<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

For fiscal year ended December 31, 1995.
Commission File Number 0-14289

                         GREENE COUNTY BANCSHARES, INC.

             (Exact name of Registrant as specified in its charter)

          Tennessee                                        62-1222567
State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                       Identification Number)

      Main & Depot Street
    Greeneville, Tennessee                                      37743
     (Address of principal                                    (Zip Code)
      executive offices)

Registrant's telephone number, including area code 423/639-5111

Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock, par value $10 per share
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.

Yes   X           No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ].




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The aggregate market value (computed on the basis of the most recent trades of
which the Registrant was aware) of shares of the Common Stock ($10 par value
per share) held by non-affiliates of the Registrant as of March 1, 1996 was
$67,012,810.

The number of shares outstanding of the issuer's common stock as of March 1,
1996: Common Stock, $10 Par Value--442,492 shares.


                     Documents Incorporated by Reference

List hereunder the following documents if incorporated by reference and the
part of the Form 10-K into which the document is incorporated:

        1.  Those portions of the Proxy Statement to be dated and mailed to
            stockholders of Greene County Bancshares, Inc. on or before May 3,
            1996 ("1996 Proxy Statement") incorporated herein by reference in
            Part III, Items 9, 10, 11, 12 and 13.
 

<PAGE>   3



                                     PART I

ITEM 1.           BUSINESS

General. Greene County Bancshares, Inc. (the "Registrant" or "Company") was
organized under Tennessee law and incorporated on January 18, 1985, in order to
acquire 100% of the common stock of the Greene County Bank of Greeneville,
Tennessee.

Organization. The Registrant commenced business on July 16, 1985. The
acquisition of Greene County Bank ("GCB") also was consummated on that date. A
detailed description of that transaction is contained in the Registrant's
Registration Statement on Form S-14 (No. 2-96273), which was previously filed
with the Commission.

Greene County Bank was established in 1890 as a Tennessee state chartered bank.
At December 31, 1995, it had total assets of $342,095,784 and reported net
income for the year then ended of $4,459,643. As a commercial bank, Greene
County Bank provides complete banking services which include checking and
savings accounts for individuals, partnerships, corporations, municipalities,
banks and others, business, real estate, interim construction, personal and
installment loans, trust services, collection services, safe deposit box
facilities, and a number of special services. At December 31, 1995, Greene
County Bank had seven full service banking offices located in Greene County,
Tennessee; two full service banking offices located in Washington County,
Tennessee; and full service banking offices located in Hamblen County, Sullivan
County, and Hawkins County, Tennessee. The Registrant owns 100% of the stock of
Greene County Bank.

On November 3, 1989, the Registrant acquired American Fidelity Bank ("American
Fidelity" or "AFB"), a Tennessee banking corporation located at 325 Joule,
Alcoa, Tennessee 37701. American Fidelity is a wholly owned subsidiary of the
Registrant. A detailed description of the AFB acquisition transaction is
contained in the Registrant's Registration Statement on Form S-4 (No. 33-30102),
which was previously filed with the Commission.

American Fidelity is a Tennessee state chartered banking corporation organized
in 1977. At December 31, 1995, it had total assets of $78,790,469 and reported
net income for the year then ended of $725,031. American Fidelity also offers
the customary banking services provided by most full service banks. American
Fidelity does not operate a trust department. American Fidelity conducts its
business from a main office located in Alcoa, Tennessee and two branch offices,
one located in Maryville, Tennessee and another in Knoxville, Tennessee. The
Registrant owns 100% of the stock of American Fidelity.

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On November 17, 1995, Greene County Bank purchased a branch location in Bulls
Gap, Tennessee from First Union National Bank of Tennessee. The transaction
involved the assumption of deposits and the acquisition of the real estate and
fixed assets. The branch opened for business on November 20, 1995 as the "Bank
of Bulls Gap, a Greene County Bank office," and will be operated as a branch of
Greene County Bank. The purchase entailed the assumption of approximately $14.2
million of deposits, consisting of $1.2 million demand deposit accounts ("DDA"),
$2.3 million N.O.W. accounts, $2.7 million savings accounts, $.8 million
individual retirement accounts ("IRA"), and $7.1 million in certificates of
deposit. A premium of 5.5% was paid for the deposits acquired, which totaled
$780,763. The premium will be amortized over a 15 year period. The real property
was acquired for approximately $149,000 and the fixed assets for approximately
$13,000, both of which will be depreciated according to generally accepted
accounting practices.

On January 1, 1996, the Company acquired 100% of the stock of Premier
Bancshares, Inc. ("Premier"), a one-bank holding company for Premier Bank of
East Tennessee, Niota, Tennessee ("Premier Bank"). As of the acquisition date,
Premier had assets of approximately $24.2 million, deposits of approximately
$22.0 million, debt and other liabilities of approximately $.5 million, and
capital of approximately $1.7 million. The purchase price of Premier was
$3,140,000, consisting of cash of $708,582 and the Company's promissory notes to
the sellers in the aggregate principal amount of $2,432,218, plus $230,000 for
non-compete agreements with the sellers. The transaction was accounted for as a
purchase, and will result in the recording of a core deposit intangible of
approximately $1.1 million, goodwill of approximately $1.3 million, and an
increase to deferred tax and other liabilities of approximately $.7 million.
Amortization of the intangibles, net of tax, will be approximately $173,000
annually over the next ten years. The Company is taking the necessary steps to
merge Premier Bancshares, Inc. into the Company since Premier now has no assets
other than the stock of Premier Bank; and, the Company expects to complete that
transaction on or before March 31, 1996. The result of this transaction will be
that the stock of Premier Bank will then be 100% owned by the Company.

Responsibility for the management of each subsidiary bank, including GCB, AFB
and Premier Bank (collectively the "Subsidiary Banks"), resides with the Board
of Directors and officers of each Subsidiary Bank. Management services rendered
to each Subsidiary Bank by the Company are intended to supplement the internal
management of each Subsidiary Bank and to expand the scope of banking services
normally offered by each Subsidiary Bank.

Regulation and Supervision.

The Company.  The Company is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the
"Act"), and is registered with the Board of Governors of the

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Federal Reserve System (the "Board"). The Company is required to file with the
Board quarterly reports and such additional information as the Board may require
pursuant to the Act.

The Act requires every bank holding company to obtain the prior approval of the
Board before acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank or bank holding company which is not majority
owned by the Company. The Act provides that the Board shall not approve any
acquisition, merger or consolidation which would result in a monopoly or which
would be in furtherance of any combination or conspiracy to monopolize the
business of banking or any other transaction, the effect of which might be to
substantially lessen competition or in any manner be a restraint on trade,
unless the anti-competitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served.

The Act also prohibits a bank holding company, with certain exceptions, from
engaging in, or acquiring more than 5% of the voting stock of any company
engaging in activities other than banking or managing or controlling banks or
furnishing services to or performing services for their subsidiaries. In making
such determination, the Board is required to consider whether the performance of
such activities by a bank holding company or its subsidiaries can reasonably be
expected to produce benefits to the public such as greater convenience,
increased competition or gains in efficiency of resources, versus the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest or unsound banking practices.

The Subsidiary Banks. As state member banks with deposits issued by the FDIC,
the Subsidiary Banks of the Company are subject to the supervisory and
regulatory authority of the FDIC and the Tennessee Department of Financial
Institutions.

At December 31, 1995, Greene County Bank and American Fidelity could pay
dividends aggregating approximately $8,389,000, without obtaining prior approval
from the bank regulatory authorities.

Transactions with Affiliates. There are various legal restrictions on the extent
to which the Company and any future nonbank subsidiaries can borrow or otherwise
obtain credit from the Subsidiary Banks. There also are legal restrictions on
the Subsidiary Banks' purchase of or investments in the securities of and
purchases of assets from the Company and any of its future nonbank subsidiaries,
a bank's loans or extensions of credit to third parties collateralized by the
securities or obligations of the Company and any of its future nonbank
subsidiaries, the issuance of guaranties, acceptances and letters of credit on
behalf of the Company and any of its future nonbank subsidiaries, and certain
bank transactions with the Company and any of its future

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nonbank subsidiaries, or with respect to which the Company and nonbank
subsidiaries, act as agent, participate or have a financial interest. Subject to
certain limited exceptions, the Subsidiary Banks may not extend credit to the
Company or to any other affiliate in an amount which exceeds 10% of the
Subsidiary Bank's capital stock and surplus and may not extend credit in the
aggregate to such affiliates in an amount which exceeds 20% of its capital stock
and surplus. Further, there are legal requirements as to the type, amount and
quality of collateral which must secure such extensions of credit transactions
between the Subsidiary Bank and the Company or such other affiliates, and such
transactions must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
Subsidiary Bank as those prevailing at the time for comparable transactions with
non-affiliated companies. Also, the Company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.

Capital Adequacy. The federal banking agencies have adopted risk- based capital
guidelines for banks and bank holding companies. The minimum guideline for the
ratio of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%, and
the minimum ratio of Tier I Capital must be composed of common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill and certain other intangible assets ("Tier I Capital"). The
remainder may consist of subordinated debt, other preferred stock and a limited
amount of loan loss reserves.

In addition, the federal banking agencies have established minimum leverage
ratio guidelines for banks and bank holding companies. Their guidelines provide
for a minimum ratio of Tier I Capital to average assets, less goodwill and
certain other intangible assets (the "Leverage Ratio"), of 3% for banks that
meet certain specific criteria, including having the highest regulatory rating.
All other banks generally are required to maintain a Leverage Ratio of at least
3%, plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that banks experiencing internal growth or making acquisitions will be
expected to maintain a strong capital position substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"Tangible Tier I Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.

Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies,including the termination of deposit insurance by the FDIC,
and to certain restrictions on its business. See "FDICIA."

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All the federal banking agencies have proposed regulations that would add an
additional risk-based capital requirement based upon the amount of an
institution's exposure to interest rate risk. In addition, bank regulators
continue to indicate their desire generally to raise capital requirements
applicable to banking organizations beyond their current levels. However, the
management of the Subsidiary Banks is unable to predict whether and when higher
capital requirements would be imposed and,if so, at what levels and on what
schedule.

FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") which was enacted on December 19, 1991, substantially revised the
depository institution regulatory and funding provisions of the FDIA and made
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of FDIC-insured depository institutions that do not meet minimum capital
requirements. FDICIA established five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under applicable regulations, a FDIC-insured
depository institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk adjusted Tier I Capital Ratio of at least
6% and a Total Capital Ratio of at least 10% and is not subject to a directive,
order or written agreement to meet and maintain specific capital levels. An
insured depository institution is defined to be adequately capitalized if it
meets all of its minimum capital requirements as described above. In addition,
an insured depository institution will be considered undercapitalized if it
fails to meet any minimum required measure, significantly undercapitalized if it
is significantly below any such measure, and critically undercapitalized if it
fails to maintain a level of tangible equity equal to not less than 2% of total
assets. An insured depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.

The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institution.
However, the Federal Reserve has indicated that, in regulating bank holding
companies, it will take appropriate action at the holding company level based on
an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.
Although the capital categories defined under the prompt corrective action
regulations are not directly applicable to the Company under existing law and
regulations, if the Company were placed in a capital category, the Company
believes that it would qualify as "well capitalized" as of December 31, 1995.

FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of

                                       -5-


<PAGE>   8



dividends) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. Undercapitalized depository
institutions are subject to restrictions on borrowing from the Federal Reserve.
In addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.

FDICIA contains numerous other provisions, including new accounting, audit and
reporting requirements, termination of the "too big to fail" doctrine except in
special cases, limitations on the FDIC's payment of deposits at foreign
branches, new regulatory standards in such areas as asset quality, earnings and
compensation and revised regulatory standards for, among other things, powers of
state banks, real estate lending and capital adequacy. FDICIA also requires that
a depository institution provide 90 days prior notice of the closing of any
branches. Complete regulations have not yet been issued under FDICIA.

Various other legislation, including proposals to revise the bank regulatory
system and to limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress.

FDIC Insurance Premiums. The Subsidiary Banks are required to pay semiannual
FDIC deposit insurance assessments. However, the FDIC has recently lowered
assessment rates in recognition of the fact that the Bank Insurance Fund has
achieved its legally mandated reserve ratio. Under the new rate structure, the
most financially sound banks have had their assessment lowered from 23 cents per
$100 of insured deposits to 4 cents per $100 of insured deposits. Banks that
overpaid assessments during the first half of the year have received appropriate
refunds. Each financial institution is assigned to one of three capital groups
-- well capitalized, adequately capitalized or undercapitalized -- and further
assigned to one of three subgroups with a capital group, on the basis of
supervisory evaluations by the institution's primary federal and,

                                       -6-


<PAGE>   9



if applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable FDIC
deposit insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC.

The FDIC is authorized by federal law to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the
Subsidiary Banks and the Company's earnings.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.

Interstate Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Interstate Act"), which was enacted on September 29, 1994, among other
things and subject to certain conditions and exceptions, (i) permits bank
holding company acquisitions, commencing one year after enactment, of banks of a
minimum age of up to five years as established by state law in any state, (ii)
permits mergers of national and state banks after May 31, 1997 across state
lines unless the state has opted out of the interstate bank merger provisions,
(iii) permits branching de novo by national and state banks into other states if
the state has opted-in to this provision of the Interstate Act, and (iv) permits
certain interstate bank agency activities one year after enactment. Regulations
have not yet been issued under the Interstate Act.

Regulatory proposals have been discussed and proposed by governmental
authorities and bills pertaining to such proposals have been and are expected to
be introduced in Congress. At this time the Company cannot reasonably estimate
the effect any proposals will have on it or its subsidiaries.

Market Analysis

The market area of the Company, consisting of Greene, Hamblen, Hawkins,
Washington, Sullivan, Blount and Knox counties, Tennessee, has taken on a global
nature in recent years. Many foreign firms have made significant investments in
the area.

The Greene County market area unemployment rate increased from 5.2% in the third
quarter of 1994 to 5.4% in the third quarter of 1995. During the third quarter
of 1995, the market area's unemployment rate was higher than the state
unemployment rate of 5.3%, but lower than the national unemployment rate of
5.6%, and Washington County had an unemployment rate of 4.2%.

Year end unemployment rates by county are: Greene 7.4% (up above 11% in January,
'96), Hamblen 3.5%, Hawkins 4.3%, Washington 3.0%, Sullivan 3.0%, Knox 2.6% and
Blount 3.9%.

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Greene, Hamblen, Hawkins, Washington and Sullivan Counties had an estimated
total population at January 1, 1995 of approximately 297,500. Retail sales
totaled approximately $3 billion during 1994. At January 1, 1995, Knox and
Blount Counties had an estimated total population of 455,000. Retail sales
totaled approximately 5.4 billion during 1994. (Source: 1995 Survey of Buying
Power).

Of the goods producing employment sector, construction and mining employment
increased by a strong 8.3%. New contracts for nonresidential construction in the
market area was up 2.6% for the first three quarters of 1995 compared to the
first three quarters of 1994. Durable goods manufacturing employment was up
4.3%. However, non-durable goods manufacturing employment decreased after two
quarters of growth. Goods producing employment remained steady this quarter,
increasing by 1.6%.

The service producing employment sector fared well during the third quarter of
1995 when compared to the third quarter of 1994. Government, finance, and real
estate, and service industries employment all had growth over 5%. Trade
employment increased by almost as much, increasing by 4.9%. Only transportation,
communication, and public utilities employment had a decrease in employment in
the service sector producing employment sector. However, the sector had over 20%
growth in 1994.

Trade activity indicators were mixed during the third quarter of 1995 when
compared to the third quarter of 1994. Retail sales continued to be strong for
the third quarter of 1995, despite the fact that its growth was less than half
what it was in the second quarter of 1995. Realty and mortgage fees increased
for the first time since the third quarter of 1994.

Competition

The banking industry is highly competitive. The Company, through its
subsidiaries, competes with other banks for both loans and deposits. Other
financial institutions, including savings and loan associations and credit
unions, also compete with the Company's subsidiaries for depository accounts and
loans.

In the following paragraphs, reference is made to the Company's competitive
position as measured in terms of deposits and total assets as of December 31,
1995. Any such reference is intended solely as a method of placing the
competition in perspective as of that particular date. Due to the intense
competition in the banking business, the Company makes no representation that
its competitive position has remained constant, nor can it predict whether its
position will change in the future.

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On December 31, 1995, Greene County Bank had total deposits of $296,990,975 and
total assets of $342,095,784. As such, Greene County Bank ranked as the largest
financial institution in its market area, generally considered to be Greene
County, Tennessee. In Greene County, there are seven commercial banks, operating
24 branches and holding an aggregate of approximately $547,902,000 in deposits
as of June 1995. Greene County Bank currently is ranked first in Greene County
in terms of deposits and total assets, holding approximately 45% of deposits. In
the surrounding counties of Washington, Sullivan, Hamblen and Hawkins, Greene
County Bank's market share does not exceed 5% of total deposits.

On December 31, 1995, American Fidelity had total deposits of $70,919,384 and
total assets of $78,790,469. American Fidelity's primary market area is
comprised of the City of Alcoa, Tennessee, the City of Maryville, and Blount and
southern Knox Counties. American Fidelity competes primarily with five
commercial banks, two of which are subsidiaries of the largest bank holding
companies located in Tennessee. American Fidelity currently is ranked fourth in
its market area in terms of both total deposits and total assets, holding
approximately 5% of the market.

Sources and Availability of Funds. The resources essential to the business of
the Company and its subsidiary banks consist primarily of funds derived from
deposits and repurchase agreements and long-term debt. The Company's banking
subsidiaries use these funds to make loans and to fund their respective
investment portfolios. The availability of such funds is primarily dependent
upon the economic policies of the government, the economy in general and access
to traditional funding sources for commercial banks.

Monetary Policy and Economic Controls. The earnings of the Company's banking
subsidiaries, and therefore, to a large extent the earnings of the Company, are
affected by the policies of regulatory authorities, including the Federal
Reserve System. An important function of the Federal Reserve System is to
regulate the national supply of bank credit in order to combat recession and
curb inflation. Among the instruments used to attain these objectives are open
market operations in U. S. Government securities and changes in the reserve
requirements applicable to member bank deposits. These instruments are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use also may affect interest rates charged
on loans or paid for deposits.

Policies of the regulatory agencies have had a significant effect on the
operating results of commercial banks in the past and are expected to do so in
the future. The effect, if any, of such policies upon the future business and
income of the Company and its bank subsidiaries cannot be predicted with
accuracy.

Research.  The Company makes no expenditures for research and
development.

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Personnel. The Company and its banking subsidiaries employed approximately 182
persons on a full-time equivalent basis at December 31, 1995.

Dependence Upon a Single Customer. Neither the Company nor the Subsidiary Banks
are dependent upon a single customer or very few customers.

ITEM 2.           PROPERTIES

Banking Facilities. The Company's offices are located in Greene County Bank's
main office at Main and Depot Streets in the downtown area of Greeneville,
Tennessee. Greene County Bank has a main office and ten branch offices. Its
primary business location is Greeneville, Tennessee, the county seat of Greene
County. Greeneville has a population of approximately 15,000 and the Greene
County population is approximately 58,000.

Greene County Bank owns the building and land of its main office and the
Baileyton, Parkway, Tusculum, Hawkins County and one of the Washington County
Branches. The buildings of the Mosheim, Towne Square, West Greene and Hamblen
County Branches are owned by Greene County Bank, but the underlying real estate
is leased. The spaces in the Wal-Mart Superstores in Washington and Sullivan
Counties are leased. The leases range in remaining terms from 5 years to 30
years.

The location and general character of each of the branch offices are as follows:
<TABLE>
<CAPTION>

NAME                               LOCATION                   CHARACTER

<S>                       <C>                                <C>         
Baileyton Branch          Interstate 81, Exit 36             1650 Sq. Ft.
                          Baileyton, TN                      1 story-
                                                             brick veneer

Parkway Branch            11E Bypass & Taylor Rd.            1820 Sq. Ft.
(with ATM)                Greeneville, TN                    1 story-
                                                             brick veneer

Mosheim Branch            11E & Spring Street                1694 Sq. Ft.
(with ATM)                Mosheim, TN                        1 story-
                                                             brick veneer

Towne Square              Towne Square Shopping              3600 Sq. Ft.
Branch                    Center                             1 story-

                          Greeneville, TN                    brick

Tusculum Branch           Eastgate Shopping Center           3583 Sq. Ft.
(with ATM and             Greeneville, TN                    1 story-
detached drive                                               wood and
through windows)                                             brick
</TABLE>


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<PAGE>   13


<TABLE>
<S>                       <C>                                <C>         
West Greene               West Greene Shopping               2080 Sq. Ft.
Branch (with ATM)         Center                             1 story-
                          Greeneville, TN                    brick veneer

Washington County         410 North Boone Street             3127 Sq. Ft.
Branch                    Jonesborough, TN                   1 story-
(with ATM)                                                   brick veneer

Washington County         3111 Brown Mill Road               750 Sq. Ft.
Branch                    Johnson City, TN                   inside
(with ATM)                                                   Wal-Mart
                                                             Superstore

Hamblen County            1908 West AJ Highway               900 Sq. Ft.
Branch                    Morristown, TN                     1 story-
(with ATM)                                                   brick veneer

Sullivan County           3200 Fort Henry Dr.                750 Sq. Ft.
Branch                    Kingsport, TN                      inside
(with ATM)                                                   Wal-Mart
                                                             Superstore

Hawkins County            105 N. Main St.                    4500 Sq. Ft.
Branch                    Bulls Gap, TN                      2 story-
                                                             brick veneer
</TABLE>

American Fidelity has three locations from which normal banking activities are
conducted. ATM's are located at the main office location. American Fidelity owns
its main office facilities. The Maryville Branch land and building is owned by
the Company. The Knoxville Branch location is leased.
<TABLE>
<CAPTION>
NAME                      LOCATION                           CHARACTER
<S>                       <C>                                <C>    
Main Office               325 Joule Street                   4400 sq. ft.
                          Alcoa, Tennessee                   2 stories -
                                                             brick veneer

Maryville Branch          403 Foothills Mall Road            2800 sq. ft.
                          Maryville, Tennessee               1 story -
                                                             brick veneer

Knoxville Branch          11130 Kingston Pike                386 sq. ft.
                          Farragut, Tennessee                inside the
                                                             Red Food
                                                             Store
</TABLE>

ITEM 3.           LEGAL PROCEEDINGS

The nature of the Company's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. None of the legal
proceedings currently pending or threatened to which the Company or its banking
subsidiaries is or may be made a party or of which any of their properties is
subject,

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<PAGE>   14



is reasonably likely to have, in the opinion of management of the Company, any
material adverse effect on the Company's liquidity, capital, results of
operations or cash flows.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the fourth quarter of
1995.

                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                  STOCKHOLDER MATTERS

As of December 31, 1995, there were 1,351 holders of the Company's Common Stock.
There is no established trading market for shares of the Company's Common Stock.
The Company has information regarding 95 transactions involving 7,514 shares of
the Company's common stock in which the stock traded for prices ranging from
$170 to $190 per share during the twelve months ended December 31, 1995, not
including sales of 5,009 shares of the Company's common stock which are subject
to a rescission offer.

Holders of the Company's Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company paid cash dividends of $4.60 and $4.06 per share
during 1995 and 1994, respectively. Any cash dividends to be paid by the
subsidiary banks will be paid to the Company as the sole shareholder of the
subsidiary banks. No representations can be made as to if or when the subsidiary
banks will pay cash dividends in the future. The Company's ability to pay
dividends to its shareholders depends on the amount of dividends paid to the
Company by the subsidiary banks. Although the Company expects to pay cash
dividends in the future comparable to the dividends paid in the prior two years,
as a result of the Company's dependence on the subsidiary banks, management
cannot represent with certainty that the Company will pay dividends in the
future or the amount of such dividends, if any.

                                      -12-


<PAGE>   15



ITEM 6.           SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
====================================================================================================
                 GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                   SUMMARY OF EARNINGS AND FINANCIAL CONDITION
                         FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------------------
                                           (In thousands of dollars, except per share data)
----------------------------------------------------------------------------------------------------
                                  1995            1994          1993            1992           1991
                                  ----            ----          ----            ----           ----
----------------------------------------------------------------------------------------------------
<S>                              <C>            <C>            <C>            <C>            <C>    
Total revenue from earning       $31,491        $23,625        $21,638        $21,414        $23,002
assets
----------------------------------------------------------------------------------------------------
Total interest expense            13,444          8,497          8,197          8,774         11,850
----------------------------------------------------------------------------------------------------
Net revenue from earning          18,047         15,128         13,441         12,641         11,152
assets
----------------------------------------------------------------------------------------------------
Provision for loan losses          1,424            994            834          1,611          1,256
----------------------------------------------------------------------------------------------------
Net revenue from earning          16,623         14,134         12,607         11,136          9,896
assets after provision for
loan losses
----------------------------------------------------------------------------------------------------
Add:
----------------------------------------------------------------------------------------------------
 Investment securities                 0              0             15             74             24
 gains (losses)
----------------------------------------------------------------------------------------------------
 Other revenue                     2,959          2,538          1,951          1,291            993
----------------------------------------------------------------------------------------------------
Subtract:
----------------------------------------------------------------------------------------------------
 Operating expenses               11,722          9,660          8,035          6,877          6,136
----------------------------------------------------------------------------------------------------
Income before income taxes         7,860          7,011          6,538          5,518          4,777
----------------------------------------------------------------------------------------------------
Applicable income taxes            2,752          2,510          2,221          1,763          1,227
----------------------------------------------------------------------------------------------------
Net income before                  5,108          4,501          4,317        $ 3,755        $ 3,550
accounting change
----------------------------------------------------------------------------------------------------
 Accounting change                     0              0             52              0              0
----------------------------------------------------------------------------------------------------
Net income                       $ 5,108        $ 4,501        $ 4,265        $ 3,755        $ 3,550
                                 =======          =====          =====         ======         ======
----------------------------------------------------------------------------------------------------
Per Share Data:
----------------------------------------------------------------------------------------------------
 Net income                      $ 11.45        $ 10.16        $  9.56        $  8.41        $  7.95
----------------------------------------------------------------------------------------------------
 Dividends declared              $  4.60        $  4.06        $  3.67        $  3.22        $  3.00
----------------------------------------------------------------------------------------------------
 Book value                      $ 92.83        $ 84.06        $ 79.27        $ 73.96        $ 68.77
----------------------------------------------------------------------------------------------------
Selected Ratios:
----------------------------------------------------------------------------------------------------
 Return on average assets           1.35%          1.38%          1.41%          1.38%          1.40%
----------------------------------------------------------------------------------------------------
 Return on average equity          13.17%         12.32%         12.35%         11.54%         12.27%
----------------------------------------------------------------------------------------------------
 Average equity to average         10.24%         11.17%         11.43%         11.89%         11.44%
 assets
----------------------------------------------------------------------------------------------------
 Ratio of allowance for           239.16%        264.14%         80.37%        114.90%        111.97%
 loan losses to
 nonperforming loans
----------------------------------------------------------------------------------------------------
</TABLE>


                                      -13-


<PAGE>   16



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>             <C>             <C>             <C>     
 Ratio of allowance for               1.55%           1.39%           1.54%           1.35%           1.04%
 loan losses to total loans
----------------------------------------------------------------------------------------------------------
Financial Condition Data:
----------------------------------------------------------------------------------------------------------
 Assets                           $420,581        $345,525        $313,577        $288,713        $267,895
----------------------------------------------------------------------------------------------------------
 Loans, net                       $293,834        $241,253        $192,127        $179,011        $170,002
----------------------------------------------------------------------------------------------------------
 Cash and investment              $ 83,998        $ 85,460        $ 99,815        $ 92,966        $ 72,336
 securities
----------------------------------------------------------------------------------------------------------
 Federal funds sold               $ 23,800        $  3,550        $  8,270        $  6,465        $ 16,833
----------------------------------------------------------------------------------------------------------
 Deposits                         $365,951        $298,162        $267,281        $245,647        $227,416
----------------------------------------------------------------------------------------------------------
 Long term debt                   $  3,448        $  3,688        $  3,914            --             --   
----------------------------------------------------------------------------------------------------------
 Other borrowed funds             $  8,232        $  7,566        $  9,558        $  7,775        $  7,400
----------------------------------------------------------------------------------------------------------
Shareholders' equity              $ 41,074        $ 37,190        $ 35,046        $ 33,033        $ 30,716
==========================================================================================================
</TABLE>


                                      -14-


<PAGE>   17



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of financial condition and
results of operations of Greene County Bancshares, Inc. and subsidiaries (the
"Company") for each of the fiscal years in the three year period ended December
31, 1995. The Company is not aware of any recommendations by the regulatory
authorities which, if implemented, would have a material effect on the issuer's
liquidity, capital resources or operations.

For a complete understanding of this discussion, reference should be made to the
Company's audited financial statements, the accompanying notes and the selected
financial data presented elsewhere in this Form 10-K.

Earnings

The following table highlights certain key financial operating statistics for
the three years ended December 31, 1995:
<TABLE>
<CAPTION>
=============================================================================================================================
                                         1995                 1994                 1993
---------------------------------------------------------------------------------------
<S>                             <C>                  <C>                  <C>          
Net Income                      $   5,108,440        $   4,501,396        $   4,264,909
---------------------------------------------------------------------------------------
Earnings Per Share              $       11.45        $       10.16        $        9.56
---------------------------------------------------------------------------------------
Return on Average Assets                 1.35%                1.38%                1.41%
---------------------------------------------------------------------------------------
Return on Average Equity                13.17%               12.32%               12.35%
---------------------------------------------------------------------------------------
Dividend Payout Ratio                   40.17%               39.89%               38.41%
---------------------------------------------------------------------------------------
Average Equity to Average               10.24%               11.17%               11.43%
 Asset Ratio
=======================================================================================
</TABLE>

Greene County Bancshares, Inc. net income for 1995 was $5,108,440,
which represents a 13.4% increase when compared to 1994's net
income of $4,501,396.  Net income for 1994 was a 5.5% increase over
net income of $4,264,909 for 1993.

Net Interest Income

The largest source of earnings for the Company is net interest income, which is
the difference between interest income on interest bearing assets and interest
paid on deposits and other interest bearing liabilities. The primary factors
which affect net interest income are changes in volume and yields of earning
assets and interest bearing liabilities, and the ability to respond to changes
in interest rates through asset/liability management. During 1995 net interest
income after provision for loan losses, was $16,623,418, as compared to
$14,133,817 in 1994, an increase of 17.61%. Net interest income, after provision
for loan losses was $12,607,471 in 1993. The increase in 1995 was attributable
to both rate and volume increases of earning assets. The increases

                                      -15-


<PAGE>   18



for 1994 and 1993 are primarily attributable to increases in volume of earning
assets.

Loans produced the largest component of interest income, contributing
$26,758,857 in 1995, $19,105,995 in 1994, and $16,943,729 in 1993, representing
increases of 40.05% in 1995, and 12.76% in 1994, and 2.77% in 1993. The increase
in 1995 reflects the net effect of growth in the volume and increase in yield of
loans outstanding. In 1995 the average yield on loans increased to 9.84% from
8.89% in 1994. 1993's average yield on loans was 9.20%. At December 31, 1995,
loans, net of unearned income and allowance for loan losses, were $293.9 million
compared to $241.3 million at 1994 year end. The increase is primarily due to
increases in commercial and installment lending. Average loans, net of unearned
interest, for 1995 were $271.9 million, up 26.6% from 1994's average of $214.8
million. The average outstanding loans for 1993 were $184.1 million. The average
growth in loans for the past three years can be attributed to the market
expansion into surrounding counties and indirect financing. Through most of
1995, the prime rate was at its highest level since 1991, prime also increased
during 1994 and was stationary during most of 1993.

Average investment securities for 1995 were $69.0 million, compared to $84.4
million in 1994, and $84.3 million in 1993. In 1995 the average yield on
investments was 5.94%, an increase from 5.09% in 1994 and 5.24% in 1993. Income
provided by the investment portfolio in 1995 was $4,104,976, as compared to
$4,297,561 in 1994, and $4,423,181 in 1993. The decline in growth in investments
from 1994 to 1995 was the result of funding the large loan growth experienced by
the Company. Income provided by federal funds sold totaled $627,135 in 1995,
compared to $221,094 in 1994, and $271,293 in 1993. Average yields on federal
funds sold were 5.42% in 1995, 3.91% in 1994 and 2.94% in 1993.

The increase in interest income from loans for 1995 is attributable to both an
increase in volume and rates. Volume increase can be attributed to the
expansion of market boundaries where additional deposits were attracted. In
1994 the drop in volume is attributed to new branch openings where loan volume
grew faster than deposit volume. Total interest expense for the Company
increased 58.22% in 1995, preceded by an increase of 3.66% in 1994 and a
decrease of 6.57% in 1993. Interest expense consisted primarily of interest
paid on deposits, which totaled $13,016,821 in 1995, $8,030,556 in 1994, and
$7,828,275 in 1993. The Company's average deposit base grew 17.69% in 1995,
8.82% in 1994 and 12.24% in 1993. The average of total deposits increased to
$302.7 million in 1995 from $257.2 million in 1994 and $236.3 million in 1993.
The increases can be attributed to the expansion of market area over the past
three years. The cost of interest bearing deposits increased in 1995 to an
average effective rate of 4.30%, as compared to 3.12% in 1994 and 3.31% in
1993. The cost increase in 1995 is attributed to higher rates for the larger
part of 1995 and to customers locking in rates on longer term time deposits
which historically carry higher rates. The decrease in 1994 of the average cost
of deposits is attributed to customers

                                      -16-


<PAGE>   19



moving into money market and N.O.W. accounts in anticipation of increasing
rates.

The deregulation of interest rates has given banks more opportunity to attract
deposits and has created a public which is more interest rate sensitive. As a
result, banks are paying interest on a continually increasing portion of their
deposit base. Over the last three years, effective rates paid on deposits have
increased as indicated above. Net interest margin, the percentage of net
interest income to average earning assets, was 5.12% in 1995, 4.96% in 1994 and
4.84% in 1993. The Company's ability to maintain a favorable spread between
interest income and interest expense is a major factor in generating earnings;
therefore, it is necessary to effectively manage earning assets and interest
bearing liabilities. As the percentage of interest bearing deposits compared to
total deposits increases and rates become more competitive, it becomes
increasingly more difficult to maintain the Company's spread.

Non-interest Income and Expense

Income that is not related to interest bearing assets, consisting primarily of
service charges, commissions and fees, has become more important as increases in
levels of interest bearing deposits make it more difficult to maintain net
interest income spreads.

Total non-interest income for 1995 was $2,958,697, as compared to $2,538,214 in
1994, and $1,966,548 in 1993. The largest component of non-interest income is
service fees on deposit accounts, which totaled $1,155,621 in 1995, $971,878 in
1994 and $724,517 in 1993. The growth for all periods is attributed to growth in
account volume as there has been no major increase in fees charged on accounts.

Control of operating expense also is an important aspect in managing net income.
Operating expenses include personnel, occupancy, and other expenses such as data
processing, printing and supplies, legal and professional fees, postage, Federal
Deposit Insurance Corporation assessment, etc. Total other operating expenses
were $11,721,414 in 1995, compared to $9,660,313 in 1994 and $8,035,484 in 1993.

Personnel costs are the primary element of the Company's other operating
expenses. In 1995 salaries and benefits represented $5,826,564 or 49.71% of
total other operating expenses. This was an increase of $1,075,972 or 22.65%
over 1994's total of $4,750,592. The 1993 personnel costs were $3,880,038. These
increases in personnel costs can be attributed to opening new branches in an
expanded trade area. The number of employees increased to 182 in 1995 as
compared to 162 in 1994.

Other operating expenses excluding personnel costs in 1995 were $5,894,850, an
increase of $985,129 or 20.06% over 1994's $4,909,721. $341,023 of this change
was due to an increase of furniture and equipment expenses primarily for new
branches that

                                      -17-


<PAGE>   20



were opened. Assessments by the FDIC decreased by $270,358 due primarily to
decreased and eliminated premiums. The deposit insurance premium rate increased
from .12% of deposits in 1990 to .23% for 1991 to mid 1995, at which time it was
lowered to .04% and later abolished entirely. In 1995 the premium paid totaled
$346,501, in 1994 $616,859 and 1993 $554,714.

Earning Assets

Total assets at December 31, 1995 were $420.6 million, an increase of $75.1
million, or 21.7%, over 1994's year end total assets of $345.5 million. Average
assets for 1995 were $378.7 million, an increase of $51.6 million or 15.7% over
1994 average assets of $327.1 million. This increase is the result of normal
growth and was funded by increases in deposits. Return on average assets was
1.35% in 1995, as compared to 1.38% in 1994 and 1.41% in 1993.

Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 1995 were $352.5
million, an increase of 15.61% from an average of $304.9 million in 1994.

Lending

Commercial Loans are generally underwritten by addressing cash flow (debt
service coverage), primary and secondary sources of repayment, strength of
guarantor if any, liquidity, leverage, management experience, ownership
structure, economic conditions and industry specific trends and collateral. The
loan to value ratio depends on the type of collateral. Generally speaking,
accounts receivable are financed at 60% of accounts receivable less than 90 days
past due. If other collateral is taken to support the loan, the loan to value of
accounts receivable may approach 85%. Inventory financing will range between 50%
and 100% depending on the borrower and nature of inventory. The Company's
subsidiary banks require a first lien position.

Commercial Real Estate Loans are generally underwritten by addressing cash flow
(debt service coverage), primary and secondary source of repayment, strength of
guarantor if any, strength of tenant if any, liquidity, leverage, management
experience, ownership structure, economic conditions and industry specific
trends and collateral. Generally, the Company's subsidiary banks will loan 80%
of value of improved property, 65% on raw land and 75% on land development. A
first lien on the property and assignment of lease will be taken if rental
property. Second lien positions are considered on a case by case basis.

Mortgage Installment and Installment Real Estate Loans are generally the 1 - 4
family housing loans and have a loan to value ratio of 85%. These loans are
underwritten by giving consideration to the ability to pay, stability of
employment or source of income, credit history and loan to value.

                                      -18-


<PAGE>   21



Installment Consumer Loans are generally durable goods and short term consumer
financing. In general, loan to value is in the range of 80%. Debt service to
income should be in the range of 35%.

Other Loans consist primarily of smaller consumer debts of various structure.
Some are secured and others are unsecured. In general, the ability to pay and
demonstrated credit performance guide the underwriting decision.

Provision and Allowance for Loan Losses

Because the loan portfolio represents the Company's largest earning asset, the
Company continually monitors the quality of its loan portfolio. Greene County
Bancshares, Inc. operates in a diverse economy of manufacturing and agriculture
and, accordingly, most loans are made to commercial enterprises or consumers who
are directly supported by these enterprises. In 1995, Greene County Bancshares,
Inc. charged-off $671,962 in loans and recovered $455,778 in charged-off loans.
In 1994 and 1993, the Company charged-off loans, net of recoveries, of $609,226
and $300,766 respectively. The Company's allowance for loan losses increased to
$4,654,234 in 1995 from $3,446,762 in 1994. The allowance for loan losses in
1993 was $3,061,988. These increases are due to an overall increase in the total
loan portfolio.

All loans identified by management or regulatory authorities as losses are
charged-off against the allowance for loan losses. All other loans classified
for regulatory purposes do not require disclosure since in management's opinion
they do not (i) represent or result from trends or uncertainties which
management expects to materially impact future operating results, liquidity or
capital resources, or (ii) represent material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.

Non-performing Loans

Non-performing loans are generally inclusive of non-accrual, classified loans.
The Company's subsidiary banks have a strict policy of placing loans 90 days
delinquent in non-accrual status and charging them off at 120 days past due.
Other loans past due that are extremely well secured and definitely in the
process of collection are carried. The Company's subsidiary banks have
aggressive collection practices in which senior management is much involved.

In the past three years the senior management teams of the subsidiary banks have
aggressively attempted to build loan loss reserves while at the same time
aggressively recognizing and dealing with delinquent problem loans. The ratios
support this effort. The ratio of net charge-offs to average loans outstanding
has declined. This is a combination of aggressively cleaning up the loan
portfolio and loan growth.

                                      -19-


<PAGE>   22



The ratio of allowance for loan losses to non-performing loans is a function of
aggressive charge-off practices and building the reserves for loans. The ratio
depicts a growth from 1:1 to 2:1 over the five year period from December 1991
to December 1995.

The historical ratios of the allowance for loan losses to total loans generally
show an upward trend. The stated goal is to build the loan loss reserve to 2%.
If loans secured by cash, government guaranteed loans and income collected but
not earned are excluded, the 1995 year end ratio of the allowance for loan
losses to total loans approached 1.70%.

The factors and practices discussed above represent management's commitment to
quality asset management and risk assessment. Management knows of no other
potential loan problems that have not been disclosed.

Trends of Non-performing Assets

The general trend in the level of non-accrual loans has been mixed. The period
from 1991 to 1993 generally reflects a downward trend in the level of
non-accruals. This is generally attributed to an improvement in the economy. The
period from 1993 to 1995 reflects an upward trend in the level of non-accruals.
This is primarily due to a change in management emphasis to aggressively
recognizing non-performing loans and placing them in non-accrual status at 90
days past due, if such loans are not well collateralized and in the process of
collection.

From 1991 to 1993 Greene County Bank was heavily invested in non-recourse dealer
paper. This sector was primarily consumer installment and mobile homes, and a
portion of this paper was consistently delinquent. In 1993 three factors
generally helped Greene County Bank reduce its level of past due loans. The
regional economy improved, Greene County Bank's management initiated aggressive
collection practices, and losses were recognized and taken. All of these factors
improved the general level of delinquencies in 1994 and 1995.

Other Real Estate held by the subsidiary banks has declined due to disposing of
commercial properties securing troubled loans from the 1991 recession.

Management internally classifies certain loans as substandard based upon
overall credit quality indicators, such as cash flow concerns, legal issues,
delinquent payment, collateral position and the like. At December 31, 1995,
$2,773,000 in loans were considered substandard by the Company.

Investments

The Company maintains an investment portfolio to provide liquidity and earnings.
Investments at year end 1995 with an amortized cost of $69.9 million had a
market value of $70.3 million. At year end

                                      -20-


<PAGE>   23



1994, investments with an amortized cost of $71.3 million had a market value of
$70.3 million.

In 1993, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires that investments
in certain debt and equity securities be classified as either held to maturity
(reported at amortized cost), trading (reported at fair value with unrealized
gains and losses included in earnings), or available for sale (reported at fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity). SFAS 115 was required to be
implemented for fiscal years beginning after December 15, 1993. Management
adopted SFAS 115 on January 1, 1994 and currently classifies a portion of the
portfolio as available for sale. The adoption of SFAS 115 did not have a
material impact on the subsidiary banks' financial position or results of
operations. (See Note 2 of the consolidated financial statements for a detailed
analysis of the securities.)

Deposits

The funds to support the Company's asset growth over the past three years have
been provided by increased deposits, which were $366.0 million at December 31,
1995. This represents an 22.7% increase from the deposits at year end 1994 of
$298.2 million, which was an increase of 11.6% from year end 1993 deposits of
$245.6 million. The increase is primarily the result of Greene County
Bancshares, Inc.'s aggressive efforts to attract new deposit customers.

In 1995, demand deposit balances increased 19.82% from 1994. 1994's increase was
8.4% compared to 1993. The respective year end balances for these three years
were $27.7 million, $23.1 million and $21.3 million.

Average interest-bearing deposits increased $45.5 million or 17.69% in 1995. In
1994 average interest-bearing deposits increased $20.9 million or 8.8% over
1993. These increases in time deposits reflect the public's increased awareness
of investment alternatives.

Interest paid on deposits in 1995 totaled $13,016,821, reflecting a 4.30% cost
on average interest-bearing deposits of $302.7 million. In 1994, interest of
$8,030,556 was paid at a cost of 3.12% on average deposits of $257.2 million. In
1993, interest of $7,828,275 was paid at a cost of 3.31% on average deposits of
$236.3 million.

Stockholders' Equity and Capital Adequacy

Sufficient levels of capital are necessary to sustain growth and absorb losses.
The Company exceeds all regulatory capital requirements. The Company's primary
source of new capital is undivided profits. Equity capital has been increased
through the retention of earnings by $3,056,248 in 1995, $2,705,578 in 1994 and

                                      -21-


<PAGE>   24



$2,626,941 in 1993. As a percentage, the Company's internal capital generation
rate (net income less dividends declared as a percentage of average
stockholders' equity) was 7.88% in 1995, 7.41% in 1994 and 7.60% in 1993. At
December 31, 1995, stockholders' equity totaled $41.1 million compared to $37.2
million in 1994. The ratio of average shareholders' equity to average total
assets was 10.24%, 11.17% and 11.43% in 1995, 1994 and 1993, respectively.

Retention of sufficient earnings to maintain an adequate capital position that
provides the Company with expansion capabilities is an important factor in
determining dividends. During 1995, the Company paid $2,052,192 in dividends,
versus $1,795,818 in 1994 and $1,637,968 in 1993. As a percentage of net income,
dividends were 40.17% in 1995, 39.89% in 1994 and 38.41% in 1993.

The Federal Reserve Board, the FDIC and other agencies which regulate financial
institutions have adopted capital adequacy standards applicable to financial
institutions. These standards are intended to reflect the degree of risk
associated with both on and off balance sheet items and to assure that even
those institutions that invest predominately in low risk assets, maintain a
certain minimum level of capital. The following table provides the Company's
best collective understanding of the regulatory capital requirements as
currently published. These understandings are based upon regulations, guidelines
and interpretations now in effect or proposed, all of which are subject to
change.

                                      -22-


<PAGE>   25


<TABLE>
<CAPTION>
=====================================================================================
                                            Capital Ratios at
                                            December 31, 1995
-------------------------------------------------------------------------------------
                                              Required
                                               Minimum                     Company's
                                                 Ratio                        Ratio
-------------------------------------------------------------------------------------
<S>                                                <C>                       <C>   
Tier 1 risk-based capital                          4.00%                     13.06%
-------------------------------------------------------------------------------------
Total risk-based capital                           8.00%                     14.31%
-------------------------------------------------------------------------------------
Leverage Ratio                                     3.00%                     10.80%
=====================================================================================
</TABLE>

The Company believes it was in compliance with all minimum regulatory capital
guidelines at December 31, 1995 and continues to be so.

Liquidity and Growth

Liquidity refers to the ability of the Company to generate sufficient funds to
meet its financial obligations and commitments without significantly impacting
net interest income. One of the Company's objectives is to maintain a high level
of liquidity, and this goal continues to be met. Maintaining liquidity ensures
that funds will be available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of other deposits and
liabilities. These obligations can be met by existing cash reserves of funds
from maturing loans and investments, but in the normal course of business are
met by deposit growth. Increased deposits and retained earnings also are the
sources for the Company's continued growth.

In 1995, operating activities of the Company provided $6,364,586 of cash flows.
Net income of $5,108,440, adjusted for non-cash operating activities, including
$1,423,656 provision in loan losses and amortization and depreciation of
$1,020,318, provided the cash generated from operations.

Investing activities, including lending, used $74,980,659 of the Company's cash
flow. Loans originated net of principal collected used $53,970,350 in funds.

Net additional cash inflows of $67,253,433 were provided by financing
activities. Net deposit growth accounted for $67,788,632 of the increase. Other
increases included securities sold under agreement to repurchase of $905,000 and
proceeds from the issuance of common stock subject to the Company's rescission
offer of $851,530. Offsetting these increases were a decrease in payments on
long-term debt of $239,537, and cash dividends paid to shareholders of
$2,052,192.

The Company's liquid assets include investment securities, federal funds sold,
and cash and due from banks. These assets represented

                                      -23-


<PAGE>   26



29.46% of total deposits at December 31, 1995, a decrease from 29.85 at December
31, 1994.

Asset/Liability Management

The operations and profitability of the subsidiary banks are largely impacted by
changes in interest rates and managements' ability to control interest rate
sensitivity of the subsidiary banks' assets and liabilities. Management believes
that the asset/liability strategy reduces the risk of the subsidiary banks'
exposure due to fluctuation in interest rates. The subsidiary banks strive to be
neither asset sensitive nor liability sensitive by using both fixed rate and
variable rate products. The subsidiary banks have a mixture of fixed rate loans
and loans tied to the Prime Rate, and this also applies to the investment
portfolio. It is management's belief that while this mixture may not give
maximum returns under certain market conditions, it can prevent severe swings in
earnings under other conditions. Management believes the subsidiary banks are
somewhat asset sensitive; therefore, in a falling rate environment earnings will
tend to fall, while in a rising rate environment earnings will tend to improve.
Despite the implementation of strategies to achieve a matching position of
assets and liabilities and to reduce the exposure of the subsidiary banks to
fluctuating interest rates, the results of operations of the subsidiary banks
will remain subject to the level and movement of interest rates.

Interest Sensitivity

Deregulation of interest rates and more volatile short-term, interest-bearing
deposits have created a need for shorter maturities of earnings assets. An
increasing percentage of commercial and installment loans are being made with
variable rates or shorter maturities to increase liquidity and interest rate
sensitivity. The difference between interest sensitive asset and interest
sensitive liability repricing within time periods is referred to as the interest
rate sensitivity gap. Gaps are identified as either positive (interest sensitive
assets in excess of interest sensitive liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets). The Company
currently believes the position of the subsidiary banks to be slightly asset
sensitive, depending on how certain deposits are classified. The Company
considers certain deposit categories, such as demand deposits, as having longer
maturities and not being sensitive to rate changes. Management's experience and
a third-party asset/liability model indicate this position to be true for the
Company. On December 31, 1995, the Company had a positive gap position in the
one to 30 day sector of $92.0 million; or, in other words, while $168.3 million
in assets were repricing, only $76.3 million in liabilities would reprice in
the same time frame. The Company's

                                      -24-


<PAGE>   27



current asset/liability model under a rate shock scenario indicates that
earnings would decline approximately $32,000 a month with a 50 basis point fall
in rates, while a 50 basis point rise in rates would generate approximately
$27,000 in income per month.

Schedule VII depicts the Company's interest rate gap position at December 31,
1995. This Schedule represents a static point in time and does not consider
other variables such as changing relationships or interest rate levels which is
reflects a positive gap position in the near term. This is the result of stable
core deposits being used to fund shorter term interest earning assets, such as
loans and investment securities. A positive gap position implies that interest
earning assets (loans and investments) will reprice at a faster rate than
interest bearing liabilities (deposits). In a rising rate environment, this
position will generally have a positive effect on earnings, while in a falling
rate environment this position will generally have a negative effect on
earnings. Other factors, however, including the speed at which assets and
liabilities reprice in response to changes in market rates and competitive
factors, can influence the ultimate impact on the margin resulting from changes
in interest rates. Management believes that a rapid, significant and prolonged
increase or decrease in rates could have a substantial adverse impact on the
Company's net interest margin.

The cumulative gap position indicates the Company's sensitivity to interest rate
changes over time.

Inflation

The effect of inflation on financial institutions differs from its impact on
other types of businesses. Since assets and liabilities of banks are primarily
monetary in nature, they are more affected by changes in interest rates than by
the rate of inflation.

Inflation generates increased credit demand and fluctuation in interest rates.
Although credit demand and interest rates are not directly tied to inflation,
each can significantly impact net interest income. As in any business or
industry, expenses such as salaries, equipment, occupancy, and other operating
expenses also are subject to the upward pressures created by inflation.

Since the rate of inflation has been stable during the last several years, the
impact of inflation on the earnings of the Company has been insignificant.

                                      -25-


<PAGE>   28



Income taxes

The Company had taxable income that resulted in income tax expense of
$2,752,261, $2,510,322 and $2,221,353 in 1995, 1994 and 1993, respectively.
(Note 11 of the consolidated financial statements provides a detailed analysis
of income taxes.)

In January 1993, the Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of SFAS 109
changes the Company's method of accounting for income taxes from the deferred
method (under Accounting Principles Board Statement No.11) to an asset and
liability approach.

There are two components of the income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period. Balance sheet amounts of deferred taxes are recognized on the
temporary differences between the bases of assets and liabilities as measured by
tax laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax liabilities
or assets between periods.

The Company's recognition of deferred tax assets is based on management's belief
that is more likely than not that the tax benefit associated with certain
temporary differences and tax credits will be realized.

                                      -26-


<PAGE>   29
                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                   SCHEDULE 1
          DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
                    INTEREST RATES AND INTEREST DIFFERENTIAL


<TABLE>
<CAPTION>
                                           1995                              1994                              1993
                             ------------------------  ------   ------------------------  ------   -------------------------  -----
                               Average       Revenue/  Yield      Average       Revenue/  Yield       Average       Revenue/  Yield
                               Balance       Expense    Rate      Balance       Expense    Rate       Balance       Expense    Rate

<S>                         <C>            <C>        <C>      <C>            <C>          <C>     <C>             <C>        <C>  
Interest-earning assets
  Loans
    Commercial              $141,349,273  $12,335,077   8.73%  $107,896,016  $ 8,829,755   8.18%  $  87,715,447  $ 6,927,780   7.90%
    Installment - net        130,530,479   13,469,095  10.32%   106,954,932    9,176,909   8.58%     96,395,304    8,959,886   9.29%
    Fees on loans                             954,685                          1,099,331                           1,056,063
                             --------------------------------   --------------------------------   --------------------------------

        Total loans 
          (including fees)  $271,879,752  $26,758,857   9.84%  $214,850,948  $19,105,995   8.89%  $184,110,751  $16,943,729   9.20%
                            ---------------------------------  ---------------------------------  ---------------------------------
       
  Investment securities
                              59,939,744    3,735,181   6.23%     2,793,654    3,740,550   5.14%  $ 70,712,217  $ 3,572,847   5.05%
    Tax exempt                 9,117,893      369,795   4.06%    11,605,844      557,011   4.80%    13,614,070      842,043   6.19%
                             --------------------------------   --------------------------------   --------------------------------

        Total investment 
          securities          69,057,637    4,104,976   5.94%    84,399,498    4,297,561   5.09%  $ 84,326,287  $ 4,414,890   5.24%
    Other short-term 
          investments         11,571,548      627,135   5.42%     5,660,533      221,094   3.91%     9,505,372      279,584   2.94%
                             --------------------------------   --------------------------------   --------------------------------
        Total interest-
          earning assets    $352,508,937  $31,490,968   8.93%  $304,910,979  $23,624,650   7.75%  $277,942,410  $21,638,203   7.79%

Noninterest-earning assets
  Cash and due from banks   $ 12,668,334                       $ 11,069,948                       $ 10,458,115 
  Premises and equipment       6,916,037                          6,008,216                          4,494,554
  Other, less allowance 
    for loan losses            6,649,556                          5,096,879                          9,415,312
                             -----------                        -----------                        -----------                     
        Total noninterest-
          earning assets      26,233,927                         22,175,043                      $  24,367,981 
                             -----------                        -----------                        -----------                     
TOTAL ASSETS                $378,742,864                       $327,086,022                       $302,310,391 
                            ============                       ============                       ============                    
</TABLE>




                                       27
<PAGE>   30
                GREENE COUNTY BANCSHARES , INC. AND SUBSIDIARIES
                                   SCHEDULE I
          DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
                    INTEREST RATES AND INTEREST DIFFERENTIAL

<TABLE>
<CAPTION>
                                                               1995                                          1994            
                                            ________________________________________       ___________________________________   
                                              Average        Revenue/       Yield           Average       Revenue/      Yield    
                                              Balance        Expense         Rate           Balance        Expense      Rate     

<S>                                          <C>               <C>             <C>          <C>             <C>          <C>     
Interest-bearing liabilities
  Deposits
    Savings, NOW accounts, and
      money markets                         $130,045,108     $ 3,167,357       2.44%       $136,249,522    $3,178,767    2.33%
    Time deposits                            172,627,254       9,849,464       5.71%        120,926,616     4,851,789    4.01%
                                            ------------     -----------       ----        ------------    ----------    ----   
        Total deposits                      $302,672,362     $13,016,821       4.30%       $257,176,138    $8,030,556    3.12%
  Securities sold under repurchase
    agreement and short-term borrowings        4,553,803         231,581       5.09%          5,607,061       227,879    4.06%
  Debt                                         3,559,135         195,492       5.49%          4,706,302       238,398    5.07%
                                             -----------     -----------       ----        ------------    ----------    ----
        Total interest-bearing liabilities  $310,785,300     $13,443,894       4.33%       $267,489,501    $8,496,833    3.18%

Noninterest-bearing liabilities
  Demand deposits                           $ 24,424,083                                   $ 21,292,288
  Other liabilities                            4,745,198                                      1,771,324
                                             -----------                                   ------------  
                                            $ 29,169,281                                   $ 23,063,612
Stockholders' equity                          38,788,283                                     36,532,909
                                             -----------                                   ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                        $378,742,864                                   $327,086,022
                                             ===========                                   ============  
Net interest income                                           

                                                             $18,047,074                                  $15,127,817
                                                             ===========                                  =========== 
Margin analysis
  Interest income/earning assets                                               8.93%                                     7.75%
  Interest expense/earning assets                                              3.81%                                     2.79%
                                                                               ----                                      ----
  Net interest income/earning assets                                           5.12%                                     4.96%
                                                                               ====                                      ====  
</TABLE>

<TABLE>
<CAPTION>

                                                                      1993
                                                       ____________________________________
                                                        Average         Revenue/     Yield
                                                        Balance         Expense      Rate

<S>                                                     <C>              <C>          <C>
Interest-bearing liabilities
  Deposits
    Savings, NOW accounts, and 
      money markets                                    $124,405,340     $3,378,448    2.72%
    Time deposits                                       111,916,277      4,449,827    3.98%
                                                       ------------     ----------    ---- 
        Total deposits                                 $236,321,617     $7,828,275    3.31%
  Securities sold under repurchase
    agreement and short-term borrowings                    7,563,021        228,907   3.03%
  Debt                                                     2,046,575        139,741   6.83%
                                                        ------------     ----------   ----
        Total interest-bearing liabilities              $245,931,213     $8,196,923   3.33%

Noninterest-bearing liabilities
  Demand deposits                                        $18,611,113
  Other liabilities                                        3,219,105
                                                         ----------- 
                                                         $21,830,218
Stockholders' equity                                      34,548,960
                                                         -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                                    $302,310,391
                                                        ============
Net interest income                                                     $13,441,280
                                                                        ===========
Margin analysis
  Interest income/earning assets                                                      7.79%
  Interest expense/earning assets                                                     2.95%
                                                                                      ----
  Net interest income/earning assets                                                  4.84%
                                                                                      ====
</TABLE>  


     1. Installment loans are stated net of unearned income.                  

     2. Average loan balances include nonaccrual loans.  Interest               
         income collected on nonaccrual loans has been included.               
                                                                              
     3. The average balance of and the related yield associated with
         securities available for sale are based on the cost of such securities.


      4. Tax exempt income has not been adjusted to tax-equivalent basis.
                                                                         
      Note:  If securities purchased with agreements to resell had been  
 present, or if other interest-bearing assets or liabilities had been    
 significant, disclosures would have been made.                          



                                       28
<PAGE>   31

                 GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                               SCHEDULE I, (CONT)
                    INTEREST RATES AND INTEREST DIFFERENTIAL
                         VOLUME AND YIELD/RATE VARIANCES
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                            1995 Compared to 1994
                                                              Volume            Rate       Rate/Volume      Total Change

<S>                                                                <C>               <C>         <C>                 <C>
Interest income
  Loans net of unearned income                                     5,072             2,040       541                 7,653
  Investment securities
    Taxable                                                         (662)              796      (140)                   (6)
    Tax exempt                                                      (120)              (86)       19                  (187)
  Other short-term investments                                       231                86        89                   406
                                                                   -------------------------------------------------------    
        Total interest income                                      4,521             2,836       509                 7,866
                                                                   -------------------------------------------------------
Interest expense
  Savings, NOW accounts, and
    money market accounts                                           (146)              140        (6)                  (12)
  Time deposits                                                    2,073             2,048       876                 4,997
  Short-term borrowings                                              (42)               57       (11)                    4
  Debt                                                               (57)               20        (5)                  (42)
                                                                   -------------------------------------------------------
        Total interest expense                                     1,828             2,265       854                 4,947
                                                                   ------------------------------------------------------- 
        Net interest income                                        2,693               571      (345)                2,919
                                                                   =======================================================
</TABLE>



<TABLE>
<CAPTION>
                                                                                 1994 Compared to 1993
                                                              ----------------------------------------------------------
                                                              Volume            Rate       Rate/Volume      Total Change
                                                              ----------------------------------------------------------
<S>                                                                <C>                <C>        <C>                 <C>
Interest income
  Loans net of unearned income                                     2,829              (571)      (95)                2,162
  Investment securities
    Taxable                                                          105                61         2                   168
    Tax exempt                                                      (124)             (189)       28                  (285)
  Other short-term investments                                      (113)               92       (37)                  (58)
                                                                   -------------------------------------------------------
        Total interest income                                      2,697              (608)     (103)                1,986
                                                                   -------------------------------------------------------
Interest expense
  Savings, NOW accounts, and
    money market accounts                                            322              (476)      (45)                 (200)
    Time deposits                                                    358                40         3                   402
    Short-term borrowings                                            (59)               78       (20)                   (1)
    Debt                                                             182                 0       (47)                  135
                                                                   -------------------------------------------------------
        Total interest expense                                       802              (357)     (109)                  336
                                                                   -------------------------------------------------------
        Net interest income                                        1,895              (250)        6                 1,650
                                                                   =======================================================
</TABLE>



   1.   The change in interest due to both volume and yield/rate has been
        allocated to change due to volume and change due to yield/rate in
        proportion to absolute value of change in each.

   2.   Balance of nonaccrual loans and related income recognized have been
        included for computational purposes.

   3.   Tax-exempt income has not been converted to tax-equivalent basis.


                                       29
<PAGE>   32
                 GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                              INVESTMENT PORTFOLIO



                               OUTSTANDING BALANCE
                                 AT DECEMBER 31


<TABLE>
<CAPTION>
                                     ---------------------------------------  ----------------------------------------
                                      Available     Held to         Total     Available for    Held to        Total
                                       for Sale    Maturity         1995          Sale        Maturity        1994           1993
                                     -----------------------------------------------------------------------------------------------
<S>                                  <C>           <C>           <C>           <C>           <C>           <C>           <C>       
U.S. Treasury securities             $17,470,430   $         0   $17,470,430   $26,944,556   $         0   $26,944,556   $32,484,440
Federal agency obligations            41,981,291                  41,981,291    12,111,574    21,991,630    34,103,204    41,561,964
Obligations of state and political                                         0
  subdivisions                                       9,375,472     9,375,472         6,734     9,415,231     9,421,965    13,901,319
Other securities                                     1,066,155     1,066,155             0       857,700       857,700       746,600
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                      59,451,721    10,441,627    69,893,348    39,062,864    32,264,561    71,327,425    88,694,323
Market Value Adjustment on
  available for sale securities          381,752                     381,752      (953,635)            0      (953,635)      N/A
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
                      Total          $59,833,473   $10,441,627   $70,275,100   $38,109,229   $32,264,561   $70,373,790    88,694,323
                                     ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>




                                      30




<PAGE>   33

                 GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                              SCHEDULE II,Continued
                              INVESTMENT PORTFOLIO
                    OUTSTANDING BALANCE AT DECEMBER 31, 1995


<TABLE>
<CAPTION>
                                                                  After One    After Five
                                                                  Year But      Years But
                                                     Within        Within        Within        After
                 Amount                             One year     Five years    Ten Years     Ten Years      Total
                 ------                           -----------   -----------    ----------   -----------   -----------
<S>                                               <C>           <C>           <C>           <C>           <C>
U.S. Treasury securities - Available for sale     $16,597,702   $   872,728                               $17,470,430
Federal agency obligations - Available for sale       911,679     4,524,807     9,129,130    27,415,675    41,981,291
Federal agency obligations - Held to maturity
Obligations of state and political
    subdivisions - Available for sale
Obligations of state and political
    subdivisions - Held to maturity                 1,511,275     6,734,773       609,905       519,519     9,375,472
Other securities - Held to maturity                                                           1,066,155     1,066,155
                                                  -----------   -----------    ----------   -----------   -----------
                                                   19,020,656    12,132,308     9,739,035    29,001,349    69,893,348
Market Value Adjustment on
    available for sale securities                     (45,513)       71,800        89,575       265,890       381,752
                                                  -----------   -----------    ----------   -----------   -----------
                                                  $18,975,143   $12,204,108    $9,828,610   $29,267,239   $70,275,100
                                                  ===========   ===========    ==========   ===========   ===========


             Weighted Average Yield
             ----------------------

U.S. Treasury securities - Available for sale            4.76%         7.16%                                     4.88%
Federal agency obligations - Available for sale          5.00%         6.22%         7.79%         8.30%         7.90%
Federal agency obligations - Held to maturity
Obligations of state and
    political subdivisions - Held to maturity            4.04%         3.99%         4.41%         4.48%         4.05%
Other securities - Held to maturity                                                                7.01%
                                                         ----          ----          ----          ----          ----
                                                         4.73%         5.02%         7.51%         8.11%         6.47%
                                                         ====          ====          ====          ====          ==== 
</TABLE>








     1.  Yields on tax exempt obligations have not been computed on
         a tax equivalent basis.


                                       31
<PAGE>   34

                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                  SCHEDULE III
                                 LOAN PORTFOLIO


<TABLE>
<CAPTION>
                                                    1995          1994          1993          1992          1991
                                                  --------      --------      --------      --------      --------

                                                           (in thousands)
Types of loans (all domestic)


<S>                                              <C>           <C>           <C>           <C>           <C>
  Commercial                                      $ 75,503      $ 56,754      $ 51,533      $ 46,391      $ 60,383 
  Commercial Real Estate                            73,720        63,499        44,050        35,838        10,947
  Mortgage installment                              92,276        79,705        63,605        61,237        57,780
  Installment real estate                              556           712           733           930         1,145
  Installment consumer                              55,876        44,025        38,249        41,887        44,205
  Other                                              2,772         2,832         1,246           532         3,662

        Total loans                                300,703       247,527       199,416       186,815       178,122
                                                  --------      --------      --------      --------      --------
    Unearned income                                 (2,215)       (2,827)       (4,227)       (5,275)       (6,259)
    Allowance for loan losses                       (4,654)       (3,447)       (3,062)       (2,529)       (1,861)
                                                  --------      --------      --------      --------      --------
        Net loans                                 $293,834      $241,253      $192,127      $179,011      $170,002 
                                                  ========      ========      ========      ========      ========
</TABLE>



     The following table identifies the maturities of all loans as of 12/31/95
and addresses the sensitivity of these loans to changes in interest rates(in
thousands):



<TABLE>
<CAPTION>
                                                                   Interest Rate
                                                               ---------------------- 
                                                  Total         Fixed        Variable
                                                 --------      --------     --------- 

<S>                                             <C>            <C>          <C>     
          Within one year                        $190,275      $ 55,537      $134,738 

          After one but within five years          97,582        94,386         3,196

          After five years                         12,846        12,846             0
                                                 --------      --------      -------- 
                                                 $300,703      $162,769      $137,934 
                                                 ========      ========      ======== 
</TABLE>



                                                32

<PAGE>   35
                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                   SCHEDULE IV
                         SUMMARY OF NONPERFORMING ASSETS
                          AS OF ENDED DECEMBER 31, 1995


Nonperforming assets(in thousands):



<TABLE>
<CAPTION>
                                    1995        1994        1993        1992        1991
                                   ------      ------      ------      ------      ------
<S>                               <C>         <C>         <C>         <C>         <C>
    Nonaccrual loans               $  902      $  649      $  554      $  742      $  979
    Loans 90 days past due          1,044         656       3,256       1,459         683
                                   ------      ------      ------      ------      ------
    Total nonperforming loans       1,946       1,305       3,810       2,201       1,662

    Other real estate held            122          85       1,014       2,367       1,682
                                   ------      ------      ------      ------      ------
Total nonperforming assets         $2,068      $1,390      $4,824      $4,568      $3,344
                                   ======      ======      ======      ======      ======
</TABLE>


     1.   Interest foregone on non-accrual loans in 1995 totaled approximately
          $116,300.

     2.   Potential problem loans not otherwise disclosed herein and which have
          been classified as substandard by management totaled approximately
          $2,773,000 at December 31, 1995.

     3.   Accrual of interest is discontinued on a loan when management believes
          there is insufficient collateral and the borrowers' financial
          condition is such that collection of interest is doubtful. Loans are
          returned to the accrual status when the factors indicating doubtful
          collectibility cease to exist.


                                               33
<PAGE>   36
                 GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                             SCHEDULE IV, CONTINUED
                          SUMMARY OF LOAN LOSS EXPENSES
                      FOR THE YEAR ENDED DECEMBER 31, 1995



<TABLE>
<CAPTION>
                                                           1995           1994           1993           1992           1991
                                                          ------         ------         ------         ------         ------
                                                                                       (in thousands)

<S>                                                      <C>           <C>             <C>            <C>            <C>   
Changes in allowance for loan losses:
  Balance at beginning of period                          $3,447         $3,062         $2,529         $1,862         $1,584

  Charge - offs:
    Commercial, industrial and
      construction loans                                     (26)          (103)           (50)          (385)          (647)
    Installment loans                                       (646)        (1,256)          (457)          (744)          (544)
                                                          ------         ------         ------         ------         ------
                                                            (672)        (1,359)          (507)        (1,129)        (1,191)
                                                          ------         ------         ------         ------         ------
  Recoveries
    Commercial, industrial and
      construction loans                                       9            199             57             95            100
    Installment loans                                        447            551            149             90            112
                                                          ------         ------         ------         ------         ------
                                                             456            750            206            185            212
                                                          ------         ------         ------         ------         ------
  Net charge - offs                                         (216)          (609)          (301)          (944)          (979)
                                                          ------         ------         ------         ------         ------
  Additions charged to operations                          1,423            994            834          1,611          1,256
                                                          ------         ------         ------         ------         ------
  Balance at end of period                                $4,654         $3,447         $3,062         $2,529         $1,861
                                                          ======         ======         ======         ======         ======


Ratio of net charge-offs during the period
to average loans outstanding during the
period                                                      0.08%          0.28%          0.16%          0.55%          0.62%

Ratio of allowance for loan losses to nonperforming
loans                                                     239.16%        264.14%         80.37%        114.90%        111.97%

Ratio of allowance for loan losses to total loans           1.55%          1.39%          1.54%          1.35%          1.04%
</TABLE>



      The allowance for possible loan losses is increased by charges to the
      provision for loan losses and reduced by loans charged off net of
      recoveries. Greene County Bancshares' provision is the amount necessary to
      maintain the allowance at a level considered adequate to provide for
      possible loan losses based on management's and independent external
      evaluation of the loan portfolio, as well as prevailing and anticipated
      economic conditions.


                                   34
<PAGE>   37
                  GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARY
                             SCHEDULE IV (CONTINUED)
                          SUMMARY OF LOAN LOSS EXPENSES
                                DECEMBER 31, 1995



<TABLE>
<CAPTION>
Breakdown of allowance for                 1995                              1994                             1993            
                              ------------------------------    -----------------------------    -----------------------------
  loan losses by category:                       Percent of                       Percent of                       Percent of 
                                                loan in each                     loan in each                     loan in each
  Balance at end of period        Amount         category to        Amount        category to        Amount        category to
    applicable to:            (in thousands)     total loans    (in thousands)    total loans    (in thousands)    total loans
                              --------------    ------------    --------------   ------------    --------------   ------------
<S>                               <C>              <C>              <C>             <C>              <C>             <C>
Commercial, industrial and
  construction loans              $2,042            49.60%          $1,758           48.60%          $1,317           47.90%
Installment loans                 $2,612            50.40%           1,689           51.40%           1,745           52.10%
Loans to financial
  institutions                                       0.00%                            0.00%                            0.00%
                                  ------           ------           ------          ------           ------          ------
                                  $4,654           100.00%          $3,447          100.00%          $3,062          100.00%
                                  ======           ======           ======          ======           ======          ======
</TABLE>

<TABLE>
<CAPTION>
Breakdown of allowance for                 1992                              1991             
                              ------------------------------    -----------------------------
  loan losses by category:                       Percent of                       Percent of  
                                                loan in each                     loan in each 
  Balance at end of period        Amount         category to        Amount        category to 
    applicable to:            (in thousands)     total loans    (in thousands)    total loans 
                              --------------    ------------    --------------   ------------ 
<S>                               <C>              <C>              <C>             <C>       
Commercial, industrial and
  construction loans              $1,109            44.00%          $1,012           40.00%
Installment loans                  1,420            56.00%             849           59.80%
Loans to financial
  institutions                                       0.00%                            0.20%   
                                  ------           ------           ------          ------    
                                  $2,529           100.00%          $1,861          100.00%
                                  ======           ======           ======          ======    
</TABLE>



                                       35
<PAGE>   38
                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                   SCHEDULE V
                                    DEPOSITS


<TABLE>
<CAPTION>
                                                         1995                         1994                       1993
                                              -------------------------    -------------------------   ------------------------
                                                 Average       Average        Average       Average      Average       Average
                                                 Balance      Rate Paid       Balance      Rate Paid     Balance      Rate Paid
                                              ------------    ---------    ------------    ---------   ------------   ---------
<S>                                           <C>               <C>        <C>               <C>       <C>              <C>
Types of deposits (all in domestic offices)

  Noninterest - bearing
    Demand deposits                           $ 24,424,083                 $ 21,292,288                $ 18,611,113

  Interest - bearing demand
    deposits                                    91,406,659      2.40%        95,066,302      2.29%       88,971,983     2.66%

  Savings deposits                              38,638,449      2.50%        41,183,220      2.43%       35,433,357     2.86%

  Time deposits                                172,627,254      5.71%       120,926,616      4.01%      111,916,277     3.98%
                                              ------------                 ------------                ------------
        Total deposits                        $327,096,445                 $278,468,426                $254,932,730
                                              ============                 ============                ============
</TABLE>




  Maturities of time deposits of $100,000, or more,
at December 31, 1995 are summarized as follows
(dollars in thousands):


<TABLE>
<S>                                            <C>   
Three months or less                           $ 7,673 
Over three through six months                    6,844
Over six through twelve months                   5,444
Over twelve months                              13,482
                                               -------
                                               $33,443 
                                               =======
</TABLE>


                          36
<PAGE>   39
                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                                   SCHEDULE VI
                           RETURN ON EQUITY AND ASSETS





<TABLE>
<CAPTION>
                                                 1995              1994                1993     
                                                 ----              ----                ----
<S>                                        <C>                 <C>                 <C>      
Net income                                  $5,108,440          $4,501,396          $4,264,909

Earnings per share                              $11.45              $10.16               $9.56

Return on average assets                          1.35%               1.38%               1.41%

Return on average equity                         13.17%              12.32%              12.35%

Dividend payout ratio                            40.17%              39.89%              38.41%

Average equity to average assets                 10.24%              11.17%              11.43%
</TABLE>



                                       37
<PAGE>   40
                  GREENE COUNTY BANCSHARES, INC. & SUBSIDIARIES
                                  SCHEDULE VII
                      INTEREST RATE SENSITIVITY ANALYSIS(1)
                                DECEMBER 31, 1995
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                                                              Non-Rate
                                                                1-30        31-90      91-180      181-365    Sensitive
                                                                Days        Days        Days        Days       & Over
                                                             Sensitive    Sensitive   Sensitive   Sensitive    1 Year       TOTAL
                                                             ---------    ---------   ---------   ---------   ---------    -------

<S>                                                           <C>           <C>        <C>         <C>         <C>         <C>    
Interest-Earning Assets:
    Loans, net of unearned income                             $130,068      $8,800     $12,719     $24,570     117,677     293,834
    Investment securities                                       14,391      28,608       6,445       5,469      15,362      70,275
    Federal funds sold                                          23,800                                                      23,800
                                                              --------     -------    --------     --------   --------    --------

        Total Interest-Earning Assets                          168,259      37,408      19,164      30,039     133,039     387,909
                                                              --------     -------    --------     --------   --------    --------

Interest-Bearing Liabilities:
    Savings and core time deposits                              65,375      35,354      36,584      28,130     139,408     304,851
    Time deposits of $100,000 or more                            6,075       6,547       6,514       4,851       9,456      33,443
    Debt                                                            34          68         102         204       3,040       3,448
    Securities sold under agreement to repurchase                4,784
                                                              --------     -------    --------     --------   --------    --------
        Total Interest-Bearing Liabilities                      76,268      41,969      43,200      33,185     51,904     341,742
                                                              --------     -------    --------     --------   --------    --------
Interest Sensitivity Gap                                       $91,991     $(4,561)   $(24,036)    $(3,146)   $(18,865)    $46,167 
                                                               =======     =======    ========     =======    ========     =======
Cumulative Interest Sensitive Gap                              $91,991     $87,430     $63,394     $60,248     $41,383     $87,550 
                                                               =======     =======    ========     =======    ========     =======
Interest Sensitive Gap to Total Assets                           26.62%      -1.32%      -6.96%      -0.91%      -5.46%      13.36%
                                                               =======     =======    ========     =======    ========     =======
Cumulative Interest Sensitive Gap to Total Assets                26.62%      25.30%      18.35%      17.44%      11.98%
                                                               =======     =======    ========     =======    ========     
</TABLE>




(1)  The Company has presented substantial balances of deposits as non-rate
     sensitive and/or not repricing within one year. Such presentation is based
     upon the Company's historical experience and interest rate sensitivity
     modeling performed by an outside consultant. Regulators of the Company's
     subsidiary banks have reviewed this presentation and have deemed it
     appropriate.


                                       38
<PAGE>   41
         ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                      -39-
<PAGE>   42
                         GREENE COUNTY BANCSHARES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1995, AND 1994
                                      WITH

                        REPORT OF INDEPENDENT ACCOUNTANTS


                                       40
<PAGE>   43
REPORT OF INDEPENDENT ACCOUNTANTS

February 8, 1994

To the Board of Directors and
Shareholders of Greene County Bancshares, Inc.

In our opinion, the consolidated statements of income, of shareholder's equity
and of cash flows for the year ended December 31, 1993 (appearing in the Greene
County Bancshares, Inc. 1995 Consolidated Financial Statements which have been
incorporated by reference in this Form 10-K Annual Report) present fairly, in
all material respects, the results of operations and cash flows of Greene
County Bancshares, Inc. and its subsidiaries for the year ended December 31,
1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Greene County Bancshares, Inc. for any period subsequent to
December 31, 1993.
                  
                                       PRICE WATERHOUSE LLP



                                       41-a
<PAGE>   44
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Greene County Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of Greene County
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The 1993 consolidated statements of
income, shareholders' equity and cash flows were audited by other auditors,
whose report, dated February 8, 1994, expressed an unqualified opinion on those
statements, and included an explanatory paragraph regarding the change in method
of accounting for income taxes.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greene County
Bancshares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, Greene County
Bancshares, Inc. changed its methods of accounting for investment securities and
income taxes effective January 1, 1994 and 1993, respectively.

                                            COOPERS & LYBRAND L.L.P.

Knoxville, Tennessee
February 2, 1996


                                       41-b
<PAGE>   45



GREENE COUNTY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS                                                                               1995               1994
                                                                                     ----               ----
<S>                                                                              <C>                <C>
Cash and due from banks                                                          $ 13,723,107       $ 15,085,747
Securities available-for-sale (Note 2)                                             59,833,473         38,109,229
Securities held-to-maturity - approximate
   market value of $10,420,255 and $32,214,700  in

   1995 and 1994, respectively (Note 2)                                            10,441,627         32,264,561
Federal funds sold                                                                 23,800,000          3,550,000

Loans, net (Notes 3 and 4)                                                        293,834,416        241,253,489

Premises and equipment, net (Note 5)                                                8,339,400          7,042,180
Accrued interest receivable                                                         3,539,110          2,708,825
Deferred income taxes (Note 11)                                                     1,455,094          1,363,427
Cash surrender value of life insurance contracts                                    3,580,200          3,408,213
Other assets                                                                        2,034,451            739,580
                                                                                 ------------           --------





                                                                                 $420,580,878       $345,525,251
                                                                                 ============       ============
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.


                                       42
<PAGE>   46



<TABLE>
<CAPTION>
                                                                                     1995               1994
<S>                                                                             <C>                <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits (Note 6):
   Noninterest bearing demand deposits                                           $ 27,656,469       $ 23,082,392
   Interest bearing accounts:
     NOW                                                                           73,327,447         67,664,884
     Money market transaction                                                      28,199,189         26,545,522
     Savings                                                                       39,792,797         40,547,303
     Certificates of deposit $100,000 and over                                     33,222,712         23,995,319
     Other certificates of deposit                                                163,751,974        116,326,536
                                                                                 ------------       ------------

        Total deposits                                                            365,950,588        298,161,956
                                                                                 ------------       ------------

Securities sold under agreements to repurchase                                      4,784,000          3,879,000
Accrued interest and other liabilities                                              4,472,328          2,606,289
Long-term debt (Note 7)                                                             3,448,172          3,687,709
                                                                                -------------         ----------

        Total liabilities                                                         378,655,088        308,334,954
                                                                                 ------------       ------------

Common stock subject to rescission (Note 19)                                          851,530             -
                                                                                 ------------   -----------

Commitments and contingencies (Notes 8, 10, 12, 13 and 16)

Shareholders' equity (Note 9)

   Common stock, par value $10, authorized 1,000,000
     shares; issued and outstanding 442,444 shares in

     1995 and 1994, respectively                                                    4,424,440          4,424,440
   Paid in capital                                                                  2,914,724          2,914,724
   Retained earnings                                                               33,498,636         30,442,388
   Net unrealized appreciation (depreciation) on
      available-for-sale securities, net of income tax
     (benefit) of $145,291 and $(362,380) in 1995

     and 1994, respectively                                                           236,460             (591,255)
                                                                                -------------            ---------

        Total shareholders' equity                                                 41,074,260         37,190,297
                                                                                -------------        -----------

                                                                                 $420,580,878       $345,525,251
                                                                                 ============       ============
</TABLE>


                                       43
<PAGE>   47
GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                                            1995              1994              1993
Interest income:

<S>                                                                      <C>              <C>               <C>
   Loans                                                                 $26,758,857      $19,105,995       $16,943,729
   Securities available-for-sale (Note 2)                                  3,680,264        2,380,783                -
   Securities held-to-maturity (Note 2)                                      424,712        1,916,778               -
   Investment securities (Note 2)                                             -                    -          4,423,181
   Federal funds sold                                                        627,135          221,094           271,293
                                                                        ------------         --------          --------

        Total interest income                                             31,490,968       23,624,650        21,638,203
                                                                         -----------      -----------       -----------

Interest expense:

   Deposit accounts (Note 6)                                              13,016,821        8,030,556         7,828,275
   Securities sold under agreements to repurchase                            231,581          227,879           228,907
   Long-term debt                                                            195,492          238,398           139,741
                                                                        ------------         --------          --------

        Total interest expense                                            13,443,894        8,496,833         8,196,923
                                                                         -----------       ----------        ----------

        Net interest income                                               18,047,074       15,127,817        13,441,280
Provision for loan losses (Note 3)                                         1,423,656          994,000           833,809
                                                                        ------------         --------          --------
Net interest income after provision for loan losses                       16,623,418       14,133,817        12,607,471
                                                                         -----------      -----------       -----------

Noninterest income:

   Service fees on deposit accounts                                        1,155,621          971,878           724,517
   Service charges and commissions                                           598,359          946,278           717,963
   Net realized gains on sales of available-for-sale securities                1,373           -                 -
   Net realized gains on calls of held-to-maturity securities                  4,000           -                 -
   Investment securities gains, net                                           -                    -             14,756
   Other income                                                            1,199,344          620,058           509,312
                                                                        ------------         --------          --------

        Total noninterest income                                           2,958,697        2,538,214         1,966,548
                                                                        ------------       ----------        ----------

Noninterest expense:

   Salaries and benefits                                                   5,826,564        4,750,592         3,880,038
   Occupancy expenses                                                        815,506          757,278           620,479
   Furniture and equipment expense                                         1,048,160          707,137           554,040
   Loss on other real estate owned                                           366,609          311,183           248,327
   Net realized losses on sales of available-for-sale securities              -                85,435                -
   Federal insurance premiums                                                346,501          616,859           554,714
   Other expenses                                                          3,318,074        2,431,829         2,177,886
                                                                        ------------     ------------      ------------

        Total noninterest expense                                         11,721,414        9,660,313         8,035,484
                                                                         -----------       ----------        ----------

Income before income taxes and cumulative effect of

   change in method of accounting for income taxes                         7,860,701        7,011,718         6,538,535

Income tax expense (Note 11)                                               2,752,261        2,510,322         2,221,353
                                                                        ------------       ----------        ----------
Income before cumulative effect of change in
   method of accounting for income taxes                                   5,108,440        4,501,396         4,317,182

Cumulative effect of change in method of

   accounting for income taxes (Note 11)                                      -                      -           (52,273)
                                                                     ---------------              -----         --------

        Net income                                                       $ 5,108,440      $ 4,501,396       $ 4,264,909
                                                                         ===========      ===========       ===========

Per share of common stock (Note 1):
   Income before effect of change in method of

     accounting for income taxes                                              $11.45           $10.16             $9.68
   Cumulative effect of change in method of
     accounting for income taxes                                               -                   -            (.12)
                                                                            --------              ---          -----

        Net income                                                            $11.45           $10.16             $9.56
                                                                              ======           ======             =====
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.


                                       44
<PAGE>   48



GREENE COUNTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                                                          NET UNREALIZED
                                                                                           APPRECIATION
                                                                                         (DEPRECIATION) ON
                             TREASURY        COMMON         PAID IN       RETAINED      AVAILABLE-FOR-SALE
                               STOCK          STOCK         CAPITAL       EARNINGS          SECURITIES           TOTAL

<S>                        <C>             <C>             <C>            <C>                  <C>            <C>
December 31, 1992          $      -        $4,466,560      $2,914,310     $25,652,295          $     -        $33,033,165
   Issuance of 44 shares          -               440           3,458            -                   -              3,898
   Repurchase of
     5,100 shares            (688,500)             -               -               -              -               (688,500)
   Sale of 500 shares         67,500               -            2,500              -              -                70,000
   Retirement of
     4,600 shares            621,000           (46,000)        (32,574)       (542,426)              -                 -
   Net income                     -            -                 -          4,264,909                -          4,264,909
   Dividends paid
     ($3.67 per share)            -                -               -        (1,637,968)              -          (1,637,968)
                                 ---              ---             ---      -----------           ------        -----------

December 31, 1993                 -         4,421,000       2,887,694      27,736,810                -         35,045,504
   Adoption of
     FASB 115, net

     of tax                   -                -               -               -                (363,283)         (363,283)
   Issuance of 344 shares         -             3,440          27,030              -                 -             30,470
   Net income                   -                 -             -           4,501,396                -          4,501,396
   Change in unrealized
     depreciation,

     net of tax                 -                  -               -               -            (227,972)         (227,972)
   Dividends paid

     ($4.06 per share)           -              -                  -        (1,795,818)              -          (1,795,818)
                                ----           ------             ---      -----------              ---        -----------

December 31, 1994                 -         4,424,440       2,914,724      30,442,388           (591,255)      37,190,297
   Net income                 -                -               -            5,108,440            -              5,108,440
   Change in unrealized
     appreciation,

     net of tax               -                -               -               -                827,715           827,715
   Dividends paid

     ($4.60 per share)        -                -               -            (2,052,192)          -              (2,052,192)
                         -----------    -------------   -------------     ------------      -----------       ------------

December 31, 1995        $    -            $4,424,440      $2,914,724     $33,498,636          $236,460       $41,074,260
                         ===========       ==========      ==========     ===========          ========       ===========
</TABLE>





The accompanying notes are an integral part of these consolidated financial
statements.


                                       45
<PAGE>   49



GREENE COUNTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                                            1995              1994              1993
Net cash provided by operating activities:

<S>                                                                      <C>              <C>               <C>
   Net income                                                            $ 5,108,440      $ 4,501,396       $ 4,264,909
   Adjustments to reconcile net income to net
      cash provided by operating activities:

        Provision for loan losses                                          1,423,656          994,000           833,809
        Provision for depreciation and amortization                          651,997          523,416           455,915
        Amortization of investment security premiums,

          net of accretion                                                   368,321          554,152           663,282
        Net realized gains on calls of securities
          held-to-maturity                                                     (4,000)         -                 -
        Net realized (gains) losses on available-for-sale
          securities                                                           (1,373)         85,435               -
        Investment securities gains, net                                      -                      -           (14,756)
        (Gain) loss on other real estate owned                                (97,637)        141,950           158,427
        Increase in cash surrender value of life

          insurance contracts                                                (171,987)          (77,183)        (174,000)
        Deferred income tax benefit                                          (568,718)         (349,744)        (261,926)
        Effect of change in method of accounting

          for income taxes                                                    -                -                 52,273
        Change in accrued income and other assets                          (1,379,867)         (428,505)        372,665
        Change in accrued interest and other liabilities                   1,035,754          914,910           (566,631)
                                                                         -----------      -----------         ----------

              Net cash provided by operating activities                    6,364,586        6,859,827         5,783,967
                                                                        ------------       ----------        ----------

Cash flows from investing activities:

   Purchases of available-for-sale securities                             (21,848,101)      (16,191,440)             -
   Proceeds from sales of available-for-sale securities                      787,017       20,977,519                -
   Proceeds from maturities of available-for-sale securities              21,991,907        2,518,207                -
   Purchases of securities held-to-maturity                                (2,909,704)       (1,628,389)             -
   Proceeds from maturities of securities held-to-maturity                 3,050,011       11,051,414                -
   Proceeds from sales of investment securities                               -                  -            3,442,657
   Proceeds from maturities of investment securities                          -                    -         27,079,622
   Purchases of investment securities                                         -                    -         (39,174,331)
   Net decrease in interest bearing deposits in financial

      institutions                                                            -               100,049               -
   Net originations of loans                                              (53,970,350)      (49,467,022)     (13,773,813)
   Proceeds from sales of other real estate owned                            148,400           59,284         1,019,092
   Increase in cash surrender value of life insurance contracts               -                  -            (3,080,511)
   Fixed asset additions                                                   (1,979,839)       (2,057,501)      (1,812,047)
   Net decrease (increase) in federal funds sold                          (20,250,000)      4,720,000         (1,805,000)
                                                                         ------------    ------------       ------------

              Net cash used by investing activities                       (74,980,659)      (29,917,879)     (28,104,331)
                                                                         ------------      ------------     ------------
</TABLE>



                                   (continued)

                                       46
<PAGE>   50
GREENE COUNTY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                                            1995              1994              1993


<S>                                                                       <C>               <C>              <C>
Cash flows from financing activities:
   Net increase in demand deposits, NOW, money
      market and savings accounts                                         11,135,801        1,434,930        21,922,127
   Net increase (decrease) in certificates of deposit                     56,652,831       29,445,945           (287,631)
   Increase (decrease) in securities sold under
      agreements to repurchase                                               905,000         (1,766,000)      (2,130,000)
   Payments on long-term debt                                                (239,537)       (1,726,033)         (86,258)
   Borrowings of long-term debt                                               -             1,500,000         4,000,000
   Repurchase of common stock                                                 -                    -            (688,500)
   Proceeds from issuance and sale of common stock                            -                30,470            73,898
   Proceeds from sale of common stock subject to rescission                  851,530             -               -
   Cash dividends paid                                                     (2,052,192)       (1,795,818)      (1,637,968)
                                                                         ------------       ------------     -----------

              Net cash provided by financing activities                   67,253,433       27,123,494        21,165,668
                                                                         -----------      -----------       -----------

Net increase (decrease) in cash and cash equivalents                       (1,362,640)      4,065,442         (1,154,696)

Cash and cash equivalents at beginning of year                            15,085,747       11,020,305        12,175,001
                                                                         -----------      -----------       -----------

Cash and cash equivalents at end of year                                 $13,723,107      $15,085,747       $11,020,305
                                                                         ===========      ===========       ===========
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.


                                       47
<PAGE>   51
GREENE COUNTY BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     The accounting policies of Greene County Bancshares, Inc. (the Corporation)
     and subsidiaries conform to generally accepted accounting principles and to
     general practices of the banking industry. The following is a summary of
     the more significant policies. Certain reclassifications have been made in
     the 1994 and 1993 consolidated financial statements and accompanying notes
     to conform with the 1995 presentation.

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
     the accounts of Greene County Bancshares, Inc. and its wholly-owned
     subsidiaries, Greene County Bank and American Fidelity Bank (the Banks).
     Superior Financial, Inc., a consumer finance company, is also a
     wholly-owned subsidiary of Greene County Bancshares, Inc. All material
     intercompany balances and transactions have been eliminated in
     consolidation.

     CASH AND DUE FROM BANKS - For purposes of reporting cash flows, cash and
     due from banks include cash on hand, cash items in the process of
     collection and amounts due from banks with a maturity of less than three
     months.

     The Banks are required to maintain certain daily reserve balances on hand
     in accordance with Federal Reserve Board requirements. The average reserve
     balance maintained in accordance with such requirements was approximately
     $4,563,000 and $3,406,000 for the years ended December 31, 1995 and 1994,
     respectively.

     INVESTMENT SECURITIES - Effective January 1, 1994, the Corporation adopted
     the provisions of Financial Accounting Standards Board ("FASB") Statement
     of Financial Accounting Standards No. 115 (SFAS 115), Accounting for
     Certain Investments in Debt and Equity Securities. Investments in certain
     debt and equity securities are classified as either Held-to-Maturity
     (reported at amortized cost), Trading (reported at fair value with
     unrealized gains and losses included in earnings), or Available-for-Sale
     (reported at fair value with unrealized gains and losses excluded from
     earnings and reported as a separate component of shareholders' equity).
     During 1995, the Corporation made a one time reclassification of many of
     its securities held from the held-to-maturity category to the
     available-for-sale category. The amortized cost of the securities
     transferred was $23,125,015 with unrealized gains of $297,357 and
     unrealized losses of $16,546.

     Premiums and discounts on investment securities are recognized in interest
     income on a method which approximates the level yield method over the
     period to maturity.

     Prior to the adoption of SFAS 115, investment securities were those
     securities held for investment purposes which management determined they
     had the ability and intent to hold to maturity. Investment securities were
     stated at cost adjusted for amortization of premiums and accretion of
     discounts.

     Gains and losses from sales of investment securities are recognized at the
     time of sale based upon specific identification of the security sold.


                                       48
<PAGE>   52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     LOANS - Loans are stated at principal amounts outstanding, reduced by
     unearned income and an allowance for loan losses.

     Interest income on installment loans is recognized in a manner that
     approximates the level yield method when related to the principal amount
     outstanding. Interest on other loans is calculated using the simple
     interest method on the principal amount outstanding.

     The Banks provide an allowance for loan losses and include in operating
     expenses a provision for loan losses determined by management. Management's
     periodic evaluation of the adequacy of the allowance is based on the Banks'
     past loan loss experience, known and inherent risks in the portfolio,
     adverse situations that may affect the borrowers' experience, estimated
     value of any underlying collateral, and current economic conditions.
     Management believes it has established the allowance in accordance with
     generally accepted accounting principles and has taken into account the
     views of its regulators and the current economic environment.

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
     114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS
     No. 118, Accounting by Creditors for Impairment of a Loan-Income
     Recognition and Disclosure, on January 1, 1995. Under the new standards, a
     loan is considered impaired, based on current information and events, if it
     is probable that the Company will be unable to collect the scheduled
     payments of principal or interest when due according to the contractual
     terms of the loan agreement. Uncollateralized loans are measured for
     impairment based on the present value of expected future cash flows
     discounted at the historical effective interest rate, while all
     collateral-dependent loans are measured for impairment based on the fair
     value of the collateral. The adoption of SFAS 114 and 118 resulted in no
     additional provision for credit losses, at January 1, 1995.

     At December 31, 1995, the recorded investment in loans for which impairment
     has been recognized in accordance with SFAS 114 was approximately $902,000,
     and these loans had a corresponding valuation allowance of $135,300. The
     impaired loans at December 31, 1995, were measured for impairment using the
     fair value of the collateral as all of these loans were collateral
     dependent. For the year ended December 31, 1995, the average recorded
     investment in impairment loans was approximately $696,000.

     The Company uses several factors in determining if a loan is impaired under
     SFAS No. 114. The internal asset classification procedures include a
     thorough review of significant loans and lending relationships and include
     the accumulation of related data. This data includes loan payment status,
     borrowers' financial data and borrowers' operating factors such as cash
     flows, operating income or loss, etc.

     Increases and decreases in the allowance from loan losses due to changes in
     the measurement of the impaired loans are included in the provision for
     credit losses. Loans continue to be classified as impaired unless they are
     brought fully current and the collection of scheduled interest and
     principal is considered probable.



                                       49
<PAGE>   53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     When a loan or portion of a loan is determined to be uncollectible, the
     portion deemed uncollectible is charged against the allowance and
     subsequent recoveries, if any, are credited to the allowance.

     Loans, including impaired loans, are generally classified as nonaccrual if
     they are past due as to maturity or payment of principal or interest for a
     period of more than 90 days, unless such loans are well-secured and in the
     process of collection. If a loan or a portion of a loan is classified as
     doubtful or is partially charged off, the loan is generally classified as
     nonaccrual. Loans that are on a current payment status or past due less
     than 90 days may also be classified as nonaccrual if repayment in full of
     principal and/or interest is in doubt.

     Loans may be returned to accrual status when all principal and interest
     amounts contractually due (including arrearages) are reasonably assured of
     repayment within an acceptable period of time, and there is a sustained
     period of repayment performance (generally a minimum of six months) by the
     borrower, in accordance with the contractual terms of interest and
     principal.

     While a loan is classified as nonaccrual and the future collectibility of
     the recorded loan balance is doubtful, collections of interest and
     principal are generally applied as a reduction to principal outstanding,
     except in the case of loans with scheduled amortizations where the payment
     is generally applied to the oldest payment due. When the future
     collectibility of the recorded loan balance is expected, interest income
     may be recognized on a cash basis. In the case where a nonaccrual loan had
     been partially charged off, recognition of interest on a cash basis is
     limited to that which would have been recognized on the recorded loan
     balance at the contractual interest rate. Receipts in excess of that amount
     are recorded as recoveries to the allowance for loan losses until prior
     charge-offs have been fully recovered.

     PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
     accumulated depreciation and amortization computed principally on the
     straight-line method based on the estimated useful lives of the respective
     assets. Leasehold improvements are stated at cost adjusted for accumulated
     amortization computed on a straight-line method over the shorter of the
     estimated useful life of the assets or the term of the lease.

     OTHER REAL ESTATE OWNED - Other real estate owned represents real estate
     acquired through foreclosure or repossession and is initially recorded at
     the lower of cost (principal balance and any accrued interest of the former
     loan plus costs of obtaining title and possession) or fair value minus
     estimated costs to sell. Initial writedowns are charged against the
     allowance for loan losses. Initial costs relating to the development and
     improvement of the property are capitalized and considered in determining
     the fair value of the property, whereas those costs relating to holding the
     property are expensed. Valuations are periodically performed by management
     and if the carrying value of a property exceeds its net realizable value
     the property is written down by a charge against income.



                                       50
<PAGE>   54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     INCOME TAXES - The Corporation files a consolidated federal income tax
     return. In January 1993, the Corporation adopted Statement of Financial
     Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. The
     adoption of SFAS 109 changed the Corporation's method of accounting for
     income taxes from the deferred method (under Accounting Principles Board
     Statement No. 11) to an asset and liability approach.

     There are two components of the income tax provision; current and deferred.
     Current income tax provisions approximate taxes to be paid or refunded for
     the applicable period. Balance sheet amounts of deferred taxes are
     recognized on the temporary differences between the bases of assets and
     liabilities as measured by tax laws and their bases as reported in the
     financial statements. Deferred tax expense or benefit is then recognized
     for the change in deferred tax liabilities or assets between periods.

     Recognition of deferred tax assets is based on management's belief that it
     is more likely than not that the tax benefit associated with certain
     temporary differences and tax credits will be realized in that sufficient
     taxes have been paid in prior years to provide for such realization.

     RETIREMENT BENEFITS - The Corporation has established a defined
     contribution plan; the cost of which is charged to current operations.
     Additionally the Corporation has established certain supplemental deferred
     compensation plans which are funded through insurance policies as described
     in Note 10.

     NET INCOME PER SHARE OF COMMON STOCK - Net income per share of common stock
     is computed by dividing net income by the weighted average number of common
     shares, common shares subject to rescission, and common stock equivalents
     outstanding during each year. Stock options are regarded as common stock
     equivalents. Common stock equivalents are computed using the treasury stock
     method. The weighted average number of shares outstanding was 445,170 for
     1995, 443,188 for 1994, and 445,900 for 1993.

     TRUST ASSETS - Assets held by the Corporation in trust capacities are not
     included in the accompanying consolidated balance sheets because such items
     are not assets of the Corporation.

     STOCK-BASED COMPENSATION - The FASB has issued SFAS No. 123, Accounting for
     Stock-Based Compensation effective for fiscal years beginning after
     December 15, 1995. The Corporation intends to adopt the disclosure
     provisions of the Statement in 1996.

     SIGNIFICANT ESTIMATES - The preparation of financial statements in
     conformity with generally accepted accounting principles requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the dates of the financial statements and the reported
     amounts of revenues and expenses during the reporting periods. Two
     significant estimates of the Corporation include the allowance for loan
     loss and allowance for other real estate owned. Actual results could differ
     from those estimates.



                                       51
<PAGE>   55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.   SECURITIES:

     At December 31, 1995 and 1994, securities have been classified in the
     consolidated financial statements according to management's intent. The
     carrying amount of securities and their approximate market values at
     December 31, 1995 and 1994, were as follows:

     1995

<TABLE>
<CAPTION>
                                                   GROSS             GROSS           GROSS         APPROXIMATE
                                                 AMORTIZED        UNREALIZED      UNREALIZED         MARKET
                                                   COST              GAINS          LOSSES            VALUE

<S>                                              <C>               <C>              <C>              <C>
     Available-for-sale:
       U.S. treasury securities and
         obligations of U.S. government
         corporations and agencies               $59,451,721       $484,938         $103,186         $59,833,473
                                                 ===========       ========         ========         ===========

     Held-to-maturity:
       Obligations of state and political

         subdivisions                            $ 9,375,472        $17,245          $38,617         $ 9,354,100
       Federal Home Loan Bank stock                1,066,155             -                -            1,066,155
                                                  ----------            ---              ---          ----------

                                                 $10,441,627        $17,245          $38,617         $10,420,255
                                                 ===========        =======          =======         ===========

     1994

     Available-for-sale:
       U.S. treasury securities and

         obligations of U.S. government

         corporations and agencies               $39,056,130        $26,930         $980,565         $38,102,495
       Obligations of state and political
         subdivisions                                  6,734             -                -                6,734
                                                      ------            ---              ---       -------------

                                                 $39,062,864        $26,930         $980,565         $38,109,229
                                                 ===========        =======         ========         ===========

     Held-to-maturity:
       U.S. treasury securities and

         obligations of U.S. government

         corporations and agencies               $21,991,630       $228,954         $ 24,884         $22,195,700
       Obligations of state and political
         subdivisions                              9,415,231         23,217          277,148           9,161,300
       Federal Home Loan Bank stock                  857,700             -                -              857,700
                                                    --------            ---              ---            --------

                                                 $32,264,561       $252,171         $302,032         $32,214,700
                                                 ===========       ========         ========         ===========
</TABLE>




                                       52
<PAGE>   56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.   SECURITIES, CONTINUED:

     Interest income from securities for the years ended December 31, 1995, 1994
and 1993 consist of:

<TABLE>
<CAPTION>
                                                                      1995             1994              1993

<S>                                                                <C>               <C>              <C>       
     U.S. treasury securities                                      $1,084,503        $1,565,806       $1,341,766
     Obligations of other U.S. government
       corporations and agencies                                    2,590,906         2,112,716        2,214,640
     Obligations of states and political
       subdivisions                                                   370,034           557,011          842,043
     Other securities                                                  59,533            62,028           24,732
                                                                  -----------           -------          -------

                                                                   $4,104,976        $4,297,561       $4,423,181
                                                                   ==========        ==========       ==========
</TABLE>


     Gross realized gains and losses on all sales of securities for the years
     ended December 31, 1995, 1994, and 1993, are as follows:

<TABLE>
<CAPTION>
                                                                      1995              1994             1993

<S>                                                                  <C>                <C>               <C>
     Gross realized gains:
       Available-for-sale                                            $1,373             $21,453           $ -
       Investment securities                                         -                       -            26,556
                                                                 ----------                 ---          -------

                                                                     $1,373             $21,453          $26,556
                                                                     ======             =======          =======

     Gross realized losses:

       Available-for-sale                                          $   -               $106,888           $ -
       Investment securities                                           -                     -            11,800
                                                                    -------                 ---          -------

                                                                   $   -               $106,888          $11,800
                                                                   ========            ========          =======
</TABLE>



                                       53
<PAGE>   57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.   SECURITIES, CONTINUED:

     Debt securities at December 31, 1995, will mature on the following
schedule:

<TABLE>
<CAPTION>
                                                      AVAILABLE-FOR-SALE                   HELD-TO-MATURITY

                                                                   APPROXIMATE                       APPROXIMATE
                                                     BOOK            MARKET            BOOK            MARKET
                                                     VALUE            VALUE            VALUE            VALUE

<S>                                                <C>             <C>                <C>             <C>       
     Due in one year or less                       $17,509,444     $17,492,233        $1,511,274      $1,512,500
     Due after one year through
       five years                                    5,626,536       5,695,416         6,734,774       6,714,000
     Due after five years through
       ten years                                    14,812,290      14,896,572           609,905         605,600
     Due after ten years                            21,503,451      21,749,252           519,519         522,000
                                                   -----------     -----------       -----------     -----------

                                                   $59,451,721     $59,833,473        $9,375,472      $9,354,100
                                                   ===========     ===========        ==========      ==========
</TABLE>


     Investment securities with book and market values of $19,298,953 and
     $19,248,100 at December 31, 1995, respectively and $32,047,193 and
     $31,946,800 at December 31, 1994, respectively, were pledged to secure
     public and trust deposits and for other purposes as required or permitted
     by law.

3.   LOANS:

     Major classifications of loans at December 31, 1995 and 1994, are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                    1995              1994

<S>                                                                              <C>              <C>
       Commercial                                                                $ 75,502,470     $ 56,754,639
       Commercial real estate                                                      73,719,533       63,499,309
       Mortgage installment                                                        92,276,492       79,704,848
       Installment real estate                                                        556,560          711,558
       Installment consumer                                                        55,876,354       44,024,969
       Other loans                                                                  2,772,096        2,832,282
                                                                                -------------       ----------

                                                                                  300,703,505      247,527,605

       Less:

          Unearned income                                                           (2,214,855)      (2,827,354)
          Allowance for loan losses                                                 (4,654,234)      (3,446,762)
                                                                                  ------------      -----------

                                                                                  $293,834,416     $241,253,489
                                                                                  ============     ============
</TABLE>


                                       54
<PAGE>   58


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.   LOANS, CONTINUED:

     At December 31, 1995 and 1994, loans on which the accrual of interest had
     been discontinued totaled $901,580 and $648,625, respectively. Unrecorded
     interest income on these loans aggregated approximately $116,300, $68,270
     and $6,746 for 1995, 1994 and 1993, respectively.

     A summary of activity in the allowance for loan losses for the years ended
     December 31, 1995, 1994 and 1993, was as follows:

<TABLE>
<CAPTION>
                                       1995              1994             1993

<S>                                <C>                <C>                <C>       
Balance at beginning of year       $ 3,446,762        $ 3,061,988        $ 2,528,945
Provision for loan losses            1,423,656            994,000            833,809
Recoveries                             455,778            750,250            206,346
                                   -----------        -----------        -----------

                                     5,326,196          4,806,238          3,569,100
Loans charged to allowance            (671,962)        (1,359,476)          (507,112)
                                   -----------        -----------        -----------

Balance at end of year             $ 4,654,234        $ 3,446,762        $ 3,061,988
                                   ===========        ===========        ===========
</TABLE>


4.   RELATED PARTY TRANSACTIONS:

     Certain officers, employees and directors and/or companies in which they
     have ten percent or more beneficial ownership were indebted to the Banks as
     indicated below. In the opinion of management all such loans were made in
     the ordinary course of business on the same terms, including interest rates
     and collateral, as those prevailing at the time for comparable transactions
     with unrelated borrowers and did not involve more than the normal risk of
     collectibility.

<TABLE>
<S>                                                                  <C>
          Balance, December 31, 1993                                 $13,552,094
             Additions                                                 3,065,577
             Reductions                                               (3,874,460)
                                                                      -----------

          Balance, December 31, 1994                                  12,743,211
             Additions                                                 5,928,364
             Reductions                                               (3,947,070)
                                                                     ------------

          Balance, December 31, 1995                                 $14,724,505
                                                                     ===========
</TABLE>



                                       55
<PAGE>   59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.   RELATED PARTY TRANSACTIONS, CONTINUED:

     In addition to the above, the Banks provide financing for purchasers of
     automotive and other transportation equipment from dealerships in which
     directors have more than a ten percent beneficial interest. Loans
     originated through these dealerships aggregated $2,880,711 during 1995 and
     $4,896,209 for 1994. Such financing is represented by installment notes
     that are the obligations of the purchasers and are primarily collateralized
     by the equipment. Some of these notes, totaling $1,041,964 and $1,419,762
     at December 31, 1995 and 1994, respectively, are secondarily collateralized
     by dealer finance reserves and also provide for recourse against the
     dealerships to further protect the Banks against potential losses.

5.   PREMISES AND EQUIPMENT:

     Premises and equipment at December 31, 1995 and 1994, was comprised of the
following:

<TABLE>
<CAPTION>
                                                                                        1995              1994

          <S>                                                                      <C>                 <C>      
          Land                                                                     $    825,781        $ 712,624
          Banking quarters                                                            6,021,351        5,441,415
          Leasehold improvements                                                        874,704          849,372
          Furniture and fixtures                                                      5,003,262        4,474,088
          Construction in progress                                                      701,553            1,107
          Automobiles                                                                    64,132           64,132
                                                                                    -----------          -------

                                                                                     13,490,783       11,542,738

          Less accumulated depreciation and amortization                             (5,151,383)      (4,500,558)
                                                                                    ------------       -----------

                                                                                    $ 8,339,400      $ 7,042,180
                                                                                    ===========      ===========
</TABLE>


6.   DEPOSITS:

     The components of interest expense on deposits for the years ended December
     31, 1995, 1994 and 1993, were:

<TABLE>
<CAPTION>
                                                                      1995             1994              1993
     Interest bearing accounts:

<S>                                                               <C>                <C>              <C>       
        NOW                                                       $ 1,385,871        $1,242,285       $1,300,819
        Money market transaction                                      796,167           881,000        1,062,963
        Savings                                                       985,319         1,055,482        1,014,666
        Certificates of deposit $100,000 and over                   1,723,218           760,064          745,763
        Other certificates of deposit                               8,126,246         4,091,725        3,704,064
                                                                  -----------        ----------       ----------

                                                                  $13,016,821        $8,030,556       $7,828,275
                                                                  ===========        ==========       ==========
</TABLE>



                                       56
<PAGE>   60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.   LONG-TERM DEBT:

     During 1993, one of the Banks entered into a long-term debt arrangement
     with the Federal Home Loan Bank of Cincinnati to provide funding for the
     origination of fixed rate mortgages. The long-term debt is collateralized
     by that Bank's blanket pledge of mortgage loans aggregating approximately
     $5,172,000 and stock of the Federal Home Loan Bank.

     Long-term debt at December 31, 1995 and 1994, was summarized as follows:

<TABLE>
<CAPTION>
                                                                                      1995              1994


<S>                                                                                  <C>             <C>
        5.65% note, payable in monthly installments of
           $21,854 through July 1, 2003                                              $1,614,497      $1,780,407
        6.35% note, payable in monthly installments of
           $7,368 through September 1, 2013                                             939,916         967,679
        6.10% note, payable in monthly installments of
           $8,493 through July 1, 2008                                                  893,759         939,623
                                                                                    -----------        --------

                                                                                     $3,448,172      $3,687,709
                                                                                    ===========      ==========
</TABLE>


     Scheduled principal maturities of long-term debt outstanding as of December
31, 1995, are:

<TABLE>
                                    <S>                              <C>        
                                    1996                             $   255,080
                                    1997                                 270,324
                                    1998                                 286,482
                                    1999                                 303,605
                                    2000                                 321,753
                                    Thereafter                         2,010,928
                                                                      ----------
                                                                      $3,448,172
                                                                      ========== 
</TABLE>


     At December 31, 1995, the Corporation maintained an unused line of credit
     of $5,000,000 with interest at prime with a correspondent bank. The
     Corporation also maintains an unused line of credit of $10,000,000 with the
     Federal Home Loan Bank of Cincinnati with the option of selecting a
     variable rate of interest for up to 90 days or a fixed rate for a maximum
     of 30 days. The line of credit will expire on May 15, 1996.

8.   LEASES:

     The Corporation leases certain banking facilities and equipment under
     long-term operating lease agreements which generally contain renewal
     options for periods ranging from 5 to 30 years and require the payment of
     certain additional costs (generally maintenance and insurance).



                                       57
<PAGE>   61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.   LEASES, CONTINUED:

     Future minimum lease payments for these noncancelable operating leases,
     with a term in excess of one year, at December 31, 1995, for each of the
     years in the five year period ending December 31, 2000, and thereafter were
     as follows:

<TABLE>
                                    <S>                        <C>     
                                    1996                       $154,294
                                    1997                        132,909
                                    1998                        121,137
                                    1999                        105,030
                                    2000                         30,645
                                    Thereafter                    3,325
                                                              ---------

                                                               $547,340
                                                               ========
</TABLE>


     The total rental expense for operating leases was $164,977, $100,316 and
     $63,720 for the years ended December 31, 1995, 1994 and 1993, respectively.

9.   STOCK OPTIONS:

     On January 6, 1989, the Corporation established a stock option plan,
     whereby a certain key executive was granted options to purchase 300 shares
     per year of the Corporation's stock at one and one-half times book value at
     each year end. The number of options granted per year was increased to 600
     as a result of a 1991 stock split. The options expire ten years from the
     date of grant and are cancelled if the key executive voluntarily resigns
     his employment or is terminated for cause. Compensation expense recognized
     was $24,000, $20,400 and $15,600 for the years ended December 31, 1995,
     1994 and 1993, respectively.

     During 1993, the Corporation granted certain other key executives stock
     option awards to purchase 1,000 shares of the Corporation's stock at $145
     per share (market price at date of grant). In December 1995 and 1994, the
     Corporation granted additional stock options to certain key executives to
     purchase 1,300 and 1,000 shares at $180 and $160 per share, respectively.
     If a key executive is a 10 percent or greater stockholder at the time of
     exercise, the option price is increased by 10 percent. The options awarded
     vest at year end at the rate of 20 percent per year and expire ten years
     from the date of grant.


                                       58
<PAGE>   62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.   STOCK OPTIONS, CONTINUED:

     Following is a summary of the stock options for the years ended December
31, 1995 and 1994:


<TABLE>
<CAPTION>
                                                      NUMBER OF OPTIONS    OPTION PRICE

<S>                                                          <C>       <C>       <C>
         December 31, 1992                                   3,292     $ 88.61 - 110.93
             Grants                                            600      118.91 - 145.00
             Exercises                                        -
                                                             -----

         December 31, 1993                                   3,892       88.61 - 145.00
             Grants                                          1,600      126.08 - 160.00
             Exercises                                        (344)              88.61
                                                             -----

         December 31, 1994                                   5,148       88.61 - 160.00
             Grants                                          1,900      140.55 - 180.00
             Exercises                                        -
                                                             -----

         December 31, 1995                                   7,048     $ 88.61 - 180.00
                                                             =====
</TABLE>


10.   PROFIT SHARING AND DEFERRED COMPENSATION:

      The Corporation has a contributory profit-sharing plan covering all
      employees with one year or more of service. Participating employees are
      required to contribute at least 3 percent of their monthly salary to the
      Plan and the Corporation contributes to the Plan up to 10 percent of its
      profit before taxes (not to exceed 15 percent of the total compensation of
      participating employees). The contributions by the Corporation were
      $427,666, $396,192 and $360,424 for 1995, 1994 and 1993, respectively.

      The Banks have established supplemental benefit plans for selected
      officers and directors. These plans are nonqualified and therefore, in
      general, a participant's or beneficiary's claim to benefits is as a
      general creditor.

      Certain current and retired key officers participate in a deferred
      compensation plan which provides for a defined benefit upon retirement.
      Payment of benefits under such plans is contingent upon employment to
      retirement, obtaining retirement age in the event of disability, or upon
      death. The cost of such plans is being charged to operations over the
      period of active employment from the contract date.

      In 1993, a plan was established whereby directors of the Corporation and
      the Banks have the right to participate in a deferred compensation plan
      which permits the directors to defer director compensation and earn a
      guaranteed interest rate on such deferred amounts. Compensation costs
      associated with the plan are charged to operations.


                                       59


<PAGE>   63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.   PROFIT SHARING AND DEFERRED COMPENSATION, CONTINUED:

      Included in accrued interest and other liabilities in the consolidated
      financial statements is $608,018 and $415,209 at December 31, 1995 and
      1994, respectively, related to the above supplemental benefit plans. To
      fund these plans the Corporation purchased single premium universal life
      insurance contracts on the lives of the related directors and officers.
      The cash surrender value of such contracts is included in the consolidated
      balance sheet. If all of the assumptions regarding mortality, interest
      rates, policy dividends, and other factors are realized, the Corporation
      will ultimately realize its full investment in such contracts.

11.   INCOME TAXES:

      The components of income tax expense for the years ended December 31,
      1995, 1994 and 1993, were:

<TABLE>
<CAPTION>
                                              1995             1994              1993
         Current income taxes

<S>                                         <C>                <C>                <C>       
              Federal                       $ 2,914,271        $ 2,450,101        $ 2,055,251
              State                             406,708            409,965            428,028
                                            -----------        -----------        -----------

                                              3,320,979          2,860,066          2,483,279
          Deferred income tax benefit          (568,718)          (349,744)          (261,926)
                                            -----------        -----------        -----------

                                            $ 2,752,261        $ 2,510,322        $ 2,221,353
                                            ===========        ===========        ===========
</TABLE>


      The Corporation adopted SFAS 109 effective January 1, 1993. The
      implementation of SFAS 109 resulted in a decrease in the Corporation's
      deferred tax assets of $52,273.

      A reconciliation of expected federal tax expense based on the federal
      statutory rate of 34 percent to consolidated tax expense for the years
      ended December 31, 1995, 1994 and 1993, was as follows:

<TABLE>
<CAPTION>
                                                                  1995             1994              1993

<S>                                                           <C>                <C>                <C>        
          Tax at statutory rates                              $ 2,672,638        $ 2,383,984        $ 2,223,102
          Tax increases (decreases) attributable to:
              Tax exempt interest                                (122,480)          (188,581)          (289,499)
              State income tax less federal tax benefit           268,427            276,517            256,171
              Interest expense disallowed                          23,860             19,649             25,118
              Other                                               (90,184)            18,753              6,461
                                                              -----------        -----------        -----------

                                                              $ 2,752,261        $ 2,510,322        $ 2,221,353
                                                              ===========        ===========        ===========
</TABLE>



                                       60


<PAGE>   64


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.   INCOME TAXES, CONTINUED:

      The significant components of the Corporation's deferred tax assets and
      liabilities at December 31, 1995 and 1994, were as follows:

<TABLE>
<CAPTION>
                                                                               1995              1994

<S>                                                                         <C>              <C>       
          Deferred tax assets:
             Allowance for loan losses and other real estate owned          $1,694,540       $1,168,333
             Unrealized depreciation on available-for-sale securities             --            362,380
             Deferred compensation                                             230,888          157,375
             Other                                                              65,692           39,489
                                                                            ----------       ----------

                 Gross deferred tax assets                                   1,991,120        1,727,577
                                                                            ----------       ----------

          Deferred tax liabilities:

             Depreciation                                                      349,619          344,162
             Unrealized appreciation on available-for-sale securities          145,291             --
             Other                                                              41,116           19,988
                                                                            ----------       ----------

                 Gross deferred tax liabilities                                536,026          364,150
                                                                            ----------       ----------

          Net deferred tax asset                                            $1,455,094       $1,363,427
                                                                            ==========       ==========
</TABLE>


12.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:

      The Banks are party to financial instruments with off-balance-sheet risk
      in the normal course of business to meet the financing needs of their
      customers and to reduce their own exposure to fluctuations in interest
      rates. These financial instruments include commitments to extend credit
      and standby letters of credit. These instruments involve, to varying
      degrees, elements of credit and interest rate risk in excess of the amount
      recognized in consolidated balance sheets.

      The Banks' exposure to credit loss in the event of nonperformance by the
      other party to the financial instrument for commitments to extend credit
      and standby letters of credit is represented by the contractual notional
      amount of those instruments. The Banks use the same credit policies in
      making these commitments and conditional obligations as they do for
      on-balance-sheet instruments.

      Commitments to extend credit are agreements to lend to a customer as long
      as there is no violation of any condition established in the contract.
      Commitments generally have fixed expiration dates or other termination
      clauses and may require payment of a fee. Since many commitments expire
      without being drawn upon, the total commitment amounts do not necessarily
      represent future cash requirements. The Banks evaluate each customer's
      credit worthiness on a case-by-case basis. The amount of collateral
      obtained if deemed necessary by the Banks upon extension of credit is
      based on management's credit evaluation of the borrower. Collateral held
      varies but may include marketable securities, trade accounts receivable,
      property, plant, and equipment and/or income-producing commercial
      properties.


                                       61


<PAGE>   65


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED:

      Standby letters of credit are conditional commitments issued by the Banks
      to guarantee the performance of a customer to a third party. The credit
      risk involved in issuing letters of credit is essentially the same as that
      involved in extending loan facilities to customers.

      Most of the Banks' business activities are with customers located within
      the state of Tennessee for residential, consumer and commercial loans. A
      majority of the loans are secured by residential or commercial real estate
      or other personal property. The loans are expected to be repaid from cash
      flow or proceeds from the sale of selected assets of the borrowers.

      Outstanding standby letters of credit as of December 31, 1995 and 1994
      amounted to $1,832,150 and $2,861,900, respectively. Outstanding
      commitments to lend at fixed rates were $939,000 and $1,615,000 and at
      variable rates were $3,396,000 and $11,181,000 at December 31, 1995 and
      1994, respectively. Undisbursed advances on customer lines of credit were
      $38,536,000 and $33,311,000 at December 31, 1995 and 1994, respectively.
      The amount available for borrowing under inventory collateralized loans
      was $5,733,000 at December 31, 1995 and $3,743,000 at December 31, 1994.
      The Banks do not anticipate any losses as a result of these transactions
      that would be unusual in relation to its historical levels of loan losses
      on its recorded loan portfolio.

13.   CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS:

      Regulatory capital guidelines of the Federal Reserve Board for bank
      holding companies which were in effect at December 31, 1995, required a
      minimum of 5.5 percent for a primary capital ratio (essentially equity
      plus the allowance for loan losses), 6.0 percent for a total capital ratio
      (primary capital plus qualifying debt) and 8 percent risk-based capital.
      The risk-based guideline is based on the assignment of risk weights to
      assets and off-balance sheet items depending on the level of credit risk
      associated with them. The Banks' capital ratios were in excess of the
      minimum regulatory requirements.

      The Corporation's principal source of funds is dividends received from the
      Banks. Under applicable banking laws, the declaration of dividends in any
      year in excess of the sum of net income of that year and retained earnings
      of the preceding two years must be approved by bank regulatory
      authorities. At December 31, 1995 and 1994, approximately $8,389,000 and
      $7,650,000, respectively were available for the payment of dividends from
      the Banks to the Corporation without approval by bank regulatory
      authorities.

14.   ADDITIONAL CASH FLOW INFORMATION:

      Income taxes paid during the years ended December 31, 1995, 1994 and 1993
      amounted to $3,617,622, $2,890,684 and $2,723,330, respectively. Interest
      expense paid in cash during the years 1995, 1994 and 1993 amounted to
      $12,360,091, $8,342,385 and $8,024,925, respectively.


                                       62
<PAGE>   66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.   ADDITIONAL CASH FLOW INFORMATION, CONTINUED:

      Significant noncash transactions for the years ended December 31, 1995,
      1994 and 1993, were as follows:

<TABLE>
<CAPTION>
                                                                       1995             1994              1993

<S>                                                                  <C>             <C>                  <C>     
         Financed sales of other real estate owned                   $159,000        $1,044,876           $256,200
         Foreclosed loans transferred to OREO                         124,767           391,893             79,954
         Transfer of OREO to premises                                  -                 74,763                 -
</TABLE>


15.   PARENT COMPANY FINANCIAL INFORMATION:

      Condensed financial information for Greene County Bancshares, Inc.
      (parent company only) was as follows:

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,

          ASSETS                                                                  1995               1994

<S>                                                                           <C>                <C>
          Cash                                                                $  1,186,519       $    148,039
          Investment in subsidiaries                                            39,319,173         35,617,451
          Premises and equipment, net                                              711,999            730,232
          Cash surrender value of life insurance contracts                         177,980            168,488
          Deferred income taxes                                                       --              365,702
          Other assets                                                             672,088            178,982
                                                                              ------------       ------------

                 Total assets                                                 $ 42,067,759       $ 37,208,894
                                                                              ============       ============

          LIABILITIES

          Deferred income taxes                                               $    141,969       $       --
          Other liabilities                                                           --               18,597
                                                                              ------------       ------------

                                                                                   141,969             18,597
                                                                              ------------       ------------

          Common stock subject to rescission                                       851,530               --
                                                                              ------------       ------------

          SHAREHOLDERS' EQUITY

          Common stock                                                           4,424,440          4,424,440
          Paid-in capital                                                        2,914,724          2,914,724
          Retained earnings                                                     33,498,636         30,442,388
          Net unrealized depreciation on available-for-sale securities,
            net of income tax (benefit) of $145,291 and $(362,380)

            in 1995 and 1994, respectively                                         236,460           (591,255)
                                                                              ------------       ------------

                 Total shareholders' equity                                     41,074,260         37,190,297
                                                                              ------------       ------------

                 Total liabilities and shareholders' equity                   $ 42,067,759       $ 37,208,894
                                                                              ============       ============
</TABLE>



                                       63
<PAGE>   67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.   PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:

                                     CONDENSED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                               1995             1994              1993

<S>                                                        <C>               <C>                <C>        
          Revenue:
            Equity in earnings of subsidiaries             $ 5,184,674       $ 4,532,218        $ 4,278,884
            Interest income                                       --               3,752             24,399
            Other income                                        53,837            62,593            139,452
                                                           -----------       -----------        -----------

                 Total revenue                               5,238,511         4,598,563          4,442,735

          Expenses                                              92,586            99,315            129,882
                                                           -----------       -----------        -----------

          Income before income taxes and cumulative
            effect of change in method of accounting
            for income taxes                                 5,145,925         4,499,248          4,312,853

          Income tax expense (benefit)                          37,485            (2,148)            38,849
                                                           -----------       -----------        -----------

          Income before cumulative effect of change
            in method of accounting for income taxes         5,108,440         4,501,396          4,274,004
          Cumulative effect of change in method of
            accounting for income taxes                           --                --               (9,095)
                                                           -----------       -----------        -----------

          Net income                                       $ 5,108,440       $ 4,501,396        $ 4,264,909
                                                           ===========       ===========        ===========
</TABLE>



                                       64
<PAGE>   68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.   PARENT COMPANY FINANCIAL INFORMATION, CONTINUED:

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                                 1995             1994             1993

          Cash flows from operating activities:

<S>                                                                             <C>                <C>                <C>        
             Net income                                                         $ 5,108,440        $ 4,501,396        $ 4,264,909
          Adjustments to reconcile net income to
             net cash used by operating activities:

                 Equity in earnings of subsidiaries                              (5,184,674)        (4,532,218)        (4,278,884)
                 Effect of change in method of accounting
                   for income taxes                                                    --                 --                9,095
                 Decrease in receivable from subsidiaries                                                 --              163,893
                 Other                                                               18,233            (19,973)             3,122
                 Increase in other assets                                          (493,106)              --                 --
                 Increase (decrease) in other liabilities                           (18,597)             9,249           (642,709)
                                                                                -----------        -----------        -----------

                      Net cash used by operating activities                        (569,704)           (41,546)          (480,574)
                                                                                -----------        -----------        -----------

          Cash flows from investing activities:

             Proceeds from maturities of investment securities                                          78,772            622,951
             Increase in cash surrender value of life insurance contracts            (9,492)            (2,987)          (155,491)
             Dividends from subsidiaries                                          2,818,338          2,795,818          1,637,968
             Fixed assets additions                                                    --                 --              (86,207)
                                                                                -----------        -----------        -----------

                      Net cash provided by investing activities                   2,808,846          2,871,603          2,019,221
                                                                                -----------        -----------        -----------

          Cash flows from financing activities:

             Capital contributed to subsidiary                                         --           (1,000,000)              --
             Repurchase of common stock                                                --                 --             (688,500)
             Proceeds from issuance and sale of common stock                           --               30,470             73,898
             Proceeds from sale of common stock subject to rescission               851,530               --                 --
             Dividends paid                                                      (2,052,192)        (1,795,818)        (1,637,968)
                                                                                -----------        -----------        -----------

                      Net cash used by financing activities                      (1,200,662)        (2,765,348)        (2,252,570)
                                                                                -----------        -----------        -----------

          Net increase (decrease) in cash                                         1,038,480             64,709           (713,923)

          Cash at beginning of year                                                 148,039             83,330            797,253
                                                                                -----------        -----------        -----------

          Cash at end of year                                                   $ 1,186,519        $   148,039        $    83,330
                                                                                ===========        ===========        ===========
</TABLE>



                                       65
<PAGE>   69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.   COMMITMENTS AND CONTINGENCIES:

      The Corporation and Banks are involved in various claims and legal actions
      arising in the ordinary course of business. In the opinion of management,
      the ultimate disposition of these matters will not have a material adverse
      effect on the Corporation's consolidated financial position or results of
      operations.

17.   FAIR VALUES OF FINANCIAL INSTRUMENTS:

      The following information is presented as required by Statement of
      Financial Accounting Standards No. 107, Disclosures About Fair Value of
      Financial Instruments. For financial instruments not described below,
      generally short term financial instruments, book value approximates fair
      value. The following methods and assumptions were used to estimate the
      fair value of each class of financial instruments:

      SECURITIES AND INTEREST BEARING DEPOSITS - Fair values of securities and
      interest bearing deposits are based on quoted market prices. If a quoted
      market price is not available, fair value is estimated using quoted market
      prices for similar securities.

      FEDERAL FUNDS SOLD - Fair values of federal funds sold are based on quoted
      market prices.

      LOANS, NET - The fair value for loans is estimated by discounting the
      future cash flows using the current rates at which similar loans would be
      made to borrowers with similar credit ratings and for the same remaining
      maturities.

      DEPOSITS - The fair value of demand deposits, savings accounts and money
      market deposits is the amount payable on demand at the reporting date. The
      fair value of certificates of deposit is estimated by discounting the
      future cash flows using the current rate offered for similar deposits with
      the same remaining maturities.

      SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Fair values of securities
      sold under agreements to repurchase are based on quoted market prices.


                                       66


<PAGE>   70


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

17.   FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:

      The estimated fair values of the Corporation's financial instruments at
      December 31, 1995 and 1994, were as follows (rounded to the nearest
      thousand):


<TABLE>
<CAPTION>
                                                                1995                             1994
                                                      -------------------------        --------------
                                                      CARRYING           FAIR           CARRYING          FAIR
                                                        VALUE            VALUE            VALUE           VALUE

<S>                                                <C>               <C>             <C>              <C>
      Financial assets:
        Securities                                 $ 70,125,000      $ 70,701,000    $ 70,374,000     $ 70,324,000
        Federal funds sold                           23,800,000        23,800,000       3,550,000        3,550,000
        Loans, net                                  293,834,000       294,133,000     241,253,000      238,724,000

      Financial liabilities:

        Deposits                                   $365,951,000      $367,782,000    $298,162,000     $297,780,000
        Securities sold under agreements
          to repurchase                               4,784,000         4,784,000       3,879,000        3,878,000
        Long-term debt                                3,448,000         3,444,000       3,688,000        3,683,000
</TABLE>


      The Corporation believes that the fair value of commitments to extend
      credit and standby letters of credit approximate the stated amounts at
      December 31, 1995 and 1994.

18.   SUBSEQUENT EVENT:

      The Corporation acquired all of the stock of Premier Bancshares, Inc. and
      thereby, indirectly all the shares of Premier Bank of East Tennessee, on
      January 1, 1996. The Corporation has accounted for this acquisition as a
      purchase under generally accepted accounting principles. Premier Bank of
      East Tennessee conducts its business from its main office in Niota,
      Tennessee and from its full service branch in Athens, Tennessee.

      On September 30, 1995, Premier Bank of East Tennessee had total deposits
      of $21,961,000 and total assets of $24,256,000. The primary market area of
      Premier Bank of East Tennessee is McMinn County, Tennessee, which includes
      the cities of Niota and Athens, Tennessee. Premier Bank competes primarily
      with four commercial banks and one savings and loan association in its
      market area.

19.   COMMON STOCK SUBJECT TO RESCISSION:

      On May 31, 1995, the Company forwarded a letter to several hundred
      potential subscribers for common stock of the Company. The response to the
      letter resulted in a sale of 5,009 shares of the Company's common stock to
      192 new shareholders (the "New Shareholders"). The Company received
      approximately $851,530 in payment for the newly issued common shares. No
      commissions or other fees were paid or received by the Company or any
      other person in connection with the sale of such shares. The Company is
      making a rescission offer to the New Shareholders (the "Rescission
      Offer"). The need for the Rescission Offer arises from the sale of the
      common stock to the New Shareholders without registration with the
      Securities and Exchange Commission and the necessary state securities
      divisions or the availability of an exemption from registration.


                                       67
<PAGE>   71


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

19.   COMMON STOCK SUBJECT TO RESCISSION, CONTINUED:

      In the Rescission Offer the Company is offering to rescind the sale of the
      shares issued to the New Shareholders and to refund the consideration paid
      for such shares, plus interest from the date of payment through the date
      the Company receives notice of a New Shareholder's election to rescind,
      less any amount of income received on such stock by the New Shareholders.
      The Rescission Offer is being made pursuant to the applicable securities
      laws in the states in which the New Shareholders reside. Simultaneously
      with the Rescission Offer, the Company is registering these shares of
      common stock such that if the New Shareholders determine that they desire
      to retain the common shares, they will be appropriately registered.


                                       68

<PAGE>   72
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

The Company terminated the services of Price Waterhouse LLP, independent
accountants, as its auditors effective on the 18th day of May, 1994. This
decision was approved by the Audit Committee and the Board of Directors of
Greene County Bancshares, Inc., on the 18th day of May, 1994, at which time the
Company hired Coopers & Lybrand L.L.P. as its new audit firm.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

With respect to the directors and executive officers of the Company, the
information required by Item 10 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by Item 11 of this Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

The information required by Item 12 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 of Form 10-K will be included in the
Company's 1996 Proxy Statement and is incorporated herein by reference.




                                       69
<PAGE>   73
                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

(a)      The following documents are filed as a part of this report:

         (1)      The following consolidated financial statements and the
                  report of independent accountants are included in this
                  Annual Report on Form 10-K.

                  (a)      Report of Coopers & Lybrand L.L.P., independent
                           accountants, on the consolidated financial statements
                           as of December 31, 1995 and for the year then ended.

                  (b)      Consolidated Balance Sheets as of December 31, 1995
                           and 1994;

                  (c)      Consolidated Statements of Income for each of the
                           years in the three year period ended December 31,
                           1995.

                  (d)      Consolidated Statements of Changes in Shareholders'
                           Equity for each of the years in the three year period
                           ended December 31, 1995.

                  (e)      Consolidated Statement of Cash Flows for each of
                           the years ended December 31, 1995.

                  (f)      Notes to the Consolidated Financial Statements.

         (2)      Financial Statement Schedules

                  All other financial statements and schedules not listed
                  immediately above are omitted since they are not applicable,
                  not required or the required information is included in the
                  consolidated financial statements.

         (3)      Listing of Exhibits:

                   3*      (a)      Charter

                           (b)      Bylaws

                  10*      (b)      Employment Agreement between Registrant and
                                    Davis Stroud

                  10       (d)      Employment Agreement between Registrant and
                                    R. Stan Puckett

                  22       Subsidiaries of the Registrant for the year ended
                           December 31, 1995.




                                       70
<PAGE>   74
                       ------------
                       (*)      Incorporated herein by reference to exhibits
                                filed with Form S-14 REGISTRATION STATEMENT
                                UNDER THE SECURITIES ACT OF 1933, Registration
                                No. 2-96273.

         (b)      A Report on Form 8-K was filed with the Commission on May 18,
                  1994 pertaining to the change in Accountants. 




                                       71
<PAGE>   75
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       GREENE COUNTY BANCSHARES, INC.

                                       By: /s/
                                           -----------------------------
                                           R. Stan Puckett
                                           President & CEO

                                       By: /s/
                                           -----------------------------
                                           Bill Richmond
                                           Senior Vice President and
                                           Chief Financial Officer

Date:           , 1996
      ---------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:

Name                           Capacity                                 Date

/s/                            Chairman, Director
------------------------
Harrison Lamons

/s/
------------------------       President, Director
R. Stan Puckett                (Chief Executive
                               Officer)

/s/                            Director
-------------------------
Helen Horner

/s/                            Director
-------------------------
J.W. Douthat

/s/                            Director
-------------------------
Phil M. Bachman, Jr.

/s/                            Director
-------------------------
Terry Leonard

/s/                            Director
-------------------------
Ralph T. Brown

/s/                            Director
-------------------------
James A. Emory





                                       72
<PAGE>   76
/s/                            Director
----------------------
Patrick Norris

/s/                            Director
----------------------
Jerald K. Jaynes

/s/                            Director
----------------------
Charles S. Brooks

/s/                            Director
----------------------
Davis Stroud

/s/                            Director
----------------------
W.T  Daniels



                                       73
<PAGE>   77
                                  EXHIBIT INDEX
                                                             


 3*      (a)      Charter

         (b)      Bylaws

10*      (b)      Employment Agreement between
                     Registrant and Davis Stroud

10       (d)      Employment Agreement between
                     Registrant and R. Stan Puckett

22       Subsidiaries of the Registrant for the year ended
            December 31, 1995.

27       Financial Data Schedule (for SEC use only)
         ------------
         (*)      Incorporated herein by reference
                  to exhibits filed with Form S-14
                  REGISTRATION STATEMENT UNDER THE
                  SECURITIES ACT OF 1933,
                  Registration No. 2-96273.