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 June 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 August 15, 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- June 30, 2002 and December 31, 2001	3

		Consolidated Statements of Income and Comprehensive Income – Three and Six Months Ended June 30, 2002 and 2001	4

		Consolidated Statements of Cash Flows - Six Months Ended June 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	15



PART II.	OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	16

	Item 6.	Exhibits and Reports on Form 8-K	16



SIGNATURES	17

PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

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

	2002			2001


Assets
Cash and due from banks	$	25,024,729		$	26,204,385
Interest bearing deposits in banks		2,709,393			4,932,444
Federal funds sold		29,000,000			43,800,000
Securities available-for-sale, at fair value		76,072,227			100,508,622
Securities held-to-maturity, at cost, (fair value 2002 $2,424,000; 2001 $3,574,000)		2,377,538			3,522,239
Restricted equity securities, at cost		1,250,000			1,081,000
Loans held for sale		870,478			1,575,156

Loans		340,885,477			304,687,937
Less allowance for loan losses		3,658,818			3,376,986

Loans, net		337,226,659			301,310,951

Premises and equipment		8,403,840			7,441,919
Other assets		4,837,109			5,808,370


Total assets	$	487,771,973		$	496,185,086


Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing	$	74,666,955		$	65,786,028
Interest-bearing		335,510,568			370,877,924

Total deposits		410,177,523			436,663,952
Other borrowings		30,891,384			15,691,630
Other liabilities		2,487,289			2,105,761

Total liabilities		443,556,196			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		26,195,573			23,819,760
Accumulated other comprehensive income		581,396			152,733
Treasury stock		(1,393,416	)		(1,080,974	)

Total stockholders’ equity		44,215,777			41,723,743


Total liabilities and stockholders’ equity	$	487,771,973		$	496,185,086

See Notes to Consolidated Financial Statements.

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

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

	Three Months Ended June 30,					Six Months Ended June 30,

	2002		2001			2002		2001

Interest income
Loans	$	5,788,360	$	6,150,535		$	11,449,812	$	12,600,078
Taxable securities		923,718		1,703,433			2,005,198		3,612,155
Nontaxable securities		187,355		218,214			386,816		440,536
Deposits in banks		30,963		371			66,994		1,171
Federal funds sold		60,327		406,349			138,608		735,834

Total interest income		6,990,723		8,478,902			14,047,428		17,389,774


Interest expense
Deposits		2,530,074		4,118,298			5,306,919		8,454,539
Other borrowings		335,928		312,698			595,949		614,955

Total interest expense		2,866,002		4,430,996			5,902,868		9,069,494


Net interest income		4,124,721		4,047,906			8,144,560		8,320,280
Provision for loan losses		152,000		150,000			302,000		300,000

Net interest income after provision for loan losses		3,972,721		3,897,906			7,842,560		8,020,280


Other operating income
Service charges on deposit accounts		542,156		567,591			1,018,415		1,119,664
Other service charges and fees		185,520		182,103			337,221		327,220
Mortgage banking income		300,613		528,735			757,450		884,841
Gain on sales of securities available-for- sale		35,278		—			35,278		—

Total other income		1,063,567		1,278,429			2,148,364		2,331,725


Other expenses
Salaries and employee benefits		1,356,041		1,465,574			2,743,469		2,836,088
Occupancy and equipment expenses		365,974		329,468			707,107		640,712
Other operating expenses		529,764		485,015			1,002,581		936,817

Total other expenses		2,251,779		2,280,057			4,453,157		4,413,617


Income before income taxes		2,784,509		2,896,278			5,537,767		5,938,388

Income tax expense		1,004,281		1,063,260			2,016,197		2,118,574


Net income		1,780,228		1,833,018			3,521,570		3,819,814

Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale, net of tax		582,222		(141,745	)		428,663		643,465


Comprehensive income	$	2,362,450	$	1,691,273		$	3,950,233	$	4,463,279


Earnings per share	$	0.25	$	0.26		$	0.49	$	0.53

Cash dividends per share	$	0.08	$	0.08		$	0.16	$	0.16

See Notes to Consolidated Financial Statements.

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)

	2002			2001

OPERATING ACTIVITIES
Net income	$	3,521,570		$	3,819,814
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of securities available-for-sale		(35,278	)		—
Depreciation		292,134			286,267
Net decrease in loans held for sale		704,678			104,486
Provision for loan losses		302,000			300,000
Decrease in interest receivable		147,825			468,902
Increase (decrease) in interest payable		(75,939	)		107,076
Net other operating activities		1,060,077			46,356


Net cash provided by operating activities		5,917,067			5,132,901


INVESTING ACTIVITIES
Purchases of securities available-for-sale		(12,271,890	)		(25,725,729	)
Proceeds from sales of securities available-for-sale		10,636,562			—
Proceeds from maturities of securities available-for-sale		26,756,490			37,920,169
Proceeds from maturities of securities held-to-maturity		1,144,701			1,896,396
Purchase of restricted equity securities		(169,000	)		—
Net (increase) decrease in federal funds sold		14,800,000			(26,740,000	)
Net (increase) decrease in interest-bearing deposits in banks		2,223,051			(37,405	)
Net increase in loans		(36,217,708	)		(9,259,060	)
Purchase of premises and equipment		(1,254,055	)		(125,140	)


Net cash provided by (used in) investing activities		5,648,151			(22,070,769	)


FINANCING ACTIVITIES
Net increase (decrease) in deposits		(26,486,429	)		26,723,021
Net proceeds from other borrowings		15,199,754			2,642,976
Dividends paid		(1,145,757	)		(1,149,998	)
Purchase of treasury stock		(312,442	)		(177,354	)


Net cash provided by (used in) financing activities		(12,744,874	)		28,038,645


Net increase (decrease) in cash and due from banks		(1,179,656	)		11,100,777

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


Cash and due from banks, end of period	$	25,024,729		$	19,534,902


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	5,978,807		$	6,523,869

Income taxes	$	2,084,164		$	2,284,028

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 six month periods ended June 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 Six Months Ended June 30, 2002	Commercial Banking		Mortgage			All Other			Eliminations			Total

Interest income	$	14,091,700	$	2,575		$	—		$	(46,847	)	$	14,047,428
Interest expense		5,905,443		44,272			—			(46,847	)		5,902,868
Net interest income (expense)		8,186,257		(41,697	)		—			—			8,144,560
Intersegment net interest income (expense)		41,697		(41,697	)		—			—			—
Other revenue from external sources		1,390,914		757,450			—			—			2,148,364
Intersegment other revenues		27,500		(27,500	)		—			—			—
Depreciation		286,590		1,002			4,542			—			292,134
Provision for loan losses		302,000		—			—			—			302,000
Segment profit		5,506,568		112,110			(80,911	)		—			5,537,767
Segment assets		487,575,559		1,621,059			270,936			(1,695,581	)		487,771,973
Expenditures for premises and equipment		1,254,055		—			—			—			1,254,055

NOTE 2. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

	INDUSTRY SEGMENTS

For the Six Months Ended June 30, 2001	Commercial Banking		Mortgage			All Other			Eliminations			Total

Interest income	$	17,517,313	$	—		$	—		$	(127,539	)	$	17,389,774
Interest expense		9,069,494		127,539			—			(127,539	)		9,069,494
Net interest income (expense)		8,447,819		(127,539	)		—			—			8,320,280
Intersegment net interest income (expense)		127,539		(127,539	)		—			—			—
Other revenue from external sources		1,446,884		884,841			—			—			2,331,725
Intersegment other revenues		21,500		(27,500	)		6,000			—			—
Depreciation		278,502		3,049			4,716			—			286,267
Provision for loan losses		300,000		—			—			—			300,000
Segment profit		5,859,194		131,534			(52,340	)		—			5,938,388
Segment assets		478,536,803		1,659,389			262,481			(1,713,463	)		478,745,210
Expenditures for premises and equipment		125,140		—			—			—			125,140

	INDUSTRY SEGMENTS

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

Interest income	$	7,003,583	$	—		$	—	$	(12,860	)	$	6,990,723
Interest expense		2,866,002		12,860			—		(12,860	)		2,866,002
Net interest income (expense)		4,137,581		(12,860	)		—		—			4,124,721
Intersegment net interest income (expense)		12,860		(12,860	)		—		—

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