UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2002
COMMISSION FILE NUMBER 0-33021
GREER BANCSHARES INCORPORATED
-----------------------------
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-1126200
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
1111 West Poinsett Street
P.O. Box 1029 (864) 877-2000
Greer, SC 29650 (Issuer's Telephone Number)
(Address of Principal Executive Offices)
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. X YES NO
The number of outstanding shares of the issuer's $5.00 par value common stock as
of March 31, 2002 was 1,559,229.
Transitional Small Business Disclosure Format (Check one):
|_| YES |X| NO
GREER BANCSHARES INCORPORATED
Index
PART I
FINANCIAL INFORMATION
ITEM 1
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 3
Consolidated Statements of Income for the Three Months Ended March 31, 2002 and 2001 4
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2002
and 2001 5
Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31,
2002 and Twelve Months ended December 31, 2001 6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 7
Notes to Consolidated Financial Statements 8
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of Operations 8
ITEM 3
Quantitative and Qualitative Disclosures about Market Risk 10
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 11
2
GREER BANCSHARES INCORPORATED
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands except share data) MARCH 31, DECEMBER 31,
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ASSETS 2002 2001
------ ---- ----
Cash and due from banks $ 7,582 $ 7,421
Investment securities 49,141 49,755
Net loans 108,838 113,115
Premises and equipment, net 4,503 4,618
Real estate held for sale 685 685
Federal funds sold 7,559 150
Other assets 4,376 4,308
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Total assets $ 182,684 $ 180,052
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 17,145 $ 16,857
Interest bearing 116,172 114,314
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133,317 131,171
Notes payable to Federal Home Loan Bank 31,595 31,615
Federal funds purchased - -
Other liabilities 1,397 1,340
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Total liabilities 166,309 164,126
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Stockholders' equity:
Common stock--par value $5 per share, 10,000,000 shares authorized, 1,559,229
and 1,557,528 shares issued and outstanding at March 31,
2002 and December 31, 2001, respectively 7,796 7,788
Additional paid in capital 5,348 5,345
Retained earnings 3,329 2,758
Accumulated other comprehensive income (98) 35
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Total stockholders' equity 16,375 15,926
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Total liabilities and stockholders' equity $ 182,684 $ 180,052
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The accompanying note is an integral part of these consolidated financial
statements.
3
GREER BANCSHARES INCORPORATED
Consolidated Statements of Income
(Unaudited)
(dollars in thousands except per share data) FOR THREE MONTHS
---------------------------
3/31/02 3/31/01
Interest income:
Loans (including fees) $ 2,094 $ 2,543
Investment securities:
Taxable 426 384
Exempt from federal income tax 195 128
Federal funds sold 22 34
Other 24 32
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Total interest income 2,761 3,121
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Interest expense:
Interest on deposit accounts 685 1,319
Interest on other borrowings 393 413
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Total interest expense 1,078 1,732
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Net interest income 1,683 1,389
Provision for loan losses 45 60
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Net interest income after provision for
loan losses 1,638 1,329
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Non-interest income:
Service charges on deposit accounts 258 220
Other service charges 38 43
Gain (loss) on sale of investment securities 30 13
Other operating income 192 216
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Total non-interest income 518 492
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Non-interest expenses:
Salaries and employee benefits 716 653
Occupancy and equipment 219 186
Postage and supplies 57 55
Other operating expenses 364 309
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Total non-interest expenses 1,356 1,203
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Income before income taxes 800 618
Provision for income taxes 229 175
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Net income $ 571 $ 443
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Basic net income per share of common stock $ 0.37 $ 0.29
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Diluted net income per share of common stock $ 0.36 $ 0.28
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The accompanying note is an integral part of these consolidated financial
statements.
4
GREER BANCSHARES INCORPORATED
Consolidated Statements of Comprehensive Income
(Unaudited)
(dollars in thousands) FOR THREE MONTHS
03/31/02 03/31/01
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NET INCOME $ 571 $ 443
Other comprehensive income
Net change in unrealized gains (losses) on
securities available-for-sale, net of tax (114) 342
Less reclassification adjustments for
gains included in net income (19) (8)
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COMPREHENSIVE INCOME $ 438 $ 777
=========== ===========
The accompanying note is an integral part of these consolidated financial
statements.
5
GREER BANCSHARES INCORPORATED
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2002 and Twelve Months Ended December 31, 2001
(Unaudited)
Accumulated
Additional Other Total
(dollars in thousands except Common Paid-In Retained Comprehensive Stockholders
share data Stock Capital Earnings Income Equity
-------- ------------ --------------- ---------------- --------------
Balances at 12/31/2000 $ 7,391 $ 3,660 $ 2,634 $ (145) $ 13,540
Net Income 2,126 2,126
Cash in lieu of fractional
shares (stock dividend) (9) (9)
Stock exercised pursuant
to stock option plan 28 61 89
Issuance of stock dividend (5%) 369 1,624 (1,993) -
Unrealized Gains/(Losses)
on investment securities 191 191
Less reclassification
adjustments for
gains included in net income (11) (11)
-------- ------------ --------------- ---------------- --------------
Balances at 12/31/2001 7,788 5,345 2,758 35 15,926
Net Income 571 571
Stock exercised pursuant
to stock option plan 8 3 11
Unrealized Gains/(Losses)
on investment securities (114) (114)
Less reclassification
adjustments for
gains included in net income (19) (19)
Balances at 3/31/2002 $ 7,796 $ 5,348 $ 3,329 $ (98) $ 16,375
======== ============ =============== ================ ==============
The accompanying note is an integral part of these consolidated financial
statements.
6
GREER BANCSHARES INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands) FOR THE THREE MONTHS ENDED
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03/31/02 03/31/01
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OPERATING ACTIVITIES
Net Income $ 571 $ 443
Cash provided by operating activities
Depreciation 141 114
Gain on sale of securities (30) (13)
Provision for possible loan loss 45 60
Decrease (increase) in accrued interest receivable 73 6
Increase in other assets (80) (290)
Increase in accrued interest payable (190) 153
(Decrease) increase in miscellaneous liabilities 269 251
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Net cash provided by operating activities 799 724
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INVESTING ACTIVITIES
Proceeds from the sale of securities, available-for-sale 9,390 2,817
Purchase of securities, available-for-sale (8,962) (5,398)
Net increase in federal funds sold (7,409) (656)
Net (increase) decrease in loans 4,232 (2,757)
Capital expenditures (26) (11)
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Net cash used for investing activities (2,775) (6,005)
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FINANCING ACTIVITIES
Net increase in deposits 2,146 832
Net proceeds (repayment) of notes payable FHLB (20) 6,481
Net proceeds (repayment) of federal funds purchased 0 (900)
(Purchase) Redemption of FHLB stock 0 (15)
Proceeds from issuance of stock through options 11 35
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Net cash provided by financing activities 2,137 6,433
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Net increase (decrease) in cash and due from banks 161 1,152
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD $ 7,421 $ 4,784
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CASH AND DUE FROM BANKS, END OF PERIOD $ 7,582 $ 5,936
====================================
CASH PAID FOR
Income taxes $ 55 $ 28
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Interest $ 1,268 $ 1,579
====================================
The accompanying note is an integral part of these consolidated financial
statements.
7
GREER BANCSHARES INCORPORATED
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
In July 2001, Greer Bancshares Incorporated was formed as the bank holding
company for Greer State Bank ("the Bank"). All of the outstanding common shares
of the Bank were exchanged for common stock of the holding company. The only
current activity of the holding company is to hold its investment in the Bank.
The accompanying financial statements include the accounts of the holding
company and its subsidiary. (herein referred to as "the Company").
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with U. S. generally accepted accounting principles. However, all adjustments,
which are, in the opinion of management, necessary for the fair presentation of
the interim financial statements have been included. All such adjustments are of
a normal recurring nature. The statements of income and comprehensive income for
the three-month period ended March 31, 2002 is not necessarily indicative of the
results that may be expected for the entire year or any other future interim
period.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto
for the Company for the year ended December 31, 2001 which are included in the
Form 10.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL - The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipates", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risk associated with the effect
of opening a new branch, the ability to control costs and expenses, and general
economic conditions.
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" include Greer Bancshares Incorporated and/or the Bank as
appropriate.
RESULTS OF OPERATIONS - Greer Bancshares Incorporated and its wholly owned
subsidiary, Greer State Bank reported consolidated net income of $571,000 or
$0.36 per diluted share for the quarter ended March 31, 2002, compared to
$443,000 or $0.28 per diluted share for Greer State Bank for the first quarter
of 2001. This is an increase of 28.9%.
The increase in earnings is due primarily to a significant reduction in the
Bank's cost of funds, an increase in non-interest income, and management's
ability to control overhead expenses. The cost of funds has declined by 197
basis points in the past twelve months, and non-interest income as a percentage
of total income has increased from 13.6% to 15.8% during the same period. The
Bank's efficiency ratio has declined year-to-date by 182 basis points to 58.6%,
which indicates income has increased while overhead expenses have been held
8
relatively stable. The rise in non-interest income is the result of increases in
service charges, as well as increases in origination fees related to the Bank's
Mortgage Loan Investor program. Most of the increase in service charges can be
attributed to the Bank's Overdraft Privilege program.
FINANCIAL CONDITION - Total assets were $182.7 million at March 31, 2002,
compared to $180 million at December 31, 2001, a year-to-date increase of 1.5%.
Loan demand was "soft" during 2001 and continued to be throughout the first
three months of 2002 resulting in an opportunity to purchase additional
investment securities. The investment portfolio increased by approximately $9.7
million (24.7%) during the past twelve months. The soft loan demand and the
significant decline in interest rates during the period allowed management to
continue to concentrate on lowering the Bank's cost of funds, and lengthening
the average maturity of the Bank's liabilities. Funding objectives have been to
attract longer term core deposits. Management has focused on lowering the Bank's
cost of funds by meeting its funding needs through wholesale funding or
gathering of deposits, whichever is most cost effective at the time funding is
needed. A challenge that lies ahead for management is to effectively manage the
growth of the Bank, while maintaining an acceptable net interest margin.
As of March 31, 2002, total loans outstanding declined by $4.2 million for the
period. Non-performing loans totaled .55% of total loans, compared with .30% at
December 31, 2001. Adjustable rate loans totaled 45.6% of the Bank's loan
portfolio, compared with 43.9% at the end of 2001. The growth in adjustable rate
loans will benefit the Bank's earnings when interest rates begin to rise. The
Bank is positioned to benefit from rising interest rates.
The Bank continues to promote deposit growth by offering competitive interest
rates on certificates of deposit, as well as considering new products, such as a
90-day money market time deposit that was introduced this year. The "Better than
Free" checking account with Automated Overdraft Privilege, which was introduced
in August of 2000, has attracted additional interest-free deposits for the Bank.
On February 15, 2001 the Bank began providing Internet banking services and has
over 900 customers enrolled to transact business via the web. The Bank's web
site offers customers the ability to transact business functions such as
transferring funds from one account to another, making loan payments, viewing
account balances, viewing account transaction history, paying bills on-line and
exporting account information into personal financial software.
The Bank has invested significantly in facilities, people, and technology over
the past few years, and is well positioned to provide exceptional service to its
customers for many years.
PROVISION FOR LOAN LOSSES - The amount charged to the provision for loan losses
by the Company is based on management's judgment as to the amount required to
maintain an allowance adequate to provide for losses inherent in the Company's
loan portfolio.
The provision for loan losses charged to operations during the three months
ended March 31, 2002 was $45,000, compared to $60,000 for the three months ended
March 31, 2001. The decrease in the Company's provision for loan losses for the
first quarter 2002 is partly attributable to some diminishment of the strong
loan growth experienced by the Company's banking subsidiary during 2001 and
first quarter 2002 and reflective of the Company's overall credit quality.
LIQUIDITY AND CAPITAL RESOURCES - The Company's primary sources of funds are new
deposits, proceeds from principal and interest payments on loans, and repayments
on mortgage-backed securities. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
9
are greatly influenced by general interest rates, economic conditions and
competition. The Company's primary investing activity is loan originations. The
Company maintains liquidity levels adequate to fund loan commitments, investment
opportunities, deposit withdrawals and other financial commitments.
At March 31, 2002, management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. Furthermore,
at March 31, 2002, management was not aware of any current recommendations by
the regulatory authorities that, if implemented, would have a material effect.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises principally from interest rate
risk inherent in its lending, deposit, and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages certain other risks, such as credit quality and liquidity risk,
in the normal course of business, management considers interest rate risk to be
its most significant market risk and the risk that could potentially have the
largest material effect on the Company's financial condition and results of
operations. Other types of market risks, such as foreign currency risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
The primary objective of Asset and Liability Management at the Company is to
manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate-sensitive earning assets and rate-sensitive
interest-bearing liabilities. The relationship of rate-sensitive earning assets
to rate-sensitive interest-bearing liabilities is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate-sensitive assets and liabilities are those that can be
repriced to current market rates within a relatively short time period.
Management monitors the rate sensitivity of earning assets and interest-bearing
liabilities over the entire life of these instruments, but places particular
emphasis on the first year. At March 31, 2002, on a cumulative basis through 12
months, rate-sensitive liabilities exceeded rate-sensitive assets by $5.2
million. This liability-sensitive position is largely attributable to the
Company's Certificates of Deposits and NOW/MMDA accounts, which totaled $43.4
million and $10.2 million, respectively, at March 31, 2002, and will reprice
within one year. This assumption that the Company's NOW accounts may reprice
within one year may or may not hold true, as the Company believes that its NOW
accounts are generally not price-sensitive.
PART II-OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
normal course of business. Management believes that these proceedings will not
result in a material loss to the Company.
ITEM 2 CHANGES IN SECURITIES
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of Greer Bancshares Incorporated filed on May 5,
2001 in the office of the Secretary of State of South Carolina (1)
3.2 By-Laws of Greer Bancshares Incorporated (1)
(b) Current Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREER BANCSHARES INCORPORATED
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Date: May 14, 2002 /s/ R. Dennis Hennett
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R. Dennis Hennett
President & Chief Executive Officer
Date: May 14, 2002 /s/ J. Richard Medlock, Jr.
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J. Richard Medlock, Jr.
Senior Vice President & Chief Financial Officer
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(1) Incorporated by reference to the Registration Statement on Form 10
11