FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended March 31, 2000 Commission File Number
0-14289
GREENE COUNTY BANCSHARES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1222567
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer Identification
incorporated or organization) Number)
Main & Depot Street
Greeneville, Tennessee 37743
- --------------------------------- ---------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 423-639-5111
------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 1,363,652.
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of the Registrant and
its wholly-owned subsidiaries are as follows:
Condensed Consolidated Balance Sheets - March 31, 2000 and December 31,
1999.
Condensed Consolidated Statements of Income - For the three months ended
March 31, 2000 and 1999.
Condensed Consolidated Statement of Stockholders' Equity - For the three
months ended March 31, 2000.
Condensed Consolidated Statements of Cash Flows - For the three months
ended March 31, 2000 and 1999.
Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999*
---------------- --------------
(IN THOUSANDS)
---------------------------------
ASSETS
------
<S> <C> <C>
Cash and Due from Banks $ 24,703 $ 44,555
Federal Funds Sold 45,300 0
Securities available-for-sale 44,945 20,726
Securities held-to-maturity (with a market value of $3,057
on March 31, 2000 and $3,326 on December 31, 1999). 3,060 3,321
Federal Home Loan Bank stock 3,888 3,477
Bankers Bank Stock 144 144
Loans 586,727 557,229
Less: Allowance for Loan Losses 10,615 10,332
----------- -----------
NET LOANS 576,112 546,897
----------- -----------
Bank Premises and Equipment, Net of
Accumulated Depreciation 20,430 18,106
Other Assets 18,626 18,786
------------ ------------
TOTAL ASSETS $ 737,208 $ 656,012
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $ 578,397 $ 522,382
Federal Funds Purchased 0 11,620
Securities Sold under Repurchase Agreements 5,582 2,961
Other Borrowings 80,191 46,309
Other Liabilities 10,629 11,968
------------ ------------
TOTAL LIABILITIES 674,799 595,240
------------ ------------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1,363,043 and 1,359,647 shares at
March 31, 2000 and December 31, 1999, respectively 13,630 13,596
Paid in Capital 4,795 4,479
Retained Earnings 44,056 42,715
Accumulated Other Comprehensive Income (Loss) (72) (18)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 62,409 60,772
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 737,208 $ 656,012
============ ============
</TABLE>
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
3
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GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
--------------- ----------------
INTEREST INCOME:
----------------
<S> <C> <C>
Interest and Fees on Loans $ 14,682 $ 13,020
Interest on Investment Securities 859 409
Interest on Federal Funds Sold and Other
Interest-earning Deposits 44 199
--------------- ----------------
TOTAL INTEREST INCOME 15,585 13,628
--------------- ----------------
INTEREST EXPENSE:
-----------------
Interest on Deposits 5,229 4,505
Interest on Borrowings 832 169
--------------- ----------------
TOTAL INTEREST EXPENSE 6,061 4,674
--------------- ----------------
NET INTEREST INCOME 9,524 8,954
Provision for Loan Losses 1,717 801
--------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,807 8,153
--------------- ----------------
NONINTEREST INCOME:
-------------------
Service Charges, Commissions and Fees 1,111 1,372
Other Income 356 329
--------------- ----------------
TOTAL NONINTEREST INCOME 1,467 1,701
--------------- ----------------
NONINTEREST EXPENSE:
--------------------
Salaries and Benefits 3,871 3,145
Occupancy and Furniture and Equipment Expense 828 733
Other Expenses 1,567 1,715
--------------- ----------------
TOTAL NONINTEREST EXPENSE 6,266 5,593
--------------- ----------------
INCOME BEFORE INCOME TAXES 3,008 4,261
Income Taxes 851 1,606
--------------- ----------------
NET INCOME $ 2,157 $ 2,655
=============== ================
PER SHARE OF COMMON STOCK:
--------------------------
Net Income, Basic $1.59 $1.96
====== =====
Net Income, Assuming Dilution $1.57 $1.94
====== =====
Dividends $0.60 $0.56
====== =====
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
4
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON PAID IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
JANUARY 1, 2000 $ 13,596 $ 4,479 $ 42,715 $ (18) $ 60,772
Net income - - 2,157 - 2,157
Other comprehensive income (loss), net of tax: - - - (54) (54)
-----------
Comprehensive income 2,103
Dividends paid - - (816) - (816)
Exercise of stock options 34 316 - - 350
------------ ------------ ------------ ----------- -----------
MARCH 31, 2000 $ 13,630 $ 4,795 $ 44,056 $ (72) $ 62,409
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
5
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 2,157 $ 2,655
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,717 801
Depreciation and amortization 345 312
Amortization of premiums on securities, net of accretion (61) 87
Loans originated for sale (7,296) (19,425)
Proceeds from loans originated for sale 6,663 19,110
Net realized (gain) loss on sale of loans originated for sale (48) (211)
Loss on other real estate owned 59 0
Decrease (increase) in other assets, net of intangibles 149 (1,267)
Decrease in accrued interest payable and other liabilities (1,938) (1,403)
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,747 659
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in securities and other interest-earning (24,398) (5,933)
Net originations of loans held-to-maturity (30,586) (8,565)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 868 (246)
Fixed asset additions (2,615) (907)
------------ -------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (56,731) (15,651)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 56,015 46,452
Decrease in federal funds purchased (11,620) (4,800)
Increase in securities sold under repurchase agreements 2,621 3,272
Increase (decrease) in other borrowings, net 33,882 (20,090)
Proceeds from issuance of common stock 350 63
Cash dividends paid (816) (760)
------------ -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 80,432 24,137
------------ -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,448 9,145
------------ -------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,555 43,892
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,003 $ 53,037
============ =============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
6
<PAGE>
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1-PRINCIPLES OF CONSOLIDATION
- -----------------------------
The accompanying unaudited condensed consolidated financial statements of Greene
County Bancshares, Inc. (the "Company") and its wholly owned subsidiary, Greene
County Bank (the "Bank"), have been prepared in accordance with generally
accepted accounting principles for interim information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by
the Securities and Exchange Commission. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. All interim amounts are subject to year-end
audit and the results of operations for the interim period herein are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999. Certain amounts from prior period
financial statements have been reclassified to conform to the current year's
presentation.
2-ALLOWANCE FOR LOAN LOSSES
- ---------------------------
Transactions in the Allowance for Loan Losses for the three months ended March
31, 2000 were as follows:
In
Thousands
------------
Balance, January 1, 2000 $ 10,332
Add (Deduct):
Charge-offs (1,685)
Recoveries 251
Provisions 1,717
------------
Balance, March 31, 2000 $ 10,615
============
7
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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 outstanding during the period. Diluted
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 months ended
March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2000 1999
------------------------------------ ----------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
<S> <C> <C> <C> <C>
common shareholders $2,157 1,360,431 $2,655 1,357,861
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 11,206 - 9,183
---------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $2,157 1,371,637 $2,655 1,367,044
===========================================================================
</TABLE>
8
<PAGE>
4-SEGMENT INFORMATION
- ---------------------
The Company's principal business consists of operating through the Bank to
attract deposits from the general public and invest those funds, together with
funds generated from operations and from principal and interest payments on
loans, primarily in commercial loans, commercial real estate loans, consumer
loans and single-family mortgage loans. In addition, the Bank has four
wholly-owned subsidiaries: a consumer finance business, a mortgage banking
operation, a subprime automobile lending operation and a title insurance
business. Collectively, these subsidiaries have sufficient revenue to constitute
a separate segment of the business of the Company. These subsidiaries have been
disclosed below in the "other" column, as they do not meet the quantitative
threshold for disclosure on an individual basis.
Intersegment revenues and expenses are accounted for as if they were received
from or incurred to third parties at current market prices.
The reportable segments are strategic business units that offer different
products and services. They are managed separately because each requires
different marketing strategies.
SEGMENT INFORMATION:
- --------------------
THREE MONTHS ENDED MARCH 31, 2000 BANK OTHER ELIMINATIONS TOTAL
- --------------------------------- ---- ----- ------------ -----
Interest income $ 13,870 $ 2,642 $ (927) $ 15,585
Interest expense 6,061 927 (927) 6,061
-------- -------- -------- --------
NET INTEREST INCOME $ 7,809 $ 1,715 $ 0 $ 9,524
======== ======== ======== ========
Provision for loan losses $ 300 $ 1,417 $ 0 $ 1,717
Noninterest income 998 548 (79) 1,467
Noninterest expense 4,816 1,529 (79) 6,266
Income tax expense 1,156 (305) 0 851
-------- -------- -------- --------
SEGMENT NET INCOME $ 2,535 $ (378) $ 0 $ 2,157
======== ======== ======== ========
SEGMENT ASSETS $733,795 $ 44,093 $(40,680) $737,208
======== ======== ======== ========
THREE MONTHS ENDED MARCH 31, 1999 BANK OTHER ELIMINATIONS TOTAL
- --------------------------------- ---- ----- ------------ -----
Interest income $ 11,479 $ 2,965 $ (816) $ 13,628
Interest expense 4,674 816 (816) 4,674
-------- -------- -------- --------
NET INTEREST INCOME $ 6,805 $ 2,149 $ 0 $ 8,954
======== ======== ======== ========
Provision for loan losses $ 307 $ 494 $ 0 $ 801
Noninterest income 900 847 (46) 1,701
Noninterest expense 3,999 1,640 (46) 5,593
Income tax expense 1,328 278 0 1,606
-------- -------- -------- --------
SEGMENT NET INCOME $ 2,071 $ 584 $ 0 $ 2,655
======== ======== ======== ========
SEGMENT ASSETS $593,259 $ 49,492 $(48,720) $594,031
======== ======== ======== ========
9
<PAGE>
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 ("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 four
wholly-owned subsidiaries: Superior Financial Services, Inc. ("Superior
Financial"), a consumer finance company; Superior Mortgage Company ("Superior
Mortgage"), a mortgage banking company; GCB Acceptance Corporation ("GCB
Acceptance"), a subprime automobile lending company; and Fairway Title Co., a
title company formed in 1998.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of depositors and borrowers and fund
operations. Maintaining appropriate levels of liquidity allows the Company to
have sufficient funds available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of deposits and other
liabilities. The Company's primary source of liquidity is dividends paid by the
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"
10
<PAGE>
institutions. In addition, the Company maintains lines of credit totaling $45
million with the Federal Home Loan Bank of Cincinnati, of which $27 million was
available at March 31, 2000. The Company also maintains federal funds lines of
credit totaling $45 million at six correspondent banks.
The Company's liquid assets include investment securities, federal funds
sold and other interest-earning deposits, and cash and due from banks. Including
securities pledged to collateralize municipal deposits, these assets represented
18.4% of the total liquidity base at March 31, 2000, as compared to 12.4% at
December 31, 1999. The liquidity base is generally defined to include deposits,
securities sold under repurchase agreements and short-term borrowed funds and
other borrowings.
For the three months ended March 31, 2000, operating activities of the
Company provided $1,747,000 of cash flows. Net income of $2,157,000, adjusted
for non-cash operating activities, including $1,717,000 in provision for loan
losses, a $633,000 increase in loans held for sale, and amortization and
depreciation of $345,000, provided the majority of the cash generated from
operations.
Investing activities, including lending, used $56,731,000 of the Company's
cash flow during the three months ended March 31, 2000. The Company's increase
in investment securities and other interest-earning deposits used $24,398,000 in
cash flows, while the net increase in loans originated net of principal
collected used $30,586,000 in cash inflows.
Financing activities provided $80,432,000 of the Company's cash flow during
the three months ended March 31, 2000. Net deposit growth and the increase in
other borrowings provided $56,015,000 and $33,882,000 in cash inflows,
respectively. Cash dividends paid to shareholders used $816,000 in cash flows.
CAPITAL RESOURCES. The Company's capital position is reflected in its
shareholders' equity, subject to certain adjustments for regulatory purposes.
Shareholders' equity, or capital, is a measure of the Company's net worth,
soundness and viability. The Company continues to exhibit a strong capital
position while consistently paying dividends to its stockholders. Further, the
capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Company's
daily operations.
Shareholders' equity on March 31, 2000 was $62,409,000, an increase of
$1,637,000 or 2.69%, from $60,772,000 on December 31, 1999. The increase in
shareholders' equity reflects net income for the three months ended March 31,
2000 of $2,157,000 ($1.57 per share, assuming dilution) and proceeds from the
exercise of stock options during the three months ended March 31, 2000 totaling
$350,000. This increase was offset by quarterly dividend payments during the
three months ended March 31, 2000 totaling $816,000 ($.60 per share) and the
reduction in equity associated with the decrease in the value of securities
available for sale of $54,000.
11
<PAGE>
Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation
require bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of stockholders' equity, less goodwill).
At March 31, 2000, 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.
===========================================================================
Capital Ratios at March 31, 2000
- ---------------------------------------------------------------------------
Required
Minimum Company Bank
Ratio
- --------------------------------- ------------- ------------- -------------
Tier 1 risk-based capital 4.00% 10.97% 11.10%
- --------------------------------- ------------- ------------- -------------
Total risk-based capital 8.00% 12.23% 12.35%
- --------------------------------- ------------- ------------- -------------
Leverage Ratio 4.00% 8.95% 9.05%
================================= ============= ============= =============
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended March 31, 2000 was
$2,157,000, a decrease of $498,000 or 18.76% as compared to net income of
$2,655,000 for the same period in 1999. The decrease resulted principally from
an increase in provision for loan losses of $916,000, or 114.4%, to $1,717,000
for the three months ended March 31, 2000 from $801,000 for the same period in
1999. The increase in provisions principally reflects additional provisions at
Superior Financial resulting from increased loan charge-offs stemming from
Superior Financial's implementation of new credit regulations applying to
bank-owned consumer finance subsidiaries. Further contributing to the decrease
in net income was the $673,000, or 12.0%, increase in non-interest expense to
$6,266,000 for the three months ended March 31, 2000 from $5,593,000 for the
same period in 1999, attributable primarily to increasing compensation and
occupancy and furniture and equipment expenses associated with the growth of the
Company's branch network. Also, the decline in non-interest income of $234,000,
or 13.8%, from $1,701,000 for the quarter ended March 31, 1999 to $1,467,000 for
the same period in 2000, further contributed to the decrease in net income.
These expense increases were offset, in part, by an increase in net interest
income of $570,000, or 6.4%, to $9,524,000 for the three months ended March 31,
2000 from $8,954,000 for the same period in 1999. The increase in net interest
income primarily reflects the Company's continued growth in loan production for
the three months ended March 31, 2000, as compared to the same period in 1999,
through its expanding branch network, primarily through increases in commercial
and commercial real estate loans.
12
<PAGE>
Finally, net income was enhanced by a decrease of $755,000, or 47.0%, in income
tax expense to $851,000 for the three months ended March 31, 2000 from
$1,606,000 for the same period in 1999, resulting primarily from lower pre-tax
income and an updating of the Company's estimated tax liability.
NET INTEREST INCOME. The largest source of earnings for the Company is net
interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other interest-bearing
liabilities. The primary factors which affect net interest income are changes in
volume and yields of interest-earning assets and interest-bearing liabilities,
which are affected in part by management's responses to changes in interest
rates through asset/liability management. During the three months ended March
31, 2000, net interest income was $9,524,000 as compared to $8,954,000 for the
same period in 1999, an increase of 6.4%. This increase was due primarily to an
increase in volume of average interest-earning assets, including an increase in
loan originations primarily in the Bank.
PROVISION FOR LOAN LOSSES. During the three month period ended March 31,
2000, loan charge-offs were $1,685,000 and recoveries of charged-off loans were
$251,000. The Company's provision for loan losses increased to $1,717,000 for
the three months ended March 31, 2000, from $801,000 for the same period in
1999. The increase is primarily the result of Superior Financial's
implementation of new credit regulations governing bank-owned consumer finance
subsidiaries. In addition, the increase reflects increased loan volume in the
Bank and GCB Acceptance, the Bank's subprime automobile lending subsidiary. As a
result, the Company's allowance for loan losses increased by $283,000 to
$10,615,000 at March 31, 2000 from $10,332,000 at December 31, 1999. The ratio
of the allowance for loan losses to nonperforming assets was 163.38% and 163.48%
at March 31, 2000 and December 31, 1999, respectively, and the ratio of
nonperforming assets to total assets was .88% and .96% at March 31, 2000 and
December 31, 1999, 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 months ended March 31, 2000 was
$1,467,000 as compared to $1,701,000 for the same period in 1999, a decrease of
$234,000, or 13.8%. The largest component of non-interest income is service
charges, commissions and fees, which totaled $1,111,000 for the three months
ended March 31, 2000 as compared to $1,372,000 for the same period in 1999. This
decrease of 19.0% primarily reflects a reduction in commissions and fees at
Superior Mortgage and Superior Financial as a result of a rising interest rate
environment and a resulting reduction in loan originations.
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 was $6,266,000 for the three months
ended March 31, 2000 compared to $5,593,000 for the same
13
<PAGE>
period in 1999. Primarily as a result of this increase in non-interest expense,
the Company's efficiency ratio was adversely affected, as the ratio increased
from 52.56% at March 31, 1999 to 57.01% at March 31, 2000. The efficiency ratio
illustrates how much it cost the Company to generate revenue; for example, it
cost the Company 57.01 cents to generate one dollar of revenue for the three
months ended March 31, 2000.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three months ended March 31, 2000, salaries and benefits
represented $3,871,000 or 61.8% of total noninterest expenses. This was an
increase of $726,000 or 23.1% over the $3,145,000 for the three months ended
March 31, 1999. At March 31, 1999, salaries and benefits represented 56.2% 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 March 31, 2000 was 378
versus 331 at March 31, 1999, an increase of 14.2%.
Occupancy and furniture and equipment expense also increased during the
three months ended March 31, 2000 compared to the same period in 1999 as the
Company increased its size to 47 branches at March 31, 2000 from 35 branches at
March 31, 1999.
Other expenses decreased by $148,000, or 8.6%, from the three months ended
March 31, 2000 to the same period in 1999, reflecting somewhat lower charitable
contributions and certain professional fees.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 2000 were $737.2 million, an increase of $81.2
million, or 12.4%, over 1999's year-end total assets of $656.0 million. The
increase in assets was reflective of the increase in loans and federal funds
sold, funded by both an increase in deposits and other borrowings.
At March 31, 2000, loans, net of unearned income and allowance for loan
losses, were $576.1 million compared to $546.9 million at December 31, 1999, an
increase of $29.2 million, or 5.3% from December 31, 1999. The increase in loans
during the first quarter of 2000 is primarily due to an increase in commercial
and commercial real estate loans generated primarily by additional branches and
lenders, first-hand knowledge of the local lending markets and competitive loan
rates.
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 increased by $1,352,000 during
the three month period ended March 31, 2000.
14
<PAGE>
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at March 31, 2000 with an amortized cost of $48.0 million
had a market value of $48.0 million. At year-end 1999, investments with an
amortized cost of $24.0 million had a market value of $24.1 million. This
increase, funded by borrowings from the Federal Home Loan Bank of Cincinnati
("FHLB"), was the result of management's decision to restructure its method of
collateralizing public deposits which allowed for an increase in net interest
income with minimal interest rate risk.
In planning for the funding of the additional loan demand which developed
during the first quarter of 2000, the Company became aggressive in soliciting
deposits. As a result, deposits, which are the primary funding mechanism for the
Company's assets, increased $56.0 million, or 10.7%, to $578.4 million at March
31, 2000 compared to $522.4 million at December 31, 1999. Most of this increase
occurred in higher-costing certificate of deposits. This increase in deposits
was used principally to fund loan demand and to increase overall liquidity.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. A company may also implement the statement as of
the beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied
retroactively. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in the hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998).
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing or method of its
adoption of SFAS No. 133. However, the statement could increase volatility in
earnings and other comprehensive income.
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
16
<PAGE>
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
Exhibit 27 Financial Data Schedule(for SEC use only)
(b)Reports on Form 8-K
None
17
<PAGE>
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: 5/9/00 Greene County Bancshares, Inc.
-------- ------------------------------
Registrant
Date: 5/9/00 /s/ R. Stan Puckett
-------- ---------------------------
R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 5/9/00 /s/ William F. Richmond
------- ---------------------------
William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
18
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<S> <C>
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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