FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended September 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
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 - September 30, 2001 and December 31,
2000.
Condensed Consolidated Statements of Income and Comprehensive Income - For
the three and nine months ended September 30, 2001 and 2000.
Condensed Consolidated Statement of Stockholders' Equity - For the nine
months ended September 30, 2001.
Condensed Consolidated Statements of Cash Flows - For the nine months ended
September 30, 2001 and 2000.
Notes to Condensed Consolidated Financial Statements.
2
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000*
---------------- ---------------
ASSETS
------
Cash and due from banks $ 20,187 $ 24,038
Federal funds sold 22,512 8,130
Certificates of deposit 2,100 0
Securities available-for-sale ("AFS") 12,858 46,658
Securities held-to-maturity (with a market value of $1,254
on September 30, 2001 and $1,869 on December 31, 2000) 1,243 1,866
FHLB and Bankers Bank stock, at cost 4,478 4,254
Loans held for sale 2,930 1,725
Loans 697,743 667,068
Less: allowance for loan losses 12,134 11,728
---------------- ---------------
NET LOANS 685,609 655,340
---------------- ---------------
Bank premises and equipment, net of
accumulated depreciation 25,362 23,934
Other assets 22,668 23,172
---------------- ---------------
TOTAL ASSETS $ 799,947 $ 789,117
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $ 639,843 $ 648,641
Repurchase agreements 10,289 4,713
Notes payable 68,697 59,949
Accrued interest payable and other liabilities 12,873 12,804
---------------- ---------------
TOTAL LIABILITIES 731,702 726,107
---------------- ---------------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, authorized 15,000,000 shares; issued and
outstanding 6,818,890 shares at September 30, 2001 and
and December 31, 2000 13,638 13,638
Paid in Capital 4,854 4,854
Retained Earnings 49,696 44,467
Accumulated Other Comprehensive Income (Loss) 57 51
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 68,245 63,010
---------------- ---------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 799,947 $ 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 AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
INTEREST INCOME:
----------------
Interest and Fees on Loans $16,352 $15,934 $50,542 $45,836
Interest on Investment Securities 277 917 1,135 2,655
Interest on Federal Funds Sold and Other
Interest-earning Deposits 154 333 438 760
------- ------- ------- -------
TOTAL INTEREST INCOME 16,783 17,184 52,115 49,251
------- ------- ------- -------
INTEREST EXPENSE:
-----------------
Interest on Deposits 6,065 6,679 19,506 17,842
Interest on Borrowings 991 960 2,828 2,814
------- ------- ------- -------
TOTAL INTEREST EXPENSE 7,056 7,639 22,334 20,656
------- ------- ------- -------
NET INTEREST INCOME 9,727 9,545 29,781 28,595
Provision for Loan Losses 1,493 1,122 4,100 3,916
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,234 8,423 25,681 24,679
------- ------- ------- -------
NONINTEREST INCOME:
-------------------
Service Charges, Commissions and Fees 1,872 1,497 5,593 3,870
Other Income 494 297 1,480 1,036
------- ------- ------- -------
TOTAL NONINTEREST INCOME 2,366 1,794 7,073 4,906
------- ------- ------- -------
NONINTEREST EXPENSE:
--------------------
Salaries and Benefits 3,999 4,277 12,323 12,319
Occupancy and Furniture and Equipment Expense 992 904 2,926 2,686
Other Expenses 1,931 1,848 5,160 5,265
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE 6,922 7,029 20,409 20,270
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 3,678 3,188 12,345 9,315
Income Taxes 1,343 1,262 4,661 3,338
------- ------- ------- -------
NET INCOME $ 2,335 $ 1,926 $ 7,684 $ 5,977
======= ======= ======= =======
PER SHARE OF COMMON STOCK:
--------------------------
Net Income, Basic $ 0.34 $ 0.28 $ 1.13 $ 0.88
======= ======= ======= =======
Net Income, Assuming Dilution $ 0.33 $ 0.28 $ 1.12 $ 0.87
======= ======= ======= =======
Dividends $ 0.12 $ 0.12 $ 0.36 $ 0.36
======= ======= ======= =======
COMPREHENSIVE INCOME $ 2,337 $ 1,930 $ 7,690 $ 6,018
======= ======= ======= =======
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
4
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 - - 7,684 - 7,684
Change in unrealized gain on AFS
securities, net of tax: - - - 6 6
--------
Comprehensive income 7,690
Dividends paid - - (2,455) - (2,455)
-------- -------- -------- -------- --------
SEPTEMBER 30, 2001 $ 13,638 $ 4,854 $ 49,696 $ 57 $ 68,245
======== ======== ======== ======== ========
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
5
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 7,684 $ 5,977
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 4,100 3,916
Depreciation and amortization 1,189 1,147
Amortization of premiums on securities, net of accretion 107 145
FHLB stock dividends (224) (206)
Loans originated for sale (51,472) (24,945)
Proceeds from loans originated for sale 50,527 24,561
Net realized (gain) on sale of loans originated for sale (259) (141)
Loss on other real estate owned 183 281
Net Changes:
Accrued interest receivable and other assets, net of intangibles 852 306
Accrued interest payable and other liabilities 70 (2,924)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,757 8,117
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in interest-bearing deposits with banks (2,100) 0
Net decrease (increase) in securities and other interest-earning investments 34,346 (24,105)
Net originations of loans held-to-maturity (38,147) (80,681)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 3,224 2,269
Fixed asset additions and proceeds from sales of fixed assets, net (2,619) (5,252)
------------- ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (5,296) (107,769)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (8,798) 98,198
Decrease in federal funds purchased 0 (11,620)
Increase in securities sold under repurchase agreements 5,576 1,776
Increase in notes payable, net 8,747 15,722
Proceeds from issuance of common stock 0 381
Cash dividends paid (2,455) (2,452)
------------- ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 3,070 102,005
------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,531 2,353
------------- ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,168 44,555
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,699 $ 46,908
============= ============
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 nine months ended
September 30, 2001 and twelve months ended December 31, 2000 were as follows:
September 30, December 31,
2001 2000
--------------- --------------
(in thousands)
Balance at beginning of year $ 11,728 $ 10,332
Add (Deduct):
Charge-offs (4,748) (7,788)
Recoveries 1,054 1,175
Provisions 4,100 8,009
--------------- --------------
Ending Balance $ 12,134 $ 11,728
=============== ==============
September 30, December 31,
2001 2000
--------------- --------------
(in thousands)
Loans past due 90 days still on accrual $ 1,716 $ 475
Nonaccrual Loans 9,443 4,813
--------------- --------------
Total $ 11,159 $ 5,288
=============== ==============
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 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. 97,732 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 and nine months
ended September 30, 2001 and 2000:
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
2001 2000
--------------------------------------- -------------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $2,335 6,818,890 $1,926 6,818,260
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 32,889 - 55,635
---------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,335 6,851,779 $1,926 6,873,895
=================================================================================
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
2001 2000
--------------------------------------- -------------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $7,684 6,818,890 $5,977 6,812,645
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 32,889 - 58,050
---------------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $7,684 6,851,779 $5,977 6,870,695
=================================================================================
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 SEPTEMBER 30, 2001 BANK OTHER TOTAL
------------------------------------- ----------- --------- ----------
Net interest income $ 8,243 $ 1,484 $ 9,727
Provision for loan losses 637 856 1,493
Noninterest income 2,117 249 2,366
Noninterest expense 5,719 1,203 6,922
Income tax expense 1,419 (76) 1,343
---------- --------- ----------
SEGMENT PROFIT $ 2,585 $ (250) $ 2,335
========== ========= ==========
SEGMENT ASSETS AT SEPTEMBER 30, 2001 $ 760,982 $ 38,965 $ 799,947
========== ========= ==========
THREE MONTHS ENDED SEPTEMBER 30, 2000 BANK OTHER TOTAL
------------------------------------- ----------- --------- ----------
Net interest income $ 8,221 $ 1,324 $ 9,545
Provision for loan losses 300 822 1,122
Noninterest income 1,455 339 1,794
Noninterest expense 5,706 1,323 7,029
Income tax expense 1,381 (119) 1,262
---------- --------- ----------
SEGMENT PROFIT $ 2,289 $ (363) $ 1,926
========== ========= ==========
SEGMENT ASSETS AT SEPTEMBER 30, 2000 $ 720,828 $ 41,762 $ 762,590
========== ========= ==========
NINE MONTHS ENDED SEPTEMBER 30, 2001 BANK OTHER TOTAL
------------------------------------ ----------- --------- ----------
Net interest income $ 25,270 $ 4,511 $ 29,781
Provision for loan losses 497 3,603 4,100
Noninterest income 5,735 1,338 7,073
Noninterest expense 16,793 3,616 20,409
Income tax expense 5,170 (509) 4,661
---------- --------- ----------
SEGMENT PROFIT $ 8,545 $ (861) $ 7,684
========== ========= ==========
SEGMENT ASSETS AT SEPTEMBER 30, 2001 $ 760,982 $ 38,965 $ 799,947
========== ========= ==========
NINE MONTHS ENDED SEPTEMBER 30, 2000 BANK OTHER TOTAL
------------------------------------ ----------- --------- ----------
Net interest income $ 24,223 $ 4,372 $ 28,595
Provision for loan losses 900 3,016 3,916
Noninterest income 3,453 1,453 4,906
Noninterest expense 15,961 4,309 20,270
Income tax expense 3,932 (594) 3,338
---------- --------- ---------
SEGMENT PROFIT $ 6,883 $ (906) $ 5,977
========== ========= ==========
SEGMENT ASSETS AT SEPTEMBER 30, 2000 $ 720,828 $ 41,762 $ 762,590
========== ========= ==========
10
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 September 26, 2001, the Bank and SunTrust Bank, a Georgia banking
corporation ("SunTrust"), entered into a Branch Purchase Agreement (the
"Agreement") providing for the assumption by the Bank of the deposits,
approximating $34 million as of June 30, 2001, and its purchase of certain
assets of three SunTrust branch offices located in Hawkins County, Tennessee.
The transaction is pending regulatory approval.
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
11
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.
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 banks.
Including securities pledged to collateralize municipal deposits, these assets
represented 8.8% of the total liquidity base at September 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. In addition, the Company maintains lines of
credit totaling $40 million with the Federal Home Loan Bank of Cincinnati
("FHLB"), of which $19 million was available at September 30, 2001. 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 nine months ended September 30, 2001, operating activities of the
Company provided $12,757 of cash flows. Net income of $7,684 adjusted for
non-cash operating activities, including $4,100 in provision for loan losses and
depreciation and amortization of $1,189 provided the majority of the cash
generated from operations. These cash flows were offset, in part, by the $945 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
investments provided $34,346 in cash flows, while the net increase in
held-to-maturity loans originated, net of principal collected, used $38,147 in
cash flows.
The net reduction in deposits and cash dividends paid to shareholders used
$8,798 and $2,455 in cash flows, respectively. These uses of cash flows were
offset, in part, by the $8,747 increase in notes payable, net and by the $5,576
increase in securities sold under repurchase agreements.
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
12
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 September 30, 2001 was $68,245, an increase of
$5,235, or 8.31%, from $63,010 on December 31, 2000. The increase in
shareholders' equity primarily reflects net income for the nine months ended
September 30, 2001 of $7,684 ($1.13 per share, assuming dilution). This increase
was offset by quarterly dividend payments during the nine months ended September
30, 2001 totaling $2,455 ($0.36 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 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 September 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. The capital ratios of the
Bank contained within the table below do not differ materially from those of the
Company.
===============================================================================
Capital Ratios at September 30, 2001
-------------------------------------------------------------------------------
Required
Minimum Bank
Ratio
-------------------------------------------------------------------------------
Tier 1 risk-based capital 4.00% 10.18%
-------------------------------------------------------------------------------
Total risk-based capital 8.00% 11.44%
-------------------------------------------------------------------------------
Leverage Ratio 4.00% 8.60%
===============================================================================
13
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three and nine months ended September 30,
2001 was $2,335 and $7,684, respectively, an increase of $409, or 21.2% and
$1,707, or 28.6%, as compared to net income of $1,926 and $5,977, respectively,
for the same periods in 2000. The increase for the three months ended September
30, 2001 resulted primarily from an increase in non-interest income of $572, or
31.9%, to $2,366 for the three months ended September 30, 2001 from $1,794 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 nine months ended September 30, 2001 resulted
primarily from an increase in non-interest income of $2,167 or 44.2%, to $7,073
for the nine months ended September 30, 2001 from $4,906 for the same period in
2000. This increase in non-interest income for the nine months ended September
30, 2001 is primarily reflective of the same factors discussed above related to
the three months ended September 30, 2001. Further contributing to the increase
in net income for the nine months ended September 30, 2001 compared to the same
period in the prior year was an increase in net interest income of $1,186, or
4.1%, to $29,781 for the nine months ended September 30, 2001 from $28,595 for
the same period in 2000. 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.
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 nine months ended
September 30, 2001, net interest income was $9,727 and $29,781, respectively, as
compared to $9,545 and $28,595, respectively, for the same periods in 2000,
representing an increase of 1.9% and 4.1%, respectively. The increase for the
three months ended September 30, 2001, compared to the same period in 2000,
resulted primarily from a decrease in interest expense due principally to a
reduction in the cost of interest-bearing liabilities. While the Company's net
interest margin continued a sequential calendar year decline during the three
months ended September 30, 2001, due to its asset sensitive interest rate risk
posture in a declining interest rate environment, the Company's ability to
reprice a significant portion of its interest-bearing liabilities allowed it to
reduce interest expense in the three months ended September 30, 2001, compared
to the same period in 2000, despite an increase in the balance of its average
interest-bearing liabilities. With respect to the increase in net interest
income for the nine months ended September 30, 2001 compared to the same period
in the prior year, such increase was primarily the result of a significant
increase in average balances of interest-earning assets which offset the decline
in the yield earned on these assets.
PROVISION FOR LOAN LOSSES. During the three and nine month periods ended
September 30, 2001, loan charge-offs were $1,566 and $4,748, and recoveries of
charged-off
14
loans were $331 and $1,054, respectively. The Company's provision for loan
losses increased by $371, or 33.1%, to $1,493 for the three months ended
September 30, 2001 from $1,122 for the same period in 2000. Most of the increase
occurred in the Bank, which was reflective of management's assessment of the
risk of collection inherent in its existing loan portfolio. Despite lower
provisions in the Bank for the nine months ended September 30, 2001, compared to
the same period in 2000, the Company's provision for loan losses increased by
$184, or 4.7%, to $4,100 from $3,916 for the same period in 2000. The decrease
in the Bank reflected management's risk assessment in its existing loan
portfolio during the period. 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 period
in 2000, and also management's evaluation of the loan quality in both
portfolios. However, as noted in the above discussion related to the three
months ended September 30, 2001, management, upon further analyses of the loan
portfolio in each of its operating entities, began to increase the provisions in
the Bank. The Company's allowance for loan losses increased by $406 to $12,134
at September 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 87.95% and 154.83% at September 30, 2001 and December 31, 2000,
respectively, and the ratio of nonperforming assets to total assets was 1.71%
and .96% at September 30, 2001 and December 31, 2000, respectively. The ratio of
nonperforming loans to total loans was 1.57% and .78% at September 30, 2001 and
December 31, 2000, respectively.
The Company's annualized net charge-offs for the nine months ended
September 30, 2001 were $4,925 compared to actual net charge-offs of $6,613 for
the year ended December 31, 2000. Annualized net charge-offs in Superior
Financial for the nine months ended September 30, 2001 were $2,901 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 nine months ended September 30,
2001 were $1,245 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 nine months ended September 30,
2001 was $2,366 and $7,073, as compared to $1,794 and $4,906 for the same period
in 2000. The largest component of non-interest income, i.e., service charges,
commissions and fees totaled $1,872 and $5,593 for the three and nine months
ended September 30, 2001, as compared to $1,497 and $3,870 for the same periods
in 2000. This increase of $375, or 25.1%, and $1,723, or 44.5%, 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 $197, or 66.3%, and $444, or 42.9%, to $494 and $1,480
for the three and nine months ended September 30, 2001 from $297 and $1,036 for
the same periods
15
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 essentially no change in non-interest
expense, as discussed below, the Company's efficiency ratio was positively
affected, as the ratio decreased from 60.44% at September 30, 2000 to 55.38% at
September 30, 2001. The efficiency ratio illustrates how much it cost the
Company to generate revenue; for example, it cost the Company 55.38 cents to
generate one dollar of revenue for the three months ended September 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 $6,922 and $20,409 for the three and nine
months ended September 30, 2001 compared to $7,029 and $20,270 for the same
periods in 2000.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three and nine months ended September 30, 2001, salaries and
benefits represented $3,999, or 57.8%, and $12,323, or 60.4%, of total
non-interest expense, respectively. This was a decrease of $278, or 6.5%, and an
increase of $4, or essentially no percentage increase, over the $4,277 and
$12,319 for the three and nine months ended September 30, 2000. As the Company
decreased its size to 41 branches at September 30, 2001 from 44 branches at
September 30, 2000, the number of full-time equivalent employees declined 2.1%
from 374 at September 30, 2000 to 366 at September 30, 2001. 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. 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 $88, or 9.7%,
and $240, or 8.9%, to $992 and $2,926 for the three and nine months ended
September 30, 2001, as compared to $904 and $2,686 for the same 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.
CHANGES IN FINANCIAL CONDITION
Total assets at September 30, 2001 were $799,947, an increase of $10,830,
or 1.4%, from 2000's year-end total assets of $789,117. The increase in assets
was primarily reflective of the $30,269 increase in net loans and the $16,482
increase in federal funds sold and certificates of deposit, offset, in part, by
the $34,423 decline in overall securities.
16
At September 30, 2001, loans, net of unearned income and allowance for loan
losses, were $685,609 compared to $655,340 at December 31, 2000, an increase of
$30,269, or 4.6%, from December 31, 2000. The increase in loans during the first
nine 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 $4,630 and $1,241, respectively, during the nine months ended
September 30, 2001 to $9,443 and $1,716, respectively. In general, 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. Specifically, the increase in the
Bank's nonaccrual loans during the nine months ended September 30, 2001
consisted principally of one commercial relationship headquartered in Sullivan
County, Tennessee in the approximate amount of $3,500. Management believes that
this commercial credit relationship is adequately secured and that the Company
will not incur any material loss. At September 30, 2001, the ratio of the
Company's allowance for loan losses to non-performing assets (which include
non-accrual loans) was 87.95%.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at September 30, 2001 with an amortized cost of $14,009
had a market value of $14,112. 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 2001.
Deposits declined $8,798, or 1.4%, to $639,843 at September 30, 2001 from
$648,641 at December 31, 2000. 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 $8,748 in order to
offset most of the deposit reduction and to partially fund the increase in
loans.
EFFECT OF NEW ACCOUNTING STANDARDS
In 2001, new accounting guidance was issued that will, beginning in 2002,
revise the accounting for goodwill and intangible assets. Intangible assets with
indefinite lives and goodwill will no longer be amortized, but will periodically
be reviewed for impairment and written down if impaired. Additional disclosures
about intangible assets and goodwill may be required. An initial goodwill
impairment test is required during the first six months of 2002. However,
management does not expect this new guideline to have a material effect on the
financial statements.
17
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.
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
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 a Form 8-K on August 29, 2001 and another Form
8-K on October 1, 2001. The Form 8-K filed on August 29, 2001 was
to report that the Company had entered into a non-binding letter
of intent with SunTrust to acquire three SunTrust branches in
Hawkins County, Tennessee. The second form 8-K filed on October
1, 2001 was to report that the Company had entered into an
Agreement with SunTrust for the Bank's assumption of deposits and
purchase of certain
19
assets of three branch offices of SunTrust located at 210 West
Main Street, Rogersville, Tennessee, 410 Park Boulevard,
Rogersville, Tennessee and 290 Bellamy Avenue, Surgoinsville,
Tennessee. No financial statements were filed with either Form
8-K.
20
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: 11/08/01 Greene County Bancshares, Inc.
---------- ------------------------------
Registrant
Date: 11/08/01 /s/ R. Stan Puckett
---------- -------------------------------------------
R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 11/08/01 /s/ William F. Richmond
--------- -------------------------------------------
William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
21