UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003
COMMISSION FILE NUMBER 000-33021
GREER BANCSHARES INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-1126200
-------------- ----------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation) Number)
1111 West Poinsett Street
P.O. Box 1029 (864) 877-2000
Greer, SC 29650 --------------
--------------- (Issuer's Telephone Number)
(Address of Principal Executive
Offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
--- ---
The number of outstanding shares of the issuer's $5.00 par value common stock as
of May 14, 2003 was 1,609,379.
GREER BANCSHARES INCORPORATED
Index
PART I
FINANCIAL INFORMATION
Item 1
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 3
Consolidated Statements of Income for the Three Months Ended March 31,
2003 and 2002 4
Consolidated Statements of Comprehensive Income for the Three Months
Ended March 31, 2003 and 2002 5
Consolidated Statements of Changes in Stockholders' Equity for the
Three Months Ended March 31, 2003 and Twelve Months ended
December 31, 2002 6
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 7
Notes to Consolidated Financial Statements 8
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3
Quantitative and Qualitative Disclosures about Market Risk 14
Item 4
Controls and Procedures 14
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
Certifications 17 - 18
Exhibits 19
2
GREER BANCSHARES INCORPORATED
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands except share data) March 31, March 31,
------------- -------------
2003 2002
------------- -------------
Assets:
Cash and Due from Banks $ 7,351 $ 7,368
Investment Securities:
Held to maturity 21,495 14,607
Available for sale 50,418 52,163
Net Loans 106,044 106,581
Premises and Equipment, Net 4,174 4,247
Federal Funds Sold 4,777 3,351
Other Assets 4,286 4,214
--------- ---------
Total Assets $ 198,545 $ 192,531
========= =========
Liabilities:
Deposits
Non-interest bearing $ 18,349 $ 18,711
Interest bearing 119,978 118,852
--------- ---------
Total Deposits 138,327 137,563
Note payable to Federal Home Loan Bank 38,817 34,837
Other liabilities 1,892 1,517
--------- ---------
Total Liabilities 179,036 173,918
Stockholders' Equity:
Common stock--par value $5 per share, 10,000,000 shares
authorized, 1,607,379 and 1,606,018 shares issued and
outstanding at March 31, 2003 and December 31, 2002,
respectively 8,037 8,030
Additional paid in capital 6,358 6,350
Retained Earnings 3,961 3,440
Accumulated other comprehensive income 1,153 793
--------- ---------
Total Stockholders' Equity 19,509 18,613
--------- ---------
Total Liabilities and Stockholders' Equity $ 198,545 $ 192,531
========= =========
The accompanying note is an integral part of these consolidated financial
statements.
3
GREER BANCSHARES INCORPORATED
Consolidated Statements of Income
(Unaudited)
(dollars in thousands except per share data) For Three Months Ended
--------------------------------
03/31/03 03/31/02
-------------- --------------
Interest Income:
Loans (including fees) $ 1,818 $ 2,094
Investment Securities:
Taxable 370 426
Exempt from federal income tax 324 195
Federal funds sold 9 22
Other 30 24
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Total interest income 2,551 2,761
Interest Expense:
Interest on deposit accounts 527 685
Interest on other borrowings 429 393
------- -------
Total interest expense 956 1,078
Net interest income 1,595 1,683
Provision for loan losses 10 45
------- -------
Net interest income after provision for loan losses 1,585 1,638
Non-interest income:
Service charges for deposit accounts 286 258
Other service charges 62 38
Gain(loss) on sale of investment securities - 30
Other operating income 112 192
------- -------
Total non-interest income 460 518
Non-interest expenses:
Salaries and employee benefits 757 716
Occupancy and equipment 212 219
Postage and supplies 57 57
Other operating expenses 359 364
------- -------
Total non-interest expenses 1,385 1,356
Income before income taxes 660 800
Provision for income taxes: 139 229
------- -------
Net Income $ 521 $ 571
======= =======
Basic net income per share of common stock $ 0.32 $ 0.36
======= =======
Diluted net income per share of common stock $ 0.32 $ 0.35
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
GREER BANCSHARES INCORPORATED
Consolidated Statements of Comprehensive Income
(Unaudited)
For Three Months Ended
---------------------------------
03/31/03 03/31/02
--------------- --------------
Net Income (Loss) $ 521 $ 571
Other comprehensive
income(loss), net of tax
Unrealized Holding Gains (Losses) on
Investment Securities 360 (114)
Less Reclassification Adjustments for
(Gains)/Losses Included in Net Income 0 (19)
----- -----
Subtotal 360 (133)
----- -----
Comprehensive Income $ 881 $ 438
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
5
GREER BANCSHARES INCORPORATED
Consolidated Statements of Changes in Shareholders Equity
For the Three Months Ended March 31, 2003 and
Twelve Months Ended December 31, 2002
(dollars in thousands except share Additional Accumulated Total
data) Common Paid-In Retained Other Comp. Stockholders
Stock Capital Earnings Income Equity
------------- ------------- ------------ ------------- -------------
Balances at 12/31/2001 $7,788 $5,345 $2,757 $ 35 $15,925
Net Income 2,523 2,523
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) on
investment portfolio 751 751
Less reclassification adjustments for
(gains)/losses included in net income 7 7
-------
Comprehensive Income 3,281
Cash in lieu of fractional
shares (stock dividend) (9) (9)
Stock exercised pursuant
to stock option plan 48 144 192
Tax benefit of stock options exercised 7 7
Cash dividends ($.50 per share) (783) (783)
Issuance of
Stock Dividend (2.5%) 194 854 (1,048) -
------ ------ ------ ------ -------
Balances at 12/31/2002 $8,030 $6,350 $3,440 $ 793 $18,613
Net Income 521 521
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) on
investment portfolio 360 360
Less reclassification adjustments for
(gains)/losses included in net income - -
-------
Comprehensive Income 881
Stock exercised pursuant
to stock option plan 7 8 15
------ ------ ------ ------ -------
Balances at 3/31/2003 $8,037 $6,358 $3,961 $1,153 $19,509
====== ====== ====== ====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
GREER BANCSHARES INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
--------------------------
3/31/03 3/31/02
------------ -----------
OPERATING ACTIVITIES
Net Income $ 521 $ 571
Cash provided by operating activities
Depreciation 135 141
Gain on sale of securities 0 (30)
Provision for possible loan loss 10 45
Decrease (increase)in accrued interest receivable (13) 73
Increase in other assets (59) (80)
Increase (Decrease) in accrued interest payable 83 (190)
Increase in miscellaneous liabilities 64 269
------- -------
Net cash provided by operating activities 741 799
------- -------
INVESTING ACTIVITIES
Proceeds from the sale of securities, available for sale 10,776 9,390
Purchase of securities (15,333) (8,962)
Net increase in federal funds sold (1,426) (7,409)
Net (increase) decrease in loans 527 4,232
Capital expenditures (62) (26)
------- -------
Net cash used for investing activities (5,518) (2,775)
------- -------
FINANCING ACTIVITIES
Net increase in deposits 765 2,146
Net proceeds (repayment) of notes payable FHLB 3,980 (20)
Proceeds from issuance of stock through options 15 11
------- -------
Net cash provided by financing activities 4,760 2,137
------- -------
Net increase in cash and due from banks (17) 161
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 7,368 7,421
------- -------
CASH AND DUE FROM BANKS, END OF PERIOD $ 7,351 $ 7,582
======= =======
CASH PAID FOR
Income taxes $ 237 $ 55
======= =======
Interest $ 874 $ 1,268
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
GREER BANCSHARES INCORPORATED
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
Greer Bancshares Incorporated is a one-bank holding company for Greer State Bank
(the "Bank"). The only current activity of the holding company is to hold its
investment in the Bank. The accompanying financial statements include the
accounts of the holding company and its subsidiary.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with generally accepted accounting principles. All adjustments, however, which
are in the opinion of management necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are of a
normal recurring nature. The statements of income and comprehensive income for
the interim periods are not necessarily indicative of the results that may be
expected for the entire year or any other future interim period.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto
for the Company for the year ended December 31, 2002 which are included in the
Form 10-K.
Note 2 - Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the
weighted average number of shares outstanding during each period. Diluted net
income per common share is computed by dividing net income by the weighted
average number of shares outstanding, as adjusted for the assumed exercise of
potential common stock options, using the treasury stock method. All share
amounts have been restated for the effect of a 2.5% stock dividend declared in
2002.
Note 3 - Accounting Policy
Stock-Based Compensation- On December 31, 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
148, Accounting for Stock-Based Compensation- Transition and Disclosure. This
statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, Interim
Financial Reporting, to require disclosure about those effects in interim
financial statements. We intend to continue to account for stock-based
compensation based on the provisions of APB Opinion No. 25.
For the periods ending March 31, 2003 and March 31, 2002, stock based
compensation expense, net of tax, is deemed immaterial to pro-forma income.
Therefore, tables are not included with this current filing period.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These statements are based on many assumptions
and estimates and are not guarantees of future performance. Our actual results
may differ materially from those projected in any forward-looking statements, as
they will depend on many factors about which we are unsure, including many
factors which are beyond our control. The words "may," "would," "could," "will,"
"expect," "anticipate," "believe," "intend," "plan," and "estimate," as well as
similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties include, but are not limited to:
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce anticipated
or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o the level of allowance for loan loss;
o the rate of delinquencies and amounts of charge-offs;
o the rates of loan growth;
o adverse changes in asset quality and resulting credit risk-related
losses and expenses;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Overview
The Company reported consolidated net income of $521,000, or $0.32 per diluted
share, for the quarter ended March 31, 2003, compared to $571,000, or $0.35 per
diluted share, for the quarter ended March 31, 2002, a decrease of 8.8%.
9
Interest Income, Interest Expense and Net Interest Income
The Company's total interest income for the quarter ended March 31, 2003 was
$2,551,000, compared to $2,761,000 for the quarter ended March 31, 2002, a
decrease of $210,000, or 7.6%. Interest and fees on loans is the largest
component of total interest income and decreased $276,000, or 13.2%, to
$1,818,000 for the quarter ended March 31, 2003, compared to $2,094,000 for the
quarter ended March 31, 2002. The decrease in interest and fees on loans is the
result of the lower market interest rates that were experienced at the Company
during the first quarter of 2003 when compared to the first quarter of 2002. The
average yield on the Company's loan portfolio for the three months ended March
31, 2003 was 6.39%, compared to 7.10% for the three months ended March 31, 2002.
The Company's total interest expense for the quarter ended March 31, 2003 was
$956,000, compared to $1,078,000 for the quarter ended March 31, 2002, a
decrease of $122,000, or 11.3%. The largest component of the Company's total
interest expense category is interest expense on deposits. For the quarter ended
March 31, 2003, interest expense on deposits was $527,000, compared to $685,000
for the quarter ended March 31, 2002, a decrease of $158,000, or 23.1%. Interest
expense on other borrowings is composed primarily of borrowings from the Federal
Home Loan Bank of Atlanta and federal funds purchased. The significant decrease
in interest expense on deposits is attributable to lower market interest rates
paid on deposits at the Company in the first quarter of 2003, compared with the
rates paid in the first quarter of 2002. For the quarter ended March 31, 2003,
interest expense on other borrowings was $429,000, compared to $393,000 for the
quarter ended March 31, 2002, an increase of $36,000, or 9.2%. The increase in
interest expense on other borrowings is a result of additional interest expense
generated by increased borrowings from the Federal Home Loan Bank of Atlanta.
The Company's cost of funds was 2.55% for the three months ended March 31, 2003,
compared to 3.04% for the three months ended March 31, 2002.
Net interest income, which is the difference between interest earned on assets
and the interest paid for the liabilities used to fund those assets, measures
the gross profit from lending and investing activities and is the primary
contributor to the Company's earnings. Net interest income before provision for
loan losses decreased $88,000, or 5.2%, to $1,595,000 for the quarter ended
March 31, 2003, compared to $1,683,000 for the quarter ended March 31, 2002. The
Company's net interest margin for the three months ended March 31, 2003 was
3.85%, compared to 4.34% for the three months ended March 31, 2002. The decrease
in net interest income and in the net interest margin was a result of the
Company's yield on average earning assets declining faster than the Company's
cost of funds . The yield on average earning assets continued to decline as
interest rates remained at fifty-year lows and prepayments and maturities in the
loan and investment portfolios continued to reprice to lower yields. Lack of
growth in the Company's loan portfolio also played a role in the decline of net
interest income as growth in the balance sheet occurred in the investment
portfolio, causing investments as a percentage of assets to increase while loans
as a percentage of assets declined. Since average yields on investment
securities are lower than average yields on loans, the type growth experienced
contributed to the decline in yield on average earning assets. The Company's
balance sheet is asset sensitive (which means assets reprice faster than
liabilities), largely due to the amount of variable rate loans in the loan
portfolio. Balance sheets that are asset sensitive produce more earnings as
interest rates rise.
Provision for Loan Losses
The Company has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. On a quarterly basis, the Bank's Board of Directors reviews and
approves the appropriate level for the Bank's allowance for loan losses based
upon management's recommendations, the results of the internal monitoring and
reporting system, and a review of historical statistical data for both the Bank
and other financial institutions.
10
The Bank's allowance for loan losses is based upon judgments and assumptions of
risk elements in the portfolio, future economic conditions, and other factors
affecting borrowers. The process includes identification and analysis of loss
potential in various portfolio segments utilizing a credit risk grading process
and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, charge-offs, and general conditions in the service area.
The adequacy of the allowance for loan losses and the effectiveness of our
monitoring and analysis system are also reviewed periodically by the banking
regulators and our independent auditors.
The provision for loan losses charged to operations during the three months
ended March 31, 2003 was $10,000, compared to $45,000 for the three months ended
March 31, 2002. This represents a decrease of $35,000, or 77.8%. The provision
for loan losses was lower in the first quarter of 2003 due to Company's loan
loss reserve model indicating that no additional loan loss reserve was needed.
The Company's loan portfolio declined by $588,000 during the quarter. See the
discussion below under "Allowance for Loan Losses.
Non-Interest Income
Non-interest income decreased $58,000, or 11.2%, to $460,000 for the quarter
ended March 31, 2003, compared to $518,000 for the quarter ended March 31, 2002.
Service charges for deposit accounts is the largest component of non-interest
income and increased $28,000, or 10.9%, to $286,000 for the quarter. This
increase is attributable to the growth in deposit accounts experienced in the
past twelve months. During the last half of 2002, the Company sold its credit
card portfolio and the decline in non-interest income is due primarily to the
decline in income relating to credit cards. In addition, the Company posted
$30,000 in gains on sale of investment securities during the first quarter of
2002, compared to none during the first quarter of 2003.
Non-Interest Expense
Total non-interest expense for the three months ended March 31, 2003 increased
$29,000, or 2.1%, to $1,385,000, compared to $1,356,000 for the three months
ended March 31, 2002. The largest component of non-interest expense, salaries
and employee benefits, increased $41,000, or 5.7%, to $757,000 for the three
months ended March 31, 2003, compared to $716,000 for the three months ended
March 31, 2002. The increase in salaries and benefits is attributable to annual
salary adjustments and the addition of personnel.
BALANCE SHEET REVIEW
Loans
Outstanding loans represent the largest component of earning assets at 58.1% of
total earning assets as of March 31, 2003. Gross loans totaled $106,507,000 as
of March 31, 2003, compared to $107,095,000 as of December 31, 2002, a decrease
of $588,000, or .55%. The decrease is primarily the result of the Company's
mortgage loan re-financings being directed to an outside investor mortgage
program and the reduction of borrowing by small business owners due to economic
concerns.
Non-performing loans totaled 1.03% of total loans, compared with 0.64% at
December 31, 2002. Adjustable rate loans totaled 59.7% of the loan portfolio as
of March 31, 2003, compared to 56.4% as of December 31, 2002. The continued
growth in adjustable rate loans allows the Company to be in a favorable position
when interest rates begin to rise.
The Company's loan portfolio consists primarily of residential mortgage loans,
commercial loans and consumer loans. Substantially all of these loans are to
borrowers located in South Carolina and are concentrated in the Company's local
market area.
11
The residential mortgage loan portfolio is predominantly comprised of loans
extended for owner-occupied residential properties and are typically secured by
first mortgages on the properties financed, and generally do not exceed fifteen
years. These loans generally have a maximum loan-to-value ratio of 85% and the
majori.ty has a fixed rate of interest. The commercial portion of the loan
portfolio is diversified and includes loans secured by non-real estate
collateral and commercial real estate. The non-real estate portion of the
portfolio emphasizes loan collateralization with, but not limited to, inventory,
equipment, vehicles and accounts receivable. The commercial real-estate portion
of the portfolio consists largely of mortgage loans secured by commercial
properties located in the communities served by the Company. A significant
portion of these loans are made to fund the acquisition of real estate and/or
buildings for commercial, industrial, office and retail use.
The consumer portion of the loan portfolio consists of both secured and
unsecured loans to individuals for household, family and other personal
expenditures such as automobile financing, home improvements, recreational and
educational purposes. Consumer loans are typically structured with fixed rates
of interest and full amortization of principal and interest within three to five
years.
Allowance for Loan Losses
There are risks inherent in making all loans, including risks with respect to
the period of time over which loans may be repaid, risks resulting from changes
in economic and industry conditions, risks inherent in dealing with individual
borrowers, and, in the case of a collateralized loan, risks resulting from
uncertainties about the future value of the collateral. To address these risks,
the Company has developed policies and procedures to evaluate the overall
quality of our credit portfolio and the timely identification of potential
problem loans. The Company maintains an allowance for possible loan losses which
it establishes through charges in the form of a provision for loan losses. The
Company charges loan losses and credit recoveries directly to this allowance.
The allowance for loan losses at March 31, 2003 was $1,019,000, or 0.96% of
gross loans outstanding, compared to $1,081,000, or 1.01% of gross loans
outstanding at December 31, 2002. The allowance for loan losses is based upon a
board-approved loan loss modeling system, which includes the prior loss
experience of the Company. In addition, there are internal reviews and
evaluations of the Company's loan portfolio for the purpose of identifying
potential problem loans, external review by the Company's auditors and
federal/state banking examiners, management's consideration of current economic
conditions and other relevant risk factors in evaluating the adequacy of the
allowance for loan losses. The Company's evaluation is inherently subjective as
it requires estimates that are susceptible to significant change. The Company's
losses will undoubtedly vary from these estimates, and there is a possibility
that charge-offs in future periods will exceed the allowance for loan losses as
estimated at any point in time.
At March 31, 2003 the Company had $1,096,000 in non-accruing loans, no
restructured loans, $1,000 in loans more than ninety days past due and still
accruing interest and no Other Real Estate Owned. This compares to $391,000 in
non-accruing loans, no restructured loans, $291,000 in loans more than ninety
days past due and still accruing interest and no Other Real Estate Owned at
December 31, 2002. Non-performing loans consisted of $920,000 in mortgage loans,
$173,000 in commercial loans and $3,000 in consumer loans at March 31, 2003.
Non-performing assets as a percentage of average assets were 0.56% and 0.37% at
March 31, 2003 and December 31, 2002, respectively.
Net charge-offs for the first three months of 2003 were $72,000. As a percentage
of non-performing loans, the allowance for loan losses was 93% and 159% as of
March 31, 2003 and December 31, 2002, respectively.
12
Securities
The investment portfolio is an important contributor to the earnings of the
Company. While liquidity needs are important, the Company strives to maintain a
portfolio that provides the necessary liquidity needs of the Company, yet
maximizes income consistent with the ability of the Company's capital structure
to accept nominal amounts of investment risk. As of March 31, 2003 investment
securities totaled $71,913,000, or 39.4%, of total earning assets. Investment
securities increased $5,143,000, or 7.7%, compared to $66,770,000 as of December
31, 2002. The increase in investment securities is attributable to the
investment of excess deposits, as well as borrowings from the Federal Home Loan
Bank of Atlanta when market interest rates allowed an acceptable spread.
At March 31, 2003 the Company's investment securities classified as Available
For Sale had an amortized cost of $48,542,000 and a market value of $50,418,000,
for an unrealized gain of $1,876,000. Investment securities classified as Held
To Maturity had an amortized cost of $21,495,000. This compares to an amortized
cost of $50,874,000 and a market value of $52,163,000, for an unrealized gain of
$1,289,000 as of December 31, 2002 for those investment securities classified as
Available For Sale. Investment securities classified as Held To Maturity as of
December 31, 2002 had an amortized cost of $14,607,000.
Cash and Due From Banks
The Company's cash and due from banks decreased $17,000, or .23%, to $7,351,000
at March 31, 2003 compared to $7,368,000 at December 31, 2002.
Deposits
The Company receives its primary source of funding for loans and investments
from customer deposits. Total deposits increased $764,000, or .56%, to
$138,327,000 as of March 31, 2003, compared to $137,563,000 as of December 31,
2002.
As a means of attracting additional deposits, the Company entered into a program
designed to gather deposits via the Internet during the first half of 2002. This
is done to reduce the need for short-term funding through federal funds
purchased and short-term borrowings from the Federal Home Loan Bank of Atlanta.
As of March 31, 2003, deposits generated via the Internet totaled $1,780,000.
The Company did not have any brokered deposits as of March 31, 2003 and December
31, 2002.
At March 31, 2003 interest-bearing deposits comprised 86.7% of total deposits
compared to 86.4% as of December 31, 2002. The Company takes into consideration
liquidity needs, direction and level of interest rates and market conditions
when pricing deposits.
Borrowings
The Company's borrowings from time to time are comprised of federal funds
purchased and both short-term and long-term advances from the Federal Home Loan
Bank of Atlanta. At March 31, 2003 and December 31, 2002 the Company did not
have any federal funds purchased. Notes payable to the Federal Home Loan Bank of
Atlanta increased $3,980,000, or 11.4%, to $38,817,000 as of March 31, 2003,
compared to $34,837,000 as of December 31, 2002. The weighted rate of interest
for Federal Home Loan Bank of Atlanta advances was 4.42% and 4.77% as of March
31, 2003 and December 31, 2002, respectively. The weighted maturity for Federal
Home Loan Bank of Atlanta advances was 6.10 years and 6.51 years as of March 31,
2003 and December 31, 2002, respectively.
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to provide funds to meet the
needs of depositors and borrowers. The Company's primary goal is to meet these
needs at all times. In addition to these basic cash needs, the Company must meet
liquidity requirements created by daily operations and regulatory
13
requirements. Liquidity requirements of the Company are met primarily through
two categories of funding, core deposits and borrowings. Core deposits include
checking and savings accounts, as well as retail certificates of deposit less
than $100,000. These are considered to be a relatively stable component of the
Company's mix of liabilities since they are generally the result of stable
consumer and commercial banking relationships. At March 31, 2003 core deposits
totaled $114,385,000, or 82.7%, of the Company's total deposits, compared to
$108,739,000, or 79.0%, of the Company's total deposits as of December 31, 2002.
Greer Bancshares Incorporated, the parent holding company, has very limited
liquidity needs and requires liquidity to pay limited operating expenses and
dividends. Management believes its liquidity sources are adequate at this time.
The Company exceeded all of its capital requirements as of March 31, 2003.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises principally from interest rate
risk inherent in its lending, deposit, and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages certain other risks, such as credit quality and liquidity risk,
in the normal course of business, management considers interest rate risk to be
its most significant market risk and the risk that could potentially have the
largest material effect on the Company's financial condition and results of
operations. Other types of market risks, such as foreign currency risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
The primary objective of asset and liability management at the Company is to
manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate-sensitive earning assets and rate-sensitive
interest-bearing liabilities. The relationship of rate-sensitive earning assets
to rate-sensitive interest-bearing liabilities is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate-sensitive assets and liabilities are those that can be
re-priced to current market rates within a relatively short time period.
Management monitors the rate sensitivity of earning assets and interest-bearing
liabilities over the entire life of these instruments, but places particular
emphasis on the first year. At March 31, 2003, on a cumulative basis through 12
months, rate-sensitive assets exceeded rate-sensitive liabilities by $18.5
million. This asset-sensitive position is primarily attributable to the portion
of the Company's loan portfolio that re-prices with changes in the prime lending
rate and the increase in mortgage-backed securities, which have significant cash
flow in the next twelve months.
Item 4. CONTROLS AND PROCEDURES
A. Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the Company's President and Chief Executive Officer,
along with the Chief Financial Officer, concluded that our disclosure controls
and procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required in
our periodic SEC filings.
B. There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
14
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
The Company is involved in various claims and legal actions arising in the
normal course of business. Management believes that these proceedings will not
result in a material loss to the Company.
Item 2. Changes in Securities
- -----------------------------
None
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Item 5. Other Information
- -------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
99.1 Certification of the Chief Executive Officer and Principal Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Current Reports on Form 8-K
A report on Form 8-K was filed on March 28, 2003 to report under Item
9, Regulation FD Disclosure, certification required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 of the Company's Chief Executive Officer and
Chief Financial Officer with respect to its Annual Report on Form 10-K
to the United States Securities and Exchange Commission.
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREER BANCSHARES INCORPORATED
Dated: May 14, 2003 /s/ R. Dennis Hennett
----------------------------------------
R. Dennis Hennett
President & Chief Executive Officer
Dated: May 14, 2003 /s/ J. Richard Medlock, Jr.
----------------------------------------
J. Richard Medlock, Jr.
Sr. Vice President & Chief Financial Officer
16
CERTIFICATE PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, R. Dennis Hennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Greer Bancshares
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 14, 2003 /s/ R. Dennis Hennett
----------------------------------------
R. Dennis Hennett
President and Chief Executive Officer
17
CERTIFICATE PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, J. Richard Medlock, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Greer Bancshares
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 14, 2003 /s/ J. Richard Medlock, Jr.
----------------------------------------
J. Richard Medlock, Jr.
Sr. Vice President and Chief Financial Officer
18
EXHIBIT INDEX
Exhibit Number and Description
99.1 Certification of the Chief Executive Officer and Principal Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
19