<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended June 30, 1998 Commission File Number
0-14289
GREENE COUNTY BANCSHARES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1222567
- ------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporated or organization) Number)
Main & Depot Street
Greeneville, Tennessee 37743
- ------------------------------ ---------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 423-639-5111
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 1,355,088
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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, 1998 and December 31,
1997.
Condensed Consolidated Statements of Earnings - For the three and six
months ended June 30, 1998 and 1997.
Consolidated Statements of Comprehensive Income - For the three and six
months ended June 30, 1998 and 1997.
Condensed Consolidated Statement of Stockholders' Equity- For the six
months ended June 30, 1998.
Condensed Consolidated Statements of Cash Flows - For the six months ended
June 30, 1998 and 1997.
Notes to Condensed Consolidated Financial Statements.
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
June 30, December 31,
1998 1997*
---------- ------------
(In Thousands)
ASSETS
------
<S> <C> <C>
Cash and Due from Banks $17,913 $20,687
Federal Funds Sold 20,815 5,500
Securities available-for-sale 29,233 33,852
Securities held-to-maturity (with a market value of $5,017
on June 30, 1998 and $7,638 on December 31, 1997). 5,041 7,627
Loans 437,486 450,544
Less: Allowance for Loan Losses 9,259 9,154
----- -----
Net Loans 428,227 441,390
------- -------
Bank Premises and Equipment, Net of
Accumulated Depreciation 10,424 9,803
Other Assets 13,949 15,242
------ ------
Total Assets $525,602 $534,101
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $456,355 $461,729
Securities Sold under Repurchase Agreements
and Short-Term Borrowed Funds 3,132 1,414
Other Borrowings 7,296 15,487
Other Liabilities 5,253 5,359
----- -----
Total Liabilities 472,036 483,989
------- -------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1,355,088 and 1,354,500 shares at
June 30, 1998 and December 31, 1997, respectively 13,551 13,545
Paid in Capital 4,169 4,135
Retained Earnings 35,763 32,332
Accumulated Other Comprehensive Income 83 100
-- ---
Total Shareholders' Equity 53,566 50,112
------ ------
$525,602 $534,101
======== ========
</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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands except per share data)
--------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
Interest Income:
<S> <C> <C> <C> <C>
Interest and Fees on Loans $11,709 $11,116 $23,629 $21,448
Interest on Securities 557 744 1,178 1,505
Interest on Federal Funds Sold 277 40 410 75
--- -- --- --
Total Interest Income 12,543 11,900 25,217 23,028
Interest Expense:
Interest on Deposits 4,560 4,363 9,223 8,421
Interest on Short Term Borrowings 103 291 280 551
--- --- --- ---
Total Interest Expense 4,663 4,654 9,503 8,972
----- ----- ----- -----
Net Interest Income 7,880 7,246 15,714 14,056
Provision for Loan Losses 637 803 974 1,224
--- --- --- -----
Net Interest Income after
Provision for Loan Losses 7,243 6,443 14,740 12,832
----- ----- ------ ------
Noninterest Income:
Service Charges, Commissions and Fees 1,000 751 1,708 1,433
Security Gains(Losses) 0 2 0 2
Other Income 69 96 321 523
-- -- --- ---
1,069 849 2,029 1,958
Noninterest Expense:
Salaries and Employee Benefits 2,594 2,265 5,238 4,320
Occupancy and Furniture and Equipment Expense 680 596 1,299 1,199
Other Expenses 1,310 1,063 2,471 1,900
----- ----- ----- -----
4,584 3,924 9,008 7,419
----- ----- ----- -----
Earnings Before Income Taxes 3,728 3,368 7,761 7,371
Income Taxes 1,452 1,270 2,975 2,785
----- ----- ----- -----
Net income $2,276 $2,098 $4,786 $4,586
====== ====== ====== ======
Average Number of Shares, Assuming Dilution 1,363,101 1,357,746 1,362,566 1,357,743
Per Share of Common Stock:
Net Income $1.68 $1.55 $3.53 $3.39
===== ===== ===== =====
Net Income, Assuming Dilution $1.67 $1.55 $3.51 $3.38
===== ===== ===== =====
Dividends $0.50 $0.42 $1.00 $0.83
===== ===== ===== =====
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
(Unaudited).
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands except share and per share data)
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $2,276 $2,098 $4,786 $4,586
Other Comprehensive Income (Loss), net of tax:
Unrealized Gains (Losses) on Securities (4) 34 (17) 155
---- ---
Other Comprehensive Income (Loss) (4) 34 (17) 155
--- -- ---- ---
Comprehensive Income $2,272 $2,132 $4,769 $4,741
====== ====== ====== ======
Average Number of Shares, Assuming Dilution 1,363,101 1,357,746 1,362,566 1,357,743
Per Share of Common Stock:
Comprehensive Income $1.68 $1.57 $3.52 $3.50
===== ===== ===== =====
Comprehensive Income, Assuming Dilution $1.67 $1.57 $3.50 $3.49
===== ===== ===== =====
Dividends $0.50 $0.42 $1.00 $0.83
===== ===== ===== =====
</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, 1998
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid in Retained Comprehensive
Stock Capital Earnings Income Total
----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
January 1, 1998 $13,545 $4,135 $32,332 $100 $50,112
Comprehensive income
Net income - - 4,786 - 4,786
Other comprehensive income (loss),
net of tax
Unrealized losses on securities - - - - (17)
----
Other comprehensive income(loss) - - - (17) (17)
----
Comprehensive income - - - - 4,769
-----
Dividends paid - - (1,355) - (1,355)
Exercise of stock options 6 27 - - 33
Tax benefit from exercise
of stock options - 7 - - 7
---------- ---------- ----------- ---------- -----------
June 30, 1998 $13,551 $4,169 $35,763 $83 $53,566
========== ========== =========== ========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)
6
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GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $4,786 $4,586
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 974 1,224
Provision for depreciation and amortization 575 581
Amortization of investment security premiums,
net of accretion 165 202
Decrease in interest receivable 292 212
Increase in unearned income 1,552 1,139
Decrease (increase) in other assets, net of intangibles 867 (1,466)
(Decrease) increase in accrued interest payable
and other (2,257) 1,921
------ ------
Net cash provided by operating activities 6,954 8,399
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in investment securities
and federal funds (8,110) 5,243
Net decrease (increase) in loans 11,505 (50,894)
(Increase) decrease in other real
estate owned and other, net (16) 119
Recoveries of loan losses 1,039 240
Fixed asset additions (979) (187)
------ ------
Net cash provided (used) by investing activities 3,439 (45,479)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW,
money market and savings accounts (5,373) 34,273
Cash dividends paid (1,355) (1,129)
Exercise of stock options 33 3
Increase in securities sold under
agreements to repurchase 1,718 5,679
Decrease in other borrowings, net (8,190) (2,743)
------ ------
Net cash (used) provided by financing activities (13,167) 36,083
------ ------
NET DECREASE IN CASH (2,774) (997)
------ ------
CASH AT BEGINNING OF YEAR 20,687 21,332
------ ------
CASH AT END OF QUARTER $17,913 $20,335
======= =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)
7
<PAGE> 8
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1-PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements of Greene County
Bancshares, Inc. (the "Company") and its wholly owned subsidiaries, Greene
County Bank ("GCB") and Premier Bank of East Tennessee ("PBET"), have been
prepared in accordance with generally accepted accounting principles for interim
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X as promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. All
interim amounts are subject to year-end audit and the results of operations for
the interim period herein are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. 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, 1997.
2-ALLOWANCE FOR LOAN LOSSES
Transactions in the Allowance for Loan Losses for the six months ended June 30,
1998 were as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
Balance, January 1, 1998 $9,154
Add(Deduct):
Charge-offs (1,908)
Recoveries 1,039
Provision 974
------
Balance, June 30, 1998 $9,259
======
</TABLE>
8
<PAGE> 9
3-NET INCOME PER SHARE OF COMMON STOCK
Net income 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, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
1998 1997
---------------------- ------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
<S> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $2,276 1,355,019 $2,098 1,354,500
EFFECT OF DILUTIVE SECURITIES
Stock options outstannding - 8,082 - 3,246
----------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,276 1,363,101 $2,098 1,357,746
====================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1998 1997
---------------------- ------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
<S> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $4,786 1,354,809 $4,586 1,354,497
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 7,757 - 3,246
----------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $4,786 1,362,566 $4,586 1,357,743
====================================================
</TABLE>
9
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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.
GENERAL
Greene County Bancshares, Inc. (the "Company") is the bank holding company
for Greene County Bank("GCB") and Premier Bank of East Tennessee("APBET"), and
collectively referred to as the "Banks", which are Tennessee-chartered
commercial banks that conduct the principal business of the Company. The Company
is currently in the process of transferring the assets of PBET to GCB and
expects to complete the process before year-end. For further information, see
Item 5 below. In addition to its commercial banking operations, GCB conducts
separate businesses through its three wholly-owned subsidiaries: Superior
Financial Services, Inc. ("Superior Financial"), a consumer finance company;
Superior Mortgage Company ("Superior Mortgage"), a mortgage banking company; and
GCB Acceptance Corporation ("GCB Acceptance"), a subprime automobile lending
company.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of
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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 Banks. Applicable Tennessee statutes and
regulations impose restrictions on the amount of dividends that may be declared
by the subsidiary Banks. Further, any dividend payments are subject to the
continuing ability of each of the Banks to maintain their respective compliance
with minimum federal regulatory capital requirements and to retain their
characterization under federal regulations as "well-capitalized" institutions.
In addition, the Company maintains a line of credit of $20 million with the
Federal Home Loan Bank of Cincinnati and three federal funds lines of credit
totaling $20 million at three correspondent banks.
The Company's liquid assets include investment securities, federal funds
sold and other interest-earning deposits, and cash and due from banks. These
assets represented 15.64% of the total liquidity base at June 30, 1998, as
compared to 12.5% at December 31, 1997. 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, 1998, operating activities of the
Company provided $6,954,000 of cash flows. Net income of $4,786,000, adjusted
for non-cash operating activities, including $974,000 in provision for loan
losses and amortization and depreciation of $575,000, provided the majority of
the cash generated from operations.
Investing activities, including lending, provided $3,439,000 of the
Company's cash flow during the six months ended June 30, 1998. The net decrease
in loans provided $11,505,000 in funds. The Company's increase in investment
securities and federal funds sold used $8,110,000 in cash flows.
Net additional cash outflows of $13,167,000 were used by financing
activities during the six months ended June 30, 1998. Net deposit reduction
accounted for $5,373,000 of the decrease. Other decreases arose from a decrease
in other borrowings, net and cash dividends paid to shareholders of $1,355,000.
Offsetting these decreases were an increase in securities sold under agreements
to repurchase of $1,718,000.
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
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position while consistently paying dividends to its stockholders. Further, the
capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Company's
daily operations.
Shareholders' equity on June 30, 1998 was $53,566,000, an increase of
$3,454,000 or 6.89%, from $50,112,000 on December 31, 1997. The increase in
shareholders' equity reflects net income for the six months ended June 30, 1998
of $4,786,000 ($3.51 per share, assuming dilution), and proceeds from the
exercise of stock options during the six months ended June 30, 1998 totaling
$33,000. This increase was offset by quarterly dividend payments during the six
months ended June 30, 1998 totaling $1,355,000 ($1.00 per share) and the
reduction in equity associated with the decrease in the value of securities
available for sale of $17,000.
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. At June 30,
1998, the Company and the Banks each satisfied their respective minimum
regulatory capital requirements, and each of the Banks was "well-capitalized"
within the meaning of federal regulatory requirements.
<TABLE>
<CAPTION>
====================================================================================
Capital Ratios at June 30, 1998
- ------------------------------------------------------------------------------------
Required
Minimum Company GCB PBET
Ratio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital 4.00% 12.40% 12.97% 10.71%
- ------------------------------------------------------------------------------------
Total risk-based capital 8.00% 13.67% 14.23% 11.96%
- ------------------------------------------------------------------------------------
Leverage Ratio 4.00% 9.76% 10.27% 7.58%
====================================================================================
</TABLE>
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three and six months ended June 30, 1998
was $2,276,000 and $4,786,000, respectively, an increase of $178,000, or 8.5%
and $200,000, or 4.4%, as compared to net
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<PAGE> 13
income of $2,098,000 and $4,586,000, respectively, for the same periods in 1997.
The increase for the three months ended June 30, 1998 resulted primarily
from an increase in net interest income of $634,000, or 8.7%, to $7,880,000 for
the three months ended June 30, 1998 from $7,246,000 for the same period in
1997. The increase in net interest income reflects the Company's continued
growth in average loan balances for the three months ended June 30, 1998, as
compared to the same period in 1997, through its expanding branch network,
primarily through increases in real estate and consumer loans. However, total
loans at June 30, 1998 have declined from the balance at December 31, 1997. For
further information, see the discussion in Changes in Financial Condition below.
Further, the Company benefitted from an increase in noninterest income of
$220,000, or 25.9%, to $1,069,000 for the three months ended June 30, 1998 from
$849,000 for the same period in 1997. The increase in noninterest income
resulted primarily from a $249,000, or 33.1%, increase in service charges,
commissions and fees from $751,000 for the same period in 1997. This increase
reflects the Company's strategic focus on the generation of fee income through
implementation of additional fees and increasing existing fees. In addition,
this increase in net income also reflects the decline for each of the periods in
the Company's provision for loan losses. Offsetting, in part, the increases in
net interest income and noninterest income was the $660,000, or 16.8%, increase
in non-interest expense to $4,584,000 for the three months ended June 30, 1998
from $3,924,000 for the same period in 1997, attributable primarily to
increasing compensation and fixed asset expenses associated with the growth of
the Company's branch network.
The increase for the six months ended June 30, 1998 resulted primarily
from an increase in net interest income of $1,658,000, or 11.8%, to $15,714,000
for the six months ended June 30, 1998 from $14,056,000 for the same period in
1997. This increase reflects the same basic trends in existence during the three
months ended June 30, 1998. These increases were offset in part by the
$1,589,000, or 21.4%, increase in non-interest expense to $9,008,000 for the six
months ended June 30, 1998 from $7,419,000 for the same period in 1997, again
primarily attributable to increasing compensation, occupancy and furniture and
equipment expense and other expenses associated with the growth of the Company's
branch network.
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 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
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<PAGE> 14
and six months ended June 30, 1998, net interest income was $7,880,000 and
$15,714,000, respectively, as compared to $7,246,000 and $14,056,000 for the
same periods in 1997, representing increases of 8.7% and 11.8%, respectively.
With respect to the three months ended June 30, 1998, this increase was due
primarily to an increase in average volume and yield of interest-earning assets,
offset by increased average balances of interest-bearing liabilities. This
increase in average balances of interest-bearing liabilities was mitigated
slightly by lower costs. With respect to the six months ended June 30, 1998,
this increase was due primarily to an increase in average volume and yield of
interest-earning assets, offset primarily by increased average balances of
interest-bearing liabilities. However, this continued increase in average volume
and yield of interest-earning assets will depend, in large part, upon the level
of the Company's loan balances, which have declined since December 31, 1997. For
further information, see Changes in Financial Condition below.
PROVISION FOR LOAN LOSSES. During the three and six month periods ended
June 30, 1998, loan charge-offs were $1,277,000 and $1,908,000, and recoveries
of charged-off loans were $660,000 and $1,039,000, respectively. The Company's
provision for loan losses decreased to $637,000 and $974,000 for the three and
six month periods ended June 30, 1998, respectively, from $803,000 and
$1,224,000 for the respective periods in 1997. This decline reflects the
elimination of a specific reserve attributable to a commercial real estate loan
that was restructured with a smaller than anticipated loss to the Company and
also reflects management's assessment of the overall risk to the Company's loan
portfolio in the current interest rate environment. As a result, the Company's
allowance for loan losses increased to $9,259,000 at June 30, 1997 from
$9,154,000 at December 31, 1997. The ratio of the allowance for loan losses to
nonperforming assets was 235.9% and 210.15% at June 30, 1998 and December 31,
1997, respectively, and the ratio of nonperforming assets to total assets was
.75% and .81% at June 30, 1998 and December 31, 1997, respectively.
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 month periods ended June
30, 1998 was $1,069,000 and $2,029,000, respectively, as compared to $849,000
and $1,958,000 for the same periods in 1997. The largest component of
non-interest income is service charges, commissions and fees, which totaled
$1,000,000 and $1,708,000, respectively, for the three and six month periods
ended June 30, 1998, as compared to $751,000 and $1,433,000, respectively, for
the same periods in 1997. The $249,000, or 33.2%, increase for the three months
ended June 30, 1998 compared to the same period in
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<PAGE> 15
1997, is reflective principally of management's focus on the generation of fee
income through implementation of additional fees and increasing existing fees.
Service charges and fees for the six months ended June 30, 1998 increased
$275,000, or 19.2%, from the same period in 1997, primarily for the same reasons
discussed above relative to the three months ended June 30, 1998.
Other income for the three and six month periods ended June 30, 1998 was
$69,000 and $321,000, respectively, as compared to $96,000 and $523,000 for the
same periods in 1997. With respect to the three months ended June 30, 1998, the
decrease of $27,000 is primarily explained by relatively small decreases in
check order income, gains on sales of other real estate owned and other
miscellaneous income. With respect to the six months ended June 30, 1998, the
decrease of $202,000 is explained primarily by an approximate $191,000 gain,
recognized in the six months ended June 30, 1997, on the sale of GCB's Sullivan
County Walmart branch in connection with the Company's continuous review of
branch operations and market strategy.
NON-INTEREST EXPENSE. Control of non-interest expense also is an important
aspect in managing net 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 increased to $4,584,000 and
$9,008,000 for the three and six month periods ended June 30, 1998,
respectively, as compared to $3,924,000 and $7,419,000 for the same periods in
1997. These increases totaled $660,000, or 16.8%, and $1,589,000, or 21.4%, for
the three and six month periods ended June 30, 1998, respectively. Primarily as
a result of this increase in non-interest expense, the Company's efficiency
ratio was adversely affected, as the ratio increased from 46.33% at June 30,
1997 to 50.77% at June 30, 1998. The efficiency ratio illustrates how much it
costs the Company to generate revenue; for example, it cost the Company 50.77
cents to generate one dollar of revenue for the six months ended June 30, 1998.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three and six month periods ended June 30, 1998, salaries and
benefits represented $2,594,000, or 56.6%, and $5,238,000, or 58.1%, of total
noninterest expenses, respectively. This was an increase of $329,000, or 14.5%,
and $918,000, or 21.3%, over the $2,265,000 and $4,320,000 for the three and six
month periods ended June 30, 1997. For the six months ended June 30, 1997,
salaries and benefits represented 58.2% of total noninterest expenses. These
increases were due to opening new branches and strengthening certain operational
areas, which required increased staff at varying experience and compensation
levels and increased employee benefit costs. Overall, the number of full-time
equivalent employees at June 30, 1998 was 272 versus 250
15
<PAGE> 16
at June 30, 1997, an increase of 8.8%.
Occupancy and furniture and equipment expense also increased during the
three and six month periods ended June 30, 1998 compared to the same periods in
1997 as the Company increased its size to 30 branches at June 30, 1998, from 29
branches at June 30, 1997.
Other expenses for the three and six month periods ended June 30, 1998
were $1,310,000 and $2,471,000, increases of $247,000, or 23.2%, and $571,000,
or 30.0%, respectively, from the same periods in 1997. These increases are
reflective of the Company's new branches which required additional advertising,
postage, telephone and other expenses, as well as increased expenses related to
new programs for customer product delivery.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1998 were $525.6 million, a decrease of $8.5
million, or 1.6%, from 1997's year end total assets of $534.1 million. The
slight reduction in assets was centered principally in interest-earning assets
as a result of the use of cash to reduce other borrowings, as further described
below.
At June 30, 1998, loans, net of unearned income and allowance for loan
losses, were $428.2 million compared to $441.4 million at December 31, 1997, a
decrease of $13.2 million, or 3.0%, from December 31, 1997. The decrease in
loans during the first half of 1998 is primarily due to payoffs of certain
commercial and commercial real estate loans, as well as a softening in loan
demand in certain markets.
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 decreased by $623,000, or
27.5%, during the six months ended June 30, 1998.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at June 30, 1998 had an amortized cost of $34.1 million
and a market value of $34.3 million. At year end 1997, investments with an
amortized cost of $41.3 million had a market value of $41.5 million. This
decrease, resulting from normal maturing of securities, was principally used to
fund part of the decrease in other borrowings.
In view of the softening of loan demand in certain markets during the six
months ended June 30, 1998, the company elected to deploy some of its liquidity
toward the reduction of its other
16
<PAGE> 17
borrowings. Accordingly, other borrowings were reduced approximately $8.2
million. Most of the reduction took place in the Company's advances with the
Federal Home Loan Bank of Cincinnati, which were costing more than the earnings
being generated on federal funds sold. The funding mechanism for the Company's
assets consists primarily of deposits, which were $456.3 million at June 30,
1998. This represents a $5.4 million, or 1.2%, decrease from the deposits at
year end 1997 of $461.7 million, with most of the decrease occurring in
certificate of deposit accounts. With the softening of loan demand in certain
markets, the Company has not aggressively sought new time deposits during the
six months ended June 30, 1998.
EFFECT OF NEW ACCOUNTING STANDARDS
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
reporting by public companies of operating segments in annual financial
statements and requires that those enterprises also report selected information
about operating segments in interim financial reports issued to shareholders.
This statement also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments. This statement is effective for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years must be restated. The Company is evaluating SFAS
No. 131 to determine the impact, if any, on the Company's reporting and
disclosure requirements. The Company intends to adopt the reporting requirements
of SFAS No. 131 as of December 31, 1998.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits." The statement revises
employers' disclosures about pension and other post-retirement benefit plans. It
does not change the measurement or recognition of those plans. The statement is
effective for fiscal years beginning after December 15, 1997. Restatement of
disclosures for earlier periods for comparative purposes is required. The
Company is evaluating SFAS No. 132 to determine the impact on the Company's
reporting and disclosure requirements.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in arious 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 1998 Annual Meeting of Shareholders of the Company was held
on May 13, 1998.
(b)Not applicable.
(c)The following proposals were considered by shareholders at the
Annual Meeting:
I. Proposals Adopted
Proposal 1-Election of Directors
The following directors were re-elected:
<TABLE>
<CAPTION>
Votes
-----
For Withheld
--- --------
<S> <C> <C>
Harrison Lamons(1) 977,715 48
J.W. Douthat(1) 977,715 48
Helen Horner(1) 977,715 48
Jerald K. Jaynes(1) 965,955 11,808
W.T. Daniels(2) 976,371 1,392
R. Stan Puckett(2) 977,715 48
Davis Stroud(2) 976,965 798
Charles S. Brooks(2) 977,715 48
Phil M. Bachman(3) 977,715 48
Terry Leonard(3) 977,715 48
Ralph T. Brown(3) 977,715 48
James A. Emory(3) 977,715 48
</TABLE>
19
<PAGE> 20
Proposal 2-Adoption of a Classified Board
The above proposal was adopted with the following vote:
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
905,342 1,764 63,987
</TABLE>
The directors were elected to staggered terms, as outlined below:
Directors identified with footnote (1) in Proposal 1 above were
elected to terms which expire in 1999.
Directors identified with footnote (2) in Proposal 1 above were
elected to terms which expire in 2000.
Directors identified with footnote (3) in Proposal 1 above were
elected to terms which expire in 2001.
Proposal 3-Allowable Range of the Number of Directors, as further
defined in the Company's Proxy Statement for the Year Ended December
31, 1997
The above proposal was adopted with the following vote:
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
902,604 3,882 64,607
</TABLE>
Proposal 5-Prohibition on Cumulative Voting, as further defined in
the Company's Proxy Statement for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
864,254 37,348 69,491
</TABLE>
Proposal 6-Calling of Special Meetings, as further defined in the
Company's Proxy Statement for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
864,910 40,016 66,167
</TABLE>
20
<PAGE> 21
Proposal 7-Increase in Number of Authorized Shares of Common Stock,
as further defined in the Company's Proxy Statement for the Year
Ended December 31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
859,839 41,108 70,146
</TABLE>
Proposal 8-Notice of Nominations and New Proposals, as further
defined in the Company's Proxy Statement for the Year Ended December
31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
889,485 14,855 66,753
</TABLE>
Proposal 9-Elimination of Voting of Excess Shares, as further
defined in the Company's Proxy Statement for the Year Ended December
31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
885,947 17,957 67,189
</TABLE>
Proposal 10-Adjournment of the Annual Meeting, as further defined in
the Company's Proxy Statement for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Votes
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
892,025 14,447 64,621
</TABLE>
II. Proposals Considered and Not Adopted
Proposal 4-Removal of Directors, as further defined in the Company's
Proxy Statement for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
872,415 31,808 66,870
</TABLE>
This proposal was not adopted because it failed to receive the
minimum vote of 66 2/3% of all outstanding shares.
21
<PAGE> 22
Item 5. Other Information
During the quarter ended June 30, 1998, the Company announced its
intentions to consolidate the operations of its subsidiary, Premier Bank of East
Tennessee, into the operations of its largest subsidiary, Greene County Bank.
With respect to the mechanics of the consolidation, the Company anticipates an
acquisition of all the assets and liabilities of that entire bank by Greene
County Bank, with the result that Premier Bank of East Tennessee will no longer
operate as a separate entity; however, the mechanics of the transaction will be
such that the state charter of Premier Bank of East Tennessee will be preserved
for future salability.
The Company projects that seven employee positions will be eliminated as a
result of this consolidation, which is expected to be completed in the fourth
quarter of 1998. The elimination of these positions is expected to result in
annual pretax personnel expense savings of approximately $180,000 commencing in
late 1998. Severance benefits related to this consolidation will be expensed
when paid and are projected to amount to approximately $50,000.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit 27 Financial Data Schedule(for SEC use only)
(b)Reports on Form 8-K
None
22
<PAGE> 23
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: 8/3/98 Greene County Bancshares, Inc.
------------ ------------------------------
Registrant
Date: 8/3/98 /s/
------------ ------------------------------
R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 8/3/98 /s/
------------ ------------------------------
William F. Richmond
Sr. Vice President and Chief
Financial Officer
(Principal financial and
accounting officer)
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 17,913 20,335
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 20,815 716
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 29,233 38,208
<INVESTMENTS-CARRYING> 5,041 8,214
<INVESTMENTS-MARKET> 5,017 8,192
<LOANS> 437,486 438,358
<ALLOWANCE> 9,259 8,244
<TOTAL-ASSETS> 525,602 521,564
<DEPOSITS> 456,355 442,995
<SHORT-TERM> 3,132 8,951
<LIABILITIES-OTHER> 5,253 7,216
<LONG-TERM> 7,296 13,062
0 0
0 0
<COMMON> 13,551 4,514
<OTHER-SE> 40,015 44,826
<TOTAL-LIABILITIES-AND-EQUITY> 525,602 521,564
<INTEREST-LOAN> 23,629 21,448
<INTEREST-INVEST> 1,178 1,505
<INTEREST-OTHER> 410 75
<INTEREST-TOTAL> 25,217 23,028
<INTEREST-DEPOSIT> 9,223 8,421
<INTEREST-EXPENSE> 9,503 8,972
<INTEREST-INCOME-NET> 15,714 14,056
<LOAN-LOSSES> 974 1,224
<SECURITIES-GAINS> 0 2
<EXPENSE-OTHER> 9,008 7,419
<INCOME-PRETAX> 7,761 7,371
<INCOME-PRE-EXTRAORDINARY> 7,761 7,371
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,786 4,586
<EPS-PRIMARY> 3.53 3.39
<EPS-DILUTED> 3.51 3.38
<YIELD-ACTUAL> 6.50 5.89
<LOANS-NON> 1,642 628
<LOANS-PAST> 1,760 1,302
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 10,357 10,057
<ALLOWANCE-OPEN> 9,154 7,331
<CHARGE-OFFS> 1,908 551
<RECOVERIES> 1,039 240
<ALLOWANCE-CLOSE> 9,259 8,244
<ALLOWANCE-DOMESTIC> 9,259 8,244
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
