UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2005
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _____________________ to ________________
Commission
file number 0-14289
GREENE
COUNTY BANCSHARES, INC.
(Exact
name of registrant as specified in its charter)
|
Tennessee |
62-1222567 |
|
(State or other jurisdiction of incorporation
or organization) |
(I.R.S. Employer Identification
No.) |
| |
|
|
100 North Main Street, Greeneville,
Tennessee |
37743-4992 |
|
(Address of principal executive
offices) |
(Zip Code) |
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
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act.) YES
X NO___
As of May
5, 2005, the number of shares outstanding of the issuer’s common stock was:
7,650,816.
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, 2005 and December 31, 2004.
Condensed
Consolidated Statements of Income and Comprehensive Income - For the three
months ended March 31, 2005 and 2004.
Condensed
Consolidated Statement of Stockholders’ Equity - For the three months ended
March 31, 2005.
Condensed
Consolidated Statements of Cash Flows - For the three months ended March 31,
2005 and 2004.
Notes to
Condensed Consolidated Financial Statements.
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
March
31, 2005 and December 31, 2004
(Amounts
in thousands, except share and per share data)
|
|
|
|
(Unaudited)
March
31,
2005 |
|
|
December
31,
2004* |
|
ASSETS |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash
and due from banks |
|
$ |
30,440 |
|
$ |
30,727 |
|
| |
|
|
|
|
|
|
|
|
Federal
funds sold |
|
|
41,627
|
|
|
39,921
|
|
| |
|
|
|
|
|
|
|
|
Securities
available for sale |
|
|
49,538
|
|
|
35,318
|
|
| |
|
|
|
|
|
|
|
|
Securities
held to maturity (with a market value of $3,988 and
$4,506) |
|
|
3,931
|
|
|
4,381
|
|
| |
|
|
|
|
|
|
|
|
FHLB,
Bankers Bank and other stock, at cost |
|
|
6,272
|
|
|
6,211
|
|
| |
|
|
|
|
|
|
|
|
Loans
held for sale |
|
|
1,952
|
|
|
1,151
|
|
| |
|
|
|
|
|
|
|
|
Loans |
|
|
1,114,731 |
|
|
1,046,867
|
|
| |
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses |
|
|
(16,564 |
) |
|
(15,721 |
) |
| |
|
|
|
|
|
|
|
|
Net
loans |
|
|
1,098,167
|
|
|
1,031,146
|
|
| |
|
|
|
|
|
|
|
|
Premises
and equipment, net |
|
|
35,590
|
|
|
35,591
|
|
| |
|
|
|
|
|
|
|
|
Goodwill
and other intangible assets |
|
|
23,507
|
|
|
23,695
|
|
| |
|
|
|
|
|
|
|
|
Other
assets |
|
|
29,339
|
|
|
25,262
|
|
| |
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
1,320,363 |
|
$ |
1,233,403 |
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,074,313 |
|
$ |
998,022 |
|
| |
|
|
|
|
|
|
|
|
Repurchase
agreements |
|
|
15,117
|
|
|
13,868
|
|
| |
|
|
|
|
|
|
|
|
FHLB
advances and notes payable |
|
|
95,187
|
|
|
85,222
|
|
| |
|
|
|
|
|
|
|
|
Subordinated
debentures |
|
|
10,310
|
|
|
10,310
|
|
| |
|
|
|
|
|
|
|
|
Accrued
interest payable and other liabilities |
|
|
14,767
|
|
|
17,263
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
1,209,694
|
|
|
1,124,685
|
|
| |
|
|
|
|
|
|
|
|
Shareholders’
equity |
|
|
|
|
|
|
|
|
Common
stock: $2 par, 15,000,000 shares authorized, 7,650,816
and 7,647,740 shares outstanding |
|
|
15,302
|
|
|
15,296
|
|
| |
|
|
|
|
|
|
|
|
Additional
paid-in capital |
|
|
24,201
|
|
|
24,160
|
|
| |
|
|
|
|
|
|
|
|
Retained
earnings |
|
|
71,306
|
|
|
69,289
|
|
| |
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income (loss) |
|
|
(140 |
) |
|
(27 |
) |
| |
|
|
|
|
|
|
|
|
Total
shareholders’ equity |
|
|
110,669
|
|
|
108,718
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity |
|
$ |
1,320,363 |
|
$ |
1,233,403 |
|
| |
|
|
|
|
|
|
|
|
*
Condensed from audited consolidated financial statements. |
|
|
|
|
|
|
|
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three
Months Ended March 31, 2005 and 2004
(Amounts
in thousands, except share and per share data)
|
|
|
Three
Months Ended
March
31, |
| |
|
|
2005 |
|
|
2004 |
|
|
|
|
(Unaudited) |
| |
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
|
|
|
|
Interest
and fees on loans |
|
$ |
18,079 |
|
$ |
15,525 |
|
|
Investment
securities |
|
|
473
|
|
|
386
|
|
|
Federal
funds sold and interest-earning deposits |
|
|
183
|
|
|
19
|
|
| |
|
|
18,735
|
|
|
15,930 |
|
| |
|
|
|
|
|
|
|
|
Interest
expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
4,262
|
|
|
3,186
|
|
|
Borrowings |
|
|
1,146
|
|
|
864
|
|
| |
|
|
5,408
|
|
|
4,050
|
|
| |
|
|
|
|
|
|
|
|
Net
interest income |
|
|
13,327
|
|
|
11,880
|
|
| |
|
|
|
|
|
|
|
|
Provision
for loan losses |
|
|
1,622
|
|
|
1,523
|
|
| |
|
|
|
|
|
|
|
|
Net
interest income after provision for
loan losses |
|
|
11,705
|
|
|
10,357 |
|
| |
|
|
|
|
|
|
|
|
Noninterest
income |
|
|
|
|
|
|
|
|
Service
charges and fees |
|
|
2,142
|
|
|
2,395
|
|
|
Other |
|
|
1,034
|
|
|
699
|
|
| |
|
|
3,176
|
|
|
3,094
|
|
| |
|
|
|
|
|
|
|
|
Noninterest
expense |
|
|
|
|
|
|
|
|
Salaries
and employee benefits |
|
|
5,245
|
|
|
4,707
|
|
|
Occupancy
and furniture and equipment expense |
|
|
1,739
|
|
|
1,489
|
|
|
Other |
|
|
3,291
|
|
|
2,755
|
|
| |
|
|
10,275
|
|
|
8,951
|
|
| |
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
4,606
|
|
|
4,500
|
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes |
|
|
1,671
|
|
|
1,648
|
|
| |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
2,935 |
|
$ |
2,852 |
|
| |
|
|
|
|
|
|
|
|
Comprehensive
income |
|
$ |
2,822 |
|
$ |
2,873 |
|
| |
|
|
|
|
|
|
|
|
Per
share of common stock: |
|
|
|
|
|
|
|
|
Basic
earnings |
|
$ |
0.38 |
|
$ |
0.37 |
|
|
Diluted
earnings |
|
$ |
0.38 |
|
$ |
0.37 |
|
|
Dividends
|
|
$ |
0.12 |
|
$ |
0.12 |
|
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
7,649,070
|
|
|
7,660,578
|
|
|
Diluted |
|
|
7,744,181
|
|
|
7,731,176
|
|
| |
|
|
|
|
|
|
|
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For
the Three Months Ended March 31, 2005
(Amounts
in thousands, except share and per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Share- |
|
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Income |
|
|
holders’ |
|
|
|
|
|
|
|
|
Capital |
|
|
Earnings |
|
|
(Loss) |
|
|
Equity |
|
|
|
|
(Unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005 |
|
$ |
15,296 |
|
$ |
24,160 |
|
$ |
69,289 |
|
$ |
(27 |
) |
$ |
108,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 3,076 shares under stock option
plan |
|
|
6
|
|
|
41
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
Dividends
paid ($.12 per share) |
|
|
-
|
|
|
-
|
|
|
(918 |
) |
|
-
|
|
|
(918 |
) |
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
-
|
|
|
-
|
|
|
2,935
|
|
|
-
|
|
|
2,935
|
|
|
Change
in unrealized gains (losses),
net of taxes |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(113 |
) |
|
(113 |
) |
|
Total
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,822
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2005 |
|
$ |
15,302 |
|
$ |
24,201 |
|
$ |
71,306 |
|
$ |
(140 |
) |
$ |
110,669 |
|
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the Three Months Ended March 31, 2005 and 2004
(Amounts
in thousands, except share and per share data)
| |
|
March
31, |
|
March
31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
(Unaudited) |
|
| |
|
|
|
|
|
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
2,935 |
|
$ |
2,852 |
|
|
Adjustments
to reconcile net income to net cash (used) provided from
operating activities |
|
|
|
|
|
|
|
|
Provision
for loan losses |
|
|
1,622
|
|
|
1,523
|
|
|
Depreciation
and amortization |
|
|
875
|
|
|
711
|
|
|
Security
amortization and accretion, net |
|
|
(6 |
) |
|
16
|
|
|
FHLB
stock dividends |
|
|
(61 |
) |
|
(52 |
) |
|
Net
gain on sale of mortgage loans |
|
|
(89 |
) |
|
(88 |
) |
|
Originations
of mortgage loans held for sale |
|
|
(6,968 |
) |
|
(11,752 |
) |
|
Proceeds
from sales of mortgage loans |
|
|
6,255
|
|
|
11,766
|
|
|
Net
losses from sales of fixed assets |
|
|
20
|
|
|
29
|
|
|
Net
(gain) loss on OREO and repossessed assets |
|
|
(33 |
) |
|
79
|
|
|
Deferred
tax (benefit) expense |
|
|
(489 |
) |
|
1,157
|
|
|
Net
changes: |
|
|
|
|
|
|
|
|
Other
assets |
|
|
(1,645 |
) |
|
291
|
|
|
Accrued
interest payable and other liabilities |
|
|
(2,497 |
) |
|
709
|
|
| |
|
|
|
|
|
|
|
|
Net
cash (used) provided from operating activities |
|
|
(81 |
) |
|
7,241
|
|
| |
|
|
|
|
|
|
|
|
Cash
flows from investing activities |
|
|
|
|
|
|
|
|
Purchase
of securities available for sale |
|
|
(14,763 |
) |
|
(3,000 |
) |
|
Proceeds
from maturities of securities held for sale |
|
|
367
|
|
|
7,266
|
|
|
Proceeds
from maturities of securities held to maturity |
|
|
450
|
|
|
500
|
|
|
Net
change in cash surrender value of life insurance |
|
|
(1,018 |
) |
|
(123 |
) |
|
Net
change in loans |
|
|
(69,987 |
) |
|
(34,304 |
) |
|
Proceeds
from sale of other real estate |
|
|
522
|
|
|
1,208
|
|
|
Proceeds
from sale of fixed assets and fixed asset additions, net |
|
|
8
|
|
|
20
|
|
|
Premises
and equipment expenditures |
|
|
(714 |
) |
|
(1,119 |
) |
| |
|
|
|
|
|
|
|
|
Net
cash used in investing activities |
|
|
(85,135 |
) |
|
(29,552 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
Net
change in deposits |
|
|
76,292
|
|
|
25,232
|
|
|
Net
change in repurchase agreements |
|
|
1,249
|
|
|
3,701
|
|
|
Proceeds
from notes payable |
|
|
115,000
|
|
|
-
|
|
|
Repayments
of notes payable |
|
|
(105,035 |
) |
|
(9,284 |
) |
|
Dividends
paid |
|
|
(918 |
) |
|
(919 |
) |
|
Proceeds
from issuance of common stock |
|
|
47
|
|
|
35
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided from financing activities |
|
|
86,635
|
|
|
18,765
|
|
| |
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents |
|
|
1,419
|
|
|
(3,546 |
) |
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year |
|
|
70,648
|
|
|
41,341
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period |
|
$ |
72,067 |
|
$ |
37,795 |
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosures - cash and noncash |
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
5,386 |
|
$ |
3,886 |
|
|
Income
taxes paid |
|
|
870
|
|
|
237
|
|
|
Loans
converted to other real estate |
|
|
1,702
|
|
|
817
|
|
|
Unrealized
(loss) gain on available for sale securities, net of tax |
|
|
(113 |
) |
|
21
|
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
1 - PRINCIPLES OF CONSOLIDATION
The
accompanying unaudited condensed consolidated financial statements of Greene
County Bancshares, Inc. (the “Company”) and its wholly owned subsidiary, Greene
County Bank (the “Bank”), have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X as promulgated by the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
Certain amounts from prior period financial statements have been reclassified to
conform to the current year’s presentation.
NOTE
2 - STOCK COMPENSATION
Employee
compensation expense under stock option plans is reported if options are granted
below market price at grant date, whereas expense for options granted at market
price are reported on a pro forma basis. Pro forma disclosures of net income and
earnings per share are shown below using the fair value method of SFAS
No. 123 to measure expense for options using the Black-Scholes option
pricing model to estimate fair value.
The
Company maintains a 2004 Long-Term Incentive Plan, pursuant to which 500,000
shares of common stock have been reserved at December 31, 2004 for issuance to
directors and employees of the Company and the Bank. The plan provides for
the issuance of awards in the form of stock options, stock appreciation rights,
restricted shares, restricted share units, deferred share units and performance
awards. Stock options granted under the plan are typically granted at
exercise prices equal to the fair market value of the Company's common stock on
the date of grant and typically have terms of ten years and vest at an annual
rate of 20%.
The
following disclosures show the effect on income and earnings per share had the
options’ fair value been recorded using an option pricing model.
|
|
|
Three
Months Ended
March
31, |
| |
|
|
2005 |
|
|
2004 |
|
| |
|
|
|
|
|
|
|
|
Net
income: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
2,935 |
|
$ |
2,852 |
|
|
Add: Stock-based employee compensation expense
included in reported net income, net
of related tax effects |
|
|
5
|
|
|
10
|
|
|
Deduct: Total stock-based compensation expense determined
under fair value-based method for all awards,
net of tax |
|
|
(90 |
) |
|
(48 |
) |
| |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
2,850 |
|
$ |
2,814 |
|
| |
|
|
|
|
|
|
|
|
Earnings
per common share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.38 |
|
$ |
0.37 |
|
|
Pro forma |
|
$ |
0.37 |
|
$ |
0.36 |
|
| |
|
|
|
|
|
|
|
|
Diluted
earnings per common share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.38 |
|
$ |
0.37 |
|
|
Pro forma |
|
$ |
0.37 |
|
$ |
0.36 |
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
3 - ALLOWANCE FOR LOAN LOSSES
Transactions
in the allowance for loan losses and certain information about nonaccrual loans
and loans 90 days past due but still accruing interest for the three months
ended March 31, 2005 and twelve months ended December 31, 2004 were as
follows:
|
|
|
|
March
31,
2005 |
|
|
December
31,
2004 |
|
| |
|
|
|
|
|
|
|
|
Balance
at beginning of year |
|
$ |
15,721 |
|
$ |
14,564 |
|
|
Add
(deduct): |
|
|
|
|
|
|
|
|
Reserve
acquired in acquisition |
|
|
-
|
|
|
363
|
|
|
Provision |
|
|
1,622
|
|
|
5,836
|
|
|
Loans
charged off |
|
|
(1,200 |
) |
|
(6,980 |
) |
|
Recoveries
of loans charged off |
|
|
421
|
|
|
1,938
|
|
|
Ending
balance |
|
$ |
16,564 |
|
$ |
15,721 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
March
31,
2005 |
|
|
December
31,
2004 |
|
| |
|
|
|
|
|
|
|
|
Loans
past due 90 days still on accrual |
|
$ |
1,225 |
|
$ |
664 |
|
|
Nonaccrual
loans |
|
|
5,208
|
|
|
6,242
|
|
|
Total |
|
$ |
6,433 |
|
$ |
6,906 |
|
| |
|
|
|
|
|
|
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
4 - EARNINGS PER SHARE OF COMMON STOCK
Basic
earnings per share (EPS) of common stock is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share of common stock is computed by dividing net income by
the weighted average number of common shares and potential common shares
outstanding during the period. Stock options are regarded as potential common
shares. Potential common shares are computed using the treasury stock method.
For the three months ended March 31, 2005, 60,185 options are excluded from the
effect of dilutive securities because they are anti-dilutive; 76,355 options are
similarly excluded from the effect of dilutive securities for the three months
ended March 31, 2004.
The
following is a reconciliation of the numerators and denominators used in the
basic and diluted earnings per share computations for the three months ended
March 31, 2005 and 2004:
|
|
|
Three
Months Ended March 31, |
| |
|
|
2005 |
|
|
2004 |
|
|
|
Income |
|
|
Shares |
|
|
Income |
|
Shares |
|
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
(Numerator) |
|
(Denominator) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders |
|
$ |
2,935 |
|
|
7,649,070 |
|
$ |
2,852 |
|
7,660,578 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding |
|
|
-
|
|
|
95,111 |
|
|
-
|
|
70,598 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders plus assumed
conversions |
|
$ |
2,935 |
|
|
7,744,181 |
|
$ |
2,852 |
|
7,731,176 |
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
5 - SEGMENT INFORMATION
The
Company’s operating segments include banking, mortgage banking, consumer
finance, subprime automobile lending and title insurance. The reportable
segments are determined by the products and services offered, and internal
reporting. Loans, investments, and deposits provide the revenues in the banking
operation, loans and fees provide the revenues in consumer finance, mortgage
banking, and subprime lending and insurance commissions provide revenues for the
title insurance company. Consumer finance, subprime automobile lending and title
insurance do not meet the quantitative threshold on an individual basis, and are
therefore shown below in “Other Segments”. Mortgage banking operations are
included in “Bank”. All operations are domestic.
Segment
performance is evaluated using net interest income and noninterest income.
Income taxes are allocated based on income before income taxes, and indirect
expenses (includes management fees) are allocated based on time spent for each
segment. Transactions among segments are made at fair value. Information
reported internally for performance assessment follows.
|
Three
months ended March 31, 2005 |
|
|
Bank |
|
|
Other
Segments |
|
|
Holding
Company |
|
|
Eliminations |
|
|
Totals |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income |
|
$ |
11,989 |
|
$ |
1,477 |
|
$ |
(139 |
) |
$ |
- |
|
$ |
13,327 |
|
|
Provision
for loan losses |
|
|
1,289
|
|
|
333
|
|
|
-
|
|
|
-
|
|
|
1,622
|
|
|
Noninterest
income |
|
|
2,780
|
|
|
402
|
|
|
183
|
|
|
(189 |
) |
|
3,176
|
|
|
Noninterest
expense |
|
|
9,238
|
|
|
1,098
|
|
|
128
|
|
|
(189 |
) |
|
10,275
|
|
|
Income
tax expense |
|
|
1,577
|
|
|
176
|
|
|
(82 |
) |
|
-
|
|
|
1,671
|
|
|
Segment
profit |
|
$ |
2,665 |
|
$ |
272 |
|
$ |
(2 |
) |
$ |
- |
|
$ |
2,935 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at March 31, 2005 |
|
$ |
1,287,067 |
|
$ |
31,193 |
|
$ |
2,103 |
|
$ |
- |
|
$ |
1,320,363 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2004 |
|
|
Bank |
|
|
Other
Segments |
|
|
Holding
Company |
|
|
Eliminations |
|
|
Totals |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income |
|
$ |
10,394 |
|
$ |
1,591 |
|
$ |
(105 |
) |
$ |
- |
|
$ |
11,880 |
|
|
Provision
for loan losses |
|
|
1,053
|
|
|
470
|
|
|
-
|
|
|
-
|
|
|
1,523
|
|
|
Noninterest
income |
|
|
2,712
|
|
|
400
|
|
|
167
|
|
|
(185 |
) |
|
3,094
|
|
|
Noninterest
expense |
|
|
7,776
|
|
|
1,140
|
|
|
220
|
|
|
(185 |
) |
|
8,951
|
|
|
Income
tax expense |
|
|
1,603
|
|
|
148
|
|
|
(103 |
) |
|
-
|
|
|
1,648
|
|
|
Segment
profit |
|
$ |
2,674 |
|
$ |
233 |
|
$ |
(55 |
) |
$ |
- |
|
$ |
2,852 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at March 31, 2004 |
|
$ |
1,096,453 |
|
$ |
31,850 |
|
$ |
2,566 |
|
$ |
- |
|
$ |
1,130,869 |
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
5 - SEGMENT INFORMATION
(Continued)
Asset
Quality Ratios
|
As
of and for the period ended March 31, 2005 |
|
|
Bank |
|
|
Other |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage of total loans |
|
|
0.52 |
% |
|
2.17 |
% |
|
0.58 |
% |
|
Nonperforming
assets as a percentage of total assets |
|
|
0.61 |
% |
|
2.60 |
% |
|
0.67 |
% |
|
Allowance
for loan losses as a percentage of total loans |
|
|
1.27 |
% |
|
7.76 |
% |
|
1.49 |
% |
|
Allowance
for loan losses as a percentage of nonperforming assets |
|
|
176.73 |
% |
|
282.32 |
% |
|
187.12 |
% |
|
Annualized
net charge-offs to average total loans, net of unearned
interest |
|
|
0.16 |
% |
|
4.35 |
% |
|
0.29 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
As
of and for the period ended March 31, 2004 |
|
|
Bank |
|
|
Other |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage of total loans |
|
|
0.46 |
% |
|
1.95 |
% |
|
0.52 |
% |
|
Nonperforming
assets as a percentage of total assets |
|
|
0.70 |
% |
|
2.74 |
% |
|
0.78 |
% |
|
Allowance
for loan losses as a percentage of total loans |
|
|
1.24 |
% |
|
8.60 |
% |
|
1.52 |
% |
|
Allowance
for loan losses as a percentage of nonperforming assets |
|
|
153.77 |
% |
|
296.92 |
% |
|
169.03 |
% |
|
Annualized
net charge-offs to average total loans, net of unearned
interest |
|
|
0.27 |
% |
|
6.29 |
% |
|
0.48 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
As
of and for the year ended December 31, 2004 |
|
|
Bank |
|
|
Other |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage of total loans |
|
|
0.60 |
% |
|
2.22 |
% |
|
0.66 |
% |
|
Nonperforming
assets as a percentage of total assets |
|
|
0.61 |
% |
|
2.90 |
% |
|
0.69 |
% |
|
Allowance
for loan losses as a percentage of total loans |
|
|
1.27 |
% |
|
7.77 |
% |
|
1.50 |
% |
|
Allowance
for loan losses as a percentage of nonperforming assets |
|
|
176.54 |
% |
|
255.69 |
% |
|
185.56 |
% |
|
Net
charge-offs to average total loans, net of unearned
interest |
|
|
0.35 |
% |
|
5.04 |
% |
|
0.51 |
% |
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2005
Unaudited
(Amounts
in thousands, except share and per share
data)
NOTE
6 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill
was no longer amortized starting in 2002; however, it is periodically evaluated
for impairment and no impairment was recognized during the first quarter of
2005.
The
change in the carrying amount of goodwill for the three months ended March 31,
2005 is as follows:
|
Beginning
of year |
|
$ |
18,282 |
|
|
Goodwill
from acquisition during the quarter |
|
|
-
|
|
|
End
of quarter |
|
$ |
18,282 |
|
Core
deposit and other intangibles
Other
intangible assets consist of core deposit intangibles arising from whole bank
and branch acquisitions. They are initially measured at fair value and then are
amortized on a straight-line method over their estimated useful lives, which is
10 years.
Core
deposit intangibles had a gross carrying amount of $7,320 for the period ended
March 31, 2005 and the year ended December 31, 2004 and accumulated amortization
of $2,095 and $1,907 for the same periods, respectively. Aggregate amortization
expense for the three months ended March 31, 2005 and 2004 were $188 and $154,
respectively. Annual estimated amortization expense for the next five years
is:
|
2005 |
|
$ |
752 |
|
|
2006 |
|
|
642 |
|
|
2007 |
|
|
642 |
|
|
2008 |
|
|
642 |
|
|
2009 |
|
|
642 |
|
|
Total |
|
$ |
3,320 |
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
The
information contained herein contains forward-looking statements that involve a
number of risks and uncertainties. A number of factors, including those
discussed herein, could cause results to differ materially from those
anticipated by such forward-looking statements which are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as “intends,” “believes,” “expects,” “may,” “will,” “should,” “seeks,” or
“anticipates,” or the negatives thereof, or other variations thereon of
comparable terminology, or by discussions of strategy or intentions. Such
statements may include, but are not limited to, projections of income or loss,
expenditures, acquisitions, plans for future operations, financing needs or
plans relating to services of the Company, as well as assumptions relating to
the foregoing. The use of “annualized” information statements, which
extrapolates three months actual financial results as to full year 2005, is also
forward-looking. The Company's actual results may differ materially from the
results anticipated in forward-looking statements due to a variety of factors,
including, but not limited to (1) unanticipated deterioration in the financial
condition of borrowers resulting in significant increases in loan losses and
provisions for those losses; (2) lack of sustained growth in the economy in the
markets that the Bank serves; (3) increased competition with other financial
institutions in the markets that the Bank serves; (4) changes in the legislative
and regulatory environment; (5) the Company’s successful implementation of its
growth strategy; and (6) the loss of key personnel. All forward-looking
statements herein are based on information available to us as of the date the
Company’s Quarterly Report on Form 10-Q was filed with the Securities and
Exchange Commission (“SEC”).
Presentation
of Amounts
All
dollar amounts set forth below, other than per-share amounts, are in thousands
unless otherwise noted.
General
Greene
County Bancshares, Inc. (the “Company”) is the bank holding company for Greene
County Bank (the “Bank”), a Tennessee-chartered commercial bank that conducts
the principal business of the Company. In addition to its commercial banking
operations, the Bank conducts separate businesses through its three wholly-owned
subsidiaries: Superior Financial Services, Inc. (“Superior Financial”), a
consumer finance company; GCB Acceptance Corporation (“GCB Acceptance”), a
subprime automobile lending company; and Fairway Title Co., a title company
formed in 1998. The Bank also operates a mortgage banking operation which has
its main office in Knox County, Tennessee and this operation also has
representatives located throughout the Company’s branch system.
On
November 21, 2003, the Company entered the Middle Tennessee market by completing
its acquisition of Gallatin, Tennessee-based Independent Bankshares Corporation
("IBC"). IBC was the bank holding company for First Independent Bank, which had
four offices in Gallatin and Hendersonville, Tennessee, and Rutherford Bank and
Trust, with three offices in Murfreesboro and Smyrna, Tennessee. First
Independent Bank and Rutherford Bank and Trust were subsequently merged with the
Bank, with the Bank as the surviving entity.
On
November 15, 2004 the Company established banking operations in Nashville,
Tennessee, with the opening of its first full-service branch of Middle Tennessee
Bank & Trust, which, like all of the Bank’s bank brands, operates within the
Bank’s structure. This new branch in Davidson County, Tennessee expands the
Company’s presence in the Middle Tennessee market and helps fill in the market
between Sumner and Rutherford Counties.
On
December 10, 2004 the Company purchased three full-service branches from
National Bank of Commerce located in Lawrence County Tennessee. This purchase
(“NBC transaction”) fits strategically with the Bank’s operations in Rutherford
and Sumner Counties, as well as the November 2004 initiative into Davidson
County.
Growth
and Business Strategy
The
Company expects that, over the intermediate term, its growth from mergers and
acquisitions, including acquisitions of both entire financial institutions and
selected branches of financial institutions, will continue. De novo branching is
also expected to be a method of growth, particularly in high-growth and other
demographically-desirable markets.
The
Company’s strategic plan outlines a geographic expansion policy within a
300-mile radius of Greene County, Tennessee. This policy could result in the
Company expanding westward and eastward up to and including Nashville, Tennessee
and Roanoke, Virginia, respectively, east/southeast up to and including the
Piedmont area of North Carolina and western North Carolina, southward to
northern Georgia and northward into eastern and central Kentucky. In particular,
the Company believes the markets in and around Knoxville, Nashville, and
Chattanooga, Tennessee are highly desirable areas with respect to expansion and
growth plans.
The
Company is continuously investigating and analyzing other lines and areas of
business. These include, but are not limited to, various types of insurance and
real estate activities. Conversely, the Company frequently evaluates and
analyzes the profitability, risk factors and viability of its various business
lines and segments and, depending upon the results of these evaluations and
analyses, may conclude to exit certain segments and/or business lines. Further,
in conjunction with these ongoing evaluations and analyses, the Company may
decide to sell, merge or close certain branch facilities.
Overview
The
Company's results of operations for the first quarter ended March 31, 2005,
compared to the same period in 2004, reflected an increase in net interest
income due primarily to loan growth as a result of the Company’s expansion
initiatives. This increase in net interest income was offset, in part, by
increases in non-interest expense which was reflective of the Company’s
expansion programs.
Critical
Accounting Policies and Estimates
The
Company’s consolidated financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.
Management
continually evaluates the Company’s accounting policies and estimates it uses to
prepare the consolidated financial statements. In general, management’s
estimates are based on historical experience, information from regulators and
third party professionals and various assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
The
Company believes its critical accounting policies and estimates include the
valuation of the allowance for loan losses and the fair value of financial
instruments and other accounts. Based on
management’s calculation, an allowance of $16,564, or 1.49%, of total loans, net
of unearned interest, was an adequate estimate of losses within the loan
portfolio as of March 31, 2005. This estimate resulted in a provision for loan
losses on the income statement of $1,622 during the first quarter of 2005. If
the mix and amount of future charge-off percentages differ significantly from
those assumptions used by management in making its determination, the allowance
for loan losses and provision for loan losses on the income statement could be
materially affected.
The
consolidated financial statements include certain accounting and disclosures
that require management to make estimates about fair values. Estimates of fair
value are used in the accounting for securities available for sale, loans held
for sale, goodwill, other intangible assets, and acquisition purchase accounting
adjustments. Estimates of fair values are used in disclosures regarding
securities held to maturity, stock compensation, commitments, and the fair
values of financial instruments. Fair values are estimated using relevant market
information and other assumptions such as interest rates, credit risk,
prepayments and other factors. The fair values of financial instruments are
subject to change as influenced by market conditions.
Liquidity
and Capital Resources
Liquidity.
Liquidity
refers to the ability or the financial flexibility to manage future cash flows
to meet the needs of depositors and borrowers and fund operations. Maintaining
appropriate levels of liquidity allows the Company to have sufficient funds
available for reserve requirements, customer demand for loans, withdrawal of
deposit balances and maturities of deposits and other liabilities. The Company's
liquid assets include cash and due from banks, federal funds sold, investment
securities and loans held for sale. Including securities pledged to
collateralize municipal deposits, these assets represented 11.19% of the total
liquidity base at March 31, 2005, as compared to 10.63% at December 31, 2004.
The liquidity base is generally defined to include deposits, repurchase
agreements, notes payable and subordinated debentures. While the Company usually
maintains borrowing availability with the Federal Home Loan Bank of Cincinnati
(“FHLB”), it had no availability at March 31, 2005, as the Company utilized this
borrowing capacity in conjunction with the funding of its strong loan demand.
However, the Company also maintains Federal funds lines of credit totaling
$106,000 at eight correspondent banks, of which $106,000 was available at March
31, 2005. The Company believes it has sufficient liquidity to satisfy its
current operating needs.
For the
three months ended March 31, 2005, operating activities of the Company used $81
of cash flows. Net income of $2,935 comprised a substantial portion of the cash
generated from operations. Cash flows from operating activities were also
positively affected by various non-cash items, including (i) $1,622 in provision
for loan losses, and (ii) $875 of depreciation and amortization. These increases
in cash flows were offset by (i) $1,645 increase in other assets, (ii) $2,497
decrease in accrued interest payable and other liabilities, and (iii) deferred
tax benefit of $489. In addition, the cash flows used by the originations of
mortgage loans held for sale exceeded the cash flows provided by the proceeds
from sales of mortgage loans by $713.
The
Company’s net increase in loans used $69,987 in cash flows and was the primary
component of the $85,135 in net cash used in investing activities. In addition,
the Company purchased $14,763 in investment securities available for sale. The
increase in cash surrender value of life insurance, reflecting both normal
increases via earnings and also purchases of additional insurance related to
certain benefit plans, used $1,018 in cash flows, and fixed asset additions, net
of proceeds from sale of fixed assets, used $706 in cash flows.
The net
increase in deposits of $76,292 was the primary source of cash flows from
financing activities. Also providing cash from financing activities were the
proceeds from notes payable of $115,000 offset, in part, by repayments of notes
payable of $105,035. In addition, dividends paid in the amount of $918 further
reduced the total net cash provided from financing activities.
Capital
Resources. The
Company’s capital position is reflected in its shareholders’ equity, subject to
certain adjustments for regulatory purposes. Shareholders’ equity, or capital,
is a measure of the Company’s net worth, soundness and viability. The Company
continues to exhibit a strong capital position while consistently paying
dividends to its shareholders. Further, the capital base of the Company allows
it to take advantage of business opportunities while maintaining the level of
resources deemed appropriate by management of the Company to address business
risks inherent in the Company’s daily operations.
On
September 25, 2003, the Company issued $10,310 of subordinated debentures, as
part of a privately placed pool of trust preferred securities. The securities,
due in 2033, bear interest at a floating rate of 2.85% above the three-month
LIBOR rate, reset quarterly, and are callable in five years without penalty. The
Company used the proceeds of the offering to support its acquisition of IBC, and
the capital raised from the offering qualifies as Tier I capital for regulatory
purposes
Shareholders’
equity on March 31, 2005 was $110,669, an increase of $1,951, or 1.79%, from
$108,718 on December 31, 2004. The increase in shareholders’ equity primarily
reflected net income for the three months ended March 31, 2005 of $2,935 ($0.38
per share, assuming dilution). This increase was offset by quarterly dividend
payments during the three months ended March 31, 2005 totaling $918 ($0.12 per
share).
On
September 18, 2002 the Company announced that its Board of Directors had
authorized the repurchase of up to $2,000 of the Company’s outstanding shares of
common stock beginning in October 2002. The repurchase plan was renewed by the
Board of Directors in September 2003. On June 4, 2004 the Company announced that
its Board of Directors had approved an increase in the amount authorized to be
repurchased from $2,000 to $5,000. The repurchase plan is dependent upon market
conditions. To date, the Company has purchased 25,700 shares at an aggregate
cost of approximately $538 under this program which was renewed by the Company’s
Board of Directors on November 15, 2004. Unless extended, the repurchase program
will terminate on the earlier to occur of the Company’s repurchase of the total
authorized dollar amount of the Company's common stock or December 1, 2005.
The
Company’s primary source of liquidity is dividends paid by the Bank. Applicable
Tennessee statutes and regulations impose restrictions on the amount of
dividends that may be declared by the Bank. Further, any dividend payments are
subject to the continuing ability of the Bank to maintain its compliance with
minimum federal regulatory capital requirements and to retain its
characterization under federal regulations as a “well-capitalized”
institution.
Risk-based
capital regulations adopted by the Board of Governors of the Federal Reserve
Board (“FRB”) and the Federal Deposit Insurance Corporation (the “FDIC”) require
bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of shareholders’ equity, less goodwill
and other intangible assets and accumulated other comprehensive income). At
March 31, 2005, the Bank and the Company each satisfied their respective minimum
regulatory capital requirements, and the Bank was “well-capitalized” within the
meaning of federal regulatory requirements.
|
|
|
|
Required
Minimum
Ratio |
|
|
Bank |
|
|
Company |
|
|
Tier
1 risk-based capital |
|
|
4.00 |
% |
|
8.87 |
% |
|
8.76 |
|
|
Total
risk-based capital |
|
|
8.00 |
% |
|
10.12 |
% |
|
10.02 |
|
|
Leverage
Ratio |
|
|
4.00 |
% |
|
7.92 |
% |
|
7.82 |
|
The FRB
has recently issued regulations which will allow continued inclusion of
outstanding and prospective issuances of trust preferred securities as Tier 1
capital subject to stricter quantitative and qualitative limits than allowed
under prior regulations. The new limits will phase in over a five-year
transition period and would permit the Company's trust preferred securities to
continue to be treated as Tier 1 capital.
Off-Balance
Sheet Arrangements
At March
31, 2005, the Company had outstanding unused lines of credit and standby letters
of credit totaling $266,262 and unfunded loan commitments outstanding of
$46,080. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment level does not
necessarily represent future cash requirements. If needed to fund these
outstanding commitments, the Company has the ability to liquidate Federal funds
sold or securities available-for-sale or, on a short-term basis, to borrow any
then available amounts from the FHLB and/or purchase Federal funds from other
financial institutions. At March 31, 2005, the Company had accommodations with
upstream correspondent banks for unsecured Federal funds lines. These
accommodations have various covenants related to their term and availability,
and in most cases must be repaid within less than a month. The following table
presents additional information about the Company’s off-balance sheet
commitments as of March 31, 2005, which by their terms have contractual maturity
dates subsequent to March 31, 2005:
| |
|
Less
than
1
Year |
|
1-3
Years |
|
3-5
Years |
|
More
than
5
Years |
|
Total |
|
|
Commitments
to make loans - fixed |
|
$ |
11,205 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
11,205 |
|
|
Commitments
to make loans - variable |
|
|
34,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34,875
|
|
|
Unused
lines of credit |
|
|
157,793
|
|
|
42,845
|
|
|
2,520
|
|
|
36,037
|
|
|
239,195
|
|
|
Letters
of credit |
|
|
278
|
|
|
24,789
|
|
|
2,000
|
|
|
-
|
|
|
27,067
|
|
|
Total |
|
$ |
204,151 |
|
$ |
67,634 |
|
$ |
4,520 |
|
$ |
36,037 |
|
$ |
312,342 |
|
Disclosure
of Contractual Obligations
In the
ordinary course of operations, the Company enters into certain contractual
obligations. Such obligations include the funding of operations through debt
issuances as well as leases for premises and equipment. The following table
summarizes the Company’s significant fixed and determinable contractual
obligations as of March 31, 2005:
| |
|
|
Less than
1
Year |
|
|
1-3
Years |
|
|
3-5
Years |
|
|
More
than
5
Years |
|
|
Total |
|
|
Deposits
without a stated maturity |
|
$ |
516,713 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
516,713 |
|
|
Certificate
of deposits |
|
|
392,330
|
|
|
113,185
|
|
|
51,462
|
|
|
623
|
|
|
557,600 |
|
|
Repurchase
agreements |
|
|
15,117
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,117
|
|
|
FHLB
advances and notes payable |
|
|
30,142
|
|
|
2,102
|
|
|
62,943
|
|
|
-
|
|
|
95,187
|
|
|
Subordinated
debentures |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,310
|
|
|
10,310
|
|
|
Operating
lease obligations |
|
|
449
|
|
|
822
|
|
|
306
|
|
|
134
|
|
|
1,711
|
|
|
Deferred
compensation |
|
|
419
|
|
|
1,124
|
|
|
-
|
|
|
657
|
|
|
2,200
|
|
|
Purchase
obligations |
|
|
18
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18
|
|
|
Total |
|
$ |
955,188 |
|
$ |
117,233 |
|
$ |
114,711 |
|
$ |
11,724 |
|
$ |
1,198,856 |
|
Additionally,
the Company routinely enters into contracts for services. These contracts may
require payment for services to be provided in the future and may also contain
penalty clauses for early termination of the contract. Management is not aware
of any additional commitments or contingent liabilities which may have a
material adverse impact on the liquidity or capital resources of the
Company.
Changes
in Results of Operations
Net
income. Net
income for the three months ended March 31, 2005 was $2,935, as compared to
$2,852 for the same period in 2004. This
increase of $83, or 2.91%, resulted primarily from a $1,447, or 12.18%, increase
in net interest income reflecting principally increased volume of
interest-earning assets arising primarily from the Company’s expansion
initiatives. Offsetting
this increase was a $1,324, or 14.79%, increase in total non-interest expense
from $8,951 for the three months ended March 31, 2004 to $10,275 for the same
period of 2005. This increase is also primarily attributable to the Company’s
expansion initiatives.
Net
Interest Income.
The largest source of earnings for the Company is net interest income, which is
the difference between interest income on interest-earning 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
interest-earning assets
and interest-bearing liabilities, which are affected in part by management’s
responses to changes in interest rates through asset/liability management.
During the three months ended March 31, 2005, net interest income was $13,327,
as compared to $11,880 for the same period in 2004, representing an increase of
12.18%. While the
Company’s average balances of interest-earning assets increased more than the
average balances of interest-bearing liabilities in the three months ended March
31, 2005, as compared to the same quarter in 2004, thus enhancing net interest
income, such increase was offset, in part, by the smaller increase in yield on
these interest-earning assets as compared to the cost of interest-bearing
liabilities. Nevertheless, the Company experienced a substantial increase in net
interest income, as noted above, in the three months ended March 31, 2005 as
compared to the same quarter in 2004. The Company’s net interest margin
decreased slightly for the three months ended March 31, 2005 as compared to the
same period in 2004 (from 4.68% to 4.64%), and declined 17 basis points from the
4.81% net interest margin for the three months ended December 31, 2004. In order
to fund its strong loan growth, the Company has pursued aggressive deposit
rates, resulting in margin compression that is not expected to abate in the near
term despite the Company’s asset-sensitive interest rate risk position. In
addition, management has been controlling the growth of higher-yielding subprime
loans in the Bank’s subsidiaries and focusing on increasing the balances of its
traditional commercial, commercial real estate and residential real estate
loans, thus reducing the percentage of subprime loans in the Company’s
portfolio. This trend in the loan mix also constrains the increases in loan
yields during a rising interest rate environment notwithstanding the Company’s
asset-sensitive balance sheet. Nevertheless, if interest rates continue to
increase, based on the Company’s current mix of interest-earning assets and
interest-bearing liabilities, the Company believes its net interest margin will
begin to increase and will demonstrate an increasing trend when viewed over the
entire interest rate cycle. Further, in view of the Company’s asset-sensitive
position, management anticipates declines in net interest margin if product
mixes remain relatively unchanged and interest rates reverse their upward trend
and begin to decline. In addition, even if interest rates remain stable, the
Company’s net interest margin could decline due to competitive pressures related
to both loan and deposit pricing.
Provision
for Loan Losses. During
the three months ended March 31, 2005, loan charge-offs were $1,200 and
recoveries of charged-off loans were $421. The Company’s provision for loan
losses increased by $99, or 6.50%, to $1,622 for the three months ended March
31, 2005, as compared to $1,523 for the same period in 2004. The Company’s
allowance for loan losses increased by $843 to $16,564 at March 31, 2005 from
$15,721 at December 31, 2004, with the ratio of the allowance for loan losses to
total loans, net of unearned income, declining slightly to 1.49% at March 31,
2005 from 1.50% and 1.52% at December 31, 2004 and March 31, 2004, respectively.
As of March 31, 2005, most indicators of credit quality, as discussed below,
have improved compared to December 31, 2004 and March 31, 2004. The ratio of
allowance for loan losses to nonperforming assets was 187.12%, 185.56% and
169.03% at March 31, 2005, December 31, 2004 and March 31, 2004, respectively,
and the ratio of nonperforming assets to total assets was 0.67%, 0.69% and 0.78%
at March 31, 2005, December 31, 2004 and March 31, 2004, respectively. The ratio
of nonperforming loans to total loans, excluding loans held for sale, was 0.58%,
0.66% and 0.52% at March 31, 2005, December 31, 2004 and March 31, 2004,
respectively. Within the Bank, the Company’s largest subsidiary, the ratio of
nonperforming assets to total assets was 0.61%, 0.61% and 0.70% at March 31,
2005, December 31, 2004 and March 31, 2004, respectively. At Superior Financial,
the ratio of nonperforming assets to total assets was 3.18%, 3.67% and 3.47% at
March 31, 2005, December 31, 2004 and March 31, 2004, respectively. At GCB
Acceptance, the ratio of nonperforming assets to total assets was 2.23%, 2.25%
and 2.23% at March 31, 2005, December 31, 2004 and March 31, 2004, respectively.
The
Company’s annualized net charge-offs for the three months ended March 31, 2005
were $3,120 compared to actual net charge-offs of $5,042 for the year ended
December 31, 2004. Annualized net charge-offs as a percentage of average loans
improved from 0.48% for the three months ended March 31, 2004 to 0.29% for the
three months ended March 31, 2005. Net charge-offs as a percentage of average
loans were 0.51% for the year ended December 31, 2004. Within the Bank,
annualized net charge-offs as a percentage of average loans fell from 0.27% for
the three months ended March 31, 2004 to 0.16% for the same period in 2005. Net
charge-offs within the Bank as a percentage of average loans were 0.35% for the
year ended December 31, 2004. Annualized net charge-offs in Superior Financial
for the three months ended March 31, 2005 were $495 compared to actual net
charge-offs of $525 for the year ended December 31, 2004. Annualized net
charge-offs in the Bank for the three months ended March 31, 2005 were $1,740
compared to actual net charge-offs of $3,418 for the year ended December 31,
2004. Annualized net charge-offs in GCB Acceptance for the three months ended
March 31, 2005 were $885 compared to actual net charge-offs of $1,099 for the
year ended December 31, 2004. At this point, management believes that total net
charge-offs for 2005 within the Bank and its subsidiaries will decline slightly
compared to 2004 based on an improving economy and asset quality
trends.
Based on
the Company's allowance for loan loss calculation and review of the loan
portfolio, management believes the allowance for loan losses is adequate at
March 31, 2005.
Non-Interest
Income. Income
that is not related to interest-earning assets, consisting primarily of service
charges, commissions and fees, has become an important supplement to the
Company’s traditional method of earning income through interest rate spreads.
Total
non-interest income for the three months ended March 31, 2005 was $3,176 as
compared to $3,094 for the same period in 2004. Service charges, commissions and
fees remain the largest component of total non-interest income and decreased
$253, or 11.81%, to $2,142 for the three months ended March 31, 2005 from $2,395
for the same period in 2004. This decrease primarily reflects a reduction in
fees from deposit-related products due primarily to declining volume. In
addition, other non-interest income increased by $335, or 47.93%, to $1,034 for
the three months ended March 31, 2005 from $699 for the same period in 2004. The
increase is primarily attributable to increased fees from the sale of mutual
funds and annuities and income from the sale of the Company’s interest in an ATM
network vendor.
Non-Interest
Expense.
Control of non-interest expense also is an important aspect in enhancing income.
Non-interest expense includes personnel, occupancy, and other expenses such as
data processing, printing and supplies, legal and professional fees, postage,
Federal Deposit Insurance Corporation assessment, etc. Total non-interest
expense was $10,275 for the three months ended March 31, 2005 compared to $8,951
for the same period in 2004. The $1,324, or 14.79%, increase in total
non-interest expense for the three months ended March 31, 2005 compared to the
same period of 2004 principally reflects increases in all expense categories
primarily as a result of the Company’s expansion program and in costs associated
with the Bank’s High Performance Checking Program. This program is designed to
generate significant numbers and balances of core transaction
accounts.
Personnel
costs are the primary element of the Company's non-interest expenses. For the
three months ended March 31, 2005, salaries and benefits represented $5,245, or
51.05%, of total non-interest expense. This was an increase of $538, or 11.43%
from the $4,707 for the three months ended March 31, 2004. The Company had 53
branches at March 31, 2005 and at December 31, 2004, as compared to 50 at March
31, 2004, and the number of full-time equivalent employees increased 7.6% from
447 at March 31, 2004 to 481 at March 31, 2005. These increases in personnel
costs, number of branches and employees are primarily the result of the
Company’s
expansion initiative.
Primarily
as a result of this overall increase in non-interest expense, the Company’s
efficiency ratio was negatively affected, as the ratio increased from 59.78% at
March 31, 2004 to 62.26% at March 31, 2005. The efficiency ratio illustrates how
much it cost the Company to generate revenue; for example, it cost the Company
62.26 cents to generate one dollar of revenue for the three months ended March
31, 2005.
Income
Taxes. The
effective income tax rate for the three months ended March 31, 2005 was 36.28%
compared to 36.62% for the same period in 2004.
Changes
in Financial Condition
Total
assets at March 31, 2005 were $1,320,363, an increase of $86,960, or 7.05%, from
total assets of $1,233,403 at December 31, 2004. The increase in assets was
primarily reflective of the $67,021, or 6.50%, increase, as reflected on the
Condensed Consolidated Balance Sheets, in net loans, excluding loans held for
sale, and was funded by the $76,291, or 7.64%, increase in deposits.
At March
31, 2005, loans, net of unearned income and allowance for loan losses, were
$1,098,167 compared to $1,031,146 at December 31, 2004, an increase of $67,021,
or 6.50%, from December 31, 2004. The increase in loans during the first three
months of 2005 primarily reflects an increase in commercial real estate loans
and commercial loans.
Non-performing
loans include non-accrual loans and loans 90 or more days past due. All loans
that are 90 days past due are considered non-accrual unless they are adequately
secured and there is reasonable assurance of full collection of principal and
interest. Non-accrual loans that are 120 days past due without assurance of
repayment are charged off against the allowance for loan losses. Nonaccrual
loans and loans past due 90 days and still accruing decreased by $473, or 6.85%,
during the three months ended March 31, 2005 to $6,433. At March 31, 2005, the
ratio of the Company’s allowance for loan losses to non-performing assets (which
include non-accrual loans) was 187.12%.
The
Company maintains an investment portfolio to provide liquidity and earnings.
Investments at March 31, 2005 with an amortized cost of $53,469 had a market
value of $53,526. At year-end 2004, investments with an amortized cost of
$39,742 had a market value of $39,824. The increase in investments from December
31, 2004 to March 31, 2005 results from the purchase of short-term federal
agency securities as well as mortgage-backed securities reflecting management’s
decision to channel more of the Company’s liquid assets into more favorable
positions on the yield curve.
Effect
of New Accounting Standards
In
December 2004, the FASB issued SFAS No. 123(R), Accounting
for Stock-Based Compensation (SFAS
No. 123(R)). SFAS No. 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123(R) requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair
value were required. The provisions of this Statement are effective for the
first fiscal year reporting period beginning after June 15, 2005. Accordingly,
the Company will adopt SFAS No. 123(R) commencing with the quarter ending March
31, 2006.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A
comprehensive qualitative and quantitative analysis regarding market risk was
disclosed in the Company’s December 31, 2004 Form 10-K. No material changes in
the assumptions used or results obtained from the model have occurred since
December 31, 2004.
Actual
results for the year ending December 31, 2005 will differ from simulated results
due to timing, magnitude, and frequency of interest rate changes, as well as
changes in market conditions and management strategies.
ITEM
4. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures, as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange
Act”), that are designed to ensure that information required to be disclosed by
it in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company carried out an evaluation, under the supervision and
with the participation of its management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
its disclosure controls and procedures as of the end of the period covered by
this report. Based on the evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were
effective.
Changes
in Internal Controls
There
were no changes in the Company's internal control over financial reporting
during the Company's fiscal quarter ended March 31, 2005 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
The Bank
was a party to a lawsuit styled Jimmy
Holland Boyd and Spring City & Co. v. Town of Jonesborough, Tennessee, et
al. Court
No.:2:04-CV-71, filed in the United States District Court for the Eastern
District of Tennessee, Greeneville Division. During the first quarter of 2005,
the parties to the lawsuit, including the Bank, entered into a settlement
agreement pursuant to which the Bank was not required to make any payment to the
plaintiff. The settlement agreement was subsequently approved by the court and
on April 11, 2005, a stipulation of dismissal of the case was issued by the
court dismissing the lawsuit with prejudice.
The
Company and its subsidiaries are also subject to other claims and suits arising
in the ordinary course of business. In the opinion of management, the ultimate
resolution of these pending claims and legal proceedings will not have a
material adverse effect on the Company’s results of operations.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
The
Company made no repurchases of its common stock during the quarter ended March
31, 2005.
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
(a)
Exhibits
|
Exhibit No. 10.1 |
First amendment dated March 31, 2005 to
non-competition
agreement
dated August 10, 2004, by and between the Company and Kenneth R.
Vaught |
| |
|
|
Exhibit No. 10.2 |
First amendment dated April 15, 2005 to
non-competition
agreement
dated November 24, 2003, by and between the Company and R. Stan
Puckett |
| |
|
|
Exhibit No. 31.1 |
Chief Executive Officer Certification
Pursuant to Rule 13a-14(a)/15d-14(a) |
| |
|
|
Exhibit No. 31.2 |
Chief Financial Officer Certification
Pursuant to Rule 13a-14(a)/15d-14(a) |
| |
|
|
Exhibit No. 32.1 |
Chief Executive Officer Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
| |
|
|
Exhibit No. 32.2 |
Chief Financial Officer Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
SIGNATURES
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. |
| |
Registrant |
|
|
|
| Date: May 5, 2005 |
By: |
/s/ R. Stan
Puckett |
| |
R. Stan Puckett |
| |
Chairman of the Board and Chief
Executive Officer |
| |
(Duly authorized representative) |
| |
|
|
|
|
|
| Date: May 5, 2005 |
|
/s/ William F.
Richmond |
| |
William F. Richmond |
| |
Senior Vice President, Chief
Financial Officer
|
| |
(Principal financial and accounting officer)
and Assistant Secretary |