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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended March 31, 1996 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
- ------------------------------ ------------------------------
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 423-639-5111
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
----- -----
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 446,192.
Total number of sequentially-numbered pages 16
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements of the Registrant and
its wholly-owned subsidiaries are as follows:
Condensed Consolidated Balance Sheets - March 31, 1996 and December 31,
1995.
Condensed Consolidated Statements of Earnings - For the three months ended
March 31, 1996 and 1995.
Condensed Consolidated Statement of Stockholders' Equity- For the three
months ended March 31, 1996.
Condensed Consolidated Statements of Cash Flows - For the three months
ended March 31, 1996 and 1995.
Notes to Condensed Consolidated Financial Statements.
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(UNAUDITED)
March 31, December 31,
1996 1995*
--------- -----------
ASSETS (In Thousands)
------
Cash and Due from Banks $ 15,165 $ 13,723
Federal Funds sold 19,779 23,800
Securities available-for-sale 56,073 59,833
Securities held-to-maturity (with a market value of $10,153
on March 31, 1996 and $10,420 on December 31, 1995). 10,351 10,442
Loans 332,038 298,488
Less: Allowance for Loan Losses 5,195 4,654
-------- --------
Net Loans 326,843 293,834
-------- --------
Bank Premises and Equipment, Net of
Accumulated Depreciation 9,107 8,339
Other Assets 13,465 10,610
-------- --------
Total Assets $450,783 $420,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $389,618 $365,951
Securities Sold under Repurchase Agreements
and Short-Term Borrowed Funds 4,016 4,784
Other Borrowings 6,320 3,448
Other Liabilities 6,912 4,472
-------- --------
Total Liabilities 406,866 378,655
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Common stock subject to rescission(5,009 shares) 852 852
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SHAREHOLDERS' EQUITY
Common Stock, par value $10, authorized 1,000,000 shares;
issued and outstanding 446,192 and 442,444 shares at
March 31, 1996 and December 31, 1995, respectively 4,462 4,424
Paid in Capital 3,384 2,915
Retained Earnings 34,960 33,499
Net unrealized holding gains on
available-for-sale securities 259 236
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Total Shareholders' Equity 43,065 41,074
-------- --------
$450,783 $420,581
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* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements
(Unaudited)
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GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 1996 and 1995
(UNAUDITED)
Three Months Ended
March 31
(Dollars in thousands except per share) 1996 1995
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Interest Income:
Interest and Fees on Loans $7,922 $6,014
Interest on Investment Securities 1,078 947
Interest on Federal Funds Sold 296 155
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Total Interest Income 9,296 7,116
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Interest Expense:
Interest on Deposits 3,865 2,789
Interest on Borrowings 112 106
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Total Interest Expense 3,977 2,895
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Net Interest Income 5,319 4,221
Provision for Loan Losses 165 136
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Net Interest Income after
Provision for Loan Losses 5,154 4,085
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Other Income:
Income from Fiduciary Activities 18 10
Service Charges on Deposit Accounts 528 433
Other 415 297
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961 740
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Other Expenses:
Salaries and Employee Benefits 1,781 1,294
Premises and Fixed Assets Expense 543 367
Other Operating Expenses 760 807
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3,084 2,468
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Income Before Income Taxes 3,031 2,357
Income Taxes 1,065 864
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Net income $1,966 $1,493
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Average Number of Shares Outstanding 444,626 442,444
Per Share of Common Stock:
Net income $ 4.42 $ 3.37
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Dividends $ 1.12 $ 1.00
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See accompanying notes to Condensed Consolidated Financial Statements
(Unaudited)
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GREENE COUNTY BANCSHARES, INC.
Condensed Consolidated Statement of Shareholders' Equity
For the Three Months Ended March 31, 1996
(In Thousands)
Net
Unrealized
Appreciation
on Available
Common Paid in Retained for Sale
Stock Capital Earnings Securities Total
------ -------- -------- ------------ --------
<
January 1, 1996 $4,424 $2,915 $33,499 $236 $41,074
Net income - - 1,966 - 1,966
Change in unrealized
appreciation, net of tax - - - 23 23
Dividends paid - - (505) - (505)
Exercise of non-incentive
stock options 38 393 - - 431
Tax benefit from exercise
of non-incentive stock options - 76 - - 76
------ ------ ------- ------- -------
March 31, 1996 $4,462 $3,384 $34,960 $259 $43,065
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See Accompanying Notes to Condensed Consolidated Financial Statements
(Unaudited)
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GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Quarters Ended March 31, 1996 and 1995
(In Thousands)
March 31, March 31,
1996 1995
-------- ---------
Net Cash Provided By Operating Activities:
Net Income $1,966 $1,493
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 165 136
Provision for depreciation and amortization 238 155
Amortization of investment security premiums,
net of accretion 117 94
Increase in interest receivable 136 17
Increase (decrease) in unearned income 73 (176)
Increase in other assets, net of intangibles (787) (2,798)
Increase in accrued interest payable
and other 2,048 2,017
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Net cash provided by operating activities 3,956 938
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Cash Flows From Investing Activities:
Net (increase) decrease in investment
securities and federal funds 14,623 (7,461)
Net increase in loans (18,835) (12,030)
Improvements in other real
estate owned and other, net (54) (1,793)
Recoveries of loan losses 214 149
Fixed asset additions (190) (141)
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Net cash used by investing activities (4,242) (21,276)
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Cash Flows From Financing Activities:
Net increase in demand deposits, NOW,
money market and savings accounts 1,661 18,053
Cash dividends paid (505) (442)
Exercise of non-incentive stock options 431 -
Increase (decrease) in securities sold under
agreements to repurchase (768) 1,480
Decrease in other borrowings, net (821) -
Cash acquired in acquisition of subsidiary bank 1,730 -
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Net cash provided by financing activities 1,728 19,091
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Net Increase (Decrease) in Cash 1,442 (1,247)
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Cash at beginning of quarter 13,723 15,086
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Cash at end of quarter $15,165 $13,839
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See Accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)
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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, American Fidelity Bank and Premier Bank of East Tennessee. All material
intercompany balances and transactions have been eliminated in the
consolidation.
2-ACQUISITION
On January 1, 1996, the Company acquired 100% of the stock of Premier
Bancshares, Inc.("Premier"), a one-bank holding company for Premier Bank of
East Tennessee, Niota, Tennessee ("Premier Bank"). As of the acquisition date,
Premier had assets of approximately $24.2 million, deposits of approximately
$22.0 million, debt and other liabilities of approximately $.5 million, and
capital of approximately $1.7 million. The purchase price of Premier was
$3,140,000, consisting of cash of $708,582 and the Company's promissory notes
to the sellers in the aggregate principal amount of $2,432,218, plus $230,000
for non-compete agreements with the sellers. The transaction was accounted for
as a purchase, resulting in the recording of a core deposit intangible of
approximately $1.1 million, goodwill of approximately $1.3 million, and an
increase to deferred tax and other liabilities of approximately $.7 million.
Amortization of the intangibles, net of tax, will be approximately $173,000
annually over the next ten years. Prior to March 31, 1996, the Company merged
Premier into the Company since Premier had no assets other than the stock of
Premier Bank. This transaction resulted in the Company owning 100% of the stock
of Premier Bank, as is the case with the Company's other subsidiaries, Greene
County Bank and American Fidelity Bank.
3-SUMMARY OF ACCOUNTING POLICIES
The accompanying Condensed 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,
consisting of only normal recurring adjustments, and disclosures necessary to
summarize fairly the financial position of the Company as of March 31, 1996 and
the results of operations, stockholders' equity and cash flows for the three
month periods ended March 31, 1996 and 1995.
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4-ALLOWANCE FOR LOAN LOSSES
Transactions in the Allowance for Loan Losses were as follows:
Three Months
Ended
March 31,
(In Thousands) 1996 1995
-------------- ------ ------
Balance, January 1 $4,654 $3,447
Add(Deduct):
Balances acquired in acquisition of
subsidiary bank 440 -
Losses charged to allowance (278) (130)
Recoveries credited to allowance 214 149
Provision for loan losses 165 136
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Balance, March 31 $5,195 $3,602
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5-COMMON STOCK SUBJECT TO RESCISSION
On May 31, 1995 the Company forwarded a letter to several hundred potential
subscribers for common stock of the Company. The response to the letter
resulted in a sale of 5,009 shares of the Company's common stock to 192 new
shareholders(the "New Shareholders"). The Company received approximately
$851,530 in payment for the newly issued common shares. No commissions or other
fees were paid or received by the Company or any other person in connection
with the sale of such shares. The Company is making a rescission offer to the
New Shareholders(the "Rescission Offer"). The need for the Rescission Offer
arises from the sale of the common stock to the New Shareholders without
registration with the Securities and Exchange Commission and the necessary
state securities divisions or the availability of an exemption from
registration.
In the Rescission Offer, the Company is offering to rescind the sale of the
shares issued to the New Shareholders and to refund the consideration paid for
such shares, plus interest from the date of payment through the date the
Company receives notice of a New Shareholder's election to rescind, less any
amount of income received on such stock by the New Shareholders. The Rescission
Offer is being made pursuant to the applicable securities laws in the states in
which the New Shareholders reside. Simultaneously with the Rescission Offer,
the Company is registering these shares of common stock in order that if the New
Shareholders determine that they desire to retain the common shares, they will
be appropriately registered.
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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, 1996. The Company
is not aware of any recommendations by the regulatory authorities which, if
implemented, would have a material effect on the Company's liquidity, capital
resources or operations.
Earnings
Greene County Bancshares, Inc. earnings for the three months ended March 31,
1996 were $1,966,000. This represents a 31.7% increase when compared to
$1,493,000 in earnings for the same period in 1995. Excluding the approximate
$58,000, net of intangibles amortization, contributed by Premier Bank during
the quarter, earnings for the three months ended March 31, 1996 were
$1,908,000, which represents a 27.8% increase compared to $1,493,000 in
earnings for the same period in 1995.
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, 1996, net interest income was $5,319,000 as compared to
$4,221,000 for the same period in 1995, an increase of 26.0%. The increase is
primarily attributable to an increase in volume and yield of earning assets,
offset by increased costs and balances of interest-bearing liabilities.
Loans produced the largest component of interest income, contributing
$7,922,000 for the three months ended March 31, 1996 as compared to $6,014,000
for the same period in 1995, representing an increase of 31.7%. The increase
is attributable to both rate and volume increases in 1996.
Earnings on investments and federal funds sold provided the balance of interest
income, producing $1,374,000 for the three month period ended March 31, 1996 as
compared to $1,102,000 for the same period in 1995. Total interest expense for
the Company increased 37.4% during the three month period ended March 31, 1996
as compared to the same period in 1995. Interest expense consisted primarily of
interest paid on deposits which totaled $3,865,000 during the three
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months ended March 31, 1996 as compared to $2,789,000 for the same period in
1995. The Company's deposit base grew 6.5% during the three months ended March
31, 1996. Excluding the approximate $22.0 million in deposits acquired via the
Premier Bank acquisition, the Company's deposit base increased .5% during the
quarter ended March 31, 1996. The cost of interest-bearing 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
deposit 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, 1996 was $961,000
as compared to $740,000 for the same period in 1995. This increase of 29.9%
resulted mainly from an increase in service charges on deposit accounts and
commissions earned brought about by management's focus on the generation of
noninterest-sensitive areas of income and also by various fee-generating
accounts acquired via the acquisition of Premier Bank.
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 $3,084,000 for the three month period ended March 31,
1996 as compared to $2,468,000 for the same period in 1995. Personnel cost are
the primary element of the Company's other operating expenses. During the
three months ended March 31, 1996 salaries and benefits represented $1,781,000
of other operating expenses. This was an increase of $487,000 or 37.6% over the
same period in 1995. These increases were due to opening new branches requiring
increased staff levels, and increased employee benefit costs, including health
insurance and pension costs, as well as the acquisition of Premier Bank. The
number of full-time equivalent
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employees at March 31, 1996 was 226 versus 166 at March 31, 1995, an increase of
36.1%.
Other operating expenses during the three month period ended March 31, 1996
were $1,303,000, an increase of $129,000 from the same period in 1995, which
was $1,174,000. This 11.0% increase was mainly due to increased expenses
associated with operating new branches that were opened and with the
acquisition of Premier Bank. At March 31, 1996, the Company had 21 branches,
including a)Greene County Bank's new Hamblen County branch which opened for
business on April 1, 1996, and b)three offices of a finance company subsidiary
of Greene County Bank, compared to 15 branches at March 31, 1995, including one
office of a finance company subsidiary of Greene County Bank.
Loans
At March 31, 1996, loans, net of unearned income and allowance for loan losses,
were $326.8 million compared to $253.1 million for the same period in 1995.
Excluding the approximate $14.8 million in loans acquired via the Premier Bank
acquisition, net loans increased $58.9 million, or 23.3% and $18.2 million, or
6.2% from March 31, 1995 and December 31, 1995, respectively. This increase is
primarily due to increases in commercial lending. Nonaccrual loans decreased by
$285,000 during the three month period ended March 31, 1996.
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, 1996, Greene County Bancshares, Inc. charged-off $278,000 in
loans, and recovered $214,000 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 $5,195,000 at March 31, 1996
from $3,602,000 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, 1996 with an amortized cost of $66.4
million had a market value of $66.2 million. During the same period in 1995,
investments with an amortized cost of $68.9 million had a market value of $68.4
million. This decrease was used to fund increases in the loan portfolio.
Deposits
The funds to support the Company's asset growth have been provided by increased
deposits, which amounted to $389.6 million at March 31, 1996. This represents
a 23.2% increase from the deposits at March 31, 1995 of $316.2 million.
Excluding the approximate $22.0 million in deposits acquired via the Premier
Bank acquisition, deposits increased $51.4 million, or 16.3% and $1.7 million,
or .5%, from March 31, 1995 and December 31, 1995, respectively. The increase
is primarily the result of the Company's growth and branch acquisition efforts
and aggressive focus on the attraction of new time deposit customers.
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
March 31, 1996
- -------------------------------------------------
Required
Minimum Company's
Ratio Ratio
- -------------------------------------------------
Tier 1 risk-based capital 4.00% 12.48%
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Total risk-based capital 8.00% 13.70%
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Leverage Ratio 3.00% 9.32%
=================================================
The Company believes it was in compliance with all minimum regulatory capital
guidelines at March 31, 1996 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 funds 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.
During the three month period ended March 31, 1996, operating activities of the
Company provided $3,956,000 of cash flows. Net income of $1,966,000, adjusted
for non-cash operating activities, provided the majority of cash generated from
operations.
Investing activities, including lending, used $4,242,000 of the Company's cash
flow, which resulted in a $14,623,000 net decrease in the investment portfolio.
Loans originated net of principal collected used $18,835,000 in funds.
Net additional cash inflows of $1,728,000 were provided by financing
activities. Net deposit growth accounted for $1,661,000 of the increase, and
cash acquired via acquisition of Premier Bank provided $1,730,000. Offsetting
these increases were a)decreases in securities sold under agreements to
repurchase and short-term borrowed funds in the amount of $768,000, b)decreases
in other borrowings, net in the amount of $821,000, and c)cash dividends paid to
shareholders of $505,000.
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The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented 25.2% of total deposits
at March 31, 1996, a decrease from 30.1% at March 31, 1995.
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 is 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.
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.
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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) None
(b) None
(c) None
(d) None
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
(a) Report on Form 8-K, dated January 1, 1996, regarding consummation of
acquisition of Premier Bancshares, Inc.
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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 by the
undersigned thereunto duly authorized.
Greene County Bancshares, Inc.
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Registrant
Date: 5-6-96 /s/ Stan Puckett
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R. Stan Puckett
President and CEO
Date: 5-6-96 /s/ William F. Richmond
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William F. Richmond
Sr. Vice President, Chief
Financial and Accounting
Officer
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