<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________
Commission file number 33-94050
VOLUNTEER BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
TENNESSEE 62-1271025
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
161 MAIN STREET, SNEEDVILLE, TENNESSEE 37879
(Address of principal executive offices)
(423) 733-2213
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 525,717 AS OF SEPTEMBER
30, 1996.
Transitional Small Business Disclosure Format (check one);
Yes No X
----- -----
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WELCH & ASSOCIATES, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
401 UNION STREET - NINTH FLOOR
NASHVILLE, TENNESSEE 37219-1708
615-254-4834
INDEPENDENT AUDITOR'S REVIEW REPORT
To the Board of Directors
Volunteer Bancorp, Inc.
Sneedville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of
Volunteer Bancorp, Inc. and subsidiary as of September 30, 1996 and 1995, and
the related condensed consolidated statement of earnings for the three and nine
months then ended and the condensed consolidated statement of cash flows for
the nine months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these condensed consolidated
financial statements is the representation of the management of Volunteer
Bancorp, Inc.
A review of interim financial statements consists primarily of inquiries of
company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with generally accepted
accounting standards, the objective of which is the expression of an opinion
regarding the condensed consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements in
order for them to be in conformity with generally accepted accounting
principles.
/s/ Welch & Associates, Ltd.
October 15, 1996
<PAGE> 3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 1996 and 1995
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ----------
<S> <C> <C>
Cash and due from banks $ 1,960,748 1,478,414
Federal fund sold 5,231,946 2,252,371
Investment securities available for sale (amortized cost of
$14,036,558 and $2,971,457, respectively) 13,713,851 3,012,213
Investment securities held to maturity (estimated market value
of $1,565,668 and $6,856,479) 1,608,654 6,860,650
Loans, less allowances for loan losses of $443,803 and
$418,756, respectively 31,808,615 18,573,524
Accrued interest receivable 592,963 464,675
Premises and equipment, net 2,707,775 1,914,139
Deferred income taxes 51,162 -
Other real estate 67,846 15,160
Goodwill 225,199 243,010
Other assets 43,323 209,536
-------------------------------
Total assets $58,012,082 35,023,692
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 6,622,023 5,421,194
Interest bearing 43,730,752 23,402,515
-------------------------------
Total deposits 50,352,775 28,823,709
Note payable 3,450,000 3,450,000
Interest payable 421,511 196,021
Securities sold under repurchase agreements 465,000 -
Other accrued taxes, expenses and liabilities 120,562 59,633
Deferred income taxes - 151,205
-------------------------------
Total liabilities 54,809,848 32,680,568
===============================
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares authorized,
525,700 and 412,360 shares issued and outstanding at
September 30, 1996 and 1995, respectively 5,257 4,124
Additional paid-in capital 1,761,553 692,549
Retained earnings 1,635,503 1,621,104
Net unrealized (loss) gain on securities available for sale (200,079) 25,347
-------------------------------
Total stockholders' equity 3,202,234 2,343,124
-------------------------------
Total liabilities and stockholders' equity $58,012,082 35,023,692
===============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Earnings
For The Three and Nine Months Ended September 30, 1996 and 1995
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 785,899 436,543 2,029,497 1,125,483
Interest on federal funds 36,452 30,223 154,013 75,991
Interest on investment securities:
Taxable 251,425 163,417 691,869 426,746
Exempt from Federal income taxes 1,250 1,168 1,875 10,547
----------------------------------------------------------
Total interest income 1,075,026 631,351 2,877,254 1,638,767
----------------------------------------------------------
Interest Expense:
Interest on deposits 504,463 262,911 1,369,690 650,482
Other borrowed funds 73,528 76,451 217,374 134,364
----------------------------------------------------------
Total interest expense 577,991 339,362 1,587,064 784,846
----------------------------------------------------------
Net interest income 497,035 291,989 1,290,190 853,921
Provision for possible loan losses 32,500 9,000 62,500 27,000
----------------------------------------------------------
Net interest income after provision for possible
loan losses 464,535 282,989 1,227,690 826,921
----------------------------------------------------------
Non-interest income:
Service charges on deposits 18,716 11,406 47,991 29,663
Other service charges and fees 13,924 12,437 51,096 32,273
Securities (losses) gains - (4,810) 8,908 (4,810)
Other non-interest income 17,118 3,260 23,546 11,896
----------------------------------------------------------
Total non-interest income 49,758 22,293 131,541 69,022
----------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 249,267 224,888 742,377 597,543
Occupancy expense 43,207 25,538 98,669 54,583
Furniture and equipment expense 45,070 27,232 107,541 68,030
Other non-interest expense 90,428 114,344 343,724 321,893
----------------------------------------------------------
Total non-interest expense 427,972 392,002 1,292,311 1,042,049
----------------------------------------------------------
Earnings (loss) before income
taxes, and minority interest 86,321 (86,720) 66,920 (146,106)
Income tax expense (benefit) 32,955 (27,358) 26,861 (51,972)
Minority interest - (83)
----------------------------------------------------------
Net income (loss) $ 53,366 (59,279) 40,059 (94,134)
==========================================================
Income (loss) per weighted average common share $ 0.11 (0.15) 0.08 (0.23)
==========================================================
Weighted average common shares outstanding 494,619 402,978 505,217 403,125
==========================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Cash Flows
For The Nine Months Ended September 30, 1996 and 1995
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 40,059 (94,134)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Deferred income taxes (48,007) 54,399
Provision for possible loan losses 62,500 27,000
Provision for depreciation and amortization 95,605 41,129
(Gain) loss on securities (8,908) 4,810
(Increase) in interest receivable (158,408) (199,318)
Decrease (increase) in other assets 144,670 (198,664)
Increase in other liabilities 210,229 173,741
-------------------------------
Net cash provided (used) by operating activities 337,740 (191,037)
-------------------------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity (9,847,592) (250,000)
Proceeds from calls and maturity of held to maturity securities 11,761,736 1,257,751
Purchase of investment securities available for sale (15,377,979) (3,963,571)
Proceeds from calls and maturity of investments available for sale 7,950,000 1,000,000
Net (increase) in loans (10,296,512) (5,952,254)
Acquisition of minority interest - (98,524)
Capital expenditures (802,918) (1,166,522)
-------------------------------
Net cash (used) in investing activities (16,613,265) (9,173,120)
-------------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts
and savings accounts 1,981,131 44,121
Net increase in certificates of deposit 13,859,470 6,774,473
Net increase in securities sold under repurchase agreements 465,000 -
Increase in long-term borrowing - 3,450,000
Proceeds from sale of common stock 794,650 93,820
Stock issuance costs - (93,820)
-------------------------------
Net cash provided by financing activities 17,100,251 10,268,594
-------------------------------
Increase in cash and cash equivalents 824,726 904,437
Cash and cash equivalents beginning of period 6,367,968 2,826,348
-------------------------------
Cash and cash equivalents end of period $ 7,192,694 3,730,785
===============================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,495,601 657,745
===============================
Income taxes $ - -
===============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
1. Management Opinion
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Volunteer Bancorp, Inc. and
subsidiary contain all adjustments, consisting of only normal,
recurring adjustments, necessary to fairly present the financial
results for the interim periods presented. The results of operations
for any interim period is not necessarily indicative of the results to
be expected for an entire year. These interim condensed consolidated
financial statements should be read in conjunction with the annual
financial statements and notes thereto.
2. Weighted average common shares outstanding
Weighted average common shares outstanding for the three and nine
months ended September 30, 1995 are calculated after the effect of a
300 for 1 stock split effective June 14, 1995.
3. Adoption of Statements of Financial Accounting Standards (SFAS) on
Impaired Loans
On January 1, 1995 the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118.
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures. SFAS No 114 prescribes a valuation methodology for
impaired loans as defined by the standard. Generally, a loan is
considered impaired if management believes that it is probable that
all amounts due will not be collected according to the contractual
terms as stipulated in the loan agreement. An impaired loan must be
valued using the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's
observable market price, or fair value of the loan's underlying
collateral.
At September 30, 1995, the Company had not identified any loans which
would be considered impaired under the above provisions and at
September 30, 1996 the amount of impaired loans under these provisions
were not considered material.
4. Premises and Equipment, net
The significant increase in premises and equipment, net at September
30, 1996 is primarily related to completion and equipping of branches
in Church Hill and Rogersville, Tennessee and construction-in-
progress relating to the construction of permanent banking facilities
in Rogersville.
5
<PAGE> 7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
5. Non-interest Expense
Other non-interest expense increased by $250,262 from September 30,
1995 to September 30, 1996. Salaries and employee benefits for the
period ended September 30, 1996 have increased due to the addition of
personnel associated with opening of branches in Church Hill and
Rogersville, Tennessee. The increase in occupancy and furniture and
equipment expense is also a result of the opening of the new branches.
The increase in other non-interest expense is attributable to costs
associated with changing the name of the Bank, promoting the new
branches and overall growth.
6. Long-term debt
The Company's long-term debt consists of a single note payable in the
amount of $3,450,000 due an unaffiliated national bank. The interest
rate on the note adjusts quarterly and is equal to the three-months
London Interbank Offered Rate (Three Month LIBOR) plus 2.25% per annum
or at the option of the Company the rate on the note is equal to the
lender's index rate as such rate changes from time to time. The
Company may change interest rate options at any time with prior notice
to the lender. Interest is payable quarterly. At September 30 , 1996
the rate on the note was 8.25% per annum. Principal is payable
annually commencing January 31, 1997 and each January 1 thereafter as
follows:
<TABLE>
<CAPTION>
January 31, Principal Due
----------- -------------
<S> <C>
1997 $185,000
1998 220,000
1999 255,000
2000 295,000
2001 325,000
2002 360,000
2003 395,000
2004 435,000
2005 470,000
2006 (Final Maturity) 510,000
</TABLE>
The loan is secured by all of the stock of Citizens Bank of East
Tennessee owned by the Company.
6
<PAGE> 8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
7. Contingencies
During the course of business, the Company makes various commitments
and incurs certain contingent liabilities that are not presented in
the accompanying balance sheet. The commitments and contingent
liabilities may include various guarantees, commitments to extend
credit, standby letters of credit, and litigation. In the opinion of
management, no material adverse effect on the financial position,
liquidity or operating results of the Company and its subsidiary is
anticipated as a result of these items.
8. Profit-Sharing Plan
The Company's subsidiary, The Citizens Bank of East Tennessee, adopted
a profit-sharing retirement plan on July 1, 1995. All employees who
meet certain age and length of service requirements are eligible to
participate on a voluntary basis. Benefits, which become 20% vested
after two years, 40% after three years, 60% after four years, 80%
after five years, and 100% after nine years, are paid on death,
disability or retirement.
The Board of Directors has discretion in establishing the amount of
the Bank's contributions. Participants may make voluntary, after-tax
contributions up to 20% of their compensation up to $9,240 per year.
The participants are fully vested in any voluntary contributions they
make. The Bank had not made any contributions to the plan for the
nine-months ended September 30, 1996 and 1995.
9. Stock Offering
At September 30, 1996 the Company had sold 122,739 shares of its $0.01
par value common stock for an aggregate consideration of $1,227,390
pursuant to the Company's offering which became effective September
11, 1995. Proceeds of the offering have been used to offset expenses
of the offering, increase the capital of the subsidiary Bank and pay
interest on the Company debt.
7
<PAGE> 9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <C> <C> <C>
Net income (loss) $ 53,366 ($ 59,279) $40,059 ($ 94,134)
Per common share data:
Net income (loss) per weighted
average common share $ 0.11 ($ 0.15) $ 0.08 ($ 0.23)
Book value $ 6.69 $ 5.68 $ 6.69 $ 5.68
Ratios:
Return on average assets 0.10% (0.19%) 0.08% (0.32%)
Return on average common equity 1.83% (2.80%) 1.37% (4.42%)
Net spread (taxable equivalent basis) 3.50% 3.31% 3.25% 3.35%
Net interest margin (taxable equivalent
basis) 4.06% 4.52% 3.81% 4.31%
Expense ratio 3.14% 5.29% 3.48% 4.69%
Allowance for losses on loans / loans 1.38% 2.20% 1.38% 2.20%
Non-performing loans / loans 0.93% 1.38% 0.93% 1.38%
Non-performing assets / loans and
foreclosed properties 1.14% 1.46% 1.14% 1.46%
Shareholders' equity / total assets 5.52% 6.69% 5.52% 6.69%
Leverage ratio (tangible capital /
tangible average assets) 5.84% 6.66% 6.43% 7.02%
</TABLE>
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
OPERATING RESULTS
The Company reported net income for the third quarter of $53,366, or $0.11 per
weighted average common share, compared to a net loss of ($59,279), or ($0.15)
for the same period a year ago. Our returns on average assets and average
common equity were 0.10% and 1.83%, respectively, for the quarter compared to
(0.19%) and (2.80%) for the same period last year.
The net income for the first nine months of 1996 was $40,059, or $0.08 per
weighted average common share. This compares to a net loss of ($94,134), or
($0.23) per weighted average common share, for the same period last year.
Net interest income for the third quarter of 1996 increased $436,269 versus the
third quarter of 1995 to $1,290,190. The increase is attributable to growth in
interest earning assets of 64.62%. Average loans grew 78.18% over the third
quarter of 1995 as a result of the opening of the new branches. The growth in
loans from September 30, 1995 to September 30, 1996 is attributable to an
increase of approximately $1,458,000 in commercial loans, approximately
$8,420,000 in real estate loans ($5,794,000 secured by 1-4 single family
residences), and approximately $2,585,000 in consumer loans. Total Bank assets
were $58,014,454 at September 30, 1996 compared to $34,887,109 as of September
30, 1995.
The net interest margin was 4.06% for the third quarter of 1996 compared to
4.52% for the third quarter of 1995. The net spread was 3.50% for the third
quarter of 1996 compared to 3.31% for the third quarter of 1995. The yield on
the investment portfolio was 6.44% for the third quarter of 1996 compared to
7.97% for the same quarter of 1995. The higher level of interest income from
loans was offset by an increase in the cost of interest-bearing deposits and a
decrease in the yield on the investment portfolio.
Non-interest income for the third quarter of 1996 increased $27,645 over the
third quarter of 1995. The growth is attributable to service charges on deposit
accounts and other fees. Non-interest expenses for the third quarter of 1996
increased $35,970 compared to the third quarter of 1995 primarily for costs
(including salaries and employee compensation) associated with opening and
staffing new branches in Rogersville and Church Hill, Tennessee.
ASSET QUALITY
Non-performing assets at September 30, 1996 were $369,000 or 1.14% of loans and
foreclosed properties, which is a decrease from $277,000, or 1.46% of loans and
foreclosed properties at September 30, 1995. The provision for losses on loans
was $32,500 for the third quarter of 1996 which is an increase of $17,500
over the second quarter of 1996 and an increase of $23,500 over the provision
for the third quarter of 1995. The increase in the provision is primarily
attributable to the increase in loan growth. At September 30, 1996, the
allowance for losses on loans was 1.38% of loans and approximately 120% of
non-performing assets.
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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) Exhibit 23.1 Consent of Welch & Associates
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) There have been no Current Reports on Form 8-K filed during the quarter
ended September 30, 1996.
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VOLUNTEER BANCORP, INC.
(Registrant)
Date: November 6, 1996 /s/ Reed D. Matney
---------------------------------------
Reed D. Matney, President
(principal executive officer)
Date: November 6, 1996 /s/ H. Lyons Price
---------------------------------------
H. Lyons Price (principal financial and
accounting officer)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated October 15, 1996 included in this Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1996.
Welch & Associates
Nashville, Tennessee
November 6, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,960,748
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,231,946
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,713,851
<INVESTMENTS-CARRYING> 1,608,654
<INVESTMENTS-MARKET> 1,565,668
<LOANS> 32,252,418
<ALLOWANCE> 443,803
<TOTAL-ASSETS> 58,012,082
<DEPOSITS> 50,352,775
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,007,073
<LONG-TERM> 3,450,000
0
0
<COMMON> 5,257
<OTHER-SE> 3,196,977
<TOTAL-LIABILITIES-AND-EQUITY> 58,012,082
<INTEREST-LOAN> 2,029,497
<INTEREST-INVEST> 693,744
<INTEREST-OTHER> 154,013
<INTEREST-TOTAL> 2,877,254
<INTEREST-DEPOSIT> 1,369,690
<INTEREST-EXPENSE> 1,587,064
<INTEREST-INCOME-NET> 1,290,190
<LOAN-LOSSES> 62,500
<SECURITIES-GAINS> 8,908
<EXPENSE-OTHER> 1,292,311
<INCOME-PRETAX> 66,920
<INCOME-PRE-EXTRAORDINARY> 40,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,059
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.48
<LOANS-NON> 56,319
<LOANS-PAST> 245,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 401,066
<CHARGE-OFFS> 47,256
<RECOVERIES> 27,493
<ALLOWANCE-CLOSE> 443,803
<ALLOWANCE-DOMESTIC> 443,803
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
