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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended March 31, 1995 Commission File Number
0-14289
GREENE COUNTY BANCSHARES, INC.
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(Exact name of Registrant as specified in its charter)
Tennessee 62-1222567
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State or other jurisdiction of (IRS Employer Identification
incorporated or organization) Number)
Main & Depot Street
Greeneville, Tennessee 37743
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 615/639-5111
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 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
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Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 442,444.
Total number of sequentially-numbered pages 17
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the Registrant and its
wholly-owned subsidiaries are as follows:
Consolidated Balance Sheets - March 31, 1995 and December 31,
1994.
Consolidated Statements of Earnings - For the three months
ended March 31, 1995 and 1994.
Consolidated Statements of Cash Flows - For the three months
ended March 31, 1995 and 1994.
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited) *
March 31, December 31,
1995 1994
ASSETS (In Thousands)
------ --------- -----------
Cash and Due from Banks $ 13,839 $ 15,086
Federal Funds sold 13,000 3,550
Securities available-for-sale 38,765 38,109
Securities held-to-maturity (with a market value of $29,666
on March 31, 1995 and $32,215 on December 31, 1994). 29,620 32,265
Loans 256,730 244,700
Less: Allowance for Loan Losses 3,602 3,447
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Net Loans 253,128 241,253
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Bank Premises and Equipment, Net of
Accumulated Depreciation 6,972 7,042
Other Assets 11,001 8,220
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$ 366,325 $ 345,525
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $316,215 $298,162
Securities Sold under Repurchase Agreements
and Short-Term Borrowed Funds 5,359 3,879
Other Borrowings 3,629 3,688
Other Liabilities 3,202 2,606
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Total Liabilities 328,405 308,335
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STOCKHOLDERS' EQUITY
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Common Stock, par value $10, authorized 1,000,000 shares;
issued and outstanding 442,444 4,424 4,424
Surplus 2,915 2,915
Retained Earnings 30,902 30,442
Net unrealized holding gains (losses) on
available-for-sale securities (321) (591)
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Total Stockholders' Equity 37,920 37,190
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$ 366,325 $ 345,525
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* Condensed from Audited Financial Statements.
See accompanying notes to Consolidated Financial Statements (Unaudited)
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended March 31, 1995 and 1994
(UNAUDITED)
Three Months Ended
March 31
(Dollars in thousands except per share) 1995 1994
--------------------------------------- ---- ----
Interest Income:
Interest and Fees on Loans $ 6,014 $ 4,184
Interest on Investment Securities 947 1,133
Interest on Federal Funds Sold 155 66
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Total Interest Income 7,116 5,383
Interest Expense:
Interest on Deposits 2,789 1,846
Interest on Short Term Borrowings 106 52
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Total Interest Expense 2,895 1,898
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Net Interest Income 4,221 3,485
Provision for Loan Losses 136 84
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Net Interest Income after
Provision for Loan Losses 4,085 3,401
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Other Income:
Income from Fiduciary Activities 10 18
Service Charges on Deposit Accounts 433 405
Security Gains (Losses) 0 3
Other Income 297 139
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740 565
Other Expenses:
Salaries and Employee Benefits 1,294 1,052
Premises and Fixed Assets Expense 367 248
Other Operating Expenses 807 710
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2,468 2,010
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Earnings Before Income Taxes 2,357 1,956
Income Taxes 864 686
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Net income 1,493 1,270
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Average Number of Shares 442,444 442,253
Per Share of Common Stock:
Net Earnings $ 3.37 $ 2.87
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Dividends $ 1.00 $ 0.88
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See accompanyning notes to Consolidated Financial Statements (Unaudited)
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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR 1ST QUARTER ENDED 3/31/95 AND 3/31/94
In Thousands
3/31/95 3/31/94
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NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income 1,493 1,270
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for Loan Losses 136 84
Provision for Depreciation & Amortization 155 125
Amortization of investment security
discounts, net of accretion 94 19
Increase (decrease) in interest receivable 17 (97)
Increase (decrease) in unearned income (176) (603)
Increase in other assets (2,798) (901)
Increase in Accrued Interest Payable
and other 2,017 485
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Net cash provided by operating activities 938 382
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease of investment
securities and federal funds (7,461) (6,199)
Net increase in loans (12,030) (5,305)
Proceeds (improvements) other real estate
owned and other (1,793) 488
Recoveries of Loan Losses 149 79
Fixed assets reductions (additions) (141) 32
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Net cash used by investing activities (21,276) (10,905)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW,
money market and savings accounts 18,053 9,865
Cash dividends paid (442) (389)
Increase in securities sold under
agreements to repurchase 1,480 375
Proceeds from issuance of stock 14
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Net cash provided by financing activities 19,091 9,865
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NET INCREASE (DECREASE) IN CASH (1,247) (658)
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CASH AT JANUARY 1, 15,086 11,020
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CASH AT MARCH 31, 10,362 13,839
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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1-PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Greene County
Bancshares, Inc. (the Company) and its wholly owned subsidiaries, Greene County
Bank and American Fidelity Bank. All material intercompany balances and
transactions have been eliminated in the consolidation.
2-ACQUISITION
During 1989, Greene County Bancshares, Inc. acquired American Fidelity Bank,
located in Alcoa, Tennessee. The Corporation issued 52,440 shares of common
stock in exchange for all of the outstanding shares of American Fidelity Bank.
The transaction has been accounted for as a pooling of interests.
The Consolidated Financial Statements and Financial Information for prior
periods have been restated to reflect the combined financial position and
operations in order to furnish comparative information.
A summary of Condensed Financial Information of the combined entities is as
follows:
Greene County American
Bancshares, Inc. Fidelity Bank
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March 31, 1995
Loans, net $253,128 $47,464
Investments 68,385 12,506
Deposits 316,215 62,368
Stockholders' Equity 37,920 6,175
Net interest income 4,221 752
Net income 1,493 190
Net income per share
of common stock $ 3.37 $ 0.43
The net income per share of common stock is calculated based on 442,444 shares
of common stock.
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3-FAS 109
In January 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of FAS
109 changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future
consequences of temporary differences between the carrying amounts and the tax
bases of assets ad liabilities. The adjustment to the January 1, 1993 balance
sheet to adopt FAS 109 netted to $52,272. This effect was reflected in 1993
net income as the effect of a change in accounting principle. It primarily
represents the impact of adjusting deferred taxes to reflect the current tax
rates as opposed to higher tax rates which were in effect when the deferred
taxes originated.
4-SUMMARY OF ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of March 31, 1995 and the results of operations, stockholders' equity and
cash flows for the three month period then ended.
5-ALLOWANCE FOR LOAN LOSSES
Transactions in the Allowance for Loan Losses were as follows:
Three Months
Ended
March 31,
(In thousands) 1995 1994
-------------- ---- ----
Balance, January 1 $3,447 $2,962
Add (Deduct):
Losses charged to allowance (130) (559)
Recoveries credited to allowance 149 105
Provision for loan losses 136 84
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Balance, March 31 $3,602 $2,592
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial condition
and results of operations of Greene County Bancshares, Inc. and subsidiaries
(the "Company") for the three month period ended March 31, 1995. The Company
is not aware of any recommendations by the regulatory authorities which if
implemented would have a material effect on the issuer's liquidity, capital
resources or operations.
Earnings
Greene County Bancshares, Inc. earnings for the three months ended March 31,
1995 were $1,493,000. This represents a 17.6% increase when compared to
$1,270,000 earnings for the same period in 1994.
Net Interest Income
The largest source of earnings for the Company is net interest income, which is
the difference between interest income on interest bearing assets and interest
paid on deposits and other interest-bearing liabilities. The primary factors
which affect net interest income are changes in volume and yields of earning
assets and interest-bearing liabilities, and the ability to respond to changes
in interest rates through asset/liability management. During the three months
ended March 31, 1995, net interest income after provision for loan losses, was
$4,221,000 as compared to $3,401,000 for the same period in 1994, an increase
of 24.11%. The increase is primarily attributable to an increase in volume and
yield of earning assets and interest-bearing liabilities and the ability to
respond to changes in interest rates through asset/liability management.
Loans produced the largest component of interest income, contributing
$6,014,000 for the three months ended March 31, 1995 as compared to $4,184,000
for the same period in 1994, representing an increase of 43.7%. The increase
is attributable to both rate and volume increases of earning assets.
Earnings on investments and federal funds sold provided the balance of interest
income, producing $1,102,000 for the three month period ended March 31, 1995 as
compared to $1,199,000 for the same period in 1994. Total interest expense for
the Company increased 52.53% during the three month period ended March 31, 1995
as compared to the same period in 1994. Interest expense consisted primarily
of interest paid on deposits which totaled $2,789,000 during the three months
ended March 31, 1995 as compared to $1,846,000 for the same period in 1994.
The Company's deposit base grew 6.05% during the three months ended March 31,
1995. The cost of interest-bearing
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liabilities increased due to both rate and volume increases.
The deregulation of interest rates has given banks more opportunity to attract
deposits and has created a public which is more interest rate sensitive. As a
result, banks are paying interest on a continually increasing portion of their
deposits base. The Company's ability to maintain a favorable spread between
interest income and interest expense is a major factor in generating earnings;
therefore, it is necessary to effectively manage earning assets and
interest-bearing liabilities. As the percentage of interest-bearing deposits
compared to total deposits increases and rates become more competitive, it
becomes increasingly more difficult to maintain the Company's spread.
Non-interest Income and Expense
Income that is not related to interest-bearing assets, consisting primarily of
service charges, commissions and fees, has become more important as increases
in levels of interest-bearing deposits make it more difficult to maintain net
interest income spreads.
Total other income for the three month period ended March 31, 1995 was $740,000
as compared to $565,000 for the same period in 1994, This increase of 30.98%
resulted in part from an increase in service charges on deposit accounts and
commissions earned.
Control of operating expense is also an important aspect in managing net
income. Operating expenses include personnel, occupancy, and other expenses
such as data processing, printing and supplies, legal and professional fees,
postage, Federal Deposit Insurance Corporation assessment, etc.. Total other
operating expenses were $2,468,000 for the three month period ended March 31,
1995 as compared to $2,010,000 for the same period in 1994. Personnel cost are
the primary element of the Company's other operating expenses. During the
three months ended March 31, 1995 salaries and benefits represented $1,294,000
of other operating expenses. This was an increase of $242,000 or 23.00% over
the same period in 1994. These increases were due to opening new branches
requiring increased staff levels, and increased employee benefit costs,
including health insurance and pension costs.
Other operating expenses during the three month period ended March 31, 1995
were $1,174,000 an increase of $216,000 from the same period in 1994 which was
$958,000. This increase was due to in part to increases in assessments by the
FDIC and increased accounting and legal expenses incurred as a result of the
FDIC Improvement Act and other regulations, along with increased expenses to
operate new branches that were opened.
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Loans
At March 31, 1995, loans, net of unearned income and allowance for loan losses,
were $253.0 million compared to $194.0 million for the same period in 1994.
This increase is primarily due to increases in commercial lending. Nonaccrual
Loans decreased by $525,000 during the three month period ended March 31, 1995.
Provision and allowance for loan losses
Because the loan portfolio represents the Company's largest earning asset, the
Company continually monitors the quality of its loan portfolio. Greene County
Bancshares, Inc. operates in a diverse economy of manufacturing and agriculture
and, accordingly, most loans are made to commercial enterprises or consumers
who are directly supported by these enterprises. During the three month period
ended March 31, 1995, Greene County Bancshares, Inc. charged-off $130,000 in
loans, and recovered $149,000 in charged-off loans. All loans identified by
management or regulatory authorities as losses are charged-off against the
allowance for loan losses. All other loans classified for regulatory purposes
do not require disclosure since in management's opinion they do not (i)
represent or result from trends or uncertainties which management expects to
materially impact future operating results, liquidity or capital resources, or
(ii) represent material credits which causes management to have serious doubts
as to the ability of such borrowers to comply with the loan repayment terms.
The Company's allowance for loan losses increased to $3,602,000 at March 31,
1995 from $2,592,000 for the same period in 1995. This increase is due to an
overall increase in the total loan portfolio.
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Investments
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at March 31, 1995 with an amortized cost of $68.9
million had a market value of $68.4 million. During the same period in 1994,
investments with an amortized cost of $98.6 million had a market value of $98.8
million. This decrease was used to fund increases in the loan portfolio.
In 1993, the Financial Accounting Standards Board ("FASB") issued Statement
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires that investments
in certain debt and equity securities be classified as either Held to Maturity
(reported at amortized cost), Trading (reported at fair value with unrealized
gains and losses included in earnings), or Available for Sale (reported at fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity). SFAS 115 is required to be
implemented for fiscal years beginning after December 15, 1993. Management
adopted SFAS 115 on January 1, 1994 and currently classifies a portion of the
portfolio as available for sale. The adoption of SFAS 115 did not have a
material impact on the Banks' financial position or results of operations.
Deposits
The funds to support the Company's asset growth have been provided by increased
deposits, which amounted to $316.0 million at March 31, 1995. This represents
a 14.1% increase from the deposits at March 31, 1994 of $277.0 million. The
increase is primarily the result of Greene County Bancshares, Inc. aggressive
efforts to attract new time deposit customers.
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Stockholders' Equity and Capital Adequacy
Sufficient levels of capital are necessary to sustain growth and absorb losses.
The Company exceeds all regulatory capital requirements. The Company's primary
source of new capital is undivided profits.
The Federal Reserve Board, the FDIC and other agencies which regulate financial
institutions have adopted capital adequacy standards applicable to financial
institutions. These standards are intended to reflect the degree of risk
associated with both on and off balance sheet items and to assure that even
those institutions that invest predominately in low risk assets, maintain a
certain minimum level of capital. The following table provides the Company's
best collective understanding of the regulatory capital requirements as
currently published. These understandings are based upon regulations,
guidelines and interpretations now in effect or proposed, all of which are
subject to change.
Capital Ratio's at
March 31, 1995
- --------------------------------------------------------------------------------
Required
Minimum Company's
Ratio Ratio
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Tier 1 risk-based capital 4.00% 14.86%
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Total risk-based capital 8.00% 16.28%
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Leverage Ratio 3.00% 10.35%
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The Company believes it was in compliance with all minimum regulatory capital
guidelines at March 31, 1995 and continues to be so.
Liquidity and Growth
Liquidity refers to the ability of the Company to generate sufficient funds to
meet its financial obligations and commitments without significantly impacting
net interest income. One of the Company's objectives is to maintain a high
level of liquidity, and this goal continues to be met. Maintaining liquidity
ensures that will be available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of other deposits and
liabilities. These obligations can be met by existing cash reserves of funds
from maturing loans and investments, but in the normal course of business are
met by deposit growth. Increased deposits and retained earnings are also the
sources for the Company's continued growth.
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During the three month period ended March 31, 1995, operating activities of the
Company provided $938,000 of cash flows. Net income of $1,493,000, adjusted
for non-cash operating activities provided the majority of cash generated from
operations.
Investing activities, including lending, used $21,276,000 of the Company's cash
flow, which resulted in a $7,461,000 net increase in the investment portfolio.
Loans originated net of principal collected used $12,030,000 in funds.
Net additional cash inflows of $19,091,000 were provided by financing
activities. Net deposit growth accounted for $18,053,000 of the increase, an
increase in securities sold under agreements to repurchase of $1,480,000.
Offsetting this increase was the cash dividends paid to shareholders of
$442,000.
The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented 30.1% of total deposits
at March 31, 1995, a decrease from 34.9% at March 31, 1994.
Interest Sensitivity
Deregulation of interest rates and short-term, interest-bearing deposits which
are more volatile have created a need for shorter maturities of earnings
assets. An increasing percentage of commercial and installment loans are being
made with variable rates or shorter maturities to increase liquidity and
interest rate sensitivity. The difference between interest sensitive asset and
interest sensitive liability repricing within time periods is referred to as
the interest rate sensitivity gap. Gaps are identified as either positive
(interest sensitive assets in excess of interest sensitive liabilities) or
negative (interest sensitive liabilities in excess of interest sensitive
assets).
Inflation
The effect of inflation on financial institutions differs from the impact on
other types of businesses. Since assets and liabilities of banks are primarily
monetary in nature, they are more affected by changes in interest rates than by
the rate of inflation.
Inflation generates increased credit demand and fluctuation in interest rates.
Although credit demand and interest rates are not directly tied to inflation,
each can significantly impact net interest income. As in any business or
industry, expenses such as salaries, equipment, occupancy, and other operating
expenses are also subject to the upward pressures created by inflation.
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Since the rate of inflation has been stable during the last several years, the
impact of inflation on the earnings presented in this report is insignificant.
Income taxes
In January 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". The adoption of
SFAS 109 changes the Corporations's method of accounting for income taxes from
the deferred method (under Accounting Principles Board Statement No.11) to an
asset and liability approach.
There are two components of the income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period. Balance sheet amounts of deferred taxes are recognized on
the temporary differences between the bases of assets and liabilities as
measured by tax laws and their bases as reported in the financial statements.
Deferred tax expense or benefit is then recognized for the change in deferred
tax liabilities or assets between periods.
Recognition of deferred tax assets is based on management's belief that is more
likely than not that the tax benefit associated with certain temporary
differences and tax credits will be realized.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company's Consolidated
Financial Position.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of matters to a vote of security holders.
(a) April 18, 1995
Annual Meeting
(b) All current directors term of office continued after the meeting
except for director Jerry McDowell, who resigned due to moving to
another state for employment reasons. Their names are listed below:
R. Stan Puckett W.T. Daniels
Philip Bachman Davis Stroud
Harrison Lamons Charles S. Brooks
Terry Leonard J.W. Douthat
Ralph T. Brown Patrick A. Norris
James A. Emory Helen Horner
Jerald Jaynes
(c) None
(d) None
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Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule (For SEC use only).
(b) None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf the
undersigned thereunto duly authorized.
Greene County Bancshares, Inc.
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Registrant
Date: 5/10/95 /s/ R. Stan Puckett
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R. Stan Puckett
President and CEO
Date: 5/10/95 /s/ Alex Johnson
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Alex Johnson Sr.Vice President
Chief Financial and Accounting
Officer
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