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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended June 30, 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
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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
----- -----
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 446,928.
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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 - June 30 1995 and December 31,
1994.
Consolidated Statements of Earnings - For the three months
ended June 30, 1995 and 1994 and for the six months ended
June 30, 1995 and 1994.
Consolidated Statements of Cash Flows - For the six months
ended June 30, 1995 and 1994.
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
(Unaudited) *
June 30, December 31,
1995 1994
ASSETS (In Thousands)
-------- --------
Cash and Due from Banks $15,269 $15,086
Federal Funds sold 5,100 3,550
Securities available-for-sale 35,800 38,109
Securities held-to-maturity (with a market value of $34,210
on June 30, 1995 and $32,215 on December 31, 1994). 34,164 32,265
Loans 273,255 244,700
Less: Allowance for Loan Losses 3,781 3,447
-------- --------
Net Loans 269,474 241,253
-------- --------
Bank Premises and Equipment, Net of
Accumulated Depreciation 7,707 7,042
Other Assets 9,639 8,220
-------- --------
$377,153 $345,525
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $324,966 $298,162
Federal funds purchased and Securities
sold under agreements to repurchase 5,390 3,879
Other Borrowings 3,570 3,688
Other Liabilities 3,142 2,606
-------- --------
Total Liabilities 337,068 308,335
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $10, authorized 1,000,000 shares;
issued and outstanding 446,928 and 442,444 shares on
June 30, 1995 and December 31, 1994, respectively 4,469 4,424
Surplus 3,632 2,915
Retained Earnings 32,013 30,442
Net unrealized holding gains (losses) on
available-for-sale securities (29) (591)
-------- --------
Total Stockholders' Equity 40,085 37,190
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$377,153 $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 June 30, 1995 and 1994
and Six Months Ended June 30, 1995 and 1994
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30 JUNE 30
(Dollars in thousands except per share) 1995 1994 1995 1994
---- ---- ---- ----
Interest Income:
Interest and Fees on Loans $ 6,782 $ 4,616 $ 12,796 $ 8,800
Interest on Investment Securities 1,111 1,197 2,058 2,330
Interest on Federal Funds Sold 134 23 289 89
-------- -------- -------- --------
Total Interest Income 8,027 5,836 15,143 11,219
Interest Expense:
Interest on Deposits 3,175 1,801 5,964 3,647
Interest on Short Term Borrowings 115 137 221 189
-------- -------- -------- --------
Total Interest Expense 3,290 1,938 6,185 3,836
-------- -------- -------- --------
Net Interest Income 4,737 3,898 8,958 7,383
Provision for Loan Losses 175 88 311 172
-------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 4,562 3,810 8,647 7,211
-------- -------- -------- --------
Other Income:
Income from Fiduciary Activities 8 12 18 30
Service Charges on Deposit Accounts 463 428 896 833
Security Gains(Losses) 6 (71) 6 (68)
Other Income 257 72 554 211
-------- -------- -------- --------
734 441 1,474 1,006
Other Expenses:
Salaries and Employee Benefits 1,470 1,149 2,764 2,201
Premises and Fixed Assets Expense 397 323 764 571
Other Operating Expenses 905 795 1,712 1,505
-------- -------- -------- --------
2,772 2,267 5,240 4,277
-------- -------- -------- --------
Earnings Before Income Taxes 2,524 1,984 4,881 3,940
Income Taxes 966 721 1,830 1,407
-------- -------- -------- --------
Net income 1,558 1,263 3,051 2,533
======== ======== ======== ========
Average Number of Shares 443,939 442,253 443,191 442,253
Per Share of Common Stock:
Net Earnings $ 3.51 $ 2.86 $ 6.88 $ 5.73
======== ======== ======== ========
Dividends $ 1.00 $ 0.88 $ 2.00 $ 1.76
======== ======== ======== ========
See accompanying notes to Consolidated Financial Statements (Unaudited)
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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR 2ND QUARTER ENDED 6/30/95 AND 6/30/94
In Thousands
6/30/95 6/30/94
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NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income 3,051 2,533
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for Loan Losses 311 172
Provision for Depreciation & Amortization 305 261
Amortization of investment security
discounts, net of accretion 192 311
Decrease (increase) in interest receivable (447) (160)
Increase (decrease) in unearned income (266) (1,028)
Increase in other assets (1,419) (591)
Increase in Accrued Interest Payable
and other 1,343 4,485
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Net cash provided by operating activities 3,070 5,983
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease of investment
securities and federal funds (1,140) 8,026
Net increase in loans (28,221) (17,870)
Proceeds (improvements) other real estate
owned and other (1,793) 498
Recoveries of Loan Losses 286 349
Fixed assets reductions (additions) (207) (809)
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Net cash used by investing activities (31,075) (9,806)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW,
money market and savings accounts 26,804 5,322
Cash dividends paid (889) (778)
Increase in securities sold under
agreements to repurchase 1,511 1,215
Proceeds from issuance of stock 762 14
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Net cash provided by financing activities 28,188 5,773
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NET INCREASE (DECREASE) IN CASH 183 1,950
CASH AT JANUARY 1, 15,086 11,020
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CASH AT JUNE 30, 15,269 12,970
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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:
(In thousands except per share)
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Greene County American
Bancshares, Inc. Fidelity Bank
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June 30, 1995
Loans, net $269,474 $51,498
Investments 69,964 12,816
Deposits 324,966 66,466
Stockholders' Equity 40,085 6,434
Net interest income 8,958 1,491
Net income 3,051 355
Net income per share
of common stock $ 6.83 $ 0.79
The net income per share of common stock is calculated based on 446,928 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 June 30, 1995 and the results of operations, stockholders' equity and
cash flows for the six month period then ended.
5-ALLOWANCE FOR LOAN LOSSES
Transactions in the Allowance for Loan Losses were as follows:
Six Months
Ended
June 30,
(In thousands) 1995 1994
-------------- ---- ----
Balance, January 1 $3,447 $2,962
Add (Deduct):
Losses charged to allowance (263) (780)
Recoveries credited to allowance 286 368
Provision for loan losses 311 172
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Balance, June 30 $3,781 $2,722
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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 six month period ended June 30, 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 six months ended June 30, 1995
were $3,051,000. This represents a 20.5% increase when compared to $2,533,000
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 six months
ended June 30, 1995, net interest income after provision for loan losses, was
$8,647,000 as compared to $7,211,000 for the same period in 1994, and increase
of 19.90%. The increase is primarily attributable to an increase in volume of
earning assets and only small increases in the effective rates paid on interest
bearing deposits.
Loans produced the largest component of interest income, contributing
$12,796,000 for the six months ended June 30, 1995 as compared to $8,800,000
for the same period in 1994, representing an increase of 45.40%. 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 $2,347,000 for the six month period ended June 30, 1995 as
compared to $2,419,000 for the same period in 1994. Total interest expense for
the Company increased 61.20% during the six month period ended June 30, 1995 as
compared to the same period in 1994. Interest expense consisted primarily of
interest paid on deposits which totaled $5,964,000 during the six months ended
June 30, 1995 as compared to $3,647,000 for the same period in 1994. The
Company's deposit base grew 8.99% during the six months ended June 30, 1995.
The cost of interest bearing liabilities increased due to both rate and volume
increases.
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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 six month period ended June 30, 1995 was $1,494,000
as compared to $1,006,000 for the same period in 1994, This increase of 48.5%
resulted in part from a 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 $5,240,000 for the six month period ended June 30, 1995
as compared to $4,277,000 for the same period in 1994. Personnel cost are the
primary element of the Company's other operating expenses. During the six
months ended June 30, 1995 salaries and benefits represented $2,764,000 of
other operating expenses. This was an increase of $563,000 or 25.58% 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 six month period ended June 30, 1995 were
$2,476,000 an increase of $400,000 from the same period in 1994 which was
$2,076,000. 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 June 30, 1995, loans, net of unearned income and allowance for loan losses,
were $269.4 million compared to $210.0 million for the same period in 1994.
This increase is primarily due to increases in commercial lending. Nonaccrual
Loans increased by $55,738 during the six month period ended June 30, 1995.
This change is deemed to be immaterial by management.
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 six month period
ended June 30, 1995, Greene County Bancshares, Inc. charged-off $263,000 in
loans, and recovered $286,000 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 $3,781,000 at June 30,
1995 from $2,722,000 for the same period in 1994. 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 June 30, 1995 with a carrying value of $69.9 million
had a market value of $70.0 million. During the same period in 1994,
investments totaled $80.7 million with a market value of $80.8 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 (reporting 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 was 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 Bank's 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 $325.0 million at June 30, 1995. This represents a
19.1% increase from the deposits at June 30, 1994 of $272.6 million. The
increase is primarily the result of Greene County Bancshares, Inc. aggressive
efforts to attract new time deposit customers, along with the opening of new
branches.
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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.
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Capital Ratio's at
June 30, 1995
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Required
Minimum Company's
Ratio Ratio
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Tier 1 risk-based capital 4.00% 14.80%
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Total risk-based capital 8.00% 16.20%
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Leverage Ratio 3.00% 10.62%
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The Company believes it was in compliance with all minimum regulatory capital
guidelines at June 30, 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 six month period ended June 30, 1995, operating activities of the
Company provided $3,070,000 of cash flows. Net income of $3,051,000, adjusted
for non-cash operating activities provided the majority of cash generated from
operations.
Investing activities, including lending, used $31,075,000 of the Company's cash
flow, which resulted in a $1,140,000 net increase in the investment portfolio.
Loans originated net of principal collected used $28,221,000 in funds.
Net additional cash inflows of $28,188,000 were provided by financing
activities. Net deposit growth accounted for $26,804,000 of the increase, an
increase in securities sold under agreements to repurchase of $1,511,000, and
the sale of common stock of $762,000. Offsetting this increase was the cash
dividends paid to shareholders of $889,000.
The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented 27.8% of total deposits
at June 30, 1995, a decrease from 35.5% at June 30, 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.
None
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule (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: 8/10/95 /s/ R. Stan Puckett
--------------------------------
R. Stan Puckett
President and CEO
Date: 8/10/95 /s/ Alex Johnson
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Alex Johnson, Sr.Vice President
Chief Financial and Accounting
Officer
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