FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended June 30, 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 - June 30, 2000 and December 31,
1999.
Condensed Consolidated Statements of Income - For the three and six months
ended June 30, 2000 and 1999.
Condensed Consolidated Statement of Stockholders' Equity - For the six
months ended June 30, 2000.
Condensed Consolidated Statements of Cash Flows - For the six months ended
June 30, 2000 and 1999.
Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999*
--------------- -------------
(IN THOUSANDS)
---------------------------------------
ASSETS
------
<S> <C> <C>
Cash and Due from Banks $ 24,906 $ 44,555
Federal Funds Sold 10,460 0
Securities available-for-sale 44,032 20,726
Securities held-to-maturity (with a market value of $2,621
on June 30, 2000 and $3,326 on December 31, 1999) 2,625 3,321
Federal Home Loan Bank stock 3,959 3,477
Bankers Bank Stock 144 144
Loans 605,102 557,229
Less: Allowance for Loan Losses 10,396 10,332
------------- -------------
NET LOANS 594,706 546,897
------------- -------------
Bank Premises and Equipment, Net of
Accumulated Depreciation 21,761 18,106
Other Assets 19,020 18,786
------------- -------------
TOTAL ASSETS $ 721,613 $ 656,012
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits $ 581,517 $ 522,382
Federal Funds Purchased 0 11,620
Securities Sold under Repurchase Agreements 4,392 2,961
Other Borrowings 62,111 46,309
Other Liabilities 9,962 11,968
------------- -------------
TOTAL LIABILITIES 657,982 595,240
------------- -------------
SHAREHOLDERS' EQUITY
--------------------
Common Stock, par value $10, authorized 5,000,000 shares;
issued and outstanding 1,363,652 and 1,359,647 shares at
June 30, 2000 and December 31, 1999, respectively 13,637 13,596
Paid in Capital 4,843 4,479
Retained Earnings 45,132 42,715
Accumulated Other Comprehensive Income (Loss) 19 (18)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 63,631 60,772
------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 721,613 $ 656,012
============= =============
</TABLE>
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
3
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
----------------
Interest and Fees on Loans $ 15,384 $ 12,799 $ 30,066 $ 25,819
Interest on Investment Securities 880 349 1,739 758
Interest on Federal Funds Sold and Other
Interest-earning Deposits 383 462 427 661
------------ ----------- ----------- ------------
TOTAL INTEREST INCOME 16,647 13,610 32,232 27,238
------------ ----------- ----------- ------------
INTEREST EXPENSE:
-----------------
Interest on Deposits 5,933 4,788 11,162 9,293
Interest on Borrowings 999 220 1,831 389
------------ ----------- ----------- ------------
TOTAL INTEREST EXPENSE 6,932 5,008 12,993 9,682
------------ ----------- ----------- ------------
NET INTEREST INCOME 9,715 8,602 19,239 17,556
Provision for Loan Losses 1,077 762 2,794 1,563
------------ ----------- ----------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,638 7,840 16,445 15,993
------------ ----------- ----------- ------------
NONINTEREST INCOME:
-------------------
Service Charges, Commissions and Fees 1,236 1,143 2,347 2,515
Other Income 181 180 537 509
------------ ----------- ----------- ------------
TOTAL NONINTEREST INCOME 1,417 1,323 2,884 3,024
------------ ----------- ----------- ------------
NONINTEREST EXPENSE:
--------------------
Salaries and Benefits 4,172 3,357 8,043 6,502
Occupancy and Furniture and Equipment Expense 905 975 1,733 1,708
Other Expenses 1,859 1,492 3,426 3,207
------------ ----------- ----------- ------------
TOTAL NONINTEREST EXPENSE 6,936 5,824 13,202 11,417
------------ ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 3,119 3,339 6,127 7,600
Income Taxes 1,225 1,051 2,076 2,657
------------ ----------- ----------- ------------
NET INCOME $ 1,894 $ 2,288 $ 4,051 $ 4,943
============ =========== =========== ============
PER SHARE OF COMMON STOCK:
-------------------------
Net Income, Basic $1.39 $1.68 $2.98 $3.64
===== ===== ===== =====
Net Income, Assuming Dilution $1.38 $1.67 $2.95 $3.61
===== ===== ===== =====
Dividends $0.60 $0.56 $1.20 $1.12
===== ===== ===== =====
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
4
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 -- -- 4,051 -- 4,051
Other comprehensive income (loss), net of tax: -- -- -- 37 37
--------
Comprehensive income 4,088
Tax benefit from exercise of nonincentive
stock options 23 23
Dividends paid -- -- (1,634) -- (1,634)
Exercise of stock options 41 341 -- -- 382
-------- -------- -------- -------- --------
JUNE 30, 2000 $ 13,637 $ 4,843 $ 45,132 $ 19 $ 63,631
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)
5
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 4,051 $ 4,943
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,794 1,563
Depreciation and amortization 754 653
Amortization of premiums on securities, net of accretion 111 173
Loans originated for sale (18,653) (36,673)
Proceeds from loans originated for sale 17,363 37,070
Net realized (gain) on sale of loans originated for sale (93) (365)
(Gain)Loss on sale of fixed assets (9) 199
Loss on other real estate owned 227 0
Decrease (increase) in other assets, net of intangibles 30 (2,408)
Decrease in accrued interest payable and other liabilities (3,165) (1,033)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,410 4,122
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in securities and other interest-earning (23,144) 1,389
Net originations of loans held-to-maturity (50,158) (21,276)
Improvements in other real estate owned and proceeds from
sales of other real estate owned, net 1,500 (537)
Proceeds from sale of fixed assets 35 401
Fixed asset additions (4,327) (1,656)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (76,094) (21,679)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 59,135 46,882
Decrease in federal funds purchased (11,620) (4,800)
Increase in securities sold under repurchase agreements 1,431 2,892
Increase (decrease) in other borrowings, net 15,802 (20,165)
Proceeds from issuance of common stock 381 104
Cash dividends paid (1,634) (1,521)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,495 23,392
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,189) 5,835
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,555 43,892
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,366 $ 49,727
======== ========
</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 six months ended June 30,
2000 were as follows:
In
Thousands
------------------
Balance, January 1, 2000 $ 10,332
Add (Deduct):
Charge-offs (3,258)
Recoveries 528
Provisions 2,794
------------------
Balance, June 30, 2000 $ 10,396
==================
7
<PAGE>
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 and six months
ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
2000 1999
------------------------------------ --------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
<S> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $1,894 1,363,491 $2,288 1,358,110
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 10,094 - 10,229
-------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $1,894 1,373,585 $2,288 1,368,339
=========================================================================
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
2000 1999
------------------------------------ --------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
BASIC EPS
Income available to
common shareholders $4,051 1,361,961 $4,943 1,357,986
EFFECT OF DILUTIVE SECURITIES
Stock options outstanding - 10,650 - 10,323
-------------------------------------------------------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $4,051 1,372,611 $4,943 1,368,309
=========================================================================
</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.
9
<PAGE>
<TABLE>
<CAPTION>
SEGMENT INFORMATION:
--------------------
THREE MONTHS ENDED JUNE 30, 2000 BANK OTHER ELIMINATIONS TOTAL
-------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 15,075 $ 2,588 $ (1,016) $ 16,647
Interest expense 6,883 1,065 (1,016) 6,932
-------------- -------------- -------------- --------------
NET INTEREST INCOME $ 8,192 $ 1,523 $ 0 $ 9,715
============== ============== ============== ==============
Provision for loan losses $ 300 $ 777 $ 0 $ 1,077
Noninterest income 1,084 377 (44) 1,417
Noninterest expense 5,400 1,580 (44) 6,936
Income tax expense 1,395 (170) 0 1,225
-------------- -------------- -------------- --------------
SEGMENT NET INCOME (LOSS) $ 2,181 $ (287) $ 0 $ 1,894
============== ============== ============== ==============
SEGMENT ASSETS $ 718,007 $ 45,657 $ (42,051) $ 721,613
============== ============== ============== ==============
THREE MONTHS ENDED JUNE 30, 1999 BANK OTHER ELIMINATIONS TOTAL
-------------------------------- -------------- -------------- -------------- --------------
Interest income $ 11,751 $ 2,754 $ (895) $ 13,610
Interest expense 4,959 944 (895) 5,008
-------------- -------------- -------------- --------------
NET INTEREST INCOME $ 6,792 $ 1,810 $ 0 $ 8,602
============== ============== ============== ==============
Provision for loan losses $ 306 $ 456 $ 0 $ 762
Noninterest income 1,001 395 (73) 1,323
Noninterest expense 4,355 1,542 (73) 5,824
Income tax expense 966 85 0 1,051
-------------- -------------- -------------- --------------
SEGMENT NET INCOME $ 2,166 $ 122 $ 0 $ 2,288
============== ============== ============== ==============
SEGMENT ASSETS DECEMBER 31, 1999 $ 652,752 $ 44,592 $ (41,332) $ 656,012
============== ============== ============== ==============
SIX MONTHS ENDED JUNE 30, 2000 BANK OTHER ELIMINATIONS TOTAL
------------------------------ -------------- -------------- -------------- --------------
Interest income $ 28,945 $ 5,230 $ (1,943) $ 32,232
Interest expense 12,944 1,992 (1,943) 12,993
-------------- -------------- -------------- --------------
NET INTEREST INCOME $ 16,001 $ 3,238 $ 0 $ 19,239
============== ============== ============== ==============
Provision for loan losses $ 600 $ 2,194 $ 0 $ 2,794
Noninterest income 2,082 925 (123) 2,884
Noninterest expense 10,216 3,109 (123) 13,202
Income tax expense 2,551 (475) 0 2,076
-------------- -------------- -------------- --------------
SEGMENT NET INCOME (LOSS) $ 4,716 $ (665) $ 0 $ 4,051
============== ============== ============== ==============
SEGMENT ASSETS $ 718,007 $ 45,657 $ (42,051) $ 721,613
============== ============== ============== ==============
SIX MONTHS ENDED JUNE 30, 1999 BANK OTHER ELIMINATIONS TOTAL
------------------------------ -------------- -------------- -------------- --------------
Interest income $ 23,230 $ 5,719 $ (1,711) $ 27,238
Interest expense 9,633 1,760 (1,711) 9,682
-------------- -------------- -------------- --------------
NET INTEREST INCOME $ 13,597 $ 3,959 $ 0 $ 17,556
============== ============== ============== ==============
Provision for loan losses $ 613 $ 950 $ 0 $ 1,563
Noninterest income 1,901 1,242 (119) 3,024
Noninterest expense 8,354 3,182 (119) 11,417
Income tax expense 2,294 363 0 2,657
-------------- -------------- -------------- --------------
SEGMENT NET INCOME $ 4,237 $ 706 $ 0 $ 4,943
============== ============== ============== ==============
SEGMENT ASSETS DECEMBER 31, 1999 $ 652,752 $ 44,592 $ (41,332) $ 656,012
============== ============== ============== ==============
</TABLE>
10
<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.
Effective July 1, 2000, the Company shifted the bulk of the operations of
Superior Mortgage to the Bank in order to maximize efficiency and reduce
overhead. Most of the assets and liabilities of Superior Mortgage, as well as
the employees, were transferred to the Bank and the operations of Superior
Mortgage will continue as a division of the Bank. The separate corporation which
houses Superior Mortgage will continue in existence for an undetermined period
of time during which certain operational and administrative issues will be
finalized. Management has not, at this time, determined whether this separate
corporation will be dissolved.
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
11
<PAGE>
reserve requirements, customer demand for loans, withdrawal of deposit balances
and maturities of deposits and other liabilities. The Company's primary source
of liquidity is dividends paid by the Bank. Applicable Tennessee statutes and
regulations impose restrictions on the amount of dividends that may be declared
by the Bank. Further, any dividend payments are subject to the continuing
ability of the Bank to maintain its compliance with minimum federal regulatory
capital requirements and to retain its characterization under federal
regulations as a "well-capitalized" institution. In addition, the Company
maintains lines of credit totaling $45 million with the Federal Home Loan Bank
of Cincinnati, of which $39 million was available at June 30, 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
13.3% of the total liquidity base at June 30, 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 six months ended June 30, 2000, operating activities of the Company
provided $3,410,000 of cash flows. Net income of $4,051,000, adjusted for
non-cash operating activities, including $2,794,000 in provision for loan
losses, a $1,290,000 increase in loans originated for sale, net of proceeds from
the sale of such loans, and amortization and depreciation of $754,000, provided
the majority of the cash generated from operations.
Investing activities, including lending, used $76,094,000 of the Company's
cash flow during the six months ended June 30, 2000. The Company's increase in
investment securities and other interest-earning deposits used $23,144,000 in
cash flows, while the net increase in loans originated net of principal
collected used $50,158,000 in cash inflows.
Financing activities provided $63,495,000 of the Company's cash flow during
the six months ended June 30, 2000. Net deposit growth and the increase in other
borrowings provided $59,135,000 and $15,802,000 in cash inflows, respectively.
These inflows were offset, in part, by the $11,620,000 decrease in federal funds
purchased. Further, cash dividends paid to shareholders used $1,634,000 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 June 30, 2000 was $63,631,000, an increase of
$2,859,000 or 4.70%, from $60,772,000 on December 31, 1999. The increase in
shareholders' equity
12
<PAGE>
primarily reflects net income for the six months ended June 30, 2000 of
$4,051,000 ($2.95 per share, assuming dilution) and proceeds from the exercise
of stock options during the six months ended June 30, 2000 totaling $382,000.
This increase was offset by quarterly dividend payments during the six months
ended June 30, 2000 totaling $1,634,000 ($1.20 per share).
Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation
require bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of stockholders' equity, less goodwill).
At June 30, 2000, the Company and the Bank each satisfied their respective
minimum regulatory capital requirements, and the Bank was "well-capitalized"
within the meaning of federal regulatory requirements.
=========================================================================
Capital Ratios at June 30, 2000
-------------------------------------------------------------------------
Required
Minimum Company Bank
Ratio
--------------------------------- ------------ ------------ ------------
Tier 1 risk-based capital 4.00% 10.99% 11.12%
--------------------------------- ------------ ------------ ------------
Total risk-based capital 8.00% 12.24% 12.38%
--------------------------------- ------------ ------------ ------------
Leverage Ratio 4.00% 8.64% 8.72%
========================================================================
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for the three and six months ended June 30, 2000 was
$1,894,000 and $4,051,000, respectively, an decrease of $394,000, or 17.2% and
$892,000, or 18.0%, as compared to net income of $2,288,000 and $4,943,000,
respectively, for the same periods in 1999. The decrease for the three months
ended June 30, 2000 resulted primarily from an increase in non-interest expense
of $1,112,000, or 19.1%, to $6,936,000 for the three months ended June 30, 2000
from $5,824,000 for the same period in 1999. This increase is reflective of
increasing compensation and benefit expenses associated with the growth of the
Company's branch network. Further, this increase in non-interest expense
includes a $367,000 increase in other expenses, or 24.6%, to $1,859,000 for the
three months ended June 30, 2000 from $1,492,000 for the same period in 1999.
This increase primarily reflects increased losses on sale of real estate owned
and other repossessed assets, as well as additional advertising and related
expenses incurred with the growth of the Company's branch network and in
association with the Company's aggressive solicitation of deposits. In addition,
the decrease in net income for the three months ended June 30, 2000 reflects an
13
<PAGE>
increase in provision for loan losses of $315,000, or 41.3%, to $1,077,000 for
the three months ended June 30, 2000 from $762,000 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. This increase in provisions at
Superior Financial is the primary reason for the decrease in "other" segment net
income, set forth in Note 4 of the Notes to Condensed Consolidated Financial
Statements, of $409,000, or 335.2%, to ($287,000) for the three months ended
June 30, 2000 compared to $122,000 for the same period in the prior year.
Finally, income tax expense increased $174,000, or 16.5%, to $1,225,000 for the
three months ended June 30, 2000 from $1,051,000 for the same period in 1999,
reflecting an updating of the Company's estimated tax liability in the second
quarter of 1999. These expense increases were offset, in part, by an increase in
net interest income of $1,113,000, or 12.9%, to $9,715,000 for the three months
ended June 30, 2000 from $8,602,000 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 June 30, 2000, as compared to the same
period in 1999, through its expanding branch network, primarily through
increases in commercial and commercial real estate loans.
The decrease for the six months ended June 30, 2000 resulted principally from an
increase in non-interest expense of $1,785,000, or 15.6%, to $13,202,000 for the
six months ended June 30, 2000 from $11,417,000 for the same period in 1999. The
causal trends associated with this increase in non-interest expense are
essentially the same as described above with respect to the three months ended
June 30, 2000. In addition, the increase in provision for loan losses of
$1,231,000, or 78.7%, to $2,794,000 for the six months ended June 30, 2000 from
$1,563,000 for the same period in 1999 further contributed to the decrease in
net income. This increase in provisions reflects the same trends at Superior
Financial described above in the discussion regarding the quarter ended June 30,
2000 and is the primary reason for the decrease in "other" segment net income,
set forth in Note 4 of the Notes to Condensed Consolidated Financial Statements,
of $1,371,000, or 194.1%, to ($665,000) for the six months ended June 30, 2000
compared to $706,000 for the same period in the prior year. These expense
increases were offset, in part, by an increase in net interest income of
$1,683,000, or 9.6%, to $19,239,000 for the six months ended June 30, 2000 from
$17,556,000 for the same period in 1999. The reasons for this increase are
primarily the same as set forth above with respect to the quarter ended June 30,
2000.
NET INTEREST INCOME. The largest source of earnings for the Company is net
interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other interest-bearing
liabilities. The primary factors which affect net interest income are changes in
volume and yields of interest-earning assets and interest-bearing liabilities,
which are affected in part by management's responses to changes in interest
rates through asset/liability management. During the three and six months ended
June 30, 2000, net interest income was $9,715,000 and $19,239,000, respectively,
as compared to $8,602,000 and $17,556,000 for the same periods in 1999,
representing increases of 12.9% and 9.6%, respectively. With respect to the
three and six months ended June 30, 2000, this increase was due primarily to an
increase in volume of average interest-
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earning assets, including an increase in loan originations, primarily in the
Bank. This increase was offset, in part, by the $287,000, or 15.8%, and
$721,000, or 18.2%, declines in net interest income for the three and six months
ended June 30, 2000, respectively, set forth in the "other" category, as further
described in Note 4 of the Notes to Condensed Consolidated Financial Statements.
These declines resulted primarily from a reduction in the volume of loans
originated by Superior Mortgage and Superior Financial and were caused primarily
by a rising interest rate environment.
PROVISION FOR LOAN LOSSES. During the three and six month periods ended
June 30, 2000, loan charge-offs were $1,573,000 and $3,258,000, and recoveries
of charged-off loans were $277,000 and $528,000, respectively. The Company's
provision for loan losses increased to $1,077,000 and $2,794,000 for the three
and six months ended June 30, 2000, respectively, from $762,000 and $1,563,000
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
$64,000 to $10,396,000 at June 30, 2000 from $10,332,000 at December 31, 1999.
The ratio of the allowance for loan losses to nonperforming assets was 200.62%
and 163.48% at June 30, 2000 and December 31, 1999, respectively, and the ratio
of nonperforming assets to total assets was .72% and .96% at June 30, 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 and six months ended June 30, 2000
was $1,417,000 and $2,884,000, respectively, as compared to $1,323,000 and
$3,024,000 for the same periods in 1999. The increase of $94,000, or 7.1% for
the three months ending June 30, 2000 compared to the same period in 1999,
principally reflects an increase in the largest component of non-interest
income, i.e., service charges, commissions and fees, which totaled $1,236,000
for the three months ended June 30, 2000 as compared to $1,143,000 for the same
period in 1999. This increase of $93,000, or 8.1%, is reflective principally of
management's continued focus on the generation of fee income through
implementation of additional fees and increasing existing fees. The decrease of
$140,000, or 4.6%, for the six month period ending June 30, 2000 compared to the
same period in 1999 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 $6,936,000 and $13,202,000 for
the three and six months ended June 30, 2000 compared to $5,824,000 and
$11,417,000 for the same periods in 1999. Primarily as a result of this increase
in non-interest expense, the Company's efficiency ratio was adversely affected,
as
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the ratio increased from 55.54% at June 30, 1999 to 59.68% at June 30, 2000. The
efficiency ratio illustrates how much it cost the Company to generate revenue;
for example, it cost the Company 59.68 cents to generate one dollar of revenue
for the six months ended June 30, 2000.
Personnel costs are the primary element of the Company's non-interest
expenses. For the three and six months ended June 30, 2000, salaries and
benefits represented $4,172,000, or 60.1%, and $8,043,000, or 60.9%, of total
noninterest expense, respectively. This was an increase of $815,000, or 24.3%,
and $1,541,000, or 23.7%, over the $3,357,000 and $6,502,000 for the three and
six months ended June 30, 1999, respectively. For the six months ended June 30,
1999, salaries and benefits represented 57.0% of total noninterest expense.
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, 2000 was 384 versus 341 at June 30,
1999, an increase of 12.6%.
Occupancy and furniture and equipment expense increased only slightly
during the six months ended June 30, 2000 compared to the same period in 1999,
even though the Company increased its size to 45 branches at June 30, 2000 from
38 branches at June 30, 1999. The increase in this expense in both the three and
six months ended June 30, 2000, as compared to the same periods in 1999, was
mitigated by the absence of an approximate $200,000 loss on the sale of fixed
assets which occurred in the second quarter of 1999.
Other expenses increased $367,000, or 24.6%, and $219,000, or 6.8%, for the
three and six months ended June 30, 2000, respectively, from $1,492,000 and
$3,207,000 for the same respective periods in 1999. These increases primarily
reflect increased losses on sale of real estate and other repossessed assets, as
well as additional advertising and related expenses incurred with the growth of
the Company's branch network and in association with the Company's aggressive
solicitation of deposits.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 2000 were $721.6 million, an increase of $65.6
million, or 10.0%, 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 June 30, 2000, loans, net of unearned income and allowance for loan
losses, were $594.7 million compared to $546.9 million at December 31, 1999, an
increase of $47.8 million, or 8.7% from December 31, 1999. The increase in loans
during the first six months 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
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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 $86,000 during the six month period
ended June 30, 2000 to $3,038,000.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at June 30, 2000 with an amortized cost of $46.7 million
had a market value of $46.7 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 six months 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 $59.1 million, or 11.3%, to $581.5 million at June
30, 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 and No. 138, 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated herein by reference to
the "Interest Rate Sensitivity" and "Asset/Liability Management" Subsections of
the Management's Discussion and Analysis section contained in the Company's 1999
Annual Report to shareholders.
Management believes there has been no material change in either interest rate
risk or market risk since December 31, 1999.
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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. 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 1999 Annual Meeting of Shareholders of the Company
was held on April 24, 2000.
(b) Not applicable
(c) The following proposal was considered by shareholders at
the Annual Meeting:
Proposal 1 - Election of Directors
----------------------------------
The following directors were elected or re-elected:
Votes
-----------------------------------
For Against Abstain
--- ------- -------
W.T. Daniels 830,039 0 1,610
R. Stan Puckett 831,189 0 460
Davis Stroud 831,189 0 460
Charles S. Brooks 831,189 0 460
H.J. Moser, III 829,179 0 2,470
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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
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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: 8/11/00 Greene County Bancshares, Inc.
--------- ------------------------------
Registrant
Date: 8/11/00 /s/ R. Stan Puckett
--------- ------------------------
R. Stan Puckett
President and CEO
(Duly authorized officer)
Date: 8/11/00 /s/ William F. Richmond
-------- ----------------------------
William F. Richmond
Sr. Vice President and Chief Financial
Officer (Principal financial and accounting
officer)
21
