Greene County Bancshares, Inc. Form 10-Q filed May 9, 2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2007
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from _____________________ to ________________
Commission
file number 0-14289
GREENE
COUNTY BANCSHARES, INC.
(Exact
name of registrant as specified in its charter)
Tennessee
|
62-1222567
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
|
|
100
North Main Street, Greeneville, Tennessee
|
37743-4992
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (423)
639-5111
Indicate
by check mark whether the registrant: (1) has filed all
reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such
filing requirements for the past 90 days. YES
X NO____
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer___
Accelerated filer X
Non-accelerated
filer____
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) YES___ NO
X_
As
of May
9, 2007, the number of shares outstanding of the issuer’s common stock was:
9,820,359.
PART
1 - FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
The
unaudited condensed consolidated financial statements of Greene County
Bancshares, Inc. and its wholly owned subsidiaries are as follows:
Condensed
Consolidated Balance Sheets - March 31, 2007 and December 31, 2006.
Condensed
Consolidated Statements of Income and Comprehensive Income - For the three
months ended March 31, 2007 and 2006.
Condensed
Consolidated Statement of Change in Shareholders’ Equity - For the three months
ended March 31, 2007.
Condensed
Consolidated Statements of Cash Flows - For the three months ended March 31,
2007 and 2006.
Notes
to
Condensed Consolidated Financial Statements.
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
March
31, 2007 and December 31, 2006
(Amounts
in thousands, except share and per share data)
|
|
(Unaudited)
March
31,
2007
|
|
December
31,
2006*
|
|
ASSETS
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
34,729
|
|
$
|
44,657
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other
|
|
|
20,069
|
|
|
25,983
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
45,587
|
|
|
37,740
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity (with a market value of $1,640 and
$2,544)
|
|
|
1,644
|
|
|
2,545
|
|
|
|
|
|
|
|
|
|
FHLB,
Bankers Bank and other stock, at cost
|
|
|
7,055
|
|
|
7,055
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
2,405
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
Loans,
net of unearned interest
|
|
|
1,603,281
|
|
|
1,539,629
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(22,932
|
)
|
|
(22,302
|
)
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
58,722
|
|
|
57,258
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets
|
|
|
38,270
|
|
|
38,540
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
38,804
|
|
|
39,777
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,827,634
|
|
$
|
1,772,654
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,390,442
|
|
$
|
1,332,505
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
|
17,415
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
|
24,157
|
|
|
22,165
|
|
|
|
|
|
|
|
|
|
FHLB
advances and notes payable
|
|
|
171,877
|
|
|
177,571
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
|
13,403
|
|
|
13,403
|
|
|
|
|
|
|
|
|
|
Accrued
interest payable and other liabilities
|
|
|
20,343
|
|
|
22,539
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,637,637
|
|
|
1,588,183
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
Common
stock: $2 par, 15,000,000 shares authorized,
9,819,218
and 9,810,867 shares outstanding
|
|
|
19,638
|
|
|
19,622
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
72,156
|
|
|
71,828
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
98,291
|
|
|
93,150
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
(88
|
)
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
189,997
|
|
|
184,471
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
1,827,634
|
|
$
|
1,772,654
|
|
|
|
|
|
|
|
|
|
*
This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet, as filed in
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006.
|
See
notes
to condensed consolidated financial statements.
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three
Months Ended March 31, 2007 and 2006
(Amounts
in thousands, except share and per share data)
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
31,915
|
|
$
|
26,100
|
|
Investment
securities
|
|
|
708
|
|
|
631
|
|
Federal
funds sold and other
|
|
|
15
|
|
|
36
|
|
|
|
|
32,638
|
|
|
26,767
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
Deposits
|
|
|
11,153
|
|
|
8,042
|
|
Borrowings
|
|
|
2,664
|
|
|
1,539
|
|
|
|
|
13,817
|
|
|
9,581
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
18,821
|
|
|
17,186
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
974
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision
for
loan losses
|
|
|
17,847
|
|
|
16,122
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
4,289
|
|
|
3,231
|
|
Other
|
|
|
1,110
|
|
|
1,524
|
|
|
|
|
5,399
|
|
|
4,755
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
7,458
|
|
|
6,391
|
|
Occupancy
and furniture and equipment expense
|
|
|
2,096
|
|
|
2,059
|
|
Other
|
|
|
4,488
|
|
|
4,256
|
|
|
|
|
14,042
|
|
|
12,706
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
9,204
|
|
|
8,171
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
3,588
|
|
|
3,075
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,616
|
|
$
|
5,096
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
5,657
|
|
$
|
5,089
|
|
|
|
|
|
|
|
|
|
Per
share of common stock:
|
|
|
|
|
|
|
|
Basic
earnings
|
|
$
|
0.57
|
|
$
|
0.52
|
|
Diluted
earnings
|
|
|
0.57
|
|
|
0.52
|
|
Dividends
|
|
|
0.13
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
9,815,452
|
|
|
9,770,555
|
|
Diluted
|
|
|
9,910,315
|
|
|
9,870,691
|
|
See
notes
to condensed consolidated financial statements.
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For
the Three Months Ended March 31, 2007
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
Additional
|
|
|
|
Compre-
|
|
Share-
|
|
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
hensive
|
|
holders’
|
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Equity
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
19,622
|
|
$
|
71,828
|
|
$
|
93,150
|
|
$
|
(129
|
)
|
$
|
184,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of 8,351 shares under
stock option plan
|
|
|
16
|
|
|
207
|
|
|
-
|
|
|
-
|
|
|
223
|
|
Stock-based
compensation
|
|
|
-
|
|
|
112
|
|
|
-
|
|
|
-
|
|
|
112
|
|
Tax
benefit from exercise of
nonincentive stock options
|
|
|
-
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
9
|
|
Implementation
of FIN 48
|
|
|
-
|
|
|
-
|
|
|
800
|
|
|
-
|
|
|
800
|
|
Dividends
paid ($.13 per share)
|
|
|
-
|
|
|
-
|
|
|
(1,275
|
)
|
|
-
|
|
|
(1,275
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
5,616
|
|
|
-
|
|
|
5,616
|
|
Change
in unrealized gains
(losses), net of reclassification
and taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41
|
|
|
41
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007
|
|
$
|
19,638
|
|
$
|
72,156
|
|
$
|
98,291
|
|
$
|
(88
|
)
|
$
|
189,997
|
|
See
notes
to condensed consolidated financial statements.
GREENE
COUNTY BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the Three Months Ended March 31, 2007 and 2006
(Amounts
in thousands, except share and per share data)
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
5,616
|
|
$
|
5,096
|
|
Adjustments
to reconcile net income to net cash provided by
operating
activities
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
974
|
|
|
1,064
|
|
Depreciation
and amortization
|
|
|
1,056
|
|
|
1,036
|
|
Security
amortization and accretion, net
|
|
|
(3
|
)
|
|
(6
|
)
|
Loss
on sale
of securities
|
|
|
23
|
|
|
8
|
|
FHLB
stock dividends
|
|
|
-
|
|
|
(81
|
)
|
Net
gain on sale of mortgage loans
|
|
|
(271
|
)
|
|
(183
|
)
|
Originations
of mortgage loans held for sale
|
|
|
(17,196
|
)
|
|
(11,241
|
)
|
Proceeds
from sales of mortgage loans
|
|
|
16,833
|
|
|
12,152
|
|
Increase
in
cash surrender value of life insurance
|
|
|
(190
|
)
|
|
(209
|
)
|
Net
(gain) losses from sales of fixed assets
|
|
|
(1
|
)
|
|
4
|
|
Stock
compensation expense
|
|
|
112
|
|
|
93
|
|
Net
gain on other real estate and repossessed assets
|
|
|
(111
|
)
|
|
(184
|
)
|
Deferred
tax
benefit
|
|
|
(251
|
)
|
|
(390
|
)
|
Net
changes:
|
|
|
|
|
|
|
|
Other
assets
|
|
|
1,535
|
|
|
(162
|
)
|
Accrued
interest payable and other liabilities
|
|
|
(1,387
|
)
|
|
1,722
|
|
Net
cash provided from operating activities
|
|
|
6,739
|
|
|
8,719
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchase
of securities available for sale
|
|
|
(16,695
|
)
|
|
(1,000
|
)
|
Proceeds
from sale of securities available for sale
|
|
|
1,262
|
|
|
985
|
|
Proceeds
from maturities of securities held for sale
|
|
|
7,631
|
|
|
4,559
|
|
Proceeds
from sale of securities held to maturity
|
|
|
496
|
|
|
-
|
|
Proceeds
from maturities of securities held to maturity
|
|
|
405
|
|
|
330
|
|
Purchase
of life insurance
|
|
|
-
|
|
|
(41
|
)
|
Net
change in loans
|
|
|
(64,807
|
)
|
|
(27,185
|
)
|
Proceeds
from sale of other real estate
|
|
|
776
|
|
|
1,188
|
|
Improvements
to other real estate
|
|
|
-
|
|
|
(1
|
)
|
Proceeds
from sale of fixed assets
|
|
|
1
|
|
|
-
|
|
Premises
and equipment expenditures
|
|
|
(2,250
|
)
|
|
(2,895
|
)
|
Net
cash used in investing activities
|
|
|
(73,181
|
)
|
|
(24,060
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Net
change in deposits
|
|
|
57,937
|
|
|
(10,140
|
)
|
Net
change in federal funds purchased and repurchase
agreements
|
|
|
(593
|
)
|
|
468
|
|
Proceeds
from FHLB advances and notes payable
|
|
|
30,000
|
|
|
143,200
|
|
Repayments
of FHLB advances and notes payable
|
|
|
(35,692
|
)
|
|
(151,294
|
)
|
Dividends
paid
|
|
|
(1,275
|
)
|
|
(1,174
|
)
|
Proceeds
from issuance of common stock
|
|
|
223
|
|
|
288
|
|
Net
cash from financing activities
|
|
|
50,600
|
|
|
(18,652
|
)
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(15,842
|
)
|
|
(33,993
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
70,640
|
|
|
74,523
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
54,798
|
|
$
|
40,530
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures - cash and noncash
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
13,635
|
|
$
|
9,777
|
|
Income
taxes paid
|
|
|
560
|
|
|
514
|
|
Loans
converted to other real estate
|
|
|
988
|
|
|
1,386
|
|
Unrealized
gain (loss) on available for sale securities, net of tax
|
|
|
41
|
|
|
(7
|
)
|
See
notes
to condensed consolidated financial statements.
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
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,
GreenBank (the “Bank”), have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
information and in accordance with the instructions to Form 10-Q and Article
10
of Regulation S-X as promulgated by the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a
fair presentation have been included. Operating results for the three months
ended March 31, 2007 are not necessarily indicative of the results that may
be
expected for the year ending December 31, 2007. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
Certain amounts from prior period financial statements have been reclassified
to
conform to the current year’s presentation.
NOTE
2 - LOANS
Loans
at
March 31, 2007 and December 31, 2006 were as follows:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
273,198
|
|
$
|
258,998
|
|
Commercial
real estate
|
|
|
977,324
|
|
|
921,190
|
|
Residential
real estate
|
|
|
274,496
|
|
|
281,629
|
|
Consumer
|
|
|
87,580
|
|
|
87,111
|
|
Other
|
|
|
3,021
|
|
|
2,203
|
|
Unearned
interest
|
|
|
(12,338
|
)
|
|
(11,502
|
)
|
Loans,
net of unearned interest
|
|
$
|
1,603,281
|
|
$
|
1,539,629
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
(22,932
|
)
|
$
|
(22,302
|
)
|
|
|
|
|
|
|
|
|
(Continued)
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
2 - LOANS(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 three months
ended March 31, 2007 and twelve months ended December 31, 2006 were as
follows:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
22,302
|
|
$
|
19,739
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
974
|
|
|
5,507
|
|
Loans charged off
|
|
|
(657
|
)
|
|
(4,357
|
)
|
Recoveries of loans charged off
|
|
|
313
|
|
|
1,413
|
|
Ending
balance
|
|
$
|
22,932
|
|
$
|
22,302
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Loans
past due 90 days still on accrual
|
|
$
|
37
|
|
$
|
28
|
|
Nonaccrual
loans
|
|
|
3,286
|
|
|
3,479
|
|
Total
|
|
$
|
3,323
|
|
$
|
3,507
|
|
|
|
|
|
|
|
|
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
3 - EARNINGS PER SHARE OF COMMON STOCK
Basic
earnings per share (EPS) of common stock is computed by dividing net income
by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share of common stock is computed by dividing net income
by
the weighted average number of common shares and potential common shares
outstanding during the period. Stock options are regarded as potential common
shares. Potential common shares are computed using the treasury stock method.
For the three months ended March 31, 2007, 55,604 options are excluded from
the
effect of dilutive securities because they are anti-dilutive; 150,446 options
are similarly excluded from the effect of dilutive securities for the three
months ended March 31, 2006.
The
following is a reconciliation of the numerators and denominators used in the
basic and diluted earnings per share computations for the three months ended
March 31, 2007 and 2006:
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
2007
|
|
2006
|
|
|
Income
|
|
Shares
|
|
Income
|
|
Shares
|
|
|
(Numerator)
|
|
(Denominator)
|
|
(Numerator)
|
|
(Denominator)
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
5,616
|
|
|
9,815,452
|
|
$
|
5,096
|
|
9,770,555
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding
|
|
|
-
|
|
|
94,863
|
|
|
-
|
|
100,136
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders plus
|
|
|
|
|
|
|
|
|
|
|
|
assumed conversions
|
|
$
|
5,616
|
|
|
9,910,315
|
|
$
|
5,096
|
|
9,870,691
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
4 - SEGMENT INFORMATION
The
Company’s operating segments include banking, mortgage banking, consumer
finance, 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
insurance commissions provide revenues for the title insurance company. Consumer
finance, automobile lending and title insurance do not meet the quantitative
threshold on an individual basis, and are therefore shown below in “Other
Segments”. Mortgage banking operations are included in “Bank”. All operations
are domestic.
Segment
performance is evaluated using net interest income and noninterest income.
Income taxes are allocated based on income before income taxes, and indirect
expenses (includes management fees) are allocated based on time spent for each
segment. Transactions among segments are made at fair value. Information
reported internally for performance assessment follows.
Three
months ended March 31, 2007
|
|
Bank
|
|
Other
Segments
|
|
Holding
Company
|
|
Eliminations
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$
|
17,532
|
|
$
|
1,557
|
|
$
|
(268
|
)
|
$
|
-
|
|
$
|
18,821
|
|
Provision
for loan losses
|
|
|
614
|
|
|
360
|
|
|
-
|
|
|
-
|
|
|
974
|
|
Noninterest
income
|
|
|
5,099
|
|
|
588
|
|
|
11
|
|
|
(299
|
)
|
|
5,399
|
|
Noninterest
expense
|
|
|
12,866
|
|
|
1,230
|
|
|
245
|
|
|
(299
|
)
|
|
14,042
|
|
Income
tax expense (benefit)
|
|
|
3,563
|
|
|
217
|
|
|
(192
|
)
|
|
-
|
|
|
3,588
|
|
Segment
profit
|
|
$
|
5,588
|
|
$
|
338
|
|
$
|
(310
|
)
|
$
|
-
|
|
$
|
5,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at March 31, 2007
|
|
$
|
1,790,899
|
|
$
|
34,610
|
|
$
|
2,125
|
|
$
|
-
|
|
$
|
1,827,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2006
|
|
|
Bank
|
|
|
Other
Segments
|
|
|
Holding
Company
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$
|
16,016
|
|
$
|
1,429
|
|
$
|
(259
|
)
|
$
|
-
|
|
$
|
17,186
|
|
Provision
for loan losses
|
|
|
842
|
|
|
222
|
|
|
-
|
|
|
-
|
|
|
1,064
|
|
Noninterest
income
|
|
|
4,330
|
|
|
449
|
|
|
197
|
|
|
(221
|
)
|
|
4,755
|
|
Noninterest
expense
|
|
|
11,699
|
|
|
1,111
|
|
|
117
|
|
|
(221
|
)
|
|
12,706
|
|
Income
tax expense (benefit)
|
|
|
2,992
|
|
|
214
|
|
|
(131
|
)
|
|
-
|
|
|
3,075
|
|
Segment
profit
|
|
$
|
4,813
|
|
$
|
331
|
|
$
|
(48
|
)
|
$
|
-
|
|
$
|
5,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at March 31, 2006
|
|
$
|
1,573,020
|
|
$
|
30,525
|
|
$
|
4,695
|
|
$
|
-
|
|
$
|
1,608,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
4 - SEGMENT INFORMATION
(Continued)
Asset
Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the period ended March 31, 2007
|
|
Bank
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.18
|
%
|
|
1.43
|
%
|
|
0.21
|
%
|
Nonperforming
assets as a percentage of total assets
|
|
|
0.24
|
%
|
|
2.04
|
%
|
|
0.28
|
%
|
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.26
|
%
|
|
8.01
|
%
|
|
1.43
|
%
|
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
713.22
|
%
|
|
560.16
|
%
|
|
690.10
|
%
|
YTD
annualized net charge-offs to average total loans, net of unearned
income
|
|
|
0.02
|
%
|
|
2.94
|
%
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the period ended March 31, 2006
|
|
|
Bank
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.33
|
%
|
|
1.11
|
%
|
|
0.35
|
%
|
Nonperforming
assets as a percentage of total assets
|
|
|
0.46
|
%
|
|
1.68
|
%
|
|
0.49
|
%
|
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.26
|
%
|
|
7.94
|
%
|
|
1.43
|
%
|
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
381.87
|
%
|
|
716.47
|
%
|
|
405.23
|
%
|
YTD
annualized net charge-offs to average total loans, net of unearned
income
|
|
|
0.15
|
%
|
|
2.59
|
%
|
|
0.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the year ended December 31, 2006
|
|
|
Bank
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.19
|
%
|
|
1.84
|
%
|
|
0.23
|
%
|
Nonperforming
assets as a percentage of total assets
|
|
|
0.24
|
%
|
|
2.53
|
%
|
|
0.29
|
%
|
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.28
|
%
|
|
7.94
|
%
|
|
1.45
|
%
|
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
680.25
|
%
|
|
431.95
|
%
|
|
635.93
|
%
|
Net
charge-offs to average total loans, net of unearned income
|
|
|
0.14
|
%
|
|
2.82
|
%
|
|
0.20
|
%
|
Net
charge-offs
|
|
Bank
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Actual
for the three month period ending March 31, 2007
|
|
$
|
92
|
|
$
|
252
|
|
$
|
344
|
|
Actual
for the three month period ending March 31, 2006
|
|
$
|
520
|
|
$
|
200
|
|
$
|
720
|
|
Actual
for the year ended December 31, 2006
|
|
$
|
2,041
|
|
$
|
903
|
|
$
|
2,944
|
|
NOTE
5 - REVOLVING CREDIT AGREEMENT
On
August
30, 2005, the Company entered into a revolving credit agreement with SunTrust
Bank pursuant to which SunTrust agreed to loan the Company up to $35,000, with
this amount being reduced to $15,000 after November 30, 2005. This agreement
was
extended on August 30, 2006 and SunTrust’s obligation to make advances to the
Company under the credit agreement terminates on August 31, 2007. The fee for
maintaining this credit agreement is 0.15% per annum on the unused portion
of
the commitment.
(Continued)
GREENE
COUNTY BANCSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
6 - INCOME TAXES
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”), an interpretation of FASB statement No. 109 (the
“Interpretation”). This Interpretation provides guidance on financial
statement recognition and measurement of tax positions taken, or expected
to be
taken, in tax returns. As a result of the implementation of FIN 48, the
Company recognized approximately an $800 decrease in the liability
for unrecognized tax benefits, which was accounted for as an increase to
the January 1, 2007 balance of retained earnings.
The
total
amount of unrecognized tax benefits at the date of adoption of FIN 48 was
approximately $475. The total amount of unrecognized tax
benefits that, if recognized, would affect the effective tax rate at the
date of adoption of FIN 48 was approximately $475. Of this total, the
entire $475, net of the federal benefit on state issues, would favorably
affect
the effective income tax rate in a future quarter of 2007. The Company
recognizes accrued interest and penalties related to uncertain tax positions
in
tax expense. At the date of adoption of FIN 48, the Company had recognized
approximately $150 for the payment of interest and penalties.
In
the
future, the amount of unrecognized tax benefits may increase or
decrease for various reasons including adding amounts for current tax
year positions, expiration of open income tax returns due to the statutes
of
limitations, changes in management’s judgment about the level of uncertainty,
status of examinations, litigation and legislative activity and the addition
or
elimination of uncertain tax positions. The Company is not aware of
any uncertain tax positions, other than those disclosed, for which it is
reasonably possible that the total amounts of unrecognized tax benefits will
significantly increase or decrease within 12 months of the reporting
date.
The
Company’s Federal returns are open and subject to examination for the years
of 2003 and 2005. The Company's State returns are open and subject to
examination for the years of 2003, 2004, and 2005.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Greene
County Bancshares, Inc. (the “Company”) is the bank holding company for
GreenBank (the “Bank”), a Tennessee-chartered commercial bank that conducts the
principal business of the Company. The Company is the third largest bank holding
company headquartered in Tennessee. The Bank currently maintains a main office
in Greeneville, Tennessee and 50 full-service bank branches primarily in East
and Middle Tennessee. In addition to its commercial banking operations, the
Bank
conducts separate businesses through its three wholly-owned subsidiaries:
Superior Financial Services, Inc. (“Superior Financial”), a consumer finance
company; GCB Acceptance Corporation (“GCB Acceptance”), a automobile lending
company; and Fairway Title Co., a title company formed in 1998. The Bank also
operates a wealth management office in Sumner County, Tennessee, and a mortgage
banking operation in Knox County, Tennessee. All dollar amounts reported or
discussed in Part I, Item 2 of this Quarterly Report on Form 10-Q are shown
in
thousands, except share and per share amounts. References in management’s
discussion and analysis of financial condition and results of operations to
a
year are to the Company’s fiscal year unless otherwise noted.
The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of the Company’s consolidated
results of operations and financial condition. This discussion should be read
in
conjunction with the (i) condensed consolidated financial statements and notes
thereto in this Form 10-Q and (ii) the financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006 (the “2006 10-K”). Except for specific historical information,
many of the matters discussed in this Form 10-Q may express or imply projections
of revenues or expenditures, plans and objectives for future operations, growth
or initiatives, expected future economic performance, or the expected outcome
or
impact of pending or threatened litigation. These and similar statements
regarding events or results which the Company expects will or may occur in
the
future, are forward-looking statements that involve risks, uncertainties and
other factors which may cause actual results and performance of the Company
to
differ materially from those expressed or implied by those statements. All
forward-looking information is provided pursuant to the safe harbor established
under the Private Securities Litigation Reform Act of 1995 and should be
evaluated in the context of these risks, uncertainties and other factors.
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
forward-looking terminology and words such as “trends,” “assumptions,”
“target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,”
“objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,”
“will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,”
“believe,” “potential,” “regular,” or “continue” (or the negative or other
derivatives of each of these terms) or similar terminology
and expressions.
Although
the Company believes that the assumptions underlying any forward-looking
statements are reasonable any
of
the assumptions could be inaccurate, and therefore, actual results may differ
materially from those projected in or implied by the forward-looking statements.
Factors and risks that may result in actual results differing from this
forward-looking information include, but are not limited to, those contained
in
Part I, Item 1A of the 2006 10-K, which is incorporated herein by this
reference, as well as other factors discussed throughout this document,
including, without limitation, in Part II, Item 1A, the factors described under
“Critical Accounting Policies and Estimates” on page 14 of this Quarterly Report
on Form 10-Q or, from time to time, in the Company’s filings with the SEC, press
releases and other communications.
Readers
are cautioned not to place undue reliance on forward-looking statements made
in
this document, since the statements speak only as of the document’s
date. All
forward-looking statements included in this Quarterly Report on Form 10-Q are
expressly qualified in their entirety by the cautionary statements in this
section and to the more detailed risk factors included in the Company’s 2006
10-K. The Company has no obligation and does not intend to publicly update
or
revise any forward-looking statements contained in or incorporated by reference
into this Quarterly Report on Form 10-Q, to
reflect events or circumstances occurring after the date of this document or
to
reflect the occurrence of unanticipated events. Readers are advised, however,
to
consult any further disclosures the Company may make on related subjects in
its
documents filed with or furnished to the SEC or in its other public
disclosures.
Proposed
Acquisition of Civitas
On
January 25, 2007, the Company entered into a definitive merger agreement to
acquire Civitas Bank Group, Inc. (“CVBG”), headquartered in Franklin, Tennessee
and the holding company for Cumberland Bank. As soon as practicable following
the merger of the holding companies, Cumberland Bank will be merged with and
into GreenBank. The merger of the holding companies will be accounted for using
the purchase method of accounting for business combinations and is subject
to
several conditions, including approval by the shareholders of both CVBG and
the
Company, which votes are scheduled to occur on May 16, 2007. All other
regulatory approvals have been obtained. If the shareholders of CVBG and
the Company approve the merger, it is expected to close immediately
thereafter. In the merger, CVBG shareholders will receive an aggregate of
approximately 3,075,000 shares of the Company’s common stock and approximately
$51,000 in cash, for a total transaction value of approximately $168,000 (based
upon the price of the Company’s common stock as of January 24, 2007). At
December 31, 2006, CVBG operated 12 offices through Cumberland Bank and had
approximately $898,000 in total assets, $732,000 in deposits and $54,000 in
shareholders’ equity. The resulting goodwill is estimated to be
approximately $125,000.
Growth
and Business Strategy
The
Company expects that, over the intermediate term, its growth from mergers and
acquisitions, including acquisitions of both entire financial institutions
and
selected branches of financial institutions, will continue. De novo branching
is
also expected to be a method of growth, particularly in high-growth and other
demographically-desirable markets.
The
Company’s strategic plan projects geographic expansion within a 300-mile radius
of its headquarters in Greene County, Tennessee. This could result in the
Company expanding westward and eastward up to and including Nashville, Tennessee
and Roanoke, Virginia, respectively, east/southeast up to and including the
Piedmont area of North Carolina and western North Carolina, southward to
northern Georgia and northward into eastern and central Kentucky. In particular,
the Company believes the markets in and around Knoxville, Nashville and
Chattanooga, Tennessee are highly desirable areas with respect to expansion
and
growth plans.
The
Bank
had historically operated under a single bank charter while conducting business
under 18 bank brands. On January 23, 2007 the Bank announced that it was
changing all brand names to GreenBank throughout all the communities it serves
to better enhance recognition and customer convenience. The GreenBank name
became effective on March 31, 2007. The Bank continues to offer local decision
making through the presence of its regional executives in each of its markets,
while maintaining a cost effective organizational structure in its back office
and support areas.
The
Bank
focuses its lending efforts predominately on individuals and small to
medium-sized businesses while it generates deposits primarily from individuals
in its local communities. To aid in deposit generation efforts, the Bank offers
its customers extended hours of operation during the week as well as Saturday
and Sunday banking. The Bank also offers free online banking and in the
beginning of 2005 established its High Performance Checking Program which it
believes will allow it to continue to generate a significant number of core
transaction accounts with significant balances.
In
addition to the Company’s business model, which is summarized in the paragraphs
above, the Company is continuously investigating and analyzing other lines
and
areas of business. These include, but are not limited to, various types of
insurance and real estate activities. Conversely, the Company frequently
evaluates and analyzes the profitability, risk factors and viability of its
various business lines and segments and, depending upon the results of these
evaluations and analyses, may conclude to exit certain segments and/or business
lines. Further, in conjunction with these ongoing evaluations and analyses,
the
Company may decide to sell, merge or close certain branch
facilities.
Overview
The
Company's results of operations for the first quarter ended March 31, 2007,
compared to the same period in 2006, reflected an increase in net interest
income due primarily to organic loan growth, higher interest rates as a result
of actions from the Federal Open Market Committee (“FOMC”) and the Company’s
continued
expansion
initiatives. This increase in net interest income was offset, in part, by
increases in noninterest expense from the Company’s expansion
initiatives.
Reflecting
continued improved credit quality offset in part by strong loan growth, the
Company’s provision for loan losses decreased for the three months ended March
31, 2007 as compared to the same periods in 2006.
At
March
31, 2007, the Company had total consolidated assets of approximately $1,827,634,
total consolidated deposits of approximately $1,390,442, total consolidated
loans, net of unearned interest, of approximately $1,603,281 and total
consolidated shareholders' equity of approximately $189,997. The Company's
annualized return on average shareholders' equity for the three months ended
March 31, 2007 was 11.93%, and its annualized return on average total assets
was
1.26% The Company expects that its total assets, total consolidated deposits,
total consolidated loans, net of unearned interest and total shareholders'
equity will continue to increase over the remainder of 2007 as a result of
its
expansion efforts, including its acquisition of CVBG and branch expansions
in
the Knoxville area, Loudon County and City of Kingsport markets.
Critical
Accounting Policies and Estimates
The
Company’s consolidated financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, the disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.
Management
continually evaluates the Company’s accounting policies and estimates it uses to
prepare the consolidated financial statements. In general, management’s
estimates are based on historical experience, information from regulators and
third party professionals and various assumptions that are believed to be
reasonable under the then existing facts and circumstances. Actual results
could
differ from those estimates made by management.
The
Company believes its critical accounting policies and estimates include the
valuation of the allowance for loan losses and the fair value of financial
instruments and other accounts. Based
on
management’s calculation, an allowance of $22,932, or 1.43%, of total loans, net
of unearned interest, was an adequate estimate of losses inherent in the loan
portfolio as of March 31, 2007. This estimate resulted in a provision for loan
losses on the income statement of $974 during the first quarter of 2007. If
the
economic conditions, loan mix and amount of future charge-off percentages differ
significantly from those assumptions used by management in making its
determination, the allowance for loan losses and provision for loan losses
on
the income statement could be materially affected.
The
consolidated financial statements include certain accounting and disclosures
that require management to make estimates about fair values. Estimates of fair
value are used in the accounting for securities available for sale, loans held
for sale, goodwill, other intangible assets, and acquisition purchase accounting
adjustments. Estimates of fair values are used in disclosures regarding
securities held to maturity, stock compensation, commitments, and the fair
values of financial instruments. Fair values are estimated using relevant market
information and other assumptions such as interest rates, credit risk,
prepayments and other factors. The fair values of financial instruments are
subject to change as influenced by market conditions.
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to its business. In the opinion of management,
however, based upon information currently available, the ultimate liability
with
respect to these proceedings and claims will not materially affect the Company’s
consolidated results of operations or financial position. The Company reviews
outstanding claims and proceedings internally and with external counsel as
necessary to assess probability of loss and for the ability to estimate loss.
These assessments are re-evaluated each quarter or as new information becomes
available to determine whether a reserve should be established or if any
existing reserve should be adjusted. The actual cost of resolving a claim or
proceeding ultimately may be substantially different than the amount of the
recorded reserve. In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable,
in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).
Changes
in Results of Operations
Net
Income. Net
income for the three months ended March 31, 2007 was $5,616, as compared to
$5,096 for the same period in 2006. This
increase of $520, or 10.20%, resulted primarily from a $1,635, or 9.51%,
increase in net interest income reflecting higher earning asset volume arising
primarily from organic growth in the loan portfolio. Offsetting
this increase was a $1,336, or 10.51%, increase in total noninterest expense
from $12,706 for the three months ended March 31, 2006 to $14,042 for the same
period of 2007. This increase is attributable to the increase in salaries and
benefits costs resulting from the Company’s additional staffing related to loan
production initiatives.
Net
Interest Income.
The
largest source of earnings for the Company is net interest income, which is
the
difference between interest income on 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 rates on
interest-earning assets
and interest-bearing liabilities, which are affected in part by management’s
responses to changes in interest rates through asset/liability management.
During the three months ended March 31, 2007, net interest income was $18,821,
as compared to $17,186 for the same period in 2006, representing an increase
of
9.51%.
The
Company’s average balance for interest-earning assets increased 11.94% from
$1,452,221 for the first quarter ended March 31, 2006 to $1,625,574 for the
first quarter ended March 31, 2007. The Company experienced a 12.94% growth
in
average loan balances from $1,392,401 for the first quarter ended March 31,
2006
to $1,572,640 for the first quarter ended March 31, 2007. The growth in loans
can be attributed to the continued market expansion in which the Company is
located as well as additional staffing of loan production personal.
The
Company’s average balance for interest bearing liabilities increased 12.19% from
$1,270,175 for the first quarter ended March 31, 2006 to $1,425,058 for the
first quarter ended March 31, 2007. The Company experienced a 5.84% growth
in
average interest bearing deposits from $1,146,868 for the first quarter ended
March 31, 2006 to $1,213,890 for the first quarter ended March 31, 2007. The
Company’s continued success of the High Performance Checking program is the
primary reason for the growth in deposits.
The
Company’s yield on loans (the largest component of interest-earning assets)
increased by 63 basis points from the first quarter ended March 31, 2006 to
the
first quarter ended March 31, 2007. The increase was primarily a result of
the
escalating market rates driven by changes enacted by the FOMC during the first
and second quarters of 2006:
FOMC
Meeting
|
|
Beginning
|
|
Ending
|
Date
|
|
Rate
|
Increase
|
Rate
|
December
13, 2005
|
|
4.00%
|
0.25%
|
4.25%
|
January
31, 2006
|
|
4.25%
|
0.25%
|
4.50%
|
March
28, 2006
|
|
4.50%
|
0.25%
|
4.75%
|
May
10, 2006
|
4.75%
|
0.25%
|
5.00%
|
June
29, 2006
|
|
5.00%
|
0.25%
|
5.25%
|
August
8, 2006
|
|
5.25%
|
0.00%
|
5.25%
|
September
20, 2006
|
|
5.25%
|
0.00%
|
5.25%
|
October
25, 2006
|
|
5.25%
|
0.00%
|
5.25%
|
December
12, 2006
|
|
5.25%
|
0.00%
|
5.25%
|
January
31, 2007
|
|
5.25%
|
0.00%
|
5.25%
|
March
21, 2007
|
|
5.25%
|
0.00%
|
5.25%
|
The
Company’s cost of interest-bearing liabilities increased by 87 basis points from
the first quarter ended March 31, 2006 to the first quarter ended March 31,
2007. The cost of raising deposits and other borrowed funds are influenced
by
both local market conditions as well as FOMC actions. Management believes that
these costs were prudently managed during this volatile interest rate
cycle.
The
following table sets forth certain information relating to the Company’s
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
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
Average
|
|
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)
|
|
$
|
1,572,640
|
|
$
|
31,915
|
|
|
8.23
|
%
|
$
|
1,392,401
|
|
$
|
26,100
|
|
|
7.60
|
%
|
Investment
securities
|
|
|
51,676
|
|
|
708
|
|
|
5.56
|
%
|
|
56,446
|
|
|
631
|
|
|
4.53
|
%
|
Other
short-term investments
|
|
|
1,258
|
|
|
15
|
|
|
4.84
|
%
|
|
3,374
|
|
|
36
|
|
|
4.33
|
%
|
Total
interest-earning assets
|
|
$
|
1,625,574
|
|
$
|
32,638
|
|
|
8.14
|
%
|
$
|
1,452,221
|
|
$
|
26,767
|
|
|
7.48
|
%
|
Noninterest
earning assets
|
|
|
153,345
|
|
|
|
|
|
|
|
|
147,140
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,778,919
|
|
|
|
|
|
|
|
$
|
1,599,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Now accounts, money market and
savings
|
|
$
|
540,648
|
|
$
|
3,546
|
|
|
2.66
|
%
|
$
|
520,821
|
|
$
|
2,576
|
|
|
2.01
|
%
|
Time deposits
|
|
|
673,242
|
|
|
7,607
|
|
|
4.58
|
%
|
|
626,047
|
|
|
5,466
|
|
|
3.54
|
%
|
Total
interest-bearing deposits
|
|
$
|
1,213,890
|
|
$
|
11,153
|
|
|
3.73
|
%
|
$
|
1,146,868
|
|
$
|
8,042
|
|
|
2.84
|
%
|
Securities
sold under repurchase
agreements and short-term borrowings
|
|
|
25,856
|
|
|
286
|
|
|
4.49
|
%
|
|
21,678
|
|
|
207
|
|
|
3.87
|
%
|
Notes
payable
|
|
|
171,909
|
|
|
2,110
|
|
|
4.98
|
%
|
|
88,226
|
|
|
1,090
|
|
|
5.01
|
%
|
Subordinated
debentures
|
|
|
13,403
|
|
|
268
|
|
|
8.11
|
%
|
|
13,403
|
|
|
242
|
|
|
7.32
|
%
|
Total
interest-bearing liabilities
|
|
$
|
1,425,058
|
|
$
|
13,817
|
|
|
3.93
|
%
|
$
|
1,270,175
|
|
$
|
9,581
|
|
|
3.06
|
%
|
Noninterest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
145,185
|
|
|
|
|
|
|
|
|
140,044
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
20,398
|
|
|
|
|
|
|
|
|
17,312
|
|
|
|
|
|
|
|
Total
noninterest
bearing liabilities
|
|
|
165,583
|
|
|
|
|
|
|
|
|
157,356
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,590,641
|
|
|
|
|
|
|
|
|
1,427,531
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
188,278
|
|
|
|
|
|
|
|
|
171,830
|
|
|
|
|
|
|
|
Total
liabilities
and shareholders’
equity
|
|
$
|
1,778,919
|
|
|
|
|
|
|
|
$
|
1,599,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
18,821
|
|
|
|
|
|
|
|
$
|
17,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
4.21
|
%
|
|
|
|
|
|
|
|
4.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on interest-earning assets
|
|
|
|
|
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
4.80
|
%
|
1
Average
loan balances included nonaccrual loans. Interest income collected on nonaccrual
loans has been included.
Provision
for Loan Losses.During
the three months ended March 31, 2007, loan charge-offs were $657 and recoveries
of charged-off loans were $313. The Company’s provision for loan losses
decreased by $90, or 8.46%, to $974 for the three months ended March 31, 2007,
as compared to $1,064 for the same period in 2006. The Company’s allowance for
loan losses increased by $630 to $22,932 at March 31, 2007 from $22,302 at
December 31, 2006, the ratio of the allowance for loan losses to total loans,
net of unearned interest, remained relatively constant at 1.43% at March 31,
2007 compared to 1.45% and 1.43% at December 31, 2006 and March 31, 2006,
respectively. As of March 31, 2007, indicators of credit quality, as discussed
below, have improved compared to December 31, 2006 and March 31, 2006.
Management
continually evaluates the Company’s credit policies and procedures for effective
risks and controls management. The Company’s trend in asset quality
improvement is attributable to improved underwriting policies and management
controls. The
ratio
of allowance for loan losses to nonperforming loans was 690.10%, 635.93% and
405.23% at March 31, 2007, December 31, 2006 and March 31, 2006, respectively,
and the ratio of nonperforming assets to total assets was 0.28%, 0.29% and
0.49%
at March 31, 2007, December 31, 2006 and March 31, 2006, respectively. The
ratio
of nonperforming loans to total loans, net of unearned interest, was 0.21%,
0.23% and 0.35% at March 31, 2007, December 31, 2006 and March 31, 2006,
respectively. Within the Bank, the Company’s largest subsidiary, the ratio of
nonperforming assets to total assets was 0.24%, 0.24% and 0.46% at March 31,
2007, December 31, 2006 and March 31, 2006, respectively.
The
Company’s year-to-date (“YTD”) annualized net charge-offs as a percentage of
average loans improved from 0.21% for the three months ended March 31, 2006
to
0.09% for the three months ended March 31, 2007. Net charge-offs as a percentage
of average loans were 0.20% for the year ended December 31, 2006. Within the
Bank, YTD annualized net charge-offs as a percentage of average loans decreased
from 0.15% for the three months ended March 31, 2006 to 0.02% for the same
period in 2007. Net charge-offs within the Bank as a percentage of average
loans
were 0.14% for the year ended December 31, 2006. YTD annualized net charge-offs
in Superior Financial for the three months ended March 31, 2007 were $156
compared to actual net charge-offs of $159 for the year ended December 31,
2006.
YTD annualized net charge-offs in GCB Acceptance for the three months ended
March 31, 2007 were $856 compared to actual net charge-offs of $744 for the
year
ended December 31, 2006.
Although
credit quality trends continue to improve, management continually evaluates
the
existing portfolio in light of loan concentrations, current general economic
conditions and economic trends. Based upon these evaluations, which all strongly
suggest an economic slowdown occurring in late 2007 and further based on the
Company's allowance for loan loss calculation and review of the loan portfolio,
management believes the allowance for loan losses is adequate at March 31,
2007.
Management anticipates that the provision for loan losses during the second
quarter of 2007 will be consistent with the first quarter of 2007 and also
anticipates that the provision for loan losses for the entire year of 2007
may
be less than the provision for 2006 if indicators of credit quality remain
stabilized. However, the provision for loan losses could increase for the entire
year of 2007, as compared to 2006, if the Company’s loan growth continues at the
rate experienced through the three months ended March 31, 2007.
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 the
Company’s traditional method of earning income through interest rate spreads.
Total
noninterest income for the three months ended March 31, 2006 was $5,399 as
compared to $4,755 for the same period in 2006. Service charges, commissions
and
fees remain the largest component of total noninterest income and increased
$1,058, or 32.75%, to $4,289 for the three months ended March 31, 2007 from
$3,231 for the same period in 2006. This increase primarily reflects additional
service charges and NSF fees from deposit-related products stemming primarily
from increased volume as a result of the Bank’s High Performance Checking
Program introduced in the first quarter of 2005. The Company believes that
noninterest income will continue to improve over the remainder of 2007 when
compared to prior comparable periods as a result of the increased volume in
deposits resulting from the Bank’s High Performance Checking Program. In
addition, other noninterest income decreased by $414, or 27.16%, to $1,110
for
the three months ended March 31, 2007 from $1,524 for the same period in 2006.
The reduction is a result of a gain recorded during the first quarter of 2006
on
the sale of foreclosed real estate and decreased dividends from an insurance
provider.
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,
Federal Deposit Insurance Corporation assessment, etc. Total noninterest expense
was $14,042 for the three months ended March 31, 2007 compared to $12,706 for
the same period in 2006. The $1,336, or 10.51%, increase in total noninterest
expense for the three months ended March 31,
2007
compared to the same period of 2006 principally reflects an increase in
personnel costs, primarily as a result of the Company’s additional staffing
related to loan production initiatives.
Personnel
costs are the largest component of the Company's noninterest expenses. For
the
three months ended March 31, 2007, salaries and benefits represented $7,458,
or
53.11%, of total noninterest expense. This was an increase of $1,067, or 16.70%,
from $6,391 for the three months ended March 31, 2006.
Including Bank offices and non-Bank office locations, the Company had 60
locations at March 31, 2007, December 31, 2006 and March 31, 2006, and the
number of full-time equivalent employees increased 5.59% from 572 at March
31,
2006 to 604 at March 31, 2007. These increases in personnel costs and employees
were driven by the increase in staffing related to loan production initiatives.
The
Company’s efficiency ratio was slightly up from 57.55% at March 31, 2006 to
57.98% at March 31, 2007. The efficiency ratio illustrates how much it cost
the
Company to generate revenue; for example, it cost the Company 57.98 cents to
generate one dollar of revenue for the three months ended March 31,
2007.
Income
Taxes.The
effective income tax rate for the three months ended March 31, 2007 was 38.98%
compared to 37.63% for the same period in 2006.
Changes
in Financial Condition Over Financial Reporting
Total
assets at March 31, 2007 were $1,827,634, an increase of $54,980, or 3.10%,
from
total assets of $1,772,654 at December 31, 2006. The increase in assets was
primarily reflective of the $63,652, or 4.13%, increase in loans, net of
unearned interest and the $7,847, or 20.79%, increase in securities available
for sale. These increases were mainly funded by the $57,937 increase in deposits
and the $15,842 decrease in cash and cash equivalents.
At
March
31, 2007, loans, net of unearned interest, were $1,603,281 compared to
$1,539,629 at December 31, 2006, an increase of $63,652, or 4.13%, from December
31, 2006. The increase in loans during the first three months of 2007 primarily
reflects an increase in commercial real estate loans and commercial loans.
Non-performing
loans include non-accrual loans and loans 90 or more days past due. All loans
that are 90 days past due are considered non-accrual unless they are adequately
secured and there is reasonable assurance of full collection of principal and
interest. Non-accrual loans that are 120 days past due without assurance of
repayment are charged off against the allowance for loan losses. Nonaccrual
loans and loans past due 90 days and still accruing decreased by $184 or 5.25%,
during the three months ended March 31, 2007 to $3,323 from $3,507 at December
31, 2006. At March 31, 2007, the ratio of the Company’s allowance for loan
losses to non-performing loans (which include non-accrual loans) was
690.10%.
The
Company maintains an investment portfolio to provide liquidity and earnings.
Investments at March 31, 2007 with an amortized cost of $47,373 had a market
value of $47,227. At year-end 2006, investments with an amortized cost of
$40,494 had a market value of $40,284. The increase in investments from December
31, 2006 to March 31, 2007 results from the purchase of US Agency securities
that were needed to collateralize new Municipal Deposit relationships.
Liquidity
and Capital Resources
Liquidity.
Liquidity
refers to the ability or the financial flexibility to manage future cash flows
to meet the needs of depositors and borrowers and fund operations. Maintaining
appropriate levels of liquidity allows the Company to have sufficient funds
available for reserve requirements, customer demand for loans, withdrawal of
deposit balances and maturities of deposits and other liabilities. The Company's
liquid assets include cash and due from banks, federal funds sold, investment
securities and loans held for sale. Including securities pledged to
collateralize municipal deposits, these assets represented 6.89% of the total
liquidity base at March 31, 2007, as compared to 7.69% at December 31, 2006.
The
liquidity base is generally defined to include deposits, repurchase agreements,
notes payable and subordinated debentures. The
Company maintains borrowing availability with the Federal Home Loan Bank of
Cincinnati (“FHLB”), which it fully drew down at March
31,
2007
in order
to more fully optimize its funding costs. The Company also maintains
federal funds lines of credit totaling $136,000
at
seven
correspondent banks, of which $118,585
was
available at March
31,
2007.
The
Company believes it has sufficient liquidity to satisfy its current operating
needs.
For
the
three months ended March 31, 2007, operating activities of the Company provided
$6,739 of cash flows. Net income of $5,616 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) $974 in
provision for loan losses, (ii) $1,056 of depreciation and amortization, (iii)
$1,535 increase in other assets. This was offset in part by a decrease of $1,387
in accrued interest payable and other liabilities. In addition, the cash flows
used for the originations of mortgage loans held for sale exceeded proceeds
from
sales of mortgage loans by $634.
The
Company’s net increase in loans used $64,807 in cash flows and was the primary
component of the $73,181 in net cash used in investing activities for the three
months ended March 31, 2007. In addition, the Company purchased $16,695 in
investment securities available for sale. This was offset by (i) $1,262 in
proceeds from the sale of investments securities available for sale (ii)
$7,631in proceeds from the maturities of investment securities available for
sale (iii) $496 in proceeds from the sale of securities held to maturity, and
(iv) $405 in proceeds from the maturities of securities held to maturity.
Purchases of fixed asset additions, net of proceeds from sale of other real
estate, used $1,473 in cash flows.
The
net
increase in deposits of $57,937 was the primary source of cash flows used in
financing activities. Also providing cash from financing activities were the
proceeds from notes payable of $30,000 offset, in part, by repayments of notes
payable of $35,694. In addition, dividends paid in the amount of $1,276 further
reduced the total net cash used in financing activities.
Capital
Resources.The
Company’s capital position is reflected in its shareholders’ equity, subject to
certain adjustments for regulatory purposes. Shareholders’ equity, or capital,
is a measure of the Company’s net worth, soundness and viability. The Company
continues to exhibit a strong capital position while consistently paying
dividends to its shareholders. Further, the capital base of the Company allows
it to take advantage of business opportunities while maintaining the level
of
resources deemed appropriate by management of the Company to address business
risks inherent in the Company’s daily operations.
Shareholders’
equity on March 31, 2007 was $189,997, an increase of $5,526, or 3.00%, from
$184,471 on December 31, 2006. The increase in shareholders’ equity primarily
reflected net income for the three months ended March 31, 2007 of $5,616 ($0.57
per share, assuming dilution). This increase was offset by quarterly dividend
payments during the three months ended March 31, 2007 totaling $1,275 ($0.13
per
share).
On
September 18, 2002 the Company announced that its Board of Directors had
authorized the repurchase of up to $2,000 of the Company’s outstanding shares of
common stock beginning in October 2002. The repurchase plan has been renewed
by
the Board of Directors annually thereafter and will terminate on the earlier
to
occur of the Company’s repurchase of the total authorized dollar amount or
December 31, 2007. The repurchase plan is dependent upon market conditions
and
there is no guarantee as to the exact number of shares to be repurchased by
the
Company. To date, the Company has purchased 25,700 shares at an aggregate cost
of approximately $538 under this program.
The
Company’s primary source of liquidity is dividends paid by the Bank. Applicable
Tennessee statutes and regulations impose restrictions on the amount of
dividends that may be declared by the Bank. Further, any dividend payments
are
subject to the continuing ability of the Bank to maintain its compliance with
minimum federal regulatory capital requirements and to retain its
characterization under federal regulations as a “well-capitalized”
institution.
Risk-based
capital regulations adopted by the Board of Governors of the Federal Reserve
Board (“FRB”) and the Federal Deposit Insurance Corporation (the “FDIC”) require
bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation
to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the
form
of core, or Tier 1, capital (consisting of 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). These guidelines also specify that bank holding companies
that are experiencing internal growth or making acquisitions will be expected
to
maintain strong capital positions substantially above the minimum supervisory
levels. At March 31, 2007, the Bank and the Company each satisfied their
respective minimum regulatory capital requirements, and
the
Bank
was “well-capitalized” within the meaning of federal regulatory requirements.
The table below sets forth the capital position of the Bank and the Company
at
March 31, 2007.
|
Required
Minimum
Ratio
|
Required
to
be
Well
Capitalized
|
Bank
|
Company
|
Tier
1 risk-based capital
|
4.00%
|
6.00%
|
10.10%
|
10.15%
|
Total
risk-based capital
|
8.00%
|
10.00%
|
11.35%
|
11.40%
|
Leverage
Ratio
|
4.00%
|
5.00%
|
9.41%
|
9.47%
|
The
FRB
has recently issued regulations which will allow continued inclusion of
outstanding and prospective issuances of trust preferred securities as Tier
1
capital subject to stricter quantitative and qualitative limits than allowed
under prior regulations. The new limits will phase in over a five-year
transition period and would permit the Company's trust preferred securities
to
continue to be treated as Tier 1 capital.
Off-Balance
Sheet Arrangements
At
March
31, 2007, the Company had outstanding unused lines of credit and standby letters
of credit totaling $510,581 and unfunded loan commitments outstanding of
$81,887. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment level does
not
necessarily represent future cash requirements. If needed to fund these
outstanding commitments, the Company has the ability to liquidate Federal funds
sold or securities available-for-sale or, on a short-term basis, to borrow
any
then available amounts from the FHLB and/or purchase Federal funds from other
financial institutions. At March 31, 2007, the Company had accommodations with
upstream correspondent banks for unsecured Federal funds lines. These
accommodations have various covenants related to their term and availability,
and in most cases must be repaid within less than a month. The following table
presents additional information about the Company’s off-balance sheet
commitments as of March 31, 2007, which by their terms have contractual maturity
dates subsequent to March 31, 2007:
|
|
Less
than 1
Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
than 5
Years
|
|
Total
|
|
Commitments
to make loans - fixed.......................................
|
|
$
|
47,207
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
47,207
|
|
Commitments
to make loans - variable...................................
|
|
|
34,680
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34,680
|
|
Unused
lines of
credit...........................................................
|
|
|
327,673
|
|
|
91,972
|
|
|
6,077
|
|
|
54,555
|
|
|
480,277
|
|
Letters
of
credit...................................................................
|
|
|
30,845
|
|
|
5,171
|
|
|
366
|
|
|
-
|
|
|
36,382
|
|
Total................................................................................
|
|
$
|
440,405
|
|
$
|
97,143
|
|
$
|
6,443
|
|
$
|
54,555
|
|
$
|
598,546
|
|
Disclosure
of Contractual Obligations
In
the
ordinary course of operations, the Company enters into certain contractual
obligations. Such obligations include the funding of operations through debt
issuances as well as leases for premises and equipment. The following table
summarizes the Company’s significant fixed and determinable contractual
obligations as of March 31, 2007:
|
|
Less
than 1
Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
than 5
Years
|
|
Total
|
|
Certificates
of
deposits.........................................................
|
|
$
|
562,478
|
|
$
|
87,446
|
|
$
|
3,776
|
|
$
|
3,564
|
|
$
|
657,264
|
|
Federal
funds purchased and repurchase
agreements........................................................................
|
|
|
41,572
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,572
|
|
FHLB
advances and notes
payable........................................
|
|
|
49,718
|
|
|
55,300
|
|
|
15,872
|
|
|
50,987
|
|
|
171,877
|
|
Subordinated
debentures.......................................................
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,403
|
|
|
13,403
|
|
Operating
lease
obligations....................................................
|
|
|
560
|
|
|
597
|
|
|
337
|
|
|
560
|
|
|
2,054
|
|
Deferred
compensation.........................................................
|
|
|
456
|
|
|
1,474
|
|
|
-
|
|
|
1,341
|
|
|
3,271
|
|
Purchase
obligations..............................................................
|
|
|
113
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113
|
|
Total.................................................................................
|
|
$
|
654,897
|
|
$
|
144,817
|
|
$
|
19,985
|
|
$
|
69,855
|
|
$
|
889,554
|
|
Additionally,
the Company routinely enters into contracts for services. These contracts may
require payment for services to be provided in the future and may also contain
penalty clauses for early termination of the contract. Management is not aware
of any additional commitments or contingent liabilities which may have a
material adverse impact on the liquidity or capital resources of the
Company.
Effect
of New Accounting Standards
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109”. This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”
The interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. FASB Interpretation
No. 48
is effective for fiscal years beginning after December 31, 2006. The
Company adopted Interpretation No. 48 effective January 1, 2007, resulting
in a
beginning retained earnings adjustment in the amount of $800. See Note 6
in the
Notes to Condensed Consolidated Financial Statements for further information
regarding the adoption of this standard.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair
Value Option for Financial Assets and Financial Liabilities”.
This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. The objective of this standard is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is effective as of the beginning of fiscal years
beginning after November 15, 2007, with early adoption permitted under certain
circumstances. The Company did not choose to early adopt this
standard.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Part
II,
Item 7A of the 2006 10-K is incorporated in this item of this Quarterly Report
by this reference. There have been no material changes in the quantitative
and
qualitative market risks of the Company since December 31, 2006.
ITEM
4. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
The
Company’s management, with the participation of its principal executive and
financial officers, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Company’s disclosure controls and
procedures (as
defined in Rule 13a-15(e) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934 (the “Exchange Act”). as
of the
end of the period covered by this report. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of March 31,
2007, the Company's disclosure controls and procedures were
effective
for the
purposes set forth in the definition thereof in Exchange Act Rule
13a-15(e).
Internal
Controls
There
have been no changes (including
corrective actions with regard to significant deficiencies and material
weaknesses) in
the
Company's internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f)) during
the quarter ended March 31, 2007 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART
II - OTHER INFORMATION
In
accordance with the Instruction to Part II of Form 10-Q, the Company has omitted
references to all Items in Part II of this Quarterly Report on form 10-Q that
are not applicable.
Item
1A. Risk
Factors
There
have been no material changes from our risk factors previously disclosed in
“Item 1A. Risk Factors” of the 2006 10-K other than those associated with the
proposed merger with CVBG. Investors should refer to those risks discussed
under
“Risk Factors” in the Company’s Registration Statement on Form S-4 and related
prospectus/joint proxy statement filed with the SEC on April 20, 2007, which
is
incorporated herein by this
reference.
Item
6. Exhibits
See
Exhibit Index
immediately following the signature page hereto.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized both on behalf of the Registrant and in his capacity as
principle financial and accounting officer of the Registrant.
|
Greene County Bancshares, Inc. |
|
Registrant |
|
|
|
|
|
|
|
|
By /s/
James
E. Adams |
Date: May
9, 2007 |
|
James E. Adams |
|
|
Senior Vice President, Chief Financial |
|
|
Officer and Assistant Secretary |
EXHIBIT
INDEX
2.1
|
Merger
Agreement, dated as of January 25, 2007, by and between Greene County
Bancshares, Inc. and Civitas Bankgroup, Inc. (Pursuant to
Item 601(b)(2) of Regulation S-K the schedules and exhibits to
this agreement have been omitted from this filing) — incorporated
herein by reference to the Company’s Current Report on Form 8-K filed
January 26, 2007
|
31.1 |
Chief Executive Officer Certification Pursuant to Rule
13a-14(a)/15d-14(a) |
31.2 |
Chief Financial Officer Certification Pursuant to Rule
13a-14(a)/15d-14(a) |
32.1 |
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section
1350, as Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2 |
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section
1350, as Adopted
Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|