HENRY COUNTY BANCSHARES INC - 10-Q Quarterly Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-49789

Henry County Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)

Georgia
(State or other jurisdiction of
incorporation or organization)

58-1485511
(IRS Employer
Identification No.)

4806 N. Henry Blvd., Stockbridge, Georgia 30281
(Address of principal executive offices)

(770) 474-7293
(Issuer’s telephone number)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (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 o

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 1, 2002: 7,160,992; $2.50 par value

HENRY COUNTY BANCSHARES, INC AND SUBSIDIARIES

INDEX

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets- September 30, 2002 and December 31, 2001	3

		Consolidated Statements of Income and Comprehensive Income – Three and Nine Months Ended September 30, 2002 and 2001	4

		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2002 and 2001	5

		Notes to Consolidated Financial Statements	6-8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

	Item 4.	Controls and Procedures	16


PART II.	OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	17

	Item 6.	Exhibits and Reports on Form 8-K	17



SIGNATURES	18

CERTIFICATIONS	19

PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Unaudited)

	2002			2001

Assets

Cash and due from banks	$	25,471,320		$	26,204,385
Interest bearing deposits in banks		2,518,539			4,932,444
Federal funds sold		12,100,000			43,800,000
Securities available-for-sale, at fair value		77,896,282			100,508,622
Securities held-to-maturity, at cost, (fair value 2002 $1,388,000; 2001 $3,574,000)		1,342,555			3,522,239
Restricted equity securities, at cost		1,250,000			1,081,000
Loans held for sale		1,945,583			1,575,156

Loans		339,774,603			304,687,937
Less allowance for loan losses		3,791,457			3,376,986

Loans, net		335,983,146			301,310,951

Premises and equipment		8,786,906			7,441,919
Other assets		4,946,518			5,808,370


Total assets	$	472,240,849		$	496,185,086


Liabilities and Stockholders’ Equity

Deposits
Noninterest-bearing	$	77,894,187		$	65,786,028
Interest-bearing		328,486,125			370,877,924

Total deposits		406,380,312			436,663,952
Other borrowings		17,780,995			15,691,630
Other liabilities		2,700,749			2,105,761

Total liabilities		426,862,056			454,461,343


Commitments and contingencies

Stockholders’ equity
Common stock, par value $2.50; 10,000,000 shares authorized; 7,237,065.6 shares issued		18,092,664			18,092,664
Capital surplus		739,560			739,560
Retained earnings		27,279,109			23,819,760
Accumulated other comprehensive income		660,876			152,733
Treasury stock		(1,393,416	)		(1,080,974	)

Total stockholders’ equity		45,378,793			41,723,743


Total liabilities and stockholders’ equity	$	472,240,849		$	496,185,086

See Notes to Consolidated Financial Statements.

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,

	2002		2001			2002		2001

Interest income
Loans	$	5,801,428	$	6,032,526		$	17,251,240	$	18,632,604
Taxable securities		658,329		1,450,044			2,663,527		5,062,199
Nontaxable securities		167,561		235,925			554,377		676,461
Deposits in banks		19,564		470			86,558		1,641
Federal funds sold		83,942		357,888			222,550		1,093,722

Total interest income		6,730,824		8,076,853			20,778,252		25,466,627


Interest expense
Deposits		2,435,955		3,716,639			7,742,874		12,171,178
Other borrowings		262,673		293,477			858,622		908,432

Total interest expense		2,698,628		4,010,116			8,601,496		13,079,610


Net interest income		4,032,196		4,066,737			12,176,756		12,387,017
Provision for loan losses		153,000		150,000			455,000		450,000

Net interest income after provision for loan losses		3,879,196		3,916,737			11,721,756		11,937,017


Other operating income
Service charges on deposit accounts		555,081		544,886			1,573,496		1,664,550
Other service charges and fees		191,350		174,351			528,571		501,571
Mortgage banking income		330,901		394,515			1,088,351		1,279,356
Gains (losses) on sales of securities		45,481		(100,445	)		80,759		(100,445	)

Total other income		1,122,813		1,013,307			3,271,177		3,345,032


Other expenses
Salaries and employee benefits		1,460,442		1,410,166			4,203,911		4,246,254
Occupancy and equipment expenses		375,369		342,477			1,082,476		983,189
Other operating expenses		529,234		471,812			1,531,815		1,408,629

Total other expenses		2,365,045		2,224,455			6,818,202		6,638,072


Income before income taxes		2,636,964		2,705,589			8,174,731		8,643,977

Income tax expense		980,546		986,942			2,996,743		3,105,516


Net income		1,656,418		1,718,647			5,177,988		5,538,461


Other comprehensive income:
Unrealized gains on securities available-for-sale, net of tax		79,480		504,745			508,143		1,148,210


Comprehensive income	$	1,735,898	$	2,223,392		$	5,686,131	$	6,686,671


Earnings per share	$	0.23	$	0.24		$	0.72	$	0.77


Cash dividends per share	$	0.08	$	0.08		$	0.24	$	0.24

See Notes to Consolidated Financial Statements.

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)

	2002			2001

OPERATING ACTIVITIES
Net income	$	5,177,988		$	5,538,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		453,785			428,743
(Gain) loss on sale of securities available for sale		(80,759	)		100,445
Net increase in loans held for sale		(370,427	)		(208,179	)
Provision for loan losses		455,000			450,000
Decrease in interest receivable		110,748			818,679
Increase (decrease) in interest payable		(148,873	)		84,798
Net other operating activities		1,352,195			272,353


Net cash provided by operating activities		6,949,657			7,485,300


INVESTING ACTIVITIES
Purchases of securities available-for-sale		(30,615,002	)		(55,027,775	)
Proceeds from sales of securities available-for-sale		16,641,725			8,552,785
Proceeds from maturities of securities available-for-sale		37,436,289			61,861,737
Proceeds from maturities of securities held-to-maturity		2,179,684			5,121,704
Purchase of restricted equity securities		(169,000	)		—
Net (increase) decrease in federal funds sold		31,700,000			(7,910,000	)
Net (increase) decrease in interest-bearing deposits in banks		2,413,905			(119,021	)
Net increase in loans		(35,127,195	)		(28,618,902	)
Purchase of premises and equipment		(1,798,772	)		(249,442	)
Net other investing activities		(129,000	)		(500,000	)


Net cash provided by (used in) investing activities		22,532,634			(16,888,914	)


FINANCING ACTIVITIES
Net increase (decrease) in deposits		(30,283,640	)		18,921,748
Net proceeds from other borrowings		2,089,365			1,415,969
Dividends paid		(1,718,639	)		(1,724,516	)
Purchase of treasury stock		(312,442	)		(177,354	)


Net cash provided by (used in) financing activities		(30,225,356	)		18,435,847


Net increase (decrease) in cash and due from banks		(743,065	)		9,032,233

Cash and due from banks, beginning of period		26,204,385			8,434,125


Cash and due from banks, end of period	$	25,461,320		$	17,466,358


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	8,750,369		$	14,942,703

Income taxes	$	3,046,164		$	3,246,028

See Notes to Consolidated Financial Statements.

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.

BASIS OF PRESENTATION

The consolidated financial information for Henry County Bancshares, Inc. (the “Company”) included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period.

The results of operations for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.

NOTE 2.

SUPPLEMENTAL SEGMENT INFORMATION

The Company has two reportable segments: commercial banking and mortgage loan origination. The commercial banking segment provides traditional banking services offered through the Bank. The mortgage loan origination segment provides mortgage loan origination services offered through First Metro.

The Company evaluates performance based on profit and loss from operations before income taxes not including nonrecurring gains and losses.

The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were to third parties, that is, at current market prices.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment has different types and levels of credit and interest rate risk.

	INDUSTRY SEGMENTS

For the Nine Months EndedSeptember 30, 2002	Commercial Banking		Mortgage			All Other			Eliminations			Total


Interest income	$	20,837,585	$	7,903		$	—		$	(67,236	)	$	20,778,252
Interest expense		8,609,399		59,333			—			(67,236	)		8,601,496
Net interest income (expense)		12,228,186		(51,430	)		—			—
Intersegment net interest income (expense)		51,430		(51,430	)		—			—			—
Other revenue from external sources		2,182,826		1,088,351			—			—			3,271,177
Intersegment other revenues		43,950		(43,950	)					—			—
Depreciation		445,469		1,503			6,813			—			453,785
Provision for loan losses		455,000		—			—			—			455,000
Segment profit		8,156,061		144,675			(126,005	)		—			8,174,731
Segment assets		472,047,207		2,756,480			225,842			(2,788,680	)		472,240,849
Expenditures for premises and equipment		1,798,772		—			—			—			1,798,772

NOTE 2.

SUPPLEMENTAL SEGMENT INFORMATION (Continued)

	INDUSTRY SEGMENTS

For the Nine Months Ended September 30, 2001	Commercial Banking		Mortgage			All Other			Eliminations			Total

Interest income	$	25,627,096	$	—		$	—		$	(160,469	)	$	25,466,627
Interest expense		13,079,610		160,469			—			(160,469	)		13,079,610
Net interest income (expense)		12,547,486		(160,469	)		—			—			12,387,017
Intersegment net interest income (expense)		160,469		(160,469	)		—			—			—
Other revenue from external sources		2,065,676		1,279,356			—			—			3,345,032
Intersegment other revenues		32,250		(41,250	)		9,000			—			—
Depreciation		417,753		3,916			7,074			—			428,743
Provision for loan losses		450,000		—			—			—			450,000
Segment profit		8,532,674		189,055			(77,752	)		—			8,643,977
Segment assets		471,430,585		2,044,941			262,068			(2,101,827	)		471,635,767
Expenditures for premises and equipment		249,442		—			—			—			249,442

	INDUSTRY SEGMENTS

For the Three Months Ended September 30, 2002	Commercial Banking		Mortgage			All Other		Eliminations			Total

Interest income	$	6,745,885	$	5,328		$	—	$	(20,389	)	$	6,730,824
Interest expense		2,703,956		15,061			—		(20,389	)		2,698,628
Net interest income (expense)		4,041,929		(9,733	)		—		—			4,032,196
Intersegment net interest income (expense)		9,733		(9,733	)		—		—			—
Other revenue from external sources		791,912		330,901			—		—			1,122,813
Intersegment other revenues		16,450

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