained essentially unchanged. The increase in tax expense
associated with the six months ended June 30, 2001 compared to the same period
in the prior year 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 June 30, 2001 were $764,962, a decrease of $24,155, or
3.1%, 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 June 30, 2001, loans, net of unearned income and allowance for loan
losses, were $668,081 compared to $655,340 at December 31, 2000, an increase of
$12,741, or 1.9%, from December 31, 2000. The increase in loans during the first
six 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
17
heavily involved. Nonaccrual loans decreased and loans past due 90 days and
still accruing increased by $7 and $842, respectively, during the six months
ended June 30, 2001 to $4,806 and $1,317, respectively. Management attributes
the increase in loans past due 90 days and still accruing, as well as the
increase in nonperforming assets and the downward trend in related credit
quality ratios, to additional bankruptcy filings by borrowers and also the
slowing economy in certain market areas. At June 30, 2001, the ratio of the
Company's allowance for loan losses to non-performing assets (which include
non-accrual loans) was 139.18%.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at June 30, 2001 with an amortized cost of $15,733 had a
market value of $15,834. 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 securities as interest rates began to decline in the first
part of 2000.
Deposits declined $35,773, or 5.5%, to $612,868 at June 30, 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 $8,821 in order to offset some of the deposit reduction and to partially fund
the increase in loans.
18
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.
19
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
(a) The Annual Meeting of Shareholders of the Company was held on
April 25, 2001.
(b) Not Applicable
(c) The following proposals were considered by shareholders at the
Annual Meeting:
Proposal 1 - Election of Directors
----------------------------------
The following directors were re-elected:
Votes*
----------------------------------
For Against Abstain
--- ------- -------
Phil M. Bachman 886,070 0 8,513
Ralph T. Brown 886,070 0 8,513
James A. Emory 886,070 0 8,513
Terry Leonard 893,192 0 1,391
20
Proposal 2 - Amendment to the Company's Amended and Restated Charter
----------------------------------------------------------------------
to increase the number of authorized shares to 15,000,000 shares of
----------------------------------------------------------------------
Common Stock.
-------------
Votes*
-----------------------------------
For Against Abstain
--- ------- -------
838,100 32,775 23,708
* Does not reflect the subsequent 5-for-1 stock split effected on May
29, 2001.
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 June 30, 2001. The first Form 8-K was filed on April 26,
2001 to report the Company's earnings results for the quarter
ended March 31, 2001. The second Form 8-K was filed on May 4,
2001 to report that it had declared a 5-for-1 stock split of its
common stock effected in the form of a stock dividend. No
financial statements were filed with either Form 8-K.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 08/09/01 Greene County Bancshares, Inc.
---------- ------------------------------
Registrant
Date: 08/09/01 /s/ R. Stan Puckett
---------- -------------------------------------------------
R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 08/09/01 /s/ William F. Richmond
--------- -------------------------------------------------
William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
22