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
(Mark One) SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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
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GREENE COUNTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1222567
--------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 NORTH MAIN STREET, GREENEVILLE, TENNESSEE 37743-4992
---------------------------------------------- -----------
(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 $16.15 per share, the registrant believes that the
aggregate market value of the voting stock on March 26, 2002 was $110.1 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, 6,818,890 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 Proxy Statement for 2002 Annual Meeting of Shareholders.
(Part III)
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
PRESENTATION OF AMOUNTS
ALL DOLLAR AMOUNTS SET FORTH BELOW, OTHER THAN PER-SHARE AMOUNTS AND
PERCENTAGES, ARE IN THOUSANDS UNLESS OTHERWISE NOTED.
THE COMPANY
Greene County Bancshares, Inc. (the "Company") was formed in 1985 and
serves as the bank holding company for Greene County Bank (the "Bank"), which is
a Tennessee-chartered commercial bank that conducts the principal business of
the Company. At December 31, 2001, the Company maintained a main office in
Greeneville, Tennessee and 29 bank branches (of which six are in leased
operating premises) and 12 separate locations operated by the Bank's
subsidiaries.
The Company's assets consist primarily of its investment in the Bank and
liquid investments. Its primary activities are conducted through the Bank. At
December 31, 2001, the Company's consolidated total assets were $811,612, its
consolidated net loans, including loans held for sale, were $679,271, its total
deposits were $653,913 and its total stockholders' equity was $68,627.
The Company's net income is dependent primarily on its net interest income,
which is the difference between the interest income earned on its loans,
investment assets and other interest-earning assets and the interest paid on
deposits and other interest-bearing liabilities. To a lesser extent, the
Company's net income also is affected by its non-interest income derived
principally from service charges and fees as well as the level of non-interest
expenses such as salaries and employee benefits.
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.
The principal executive offices of the Company are located at 100 North
Main Street, Greeneville, Tennessee 37743-4992 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, commercial and residential
real estate loans, and installment consumer loans. The Bank also provides
collection and other banking services, directly and through its finance,
acceptance and title subsidiary corporations. At December 31, 2001, the Bank had
27 full service banking offices located in East Tennessee, including Greene,
Washington, Blount, Hamblen, McMinn, Loudon, Hawkins, Sullivan, Cocke, and
Monroe Counties. The Bank also had one full service branch located in nearby Hot
Springs, North Carolina. Further, the Bank operates a trust and money management
function located in Wilson County, Tennessee and doing business as President's
Trust, and operates a mortgage loan operation in Knox County, Tennessee. These
functions and operations are defined as Bank branches but are not considered to
be full service branches.
The Bank also conducts separate businesses through three wholly owned
subsidiaries. Through Superior Financial Services, Inc. ("Superior Financial"),
the Bank operates ten consumer finance company offices and one collection office
located in Greene, Blount, Hamblen, McMinn, Washington, Sullivan, Sevier, Knox
and Hamilton Counties, Tennessee. The Bank also operates a mortgage banking
operation through its main office in Knox County, Tennessee and it also has
representatives located throughout the Company's branch system. Through GCB
Acceptance Corporation ("GCB Acceptance"), the Bank operates a subprime
automobile lending company with a sole office in Johnson City, Tennessee.
Through Fairway Title Co., the Bank operates a title company headquartered in
Knoxville, Tennessee and an office in Johnson City, 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."
BRANCH PURCHASES AND SALE
On March 8, 2001, the Bank acquired a bank branch located in Hot Springs,
North Carolina (the "North Carolina Branch") from Wachovia Bank, N.A.
("Wachovia") and sold its bank branch located in Farragut, Tennessee (the
"Farragut Branch") to Wachovia. The purchase of the North Carolina Branch and
the sale of the Farragut Branch were pursuant to two separate Purchase and
Assumption Agreements between the Bank and Wachovia as entered into on September
20, 2000, and subsequently amended on February 7, 2001.
On December 7, 2001, the Bank acquired three bank branches located in
eastern Tennessee from SunTrust Bank. In conjunction with the acquisition, the
Bank closed one of its branches in Rogersville, Tennessee.
BRANCH EXPANSION
During the early and mid part of 2001, the Company continued the
geographical expansion of its branch network, opening a new branch in Blount
County, Tennessee along with its acquisition of the North Carolina branch and
the branches acquired from SunTrust Bank referenced above. This expansion was
offset, in part, by the closures of two Bank branches and four offices of
Superior Financial for administrative consolidation purposes.
LENDING ACTIVITIES
General. The loan portfolio of the Company is comprised of commercial,
commercial and residential real estate and installment consumer loans. Such
loans are primarily 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, Loudon, Monroe and Cocke
Counties, Tennessee.
2
Loan Composition. The following table sets forth the composition of the
Company's loans at December 31 for each of the periods indicated.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Commercial.......................... $ 96,122 $ 87,680 $ 68,793 $ 57,860 $ 51,661
Commercial real estate.............. 295,002 288,254 242,574 185,063 182,837
Residential real estate............. 210,489 218,007 181,960 143,500 135,433
Loans held for sale................. 7,945 1,725 1,210 5,043 7,284
Consumer............................ 80,314 74,882 59,508 68,092 67,227
Other............................... 13,779 12,493 16,774 27,349 12,035
---------- --------- ---------- --------- ---------
Total............................ 703,651 683,041 570,819 486,907 456,477
Less:
Unearned Income..................... (13,159) (14,248) (13,590) (9,993) (5,933)
Allowance for loan losses........... (11,221) (11,728) (10,332) (10,253) (9,154)
----------- --------- ----------- ---------- ----------
Net loans........................ $ 679,271 $ 657,065 $ 546,897 $ 466,661 $ 441,390
=========== ========= =========== ========== ==========
Loan Maturities. The following table reflects at December 31, 2001 the
dollar amount of loans maturing or subject to rate adjustment based on their
contractual terms to maturity. Loans with fixed rates are reflected based upon
the contractual repayment schedule while loans with variable interest rates are
reflected based upon the contractual repayment schedule up to the contractual
rate adjustment date. Demand loans, loans having no stated schedule of
repayments and loans having no stated maturity are reported as due within three
months.
Due in One Due After One Year Due After
Year or Less Through Five Years Five Years Total
------------ ------------------ ---------- -----
Commercial............................. $ 69,787 $ 23,594 $ 2,741 $ 96,122
Commercial real estate................. 144,192 143,787 7,023 295,002
Residential real estate................ 88,123 93,678 28,688 210,489
Loans held-for-sale.................... 7,945 -- -- 7,945
Consumer............................... 16,178 63,595 541 80,314
Other.................................. 4,765 1,480 7,534 13,779
-------- -------- ------- --------
Total............................. $330,990 $326,134 $46,527 $703,651
======== ======== ======= ========
The following table sets forth the dollar amount of the loans maturing
subsequent to the year ending December 31, 2002 between those with predetermined
interest rates and those with floating, or variable, interest rates.
Fixed Rate Variable Rate Total
---------- ------------- -----
(In thousands)
Commercial.................... $ 26,193 $ 10,939 $ 37,132
Commercial real estate........ 148,675 49,937 198,612
Residential real estate....... 111,037 67,585 178,622
Loans held-for-sale........... 7,945 -- 7,945
Consumer...................... 64,227 153 64,380
Other......................... 1,541 200 1,741
-------- --------- ---------
Total.................... $359,618 $128,814 $488,432
======== ========= =========
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, 2001, commercial real estate loans
totaled $295,002, or 43.43%, of the Company's 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 80-85% of the
value of improved property, 65% of the value
3
of raw land and 75% of the value of land to be acquired and developed. 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.
Commercial Loans. Commercial loans are made for a variety of business
purposes, including working capital, inventory and equipment and capital
expansion. At December 31, 2001, commercial loans outstanding totaled $96,122,
or 14.15%, of the Company's 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 70% of accounts receivable less
than 90 days past due. If other collateral is taken to support the loan, the
loan to value of accounts receivable may approach 85%. Inventory financing will
range between 50% and 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.
Residential Real Estate. 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, 2001, the Company had $210,489, or 30.99%, of its
net loan portfolio in residential real estate loans. Residential 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. Home equity loans make up
approximately 13% of residential real estate loans. Home equity loans may have
higher loan to value ratios when the borrower's repayment capacity and credit
history conform to underwriting standards. Superior Financial extends sub-prime
mortgages to borrowers who generally have a higher risk of default than
mortgages extended by the Bank. Sub-prime mortgages totaled $13,282, or 6.31%,
of the Company's residential real estate loans.
Mortgage loans originated by the Bank were not previously underwritten in
conformity with secondary market guidelines and therefore were not readily
salable. 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 operation. Sales of such loans to Freddie Mac and other
mortgage investors totaled $70,809 during 2001, and the related mortgage
servicing rights were sold together with the loans.
Installment Consumer Loans. At December 31, 2001, the Company's installment
consumer loan portfolio totaled $80,314, or 11.82%, of the Company's total net
loan portfolio. The Company's consumer loan portfolio is comprised of secured
and unsecured loans originated by the Bank, Superior Financial and GCB
Acceptance. The consumer loans of the Bank have a higher risk of default than
other loans originated by the Bank. Further, consumer loans originated by
Superior Financial and GCB Acceptance, which are finance companies 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. Superior
Financial and GCB Acceptance installment consumer loans totaled approximately
$35,900, or 44.70%, of the Company's installment consumer loans. 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 three categories: past due loans, special
mention loans and classified loans (both accruing and non-accruing interest).
When management determines that a loan is no longer performing, 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.
4
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.
At December 31,
------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands)
Loans accounted for on a non-accrual
basis................................ $5,857 $4,813 $2,952 $4,159 $2,265
Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments................ 871 475 996 872 1,583
------ ------ ------ ------ ------
Total non-performing loans.............. 6,728 5,288 3,948 5,031 3,848
Real estate owned:
Foreclosures......................... 2,589 1,937 1,546 920 411
Other real estate held and
repossessed assets................. 623 350 826 607 97
------ ------- ------ ------ ------
Total non-performing assets.......... $9,940 $ 7,575 $6,320 $6,558 $4,356
====== ======= ====== ====== ======
The Company's continuing efforts to resolve non-performing loans
occasionally include foreclosures, which result in the Company's ownership of
the real estate underlying the mortgage. If non-accrual loans at December 31,
2001 had been current according to their original terms and had been outstanding
throughout 2001, or since origination if originated during the year, interest
income on these loans would have been approximately $505. Interest actually
recognized on these loans during 2001 was not significant.
Foreclosed real estate increased $652, or 33.66%, to $2,589 at December 31,
2001 from $1,937 at December 31, 2000. The real estate consists of 32
properties, of which four are commercial properties valued at $847, and the
remainder are residential properties. Management expects to liquidate these
properties during 2002. Management has recorded these properties at net
realizable value and the subsequent sale of such properties is not expected to
result in any adverse effect on the Company, subject to business and marketing
conditions at the time of sale. Other real estate held and repossessed assets
increased $273, or 78%, to $623 at December 31, 2001 from $350 at December 31,
2000. This increase is primarily due to enhanced repossessed activity at
Superior Financial and GCB Acceptance.
Total impaired loans increased by $2,099, or 22.95%, from $9,144 at
December 31, 2000 to $11,243 at December 31, 2001. This increase is reflective
of additional impaired loans at Superior Financial resulting primarily from the
declining local and regional economies and the effect of this decline on
Superior Financial's main customer base.
At December 31, 2001, the Company had approximately $4,760 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 concerns as to the ability of the borrowers
to comply with present loan repayment terms. Such loans were considered
classified by the Company and were comprised of various consumer loans,
residential real estate loans, commercial loans and commercial real estate
loans. One commercial relationship in the amount of $2,104 is secured by a
blanket lien on accounts receivable and equipment of the business. Subsequent to
year-end, investors have offered to purchase the business assets for an amount
that would substantially cover the principal amounts of the relationship. In
lieu of this purchase, a bank liquidation of the collateral may not sufficiently
cover the total principal amount of the relationship. This relationship was
considered classified based upon cash flows of the business deemed insufficient
to cover debt service. In addition, other loans included approximately $1,358 in
loan balances, consisting of approximately 72 consumer loans, which were in
bankruptcy status. Generally, these consumer bankruptcy loans are adequately
secured and management expects substantial collection of these accounts through
reaffirmation or liquidation of collateral.
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
5
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. During the year ended December 31, 2001,
the Company's provision for loan losses decreased by $2,050 to $5,959 as the
Company adjusted the allowance for loan losses to a level it deemed adequate as
of December 31, 2001.
The following is a summary of activity in the allowance for loan losses for
the periods indicated:
Year Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands)
Balance at beginning of year ........ $ 11,728 $ 10,332 $ 10,253 $ 9,154 $ 7,330
-------- -------- -------- -------- --------
Charge-offs:
Commercial ....................... (411) (429) (298) (440) (563)
Commercial real estate ........... (997) (537) (302) (87) (129)
-------- -------- -------- -------- --------
Subtotal .................. (1,408) (966) (600) (527) (692)
Residential real estate .......... (669) (800) (407) -- --
Consumer ......................... (5,753) (6,022) (3,010) (2,707) (4,450)
Other ............................ -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs .............. (7,830) (7,788) (4,017) (3,234) (5,142)
-------- -------- -------- -------- --------
Recoveries:
Commercial ....................... 11 43 295 216 56
Commercial real estate ........... 54 137 -- 24 4
-------- -------- -------- -------- --------
Subtotal .................. 65 180 295 240 60
Residential real estate .......... 102 69 93 -- --
Consumer ......................... 1,197 926 575 673 951
Other ............................ -- -- -- 3 2
-------- -------- -------- -------- --------
Total recoveries ............... 1,364 1,175 963 916 1,013
-------- -------- -------- -------- --------
Net charge-offs ..................... (6,466) (6,613) (3,054) (2,318) (4,129)
Provision for loan losses ........... 5,959 8,009 3,133 3,417 5,953
-------- -------- -------- -------- --------
Balance at end of year .............. $ 11,221 $ 11,728 $ 10,332 $ 10,253 $ 9,154
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans outstanding, net of
unearned discount, during
the period ..................... 0.94% 1.09% 0.60% 0.52% 0.96%
======== ======== ======== ======== ========
Ratio of allowance for loan losses to
non-performing loans ........... 166.78% 221.79% 261.70% 203.80% 237.89%
======== ======== ======== ======== ========
Ratio of allowance for loan losses to
total loans .................... 1.61% 1.72% 1.81% 2.11% 2.01%
======== ======== ======== ======== ========
6
Breakdown of allowance for loan losses by category. The following table
presents an allocation among the listed categories of the Company's allowance
for loan losses at the dates indicated and the percentage of loans in each
category to the total amount of loans at the respective year-ends.
At December 31,
-------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Percent of Percent of Percent of
loan in each loan in each loan in each
Balance at end of period category to category to category to
applicable to: Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
Commercial.................... $ 1,852 13.66% $ 1,602 12.84% $ 2,168 12.05%
Commercial real estate........ 5,601 41.93% 6,901 42.20% 3,234 42.50%
Residential real estate....... 807 29.91% 947 29.90% 3,299 29.83%
Loans held-for-sale........... 16 1.13% 4 0.25% -- 0.21%
Consumer...................... 2,293 11.41% 2,042 12.98% 1,305 12.47%
Other......................... 652 1.96% 232 1.83% 326 2.94%
---------- --------- ------- --------- --------- ---------
Totals..................... $11,221 100.00% $11,728 100.00% $10,332 100.00%
======= ======= ======= ======= ======= =======
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 carrying value
of the securities, by major categories, held by the Company at December 31,
2001, 2000 and 1999.
At December 31,
---------------------------
2001 2000 1999
---- ---- ----
(In thousands)
Securities Held to Maturity:
Obligations of state and political subdivisions. $ 833 $ 1,866 $ 3,321
------- ------- -------
Total ..................................... $ 833 $ 1,866 $ 3,321
======= ======= =======
Securities Available for Sale:
U.S. Treasury securities and obligations of U.S.
Government, corporations and agencies ..... $20,695 $45,242 $19,191
Obligations of state and political subdivisions 1,372 1,416 1,535
Trust Preferred Securities ..................... 6,500 -- --
------- ------- -------
Total ..................................... $28,567 $46,658 $20,726
======= ======= =======
For further information regarding securities at December 31, 2001, 2000 and
1999, see Note 2 of Notes to Consolidated Financial Statements.
Maturity Distributions of Securities. The following table sets forth the
distributions of maturities of securities at amortized cost as of December 31,
2001.
7
Due After One
Due in One Year through Due After Five Years Due
Year or Less Five Years through Ten Years After Ten Years Total
------------ ---------- ----------------- --------------- -----
(Dollars in thousands)
Federal agency obligations - available
for sale $ 1,013 $ 11,864 $ 2,538 $ 5,182 $ 20,597
Obligations of state and political
subdivisions - available for sale 325 150 892 -- 1,367
Obligations of state and political
subdivisions - held to maturity 385 -- 98 350 833
Other securities - available for sale -- -- -- 6,500 6,500
-------- -------- -------- -------- --------
Subtotal $ 1,723 $ 12,014 $ 3,528 $ 12,032 $ 29,297
Market value adjustment on
available-for-sale securities $ 4 $ (6) $ 29 $ 76 $ 103
-------- -------- -------- -------- --------
Total $ 1,727 $ 12,008 $ 3,557 $ 12,108 $ 29,400
======== ======== ======== ======== ========
Weighted average yield (a) 3.98% 3.58% 5.55% 6.12% 4.89%
======== ======== ======== ======== ========
(a) Actual yields on tax-exempt obligations do not differ materially from yields
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, 2001, by contractual
maturity, see Note 2 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.
8
The following table sets forth the average balances and average interest
rates based on daily balances for deposits for the periods indicated.
Year Ended December 31,
-----------------------------------------------------------------------------------
2001 2000 1999
-------------------------- ------------------------ -----------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
(Dollars in thousands)
Types of deposits (all in domestic
offices):
Non-interest-bearing demand
deposits......................... $ 49,773 --% $ 46,010 --% $ 42,278 --%
Interest-bearing demand deposits.... 162,917 2.00% 148,428 2.67% 140,009 2.57%
Savings deposits.................... 45,137 1.80% 45,461 2.55% 47,049 2.18%
Time deposits....................... 375,825 5.47% 353,278 5.71% 273,392 5.00%
------- --------- -------
Total deposits................. $633,652 $ 593,177 $502,728
======== ========= ========
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,
2001.
Certificates of
Maturity Period Deposits
--------------- --------
(In thousands)
Three months or less.......................... $ 27,504
Over three through six months................. 21,056
Over six through twelve months................ 21,737
Over twelve months............................ 30,804
--------
Total...................................... $101,101
========
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, 2001 supplied by the FDIC, the Bank ranked
as the largest independent commercial bank in its market area, which includes
Greene, Hamblen, Hawkins, Sullivan, Washington, Madison, Loudon, Blount and
McMinn Counties, Tennessee and portions of Cocke, Monroe and Jefferson Counties,
Tennessee. In Greene County, there were seven commercial banks and one savings
bank, operating 22 branches and holding an aggregate of approximately $757
million in deposits as of June 30, 2001.
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.
9
EMPLOYEES
As of December 31, 2001 the Company employed 372 full-time equivalent
employees. 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 (1) acquiring direct or
indirect ownership or control of any voting shares of any bank or bank holding
company if, after such acquisition, the bank holding company would directly or
indirectly own or control more than 5% of such shares; (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. Also, any company
must obtain approval of the FRB prior to acquiring control of the Company or the
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.
Bank holding companies like the Company are currently prohibited from
engaging in activities other than banking and activities so closely related to
banking or managing or controlling banks as to be a proper incident thereto. The
FRB's regulations contain a list of permissible nonbanking activities that are
closely related to banking or managing or controlling banks. A bank holding
company must file an application or notice with the Federal Reserve prior to
acquiring more than 5% of the voting shares of a company engaged in such
activities. Financial modernization legislation enacted on November 12, 1999,
however, greatly broadened the scope of activities permissible for bank holding
companies. Effective March 11, 2000, this legislation permits bank holding
companies, upon classification as financial holding companies, to engage in a
broad variety of activities "financial" in nature. See "--Financial
Modernization Legislation."
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.
10
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 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. Insurance assessment rates for BIF-insured banks such
as the Bank depend on the capital category and supervisory category to which a
bank is assigned and currently range from $0.00 to $0.27 per $100 of insured
deposits.
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.
11
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, 2001, the Company
and the Bank satisfied the minimum required regulatory capital requirements. See
Note 10 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,
2001, the Bank was "well-capitalized" as defined by the regulations. See Note 10
of Notes to Consolidated Financial Statements for further information.
Financial Modernization Legislation. On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (the "GLBA") was signed into law. The Act
includes a number of provisions intended to modernize and to increase
competition in the American financial services industry, including authority for
bank holding companies to engage in a wider range of nonbanking activities,
including securities underwriting and general insurance activities. Under the
GLBA, a bank holding company that elects to be deemed a "financial holding
company" will be permitted to engage in any activity that the Federal Reserve,
in consultation with the Secretary of the Treasury, determines by regulation or
order is (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) complementary to any such financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions or
the financial system generally. The GLBA identifies certain activities that are
deemed to be financial in nature, including those nonbanking activities
currently authorized for bank holding companies by the Federal Reserve as well
as insurance and securities underwriting, insurance agency and merchant banking
activities. In order to take advantage of this new authority, a bank holding
company's depository institution subsidiaries must be well-capitalized and
well-managed and have at least a satisfactory examination rating under the
Community Reinvestment Act.
In addition, the GLBA authorizes national banks to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve, determines is financial in
nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities
(unless otherwise permitted by law), (iii) insurance company portfolio
investments and (iv) merchant banking. In order to invest in a financial
subsidiary, a national bank must be well-managed and well-capitalized (after
deducting from capital the bank's outstanding investments in financial
subsidiaries) and have at least a "satisfactory" examination rating under the
Community Reinvestment Act.
The GLBA provides that state banks, such as the Bank, may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) that engage as principal in activities that would
only be permissible for a national bank to conduct in a financial subsidiary.
This authority is generally subject to the same conditions that apply to
investments made by a national bank in financial subsidiaries. Since a
Tennessee-chartered bank is authorized by state law to exercise any power or
engage in any activity that it could exercise or engage in if it were a national
bank located in Tennessee, the financial subsidiary authority under the GLBA
could result in the expansion of activities permissible for Tennessee bank
subsidiaries.
Most of the GLBA's provisions have delayed effective dates and require the
adoption of federal banking regulations to implement the statutory provisions.
The Federal Reserve and the FDIC have yet to issue final regulations under the
GLBA, and the effect of such regulations, when adopted, cannot be predicted.
However, the legislation is expected to present opportunities to the Company and
the Bank for new business activities, although no such activities are presently
planned, and may also have the effect of increasing competition for the Company
and the Bank.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the executive officers
of the Company.
Age At
Name December 31, 2001 Title
---- ----------------- -----
R. Stan Puckett 45 Chairman of the Board, President and
Chief Executive Officer
William F. Richmond 52 Senior Vice President and
Chief Financial Officer
R. STAN PUCKETT currently serves as President and Chief Executive Officer
of the Company and has held that position since 1990. He is also currently
Chairman of the Board of Directors. 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.
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 (now a part of AmSouth Bancorporation), 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 holds a B.S. in Commerce with
Distinction from the University of Virginia and also an M.B.A. from the Colgate
Darden Graduate School of Business Administration at the University of Virginia.
He is licensed as a Certified Public Accountant in Virginia and Tennessee and is
also a Certified Financial Planner.
ITEM 2. PROPERTIES
At December 31, 2001, the Company maintained a main office in Greeneville,
Tennessee and 29 bank branches (of which six are in leased operating premises)
and 12 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, 2001, there were no
legal proceedings which management anticipates would have a material adverse
effect on the Company.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2001 to a vote of
security holders of the Company through a solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There are 6,818,890 shares of Common Stock outstanding and approximately
1,860 shareholders of record of the Common Stock as of March 26, 2002.
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.
Sales Price at Dividends Declared
Quarter-End Per Share(1)
----------- ------------
2001:
First quarter $32.00 $0.12
Second quarter 26.88 0.12
Third quarter 18.00 0.12
Fourth quarter 16.00 0.20
----
$0.56
====
2000:
First quarter $30.00 $0.12
Second quarter 30.00 0.12
Third quarter 32.00 0.12
Fourth quarter 32.00 0.19
----
$0.55
====
-------------------------
(1) For information regarding restrictions on the payment of dividends by the
Bank to the Company, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources" under
Item 7 herein. See also Note 10 of Notes to Consolidated Financial
Statements.
14
ITEM 6. SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total interest income $ 67,964 $ 67,696 $ 55,229 $ 50,792 $ 49,005
Total interest expense 28,463 29,143 19,742 18,572 19,144
--------- --------- --------- --------- ---------
Net interest income 39,501 38,553 35,487 32,220 29,861
Provision for loan losses (5,959) (8,009) (3,133) (3,417) (5,953)
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses 33,542 30,544 32,354 28,803 23,908
Non-interest income:
Investment securities gains -- -- -- -- 2
Other income 9,593 6,568 6,331 4,555 3,919
Non-interest expense (28,665) (29,393) (24,610) (20,462) (17,009)
--------- --------- --------- --------- ---------
Income before income taxes 14,470 7,719 14,075 12,896 10,820
Income tax expense (5,047) (2,206) (5,250) (4,690) (3,990)
--------- --------- --------- --------- ---------
Net income $ 9,423 $ 5,513 $ 8,825 $ 8,206 $ 6,830
========= ========= ========= ========= =========
PER SHARE DATA:1
Net income, basic $ 1.38 $ .81 $ 1.30 $ 1.21 $ 1.01
Net income, assuming dilution $ 1.38 $ .80 $ 1.29 $ 1.20 $ 1.01
Dividends declared $ 0.56 $ 0.55 $ 0.52 $ 0.46 $ 0.38
Book value $ 10.06 $ 9.24 $ 8.94 $ 8.16 $ 7.40
FINANCIAL CONDITION DATA:
Assets $ 811,612 $ 789,117 $ 656,012 $ 568,179 $ 534,102
Loans, net $ 679,271 $ 657,065 $ 546,897 $ 466,661 $ 441,390
Cash and investments $ 57,470 $ 76,816 $ 72,223 $ 49,939 $ 62,166
Federal funds sold $ 25,621 $ 8,130 $ -- $ 24,300 $ 5,500
Deposits $ 653,913 $ 648,641 $ 522,382 $ 459,183 $ 461,728
Notes Payable $ 67,978 $ 59,949 $ 46,309 $ 36,627 $ 15,487
Federal funds purchased and repurchase agreements $ 10,375 $ 4,713 $ 14,581 $ 7,216 $ 1,414
Shareholders' equity $ 68,627 $ 63,010 $ 60,772 $ 55,386 $ 50,113
SELECTED RATIOS:
Interest rate spread 4.98% 5.18% 5.90% 5.96% 5.70%
Net yield on interest-earning assets 5.41% 5.67% 6.39% 6.53% 6.21%
Return on average assets 1.20% 0.75% 1.47% 1.56% 1.33%
Return on average equity 13.96% 8.58% 14.90% 15.63% 13.93%
Average equity to average assets 8.59% 8.78% 9.89% 9.97% 9.55%
Dividend payout ratio 40.53% 68.22% 40.02% 37.99% 38.08%
Ratio of nonperforming assets to total assets 1.22% 0.96% 0.96% 1.15% 0.81%
Ratio of allowance for loan losses to
nonperforming assets 112.89% 154.83% 163.48% 156.34% 210.15%
Ratio of allowance for loan losses to total loans 1.61% 1.72% 1.81% 2.11% 2.01%
---------------------------
1 Amounts have been restated to reflect the effect of the Company's 3-for-1
stock split effected in October 1997 and for the 5-for-1 stock split
effected May 2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS
Net income. Net income for 2001 was $9,423, an increase of $3,910, or
70.92%, as compared to net income of $5,513 for 2000. The increase is primarily
attributable to an increase in non-interest income of $3,025, or 46.06%, to
$9,593 in 2001 from $6,568 in 2000 and a decrease of $2,050, or 25.60%, in the
provision for loan loss to $5,959 in 2001 from $8,009 in 2000. The increase in
non-interest income resulted from the Company's continued emphasis on fee-based
income and the related growth in its lending activities. The decline in the
provision for loan losses reflects the adjustment in 2001 of the allowance for
loan losses to a level that management deemed adequate. Even with the decline in
the provision, the Company's allowance for loan losses was 112.89% of its
nonperforming assets.
15
Net income for 2000 was $5,513, a decrease of $3,312, or 37.53%, as
compared to net income of $8,825 for 1999. The decrease resulted primarily from
an increase in provision for loan losses of $4,876, or 155.63%, to $8,009 in
2000 from $3,133 in 1999, and an increase in non-interest expense of $4,783, or
19.43%, to $29,393 in 2000 from $24,610 in 1999. The increase in provision for
loan losses reflects significant charge-offs at Superior Financial, the
Company's consumer finance subsidiary. The increase in non-interest expense is
attributable primarily to increases in salaries and benefits and in other
expenses. These changes were offset, in part, by the $3,066, or 8.64%, increase
in net interest income to $38,553 in 2000 from $35,487 in 1999. The increase in
net interest income primarily reflects an increased volume of loans that more
than offset the increases in volume and average rate associated with the
Company's interest-bearing liabilities.
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 2001, net interest income was $39,501 as
compared to $38,553 in 2000, an increase of 2.46%. This increase was due
primarily to an increase in average loan balances, which increased $81,982, or
13.48%, to $690,333 in 2001 from $608,351 in 2000, while the yield on average
loans declined to 9.56% from 10.34% in 2000. The Company's yield on average
loans during 2001 decreased as compared to 2000 by the Company's aggressive loan
pricing in order to obtain market share in new markets and increase share in
existing markets. The increase in net interest income was offset, in part, by
increases in the average balance of interest-bearing liabilities, as the Company
aggressively funded the growth in loans. The increase in such average balances
was offset in part by the decline in the Company's rate on average
interest-bearing liabilities to 4.33% in 2001 from 4.78% in 2000, as
rate-sensitive liabilities priced downward in a declining rate environment. In
the aggregate, the Company's interest rate spread and net interest margin
declined in 2001 from 2000. In view of the Company's slightly asset-sensitive
position, management anticipates further declines in both interest rate spread
and net interest margin if product mixes remain relatively unchanged and
interest rates continue to decline.
Average Balances, Interest Rates and Yields. Net interest income is
affected by (i) the difference between yields earned on interest-earning assets
and rates paid on interest-bearing liabilities ("interest rate spread") and (ii)
the relative amounts of interest-earning assets and interest-bearing
liabilities. The Company's interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows. When the total of interest-earning assets approximates or exceeds
the total of interest-bearing liabilities, any positive interest rate spread
will generate net interest income. An indication of the effectiveness of an
institution's net interest income management is its "net yield on
interest-earning assets," which is net interest income divided by average
interest-earning assets.
16
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.
2001 2000 1999
---------------------------------- -------------------------------- ----------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
INTEREST-EARNING ASSETS:
Loans1
Real estate loans $ 496,304 $ 41,219 8.31% $448,808 $39,316 8.76% $ 370,529 $ 32,429 8.75%
Commercial loans 98,260 7,789 7.93% 80,399 7,646 9.51% 64,268 5,790 9.01%
Consumer and other loans-
net2 95,769 11,610 12.12% 79,144 11,304 14.28% 75,670 10,253 13.55%
Fees on loans 5,352 4,608 4,314
-------- ------- --------
Total loans
(including fees) $ 690,333 $ 65,970 9.56% $608,351 $62,874 10.34% $ 510,467 $ 52,786 10.34%
-------- ------- ------- ------ -------- -------
Investment securities3
---------------------
Taxable $ 16,294 $ 1,010 6.20% $ 44,427 $ 3,153 7.10% $ 20,384 $ 1,196 5.87%
Tax-exempt4 1,973 87 4.41% 3,213 140 4.36% 4,085 160 3.92%
FHLB and Bankers Bank
Stock 4,367 289 6.62% 3,986 288 7.23% 3,377 244 7.23%
--------- -------- -------- ------- --------- --------
Total investment
securities $ 22,634 $ 1,386 6.12% $ 51,626 $ 3,581 6.94% $ 27,846 $ 1,600 5.75%
Other short-term
Investments 17,007 608 3.57% 19,495 1,241 6.37% 17,309 843 4.87%
--------- -------- -------- ------- --------- --------
Total interest-
earning assets $ 729,974 $ 67,964 9.31% $679,472 $67,696 9.96% $ 555,622 $ 55,229 9.94%
-------- ------- ------- ------ -------- -------
NON-INTEREST-EARNING
ASSETS:
Cash and due from
banks $ 21,163 $ 21,757 $ 22,252
Premises and
equipment 25,092 21,351 12,936
Other, less allowance
for loan losses 9,567 8,471 8,001
--------- -------- ---------
Total non-interest-
earning assets $ 55,822 $ 51,579 $ 43,189
-------- ------- --------
Total Assets $ 785,796 $731,051 $ 598,811
========= ======= ========
-----------------
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 since it is
not material.
17
2001 2000 1999
------------------------------ ----------------------------------------- ------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
INTEREST-BEARING
LIABILITIES:
Deposits
Savings, NOW
accounts, and
money markets $ 208,054 $ 4,066 1.95% $193,889 $5,116 2.64% $ 187,058 $ 4,629 2.47%
Time deposits 375,825 20,557 5.47% 353,278 20,175 5.71% 273,392 13,671 5.00%
--------- ------- -------- ------- --------- --------
Total deposits $ 583,879 $24,623 4.22% $547,167 $25,291 4.62% $ 460,450 $ 18,300 3.97%
Securities sold
under repurchase
agreements and
short-term
borrowings 7,620 181 2.38% 6,036 304 5.04% 7,326 318 4.35%
Notes Payable 66,301 3,659 5.52% 56,934 3,548 6.23% 21,401 1,124 5.25%
--------- -------- -------- ---------- --------- --------
Total interest-bearing
liabilities $ 657,800 $28,463 4.33% $610,137 $29,143 4.78% $ 489,177 $ 19,742 4.04%
NON-INTEREST-BEARING
LIABILITIES:
Demand deposits $ 49,773 $ 46,010 $ 42,278
Other liabilities 10,740 10,685 8,113
---------- -------- ---------
Total liabilities $ 60,513 $ 56,695 $ 50,391
Stockholders' equity 67,483 64,219 59,243
--------- -------- ---------
Total liabilities and
stockholders' equity $ 785,796 $731,051 $ 598,811
========= ======== =========
Net interest income $39,501 $38,553 $ 35,487
======= ======= =========
MARGIN ANALYSIS:
Interest rate spread 4.98% 5.18% 5.90%
Net yield on interest-
earning assets (net
interest margin) 5.41% 5.67% 6.39%
===== ===== =====
18
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.
2001 vs. 2000 2000 vs. 1999
------------------------------------------- ----------------------------------------------
Rate/ Total Rate/ Total
Volume Rate Volume Change Volume Rate Volume Change
------ ---- ------ ------ ------ ---- ------ ------
INTEREST INCOME: (In thousands)
Loans net of unearned income $ 8,473 $ (4,738) $ (639) $ 3,096 $ 10,123 $ (29) $ (6) $ 10,088
Investment securities:
Taxable (1,997) (399) 253 (2,143) 1,411 251 295 1,957
Tax exempt (54) 2 (1) (53) (34) 18 (4) (20)
FHLB and Bankers Bank Stock 28 (25) (2) 1 44 -- -- 44
Other short-term investments (193) (543) 103 (633) 106 259 33 398
--------- --------- --------- ---------- --------- --------- --------- ----------
Total interest income 6,257 (5,703) (286) 268 11,650 499 318 12,467
--------- --------- --------- ---------- --------- --------- --------- ----------
INTEREST EXPENSE:
Savings, NOW accounts, and
money market accounts 501 (1,408) (143) (1,050) 169 307 11 487
Time deposits 1,287 (851) (54) 382 3,995 1,941 568 6,504
Short-term borrowings 61 (168) (16) (123) (56) 51 (9) (14)
Debt 436 (472) 147 111 1,866 210 348 2,424
--------- --------- --------- ---------- --------- --------- --------- ----------
Total interest expense 2,285 (2,899) (66) (680) 5,974 2,509 918 9,401
--------- --------- --------- ---------- --------- --------- --------- ----------
Net interest income $ 3,972 $ (2,804) $ (220) $ 948 $ 5,676 $ (2,010) $ (600) $ 3,066
======== ======== ======== ========= ======== ======== ======== =========
At December 31, 2001, loans outstanding and loans held-for-sale, net of
unearned income and allowance for loan losses, were $679,271 compared to
$657,065 at 2000 year end. The increase is primarily due to the combination of
additional lenders, first-hand knowledge of the local lending markets and
competitive loan rates. Average outstanding loans, net of unearned interest, for
2001 were $690,333, an increase of 13.48% from the 2000 average of $608,351. The
average outstanding loans for 1999 were $510,467. 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, the
development of its other financing businesses and indirect financing and
aggressive loan pricing. During 2001, the Company continued its expansion with
new branches as previously discussed. See "ITEM 1 -- Business--Branch
Expansion."
Average investment securities for 2001 were $22,634, compared to $51,626 in
2000, and $27,846 in 1999. The decrease of $28,992, or 56.16%, from 2000 to 2001
primarily reflects the purchase of $25,000 of federal agency securities at the
beginning of 2000 for the principal purpose of pledging public deposits. Such
securities were not held throughout 2001. The decline in the average balance of
investment securities from 1999 to 2000 was the result of the Company's use of
the proceeds from the maturities of available-for-sale securities to fund
higher-yielding loans. In 2001, the average yield on investments was 6.12%, a
decrease from the 6.94% yield in 2000 and up from the 5.75% yield in 1999. The
decrease in 2001 results primarily from the absence during 2001 of the full
effect of the 7.33% yield on the $25,000 federal agency security held during
2000, as well as the beneficial effect of the higher interest rate environment
during 2000 on the Company's adjustable-rate investment securities. Income
provided by the investment portfolio in 2001 was $1,386 as compared to $3,581 in
2000, and $1,600 in 1999.
Provision for Loan Losses. 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 a
combination of both internal and industry net loss experience, as well as
management's review of trends within the portfolio and related industries.
Generally, commercial, commercial real estate and residential real estate
loans are assigned a level of risk at inception. Thereafter, these loans are
reviewed on an ongoing basis. 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
19
in the loan's assigned risk grade. Aggregate dollar volume by risk grade is
monitored on an ongoing basis. The establishment of and any changes to risk
grades for consumer loans are generally based upon payment performance.
The Bank generally maintains only a general loan loss allowance, which is
increased or decreased based on 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 loan quality indicators on a monthly basis,
including current economic conditions, delinquency trends and ratios, portfolio
mix changes and other information management deems necessary. 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 for loan losses.
Increases and decreases in the allowance for loan losses due to changes in
the measurement of impaired loans are reflected in the provision for loan
losses. Loans continue to be classified as impaired unless payments are brought
fully current and management also considers the collection of scheduled interest
and principal to be probable.
The Company's provision for loan losses decreased $2,050, or 25.60%, to
$5,959 in 2001 from $8,009 in 2000. Management recognized the need to
substantially increase the provision from $3,133 in 1999 to $8,009 in 2000 to
address the accelerated loss experience throughout the Company. In 2001,
management determined that loan losses had stabilized; accordingly, the same
level of provisions as made in 2000 was unnecessary. In 2001 net charge-offs in
Superior Financial and GCB Acceptance were $2,818 and $1,038, respectively,
versus $2,610 in the Bank. Such net charge-offs were a result of a decline in
loan quality, continued implementation of an aggressive charge-off policy, a
downturn in the local and regional economy and significantly high bankruptcy
rates in Tennessee. Assuming no further deterioration of the local and regional
economy, and based upon information presently available, management anticipates
that net charge-offs within the Company's overall loan portfolios should
continue the stabilized trend.
The ratio of non-performing assets to total assets was 1.22% at December
31, 2001 and .96% at December 31, 2000. Primarily due to the Company's increase
in non-performing assets, the ratio of the Company's allowance for loan losses
to non-performing assets decreased in 2001 to 112.89% from 154.83% in 2000.
Total non-performing loans increased $1,440, or 27.23%, from $5,288 at December
31, 2000 to $6,728 at December 31, 2001. Non-accrual loans, which are
non-performing loans as to which the Bank no longer recognizes interest income,
increased $1,044 or 21.69% to $5,857 at December 31, 2001 from $4,813 at
December 31, 2000. The increase consists primarily of additional nonaccrual
loans at Superior Financial principally due to the declining local and regional
economies and the effect of this decline on Superior Financial's demographic
base.
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, 2001 the Company had
identified approximately $15,100 in loans that were placed on its "watch list,"
a slight increase from the approximate $14,700 as of December 31, 2000.
Management believes the level of "watch list" loans, as a percentage of total
loans, will improve during 2002.
Non-Interest Income. Non-interest income, which is income that is not
related to interest-earning assets and consists 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 2001 increased to $9,593 as compared to
$6,568 in 2000 and $6,331 in 1999. The largest components of non-interest income
are service charges, commissions and fees, which totaled $7,606 in 2001, $5,200
in 2000 and $5,258 in 1999. The increase in 2001 was due primarily to service
charges and commissions associated with 2001 deposit growth, as well as
additional fees generated by the Bank's mortgage banking operation, offset in
part by a decrease in fees and commissions at Superior Financial, attributable
mainly to reduced loan originations in 2001 as compared to 2000. Management does
not anticipate any significant increase in service charge and fee income in the
near future absent continued deposit growth and an expanding mortgage lending
market.
20
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 Insurance
Corporation assessments. Total non-interest expense was $28,665 in 2001,
compared to $29,393 in 2000 and $24,610 in 1999.
Personnel costs are the primary element of the Company's non-interest
expenses. In 2001, salaries and benefits represented $16,977, or 59.23%, of
total non-interest expenses. This was an increase of $243, or 1.45%, over 2000's
total of $16,734. Personnel costs for 2000 increased $2,395, or 16.70%, over
1999's total of $14,339. The increases in 2000 reflect the increased staffing
needs of the Company's continued expansion of the Bank and subsidiary branch
network throughout East Tennessee. The minimal increase in 2001, compared to
2000, was a reflection of management's continued focus on overall staffing
levels and associated benefits. Overall, the number of full-time equivalent
employees at December 31, 2001, was 372 versus 388 at December 31, 2000, a
decrease of 4.12%.
Occupancy 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, 2001, the Company had 42 branches compared to
44 branches at December 31, 2000.
Other expenses decreased $728, or 10.60%, from 2000 to 2001. The decrease
was primarily attributable to management's continued focus on overhead control.
The increase from 1999 to 2000 was $1,309, or 23.55%.
CHANGES IN FINANCIAL CONDITION
Total assets at December 31, 2001 were $811,612, an increase of $22,495, or
2.85%, over total assets of $789,117 at December 31, 2000. The increase reflects
an increase in loans, net, of $15,986, or 2.44%, to $671,326 at December 31,
2001 from $655,340 at December 31, 2000. Average assets for 2001 also increased
to $785,796, an increase of $54,745, or 7.49%, from the average asset balance of
$731,051 for 2000. This increase was primarily the result of a 13.48% increase
in the average balance of loans to $690,333 in 2001 from $608,351 in 2000,
offset in part by a decline in the average balance of investment securities in
2001 to $22,634 from $51,626 in 2000. Even with the increase in average assets
in 2001, the Company's return on average assets increased in 2001 to 1.20% from
0.75% in 2000 as the Company's increasing non-interest income continued to more
than offset its declining net interest margin. The Company's interest rate
spread declined to 4.98% in 2001 from 5.18% in 2000.
Total assets at December 31, 2000 were $789,117, an increase of $133,105,
or 20.29%, over 1999's year end total assets of $656,012. Average assets for
2000 were $731,051, an increase of $132,240, or 22.08%, over 1999 average assets
of $598,811. This increase was primarily the result of an increase in the
average balance of loans to $608,351 in 2000 as compared to an average balance
of $510,467 in 1999. Return on average assets was .75% in 2000, as compared to
1.47% in 1999 and 1.56% in 1998, reflecting the Company's compressed net
interest margin over prior years in a period of continuing asset growth,
increasing non-interest expense, coupled with the increased provision for loan
losses in 2000.
Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 2001 were
$729,974, an increase of 7.43% from an average of $679,472 in 2000.
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 December 31, 2001 had an amortized cost of $29,297 and
a market value of $29,407 as compared to an amortized cost of $48,441 and market
value of $48,527 at December 31, 2000. This decrease in investments in 2001
primarily reflects the Company's purchase of $25,000 of federal agency
securities in 2000, as previously discussed, for the primary purpose of pledging
public deposits. Because the securities were callable, their market value did
not differ significantly from their cost and, in combination with the
shorter-term and adjustable securities in the remainder of the Company's
investment portfolio, the Company's investments are less susceptible to
significant changes in market value. An effect of this approach is reflected in
the absence of any significant difference between the securities' amortized cost
and market value at December 31, 2001 and December 31, 2000.
21
The Company's deposits were $653,913 at December 31, 2001. This represents
an increase of $5,272, or 0.81%, from the $648,641 of deposits at December 31,
2000. Non-interest bearing demand deposit balances increased 36.37% to $65,179
at December 31, 2001 from $47,794 at December 31, 2000. Average interest-bearing
deposits increased $36,712, or 6.71%, in 2001. In 2000, average interest-bearing
deposits increased $86,717, or 18.83%, over 1999. These increases in deposits
are primarily the result of the Company's expansion of full-service branches of
the Bank into new markets in East Tennessee and also branch acquisitions. In
addition, the Company has actively marketed its money market accounts and
certificates of deposits with competitive interest rates in order to fund loan
growth.
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, 2001, approximately 59% 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 30, 2001, the
total deposit base of Tennessee commercial banks had a weighted average rate of
4.27%. Management of the Company does not anticipate further significant growth
in its deposit base unless it either offers interest rates well above its
prevailing rate on average interest-bearing deposits of 4.22% or it acquires
deposits from other financial institutions. During 2001, the premiums charged in
Tennessee by selling financial institutions for deposit accounts ranged from
3.4% to 14.3%. 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 2001 totaled $24,623 reflecting a 4.22% cost
on average interest-bearing deposits of $583,879. In 2000, interest of $25,291
was paid at a cost of 4.62% on average deposits of $547,167. In 1999, interest
of $18,300 was paid at a cost of 3.97% on average deposits of $460,450.
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 lines of credit totaling $40
million with the Federal Home Loan Bank of Cincinnati ("FHLB"), of which $18.3
million was available at December 31, 2001. The Company also maintains federal
funds lines of credit totaling $70.9 million at seven correspondent banks. The
Company believes it has sufficient liquidity to satisfy its current operations.
In 2001, operating activities of the Company provided $9,457 of cash flows,
reflecting net income of $9,423 and adjusted to include non-cash operating
expenses such as $5,959 in provision for loan losses and amortization and
depreciation of $1,604, and exclude non-cash operating income, such as $107 in
the increased cash surrender value of life insurance contracts and $2,085 in the
net change in accrued interest and other liabilities. Cash flows from operating
activities were reduced by the proceeds from the sale of held-for-sale loans of
$70,809, offset by cash used to originate held-for-sale loans of $76,608. This
increase in overall activity in held-for-sale loans from 2000 and 1999, as
compared to 2001, reflects an increase in mortgages originated and sold by the
Bank's mortgage banking operation in a declining interest rate environment.
Investing activities, including lending, provided $11,208 of the Company's
cash flows, as opposed to using cash flows of $150,234 in 2000. Origination of
loans held to maturity net of principal collected used $27,321 in funds, down
from $120,951 in 2000 as the Company's loan originations decreased primarily as
a result of slowing economic activity. Maturities and calls of securities, net
of purchases of securities available for sale, provided $19,043 in cash flows.
Cash flows from investing activities also increased from the cash received in
branch acquisitions, from the sale of other real estate and from the sale of
fixed assets in the amounts of $19,924, $4,087 and $312, respectively. These
cash inflows were reduced, in part, by investment in premises and equipment of
$3,731 resulting from the Company's branch expansions and furnishings related
thereto.
22
Net additional cash outflows of $4,780 were used by financing activities,
as opposed to providing cash flows of $126,659 in 2000. The change was
attributable primarily to net deposit outflows, excluding deposits acquired via
branch acquisitions, of $14,652 versus net deposit increases in 2000 in the
amount of $126,259. Management elected to allow higher-costing and non-core
deposits to runoff in order to alleviate pressures on net interest margin. As in
prior years, the Company's cash flow from financing activities was decreased by
the Company's dividend payments during 2001 of $3,819. Offsetting, in part,
these cash outflows was an increase in cash resulting from the change in federal
funds purchased and repurchase agreements in the amount of $5,662.
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, 2001 and its record of paying dividends to its
stockholders continued uninterrupted during 2001. 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, 2001 was $68,627, an increase of
$5,617, or 8.91%, from $63,010 on December 31, 2000. The increase in
shareholders' equity arises primarily from net income for 2001 of $9,423 ($1.38
per share, assuming dilution). This increase was offset in part by quarterly
dividend payments during 2001 that totaled $3,819 ($0.56 per share).
Risk-based capital regulations adopted by the FRB and the FDIC require both
bank holding companies and banks 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,
2001, 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 Company's Asset/Liability Committee ("ALCO") actively measures and
manages interest rate risk using a process developed by the Bank. The ALCO is
also responsible for approving the Company's asset/liability management
policies, overseeing the formulation and implementation of strategies to improve
balance sheet positioning and earnings, and reviewing the Company's interest
rate sensitivity position.
The primary tool that management uses to measure short-term interest rate
risk is a net interest income simulation model prepared by an independent
national consulting firm and reviewed by another separate and independent
national consulting firm. These simulations estimate the impact that various
changes in the overall level of interest rates over one- and two-year time
horizons would have on net interest income. The results help the Company develop
strategies for managing exposure to interest rate risk.
Like any forecasting technique, interest rate simulation modeling is based
on a large number of assumptions. In this case, the assumptions relate primarily
to loan and deposit growth, asset and liability prepayments, interest rates and
balance sheet management strategies. Management believes that both individually
and in the aggregate the assumptions are reasonable. Nevertheless, the
simulation modeling process produces only a sophisticated estimate, not a
precise calculation of exposure.
The Company's guidelines for risk management call for preventive measures
if a gradual 200 basis point increase or decrease in short-term rates over the
next twelve months would affect net interest income over the same period by more
than 15%. The Company has been operating well within these guidelines. As of
December 31, 2001 and 2000, based on the results of the independent consulting
firm's simulation model, the Company could expect net interest income to
increase by approximately 7.66% and 7.68%, respectively, if short-term interest
rates gradually increase by 200 basis points. Conversely, if short-term interest
rates gradually decrease by 200 basis points, net interest income could be
expected to decrease by approximately 8.89% and 9.71%, respectively.
23
The scenario described above, in which net interest income increases when
interest rates increase and decreases when interest rates decline, is typically
referred to as being "asset sensitive" because interest-earning assets reprice
at a faster pace than interest-bearing liabilities. At December 31, 2001,
approximately 43% of the Company's gross loans had adjustable rates. While
management believes, based on its asset/liability modeling, that the Company is
slightly asset sensitive, it also believes that a rapid, significant and
prolonged increase or decrease in rates could have a substantial adverse impact
on the Company's net interest margin.
The Company also uses an economic value of equity model, prepared and
reviewed by the same independent national consulting firms, to complement its
short-term interest rate risk analysis. The benefit of this model is that it
measures exposure to interest rate changes over time frames longer than the
two-year net interest income simulation. The economic value of the Company's
equity is determined by calculating the net present value of projected future
cash flows for current asset and liability positions based on the current yield
curve.
Economic value analysis has several limitations. For example, the economic
values of asset and liability balance sheet positions do not represent the true
fair values of the positions, since economic values reflect an analysis at one
particular point in time and do not consider the value of the Company's
franchise. In addition, we must estimate cash flow for assets and liabilities
with indeterminate maturities. Moreover, the model's present value calculations
do not take into consideration future changes in the balance sheet that will
likely result from ongoing loan and deposit activities conducted by the
Company's core business. Finally, the analysis requires assumptions about events
which span several years. Despite its limitations, the economic value of equity
model is a relatively sophisticated tool for evaluating the longer-term effect
of possible interest rate movements.
The Company's guidelines for risk management call for preventive measures
if an immediate 200 basis point increase or decrease in interest rates would
reduce the economic value of equity by more than 15%. The Company has been
operating within these guidelines. As of December 31, 2001 and 2000, based on
the results of the independent national consulting firm's simulation model and
reviewed by the separate and independent national consulting firm, the Company
could expect its economic value of equity to increase by approximately 10.90%
and 6.77%, respectively, if short-term interest rates immediately increased by
200 basis points. Conversely, if short-term interest rates immediately decrease
by 200 basis points, economic value of equity could be expected to decrease by
approximately 13.72% and 14.42%, respectively. The greater percentage increase
in economic value of equity as of December 31, 2001, compared to December 31,
2000, is primarily due to shorter effective asset lives at December 31, 2001,
compared to December 31, 2000, resulting primarily from the natural evolution of
the balance sheet in a declining interest rate environment associated with
increased prepayments.
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
A new accounting standard requires all business combinations to be recorded
using the purchase method of accounting for any transaction initiated after June
30, 2001. Under the purchase method, all identifiable tangible and intangible
assets and liabilities of the acquired company must be recorded at fair value at
date of acquisition, and the excess of cost over fair value of net assets
acquired is recorded as goodwill. Identifiable intangible assets must be
separated from goodwill. Identifiable intangible assets with finite useful lives
will be amortized under the new standard, whereas goodwill, both amounts
previously recorded and future amounts purchased, will cease being amortized
starting in 2002. Annual impairment testing will be required for goodwill with
impairment being recorded if the carrying amount of goodwill exceeds its implied
fair value. Adoption of this standard on January 1, 2002 will result in lower
annual amortization expense of $106.
24
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 - Asset/Liability
Management" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Greene County Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Greene County
Bancshares, Inc. as of December 31, 2001 and 2000, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The 1999 financial statements of Greene
County Bancshares, Inc. were audited by other auditors whose report dated
January 28, 2000 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Greene County
Bancshares, Inc. as of December 31, 2001 and 2000, and its results of operations
and cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Crowe, Chizek and Company LLP
Louisville, Kentucky
January 17, 2002
25
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------
2001 2000
---- ----
ASSETS
Cash and due from banks $ 22,432 $ 24,038
Federal funds sold 25,621 8,130
-------- --------
Cash and cash equivalents 48,053 32,168
Interest bearing deposits in other banks 1,100 --
Securities available for sale 28,567 46,658
Securities held to maturity (fair value
$840 and $1,869) 833 1,866
Loans held for sale 7,945 1,725
Loans, net 671,326 655,340
Premises and equipment, net 25,611 23,934
FHLB and Bankers Bank stock, at cost 4,538 4,254
Cash surrender value of life insurance 7,349 7,242
Accrued interest receivable and other assets 16,290 15,930
-------- --------
Total assets $811,612 $789,117
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 65,179 $ 47,794
Interest-bearing deposits 588,734 600,847
-------- --------
Total deposits 653,913 648,641
Federal funds purchased and repurchase agreements 10,375 4,713
Notes payable 67,978 59,949
Accrued interest payable and other liabilities 10,719 12,804
-------- --------
Total liabilities 742,985 726,107
Shareholders' equity
Common stock: 15,000,000 shares authorized,
6,818,890 shares outstanding $ 13,638 $ 13,638
Additional paid-in capital 4,854 4,854
Retained earnings 50,071 44,467
Accumulated other comprehensive income 64 51
-------- --------
Total shareholders' equity 68,627 63,010
-------- --------
Total liabilities and shareholders' equity $811,612 $789,117
======== ========
--------------------------------------------------------------------------------
See accompanying notes.
26
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2001 2000 1999
---- ---- ----
Interest income
Interest and fees on loans $65,970 $62,874 $52,786
Taxable securities 1,010 3,153 1,196
Nontaxable securities 87 140 160
FHLB and Bankers Bank stock 289 288 244
Federal funds sold and other 608 1,241 843
------- ------- -------
67,964 67,696 55,229
Interest expense
Deposits 24,623 25,291 18,300
Federal funds purchased and repurchase agreements 181 304 318
Notes payable 3,659 3,548 1,124
------- ------- -------
28,463 29,143 19,742
Net interest income 39,501 38,553 35,487
Provision for loan losses 5,959 8,009 3,133
------- ------- -------
Net interest income after provision
for loan losses 33,542 30,544 32,354
Noninterest income
Service charges and fees 7,606 5,200 5,258
Other 1,987 1,368 1,073
------- ------- -------
9,593 6,568 6,331
Noninterest expense
Salaries and employee benefits 16,977 16,734 14,339
Occupancy expense 2,078 1,961 1,541
Equipment expense 2,046 1,794 1,782
Professional services 636 887 751
Advertising 419 673 520
Loss on OREO and repossessed assets 370 477 119
Other 6,139 6,867 5,558
------- ------- -------
28,665 29,393 24,610
Income before income taxes 14,470 7,719 14,075
Provision for income taxes 5,047 2,206 5,250
------- ------- -------
Net income $ 9,423 $ 5,513 $ 8,825
======= ======= =======
Earnings per share:
Basic $ 1.38 $ .81 $ 1.30
Diluted 1.38 .80 1.29
--------------------------------------------------------------------------------
See accompanying notes.
27
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Accumulated
Other Total
Additional Compre- Share-
Common Paid-in Retained hensive holders'
Stock Capital Earnings Income Equity
----- ------- -------- ------ ------
BALANCE, JANUARY 1, 1999 $ 13,572 $ 4,298 $ 37,421 $ 94 $ 55,385
Issuance of 12,245 shares 24 133 - - 157
Dividends paid ($.52 per share) - - (3,531) - (3,531)
Tax benefit from exercise of
nonincentive stock options - 48 - - 48
Comprehensive income:
Net income - - 8,825 - 8,825
Change in unrealized gains
(losses), net of reclassification - - - (112) (112)
----------
Total comprehensive income 8,713
----------
BALANCE, DECEMBER 31, 1999 13,596 4,479 42,715 (18) 60,772
Issuance of 20,655 shares 42 347 - - 389
Dividends paid ($.55 per share) - - (3,761) - (3,761)
Tax benefit from exercise of
nonincentive stock options - 28 - - 28
Comprehensive income:
Net income - - 5,513 - 5,513
Change in unrealized gains
(losses), net of reclassification - - - 69 69
----------
Total comprehensive income 5,582
----------
BALANCE, DECEMBER 31, 2000 13,638 4,854 44,467 51 63,010
Dividends paid ($.56 per share) - - (3,819) - (3,819)
Comprehensive income:
Net income - - 9,423 - 9,423
Change in unrealized gains
(losses), net of reclassification - - - 13 13
----------
Total comprehensive income 9,436
----------
BALANCE, DECEMBER 31, 2001 $ 13,638 $ 4,854 $ 50,071 $ 64 $ 68,627
========== ========== ========== ========== ==========
--------------------------------------------------------------------------------
See accompanying notes.
28
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,423 $ 5,513 $ 8,825
Adjustments to reconcile net income to net cash from
operating activities
Provision for loan losses 5,959 8,009 3,133
Depreciation and amortization 1,604 1,601 1,304
Security amortization and accretion, net 102 188 291
FHLB stock dividends (284) (288) (244)
Net gain on sale of mortgage loans (421) (182) (536)
Originations of mortgage loans held for sale (76,608) (31,553) (57,166)
Proceeds from sales of mortgage loans 70,809 31,220 61,535
Net (gain) losses on sales of fixed assets 138 121 202
Net (gain) loss on OREO and repossessed assets 370 477 119
Cash surrender value of life insurance (107) (822) (2,284)
Net changes:
Accrued interest receivable and other assets 557 (3,961) (845)
Accrued interest payable and other liabilities (2,085) 865 (2,954)
--------- --------- ---------
Net cash from operating activities 9,457 11,188 11,380
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits with banks (1,100) -- --
Purchase of securities available for sale (18,500) (29,039) (7,083)
Proceeds from maturities of securities available for sale 36,508 3,030 9,239
Purchase of securities held to maturity -- -- (100)
Proceeds from maturities of securities held to maturity 1,035 1,455 395
Purchase of FHLB stock -- (345) --
Net increase in loans (27,321) (120,951) (89,989)
Net cash received in branch acquisitions 19,924 -- --
Proceeds from sale of other real estate 4,087 2,994 2,683
Improvements to other real estate (6) (95) (276)
Proceeds from sale of fixed assets 312 74 375
Premises and equipment expenditures (3,731) (7,357) (8,056)
--------- --------- ---------
Net cash from investing activities 11,208 (150,234) (92,812)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits, excluding deposits acquired
via branch acquisitions (14,652) 126,259 68,422
Net change in federal funds purchased and
repurchase agreements 5,662 (9,868) 7,365
Proceeds from notes payable 106,800 70,000 79,000
Repayment of notes payable (98,771) (56,360) (69,318)
Dividends paid (3,819) (3,761) (3,531)
Proceeds from issuance of common stock -- 389 157
--------- --------- ---------
Net cash from financing activities (4,780) 126,659 82,095
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 15,885 (12,387) 663
Cash and cash equivalents, beginning of year 32,168 44,555 43,892
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 48,053 $ 32,168 $ 44,555
========= ========= =========
Supplemental disclosures - cash and noncash
Interest paid $ 28,427 $ 27,993 $ 19,595
Income taxes paid 4,127 4,031 3,510
Loans converted to other real estate 5,941 4,152 3,136
--------------------------------------------------------------------------------
See accompanying notes.
29
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Greene County Bancshares, Inc. (the "Company") and its wholly owned
subsidiary, Greene County Bank (the "Bank"), and the Bank's wholly owned
subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp., Inc., and
Fairway Title Company, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation.
Nature of Operations: The Company primarily provides financial services through
its offices in Eastern and Southeastern Tennessee. Its primary deposit products
are checking, savings, and term certificate accounts, and its primary lending
products are residential mortgage, commercial, and installment loans.
Substantially all loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate. Other financial
instruments that potentially represent concentrations of credit risk include
deposit accounts in other financial institutions.
Use of Estimates: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses, loans held for sale, and fair values of financial instruments are
particularly subject to change.
Cash Flows: Cash and cash equivalents includes cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash flows are
reported for loan, deposit and other borrowing transactions.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in accumulated other
comprehensive income.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest and an allowance for loan losses.
Interest income is reported on the interest method over the loan term. Interest
income on mortgage and commercial loans is discontinued at the time the loan is
90 days delinquent unless the loan is well secured and in process of collection.
Most consumer loans are charged off no later than 120 days past due. In all
cases, loans are placed on nonaccrual or charged off at an earlier date if
collection of principal and interest is doubtful. Interest accrued but not
collected is reversed against interest income.
--------------------------------------------------------------------------------
(Continued)
30
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest received is recognized on the cash basis or cost recovery method until
qualifying for return to accrual status. Accrual is resumed when all
contractually due payments are brought current and future payments are
reasonably assured.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan is
confirmed.
The Bank uses several factors in determining if a loan is impaired. 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.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at lower of cost or market when acquired, establishing a new
cost basis. If fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful lives
on a straight-line basis.
Mortgage Banking Activities: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of aggregate cost or market value.
The Company controls its interest rate risk with respect to mortgage loans held
for sale and loan commitments expected to close by entering into agreements to
sell loans. Commitments to extend credit primarily represent fixed rate mortgage
loans. The commitments are generally for a period of 60 to 90 days and are at
market rates. The aggregate market value of mortgage loans held for sale
considers the sales prices of such agreements. The Company also provides
currently for any losses on uncovered commitments to lend or sell. The Company
sells mortgage loans servicing released.
--------------------------------------------------------------------------------
(Continued)
31
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangibles: Purchased intangibles, core deposits and goodwill, are recorded at
cost and amortized over the estimated life. Core deposits and goodwill
amortization is straight-line over 10 years. Beginning January 1, 2002, goodwill
will cease being amortized in accordance with the new accounting pronouncement
described later in the footnote. Total goodwill and core deposit intangibles
were $424 and $2,715 at year-end 2001.
On March 8, 2001, the Bank acquired a bank branch and sold one of its bank
branches. As a result of this transaction, the Company's deposits decreased by
approximately $7,600. Other than the reduction in deposits referenced above, the
effect of this transaction on the Company's financial condition and results of
operations was not material.
On December 7, 2001, the Bank completed its acquisition of three branch offices,
acquiring approximately $31,000 in deposits and an immaterial amount of certain
assets. A core deposit intangible asset of $1,584 was recorded.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Benefit Plans: Retirement Plan Expense is the amount contributed to the plan as
determined by Board decision. Deferred Compensation Plan Expense is recognized
during the year the benefit is earned.
Stock Compensation: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of SFAS No. 123 to measure expense for options using an option pricing
model to estimate fair value.
Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to loss
before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.
--------------------------------------------------------------------------------
(Continued)
32
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share: Basic earnings per common share are net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share includes the dilutive effect of
additional potential common shares issuable under stock options. During May
2001, the Company affected a five for one stock split in the form of a dividend.
Earnings and dividends per share are restated for all stock splits and dividends
through the issuance date of the financial statements.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as a separate
component of equity. Comprehensive income is presented in the consolidated
statements of changes in shareholders' equity.
New Accounting Pronouncements: A new accounting standard requires all business
combinations to be recorded using the purchase method of accounting for any
transaction initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost over fair value of net assets acquired is recorded as goodwill.
Identifiable intangible assets must be separated from goodwill. Identifiable
intangible assets with finite useful lives will be amortized under the new
standard, whereas goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized starting in 2002. Annual impairment
testing will be required for goodwill with impairment being recorded if the
carrying amount of goodwill exceeds its implied fair value. Adoption of this
standard on January 1, 2002 will result in lower annual amortization expense of
$106.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are any such matters that will have
a material effect on the financial statements.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank
of $3,042 and $2,312 was required to meet regulatory reserve and clearing
requirements at year-end 2001 and 2000. These balances do not earn interest.
Segments: Internal financial reporting is primarily reported and aggregated in
five lines of business, banking, mortgage banking, consumer finance, subprime
automobile lending, and title insurance. Banking accounts for 89.5% of revenues
for 2001.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Reclassifications: Certain items in prior year financial statements have been
reclassified to conform to the 2001 presentation.
--------------------------------------------------------------------------------
(Continued)
33
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 2 - SECURITIES
Securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2001
----
Available for Sale
------------------
U. S. Treasury and government agency $ 19,098 $ 84 $ (21) $ 19,161
Obligations of states and political
subdivisions 1,367 5 -- 1,372
Mortgage-backed 1,499 36 (1) 1,534
Trust preferred securities 6,500 -- -- 6,500
-------- -------- -------- --------
$ 28,464 $ 125 $ (22) $ 28,567
======== ======== ======== ========
Held to Maturity
----------------
Obligations of states and political
subdivisions $ 833 $ 7 $ -- $ 840
======== ======== ======== ========
2000
----
Available for Sale
------------------
U. S. Treasury and government
agency $ 43,302 $ 98 $ (37) $ 43,363
Obligations of states and political
subdivisions 1,416 2 (2) 1,416
Mortgage-backed 1,857 23 (1) 1,879
-------- -------- -------- --------
$ 46,575 $ 123 $ (40) $ 46,658
======== ======== ======== ========
Hold to Maturity
----------------
Obligations of states and political
subdivisions $ 1,866 $ 4 $ (1) $ 1,869
======== ======== ======== ========
--------------------------------------------------------------------------------
(Continued)
34
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Contractual maturities of securities at year-end 2001 are shown below.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 1,332 $ 1,334 $ 385 $ 388
Due after one year through five years 11,962 11,957 - -
Due after five years through ten years 3,413 3,438 98 102
Due after ten years 10,258 10,304 350 350
Mortgage-backed securities 1,499 1,534 - -
------------- ------------ ------------ ------------
Total maturities $ 28,464 $ 28,567 $ 833 $ 840
============= ============ ============ ============
There were no security sales during 2001, 2000 or 1999.
Securities with a carrying value of $13,784 and $38,897 at year-end 2001 and
2000 were pledged for public deposits and securities sold under agreements to
repurchase.
NOTE 3 - LOANS
Loans at year-end were as follows:
2001 2000
---- ----
Commercial $ 96,122 $ 87,680
Commercial real estate 295,002 288,254
Residential real estate 210,489 204,202
Consumer 80,314 88,687
Other 13,779 12,493
------------ ------------
695,706 681,316
Less: Unearned interest income (13,159) (14,248)
Allowance for loan losses (11,221) (11,728)
------------ ------------
$ 671,326 $ 655,340
============ ============
--------------------------------------------------------------------------------
(Continued)
35
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses is as follows:
2001 2000 1999
---- ---- ----
Beginning balance $ 11,728 $ 10,332 $ 10,253
Provision 5,959 8,009 3,133
Loans charged off (7,830) (7,788) (4,017)
Recoveries of loans charged off 1,364 1,175 963
-------- -------- --------
Balance, end of year $ 11,221 $ 11,728 $ 10,332
======== ======== ========
Impaired loans were as follows:
2001 2000 1999
---- ---- ----
Loans with allowance allocated $ 11,243 $ 9,144 $ 5,591
Amount of allowance allocated 1,686 1,372 709
Average balance during the year 10,482 9,535 6,264
Interest income recognized during
impairment 253 310 267
Cash-basis interest income recognized -- -- --
Nonperforming loans were as follows:
2001 2000
---- ----
Loans past due 90 days still on accrual $ 871 $ 475
Nonaccrual loans 5,857 4,813
---------- ----------
Total $ 6,728 $ 5,288
========== ==========
The aggregate amount of loans to executive officers and directors of the Company
and their related interests was approximately $9,249 and $12,881 at year-end
2001 and 2000. During 2001 and 2000, new loans aggregating approximately $15,230
and $14,661 and amounts collected of approximately $18,862 and $13,995 were
transacted with such parties.
--------------------------------------------------------------------------------
(Continued)
36
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment follows:
2001 2000
---- ----
Land $ 4,752 $ 4,577
Premises 15,608 13,089
Leasehold improvements 1,591 1,791
Furniture, fixtures and equipment 9,727 8,458
Automobiles 59 781
Construction in progress 2,227 2,634
---------- ----------
33,964 31,330
Accumulated depreciation (8,353) (7,396)
---------- ----------
$ 25,611 $ 23,934
========== ==========
Rent expense for operating leases was $490 for 2001, $600 for 2000, and $467 for
1999. Rent commitments under noncancelable operating leases were as follows,
before considering renewal options that generally are present:
2002 $ 358
2003 276
2004 181
2005 82
2006 61
Thereafter 398
-----------
Total $ 1,356
===========
NOTE 5 - DEPOSITS
Time deposits of $100 thousand or more were $101,101 and $130,450 at year-end
2001 and 2000.
Scheduled maturities of all time deposits for the next five years were as
follows:
2002 $ 228,268
2003 39,020
2004 64,294
2005 3,202
2006 414
The aggregate amount of deposits to executive officers and directors of the
Company and their related interests was approximately $4,497 and $2,393 at
year-end 2001 and 2000.
--------------------------------------------------------------------------------
(Continued)
37
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 6 - BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arrangements. Securities involved
with the agreements are recorded as assets and are held by a safekeeping agent
and the obligations to repurchase the securities are reflected as liabilities.
Securities sold under agreements to repurchase consist of short-term excess
funds and overnight liabilities to deposit customers arising from a cash
management program. While effectively deposit equivalents, such arrangements are
in the form of repurchase agreements.
Information concerning securities sold under agreements to repurchase at
year-end 2001 and 2000 is as follows:
2001 2000
---- ----
Average month-end balance during the year $ 6,833 $ 5,725
Average interest rate during the year 2.25% 4.95%
Maximum month-end balance during the year $ 10,375 $ 9,928
NOTES PAYABLE CONSIST OF THE FOLLOWING AT YEAR-END:
2001 2000
---- ----
Fixed rate FHLB advances, from 4.60% to 6.35%,
maturities from April, 2002 to September, 2013 $ 16,678 $ 2,018
Variable rate FHLB advances, from 4.56% to 5.76%,
maturities from November, 2008 to January, 2010 49,500 55,500
Notes payable, interest due quarterly at 4.83%,
principal due October, 2004 (2001).
Note payable, interest due quarterly at 8%,
principal due January, 2002 through
January, 2008 (2000).
1,800 2,431
---------- ----------
$ 67,978 $ 59,949
========== ==========
Each advance is payable at its maturity date; however, prepayment penalties are
required if paid before maturity. The advances are collateralized by a required
blanket pledge of qualifying mortgage loans totaling $165,346 and $92,499 at
year-end 2001 and 2000.
--------------------------------------------------------------------------------
(Continued)
38
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 6 - BORROWINGS (Continued)
Scheduled maturities of notes payable over the next five years are:
Total
2002 $ 15,357
2003 268
2004 1,925
2005 133
2006 146
Thereafter 50,149
---------
$ 67,978
=========
At year-end 2001, the Company had approximately $70,900 of federal funds lines
of credit available from correspondent institutions, $18,569 in unused lines of
credit with the FHLB, and $56,300 letters of credit with the FHLB.
NOTE 7 - BENEFIT PLANS
The Company has a profit sharing plan which allows employees to contribute from
1% to 20% of their compensation. The Company contributes an additional amount at
a discretionary rate established annually by the Board of Directors. Company
contributions to the Plan were $512, $923 and $707 for 2001, 2000 and 1999.
Directors have deferred some of their fees for future payment, including
interest. The amount accrued for deferred compensation was $1,435 and $1,269 at
year-end 2001 and 2000. Amounts expensed under the plan were $262, $222 and $188
during 2001, 2000, and 1999. Related to these plans, the Company purchased
single premium life insurance contracts on the lives of the related
participants. The cash surrender value of these contracts is recorded as an
asset of the Company.
NOTE 8 - INCOME TAXES
Income tax expense is summarized as follows:
2001 2000 1999
---- ---- ----
Current - federal $ 3,974 $ 3,075 $ 4,341
Current - state 530 314 1,059
Deferred 543 (1,183) (150)
---------- ---------- ---------
$ 5,047 $ 2,206 $ 5,250
========== ========== =========
--------------------------------------------------------------------------------
(Continued)
39
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (Continued)
Deferred income taxes reflect the effect of "temporary differences" between
values recorded for assets and liabilities for financial reporting purposes and
values utilized for measurement in accordance with tax laws. The tax effects of
the primary temporary differences giving rise to the Company's net deferred tax
assets and liabilities are as follows:
2001 2000
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Allowance for loan losses $ 4,365 $ - $ 4,562 $ -
Deferred compensation 778 - 708 -
Depreciation - (965) - (786)
FHLB dividends - (529) - (418)
Core deposit intangible - (171) - (214)
Unrealized (gain) loss on securities - (39) - (32)
Other 17 - 186 -
---------- ---------- ---------- ----------
Total deferred income taxes $ 5,160 $ (1,704) $ 5,456 $ (1,450)
========== ========== ========== ==========
A reconciliation of expected income tax expense at the statutory federal income
tax rate of 35% with the actual effective income tax rates is as follows:
2001 2000 1999
---- ---- ----
Statutory federal tax rate 35.0% 35.0% 35.0%
State income tax, net of federal benefit 3.1 (1.6) 4.9
Tax exempt income (.3) (.7) (.1)
Other (2.9) (4.1) (2.5)
------- ------- ------
34.9% 28.6% 37.3%
======= ======= ======
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer-financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
--------------------------------------------------------------------------------
(Continued)
40
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK (Continued)
Financial instruments with off-balance-sheet risk were as follows at year-end:
2001 2000
---- ----
Commitments to make loans - fixed $ 8,358 $ 1,431
Commitments to make loans - variable 8,653 2,480
Unused lines of credit 96,037 95,321
Letters of credit 6,304 6,231
The fixed rate loan commitments have interest rates ranging from 6.49% to 8.00%
and maturities ranging from one year to five years.
NOTE 10 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
Banks and bank holding companies are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure
to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
--------------------------------------------------------------------------------
(Continued)
41
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 10 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)
At year-end, the capital requirements were met, as the Company and the Bank were
considered well capitalized under regulations. Actual capital levels and minimum
required levels (in millions) were:
Minimum Amounts to be
Minimum Required Well Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ----------------------
Actual Ratio Actual Ratio Actual Ratio
------ ----- ------ ----- ------ -----
2001
----
Total Capital (to Risk Weighted Assets)
Consolidated $ 73.9 11.1% $ 53.1 8.0% $ 66.4 10.0%
Bank 74.8 11.3 52.9 8.0 66.2 10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 65.7 9.9% $ 26.6 4.0% $ 39.9 6.0%
Bank 66.4 10.0 26.5 4.0 39.7 6.0
Tier 1 Capital (to Average Assets)
Consolidated $ 65.7 8.2% $ 32.3 4.0% $ 40.4 5.0%
Bank 66.4 8.3 32.3 4.0 40.3 5.0
2000
----
Total Capital (to Risk Weighted Assets)
Consolidated $ 69.2 11.1% $ 50.1 8.0% $ 62.7 10.0%
Bank 70.1 11.2 50.0 8.0 62.6 10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 61.4 9.8% $ 25.1 4.0% $ 37.6 6.0%
Bank 62.2 10.0 25.0 4.0 37.6 6.0
Tier 1 Capital (to Average Assets)
Consolidated $ 61.4 7.9% $ 31.2 4.0% $ 39.0 5.0%
Bank 62.2 8.0 31.3 4.0 39.1 5.0
The Company's primary source of funds to pay dividends to shareholders is the
dividends it receives from the Bank. Applicable state laws and the regulations
of the Federal Reserve Bank and the Federal Deposit Insurance Corporation
regulate the payment of dividends. Under the state regulations, the amount of
dividends that may be paid is limited only to the extent that the remaining
balance of retained earnings is at least equal to the capital stock amounts of
the Bank; however, future dividends will be dependent on the level of earnings,
capital and liquidity requirements and considerations of the Bank and Company.
--------------------------------------------------------------------------------
(Continued)
42
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS
The Company maintains a stock option plan, whereby a maximum of 480,000 stock
options may be issued to selected key executives. The exercise price of each
option is the fair market value of the Company's common stock on the date of
grant. The maximum term of the options is ten years and the options vest at an
annual rate of 20%. At year-end 2001, 244,260 shares are authorized for future
grant.
The Company also has a stock option plan that grants a key executive fully
vested options to purchase 9,000 shares per year at one and one-half times year
end book value. Compensation expense associated with these options was $20 for
2001, $168 for 2000, and $156 for 1999.
A summary of the Company's option activity and related information for the years
ended 2001, 2000, and 1999 is presented below:
Key Executive Other Key Executives Total
------------- -------------------- -----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2001 Options Price Options Price Options Price
---- ------- ----- ------- ----- ------- -----
Outstanding at beginning of year 45,000 $ 12.15 145,865 $ 24.90 190,865 $ 21.89
Granted 9,000 15.09 42,065 16.00 51,065 15.84
Exercised - - - - - -
Forfeited - - (4,200) 31.00 (4,200) 31.00
- ------ ------
Outstanding at end of year 54,000 $ 12.64 183,730 $ 22.72 237,730 $20.43
====== ======= =======
Options exercisable at year-end 54,000 $ 12.64 77,458 $ 20.85 131,458 $17.48
====== ====== =======
Fair value of each option granted
during the year $ 3.58 $ 3.26
========= =========
--------------------------------------------------------------------------------
(Continued)
43
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (Continued)
Key Executive Other Key Executives Total
------------- -------------------- -----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2000 Options Price Options Price Options Price
---- ------- ----- ------- ----- ------- -----
Outstanding at beginning of year 36,000 $ 11.72 125,155 $ 21.53 161,155 $ 19.34
Granted 9,000 13.86 42,065 32.00 51,065 28.80
Exercised - - (20,655) 18.78 (20,655) 18.78
Forfeited - - (700) 30.00 (700) 30.00
- ----- -----
Outstanding at end of year 45,000 $ 12.15 145,865 $ 24.90 190,865 $ 21.89
====== ======= =======
Options exercisable at year-end 45,000 $ 12.15 52,285 $ 18.32 97,285 $ 15.47
====== ====== ======
Fair value of each option
granted during the year $ 18.65 $ 6.57
========= =========
1999
----
Outstanding at beginning of year 27,000 $ 11.16 103,615 $ 17.23 130,615 $ 15.97
Granted 9,000 13.41 38,735 30.00 47,735 26.87
Exercised - - (12,245) 12.82 (12,245) 12.82
Forfeited - - (4,950) 19.25 (4,950) 19.25
- ------- -------
Outstanding at end of year 36,000 $ 11.72 125,155 $ 21.53 161,155 $ 19.34
====== ======= =======
Options exercisable at year-end 36,000 $ 11.72 42,320 $ 15.21 78,320 $ 13.61
====== ====== ======
Fair value of each option
granted during the year $ 17.24 $ 7.06
========= =========
--------------------------------------------------------------------------------
(Continued)
44
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (Continued)
Options outstanding at year-end 2001 were as follows:
Outstanding Exercisable
----------- -----------
Average
Weighted Average
Remaining Weighted
Number Contractual Number Exercise
Range of Exercise Prices Outstanding Life Exercisable Price
------------------------ ----------- ---- ----------- -----
*$10.13 - $15.09 54,000 7.5 54,000 $ 12.64
$ 9.67 - $32.00 183,730 7.8 77,458 $ 20.85
*Granted in connection with compensation for the key executive.
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 2001, 2000, and 1999: dividend growth rate of
2.5%, 5%, and 15%, risk-free interest rate of 5.17%, 5.10% and 6.45%, expected
lives of seven years, and estimated volatility of 20.14%, 9.62 % and 10.07%.
No expense for stock options to other key executives is recorded, as the grant
price equals the market price of the stock at grant date. The following
disclosures show the effect on income and earnings per share had the options'
fair value been recorded using an option pricing model. If additional options
are granted, the pro forma effect will increase in the future.
2001 2000 1999
---- ---- ----
As As As
Reported Proforma Reported Proforma Reported Proforma
-------- -------- -------- -------- -------- --------
Net income $ 9,423 $ 9,286 $ 5,513 $ 5,348 $ 8,825 $ 8,743
Basic earnings per share $ 1.38 $ 1.36 $ .81 $ .79 $ 1.30 $ 1.29
Diluted earnings per share $ 1.38 $ 1.36 $ .80 $ .78 $ 1.29 $ 1.28
--------------------------------------------------------------------------------
(Continued)
45
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 12 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are presented
below.
2001 2000 1999
---- ---- ----
BASIC EARNINGS PER SHARE
------------------------
Net income $ 9,423 $ 5,513 $ 8,825
Weighted average common
shares outstanding 6,818,890 6,814,075 6,791,565
Basic Earnings Per Share $ 1.38 $ .81 $ 1.30
========== ========== ==========
DILUTED EARNINGS PER SHARE
--------------------------
Net income $ 9,423 $ 5,513 $ 8,825
Weighted average common
share outstanding 6,818,890 6,814,075 6,791,565
Add: Dilutive effects of assumed
conversions and exercises of
stock options 18,490 57,415 55,125
---------- ---------- ----------
Weighted average common and
dilutive potential common shares
outstanding 6,837,380 6,871,490 6,846,690
---------- ---------- ----------
Diluted Earnings Per Share $ 1.38 $ .80 $ 1.29
========== ========== ==========
Stock options of 114,937 were excluded from the 2001 diluted earnings per share
because their impact was antidilutive.
--------------------------------------------------------------------------------
(Continued)
46
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
instruments are as follows at year-end 2001 and 2000.
2001 2000
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and cash equivalents $ 48,053 $ 48,053 $ 32,168 $ 32,168
Interest bearing deposits with other banks 1,100 1,100 -- --
Securities available for sale 28,567 28,567 46,658 46,658
Securities held to maturity 833 840 1,866 1,869
Loans held for sale 7,945 7,960 1,725 1,725
Loans, net 671,326 671,862 655,340 652,123
FHLB and Bankers Bank stock 4,538 4,538 4,254 4,254
Accrued interest receivable 4,506 4,506 6,311 6,311
Financial liabilities:
Deposit accounts $653,913 $661,348 $648,641 $649,675
Federal funds purchased and
repurchase agreement 10,375 10,375 4,713 4,713
Notes payable 67,978 66,879 59,949 59,833
Accrued interest payable 3,552 3,552 3,516 3,516
The following methods and assumptions were used to estimate the fair values for
financial instruments. The carrying amount is considered to estimate fair value
for cash and short-term instruments, demand deposits, liabilities for borrowed
money, variable rate loans or deposits that reprice frequently and fully, and
accrued interest receivable and payable. Securities available for sale fair
values are based on quoted market prices or, if no quotes are available, on the
rate and term of the security and on information about the issuer. For fixed
rate loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, the fair value is estimated by discounted cash
flow analysis using current market rates for the estimated life and credit risk.
Fair values for impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable. Fair value of mortgage loans
held for sale is based on current market price for such loans. Liabilities for
borrowed money are estimated using rates of debt with similar terms and
remaining maturities. The fair value of off-balance sheet items is based on
current fees or costs that would be charged to enter into or terminate such
arrangements which is not material. The fair value of commitments to sell loans
is based on the difference between the interest rates committed to sell at and
the quoted secondary market price for similar loans, which is not material.
--------------------------------------------------------------------------------
(Continued)
47
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
Assets
Cash and due from financial institutions $ 176 $ 1,027
Investment in subsidiary 68,480 62,739
Cash surrender value of life insurance contracts 234 223
Other 2,151 2,146
---------- ----------
Total assets $ 71,041 $ 66,135
========== ==========
Total liabilities $ 2,414 $ 3,125
Shareholders' equity 68,627 63,010
---------- ----------
Total liabilities and shareholders' equity $ 71,041 $ 66,135
========== ==========
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
---- ---- ----
Dividends from subsidiaries $ 4,006 $ 3,959 $ 3,769
Other income 245 187 198
Interest expense (190) (198) (197)
Other expense (642) (741) (707)
---------- ---------- -----------
Income before income taxes 3,419 3,207 3,063
Income tax benefit (263) (310) (296)
Equity in undistributed net income of subsidiaries 5,741 1,996 5,466
---------- ---------- ---------
Net income $ 9,423 $ 5,513 $ 8,825
========== ========== =========
--------------------------------------------------------------------------------
(Continued)
48
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
---- ---- ----
OPERATING ACTIVITIES
Net income $ 9,423 $ 5,513 $ 8,825
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income of subsidiaries (5,741) (1,996) (5,466)
Depreciation and amortization 216 216 216
Change in assets (157) (213) (297)
Change in liabilities (131) 61 86
------- ------- -------
Net cash from operating activities 3,610 3,581 3,364
INVESTING ACTIVITIES
Increase in cash surrender value of life insurance (11) (10) (10)
------- ------- -------
Net cash from investing activities (11) (10) (10)
FINANCING ACTIVITIES
Dividends paid (3,819) (3,761) (3,531)
Proceeds from issuance of common stock -- 389 157
Proceeds from notes payable 1,800 -- --
Repayment of debt (2,431) (40) (40)
------- ------- -------
Net cash from financing activities (4,450) (3,412) (3,414)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (851) 159 (60)
Cash and cash equivalents, beginning of year 1,027 868 928
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 176 $ 1,027 $ 868
======= ======= =======
--------------------------------------------------------------------------------
(Continued)
49
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 15 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components were as follows.
2001 2000 1999
---- ---- ----
Unrealized holding gains and losses on
securities available for sale, net of tax $ 13 $ 69 $ (112)
Less reclassification adjustments for gains and
losses later recognized in income, net of tax - - -
------ ------ --------
Other comprehensive income $ 13 $ 69 $ (112)
====== ====== ========
NOTE 16 - SEGMENT INFORMATION
The Company's operating segments include banking, mortgage banking, consumer
finance, subprime automobile lending and title insurance. The reportable
segments are determined by the products and services offered, and internal
reporting. Loans, investments, and deposits provide the revenues in the banking
operation, loans and fees provide the revenues in consumer finance, mortgage
banking, and subprime lending and insurance commissions provide revenues for the
title insurance company. Mortgage banking, consumer finance, subprime automobile
lending and title insurance do not meet the quantitative threshold on an
individual basis, and are therefore shown below in "other". All operations are
domestic.
The accounting policies used are the same as those described in the summary of
significant accounting policies. Segment performance is evaluated using net
interest income and noninterest income. Income taxes are allocated based on
income before income taxes and indirect expenses (includes management fees) are
allocated based on time spent for each segment. Transactions among segments are
made at fair value. Information reported internally for performance assessment
follows.
Other
2001 Banking Segments Total
---- ------- -------- -----
Net interest income $ 33,441 $ 6,060 $ 39,501
Provision for loan losses 1,258 4,701 5,959
Noninterest income 7,707 1,886 9,593
Noninterest expense 23,601 5,064 28,665
Income tax expense 5,778 (731) 5,047
----------- ---------- -----------
Segment profit $ 10,511 $ (1,088) $ 9,423
=========== ========== ===========
Segment assets $ 773,567 $ 38,045 $ 811,612
=========== ========== ===========
--------------------------------------------------------------------------------
(Continued)
50
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 16 - SEGMENT INFORMATION (Continued)
Other Total
2000 Banking Segments Segments
---- ------- -------- --------
Net interest income $ 32,643 $ 5,910 $ 38,553
Provision for loan losses 3,727 4,282 8,009
Noninterest income 4,785 1,783 6,568
Noninterest expense 22,328 7,065 29,393
Income tax expense 3,701 (1,495) 2,206
----------- ---------- -----------
Segment profit $ 7,672 $ (2,159) $ 5,513
=========== ========== ===========
Segment assets $ 747,805 $ 41,312 $ 789,117
=========== ========== ===========
1999
----
Net interest income $ 28,575 $ 6,912 $ 35,487
Provision for loan loss 1,287 1,846 3,133
Noninterest income 4,035 2,296 6,331
Noninterest expense 18,404 6,206 24,610
Income tax expense 4,844 406 5,250
----------- ---------- -----------
Segment profit $ 8,075 $ 750 $ 8,825
=========== ========== ===========
Segment assets $ 611,420 $ 44,592 $ 656,012
=========== ========== ===========
NOTE 17 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Presented below is a summary of the consolidated quarterly financial data:
For the three months ended
Summary of Operations 3/31/01 6/30/01 9/30/01 12/31/01
--------------------- ------- ------- ------- --------
Interest income $ 18,182 $ 17,150 $ 16,783 $ 15,849
Net interest income 10,260 9,794 9,727 9,720
Provision for loan losses 1,439 1,168 1,493 1,859
Income before income taxes 4,602 4,065 3,678 2,125
Net income 2,908 2,441 2,335 1,739
Basic earnings per share .43 .36 .34 .26
Diluted earning per share .42 .36 .33 .25
Dividends per common share .12 .12 .12 .20
Average common shares outstanding 6,818,890 6,818,890 6,818,890 6,818,890
Average common shares outstanding - diluted 6,879,165 6,858,866 6,851,779 6,837,380
--------------------------------------------------------------------------------
(Continued)
51
GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 17 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Continued)
For the three months ended
Summary of Operations 3/31/00 6/30/00 9/30/00 12/31/00
--------------------- ------- ------- ------- --------
Interest income $ 15,585 $ 16,647 $ 17,231 $ 18,233
Net interest income 9,524 9,715 9,592 9,722
Provision for loan losses 1,717 1,077 1,122 4,093
Income before income taxes 3,008 3,119 3,188 (1,596)
Net income 2,157 1,894 1,926 (464)
Basic earnings per share .32 .28 .28 (0.07)
Diluted earnings per share .31 .28 .28 (0.07)
Dividends per common share .12 .12 .12 0.19
Average common shares outstanding 6,802,155 6,809,805 6,812,645 6,818,335
Average common shares outstanding - diluted 6,858,185 6,863,055 6,870,695 6,873,875
Note: The large increase in the provision for loan losses during the fourth
quarter of 2000, as compared to prior periods, is primarily a result of
a decline in consumer loan quality.
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 18, 2000, PricewaterhouseCoopers LLP was dismissed as the
principal accountants of the Company and Crowe, Chizek and Company LLP was
engaged as its principal accountants. The decision to change accountants was
approved by the Audit Committee of the Company. The audit reports of
PricewaterhouseCoopers LLP on the consolidated financial statements of the
Company as of and for the years ended December 31, 1999 and 1998, did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principle. In connection
with the audits of the two most recent fiscal years ended December 31, 1999 and
1998, and the subsequent interim period through October 18, 2000, there have
been no disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure, which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make reference thereto in
their reports on the financial statements for such years.
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 2002 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 "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Election of
Directors -- Executive Compensation and Other Benefits" in the Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated
herein by reference to the section captioned
"Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated
herein by reference to the sections captioned
"Security Ownership of Certain Beneficial Owners and
Management" and "Election of Directors" in the Proxy
Statement.
(c) Changes in Control
Management of the Company knows of no arrangements,
including any pledge by any person of securities of
the Company, the operation of which may at a
subsequent date result in a change in control of the
registrant.
53
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 Company's 2001 Annual Report to the Shareholders (the "Annual
Report") are incorporated herein by reference from Item 8 of this Report. The
remaining information appearing in the Annual Report is not deemed to be filed
as part of this Report, except as expressly provided herein.
1. Report of Independent Accountants.
2. Consolidated Balance Sheets - December 31, 2001 and 2000.
3. Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999.
4. Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2001, 2000 and 1999.
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.
6. Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits either are filed as part of this Report or
are incorporated herein by reference:
Exhibit No. 3. Articles of Incorporation and Bylaws
------------------------------------
(i) Amended and Restated Charter, effective June
18, 1998 -- incorporated herein by reference
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
(ii) Amended and Restated Bylaws -- incorporated
herein by reference to the Company's Annual
Report on Form 10-K for the year ended
December 31, 2000
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.
Exhibit No. 11. Statement re Computation of Per Share Earnings
----------------------------------------------
Incorporated by reference to Note 12 of the
Notes to Consolidated Financial Statements.
54
Exhibit No. 21. Subsidiaries of the Registrant
------------------------------
A list of subsidiaries of the Registrant is
included as an exhibit to this Report.
Exhibit No. 23.1. Consent of PricewaterhouseCoopers LLP
-------------------------------------
Exhibit No. 23.2. Consent of Crowe, Chizek and Company LLP
----------------------------------------
(b) Reports on Form 8-K. On December 11, 2001, the Company filed a
Report on Form 8-K to report the consummation of its
acquisition of three bank branches located in eastern
Tennessee from SunTrust Bank. No financial statements were
filed with the 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.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
GREENE COUNTY BANCSHARES, INC.
Date: March 27, 2002 By: /s/ R. Stan Puckett
--------------------------------------
R. Stan Puckett
Chairman of the Board, 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.
SIGNATURE AND TITLE: DATE:
/s/ R. Stan Puckett March 27, 2002
-------------------
R. Stan Puckett
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ William F. Richmond March 27, 2002
-----------------------
William F. Richmond
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Ralph T. Brown March 27, 2002
------------------
Ralph T. Brown
Director
/s/ Phil M. Bachman March 27, 2002
-------------------
Phil M. Bachman
Director
/s/ Charles S. Brooks March 27, 2002
---------------------
Charles S. Brooks
Director
/s/ Bruce Campbell March 27, 2002
------------------
Bruce Campbell
Director
56
/s/ W. T. Daniels March 27, 2002
-----------------
W.T. Daniels
Director
/s/ James A. Emory March 27, 2002
------------------
James A. Emory
Director
/s/ Jerald K. Jaynes March 27, 2002
--------------------
Jerald K. Jaynes
Director
/s/ Terry Leonard March 27, 2002
-----------------
Terry Leonard
Director
/s/ H.J. Moser, III March 27, 2002
-------------------
H.J. Moser, III
Director
/s/ Davis Stroud March 27, 2002
----------------
Davis Stroud
Director and Secretary
Director
/s/ Charles H. Whitfield, Jr. March 27, 2002
-----------------------------
Charles H. Whitfield, Jr.
Director
57