UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to _________
Commission file number 333-83851
Greenville First Bancshares, Inc.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 58-2459561
(State of Incorporation) (I.R.S. Employer Identification No.)
112 Haywood Road
Greenville, S.C. 29607
--------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
864-679-9000
--------------------------------------
(Telephone Number)
Not Applicable
--------------------------------
(Former name, former address
and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
1,150,000 shares of common stock, $.01 par value per share, issued and
outstanding as of April 29, 2002
Transitional Small Business Disclosure Format (check one): YES NO X
--
GREENVILLE FIRST BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of Greenville First Bancshares,
Inc. and Subsidiary are set forth in the following pages.
2
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
------------------------------------
2002 2001
---------------- -----------------
(Unaudited) (Audited)
Assets
Cash and due from banks $ 1,896,260 $ 2,882,115
Federal funds sold 6,461,342 100,841
Investment securities available for sale 14,480,538 17,913,460
Other investments, at cost 555,000 555,000
Loans, net 108,360,600 95,339,621
Accrued interest 534,225 840,448
Property and equipment 863,518 890,761
Real estate owned 362,987 -
Other assets 237,143 42,764
----------------- ---------------
Total assets $133,751,613 $ 118,565,010
================= ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits $119,066,042 $ 92,700,010
Official checks outstanding 1,602,420 891,129
Federal funds purchased and repurchase agreements - 8,482,600
Federal Home Loan Bank advances 3,000,000 6,000,000
Accrued interest payable 488,875 748,091
Accounts payable 4,944 6,058
Accrued expenses 168,992 277,703
----------------- ----------------
Total liabilities 124,331,273 109,105,591
----------------- ----------------
Commitments and contingencies
Shareholders' equity
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, no shares issued
- -
Common stock, par value $.01 per share, 10,000,000 shares
authorized, 1,150,000 issued 11,500 11,500
Additional paid-in capital 10,635,200 10,635,200
Accumulated other comprehensive income 45,887 127,779
Retained deficit (1,272,247) (1,315,060)
----------------- ---------------
Total shareholders' equity 9,420,340 9,459,419
----------------- ---------------
Total liabilities and shareholders' equity $ 133,751,613 $ 118,565,010
================= ===============
See notes to consolidated financial statements that are an integral part of
these consolidated statements.
3
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months ended
March 31,
--------------------------------------
2002 2001
------------------ ------------------
Interest income
Loans $ 1,586,655 $ 1,130,976
Investment securities 181,153 219,374
Federal funds sold 22,550 62,185
------------------ -----------------
Total interest income 1,790,358 1,412,535
Interest expense
Deposits 769,597 800,497
Borrowings 76,583 -
------------------ -----------------
Total interest expense 846,180 800,497
------------------ -----------------
Net interest income before provision for loan losses 944,178 612,038
Provision for loan losses 200,000 122,000
------------------ -----------------
Net interest income after provision for loan losses 744,178 490,038
------------------ -----------------
Noninterest income
Loan fee income 27,233 14,702
Service fees on deposit accounts 35,613 22,207
Other income 40,104 7,944
------------------ -----------------
Total noninterest income 102,950 44,853
------------------ -----------------
Noninterest expenses
Salaries and benefits 431,523 326,734
Professional fees 40,059 34,067
Marketing 24,398 21,804
Insurance 21,243 12,766
Occupancy 146,025 125,194
Other outside services 93,899 44,239
Telephone 5,176 5,462
Other 41,992 42,861
------------------ -----------------
Total noninterest expenses 804,315 613,127
------------------ -----------------
Loss before income taxes benefit 42,813 (78,236)
Income tax benefit - -
------------------ -----------------
Net income (loss) $ 42,813 $ (78,236)
================== =================
Basic and diluted income (loss) per common share $ .04 $ (0.07)
================== =================
Weighted average common shares outstanding, basic and diluted 1,150,000 1,150,000
================== =================
See notes to consolidated financial statements that are an integral part of
these consolidated statements.
4
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Accumu-
lated
other Total
Additional compre- share-
Common stock paid-in hensive Retained holders'
Shares Amount capital income deficit equity
----------- -------------- -------------- --------------- --------------- -------------
December 31, 2000 1,150,000 $ 11,500 $10,635,200 $ 24,162 $ (1,195,882) $ 9,474,980
Net loss - - - - (78,236) (78,236)
Comprehensive loss,
net of tax
Unrealized holding gain
on securities available
for sale - - - 66,439 - 66,439
-------------
Comprehensive loss - - - - - (11,797)
----------- -------------- -------------- --------------- --------------- -------------
March 31, 2001 1,150,000 $ 11,500 $ 10,635,200 $ 90,601 $ (1,274,118) $ 9,463,183
=========== ============== ============== =============== =============== =============
December 31, 2001 1,150,000 $ 11,500 $ 10,635,200 $ 127,779 $ (1,315,060) $ 9,459,419
Net income - - - - 42,813 42,813
Comprehensive loss, net of
tax
Change in unrealized
holding gain on
securities
available for sale - - - (81,892) - (81,892)
------------
Comprehensive loss - - - - -
(39,079)
----------- -------------- -------------- --------------- --------------- ------------
March 31, 2002 1,150,000 $ 11,500 $10,635,200 $ 45,887 $ (1,272,247) $ 9,420,340
=========== ============== ============== =============== =============== ============
See notes to consolidated financial statements that are an integral part of
these consolidated statements.
5
GREENVILLE FIRST BANCSHARES, INC.AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31,
---------------------------------------
2002 2001
----------------- --------------------
Operating activities
Net income (loss) $ 42,813 $ (78,236)
Adjustments to reconcile net income (loss) to cash
provided by (unused for) operating activities:
Provision for loan losses 200,000 122,000
Depreciation and other amortization 50,169 48,268
Accretion and amortization of securities
discounts and premium, net 11,637 (21,495)
Decrease (increase) in other assets, net 110,682 (61,953)
Increase (decrease) in other liabilities, net 384,436 (642,535)
----------------- -----------------
Net cash provided by (used for) operating activities 799,737 (633,951)
258,714 1,549,902
----------------- -----------------
Investing activities
Increase (decrease) in cash realized from:
Origination of loans, net (13,582,804) (6,815,618)
Purchase of property and equipment (22,926) (424,210)
Purchase of securities available for sale (6,000,000) (8,109,200)
Payments and maturity of securities
available for sale 9,297,207 3,838,143
----------------- -----------------
Net cash used for investing activities
(10,308,523) (11,510,885)
----------------- -----------------
Financing activities
Increase in deposits, net 26,366,032 16,204,783
Decrease in short-term borrowings (8,482,600) -
Decrease in Federal Home Loan Bank advances (3,000,000) -
----------------- -----------------
Net cash provided by financing activities 14,883,432 16,204,783
----------------- -----------------
Net increase in cash and cash equivalents 5,374,646 4,059,947
Cash and cash equivalents at beginning of the year 2,982,956 4,851,372
----------------- -----------------
Cash and cash equivalents at end of the year $ 8,357,602 $ 8,911,319
================= =================
Supplemental information
Cash paid for
Interest $ 1,105,396 $ 733,461
================= =================
Income taxes - -
================= =================
Supplemental schedule of non-cash transaction
Foreclosure of real estate $ 362,987 -
================= =================
Unrealized gain on securities, net of income taxes $ (81,892) $ 66,439
================= =================
See notes to consolidated financial statements that are an integral part of
these consolidated statements
6
GREENVILLE FIRST BANCSHARES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Business and Basis of Presentation
Business activity and organization
Greenville First Bancshares, Inc. (the "company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of Greenville First Bank, N.A (the "bank"). The bank is a national
bank organized under the laws of the United States located in Greenville County,
South Carolina. The bank began operations on January 10, 2000.
Until January 10, 2000, the company engaged in organizational and
pre-opening activities necessary to obtain regulatory approvals and to prepare
its subsidiary, the bank, to commence business as a financial institution. The
bank is primarily engaged in the business of accepting demand deposits and
savings deposits insured by the Federal Deposit Insurance Corporation, and
providing commercial, consumer and mortgage loans to the general public.
Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the company's Form 10-KSB (Registration Number 333-83851) as
filed with and declared effective by the Securities and Exchange Commission.
Cash and Cash Equivalents
For purposes of the Consolidated statement of Cash Flows, cash and
federal funds sold are included in "cash and cash equivalents". These assets
have contractual maturities of less than three months.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
DISCUSSION OF FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations and other portions of this annual report contain certain
"forward-looking statements" concerning our future operations. We desires to
take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and is including this statement for the express
purpose of availing ourselves of protections of such safe harbor with respect to
all "forward-looking statements." We have used "forward-looking statements" to
describe future plans and strategies including our expectations of our future
financial results. Our ability to predict results or the effect of future plans
or strategies is inherently uncertain. Factors which could affect actual results
include, but are not limited to: changes in interest rates and their effect on
the level and composition of deposits, loan demand, and the values of loan
collateral, securitites, and other interest-sensitive asssets and liabilities;
the general economic climate in our market area, the State of South Carolina and
the country as a whole; governmental monetary and fiscal policies; our ability
to control costs and expenses; and our ability to offer competitive products and
pricing, manage loan delinquency rates, and react to changes in federal and
state regulation. These factors should be considered in evaluating the
"forward-looking statements," and undue reliance should not be placed on such
statements.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies that govern the application
of accounting principles generally accepted in the United States in the
preparation of our financial statements. Our significant accounting policies are
described in the footnotes to the consolidated financial statements at December
31, 2001 as filed on our annual report on Form 10-KSB.
Certain accounting policies involve significant judgments and
assumptions by us that have a material impact on the carry value of certain
assets and liabilities. We consider these accounting policies to be critical
accounting policies. The judgment and assumptions we use are based on historical
experience and other factors, which we believe to be reasonable under the
circumstances. Because of the nature of the judgment and assumptions we make,
actual results could differ from these judgments and estimates that could have a
material impact on our carrying values of assets and liabilities and our results
of operations.
We believe the allowance for loan losses is a critical accounting
policy that requires the most significant judgment and estimates used in
preparation of our consolidated financial statements. Refer to the portion of
this discussion that addresses our allowance for loan losses for a description
of our processes and methodology for determining our allowance for loan losses.
8
GENERAL
The following is a discussion of our financial condition as of March
31, 2002 and the results of operations for the three months ended March 31,
2002. These comments should be read in conjunction with our consolidated
financial statements and accompanying consolidated footnotes appearing in
this report. The significant accounting policies are described throughout the
Management's discussion section of this document
NATIONAL AND ECONOMIC EVENTS
Nationally, during most of 2001 and the first three months of 2002, the
United States experienced a slowing economy following a tenth year of expansion.
During this period, the economy was also affected by lower returns and
expectations of the stock markets. Economic data led the Federal Reserve to
begin an aggressive program of rate cutting, which moved the Federal Funds rate
down 11 times during 2001 for a total reduction of 475 basis points, bringing
the Federal Funds rate to its lowest level in 40 years. During the first quarter
of 2002, the Federal reserve did not adjust the Federal Funds rate.
Despite sharply lower short-term rates, stimulus to the economy has
been muted because the yield curve has steepened and consumer demand and
business investment activity has been weak. The financial markets are operating
now under very low historical interest rates. Under these unusual conditions,
many observers expect Congress to pass an economic stimulus plan. The Federal
Reserve has taken a neutral position related to future interest rate changes.
Most economists believe the Federal Reserve will began increasing interest rate
in the second half of the 2002 year. No assurance can be given that the Federal
Reserve will take such action. We continue to believe that the markets we serve
generally perform better than national markets, even in times of recession.
We believes that the economic impact of the terrorist attacks of
September 11, 2001 did not materially affect our operations. It is evident from
recent economic data that the U.S. economy was affected significantly by these
events. The extent and duration of the economic impact from the attacks are not
predictable but could affect consumer confidence and the financial activities of
retail and business customers. Prior to these events, many economists were
predicting that the U.S. had been in a recession. Official economic data
released in November 2001 confirms that the U.S. has been in a recession for
several months and it is likely that recovery will not occur until sometime
later in 2002 or beyond.
INCOME STATEMENT REVIEW
Net Interest Income
Net interest income, the largest component of our income, was $944,178
for the three months ended March 31, 2002 compared to $612,038 for the same
period in 2001, or an increase of 54.3%. The level of net interest income is
determined by balances of earning assets and successfully managing the net
interest margin. Changes in interest rates paid on assets and liabilities, the
rate of growth of the asset and liability base, the ratio of interest-earning
assets to interest-bearing liabilities, and management of the balance sheet's
interest rate sensitivity all factor into changes in net interest income.
Interest income for the first three months of 2002 was $1,790,358 and
consisted of $1,586,655 on loans, $181,153 in investments and $22,550 on federal
funds sold. Interest income for the same period in 2001 was $1,412,535 and
included $1,130,976 on loans, $219,374 on investments and $62,185 on federal
funds sold.
9
Interest expense for the first quarter of 2002 was $846,180 and
consisted of $769,597 related to deposits and $76,583 related to borrowings. Our
interest expense of $800,497 during the first quarter of 2001 related soley to
deposits. Our interest expense increased $45,683, or 5.7%, while our average
deposits and borrowings increased from $59.7 million for the quarter ended March
31, 2001 to $115.0 million for the quarter ended March 31, 2002, an increase of
92.8%. The increase in our interst expense was proportionately less than the
increase in our deposits and borrowings because of the declining interest rate
envirnment.
The following table sets forth, for the three months ended March 31,
2002 and 2001, information related to our average balance sheet and average
yields on assets and average costs of liabilities. We derived these yields by
dividing income or expense by the average balance of the corresponding assets or
liabilities. We derived average balances from the daily balances throughout the
periods indicated.
===============================================================================================================
Average Balances, Income and Expenses, and Rates (in $000's)
For the three months ended March 31,
2002 2001
---- ----
Average Income/ Yield/ Average Income Yield/
Balance Expense Rate Balance Expense Rate
Federal funds sold $ 5,000 $ 22 1.78% $ 4,533 $ 62 5.55%
Investment securities 13,353 181 5.50% 12,779 219 6.95%
Loans 104,620 1,587 6.15% 50,906 1,131 9.01%
--------------------------------- ------------------------------
Total earning-assets $122,973 $1,790 5.90% $ 68,218 $ 1,412 8.39%
--------------------------------- ------------------------------
NOW accounts $ 19,870 $ 48 .98% $ 10,774 $ 57 2.15%
Savings & money market 22,299 94 1.71% 15,193 194 5.18%
Time deposits 62,534 628 4.07% 33,706 549 6.61%
--------------------------------- ------------------------------
Total interest-bearing deposits 104,703 770 2.98% 59,673 800 5.44%
FHLB advances 5,867 49 3.39% - - -%
Other borrowings 4,465 27 2.45% - - -%
--------------------------------- ------------------------------
Total interest-bearing liabilities $115,035 $ 846 2.98% $ 59,673 $ 800 5.44%
--------------------------------- ------------------------------
Net interest spread 2.92% 2.95%
Net interest income/margin $ 944 3.11% $ 612 3.64%
===============================================================================================================
Our net interest spread was 2.92% for the three months ended March 31,
2002 as compared to 2.95% for the three months ended March 31, 2001. The net
interest spread is the difference between the yield we earn on our
interest-earning assets and the rate we pay on our interest-bearing liabilities.
Our net interest margin for the period ended March 31, 2002 was 3.11%
as compared to 3.64% for the three months ended March 31, 2001. The net interest
margin is calculated as net interest income divided by year-to-date average
earning assets. Our net interest margin decrease because our assets repriced
downward faster than our liabilities.
10
In pricing deposits, we considered our liquidity needs, the direction
and levels of interest rates and local market conditions
Rate/Volume Analysis
Net interest income can be analyzed in terms of the impact of changing
rates and changing volume. The following table sets forth the effect which the
varying levels of earning assets and interest-bearing liabilities and the
applicable rates have had on changes in net interest income for the periods
presented. Changes that are not solely attributable to either volume, rate or
rate/volume have been allocated to each category on a prorated basis.
=========================================================================================================
Change Related to
Three months ended March 31, 2002
(Dollars in Thousands)
=========================================================================================================
Volume Rate Rate/ Net Change
Volume
EARNING ASSETS:
Federal funds sold $ 2 (38) (4) $ (40)
Investment securities 10 (46) (2) (38)
Loans 1,193 (359) (379) 455
------------ ------------- ------------- -------------
Total earning assets $ 1,205 (443) (385) $ 377
------------ ------------- ------------- -------------
INTEREST BEARING LIABILITIES
Deposits $ 604 (361) (273) $ (30)
FHLB advance 49 - - 49
Other borrowings 27 - - 27
------------ ------------- ------------- -------------
Total interest bearing liabilities 680 (361) (273) 46
------------ ------------- ------------- -------------
Net interest income $ 525 (82) (112) $ 331
------------ ------------- ------------- -------------
=========================================================================================================
As the above table demonstarates, the change in our net interest income
is primarily due to the increase in our assets and liabilities. This increase is
partially offset by the decrease in the rates as a result of the significant
reduction in market rates over the last twelve months.
Provision for Loan Losses
Included in the results of operations for the quarters ended March 31,
2002 and 2001 is a non-cash expense of $200,000 and $122,000, respectively
related to the provision for loan losses. The loan loss reserve was $1,388,126
at March 31, 2002 and $1,192,247 at December 31, 2001. The allowance for loan
losses as a percentage of gross loans was 1.26% at March 31, 2002 and 1.24% at
December 31, 2001. The loan portfolio is periodically reviewed to evaluate the
outstanding loans and to measure both the performance of the portfolio and the
adequacy of the allowance for loan losses. For information about how we
determine the provision for loan losses, please see our discussion under
"Provision and Allowance for Loan Losses." For the three months ended March 31,
2002, we reported net charge-offs of $4,121. All of the charge-offs in 2002
related to credit lines associated with customer checking accounts. There were
no loans charged off during the three months ended March 31, 2001.
Noninterest Income and Expenses
Noninterest income in the first quarter of 2002 was $102,950, an
increase of 130% over noninterest income of $44,853 in the first quarter of
2001. This increase was primarily due to the increases in the volume of service
charges on deposits, increases in the volume of fees charged on ATM
transactions, and additional loan fees received on the origination of mortgage
loans that were sold.
11
We incurred general and administrative expenses of $804,315 for the
three months ended March 31, 2002 compared to $613,127 for the same period in
2001. The $191,188 additional general and administrative expenses resulted
primarily from the move into our new main office building and the additional
staff hired to handle the current and anticipated future growth in both loans
and deposits. Salaries and benefits in first quarter 2002 were $431,523, or an
increase of $104,789. Salaries and benefits represented 53.7% of the total
noninterest expense. Salaries and benefits in first quarter 2001 were $326,734.
All other expenses increased only $86,399. This increase relates primarily to
$49,660 additional cost for outside services and $20,831 of additional occupancy
expenses. The primary reason for the higher level of outside services is the
additional data processing expense associated with the higher level of activity
that resulted from the significant increases in both loans and deposits. The
primary reason for the increase in occupancy cost is that the bank incurred only
two months of the higher occupancy costs in the first quarter of 2001 associated
with the new main office building.
BALANCE SHEET REVIEW
General
At March 31, 2002, we had total assets of $133.8 million, consisting
principally of $108.4 million in loans, $21.5 million in investments and $1.9
million in cash and due from banks. Liabilities at March 31, 2002 totaled $124.3
million, consisting principally of $119.0 million in deposits and $3.0 million
in FHLB advances. At March 31, 2002, shareholders' equity was $9.4 million.
Investments
At March 31, 2002, the $21.5 million of investment securities portfolio
represented approximately 16.1% of our total assets. We were invested in U.S.
Government agency securities, mortgage-backed securities and federal funds with
a fair value of $21.5 million and an amortized cost of $21.4 for an unrealized
gain of $69,526.
Contractual maturities and yields on our investments (all available for
sale) at March 31, 2002 are shown in the following table (dollars in thousands).
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Based on the comparison of investment securities coupon rates and the
market interest rate as of March 31, 2002, the bank anticipates that between
$4.0 million and $10.0 million may be called during the twelve months ending
March 31, 2003.
===========================================================================================================
After one but
Within Within five Over
one year Yield Years Yield Five years Yield Total Yield
-------- ----- ------------- ----- ---------- ----- ------ ------
U.S.Government --- --- $ 7,656 4.31% $ 6,694 5.68% $ 14,350 4.95%
agencies
Mortgage-backed
securities --- --- 131 3.96% --- --- 131 3.96%
--------------------- ----------------------- ------------------ ---------------------
Total --- --- $ 7,787 4.29% $ 6,694 5.68% $ 14,481 4.94%
===================== ======================= =================== =====================
===========================================================================================================
At March 31, 2002, the $6.5 million of short-term investments in
federal funds sold on an overnight basis comprised 4.8% of total assets at March
31, 2002, as compared to $100,841 or .1% of total assets at December 31, 2001.
12
Loans
Since loans typically provide higher interest yields than do other
types of interest earning assets, it is our intent to channel a substantial
percentage of our earning assets into the loan portfolio. Average loans for the
three months ended March 31, 2002 and 2001 were $104.6 million and $50.9
million, respectively. Total loans outstanding at March 31, 2002 and December
31, 2001 were $109.7 million and $96.5 million, respectively, before allowance
for loan losses.
The following table summarizes the composition of the loan portfolio:
==================================================================================================
March 31, 2002 December 31, 2001
Amount % of Total Amount % of Total
------- ---------- ------- ----------
Real estate:
Commercial
Owner occupied $ 18,666,767 17.01% $ 16,532,696 17.13%
Non-owner occupied 28,105,095 25.61% 22,813,424 23.63%
Construction 8,005,208 7.29% 8,292,228 8.59%
-------------- ---------------- -------------------- ----------
54,777,070 49.91% 47,638,348 49.35%
-------------- ---------------- -------------------- ----------
Consumer
Residential 13,062,021 11.91% 12,898,543 13.36%
Home Equity 11,744,975 10.70% 8,937,054 9.26%
Construction 4,918,607 4.48% 3,972,206 4.11%
-------------- ---------------- -------------------- ----------
29,725,603 27.09% 25,807,803 26.73%
-------------- --------------- -------------------- -----------
Total real-estate 84,502,673 77.00% 73,446,151 76.08%
Commercial business 22,419,412 20.43% 20,529,004 21.27%
Consumer-other 3,142,543 2.86% 2,812,703 2.91%
Deferred origination fees, net (315,902) (.29%) (255,990) (.26%)
-------------- --------------- ------------------- -----------
109,748,726 100.00% 96,531,868 100.00%
=============== ===========
Less allowance for loan
Losses (1,388,126) (1,192,247)
-------------- --------------------
Total loans, net $108,360,600 $ 95,339,621
============== ====================
The principal component of our loan portfolio at March 31, 2002 and at
December 31, 2001 was loans secured by real estate mortgages. Due to the short
time the portfolio has existed, the current mix of loans may not be indicative
of the ongoing portfolio mix. Management will attempt to maintain a relatively
diversified loan portfolio to help reduce the risk inherent in concentration of
collateral.
Provision and Allowance for Loan Losses
We have developed policies and procedures for evaluating the overall
quality of our credit portfolio and the timely identification of potential
credit problems.
We have established an allowance for loan losses through a provision
for loan losses charged to expense on our statement of operations. The allowance
represents an amount which we believe will be adequate to absorb probable losses
on existing loans that may become uncollectible. Our judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of
loans, including consideration of factors such as the balance of impaired loans;
the quality, mix and size of our overall loan portfolio; economic conditions
that may affect the borrower's ability to repay; the amount and quality of
collateral securing the loans; our historical loan loss experience and a review
of specific problem loans. We adjust the amount of the allowance periodically
based on changing circumstances as component of the provision for loan losses.
We charge recognized losses to the allowance and add subsequent recoveries back
to the allowance.
13
Our evaluation is inherently subjective as it requires estimates that
are susceptible to significant change. In additiona, regulatory agencies
periodically review our allowance for loan losses as part of their examination
process, and they may require us to record additions to the allowance based on
their judgment about information available to them at the time of their
examinations. Our losses will undoubtedly vary from our 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.
We do not allocate the allowance for loan losses to specific categories
of loans but evaluate the adequacy on an overall portfolio basis utilizing our
credit grading system which we apply to each loan. We have engaged an
independent consultant to review the loan files on a test basis, to verify that
the lenders have properly graded each loan. Due to our limited operating
history, the provision for loan losses has been made primarily as a result of
management's assessment of general loan loss risk as compared to banks of
similar size and maturity.
At March 31, 2002 and at December 31, 2001, the allowance for loan
losses was $1.4 million and $1.2 million, respectively, or 1.26% of outstanding
loans at March 31, 2002 and 1.24% at December 31, 2001, respectively. During the
three months ended March 31, 2002, we charged off loans of $4,121. There were no
loans charged off during the three months ended March 31, 2001.
At March 31, 2002, nonaccrual loans represented .47% of total loans. We
had one commercial business loan of approximately $510,000 thousand that was on
nonaccrual status. We classified this loan and put it on non-accrual status
during the first quarter of 2002. There was only one loan on nonaccrual status
at December 31, 2001. During the first quarter of 2002, the bank obtained
ownership through foreclosure procedures on the residental construction loan
that was on nonaccrual status at December 31, 2001. At March 31, 2002, the bank
carried this asset as real estate owned with a carrying value of approximately
$363,000. The bank is in the process of completing the construction of this
home. The bank carries all real estate acquired through foreclosure at the lower
of cost or market value.
Generally, a loan is placed on nonaccrual status when it becomes 90
days past due as to principal or interest, or when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of the loan is doubtful.
Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following table is based on the contractual
maturities of individual loans, including loans which may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to prepay obligations with or without prepayment penalties.
14
The following table summarizes the loan maturity distribution, by type,
and related interest rate characteristics at March 31, 2002 (dollars in
thousands):
============================================================================================
After one but
One year Within five After
or less Years five years Total
-------- ------------- ----------- -------
Commercial $ 10,795 $ 11,398 $ 172 $ 22,365
Real estate - construction 6,146 4,686 2,025 12,857
Real estate- mortgage 10,539 58,479 2,385 71,403
Consumer and other 1,561 1,349 214 3,124
-------- ----------- ----------- ---------
Total loans $ 29,041 $ 75,912 $ 4,796 $ 109,749
======== =========== =========== =========
Loans maturing after one year with:
Fixed interest rates $ 25,197
Floating interest rates $ 55,511
============================================================================================
Deposits and Other Interest-Bearing Liabilities
Our primary sources of funds for loans and investments are our
deposits, advances from the FHLB, and short-term repurchase agreements. National
and local market trends over the past several years suggest that consumers have
moved an increasing percentage of discretionary savings funds into investments
such as annuities and stock and fixed income mutual funds. We believe that
conditions in 2002 were favorable for deposit growth and that factors such as
the low returns on investments and mutual funds may have increased traditional
deposit inflows during 2002.
The following is a table of deposits by category (dollars in
thousands):
===========================================================================================================
March 31, 2002 December 31, 2001
-------------- -----------------
Demand deposit accounts $ 7,863 6.61% $ 7,729 8.34%
NOW accounts 16,648 13.98% 8,295 8.95%
Money market accounts 21,422 17.99% 24,139 26.04%
Savings accounts 289 .24% 255 .27%
Time deposits less than $100,000 33,457 28.10% 31,900 34.41%
Time deposits of $100,000 or more 39,387 33.08% 20,382 21.99%
----------- ------------- ----------- -----------
Total deposits $ 119,066 100.00% $ 92,700 100.00%
=========== ============= =========== ===========
===========================================================================================================
Core deposits, which traditional exclude time deposits of $100,000 or
more, provide a relatively stable funding source for our loan portfolio and
other earning assets. Our core deposits were $79.7 million and $72.3 million at
March 31, 2002 and December 31, 2001, respectively. Our loan-to-deposit ratio
was 91.0% and 103% at March 31, 2002 and December 31, 2001, respectively.
The significant portion of the increase in time deposits over $100,000
relates to deposits that were obtained outside of the local market. The
maturites on these deposits range from three months to five years. These
deposits were obtained at rates that were either comparable or lower than rates
paid in the local market. The long term CDs were obtained to "lock in" long term
funding at low interest rates. The short-term deposits were used to fund a
significant increase in loan demand. The Bank does not plan to renew the
short-term deposits.
15
The maturity distribution of our time deposits of $100,000 or more is
as follows:
===========================================================
March 31, 2002 December 31, 2001
(Dollars in thousands)
Three months or less $ 3,006 $ 7,929
Over three through twelve months 25,935 8,703
Over twelve months 10,446 3,750
------------------ ----------------
Total $ 39,387 $ 20,382
================== ================
===========================================================
Borrowings
At March 31, 2002 the bank had $3.0 million of advances from the FHLB
of Atlanta. These advances are secured with approximately $9.0 million of first
mortgage loans, investment securities and stock in the FHLB. The advance of $3.0
million with a weighted rate of 4.83% has a maturity of August 24, 2011. The
FHLB has the option to re-price this advance as of August 24, 2006.
At March 31, 2002 the bank had an unused $2.8 million of federal
funds line of credit. This line of credit is unsecured and bears interest at the
daily rate of federal funds plus 25 basis points (5.00% at March 31, 2002). At
March 31, 2002, the bank also had an unused $10.0 million line of credit with a
brokerage firm, secured by $10.0 million of investment securities. This line of
credit bears market interest rates based on the maturities of the various
repurchase agreements.
CAPITAL RESOURCES
Total shareholders' equity amounted to $9.4 million at March 31, 2002
and $9.5 million at December 31, 2001. The decrease during the three months
ended March 31, 2002 resulted from $81,892 reduction in the unrealized gains on
investment securities, partly offset by $42,813 net income.
The following table shows the return on average assets (net income
divided by average total assets), return on average equity (net income divided
by average equity), and equity to assets ratio (average equity divided by
average total assets). Since our inception, we have not paid cash dividends.
===========================================================
March 31, 2002 March 31, 2001
Return on average assets .03% - .11%
Return on average equity .45% - .83%
Equity to assets ratio 7.34% 12.95%
===========================================================
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because we had less than
$150 million in assets, the company is not currently subject to these
guidelines. However, the bank falls under these rules as set per bank regulatory
agencies.
16
Under the capital adequacy guidelines, capital is classified into two
tiers. These guidelines require an institution to maintain a certain level of
Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of
common stockholders' equity, excluding the unrealized gain or loss on securities
available for sale, minus certain intangible assets. In determining the amount
of risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100% based on the risks believed
inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus
the general reserve for loan losses subject to certain limitations. The bank is
also required to maintain capital at a minimum level based on total average
assets, which is known as the Tier 1 leverage ratio.
The bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Under these capital guidelines, we
must maintain a minimum total risk-based capital of 8%, with at least 4% being
Tier 1 capital. In addition, we must maintain a minimum Tier 1 leverage ratio of
at least 4%. To be considered "well-capitalized", we must maintain total
risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a
leverage ratio of at least 5%.
The following table sets forth the company's and the bank's various
capital ratios at March 31, 2002 and December 31, 2001. At March 31, 2002 and
December 31, 2001, we both were in compliance with each of the applicable
regulatory capital requirements and were considered to be "well capitalized" at
the bank level.
=========================================================================
March 31, 2002 December 31, 2001
The The The The
company bank company bank
------- ---- ------- ----
Total risk-based capital 10.3% 10.3% 10.4% 10.1%
Tier 1 risk-based capital 9.0% 9.0% 9.2% 8.9%
Leverage capital 7.4% 7.4% 8.2% 8.2%
=========================================================================
Our objective is to maintain the capital levels such that the bank will
continue to be considered well capitalized. The company has received loan
commitment letters whereby the loan proceeds can be used by the company to
increase the bank's capital position. Depending on the timing of when additional
capital is obtained, the bank may be required to limit the level of growth that
has been experienced in the past two years. As of March 31, 2002, there were no
significant firm commitments outstanding for capital expenditures.
EFFECT OF INFLATION AND CHANGING PRICES
The effect of relative purchasing power over time due to inflation has
not been taken into effect in our financial statements. Rather, the statements
have been prepared on an historical cost basis in accordance with generally
accepted accounting principles in the United States of America.
Unlike most industrial companies, the assets and liabilities of
financial institutions such as our company and bank are primarily monetary in
nature. Therefore, the effect of changes in interest rates will have a more
significant impact on our performance than will the effect of changing prices
and inflation in general. In addition, interest rates may generally increase as
the rate of inflation increases, although not necessarily in the same magnitude.
As discussed previously, we seek to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide rate
fluctuations, including those resulting from inflation.
17
OFF-BALANCE SHEET RISK
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. At March 31, 2002, unfunded
commitments to extend credit were $28.0 million, of which approximately $4.7
million is at fixed rates and $23.3 million is at variable rates. The
significant portion of the unfunded commitments relates to consumer equity lines
of credit. The bank anticipates, based on historical experience, that the
significant portion of these lines of credit will not be funded. The bank
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the bank upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral
varies but may include accounts receivable, inventory, property, plant and
equipment, and commercial and residential real estate.
At March 31, 2002, there was a $447,000 commitment under a letter of
credit. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. Collateral
varies but may include accounts receivable, inventory, equipment, marketable
securities and property. Since most of the letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.
Except as disclosed in this report, we are not involved in off-balance
sheet contractual relationships, unconsolidated related entities that have
off-balance sheet arrangements, or transactions that could result in liquidity
needs or other commitments that could significantly impact earnings.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates, which principally arises from interest rate risk inherent in our
lending, investing, deposit gathering and borrowing activities. Other types of
market risks, such as foreign currency exchange rate risk and commodity price
risk, do not normally arise in the normal course of our business. We actively
monitor and manage our interest rate risk exposure.
The principal interest rate risk monitoring technique we employ is the
measurement of our interest sensitivity "gap," which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in this same time interval helps to hedge
the risk and minimize the impact on net interest income of rising or falling
interest rates. We generally would benefit from increasing market rates of
interest when we have an asset-sensitive gap position and generally would
benefit from decreasing market rates of interest when we are
liability-sensitive.
Because approximately 71% of our loans were variable rate loans at
March 31, 2002, we are currently asset sensitive over the one-year time frame.
However, our gap analysis is not a precise indicator of our interest sensitivity
position. The analysis presents only a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example,
rates paid on a substantial portion of core deposits may change contractually
within a relatively short time frame, but those rates are viewed by management
as significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
18
LIQUIDITY & INTEREST RATE SENSITIVITY
Liquidity management involves monitoring our sources and uses of funds
in order to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time the
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At March 31, 2002 and December 31, 2001, our liquid assets, consisting
of cash, due from banks and federal funds sold, amounted to $8.4 million and
$3.0 million, representing 6.25% and 2.51% of total assets, respectively.
Investment securities at March 31, 2002 and December 31, 2001 amounted to $15.0
million and $18.5 million, representing 11.24% and 15.58% of total assets,
respectively; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. Our ability to maintain and
expand our deposit base and borrowing capabilities also serves as a source of
liquidity.
We plan to meet our future cash needs through the liquidation of
temporary investments, maturities and sale of loans, maturity of investment
securities, and generation of deposits. During the fourth quarter of 2001, as a
result of historically low rates that were being earned on short-term liquidity
investments, we chose to maintain a lower than normal level of short-term
liquidity securities. During the first quarter of 2002, the bank has increased
its net liquidity position by approximately $22 million. This resulted primarily
from increases in deposits, sales of participations in loan originations, and
identification of additional qualifying collateral that was pledged to the FHLB
that allows for additional borrowing capacity. The bank is a member of the
Federal Home Loan Bank of Atlanta from which applications for borrowings can be
made for leverage purposes, if so desired. The FHLB requires securities,
qualifying single family mortgage loans, and stock of the FHLB owned by the bank
be pledged to secure any advances from the FHLB. The unused borrowing capacity
at March 31, 2002 that is currently available from the FHLB based on the amount
of collateral pledged is approximately $6.5 million. In addition, the bank
maintains a federal funds purchased lines of credit with a correspondent bank in
the amount of $2.8 million. We have also obtained a $10.0 million line of credit
that is available from a broker firm that holds $10.0 million of investment
securities as collateral. As of March 31, 2002, both of the lines of credit were
unused.
We believe that our existing stable base of core deposits, borrowings
from the FHLB, and short-term repurchase agreements will enable us to
successfully meet our liquidity needs for the foreseeable future.
Asset/liability management is the process by which we monitor and
control the mix and maturities of our assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates. The bank's asset/liability management committee ("ALCO")
monitors and considers methods of managing exposure to interest rate risk. The
ALCO consists of members of the board of directors and senior management of the
bank and meets at least quarterly. The ALCO is charged with the responsibility
to maintain the level of interest rate sensitivity of the bank's interest
sensitive assets and liabilities within Board-approved limits.
19
The following table presents our rate sensitivity at each of the time
intervals indicated as of March 31, 2002. The table may not be indicative of our
rate sensitivity position at other points in time. In addition, the table's
maturity distribution may differ from the contractual maturities of the earning
assets and interest bearing liabilities presented due to consideration of
prepayment speeds under various interest rate change scenarios in the
application of the interest rate sensitivity methods described above.
==========================================================================================================
Within After three but After one but After
three within twelve within five five
months months years years Total
------ ------ ----- ----- --------
(Dollars in thousands)
Interest-earning assets:
Federal funds sold $ 6,461 $ - $ - $ - $ 6,461
Investment securities 131 5,645 8,705 - 14,481
Loans 78,250 3,011 27,722 1,080 110,063
------------ --------------- ----------------- ---------- ---------
Total earning assets $ 84,842 $ 8,656 $ 36,427 $ 1,080 $ 131,005
------------ --------------- ----------------- ---------- ---------
Interest-bearing
liabilities:
Money market and NOW $ 37,946 $ - $ - $ - $ 37,946
Regular savings 289 - - - 289
Time deposits 10,382 42,263 20,325 - 72,970
Federal funds purchased - - - - -
Repurchase Agreements - - - - -
FHLB advances - - - 3,000 3,000
------------ --------------- ----------------- ---------- ----------
Total interest-bearing
liabilities $ 48,617 $ 42,263 $ 20,325 $ 3,000 $ 114,205
Period gap $ 36,225 $ (33,607) $ 16,102 $ (1,920) $ 16,800
Cumulative gap $ 36,225 $ 2,618 $ 18,720 $ 16,800 $ 16,800
Ratio of cumulative gap to
total earning assets 27.7% 2.0% 14.3% 12.8%
===========================================================================================================
ACCOUNTING, REPORTING AND REGULATORY MATTERS
On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS Nos. 141 and 142 will change the accounting for business combinations
and goodwill in two significant ways. First, SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is prohibited.
Second, SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. The application of these statements is
not expected to have a material impact on our financial statements.
20
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 143 requires that obligations associated
with the retirement of tangible long-lived assets be recorded as a liability
when those obligations are incurred, with the amount of liability initially
measured at fair value. SFAS 143 will be effective for financial statements
beginning after June 15, 2002, though early adoption is encouraged. The
application of this statement is not expected to have a material impact on our
financial statements.
In July 2001, the FASB issued SFAS No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS 144 applies to all long-lived assets including discontinued
operations, and amends Accounting Principle Board of Opinion No. 30, Reporting
the Effect of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book or fair value less cost to sell. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and its
provisions are generally expected to be applied prospectively. The application
of this statement is not expected to have a material impact on our financial
statements.
In July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102
Selected Loan Loss Allowance Methodology and Documentation Issues. This staff
accounting bulletin clearly defines the required development, documentation, and
application of a systematic methodology for determining allowances for loan and
lease losses in accordance with accounting principles generally accepted in the
United States of America. Management believes it is in compliance with the
provisions of SAB No. 102.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until a future
date are not expected to have a material impact on the consolidated financial
statements upon adoption.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company
is a party or of which any of its property is the subject.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
22
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENVILLE FIRST BANCSHARES, INC.
Date: May 13, 2002
/s/ R. Arthur Seaver,Jr.
------------------------------------------
R. Arthur Seaver, Jr.
Chief Executive Officer
/s/ James M. Austin, III
------------------------------------------
James M. Austin, III
Chief Financial Officer
23