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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For fiscal year ended December 31, 1995.
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 (I.R.S. Employer
incorporation or organization) Identification Number)
Main & Depot Street
Greeneville, Tennessee 37743
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 423/639-5111
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10 per share
(Title of class)
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 periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ].
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The aggregate market value (computed on the basis of the most recent trades of
which the Registrant was aware) of shares of the Common Stock ($10 par value
per share) held by non-affiliates of the Registrant as of March 1, 1996 was
$67,012,810.
The number of shares outstanding of the issuer's common stock as of March 1,
1996: Common Stock, $10 Par Value--442,492 shares.
Documents Incorporated by Reference
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K into which the document is incorporated:
1. Those portions of the Proxy Statement to be dated and mailed to
stockholders of Greene County Bancshares, Inc. on or before May 3,
1996 ("1996 Proxy Statement") incorporated herein by reference in
Part III, Items 9, 10, 11, 12 and 13.
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PART I
ITEM 1. BUSINESS
General. Greene County Bancshares, Inc. (the "Registrant" or "Company") was
organized under Tennessee law and incorporated on January 18, 1985, in order to
acquire 100% of the common stock of the Greene County Bank of Greeneville,
Tennessee.
Organization. The Registrant commenced business on July 16, 1985. The
acquisition of Greene County Bank ("GCB") also was consummated on that date. A
detailed description of that transaction is contained in the Registrant's
Registration Statement on Form S-14 (No. 2-96273), which was previously filed
with the Commission.
Greene County Bank was established in 1890 as a Tennessee state chartered bank.
At December 31, 1995, it had total assets of $342,095,784 and reported net
income for the year then ended of $4,459,643. As a commercial bank, Greene
County Bank provides complete banking services which include checking and
savings accounts for individuals, partnerships, corporations, municipalities,
banks and others, business, real estate, interim construction, personal and
installment loans, trust services, collection services, safe deposit box
facilities, and a number of special services. At December 31, 1995, Greene
County Bank had seven full service banking offices located in Greene County,
Tennessee; two full service banking offices located in Washington County,
Tennessee; and full service banking offices located in Hamblen County, Sullivan
County, and Hawkins County, Tennessee. The Registrant owns 100% of the stock of
Greene County Bank.
On November 3, 1989, the Registrant acquired American Fidelity Bank ("American
Fidelity" or "AFB"), a Tennessee banking corporation located at 325 Joule,
Alcoa, Tennessee 37701. American Fidelity is a wholly owned subsidiary of the
Registrant. A detailed description of the AFB acquisition transaction is
contained in the Registrant's Registration Statement on Form S-4 (No. 33-30102),
which was previously filed with the Commission.
American Fidelity is a Tennessee state chartered banking corporation organized
in 1977. At December 31, 1995, it had total assets of $78,790,469 and reported
net income for the year then ended of $725,031. American Fidelity also offers
the customary banking services provided by most full service banks. American
Fidelity does not operate a trust department. American Fidelity conducts its
business from a main office located in Alcoa, Tennessee and two branch offices,
one located in Maryville, Tennessee and another in Knoxville, Tennessee. The
Registrant owns 100% of the stock of American Fidelity.
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On November 17, 1995, Greene County Bank purchased a branch location in Bulls
Gap, Tennessee from First Union National Bank of Tennessee. The transaction
involved the assumption of deposits and the acquisition of the real estate and
fixed assets. The branch opened for business on November 20, 1995 as the "Bank
of Bulls Gap, a Greene County Bank office," and will be operated as a branch of
Greene County Bank. The purchase entailed the assumption of approximately $14.2
million of deposits, consisting of $1.2 million demand deposit accounts ("DDA"),
$2.3 million N.O.W. accounts, $2.7 million savings accounts, $.8 million
individual retirement accounts ("IRA"), and $7.1 million in certificates of
deposit. A premium of 5.5% was paid for the deposits acquired, which totaled
$780,763. The premium will be amortized over a 15 year period. The real property
was acquired for approximately $149,000 and the fixed assets for approximately
$13,000, both of which will be depreciated according to generally accepted
accounting practices.
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, and will result 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. The Company is taking the necessary steps to
merge Premier Bancshares, Inc. into the Company since Premier now has no assets
other than the stock of Premier Bank; and, the Company expects to complete that
transaction on or before March 31, 1996. The result of this transaction will be
that the stock of Premier Bank will then be 100% owned by the Company.
Responsibility for the management of each subsidiary bank, including GCB, AFB
and Premier Bank (collectively the "Subsidiary Banks"), resides with the Board
of Directors and officers of each Subsidiary Bank. Management services rendered
to each Subsidiary Bank by the Company are intended to supplement the internal
management of each Subsidiary Bank and to expand the scope of banking services
normally offered by each Subsidiary Bank.
Regulation and Supervision.
The Company. The Company is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the
"Act"), and is registered with the Board of Governors of the
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Federal Reserve System (the "Board"). The Company is required to file with the
Board quarterly reports and such additional information as the Board may require
pursuant to the Act.
The Act requires every bank holding company to obtain the prior approval of the
Board before acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank or bank holding company which is not majority
owned by the Company. The Act provides that the Board shall not approve any
acquisition, merger or consolidation which would result in a monopoly or which
would be in furtherance of any combination or conspiracy to monopolize the
business of banking or any other transaction, the effect of which might be to
substantially lessen competition or in any manner be a restraint on trade,
unless the anti-competitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served.
The Act also prohibits a bank holding company, with certain exceptions, from
engaging in, or acquiring more than 5% of the voting stock of any company
engaging in activities other than banking or managing or controlling banks or
furnishing services to or performing services for their subsidiaries. In making
such determination, the Board is required to consider whether the performance of
such activities by a bank holding company or its subsidiaries can reasonably be
expected to produce benefits to the public such as greater convenience,
increased competition or gains in efficiency of resources, versus the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest or unsound banking practices.
The Subsidiary Banks. As state member banks with deposits issued by the FDIC,
the Subsidiary Banks of the Company are subject to the supervisory and
regulatory authority of the FDIC and the Tennessee Department of Financial
Institutions.
At December 31, 1995, Greene County Bank and American Fidelity could pay
dividends aggregating approximately $8,389,000, without obtaining prior approval
from the bank regulatory authorities.
Transactions with Affiliates. There are various legal restrictions on the extent
to which the Company and any future nonbank subsidiaries can borrow or otherwise
obtain credit from the Subsidiary Banks. There also are legal restrictions on
the Subsidiary Banks' purchase of or investments in the securities of and
purchases of assets from the Company and any of its future nonbank subsidiaries,
a bank's loans or extensions of credit to third parties collateralized by the
securities or obligations of the Company and any of its future nonbank
subsidiaries, the issuance of guaranties, acceptances and letters of credit on
behalf of the Company and any of its future nonbank subsidiaries, and certain
bank transactions with the Company and any of its future
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nonbank subsidiaries, or with respect to which the Company and nonbank
subsidiaries, act as agent, participate or have a financial interest. Subject to
certain limited exceptions, the Subsidiary Banks may not extend credit to the
Company or to any other affiliate in an amount which exceeds 10% of the
Subsidiary Bank's capital stock and surplus and may not extend credit in the
aggregate to such affiliates in an amount which exceeds 20% of its capital stock
and surplus. Further, there are legal requirements as to the type, amount and
quality of collateral which must secure such extensions of credit transactions
between the Subsidiary Bank and the Company or such other affiliates, and such
transactions must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
Subsidiary Bank as those prevailing at the time for comparable transactions with
non-affiliated companies. Also, the Company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
Capital Adequacy. The federal banking agencies have adopted risk- based capital
guidelines for banks and bank holding companies. The minimum guideline for the
ratio of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%, and
the minimum ratio of Tier I Capital must be composed of common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill and certain other intangible assets ("Tier I Capital"). The
remainder may consist of subordinated debt, other preferred stock and a limited
amount of loan loss reserves.
In addition, the federal banking agencies have established minimum leverage
ratio guidelines for banks and bank holding companies. Their guidelines provide
for a minimum ratio of Tier I Capital to average assets, less goodwill and
certain other intangible assets (the "Leverage Ratio"), of 3% for banks that
meet certain specific criteria, including having the highest regulatory rating.
All other banks generally are required to maintain a Leverage Ratio of at least
3%, plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that banks experiencing internal growth or making acquisitions will be
expected to maintain a strong capital position substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"Tangible Tier I Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies,including the termination of deposit insurance by the FDIC,
and to certain restrictions on its business. See "FDICIA."
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All the federal banking agencies have proposed regulations that would add an
additional risk-based capital requirement based upon the amount of an
institution's exposure to interest rate risk. In addition, bank regulators
continue to indicate their desire generally to raise capital requirements
applicable to banking organizations beyond their current levels. However, the
management of the Subsidiary Banks is unable to predict whether and when higher
capital requirements would be imposed and,if so, at what levels and on what
schedule.
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") which was enacted on December 19, 1991, substantially revised the
depository institution regulatory and funding provisions of the FDIA and made
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of FDIC-insured depository institutions that do not meet minimum capital
requirements. FDICIA established five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under applicable regulations, a FDIC-insured
depository institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk adjusted Tier I Capital Ratio of at least
6% and a Total Capital Ratio of at least 10% and is not subject to a directive,
order or written agreement to meet and maintain specific capital levels. An
insured depository institution is defined to be adequately capitalized if it
meets all of its minimum capital requirements as described above. In addition,
an insured depository institution will be considered undercapitalized if it
fails to meet any minimum required measure, significantly undercapitalized if it
is significantly below any such measure, and critically undercapitalized if it
fails to maintain a level of tangible equity equal to not less than 2% of total
assets. An insured depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institution.
However, the Federal Reserve has indicated that, in regulating bank holding
companies, it will take appropriate action at the holding company level based on
an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.
Although the capital categories defined under the prompt corrective action
regulations are not directly applicable to the Company under existing law and
regulations, if the Company were placed in a capital category, the Company
believes that it would qualify as "well capitalized" as of December 31, 1995.
FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of
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dividends) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. Undercapitalized depository
institutions are subject to restrictions on borrowing from the Federal Reserve.
In addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
FDICIA contains numerous other provisions, including new accounting, audit and
reporting requirements, termination of the "too big to fail" doctrine except in
special cases, limitations on the FDIC's payment of deposits at foreign
branches, new regulatory standards in such areas as asset quality, earnings and
compensation and revised regulatory standards for, among other things, powers of
state banks, real estate lending and capital adequacy. FDICIA also requires that
a depository institution provide 90 days prior notice of the closing of any
branches. Complete regulations have not yet been issued under FDICIA.
Various other legislation, including proposals to revise the bank regulatory
system and to limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress.
FDIC Insurance Premiums. The Subsidiary Banks are required to pay semiannual
FDIC deposit insurance assessments. However, the FDIC has recently lowered
assessment rates in recognition of the fact that the Bank Insurance Fund has
achieved its legally mandated reserve ratio. Under the new rate structure, the
most financially sound banks have had their assessment lowered from 23 cents per
$100 of insured deposits to 4 cents per $100 of insured deposits. Banks that
overpaid assessments during the first half of the year have received appropriate
refunds. Each financial institution is assigned to one of three capital groups
- -- well capitalized, adequately capitalized or undercapitalized -- and further
assigned to one of three subgroups with a capital group, on the basis of
supervisory evaluations by the institution's primary federal and,
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if applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable FDIC
deposit insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC.
The FDIC is authorized by federal law to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the
Subsidiary Banks and the Company's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Interstate Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Interstate Act"), which was enacted on September 29, 1994, among other
things and subject to certain conditions and exceptions, (i) permits bank
holding company acquisitions, commencing one year after enactment, of banks of a
minimum age of up to five years as established by state law in any state, (ii)
permits mergers of national and state banks after May 31, 1997 across state
lines unless the state has opted out of the interstate bank merger provisions,
(iii) permits branching de novo by national and state banks into other states if
the state has opted-in to this provision of the Interstate Act, and (iv) permits
certain interstate bank agency activities one year after enactment. Regulations
have not yet been issued under the Interstate Act.
Regulatory proposals have been discussed and proposed by governmental
authorities and bills pertaining to such proposals have been and are expected to
be introduced in Congress. At this time the Company cannot reasonably estimate
the effect any proposals will have on it or its subsidiaries.
Market Analysis
The market area of the Company, consisting of Greene, Hamblen, Hawkins,
Washington, Sullivan, Blount and Knox counties, Tennessee, has taken on a global
nature in recent years. Many foreign firms have made significant investments in
the area.
The Greene County market area unemployment rate increased from 5.2% in the third
quarter of 1994 to 5.4% in the third quarter of 1995. During the third quarter
of 1995, the market area's unemployment rate was higher than the state
unemployment rate of 5.3%, but lower than the national unemployment rate of
5.6%, and Washington County had an unemployment rate of 4.2%.
Year end unemployment rates by county are: Greene 7.4% (up above 11% in January,
'96), Hamblen 3.5%, Hawkins 4.3%, Washington 3.0%, Sullivan 3.0%, Knox 2.6% and
Blount 3.9%.
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Greene, Hamblen, Hawkins, Washington and Sullivan Counties had an estimated
total population at January 1, 1995 of approximately 297,500. Retail sales
totaled approximately $3 billion during 1994. At January 1, 1995, Knox and
Blount Counties had an estimated total population of 455,000. Retail sales
totaled approximately 5.4 billion during 1994. (Source: 1995 Survey of Buying
Power).
Of the goods producing employment sector, construction and mining employment
increased by a strong 8.3%. New contracts for nonresidential construction in the
market area was up 2.6% for the first three quarters of 1995 compared to the
first three quarters of 1994. Durable goods manufacturing employment was up
4.3%. However, non-durable goods manufacturing employment decreased after two
quarters of growth. Goods producing employment remained steady this quarter,
increasing by 1.6%.
The service producing employment sector fared well during the third quarter of
1995 when compared to the third quarter of 1994. Government, finance, and real
estate, and service industries employment all had growth over 5%. Trade
employment increased by almost as much, increasing by 4.9%. Only transportation,
communication, and public utilities employment had a decrease in employment in
the service sector producing employment sector. However, the sector had over 20%
growth in 1994.
Trade activity indicators were mixed during the third quarter of 1995 when
compared to the third quarter of 1994. Retail sales continued to be strong for
the third quarter of 1995, despite the fact that its growth was less than half
what it was in the second quarter of 1995. Realty and mortgage fees increased
for the first time since the third quarter of 1994.
Competition
The banking industry is highly competitive. The Company, through its
subsidiaries, competes with other banks for both loans and deposits. Other
financial institutions, including savings and loan associations and credit
unions, also compete with the Company's subsidiaries for depository accounts and
loans.
In the following paragraphs, reference is made to the Company's competitive
position as measured in terms of deposits and total assets as of December 31,
1995. Any such reference is intended solely as a method of placing the
competition in perspective as of that particular date. Due to the intense
competition in the banking business, the Company makes no representation that
its competitive position has remained constant, nor can it predict whether its
position will change in the future.
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On December 31, 1995, Greene County Bank had total deposits of $296,990,975 and
total assets of $342,095,784. As such, Greene County Bank ranked as the largest
financial institution in its market area, generally considered to be Greene
County, Tennessee. In Greene County, there are seven commercial banks, operating
24 branches and holding an aggregate of approximately $547,902,000 in deposits
as of June 1995. Greene County Bank currently is ranked first in Greene County
in terms of deposits and total assets, holding approximately 45% of deposits. In
the surrounding counties of Washington, Sullivan, Hamblen and Hawkins, Greene
County Bank's market share does not exceed 5% of total deposits.
On December 31, 1995, American Fidelity had total deposits of $70,919,384 and
total assets of $78,790,469. American Fidelity's primary market area is
comprised of the City of Alcoa, Tennessee, the City of Maryville, and Blount and
southern Knox Counties. American Fidelity competes primarily with five
commercial banks, two of which are subsidiaries of the largest bank holding
companies located in Tennessee. American Fidelity currently is ranked fourth in
its market area in terms of both total deposits and total assets, holding
approximately 5% of the market.
Sources and Availability of Funds. The resources essential to the business of
the Company and its subsidiary banks consist primarily of funds derived from
deposits and repurchase agreements and long-term debt. The Company's banking
subsidiaries use these funds to make loans and to fund their respective
investment portfolios. The availability of such funds is primarily dependent
upon the economic policies of the government, the economy in general and access
to traditional funding sources for commercial banks.
Monetary Policy and Economic Controls. The earnings of the Company's banking
subsidiaries, and therefore, to a large extent the earnings of the Company, are
affected by the policies of regulatory authorities, including the Federal
Reserve System. An important function of the Federal Reserve System is to
regulate the national supply of bank credit in order to combat recession and
curb inflation. Among the instruments used to attain these objectives are open
market operations in U. S. Government securities and changes in the reserve
requirements applicable to member bank deposits. These instruments are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use also may affect interest rates charged
on loans or paid for deposits.
Policies of the regulatory agencies have had a significant effect on the
operating results of commercial banks in the past and are expected to do so in
the future. The effect, if any, of such policies upon the future business and
income of the Company and its bank subsidiaries cannot be predicted with
accuracy.
Research. The Company makes no expenditures for research and
development.
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Personnel. The Company and its banking subsidiaries employed approximately 182
persons on a full-time equivalent basis at December 31, 1995.
Dependence Upon a Single Customer. Neither the Company nor the Subsidiary Banks
are dependent upon a single customer or very few customers.
ITEM 2. PROPERTIES
Banking Facilities. The Company's offices are located in Greene County Bank's
main office at Main and Depot Streets in the downtown area of Greeneville,
Tennessee. Greene County Bank has a main office and ten branch offices. Its
primary business location is Greeneville, Tennessee, the county seat of Greene
County. Greeneville has a population of approximately 15,000 and the Greene
County population is approximately 58,000.
Greene County Bank owns the building and land of its main office and the
Baileyton, Parkway, Tusculum, Hawkins County and one of the Washington County
Branches. The buildings of the Mosheim, Towne Square, West Greene and Hamblen
County Branches are owned by Greene County Bank, but the underlying real estate
is leased. The spaces in the Wal-Mart Superstores in Washington and Sullivan
Counties are leased. The leases range in remaining terms from 5 years to 30
years.
The location and general character of each of the branch offices are as follows:
<TABLE>
<CAPTION>
NAME LOCATION CHARACTER
<S> <C> <C>
Baileyton Branch Interstate 81, Exit 36 1650 Sq. Ft.
Baileyton, TN 1 story-
brick veneer
Parkway Branch 11E Bypass & Taylor Rd. 1820 Sq. Ft.
(with ATM) Greeneville, TN 1 story-
brick veneer
Mosheim Branch 11E & Spring Street 1694 Sq. Ft.
(with ATM) Mosheim, TN 1 story-
brick veneer
Towne Square Towne Square Shopping 3600 Sq. Ft.
Branch Center 1 story-
Greeneville, TN brick
Tusculum Branch Eastgate Shopping Center 3583 Sq. Ft.
(with ATM and Greeneville, TN 1 story-
detached drive wood and
through windows) brick
</TABLE>
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<TABLE>
<S> <C> <C>
West Greene West Greene Shopping 2080 Sq. Ft.
Branch (with ATM) Center 1 story-
Greeneville, TN brick veneer
Washington County 410 North Boone Street 3127 Sq. Ft.
Branch Jonesborough, TN 1 story-
(with ATM) brick veneer
Washington County 3111 Brown Mill Road 750 Sq. Ft.
Branch Johnson City, TN inside
(with ATM) Wal-Mart
Superstore
Hamblen County 1908 West AJ Highway 900 Sq. Ft.
Branch Morristown, TN 1 story-
(with ATM) brick veneer
Sullivan County 3200 Fort Henry Dr. 750 Sq. Ft.
Branch Kingsport, TN inside
(with ATM) Wal-Mart
Superstore
Hawkins County 105 N. Main St. 4500 Sq. Ft.
Branch Bulls Gap, TN 2 story-
brick veneer
</TABLE>
American Fidelity has three locations from which normal banking activities are
conducted. ATM's are located at the main office location. American Fidelity owns
its main office facilities. The Maryville Branch land and building is owned by
the Company. The Knoxville Branch location is leased.
<TABLE>
<CAPTION>
NAME LOCATION CHARACTER
<S> <C> <C>
Main Office 325 Joule Street 4400 sq. ft.
Alcoa, Tennessee 2 stories -
brick veneer
Maryville Branch 403 Foothills Mall Road 2800 sq. ft.
Maryville, Tennessee 1 story -
brick veneer
Knoxville Branch 11130 Kingston Pike 386 sq. ft.
Farragut, Tennessee inside the
Red Food
Store
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. None of the legal
proceedings currently pending or threatened to which the Company or its banking
subsidiaries is or may be made a party or of which any of their properties is
subject,
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is reasonably likely to have, in the opinion of management of the Company, any
material adverse effect on the Company's liquidity, capital, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1995, there were 1,351 holders of the Company's Common Stock.
There is no established trading market for shares of the Company's Common Stock.
The Company has information regarding 95 transactions involving 7,514 shares of
the Company's common stock in which the stock traded for prices ranging from
$170 to $190 per share during the twelve months ended December 31, 1995, not
including sales of 5,009 shares of the Company's common stock which are subject
to a rescission offer.
Holders of the Company's Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company paid cash dividends of $4.60 and $4.06 per share
during 1995 and 1994, respectively. Any cash dividends to be paid by the
subsidiary banks will be paid to the Company as the sole shareholder of the
subsidiary banks. No representations can be made as to if or when the subsidiary
banks will pay cash dividends in the future. The Company's ability to pay
dividends to its shareholders depends on the amount of dividends paid to the
Company by the subsidiary banks. Although the Company expects to pay cash
dividends in the future comparable to the dividends paid in the prior two years,
as a result of the Company's dependence on the subsidiary banks, management
cannot represent with certainty that the Company will pay dividends in the
future or the amount of such dividends, if any.
-12-
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
====================================================================================================
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SUMMARY OF EARNINGS AND FINANCIAL CONDITION
FOR THE YEARS ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------------
(In thousands of dollars, except per share data)
- ----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue from earning $31,491 $23,625 $21,638 $21,414 $23,002
assets
- ----------------------------------------------------------------------------------------------------
Total interest expense 13,444 8,497 8,197 8,774 11,850
- ----------------------------------------------------------------------------------------------------
Net revenue from earning 18,047 15,128 13,441 12,641 11,152
assets
- ----------------------------------------------------------------------------------------------------
Provision for loan losses 1,424 994 834 1,611 1,256
- ----------------------------------------------------------------------------------------------------
Net revenue from earning 16,623 14,134 12,607 11,136 9,896
assets after provision for
loan losses
- ----------------------------------------------------------------------------------------------------
Add:
- ----------------------------------------------------------------------------------------------------
Investment securities 0 0 15 74 24
gains (losses)
- ----------------------------------------------------------------------------------------------------
Other revenue 2,959 2,538 1,951 1,291 993
- ----------------------------------------------------------------------------------------------------
Subtract:
- ----------------------------------------------------------------------------------------------------
Operating expenses 11,722 9,660 8,035 6,877 6,136
- ----------------------------------------------------------------------------------------------------
Income before income taxes 7,860 7,011 6,538 5,518 4,777
- ----------------------------------------------------------------------------------------------------
Applicable income taxes 2,752 2,510 2,221 1,763 1,227
- ----------------------------------------------------------------------------------------------------
Net income before 5,108 4,501 4,317 $ 3,755 $ 3,550
accounting change
- ----------------------------------------------------------------------------------------------------
Accounting change 0 0 52 0 0
- ----------------------------------------------------------------------------------------------------
Net income $ 5,108 $ 4,501 $ 4,265 $ 3,755 $ 3,550
======= ===== ===== ====== ======
- ----------------------------------------------------------------------------------------------------
Per Share Data:
- ----------------------------------------------------------------------------------------------------
Net income $ 11.45 $ 10.16 $ 9.56 $ 8.41 $ 7.95
- ----------------------------------------------------------------------------------------------------
Dividends declared $ 4.60 $ 4.06 $ 3.67 $ 3.22 $ 3.00
- ----------------------------------------------------------------------------------------------------
Book value $ 92.83 $ 84.06 $ 79.27 $ 73.96 $ 68.77
- ----------------------------------------------------------------------------------------------------
Selected Ratios:
- ----------------------------------------------------------------------------------------------------
Return on average assets 1.35% 1.38% 1.41% 1.38% 1.40%
- ----------------------------------------------------------------------------------------------------
Return on average equity 13.17% 12.32% 12.35% 11.54% 12.27%
- ----------------------------------------------------------------------------------------------------
Average equity to average 10.24% 11.17% 11.43% 11.89% 11.44%
assets
- ----------------------------------------------------------------------------------------------------
Ratio of allowance for 239.16% 264.14% 80.37% 114.90% 111.97%
loan losses to
nonperforming loans
- ----------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of allowance for 1.55% 1.39% 1.54% 1.35% 1.04%
loan losses to total loans
- ----------------------------------------------------------------------------------------------------------
Financial Condition Data:
- ----------------------------------------------------------------------------------------------------------
Assets $420,581 $345,525 $313,577 $288,713 $267,895
- ----------------------------------------------------------------------------------------------------------
Loans, net $293,834 $241,253 $192,127 $179,011 $170,002
- ----------------------------------------------------------------------------------------------------------
Cash and investment $ 83,998 $ 85,460 $ 99,815 $ 92,966 $ 72,336
securities
- ----------------------------------------------------------------------------------------------------------
Federal funds sold $ 23,800 $ 3,550 $ 8,270 $ 6,465 $ 16,833
- ----------------------------------------------------------------------------------------------------------
Deposits $365,951 $298,162 $267,281 $245,647 $227,416
- ----------------------------------------------------------------------------------------------------------
Long term debt $ 3,448 $ 3,688 $ 3,914 -- --
- ----------------------------------------------------------------------------------------------------------
Other borrowed funds $ 8,232 $ 7,566 $ 9,558 $ 7,775 $ 7,400
- ----------------------------------------------------------------------------------------------------------
Shareholders' equity $ 41,074 $ 37,190 $ 35,046 $ 33,033 $ 30,716
==========================================================================================================
</TABLE>
-14-
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial condition and
results of operations of Greene County Bancshares, Inc. and subsidiaries (the
"Company") for each of the fiscal years in the three year period ended December
31, 1995. The Company is not aware of any recommendations by the regulatory
authorities which, if implemented, would have a material effect on the issuer's
liquidity, capital resources or operations.
For a complete understanding of this discussion, reference should be made to the
Company's audited financial statements, the accompanying notes and the selected
financial data presented elsewhere in this Form 10-K.
Earnings
The following table highlights certain key financial operating statistics for
the three years ended December 31, 1995:
<TABLE>
<CAPTION>
=============================================================================================================================
1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 5,108,440 $ 4,501,396 $ 4,264,909
- ---------------------------------------------------------------------------------------
Earnings Per Share $ 11.45 $ 10.16 $ 9.56
- ---------------------------------------------------------------------------------------
Return on Average Assets 1.35% 1.38% 1.41%
- ---------------------------------------------------------------------------------------
Return on Average Equity 13.17% 12.32% 12.35%
- ---------------------------------------------------------------------------------------
Dividend Payout Ratio 40.17% 39.89% 38.41%
- ---------------------------------------------------------------------------------------
Average Equity to Average 10.24% 11.17% 11.43%
Asset Ratio
=======================================================================================
</TABLE>
Greene County Bancshares, Inc. net income for 1995 was $5,108,440,
which represents a 13.4% increase when compared to 1994's net
income of $4,501,396. Net income for 1994 was a 5.5% increase over
net income of $4,264,909 for 1993.
Net Interest Income
The largest source of earnings for the Company is net interest income, which is
the difference between interest 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 interest bearing liabilities, and the ability to respond to changes
in interest rates through asset/liability management. During 1995 net interest
income after provision for loan losses, was $16,623,418, as compared to
$14,133,817 in 1994, an increase of 17.61%. Net interest income, after provision
for loan losses was $12,607,471 in 1993. The increase in 1995 was attributable
to both rate and volume increases of earning assets. The increases
-15-
<PAGE> 18
for 1994 and 1993 are primarily attributable to increases in volume of earning
assets.
Loans produced the largest component of interest income, contributing
$26,758,857 in 1995, $19,105,995 in 1994, and $16,943,729 in 1993, representing
increases of 40.05% in 1995, and 12.76% in 1994, and 2.77% in 1993. The increase
in 1995 reflects the net effect of growth in the volume and increase in yield of
loans outstanding. In 1995 the average yield on loans increased to 9.84% from
8.89% in 1994. 1993's average yield on loans was 9.20%. At December 31, 1995,
loans, net of unearned income and allowance for loan losses, were $293.9 million
compared to $241.3 million at 1994 year end. The increase is primarily due to
increases in commercial and installment lending. Average loans, net of unearned
interest, for 1995 were $271.9 million, up 26.6% from 1994's average of $214.8
million. The average outstanding loans for 1993 were $184.1 million. The average
growth in loans for the past three years can be attributed to the market
expansion into surrounding counties and indirect financing. Through most of
1995, the prime rate was at its highest level since 1991, prime also increased
during 1994 and was stationary during most of 1993.
Average investment securities for 1995 were $69.0 million, compared to $84.4
million in 1994, and $84.3 million in 1993. In 1995 the average yield on
investments was 5.94%, an increase from 5.09% in 1994 and 5.24% in 1993. Income
provided by the investment portfolio in 1995 was $4,104,976, as compared to
$4,297,561 in 1994, and $4,423,181 in 1993. The decline in growth in investments
from 1994 to 1995 was the result of funding the large loan growth experienced by
the Company. Income provided by federal funds sold totaled $627,135 in 1995,
compared to $221,094 in 1994, and $271,293 in 1993. Average yields on federal
funds sold were 5.42% in 1995, 3.91% in 1994 and 2.94% in 1993.
The increase in interest income from loans for 1995 is attributable to both an
increase in volume and rates. Volume increase can be attributed to the
expansion of market boundaries where additional deposits were attracted. In
1994 the drop in volume is attributed to new branch openings where loan volume
grew faster than deposit volume. Total interest expense for the Company
increased 58.22% in 1995, preceded by an increase of 3.66% in 1994 and a
decrease of 6.57% in 1993. Interest expense consisted primarily of interest
paid on deposits, which totaled $13,016,821 in 1995, $8,030,556 in 1994, and
$7,828,275 in 1993. The Company's average deposit base grew 17.69% in 1995,
8.82% in 1994 and 12.24% in 1993. The average of total deposits increased to
$302.7 million in 1995 from $257.2 million in 1994 and $236.3 million in 1993.
The increases can be attributed to the expansion of market area over the past
three years. The cost of interest bearing deposits increased in 1995 to an
average effective rate of 4.30%, as compared to 3.12% in 1994 and 3.31% in
1993. The cost increase in 1995 is attributed to higher rates for the larger
part of 1995 and to customers locking in rates on longer term time deposits
which historically carry higher rates. The decrease in 1994 of the average cost
of deposits is attributed to customers
-16-
<PAGE> 19
moving into money market and N.O.W. accounts in anticipation of increasing
rates.
The deregulation of interest rates has given banks more opportunity to attract
deposits and has created a public which is more interest rate sensitive. As a
result, banks are paying interest on a continually increasing portion of their
deposit base. Over the last three years, effective rates paid on deposits have
increased as indicated above. Net interest margin, the percentage of net
interest income to average earning assets, was 5.12% in 1995, 4.96% in 1994 and
4.84% in 1993. The Company's ability to maintain a favorable spread between
interest income and interest expense is a major factor in generating earnings;
therefore, it is necessary to effectively manage earning assets and interest
bearing liabilities. As the percentage of interest bearing deposits compared to
total deposits increases and rates become more competitive, it becomes
increasingly more difficult to maintain the Company's spread.
Non-interest Income and Expense
Income that is not related to interest bearing assets, consisting primarily of
service charges, commissions and fees, has become more important as increases in
levels of interest bearing deposits make it more difficult to maintain net
interest income spreads.
Total non-interest income for 1995 was $2,958,697, as compared to $2,538,214 in
1994, and $1,966,548 in 1993. The largest component of non-interest income is
service fees on deposit accounts, which totaled $1,155,621 in 1995, $971,878 in
1994 and $724,517 in 1993. The growth for all periods is attributed to growth in
account volume as there has been no major increase in fees charged on accounts.
Control of operating expense also is an important aspect in managing net income.
Operating expenses include personnel, occupancy, and other expenses such as data
processing, printing and supplies, legal and professional fees, postage, Federal
Deposit Insurance Corporation assessment, etc. Total other operating expenses
were $11,721,414 in 1995, compared to $9,660,313 in 1994 and $8,035,484 in 1993.
Personnel costs are the primary element of the Company's other operating
expenses. In 1995 salaries and benefits represented $5,826,564 or 49.71% of
total other operating expenses. This was an increase of $1,075,972 or 22.65%
over 1994's total of $4,750,592. The 1993 personnel costs were $3,880,038. These
increases in personnel costs can be attributed to opening new branches in an
expanded trade area. The number of employees increased to 182 in 1995 as
compared to 162 in 1994.
Other operating expenses excluding personnel costs in 1995 were $5,894,850, an
increase of $985,129 or 20.06% over 1994's $4,909,721. $341,023 of this change
was due to an increase of furniture and equipment expenses primarily for new
branches that
-17-
<PAGE> 20
were opened. Assessments by the FDIC decreased by $270,358 due primarily to
decreased and eliminated premiums. The deposit insurance premium rate increased
from .12% of deposits in 1990 to .23% for 1991 to mid 1995, at which time it was
lowered to .04% and later abolished entirely. In 1995 the premium paid totaled
$346,501, in 1994 $616,859 and 1993 $554,714.
Earning Assets
Total assets at December 31, 1995 were $420.6 million, an increase of $75.1
million, or 21.7%, over 1994's year end total assets of $345.5 million. Average
assets for 1995 were $378.7 million, an increase of $51.6 million or 15.7% over
1994 average assets of $327.1 million. This increase is the result of normal
growth and was funded by increases in deposits. Return on average assets was
1.35% in 1995, as compared to 1.38% in 1994 and 1.41% in 1993.
Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 1995 were $352.5
million, an increase of 15.61% from an average of $304.9 million in 1994.
Lending
Commercial Loans are generally underwritten by addressing cash flow (debt
service coverage), primary and secondary sources of repayment, strength of
guarantor if any, liquidity, leverage, management experience, ownership
structure, economic conditions and industry specific trends and collateral. The
loan to value ratio depends on the type of collateral. Generally speaking,
accounts receivable are financed at 60% of accounts receivable less than 90 days
past due. If other collateral is taken to support the loan, the loan to value of
accounts receivable may approach 85%. Inventory financing will range between 50%
and 100% depending on the borrower and nature of inventory. The Company's
subsidiary banks require a first lien position.
Commercial Real Estate Loans are generally underwritten by addressing cash flow
(debt service coverage), primary and secondary source of repayment, strength of
guarantor if any, strength of tenant if any, liquidity, leverage, management
experience, ownership structure, economic conditions and industry specific
trends and collateral. Generally, the Company's subsidiary banks will loan 80%
of value of improved property, 65% on raw land and 75% on land development. A
first lien on the property and assignment of lease will be taken if rental
property. Second lien positions are considered on a case by case basis.
Mortgage Installment and Installment Real Estate Loans are generally the 1 - 4
family housing loans and have a loan to value ratio of 85%. These loans are
underwritten by giving consideration to the ability to pay, stability of
employment or source of income, credit history and loan to value.
-18-
<PAGE> 21
Installment Consumer Loans are generally durable goods and short term consumer
financing. In general, loan to value is in the range of 80%. Debt service to
income should be in the range of 35%.
Other Loans consist primarily of smaller consumer debts of various structure.
Some are secured and others are unsecured. In general, the ability to pay and
demonstrated credit performance guide the underwriting decision.
Provision and Allowance for Loan Losses
Because the loan portfolio represents the Company's largest earning asset, the
Company continually monitors the quality of its loan portfolio. Greene County
Bancshares, Inc. operates in a diverse economy of manufacturing and agriculture
and, accordingly, most loans are made to commercial enterprises or consumers who
are directly supported by these enterprises. In 1995, Greene County Bancshares,
Inc. charged-off $671,962 in loans and recovered $455,778 in charged-off loans.
In 1994 and 1993, the Company charged-off loans, net of recoveries, of $609,226
and $300,766 respectively. The Company's allowance for loan losses increased to
$4,654,234 in 1995 from $3,446,762 in 1994. The allowance for loan losses in
1993 was $3,061,988. These increases are due to an overall increase in the total
loan portfolio.
All loans identified by management or regulatory authorities as losses are
charged-off against the allowance for loan losses. All other loans classified
for regulatory purposes do not require disclosure since in management's opinion
they do not (i) represent or result from trends or uncertainties which
management expects to materially impact future operating results, liquidity or
capital resources, or (ii) represent material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
Non-performing Loans
Non-performing loans are generally inclusive of non-accrual, classified loans.
The Company's subsidiary banks have a strict policy of placing loans 90 days
delinquent in non-accrual status and charging them off at 120 days past due.
Other loans past due that are extremely well secured and definitely in the
process of collection are carried. The Company's subsidiary banks have
aggressive collection practices in which senior management is much involved.
In the past three years the senior management teams of the subsidiary banks have
aggressively attempted to build loan loss reserves while at the same time
aggressively recognizing and dealing with delinquent problem loans. The ratios
support this effort. The ratio of net charge-offs to average loans outstanding
has declined. This is a combination of aggressively cleaning up the loan
portfolio and loan growth.
-19-
<PAGE> 22
The ratio of allowance for loan losses to non-performing loans is a function of
aggressive charge-off practices and building the reserves for loans. The ratio
depicts a growth from 1:1 to 2:1 over the five year period from December 1991
to December 1995.
The historical ratios of the allowance for loan losses to total loans generally
show an upward trend. The stated goal is to build the loan loss reserve to 2%.
If loans secured by cash, government guaranteed loans and income collected but
not earned are excluded, the 1995 year end ratio of the allowance for loan
losses to total loans approached 1.70%.
The factors and practices discussed above represent management's commitment to
quality asset management and risk assessment. Management knows of no other
potential loan problems that have not been disclosed.
Trends of Non-performing Assets
The general trend in the level of non-accrual loans has been mixed. The period
from 1991 to 1993 generally reflects a downward trend in the level of
non-accruals. This is generally attributed to an improvement in the economy. The
period from 1993 to 1995 reflects an upward trend in the level of non-accruals.
This is primarily due to a change in management emphasis to aggressively
recognizing non-performing loans and placing them in non-accrual status at 90
days past due, if such loans are not well collateralized and in the process of
collection.
From 1991 to 1993 Greene County Bank was heavily invested in non-recourse dealer
paper. This sector was primarily consumer installment and mobile homes, and a
portion of this paper was consistently delinquent. In 1993 three factors
generally helped Greene County Bank reduce its level of past due loans. The
regional economy improved, Greene County Bank's management initiated aggressive
collection practices, and losses were recognized and taken. All of these factors
improved the general level of delinquencies in 1994 and 1995.
Other Real Estate held by the subsidiary banks has declined due to disposing of
commercial properties securing troubled loans from the 1991 recession.
Management internally classifies certain loans as substandard based upon
overall credit quality indicators, such as cash flow concerns, legal issues,
delinquent payment, collateral position and the like. At December 31, 1995,
$2,773,000 in loans were considered substandard by the Company.
Investments
The Company maintains an investment portfolio to provide liquidity and earnings.
Investments at year end 1995 with an amortized cost of $69.9 million had a
market value of $70.3 million. At year end
-20-
<PAGE> 23
1994, investments with an amortized cost of $71.3 million had a market value of
$70.3 million.
In 1993, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires that investments
in certain debt and equity securities be classified as either held to maturity
(reported at amortized cost), trading (reported at fair value with unrealized
gains and losses included in earnings), or available for sale (reported at fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity). SFAS 115 was required to be
implemented for fiscal years beginning after December 15, 1993. Management
adopted SFAS 115 on January 1, 1994 and currently classifies a portion of the
portfolio as available for sale. The adoption of SFAS 115 did not have a
material impact on the subsidiary banks' financial position or results of
operations. (See Note 2 of the consolidated financial statements for a detailed
analysis of the securities.)
Deposits
The funds to support the Company's asset growth over the past three years have
been provided by increased deposits, which were $366.0 million at December 31,
1995. This represents an 22.7% increase from the deposits at year end 1994 of
$298.2 million, which was an increase of 11.6% from year end 1993 deposits of
$245.6 million. The increase is primarily the result of Greene County
Bancshares, Inc.'s aggressive efforts to attract new deposit customers.
In 1995, demand deposit balances increased 19.82% from 1994. 1994's increase was
8.4% compared to 1993. The respective year end balances for these three years
were $27.7 million, $23.1 million and $21.3 million.
Average interest-bearing deposits increased $45.5 million or 17.69% in 1995. In
1994 average interest-bearing deposits increased $20.9 million or 8.8% over
1993. These increases in time deposits reflect the public's increased awareness
of investment alternatives.
Interest paid on deposits in 1995 totaled $13,016,821, reflecting a 4.30% cost
on average interest-bearing deposits of $302.7 million. In 1994, interest of
$8,030,556 was paid at a cost of 3.12% on average deposits of $257.2 million. In
1993, interest of $7,828,275 was paid at a cost of 3.31% on average deposits of
$236.3 million.
Stockholders' Equity and Capital Adequacy
Sufficient levels of capital are necessary to sustain growth and absorb losses.
The Company exceeds all regulatory capital requirements. The Company's primary
source of new capital is undivided profits. Equity capital has been increased
through the retention of earnings by $3,056,248 in 1995, $2,705,578 in 1994 and
-21-
<PAGE> 24
$2,626,941 in 1993. As a percentage, the Company's internal capital generation
rate (net income less dividends declared as a percentage of average
stockholders' equity) was 7.88% in 1995, 7.41% in 1994 and 7.60% in 1993. At
December 31, 1995, stockholders' equity totaled $41.1 million compared to $37.2
million in 1994. The ratio of average shareholders' equity to average total
assets was 10.24%, 11.17% and 11.43% in 1995, 1994 and 1993, respectively.
Retention of sufficient earnings to maintain an adequate capital position that
provides the Company with expansion capabilities is an important factor in
determining dividends. During 1995, the Company paid $2,052,192 in dividends,
versus $1,795,818 in 1994 and $1,637,968 in 1993. As a percentage of net income,
dividends were 40.17% in 1995, 39.89% in 1994 and 38.41% in 1993.
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 provides the Company's
best collective understanding of the regulatory capital requirements as
currently published. These understandings are based upon regulations, guidelines
and interpretations now in effect or proposed, all of which are subject to
change.
-22-
<PAGE> 25
<TABLE>
<CAPTION>
=====================================================================================
Capital Ratios at
December 31, 1995
- -------------------------------------------------------------------------------------
Required
Minimum Company's
Ratio Ratio
- -------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 risk-based capital 4.00% 13.06%
- -------------------------------------------------------------------------------------
Total risk-based capital 8.00% 14.31%
- -------------------------------------------------------------------------------------
Leverage Ratio 3.00% 10.80%
=====================================================================================
</TABLE>
The Company believes it was in compliance with all minimum regulatory capital
guidelines at December 31, 1995 and continues to be so.
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 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 also are the
sources for the Company's continued growth.
In 1995, operating activities of the Company provided $6,364,586 of cash flows.
Net income of $5,108,440, adjusted for non-cash operating activities, including
$1,423,656 provision in loan losses and amortization and depreciation of
$1,020,318, provided the cash generated from operations.
Investing activities, including lending, used $74,980,659 of the Company's cash
flow. Loans originated net of principal collected used $53,970,350 in funds.
Net additional cash inflows of $67,253,433 were provided by financing
activities. Net deposit growth accounted for $67,788,632 of the increase. Other
increases included securities sold under agreement to repurchase of $905,000 and
proceeds from the issuance of common stock subject to the Company's rescission
offer of $851,530. Offsetting these increases were a decrease in payments on
long-term debt of $239,537, and cash dividends paid to shareholders of
$2,052,192.
The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented
-23-
<PAGE> 26
29.46% of total deposits at December 31, 1995, a decrease from 29.85 at December
31, 1994.
Asset/Liability Management
The operations and profitability of the subsidiary banks are largely impacted by
changes in interest rates and managements' ability to control interest rate
sensitivity of the subsidiary banks' assets and liabilities. Management believes
that the asset/liability strategy reduces the risk of the subsidiary banks'
exposure due to fluctuation in interest rates. The subsidiary banks strive to be
neither asset sensitive nor liability sensitive by using both fixed rate and
variable rate products. The subsidiary banks have a mixture of fixed rate loans
and loans tied to the Prime Rate, and this also applies to the investment
portfolio. It is management's belief that while this mixture may not give
maximum returns under certain market conditions, it can prevent severe swings in
earnings under other conditions. Management believes the subsidiary banks are
somewhat asset sensitive; therefore, in a falling rate environment earnings will
tend to fall, while in a rising rate environment earnings will tend to improve.
Despite the implementation of strategies to achieve a matching position of
assets and liabilities and to reduce the exposure of the subsidiary banks to
fluctuating interest rates, the results of operations of the subsidiary banks
will remain subject to the level and movement of interest rates.
Interest Sensitivity
Deregulation of interest rates and more volatile short-term, interest-bearing
deposits have created a need for shorter maturities of earnings assets. An
increasing percentage of commercial and installment loans are 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
currently believes the position of the subsidiary banks to be slightly asset
sensitive, depending on how certain deposits are classified. The Company
considers certain deposit categories, such as demand deposits, as having longer
maturities and not being sensitive to rate changes. Management's experience and
a third-party asset/liability model indicate this position to be true for the
Company. On December 31, 1995, the Company had a positive gap position in the
one to 30 day sector of $92.0 million; or, in other words, while $168.3 million
in assets were repricing, only $76.3 million in liabilities would reprice in
the same time frame. The Company's
-24-
<PAGE> 27
current asset/liability model under a rate shock scenario indicates that
earnings would decline approximately $32,000 a month with a 50 basis point fall
in rates, while a 50 basis point rise in rates would generate approximately
$27,000 in income per month.
Schedule VII depicts the Company's interest rate gap position at December 31,
1995. This Schedule represents a static point in time and does not consider
other variables such as changing relationships or interest rate levels which is
reflects a positive gap position in the near term. This is the result of stable
core deposits being used to fund shorter term interest earning assets, such as
loans and investment securities. A positive gap position implies that interest
earning assets (loans and investments) will reprice at a faster rate than
interest bearing liabilities (deposits). In a rising rate environment, this
position will generally have a positive effect on earnings, while in a falling
rate environment this position will generally have a negative effect on
earnings. Other factors, however, including the speed at which assets and
liabilities reprice in response to changes in market rates and competitive
factors, can influence the ultimate impact on the margin resulting from changes
in interest rates. Management believes that a rapid, significant and prolonged
increase or decrease in rates could have a substantial adverse impact on the
Company's net interest margin.
The cumulative gap position indicates the Company's sensitivity to interest rate
changes over time.
Inflation
The effect of inflation on financial institutions differs from its 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 also are 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 of the Company has been insignificant.
-25-
<PAGE> 28
Income taxes
The Company had taxable income that resulted in income tax expense of
$2,752,261, $2,510,322 and $2,221,353 in 1995, 1994 and 1993, respectively.
(Note 11 of the consolidated financial statements provides a detailed analysis
of income taxes.)
In January 1993, the Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of SFAS 109
changes the Company's method of accounting for income taxes from the deferred
method (under Accounting Principles Board Statement No.11) to an asset and
liability approach.
There are two components of the income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period. Balance sheet amounts of deferred taxes are recognized on the
temporary differences between the bases of assets and liabilities as measured by
tax laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax liabilities
or assets between periods.
The Company's recognition of deferred tax assets is based on management's belief
that is more likely than not that the tax benefit associated with certain
temporary differences and tax credits will be realized.
-26-
<PAGE> 29
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE 1
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ------ ------------------------ ------ ------------------------- -----
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans
Commercial $141,349,273 $12,335,077 8.73% $107,896,016 $ 8,829,755 8.18% $ 87,715,447 $ 6,927,780 7.90%
Installment - net 130,530,479 13,469,095 10.32% 106,954,932 9,176,909 8.58% 96,395,304 8,959,886 9.29%
Fees on loans 954,685 1,099,331 1,056,063
-------------------------------- -------------------------------- --------------------------------
Total loans
(including fees) $271,879,752 $26,758,857 9.84% $214,850,948 $19,105,995 8.89% $184,110,751 $16,943,729 9.20%
--------------------------------- --------------------------------- ---------------------------------
Investment securities
59,939,744 3,735,181 6.23% 2,793,654 3,740,550 5.14% $ 70,712,217 $ 3,572,847 5.05%
Tax exempt 9,117,893 369,795 4.06% 11,605,844 557,011 4.80% 13,614,070 842,043 6.19%
-------------------------------- -------------------------------- --------------------------------
Total investment
securities 69,057,637 4,104,976 5.94% 84,399,498 4,297,561 5.09% $ 84,326,287 $ 4,414,890 5.24%
Other short-term
investments 11,571,548 627,135 5.42% 5,660,533 221,094 3.91% 9,505,372 279,584 2.94%
-------------------------------- -------------------------------- --------------------------------
Total interest-
earning assets $352,508,937 $31,490,968 8.93% $304,910,979 $23,624,650 7.75% $277,942,410 $21,638,203 7.79%
Noninterest-earning assets
Cash and due from banks $ 12,668,334 $ 11,069,948 $ 10,458,115
Premises and equipment 6,916,037 6,008,216 4,494,554
Other, less allowance
for loan losses 6,649,556 5,096,879 9,415,312
----------- ----------- -----------
Total noninterest-
earning assets 26,233,927 22,175,043 $ 24,367,981
----------- ----------- -----------
TOTAL ASSETS $378,742,864 $327,086,022 $302,310,391
============ ============ ============
</TABLE>
27
<PAGE> 30
GREENE COUNTY BANCSHARES , INC. AND SUBSIDIARIES
SCHEDULE I
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
1995 1994
________________________________________ ___________________________________
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and
money markets $130,045,108 $ 3,167,357 2.44% $136,249,522 $3,178,767 2.33%
Time deposits 172,627,254 9,849,464 5.71% 120,926,616 4,851,789 4.01%
------------ ----------- ---- ------------ ---------- ----
Total deposits $302,672,362 $13,016,821 4.30% $257,176,138 $8,030,556 3.12%
Securities sold under repurchase
agreement and short-term borrowings 4,553,803 231,581 5.09% 5,607,061 227,879 4.06%
Debt 3,559,135 195,492 5.49% 4,706,302 238,398 5.07%
----------- ----------- ---- ------------ ---------- ----
Total interest-bearing liabilities $310,785,300 $13,443,894 4.33% $267,489,501 $8,496,833 3.18%
Noninterest-bearing liabilities
Demand deposits $ 24,424,083 $ 21,292,288
Other liabilities 4,745,198 1,771,324
----------- ------------
$ 29,169,281 $ 23,063,612
Stockholders' equity 38,788,283 36,532,909
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $378,742,864 $327,086,022
=========== ============
Net interest income
$18,047,074 $15,127,817
=========== ===========
Margin analysis
Interest income/earning assets 8.93% 7.75%
Interest expense/earning assets 3.81% 2.79%
---- ----
Net interest income/earning assets 5.12% 4.96%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1993
____________________________________
Average Revenue/ Yield
Balance Expense Rate
<S> <C> <C> <C>
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and
money markets $124,405,340 $3,378,448 2.72%
Time deposits 111,916,277 4,449,827 3.98%
------------ ---------- ----
Total deposits $236,321,617 $7,828,275 3.31%
Securities sold under repurchase
agreement and short-term borrowings 7,563,021 228,907 3.03%
Debt 2,046,575 139,741 6.83%
------------ ---------- ----
Total interest-bearing liabilities $245,931,213 $8,196,923 3.33%
Noninterest-bearing liabilities
Demand deposits $18,611,113
Other liabilities 3,219,105
-----------
$21,830,218
Stockholders' equity 34,548,960
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $302,310,391
============
Net interest income $13,441,280
===========
Margin analysis
Interest income/earning assets 7.79%
Interest expense/earning assets 2.95%
----
Net interest income/earning assets 4.84%
====
</TABLE>
1. Installment loans are stated net of unearned income.
2. Average loan balances include nonaccrual loans. Interest
income collected on nonaccrual loans has been included.
3. The average balance of and the related yield associated with
securities available for sale are based on the cost of such securities.
4. Tax exempt income has not been adjusted to tax-equivalent basis.
Note: If securities purchased with agreements to resell had been
present, or if other interest-bearing assets or liabilities had been
significant, disclosures would have been made.
28
<PAGE> 31
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE I, (CONT)
INTEREST RATES AND INTEREST DIFFERENTIAL
VOLUME AND YIELD/RATE VARIANCES
(in thousands)
<TABLE>
<CAPTION>
1995 Compared to 1994
Volume Rate Rate/Volume Total Change
<S> <C> <C> <C> <C>
Interest income
Loans net of unearned income 5,072 2,040 541 7,653
Investment securities
Taxable (662) 796 (140) (6)
Tax exempt (120) (86) 19 (187)
Other short-term investments 231 86 89 406
-------------------------------------------------------
Total interest income 4,521 2,836 509 7,866
-------------------------------------------------------
Interest expense
Savings, NOW accounts, and
money market accounts (146) 140 (6) (12)
Time deposits 2,073 2,048 876 4,997
Short-term borrowings (42) 57 (11) 4
Debt (57) 20 (5) (42)
-------------------------------------------------------
Total interest expense 1,828 2,265 854 4,947
-------------------------------------------------------
Net interest income 2,693 571 (345) 2,919
=======================================================
</TABLE>
<TABLE>
<CAPTION>
1994 Compared to 1993
----------------------------------------------------------
Volume Rate Rate/Volume Total Change
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Loans net of unearned income 2,829 (571) (95) 2,162
Investment securities
Taxable 105 61 2 168
Tax exempt (124) (189) 28 (285)
Other short-term investments (113) 92 (37) (58)
-------------------------------------------------------
Total interest income 2,697 (608) (103) 1,986
-------------------------------------------------------
Interest expense
Savings, NOW accounts, and
money market accounts 322 (476) (45) (200)
Time deposits 358 40 3 402
Short-term borrowings (59) 78 (20) (1)
Debt 182 0 (47) 135
-------------------------------------------------------
Total interest expense 802 (357) (109) 336
-------------------------------------------------------
Net interest income 1,895 (250) 6 1,650
=======================================================
</TABLE>
1. The change in interest due to both volume and yield/rate has been
allocated to change due to volume and change due to yield/rate in
proportion to absolute value of change in each.
2. Balance of nonaccrual loans and related income recognized have been
included for computational purposes.
3. Tax-exempt income has not been converted to tax-equivalent basis.
29
<PAGE> 32
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE II
INVESTMENT PORTFOLIO
OUTSTANDING BALANCE
AT DECEMBER 31
<TABLE>
<CAPTION>
--------------------------------------- ----------------------------------------
Available Held to Total Available for Held to Total
for Sale Maturity 1995 Sale Maturity 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $17,470,430 $ 0 $17,470,430 $26,944,556 $ 0 $26,944,556 $32,484,440
Federal agency obligations 41,981,291 41,981,291 12,111,574 21,991,630 34,103,204 41,561,964
Obligations of state and political 0
subdivisions 9,375,472 9,375,472 6,734 9,415,231 9,421,965 13,901,319
Other securities 1,066,155 1,066,155 0 857,700 857,700 746,600
----------- ----------- ----------- ----------- ----------- ----------- -----------
59,451,721 10,441,627 69,893,348 39,062,864 32,264,561 71,327,425 88,694,323
Market Value Adjustment on
available for sale securities 381,752 381,752 (953,635) 0 (953,635) N/A
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $59,833,473 $10,441,627 $70,275,100 $38,109,229 $32,264,561 $70,373,790 88,694,323
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
30
<PAGE> 33
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE II,Continued
INVESTMENT PORTFOLIO
OUTSTANDING BALANCE AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
After One After Five
Year But Years But
Within Within Within After
Amount One year Five years Ten Years Ten Years Total
------ ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities - Available for sale $16,597,702 $ 872,728 $17,470,430
Federal agency obligations - Available for sale 911,679 4,524,807 9,129,130 27,415,675 41,981,291
Federal agency obligations - Held to maturity
Obligations of state and political
subdivisions - Available for sale
Obligations of state and political
subdivisions - Held to maturity 1,511,275 6,734,773 609,905 519,519 9,375,472
Other securities - Held to maturity 1,066,155 1,066,155
----------- ----------- ---------- ----------- -----------
19,020,656 12,132,308 9,739,035 29,001,349 69,893,348
Market Value Adjustment on
available for sale securities (45,513) 71,800 89,575 265,890 381,752
----------- ----------- ---------- ----------- -----------
$18,975,143 $12,204,108 $9,828,610 $29,267,239 $70,275,100
=========== =========== ========== =========== ===========
Weighted Average Yield
----------------------
U.S. Treasury securities - Available for sale 4.76% 7.16% 4.88%
Federal agency obligations - Available for sale 5.00% 6.22% 7.79% 8.30% 7.90%
Federal agency obligations - Held to maturity
Obligations of state and
political subdivisions - Held to maturity 4.04% 3.99% 4.41% 4.48% 4.05%
Other securities - Held to maturity 7.01%
---- ---- ---- ---- ----
4.73% 5.02% 7.51% 8.11% 6.47%
==== ==== ==== ==== ====
</TABLE>
1. Yields on tax exempt obligations have not been computed on
a tax equivalent basis.
31
<PAGE> 34
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE III
LOAN PORTFOLIO
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands)
Types of loans (all domestic)
<S> <C> <C> <C> <C> <C>
Commercial $ 75,503 $ 56,754 $ 51,533 $ 46,391 $ 60,383
Commercial Real Estate 73,720 63,499 44,050 35,838 10,947
Mortgage installment 92,276 79,705 63,605 61,237 57,780
Installment real estate 556 712 733 930 1,145
Installment consumer 55,876 44,025 38,249 41,887 44,205
Other 2,772 2,832 1,246 532 3,662
Total loans 300,703 247,527 199,416 186,815 178,122
-------- -------- -------- -------- --------
Unearned income (2,215) (2,827) (4,227) (5,275) (6,259)
Allowance for loan losses (4,654) (3,447) (3,062) (2,529) (1,861)
-------- -------- -------- -------- --------
Net loans $293,834 $241,253 $192,127 $179,011 $170,002
======== ======== ======== ======== ========
</TABLE>
The following table identifies the maturities of all loans as of 12/31/95
and addresses the sensitivity of these loans to changes in interest rates(in
thousands):
<TABLE>
<CAPTION>
Interest Rate
----------------------
Total Fixed Variable
-------- -------- ---------
<S> <C> <C> <C>
Within one year $190,275 $ 55,537 $134,738
After one but within five years 97,582 94,386 3,196
After five years 12,846 12,846 0
-------- -------- --------
$300,703 $162,769 $137,934
======== ======== ========
</TABLE>
32
<PAGE> 35
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE IV
SUMMARY OF NONPERFORMING ASSETS
AS OF ENDED DECEMBER 31, 1995
Nonperforming assets(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 902 $ 649 $ 554 $ 742 $ 979
Loans 90 days past due 1,044 656 3,256 1,459 683
------ ------ ------ ------ ------
Total nonperforming loans 1,946 1,305 3,810 2,201 1,662
Other real estate held 122 85 1,014 2,367 1,682
------ ------ ------ ------ ------
Total nonperforming assets $2,068 $1,390 $4,824 $4,568 $3,344
====== ====== ====== ====== ======
</TABLE>
1. Interest foregone on non-accrual loans in 1995 totaled approximately
$116,300.
2. Potential problem loans not otherwise disclosed herein and which have
been classified as substandard by management totaled approximately
$2,773,000 at December 31, 1995.
3. Accrual of interest is discontinued on a loan when management believes
there is insufficient collateral and the borrowers' financial
condition is such that collection of interest is doubtful. Loans are
returned to the accrual status when the factors indicating doubtful
collectibility cease to exist.
33
<PAGE> 36
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE IV, CONTINUED
SUMMARY OF LOAN LOSS EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Changes in allowance for loan losses:
Balance at beginning of period $3,447 $3,062 $2,529 $1,862 $1,584
Charge - offs:
Commercial, industrial and
construction loans (26) (103) (50) (385) (647)
Installment loans (646) (1,256) (457) (744) (544)
------ ------ ------ ------ ------
(672) (1,359) (507) (1,129) (1,191)
------ ------ ------ ------ ------
Recoveries
Commercial, industrial and
construction loans 9 199 57 95 100
Installment loans 447 551 149 90 112
------ ------ ------ ------ ------
456 750 206 185 212
------ ------ ------ ------ ------
Net charge - offs (216) (609) (301) (944) (979)
------ ------ ------ ------ ------
Additions charged to operations 1,423 994 834 1,611 1,256
------ ------ ------ ------ ------
Balance at end of period $4,654 $3,447 $3,062 $2,529 $1,861
====== ====== ====== ====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0.08% 0.28% 0.16% 0.55% 0.62%
Ratio of allowance for loan losses to nonperforming
loans 239.16% 264.14% 80.37% 114.90% 111.97%
Ratio of allowance for loan losses to total loans 1.55% 1.39% 1.54% 1.35% 1.04%
</TABLE>
The allowance for possible loan losses is increased by charges to the
provision for loan losses and reduced by loans charged off net of
recoveries. Greene County Bancshares' provision is the amount necessary to
maintain the allowance at a level considered adequate to provide for
possible loan losses based on management's and independent external
evaluation of the loan portfolio, as well as prevailing and anticipated
economic conditions.
34
<PAGE> 37
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARY
SCHEDULE IV (CONTINUED)
SUMMARY OF LOAN LOSS EXPENSES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Breakdown of allowance for 1995 1994 1993
------------------------------ ----------------------------- -----------------------------
loan losses by category: Percent of Percent of Percent of
loan in each loan in each loan in each
Balance at end of period Amount category to Amount category to Amount category to
applicable to: (in thousands) total loans (in thousands) total loans (in thousands) total loans
-------------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, industrial and
construction loans $2,042 49.60% $1,758 48.60% $1,317 47.90%
Installment loans $2,612 50.40% 1,689 51.40% 1,745 52.10%
Loans to financial
institutions 0.00% 0.00% 0.00%
------ ------ ------ ------ ------ ------
$4,654 100.00% $3,447 100.00% $3,062 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Breakdown of allowance for 1992 1991
------------------------------ -----------------------------
loan losses by category: Percent of Percent of
loan in each loan in each
Balance at end of period Amount category to Amount category to
applicable to: (in thousands) total loans (in thousands) total loans
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Commercial, industrial and
construction loans $1,109 44.00% $1,012 40.00%
Installment loans 1,420 56.00% 849 59.80%
Loans to financial
institutions 0.00% 0.20%
------ ------ ------ ------
$2,529 100.00% $1,861 100.00%
====== ====== ====== ======
</TABLE>
35
<PAGE> 38
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE V
DEPOSITS
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ------------------------- ------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Types of deposits (all in domestic offices)
Noninterest - bearing
Demand deposits $ 24,424,083 $ 21,292,288 $ 18,611,113
Interest - bearing demand
deposits 91,406,659 2.40% 95,066,302 2.29% 88,971,983 2.66%
Savings deposits 38,638,449 2.50% 41,183,220 2.43% 35,433,357 2.86%
Time deposits 172,627,254 5.71% 120,926,616 4.01% 111,916,277 3.98%
------------ ------------ ------------
Total deposits $327,096,445 $278,468,426 $254,932,730
============ ============ ============
</TABLE>
Maturities of time deposits of $100,000, or more,
at December 31, 1995 are summarized as follows
(dollars in thousands):
<TABLE>
<S> <C>
Three months or less $ 7,673
Over three through six months 6,844
Over six through twelve months 5,444
Over twelve months 13,482
-------
$33,443
=======
</TABLE>
36
<PAGE> 39
GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
SCHEDULE VI
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income $5,108,440 $4,501,396 $4,264,909
Earnings per share $11.45 $10.16 $9.56
Return on average assets 1.35% 1.38% 1.41%
Return on average equity 13.17% 12.32% 12.35%
Dividend payout ratio 40.17% 39.89% 38.41%
Average equity to average assets 10.24% 11.17% 11.43%
</TABLE>
37
<PAGE> 40
GREENE COUNTY BANCSHARES, INC. & SUBSIDIARIES
SCHEDULE VII
INTEREST RATE SENSITIVITY ANALYSIS(1)
DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Non-Rate
1-30 31-90 91-180 181-365 Sensitive
Days Days Days Days & Over
Sensitive Sensitive Sensitive Sensitive 1 Year TOTAL
--------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans, net of unearned income $130,068 $8,800 $12,719 $24,570 117,677 293,834
Investment securities 14,391 28,608 6,445 5,469 15,362 70,275
Federal funds sold 23,800 23,800
-------- ------- -------- -------- -------- --------
Total Interest-Earning Assets 168,259 37,408 19,164 30,039 133,039 387,909
-------- ------- -------- -------- -------- --------
Interest-Bearing Liabilities:
Savings and core time deposits 65,375 35,354 36,584 28,130 139,408 304,851
Time deposits of $100,000 or more 6,075 6,547 6,514 4,851 9,456 33,443
Debt 34 68 102 204 3,040 3,448
Securities sold under agreement to repurchase 4,784
-------- ------- -------- -------- -------- --------
Total Interest-Bearing Liabilities 76,268 41,969 43,200 33,185 51,904 341,742
-------- ------- -------- -------- -------- --------
Interest Sensitivity Gap $91,991 $(4,561) $(24,036) $(3,146) $(18,865) $46,167
======= ======= ======== ======= ======== =======
Cumulative Interest Sensitive Gap $91,991 $87,430 $63,394 $60,248 $41,383 $87,550
======= ======= ======== ======= ======== =======
Interest Sensitive Gap to Total Assets 26.62% -1.32% -6.96% -0.91% -5.46% 13.36%
======= ======= ======== ======= ======== =======
Cumulative Interest Sensitive Gap to Total Assets 26.62% 25.30% 18.35% 17.44% 11.98%
======= ======= ======== ======= ========
</TABLE>
(1) The Company has presented substantial balances of deposits as non-rate
sensitive and/or not repricing within one year. Such presentation is based
upon the Company's historical experience and interest rate sensitivity
modeling performed by an outside consultant. Regulators of the Company's
subsidiary banks have reviewed this presentation and have deemed it
appropriate.
38
<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-39-
<PAGE> 42
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, AND 1994
WITH
REPORT OF INDEPENDENT ACCOUNTANTS
40
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
February 8, 1994
To the Board of Directors and
Shareholders of Greene County Bancshares, Inc.
In our opinion, the consolidated statements of income, of shareholder's equity
and of cash flows for the year ended December 31, 1993 (appearing in the Greene
County Bancshares, Inc. 1995 Consolidated Financial Statements which have been
incorporated by reference in this Form 10-K Annual Report) present fairly, in
all material respects, the results of operations and cash flows of Greene
County Bancshares, Inc. and its subsidiaries for the year ended December 31,
1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Greene County Bancshares, Inc. for any period subsequent to
December 31, 1993.
PRICE WATERHOUSE LLP
41-a
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Greene County Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Greene County
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The 1993 consolidated statements of
income, shareholders' equity and cash flows were audited by other auditors,
whose report, dated February 8, 1994, expressed an unqualified opinion on those
statements, and included an explanatory paragraph regarding the change in method
of accounting for income taxes.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greene County
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Greene County
Bancshares, Inc. changed its methods of accounting for investment securities and
income taxes effective January 1, 1994 and 1993, respectively.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 2, 1996
41-b
<PAGE> 45
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and due from banks $ 13,723,107 $ 15,085,747
Securities available-for-sale (Note 2) 59,833,473 38,109,229
Securities held-to-maturity - approximate
market value of $10,420,255 and $32,214,700 in
1995 and 1994, respectively (Note 2) 10,441,627 32,264,561
Federal funds sold 23,800,000 3,550,000
Loans, net (Notes 3 and 4) 293,834,416 241,253,489
Premises and equipment, net (Note 5) 8,339,400 7,042,180
Accrued interest receivable 3,539,110 2,708,825
Deferred income taxes (Note 11) 1,455,094 1,363,427
Cash surrender value of life insurance contracts 3,580,200 3,408,213
Other assets 2,034,451 739,580
------------ --------
$420,580,878 $345,525,251
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE> 46
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 6):
Noninterest bearing demand deposits $ 27,656,469 $ 23,082,392
Interest bearing accounts:
NOW 73,327,447 67,664,884
Money market transaction 28,199,189 26,545,522
Savings 39,792,797 40,547,303
Certificates of deposit $100,000 and over 33,222,712 23,995,319
Other certificates of deposit 163,751,974 116,326,536
------------ ------------
Total deposits 365,950,588 298,161,956
------------ ------------
Securities sold under agreements to repurchase 4,784,000 3,879,000
Accrued interest and other liabilities 4,472,328 2,606,289
Long-term debt (Note 7) 3,448,172 3,687,709
------------- ----------
Total liabilities 378,655,088 308,334,954
------------ ------------
Common stock subject to rescission (Note 19) 851,530 -
------------ -----------
Commitments and contingencies (Notes 8, 10, 12, 13 and 16)
Shareholders' equity (Note 9)
Common stock, par value $10, authorized 1,000,000
shares; issued and outstanding 442,444 shares in
1995 and 1994, respectively 4,424,440 4,424,440
Paid in capital 2,914,724 2,914,724
Retained earnings 33,498,636 30,442,388
Net unrealized appreciation (depreciation) on
available-for-sale securities, net of income tax
(benefit) of $145,291 and $(362,380) in 1995
and 1994, respectively 236,460 (591,255)
------------- ---------
Total shareholders' equity 41,074,260 37,190,297
------------- -----------
$420,580,878 $345,525,251
============ ============
</TABLE>
43
<PAGE> 47
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
Interest income:
<S> <C> <C> <C>
Loans $26,758,857 $19,105,995 $16,943,729
Securities available-for-sale (Note 2) 3,680,264 2,380,783 -
Securities held-to-maturity (Note 2) 424,712 1,916,778 -
Investment securities (Note 2) - - 4,423,181
Federal funds sold 627,135 221,094 271,293
------------ -------- --------
Total interest income 31,490,968 23,624,650 21,638,203
----------- ----------- -----------
Interest expense:
Deposit accounts (Note 6) 13,016,821 8,030,556 7,828,275
Securities sold under agreements to repurchase 231,581 227,879 228,907
Long-term debt 195,492 238,398 139,741
------------ -------- --------
Total interest expense 13,443,894 8,496,833 8,196,923
----------- ---------- ----------
Net interest income 18,047,074 15,127,817 13,441,280
Provision for loan losses (Note 3) 1,423,656 994,000 833,809
------------ -------- --------
Net interest income after provision for loan losses 16,623,418 14,133,817 12,607,471
----------- ----------- -----------
Noninterest income:
Service fees on deposit accounts 1,155,621 971,878 724,517
Service charges and commissions 598,359 946,278 717,963
Net realized gains on sales of available-for-sale securities 1,373 - -
Net realized gains on calls of held-to-maturity securities 4,000 - -
Investment securities gains, net - - 14,756
Other income 1,199,344 620,058 509,312
------------ -------- --------
Total noninterest income 2,958,697 2,538,214 1,966,548
------------ ---------- ----------
Noninterest expense:
Salaries and benefits 5,826,564 4,750,592 3,880,038
Occupancy expenses 815,506 757,278 620,479
Furniture and equipment expense 1,048,160 707,137 554,040
Loss on other real estate owned 366,609 311,183 248,327
Net realized losses on sales of available-for-sale securities - 85,435 -
Federal insurance premiums 346,501 616,859 554,714
Other expenses 3,318,074 2,431,829 2,177,886
------------ ------------ ------------
Total noninterest expense 11,721,414 9,660,313 8,035,484
----------- ---------- ----------
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 7,860,701 7,011,718 6,538,535
Income tax expense (Note 11) 2,752,261 2,510,322 2,221,353
------------ ---------- ----------
Income before cumulative effect of change in
method of accounting for income taxes 5,108,440 4,501,396 4,317,182
Cumulative effect of change in method of
accounting for income taxes (Note 11) - - (52,273)
--------------- ----- --------
Net income $ 5,108,440 $ 4,501,396 $ 4,264,909
=========== =========== ===========
Per share of common stock (Note 1):
Income before effect of change in method of
accounting for income taxes $11.45 $10.16 $9.68
Cumulative effect of change in method of
accounting for income taxes - - (.12)
-------- --- -----
Net income $11.45 $10.16 $9.56
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE> 48
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION) ON
TREASURY COMMON PAID IN RETAINED AVAILABLE-FOR-SALE
STOCK STOCK CAPITAL EARNINGS SECURITIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992 $ - $4,466,560 $2,914,310 $25,652,295 $ - $33,033,165
Issuance of 44 shares - 440 3,458 - - 3,898
Repurchase of
5,100 shares (688,500) - - - - (688,500)
Sale of 500 shares 67,500 - 2,500 - - 70,000
Retirement of
4,600 shares 621,000 (46,000) (32,574) (542,426) - -
Net income - - - 4,264,909 - 4,264,909
Dividends paid
($3.67 per share) - - - (1,637,968) - (1,637,968)
--- --- --- ----------- ------ -----------
December 31, 1993 - 4,421,000 2,887,694 27,736,810 - 35,045,504
Adoption of
FASB 115, net
of tax - - - - (363,283) (363,283)
Issuance of 344 shares - 3,440 27,030 - - 30,470
Net income - - - 4,501,396 - 4,501,396
Change in unrealized
depreciation,
net of tax - - - - (227,972) (227,972)
Dividends paid
($4.06 per share) - - - (1,795,818) - (1,795,818)
---- ------ --- ----------- --- -----------
December 31, 1994 - 4,424,440 2,914,724 30,442,388 (591,255) 37,190,297
Net income - - - 5,108,440 - 5,108,440
Change in unrealized
appreciation,
net of tax - - - - 827,715 827,715
Dividends paid
($4.60 per share) - - - (2,052,192) - (2,052,192)
----------- ------------- ------------- ------------ ----------- ------------
December 31, 1995 $ - $4,424,440 $2,914,724 $33,498,636 $236,460 $41,074,260
=========== ========== ========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE> 49
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
Net cash provided by operating activities:
<S> <C> <C> <C>
Net income $ 5,108,440 $ 4,501,396 $ 4,264,909
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,423,656 994,000 833,809
Provision for depreciation and amortization 651,997 523,416 455,915
Amortization of investment security premiums,
net of accretion 368,321 554,152 663,282
Net realized gains on calls of securities
held-to-maturity (4,000) - -
Net realized (gains) losses on available-for-sale
securities (1,373) 85,435 -
Investment securities gains, net - - (14,756)
(Gain) loss on other real estate owned (97,637) 141,950 158,427
Increase in cash surrender value of life
insurance contracts (171,987) (77,183) (174,000)
Deferred income tax benefit (568,718) (349,744) (261,926)
Effect of change in method of accounting
for income taxes - - 52,273
Change in accrued income and other assets (1,379,867) (428,505) 372,665
Change in accrued interest and other liabilities 1,035,754 914,910 (566,631)
----------- ----------- ----------
Net cash provided by operating activities 6,364,586 6,859,827 5,783,967
------------ ---------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities (21,848,101) (16,191,440) -
Proceeds from sales of available-for-sale securities 787,017 20,977,519 -
Proceeds from maturities of available-for-sale securities 21,991,907 2,518,207 -
Purchases of securities held-to-maturity (2,909,704) (1,628,389) -
Proceeds from maturities of securities held-to-maturity 3,050,011 11,051,414 -
Proceeds from sales of investment securities - - 3,442,657
Proceeds from maturities of investment securities - - 27,079,622
Purchases of investment securities - - (39,174,331)
Net decrease in interest bearing deposits in financial
institutions - 100,049 -
Net originations of loans (53,970,350) (49,467,022) (13,773,813)
Proceeds from sales of other real estate owned 148,400 59,284 1,019,092
Increase in cash surrender value of life insurance contracts - - (3,080,511)
Fixed asset additions (1,979,839) (2,057,501) (1,812,047)
Net decrease (increase) in federal funds sold (20,250,000) 4,720,000 (1,805,000)
------------ ------------ ------------
Net cash used by investing activities (74,980,659) (29,917,879) (28,104,331)
------------ ------------ ------------
</TABLE>
(continued)
46
<PAGE> 50
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW, money
market and savings accounts 11,135,801 1,434,930 21,922,127
Net increase (decrease) in certificates of deposit 56,652,831 29,445,945 (287,631)
Increase (decrease) in securities sold under
agreements to repurchase 905,000 (1,766,000) (2,130,000)
Payments on long-term debt (239,537) (1,726,033) (86,258)
Borrowings of long-term debt - 1,500,000 4,000,000
Repurchase of common stock - - (688,500)
Proceeds from issuance and sale of common stock - 30,470 73,898
Proceeds from sale of common stock subject to rescission 851,530 - -
Cash dividends paid (2,052,192) (1,795,818) (1,637,968)
------------ ------------ -----------
Net cash provided by financing activities 67,253,433 27,123,494 21,165,668
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,362,640) 4,065,442 (1,154,696)
Cash and cash equivalents at beginning of year 15,085,747 11,020,305 12,175,001
----------- ----------- -----------
Cash and cash equivalents at end of year $13,723,107 $15,085,747 $11,020,305
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE> 51
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies of Greene County Bancshares, Inc. (the Corporation)
and subsidiaries conform to generally accepted accounting principles and to
general practices of the banking industry. The following is a summary of
the more significant policies. Certain reclassifications have been made in
the 1994 and 1993 consolidated financial statements and accompanying notes
to conform with the 1995 presentation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Greene County Bancshares, Inc. and its wholly-owned
subsidiaries, Greene County Bank and American Fidelity Bank (the Banks).
Superior Financial, Inc., a consumer finance company, is also a
wholly-owned subsidiary of Greene County Bancshares, Inc. All material
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND DUE FROM BANKS - For purposes of reporting cash flows, cash and
due from banks include cash on hand, cash items in the process of
collection and amounts due from banks with a maturity of less than three
months.
The Banks are required to maintain certain daily reserve balances on hand
in accordance with Federal Reserve Board requirements. The average reserve
balance maintained in accordance with such requirements was approximately
$4,563,000 and $3,406,000 for the years ended December 31, 1995 and 1994,
respectively.
INVESTMENT SECURITIES - Effective January 1, 1994, the Corporation adopted
the provisions of Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 115 (SFAS 115), Accounting for
Certain Investments in Debt and Equity Securities. Investments in certain
debt and equity securities are classified as either Held-to-Maturity
(reported at amortized cost), Trading (reported at fair value with
unrealized gains and losses included in earnings), or Available-for-Sale
(reported at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholders' equity).
During 1995, the Corporation made a one time reclassification of many of
its securities held from the held-to-maturity category to the
available-for-sale category. The amortized cost of the securities
transferred was $23,125,015 with unrealized gains of $297,357 and
unrealized losses of $16,546.
Premiums and discounts on investment securities are recognized in interest
income on a method which approximates the level yield method over the
period to maturity.
Prior to the adoption of SFAS 115, investment securities were those
securities held for investment purposes which management determined they
had the ability and intent to hold to maturity. Investment securities were
stated at cost adjusted for amortization of premiums and accretion of
discounts.
Gains and losses from sales of investment securities are recognized at the
time of sale based upon specific identification of the security sold.
48
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LOANS - Loans are stated at principal amounts outstanding, reduced by
unearned income and an allowance for loan losses.
Interest income on installment loans is recognized in a manner that
approximates the level yield method when related to the principal amount
outstanding. Interest on other loans is calculated using the simple
interest method on the principal amount outstanding.
The Banks provide an allowance for loan losses and include in operating
expenses a provision for loan losses determined by management. Management's
periodic evaluation of the adequacy of the allowance is based on the Banks'
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' experience, estimated
value of any underlying collateral, and current economic conditions.
Management believes it has established the allowance in accordance with
generally accepted accounting principles and has taken into account the
views of its regulators and the current economic environment.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS
No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure, on January 1, 1995. Under the new standards, a
loan is considered impaired, based on current information and events, if it
is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. Uncollateralized loans are measured for
impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair
value of the collateral. The adoption of SFAS 114 and 118 resulted in no
additional provision for credit losses, at January 1, 1995.
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS 114 was approximately $902,000,
and these loans had a corresponding valuation allowance of $135,300. The
impaired loans at December 31, 1995, were measured for impairment using the
fair value of the collateral as all of these loans were collateral
dependent. For the year ended December 31, 1995, the average recorded
investment in impairment loans was approximately $696,000.
The Company uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a
thorough review of significant loans and lending relationships and include
the accumulation of related data. This data includes loan payment status,
borrowers' financial data and borrowers' operating factors such as cash
flows, operating income or loss, etc.
Increases and decreases in the allowance from loan losses due to changes in
the measurement of the impaired loans are included in the provision for
credit losses. Loans continue to be classified as impaired unless they are
brought fully current and the collection of scheduled interest and
principal is considered probable.
49
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and
subsequent recoveries, if any, are credited to the allowance.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less
than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower, in accordance with the contractual terms of interest and
principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding,
except in the case of loans with scheduled amortizations where the payment
is generally applied to the oldest payment due. When the future
collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis. In the case where a nonaccrual loan had
been partially charged off, recognition of interest on a cash basis is
limited to that which would have been recognized on the recorded loan
balance at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior
charge-offs have been fully recovered.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization computed principally on the
straight-line method based on the estimated useful lives of the respective
assets. Leasehold improvements are stated at cost adjusted for accumulated
amortization computed on a straight-line method over the shorter of the
estimated useful life of the assets or the term of the lease.
OTHER REAL ESTATE OWNED - Other real estate owned represents real estate
acquired through foreclosure or repossession and is initially recorded at
the lower of cost (principal balance and any accrued interest of the former
loan plus costs of obtaining title and possession) or fair value minus
estimated costs to sell. Initial writedowns are charged against the
allowance for loan losses. Initial costs relating to the development and
improvement of the property are capitalized and considered in determining
the fair value of the property, whereas those costs relating to holding the
property are expensed. Valuations are periodically performed by management
and if the carrying value of a property exceeds its net realizable value
the property is written down by a charge against income.
50
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES - The Corporation files a consolidated federal income tax
return. In January 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. The
adoption of SFAS 109 changed the Corporation's method of accounting for
income taxes from the deferred method (under Accounting Principles Board
Statement No. 11) to an asset and liability approach.
There are two components of the income tax provision; current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for
the applicable period. Balance sheet amounts of deferred taxes are
recognized on the temporary differences between the bases of assets and
liabilities as measured by tax laws and their bases as reported in the
financial statements. Deferred tax expense or benefit is then recognized
for the change in deferred tax liabilities or assets between periods.
Recognition of deferred tax assets is based on management's belief that it
is more likely than not that the tax benefit associated with certain
temporary differences and tax credits will be realized in that sufficient
taxes have been paid in prior years to provide for such realization.
RETIREMENT BENEFITS - The Corporation has established a defined
contribution plan; the cost of which is charged to current operations.
Additionally the Corporation has established certain supplemental deferred
compensation plans which are funded through insurance policies as described
in Note 10.
NET INCOME PER SHARE OF COMMON STOCK - Net income per share of common stock
is computed by dividing net income by the weighted average number of common
shares, common shares subject to rescission, and common stock equivalents
outstanding during each year. Stock options are regarded as common stock
equivalents. Common stock equivalents are computed using the treasury stock
method. The weighted average number of shares outstanding was 445,170 for
1995, 443,188 for 1994, and 445,900 for 1993.
TRUST ASSETS - Assets held by the Corporation in trust capacities are not
included in the accompanying consolidated balance sheets because such items
are not assets of the Corporation.
STOCK-BASED COMPENSATION - The FASB has issued SFAS No. 123, Accounting for
Stock-Based Compensation effective for fiscal years beginning after
December 15, 1995. The Corporation intends to adopt the disclosure
provisions of the Statement in 1996.
SIGNIFICANT ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Two
significant estimates of the Corporation include the allowance for loan
loss and allowance for other real estate owned. Actual results could differ
from those estimates.
51
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SECURITIES:
At December 31, 1995 and 1994, securities have been classified in the
consolidated financial statements according to management's intent. The
carrying amount of securities and their approximate market values at
December 31, 1995 and 1994, were as follows:
1995
<TABLE>
<CAPTION>
GROSS GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. treasury securities and
obligations of U.S. government
corporations and agencies $59,451,721 $484,938 $103,186 $59,833,473
=========== ======== ======== ===========
Held-to-maturity:
Obligations of state and political
subdivisions $ 9,375,472 $17,245 $38,617 $ 9,354,100
Federal Home Loan Bank stock 1,066,155 - - 1,066,155
---------- --- --- ----------
$10,441,627 $17,245 $38,617 $10,420,255
=========== ======= ======= ===========
1994
Available-for-sale:
U.S. treasury securities and
obligations of U.S. government
corporations and agencies $39,056,130 $26,930 $980,565 $38,102,495
Obligations of state and political
subdivisions 6,734 - - 6,734
------ --- --- -------------
$39,062,864 $26,930 $980,565 $38,109,229
=========== ======= ======== ===========
Held-to-maturity:
U.S. treasury securities and
obligations of U.S. government
corporations and agencies $21,991,630 $228,954 $ 24,884 $22,195,700
Obligations of state and political
subdivisions 9,415,231 23,217 277,148 9,161,300
Federal Home Loan Bank stock 857,700 - - 857,700
-------- --- --- --------
$32,264,561 $252,171 $302,032 $32,214,700
=========== ======== ======== ===========
</TABLE>
52
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SECURITIES, CONTINUED:
Interest income from securities for the years ended December 31, 1995, 1994
and 1993 consist of:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
U.S. treasury securities $1,084,503 $1,565,806 $1,341,766
Obligations of other U.S. government
corporations and agencies 2,590,906 2,112,716 2,214,640
Obligations of states and political
subdivisions 370,034 557,011 842,043
Other securities 59,533 62,028 24,732
----------- ------- -------
$4,104,976 $4,297,561 $4,423,181
========== ========== ==========
</TABLE>
Gross realized gains and losses on all sales of securities for the years
ended December 31, 1995, 1994, and 1993, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gross realized gains:
Available-for-sale $1,373 $21,453 $ -
Investment securities - - 26,556
---------- --- -------
$1,373 $21,453 $26,556
====== ======= =======
Gross realized losses:
Available-for-sale $ - $106,888 $ -
Investment securities - - 11,800
------- --- -------
$ - $106,888 $11,800
======== ======== =======
</TABLE>
53
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SECURITIES, CONTINUED:
Debt securities at December 31, 1995, will mature on the following
schedule:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
APPROXIMATE APPROXIMATE
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Due in one year or less $17,509,444 $17,492,233 $1,511,274 $1,512,500
Due after one year through
five years 5,626,536 5,695,416 6,734,774 6,714,000
Due after five years through
ten years 14,812,290 14,896,572 609,905 605,600
Due after ten years 21,503,451 21,749,252 519,519 522,000
----------- ----------- ----------- -----------
$59,451,721 $59,833,473 $9,375,472 $9,354,100
=========== =========== ========== ==========
</TABLE>
Investment securities with book and market values of $19,298,953 and
$19,248,100 at December 31, 1995, respectively and $32,047,193 and
$31,946,800 at December 31, 1994, respectively, were pledged to secure
public and trust deposits and for other purposes as required or permitted
by law.
3. LOANS:
Major classifications of loans at December 31, 1995 and 1994, are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial $ 75,502,470 $ 56,754,639
Commercial real estate 73,719,533 63,499,309
Mortgage installment 92,276,492 79,704,848
Installment real estate 556,560 711,558
Installment consumer 55,876,354 44,024,969
Other loans 2,772,096 2,832,282
------------- ----------
300,703,505 247,527,605
Less:
Unearned income (2,214,855) (2,827,354)
Allowance for loan losses (4,654,234) (3,446,762)
------------ -----------
$293,834,416 $241,253,489
============ ============
</TABLE>
54
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. LOANS, CONTINUED:
At December 31, 1995 and 1994, loans on which the accrual of interest had
been discontinued totaled $901,580 and $648,625, respectively. Unrecorded
interest income on these loans aggregated approximately $116,300, $68,270
and $6,746 for 1995, 1994 and 1993, respectively.
A summary of activity in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $ 3,446,762 $ 3,061,988 $ 2,528,945
Provision for loan losses 1,423,656 994,000 833,809
Recoveries 455,778 750,250 206,346
----------- ----------- -----------
5,326,196 4,806,238 3,569,100
Loans charged to allowance (671,962) (1,359,476) (507,112)
----------- ----------- -----------
Balance at end of year $ 4,654,234 $ 3,446,762 $ 3,061,988
=========== =========== ===========
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Certain officers, employees and directors and/or companies in which they
have ten percent or more beneficial ownership were indebted to the Banks as
indicated below. In the opinion of management all such loans were made in
the ordinary course of business on the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with unrelated borrowers and did not involve more than the normal risk of
collectibility.
<TABLE>
<S> <C>
Balance, December 31, 1993 $13,552,094
Additions 3,065,577
Reductions (3,874,460)
-----------
Balance, December 31, 1994 12,743,211
Additions 5,928,364
Reductions (3,947,070)
------------
Balance, December 31, 1995 $14,724,505
===========
</TABLE>
55
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. RELATED PARTY TRANSACTIONS, CONTINUED:
In addition to the above, the Banks provide financing for purchasers of
automotive and other transportation equipment from dealerships in which
directors have more than a ten percent beneficial interest. Loans
originated through these dealerships aggregated $2,880,711 during 1995 and
$4,896,209 for 1994. Such financing is represented by installment notes
that are the obligations of the purchasers and are primarily collateralized
by the equipment. Some of these notes, totaling $1,041,964 and $1,419,762
at December 31, 1995 and 1994, respectively, are secondarily collateralized
by dealer finance reserves and also provide for recourse against the
dealerships to further protect the Banks against potential losses.
5. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1995 and 1994, was comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 825,781 $ 712,624
Banking quarters 6,021,351 5,441,415
Leasehold improvements 874,704 849,372
Furniture and fixtures 5,003,262 4,474,088
Construction in progress 701,553 1,107
Automobiles 64,132 64,132
----------- -------
13,490,783 11,542,738
Less accumulated depreciation and amortization (5,151,383) (4,500,558)
------------ -----------
$ 8,339,400 $ 7,042,180
=========== ===========
</TABLE>
6. DEPOSITS:
The components of interest expense on deposits for the years ended December
31, 1995, 1994 and 1993, were:
<TABLE>
<CAPTION>
1995 1994 1993
Interest bearing accounts:
<S> <C> <C> <C>
NOW $ 1,385,871 $1,242,285 $1,300,819
Money market transaction 796,167 881,000 1,062,963
Savings 985,319 1,055,482 1,014,666
Certificates of deposit $100,000 and over 1,723,218 760,064 745,763
Other certificates of deposit 8,126,246 4,091,725 3,704,064
----------- ---------- ----------
$13,016,821 $8,030,556 $7,828,275
=========== ========== ==========
</TABLE>
56
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT:
During 1993, one of the Banks entered into a long-term debt arrangement
with the Federal Home Loan Bank of Cincinnati to provide funding for the
origination of fixed rate mortgages. The long-term debt is collateralized
by that Bank's blanket pledge of mortgage loans aggregating approximately
$5,172,000 and stock of the Federal Home Loan Bank.
Long-term debt at December 31, 1995 and 1994, was summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
5.65% note, payable in monthly installments of
$21,854 through July 1, 2003 $1,614,497 $1,780,407
6.35% note, payable in monthly installments of
$7,368 through September 1, 2013 939,916 967,679
6.10% note, payable in monthly installments of
$8,493 through July 1, 2008 893,759 939,623
----------- --------
$3,448,172 $3,687,709
=========== ==========
</TABLE>
Scheduled principal maturities of long-term debt outstanding as of December
31, 1995, are:
<TABLE>
<S> <C>
1996 $ 255,080
1997 270,324
1998 286,482
1999 303,605
2000 321,753
Thereafter 2,010,928
----------
$3,448,172
==========
</TABLE>
At December 31, 1995, the Corporation maintained an unused line of credit
of $5,000,000 with interest at prime with a correspondent bank. The
Corporation also maintains an unused line of credit of $10,000,000 with the
Federal Home Loan Bank of Cincinnati with the option of selecting a
variable rate of interest for up to 90 days or a fixed rate for a maximum
of 30 days. The line of credit will expire on May 15, 1996.
8. LEASES:
The Corporation leases certain banking facilities and equipment under
long-term operating lease agreements which generally contain renewal
options for periods ranging from 5 to 30 years and require the payment of
certain additional costs (generally maintenance and insurance).
57
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LEASES, CONTINUED:
Future minimum lease payments for these noncancelable operating leases,
with a term in excess of one year, at December 31, 1995, for each of the
years in the five year period ending December 31, 2000, and thereafter were
as follows:
<TABLE>
<S> <C>
1996 $154,294
1997 132,909
1998 121,137
1999 105,030
2000 30,645
Thereafter 3,325
---------
$547,340
========
</TABLE>
The total rental expense for operating leases was $164,977, $100,316 and
$63,720 for the years ended December 31, 1995, 1994 and 1993, respectively.
9. STOCK OPTIONS:
On January 6, 1989, the Corporation established a stock option plan,
whereby a certain key executive was granted options to purchase 300 shares
per year of the Corporation's stock at one and one-half times book value at
each year end. The number of options granted per year was increased to 600
as a result of a 1991 stock split. The options expire ten years from the
date of grant and are cancelled if the key executive voluntarily resigns
his employment or is terminated for cause. Compensation expense recognized
was $24,000, $20,400 and $15,600 for the years ended December 31, 1995,
1994 and 1993, respectively.
During 1993, the Corporation granted certain other key executives stock
option awards to purchase 1,000 shares of the Corporation's stock at $145
per share (market price at date of grant). In December 1995 and 1994, the
Corporation granted additional stock options to certain key executives to
purchase 1,300 and 1,000 shares at $180 and $160 per share, respectively.
If a key executive is a 10 percent or greater stockholder at the time of
exercise, the option price is increased by 10 percent. The options awarded
vest at year end at the rate of 20 percent per year and expire ten years
from the date of grant.
58
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. STOCK OPTIONS, CONTINUED:
Following is a summary of the stock options for the years ended December
31, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS OPTION PRICE
<S> <C> <C> <C>
December 31, 1992 3,292 $ 88.61 - 110.93
Grants 600 118.91 - 145.00
Exercises -
-----
December 31, 1993 3,892 88.61 - 145.00
Grants 1,600 126.08 - 160.00
Exercises (344) 88.61
-----
December 31, 1994 5,148 88.61 - 160.00
Grants 1,900 140.55 - 180.00
Exercises -
-----
December 31, 1995 7,048 $ 88.61 - 180.00
=====
</TABLE>
10. PROFIT SHARING AND DEFERRED COMPENSATION:
The Corporation has a contributory profit-sharing plan covering all
employees with one year or more of service. Participating employees are
required to contribute at least 3 percent of their monthly salary to the
Plan and the Corporation contributes to the Plan up to 10 percent of its
profit before taxes (not to exceed 15 percent of the total compensation of
participating employees). The contributions by the Corporation were
$427,666, $396,192 and $360,424 for 1995, 1994 and 1993, respectively.
The Banks have established supplemental benefit plans for selected
officers and directors. These plans are nonqualified and therefore, in
general, a participant's or beneficiary's claim to benefits is as a
general creditor.
Certain current and retired key officers participate in a deferred
compensation plan which provides for a defined benefit upon retirement.
Payment of benefits under such plans is contingent upon employment to
retirement, obtaining retirement age in the event of disability, or upon
death. The cost of such plans is being charged to operations over the
period of active employment from the contract date.
In 1993, a plan was established whereby directors of the Corporation and
the Banks have the right to participate in a deferred compensation plan
which permits the directors to defer director compensation and earn a
guaranteed interest rate on such deferred amounts. Compensation costs
associated with the plan are charged to operations.
59
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. PROFIT SHARING AND DEFERRED COMPENSATION, CONTINUED:
Included in accrued interest and other liabilities in the consolidated
financial statements is $608,018 and $415,209 at December 31, 1995 and
1994, respectively, related to the above supplemental benefit plans. To
fund these plans the Corporation purchased single premium universal life
insurance contracts on the lives of the related directors and officers.
The cash surrender value of such contracts is included in the consolidated
balance sheet. If all of the assumptions regarding mortality, interest
rates, policy dividends, and other factors are realized, the Corporation
will ultimately realize its full investment in such contracts.
11. INCOME TAXES:
The components of income tax expense for the years ended December 31,
1995, 1994 and 1993, were:
<TABLE>
<CAPTION>
1995 1994 1993
Current income taxes
<S> <C> <C> <C>
Federal $ 2,914,271 $ 2,450,101 $ 2,055,251
State 406,708 409,965 428,028
----------- ----------- -----------
3,320,979 2,860,066 2,483,279
Deferred income tax benefit (568,718) (349,744) (261,926)
----------- ----------- -----------
$ 2,752,261 $ 2,510,322 $ 2,221,353
=========== =========== ===========
</TABLE>
The Corporation adopted SFAS 109 effective January 1, 1993. The
implementation of SFAS 109 resulted in a decrease in the Corporation's
deferred tax assets of $52,273.
A reconciliation of expected federal tax expense based on the federal
statutory rate of 34 percent to consolidated tax expense for the years
ended December 31, 1995, 1994 and 1993, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax at statutory rates $ 2,672,638 $ 2,383,984 $ 2,223,102
Tax increases (decreases) attributable to:
Tax exempt interest (122,480) (188,581) (289,499)
State income tax less federal tax benefit 268,427 276,517 256,171
Interest expense disallowed 23,860 19,649 25,118
Other (90,184) 18,753 6,461
----------- ----------- -----------
$ 2,752,261 $ 2,510,322 $ 2,221,353
=========== =========== ===========
</TABLE>
60
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED:
The significant components of the Corporation's deferred tax assets and
liabilities at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses and other real estate owned $1,694,540 $1,168,333
Unrealized depreciation on available-for-sale securities -- 362,380
Deferred compensation 230,888 157,375
Other 65,692 39,489
---------- ----------
Gross deferred tax assets 1,991,120 1,727,577
---------- ----------
Deferred tax liabilities:
Depreciation 349,619 344,162
Unrealized appreciation on available-for-sale securities 145,291 --
Other 41,116 19,988
---------- ----------
Gross deferred tax liabilities 536,026 364,150
---------- ----------
Net deferred tax asset $1,455,094 $1,363,427
========== ==========
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Banks are party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers and to reduce their own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in consolidated balance sheets.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Banks use the same credit policies in
making these commitments and conditional obligations as they do for
on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many commitments expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Banks upon extension of credit is
based on management's credit evaluation of the borrower. Collateral held
varies but may include marketable securities, trade accounts receivable,
property, plant, and equipment and/or income-producing commercial
properties.
61
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED:
Standby letters of credit are conditional commitments issued by the Banks
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Most of the Banks' business activities are with customers located within
the state of Tennessee for residential, consumer and commercial loans. A
majority of the loans are secured by residential or commercial real estate
or other personal property. The loans are expected to be repaid from cash
flow or proceeds from the sale of selected assets of the borrowers.
Outstanding standby letters of credit as of December 31, 1995 and 1994
amounted to $1,832,150 and $2,861,900, respectively. Outstanding
commitments to lend at fixed rates were $939,000 and $1,615,000 and at
variable rates were $3,396,000 and $11,181,000 at December 31, 1995 and
1994, respectively. Undisbursed advances on customer lines of credit were
$38,536,000 and $33,311,000 at December 31, 1995 and 1994, respectively.
The amount available for borrowing under inventory collateralized loans
was $5,733,000 at December 31, 1995 and $3,743,000 at December 31, 1994.
The Banks do not anticipate any losses as a result of these transactions
that would be unusual in relation to its historical levels of loan losses
on its recorded loan portfolio.
13. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS:
Regulatory capital guidelines of the Federal Reserve Board for bank
holding companies which were in effect at December 31, 1995, required a
minimum of 5.5 percent for a primary capital ratio (essentially equity
plus the allowance for loan losses), 6.0 percent for a total capital ratio
(primary capital plus qualifying debt) and 8 percent risk-based capital.
The risk-based guideline is based on the assignment of risk weights to
assets and off-balance sheet items depending on the level of credit risk
associated with them. The Banks' capital ratios were in excess of the
minimum regulatory requirements.
The Corporation's principal source of funds is dividends received from the
Banks. Under applicable banking laws, the declaration of dividends in any
year in excess of the sum of net income of that year and retained earnings
of the preceding two years must be approved by bank regulatory
authorities. At December 31, 1995 and 1994, approximately $8,389,000 and
$7,650,000, respectively were available for the payment of dividends from
the Banks to the Corporation without approval by bank regulatory
authorities.
14. ADDITIONAL CASH FLOW INFORMATION:
Income taxes paid during the years ended December 31, 1995, 1994 and 1993
amounted to $3,617,622, $2,890,684 and $2,723,330, respectively. Interest
expense paid in cash during the years 1995, 1994 and 1993 amounted to
$12,360,091, $8,342,385 and $8,024,925, respectively.
62
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. ADDITIONAL CASH FLOW INFORMATION, CONTINUED:
Significant noncash transactions for the years ended December 31, 1995,
1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Financed sales of other real estate owned $159,000 $1,044,876 $256,200
Foreclosed loans transferred to OREO 124,767 391,893 79,954
Transfer of OREO to premises - 74,763 -
</TABLE>
15. PARENT COMPANY FINANCIAL INFORMATION:
Condensed financial information for Greene County Bancshares, Inc.
(parent company only) was as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1995 1994
<S> <C> <C>
Cash $ 1,186,519 $ 148,039
Investment in subsidiaries 39,319,173 35,617,451
Premises and equipment, net 711,999 730,232
Cash surrender value of life insurance contracts 177,980 168,488
Deferred income taxes -- 365,702
Other assets 672,088 178,982
------------ ------------
Total assets $ 42,067,759 $ 37,208,894
============ ============
LIABILITIES
Deferred income taxes $ 141,969 $ --
Other liabilities -- 18,597
------------ ------------
141,969 18,597
------------ ------------
Common stock subject to rescission 851,530 --
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 4,424,440 4,424,440
Paid-in capital 2,914,724 2,914,724
Retained earnings 33,498,636 30,442,388
Net unrealized depreciation on available-for-sale securities,
net of income tax (benefit) of $145,291 and $(362,380)
in 1995 and 1994, respectively 236,460 (591,255)
------------ ------------
Total shareholders' equity 41,074,260 37,190,297
------------ ------------
Total liabilities and shareholders' equity $ 42,067,759 $ 37,208,894
============ ============
</TABLE>
63
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Revenue:
Equity in earnings of subsidiaries $ 5,184,674 $ 4,532,218 $ 4,278,884
Interest income -- 3,752 24,399
Other income 53,837 62,593 139,452
----------- ----------- -----------
Total revenue 5,238,511 4,598,563 4,442,735
Expenses 92,586 99,315 129,882
----------- ----------- -----------
Income before income taxes and cumulative
effect of change in method of accounting
for income taxes 5,145,925 4,499,248 4,312,853
Income tax expense (benefit) 37,485 (2,148) 38,849
----------- ----------- -----------
Income before cumulative effect of change
in method of accounting for income taxes 5,108,440 4,501,396 4,274,004
Cumulative effect of change in method of
accounting for income taxes -- -- (9,095)
----------- ----------- -----------
Net income $ 5,108,440 $ 4,501,396 $ 4,264,909
=========== =========== ===========
</TABLE>
64
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 5,108,440 $ 4,501,396 $ 4,264,909
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in earnings of subsidiaries (5,184,674) (4,532,218) (4,278,884)
Effect of change in method of accounting
for income taxes -- -- 9,095
Decrease in receivable from subsidiaries -- 163,893
Other 18,233 (19,973) 3,122
Increase in other assets (493,106) -- --
Increase (decrease) in other liabilities (18,597) 9,249 (642,709)
----------- ----------- -----------
Net cash used by operating activities (569,704) (41,546) (480,574)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturities of investment securities 78,772 622,951
Increase in cash surrender value of life insurance contracts (9,492) (2,987) (155,491)
Dividends from subsidiaries 2,818,338 2,795,818 1,637,968
Fixed assets additions -- -- (86,207)
----------- ----------- -----------
Net cash provided by investing activities 2,808,846 2,871,603 2,019,221
----------- ----------- -----------
Cash flows from financing activities:
Capital contributed to subsidiary -- (1,000,000) --
Repurchase of common stock -- -- (688,500)
Proceeds from issuance and sale of common stock -- 30,470 73,898
Proceeds from sale of common stock subject to rescission 851,530 -- --
Dividends paid (2,052,192) (1,795,818) (1,637,968)
----------- ----------- -----------
Net cash used by financing activities (1,200,662) (2,765,348) (2,252,570)
----------- ----------- -----------
Net increase (decrease) in cash 1,038,480 64,709 (713,923)
Cash at beginning of year 148,039 83,330 797,253
----------- ----------- -----------
Cash at end of year $ 1,186,519 $ 148,039 $ 83,330
=========== =========== ===========
</TABLE>
65
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. COMMITMENTS AND CONTINGENCIES:
The Corporation and Banks are involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Corporation's consolidated financial position or results of
operations.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following information is presented as required by Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments. For financial instruments not described below,
generally short term financial instruments, book value approximates fair
value. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
SECURITIES AND INTEREST BEARING DEPOSITS - Fair values of securities and
interest bearing deposits are based on quoted market prices. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
FEDERAL FUNDS SOLD - Fair values of federal funds sold are based on quoted
market prices.
LOANS, NET - The fair value for loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSITS - The fair value of demand deposits, savings accounts and money
market deposits is the amount payable on demand at the reporting date. The
fair value of certificates of deposit is estimated by discounting the
future cash flows using the current rate offered for similar deposits with
the same remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Fair values of securities
sold under agreements to repurchase are based on quoted market prices.
66
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
The estimated fair values of the Corporation's financial instruments at
December 31, 1995 and 1994, were as follows (rounded to the nearest
thousand):
<TABLE>
<CAPTION>
1995 1994
------------------------- --------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Financial assets:
Securities $ 70,125,000 $ 70,701,000 $ 70,374,000 $ 70,324,000
Federal funds sold 23,800,000 23,800,000 3,550,000 3,550,000
Loans, net 293,834,000 294,133,000 241,253,000 238,724,000
Financial liabilities:
Deposits $365,951,000 $367,782,000 $298,162,000 $297,780,000
Securities sold under agreements
to repurchase 4,784,000 4,784,000 3,879,000 3,878,000
Long-term debt 3,448,000 3,444,000 3,688,000 3,683,000
</TABLE>
The Corporation believes that the fair value of commitments to extend
credit and standby letters of credit approximate the stated amounts at
December 31, 1995 and 1994.
18. SUBSEQUENT EVENT:
The Corporation acquired all of the stock of Premier Bancshares, Inc. and
thereby, indirectly all the shares of Premier Bank of East Tennessee, on
January 1, 1996. The Corporation has accounted for this acquisition as a
purchase under generally accepted accounting principles. Premier Bank of
East Tennessee conducts its business from its main office in Niota,
Tennessee and from its full service branch in Athens, Tennessee.
On September 30, 1995, Premier Bank of East Tennessee had total deposits
of $21,961,000 and total assets of $24,256,000. The primary market area of
Premier Bank of East Tennessee is McMinn County, Tennessee, which includes
the cities of Niota and Athens, Tennessee. Premier Bank competes primarily
with four commercial banks and one savings and loan association in its
market area.
19. 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. The Company is
making a rescission offer to the New Shareholders (the "Rescission
Offer"). The need for the Rescission Offer arises 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.
67
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. COMMON STOCK SUBJECT TO RESCISSION, CONTINUED:
In the Rescission Offer the Company is offering 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 receives 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 is being made pursuant to the applicable securities
laws in the states in which the New Shareholders reside. Simultaneously
with the Rescission Offer, the Company is registering these shares of
common stock such that if the New Shareholders determine that they desire
to retain the common shares, they will be appropriately registered.
68
<PAGE> 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company terminated the services of Price Waterhouse LLP, independent
accountants, as its auditors effective on the 18th day of May, 1994. This
decision was approved by the Audit Committee and the Board of Directors of
Greene County Bancshares, Inc., on the 18th day of May, 1994, at which time the
Company hired Coopers & Lybrand L.L.P. as its new audit firm.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
With respect to the directors and executive officers of the Company, the
information required by Item 10 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of this Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.
69
<PAGE> 73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
(1) The following consolidated financial statements and the
report of independent accountants are included in this
Annual Report on Form 10-K.
(a) Report of Coopers & Lybrand L.L.P., independent
accountants, on the consolidated financial statements
as of December 31, 1995 and for the year then ended.
(b) Consolidated Balance Sheets as of December 31, 1995
and 1994;
(c) Consolidated Statements of Income for each of the
years in the three year period ended December 31,
1995.
(d) Consolidated Statements of Changes in Shareholders'
Equity for each of the years in the three year period
ended December 31, 1995.
(e) Consolidated Statement of Cash Flows for each of
the years ended December 31, 1995.
(f) Notes to the Consolidated Financial Statements.
(2) Financial Statement Schedules
All other financial statements and schedules not listed
immediately above are omitted since they are not applicable,
not required or the required information is included in the
consolidated financial statements.
(3) Listing of Exhibits:
3* (a) Charter
(b) Bylaws
10* (b) Employment Agreement between Registrant and
Davis Stroud
10 (d) Employment Agreement between Registrant and
R. Stan Puckett
22 Subsidiaries of the Registrant for the year ended
December 31, 1995.
70
<PAGE> 74
------------
(*) Incorporated herein by reference to exhibits
filed with Form S-14 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, Registration
No. 2-96273.
(b) A Report on Form 8-K was filed with the Commission on May 18,
1994 pertaining to the change in Accountants.
71
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/
-----------------------------
R. Stan Puckett
President & CEO
By: /s/
-----------------------------
Bill Richmond
Senior Vice President and
Chief Financial Officer
Date: , 1996
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Name Capacity Date
/s/ Chairman, Director
- ------------------------
Harrison Lamons
/s/
- ------------------------ President, Director
R. Stan Puckett (Chief Executive
Officer)
/s/ Director
- -------------------------
Helen Horner
/s/ Director
- -------------------------
J.W. Douthat
/s/ Director
- -------------------------
Phil M. Bachman, Jr.
/s/ Director
- -------------------------
Terry Leonard
/s/ Director
- -------------------------
Ralph T. Brown
/s/ Director
- -------------------------
James A. Emory
72
<PAGE> 76
/s/ Director
- ----------------------
Patrick Norris
/s/ Director
- ----------------------
Jerald K. Jaynes
/s/ Director
- ----------------------
Charles S. Brooks
/s/ Director
- ----------------------
Davis Stroud
/s/ Director
- ----------------------
W.T Daniels
73
<PAGE> 77
EXHIBIT INDEX
3* (a) Charter
(b) Bylaws
10* (b) Employment Agreement between
Registrant and Davis Stroud
10 (d) Employment Agreement between
Registrant and R. Stan Puckett
22 Subsidiaries of the Registrant for the year ended
December 31, 1995.
27 Financial Data Schedule (for SEC use only)
------------
(*) Incorporated herein by reference
to exhibits filed with Form S-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933,
Registration No. 2-96273.
<PAGE> 1
EXHIBIT 10(d)
<PAGE> 2
EMPLOYMENT AGREEMENT
This agreement is made and entered into this the 23rd day of January,
1996, by and between Greene County Bancshares, Inc., a Tennessee Financial
Institution, hereinafter referred to as "Employer" and Stan Puckett,
hereinafter referred to as the "Employee."
WITNESSETH:
1. Employment: Employer hereby employs Employee as President and Chief
Executive Officer of its business and Employee hereby accepts such employment.
Employee shall perform such duties as are normal and customary for the
President and Chief Executive Officer of a bank and bank holding company, along
with such other duties as may be assigned to Employee by Employer's Board of
Directors. Employee's duties shall include, but not be limited to, overseeing
the day to day operations of Greene County Bancshares, Inc., Greene County Bank
and each of its branch locations, all other banks acquired by Greene County
Bancshares, Inc., developing marketing programs, overseeing equipment and
computer purchases and installation, developing budgets and strategic plans,
overseeing the plant and facility, and the hiring and firing of employees to
staff all operations. Employee shall devote his entire working time to
Employer's business and shall hold no other paying job.
1
<PAGE> 3
2. Term: The term of the Employee's employment with Employer shall
commence on January 1, 1996 and shall continue until terminated by either party.
3. Compensation and Benefits: Employer hereby agrees to pay Employee
during the term of Employee's employment, a base salary, bonus, and benefits as
set forth in the attached Addendum, subject to change from year to year by
substitution a new Addendum, and subject to the conditions and specifications
set forth herein:
A. Base Salary: Employee's base salary shall be fixed annually at the
first of each year and shall be reflected in the addendum attached as
Exhibit A to this agreement. Said annual salary shall be paid in equal
bi-monthly installments and shall be subject to customary withholding
and other employment taxes as required with respect to compensation paid
by a corporation to an Employee.
B. Director's Fees: Employer shall serve as a Director and Employer
shall pay Employee in addition to his base salary, the fees customarily
paid to the Directors of the Employer and each of its subsidiaries.
C. Life Insurance: The Employer shall provide Employee with a term
life insurance policy with One
2
<PAGE> 4
Hundred Thousand Dollars ($100,000.00) worth of coverage. The Employee shall be
entitled to designate the beneficiary of said life insurance.
D. Medical: The Employer shall provide Employee with the same medical
health and hospitalization insurance coverage as Employer provides to its other
Employees, with a maximum monthly premium to be paid by Employer for said
benefits as specified in attached Exhibit A.
E. Vehicle: Employer shall provide Employee with a full sized
automobile for him to use such as a Park Avenue Buick or other comparable model,
together with reasonable insurance thereon, and shall reimburse employee for the
expenses he incurs for reasonable service, upkeep and repair of said automobile.
F. Parking: Employer shall provide Employee with a parking space within
reasonably close proximity to the main offices of Employer in downtown
Greeneville, Tennessee.
G. Incentive Benefits: Employer shall allow Employee to take part in
any Executive Bonus Plan, incentive stock option plan, profit sharing plan,
3
<PAGE> 5
qualified salary deferral plan, and/or pension plan that Employer now has or
may hereafter adopt during the term of Employee's employment hereunder.
Notwithstanding anything herein to the contrary, Employer shall grant Employee
stock options on the 31st day of each year of employment for 600 shares of
Greene County Bancshares Common Stock (or the equivalent number of shares if
there is a stock split), which option shall allow Employee to purchase said
stock at 1-1/2 times book value (exclusive of reserves) at the time the option
is granted which shall provide that the option may be granted by the Employee
or his spouse or Personal Representative for a period of ten years after the
grant of the option.
H. Vacation and Holidays: Employer shall allow Employee to take four
(4) weeks of paid vacation per year, in addition to the legal holidays on
which the Bank is closed. Legal holidays shall be paid days off for Employee.
I. Expenses: Employer shall reimburse Employee for reasonable
out-of-pocket expenses he incurs on behalf of Employer in the fulfillment of
his job, subject to compliance with any applicable reimbursement policy adopted
by the Employer's Board of Directors.
4
<PAGE> 6
J. Bonus: Employer shall pay Employee a bonus or incentive
compensation based on the return of assets of Greene County Bank and the
percentages set forth in the attached Exhibit A. Said bonus or incentive
compensation shall be paid as soon as it is practical following the
close of the Employer's Financial Statements for the relevant year.
K. Termination of Benefits: Except as provided in Subsection L below,
upon termination of Employee's employment with Employer for any reason,
the benefits set forth in this section shall terminate. Provided,
however, that notwithstanding anything herein to the contrary,
Employee's Personal Representative or spouse shall be entitled to
exercise any incentive stock options granted to Employee, but
unexercised at the time of death, prior to the date on which the
incentive stock option expires in accordance with its grant.
L. Continuation of Salary: Two year's compensation (base salary with
fringe benefits including stock options) if not retained by mutual
agreement in merger/acquisition/buyout situation.
4. Employer's Authority: Employee agrees to observe and comply with
the rules and regulations of Employer as adopted by
5
<PAGE> 7
its Board of Directors, either orally or in writing, respecting the performance
of his duties, and to carry out and perform all orders, directions, and
policies stated by Employer through its Board from time to time.
5. Records: Upon Employee's termination of employment with Employer,
for any reason, Employee shall not be entitled to keep or preserve the records,
documents, or other instruments of Employer as to any client or customer of
Employer, and agrees to return all documents, records, and other instruments
to Employer regarding its business and operations.
6. Amendment and Assignment: This agreement may be amended only by a
writing signed by both of the parties hereto. No additional consideration shall
be required for any such amendment to be enforceable. This agreement and the
rights, duties and obligations shall not be assignable by Employee because of
the services to be rendered hereunder are unique and personal. There is no
prohibition or assignment by Employer, and its rights, duties, and obligations
hereunder shall be binding upon, inure to the befit of, Employer and its
successors and assigns.
7. Applicable Law: This agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Tennessee.
6
<PAGE> 8
8. Binding Effect: This agreement shall be binding upon, inure to the
benefit of the parties hereto, and their respective heirs, successors, and
assigns, and personal and legal representatives.
9. Severability: Should any provision of this agreement be determined
to be invalid, illegal, or unenforceable by a court of competent jurisdiction,
then such provision shall be amended by the parties hereto so as to make it
valid, legal, and enforceable, but keeping it as close as possible to its
original meaning. The invalidity, illegality, or unenforceability of any
provision shall not affect in any manner the other provisions herein contained,
which shall remain in full force and effect.
In witness whereof, the parties have hereto executed this agreement on
the day and date first written above.
Greene County Bancshares, Inc.
By: /s/ G. Harrison Lamons
---------------------------
Title: Chairman
------------------------
/s/ STAN PUCKETT
------------------------
Stan Puckett, Employee
7
<PAGE> 1
Exhibit 22
Subsidiaries of the Registrant
Greene County Bank, Greeneville, Tennessee
American Fidelity Bank, Alcoa, Tennessee
*Premier Bancshares, Inc., Niota, Tennessee
* Acquired January 1, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 13723107
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 23800000
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<TOTAL-ASSETS> 420580878
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0
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<EXPENSE-OTHER> 11721414
<INCOME-PRETAX> 7860701
<INCOME-PRE-EXTRAORDINARY> 5108440
<EXTRAORDINARY> 0
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<NET-INCOME> 5108440
<EPS-PRIMARY> 11.45
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<YIELD-ACTUAL> 8.93
<LOANS-NON> 902000
<LOANS-PAST> 1044000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2773000
<ALLOWANCE-OPEN> 3446762
<CHARGE-OFFS> 671962
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