<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, 1997
[ ] 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.)
210 East Main Street, Rogersville, Tennessee 37879
(Address of principal executive offices)
(423) 272-2200
(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: 529,737 as of September 30,
1997.
Transitional Small Business Disclosure Format (check one);
Yes No X
----- -----
<PAGE> 2
VOLUNTEER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OPERATING RESULTS
The Company reported net income for the third quarter of $70,751, or $0.13 per
weighted average common share, compared to net income of $53,366, or $0.11 for
the same period a year ago. Our returns on average assets and average common
equity were 0.10% and 2.00%, respectively, for the quarter compared to 0.10% and
1.83% for the same period last year.
The net income for the first nine months of 1997 was $139,269, or $0.26 per
weighted average common share. This compares to net income of $40,059, or $0.08
per weighted average common share, for the same period last year.
Net interest income for the first nine months of 1997 increased $434,148 versus
the first nine months of 1996 to $1,724,338. The increase is attributable to
growth in interest earning assets of 24.15%. Average loans grew 45.64% over the
third quarter of 1996. Total Bank assets were $71,544,181 at September 30, 1997
compared to $58,014,454 as of September 30, 1996.
The net interest margin was 3.96% for the third quarter of 1997 compared to
4.06% for the third quarter of 1996. The net spread was 3.49% for the third
quarter of 1997 compared to 3.50% for the third quarter of 1996. The yield on
the investment portfolio was 6.52% for the third quarter of 1997 compared to
6.44% for the same quarter of 1996. The higher level of interest income from
loans and securities was offset by an increase in the cost of interest-bearing
deposits and securities sold under repurchase agreements.
Non-interest income for the third quarter of 1997 increased $4,561 over the
third quarter of 1996. The growth is attributable to service charges on deposit
accounts and other fees. Non-interest expenses for the third quarter of 1997
increased $82,969 compared to the third quarter of 1996 primarily for costs
(including salaries and employee compensation) associated with opening and
staffing new branches in Rogersville and Church Hill, Tennessee and the opening
of the new main office in Rogersville, Tennessee.
ASSET QUALITY
Non-performing assets at September 30, 1997 were $346,000 or 0.76% of loans and
foreclosed properties, which is a decrease from $369,000, or 1.14% of loans and
foreclosed properties at September 30, 1996. The provision for losses on loans
was $60,000 for the third quarter of 1997 which is an increase of $10,000 over
the second quarter of 1997 and an increase of $27,500 over the provision for the
third quarter of 1996. The increase in the provision is primarily attributable
to the increase in loan growth. At September 30, 1997, the allowance for losses
on loans was 1.33% of loans and approximately 176% of non-performing assets.
<PAGE> 3
INDEPENDENT AUDITOR'S REVIEW REPORT
To the Board of Directors
Volunteer Bancorp, Inc.
Rogersville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of
Volunteer Bancorp, Inc. and subsidiary as of September 30, 1997 and 1996, 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.
October 27, 1997
<PAGE> 4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 1997 and 1996
(Unaudited- See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- -----
<S> <C> <C>
Cash and due from banks $ 1,927,689 1,960,748
Federal fund sold 2,846,249 5,231,946
-----------------------
Total cash and cash equivalents 4,773,938 7,192,694
Investment securities available for sale (amortized cost of
$16,082,468 and $14,036,558, respectively) 16,105,774 13,713,851
Investment securities held to maturity (estimated market
value of $1,083,563 and $1,565,668, respectively) 1,089,810 1,608,654
Loans, less allowances for loan losses of $608,290 and
$443,803, respectively 44,966,009 31,808,615
Accrued interest receivable 729,564 592,963
Premises and equipment, net 3,672,589 2,707,775
Deferred income taxes -- 51,162
Other real estate 80,361 67,846
Goodwill 207,262 225,199
Other assets 40,138 43,323
------------------------
Total assets $71,665,445 58,012,082
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 7,388,070 6,622,023
Interest bearing 55,778,446 43,730,752
------------------------
Total deposits 63,166,516 50,352,775
Note payable 3,265,000 3,450,000
Interest payable 566,348 421,511
Securities sold under repurchase agreements 932,713 465,000
Other accrued taxes, expenses and liabilities 95,353 120,562
Deferred income taxes 14,560 --
------------------------
Total liabilities 68,040,490 54,809,848
------------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares
authorized, 529,737 and 525,717 shares issued and
outstanding at September 30, 1997 and 1996, respectively 5,297 5,257
Additional paid-in capital 1,786,599 1,761,553
Retained earnings 1,819,229 1,635,503
Net unrealized (loss) gain on securities available for sale 13,830 (200,079)
------------------------
Total stockholders' equity 3,624,955 3,202,234
------------------------
Total liabilities and stockholders' equity $71,665,445 58,012,082
========================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
For The Three and Nine Months Ended September 30, 1997 and 1996
(Unaudited - See Accountants' Review Report)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1,103,954 785,899 2,970,033 2,029,497
Interest on federal funds 32,232 36,452 140,389 154,013
Interest on investment securities:
Taxable 277,604 251,425 832,081 691,869
Exempt from Federal income taxes 1,250 1,250 3,750 1,875
---------------------------------------------------------------------
Total interest income 1,415,040 1,075,026 3,946,253 2,877,254
---------------------------------------------------------------------
Interest Expense:
Interest on deposits 702,118 504,463 1,995,831 1,369,690
Other borrowed funds 80,795 73,528 226,084 217,374
---------------------------------------------------------------------
Total interest expense 782,913 577,991 2,221,915 1,587,064
---------------------------------------------------------------------
Net interest income 632,127 497,035 1,724,338 1,290,190
Provision for possible loan losses 60,000 32,500 155,000 62,500
---------------------------------------------------------------------
Net interest income after provision for
possible loan losses 572,127 464,535 1,569,338 1,227,690
---------------------------------------------------------------------
Non-interest income:
Service charges on deposits 30,481 18,716 76,497 47,991
Other service charges and fees 2,999 13,924 50,467 51,096
Securities (losses) gains 1,857 - 2,903 8,908
Other non-interest income 18,982 17,118 29,879 23,546
---------------------------------------------------------------------
Total non-interest income 54,319 49,758 159,746 131,541
---------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 304,592 249,267 832,588 742,377
Occupancy expense 60,686 43,207 150,541 98,669
Furniture and equipment expense 63,711 45,070 143,840 107,541
Other non-interest expense 81,952 90,428 374,700 343,724
---------------------------------------------------------------------
Total non-interest expense 510,941 427,972 1,501,669 1,292,311
---------------------------------------------------------------------
Earnings before income taxes 115,505 86,321 227,415 66,920
Income tax expense 44,754 32,955 88,146 26,861
---------------------------------------------------------------------
Net income $70,751 53,366 139,269 40,059
=====================================================================
Income per weighted average common $ 0.13 0.11 0.26 0.08
share
=====================================================================
Weighted average common shares
outstanding 527,651 494,619 526,373 505,217
=====================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 1997 and 1996
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 139,269 40,059
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (34,860) (48,007)
Provision for possible loan losses 155,000 62,500
Provision for depreciation and amortization 150,414 95,605
(Gain) loss on securities (2,903) (8,908)
(Increase) in interest receivable (118,910) (158,408)
Decrease in other assets 3,796 144,670
Increase (decrease) in other liabilities (22,086) 210,229
-----------------------------------
Net cash provided by operating activities 269,720 337,740
-----------------------------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity - (9,847,592)
Proceeds from calls and maturity of held to maturity securities 515,704 11,761,736
Purchase of investment securities available for sale (5,987,057) (15,377,979)
Proceeds from calls and maturity of investments available for
sale 550,000 7,950,000
Proceeds from sale of investments available for sale 2,954,141 -
Net (increase) in loans (10,241,181) (10,296,512)
Capital expenditures (592,526) (802,918)
-----------------------------------
Net cash (used) in investing activities (12,800,919) (16,613,265)
-----------------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts
and savings accounts 667,368 1,981,131
Net increase in certificates of deposit 6,822,017 13,859,470
Net increase in securities sold under repurchase agreements 757,713 465,000
Repayment of long-term debt (185,000) -
Proceeds from sale of common stock 60,300 794,650
Stock issuance costs (35,214) -
----------------------------------
Net cash provided by financing activities 8,087,184 17,100,251
----------------------------------
(Decrease) increase in cash and cash equivalents (4,444,015) 824,726
Cash and cash equivalents beginning of period 9,217,953 6,367,968
----------------------------------
Cash and cash equivalents end of period $ 4,773,938 7,192,694
==================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,210,784 1,600,108
==================================
Income taxes $ 224,826 4,500
==================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996
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. Adoption of Recently Issued Statements of Financial Accounting
Standards (SFAS)
The Financial Accounting Standards Board recently issued SFAS No. 123
entitled "Accounting for Stock Based Compensation." The statement is
generally effective for financial statements issued for years beginning
after December 15, 1995. The Statement establishes a fair-value based
method of accounting for stock based compensation plans and similar
arrangements and a fair-value basis for measuring transactions in
which an entity acquires goods or services from non-employees utilizing
entity stock or similar equity instruments. The Company does not
currently employ stock based compensation plans or similar arrangements.
The adoption of SFAS No. 123 did not have any impact upon the financial
position or results of operations of the Company.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights, an amendment to Statement No. 65" ("SFAS No. 122"),
on May 12, 1995. SFAS No. 122 provides guidance for recognition of
mortgage servicing rights ("MSR") as an asset when a mortgage loan is
sold or securitized and servicing rights retained, regardless of how
those servicing rights were acquired. This eliminates the previously
existing accounting distinction between rights to service mortgage
loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. Impairment of the
recorded MSR is to be measured periodically using a current fair value
approach applied to each stratum of the disaggregated mortgage-servicing
portfolio. Provisions of SFAS No. 122 are effective for fiscal years
beginning after December 15, 1995. The adoption of SFAS No. 122 did not
have a material impact upon the financial position or results of
operations of the Company.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS
No. 121 addresses situations where information indicates that a company
might be unable to recover, through future operations or sale, the
carrying amount of long-lived assets, identified intangibles and
goodwill related to those assets. Provisions of this Statement are
effective for fiscal years beginning after December 15, 1995. The
adoption of this Statement did not have a material impact upon the
financial position or results of operations of the Company.
<PAGE> 8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and the Extinguishment of Liabilities," establishes, among
other things, new criteria for determining whether a transfer of
financial assets for cash or other considerations should be
accounted for as a sale or as a pledge of collateral in a secured
borrowing. SFAS No. 125 also establishes new accounting requirements
for pledged collateral. As issued, SFAS No. 125 is generally effective
for transactions occurring after December 31, 1996 and should be
applied on a prospective basis. SFAS No. 127 deferred the effective
date of certain provisions of SFAS No. 125 to certain transactions
occurring after December 31, 1997. SFAS No. 125 supersedes SFAS No.
122 and itself amends various previous pronouncements of the Financial
Accounting Standards Board. Adoption by the Company on January 1, 1997
did not have a material impact upon the Company's financial position
or results of operation.
3. Premises and Equipment, net
The significant increase in premises and equipment, net at September 30,
1997 is primarily related to completion and equipping of branches in
Church Hill and Rogersville, Tennessee including completion and
occupancy of permanent main office banking facilities in Rogersville.
4. Non-interest Expense
Other non-interest expense increased by $209,358 from September 30,
1996 to September 30, 1997. Salaries and employee benefits for the
period ended September 30, 1997 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
and occupying new permanent main office facilities in Rogersville. 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.
<PAGE> 9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996
5. Long-term debt
The Company's long-term debt consists of a single note payable 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, 1997 the rate on the note was 7.969% per annum. Principal is
payable annually commencing January 31, 1996 and each January 1
thereafter as follows:
<TABLE>
<CAPTION>
January 31, Principal Due
----------- -------------
<S> <C>
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
----------
$3,265,000
==========
</TABLE>
The loan is secured by all of the stock of Citizens Bank of East Tennessee
owned by the Company.
6. 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.
<PAGE> 10
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996
7. Stock Offering
At September 30, 1997 the Company had sold 4,020 shares of its $0.01 par
value common stock for an aggregate consideration of $60,300 pursuant to
the Company's offering which became effective September 11, 1996. Proceeds
of the offering have been used to offset expenses of the offering and pay
interest on the Company debt.
<PAGE> 11
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $70,751 $53,366 $139,269 $40,059
Per common share data:
Net income per weighted
average common share $ 0.13 $ 0.11 $ 0.26 $ 0.08
Book value $ 6.84 $ 6.69 $ 6.84 $ 6.69
Ratios:
Return on average assets 0.10% 0.10% 0.21% 0.08%
Return on average common equity 2.00% 1.83% 4.02% 1.37%
Net spread (taxable equivalent basis) 3.49% 3.50% 3.35% 3.25%
Net interest margin (taxable equivalent basis) 3.96% 4.06% 3.77% 3.81%
Expense ratio 2.92% 3.14% 2.98% 3.48%
Allowance for losses on loans / loans 1.33% 1.38% 1.33% 1.38%
Non-performing loans / loans 0.58% 0.93% 0.58% 0.93%
Non-performing assets / loans and
foreclosed properties 0.76% 1.14% 0.76% 1.14%
Shareholders' equity / total assets 5.06% 5.52% 5.06% 5.52%
Leverage ratio (tangible capital /
tangible average assets) 4.88% 5.84% 5.09% 6.43%
</TABLE>
<PAGE> 12
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, 1997.
<PAGE> 13
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 10, 1997
Reed D. Matney, President
(principal executive officer)
Date: November 10, 1997
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 27, 1997 included in this Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1997.
Welch & Associates
Nashville, Tennessee
November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,927,689
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,846,249
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,105,774
<INVESTMENTS-CARRYING> 1,089,810
<INVESTMENTS-MARKET> 1,083,563
<LOANS> 45,574,299
<ALLOWANCE> 608,290
<TOTAL-ASSETS> 71,665,445
<DEPOSITS> 63,166,516
<SHORT-TERM> 932,713
<LIABILITIES-OTHER> 676,261
<LONG-TERM> 3,265,000
0
0
<COMMON> 5,297
<OTHER-SE> 3,619,658
<TOTAL-LIABILITIES-AND-EQUITY> 71,665,445
<INTEREST-LOAN> 2,970,033
<INTEREST-INVEST> 835,831
<INTEREST-OTHER> 140,389
<INTEREST-TOTAL> 3,946,253
<INTEREST-DEPOSIT> 1,995,831
<INTEREST-EXPENSE> 2,221,915
<INTEREST-INCOME-NET> 1,724,338
<LOAN-LOSSES> 155,000
<SECURITIES-GAINS> 2,903
<EXPENSE-OTHER> 1,501,669
<INCOME-PRETAX> 227,415
<INCOME-PRE-EXTRAORDINARY> 139,269
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,269
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.48
<LOANS-NON> 54,479
<LOANS-PAST> 211,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 457,432
<CHARGE-OFFS> 9,591
<RECOVERIES> 5,449
<ALLOWANCE-CLOSE> 608,290
<ALLOWANCE-DOMESTIC> 608,290
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
