<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, 1998
[ ] 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: 539,027 as of March 31, 1998.
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 MONTHS ENDED MARCH 31, 1998 AND 1997
OPERATING RESULTS
The Company reported net income for the first quarter of $60,009, or $0.11 per
common share, compared to net income of $35,685, or $0.07 for the same period a
year ago. Our returns on average assets and average common equity were 0.07% and
1.53%, respectively, for the quarter compared to 0.06% and 1.07% for the same
period last year.
Net interest income for the first three months of 1998 increased $155,970 versus
the first three months of 1997 to $669,556. The increase is attributable to
growth in interest earning assets of 30.71%. Average loans grew 33.96% over the
first quarter of 1997. Total Company assets were $86,313,609 at March 31, 1998
compared to $64,822,699 as of March 31, 1997.
The net interest margin was 3.55% for the first quarter of 1998 compared to
3.57% for the first quarter of 1997. The yield on the investment portfolio was
6.36% for the first quarter of 1998 compared to 6.47% for the same quarter of
1997. 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 first quarter of 1998 increased $12,131 over the
first quarter of 1997. The growth is attributable to service charges on deposit
accounts and gains on securities transactions. Non-interest expenses for the
first quarter of 1998 increased $106,863 compared to the first quarter of 1997
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.
The Company is rapidly outgrowing its present data processing system and
software and expects to have new hardware and software operational sometime
during the third quarter of 1998. The Company will lease its new hardware and
software for a five year period at approximately $62,400 annually. The new
system is certified as being year 2000 compliant.
ASSET QUALITY
Non-performing assets at March 31, 1998 were $266,000 or 0.53% of loans and
foreclosed properties, which is an increase from $122,000, or 0.32% of loans and
foreclosed properties at March 31, 1997. The provision for losses on loans was
$60,000 for the first quarter of 1998 which is an increase of $15,000 over the
provision for the first quarter of 1997. The increase in the provision is
primarily attributable to the increase in loan growth. At March 31, 1998, the
allowance for losses on loans was 1.38% of loans and approximately 260% of
non-performing assets.
<PAGE> 3
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 March 31, 1998 and 1997, and the
related condensed consolidated statement of earnings and condensed consolidated
statement 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, 1998
<PAGE> 4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
March 31, 1998 and 1997
(Unaudited- See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 2,482,964 $ 1,845,390
Federal fund sold 6,344,776 4,269,944
------------ ------------
Total cash and cash equivalents 8,827,740 6,115,334
Investment securities available for sale (amortized cost of
$17,458,235 and $15,781,280, respectively) 17,546,510 15,493,597
Investment securities held to maturity (estimated market
value of $3,075,384 and $1,335,636) 3,079,420 1,349,546
Loans, less allowances for loan losses of $693,589 and
$500,121, respectively 49,467,187 37,366,886
Accrued interest receivable 751,756 568,795
Premises and equipment, net 3,595,789 3,507,952
Deferred income taxes 20,522 69,505
Other real estate 60,917 77,540
Goodwill 198,321 216,204
Other assets 65,447 57,340
------------ ------------
Total assets $ 83,613,609 $ 64,822,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest bearing $ 8,015,349 $ 6,933,617
Interest bearing 65,957,183 50,587,152
------------ ------------
Total deposits 73,972,532 57,520,769
Note payable 3,045,000 3,265,000
Interest payable 664,304 450,484
Securities sold under repurchase agreements 1,790,341 175,000
Other accrued taxes, expenses and liabilities 208,068 107,355
------------ ------------
Total liabilities 79,680,245 61,518,608
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares
authorized, 539,027 and 525,717 shares issued and
outstanding at March 31, 1998 and 1997, respectively 5,390 5,258
Additional paid-in capital 1,916,500 1,761,552
Retained earnings 1,956,744 1,715,645
Accumulated other comprehensive income 54,730 (178,364)
------------ ------------
Total stockholders' equity 3,933,364 3,304,091
------------ ------------
Total liabilities and stockholders' equity
$ 83,613,609 $ 64,822,699
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Earnings
For The Three Months Ended March 31, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Interest Income:
<S> <C> <C>
Interest and fees on loans $ 1,188,013 $ 880,633
Interest on federal funds 99,099 56,604
Interest on investment securities:
Taxable 295,489 266,513
Exempt from Federal income taxes 3,933 1,250
------------ ------------
Total interest income 1,586,534 1,205,000
------------ ------------
Interest Expense:
Interest on deposits 832,285 625,058
Other borrowed funds 84,693 66,356
------------ ------------
Total interest expense 916,978 691,414
------------ ------------
Net interest income 669,556 513,586
Provision for possible loan losses 60,000 45,000
------------ ------------
Net interest income after provision for possible loan losses 609,556 468,586
------------ ------------
Non-interest income:
Service charges on deposits 28,319 20,131
Other service charges and fees 17,955 25,581
Securities gains 12,035 1,358
Other non-interest income 6,153 5,261
------------ ------------
Total non-interest income 64,462 52,331
------------ ------------
Non-interest expense:
Salaries and employee benefits 310,794 254,319
Occupancy expense 40,506 33,633
Furniture and equipment expense 58,059 37,216
Other non-interest expense 161,103 138,431
------------ ------------
Total non-interest expense 570,462 463,599
------------ ------------
Income before income taxes 103,556 57,318
Income tax expense 43,547 21,633
------------ ------------
Net income $ 60,009 $ 35,685
============ ============
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on securities available for sale 4,277 (207,260)
Income taxes related to other comprehensive income (1,626) 78,758
------------ ------------
Total comprehensive income (loss) $ 62,660 $ (92,817)
============ ============
Net income per common share $ 0.11 0.07
============ ============
Common shares outstanding 539,027 525,717
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Cash Flows
For The Three Months Ended March 31, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 60,009 $ 35,685
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (44,149) (1,130)
Provision for possible loan losses 60,000 45,000
Provision for depreciation and amortization 60,725 34,245
(Gain) on securities (12,035) (1,358)
Decrease in interest receivable 67,754 41,859
Decrease (increase) other assets 21,315 (10,585)
Increase (decrease) in other liabilities 87,312 (125,948)
------------ ------------
Net cash provided by operating activities 300,931 17,768
------------ ------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity (1,994,316) --
Proceeds from calls and maturity of held to maturity securities -- 254,301
Purchase of investment securities available for sale (4,419,674) (3,471,856)
Proceeds from calls and maturity of investments available for
sale 3,998,582 300,000
Proceeds from sale of investments available for sale -- 991,250
Net (increase) in loans (1,717,317) (2,532,058)
Capital expenditures (4,853) (320,662)
------------ ------------
Net cash (used) in investing activities (4,137,578) (4,779,025)
------------ ------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts and savings
accounts 3,634,154 85,797
Net increase (decrease) in certificates of deposit 1,250,989 1,757,841
Repayment of long-term debt (220,000) (185,000)
Net increase in securities sold under repurchase agreements 573,662 --
------------ ------------
Net cash provided by financing activities 5,238,805 1,658,638
------------ ------------
Increase (decrease) in cash and cash equivalents 1,402,158 (3,102,619)
Cash and cash equivalents beginning of period 7,425,582 9,217,953
------------ ------------
Cash and cash equivalents end of period $ 8,827,740 6,115,334
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 973,516 $ 796,147
============ ============
Income taxes $ 49,984 $ 124,326
============ ============
</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
Three Months Ended March, 1998 and 1997
- --------------------------------------------------------------------------------
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)
Effective January 1, 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 requires the
reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the
calculation of net income. Prior periods have been restated to conform
to the presentation for the current period.
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 for fiscal years beginning after December 15, 1995.
<PAGE> 8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March, 1998 and 1997
- -------------------------------------------------------------------------------
3. Long-term debt
The Company's long-term debt consists of a single note payable in the
amount of $3,045,000 and $3,265,000 at March 31. 1998 and 1997,
respectively, due from 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. 1998 the rate on
the note was 7.579% per annum. Principal is payable annually commencing
January 31, 1998 and each January 1 thereafter as follows:
<TABLE>
<CAPTION>
January 31, Principal Due
----------- -------------
<S> <C>
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
----------
$3,045,000
==========
</TABLE>
The loan is secured by all of the stock of Citizens Bank of East Tennessee owned
by the Company.
4. 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> 9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net earnings $60,009 $35,685
Per common share data:
Net earnings per common share $ 0.11 $ 0.07
Book value $ 7.30 $ 6.28
Ratios:
Return on average assets 0.07% 0.06%
Return on average common equity 1.53% 1.07%
Net interest margin (taxable equivalent basis) 3.55% 3.57%
Expense ratio 2.79% 2.91%
Allowance for loan losses / loans 1.38% 1.32%
Non-performing loans / loans 0.41% 0.12%
Non-performing assets / loans and foreclosed properties 0.53% 0.32%
Shareholders' equity / total assets 4.70% 5.10%
Leverage ratio (tangible capital / tangible assets) 4.51% 5.14%
</TABLE>
<PAGE> 10
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, 1998.
<PAGE> 11
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 8, 1998
Reed D. Matney, President
(principal executive officer)
Date: May 8, 1998
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 April 24, 1998 included in this Quarterly Report on Form 10-QSB for
the Quarter Ended March 31, 1998.
Welch & Associates
Nashville, Tennessee
May 8, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VOLUNTEER BANCORP, INC. FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,482,964
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,344,776
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,546,510
<INVESTMENTS-CARRYING> 3,079,420
<INVESTMENTS-MARKET> 3,075,384
<LOANS> 50,160,776
<ALLOWANCE> 693,589
<TOTAL-ASSETS> 83,613,609
<DEPOSITS> 73,972,532
<SHORT-TERM> 1,790,341
<LIABILITIES-OTHER> 872,372
<LONG-TERM> 3,045,000
0
0
<COMMON> 5,390
<OTHER-SE> 3,927,974
<TOTAL-LIABILITIES-AND-EQUITY> 83,613,609
<INTEREST-LOAN> 1,188,013
<INTEREST-INVEST> 299,422
<INTEREST-OTHER> 99,099
<INTEREST-TOTAL> 1,586,534
<INTEREST-DEPOSIT> 832,285
<INTEREST-EXPENSE> 916,978
<INTEREST-INCOME-NET> 669,556
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 12,035
<EXPENSE-OTHER> 570,462
<INCOME-PRETAX> 103,556
<INCOME-PRE-EXTRAORDINARY> 103,556
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,009
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.38
<LOANS-NON> 25,767
<LOANS-PAST> 179,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 660,336
<CHARGE-OFFS> 29,691
<RECOVERIES> 2,944
<ALLOWANCE-CLOSE> 693,589
<ALLOWANCE-DOMESTIC> 693,589
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
