GREENE COUNTY BANCSHARES, INC. - FORM 424B4
Registration Statement No. 333-127120
Registration Statement No. 333-128509
Filed pursuant to Rule 424(b)(4)
PROSPECTUS
1,833,043 Shares
Common Stock
We are offering 1,833,043 shares of our common stock, par
value $2.00 per share. The public offering price is
$25.75 per share.
Our common stock is currently quoted and traded on The Nasdaq
National Market under the symbol GCBS. The last
reported sale price of our common stock on The Nasdaq National
Market on September 22, 2005 was $25.75 per share.
Investing in our common stock involves risks. See Risk
Factors beginning on page 8 to read about factors you
should consider before you make your investment decision.
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Per Share | |
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Total | |
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Public offering price
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$ |
25.750 |
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$ |
47,200,857 |
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Underwriting discount
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$ |
1.545 |
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$ |
2,832,051 |
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Proceeds to us, before expenses
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$ |
24.205 |
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$ |
44,368,806 |
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Neither the Securities and Exchange Commission nor any state
securities commission or other regulatory agency has approved or
disapproved of these securities or passed upon the adequacy of
this prospectus. Any representation to the contrary is a
criminal offense.
These securities are not savings accounts, deposit accounts
or other obligations of our banking subsidiary and are not
insured or guaranteed by the Federal Deposit Insurance
Corporations Bank Insurance Fund, Savings Association
Insurance Fund, or any other governmental agency.
We have granted the underwriters an option to purchase up to
274,957 additional shares of common stock to cover
over-allotments, if any. The underwriters may exercise this
option at any time within 30 days after the offering.
The underwriters expect to deliver the shares to purchasers on
or about September 28, 2005.
Keefe, Bruyette & Woods
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Howe Barnes Investments, Inc. |
SunTrust Robinson Humphrey |
The date of this prospectus is September 22, 2005
TABLE OF CONTENTS
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59 |
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63 |
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63 |
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F-1 |
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ABOUT THIS PROSPECTUS
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not, and
the underwriters have not, authorized any other person to
provide you with different or additional information. We are
not, and the underwriters are not, making an offer to sell our
common stock in any jurisdiction where the offer or sale is not
permitted. You should assume that the information contained in
this prospectus is accurate only as of the date on the front
cover of this prospectus, regardless of the time of delivery of
this prospectus or any sale of the common stock. Our business,
financial condition, results of operations and prospects may
have changed since the date of this prospectus. Unless otherwise
indicated, all information in this prospectus assumes that the
underwriters will not exercise their option to purchase
additional common stock to cover over-allotments.
No action is being taken in any jurisdiction outside the United
States to permit a public offering of the common stock or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to those jurisdictions.
In this prospectus we rely on and refer to information and
statistics regarding the banking industry and the Tennessee
banking market. We obtained this market data from independent
publications or other publicly available information. Although
we believe these sources are reliable, we have not independently
verified and do not guarantee the accuracy and completeness of
this information.
As used in this prospectus the terms we,
us and our refer to Greene County
Bancshares, Inc. and its subsidiaries on a consolidated basis
(unless the context indicates another meaning) and the terms the
Bank, the bank, or our bank
means Greene County Bank (unless the context indicates another
meaning).
i
SUMMARY
This summary highlights specific information contained
elsewhere in this prospectus or incorporated herein by
reference. This summary is not complete and does not contain all
of the information that you should consider before investing in
our common stock and is qualified in its entirety by the more
detailed information included or incorporated by reference in
this prospectus. To understand this offering fully, you should
carefully read this entire prospectus, including the sections
entitled Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the documents incorporated herein by
reference.
Greene County Bancshares, Inc.
We are a bank holding company headquartered in Greeneville,
Tennessee. Our operations are primarily conducted through Greene
County Bank, our bank subsidiary, and its 41 Tennessee branches
located throughout East and Middle Tennessee. We also operate a
banking branch in each of Bristol, Virginia and
Hot Springs, North Carolina. The bank also operates a trust
services office in Lebanon, Tennessee and a mortgage banking
business in Knoxville, Tennessee. The map located on the inside
front cover of this prospectus provides further detail of our
office locations. Through the bank, we offer a range of lending
services, including real estate, commercial and consumer loans,
to individuals, small- and medium-sized businesses and other
organizations located throughout our markets. We complement our
lending operations with an array of retail deposit products and
fee-based services to support our clients. While offering our
customers the breadth of products typically found at larger
institutions, we employ a community banking strategy that
emphasizes superior customer service. We believe our focus on
customer relationships allows us to compete effectively within
our markets and provides us a competitive advantage as we expand
both within our existing markets and into new markets.
Our bank was first established in 1890, but we reorganized as a
bank holding company in 1985 to better accommodate our growth
strategy. From December 31, 2000 to June 30, 2005, we
have experienced strong growth and increasing profitability
through a combination of internal growth, de novo branching
and acquisitions. Specifically, we have:
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increased our total consolidated assets from $789.1 million
to $1.37 billion; |
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increased our total consolidated deposits from
$648.6 million to $1.15 billion; |
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increased our total consolidated net loans, including loans held
for sale, from $657.1 million to
$1.14 billion; and |
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expanded our banking branch network from 27 locations to 43
locations including the addition of twelve branches in Middle
Tennessee and one branch in the Knoxville metro area since
November 2003. |
For the three and six months ended June 30, 2005 we earned
$0.48 and $0.86 per diluted share, respectively. These
earnings represent increases of 14.3% and 8.9%, respectively,
over the diluted earnings per share for the same periods in
2004. Our annualized return on average shareholders equity
for the three and six months ended June 30, 2005, was
13.11% and 11.86%, respectively, and our return on average total
assets for the same periods was 1.11% and 1.02%, respectively.
Additional information about us is included in this prospectus
and in documents incorporated by reference in this prospectus.
See Business, Where You Can Find More
Information and Documents Incorporated by
Reference.
Market Areas and Growth Strategy
Our primary markets consist of the counties in East and Middle
Tennessee. The 18 counties in which our bank operates have a
population of approximately 2.4 million and include some of
the fastest growing counties in Tennessee based on population
growth. According to 2005 data from the U.S. Census Bureau,
the projected population growth in our markets from 2005 to 2010
is expected to be 5.2%. We are the second largest bank
headquartered in Tennessee with a market share of approximately
2.7% in our counties
1
of operation based on data from SNL Financial LC and the Federal
Deposit Insurance Corporation, or FDIC.
Approximately 74% of our loans and 52% of our deposits are from
our branches in three Tennessee metropolitan areas
Knoxville, Nashville and the Tri-Cities, consisting of Johnson
City and Kingsport, Tennessee and Bristol, which straddles the
border of Virginia and Tennessee. Approximately 10% of our loans
and 30% of our deposits are from our home market of Greene
County, Tennessee.
Since 2003 we have focused our growth efforts in the Knoxville
metropolitan statistical area, or MSA, and Middle Tennessee,
including the Nashville MSA, where we have opened or acquired
thirteen branches during the last twenty-four months. We believe
that the Nashville and Knoxville MSAs, which have projected
population growth rates, according to the U.S. Census
Bureau, of 10.4% and 5.8%, respectively, from 2005 to 2010,
offer some of the higher growth rates and more attractive
demographics in Tennessee. We intend to continue to expand in
the Middle Tennessee and Knoxville markets.
We have developed a decentralized, community banking strategy
that focuses on providing responsive and personalized service to
our customers. We intend to grow our business, increase
profitability and build shareholder value by focusing on the
following objectives:
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Deliver Community Banking at the Local Level. We believe
customers still want to do business with a community bank. We
emphasize to our employees the importance of delivering superior
customer service and seeking opportunities to strengthen
relationships both with customers and in the communities we
serve. While we operate under one bank subsidiary, we have 17
bank brands with a distinct local brand in almost every county
in which we operate along with a regional executive for each
bank brand. Our organizational structure and branding strategy
allow us to emphasize local decision making and accountability
consistent with our community banking philosophy. |
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Capitalize on Organic Growth Opportunities. Due to the
recent consolidation of financial institutions in our markets,
we believe there is a significant opportunity for a
community-focused bank to provide a full range of financial
services to small and middle-market commercial and retail
customers. In addition, consolidation has dislocated experienced
and talented management and lending personnel. As a result, we
believe we have a substantial opportunity to attract experienced
management, loan officers and banking customers both within our
current markets and in potential new markets in which we might
expand. |
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Grow Through De Novo Branching. We seek expansion into
the attractive, fast-growing markets within or near the
Nashville and Knoxville metropolitan areas. We have opened two
de novo branches in the Nashville market since
November 2004 and opened our first branch in Knoxville in
2003. We plan to open an additional de novo branch in each of
the Nashville and Knoxville markets in the next 12 months. |
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Pursue Select Bank Acquisitions and Branch Purchases. We
are focused on expansion opportunities in markets with favorable
growth characteristics and in which we have identified
experienced bankers to help execute our strategy. Since 2003, we
have successfully integrated a whole bank acquisition and an
acquisition of three branches. |
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Increase Core Profitability. We believe as we grow our
franchise, we will be able to take advantage of the economies of
scale typically enjoyed by larger organizations. We believe that
the investments we have made in our branch network and
technology infrastructure are sufficient to support a much
larger organization, and therefore we believe increases in our
expense base going forward should be lower than our proportional
increase in assets and revenues. We believe the effect of these
trends going forward should improve our profitability over time. |
2
Recent Developments
To further our expansion strategy into faster growing markets,
on July 20, 2005, we entered into an agreement with Old
National Bank, Evansville, Indiana to acquire five bank branches
from Old National Bank in Clarksville, Tennessee. These branches
had approximately $172 million in deposits and
approximately $120 million in loans at June 30, 2005.
The consummation of this transaction is subject to the
satisfaction of various customary closing conditions, including
the receipt of required regulatory approvals, and is expected to
occur in the fourth quarter of 2005.
Clarksville, Tennessee is the sixth largest metropolitan
statistical area in Tennessee with a 2000 population of 232,000
and is located about an hour northwest of downtown Nashville.
According to U.S. Census Bureau data, Montgomery County is
projected to experience population growth of 12.1% from 2005 to
2010.
Corporate Information
Our headquarters are located at 100 North Main Street,
Greeneville, Tennessee 37743, and our telephone number at that
address is (423) 639-5111. We maintain a website at
www.mybankconnection.com. Information on the website is not
incorporated by reference and is not a part of this prospectus.
3
The Offering
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Common stock offered |
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1,833,043 shares (2,108,000 shares if the underwriters
exercise their over-allotment option in full) |
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Common stock outstanding after this offering |
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9,484,059 shares (9,759,016 shares if the underwriters
exercise their over-allotment option in full) |
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Net proceeds |
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The net proceeds of this offering will be approximately
$44.1 million (after deducting underwriting discounts and
commissions and the offering expenses payable by us at the
public offering price of $25.75 per share) without giving effect
to the underwriters over-allotment option. |
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Use of proceeds |
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We intend to contribute approximately $35 million of the net
proceeds of this offering to our bank subsidiary to provide
capital for its acquisition of five branches in Clarksville,
Tennessee from Old National Bank. The remainder of the net
proceeds will be used for general corporate purposes including,
among other things, to support the banks internal growth
and capital needs. |
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Dividends |
|
Historically, we have paid quarterly dividends and a special
dividend in the fourth quarter of each year. On each of
March 25, 2005, June 17, 2005 and September 16,
2005, we paid a quarterly dividend of $0.12 per share, or
$0.48 per share on an annualized basis, not including any
special dividend. We intend to continue paying dividends, but
the payment of dividends in the future will depend upon a number
of factors. We cannot give you any assurance that we will
continue to pay dividends or that the amount of future dividends
will not be reduced. |
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The Nasdaq National Market symbol |
|
GCBS |
The number of shares outstanding after the offering is based
upon our shares outstanding as of June 30, 2005 and
excludes a total of 404,230 shares issuable under
outstanding options granted under our stock option plans and our
chief executive officers employment agreement at that
date. Of these options, 249,329 are exercisable as of
June 30, 2005 at a weighted average exercise price of
$19.86. The number of shares to be outstanding after the
offering assumes that the underwriters over-allotment
option is not exercised. If the over-allotment option is
exercised in full, we will issue and sell an additional
274,957 shares.
Unless otherwise expressly stated or the context otherwise
requires, all information in this prospectus assumes that the
underwriters over-allotment option will not be exercised.
For more information regarding the over-allotment option, see
the Underwriting section beginning on page 59
of this prospectus.
Risk Factors
Prior to making an investment decision, a prospective purchaser
should consider all of the information set forth in this
prospectus or incorporated by reference herein and should
evaluate the statements set forth in the Risk
Factors section beginning on page 8 of this
prospectus.
4
Summary Consolidated Financial Data
The following table sets forth summary historical consolidated
financial data from our consolidated financial statements and
should be read in conjunction with our consolidated financial
statements including the related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations which are included
elsewhere in this prospectus. Except for the data under
Selected Financial Ratios, Selected
Performance Ratios, Asset Quality Ratios,
Capital Ratios and Other Data, the
summary historical consolidated financial data as of
December 31, 2004, 2003, 2002, 2001 and 2000 and for the
five years ended December 31, 2004 is derived from our
audited consolidated financial statements and related notes,
which were audited by Dixon Hughes PLLC, independent registered
public accounting firm, for the year ended December 31,
2004 and Crowe Chizek and Company LLC, independent registered
public accounting firm, for the years ended December 31,
2003, 2002, 2001 and 2000. The summary historical consolidated
financial data as of and for the six months ended June 30,
2005 and June 30, 2004 is derived from unaudited
consolidated financial statements for those periods. The
unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring items, which
our management considers necessary for a fair presentation of
our financial position and results of operations for these
periods. The financial condition and results of operations as of
and for the six months ended June 30, 2005 do not purport
to be indicative of the financial condition or results of
operations to be expected as of or for the fiscal year ending
December 31, 2005.
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At and for the | |
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Six Months Ended | |
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June 30, | |
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At and for the Years Ended December 31, | |
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2005 | |
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2004 | |
|
2004 | |
|
2003 | |
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2002 | |
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2001 | |
|
2000 | |
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| |
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(Unaudited) | |
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(Dollars in thousands, except per share data) | |
Summary of Operations:
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Total interest income
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$ |
39,438 |
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$ |
31,799 |
|
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$ |
65,076 |
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$ |
56,737 |
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$ |
59,929 |
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$ |
67,964 |
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$ |
67,696 |
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Total interest expense
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|
|
12,039 |
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|
|
7,936 |
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|
16,058 |
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|
15,914 |
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|
18,680 |
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|
28,463 |
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|
29,143 |
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Net interest income
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|
27,399 |
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|
|
23,863 |
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|
|
49,018 |
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|
|
40,823 |
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|
|
41,249 |
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|
|
39,501 |
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|
|
38,553 |
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|
Provision for loan losses
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|
(2,682 |
) |
|
|
(2,685 |
) |
|
|
(5,836 |
) |
|
|
(5,775 |
) |
|
|
(7,065 |
) |
|
|
(5,959 |
) |
|
|
(8,009 |
) |
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Net interest income after provision for loan losses
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|
24,717 |
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|
21,178 |
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43,182 |
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35,048 |
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34,184 |
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33,542 |
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30,544 |
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Noninterest income:
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Investment securities gains
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46 |
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Other income
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6,639 |
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6,164 |
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13,028 |
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11,588 |
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10,484 |
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9,593 |
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|
6,568 |
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Noninterest expense
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|
(20,697 |
) |
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|
(17,525 |
) |
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|
(36,983 |
) |
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|
(30,618 |
) |
|
|
(29,199 |
) |
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|
(28,665 |
) |
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|
(29,393 |
) |
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Income before income taxes
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10,659 |
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|
9,817 |
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|
19,227 |
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|
16,018 |
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|
|
15,515 |
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|
|
14,470 |
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|
|
7,719 |
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Income tax expense
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|
|
(4,010 |
) |
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|
(3,690 |
) |
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|
(7,219 |
) |
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|
(5,781 |
) |
|
|
(5,702 |
) |
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|
(5,047 |
) |
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|
(2,206 |
) |
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Net income
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$ |
6,649 |
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|
$ |
6,127 |
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|
$ |
12,008 |
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$ |
10,237 |
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|
$ |
9,813 |
|
|
$ |
9,423 |
|
|
$ |
5,513 |
|
|
|
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|
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Per Share Data:(1)
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|
|
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Net income, basic
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|
$ |
0.87 |
|
|
$ |
0.80 |
|
|
$ |
1.57 |
|
|
$ |
1.48 |
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|
$ |
1.44 |
|
|
$ |
1.38 |
|
|
$ |
0.81 |
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|
Net income, assuming dilution
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|
$ |
0.86 |
|
|
$ |
0.79 |
|
|
$ |
1.55 |
|
|
$ |
1.47 |
|
|
$ |
1.43 |
|
|
$ |
1.38 |
|
|
$ |
0.80 |
|
|
Dividends declared
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.61 |
|
|
$ |
0.59 |
|
|
$ |
0.58 |
|
|
$ |
0.56 |
|
|
$ |
0.55 |
|
|
Book value
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|
$ |
14.83 |
|
|
$ |
13.80 |
|
|
$ |
14.22 |
|
|
$ |
13.31 |
|
|
$ |
10.94 |
|
|
$ |
10.06 |
|
|
$ |
9.24 |
|
|
Tangible book value
|
|
$ |
11.78 |
|
|
$ |
11.10 |
|
|
$ |
11.12 |
|
|
$ |
10.57 |
|
|
$ |
10.53 |
|
|
$ |
9.64 |
|
|
$ |
9.01 |
|
5
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At and for the | |
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Six Months Ended | |
|
|
|
|
June 30, | |
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At and for the Years Ended December 31, | |
|
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| |
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| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
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| |
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| |
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| |
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| |
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| |
|
| |
|
| |
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|
(Unaudited) | |
|
|
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|
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(Dollars in thousands, except per share data) | |
Financial Condition Data:
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Assets
|
|
$ |
1,374,194 |
|
|
$ |
1,125,002 |
|
|
$ |
1,233,403 |
|
|
$ |
1,108,522 |
|
|
$ |
899,396 |
|
|
$ |
811,612 |
|
|
$ |
789,117 |
|
|
Loans, net(2)
|
|
|
1,142,821 |
|
|
|
972,956 |
|
|
|
1,032,297 |
|
|
|
941,207 |
|
|
|
744,317 |
|
|
|
679,271 |
|
|
|
657,065 |
|
|
Cash and investments
|
|
|
96,455 |
|
|
|
70,173 |
|
|
|
76,637 |
|
|
|
80,910 |
|
|
|
61,980 |
|
|
|
57,470 |
|
|
|
76,816 |
|
|
Federal funds sold
|
|
|
46,516 |
|
|
|
2,412 |
|
|
|
39,921 |
|
|
|
5,254 |
|
|
|
39,493 |
|
|
|
25,621 |
|
|
|
8,130 |
|
|
Deposits
|
|
|
1,148,434 |
|
|
|
884,014 |
|
|
|
998,022 |
|
|
|
907,115 |
|
|
|
719,323 |
|
|
|
653,913 |
|
|
|
648,641 |
|
|
FHLB advances and notes payable
|
|
|
70,509 |
|
|
|
96,662 |
|
|
|
85,222 |
|
|
|
63,030 |
|
|
|
82,359 |
|
|
|
67,978 |
|
|
|
59,949 |
|
|
Subordinated debentures
|
|
|
13,403 |
|
|
|
10,310 |
|
|
|
10,310 |
|
|
|
10,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and repurchase agreements
|
|
|
16,426 |
|
|
|
14,532 |
|
|
|
13,868 |
|
|
|
12,896 |
|
|
|
10,038 |
|
|
|
10,375 |
|
|
|
4,713 |
|
|
Shareholders equity
|
|
|
113,486 |
|
|
|
105,509 |
|
|
|
108,718 |
|
|
|
101,935 |
|
|
|
74,595 |
|
|
|
68,627 |
|
|
|
63,010 |
|
|
Tangible shareholders equity
|
|
|
90,167 |
|
|
|
84,848 |
|
|
|
85,023 |
|
|
|
80,965 |
|
|
|
71,799 |
|
|
|
65,721 |
|
|
|
61,413 |
|
Selected Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
4.34 |
% |
|
|
4.48 |
% |
|
|
4.53 |
% |
|
|
4.59 |
% |
|
|
4.99 |
% |
|
|
4.98 |
% |
|
|
5.18 |
% |
|
Net interest margin(3)
|
|
|
4.61 |
% |
|
|
4.69 |
% |
|
|
4.75 |
% |
|
|
4.83 |
% |
|
|
5.29 |
% |
|
|
5.41 |
% |
|
|
5.67 |
% |
Selected Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.02 |
% |
|
|
1.09 |
% |
|
|
1.06 |
% |
|
|
1.12 |
% |
|
|
1.17 |
% |
|
|
1.20 |
% |
|
|
0.75 |
% |
|
Return on average equity
|
|
|
11.86 |
% |
|
|
11.69 |
% |
|
|
11.23 |
% |
|
|
12.59 |
% |
|
|
13.40 |
% |
|
|
13.96 |
% |
|
|
8.58 |
% |
|
Return on average tangible equity
|
|
|
15.01 |
% |
|
|
14.59 |
% |
|
|
13.95 |
% |
|
|
13.38 |
% |
|
|
13.93 |
% |
|
|
14.30 |
% |
|
|
8.82 |
% |
|
Average equity to average assets
|
|
|
8.60 |
% |
|
|
9.33 |
% |
|
|
9.47 |
% |
|
|
8.87 |
% |
|
|
8.72 |
% |
|
|
8.59 |
% |
|
|
8.78 |
% |
|
Dividend payout ratio
|
|
|
27.63 |
% |
|
|
29.98 |
% |
|
|
38.86 |
% |
|
|
41.20 |
% |
|
|
40.31 |
% |
|
|
40.53 |
% |
|
|
68.22 |
% |
|
Efficiency ratio(4)
|
|
|
60.8 |
% |
|
|
58.4 |
% |
|
|
59.6 |
% |
|
|
58.4 |
% |
|
|
56.4 |
% |
|
|
58.4 |
% |
|
|
65.1 |
% |
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of nonperforming assets to total assets
|
|
|
0.69 |
% |
|
|
0.84 |
% |
|
|
0.69 |
% |
|
|
0.79 |
% |
|
|
1.48 |
% |
|
|
1.22 |
% |
|
|
0.96 |
% |
|
Ratio of allowance for loan losses to nonperforming assets
|
|
|
177.74 |
% |
|
|
158.23 |
% |
|
|
185.56 |
% |
|
|
166.35 |
% |
|
|
94.24 |
% |
|
|
112.89 |
% |
|
|
154.83 |
% |
|
Ratio of allowance for loan losses to total loans, net of
unearned income
|
|
|
1.46 |
% |
|
|
1.51 |
% |
|
|
1.50 |
% |
|
|
1.53 |
% |
|
|
1.68 |
% |
|
|
1.64 |
% |
|
|
1.76 |
% |
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio(5)
|
|
|
7.9 |
% |
|
|
8.7 |
% |
|
|
8.5 |
% |
|
|
8.4 |
% |
|
|
8.3 |
% |
|
|
8.2 |
% |
|
|
7.9 |
% |
|
Tier 1 risk-based capital
|
|
|
8.9 |
% |
|
|
9.9 |
% |
|
|
9.2 |
% |
|
|
9.6 |
% |
|
|
9.7 |
% |
|
|
9.9 |
% |
|
|
9.8 |
% |
|
Total risk-based capital
|
|
|
10.2 |
% |
|
|
11.2 |
% |
|
|
10.5 |
% |
|
|
10.9 |
% |
|
|
10.9 |
% |
|
|
11.1 |
% |
|
|
11.1 |
% |
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-service banking locations
|
|
|
43 |
|
|
|
38 |
|
|
|
42 |
|
|
|
38 |
|
|
|
29 |
|
|
|
28 |
|
|
|
26 |
|
|
Full-time equivalent employees
|
|
|
487 |
|
|
|
456 |
|
|
|
474 |
|
|
|
451 |
|
|
|
386 |
|
|
|
372 |
|
|
|
388 |
|
|
|
(1) |
Amounts have been restated to reflect the effect of our
five-for-one stock split effected May 2001. |
|
(2) |
Includes loans held for sale. |
|
(3) |
Net interest margin is the net yield on interest earning assets
and is the difference between the interest yield earned on
interest-earning assets less the interest rate paid on interest
bearing liabilities. |
|
(4) |
Efficiency ratio is the result of noninterest expense divided by
the sum of net interest income and noninterest income. |
6
|
|
(5) |
Tier 1 leverage ratio is defined as Tier 1 capital
(pursuant to risk-based capital guidelines) as a percentage of
adjusted average assets. |
GAAP Reconciliation and Management Explanation of Non-GAAP
Financial Measures
Certain financial information included in our summary
consolidated financial data is determined by methods other than
in accordance with accounting principles generally accepted
within the United States, or GAAP. These non-GAAP financial
measures are tangible book value per share,
tangible shareholders equity, and return
on average tangible equity. Our management uses these
non-GAAP measures in its analysis of our performance.
|
|
|
|
|
Tangible book value per share is defined as total
equity reduced by recorded goodwill and other intangible assets
divided by total common shares outstanding. This measure is
important to investors interested in changes from
period-to-period in book value per share exclusive of changes in
intangible assets. Goodwill, an intangible asset that is
recorded in a purchase business combination, has the effect of
increasing total book value while not increasing the tangible
assets of a company. For companies such as ours that have
engaged in business combinations, purchase accounting can result
in the recording of significant amounts of goodwill related to
such transactions. |
|
|
|
Tangible shareholders equity is
shareholders equity less goodwill and other intangible
assets. |
|
|
|
Return on average tangible equity is defined as
annualized earnings for the period divided by average equity
reduced by average goodwill and other intangible assets. |
These disclosures should not be viewed as a substitute for
results determined in accordance with GAAP, and are not
necessarily comparable to non-GAAP performance measures which
may be presented by other companies. The following
reconciliation table provides a more detailed analysis of these
non-GAAP performance measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the | |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
At and for the Years Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Book value per common share
|
|
$ |
14.83 |
|
|
$ |
13.80 |
|
|
$ |
14.22 |
|
|
$ |
13.31 |
|
|
$ |
10.94 |
|
|
$ |
10.06 |
|
|
$ |
9.24 |
|
Effect of intangible assets per share
|
|
$ |
(3.05 |
) |
|
$ |
(2.70 |
) |
|
$ |
(3.10 |
) |
|
$ |
(2.74 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.23 |
) |
Tangible book value per share
|
|
$ |
11.78 |
|
|
$ |
11.10 |
|
|
$ |
11.12 |
|
|
$ |
10.57 |
|
|
$ |
10.53 |
|
|
$ |
9.64 |
|
|
$ |
9.01 |
|
Return on average equity
|
|
|
11.86 |
% |
|
|
11.69 |
% |
|
|
11.23 |
% |
|
|
12.59 |
% |
|
|
13.40 |
% |
|
|
13.96 |
% |
|
|
8.58 |
% |
Effect of intangible assets
|
|
|
3.15 |
% |
|
|
2.90 |
% |
|
|
2.72 |
% |
|
|
0.79 |
% |
|
|
0.53 |
% |
|
|
0.34 |
% |
|
|
0.24 |
% |
Return on average tangible equity
|
|
|
15.01 |
% |
|
|
14.59 |
% |
|
|
13.95 |
% |
|
|
13.38 |
% |
|
|
13.93 |
% |
|
|
14.30 |
% |
|
|
8.82 |
% |
7
RISK FACTORS
An investment in our common stock involves risks. You should
carefully consider the risks described below in conjunction with
the other information in this prospectus and information
incorporated by reference in this prospectus, including our
consolidated financial statements and related notes, before
investing in our common stock. If any of the following risks or
other risks which have not been identified or which we may
believe are immaterial or unlikely, actually occur, our
business, financial condition and results of operations could be
harmed. This could cause the price of our stock to decline, and
you may lose part or all of your investment. This prospectus
contains forward-looking statements that involve risks and
uncertainties, including statements about our future plans,
objectives, intentions and expectations. Many factors, including
those described below, could cause actual results to differ
materially from those discussed in forward-looking
statements.
Risks Related to Our Business
|
|
|
Our business strategy includes the continuation of
significant growth plans, and our financial condition and
results of operations could be negatively affected if we fail to
grow or fail to manage our growth effectively |
We intend to continue pursuing a significant growth strategy for
our business through acquisitions and de novo branching. Our
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in growth
stages of development, including the following:
|
|
|
Management of Growth. We may be unable to successfully: |
|
|
|
|
|
maintain loan quality in the context of significant loan growth; |
|
|
|
maintain adequate management personnel and systems to oversee
such growth; |
|
|
|
maintain adequate internal audit, loan review and compliance
functions; and |
|
|
|
implement additional policies, procedures and operating systems
required to support such growth. |
Operating Results. There is no assurance that existing
offices or future offices will maintain or achieve deposit
levels, loan balances or other operating results necessary to
avoid losses or produce profits. Our growth and de novo
branching strategy necessarily entails growth in overhead
expenses as we routinely add new offices and staff. Our
historical results may not be indicative of future results or
results that may be achieved as we continue to increase the
number and concentration of our branch offices. Should any new
location be unprofitable or marginally profitable, or should any
existing location experience a decline in profitability or incur
losses, the adverse effect on our results of operations and
financial condition could be more significant than would be the
case for a larger company.
Development of Offices. There are considerable costs
involved in opening branches and new branches generally do not
generate sufficient revenues to offset their costs until they
have been in operation for at least a year or more. Accordingly,
our de novo branches can be expected to negatively impact our
earnings for some period of time until the branches reach
certain economies of scale. Our expenses could be further
increased if we encounter delays in the opening of any of our de
novo branches. We may be unable to accomplish future expansion
plans due to lack of available satisfactory sites, difficulties
in acquiring such sites, increased expenses or loss of potential
sites due to complexities associated with zoning and permitting
processes, higher than anticipated acquisition costs or other
factors. Finally, we have no assurance our de novo branches or
acquired branches will be successful even after they have been
established or acquired, as the case may be.
Expansion into New Markets. Much of our recent growth has
been focused in the highly competitive Nashville and Knoxville
metropolitan markets. The customer demographics and financial
services offerings in these markets are unlike those found in
the East Tennessee markets that we have historically served. In
the Nashville and Knoxville markets we face competition from a
wide array of financial institutions, including much larger,
well-established financial institutions. Our expansion into
8
these new markets may be unsuccessful if we are unable to meet
customer demands or compete effectively with the financial
institutions operating in these markets.
Regulatory and Economic Factors. Our growth and expansion
plans may be adversely affected by a number of regulatory and
economic developments or other events. Failure to obtain
required regulatory approvals, changes in laws and regulations
or other regulatory developments and changes in prevailing
economic conditions or other unanticipated events may prevent or
adversely affect our continued growth and expansion. Such
factors may cause us to alter our growth and expansion plans or
slow or halt the growth and expansion process, which may prevent
us from entering certain target markets or allow competitors to
gain or retain market share in our existing or expected markets.
Failure to successfully address these issues could have a
material adverse effect on our business, future prospects,
financial condition or results of operations, and could
adversely affect our ability to successfully implement our
business strategy. Also, if our growth occurs more slowly than
anticipated or declines, our operating results could be
materially adversely affected.
|
|
|
We could sustain losses if our asset quality
declines |
Our earnings are significantly affected by our ability to
properly originate, underwrite and service loans. We could
sustain losses if we incorrectly assess the creditworthiness of
our borrowers or fail to detect or respond to deterioration in
asset quality in a timely manner. Problems with asset quality
could cause our interest income and net interest margin to
decrease and our provisions for loan losses to increase, which
could adversely affect our results of operations and financial
condition.
|
|
|
An inadequate allowance for loan losses would reduce our
earnings |
The risk of credit losses on loans varies with, among other
things, general economic conditions, the type of loan being
made, the creditworthiness of the borrower over the term of the
loan and, in the case of a collateralized loan, the value and
marketability of the collateral for the loan. Management
maintains an allowance for loan losses based upon, among other
things, historical experience, an evaluation of economic
conditions and regular reviews of delinquencies and loan
portfolio quality. Based upon such factors, management makes
various assumptions and judgments about the ultimate
collectibility of the loan portfolio and provides an allowance
for loan losses based upon a percentage of the outstanding
balances and takes a charge against earnings with respect to
specific loans when their ultimate collectibility is considered
questionable. If managements assumptions and judgments
prove to be incorrect and the allowance for loan losses is
inadequate to absorb losses, or if the bank regulatory
authorities require the bank to increase the allowance for loan
losses as a part of their examination process, the banks
earnings and capital could be significantly and adversely
affected.
|
|
|
Liquidity needs could adversely affect our results of
operations and financial condition |
We rely on the dividends from our bank subsidiary as our primary
source of funds. The primary source of funds of our bank
subsidiary are customer deposits and loan repayments. While
scheduled loan repayments are a relatively stable source of
funds, they are subject to the ability of borrowers to repay the
loans. The ability of borrowers to repay loans can be adversely
affected by a number of factors, including changes in economic
conditions, adverse trends or events affecting business industry
groups, reductions in real estate values or markets, business
closings or lay-offs, inclement weather, natural disasters and
international instability. Additionally, deposit levels may be
affected by a number of factors, including rates paid by
competitors, general interest rate levels, returns available to
customers on alternative investments and general economic
conditions. Accordingly, we may be required from time to time to
rely on secondary sources of liquidity to meet withdrawal
demands or otherwise fund operations. Such sources include
Federal Home Loan Bank advances and federal funds lines of
credit from correspondent banks. While we believe that these
sources are currently adequate, there can be no assurance they
will be sufficient to meet future liquidity demands,
particularly if we continue to grow and experience increasing
loan demand. We
9
may be required to slow or discontinue loan growth, capital
expenditures or other investments or liquidate assets should
such sources not be adequate.
|
|
|
Competition from financial institutions and other
financial service providers may adversely affect our
profitability |
The banking business is highly competitive and we experience
competition in each of our markets from many other financial
institutions. We compete with commercial banks, credit unions,
savings and loan associations, mortgage banking firms, consumer
finance companies, securities brokerage firms, insurance
companies, money market funds, and other mutual funds, as well
as other community banks and super-regional, national and
international financial institutions that operate offices in our
primary market areas and elsewhere. Many of our competitors are
well-established, larger financial institutions that have
greater resources and lending limits and a lower cost of funds
than we have.
Additionally, we face competition from de novo community banks,
including those with senior management who were previously
affiliated with other local or regional banks or those
controlled by investor groups with strong local business and
community ties. These de novo community banks may offer higher
deposit rates or lower cost loans in an effort to attract our
customers, and may attempt to hire our management and employees.
We compete with these other financial institutions both in
attracting deposits and in making loans. In addition, we have to
attract our customer base from other existing financial
institutions and from new residents. This competition has made
it more difficult for us to make new loans and at times has
forced us to offer higher deposit rates. Price competition for
loans and deposits might result in our earning less interest on
our loans and paying more interest on our deposits, which
reduces our net interest income. We expect competition to
increase in the future as a result of legislative, regulatory
and technological changes and the continuing trend of
consolidation in the financial services industry. Our
profitability depends upon our continued ability to successfully
compete with an array of financial institutions in our market
areas.
|
|
|
We may face risks with respect to future expansion |
From time to time we may engage in additional de novo branch
expansion as well as the acquisition of other financial
institutions or parts of those institutions, including our
pending acquisition of five branches in Clarksville, Tennessee
from Old National Bank. We may also consider and enter into new
lines of business or offer new products or services. In
addition, we may receive future inquiries and have discussions
with potential acquirors of us. Acquisitions and mergers involve
a number of risks, including:
|
|
|
|
|
the time and costs associated with identifying and evaluating
potential acquisitions and merger partners; |
|
|
|
inaccuracies in the estimates and judgments used to evaluate
credit, operations, management and market risks with respect to
the target institution; |
|
|
|
the time and costs of evaluating new markets, hiring experienced
local management and opening new offices, and the time lags
between these activities and the generation of sufficient assets
and deposits to support the costs of the expansion; |
|
|
|
our ability to finance an acquisition and possible dilution to
our existing shareholders; |
|
|
|
the diversion of our managements attention to the
negotiation of a transaction, and the integration of the
operations and personnel of the combining businesses; |
|
|
|
entry into new markets where we lack experience; |
|
|
|
the introduction of new products and services into our business; |
10
|
|
|
|
|
the incurrence and possible impairment of goodwill associated
with an acquisition and possible adverse short-term effects on
our results of operations; and |
|
|
|
the risk of loss of key employees and customers. |
We may incur substantial costs to expand, and we can give no
assurance such expansion will result in the level of profits we
seek. There can be no assurance that integration efforts for any
future mergers or acquisitions will be successful. Also, we may
issue equity securities, including common stock and securities
convertible into shares of our common stock in connection with
future acquisitions, which could cause ownership and economic
dilution to our current shareholders and to investors purchasing
common stock in this offering. There is no assurance that,
following any future mergers or acquisitions, our integration
efforts will be successful or our company, after giving effect
to the acquisition, will achieve profits comparable to or better
than our historical experience.
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|
|
Our business is subject to the success of the local
economies where we operate |
Our success significantly depends upon the growth in population,
income levels, deposits and housing starts in our market areas.
If the communities in which we operate do not grow or if
prevailing economic conditions locally or nationally are
unfavorable, our business may not succeed. Adverse economic
conditions in our specific market areas could reduce our growth
rate, affect the ability of our customers to repay their loans
to us and generally affect our financial condition and results
of operations. We are less able than a larger institution to
spread the risks of unfavorable local economic conditions across
a large number of diversified economies. Moreover, we cannot
give any assurance that we will benefit from any market growth
or favorable economic conditions in our primary market areas if
they do occur.
Any adverse market or economic conditions in the state of
Tennessee may disproportionately increase the risk that our
borrowers will be unable to timely make their loan payments. In
addition, the market value of the real estate securing loans as
collateral could be adversely affected by unfavorable changes in
market and economic conditions. As of June 30, 2005,
approximately 75.9% of our loans held for investment were
secured by real estate. Of this amount, approximately 41.0% were
commercial real estate loans, 32.4% were residential real estate
loans and 26.6% were construction and development loans. Any
sustained period of increased payment delinquencies,
foreclosures or losses caused by adverse market or economic
conditions in the state of Tennessee could adversely affect the
value of our assets, our revenues, results of operations and
financial condition.
|
|
|
Changes in interest rates could adversely affect our
results of operations and financial condition |
Changes in interest rates may affect our level of interest
income, the primary component of our gross revenue, as well as
the level of our interest expense. Interest rates are highly
sensitive to many factors that are beyond our control, including
general economic conditions and the policies of various
governmental and regulatory authorities. In a period of rising
interest rates, our interest expense could increase in different
amounts and at different rates while the interest that we earn
on our assets may not change in the same amounts or at the same
rates. Accordingly, increases in interest rates could decrease
our net interest income. Changes in the level of interest rates
also may negatively affect our ability to originate real estate
loans, the value of our assets and our ability to realize gains
from the sale of our assets, all of which ultimately affect our
earnings.
|
|
|
We rely heavily on the services of key personnel |
We depend substantially on the strategies and management
services of R. Stan Puckett, our Chairman of the Board and Chief
Executive Officer. Although we have entered into an employment
agreement with him, the loss of the services of Mr. Puckett
could have a material adverse effect on our business, results of
operations and financial condition. We are also dependent on
certain other key officers who have important customer
relationships or are instrumental to our operations. Changes in
key personnel and their responsibilities may be disruptive to
our business and could have a material adverse effect on our
business, financial condition and results of operations.
11
We believe that our future results will also depend in part upon
our attracting and retaining highly skilled and qualified
management and sales and marketing personnel, particularly in
those areas where we may open new branches. Competition for such
personnel is intense, and we cannot assure you that we will be
successful in attracting or retaining such personnel.
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|
|
We are subject to extensive regulation that could limit or
restrict our activities |
We operate in a highly regulated industry and are subject to
examination, supervision, and comprehensive regulation by
various federal and state agencies including the Board of
Governors of the Federal Reserve, the FDIC and the Tennessee
Department of Financial Institutions. Our regulatory compliance
is costly and restricts certain of our activities, including
payment of dividends, mergers and acquisitions, investments,
loans and interest rates charged, interest rates paid on
deposits and locations of offices. We are also subject to
capitalization guidelines established by our regulators, which
require us to maintain adequate capital to support our growth.
The laws and regulations applicable to the banking industry
could change at any time, and we cannot predict the effects of
these changes on our business and profitability. Because
government regulation greatly affects the business and financial
results of all commercial banks and bank holding companies, our
cost of compliance could adversely affect our ability to operate
profitably.
The Sarbanes-Oxley Act of 2002, and the related rules and
regulations promulgated by the Securities and Exchange
Commission and Nasdaq that are now applicable to us, have
increased the scope, complexity and cost of corporate
governance, reporting and disclosure practices. As a result, we
have experienced, and may continue to experience, greater
compliance costs.
|
|
|
Our recent results may not be indicative of our future
results |
We may not be able to sustain our historical rate of growth or
may not even be able to grow our business at all. In addition,
our recent and rapid growth may distort some of our historical
financial ratios and statistics. In the future, we may not have
the benefit of several recently favorable factors, such as a
generally stable interest rate environment, a strong residential
mortgage market, or the ability to find suitable expansion
opportunities. Various factors, such as economic conditions,
regulatory and legislative considerations and competition, may
also impede or prohibit our ability to expand our market
presence. If we experience a significant decrease in our
historical rate of growth, our results of operations and
financial condition may be adversely affected due to a high
percentage of our operating costs being fixed expenses.
|
|
|
We are subject to Tennessee anti-takeover statutes and
certain charter provisions which could decrease our chances of
being acquired even if the acquisition of us is in our
shareholders best interests |
As a Tennessee corporation, we are subject to various
legislative acts which impose restrictions on and require
compliance with procedures designed to protect shareholders
against unfair or coercive mergers and acquisitions. These
statutes may delay or prevent offers to acquire us and increase
the difficulty of consummating any such offers, even if the
acquisition of us would be in our shareholders best
interests. Our amended and restated charter also contains
provisions which may make it difficult for another entity to
acquire us without the approval of a majority of the
disinterested directors on our board of directors.
|
|
|
The amount of common stock owned by, and other
compensation arrangements with, our officers and directors may
make it more difficult to obtain shareholder approval of
potential takeovers that they oppose |
As of July 18, 2005, directors and executive officers
beneficially owned approximately 14.85% of our common stock.
Agreements with our senior management also provide for
significant payments under certain circumstances following a
change in control. These compensation arrangements, together
with the common stock and option ownership of our board of
directors and management, could make it difficult or expensive
to obtain majority support for shareholder proposals or
potential acquisition proposals of us that our directors and
officers oppose.
12
|
|
|
Our continued pace of growth may require us to raise
additional capital in the future, but that capital may not be
available when it is needed |
We are required by federal and state regulatory authorities to
maintain adequate levels of capital to support our operations.
We anticipate that our capital resources following this
offering, and after giving effect to our proposed acquisition of
five bank branches in Clarksville, Tennessee, will satisfy our
capital requirements for the foreseeable future. We may at some
point, however, need to raise additional capital to support our
continued growth.
Our ability to raise additional capital, if needed, will depend
on conditions in the capital markets at that time, which are
outside our control, and on our financial performance.
Accordingly, we cannot assure you of our ability to raise
additional capital if needed on terms acceptable to us. If we
cannot raise additional capital when needed, our ability to
further expand our operations through internal growth and
acquisitions could be materially impaired.
|
|
|
Our profitability could be adversely affected if we are
unable to promptly deploy the capital raised in the
offering |
We may not be able to immediately deploy all of the capital
raised in the offering. Investing the offering proceeds in
securities until we are able to deploy the proceeds will provide
lower margins than we generally earn on loans, potentially
adversely affecting shareholder returns, including earnings per
share, return on assets and return on equity.
|
|
|
The success and growth of our business will depend on our
ability to adapt to technological changes |
The banking industry and the ability to deliver financial
services is becoming more dependent on technological
advancement, such as the ability to process loan applications
over the Internet, accept electronic signatures, provide process
status updates instantly and on-line banking capabilities and
other customer expected conveniences that are cost efficient to
our business processes. As these technologies are improved in
the future, we may, in order to remain competitive, be required
to make significant capital expenditures.
Risks Related to An Investment in Our Common Stock
|
|
|
Even though our common stock is currently traded on The
Nasdaq National Market, the trading volume in our common stock
has been low and the sale of substantial amounts of our common
stock in the public market could depress the price of our common
stock |
The trading volume in our common stock on The Nasdaq National
Market has been relatively low when compared with larger
companies listed on The Nasdaq National Market or the stock
exchanges. The average daily trading volume of our shares on The
Nasdaq National Market during 2004 was approximately
6,900 shares. Thinly traded stocks such as ours can be more
volatile than stocks trading in an active public market. We
cannot say with any certainty that a more active and liquid
trading market for our common stock will develop or be sustained
after this offering. Because of this, our shareholders may not
be able to sell their shares at the volumes, prices, or times
that they desire.
We cannot predict the effect, if any, that future sales of our
common stock in the market, or availability of shares of our
common stock for sale in the market, will have on the market
price of our common stock. We, therefore, can give no assurance
sales of substantial amounts of our common stock in the market,
or the potential for large amounts of sales in the market, would
not cause the price of our common stock to decline or impair our
ability to raise capital through sales of our common stock. Upon
completion of this offering, we expect to have approximately
9,484,059 shares of common stock outstanding (or
9,759,016 shares of common stock outstanding if the
underwriters exercise their over-allotment option in full).
13
The market price of our common stock may fluctuate in the
future, and these fluctuations may be unrelated to our
performance. General market price declines or overall market
volatility in the future could adversely affect the price of our
common stock, and the current market price may not be indicative
of future market prices.
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|
|
We may issue additional common stock or other equity
securities in the future which could dilute the ownership
interest of existing shareholders |
In order to maintain our capital at desired levels or required
regulatory levels, or to fund future growth, our board of
directors may decide from time to time to issue additional
shares of common stock, or securities convertible into,
exchangeable for or representing rights to acquire shares of our
common stock. We may sell these shares at prices below the
public offering price of the shares offered by this prospectus,
and the sale of these shares may significantly dilute your
ownership interest as a shareholder and the per share book value
of our common stock. New investors in the future may also have
rights, preferences and privileges senior to our current
shareholders which may adversely impact our current shareholders.
|
|
|
The market price of our common stock may decline after the
stock offering |
The price per share at which we sell the common stock may be
more or less than the market price of our common stock on the
date the stock offering is consummated. If the actual purchase
price is less than the market price for the shares of common
stock, some purchasers in the stock offering may be inclined to
immediately sell shares of common stock to attempt to realize a
profit. Any such sales, depending on the volume and timing could
cause the market price of our common stock to decline.
Additionally, because stock prices generally fluctuate over
time, there is no assurance purchasers of common stock in the
offering will be able to sell shares after the offering at a
price equal to or greater than the actual purchase price.
Purchasers should consider these possibilities in determining
whether to purchase shares of common stock and the timing of any
sale of shares of common stock.
|
|
|
Our ability to declare and pay dividends is limited by law
and we may be unable to pay future dividends |
We derive our income solely from dividends on the shares of
common stock of our banking subsidiary, Greene County Bank. Our
banks ability to declare and pay dividends is limited by
its obligations to maintain sufficient capital and by other
general restrictions on its dividends that are applicable to
banks that are regulated by the FDIC. In addition, the Federal
Reserve may impose restrictions on our ability to pay dividends
on our common stock. As a result, we cannot assure you that we
will declare or pay dividends on shares of our common stock in
the future.
|
|
|
We have broad discretion in using the net proceeds of this
offering. Our failure to effectively use these proceeds could
adversely affect our ability to earn profits |
We intend to contribute approximately $35 million of the net
proceeds of this offering to our bank subsidiary to provide
capital for its acquisition of five branches located in
Clarksville, Tennessee from Old National Bank. The remainder of
the net proceeds will be used for general corporate purposes,
including, among other things, to support the banks
internal growth and capital needs. Our failure to apply the
remaining funds effectively could reduce our ability to earn
profits.
|
|
|
Holders of our junior subordinated debentures have rights
that are senior to those of our common shareholders |
We have supported our continued growth through the issuance of
trust preferred securities from special purpose trusts and
accompanying junior subordinated debentures. At June 30,
2005, we had outstanding trust preferred securities and
accompanying junior subordinated debentures totaling
$13.4 million. Payments of the principal and interest on
the trust preferred securities of these trusts are conditionally
guaranteed by us. Further, the accompanying junior subordinated
debentures we issued to the trusts are senior to our shares of
common stock. As a result, we must make payments on the junior
subordinated
14
debentures before any dividends can be paid on our common stock
and, in the event of our bankruptcy, dissolution or liquidation,
the holders of the junior subordinated debentures must be
satisfied before any distributions can be made on our common
stock. We have the right to defer distributions on our junior
subordinated debentures (and the related trust preferred
securities) for up to five years, during which time no dividends
may be paid on our common stock.
15
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements, which are based on assumptions and
estimates and describe our future plans, strategies and
expectations, are generally identifiable by the use of the words
anticipate, will, believe,
may, could, would,
should, estimate, expect,
intend, seek, or similar expressions.
These forward-looking statements may address, among other
things, our business plans, objectives or goals for future
operations or expansion, the anticipated effects of the offering
of the securities hereunder, our forecasted revenues, earnings,
assets or other measures of performance, or estimates of risks
and future costs and benefits. Although these statements reflect
our good faith belief based on current expectations, estimates
and projections, they are subject to risks, uncertainties and
assumptions and are not guarantees of future performance.
Important factors that could cause actual results to differ
materially from the forward-looking statements we make or
incorporate by reference in this prospectus are described in the
section entitled Risk Factors and these factors
include, but are not limited to:
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|
|
|
our potential growth, including our entrance or expansion into
new markets, and the need for sufficient capital to support that
growth; |
|
|
|
changes in the quality or composition of our loan or investment
portfolios, including adverse developments in borrower
industries or in the repayment ability of individual borrowers
or issuers; |
|
|
|
an insufficient allowance for loan losses as a result of
inaccurate assumptions; |
|
|
|
the strength of the economies in our target market areas, as
well as general economic, market or business conditions; |
|
|
|
changes in demand for loan products and financial services; |
|
|
|
increased competition or market concentration; |
|
|
|
concentration of credit exposure; |
|
|
|
changes in interest rates, yield curves and interest rate spread
relationships; |
|
|
|
new state or federal legislation, regulations, or the initiation
or outcome of litigation; and |
|
|
|
other circumstances, many of which may be beyond our control. |
If one or more of these risks or uncertainties materialize, or
if any of our underlying assumptions prove incorrect, our actual
results, performance or achievements may vary materially from
future results, performance or achievements expressed or implied
by these forward-looking statements. All forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements in this section. We do not intend to and assume no
responsibility for updating or revising any forward-looking
statements contained in or incorporated by reference into this
prospectus, whether as a result of new information, future
events or otherwise.
16
USE OF PROCEEDS
Our net proceeds from our sale of the shares of common stock we
are offering will be approximately $44.1 million, or
approximately $50.7 million if the underwriters
over-allotment option is exercised in full, in each case after
deducting underwriting discounts and commissions and the
estimated offering expenses payable by us at the public offering
price of $25.75 per share.
We intend to contribute approximately $35 million of the
net proceeds from this offering to our bank subsidiary to
provide capital for its acquisition of five branches in
Clarksville, Tennessee from Old National Bank. The remainder of
the net proceeds will be used for general corporate purposes,
including, among other things, to support the banks
internal growth and capital needs. Pending these uses, the net
proceeds will be invested by us in a variety of short-term
assets, including federal funds, interest-bearing deposits in
other banks and similar investments.
17
CAPITALIZATION
The following table sets forth our capitalization and certain
capital ratios as of June 30, 2005. Our capitalization is
presented:
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|
|
|
|
on an actual basis; |
|
|
|
on an as adjusted basis to reflect the sale of
1,833,043 shares of our common stock at a public offering
price of $25.75 per share and our receipt of $44.1 million
in estimated net proceeds from this offering, after deducting
underwriting discounts and commissions and estimated expenses of
the offering; and |
|
|
|
on a pro forma as adjusted basis, giving effect to the offering
as described in the immediately preceding bullet point,
consummation of our banks acquisition of five branches in
Clarksville, Tennessee from Old National Bank and the related
contribution of $35 million of the net proceeds from this
offering to our bank subsidiary. |
We have based the adjusted and pro forma adjusted capitalization
information on available information and assumptions that
management believes are reasonable and that reflect the effect
of these transactions as if they occurred on June 30, 2005.
|
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|
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|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
|
| |
|
|
|
|
Pro Forma | |
|
|
Actual | |
|
As Adjusted(1) | |
|
As Adjusted(1) | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, | |
|
|
except per share data) | |
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures(2)
|
|
$ |
13,403 |
|
|
$ |
13,403 |
|
|
$ |
13,403 |
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $2.00; 15,000,000 shares
authorized: 7,651,016 issued and outstanding at June 30,
2005 As adjusted: 9,484,059 issued and
outstanding(3)
|
|
|
15,303 |
|
|
|
18,969 |
|
|
|
18,969 |
|
|
Additional paid-in capital
|
|
|
24,204 |
|
|
|
64,607 |
|
|
|
64,607 |
|
|
Retained earnings (accumulated deficit)
|
|
|
74,101 |
|
|
|
74,101 |
|
|
|
74,101 |
|
|
Accumulated other comprehensive income (loss), net
|
|
|
(122 |
) |
|
|
(122 |
) |
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$ |
113,486 |
|
|
$ |
157,555 |
|
|
$ |
157,555 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and shareholders equity:
|
|
$ |
126,889 |
|
|
$ |
170,958 |
|
|
$ |
170,958 |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share(4)
|
|
$ |
14.83 |
|
|
$ |
16.61 |
|
|
$ |
16.61 |
|
|
|
|
|
|
|
|
|
|
|
Capital ratios:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio(5)
|
|
|
7.9 |
% |
|
|
10.8% |
|
|
|
8.6% |
|
|
Risk-based capital(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital
|
|
|
8.9 |
% |
|
|
12.3% |
|
|
|
9.5% |
|
|
|
Total risk-based capital
|
|
|
10.2 |
% |
|
|
13.5% |
|
|
|
10.7% |
|
|
|
(1) |
If the underwriters over-allotment option is exercised in
full, common stock, additional paid-in capital and total
shareholders equity would be $19,519, $70,712 and
$164,210, respectively. |
|
(2) |
Consists of debt issued in connection with our trust preferred
securities. |
|
(3) |
Before issuance of up to 274,957 shares of common stock
pursuant to the underwriters over-allotment option. |
|
(4) |
Actual book value per share equals total shareholders
equity of $113,486, divided by 7,651,016 shares issued and
outstanding at June 30, 2005. Book value per share as
adjusted and pro forma as adjusted |
18
|
|
|
equals total shareholders equity of $157,555 (assuming net
proceeds of this offering of $44,069), divided by
9,484,059 shares (assuming issuance and sale of
1,833,043 shares). |
|
(5) |
Tier 1 leverage ratio is defined as Tier 1 capital
(pursuant to risk-based capital guidelines) as a percentage of
adjusted average assets for the quarter ended June 30,
2005. As adjusted calculation assumes that proceeds from
offering would have been received as the last transaction for
the quarter ended June 30, 2005. Pro forma as adjusted
calculation assumes that proceeds from the offering would have
been received as the last transaction for the quarter ended
June 30, 2005 and as if the acquisition of the five
branches in Clarksville, Tennessee from Old National Bank had
been consummated on June 30, 2005. |
|
(6) |
The as adjusted and pro forma as adjusted calculations for the
risk-based capital ratios assume that the proceeds from the
offering are invested in assets which carry a 100%
risk-weighting as of June 30, 2005. |
19
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND INFORMATION
Our common stock is traded on The Nasdaq National Market under
the symbol GCBS. The following table sets forth for
the period indicated the high and low sales price of our common
stock as reported by The Nasdaq National Market and the
dividends declared per share on our common stock.
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Cash Dividends | |
|
|
High | |
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Low | |
|
Per Share | |
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| |
|
| |
|
| |
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
28.50 |
|
|
$ |
25.88 |
|
|
$ |
0.12 |
|
|
Second quarter
|
|
|
29.75 |
|
|
|
23.75 |
|
|
|
0.12 |
|
|
Third quarter (through September 22, 2005)
|
|
|
29.50 |
|
|
|
25.09 |
|
|
|
0.12 |
(1) |
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
24.64 |
|
|
$ |
21.11 |
|
|
$ |
0.12 |
|
|
Second quarter
|
|
|
24.89 |
|
|
|
20.47 |
|
|
|
0.12 |
|
|
Third quarter
|
|
|
24.02 |
|
|
|
22.25 |
|
|
|
0.12 |
|
|
Fourth quarter
|
|
|
27.70 |
|
|
|
23.50 |
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
$ |
0.61 |
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
25.95 |
|
|
$ |
18.75 |
|
|
$ |
0.12 |
|
|
Second quarter
|
|
|
32.05 |
|
|
|
19.00 |
|
|
|
0.12 |
|
|
Third quarter
|
|
|
27.01 |
|
|
|
20.14 |
|
|
|
0.12 |
|
|
Fourth quarter
|
|
|
26.00 |
|
|
|
22.22 |
|
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.59 |
|
|
|
(1) |
On August 15, 2005, our board of directors declared a
regular quarterly cash dividend of $0.12 per share that we paid
on September 16, 2005 to shareholders of record as of
September 2, 2005. Purchasers of our common stock in this
offering were not shareholders of record as of September 2,
2005, and, therefore, were not entitled to receive the quarterly
dividend paid on September 16, 2005. |
On September 22, 2005, the last reported sale price for our
common stock on The Nasdaq National Market was $25.75 per
share. The trading in our common stock has been limited and
occurred at varying prices and may not have created an active
market for our common stock. The prices at which trades occurred
may not be representative of the actual value of our common
stock. At July 28, 2005, we had approximately
2,034 shareholders of record and approximately 850
beneficial owners.
Holders of our common stock are entitled to receive dividends
when, as and if declared by our board of directors out of funds
legally available for dividends. Historically, we have paid
quarterly cash dividends on our common stock, and our board of
directors presently intends to continue to pay regular quarterly
cash dividends. Our ability to pay dividends to our shareholders
in the future will depend on our earnings and financial
condition, liquidity and capital requirements, the general
economic and regulatory climate, our ability to service any
equity or debt obligations senior to our common stock, including
our outstanding trust preferred securities and accompanying
junior subordinated debentures, and other factors deemed
relevant by our board of directors. In order to pay dividends to
shareholders, we must receive cash dividends from our bank. As a
result, our ability to pay future dividends will depend upon the
earnings of our bank, its financial condition and its need for
funds.
Moreover, there are a number of federal and state banking
policies and regulations that restrict our banks ability
to pay dividends to us and our ability to pay dividends to our
shareholders. In particular, because our bank is a depository
institution and its deposits are insured by the FDIC, it may not
pay dividends or distribute capital assets if it is in default
on any assessment due to the FDIC. Also, the bank is subject to
regulations which impose certain minimum regulatory capital and
minimum state law earnings requirements that affect the amount
of cash available for distribution to us. Lastly, under Federal
Reserve policy, we are required to maintain adequate regulatory
capital, are expected to serve as a source of financial strength
to our bank and to commit resources to support the bank. These
policies and regulations may have the effect of reducing or
eliminating the amount of dividends that we can declare and pay
to our shareholders in the future.
20
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Overview
All dollar amounts, other than per share amounts,
presented in this discussion are in thousands.
Our results of operations for the year 2004 compared to 2003
reflected a 17.30% increase in net income and a 5.44% increase
in earnings per share, assuming dilution, resulting primarily
from a significant increase in net interest income, offset, in
part, by substantial increases in noninterest expense. The
increase in net interest income, reflecting higher average loan
balances, and increases in noninterest expense, result
principally from our expansion initiatives in late 2003 and
throughout 2004.
Our results of operations for the year 2004 compared to 2003
also indicated further margin compression reflective of
competitive loan and deposit pricing, as well as the controlled
growth in higher-yielding subprime loans in our banks
subsidiaries. This margin compression was offset by the increase
in average loan balances and the related increase in interest
income resulting principally from our acquisition of Independent
Bankshares Corporation, or IBC, in late 2003.
Our results of operations for the second quarter and the
six-month period ended June 30, 2005, compared to the same
periods in 2004, reflected an increase in interest income due
primarily to loan growth as a result of our expansion
initiatives, offset, in part, by an increase in interest expense
as a result of increased deposit levels resulting from our
expansion efforts and competitive deposit pricing pressures.
The increase in net interest income was also offset, in part, by
an increase in noninterest expense which was reflective of our
expansion efforts into Middle Tennessee and our branch expansion
in our Knoxville, Tennessee market as well as expenses
associated with the establishment of our High Performance
Checking Program. Noninterest income also increased for both the
three and six months ended June 30, 2005 as compared to the
comparable periods in 2004 as a result of increased deposit
service charges and Non-Sufficient Funds, or NSF, fees resulting
from our expansion efforts and recently-introduced High
Performance Checking Program.
Our net interest margin for the quarter and six months ended
June 30, 2005 continued to experience compression as a
result of deposit pricing pressures that we continued to
experience as we aggressively attempted to generate deposits to
support our loan growth and as deposit growth outpaced loan
growth for the six months ended June 30, 2005 following the
implementation of our High Performance Checking Program. Our net
interest margin also experienced compression as a result of our
competitive pricing of our loans, particularly in our Middle
Tennessee market, and our emphasis on originating more
traditional loans while controlling the growth of our
higher-yielding subprime loans at our non-bank subsidiaries. We
believe that if interest rates remain stable we will continue to
experience compression in our net interest margin for the
remainder of 2005 as a result of loan and deposit pricing
pressures but that if interest rates continue to rise, based on
our current mix of interest-earning assets and interest-bearing
liabilities, we believe our net interest margin will begin to
increase.
At June 30, 2005, we had total consolidated assets of
approximately $1,374,000, total consolidated deposits of
approximately $1,148,000, total consolidated net loans, net of
unearned income and allowance for loan losses, of approximately
$1,142,000, and total consolidated shareholders equity of
approximately $113,500. Our annualized return on average
shareholders equity for the three and six months ended
June 30, 2005, was 13.11% and 11.86%, respectively and our
return on average total assets for the same periods was 1.11%
and 1.02%, respectively. We expect that our total assets, total
consolidated deposits, total consolidated net loans and total
shareholders equity will continue to increase over the
remainder of 2005 as a result of our expansion efforts,
including our branch expansion in Middle Tennessee and our
anticipated acquisition of the five bank branches in
Clarksville, Tennessee from Old National Bank, which is expected
to close in the fourth quarter of 2005.
21
Critical Accounting Policies and Estimates
Our 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 our accounting policies and
estimates we use to prepare the consolidated financial
statements. In general, managements 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.
We believe our 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
managements calculation, an allowance of $16,880, or
1.46%, of total loans, net of unearned interest, was an adequate
estimate of losses within the loan portfolio as of June 30,
2005. This estimate resulted in a provision for loan losses on
the income statement of $1,060 and $2,682, respectively, for the
three and six months ended June 30, 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. For further discussion of the allowance for loan
losses and a detailed description of the methodology management
uses in determining the adequacy of the allowance, see
Business Lending Activities
Allowance for Loan Losses, and Results
of Operations Provision for Loan Losses.
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.
Results of Operations
|
|
|
Comparison of the Results of Operations for the Three and
Six Months Ended June 30, 2005 and June 30,
2004 |
Net Income. Net income for the three months ended
June 30, 2005 was $3,714 as compared to $3,275 for the same
period in 2004. This increase of $439, or 13.40%, resulted
primarily from a $2,089, or 17.43%, increase in net interest
income reflecting principally increased volume of
interest-earning assets arising primarily from our expansion
initiatives and related growth in the loan portfolio. Offsetting
this increase was a $1,848, or 21.55%, increase in total
noninterest expense from $8,574 for the three months ended
June 30, 2004 to $10,422 for the same period of 2005. This
increase is also primarily attributable to our expansion
initiatives, as discussed above.
Net income for the six months ended June 30, 2005 was
$6,649 as compared to $6,127 for the same period in 2004. The
increase of $522, or 8.52%, reflects substantially the same
trends that existed during the quarter ended June 30, 2005.
Net Interest Income. The largest source of our
earnings 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 managements
responses to changes in interest rates through asset/liability
management. During the three months ended
22
June 30, 2005, net interest income was $14,072 as compared
to $11,983 for the same period in 2004, representing an increase
of 17.43%. While our average balances of interest-earning assets
increased more than the average balances of interest-bearing
liabilities in the three months ended June 30, 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, we experienced a substantial increase in net
interest income, as noted above, in the three months ended
June 30, 2005 as compared to the same quarter in 2004. Our
net interest margin decreased to 4.57% for the three months
ended June 30, 2005 as compared to 4.69% for the same
period in 2004, and declined 24 basis points from the 4.81%
net interest margin for the three months ended December 31,
2004. Our net interest margin also declined for the six months
ended June 30, 2005, falling to 4.61% when compared to
4.69% for the same period in 2004. In order to fund our strong
loan growth, we have pursued aggressive deposit rates throughout
all our markets, resulting in margin compression that is not
expected to abate in the near term despite our asset-sensitive
interest rate risk position. In addition, management has been
controlling the growth of higher-yielding subprime loans in our
banks subsidiaries and focusing on increasing the balances
of our traditional commercial, commercial real estate and
residential real estate loans, thus reducing the percentage of
subprime loans in our portfolio. This trend in the loan mix also
constrains the increases in loan yields during a rising interest
rate environment notwithstanding our asset-sensitive balance
sheet. Nevertheless, if interest rates continue to increase,
based on our current mix of interest-earning assets and
interest-bearing liabilities, we believe our net interest margin
will begin to increase over the course of the remainder of 2005.
Further, in view of our 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, our net interest margin could decline due
to competitive pressures related to both loan and deposit
pricing.
For the six months ended June 30, 2005, net interest income
increased by $3,536, or 14.82%, to $27,399 from $23,863 for the
same period in 2004, and the same trends outlined above with
respect to the three months ended June 30, 2005 were
observed.
23
The following tables set forth certain information relating to
our consolidated average interest-earning assets and
interest-bearing liabilities and reflects the average yield on
assets and average cost of liabilities for the periods
indicated. These yields and costs are derived by dividing income
or expense by the average daily balance of assets or
liabilities, respectively, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
1,140,537 |
|
|
$ |
19,851 |
|
|
|
6.98 |
% |
|
$ |
984,417 |
|
|
$ |
15,522 |
|
|
|
6.34 |
% |
|
Investment securities
|
|
|
60,691 |
|
|
|
592 |
|
|
|
3.91 |
% |
|
|
39,203 |
|
|
|
339 |
|
|
|
3.48 |
% |
|
Other short-term investments
|
|
|
33,265 |
|
|
|
260 |
|
|
|
3.13 |
% |
|
|
3,560 |
|
|
|
8 |
|
|
|
0.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,234,493 |
|
|
$ |
20,703 |
|
|
|
6.73 |
% |
|
|
1,027,180 |
|
|
$ |
15,869 |
|
|
|
6.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets
|
|
|
104,107 |
|
|
|
|
|
|
|
|
|
|
|
96,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,338,600 |
|
|
|
|
|
|
|
|
|
|
$ |
1,123,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Now accounts, money market and savings
|
|
$ |
401,441 |
|
|
$ |
1,161 |
|
|
|
1.16 |
% |
|
$ |
345,250 |
|
|
$ |
403 |
|
|
|
0.47 |
% |
|
|
Time Deposits
|
|
|
598,470 |
|
|
|
4,340 |
|
|
|
2.91 |
% |
|
|
465,914 |
|
|
|
2,603 |
|
|
|
2.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$ |
999,911 |
|
|
$ |
5,501 |
|
|
|
2.21 |
% |
|
$ |
811,164 |
|
|
$ |
3,006 |
|
|
|
1.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements and short-term
borrowings
|
|
|
15,014 |
|
|
|
95 |
|
|
|
2.54 |
% |
|
|
16,026 |
|
|
|
34 |
|
|
|
0.85 |
% |
|
Notes payable
|
|
|
81,000 |
|
|
|
1,035 |
|
|
|
5.13 |
% |
|
|
72,621 |
|
|
|
846 |
|
|
|
4.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$ |
1,095,925 |
|
|
$ |
6,631 |
|
|
|
2.43 |
% |
|
$ |
899,811 |
|
|
$ |
3,886 |
|
|
|
1.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
116,436 |
|
|
|
|
|
|
|
|
|
|
|
104,966 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
12,942 |
|
|
|
|
|
|
|
|
|
|
|
12,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
129,378 |
|
|
|
|
|
|
|
|
|
|
|
117,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,225,303 |
|
|
|
|
|
|
|
|
|
|
|
1,017,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
113,297 |
|
|
|
|
|
|
|
|
|
|
|
105,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,338,600 |
|
|
|
|
|
|
|
|
|
|
$ |
1,123,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
14,072 |
|
|
|
|
|
|
|
|
|
|
$ |
11,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.30 |
% |
|
|
|
|
|
|
|
|
|
|
4.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
4.57 |
% |
|
|
|
|
|
|
|
|
|
|
4.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
1,110,231 |
|
|
$ |
37,930 |
|
|
|
6.89 |
% |
|
$ |
976,613 |
|
|
$ |
31,047 |
|
|
|
6.39 |
% |
|
Investment securities
|
|
|
55,874 |
|
|
|
1,065 |
|
|
|
3.84 |
% |
|
|
41,145 |
|
|
|
725 |
|
|
|
3.54 |
% |
|
Other short-term investments
|
|
|
33,694 |
|
|
|
443 |
|
|
|
2.65 |
% |
|
|
5,830 |
|
|
|
27 |
|
|
|
0.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,199,799 |
|
|
$ |
39,438 |
|
|
|
6.63 |
% |
|
|
1,023,588 |
|
|
$ |
31,799 |
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets
|
|
|
103,339 |
|
|
|
|
|
|
|
|
|
|
|
99,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,303,138 |
|
|
|
|
|
|
|
|
|
|
$ |
1,123,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Now accounts, money market and savings
|
|
$ |
395,246 |
|
|
$ |
2,027 |
|
|
|
1.03 |
% |
|
$ |
340,165 |
|
|
$ |
805 |
|
|
|
0.48 |
% |
|
|
Time Deposits
|
|
|
561,428 |
|
|
|
7,736 |
|
|
|
2.78 |
% |
|
|
474,379 |
|
|
|
5,387 |
|
|
|
2.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$ |
956,674 |
|
|
$ |
9,763 |
|
|
|
2.06 |
% |
|
$ |
814,544 |
|
|
$ |
6,192 |
|
|
|
1.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements and short-term
borrowings
|
|
|
16,712 |
|
|
|
184 |
|
|
|
2.22 |
% |
|
|
16,826 |
|
|
|
67 |
|
|
|
0.80 |
% |
|
Notes payable
|
|
|
86,740 |
|
|
|
2,092 |
|
|
|
4.86 |
% |
|
|
71,852 |
|
|
|
1,677 |
|
|
|
4.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$ |
1,060,126 |
|
|
$ |
12,039 |
|
|
|
2.29 |
% |
|
$ |
903,222 |
|
|
$ |
7,936 |
|
|
|
1.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
116,644 |
|
|
|
|
|
|
|
|
|
|
|
102,755 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
14,235 |
|
|
|
|
|
|
|
|
|
|
|
12,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest bearing liabilities
|
|
|
130,879 |
|
|
|
|
|
|
|
|
|
|
|
115,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,191,005 |
|
|
|
|
|
|
|
|
|
|
|
1,018,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
112,133 |
|
|
|
|
|
|
|
|
|
|
|
104,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,303,138 |
|
|
|
|
|
|
|
|
|
|
$ |
1,123,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
27,399 |
|
|
|
|
|
|
|
|
|
|
$ |
23,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
4.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
4.61 |
% |
|
|
|
|
|
|
|
|
|
|
4.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Provision for Loan Losses. During the three and
six months ended June 30, 2005, loan charge-offs were
$1,281 and $2,481, respectively, and recoveries of charged-off
loans were $537 and $958, respectively. Our provision for loan
losses decreased by $102, or 8.78%, and $3, or 0.11%, to $1,060
and $2,682 for the three and six months ended June 30,
2005, respectively, as compared to $1,162 and $2,685 for the
same periods in 2004. Our allowance for loan losses increased by
$1,159 to $16,880 at June 30, 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 to
1.46% at June 30, 2005 from 1.50% and 1.51% at
December 31, 2004 and June 30, 2004, respectively. As
of June 30, 2005, indicators of credit quality, as
discussed below, are mixed compared to December 31, 2004
but generally improved compared to June 30, 2004.
Management continually evaluates our credit policies and
procedures to ensure that they effectively manage risk and
facilitate appropriate internal controls. Our trend in asset
quality improvement is attributable to improved underwriting
policies and management controls. Management believes our asset
quality indicators are sustainable within the current economic
environment. The ratio of allowance for loan losses to
nonperforming assets was 177.74%, 185.56% and 158.23% at
June 30, 2005, December 31, 2004 and June 30,
2004, respectively, and the ratio of nonperforming assets to
total assets was 0.69%, 0.69% and 0.84% at June 30, 2005,
December 31, 2004 and June 30, 2004, respectively. The
ratio of nonperforming loans to total loans, excluding loans
held for sale, was 0.62%, 0.66% and 0.59% at June 30, 2005,
December 31, 2004 and June 30, 2004, respectively.
Within the bank, our largest subsidiary, the ratio of
nonperforming assets to total assets was 0.64%, 0.61% and 0.74%
at June 30, 2005, December 31, 2004 and June 30,
2004, respectively.
Our annualized net charge-offs for the six months ended
June 30, 2005 were $3,046 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 six months ended June 30, 2004
to 0.27% for the six months ended June 30, 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 0.29%
for the six months ended June 30, 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 the bank
for the six months ended June 30, 2005 were $1,716 compared
to actual net charge-offs of $3,418 for the year ended
December 31, 2004. Annualized net charge-offs in Superior
Financial for the six months ended June 30, 2005 were $497
compared to actual net charge-offs of $525 for the year ended
December 31, 2004. Annualized net charge-offs in GCB
Acceptance for the six months ended June 30, 2005 were $833
compared to actual net charge-offs of $1,099 for the year ended
December 31, 2004. At this point, management believes that
total charge-offs for 2005 in Superior Financial and GCB
Acceptance will slightly improve compared to 2004 charge-offs
based on asset quality trends.
Based on our allowance for loan loss calculation and review of
the loan portfolio, management believes the allowance for loan
losses is adequate at June 30, 2005. Management anticipates
that the provision for loan losses during the third quarter of
2005 will be consistent with the second quarter of 2005 and also
anticipates that the provision for loan losses for the entire
year of 2005 may be less than the provision for 2004 if
indicators of credit quality remain stabilized. However, the
provision for loan losses could increase for the entire year of
2005, as compared to 2004, if our loan growth continues at the
rate experienced through the six months ended June 30, 2005.
Noninterest Income. Income that is not related to
interest-earning assets, consisting primarily of service
charges, commissions and fees, has become an important
supplement to our traditional method of earning income through
interest rate spreads.
Total noninterest income for the three and six months ended
June 30, 2005 was $3,463 and $6,639 as compared to $3,070
and $6,164, respectively, for the same periods in 2004. Service
charges, commissions and fees remain the largest component of
total noninterest income and increased from $2,518 and $4,913
for the three and six months, respectively, ended June 30,
2004 to $2,836 and $4,978, respectively, for the same periods in
2005. This increase primarily reflects additional service
charges and NSF fees from deposit-related products stemming
primarily from increased volume as a result of our High
Performance
26
Checking Program introduced in the first quarter of 2005 and
also our expansion efforts. We believe that noninterest income
will continue to improve over the second half of 2005 when
compared to prior comparable periods as a result of the
increased volume in deposits resulting from our expansion
efforts and our new High Performance Checking Program. In
addition, other noninterest income increased by $75 and $410 to
$627 and $1,661 for the three and six months ended June 30,
2005, respectively, from $552 and $1,251 for the same periods in
2004. This increase for the six months ended June 30, 2005
is primarily attributable to increased fees of $195 from the
sale of mutual funds and annuities and $99 from the sale of our
interest in an ATM network vendor.
Noninterest Expense. Control of noninterest
expense also is an important aspect in enhancing income.
Noninterest expense includes personnel, occupancy, and other
expenses such as data processing, printing and supplies, legal
and professional fees, postage, FDIC assessment, etc. Total
noninterest expense was $10,422 and $20,697 for the three and
six months ended June 30, 2005 compared to $8,574 and
$17,525 for the same periods in 2004. The $1,848, or 21.55%,
increase in total noninterest expense for the three months ended
June 30, 2005 compared to the same period of 2004
principally reflects increases in all expense categories
primarily as a result of our expansion program as well as costs
of $384 associated with our High Performance Checking Program,
which we expect will continue for the remainder of 2005. This
program is designed to generate significant numbers and balances
of core transaction accounts.
Similarly, the $3,172 or 18.10%, increase in total noninterest
expense for the six months ended June 30, 2005 compared to
the same period in 2004 reflects substantially the same trends
that existed during the quarter ended June 30, 2005.
Personnel costs are the primary element of our noninterest
expenses. For the three and six months ended June 30, 2005,
salaries and benefits represented $5,099, or 48.93%, and
$10,344, or 49.98%, respectively, of total noninterest expense.
This was an increase of $635, or 14.22%, and $1,173, or 12.79%,
respectively, from the $4,464 and $9,171 for the three and six
months ended June 30, 2004. Including bank branches and
non-bank office locations, we had 53 locations at
June 30, 2005 and at December 31, 2004, as compared
to 49 at June 30, 2004, and the number of full-time
equivalent employees increased 6.80% from 456 at
June 30, 2004 to 487 at June 30, 2005. These increases
in personnel costs, number of branches and employees are
primarily the result of our expansion initiative and are
expected to increase for the remainder of 2005 with our
continued expansion efforts in Middle Tennessee and Knoxville
and as a result of the banks proposed acquisition of five
Clarksville, Tennessee branches from Old National Bank.
Primarily as a result of this overall increase in noninterest
expense, our efficiency ratio was negatively affected, as the
ratio increased from 58.36% at June 30, 2004 to 60.81% at
June 30, 2005. The efficiency ratio illustrates how much it
cost us to generate revenue. For example, it cost us 60.81 cents
to generate one dollar of revenue for the six months ended
June 30, 2005 as compared to 58.36 cents for the six months
ended June 30, 2004. We believe that our efficiency ratio
will continue to be negatively impacted for the remainder of
2005 as a result of our continued expansion efforts.
Income Taxes. The effective income tax rate for
the three and six months ended June 30, 2005 was 38.64% and
37.62%, respectively, compared to 38.41% and 37.59% for the same
periods in 2004.
|
|
|
Comparison of the Results of Operations for the Years
Ended December 31, 2004, December 31, 2003 and
December 31, 2002 |
Net Income. Net income for 2004 was $12,008, an
increase of $1,771, or 17.30%, as compared to net income of
$10,237 for 2003. The increase is primarily attributable to an
increase in net interest income of $8,195, or 20.07%, to $49,018
in 2004 from $40,823 in 2003 and resulted principally from
higher average balances of loans. In addition, total noninterest
income increased by $1,440, or 12.43%, to $13,028 in 2004 from
$11,588 in 2003. The increase in noninterest income can be
primarily attributed to a significant gain on the sale of OREO
property, the gain on the sale of our credit card portfolio and
higher fee income associated with additional volume of
deposit-related activity. Offsetting, in part, these positive
effects on net income was an increase in noninterest expense of
$6,365, or 20.79%, to $36,983 in 2004 from $30,618 in 2003. The
increase in noninterest expense resulted principally from our
growth strategy reflected in the
27
first full year of operations in Sumner and Rutherford Counties,
Tennessee, resulting from our acquisition of Gallatin-based IBC
in November, 2003, as well as the de novo branching initiative
into Davidson County, Tennessee and the NBC transaction in
Lawrence County, Tennessee, both of which occurred in the fourth
quarter of 2004.
Net income for 2003 was $10,237, an increase of $424, or 4.32%,
as compared to net income of $9,813 for 2002. The increase is
primarily attributable to an increase in noninterest income of
$1,058, or 10.05%, to $11,588 in 2003 from $10,530 in 2002 and a
reduction of $1,290, or 18.26%, in the provision for loan losses
to $5,775 in 2003 from $7,065 in 2002. Offsetting, in part,
these positive effects on net income was an increase in
noninterest expense of $1,419, or 4.86%, to $30,618 in 2003 from
$29,199 in 2002. The increase in noninterest income resulted
primarily from fees related to deposit products, as well as
additional income from our mortgage division. The reduction in
the provision for loan losses resulted primarily from the
decrease in our nonperforming assets during and as of the year
ended December 31, 2003 as a result of improving credit
quality in our bank and Superior Financial Services. The
increase in noninterest expense resulted principally from
increases in communication/data transmission expenses, charges
related to credit cards and various expenses related to
collections and repossessions. As discussed in
Business Greene County Bank below, we
completed our acquisition of Gallatin-based IBC in November,
2003. As the acquisition was consummated quite late in the year,
it did not have a material effect on our earnings for the year
ended December 31, 2003.
Net Interest Income. The largest source of
earnings for us 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 that affect net interest income are changes in
volume and yields of earning assets and interest bearing
liabilities, which are affected in part by managements
responses to changes in interest rates through asset/liability
management. During 2004, net interest income was $49,018 as
compared to $40,823 in 2003, an increase of 20.07%. We
experienced good growth in average balances of interest-earning
assets, with average total interest-earning assets increasing by
$186,148, or 22.02%, to $1,031,640 in 2004 from $845,492 in
2003. Most of the growth occurred in loans, with average loan
balances increasing by $185,947, or 23.21%, to $986,806 in 2004
from $800,859 in 2003. Average balances of most other
interest-earning assets increased slightly. Average balances of
total interest-bearing liabilities also increased in 2004 from
2003, with average total deposit balances increasing by
$137,305, or 20.64%, to $802,506 in 2004 from $665,201 in 2003,
as we emphasized various types of deposits as a loan funding
source. The NBC transaction, which closed on December 10,
2004 and in which we acquired approximately $28,000 in loans and
$69,000 in deposits, occurred sufficiently late in the year so
that it had an immaterial effect on average balances of loans
and deposits. All of the increase in net interest income in 2004
compared to 2003 related to the full-year effect of the
late-2003 IBC acquisition, increased loan volume resulting
primarily from our organic loan growth, our 2004 initiative into
Davidson County, Tennessee, as well as the late-2004 NBC
transaction.
Beginning in the second half of 2004, the Federal Open Market
Committee, or FOMC, embarked upon a program to increase
short-term interest rates at, according to the FOMCs
statements, a pace that is likely to be measured. As
of December 31, 2004, the FOMC had increased short-term
interest rates by 100 basis points. While we continue to
maintain an interest rate risk position which is asset
sensitive, a situation in which rate-sensitive assets reprice
quicker than rate-sensitive liabilities, the FOMCs
commencement of increases in short-term interest rates in
mid-2004 was not sufficient to compensate us for significant and
sustained reductions in short-term interest rates beginning in
early 2001, and we were unable to achieve upward momentum in the
repricing of our major interest-earning assets. Our aggressive
loan pricing in order to obtain market share in new markets and
increase share in existing markets further exacerbated this
situation. In addition, management has been controlling the
growth of higher-yielding subprime loans in the banks
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 our portfolio. This trend in the loan portfolio mix
also places pressure on loan yields. Consequently, our yield on
average loans declined to 6.44% in 2004 from 6.92% in 2003, and
our net interest margin declined to 4.75% in 2004 from 4.83% in
2003. This decline represents the sixth
28
consecutive year of net interest margin declines. Our net
interest margin for the fourth quarter of 2004 was 4.81%
compared to 4.82% and 4.69% for the third and second quarters of
2004, respectively. While management is cautiously optimistic
that our net interest margin has stabilized and that further
increases in short-term interest rates will enhance net interest
margin, management notes that recent and intense competitive
pressures with respect to deposit pricing have placed
significant stress on our net interest margin. Further, in view
of our 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, our net interest margin could decline slightly due to
competitive pressures related to both loan and deposit pricing.
During 2003, net interest income was $40,823 as compared to
$41,249 in 2002, a decrease of 1.03%. We experienced good growth
in average balances of interest-earning assets, with average
total interest-earning assets increasing by $65,514, or 8.40%,
to $845,492 in 2003 from $779,978 in 2002. All of the growth
occurred in loans, with average loan balances increasing by
$85,412, or 11.94%, to $800,859 in 2003 from $715,447 in 2002.
Average balances of other interest-earning assets declined, as
we elected to channel some of our liquidity into higher-yielding
loans. Average balances of total interest-bearing liabilities
also increased in 2003 from 2002, with average total deposit
balances increasing by $52,039, or 8.49%, to $665,201 in 2003
from $613,162 in 2002, as we emphasized various types of
deposits as a loan funding source. The increase in average
balances of interest-earning assets, offset, in part, by such
increase in average balances of interest-bearing liabilities,
would have increased net interest income significantly had our
net interest margin not continued to decline. However, due to
the continued decline in short-term market rates during 2003 and
our aggressive loan pricing in order to obtain market share in
new markets and increase share in existing markets, our yield on
average loans declined to 6.92% in 2003 from 8.09% in 2002.
Further, due to our asset sensitivity, a situation in which
rate-sensitive assets reprice quicker than rate-sensitive
liabilities, resulting in net interest margin compression in a
declining rate environment, our net interest margin declined to
4.83% in 2003 from 5.29% in 2002, representing the fifth
consecutive year of net interest margin declines.
Average Balances, Interest Rates and Yields. Net
interest income is affected by (i) the difference between
yields earned on interest earning assets and rates paid on
interest bearing liabilities (interest rate spread)
and (ii) the relative amounts of interest earning assets
and interest bearing liabilities. Our interest rate spread is
affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. When
the total of interest earning assets approximates or exceeds the
total of interest bearing liabilities, any positive interest
rate spread will generate net interest income. An indication of
the effectiveness of an institutions net interest income
management is its net yield on interest earning
assets, which is net interest income divided by average
interest-earning assets.
29
The following table sets forth certain information relating to
our consolidated average interest earning assets and interest
bearing liabilities and reflects the average yield on assets and
average cost of liabilities for the periods indicated. These
yields and costs are derived by dividing income or expense by
the average daily balance of assets or liabilities,
respectively, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
$ |
759,657 |
|
|
$ |
44,124 |
|
|
|
5.81% |
|
|
$ |
612,528 |
|
|
$ |
37,290 |
|
|
|
6.09% |
|
|
$ |
535,037 |
|
|
$ |
37,139 |
|
|
|
6.94% |
|
Commercial loans
|
|
|
145,870 |
|
|
|
7,685 |
|
|
|
5.27% |
|
|
|
105,629 |
|
|
|
5,532 |
|
|
|
5.24% |
|
|
|
93,525 |
|
|
|
5,724 |
|
|
|
6.12% |
|
Consumer and other loans net(2)
|
|
|
81,279 |
|
|
|
9,081 |
|
|
|
11.17% |
|
|
|
82,702 |
|
|
|
9,516 |
|
|
|
11.51% |
|
|
|
86,885 |
|
|
|
10,233 |
|
|
|
11.78% |
|
Fees on loans
|
|
|
|
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
|
|
3,106 |
|
|
|
|
|
|
|
|
|
|
|
4,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (including fees)
|
|
$ |
986,806 |
|
|
$ |
63,580 |
|
|
|
6.44% |
|
|
$ |
800,859 |
|
|
$ |
55,444 |
|
|
|
6.92% |
|
|
$ |
715,447 |
|
|
$ |
57,859 |
|
|
|
8.09% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$ |
29,382 |
|
|
$ |
1,040 |
|
|
|
3.54% |
|
|
$ |
28,297 |
|
|
$ |
946 |
|
|
|
3.34% |
|
|
$ |
37,790 |
|
|
$ |
1,490 |
|
|
|
3.94% |
|
Tax-exempt(4)
|
|
|
4,569 |
|
|
|
164 |
|
|
|
3.59% |
|
|
|
1,189 |
|
|
|
40 |
|
|
|
3.37% |
|
|
|
787 |
|
|
|
25 |
|
|
|
3.18% |
|
FHLB, Bankers Bank and other stock at cost
|
|
|
6,073 |
|
|
|
230 |
|
|
|
3.79% |
|
|
|
5,378 |
|
|
|
193 |
|
|
|
3.59% |
|
|
|
4,615 |
|
|
|
209 |
|
|
|
4.53% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$ |
40,024 |
|
|
$ |
1,434 |
|
|
|
3.58% |
|
|
$ |
34,864 |
|
|
$ |
1,179 |
|
|
|
3.38% |
|
|
$ |
43,192 |
|
|
$ |
1,724 |
|
|
|
3.99% |
|
Other short-term investments
|
|
|
4,810 |
|
|
|
62 |
|
|
|
1.29% |
|
|
|
9,769 |
|
|
|
114 |
|
|
|
1.17% |
|
|
|
21,339 |
|
|
|
346 |
|
|
|
1.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,031,640 |
|
|
|
65,076 |
|
|
|
6.31% |
|
|
|
845,492 |
|
|
|
56,737 |
|
|
|
6.71% |
|
|
|
779,978 |
|
|
|
59,929 |
|
|
|
7.68% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
32,430 |
|
|
|
|
|
|
|
|
|
|
$ |
26,926 |
|
|
|
|
|
|
|
|
|
|
$ |
22,615 |
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
34,795 |
|
|
|
|
|
|
|
|
|
|
|
27,879 |
|
|
|
|
|
|
|
|
|
|
|
25,776 |
|
|
|
|
|
|
|
|
|
Other, less allowance for loan losses
|
|
|
31,156 |
|
|
|
|
|
|
|
|
|
|
|
16,190 |
|
|
|
|
|
|
|
|
|
|
|
11,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets
|
|
$ |
98,381 |
|
|
|
|
|
|
|
|
|
|
$ |
70,995 |
|
|
|
|
|
|
|
|
|
|
$ |
60,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,130,021 |
|
|
|
|
|
|
|
|
|
|
$ |
916,487 |
|
|
|
|
|
|
|
|
|
|
$ |
840,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Average loan balances include nonaccrual loans. Interest income
collected on nonaccrual loans has been included. |
|
(2) |
Installment loans are stated net of unearned income. |
|
(3) |
The average balance of and the related yield associated with
securities available for sale are based on the cost of such
securities. |
|
(4) |
Tax exempt income has not been adjusted to tax-equivalent basis
since it is not material. |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
Balance | |
|
Interest | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW accounts and money markets
|
|
$ |
336,114 |
|
|
$ |
1,762 |
|
|
|
0.52% |
|
|
$ |
280,365 |
|
|
$ |
1,576 |
|
|
|
0.56% |
|
|
$ |
269,103 |
|
|
$ |
2,803 |
|
|
|
1.04% |
|
Time deposits
|
|
|
466,392 |
|
|
|
10,437 |
|
|
|
2.24% |
|
|
|
384,836 |
|
|
|
11,055 |
|
|
|
2.87% |
|
|
|
344,059 |
|
|
|
12,463 |
|
|
|
3.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
802,506 |
|
|
$ |
12,199 |
|
|
|
1.52% |
|
|
$ |
665,201 |
|
|
$ |
12,631 |
|
|
|
1.90% |
|
|
$ |
613,162 |
|
|
$ |
15,266 |
|
|
|
2.49% |
|
Securities sold under repurchase agreements and short-term
borrowings
|
|
|
15,903 |
|
|
|
162 |
|
|
|
1.02% |
|
|
|
14,055 |
|
|
|
112 |
|
|
|
0.80% |
|
|
|
17,133 |
|
|
|
192 |
|
|
|
1.12% |
|
Subordinated debentures
|
|
|
10,310 |
|
|
|
466 |
|
|
|
4.52% |
|
|
|
2,768 |
|
|
|
111 |
|
|
|
4.01% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
75,311 |
|
|
|
3,231 |
|
|
|
4.29% |
|
|
|
68,735 |
|
|
|
3,060 |
|
|
|
4.45% |
|
|
|
63,014 |
|
|
|
3,222 |
|
|
|
5.11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$ |
904,030 |
|
|
$ |
16,058 |
|
|
|
1.78% |
|
|
$ |
750,759 |
|
|
$ |
15,914 |
|
|
|
2.12% |
|
|
$ |
693,309 |
|
|
$ |
18,680 |
|
|
|
2.69% |
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$ |
105,763 |
|
|
|
|
|
|
|
|
|
|
$ |
73,432 |
|
|
|
|
|
|
|
|
|
|
$ |
63,373 |
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
13,271 |
|
|
|
|
|
|
|
|
|
|
|
10,991 |
|
|
|
|
|
|
|
|
|
|
|
10,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
$ |
119,034 |
|
|
|
|
|
|
|
|
|
|
$ |
84,423 |
|
|
|
|
|
|
|
|
|
|
$ |
73,495 |
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
106,957 |
|
|
|
|
|
|
|
|
|
|
|
81,305 |
|
|
|
|
|
|
|
|
|
|
|
73,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,130,021 |
|
|
|
|
|
|
|
|
|
|
$ |
916,487 |
|
|
|
|
|
|
|
|
|
|
$ |
840,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
49,018 |
|
|
|
|
|
|
|
|
|
|
$ |
40,823 |
|
|
|
|
|
|
|
|
|
|
$ |
41,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.53% |
|
|
|
|
|
|
|
|
|
|
|
4.59% |
|
|
|
|
|
|
|
|
|
|
|
4.99% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets (net interest margin)
|
|
|
|
|
|
|
|
|
|
|
4.75% |
|
|
|
|
|
|
|
|
|
|
|
4.83% |
|
|
|
|
|
|
|
|
|
|
|
5.29% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Rate/Volume Analysis. The following table analyzes
net interest income in terms of changes in the volume of
interest earning assets and interest bearing liabilities and
changes in yields and rates. The table reflects the extent to
which changes in the interest income and interest expense are
attributable to changes in volume (changes in volume multiplied
by prior year rate) and changes in rate (changes in rate
multiplied by prior year volume). Changes attributable to the
combined impact of volume and rate have been separately
identified.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 vs. 2003 | |
|
2003 vs. 2002 | |
|
|
| |
|
| |
|
|
|
|
Rate/ | |
|
Total | |
|
|
|
Rate/ | |
|
Total | |
|
|
Volume | |
|
Rate | |
|
Volume | |
|
Change | |
|
Volume | |
|
Rate | |
|
Volume | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$ |
12,873 |
|
|
$ |
(3,844 |
) |
|
$ |
(893 |
) |
|
$ |
8,136 |
|
|
$ |
6,907 |
|
|
$ |
(8,328 |
) |
|
$ |
(994 |
) |
|
$ |
(2,415 |
) |
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
36 |
|
|
|
55 |
|
|
|
2 |
|
|
|
93 |
|
|
|
(374 |
) |
|
|
(227 |
) |
|
|
57 |
|
|
|
(544 |
) |
|
Tax-exempt
|
|
|
113 |
|
|
|
3 |
|
|
|
8 |
|
|
|
124 |
|
|
|
13 |
|
|
|
1 |
|
|
|
1 |
|
|
|
15 |
|
FHLB, Bankers Bank and other stock, at cost
|
|
|
25 |
|
|
|
12 |
|
|
|
1 |
|
|
|
38 |
|
|
|
23 |
|
|
|
(29 |
) |
|
|
(10 |
) |
|
|
(16 |
) |
Other short-term investments
|
|
|
(58 |
) |
|
|
12 |
|
|
|
(6 |
) |
|
|
(52 |
) |
|
|
(189 |
) |
|
|
(100 |
) |
|
|
57 |
|
|
|
(232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
12,989 |
|
|
|
(3,762 |
) |
|
|
(888 |
) |
|
|
8,339 |
|
|
|
6,380 |
|
|
|
(8,683 |
) |
|
|
(889 |
) |
|
|
(3,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW accounts, and money market accounts
|
|
|
331 |
|
|
|
(123 |
) |
|
|
(22 |
) |
|
|
186 |
|
|
|
103 |
|
|
|
(1,276 |
) |
|
|
(54 |
) |
|
|
(1,227 |
) |
Time deposits
|
|
|
2,343 |
|
|
|
(2,443 |
) |
|
|
(518 |
) |
|
|
(618 |
) |
|
|
1,477 |
|
|
|
(2,579 |
) |
|
|
(306 |
) |
|
|
(1,408 |
) |
Short-term borrowings
|
|
|
2 |
|
|
|
41 |
|
|
|
7 |
|
|
|
50 |
|
|
|
(44 |
) |
|
|
(49 |
) |
|
|
13 |
|
|
|
(80 |
) |
Subordinated debentures
|
|
|
303 |
|
|
|
14 |
|
|
|
38 |
|
|
|
355 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
111 |
|
Notes payable
|
|
|
295 |
|
|
|
(113 |
) |
|
|
(11 |
) |
|
|
171 |
|
|
|
298 |
|
|
|
(417 |
) |
|
|
(43 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
3,274 |
|
|
|
(2,624 |
) |
|
|
(506 |
) |
|
|
144 |
|
|
|
1,945 |
|
|
|
(4,321 |
) |
|
|
(390 |
) |
|
|
(2,766 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
9,715 |
|
|
$ |
(1,138 |
) |
|
$ |
(382 |
) |
|
$ |
8,195 |
|
|
$ |
4,435 |
|
|
$ |
(4,362 |
) |
|
$ |
(499 |
) |
|
$ |
(426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, loans outstanding and loans held for
sale, net of unearned income and allowance for loan losses, were
$1,032,297 compared to $941,207 at 2003 year end. The
increase is, in part, due to the approximate $28,000 in loans
acquired via the NBC transaction, as well as the combination of
increased loan demand, our community-focused banking philosophy
and competitive loan rates. Average outstanding loans, net of
unearned interest, for 2004 were $986,806, an increase of 23.22%
from the 2003 average of $800,859. Average outstanding loans for
2002 were $715,447. The growth in average loans for the past
three years can be attributed to our continuing market expansion
through our branch network, the IBC acquisition, the NBC
transaction and aggressive programs with respect to loan
production and pricing. We continued our branch expansion with
the opening of a new full-service branch in Davidson County,
Tennessee in November, 2004.
Average investment securities for 2004 were $40,024 compared to
$34,864 in 2003 and $43,192 in 2002. The increase of $5,160, or
14.80%, from 2003 to 2004 resulted primarily from the additional
investment securities received via the IBC acquisition in the
fourth quarter of 2003. The decrease of $8,328, or 19.28%, from
2002 to 2003 primarily reflects our channeling of liquidity into
higher-yielding loans. In 2004, the average yield on investments
was 3.58%, an increase from the 3.38% yield in 2003 and a
decrease from the 3.99% yield in 2002. The increase in
investment yield in 2004 compared to 2003 primarily reflects the
positive effect of higher rates on our adjustable-rate
investment securities, as well as the purchase of investment
securities in a rising rate environment. Management believes
this trend will continue if short-term interest rates continue
to increase. Income provided by the investment portfolio in 2004
was $1,434 as compared to $1,179 in 2003 and $1,724 in 2002.
Provision for Loan Losses. Management assesses the
adequacy of the allowance for loan losses by considering a
combination of regulatory and credit risk criteria. The entire
loan portfolio is graded and
32
potential loss factors are assigned accordingly. The potential
loss factors for impaired loans are assigned based on regulatory
guidelines. The regulatory criteria are set forth in the
Interagency Policy Statement on the Allowance for Loan and
Lease Losses. The potential loss factors associated with
unimpaired loans are based on a combination of both internal and
industry net loss experience, as well as managements
review of trends within the portfolio and related industries.
Generally, commercial, commercial real estate and residential
real estate loans are assigned a level of risk at inception.
Thereafter, these loans are reviewed on an ongoing basis. The
review includes loan payment and collateral status,
borrowers financial data and borrowers internal
operating factors such as cash flows, operating income,
liquidity, leverage and loan documentation, and any significant
change can result in an increase or decrease in the loans
assigned risk grade. Aggregate dollar volume by risk grade is
monitored on an ongoing basis. The establishment of and any
changes to risk grades for consumer loans are generally based
upon payment performance.
The banks loan loss allowance is primarily a general
allowance, which is increased or decreased based on
managements assessment of the overall risk of its loan
portfolio. Occasionally, a portion of the allowance may be
allocated to a specific loan to reflect unusual circumstances
associated with that loan.
Management reviews certain key loan quality indicators on a
monthly basis, including current economic conditions,
delinquency trends and ratios, portfolio mix changes and other
information management deems necessary. This review process
provides a degree of objective measurement that is used in
conjunction with periodic internal evaluations. To the extent
that this process yields differences between estimated and
actual observed losses, adjustments are made to provisions
and/or the level of the allowance for loan losses.
Increases and decreases in the allowance for loan losses due to
changes in the measurement of impaired loans are reflected in
the provision for loan losses. Loans continue to be classified
as impaired unless payments are brought fully current and
management also considers the collection of scheduled interest
and principal to be probable.
Our provision for loan losses increased $61, or 1.06%, to $5,836
in 2004 from $5,775 in 2003. In 2004, management determined that
loss experience throughout our company had essentially
stabilized and declined slightly from levels experienced in
2003. Accordingly, while management concluded that the level of
provisions in 2004 should not materially differ from the amount
in 2003, management also deemed that provisions in excess of net
charge-offs were necessary in order to appropriately maintain
the allowance to accommodate loan growth. In 2004, net
charge-offs in the bank, Superior Financial and
GCB Acceptance were $3,418, $524 and $1,100, respectively,
totaling $5,042. In 2003, these net charge-offs were $2,652,
$1,070 and $1,415, respectively, totaling $5,137. Management
attributes the slight decrease in net charge-offs to an increase
in loan quality and an improvement in the local and regional
economy. Assuming no change in current economic trends, and
based on information presently available, management anticipates
that net charge-offs within our overall loan portfolios should
continue at approximately the same rate and, in terms of
percentages of total loans, may slightly decline.
The ratio of nonperforming assets to total assets was 0.69% at
December 31, 2004 and 0.79% at December 31, 2003. The
ratio of our allowance for loan losses to nonperforming assets
increased in 2004 to 185.56% from 166.35% in 2003. Total
nonperforming loans increased $2,377, or 52.48%, to $6,906 at
December 31, 2004 from $4,529 at December 31, 2003.
Nonaccrual loans, which are nonperforming loans as to which the
bank no longer recognizes interest income, increased $1,937, or
44.99%, to $6,242 at December 31, 2004 from $4,305 at
December 31, 2003. The increase is primarily due to several
commercial relationships placed on nonaccrual status and in the
process of litigation or foreclosure action. Management believes
that these loans are adequately secured and does not anticipate
any material losses. Note, however, that total impaired loans,
which include substandard as well as nonaccrual loans, increased
by $1,578, or 14.84%, from $10,632 at December 31, 2003 to
$12,210 at December 31, 2004. We record a risk allocation
allowance for loan losses on all loans in this category;
further, we specifically record additional allowance amounts for
individual loans when the circumstances so warrant. For further
discussion of nonperforming assets as it relates to foreclosed
real estate and impaired loans, see
33
Business Lending Activities Past
Due, Special Mention, Classified and Nonaccrual Loans
located below.
To further manage our credit risk on loans, we maintain a
watch list of loans that, although currently
performing, have characteristics that require closer supervision
by management. At December 31, 2004, we had identified
approximately $37,556 in loans that were placed on our
watch list, an increase from the approximate $33,870
as of December 31, 2003. During 2002, management revised
its policy to increase the number of distinguishing
characteristics that causes a loan to be considered a
watch list loan. Management believes the increased
level of watch list loans is not an indication of
further credit quality deterioration but, rather, is the result
of the improved risk management processes.
Noninterest Income. The generation of noninterest
income, which is income that is not related to interest earning
assets and consists primarily of service charges, commissions
and fees, has become more important as increases in levels of
interest bearing deposits and other liabilities make it more
difficult to maintain interest rate spreads.
Total noninterest income for 2004 increased to $13,028 as
compared to $11,588 in 2003 and $10,530 in 2002. The largest
components of noninterest income are service charges,
commissions and fees, which totaled $9,074 in 2004, $7,898 in
2003 and $7,343 in 2002. The increase in 2004 primarily reflects
additional fees generated from higher volume of deposit-related
products. In addition, total noninterest income was further
increased in 2004, compared to 2003, by significant net gains on
the sale of other real estate owned, or OREO, property in the
amount of $400, and a non-recurring gain on the sale of our
credit card portfolio in the amount $322 which is included in
other noninterest income. These increases were offset, in part,
by a decline in mortgage banking income in our mortgage division
as a result of slowed refinancing activity, from $1,389 in 2003
to $704 in 2004.
Noninterest Expense. Control of noninterest
expense also is an important aspect in managing net income. Non
interest expense includes, among others, personnel, occupancy,
and other expenses such as data processing, printing and
supplies, legal and professional fees, postage and FDIC
assessments. Total noninterest expense was $36,983 in 2004
compared to $30,618 in 2003 and $29,199 in 2002. The increase of
$6,365, or 20.79%, in 2004 as compared to 2003 principally
reflects increases in all categories primarily as a result of
the late-2003 IBC acquisition, our Davidson County, Tennessee
initiative and the NBC transaction.
Professional services fees increased by $679, or 70.29%, to
$1,645 in 2004 from $966 in 2003. We have spent significant time
and resources in complying with Section 404 of the
Sarbanes-Oxley Act of 2002, or SOX, and approximately one-half
of the $679 increase is attributable to out-of-pocket costs
associated with SOX compliance work. The remainder of the $679
increase is primarily attributable to our expansion strategies
executed in 2004 and referenced above.
Income Taxes. The Companys effective income
tax rate was 37.5% in 2004 compared to 36.1% in 2003 and 36.7%
in 2002. The increased 2004 effective income tax rate relates to
higher state income tax expense. It is likely that the 2005
effective income tax rate will approximate the 2004 effective
rate.
Financial Condition
|
|
|
Financial Condition at June 30, 2005 and
December 31, 2004 |
Total assets at June 30, 2005 were $1,374,194, an increase
of $140,791, or 11.41%, from total assets of $1,233,403 at
December 31, 2004. The increase in assets was primarily
reflective of the $110,618, or 10.73%, increase, as reflected on
the Condensed Consolidated Balance Sheets, in net loans,
excluding loans held for sale, and was funded by the $150,412,
or 15.07%, increase in deposits resulting from our expansion
efforts and our High Performance Checking Program.
At June 30, 2005, loans, net of unearned income and
allowance for loan losses, were $1,141,764 compared to
$1,031,146 at December 31, 2004, an increase of $110,618,
or 10.73%, from December 31, 2004. The increase in loans
during the first six months of 2005 primarily reflects an
increase in
34
commercial real estate loans and commercial loans and the growth
in the loan portfolio of Middle Tennessee Bank & Trust.
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 increased slightly by $248, or
3.59%, during the six months ended June 30, 2005 to $7,154
from $6,906 at December 31, 2004. At June 30, 2005,
the ratio of our allowance for loan losses to non-performing
assets (which include non-accrual loans) was 177.74% compared to
185.56% at December 31, 2004.
We maintain an investment portfolio to provide liquidity and
earnings. Investments at June 30, 2005 with an amortized
cost of $54,892 had a market value of $54,719. At
December 31, 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 June 30, 2005
results from the purchase of short-term federal agency
securities as well as mortgage-backed securities reflecting
managements decision to channel more of our liquid assets
into more favorable positions on the yield curve.
|
|
|
Financial Condition at December 31, 2004 and
December 31, 2003 |
Total assets at December 31, 2004 were $1,233,403, an
increase of $124,881, or 11.27%, over total assets of $1,108,522
at December 31, 2003. This increase reflects an increase in
loans, net, of $93,485, or 9.97%, to $1,031,146 at
December 31, 2004 from $937,661 at December 31, 2003.
The increase in loans can be attributed to our continued focus
on generating good credit quality loans, competitive loan
pricing and the addition of experienced lenders to our lending
staff, as well as the NBC transaction and the Davidson County,
Tennessee branch opening in late 2004. Average assets for 2004
also increased to $1,130,021, an increase of $213,534, or
23.30%, from the average asset balance of $916,487 for 2003. The
increase in average assets is due primarily to the effect of the
IBC acquisition that occurred late in 2003. Due primarily to the
additional noninterest expense incurred as a result of our
expansion strategies carried out during 2004 and the attendant
increase in average assets, along with the continued decline in
net interest margin, our return on average assets decreased in
2004 to 1.06% from 1.12% in 2003.
Total assets at December 31, 2003 were $1,108,522, an
increase of $209,126, or 23.25%, over total assets of $899,396
at December 31, 2002. This increase reflects an increase in
loans, net, of $199,990, or 27.11%, to $937,661 at
December 31, 2003 from $737,671 at December 31, 2002.
A primary component of these increases stemmed from the IBC
acquisition, which resulted in an increase in total assets and
loans, net, in the approximate amounts of $189,000 and $109,000,
respectively. Absent the IBC acquisition, total assets and
loans, net, would have increased approximately $20,126 and
$90,990, respectively. Average assets for 2003 also increased to
$916,487, an increase of $76,449, or 9.10%, from the average
asset balance of $840,038 for 2002. Because the IBC acquisition
occurred late in the year, its effect on the increases in
average balances for 2003 over 2002 is not considered material.
This increase was primarily the result of an 11.94% increase in
the average balance of loans to $800,859 in 2003 from $715,447
in 2002. Due primarily to the increase in average assets and the
continued decline in net interest margin, our return on average
assets decreased in 2003 to 1.12% from 1.17% in 2002.
Earning assets consist of loans, investment securities and short
term investments that earn interest. Average earning assets
during 2004 were $1,031,640, an increase of 22.02% from an
average of $845,492 in 2003. The increase in average earnings
assets is due primarily to the effect of the IBC acquisition
that occurred late in 2003.
Nonperforming loans include nonaccrual and classified loans. We
have a policy of placing loans 90 days delinquent in
nonaccrual status and charging them off at 120 days past
due. Other loans past due that are well secured and in the
process of collection continue to be carried on our balance
sheet. For further information, see Note 1 of the Notes to
Consolidated Financial Statements included elsewhere in
35
this prospectus. We have aggressive collection practices in
which senior management is significantly and directly involved.
We maintain an investment portfolio to provide liquidity and
earnings. Investments at December 31, 2004 had an amortized
cost of $39,742 and a market value of $39,824 as compared to an
amortized cost of $38,531 and market value of $39,045 at
December 31, 2003. We invest principally in shorter-term,
callable federal agency securities which, while usually
generating a higher yield than non-callable securities, are at
risk of being called in a declining interest rate environment.
If the securities are called, the proceeds are typically
invested at lower yields than those existing on the called
securities. During 2004, approximately $9,800 of our securities
were called and the proceeds were reinvested at lower yields.
There are, however, certain advantages of investing in
shorter-term, callable securities, including relative price
stability, as compared to non-callable securities, with respect
to changes in interest rates. As a consequence and, in
combination with the shorter-term and adjustable securities in
the remainder of our investment portfolio, our investments are
less susceptible to significant changes in market value. An
effect of this approach is reflected in the absence of any
significant difference between the securities amortized
cost and market value at December 31, 2004 and
December 31, 2003.
Our deposits were $998,022 at December 31, 2004 which
represents an increase of $90,907, or 10.02%, from the $907,115
of deposits at December 31, 2003. Noninterest bearing
demand deposit balances increased 5.04% to $109,956 at
December 31, 2004 from $104,683 at December 31, 2003.
Average interest bearing deposits increased $137,305, or 20.64%,
to $802,506 in 2004 from $665,201 in 2003. The increase in
average deposits is due primarily to the effect of the IBC
acquisition that occurred late in 2003. The NBC transaction
occurred late in the fourth quarter of 2004 and had an
immaterial affect on average deposits for 2004. In 2003, average
interest bearing deposits increased $52,039, or 8.49%, over
2002. In addition to the IBC acquisition, these increases in
deposits are also the result of our expansion into the Knoxville
market, active marketing of money market accounts and
certificates of deposits with competitive interest rates in
order to fund loan growth and targeting the transactional
accounts of selected municipalities.
Our continued ability to fund our loan and overall asset growth
remains dependent upon the availability of deposit market share
in our existing markets of East and Middle Tennessee. According
to FDIC data, as of September 30, 2004, the total deposit
base of Tennessee commercial banks had a weighted average rate
of 1.28%. Our management does not anticipate further significant
growth in our deposit base unless we either offer interest rates
well above our prevailing rate on average interest bearing
deposits of 1.52% or we acquire deposits from other financial
institutions. Based on data from SNL Financial LC, during 2004,
the premiums charged in Tennessee by selling financial
institutions for deposit accounts ranged from 2.96% to 6.00%. If
we take action to increase our deposit base by offering above
market interest rates or by acquiring deposits from other
financial institutions and thereby increase our overall cost of
deposits, our net interest income could be adversely affected if
we are unable to correspondingly increase the rates we charge on
our loans. Should loan demand exceed deposit growth, we may
increase our borrowings as a funding source. For further
information see Liquidity and Capital Resources
below. Interest paid on deposits in 2004 totaled $12,199,
reflecting a 1.52% cost on average interest bearing deposits of
$802,506. In 2003, interest of $12,631 was paid at a cost of
1.90% on average deposits of $665,201. In 2002, interest of
$15,266 was paid at a cost of 2.49% on average deposits of
$613,162.
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 us to have
sufficient funds available for reserve requirements, customer
demand for loans, withdrawal of deposit balances and maturities
of deposits and other liabilities. Our 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
11.53% of the total liquidity base at June 30, 2005, as
compared to 10.63% at December 31, 2004. The liquidity base
is generally
36
defined to include deposits, repurchase agreements, notes
payable and subordinated debentures. In addition, we maintain
borrowing availability with the Federal Home Loan Bank of
Cincinnati, or FHLB, approximating $29,283 at June 30,
2005. We also maintain federal funds lines of credit totaling
$111,000 at nine correspondent banks, of which $111,000 was
available at June 30, 2005. We believe we have sufficient
liquidity to satisfy our current operating needs.
In 2004, our operating activities provided $28,432 of cash
flows, reflecting net income of $12,008 after taking into
account non cash operating expenses including $5,836 in
provision for loan losses and amortization and depreciation of
$3,273, and non cash operating income, including $3,825 in the
net change in accrued interest payable and other liabilities.
Cash flows from operating activities were increased by the
proceeds from the sale of held for sale loans of $49,892, offset
by cash used to originate held for sale loans of $46,982.
For the six months ended June 30, 2005, our operating
activities provided $3,625 of cash flows. Net income of $6,649
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) $2,682 in provision for loan losses, and
(ii) $1,763 of depreciation and amortization. These
increases in cash flows were offset by (i) $5,327 decrease
in accrued interest payable and other liabilities,
(ii) $1,076 increase in other assets, and
(iii) deferred tax benefit of $797. In addition, the cash
flows provided by the proceeds from sales of mortgage loans
exceeded the cash flows used by the originations of mortgage
loans held for sale by $301.
Investing activities, including lending, used $38,284 of our
cash flows in 2004, a decrease of $25,052 from $63,336 in 2003.
The NBC transaction provided $38,003 in net cash flows which was
a significant factor in reducing the cash used in investing
activities in 2004 as compared to 2003. Cash flows from
investing activities also increased from the sale of other real
estate in the amount of $3,714. These cash inflows were reduced
by the cash used in the net increase in loans in the amount of
$71,597. This use of cash declined $28,954 from the $100,551
used in 2003, reflecting a slight reduction in organic loan
demand in 2004 compared to 2003 as interest rates began to
increase in the second half of 2004. Additional uses of cash
were the excess of purchases of securities available for sale
over the maturities of securities in the amount of $1,365 and
investment in premises and equipment of $4,044 reflecting our
expansion initiatives.
For the six months ended June 30, 2005, our net increase in
loans used $115,364 in cash flows and was the primary component
of the $131,901 in net cash used in investing activities for the
six months ended June 30, 2005. In addition, we purchased
$16,860 in investment securities available for sale. Purchases
of additional insurance related to certain benefit plans used
$1,450 in cash flows, and fixed asset additions, net of proceeds
from sale of fixed assets, used $1,188 in cash flows.
Net additional cash flows of $39,159 were provided by financing
activities in 2004, an increase of $17,487 from the $21,672 in
2003. The financing cash flow activity in 2004 with respect to
notes payable reflected a net source of funds in the amount of
$22,192, as compared to a net use of funds in 2003 in the amount
of $19,329, reflecting our election to rely more on FHLB
advances to fund lending activity. Cash flows provided by the
net change in deposits, excluding deposits totaling
approximately $69,000 acquired in the late-2004 NBC transaction
was $21,025, a decline of $12,732 from $33,757 in 2003. As in
prior years, our cash flow from financing activities was
decreased by our dividend payments during 2004 of $4,666.
For the six months ended June 30, 2005, the net increase in
deposits of $150,413 was the primary source of cash flows from
financing activities. These cash flows were offset, in part, by
the excess of repayments of notes payable over proceeds from
notes payable in the amount of $14,713. In addition, dividends
paid in the amount of $1,837 further reduced the total net cash
provided from financing activities.
Capital Resources. Our capital position is
reflected in our shareholders equity, subject to certain
adjustments for regulatory purposes. Shareholders equity,
or capital, is a measure of our net worth, soundness and
viability. We continue to exhibit a strong capital position
while consistently paying dividends to our shareholders.
Further, our capital base allows us to take advantage of business
37
opportunities while maintaining the level of resources deemed
appropriate by our management to address business risks inherent
in our daily operations.
On September 25, 2003, we 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 from the date of
issuance without penalty. We used the proceeds of the offering
to support our acquisition of IBC, and the capital raised from
the offering qualifies as Tier I capital for regulatory
purposes.
On June 28, 2005, we issued an additional $3,093 of
subordinated debentures, as part of a privately placed pool of
trust preferred securities. The securities, due in 2035, bear
interest at a floating rate of 1.68% above the three-month LIBOR
rate, reset quarterly, and are callable in five years from the
date of issuance without penalty. We used the proceeds to
augment our capital position in connection with our significant
asset growth, and the capital raised from the offering qualifies
as Tier 1 capital for regulatory purposes.
Shareholders equity on December 31, 2004 was
$108,718, an increase of $6,783, or 6.65%, from $101,935 on
December 31, 2003. The increase in shareholders
equity arises primarily from net income for 2004 of $12,008
($1.55 per share, assuming dilution). This increase was
offset in part by quarterly dividend payments during 2004 that
totaled $4,666 ($.61 per share).
Shareholders equity on June 30, 2005 was $113,486, an
increase of $4,768, or 4.39%, from $108,718 on December 31,
2004. The increase in shareholders equity primarily
reflected net income for the six months ended June 30, 2005
of $6,649 ($0.86 per share, assuming dilution). This
increase was offset by quarterly dividend payments during the
six months ended June 30, 2005 totaling $1,837
($0.24 per share).
On September 18, 2002, we announced that our board of
directors had authorized the repurchase of up to $2,000 of our
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, we announced that our
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 and there is
no guarantee as to the exact number of shares to be repurchased
by us. To date, we have purchased 25,700 shares at an
aggregate cost of approximately $538 under this program, which
was renewed by our board of directors on November 15, 2004.
The repurchase program will terminate on the earlier to occur of
our repurchase of the total authorized dollar amount of our
common stock or December 1, 2005.
Our 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 FRB and the FDIC
require both 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 (consisting of common
equity, retained earnings and a limited amount of qualifying
perpetual preferred stock and trust preferred securities, net of
goodwill and other intangible assets and accumulated other
comprehensive income) 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. These guidelines
also specify that bank holding companies that are experiencing
internal growth or making acquisitions will be expected to
maintain capital positions substantially above the minimum
supervisory levels. At December 31, 2004, we and our bank
each satisfied our respective minimum regulatory capital
38
requirements, and the bank was well capitalized
within the meaning of federal regulatory requirements. Actual
capital levels and minimum levels (in millions) were:
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|
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|
|
|
|
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|
|
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|
|
Minimum Amounts to | |
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|
|
|
|
be Well Capitalized | |
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|
|
|
|
Minimum Required | |
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Under Prompt | |
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|
|
|
for Capital | |
|
Corrective Action | |
|
|
Actual | |
|
Adequacy Purposes | |
|
Provisions | |
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| |
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| |
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| |
|
|
Actual | |
|
Ratio (%) | |
|
Actual | |
|
Ratio (%) | |
|
Actual | |
|
Ratio (%) | |
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|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated
|
|
$ |
108.4 |
|
|
|
10.5 |
|
|
$ |
83.0 |
|
|
|
8.0 |
|
|
$ |
103.7 |
|
|
|
10.0 |
|
|
Bank
|
|
|
109.5 |
|
|
|
10.6 |
|
|
|
83.0 |
|
|
|
8.0 |
|
|
|
103.7 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
95.4 |
|
|
|
9.2 |
|
|
$ |
41.5 |
|
|
|
4.0 |
|
|
$ |
62.2 |
|
|
|
6.0 |
|
|
Bank
|
|
|
96.5 |
|
|
|
9.3 |
|
|
|
41.5 |
|
|
|
4.0 |
|
|
|
62.2 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
95.4 |
|
|
|
8.5 |
|
|
$ |
45.1 |
|
|
|
4.0 |
|
|
$ |
56.4 |
|
|
|
5.0 |
|
|
Bank
|
|
|
96.5 |
|
|
|
8.6 |
|
|
|
45.1 |
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|
|
4.0 |
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|
|
56.4 |
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|
|
5.0 |
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2003
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|
|
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|
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|
|
Total Capital (to Risk Weighted Assets)
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|
|
|
|
|
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|
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|
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Consolidated
|
|
$ |
103.0 |
|
|
|
10.9 |
|
|
$ |
75.7 |
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|
|
8.0 |
|
|
$ |
94.7 |
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|
|
10.0 |
|
|
Bank
|
|
|
103.8 |
|
|
|
11.0 |
|
|
|
75.2 |
|
|
|
8.0 |
|
|
|
94.7 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
91.1 |
|
|
|
9.6 |
|
|
$ |
37.9 |
|
|
|
4.0 |
|
|
$ |
56.8 |
|
|
|
6.0 |
|
|
Bank
|
|
|
91.3 |
|
|
|
9.7 |
|
|
|
37.9 |
|
|
|
4.0 |
|
|
|
56.8 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
91.1 |
|
|
|
8.4 |
|
|
$ |
43.4 |
|
|
|
4.0 |
|
|
$ |
54.2 |
|
|
|
5.0 |
|
|
Bank
|
|
|
91.3 |
|
|
|
9.4 |
|
|
|
39.3 |
|
|
|
4.0 |
|
|
|
58.9 |
|
|
|
5.0 |
|
At June 30, 2005, we and our bank subsidiary each satisfied
our respective minimum capital requirements and the bank was
well-capitalized within the meaning of federal
regulatory requirements. The table below sets forth our and the
banks capital position at June 30, 2005.
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|
|
|
|
|
|
|
Required | |
|
Required to be | |
|
Greene County | |
|
Greene County | |
|
|
Minimum Ratio | |
|
Well Capitalized | |
|
Bank | |
|
Bancshares | |
|
|
| |
|
| |
|
| |
|
| |
Tier 1 risk-based capital
|
|
|
4.00% |
|
|
|
6.00% |
|
|
|
9.02% |
|
|
|
8.94% |
|
Total risk-based capital
|
|
|
8.00% |
|
|
|
10.00% |
|
|
|
10.27% |
|
|
|
10.19% |
|
Leverage Ratio
|
|
|
4.00% |
|
|
|
5.00% |
|
|
|
7.93% |
|
|
|
7.85% |
|
Our proposed acquisition of five Clarksville, Tennessee bank
branches from Old National Bank will require that we contribute
additional capital to the bank in order for the bank to remain
well-capitalized within the meaning of federal regulatory
requirements. The acquisition agreement entered into by the bank
in connection with the Old National branch acquisition requires
that we secure financing in an amount necessary to achieve
required capital levels in the event that we are unable to
complete this offering.
On August 30, 2005, we entered into a revolving credit
agreement with SunTrust Bank pursuant to which SunTrust has
agreed to loan us up to $35,000, with this amount being reduced
to $15,000 after November 30, 2005. SunTrusts
obligation to make advances to us under the credit agreement
terminates on August 29, 2006, unless the loan is extended
or earlier terminated. Advances under the credit agreement will
bear interest, at our discretion, at a rate of one, two, three
or six month LIBOR plus 1.75% per annum from August 30,
2005 to November 30, 2005 and at a rate of one, two, three
or six month LIBOR plus 1.25% per annum from November 30,
2005 to the end of the loans term. We are required to
39
pay SunTrust a commitment fee equal to 0.15% per annum on the
average daily amount of the loan that has not been borrowed by
us and must use the proceeds from certain equity offerings to
repay any outstanding indebtedness.
We anticipate that prior to November 30, 2005 we will only
request advances under the credit agreement if we are unable to
consummate this offering resulting in net proceeds in an amount
sufficient to satisfy the requirements of our Clarksville branch
acquisition agreement prior to the closing of the Clarksville
branch acquisition.
Off-Balance Sheet Arrangements
At June 30, 2005, we had outstanding unused lines of credit
and standby letters of credit totaling $302,080 and unfunded
loan commitments outstanding of $76,048. 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, we have 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 June 30, 2005, we 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 our off-balance sheet commitments as of
June 30, 2005, which by their terms have contractual
maturity dates subsequent to June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
|
|
|
|
More Than | |
|
|
|
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Commitments to make loans fixed
|
|
$ |
10,904 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,904 |
|
Commitments to make loans variable
|
|
|
65,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,144 |
|
Unused lines of credit
|
|
|
191,573 |
|
|
|
38,078 |
|
|
|
4,689 |
|
|
|
39,085 |
|
|
|
273,425 |
|
Letters of credit
|
|
|
13,320 |
|
|
|
14,167 |
|
|
|
1,003 |
|
|
|
165 |
|
|
|
28,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
280,941 |
|
|
$ |
52,245 |
|
|
$ |
5,692 |
|
|
$ |
39,250 |
|
|
$ |
378,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of Contractual Obligations
In the ordinary course of operations, we enter into certain
contractual obligations. Such obligations include the funding of
operations through debt issuances as well as leases for premises
and equipment. The
40
following table summarizes our significant fixed and
determinable contractual obligations as of June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
|
|
|
|
More Than | |
|
|
|
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Deposits without a stated maturity
|
|
$ |
520,480 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
520,480 |
|
Certificate of deposits
|
|
|
438,441 |
|
|
|
139,343 |
|
|
|
49,589 |
|
|
|
581 |
|
|
|
627,954 |
|
Repurchase agreements
|
|
|
16,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,426 |
|
FHLB advances and notes payable
|
|
|
369 |
|
|
|
2,624 |
|
|
|
60,362 |
|
|
|
7,154 |
|
|
|
70,509 |
|
Subordinated debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,403 |
|
|
|
13,403 |
|
Operating lease obligations
|
|
|
568 |
|
|
|
858 |
|
|
|
250 |
|
|
|
136 |
|
|
|
1,812 |
|
Deferred compensation
|
|
|
412 |
|
|
|
1,170 |
|
|
|
|
|
|
|
710 |
|
|
|
2,292 |
|
Purchase obligations
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
976,739 |
|
|
$ |
143,995 |
|
|
$ |
110,201 |
|
|
$ |
21,984 |
|
|
$ |
1,252,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, we routinely enter 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 our liquidity or capital resources.
Asset/ Liability Management
Our Asset/ Liability Committee, or ALCO, actively measures and
manages interest rate risk using a process developed by the
bank. The ALCO is also responsible for approving our
asset/liability management policies, overseeing the formulation
and implementation of strategies to improve balance sheet
positioning and earnings, and reviewing our interest rate
sensitivity position.
The primary tool that management uses to measure short term
interest rate risk is a net interest income simulation model
prepared by an independent national consulting firm and reviewed
by another separate and independent national consulting firm.
These simulations estimate the impact that various changes in
the overall level of interest rates over one and two year time
horizons would have on net interest income. The results help us
develop strategies for managing exposure to interest rate risk.
Like any forecasting technique, interest rate simulation
modeling is based on a large number of assumptions. In this
case, the assumptions relate primarily to loan and deposit
growth, asset and liability prepayments, interest rates and
balance sheet management strategies. Management believes that
both individually and in the aggregate the assumptions are
reasonable. Nevertheless, the simulation modeling process
produces only a sophisticated estimate, not a precise
calculation of exposure.
Our current guidelines for risk management call for preventive
measures if a gradual 200 basis point increase or decrease
in short term rates over the next 12 months would affect
net interest income over the same period by more than 18.5%. We
have been operating well within these guidelines. As of
December 31, 2004 and 2003, based on the results of the
independent consulting firms simulation model, we could
expect net interest income to increase by approximately 11.32%
and 9.97%, respectively, if short term interest rates gradually
increase by 200 basis points. Conversely, if short term
interest rates gradually decrease by 200 basis points, net
interest income could be expected to decrease by approximately
14.26% and 12.73%, respectively.
The scenario described above, in which net interest income
increases when interest rates increase and decreases when
interest rates decline, is typically referred to as being
asset sensitive because interest earning assets
reprice at a faster pace than interest bearing liabilities. At
December 31, 2004, approximately 50% of our gross loans had
adjustable rates. While management believes, based on its
asset/liability modeling, that we are asset sensitive, it also
believes that a rapid, significant and prolonged increase or
decrease in rates could have a substantial adverse impact on our
net interest margin.
41
Our net interest income simulation model incorporates certain
assumptions with respect to interest rate floors on certain
deposits and other liabilities. Further, given the relatively
low interest rate environment, a 200 basis point downward
shock could very well reduce the costs on some liabilities below
zero. In these cases, our model incorporates constraints which
prevent such a shock from simulating liability costs to zero.
We also use an economic value of equity model, prepared and
reviewed by the same independent national consulting firm, to
complement our short term interest rate risk analysis. The
benefit of this model is that it measures exposure to interest
rate changes over time frames longer than the two year net
interest income simulation. The economic value of our equity is
determined by calculating the net present value of projected
future cash flows for current asset and liability positions
based on the current yield curve.
Economic value analysis has several limitations. For example,
the economic values of asset and liability balance sheet
positions do not represent the true fair values of the
positions, since economic values reflect an analysis at one
particular point in time and do not consider the value of our
franchise. In addition, we must estimate cash flow for assets
and liabilities with indeterminate maturities. Moreover, the
models present value calculations do not take into
consideration future changes in the balance sheet that will
likely result from ongoing loan and deposit activities conducted
by our core business. Finally, the analysis requires assumptions
about events which span several years. Despite its limitations,
the economic value of equity model is a relatively sophisticated
tool for evaluating the longer term effect of possible interest
rate movements.
Our current guidelines for risk management call for preventive
measures if an immediate 200 basis point increase or
decrease in interest rates would reduce the economic value of
equity by more than 23%. We have been operating well within
these guidelines. As of December 31, 2004 and 2003, based
on the results of the independent national consulting
firms simulation model and reviewed by the separate and
independent national consulting firm, we could expect our
economic value of equity to increase by approximately 12.77% and
10.05%, respectively, if short term interest rates immediately
increased by 200 basis points. Conversely, if short term
interest rates immediately decrease by 200 basis points,
economic value of equity could be expected to decrease by
approximately 17.06% and 14.15%, respectively. The higher
percentage changes in economic value of equity as of
December 31, 2004, compared to December 31, 2003, are
primarily due to a combination of shorter effective asset lives
and extended effective liability lives at December 31,
2004, compared to December 31, 2003, resulting in a more
asset sensitive position in a rising rate environment.
Inflation
The effect of inflation on financial institutions differs from
its impact on other types of businesses. Since assets and
liabilities of banks are primarily monetary in nature, they are
more affected by changes in interest rates than by the rate of
inflation.
Inflation generates increased credit demand and fluctuation in
interest rates. Although credit demand and interest rates are
not directly tied to inflation, each can significantly impact
net interest income. As in any business or industry, expenses
such as salaries, equipment, occupancy, and other operating
expenses also are subject to the upward pressures created by
inflation.
Since the rate of inflation has been stable during the last
several years, the impact of inflation on our earnings has been
insignificant.
Effect of New Accounting Standards
On March 9, 2004, the SEC Staff issued Staff Accounting
Bulletin No. 105, Application of Accounting
Principles to Loan Commitments
(SAB 105). SAB 105 clarifies existing
accounting practices relating to the valuation of issued loan
commitments, including interest rate lock commitments
(IRLC), subject to SFAS No. 149 and
Derivative Implementation Group Issue C13, Scope
Exceptions:
42
When a Loan Commitment is included in the Scope of
Statement 133. Furthermore, SAB 105 disallows the
inclusion of the values of a servicing component and other
internally developed intangible assets in the initial and
subsequent IRLC valuation. The provisions of SAB 105 were
effective for loan commitments entered into after March 31,
2004. The adoption of SAB 105 did not have a material
impact on the consolidated financial statements.
In March 2004, the Emerging Issues Task Force (EITF)
released EITF Issue 03-01, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments. The Issue provides guidance for determining
whether an investment is other-than-temporarily impaired and
requires certain disclosures with respect to these investments.
The recognition and measurement guidance for
other-than-temporary impairment has been delayed by the issuance
of FASB Staff Position EITF 03-1-1 on September 30,
2004. The adoption of Issue 03-1 did not result in any
other-than-temporary impairment.
In December 2003, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position
(SOP) 03-3, Accounting for Loans or Certain Debt
Securities Acquired in a Transfer. The SOP addresses
accounting for differences between contractual cash flows and
cash flows expected to be collected from an investors
initial investment in loans or debt securities acquired in a
transfer if those differences relate to a deterioration of
credit quality. The SOP also prohibits companies from
carrying over or creating a valuation allowance in
the initial accounting for loans acquired that meet the scope
criteria of the SOP. The SOP is effective for loans acquired in
fiscal years beginning after December 15, 2004. The
adoption of this SOP is not expected to have a material impact
on our financial position or results of operations.
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, we will adopt SFAS No. 123(R) commencing
with the quarter ending March 31, 2006. Had the fair value
of employee stock option compensation been included in the
consolidated financial statements, net income for the six month
periods ending June 30, 2005 and 2004 would have been
decreased by $123 and $75, respectively.
43
BUSINESS
Dollar amounts presented in this section, other than per
share amounts, are in thousands.
Greene County Bancshares, Inc.
We were formed in 1985 and serve as the bank holding company for
Greene County Bank, which is a Tennessee-chartered commercial
bank that conducts our principal business. We are the second
largest bank holding company headquartered in the state of
Tennessee. Our bank currently maintains a main office in
Greeneville, Tennessee and 42 full-service bank branches
primarily in East Tennessee and Middle Tennessee. Our non-bank
subsidiaries currently operate from nine separate locations.
Our assets consist primarily of our investment in the bank and
liquid investments. Our primary activities are conducted through
the bank. At June 30, 2005, our consolidated total assets
were approximately $1,370,000, our consolidated net loans,
including loans held for sale, were approximately $1,140,000,
our total deposits were approximately $1,150,000 and our total
shareholders equity was approximately $113,500.
Our net income is dependent primarily on our net interest
income, which is the difference between the interest income
earned on loans, investment assets and other interest-earning
assets and the interest paid on deposits and other
interest-bearing liabilities. To a lesser extent, our net income
also is affected by our noninterest income derived principally
from service charges and fees as well as the level of
noninterest expenses such as salaries and employee benefits.
Our operations are significantly affected by prevailing economic
conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are
influenced by the general credit needs of individuals and small
and medium-sized businesses in our market areas, competition
among lenders, the level of interest rates and the availability
of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest, primarily the rates paid on
competing investments, account maturities and the levels of
personal income and savings in our market areas.
Our principal executive offices are located at 100 North Main
Street, Greeneville, Tennessee 37743-4992 and our telephone
number is (423) 639-5111.
Greene County Bank and its Subsidiaries
The bank is a Tennessee chartered commercial bank established in
1890 which has its principal executive offices in Greeneville,
Tennessee. The principal business of the bank consists of
attracting deposits from the general public and investing those
funds, together with funds generated from operations and from
principal and interest payments on loans, primarily in
commercial loans, commercial and residential real estate loans,
and installment consumer loans. At June 30, 2005, the bank
had 41 full-service banking offices located in Greene,
Washington, Blount, Knox, Hamblen, McMinn, Loudon, Hawkins,
Sullivan, Cocke and Monroe Counties in East Tennessee, and in
Sumner, Rutherford, Davidson and Lawrence Counties in Middle
Tennessee. The bank also operates two other full service
branches one located in nearby Madison County, North
Carolina and the other in nearby Bristol, Virginia. Further, the
bank operates a trust and money management function doing
business as Presidents Trust from offices in Wilson
County, Tennessee, and a mortgage banking operation in Knox
County, Tennessee.
Deposits of the bank are insured by the Bank Insurance Fund of
the FDIC to a maximum of $100,000 for each insured depositor.
The bank is subject to supervision and regulation by the
Tennessee Department of Financial Institutions and the FDIC.
On November 21, 2003, we entered the Middle Tennessee
market by completing our acquisition of Gallatin,
Tennessee-based IBC. IBC was the bank holding company for First
Independent Bank, which had four offices in Gallatin and
Hendersonville, Tennessee in Sumner County, and Rutherford Bank
and Trust, which had three offices in Murfreesboro and Smyrna,
Tennessee in Rutherford County. First
44
Independent Bank and Rutherford Bank and Trust were subsequently
merged with our bank, with our bank as the surviving entity.
On November 15, 2004 we established banking operations in
Nashville, Davidson County, Tennessee, with the opening of a
full-service branch operating under the name of Middle Tennessee
Bank & Trust. This new branch expanded our presence in
the Nashville metropolitan market and helped fill in the market
between Sumner and Rutherford Counties.
On December 10, 2004 we purchased three full-service
branches from National Bank of Commerce located in Lawrence
County, Tennessee. This purchase added to our presence in Middle
Tennessee.
The bank also offers other financial services through three
wholly-owned subsidiaries. Through Superior Financial Services,
the bank operates eight consumer finance company offices located
in eight East Tennessee counties. Through GCB Acceptance
Corporation, the bank operates a sub-prime automobile lending
company with an office in Johnson City, Tennessee. Through
Fairway Title Co., the bank operates a title company
headquartered in Knox County, Tennessee. At June 30, 2005,
these three subsidiaries had total combined assets of $31,272
and total combined net loans of $29,443.
Growth Strategy and Market Areas
We expect that, over the intermediate term, our 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.
Since 2003, we have concentrated on bringing our
community-focused style of banking to Middle Tennessee,
including the Nashville MSA, and on continuing our growth in the
Knoxville MSA. Our expansion in these areas has resulted from a
strategy combining de novo branching and select whole bank and
branch acquisitions, including our acquisition of IBC in
November 2003, our establishment of Middle Tennessee
Bank & Trust in November 2004 and our acquisition of
three branches in Lawrence County, Tennessee in December 2004.
The Nashville and Knoxville MSAs are the first and third largest
Tennessee metropolitan areas, respectively, according to
U.S. Census Bureau data from its 2000 Census, with
projected population growth rates from 2005 to 2010 of 10.4% and
5.8%, respectively, and we believe that they offer desirable
demographics in terms of our target customers. In the last
22 months, we have opened branches of our Middle Tennessee
Bank & Trust brand in the Donnelson and Franklin areas
of Davidson and Williamson Counties, Tennessee in the Nashville
MSA and a branch of our American Fidelity Bank brand in the West
Knoxville area of Knoxville, Tennessee. We have also acquired
space in the Green Hills area of Nashville and the Farragut area
of Knoxville and expect to open our Green Hills branch by the
end of 2005 and our Farragut branch in the first half of 2006.
Our acquisition of IBC in late 2003 added seven branches in
Rutherford and Sumner Counties, Tennessee to our operations and
the NBC transaction added three branches in Lawrence County,
Tennessee in late 2004.
We believe that our recent expansion in the Knoxville and
Nashville MSAs, and the related loan growth that we have
experienced in those markets, complements our operations in the
Kingsport/Bristol MSA, the fifth largest MSA in Tennessee and
the Johnson City MSA, the seventh largest MSA in Tennessee.
On July 20, 2005, our bank subsidiary agreed to purchase
five branches in Clarksville, Tennessee from Old National Bank,
Evansville, Indiana. We believe that our proposed acquisition of
these five branches in Clarksville, Tennessee will strengthen
our presence in Middle Tennessee. Clarksville is the sixth
largest MSA in Tennessee, with a population of 232,000 according
to the 2000 U.S. Census Bureau data. It is less than an
hour from downtown Nashville and is projected to experience
population growth of 12.1% from 2005 to 2010 according to
U.S. Census Bureau data. With the acquisition, we are
acquiring approximately $172,000 in deposits and approximately
$120,000 in loans at June 30, 2005, along with an
experienced banking staff. The consummation of this transaction
is subject to the satisfaction of various
45
customary closing conditions, including the receipt of required
regulatory approvals, and is expected to occur in the fourth
quarter of 2005.
Our Banking Strategies
We believe that many bank customers still want to do business
with a local bank. While we operate under a single bank charter,
we conduct business under 17 bank brands with a distinct
community-based brand in almost every market. We offer local
decision making through the presence of our regional executives
in each of our markets, while at the same time maintaining a
cost effective organizational structure in our back office and
support areas.
We focus our lending efforts predominately on individuals and
small to medium-sized businesses while we generate deposits
primarily from individuals in our local communities. To aid in
our deposit generation efforts, we offer our customers extended
hours of operation during the week as well as Saturday banking.
We also offer free online banking and recently established our
High Performance Checking Program which we believe will allow us
to generate a significant number of core transaction accounts
with significant balances.
Lending Activities
General. Our loan portfolio is composed of
commercial, commercial and residential real estate and
installment consumer loans. These loans are primarily originated
within our market areas of East and Middle Tennessee and are
generally secured by residential or commercial real estate or
business or personal property located in Greene, Washington,
Hamblen, Sullivan, Hawkins, Blount, Knox, McMinn, Loudon,
Monroe, Cocke, Sumner, Rutherford, Davidson, Williamson and
Lawrence Counties, Tennessee.
Loan Composition. The following table sets
forth the composition of our loans at December 31 for each
of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial
|
|
$ |
165,975 |
|
|
$ |
134,823 |
|
|
$ |
93,836 |
|
|
$ |
96,122 |
|
|
$ |
87,680 |
|
Commercial real estate
|
|
|
484,088 |
|
|
|
445,104 |
|
|
|
342,407 |
|
|
|
295,002 |
|
|
|
288,254 |
|
Residential real estate
|
|
|
319,713 |
|
|
|
295,528 |
|
|
|
233,128 |
|
|
|
210,489 |
|
|
|
204,202 |
|
Loans held for sale
|
|
|
1,151 |
|
|
|
3,546 |
|
|
|
6,646 |
|
|
|
7,945 |
|
|
|
1,725 |
|
Consumer
|
|
|
82,532 |
|
|
|
81,624 |
|
|
|
77,644 |
|
|
|
80,314 |
|
|
|
88,687 |
|
Other
|
|
|
4,989 |
|
|
|
6,134 |
|
|
|
14,938 |
|
|
|
13,779 |
|
|
|
12,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,058,448 |
|
|
$ |
966,759 |
|
|
$ |
768,599 |
|
|
$ |
703,651 |
|
|
$ |
683,041 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned Income
|
|
|
(10,430 |
) |
|
|
(10,988 |
) |
|
|
(11,696 |
) |
|
|
(13,159 |
) |
|
|
(14,248 |
) |
Allowance for loan losses
|
|
|
(15,721 |
) |
|
|
(14,564 |
) |
|
|
(12,586 |
) |
|
|
(11,221 |
) |
|
|
(11,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$ |
1,032,297 |
|
|
$ |
941,207 |
|
|
$ |
744,317 |
|
|
$ |
679,271 |
|
|
$ |
657,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Loan Maturities. The following table reflects at
December 31, 2004 the dollar amount of loans maturing based
on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and loans having no
stated maturity are reported as due in one year or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After | |
|
|
|
|
|
|
|
|
One Year | |
|
|
|
|
|
|
Due in One | |
|
Through | |
|
Due After | |
|
|
|
|
Year or Less | |
|
Five Years | |
|
Five Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Commercial
|
|
$ |
101,785 |
|
|
$ |
58,541 |
|
|
$ |
5,649 |
|
|
$ |
165,975 |
|
Commercial real estate
|
|
|
172,164 |
|
|
|
273,236 |
|
|
|
38,688 |
|
|
|
484,088 |
|
Residential real estate
|
|
|
41,968 |
|
|
|
102,082 |
|
|
|
175,663 |
|
|
|
319,713 |
|
Loans held-for-sale
|
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
1,151 |
|
Consumer
|
|
|
19,376 |
|
|
|
61,329 |
|
|
|
1,827 |
|
|
|
82,532 |
|
Other
|
|
|
3,619 |
|
|
|
1,123 |
|
|
|
247 |
|
|
|
4,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
340,063 |
|
|
$ |
496,311 |
|
|
$ |
222,074 |
|
|
$ |
1,058,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the dollar amount of the loans
maturing subsequent to the year ending December 31, 2005
distinguished between those with predetermined interest rates
and those with floating, or variable, interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate | |
|
Variable Rate | |
|
Total | |
|
|
| |
|
| |
|
| |
Commercial
|
|
$ |
39,554 |
|
|
$ |
24,636 |
|
|
$ |
64,190 |
|
Commercial real estate
|
|
|
192,385 |
|
|
|
119,539 |
|
|
|
311,924 |
|
Residential real estate
|
|
|
157,902 |
|
|
|
119,843 |
|
|
|
277,745 |
|
Loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
61,784 |
|
|
|
1,372 |
|
|
|
63,156 |
|
Other
|
|
|
1,209 |
|
|
|
161 |
|
|
|
1,370 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
452,834 |
|
|
$ |
265,551 |
|
|
$ |
718,385 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans. Commercial loans are made for a
variety of business purposes, including working capital,
inventory and equipment and capital expansion. At
December 31, 2004, commercial loans outstanding totaled
$165,975, or 16.08% of our net loan portfolio. Such loans are
usually amortized over one to seven years and generally mature
within five years. Commercial loan applications must be
supported by current financial information on the borrower and,
where appropriate, by adequate collateral. Commercial loans are
generally underwritten by addressing cash flow (debt service
coverage), primary and secondary sources of repayment, financial
strength of any guarantor, liquidity, leverage, management
experience, ownership structure, economic conditions and
industry specific trends and collateral. The loan to value ratio
depends on the type of collateral. Generally speaking, accounts
receivable are financed between 70% and 80% of accounts
receivable less than 90 days past due. If other collateral
is taken to support the loan, the loan to value of accounts
receivable may approach 85%. Inventory financing will range
between 50% and 60% depending on the borrower and nature of
inventory. We require a first lien position for such loans.
These types of loans are generally considered to be a higher
credit risk than other loans originated by us.
Commercial Real Estate Loans. We originate
commercial loans, generally to existing business customers,
secured by real estate located in our market area. At
December 31, 2004, commercial real estate loans totaled
$484,088 or 46.89%, of our net loan portfolio. Such loans are
usually amortized over 10 to 20 years, generally mature
within five years and are priced based in part upon the prime
rate, as reported in The Wall Street Journal. Commercial real
estate loans are generally underwritten by addressing cash flow
(debt service coverage), primary and secondary source of
repayment, financial strength of any guarantor, strength of the
tenant (if any), liquidity, leverage, management experience,
ownership structure, economic conditions and industry specific
trends and collateral. Generally, we will loan up to 80 -
85% of the value of improved property, 65% of the value of raw
land and 75% of the value of land to be acquired
47
and developed. A first lien on the property and assignment of
lease is required if the collateral is rental property, with
second lien positions considered on a case by case basis.
Residential Real Estate. We also originate one to
four family, owner occupied residential mortgage loans secured
by property located in our primary market area. The majority of
our residential mortgage loans consists of loans secured by
owner occupied, single family residences. At December 31,
2004, we had $319,713, or 30.97%, of our net loan portfolio in
residential real estate loans. Residential real estate loans
generally have a loan-to-value ratio of 85%. These loans are
underwritten by giving consideration to the ability to pay,
stability of employment or source of income, credit history and
loan-to-value ratio. Home equity loans make up approximately 27%
of residential real estate loans. Home equity loans may have
higher loan-to-value ratios when the borrowers repayment
capacity and credit history conform to underwriting standards.
Superior Financial extends subprime mortgages to borrowers who
generally have a higher risk of default than mortgages extended
by the bank. Subprime mortgages totaled $12,314, or 3.85%, of
our residential real estate loans at December 31, 2004.
We sell most of our one to four family mortgage loans in the
secondary market to Freddie Mac and other mortgage investors
through the banks mortgage banking operation. Sales of
such loans to Freddie Mac and other mortgage investors totaled
$49,892 and $78,478 during 2004 and 2003, respectively, and the
related mortgage servicing rights were sold together with the
loans.
Installment Consumer Loans. At December 31,
2004, our installment consumer loan portfolio totaled $82,532,
or 7.99%, of our total net loan portfolio. Our consumer loan
portfolio is composed of secured and unsecured loans originated
by the bank, Superior Financial and GCB Acceptance. The consumer
loans of the bank have a higher risk of default than other loans
originated by the bank. Further, consumer loans originated by
Superior Financial and GCB Acceptance, which are finance
companies rather than banks, generally have a greater risk of
default than such loans originated by commercial banks and,
accordingly, carry a higher interest rate. Superior Financial
and GCB Acceptance installment consumer loans totaled
approximately $29,919, or 36.25%, of our installment consumer
loans at December 31, 2004. The performance of consumer
loans will be affected by the local and regional economy as well
as the rates of personal bankruptcies, job loss, divorce and
other individual specific characteristics of the borrower.
Past Due, Special Mention, Classified and Nonaccrual
Loans. We classify our problem loans into three
categories: past due loans, special mention loans and classified
loans (both accruing and non accruing interest).
When management determines that a loan is no longer performing
and that collection of interest appears doubtful, the loan is
placed on nonaccrual status. All loans that are 90 days
past due are considered nonaccrual unless they are adequately
secured and there is reasonable assurance of full collection of
principal and interest. Management closely monitors all loans
that are contractually 90 days past due, treated as
special mention or otherwise classified or on
nonaccrual status. Nonaccrual loans that are 120 days past
due without assurance of repayment are charged off against the
allowance for loan losses.
48
The following table sets forth information with respect to our
nonperforming assets at the dates indicated. At these dates, we
did not have any restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Loans accounted for on a nonaccrual basis
|
|
$ |
6,242 |
|
|
$ |
4,305 |
|
|
$ |
7,475 |
|
|
$ |
5,857 |
|
|
$ |
4,813 |
|
Accruing loans which are contractually past due 90 days or
more as to interest or principal payments
|
|
|
664 |
|
|
|
224 |
|
|
|
307 |
|
|
|
871 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
6,906 |
|
|
|
4,529 |
|
|
|
7,782 |
|
|
|
6,728 |
|
|
|
5,288 |
|
Real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosures
|
|
|
1,353 |
|
|
|
3,599 |
|
|
|
4,805 |
|
|
|
2,589 |
|
|
|
1,937 |
|
|
Other real estate held and repossessed assets
|
|
|
213 |
|
|
|
627 |
|
|
|
767 |
|
|
|
623 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
8,472 |
|
|
$ |
8,755 |
|
|
$ |
13,354 |
|
|
$ |
9,940 |
|
|
$ |
7,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our continuing efforts to resolve nonperforming loans
occasionally include foreclosures, which result in our ownership
of the real estate underlying the mortgage. If nonaccrual loans
at December 31, 2004 had been current according to their
original terms and had been outstanding throughout 2004, or
since origination if originated during the year, interest income
on these loans would have been approximately $244. Interest
actually recognized on these loans during 2004 was not
significant.
Foreclosed real estate decreased $2,246 or 62.41% to $1,353 at
December 31, 2004 from $3,599 at December 31, 2003.
The foreclosed real estate consists of 13 properties, of which
three are commercial properties with an aggregate carrying value
of $703, five are single family residential properties with an
aggregate carrying value of $383, three are multi-family homes
with an aggregate carrying value of $257 and two are vacant lots
with an aggregate carrying value of $10. Management expects to
liquidate these properties during 2005. Management has recorded
these properties at fair value less estimated selling cost and
the subsequent sale of such properties is not expected to result
in any adverse effect on our results of operations, subject to
business and marketing conditions at the time of sale. Other
repossessed assets decreased $414, or 66.03% to $213 at
December 31, 2004 from $627 at December 31, 2003. This
decrease is primarily due to improved repossession results at
Superior Financial and GCB Acceptance.
Total impaired loans increased by $1,578, or 14.84%, from
$10,632 at December 31, 2003 to $12,210 at
December 31, 2004. This increase is primarily reflective of
additional impaired loans in the bank resulting from several
commercial relationships placed on nonaccrual status and in the
process of litigation or foreclosure action.
At December 31, 2004, we had approximately $5,968 in loans
that are not currently classified as nonaccrual or 90 days
past due or otherwise restructured but which known information
about possible credit problems of borrowers caused management to
have concerns as to the ability of the borrowers to comply with
present loan repayment terms. These loans were considered
classified by us and were composed primarily of various
commercial, commercial real estate and consumer loans.
Management believes these loans, in the aggregate, are
adequately secured and management does not expect any material
loss.
Allowance for Loan Losses. The allowance for loan
losses is maintained at a level which management believes is
adequate to absorb all probable losses on loans then present in
the loan portfolio. The amount of the allowance is affected by:
(1) loan charge offs, which decrease the allowance;
(2) recoveries on loans previously charged off, which
increase the allowance; and (3) the provision of possible
loan losses charged to income, which increases the allowance. In
determining the provision for possible loan losses, it is
necessary for management to monitor fluctuations in the
allowance resulting from actual charge offs and recoveries, and
to periodically review the size and composition of the loan
portfolio in light of current and anticipated economic
conditions in an effort to evaluate portfolio risks. If actual
49
losses exceed the amount of the allowance for loan losses, our
earnings could be adversely affected. The amount of the
provision is based on managements judgment of those risks.
During the year ended December 31, 2004, our provision for
loan losses increased slightly by $61, or 1.06%, to $5,836 from
$5,775 for the year ended December 31, 2003, while the
allowance for loan losses increased by $1,157, or 7.94%, to
$15,721 at December 31, 2004 from $14,564 at
December 31, 2003. Although the increase in provisions from
2003 to 2004 was modest, management nevertheless deemed that
provisions in excess of net charge-offs were necessary in order
to appropriately maintain the allowance to accommodate loan
growth. In addition, the allowance for loan losses was increased
by $363 in 2004 by the allowance acquired in the NBC transaction.
The following is a summary of activity in the allowance for loan
losses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at beginning of year
|
|
$ |
14,564 |
|
|
$ |
12,586 |
|
|
$ |
11,221 |
|
|
$ |
11,728 |
|
|
$ |
10,332 |
|
Reserve acquired in acquisition
|
|
|
363 |
|
|
|
1,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
14,927 |
|
|
|
13,926 |
|
|
|
11,221 |
|
|
|
11,728 |
|
|
|
10,332 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(1,538 |
) |
|
|
(1,007 |
) |
|
|
(1,216 |
) |
|
|
(411 |
) |
|
|
(429 |
) |
|
Commercial real estate
|
|
|
(1,044 |
) |
|
|
(664 |
) |
|
|
(956 |
) |
|
|
(997 |
) |
|
|
(537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(2,582 |
) |
|
|
(1,671 |
) |
|
|
(2,172 |
) |
|
|
(1,408 |
) |
|
|
(966 |
) |
|
Residential real estate
|
|
|
(424 |
) |
|
|
(745 |
) |
|
|
(740 |
) |
|
|
(669 |
) |
|
|
(800 |
) |
|
Consumer
|
|
|
(3,962 |
) |
|
|
(4,381 |
) |
|
|
(4,736 |
) |
|
|
(5,753 |
) |
|
|
(6,022 |
) |
|
Other
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(6,980 |
) |
|
|
(6,797 |
) |
|
|
(7,648 |
) |
|
|
(7,830 |
) |
|
|
(7,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
304 |
|
|
|
195 |
|
|
|
239 |
|
|
|
11 |
|
|
|
43 |
|
|
Commercial real estate
|
|
|
66 |
|
|
|
92 |
|
|
|
54 |
|
|
|
54 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
370 |
|
|
|
287 |
|
|
|
293 |
|
|
|
65 |
|
|
|
180 |
|
|
Residential real estate
|
|
|
63 |
|
|
|
92 |
|
|
|
141 |
|
|
|
102 |
|
|
|
69 |
|
|
Consumer
|
|
|
1,504 |
|
|
|
1,281 |
|
|
|
1,514 |
|
|
|
1,197 |
|
|
|
926 |
|
|
Other
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,938 |
|
|
|
1,660 |
|
|
|
1,948 |
|
|
|
1,364 |
|
|
|
1,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs:
|
|
|
(5,042 |
) |
|
|
(5,137 |
) |
|
|
(5,700 |
) |
|
|
(6,466 |
) |
|
|
(6,613 |
) |
Provision for loan losses
|
|
|
5,836 |
|
|
|
5,775 |
|
|
|
7,065 |
|
|
|
5,959 |
|
|
|
8,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
15,721 |
|
|
$ |
14,564 |
|
|
$ |
12,586 |
|
|
$ |
11,221 |
|
|
$ |
11,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans outstanding, net of
unearned income, during the period
|
|
|
0.51 |
% |
|
|
0.64 |
% |
|
|
0.80 |
% |
|
|
0.94 |
% |
|
|
1.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to nonperforming loans
|
|
|
227.64 |
% |
|
|
321.57 |
% |
|
|
161.73 |
% |
|
|
166.78 |
% |
|
|
221.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to total loans, net of
unearned income
|
|
|
1.50 |
% |
|
|
1.53 |
% |
|
|
1.68 |
% |
|
|
1.64 |
% |
|
|
1.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Breakdown of Allowance for Loan Losses by Category. The
following table presents an allocation among the listed loan
categories of our allowance for loan losses at the dates
indicated and the percentage of loans in each category to the
total amount of loans at the respective year-ends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
of Loan | |
|
|
|
of Loan | |
|
|
|
of Loan | |
|
|
|
of Loan | |
|
|
|
of Loan | |
|
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
in Each | |
|
|
|
|
Category | |
|
|
|
Category | |
|
|
|
Category | |
|
|
|
Category | |
|
|
|
Category | |
|
|
|
|
to Total | |
|
|
|
to Total | |
|
|
|
to Total | |
|
|
|
to Total | |
|
|
|
to Total | |
Balance at End of Period Applicable to |
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
Amount | |
|
Loans | |
|
Amount(1) | |
|
Loans | |
|
Amount(1) | |
|
Loans | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Commercial
|
|
$ |
3,666 |
|
|
|
15.68% |
|
|
$ |
3,001 |
|
|
|
13.95% |
|
|
$ |
1,998 |
|
|
|
12.21% |
|
|
$ |
2,072 |
|
|
|
13.66% |
|
|
$ |
1,482 |
|
|
|
12.84% |
|
Commercial real estate
|
|
|
5,939 |
|
|
|
45.73% |
|
|
|
4,737 |
|
|
|
46.04% |
|
|
|
3,961 |
|
|
|
44.56% |
|
|
|
3,144 |
|
|
|
41.93% |
|
|
|
4,443 |
|
|
|
42.20% |
|
Residential real estate
|
|
|
1,922 |
|
|
|
30.21% |
|
|
|
2,037 |
|
|
|
30.57% |
|
|
|
2,031 |
|
|
|
30.33% |
|
|
|
1,951 |
|
|
|
29.91% |
|
|
|
2,067 |
|
|
|
29.90% |
|
Loans held for sale
|
|
|
|
|
|
|
0.11% |
|
|
|
|
|
|
|
0.37% |
|
|
|
|
|
|
|
0.86% |
|
|
|
|
|
|
|
1.13% |
|
|
|
|
|
|
|
0.25% |
|
Consumer
|
|
|
3,856 |
|
|
|
7.80% |
|
|
|
4,080 |
|
|
|
8.44% |
|
|
|
4,153 |
|
|
|
10.10% |
|
|
|
3,581 |
|
|
|
11.41% |
|
|
|
3,268 |
|
|
|
12.98% |
|
Other
|
|
|
338 |
|
|
|
0.47% |
|
|
|
709 |
|
|
|
0.63% |
|
|
|
443 |
|
|
|
1.94% |
|
|
|
473 |
|
|
|
1.96% |
|
|
|
468 |
|
|
|
1.83% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
15,721 |
|
|
|
100.00% |
|
|
$ |
14,564 |
|
|
|
100.00% |
|
|
$ |
12,586 |
|
|
|
100.00% |
|
|
$ |
11,221 |
|
|
|
100.00% |
|
|
$ |
11,728 |
|
|
|
100.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Balances related to certain loan categories have been
reclassified in prior years to reflect revised allocation
methods used beginning in 2002. |
Investment Activities
General. We maintain a portfolio of investments to
provide liquidity and an additional source of income.
Securities by Category. The following table sets
forth the carrying value of the securities, by major categories,
held by us at December 31, 2004, 2003 and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
U.S. Government, corporations and agencies
|
|
$ |
250 |
|
|
$ |
748 |
|
|
$ |
|
|
|
Obligations of state and political subdivisions
|
|
|
3,382 |
|
|
|
4,136 |
|
|
|
448 |
|
|
Corporate securities
|
|
|
742 |
|
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,381 |
|
|
$ |
5,632 |
|
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
U.S. Government, corporations and agencies
|
|
$ |
26,989 |
|
|
$ |
27,420 |
|
|
$ |
25,769 |
|
|
Obligations of state and political subdivisions
|
|
|
1,821 |
|
|
|
1,880 |
|
|
|
1,053 |
|
|
Trust preferred securities
|
|
|
6,508 |
|
|
|
6,599 |
|
|
|
6,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
35,318 |
|
|
$ |
33,199 |
|
|
$ |
33,322 |
|
|
|
|
|
|
|
|
|
|
|
51
Maturity Distributions of Securities. The
following table sets forth the distributions of maturities of
securities at amortized cost as of December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After | |
|
Due After | |
|
|
|
|
|
|
|
|
One Year | |
|
Five Years | |
|
|
|
|
|
|
Due in One | |
|
Through | |
|
Through | |
|
Due After | |
|
|
|
|
Year or Less | |
|
Five Years | |
|
10 Years | |
|
10 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
US Treasury securities and Federal agency
obligations available for sale
|
|
$ |
5,010 |
|
|
$ |
15,522 |
|
|
$ |
2,627 |
|
|
$ |
3,889 |
|
|
$ |
27,048 |
|
Federal agency obligations held to maturity
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
Obligations of state and political subdivisions
available for sale
|
|
|
100 |
|
|
|
818 |
|
|
|
895 |
|
|
|
|
|
|
|
1,813 |
|
Obligations of state and political subdivisions held
to maturity
|
|
|
200 |
|
|
|
1,460 |
|
|
|
1,372 |
|
|
|
350 |
|
|
|
3,382 |
|
Other securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500 |
|
|
|
6,500 |
|
Other securities held to maturity
|
|
|
|
|
|
|
491 |
|
|
|
258 |
|
|
|
|
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
5,560 |
|
|
|
18,291 |
|
|
|
5,152 |
|
|
|
10,739 |
|
|
|
39,742 |
|
Market value adjustment on available-for-sale securities
|
|
|
(24 |
) |
|
|
(56 |
) |
|
|
(2 |
) |
|
|
39 |
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,536 |
|
|
$ |
18,235 |
|
|
$ |
5,150 |
|
|
$ |
10,778 |
|
|
$ |
39,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield(a)
|
|
|
2.38 |
% |
|
|
3.21 |
% |
|
|
3.95 |
% |
|
|
5.20 |
% |
|
|
3.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Actual yields on tax exempt obligations do not differ materially
from yields computed on a tax equivalent basis. |
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Deposits
Deposits are the primary source of our funds. These deposits
consist of checking accounts (including accounts opened in
connection with our recently established High Performance
Checking Program), regular savings deposits, NOW accounts, Money
Market Accounts and market rate Certificates of Deposit.
Deposits are attracted from individuals, partnerships and
corporations in our market area. In addition, we obtain deposits
from state and local entities and, to a lesser extent,
U.S. Government and other depository institutions. Our
policy permits the acceptance of limited amounts of brokered
deposits and we had $46,000 in brokered deposits at
June 30, 2005, which were 4.0% of total deposits.
The following table sets forth the average balances and average
interest rates based on daily balances for deposits for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
|
Balance | |
|
Rate Paid | |
|
Balance | |
|
Rate Paid | |
|
Balance | |
|
Rate Paid | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Types of deposits (all in domestic offices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
$ |
105,763 |
|
|
|
|
|
|
$ |
73,432 |
|
|
|
|
|
|
$ |
63,373 |
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
272,382 |
|
|
|
0.59 |
% |
|
|
225,508 |
|
|
|
0.61 |
% |
|
|
217,249 |
|
|
|
1.06 |
% |
Savings deposits
|
|
|
63,732 |
|
|
|
0.26 |
% |
|
|
54,857 |
|
|
|
0.36 |
% |
|
|
51,854 |
|
|
|
0.95 |
% |
Time deposits
|
|
|
466,392 |
|
|
|
2.24 |
% |
|
|
384,836 |
|
|
|
2.87 |
% |
|
|
344,059 |
|
|
|
3.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
908,269 |
|
|
|
|
|
|
$ |
738,633 |
|
|
|
|
|
|
$ |
676,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The following table indicates the amount of our certificates of
deposit of $100,000 or more by time remaining until maturity as
of December 31, 2004.
|
|
|
|
|
|
|
|
Certificate of | |
Maturity Period |
|
Deposits | |
|
|
| |
Three months or less
|
|
$ |
44,767 |
|
Over three through six months
|
|
|
22,438 |
|
Over six through twelve months
|
|
|
35,211 |
|
Over twelve months
|
|
|
43,809 |
|
|
|
|
|
|
Total
|
|
$ |
146,225 |
|
|
|
|
|
Competition
To compete effectively, we rely substantially on local
commercial activity; personal contacts by our directors,
officers, other employees and shareholders; personalized
services; and our reputation in the communities we serve.
According to data as of June 30, 2004 published by SNL
Financial LC and using information from the FDIC, the bank
ranked as the largest independent commercial bank headquartered
in East Tennessee, and its major market areas include Greene,
Hamblen, Hawkins, Sullivan, Washington, Madison, Loudon, Blount,
Knox, McMinn, Sumner, Rutherford, Davidson and Lawrence
Counties, Tennessee and portions of Cocke, Monroe and Jefferson
Counties, Tennessee. In Greene County, in which we enjoyed our
largest deposit share as of June 30, 2004, there were eight
commercial banks (including our bank) and one savings bank,
operating 27 branches and holding an aggregate of
approximately $840 million in deposits as of June 30,
2004. The following table sets forth the banks deposit
share, excluding credit unions, in each county in which it has
one or more full-service branches as of June 30, 2004,
according to data published by the FDIC:
|
|
|
|
|
County |
|
Deposit Share | |
|
|
| |
Greene, TN
|
|
|
33.34% |
|
Lawrence, TN(1)
|
|
|
13.26% |
|
Hawkins, TN
|
|
|
13.06% |
|
Blount, TN
|
|
|
11.12% |
|
Sumner, TN
|
|
|
7.04% |
|
McMinn, TN
|
|
|
6.28% |
|
Hamblen, TN
|
|
|
5.39% |
|
Cocke, TN
|
|
|
4.97% |
|
Madison, NC
|
|
|
4.59% |
|
Washington, TN
|
|
|
4.35% |
|
Loudon, TN
|
|
|
4.17% |
|
Rutherford, TN
|
|
|
2.66% |
|
Sullivan, TN
|
|
|
2.42% |
|
Monroe, TN
|
|
|
1.84% |
|
Knox, TN
|
|
|
0.08% |
|
Bristol, VA(2)
|
|
|
0.02% |
|
Davidson, TN(3)
|
|
|
0.00% |
|
|
|
(1) |
Includes three full-service branches in Lawrence County acquired
on December 10, 2004. |
|
(2) |
Bristol, VA is deemed a city. |
|
(3) |
The de novo branch in Davidson County began operations on
November 15, 2004. |
Employees
As of June 30, 2005 we employed 487 full-time
equivalent employees. None of our employees are presently
represented by a union or covered under a collective bargaining
agreement. Management considers relations with employees to be
good.
53
MANAGEMENT
Executive Officers
The following table sets forth information regarding our
executive officers:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Title |
|
|
| |
|
|
R. Stan Puckett
|
|
|
49 |
|
|
Our and our banks chairman of the board and our chief
executive officer since 1990; chief executive officer of the
bank since February 1989; president of First American National
Bank of Johnson City, Tennessee from December 1987 to February
1989; vice president of First American National Bank of Johnson
City, Tennessee from June 1986 to December 1987; assistant vice
president of First Union National Bank in Asheville, North
Carolina from September 1983 to June 1986; commercial loan
officer of Signet Bank in Bristol, Virginia from September 1977
to June 1983 |
Kenneth R. Vaught
|
|
|
41 |
|
|
Our and our banks president and chief operating officer
since June 2002; senior vice president and senior regional
executive for our banks statewide offices from 2000 to
2002; senior vice president and regional executive for our
banks Blount and Knox County, Tennessee offices from 1998
to 2000; senior vice president and commercial banking manager of
First Tennessee Bank, Maryville, Tennessee from 1995 to 1998;
vice president of First Tennessee Bank, Maryville, Tennessee
from 1991 to 1995; commercial loan officer for First Tennessee
Bank from 1989 to 1991; management trainee with Hamilton Bank
(SunTrust affiliate) in Johnson City, Tennessee from 1987 to 1989 |
Steve L. Droke
|
|
|
55 |
|
|
Our and our banks senior vice president and chief credit
officer since July 1997; senior vice president and senior
credit officer with First American Corporation from 1993 to
1997; senior vice president and senior commercial relationship
manager with First American Corporation from 1984 to 1993;
senior vice president and city executive, Johnson City,
Tennessee with First American National Bank from 1983 to 1984;
senior vice president and city executive, Bristol, Tennessee
with First Eastern (which was acquired by First American
National Bank) from 1981 to 1983; vice president and commercial
lender with First National Bank of Sullivan County (subsequently
known as First Eastern) from 1979 to 1981 |
William F. Richmond*
|
|
|
56 |
|
|
Our and our banks senior vice president, chief financial
officer and assistant secretary since February 1996; transition
coordinator for various financial matters from November 1995
through January 1996 for Heritage Federal Bancshares, Inc. and
First American Corporation (now a part of AmSouth
Bancorporation); senior vice president and chief financial
officer of Heritage Federal Bancshares from June 1991 through
October 1995; controller of Heritage Federal Bancshares from
April 1985 through May 1991 |
54
|
|
|
|
|
|
|
Name |
|
Age | |
|
Title |
|
|
| |
|
|
Ronald E. Mayberry
|
|
|
51 |
|
|
Our and our banks regional president, Sumner, Rutherford
and Lawrence counties since November 2003 as a result of our
acquisition of IBC headquartered in Gallatin, Tennessee;
president and chief executive officer of First Independent Bank
and IBC from January 1990 to November 2003; president and chief
executive officer of First Southern Bank in Murfreesboro,
Tennessee from January 1987 to December 1989; branch
manager and administrator, executive vice president of First and
Peoples National Bank in Gallatin, Tennessee from
August 1979 to December 1986; management trainee of
First Tennessee Bank in Gallatin, Tennessee from June 1975
to July 1979 |
|
|
* |
Mr. Richmond has notified our board of directors of his
intent to retire from his current positions effective as of
January 1, 2006, as more fully described in our Current
Report on Form 8-K filed with the SEC on July 21, 2005. |
Directors
The following table sets forth certain information with respect
to each of our current directors. Each of our directors also
currently serves as a director of the bank. There are no
arrangements or understandings between us and any director
pursuant to which such person has been selected as a director or
nominee for director of us, and no director or nominee is
related to any other director, nominee or executive officer by
blood, marriage or adoption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director | |
|
Current Term | |
|
|
Name |
|
Age | |
|
Since(1) | |
|
to Expire | |
|
Previous Five-Years Business Experience |
|
|
| |
|
| |
|
| |
|
|
Charles S. Brooks
|
|
|
67 |
|
|
|
1990 |
|
|
|
2006 |
|
|
Chairman of the Board, McInturff, Milligan & Brooks
(insurance agency) |
W.T. Daniels
|
|
|
60 |
|
|
|
1987 |
|
|
|
2006 |
|
|
Property management |
Charles H. Whitfield, Jr.
|
|
|
47 |
|
|
|
2000 |
|
|
|
2006 |
|
|
President and Chief Executive Officer, Laughlin Memorial
Hospital (hospital management) |
Phil M. Bachman
|
|
|
67 |
|
|
|
1968 |
|
|
|
2007 |
|
|
President, Bachman-Bernard Motors (automobile dealership),
Secretary of us and our bank |
Terry Leonard
|
|
|
67 |
|
|
|
1975 |
|
|
|
2007 |
|
|
Chairman/Owner, Leonard & Associates (manufacturing) |
Ronald E. Mayberry
|
|
|
51 |
|
|
|
2003 |
|
|
|
2007 |
|
|
Regional President, Sumner, Rutherford and Lawrence Counties;
previously, President and CEO of Independent Bankshares, Inc.
headquartered in Gallatin, Tennessee, which we acquired in
November 2003 |
Kenneth R. Vaught
|
|
|
41 |
|
|
|
2002 |
|
|
|
2007 |
|
|
Our and our banks President and Chief Operating Officer;
previously, Senior Vice-President and Regional Executive for the
banks Blount and Knox Counties, Tennessee offices. |
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director | |
|
Current Term | |
|
|
Name |
|
Age | |
|
Since(1) | |
|
to Expire | |
|
Previous Five-Years Business Experience |
|
|
| |
|
| |
|
| |
|
|
Bruce Campbell
|
|
|
54 |
|
|
|
2000 |
|
|
|
2008 |
|
|
Director, President and Chief Executive Officer, Forward Air
Corporation (transportation), from October, 2003 to date;
previously, Director, President and Chief Operating Officer,
Forward Air Corporation |
Jerald K. Jaynes
|
|
|
68 |
|
|
|
1992 |
|
|
|
2008 |
|
|
Retired; former President & CEO, Unaka Co., Inc.
(manufacturing) |
R. Stan Puckett
|
|
|
49 |
|
|
|
1989 |
|
|
|
2008 |
|
|
Chairman of the Board and our and the banks Chief
Executive Officer |
John Tolsma
|
|
|
32 |
|
|
|
2004 |
|
|
|
2008 |
|
|
President, Erroyo (educational multimedia) |
Robin Haynes
|
|
|
43 |
|
|
|
2004 |
|
|
|
2008 |
|
|
Comptroller & Corporate Secretary, Delmar Haynes
Pontiac GMC (automobile dealership) |
|
|
(1) |
Indicates year that director first served as a director of
either us or the bank. |
Certain Transactions and Business Relationships
We, and our subsidiaries, have had, and expect to have in the
future, transactions in the ordinary course of business with our
directors and executive officers and members of their immediate
families, as well as with principal shareholders. All loans
included in such transactions were made in the ordinary course
of business on substantially the same terms, including interest
rates and collateral, as those prevailing for comparable
transactions with non-affiliated persons. It is the belief of
management that such loans neither involved more than the normal
risk of collectability nor presented other unfavorable features.
The aggregate amount of such loans as of June 30, 2005 was
$8,598,000 which represented 7.58% of consolidated
shareholders equity.
We purchase insurance coverage from McInturff, Milligan and
Brooks of which Mr. Brooks is Chairman of the Board and the
owner of 25% of the equity interest. During 2004, commissions
totaling $78,131 were paid by us to McInturff, Milligan and
Brooks. Management believes the fees paid are fair and
reasonable and do not exceed those commissions that would be
paid to an unaffiliated third-party firm. We expect to continue
such relationships in the future.
We offer insurance products (accident and health, term life, and
credit life) to our loan customers through Mountain Life
Insurance Company, a subsidiary of Mountain Services
Corporation, of which Mr. Bachman has a 12.46% ownership
interest and also is a member of the board of directors. During
2004, we forwarded $372,164 in premiums to Mountain Life
Insurance Company. These premiums are net of our customary
rebate incurred in the normal course of business. Management
believes these insurance products offered to its customers are
competitive with similar products offered by other insurance
companies.
56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of July 18, 2005,
certain information known to us as to our common stock
beneficially owned by each of our directors and named executive
officers and by all of our directors and executive officers as a
group. The address for each of our directors and executive
officers listed below is c/o Greene County Bancshares,
Inc., 100 North Main Street, Greeneville, Tennessee 37743.
|
|
|
|
|
|
|
|
|
|
|
Amount and | |
|
|
|
|
Nature of | |
|
Percent of | |
|
|
Beneficial | |
|
Common Stock | |
Name and Position |
|
Ownership(1)(2) | |
|
Outstanding | |
|
|
| |
|
| |
R. Stan Puckett, Chairman of the Board and Chief Executive
Officer
|
|
|
140,500 |
(3) |
|
|
1.82 |
% |
Phil M. Bachman, Secretary and Director
|
|
|
814,805 |
(4) |
|
|
10.65 |
% |
Charles S. Brooks, Director
|
|
|
450 |
|
|
|
* |
|
Bruce Campbell, Director
|
|
|
4,962 |
|
|
|
* |
|
W.T. Daniels, Director
|
|
|
8,500 |
|
|
|
* |
|
Robin Haynes, Director
|
|
|
10,360 |
|
|
|
* |
|
Jerald K. Jaynes, Director
|
|
|
15,000 |
(5) |
|
|
* |
|
Terry Leonard, Director
|
|
|
46,330 |
|
|
|
* |
|
John Tolsma, Director
|
|
|
150 |
|
|
|
* |
|
Charles H. Whitfield, Jr., Director
|
|
|
4,070 |
(6) |
|
|
* |
|
Ronald E. Mayberry, Director, Regional President, Sumner,
Rutherford and Lawrence Counties
|
|
|
75,318 |
(7) |
|
|
* |
|
Kenneth R. Vaught, Director, President and Chief Operating
Officer
|
|
|
6,483 |
(8) |
|
|
* |
|
Steve L. Droke, Senior Vice President and Chief Credit Officer
|
|
|
14,341 |
(9) |
|
|
* |
|
William F. Richmond, Senior Vice President, Chief Financial
Officer and Assistant Secretary
|
|
|
14,017 |
(10) |
|
|
* |
|
All directors and executive officers as a group (14 persons)
|
|
|
1,155,286 |
(11) |
|
|
14.85 |
% |
|
|
|
|
* |
Less than one percent of our outstanding common stock. |
|
|
|
|
(1) |
For purposes of this table, an individual is considered to
beneficially own any share of our common stock which
he or she, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, has or
shares: (1) voting power, which includes the power to vote,
or to direct the voting of, such security; and/or
(2) investment power, which includes the power to dispose,
or to direct the disposition of, such security. In addition, an
individual is deemed to be the beneficial owner of any share of
our common stock of which he has the right to acquire voting or
investment power within 60 days of July 18, 2005. |
|
|
(2) |
Includes, as indicated below, shares owned directly by our
directors and executive officers as well as shares held by their
spouses and children, trusts of which certain directors are
trustees and corporations in which certain directors own a
controlling interest. Includes, as indicated below, shares of
our common stock subject to outstanding options which are
exercisable within 60 days of July 18, 2005. |
|
|
(3) |
Includes options to acquire 81,000 shares of our common
stock currently exercisable by Mr. Puckett at an exercise
price equal to 150% of the book value of the common stock at the
date of grant (a weighted average price of approximately
$14.84 per share). |
|
|
(4) |
Includes 131,845 shares of our common stock held directly
or indirectly by Mr. Bachmans wife as to which
Mr. Bachman disclaims beneficial ownership. Had such shares
not been included, Mr. Bachmans ownership percentage
would have been 8.93%. |
|
|
(5) |
Includes 500 shares held by Mr. Jaynes spouse. |
57
|
|
|
|
(6) |
Includes 45 shares held by the Laughlin Health Care
Foundation for which Mr. Whitfield has the right to vote
and dispose and 736 shares held by Mr. Whitfields
children. |
|
|
(7) |
Includes options to acquire 14,487 shares of our common
stock currently exercisable by Mr. Mayberry, at an exercise
price equal to the estimated fair market value of the common
stock at date of grant (a weighted average exercise price of
approximately $12.41) and 727 shares held by
Mr. Mayberrys spouse. |
|
|
(8) |
Includes options to acquire 6,208 shares of our common
stock currently exercisable by Mr. Vaught at an exercise
price equal to the estimated fair market value of the common
stock at date of grant (a weighted average exercise price of
approximately $25.61). |
|
|
(9) |
Includes options to acquire 13,861 shares of our common
stock currently exercisable by Mr. Droke at an exercise
price equal to the estimated fair market value of the common
stock at date of grant (a weighted average exercise price of
approximately $24.10). |
|
|
(10) |
Includes options to acquire 12,817 shares of our common
stock currently exercisable by Mr. Richmond at an exercise
price equal to the estimated fair market value of the common
stock at date of grant (a weighted average exercise price of
approximately $23.38). |
|
(11) |
Includes 128,373 options exercisable by the executive officers
listed above. |
Persons and groups beneficially owning more than 5% of our
common stock are required under federal securities laws to file
certain reports with the Securities and Exchange Commission
detailing their ownership. The following table sets forth the
amount and percentage of our common stock beneficially owned by
any person or group of persons known to us to be a beneficial
owner of more than 5% of the our common stock as of
July 18, 2005.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of | |
|
Percent of Common | |
Name and Address of Beneficial Owner |
|
Beneficial Ownership(1) | |
|
Stock Outstanding | |
|
|
| |
|
| |
Phil M. Bachman
|
|
|
814,805 |
(2) |
|
|
10.65 |
%(2) |
100 N. Main Street |
|
|
|
|
|
|
|
|
Greeneville, Tennessee 37743 |
|
|
|
|
|
|
|
|
|
|
(1) |
For a definition of beneficial ownership, see
footnote 1 to the above table. |
|
(2) |
Includes 131,845 shares of our common stock held directly
or indirectly by Mr. Bachmans wife as to which
Mr. Bachman disclaims beneficial ownership. Had such shares
not been included, Mr. Bachmans ownership percentage
would have been 8.93%. |
58
UNDERWRITING
We and the underwriters named below have entered into an
underwriting agreement with respect to the common stock to be
offered in this offering. Subject to the terms and conditions
contained in the underwriting agreement, each underwriter has
severally agreed to purchase from us the number of shares of
common stock set forth opposite its name in the following table.
|
|
|
|
|
|
Name of Underwriter |
|
Number of Shares | |
|
|
| |
Keefe, Bruyette & Woods, Inc.
|
|
|
1,077,831 |
|
Howe Barnes Investments, Inc.
|
|
|
359,276 |
|
SunTrust Capital Markets, Inc.
|
|
|
359,276 |
|
Morgan Keegan & Company, Inc.
|
|
|
18,330 |
|
BB&T Capital Markets, a division of Scott &
Stringfellow, Inc.
|
|
|
18,330 |
|
|
|
|
|
|
Total
|
|
|
1,833,043 |
|
|
|
|
|
The underwriters obligations are several, which means that
each underwriter is required to purchase a specific number of
shares of common stock, but it is not responsible for the
commitment of any other underwriter. The underwriting agreement
provides that the underwriters several obligations to
purchase shares of our common stock depend on the satisfaction
of the conditions contained in the underwriting agreement,
including:
|
|
|
|
|
the representations and warranties made by us to the
underwriters are true; |
|
|
|
there is no material adverse change in the financial markets; |
|
|
|
we deliver customary closing documents to the
underwriters; and |
|
|
|
if an underwriter defaults, purchase commitments of the
non-defaulting underwriters may be increased or the underwriting
agreement may be terminated. |
The underwriters are committed to purchase and pay for all
shares of our common stock offered by this prospectus, if any
such shares are taken. However, the underwriters are not
obligated to take or pay for the shares of our common stock
covered by the underwriters over-allotment option
described below, unless and until this option is exercised.
Over-Allotment Option
We have granted the underwriters an option, exercisable no later
than 30 days after the date of the underwriting agreement,
to purchase up to an aggregate of 274,957 additional shares of
common stock at the public offering price, less the underwriting
discount and commissions set forth on the cover page of this
prospectus. We will be obligated to sell these shares of common
stock to the underwriters to the extent the over-allotment
option is exercised. The underwriters may exercise this option
only to cover over-allotments made in connection with the sale
of the common stock offered by this prospectus.
Commissions and Expenses
The underwriters propose to offer the common stock directly to
the public at the offering price set forth on the cover page of
this prospectus and to dealers at the public offering price less
a concession not in excess of $0.927 per share. The
underwriters may allow, and the dealers may reallow, a
concession not in excess of $0.10 per share on sales to
other brokers and dealers. After the public offering of the
common stock, the underwriters may change the offering price and
other selling terms.
59
The following table shows the per share and total underwriting
discounts and commissions that we will pay to the underwriters
and the proceeds we will receive before expenses. These amounts
are shown assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Without | |
|
Total With | |
|
|
|
|
Over-Allotment | |
|
Over-Allotment | |
|
|
Per Share | |
|
Exercise | |
|
Exercise | |
|
|
| |
|
| |
|
| |
Public offering price
|
|
$ |
25.750 |
|
|
$ |
47,200,857 |
|
|
$ |
54,281,000 |
|
Underwriting discount payable by us
|
|
|
1.545 |
|
|
|
2,832,051 |
|
|
|
3,256,860 |
|
Proceeds before expenses
|
|
|
24.205 |
|
|
|
44,368,806 |
|
|
|
51,024,140 |
|
We estimate that the total expenses of this offering, exclusive
of underwriting discounts and commissions, will be approximately
$300,000, and are payable by us.
Lock-Up Agreements
We, and each of our directors and executive officers have
agreed, for a period of 180 days after the date of the
underwriting agreement, not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
for the sale of, or otherwise dispose of or transfer any shares
of our common stock or any securities convertible into or
exchangeable or exercisable for our common stock, or to enter
into any swap or any other agreement or any transaction that
transfers the economic consequences of ownership of our common
stock, without, in each case, the prior written consent of
Keefe, Bruyette & Woods, Inc., subject to certain
specified exceptions. These restrictions expressly preclude us,
and our executive officers and directors, from engaging in any
hedging or other transaction or arrangement that is designed to,
or which reasonably could be expected to, lead to or result in a
sale, disposition or transfer, in whole or in part, of any of
the economic consequences of ownership of our common stock,
whether such transaction would be settled by delivery of common
stock or other securities, in cash or otherwise.
The 180-day restricted period described above is subject to
extension under limited circumstances. In the event either
(1) during the period that begins on the date that is 15
calendar days plus three business days before the last day of
the 180-day restricted period and ends on the last day of the
180-day restricted period, we issue an earnings release or
material news or a material event relating to us occurs; or
(2) prior to the expiration of the 180-day restricted
period, we announce we will release earnings results during the
16-day period beginning on the last day of the 180-day
restricted period, then the restricted period will continue to
apply until the expiration of the date that is 15 calendar
days plus three business days after the date on which the
earnings release is issued or the material news or material
event related to us occurs.
Indemnity
We have agreed to indemnify the underwriters and persons who
control the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, and to contribute
to payments that the underwriters may be required to make for
these liabilities.
Stabilization
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids.
|
|
|
|
|
Stabilizing transactions permit bids to purchase common stock so
long as the stabilizing bids do not exceed a specified maximum,
and are engaged in for the purpose of preventing or retarding a
decline in the market price of the common stock while the
offering is in progress. |
|
|
|
Over-allotment transactions involve sales by the underwriters of
common stock in excess of the number of shares the underwriters
are obligated to purchase. This creates a syndicate short
position that may be either a covered short position or a naked
short position. In a covered short position, the number of
shares of common stock over-allotted by the underwriters is not
greater than the |
60
|
|
|
|
|
number of shares that they may purchase in the over-allotment
option. In a naked short position, the number of shares involved
is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by
exercising their over-allotment option and/or purchasing shares
in the open market. |
|
|
|
Syndicate covering transactions involve purchases of common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared with the price at which they may purchase common stock
through exercise of the over-allotment option. If the
underwriters sell more common stock than could be covered by
exercise of the over-allotment option and, therefore, have a
naked short position, the position can be closed out only by
buying common stock in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that after pricing there could be downward pressure on the price
of the common stock in the open market that could adversely
affect investors who purchase in the offering. |
|
|
|
Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the common stock
originally sold by that syndicate member is purchased in
stabilizing or syndicate covering transactions to cover
syndicate short positions. |
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of our common stock. As a result,
the price of our common stock in the open market may be higher
than it would otherwise be in the absence of these transactions.
Neither we nor the underwriters makes any representation or
prediction as to the effect that the transactions described
above may have on the price of our common stock. These
transactions may be effected on The Nasdaq National Market, in
the over-the-counter market or otherwise and, if commenced, may
be discontinued at any time.
Passive Market Making
In connection with this offering, the underwriters and any
selling group members who are qualified market makers on The
Nasdaq National Market may engage in passive market making
transactions in our common stock on The Nasdaq National Market
in accordance with Rule 103 of Regulation M under the
Securities Act. Rule 103 permits passive market making
activity by the participants in our common stock offering.
Passive market making may occur before the pricing of our
offering, and before the commencement of offers or sales of the
common stock. Each passive market maker must comply with
applicable volume and price limitations and must be identified
as a passive market maker. In general, a passive market maker
must display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are
lowered below the bid of the passive market maker, however, the
bid must then be lowered when purchase limits are exceeded. Net
purchases by a passive market maker on each day are limited to a
specified percentage of the passive market makers average
daily trading volume in the common stock during a specified
period and must be discontinued when that limit is reached. The
underwriters and other dealers are not required to engage in
passive market making and may end passive market making
activities at any time.
Our Relationship with the Underwriters
Certain of the underwriters and some of their respective
affiliates have performed and may continue to perform financial
advisory, investment banking, and commercial banking services
for us in the ordinary course of their respective businesses,
and have received, and may continue to receive, compensation for
such services. The commercial relationships that we have with
affiliates of the underwriters include, among others, a
$35 million line of credit from SunTrust Bank, an affiliate
of SunTrust Capital Markets, Inc., which we may draw upon at our
discretion, subject to the satisfaction of certain customary
closing conditions, to provide us with liquidity and to fund
operations including to provide capital to the bank as a
secondary source of funding in connection with the banks
acquisition of five branches of Old National Bank in
Clarksville, Tennessee. This line of credit, which reduces down
to $15 million on November 30,
61
2005, requires us to pay SunTrust Bank a commitment fee equal to
0.15% per annum on the average daily unborrowed amount. In
addition, Howe Barnes Investments, Inc., an underwriter in this
offering, provided placement agent services to us in connection
with our June 28, 2005 issuance of trust preferred
securities through Greene County Capital Trust II. Howe
Barnes Investments, Inc. received customary fees for providing
these services.
The common stock is being offered by the underwriters, subject
to prior sale, when, as and if issued to and accepted by them,
subject to approval of certain legal matters by counsel for the
underwriters and other conditions. The underwriters reserve the
right to withdraw, cancel or modify this offer and to reject
orders in whole or in part.
At our request, the underwriters have reserved shares of our
common stock for sale in a directed share program to our
directors, officers and employees, and other persons with whom
we have a business relationship, who have expressed an interest
in participating in this offering. We expect these persons to
purchase no more than 25,000 shares of the common stock offered
in this offering. Any reserved shares that are not purchased may
be reallocated to other persons for whom such shares are
reserved, or sold to the general public. The number of shares
available for sale to the general public will be reduced to the
extent persons purchase these reserved shares. Those purchases
will be made on the same terms and conditions as purchasers
unrelated to us and the shares under this program will be
subject to a 180-day lock-up arrangement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
materials we file with the SEC at the SECs public
reference room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its public reference
rooms. The SEC also maintains an Internet website at www.sec.gov
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC. Our SEC filings are also available on our website
at www.mybankconnection.com and at the office of The Nasdaq
National Market.
This prospectus, which is part of the registration statement,
omits some of the information included in the registration
statement as permitted by the rules and regulations of the SEC.
As a result, statements made in this prospectus as to the
contents of any contract or other document are not necessarily
complete. You should read the full text of any contract or
document filed as an exhibit to the registration statement for a
more complete understanding of the contract or document or
matter involved.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to those documents
that we have previously filed with the SEC or documents that we
will file with the SEC in the future. The information
incorporated by reference is considered to be part of this
prospectus, and later information that we file with the SEC will
automatically update and supersede this information. This
prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC. These
documents contain important information about our company and
its finances:
|
|
|
(1) Our Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 and our Amendment No. 1 to
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2004; |
|
|
(2) Our Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 2005 and June 30,
2005 and our Amendment No. 1 and Amendment No. 2 to
Quarterly Report on Form 10-Q/A for the quarterly period
ended March 31, 2005 and Amendment No. 1 to Quarterly
Report on Form 10-Q/A for the quarterly period ended
June 30, 2005; |
|
|
(3) Our Current Reports on Form 8-K filed
January 26, 2005, February 24, 2005, April 19,
2005, May 12, 2005, June 28, 2005, July 19, 2005,
July 21, 2005 and September 6, 2005; and |
62
|
|
|
(4) The description of the our common stock, par value
$2.00 per share contained in our Form 8-K/ A filed
with the SEC and dated May 25, 2004, including all
amendments and reports filed for purposes of updating such
description. |
We are also incorporating by reference into this prospectus any
filings made by us with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the filing of a post-effective amendment to this
Registration Statement which indicates that all securities
offered hereby have been sold or which deregisters all
securities then remaining unsold. Any statements contained in a
document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or replaced for purposes
hereof to the extent that a statement contained herein (or in
any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein) modifies or
replaces such statement. Any statement so modified or replaced
shall not be deemed, except as so modified or replaced, to
constitute a part hereof.
Notwithstanding the foregoing, information furnished under
Items 2.01 and 7.01 of any Current Report on Form 8-K,
including the related exhibits, is not incorporated by reference
in this prospectus or the accompanying registration statement.
We will provide to each person, including any beneficial owner,
to whom this prospectus is delivered a copy of any or all of the
information that we have incorporated by reference into this
prospectus but not delivered with this prospectus. To receive a
free copy of any of the documents incorporated by reference in
this prospectus, other than exhibits, unless they are
specifically incorporated by reference in those documents, call
or write to William F. Richmond, 100 North Main
Street, Greeneville, Tennessee 37743 (423) 639-5111. The
information relating to us contained in this prospectus does not
purport to be comprehensive and should be read together with the
information contained in the documents incorporated or deemed to
be incorporated by reference in this prospectus. See Where
You Can Find More Information.
LEGAL MATTERS
The validity of the common stock to be issued in the offering
and certain other legal matters with respect to the offering
will be passed upon for us by Bass, Berry & Sims PLC,
Nashville, Tennessee. Certain legal matters in connection with
this offering will be passed upon for the underwriters by
Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
Our consolidated financial statements as of December 31,
2004, and for the fiscal year ended December 31, 2004 and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2004
have been included in this prospectus or incorporated herein by
reference in reliance upon the report of Dixon Hughes PLLC,
independent registered public accounting firm, and upon the
authority of said firm as experts in accounting and auditing.
Our consolidated financial statements as of December 31,
2003 and 2002, and for the two year period ended
December 31, 2003 have been included herein in reliance
upon the report of Crowe Chizek and Company LLC, independent
registered public accounting firm, and upon the authority of
said firm as experts in accounting and auditing.
63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
Three and six months ended June 30, 2005 and 2004
(unaudited)
|
|
|
|
|
Condensed Consolidated Balance Sheets June 30,
2005 and December 31, 2004
|
|
|
F-2 |
|
Condensed Consolidated Statements of Income and Comprehensive
Income For the three and six months ended
June 30, 2005 and 2004
|
|
|
F-3 |
|
Condensed Consolidated Statement of Changes in
Shareholders Equity For the six months ended
June 30, 2005
|
|
|
F-4 |
|
Condensed Consolidated Statements of Cash Flows For
the six months ended June 30, 2005 and 2004
|
|
|
F-5 |
|
Notes to Condensed Consolidated Financial Statements
|
|
|
F-6 |
|
Years ended December 31, 2004, 2003 and 2002
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-14 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-15 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-16 |
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
|
F-17 |
|
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002
|
|
|
F-18 |
|
Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2004, 2003 and 2002
|
|
|
F-19 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
|
|
|
F-20 |
|
Notes to Consolidated Financial Statements
|
|
|
F-21 |
|
F-1
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2005 and December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004* | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
(Amounts in thousands, | |
|
|
except share and | |
|
|
per share data) | |
ASSETS |
|
Cash and due from banks
|
|
$ |
35,420 |
|
|
$ |
30,727 |
|
|
Federal funds sold
|
|
|
46,516 |
|
|
|
39,921 |
|
|
Securities available for sale
|
|
|
51,216 |
|
|
|
35,318 |
|
|
Securities held to maturity (with a market value of $3,503 and
$4,506)
|
|
|
3,480 |
|
|
|
4,381 |
|
|
FHLB, Bankers Bank and other stock, at cost
|
|
|
6,339 |
|
|
|
6,211 |
|
|
Loans held for sale
|
|
|
1,057 |
|
|
|
1,151 |
|
|
Loans
|
|
|
1,158,644 |
|
|
|
1,046,867 |
|
|
Less: Allowance for loan losses
|
|
|
(16,880 |
) |
|
|
(15,721 |
) |
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,141,764 |
|
|
|
1,031,146 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
35,373 |
|
|
|
35,591 |
|
|
Goodwill and other intangible assets
|
|
|
23,319 |
|
|
|
23,695 |
|
|
Other assets
|
|
|
29,710 |
|
|
|
25,262 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,374,194 |
|
|
$ |
1,233,403 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
1,148,434 |
|
|
$ |
998,022 |
|
|
Repurchase agreements
|
|
|
16,426 |
|
|
|
13,868 |
|
|
FHLB advances and notes payable
|
|
|
70,509 |
|
|
|
85,222 |
|
|
Subordinated debentures
|
|
|
13,403 |
|
|
|
10,310 |
|
|
Accrued interest payable and other liabilities
|
|
|
11,936 |
|
|
|
17,263 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,260,708 |
|
|
|
1,124,685 |
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
Common stock: $2 par, 15,000,000 shares authorized,
7,651,016 and 7,647,740 shares outstanding
|
|
|
15,303 |
|
|
|
15,296 |
|
|
Additional paid in capital
|
|
|
24,204 |
|
|
|
24,160 |
|
|
Retained earnings
|
|
|
74,101 |
|
|
|
69,289 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(122 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
113,486 |
|
|
|
108,718 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,374,194 |
|
|
$ |
1,233,403 |
|
|
|
|
|
|
|
|
|
|
* |
Condensed from audited consolidated financial statements. |
See accompanying notes.
F-2
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
Three and Six Months Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
(Amounts in thousands, except share and per share data) | |
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
19,851 |
|
|
$ |
15,522 |
|
|
$ |
37,930 |
|
|
$ |
31,047 |
|
|
Investment securities
|
|
|
592 |
|
|
|
339 |
|
|
|
1,065 |
|
|
|
725 |
|
|
Federal funds sold and interest-earning deposits
|
|
|
260 |
|
|
|
8 |
|
|
|
443 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,703 |
|
|
|
15,869 |
|
|
|
39,438 |
|
|
|
31,799 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,501 |
|
|
|
3,006 |
|
|
|
9,763 |
|
|
|
6,192 |
|
|
Borrowings
|
|
|
1,130 |
|
|
|
880 |
|
|
|
2,276 |
|
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,631 |
|
|
|
3,886 |
|
|
|
12,039 |
|
|
|
7,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
14,072 |
|
|
|
11,983 |
|
|
|
27,399 |
|
|
|
23,863 |
|
Provision for loan losses
|
|
|
1,060 |
|
|
|
1,162 |
|
|
|
2,682 |
|
|
|
2,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
13,012 |
|
|
|
10,821 |
|
|
|
24,717 |
|
|
|
21,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
2,836 |
|
|
|
2,518 |
|
|
|
4,978 |
|
|
|
4,913 |
|
|
Other
|
|
|
627 |
|
|
|
552 |
|
|
|
1,661 |
|
|
|
1,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,463 |
|
|
|
3,070 |
|
|
|
6,639 |
|
|
|
6,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
5,099 |
|
|
|
4,464 |
|
|
|
10,344 |
|
|
|
9,171 |
|
|
Occupancy and furniture and equipment expense
|
|
|
1,774 |
|
|
|
1,462 |
|
|
|
3,513 |
|
|
|
2,951 |
|
|
Other
|
|
|
3,549 |
|
|
|
2,648 |
|
|
|
6,840 |
|
|
|
5,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,422 |
|
|
|
8,574 |
|
|
|
20,697 |
|
|
|
17,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6,053 |
|
|
|
5,317 |
|
|
|
10,659 |
|
|
|
9,817 |
|
Provision for income taxes
|
|
|
2,339 |
|
|
|
2,042 |
|
|
|
4,010 |
|
|
|
3,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
3,714 |
|
|
$ |
3,275 |
|
|
$ |
6,649 |
|
|
$ |
6,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
3,732 |
|
|
$ |
2,935 |
|
|
$ |
6,554 |
|
|
$ |
5,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$ |
0.49 |
|
|
$ |
0.43 |
|
|
$ |
0.87 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
|
|
$ |
0.48 |
|
|
$ |
0.42 |
|
|
$ |
0.86 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,650,884 |
|
|
|
7,656,832 |
|
|
|
7,649,982 |
|
|
|
7,661,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
7,745,985 |
|
|
|
7,713,966 |
|
|
|
7,745,130 |
|
|
|
7,720,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY
For the Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
Total | |
|
|
Common | |
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
Shareholders | |
|
|
Stock | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(Amounts in thousands, except share and per share data) | |
Balance, January 1, 2005
|
|
$ |
15,296 |
|
|
$ |
24,160 |
|
|
$ |
69,289 |
|
|
$ |
(27 |
) |
|
$ |
108,718 |
|
Issuance of 3,276 shares under stock option plan
|
|
|
7 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Dividends paid ($.24 per share)
|
|
|
|
|
|
|
|
|
|
|
(1,837 |
) |
|
|
|
|
|
|
(1,837 |
) |
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
6,649 |
|
|
|
|
|
|
|
6,649 |
|
|
Change in unrealized gains (losses), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
$ |
15,303 |
|
|
$ |
24,204 |
|
|
$ |
74,101 |
|
|
$ |
(122 |
) |
|
$ |
113,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
GREENE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
June 30, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(Amounts in thousands) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,649 |
|
|
$ |
6,127 |
|
|
Adjustments to reconcile net income to net cash
(used) provided from operating activities
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,682 |
|
|
|
2,685 |
|
|
|
Depreciation and amortization
|
|
|
1,763 |
|
|
|
1,499 |
|
|
|
Security amortization and accretion, net
|
|
|
9 |
|
|
|
47 |
|
|
|
FHLB stock dividends
|
|
|
(128 |
) |
|
|
(105 |
) |
|
|
Net gain on sale of mortgage loans
|
|
|
(207 |
) |
|
|
(243 |
) |
|
|
Originations of mortgage loans held for sale
|
|
|
(16,755 |
) |
|
|
(25,516 |
) |
|
|
Proceeds from sales of mortgage loans
|
|
|
17,056 |
|
|
|
26,326 |
|
|
|
Increase in cash surrender value of life insurance
|
|
|
(289 |
) |
|
|
(243 |
) |
|
|
Net losses from sales of fixed assets
|
|
|
19 |
|
|
|
46 |
|
|
|
Net loss on OREO and repossessed assets
|
|
|
26 |
|
|
|
132 |
|
|
|
Deferred tax (benefit) expense
|
|
|
(797 |
) |
|
|
1,788 |
|
|
|
Net changes:
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(1,076 |
) |
|
|
366 |
|
|
|
|
Accrued interest payable and other liabilities
|
|
|
(5,327 |
) |
|
|
743 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
|
3,625 |
|
|
|
13,895 |
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
(16,860 |
) |
|
|
(4,000 |
) |
|
Proceeds from maturities of securities held for sale
|
|
|
800 |
|
|
|
9,425 |
|
|
Proceeds from maturities of securities held to maturity
|
|
|
902 |
|
|
|
801 |
|
|
Purchase of life insurance
|
|
|
(1,450 |
) |
|
|
|
|
|
Net change in loans
|
|
|
(115,364 |
) |
|
|
(36,213 |
) |
|
Proceeds from sale of other real estate
|
|
|
1,259 |
|
|
|
1,746 |
|
|
Proceeds from sale of fixed assets
|
|
|
8 |
|
|
|
20 |
|
|
Premises and equipment expenditures
|
|
|
(1,196 |
) |
|
|
(2,255 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(131,901 |
) |
|
|
(30,476 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
150,413 |
|
|
|
(23,101 |
) |
|
Net change in repurchase agreements
|
|
|
2,558 |
|
|
|
1,635 |
|
|
Proceeds from notes payable
|
|
|
161,255 |
|
|
|
62,950 |
|
|
Proceeds from subordinated debentures
|
|
|
3,093 |
|
|
|
|
|
|
Repayments of notes payable
|
|
|
(175,969 |
) |
|
|
(29,318 |
) |
|
Dividends paid
|
|
|
(1,837 |
) |
|
|
(1,837 |
) |
|
Proceeds from issuance of common stock
|
|
|
51 |
|
|
|
137 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(538 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided from financing activities
|
|
|
139,564 |
|
|
|
9,928 |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
11,288 |
|
|
|
(6,896 |
) |
Cash and cash equivalents, beginning of year
|
|
|
70,648 |
|
|
|
41,341 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
81,936 |
|
|
$ |
34,445 |
|
|
|
|
|
|
|
|
Supplemental disclosures cash and noncash
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
11,842 |
|
|
$ |
7,715 |
|
|
Income taxes paid
|
|
|
3,275 |
|
|
|
2,570 |
|
|
Loans converted to other real estate
|
|
|
2,570 |
|
|
|
1,516 |
|
|
Unrealized (loss) gain on available for sale securities, net of
tax
|
|
|
(95 |
) |
|
|
(319 |
) |
See accompanying notes.
F-5
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six months ended June 30, 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 Companys 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 years presentation. The
reclassification had no effect on net income or
shareholders equity as previously reported.
|
|
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
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
Companys common stock on the date of grant and typically
have terms of ten years and vest at an annual rate of 20%.
(Continued)
F-6
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 2 |
STOCK COMPENSATION (Continued) |
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 | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
3,714 |
|
|
$ |
3,275 |
|
|
$ |
6,649 |
|
|
$ |
6,127 |
|
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
4 |
|
|
|
10 |
|
|
|
7 |
|
|
|
19 |
|
|
Deduct: Total stock-based compensation expense determined under
fair value-based method for all awards, net of tax
|
|
|
(40 |
) |
|
|
(47 |
) |
|
|
(130 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
3,678 |
|
|
$ |
3,238 |
|
|
$ |
6,526 |
|
|
$ |
6,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.49 |
|
|
$ |
0.43 |
|
|
$ |
0.87 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.48 |
|
|
$ |
0.42 |
|
|
$ |
0.85 |
|
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.48 |
|
|
$ |
0.42 |
|
|
$ |
0.86 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.47 |
|
|
$ |
0.42 |
|
|
$ |
0.84 |
|
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 LOANS (NET)
Loans at June 30, 2005 and December 31, 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Commercial
|
|
$ |
203,469 |
|
|
$ |
165,975 |
|
Commercial real estate
|
|
|
567,211 |
|
|
|
484,088 |
|
Residential real estate
|
|
|
312,462 |
|
|
|
319,713 |
|
Consumer
|
|
|
83,287 |
|
|
|
82,532 |
|
Other
|
|
|
2,895 |
|
|
|
4,989 |
|
|
|
|
|
|
|
|
|
|
|
1,169,324 |
|
|
|
1,057,297 |
|
Less: Unearned interest income
|
|
|
(10,680 |
) |
|
|
(10,430 |
) |
Allowance for loan losses
|
|
|
(16,880 |
) |
|
|
(15,721 |
) |
|
|
|
|
|
|
|
|
Net Loans
|
|
$ |
1,141,764 |
|
|
$ |
1,031,146 |
|
|
|
|
|
|
|
|
(Continued)
F-7
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 3 |
LOANS (NET) (Continued) |
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 six months ended
June 30, 2005 and twelve months ended December 31,
2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Balance at beginning of year
|
|
$ |
15,721 |
|
|
$ |
14,564 |
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
Reserve acquired in acquisition
|
|
|
|
|
|
|
363 |
|
|
Provision
|
|
|
2,682 |
|
|
|
5,836 |
|
|
Loans charged off
|
|
|
(2,481 |
) |
|
|
(6,980 |
) |
|
Recoveries of loans charged off
|
|
|
958 |
|
|
|
1,938 |
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
16,880 |
|
|
$ |
15,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Loans past due 90 days still on accrual
|
|
$ |
384 |
|
|
$ |
664 |
|
Nonaccrual loans
|
|
|
6,770 |
|
|
|
6,242 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,154 |
|
|
$ |
6,906 |
|
|
|
|
|
|
|
|
|
|
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 and six months
ended June 30, 2005, 60,185 options are excluded from the
effect of dilutive securities because they are anti-dilutive;
144,165 options are similarly excluded from the effect of
dilutive securities for the three and six months ended
June 30, 2004.
(Continued)
F-8
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 4 |
EARNINGS PER SHARE OF COMMON STOCK (Continued) |
The following is a reconciliation of the numerators and
denominators used in the basic and diluted earnings per share
computations for the three and six months ended June 30,
2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Income | |
|
Shares | |
|
Income | |
|
Shares | |
|
|
(Numerator) | |
|
(Denominator) | |
|
(Numerator) | |
|
(Denominator) | |
|
|
| |
|
| |
|
| |
|
| |
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$ |
3,714 |
|
|
|
7,650,884 |
|
|
$ |
3,275 |
|
|
|
7,656,832 |
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
|
|
|
|
|
|
|
95,101 |
|
|
|
|
|
|
|
57,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders plus assumed conversions
|
|
$ |
3,714 |
|
|
|
7,745,985 |
|
|
$ |
3,275 |
|
|
|
7,713,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Income | |
|
Shares | |
|
Income | |
|
Shares | |
|
|
(Numerator) | |
|
(Denominator) | |
|
(Numerator) | |
|
(Denominator) | |
|
|
| |
|
| |
|
| |
|
| |
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$ |
6,649 |
|
|
|
7,649,982 |
|
|
$ |
6,127 |
|
|
|
7,661,593 |
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
|
|
|
|
|
|
|
95,148 |
|
|
|
|
|
|
|
58,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders plus assumed conversions
|
|
$ |
6,649 |
|
|
|
7,745,130 |
|
|
$ |
6,127 |
|
|
|
7,720,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 |
SEGMENT INFORMATION |
The Companys 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.
(Continued)
F-9
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 5 |
SEGMENT INFORMATION (Continued) |
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
|
Three Months Ended June 30, 2005 |
|
Bank | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net interest income (expense)
|
|
$ |
12,698 |
|
|
$ |
1,547 |
|
|
$ |
(173 |
) |
|
$ |
|
|
|
$ |
14,072 |
|
Provision for loan losses
|
|
|
738 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
1,060 |
|
Noninterest income
|
|
|
3,163 |
|
|
|
516 |
|
|
|
6 |
|
|
|
(222 |
) |
|
|
3,463 |
|
Noninterest expense
|
|
|
9,389 |
|
|
|
1,086 |
|
|
|
169 |
|
|
|
(222 |
) |
|
|
10,422 |
|
Income tax expense (benefit)
|
|
|
2,212 |
|
|
|
257 |
|
|
|
(130 |
) |
|
|
|
|
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
3,522 |
|
|
$ |
398 |
|
|
$ |
(206 |
) |
|
$ |
|
|
|
$ |
3,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at June 30, 2005
|
|
$ |
1,340,531 |
|
|
$ |
31,272 |
|
|
$ |
2,391 |
|
|
$ |
|
|
|
$ |
1,374,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
|
Three Months Ended June 30, 2004 |
|
Bank | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net interest income (expense)
|
|
$ |
10,504 |
|
|
$ |
1,600 |
|
|
$ |
(121 |
) |
|
$ |
|
|
|
$ |
11,983 |
|
Provision for loan losses
|
|
|
783 |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
1,162 |
|
Noninterest income
|
|
|
2,867 |
|
|
|
391 |
|
|
|
7 |
|
|
|
(195 |
) |
|
|
3,070 |
|
Noninterest expense
|
|
|
7,431 |
|
|
|
1,140 |
|
|
|
198 |
|
|
|
(195 |
) |
|
|
8,574 |
|
Income tax expense (benefit)
|
|
|
1,974 |
|
|
|
185 |
|
|
|
(117 |
) |
|
|
|
|
|
|
2,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
3,183 |
|
|
$ |
287 |
|
|
$ |
(195 |
) |
|
$ |
|
|
|
$ |
3,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at June 30, 2004
|
|
$ |
1,091,319 |
|
|
$ |
31,803 |
|
|
$ |
1,880 |
|
|
$ |
|
|
|
$ |
1,125,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
|
Six Months Ended June 30, 2005 |
|
Bank | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net interest income (expense)
|
|
$ |
24,687 |
|
|
$ |
3,024 |
|
|
$ |
(312 |
) |
|
$ |
|
|
|
$ |
27,399 |
|
Provision for loan losses
|
|
|
2,027 |
|
|
|
655 |
|
|
|
|
|
|
|
|
|
|
|
2,682 |
|
Noninterest income
|
|
|
5,943 |
|
|
|
918 |
|
|
|
189 |
|
|
|
(411 |
) |
|
|
6,639 |
|
Noninterest expense
|
|
|
18,627 |
|
|
|
2,184 |
|
|
|
297 |
|
|
|
(411 |
) |
|
|
20,697 |
|
Income tax expense (benefit)
|
|
|
3,789 |
|
|
|
433 |
|
|
|
(212 |
) |
|
|
|
|
|
|
4,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
6,187 |
|
|
$ |
670 |
|
|
$ |
(208 |
) |
|
|
|
|
|
$ |
6,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-10
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 5 |
SEGMENT INFORMATION (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
|
Six Months Ended June 30, 2004 |
|
Bank | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net interest income (expense)
|
|
$ |
20,898 |
|
|
$ |
3,191 |
|
|
$ |
(226 |
) |
|
$ |
|
|
|
$ |
23,863 |
|
Provision for loan losses
|
|
|
1,836 |
|
|
|
849 |
|
|
|
|
|
|
|
|
|
|
|
2,685 |
|
Noninterest income
|
|
|
5,579 |
|
|
|
791 |
|
|
|
174 |
|
|
|
(380 |
) |
|
|
6,164 |
|
Noninterest expense
|
|
|
15,207 |
|
|
|
2,280 |
|
|
|
418 |
|
|
|
(380 |
) |
|
|
17,525 |
|
Income tax expense (benefit)
|
|
|
3,577 |
|
|
|
333 |
|
|
|
(220 |
) |
|
|
|
|
|
|
3,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
5,857 |
|
|
$ |
520 |
|
|
$ |
(250 |
) |
|
$ |
|
|
|
$ |
6,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Period Ended June 30, 2005 |
|
Bank | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Nonperforming loans as a percentage of total loans net of
unearned income
|
|
|
0.59% |
|
|
|
1.29% |
|
|
|
0.62% |
|
Nonperforming assets as a percentage of total assets
|
|
|
0.64% |
|
|
|
1.97% |
|
|
|
0.69% |
|
Allowance for loan losses as a percentage of total loans net of
unearned income
|
|
|
1.25% |
|
|
|
7.71% |
|
|
|
1.46% |
|
Allowance for loan losses as a percentage of nonperforming assets
|
|
|
163.27% |
|
|
|
369.92% |
|
|
|
177.74% |
|
Annualized net charge-offs to average total loans, net of
unearned interest
|
|
|
0.16% |
|
|
|
4.19% |
|
|
|
0.27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Period Ended June 30, 2004 |
|
Bank | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Nonperforming loans as a percentage of total loans net of
unearned income
|
|
|
0.52% |
|
|
|
2.23% |
|
|
|
0.59% |
|
Nonperforming assets as a percentage of total assets
|
|
|
0.74% |
|
|
|
3.24% |
|
|
|
0.84% |
|
Allowance for loan losses as a percentage of total loans net of
unearned income
|
|
|
1.24% |
|
|
|
8.55% |
|
|
|
1.51% |
|
Allowance for loan losses as a percentage of nonperforming assets
|
|
|
145.67% |
|
|
|
254.22% |
|
|
|
158.23% |
|
Annualized net charge-offs to average total loans, net of
unearned interest
|
|
|
0.29% |
|
|
|
5.62% |
|
|
|
0.48% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2004 |
|
Bank | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Nonperforming loans as a percentage of total loans net of
unearned income
|
|
|
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 net of
unearned income
|
|
|
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% |
|
(Continued)
F-11
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 second quarter of 2005. Goodwill had a
carrying amount of $18,282 at June 30, 2005 and
December 31, 2004.
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 June 30, 2005 and the year ended
December 31, 2004 and accumulated amortization of $2,283
and $1,907 for the same periods, respectively. Aggregate
amortization expense for the three and six months ended
June 30, 2005 was $188 and $376, respectively as compared
to $154 and $308, respectively for the same periods in 2004.
Annual estimated amortization expense for the next five years is:
|
|
|
|
|
|
2005
|
|
$ |
752 |
|
2006
|
|
|
642 |
|
2007
|
|
|
642 |
|
2008
|
|
|
642 |
|
2009
|
|
|
642 |
|
|
|
|
|
|
Total
|
|
$ |
3,320 |
|
|
|
|
|
NOTE 7 SUBORDINATED DEBENTURES
On June 28, 2005, the Company formed Greene County Capital
Trust II (GC Trust II).
GC Trust II issued $3,000 of variable rate trust
preferred securities as part of a pooled offering of such
securities. The Company issued $3,093 of subordinated debentures
to the GC Trust II in exchange for the proceeds of the
offering, which debentures represent the sole asset of
GC Trust. The debentures pay interest quarterly at the
three-month LIBOR plus 1.68% adjusted quarterly. The Company may
redeem the subordinated debentures, in whole or in part,
beginning July 2010 at a price of 100% of face value. The
subordinated debentures must be redeemed no later than 2035.
In September 2003, the Company formed Greene County Capital
Trust I (GC Trust). GC Trust issued
$10,000 of variable rate trust preferred securities as part of a
pooled offering of such securities. The Company issued $10,310
of subordinated debentures to the GC Trust in exchange for
the proceeds of the offering, which debentures represented the
sole asset of GC Trust. The debentures pay interest
quarterly at the three-month LIBOR plus 2.85% adjusted
quarterly. The Company may redeem the subordinated debentures,
in whole or in part, beginning October 2008 at a price of 100%
of face value. The subordinated debentures must be redeemed no
later than 2033.
(Continued)
F-12
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
Unaudited
(Amounts in thousands, except share and per share data)
|
|
NOTE 8 |
PENDING ACQUISITION |
Following the end of the quarter ended June 30, 2005, the
Bank agreed to purchase five bank branches in Clarksville,
Tennessee from Old National Bank, Evansville, Indiana. These
branches had approximately $172,000 in deposits and
approximately $120,000 in loans at June 30, 2005. The
consummation of this transaction is subject to the satisfaction
of various customary closing conditions, including the receipt
of required regulatory approvals, and is expected to occur in
the fourth quarter of 2005.
(Continued)
F-13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS
GREENE COUNTY BANCSHARES, INC.
We have audited managements assessment, which appears on
page 34 of the 2004 Form 10-K of Greene County
Bancshares, Inc. and is entitled Management Report on Internal
Control over Financial Reporting, that Greene County Bancshares,
Inc. maintained effective internal control over financial
reporting as of December 31, 2004, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Greene County
Bancshares, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Greene County
Bancshares, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, Greene
County Bancshares, Inc. maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Greene County Bancshares, Inc. and
subsidiaries as of December 31, 2004, and the related
consolidated statements of income, changes in shareholders
equity, and cash flows for the period ended December 31,
2004, and our report dated February 25, 2005, expressed an
unqualified opinion on those consolidated financial statements.
Atlanta, Georgia
February 25, 2005
F-14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND SHAREHOLDERS
GREENE COUNTY BANCSHARES, INC.
We have audited the accompanying consolidated balance sheet of
Greene County Bancshares, Inc. and subsidiaries as of
December 31, 2004, and the related consolidated statements
of income, changes in shareholders equity and cash flows
for the year then ended. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Greene County Bancshares, Inc. and subsidiaries as
of December 31, 2004, and the results of their operations
and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Greene County Bancshares internal control
over financial reporting as of December 31, 2004, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 25,
2005 expressed unqualified opinions on both managements
assessment of the Companys internal control over financial
reporting and the effectiveness of the Companys internal
control over financial reporting.
Atlanta, Georgia
February 25, 2005
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Greene County Bancshares, Inc.
Greeneville, Tennessee
We have audited the accompanying consolidated balance sheet of
Greene County Bancshares, Inc. as of December 31, 2003, and
the related consolidated statements of income, changes in
shareholders equity, and cash flows for the years ended
December 31, 2003 and 2002. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Greene County Bancshares, Inc. as of
December 31, 2003, and the results of its operations and
its cash flows for the years ended December 31, 2003 and
2002, in conformity with U.S. generally accepted accounting
principles.
|
|
|
/s/ Crowe Chizek and Company LLC |
Oak Brook, Illinois
January 16, 2004
F-16
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands, | |
|
|
except share and per share | |
|
|
data) | |
ASSETS |
|
Cash and due from banks
|
|
$ |
30,727 |
|
|
$ |
36,087 |
|
|
Federal funds sold
|
|
|
39,921 |
|
|
|
5,254 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
70,648 |
|
|
|
41,341 |
|
|
Securities available for sale
|
|
|
35,318 |
|
|
|
33,199 |
|
|
Securities held to maturity (with a market value of $4,506 and
$5,846)
|
|
|
4,381 |
|
|
|
5,632 |
|
|
Loans held for sale
|
|
|
1,151 |
|
|
|
3,546 |
|
|
Loans, net of unearned interest
|
|
|
1,046,867 |
|
|
|
952,225 |
|
|
|
Less: Allowance for loan losses
|
|
|
(15,721 |
) |
|
|
(14,564 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,031,146 |
|
|
|
937,661 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
35,591 |
|
|
|
33,886 |
|
|
FHLB, Bankers Bank, and other stock, at cost
|
|
|
6,211 |
|
|
|
5,992 |
|
|
Cash surrender value of life insurance
|
|
|
15,471 |
|
|
|
12,451 |
|
|
Goodwill
|
|
|
18,282 |
|
|
|
15,885 |
|
|
Core deposit intangible
|
|
|
5,413 |
|
|
|
5,085 |
|
|
Other assets
|
|
|
9,791 |
|
|
|
13,844 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,233,403 |
|
|
$ |
1,108,522 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Liabilities
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$ |
109,956 |
|
|
$ |
104,683 |
|
|
Interest-bearing deposits
|
|
|
888,066 |
|
|
|
802,432 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
998,022 |
|
|
|
907,115 |
|
|
Repurchase agreements
|
|
|
13,868 |
|
|
|
12,896 |
|
|
FHLB advances and notes payable
|
|
|
85,222 |
|
|
|
63,030 |
|
|
Subordinated debentures
|
|
|
10,310 |
|
|
|
10,310 |
|
|
Accrued interest payable and other liabilities
|
|
|
17,263 |
|
|
|
13,236 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,124,685 |
|
|
|
1,006,587 |
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
Common stock: $2 par, 15,000,000 shares authorized,
7,647,740 and 7,659,929 shares outstanding
|
|
$ |
15,296 |
|
|
$ |
15,320 |
|
|
Additional paid in capital
|
|
|
24,160 |
|
|
|
24,482 |
|
|
Retained earnings
|
|
|
69,289 |
|
|
|
61,947 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(27 |
) |
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
108,718 |
|
|
|
101,935 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
1,233,403 |
|
|
$ |
1,108,522 |
|
|
|
|
|
|
|
|
See accompanying notes.
F-17
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
share and per share data) | |
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$ |
63,580 |
|
|
$ |
55,444 |
|
|
$ |
57,859 |
|
|
Taxable securities
|
|
|
1,040 |
|
|
|
947 |
|
|
|
1,490 |
|
|
Nontaxable securities
|
|
|
164 |
|
|
|
40 |
|
|
|
25 |
|
|
FHLB, Bankers Bank and other stock
|
|
|
230 |
|
|
|
192 |
|
|
|
209 |
|
|
Federal funds sold and other
|
|
|
62 |
|
|
|
114 |
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
65,076 |
|
|
|
56,737 |
|
|
|
59,929 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,199 |
|
|
|
12,631 |
|
|
|
15,266 |
|
|
Federal funds purchased and repurchase agreements
|
|
|
162 |
|
|
|
112 |
|
|
|
192 |
|
|
Notes payable and subordinated debentures
|
|
|
3,697 |
|
|
|
3,171 |
|
|
|
3,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
16,058 |
|
|
|
15,914 |
|
|
|
18,680 |
|
|
|
|
Net interest income
|
|
|
49,018 |
|
|
|
40,823 |
|
|
|
41,249 |
|
Provision for loan losses
|
|
|
5,836 |
|
|
|
5,775 |
|
|
|
7,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
43,182 |
|
|
|
35,048 |
|
|
|
34,184 |
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
9,074 |
|
|
|
7,898 |
|
|
|
7,343 |
|
|
|
Mortgage banking income
|
|
|
704 |
|
|
|
1,389 |
|
|
|
923 |
|
|
|
Gain on sale of securities available for sale
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
Gain on sales of OREO and repossessed assets
|
|
|
400 |
|
|
|
96 |
|
|
|
|
|
|
|
Other
|
|
|
2,850 |
|
|
|
2,205 |
|
|
|
2,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
13,028 |
|
|
|
11,588 |
|
|
|
10,530 |
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
19,189 |
|
|
|
16,664 |
|
|
|
17,046 |
|
|
|
Occupancy expense
|
|
|
2,948 |
|
|
|
2,337 |
|
|
|
2,130 |
|
|
|
Equipment expense
|
|
|
3,075 |
|
|
|
2,365 |
|
|
|
1,872 |
|
|
|
Professional services
|
|
|
1,645 |
|
|
|
966 |
|
|
|
879 |
|
|
|
Advertising
|
|
|
971 |
|
|
|
473 |
|
|
|
440 |
|
|
|
Loss on OREO and repossessed assets
|
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
Core deposit intangible amortization
|
|
|
624 |
|
|
|
254 |
|
|
|
162 |
|
|
|
Other
|
|
|
8,531 |
|
|
|
7,559 |
|
|
|
6,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
36,983 |
|
|
|
30,618 |
|
|
|
29,199 |
|
|
|
|
Income before income taxes
|
|
|
19,227 |
|
|
|
16,018 |
|
|
|
15,515 |
|
Provision for income taxes
|
|
|
7,219 |
|
|
|
5,781 |
|
|
|
5,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.57 |
|
|
$ |
1.48 |
|
|
$ |
1.44 |
|
|
Diluted
|
|
$ |
1.55 |
|
|
$ |
1.47 |
|
|
$ |
1.43 |
|
See accompanying notes.
F-18
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
Years ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
Total | |
|
|
Common | |
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
Shareholders | |
|
|
Stock | |
|
Capital | |
|
Earnings | |
|
Income(loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except share and per share data) | |
Balance, January 1, 2002
|
|
$ |
13,638 |
|
|
$ |
4,854 |
|
|
$ |
50,071 |
|
|
$ |
64 |
|
|
$ |
68,627 |
|
Issuance of 1,650 shares under stock option plan
|
|
|
3 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Dividends paid ($.58 per share)
|
|
|
|
|
|
|
|
|
|
|
(3,956 |
) |
|
|
|
|
|
|
(3,956 |
) |
Tax benefit from exercise of nonincentive stock options
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
9,813 |
|
|
|
|
|
|
|
9,813 |
|
|
Change in unrealized gains (losses), net of reclassification and
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
13,641 |
|
|
|
4,870 |
|
|
|
55,928 |
|
|
|
156 |
|
|
|
74,595 |
|
Issuance of 3,275 shares under stock option plan
|
|
|
7 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Issuance of 836,114 shares and stock options in an
acquisition
|
|
|
1,672 |
|
|
|
19,575 |
|
|
|
|
|
|
|
|
|
|
|
21,247 |
|
Dividends paid ($.59 per share)
|
|
|
|
|
|
|
|
|
|
|
(4,218 |
) |
|
|
|
|
|
|
(4,218 |
) |
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
10,237 |
|
|
|
|
|
|
|
10,237 |
|
|
Change in unrealized gains (losses), net of reclassification and
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
15,320 |
|
|
|
24,482 |
|
|
|
61,947 |
|
|
|
186 |
|
|
|
101,935 |
|
Common stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 13,511 shares under stock option plan
|
|
|
27 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Repurchase of common stock, 25,700 shares
|
|
|
(51 |
) |
|
|
(487 |
) |
|
|
|
|
|
|
|
|
|
|
(538 |
) |
Tax Benefit from exercise of nonincentive stock options
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Dividends ($.61 per share)
|
|
|
|
|
|
|
|
|
|
|
(4,666 |
) |
|
|
|
|
|
|
(4,666 |
) |
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
12,008 |
|
|
|
|
|
|
|
12,008 |
|
|
Change in unrealized gains (losses), net of reclassification and
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213 |
) |
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
15,296 |
|
|
$ |
24,160 |
|
|
$ |
69,289 |
|
|
$ |
(27 |
) |
|
$ |
108,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-19
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
share and per share data) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
|
Adjustments to reconcile net income to net cash from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5,836 |
|
|
|
5,775 |
|
|
|
7,065 |
|
|
|
Depreciation and amortization
|
|
|
3,120 |
|
|
|
2,199 |
|
|
|
1,736 |
|
|
|
Security amortization and accretion, net
|
|
|
153 |
|
|
|
76 |
|
|
|
44 |
|
|
|
Gain on sale of securities available for Sale
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
FHLB stock dividends
|
|
|
(219 |
) |
|
|
(191 |
) |
|
|
(207 |
) |
|
|
Net gain on sale of mortgage loans
|
|
|
(515 |
) |
|
|
(1,066 |
) |
|
|
(584 |
) |
|
|
Originations of mortgage loans held for sale
|
|
|
(46,982 |
) |
|
|
(74,313 |
) |
|
|
(59,845 |
) |
|
|
Proceeds from sales of mortgage loans
|
|
|
49,892 |
|
|
|
78,478 |
|
|
|
61,728 |
|
|
|
Net (gain) losses from sales of fixed assets
|
|
|
41 |
|
|
|
40 |
|
|
|
(103 |
) |
|
|
Net (gain) loss on OREO and repossessed assets
|
|
|
(400 |
) |
|
|
(96 |
) |
|
|
448 |
|
|
|
Deferred tax expense (benefit)
|
|
|
572 |
|
|
|
182 |
|
|
|
(334 |
) |
|
|
Net changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
1,101 |
|
|
|
(75 |
) |
|
|
414 |
|
|
|
|
Accrued interest payable and other liabilities
|
|
|
3,825 |
|
|
|
(1,200 |
) |
|
|
2,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
28,432 |
|
|
|
20,046 |
|
|
|
22,493 |
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in interest-bearing deposits with banks
|
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
Purchase of securities available for sale
|
|
|
(13,500 |
) |
|
|
(30,842 |
) |
|
|
(26,349 |
) |
|
Proceeds from sales of securities held for sale
|
|
|
|
|
|
|
|
|
|
|
3,790 |
|
|
Proceeds from maturities of securities held for sale
|
|
|
11,232 |
|
|
|
41,401 |
|
|
|
17,955 |
|
|
Proceeds from maturities of securities held to maturity
|
|
|
903 |
|
|
|
102 |
|
|
|
385 |
|
|
Increase in cash surrender value of life insurance
|
|
|
(3,021 |
) |
|
|
(3,219 |
) |
|
|
(1,474 |
) |
|
Net increase in loans
|
|
|
(71,597 |
) |
|
|
(100,551 |
) |
|
|
(80,637 |
) |
|
Net cash received in acquisitions
|
|
|
38,003 |
|
|
|
28,390 |
|
|
|
|
|
|
Proceeds from sale of other real estate
|
|
|
3,714 |
|
|
|
5,641 |
|
|
|
4,449 |
|
|
Improvement to other real estate
|
|
|
(6 |
) |
|
|
(71 |
) |
|
|
(31 |
) |
|
Proceeds from sale of fixed assets
|
|
|
32 |
|
|
|
81 |
|
|
|
587 |
|
|
Premises and equipment expenditures
|
|
|
(4,044 |
) |
|
|
(4,268 |
) |
|
|
(2,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(38,284 |
) |
|
|
(63,336 |
) |
|
|
(83,102 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
21,025 |
|
|
|
33,757 |
|
|
|
65,409 |
|
|
Net increase (decrease) in repurchase agreements
|
|
|
972 |
|
|
|
1,108 |
|
|
|
(337 |
) |
|
Proceeds from notes payable
|
|
|
219,950 |
|
|
|
234,064 |
|
|
|
120,000 |
|
|
Proceeds from subordinated debentures
|
|
|
|
|
|
|
10,310 |
|
|
|
|
|
|
Repayments of notes payable
|
|
|
(197,758 |
) |
|
|
(253,393 |
) |
|
|
(105,617 |
) |
|
Dividends paid
|
|
|
(4,666 |
) |
|
|
(4,218 |
) |
|
|
(3,956 |
) |
|
Proceeds from issuance of common stock
|
|
|
174 |
|
|
|
44 |
|
|
|
16 |
|
|
Repurchase of common stock
|
|
|
(538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
39,159 |
|
|
|
21,672 |
|
|
|
75,515 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
29,307 |
|
|
|
(21,618 |
) |
|
|
14,906 |
|
Cash and cash equivalents, beginning of year
|
|
|
41,341 |
|
|
|
62,959 |
|
|
|
48,053 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
70,648 |
|
|
$ |
41,341 |
|
|
$ |
62,959 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures cash and noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
16,681 |
|
|
$ |
15,822 |
|
|
$ |
19,634 |
|
|
Income taxes paid
|
|
|
5,524 |
|
|
|
4,375 |
|
|
|
4,820 |
|
|
Loans transferred to other real estate
|
|
|
5,102 |
|
|
|
6,529 |
|
|
|
7,952 |
|
|
Unrealized (loss) gain on available for sale securities, net of
tax
|
|
|
(213 |
) |
|
|
186 |
|
|
|
156 |
|
|
Fair value of assets acquired
|
|
|
32,641 |
|
|
|
188,779 |
|
|
|
|
|
|
Fair value of liabilities acquired
|
|
|
70,104 |
|
|
|
158,476 |
|
|
|
|
|
See accompanying notes.
F-20
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation: The consolidated
financial statements include the accounts of Greene County
Bancshares, Inc. (the Company) and its wholly owned
subsidiary, Greene County Bank (the Bank), and the
Banks wholly owned subsidiaries, Superior Financial
Services, Inc., GCB Acceptance Corp., Inc., and Fairway
Title Company, Inc. All significant inter-company balances
and transactions have been eliminated in consolidation.
Nature of Operations: The Company primarily
provides financial services through its offices in Eastern,
Middle and Southeastern Tennessee, Western North Carolina and
Southwestern Virginia. Its primary deposit products are
checking, savings, and term certificate accounts, and its
primary lending products are residential mortgage, commercial,
and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer
assets and real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate
loans are secured by both residential and commercial real
estate. Other financial instruments that potentially represent
concentrations of credit risk include deposit accounts in other
financial institutions.
Use of Estimates: To prepare financial statements
in conformity with accounting principles generally accepted in
the United States of America, management makes estimates and
assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results
could differ. The allowance for loan losses, loans held for
sale, and fair values of financial instruments are particularly
subject to change.
Cash Flows: Cash and cash equivalents includes
cash, deposits with other financial institutions under
90 days, and federal funds sold. Net cash flows are
reported for loan, deposit and other borrowing transactions.
Securities: Securities are classified as held to
maturity and carried at amortized cost when management has the
positive intent and ability to hold them to maturity. Securities
are classified as available for sale when they might be sold
before maturity. Securities available for sale are carried at
fair value, with unrealized holding gains and losses reported in
accumulated other comprehensive income.
Interest income includes amortization of purchase premium or
discount and is recognized based upon the straight-line method.
Gains and losses on sales are based on the amortized cost of the
security sold. Securities are written down to fair value when a
decline in fair value is not temporary.
Investments in Equity Securities Carried at Cost:
Investment in Federal Home Loan Bank (FHLB)
stock, which is carried at cost because it can only be redeemed
at par, is a required investment based on the Banks amount
of borrowing. The Bank also carries certain other equity
investments at cost, which approximates fair value.
Loans: Loans are reported at the principal balance
outstanding, net of unearned interest, deferred loan fees and
cost, and allowance for loan losses.
Interest income is reported on the interest method over the loan
term. Interest income on mortgage and commercial loans is
discontinued at the time the loan is 90 days delinquent
unless the loan is well secured and in process of collection.
Most consumer loans are charged off no later than 120 days
past due. In all cases, loans are placed on nonaccrual or
charged off at an earlier date if collection of principal and
interest is doubtful. Interest accrued but not collected is
reversed against interest income when a loan is placed on
nonaccrual status.
(Continued)
F-21
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Interest received is recognized on the cash basis or cost
recovery method until qualifying for return to accrual status.
Accrual is resumed when all contractually due payments are
brought current and future payments are reasonably assured.
Allowance for Loan Losses: The allowance for loan
losses is a valuation allowance for probable incurred credit
losses, increased by the provision for loan losses and decreased
by charge-offs less recoveries. Management estimates the
allowance balance required using past loan loss experience,
known and inherent risks in the nature and volume of the
portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that,
in managements judgment, should be charged-off. Loan
losses are charged against the allowance when management
believes the uncollectibility of a loan is confirmed.
The Bank uses several factors in determining if a loan is
impaired. The internal asset classification procedures include a
thorough review of significant loans and lending relationships
and include the accumulation of related data. This data includes
loan payment and collateral status, borrowers financial
data and borrowers operating factors such as cash flows,
operating income, liquidity, leverage and loan documentation,
and any significant changes. A loan is considered impaired,
based on current information and events, if it is probable that
the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual
terms of the loan agreement. Uncollateralized loans are measured
for impairment based on the present value of expected future
cash flows discounted at the historical effective interest rate,
while all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. Larger groups of
smaller balance, homogeneous loans, such as consumer and
residential real estate loans, are collectively evaluated for
impairment, and accordingly, they are not separately identified
for impairment disclosures.
Foreclosed Assets: Assets acquired through or
instead of loan foreclosure are initially recorded at lower of
cost or market when acquired, establishing a new cost basis. If
fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
Premises and Equipment: Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed over the asset useful lives on a straight-line basis.
Buildings and related components have useful lives ranging from
10 to 40 years, while furniture, fixtures and equipment
have useful lives ranging from 3 to 10 years. Leasehold
improvements are amortized over the lesser of the life of the
asset or lease term.
Mortgage Banking Activities: Mortgage loans
originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market value. The
Company controls its interest rate risk with respect to mortgage
loans held for sale and loan commitments expected to close by
usually entering into agreements to sell loans. The Company
records loan commitments related to the origination of mortgage
loans held for sale to be accounted for as derivative
instruments. The Companys commitments are for fixed rated
mortgage loans, generally last 60 to 90 days and are at
market rates when initiated. The Company had $4,202 in
outstanding loan commitment derivatives at December 31,
2004. Sales contract derivatives are entered into for amounts
and terms offsetting the interest rate risk of loan commitment
derivatives, and both are carried at their fair value with
changes included in earnings. Substantially all of the gain on
sale generated from mortgage banking activities continues to be
recorded when closed loans
(Continued)
F-22
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
are delivered into the sales contracts. The aggregate market
value of mortgage loans held for sale considers the sales prices
of such agreements. The Company also provides currently for any
losses on uncovered commitments to lend or sell. The Company
sells mortgage loans servicing released.
Bank Owned Life Insurance: The Company has
purchased life insurance policies on certain key executives.
Company owned life insurance is recorded at its cash surrender
value, or the amount that can be realized.
Goodwill and Other Intangible Assets: Goodwill
results from prior business acquisitions and represents the
excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible
assets. Upon adopting new accounting guidance on January 1,
2002, the Company ceased amortizing goodwill. Goodwill is
assessed at least annually for impairment and any such
impairment will be recognized in the period identified.
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
range from seven to 15 years and are determined by an
independent consulting firm.
Upon adoption of Statement of Financial Accounting Standards
(SFAS) No. 147 on October 1, 2002, the
Company reclassified to goodwill $1,629 of previously-recognized
unidentifiable intangible assets associated with the
Companys branch acquisition in 2001. Additionally, prior
period amortization expense was reversed totaling $145 for the
year-to-date period ended December 31, 2002.
Long-term Assets: Premises and equipment and other
long-term assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from
future undiscounted cash flows. If impaired, the assets are
recorded at fair value.
Repurchase Agreements: Substantially all
repurchase agreement liabilities represent amounts advanced by
various customers. Securities are pledged to cover these
liabilities, which are not covered by federal deposit insurance.
Benefit Plans: Retirement plan expense is the
amount contributed to the plan as determined by Board decision.
Deferred compensation expense is recognized during the year the
benefit is earned.
Stock Compensation: Employee compensation expense
under stock option plans is reported if options are granted
below market price at grant date, whereas no expense is recorded
for options granted at market price. 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 fair value of each option grant is estimated on the date of
grant with the following weighted-average assumptions used for
grants in 2004 and 2003: dividend growth rate of 2.5% and 3.0%,
risk-free interest rate of 4.11% and 4.10%, expected lives of
seven years, and estimated volatility of 24.24% and 19.53%. No
options were granted in 2002.
(Continued)
F-23
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
The following table illustrates the effect on net income and
earnings per share if the fair value based method, using an
option pricing model, had been applied to all outstanding and
unvested awards in each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net income, as reported
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
24 |
|
|
|
23 |
|
|
|
10 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(172 |
) |
|
|
(129 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
11,860 |
|
|
$ |
10,131 |
|
|
$ |
9,713 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
1.57 |
|
|
$ |
1.48 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$ |
1.54 |
|
|
$ |
1.46 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
1.55 |
|
|
$ |
1.47 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$ |
1.53 |
|
|
$ |
1.44 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
Income Taxes: Income tax expense is the total of
the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to
the amount expected to be realized.
Loan Commitments and Related Financial
Instruments: Financial instruments include credit
instruments, such as commitments to make loans and standby
letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss
before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
Instruments such as stand by letters of credit are considered
financial guarantees in accordance with FASB Interpretation
No. 45. The fair value of these financial guarantees is not
material.
Earnings Per Common Share: Basic earnings per
common share are net income divided by the weighted average
number of common shares outstanding during the period. Diluted
earnings per common share includes the dilutive effect of
additional potential common shares issuable under stock options.
Comprehensive Income: Comprehensive income
consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on
securities available for sale which are also recognized as a
separate component of equity. Comprehensive income is presented
in the consolidated statements of changes in shareholders
equity.
New Accounting Pronouncements: On March 9,
2004, the SEC Staff issued Staff Accounting
Bulletin No. 105, Application of Accounting
Principles to Loan Commitments
(SAB 105). SAB 105
(Continued)
F-24
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
clarifies existing accounting practices relating to the
valuation of issued loan commitments, including interest rate
lock commitments (IRLC), subject to
SFAS No. 149 and Derivative Implementation Group Issue
C13, Scope Exceptions: When a Loan Commitment is
included in the Scope of Statement 133. Furthermore,
SAB 105 disallows the inclusion of the values of a
servicing component and other internally developed intangible
assets in the initial and subsequent IRLC valuation. The
provisions of SAB 105 were effective for loan commitments
entered into after March 31, 2004. The adoption of
SAB 105 did not have a material impact on the consolidated
financial statements.
In March 2004, the Emerging Issues Task Force (EITF)
released EITF Issue 03-01, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments. The Issue provides guidance for determining
whether an investment is other-than-temporarily impaired and
requires certain disclosures with respect to these investments.
The recognition and measurement guidance for
other-than-temporary impairment has been delayed by the issuance
of FASB Staff Position EITF 03-1-1 on September 30,
2004. The adoption of Issue 03-1 did not result in any
other-than-temporary impairment.
In December 2003, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position
(SOP) 03-3, Accounting for Loans or Certain Debt
Securities Acquired in a Transfer. The SOP addresses
accounting for differences between contractual cash flows and
cash flows expected to be collected from an investors
initial investment in loans or debt securities acquired in a
transfer if those differences relate to a deterioration of
credit quality. The SOP also prohibits companies from
carrying over or creating a valuation allowance in
the initial accounting for loans acquired that meet the scope
criteria of the SOP. The SOP is effective for loans acquired in
fiscal years beginning after December 15, 2004. The
adoption of this SOP is not expected to have a material impact
on the Companys financial position or results of
operations.
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
interim reporting period that begins after June 15, 2005.
Accordingly, the Company will adopt SFAS No. 123(R)
commencing with the quarter ending September 30, 2005. If
the Company had included the cost of employee stock option
compensation in our consolidated financial statements, its net
income for the fiscal years ended December 31, 2004, 2003
and 2002 would have decreased by approximately $148, $106, and
$100, respectively.
Loss Contingencies: Loss contingencies, including
claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of
loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there are any
such matters that will have a material effect on the financial
statements.
Restrictions on Cash: Cash on hand or on deposit
with the Federal Reserve Bank of $8,376 and $6,654 was required
to meet regulatory reserve and clearing requirements at year-end
2004 and 2003. These balances do not earn interest.
(Continued)
F-25
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Segments: Internal financial reporting is
primarily reported and aggregated in five lines of business,
banking, mortgage banking, consumer finance, subprime automobile
lending, and title insurance. Banking accounts for 90.9% of
revenues for 2004.
Fair Value of Financial Instruments: Fair values
of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in a
separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit
risk, prepayments, and other factors, especially in the absence
of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates.
Reclassifications: Certain items in prior year
financial statements have been reclassified to conform to the
2004 presentation.
NOTE 2 SECURITIES
Securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Fair | |
|
Unrealized | |
|
Unrealized | |
|
Amortized | |
|
|
Value | |
|
Gains | |
|
Losses | |
|
Cost | |
|
|
| |
|
| |
|
| |
|
| |
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
21,594 |
|
|
$ |
5 |
|
|
$ |
(109 |
) |
|
$ |
21,698 |
|
Obligations of states and political subdivisions
|
|
|
1,821 |
|
|
|
10 |
|
|
|
(1 |
) |
|
|
1,812 |
|
Mortgage-backed
|
|
|
5,395 |
|
|
|
57 |
|
|
|
(13 |
) |
|
|
5,351 |
|
Trust preferred securities
|
|
|
6,508 |
|
|
|
37 |
|
|
|
(29 |
) |
|
|
6,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,318 |
|
|
$ |
109 |
|
|
$ |
(152 |
) |
|
$ |
35,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
17,308 |
|
|
$ |
59 |
|
|
$ |
(37 |
) |
|
$ |
17,286 |
|
Obligations of states and political subdivisions
|
|
|
1,880 |
|
|
|
65 |
|
|
|
|
|
|
|
1,815 |
|
Mortgage-backed
|
|
|
7,412 |
|
|
|
118 |
|
|
|
(4 |
) |
|
|
7,298 |
|
Trust preferred securities
|
|
|
6,599 |
|
|
|
99 |
|
|
|
|
|
|
|
6,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,199 |
|
|
$ |
341 |
|
|
$ |
(41 |
) |
|
$ |
32,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-26
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 2 SECURITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross |
|
|
|
|
Carrying | |
|
Unrecognized | |
|
Unrecognized |
|
Fair | |
|
|
Amount | |
|
Gains | |
|
Losses |
|
Value | |
|
|
| |
|
| |
|
|
|
| |
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
250 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
251 |
|
Obligations of states and political subdivisions
|
|
|
3,382 |
|
|
|
97 |
|
|
|
|
|
|
|
3,479 |
|
Other securities
|
|
|
749 |
|
|
|
27 |
|
|
|
|
|
|
|
776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,381 |
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
4,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
748 |
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
762 |
|
Obligations of states and political subdivisions
|
|
|
4,136 |
|
|
|
153 |
|
|
|
|
|
|
|
4,289 |
|
Other securities
|
|
|
748 |
|
|
|
47 |
|
|
|
|
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,632 |
|
|
$ |
214 |
|
|
$ |
|
|
|
$ |
5,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of securities at year-end 2004 are shown
below. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale | |
|
Held to Maturity | |
|
|
| |
|
| |
|
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
Due in one year or less
|
|
$ |
5,087 |
|
|
$ |
450 |
|
|
$ |
451 |
|
Due after one year through five years
|
|
|
15,947 |
|
|
|
1,950 |
|
|
|
2,003 |
|
Due after five years through ten years
|
|
|
1,245 |
|
|
|
1,631 |
|
|
|
1,702 |
|
Due after ten years
|
|
|
7,644 |
|
|
|
350 |
|
|
|
350 |
|
Mortgage-backed securities
|
|
|
5,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maturities
|
|
$ |
35,318 |
|
|
$ |
4,381 |
|
|
$ |
4,506 |
|
|
|
|
|
|
|
|
|
|
|
Gross gains of $46 were recognized in 2002 from proceeds of
$3,790 on the sale of securities available for sale. There were
no security sales during 2004 and 2003.
Securities with a carrying value of $20,477 and $15,315 at
year-end 2004 and 2003 were pledged for public deposits and
securities sold under agreements to repurchase.
(Continued)
F-27
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 2 SECURITIES (Continued)
Securities with unrealized losses at year end 2004 and 2003 not
recognized in income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months | |
|
12 months or more | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
Value | |
|
Loss | |
|
Value | |
|
Loss | |
|
Value | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
16,616 |
|
|
$ |
(104 |
) |
|
$ |
745 |
|
|
$ |
(5 |
) |
|
$ |
17,361 |
|
|
$ |
(109 |
) |
Obligations of states and political subdivisions
|
|
|
994 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
994 |
|
|
|
(1 |
) |
Trust preferred securities
|
|
|
4,472 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
4,472 |
|
|
|
(29 |
) |
Mortgage-backed securities
|
|
|
2,115 |
|
|
|
(8 |
) |
|
|
207 |
|
|
|
(5 |
) |
|
|
2,322 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$ |
24,197 |
|
|
$ |
(142 |
) |
|
$ |
952 |
|
|
$ |
(10 |
) |
|
$ |
25,149 |
|
|
$ |
(152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agency
|
|
$ |
2,463 |
|
|
$ |
(37 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,463 |
|
|
$ |
(37 |
) |
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
$ |
(4 |
) |
|
$ |
234 |
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$ |
2,463 |
|
|
$ |
(37 |
) |
|
$ |
234 |
|
|
$ |
(4 |
) |
|
$ |
2,697 |
|
|
$ |
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on securities have not been recognized into
income because management has the intent and ability to hold for
the foreseeable future, and the decline in fair value is largely
due to increases in market interest rates. The fair value is
expected to recover as the securities approach their maturity
date and/or market rates decline.
(Continued)
F-28
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 3 LOANS
Loans at year-end were as follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Commercial
|
|
$ |
165,975 |
|
|
$ |
134,823 |
|
Commercial real estate
|
|
|
484,088 |
|
|
|
445,104 |
|
Residential real estate
|
|
|
319,713 |
|
|
|
295,528 |
|
Consumer
|
|
|
82,532 |
|
|
|
81,624 |
|
Other
|
|
|
4,989 |
|
|
|
6,134 |
|
|
|
|
|
|
|
|
|
|
|
1,057,297 |
|
|
|
963,213 |
|
Less: Unearned interest income
|
|
|
(10,430 |
) |
|
|
(10,988 |
) |
Allowance for loan losses
|
|
|
(15,721 |
) |
|
|
(14,564 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,031,146 |
|
|
$ |
937,661 |
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Beginning balance
|
|
$ |
14,564 |
|
|
$ |
12,586 |
|
|
$ |
11,221 |
|
Reserve acquired in acquisition
|
|
|
363 |
|
|
|
1,340 |
|
|
|
|
|
Provision for loan losses
|
|
|
5,836 |
|
|
|
5,775 |
|
|
|
7,065 |
|
Loans charged off
|
|
|
(6,980 |
) |
|
|
(6,797 |
) |
|
|
(7,648 |
) |
Recoveries of loans charged off
|
|
|
1,938 |
|
|
|
1,660 |
|
|
|
1,948 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$ |
15,721 |
|
|
$ |
14,564 |
|
|
$ |
12,586 |
|
|
|
|
|
|
|
|
|
|
|
Impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Loans with allowance allocated
|
|
$ |
12,210 |
|
|
$ |
10,632 |
|
|
$ |
9,557 |
|
Amount of allowance allocated
|
|
|
1,832 |
|
|
|
1,595 |
|
|
|
1,434 |
|
Average balance during the year
|
|
|
11,971 |
|
|
|
10,028 |
|
|
|
11,391 |
|
Interest income not recognized during impairment
|
|
|
244 |
|
|
|
166 |
|
|
|
220 |
|
Interest income actually recognized on these loans during 2004,
2003 and 2002 was not significant.
Nonperforming loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Loans past due 90 days still on accrual
|
|
$ |
664 |
|
|
$ |
224 |
|
Nonaccrual loans
|
|
|
6,242 |
|
|
|
4,305 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,906 |
|
|
$ |
4,529 |
|
|
|
|
|
|
|
|
Nonperforming loans and impaired loans are defined differently.
Some loans may be included in both categories, whereas other
loans may only be included in one category.
(Continued)
F-29
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 3 LOANS (Continued)
The aggregate amount of loans to executive officers and
directors of the Company and their related interests was
approximately $9,813 and $7,106 at year-end 2004 and 2003,
respectively. During 2004 and 2003, new loans aggregating
approximately $19,384 and $16,556, respectively, and amounts
collected of approximately $16,677 and $17,544, respectively,
were transacted with such parties.
NOTE 4 PREMISES AND EQUIPMENT
Year-end premises and equipment follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Land
|
|
$ |
6,480 |
|
|
$ |
6,344 |
|
Premises
|
|
|
24,232 |
|
|
|
21,121 |
|
Leasehold improvements
|
|
|
1,749 |
|
|
|
1,373 |
|
Furniture, fixtures and equipment
|
|
|
15,245 |
|
|
|
13,747 |
|
Automobiles
|
|
|
134 |
|
|
|
134 |
|
Construction in progress
|
|
|
128 |
|
|
|
2,849 |
|
|
|
|
|
|
|
|
|
|
|
47,968 |
|
|
|
45,568 |
|
Accumulated depreciation
|
|
|
(12,377 |
) |
|
|
(11,682 |
) |
|
|
|
|
|
|
|
|
|
$ |
35,591 |
|
|
$ |
33,886 |
|
|
|
|
|
|
|
|
Rent expense for operating leases was $537 for 2004, $477 for
2003, and $430 for 2002. Rent commitments under noncancelable
operating leases were as follows, before considering renewal
options that generally are present:
|
|
|
|
|
|
2005
|
|
$ |
555 |
|
2006
|
|
|
438 |
|
2007
|
|
|
379 |
|
2008
|
|
|
226 |
|
2009
|
|
|
147 |
|
Thereafter
|
|
|
265 |
|
|
|
|
|
|
Total
|
|
$ |
2,010 |
|
|
|
|
|
NOTE 5 GOODWILL AND OTHER INTANGIBLE
ASSETS
Goodwill
The change in the amount of goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Beginning of year
|
|
$ |
15,885 |
|
|
$ |
2,053 |
|
Goodwill from acquisitions during year
|
|
|
2,397 |
|
|
|
13,832 |
|
|
|
|
|
|
|
|
End of year
|
|
$ |
18,282 |
|
|
$ |
15,885 |
|
|
|
|
|
|
|
|
(Continued)
F-30
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 5 GOODWILL AND OTHER INTANGIBLE ASSETS
(Continued)
Goodwill was no longer amortized starting in 2002; however, it
is periodically evaluated for impairment and no impairment was
recognized in 2004 or in 2003.
Core deposit and other intangibles
Core deposit intangibles had a gross carrying amount of $7,320
and $6,367 for years ended 2004 and 2003 and accumulated
amortization of $1,907 and $1,282 for the same periods,
respectively. Aggregate amortization expense was $624 for year
ended 2004, $254 for year ended 2003 and $162 for year ended
2002. Core deposit intangibles of $953 and $4,596 were recorded
during 2004 and 2003 respectively from acquisition transactions.
Estimated amortization expense for each of the next five years:
|
|
|
|
|
2005
|
|
$ |
752 |
|
2006
|
|
|
642 |
|
2007
|
|
|
642 |
|
2008
|
|
|
642 |
|
2009
|
|
|
642 |
|
|
|
|
|
Total
|
|
$ |
3,320 |
|
|
|
|
|
NOTE 6 DEPOSITS
Deposits at year-end were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Noninterest-bearing demand deposits
|
|
$ |
109,956 |
|
|
$ |
104,683 |
|
Interest-bearing demand deposits
|
|
|
306,239 |
|
|
|
269,030 |
|
Savings deposits
|
|
|
66,284 |
|
|
|
60,597 |
|
Time deposits
|
|
|
515,543 |
|
|
|
472,805 |
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
998,022 |
|
|
$ |
907,115 |
|
|
|
|
|
|
|
|
Time deposits of $100 thousand or more were $146,225 and
$133,303 at year-end 2004 and 2003.
Scheduled maturities of all time deposits for the next five
years and thereafter were as follows:
|
|
|
|
|
2005
|
|
$ |
344,612 |
|
2006
|
|
|
66,213 |
|
2007
|
|
|
58,859 |
|
2008
|
|
|
5,994 |
|
2009
|
|
|
39,146 |
|
Thereafter
|
|
|
719 |
|
The aggregate amount of deposits of executive officers and
directors of the Company and their related interests was
approximately $5,170 and $4,819 at year-end 2004 and 2003.
(Continued)
F-31
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 7 BORROWINGS
Federal funds purchased, securities sold under agreements to
repurchase and treasury tax and loan deposits are financing
arrangements. Securities involved with the agreements are
recorded as assets and are held by a safekeeping agent and the
obligations to repurchase the securities are reflected as
liabilities. Securities sold under agreements to repurchase
consist of short-term excess funds and overnight liabilities to
deposit customers arising from a cash management program.
Information concerning securities sold under agreements to
repurchase at year-end 2004 and 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Average balance during the year
|
|
$ |
14,460 |
|
|
$ |
11,232 |
|
Average interest rate during the year
|
|
|
0.97 |
% |
|
|
0.66 |
% |
Maximum month end balance during the year
|
|
$ |
19,305 |
|
|
$ |
14,381 |
|
Weighted average interest rate at year-end
|
|
|
1.74 |
% |
|
|
0.62 |
% |
FHLB advances and notes payable consist of the following at
year-end:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Short-term borrowings
|
|
|
|
|
|
|
|
|
Variable rate FHLB advance, 1.13%,
|
|
|
|
|
|
|
|
|
Matured March, 2004
|
|
$ |
|
|
|
$ |
9,000 |
|
Fixed rate FHLB advance, 2.32%
|
|
|
|
|
|
|
|
|
Maturing January, 2005
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
|
20,000 |
|
|
|
9,000 |
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
|
|
Fixed rate FHLB advances, from 2.85% to 6.35%,
|
|
|
|
|
|
|
|
|
Various maturities through September, 2018
|
|
|
13,922 |
|
|
|
2,730 |
|
Variable rate FHLB advances, from 4.56% to 5.76%,
|
|
|
|
|
|
|
|
|
Maturities from November, 2008 to January, 2010
|
|
|
49,500 |
|
|
|
49,500 |
|
Fixed rate notes payable, interest due quarterly at 3.80%,
principal due October, 2006
|
|
|
1,800 |
|
|
|
1,800 |
|
|
|
|
|
|
|
|
|
Total long-term borrowings
|
|
|
65,222 |
|
|
|
54,030 |
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$ |
85,222 |
|
|
$ |
63,030 |
|
|
|
|
|
|
|
|
Each advance is payable at its maturity date; however,
prepayment penalties are required if paid before maturity. The
variable rate advances are convertible to a 3-month LIBOR rate,
at the discretion of the FHLB. The advances are collateralized
by a required blanket pledge of qualifying mortgage, commercial,
agricultural, and home equity lines of credit loans totaling
$378,563 and $433,233 at year-end 2004 and 2003.
(Continued)
F-32
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 7 BORROWINGS (Continued)
Scheduled maturities of FHLB advances and notes payable over the
next five years and thereafter are:
|
|
|
|
|
|
|
Total | |
|
|
| |
2005
|
|
$ |
20,141 |
|
2006
|
|
|
1,946 |
|
2007
|
|
|
152 |
|
2008
|
|
|
5,148 |
|
2009
|
|
|
29,637 |
|
Thereafter
|
|
|
28,198 |
|
|
|
|
|
|
|
$ |
85,222 |
|
|
|
|
|
At year-end 2004, the Company had approximately $106,000 of
federal funds lines of credit available from correspondent
institutions, $35,502 in unused lines of credit with the FHLB,
and $85,150 of letters of credit with the FHLB.
In September 2003, the Company formed Greene County Capital
Trust I (GC Trust). GC Trust issued $10,000 of
variable rate trust preferred securities as part of a pooled
offering of such securities. The Company issued $10,310
subordinated debentures to the GC Trust in exchange for the
proceeds of the offering, which debentures represent the sole
asset of GC Trust. The debentures pay interest quarterly at the
three-month LIBOR plus 2.85% adjusted quarterly (4.92% and 3.99%
at year-end 2004 and 2003, respectively). The Company may redeem
the subordinated debentures, in whole or in part, beginning
October 2008 at a price of 100% of face value. The subordinated
debentures must be redeemed no later than 2033.
In accordance with FASB Interpretation No. 46R, GC Trust is
not consolidated with the Company. Accordingly, the Company does
not report the securities issued by the GC Trust as liabilities,
and instead reports as liabilities the subordinated debentures
issued by the Company and held by the GC Trust. However, the
Company has fully and unconditionally guaranteed the repayment
of the variable rate trust preferred securities. These trust
preferred securities currently qualify as Tier 1 capital
for regulatory capital requirements of the Company.
NOTE 8 BENEFIT PLANS
The Company has a profit sharing plan which allows employees to
contribute from 1% to 20% of their compensation. The Company
contributes an additional amount at a discretionary rate
established annually by the Board of Directors. Company
contributions to the Plan were $713, $593 and $560 for 2004,
2003 and 2002 respectively.
Directors have deferred some of their fees for future payment,
including interest. The amount accrued for deferred compensation
was $2,068 and $1,848 at year-end 2004 and 2003. Amounts
expensed under the plan were $294, $269 and $243 during 2004,
2003, and 2002. The Bank paid an interest rate of 10% on
balances in the plan during 2004, 2003, and 2002. Related to
these plans, the Company purchased single premium life insurance
contracts on the lives of the related participants. The cash
surrender value of these contracts is recorded as an asset of
the Company.
(Continued)
F-33
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 9 INCOME TAXES
Income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Current federal
|
|
$ |
5,656 |
|
|
$ |
5,008 |
|
|
$ |
5,282 |
|
Current state
|
|
|
991 |
|
|
|
591 |
|
|
|
754 |
|
Deferred federal
|
|
|
477 |
|
|
|
152 |
|
|
|
(279 |
) |
Deferred state
|
|
|
95 |
|
|
|
30 |
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,219 |
|
|
$ |
5,781 |
|
|
$ |
5,702 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the effect of temporary
differences between values recorded for assets and
liabilities for financial reporting purposes and values utilized
for measurement in accordance with tax laws. The tax effects of
the primary temporary differences giving rise to the
Companys net deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Assets | |
|
Liabilities | |
|
Assets | |
|
Liabilities | |
|
|
| |
|
| |
|
| |
|
| |
Allowance for loan losses
|
|
$ |
5,977 |
|
|
$ |
|
|
|
$ |
5,460 |
|
|
$ |
|
|
Deferred compensation
|
|
|
1,116 |
|
|
|
|
|
|
|
981 |
|
|
|
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
(608 |
) |
|
|
198 |
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
(2,215 |
) |
|
|
|
|
|
|
(1,642 |
) |
FHLB dividends
|
|
|
|
|
|
|
(824 |
) |
|
|
|
|
|
|
(738 |
) |
Core deposit intangible
|
|
|
|
|
|
|
(1,887 |
) |
|
|
|
|
|
|
(1,854 |
) |
Unrealized (gain) loss on securities
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
(114 |
) |
Other
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
$ |
7,225 |
|
|
$ |
(5,534 |
) |
|
$ |
6,639 |
|
|
$ |
(4,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
No valuation allowances were required relating to deferred tax
assets at December 31, 2004 and 2003.
A reconciliation of expected income tax expense at the statutory
federal income tax rate of 35% with the actual effective income
tax rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Statutory federal tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income tax, net of federal benefit
|
|
|
3.7 |
|
|
|
2.1 |
|
|
|
2.6 |
|
Tax exempt income
|
|
|
(1.2 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
Other
|
|
|
|
|
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
37.5 |
% |
|
|
36.1 |
% |
|
|
36.7 |
% |
|
|
|
|
|
|
|
|
|
|
(Continued)
F-34
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 10 COMMITMENTS AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Some financial instruments, such as loan commitments, credit
lines, letters of credit, and overdraft protection, are issued
to meet customer-financing needs. These are agreements to
provide credit or to support the credit of others, as long as
conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face
amount of these instruments, although material losses are not
anticipated. The same credit policies are used to make such
commitments as are used for loans, including obtaining
collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk were as
follows at year-end:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Commitments to make loans fixed
|
|
$ |
50,569 |
|
|
$ |
4,460 |
|
Commitments to make loans variable
|
|
|
45,849 |
|
|
|
24,915 |
|
Unused lines of credit
|
|
|
206,714 |
|
|
|
128,996 |
|
Letters of credit
|
|
|
27,644 |
|
|
|
18,919 |
|
The fixed rate loan commitments have interest rates ranging from
3.25% to 8.49% and maturities ranging from one year to eighteen
years. Letters of credit are considered financial guarantees
under FASB Interpretation 45. These instruments are carried at
fair value, which was immaterial at year-end 2004 and 2003.
NOTE 11 CAPITAL REQUIREMENTS AND
RESTRICTIONS ON RETAINED EARNINGS
Banks and bank holding companies are subject to regulatory
capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for banks, prompt
corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative
judgments by regulators. Failure to meet capital requirements
can initiate regulatory action.
Prompt corrective action regulations provide five
classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset
growth and expansion, and capital restoration plans are required.
(Continued)
F-35
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 11 CAPITAL REQUIREMENTS AND
RESTRICTIONS ON RETAINED EARNINGS (Continued)
At year-end, the capital requirements were met, as the Company
and the Bank were considered well capitalized under regulations.
Actual capital levels and minimum required levels (in millions)
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Amounts to | |
|
|
|
|
|
|
|
|
be Well Capitalized | |
|
|
|
|
|
|
Minimum Required | |
|
Under Prompt | |
|
|
|
|
for Capital | |
|
Corrective Action | |
|
|
Actual | |
|
Adequacy Purposes | |
|
Provisions | |
|
|
| |
|
| |
|
| |
|
|
Actual | |
|
Ratio(%) | |
|
Actual | |
|
Ratio(%) | |
|
Actual | |
|
Ratio (%) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
108.4 |
|
|
|
10.5 |
|
|
$ |
83.0 |
|
|
|
8.0 |
|
|
$ |
103.7 |
|
|
|
10.0 |
|
|
Bank
|
|
|
109.5 |
|
|
|
10.6 |
|
|
|
83.0 |
|
|
|
8.0 |
|
|
|
103.7 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
95.4 |
|
|
|
9.2 |
|
|
$ |
41.5 |
|
|
|
4.0 |
|
|
$ |
62.2 |
|
|
|
6.0 |
|
|
Bank
|
|
|
96.5 |
|
|
|
9.3 |
|
|
|
41.5 |
|
|
|
4.0 |
|
|
|
62.2 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
95.4 |
|
|
|
8.5 |
|
|
$ |
45.1 |
|
|
|
4.0 |
|
|
$ |
56.4 |
|
|
|
5.0 |
|
|
Bank
|
|
|
96.5 |
|
|
|
8.6 |
|
|
|
45.1 |
|
|
|
4.0 |
|
|
|
56.4 |
|
|
|
5.0 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
103.0 |
|
|
|
10.9 |
|
|
$ |
75.7 |
|
|
|
8.0 |
|
|
$ |
94.7 |
|
|
|
10.0 |
|
|
Bank
|
|
|
103.8 |
|
|
|
11.0 |
|
|
|
75.2 |
|
|
|
8.0 |
|
|
|
94.7 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
91.1 |
|
|
|
9.6 |
|
|
$ |
37.9 |
|
|
|
4.0 |
|
|
$ |
56.8 |
|
|
|
6.0 |
|
|
Bank
|
|
|
91.3 |
|
|
|
9.7 |
|
|
|
37.9 |
|
|
|
4.0 |
|
|
|
56.8 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
91.1 |
|
|
|
8.4 |
|
|
$ |
43.4 |
|
|
|
4.0 |
|
|
$ |
54.2 |
|
|
|
5.0 |
|
|
Bank
|
|
|
91.3 |
|
|
|
9.4 |
|
|
|
39.3 |
|
|
|
4.0 |
|
|
|
58.9 |
|
|
|
5.0 |
|
The Companys primary source of funds to pay dividends to
shareholders is the dividends it receives from the Bank.
Applicable state laws and the regulations of the Federal Reserve
Bank and the Federal Deposit Insurance Corporation regulate the
payment of dividends. Under the state regulations, the amount of
dividends that may be paid by the Bank to the Company is limited
only to the extent that the remaining balance of retained
earnings is at least equal to the capital stock amounts of the
Bank; however, future dividends will be dependent on the level
of earnings, capital and liquidity requirements and
considerations of the Bank and Company.
(Continued)
F-36
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 12 STOCK OPTIONS
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 Companys common
stock on the date of grant and typically have terms of ten years
and vest at an annual rate of 20%.
The Company also had a stock option plan that was part of a key
executives employment agreement, pursuant to which the
Company granted to the key executive options to
purchase 9,000 shares per year at one and one-half
times year end book value. The options vested immediately on the
grant date. Compensation expense associated with these options
was $40 for 2004, $38 for 2003, and $17 for 2002. No expense for
stock options to other key executives has been recorded, as the
grant price equaled the market price of the stock at grant date.
This plan was superceded by the new 2004 Long-Term Incentive
Plan.
A summary of the Companys option activity and related
information for the years ended 2004, 2003, and 2002 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Executive | |
|
Other Key Executives | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
63,000 |
|
|
$ |
13.18 |
|
|
|
236,273 |
|
|
$ |
21.35 |
|
|
|
299,273 |
|
|
$ |
19.63 |
|
Granted
|
|
|
9,000 |
|
|
|
19.97 |
|
|
|
62,130 |
|
|
|
23.34 |
|
|
|
71,130 |
|
|
|
22.91 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(13,511 |
) |
|
|
12.90 |
|
|
|
(13,511 |
) |
|
|
12.90 |
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(20,614 |
) |
|
|
24.75 |
|
|
|
(20,614 |
) |
|
|
24.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
72,000 |
|
|
$ |
14.03 |
|
|
|
264,278 |
|
|
$ |
21.98 |
|
|
|
336,278 |
|
|
$ |
20.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year end
|
|
|
72,000 |
|
|
$ |
14.03 |
|
|
|
151,437 |
|
|
$ |
22.23 |
|
|
|
223,437 |
|
|
$ |
19.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of each option granted during the year
|
|
|
|
|
|
$ |
6.50 |
|
|
|
|
|
|
$ |
6.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
54,000 |
|
|
$ |
12.64 |
|
|
|
178,347 |
|
|
$ |
22.84 |
|
|
|
232,347 |
|
|
$ |
20.47 |
|
Granted*
|
|
|
9,000 |
|
|
|
16.41 |
|
|
|
66,978 |
|
|
|
17.10 |
|
|
|
75,978 |
|
|
|
17.02 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(3,275 |
) |
|
|
13.36 |
|
|
|
(3,275 |
) |
|
|
13.36 |
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(5,777 |
) |
|
|
22.74 |
|
|
|
(5,777 |
) |
|
|
22.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
63,000 |
|
|
$ |
13.18 |
|
|
|
236,273 |
|
|
$ |
21.35 |
|
|
|
299,273 |
|
|
$ |
19.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year end
|
|
|
63,000 |
|
|
$ |
13.18 |
|
|
|
147,423 |
|
|
$ |
21.50 |
|
|
|
210,423 |
|
|
$ |
19.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of each option granted during the year
|
|
|
|
|
|
$ |
4.49 |
|
|
|
|
|
|
$ |
5.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes 19,317 options granted to Other Key Executives
in acquisition.
(Continued)
F-37
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 12 STOCK OPTIONS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
54,000 |
|
|
$ |
12.64 |
|
|
|
183,730 |
|
|
$ |
22.72 |
|
|
|
237,730 |
|
|
$ |
20.43 |
|
Granted*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(1,650 |
) |
|
|
9.67 |
|
|
|
(1,650 |
) |
|
|
9.67 |
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(3,733 |
) |
|
|
22.91 |
|
|
|
(3,733 |
) |
|
|
22.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
54,000 |
|
|
$ |
12.64 |
|
|
|
178,347 |
|
|
$ |
22.84 |
|
|
|
232,347 |
|
|
$ |
20.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year end
|
|
|
54,000 |
|
|
$ |
12.64 |
|
|
|
106,083 |
|
|
$ |
22.07 |
|
|
|
160,083 |
|
|
$ |
18.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of each option granted during the year
|
|
|
|
|
|
$ |
N/A |
* |
|
|
|
|
|
$ |
N/A |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* No options granted during 2002.
Options outstanding at year-end 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable | |
|
|
| |
|
| |
|
|
|
|
Average | |
|
|
|
|
|
Average | |
|
|
|
|
|
|
Weighted | |
|
Average | |
|
|
|
Weighted | |
|
Average | |
|
|
|
|
Remaining | |
|
Weighted | |
|
|
|
Remaining | |
|
Weighted | |
|
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Contractual | |
|
Exercise | |
Range of Exercise Prices | |
|
Outstanding | |
|
Life | |
|
Price | |
|
Outstanding | |
|
Life | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
*$10.13-$15.00 |
|
|
|
45,000 |
|
|
|
4.0 |
|
|
$ |
12.15 |
|
|
|
45,000 |
|
|
|
4.0 |
|
|
$ |
12.15 |
|
|
*$15.01-$19.97 |
|
|
|
27,000 |
|
|
|
8.0 |
|
|
$ |
17.16 |
|
|
|
27,000 |
|
|
|
8.0 |
|
|
$ |
17.16 |
|
|
$12.00-$15.00 |
|
|
|
32,007 |
|
|
|
5.2 |
|
|
$ |
12.99 |
|
|
|
32,007 |
|
|
|
5.3 |
|
|
$ |
12.99 |
|
|
$15.01-$20.00 |
|
|
|
92,156 |
|
|
|
6.8 |
|
|
$ |
18.05 |
|
|
|
44,562 |
|
|
|
6.0 |
|
|
$ |
17.97 |
|
|
$20.01-$25.00 |
|
|
|
79,930 |
|
|
|
7.7 |
|
|
$ |
23.25 |
|
|
|
21,270 |
|
|
|
4.0 |
|
|
$ |
23.00 |
|
|
$25.01-$30.00 |
|
|
|
27,250 |
|
|
|
5.0 |
|
|
$ |
30.00 |
|
|
|
27,250 |
|
|
|
5.0 |
|
|
$ |
30.00 |
|
|
$30.01-$32.00 |
|
|
|
32,935 |
|
|
|
6.0 |
|
|
$ |
32.00 |
|
|
|
26,348 |
|
|
|
6.0 |
|
|
$ |
32.00 |
|
|
|
* |
Granted in connection with compensation for the key executive |
(Continued)
F-38
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 13 EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the
earnings per common share and earnings per common share assuming
dilution computations are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
Weighted average common shares outstanding
|
|
|
7,652,099 |
|
|
|
6,916,351 |
|
|
|
6,819,722 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$ |
1.57 |
|
|
$ |
1.48 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
Weighted average common shares outstanding
|
|
|
7,652,099 |
|
|
|
6,916,351 |
|
|
|
6,819,722 |
|
Add: Dilutive effects of assumed conversions and exercises of
stock options
|
|
|
82,236 |
|
|
|
69,596 |
|
|
|
27,737 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and dilutive potential common shares
outstanding
|
|
|
7,734,335 |
|
|
|
6,985,947 |
|
|
|
6,847,459 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$ |
1.55 |
|
|
$ |
1.47 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
Stock options of 62,463, 69,602 and 113,693 were excluded from
the 2004, 2003 and 2002 diluted earnings per share because their
impact was antidilutive.
(Continued)
F-39
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 14 FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying value and estimated fair value of the
Companys financial instruments are as follows at year-end
2004 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
Value | |
|
Fair Value | |
|
Value | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
70,648 |
|
|
$ |
70,648 |
|
|
$ |
41,341 |
|
|
$ |
41,341 |
|
Securities available for sale
|
|
|
35,318 |
|
|
|
35,318 |
|
|
|
33,199 |
|
|
|
33,199 |
|
Securities held to maturity
|
|
|
4,381 |
|
|
|
4,506 |
|
|
|
5,632 |
|
|
|
5,846 |
|
Loans held for sale
|
|
|
1,151 |
|
|
|
1,165 |
|
|
|
3,546 |
|
|
|
3,612 |
|
Net loans
|
|
|
1,031,146 |
|
|
|
1,032,706 |
|
|
|
937,661 |
|
|
|
938,241 |
|
FHLB, Bankers Bank and other stock
|
|
|
6,211 |
|
|
|
6,211 |
|
|
|
5,992 |
|
|
|
5,992 |
|
Cash surrender value of life insurance
|
|
|
15,471 |
|
|
|
15,471 |
|
|
|
12,451 |
|
|
|
12,451 |
|
Accrued interest receivable
|
|
|
4,413 |
|
|
|
4,413 |
|
|
|
4,252 |
|
|
|
4,252 |
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit accounts
|
|
$ |
998,022 |
|
|
$ |
1,004,482 |
|
|
$ |
907,115 |
|
|
$ |
915,550 |
|
Repurchase agreements
|
|
|
13,868 |
|
|
|
13,868 |
|
|
|
12,896 |
|
|
|
12,896 |
|
FHLB advances and notes payable
|
|
|
85,222 |
|
|
|
86,924 |
|
|
|
63,030 |
|
|
|
67,326 |
|
Subordinated debentures
|
|
|
10,310 |
|
|
|
11,087 |
|
|
|
10,310 |
|
|
|
10,677 |
|
Accrued interest payable
|
|
|
2,068 |
|
|
|
2,068 |
|
|
|
2,690 |
|
|
|
2,690 |
|
The following methods and assumptions were used to estimate the
fair values for financial instruments. The carrying amount is
considered to estimate fair value for cash and short-term
instruments, demand deposits, liabilities for repurchase
agreements, variable rate loans or deposits that reprice
frequently and fully, and accrued interest receivable and
payable. Securities available for sale fair values are based on
quoted market prices or, if no quotes are available, on the rate
and term of the security and on information about the issuer.
For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, the fair
value is estimated by discounted cash flow analysis using
current market rates for the estimated life and credit risk.
Fair values for impaired loans are estimated using discounted
cash flow analyses or underlying collateral values, where
applicable. Fair value of mortgage loans held for sale is based
on current market price for such loans. Liabilities for FHLB
advances and notes payable are estimated using rates of debt
with similar terms and remaining maturities. The fair value of
off-balance sheet items is based on current fees or costs that
would be charged to enter into or terminate such arrangements
which is not material. The fair value of commitments to sell
loans is based on the difference between the interest rates
committed to sell at and the quoted secondary market price for
similar loans, which is not material.
(Continued)
F-40
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 15 PARENT COMPANY CONDENSED FINANCIAL
STATEMENTS
BALANCE SHEETS
Years ended December 31, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$ |
646 |
|
|
$ |
788 |
|
Investment in subsidiary
|
|
|
119,616 |
|
|
|
112,261 |
|
Cash surrender value of life insurance contracts
|
|
|
264 |
|
|
|
257 |
|
Other
|
|
|
1,210 |
|
|
|
1,433 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
121,736 |
|
|
$ |
114,739 |
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
$ |
10,310 |
|
|
$ |
10,310 |
|
Other liabilities
|
|
|
2,708 |
|
|
|
2,494 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,018 |
|
|
|
12,804 |
|
Shareholders equity
|
|
|
108,718 |
|
|
|
101,935 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
121,736 |
|
|
$ |
114,739 |
|
|
|
|
|
|
|
|
STATEMENTS OF INCOME
Years ended December 31, 2004, 2003, and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Dividends from subsidiaries
|
|
$ |
5,423 |
|
|
$ |
4,218 |
|
|
$ |
4,056 |
|
Other income
|
|
|
183 |
|
|
|
165 |
|
|
|
136 |
|
Interest expense
|
|
|
(536 |
) |
|
|
(182 |
) |
|
|
(78 |
) |
Other expense
|
|
|
(965 |
) |
|
|
(723 |
) |
|
|
(725 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,105 |
|
|
|
3,478 |
|
|
|
3,389 |
|
Income tax benefit
|
|
|
(548 |
) |
|
|
(369 |
) |
|
|
(277 |
) |
Equity in undistributed net income of subsidiaries
|
|
|
7,355 |
|
|
|
6,390 |
|
|
|
6,147 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-41
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 15 PARENT COMPANY CONDENSED FINANCIAL
STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2004, 2003, and 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
12,008 |
|
|
$ |
10,237 |
|
|
$ |
9,813 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
|
|
(7,355 |
) |
|
|
(6,390 |
) |
|
|
(6,147 |
) |
Depreciation and amortization
|
|
|
110 |
|
|
|
110 |
|
|
|
110 |
|
Change in assets
|
|
|
(82 |
) |
|
|
(546 |
) |
|
|
1,169 |
|
Change in liabilities
|
|
|
214 |
|
|
|
107 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
4,895 |
|
|
|
3,518 |
|
|
|
4,921 |
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment in bank subsidiary
|
|
|
|
|
|
|
(944 |
) |
|
|
|
|
Cash paid in acquisition
|
|
|
|
|
|
|
(9,056 |
) |
|
|
|
|
Increase in cash surrender value of life insurance
|
|
|
(7 |
) |
|
|
(12 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(7 |
) |
|
|
(10,012 |
) |
|
|
(11 |
) |
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,666 |
) |
|
|
(4,218 |
) |
|
|
(3,956 |
) |
Proceeds from issuance of common stock
|
|
|
174 |
|
|
|
44 |
|
|
|
16 |
|
Proceeds from subordinated debentures
|
|
|
|
|
|
|
10,310 |
|
|
|
|
|
Purchase of Treasury Stock
|
|
|
(538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(5,030 |
) |
|
|
6,136 |
|
|
|
(3,940 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(142 |
) |
|
|
(358 |
) |
|
|
970 |
|
Cash and cash equivalents, beginning of year
|
|
|
788 |
|
|
|
1,146 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
646 |
|
|
$ |
788 |
|
|
$ |
1,146 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 OTHER COMPREHENSIVE INCOME
Other comprehensive income components were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Unrealized holding gains and (losses) on securities available
for sale, net of tax of ($131), $19 and $74, respectively
|
|
$ |
(213 |
) |
|
$ |
30 |
|
|
$ |
120 |
|
Less reclassification adjustments for gains and losses later
recognized in income, net of tax of ($17) in 2002
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$ |
(213 |
) |
|
$ |
30 |
|
|
$ |
92 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-42
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 17 SEGMENT INFORMATION
The Companys 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.
Mortgage banking, consumer finance, subprime automobile lending
and title insurance do not meet the quantitative threshold for
disclosure on an individual basis, and are therefore shown below
in other. All operations are domestic.
The accounting policies used are the same as those described in
the summary of significant accounting policies. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
Total | |
|
|
Banking | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Segments | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
43,361 |
|
|
$ |
6,193 |
|
|
$ |
(536 |
) |
|
$ |
|
|
|
$ |
49,018 |
|
Provision for loan losses
|
|
|
4,578 |
|
|
|
1,258 |
|
|
|
|
|
|
|
|
|
|
|
5,836 |
|
Noninterest income
|
|
|
12,243 |
|
|
|
1,661 |
|
|
|
183 |
|
|
|
(1,059 |
) |
|
|
13,028 |
|
Noninterest expense
|
|
|
32,557 |
|
|
|
4,520 |
|
|
|
965 |
|
|
|
(1,059 |
) |
|
|
36,983 |
|
Income tax expense
|
|
|
6,984 |
|
|
|
783 |
|
|
|
(548 |
) |
|
|
|
|
|
|
7,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
11,485 |
|
|
$ |
1,293 |
|
|
$ |
(770 |
) |
|
$ |
|
|
|
$ |
12,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$ |
1,200,097 |
|
|
$ |
31,186 |
|
|
$ |
2,120 |
|
|
$ |
|
|
|
$ |
1,233,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-43
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 17 SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Holding | |
|
|
|
Total | |
|
|
Banking | |
|
Segments | |
|
Company | |
|
Eliminations | |
|
Segments | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
34,506 |
|
|
$ |
6,499 |
|
|
$ |
(182 |
) |
|
$ |
|
|
|
$ |
40,823 |
|
Provision for loan losses
|
|
|
3,957 |
|
|
|
1,818 |
|
|
|
|
|
|
|
|
|
|
|
5,775 |
|
Noninterest income
|
|
|
10,453 |
|
|
|
2,086 |
|
|
|
165 |
|
|
|
(1,116 |
) |
|
|
11,588 |
|
Noninterest expense
|
|
|
26,202 |
|
|
|
4,808 |
|
|
|
724 |
|
|
|
(1,116 |
) |
|
|
30,618 |
|
Income tax expense
|
|
|
5,353 |
|
|
|
797 |
|
|
|
(369 |
) |
|
|
|
|
|
|
5,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$ |
9,447 |
|
|
$ |
1,162 |
|
|
$ |
(372 |
) |
|
$ |
|
|
|
$ |
10,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$ |
1,073,503 |
|
|
$ |
32,541 |
|
|
$ |
2,478 |
|
|
$ |
|
|
|
$ |
1,108,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$ |
34,696 |
|
|
$ |
6,631 |
|
|
$ |
(78 |
) |
|
$ |
|
|
|
$ |
41,249 |
|
Provision for loan losses
|
|
|
3,805 |
|
|
|
3,260 |
|
|
|
|
|
|
|
|
|
|
|
7,065 |
|
Noninterest income
|
|
|
9,122 |
|
|
|
2,068 |
|
|
|
136 |
|
|
|
(796 |
) |
|
|
10,530 |
|
Noninterest expense
|
|
|
24,422 |
|
|
|
4,849 |
|
|
|
724 |
|
|
|
(796 |
) |
|
|
29,199 |
|
Income tax expense
|
|
|
5,754 |
|
|
|
225 |
|
|
|
(277 |
) |
|
|
|
|
|
|
5,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
$ |
9,837 |
|
|
$ |
365 |
|
|
$ |
(389 |
) |
|
$ |
|
|
|
$ |
9,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$ |
862,668 |
|
|
$ |
34,529 |
|
|
$ |
2,199 |
|
|
$ |
|
|
|
$ |
899,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended December 31, 2004 |
|
Bank | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Nonperforming loans as a percentage of total loans, net of
unearned income
|
|
|
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, net of
unearned income
|
|
|
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 income
|
|
|
0.35 |
% |
|
|
5.04 |
% |
|
|
0.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended December 31, 2003 |
|
Bank | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Nonperforming loans as a percentage of total loans, net of
unearned income
|
|
|
0.40 |
% |
|
|
2.18 |
% |
|
|
0.48 |
% |
Nonperforming assets as a percentage of total assets
|
|
|
0.68 |
% |
|
|
3.38 |
% |
|
|
0.79 |
% |
Allowance for loan losses as a percentage of total loans, net of
unearned income
|
|
|
1.24 |
% |
|
|
8.59 |
% |
|
|
1.53 |
% |
Allowance for loan losses as a percentage of nonperforming assets
|
|
|
154.91 |
% |
|
|
239.41 |
% |
|
|
166.35 |
% |
Net charge-offs to average total loans, net of unearned income
|
|
|
0.33 |
% |
|
|
7.38 |
% |
|
|
0.64 |
% |
(Continued)
F-44
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 18 SELECTED QUARTERLY FINANCIAL
INFORMATION (UNAUDITED)
Presented below is a summary of the consolidated quarterly
financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
Summary of Operations |
|
3/31/2004 | |
|
6/30/2004 | |
|
9/30/2004 | |
|
12/31/2004 | |
|
|
| |
|
| |
|
| |
|
| |
Interest income
|
|
$ |
15,930 |
|
|
$ |
15,869 |
|
|
$ |
16,142 |
|
|
$ |
17,135 |
|
Net interest income
|
|
|
11,880 |
|
|
|
11,983 |
|
|
|
12,412 |
|
|
|
12,743 |
|
Provision for loan losses
|
|
|
1,523 |
|
|
|
1,162 |
|
|
|
1,062 |
|
|
|
2,089 |
|
Income before income taxes
|
|
|
4,500 |
|
|
|
5,317 |
|
|
|
5,159 |
|
|
|
4,251 |
|
Net income
|
|
|
2,852 |
|
|
|
3,275 |
|
|
|
3,213 |
|
|
|
2,668 |
|
Basic earnings per share
|
|
|
0.37 |
|
|
|
0.43 |
|
|
|
0.42 |
|
|
|
0.35 |
|
Diluted earning per share
|
|
|
0.37 |
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.34 |
|
Dividends per common share
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.25 |
|
Average common shares outstanding
|
|
|
7,660,578 |
|
|
|
7,656,832 |
|
|
|
7,644,544 |
|
|
|
7,656,509 |
|
Average common shares outstanding diluted
|
|
|
7,731,176 |
|
|
|
7,713,966 |
|
|
|
7,710,335 |
|
|
|
7,735,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
Summary of Operations |
|
3/31/2003 | |
|
6/30/2003 | |
|
9/30/2003 | |
|
12/31/2003 | |
|
|
| |
|
| |
|
| |
|
| |
Interest income
|
|
$ |
14,000 |
|
|
$ |
14,082 |
|
|
$ |
13,863 |
|
|
$ |
14,792 |
|
Net interest income
|
|
|
9,805 |
|
|
|
10,053 |
|
|
|
10,157 |
|
|
|
10,808 |
|
Provision for loan losses
|
|
|
1,126 |
|
|
|
1,729 |
|
|
|
1,655 |
|
|
|
1,265 |
|
Income before income taxes
|
|
|
4,171 |
|
|
|
3,529 |
|
|
|
4,083 |
|
|
|
4,235 |
|
Net income
|
|
|
2,618 |
|
|
|
2,301 |
|
|
|
2,600 |
|
|
|
2,718 |
|
Basic earnings per share
|
|
|
0.38 |
|
|
|
0.34 |
|
|
|
0.38 |
|
|
|
0.38 |
|
Diluted earnings per share
|
|
|
0.38 |
|
|
|
0.33 |
|
|
|
0.38 |
|
|
|
0.37 |
|
Dividends per common share
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.23 |
|
Average common shares outstanding
|
|
|
6,820,540 |
|
|
|
6,822,235 |
|
|
|
6,823,315 |
|
|
|
7,196,208 |
|
Average common shares outstanding diluted
|
|
|
6,880,168 |
|
|
|
6,905,852 |
|
|
|
6,894,097 |
|
|
|
7,268,187 |
|
NOTE 19 BUSINESS COMBINATION
On December 10, 2004, the Company completed the acquisition
of three branches from National Bank of Commerce
(NBC) located in Lawrence County, Tennessee. The
primary reason for the acquisition related to the Companys
desire to expand its market share in the Middle Tennessee area.
The Company paid a deposit premium of 4.5% for the branches,
which resulted in the Company recording intangible assets of
$3,349, all of which are deductible for tax purposes. The
identifiable intangible asset associated with the fair value of
the core deposit base, as determined by an independent
consulting firm, was determined to be $952 and is being
amortized as expense on a straight-line method over a seven-year
period. The remaining intangible asset of $2,397 has been
classified as goodwill, and thus will not be systematically
amortized, but rather will be subject to an annual impairment
test in accordance with
(Continued)
F-45
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 19 BUSINESS COMBINATION (Continued)
SFAS No. 147, as described in Note 1 above. The
amortization of the identifiable intangible asset is included in
the accompanying Consolidated Statements of Income beginning on
the acquisition date of December 10, 2004. Historical
financial information related to the three branches while owned
by NBC is not available, and thus pro forma results of
operations have not been presented.
The following table summarizes the fair value of assets acquired
and liabilities assumed at the date of acquisition.
|
|
|
|
|
|
Cash
|
|
$ |
38,003 |
|
Loans, net
|
|
|
28,371 |
|
Premises and equipment
|
|
|
230 |
|
Goodwill
|
|
|
2,397 |
|
Core deposit intangible
|
|
|
953 |
|
Other assets
|
|
|
150 |
|
|
|
|
|
|
Total assets acquired
|
|
$ |
70,104 |
|
|
|
|
|
Deposits
|
|
$ |
69,882 |
|
Other liabilities
|
|
|
222 |
|
|
|
|
|
|
Total liabilities assumed
|
|
$ |
70,104 |
|
|
|
|
|
On November 21, 2003, the Company acquired 100% of the
outstanding shares of Independent Bankshares Corporation, parent
of First Independent Bank and Rutherford County Bank and Trust.
Operating results of Independent Bankshares Corporation are
included in the consolidated financial statements since the date
of the acquisition.
The aggregate purchase price was $30,303, including $9,056 in
cash, $21,049 in common stock and $198 in stock options. The
purchase price resulted in $13,832 in goodwill and $4,596 in
core deposit and customer relationship intangible. The
intangible asset will be amortized over 10 years, using an
accelerated method. Goodwill will not be amortized but instead
evaluated periodically for impairment. Any future write down of
goodwill and the amortization of intangibles assets are not
deductible for tax purposes.
(Continued)
F-46
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2004, 2003 and 2002
NOTE 19 BUSINESS COMBINATION (Continued)
The following table summarizes the fair value of assets acquired
and liabilities assumed at the date of acquisition.
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
7,951 |
|
Federal funds sold
|
|
|
29,495 |
|
Securities
|
|
|
16,354 |
|
FHLB stock
|
|
|
446 |
|
Loans, net
|
|
|
108,832 |
|
Premises and equipment
|
|
|
5,316 |
|
Goodwill
|
|
|
13,832 |
|
Core deposit intangible
|
|
|
4,596 |
|
Other assets
|
|
|
1,957 |
|
|
|
|
|
|
Total assets acquired
|
|
|
188,779 |
|
Deposits
|
|
|
(154,004 |
) |
Other liabilities
|
|
|
(4,472 |
) |
|
|
|
|
|
Total liabilities assumed
|
|
|
(158,476 |
) |
|
|
|
|
|
|
Net assets acquired
|
|
$ |
30,303 |
|
|
|
|
|
The following table presents pro forma information as if the
acquisition had occurred at the beginning of 2003 and 2002. The
pro forma information includes adjustments for interest income
on loans and securities acquired, amortization of intangibles
arising from the transaction, depreciation expense on property
acquired, interest expense on deposits assumed, and the related
income tax effects. The pro forma financial information is not
necessarily indicative of the results of operations as they
would have been had the transactions been effected on the
assumed dates.
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
Net interest income
|
|
$ |
46,388 |
|
|
$ |
47,734 |
|
Net income
|
|
$ |
10,255 |
|
|
$ |
10,848 |
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.34 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
1.33 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
(Continued)
F-47
1,833,043 Shares
Common Stock
PROSPECTUS
Keefe, Bruyette & Woods
Howe Barnes Investments, Inc.
SunTrust Robinson Humphrey
September 22, 2005