<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 MARCH 31, 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.)
161 MAIN STREET, SNEEDVILLE, TENNESSEE 37879
(Address of principal executive offices)
(615) 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes 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 MARCH 31, 1997.
Transitional Small Business Disclosure Format (check one);
Yes No X
----- -----
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REVIEW REPORT
To the Board of Directors
Volunteer Bancorp, Inc.
Sneedville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheets of
Volunteer Bancorp, Inc. and subsidiary as of March 31, 1997 and 1996, and the
related condensed consolidated statements of earnings and condensed consolidated
statements of cash flows for the three 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.
April 24, 1997
1
<PAGE> 3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
March 31, 1997 and 1996
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 1,845,390 $ 1,934,984
Federal fund sold 4,269,944 4,115,308
-----------------------------
Total cash and cash equivalents 6,115,334 6,050,292
Investment securities available for sale (amortized cost of $15,781,280
and $12,849,747, respectively) 15,493,597 12,812,781
Investment securities held to maturity (estimated market value of
$1,335,636 and $2,275,951, respectively) 1,349,546 2,318,857
Loans, less allowances for loan losses of $500,121 and
$408,853, respectively 37,366,886 24,364,113
Accrued interest receivable 568,795 533,391
Premises and equipment, net 3,507,952 2,025,681
Deferred income taxes 69,505 --
Other real estate 77,540 67,846
Goodwill 216,204 234,105
Other assets 57,340 106,228
-----------------------------
Total assets $ 64,822,699 $ 48,513,294
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest bearing $ 6,933,617 $ 5,918,266
Interest bearing 50,587,152 36,104,241
-----------------------------
Total deposits 57,520,769 42,022,507
Interest payable 450,484 310,955
Securities sold under repurchase agreements 175,000 --
Other accrued taxes, expenses and liabilities 107,355 74,826
Deferred income taxes -- 82,748
Long-term debt 3,265,000 3,450,000
-----------------------------
Total liabilities 61,518,608 45,941,036
-----------------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares authorized, 525,717
and 452,852 shares issued and outstanding at March 31, 1997 and 1996,
respectively 5,258 4,529
Additional paid-in capital 1,761,552 1,033,631
Retained earnings 1,715,645 1,556,976
Net unrealized (loss) on securities available for sale (178,364) (22,878)
-----------------------------
Total stockholders' equity 3,304,091 2,572,258
-----------------------------
Total liabilities and stockholders' equity $ 64,822,699 $ 48,513,294
=============================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE> 4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
For The Three Months Ended March 31, 1997 and 1996
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 880,633 $ 584,973
Interest on federal funds 56,604 64,973
Interest on investment securities:
Taxable 266,513 189,706
Exempt from Federal income taxes 1,250 --
-----------------------------
Total interest income 1,205,000 839,652
-----------------------------
Interest Expense:
Interest on deposits 625,058 400,386
Other borrowed funds 66,356 71,899
-----------------------------
Total interest expense 691,414 472,285
-----------------------------
Net interest income 513,586 367,367
Provision for possible loan losses 45,000 15,000
-----------------------------
Net interest income after provision for possible
loan losses 468,586 352,367
-----------------------------
Non-interest income:
Service charges on deposits 20,131 13,670
Other service charges and fees 25,581 12,797
Securities gains 1,358 8,908
Other non-interest income 5,261 3,372
-----------------------------
Total non-interest income 52,331 38,747
-----------------------------
Non-interest expense:
Salaries and employee benefits 254,319 253,091
Occupancy expense 33,633 23,483
Furniture and equipment expense 37,216 35,549
Other non-interest expense 138,431 139,433
-----------------------------
Total non-interest expense 463,599 451,556
-----------------------------
Income (loss) before income taxes 57,318 (60,442)
Income tax expense (benefit) 21,633 (21,978)
-----------------------------
Net income (loss) $ 35,685 $ (38,464)
=============================
Income (loss) per weighted average common share $ 0.07 $ (0.09)
============ ============
Weighted average common shares outstanding 525,717 448,565
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE> 5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 1997 and 1996
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 35,685 $ (38,464)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Deferred income taxes (1,130) (22,731)
Provision for possible loan losses 45,000 15,000
Provision for depreciation and amortization 34,245 31,554
(Gain) on securities (1,358) (8,908)
Decrease (increase) in interest receivable 41,859 (98,836)
(Increase) decrease in other assets (10,585) 81,765
Increase (decrease) in other liabilities (125,948) 53,937
-----------------------------
Net cash provided by operating activities 17,768 13,317
-----------------------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity -- (2,204,385)
Proceeds from calls and maturity of held to maturity securities 254,301 3,408,326
Purchase of investment securities available for sale (3,471,856) (7,241,078)
Proceeds from calls and maturity of investments available for sale 300,000 1,000,000
Proceeds from sale of investments available for sale 991,250 --
Net (increase) in loans (2,532,058) (2,804,510)
Capital expenditures (320,662) (65,679)
-----------------------------
Net cash (used) in investing activities (4,779,025) (7,907,326)
-----------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts and savings accounts 85,797 1,934,569
Net increase (decrease) in certificates of deposit 1,757,841 5,575,764
Repayment of long-term debt (185,000) --
Proceeds from sale of common stock -- 66,000
-----------------------------
Net cash provided by financing activities 1,658,638 7,576,333
-----------------------------
Increase (decrease) in cash and cash equivalents (3,102,619) (317,676)
Cash and cash equivalents beginning of period 9,217,953 6,367,968
-----------------------------
Cash and cash equivalents end of period $ 6,115,334 6,050,292
=============================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 796,147 $ 491,378
=============================
Income taxes $ 124,326 $ --
=============================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated inancial statements.
.
4
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Management Opinion
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Volunteer Bancorp, Inc. 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 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 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 will be effective for fiscal years beginning after December 15,
1995. While earlier application is allowed, the Company did not adopt
SFAS No. 122 until January 1, 1996. The adoption of SFAS No. 122 did not
have a material impact upon financial position or results of operation.
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.
This statement 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.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued on
October 23, 1995 and establishes a fair value method of accounting for
such compensation plans. Stock-based compensation plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer. SFAS No. 123 also applies to transactions
in which an entity issues its equity instruments to acquire goods or
services from nonemployees. Under SFAS No. 123, these types of
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instrument
issued, whichever is more reliably measured. While SFAS No. 123
encourages all entities to adopt the fair value method of accounting, it
does allow an entity to continue to measure the compensation cost of
stock compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock. Most fixed stock option plans
(the most common type of stock compensation plan) have no intrinsic
value at grant date, and under APB Opinion No. 25 no compensation cost
is recognized. Entities electing to continue using the guidance under
APB Opinion No. 25 must make pro forma disclosures of net income and
earnings per share as if the fair value method of accounting prescribed
by SFAS No. 123 had been applied. The requirements of SFAS No. 123 are
effective
5
<PAGE> 7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
for fiscal years beginning after December 15, 1995. The Company does not
currently employ stock based compensation plans or similar arrangements.
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. Adoption of this Statement was not
required until 1996. The adoption of SFAS No. 121 did not have a
material impact upon financial position or results of operation.
3. Premises and Equipment, net
The significant increase in premises and equipment, net at March 31,
1997 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.
4. Long-term debt
The Company's long-term debt consists of a single note payable in the
amount of $3,265,000 and 3,450,000 at March 31. 1997 and 1996,
respectively, 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 March 31. 1997 the rate on the
note was 7.813% 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>
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
<PAGE> 8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
5. 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.
6. 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 six 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 $9,500 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 three-
months ended March 31, 1997 and 1996.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
OPERATING RESULTS
The Company had net income of $35,685 or $0.07 per weighted average common share
for the first quarter of 1997 compared to a net loss for the first quarter of
1996 of ($38,464) or ($0.09) per weighted average common share outstanding. Our
returns on average assets and average common equity for the first quarter of
1997 were 0.06% and 1.07%, respectively compared to (0.05%) and (1.48%),
respectively for the first quarter of 1996.
Net interest income for the first quarter of 1997 increased $146,219 to $513,586
versus the first quarter of 1996 of $367,367. The increase is attributable to
loan growth and a higher investment portfolio yield. Loans grew 52.86% over the
first quarter of 1996 from $24,772,966 at March 31, 1996 to $37,867,007 at the
end of the first quarter of 1997. Total Company assets were $64,822,699 at March
31, 1997 compared to $48,513,294 as of March 31, 1996.
The net interest margin was 3.57% for the first quarter of 1997 compared to
2.95% for the first quarter of 1996. The yield on the investment portfolio was
6.47% for the first quarter of 1997 compared to 6.29% 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. Net interest income was
helped by a decrease in the Company's long-term debt and a decrease in average
rate on the Company's long-term debt which was utilized to increase the capital
of the Company's subsidiary Bank.
Non-interest income for the first quarter of 1997 increased $13,584 over the
first quarter of 1996 to $52,331 compared to $38,747 for the first quarter of
1996. The growth is attributable to service charges on deposit accounts and
other fees. Non-interest expenses for the first quarter of 1997 increased
$12,043 to $463,599 compared to the first quarter of 1996 of $451,556. The
Company's net income was significantly benefitted by a decrease in the expense
ratio (annualized non-interest expense divided by total assets) to 2.91% at
March 31, 1997 compared to 4.04% at March 31, 1996. The decrease in the expense
ratio is primarily attributable to the Company being able to service increased
business volume without corresponding increases in costs.
ASSET QUALITY
Asset quality measures continue to improve. Non-performing assets at March 31,
1997 were $122,000 or 0.32% of loans and foreclosed properties, which is a
decrease from $263,000 or 1.07% of loans and foreclosed properties at March 31,
1996. The provision for losses on loans was $45,000 for the first quarter of
1997 which is an increase of $30,000 over the provision of $15,000 for the first
quarter of 1996. The increase in the provision is primarily attributable to the
increase in loan growth. At March 31, 1997, the allowance for losses on loans
was 1.32% of loans and approximately 410% of non-performing assets.
8
<PAGE> 10
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net earnings (loss) $35,685 ($38,464)
Per common share data:
Net earnings (loss) per weighted average common share $0.07 ($0.09)
Book value $6.28 $5.68
Ratios:
Return on average assets 0.06% (0.05)%
Return on average common equity 1.07% (1.48)%
Net interest margin (taxable equivalent basis) 3.57% 2.95%
Expense ratio 2.91% 4.04%
Allowance for loan losses / loans 1.32% 1.65%
Non-performing loans / loans 0.12% 0.80%
Non-performing assets / loans and foreclosed properties 0.32% 1.07%
Shareholders' equity / total assets 5.10% 5.30%
Leverage ratio (tangible capital / tangible assets) 5.14% 4.89%
</TABLE>
9
<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 March 31, 1997.
10
<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: May 12, 1997
Reed D. Matney, President
(principal executive officer)
Date: May 12, 1997
H. Lyons Price (principal financial and
accounting officer)
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 24, 1997 included in this Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997.
Welch & Associates
Nashville, Tennessee
May 8, 1997
12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,845,390
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,269,944
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,493,597
<INVESTMENTS-CARRYING> 1,349,546
<INVESTMENTS-MARKET> 1,335,636
<LOANS> 37,867,007
<ALLOWANCE> 500,121
<TOTAL-ASSETS> 64,822,699
<DEPOSITS> 57,520,769
<SHORT-TERM> 175,000
<LIABILITIES-OTHER> 557,839
<LONG-TERM> 3,265,000
0
0
<COMMON> 5,258
<OTHER-SE> 3,298,833
<TOTAL-LIABILITIES-AND-EQUITY> 64,822,699
<INTEREST-LOAN> 880,633
<INTEREST-INVEST> 267,763
<INTEREST-OTHER> 56,604
<INTEREST-TOTAL> 1,205,000
<INTEREST-DEPOSIT> 625,058
<INTEREST-EXPENSE> 691,414
<INTEREST-INCOME-NET> 513,586
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 1,358
<EXPENSE-OTHER> 463,599
<INCOME-PRETAX> 57,318
<INCOME-PRE-EXTRAORDINARY> 35,685
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,685
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.36
<LOANS-NON> 37,168
<LOANS-PAST> 7,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 457,432
<CHARGE-OFFS> 4,796
<RECOVERIES> 2,485
<ALLOWANCE-CLOSE> 500,121
<ALLOWANCE-DOMESTIC> 500,121
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
