-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vz98nAZg8iNFI/rJTU0tnlSBbf//0MS+Dr/xvG7GQ2tEg0/CN0s9dEhFxPQFunen r+A5vztiyzSHSGMkmm27zw== 0001025537-01-500013.txt : 20010402 0001025537-01-500013.hdr.sgml : 20010402 ACCESSION NUMBER: 0001025537-01-500013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENE COUNTY BANCSHARES INC CENTRAL INDEX KEY: 0000764402 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 621222567 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14289 FILM NUMBER: 1586219 BUSINESS ADDRESS: STREET 1: 100 NORTH MAIN STREET CITY: GREENEVILLE STATE: TN ZIP: 37743-4992 BUSINESS PHONE: 4236395111 MAIL ADDRESS: STREET 1: P O BOX 1120 CITY: GREENEVILLE STATE: TN ZIP: 37744-1120 10-K 1 gcb10k12312000.txt GREENE COUNTY 10K FOR 12/31/2000 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ________________ Commission file number 0-14289 ------- GREENE COUNTY BANCSHARES, INC. ------------------------------ (Exact name of registrant as specified in its charter) Tennessee 62-1222567 ---------------------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 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 $150 per share, the registrant believes that the aggregate market value of the voting stock on March 30, 2001 was $204.6 million. For purposes of this calculation, it is assumed that directors, officers and beneficial owners of more than 5% of the registrant's outstanding voting stock are not affiliates. On such date, 1,363,778 shares of the common stock were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following lists the documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: 1. Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 2000. (Parts I and II) 2. Portions of Proxy Statement for 2001 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 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. The Bank wholly owned American Fidelity Bank, whose operations were combined into the Bank during 1996, and Premier Bank of East Tennessee, whose operations were combined into the Bank in 1998. In addition to its commercial banking operations, the Bank conducts separate businesses through three wholly-owned subsidiaries: Superior Financial Services, Inc. ("Superior Financial"), a consumer finance company; GCB Acceptance Corporation ("GCB Acceptance"), a consumer finance company specializing in subprime automobile lending; and Fairway Title Co., a title company. The Bank also operates a trust and money management function, doing business as President's Trust, in Wilson County, Tennessee and also operates a mortgage banking function headquartered in Knoxville, Tennessee. The Company's assets consist primarily of its investment in the Bank, liquid investments and fixed assets. Its primary activities are conducted through the Bank. At December 31, 2000, the Company's consolidated total assets were $789,117, its consolidated net loans, including loans held for sale, were $657,065, its total deposits were $648,641 and its total stockholders' equity was $63,010. 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, including separate finance, acceptance and title corporations. At December 31, 2000, the Bank had twenty-five full service banking offices located in East Tennessee, including Greene County, Washington County, Blount County, Hamblen County, McMinn County, Loudon County, Hawkins County, Sullivan County, Cocke County, Knox County and Monroe County. Further, the Bank operates a trust and money management function located in Wilson County, Tennessee and doing business as President's Trust, and also operates a mortgage loan operation in Knox County, Tennessee. The Bank also conducts separate business through three wholly owned subsidiaries. Through Superior Financial Services, Inc., the Bank operates fourteen consumer finance company offices located in Greene, Blount, Hamblen, McMinn, Washington, Sullivan, Sevier, Knox, Hamilton and Loudon 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, 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. BRANCH EXPANSION During the early part of 2000, the Company continued the expansion of its branch network, opening new branches in Hawkins, Loudon and Sullivan Counties, Tennessee. Further, the Company opened an additional branch in Blount County, Tennessee in the fall of 2000. 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 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. Loan Composition. The following table sets forth the composition of the Company's loans for the periods indicated.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Commercial.......................... $ 87,680 $ 68,793 $ 57,860 $ 51,661 $ 52,499 Commercial real estate.............. 288,254 242,574 185,063 182,837 157,855 Residential real estate............. 204,202 170,299 135,515 134,016 108,802 Loans held for sale................. 1,725 1,210 5,043 7,284 -- Consumer............................ 88,687 71,169 76,077 68,644 51,297 Other............................... 12,493 16,774 27,349 12,035 21,852 ---------- ----------- ---------- ---------- ----------- Total............................ 683,041 570,819 486,907 456,477 392,305 Less: Unearned Income..................... (14,248) (13,590) (9,993) (5,933) (3,703) Allowance for loan losses........... (11,728) (10,332) (10,253) (9,154) (7,330) --------- ---------- ---------- ---------- ---------- Net loans........................ $657,065 $ 546,897 $ 466,661 $ 441,390 $ 381,272 ========== =========== ========== ========== ==========
Loan Maturities. The following table reflects at December 31, 2000 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 2 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............................. $ 59,307 $ 26,418 $ 1,955 $ 87,680 Commercial real estate................. 134,951 146,058 7,245 288,254 Residential real estate................ 85,185 98,114 20,903 204,202 Loans held-for-sale.................... 1,725 -- -- 1,725 Consumer............................... 18,947 69,155 585 88,687 Other.................................. 5,139 1,740 5,614 12,493 ---------- ---------- -------- --------- Total............................. $305,254 $341,485 $36,302 $683,041 ========== ========== ======== =========
The following table sets forth the dollar amount of the loans maturing subsequent to the year ending December 31, 2001 between those with predetermined interest rates and those with floating, or variable, interest rates. Fixed Rate Variable Rate Total ---------- ------------- ----- (In thousands) Commercial $ 28,372 $ 13,602 $ 41,974 Commercial real estate 150,301 39,746 190,047 Residential real estate 109,892 62,337 172,229 Loans held-for-sale 1,725 -- 1,725 Consumer 69,740 305 70,045 Other 1,811 53 1,864 -------- -------- -------- Total $361,841 $116,043 $477,884 ======== ======== ======== 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, 2000, commercial real estate loans totaled $288,254, or 43.87%, 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 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, 2000, commercial loans outstanding totaled $87,680, or 13.34%, 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. 3 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, 2000, the Company had $204,202, or 31.08%, of its net loan portfolio in residential real estate loans. The Company also originates, to a limited extent, installment real estate loans for other types of real estate acquisitions. 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. Mortgage loans originated by the Bank are not underwritten in conformity with secondary market guidelines and therefore are 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 totaled $31,220 during 2000, and the related mortgage servicing rights were sold together with the loan. Installment Consumer Loans. At December 31, 2000, the Company's installment consumer loan portfolio totaled $88,687, or 13.50%, 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 GBC Acceptance. The consumer loans of the Bank generally have a higher risk of default than other loans originated by the Bank. Further, consumer loans originated by Superior Financial and GBC Acceptance, 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. 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 no longer satisfies the criteria for performing loans and that collection of interest appears doubtful, the loan is placed on non-accrual status. All loans that are 90 days past due are considered non-accrual, unless they are adequately secured and there is reasonable assurance of full collection of principal and interest. Management closely monitors all loans that are contractually 90 days past due, treated as "special mention" or otherwise classified or on non-accrual status. Non-accrual loans that are 120 days past due without assurance of repayment are charged off against the allowance for loan losses. The following table sets forth information with respect to the Company's non-performing assets at the dates indicated. At these dates, the Company did not have any restructured loans within the meaning of Statement of Financial Accounting Standards No. 15.
At December 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In thousands) Loans accounted for on a non-accrual basis................................ $4,813 $2,952 $4,159 $2,265 $ 616 Accruing loans which are contractually past due 90 days or more as to interest or principal payments................ 475 996 872 1,583 1,486 ------- ---- ------ ----- ----- Total non-performing loans.............. 5,288 3,948 5,031 3,848 2,102 Real estate owned: Foreclosures......................... 1,937 1,546 920 411 -- Other real estate held and repossessed assets................. 350 826 607 97 223 --- ---- ------ ------- ------ Total non-performing assets.......... $ 7,575 $6,320 $6,558 $4,356 $2,325 ======= ====== ====== ====== ======
Non-accrual loans increased $1,861, or 63.04%, from $2,952 at December 31, 1999 to $4,813 at December 31, 2000. 4 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, 2000 had been current according to their original terms and had been outstanding throughout 2000, or since origination if originated during the year, interest income on these loans would have been approximately $324. Interest actually recognized on these loans during 2000 was not significant. Foreclosed real estate increased $391, or 25.29%, to $1,937 at December 31, 2000 from $1,546 at December 31, 1999. The real estate consists of 14 properties, of which four are commercial properties valued at $688. Management expects to liquidate these properties during 2001 at a minimal loss. The remaining properties are residential properties and management believes they will be liquidated in an orderly manner with minimal losses. Other real estate held and repossessed assets decreased $476, or 57.62%, to $350 at December 31, 2000 from $826 at December 31, 1999. This decrease is primarily due to orderly liquidations of repossessed vehicles at Superior Financial. At December 31, 2000, the Company had approximately $4,090 in loans that are not currently classified as non-accrual or 90 days past due or otherwise restructured and where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms. Such loans were considered classified by the Company and comprised various commercial and commercial real estate loans, including one commercial loan for $1,363 secured by a blanket lien on the land, plant and equipment of the business as well as significant additional collateral. Management believes the value of the collateral is presently sufficient to cover the full amount of the loan, plus accrued interest. This loan was considered classified based upon cash flows of the business deemed insufficient to cover debt service. In addition, such loans included approximately $1,330 in loan balances, consisting of approximately 75 loans, which were in bankruptcy status. Allowance for Loan Losses. The allowance for loan losses is maintained at a level which management believes is adequate to absorb all potential losses on loans then present in the loan portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries on loans previously charged-off, which increase the allowance; and (3) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries, and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions in an effort to evaluate portfolio risks. If actual losses exceed the amount of the allowance for loan losses, earnings of the Company could be adversely affected. The amount of the provision is based on management's judgment of those risks and therefore the allowance represents general, rather than specific, reserves. During the year ended December 31, 2000, the Company's provision for loan losses increased by $4,876 to $8,009 to reflect the increase in potential losses arising from the loan portfolio. 5 The following is a summary of activity in the allowance for loan losses for the periods indicated:
Year Ended December 31, --------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In thousands) Balance at beginning of year .................... $ 10,332 $ 10,253 $ 9,154 $ 7,330 $ 4,654 -------- -------- -------- -------- -------- Charge-offs: Commercial ................................... (429) (298) (440) (563)(a) (162) Commercial real estate ....................... (537) (302) (87) (129) (32) -------- -------- -------- -------- -------- Subtotal .............................. (966) (600) (527) (692) (194) Residential real estate ...................... (800) (407) -- -- (97) Consumer ..................................... (6,022) (3,010) (2,707) (4,450) (992) Other ........................................ -- -- -- -- (342) -------- -------- -------- -------- -------- Total charge-offs ......................... (7,788) (4,017) (3,234) (5,142) (1,625) -------- -------- -------- -------- -------- Recoveries: Commercial ................................... 43 295 216 56 62 Commercial real estate ....................... 137 -- 24 4 -- -------- -------- -------- -------- -------- Subtotal .............................. 180 295 240 60 62 Residential real estate ...................... 69 93 -- -- 10 Consumer ..................................... 926 575 673 951 745 Other ........................................ -- -- 3 2 71 -------- -------- -------- -------- -------- Total recoveries .......................... 1,175 963 916 1,013 888 -------- -------- -------- -------- -------- Net charge-offs ................................. (6,613) (3,054) (2,318) (4,129) (737) Provision for loan losses ....................... 8,009 3,133 3,417 5,953(a) 2,973 Balances acquired in acquisition of Premier Bank ................................ -- -- -- -- 440 -------- -------- -------- -------- -------- Balance at end of year .......................... $ 11,728 $ 10,332 $ 10,253 $ 9,154 $ 7,330 ======== ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding, net of unearned discount, during the period................................ 1.09% 0.60% 0.52% 0.96% 0.21% ========== ============ ========= ========= ========= Ratio of allowance for loan losses to non-performing loans...................... 221.79% 261.70% 203.80% 237.89% 348.72% ========== ============ ========= ========== ========= Ratio of allowance for loan losses to total loans............................... 1.72% 1.81% 2.11% 2.01% 1.87% ========== ============ ========= ========== =========
- ---------------------- (a) Includes a $500 charge-off against the Company's $1,100 participation in a $3,500 commercial loan to a nonprofit entity for a hotel development project, secured by a hotel building and underlying commercial real estate in Greeneville, Tennessee. In 1998, the loan was paid off and the Bank received $788 in net loan proceeds. 6 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, --------------------------------------------------------------------------------------------- Breakdown of allowance for 2000 1999 1998 ---- ---- ---- loan losses by category: (Dollars in thousands) Percent of loan Percent of loan Percent of loan in each in each 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 ......................... $ 1,602 12.84% $ 2,168 12.05% $ 1,429 11.88% Commercial real estate ............. 6,901 42.20% 3,234 42.50% 3,640 38.01% Residential real estate ............ 947 29.90% 3,299 29.83% 2,773 27.83% Loans held-for-sale ................ 4 0.25% -- 0.21% -- 1.04% Consumer ........................... 2,042 12.98% 1,305 12.47% 2,082 15.62% Other .............................. 232 1.83% 326 2.94% 329 5.62% ------- --------- ------- --------- ------- --------- Totals .......................... $11,728 100.00% $10,332 100.00% $10,253 100.00% ======= ========= ======= ========= ======= =========
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 amount of securities by major categories held by the Company at December 31, 2000, 1999 and 1998.
At December 31, ------------------------------------------------ 2000 1999 1998 ---- ---- ---- (In thousands) Securities Held to Maturity: Obligations of state and political subdivisions ......... $ 1,866 $ 3,321 $ 3,620 ------- ------- ------- Total ................................................ $ 1,866 $ 3,321 $ 3,620 ======= ======= ======= Securities Available for Sale: U.S. Treasury securities and obligations of U.S. ........ Government, corporations and agencies ................ $45,242 $19,191 $22,420 Obligations of state and political subdivisions ......... 1,416 1,535 1,113 ------- ------- ------- Total ................................................ $46,658 $20,726 $23,533 ======= ======= =======
For information regarding the amortized cost of securities at December 31, 2000, 1999 and 1998, see Note 2 of Notes to Consolidated Financial Statements. 7 Maturity Distributions of Securities. The following table sets forth the distributions of maturities of securities at amortized cost as of December 31, 2000.
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) U.S. treasury securities - available for sale ... $ 1,004 $ -- $ -- $ -- $ 1,004 Federal agency obligations - available for sale ......................................... 2,044 33,480 2,922 5,709 44,155 Obligations of state and political subdivisions - available for sale ............ -- 524 -- 892 1,416 Obligations of state and political subdivisions - held to maturity .............. 827 592 -- 447 1,866 Other securities - available for sale ........... -- -- -- -- -- ------- ------- ------- ------- ------- Total ..................................... $ 3,875 $34,596 $ 2,922 $ 7,048 $48,441 Market value adjustment on available for sale securities .............................. $ (10) $ 25 $ 27 $ 41 $ 83 ------- ------- ------- ------- ------- Total ..................................... $ 3,865 $34,621 $ 2,949 $ 7,089 $48,524 ======= ======= ======= ======= ======= Weighted average yield (a) ...................... 6.31% 7.00% 7.30% 7.13% 6.98% ======= ======= ======= ======= =======
- ------------------------ (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, 2000, 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. 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, ------------------------------------------------------------------------------- 2000 1999 1998 ---- ---- ---- 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............................... $ 46,010 --% $ 42,278 --% $ 39,822 --% Interest bearing demand deposits.......... 148,428 2.67% 140,009 2.57% 107,647 2.45% Savings deposits.......................... 45,461 2.55% 47,049 2.18% 53,128 2.28% Time deposits............................. 353,278 5.71% 273,392 5.00% 255,872 5.46% ------------ ------- ------- Total deposits....................... $ 593,177 $502,728 $456,469 ============ ======== ========
8 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, 2000. Certificates of Maturity Period Deposits --------------- -------- (In thousands) Three months or less......................... $33,193 Over three through six months................ 29,355 Over six through twelve months............... 43,822 Over twelve months........................... 24,080 ------ Total..................................... $130,450 ======== 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, 2000 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 and portions of Cocke, Monroe, Jefferson and Knox Counties. In Greene County, there are six commercial banks and one savings bank, operating 22 branches and holding an aggregate of approximately $694 million in deposits as of June 30, 2000. Under the federal Bank Holding Company Act of 1956 (the "Holding Company Act"), as amended by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), Tennessee banks and their holding companies may be acquired by out-of-state banks or their holding companies, and Tennessee banks and their holding companies may acquire out-of-state banks without regard to whether the transaction is prohibited by the laws of any state. In addition, the federal banking agencies may approve interstate merger transactions without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opts out of the Riegle-Neal Act by adopting a law that applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. The effect of the Riegle-Neal Act may be to increase competition within the State of Tennessee among banking institutions located in Tennessee and from banking companies located anywhere in the country. EMPLOYEES As of December 31, 2000 the Company employed 388 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 9 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, will greatly broaden 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. 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. 10 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. 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, 2000, 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, 2000, the Bank was "well-capitalized" as defined by the regulations. See Note 10 of Notes to Consolidated Financial Statements for further information. 11 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. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information regarding the executive officers of the Company.
Age At Name December 31, 2000 Title ---- ----------------- ----- R. Stan Puckett 44 President and Chief Executive Officer William F. Richmond 51 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 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. 12 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 is licensed as a Certified Public Accountant in Virginia and Tennessee and is also a Certified Financial Planner. ITEM 2. PROPERTIES The Company's principal executive offices are located at 100 North Main Street, Greeneville, Tennessee in facilities owned by the Bank. At December 31, 2000, the Company maintained a main office in Greeneville, Tennessee and 25 bank branches (of which seven are in leased operating premises) and 19 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, 2000, there were no legal proceedings which management anticipates would have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders of the Company through a solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained under the section captioned "Market and Dividend Information" in the Company's 2000 Annual Report to Shareholders (the "Annual Report") filed as Exhibit 13 hereto is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information contained in the table captioned "Selected Financial Highlights" in the Company's Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information set forth under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity" is incorporated herein by reference. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements contained in the Company's Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information contained in the section captioned "Change in Accountants" in the Company's Annual Report is incorporated herein by reference. 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 2001 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein by reference. Information regarding executive officers of the Company is contained in the section captioned "Executive Officers of the Registrant" under Part I hereof and is incorporated herein by reference. Information regarding delinquent Form 3, 4 or 5 filers is incorporated herein by reference to the section entitled "Beneficial Ownership Reports" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information contained under the section captioned "Election of Directors -- Executive Compensation and Other Benefits" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. (b) Security Ownership of Management Information required by this item is incorporated herein by reference to the sections captioned "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the Proxy Statement. (c) Changes in Control Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section captioned "Election of Directors" in the Proxy Statement. PART IV 14 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of the Company included in the Annual Report are incorporated herein by reference from Item 8 of this Report. The remaining information appearing in the Annual Report to Shareholders is not deemed to be filed as part of this Report, except as expressly provided herein. 1. Report of Independent Accountants. 2. Consolidated Balance Sheets - December 31, 2000 and 1999. 3. Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998. 4. Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998. 5. Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998. 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 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. Exhibit No. 13. Annual Report to Shareholders Except for those portions of the Annual Report to Shareholders for the year ended December 31, 2000, that are expressly incorporated herein by reference, such Annual Report is furnished for the information of the Commission and is not to be deemed "filed" as part of this Report. 15 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. During the last quarter of the year ended December 31, 2000, the Company filed two separate reports on Form 8-K. The first report, filed on October 5, 2000, disclosed that the Bank entered into two separate agreements pursuant to which the Bank would acquire two branches from Wachovia Bank, N.A., and sell one of its branches to Wachovia Bank, N.A. The second report, filed on October 24, 2000, disclosed that the Company had changed its independent auditors from PriceWaterhouseCoopers to Crowe, Chizek and Company LLP. No financial statements were filed with either 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. 16 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 30, 2001 By: /s/ R. Stan Puckett ---------------------------------- R. Stan Puckett Director, President and Chief Executive Officer (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated. SIGNATURE AND TITLE: DATE: /s/ R. Stan Puckett March 30, 2001 - ---------------------------------------- R. Stan Puckett Director, President and Chief Executive Officer (Principal Executive Officer) /s/ William F. Richmond March 30, 2001 - ---------------------------------------- William F. Richmond Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Ralph T. Brown March 30, 2001 - ---------------------------------------- Ralph T. Brown Chairman of the Board /s/ Phil M. Bachman, Jr. March 30, 2001 - ---------------------------------------- Phil M. Bachman, Jr. Director /s/ Charles S. Brooks March 30, 2001 - ---------------------------------------- Charles S. Brooks Director /s/ Bruce Campbell March 30, 2001 - ---------------------------------------- Bruce Campbell Director 17 /s/ W.T. Daniels March 30, 2001 - ---------------------------------------- W.T. Daniels Director /s/ J.W. Douthat March 30, 2001 - ---------------------------------------- J.W. Douthat Director /s/ James A. Emory March 30, 2001 - ---------------------------------------- James A. Emory Director /s/ Jerald K. Jaynes March 30, 2001 - ---------------------------------------- Jerald K. Jaynes Director /s/ Terry Leonard March 30, 2001 - ---------------------------------------- Terry Leonard Director /s/ H.J. Moser, III March 30, 2001 - ---------------------------------------- H.J. Moser, III Director /s/ Davis Stroud March 30, 2001 - ---------------------------------------- Davis Stroud Director /s/ Charles Whitfield March 30, 2001 - ---------------------------------------- Charles Whitfield Director 18 EX-3 2 gcb10k12312000ex3.txt EXHIBIT 3 AMENDED BYLAWS OF GREENE COUNTY As Amended April 20, 1999 AMENDED AND RESTATED BYLAWS OF GREENE COUNTY BANCSHARES, INC. OFFICE ------ 1. Principal Office ---------------- The principal office of the Corporation shall be in Greeneville, Tennessee, and the Corporation shall have such other offices at such other places within or without the State of Tennessee as the Board of Directors may from time to time determine or as the business of the Corporation may require. SHAREHOLDERS' MEETINGS ---------------------- 2. Annual Meeting -------------- An annual meeting of the shareholders of the Corporation shall be held on such date as may be determined by the Board of Directors. The business to be transacted at such meeting shall be the election of directors and such other business as shall be properly brought before the meeting. If the election of directors shall not be held on the day designated by the Board of Directors for any annual meeting, or at any adjournment of such meeting, the Board of Directors shall call a special meeting of the shareholders as soon as conveniently possible thereafter. At such special meeting the election of directors shall take place and such election and any other business transacted thereat shall have the same force and effect as if transacted at an annual meeting duly called and held. 3. Special Meetings ---------------- Special meetings of the shareholders may only be called by the Board of Directors or a committee duly designated by the Board of Directors. 4. Place of Meetings ----------------- Annual and special meetings of the shareholders shall be held at the Corporation's principal office or at such other place within or without the State of Tennessee as may be designated by the Board of Directors. 5. Notice of Meetings; Waiver -------------------------- (a) Annual Meetings. Written or printed notice stating the place, day and hour of the annual meeting of shareholders shall be given in person or by mail to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be delivered not less than ten (10) days nor more than two (2) months before the meeting. Mailed notice shall be deemed to be delivered when deposited, with postage prepaid, in the United States mail addressed to the shareholder at his address as it appears on the records of the Corporation at the close of business on the record date established for such meeting. If delivered personally, such notice shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting and shall be deemed delivered when actually received by the shareholder. (b) Special Meetings. Written or printed notice of every special meeting of shareholders shall be given in person or by mail to each shareholder of record entitled to vote at such meeting. Such notice shall state the place, day, hour, purpose or purposes for which the meeting is called, and the person or persons calling the meeting. If mailed, such notice shall be delivered not less than ten (10) days nor more than two (2) months before the meeting. Mailed notice shall be deemed to be delivered when deposited, with postage prepaid, in the United States mail addressed to the shareholder at his address as it appears on the records of the Corporation at the close of business on the record date 2 established for such meeting. If delivered personally, such notice shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting and shall be deemed delivered when actually received by the shareholder. (c) Waiver. A shareholder may waive the notice of either an annual or a special meeting by the submission by the shareholder or his proxy holder of a written waiver of notice either before or after such meeting. 6. Quorum ------ Except as otherwise required by law or provided in these Bylaws, a quorum at any meeting of shareholders shall consist of the holders of record of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or by proxy. If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders present in person or by proxy and entitled to vote thereat shall have power to adjourn the meeting from time to time, and to any other place, without notice other than announcement at the meeting of the time and place to which the meeting is adjourned. At any adjourned meeting at which the requisite amount of voting stock to constitute a quorum shall be represented, any business may be transacted which might have been transacted at the meeting as originally called. 7. Record Date ----------- The record date for the determination of shareholders entitled to notice of and entitled to vote at any meeting of shareholders or any adjournment thereof, shall be such date as shall be determined by the Board of Directors, but which in any event shall not be less than ten (10) days prior to the date of such meeting. If the Board of Directors does not fix such record date, the record date for the determination of shareholders entitled to 3 notice of and entitled to vote at any meeting of shareholders or at any adjournment thereof shall be the close of business on the day next preceding the day on which notice is given. 8. Voting of Shares ---------------- Unless otherwise provided in the Charter, each shareholder of the Corporation shall be entitled, at each meeting of the shareholders and upon each proposal presented at such meeting, to one vote for each share of the capital stock having voting power registered in his name on the books of the Corporation on the record date. Each shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing executed by such shareholder or his duly authorized attorney-in-fact and bearing a date not more than eleven (11) months prior to said meeting, unless said instrument provides for a longer period. Unless the Charter, these Bylaws or applicable law specifically provide otherwise, the affirmative vote of a majority of shares represented and entitled to vote at a meeting at which a quorum is present shall be the act of the shareholders, except that directors shall be elected by a plurality of the votes cast in the election. At each election of directors, every shareholder shall have the right to vote the number of shares which he is entitled to vote at such meeting for as many persons as there are directors to be elected at said meeting, but cumulative voting for such nominees shall not be permitted unless the Charter otherwise provides. 9. Presiding Officer ----------------- Meetings of the shareholders shall be presided over by the President, or if he is not present, by the Chairman, or if he is not present, by a Vice President, or if neither the Chairman, President nor a Vice President is present, by a chairman to be chosen by a 4 majority of the shareholders entitled to vote at such meeting. The Secretary of the Corporation or, in his absence, an Assistant Secretary shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the shareholders entitled to vote at such meeting shall choose any person present to act as secretary of the meeting. DIRECTORS --------- 10. Powers and Duties ----------------- The business and affairs of the Corporation shall be managed by the Board of Directors. In addition to the powers and authority expressly conferred upon them by these Bylaws, the Board may exercise all the powers of the Corporation and do all lawful acts and things as are not by applicable law, by the Charter of the Corporation or by these Bylaws directed or required to be exercised or done by the shareholders. 11. Number, Classification, Term, Qualification, and Vacancies ---------------------------------------------------------- (a) Number, Classification and Term. The Board of Directors shall consist of 10 members. The Board of Directors shall be divided into three classes equal in number. The members of each class shall be elected for a term of three (3) years and until their successors are elected and qualified, except during an interim arrangement immediately following adoption of the provisions in the Corporation's Charter regarding the Classified Board. One (1) class shall be elected by ballot annually. The Board of Directors may increase or decrease the number of directors, but in no event shall such number be increased or decreased beyond the range established in the Corporation's Charter. (b) Vacancies. In case there are vacancies on the Board of Directors, other than vacancies created by the removal of a director or directors (which shall be governed by 5 paragraph 15(c)) and other than vacancies created by an increase in the number of directors, the remaining directors may by a majority vote of the directors then in office elect a successor or successors who shall hold office until his or their successors are elected and qualified. (c) Qualification. Directors must be of legal age but need not be shareholders of the Corporation. (d) Retirement of Directors. No person 70 years of age or older shall be eligible for election, re-election, appointment or re-appointment as a director of the Company. No director shall serve beyond the annual meeting of the Company immediately following the director becoming 70 years old, and such director shall thereafter be a retired director of the Company. The Board of Directors, at its discretion, may name retired directors to the classification of Director Emeritus, who may attend meetings but will not have any vote or any liability for serving. 12. Quorum ------ A majority of the total number of directors in office shall constitute a quorum for the transaction of business. If, at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained. 13. Manner of Acting ---------------- The act of a majority of the directors present at a meeting at which a quorum is present shall, unless otherwise provided by applicable law or these Bylaws, be the act of the Board of Directors. Any action required or permitted to be taken at a meeting of directors may be taken without a meeting if a consent in writing, setting forth the action 6 so taken, is signed by all the directors. Such written consent shall have the same force and effect as a unanimous vote at a meeting of the Board of Directors. 14. Meetings; Notice ---------------- Meetings of the Board of Directors may be held either within or without the State of Tennessee. Notice of a meeting of the Board of Directors need not state the purpose of, nor the business to be transacted at, such meeting. (a) Regular Meetings. Regular meetings of the Board of Directors shall be held at such times as are fixed from time to time by resolution of the Board, and may be held without notice of the time or place therefor. (b) Special Meetings. Special meetings may be held at any time upon call of the Chairman, the President, a Vice President or any two (2) directors. Notice of the time and place of each special meeting shall be given to each director at either his business or residence address, as shown by the records of the Corporation, at least forty-eight (48) hours prior thereto if mailed and on the day prior thereto if delivered or given in person or by telephone or telegraph. If mailed, such notice shall be deemed to be delivered when deposited, so addressed and with postage prepaid, in the United States mail. If notice is given by telegram, such notice shall be deemed to be delivered when the telegram, so addressed, is delivered to the telegraph company. If notice is given in person, such notice shall be deemed to have been given when it is hand delivered to the director at his business or residence address. Any director may waive notice of any meeting before, at or after such meeting and the attendance of a director at a meeting shall constitute a waiver of notice of such meeting except when a director attends for the sole, express purpose of objecting to the transaction of business thereat, on the ground that the meeting 7 is not lawfully called or convened, and so states in writing prior to the conduct of any business at the meeting. 15. Removal ------- (a) By Shareholders. Unless the Charter otherwise provides, at any meeting of the shareholders, the entire Board of Directors or any number of directors may be removed from office, with or without cause, by a majority vote of the shares represented and entitled to vote thereat. (b) By Directors. At any meeting of the Board of Directors, any director or directors may be removed from office for cause, as that term is defined by applicable law, by a majority of the entire Board of Directors. (c) Replacement. When any director or directors are removed, new directors may be elected to fill the vacancies created thereby at the same meeting of the shareholders or Board of Directors, as the case may be, for the unexpired term of the director or directors removed. If the shareholders fail to elect persons to fill the unexpired term or terms of the director or directors removed by them, such unexpired terms shall be considered vacancies on the Board to be filled by the remaining directors as provided in paragraph 11(b). 16. Compensation ------------ Directors, and members of any committee of the Board of Directors, shall be entitled to such reasonable compensation for their services as directors and members of any such committee as shall be fixed from time to time by resolution of the Board of Directors, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending such meetings. Any director receiving compensation under these provisions shall not be 8 barred from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. COMMITTEES ---------- 17. Executive Committee ------------------- There may be, if so determined by a resolution adopted by a majority of the entire Board of Directors, an Executive Committee of the Board consisting of two (2) or more directors. The Board of Directors may delegate to such Executive Committee all the power and authority of the Board that it deems desirable, except for any matters which cannot by law be delegated by the Board of Directors. Unless specifically authorized by the Board, the Executive Committee shall not have the power to adopt, amend or repeal these Bylaws, to submit to shareholders any matter that by law requires their authorization, to fill vacancies in the Board of Directors or in any committee or to declare dividends or make other corporate distributions. 18. Other Committees ---------------- The Board of Directors may create such other committees as it may determine to be helpful in discharging its responsibilities for the management and administration of the Corporation. Each such committee shall consist of such persons, whether directors, officers or others, as may be elected thereto by the Board of Directors, and each committee shall perform such functions as may be lawfully assigned to it by the Board of Directors. 9 OFFICERS -------- 19. Number ------ The officers of the Corporation shall be a Chairman, a President, a Secretary and such other officers as may be from time to time elected by the Board of Directors. One person may hold more than one office except the President may not hold the office of Secretary. 20. Election and Term of Office --------------------------- The principal officers shall be elected annually by the Board of Directors at the first meeting of the Board following the shareholders' annual meeting, or as soon thereafter as is conveniently possible. Subordinate officers may be elected from time to time. Each officer shall serve at the pleasure of the Board for such term as the Board of Directors may set and until his successor shall have been elected and qualified, or until his death, resignation or removal. 21. Removal ------- Any officer may be removed from office by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall not prejudice the contract rights, if any, of the persons so removed. 22. Vacancies --------- Any vacancy in an office from any cause may be filled for the unexpired portion of the term by the Board of Directors. 23. Duties ------ (a) Chairman. The Chairman shall have such duties as the Board of Directors may designate from time to time and shall see that all orders and resolutions of the Board of Directors are carried into effect. 10 (b) President. The President shall be the Chief Executive Officer of the Corporation and shall have general supervision over the active management of the business of the Corporation. He shall have the general powers and duties of supervision and management usually vested in the office of the President of a corporation and shall perform such other duties as the Board of Directors may from time to time prescribe. (c) Vice President. The Executive Vice President and the Senior Vice President/Chief Financial Officer (if any) shall be active executive officers of the Corporation, shall assist the President in the active management of the business, and shall perform such other duties as the Board of Directors may from time to time prescribe. (d) Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; he shall perform like duties for any committee when required. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors when required, and unless directed otherwise by the Board of Directors, shall keep a stock record containing the names of all persons who are shareholders of the Corporation, showing their place of residence and the number of shares held by them respectively. The Secretary shall perform such other duties as may be prescribed from time to time by the Board of Directors. (e) Other Officers. Other officers appointed by the Board of Directors shall exercise such powers and perform such duties as may be delegated to them by the Board of Directors. (f) Delegation of Duties. In case of the absence or disability of any officer of the Corporation or of any person authorized to act in his place, the Board of Directors may 11 from time to time delegate the powers and duties of such officer to any officer, or any director, or any other person whom it may select, during such period of absence or disability. 24. Indemnification of Officers and Directors ----------------------------------------- The Corporation shall indemnify each present and future director and officer of the Corporation, or any person who may have served at its request as a director or officer of another company (and, in either case, his heirs, executors and administrators) to the full extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted. CERTIFICATES FOR SHARES OF STOCK -------------------------------- 25. Form ---- (a) Stock Certificates. The interest of each shareholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock. The certificate shall include the following on its face: (i) the Corporation's name, (ii) the fact that the Corporation is organized under the laws of the State of Tennessee, (iii) the name of the owner of record of the shares represented thereby, (iv) the number of shares represented thereby, (v) the class of shares and the designation of the series, if any, which the certificate represents, (vi) the par value of each share or a statement that the shares are without par value, and (vii) such other information as applicable law may require or as may be lawful. (b) Signatures. The certificates for stock shall be signed by the President and by the Secretary. Where any certificate is manually countersigned by a transfer agent or registered by a registrar who is not an officer or employee of the Corporation, the signatures of the President and the Secretary may be facsimiles, engraved or printed. In 12 case any officer who has signed, or whose facsimile signature has been placed upon, any certificate shall have ceased to be such before the certificate is issued, it may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the time of its issue. 26. Subscriptions for Shares ------------------------ Subscriptions for shares of the Corporation shall be valid only if they are in writing, signed and delivered by the subscriber. Unless the subscription agreement provides otherwise, subscriptions for shares, regardless of the time when they are made, shall be paid in full at such time, or in such installments and at such periods, as shall be determined by the Board of Directors. All calls for payments on subscriptions shall be uniform as to all shares of the same class or of the same series. 27. Transfers --------- Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by (i) the holder of record thereof, (ii) by his legal representative, who shall furnish proper evidence of authority to transfer, or (iii) his attorney, authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a duly appointed transfer agent. Such transfers shall be made only upon surrender of the certificate or certificates for such shares properly endorsed and with all taxes thereon paid. 28. Lost, Destroyed, or Stolen Certificates --------------------------------------- No certificate for shares of stock of the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen except on production of evidence, satisfactory to the Board of Directors, of such loss, destruction or theft, and, if 13 the Board of Directors so requires, upon the furnishing of an indemnity bond in such amount (but not to exceed twice the value of the shares represented by the certificate) and with such terms and such surety as the Board of Directors may in its discretion require. CORPORATE ACTIONS ----------------- 29. Contracts --------- Unless otherwise required by the Board of Directors, the Chairman, the President or any Vice President shall execute contracts or other instruments on behalf of and in the name of the Corporation. The Board of Directors may from time to time authorize any other officer or officers or agent or agents to enter into any contract or execute any instrument in the name of and on behalf of the Corporation as it may deem appropriate, and such authority may be general or confined to specific instances. 30. Loans ----- No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances. 31. Checks, Drafts, etc. --------------------- Unless otherwise required by the Board of Directors, all checks, drafts, bills of exchange and other negotiable instruments of the Corporation shall be signed by either the Chairman, the President, the Executive Vice President/Secretary or the Senior Vice President/Chief Financial Officer, in each case to the extent authorized to do so by the Board of Directors. Such authority may be general or confined to specific business, and, if so directed by the Board, the signatures of two or more such officers may be required. 14 32. Deposits ------- All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Board of Directors may authorize. 33. Voting Securities Held by the Corporation ----------------------------------------- Unless otherwise required by the Board of Directors, the Chairman or the President shall have full power and authority on behalf of the Corporation to attend any meeting of security holders, or to take action on written consent as a security holder, of other corporations in which the Corporation may hold securities. In connection therewith the Chairman or the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation possesses. The Board of Directors may, from time to time, confer like powers upon any other person or persons. 34. Dividends --------- The Board of Directors may, from time to time, declare, and the Corporation may pay, dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by applicable law. The record date for the determination of shareholders entitled to receive the payment of any dividend shall be determined by the Board of Directors, but which in any event shall not be less than ten (10) days prior to the date of such payment. FISCAL YEAR ----------- 35. The fiscal year of the Corporation shall be determined by the Board of Directors, and in the absence of such determination, shall be the calendar year. 15 CORPORATE SEAL -------------- 36. The Corporation shall not have a corporate seal. AMENDMENT OF BYLAWS ------------------- 37. These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted at any meeting of the shareholders by the affirmative vote of a majority of the stock represented at such meeting, or by the affirmative vote of a majority of the members of the Board of Directors who are present at any regular or special meeting; provided, however, that any amendment to these Bylaws changing the number of directors, if adopted by the Board of Directors, shall require the affirmative vote of a majority of the members of the entire Board of Directors. 16 RESOLUTIONS OF THE BOARD OF DIRECTORS OF GREENE COUNTY BANCSHARES, INC. WHEREAS, on August 15, 2000, the Board of Directors acted to amend the Bylaws of Greene County Bancshares, Inc. and appoint two persons to the Board of Directors; and NOW, THEREFORE, BE IT HEREBY RESOLVED, that the attached resolutions properly memorialize the actions taken by the Board of Directors on August 15, 2000. * * * * * The undersigned, being the Secretary of Greene County Bancshares, Inc., Greeneville, Tennessee, does hereby swear and affirm that the foregoing resolutions were unanimously adopted by the Board of Directors on March 20, 2001, at a meeting duly called. /s/ Davis Stroud ------------------------------------ Davis Stroud Secretary RESOLUTIONS OF THE BOARD OF DIRECTORS OF GREENE COUNTY BANCSHARES, INC. WHEREAS, Section 11(a) of the Company's amended and restated Bylaws provides that the Board of Directors shall consist of twelve (12) members; and WHEREAS, there are currently twelve (12) members of the Board of Directors; and WHEREAS, the Board of Directors believes it is in the best interest of the stockholders of the Company to increase the number of members of the Board of Directors from twelve (12) to fourteen (14); and WHEREAS, Section 11(b) of the Bylaws does not provide for appointment of Directors to vacancies created by an increase in the number of directors; and WHEREAS, the Board of Directors believes it is in the best interest of the stockholders to permit the Board of Directors to appoint persons to fill vacancies on the Board of Directors created by an increase in the number of directors; NOW, THEREFORE, BE IT HEREBY RESOLVED, that Section 11(b) of the Bylaws is hereby removed in its entirety and replaced with the following: Vacancies. In case there are vacancies on the Board of Directors, other than vacancies created by the removal of a director or directors (which shall be governed by paragraph 15 (c)), the remaining directors may by a majority vote of the directors then in office elect a successor or successors who shall hold office until his or their successors are elected or qualified. and FURTHER RESOLVED, that Section 11(a) of the Bylaws is hereby amended to increase the number of directors from twelve (12) to fourteen (14); and FURTHER RESOLVED, that having determined that Bruce Campbell and Charles H. Whitefield are highly qualified candidates, the Board of Directors hereby appoints Bruce Campbell to a term to expire at the Company's 2002 annual meeting of stockholders and Charles H. Whitfield to a term to expire at the Company's 2003 annual meeting of stockholders, and, in each case, until their successors are elected and qualified; and FINALLY RESOLVED, that the President or his designees or assigns is hereby authorized to take all such other actions as may be necessary to carry out the purpose of these resolutions. RESOLUTIONS OF THE BOARD OF DIRECTORS OF GREENE COUNTY BANCSHARES, INC. WHEREAS, Section 11(a) of the amended and restated Bylaws provides that the Board of Directors shall consist of fourteen (14) members; and WHEREAS, there are currently fourteen (14) members of the Board of Directors; and WHEREAS, Section 11(d) of the amended and restated Bylaws provides that "no director shall serve beyond the annual meeting of the Company immediately following the director becoming 70 years old; and such director shall thereafter be a retired director of the Company;" and WHEREAS, Director J.W. Douthat has reached the age of 70 prior to the Company's 2001 Annual Meeting of Shareholders to be held on April 25, 2001 and therefore may not serve beyond the Annual Meeting of Shareholders; and WHEREAS, Section 11(a) of the amended and restated Bylaws provides that the Board of Directors may decrease the number of directors, provided that the number may not be increased or decreased beyond the range established in the Company's amended and restated Charter; and WHEREAS, Section 7A of the Company's amended and restated Charter provides, in relevant part, that "the Board of Directors shall consist of not less than three (3) or more than fifteen (15) members;" and WHEREAS, Section 11(d) of the amended and restated Bylaws provides that the "Board of Directors, at its discretion, may name retired directors to the classification of Director Emeritus;" and WHEREAS, the Board of Directors believes that it is in the best interests of the Company's stockholders that the Bylaws be amended to reduce the size of the Board of Directors to reflect the retirement of Mr. Douthat; and WHEREAS, the Board of Directors also believes that it is the best interests of the Company's stockholders to continue to have access to the advice and guidance of Mr. Douthat through his appointment as Directors Emeritus; NOW, THEREFORE, BE IT HEREBY RESOLVED, that Section 11(a) of the amended and restated Bylaws is hereby amended to reduce the number of directors from fourteen (14) to thirteen (13), effective upon the retirement of Mr. Douthat at the Company's 2001 Annual Meeting of Shareholders; and FURTHER RESOLVED, that Mr. Douthat is hereby appointed to the position of Director Emeritus of the Company's Board of Directors, effective upon his retirement at the Company's 2001 Annual Meeting of Shareholders; and FURTHER RESOLVED, that the Secretary or his designate is hereby directed to prepare amended Bylaws that reflect the reduction in the size of the Board of Directors as hereby approved and to file such amended Bylaws and a copy of these resolution in the permanent corporate files of the Company; and FINALLY RESOLVED, that the President or his designees or assigns is hereby authorized to take all such other actions as may be necessary to carry out the purpose of these resolutions. * * * * * The undersigned, being the Secretary of Greene County Bancshares, Inc., Greeneville, Tennessee, does hereby swear and affirm that the foregoing resolutions were unanimously adopted by the Board of Directors on March 20, 2001, at a meeting duly called. /s/ Davis Stroud ------------------------------ Davis Stroud Secretary 2 EX-13 3 gcb10k12312000ex13.txt EXHIBIT 13 ANNUAL REPORT SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) Total interest income................................. $ 67,696 $ 55,229 $ 50,792 $ 49,005 $ 39,521 Total interest expense................................ 29,143 19,742 18,572 19,144 15,825 ----------- ------------- ----------- ----------- ----------- Net interest income................................... 38,553 35,487 32,220 29,861 23,696 Provision for loan losses............................. (8,009) (3,133) (3,417) (5,953) (2,973) ------------ -------------- ------------ ------------ ------------ Net interest income after provision for loan losses... 30,544 32,354 28,803 23,908 20,723 Non-interest income: Investment securities gains......................... -- -- -- 2 -- Other income........................................ 6,568 6,331 4,555 3,919 3,411 Non-interest expense.................................. (29,393) (24,610) (20,462) (17,009) (14,800) ------------ --------------- ------------- ------------ ------------ Income before income taxes............................ 7,719 14,075 12,896 10,820 9,334 Income tax expense.................................... (2,206) (5,250) (4,690) (3,990) (3,371) ------------ -------------- ------------ ------------ ------------ Net income............................................ $ 5,513 $ 8,825 $ 8,206 $ 6,830 $ 5,963 ============ ============== =========== =========== =========== Per Share Data:1 Net income, basic................................... $ 4.05 $ 6.50 $ 6.05 $ 5.04 $ 4.43 Net income, assuming dilution....................... $ 4.01 $ 6.44 $ 6.02 $ 5.03 $ 4.43 Dividends declared.................................. $ 2.76 $ 2.60 $ 2.30 $ 1.92 $ 1.72 Book value.......................................... $ 46.20 $ 44.70 $ 40.81 $ 37.00 $ 33.76 Financial Condition Data: Assets.............................................. $ 789,117 $ 656,012 $ 568,179 $ 534,102 $ 478,048 Loans, net.......................................... $ 657,065 $ 546,897 $ 466,661 $ 441,390 $ 381,272 Cash and investment securities...................... $ 76,816 $ 72,223 $ 49,939 $ 62,166 $ 73,713 Federal funds sold.................................. $ 8,130 $ -- $ 24,300 $ 5,500 $ -- Deposits............................................ $ 648,641 $ 522,382 $ 459,183 $ 461,728 $ 408,722 Notes Payable....................................... $ 59,949 $ 46,309 $ 36,627 $ 15,487 $ 15,806 Federal funds purchased and repurchase agreements... $ 4,713 $ 14,581 $ 7,216 $ 1,414 $ 3,272 Shareholders' equity................................ $ 63,010 $ 60,772 $ 55,386 $ 50,113 $ 45,725 Selected Ratios: Interest rate spread................................ 5.18% 5.90% 5.96% 5.70% 5.16% Net yield on interest-earning assets................ 5.67% 6.39% 6.53% 6.21% 5.65% Return on average assets............................ 0.75% 1.47% 1.56% 1.33% 1.32% Return on average equity............................ 8.58% 14.90% 15.63% 13.93% 13.23% Average equity to average assets.................... 8.78% 9.89% 9.97% 9.55% 9.94% Dividend payout ratio............................... 68.22% 40.02% 37.99% 38.08% 39.05% Ratio of nonperforming assets to total assets....... 0.96% 0.96% 1.15% 0.81% 0.49% Ratio of allowance for loan losses to nonperforming assets.............................. 154.83% 163.48% 156.34% 210.15% 315.27% Ratio of allowance for loan losses to total loans... 1.72% 1.81% 2.11% 2.01% 1.87%
1 Amounts have been restated to reflect the effect of the Company's 3-for-1 stock split effected in October 1997. 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION THE INFORMATION CONTAINED HEREIN CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. A NUMBER OF FACTORS, INCLUDING THOSE DISCUSSED HEREIN, COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION, SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY DEPENDENT UPON ASSUMPTIONS, ESTIMATES AND DATA THAT MAY BE INCORRECT OR IMPRECISE. ACCORDINGLY, ANY FORWARD-LOOKING STATEMENTS INCLUDED HEREIN DO NOT PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT BE REALIZED. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "INTENDS," "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," "SEEKS," "PRO FORMA" OR "ANTICIPATES," OR THE NEGATIVES THEREOF, OR OTHER VARIATIONS THEREON OF COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY OR INTENTIONS. ALL DOLLAR AMOUNTS SET FORTH BELOW, OTHER THAN PER-SHARE AMOUNTS AND PERCENTAGES, ARE IN THOUSANDS UNLESS OTHERWISE NOTED. GENERAL 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. The Bank wholly owned American Fidelity Bank, whose operations were combined into the Bank during 1996, and Premier Bank of East Tennessee, whose operations were combined into the Bank in 1998. In addition to its commercial banking operations, the Bank conducts separate businesses through three wholly-owned subsidiaries: Superior Financial Services, Inc. ("Superior Financial"), a consumer finance company; GCB Acceptance Corporation ("GCB Acceptance"), a consumer finance company specializing in subprime automobile lending; and Fairway Title Co., a title company. The Bank also operates a trust and money management function, doing business as President's Trust, in Wilson County, Tennessee and also operates a mortgage banking function headquartered in Knoxville, Tennessee. At December 31, 2000, the Company maintained a main office in Greeneville, Tennessee and 25 bank branches (of which seven are in leased operating premises) and 19 separate locations operated by the Bank's subsidiaries and other operating divisions. The principal business of the Company consists of accepting deposits from the general public and investing these funds and borrowed funds primarily in loans and, to a limited extent, securities available for sale or held to maturity. Loans are originated by the Company within its primary market area of east Tennessee and include commercial loans, commercial and residential real estate loans, and installment consumer loans. The Company's net income is dependent primarily on its net interest income, which is the difference between interest income earned on its loans, investment assets and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. To a lesser extent, the Company's net income also is affected by the level of non-interest expenses such as compensation and employee benefits and Federal Deposit Insurance Corporation premiums. The operations of the Company are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the general credit needs of small businesses in the Company's market area, competition 2 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. BRANCH PURCHASE 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. BRANCH EXPANSION During the early part of 2000, the Company continued the expansion of its branch network, opening new branches in Hawkins, Loudon and Sullivan Counties, Tennessee. Further, the Company opened an additional branch in Blount County, Tennessee in the fall of 2000. 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 $20 million with the Federal Home Loan Bank of Cincinnati ("FHLB") and federal funds lines of credit totaling $57.5 million at six correspondent banks. Of these lines, the Company had $57.5 million immediately available at December 31, 2000. In 2000, operating activities of the Company provided $11,188 of cash flows, reflecting net income of $5,513 and adjusted to include non-cash operating expenses such as $8,009 in provision for loan losses and amortization and depreciation of $1,601, and exclude non-cash operating income, such as $822 in the increased cash surrender value of life insurance contracts and $865 in the net change in accrued interest and other liabilities. Cash flows from operating activities were also increased by the proceeds from the sale of held-for-sale loans of $31,220, offset in part by cash used to originate held-for-sale loans of $31,553. This decrease in overall activity in held-for-sale loans from 1999 and 1998, as compared to 2000, reflects a slowdown in mortgages originated and sold by the Bank's mortgage banking operation in a rising interest rate environment. Investing activities, including lending, used $150,234 of the Company's cash flows, a 61.87% increase from 1999 levels. Origination of loans held to maturity net of principal collected used $120,951 in funds, up from $89,989 in 1999 as the Company's loan originations increased as a result of the Company's expansion of branches into additional areas of East Tennessee during 2000, the Company's hiring of experienced lending officers in targeted market areas and aggressive loan pricing in order to build market share. Purchase of securities available for sale, net of proceeds from maturities of securities held to maturity, used $24,554 in cash flows, as the Company entered into a leveraged transaction with 3 the FHLB to purchase $25,000 in federal agency bonds for the primary purpose of utilizing such bonds to pledge public deposits. The transaction also enhanced earnings per share and return on equity. The use of cash by investing activities also increased in part from the Company's investment in premises and equipment of $7,357 resulting from the Company's branch expansion and furnishings related thereto. Net additional cash inflows of $126,659 were provided by financing activities, an increase of $44,564 from 1999 levels. The increase was attributable primarily to deposit inflow from certificates of deposit of $117,621 and non-certificate deposits of $8,638. This increase in deposit inflow as compared to 1999 was attributable to the Company's payment of competitive interest rates and its branch expansion throughout East Tennessee. Cash provided by financing activities also included the Company's reliance on notes payable of $70,000 during 2000, of which $56,360 was repaid during the year. As in prior years, the Company's cash flow from financing activities was decreased by the Company's dividend payments during 2000 of $3,761. 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, 2000 and its record of paying dividends to its stockholders continued uninterrupted during 2000. 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, 2000 was $63,010, an increase of $2,238, or 3.68%, from $60,772 on December 31, 1999. The increase in shareholders' equity arises primarily from net income for 2000 of $5,513 ($4.05 per share, or $4.01 per share assuming dilution), and proceeds from the exercise of stock options during 1999 totaling $389. This increase was offset in part by quarterly dividend payments during 2000 that totaled $3,761 ($2.76 per share). Risk-based capital regulations adopted by the Board of Governors of the Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation ("FDIC") require bank holding companies and banks, respectively, to achieve and maintain specified ratios of capital to risk-weighted assets. The risk-based capital rules are designed to measure "Tier 1" capital (consisting of stockholders' equity, less goodwill) and total capital in relation to the credit risk of both on- and off-balance sheet items. Under the guidelines, one of four risk weights is applied to the different on-balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting after conversion to balance sheet equivalent amounts. All bank holding companies and banks must maintain a minimum total capital to total risk-weighted assets ratio of 8.00%, at least half of which must be in the form of core, or Tier 1, capital. At December 31, 2000, the Company and the Bank each satisfied their respective minimum regulatory capital requirements, and the Bank was "well-capitalized" within the meaning of federal regulatory requirements. ASSET/LIABILITY MANAGEMENT The operations and profitability of the Company are largely impacted by changes in interest rates and management's ability to control interest rate sensitivity. Management believes that its asset/liability strategy reduces the risk associated with fluctuation in interest rates. The Company strives to be neither asset sensitive nor liability sensitive by relying upon a mix of fixed rate and variable rate products. At December 31, 2000, approximately 38.8% of the Company's gross loans had adjustable rates. The Company has a mixture of fixed rate loans and loans tied to its Prime Rate and the investment portfolio also has a substantial amount of adjustable-rate securities. It is management's belief that while this mixture may not give maximum returns under certain market conditions, it can prevent severe swings in 4 earnings under other conditions. Management believes the Company is somewhat asset sensitive; therefore, in a falling rate environment earnings will tend to fall, while in a rising rate environment earnings will tend to improve. Despite the implementation of strategies to achieve a matching position of assets and liabilities and to reduce the exposure to fluctuating interest rates, the results of operations of the Company will remain subject to the level and movement of interest rates. CHANGES IN RESULTS OF OPERATIONS NET INCOME. Net income for 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 income for 1999 was $8,825, an increase of $619, or 7.54%, as compared to net income of $8,206 for 1998. The increase resulted primarily from an increase in net interest income of $3,267, or 10.14%, to $35,487 in 1999 from $32,220 in 1998, and an increase in non-interest income of $1,776, or 38.99%, to $6,331 in 1999 from $4,555 in 1998. The increase in net interest income primarily reflects an increased volume of loans that offset the dollar effects of spread compression as the average yield on interest-earning assets declined to a greater extent than the average rate on the Company's interest-bearing liabilities. These changes were offset in part by the $4,148, or 20.27% increase in non-interest expense to $24,610 in 1999 from $20,462 in 1998, attributable primarily to increases in salaries and benefits and in other expenses. 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 2000, net interest income was $38,553 as compared to $35,487 in 1999, an increase of 8.64%. This increase was due primarily to an increase in average loan balances, which increased $97,884, or 19.18%, to $608,351 in 2000 from $510,467 in 1999, while the yield on average loans remained constant at 10.34%. While the Company's yield on average loans was enhanced by the environment of increasing interest rates during 2000, as the Company's asset/liability position is slightly asset-sensitive, such yield was correspondingly decreased 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 both average balances and rates related to interest-bearing liabilities, as the Company aggressively funded the growth in loans. In particular, the Company's rate on average interest-bearing liabilities increased to 4.78% in 2000 from 4.04% in 1999, reflecting both an increasing interest rate environment as well as a very competitive market in which to attract deposits. As a result, the Company's interest rate spread and net interest margin declined in 2000 from 1999. 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 as evidenced during the first quarter of 2001. 5 During 1999, net interest income was $35,487 as compared to $32,220 in 1998, an increase of 10.14%. This increase was due primarily to an increase from 1998 in the average balance of interest-earning assets that offset the effects of a decline in average rates earned on such assets. In addition, the increase in net interest income was also attributable to the decline in the average rate of interest-bearing liabilities to 4.04% in 1999 from 4.34% in 1998 that offset in large part the cost of the Company's increased reliance during 1999 of deposits to fund loan growth. Among such liabilities, the Company increased its average level of deposits to $460,450 in 1999 from $416,647 in 1998 while the average rate paid declined to 3.97% in 1999 from 4.28% in 1998. Average Balances, Interest Rates and Yields. Net interest income is affected by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. When the total of interest-earning assets approximates or exceeds the total of interest-bearing liabilities, any positive interest rate spread will generate net interest income. An indication of the effectiveness of an institution's net interest income management is its "net yield on interest-earning assets," which is net interest income divided by average interest-earning assets. The following table sets forth certain information relating to the Company's consolidated average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented. During the periods indicated, non-accruing loans, if any, are included in the net loan category. 6
2000 1999 1998 ---------------------------------- ------------------------------- ------------------------------ Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ---- (Dollars in Thousands) INTEREST-EARNING ASSETS: Loans1 - ------ Real estate loans.............$ 448,808 $ 39,316 8.76% $ 370,529 $ 32,429 8.75% $ 310,850 $ 27,954 8.99% Commercial loans.............. 80,399 7,646 9.51% 64,268 5,790 9.01% 51,177 4,785 9.35% Consumer and other loans- net2 79,144 11,304 14.28% 75,670 10,253 13.55% 80,858 11,328 14.01% Fees on loans................. 4,608 4,314 3,754 ---------- --------- ---------- --------- --------- -------- Total loans (including fees)...........$ 608,351 $ 62,874 10.34% $ 510,467 $ 52,786 10.34% $ 442,885 $ 47,821 10.80% --------- -------- --------- -------- -------- ------- Investment securities3 - --------------------- Taxable $ 44,427 $ 3,153 7.10% $ 20,384 $ 1,196 5.87% $ 27,015 $ 1,684 6.23% Tax-exempt4................... 3,213 140 4.36% 4,085 160 3.92% 6,251 282 4.51% FHLB and Bankers Bank Stock.................. 3,986 288 7.23% 3,377 244 7.23% 2,312 181 7.83% ---------- --------- ---------- --------- --------- -------- Total investment securities................$ 51,626 $ 3,581 6.94% $ 27,846 $ 1,600 5.75% $ 35,578 $ 2,147 6.03% Other short-term Investments................. 19,495 1,241 6.37% 17,309 843 4.87% 14,809 824 5.56% ---------- --------- ---------- --------- --------- -------- Total interest- earning assets............$ 679,472 $ 67,696 9.96% $ 555,622 $ 55,229 9.94% $ 493,272 $ 50,792 10.30% --------- -------- --------- -------- -------- ------- NON-INTEREST-EARNING ASSETS: Cash and due from banks $ 21,757 $ 22,252 $ 17,855 Premises and equipment................... 21,351 12,936 9,968 Other, less allowance for loan losses............. 8,471 8,001 5,346 ---------- ---------- --------- Total non-interest- earning assets............$ 51,579 $ 43,189 $ 33,169 --------- --------- -------- Total Assets................$ 731,051 $ 598,811 $ 526,441 ========== ========= ========
- ---------------------------- 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. 7
2000 1999 1998 ---------------------------------- ------------------------------- ------------------------------ 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............. $ 193,889 $ 5,116 2.64% $ 187,058 $ 4,629 2.47% $ 160,775 $ 3,850 2.39% Time deposits............... 353,278 20,175 5.71% 273,392 13,671 5.00% 255,872 13,975 5.46% ---------- ---------- ---------- ---------- ----------- ---------- Total deposits........... $ 547,167 $ 25,291 4.62% $ 460,450 $ 18,300 3.97% $ 416,647 $ 17,825 4.28% Securities sold under repurchase agreements and short-term borrowings............ 6,036 304 5.04% 7,326 318 4.35% 2,944 116 3.94% Notes Payable................. 56,934 3,548 6.23% 21,401 1,124 5.25% 8,503 631 7.42% ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities........... $ 610,137 $ 29,143 4.78% $ 489,177 $ 19,742 4.04% $ 428,094 $ 18,752 4.34% NON-INTEREST-BEARING LIABILITIES: Demand deposits............. $ 46,010 $ 42,278 $ 39,822 Other liabilities........... 10,685 8,113 6,034 ---------- ---------- ---------- Total liabilities........... $ 56,695 $ 50,391 $ 45,856 Stockholders' equity........ 64,219 59,243 52,491 ---------- ---------- ---------- Total liabilities and stockholders' equity........ $ 731,051 $ 598,811 $ 526,441 ========== ========== ========== Net interest income........... $ 38,553 $ 35,487 $ 32,220 ========== ========== ========= MARGIN ANALYSIS: Interest rate spread........ 5.18% 5.90% 5.96% Net yield on interest- earning assets (net interest margin)............ 5.67% 6.39% 6.53% ===== ===== =====
8 Rate/Volume Analysis. The following table analyzes net interest income in terms of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in yields and rates. The table reflects the extent to which changes in the interest income and interest expense are attributable to changes in volume (changes in volume multiplied by prior year rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been separately identified.
2000 vs. 1999 1999 vs. 1998 ----------------------------------------------- -------------------------------------------- Rate/ Total Rate/ Total Volume Rate Volume Change Volume Rate Volume Change ------ ---- ------ ------ ------ ---- ------ ------ (In thousands) INTEREST INCOME: Loans net of unearned income... $ 10,123 $ (29) $ (6) $ 10,088 $ 7,297 $ (2,023) $ (309) $ 4,965 Investment securities: Taxable...................... 1,411 251 295 1,957 (413) (99) 24 (488) Tax exempt................... (34) 18 (4) (20) (98) (37) 13 (122) FHLB and Bankers Bank Stock.. 44 - - 44 83 (14) (6) 63 Other short-term investments... 106 259 33 398 139 (103) (17) 19 --------- --------- --------- --------- -------- ---------- -------- --------- Total interest income............ 11,650 499 318 12,467 7,008 (2,276) (295) 4,437 --------- --------- --------- --------- -------- ---------- -------- --------- INTEREST EXPENSE: Savings, NOW accounts, and money market accounts...... 169 307 11 487 629 129 21 779 Time deposits.................. 3,995 1,941 568 6,504 957 (1,181) (81) (305) Short-term borrowings.......... (56) 51 (9) (14) 172 12 18 202 Debt ........................ 1,866 210 348 2,424 956 (184) (278) 494 --------- --------- --------- --------- -------- ---------- -------- --------- Total interest expense......... 5,974 2,509 918 9,401 2,714 (1,224) (320) 1,170 --------- --------- --------- --------- -------- ---------- -------- --------- Net interest income................ $ 5,676 $ (2,010) $ (600) $ 3,066 $ 4,294 $ (1,052) $ 25 $ 3,267 ======== ======== ======== ======== ======= ========= ======= ========
At December 31, 2000, loans outstanding and loans held-for-sale, net of unearned income and allowance for loan losses, were $657,065 compared to $546,897 at 1999 year end. The increase is primarily due to the Company's presence in new markets during 2000, as well as 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 2000 were $608,351, an increase of 19.18% from the 1999 average of $510,467. The average outstanding loans for 1998 were $442,885. 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 1999, the Company continued its expansion with new branches in Monroe and Blount Counties and moved operations of an existing branch in Sullivan County to a new facility. In addition, the loan growth in 1999 was attributable to a new management group that joined the Company. Management cannot predict at what rate the loan portfolio will grow in the future; however, it does not believe the Company will match 2000 growth levels. Average investment securities for 2000 were $51,626, compared to $27,846 in 1999, and $35,577 in 1998. The increase of $23,780, or 85.40%, from 1999 to 2000 primarily reflects the purchase of $25,000 of federal agency securities at the beginning of 2000 for the principal purpose of pledging public deposits. The decline in the average balance of investment securities from 1998 to 1999 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 2000, the average yield on investments was 6.94%, an increase from the 5.75% yield in 1999 and the 6.04% yield in 1998. The increase in 2000 results primarily from the 7.33% yield on the $25,000 federal agency security referenced previously, as well as the beneficial effect of the higher interest rate environment during 2000 on the Company's adjustable-rate investment securities. The decline in 1999 reflects the prepayment of a substantial amount of loans underlying the adjustable-rate 9 securities, and thus the amortization of the associated premiums, as borrowers tended to refinance their adjustable-rate loans with fixed rate loans. Income provided by the investment portfolio in 2000 was $3,581 as compared to $1,600 in 1999, and $2,147 in 1998. 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 historical net loss experience and 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 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. Generally, the Bank maintains only a general loan loss allowance. This allowance 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 indicators on a monthly basis, including current economic conditions, delinquency trends and ratios, portfolio mix changes and other information management deems necessary, as well as year-end loss results. This review process provides a degree of objective measurement that is used in conjunction with periodic internal evaluations. To the extent that this process yields differences between estimated and actual observed losses, adjustments are made to provisions and/or the level of the allowance. Increases and decreases in the allowance for loan losses due to changes in the measurement of the impaired loans are included in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable. The Company's provision for loan losses increased $4,876, or 155.63%, to $8,009 in 2000 from $3,133 in 1999. The increase in the provision for loan losses is primarily attributable to significant charge-offs at Superior Financial, the Company's consumer lending subsidiary. Charge-offs at Superior Financial, net of recoveries, exceeded such net charge-offs in the Bank by 22.29%. Net charge-offs in Superior Financial were $3,210 versus $2,625 in the Bank. Such net charge-offs were a result of a decline in loan quality, implementation of a more aggressive charge-off policy, 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 in the Superior Financial loan portfolio should decline in the near future. The ratio of non-performing assets to total assets was 0.96% at December 31, 2000 and December 31, 1999. Despite the Company's increased provision for loan losses in 2000 compared to 1999 and the $1,396, or 13.51%, increase in the allowance for loan losses to $11,728 at December 31, 2000 as compared to $10,332 at December 31, 1999, the ratio of the Company's allowance for loan losses 10 to non-performing assets decreased in 2000 to 154.83% from 163.48% in 1999 primarily due to an increase in nonaccrual loans. Nonaccrual loans increased $1,861, or 63.04%, to $4,813 at December 31, 2000 from $2,952 at December 31, 1999. The increase consists primarily of four commercial loans totaling approximately $1,000 in Washington County, Tennessee and on which the Company expects no significant loss; one commercial real estate loan in Washington County, Tennessee in the approximate amount of $500, on which the Company expects no significant loss; and four consumer loans totaling approximately $1,000 in Hamblen County, Tennessee, which are adequately secured by 1-4 family residences and on which the Company expects no significant loss. These increases were offset, in part, by reductions in non-accrual loans primarily in Greene County, Tennessee. The Company's provision for loan losses decreased $284, or 8.31%, to $3,133 in 1999 from $3,417 in 1998. The decrease in the provision for loan losses is primarily attributable to the Company's assessment of the risk of collection inherent in its existing loan portfolio. The ratio of non-performing assets to total assets decreased to 0.96% at December 31, 1999 as compared to 1.15% at December 31, 1998. Management attributes the decline in non-performing assets to the Company's increased emphasis on collection efforts, including the recruitment of an experienced collection professional. As a result, despite the Company's reduced provision for loan losses in 1999 as compared to 1998, the ratio of the Company's allowance for loan losses to non-performing assets increased in 1999 to 163.48% from 156.34% in 1998. 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, 2000 the Company had identified approximately $14,700 in loans that were placed on its "watch list," a significant increase from the approximate $5,900 as of December 31, 1999 because of an enhanced risk rating system for loans and better identification of potential problem loans due, in part, to an improved loan review function and increased reliance thereon. Management believes the level of "watchlist" loans, as a percentage of total loans, will improve during 2001. NON-INTEREST INCOME. Income that is not related to interest-earning assets, consisting primarily of service charges, commissions and fees, has become more important as increases in levels of interest-bearing deposits and other liabilities make it more difficult to maintain interest rate spreads. Total non-interest income for 2000 increased to $6,568 as compared to $6,331 in 1999 and $4,555 in 1998. The largest components of non-interest income are service charges, commissions and fees, which totaled $5,200 in 2000, $5,258 in 1999 and $3,840 in 1998. While deposit growth in 2000 aided the Company's continued focus on enhancing fee income via associated service charges and commissions, a decrease in fees and commissions at Superior Financial, attributable mainly to reduced loan originations in 2000 as compared to 1999, negated this enhancement. 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 $29,393 in 2000, compared to $24,610 in 1999 and $20,462 in 1998. Personnel costs are the primary element of the Company's non-interest expenses. In 2000, salaries and benefits represented $16,734, or 56.9%, of total non-interest expenses. This was an increase of $2,395, or 16.7%, over 1999's total of $14,339. Personnel costs for 1999 increased $2,880, or 25.1%, over 1998's total of $11,459. These increases reflect the increased staffing needs of the Company's continued expansion of the Bank and subsidiary branch network throughout East Tennessee. The higher costs in 2000 were also attributable to the usually higher expense of hiring and retaining more seasoned 11 lending personnel as part of the Company's overall goal to increase loan growth without a decline in the overall quality of loans being originated. Overall, the number of full-time equivalent employees at December 31, 2000 was 388 versus 363 at December 31, 1999, an increase of 6.9%. Occupancy and furniture and equipment expense exhibited the same upward trend during the past three years as did personnel costs due to essentially the same reasons referenced above. At December 31, 2000, the Company had 44 branches compared to 48 branches at December 31, 1999. Loss on sale of real estate owned and repossessed assets increased over 1999 levels as a result of a $280 writedown related to one large real estate property. The writedown was a result of a decline in the net realizable value of the property during 2000. Management believes the property is currently reflected at its realizable value. Other expenses increased $1,309, or 23.6%, from 1999 to 2000. The increase was primarily attributable to higher operating expenses associated with additional branches, additional Financing Corporation ("FICO") premiums associated with the higher deposit level, increased foreclosure costs associated with more aggressive loan collection efforts and higher charge-offs and increased costs associated with certain software conversion efforts and issues related thereto. The increase from 1998 to 1999 was $543, or 10.8%. Provision for income taxes decreased significantly during 2000 as compared to 1999 levels due to the Company's reevaluation of its estimated liability as a result of Internal Revenue Service examinations of certain prior tax years and a change in the estimated state tax liability associated with bad debts. CHANGES IN FINANCIAL CONDITION 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. Total assets at December 31, 1999 were $656,012, an increase of $87,833, or 15.46%, over 1998's year-end total assets of $568,179. Average assets for 1999 were $598,811, an increase of $72,370, or 13.75%, over 1998 average assets of $526,441. This increase was primarily the result of an increase in the average balance of loans to $510,467 in 1999 as compared to an average balance of $442,885 in 1998. This increase was offset in part by the decline in the average balance of investment securities to $27,846 in 1999 from $35,577 in 1998, as the Company shifted its funding focus to loans because of the relatively higher yields available and because of the loan demand generated by its additional lending personnel. Return on average assets was 1.47% in 1999, as compared to 1.56% in 1998. Earning assets consist of loans, investment securities and short-term investments that earn interest. Average earning assets during 2000 were $679,472, an increase of 22.29% from an average of $555,621 in 1999. 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 12 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, 2000 had an amortized cost of $48,441 and a market value of $48,527. At December 31, 1999, investments had an amortized cost of $24,076 and market value of $24,052. This increase in investments in 2000 primarily reflects the Company's purchase of $25,000 in federal agency securities, as previously discussed, for the primary purpose of pledging public deposits. Because the securities were callable, their market value does 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, 2000. The Company's deposits were $648,641 at December 31, 2000. This represents an increase of $126,259, or 24.17%, from the $522,382 of deposits at December 31, 1999. Average interest-bearing deposits increased $86,717, or 18.83%, in 2000. In 1999, average interest-bearing deposits increased $43,803, or 10.51%, over 1998. 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. 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. Non-interest bearing demand deposit balances increased 20.00% to $47,794 at December 31, 2000 from $39,830 at December 31, 1999. 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, 2000, approximately 61.5% 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, 2000, the total deposit base of Tennessee commercial banks had a weighted average rate of 3.66%. 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 4.62% or it acquires deposits from other financial institutions. During 2000, the premiums charged in Tennessee by selling financial institutions for deposit accounts ranged from 7% to 29%. 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 2000 totaled $25,291 reflecting a 4.62% cost on average interest-bearing deposits of $547,167. In 1999, interest of $18,300 was paid at a cost of 3.97% on average deposits of $460,450. In 1998, interest of $17,825 was paid at a cost of 4.28% on average deposits of $416,647. INTEREST RATE SENSITIVITY Deregulation of interest rates and more volatile short-term, interest-bearing deposits have created a need for shorter maturities of earning assets. An increasing percentage of commercial and installment loans are being made with variable rates or shorter maturities to increase liquidity and interest rate sensitivity. The difference between interest-sensitive asset repricing and interest-sensitive liability repricing within time periods is referred to as the interest rate sensitivity gap. Gaps are identified as either positive 13 (interest sensitive assets in excess of interest sensitive liabilities) or negative (interest sensitive liabilities in excess of interest sensitive assets). The following table reflects the Company's interest rate gap position at December 31, 2000 based upon repricing dates rather than maturity dates. This table represents a static point in time and does not consider other variables such as changes in relationships or interest rate levels. According to the table, on December 31, 2000, the Company had a negative cumulative one-year gap position of $44,200, indicating that while $538,778 in liabilities were repricing, only $494,578 in assets would reprice in the same time frame. The table depicts all money market and transaction accounts with an expected maturity date in 2001, thus giving rise to the negative gap position. Management believes this depiction is a strict interpretation of the maturity characteristics of such accounts, as they technically are available upon demand and, thus, can mature immediately. However, for asset/liability management purposes and based upon its experience with its deposit base over the years and modeling analyses prepared by independent firms, the Company considers these accounts, as well as certain other savings deposits, as having longer maturities than those depicted in the table and, thus, the Company believes its liabilities would not be as sensitive to changes in interest rates as depicted in the table. In fact, based on the Company's asset/liability modeling data prepared by an independent consulting firm as of December 31, 2000 and based upon data provided by the Company, the Company currently believes it has a positive cumulative one-year gap and is, thus, slightly asset-sensitive. 14
------------------------------------------------------------------------------------------------- Expected Maturity Date ------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 Thereafter Total Fair Value(1) ---- ---- ---- ---- ---- ---------- ----- ------------- (Dollars in Thousands) Interest-Earning Assets: Loans, net of allowance for loan losses...............$ 436,927 $ 86,522 $ 64,575 $ 36,217 $ 16,762 $ 16,062 $ 657,065 $ 653,848 Average interest rate..... 9.59% 8.52% 8.40% 8.61% 8.98% 8.90% 9.25% Investment securities.........$ 45,267 $ 1,000 $ 207 $ 94 $ 82 $ 1,874 $ 48,524 $ 48,527 Average interest rate..... 6.90% 4.93% 5.92% 7.15% 7.15% 5.40% 6.82% Federal Funds Sold............$ 8,130 $ -- $ -- $ -- $ -- $ -- $ 8,130 $ 8,130 Average interest rate....... 5.81% 5.81% FHLB and Bankers Bank stock.....................$ 4,254 $ -- $ -- $ -- $ -- $ -- $ 4,254 $ 4,254 Average interest rate..... 7.25% 7.25% Total interest-earning assets......................$ 494,578 $ 87,522 $ 64,782 $ 36,311 $ 16,844 $ 17,936 $ 717,973 $ 714,759 Interest-Bearing Liabilities: Savings and time deposits.....$ 330,628 $ 66,094 $ 19,958 $ 3,244 $ 5,458 $ 27,259 $ 452,641 $ 440,720 Average interest rate...... 6.05% 6.33% 6.06% 3.07% 4.77% 2.36% 5.82% Money market and transaction accounts........$ 148,206 $ -- $ -- $ -- $ -- $ -- $ 148,206 $ 112,809 Average interest rate...... 2.72% 2.72% Debt and other borrowed money(1)....................$ 55,231 $ 1,040 $ 1,072 $ 240 $ 340 $ 2,026 $ 59,949 $ 59,833 Average interest rate..... 5.71% 6.01% 6.07% 8.00% 8.00% 7.56% 5.81% Securities sold under agreement to repurchase.....$ 4,713 $ -- $ -- $ -- $ -- $ -- $ 4,713 $ 4,713 Average interest rate...... 5.80% 5.80% Total interest-bearing liabilities.................$ 538,778 $ 67,134 $ 21,030 $ 3,484 $ 5,798 $ 29,285 $ 665,509 $ 618,075 Interest sensitivity gap..........$ (44,200) $ 20,388 $ 43,752 $ 32,827 $ 11,046 $ (11,349) $ 52,464 $ 96,684 Cumulative interest sensitivity gap.................$ (44,200) $ (23,812) $ 19,940 $ 52,767 $ 63,813 $ 52,464 $ 52,464 $ 96,684 Interest sensitivity gap to total assets.................... -5.60% 2.58% 5.54% 4.16% 1.40% -1.44% 6.65% 12.25% Cumulative interest sensitivity gap to total assets. -5.60% -3.02% 2.53% 6.69% 8.09% 6.65% 6.65% 12.25%
(1) For further information regarding fair value of debt instruments, see Note 1 of Notes to Consolidated Financial Statements. See Note 6 of Notes to Consolidated Financial Statements. The above table was prepared for the Company by an independent consulting firm as of December 31, 2000 and is based upon data provided by the Company. The table is based on a number of assumptions regarding the future annual prepayment rate for the Company's various categories of loans and adjustable-rate securities and the attrition rate of certain deposits. With respect to the computation of the fair value of certain transaction and time deposits, the model makes certain assumptions regarding the core deposit status of these deposits which tends to decrease the fair value of these liabilities as interest rates increase. 15 The above table also reflects a negative cumulative gap position in certain maturity classifications and a positive cumulative gap position in certain other maturity classifications. A negative cumulative gap position implies that interest-bearing liabilities (deposits) will reprice at a faster rate than interest-earning assets (loans and investments), while a positive cumulative gap position implies that interest earning assets (loans and investments) will reprice at a faster rate than interest-bearing liabilities (deposits). In a rising rate environment, a cumulative positive gap position will generally have a positive effect on earnings, while in a falling rate environment this position will generally have a negative effect on earnings. Conversely, in a rising rate environment, a cumulative negative gap position will generally have a negative effect on earnings, while in a falling rate environment this position will generally have a positive effect on earnings. Other factors, however, including the speed at which assets and liabilities reprice in response to changes in market rates and the interplay of competitive factors, can also influence the overall impact on net income of changes in interest rates. 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. 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 Beginning January 1, 2001, a new accounting standard required all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. Application of this statement on January 1, 2001 did not have a material effect. 16 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. 17 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Greene County Bancshares, Inc. Greeneville, Tennessee We have audited the accompanying consolidated balance sheet of Greene County Bancshares, Inc. as of December 31, 2000, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year 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 and 1998 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 audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe our audit provides 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, 2000, and its results of operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Louisville, Kentucky January 18, 2001 18 Report of Independent Accountants The Board of Directors and Shareholders of Greene County Bankshares, Inc. In our opinion, the accompanying consolidated balance sheet as December 31, 1999 and the related consolidated statements of income, of changes in shareholders' equity and of cash flows, for the years ended December 31, 1999 and 1998, present fairly, in all material respects, the financial position of Greene County Bancshares, Inc. as of December 31, 1999, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP January 28, 2000 Knoxville, Tennessee 18.1 GREENE COUNTY BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 (Dollar amounts in thousands, except share and per share data) - --------------------------------------------------------------------------------
2000 1999 ---- ---- ASSETS Cash and due from banks $ 24,038 $ 44,555 Federal funds sold 8,130 -- --------- --------- Cash and cash equivalents 32,168 44,555 Securities available for sale 46,658 20,726 Securities held to maturity (fair value $1,869 and $3,326) 1,866 3,321 Loans held for sale 1,725 1,210 Loans, net 655,340 545,687 Premises and equipment, net 23,934 18,106 FHLB and Bankers Bank stock, at cost 4,254 3,621 Cash surrender value of life insurance 7,242 6,421 Accrued interest receivable and other assets 15,930 12,365 --------- --------- Total assets $ 789,117 $ 656,012 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Noninterest-bearing deposits $ 47,794 $ 39,830 Interest-bearing deposits 600,847 482,552 --------- --------- Total deposits 648,641 522,382 Federal funds purchased and repurchase agreements 4,713 14,581 Notes payable 59,949 46,309 Accrued interest payable and other liabilities 12,804 11,968 --------- --------- Total liabilities 726,107 595,240 Shareholders' equity Common stock: $10 par value, 5,000,000 shares authorized, 1,363,778 and 1,359,647 shares outstanding $ 13,638 $ 13,596 Additional paid-in capital 4,854 4,479 Retained earnings 44,467 42,715 Accumulated other comprehensive Income 51 (18) --------- --------- Total shareholders' equity 63,010 60,772 --------- --------- Total liabilities and shareholders' equity $ 789,117 $ 656,012 ========= =========
- -------------------------------------------------------------------------------- See accompanying notes. 19 GREENE COUNTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2000, 1999 and 1998 (Dollar amounts in thousands, except share and per share data) - --------------------------------------------------------------------------------
2000 1999 1998 ---- ---- ---- Interest income Interest and fees on loans $ 62,874 $ 52,786 $ 47,821 Taxable securities 3,153 1,196 1,684 Nontaxable securities 140 160 282 FHLB and Bankers Bank stock 288 244 181 Federal funds sold and other 1,241 843 824 -------- -------- -------- 67,696 55,229 50,792 Interest expense Deposits 25,291 18,300 17,825 Federal funds purchased and repurchase agreements 304 318 116 FHLB advances and other debt 3,548 1,124 631 -------- -------- -------- 29,143 19,742 18,572 Net interest income 38,553 35,487 32,220 Provision for loan losses 8,009 3,133 3,417 -------- -------- -------- Net interest income after provision for loan losses 30,544 32,354 28,803 Noninterest income Service charges and fees 5,200 5,258 3,840 Other 1,368 1,073 715 -------- -------- -------- 6,568 6,331 4,555 Noninterest expense Salaries and employee benefits 16,734 14,339 11,459 Occupancy expense 1,961 1,541 1,414 Equipment expense 1,794 1,782 1,373 Professional services 887 751 825 Advertising 673 520 381 Loss (gain) on OREO and repossessed assets 477 119 (5) Other 6,867 5,558 5,015 -------- -------- -------- 29,393 24,610 20,462 Income before income taxes 7,719 14,075 12,896 Provision for income taxes 2,206 5,250 4,690 -------- -------- -------- Net income $ 5,513 $ 8,825 $ 8,206 ======== ======== ======== Earnings per share: Basic $ 4.05 $ 6.50 $ 6.05 Diluted 4.01 6.44 6.02
- -------------------------------------------------------------------------------- See accompanying notes. 20 GREENE COUNTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 2000, 1999 and 1998 (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, 1998 $ 13,545 $ 4,135 $ 32,333 $ 100 $ 50,113 Issuance of 2,698 shares 27 120 -- -- 147 Dividends paid ($2.30 per share) -- -- (3,118) -- (3,118) Tax benefit from exercise of nonincentive stock options -- 43 -- -- 43 Comprehensive income: Net income -- -- 8,206 -- 8,206 Change in unrealized gains (losses), net of reclassification -- -- -- (6) (6) -------- Total comprehensive income 8,200 -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1998 13,572 4,298 37,421 94 55,385 Issuance of 2,449 shares 24 133 -- -- 157 Dividends paid ($2.60 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 4,131 shares 42 347 -- -- 389 Dividends paid ($2.76 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 ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------- See accompanying notes. 21 GREENE COUNTY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2000, 1999 and 1998 (Dollar amounts in thousands, except share and per share data) - --------------------------------------------------------------------------------
2000 1999 1998 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,513 $ 8,825 $ 8,206 Adjustments to reconcile net income to net cash from operating activities Provision for loan losses 8,009 3,133 3,417 Depreciation and amortization 1,601 1,304 994 Security amortization and accretion, net 188 291 315 FHLB stock dividends (288) (244) (181) Net gain on sale of mortgage loans (182) (536) (466) Originations of mortgage loans held for sale (31,553) (57,166) (30,999) Proceeds from sales of mortgage loans 31,220 61,535 33,706 Net (gains) losses on sales of fixed assets 121 202 (5) Net (gain) loss on OREO and repossessed assets 477 119 (5) Cash surrender value of life insurance (822) (2,284) (231) Net changes: Accrued interest receivable and other assets (3,961) (845) 237 Accrued interest payable and other liabilities 865 (2,954) 4,928 --------- --------- --------- Net cash from operating activities 11,188 11,380 19,916 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale (29,039) (7,083) (1,770) Proceeds from maturities of securities available for sale 3,030 9,239 8,770 Purchase of securities held to maturity -- (100) (75) Proceeds from maturities of securities held to maturity 1,455 395 4,065 Purchase of FHLB stock (345) -- -- Net increase in loans (120,951) (89,989) (32,488) Proceeds from sale of other real estate 2,994 2,683 544 Improvements to other real estate (95) (276) -- Proceeds from sale of fixed assets 74 375 34 Premises and equipment expenditures (7,357) (8,056) (2,718) --------- --------- --------- Net cash from investing activities (150,234) (92,812) (23,638) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 126,259 68,422 (2,545) Net change in federal funds purchased and repurchase agreements (9,868) 7,365 5,802 Proceeds from notes payable 70,000 79,000 23,500 Repayment of notes payable (56,360) (69,318) (2,360) Dividends paid (3,761) (3,531) (3,118) Proceeds from issuance of common stock 389 157 147 --------- --------- --------- Net cash from financing activities 126,659 82,095 21,426 --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (12,387) 663 17,704 Cash and cash equivalents, beginning of year 44,555 43,892 26,188 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 32,168 $ 44,555 $ 43,892 ========= ========= ========= Supplemental disclosures - cash and noncash Interest paid $ 27,993 $ 19,595 $ 18,846 Income taxes paid 4,031 3,510 4,523 Loans converted to other real estate 4,152 3,136 1,559 Financed sales of other real estate 861 433 --
- -------------------------------------------------------------------------------- See accompanying notes. 22 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Greene County Bancshares, Inc. and its wholly-owned subsidiary, Greene County Bank, and Greene County Bank's wholly-owned subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp., Inc., Superior Mortgage Company, and Fairway Title Company, Inc., collectively referred to as the "Company". All significant inter-company balances and transactions have been eliminated in consolidation. Nature of Operations: The Company 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 generally accepted accounting principles, 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 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. - -------------------------------------------------------------------------------- (Continued) 23 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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. 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) 24 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- 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. 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. Earnings Per Common Share: Basic earnings per common share is 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. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue 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. - -------------------------------------------------------------------------------- (Continued) 25 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New Accounting Pronouncements: Beginning January 1, 2001, a new accounting standard required all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. Application of this statement on January 1, 2001 did not have a material effect. 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 $2,312 and $2,290 was required to meet regulatory reserve and clearing requirements at year end 2000 and 1999. 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 90.2% of revenues for 2000. 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 2000 presentation. - -------------------------------------------------------------------------------- (Continued) 26 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES Securities are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- 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 ======== ======= ========= ========== Held to Maturity Obligations of states and political subdivisions $ 1,866 $ 4 $ (1) $ 1,869 ======== ======= ========= ========== 1999 ---- Available for Sale - ------------------ U. S. Treasury and government agency $ 18,117 $ 92 $ (131) $ 18,078 Obligations of states and political subdivisions 1,535 1 (1) 1,535 Mortgage-backed 1,103 13 (3) 1,113 -------- ------- --------- ---------- $ 20,755 $ 106 $ (135) $ 20,726 ======== ======= ========= ========== Held to Maturity Obligations of states and political subdivisions $ 3,321 $ 7 $ (2) $ 3,326 ======== ======= ========= ==========
- -------------------------------------------------------------------------------- (Continued) 27 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) Contractual maturities of securities at year-end 2000 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 $ 3,048 $ 3,038 $ 827 $ 828 Due after one year through five years 32,147 32,150 592 593 Due after five years through ten years 2,922 2,949 -- -- Due after ten years 6,601 6,642 447 448 Mortgage-backed securities 1,857 1,879 -- -- ------- ------- ------- ------- Total maturities $46,575 $46,658 $ 1,866 $ 1,869 ======= ======= ======= =======
There were no security sales during 2000, 1999 or 1998. Securities with a carrying value of $38,897 and $8,611 at year-end 2000 and 1999 were pledged for public deposits and securities sold under agreements to repurchase. NOTE 3 - LOANS Loans at year-end were as follows: 2000 1999 ---- ---- Commercial $ 87,680 $ 68,793 Commercial real estate 288,254 242,574 Residential real estate 204,202 170,299 Consumer 88,687 71,169 Other 12,493 16,774 --------- --------- 681,316 569,609 Less: Unearned interest income (14,248) (13,590) Allowance for loan losses (11,728) (10,332) --------- --------- $ 655,340 $ 545,687 ========= ========= - -------------------------------------------------------------------------------- (Continued) 28 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 3 - LOANS (Continued) Activity in the allowance for loan losses is as follows: 2000 1999 1998 ---- ---- ---- Beginning balance $ 10,332 $ 10,253 $ 9,154 Provision 8,009 3,133 3,417 Loans charged off (7,788) (4,017) (3,234) Recoveries of loans charged off 1,175 963 916 -------- -------- -------- Balance, end of year $ 11,728 $ 10,332 $ 10,253 ======== ======== ======== Impaired loans were as follows: 2000 1999 ---- ---- Loans with allowance allocated $8,742 $5,591 Amount of allowance allocated 1,311 709 Average balance during the year 9,535 6,264 Interest income recognized during impairment 310 267 Cash-basis interest income recognized -- -- Nonperforming loans were as follows: 2000 1999 ---- ---- Loans past due 90 days still on accrual $ 475 $ 996 Nonaccrual loans 4,813 2,952 ------ ------ Total $5,288 $3,948 ====== ====== The aggregate amount of loans to executive officers and directors of the Company and their related interests was approximately $12,881 and $12,215 at year-end 2000 and 1999. During 2000 and 1999, new loans aggregating approximately $14,661 and $12,937 and amounts collected of approximately $13,995 and $11,230 were transacted with such parties. - -------------------------------------------------------------------------------- (Continued) 29 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 4 - PREMISES AND EQUIPMENT Year-end premises and equipment follows: 2000 1999 ---- ---- Land $ 4,577 $ 3,521 Premises 13,089 8,522 Leasehold improvements 1,791 1,832 Furniture, fixtures and equipment 8,458 7,622 Automobiles 781 675 Construction in progress 2,634 3,473 -------- -------- 31,330 25,645 Accumulated depreciation (7,396) (7,539) -------- -------- $ 23,934 $ 18,106 ======== ======== Rent expense for operating leases was $600 for 2000, $467 for 1999, and $397 for 1998. Rent commitments under noncancelable operating leases were as follows, before considering renewal options that generally are present: 2001 $ 427 2002 373 2003 255 2004 154 2005 68 Thereafter 348 ------------------- Total $ 1,625 =================== NOTE 5 - DEPOSITS Time deposits of $100 thousand or more were $130,450 and $75,516 at year-end 2000 and 1999. Scheduled maturities of all time deposits for the next five years were as follows: 2001 $ 323,816 2002 63,100 2003 17,152 2004 992 2005 2,875 The aggregate amount of deposits to executive officers and directors of the Company and their related interests was approximately $2,393 and $1,936 at year-end 2000 and 1999. - -------------------------------------------------------------------------------- (Continued) 30 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- 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 2000 and 1999 is as follows:
2000 1999 ---- ---- Average month-end balance during the year $ 5,725 $ 5,424 Average interest rate during the year 4.95% 3.77% Maximum month-end balance during the year $ 9,928 $ 6,383 Notes payable consist of the following at year-end: 2000 1999 ------- ------- Fixed rate FHLB advances, from 5.65% to 6.35%, maturities from July 2003 to September 2013 $ 2,018 $ 2,338 Variable rate FHLB advances, from 4.23% to 6.25%, maturities from January 2000 to January 2010 55,500 41,500 Notes payable, interest due quarterly at 8%, principal due January 2002 through January 2008 (related party note - $231) 2,431 2,431 Related party non-compete agreement, payable annually through January 2000 -- 40 ------- ------- $59,949 $46,309 ======= =======
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 $92,499 and $65,757 at year-end 2000 and 1999. - -------------------------------------------------------------------------------- (Continued) 31 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 6 - BORROWINGS (Continued) Scheduled maturities of notes payable over the next five years are: Total ----- 2001 $ 6,339 2002 460 2003 402 2004 368 2005 477 Thereafter 51,903 --------------- $ 59,949 =============== At year-end 2000, the Company had approximately $57,500 of federal funds lines of credit available from correspondent institutions, $20,000 in unused lines of credit with the FHLB, and an $11,000 letter of credit with the FHLB. NOTE 7 - BENEFIT PLANS The Company has a profit sharing plan and a money purchase plan. The profit sharing plan allows employees to contribute from 3% to 10% of their compensation, which is matched at a discretionary rate established annually by the Board of Directors. Employees may not contribute to the money purchase plan; however, the Company may make contributions determined annually by the Board of Directors. Company contributions to both Plans was $923, $707 and $615 for 2000, 1999 and 1998. Directors have deferred some of their fees for future payment, including interest. The amount accrued for deferred compensation was $1,269 and $1,121 at year-end 2000 and 1999. Amounts expensed under the plan were $222, $188, and $130 during 2000, 1999, and 1998. 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. - -------------------------------------------------------------------------------- (Continued) 32 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 8 - INCOME TAXES Income tax expense is summarized as follows: 2000 1999 1998 ---- ---- ---- Current - federal $ 3,075 $ 4,341 $ 4,211 Current - state 314 1,059 679 Deferred (1,183) (150) (200) ----------- --------- -------------- $ 2,206 $ 5,250 $ 4,690 =========== ========= ============== 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:
2000 1999 ---- ---- Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Allowance for loan losses $ 4,562 $ - $ 3,902 $ - Deferred compensation 708 - 522 - Depreciation - (786) - (642) FHLB dividends - (418) - (306) Core deposit intangible - (214) - (257) Unrealized (gain) loss on securities - (32) 11 - Other 186 - - (363) ------------ ------------ ----------- ---------- Total deferred income taxes $ 5,456 $ (1,450) $ 4,435 $ (1,568) ============ ============ =========== ==========
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: 2000 1999 1998 ---- ---- ---- Statutory federal tax rate 35.0% 35.0% 35.0% State income tax, net of federal benefit (1.6) 4.9 3.1 Tax exempt income (.7) (.1) (.1) Other (4.1) (2.5) (1.6) --------- --------- ------- 28.6% 37.3% 36.4% ========= ========= ======= - -------------------------------------------------------------------------------- (Continued) 33 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- 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. Financial instruments with off-balance-sheet risk were as follows at year-end: 2000 1999 ---- ---- Commitments to make loans - fixed $ 1,431 $ 10,223 Commitments to make loans - variable 2,480 9,378 Unused lines of credit 95,321 83,036 Letters of credit 6,231 4,579 The fixed rate loan commitments have interest rates ranging from 8.5% to 10% 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) 34 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 10 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS 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 Well Minimum Required Capitalized Under for Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------------- ----------------------- -------------------- Actual Ratio Actual Ratio Actual Ratio ------ ----- ------ ----- ------ ----- 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 1999 - ---- Total Capital (to Risk Weighted Assets) Consolidated $ 65.3 12.8% $ 41.0 8.0% $ 51.3 10.0% Bank 66.6 13.0 41.1 8.0 51.3 10.0 Tier 1 Capital (to Risk Weighted Assets) Consolidated $ 58.9 11.5% $ 20.5 4.0% $ 30.8 6.0% Bank 60.2 11.7 20.5 4.0 30.8 6.0 Tier 1 Capital (to Average Assets) Consolidated $ 58.9 9.5% $ 24.9 4.0% $ 31.1 5.0% Bank 60.2 9.6 24.9 4.0 31.2 5.0
The Company's primary source of funds to pay dividends to shareholders is the dividends it receives from the Bank. The Bank is subject to certain regulations on the amount of dividends it may declare without prior regulatory approval. Under these 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. As a practical matter, dividend payments by the Bank are limited by the necessity to maintain appropriate amounts for capital adequacy purposes. - -------------------------------------------------------------------------------- (Continued) 35 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 11 - STOCK OPTIONS The Company maintains a stock option plan, whereby a maximum of 96,000 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 2000, 56,425 shares are authorized for future grant. The Company also has a stock option plan that grants a key executive fully vested options to purchase 1,800 shares per year at one and one-half times year-end book value. Compensation expense associated with these options was $168 for 2000, $156 for 1999, and $93 for 1998. A summary of the Company's option activity and related information for the year-ended 2000, 1999, and 1998 is presented below:
Key Executive Other Key Total ------------- --------- ----- Executives ---------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise 2000 Options Price Options Price Options Price - ---- ------- ----- ------- ----- ------- ----- Outstanding at beginning of year 7,200 $ 58.60 25,031 $ 107.67 32,231 $ 96.70 Granted 1,800 69.30 8,413 160.00 10,213 144.01 Exercised -- -- (4,131) 93.90 (4,131) 93.90 Forfeited -- -- (140) 150.00 (140) 150.00 ------ ------ ------- Outstanding at end of year 9,000 $ 60.74 29,173 $ 124.51 38,173 $ 109.47 ====== ======= ======= Options exercisable at year-end 9,000 $ 60.74 10,457 $ 91.62 19,457 $ 77.34 ------ ------ ------- Weighted-average fair value of options granted during the year $ 93.27 $ 32.85 ====== =======
- -------------------------------------------------------------------------------- (Continued) 36 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 11 - STOCK OPTIONS (Continued)
Key Executive Other Key Total ------------- --------- ----- Executives ---------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise 1999 Options Price Options Price Options Price - ---- ------- ----- ------- ----- ------- ----- Outstanding at beginning of year 5,400 $ 55.78 20,723 $ 86.15 26,123 $ 79.87 Granted 1,800 67.05 7,747 150.00 9,547 134.36 Exercised -- -- (2,449) 64.12 (2,449) 64.12 Forfeited -- -- (990) 96.24 (990) 96.24 ------- ------- ------- Outstanding at end of year 7,200 $ 58.60 25,031 $ 107.67 32,231 $ 96.70 ======= ======= ======= Options exercisable at year-end 7,200 $ 58.60 8,464 $ 76.06 15,664 $ 68.03 ======= ======= ======= Weighted-average fair value of options granted during the year $ 86.18 $ 35.29 ======= ======== 1998 - ---- Outstanding at beginning of year 3,600 $ 53.07 19,298 $ 72.19 22,898 $ 69.19 Granted 1,800 61.21 6,000 115.00 7,800 102.59 Exercised -- -- (2,698) 54.30 (2,698) 54.30 Forfeited -- -- (1,877) 80.63 (1,877) 80.63 ------- ------- ------- Outstanding at end of year 5,400 $ 55.78 20,723 $ 86.15 26,123 $ 79.87 ======= ======= ======= Options exercisable at year-end 5,400 $ 55.78 7,785 $ 68.19 13,185 $ 63.11 ======= ======= ======= Weighted-average fair value of options granted during the year $ 51.50 $ 17.42 ======= ========
- -------------------------------------------------------------------------------- (Continued) 37 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 11 - STOCK OPTIONS (Continued) Options outstanding at year-end 2000 were as follows:
Outstanding Exercisable ----------- ----------- Average Weighted Average Remaining Weighted Number Contractual Number Exercise Range of Exercise Prices Outstanding Life Exercisable Price - ------------------------ ----------- ---- ----------- ----- *$50.64 - $67.05 9,000 8.0 9,000 $ 60.74 $48.33 - $71.67 5,643 5.3 5,062 63.57 $100.00 - $160.00 23,530 8.9 5,395 117.92
*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 2000, 1999, and 1998: dividend growth rate of 5%, 15%, and 15%, risk-free interest rate of 5.10%, 6.45% and 5.0%, expected lives of seven years, and estimated volatility of 9.62 %, 10.07%, and 9.8%. 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.
2000 1999 1998 ---- ---- ---- As As As Reported Proforma Reported Proforma Reported Proforma -------- -------- -------- -------- -------- -------- Net income $ 5,513 $ 5,348 $ 8,825 $ 8,743 $ 8,206 $ 8,152 Basic earnings per share $ 4.05 $ 3.93 $ 6.50 $ 6.44 $ 6.05 $ 6.01 Diluted earnings per share $ 4.01 $ 3.89 $ 6.44 $ 6.38 $ 6.02 $ 5.98
- -------------------------------------------------------------------------------- (Continued) 38 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- 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.
2000 1999 1998 ---- ---- ---- BASIC EARNINGS PER SHARE - ------------------------ Net income $ 5,513 $ 8,825 $ 8,206 Weighted average common shares outstanding 1,362,815 1,358,313 1,355,498 Basic Earnings Per Share $ 4.05 $ 6.50 $ 6.05 ========== ========== ========== DILUTED EARNINGS PER SHARE - -------------------------- Net income $ 5,513 $ 8,825 $ 8,206 Weighted average common share outstanding 1,362,815 1,358,313 1,355,498 Add: Dilutive effects of assumed conversions and exercises of stock options 11,483 11,025 7,782 ---------- ---------- ---------- Weighted average common and dilutive potential common shares outstanding 1,374,298 1,369,338 1,363,280 ---------- ---------- ---------- DILUTED EARNINGS PER SHARE $ 4.01 $ 6.44 $ 6.02 ========== ========== ==========
- -------------------------------------------------------------------------------- (Continued) 39 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- 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 2000 and 1999.
2000 1999 ---- ---- Carrying Fair Carrying Fair Value Value Value Value Financial assets: Cash and cash equivalents $ 32,168 $ 32,168 $ 44,555 $ 44,555 Securities available for sale 46,658 46,658 20,726 20,726 Securities held to maturity 1,866 1,869 3,321 3,326 Loans held for sale 1,725 1,725 1,210 1,210 Loans, net 655,340 652,123 545,687 545,579 FHLB and Bankers Bank stock 4,254 4,254 3,621 3,621 Accrued interest receivable 6,311 6,311 3,853 3,853 Financial liabilities: Deposit accounts $648,641 $649,675 $522,382 $522,979 Federal funds purchased and repurchase agreement 4,713 4,713 14,581 14,581 Notes payable 59,949 59,833 46,309 46,205 Accrued interest payable 3,516 3,516 2,366 2,366
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. 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) 40 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS BALANCE SHEETS YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ---- ---- Assets Cash and due from financial institutions $ 1,027 $ 868 Investment in subsidiary 62,739 60,725 Cash surrender value of life insurance contracts 223 213 Other 2,146 2,057 --------- ---------- Total assets $ 66,135 $ 63,863 ========= ========== Total liabilities $ 3,125 $ 3,091 Shareholders' equity 63,010 60,772 --------- ---------- Total liabilities and shareholders' equity $ 66,135 $ 63,863 ========= ==========
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998 ---- ---- ---- Dividends from subsidiaries $ 3,959 $ 3,769 $ 3,355 Other income 187 198 147 Interest expense (198) (197) (198) Other expense (741) (707) (745) ------- ------- ------- Income before income taxes 3,207 3,063 2,559 Income tax benefit (310) (296) (313) Equity in undistributed net income of subsidiaries 1,996 5,466 5,334 ------- ------- ------- Net income $ 5,513 $ 8,825 $ 8,206 ======= ======= =======
- -------------------------------------------------------------------------------- (Continued) 41 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998 ---- ---- ---- OPERATING ACTIVITIES Net income $ 5,513 $ 8,825 $ 8,206 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of subsidiaries (1,996) (5,466) (5,334) Depreciation and amortization 216 216 216 Change in assets (213) (297) (239) Change in liabilities 61 86 126 ------- ------- ------- Net cash from operating activities 3,581 3,364 2,975 INVESTING ACTIVITIES Increase in cash surrender value of life insurance (10) (10) (9) ------- ------- ------- Net cash from investing activities (10) (10) (9) FINANCING ACTIVITIES Dividends paid (3,761) (3,531) (3,118) Proceeds from issuance of common stock 389 157 147 Repayment of debt (40) (40) (50) ------- ------- ------- Net cash from financing activities (3,412) (3,414) (3,021) ------- ------- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS 159 (60) (55) Cash and cash equivalents, beginning of year 868 928 983 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,027 $ 868 $ 928 ======= ======= =======
- -------------------------------------------------------------------------------- (Continued) 42 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 15 - OTHER COMPREHENSIVE INCOME Other comprehensive income components were as follows. 2000 1999 1998 ---- ---- ---- Unrealized holding gains and losses on securities available for sale, net of tax $ 69 $ (112) $ (6) Less reclassification adjustments for gains and losses later recognized in income, net of tax - - - ------- -------- ------ Other comprehensive income $ 69 $ (112) $ (6) ======= ======== ===== 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 2000 Banking Segments Total - ---- ------- -------- ----- 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 ======== ======== ======== - -------------------------------------------------------------------------------- (Continued) 43 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 17 - SEGMENT INFORMATION (Continued)
Other Total 1999 Banking Segments Segments - ---- ------- -------- -------- 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 ======== ======== ======== 1998 - ---- Net interest income $ 26,661 $ 5,559 $ 32,220 Provision for loan loss 1,469 1,948 3,417 Noninterest income 3,266 1,289 4,555 Noninterest expense 15,767 4,695 20,462 Income tax expense 4,617 73 4,690 -------- -------- -------- Segment profit $ 8,074 $ 132 $ 8,206 ======== ======== ======== Segment assets $522,985 $ 45,194 $568,179 ======== ======== ========
NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Presented below is a summary of the consolidated quarterly financial data:
For the three months ended Summary of Operations 3/31/00 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 1.59 1.39 1.41 (0.34) Diluted earning per share 1.57 1.38 1.40 (0.34) Dividends per common share 0.60 0.60 0.60 0.96 Average common shares outstanding 1,360,431 1,361,961 1,362,529 1,363,667 Average common shares outstanding - diluted 1,371,637 1,372,611 1,374,139 1,374,775
- -------------------------------------------------------------------------------- (Continued) 44 GREENE COUNTY BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except share and per share data) December 31, 2000, 1999 and 1998 - -------------------------------------------------------------------------------- NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)
For the three months ended Summary of Operations 3/31/99 6/30/99 9/30/99 12/31/99 --------------------- ------- ------- ------- -------- Interest income $ 13,628 $ 13,610 $ 13,692 $ 14,299 Net interest income 8,954 8,602 8,908 9,023 Provision for loan losses 801 762 811 759 Income before income taxes 4,261 3,339 3,980 2,495 Net income 2,655 2,288 2,413 1,469 Basic earnings per share 1.96 1.68 1.78 1.08 Diluted earning per share 1.94 1.67 1.76 1.07 Dividends per common share 0.56 0.56 0.56 0.92 Average common shares outstanding 1,357,861 1,357,986 1,358,189 1,358,680 Average common shares outstanding - diluted 1,367,044 1,368,309 1,368,679 1,369,343
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. - -------------------------------------------------------------------------------- (Continued) 45 MARKET AND DIVIDEND INFORMATION There are 1,363,778 shares of Common Stock outstanding and approximately 1,870 shareholders of record of the Common Stock as of March 30, 2001. 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) ----------- ------------ 2000: First quarter $150.00 $0.60 Second quarter 150.00 0.60 Third quarter 160.00 0.60 Fourth quarter 160.00 0.96 ---- $2.76 1999: First quarter $125.00 $0.56 Second quarter 135.00 0.56 Third quarter 145.00 0.56 Fourth quarter 150.00 0.92 ---- $2.60 - --------------------- (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" in this Annual Report. See also Note 10 of Notes to Consolidated Financial Statements. 46 CORPORATE INFORMATION DIRECTORS ---------
Ralph T. Brown, Chairman of the Board James A. Emory, Director Retired dentist Retired; former President, J.A.E. Foods, Inc. (restaurant management) Phil M. Bachman, Director Jerald K. Jaynes, Director President, Bachman-Bernard Motors Retired; former President and Chief (automobile dealer) Executive Officer, Unmake Co., Inc. (manufacturing) Charles S. Brooks, Director Terry Leonard, Director Chairman of the Board, McInturff, Owner/Operator Leonard & Associates Milligan & Brooks (insurance agency) (manufacturing) Bruce Campbell, Director H.J. Moser, III, Director President and Chief Operating Officer, President, Tennessee Valley Resources, Inc. (limestone and sand Forward Air Corporation (transportation) distribution company) W.T. Daniels, Director R. Stan Puckett, President, Property Manager Chief Executive Officer and Director Greene County Bancshares, Inc J.W. Douthat, Director* Davis Stroud, Director and Secretary Retired; former President, Tri State Retired; former Executive Vice President Tractor & Turf Greene County Bancshares, Inc. Charles H. Whitfield, Jr., Director President and Chief Executive Officer, Laughlin Memorial Hospital (hospital management)
* Mr. Douthat is retiring from the Board of Directors effective at the 2001 Annual Meeting of Shareholders. ---------- DIRECTORS EMERITUS ------------------ Helen Horner Dr. Nathan Horner Harrison Lamons ---------- OFFICERS -------- R. Stan Puckett, President and Chief Executive Officer William F. Richmond, Senior Vice President and Chief Financial Officer ---------- ANNUAL MEETING -------------- The 2001 Annual Meeting of Shareholders will be held at 11:00 a.m., local time, on Wednesday, April 25, 2001 at the General Morgan Inn, 111 North Main Street, Greeneville, Tennessee. ---------- ANNUAL REPORT ON FORM 10-K -------------------------- A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE FOR THE 2001 ANNUAL MEETING UPON WRITTEN REQUEST TO THE SECRETARY, GREENE COUNTY BANCSHARES, INC., 100 NORTH MAIN STREET, GREENEVILLE, TENNESSEE 37743. 47 EX-21 4 gcb10k12312000ex21.txt EXHIBIT 21 SUBSIDIARY OF GREENE COUNTY BANK EXHIBIT 21 SUBSIDIARY OF THE REGISTRANT Percentage Owned State of Incorporation ---------------- ---------------------- Greene County Bank 100% Tennessee SUBSIDIARIES OF GREENE COUNTY BANK Superior Financial Services, Inc. 100% Tennessee GCB Acceptance Corporation 100% Tennessee Fairway Title Company 100% Tennessee EX-23 5 gcb10k12312000ex231.txt EXHIBIT 23.1 CONSENT OF PRICEWATERHOUSECOOPERS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-08609) of Greene County Bancshares, Inc. of our report dated January 28, 2000 relating to the consolidated financial statements, which is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Knoxville, Tennessee March 29, 2001 EX-23 6 gcb10k12312000ex232.txt EXHIBIT 23.2 CONSENT OF CROWE, CHIZEK EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Form S-8 Registration Statement No. 333-08609 of Greene County Bancshares, Inc. of our report dated January 18, 2001 on the consolidated financial statements of Greene County Bancshares, Inc. as of December 31, 2000 and for the year then ended as included in the registrant's annual report on Form 10-K. /s/ Crowe, Chizek and Company LLP Louisville, Kentucky March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----