<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, 1999
[ ] 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,
1999.
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.
Rogersville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheets of
Volunteer Bancorp, Inc. and subsidiary as of June 30, 1999 and 1998, and the
related condensed consolidated statements of earnings and comprehensive income
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, 1999
Nashville, Tennessee
<PAGE> 3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
June 30, 1999 and 1998
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ -------- -------
<S> <C> <C>
Cash and due from banks $ 2,944,509 $ 2,332,207
Federal fund sold 2,039,916 3,921,513
---------------------------------
Total cash and cash equivalents 4,984,425 6,253,720
Investment securities available for sale (amortized cost of
$28,523,725 and $18,462,425, respectively) 27,732,369 18,540,124
Investment securities held to maturity (estimated market
$1,069,757 value of $ and $3,075,455) 1,104,254 3,073,785
Loans, less allowances for loan losses of $864,726 and
$737,027, respectively 62,449,085 54,653,612
Accrued interest receivable 968,747 883,778
Premises and equipment, net 4,002,254 3,608,810
Deferred income taxes 344,823 1,062
Other real estate 159,624 153,420
Goodwill 175,967 193,850
Other assets 145,396 97,794
---------------------------------
Total assets $ 102,066,944 $ 87,459,955
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 9,916,374 $ 8,611,284
Interest bearing 82,726,838 69,169,503
---------------------------------
Total deposits 92,643,212 77,780,787
Interest payable 867,555 819,598
Securities sold under repurchase agreements 1,692,073 1,733,089
Note payable 2,790,000 3,045,000
Other accrued taxes, expenses and liabilities 11,659 53,419
---------------------------------
Total liabilities 98,004,499 83,431,893
---------------------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares authorized,
539,027 shares issued and outstanding 5,390 5,390
Additional paid-in capital 1,916,500 1,916,500
Retained earnings 2,631,196 2,057,999
Accumulated other comprehensive income (490,641) 48,173
---------------------------------
Total stockholders' equity 4,062,445 4,028,062
---------------------------------
Total liabilities and stockholders' equity $ 102,066,944 $ 87,459,955
=================================
</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 Earnings and Comprehensive Income
For The Three and Six Months Ended June 30, 1999 and 1998
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 1,488,634 $ 1,321,390 $ 2,907,396 $ 2,509,403
Interest on federal funds 36,203 72,789 76,378 171,888
Interest on investment securities:
Taxable 392,191 317,946 752,175 613,435
Exempt from Federal income taxes 44,622 11,301 90,760 15,234
--------------------------------------------------------------
Total interest income 1,961,650 1,723,426 3,826,709 3,309,960
--------------------------------------------------------------
Interest Expense:
Interest on deposits 982,387 897,716 1,948,505 1,730,001
Other borrowed funds 71,910 84,971 143,883 169,664
--------------------------------------------------------------
Total interest expense 1,054,297 982,687 2,092,388 1,899,665
--------------------------------------------------------------
Net interest income 907,353 740,739 1,734,321 1,410,295
Provision for possible loan losses 60,000 60,000 120,000 120,000
--------------------------------------------------------------
Net interest income after provision for possible
loan losses 847,353 680,739 1,614,321 1,290,295
--------------------------------------------------------------
Non-interest income:
Service charges on deposits 44,007 37,385 94,368 65,704
Other service charges and fees 32,363 27,183 54,818 45,138
Securities gains 12,123 3,138 40,747 15,173
Other non-interest income 3,377 6,765 13,979 12,918
--------------------------------------------------------------
Total non-interest income 91,870 74,471 203,912 138,933
--------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 347,195 310,586 701,985 621,380
Occupancy expense 62,164 56,050 115,146 96,556
Furniture and equipment expense 66,839 57,889 138,106 115,948
Other non-interest expense 171,799 176,303 364,239 337,406
--------------------------------------------------------------
Total non-interest expense 647,997 600,828 1,319,476 1,171,290
--------------------------------------------------------------
Earnings before income taxes 291,226 154,382 498,757 257,938
Income tax expense 98,719 53,127 165,234 96,674
--------------------------------------------------------------
Net income $ 192,507 $ 101,255 $ 333,523 $ 161,264
==============================================================
Other comprehensive income:
Unrealized (loss) on securities available
for sale, before tax $ (709,102) $ (13,714) $ (1,037,102) $ (21,472)
Reclassification for gains included in net income (12,123) (3,138) (40,747) (15,173)
Income taxes related to other comprehensive
income 264,852 4,019 378,615 2,393
--------------------------------------------------------------
(432,127) (6,557) (617,740) (3,906)
--------------------------------------------------------------
Total comprehensive income $ (239,620) $ 94,698 $ (284,217) $ 157,358
==============================================================
Net income per common share $ 0.36 $ 0.19 $ 0.62 $ 0.30
==============================================================
Common shares outstanding 539,027 539,027 539,027 539,027
==============================================================
</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 Cash Flows
For The Six Months Ended June 30, 1999 and 1998
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 333,523 $ 161,264
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 56,996 (20,220)
Provision for possible loan losses 120,000 120,000
Provision for depreciation and amortization 123,661 120,311
FHLB stock dividends (9,700) --
(Gain) on securities (40,747) (15,173)
(Increase) in interest receivable (63,510) (64,268)
(Increase) in other assets (161,298) (103,535)
Increase (decrease) in other liabilities (389,154) 87,957
--------------------------------
Net cash provided by operating activities (30,229) 286,336
--------------------------------
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 258,223 --
Purchase of investment securities available for sale (10,914,064) (6,911,801)
Proceeds from calls and maturity of securities available for sale 2,575,000 4,498,582
Proceeds from sale of securities available for sale 5,748,887 990,625
Net (increase) in loans (4,355,040) (6,963,742)
Capital expenditures (123) (72,989)
--------------------------------
Net cash (used) in investing activities (6,687,117) (10,448,006)
--------------------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts and savings
accounts 1,889,661 777,843
Net increase in certificates of deposit 3,088,419 7,915,555
Net increase in securities sold under repurchase agreements 229,943 516,410
Repayment of long-term borrowing (255,000) (220,000)
Payment of dividends (53,903) --
--------------------------------
Net cash provided by financing activities 4,899,120 8,989,808
--------------------------------
(Decrease) in cash and cash equivalents (1,818,226) (1,171,862)
Cash and cash equivalents beginning of period 6,802,651 7,425,582
--------------------------------
Cash and cash equivalents end of period $ 4,984,425 $ 6,253,720
================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,164,732 $ 1,800,909
================================
Income taxes $ 330,145 $ 149,351
================================
</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
Six Months Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
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.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137, is effective for fiscal
quarters beginning after June 15, 2000 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
Six Months Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
3. Long-term debt
The Company's long-term debt consists of a single note payable in the
amount of $3,045,000 and $2,790,000 at June 30, 1998 and 1999,
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, 1999 the
rate on the note was 6.938% per annum. Principal is payable annually
on January 31, as follows:
<TABLE>
<CAPTION>
January 31, Principal Due
----------- -------------
<S> <C>
2000 $ 295,000
2001 325,000
2002 360,000
2003 395,000
2004 435,000
2005 470,000
2006 (Final Maturity) 510,000
-----------
$ 2,790,000
===========
</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
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 192,507 $ 101,255 $ 333,523 $ 161,264
Per common share data:
Net income per weighted average
common share $ 0.36 $ 0.19 $ 0.62 $ 0.30
Book value $ 7.54 $ 7.47 $ 7.54 $ 7.47
Ratios:
Return on average assets 0.19% 0.12% 0.33% 0.19%
Return on average common equity 4.60% 2.57% 7.88% 4.08%
Net interest margin (taxable equivalent basis) 3.94% 3.61% 3.82% 3.62%
Expense ratio 2.57% 2.89% 2.64% 2.77%
Allowance for loan losses/loans 1.37% 1.33% 1.37% 1.33%
Non-performing loans/loans 0.56% 0.04% 0.56% 0.04%
Non-performing assets/loans and
foreclosed properties 0.81% 0.31% 0.81% 0.31%
Shareholder's equity/total assets 3.98% 4.61% 3.98% 4.61%
Leverage ratio (tangible capital/
tangible average assets) 4.34% 4.77% 4.38% 4.70%
</TABLE>
<PAGE> 9
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, 1999 AND 1998
OPERATING RESULTS
The Company reported net income for the second quarter of $192,507, or $0.36 per
weighted average common share, compared to income of $101,255, or $0.19 for the
same period a year ago. Our returns on average assets and average common equity
were 0.19% and 4.60%, respectively, for the quarter compared to 0.12% and 2.57%
for the same period last year.
Net interest income for the first six months of 1999 increased $324,026 versus
the first six months of 1998 to $1,734,321. The increase is attributable to
growth in interest earning assets of 16.38%. Average loans grew 19.57% over the
second quarter of 1998. Total Company assets were $102,066,944 at June 30, 1999
compared to $87,459,955 as of June 30, 1998.
The net interest margin (taxable equivalent basis) was 3.94% for the second
quarter of 1999 compared to 3.61% for the second quarter of 1998. The yield on
the investment portfolio was 6.42% for the second quarter of 1999 compared to
6.40% for the same quarter of 1998. The higher level of interest income from
loans and securities was accompanied by a decrease in the cost of
interest-bearing deposits and securities sold under repurchase agreements.
Non-interest income for the second quarter of 1999 increased $17,399 over the
second quarter of 1998. The growth is attributable to service charges on deposit
accounts, gains on securities transactions, and other fees. Non-interest
expenses for the second quarter of 1999 increased $47,169 compared to the second
quarter of 1998 primarily for costs (including salaries and employee
compensation) associated with overall growth.
ASSET QUALITY
Non-performing assets at June 30, 1999 were $517,000 or 0.81% of loans and
foreclosed properties, compared to $174,000, or 0.31% of loans and foreclosed
properties at June 30, 1998. The provision for losses on loans was $60,000 for
the second quarter of 1999 and 1998. At June 30, 1999, the allowance for losses
on loans was 1.37% of loans and approximately 167% of non-performing assets.
<PAGE> 10
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, 1999 AND 1998
YEAR 2000 COMPLIANCE
The Year 2000 poses serious challenges to the banking industry. Many experts
believe that even the most prepared organizations may encounter some
implementation problems. The federal banking agencies are concerned that
financial institutions avoid major disruptions to service and operations. All
banks are required to have an action plan to address Year 2000 issues which must
include an indication of management awareness of the problems and the commitment
to solutions; identification of external risks; and operational issues that are
relevant to a bank's Year 2000 planning.
The Federal Financial Institutions Examination Council ("FFIEC") has issued
guidelines and target time frames to accomplish critical actions concerning Year
2000 compliance:
* By September 30, 1997, all banks should have identified affected
applications and data bases. Mission critical applications should be identified
and an action plan set for Year 2000 work.
* By December 31, 1998, code enhancements and revisions, hardware
upgrades, and other associated changes should have been largely completed by all
banks. In addition, for mission critical applications, programming changes
should have largely completed and testing should have been well underway.
* Between January 1, 1999 and December 31, 1999, banks should be
testing and implementing their Year 2000 conversion programs.
External factor which may adversely affect the Company include reliance on
vendors, such as third-party data processing services and software and hardware
vendors; electronic data-sensitive exchange among other financial institutions
which may not be Year 2000 compliant; corporate customers of the Company and
other debtors.
The Company has been assessing its state of readiness by evaluating its
information technology (:IT") and non-IT systems. IT systems commonly include
data processing, accounting and telephone systems. With respect to its IT
systems, the Company estimates that its Year 2000 identification, assessment,
and remediation efforts are substantially complete. During 1998, the Company's
need for additional computing capacity led it to lease a new IT system for a
period of five years at annual rent of approximately $75,000. This system is
certified to be Year 2000 compliant and the Company has tested the system to
ensure that it is working properly. The Company has assessed its Year 2000
status in regard to non-IT systems and has determined that no material risk
exists.
The Company has communicated with its significant vendors in order to determine
the extent to which interfaces with such entities are vulnerable to Year 2000
issues and whether the products and services purchased from such entities are
Year 2000 compliant. The Company has received either verbal or written assurance
from these vendors that they expect to address all their significant Year 2000
issues on a timely basis. With respect to significant borrowers and depositors,
the Company does not anticipate any material Year 2000 issues.
The Company believes the cost of its further Year 2000 identification,
assessment, remediation and testing efforts will not exceed $10,000.
<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 June 30, 1999.
11
<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 12, 1999
/s/ Reed D. Matney
------------------------------------------
Reed D. Matney, President
(principal executive officer)
Date: August 12, 1999
/s/ H. Lyons Price
------------------------------------------
H. Lyons Price (principal financial and
accounting officer)
12
<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, 1999 included in this Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 1999.
Welch & Associates
Nashville, Tennessee
August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,944,509
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,039,916
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,732,369
<INVESTMENTS-CARRYING> 1,104,254
<INVESTMENTS-MARKET> 1,069,757
<LOANS> 63,313,811
<ALLOWANCE> 864,726
<TOTAL-ASSETS> 102,066,944
<DEPOSITS> 92,643,212
<SHORT-TERM> 1,692,073
<LIABILITIES-OTHER> 879,214
<LONG-TERM> 2,790,000
0
0
<COMMON> 5,390
<OTHER-SE> 4,057,055
<TOTAL-LIABILITIES-AND-EQUITY> 102,066,944
<INTEREST-LOAN> 2,907,396
<INTEREST-INVEST> 842,935
<INTEREST-OTHER> 76,378
<INTEREST-TOTAL> 3,826,709
<INTEREST-DEPOSIT> 1,948,505
<INTEREST-EXPENSE> 2,092,388
<INTEREST-INCOME-NET> 1,734,321
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 40,747
<EXPENSE-OTHER> 1,319,476
<INCOME-PRETAX> 498,757
<INCOME-PRE-EXTRAORDINARY> 333,523
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,523
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 8.20
<LOANS-NON> 20,000
<LOANS-PAST> 337,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 810,563
<CHARGE-OFFS> 67,347
<RECOVERIES> 1,510
<ALLOWANCE-CLOSE> 864,726
<ALLOWANCE-DOMESTIC> 864,726
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
