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 SEPTEMBER 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 Jurisdiction (I.R.S. Employer
of Incorporation) 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 September 30, 2002 was 1,605,818.
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 September 30, 2002 and December 31, 2001 3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and 2001 4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30,
2002 and 2001 5
Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended September 30,
2002 and Twelve Months ended December 31, 2001 6
Consolidated Statements of Cash Flows for the Nine Months Ended September 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 13
ITEM 4
Controls and Procedures 13
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16 - 18
2
GREER BANCSHARES INCORPORATED
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands except share data) SEPTEMBER 30, DECEMBER 31,
------------------- -----------------
ASSETS 2002 2001
------ ---- ----
Cash and due from banks $ 7,559 $ 7,421
Investment securities 63,963 49,755
Net loans 107,969 113,115
Premises and equipment, net 4,351 4,618
Real estate held for sale 637 685
Federal funds sold 1,455 150
Other assets 4,274 4,308
-------------- --------------
Total assets $ 190,208 $ 180,052
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 18,655 $ 16,857
Interest bearing 115,532 114,314
-------------- --------------
134,187 131,171
Notes payable to Federal Home Loan Bank 35,956 31,615
Other liabilities 1,858 1,340
-------------- --------------
Total liabilities 172,001 164,126
-------------- --------------
Stockholders' equity:
Common stock--par value $5 per share, 10,000,000 shares authorized, 1,605,818
and 1,557,528 shares issued and outstanding at September 30,
2002 and December 31, 2001, respectively 8,029 7,788
Additional paid in capital 6,341 5,345
Retained earnings 2,659 2,758
Accumulated other comprehensive income 1,178 35
-------------- --------------
Total stockholders' equity 18,207 15,926
-------------- --------------
Total liabilities and stockholders' equity $ 190,208 $ 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 NINE MONTHS
INTEREST INCOME: 9/30/02 9/30/01 9/30/02 9/30/01
----------------------------------------------------
Loans (including fees) $1,993 $2,384 $6,046 $7,405
Investment Securities:
Taxable 444 420 1,279 1,187
Exempt from federal income tax 267 155 700 428
Federal funds sold 6 21 45 72
Other 26 36 82 101
----------------------------------------------------
Total interest income 2,736 3,016 8,152 9,193
INTEREST EXPENSE:
Interest on deposit accounts 601 1,055 1,899 3,566
Interest on other borrowings 412 418 1,204 1,226
----------------------------------------------------
Total interest expense 1,013 1,473 3,103 4,792
Net interest income 1,723 1,543 5,049 4,401
Provision for loan losses 75 75 233 210
----------------------------------------------------
Net interest income after provision for loan losses 1,648 1,468 4,816 4,191
NON-INTEREST INCOME:
Service charges for deposit accounts 277 239 811 688
Other service charges 60 54 143 149
Gain(loss) on sale of investment securities 19 (2) 39 16
Other operating income 172 223 544 659
----------------------------------------------------
Total non-interest income 528 514 1,537 1,512
NON-INTEREST EXPENSES:
Salaries and employee benefits 693 609 2,111 1,897
Occupancy and equipment 223 188 665 555
Postage and supplies 58 50 173 167
Other operating expenses 364 342 1,127 959
----------------------------------------------------
Total non-interest expenses 1,338 1,189 4,076 3,578
Income before income taxes 838 793 2,277 2,125
PROVISION FOR INCOME TAXES 237 238 535 620
----------------------------------------------------
Net Income $601 $555 $1,742 $1,505
====================================================
BASIC NET INCOME PER SHARE OF COMMON STOCK $0.38 $0.36 $1.10 $0.98
====================================================
DILUTED NET INCOME PER SHARE OF COMMON STOCK $0.37 $0.35 $1.09 $0.97
====================================================
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 NINE MONTHS
9/30/02 9/30/01 9/30/02 9/30/01
---------------------------------------------------------
NET INCOME $601 $555 $1,742 $1,505
Other comprehensive
income(loss), net of tax
Unrealized Holding Gains (Losses) on
Investment Securities 654 438 1,167 743
Less Reclassification Adjustments for
(Gains) Losses Included in Net Income (12) 1 (24) (10)
---------------------------------------------------------
Subtotal 642 439 1,143 733
---------------------------------------------------------
COMPREHENSIVE INCOME $1,243 $994 $2,885 $2,238
=========================================================
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 Nine Months Ended September 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 income (11) (11)
---------------
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 $15,926
Net Income 1,742 1,742
Other Comprehensive Income, Net of Tax
Unrealized Gains (Losses) on
investment portfolio 1,167 1,167
Less reclassification adjustments for
(gains) losses included in net (24) (24)
income
---------------
Comprehensive Income 2,885
Cash in lieu of fractional
shares (stock dividend) (9) (9)
Stock exercised pursuant
to stock option plan 47 141 188
Issuance of
Stock Dividend (2.5%) 194 855 (1,049) -
Issuance of
Cash Dividend ($.50 per share) (783) (783)
-----------------------------------------------------------------------------
Balances at 9/30/2002 $8,029 $6,341 $2,659 $1,178 $18,207
=============================================================================
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 NINE MONTHS
-----------------------------
09/30/02 09/30/01
-----------------------------
OPERATING ACTIVITIES
Net Income $1,742 $1,505
Cash provided by operating activities
Depreciation 434 340
Gain on sale of securities (39) (16)
Provision for possible loan loss 233 210
Decrease (increase) in accrued interest receivable 22 64
Decrease (increase) in other assets 25 265
(Decrease) increase in accrued interest payable (146) (146)
(Decrease) increase in miscellaneous liabilities (64) 272
-----------------------------
Net cash provided by operating activities 2,207 2,494
-----------------------------
INVESTING ACTIVITIES
Proceeds from the sale of securities 22,496 9,682
Purchase of securities (34,597) (16,790)
Net increase in federal funds sold (1,305) (3,394)
(Purchase) Redemption of FHLB stock (210) (64)
Net (increase) decrease in loans 4,961 (1,544)
Capital expenditures (167) (548)
-----------------------------
Net cash used for investing activities (8,822) (12,658)
-----------------------------
FINANCING ACTIVITIES
Net increase in deposits 3,016 1,190
Net proceeds (repayment) of notes payable FHLB 4,341 8,444
Net proceeds (repayment) of federal funds purchased 0 (900)
Cash dividends and fractional shares paid (792) (9)
Proceeds from issuance of stock through options 188 85
-----------------------------
Net cash provided by financing activities 6,753 8,810
-----------------------------
Net (decrease) increase in cash and due from banks 138 (1,354)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 7,421 4,784
-----------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $7,559 $3,430
=============================
CASH PAID FOR
Income taxes $747 $693
=============================
Interest $3,249 $4,886
=============================
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.
8
RESULTS OF OPERATIONS
OVERVIEW
The Company reported consolidated net income of $601,000 or $0.37 per diluted
share for the quarter ended September 30, 2002 compared to $555,000 or $0.35 per
diluted share for the quarter ended September 30, 2001, an increase of 8.3%.
Year-to-date net income through September 30, 2002 was $1,742,000 or $1.09 per
diluted share compared to $1,505,000 or $0.97 per diluted share, for the first
nine months of 2001, an increase of 15.7%.
INTEREST INCOME, INTEREST EXPENSE AND NET INTEREST INCOME
The largest contributor to the Company's net income is net interest income. 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 increased $180,000 or 11.7% to $1,723,000 for the quarter ended
September 30, 2002 compared to $1,543,000 for the quarter ended September 30,
2001. For the nine months ended September 30, 2002, net interest income before
provision for loan losses increased $648,000 or 14.7% to $5,049,000 compared to
$4,401,000 for the nine months ended September 30, 2001. The Company's net
interest margin for the three and nine months ending September 30, 2002 was
4.26% and 4.27%, respectively, compared to 3.87% and 3.89%, respectively, for
the three and nine months ended September 30, 2001. The increase in net interest
income and in the net interest margin was a result of the Company's cost of
funds declining faster than the Company's yield on average earning assets and
the net increase of $14.2 million in investment securities to the Company's
investment portfolio through September 30, 2002.
The Company's total interest income for the quarter ended September 30, 2002 was
$2,736,000 compared to $3,016,000 for the quarter ended September 30, 2001, a
decrease of $280,000 or 9.3%. Total interest income for the nine months ended
September 30, 2002 was $8,152,000 compared to $9,193,000 for the nine months
ended September 30, 2001, a decrease of $1,041,000 or 11.3%. Interest and fees
on loans is the largest component of total interest income and decreased
$391,000 or 16.4% to $1,993,000 for the quarter ended September 30, 2002
compared to $2,384,000 for the quarter ended September 30, 2001. For the nine
months ended September 30, 2002, interest and fees on loans decreased $1,359,000
to $6,046,000 or 18.4% compared to $7,405,000 for the nine months ended
September 30, 2001. The decrease in interest and fees on loans is the direct
result of the lower market interest rates that were experienced at the Company
during the first nine months of 2002 when compared to the first nine months of
2001. The average yield on the Company's loan portfolio for the three and nine
months ended September 30, 2002 was 6.83% and 6.80%, respectively, compared to
7.77% and 7.64%, respectively, for the three and nine months ended September 30,
2001.
The Company's total interest expense for the third quarter ended September 30,
2002 was $1,013,000 compared to $1,473,000 for the third quarter ended September
30, 2001, a decrease of $460,000 or 31.2%. Total interest expense for the nine
months ended September 30, 2002 was $3,103,000 compared to $4,792,000 for the
nine months ended September 30, 2001, a decrease of $1,689,000 or 35.2%. The
largest component of the Company's total interest expense category is interest
expense on deposits. For the third quarter ended September 30, 2002, interest
expense on deposits was $601,000 compared to $1,055,000 for the quarter ended
September 30, 2001, a decrease of $454,000 or 43.0%. For the nine months ended
September 30, 2002, interest expense on deposits was $1,899,000 compared to
$3,566,000 for the nine months ended September 30, 2001, a decrease of
$1,667,000 or 46.7%. Interest expense on other borrowings is composed primarily
of borrowings from the Federal Home Loan Bank of Atlanta and federal funds
purchased. For the quarter ended September 30, 2002, interest expense on other
borrowings was $412,000 compared to $418,000 for the quarter ended September 30,
2001, a difference of $6,000 or 1.4%. For the nine months ended September 30,
2002, interest expense on other borrowings was $1,204,000 compared to $1,226,000
for the nine months ended September 30, 2001, a difference of $22,000 or 1.8%.
9
The significant decrease in interest expense on deposits is attributable to
lower market interest rates paid on deposits at the Company. The cost of funds
on interest-bearing deposits was 2.80% for the nine months ended September 30,
2002 compared to 3.96% for September 31, 2001. The small decrease in interest
expense on other borrowings is a direct result of additional interest expense
generated by increased borrowings from the Federal Home Loan Bank of Atlanta at
lower market rates.
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.
The provision for loan losses charged to operations during the three and nine
months ended September 30, 2002 was $75,000 and $233,000, respectively, compared
to $75,000 and $210,000, respectively, for the three and nine months ended
September 30, 2001. This represents an increase of $23,000 or 11.0% for the nine
months ended September 30, 2002. The increase in the Company's provision for
loan losses through September 30, 2002 is attributable to the diminishment of
the credit quality of one commercial borrower of the Company and the current
economic conditions.
NON-INTEREST INCOME
Non-interest income increased $14,000 or 2.7% to $528,000 for the quarter ended
September 30, 2002 compared to $514,000 for the quarter ended September 30,
2001. For the nine months ended September 30, 2002, non-interest income
increased $25,000 or 1.7% to $1,537,000 compared to $1,512,000 for the nine
months ended September 30, 2001. Service charges for deposit accounts is the
largest component of non-interest income and increased $123,000 to $811,000 or
17.9% for the nine months ended September 30, 2002 compared to $688,000 for the
nine months ended September 30, 2001. This increase is attributable to an
overdraft privilege product implemented by the Company in August 2000. Gains on
sale of securities were $39,000 for the nine months ended September 30, 2002
compared to $16,000 for the nine months ended September 30, 2001.
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended September 30, 2002
increased $149,000 or 12.5% to $1,338,000 compared to $1,189,000 for the three
months ended September 30, 2001. Total non-interest expense for the nine months
ended September 30, 2002 increased $498,000 or 13.9% to $4,076,000 compared to
$3,578,000 for the nine months ended September 30, 2001. The largest component
of non-interest expense, salaries and employee benefits, increased $84,000 or
13.8% to $693,000 for the three months ended September 30, 2002 compared to
$609,000 for the three months ended September 30, 2001. For the nine months
ended September 30, 2002, salaries and employee benefits increased $214,000 or
11.3% to $2,111,000 compared to $1,897,000 for the nine months ended September
30, 2001. 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 61.4% of
total earning assets as of September 30, 2002. Gross loans totaled $108,868,000
as of September 30, 2002, a decrease of $5,495,000 or 4.8% compared to
$114,363,000 as of December 31, 2001. The decrease is a direct result of the
Company's mortgage loan refinances being directed to an outside investor
mortgage program and small business owners' reduction in borrowing due to
concerns about the economy.
10
Non-performing loans totaled 0.66% of total loans, compared with 0.30% at
December 31, 2001. Adjustable rate loans totaled 51.6% of the loan portfolio as
of September 30, 2002 compared to 43.9% as of December 31, 2001. The 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.
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
majority 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
The allowance for loan losses at September 30, 2002 was $899,000 or 0.83% of
gross loans outstanding compared to $1,245,000 or 1.09% of gross loans
outstanding at December 31, 2001. 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.
At September 30, 2002 the Company had $720,000 in non-accruing loans, no
restructured loans, $31,000 in loans more than ninety days past due and still
accruing interest and $321,000 in Other Real Estate Owned. This compares to
$346,000 in non-accruing loans, no restructured loans, $612 in loans more than
ninety days past due and still accruing interest and $369,000 in Other Real
Estate Owned at December 31, 2001. Non-performing loans consisted of $573,000 in
mortgage loans, $132,000 in commercial loans and $15,000 in consumer loans at
September 30, 2002. Non-performing assets as a percentage of loans and other
real estate owned were 0.66% and 0.30% at September 30, 2002 and December 31,
2001, respectively.
Net charge-offs for the first nine months of 2002 were $578,000 compared to
$59,000 at December 31, 2001. As a percentage of non-performing loans, the
allowance for loan losses was 125% and 360% as of September 30, 2002 and
December 31, 2001, respectively. The increase in charge-offs is attributable to
the diminishment of the credit quality of one commercial borrower.
11
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 September 30, 2002
investment securities totaled $63,963,000 or 36.4% of total earning assets.
Investment securities increased $14,208,000 or 28.6% compared to $49,755,000 as
of December 31, 2001. 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 September 30, 2002 the Company's investment securities classified as
Available For Sale had an amortized cost of $54,941,000 and a market value of
$56,857,000 for an unrealized gain of $1,916,000. Investment securities
classified as Held To Maturity had an amortized cost of $7,106,000. This
compares to an amortized cost of $49,697,000 and a market value of $49,755,000
for an unrealized gain of $58,000 as of December 31, 2001 for those investment
securities classified as Available For Sale. The Company did not hold any
investment securities classified as Held To Maturity as of December 31, 2001.
CASH AND DUE FROM BANKS
The Company's cash and due from banks increased $138,000 or 1.9% to $7,559,000
at September 30, 2002 compared to $7,421,000 at December 31, 2001. This increase
is the result of increased deposits and soft loan demand.
DEPOSITS
The Company receives its primary source of funding for loans and investments
from its deposits. Total deposits increased $3,016,000 or 2.3% to $134,187,000
as of September 30, 2002 compared to $131,171,000 as of December 31, 2001.
Management believes that the primary reason for the increase was due to
increased concerns by depositors in the poor performance and volatility of the
stock market and the economy. As a result, depositors have shifted money into a
more stable environment with less risk.
As a means of attracting additional deposits, the Company during the first part
of 2002 entered into a program designed to gather deposits via the Internet.
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 September 30, 2002, those deposits generated via the Internet totaled
$889,000. The Company did not have any brokered deposits as of September 30,
2002 and December 31, 2001.
At September 30, 2002 interest-bearing deposits comprised 86.1% of total
deposits compared to 87.1% as of December 31, 2001. The Company takes into
consideration liquidity needs, direction and level of interest rates and market
conditions when pricing deposits.
BORROWINGS
The Company's borrowings are comprised of federal funds purchased and both
short-term and long-term advances from the Federal Home Loan Bank of Atlanta. At
September 30, 2002 and December 31, 2001 the Company did not have any federal
funds purchased. Notes payable to the Federal Home Loan Bank of Atlanta
increased $4,341,000 or 13.7% to $35,956,000 as of September 30, 2002 compared
to $31,615,000 as of December 31, 2001. The weighted rate of interest for
Federal Home Loan Bank of Atlanta advances was 4.74% and 5.05% as of September
30, 2002 and December 31, 2001, respectively. The weighted maturity for Federal
Home Loan Bank of Atlanta advances was 6.57 years and 7.05 years as of September
30, 2002 and December 31, 2001, respectively.
12
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 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 September 30, 2002 core deposits totaled
$107,974,000 or 80.5% of the Company's total deposits, compared to $99,200,000
or 75.6% of the Company's total deposits as of December 31, 2001.
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
and does not know of any trends that may result in the Company's liquidity
increasing or decreasing materially. The Company exceeded all of its capital
requirements as of September 30, 2002.
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 September 30, 2002, on a cumulative basis through
12 months, rate-sensitive assets exceeded rate-sensitive liabilities by $12.1
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
13
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.
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
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(1)
3.2 By-Laws of Greer Bancshares Incorporated (1)
(b) Current Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 2002.
(1) Incorporated by reference to the Registration Statement on Form 10 under
Commission file number 0-33021.
14
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: November 12, 2002 /s/ R. Dennis Hennett
---------------------------------
R. Dennis Hennett
President & Chief Executive Officer
Dated: November 12, 2002 /s/ J. Richard Medlock, Jr.
---------------------------------
J. Richard Medlock, Jr.
Sr. Vice President & Chief Financial Officer
15
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 September
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.
Dated: November 12, 2002
GREER BANCSHARES INCORPORATED
-----------------------------
/s/ R. Dennis Hennett /s/ J. Richard Medlock, Jr.
- ------------------------------ -------------------------
R. Dennis Hennett J. Richard Medlock, Jr.
President & Chief Executive Officer 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: November 12, 2002 /s/ R. Dennis Hennett
-----------------------------------------
R. Dennis Hennett
President and Chief Executive Officer
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: November 12, 2002 /s/ J. Richard Medlock, Jr.
-------------------------------------
J. Richard Medlock, Jr.
Sr. Vice President and
Chief Financial Officer