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 September 30, 2002
[ ] 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 November 13,
2002.
Transitional Small Business Disclosure Format (check one); Yes No X
---- ----
VOLUNTEER BANCORP, INC.
INDEX
Page No.
--------
Item 1. FINANCIAL STATEMENT
Condensed Consolidated Balance Sheets
September 30, 2002 and 2001 (Unaudited) 3
Condensed Consolidated Statements of Earnings
For The Three and Nine Months Ended September 30, 2002
and 2001 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 2002 and 2001 (Unaudited) 5
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2002
and 2001 (Unaudited) 6
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Securities Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
CERTIFICATIONS 22
1
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 September 30, 2002 and 2001, and
the related condensed consolidated statements of earnings and condensed
consolidated statements of comprehensive income for the three and nine months
then ended and the condensed consolidated statements of cash flows for the nine
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.
/s/ Welch & Associates, Ltd.
Welch & Associates, Ltd.
Nashville, Tennessee
November 7, 2002
2
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 2002 and 2001
(Unaudited- See Accountants' Review Report)
- --------------------------------------------------------------------------------
ASSETS 2002 2001
------ ------------- -------------
Cash and due from banks $ 3,315,843 $ 3,287,812
Federal fund sold 4,900,000 4,600,000
------------- -------------
Total cash and cash equivalents 8,215,843 7,887,812
Investment securities available for sale (amortized cost of
$28,713,879 and $24,270,707, respectively) 29,374,378 24,468,860
Investment securities held to maturity (estimated market
value of $ 617,394 and $1,752,583, respectively) 615,607 1,745,291
Loans, less allowances for loan losses of $1,034,978 and
$937,688, respectively 67,294,795 74,061,454
Accrued interest receivable 989,088 1,110,588
Premises and equipment, net 3,827,609 3,907,293
Other real estate 728,660 1,041,890
Deferred income taxes 6,121 62,764
Goodwill 131,259 135,730
Other assets 210,415 232,073
------------- -------------
Total assets $ 111,393,775 $ 114,653,755
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest bearing $ 11,822,540 $ 11,561,204
Interest bearing 89,028,039 92,585,555
------------- -------------
Total deposits 100,850,579 104,146,759
Interest payable 441,874 1,037,561
Note payable 1,810,000 2,170,000
Securities sold under repurchase agreements 1,462,159 1,023,350
Other accrued taxes, expenses and liabilities 37,206 111,431
------------- -------------
Total liabilities 104,601,818 108,489,101
------------- -------------
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 4,460,557 4,119,909
Accumulated other comprehensive income 409,510 122,855
------------- -------------
Total stockholders' equity 6,791,957 6,164,654
------------- -------------
Total liabilities and stockholders' equity $ 111,393,775 $ 114,653,755
============== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
For The Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Interest Income:
Interest and fees on loans $ 1,399,941 $1,782,589 4,376,807 5,471,338
Interest on federal funds 14,553 44,504 52,891 201,903
Interest on investment securities:
Taxable 286,065 361,754 874,221 1,204,513
Exempt from Federal income taxes 69,014 29,741 170,030 88,349
------------ ---------- --------- ---------
Total interest income 1,769,573 2,218,588 5,473,949 6,966,103
------------ ---------- --------- ---------
Interest Expense:
Interest on deposits 532,933 1,110,923 1,819,183 3,667,511
Other borrowed funds 29,793 54,056 90,300 163,098
------------ ---------- --------- ---------
Total interest expense 562,726 1,164,979 1,909,483 3,830,609
------------ ---------- --------- ---------
Net interest income 1,206,847 1,053,609 3,564,466 3,135,494
Provision for possible loan losses 50,000 - 595,000 160,000
------------ ---------- --------- ---------
Net interest income after provision for
possible loan losses 1,156,847 1,053,609 2,969,466 2,975,494
------------ ---------- --------- ---------
Non-interest income:
Service charges on deposits 76,973 36,152 170,581 130,085
Other service charges and fees 29,672 26,330 84,793 79,424
Securities (losses) gain - 2,158 39,222 11,762
Other non-interest income 23,769 22,496 41,073 40,966
------------ ---------- --------- ---------
Total non-interest income 130,414 87,136 335,669 262,237
------------ ---------- --------- ---------
Non-interest expense:
Salaries and employee benefits 469,362 435,637 1,378,835 1,311,158
Occupancy expense 61,666 64,798 210,838 213,593
Furniture and equipment expense 105,069 104,490 300,116 271,074
Other non-interest expense 279,212 198,296 1,009,787 625,958
------------ ---------- --------- ---------
Total non-interest expense 915,309 803,221 2,899,576 2,421,783
------------ ---------- --------- ---------
Earnings before income taxes 371,952 337,524 405,559 815,948
Income tax expense 124,812 122,755 115,617 293,898
------------ ---------- --------- ---------
Net income $ 247,140 214,769 289,942 522,050
============ ========== ========= =========
Income per common share $ 0.46 0.40 0.54 0.97
============ ========== ========= =========
Common shares outstanding 539,027 539,027 539,027 539,027
============ ========== ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 2002 and 2001
(Unaudited - See Accountants' Review Report)
-------------------------------------------------------------------------------
2002 2001
---------------- --------------
Cash Flows from Operating Activities:
Net income $ 289,942 $ 522,050
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (151,209) 14,698
Provision for possible loan losses 595,000 160,000
Provision for depreciation and amortization 156,935 182,809
(Gain) on securities (39,222) (11,762)
Federal Home Loan Bank stock dividends (12,400) (18,000)
Decrease in interest receivable 77,391 102,731
Decrease (increase) in other assets 474,517 (511,439)
(Decrease) increase in other liabilities (447,733) (115,067)
-------------- --------------
Net cash provided by operating activities 943,221 326,020
-------------- --------------
Cash Flows from Investing Activities:
Proceeds from calls and maturity of held to maturity securities 11,252 26,398
Purchase of investment securities held to maturity - (705,141)
Proceeds from calls and maturity of investments
available for sale 8,150,000 15,701,695
Proceeds from sale of investments available for sale 5,782,690 9,820,786
Purchase of investment securities available for sale (16,604,251) (23,897,079)
Net decrease (increase) in loans 4,268,361 (1,182,534)
Capital expenditures (118,186) (24,646)
-------------- --------------
Net cash provided (used) in investing activities 1,489,866 (260,521)
-------------- --------------
Cash Flows from Financing Activities:
Net increase (decrease) in demand deposits, NOW accounts,
savings accounts, and IRA's 1,166,635 (2,473,313)
Net (decrease) increase in certificates of deposit (4,225,711) 612,386
Repayment of long-term debt (360,000) (325,000)
Net change in securities sold under repurchase agreements 352,556 (29,163)
Dividends paid (53,903) (75,464)
-------------- --------------
Net cash (used) by financing activities (3,120,423) (2,290,554)
-------------- --------------
(Decrease) in cash and cash equivalents (687,336) (2,225,055)
Cash and cash equivalents beginning of period 8,903,179 10,112,867
-------------- --------------
Cash and cash equivalents end of period $ 8,215,843 7,887,812
============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,361,956 $ 3,933,081
============== ==============
Income taxes $ 260,776 $ 402,254
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income
For The Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 247,140 $ 214,769 $ 289,942 $ 522,050
---------- ---------- ----------- -----------
Other comprehensive income, before tax:
Unrealized (losses) gains on securities
available for sale:
Unrealized holding gains (losses) arising
during the period 290,922 215,184 723,495 653,593
Less: reclassification adjustment for
(gains) losses included in net income - (2,158) (39,222) (11,762)
---------- ---------- ----------- -----------
Other comprehensive income 290,922 213,026 684,273 641,831
Income taxes related to other
comprehensive income (110,550) (80,949) (260,023) (243,896)
---------- ---------- ----------- -----------
Other comprehensive income,
net of income taxes 180,372 132,077 424,250 397,935
---------- ---------- ----------- -----------
Total comprehensive income $ 427,512 $ 346,846 $ 714,192 $ 919,985
========== ========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
1. Management Opinion
------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Volunteer Bancorp, Inc. (the
"Company") 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)
----------------------------------------------------------------------
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121
and provides a single accounting model for long-lived assets to be
disposed of. Although retaining many of the fundamental recognition
and measurement provisions of SFAS No. 121, the new rules
significantly change the criteria that would have to be met to
classify an asset as held-for-sale. SFAS No. 144 also supersedes the
provisions of Accounting Principles Board (APB) Opinion 30 with regard
to reporting the effects of a disposal of a segment of a business and
requires expected future operating losses from discontinued operations
to be displayed in discontinued operations in the period(s) in which
the losses are incurred (rather than as of the measurement date as
presently required by APB Opinion 30). In addition, more dispositions
will qualify for discontinued operations treatment in the income
statement. The adoption of SFAS No. 144 did not have a material impact
on the Company's financial conditions or results of operations.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities", is effective for transfers
and servicing of financial assets and extinguishment of liabilities
occurring after March 31, 2001. This Statement is effective for
recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. This statement replaces SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". It revises the standards for
accounting for securitizations and other transfers of financial assets
and collateral and requires certain disclosures, but it carries over
most of SFAS No. 125's provisions without reconsideration. This
Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities.
Those standards are based on consistent application of a
financial-components approach that focuses on control. Under the
approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This
Statement provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
borrowings. The adoption of the provisions of this Statement did not
have any material impact upon the financial position or results of
operation of the Company.
SFAS No. 142, "Goodwill and Other Intangible Assets", is effective for
fiscal years beginning after December 15, 2001. This statement
addresses financial accounting and reporting for acquired goodwill and
other intangible assets and supercedes APB Opinion No. 17, "Intangible
Assets". It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial
statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. Under
this Statement, goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least
annually for impairment. Intangible assets that have finite useful
lives will continue to be amortized over their useful lives, but
without the constraint of an arbitrary ceiling. This Statement
provides specific guidance for testing goodwill for impairment.
The Company adopted the provisions of Statement 142 effective January
1, 2002. As of the date of adoption, the Company had unamortized
goodwill in the amount of $131,259 and no unamortized identifiable
intangible assets. As part of its adoption of Statement 142, the
Company has performed a transitional impairment test on its goodwill
assets, which indicated that no impairment charge was required. The
Company does not currently have any other indefinite-lived intangible
assets recorded in its statement of financial condition. The full
impact of adopting Statement 142 is expected to result in an increase
in net income of approximately $17,883 or approximately $0.03 per
share in 2002 as a result of the Company no longer having to amortize
goodwill against earnings. Assuming retroactive adoption of Statement
142, net income for the year ended December 31, 2001 and the nine
months ended September 30, 2001 would have been $644,542 and $535,462,
respectively, and earnings per share would have been $1.19 and $0.99
for the same periods, respectively.
8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
The following table sets forth the reconcilement of net income and
earnings per share excluding goodwill amortization for the year ended
December 31, 2001 and nine months ended September 30, 2001:
For the Nine Months
For the Year Ended Ended
December 31, 2001 September 30, 2001
-------------------- -------------------
Net Earnings Net Earnings
Income Per Share Income Per Share
------ ------ ------ ---------
Earnings per common share
computation:
Net income/EPS as reported $ 626,659 $ 1.16 $ 522,050 $ 0.97
Add back: Goodwill amortization 17,883 0.03 13,412 0.02
------- ------ ------- ---------
Adjusted net income /EPS $ 644,542 $ 1.19 $ 535,462 $ 0.99
======= ====== ======= =========
3. Long-term debt
--------------
The Company's long-term debt consists of a single note payable in the
amount of $1,810,000 and $2,170,000 at September 30, 2002 and 2001,
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 September 30, 2002
the rate on the note was 3.7625% per annum. Principal is payable
annually on January 31, as follows:
January 31, Principal Due
----------- -------------
2003 395,000
2004 435,000
2005 470,000
2006 (Final Maturity) 510,000
----------------------
$ 1,810,000
======================
The loan is secured by all of the stock of Citizens Bank of East
Tennessee owned by the Company.
9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
The Company is in violation of certain loan covenants with respect to
this loan in that annualized earnings to tangible assets are less than
the 0.75% required and the ratio of nonperforming assets is greater
than 2.5%. These violations have not been waived by the lender.
Because of these violations, the lender may, at its option, by notice
to the Company declare the note in default. In such an event the
Company would have ten days to remedy compliance with all loan
covenants. If the Company did not or could not comply with all loan
covenants within such ten day period the note would be in default. In
such a case the lender may declare the note immediately due and
payable and among other things proceed to foreclose upon 100% of the
stock of Citizens Bank of East Tennessee which is pledged as security
for the note.
The lender has been notified by the Company of its non-compliance with
certain covenants of the note that could lead to the lender declaring
the note in default. However, the lender has not notified the Company
that it is in default under the terms of the loan agreement.
The Company has had no substantive discussions with the lender since
its notification to the lender of the Company's violation of certain
loan covenants. However the Company remains in non-compliance with
these loan covenants. Accordingly, should the lender notify the
Company and declare the loan in default the lender could call the note
or require that the note be restructured resulting in, among other
things, increasing the interest rate on the note and substantially
reducing the final maturity date on the note. In such a case, there
can be no assurance that the Company could satisfy the restructured
debt without obtaining new financing from other lenders or funds from
a stock offering. There can be no assurance that approval of the
Federal Reserve Bank (see note 5 (Certain Regulatory Matters)) could
be obtained for restructuring the note or obtaining other financing to
pay off the note. Further, there can be no assurance that a stock
offering by the Company would be successful or that new lenders would
provide funds to 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.
5. Certain Regulatory Matters
--------------------------
As a result of certain findings in the Tennessee Department of
Financial Institution's Report of Examination dated June 4, 2001, the
Board of Directors of the Bank entered into a Memorandum of
Understanding (the "Memorandum"), dated August 16, 2001, with the
Commissioner of the Tennessee Department of Financial Institutions and
the Memphis
10
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
Regional Director of the Federal Deposit Insurance Corporation. A
Memorandum of Understanding is an informal administrative tool for
institutions that have some weaknesses that, if not properly addressed
and corrected, could lead to supervisory concern requiring formal
administrative action. The areas addressed in the Memorandum cover
capital adequacy, laws and regulations, data processing audit and
review, investment policy maturity strategies, adequate documentation
of each of the foregoing but primarily credit administration. As a
result, the Board has reviewed a number of the Bank's policies and
procedures including its loan policy and has incorporated
recommendations designed to strengthen credit quality and the Bank's
review procedures regarding loan loss reserve adequacy. Management of
the Company and the Bank believe that while the Bank is not in full
compliance with the provisions of the Memorandum, they believe that
the Bank is in substantial compliance with the provisions of the
Memorandum.
An off-site review of the Company, dated September 17, 2002, by the
Federal Reserve Bank of Atlanta resulted in the Company agreeing to
adopt a Board of Directors resolution which, among other things,
prohibits the Company from incurring additional debt or restructuring
existing indebtedness, reducing capital by acquisition of Treasury
shares, or paying dividends to shareholders without the prior approval
of the Federal Reserve Bank.
11
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
As of And For The Three And Nine Months Ended
September 30, 2002 and 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 247,140 $ 241,769 $ 289,942 $ 522,050
Per common share data:
Net income per weighted
average common share $ 0.46 $ 0.40 $ 0.54 $ 0.97
Book value $ 12.60 $ 11.44 $ 12.60 $ 11.44
Ratios:
Return on average assets 0.89% 0.74% 0.34% 0.59%
Return on average common equity 15.03% 14.34% 5.98% 12.12%
Net interest margin (taxable equivalent
basis) 4.83% 3.97% 4.88% 3.86%
Expense ratio 3.28% 2.76% 3.43% 2.73%
Allowance for losses on loans / loans 1.51% 1.25% 1.51% 1.25%
Non-performing loans / loans 2.83% 2.20% 2.83% 2.20%
Non-performing assets / loans and
foreclosed properties 3.85% 3.54% 3.85% 3.54%
Shareholders' equity / total assets 6.10% 5.38% 6.10% 5.38%
Leverage ratio (tangible capital /
tangible average assets) 5.63% 5.08% 5.56% 4.99%
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As Of and for the Three and Nine Months Ended September 30, 2002 and 2001
- --------------------------------------------------------------------------------
The following provides a narrative discussion and analysis of significant
changes in the results of operations and financial condition of Volunteer
Bancorp, Inc. (the "Company"). This discussion should be read in conjunction
with the consolidated financial statements and related financial analysis set
forth in the Company's 2001 Annual Report, the interim unaudited consolidated
financial statements and notes for the three months and nine months ended
September 30, 2002, included elsewhere herein, and the supplemental financial
data included herein.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Such statements are based on
management's expectations as well as certain assumptions made by, and
information available to, management. Specifically, this discussion contains
forward-looking statements with respect to the following items:
- effects of projected changes in interest rates,
- effects of changes in the securities markets,
- effects of changes in general economic conditions,
- the adequacy of the allowance for losses on loans and the level
of future provisions for losses on loans, and
- business plans for the year 2002 and beyond including
underwriting criteria.
When used in this discussion, the words "anticipate," "project," "expect,"
"believe," "should" and similar expressions are intended to identify
forward-looking statements.
These forward-looking statements involve significant risks and uncertainties
including changes in general economic and financial market conditions, changes
in banking laws and regulations, and the Company's ability to execute its
business plans. Although the Company believes that the expectations reflected in
the forward-looking statements are reasonable, actual results could differ
materially.
SUMMARY
The Company reported net income for the third quarter of $247,140, or $0.46 per
common share, compared to income of $214,769, or $0.40 for the same period a
year ago. Our returns on average assets and average common equity were 0.89%
and 15.03%, respectively, for the quarter compared to 0.74% and 14.34% for the
same period last year.
13
FINANCIAL CONDITION
Earning Assets.
Average earning assets for the nine months ended September 30, 2002 totaled
$104,737,000 which represents 93.82% of average total assets. Earning assets
totaled $102,185,000 at September 30, 2002. Average earning assets for the nine
months ended September 30, 2001 totaled $109,838,000, which represented 92.73%
of average total assets. Earning assets totaled $104,876,000 at September 30,
2001.
Loan Portfolio.
The Company's average loans for the nine months ended September 30, 2002 were
$70,726,000 and for the nine months ended September 30, 2001 were $75,263,000.
The Company's average loans for the quarter ended September 30, 2002 were
$69,074,000 and were $76,100,000 for the quarter ended September 30, 2001. The
balance in total loans at September 30, 2002 was $68,330,000 and at September
30, 2001 was $74,999,000.
Investment Portfolio.
The Company's investment securities portfolio averaged $29,541,000 for the nine
months ended September 30, 2002 and $28,548,000 for the nine months ended
September 30, 2001. The Company's investment securities portfolio averaged
$30,187,000 for the quarter ended September 30, 2002 and averaged $26,271,000
for the quarter ended September 30, 2001. The portfolio totaled $29,990,000 at
September 30, 2002 and $26,214,000 at September 30, 2001.
The Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity. The Company maintains
two classifications of investment securities: "Available for Sale" and "Held to
Maturity." The Available for Sale securities are carried at fair market value,
whereas the Held to Maturity securities are carried at amortized cost. At
September 30, 2002 there was a net unrealized gain in the Available for Sale
securities of $661,000 and there was a net unrealized gain of $198,000 at
September 30, 2001.
Deposits.
The Company's average deposits were $103,815,000 for the nine months ended
September 30, 2002. This included average non-interest bearing deposits of
$12,235,000, average certificates of deposit of $64,271,000, average savings
deposits of $7,136,000 and average interest bearing transaction accounts of
$20,173,000.
The Company's average deposits for the nine months ended September 30, 2001 were
$107,981,000. This included average non-interest bearing deposits of
$111,244,000, average certificates of deposit of $68,877,000, average savings
deposits of $5,136,000 and average interest bearing transaction accounts of
$22,724,000.
Deposits at September 30, 2002 totaled $100,851,000 and totaled $104,147,000 at
September 30, 2001.
Securities Sold Under Repurchase Agreements.
The Company's average balance of securities sold under repurchase agreements for
the nine months ended September 30, 2002 was $1,307,000 and the average was
$982,000 for the nine months ended September 30, 2001. The total outstanding
under these agreements at September 30, 2002 was $1,462,000 and the total
outstanding at September 30, 2001 was $1,023,000.
Note Payable.
The Company's long-term debt consists of a single note payable in the amount of
$1,810,000 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 September 30, 2002
the rate on the note was 3.7625% per annum. Principal is payable annually
commencing January 31, 1996 and each January 31 thereafter. Interest expense for
the nine months ended September 30, 2002 totaled $54,000. The loan is secured by
all of the stock of Citizens Bank of East Tennessee owned by the Company. The
Company is in violation of certain loan covenants with respect to this loan in
that annualized earnings to tangible assets are less than required and the ratio
of nonperforming assets is greater than 2.5%. These violations have not been
waived by the lender.
Because of these violations, the lender may, at its option, by notice to the
Company declare the note in default. In such an event the Company would have ten
days to remedy compliance with all loan covenants. If the Company did not or
could not comply with all loan covenants within such ten day period the note
would be in default. In such a case the lender may declare the note immediately
due and payable and among other things proceed to foreclose upon 100% of the
stock of Citizens Bank of East Tennessee which is pledged as security for the
note.
14
The lender has been notified by the Company of its non-compliance with certain
covenants of the note that could lead to the lender declaring the note in
default. However, the lender has not notified the Company that it is in default
under the terms of the loan agreement.
The Company has had no substantive discussions with the lender since its
notification to the lender of the Company's violation of certain loan covenants.
However the Company remains in non-compliance with these loan covenants.
Accordingly, should the lender notify the Company and declare the loan in
default the lender could call the note or require that the note be restructured
resulting in, among other things, increasing the interest rate on the note and
substantially reducing the final maturity date on the note. In such a case,
there can be no assurance that the Company could satisfy the restructured debt
without obtaining new financing from other lenders or funds from a stock
offering. There can be no assurance that approval of the Federal Reserve Bank
(see note 5 (Certain Regulatory Matters)) could be obtained for restructuring
the note or obtaining other financing to pay off the note. Further, there can be
no assurance that a stock offering by the Company would be successful or that
new lenders would provide funds to the Company.
Capital Resources.
Shareholder's equity totaled $6,792,000 as of September 30, 2002. This included
$5,000 of common stock, $1,917,000 of additional paid-in capital, $4,460,000 of
retained earnings and accumulated other comprehensive income consisting of an
unrealized gain on Securities Available for Sale, net of deferred taxes, of
$410,000.
BALANCE SHEET MANAGEMENT
Liquidity Management.
Liquidity is the ability of a company to convert assets into cash without
significant loss and to raise funds by increasing liabilities. Liquidity
management involves having the ability to meet day-to-day cash flow requirements
of its customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Company to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Company can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
investments in federal funds and maturities of investment securities. Additional
sources of liquidity are loan repayments and possible prepayments from the
mortgage backed securities in the investment portfolio. At September 30, 2002
and 2001, the Company had investments in federal funds of $4,900,000 and
$4,600,000, respectively.
The liability portion of the balance sheet provides liquidity through various
interest bearing and non-interest bearing deposit accounts. Additional sources
of liquidity are Federal Home Loan Bank Advances, federal funds purchased, and
securities sold under repurchase agreements. The Company has an agreement with
the Federal Home Loan Bank whereby the Company may borrower up to an amount,
$6,000,000 at September 30, 2002, established by the Federal Home Loan Bank. The
Company is required to maintain eligible collateral, consisting of first
mortgages on one-to-four residential properties, representing 150 percent of the
current outstanding balance of all advances. There were no advances outstanding
at September 30, 2002 and 2001. At September 30, 2002, the Company had
$2,500,000 of federal funds purchase lines available at three correspondent
banks. There were no federal funds purchased at September 30, 2002 and 2001. The
Company has agreements with customers, who must meet certain criteria
established by the Company, whereby the Company sells the customer investment
securities under agreements to repurchase the securities. The securities
underlying the agreements are maintained under the Company's control. The
outstanding balance under these agreements was $1,462,000 and $1,023,000 at
September 30, 2002 and 2001, respectively.
Additional capital funds or long-term debt are anticipated to be necessary
during the next twelve to eighteen months. There is no assurance that additional
capital funds or other long-term debt can be obtained under current market
condition. The additional funds required approximate $1,810,000 or the amount
necessary to replace the Company's current note payable. If the Company is able
to obtain new debt funding the Company anticipates that the terms would be less
favorable than exist under the Company's current note payable.
15
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND
2001
Net Interest Income.
Net interest income is the principal component of a financial institution's
income stream and represents the spread between interest and fee income
generated from earning assets and the interest expense incurred on interest
bearing deposits and other borrowed funds. The following discussion is based on
a fully taxable equivalent basis.
Net interest income for the nine months ended September 30, 2002 totaled
$3,564,000. This was a result of interest income of $5,474,000 and interest
expense of $1,910,000. Interest and fee income on loans totaled $4,377,000,
interest income on the investment portfolio totaled $1,044,000, and interest
income on federal funds sold totaled $53,000. Interest expense included
$1,538,000 on certificates of deposit, $194,000 on interest bearing transaction
accounts, $88,000 on savings accounts, $36,000 on securities sold under
repurchase agreements, $54,000 on the note payable.
Net interest income for the nine months ended September 30, 2001 totaled
$3,135,000. This was a result of interest income of $6,966,000 and interest
expense of $3,831,000. Interest and fee income on loans totaled $5,471,000,
interest income on the investment portfolio totaled $1,293,000, and interest
income on federal funds sold totaled $202,000. Interest expense included
$2,994,000 on certificates of deposit, $568,000 on interest bearing transaction
accounts, $106,000 on savings accounts, $41,000 on securities sold under
repurchase agreements, $6,000 on Federal Home Loan Bank advances, and $116,000
on the note payable.
Net interest income for the three months ended September 30, 2002 totaled
$1,207,000. This was a result of interest income of $1,770,000 and interest
expense of $563,000. Interest and fee income on loans totaled $1,400,000,
interest income on the investment portfolio totaled $355,000, and interest
income on federal funds sold totaled $15,000. Interest expense included $442,000
on certificates of deposit, $62,000 on interest bearing transaction accounts,
$30,000 on savings accounts, $12,000 on securities sold under repurchase
agreements, and $17,000 on the note payable.
Net interest income for the three months ended September 30, 2001 totaled
$1,054,000. This was a result of interest income of $2,219,000 and interest
expense of $1,165,000. Interest and fee income on loans totaled $1,783,000,
interest income on the investment portfolio totaled $391,000, and interest
income on federal funds sold totaled $45,000. Interest expense included $952,000
on certificates of deposit, $125,000 on interest bearing transaction accounts,
$34,000 on savings accounts, $12,000 on securities sold under repurchase
agreements, $6,000 on Federal Home Loan Bank advances, and $36,000 on the note
payable.
The trend in net interest income is commonly evaluated in terms of average rates
using the net interest margin and the interest rate spread. The net interest
margin, or the net yield on earning assets, is computed by dividing fully
taxable equivalent net interest income by average earning assets. This ratio
represents the difference between the average yield on overage earning assets
and the average rate incurred for all funds used to support those earning
assets.
The net interest margin for the nine months ended September 30, 2002 was 4.88%.
The net cost of funds, defined as interest expense divided by average earning
assets was 2.43% and the yield on earning assets was 7.31% for the nine months
ended September 30, 2002. The net interest margin for the nine months ended
September 30, 2001 was 3.86%. The net cost of funds for the nine months ended
September 30, 2001 was 4.65% and the yield on earning assets was 8.51%. The
decrease in interest rates during the first nine months of 2002 had a positive
impact on the Company's net interest margin. It is anticipated that the impact
will lessen as rate sensitive assets re-price at lower rates.
The net interest margin for the three months ended September 30, 2002 was 4.83%.
The net cost of funds, defined as interest expense divided by average earning
assets was 2.19% and the yield on earning assets was 7.02% for the three months
ended September 30, 2002. The net interest margin for the three months ended
September 30, 2001 was 3.97%. The net cost of funds for the three months ended
September 30, 2001 was 4.33% and the yield on earning assets was 8.30%.
16
The interest rate spread measures the difference between the average yield on
earning assets and the average rate incurred on interest bearing sources of
funds. The interest rate spread eliminates the impact of non-interest bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest rate margins and interest rate
spreads have been under intense pressure to maintain historical levels, due in
part to tax laws that discourage investment in tax-exempt securities and intense
competition for funds with non-bank institutions. The interest rate spread for
the nine months ended September 30, 2002 was 4.62% and it was 3.41% for the nine
months ended September 30, 2001. The interest rate spread for the three months
ended September 30, 2002 was 4.58% and it was 3.61% for the three months ended
September 30, 2001.
Allowance for Possible Loan Losses.
Lending officers are responsible for the ongoing review and administration of
each loan. They make the initial identification of loans that present some
difficulty in collection or where there is an indication that the probability of
loss exists. Lending officers are responsible for the collection effort on a
delinquent loan. Senior management is informed of the status of delinquent and
problem loans on a weekly basis.
Senior management makes recommendations monthly to the board of directors as to
charge-offs. Senior management reviews the allowance for possible loan losses on
a monthly basis. The Company's policy is to discontinue interest accrual when
payment of principal and interest is 90 days or more in arrears, unless there is
sufficient collateral to justify continued accrual.
The allowance for possible losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for possible loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. The provision for possible loan losses was $50,000 for the three months
ended September 30, 2002. In assessing the adequacy of the allowance, management
reviews the size, quality and risk of loans in the portfolio. Management also
considers such factors as loan loss experience, the amount of past due and
non-performing loans, specific known risk, the status and amount of
non-performing assets, underlying collateral values securing loans, current and
anticipated economic conditions and other factors which affect the allowance for
possible loan losses.
While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses that cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgement as to the adequacy of the allowance is necessarily
approximate and imprecise.
The allowance for loan losses at September 30, 2002 was 1.51% of loans and
approximately 39% of non-performing assets. Management believes that the
$1,035,000 at September 30, 2002 in the allowance for possible loan losses is
adequate to absorb known risks in the portfolio. No assurance can be given,
however, that adverse economic circumstances will not result in increased losses
in the loan portfolio, and require greater provisions for possible loan losses
in the future.
Non-Performing Assets.
Non-performing assets include non-performing loans and foreclosed real estate
held for sale. Non-performing loans include loans classified as non-accrual and
loans past due more than 90 days and still accruing interest. Non-performing
assets at September 30, 2002 were $2,662,000, or 3.85% of loans and foreclosed
properties. Non-performing assets at September 30, 2002 consisted of non-accrual
loans of $812,000, loans past due 90 days and still accruing interest of
$1,121,000 and foreclosed real estate of $729,000. Non-performing assets at
September 30, 2001 were $2,689,000, or 3.54% of loans and foreclosed assets.
Non-performing assets at September 30, 2001 consisted of non-accrual loans of
$476,000 loans past due 90 days and still accruing interest of $1,171,000 and
foreclosed real estate of $1,042,000. The majority of non-performing assets is
primarily attributable to commercial real estate and real estate construction
loans in which management does not anticipate incurring material losses. Senior
management has strengthened the underwriting criteria for real estate
construction and commercial real estate lending in order to decrease the risk
associated with these types of loans.
17
Non-Interest Income.
Non-interest income consists of revenues generated from a broad range of
financial services and activities including fee-based services and securities
gains and losses. Total non-interest income was $336,000 for the nine months
ended September 30, 2002. This included $171,000 from service charges on deposit
accounts, $85,000 from other service charges and fees, $39,000 of securities
gains, and $41,000 of other non-interest income.
Total non-interest income for the nine months ended September 30, 2001 was
$262,000. This included $130,000 from service charges on deposit accounts,
$79,000 from other service charges and fees, $12,000 of securities gains, and
$41,000 of other non-interest income.
Total non-interest income was $130,000 for the three months ended September 30,
2002. This included $77,000 from service charges on deposit accounts, $29,000
from other service charges and fees, and $24,000 of other non- interest income.
Total non-interest income for the three months ended September 30, 2001 was
$87,000. This included $36,000 from service charges on deposit accounts, $26,000
from other service charges and fees, $2,000 of securities gains, and $23,000 of
other non-interest income.
The increase in total non-interest income is mainly attributable to an increase
in service charges on deposit accounts.
Non-Interest Expense.
Non-interest expense for the nine months ended September 30, 2002 was
$2,900,000. This consisted of $1,379,000 of salaries and employee benefits,
$211,000 of occupancy expenses, $300,000 of furniture and equipment expense, and
$1,010,000 of other non-interest expenses. Other non-interest expenses include
advertising, supplies and printing, telephone, postage, and legal and accounting
fees.
Non-interest expense for the nine months ended September 30, 2001 was
$2,422,000. This consisted of $1,311,000 of salaries and employee benefits,
$214,000 of occupancy expenses, $271,000 of furniture and equipment expense, and
$626,000 of other non-interest expenses. Other non-interest expenses include
advertising, supplies and printing, telephone, postage, and legal and accounting
fees.
Non-interest expense for the three months ended September 30, 2002 was $915,000.
This consisted of $469,000 of salaries and employee benefits, $62,000 of
occupancy expenses, $105,000 of furniture and equipment expense, and $279,000 of
other non-interest expenses.
Non-interest expense for the three months ended September 30, 2001 was $803,000.
This consisted of $436,000 of salaries and employee benefits, $65,000 of
occupancy expenses, $104,000 of furniture and equipment expense, and $198,000 of
other non-interest expenses.
The increase in total non-interest expense is primarily associated with the
write down in the carrying value of other real estate owned of $222,000.
Income Taxes.
For the nine months ended September 30, 2002, the Company incurred income tax
expense of $116,000. For the nine months ended September 30, 2001, the Company
incurred income tax expense of $294,000. Approximately $170,000 of income earned
for the nine months ended September 30, 2002 is exempt from federal income
taxes. Approximately $88,000 of the income earned during the nine months ended
September 30, 2001 is exempt from federal income taxes.
For the three months ended September 30, 2002, the Company incurred income tax
expense of $125,000. For the three months ended September 30, 2001, the Company
incurred income tax expense of $123,000. Approximately $69,000 of income earned
for the three months ended September 30, 2002 is exempt from federal income
taxes. Approximately $30,000 of the income earned during the three months ended
September 30, 2001 is exempt from federal income taxes.
18
RETURN ON ASSETS AND EQUITY
Return on assets (annualized net income divided by average total assets) for the
nine months ended September 30, 2002 was 0.34%. Return on assets for the nine
months ended September 30, 2001 was 0.59%. Return on assets for the three months
ended September 30, 2002 was 0.89% and it was 0.74% for the three months ended
September 30, 2001.
Return on equity (annualized net income divided by average equity) for the nine
months ended September 30, 2002 was 5.98% and it was 12.12% for the nine months
ended September 30, 2001. Return on equity for the three months ended September
30, 2002 was 15.03% and it was 14.34% for the three months ended September 30,
2001.
Equity to assets (average equity divided by average total assets) was 6.10% for
the nine months ended September 30, 2002 and it was 5.38% for the nine months
ended September 30, 2001. Equity to assets for the three months ended September
30, 2002 was 6.10% and it was 5.38% for the three months ended September 30,
2001.
The dividend payout ratio (dividends declared divided by net income) for the
nine months ended September 30, 2002 was 18.59%. The dividend payout ratio for
the nine months ended September 30, 2001 was 14.45%. No dividends were declared
during the three months ended September 30, 2002 and 2001 and, accordingly, no
dividend payout ratio is presented for those quarters.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expenses and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancing tend to slow as
interest rates increase and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans on the
secondary market.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
President and its Vice President and Cashier have evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Exchange Act Rule 13a-14(c)) as of a date within 90 days of the
filing date of this quarterly report. Based on that evaluation, the President
and the Vice President and Cashier have concluded that the Company's disclosure
controls and procedures are effective to ensure that material information
relating to the Company and the Company's consolidated subsidiaries is made
known to such officers by others within these entities, particularly during the
period this quarterly report was prepared, in order to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Controls. There have not been any significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
19
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) Exhibits
Exhibit 23.1 Consent of Welch & Associates
Exhibit 99.1 Certification Pursuant to 18 U.S.C.Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by Reed
D. Matney, the President of Volunteer Bancorp,
Inc. on November 14, 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C.Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by Greg
Oliver, Vice President and Cashier of Volunteer
Bancorp, Inc. on November 14, 2002.
(b) There have been no Current Reports on Form 8-K filed during the
quarter ended September 30, 2002.
20
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: November 14, 2002 /s/ Reed D. Matney
---------------------------------------
Reed D. Matney, President
Date: November 14, 2002 /s/ Greg Oliver
----------------------------------------
Greg Oliver, Vice President and Cashier
21
CERTIFICATION OF PRESIDENT
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Reed D. Matney, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Volunteer Bancorp,
Inc. ("Volunteer");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
amterial respects the financial condition, results of operations and cash
flows of Volunteer as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Reed D. Matney
------------------------------
Reed D. Matney
President
22
Certification of Vice President and Cashier
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Greg Oliver, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Volunteer Bancorp,
Inc. ("Volunteer");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Volunteer as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certfying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Greg Oliver
------------------------------
Greg Oliver
Vice President and Cashier
23
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
dated November 7, 2002, included in this Quarterly Report on form 10-QSB for the
Quarter Ended September 30, 2002.
/s/ Welch & Associates, Ltd.
Welch & Associates, Ltd.
Nashville, Tennessee
November 7, 2002
Exhibit 99.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, and in connection with the quarterly report on
Form 10-QSB of Volunteer Bancorp, Inc. (the "Company") for the quarter ended
June 30, 2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), the undersigned, Reed D. Matney, the President of the
Company, hereby certifies that (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
This Certification is signed on November 14, 2002.
/s/ Reed D. Matney
-----------------------------------------------
Reed D. Matney
President
Exhibit 99.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, and in connection with the quarterly report on
Form 10-QSB of Volunteer Bancorp, Inc. (the "Company") for the quarter ended
June 30, 2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), the undersigned, Greg Oliver, the Vice President and
Cashier of the Company, hereby certifies that (1) the Report fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
This Certification is signed on November 14, 2002.
/s/ Greg Oliver
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Greg Oliver
Vice President and Cashier