<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, 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 September
30, 1998.
Transitional Small Business Disclosure Format (check one);
Yes No X
----- -----
<PAGE> 2
Part I
Item 1 Financial Statements
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------------------------------
<S> <C> <C>
Cash and due from banks $ 2,087,064 $ 1,927,689
Federal fund sold 5,661,444 2,846,249
----------------------------------
Total cash and cash equivalents 7,748,508 4,773,938
Investment securities available for sale (amortized cost of
$21,385,402 and $16,082,468, respectively) 21,593,525 16,105,774
Investment securities held to maturity (estimated market
value of $2,080,163 and $1,083,563, respectively) 2,068,241 1,089,810
Loans, less allowances for loan losses of $761,721 and
$608,290, respectively 57,452,071 44,966,009
Accrued interest receivable 937,818 729,564
Premises and equipment, net 3,705,094 3,672,589
Other real estate 51,923 80,361
Goodwill 189,379 207,262
Other assets 89,008 40,138
----------------------------------
Total assets $93,835,567 71,665,445
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 8,962,895 $ 7,388,070
Interest bearing 74,927,638 55,778,446
----------------------------------
Total deposits 83,890,533 63,166,516
Note payable 3,045,000 3,265,000
Interest payable 880,927 566,348
Securities sold under repurchase agreements 1,615,953 932,713
Other accrued taxes, expenses and liabilities 97,618 95,353
Deferred income taxes 48,563 14,560
----------------------------------
Total liabilities 89,578,594 68,040,490
----------------------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares
authorized, 539,027 and 529,737 shares issued and
outstanding at September 30, 1998 and 1997, respectively 5,390 5,297
Additional paid-in capital 1,916,500 1,786,599
Retained earnings 2,206,047 1,819,229
Accumulated other comprehensive income 129,036 13,830
----------------------------------
Total stockholders' equity 4,256,973 3,624,955
----------------------------------
Total liabilities and stockholders' equity $93,835,567 71,665,445
==================================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE> 3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
For The Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1,417,560 1,103,954 3,926,963 2,970,033
Interest on federal funds 74,081 32,232 245,969 140,389
Interest on investment securities:
Taxable 313,194 277,604 926,629 832,081
Exempt from Federal income taxes 25,875 1,250 41,109 3,750
-----------------------------------------------------------
Total interest income 1,830,710 1,415,040 5,140,670 3,946,253
-----------------------------------------------------------
Interest Expense:
Interest on deposits 954,732 702,118 2,684,733 1,995,831
Other borrowed funds 87,158 80,795 256,822 226,084
-----------------------------------------------------------
Total interest expense 1,041,890 782,913 2,941,555 2,221,915
-----------------------------------------------------------
Net interest income 788,820 632,127 2,199,115 1,724,338
Provision for possible loan losses 60,000 60,000 180,000 155,000
-----------------------------------------------------------
Net interest income after provision for
possible loan losses 728,820 572,127 2,019,115 1,569,338
-----------------------------------------------------------
Non-interest income:
Service charges on deposits 43,724 30,481 109,428 76,497
Other service charges and fees 20,665 2,999 65,803 50,467
Securities (losses) gain 7,499 1,857 22,672 2,903
Other non-interest income 14,433 18,982 27,351 29,879
-----------------------------------------------------------
Total non-interest income 86,321 54,319 225,254 159,746
-----------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 312,506 304,592 933,886 832,588
Occupancy expense 41,084 60,686 137,640 150,541
Furniture and equipment expense 75,385 63,711 191,333 143,840
Other non-interest expense 158,197 81,952 495,603 374,700
-----------------------------------------------------------
Total non-interest expense 587,172 510,941 1,758,462 1,501,669
-----------------------------------------------------------
Earnings before income taxes 227,969 115,505 485,907 227,415
Income tax expense 79,921 44,754 176,595 88,146
-----------------------------------------------------------
Net income $ 148,048 70,751 309,312 139,269
===========================================================
Income per weighted average common
share $ 0.27 0.13 0.57 0.26
===========================================================
Weighted average common shares
outstanding 539,027 527,651 539,027 526,373
===========================================================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE> 4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 309,312 $ 139,269
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (20,156) (34,860)
Provision for possible loan losses 180,000 155,000
Provision for depreciation and amortization 176,894 150,414
(Gain) loss on securities (22,672) (2,903)
(Increase) in interest receivable (118,308) (118,910)
Decrease in other assets 6,748 3,796
Increase (decrease) in other liabilities 193,485 (22,086)
-------------------------------
Net cash provided by operating activities 705,303 269,720
-------------------------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity (2,981,450) --
Proceeds from calls and maturity of held to maturity securities 1,999,156 515,704
Purchase of investment securities available for sale (13,769,264) (5,987,057)
Proceeds from calls and maturity of investments available
for sale 7,498,582 550,000
Proceeds from sale of investments available for sale 1,931,767 2,954,141
Net (increase) in loans (9,822,201) (10,241,181)
Capital expenditures (221,385) (592,526)
-------------------------------
Net cash (used) in investing activities (15,364,795) (12,800,919)
-------------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts, IRA
and savings accounts 437,639 667,368
Net increase in certificates of deposit 14,365,505 6,822,017
Net increase in securities sold under repurchase agreements 399,274 757,713
Repayment of long-term debt (220,000) (185,000)
Proceeds from sale of common stock -- 60,300
Stock issuance costs -- (35,214)
-------------------------------
Net cash provided by financing activities 14,982,418 8,087,184
-------------------------------
(Decrease) increase in cash and cash equivalents 322,926 (4,444,015)
Cash and cash equivalents beginning of period 7,425,582 9,217,953
-------------------------------
Cash and cash equivalents end of period $ 7,748,508 4,773,938
===============================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,781,470 $ 2,210,784
===============================
Income taxes $ 196,851 $ 224,826
===============================
</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 Comprehensive Income
For The Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 148,048 70,751 309,312 139,269
------------------------------------------------------------
Other comprehensive income, before tax:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the period 137,953 124,605 146,797 106,632
Less: reclassification adjustment for (gains)
losses included in net income (7,499) (1,857) (22,672) (2,903)
------------------------------------------------------------
Other comprehensive income 130,454 122,748 124,125 103,729
Income taxes related to other comprehensive income (49,591) (47,264) (47,168) (40,037)
------------------------------------------------------------
Other comprehensive income, net of income taxes 80,863 75,484 76,957 63,692
------------------------------------------------------------
Total comprehensive income $ 228,911 146,235 386,269 202,961
============================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
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)
Effective January 1, 1998, the Company adopted SFAS 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. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal quarters beginning after June
15, 1999 unless adopted earlier. This Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. Adoption by
the Company is not expected to have any material impact upon
financial position or results of operations.
<PAGE> 7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
3. Long-term debt
The Company's long-term debt consists of a single note payable in
the amount of $3,050,000 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
1.95% 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 , 1998 the rate on the note was 7.637%
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>
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> 8
INDEPENDENT AUDITOR'S REVIEW REPORT
To the Board of Directors
Volunteer Bancorp, Inc.
Rogersville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheets of
Volunteer Bancorp, Inc. and subsidiary as of September 30, 1998 and 1997, and
the related condensed consolidated statements of earnings and condensed
consolidated statements of comprehensive income for the three and nine months
then ended and the condensed consolidated statements 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.
November 5, 1998
<PAGE> 9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 148,048 $ 70,751 $ 309,312 $ 139,269
Per common share data:
Net income per weighted
average common share $ 0.27 $ 0.13 $ 0.57 $ 0.26
Book value $ 7.90 $ 6.84 $ 7.90 $ 6.84
Ratios:
Return on average assets 0.16% 0.10% 0.36% 0.21%
Return on average common equity 3.57% 2.00% 7.61% 4.02%
Net interest margin (taxable equivalent
basis) 3.80% 3.96% 3.75% 3.77%
Expense ratio 2.57% 2.92% 2.70% 2.98%
Allowance for losses on loans/loans 1.31% 1.33% 1.31% 1.33%
Non-performing loans/loans 0.59% 0.58% 0.59% 0.58%
Non-performing assets/loans and
foreclosed properties 0.68% 0.76% 0.68% 0.76%
Shareholders' equity/total assets 4.55% 5.06% 4.55% 5.06%
Leverage ratio (tangible capital/
tangible average assets) 4.32% 4.88% 4.56% 5.09%
</TABLE>
<PAGE> 10
Item 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, 1998 AND 1997
OPERATING RESULTS
The Company reported net income for the third quarter of $148,048, or $0.27 per
weighted average common share, compared to net income of $70,751, or $0.13 for
the same period a year ago. Returns on average assets and average common equity
were 0.16% and 3.57%, respectively, for the quarter compared to 0.10% and 2.00%
for the same period last year.
The net income for the first nine months of 1998 was $309,312, or $0.57 per
weighted average common share. This compares to net income of $139,269, or $0.26
per weighted average common share, for the same period last year.
Net interest income for the first nine months of 1998 increased $474,777 versus
the first nine months of 1996 to $2,199,115. The increase is attributable to
growth in interest earning assets of 30.49%. Average loans grew 32.04% over the
third quarter of 1997. Total Company assets were $93,835,567 at September 30,
1998 compared to $71,665,445 as of September 30, 1997.
The net interest margin (taxable equivalent basis) was 3.80% for the third
quarter of 1998 compared to 3.96% for the third quarter of 1997. The yield on
the investment portfolio was 6.52% for the third quarter of 1998 and 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 third quarter of 1998 increased $32,002 over the
third quarter of 1997. The growth is attributable to service charges on deposit
accounts and other fees. Noninterest expenses for the third quarter of 1998
increased $76,231 compared to the third quarter of 1997 primarily as a result of
the growth the Bank has experienced in the past year.
ASSET QUALITY
Non-performing assets at September 30, 1998 were $398,000 or 0.68% of loans and
foreclosed properties, compared to $346,000, or 0.58% of loans and foreclosed
properties at September 30, 1997. The provision for losses on loans was $60,000
for the third quarter of 1998 and 1997. At September 30, 1998, the allowance for
losses on loans was 1.31% of loans and approximately 191% 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, 1998.
<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 13, 1998 /s/ Reed D. Matney
---------------------------------------
Reed D. Matney, President
(principal executive officer)
Date: November 13, 1998 /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 November 5, 1998 included in this Quarterly Report on Form 10-QSB
for the Quarter Ended September 30, 1998.
Welch & Associates
Nashville, Tennessee
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VOLUNTEER BANCORP, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,087,064
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,661,525
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,593,525
<INVESTMENTS-CARRYING> 2,068,241
<INVESTMENTS-MARKET> 2,080,163
<LOANS> 58,213,792
<ALLOWANCE> 761,721
<TOTAL-ASSETS> 93,835,567
<DEPOSITS> 83,890,533
<SHORT-TERM> 1,615,953
<LIABILITIES-OTHER> 1,027,108
<LONG-TERM> 3,045,000
0
0
<COMMON> 5,390
<OTHER-SE> 4,251,583
<TOTAL-LIABILITIES-AND-EQUITY> 93,835,567
<INTEREST-LOAN> 3,926,963
<INTEREST-INVEST> 967,738
<INTEREST-OTHER> 245,969
<INTEREST-TOTAL> 5,140,670
<INTEREST-DEPOSIT> 2,684,733
<INTEREST-EXPENSE> 2,941,555
<INTEREST-INCOME-NET> 2,199,115
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 22,672
<EXPENSE-OTHER> 1,758,462
<INCOME-PRETAX> 485,907
<INCOME-PRE-EXTRAORDINARY> 309,312
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309,312
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.53
<LOANS-NON> 20,095
<LOANS-PAST> 326,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 660,336
<CHARGE-OFFS> 81,971
<RECOVERIES> 3,356
<ALLOWANCE-CLOSE> 761,721
<ALLOWANCE-DOMESTIC> 761,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
