<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended June 30, 1996 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 615/639-5111
------------
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: 451,161
Total number of sequentially-numbered pages 19
----
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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 1996 and December
31, 1995.
Condensed Consolidated Statements of Earnings - For the three
months ended June 30, 1996 and 1995 and for the six months ended
June 30, 1996 and 1995.
Condensed Consolidated Statement of Changes in Shareholders'
Equity for the six months ended June 30, 1996.
Condensed Consolidated Statements of Cash Flows - For the six
months ended June 30, 1996 and 1995.
Notes to Condensed Consolidated Financial Statements.
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
June 30, December 31,
1996 1995*
-------- --------
ASSETS (In Thousands)
<S> <C> <C>
Cash and Due from Banks $ 17,231 $ 13,723
Federal Funds sold 3,500 23,800
Securities available-for-sale 49,614 59,833
Securities held-to-maturity (with a market value of $9,630
on June 30, 1996 and $10,420 on December 31, 1995). 9,691 10,442
Loans 345,279 298,488
Less: Allowance for Loan Losses 5,290 4,654
-------- --------
Net Loans 339,989 293,834
======== ========
Bank Premises and Equipment, Net of
Accumulated Depreciation 9,631 8,339
Other Assets 13,891 10,610
-------- --------
Total Assets $443,547 $420,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $383,724 $365,951
Securities Sold under Repurchase Agreements
and Short-Term Borrowed Funds 3,373 4,784
Other Borrowings 5,934 3,448
Other Liabilities 5,467 4,472
-------- --------
Total Liabilities 398,498 378,655
-------- --------
Common stock subject to rescission(5,009 shares) 0 852
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, par value $10, authorized 1,000,000 shares;
issued and outstanding 451,161 and 442,444 shares at
June 30, 1996 and December 31, 1995, respectively 4,512 4,424
Paid in Capital 4,090 2,915
Retained Earnings 36,382 33,499
Net unrealized holding gains on
available-for-sale securities 65 236
-------- --------
Total Shareholders' Equity 45,049 41,074
-------- --------
$443,547 $420,581
======== ========
</TABLE>
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial
Statements(Unaudited)
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GREENE COUNTY BANCSHARES,INC.
Condensed Consolidated Statements of Earnings
Three Months Ended June 30, 1996 and 1995
and Six Months Ended June 30, 1996 and 1995
(Dollars in thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Six Months
Ended Ended
June 30 June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $8,450 $6,782 $16,372 $12,796
Interest on Securities 909 1,111 1,987 2,058
Interest on Federal Funds Sold 118 134 414 289
------- ------- ------- --------
Total Interest Income 9,477 8,027 18,773 15,143
Interest Expense:
Interest on Deposits 3,687 3,175 7,552 5,964
Interest on Short Term Borrowings 150 115 262 221
------- ------- ------- --------
Total Interest Expense 3,837 3,290 7,814 6,185
------- ------- ------- --------
Net Interest Income 5,640 4,737 10,959 8,958
Provision for Loan Losses 239 175 404 311
Net Interest Income after
Provision for Loan Losses 5,401 4,562 10,555 8,647
------- ------- ------- --------
Other Income:
Income from Fiduciary Activities 7 8 25 18
Service Charges on Deposit Accounts 754 463 1,282 896
Security Gains(Losses) (2) 6 (2) 6
Other Income 445 257 860 554
------- ------- ------- --------
1,204 734 2,165 1,474
Other Expenses:
Salaries and Employee Benefits 1,930 1,470 3,711 2,764
Premises and Fixed Assets Expense 530 397 1,073 764
Other Operating Expenses 905 905 1,665 1,712
3,365 2,772 6,449 5,240
------- ------- ------- --------
Earnings Before Income Taxes 3,240 2,524 6,271 4,881
Income Taxes 1,312 966 2,377 1,830
------- ------- ------- --------
Net income $1,928 $1,558 $3,894 $3,051
------- ------- ------- --------
Average Number of Shares Outstanding 447,911 443,939 446,270 443,191
Per Share of Common Stock:
Net Earnings $4.30 $3.51 $8.73 $6.88
------- ------- ------- --------
Dividends $1.12 $1.00 $2.24 $2.00
------- ------- ------- --------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
(Unaudited).
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GREENE COUNTY BANCSHARES, INC.
Condensed Consolidated Statement of Shareholders' Equity
For the Six Months Ended June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
on Available
Common Paid in Retained for Sale
Stock Capital Earnings Securities Total
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
January 1, 1996 $4,424 $2,915 $33,499 $236 $41,074
Net income - - 3,894 - 3,894
Change in unrealized
appreciation, net of tax - - - (171) (171)
Dividends paid - - (1,011) - (1,011)
Proceeds from stock rescission offer,
net of expenses to date 50 700 750
Exercise of non-incentive
stock options 38 398 - - 436
Tax benefit from exercise
of non-incentive stock options - 77 - - 77
------ ------ ------- ----- -------
June 30, 1996 $4,512 $4,090 $36,382 $ 65 $45,049
====== ====== ======= ===== =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited)
5
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GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Net Cash Provided By Operating Activities:
Net Income $ 3,894 $ 3,051
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 404 311
Provision for depreciation and amortization 570 305
Amortization of investment security premiums,
net of accretion 261 192
Decrease (increase) in interest receivable 58 (447)
Increase (decrease) in unearned income 186 (266)
Increase in other assets, net of intangibles (899) (1,419)
Increase in accrued interest payable
and other 23 1,343
-------- --------
Net cash provided by operating activities 4,497 3,070
-------- --------
Cash Flows From Investing Activities:
Net decrease (increase) in investment
securities and federal funds 38,021 (1,140)
Net increase in loans (31,905) (27,935)
Improvements in other real
estate owned and other, net (55) (1,793)
Fixed asset additions (1,282) (207)
-------- --------
Net cash provided (used) by investing activities 4,779 (31,075)
-------- --------
Cash Flows From Financing Activities:
Net (decrease) increase in demand deposits,
NOW, money market and savings accounts (4,233) 26,804
Cash dividends paid (1,011) (889)
Exercise of non-incentive stock options 436 -
(Decrease) increase in securities sold under
agreements to repurchase (1,411) 1,511
Decrease in other borrowings, net (1,207) -
Cash acquired in acquisition of subsidiary bank 1,730 -
Proceeds from issuance of common stock - 762
Professional fees related to stock rescission offer (58)
Acceptances of stock rescission offer (14)
-------- --------
Net cash (used) provided by financing activities (5,768) 28,188
-------- --------
Net Increase in Cash 3,508 183
Cash at beginning of year 13,723 15,086
-------- --------
Cash at end of quarter $ 17,231 $ 15,269
======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited)
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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1-PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Greene County
Bancshares, Inc. (the "Company") and its wholly owned subsidiaries, Greene
County Bank, American Fidelity Bank and Premier Bank of East Tennessee. All
material intercompany balances and transactions have been eliminated in the
consolidation.
2-ACQUISITION
On January 1, 1996, the Company acquired 100% of the stock of Premier
Bancshares, Inc.("Premier"), a one-bank holding company for Premier Bank of
East Tennessee, Niota, Tennessee ("Premier Bank"). As of the acquisition date,
Premier had assets of approximately $24.2 million, deposits of approximately
$22.0 million, debt and other liabilities of approximately $.5 million, and
capital of approximately $1.7 million. The purchase price of Premier was
$3,140,000, consisting of cash of $708,582 and the Company's promissory notes
to the sellers in the aggregate principal amount of $2,432,218, plus $230,000
for non-compete agreements with the sellers. The transaction was accounted for
as a purchase, resulting in the recording of a core deposit intangible of
approximately $1.1 million, goodwill of approximately $1.3 million, and an
increase to deferred tax and other liabilities of approximately $.7 million.
Amortization of the intangibles, net of tax, will be approximately $173,000
annually over the next ten years. Prior to March 31, 1996, the Company merged
Premier into the Company since Premier had no assets other than the stock of
Premier Bank. This transaction resulted in the Company owning 100% of the stock
of Premier Bank, as is the case with the Company's other subsidiaries, Greene
County Bank and American Fidelity Bank.
3-SUMMARY OF ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
In the opinion of management, the accompanying financial statements contain all
adjustments, consisting only of normal recurring adjustments, and disclosures
necessary to summarize fairly the consolidated financial position of the
Company as of June 30, 1996 and the results of operations, shareholders' equity
and cash flows
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for the three and six month periods ended June 30, 1996 and 1995.
4-ALLOWANCE FOR LOAN LOSSES
Transactions in the Allowance for Loan Losses were as follows:
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
(In thousands) 1996 1995
-------------- ---- ----
<S> <S> <S>
Balance, January 1 $4,654 $3,447
Add(Deduct):
Balances acquired in acquisition
of subsidiary bank 440
Losses charged to allowance (558) (263)
Recoveries credited to allowance 350 286
Provision for loan losses 404 311
------ ------
Balance, June 30 $5,290 $3,781
====== ======
</TABLE>
5-COMMON STOCK SUBJECT TO RESCISSION
On May 31, 1995 the Company forwarded a letter to several hundred potential
subscribers for common stock of the Company. The response to the letter
resulted in a sale of 5,009 shares of the Company's common stock to 192 new
shareholders(the "New Shareholders"). The Company received approximately
$851,530 in payment for the newly issued common shares. No commissions or other
fees were paid or received by the Company or any other person in connection
with the sale of such shares. The Company recently concluded a rescission offer
to the New Shareholders(the "Rescission Offer"). The need for the Rescission
Offer arose from the sale of the common stock to the New Shareholders without
registration with the Securities and Exchange Commission and the necessary
state securities divisions or the availability of an exemption from
registration.
In the Rescission Offer, the Company offered to rescind the sale of the shares
issued to the New Shareholders and to refund the consideration paid for such
shares, plus interest from the date of payment through the date the Company
received notice of a New Shareholder's election to rescind, less any amount of
income received on such stock by the New Shareholders. The Rescission Offer was
made pursuant to the applicable securities laws in the states in which the New
Shareholders reside. Simultaneously with the Rescission Offer, the Company
registered these shares of common stock in order that the New Shareholders, if
they desired to retain the common shares, would hold appropriately registered
stock.
At the conclusion of the Rescission Offer, the New Shareholders,
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<PAGE> 9
with the exception of three, opted to retain their shares. With respect to the
three New Shareholders who requested a refund of their consideration, the
Company refunded approximately $14,000. Professional fees to date associated
with the Rescission Offer total approximately $88,000. The Company accordingly
increased its shareholders' equity by $750,000 during the quarter ended June
30, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of Greene County Bancshares, Inc. and
subsidiaries (the "Company") for the six month and three month periods ended
June 30, 1996 and 1995, respectively. The Company is not aware of any
recommendations by the bank regulatory authorities which, if implemented, would
have a material effect on the Company's liquidity, capital resources or
operations.
Earnings
Greene County Bancshares, Inc. earnings for the three months and six months
ended June 30, 1996 were $1,928,000 and $3,894,000, respectively. This
represents a 23.7% and 27.6% increase when compared to the $1,558,000 and
$3,051,000 in earnings for the respective periods in 1995. Excluding the
approximate $51,000 and $109,000, net of intangibles amortization, contributed
by Premier Bank during the three months and six months ended June 30, 1996,
respectively, earnings for the three months and six months ended June 30, 1996
were $1,877,000 and $3,785,000, respectively. This represents a 20.5% and 24.1%
increase compared to the $1,558,000 and $3,051,000 in earnings for the
respective periods in 1995.
Net Interest Income
The largest source of earnings for the Company is net interest income, which is
the difference between interest income on interest bearing 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 earning
assets and interest-bearing liabilities, and the ability to respond to changes
in interest rates through asset/liability management. During the three and six
months ended June 30, 1996, net interest income after provision for loan
losses, was $5,401,000 and $10,555,000, respectively, as compared to $4,562,000
and $8,647,000 for the same periods in 1995, representing increases of 18.4%
and 22.1%, respectively. The increases are primarily attributable to an
increase in volume and yield of earning assets, offset by increased costs and
balances of interest-bearing liabilities.
Loans produced the largest component of interest income, contributing
$8,450,000 and $16,372,000 for the three and six months ended June 30, 1996,
respectively, as compared to $6,782,000 and $12,796,000 for the same periods in
1995, representing increases of 24.6% and 27.9%, respectively. With respect to
the six months ended June 30, 1996 compared to the six months ended June 30,
1995, the increase is attributable to both rate and volume
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<PAGE> 11
increases related to loans. With respect to the three months ended June 30,
1996 compared to the three months ended June 30, 1995, the increase is mainly
attributable to additional loan balances.
Earnings on securities and federal funds sold provided the balance of interest
income, producing $1,027,000 and $2,401,000 for the three and six month periods
ended June 30, 1996, respectively, as compared to $1,245,000 and $2,347,000 for
the same periods in 1995. Total interest expense for the Company increased
16.6% and 26.3% during the three and six month periods ended June 30, 1996,
respectively, as compared to the same periods in 1995. Interest expense
consisted primarily of interest paid on deposits which totaled $3,687,000 and
$7,552,000 during the three and six months ended June 30, 1996, respectively,
as compared to $3,175,000 and $5,964,000 for the same periods in 1995. The
Company's deposit base grew 4.9% during the six months ended June 30, 1996.
Excluding the approximate $22.0 million in deposits acquired via the Premier
Bank acquisition, the Company's deposit base declined $2.2 million, or .6%,
during the six months ended June 30, 1996. For the six months ended June 30,
1996 compared to the same period in 1995, the cost of interest-bearing
liabilities increased due to both rate and volume increases. With respect to
the three months ended June 30, 1996 compared to the same period in 1995, the
cost of interest-bearing liabilities increased primarily due to increases in
volume.
The deregulation of interest rates has given banks more opportunity to attract
deposits and has created a public which is more interest rate sensitive. As a
result, banks are paying interest on a continually increasing portion of their
deposit base. The Company's ability to maintain a favorable spread between
interest income and interest expense is a major factor in generating earnings;
therefore, it is necessary to effectively manage earning assets and interest-
bearing liabilities. As the percentage of interest-bearing deposits compared to
total deposits increases and rates become more competitive, it becomes
increasingly more difficult to maintain the Company's spread.
Non-interest Income and Expense
Income that is not related to interest-bearing assets, consisting primarily of
service charges, commissions and fees, has become more important as increases
in levels of interest-bearing deposits make it more difficult to maintain net
interest income spreads.
Total other income for the three and six month periods ended June 30, 1996 was
$1,204,000 and $2,165,000, respectively, as compared to $734,000 and $1,474,000
for the same periods in 1995. The increases of 64.0% and 46.9%, respectively,
resulted in part from an increase in service charges on deposit accounts and
commissions earned brought about by management's focus on the generation of
noninterest-sensitive areas of income.
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Control of operating expenses is also an important aspect in managing net
income. Operating expenses include personnel, occupancy, and other expenses
such as data processing, printing and supplies, legal and professional fees,
postage, Federal Deposit Insurance Corporation assessments, etc. Total other
operating expenses were $3,365,000 and $6,449,000 for the three and six month
periods ended June 30, 1996, respectively, as compared to $2,772,000 and
$5,240,000 for the same periods in 1995. Personnel costs are the primary
element of the Company's other operating expenses. During the three and six
months ended June 30, 1996, salaries and benefits represented $1,930,000 and
$3,711,000, respectively, of other operating expenses. This was an increase of
$460,000 and $947,000, or 31.3% and 34.3%, over the same periods in 1995. These
increases were due to opening new branches requiring increased staff levels,
and increased employee benefit costs, including health insurance and pension
costs, as well as the acquisition of Premier Bank. The number of full-time
equivalent employees at June 30, 1996 was 240 versus 172 at June 30, 1995, an
increase of 39.5%. Nineteen full-time equivalent employees were added as a
result of the acquisition of Premier Bank.
Other operating expenses during the three and six month periods ended June 30,
1996 were $1,435,000 and $2,738,000, increases of $133,000 and $262,000,
respectively, from the same periods in 1995. The increases were due in part to
increased expenses associated with operating new branches that were opened and
with the acquisition of Premier Bank. At June 30, 1996, the Company had 25
branches, including a)four offices of a finance company subsidiary of Greene
County Bank, b)a new limited service office of Greene County Bank's Sullivan
County branch which opened in Kingsport effective July 1, 1996, and c)one
branch of a mortgage company subsidiary of Greene County Bank which opened in
Knoxville effective July 1, 1996, compared to 16 branches at June 30, 1995,
including two offices of the same finance company subsidiary of Greene County
Bank.
Loans
At June 30, 1996, loans, net of unearned income and allowance for loan losses,
were $340.0 million compared to $269.5 million for the same period in 1995.
Excluding the approximate $14.8 million in loans acquired via the Premier Bank
acquisition, net loans increased $55.7 million, or 20.7% and $31.4 million, or
10.7% from June 30, 1995 and December 31, 1995, respectively. These increases
are primarily due to increases in commercial lending. Nonaccrual loans
decreased by $378,000 during the six month period ended June 30, 1996.
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Provision and Allowance for Loan Losses
Because the loan portfolio represents the Company's largest earning asset, the
Company continually monitors the quality of its loan portfolio. Greene County
Bancshares, Inc. operates in a diverse economy of manufacturing and agriculture
and, accordingly, most loans are made to commercial enterprises or consumers
who are directly supported by these enterprises. During the three and six
month periods ended June 30, 1996, Greene County Bancshares, Inc. charged-off
$280,000 and $558,000 in loans, and recovered $136,000 and $350,000 in
charged-off loans, respectively. All loans identified by management or
regulatory authorities as losses are charged-off against the allowance for loan
losses. All other loans classified for regulatory purposes do not require
disclosure since in management's opinion they do not (i)represent or result
from trends or uncertainties which management expects to materially impact
future operating results, liquidity or capital resources, or (ii)represent
material credits which cause management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms. The
Company's allowance for loan losses increased to $5,290,000 at June 30, 1996
from $3,781,000 at June 30, 1995. This increase is due to an overall increase
in the total loan portfolio.
Investments
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at June 30, 1996 had both an amortized cost and market
value of $59.2 million. During the same period in 1995, investments with an
amortized cost of $69.9 million had a market value of $70.0 million. This
decrease was used to fund increases in the loan portfolio.
Deposits
The funds to support the Company's asset growth have been provided by increased
deposits, which amounted to $383.7 million at June 30, 1996. This represents a
18.1% increase from the deposits at June 30, 1995 of $325.0 million. Excluding
the approximate $22.0 million in deposits acquired via the Premier Bank
acquisition, deposits increased $36.7 million, or 11.3% from June 30, 1995, and
decreased $4.2 million, or 1.1%, from December 31, 1995. The 18.1% increase
from June 30, 1995 is primarily the result of the Company's growth and branch
acquisition efforts and aggressive focus on the attraction of new time deposit
customers, as well as targeting overall relationship banking with its major new
and existing loan customers.
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Shareholders' Equity and Capital Adequacy
Sufficient levels of capital are necessary to sustain growth and absorb losses.
The Company exceeds all regulatory capital requirements. The Company's primary
source of new capital is retained earnings. Also, the Company increased its
capital by $750,000 during the quarter ended June 30, 1996 in accordance with
its Rescission Offer, as further described in Note 5 to the Condensed
Consolidated Financial Statements.
The Federal Reserve Board, the FDIC and other agencies which regulate financial
institutions have adopted capital adequacy standards applicable to financial
institutions. These standards are intended to reflect the degree of risk
associated with both on and off balance sheet items and to assure that even
those institutions that invest predominately in low risk assets maintain a
certain minimum level of capital. The following table provides the Company's
best collective understanding of the regulatory capital requirements as
currently published. These understandings are based upon regulations,
guidelines and interpretations now in effect or proposed, all of which are
subject to change.
<TABLE>
<CAPTION>
Capital Ratios at
June 30, 1996
---------------------------
Required
Minimum Company's
Ratio Ratio
-------- ---------
<S> <C> <C>
Tier 1 risk-based capital 4.00% 12.54%
Total risk-based capital 8.00% 13.79%
Leverage Ratio 3.00% 9.42%
</TABLE>
The Company believes it was in compliance with all minimum regulatory capital
guidelines at June 30, 1996 and continues to be so.
Liquidity and Growth
Liquidity refers to the ability of the Company to generate sufficient funds to
meet its financial obligations and commitments without significantly impacting
net interest income. One of the Company's objectives is to maintain a high
level of liquidity, and this goal continues to be met. Maintaining liquidity
ensures that
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funds will be available for reserve requirements, customer demand for loans,
withdrawal of deposit balances and maturities of other deposits and
liabilities. These obligations can be met by existing cash reserves of funds
from maturing loans and investments, but in the normal course of business are
met by deposit growth. Increased deposits and retained earnings are also the
sources for the Company's continued growth.
During the six month period ended June 30, 1996, operating activities of the
Company provided $4,497,000 of cash flows. Net income of $3,894,000, adjusted
for non-cash operating activities, provided the majority of cash generated from
operations.
Investing activities, including lending, provided $4,779,000 of the Company's
cash flow. While loans originated, net of principal collected, used $31,905,000
in funds, the decrease in investment securities and federal funds provided
$38,021,000 in cash flow. Because of the decrease in deposits, as described
below, the Company had to rely on reducing its investment securities and
federal funds in order to fund its continued loan growth.
Net additional cash outflows of $5,768,000 were used by financing activities.
Net deposit reductions accounted for $4,233,000 of the funds used, as deposits
dropped due to normal seasonality trends. In addition to the net decrease in
deposits, cash dividends paid, the increase in securities sold under agreements
to repurchase and the decrease in other borrowings, net, used $1,011,000,
$1,411,000 and $1,207,000, respectively, of cash flows. Partially offsetting
these cash outflows was cash provided via the acquisition of Premier Bank in
the amount of $1,730,000.
The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented 20.9% of total deposits
at June 30, 1996, a decrease from 27.8% at June 30, 1995.
Interest Sensitivity
Deregulation of interest rates and short-term, interest-bearing deposits which
are more volatile have created a need for shorter maturities of earnings
assets. An increasing percentage of commercial and installment loans is being
made with variable rates or shorter maturities to increase liquidity and
interest rate sensitivity. The difference between interest sensitive asset and
interest sensitive liability repricing within time periods is referred to as
the interest rate sensitivity gap. Gaps are identified as either positive
(interest sensitive assets in excess of interest sensitive liabilities) or
negative (interest sensitive liabilities in excess of interest sensitive
assets). The Company believes it possesses a positive gap and, accordingly,
that its net
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interest income will increase in a rising interest rate environment.
Conversely, the Company believes that its net interest income will decrease in
a declining interest rate scenario due to its positive gap position.
Inflation
The effect of inflation on financial institutions differs from the impact on
other types of businesses. Since assets and liabilities of banks are primarily
monetary in nature, they are more affected by changes in interest rates than by
the rate of inflation.
Inflation generates increased credit demand and fluctuation in interest rates.
Although credit demand and interest rates are not directly tied to inflation,
each can significantly impact net interest income. As in any business or
industry, expenses such as salaries, equipment, occupancy and other operating
expenses are also subject to the upward pressures created by inflation.
Since the rate of inflation has been stable during the last several years, the
impact of inflation on the earnings presented in this report is insignificant.
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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. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash
flows.
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)May 14, 1996
Annual Meeting
(b)All current directors were reelected by shareholders at the
annual meeting. The names of the directors are as follows:
Phil M. Bachman Davis Stroud
Harrison Lamons Charles S. Brooks
Terry Leonard J. W. Douthat
Ralph T. Brown Patrick A. Norris
James A. Emory Helen Horner
W. T. Daniels Jerald K. Jaynes
R. Stan Puckett
(c)Shareholders approved the Incentive Stock Option Plan of
Greene County Bancshares, Inc. And Subsidiaries of 1995("ISOP"), as
more fully described in the 1995 Proxy Statement.
Item 5. Other information
During the quarter ended June 30, 1996, the Company announced its
intentions to restructure and consolidate the operations functions
at two of its subsidiaries,American Fidelity Bank and Premier Bank
of East Tennessee, into the operations area of its largest
17
<PAGE> 18
subsidiary, Greene County Bank. With respect to American Fidelity
Bank, the Company anticipates an acquisition of all the assets and
liabilities of that entire bank by Greene County Bank, with the
result that American Fidelity Bank will no longer operate as a
separate entity; however, the mechanics of the transaction will be
such that the state charter of American Fidelity Bank will be
preserved for future salability. Premier Bank of East Tennessee
will continue to operate as a separate state-chartered bank.
The Company projects that 12 employee positions will be eliminated
as a result of this consolidation, which is expected to be completed
by the end of 1996. The elimination of these positions is expected
to result in annual pretax personnel expense savings of
approximately $336,000 commencing in 1997. Severance benefits, if
any, related to this consolidation will be expensed when paid and
are not considered material to the financial statements of the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a)None
Exhibit 27 Financial Data Schedule (for SEC use only)
18
<PAGE> 19
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.
Greene County Bancshares, Inc.
------------------------------
Registrant
Date: 8/1/96 /s/ R. Stan Puckett
----------- ------------------------------
R. Stan Puckett
President and CEO
Date: 8/1/96 /s/ William F. Richmond
----------- -----------------------------
William F. Richmond
Senior Vice-President,
Chief Financial and Accounting
Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREENE COUNTY BANCSHARES, INC. FOR THE 6 MONTHS ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,231
<INT-BEARING-DEPOSITS> 0
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0
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