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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 JUNE 30, 2002
COMMISSION FILE NUMBER 0-33021
GREER BANCSHARES INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-1126200
-------------- ----------
(State or Other (I.R.S. Employer
Jurisdiction of Incoporation) Identification Number)
1111 West Poinsett Street
P.O. Box 1029 (864) 877-2000
-------------- ---------------
Greer, SC 29650 (Issuer's Telephone Number)
----------------
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
--- ---
The number of outstanding shares of the issuer's $5.00 par value common stock as
of June 30, 2002 was 1,605,718.
Transitional Small Business Disclosure Format (Check one):
YES X NO
--- ---
GREER BANCSHARES INCORPORATED
Index
PART I
FINANCIAL INFORMATION
ITEM 1
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 3
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2002 and 2001 4
Consolidated Statements of Comprehensive Income for the Three and Six
Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Changes in Stockholders' Equity for the Six
Months Ended June 30, 2002 and Twelve Months ended December 31, 2001 6
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
ITEM 3
Quantitative and Qualitative Disclosures about Market Risk 10
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
Management Certification 13
2
GREER BANCSHARES INCORPORATED
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands except share data) JUNE 30, DECEMBER 31,
-------------- -----------------
ASSETS 2002 2001
------ ---- ----
Cash and due from banks $ 5,852 $ 7,421
Investment securities 56,612 49,755
Net loans 108,939 113,115
Premises and equipment, net 4,475 4,618
Real estate held for sale 819 685
Federal funds sold 1,429 150
Other assets 4,111 4,308
-------------- --------------
Total assets $ 182,237 $ 180,052
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 19,001 $ 16,857
Interest bearing 114,595 114,314
-------------- --------------
133,596 131,171
Notes payable to Federal Home Loan Bank 30,476 31,615
Other liabilities 1,202 1,340
-------------- --------------
Total liabilities 165,274 164,126
-------------- --------------
Stockholders' equity:
Common stock--par value $5 per share,
10,000,000 shares authorized, 1,605,718
and 1,557,528 shares issued and
outstanding at June 30, 2002 and
December 31, 2001, respectively 8,029 7,788
Additional paid in capital 6,340 5,345
Retained earnings 2,058 2,758
Accumulated other comprehensive income 536 35
-------------- --------------
Total stockholders' equity 16,963 15,926
-------------- --------------
Total liabilities and
stockholders' equity $ 182,237 $ 180,052
============== ==============
The accompanying notes are 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 FOR SIX MONTHS
INTEREST INCOME: 6/30/02 6/30/01 6/30/02 6/30/01
-------------------------------------------------
Loans (including fees) $1,959 $2,478 $4,053 $5,021
Investment Securities:
Taxable 407 383 835 767
Exempt from federal income tax 238 145 433 273
Federal funds sold 17 17 39 51
Other 34 33 56 65
-------------------------------------------------
Total interest income 2,655 3,056 5,416 6,177
INTEREST EXPENSE:
Interest on deposit accounts 613 1,192 1,298 2,511
Interest on other borrowings 399 395 792 808
------------------------------------------------
Total interest expense 1,012 1,587 2,090 3,319
Net interest income 1,643 1,469 3,326 2,858
Provision for loan losses 113 75 158 135
-------------------------------------------------
Net interest income after
provision for loan losses 1,530 1,394 3,168 2,723
NON-INTEREST INCOME:
Service charges for deposit
accounts 276 229 534 449
Other service charges 45 52 83 95
Gain(loss) on sale of investment
securities (10) 5 20 18
Other operating income 180 220 372 436
-------------------------------------------------
Total non-interest income 491 506 1,009 998
NON-INTEREST EXPENSES:
Salaries and employee benefits 702 635 1,418 1,288
Occupancy and equipment 223 181 442 367
Postage and supplies 58 62 115 117
Other operating expenses 399 308 763 617
-------------------------------------------------
Total non-interest expenses 1,382 1,186 2,738 2,389
Income before income taxes 639 714 1,439 1,332
PROVISION FOR INCOME TAXES: 69 207 298 382
-------------------------------------------------
Net Income $570 $507 $1,141 $950
=================================================
BASIC NET INCOME PER SHARE OF
COMMON STOCK $0.36 $0.31 $0.73 $0.59
=================================================
DILUTED NET INCOME PER SHARE
OF COMMON STOCK $0.36 $0.31 $0.72 $0.58
=================================================
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 FOR SIX MONTHS
6/30/02 6/30/01 6/30/02 6/30/01
----------------------------------------------
NET INCOME (LOSS) $570 $507 $1,141 $950
Other comprehensive
income(loss), net of tax
Unrealized Holding Gains
(Losses) on Investment
Securities 628 (37) 513 305
Less Reclassification Adjustments
for (Gains) Losses Included in
Net Income 6 (3) (12) (11)
----------------------------------------------
Subtotal 634 (40) 501 294
----------------------------------------------
COMPREHENSIVE INCOME $1,204 $467 $1,642 $1,244
==============================================
The accompanying notes are an integral part of these consolidated financial
statements.
5
GREER BANCSHARES INCORPORATED
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2002 and Twelve Months Ended December 31, 2001
(Unaudited)
Additional Accumulated Total
(dollars in thousands except share Common Paid-In Retained Other Comp. Stockholders
data) Stock Capital Earnings Income Equity
-----------------------------------------------------------------------------
Balances at 12/31/2000 $7,391 $3,660 $2,634 ($145) $13,540
Net Income 2,126 2,126
Other Comprehensive Income, Net of Tax
Unrealized Gains (Losses) on
investment portfolio 191 191
Less reclassification adjustments for
(gains) losses included in net (11) (11)
income
---------------
Comprehensive Income 2,306
Cash in lieu of fractional
shares (stock dividend) (9) (9)
Stock exercised pursuant
to stock option plan 28 61 89
Issuance of
Stock Dividend (5%) 369 1,624 (1,993)
-
-----------------------------------------------------------------------------
Balances at 12/31/2001 $7,788 $5,345 $2,758 $35 $15,926
Net Income 1,141 1,141
Other Comprehensive Income, Net of Tax
Unrealized Gains (Losses) on
investment portfolio 513 513
Less reclassification adjustments for
(gains) losses included in net (12) (12)
income
---------------
Comprehensive Income 1,642
Cash in lieu of fractional
shares (stock dividend) (9) (9)
Stock exercised pursuant
to stock option plan 47 140 187
Issuance of
Stock Dividend (2.5%) 194 855 (1,049)
-
Issuance of
Cash Dividend ($.50 per share) (783) (783)
-----------------------------------------------------------------------------
Balances at 6/30/2002 $8,029 $6,340 $2,058 $536 $16,963
=============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
6
GREER BANCSHARES INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(dollars reported in thousands) FOR SIX MONTHS
------------------------
06/30/02 06/30/01
------------------------
OPERATING ACTIVITIES
Net Income $1,141 $950
Cash provided by operating activities
Depreciation 288 226
Gain on sale of securities (20) (18)
Provision for possible loan loss 158 135
Decrease (increase) in accrued interest receivable 15 2
Decrease (increase) in other assets (131) (118)
(Decrease) increase in accrued interest payable (201) 84
(Decrease) increase in miscellaneous liabilities 63 154
-------------------------
Net cash provided by operating activities 1,313 1,415
-------------------------
INVESTING ACTIVITIES
Proceeds from the sale of securities 18,549 5,928
Purchase of securities (24,572) (11,939)
Net increase in federal funds sold (1,279) (2,190)
(Purchase) Redemption of FHLB stock 0 (64)
Net (increase) decrease in loans 3,884 (1,998)
Capital expenditures (145) (51)
------------------------
Net cash used for investing activities (3,563) (10,314)
------------------------
FINANCING ACTIVITIES
Net increase in deposits 2,425 3,079
Net proceeds (repayment) of notes payable FHLB (1,139) 8,462
Net proceeds (repayment) of federal funds purchased 0 (900)
Cash dividends and fractional shares paid (792) 0
Proceeds from issuance of stock through options 187 52
------------------------
Net cash provided by financing activities 681 10,693
------------------------
Net (decrease) increase in cash and due from
banks (1,569) 1,794
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 7,421 4,784
------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $5,852 $6,578
========================
CASH PAID FOR
Income taxes $421 $396
========================
Interest $2,291 $3,235
========================
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
In July 2001, Greer Bancshares Incorporated was formed as the bank holding
company for Greer State Bank ("the Bank"). All of the outstanding common shares
of the Bank were exchanged for common stock of the holding company. The only
current activity of the holding company is to hold its investment in the Bank.
The accompanying financial statements include the accounts of the holding
company and its subsidiary. (herein referred to as "the Company").
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with U. S. generally accepted accounting principles. However, all adjustments,
which are, in the opinion of management, necessary for the fair presentation of
the interim financial statements have been included. All such adjustments are of
a normal recurring nature. The statements of income and comprehensive income for
the 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, 2001 which are included in the
Form 10.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL - The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipates", "contemplates", "expects", and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risk associated with the effect
of opening a new branch, the ability to control costs and expenses, and general
economic conditions.
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" include Greer Bancshares Incorporated and/or the Bank as
appropriate.
RESULTS OF OPERATIONS - Greer Bancshares Incorporated (the Company) and its
wholly owned subsidiary, Greer State Bank (the Bank) reported consolidated net
income of $570,000 or $0.36 per diluted share for the quarter ended June 30,
2002, compared to $507,000 or $0.31 per diluted share for Greer State Bank for
8
the second quarter of 2001. This is an increase of 12.4%. Year-to-date net
income through June 30, 2002 was $1,141,000, or $0.72 per diluted share,
compared to $950,000, or $0.58 per diluted share, for the first six months of
2001, an increase of 20%.
The increase in Company earnings is due primarily to a significant reduction in
the Bank's cost of funds, an increase in non-interest income, and management's
ability to control overhead expenses. The cost of funds has declined by 161
basis points in the past twelve months, and non-interest income as a percentage
of total income has increased from 16.2% to 18.9% during the same period. The
Bank's efficiency ratio is almost unchanged from twelve months ago, increasing
only 16 basis points to 59.7%. The increase in the efficiency ratio was due
primarily to a major upgrade to the Bank's core processing computer system. The
rise in non-interest income is the result of increases in service charges, as
well as increases in origination fees related to the Bank's Mortgage Loan
Investor program. Most of the increase in service charges can be attributed to
the Bank's Overdraft Privilege program.
FINANCIAL CONDITION - Total assets were $182.2 million at June 30, 2002,
compared to $180 million at December 31, 2001, a year-to-date increase of 1.2%.
Loan demand was "soft" during 2001 and continued to be throughout the first half
of 2002 resulting in an opportunity to purchase additional investment
securities. The investment portfolio increased by approximately $13.8 million
(32.2%) during the past twelve months. The soft loan demand and the significant
decline in interest rates during the period allowed management to continue to
concentrate on lowering the Bank's cost of funds, and lengthening the average
maturity of the Bank's liabilities. Funding objectives have been to attract
longer term core deposits. Management has focused on lowering the Bank's cost of
funds by meeting its funding needs through wholesale funding or gathering of
deposits, whichever is most cost effective at the time funding is needed. When
the economy begins to "heat up" and rates begin to rise, management will be
challenged to effectively manage the growth of the Bank, while maintaining an
acceptable net interest margin.
As of June 30, 2002, total loans outstanding declined by $3.9 million for the
period, due primarily to mortgage loan refinancing and small business owners'
concerns about the economy. Non-performing loans totaled .68% of total loans,
compared with .30% at December 31, 2001. Adjustable rate loans totaled 48.6% of
the Bank's loan portfolio, compared with 43.9% at the end of 2001. The growth in
adjustable rate loans will benefit Company earnings when interest rates begin to
rise due to the Bank being positioned to benefit from rising interest rates.
The Bank continues to promote deposit growth by offering competitive interest
rates on certificates of deposit, as well as promoting its new products, such as
a 90-day money market time deposit that was introduced this year. The "Better
than Free" checking account with Automated Overdraft Privilege continues to
attract additional interest-free deposits for the Bank.
The Bank began providing Internet banking services in early 2001 and has almost
1,000 customers enrolled to transact business via the web. The Bank's web site
offers customers the ability to transact business functions such as transferring
funds from one account to another, making loan payments, viewing account
balances, viewing account transaction history, paying bills on-line and
exporting account information into personal financial software.
The Bank has invested significantly in facilities, people, and technology over
the past few years, and is well positioned to provide exceptional service to its
customers for many years.
PROVISION FOR LOAN LOSSES - The amount charged to the provision for loan losses
by the Company is based on management's judgment as to the amount required to
maintain an allowance adequate to provide for losses inherent in the Company's
loan portfolio.
9
The provision for loan losses charged to operations during the three months
ended June 30, 2002 was $113,000, compared to $75,000 for the three months ended
June 30, 2001. Provision for loan losses charged to operations year-to-date
through June 30, 2002 was $158,000, compared to $135,000 year-to-date through
June 30, 2001, an increase of 17%. The increase in the Company's provision for
loan losses for both the second quarter and year-to-date 2002 is attributable to
the diminishment of the credit quality of two commercial borrowers. Management
of the Company is in various stages of workout or liquidation of these
non-performing assets.
LIQUIDITY AND CAPITAL RESOURCES - The Company's primary sources of funds are new
deposits, proceeds from principal and interest payments on loans, repayments on
mortgage-backed securities and Federal Home Loan Bank advances. While maturities
and scheduled amortization of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Company's primary investing activity is
loan originations. The Company maintains liquidity levels adequate to fund loan
commitments, investment opportunities, deposit withdrawals and other financial
commitments.
At June 30, 2002, management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. Furthermore,
at June 30, 2002, management was not aware of any current recommendations by the
regulatory authorities that, if implemented, would have a material effect.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises principally from interest rate
risk inherent in its lending, deposit, and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages certain other risks, such as credit quality and liquidity risk,
in the normal course of business, management considers interest rate risk to be
its most significant market risk and the risk that could potentially have the
largest material effect on the Company's financial condition and results of
operations. Other types of market risks, such as foreign currency risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
The primary objective of Asset and Liability Management at the Company is to
manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate-sensitive earning assets and rate-sensitive
interest-bearing liabilities. The relationship of rate-sensitive earning assets
to rate-sensitive interest-bearing liabilities is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate-sensitive assets and liabilities are those that can be
repriced to current market rates within a relatively short time period.
Management monitors the rate sensitivity of earning assets and interest-bearing
liabilities over the entire life of these instruments, but places particular
emphasis on the first year. At June 30, 2002, on a cumulative basis through 12
months, rate-sensitive assets exceeded rate-sensitive liabilities by $3.5
million. This asset-sensitive position is primarily attributable to the portion
of the Company's loan portfolio that reprices with changes in the prime lending
rate and the increase in mortgage-backed securities which have significant cash
flow in the next twelve months.
10
PART II-OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
- ------------------------
The Company is involved in various claims and legal actions arising in the
normal course of business. Management believes that these proceedings will not
result in a material loss to the Company.
ITEM 2 CHANGES IN SECURITIES
- ----------------------------
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ----------------------------------------------------------
The Annual Meeting of Stockholders of Greer Bancshares Incorporated was held on
April 25, 2002. Two items were presented to stockholders for consideration. The
first item of business was to set the Board of Directors at ten persons and
elect three directors to hold office until the 2005 Annual Meeting of
Stockholders, and elect one director to hold office until the 2003 Annual
Meeting of Stockholders. The following chart details the number of votes cast
for and withheld for each nominee:
NOMINEE FOR WITHHELD % OF VOTES CAST
- ----------- --- -------- ---------------
Gary M. Griffin 1,234,554 1,814 99.85%
R. Dennis Hennett 1,234,554 1,814 99.85%
David M. Rogers 1,233,832 2,536 99.79%
Mark S. Ashmore 1,193,264 43,104 96.51%
The second item of business presented to stockholders was to consider and vote
upon the ratification of the appointment of Crisp Hughes Evans LLP as
independent auditors for the Company for the current fiscal year. The following
chart details the number of votes for, against and abstentions cast for Crisp
Hughes Evans LLP:
FOR AGAINST ABSTAIN % OF VOTES CAST
--- ------- ------- ---------------
1,226,866 1,204 8,298 99.23%
ITEM 5 OTHER INFORMATION
- ------------------------
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------
(a) Exhibits
3.1 Articles of Incorporation of Greer Bancshares Incorporated filed
on May 5, 2001 in the office of the Secretary of State of South
Carolina (see footnote 1)
3.2 By-Laws of Greer Bancshares Incorporated (see footnote 1)
(b) Current Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2002.
- --------------------------
1 Incoporated by reference to the Registration Statement on Form 10 under
Commission file number 0-33021.
11
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
------------------------------
Date: August 13, 2002 /s/ R. Dennis Hennett
---------------------------------------------
R. Dennis Hennett
President & Chief Executive Officer
Date: August 13, 2002 /s/ J. Richard Medlock, Jr.
---------------------------------------------
J. Richard Medlock, Jr.
Senior Vice President & Chief Financial Officer
12
Certificate Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
The undersigned Chief Executive Officer and Chief Financial Officer of
Greer Bancshares Incorporated (the "Company"), hereby certify that to the
best of their knowledge:
1. The Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2002 of the Company (the "Report") fully complies with the requirements of
section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934 (15 U.S.C. 78m or 78o(d)); and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
at the dates and for the periods indicated.
The foregoing certification is made solely for the purpose of complying
with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. SS. 1350) and may not be relied upon by anyone for any other
purpose. The undersigned expressly disclaim any undertaking to update such
certifications except as required by law.
Date: August 13, 2002.
GREER BANCSHARES INCORPORATED
------------------------------
/s/ R. Dennis Hennett
---------------------------------------------
R. Dennis Hennett
President & Chief Executive Officer
/s/ J. Richard Medlock, Jr.
---------------------------------------------
J. Richard Medlock, Jr.
Senior Vice President & Chief Financial Officer
13