<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter ended September 30, 1996 Commission File Number
0-14289
GREENE COUNTY BANCSHARES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1222567
- ------------------------------ -----------------------------
State or other jurisdiction of (IRS Employer Identification
incorporated or organization) Number)
Main & Depot Street
Greeneville, Tennessee 37743
- ----------------------------- ----------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 423-639-5111
------------
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.
Yes X No____
-----
Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 451,485
-------
Total number of sequentially-numbered pages 17
----
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements of the Registrant and
its wholly-owned subsidiaries are as follows:
Condensed Consolidated Balance Sheets - September 30, 1996 and December
31, 1995.
Condensed Consolidated Statements of Earnings - For the three and nine
months ended September 30, 1996 and 1995.
Condensed Consolidated Statement of Changes in Shareholders' Equity for
the nine months ended September 30, 1996.
Condensed Consolidated Statements of Cash Flows - For the nine months
ended September 30, 1996 and 1995.
Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995*
------------- ------------
ASSETS (In Thousands)
------
<S> <C> <C>
Cash and Due from Banks $18,592 $13,723
Federal Funds sold 0 23,800
Securities available-for-sale 48,365 59,833
Securities held-to-maturity (with a market value of $9,448
on September 30, 1996 and $10,420 on December 31, 1995) 9,463 10,442
Loans 363,368 298,488
Less: Allowance for Loan Losses 5,447 4,654
Net Loans 357,921 293,834
Bank Premises and Equipment, Net of
Accumulated Depreciation 9,626 8,339
Other Assets 14,243 10,610
------------- ------------
Total Assets $458,210 $420,581
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $390,288 $365,951
Securities Sold under Repurchase Agreements
and Short-Term Borrowed Funds 5,877 4,784
Other Borrowings 10,570 3,448
Other Liabilities 5,065 4,472
Total Liabilities 411,800 378,655
------------- ------------
Common stock subject to rescission(5,009 shares) 0 852
------------- ------------
SHAREHOLDERS' EQUITY
- --------------------
Common Stock, par value $10, authorized 1,000,000 shares;
issued and outstanding 451,485 and 442,444 shares at
September 30, 1996 and December 31, 1995, respectively 4,515 4,424
Paid in Capital 4,133 2,915
Retained Earnings 37,715 33,499
Net unrealized holding gains on
available-for-sale securities 47 236
------------- ------------
Total Shareholders' Equity 46,410 41,074
------------- ------------
Total Liabilities and Shareholders' Equity $458,210 $420,581
============= ============
</TABLE>
* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated
Financial Statements (Unaudited)
3
<PAGE>
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 1996 and 1995
UNAUDITED
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $ 8,898 $ 7,106 $ 25,270 $ 19,902
Interest on Securities 769 1,024 2,756 3,082
Interest on Federal Funds Sold 82 92 496 381
-------- -------- -------- --------
Total Interest Income 9,749 8,222 28,522 23,365
Interest Expense:
Interest on Deposits 3,727 3,371 11,279 9,335
Interest on Short Term Borrowings 181 104 443 325
-------- -------- -------- --------
Total Interest Expense 3,908 3,475 11,722 9,660
-------- -------- -------- --------
Net Interest Income 5,841 4,747 16,800 13,705
Provision for Loan Losses 409 182 813 493
-------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 5,432 4,565 15,987 13,212
-------- -------- -------- --------
Other Income:
Income from Fiduciary Activities 11 10 36 28
Service Charges on Deposit Accounts 705 430 1,987 1,326
Security Gains(Losses) 0 0 (2) 6
Other Income 299 180 1,159 734
-------- -------- -------- --------
1,015 620 3,180 2,094
Other Expenses:
Salaries and Employee Benefits 1,942 1,632 5,653 4,396
Premises and Fixed Assets Expense 561 483 1,634 1,247
Other Operating Expenses 1,011 641 2,676 2,353
-------- -------- -------- --------
3,514 2,756 9,963 7,996
-------- -------- -------- --------
Earnings Before Income Taxes 2,933 2,429 9,204 7,310
Income Taxes 1,095 933 3,472 2,763
-------- -------- -------- --------
Net income $ 1,838 $ 1,496 $ 5,732 $ 4,547
======== ======== ======== ========
Average Number of Shares Outstanding 451,863 446,282 448,161 445,110
Per Share of Common Stock:
Net Income $4.07 $3.35 $12.79 $10.22
======== ======== ======== ========
Dividends $1.12 $1.00 $3.36 $3.00
======== ======== ======== ========
</TABLE>
See accompanying notes to Condensed Consolidated
Financial Statements (Unaudited)
4
<PAGE>
GREENE COUNTY BANCSHARES, INC.
Condensed Consolidated Statement of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 1996
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
on Available
Common Paid in Retained for Sale
Stock Capital Earnings Securities Total
------ ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
January 1, 1996 $4,424 $2,915 $33,499 $236 $41,074
Net income - - 5,732 - 5,732
Change in unrealized
appreciation, net of tax - - - (189) (189)
Dividends paid - - (1,516) - (1,516)
Proceeds from stock rescission offer,
net of expenses to date 50 692 - - 742
Exercise of non-incentive
stock options 41 443 - - 484
Tax benefit from exercise
of non-incentive stock options - 83 - - 83
------ ------- --------- -------- --------
Septenber 30, 199696 $4,515 $4,133 $37,715 $47 $46,410
======= ======= ========= ======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated
Financial Statements (Unaudited)
5
<PAGE>
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1996 1995
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $5,732 $4,547
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 813 493
Provision for depreciation and amortization 874 500
Amortization of investment security premiums,
net of accretion 418 256
Increase in interest receivable (181) (852)
Increase (decrease) in unearned income 183 (372)
Increase in other assets, net of intangibles (1,089) (2,067)
(Decrease) increase in accrued interest
payable and other (1,204) 3,069
--------- ---------
Net cash provided by operating activities 5,546 5,574
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in investment
securities and federal funds 42,998 (3,063)
Net increase in loans (49,726) (39,843)
Improvements in other real
estate owned and other, net (74) (1,751)
Fixed asset additions (1,346) (1,160)
--------- ---------
Net cash used by investing activities (8,148) (45,817)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW,
money market and savings accounts 2,331 37,484
Cash dividends paid (1,516) (1,336)
Exercise of non-incentive stock options 484 -
Increase in securities sold under
agreements to repurchase 1,093 895
Increase in other borrowings, net 3,429 -
Cash acquired in acquisition of subsidiary bank 1,730 -
Proceeds from issuance of common stock - 851
Professional fees related to stock rescission offer (66) -
Acceptances of stock rescission offer (14) -
--------- ---------
Net cash provided by financing activities 7,471 37,894
--------- ---------
NET INCREASE (DECREASE) IN CASH 4,869 (2,349)
CASH AT BEGINNING OF YEAR 13,723 15,086
--------- ---------
CASH AT END OF QUARTER $18,592 $12,737
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated
Financial Statements (Unaudited)
6
<PAGE>
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1-PRINCIPLES OF CONSOLIDATION AND PRESENTATION
- ----------------------------------------------
The accompanying unaudited consolidated financial statements of Greene County
Bancshares, Inc. (the "Company") and its wholly owned subsidiaries, Greene
County Bank, American Fidelity Bank and Premier Bank of East Tennessee have been
prepared in accordance with generally accepted accounting principles for interim
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X as promulgated by the Securities and Exchange Commission.
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. All
interim amounts are subject to year-end audit and the results of operations for
the interim period herein are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2-ACQUISITION
- -------------
On January 1, 1996, the Company acquired 100% of the stock of Premier
Bancshares, Inc.("Premier"), a one-bank holding company for Premier Bank of East
Tennessee, Niota, Tennessee ("Premier Bank"). As of the acquisition date,
Premier had assets of approximately $24.2 million, deposits of approximately
$22.0 million, debt and other liabilities of approximately $.5 million, and
capital of approximately $1.7 million. The purchase price of Premier was
$3,140,000, consisting of cash of $708,582 and the Company's promissory notes to
the sellers in the aggregate principal amount of $2,432,218, plus $230,000 for
non-compete agreements with the sellers. The transaction was accounted for as a
purchase, resulting in the recording of a core deposit intangible of
approximately $1.1 million, goodwill of approximately $1.3 million, and an
increase to deferred tax and other liabilities of approximately $.7 million.
Amortization of the intangibles, net of tax, will be approximately $173,000
annually over the next ten years. Prior to March 31, 1996, the Company merged
Premier into the Company since Premier had no assets other than the stock of
Premier Bank. This transaction resulted in the Company owning 100% of the stock
of Premier Bank, as is the case with the Company's other subsidiaries, Greene
County Bank and American Fidelity Bank.
7
<PAGE>
3-ALLOWANCE FOR LOAN LOSSES
- ---------------------------
Transactions in the Allowance for Loan Losses for the nine months ended
September 30, 1996 were as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Balance, January 1, 1996 $ 4,654
Add(Deduct):
Balances acquired in acquisition
of Premier Bank 440
Losses charged to allowance (1,075)
Recoveries credited to allowance 615
Provision for loan losses 813
-------
Balance, September 30, 1996 $ 5,447
=======
</TABLE>
4-COMMON STOCK SUBJECT TO RESCISSION
- ------------------------------------
On May 31, 1995 the Company forwarded a letter to several hundred potential
subscribers for common stock of the Company. The response to the letter resulted
in a sale of 5,009 shares of the Company's common stock to 192 new
shareholders(the "New Shareholders"). The Company received approximately
$851,530 in payment for the newly issued common shares. No commissions or other
fees were paid or received by the Company or any other person in connection with
the sale of such shares. During the quarter ended June 30, 1996, the Company
concluded a rescission offer to the New Shareholders(the "Rescission Offer").
The need for the Rescission Offer arose from the sale of the common stock to the
New Shareholders without registration with the Securities and Exchange
Commission and the necessary state securities divisions or the availability of
an exemption from registration.
In the Rescission Offer, the Company offered to rescind the sale of the shares
issued to the New Shareholders and to refund the consideration paid for such
shares, plus interest from the date of payment through the date the Company
received notice of a New Shareholder's election to rescind, less any amount of
income received on such stock by the New Shareholders. The Rescission Offer was
made pursuant to the applicable securities laws in the states in which the New
Shareholders reside. Simultaneously with the Rescission Offer, the Company
registered these shares of common stock in order that the New Shareholders, if
they desired to retain the common shares, would hold appropriately registered
stock.
At the conclusion of the Rescission Offer, the New Shareholders, with the
exception of three, opted to retain their shares. With respect to the three New
Shareholders who requested a refund of
8
<PAGE>
their consideration, the Company refunded approximately $14,000. Professional
fees to date associated with the Rescission Offer total approximately $88,000.
The Company accordingly increased its shareholders' equity by $750,000 during
the quarter ended June 30, 1996. Additional professional fees incurred during
the quarter ended September 30, 1996 amounted to approximately $8,000, resulting
in proceeds from the Rescission Offer, net of expenses to date, in the
approximate amount of $742,000.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following is management's discussion and analysis of the consolidated
financial condition and results of operations of Greene County Bancshares, Inc.
(the "Company") and its subsidiaries, Greene County Bank, American Fidelity Bank
and Premier Bank, for the three and nine month periods ended September 30, 1996
and 1995, respectively.
Net Income
Net income of the Company for the three and nine months ended September 30, 1996
were $1,838,000 and $5,732,000, respectively. This represents a 22.9% and 26.1%
increase when compared to the $1,496,000 and $4,547,000 in earnings for the
respective periods in 1995. Excluding the approximate $13,000 and $83,000, net
of intangibles amortization and related interest expense, attributable to
Premier Bank(which was acquired by the Company on January 1, 1996) during the
three months and nine months ended September 30, 1996, respectively, earnings
for the three months and nine months ended September 30, 1996 were $1,825,000
and $5,649,000, respectively. This represents a 22.0% and 24.2% increase
compared to the $1,496,000 and $4,547,000 in earnings for the respective periods
in 1995. The increase in net income was mainly due to the increase in loan
volume and yields at a greater rate than increases in deposit growth and cost.
Net Interest Income
The largest source of earnings for the Company is net interest income, which is
the difference between interest and fee income on interest bearing assets and
interest paid on deposits and other interest-bearing liabilities. The primary
factors which affect net interest income are changes in volume and yields of
earning assets and volume and cost of interest-bearing liabilities, and the
ability to respond to changes in interest rates through asset/liability
management. During the three and nine months ended September 30, 1996, net
interest income, before provision for loan losses, was $5,841,000 and
$16,800,000, respectively, as compared to $4,747,000 and $13,705,000 for the
same periods in 1995, representing increases of 23.1% and 22.6%, respectively.
The increases are primarily attributable to an increase in volume and yield of
earning assets, offset by increased costs and balances of interest-bearing
liabilities.
Loans produced the largest component of interest income, contributing $8,898,000
and $25,270,000 for the three and nine months ended September 30, 1996,
respectively, as compared to $7,106,000 and $19,902,000 for the same periods in
1995, representing increases of 25.2% and 27.0%, respectively. With
10
<PAGE>
respect to the nine months ended September 30, 1996 compared to the nine months
ended September 30, 1995, the increase is attributable to both rate and volume
increases related to loans. With respect to the three months ended September 30,
1996 compared to the three months ended September 30, 1995, the increase is
mainly attributable to an increase in volume of loans.
Earnings on securities and federal funds sold provided the balance of interest
income, producing $851,000 and $3,252,000 for the three and nine month periods
ended September 30, 1996, respectively, as compared to $1,116,000 and $3,463,000
for the same periods in 1995.
Total interest expense for the Company increased 12.4% and 21.3% during the
three and nine month periods ended September 30, 1996, respectively, as compared
to the same periods in 1995. Interest expense consisted primarily of interest
paid on deposits which totaled $3,727,000 and $11,279,000 during the three and
nine months ended September 30, 1996, respectively, as compared to $3,371,000
and $9,335,000 for the same periods in 1995. The Company's deposit base grew
6.7% during the nine months ended September 30, 1996. Excluding the approximate
$22.0 million in deposits acquired via the Premier Bank acquisition, the
Company's deposit base increased approximately $2.3 million, or .6%, during the
nine months ended September 30, 1996. For the nine months ended September 30,
1996 compared to the same period in 1995, the cost of interest-bearing
liabilities increased due to both rate and volume increases. With respect to the
three months ended September 30, 1996 compared to the same period in 1995, the
cost of interest-bearing liabilities increased primarily due to increases in
volume.
Other Income and Expense
Total other income for the three and nine month periods ended September 30, 1996
was $1,015,000 and $3,180,000, respectively, as compared to $620,000 and
$2,094,000 for the same periods in 1995. The increases of 63.7% and 51.9%,
respectively, resulted in part from an increase in service charges on deposit
accounts and commissions earned brought about by management's focus on the
generation of fee and commission income.
Control of other expenses is also an important aspect in managing net income.
Other expenses include personnel, occupancy, and other expenses such as data
processing, printing and supplies, legal and professional fees, postage, Federal
Deposit Insurance Corporation("FDIC") assessments, etc. Total other expenses
were $3,514,000 and $9,963,000 for the three and nine month periods ended
September 30, 1996, respectively, as compared to $2,756,000 and $7,996,000 for
the same periods in 1995. Personnel costs are the primary element of the
Company's other operating expenses. During the three and nine months ended
September 30, 1996, salaries and benefits represented $1,942,000 and $5,653,000,
respectively, of other expenses. This was an increase of $310,000 and
$1,257,000,
11
<PAGE>
or 19.0% and 28.6%, over the same periods in 1995. These increases were due to
opening new branches requiring increased staff levels, and increased employee
benefit costs, including health insurance and pension costs, as well as the
acquisition of Premier Bank. Nineteen full-time equivalent employees were added
as a result of the acquisition of Premier Bank. Overall, the number of full-time
equivalent employees at September 30, 1996 was 242 versus 188 at September 30,
1995, an increase of 28.7%.
Occupancy and other operating expenses during the three and nine month periods
ended September 30, 1996 were $1,572,000 and $4,310,000, increases of $448,000
and $710,000, respectively, from the same periods in 1995. The increases were
due in part to increased expenses associated with operating new branches that
were opened and with the acquisition of Premier Bank. At September 30, 1996, the
Company had 26 branches, including the fifth office of a finance company
subsidiary of Greene County Bank which opened in Johnson City, Tennessee,
effective October 3, 1996, compared to 17 branches at September 30, 1995.
Loans
At September 30, 1996, loans, net of unearned income and allowance for loan
losses, were $357.9 million compared to $293.8 million at December 31, 1995.
Excluding the approximate $14.8 million in loans acquired via the Premier Bank
acquisition, net loans increased $49.3 million, or 16.8% from December 31, 1995.
This increase is primarily due to increases in commercial lending. Nonaccrual
loans decreased by $361,000 during the nine month period ended September 30,
1996.
Provision and Allowance for Loan Losses
During the three and nine month periods ended September 30, 1996, loan charge-
offs were $517,000 and $1,075,000, and recoveries of charged-off loans were
$265,000 and $615,000, respectively. The Company's allowance for loan losses
increased to $5,447,000 at September 30, 1996 from $4,654,000 at December 31,
1995. This increase reflects the overall increase in the total loan portfolio as
well as management's assessment of the Company's history of non-accrual loans
and chargeoffs.
Investments
The Company maintains an investment portfolio to provide liquidity and earnings.
Investments at September 30, 1996 had an amortized cost of $57.7 million and a
market value of $57.8 million, a decrease from the December 31, 1995 balances of
investments with an amortized cost of $69.9 million and a market value of $70.3
million. This decrease was used to fund increases in the loan portfolio.
12
<PAGE>
Deposits
The funds to support the Company's asset growth have been provided mainly by
increased deposits, which amounted to $390.3 million at September 30, 1996.
This represents a 6.6% increase from the deposits at December 31, 1995 of $366.0
million. Excluding the approximate $22.0 million in deposits acquired via the
Premier Bank acquisition, deposits increased $2.3 million, or .6%, from December
31, 1995.
Shareholders' Equity and Capital Adequacy
The Company's primary source of new capital is retained earnings. Also, the
Company increased its capital by $742,000 during the period ended September 30,
1996 in accordance with its Rescission Offer, as further described in Note 4 to
the Condensed Consolidated Financial Statements.
The Federal Reserve Board, the FDIC and other agencies which regulate financial
institutions have adopted capital adequacy standards applicable to financial
institutions. These standards are intended to reflect the degree of risk
associated with both on and off balance sheet items and to assure that even
those institutions that invest predominately in low risk assets maintain a
certain minimum level of capital. The following table sets forth the Company's
capital position at September 30, 1996. The Company exceeds all regulatory
capital requirements.
<TABLE>
<CAPTION>
==========================================================================
Capital Ratios at
September 30, 1996
- --------------------------------------------------------------------------
Required
Minimum Company's
Ratio Ratio
- --------------------------------------------------------------------------
<S> <C> <C>
Tier 1 risk-based capital 4.00% 12.18%
- --------------------------------------------------------------------------
Total risk-based capital 8.00% 13.43%
- --------------------------------------------------------------------------
Leverage Ratio 3.00% 9.78%
==========================================================================
</TABLE>
Liquidity and Growth
Liquidity refers to the ability of the Company to generate sufficient funds to
meet its financial obligations and commitments without significantly impacting
net interest income. One of the Company's objectives is to maintain a high level
of liquidity, and this goal continues to be met. Maintaining liquidity ensures
that funds will be available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of other
13
<PAGE>
deposits and liabilities. These obligations can be met by existing cash reserves
of funds from maturing loans and investments, but in the normal course of
business are met by deposit growth. Increased deposits and retained earnings are
also the sources for the Company's continued growth.
During the nine month period ended September 30, 1996, operating activities of
the Company provided $5,546,000 of cash flows. Net income of $5,732,000,
adjusted for non-cash operating activities, provided the majority of cash
generated from operations.
Investing activities, including lending, used $8,148,000 of the Company's cash
flow. While the decrease in investment securities and federal funds provided
$42,998,000 in funds, loans originated, net of principal collected, used
$49,726,000 in funds. Because of the relatively small increase in deposits, as
described below, the Company had to rely on reducing its investment securities
and federal funds as the major funding mechanism for its continued loan growth.
Net additional cash inflows of $7,471,000 were provided by financing activities.
Net deposit increases accounted for $2,331,000 of the funds provided, as
deposits began their normal seasonal increase. In addition to the net increase
in deposits, the increases in securities sold under agreements to repurchase,
other borrowings, net, and cash provided via the acquisition of Premier Bank
provided $1,093,000, $3,429,000 and $1,730,000 in cash inflows, respectively.
Partially offsetting these cash inflows were cash dividends paid in the amount
of $1,516,000.
The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented 19.6% of total deposits at
September 30, 1996, a decrease from 29.5% at December 31, 1995.
Interest Sensitivity
Deregulation of interest rates and short-term, interest-bearing deposits which
are more volatile have created a need for shorter maturities of earnings assets.
An increasing percentage of commercial and installment loans is being made with
variable rates or shorter maturities to increase liquidity and interest rate
sensitivity. The difference between interest sensitive asset and interest
sensitive liability repricing within time periods is referred to as the interest
rate sensitivity gap. Gaps are identified as either positive (interest sensitive
assets in excess of interest sensitive liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets). The Company
possesses a positive gap and, accordingly, its net interest income will increase
in a rising interest rate environment. Conversely, the Company's net interest
income will decrease in a declining interest rate scenario due to its positive
gap position.
14
<PAGE>
Inflation
The effect of inflation on financial institutions differs from the impact on
other types of businesses. Since assets and liabilities of banks are primarily
monetary in nature, they are more affected by changes in interest rates than by
the rate of inflation.
Inflation generates increased credit demand and fluctuation in interest rates.
Although credit demand and interest rates are not directly tied to inflation,
each can significantly impact net interest income. As in any business or
industry, expenses such as salaries, equipment, occupancy and other operating
expenses are also subject to the upward pressures created by inflation.
Since the rate of inflation has been stable during the last several years, the
impact of inflation on the earnings presented in this report is insignificant.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. Management
currently is not aware of any material legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of their
property is subject.
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
On October 25, 1996, the Company's wholly owned subsidiary, Greene
County Bank, completed the acquisition of all the assets and
liabilities of American Fidelity Bank, which is also the Company's
wholly owned subsidiary.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule(for SEC use only)
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Greene County Bancshares, Inc.
------------------------------
Registrant
Date: 11/1/96 /s/
------------ ------------------------------
R. Stan Puckett
President and CEO
(Duly Authorized Officer)
Date: 11/1/96 /s/
------------ ------------------------------
William F. Richmond
Senior Vice-President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,592
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0
0
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</TABLE>
