<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 June 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 June 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
June 30, 1998 and 1997
(Unaudited- See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- ------------
<S> <C> <C>
Cash and due from banks $ 2,332,207 $ 2,258,184
Federal fund sold 3,921,513 2,647,763
---------------------------
Total cash and cash equivalents 6,253,720 4,905,947
Investment securities available for sale (amortized cost of
$18,462,425 and $16,563,610, respectively) 18,540,124 16,464,168
Investment securities held to maturity (estimated market
value of $3,075,455 and $1,354,083) 3,073,785 1,344,533
Loans, less allowances for loan losses of $737,027 and
$549,213, respectively 54,653,612 42,111,329
Accrued interest receivable 883,778 684,948
Premises and equipment, net 3,608,810 3,716,014
Deferred income taxes 1,062 20,590
Other real estate 153,420 62,380
Goodwill 193,850 211,733
Other assets 97,794 55,462
---------------------------
Total assets $87,459,955 $ 69,577,104
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 8,611,284 $ 7,900,410
Interest bearing 69,169,503 53,423,920
---------------------------
Total deposits 77,780,787 61,324,330
Interest payable 819,598 585,834
Securities sold under repurchase agreements 1,733,089 850,000
Note payable 3,045,000 3,265,000
Other accrued taxes, expenses and liabilities 53,419 96,296
---------------------------
Total liabilities 83,431,893 66,121,460
---------------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares authorized, 539,027 and
525,851 shares issued and outstanding at June 30,
1998 and 1997, respectively 5,390 5,259
Additional paid-in capital 1,916,500 1,763,561
Retained earnings 2,057,999 1,748,478
Net unrealized gain (loss) on securities available for sale 48,173 (61,654)
---------------------------
Total stockholders' equity 4,028,062 3,455,644
---------------------------
Total liabilities and stockholders' equity $87,459,955 $ 69,577,104
===========================
</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 Six Months Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
(Unaudited - See Accountants' Review Report)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 1,321,390 $ 985,446 $ 2,509,403 $ 1,866,079
Interest on federal funds 72,789 51,553 171,888 108,157
Interest on investment securities:
Taxable 317,946 287,964 613,435 554,477
Exempt from Federal income taxes 11,301 1,250 15,234 2,500
-----------------------------------------------------------
Total interest income 1,723,426 1,326,213 3,309,960 2,531,213
-----------------------------------------------------------
Interest Expense:
Interest on deposits 897,716 680,974 1,730,001 1,306,032
Other borrowed funds 84,971 66,614 169,664 132,970
-----------------------------------------------------------
Total interest expense 982,687 747,588 1,899,665 1,439,002
-----------------------------------------------------------
Net interest income 740,739 578,625 1,410,295 1,092,211
Provision for possible loan losses 60,000 50,000 120,000 95,000
-----------------------------------------------------------
Net interest income after provision for possible
loan losses 680,739 528,625 1,290,295 997,211
-----------------------------------------------------------
Non-interest income:
Service charges on deposits 37,385 25,885 65,704 46,016
Other service charges and fees 27,183 21,887 45,138 47,468
Securities gains (losses) 3,138 (312) 15,173 1,046
Other non-interest income 6,765 5,636 12,918 10,897
-----------------------------------------------------------
Total non-interest income 74,471 53,096 138,933 105,427
-----------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 310,586 273,677 621,380 527,996
Occupancy expense 56,050 56,222 96,556 89,855
Furniture and equipment expense 57,889 42,913 115,948 80,129
Other non-interest expense 176,303 154,317 337,406 292,748
-----------------------------------------------------------
Total non-interest expense 600,828 527,129 1,171,290 990,728
-----------------------------------------------------------
Earnings before income taxes 154,382 54,592 257,938 111,910
Income tax expense 53,127 21,759 96,674 43,392
-----------------------------------------------------------
Net income $ 101,255 $ 32,833 $ 161,264 $ 68,518
===========================================================
Other comprehensive income:
Unrealized gain (loss) on securities available
for sale, before tax $ (10,576) $ 188,241 $ (6,299) $ (19,019)
Income tax benefit (expense) related to other
comprehensive income 4,019 (71,531) 2,393 7,227
-----------------------------------------------------------
Total comprehensive income $ 94,698 $ 149,543 $ 157,358 $ 56,726
===========================================================
Net income per weighted average
common share $ 0.19 $ 0.06 $ 0.30 $ 0.13
===========================================================
Weighted average common shares outstanding 539,027 525,729 539,027 525,723
===========================================================
</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 Six Months Ended June 30, 1998 and 1997
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 161,264 $ 68,518
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Deferred income taxes (20,220) (23,746)
Provision for possible loan losses 120,000 95,000
Provision for depreciation and amortization 120,311 93,204
(Gain) on securities (15,173) (1,046)
(Increase) in interest receivable (64,268) (74,294)
(Increase) decrease in other assets (103,535) 6,453
Increase (decrease) in other liabilities 87,957 (1,657)
-----------------------------
Net cash provided by operating activities 286,336 162,432
-----------------------------
Cash Flows from Investing Activities:
Purchase of investment securities held to maturity (1,988,681) --
Proceeds from calls and maturity of held to maturity securities -- 259,314
Purchase of investment securities available for sale (6,911,801) (4,738,170)
Proceeds from calls and maturity of securities available for sale 4,498,582 300,000
Proceeds from sale of securities available for sale 990,625 1,474,922
Net (increase) in loans (6,963,742) (7,326,501)
Capital expenditures (72,989) (583,212)
-----------------------------
Net cash (used) in investing activities (10,448,006) (10,613,647)
-----------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts and savings accounts 777,843 3,773,294
Net increase in certificates of deposit 7,915,555 1,873,905
Net increase in securities sold under repurchase agreements 516,410 675,000
Repayment of long-term borrowing (220,000) (185,000)
Proceeds from sale of common stock -- 2,010
-----------------------------
Net cash provided by financing activities 8,989,808 6,139,209
-----------------------------
(Decrease) in cash and cash equivalents (1,171,862) (4,312,006)
Cash and cash equivalents beginning of period 7,425,582 9,217,953
-----------------------------
Cash and cash equivalents end of period $ 6,253,720 $ 4,905,947
=============================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,800,909 $ 1,408,385
=============================
Income taxes $ 149,351 $ 158,326
=============================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE> 5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended June 30, 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 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.
<PAGE> 6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
3. Long-term debt
The Company's long-term debt consists of a single note payable in
the amount of $3,045,000 and $3,265,000 at June 30, 1998 and 1997,
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 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 June 30,
1998 the rate on the note was 7.669% per annum. Principal is
payable annually commencing January 31, 1998 and each January 31
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> 7
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 June 30, 1998 and 1997, and the
related condensed consolidated statements of earnings for the three and six
months then ended and the condensed consolidated statements of cash flows for
the six 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.
July 20, 1998
Nashville, Tennessee
<PAGE> 8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $101,255 $32,833 $161,264 $68,518
Per common share data:
Net income per weighted average
common share $0.19 $0.06 $0.30 $0.13
Book value $7.47 $6.28 $7.47 $6.28
Ratios:
Return on average assets 0.12% 0.05% 0.19% 0.10%
Return on average common equity 2.57% 0.97% 4.08% 2.00%
Net interest margin (taxable equivalent basis) 3.61% 3.76% 3.62% 3.66%
Expense ratio 2.89% 3.12% 2.77% 3.02%
Allowance for loan losses/loans 1.33% 1.29% 1.33% 1.29%
Non-performing loans/loans 0.04% 0.17% 0.04% 0.17%
Non-performing assets/loans and
foreclosed properties 0.31% 0.32% 0.31% 0.32%
Shareholder's equity/total assets 4.61% 4.97% 4.61% 4.97%
Leverage ratio (tangible capital/
tangible average assets) 4.77% 4.91% 4.70% 5.05%
</TABLE>
<PAGE> 9
Item 2.
VOLUNTEER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
OPERATING RESULTS
The Company reported net income for the second quarter of $101,255, or $0.19 per
weighted average common share, compared to income of $32,833, or $0.06 for the
same period a year ago. Returns on average assets and average common equity were
0.12% and 2.57%, respectively, for the quarter compared to 0.05% and 0.97% for
the same period last year.
Net interest income for the first six months of 1998 increased $318,084 versus
the first six months of 1997 to $1,410,295. The increase is attributable to
growth in interest earning assets of 28.16%. Average loans grew 33.49% over the
second quarter of 1997. Total Company assets were $87,459,955 at June 30, 1998
compared to $69,577,104 as of June 30, 1997.
The net interest margin (taxable equivalent basis) was 3.61% for the second
quarter of 1998 compared to 3.76% for the second quarter of 1997. The yield on
the investment portfolio was 6.40% for the second quarter of 1998 compared to
6.62% 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 second quarter of 1998 increased $21,375 over the
second quarter of 1997. The growth is attributable to service charges on deposit
accounts and other fees. Non-interest expenses for the second quarter of 1998
increased $73,699 compared to the second quarter of 1997 primarily for costs
(including salaries and employee compensation) associated with opening and
staffing of 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 by the suppliers as being year 2000 compliant.
ASSET QUALITY
Non-performing assets at June 30, 1998 were $174,000 or 0.31% of loans and
foreclosed properties, compared to $135,000, or 0.32% of loans and foreclosed
properties at June 30, 1997. The provision for losses on loans was $60,000 for
the second quarter of 1998 which is an increase of $10,000 over the provision
for the second quarter of 1997. The increase in the provision is primarily
attributable to the increase in loan growth. At June 30, 1998, the allowance for
losses on loans was 1.33% of loans and approximately 424% of non-performing
assets.
CAPITAL REQUIREMENTS
The Company's equity capital was $4.028 million at June 30, 1998 compared to
$3.46 million at June 30, 1997. No dividends were paid by the Company and the
Company does not expect to pay dividends any time in the foreseeable future.
<PAGE> 10
The Company is a "small one-bank holding company" within the meaning of
regulations promulgated by the Board of Governors of the Federal Reserve System.
Accordingly, the Company's capital compliance, for bank holding company
purposes, will be measured solely with respect to the Bank and not on a
consolidated basis.
Management believes, as of June 30, 1998, that the Bank and Company meet all
capital requirements to which they are subject. However, events beyond the
control of the Company, such as a downturn in the local economy, could adversely
affect future earnings and, consequently, the ability of the Company to meet its
future minimum capital requirements.
The Bank would be considered "well capitalized" within the applicable regulatory
capital guidelines at June 30, 1998 having a leverage ratio of 8.02%, a Tier I
risk ratio of 12.19% and a total risk ratio of 13.44%.
<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
The annual meeting of shareholders was held on April 16, 1998 at which all of
the current directors were elected for a one-year term, or until their
successors are duly elected and qualified.
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 June 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: August 10, 1998
Reed D. Matney, President
(principal executive officer)
Date: August 10, 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 July 20, 1998 included in this Quarterly Report on Form 10-QSB for
the Quarter Ended June 30, 1998.
Welch & Associates
Nashville, Tennessee
August 10, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VOLUNTEER BANCORP, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,332,207
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,921,513
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,540,124
<INVESTMENTS-CARRYING> 3,073,785
<INVESTMENTS-MARKET> 3,075,455
<LOANS> 55,390,639
<ALLOWANCE> 737,027
<TOTAL-ASSETS> 87,459,955
<DEPOSITS> 77,780,787
<SHORT-TERM> 1,733,089
<LIABILITIES-OTHER> 873,017
<LONG-TERM> 3,045,000
0
0
<COMMON> 5,390
<OTHER-SE> 4,022,672
<TOTAL-LIABILITIES-AND-EQUITY> 87,459,955
<INTEREST-LOAN> 2,509,403
<INTEREST-INVEST> 628,669
<INTEREST-OTHER> 171,888
<INTEREST-TOTAL> 3,309,960
<INTEREST-DEPOSIT> 1,730,001
<INTEREST-EXPENSE> 1,899,665
<INTEREST-INCOME-NET> 1,410,295
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 15,173
<EXPENSE-OTHER> 1,171,290
<INCOME-PRETAX> 257,938
<INCOME-PRE-EXTRAORDINARY> 257,398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,264
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.46
<LOANS-NON> 20,095
<LOANS-PAST> 253,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 660,336
<CHARGE-OFFS> 46,287
<RECOVERIES> 2,978
<ALLOWANCE-CLOSE> 737,027
<ALLOWANCE-DOMESTIC> 737,027
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
