<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THIS
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to ________________
Commission file number 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 Identification
incorporation or organization) No.)
100 North Main Street, Greeneville,
Tennessee 37743
- ----------------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (423) 639-5111.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10.00 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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---- ----
Indicate 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 or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The registrant's voting stock is not regularly and actively traded in any
established market, and there are no regularly quoted bid and asked prices for
the registrant's common stock. Based upon recent negotiated trading of the
common stock at a price of $225 per share, the registrant believes that the
aggregate market value of the voting stock on March 24, 1997 was
$101.59 million. For purposes of this calculation, it is assumed that directors,
officers and beneficial owners of more than 5% of the registrant's outstanding
voting stock are not affiliates. On such date, 451,500 shares of the common
stock were issued and 451,500 shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:
1. Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1996. (Parts I and II)
2. Portions of Proxy Statement for 1997 Annual Meeting of Shareholders.
(Part III)
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Greene County Bancshares, Inc. (the "Company") is a Tennessee corporation that
serves as the bank holding company and sole stockholder for Greene County Bank
("GCB") and Premier Bank of East Tennessee ("Premier Bank"), both of which are
Tennessee-chartered commercial banks. GCB and Premier Bank are referred to
herein as the "Banks." The Company also wholly-owned American Fidelity Bank,
which was merged into GCB during 1996.
The Company's assets consist primarily of its investment in the Banks, liquid
investments and fixed assets. Its primary activities are conducted through the
Banks. At December 31, 1996, the Company's consolidated total assets were $478.0
million, its consolidated net loans were $381.3 million, its total deposits were
$408.7 million and its total stockholders' equity were $45.7 million.
The principal executive offices of the Company are located at 100 North Main,
Greeneville, Tennessee 37743 and its telephone number is (423) 639-5111.
GREENE COUNTY BANK
GCB is a Tennessee-chartered commercial bank established in 1890 and which has
its principal executive offices located in Greeneville, Tennessee. The principal
business of GCB consists of attracting deposits from the general public and
investing those funds, together with funds generated from operations and from
principal and interest payments on loans, primarily in commercial loans,
commercial real estate loans, consumer loans and single-family mortgage loans.
GCB also provides trust, collection and other banking services, including
separate finance, mortgage and acceptance corporations. At December 31, 1996,
Greene County Bank had seven full service banking offices located in Greene
County, Tennessee; three full service banking offices located in Washington
County, Tennessee; two full service banking offices located in Blount County,
Tennessee, two full service banking offices located in Hamblen County,
Tennessee, and full service banking offices located in Sullivan County, Knox
County and Hawkins County, Tennessee.
GCB also conducts separate businesses through three wholly-owned subsidiaries.
Through its wholly-owned subsidiary, Superior Financial Services, Inc., GCB also
operates six consumer finance company offices located in Greene, Hamblen,
Blount, Washington, Sullivan and McMinn Counties, Tennessee. Through its
wholly-owned subsidiary, Superior Mortgage Company, GCB operates a mortgage
banking operation through its sole office in Knox County, Tennessee and through
its representatives located throughout the Company's branch system. In December
1996, the Company created a new subsidiary, GCB Acceptance Corporation, as a
wholly-owned subsidiary of GCB, to make car loans beginning in 1997 to consumers
with less than perfect credit history (also known as sub-prime lending). Each of
these subsidiaries are continuing to develop but do not yet contribute in any
significant manner to the operating results of the Company.
PREMIER BANK OF EAST TENNESSEE
Premier Bank is a Tennessee-chartered commercial bank established in 1911 as
the Bank of Niota and which has its principal executive offices in Niota,
Tennessee. The primary business of Premier Bank consists of attracting deposits
from its primary market area and investing those deposits, together with funds
generated from operations, in consumer, single-family mortgage and small
business loans. Premier Bank conducts its business from a main office located in
Niota, Tennessee which operates under the trade name "Bank of Niota" and a
second office in Athens, Tennessee which operates under the trade name "Bank of
Athens."
1
<PAGE>
Premier Bank was acquired upon the acquisition of its parent company, Premier
Bancshares, Inc. ("Premier"), by the Company on January 1, 1996. At that time,
Premier had assets of approximately $24.2 million, deposits of approximately
$22.0 million and stockholders' equity 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
$2,431,418, plus $230,000 for non-compete agreements with the sellers. The
transaction was accounted for as a purchase. On March 29, 1996, Premier was
merged with and into the Company, with the Company as the survivor, and Premier
Bank became a wholly-owned subsidiary of the Company.
Deposits of the Banks are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC") to a maximum of $100,000 for each
insured depositor. The Banks are subject to supervision and regulation by the
Tennessee Department of Financial Institutions (the "Banking Department") and
the FDIC. See "Regulation, Supervision and Governmental Policy."
LENDING ACTIVITIES
General. The loan portfolio of the Company is comprised of mortgage
-------
installment loans, commercial loans, real estate loans and consumer loans. Such
loans are originated within the Company's market area of east Tennessee and are
generally secured by residential or commercial real estate or business or
personal property located in the east Tennessee counties of Greene, Washington,
Hamblen, Sullivan, Hawkins, Blount, Knox and McMinn Counties, Tennessee.
Loan Composition. The following table sets forth the composition of the
----------------
Company's loans for the periods indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial ........... $ 97,340 $ 75,503 $ 56,754 $ 51,533 $ 46,391
Commercial real
estate .............. 97,990 73,720 63,499 44,050 35,838
Mortgage
installment ......... 108,878 92,276 79,705 63,605 61,237
Installment real
estate............... 11,354 556 712 733 930
Installment
consumer ............ 71,354 55,876 44,025 38,249 41,887
Other ................ 5,389 2,772 2,832 1,246 532
-------- -------- -------- -------- --------
Total loans ........ $392,305 $300,703 $247,527 $199,416 $186,815
Less: Unearned
discount............. (3,702) (2,215) (2,827) (4,227) (5,275)
Allowance for loan
losses........... (7,331) (4,654) (3,447) (3,062) (2,529)
-------- -------- -------- -------- --------
Total loans, net ..... $381,272 $293,834 $241,253 $192,127 $179,011
======== ======== ======== ======== ========
</TABLE>
2
<PAGE>
Loan Maturities. The following table reflects at December 31, 1996 the dollar
---------------
amount of loans maturing or subject to rate adjustment based on their
contractual terms to maturity. Loans with fixed rates are reflected based upon
the contractual repayment schedule while loans with variable interest rates are
reflected based upon the contractual repayment schedule up to the contractual
rate adjustment date. Demand loans, loans having no stated schedule of
repayments and loans having no stated maturity are reported as due within three
months.
<TABLE>
<CAPTION>
DUE IN ONE DUE AFTER ONE YEAR DUE AFTER
YEAR OR LESS THROUGH FIVE YEARS FIVE YEARS TOTAL
------------ ------------------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial ........... $ 47,507,875 $ 37,491,308 $12,340,891 $ 97,340,074
Commercial real
estate .............. 57,376,203 19,947,970 20,665,642 97,989,815
Mortgage installment . 14,789,007 56,681,030 37,408,187 108,878,224
Installment real
estate............... 7,655,910 4,651,375 4,435,768 16,743,053
Installment consumer . 25,072,838 44,488,354 1,792,890 71,354,082
------------ ------------ ----------- ------------
$152,401,833 $163,260,037 $76,643,378 $392,305,248
============ ============ =========== ============
</TABLE>
The following table sets forth the dollar amount of the loans maturing
subsequent to the year ending December 31, 1997 between those with predetermined
interest rates and those with floating or adjustable interest rates.
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
RATES ADJUSTABLE RATES TOTAL
------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial ................... $ 23,070,586 $29,861,616 $ 52,932,202
Commercial real estate ....... 11,518,917 25,011,509 36,530,426
Mortgage installment ......... 57,479,472 27,208,994 84,688,466
Installment real estate ...... 11,906,752 4,836,300 16,743,052
Installment consumer ......... 48,483,615 525,654 49,009,269
------------ ----------- ------------
$152,459,342 $87,444,073 $239,903,415
------------ ----------- ------------
</TABLE>
Commercial Loans. The Company's principal lending activities include the
----------------
origination of commercial loans in the Company's primary lending area.
Commercial loans are made for a variety of business purposes, including working
capital, inventory and equipment and capital expansion. At December 31, 1996,
commercial loans outstanding totaled $97.3 million, or 25.5% of the Company's
total net loan portfolio. The terms for commercial loans are generally one to
seven years. Commercial loan applications must be supported by current financial
information on the borrower and, where appropriate, by adequate collateral.
Commercial loans are generally underwritten by addressing cash flow (debt
service coverage), primary and secondary sources of repayment, financial
strength of any guarantor, 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 10%
and 25% depending on the borrower and nature of inventory. The Company requires
a first lien position for such loans. These types of loans are generally
considered to be a higher credit risk than other loans originated by the
Company.
Commercial Real Estate Loans. The Company originates commercial loans,
----------------------------
generally to existing business customers, secured by real estate located in the
Company's market area. At December 31, 1996, commercial real estate loans
totaled $98.0 million, or 25.7% of the Company's total net loan portfolio. The
terms of such loans are generally for ten to twenty years and are priced based
in part upon the New York prime rate, as reported in The
3
<PAGE>
Wall Street Journal. Commercial real estate loans are generally underwritten by
addressing cash flow (debt service coverage), primary and secondary source of
repayment, financial strength of any guarantor, strength of the tenant (if any),
liquidity, leverage, management experience, ownership structure, economic
conditions and industry specific trends and collateral. Generally, the Company
will loan up to 80% of the value of improved property, 65% of the value of raw
land and 75% of the value of undeveloped land. A first lien on the property and
assignment of lease is required if the collateral is rental property, with
second lien positions considered on a case by case basis.
Mortgage Installment Loans. The Company also originates one-to-four family,
--------------------------
owner-occupied residential mortgage loans secured by property located in the
Company's primary market area. The majority of the Company's residential
mortgage loans consists of loans secured by owner-occupied, single-family
residences. At December 31, 1996, the Company had $108.9 million, or 28.6% of
its total net loan portfolio, in mortgage installment loans. The Company also
originates, to a limited extent, installment real estate loans for other types
of real estate acquisitions. Mortgage installment and installment real estate
loans generally 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 ratio.
Installment Consumer Loans. At December 31, 1996, the Company's installment
--------------------------
consumer loan portfolio totaled $71.4 million, or 18.7% of the Company's total
net loan portfolio. The Company's consumer loan portfolio is comprised of
unsecured personal notes and loans secured by durable goods. Although personal
loans tend to have a higher risk of default than other loans, management
believes that its loan loss experience with its personal loan portfolio is
within allowable limits. However, the performance of such loans will be affected
by the local and regional economy as well as the rates of personal bankruptcies,
job loss, divorce and other individual-specific characteristics.
Non-accrual, Past Due, Restructured and Potential Problem Loans. The Company
---------------------------------------------------------------
classifies its problem loans into four categories: non-accrual loans, past-due
loans, restructured loans, and potential problem loans.
When management determines that a loan no longer meets the criteria for
performing loans and that collection of interest appears doubtful, the loan is
placed on non-accrual status. All loans which are 90 days past due are
considered non-accrual, unless they are adequately secured and there is
reasonable assurance of full collection of principal and interest. Management
closely monitors all loans which are contractually 90 days past due,
restructured or on non-accrual status. Non-accrual loans which are 120 days past
due without assurance of repayment are charged off.
The following table sets forth information with respect to the Company's
non-performing assets at the dates indicated. At these dates, the Company did
not have any restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual
basis............................... $ 616 $ 902 $ 649 $ 554 $ 742
Accruing loans which are
contractually past due 90 days or
more as to interest or principal
payments............................ 1,486 1,044 656 3,256 1,459
------ ------ ------ ------ ------
Total non-performing loans .......... 2,102 1,946 1,305 3,810 2,201
Real estate owned ................... 223 122 85 1,014 2,367
------ ------ ------ ------ ------
Total non-performing assets ......... $2,325 $2,068 $1,390 $4,824 $4,568
====== ====== ====== ====== ======
</TABLE>
4
<PAGE>
If non-accrual loans at December 31, 1996 had been current according to their
original terms and had been outstanding throughout 1996, or since origination if
originated during the year, interest income on these loans would have been
$169,000. Interest actually recognized on these loans during 1996 was not
significant.
At December 31, 1996, the Company had approximately $5.1 million in loans
which are not currently classified as non-accrual, 90 days past due or
restructured and where known information about possible credit problems of
borrowers caused management to have serious concerns as to the ability of the
borrowers to comply with present loan repayment terms. Such loans were
classified as substandard by the Company and comprised various commercial and
commercial real estate loans, including a $1.9 million commercial real estate
loan secured by a motel and a $1.2 million group of commercial and commercial
real estate loans to a single borrower secured by commercial real estate and
equipment. For further information, see Note 1 of Notes to Consolidated
Financial Statements.
Allowance for Loan Losses. The allowance for loan losses is maintained at a
-------------------------
level which, in management's opinion, is adequate to absorb all potential losses
on loans then present in the loan portfolio. The amount of the allowance is
affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries
on loans previously charged-off, which increase the allowance; and (3) the
provision of possible loan losses charged to income, which increase the
allowance. In determining the provision for possible loan losses, it is
necessary for management to monitor fluctuations in the allowance resulting from
actual charge-offs and recoveries, and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic
conditions in an effort to evaluate portfolio risks. If actual losses exceed the
amount of the allowance for loan losses, earnings of the Company could be
adversely affected. The amount of the provision is based on management's
judgment of those risks and therefore the allowance represents general, rather
than specific, reserves.
5
<PAGE>
The following is a summary of activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- -------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
year.................. $ 4,654 $ 3,447 $ 3,062 $2,529 $ 1,862
Charge-offs:
Commercial, industrial
and construction
loans ................ (194) (26) (103) (50) (385)
Installment loans ..... (1,431) (646) (1,256) (457) (744)
------- ------- ------- ------ -------
Total charge-offs ... (1,625) (672) (1,359) (507) (1,129)
Recoveries:
Commercial, industrial
and construction
loans ................ 62 9 199 57 95
Installment loans ..... 826 447 551 149 90
------- ------- ------- ------ -------
Total recoveries .... 888 456 750 206 185
Net charge-offs ....... (737) (216) (609) (301) (944)
Additions charged to
operations............ 2,973 1,423 994 834 1,611
Balances acquired in
acquisition of Premier
Bank.................. 440 -- -- -- --
------- ------- ------- ------ -------
Balance at end of
year ................. $ 7,330 $ 4,654 $ 3,447 $3,062 $ 2,529
======= ======= ======= ====== =======
Ratio of net
charge-offs to average
loans outstanding, net
of unearned discount,
during the period .... 0.21 % 0.08 % 0.28 % 0.16 % 0.55 %
======= ======= ======= ====== =======
Ratio of allowance for
loan losses to
non-performing
loans ................ 348.72 % 239.16 % 264.14 % 80.37 % 114.90 %
Ratio of allowance for
loan losses to total
loans................. 1.87 % 1.55 % 1.39 % 1.54 % 1.35 %
</TABLE>
The following table presents an allocation of the Company's allowance for loan
losses at the dates indicated and the percentage of loans represented by each
category to total loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------ --------------- --------------- --------------- ---------------
% AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT
----------- ----------- ------ ------- ------ ------- ------ ------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, industrial and
construction loans ....... 49.78% $3,650 49.6% $2,042 48.6% $1,758 47.9% $1,317 44.0% $1,109
Installment loans ......... 50.22 3,681 50.4 2,612 51.4 1,689 52.1 1,745 56.0 1,420
------ ------ ----- ------ ----- ------ ----- ------ ----- ------
Total Allowance ......... 100.00% $7,331 100.0% $4,654 100.0% $3,447 100.0% $3,062 100.0% $2,529
====== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
INVESTMENT ACTIVITIES
General. The Company maintains a portfolio of investments to provide liquidity
-------
and an additional source of income.
6
<PAGE>
Securities by Category. The following table sets forth the amount of
----------------------
securities by major categories held by the Company at December 31, 1996, 1995
and 1994.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment Securities:
Federal agency obligations ......................... $ -- $ -- $21,992
Obligations of states and political subdivisions ... 9,456 9,375 9,415
Corporate and other securities ..................... -- -- 858
------ ------ -------
$9,456 $9,375 $32,265
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies ............ $39,337 $59,834 $38,102
Obligations of states and political subdivisions . 1,329 -- 7
Corporate and other securities ................... 2,259 1,066 --
------- ------- -------
$42,925 $60,900 $38,109
======= ======= ========
</TABLE>
For information regarding the amortized cost of securities at December 31,
1996, 1995 and 1994, see Note 3 of Notes to Consolidated Financial Statements.
Maturity Distributions of Securities. The following table sets forth the
------------------------------------
distributions of maturities of securities at amortized cost as of December 31,
1996.
<TABLE>
<CAPTION>
DUE IN ONE DUE AFTER ONE YEAR DUE AFTER FIVE YEARS DUE
YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL
------------ ------------------ -------------------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. treasury
securities--available
for sale ............... $ 597 $ 2,400 $ -- $ -- $ 2,997
Federal agency
obligations--available
for sale ............... 1,972 4,648 7,442 22,351 36,413
Obligations of state and
political
subdivisions--available
for sale ............... 200 620 524 -- 1,344
Obligations of state and
political
subdivisions--held to
maturity................ 1,805 6,732 520 400 9,457
Other
securities--available
for sale ............... -- -- -- 2,259 2,259
------ ------- ------ ------- -------
4,574 14,400 8,486 25,010 52,470
Market value adjustment
on available for sale
securities.............. 15 41 20 (165) (89)
------ ------- ------ ------- -------
$4,589 $14,441 $8,506 $24,845 $52,381
====== ======= ====== ======= =======
Weighted Average
Yield(%)(1)............. 5.43% 5.27% 6.49% 6.77% 6.19%
====== ======= ====== ======= =======
</TABLE>
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. For information regarding the amortized cost
7
<PAGE>
and approximate market value of securities at December 31, 1996, by contractual
maturity, see Note 3 of Notes to Consolidated Financial Statements.
DEPOSITS
Deposits are the primary source of funds for the Company. Such deposits
consist of checking accounts, regular savings deposits, NOW accounts, Money
Market Accounts, market rate Certificates of Deposit. Deposits are attracted
from individuals, partnerships and corporations in the Company's market area. In
addition, the Company obtains deposits from state and local entities and, to a
lesser extent, U.S. Government and other depository institutions. The Company
does not accept brokered deposits.
The following table sets forth the average balances and average interest rates
based on daily balances for deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
------------------------ ----------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
DEPOSITS RATE DEPOSITS RATE DEPOSITS RATE
------------ ----------- -------- ------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits ..... $ 30,945 --% $ 24,424 --% $ 21,292 --%
Interest bearing
demand deposits ..... 105,386 2.23 91,407 2.40 95,066 2.29
Savings deposits ..... 45,491 2.61 38,638 2.50 41,183 2.43
Time deposits ........ 207,441 5.61 172,627 5.71 120,927 4.01
-------- -------- --------
Total deposits ..... $389,263 $327,096 $278,468
======== ======== ========
</TABLE>
The following table indicates the amount of the Company's certificates of
deposit and other time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1996.
<TABLE>
<CAPTION>
CERTIFICATES OF OTHER TIME
MATURITY PERIOD DEPOSITS DEPOSITS
- ------------------------------------------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Three months or less ............................ $13,234 $1,433
Over three through six months ................... 8,722 --
Over six through twelve months .................. 16,006 --
Over twelve months .............................. 8,156 --
------- ------
Total ......................................... $46,118 $1,433
======= ======
</TABLE>
COMPETITION
In order to compete effectively, the Company relies substantially on local
commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.
According to recent data as of June 30, 1996 supplied by the Tennessee Bankers
Association, GCB ranked as the largest financial institution in its market area,
which includes Greene, Hamblen, Washington and Blount Counties and portions of
Cocke, Hawkins, Jefferson and Knox Counties. In Greene County, there are seven
commercial banks, operating 22 branches and holding an aggregate of
approximately $580 million in deposits as of December 31, 1996. Through Premier
Bank, the Company also competes with five commercial banks and one savings bank
in McMinn County, Tennessee.
8
<PAGE>
Under the federal Bank Holding Company Act of 1956 (the "Holding Company
Act"), as amended by the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"), Tennessee banks and their holding companies
may be acquired by out-of-state banks or their holding companies, and Tennessee
banks and their holding companies may acquire out-of-state banks without regard
to whether the transaction is prohibited by the laws of any state. In addition,
the Riegle-Neal Act authorizes the federal banking agencies, effective June 1,
1997, to approve interstate merger transactions without regard to whether such
transactions are prohibited by the law of any state, unless the home state of
one of the banks opts out of the Riegle-Neal Act by adopting a law that applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. The effect of the Riegle-Neal Act may be to
increase competition within the State of Tennessee among banking institutions
located in Tennessee and from banking companies located anywhere in the country.
EMPLOYEES
As of December 31, 1996, the Company employed 233 persons. None of the
Company's employees are presently represented by a union or covered under a
collective bargaining agreement. Management of the Company considers relations
with employees to be good.
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Banks. A number of other statutes and regulations
have an impact on their operations. The following summary of applicable statutes
and regulations does not purport to be complete and is qualified in its entirety
by reference to such statutes and regulations.
Bank Holding Company Regulation. The Company is registered as a bank holding
-------------------------------
company under the Holding Company Act and, as such, subject to supervision,
regulation and examination by the FRB.
Acquisitions and Mergers. Under the Holding Company Act, a bank holding
company must obtain the prior approval of the FRB before (i) acquiring direct or
indirect ownership or control of any voting shares of any bank or bank holding
company if, after such acquisition, the bank holding company would directly or
indirectly own or control more than 5% of such shares; (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. Also, any company
must obtain approval of the FRB prior to acquiring control of the Company or the
Banks. For purposes of the Holding Company Act, "control" is defined as
ownership of more than 25% of any class of voting securities of the Company or
the Banks, the ability to control the election of a majority of the directors,
or the exercise of a controlling influence over management or policies of the
Company or the Banks.
The Holding Company Act, as amended by the Riegle-Neal Act, generally permits
the FRB to approve interstate bank acquisitions by bank holding companies
without regard to any prohibitions of state law. See "Competition".
The Change in Bank Control Act and the related regulations of the FRB require
any person or persons acting in concert (except for companies required to make
application under the Holding Company Act), to file a written notice with the
FRB before such person or persons may acquire control of the Company or the
Banks. The Change in Bank Control Act defines "control" as the power, directly
or indirectly, to vote 25% or more of any voting securities or to direct the
management or policies of a bank holding company or an insured bank. The Company
is not aware of any such notice having been filed with the FRB during 1996.
The Holding Company Act also prohibits, with certain exceptions, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of a company that is not a
9
<PAGE>
bank or a bank holding company, or from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries.
Capital Requirements. The Company is also subject to FRB guidelines that
require bank holding companies to maintain specified minimum ratios of capital
to total assets and capital to risk-weighted assets. See "--Capital
Requirements."
Dividends. The FRB has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The FRB has
issued a policy statement expressing its view that a bank holding company should
pay cash dividends only to the extent that the company's net income for the past
year is sufficient to cover both the cash dividends and a rate of earning
retention that is consistent with the company's capital needs, asset quality,
and overall financial condition. The Company does not believe this policy
statement will limit the Company's activity to maintain its dividend payment
rate.
Support of Banking Subsidiaries. Under FRB policy, the Company is expected to
act as a source of financial strength to its banking subsidiaries and, where
required, to commit resources to support each of such subsidiaries. This support
may be required at times when, absent such FRB policy, the Company may not be
inclined to provide it. Moreover, if one of its banking subsidiaries should
become undercapitalized, under FDICIA the Company would be required to guarantee
the subsidiary bank's compliance with its capital plan in order for such plan to
be accepted by the federal regulatory authority.
Under the "cross guarantee" provisions of the Federal Deposit Insurance Act
(the "FDI Act"), any FDIC-insured subsidiary of the Company may be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the "default" of any other commonly controlled FDIC-insured
subsidiary or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured subsidiary "in danger of default." "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a default is likely to occur in the absence of regulatory assistance.
Because it is a bank holding company, any capital loans made by the Company to
its banking subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment
over certain other creditors of the bank holding company, including the holders
of its subordinated debt.
Transactions with Affiliates. Provisions of the Federal Reserve Act impose
restrictions on the type, quantity and quality of transactions between
"affiliates" (as defined below) of an insured bank and the insured bank
(including a bank holding company and its nonbank subsidiaries). The purpose of
these restrictions is to prevent misuse of the resources of the insured
institution by its uninsured affiliates. An exception to most of these
restrictions is provided for transactions between two insured banks that are
within the same holding company where the holding company owns 80% or more of
each of these banks (the "sister bank" exception). The restrictions also do not
apply to transactions between an insured bank to its wholly-owned subsidiaries.
These restrictions include limitations on the purchase and sale of assets and
extensions of credit by the insured bank to its holding company or its nonbank
subsidiaries. An insured bank and its subsidiaries are limited in engaging in
"covered transactions" with their nonbank or nonsavings-bank affiliates to the
following amounts: (i) in the case of any one such affiliate, the aggregate
amount of covered transactions of the insured bank and its subsidiaries may not
exceed 10% of the capital stock and surplus of the insured bank and (ii) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured bank and its aggregate amount of covered transactions of the insured
bank and its subsidiaries may not exceed 20% of the capital stock and surplus of
the bank. "Covered
10
<PAGE>
transactions" are defined by statute to include loans or other extensions of
credit as well as purchases of securities issued by an affiliate, purchases of
assets (unless otherwise exempted by the Federal Reserve Board), the acceptance
of securities issued by the affiliate as collateral for a loan and the issuance
of a guarantee, acceptance or letter of credit issued on behalf of an affiliate.
Further, provisions of the Holding Company Act prohibit a bank holding company
and its subsidiaries from engaging in certain tie-in arrangements in connection
with any extension of credit, lease or sale of property or furnishing of
services. As used herein, "affiliate" means generally any company that controls
the insured bank, a company which is under common control with the insured bank
and a subsidiary of the insured bank.
Bank Regulation. As a Tennessee banking institution, each of the Banks is
---------------
subject to regulation, supervision and regular examination by the Banking
Department. The deposits of each Bank are insured by the FDIC to the maximum
extent provided by law (a maximum of $100,000 for each insured depositor).
Tennessee and federal banking laws and regulations control, among other things,
required reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, and establishment of branches and other
aspects of the Banks' operations. Supervision, regulation and examination of the
Company and the Banks by the bank regulatory agencies are intended primarily for
the protection of depositors rather than for holders of the Common Stock of the
Company.
Extensions of Credit. Under joint regulations of the federal banking agencies,
including the FDIC, banks must adopt and maintain written policies that
establish appropriate limits and standards for extensions of credit that are
secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent underwriting standards,
including loan-to-value limits, that are clear and measurable, loan
administration procedures and documentation, approval and reporting
requirements. A bank's real estate lending policy must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") that have been adopted by the federal bank regulators. The
Interagency Guidelines, among other things, call upon depository institutions to
establish internal loan-to-value limits for real estate loans that are not in
excess of the loan-to-value limits specified in the Guidelines for the various
types of real estate loans. The Interagency Guidelines state that it may be
appropriate in individual cases to originate or purchase loans with
loan-to-value ratios in excess of the supervisory loan-to-value limits. The
aggregate amount of loans in excess of the supervisory loan-to-value limits,
however, should not exceed 100% of total capital and the total of such loans
secured by commercial, agricultural, multifamily and other non-one-to-four
family residential properties should not exceed 30% of total capital.
Federal Deposit Insurance. Each of the Banks is subject to FDIC deposit
insurance assessments. The FDIC has established a risk-based deposit insurance
assessment system for insured depository institutions, under which insured
institutions are assigned assessment risk classifications based upon capital
levels and supervisory evaluations. Under these regulations, the FDIC set the
1996 insurance assessment rates for BIF-insured banks such as the Banks from
$2,000 per year for the highest rated institutions to 0.27% of insured deposits
for the lowest rated institutions.
On September 30, 1996, President Clinton signed into law the Deposit Insurance
Funds Act of 1996 (the "1996 Act"), which, among other things, (i) recapitalized
the Savings Association Insurance Fund ("SAIF") by imposing a special one-time
assessment on SAIF-insured institutions, (ii) from January 1, 1997 through
December 31, 1999, requires BIF member banks to pay one-fifth of the assessment
rate imposed upon savings institutions to cover the annual payments on the bonds
issued by the Financing Corporation ("FICO") and (iii) from January 1, 2000
until the date the FICO bonds are retired, will require BIF members and SAIF
members to pay FICO assessments on a pro rata basis. In accordance with the 1996
Act's requirements, the FDIC has set the 1997 FICO assessment rate for BIF
member banks at .013% of insured deposits. The annual insurance assessment rates
11
<PAGE>
payable by BIF member banks for the first half of 1997, however, remain fixed at
0% to 0.27%, depending on an individual bank's risk classification.
Safety and Soundness Standards. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") required the federal bank regulatory agencies
to prescribe, by regulation, non-capital safety and soundness standards for all
insured depository institutions and depository institution holding companies.
The FDIC and the other federal banking agencies have adopted guidelines
prescribing safety and soundness standards pursuant to FDICIA. The safety and
soundness guidelines establish general standards relating to internal controls
and information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. Among other things, the guidelines require banks to maintain
appropriate systems and practices to identify and manage risks and exposures
identified in the guidelines. In addition, the FDIC and the other federal
banking agencies have proposed guidelines for asset quality and earnings
standards as required by FDICIA. Under the proposed standards, a bank would be
required to maintain systems, commensurate with its size and the nature and
scope of its operations, to identify problem assets and prevent deterioration in
those assets as well as to evaluate and monitor earnings and ensure that
earnings are sufficient to maintain adequate capital and reserves.
Capital Requirements. The FRB has established guidelines with respect to the
--------------------
maintenance of appropriate levels of capital by registered bank holding
companies, and the FDIC has established similar guidelines for state-chartered
banks that are not members of the FRB. The regulations of the FRB and FDIC
impose two sets of capital adequacy requirements: minimum leverage rules, which
require the maintenance of a specified minimum ratio of capital to total assets,
and risk-based capital rules, which require the maintenance of specified minimum
ratios of capital to "risk-weighted" assets. At December 31, 1996, the Company
and each of the Banks satisfied the minimum required regulatory capital
requirements. See Note 14 of Notes to Consolidated Financial Statements.
Under FDICIA, the federal banking agencies were required to revise their
risk-based capital standards to ensure that such standards take adequate account
of interest rate risk, concentration of credit risk and the risks of
nontraditional activities. The FDIC and the other banking agencies have amended
the risk-based capital standards to take account of a bank's concentration of
credit risk, the risk of nontraditional activities, and a bank's exposure to
declines in the economic value of its capital resulting from changes in interest
rates. The revised capital guidelines do not, however, codify a measurement
framework for assessing the level of a bank's interest rate exposure. On June
26, 1996, the FDIC and the other banking agencies adopted a joint policy
statement requiring that banks adopt comprehensive policies and procedures for
managing interest rate risk and setting forth general standards for such
internal policies. Unlike an earlier proposal by the federal banking agencies,
the joint policy statement does not contain a standardized measure of or
explicit capital charge for interest rate risk. The Company does not believe
that this new policy statement will have a material effect on the Company's
operations or financial results.
The FDIC has issued final regulations that classify insured depository
institutions by capital levels and provide that the applicable agency will take
various prompt corrective actions to resolve the problems of any institution
that fails to satisfy the capital standards. Under such regulations, a
"well-capitalized" bank is one that is not subject to any regulatory order or
directive to meet any specific capital level and that has or exceeds the
following capital levels: a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6%, and a leverage ratio of 5%. As of December 31,
1996, each of the Banks was "well-capitalized" as defined by the regulations.
See Note 14 of Notes to Consolidated Financial Statements for further
information.
12
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the executive officers of
the Company.
<TABLE>
<CAPTION>
AGE AT
NAME DECEMBER 31, 1996 TITLE
- ---------------------- ------------------ ---------------------------------
<S> <C> <C>
R. Stan Puckett 40 President and Chief Executive
Officer
Davis Stroud 63 Executive Vice President and
Secretary
William F. Richmond 47 Senior Vice President and Chief
Financial Officer
</TABLE>
R. STAN PUCKETT currently serves as President and Chief Executive Officer of
the Company and has held that position since 1990. He has served as President
and Chief Executive Officer of GCB since February 1989. He is a graduate of
Bristol University with a degree in business administration. He served as
President of First American National Bank of Johnson City, Tennessee from
December 1987 to February 1989 and as its Vice President from June 1986 to
December 1987. He was Assistant Vice President of First Union National Bank in
Asheville, North Carolina from September 1983 to June 1986 and served as
commercial loan officer of Signet Bank in Bristol, Virginia from September 1977
to June 1983.
DAVIS STROUD is currently Executive Vice President of the Company and GCB. Mr.
Stroud joined GCB in 1952 and became its Senior Vice President and Cashier in
1973. He became Executive Vice President and Secretary of the Company and GCB in
1988 and has also served as a director of the Company and GCB since December
1989. Mr. Stroud is a member of First Christian Church and Greeneville Masonic
Lodge No. 3, and he also serves as Treasurer of Greene County Foundation.
WILLIAM F. RICHMOND joined the Company in February 1996 and currently serves
as Senior Vice President and Chief Financial Officer of the Company and GCB.
Prior to joining the Company, Mr. Richmond served, subsequent to the acquisition
of Heritage Federal Bancshares, Inc. ("Heritage") by First American Corporation,
as transition coordinator for various financial matters from November 1995
through January 1996. Heritage was the parent of Heritage Federal Bank for
Savings located in Kingsport, Tennessee. He served as Senior Vice President and
Chief Financial Officer for Heritage from June 1991 through October 1995 and as
controller from April 1985 through May 1991. He has been active in community
activities in the Tri-Cities, Tennessee area, having served on the Board of
Directors of Boys and Girls Club, Inc. and as President of the Tri-Cities Estate
Planning Council. He has served in various capacities with the United Way of
Greater Kingsport and is a Paul Harris Fellow in Rotary International. He is
licensed as a Certified Public Accountant in Virginia and Tennessee and is also
a Certified Financial Planner.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 100 North Main
Street, Greeneville, Tennessee in facilities owned by GCB. At December 31, 1996,
the Company maintained a main office in Greeneville, Tennessee and 17 branches
(including a loan production office) in counties in east Tennessee for the
operation of GCB, of which eight are in leased operating premises.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are parties to various
legal proceedings incident to its business. At December 31, 1996, there were no
legal proceedings which management anticipates would have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders of the Company through a
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information contained under the section captioned "Market and Dividend
Information" in the Company's 1996 Annual Report to Shareholders (the "Annual
Report") filed as Exhibit 13 hereto is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected Financial
Highlights" on page 1 in the Company's Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 2
through 11 in the Company's Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements beginning on page 12 in the Annual
Report are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Board of Directors of the Company, the
information contained under the section captioned "Election of Directors" in the
Company's definitive proxy statement for the Company's 1997 Annual Meeting of
Shareholders (the "Proxy Statement") is incorporated herein by reference.
14
<PAGE>
Information regarding executive officers of the Company is contained in the
section captioned "Executive Officers of the Registrant" under Part I hereof and
is incorporated herein by reference.
Information regarding delinquent Form 3, 4 or 5 filers is incorporated herein
by reference to the section entitled "Beneficial Ownership Reports" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Election of
Directors--Executive Compensation and Other Benefits" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership Of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Security Ownership of
Certain Beneficial Owners and Management" and "Election of
Directors" in the Proxy Statement.
(c) Changes in Control
Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section captioned "Election of Directors" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company included
in the Annual Report are incorporated herein by reference from Item 8 of this
Report. The remaining information appearing in the Annual Report to Shareholders
is not deemed to be filed as part of this Report, except as expressly provided
herein.
1. Report of Independent Auditors.
2. Consolidated Balance Sheets--December 31, 1996 and 1995.
3. Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.
15
<PAGE>
4. Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.
6. Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) The following exhibits either are filed as part of this Report or are
incorporated herein by reference:
Exhibit No. 3. Articles of Incorporation and Bylaws
------------------------------------
(i) Restated Articles of Incorporation.
(ii) Bylaws--incorporated herein by reference to the Company's
Registration Statement on Form S-14 (File No. 2-96273).
Exhibit No. 10. Employment Agreements
---------------------
(i) Employment agreement between the Company and
R. Stan Puckett--incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(ii) Employment agreement between the Company and
Davis Stroud--incorporated herein by reference to the
Company's Registration Statement on Form S-14 (File No.
2-96273).
Exhibit No. 13. Annual Report to Shareholders
-----------------------------
Except for those portions of the Annual Report to
Shareholders for the year ended December 31, 1996, which are
expressly incorporated herein by reference, such Annual
Report is furnished for the information of the Commission and
is not to be deemed "filed" as part of this Report.
Exhibit No. 21. Subsidiaries of the Registrant
------------------------------
A list of subsidiaries of the Registrant is included as an
exhibit to this Report.
Exhibit No. 23. Consent of Coopers & Lybrand L.L.P.
Exhibit No. 27. Financial Data Schedule (SEC USE ONLY)
16
<PAGE>
(b) Reports on Form 8-K. No Reports on Form 8-K were filed by the Company
--------------------
during the last quarter of the fiscal year covered by this report.
(c) Exhibits. The exhibits required by Item 601 of Regulation S-K are either
---------
filed as part of this Annual Report on Form 10-K or incorporated herein
by reference.
(d) Financial Statements and Financial Statement Schedules Excluded From
--------------------------------------------------------------------
Annual Report. There are no financial statements and financial statement
--------------
schedules which were excluded from the Annual Report pursuant to
Rule 14a-3(b)(1) which are required to be included herein.
17
<PAGE>
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 behalf
by the undersigned, thereunto duly authorized.
GREENE COUNTY BANCSHARES, INC.
Date: March 27, 1997 By: /s/ R. Stan Puckett
-----------------------------------
R. Stan Puckett
Director, President and
Chief Executive Officer
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 indicated and on the dates indicated.
SIGNATURE AND TITLE: DATE:
/s/ R. Stan Puckett March 27, 1997
- ---------------------------------
R. Stan Puckett
Director, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ William F. Richmond March 27, 1997
- ---------------------------------
William F. Richmond
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Harrison Lamons March 27, 1997
- ---------------------------------
Harrison Lamons
Chairman of the Board
/s/ Helen L. Horner March 27, 1997
- ---------------------------------
Helen Horner
Director
/s/ J.W. Douthat March 27, 1997
- ---------------------------------
J.W. Douthat
Director
/s/ Phil M. Bachman, Jr. March 27, 1997
- ---------------------------------
Phil M. Bachman, Jr.
Director
<PAGE>
/s/ Terry Leonard March 27, 1997
- ---------------------------------
Terry Leonard
Director
/s/ Ralph T. Brown March 27, 1997
- ---------------------------------
Ralph T. Brown
Director
/s/ J.A. Emory March 27, 1997
- ---------------------------------
James A. Emory
Director
/s/ Patrick Norris March 27, 1997
- ---------------------------------
Patrick Norris
Director
/s/ Jerald K. Jaynes March 27, 1997
- ---------------------------------
Jerald K. Jaynes
Director
/s/ Charles S. Brooks March 27, 1997
- ---------------------------------
Charles S. Brooks
Director
/s/ Davis Stroud March 27, 1997
- ---------------------------------
Davis Stroud
Director
March 27, 1997
- ---------------------------------
W.T. Daniels
Director
<PAGE>
EXHIBIT 13
----------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars, except per share data)
Total interest
income .............. $ 39,629 $ 31,491 $ 23,625 $ 21,638 $ 21,414
Total interest
expense ............. 15,825 13,444 8,497 8,197 8,774
-------- -------- -------- -------- --------
Net interest income .. 23,804 18,047 15,128 13,441 12,640
Provision for loan
losses............... (2,973) (1,424) (994) (834) (1,611)
-------- -------- -------- -------- --------
Net interest income
after provision for
loan losses ......... 20,831 16,623 14,134 12,607 11,029
Non-interest income:
Investment
securities gains .. -- 1 -- 15 74
Other income ....... 3,303 2,493 2,368 1,951 1,291
Non-interest expense . (14,800) (11,257) (9,491) (8,035) (6,876)
-------- -------- -------- -------- --------
Income before income
taxes................ 9,334 7,860 7,011 6,538 5,518
Income tax expense ... (3,371) (2,752) (2,510) (2,221) (1,763)
-------- -------- -------- -------- --------
Net income before
accounting change ... 5,963 5,108 4,501 4,317 3,755
Accounting change .... -- -- -- 52 --
-------- -------- -------- -------- --------
Net income ........... $ 5,963 $ 5,108 $ 4,501 $ 4,265 $ 3,755
======== ======== ======== ======== ========
Per Share Data:
Net income ......... $ 13.28 $ 11.45 $ 10.16 $ 9.56 $ 8.41
Dividends declared . $ 5.16 $ 4.60 $ 4.06 $ 3.67 $ 3.22
Book value ......... $ 101.28 $ 92.83 $ 84.06 $ 79.27 $ 73.96
Financial Condition
Data:
Assets ............. $478,048 $420,581 $345,525 $313,577 $288,713
Loans, net ......... $381,272 $293,834 $241,253 $192,127 $179,011
Cash and investment
securities......... $ 73,713 $ 83,998 $ 85,460 $ 99,815 $ 92,966
Federal funds sold . $ -- $ 23,800 $ 3,550 $ 8,270 $ 6,465
Deposits ........... $408,722 $365,951 $298,162 $267,281 $245,647
Long-term debt ..... $ 13,194 $ 3,448 $ 3,688 $ 3,914 $ --
Other borrowed
funds ............. $ 3,272 $ 4,784 $ 3,879 $ 5,644 $ 7,775
Shareholders'
equity ............ $ 45,725 $ 41,074 $ 37,190 $ 35,046 $ 33,033
Selected Ratios:
Interest rate
spread ............ 5.19% 4.60% 4.57% 4.46% 4.54%
Net yield on
interest-earning
assets............. 5.68% 5.12% 4.96% 4.84% 5.07%
Return on average
assets............. 1.32% 1.35% 1.38% 1.41% 1.38%
Return on average
equity............. 13.23% 13.17% 12.32% 12.35% 11.54%
Average equity to
average assets .... 9.94% 10.24% 11.17% 11.43% 11.89%
Dividend payout
ratio.............. 38.86% 40.17% 39.96% 38.39% 38.29%
Ratio of
nonperforming
assets to total
assets............. 0.49% 0.57% 0.40% 1.54% 1.58%
Ratio of allowance
for loan losses to
nonperforming
assets............. 315.27% 225.05% 247.99% 63.47% 55.36%
Ratio of allowance
for loan losses to
total loans ....... 1.87% 1.55% 1.39% 1.54% 1.35%
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CHANGES
IN FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
Greene County Bancshares, Inc. (the "Company") was formed in 1985 and serves
as the bank holding company for Greene County Bank and Premier Bank of East
Tennessee (collectively, the "Banks"), which are Tennessee-chartered commercial
banks that conduct the principal business of the Company. The Company also
wholly owned American Fidelity Bank, whose assets were combined with Greene
County Bank during 1996. In addition, Greene County Bank wholly owns a finance
company, a mortgage company and, beginning in 1997, an acceptance corporation.
Each of these subsidiaries are expected to play a strategic role in the
Company's future growth.
The principal business of the Company consists of accepting deposits from the
general public and investing these funds and borrowed funds primarily in loans
and, to a limited extent, securities available for sale or held to maturity.
Loans are originated by the Company within its primary market area of east
Tennessee and include commercial loans, commercial real estate loans, consumer
loans, real estate loans and single-family residential first mortgage loans.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loans, investment
securities and other interest-earning securities and interest paid on deposits
and other interest-bearing liabilities. To a lesser extent, the Company's net
income also is affected by the level of non-interest expenses such as
compensation and employee benefits and Federal Deposit Insurance Corporation
premiums.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
general credit needs of small businesses in the Company's market area,
competition among lenders, the level of interest rates and the availability of
funds. Deposit flows and costs of funds are influenced by prevailing market
rates of interest, primarily on competing investments, account maturities and
the levels of personal income and savings in the Company's market area.
ACQUISITIONS
On January 1, 1996, the Company acquired 100% of the stock of Premier
Bancshares, Inc., the one-bank holding company of Premier Bank of East
Tennessee. At that time, Premier Bancshares, Inc. had consolidated assets of
approximately $24.2 million, deposits of approximately $22.0 million and
stockholders' equity of approximately $1.7 million. Premier Bancshares, Inc. was
subsequently merged into the Company, and Premier Bank of East Tennessee became
a wholly-owned subsidiary of the Company.
As part of its strategic plan for continued growth, the Company also considers
selected acquisitions of branches on a periodic basis. Any acquisitions would be
subject to price, market and other issues as well as the regulatory capital
levels of the Company or its banks.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of depositors and borrowers and fund
operations. Maintaining appropriate levels of liquidity allows the Company to
have sufficient funds available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of deposits and other
liabilities. The Company's primary source of liquidity is dividends paid by the
Banks. Applicable Tennessee statutes and regulations impose restrictions on the
amount of dividends that may be declared by the subsidiary Banks. Further, any
dividend payments are subject to the continuing ability of each of the Banks to
maintain their respective compliance with minimum federal regulatory
2
<PAGE>
capital requirements and to retain their characterization under federal
regulations as "well-capitalized" institutions. In addition, the Company
maintains a line of credit of $20 million with the Federal Home Loan Bank of
Cincinnati and a $5 million line of credit with a correspondent bank.
In 1996, operating activities of the Company provided $9,655,096 of cash
flows. Net income of $5,963,262, adjusted for non-cash operating activities,
including $2,973,193 in provision for loan losses and amortization and
depreciation of $1,096,120, provided the bulk of the cash generated from
operations.
Investing activities, including lending, used $29,124,060 of the Company's
cash flow. Loans originated net of principal collected used $76,092,935 in
funds.
Net additional cash inflows of $27,078,185 were provided by financing
activities. Net deposit growth accounted for $20,765,828 of the increase. Other
increases arose from net borrowings of long-term debt of $9,718,849 and proceeds
from issuance of common stock of $484,366. Offsetting these increases were a
decrease in securities sold under agreements to repurchase of $1,512,000, cash
dividends paid to shareholders of $2,328,858 and payments on related party notes
payable of $50,000.
CAPITAL RESOURCES. The Company's capital position is reflected in its
shareholders' equity, subject to certain adjustments for regulatory purposes.
Shareholders' equity, or capital, is a measure of the Company's net worth,
soundness and viability. The Company continues to exhibit a strong capital
position while consistently paying dividends to its stockholders. Further, the
capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Company's
daily operations.
Shareholders' equity on December 31, 1996 was $45,725,336, an increase of
$4,651,076, or 11.32%, from $41,074,260 on December 31, 1995. The increase in
shareholders' equity reflects net income for 1996 of $5,963,262 ($13.28 per
share) and proceeds and tax benefits from stock issuances during 1996 totaling
$1,308,595. This increase was offset in part by quarterly dividend payments
during 1996 totaling $2,328,858 ($5.16 per share) and the reduction in equity
associated with the decline in the value of securities available for sale of
$291,923.
Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation
require bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital and Total Capital in relation to
the credit risk of both on- and off-balance sheet items. Under the guidelines,
one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to
risk-weighting after conversion to balance sheet equivalent amounts. All bank
holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form
of core, or Tier 1, capital (consisting of stockholders' equity, less goodwill).
At December 31, 1996, the Company and the Banks each satisfied their respective
minimum regulatory capital requirements, and each of the Banks was
"well-capitalized" within the meaning of federal regulatory requirements.
ASSET/LIABILITY MANAGEMENT
The operations and profitability of the Company are largely impacted by
changes in interest rates and management's ability to control interest rate
sensitivity. Management believes that its asset/liability strategy reduces the
risk associated with fluctuation in interest rates. The Company strives to be
neither asset sensitive nor liability sensitive by relying upon a mix of fixed
rate and variable rate products. At December 31, 1996, approximately 45.4% of
the Company's gross loans had adjustable rates. The Company has 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 Company is
somewhat asset sensitive; therefore, in a falling rate environment earnings will
tend to fall, while in a rising rate environment earnings will
3
<PAGE>
tend to improve. Despite the implementation of strategies to achieve a matching
position of assets and liabilities and to reduce the exposure to fluctuating
interest rates, the results of operations of the Company will remain subject to
the level and movement of interest rates.
CHANGES IN RESULTS OF OPERATIONS
NET INCOME. Net income for 1996 was $5,963,262, an increase of $854,822 or
16.7% as compared to net income of $5,108,440 for 1995. The increase resulted
primarily from an increase in net interest income of $5,757,262, or 31.9%, to
$23,804,336 in 1996 from $18,047,074 in 1995, and an increase in non-interest
income of $808,190, or 32.4%, to $3,302,650 in 1996 from $2,494,451 in 1995. The
increase in net interest income reflects the Company's continued growth in loan
production through its expanding branch network (primarily increases in
commercial, commercial real estate and consumer loans) as well as increases
arising from the Company's acquisition during 1996 of Premier Bank of East
Tennessee. These increases were offset in part by the $3,542,742, or 31.5%
increase in non-interest expense to $14,799,910 in 1996 from $11,257,168 in
1995, attributable primarily to increasing compensation and furniture and
equipment expenses associated with the growth of the Company's branch network.
Net income for 1995 was $5,108,440, an increase of $607,044, or 13.5%, as
compared to net income of $4,501,396 in 1994. The increase was attributable to
an increase of $2,919,257, or 19.3%, in net interest income to $18,047,074 in
1995 from $15,127,817 in 1994. This increase arose from the Company's increase
in loan production and the general increase in loan rates during 1995. This
increase was offset in part by an increase in non-interest expense of
$1,766,088, or 18.6%, in 1995 as a result of the Company's increased personnel
and furniture and fixture costs associated with its branch expansion and
acquisition strategy.
NET INTEREST INCOME. The largest source of earnings for the Company is net
interest income, which is the difference between interest income on
interest-earning 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, which are
affected in part by management's responses to changes in interest rates through
asset/liability management. During 1996, net interest income was $23,804,336 as
compared to $18,047,074 in 1995, an increase of 31.9%. This increase was due
primarily to a $66,883,842 increase in average interest-earning assets during
1996 as compared to 1995, offset by a $60,730,007 increase in average interest
bearing liabilities during the same period to fund such growth. At the same
time, the Company's net interest margin increased in 1996 to 5.68% from 5.12% in
1995. This increase in net interest margin reflects the Company's focus on
commercial and commercial real estate loans, which generally have shorter terms
and are priced based upon the prime rate offered by New York banks as reported
in The Wall Street Journal, and its growing portfolio of consumer loans, which
are generally higher-yielding and less susceptible to yield curve compression.
Commercial and commercial real estate loans comprised, in the aggregate, 49.8%
of the Company's gross loan portfolio at December 31, 1996. Offsetting the
growth in interest income during 1996 was the related increase in interest
expense arising from the 18.4% increase in 1996 in the Company's average deposit
base, although this increase was mitigated by the reduction in the average cost
of deposits in 1996 to 4.24% from 4.30% in 1995 as customers shifted to
shorter-term deposit instruments that carry lower rates.
Net interest income for 1995 increased $2,919,257, or 19.3%, to $18,047,074 in
1995 from $15,127,817 in 1994. The increase arose despite a slight decrease in
the ratio of average interest-earning assets to average interest-bearing
liabilities to 113.4% in 1995 from 114.0% in 1994, as the Company experienced a
significant shift in its lending portfolio to higher-yielding installment loans
and also experienced increased lending volume funded in part by a shift by the
Company away from an emphasis on lower-yielding securities investments. This
series of shifts is reflected in the Company's interest rate spread increasing
to 4.60% in 1995 from 4.57% in 1994, and the increase in the Company's net yield
on interest earning assets to 5.12% in 1995 from 4.96% in 1994.
4
<PAGE>
Average Balances, Interest Rates and Yields. Net interest income is affected
by (i) the difference between yields earned on interest-earning assets and rates
paid on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing liabilities.
The Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. When the total of interest-earning assets approximates or exceeds the
total of interest-bearing liabilities, any positive interest rate spread will
generate net interest income. Another indication of an institution's net
interest income is its "net yield on interest-earning assets," which is net
interest income divided by average interest-earning assets.
The following table sets forth certain information relating to the Company's
consolidated average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense by the average daily balance of assets or liabilities, respectively, for
the periods presented. During the periods indicated, non-accruing loans, if any,
are included in the net loan category.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------- --------------------------------- ---------------------------------
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 ..... $173,178,149 $14,967,334 8.64% $141,349,273 $12,335,077 8.73% $107,896,016 $ 8,829,755 8.18%
Installment-
net ........... 174,667,162 19,022,302 10.89% 130,530,479 13,469,095 10.32% 106,954,932 9,176,909 8.58%
Fees on loans .. 1,503,597 954,685 1,099,331
------------ ----------- ------------ ----------- ------------ -----------
Total loans
(including
fees)......... $347,845,311 $35,493,233 10.20% $271,879,752 $26,758,857 9.84% $214,850,948 $19,105,995 8.89%
Investment
- ----------
securities
----------
Taxable ........ $ 51,687,569 $ 3,125,592 6.05% $ 59,939,744 $ 3,735,181 6.23% $ 72,793,654 $ 3,740,550 5.14%
Tax exempt ..... 10,953,312 496,705 4.53% 9,117,893 369,795 4.06% 11,605,844 557,011 4.80%
------------ ----------- ------------ ----------- ------------ -----------
Total
investment
securities.... $ 62,640,881 $ 3,622,297 5.78% $ 69,057,637 $ 4,104,976 5.94% $ 84,399,498 $ 4,297,561 5.09%
Other
short-term
investments... 8,906,587 513,326 5.76% 11,571,548 627,135 5.42% 5,660,533 221,094 3.91%
------------ ----------- ------------ ----------- ------------ -----------
Total interest-
earning
assets ....... $419,392,779 $39,628,856 9.45% $352,508,937 $31,490,968 8.93% $304,910,979 $23,624,650 7.75%
----------- ----------- -----------
Non-interest-
- -------------
earning assets
--------------
Cash and due
from banks .... $ 15,979,895 $ 12,668,334 $ 11,069,948
Premises and
equipment...... 9,379,752 6,916,037 6,008,216
Other, less
allowance for
loan losses ... 8,457,324 6,649,556 5,096,879
Total non-
interest-
earning
assets ....... $ 33,816,971 $ 26,233,927 $ 22,175,043
------------ ------------ ------------
Total Assets .... $453,209,750 $378,742,864 $327,086,022
============ ============ ============
</TABLE>
(Continued on following page)
5
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------- --------------------------------- ---------------------------------
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-BEARING
LIABILITIES:
Deposits
- --------
Savings, NOW
accounts, and money
markets............ $150,877,450 $ 3,536,624 2.34% $130,045,108 $ 3,167,357 2.44% $136,249,522 $ 3,178,767 2.33%
Time deposits ...... 207,440,687 11,641,179 5.61% 172,627,254 9,849,464 5.71% 120,926,616 4,851,789 4.01%
------------ ----------- ------------ ----------- ------------ -----------
Total deposits .... $358,318,137 $15,177,803 4.24% $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......... 4,931,307 227,613 4.62% 4,553,803 231,581 5.09% 5,607,061 227,879 4.06%
Debt ............... 8,265,863 419,104 5.07% 3,559,135 195,492 5.49% 4,706,302 238,398 5.07%
------------ ----------- ------------ ----------- ------------ -----------
Total interest-
bearing
liabilities....... $371,515,307 $15,824,520 4.26% $310,785,300 $13,443,894 4.33% $267,489,501 $ 8,496,833 3.18%
----------- ----------- -----------
Non-interest-bearing
- --------------------
liabilities
-----------
Demand deposits .... $ 30,945,475 $ 24,424,083 $ 21,292,288
Other liabilities .. 5,680,694 4,745,198 1,771,324
------------ ------------ ------------
$ 36,626,169 $ 29,169,281 $ 23,063,612
Stockholders'
equity ............. 45,068,274 38,788,283 36,532,909
Total liabilities and
stockholders'
equity ............. $453,209,750 $378,742,864 $327,086,022
============ ============ ============
Net interest income . $ $23,804,336 $ $18,047,074 $15,127,817
=========== =========== ===========
MARGIN ANALYSIS:
Interest rate
spread ............ 5.19% 4.60% 4.57%
==== ==== ====
Net yield on
interest-earning
assets (net
interest margin) .. 5.68% 5.12% 4.96%
==== ==== ====
</TABLE>
Rate/Volume Analysis. The following table analyzes net interest income in
terms of changes in the volume of interest-earning assets and interest-bearing
liabilities and changes in yields and rates. The table reflects the extent to
which changes in the interest income and interest expense are attributable to
changes in volume (changes in volume multiplied by prior year rate) and changes
in rate (changes in rate multiplied in prior year volume). Changes attributable
to the combined impact of volume and rate have been separately identified.
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
-------------------------------- --------------------------------
RATE/ TOTAL RATE/ TOTAL
VOLUME RATE VOLUME CHANGE VOLUME RATE VOLUME CHANGE
------- ------- ------ ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
- ---------------
Loans net of unearned
income............... $7,478 $ 983 $275 $8,736 $5,072 $2,040 $ 541 $7,653
Investment securities:
Taxable ............. (515) (111) 15 (611) (662) 796 (140) (6)
Tax exempt .......... 73 44 9 126 (120) (86) 19 (187)
Other short-term
investments.......... (144) 40 (9) (113) 231 86 89 406
------ ------ ---- ------ ------ ------ ----- ------
Total interest
income............. 6,892 956 290 8,138 4,521 2,836 509 7,866
------ ------ ---- ------ ------ ------ ----- ------
Interest Expense
- ----------------
Savings, NOW
accounts, and money
market accounts .... 506 (119) (19) 368 (146) 140 (6) (12)
Time deposits ....... 1,986 (162) (33) 1,791 2,073 2,048 876 4,997
Short-term
borrowings ......... 20 (21) (2) (3) (42) 57 (11) 4
Debt ................ 260 (15) (20) 225 (57) 20 (5) (42)
------ ------ ---- ------ ------ ------ ----- ------
Total interest
expense............ 2,772 (317) (74) 2,381 1,828 2,265 854 4,947
------ ------ ---- ------ ------ ------ ----- ------
Net interest income .. $4,120 $1,273 $364 $5,757 $2,693 $ 571 $(345) $2,919
====== ====== ==== ====== ====== ====== ===== ======
</TABLE>
6
<PAGE>
At December 31, 1996, loans, net of unearned income and allowance for loan
losses, were $381.3 million compared to $293.8 million at 1995 year end. The
increase is primarily due to increases in commercial and installment lending, as
well as the loans acquired through the acquisitions of Premier Bank. Average
loans, net of unearned interest, for 1996 were $347.8 million, up 27.9% from
1995's average of $271.9 million. The average outstanding loans for 1994 were
$214.9 million. The average growth in loans for the past three years can be
attributed to the market expansion into surrounding counties and indirect
financing. During 1996, the prime rate was essentially constant at 8.25%, down
slightly from 1995 levels but still well above the levels in 1994. This movement
in the prime rate basically accounts for the slight reduction in yield on
commercial loans in 1996 compared to 1995 and also the sizable increases in
overall loan yields in 1995 compared to 1994.
Average investment securities for 1996 were $62.6 million, compared to $69.1
million in 1995, and $84.4 million in 1994. In 1996 the average yield on
investments was 5.78%, a decrease from 5.94% in 1995 and up from 5.09% in 1994.
This pattern generally reflects the trend in intermediate to longer-term
interest rates which are indicative of the maturities of the Company's
investment portfolio. Income provided by the investment portfolio in 1996 was
$3,622,297 as compared to $4,104,976 in 1995, and $4,297,561 in 1994. The
decline in investment securities from 1995 to 1996 was the result of funding the
large loan growth experienced by the Company. Income provided by federal funds
sold totaled $513,326 in 1996, compared to $627,135 in 1995 and $221,094 in
1994. The reduction in income from federal funds sold in 1996 compared to 1995
was primarily the result of decreases in volume as noted above. Average yields
on federal funds sold were 5.76% in 1996, 5.42% in 1995 and 3.91% in 1994.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses increased
to $2,973,193 for 1996 from $1,423,656 for 1995. This increase was primarily in
response to management's concerns about the loss potential arising from the
increase in the Company's nonperforming assets to $2.3 million in 1996 from $2.1
million in 1995. These loans are comprised of a mixture of loan types.
Management attributes the increase in the amount of nonperforming loans to the
higher individual balances of individual commercial loans originated during 1996
and the increase in the consumer loan portfolio, primarily through Greene County
Bank's consumer finance company. Consumer loans are generally considered to
carry a higher risk of loss than commercial and housing loans.
In addition, the increase reflects management's assessment of the risk of loss
in its loan portfolio, as indicated by its increasing amount of charge-offs.
Management anticipates a down turn in the business cycle and expects the trend
in net charge offs to continue. In 1996, the Company's net charge-offs increased
$521,000 or 241.2% to $737,000 from $216,000 in 1995. The Company's 1996 rate of
growth in net charge-offs exceeded the rate of growth in the Company's loan
portfolio during 1996, as indicated by the increase in the Company's ratio of
net charge-offs to average loans outstanding by approximately 2.6 times, to
0.21% in 1996 from 0.08% in 1995. These charge-offs were primarily consumer
loans that were originated during the period 1993 through 1996 and were both
secured and unsecured. The Company continues to make these types of loans and
anticipates that the rate of charge-offs in connection with these loans will
continue to increase, particularly with an anticipated down turn in the economy.
The ratio of loans past due to total gross loans for consumer loans originated
by the Company's finance company subsidiary increased from 5.03% in 1995 to
7.61% in 1996. Finally, the Company has identified $6,945,000 in "watch list"
loans that, although currently performing, have characteristics that require
closer supervision by management. To be placed on the "watch list," a borrower
may be experiencing adverse legal proceedings or adverse trends in financial
position.
The Company's provision for loan losses in 1995 increased by $429,656, or
43.2%, to $1,423,656 in 1995 from $994,000 in 1994. This increase reflects the
Company's more aggressive identification of potential problem loans and the
inclusion of the risks associated with such loans in the determination of the
Company's allowance for losses. In addition, the provision reflects the
perceived risk associated with commercial loans originated by the Company which
have higher individual balances and are more susceptible to delinquency than
mortgage installment and installment real estate loans. This approach is
consistent with the Company's concurrent imposition during 1995 of stricter loan
underwriting standards. From 1994 to 1995, nonperforming assets increased
$678,000, or 48.8%, from $1.4 million in 1994 to $2.1 million in 1995.
7
<PAGE>
NON-INTEREST INCOME. Income that is not related to interest-earning assets,
consisting primarily of service charges, commissions and fees, has become more
important as increases in levels of interest-bearing deposits and other
liabilities make it more difficult to maintain interest rate spreads.
Total non-interest income for 1996 was $3,302,650 as compared to $2,494,451 in
1995 and $2,368,981 in 1994. The largest components of non-interest income are
service fees on deposit accounts and service charges and commissions, which
totaled $2,593,594 in 1996, $1,861,244 in 1995 and $1,918,156 in 1994. The
increase from 1995 to 1996 reflects management's focus on the generation of fee
income and also fee income generated by Premier Bank since its acquisition by
the Company effective January 1, 1996.
NON-INTEREST EXPENSE. Control of non-interest expense also is an important
aspect in managing net income. Non-interest expense includes personnel,
occupancy, and other expenses such as data processing, printing and supplies,
legal and professional fees, postage, Federal Deposit Insurance Corporation
assessment, etc. Total non-interest expense was $14,799,910 in 1996, compared to
$11,257,168 in 1995 and $9,491,080 in 1994.
Personnel costs are the primary element of the Company's non-interest
expenses. In 1996 salaries and benefits represented $7,893,635 or 53.3% of total
non-interest expenses. This was an increase of $2,067,071 or 35.5% over 1995's
total of $5,826,564. Personnel costs for 1995 increased $1,075,972 or 22.65%
over 1994's total of $4,750,592. These increases were due to opening new
branches requiring increased staff levels and increased employee benefit costs,
including health insurance and retirement benefit costs, as well as the
acquisition of Premier Bank. Nineteen full-time equivalent employees were added
as a result of the acquisition of Premier Bank. Overall, the number of full-time
equivalent employees at December 31, 1996 was 233 versus 182 at December 31,
1995, an increase of 28%.
Occupancy and furniture and equipment expense exhibited the same upward trend
during the past three years as did personnel costs due to essentially the same
reasons referenced above. At December 31, 1996, the Company had 27 branches,
including the sixth office of a finance company subsidiary of Greene County Bank
which opened in Bristol, Tennessee, effective January 1, 1997, compared to 18
branches at December 31, 1995.
Assessments by the FDIC decreased from $616,859 in 1994 to $346,501 in 1995
and to $6,187 in 1996. These premiums have been consistently reduced and
essentially eliminated for well-capitalized banks such as those owned by the
Company. For 1997, the FDIC premiums for well-capitalized banks are calculated
at 1.296 basis points on the assessable deposit base. The Company estimates its
total premiums for 1997 at approximately $52,000 based on its deposit levels at
December 31, 1996.
Other expenses increased by $1,445,639, or 43.6%, from 1995 to 1996,
representing increases in dealer commissions on indirect loans acquired and
expenses related to the Company's significant market expansion activities,
including the acquisition of Premier Bank of East Tennessee.
CHANGES IN FINANCIAL CONDITION
Total assets at December 31, 1996 were $478.0 million, an increase of $57.5
million, or 13.6%, over 1995's year end total assets of $420.6 million. Average
assets for 1996 were $453.2 million, an increase of $74.5 million or 19.7% over
1995 average assets of $378.7 million. This increase is the result of normal
growth and the acquisition of Premier Bank effective January 1, 1996.
Approximately $24.2 million of assets were added as a result of the Premier Bank
acquisition. Asset growth was funded primarily by increases in deposits,
approximately $22.0 million of which were acquired via the Premier Bank
acquisition. Return on average assets was 1.32% in 1996, as compared to 1.35% in
1995 and 1.38% in 1994.
Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 1996 were $419.4
million, an increase of 19.0% from an average of $352.5 million in 1995.
8
<PAGE>
Non-performing loans include non-accrual and classified loans. The Company has
a 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 well secured and in
the process of collection continue to be carried on the Company's balance sheet.
The Company has aggressive collection practices in which senior management is
much involved.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at year end 1996 with an amortized cost of $52.5 million
had a market value of $52.3 million. At year end 1995, investments with an
amortized cost of $69.9 million had a market value of $70.3 million.
The funds to support the Company's asset growth over the past three years have
been provided by increased deposits, which were $408.7 million at December 31,
1996. This represents an 11.7% increase from the deposits at year end 1995 of
$366.0 million. Excluding the approximate $22.0 million in deposits acquired via
the Premier Bank acquisition, deposits increased $20.7 million, or 5.7%. The
increase is primarily the result of the Company's aggressive efforts to attract
new deposit customers.
In 1996, demand deposit balances increased 22.4% from 1995. Demand deposit
balances were $33.9 million and $27.7 million at December 31, 1996 and 1995,
respectively.
Average interest-bearing deposits increased $55.7 million, or 18.4%, in 1996.
In 1995 average interest-bearing deposits increased $45.5 million or 17.7% over
1994. These increases in deposits are reflective of the Company's aggressive
efforts to attract new deposit customers for the purpose of funding various
lending programs.
Interest paid on deposits in 1996 totaled $15,177,803 reflecting a 4.24% cost
on average interest-bearing deposits of $358.3 million. In 1995, interest of
$13,016,821 was paid at a cost of 4.30% on average 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.
INTEREST RATE SENSITIVITY
Deregulation of interest rates and more volatile short-term, interest-bearing
deposits have created a need for shorter maturities of earning 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 it is slightly asset sensitive. The Company considers certain
demand and time deposits as having longer maturities than what may be considered
typical for the industry and, thus, its liabilities are not as sensitive to
changes in interest rates. On December 31, 1996, the Company had a positive
cumulative one-year gap position of $82.8 million, indicating that while $282.2
million in assets were repricing, only $199.4 million in liabilities would
reprice in the same time frame.
9
<PAGE>
The following table reflects the Company's interest rate gap position at
December 31, 1996. This table represents a static point in time and does not
consider other variables such as changing relationships or interest rate levels.
<TABLE>
<CAPTION>
UP TO (GREATER THAN) THREE MONTHS (GREATER THAN) ONE YEAR (GREATER THAN) THREE YEARS
THREE BUT (LESS THAN) ONE BUT (LESS THAN) THREE BUT (LESS THAN) FIVE
MONTHS YEAR YEARS YEARS
SENSITIVE SENSITIVE SENSITIVE SENSITIVE
--------- --------------------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Interest-Earning
Assets:
Loans, net of
unearned
income........ $133,497 $114,099 $ 84,800 $39,935
Investment
securities ... 28,572 6,075 9,675 4,174
-------- -------- -------- -------
Total
interest-
earning
assets...... $162,069 $120,174 $ 94,475 $44,109
-------- -------- -------- -------
Interest-Bearing
Liabilities:
Savings and
time deposits $ 60,019 $112,066 $ 74,774 $ 9,253
Money market
and
transaction
accounts ..... 14,771 64,491 15,710
Debt and other
borrowed money
............. 4,326 4,979 1,480 705
Securities sold
under
agreement to
repurchase.... 3,272 -- -- --
-------- -------- -------- -------
Total
interest-bearing
liabiliti es
........... $ 67,617 $131,816 $140,745 $25,668
-------- -------- -------- -------
Interest
sensitivity
gap ............ $ 94,452 $(11,642) $(46,270) $18,441
======== ======== ======== =======
Cumulative
interest
sensitive gap .. $ 94,452 $ 82,810 $ 36,540 $54,981
======== ======== ======== =======
Interest
sensitive gap to
total assets ... 19.76% (2.44)% (9.68)% 3.86%
======== ======== ======== =======
Cumulative
interest
sensitive gap to
total assets ... 19.76% 17.32 % 7.64 % 11.50%
======== ======== ======== =======
<CAPTION>
(GREATER THAN) FIVE YEARS (GREATER THAN) 10 YEARS
BUT (LESS THAN) 10 BUT (LESS THAN) 20
YEARS YEARS (GREATER THAN) 20 YEARS
SENSITIVE SENSITIVE SENSITIVE TOTAL
------------------------- ----------------------- ----------------------- -----------
<S> <C> <C> <C> <C>
Interest-Earning
Assets:
Loans, net of $ 11,812 $ 4,430 $ 30 $388,603
unearned
income........
Investment
securities ... 1,118 508 2,259 52,381
-------- ------- ------- --------
Total
interest- $ 12,930 $ 4,938 $ 2,289 $440,984
earning -------- ------- ------- --------
assets......
Interest-Bearing
Liabilities:
Savings and $ 8,035 $ -- $ -- $264,147
time deposits
Money market 15,710 -- -- 110,682
and
transaction
accounts .....
Debt and other 2,561 1,755 -- 15,806
borrowed money
.............
Securities sold
under -- -- -- 3,272
agreement to -------- ------- ------- --------
repurchase....
Total
interest-bearing $ 26,306 $ 1,755 $ -- $393,907
liabiliti es -------- ------- ------- --------
...........
Interest
sensitivity $(13,376)
gap ............ ======== $ 3,183 $ 2,289 $ 47,077
======= ======= ========
Cumulative
interest $ 41,605
sensitive gap .. ======== $44,788 $47,077 $ 88,682
======= ======= ========
Interest
sensitive gap to (2.80)%
total assets ... ======== 0.67% 0.48% 9.85%
======= ======= ========
Cumulative
interest 8.70 % 9.37% 9.85%
sensitive gap to ======== ======= =======
total assets ...
</TABLE>
- ---------
(1) The Company has presented substantial balances of deposits as non-rate
sensitive and/or not repricing within one year.
The above table reflects a positive cumulative gap position in all maturity
classifications. This is the result of core deposits being used to fund shorter
term interest earning assets, such as loans and investment securities. A
positive cumulative 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 the interplay of competitive factors, can also
influence the overall impact on net income of 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.
10
<PAGE>
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.
EFFECT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards ("SFAS") No. 128, Earnings Per Share," which (i) replaces
the presentation of primary earnings per share ("EPS") with a presentation of
basic EPS; (ii) requires dual representation of basic and diluted EPS on the
face of the consolidated statements of income regardless of whether basic and
diluted EPS are the same; and (iii) requires a reconciliation of the numerator
and denominator used in computing basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Accounting Principles Board Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. SFAS No. 128
requires restatement of all prior-period EPS data presented.
11
<PAGE>
[COOPERS & LYBRAND, L.L.P. LETTERHEAD APPEARS HERE]
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, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
January 27, 1997
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ --------------
ASSETS
<S> <C> <C>
Cash and due from banks ......................... $ 21,332,328 $ 13,723,107
Securities available-for-sale (Note 3) .......... 42,924,649 60,899,628
Securities held-to-maturity--approximate market
value of $9,417,689 and $9,354,100 in 1996 and
1995, respectively (Note 3) .................... 9,456,437 9,375,472
Federal funds sold .............................. -- 23,800,000
Loans, net (Notes 4 and 5) ...................... 381,272,115 293,834,416
Premises and equipment, net (Note 6) ............ 9,839,369 8,339,400
Accrued interest receivable ..................... 4,090,877 3,539,110
Deferred income taxes (Note 12) ................. 1,968,356 1,455,094
Cash surrender value of life insurance
contracts ...................................... 3,750,672 3,580,200
Other assets .................................... 3,413,503 2,034,451
------------ ------------
$478,048,306 $420,580,878
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Facing Page 2
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Deposits (Note 7):
Noninterest bearing demand deposits .......... $ 33,892,483 $ 27,656,469
Interest bearing accounts:
NOW ........................................ 81,334,083 73,327,447
Money market transaction ................... 29,348,009 28,199,189
Savings .................................... 46,170,980 39,792,797
Certificates of deposit $100,000 and over .. 46,118,347 33,222,712
Other certificates of deposit .............. 171,857,795 163,751,974
------------ ------------
Total deposits ........................... 408,721,697 365,950,588
------------ ------------
Securities sold under agreements to repurchase . 3,272,000 4,784,000
Accrued interest and other liabilities ......... 4,523,533 4,472,328
Related party notes payable (Note 5) ........... 2,611,418 --
Long-term debt (Note 8) ........................ 13,194,322 3,448,172
------------ ------------
Total liabilities ........................ 432,322,970 378,655,088
------------ ------------
Common stock subject to rescission (Note 19) ... -- 851,530
------------ ------------
Commitments and contingencies (Notes 9, 11, 13,
14 and 17)
Shareholders' equity (Note 10):
Common stock, par value $10, authorized
1,000,000 shares; issued and outstanding
451,485 and 442,444 shares in 1996 and 1995,
respectively................................. 4,514,850 4,424,440
Paid in capital .............................. 4,132,909 2,914,724
Retained earnings ............................ 37,133,040 33,498,636
Net unrealized (depreciation) appreciation on
available-for-sale securities, net of income
tax expense (benefit) of $(33,186) and
$145,291 in 1996 and 1995, respectively ..... (55,463) 236,460
------------ ------------
Total shareholders' equity ............... 45,725,336 41,074,260
------------ ------------
$478,048,306 $420,580,878
============ ============
</TABLE>
2
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Interest income:
Loans ............................ $35,493,233 $26,758,857 $19,105,995
Securities available-for-sale .... 3,111,304 3,680,264 2,380,783
Securities held-to-maturity ...... 510,993 424,712 1,916,778
Federal funds sold ............... 513,326 627,135 221,094
----------- ----------- -----------
Total interest income .......... 39,628,856 31,490,968 23,624,650
----------- ----------- -----------
Interest expense:
Deposit accounts ................. 15,177,803 13,016,821 8,030,556
Securities sold under agreements
to repurchase ................... 227,613 231,581 227,879
Related party notes payable ...... 160,718 -- --
Long-term debt ................... 258,386 195,492 238,398
----------- ----------- -----------
Total interest expense ......... 15,824,520 13,443,894 8,496,833
----------- ----------- -----------
Net interest income ............ 23,804,336 18,047,074 15,127,817
Provision for loan losses .......... 2,973,193 1,423,656 994,000
----------- ----------- -----------
Net interest income after provision
for loan losses ................... 20,831,143 16,623,418 14,133,817
----------- ----------- -----------
Noninterest income:
Service fees on deposit accounts . 1,316,334 1,155,621 971,878
Service charges and commissions .. 1,277,260 705,623 946,278
Net realized gains on sales of
available-for-sale securities ... -- 1,373 --
Net realized gains on calls of
held-to-maturity securities ..... -- 4,000 --
Other income ..................... 709,056 627,834 450,825
----------- ----------- -----------
Total noninterest income ....... 3,302,650 2,494,451 2,368,981
----------- ----------- -----------
Noninterest expense:
Salaries and benefits ............ 7,893,635 5,826,564 4,750,592
Occupancy expenses ............... 1,057,418 815,506 757,278
Furniture and equipment expense .. 1,315,721 1,048,160 707,137
(Gain)/Loss on other real estate
owned............................ (240,252) (97,637) 141,950
Net realized losses on sales of
available-for-sale securities ... 3,488 -- 85,435
Federal insurance premiums ....... 6,187 346,501 616,859
Other expenses ................... 4,763,713 3,318,074 2,431,829
----------- ----------- -----------
Total noninterest expense ...... 14,799,910 11,257,168 9,491,080
----------- ----------- -----------
Income before income taxes ......... 9,333,883 7,860,701 7,011,718
Income tax expense ................. 3,370,621 2,752,261 2,510,322
----------- ----------- -----------
Net income ..................... $ 5,963,262 $ 5,108,440 $ 4,501,396
=========== =========== ===========
Per share of common stock:
Net income ..................... $ 13.28 $ 11.45 $ 10.16
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION) ON
COMMON PAID IN RETAINED AVAILABLE-FOR-SALE
STOCK CAPITAL EARNINGS SECURITIES TOTAL
---------- ---------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
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
Net income ......... -- -- 5,963,262 -- 5,963,262
Change in unrealized
appreciation, net
of tax ............ -- -- -- (291,923) (291,923)
Dividends paid
($5.16 per share) . -- -- (2,328,858) -- (2,328,858)
Proceeds from stock
rescission offer,
net of expenses ... 49,340 692,085 -- -- 741,425
Issuance of 4,107
shares............. 41,070 443,296 -- -- 484,366
Tax benefit from
exercise of
non-incentive stock
options............ -- 82,804 -- -- 82,804
---------- ---------- ----------- --------- -----------
December 31, 1996 .... $4,514,850 $4,132,909 $37,133,040 $ (55,463) $45,725,336
========== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ---------------
<S> <C> <C> <C>
Net cash provided by operating
activities:
Net income ................... $ 5,963,262 $ 5,108,440 $ 4,501,396
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses .. 2,973,193 1,423,656 994,000
Provision for depreciation
and amortization .......... 1,096,120 651,997 523,416
Amortization of investment
security premiums, net of
accretion.................. 515,996 368,321 554,152
Net realized gains on calls
of securities
held-to-maturity........... -- (4,000) --
Net realized (gains) losses
on available-for-sale
securities................. 3,488 (1,373) 85,435
(Gain) loss on other real
estate owned .............. (240,252) (97,637) 141,950
Increase in cash surrender
value of life insurance
contracts.................. (170,472) (171,987) (77,183)
Deferred income
tax benefit ............... (677,653) (568,718) (349,744)
Change in accrued income and
other assets .............. 1,238,459 (1,379,867) (428,505)
Change in accrued interest
and other liabilities ..... (1,047,045) 1,035,754 914,910
------------ ------------ ------------
Net cash provided by
operating activities .... 9,655,096 6,364,586 6,859,827
------------ ------------ ------------
Cash flows from investing
activities:
Acquisition of bank, net of
acquired cash ............... 1,022,043 -- --
Purchases of
available-for-sale
securities .................. (14,766,578) (21,848,101) (16,191,440)
Proceeds from sales of
available-for-sale
securities .................. 2,000,000 787,017 20,977,519
Proceeds from maturities of
available-for-sale
securities .................. 36,488,422 21,991,907 2,518,207
Purchases of securities
held-to-maturity............. (6,815,907) (2,909,704) (1,628,389)
Proceeds from maturities of
securities held-to-maturity . 6,748,835 3,050,011 11,051,414
Net decrease in interest
bearing deposits in financial
institutions................. -- -- 100,049
Net originations of loans .... (76,092,935) (53,970,350) (49,467,022)
Proceeds from sales of other
real estate owned ........... 337,605 148,400 59,284
Fixed asset additions ........ (1,845,545) (1,979,839) (2,057,501)
Net decrease (increase) in
federal funds sold .......... 23,800,000 (20,250,000) 4,720,000
------------ ------------ ------------
Net cash used by investing
activities............... (29,124,060) (74,980,659) (29,917,879)
------------ ------------ ------------
</TABLE>
(continued)
5
<PAGE>
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from financing
activities:
Net increase in demand deposits,
NOW, money market and savings
accounts....................... 11,056,917 11,135,801 1,434,930
Net increase in certificates of
deposit........................ 9,708,911 56,652,831 29,445,945
Increase (decrease) in
securities sold under
agreements to repurchase ...... (1,512,000) 905,000 (1,766,000)
Payments on related party notes
payable........................ (50,000) -- --
Payments on long-term debt ..... (19,781,151) (239,537) (1,726,033)
Borrowings of long-term debt ... 29,500,000 -- 1,500,000
Proceeds from issuance and sale
of common stock ............... 484,366 -- 30,470
Proceeds from sale of common
stock subject to rescission ... -- 851,530 --
Cash dividends paid ............ (2,328,858) (2,052,192) (1,795,818)
------------ ----------- -----------
Net cash provided by financing
activities................... 27,078,185 67,253,433 27,123,494
------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents ............ 7,609,221 (1,362,640) 4,065,442
Cash and cash equivalents at
beginning of year ............... 13,723,107 15,085,747 11,020,305
------------ ----------- -----------
Cash and cash equivalents at end
of year ......................... $ 21,332,328 $13,723,107 $15,085,747
============ =========== ===========
</TABLE>
6
<PAGE>
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 1995
and 1994 consolidated financial statements and accompanying notes to conform
with the 1996 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 Premier Bank of East Tennessee (the Banks).
Superior Financial, Inc. and GCB Acceptance, Inc., consumer finance companies,
are wholly owned subsidiaries of Greene County Bank. Superior Mortgage, Inc., a
mortgage company, is also a wholly owned subsidiary of Greene County Bank. 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 $5,594,000 and
$4,563,000 for the years ended December 31, 1996 and 1995, 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.
Gains and losses from sales of investment securities are recognized at the
time of sale based upon specific identification of the security sold.
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.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 Corporation 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
Corporation 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, 1996 and 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 was approximately
$5,996,000 and $3,653,000, respectively, and these loans had a corresponding
valuation allowance of $891,700 and $548,000, respectively. The impaired loans
at December 31, 1996 and 1995, were measured for impairment using the fair value
of the collateral as all of these loans were collateral dependent. For the years
ended December 31, 1996 and 1995, the average recorded investment in impaired
loans was approximately $4,353,000 and $3,550,000, respectively.
The Corporation 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.
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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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.
OTHER ASSETS -- Included in other assets are core deposit intangibles and
goodwill which arose from the acquisition of Premier Bancshares in 1996. These
assets will be amortized on a straight-line basis over their estimated useful
lives of 10 years.
INCOME TAXES -- The Corporation files a consolidated federal income tax
return.
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 11.
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 common and common equivalent shares
outstanding was 449,172 for 1996; 446,152 for 1995; and 443,188 for 1994.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 -- On January 1, 1996, the Corporation adopted
Statement of Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123). As permitted by SFAS 123, the Corporation has chosen to
apply APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations in accounting for its Plans. The pro forma disclosures
of the impact of SFAS 123 is described in Note 10 of the financial statements.
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.
2. ACQUISITION:
On January 1, 1996, the Corporation 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 Corporation's promissory
notes to the sellers in the aggregate principal amount of $2,431,418, plus
$230,000 for noncompete agreements with the sellers. The transaction was
accounted for as a purchase, resulting in the recording of a core deposit
intangible of approximately $1.1 million, goodwill of approximately
$1.3 million, and an increase to deferred tax and other liabilities of
approximately $.4 million. Amortization of the intangibles was approximately
$215,000 during 1996. Prior to March 31, 1996, the Corporation merged Premier
into the Corporation since Premier had no assets other than the stock of Premier
Bank. This transaction resulted in the Corporation owning 100% of the stock of
Premier Bank.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SECURITIES:
At December 31, 1996 and 1995, 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, 1996
and 1995, were as follows:
1996
- ----
<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 ........... $39,409,885 $411,145 $484,074 $39,336,956
Obligations of state and
political subdivisions . 1,344,513 -- 15,720 1,328,793
Federal Home Loan Bank
stock................... 2,258,900 -- -- 2,258,900
----------- -------- -------- -----------
$43,013,298 $411,145 $499,794 $42,924,649
=========== ======== ======== ===========
Held-to-maturity:
Obligations of state and
political subdivisions . $ 9,456,437 $ 44,046 $ 82,794 $ 9,417,689
=========== ======== ======== ===========
1995
- ----
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
Federal Home Loan Bank
stock .................. 1,066,155 -- -- 1,066,155
----------- -------- -------- -----------
$60,517,876 $484,938 $103,186 $60,899,628
=========== ======== ======== ===========
Held-to-maturity:
Obligations of state and
political subdivisions . $ 9,375,472 $ 17,245 $ 38,617 $ 9,354,100
=========== ======== ======== ===========
</TABLE>
Interest income from securities for the years ended December 31, 1996, 1995
and 1994, consist of:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
U.S. treasury securities ................ $ 421,236 $1,084,503 $1,565,806
Obligations of other U.S. government
corporations and agencies .............. 2,622,980 2,590,906 2,112,716
Obligations of states and political
subdivisions............................ 479,174 370,034 557,011
Other securities ........................ 98,907 59,533 62,028
---------- ---------- ----------
$3,622,297 $4,104,976 $4,297,561
========== ========== ==========
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SECURITIES, CONTINUED:
Gross realized gains and losses on all sales of securities for the years ended
December 31, 1996, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----------
<S> <C> <C> <C>
Gross realized gains:
Available-for-sale ............................. $ -- $1,373 $ 21,453
====== ====== ========
Gross realized losses:
Available-for-sale ............................. $3,488 $ -- $106,888
====== ====== ========
</TABLE>
Debt securities at December 31, 1996, will mature on the following schedule:
<TABLE>
<CAPTION>
HELD-TO-MATURITY
-----------------------
APPROXIMATE
BOOK MARKET
VALUE VALUE
---------- -------------
<S> <C> <C>
Due in one year or less .......................... $1,805,104 $1,806,484
Due after one year through five years ............ 6,731,487 6,754,761
Due after five years through ten years ........... 519,846 523,772
Due after ten years .............................. 400,000 332,672
---------- ----------
$9,456,437 $9,417,689
========== ==========
</TABLE>
Investment securities with book and market values of $31,076,496 and
$31,112,304 at December 31, 1996, respectively and $19,298,953 and $19,248,100
at December 31, 1995, respectively, were pledged to secure public and trust
deposits and for other purposes as required or permitted by law.
4. LOANS:
Major classifications of loans at December 31, 1996 and 1995, are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ---------------
<S> <C> <C>
Commercial ............................... $ 97,339,711 $ 75,502,470
Commercial real estate ................... 97,989,789 73,719,533
Mortgage installment ..................... 108,877,733 92,276,492
Installment real estate .................. 11,354,642 556,560
Installment consumer ..................... 71,354,067 55,876,354
Other loans .............................. 5,389,306 2,772,096
------------ ------------
392,305,248 300,703,505
Less:
Unearned income ........................ (3,702,457) (2,214,855)
Allowance for loan losses .............. (7,330,676) (4,654,234)
------------ ------------
$381,272,115 $293,834,416
============ ============
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LOANS, CONTINUED:
At December 31, 1996 and 1995, loans on which the accrual of interest had been
discontinued totaled $616,000 and $901,580, respectively. Unrecorded interest
income on these loans aggregated approximately $169,145, $116,300 and $68,270
for 1996, 1995 and 1994, respectively.
A summary of activity in the allowance for loan losses for the years ended
December 31, 1996, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- --------------
<S> <C> <C> <C>
Balance at beginning
of year ........................... $ 4,654,234 $3,446,762 $ 3,061,988
Balances acquired in acquisition of
Premier Bank ...................... 440,000 -- --
Provision for loan losses .......... 2,973,193 1,423,656 994,000
Recoveries ......................... 888,249 455,778 750,250
----------- ---------- -----------
8,955,676 5,326,196 4,806,238
Loans charged to allowance ......... (1,625,000) (671,962) (1,359,476)
----------- ---------- -----------
Balance at end of year ............. $ 7,330,676 $4,654,234 $ 3,446,762
=========== ========== ===========
</TABLE>
5. 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>
<CAPTION>
<S> <C>
Balance, December 31, 1994 ................................... $10,954,723
Additions .................................................. 5,928,364
Reductions ................................................. (3,947,070)
-----------
Balance, December 31, 1995 ................................... 12,936,017
Additions .................................................. 5,346,426
Reductions ................................................. (6,894,192)
-----------
Balance, December 31, 1996 ................................... $11,388,251
===========
</TABLE>
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 $1,837,032 during 1996 and $2,880,711 for
1995. 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 $30,126 and $1,041,964 at December 31, 1996 and
1995, respectively, are secondarily collateralized by dealer finance reserves
and also provide for recourse against the dealerships to further protect the
Banks against potential losses.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. RELATED PARTY TRANSACTIONS, CONTINUED:
As described in Note 2, the acquisition of Premier Bank generated promissory
notes to the sellers and noncompete agreements with the sellers, a related
party. These notes can be summarized as follows at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Noncompete agreement, payable in yearly principal installments
through January 2000 ......................................... $ 180,000
8% note, interest payments due quarterly, principal payments
January 15, 2003 through January 8, 2015 ..................... 231,418
8% note, interest payments due quarterly, principal payments
January 15, 2002 through January 8, 2015 ..................... 2,200,000
----------
$2,611,418
==========
</TABLE>
Scheduled principal maturities of notes payable as of December 31, 1996, are:
<TABLE>
<CAPTION>
<S> <C>
1997 .................................................... $ 50,000
1998 .................................................... 50,000
1999 .................................................... 40,000
2000 .................................................... 40,000
2001 .................................................... --
Thereafter .............................................. 2,431,418
----------
$2,611,418
==========
</TABLE>
6. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1996 and 1995, was comprised of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Land .......................................... $ 1,624,513 $ 825,781
Banking quarters .............................. 6,752,104 6,021,351
Leasehold improvements ........................ 1,331,231 874,704
Furniture and fixtures ........................ 6,029,526 5,003,262
Construction in progress ...................... 54,748 701,553
Automobiles ................................... 282,838 64,132
----------- -----------
16,074,960 13,490,783
Less accumulated depreciation and amortization (6,235,591) (5,151,383)
----------- -----------
$ 9,839,369 $ 8,339,400
=========== ===========
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. DEPOSITS:
The components of interest expense on deposits for the years ended
December 31, 1996, 1995 and 1994, were:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Interest bearing accounts:
NOW ............................... $ 1,400,414 $ 1,385,871 $1,242,285
Money market transaction .......... 950,906 796,167 881,000
Savings ........................... 1,185,304 985,319 1,055,482
Certificates of deposit $100,000
and over ......................... 2,080,723 1,723,218 760,064
Other certificates of deposit ..... 9,560,456 8,126,246 4,091,725
----------- ----------- ----------
$15,177,803 $13,016,821 $8,030,556
=========== =========== ==========
</TABLE>
8. LONG-TERM DEBT:
The Banks have entered into long-term debt arrangements with the Federal Home
Loan Bank of Cincinnati (FHLB) to provide funding for the origination of fixed
rate mortgages. This debt is collateralized by that Banks' blanket pledge of
mortgage loans aggregating approximately $19,791,000 and stock of the Federal
Home Loan Bank.
Long-term debt at December 31, 1996 and 1995, was summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
5.5% note, interest payments due monthly,
principal due May 20, 1997 ...................... $ 4,000,000 $ --
5.7% note, interest payments due monthly,
principal due November 20, 1997 ................. 4,000,000 --
5.81% note, interest payments due monthly,
principal due December 2, 1998 .................. 2,000,000 --
5.65% note, payable in monthly installments of
$21,854 through July 1, 2003 .................... 1,438,966 1,614,497
6.35% note, payable in monthly installments of
$7,368 through September 1, 2013 ................ 910,337 939,916
6.10% note, payable in monthly installments of
$8,493 through July 1, 2008 ..................... 845,019 893,759
----------- ----------
$13,194,322 $3,448,172
=========== ==========
</TABLE>
Scheduled principal maturities of long-term debt outstanding as of
December 31, 1996, are:
<TABLE>
<CAPTION>
<S> <C>
1997 ................................. $ 8,270,324
1998 ................................. 2,286,482
1999 ................................. 303,605
2000 ................................. 321,753
2001 ................................. 340,954
Thereafter ........................... 1,671,204
-----------
$13,194,322
===========
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LONG-TERM DEBT, CONTINUED:
At December 31, 1996, 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 $20,000,000 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 September 5, 1997.
9. 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).
Future minimum lease payments for these noncancelable operating leases, with a
term in excess of one year, at December 31, 1996, for each of the years in the
five year period ending December 31, 2001, and thereafter were as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 .................................................... $183,422
1998 .................................................... 149,483
1999 .................................................... 122,336
2000 .................................................... 44,457
2001 .................................................... 15,138
--------
$514,836
========
</TABLE>
The total rental expense for operating leases was $305,618, $164,977 and
$164,316 for the years ended December 31, 1996, 1995 and 1994, respectively.
10. 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
canceled if the key executive voluntarily resigns his employment or is
terminated for cause. Compensation expense recognized was $30,000, $24,000 and
$20,400 for the years ended December 31, 1996, 1995 and 1994, respectively.
During 1993, the Corporation granted certain other key executives stock option
awards to purchase shares of the Corporation's stock. Shares under this plan are
to be awarded at market price at the date of grant. In 1996, 1995 and 1994, the
Corporation granted additional stock options to certain key executives to
purchase 1,660, 1,300 and 1,000 shares at $215, $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
granted in 1993 and 1994 are nonincentive stock options and are fully vested.
The options granted in 1995 and subsequent years are incentive stock options and
vest at the rate of 20 percent per year and expire ten years from the date of
grant.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS, CONTINUED:
A summary of the status of the Corporation's Plans as of December 31, 1996 and
1995, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year ................ 7,048 $137.53 5,148 $126.45
Granted ................. 2,260 198.21 1,900 167.54
Exercised ............... 4,107 117.94 -- --
----- ------- ----- -------
Outstanding at end of
year.................... 5,201 $179.37 7,048 $137.53
===== ======= ===== =======
Options exercisable at
year end ............... 2,501 $155.46 5,748 $130.18
===== ======= ===== =======
Weighted-average fair
value of options granted
during the year ........ 2,260 $180.32 1,900 $158.23
===== ======= ===== =======
</TABLE>
The following table summarizes information about the Plans' stock options at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ---------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE AT 12/31/96 EXERCISE PRICE
--------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$151.76 ........ 600 10 years 600 $151.76
$145.00-
$215.00 ....... 4,601 8.8 years 1,901 $156.63
</TABLE>
Had compensation cost for the Corporation's Plans been determined based on the
fair value at the grant dates for awards under the Plans consistent with the
method of SFAS 123, the Corporation's net income and net income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net income ................ $5,963,262 $5,924,579 $5,108,440 $5,090,594
Net income per share ...... $ 13.28 $ 13.19 $ 11.45 $ 11.41
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend growth rate
of 12% and 12%; expected volatility of 7.75% and 6.26%: risk-free interest rates
of 6.6% and 5.65%; and expected lives of 7 years and 7 years.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. PROFIT SHARING AND DEFERRED COMPENSATION:
The Corporation has a contributory profit-sharing plan covering certain
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 $503,999, $427,666 and $396,192 for
1996, 1995 and 1994, 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.
Included in accrued interest and other liabilities in the consolidated
financial statements is $817,623 and $608,018 at December 31, 1996 and 1995,
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.
12. INCOME TAXES:
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994, were:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Current income taxes
Federal ............................ $3,461,877 $2,914,271 $2,450,101
State .............................. 586,397 406,708 409,965
---------- ---------- ----------
4,048,274 3,320,979 2,860,066
Deferred income tax benefit .......... (677,653) (568,718) (349,744)
---------- ---------- ----------
$3,370,621 $2,752,261 $2,510,322
========== ========== ===========
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES, CONTINUED:
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, 1996, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Tax at statutory rates .......... $3,173,520 $2,672,638 $2,383,984
Tax increases (decreases)
attributable to:
Tax exempt interest ........... (180,099) (122,480) (188,581)
State income tax less federal
tax benefit .................. 387,022 268,427 276,517
Interest expense disallowed ... 20,040 23,860 19,649
Other ......................... (29,862) (90,184) 18,753
---------- ---------- ----------
$3,370,621 $2,752,261 $2,510,322
========== ========== ==========
</TABLE>
The significant components of the Corporation's deferred tax assets and
liabilities at December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses and other real estate
owned........................................... $2,358,372 $1,694,540
Unrealized depreciation on available-for-sale
securities...................................... 33,186 --
Deferred compensation ........................... 310,257 230,888
Other ........................................... 58,146 65,692
---------- ----------
Gross deferred tax assets ..................... 2,759,961 1,991,120
---------- ----------
Deferred tax liabilities:
Depreciation .................................... 385,060 349,619
Unrealized appreciation on available-for-sale
securities...................................... -- 145,291
Core deposit intangible ......................... 376,290 --
Other ........................................... 30,255 41,116
---------- ----------
Gross deferred tax liabilities ................ 791,605 536,026
---------- ----------
Net deferred tax asset ............................ $1,968,356 $1,455,094
========== ==========
</TABLE>
13. 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.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED:
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.
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, 1996 and 1995
amounted to $2,269,878 and $1,832,150, respectively. Outstanding commitments to
lend at fixed rates were $3,755,700 and $939,000 and at variable rates were
$8,429,531 and $3,396,000 at December 31, 1996 and 1995, respectively.
Undisbursed advances on customer lines of credit were $52,021,000 and
$38,536,000 at December 31, 1996 and 1995, respectively. The amount available
for borrowing under inventory collateralized loans was $5,941,000 at December
31, 1996 and $5,733,000 at December 31, 1995. 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.
14. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS:
The Banks are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involves quantitative measures of the Banks' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Banks meet all capital adequacy requirements to which they are subject.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS, CONTINUED:
The Banks are well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Banks must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table. There are no conditions or events since that notification that
management believes have changed the institutions' category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ---------------------------------- -----------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------ ----------- --------------------- ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31,
1996:
Total Capital (to
Risk Weighted
Assets):
Consolidated ...... $47,860,000 12.69% $30,178,000 (more than or = to)8% $37,721,900 (more than or = to)10%
Greene County
Bank ............. 46,247,000 13.01% 28,441,120 (more than or = to)8% 35,551,400 (more than or = to)10%
Premier Bank ...... 2,625,000 11.94% 1,758,640 (more than or = to)8% 2,198,300 (more than or = to)10%
Tier I Capital (to
Risk Weighted
Assets):
Consolidated ...... 43,112,000 11.43% 15,088,760 (more than or = to)4% 22,633,140 (more than or = to)6%
Greene County
Bank ............. 41,772,000 11.75% 14,220,560 (more than or = to)4% 21,330,840 (more than or = to)6%
Premier Bank ...... 2,349,000 10.69% 879,320 (more than or = to)4% 1,318,980 (more than or = to)6%
Tier I Capital (to
Average Assets):
Consolidated ...... 43,112,000 9.16% 18,821,120 (more than or = to)4% 23,526,400 (more than or = to)5%
Greene County
Bank ............. 41,772,000 9.60% 17,413,200 (more than or = to)4% 21,766,500 (more than or = to)5%
Premier Bank ...... 2,349,000 7.32% 1,283,640 (more than or = to)4% 1,604,550 (more than or = to)5%
</TABLE>
The Corporation's principal source of funds is dividends received from the
Banks. Under applicable banking laws, the Banks may only pay dividends from
retained earnings and only to the extent that the remaining balance of retained
earnings is at least equal to the capital stock amounts of the respective Banks.
As a practical matter, dividend payments by the Banks to the Corporation would
be limited by the necessity to maintain appropriate amounts for capital adequacy
purposes.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. ADDITIONAL CASH FLOW INFORMATION:
Income taxes paid during the years ended December 31, 1996, 1995 and 1994
amounted to $5,273,919, $3,617,622 and $2,890,684, respectively. Interest
expense paid in cash during the years 1996, 1995 and 1994 amounted to
$15,632,435, $12,360,091 and $8,342,385, respectively.
Significant noncash transactions for the years ended December 31, 1996, 1995
and 1994, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- ------------
<S> <C> <C> <C>
Financed sales of other real estate
owned ................................... $ 59,750 $159,000 $1,044,876
Foreclosed loans transferred to OREO ..... 380,587 124,767 391,893
Transfer of OREO to premises ............. -- -- 74,763
Assets acquired/generated through bank
purchase:
Investments ............................ 6,750,643 -- --
Loans, net ............................. 14,638,794 -- --
Property, plant and equipment, net ..... 567,992 -- --
Other assets ........................... 450,034 -- --
Intangibles ............................ 2,159,966 -- --
Liabilities assumed/generated through bank
purchase:
Deposits ............................... 22,005,281 -- --
Accrued interest and other liabilities . 546,483 -- --
Notes payable .......................... 2,431,418 -- --
Noncompete payable ..................... 230,000 -- --
Deferred tax liability ................. 376,290 -- --
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. 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,
-------------------------
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Cash ........................................... $ 1,099,373 $ 1,186,519
Investment in subsidiaries ..................... 44,756,925 39,319,173
Premises and equipment, net .................... 695,117 711,999
Cash surrender value of life insurance
contracts ..................................... 184,108 177,980
Other assets ................................... 1,976,263 672,088
----------- -----------
Total assets ............................... $48,711,786 $42,067,759
=========== ===========
LIABILITIES
Deferred income taxes .......................... $ 343,104 $ 141,969
Related party notes payable .................... 2,611,418 --
Other liabilities .............................. 31,928 --
----------- -----------
2,986,450 141,969
----------- -----------
Common stock subject to rescission ............. -- 851,530
----------- -----------
SHAREHOLDERS' EQUITY
Common stock ................................... 4,514,850 4,424,440
Paid-in capital ................................ 4,132,909 2,914,724
Retained earnings .............................. 37,133,040 33,498,636
Net unrealized depreciation on
available-for-sale securities, net of income
tax (benefit) of $(33,186) and $145,291 in 1996
and 1995, respectively ........................ (55,463) 236,460
----------- -----------
Total shareholders' equity ................. 45,725,336 41,074,260
----------- -----------
Total liabilities and shareholders' equity . $48,711,786 $42,067,759
=========== ===========
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- -------------
<S> <C> <C> <C>
Revenue:
Equity in undistributed earnings of
subsidiaries....................... $3,862,086 $2,366,336 $1,736,400
Dividends from subsidiaries ........ 3,022,100 2,818,338 2,795,818
Interest income .................... -- -- 3,752
Other income ....................... 107,871 53,837 62,593
---------- ---------- ----------
Total revenue .................... 6,992,057 5,238,511 4,598,563
Related party interest expense ....... 160,718 -- --
Other expense ........................ 524,547 92,586 99,315
---------- ---------- ----------
Income before income taxes ........... 6,306,792 5,145,925 4,499,248
Income tax expense (benefit) ......... 343,530 37,485 (2,148)
---------- ---------- ----------
Net income ........................... $5,963,262 $5,108,440 $4,501,396
========== ========== ==========
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income ...................... $ 5,963,262 $ 5,108,440 $ 4,501,396
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed
earnings of subsidiaries ..... (3,862,086) (2,366,336) (1,736,400)
Depreciation and
amortization ................. 232,855 18,233 (19,973)
Change in other assets ........ 537,500 (493,106) --
Change in other liabilities ... (22,236) (18,597) 9,249
----------- ----------- -----------
Net cash provided by
operating activities ....... 2,849,295 2,248,634 2,754,272
----------- ----------- -----------
Cash flows from investing
activities:
Acquisition of bank ............. (708,582) -- --
Proceeds from maturities of
investment securities .......... -- -- 78,772
Increase in cash surrender value
of life insurance contracts .... (6,128) (9,492) (2,987)
----------- ----------- -----------
Net cash provided (used) by
investing activities ....... (714,710) (9,492) 75,785
----------- ----------- -----------
Cash flows from financing
activities:
Capital contributed to
subsidiary ..................... -- -- (1,000,000)
Proceeds from issuance and sale
of common stock ................ 484,366 -- 30,470
Proceeds from sale of common
stock subject to rescission .... -- 851,530 --
Repayments of related party
debt ........................... (50,000) -- --
Repayments of debt .............. (327,239) -- --
Dividends paid .................. (2,328,858) (2,052,192) (1,795,818)
----------- ----------- -----------
Net cash used by financing
activities.................. (2,221,731) (1,200,662) (2,765,348)
----------- ----------- -----------
Net increase (decrease) in cash ... (87,146) 1,038,480 64,709
Cash at beginning of year ......... 1,186,519 148,039 83,330
----------- ----------- -----------
Cash at end of year ............... $ 1,099,373 $ 1,186,519 $ 148,039
=========== =========== ===========
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. 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, results of operations, or
cash flows.
18. 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.
The estimated fair values of the Corporation's financial instruments at
December 31, 1996 and 1995, were as follows (rounded to the nearest thousand):
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Financial assets:
Securities ......... $ 52,470,000 $ 51,390,000 $ 70,125,000 $ 70,701,000
Federal funds sold . -- -- 23,800,000 23,800,000
Loans, net ......... 381,272,000 378,528,000 293,834,000 294,133,000
Financial liabilities:
Deposits ........... $408,722,000 $388,942,000 $365,951,000 $367,782,000
Securities sold
under agreements to
repurchase......... 3,272,000 3,272,000 4,784,000 4,784,000
Long-term debt ..... 13,194,000 13,027,000 3,448,000 3,444,000
</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,
1996 and 1995.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. COMMON STOCK SUBJECT TO RESCISSION:
On May 31, 1995, the Corporation forwarded a letter to several hundred
potential subscribers for common stock of the Corporation. The response to the
letter resulted in a sale of 5,009 shares of the Corporation's common stock to
192 new shareholders (the "New Shareholders"). The Corporation received
approximately $851,530 in payment for the newly issued common shares. No
commissions or other fees were paid or received by the Corporation or any other
person in connection with the sale of such shares. During the quarter ended June
30, 1996, the Corporation concluded a rescission offer to the New Shareholders
(the "Rescission Offer"). The need for the Rescission Offer arose from the sale
of the common stock to the New Shareholders without registration with the
Securities and Exchange Commission and the necessary state securities divisions
or the availability of an exemption from registration.
In the Rescission Offer, the Corporation offered to rescind the sale of the
shares issued to the New Shareholders and to refund the consideration paid for
such shares, plus interest from the date of payment through the date the
Corporation received notice of a New Shareholder's election to rescind, less any
amount of income received on such stock by the New Shareholders. The Rescission
Offer was made pursuant to the applicable securities laws in the states in which
the New Shareholders reside. Simultaneously with the Rescission Offer, the
Corporation registered these shares of common stock in order that the New
Shareholders, if they desired to retain the common shares, would hold
appropriately registered stock.
At the conclusion of the Rescission Offer, the New Shareholders, with the
exception of three, opted to retain their shares. With respect to the three New
Shareholders who requested a refund of their consideration, the Corporation
refunded approximately $14,000. Professional fees to date associated with the
Rescission Offer total approximately $88,000. The Corporation accordingly
increased its shareholders' equity by $750,000 during the quarter ended June 30,
1996. Additional professional fees incurred during the quarter ended September
30, 1996, amounted to approximately $8,000, resulting in proceeds from the
Rescission Offer, net of expenses to date, in the approximate amount of
$742,000.
20. OTHER EXPENSES:
Included in other expenses on the consolidated statement of income is the
following significant component:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Dealer reserve expense .......................... $795,840 $181,717 $5,709
</TABLE>
27
<PAGE>
MARKET AND DIVIDEND INFORMATION
There currently are 451,500 shares of Common Stock outstanding and
approximately 1,460 holders of record of the Common Stock.
There is no established public trading market in which shares of the Common
Stock are regularly traded, nor are there any uniformly quoted prices for shares
of the Common Stock. The following table sets forth certain information known to
management as to the prices at the end of each quarter for the Common Stock and
cash dividends declared per share of Common Stock for the calendar quarters
indicated.
<TABLE>
<CAPTION>
SALES PRICE AT DIVIDENDS DECLARED
QUARTER-END PER SHARE (1)
-------------- --------------------
<S> <C> <C>
FISCAL 1995:
First quarter ......................... $170.00 $1.00
Second quarter ........................ 170.00 1.00
Third quarter ......................... 180.00 1.00
Fourth quarter ........................ 180.00 1.60
FISCAL 1996:
First quarter ......................... $190.00 $1.12
Second quarter ........................ 200.00 1.12
Third quarter ......................... 200.00 1.12
Fourth quarter ........................ 215.00 1.80
</TABLE>
- ---------
(1) For information regarding restrictions on the payment of dividends by the
Banks to the Company, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources" in
this Annual Report. See also Note 14 of Notes to Consolidated Financial
Statements.
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARIES PERCENTAGE OWNED STATE OF INCORPORATION
- ------------ ---------------- ----------------------
<S> <C> <C>
Greene County Bank ............ 100% Tennessee
Premier Bank of East Tennessee 100% Tennessee
American Fidelity Bank (1) .... 100% Tennessee
SUBSIDIARIES OF GREENE COUNTY
BANK
Superior Financial Services,
Inc........................... 100% Tennessee
Superior Mortgage Company ..... 100% Tennessee
GCB Acceptance Corporation .... 100% Tennessee
</TABLE>
- ---------
(1) Currently defunct following merger into Greene County Bank in 1996 and
survival of charter only under Tennessee law.
<PAGE>
EXHIBIT 23
----------
[COOPERS & LYBRAND LETTERHEAD APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Greene County Bancshares, Inc.
We consent to the incorporation by reference in the registration statement of
Greene County Bancshares, Inc. on Form S-8 (File no. 333-08609) of our report
dated January 27, 1997, on our audits of the consolidated financial statements
of Greene County Bancshares, Inc. as of December 31, 1996 and 1995, and for each
of the years in the three year period ended December 31, 1996, which report is
included in this Form 10-K.
/s/ Coopers & Lybrand L.L.P.
------------------------------------
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,332,328
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,924,649
<INVESTMENTS-CARRYING> 9,456,437
<INVESTMENTS-MARKET> 9,417,689
<LOANS> 392,305,248
<ALLOWANCE> 7,330,676
<TOTAL-ASSETS> 478,048,306
<DEPOSITS> 408,721,697
<SHORT-TERM> 3,272,000
<LIABILITIES-OTHER> 4,523,533
<LONG-TERM> 15,805,740
0
0
<COMMON> 4,514,850
<OTHER-SE> 41,265,949
<TOTAL-LIABILITIES-AND-EQUITY> 478,048,306
<INTEREST-LOAN> 35,493,233
<INTEREST-INVEST> 3,622,297
<INTEREST-OTHER> 513,326
<INTEREST-TOTAL> 39,628,856
<INTEREST-DEPOSIT> 15,177,803
<INTEREST-EXPENSE> 15,824,520
<INTEREST-INCOME-NET> 23,804,336
<LOAN-LOSSES> 2,973,193
<SECURITIES-GAINS> (3,488)
<EXPENSE-OTHER> 14,796,422
<INCOME-PRETAX> 9,333,883
<INCOME-PRE-EXTRAORDINARY> 9,333,883
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,963,262
<EPS-PRIMARY> 13.28
<EPS-DILUTED> 0
<YIELD-ACTUAL> 9.45
<LOANS-NON> 616,000
<LOANS-PAST> 1,486,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,085,670
<ALLOWANCE-OPEN> 4,654,234
<CHARGE-OFFS> 1,625,000
<RECOVERIES> 888,249
<ALLOWANCE-CLOSE> 7,330,676
<ALLOWANCE-DOMESTIC> 7,330,676
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
