<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
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, 1998
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 No.)
incorporation or organization)
100 NORTH MAIN STREET, GREENEVILLE, TENNESSEE 37743
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
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 $135 per share, the registrant believes that the
aggregate market value of the voting stock on March 24, 1999 was $183.3 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, 1,357,948 shares of the common stock were
issued and 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, 1998. (Parts I and II)
2. Portions of Proxy Statement for 1999 Annual Meeting of Shareholders.
(Part III)
<PAGE> 2
PART I
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING ALL DOCUMENTS INCORPORATED
HEREIN BY REFERENCE, CONTAINS FORWARD-LOOKING STATEMENTS. ADDITIONAL WRITTEN OR
ORAL FORWARD-LOOKING STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME IN
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHERWISE. THE WORDS
"BELIEVE," "EXPECT," "SEEK," AND "INTEND" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT IS
MADE. SUCH FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF THAT TERM IN
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE, BUT
ARE NOT LIMITED TO, PROJECTIONS OF INCOME OR LOSS, EXPENDITURES, ACQUISITIONS,
PLANS FOR FUTURE OPERATIONS, FINANCING NEEDS OR PLANS RELATING TO SERVICES OF
THE COMPANY, AS WELL AS ASSUMPTIONS RELATING TO THE FOREGOING. FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH
CANNOT BE PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS.
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, a Tennessee-chartered commercial bank (the "Bank"). The Company also
wholly owns Premier Bank of East Tennessee, a now dormant Tennessee-chartered
commercial bank with its principal office in Niota, Tennessee, which was
combined into the Bank effective October 16, 1998. Further, the Companys owns
American Fidelity Bank, a dormant Tennessee bank whose operations were combined
with the Bank in 1996.
The Company's assets consist primarily of its investment in the Bank,
liquid investments and fixed assets. Its primary activities are conducted
through the Bank. At December 31, 1998, the Company's consolidated total assets
were $568.2 million, its consolidated net loans were $466.7 million, its total
deposits were $459.2 million and its total stockholders' equity was $55.4
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.
THE BANK
The Bank is a Tennessee-chartered commercial bank established in 1890 and
which has its principal executive offices in Greeneville, Tennessee. The
principal business of the Bank 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. The Bank also provides collection and other banking services, including
separate finance, mortgage, acceptance and title corporations. During 1997, the
Bank discontinued its trust activities. At December 31, 1998, the 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, two full service banking
offices located in McMinn County, Tennessee, and a full service banking office
located in each of Sullivan County, Knox County, Hawkins County and Cocke
County, Tennessee.
The Bank also conducts separate businesses through four wholly-owned
subsidiaries. Through Superior Financial Services, Inc., the Bank operates
twelve consumer finance company offices located in Greene, Hamblen, Blount,
Washington, Sullivan, Sevier, McMinn, Hawkins and Hamilton Counties, Tennessee.
Through its subsidiary, Superior Mortgage Company, the Bank operates a mortgage
banking operation through its sole office in Knox County, Tennessee and through
its representatives located throughout the Company's branch system. Through GCB
Acceptance Corporation, the Bank operates a subprime automobile lending company
with a sole
1
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office in Johnson City, Tennessee. Through Fairway Title Co., the Bank operates
a title company in Knoxville, Tennessee.
Deposits of the Bank 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 Bank is 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 counties of Greene, Washington, Hamblen,
Sullivan, Hawkins, Blount, Knox, McMinn and Cocke 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,
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial.............. $ 121,294 $ 108,985 $ 97,340 $ 75,503 $ 56,754
Commercial real estate.. 115,204 125,359 108,936 74,276 64,211
Mortgage installment.... 153,160 146,227 108,878 92,276 79,705
Installment consumer.... 80,147 72,752 71,354 55,876 44,025
Other................... 17,102 3,154 5,797 2,772 2,832
--------- --------- --------- -------- --------
Total loans........... $ 486,907 $ 456,477 $ 392,305 $300,703 $247,527
Less:Unearned discount.. (9,993) (5,933) (3,703) (2,215) (2,827)
Allowance for loan
losses........... (10,253) (9,154) (7,330) (4,654) (3,447)
--------- --------- --------- -------- --------
Total loans, net........ $ 466,661 $ 441,390 $ 381,272 $293,834 $241,253
========= ========= ========= ======== ========
</TABLE>
Loan Maturities. The following table reflects at December 31, 1998 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 one
year or less.
<TABLE>
<CAPTION>
Due in One Due After One
Year or Year through Due After
Less Five Years Five Years Total
---- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial................ $ 64,285 $ 53,370 $ 3,639 $121,294
Commercial real estate.... 86,403 24,193 4,608 115,204
Mortgage installment...... 67,390 76,581 9,189 153,160
Installment consumer...... 46,486 28,051 5,610 80,147
Other..................... 3,078 14,024 -- 17,102
-------- -------- -------- --------
$267,642 $196,219 $ 23,046 $486,907
======== ======== ======== ========
</TABLE>
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The following table sets forth the dollar amount of the loans maturing
subsequent to the year ending December 31, 1999 between those with predetermined
interest rates and those with floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Predetermined Adjustable
Rates Rates Total
-------------- -------------- ------------
(In thousands)
<S> <C> <C> <C>
Commercial................ $ 25,755 $ 12,695 $ 38,450
Commercial real estate.... 52,745 40,308 93,053
Mortgage installment...... 52,183 41,587 93,770
Installment consumer...... 63,456 47,758 111,214
-------- -------- --------
$194,139 $142,348 $336,487
======== ======== ========
</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, 1998,
commercial loans outstanding totaled $121.3 million, or 26.0% 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 25%
and 60% 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, 1998, commercial real estate loans
totaled $115.2 million, or 24.7% 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 prime rate, as reported in The 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 85% 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, 1998, the Company had $153.2 million, or 32.8% 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.
Mortgage loans originated by the Bank are not underwritten in conformity
with secondary market guidelines and therefore are not readily salable. The
Company has not previously engaged in sales of its loans in the secondary
market. Beginning in April 1997, the Company began selling one-to-four family
mortgage loans in the secondary market to Freddie Mac through the Bank's
mortgage banking subsidiary, Superior Mortgage. Sales of such loans totaled
$41.0 million during 1998, and the related mortgage servicing rights were sold
together with the loan.
Installment Consumer Loans. At December 31, 1998, the Company's
installment consumer loan portfolio totaled $80.1 million, or 17.2% of the
Company's total net loan portfolio. The Company's consumer loan portfolio is
comprised of secured and unsecured loans originated both by the Bank and
Superior Financial. The consumer
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<PAGE> 5
loans of the Bank generally have a higher risk of default than other loans
originated by the Bank. Further, consumer loans originated by Superior
Financial, a finance company rather than a bank, generally have a greater risk
of default than such loans originated by commercial banks and accordingly carry
a higher interest rate. The performance of consumer 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.
Past Due, Special Mention, Classified and Non-Accrual Loans. The Company
classifies its problem loans into four categories: past due loans, special
mention loans, classified loans (which are still accruing interest) and
non-accrual loans.
When management determines that a loan no longer satisfies the criteria
for performing loans and that collection of interest appears doubtful, the loan
is placed on non-accrual status. All loans that 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 that are contractually 90 days past due, treated as
"special mention" or otherwise classified or on non-accrual status. Non-accrual
loans that are 120 days past due without assurance of repayment are charged off
against the allowance for loan losses.
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,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis ......................... $4,159 $2,265 $ 616 $ 902 $ 649
Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments ................... 872 1,583 1,486 1,044 656
------ ------ ------ ------ ------
Total non-performing loans ................ 5,031 3,848 2,102 1,946 1,305
Real estate owned:
Foreclosures ............................ 920 411 -- -- --
Other real estate held .................. 607 97 223 122 85
------ ------ ------ ------ ------
Total non-performing assets ............. $6,558 $4,356 $2,325 $2,068 $1,390
====== ====== ====== ====== ======
</TABLE>
Non-accrual loans increased $1.9 million, or 82.6%, from $2.3 million at
December 31, 1997 to $4.2 million at December 31, 1998. The increase is
principally comprised of a group of four commercial loans totaling $1.8 million,
all of which are fully secured by real estate located within the primary
business area of the Bank. Of these four loans, two were performing as of March
1999. In addition, the increase in non-accrual loans reflects management's
efforts during 1998 to more aggressively review and monitor past due loans.
During 1998, the Company recorded a $3.4 million charge to income through its
provision for loan losses to reflect anticipated losses arising from these
loans.
The Company's continuing efforts to resolve non-performing loans
occasionally includes foreclosures, which result in the Company's ownership of
the real estate underlying the mortgage. If non-accrual loans at December 31,
1998 had been current according to their original terms and had been outstanding
throughout 1998, or since origination if originated during the year, interest
income on these loans would have been approximately $260,600. Interest actually
recognized on these loans during 1998 was not significant.
The increase in real estate owned during 1998 from $508,000 at December
31, 1997 to $1,527,000 at December 31, 1998 primarily reflects management's
implementation of a more aggressive collection strategy, which includes
foreclosing on loans past due 120 days without providing borrowers with a
delaying option to restructure. The $920,000 in foreclosed real estate consists
of eight properties, of which property valued at $200,000 was sold for full
value as of March 1999. Management expects that the remaining foreclosed real
estate can be sold at an amount sufficient to recover the remaining $720,000.
4
<PAGE> 6
At December 31, 1998, the Company had approximately $3.0 million in loans
that are not currently classified as non-accrual or 90 days past due or
otherwise 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 considered classified by the Company and comprised various commercial and
commercial real estate loans, including one commercial loan for $1.6 million
secured by a blanket lien on the land, plant and equipment of the business as
well as significant additional collateral. Management believes the value of the
collateral is presently sufficient to cover the full amount of the loan, plus
accrued interest. This loan was considered classified based upon cash flows of
the business deemed insufficient to cover debt service. 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 management believes 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 increases 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. During the year ended December 31, 1998, the Company's
provision for loan losses decreased by $2.5 million to $3.4 million to reflect
the reduction in actual or potential losses arising from the loan portfolio. For
additional information, see Note 1 of Notes to Consolidated Financial
Statements.
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<PAGE> 7
The following is a summary of activity in the allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ........ $ 9,154 $ 7,330 $ 4,654 $ 3,447 $ 3,062
-------- -------- -------- --------------- --------
Charge-offs:
Commercial ....................... (440) (563)(b) (162) (a) (a)
Commercial real estate ........... (87) (129) (32) (a) (a)
-------- -------- -------- --------------- --------
Subtotal .................. (527) (692) (194) (26) (103)
Mortgage installment ............. -- -- -- (a) (a)
Installment consumer ............. (2,707) (4,450) (1,089) (a) (a)
-------- -------- -------- --------------- --------
Subtotal ..................... (2,707) (4,450) (1,089) (646) (1,256)
Other ............................ (342)
-------- -------- -------- --------------- --------
Total charge-offs ............. (3,234) (5,142) (1,625) (672) (1,359)
-------- -------- -------- --------------- --------
Recoveries:
Commercial ....................... 216 56 62 (a) (a)
Commercial real estate ........... 24 4 -- (a) (a)
-------- -------- -------- --------------- --------
Subtotal ...................... 240 60 62 9 199
-------- -------- -------- --------------- --------
Mortgage installment ............. -- -- -- (a) (a)
Installment consumer ............. 673 951 755 (a) (a)
-------- -------- -------- --------------- --------
Subtotal ...................... 673 951 755 447 551
Other ............................ 3 2 71 -- --
-------- -------- -------- --------------- --------
Total recoveries .............. 916 1,013 888 456 750
-------- -------- -------- --------------- --------
Net charge-offs ..................... (2,318) (4,129) (737) (216) (609)
Provision for loan losses ........... 3,417 5,953(b) 2,973 1,423 994
Balances acquired in acquisition of
Premier Bank .................... -- -- 440 -- --
-------- -------- -------- --------------- --------
Balance at end of year .............. $ 10,253 $ 9,154 $ 7,330 $ 4,654 $ 3,447
======== ======== ======== =============== ========
Ratio of net charge-offs to average
loans outstanding, net of
unearned discount, during
the period ..................... 0.52% 0.96% 0.21% 0.08% 0.28%
========= ========= ========= ================ =========
Ratio of allowance for loan losses to
non-performing loans ........... 203.80% 237.89% 348.72% 239.16% 264.14%
========= ========= ========= ================ =========
Ratio of allowance for loan losses to
total loans .................... 2.11% 2.01% 1.87% 1.55% 1.39%
========= ========= ========= ================ =========
</TABLE>
- --------------------
(a) Prior to 1996, the Company did not maintain records of individual balances
in these types of categories and therefore such amounts are reflected
herein only in the aggregate.
(b) Includes a $500,000 charge-off against the Company's $1.1 million
participation in a $3.5 million commercial loan to a nonprofit entity for
a hotel development project, secured by a hotel building and underlying
commercial real estate in Greeneville, Tennessee. In 1998, the loan was
paid off and the Bank received $788,000 in net loan proceeds.
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<PAGE> 8
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,
-----------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- -----------------------
% Amount % Amount % Amount
- ------ - ------ - ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial .......... 13.94% $ 1,429 23.88% $ 2,186 24.82% $ 1,819
Commercial real
estate .............. 35.50% 3,640 27.46% 2,514 27.85% 2,042
------- ------- ------- ------- ------- -------
Subtotal ...... 49.44% 5,069 51.34% 4,700 52.67% 3,861
------- ------- ------- ------- ------- -------
Mortgage installment 27.04% 2,773 32.03% 2,932 27.75% 2,034
Installment consumer 20.31% 2,082 15.94% 1,459 18.17% 1,332
------- ------- ------- ------- ------- -------
Subtotal ...... 47.35% 4,855 47.97% 4,391 45.92% 3,366
------- ------- ------- ------- ------- -------
Other ............ 3.21% 329 0.69% 63 1.41% 103
------- ------- ------- ------- ------- -------
Total allowance .. 100.00% $10,253 100.00% $ 9,154 100.00% $ 7,330
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
1995 1994
------------------------- ----------------------------
% Amount % Amount
- ------ - ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial .......... (a) (a) (a) (a)
Commercial real
estate .............. (a) (a) (a) (a)
------- ------------ ------- ------------
Subtotal ...... 49.60% $ 2,042 48.60% $ 1,758
------- ------------ ------- ------------
Mortgage installment (a) (a) (a) (a)
Installment consumer (a) (a) (a) (a)
------- ------------ ------- ------------
Subtotal ...... 50.40% 2,612 51.40% $ 1,689
------- ------------ ------- ------------
Other ............ (a) (a) (a) (a)
------- ------------ ------- ------------
Total allowance .. 100.00% $ 4,654 100.00% $ 3,447
======= ============ ======= ============
</TABLE>
(a) Prior to 1996, the Company did not maintain records of individual balances
in these types of categories and therefore such amounts are reflected
herein only in the aggregate.
INVESTMENT ACTIVITIES
General. The Company maintains a portfolio of investments to provide
liquidity and an additional source of income.
Securities by Category. The following table sets forth the amount of
securities by major categories held by the Company at December 31, 1998, 1997
and 1996.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Securities Held to Maturity:
Obligations of states and political subdivisions $ 3,620 $ 7,627 $ 9,456
------- ------- -------
Total ....................................... $ 3,620 $ 7,627 $ 9,456
======= ======= =======
Securities Available for Sale:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies ........ $22,420 $30,284 $39,337
Obligations of states and political subdivisions 1,113 1,153 1,329
Corporate and other securities ................. 3,194 2,415 2,259
------- ------- -------
Total ....................................... $26,727 $33,852 $42,925
======= ======= =======
</TABLE>
For information regarding the amortized cost of securities at December 31,
1998, 1997 and 1996, see Note 3 of Notes to Consolidated Financial Statements.
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<PAGE> 9
Maturity Distributions of Securities. The following table sets forth the
distributions of maturities of securities at amortized cost as of December 31,
1998.
<TABLE>
<CAPTION>
Due in One Due After One Year Due After Five Years
Year or Less through Five Years through Ten Years
------------ ------------------ -------------------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. treasury securities - available for sale $ 1,799 $ -- $ --
Federal agency obligations - available for
sale ..................................... 1,732 1,347 5,816
Obligations of state and political
subdivisions - available for sale ........ 450 644 --
Obligations of state and political
subdivisions -- held to maturity ......... 395 2,825 --
Other securities -- available for sale ...... 3,194
------- ------- -------
Total ................................ $ 7,570 $ 4,816 $ 5,816
Market value adjustment on available for
sale securities .......................... $ 11 $ 31 $ 45
------- ------- -------
Total ................................ $ 7,581 $ 4,847 $ 5,861
======= ======= =======
Weighted average yield (%)(a) ............... 6.36% 4.90% 5.50%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Due
After Ten Years Total
--------------- -----
(Dollars in thousands)
<S> <C> <C>
U.S. treasury securities - available for sale $ -- $ 1,799
Federal agency obligations - available for
sale ..................................... 11,593 20,488
Obligations of state and political
subdivisions - available for sale ........ -- 1,094
Obligations of state and political
subdivisions -- held to maturity ......... 400 3,620
Other securities -- available for sale ...... $ 3,194
------- -------
Total ................................ $11,993 $30,195
Market value adjustment on available for
sale securities .......................... $ 65 $ 152
------- -------
Total ................................ $12,058 $30,347
======= =======
Weighted average yield (%)(a) ............... 5.46% 5.57%
==== ====
</TABLE>
(a) Yields on tax-exempt obligations have not been computed on a
tax-equivalent basis.
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 and
approximate market value of securities at December 31, 1998, 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 and 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's
policy permits the acceptance of limited amounts of brokered deposits, but no
such deposits had been obtained as of or during the year ended December 31,
1998.
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,
--------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ -----------------------
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 ....... $ 39,822 --% $ 33,540 --% $ 30,945 --%
Interest bearing demand
deposits .............. 107,647 2.45 103,288 2.61 105,386 2.23
Savings deposits ...... 53,128 2.28 46,801 2.65 45,491 2.61
Time deposits ......... 255,872 5.46 253,840 5.49 207,441 5.61
-------- -------- ----------
Total deposits ...... $456,469 $437,469 $ 389,263
======== ======== ==========
</TABLE>
8
<PAGE> 10
The following table indicates the amount of the Company's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1998.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposits
--------------------------------------- --------------
(In thousands)
<S> <C>
Three months or less.................. $15,190
Over three through six months......... 12,559
Over six through twelve months........ 12,888
Over twelve months.................... 11,385
-------
Total............................... $52,022
=======
</TABLE>
COMPETITION
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 data as of June 30, 1998 supplied by the FDIC, the Bank
ranked as the largest independent commercial bank in its market area, which
includes Greene, Hamblen, Washington, Blount and McMinn Counties and portions of
Cocke, Hawkins, Jefferson and Knox Counties. In Greene County, there are six
commercial banks and one savings bank, operating 23 branches and holding an
aggregate of approximately $696 million in deposits as of June 30, 1998.
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 federal banking agencies may 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, 1998, the Company employed 307 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 Bank. 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 Board of Governors of the Federal
Reserve Board (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
9
<PAGE> 11
obtain approval of the FRB prior to acquiring control of the Company or the
Bank. 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 Bank,
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 Bank.
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 Bank. 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 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 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. Further, if
the Bank's capital levels were to fall below minimum regulatory guidelines, the
Bank would need to develop a capital plan to increase its capital levels and the
Company would be required to guarantee the Bank's compliance with the 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 such as the Bank
could be liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with (i) the default of any other FDIC-insured
subsidiary also controlled by the Company or (ii) any assistance provided by the
FDIC to any FDIC-insured subsidiary of the Company in danger of default.
Transactions with Affiliates. The Federal Reserve Act imposes legal
restrictions on the quality and amount of credit that a bank holding company or
its non bank subsidiaries ("affiliates") may obtain from bank subsidiaries of
the holding company. For instance, these restrictions generally require that any
such extensions of credit by a bank to its affiliates be on nonpreferential
terms and be secured by designated amounts of specified collateral. Further, a
bank's ability to lend to its affiliates is limited to 10% per affiliate (20% in
the aggregate to all affiliates) of the bank's capital and surplus.
Bank Regulation. As a Tennessee banking institution, the Bank is subject
to regulation, supervision and regular examination by the Banking Department.
The deposits of the 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 Bank's
operations. Supervision, regulation and examination of the Company and the Bank
by the bank regulatory
10
<PAGE> 12
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. The Bank 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 1998
insurance assessment rates for BIF-insured banks such as the Bank from zero to
27 basis points.
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.
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, 1998, the Company
and the Bank satisfied the minimum required regulatory capital requirements. See
Note 14 of Notes to Consolidated Financial Statements.
The FDIC has issued final regulations that classify insured depository
institutions by capital levels and require the appropriate federal banking
regulator to take prompt action 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,
1998, the Bank was "well-capitalized" as defined by the regulations. See Note 14
of Notes to Consolidated Financial Statements for further information.
11
<PAGE> 13
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, 1998 Title
- ----------------------- -------------------------- ----------------------------------------------------
<S> <C> <C>
R. Stan Puckett 42 President and Chief Executive Officer
Davis Stroud 65 Executive Vice President and Secretary
William F. Richmond 49 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 the Bank 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
the Bank. Mr. Stroud joined the Bank in 1952 and became its Senior Vice
President and Cashier in 1973. He became Executive Vice President and
Secretary of the Company and the Bank in 1988 and has also served as a
director of the Company and the Bank since December 1989. Mr. Stroud is a
member of First Christian Church and Greeneville Masonic Lodge No. 3 F&AM,
and he has also served 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
the Bank. 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 the Bank. At December 31,
1998, the Company maintained a main office in Greeneville, Tennessee and 19 bank
branches (of which seven are in leased operating premises) and 15 separate
locations operated by the Bank's subsidiaries.
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, 1998, 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.
12
<PAGE> 14
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 1998 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" 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" in the
Company's Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate
Sensitivity" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements contained in the Company's 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 1999 Annual Meeting of
Shareholders (the "Proxy Statement") is incorporated herein by reference.
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.
13
<PAGE> 15
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, 1998 and
1997.
3. Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996.
4. Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1998, 1997 and
1996.
6. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996.
7. 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.
14
<PAGE> 16
(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) Amended and Restated Charter, effective June 18, 1998.
(ii) Amended and Restated Bylaws
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. 11. Statement re Computation of Per Share Earnings.
(Incorporated by reference of Note 19 of the Notes to
Consolidated Financial Statements).
Exhibit No. 13. Annual Report to Shareholders
Except for those portions of the Annual Report to
Shareholders for the year ended December 31, 1998, 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 PricewaterhouseCoopers LLP
Exhibit No. 27. Financial Data Schedule (SEC USE ONLY)
(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.
15
<PAGE> 17
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 29, 1999 By: /s/ R. Stan Puckett
---------------------------------
R. Stan Puckett
Director, President and
Chief Executive Officer
(Duly Authorized Representative)
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.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE: DATE:
<S> <C>
/s/ R. Stan Puckett March 29, 1999
- ------------------------------
R. Stan Puckett
Director, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ William F. Richmond March 29, 1999
- ------------------------------
William F. Richmond
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Terry Leonard March 29, 1999
- ------------------------------
Terry Leonard
Chairman of the Board
/s/ J.W. Douthat March 29, 1999
- ------------------------------
J.W. Douthat
Director
/s/ Phil M. Bachman, Jr. March 29, 1999
- ------------------------------
Phil M. Bachman, Jr.
Director
/s/ Ralph T. Brown March 29, 1999
- ------------------------------
Ralph T. Brown
Director
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
/s/ James A. Emory March 29, 1999
- ------------------------------
James A. Emory
Director
/s/ Jerald K. Jaynes March 29, 1999
- ------------------------------
Jerald K. Jaynes
Director
/s/ Charles S. Brooks March 29, 1999
- ------------------------------
Charles S. Brooks
Director
/s/ Davis Stroud March 29, 1999
- ------------------------------
Davis Stroud
Director
/s/ W.T. Daniels March 29, 1999
- ------------------------------
W.T. Daniels
Director
/s/ Harrison Lamons March 29, 1999
- ------------------------------
Harrison Lamons
Director
/s/ Helen Horner March 29, 1999
- ------------------------------
Helen Horner
Director
</TABLE>
<PAGE> 1
EXHIBIT 3(i)
AMENDED AND RESTATED CHARTER
OF
GREENE COUNTY BANCSHARES, INC.
1. The name of the Corporation is Greene County Bancshares, Inc.
2. The duration of the Corporation is perpetual.
3. The address of the principal office of the Corporation in the State of
Tennessee shall be 110 North Main Street, Greeneville, Greene County, Tennessee.
4. The Corporation is for profit.
5. The purposes for which the Corporation is organized are:
a) To carry on the business of a bank holding company, as defined in
the federal Bank Holding Company Act of 1956, as amended, and to do all
acts and things now and hereinafter permitted to be done by such a company
b) To acquire by purchase, subscription, or otherwise, and to
receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge, or otherwise dispose of or deal in and with any and all
securities, as such term is hereinafter defined, issued or created by any
corporation, firm, association or other entity, public or private, whether
formed under the laws of the United States of America or of any state,
commonwealth, territory, dependency or possession thereof, or of any
foreign country or of any political subdivision, territory, dependency,
possession or municipality thereof, or issued or created by the United
States of America or any state or commonwealth thereof or any foreign
country or by any agency, subdivision, territory, dependency, possession
or municipality of any of the foregoing, and as owner thereof to possess
and exercise all the rights, powers and privileges of ownership, including
the right to execute consents and vote thereon. The term "securities" as
used in this Charter shall mean any and all notes, stocks, treasury
stocks, bonds, debentures, evidences of indebtedness, certificates of
interest or participation in any profit-sharing agreement, collateral
trust certificates, preorganization certificates or subscriptions,
transferable shares, investment contracts, voting trust certificates,
certificates of deposit for a security or, in general, any interests or
instruments commonly known as "securities" or any and all certificates of
interest or participation in, temporary or interim certificates for,
receipts for, guaranties of, or warranties or rights to subscribe to or
purchase, any of the foregoing
c) To make, establish and maintain investments in securities, and to
supervise and manage such investments
<PAGE> 2
d) To cause to be organized under the laws of the United States of
America or of any state, commonwealth, territory, dependency or possession
thereof, or of any foreign country or of any political subdivision,
territory, dependency, possession or municipality thereof, one or more
corporations, firms, organizations, associations or other entities and to
cause the same to be dissolved, wound up, liquidated, merged or
consolidated
e) To acquire by purchase or exchange, or by transfer to, or by
merger or consolidation with, the Corporation or any corporation, firm,
organization, association, or other entity owned or controlled, directly
or indirectly, by the Corporation, or to otherwise acquire, the whole or
any part of the business, good will, rights, or other assets of any
corporation, firm, organization, association or other entity, to operate
and/or carry on the business of same, and to undertake or assume in
connection therewith the whole or any part of the liabilities and
obligations thereof, to effect any such acquisition in whole or in part by
delivery of cash or other property, including securities issued by the
Corporation, or by any other lawful means
f) To aid by loan, subsidy, guaranty or in any other lawful manner
any corporation, firm, organization, association or other entity of which
any securities are in any manner directly or indirectly held by the
Corporation or in which the Corporation or any such corporation, firm,
organization, association or entity may be or become otherwise interested,
to guarantee the payment of dividends of any stock issued by any such
corporation, firm, organization, association or entity, to guarantee with
or without recourse against any such corporation, firm or organization,
association or entity or to assume the payment of the principal of, or the
interest on, any obligations issued or incurred by such corporation, firm,
organization, association or entity, to do any and all other acts and
things for the enhancement, protection or preservation of any securities
which are in any manner, directly or indirectly held, guaranteed or
assumed by the Corporation, and to do any and all acts and things designed
to accomplish any such purpose
g) To borrow money for any business, object or purpose of the
Corporation from time to time, without limit as to amount, to issue any
kind of evidence of indebtedness, whether or not in connection with
borrowing money, including evidences of indebtedness convertible into
stock of the Corporation, to secure the payment of any evidence of
indebtedness by the creation of any interest in any of the property or
rights of the Corporation, whether at that time owned or thereafter
acquired
h) To render service, assistance, counsel and advice to, and to act
in any capacity as representative or agent (whether managing, operating,
financial, purchasing, selling, advertising or otherwise) of any
corporation, firm, organization, association, or other entity
i) To engage in any lawful business and in connection therewith to
do any lawful act in furtherance of or otherwise necessary or convenient
to such business
2
<PAGE> 3
The Corporation shall possess and may exercise all powers and
privileges necessary or convenient to effect any or all of the foregoing
purposes, or to further any or all of the foregoing powers, and the
enumeration herein of any specific purposes or powers shall not be held to
limit or restrict in any manner the exercise by the Corporation of the
general powers of the State of Tennessee conferred upon corporations
formed under the Tennessee General Corporation Act
6. The maximum number of shares which the Corporation shall have the
authority to issue is
a) One Hundred Thirty (130) shares of Organizational Common Stock
with a par value of Ten Dollars ($10.00) per share, which stock shall be
callable by the Corporation at any time at the par value thereof by action
of a majority of the Board of Directors
b) Five Million (5,000,000) shares of Common Stock, with a par value
of Ten Dollars ($10.00) per share.
6A. a) (1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered at any annual or special
meetings of shareholders may be made by the Board of Directors or by any
shareholder of the Corporation who was a shareholder of record both at the
time of giving of notice provided for in this Section and at the time of
the annual meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section.
(2) For nominations or other business to be properly brought
before an annual or special meeting by a shareholder pursuant to paragraph
(a) (1) of this Section, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for action by shareholders. To
be timely, a shareholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation no less than 40 days
nor more than 60 days prior to the scheduled date of such meeting in which
the matter is to be acted upon; except that if notice or public disclosure
of the meeting is effected fewer than 50 days before the meeting, such
written notice must be delivered to the Secretary of the Corporation not
later than the close of the 10th day following the day on which notice of
the meeting was mailed to shareholders. In no event shall notice or public
announcement of a postponement or adjournment of such meeting to a later
date or time commence a new time period for the giving of a shareholder's
notice as described above. Such shareholder's notice shall set forth (i)
as to each person whom the shareholder proposes to nominate for election
or reelection as a director all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material
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interest in such business of such shareholder and of the beneficial owner,
if any, on whose behalf the proposal is made; and (iii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (x) the name and address of
such shareholder, as they appear on the Corporation's books, and of such
beneficial owner and (y) the number of each class of shares of the
Corporation which are owned beneficially and of record by such shareholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a) (2) of this Section to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there
is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at
least 70 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice required by this Section shall also
be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the tenth day following the day on which
such public announcement is first made by the Corporation.
b)(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section. The presiding officer of
the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was
made in accordance with the procedures set forth this Section and, if any
proposed nomination or business is not in compliance with this Section, to
declare that such defective nomination or proposal be disregarded.
(2) For purposes of this Section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section. Nothing in this Section
shall be deemed to affect any rights of shareholders to request inclusion
of proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
7. The Corporation will not commence business until consideration of One
Thousand Dollars ($1,000.00) has been received for the issuance of shares
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7A. Number of Directors. The Board of Directors shall consist of not less
than three (3) or more than fifteen (15) members, unless all of the outstanding
stock of the Corporation is owned of record by less than three (3) shareholders,
in which case the number of directors may be less than three (3), but not less
than the number of shareholders of record. The exact number within such maximum
and minimum numbers shall be determined from time to time in accordance with the
relevant provisions of the Corporation's Bylaws.
7B. The directors shall be divided into three classes designated as Class
I, Class II and Class III, each class to be as nearly equal in number as
possible. The term of office of the Class I directors shall expire at the first
annual meeting of the shareholders after the date on which this provision of the
Charter first becomes effective. The term of office of the Class II directors
shall expire at the second annual meeting of shareholders after the date on
which this provision of the Charter first becomes effective. The term of office
of the Class III directors shall expire at the end of the third annual meeting
after this provision of the Charter first becomes effective. Thereafter, at each
annual meeting of shareholders of the Corporation, directors of classes the
terms of which expire at such annual meeting shall be elected for terms of three
years. Notwithstanding any of the foregoing, a director whose term shall expire
at any annual meeting shall continue to serve until his or her successor is
elected and has qualified or until the director's death, retirement, resignation
or removal. Should a vacancy occur or be created, any director elected or
appointed to fill such vacancy shall serve for the full term of the class in
which the vacancy occurs or is created. If the number of directors is changed,
any increase or decrease in the number of directors shall be apportioned among
the classes so as to maintain the number of directors in each class as nearly
equal in number as possible.
8. a) The Board of Directors may take, on written consent without a
meeting, any action which it could take by means of a regularly called and held
meeting, provided that such written consent sets forth the action so taken and
is signed by all of the Directors
b) The Board of Directors shall have the power by majority vote of
the Directors present at a meeting at which a quorum is present to adopt,
amend, or repeal any of the By-Laws of the Corporation, but any By-Law
adopted by the Board may be amended or repealed by affirmative vote of the
holders of a majority of all outstanding shares entitled to vote thereon
c) The Corporation from time to time may provide either directly, or
indirectly through the purchase of insurance, for the indemnification of
directors, officers, employees and agents of the Corporation and of any of
its subsidiaries to the fullest extent permitted by law
d) The shareholders of the Corporation shall not have preemptive
rights
e) The Board of Directors shall have authority to issue bonds,
debentures, notes or other obligations of this Corporation and to fix all
the terms thereof, including without limitation the convertibility or
nonconvertibility thereof
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f) Any part of the authorized capital stock and any bonds,
debentures, notes or other obligations of the Corporation may at any
time, to the extent permitted by law, be issued, optioned or
reserved for sale, sold or disposed of by the Corporation pursuant
to appropriate action by the Board of Directors, to such parties and
upon such terms as the Board shall deem proper
g) The Corporation shall have the right to purchase its own shares
and to pay dividends and make distributions of property to the extent of
unreserved and unrestricted earned or capital surplus available therefor
h) There shall be no cumulative voting by shareholders of any class
or series in the election of directors of the Corporation
i) Special meetings of shareholders may be called at any time, but
only by the board of directors or a committee of the board of directors
that has been duly designated by the board of directors
j) "Control share acquisitions," as defined in Section 48-35-302 of
the Tennessee Code, respecting the shares of the Corporation shall be
governed by and subject to the provisions of the Tennessee Control Share
Acquisition Act, and Sections 48-35-308 and 49-35-309 of the Tennessee
Control Share Acquisition Act shall apply to the Corporation.
9. a) VOTING REQUIREMENT. In addition to any affirmative vote required by
law or any other Section of this Charter, and except as otherwise expressly
provided in Subsection b of this Section 9, any Business Combination (as defined
herein) shall require an affirmative vote of (i) eighty percent (80%) of the
votes entitled to be cast by all holders of Voting Stock (as defined herein)
voting together as a single class at a meeting of shareholders called for such
purpose and in addition thereto, (ii) a majority of the votes entitled to be
cast by all holders of Voting Stock, other than shares of Voting Stock which are
Beneficially Owned (as defined herein) by the Interested Shareholder (as defined
herein), voting together as a single class at a meeting of shareholders called
for such purpose. Such affirmative vote shall be required notwithstanding the
fact that a vote would not otherwise be required, or that a lesser percentage
may be specified by law or in any agreement with any national securities
exchange or otherwise
b) WHEN VOTING REQUIREMENT NOT APPLICABLE. The provisions of
Subsection a of this Section 9 shall not be applicable to any Business
Combination which shall have been approved by a majority of the
Disinterested Directors (as defined herein) or as to which all of the
conditions specified in Subsections b(1), b(2) and b(3) shall have been
met
(1) Fair Prices. The aggregate amount per share of the cash and
the Fair Market Value (as defined herein), as of the Announcement Date (as
defined herein), of the consideration other than cash to be received in
such Business Combination by holders of shares of the respective classes
and series of outstanding capital stock of the Corporation shall be at
least equal to the highest of the following:
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<PAGE> 7
(a) if applicable, the highest per share price (adjusted
for any subsequent stock dividends, splits, combinations,
recapitalization, reclassifications or other such reorganizations)
paid to acquire any shares of such respective classes and series
Beneficially Owned (as defined herein) by the Interested Shareholder
during the Pre-announcement Period (as defined herein).
(b) The highest per share price (adjusted for any
subsequent stock dividends, splits, combinations, recapitalizations,
reclassifications or other such reorganizations) paid to acquire any
shares of such respective classes and series Beneficially Owned by
the Interested Shareholder in the transaction in which the
Interested Shareholder became an Interested Shareholder.
(c) The Fair Market Value per share of such respective
classes and series on the Announcement Date (as defined herein).
(d) The Fair Market Value per share of such respective
classes and series on the Determination Date (as defined herein).
(e) The amount per share of any preferential payment to
which shares of such respective classes and series are entitled in
the event of a liquidation, dissolution or winding up of the
Corporation.
(2) Form of Consideration. The consideration to be received by
holders of each particular class and series of outstanding capital stock
of the Corporation in a Business Combination shall be (i) cash or (ii) if
the majority of the shares of any particular class or series of the
capital stock of the Corporation Beneficially Owned by the Interested
Shareholder shall have been acquired for a consideration in a form other
than cash, the same form of consideration used to acquire the largest
number of shares of such class or series previously acquired and
Beneficially Owned by the Interested Shareholder
(3) Other Requirements. After such Interested Shareholder has
become an Interested Shareholder and prior to the consummation of such
Business Combination, except as approved by a majority of the
Disinterested Directors, there shall have been
(a) No failure to declare and pay in full, when and as
due, any dividends on any class or series of Preferred Stock (as
defined herein) (whether cumulative or not), except on any class or
series of Preferred Stock as to which dividends were in arrears on
the Determination Date;
(b) No reduction in the periodic rate of dividends on
the Corporation's Common Stock below the dividends paid during the
dividend period of the Corporation ended immediately prior to the
Determination Date, except any reduction in dividends necessary to
fairly reflect any stock dividend, split, recapitalization,
reclassification or other such reorganization;
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(c) No failure to increase the periodic rate of any
dividends per share paid on the Corporation's Common Stock to fairly
reflect any stock combination, recapitalization, reclassification or
other such reorganization which has the effect of reducing the
number of outstanding shares of Common Stock;
(d) No increase in the number of shares of the capital
stock of the Corporation Beneficially Owned by the Interested
Shareholder, except (i) as a part of the transaction that resulted
in the Interested Shareholder becoming an Interested Shareholder or
(ii) to consummate the Business Combination in compliance with the
provisions of this Section 9;
(e) No loans, advances, guarantees, pledges or other
financial assistance or tax credits or other tax advantages provided
by the Corporation or its subsidiaries for the benefit, directly or
indirectly, of the Interested Shareholder, whether in anticipation
of or in connection with such Business Combination or otherwise;
(f) No material change in the Corporation's business or
capital structure or the business or capital structure of any
subsidiary of the Corporation effected, directly or indirectly, by
or for the benefit of the Interested Shareholder; and
(g) A proxy or information statement mailed at least
thirty (30) days prior to the completion of the Business Combination
to all the holders of Voting Stock (whether or not shareholder
approval of the Business Combination is required) which proxy or
information statement shall (i) describe the Business Combination,
(ii) include in a prominent place the recommendations, if any, of a
majority of the Disinterested Directors as to the advisability or
inadvisability of the Business Combination, (iii) if deemed
advisable by a majority of the Disinterested Directors, include an
opinion of a reputable investment banking firm or other expert as to
the fairness or unfairness of the terms of the Business Combination
from the point of view of the shareholders other than the Interested
Shareholder (such investment banking firm to be selected by a
majority of the Disinterested Directors and to be paid a reasonable
fee for their services by the Corporation upon receipt of such
opinion), and (iv) be responsive to the pertinent provisions of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, or any laws supplementing or superseding
such Act, rules and regulations, whether or not such proxy or
information statement is required by law to be furnished to any
holder of Voting Stock.
c) DEFINITIONS. As used in this Section 9
(1) "Business Combination" means any of the transactions
described below:
(a) Any merger or consolidation of the
Corporation or any Subsidiary (as defined herein) with (i)
any Interested Shareholder or (ii) any corporation (whether
or not itself an Interested
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Shareholder) which is, or after such merger or consolidation
would be, an Affiliate (as defined herein) of an Interested
Shareholder.
(b) Any sale, lease, exchange, mortgage,
pledge, transfer or other disposition, in one transaction or
a series of transactions, (i) to or with any Interested
Shareholder or any Affiliate of any Interested Shareholder
of any assets (including securities) of the Corporation or
any Subsidiary having an aggregate Fair Market Value of
$1,000,000 or more or (ii) to or with the Corporation or any
Subsidiary of any assets (including securities) of any
Interested Shareholder or any Affiliate of an Interested
Shareholder having an aggregate Fair Market Value of
$1,000,000 or more.
(c) The issuance or transfer by the
Corporation or any Subsidiary in one transaction or a series
of transactions, of any securities of the Corporation or any
Subsidiary to any Interested Shareholder or an Affiliate of
any Interested Shareholder in exchange for cash, securities
or other property, or a combination thereof, having an
aggregate Fair Market Value of $1,000,000 or more.
(d) The adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed
by or on behalf of an Interested Shareholder or any
Affiliate of any Interested Shareholder.
(e) Any reclassification of securities
(including any reverse stock split) or any recapitalization
or reorganization of the Corporation, or any merger or
consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Shareholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity securities of the Corporation or any
Subsidiary (including securities convertible into equity
securities) which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested
Shareholder.
(f) Any other transaction or series of
transactions that is similar in purpose or effect to those
referred to in (a) through (e) of this Subsection c(1).
(2) "Voting Stock" means the Common Stock and those classes of
Preferred Stock which would then be entitled to vote in the election of
directors.
(3) "Beneficially Owned," with respect to any securities, means
the right or power (directly or indirectly through any contract,
understanding or relationship) (i) to vote or direct the voting of such
securities, (ii) to dispose or direct the disposition of such securities,
or (iii) to acquire such voting or investment power, whether such right or
power is exercisable immediately or only after the passage of time.
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(4) "Interested Shareholder" means any Person (as defined herein)
or member of a Group of Persons (as defined herein) who or which, together
with any Affiliate or Associate (as defined herein) of such Person or
member, Beneficially Owns (within the meaning of Subsection c(3) above)
ten percent or more of the outstanding Voting Stock of the Corporation.
(5) "Person" means any individual, firm, corporation,
partnership, joint venture or other entity.
(6) "Group of Persons" means any two or more Persons who or which
are acting or have agreed to act together for the purpose of acquiring,
holding, voting or disposing of any Voting Stock of the Corporation.
(7) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is not an Interested Shareholder or an
Affiliate or Associate of an Interested Shareholder and who (i) was a
member of the Board of Directors prior to the time the Interested
Shareholder became an Interested Shareholder or (ii) was elected or
recommended to succeed a Disinterested Director by a majority of the
Disinterested Directors then on the Board of Directors.
(8) "Fair Market Value" means (i) in the case of stock, the
highest sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the NASDAQ National Market System,
or if such stock is listed on an exchange registered under the Securities
Exchange Act of 1934, on the principal exchange on which such stock is
listed, or if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by a majority
of the Disinterested Directors in good faith, and (ii) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by a majority of the Disinterested
Directors in good faith.
(9) "Pre-announcement Period" means the two-year period ending at
11:59 P.M., Greeneville time, on the Announcement Date.
(10) "Announcement Date" means the date of the first public
announcement of the proposal of the Business Combination.
(11) "Determination Date" means the date on which the Interested
Shareholder becomes an Interested Shareholder.
(12) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation.
(13) "Affiliate," used to indicate a relationship with a
specified Person, means another Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, such specified Person.
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(14) "Associate," used to indicate a relationship with a
specified Person, means (i) any corporation or other similar organization
(other than the Corporation or a Subsidiary) of which such specified
Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities,
(ii) any trust or estate in which such specified Person has a substantial
beneficial interest or as to which such specified person serves as trustee
or in a similar fiduciary capacity, (iii) any relative or spouse of such
specified Person, or any relative of such spouse who has the same home as
such person and (iv) any other Person or Affiliate of a Person who
directly or indirectly has received more than $50,000 for services or
property from the specified Person or from an Affiliate of the specified
Person during any year of the preceding five calendar years or who can
reasonably be expected to receive more than such amount in the current
calendar year under any existing agreement or agreements or understandings
with such specified Person or an Affiliate of such specified Person.
(15) "Preferred Stock" means all classes or series of the
Corporation's capital stock other than Common Stock.
d) POWER OF DISINTERESTED DIRECTORS. A majority of the Disinterested
Directors of the Corporation shall have the power and duty to determine,
on the basis of information known to them after reasonable inquiry, all
facts necessary to determine compliance with this Section 9, including
without limitation (i) whether a Person is an Interested Shareholder, (ii)
the number of shares of Voting Stock beneficially owned by any Person,
(iii) whether a Person is an Affiliate or Associate of another, (iv)
whether the requirements of Section b have been met with respect to any
Business Combination, and (v) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in
any Business Combination has, an aggregate Fair Market Value of $1,000,000
or more. The good faith determination of a majority of the Disinterested
Directors on such matters shall be conclusive and binding for all purposes
of this Section 9
e) NO EFFECT ON PREFERENTIAL RIGHTS. The provisions of this Section
9 shall not affect in any way the amount or form of consideration that any
holder of shares of the Corporation's capital stock is entitled to receive
upon the liquidation or dissolution of the Corporation or any other
preferential rights of the holders of such shares
f) NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.
Nothing contained in this Section 9 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law
g) AMENDMENT OR REPEAL. In addition to any affirmative vote required
by law, an affirmative vote at least equal to the vote of eighty percent
(80%) of the votes entitled to be cast by all holders of Voting Stock
voting together as a single class, and in addition thereto (ii) a majority
of the votes entitled to be cast by all holders of Voting Stock, other
than shares of Voting Stock which are Beneficially Owned by an Interested
Shareholder, voting together as a single class, shall be required to amend
or repeal, or adopt any charter provisions inconsistent with, this Section
9. Such affirmative vote shall
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be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified by law or in any agreement with
any national securities exchange or otherwise
10. Indemnification
a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by
Tennessee law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) seasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators, provided, however, that, except as
provided in Section b hereof with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
The right to indemnification conferred in this Article shall be a contract
right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expense"), provided, however,
that if the Tennessee law requires, an advancement of expense incurred by
an indemnitee in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall
be made only upon the following:
(i) delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a
"final adjudication"), that such indemnitee is not entitled
to be indemnified for such expenses under this Section or
otherwise
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(ii) delivery to the Corporation by the indemnitee
of a written affirmation by the indemnitee of his good faith
belief that he has (a) conducted himself in good faith, and
(b) he reasonably believed in the case of his official
capacity with the Corporation, that his conduct was in its
best interest, (c) he reasonably believed in all other
cases, that his conduct was at least not opposed to its best
interest and (d) in the case of any criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful
(iii) a determination is made on the facts then
known to those making the determination would not preclude
indemnification under Tennessee law
b) Rights of Indemnitee to Bring Suit
If a claim under Section a of this Article is not paid in full
by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending
such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by
indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any such suit by the
Corporation to recover such expenses upon a final adjudication that,
the indemnitee has not met the applicable standard of conduct set
forth in the Tennessee law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
shareholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard
of conduct set forth in the Tennessee law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the indemnitee
has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In
any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by
the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of providing that the
indemnitee is not entitled to be indemnified, or to such advancement
of expenses, under this Article or otherwise shall be on the
Corporation.
c) Non-Exclusivity of Rights
The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any
other right which any person
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may have or hereafter acquire under any statute, the Corporation's
Amended and Restated Charter, by-law, agreement, vote of
Shareholders or Disinterested Directors or otherwise.
d) Indemnification of Employees and Agents of the Corporation
The corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and
to the advancement of expenses to any employee or agent of the
Corporation to the fullest extent of the provisions of this Section
with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
11. Elimination of Liability in Certain Circumstances
A director of this corporation shall not be personally liable
to the Corporation or its Shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or
its Shareholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law;
(iii) or under TCA 48-18-304. No provision will eliminate or limit
the liability of a director for any act or omission occurring prior
to the date when such provisions become effective.
ATTEST
- ---------------------
Davis Stroud
Corporate Secretary
Dated:
This restated charter was duly adopted by Davis Stroud on June 8, 1998.
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EXHIBIT 3(ii)
AMENDED AND RESTATED
BYLAWS
OF
GREENE COUNTY BANCSHARES, INC.
OFFICE
1. Principal Office
The principal office of the Corporation shall be in Greeneville,
Tennessee, and the Corporation shall have such other offices at such other
places within or without the State of Tennessee as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
SHAREHOLDERS' MEETINGS
2. Annual Meeting
An annual meeting of the shareholders of the Corporation shall be held on
such date as may be determined by the Board of Directors. The business to
be transacted at such meeting shall be the election of directors and such
other business as shall be properly brought before the meeting. If the
election of directors shall not be held on the day designated by the Board
of Directors for any annual meeting, or at any adjournment of such
meeting, the Board of Directors shall call a special meeting of the
shareholders as soon as conveniently possible thereafter. At such special
meeting the election of directors shall take place and such election and
any other business transacted thereat shall have the same force and effect
as if transacted at an annual meeting duly called and held.
3. Special Meetings
Special meetings of the shareholders may only be called by the Board of
Directors or a committee duly designated by the Board of Directors.
<PAGE> 2
4. Place of Meetings
Annual and special meetings of the shareholders shall be held at the
Corporation's principal office or at such other place within or without
the State of Tennessee as may be designated by the Board of Directors.
5. Notice of Meetings; Waiver
(a) Annual Meetings. Written or printed notice stating the place, day and
hour of the annual meeting of shareholders shall be given in person or by
mail to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be delivered not less than ten (10) days nor
more than two (2) months before the meeting. Mailed notice shall be deemed
to be delivered when deposited, with postage prepaid, in the United States
mail addressed to the shareholder at his address as it appears on the
records of the Corporation at the close of business on the record date
established for such meeting. If delivered personally, such notice shall
be delivered not less than ten (10) days nor more than two (2) months
before the date of the meeting and shall be deemed delivered when actually
received by the shareholder.
(b) Special Meetings. Written or printed notice of every special meeting
of shareholders shall be given in person or by mail to each shareholder of
record entitled to vote at such meeting. Such notice shall state the
place, day, hour, purpose or purposes for which the meeting is called, and
the person or persons calling the meeting. If mailed, such notice shall be
delivered not less than ten (10) days nor more than two (2) months before
the meeting. Mailed notice shall be deemed to be delivered when deposited,
with postage prepaid, in the United States mail addressed to the
shareholder at his address as it appears on the records of the Corporation
at the close of business on the record date
2
<PAGE> 3
established for such meeting. If delivered personally, such notice shall
be delivered not less than ten (10) days nor more than two (2) months
before the date of the meeting and shall be deemed delivered when actually
received by the shareholder. (c) Waiver. A shareholder may waive the
notice of either an annual or a special meeting by the submission by the
shareholder or his proxy holder of a written waiver of notice either
before or after such meeting.
6. Quorum
Except as otherwise required by law or provided in these Bylaws, a quorum
at any meeting of shareholders shall consist of the holders of record of a
majority of the shares issued and outstanding and entitled to vote
thereat, present in person or by proxy. If, however, such majority shall
not be present or represented at any meeting of the shareholders, the
shareholders present in person or by proxy and entitled to vote thereat
shall have power to adjourn the meeting from time to time, and to any
other place, without notice other than announcement at the meeting of the
time and place to which the meeting is adjourned. At any adjourned meeting
at which the requisite amount of voting stock to constitute a quorum shall
be represented, any business may be transacted which might have been
transacted at the meeting as originally called.
7. Record Date
The record date for the determination of shareholders entitled to notice
of and entitled to vote at any meeting of shareholders or any adjournment
thereof, shall be such date as shall be determined by the Board of
Directors, but which in any event shall not be less than ten (10) days
prior to the date of such meeting. If the Board of Directors does not fix
such record date, the record date for the determination of shareholders
entitled to
3
<PAGE> 4
notice of and entitled to vote at any meeting of shareholders or at any
adjournment thereof shall be the close of business on the day next
preceding the day on which notice is given.
8. Voting of Shares
Unless otherwise provided in the Charter, each shareholder of the
Corporation shall be entitled, at each meeting of the shareholders and
upon each proposal presented at such meeting, to one vote for each share
of the capital stock having voting power registered in his name on the
books of the Corporation on the record date. Each shareholder having the
right to vote shall be entitled to vote in person or by proxy appointed by
an instrument in writing executed by such shareholder or his duly
authorized attorney-in-fact and bearing a date not more than eleven (11)
months prior to said meeting, unless said instrument provides for a longer
period. Unless the Charter, these Bylaws or applicable law specifically
provide otherwise, the affirmative vote of a majority of shares
represented and entitled to vote at a meeting at which a quorum is present
shall be the act of the shareholders, except that directors shall be
elected by a plurality of the votes cast in the election. At each election
of directors, every shareholder shall have the right to vote the number of
shares which he is entitled to vote at such meeting for as many persons as
there are directors to be elected at said meeting, but cumulative voting
for such nominees shall not be permitted unless the Charter otherwise
provides.
9. Presiding Officer
Meetings of the shareholders shall be presided over by the President, or
if he is not present, by the Chairman, or if he is not present, by a Vice
President, or if neither the Chairman, President nor a Vice President is
present, by a chairman to be chosen by a
4
<PAGE> 5
majority of the shareholders entitled to vote at such meeting. The
Secretary of the Corporation or, in his absence, an Assistant Secretary
shall act as secretary of every meeting, but if neither the Secretary nor
an Assistant Secretary is present, the shareholders entitled to vote at
such meeting shall choose any person present to act as secretary of the
meeting.
DIRECTORS
10. Powers and Duties
The business and affairs of the Corporation shall be managed by the Board
of Directors. In addition to the powers and authority expressly conferred
upon them by these Bylaws, the Board may exercise all the powers of the
Corporation and do all lawful acts and things as are not by applicable
law, by the Charter of the Corporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
11. Number, Classification, Term, Qualification, and Vacancies
(a) Number, Classification and Term. The Board of Directors shall
consist of 12 members. The Board of Directors shall be divided into
three classes equal in number. The members of each class shall be
elected for a term of three (3) years and until their successors are
elected and qualified, except during an interim arrangement immediately
following adoption of the provisions in the Corporation's Charter
regarding the Classified Board. One (1) class shall be elected by
ballot annually. The Board of Directors may increase or decrease the
number of directors, but in no event shall such number be increased or
decreased beyond the range established in the Corporation's Charter.
(b) Vacancies. In case there are vacancies on the Board of Directors,
other than vacancies created by the removal of a director or directors
(which shall be governed by
5
<PAGE> 6
paragraph 15(c)) and other than vacancies created by an increase in the
number of directors, the remaining directors may by a majority vote of the
directors then in office elect a successor or successors who shall hold
office until his or their successors are elected and qualified.
(c) Qualification. Directors must be of legal age but need not be
shareholders of the Corporation.
(d) Retirement of Directors. No person 70 years of age or older
shall be eligible for election, re-election, appointment or
re-appointment as a director of the Company. No director shall serve
beyond the annual meeting of the Company immediately following the
director becoming 70 years old, and such director shall thereafter be a
retired director of the Company. The Board of Directors, at its
discretion, may name retired directors to the classification of
Director Emeritus, who may attend meetings but will not have any vote
or any liability for serving.
12. Quorum
A majority of the total number of directors in office shall constitute a
quorum for the transaction of business. If, at any meeting of the Board of
Directors, there shall be less than a quorum present, a majority of those
present may adjourn the meeting, without further notice, from time to time
until a quorum shall have been obtained.
13. Manner of Acting
The act of a majority of the directors present at a meeting at which a
quorum is present shall, unless otherwise provided by applicable law or
these Bylaws, be the act of the Board of Directors. Any action required or
permitted to be taken at a meeting of directors may be taken without a
meeting if a consent in writing, setting forth the action
6
<PAGE> 7
so taken, is signed by all the directors. Such written consent shall have
the same force and effect as a unanimous vote at a meeting of the Board of
Directors.
14. Meetings; Notice
Meetings of the Board of Directors may be held either within or without
the State of Tennessee. Notice of a meeting of the Board of Directors need
not state the purpose of, nor the business to be transacted at, such
meeting.
(a) Regular Meetings. Regular meetings of the Board of Directors shall be
held at such times as are fixed from time to time by resolution of the
Board, and may be held without notice of the time or place therefor.
(b) Special Meetings. Special meetings may be held at any time upon call
of the Chairman, the President, a Vice President or any two (2) directors.
Notice of the time and place of each special meeting shall be given to
each director at either his business or residence address, as shown by the
records of the Corporation, at least forty-eight (48) hours prior thereto
if mailed and on the day prior thereto if delivered or given in person or
by telephone or telegraph. If mailed, such notice shall be deemed to be
delivered when deposited, so addressed and with postage prepaid, in the
United States mail. If notice is given by telegram, such notice shall be
deemed to be delivered when the telegram, so addressed, is delivered to
the telegraph company. If notice is given in person, such notice shall be
deemed to have been given when it is hand delivered to the director at his
business or residence address. Any director may waive notice of any
meeting before, at or after such meeting and the attendance of a director
at a meeting shall constitute a waiver of notice of such meeting except
when a director attends for the sole, express purpose of objecting to the
transaction of business thereat, on the ground that the meeting
7
<PAGE> 8
is not lawfully called or convened, and so states in writing prior to the
conduct of any business at the meeting.
15. Removal
(a) By Shareholders. Unless the Charter otherwise provides, at any meeting
of the shareholders, the entire Board of Directors or any number of
directors may be removed from office, with or without cause, by a majority
vote of the shares represented and entitled to vote thereat.
(b) By Directors. At any meeting of the Board of Directors, any director
or directors may be removed from office for cause, as that term is defined
by applicable law, by a majority of the entire Board of Directors.
(c) Replacement. When any director or directors are removed, new directors
may be elected to fill the vacancies created thereby at the same meeting
of the shareholders or Board of Directors, as the case may be, for the
unexpired term of the director or directors removed. If the shareholders
fail to elect persons to fill the unexpired term or terms of the director
or directors removed by them, such unexpired terms shall be considered
vacancies on the Board to be filled by the remaining directors as provided
in paragraph 11(b).
16. Compensation
Directors, and members of any committee of the Board of Directors, shall
be entitled to such reasonable compensation for their services as
directors and members of any such committee as shall be fixed from time to
time by resolution of the Board of Directors, and shall also be entitled
to reimbursement for any reasonable expenses incurred in attending such
meetings. Any director receiving compensation under these provisions shall
not be
8
<PAGE> 9
barred from serving the Corporation in any other capacity and receiving
reasonable compensation for such other services.
COMMITTEES
17. Executive Committee
There may be, if so determined by a resolution adopted by a majority of
the entire Board of Directors, an Executive Committee of the Board
consisting of two (2) or more directors. The Board of Directors may
delegate to such Executive Committee all the power and authority of the
Board that it deems desirable, except for any matters which cannot by law
be delegated by the Board of Directors. Unless specifically authorized by
the Board, the Executive Committee shall not have the power to adopt,
amend or repeal these Bylaws, to submit to shareholders any matter that by
law requires their authorization, to fill vacancies in the Board of
Directors or in any committee or to declare dividends or make other
corporate distributions.
18. Other Committees
The Board of Directors may create such other committees as it may
determine to be helpful in discharging its responsibilities for the
management and administration of the Corporation. Each such committee
shall consist of such persons, whether directors, officers or others, as
may be elected thereto by the Board of Directors, and each committee shall
perform such functions as may be lawfully assigned to it by the Board of
Directors.
9
<PAGE> 10
OFFICERS
19. Number
The officers of the Corporation shall be a Chairman, a President, a
Secretary and such other officers as may be from time to time elected by
the Board of Directors. One person may hold more than one office except
the President may not hold the office of Secretary.
20. Election and Term of Office
The principal officers shall be elected annually by the Board of Directors
at the first meeting of the Board following the shareholders' annual
meeting, or as soon thereafter as is conveniently possible. Subordinate
officers may be elected from time to time. Each officer shall serve at the
pleasure of the Board for such term as the Board of Directors may set and
until his successor shall have been elected and qualified, or until his
death, resignation or removal.
21. Removal
Any officer may be removed from office by the Board of Directors whenever
in its judgment the best interests of the Corporation will be served
thereby, but such removal shall not prejudice the contract rights, if any,
of the persons so removed.
22. Vacancies
Any vacancy in an office from any cause may be filled for the unexpired
portion of the term by the Board of Directors.
23. Duties
(a) Chairman. The Chairman shall have such duties as the Board of
Directors may designate from time to time and shall see that all orders
and resolutions of the Board of Directors are carried into effect.
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<PAGE> 11
(b) President. The President shall be the Chief Executive Officer of the
Corporation and shall have general supervision over the active management
of the business of the Corporation. He shall have the general powers and
duties of supervision and management usually vested in the office of the
President of a corporation and shall perform such other duties as the
Board of Directors may from time to time prescribe.
(c) Vice President. The Executive Vice President and the Senior Vice
President/Chief Financial Officer (if any) shall be active executive
officers of the Corporation, shall assist the President in the active
management of the business, and shall perform such other duties as the
Board of Directors may from time to time prescribe.
(d) Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; he
shall perform like duties for any committee when required. The Secretary
shall give, or cause to be given, notice of all meetings of the
shareholders and of the Board of Directors when required, and unless
directed otherwise by the Board of Directors, shall keep a stock record
containing the names of all persons who are shareholders of the
Corporation, showing their place of residence and the number of shares
held by them respectively. The Secretary shall perform such other duties
as may be prescribed from time to time by the Board of Directors.
(e) Other Officers. Other officers appointed by the Board of Directors
shall exercise such powers and perform such duties as may be delegated to
them by the Board of Directors.
(f) Delegation of Duties. In case of the absence or disability of any
officer of the Corporation or of any person authorized to act in his
place, the Board of Directors may
11
<PAGE> 12
from time to time delegate the powers and duties of such officer to any
officer, or any director, or any other person whom it may select, during
such period of absence or disability.
24. Indemnification of Officers and Directors
The Corporation shall indemnify each present and future director and
officer of the Corporation, or any person who may have served at its
request as a director or officer of another company (and, in either case,
his heirs, executors and administrators) to the full extent allowed by the
laws of the State of Tennessee, both as now in effect and as hereafter
adopted.
CERTIFICATES FOR SHARES OF STOCK
25. Form
(a) Stock Certificates. The interest of each shareholder of the
Corporation shall be evidenced by a certificate or certificates for shares
of stock. The certificate shall include the following on its face: (i) the
Corporation's name, (ii) the fact that the Corporation is organized under
the laws of the State of Tennessee, (iii) the name of the owner of record
of the shares represented thereby, (iv) the number of shares represented
thereby, (v) the class of shares and the designation of the series, if
any, which the certificate represents, (vi) the par value of each share or
a statement that the shares are without par value, and (vii) such other
information as applicable law may require or as may be lawful.
(b) Signatures. The certificates for stock shall be signed by the
President and by the Secretary. Where any certificate is manually
countersigned by a transfer agent or registered by a registrar who is not
an officer or employee of the Corporation, the signatures of the President
and the Secretary may be facsimiles, engraved or printed. In
12
<PAGE> 13
case any officer who has signed, or whose facsimile signature has been
placed upon, any certificate shall have ceased to be such before the
certificate is issued, it may be issued by the Corporation with the same
effect as if such officer had not ceased to be such at the time of its
issue.
26. Subscriptions for Shares
Subscriptions for shares of the Corporation shall be valid only if they
are in writing, signed and delivered by the subscriber. Unless the
subscription agreement provides otherwise, subscriptions for shares,
regardless of the time when they are made, shall be paid in full at such
time, or in such installments and at such periods, as shall be determined
by the Board of Directors. All calls for payments on subscriptions shall
be uniform as to all shares of the same class or of the same series.
27. Transfers
Transfers of shares of the capital stock of the Corporation shall be made
only on the books of the Corporation by (i) the holder of record thereof,
(ii) by his legal representative, who shall furnish proper evidence of
authority to transfer, or (iii) his attorney, authorized by a power of
attorney duly executed and filed with the Secretary of the Corporation or
a duly appointed transfer agent. Such transfers shall be made only upon
surrender of the certificate or certificates for such shares properly
endorsed and with all taxes thereon paid.
28. Lost, Destroyed, or Stolen Certificates
No certificate for shares of stock of the Corporation shall be issued in
place of any certificate alleged to have been lost, destroyed, or stolen
except on production of evidence, satisfactory to the Board of Directors,
of such loss, destruction or theft, and, if
13
<PAGE> 14
the Board of Directors so requires, upon the furnishing of an indemnity
bond in such amount (but not to exceed twice the value of the shares
represented by the certificate) and with such terms and such surety as the
Board of Directors may in its discretion require.
CORPORATE ACTIONS
29. Contracts
Unless otherwise required by the Board of Directors, the Chairman, the
President or any Vice President shall execute contracts or other
instruments on behalf of and in the name of the Corporation. The Board of
Directors may from time to time authorize any other officer or officers or
agent or agents to enter into any contract or execute any instrument in
the name of and on behalf of the Corporation as it may deem appropriate,
and such authority may be general or confined to specific instances.
30. Loans
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in its name unless authorized by the Board
of Directors. Such authority may be general or confined to specific
instances.
31. Checks, Drafts, etc.
Unless otherwise required by the Board of Directors, all checks, drafts,
bills of exchange and other negotiable instruments of the Corporation
shall be signed by either the Chairman, the President, the Executive Vice
President/Secretary or the Senior Vice President/Chief Financial Officer,
in each case to the extent authorized to do so by the Board of Directors.
Such authority may be general or confined to specific business, and, if so
directed by the Board, the signatures of two or more such officers may be
required.
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<PAGE> 15
32. Deposits
All funds of the Company not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks or other
depositories as the Board of Directors may authorize.
33. Voting Securities Held by the Corporation
Unless otherwise required by the Board of Directors, the Chairman or the
President shall have full power and authority on behalf of the Corporation
to attend any meeting of security holders, or to take action on written
consent as a security holder, of other corporations in which the
Corporation may hold securities. In connection therewith the Chairman or
the President shall possess and may exercise any and all rights and powers
incident to the ownership of such securities which the Corporation
possesses. The Board of Directors may, from time to time, confer like
powers upon any other person or persons.
34. Dividends
The Board of Directors may, from time to time, declare, and the
Corporation may pay, dividends on its outstanding shares of capital stock
in the manner and upon the terms and conditions provided by applicable
law. The record date for the determination of shareholders entitled to
receive the payment of any dividend shall be determined by the Board of
Directors, but which in any event shall not be less than ten (10) days
prior to the date of such payment.
FISCAL YEAR
35. The fiscal year of the Corporation shall be determined by the Board of
Directors, and in the absence of such determination, shall be the calendar
year.
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<PAGE> 16
CORPORATE SEAL
36. The Corporation shall not have a corporate seal.
AMENDMENT OF BYLAWS
37. These Bylaws may be altered, amended or repealed, and new Bylaws may be
adopted at any meeting of the shareholders by the affirmative vote of a
majority of the stock represented at such meeting, or by the
affirmative vote of a majority of the members of the Board of Directors
who are present at any regular or special meeting; provided, however,
that any amendment to these Bylaws changing the number of directors, if
adopted by the Board of Directors, shall require the affirmative vote
of a majority of the members of the entire Board of Directors.
As adopted on February 23, 1999
------------ --
Attest
-----------------------
Davis Stroud, Secretary
16
<PAGE> 1
Greene County Bancshares, Inc.
1998 MD&A
EXHIBIT 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income................................. $ 50,792 $ 49,005 $ 39,521 $ 31,387 $ 23,625
Total interest expense................................ 18,572 19,144 15,825 13,444 8,497
------------- ------------ ------------ ------------ ----------
Net interest income................................... 32,220 29,861 23,696 17,943 15,128
Provision for loan losses............................. (3,417) (5,953) (2,973) (1,424) (994)
Net interest income after provision for loan losses... 28,803 23,908 20,723 16,519 14,134
Non-interest income:
Investment securities gains.......................... -- 2 -- 1 --
Other income......................................... 4,555 3,919 3,411 2,597 2,368
Non-interest expense.................................. (20,462) (17,009) (14,800) (11,257) (9,491)
-------------- ------------ ------------ ------------ ----------
Income before income taxes............................ 12,897 10,820 9,334 7,860 7,011
Income tax expense.................................... (4,690) (3,990) (3,371) (2,752) (2,510)
-------------- ------------ ------------ ------------ ----------
Net income............................................ $ 8,207 $ 6,830 $ 5,963 $ 5,108 $ 4,501
============= ============ ============ ============ ==========
PER SHARE DATA:(1)
Net income, basic.................................... $ 6.05 $ 5.04 $ 4.43 $ 3.83 $ 3.39
Net income, assuming dilution........................ $ 6.02 $ 5.03 $ 4.43 $ 3.82 $ 3.38
Dividends declared................................... $ 2.30 $ 1.92 $ 1.72 $ 1.53 $ 1.35
Book value........................................... $ 40.81 $ 37.00 $ 33.76 $ 30.94 $ 28.02
FINANCIAL CONDITION DATA:
Assets............................................... $ 568,179 $ 534,102 $ 478,048 $ 420,581 $ 45,525
Loans, net........................................... $ 466,661 $ 441,390 $ 381,272 $ 293,834 $ 241,253
Cash and investment securities....................... $ 49,939 $ 62,166 $ 73,713 $ 83,998 $ 85,460
Federal funds sold................................... $ 24,300 $ 5,500 $ -- $ 23,800 $ 3,550
Deposits............................................. $ 459,183 $ 461,728 $ 408,722 $ 365,951 $ 98,162
Long-term debt....................................... $ 36,627 $ 15,487 $ 15,806 $ 3,448 $ 3,688
Other borrowed funds................................. $ 2,416 $ 1,414 $ 3,272 $ 4,784 $ 3,879
Shareholders' equity................................. $ 55,386 $ 50,113 $ 45,725 $ 41,074 $ 37,190
SELECTED RATIOS:
Interest rate spread................................. 5.96% 5.70% 5.16% 4.57% 4.57%
Net yield on interest-earning assets................. 6.53% 6.21% 5.65% 5.09% 4.96%
Return on average assets............................. 1.56% 1.33% 1.32% 1.35% 1.38%
Return on average equity............................. 15.63% 13.93% 13.23% 13.17% 12.32%
Average equity to average assets..................... 9.97% 9.55% 9.94% 10.24% 11.17%
Dividend payout ratio................................ 37.99% 38.08% 39.05% 40.17% 39.96%
Ratio of nonperforming assets to total assets........ 1.15% 0.81% 0.49% 0.57% 0.40%
Ratio of allowance for loan losses to
nonperforming assets............................... 156.34% 210.15% 315.27% 225.05% 247.99%
Ratio of allowance for loan losses to total loans.... 2.11% 2.01% 1.87% 1.55% 1.39%
</TABLE>
(1) Amounts have been restated to reflect the effect of the Company's 3-for-1
stock split effected in October 1997.
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<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CHANGES
IN FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING INFORMATION
THE INFORMATION CONTAINED HEREIN CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. A NUMBER OF FACTORS, INCLUDING
THOSE DISCUSSED HEREIN, COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION, SUCH
FORWARD-LOOKING STATEMENTS ARE NECESSARILY DEPENDENT UPON ASSUMPTIONS, ESTIMATES
AND DATA THAT MAY BE INCORRECT OR IMPRECISE. ACCORDINGLY, ANY FORWARD-LOOKING
STATEMENTS INCLUDED HEREIN DO NOT PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR
CIRCUMSTANCES AND MAY NOT BE REALIZED. FORWARD-LOOKING STATEMENTS CAN BE
IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "INTENDS," "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," "SEEKS," "PRO
FORMA" OR "ANTICIPATES," OR THE NEGATIVES THEREOF, OR OTHER VARIATIONS THEREON
OF COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY OR INTENTIONS.
GENERAL
Greene County Bancshares, Inc. (the "Company") was formed in 1985 and
serves as the bank holding company for Greene County Bank ("GCB"), which is a
Tennessee-chartered commercial bank that conducts the principal business of the
Company. The Company also wholly owned American Fidelity Bank, whose assets were
combined with GCB during 1996, and Premier Bank of East Tennessee, whose assets
were combined with GCB in 1998. In addition to its commercial banking
operations, GCB conducts separate businesses through four wholly-owned
subsidiaries: Superior Financial Services, Inc. ("Superior Financial"), a
consumer finance company; Superior Mortgage Company ("Superior Mortgage"), a
mortgage banking company; GCB Acceptance Corporation ("GCB Acceptance"), a
consumer finance company specializing in subprime automobile lending; and
Fairway Title Co., a title company formed in 1998.
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,
mortgage installment loans and installment consumer 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 assets and other interest-earning assets 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.
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<PAGE> 3
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
Bank. Applicable Tennessee statutes and regulations impose restrictions on the
amount of dividends that may be declared by the Bank. Further, any dividend
payments are subject to the continuing ability of the Bank to maintain
compliance with minimum federal regulatory capital requirements and to retain
its characterization under federal regulations as a "well-capitalized"
institution. In addition, the Company maintains a line of credit of $20 million
with the Federal Home Loan Bank of Cincinnati and three federal funds lines of
credit totaling $20 million at three correspondent banks of which the aggregate
$35.2 million was available at December 31, 1998.
In 1998, operating activities of the Company provided $17,856,198 of cash
flows. Net income of $8,206,419 adjusted for non-cash operating activities,
including $3,417,010 in provision for loan losses and amortization and
depreciation of $993,523, provided the bulk of the cash generated from
operations.
Investing activities, including lending, used $40,377,603 of the
Company's cash flow, a 36.1% decline from 1997 levels. Loans originated net of
principal collected used $30,247,073 in funds, down from $66,708,497 in 1997 as
the Company's loan originations decreased in response to interest rate
conditions. In response, the Company implemented a more competitive commercial
loan rate structure in the fourth quarter of 1998 and also hired a senior
commercial lender from a regional bank who brought new and significant seasoned
lending relationships to the Bank and an experienced commercial lending staff.
Excess funds available because of reduced loan growth as compared to 1997 is
reflected in the increase in federal funds sold of $18,800,000 during 1998 as
compared to $5,500,000 during 1997. These uses of funds were funded in part by
cash received from other investing activities, including $8,770,371 from
proceeds from maturities of available-for-sale securities and $4,065,000 from
proceeds from maturities of securities held to maturity.
Net additional cash inflows of $21,425,852 were provided by financing
activities, a decrease of $28,136,918 from 1997 levels. The decline was
attributable primarily to the $66,379,215 decline in growth of certificates of
deposit during 1998, offset in part by the net increase in growth of $9,496,288
in demand deposits, NOW, money market and savings accounts and by an increase in
long-term borrowings from the Federal Home Loan Bank of Cincinnati of
$23,500,000 during 1998 from $19,500,637 during 1997. The effect of this change
in borrowings is amplified by the $17,460,045 reduction in payments on long-term
debt, from $19,769,657 during 1997 to $2,309,612 during 1998.
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's capital continued to exceed regulatory
requirements at December 31, 1998 and its record of paying dividends to its
stockholders continued uninterrupted during 1998. Management believes 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, 1998 was $55,385,798, an increase of
$5,272,938 or 10.52%, from $50,112,860 on December 31, 1997. The increase in
shareholders' equity arises primarily from net income for 1998 of $8,206,419
($6.05 per share, or $6.02 per share assuming dilution), offset in part by
quarterly dividend payments during 1998 that totalled $3,117,842 ($2.30 per
share).
3
<PAGE> 4
Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation
("FDIC") 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 (consisting of
stockholders' equity, less goodwill) 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. At December 31, 1998, the Company and the Bank each satisfied their
respective minimum regulatory capital requirements, and the Bank 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, 1998, approximately 46.2% of
the Company's gross loans had adjustable rates. The Company has a mixture of
fixed rate loans and loans tied to its 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 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 1998 was $8,206,419, an increase of $1,376,245
or 20.15% as compared to net income of $6,830,174 for 1997. The increase
resulted primarily from an increase in net interest income of $2,359,442, or
7.90%, to $32,220,308 in 1998 from $29,860,866 in 1997, and an increase in
non-interest income of $634,373, or 16.17%, to $4,555,489 in 1998 from
$3,921,116 in 1997. The increase in net interest income primarily reflects an
increase in interest income attributable to loan growth and a decrease in
interest expense associated with reliance on lower-cost debt. These changes were
offset in part by the $3,453,123, or 20.30% increase in non-interest expense to
$20,461,962 in 1998 from $17,008,839 in 1997, attributable primarily to
increases in salaries and benefits and in other expenses.
Net income for 1997 was $6,830,174, an increase of $866,912 or 14.54% as
compared to net income of $5,963,262 for 1996. The increase resulted primarily
from an increase in net interest income of $6,164,660, or 26.0%, to $29,860,866
in 1997 from $23,696,206 in 1996, and an increase in non-interest income of
$510,336, or 15.0%, to $3,921,116 in 1997 from $3,410,780 in 1996. The increase
in net interest income primarily reflects the Company's continued growth in loan
production, primarily increases in mortgage installment, commercial real estate
and commercial loans as the Company continues to take advantage of its branch
network presence throughout East Tennessee. These increases were offset in part
by the $2,208,929, or 14.93% increase in non-interest expense to $17,008,839 in
1997 from $14,799,910 in 1996, attributable primarily to increasing compensation
and occupancy expenses associated with branch operations.
4
<PAGE> 5
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 1998, net interest income was $32,220,308 as
compared to $29,860,866 in 1997, an increase of 7.90%. This increase was due
primarily to an increase in loan volume and lower deposit rates on non-time
deposits. The loan volume increase was also due in part to the Company's
implementation during 1998 of more competitive commercial loan rates. At the
same time, the Company's net interest margin increased in 1998 to 6.53% from
6.21% in 1997. This increase in net interest margin reflects a reduction in the
cost of interest-bearing liabilities, as well as a slight increase in loan
yield. Contributing to the growth in net interest income during 1998 was the
decline in cost of funds, as reflected in the lower amount of interest expense
in 1998 despite an increase in average total deposits.
Net interest income for 1997 was $29,860,866 as compared to $23,696,206
in 1996, an increase of 26.0%. This increase was due primarily to a $61,212,715
increase in average interest-earning assets during 1997 as compared to 1996,
offset by a $53,509,868 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 1997 to 6.21% from 5.65% in 1996. 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.
The Company's loan yields were thus enhanced by the 25 basis point prime rate
increase in the first quarter of 1997. Commercial and commercial real estate
loans comprised, in the aggregate, 51.3% of the Company's gross loan portfolio
at December 31, 1997. Offsetting the growth in interest income during 1997 was
the related increase in interest expense arising primarily from the 12.7%
increase in 1997 in the Company's average deposit base.
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 (that is, when yields
earned exceed rates paid) 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.
5
<PAGE> 6
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>
1998 1997
----------------------------------------------- -----------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Loans(1)
- --------
Commercial............... $ 235,166,862 $ 21,002,417 8.93% $ 240,601,635 $ 21,476,951 8.93%
Installment - net(2)..... 207,718,394 23,064,331 11.10% 190,304,270 22,024,965 11.57%
Fees on loans............ 3,754,124 2,502,460
---------------- --------------- ------------------ ----------------
Total loans
(including fees)...... $ 442,885,256 $ 47,820,872 10.80% $ 430,905,905 $ 46,004,376 10.68%
Investment securities(3)
- ------------------------
Taxable.................. $ 29,326,409 $ 1,865,083 6.36% $ 38,079,718 $ 2,467,835 6.48%
Tax exempt(4)............ 6,250,730 282,161 4.51% 9,210,719 403,507 4.38%
---------------- --------------- ------------------ ----------------
Total investment
Securities........... $ 35,577,139 $ 2,147,244 6.04% $ 47,290,437 $ 2,871,342 6.07%
Other short-term
Investments............ 14,808,885 824,340 5.57% 2,409,152 129,080 5.36%
---------------- --------------- ------------------ ----------------
Total interest-
earning assets....... $ 493,271,280 $ 50,792,456 10.30% $ 480,605,494 $ 49,004,798 10.20%
--------------- -------------- ----------------- ---------------
NON-INTEREST-EARNING
ASSETS:
Cash and due from
Banks.................. $ 17,855,077 $ 17,589,326
Premises and
Equipment.............. 9,968,183 9,355,616
Other, less allowance
for loan losses........ 5,346,239 5,945,568
---------------- ------------------
Total non-interest-
earning assets....... $ 33,169,499 $ 32,890,510
--------------- -----------------
Total average assets... $ 526,440,779 $ 513,496,004
=============== =================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Average Revenue/ Yield/
Balance Expense Rate
------- ------- ----
<S> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Loans(1)
- --------
Commercial............... $ 173,178,149 $ 14,967,334 8.64%
Installment - net(2)..... 174,667,162 19,022,302 10.89%
Fees on loans............ 1,395,467
------------------ ----------------
Total loans
(including fees)...... $ 347,845,311 $ 35,385,103 10.17%
Investment securities(3)
- ------------------------
Taxable.................. $ 51,687,569 $ 3,125,592 6.05%
Tax exempt(4)............ 10,953,312 496,705 4.53%
------------------ ----------------
Total investment
Securities........... $ 62,640,881 $ 3,622,297 5.78%
Other short-term
Investments............ 8,906,587 513,326 5.76%
------------------ ----------------
Total interest-
earning assets....... $ 419,392,779 $ 39,520,726 9.42%
----------- ----------
NON-INTEREST-EARNING
ASSETS:
Cash and due from
Banks.................. $ 15,979,895
Premises and
Equipment.............. 9,379,752
Other, less allowance
for loan losses........ 8,457,324
------------------
Total non-interest-
earning assets....... $ 33,816,971
-----------------
Total average assets... $ 453,209,750
=================
</TABLE>
- --------------------------
(1) Average loan balances include nonaccrual loans. Interest income collected
on nonaccrual loans has been included.
(2) Installment loans are stated net of unearned income.
(3) The average balance of and the related yield associated with securities
available for sale are based on the cost of such securities.
(4) Tax exempt income has not been adjusted to tax-equivalent basis.
6
<PAGE> 7
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- --------------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-BEARING
LIABILITIES:
Deposits
Savings, NOW
accounts, and
money markets $ 160,775,161 $ 3,849,723 2.39% $ 150,088,946 $ 3,930,293 2.62%
Time deposits........... 255,872,184 13,975,781 5.46% 253,840,096 13,947,656 5.49%
----------- ---------- ----------- ----------
Total deposits.......... $ 416,647,345 $ 17,825,503 4.28% $ 403,929,042 $ 17,877,949 4.43%
Securities sold
Under repurchase
Agreement and
Short-term
Borrowings.............. 2,943,827 115,784 3.93% 4,949,115 236,553 4.78%
Debt...................... 8,503,098 630,861 7.42% 16,147,018 1,029,430 6.38%
--------- ------- ---------- ---------
Total interest-
Bearing
Liabilities............. $ 428,094,270 $ 18,572,148 4.34% $ 425,025,175 $ 19,143,932 4.50%
----------- ---------- ----------- ----------
NON-INTEREST-BEARING
LIABILITIES:
Demand deposits......... $ 39,821,855 $ 33,540,018
Other liabilities....... 6,033,556 5,904,610
---------------- ----------------
Total liabilities....... $ 45,855,411 $ 39,444,628
Stockholders' equity.... 52,491,098 49,026,201
---------------- ----------------
Total liabilities and
Stockholders' equity.... $ 526,440,779 $ 513,496,004
=============== ===============
Net interest income....... $ 32,220,308 $ 29,860,866
============== ==============
MARGIN ANALYSIS:
Interest rate spread.... 5.96% 5.70%
===== =====
Net yield on
Interest-earning
assets (net
interest
margin)............... 6.53% 6.21%
===== =====
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
Average Revenue/ Yield/
Balance Expense Rate
------- ------- ----
<S> <C> <C> <C>
INTEREST-BEARING
LIABILITIES:
Deposits
Savings, NOW
accounts, and
money markets $ 150,877,450 $ 3,536,624 2.34%
Time deposits........... 207,440,687 11,641,179 5.61%
----------- ----------
Total deposits.......... $ 358,318,137 $ 15,177,803 4.24%
Securities sold
Under repurchase
Agreement and
Short-term
Borrowings.............. 4,931,307 227,613 4.62%
Debt...................... 8,265,863 19,104 5.07%
--------- ------
Total interest-
Bearing
Liabilities............. $ 371,515,307 $ 15,824,520 4.26%
----------- ----------
NON-INTEREST-BEARING
LIABILITIES:
Demand deposits......... $ 30,945,475
Other liabilities....... 5,680,694
----------------
Total liabilities....... $ 36,626,169
Stockholders' equity.... 45,068,274
----------------
Total liabilities and
Stockholders' equity.... $ 453,209,750
================
Net interest income....... $ 23,696,206
===============
MARGIN ANALYSIS:
Interest rate spread.... 5.16%
=====
Net yield on
Interest-earning
assets (net
interest
margin)............... 5.65%
=====
</TABLE>
7
<PAGE> 8
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 by prior year volume). Changes attributable
to the combined impact of volume and rate have been separately identified.
<TABLE>
<CAPTION>
1998 vs. 1997
------------------------------------------------------------------------
Rate/ Total
Volume Rate Volume Change
------ ---- ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans net of unearned income........... $ 1,278 $ 523 $ 15 $ 1,816
Investment securities:
Taxable.............................. (567) (46) 11 (602)
Tax exempt........................... (130) 12 (4) (122)
Other short-term investments........... 664 5 26 695
----------- ------------- ------------- -------------
Total interest income................ 1,245 494 48 1,787
----------- ------------- ------------- -------------
INTEREST EXPENSE:
Savings, NOW accounts, and
Money market accounts............. 280 (336) (24) (80)
Time deposits....................... 111 (83) (1) 27
Short-term borrowings............... (96) (42) 17 (121)
Debt................................ (487) 169 (80) (398)
----------- ------------- ------------- -------------
Total interest expense.............. (192) (292) (88) (572)
----------- ------------- ------------- -------------
Net interest income.................... $ 1,437 $ 786 $ 136 $ 2,359
========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997 vs. 1996
------------------------------------------------------------------------
Rate/ Total
Volume Rate Volume Change
------ ---- ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans net of unearned income........... $ 8,449 $ 1,752 $ 418 $ 10,619
Investment securities:
Taxable.............................. (823) 224 (59) (658)
Tax exempt........................... (79) (17) 3 (93)
Other short-term investments........... (374) (36) 26 (384)
------------- -------------- ------------- ------------
Total interest income................ 7,173 1,923 388 9,484
------------- -------------- ------------- ------------
INTEREST EXPENSE:
Savings, NOW accounts, and
Money market accounts............. (18) 414 (2) 394
Time deposits....................... 2,603 (243) (54) 2,306
Short-term borrowings............... 1 8 -- 9
Debt................................ 399 108 103 610
------------- -------------- ------------- ------------
Total interest expense.............. 2,985 287 47 3,319
------------- -------------- ------------- ------------
Net interest income.................... $ 4,188 $ 1,636 $ 341 $ 6,165
============ ============= ============ ===========
</TABLE>
At December 31, 1998, loans outstanding, net of unearned income and
allowance for loan losses, were $466.7 million compared to $441.4 million at
1997 year end. The increase is primarily due to the Company's increased emphasis
during fourth quarter 1998 on loan growth through implementation of a
more-competitive commercial loan rate structure and the hiring of a senior
commercial lender from a regional bank who brought new and significant seasoned
lending relationships to the Bank and an experienced commercial lending staff.
Average outstanding loans, net of unearned interest, for 1998 were $442.9
million, an increase of 2.78% from the 1997 average of $430.9 million. The
average outstanding loans for 1996 were $347.8 million. The growth in average
loans for the past three years can be attributed to the Company's continuing
market expansion into surrounding counties through the Company's branch network
and to the development of its other financing businesses and indirect financing.
During 1998, the Company continued its expansion with a new branch in Cocke
County and new offices in the consumer finance subsidiary. The marginal increase
in interest income can be attributed to the decrease in the prime rate during
the latter part of 1998. During 1997, increases in the prime rate were reflected
in the slight increase in overall loan yields in 1997 compared to 1996. During
1996, the prime rate was generally constant at 8.25%.
Average investment securities for 1998 were $35.6 million, compared to
$47.3 million in 1997, and $62.6 million in 1996. In 1998, the average yield on
investments was 6.04%, essentially the same as the 6.07% yield in 1997 and an
increase from the 5.78% yield in 1996. This is reflective of the Company's
substantial proportion of adjustable-rate securities comprising its investment
portfolio and the reduction in the prime rate during the latter part of 1998.
Income provided by the investment portfolio in 1998 was $2,147,244 as compared
to $2,871,342 in 1997, and $3,662,297 in 1996. The decline in the average
balance of investment securities from 1997 to 1998 was the result of funding the
loan growth experienced by the Company during 1998.
8
<PAGE> 9
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
decreased $2,536,195, or 42.6%, to $3,417,010 in 1998 from $5,953,205 in 1997.
The decrease in the provision for loan losses is primarily attributable to a
reduction in problem loans associated with Superior Financial in prior years and
management's assessment of the reduced risk profile in its existing portfolio.
The ratio of loans 30 days or more past due to total gross loans for consumer
loans originated by Superior Financial decreased from 7.61% at December 31, 1996
to 5.12% at December 31, 1997 and to 2.58% at December 31, 1998. Management of
the Company believes that these past due and nonperforming loans originated by
its consumer finance subsidiary reflect the risk inherent in this type of
business. However, management also believes this risk is also offset by the net
benefits attributable to operation of the finance company, including a higher
net yield on these types of loans, market penetration and diversification of the
Company's activities into non- traditional lending areas.
To further manage its credit risk on loans, the Company maintains a
"watch list" of loans that, although currently performing, have characteristics
that require closer supervision by management. At December 31, 1998, the Company
had identified $11.2 million in loans that were placed on its "watch list."
The Company's provision for loan losses in 1997 increased by $2,980,012
or 100.23%, to $5,953,205 in 1997 from $2,973,193 in 1996. 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 increase reflected
management's assessment of the risk of loss in its loan portfolio, as indicated
by its increasing amount of charge-offs. In 1997, the Company's net charge-offs
increased $3.4 million or 456% to $4.1 million from $737,000 in 1996. The
Company's net charge-offs to average loans outstanding increased in 1997 to
0.95% from 0.21% in 1996, a 352% growth that exceeded the growth in the
Company's average loans outstanding during the same period. These charge- offs
were primarily attributable to consumer loans originated by Superior Financial
during the period 1994 through 1997 and both secured and unsecured loans.
The Company's provision for loan losses in 1996 increased by $1,549,541
or 108.8%, to $2,973,193 in 1996 from $1,423,656 in 1995. This increase
reflected 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
reflected 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 1995 to 1996, nonperforming assets
increased $0.2 million, or 9.5%, from $2.1 million in 1995 to $2.3 million in
1996.
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 1998 was $4,555,489 as compared to
$3,921,116 in 1997 and $3,410,780 in 1996. The largest components of
non-interest income are service charges, commissions and fees, which totaled
$3,742,053 in 1998, $3,168,699 in 1997 and $2,593,594 in 1996. The increase from
1997 to 1998 reflects management's continued focus on the generation of fee
income and additional fee income generated by the subsidiaries of Greene County
Bank.
NON-INTEREST EXPENSE. Control of non-interest expense also is an
important aspect in managing net income. Non-interest expense includes, among
others, personnel, occupancy, and other expenses such as data processing,
printing and supplies, legal and professional fees, postage and Federal Deposit
9
<PAGE> 10
Insurance Corporation assessments. Total non-interest expense was $20,461,962 in
1998, compared to $17,008,839 in 1997 and $14,799,910 in 1996.
Personnel costs are the primary element of the Company's non-interest
expenses. In 1998, salaries and benefits represented $11,458,768 or 56.0% of
total non-interest expenses. This was an increase of $1,933,566 or 20.3% over
1997's total of $9,525,202. Personnel costs for 1997 increased $1,631,567 or
20.7% over 1996's total of $7,893,635. These increases were due to opening a new
branch requiring increased staff levels and increased employee benefit costs,
including health insurance and retirement benefit costs. Overall, the number of
full-time equivalent employees at December 31, 1998 was 307 versus 268 at
December 31, 1997, an increase of 14.6%.
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, 1998, the Company had 35 branches
compared to 29 branches at December 31, 1997.
Assessments by the FDIC increased from $6,187 in 1996 to $54,989 in 1997
and increased to $65,414 in 1998. These premiums, representing a percentage of
deposit base, and based upon deposit levels at period ends, have been
consistently reduced and essentially eliminated for well-capitalized banks such
as those owned by the Company, although premiums are still being assessed for
repayment of debt incurred by the federal government in connection with the
deposit insurance fund (i.e., the "FICO bonds"). For 1999, the FDIC premiums
(including assessments for the FICO bonds) are calculated at 1.176 basis points
on the assessable deposit base. The Company's premiums for 1999 are estimated to
be $55,000 assuming the same deposit base at December 31, 1998.
Other expenses increased $1,307,247, or 27.0%, from 1997 to 1998
representing primarily the Company's new bank branch, which required additional
advertising, postage, telephone and other expenses, as well as increased
expenses related to new programs for customer product delivery. The increase
from 1996 to 1997 was $85,012, or 1.8%.
CHANGES IN FINANCIAL CONDITION
Total assets at December 31, 1998 were $568.2 million, an increase of
$34.1 million, or 6.4%, over 1997's year end total assets of $534.1 million.
Average assets for 1998 were $526.4 million, an increase of $12.9 million or
2.5% over 1997 average assets of $513.5 million. This increase was the result of
loan growth, funded by increases in average deposits and, to a lesser extent, by
FHLB advances. Return on average assets was 1.56% in 1998, as compared to 1.33%
in 1997 and 1.32% in 1996.
Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 1998 were $493.3
million, an increase of 2.6% from an average of $480.6 million in 1997.
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. For further information, see Note 1 of the Notes to Consolidated
Financial Statements. The Company has aggressive collection practices in which
senior management is significantly and directly involved.
The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at year end 1998 with an amortized cost of $30.2 million
had a market value of $30.3 million. At year end 1997, investments with an
amortized cost of $41.3 million had a market value of $41.5 million. This
10
<PAGE> 11
decline in investments in 1998 reflects the Company's continuing shift of funds
to higher-yielding commercial and consumer lending.
The Company's deposits were $459.2 million at December 31, 1998. This
represents a decrease of $2.5 million, or 0.5%, from the $461.7 million of
deposits at December 31, 1997. The decrease is primarily the result of a
reduction in certificates of deposit in late 1998 due to the Company's policy of
funding increased loan demand via lower-cost vehicles such as borrowing from the
Federal Home Loan Bank of Cincinnati. Although year-end balances of deposits
declined in 1998 as compared to 1997, the Company's average deposit balances
increased during 1998.
In 1998, demand deposit balances increased 3.8% from 1997. Demand deposit
balances were approximately $37.1 million and $35.7 million at December 31, 1998
and 1997, respectively.
Average interest-bearing deposits increased $12.7 million, or 3.1%, in
1998. In 1997, average interest-bearing deposits increased $45.6 million or
12.7% over 1996. 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.
The Company's continued ability to fund its loan and overall asset growth
remains dependent upon the availability of deposit market share in the Company's
existing market of East Tennessee. As of June 30, 1998, approximately 64.7% of
the deposit base of East Tennessee was controlled primarily by five commercial
banks, one savings bank and one credit union and, as of September 1998, the
total deposit base of Tennessee commercial banks had a weighted average rate of
4.79%. Management of the Company does not anticipate further significant growth
in its deposit base unless it either offers interest rates well above its
prevailing weighted average rate of 4.28% or it acquires deposits from other
financial institutions. During 1998, the premiums charged in Tennessee by
selling financial institutions for deposit accounts ranged from 6.7% to 37.8%.
If the Company takes action to increase its deposit base by offering
above-market interest rates or by acquiring deposits from other financial
institutions and thereby increases its overall cost of deposits, its net
interest income could be adversely affected if it is unable to correspondingly
increase the rates it charges on its loans.
Interest paid on deposits in 1998 totaled $17,825,503 reflecting a 4.28%
cost on average interest-bearing deposits of $416.6 million. In 1997, interest
of $17,877,949 was paid at a cost of 4.43% on average deposits of $403.9
million. In 1996, interest of $15,177,803 was paid at a cost of 4.24% on average
deposits of $358.3 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 repricing 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, 1998, the Company had a
positive cumulative one-year gap position of $76.7 million, indicating that
while $350.9 million in assets were repricing, only $274.2 million in
liabilities would reprice in the same time frame.
11
<PAGE> 12
The following table reflects the Company's interest rate gap position at
December 31, 1998 based upon repricing dates rather than maturity dates. This
table represents a static point in time and does not consider other variables
such as changing relationships or interest rate levels.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------------
1999 2000 2001 2002
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net of allowance for
loan losses................... $ 300,323 $ 66,221 $ 47,731 $ 24,329
Average interest rate......... 8.81% 9.44% 9.25% 9.05%
Investment securities........... $ 26,299 $ 1,948 $ 830 $ 759
Average interest rate......... 5.56% 4.83% 5.37% 4.60%
Federal funds sold.............. $ 24,300 -- -- --
Average interest rate......... 4.75% -- -- --
-------------- ------------- ------------- ------------
Total interest-earning
Assets........................ $ 350,922 $ 68,169 $ 48,561 $ 25,088
-------------- ------------- ------------- ------------
INTEREST-BEARING LIABILITIES(1):
Savings and time deposits....... $ 205,176 $ 53,661 $ 16,549 $ 6,716
Average interest rate......... 5.02% 4.79% 4.01% 3.51%
Money market and
Transaction accounts.......... $ 34,984 $ 19,578 $ 19,578 $ 14,756
Average interest rate......... 1.86% 1.79% 1.79% 1.66%
Debt and other borrowed
money(2)...................... $ 31,667 $ 87 $ 87 $ 187
Average interest rate......... 5.15% 5.94% 5.94% 7.04%
Securities sold under
agreement to repurchase....... $ 2,416 $ -- $ -- $ --
Average interest rate......... 4.00% -- -- --
-------------- ------------- ------------- ------------
Total interest-bearing
liabilities................... $ 274,243 $ 73,326 $ 36,214 $ 21,659
======= ============ ============= ===========
Interest sensitivity gap.......... $ 76,679 $ (5,157) $ 12,347 $ 3,429
====== ============ ============= ===========
Cumulative interest
Sensitive gap................... $ 76,679 $ 71,522 $ 83,869 $ 87,298
====== ============ ============= ===========
Interest sensitive gap to
Total assets.................... 13.49% -0.91% 2.17% 0.60%
============== ============ ============= ===========
Cumulative interest
Sensitive gap to total assets... 13.49% 12.58% 14.75% 15.36%
============== ============ ============= ===========
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Expected Maturity Date
--------------------------------------------------------------------
2003 Thereafter Total Fair Value
---- ---------- ----- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net of allowance for
loan losses................... $ 12,118 $ 15,939 $ 466,661 $ 467,522
Average interest rate......... 8.67% 8.64% 8.95%
Investment securities........... $ 103 $ 408 $ 30,347 $ 30,347
Average interest rate......... 4.69% 4.28% 5.47%
Federal funds sold.............. -- -- $ 24,300 $ 24,300
Average interest rate......... -- -- 4.75%
------------- ------------- ------------ ------------
Total interest-earning
Assets........................ $ 12,221 $ 16,347 $ 521,308 $ 522,169
------------- ------------- ------------ ------------
INTEREST-BEARING LIABILITIES(1):
Savings and time deposits....... $ 5,689 $ 9,512 $ 297,303 $ 294,227
Average interest rate......... 2.75% 2.25% 4.76%
Money market and
Transaction accounts.......... $ 14,756 $ 21,174 $ 124,826 $ 112,175
Average interest rate......... 1.66% 1.51% 1.73%
Debt and other borrowed
money(2)...................... $ 219 $ 4,380 $ 36,627 $ 36,610
Average interest rate......... 7.15% 6.97% 5.19%
Securities sold under
agreement to repurchase....... $ -- $ -- $ 2,416 $ 2,416
Average interest rate......... -- -- 4.00%
------------- ------------- ------------ ------------
Total interest-bearing
liabilities................... $ 20,664 $ 35,066 $ 461,172 $ 450,228
============ ============ =========== ===========
Interest sensitivity gap.......... $ (8,443) $ (18,719) $ 60,136 $ 71,941
============ ============ =========== ===========
Cumulative interest
Sensitive gap................... $ 78,855 $ 60,136 $ 60,136 $ 71,941
============ ============ =========== ===========
Interest sensitive gap to
Total assets.................... -1.49% -3.29% 10.58% 12.65%
============ ============= =========== ===========
Cumulative interest
Sensitive gap to total assets... 13.87% 10.58% 10.58% 12.65%
============ ============= =========== ===========
</TABLE>
(1) The Company has presented substantial balances of deposits as non-rate
sensitive and/or not repricing within one year.
(2) For further information regarding fair value of debt instruments, see
Note 18 of Notes to Consolidated Financial Statements. Accounts also
include a note payable to a related party. See Note 5 of Notes to
Consolidated Financial Statements.
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.
12
<PAGE> 13
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 June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a complete
set of financial statements. This statement also requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods for comparative purposes is required. Adoption of
this new standard did not have a material effect on the Company's financial
condition or the results of its operations. The Company adopted SFAS No. 130 on
January 1, 1998.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
reporting by public companies of operating segments in annual financial
statements and requires that those enterprises also report selected information
about operating segments in interim financial reports issued to shareholders.
This statement also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments. This statement is effective for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years must be restated. The disclosure impact of SFAS
No. 131 is described in Note 20 of the Consolidated Financial Statements. The
Company adopted SFAS No. 131 on December 31, 1998.
During February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
Restatement of disclosures for earlier periods for comparative purposes is
required. The disclosure impact of SFAS No. 132 is described in Note 11 of the
financial statements. The Company adopted SFAS No. 132 on December 31, 1998.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
13
<PAGE> 14
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998).
The Company has not yet quantified the impacts of adopting SFAS No. 133
on its financial statements and has not determined the timing or method of its
adoption of SFAS No. 133. However, the statement could increase volatility in
earnings and other comprehensive income.
The FASB has issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." The statement requires that an entity engaged in
mortgage banking activities classify any resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold these
investments. The statement is effective for 1999 for the Company; however,
management does not expect this pronouncement to have a significant impact on
the Company's financial position.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000 and thereafter. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions and/or invoices or engage
in similar normal business activities.
The Company has been actively involved in Year 2000 ("Y2K") issues and
has assessed its state of readiness by evaluating its information technology
("IT") and non-IT systems. IT systems commonly include data processing,
accounting, telephone/PBX systems, etc. Examples of non-IT systems are alarm
systems, fax machines and other miscellaneous systems.
With respect to its mission critical IT systems, the Company estimates
that its Y2K identification, assessment, remediation and testing efforts are
substantially complete. Test results have been reviewed by the Company's
internal auditing coordinator in conjunction with financial industry
consultants. During 1999, further testing will be carried out in order to ensure
that all systems are working properly. The Company has assessed its Y2K status
in regard to non-IT systems and has determined that no material risk exists.
The Company has also verbally communicated with its significant vendors
in order to determine the extent to which interfaces with such entities are
vulnerable to Y2K issues and whether the products and services purchased from
such entities are Y2K compliant. The Company has received either verbal or
written assurance from these vendors that they expect to address all their
significant Y2K issues on a timely basis. Further, the Company has conducted
telephonic Y2K evaluations with significant depositors and/or borrowers and has
evaluated the responses as part of its Y2K assessment. With respect to
significant depositors, the Company does not anticipate any material Y2K issues.
The Company has assessed the results of its evaluation regarding significant
borrowers and such results are reflected in its allowance for loan losses for
the year ended December 31, 1998. The Company also began in June 1998
incorporating the Y2K issue in its underwriting process as it relates to
significant borrowers, and has begun communicating the Y2K issue to its checking
account base via statement fliers. Further, the Company has been conducting Y2K
awareness seminars with its customer base beginning in January 1999.
14
<PAGE> 15
The Company believes that the cost of its Y2K identification, assessment,
remediation and testing efforts will not exceed $200,000 in terms of incremental
cash outflows. The Company spent approximately $150,000 as of March 26, 1999 and
expects to spend an additional $50,000 on such efforts. The source of these
funds can be provided from cash flows from operations of the Company.
The Company anticipates that the most likely worst case scenario will be
a combination of several borrowers experiencing short term Y2K cash flow
problems and a pre-Y2K increased cash demand from its overall customer base. The
Company does not consider a computer system failure as likely because of the
extensive pre-Y2K preparation by the Company. The other commonly discussed
failure is a collapse of the power grid, which the Company considers unlikely in
view of the reports made by the various power companies in the newspapers with
respect to their Y2K readiness.
If the Company has borrowers that experience Y2K cash flow problems, they
will be dealt with in the same routine manner in which normal cash flow
interruptions by borrowers are handled; however, the Company does not anticipate
any material Y2K failure of borrowers due to the Company's ongoing review
process. Any Y2K increase in cash demand will be funded by the Company's normal
currency ordering procedures.
The Company's Y2K coordinator will continue to review the status of the
Company's Y2K readiness and report his findings to the Board of Directors.
15
<PAGE> 16
Report of Independent Accountants
To the Board of Directors
Greene County Bancshares, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Greene County Bancshares, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Knoxville, Tennessee
January 29, 1999
-1-
<PAGE> 17
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Cash and due from banks $ 19,591,814 $ 20,687,367
Securities available-for-sale (Note 3) 26,726,813 33,851,953
Securities held-to-maturity - approximate
market value of $3,619,748 and $7,637,774 in
1998 and 1997, respectively (Note 3) 3,619,992 7,627,126
Federal funds sold 24,300,000 5,500,000
Loans, net (Notes 4 and 5) 466,661,145 441,389,766
Premises and equipment, net (Note 6) 11,715,143 9,803,199
Accrued interest receivable 3,901,795 4,377,481
Deferred income taxes (Note 12) 2,648,178 2,447,858
Cash surrender value of life insurance contracts 4,136,062 3,904,675
Other assets 4,878,583 4,512,276
------------ ------------
Total assets $568,179,525 $534,101,701
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 18
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deposits (Note 7):
<S> <C> <C>
Noninterest bearing demand deposits $ 37,053,958 $ 35,708,317
Interest bearing accounts:
NOW 12,883,063 81,936,674
Money market transaction 111,966,713 30,228,480
Savings 47,526,285 46,800,738
Certificates of deposit $100,000 and over 52,022,269 61,002,308
Other certificates of deposit 197,731,072 206,052,041
------------ ------------
Total deposits 459,183,360 461,728,558
------------ ------------
Federal funds purchased 4,800,000 -
Securities sold under agreements to repurchase 2,416,000 1,414,000
Accrued interest and other liabilities 9,767,259 5,359,563
Related party notes payable (Note 5) 2,511,418 2,561,418
Long-term debt (Note 8) 34,115,690 12,925,302
------------ ------------
Total liabilities 512,793,727 483,988,841
------------ ------------
Commitments and contingencies (Notes 9, 11, 13, 14 and 17)
Shareholders' equity (Note 10):
Common stock, par value $10, authorized 5,000,000
shares; issued and outstanding 1,357,198 and 1,354,500
shares in 1998 and 1997, respectively 13,571,980 13,545,000
Paid-in capital 4,172,180 4,052,656
Retained earnings 37,421,151 32,332,574
Accumulated other comprehensive income, net of income tax
expense of $57,820 and $60,469 in 1998 and 1997,respectively 220,487 182,630
------------ ------------
Total shareholders' equity 55,385,798 50,112,860
------------ ------------
$568,179,525 $534,101,701
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 19
GREENE COUNTY BANCSHARES, INC.
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
Interest income:
<S> <C> <C> <C>
Loans $47,820,872 $46,004,376 $35,385,103
Securities available-for-sale 1,684,453 2,342,170 3,111,304
Securities held-to-maturity 462,791 529,172 510,993
Federal funds sold 824,340 129,080 513,326
----------- ----------- -----------
Total interest income 50,792,456 49,004,798 39,520,726
Interest expense:
Deposit accounts 17,825,503 17,877,949 15,177,803
Securities sold under agreements to repurchase 115,784 236,553 227,613
Related party notes payable 197,557 249,829 160,718
Long-term debt 433,304 779,601 258,386
----------- ----------- -----------
Total interest expense 18,572,148 19,143,932 15,824,520
----------- ----------- -----------
Net interest income 32,220,308 29,860,866 23,696,206
Provision for loan losses (3,417,010) (5,953,205) (2,973,193)
----------- ----------- -----------
Net interest income after provision for loan losses 28,803,298 23,907,661 20,723,013
Noninterest income:
Service charges, commissions and fees 3,742,053 3,168,699 2,593,594
Net realized gains on calls of available-for-sale securities - 1,982 -
Gain on sale of branch - 191,261 -
Other income 813,436 559,174 817,186
----------- ----------- -----------
Total noninterest income 4,555,489 3,921,116 3,410,780
----------- ----------- -----------
Noninterest expense:
Salaries and benefits 11,458,768 9,525,202 7,893,635
Occupancy expenses 1,413,988 1,219,125 1,057,418
Furniture and equipment expense 1,373,130 1,354,745 1,315,721
(Gain) loss on other real estate owned (5,310) 6,053 (240,252)
Net realized losses on sales of available-for-sale securities - - 3,488
Federal insurance premiums 65,414 54,989 6,187
Other expenses 6,155,972 4,848,725 4,763,713
----------- ----------- -----------
Total noninterest expense 20,461,962 17,008,839 14,799,910
----------- ----------- -----------
Income before income taxes 12,896,825 10,819,938 9,333,883
Income tax expense:
State 604,699 670,691 515,065
Federal 4,085,707 3,319,073 2,855,556
----------- ----------- -----------
Total income tax expense 4,690,406 3,989,764 3,370,621
----------- ----------- -----------
Net income $ 8,206,419 $ 6,830,174 $ 5,963,262
=========== =========== ===========
Per share of common stock:
Net income, basic $ 6.05 $ 5.04 $ 4.43
=========== =========== ===========
Net income, assuming dilution $ 6.02 $ 5.03 $ 4.43
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 20
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income $ 8,206,419 $ 6,830,174 $ 5,963,262
Other comprehensive income, net of tax:
Tax benefit from exercise of stock options 43,344 - 82,804
Unrealized gains (losses) on securities (5,487) 155,289 (291,923)
----------- ----------- -----------
Other comprehensive income 37,857 155,289 (209,119)
----------- ----------- -----------
Comprehensive income $ 8,244,276 $ 6,985,463 $ 5,754,143
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 21
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
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
Other comprehensive loss, net of tax
Unrealized loss on securities - - - (291,923) (291,923)
Tax benefit from exercise of nonincentive - - - 82,804 82,804
stock options
Dividends paid ($1.72 per share) - - (2,328,858) - (2,328,858)
Issuance of 27,123 shares 90,410 1,135,381 - - 1,225,791
------------ ------------ ------------ ------------ ------------
December 31, 1996 4,514,850 4,050,105 37,133,040 27,341 45,725,336
Net income - 6,830,174 - 6,830,174
Other comprehensive income, net of tax
Unrealized gain on securities - - - 155,289 155,289
Dividends paid ($1.92 per share) - - (2,600,640) - (2,600,640)
Issuance of 45 shares 150 2,551 - - 2,701
Three-for-one stock split 9,030,000 - (9,030,000) - -
------------ ------------ ------------ ------------ ------------
December 31, 1997 13,545,000 4,052,656 32,332,574 182,630 50,112,860
Net income - - 8,206,419 - 8,206,419
Other comprehensive loss, net of tax
Unrealized loss on securities - - - (5,487) (5,487)
Tax benefit from exercise of
nonincentive stock options - - - 43,344 43,344
Dividends paid ($2.30 per share) - - (3,117,842) - (3,117,842)
Issuance of 2,698 shares 26,980 119,524 - - 146,504
------------ ------------ ------------ ------------ ------------
December 31, 1998 $ 13,571,980 $ 4,172,180 $ 37,421,151 $ 220,487 $ 55,385,798
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 22
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net cash provided by operating activities:
Net income $ 8,206,419 $ 6,830,174 $ 5,963,262
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 3,417,010 5,953,205 2,973,193
Provision for depreciation and amortization 993,523 1,146,564 1,096,120
Amortization of investment security premiums, net of accretion 314,599 420,829 515,996
Net realized (gains) losses on available-for-sale securities - (1,982) 3,488
Gain on sale of fixed assets (5,030) - -
(Gain) loss on other real estate owned (5,310) 6,053 (240,252)
Gain on sale of branch - (191,261) -
Deferred income tax benefit (200,320) (573,157) (677,653)
Increase in cash surrender value of life insurance contracts (231,387) (154,003) (170,472)
Change in accrued income and other assets 437,319 (1,033,423) 1,238,459
Change in accrued interest and other liabilities 4,929,375 555,121 (1,047,045)
------------- ------------ ------------
Net cash provided by operating activities 17,856,198 12,958,120 9,655,096
------------- ------------ ------------
Cash flows from investing activities:
Acquisition of bank, net of acquired cash - - 1,022,043
Purchases of available-for-sale securities (1,950,832) (578,184) (14,766,578)
Proceeds from sales of available-for-sale securities - - 2,000,000
Proceeds from maturities of available-for-sale securities 8,770,371 9,510,288 36,488,422
Purchases of securities held-to-maturity (75,000) - (6,815,907)
Proceeds from maturities of securities held-to-maturity 4,065,000 1,800,000 6,748,835
Net originations of loans (30,247,073) (66,708,497) (76,092,935)
Proceeds from sales of other real estate owned 544,369 347,370 337,605
Proceeds from sale of fixed assets 34,267 - -
Fixed asset additions (2,718,705) (1,048,526) (1,845,545)
Decrease (increase) in federal funds sold (18,800,000) (5,500,000) 23,800,000
Cash transferred in sale of branch - (988,302) -
------------- ------------ ------------
Net cash used by investing activities (40,377,603) (63,165,851) (29,124,060)
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(continued)
<PAGE> 23
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW, money
market and savings accounts 14,755,810 5,259,522 11,056,917
Net increase (decrease) in certificates of deposit (17,301,008) 49,078,207 9,708,911
Increase in federal funds purchased 4,800,000 - -
Increase (decrease) in securities sold under agreements to repurchase 1,002,000 (1,858,000) (1,512,000)
Payments on related party notes payable (50,000) (50,000) (50,000)
Payments on long-term debt (2,309,612) (19,769,657) (19,781,151)
Borrowings of long-term debt 23,500,000 19,500,637 29,500,000
Proceeds from issuance and sale of common stock 146,504 2,701 484,366
Cash dividends paid (3,117,842) (2,600,640) (2,328,858)
------------ ------------ ------------
Net cash provided by financing activities 21,425,852 49,562,770 27,078,185
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,095,553) (644,961) 7,609,221
Cash and cash equivalents at beginning of year 20,687,367 21,332,328 13,723,107
------------ ------------ ------------
$ 19,591,814 $ 20,687,367 $ 21,332,328
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 24
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 subsidiary 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 1997 and 1996 consolidated
financial statements and accompanying notes to conform with the 1998
presentation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Greene County Bancshares, Inc. and its
wholly-owned subsidiary, Greene County Bank (the Bank). The
Corporation's other wholly-owned subsidiary, Premier Bank of East
Tennessee, combined with the Bank in October 1998. Superior
Financial Services, Inc. and GCB Acceptance Corp., Inc., consumer
finance companies, are wholly owned subsidiaries of Greene County
Bank. Superior Mortgage, Inc., a mortgage company and Fairway Title
Co., Inc., a title company, are also wholly owned subsidiaries 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 Bank is 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 $1,197,000 and $6,331,000 for the
years ended December 31, 1998 and 1997, respectively.
INVESTMENT 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 comprehensive
income).
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.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Management assesses the adequacy of the allowance for loan losses by
considering a combination of regulatory and credit risk criteria.
The entire loan portfolio is graded and potential loss factors are
assigned accordingly. The potential loss factors for impaired loans
are assigned based on regulatory guidelines. The regulatory criteria
are set forth in the Interagency Policy Statement on the Allowance
for Loan and Lease Losses. The potential loss factors associated
with unimpaired loans are based on historical net loss experience
and management's review of trends within the portfolio and related
industries. Generally, all loans within the portfolio are assigned a
level of risk at inception. Thereafter, loans are reviewed on an
ongoing basis, with commercial loans receiving more frequent review.
The review includes loan payment and collateral status, borrowers'
financial data and borrowers' internal operating factors such as
cash flows, operating income, liquidity, leverage and loan
documentation, and any significant change can result in an increase
or decrease in the loan's assigned risk grade. Aggregate dollar
volume by risk grade is monitored on an ongoing basis. Any changes
of risk grades for consumer loans are usually based solely upon
payment performance.
Generally, the Bank maintains only a general loan loss allowance.
This allowance is increased or decreased based upon management's
assessment of the overall risk of its loan portfolio. Occasionally,
a portion of the allowance may be allocated to a specific loan to
reflect unusual circumstances associated with that loan.
Management reviews certain key indicators on a monthly basis as well
as year-end loss results. This review process provides a degree of
objective measurement that is used in conjunction with periodic
internal evaluations. To the extent that this process yields
differences between estimated and actual observed losses,
adjustments are made to provisions and/or the level of the
allowance.
Increases and decreases in the allowance for loan losses due to
changes in the measurement of the impaired loans are included in the
provision for loan 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.
The Bank uses several factors in determining if a loan is impaired
under Statement of Financial Accounting Standards (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
and collateral status, borrowers' financial data and borrowers'
operating factors such as cash flows, operating income, liquidity,
leverage and loan documentation, and any significant changes. A loan
is considered impaired, based on current information and events, if
it is probable that the Bank 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.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
At December 31, 1998 and 1997, the recorded investment in loans for
which impairment has been recognized was approximately $7,345,000
and $2,570,000, respectively, and these loans had a corresponding
valuation allowance of $1,079,000 and $358,000, respectively. The
impaired loans at December 31, 1998 and 1997, 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,
1998 and 1997, the average recorded investment in impaired loans was
approximately $4,961,000 and $5,100,000, respectively. When a loan
or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the allowance and subsequent
recoveries, if any, are credited to the allowance.
Loans, including impaired loans, are generally classified as
nonaccrual if they are past due as to maturity or payment of
principal or interest for a period of more than 90 days, unless such
loans are well-secured and in the process of collection. If a loan
or a portion of a loan is classified as doubtful or is partially
charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days
may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are
reasonably assured of repayment within an acceptable period of time,
and there is a sustained period of repayment performance (generally
a minimum of six months) by the borrower, in accordance with the
contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future
collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to
principal outstanding, except in the case of loans with scheduled
amortizations where the payment is generally applied to the oldest
payment due. When the future collectibility of the recorded loan
balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan had been partially
charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance
at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost
less accumulated depreciation and amortization computed principally
on the straight-line method based on the estimated useful lives of
the respective assets. Leasehold improvements are stated at cost
adjusted for accumulated amortization computed on a straight-line
method over the shorter of the estimated useful life of the assets
or the term of the lease.
OTHER REAL ESTATE OWNED - Other real estate owned represents real
estate acquired through foreclosure or repossession and is initially
recorded at the lower of cost (principal balance and any accrued
interest of the former loan plus costs of obtaining title and
possession) or fair value minus estimated costs to sell. Initial
writedowns are charged against the allowance for loan losses.
Initial costs relating to the development and improvement of
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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. Management periodically evaluates the net realizability of
the carrying amount of such assets. These assets will be amortized
on a straight-line basis over their estimated useful lives of ten
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 two defined
contribution plans, 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.
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.
NET INCOME PER SHARE OF COMMON STOCK - The Corporation follows
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, which requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Accounting Standards No. 130, Reporting of Comprehensive Income,
which establishes (revenues, expenses, gains and losses) in a
complete set of financial statements. This standards for reporting
and display of comprehensive income and its components statement
also requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. Reclassification of
financial statements for earlier periods for comparative purposes is
required. Adoption of this new standard did not have a material
effect on the Corporation's financial condition or the results of
its operations.
SEGMENT REPORTING - On December 31, 1998, the Corporation adopted
Statement of Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, which establishes
standards for reporting by public companies of operating segments in
annual financial statements and requires that those enterprises also
report selected information about operating segments in interim
financial reports issued to shareholders. This statement also
establishes standards for related disclosures about products. This
statement requires the reporting of financial and descriptive
information about an enterprise's reportable operating segments. The
segment disclosures of SFAS 131 are described in Note 20 of the
financial statements.
DEFERRED COMPENSATION - On December 31, 1998, the Corporation
adopted Statement of Accounting Standards No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. The
statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. Restatement of disclosures for earlier
periods for comparative purposes is required. The disclosure impact
of SFAS 132 is described in Note 11 of the financial statements.
STOCK SPLIT - On September 5, 1997, the Corporation announced a
3-for-1 stock split effected in the form of a 200% stock dividend,
payable on October 3, 1997, to shareholders of record as of
September 19, 1997. All references to the outstanding number of
shares and earnings/dividends per share have been restated to
reflect the split.
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. The most significant estimate impacting the
financial statements of the Corporation is the allowance for loan
losses. Actual results could differ from these estimates.
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 $216,000 in 1998
and 1997, respectively. Prior to March assets other than the stock
of Premier Bank. This transaction resulted in the Corporation owning
100% of the stock of Premier Bank. On October 16, 1998, the
Corporation consolidated the operations of Premier Bank into the
operations of the Bank. As a result, Premier Bank is no longer an
active entity.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SECURITIES:
At December 31, 1998 and 1997, 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, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998
- ---- 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 $22,286,787 $ 247,880 $ 114,194 $22,420,473
Obligations of state and political
subdivisions 1,094,267 18,473 - 1,112,740
Federal Home Loan Bank stock 3,193,600 - - 3,193,600
----------- ----------- ----------- -----------
$26,574,654 $ 266,353 $ 114,194 $26,726,813
=========== =========== =========== ===========
Held-to-maturity:
Obligations of state and political
subdivisions $ 3,619,992 $ 59,143 $ 59,387 $ 3,619,748
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997
- ---- 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 $30,132,241 $ 317,549 $ 165,945 $30,283,845
Obligations of state and political
subdivisions 1,144,316 9,541 849 1,153,008
Federal Home Loan Bank stock 2,415,100 - - 2,415,100
----------- ----------- ----------- -----------
$33,691,657 $ 327,090 $ 166,794 $33,851,953
=========== =========== =========== ===========
Held-to-maturity:
Obligations of state and political
subsivisions $ 7,627,126 $ 43,507 $ 32,859 $ 7,637,774
=========== =========== =========== ===========
</TABLE>
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SECURITIES, CONTINUED:
Interest income from securities for the years ended December 31,
1998, 1997 and 1996, consist of:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. treasury securities $ 139,297 $ 165,720 $ 421,236
Obligations of other U.S. government
corporations and agencies 1,545,155 2,105,423 2,622,980
Obligations of states and political
subdivisions 282,161 387,097 479,174
Other securities 180,631 213,102 98,907
---------- ---------- ----------
$2,147,244 $2,871,342 $3,622,297
========== ========== ==========
</TABLE>
Gross realized gains and losses on all sales of securities for the
years ended December 31, 1998, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Gross realized gains:
Available-for-sale $ - $ 1,982 $ -
======= ======= ======
Gross realized losses:
Available-for-sale $ - $ - $3,488
======= ======= ======
</TABLE>
Debt securities at December 31, 1998, will mature on the following
schedule:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
APPROXIMATE APPROXIMATE
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ 7,174,242 $ 7,185,293 $ 395,326 $ 397,601
Due after one year through five years 1,991,375 2,022,623 2,824,666 2,881,534
Due after five years through ten years 5,816,366 5,860,695 - -
Due after ten years 11,592,671 11,658,202 400,000 340,613
----------- ----------- ----------- -----------
$26,574,654 $26,726,813 $ 3,619,992 $ 3,619,748
=========== =========== =========== ===========
</TABLE>
Investment securities with book and market values of $8,238,621 and
$8,256,203 at December 31, 1998, respectively and $4,918,255 and
$4,953,389 at December 31, 1997, respectively, were pledged to
secure public and trust deposits and for other purposes as required
or permitted by law.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LOANS:
Major classifications of loans at December 31, 1998 and 1997, are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial $ 121,294,075 $ 108,985,440
Commercial real estate 115,203,849 125,357,908
Mortgage installment 153,159,913 146,226,882
Installment consumer 80,147,158 72,751,994
Other loans 17,102,345 3,154,342
------------- -------------
486,907,340 456,476,566
Less:
Unearned income (9,993,687) (5,932,977)
Allowance for loan losses (10,252,508) (9,153,823)
------------- -------------
$ 466,661,145 $ 441,389,766
============= =============
</TABLE>
At December 31, 1998 and 1997, loans on which the accrual of
interest had been discontinued totaled $4,159,303 and $2,264,634,
respectively. Unrecorded interest income on these loans aggregated
approximately $260,554, $112,300 and $169,100 for 1998, 1997 and
1996, respectively.
Loans-in-process at December 31, 1998 and 1997 totaled $13,302,325
and $921,754, respectively.
A summary of activity in the allowance for loan losses for the years
ended December 31, 1998, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $ 9,153,823 $ 7,330,676 $ 4,654,234
Balances acquired in acquisition of
Premier Bank - - 440,000
Provision for loan losses 3,417,010 5,953,205 2,973,193
Recoveries 915,893 1,012,092 888,249
------------ ------------ ------------
13,486,726 14,295,973 8,955,676
Loans charged to allowance (3,234,218) (5,142,150) (1,625,000)
------------ ------------ ------------
$ 10,252,508 $ 9,153,823 $ 7,330,676
============ ============ ============
</TABLE>
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 Bank as indicated below. In the opinion of management, all
such loans were made in the ordinary course of business on the same
terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated borrowers
and did not involve more than the normal risk of collectibility.
<TABLE>
<S> <C>
Balance, December 31, 1996 $ 11,388,251
Additions 2,711,499
Reductions (3,849,713)
------------
Balance, December 31, 1997 10,250,037
Additions 1,841,500
Reductions (1,820,008)
------------
Balances, December 31, 1998 $ 10,271,529
============
</TABLE>
In addition to the above, the Bank provides financing for
purchasers of automotive and other transportation equipment from
dealerships in which a director has more than a ten percent
beneficial interest. Loans originated through these dealerships
aggregated $1,739,085 during 1998 and $1,583,653 for 1997. 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 $65,198 and $8,868 at
December 31, 1998 and 1997, respectively, are secondarily
collateralized by dealer finance reserves and also provide for
recourse against the dealerships to further protect the Banks
against potential losses.
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, 1998:
<TABLE>
<S> <C>
Noncompete agreement, payable in yearly principal
installments through January 2000 $ 80,000
8% note, interest payments due quarterly, principal
payments January 15, 2003 through January 15, 2008 231,418
8% note, interest payments due quarterly, principal
payments January 15, 2002 through January 15, 2008 2,200,000
----------
$2,511,418
==========
</TABLE>
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. RELATED PARTY TRANSACTIONS, CONTINUED:
Scheduled principal maturities of notes payable as of December 31,
1998, are:
<TABLE>
<S> <C>
1999 $ 40,000
2000 40,000
2001 -
2002 100,000
2003 131,418
Thereafter 2,200,000
----------
$2,511,418
==========
</TABLE>
6. PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1998 and 1997, was comprised
of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 1,892,120 $ 1,763,220
Banking quarters 7,720,215 6,951,635
Leasehold improvements 1,515,708 1,195,989
Furniture and fixtures 6,061,456 5,356,170
Construction in progress 899,082 117,352
Automobiles 361,257 378,996
------------ ------------
18,449,838 15,763,362
Less accumulated depreciation and amortization (6,734,695) (5,960,163)
------------ ------------
$ 11,715,143 $ 9,803,199
============ ============
</TABLE>
7. DEPOSITS:
The components of interest expense on deposits for the years ended
December 31, 1998, 1997 and 1996, were:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest bearing accounts:
NOW $ 1,054,950 $ 1,556,528 $ 1,400,414
Money market transaction 1,584,073 1,132,337 950,906
Savings 1,210,700 1,241,428 1,185,304
Certificates of deposit $100,000 and over 3,070,421 3,093,701 2,080,723
Other certificates of deposit 10,905,359 10,853,955 9,560,456
----------- ----------- -----------
$17,825,503 $17,877,949 $15,177,803
=========== =========== ===========
</TABLE>
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. DEPOSITS, CONTINUED:
During the year ended December 31, 1998, the Bank purchased
software that allowed the Bank to re-class deposits held in the NOW
accounts to the Money Market transaction account. The purpose of
transferring funds from the NOW account to the Money Market
transaction account is to reduce or eliminate the Bank's reserve
requirement at the Federal Reserve. The Bank transferred
approximately $74,000,000 to the Money Market transaction account
in 1998.
8. LONG-TERM DEBT:
The Bank has 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 the Bank's
blanket pledge of mortgage loans aggregating approximately
$88,710,000 and stock of the Federal Home Loan Bank.
Long-term debt at December 31, 1998 and 1997, was summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
5.82% note, repaid February 15, 1998 $ - $ 4,000,000
5.88% note, repaid May 20, 1998 - 4,000,000
5.81% note, repaid December 2, 1998 - 2,000,000
5.65% note, payable in monthly installments of
$21,854 through July 1, 2003 1,039,901 1,253,257
6.35% note, payable in monthly installments of
$7,368 through September 1, 2013 842,357 878,824
6.10% note, payable in monthly installments of
$8,493 through July 1, 2008 733,432 793,221
4.38% note, interest payments due monthly,
principal due November 18, 2008 2,500,000 -
4.74% note, interest payments due monthly,
principal due November 20, 2008 3,000,000 -
4.64% note, interest payments due monthly,
principal due December 11, 2003 2,000,000 -
4.56% note, interest payments due monthly,
principal due December 8, 2008 2,000,000 -
4.23% note, interest payments due monthly,
principal due December 15, 2008 2,000,000 -
5.50% note, interest payments due monthly,
principal due January 4, 1999 20,000,000 -
----------- -----------
$34,115,690 $12,925,302
=========== ===========
</TABLE>
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LONG-TERM DEBT, CONTINUED:
Scheduled principal maturities of long-term debt outstanding as of
December 31, 1998, are:
<TABLE>
<S> <C>
1,999 $20,303,605
2,000 321,755
2,001 340,993
2,002 361,383
2,003 2,249,693
Thereafter 10,538,261
-----------
$34,115,690
===========
</TABLE>
At December 31, 1998, the Corporation maintained three unused
federal funds lines of credit totaling $20,000,000 with interest at
the federal funds buy rate at three correspondent banks. 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. The line
of credit will expire on September 5, 1999. The Bank also
maintains a $25,000,000 letter of credit with the FHLB, which is
used to pledge the Corporation's public deposits with the state
collateral pool, at a quoted one-year variable interest rate which
will expire December 16, 1999.
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, 1998 for
each of the years in the five year period ending December 31, 2001,
and thereafter were as follows:
<TABLE>
<S> <C>
1999 $169,074
2000 61,491
2001 15,138
2002 -
2003 -
Thereafter -
--------
$245,703
========
</TABLE>
The total rental expense for operating leases was $396,982,
$164,506 and $305,618 for the years ended December 31, 1998, 1997
and 1996, respectively.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, and 1,800 as
a result of a 1997 stock split. The options are fully vested upon
grant, expire ten years from the date of grant and are cancelled if
the key executive voluntarily resigns his employment or is
terminated for cause. Compensation expense recognized by the
Corporation in connection with these options was $93,100, $82,800
and $30,000 for the years ended December 31, 1998, 1997 and 1996,
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 1998, 1997 and 1996, the Corporation granted additional
stock options to certain key executives to purchase 6,000, 5,540 and
4,980 shares at $115, $100 and $71.67 per share, respectively. If a
key executive is a ten percent or greater stockholder at the time of
exercise, the option price is increased by ten 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 twenty percent per
year and expire ten years from the date of grant.
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS, CONTINUED:
A summary of the status of the Corporation's Plans as of December
31, 1998, 1997 and 1996, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 KEY EXECUTIVE OTHER KEY EXECUTIVES TOTAL
- ---- ------------- -------------------- -----------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,600 $ 53.07 19,298 $ 72.19 22,898 $ 69.19
Granted 1,800 61.21 6,000 115.00 7,800 102.59
Exercised - - (2,698) 54.30 (2,698) 54.30
Forfeited - - (1,877) 80.63 (1,877) 80.63
------- -------- ------- -------- ------- --------
Outstanding at end of year 5,400 $ 55.78 20,723 $ 86.15 26,123 $ 79.87
======= ======== ======= ======== ======= ========
Options exercisable at year end 5,400 $ 55.78 7,785 $ 68.19 13,185 $ 63.11
======= ======== ======= ======== ======= ========
Fair value of each option
granted during the year $ 51.50 $ 17.42
======= ========
1997
- ----
Outstanding at beginning of year 1,800 $ 50.64 13,803 $ 60.99 15,603 $ 59.80
Granted 1,800 55.50 5,540 100.00 7,340 89.09
Exercised - - (45) 60.00 (45) 60.00
------- -------- ------- -------- ------- --------
Outstanding at end of year 3,600 $ 53.07 19,298 $ 72.19 22,898 $ 69.19
======= ======== ======= ======== ======= ========
Options exercisable at year end 3,600 $ 53.07 7,434 $ 55.63 11,034 $ 54.79
======= ======== ======= ======== ======= ========
Fair value of each option
granted during the year $ 46.99 $ 19.20
======= ========
</TABLE>
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS, CONTINUED:
<TABLE>
<CAPTION>
1996
----
KEY EXECUTIVE OTHER KEY EXECUTIVE TOTAL
-------------------- --------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year 11,244 $ 38.27 9,900 $ 54.44 21,144 $ 45.84
Granted 1,800 50.64 4,980 71.67 6,780 66.07
Exercised (11,244) 38.27 (1,077) 50.19 (12,321) 39.31
------- ------- ------- ------- ------- -------
Outstanding at end of year 1,800 $ 50.64 13,803 $ 60.99 15,603 $ 59.80
======= ======= ======= ======= ======= =======
Options exercisable at year end 1,800 $ 50.64 5,703 $ 52.21 7,503 $ 51.83
======= ======= ======= ======= ======= =======
Fair value of each option
granted during the year $26.72 $13.97
====== ======
</TABLE>
The following table summarizes information about the Plans' stock
options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE AT 12/31/98 EXERCISE PRICE
<S> <C> <C> <C> <C>
*$50.64 - $61.21 5,400 9.0 5,400 $ 55.78
$48.33 - $71.67 9,969 7.0 6,136 $ 58.44
$100.00 - $115.00 10,754 9.6 1,649 $ 106.99
*Compensation for the key executive.
</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>
1998 1997 1996
------------------------- ------------------------ -------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
<S> <C> <C> <C>
Net income $ 8,206,419 $ 8,151,888 $ 6,830,17 $ 6,775,830 $ 5,963,262 $ 5,924,579
Net income per share $ 6.05 $ 6.01 $ 5.04 $ 5.00 $ 4.43 $ 4.40
Net income per share,
assuming dilution $ 6.02 $ 5.98 $ 5.03 $ 4.99 $ 4.43 $ 4.40
</TABLE>
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS, CONTINUED:
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 1998, 1997
and 1996, respectively: dividend growth rate of 15%, 12% and 12%;
expected volatility of 9.8%, 10.38% and 7.75%: risk-free interest
rates of 5%, 5.5% and 6.6%; and expected lives of 7 years, 7 years
and 7 years.
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 have the option to contribute from three to ten percent of
their monthly salary to the Plan. Effective January 1, 1998, the
Corporation amended the profit-sharing plan to provide for a 2%
company contribution. The Corporation contributed $80,600 in 1998.
The Corporation made no contributions to this plan for the years
ended December 31, 1997 and 1996.
The Corporation also has a contributory money purchase plan covering
certain employees with one year or more of service. While the
employees do not contribute to the plan, the Corporation makes
contributions. Effective January 1, 1998, the Corporation amended
the money purchase plan to provide for a contribution in the amount
of 13% of each eligible participant's gross earnings, less bonuses
and vacations, actually paid or received. In the prior years the
Corporation made contributions in an amount equal to 15% of each
eligible participant's gross earnings, less bonuses and vacations,
actually paid or received. The contributions by the Corporation for
the money purchase plan were $539,400, $571,569 and $505,031 for
1998, 1997 and 1996, respectively.
The Bank has 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.
Directors of the Corporation and the Bank also 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 $1,033,053 and $938,323 at
December 31, 1998 and 1997, 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
sheets. 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.
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES:
The components of income tax expense for the years ended December
31, 1998, 1997 and 1996, were:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current income taxes:
Federal $ 4,211,321 $ 3,831,898 $ 3,461,877
State 679,405 731,023 586,397
----------- ----------- -----------
4,890,726 4,562,921 4,048,274
Deferred income tax benefit (200,320) (573,157) (677,653)
----------- ----------- -----------
$ 4,690,406 $ 3,989,764 $ 3,370,621
============ ============ ===========
</TABLE>
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, 1998, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Tax at statutory rates $ 4,384,921 $ 3,678,779 $ 3,173,520
Tax increases (decreases) attributable to:
Tax exempt interest (121,401) (131,613) (180,099)
State income tax less federal tax benefit 399,101 482,475 387,022
Interest expense disallowed 34,757 38,813 20,040
Dividends (32,770) (27,797) (11,551)
Option compensation 31,650 28,152 10,200
Goodwill amortization 68,226 36,031 35,785
Cash surrender value earnings (71,505) (66,718) (58,557)
Other (2,573) (48,358) (5,739)
----------- ----------- -----------
$ 4,690,406 $ 3,989,764 $ 3,370,621
============ ============ ===========
</TABLE>
The significant components of the Corporation's deferred tax assets
and liabilities at December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses and other real estate owned $ 3,652,946 $ 3,162,045
Deferred compensation 376,719 355,992
----------- -----------
Gross deferred tax assets 4,029,665 3,518,037
----------- -----------
Deferred tax liabilities:
Depreciation 604,198 533,785
Unrealized appreciation on available-for-sale securities 57,820 60,469
Core deposit intangible 292,670 334,481
FHLB stock 210,085 141,444
Other 216,714 -
----------- -----------
Gross deferred tax liabilities 1,381,487 1,070,179
----------- -----------
Net deferred tax asset $ 2,648,178 $ 2,447,858
============ ===========
</TABLE>
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its 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 Bank's 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 Bank uses the
same credit policies in making these commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many
commitments expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Bank 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
Bank 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 Bank's 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, 1998 and
1997 amounted to $4,901,888 and $1,931,888, respectively.
Outstanding commitments to lend at fixed rates were $17,244,863 and
$1,608,807 and at variable rates were $6,088,328 and $3,423,217 at
December 31, 1998 and 1997, respectively. Undisbursed advances on
customer lines of credit were $58,284,854 and $61,141,551 at
December 31, 1998 and 1997, respectively. The amount available for
borrowing under inventory collateralized loans was $4,307,270 at
December 31, 1998 and $3,970,495 at December 31, 1997. The Bank does
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.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS:
The Corporation and the Bank 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 financial statements of the Corporation and the Bank. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines
that involves quantitative measures of the assets, liabilities, and
certain off-balance-sheet items of the Corporation and the Bank as
calculated under regulatory accounting practices. The 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 Corporation and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier
1 capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier 1 capital (as defined) to average total
consolidated assets (as defined). Management believes, as of
December 31, 1998 and 1997, that the Corporation and the Bank met
all capital adequacy requirements to which they were subject.
The Corporation and the Bank are well capitalized under the
regulatory framework for prompt corrective action. To be categorized
as well capitalized the Corporation and the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table.
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS, CONTINUED:
<TABLE>
<CAPTION>
REGULATORY TO BE WELL
REQUIREMENTS 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, 1998:
Total Capital (to Risk
Weighted Assets):
Consolidated 58,868,000 13.02% 36,182,960 >8% 45,228,700 >10%
- -
Greene County Bank 60,368,000 13.35% 36,184,160 >8% 45,230,200 >10%
- -
Premier Bank* - 0.00% - 0% - 0%
Tier I Capital (to Risk
Weighted Assets):
Consolidated 53,158,000 11.75% 18,091,480 >4% 27,137,220 >6%
- -
Greene County Bank 54,657,000 12.08% 18,092,080 >4% 27,138,120 >6%
- -
Premier Bank* - 0.00% - 0% - 0%
Tier I Capital (to Average
Assets):
Consolidated 53,158,000 9.86% 21,570,320 >4% 26,962,900 >5%
- -
Greene County Bank 54,657,000 10.16% 21,524,840 >4% 26,906,050 >5%
- -
Premier Bank* - 0.00% - 0% - 0%
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets):
Consolidated $ 53,035,000 12.33% $ 34,408,000 >8% $ 43,010,000 >10%
- -
Greene County Bank 51,457,000 12.87% 31,981,840 >8% 39,977,300 >10%
- -
Premier Bank 3,217,000 11.14% 2,310,320 >8% 2,887,900 >10%
- -
Tier I Capital (to Risk
Weighted Assets):
Consolidated 47,612,000 11.07% 17,204,000 >4% 25,806,000 >6%
- -
Greene County Bank 46,415,000 11.61% 15,990,920 >4% 23,986,380 >6%
- -
Premier Bank 2,854,000 9.88% 1,155,160 >4% 1,732,740 >6%
- -
Tier I Capital (to Average
Assets):
Consolidated 47,612,000 9.30% 20,481,840 >4% 25,602,300 >5%
- -
Greene County Bank 46,415,000 9.80% 18,939,440 >4% 23,674,300 >5%
- -
Premier Bank 2,854,000 7.67% 1,487,560 >4% 1,859,450 >5%
- -
*Combined with Greene County Bank in 1998
</TABLE>
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS, CONTINUED:
The Corporation's principal source of funds is dividends received
from the Bank. Under applicable banking laws, the Bank 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 Bank. As a practical matter, dividend
payments by the Bank to the Corporation would be limited by the
necessity to maintain appropriate amounts for capital adequacy
purposes under federal banking regulations.
15. ADDITIONAL CASH FLOW INFORMATION:
Income taxes paid during the years ended December 31, 1998, 1997 and
1996 amounted to $4,523,019, $4,460,000 and $5,273,919,
respectively. Interest expense paid in cash during the years 1998,
1997 and 1996 amounted to $18,845,800, $18,970,895 and $15,632,435,
respectively.
Significant noncash transactions for the years ended December 31,
1998, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Financed sales of other real estate owned $ - $ 147,128 $ 59,750
Foreclosed loans transferred to OREO 1,558,684 784,769 380,587
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>
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. PARENT COMPANY FINANCIAL INFORMATION:
Condensed financial information for Greene County Bancshares, Inc.
(parent company only) is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31,
------------
1998 1997
<S> <C> <C>
ASSETS
Cash $ 928,198 $ 983,385
Investments in subsidiary 55,371,639 50,043,024
Cash surrender value of life insurance contracts 202,963 193,524
Other assets 2,039,019 2,066,220
------------ ------------
$ 58,541,819 $ 53,286,153
============ ============
LIABILITIES
Deferred income taxes $ 210,068 $ 302,980
Related party notes payable 2,511,418 2,561,418
Other liabilities 434,535 308,895
------------ ------------
3,156,021 3,173,293
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 13,571,980 13,545,000
Paid-in capital 4,172,180 4,052,656
Retained earnings 37,421,151 32,332,574
Net unrealized depreciation on available-for-sale securities,
net of income tax expense (benefit) of $57,820
and $60,469 in 1998 and 1997, respectively 220,487 182,630
------------ ------------
Total shareholders' equity 55,385,798 50,112,860
------------ ------------
Total liabilities and shareholders' equity $ 58,541,819 $ 53,286,153
============ ============
</TABLE>
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Equity in undistributed earnings of subsidiary $ 5,334,099 $ 3,902,503 $ 3,862,086
Dividends from subsidiaries 3,355,057 3,347,855 3,022,100
Other income 147,130 126,212 107,871
----------- ----------- -----------
Total revenue 8,836,286 7,376,570 6,992,057
Related party interest expense 197,557 247,215 160,718
Other expense 745,050 556,784 524,547
----------- ----------- -----------
Income before income taxes 7,893,679 6,572,571 6,306,792
Income tax expense (benefit) (312,740) (257,603) 343,530
----------- ----------- -----------
Net income $ 8,206,419 $ 6,830,174 $ 5,963,262
=========== =========== ===========
</TABLE>
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,206,419 $ 6,830,174 $ 5,963,262
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiary (5,334,099) (3,902,503) (3,862,086)
Depreciation and amortization 215,999 215,999 232,855
Change in other assets (281,713) (71,344) 537,500
Change in other liabilities 125,640 (30,959) (22,236)
--------- --------- -----------
Net cash provided by operating activities 2,932,246 3,041,367 2,849,295
--------- --------- -----------
Cash flows from investing activities:
Acquisition of bank - - (708,582)
Increase in cash surrender value of life insurance contracts (9,439) (9,416) (6,128)
--------- --------- -----------
Net cash used by investing activities (9,439) (9,416) (714,710)
--------- --------- -----------
Cash flows from financing activities:
Capital contributed to subsidiary - (500,000) -
Proceeds from issuance and sale of common stock 189,848 2,701 484,366
Repayments of related party debt (50,000) (50,000) (50,000)
Repayments of debt - - (327,239)
Dividends paid (3,117,842) (2,600,640) (2,328,858)
--------- --------- -----------
Net cash used by financing activities (2,977,994) (3,147,939) (2,221,731)
--------- --------- -----------
Net decrease in cash (55,187) (115,988) (87,146)
Cash at beginning of year 983,385 1,099,373 1,186,519
--------- --------- -----------
Cash at end of year $ 928,198 $ 983,385 $ 1,099,373
========= ========= ===========
</TABLE>
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. COMMITMENTS AND CONTINGENCIES:
The Corporation is 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.
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
The estimated fair values of the Corporation's financial instruments
at December 31, 1998 and 1997, were as follows (rounded to the
nearest thousand):
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets:
Securities $ 30,347,000 $ 30,347,000 $ 41,479,000 $ 41,490,000
Federal funds sold 24,300,000 24,300,000 5,500,000 5,500,000
Loans, net 46,666,000 467,521,000 441,390,000 438,824,000
Financial liabilities:
Deposits $ 459,183,000 $ 442,375,000 $ 461,729,000 $ 444,939,000
Securities sold under agreements
to repurchase 2,416,000 2,416,000 1,414,000 1,414,000
Federal funds purchased 4,800,000 4,800,000 - -
Long-term debt 34,116,000 34,145,000 12,925,000 12,917,000
Related party notes payable 2,511,000 2,465,000 2,561,000 2,561,000
</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, 1998 and 1997.
19. EARNINGS PER SHARE OF COMMON STOCK:
Basic earnings per share of common stock is computed by dividing net
income available for common shareholders by the weighted average
number of common shares outstanding. Diluted earnings per share is
computed by dividing adjusted net income by the weighted average
number of common shares and assumed conversions of dilutive
securities outstanding during each year. Stock options are regarded
as dilutive securities. Dilutive securities are computed using the
treasury stock method.
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. EARNINGS PER SHARE OF COMMON STOCK, CONTINUED:
The following is a reconciliation of the numerators and denominators
used in the basic and diluted earnings per share computations for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
INCOME SHARES INCOME SHARES INCOME SHARES
------ ------ ------ ------ ------ ------
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available
to common
shareholders $ 8,206,419 1,355,498 $ 6,830,174 1,354,498 $ 5,963,262 1,344,852
EFFECT OF DILUTIVE
SECURITIES
Stock options
outstanding - 7,782 - 4,109 - 2,664
----------- --------- ----------- --------- ----------- ---------
DILUTED EPS
Income available
to common
shareholders
plus assumed
conversions $ 8,206,419 1,363,280 $ 6,830,174 1,358,607 $ 5,963,262 1,347,516
=========== ========= =========== ========= =========== =========
</TABLE>
20. SEGMENT INFORMATION:
The Bank's principal business 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. The Bank has
four wholly-owned subsidiaries; a consumer finance business, a
mortgage banking operation, a subprime automobile lending operation
and a title insurance business. These subsidiaries have been
disclosed below in the other column as they do not meet quantitative
threshold on an individual basis.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Intersegment revenues and expenses are accounted for as if they were
to third parties at current market prices.
The reportable segments are strategic business units that offer
different products and services. They are managed separately because
each requires different marketing strategies.
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. SEGMENT INFORMATION, CONTINUED:
<TABLE>
<CAPTION>
1998 BANK OTHER ELILMINATIONS TOTAL
<S> <C> <C> <C> <C>
Interest income $ 45,035,584 $ 8,424,664 $ (2,667,792) $ 50,792,456
Interest expense 18,374,592 2,865,348 (2,667,792) 18,572,148
------------ ------------ ------------- ------------
Net interest income $ 26,660,992 $ 5,559,316 $ - $ 32,220,308
============ ============ ============= ============
Provision for loan losses $ 1,468,533 $ 1,948,477 $ - $ 3,417,010
Noninterest income 3,871,232 1,571,161 (886,904) 4,555,489
Noninterest expense 15,757,712 4,978,006 (273,756) 20,461,962
Income tax expense 4,616,824 73,582 - 4,690,406
------------ ------------ ------------- ------------
Segment net income $ 8,689,155 $ 130,412 $ (613,148) $ 8,206,419
============ ============ ============= ============
Segment assets $567,732,386 $100,471,188 $(100,024,049) $568,179,525
============ ============ ============= ============
1997
Interest income $ 45,095,525 $ 5,477,748 $ (1,568,475) $ 49,004,798
Interest expense 18,962,133 1,750,274 (1,568,475) 19,143,932
------------ ------------ ------------- ------------
Net interest income $ 26,133,392 $ 3,727,474 $ - $ 29,860,866
============ ============ ============= ============
Provision for loan losses 2,816,227 3,136,978 - 5,953,205
Noninterest income 2,439,416 966,171 515,529 3,921,116
Noninterest expense 13,795,797 3,471,074 (258,032) 17,008,839
Income tax expense 4,712,409 (722,645) - 3,989,764
------------ ------------ ------------- ------------
Segment net income $ 7,248,376 $ 1,191,763 $ 773,561 $ 6,830,174
============ ============ ============= ============
Segment assets $532,305,851 $ 76,545,128 $ (74,749,278) $534,010,701
============ ============ ============= ============
1996
Interest income $ 38,096,534 $ 2,124,082 $ (699,890) $ 39,520,726
Interest expense 15,693,015 831,395 (699,890) 15,824,520
------------ ------------ ------------- ------------
Net interest income $ 22,403,519 $ 1,292,687 $ - $ 23,696,206
============ ============ ============= ============
Provision for loan losses $ 2,353,500 $ 619,693 $ - $ 2,973,193
Noninterest income 3,484,299 427,657 (501,176) 3,410,780
Noninterest expense 13,733,290 1,424,878 (358,258) 14,799,910
Income tax expense 2,913,354 457,267 - 3,370,621
------------ ------------ ------------- ------------
Segment net income $ 6,887,674 $ (781,494) $ (142,918) $ 5,963,262
============ ============ ============= ============
Segment assets $475,417,557 $ 57,421,739 $ (54,790,990) $478,048,306
============ ============ ============= ============
</TABLE>
<PAGE> 53
MARKET AND DIVIDEND INFORMATION
There currently are 1,357,948 shares of Common Stock outstanding and
approximately 1,650 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 (2)
----------- -------------
<S> <C> <C>
FISCAL 1997:
First quarter $ 76.67(1) $ .416(1)
Second quarter 76.67(1) .417(1)
Third quarter 83.33(1) .417(1)
Fourth quarter 100.00 .670
-----------------
$ 1.92
=================
FISCAL 1998:
First quarter $ 110.00 $ 0.500
Second quarter 110.00 0.500
Third quarter 115.00 0.500
Fourth quarter 115.00 0.800
-----------------
$ 2.30
================
</TABLE>
(1) The sales price and dividend information has been restated to reflect the
effect of the Company's 3-for-1 stock split effected as a stock
dividend in October 1997.
(2) 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> 1
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(2) 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
Fairway Title Company 100% Tennessee
</TABLE>
(1) Currently dormant following combination of business operations into
Greene County Bank in 1996 and survival of charter only under Tennessee
law.
(2) Currently dormant following combination of business operations into
Greene County Bank in 1998 and survival of charter only under Tennessee
law. On March 15, 1999, the Company entered into an agreement with an
unrelated third party to sell the charter of Premier Bank of East
Tennessee.
<PAGE> 1
EXHIBIT 23
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 29, 1999, on our audits of the consolidated financial statements
of Greene County Bancshares, Inc. as of December 31, 1998 and 1997, and for each
of the years in the three year period ended December 31, 1998, which report is
included in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Knoxville, Tennessee
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,591,814
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,726,813
<INVESTMENTS-CARRYING> 3,619,992
<INVESTMENTS-MARKET> 3,619,748
<LOANS> 466,661,145
<ALLOWANCE> 10,252,508
<TOTAL-ASSETS> 568,179,525
<DEPOSITS> 459,183,360
<SHORT-TERM> 7,216,000
<LIABILITIES-OTHER> 9,767,259
<LONG-TERM> 36,627,108
0
0
<COMMON> 13,571,980
<OTHER-SE> 41,813,818
<TOTAL-LIABILITIES-AND-EQUITY> 568,179,525
<INTEREST-LOAN> 47,820,872
<INTEREST-INVEST> 2,147,244
<INTEREST-OTHER> 824,340
<INTEREST-TOTAL> 50,792,456
<INTEREST-DEPOSIT> 17,825,503
<INTEREST-EXPENSE> 18,572,148
<INTEREST-INCOME-NET> 32,220,308
<LOAN-LOSSES> 3,417,010
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 20,461,962
<INCOME-PRETAX> 12,896,825
<INCOME-PRE-EXTRAORDINARY> 12,896,825
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,206,419
<EPS-PRIMARY> 6.05
<EPS-DILUTED> 6.02
<YIELD-ACTUAL> 6.18
<LOANS-NON> 4,159,076
<LOANS-PAST> 872,530
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,191,507
<ALLOWANCE-OPEN> 9,153,823
<CHARGE-OFFS> 3,234,218
<RECOVERIES> 915,893
<ALLOWANCE-CLOSE> 10,252,508
<ALLOWANCE-DOMESTIC> 10,252,508
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
