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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


(Mark One)


|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
___________ to ___________

Commission file number 0-14289

GREENE COUNTY BANCSHARES, INC.




(Exact name of registrant as specified in its charter)


|                                                                                       |  |                                                
|-------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Tennessee
(State or other jurisdiction of
incorporation or organization)               |  | 62-1222567
(I.R.S. Employer Identification No.)
|                                                                                       |  |                                                
|100 North Main Street, Greeneville, Tennessee
(Address of principal executive offices) |  | 37743-4992
(Zip Code)                          

Registrants telephone number, including area code: (423) 639-5111.

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock - $2.00 par
value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES
x NO o

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) YES
x NO o

Prior to the listing of the registrants common stock on the Nasdaq National
Market on October 1, 2002, under the symbol GCBS, the common stock was not
regularly and actively traded in any established market, and there were no
regularly quoted bid and ask prices for the registrants common stock. Based
upon the negotiated trading price of $16.50 per share of common stock on June
30, 2002, using the best information available at the time, the registrant
believes that the aggregate market value of the approximately 5,912,855 shares
of its issued and outstanding common stock held by non-affiliates on June 30,
2002 was approximately $97.6 million. For purposes of this calculation, the
term affiliate refers to all directors, executive officers and 10%
shareholders of the registrant. As of the close of business on March 24, 2003,
6,820,540 shares of the registrants common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following lists the documents incorporated by reference and the Part of the
Form 10-K into which the document is incorporated:



| | 1. |  | Portions of Proxy Statement for 2003 Annual Meeting of Shareholders.
(Part III)
| | -- |  | -------------------------------------------------------------------------------



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TABLE OF CONTENTS



|                                                                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                          
|                                                                                                 | ITEM 1. BUSINESS                                                                             
|                                                                                                 | ITEM 2. PROPERTIES                                                                           
|                                                                                                 | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                                                                 | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                                                                         
|                                                                                                 | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                                                                 | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                                                                 | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                                 | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                                                                 | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                                                                 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                                                                        
|                                                                                                 | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                                                                 | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                                                                 | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                                                                 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                                                                 | ITEM 14. CONTROL AND PROCEDURES                                                              
|PART IV                                                                                         
|                                                                                                 | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                                                                      
|CERTIFICATION PURSUANT TO, SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 SEC RELEASE NO. 33-8124
|SUBSIDIARY OF THE REGISTRANT                                                                    
|CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                       
|Sarbanes-Oxley Certification                                                                    
|Sarbanes-Oxley Certification                                                                    



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PART I

Forward-Looking Statements

The information contained herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors, including
those discussed herein, could cause results to differ materially from those
anticipated by such forward-looking statements. In addition, such
forward-looking statements are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise. Accordingly, any
forward-looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward-looking
statements can be identified by, among other things, the use of forward-looking
terminology such as intends, believes, expects, may, will, should,
seeks, pro forma or anticipates, or the negatives thereof, or other
variations thereon of comparable terminology, or by discussions of strategy or
intentions. All forward-looking statements herein are based on information
available to us as of the date this Annual Report was first mailed to our
shareholders, and we assume no obligation to update any such forward-looking
statements.




ITEM 1.     BUSINESS

Presentation of Amounts

All dollar amounts set forth below, other than per-share amounts and
percentages, are in thousands unless otherwise noted.

The Company

Greene County Bancshares, Inc. (the Company) was formed in 1985 and
serves as the bank holding company for Greene County Bank (the Bank), which
is a Tennessee-chartered commercial bank that conducts the principal business
of the Company. At December 31, 2002, the Company maintained a main office in
Greeneville, Tennessee and 30 bank branches (of which six are in leased
operating premises) and 11 separate locations operated by the Banks
subsidiaries.

The Companys assets consist primarily of its investment in the Bank and
liquid investments. Its primary activities are conducted through the Bank. At
December 31, 2002, the Companys consolidated total assets were $899,396, its
consolidated net loans, including loans held for sale, were $744,317, its total
deposits were $719,323 and its total shareholders equity was $74,595.

The Companys net income is dependent primarily on its net interest
income, which is the difference between the interest income earned on its
loans, investment assets and other interest-earning assets and the interest
paid on deposits and other interest-bearing liabilities. To a lesser extent,
the Companys net income also is affected by its non-interest income derived
principally from service charges and fees as well as the level of non-interest
expenses such as salaries and employee benefits.

The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
general credit needs of small businesses in the Companys market area,
competition among lenders, the level of interest rates and the availability of
funds. Deposit flows and costs of funds are influenced by prevailing market
rates of interest, primarily on competing investments, account maturities and
the levels of personal income and savings in the Companys market area.

The principal executive offices of the Company are located at 100 North
Main Street, Greeneville, Tennessee 37743-4992 and its telephone number is
(423) 639-5111.

The Bank

The Bank is a Tennessee-chartered commercial bank established in 1890 and
which has its principal executive offices in Greeneville, Tennessee. The
principal business of the Bank consists of attracting deposits from the general
public and investing those funds, together with funds generated from operations
and from principal and interest payments on loans, primarily in commercial,
commercial and residential real estate loans, and installment





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consumer loans. The Bank also provides collection and other banking
services, directly and through its finance, acceptance and title subsidiary
corporations. At December 31, 2002, the Bank had 28 full service banking
offices located in East Tennessee, including Greene, Washington, Blount,
Hamblen, McMinn, Loudon, Hawkins, Sullivan, Cocke, and Monroe Counties. The
Bank also had one full service branch located in nearby Hot Springs, North
Carolina. Further, the Bank operates a trust and money management function
located in Wilson County, Tennessee and doing business as Presidents Trust,
and operates a mortgage loan operation in Knox County, Tennessee. Also,
subsequent to year-end, the Bank, in January 2003, opened a loan production
office in Washington County, Virginia and doing business as First Bristol
Loans. These functions and operations are defined as Bank branches but are not
considered to be full service branches.

The Bank also conducts separate businesses through three wholly owned
subsidiaries. Through Superior Financial Services, Inc. (Superior
Financial), the Bank operates 10 consumer finance company offices located in
Greene, Blount, Hamblen, McMinn, Washington, Sullivan, Sevier, Knox and
Hamilton Counties, Tennessee. The Bank also operates a mortgage banking
operation through its main office in Knox County, Tennessee and it also has
representatives located throughout the Companys branch system. Through GCB
Acceptance Corporation (GCB Acceptance), the Bank operates a sub-prime
automobile lending company with a sole office in Johnson City, Tennessee.
Through Fairway Title Co., the Bank operates a title company headquartered in
Knoxville, Tennessee which has an office in Johnson City, Tennessee.

Deposits of the Bank are insured by the Bank Insurance Fund (BIF) of the
Federal Deposit Insurance Corporation (FDIC) to a maximum of $100,000 for
each insured depositor. The Bank is subject to supervision and regulation by
the Tennessee Department of Financial Institutions (the Banking Department)
and the FDIC. See Regulation, Supervision and Governmental Policy.

Growth and Business Strategy

The Company expects that, over the intermediate term, a majority of its
growth will result from mergers and acquisitions including acquisitions of both
entire financial institutions and selected branches of financial institutions.
De novo branching will also be a method of growth, particularly in high-growth
and other demographically-desirable markets.

The Companys strategic plan outlines a geographic expansion policy within
a 300-mile radius of its major markets. This policy could result in the Company
expanding westward and eastward up to and including Nashville, Tennessee and
Roanoke, Virginia, respectively, east/southeast up to and including the
Piedmont area of North Carolina and western North Carolina, southward to
northern Georgia and northward into eastern and central Kentucky. In
particular, the Company believes the markets in and around Knoxville and
Nashville, Tennessee are highly desirable areas with respect to expansion and
growth plans.

In addition to the Companys business model, which is summarized in the
paragraphs above entitled The Company and The Bank, the Company is
continuously investigating and analyzing other lines and areas of business.
These include, but are not limited to, various types of insurance, real estate
activities, etc. Conversely, the Company frequently evaluates and analyzes the
profitability, risk factors and viability of its various business lines and
segments and, depending upon the results of these evaluations and analyses, may
conclude to exit certain segments and/or business lines. Further, in
conjunction with these ongoing evaluations and analyses, the Company may decide
to sell, merge or close certain branch facilities.

Lending Activities

General. The loan portfolio of the Company is composed of commercial,
commercial and residential real estate and installment consumer loans. Such
loans are primarily originated within the Companys market areas of East
Tennessee and are generally secured by residential or commercial real estate or
business or personal property located in the counties of Greene, Washington,
Hamblen, Sullivan, Hawkins, Blount, Knox, McMinn, Loudon, Monroe and Cocke
Counties, Tennessee.

2



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Loan Composition. The following table sets forth the composition of the
Companys loans at December 31 for each of the periods indicated.

|                          |           |   |         |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|------------------------- | --------- | - | ------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                          |           |   | 2002    |         | 2001 |   | 2000    |         | 1999 |   | 1998   
|                          |           |   |         |         |      |   |         |         |      |   |        
|Commercial                |           | $ | 93,836  |         |      | $ | 96,122  |         |      | $ | 87,680  |         |  | $ | 68,793  |         |  | $ | 57,860  |        
|Commercial real estate    |           |   | 342,407 |         |      |   | 295,002 |         |      |   | 288,254 |         |  |   | 242,574 |         |  |   | 185,063 |        
|Residential real estate   |           |   | 233,128 |         |      |   | 210,489 |         |      |   | 218,007 |         |  |   | 181,960 |         |  |   | 143,500 |        
|Loans held for sale       |           |   | 6,646   |         |      |   | 7,945   |         |      |   | 1,725   |         |  |   | 1,210   |         |  |   | 5,043   |        
|Consumer                  |           |   | 77,644  |         |      |   | 80,314  |         |      |   | 74,882  |         |  |   | 59,508  |         |  |   | 68,092  |        
|Other                     |           |   | 14,938  |         |      |   | 13,779  |         |      |   | 12,493  |         |  |   | 16,774  |         |  |   | 27,349  |        
|                          |           |   |         |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|                          | Total     |   |         | 768,599 |      |   |         | 703,651 |      |   |         | 683,041 |  |   |         | 570,819 |  |   |         | 486,907 | 
|Less:                     |           |   |         |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|Unearned Income           |           |   | (11,696 | )       |      |   | (13,159 | )       |      |   | (14,248 | )       |  |   | (13,590 | )       |  |   | (9,993  | )      
|Allowance for loan losses |           |   | (12,586 | )       |      |   | (11,221 | )       |      |   | (11,728 | )       |  |   | (10,332 | )       |  |   | (10,253 | )      
|                          |           |   |         |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        
|                          | Net loans |   | $       | 744,317 |      |   | $       | 679,271 |      |   | $       | 657,065 |  |   | $       | 546,897 |  |   | $       | 466,661 | 
|                          |           |   |         |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |        

Loan Maturities. The following table reflects at December 31, 2002 the
dollar amount of loans maturing based on their contractual terms to maturity.
Demand loans, loans having no stated schedule of repayments and loans having no
stated maturity are reported as due in one year or less.

|                        |       |   |              |         |                    |   |            |         |       |   |         |         |  |   |         |         | 
|----------------------- | ----- | - | ------------ | ------- | ------------------ | - | ---------- | ------- | ----- | - | ------- | ------- |  | - | ------- | ------- | 
|                        |       |   | Due in One   |         | Due After One Year |   | Due After  |         |       |   |        
|                        |       |   | Year or Less |         | Through Five Years |   | Five Years |         | Total
|                        |       |   |              |         |                    |   |            |         |      
|Commercial              |       | $ | 61,450       |         |                    | $ | 28,092     |         |       | $ | 4,294   |         |  | $ | 93,836  |        
|Commercial real estate  |       |   | 123,904      |         |                    |   | 185,899    |         |       |   | 32,604  |         |  |   | 342,407 |        
|Residential real estate |       |   | 28,501       |         |                    |   | 85,167     |         |       |   | 119,460 |         |  |   | 233,128 |        
|Loans held-for-sale     |       |   | 6,646        |         |                    |   |           |         |       |   |        |         |  |   | 6,646   |        
|Consumer                |       |   | 15,940       |         |                    |   | 60,912     |         |       |   | 792     |         |  |   | 77,644  |        
|Other                   |       |   | 13,166       |         |                    |   | 1,441      |         |       |   | 331     |         |  |   | 14,938  |        
|                        |       |   |              |         |                    |   |            |         |       |   |         |         |  |   |         |        
|                        | Total |   | $            | 249,607 |                    |   | $          | 361,511 |       |   | $       | 157,481 |  |   | $       | 768,599 | 
|                        |       |   |              |         |                    |   |            |         |       |   |         |         |  |   |         |        

The following table sets forth the dollar amount of the loans maturing
subsequent to the year ending December 31, 2003 between those with
predetermined interest rates and those with floating, or variable, interest
rates.

|                        |       |   |            |         |               |   |                |         |  |   |         |         | 
|----------------------- | ----- | - | ---------- | ------- | ------------- | - | -------------- | ------- |  | - | ------- | ------- | 
|                        |       |   | Fixed Rate |         | Variable Rate |   | Total         
|                        |       |   |            |         |               |   |               
|                        |       |   |            |         |               |   | (In thousands) |         |  |   |        
|Commercial              |       | $ | 20,037     |         |               | $ | 12,349         |         |  | $ | 32,386  |        
|Commercial real estate  |       |   | 140,577    |         |               |   | 77,926         |         |  |   | 218,503 |        
|Residential real estate |       |   | 113,192    |         |               |   | 91,435         |         |  |   | 204,627 |        
|Loans held-for-sale     |       |   |           |         |               |   |               |         |  |   |        |        
|Consumer                |       |   | 61,219     |         |               |   | 485            |         |  |   | 61,704  |        
|Other                   |       |   | 1,321      |         |               |   | 451            |         |  |   | 1,772   |        
|                        |       |   |            |         |               |   |                |         |  |   |         |        
|                        | Total |   | $          | 336,346 |               |   | $              | 182,646 |  |   | $       | 518,992 | 
|                        |       |   |            |         |               |   |                |         |  |   |         |        

Commercial Loans. Commercial loans are made for a variety of business
purposes, including working capital, inventory and equipment and capital
expansion. At December 31, 2002, commercial loans outstanding totaled $93,836,
or 12.61%, of the Companys net loan portfolio. The terms for commercial loans
are generally one to seven years. Commercial loan applications must be
supported by current financial information on the borrower and, where
appropriate, by adequate collateral. Commercial loans are generally
underwritten by addressing cash flow (debt service coverage), primary and
secondary sources of repayment, financial strength of any guarantor, liquidity,
leverage, management experience, ownership structure, economic conditions and
industry-specific trends and collateral. The loan to value ratio depends on
the type of collateral. Generally speaking, accounts receivable are financed
at 70% of accounts receivable less than 90 days past due. If other collateral
is taken to support the loan, the loan to value of accounts receivable may
approach 85%. Inventory financing will range between 50% and 60% depending on
the borrower and nature of inventory. The Company requires a first lien
position for such loans. These types of loans are generally considered to be a
higher credit risk than other loans originated by the Company.

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Commercial Real Estate Loans. The Company originates commercial loans,
generally to existing business customers, secured by real estate located in the
Companys market area. At December 31, 2002, commercial real estate loans
totaled $342,407, or 46.00%, of the Companys net loan portfolio. The terms of
such loans are generally for 10 to 20 years and are priced based in part upon
the prime rate, as reported in The Wall Street Journal. Commercial real estate
loans are generally underwritten by addressing cash flow (debt service
coverage), primary and secondary source of repayment, financial strength of any
guarantor, strength of the tenant (if any), liquidity, leverage, management
experience, ownership structure, economic conditions and industry specific
trends and collateral. Generally, the Company will loan up to 80-85% of the
value of improved property, 65% of the value of raw land and 75% of the value
of land to be acquired and developed. A first lien on the property and
assignment of lease is required if the collateral is rental property, with
second lien positions considered on a case-by-case basis.

Residential Real Estate. The Company also originates one-to-four family,
owner-occupied residential mortgage loans secured by property located in the
Companys primary market area. The majority of the Companys residential
mortgage loans consists of loans secured by owner-occupied, single-family
residences. At December 31, 2002, the Company had $233,128, or 31.32%, of its
net loan portfolio in residential real estate loans. Residential real estate
loans generally have a loan-to-value ratio of 85%. These loans are
underwritten by giving consideration to the ability to pay, stability of
employment or source of income, credit history and loan-to-value ratio. Home
equity loans make up approximately 13% of residential real estate loans. Home
equity loans may have higher loan-to-value ratios when the borrowers repayment
capacity and credit history conform to underwriting standards. Superior
Financial extends sub-prime mortgages to borrowers who generally have a higher
risk of default than mortgages extended by the Bank. Sub-prime mortgages
totaled $11,950, or 5.13%, of the Companys residential real estate loans.

Mortgage loans originated by the Bank were not previously underwritten in
conformity with secondary market guidelines and therefore were not readily
salable. Beginning in April 1997, the Company began selling one-to-four family
mortgage loans in the secondary market to Freddie Mac through the Banks
mortgage banking operation. Sales of such loans to Freddie Mac and other
mortgage investors totaled $61,728 during 2002, and the related mortgage
servicing rights were sold together with the loans.

Installment Consumer Loans. At December 31, 2002, the Companys
installment consumer loan portfolio totaled $77,644, or 10.43%, of the
Companys total net loan portfolio. The Companys consumer loan portfolio is
composed of secured and unsecured loans originated by the Bank, Superior
Financial and GCB Acceptance. The consumer loans of the Bank have a higher
risk of default than other loans originated by the Bank. Further, consumer
loans originated by Superior Financial and GCB Acceptance, which are finance
companies rather than a bank, generally have a greater risk of default than
such loans originated by commercial banks and, accordingly, carry a higher
interest rate. Superior Financial and GCB Acceptance installment consumer
loans totaled approximately $34,456, or 44.38%, of the Companys installment
consumer loans. The performance of consumer loans will be affected by the
local and regional economy as well as the rates of personal bankruptcies, job
loss, divorce and other individual-specific characteristics.

Past Due, Special Mention, Classified and Non-Accrual Loans. The Company
classifies its problem loans into three categories: past due loans, special
mention loans and classified loans (both accruing and non-accruing interest).

When management determines that a loan is no longer performing, and that
collection of interest appears doubtful, the loan is placed on non-accrual
status. All loans that are 90 days past due are considered non-accrual unless
they are adequately secured and there is reasonable assurance of full
collection of principal and interest. Management closely monitors all loans
that are contractually 90 days past due, treated as special mention or
otherwise classified or on non-accrual status. Non-accrual loans that are 120
days past due without assurance of repayment are charged off against the
allowance for loan losses.

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The following table sets forth information with respect to the Companys
non-performing assets at the dates indicated. At these dates, the Company did
not have any restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15.

|                                                                                                     |                                               |   |                 |        |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |       | 
|---------------------------------------------------------------------------------------------------- | --------------------------------------------- | - | --------------- | ------ | ---- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                                     |                                               |   | At December 31,
|                                                                                                     |                                               |   |                
|                                                                                                     |                                               |   | 2002            |        | 2001 |   | 2000  |       | 1999 |   | 1998 
|                                                                                                     |                                               |   |                 |        |      |   |       |       |      |   |      
|                                                                                                     |                                               |   | (In thousands) 
|Loans accounted for on a non-accrual
basis                                                           |                                               | $ | 7,475           |        |      | $ | 5,857 |       |      | $ | 4,813 |       |  | $ | 2,952 |       |  | $ | 4,159 |      
|Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments |                                               |   | 307             |        |      |   | 871   |       |      |   | 475   |       |  |   | 996   |       |  |   | 872   |      
|                                                                                                     |                                               |   |                 |        |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |      
|Total non-performing loans                                                                           |                                               |   | 7,782           |        |      |   | 6,728 |       |      |   | 5,288 |       |  |   | 3,948 |       |  |   | 5,031 |      
|Real estate owned:                                                                                   |                                               |   |                 |        |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |      
|                                                                                                     | Foreclosures                                  |   |                 | 4,805  |      |   |       | 2,589 |      |   |       | 1,937 |  |   |       | 1,546 |  |   |       | 920   | 
|                                                                                                     | Other real estate held and
repossessed assets |   |                 | 767    |      |   |       | 623   |      |   |       | 350   |  |   |       | 826   |  |   |       | 607   | 
|                                                                                                     |                                               |   |                 |        |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |      
|                                                                                                     | Total non-performing assets                   |   | $               | 13,354 |      |   | $     | 9,940 |      |   | $     | 7,575 |  |   | $     | 6,320 |  |   | $     | 6,558 | 
|                                                                                                     |                                               |   |                 |        |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |      

The Companys continuing efforts to resolve non-performing loans
occasionally include foreclosures, which result in the Companys ownership of
the real estate underlying the mortgage. If non-accrual loans at December 31,
2002 had been current according to their original terms and had been
outstanding throughout 2002, or since origination if originated during the
year, interest income on these loans would have been approximately $585.
Interest actually recognized on these loans during 2002 was not significant.

Foreclosed real estate increased $2,216, or 85.59%, to $4,805 at December
31, 2002 from $2,589 at December 31, 2001. The real estate consists of 33
properties, of which seven are commercial properties valued at $2,923, and 26
are residential properties valued at $1,882. Management expects to liquidate
these properties during 2003. Management has recorded these properties at net
realizable value and the subsequent sale of such properties is not expected to
result in any adverse effect on the Company, subject to business and marketing
conditions at the time of sale. Other repossessed assets increased $144, or
23.11%, to $767 at December 31, 2002 from $623 at December 31, 2001. This
increase is primarily due to repossession activity at GCB Acceptance.

Total impaired loans decreased by $1,686, or 15.00%, from $11,243 at
December 31, 2001 to $9,557 at December 31, 2002. This decrease is reflective
of reduced impaired loans at Superior Financial resulting primarily from
heightened collection activity and improved underwriting discipline.

At December 31, 2002, the Company had approximately $1,339 in loans that
are not currently classified as non-accrual or 90 days past due or otherwise
restructured but which known information about possible credit problems of
borrowers caused management to have concerns as to the ability of the borrowers
to comply with present loan repayment terms. Such loans were considered
classified by the Company and were composed primarily of various consumer loans
and residential real estate loans. Generally, these are bankruptcy loans that
are adequately secured and management expects substantial collection of these
accounts through reaffirmation or liquidation of collateral.

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Allowance for Loan Losses. The allowance for loan losses is maintained at
a level which management believes is adequate to absorb all probable losses on
loans then present in the loan portfolio. The amount of the allowance is
affected by: (1) loan charge-offs, which decrease the allowance; (2)
recoveries on loans previously charged-off, which increase the allowance; and
(3) the provision of possible loan losses charged to income, which increases
the allowance. In determining the provision for possible loan losses, it is
necessary for management to monitor fluctuations in the allowance resulting
from actual charge-offs and recoveries, and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic
conditions in an effort to evaluate portfolio risks. If actual losses exceed
the amount of the allowance for loan losses, earnings of the Company could be
adversely affected. The amount of the provision is based on managements
judgment of those risks. During the year ended December 31, 2002, the
Companys provision for loan losses increased by $1,106 to $7,065 as the
Company adjusted the allowance for loan losses to a level it deemed adequate as
of December 31, 2002.

The following is a summary of activity in the allowance for loan losses
for the periods indicated:

|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |        |        |      |  
|-------------------------------------------------------------------------------------------------- | ----------------------- | ----------------- | -------- | ------ | ----------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | -
|                                                                                                   |                         |                   |          |        | Year Ended December 31,
|                                                                                                   |                         |                   |          |        | 2002                    |        | 2001   |        | 2000   |        | 1999   |        | 1998  
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |       
|                                                                                                   |                         |                   |          |        | (In thousands)         
|Balance at beginning of year                                                                       |                         | $                 | 11,221   |        |                         | $      | 11,728 |        |        | $      | 10,332 |        |        | $    | 10,253 |        |        | $    | 9,154  |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Charge-offs:                                                                                       |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   | Commercial              |                   |          | (1,216 | )                       |        |        | (411   | )      |        |        | (429   | )      |      |        | (298   | )      |      |        | (440   | )     
|                                                                                                   | Commercial real estate  |                   |          | (956   | )                       |        |        | (997   | )      |        |        | (537   | )      |      |        | (302   | )      |      |        | (87    | )     
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   |                         |                   | Subtotal |        |                         | (2,172 | )      |        |        | (1,408 | )      |        |        | (966 | )      |        |        | (600 | )      |        |        | (527 | )
|                                                                                                   | Residential real estate |                   |          | (740   | )                       |        |        | (669   | )      |        |        | (800   | )      |      |        | (407   | )      |      |        |       |       
|                                                                                                   | Consumer                |                   |          | (4,736 | )                       |        |        | (5,753 | )      |        |        | (6,022 | )      |      |        | (3,010 | )      |      |        | (2,707 | )     
|                                                                                                   | Other                   |                   |          |       |                         |        |        |       |        |        |        |       |        |      |        |       |        |      |        |       |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   |                         | Total charge-offs |          |        | (7,648                  | )      |        |        | (7,830 | )      |        |        | (7,788 | )    |        |        | (4,017 | )    |        |        | (3,234 | )   
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Recoveries:                                                                                        |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   | Commercial              |                   |          | 54     |                         |        |        | 11     |        |        |        | 43     |        |      |        | 295    |        |      |        | 216    |       
|                                                                                                   | Commercial real estate  |                   |          | 239    |                         |        |        | 54     |        |        |        | 137    |        |      |        |       |        |      |        | 24     |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   |                         |                   | Subtotal |        |                         | 293    |        |        |        | 65     |        |        |        | 180  |        |        |        | 295  |        |        |        | 240  |  
|                                                                                                   | Residential real estate |                   |          | 141    |                         |        |        | 102    |        |        |        | 69     |        |      |        | 93     |        |      |        |       |       
|                                                                                                   | Consumer                |                   |          | 1,514  |                         |        |        | 1,197  |        |        |        | 926    |        |      |        | 575    |        |      |        | 673    |       
|                                                                                                   | Other                   |                   |          |       |                         |        |        |       |        |        |        |       |        |      |        |       |        |      |        | 3      |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|                                                                                                   |                         | Total recoveries  |          |        | 1,948                   |        |        |        | 1,364  |        |        |        | 1,175  |      |        |        | 963    |      |        |        | 916    |     
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Net charge-offs                                                                                    |                         |                   | (5,700   | )      |                         |        | (6,466 | )      |        |        | (6,613 | )      |        |      | (3,054 | )      |        |      | (2,318 | )     
|Provision for loan losses                                                                          |                         |                   | 7,065    |        |                         |        | 5,959  |        |        |        | 8,009  |        |        |      | 3,133  |        |        |      | 3,417  |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Balance at end of year                                                                             |                         | $                 | 12,586   |        |                         | $      | 11,221 |        |        | $      | 11,728 |        |        | $    | 10,332 |        |        | $    | 10,253 |       
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Ratio of net charge-offs to average
loans outstanding, net of
unearned discount, during
the period |                         |                   | .80      | %      |                         |        | 0.94   | %      |        |        | 1.09   | %      |        |      | 0.60   | %      |        |      | 0.52   | %     
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Ratio of allowance for loan losses to
non-performing loans                                         |                         |                   | 161.73   | %      |                         |        | 166.78 | %      |        |        | 221.79 | %      |        |      | 261.70 | %      |        |      | 203.80 | %     
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       
|Ratio of allowance for loan losses to
total loans                                                  |                         |                   | 1.65     | %      |                         |        | 1.61   | %      |        |        | 1.72   | %      |        |      | 1.81   | %      |        |      | 2.11   | %     
|                                                                                                   |                         |                   |          |        |                         |        |        |        |        |        |        |        |        |      |        |        |        |      |        |       

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Breakdown of allowance for loan losses by category.The following table
presents an allocation among the listed categories of the Companys allowance
for loan losses at the dates indicated and the percentage of loans in each
category to the total amount of loans at the respective year-ends.

|                         |        |        |                        |             |      |             |              |             |   |           |       |             |              |  |       |        |   |             |              |  |  |   |       |        |  |  |       |        |   |  |  |  | 
|------------------------ | ------ | ------ | ---------------------- | ----------- | ---- | ----------- | ------------ | ----------- | - | --------- | ----- | ----------- | ------------ |  | ----- | ------ | - | ----------- | ------------ |  |  | - | ----- | ------ |  |  | ----- | ------ | - |  |  |  | 
|                         |        |        | At December 31,       
|                         |        |        |                       
|                         |        |        | 2002                   |             | 2001 |             | 2000        
|                         |        |        |                        |             |      |             |             
|                         |        |        | (Dollars in thousands)
|                         |        |        |                        |             |      |             | Percent of   |             |   |           |       |             | Percent of   |  |       |        |   |             | Percent of  
|                         |        |        |                        |             |      |             | loan in each |             |   |           |       |             | loan in each |  |       |        |   |             | loan in each
|Balance at end of period |        |        |                        |             |      | category to |              |             |   |           |       | category to |              |  |       |        |   | category to
|applicable to:           |        | Amount |                        | total loans |      | Amount(1)   |              | total loans |   | Amount(1) |       | total loans
|                         |        |        |                        |             |      |             |              |             |   |           |       |            
|Commercial               |        | $      | 1,998                  |             |      |             | 12.21        | %           |   | $         | 2,072 |             |              |  | 13.66 | %      |   |             |              |  |  | $ | 1,482 |        |  |  | 12.84 | %     
|Commercial real estate   |        |        | 3,961                  |             |      |             | 44.56        | %           |   |           | 3,144 |             |              |  | 41.93 | %      |   |             |              |  |  |   | 4,443 |        |  |  | 42.20 | %     
|Residential real estate  |        |        | 2,031                  |             |      |             | 30.33        | %           |   |           | 1,951 |             |              |  | 29.91 | %      |   |             |              |  |  |   | 2,067 |        |  |  | 29.90 | %     
|Loans held-for-sale      |        |        | 12                     |             |      |             | .86          | %           |   |           | 14    |             |              |  | 1.13  | %      |   |             |              |  |  |   | 4     |        |  |  | 0.25  | %     
|Consumer                 |        |        | 4,153                  |             |      |             | 10.10        | %           |   |           | 3,581 |             |              |  | 11.41 | %      |   |             |              |  |  |   | 3,268 |        |  |  | 12.98 | %     
|Other                    |        |        | 431                    |             |      |             | 1.94         | %           |   |           | 459   |             |              |  | 1.96  | %      |   |             |              |  |  |   | 464   |        |  |  | 1.83  | %     
|                         |        |        |                        |             |      |             |              |             |   |           |       |             |              |  |       |        |   |             |              |  |  |   |       |        |  |  |       |       
|                         | Totals |        | $                      | 12,586      |      |             |              | 100.00      | % |           | $     | 11,221      |              |  |       | 100.00 | % |             |              |  |  |   | $     | 11,728 |  |  |       | 100.00 | %
|                         |        |        |                        |             |      |             |              |             |   |           |       |             |              |  |       |        |   |             |              |  |  |   |       |        |  |  |       |       



|(1) |  | Balances related to certain loan categories have been reclassified in
prior years to reflect revised allocation methods used in 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

Investment Activities

General. The Company maintains a portfolio of investments to provide
liquidity and an additional source of income.

Securities by Category. The following table sets forth the carrying value
of the securities, by major categories, held by the Company at December 31,
2002, 2001 and 2000.

|                               |                                                                                        |       |   |                 |        |      |   |        |        |  |   |        |        | 
|------------------------------ | -------------------------------------------------------------------------------------- | ----- | - | --------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                               |                                                                                        |       |   | At December 31,
|                               |                                                                                        |       |   |                
|                               |                                                                                        |       |   | 2002            |        | 2001 |   | 2000  
|                               |                                                                                        |       |   |                 |        |      |   |       
|                               |                                                                                        |       |   | (In thousands) 
|Securities Held to Maturity:   |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       
|                               | Obligations of state and political subdivisions                                        |       | $ | 448             |        |      | $ | 833    |        |  | $ | 1,866  |       
|                               |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       
|                               |                                                                                        | Total |   | $               | 448    |      |   | $      | 833    |  |   | $      | 1,866  | 
|                               |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       
|Securities Available for Sale: |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       
|                               | U.S. Treasury securities and obligations of U.S.
Government, corporations and agencies |       | $ | 25,769          |        |      | $ | 20,695 |        |  | $ | 45,242 |       
|                               | Obligations of state and political subdivisions                                        |       |   | 1,053           |        |      |   | 1,372  |        |  |   | 1,416  |       
|                               | Trust Preferred Securities                                                             |       |   | 6,500           |        |      |   | 6,500  |        |  |   |       |       
|                               |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       
|                               |                                                                                        | Total |   | $               | 33,322 |      |   | $      | 28,567 |  |   | $      | 46,658 | 
|                               |                                                                                        |       |   |                 |        |      |   |        |        |  |   |       

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Maturity Distributions of Securities. The following table sets forth the
distributions of maturities of securities at amortized cost as of December 31,
2002.

|                                                                     |          |   |                        |       |              |   |                      |       |                |   |       |       |  |   |       |        |  |   |        |        | 
|-------------------------------------------------------------------- | -------- | - | ---------------------- | ----- | ------------ | - | -------------------- | ----- | -------------- | - | ----- | ----- |  | - | ----- | ------ |  | - | ------ | ------ | 
|                                                                     |          |   |                        |       |              |   | Due After One        |       |                |   |       |       |  |   |       |        |  |   |       
|                                                                     |          |   | Due in One             |       | Year through |   | Due After Five Years |       | Due            |   |       |       | 
|                                                                     |          |   | Year or Less           |       | Five Years   |   | through 10 Years     |       | After 10 Years |   | Total
|                                                                     |          |   |                        |       |              |   |                      |       |                |   |      
|                                                                     |          |   | (Dollars in thousands)
|Federal
agency obligations  available for
sale                      |          | $ | 7,259                  |       |              | $ | 9,659                |       |                | $ | 2,213 |       |  | $ | 6,397 |        |  | $ | 25,528 |       
|Obligations of state and political
subdivisions  available for sale |          |   | 150                    |       |              |   |                     |       |                |   | 893   |       |  |   |      |        |  |   | 1,043  |       
|Obligations of state and political
subdivisions  held to maturity   |          |   |                       |       |              |   |                     |       |                |   | 98    |       |  |   | 350   |        |  |   | 448    |       
|Other securities  available for sale                                |          |   |                       |       |              |   |                     |       |                |   |      |       |  |   | 6,500 |        |  |   | 6,500  |       
|                                                                     |          |   |                        |       |              |   |                      |       |                |   |       |       |  |   |       |        |  |   |        |       
|                                                                     | Subtotal |   | $                      | 7,409 |              |   | $                    | 9,659 |                |   | $     | 3,204 |  |   | $     | 13,247 |  |   | $      | 33,519 | 
|Market value adjustment on available-for-sale securities             |          |   | 88                     |       |              |   | 25                   |       |                |   | 32    |       |  |   | 106   |        |  |   | 251    |       
|                                                                     |          |   |                        |       |              |   |                      |       |                |   |       |       |  |   |       |        |  |   |        |       
|                                                                     | Total    |   | $                      | 7,497 |              |   | $                    | 9,684 |                |   | $     | 3,236 |  |   | $     | 13,353 |  |   | $      | 33,770 | 
|                                                                     |          |   |                        |       |              |   |                      |       |                |   |       |       |  |   |       |        |  |   |        |       
|Weighted average yield (a)                                           |          |   | 3.08                   | %     |              |   | 3.07                 | %     |                |   | 4.53  | %     |  |   | 5.63  | %      |  |   | 4.23   | %     
|                                                                     |          |   |                        |       |              |   |                      |       |                |   |       |       |  |   |       |        |  |   |        |       



|(a) |  | Actual yields on tax-exempt obligations do not differ materially from
yields computed on a tax equivalent basis.                                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

Deposits

Deposits are the primary source of funds for the Company. Such deposits
consist of checking accounts, regular savings deposits, NOW accounts, Money
Market Accounts and market rate Certificates of Deposit. Deposits are
attracted from individuals, partnerships and corporations in the Companys
market area. In addition, the Company obtains deposits from state and local
entities and, to a lesser extent, U.S. Government and other depository
institutions. The Companys policy permits the acceptance of limited amounts
of brokered deposits.

The following table sets forth the average balances and average interest
rates based on daily balances for deposits for the periods indicated.

|                                             |                |   |                         |         |           |  |         |   |           |   |         |         |           |  |      |   |  |   |         |         |  |  |      |   | 
|-------------------------------------------- | -------------- | - | ----------------------- | ------- | --------- |  | ------- | - | --------- | - | ------- | ------- | --------- |  | ---- | - |  | - | ------- | ------- |  |  | ---- | - | 
|                                             |                |   | Year Ended December 31,
|                                             |                |   |                        
|                                             |                |   | 2002                    |         | 2001      |  | 2000   
|                                             |                |   |                         |         |           |  |        
|                                             |                |   | Average                 |         | Average   |  | Average |   | Average   |   | Average |         | Average  
|                                             |                |   | Balance                 |         | Rate Paid |  | Balance |   | Rate Paid |   | Balance |         | Rate Paid
|                                             |                |   |                         |         |           |  |         |   |           |   |         |         |          
|                                             |                |   | (Dollars in thousands) 
|Types of deposits (all in domestic
offices): |                |   |                         |         |           |  |         |   |           |   |         |         |           |  |      |   |  |   |         |         |  |  |      |  
|Non-interest-bearing demand
deposits         |                | $ | 63,373                  |         |           |  |        |   |           | $ | 49,773  |         |           |  |     |   |  | $ | 46,010  |         |  |  |     |  
|Interest-bearing demand deposits             |                |   | 217,249                 |         |           |  | 1.06    | % |           |   | 162,917 |         |           |  | 2.00 | % |  |   | 148,428 |         |  |  | 2.67 | %
|Savings deposits                             |                |   | 51,854                  |         |           |  | .95     | % |           |   | 45,137  |         |           |  | 1.80 | % |  |   | 45,461  |         |  |  | 2.55 | %
|Time deposits                                |                |   | 344,059                 |         |           |  | 3.62    | % |           |   | 375,825 |         |           |  | 5.47 | % |  |   | 353,278 |         |  |  | 5.71 | %
|                                             |                |   |                         |         |           |  |         |   |           |   |         |         |           |  |      |   |  |   |         |         |  |  |      |  
|                                             | Total deposits |   | $                       | 676,535 |           |  |         |   |           |   | $       | 633,652 |           |  |      |   |  |   | $       | 593,177 |  |  |      |   | 
|                                             |                |   |                         |         |           |  |         |   |           |   |         |         |           |  |      |   |  |   |         |         |  |  |      |  

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The following table indicates the amount of the Companys certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
2002.

|                               |       |          |                 |         | 
|------------------------------ | ----- | -------- | --------------- | ------- | 
|                               |       |          | Certificates of
|Maturity Period                |       | Deposits
|                               |       |         
|                               |       |          | (In thousands) 
|Three months or less           |       | $        | 38,833          |        
|Over three through six months  |       |          | 24,647          |        
|Over six through twelve months |       |          | 15,980          |        
|Over twelve months             |       |          | 42,101          |        
|                               |       |          |                 |        
|                               | Total |          | $               | 121,561 | 
|                               |       |          |                 |        

Competition

To compete effectively, the Company relies substantially on local
commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.

According to data as of June 30, 2002 published by SNL Financial LC and
using information from the FDIC, the Bank ranked as the largest independent
commercial bank in its market area, which includes Greene, Hamblen, Hawkins,
Sullivan, Washington, Madison, Loudon, Blount and McMinn Counties, Tennessee
and portions of Cocke, Monroe and Jefferson Counties, Tennessee. In Greene
County, there were seven commercial banks and one savings bank, operating 25
branches and holding an aggregate of approximately $780 million in deposits as
of June 30, 2002.

Under the federal Bank Holding Company Act of 1956 (the Holding Company
Act), as amended by the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the Riegle-Neal Act), Tennessee banks and their
holding companies may be acquired by out-of-state banks or their holding
companies, and Tennessee banks and their holding companies may acquire
out-of-state banks without regard to whether the transaction is prohibited by
the laws of any state. In addition, the federal banking agencies may approve
interstate merger transactions without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
opts out of the Riegle-Neal Act by adopting a law that applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. The effect of the Riegle-Neal Act may be to increase
competition within the state of Tennessee among banking institutions located in
Tennessee and from banking companies located anywhere in the country.

Employees

As of December 31, 2002 the Company employed 386 full-time equivalent
employees. None of the Companys employees are presently represented by a
union or covered under a collective bargaining agreement. Management considers
relations with employees to be good.

Regulation, Supervision and Governmental Policy

The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank. A number of other statutes and
regulations have an impact on their operations. The following summary of
applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to such statutes and regulations.

Bank Holding Company Regulation. The Company is registered as a bank
holding company under the Holding Company Act and, as such, subject to
supervision, regulation and examination by the Board of Governors of the
Federal Reserve Board (the FRB).

Acquisitions and Mergers. Under the Holding Company Act, a bank holding
company must obtain the prior approval of the FRB before (1) acquiring direct
or indirect ownership or control of any voting shares of any bank or bank
holding company if, after such acquisition, the bank holding company would
directly or indirectly own or control more than 5% of such shares; (2)
acquiring all or substantially all of the assets of another bank or bank
holding company; or (3) merging or consolidating with another bank holding
company. Also, any company must

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obtain approval of the FRB prior to acquiring control of the Company or
the Bank. For purposes of the Holding Company Act, control is defined as
ownership of more than 25% of any class of voting securities of the Company or
the Bank, the ability to control the election of a majority of the directors,
or the exercise of a controlling influence over management or policies of the
Company or the Bank.

The Holding Company Act, as amended by the Riegle-Neal Act, generally
permits the FRB to approve interstate bank acquisitions by bank holding
companies without regard to any prohibitions of state law. See Competition.

The Change in Bank Control Act and the related regulations of the FRB
require any person or persons acting in concert (except for companies required
to make application under the Holding Company Act), to file a written notice
with the FRB before such person or persons may acquire control of the Company
or the Bank. The Change in Bank Control Act defines control as the power,
directly or indirectly, to vote 25% or more of any voting securities or to
direct the management or policies of a bank holding company or an insured bank.

Bank holding companies like the Company are currently prohibited from
engaging in activities other than banking and activities so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The FRBs regulations contain a list of permissible nonbanking activities that
are closely related to banking or managing or controlling banks. A bank
holding company must file an application or notice with the Federal Reserve
prior to acquiring more than 5% of the voting shares of a company engaged in
such activities. Financial modernization legislation enacted on November 12,
1999, however, greatly broadened the scope of activities permissible for bank
holding companies. Effective March 11, 2000, this legislation permits bank
holding companies, upon classification as financial holding companies, to
engage in a broad variety of activities financial in nature.

Capital Requirements. The Company is also subject to FRB guidelines that
require bank holding companies to maintain specified minimum ratios of capital
to total assets and capital to risk-weighted assets. See Capital
Requirements.

Dividends. The FRB has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The FRB has
issued a policy statement expressing its view that a bank holding company
should pay cash dividends only to the extent that the companys net income for
the past year is sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the companys capital needs, asset
quality, and overall financial condition. The Company does not believe this
policy statement will limit the Companys activity to maintain its dividend
payment rate.

Support of Banking Subsidiaries. Under FRB policy, the Company is
expected to act as a source of financial strength to its banking subsidiaries
and, where required, to commit resources to support each of such subsidiaries.
Further, if the Banks capital levels were to fall below minimum regulatory
guidelines, the Bank would need to develop a capital plan to increase its
capital levels and the Company would be required to guarantee the Banks
compliance with the capital plan in order for such plan to be accepted by the
federal regulatory authority.

Under the cross guarantee provisions of the Federal Deposit Insurance
Act (the FDI Act), any FDIC-insured subsidiary of the Company such as the
Bank could be liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of any other
FDIC-insured subsidiary also controlled by the Company or (ii) any assistance
provided by the FDIC to any FDIC-insured subsidiary of the Company in danger of
default.

Transactions with Affiliates. The Federal Reserve Act imposes legal
restrictions on the quality and amount of credit that a bank holding company or
its non-bank subsidiaries (affiliates) may obtain from bank subsidiaries of
the holding company. For instance, these restrictions generally require that
any such extensions of credit by a bank to its affiliates be on nonpreferential
terms and be secured by designated amounts of specified collateral. Further, a
banks ability to lend to its affiliates is limited to 10% per affiliate (20%
in the aggregate to all affiliates) of the banks capital and surplus.

Bank Regulation. As a Tennessee banking institution, the Bank is subject
to regulation, supervision and regular examination by the Banking Department.
The deposits of the Bank are insured by the FDIC to the maximum extent provided
by law (a maximum of $100,000 for each insured depositor). Tennessee and
federal banking laws and regulations control, among other things, required
reserves, investments, loans, mergers and

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consolidations, issuance of securities, payment of dividends, and
establishment of branches and other aspects of the Banks operations.
Supervision, regulation and examination of the Company and the Bank by the bank
regulatory agencies are intended primarily for the protection of depositors
rather than for holders of the Common Stock of the Company.

Extensions of Credit. Under joint regulations of the federal banking
agencies, including the FDIC, banks must adopt and maintain written policies
that establish appropriate limits and standards for extensions of credit that
are secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent underwriting standards,
including loan-to-value limits that are clear and measurable, loan
administration procedures and documentation, approval and reporting
requirements. A banks real estate lending policy must reflect consideration
of the Interagency Guidelines for Real Estate Lending Policies (the
Interagency Guidelines) that have been adopted by the federal bank
regulators. The Interagency Guidelines, among other things, call upon
depository institutions to establish internal loan-to-value limits for real
estate loans that are not in excess of the loan-to-value limits specified in
the Guidelines for the various types of real estate loans. The Interagency
Guidelines state that it may be appropriate in individual cases to originate or
purchase loans with loan-to-value ratios in excess of the supervisory

loan-to-value limits. The aggregate amount of loans in excess of the
supervisory loan-to-value limits, however, should not exceed 100% of total
capital and the total of such loans secured by commercial, agricultural,
multifamily and other non-one-to-four family residential properties should not
exceed 30% of total capital.

Federal Deposit Insurance. The Bank is subject to FDIC deposit insurance
assessments. The FDIC has established a risk-based deposit insurance
assessment system for insured depository institutions, under which insured
institutions are assigned assessment risk classifications based upon capital
levels and supervisory evaluations. Insurance assessment rates for BIF-insured
banks such as the Bank depend on the capital category and supervisory category
to which a bank is assigned and currently range from $0.00 to $0.27 per $100 of
insured deposits.

Safety and Soundness Standards. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) required the federal bank regulatory
agencies to prescribe, by regulation, non-capital safety and soundness
standards for all insured depository institutions and depository institution
holding companies. The FDIC and the other federal banking agencies have
adopted guidelines prescribing safety and soundness standards pursuant to
FDICIA. The safety and soundness guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. Among other things, the guidelines
require banks to maintain appropriate systems and practices to identify and
manage risks and exposures identified in the guidelines.

Capital Requirements. The FRB has established guidelines with respect to
the maintenance of appropriate levels of capital by registered bank holding
companies, and the FDIC has established similar guidelines for state-chartered
banks that are not members of the FRB. The regulations of the FRB and FDIC
impose two sets of capital adequacy requirements: minimum leverage rules, which
require the maintenance of a specified minimum ratio of capital to total
assets, and risk-based capital rules, which require the maintenance of
specified minimum ratios of capital to risk-weighted assets. At December 31,
2002, the Company and the Bank satisfied the minimum required regulatory
capital requirements. See Note 11 of Notes to Consolidated Financial
Statements.

The FDIC has issued final regulations that classify insured depository
institutions by capital levels and require the appropriate federal banking
regulator to take prompt action to resolve the problems of any institution that
fails to satisfy the capital standards. Under such regulations, a
well-capitalized bank is one that is not subject to any regulatory order or
directive to meet any specific capital level and that has or exceeds the
following capital levels: a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6%, and a leverage ratio of 5%. As of December 31,
2002, the Bank was well-capitalized as defined by the regulations. See Note
11 of Notes to Consolidated Financial Statements for further information.

Legislative, Legal and Regulatory Developments: The banking industry is
generally subject to extensive regulatory oversight. The Company, as a
publicly held bank holding company, and the Bank, as a state-chartered bank
with deposits insured by the FDIC, are subject to a number of laws and
regulations. Many of these laws and regulations have undergone significant
change in recent years. These laws and regulations impose restrictions on
activities, minimum capital requirements, lending and deposit restrictions and
numerous other requirements. Future changes to these laws and regulations, and
other new financial services laws and regulations, are likely and cannot

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be predicted with certainty. Future legislative or regulatory change, or
changes in enforcement practices or court rulings, may have a dramatic and
potentially adverse impact on the Company and its bank and other subsidiaries.

FDIC. The FDIC and members of the United States Congress have recently
proposed new legislation that would reform the bank deposit insurance system.
This reform could merge BIF and SAIF insurance funds, increase the deposit
insurance coverage limits and index future coverage limitations, among other
changes. Most significantly, reform proposals could allow the FDIC to raise or
lower (within certain limits) the currently mandated designated reserve ratio
requiring the FDIC to maintain a 1.25% reserve ratio ($1.25 against $100 of
insured deposits), and require certain changes in the calculation methodology.
Although it is too early to predict the ultimate impact of such proposals, they
could, if adopted, result in the imposition of additional deposit insurance
premium costs on the Company.

Sarbanes Oxley Act. On July 30, 2002, the President signed into law the
Sarbanes-Oxley Act of 2002 (the S-O Act) implementing legislative reforms
intended to address corporate and accounting fraud. In addition to the
establishment of a new accounting oversight board which will enforce auditing,
quality control and independence standards, and will be funded by fees from all
publicly traded companies, the law restricts provision of both auditing and
consulting services by accounting firms. To ensure auditor independence, any
permissible non-audit services being provided to an audit client will require
pre-approval by a companys audit committee members. In addition, the audit
partners must be rotated. Chief executive officers and chief financial
officers, or their equivalent, are required to certify to the accuracy of
periodic reports filed with the Securities and Exchange Commission (SEC),
subject to civil and criminal penalties if they knowingly or willfully violate
this certification requirement. In addition, under the S-O Act, counsel will be
required to report evidence of a material violation of the securities laws or a
breach of fiduciary duty by a company to its chief executive officer or its
chief legal officer, and, if such officer does not appropriately respond, to
report such evidence to the audit committee or other similar committee of the
board of directors or the board itself. Longer prison terms and increased
penalties will be applied to corporate executives who violate federal
securities laws, the period during which certain types of suits can be brought
against a company or its officers has been extended, and bonuses issued to top
executives prior to restatement of a companys financial statements are now
subject to disgorgement if such restatement was due to corporate misconduct.
Executives are also prohibited from insider trading during retirement plan
blackout periods, and loans to company executives are restricted.

The S-O Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with a companys registered public accounting firm (RPAF). Audit
committee members must be independent and are barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies
must disclose whether at least one member of the committee is an audit
committee financial expert and if not, why not. Under the S-O Act, a RPAF is
prohibited from performing statutorily mandated audit services for a company if
such companys chief executive officer, chief financial officer, comptroller,
chief accounting officer, or any person serving in equivalent positions has
been employed by such firm and participated in the audit of such company during
the one-year period preceding the audit initiation date. The S-O Act also
prohibits any officer or director of a company or any other person acting under
their direction from taking any action to fraudulently influence, coerce,
manipulate, or mislead any independent public or certified accountant engaged
in the audit of a companys financial statements for the purpose of rendering
the financial statements materially misleading.

The Companys board is determined to continue a corporate governance
structure that meets or exceeds the requirements of the S-O Act.

Additional SEC Reforms. In addition, in September 2002, the SEC issued its
final ruling requiring the acceleration of filing dates for periodic reports
such as the Companys Form 10-K and its quarterly reports on Form 10-Q. The
rule applies to all companies, including the Company, that have a public float
of at least $75 million, that have been subject to the SECs reporting
requirements for at least 12 calendar months and have previously filed at least
one annual report. Companies subject to this accelerated requirement must file
their annual reports on Form 10-K for 2002 within the usual 90 day period
following year-end, but that period is shortened to 75 days for 2003 and then
finally to 60 days for 2004 and later years. Similarly, the quarterly reports
on Form 10-Q for such companies will still be required to be filed within 45
days after quarter-end during 2003, shortened to 40 days for 2004 and 35 days
for 2005 and later years.

Nasdaq. Also during 2002, the Nasdaq proposed numerous corporate
governance rules intended to address a heightened public perception of
shortcomings in corporate accountability among public companies generally.

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These rules, if adopted, would affect the Company because its common stock
is listed on the Nasdaq National Market System under the symbol GCBS. The
proposed changes include ensuring that a majority of a board of directors are
independent of management, establishing and publishing a code of conduct for
directors and officers and requiring stockholder approval of all new stock
option plans and all modifications. These rules are still tentative in nature
because they are subject to SEC review and approval, which is expected to occur
later this year and would then be followed by an anticipated six-month
transition period.

USA Patriot Act. The President of the United States signed the USA Patriot
Act (USA-PA), into law on October 26, 2001. The USA-PA establishes a wide
variety of new and enhanced ways of combating international terrorism. The
provisions that affect national banks (and other financial institutions) most
directly are contained in Title III of the act. In general, Title III amends
current law - primarily the Bank Secrecy Act - to provide the Secretary of
Treasury (Treasury) and other departments and agencies of the federal
government with enhanced authority to identify, deter, and punish international
money laundering and other crimes.

Among other things, the USA-PA prohibits financial institutions from doing
business with foreign shell banks and requires increased due diligence for
private banking transactions and correspondent accounts for foreign banks. In
addition, financial institutions will have to follow new minimum verification
of identity standards for all new accounts and will be permitted to share
information with law enforcement authorities under circumstances that were not
previously permitted. These and other provisions of the USA-PA became
effective at varying times and the Treasury and various federal banking
agencies are responsible for issuing regulations to implement the new law.

Executive Officers of the Registrant

The following table sets forth information regarding the executive
officers of the Company.

|                    |  |                   |    |       |  |                                                   |  | 
|------------------- |  | ----------------- | -- | ----- |  | ------------------------------------------------- |  | 
|                    |  | Age At            |    |       |  |                                                  
|Name                |  | December 31, 2002 |    | Title
|                    |  |                   |    |      
|R. Stan Puckett     |  |                   | 46 |       |  | Chairman of the Board and Chief Executive Officer
|Kenneth R. Vaught   |  |                   | 38 |       |  | President and Chief Operating Officer            
|William F. Richmond |  |                   | 53 |       |  | Senior Vice President and Chief Financial Officer

R. Stan Puckettcurrently serves as Chief Executive Officer of the Company
and has held that position since 1990. He also is currently Chairman of the
Board of Directors. He has served as Chief Executive Officer of the Bank since
February 1989. He is a graduate of Bristol University with a degree in
business administration. He served as President of First American National
Bank of Johnson City, Tennessee from December 1987 to February 1989 and as its
Vice President from June 1986 to December 1987. He was Assistant Vice
President of First Union National Bank in Asheville, North Carolina from
September 1983 to June 1986 and served as commercial loan officer of Signet
Bank in Bristol, Virginia from September 1977 to June 1983.

Kenneth R. Vaughtcurrently serves as President and Chief Operating
Officer of the Company and the Bank and has held that position since June 2002.
He also was elected to the Board of Directors on that date. Prior to joining
the Company Mr. Vaught began his banking career in 1987 as a Management Trainee
with Hamilton Bank (SunTrust affiliate) in Johnson City, Tennessee. He later
joined First Tennessee Bank in 1989 as a Commercial Loan Officer. In 1991, he
was promoted to Vice President and transferred to First Tennessee Bank,
Maryville, Tennessee. He left First Tennessee Bank in 1998 as Senior Vice
President and Commercial Banking Manager to join Greene County Bank. He is a
graduate of East Tennessee State University with a degree in Finance.

William F. Richmondjoined the Company in February 1996 and currently
serves as Senior Vice President and Chief Financial Officer of the Company and
the Bank. Prior to joining the Company, Mr. Richmond served, subsequent to the
acquisition of Heritage Federal Bancshares, Inc. (Heritage) by First American
Corporation (now a part of AmSouth Bancorporation), as transition coordinator
for various financial matters from November 1995 through January 1996.
Heritage was the parent of Heritage Federal Bank for Savings located in
Kingsport, Tennessee. He served as Senior Vice President and Chief Financial
Officer for Heritage from June 1991 through October 1995 and as controller from
April 1985 through May 1991. He has been active in community activities in the
Tri-Cities, Tennessee area, having served on the Board of Directors of Boys and
Girls Club, Inc. and as President of the Tri-Cities Estate Planning Council.
He has served in various capacities with the United Way of Greater Kingsport
and is a Paul Harris Fellow in Rotary International. He holds a B.S. in
Commerce with Distinction from

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the University of Virginia and also an M.B.A. from the Colgate Darden
Graduate School of Business Administration at the University of Virginia. He
is licensed as a Certified Public Accountant in Virginia and Tennessee and is
also a Certified Financial Planner.

Additional Information

The Company maintains a code of conduct that is applicable to all
employees. Further, the Company has adopted an additional code of ethics
applicable to its Chief Executive Officer, Chief Financial Officer and
Accounting Manager. This code, which requires continued observance of high
ethical standards such as honesty, integrity and compliance with the law in the
conduct of the Companys business, is available for public access on the
Companys internet website, www.mybankconnection.com, under the Investor
Relations section.

We are not including the information contained on our website as a part
of, or incorporating it by reference into, this Annual Report on Form 10-K. We
make available free of charge (other than an investors own Internet access
charges) through our website our Annual Report on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K, and amendments to these reports,
as soon as reasonably practicable after we electronically file such material
with, or furnish such material to, the SEC. In addition, we intend to disclose
on our website any amendments to or waivers from our code of ethics that are
required to be publicly disclosed pursuant to rules of the SEC.




ITEM 2.      PROPERTIES

At December 31, 2002, the Company maintained a main office in Greeneville,
Tennessee and 30 bank branches (of which six are in leased operating premises)
and 11 separate locations operated by the Banks subsidiaries.




ITEM 3.     LEGAL PROCEEDINGS

From time to time, the Company and its subsidiaries are parties to various
legal proceedings incident to its business. At December 31, 2002, there were
no legal proceedings which management anticipates would have a material adverse
effect on the Company.




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

No matters were submitted during the fourth quarter of 2002 to a vote of
security holders of the Company through a solicitation of proxies or otherwise.

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PART II




ITEM 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On March 19, 2003, Greene County Bancshares had 6,820,540 shares of common
stock outstanding. The Companys shares began trading on the Nasdaq National
Market on October 1, 2002, under the symbol GCBS. Prior to that time, there
was no established trading market for the Companys Stock. As of March 19,
2003, the Company estimates that it had approximately 2,100 shareholders,
including approximately 1,800 shareholders of record and approximately 300
beneficial owners holding shares in nominee or street name.

The following table sets forth the high and low common stock prices per
Nasdaq quotations for the fourth quarter of 2002, and certain information known
to management as to the price of the Companys common stock at the end of each
of the first three quarters of 2002 and the end of each of the quarters in
2001. The table also sets forth the dividend per share paid each quarter
during 2002 and 2001.

|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |      | 
|----- | -------------- |  | -------------- |  | -------------------- |  | ------------------ | ----- |  |  | - | ----------- |  | - | ---- | ---- | 
|      |                |  |               
|      |                |  | Sales Price at |  | High/Low Sales Price |  | Dividends Declared
|      |                |  | Quarter-End(1) |  | During Quarter(1)    |  | Per Share(2)      
|      |                |  |                |  |                      |  |                   
|2002: |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     
|      | First quarter  |  |                |  |                      |  | $                  | 16.00 |  |  | $ |            |  |   | $    | 0.12 | 
|      | Second quarter |  |                |  |                      |  |                    | 16.50 |  |  |   |            |  |   |      | 0.12 | 
|      | Third quarter  |  |                |  |                      |  |                    | 16.50 |  |  |   |            |  |   |      | 0.12 | 
|      | Fourth quarter |  |                |  |                      |  |                    |      |  |  |   | 19.75/16.90 |  |   |      | 0.22 | 
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  | $ | 0.58 |     
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     
|2001: |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     
|      | First quarter  |  |                |  |                      |  | $                  | 32.00 |  |  | $ |            |  |   | $    | 0.12 | 
|      | Second quarter |  |                |  |                      |  |                    | 26.88 |  |  |   |            |  |   |      | 0.12 | 
|      | Third quarter  |  |                |  |                      |  |                    | 18.00 |  |  |   |            |  |   |      | 0.12 | 
|      | Fourth quarter |  |                |  |                      |  |                    | 16.00 |  |  |   |            |  |   |      | 0.20 | 
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  | $ | 0.56 |     
|      |                |  |                |  |                      |  |                    |       |  |  |   |             |  |   |      |     



---

|(1) |  | Prior to the listing of the Common Stock on the Nasdaq National Market in
the fourth quarter of 2002, there was not an established public trading
market in which shares of the Common Stock were regularly traded, nor were
there any uniformly quoted prices for such shares. Management was
therefore unable to determine high and low market prices each quarter on a
consistent and reliable basis during that time. Accordingly, only
quarter-end sales prices were disclosed using best information available
at the time. Beginning with the fourth quarter of 2002, quarterly
information will be presented based upon trading of the Common Stock on
the Nasdaq National Market.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | For information regarding restrictions on the payment of dividends by the
Bank to the Company, see Managements Discussion and Analysis of
Financial Condition and Results of Operation  Liquidity and Capital
Resources in this Annual Report. See also Note 11 of Notes to
Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                        
|   

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ITEM 6.     SELECTED FINANCIAL DATA

|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |         |  
|--------------------------------------------------- | ---------------------------------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                    |                                                            |   | 2002                   |         | 2001 |   | 2000    |         | 1999 |   | 1998   
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |        
|                                                    |                                                            |   | (Dollars in Thousands)
|Total interest income                               |                                                            | $ | 59,929                 |         |      | $ | 67,964  |         |      | $ | 67,696  |         |   | $ | 55,229  |         |   | $ | 50,792  |        
|Total interest expense                              |                                                            |   | 18,680                 |         |      |   | 28,463  |         |      |   | 29,143  |         |   |   | 19,742  |         |   |   | 18,572  |        
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Net interest income                                 |                                                            |   | 41,249                 |         |      |   | 39,501  |         |      |   | 38,553  |         |   |   | 35,487  |         |   |   | 32,220  |        
|Provision for loan losses                           |                                                            |   | (7,065                 | )       |      |   | (5,959  | )       |      |   | (8,009  | )       |   |   | (3,133  | )       |   |   | (3,417  | )      
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Net interest income after provision for loan losses |                                                            |   | 34,184                 |         |      |   | 33,542  |         |      |   | 30,544  |         |   |   | 32,354  |         |   |   | 28,803  |        
|Non-interest income:                                |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                                    | Investment securities gains                                |   |                        | 46      |      |   |         |        |      |   |         |        |   |   |         |        |   |   |         |        |  
|                                                    | Other income                                               |   |                        | 10,484  |      |   |         | 9,593   |      |   |         | 6,568   |   |   |         | 6,331   |   |   |         | 4,555   |  
|Non-interest expense                                |                                                            |   | (29,199                | )       |      |   | (28,665 | )       |      |   | (29,393 | )       |   |   | (24,610 | )       |   |   | (20,462 | )      
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Income before income taxes                          |                                                            |   | 15,515                 |         |      |   | 14,470  |         |      |   | 7,719   |         |   |   | 14,075  |         |   |   | 12,896  |        
|Income tax expense                                  |                                                            |   | (5,702                 | )       |      |   | (5,047  | )       |      |   | (2,206  | )       |   |   | (5,250  | )       |   |   | (4,690  | )      
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Net income                                          |                                                            | $ | 9,813                  |         |      | $ | 9,423   |         |      | $ | 5,513   |         |   | $ | 8,825   |         |   | $ | 8,206   |        
|                                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Per Share Data:1                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                                    | Net income, basic                                          |   | $                      | 1.44    |      |   | $       | 1.38    |      |   | $       | .81     |   |   | $       | 1.30    |   |   | $       | 1.21    |  
|                                                    | Net income, assuming dilution                              |   | $                      | 1.43    |      |   | $       | 1.38    |      |   | $       | .80     |   |   | $       | 1.29    |   |   | $       | 1.20    |  
|                                                    | Dividends declared                                         |   | $                      | .58     |      |   | $       | 0.56    |      |   | $       | 0.55    |   |   | $       | 0.52    |   |   | $       | 0.46    |  
|                                                    | Book value                                                 |   | $                      | 10.94   |      |   | $       | 10.06   |      |   | $       | 9.24    |   |   | $       | 8.94    |   |   | $       | 8.16    |  
|Financial Condition Data:                           |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                                    | Assets                                                     |   | $                      | 899,396 |      |   | $       | 811,612 |      |   | $       | 789,117 |   |   | $       | 656,012 |   |   | $       | 568,179 |  
|                                                    | Loans, net                                                 |   | $                      | 744,317 |      |   | $       | 679,271 |      |   | $       | 657,065 |   |   | $       | 546,897 |   |   | $       | 466,661 |  
|                                                    | Cash and investments                                       |   | $                      | 61,980  |      |   | $       | 57,470  |      |   | $       | 76,816  |   |   | $       | 72,223  |   |   | $       | 49,939  |  
|                                                    | Federal funds sold                                         |   | $                      | 39,493  |      |   | $       | 25,621  |      |   | $       | 8,130   |   |   | $       |        |   |   | $       | 24,300  |  
|                                                    | Deposits                                                   |   | $                      | 719,323 |      |   | $       | 653,913 |      |   | $       | 648,641 |   |   | $       | 522,382 |   |   | $       | 459,183 |  
|                                                    | Notes Payable                                              |   | $                      | 82,359  |      |   | $       | 67,978  |      |   | $       | 59,949  |   |   | $       | 46,309  |   |   | $       | 36,627  |  
|                                                    | Federal funds purchased and repurchase agreements          |   | $                      | 10,038  |      |   | $       | 10,375  |      |   | $       | 4,713   |   |   | $       | 14,581  |   |   | $       | 7,216   |  
|                                                    | Shareholders equity                                       |   | $                      | 74,595  |      |   | $       | 68,627  |      |   | $       | 63,010  |   |   | $       | 60,772  |   |   | $       | 55,386  |  
|Selected Ratios:                                    |                                                            |   |                        |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                                    | Interest rate spread                                       |   |                        | 4.99    | %    |   |         | 4.98    | %    |   |         | 5.18    | % |   |         | 5.90    | % |   |         | 5.96    | %
|                                                    | Net yield on interest-earning assets                       |   |                        | 5.29    | %    |   |         | 5.41    | %    |   |         | 5.67    | % |   |         | 6.39    | % |   |         | 6.53    | %
|                                                    | Return on average assets                                   |   |                        | 1.17    | %    |   |         | 1.20    | %    |   |         | 0.75    | % |   |         | 1.47    | % |   |         | 1.56    | %
|                                                    | Return on average equity                                   |   |                        | 13.40   | %    |   |         | 13.96   | %    |   |         | 8.58    | % |   |         | 14.90   | % |   |         | 15.63   | %
|                                                    | Average equity to average assets                           |   |                        | 8.72    | %    |   |         | 8.59    | %    |   |         | 8.78    | % |   |         | 9.89    | % |   |         | 9.97    | %
|                                                    | Dividend payout ratio                                      |   |                        | 40.31   | %    |   |         | 40.53   | %    |   |         | 68.22   | % |   |         | 40.02   | % |   |         | 37.99   | %
|                                                    | Ratio of nonperforming assets to total assets              |   |                        | 1.48    | %    |   |         | 1.22    | %    |   |         | 0.96    | % |   |         | 0.96    | % |   |         | 1.15    | %
|                                                    | Ratio of allowance for loan losses to
Nonperforming assets |   |                        | 94.24   | %    |   |         | 112.89  | %    |   |         | 154.83  | % |   |         | 163.48  | % |   |         | 156.34  | %
|                                                    | Ratio of allowance for loan losses to total loans          |   |                        | 1.65    | %    |   |         | 1.61    | %    |   |         | 1.72    | % |   |         | 1.81    | % |   |         | 2.11    | %



---



|1 |  | Amounts have been restated to reflect the effect of the Companys
five-for-one stock split effected May 2001.
|- |  | -------------------------------------------------------------------------------------------------------------

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##### Table of Contents






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

Critical Accounting Policies and Estimates

The Companys consolidated financial statements and accompanying notes
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.

Management continually evaluates the Companys accounting policies and
estimates it uses to prepare the consolidated financial statements. In
general, managements estimates are based on historical experience, information
from regulators and third party professionals and various assumptions that are
believed to be reasonable under the facts and circumstances. Actual results
could differ from those estimates made by management.

The Company believes its critical accounting policies and estimates
include the valuation of the allowance for loan losses. Based on managements
calculation, an allowance of $12,586, or 1.65%, of total loans was an adequate
estimate of losses within the loan portfolio as of December 31, 2002. This
estimate resulted in a provision for loan losses on the income statement of
$7,065 during 2002. If the mix and amount of future charge-off percentages
differ significantly from those assumptions used by management in making its
determination, the allowance for loan losses and provision for loan losses on
the income statement could be materially affected. For further discussion of
the allowance for loan losses and a detailed description of the methodology
management uses in determining the adequacy of the allowance, see BUSINESS 
Lending Activities  Allowance for Loan Losses located earlier, and Changes
in Results of Operations  Provision for Loan Losses located below.

Changes in Results of Operations

Net income. Net income for 2002 was $9,813, an increase of $390, or
4.14%, as compared to net income of $9,423 for 2001. The increase is primarily
attributable to an increase in net interest income of $1,748, or 4.43%, to
$41,249 in 2002 from $39,501 in 2001 and an increase in noninterest income of
$937, or 9.77%, to $10,530 in 2002 from $9,593 in 2001, offset, in part, by an
increase of $1,106, or 18.56%, in the provision for loan losses to $7,065 in
2002 from $5,959 in 2001. The increase in net interest income primarily
reflects an increased volume in loans and investment securities that more than
offset the overall negative rate effect associated with the downward repricing
of both the Companys interest-earning assets and interest-bearing liabilities.
The increase in noninterest income resulted from the Companys continued
emphasis on fee-based income, particularly in the non-deposit products and
electronic banking areas. The increase in the provision for loan losses
results primarily from the increase in the Companys non-performing assets
during and as of the year ended December 31, 2002 as a result of declining
credit quality in the Bank.

Net income for 2001 was $9,423, an increase of $3,910, or 70.92%, as
compared to net income of $5,513 for 2000. The increase is primarily
attributable to an increase in non-interest income of $3,025, or 46.06%, to
$9,593 in 2001 from $6,568 in 2000 and a decrease of $2,050, or 25.60%, in the
provision for loan loss to $5,959 in 2001 from $8,009 in 2000. The increase in
non-interest income resulted from the Companys continued emphasis on fee-based
income and the related growth in its lending activities. The decline in the
provision for loan losses reflects the adjustment in 2001 of the allowance for
loan losses to a level that management deemed adequate. Even with the decline
in the provision, the Companys allowance for loan losses was 112.89% of its
non-performing assets.

Net Interest Income. The largest source of earnings for the Company is
net interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other
interest-bearing liabilities. The primary factors that affect net interest
income are changes in volume and yields of earning assets and interest-bearing
liabilities, which are affected in part by managements responses to changes in
interest rates through asset/liability management. During 2002, net interest
income was $41,249 as compared to $39,501 in 2001, an increase of 4.43%. This
increase was due primarily to an increase in average balances of all
interest-earning assets, including loans, investment securities and other
short-term investments. Average loan balances increased $25,114, or 3.64%, to
$715,447 in 2002 from $690,333 in 2001; average investment security balances
increased $20,558, or 90.83%, to $43,192 in 2002 from $22,634 in 2001; and
average other short-term investment balances increased $4,332, or 25.47%, to
$21,339 in 2002 from $17,007 in 2001. While average balances of total
interest-bearing

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##### Table of Contents



liabilities also increased in 2002 from 2001, particularly in savings, NOW
and money market deposit accounts as a primary result of the Companys emphasis
on such types of deposits as a loan funding source, this average-balance
increase did not reduce the Companys net interest income due to the overall
mix of the Companys deposit base. The Companys yield on average loans during
2002 continued to decrease, as compared to 2001, as a result of (a) the
Companys aggressive loan pricing in order to obtain market share in new
markets and increase share in existing markets and (b) the continued downward
adjustment in loans tied to market rates. While the Companys rate on average
interest-bearing liabilities also declined, as rate-sensitive liabilities
continued to price downward in a declining rate environment, this decline was
not sufficient to completely offset the decline in yield on average
interest-earning assets. In the aggregate, the Companys net interest margin
declined in 2002 from 2001, although the decline was less than the decrease in
2001 from 2000. In view of the Companys asset-sensitive position, management
anticipates further declines in net interest margin if product mixes remain
relatively unchanged and interest rates continue to decline.

Average Balances, Interest Rates and Yields.Net interest income is
affected by (i) the difference between yields earned on interest-earning assets
and rates paid on interest-bearing liabilities (interest rate spread) and
(ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. The Companys interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows. When the total of interest-earning assets approximates or
exceeds the total of interest-bearing liabilities, any positive interest rate
spread will generate net interest income. An indication of the effectiveness
of an institutions net interest income management is its net yield on
interest-earning assets, which is net interest income divided by average
interest-earning assets.

18



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##### Table of Contents



The following table sets forth certain information relating to the
Companys consolidated average interest-earning assets and interest-bearing
liabilities and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average daily balance of assets or
liabilities, respectively, for the periods presented.

|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |       |  
|------------------------------------- | --------------------------------- | - | ---------------------- | ------- | -------- | - | ------ | ------ | ------- |  | -------- | ---- | ---- | - | ------- | ------- | -------- | - | ------- | ------ |  |  | ----- | ---- | ------- | - | ------- | ------- |  | - | ------ | ------ |  |  | ----- | ----- | -
|                                      |                                   |   | 2002                   |         | 2001     |   | 2000  
|                                      |                                   |   |                        |         |          |   |       
|                                      |                                   |   | Average                |         |          |   |        |        | Average |  | Average  |      |      |   |         |         | Average  |   | Average |        |  |  |       |      | Average
|                                      |                                   |   | Balance                |         | Interest |   | Rate   |        | Balance |  | Interest |      | Rate |   | Balance |         | Interest |   | Rate   
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |        
|                                      |                                   |   | (Dollars in Thousands)
|Interest-earning
assets:              |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Loans1                                |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Real estate loans                     |                                   | $ | 535,037                |         |          | $ | 37,139 |        |         |  | 6.94     | %    |      | $ | 496,304 |         |          | $ | 41,219  |        |  |  | 8.31  | %    |         | $ | 448,808 |         |  | $ | 39,316 |        |  |  | 8.76  | %    
|Commercial loans                      |                                   |   | 93,525                 |         |          |   | 5,724  |        |         |  | 6.12     | %    |      |   | 98,260  |         |          |   | 7,789   |        |  |  | 7.93  | %    |         |   | 80,399  |         |  |   | 7,646  |        |  |  | 9.51  | %    
|Consumer and other
loans-net2         |                                   |   | 86,885                 |         |          |   | 10,233 |        |         |  | 11.78    | %    |      |   | 95,769  |         |          |   | 11,610  |        |  |  | 12.12 | %    |         |   | 79,144  |         |  |   | 11,304 |        |  |  | 14.28 | %    
|Fees on loans                         |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   | 4,608  |        |  |  |       |      
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|                                      | Total loans
(including fees)      |   | $                      | 715,447 |          |   | $      | 57,859 |         |  |          | 8.09 | %    |   | $       | 690,333 |          |   | $       | 65,970 |  |  |       | 9.56 | %       |   | $       | 608,351 |  |   | $      | 62,874 |  |  |       | 10.34 | %
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Investment securities3                |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Taxable                               |                                   | $ | 37,790                 |         |          | $ | 1,490  |        |         |  | 3.94     | %    |      | $ | 16,294  |         |          | $ | 1,010   |        |  |  | 6.20  | %    |         | $ | 44,427  |         |  | $ | 3,153  |        |  |  | 7.10  | %    
|Tax-exempt4                           |                                   |   | 787                    |         |          |   | 25     |        |         |  | 3.18     | %    |      |   | 1,973   |         |          |   | 87      |        |  |  | 4.41  | %    |         |   | 3,213   |         |  |   | 140    |        |  |  | 4.36  | %    
|FHLB and Bankers
Bank Stock           |                                   |   | 4,615                  |         |          |   | 209    |        |         |  | 4.53     | %    |      |   | 4,367   |         |          |   | 289     |        |  |  | 6.62  | %    |         |   | 3,986   |         |  |   | 288    |        |  |  | 7.23  | %    
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|                                      | Total investment
securities       |   | $                      | 43,192  |          |   | $      | 1,724  |         |  |          | 3.99 | %    |   | $       | 22,634  |          |   | $       | 1,386  |  |  |       | 6.12 | %       |   | $       | 51,626  |  |   | $      | 3,581  |  |  |       | 6.94  | %
|Other short-term
Investments          |                                   |   | 21,339                 |         |          |   | 346    |        |         |  | 1.62     | %    |      |   | 17,007  |         |          |   | 608     |        |  |  | 3.57  | %    |         |   | 19,495  |         |  |   | 1,241  |        |  |  | 6.37  | %    
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|                                      | Total interest-Earning assets     |   | $                      | 779,978 |          |   | $      | 59,929 |         |  |          | 7.68 | %    |   | $       | 729,974 |          |   | $       | 67,964 |  |  |       | 9.31 | %       |   | $       | 679,472 |  |   | $      | 67,696 |  |  |       | 9.96  | %
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Non-interest-earning
assets:          |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|Cash and due from
banks               |                                   | $ | 22,615                 |         |          |   |        |        |         |  |          |      |      | $ | 21,163  |         |          |   |         |        |  |  |       |      |         | $ | 21,757  |         |  |   |        |        |  |  |       |      
|Premises and
equipment                |                                   |   | 25,776                 |         |          |   |        |        |         |  |          |      |      |   | 25,092  |         |          |   |         |        |  |  |       |      |         |   | 21,351  |         |  |   |        |        |  |  |       |      
|Other, less allowance
for loan losses |                                   |   | 11,669                 |         |          |   |        |        |         |  |          |      |      |   | 9,567   |         |          |   |         |        |  |  |       |      |         |   | 8,471   |         |  |   |        |        |  |  |       |      
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|                                      | Total non-interest-Earning assets |   | $                      | 60,060  |          |   |        |        |         |  |          |      |      |   | $       | 55,822  |          |   |         |        |  |  |       |      |         |   | $       | 51,579  |  |   |        |        |  |  |       |       |  
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      
|                                      | Total Assets                      |   | $                      | 840,038 |          |   |        |        |         |  |          |      |      |   | $       | 785,796 |          |   |         |        |  |  |       |      |         |   | $       | 731,051 |  |   |        |        |  |  |       |       |  
|                                      |                                   |   |                        |         |          |   |        |        |         |  |          |      |      |   |         |         |          |   |         |        |  |  |       |      |         |   |         |         |  |   |        |        |  |  |       |      



---

|1 |  | Average loan balances include nonaccrual loans. Interest income collected on nonaccrual loans has been included.                    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------
| 
|2 |  | Installment loans are stated net of unearned income.                                                                                
| 
|3 |  | The average balance of and the related yield associated with securities available for sale are based on the cost of such securities.
| 
|4 |  | Tax exempt income has not been adjusted to tax-equivalent basis since it is not material.                                           

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##### Table of Contents



|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |      |      |  
|--------------------------------------------------------------------- | ---------------------------------------- | -------------- | ------- | ------- | ------- | -------- | ------ | ------ | ------ | ------- | ---- | ---------------------- | ---- | ---- | ------- | ------- | ------- | -------- | ------ | ------- | ------ |  | ---- | ---- | ---- | ------- | ------- | ------- | ------- | - | ------ | ------ | ------ |  | ---- | ---- | ---- | -
|                                                                      |                                          |                |         | 2002    |         | 2001     |        | 2000  
|                                                                      |                                          |                |         |         |         |          |        |       
|                                                                      |                                          |                |         | Average |         |          |        |        |        | Average |      | Average                |      |      |         |         |         | Average  |        | Average |        |  |      |      |      | Average
|                                                                      |                                          |                |         | Balance |         | Interest |        | Rate   |        | Balance |      | Interest               |      | Rate |         | Balance |         | Interest |        | Rate   
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |        
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      | (Dollars in Thousands) |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |       
|Interest-bearing
liabilities:                                         |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|Deposits                                                              |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|                                                                      | Savings, NOW Accounts, and
money markets |                | $       | 269,103 |         |          | $      | 2,803  |        |         |      | 1.04                   | %    |      | $       | 208,054 |         |          | $      | 4,066   |        |  |      | 1.95 | %    |         | $       | 193,889 |         |   | $      | 5,116  |        |  |      | 2.64 | %   
|                                                                      | Time deposits                            |                |         | 344,059 |         |          |        | 12,463 |        |         |      | 3.62                   | %    |      |         | 375,825 |         |          |        | 20,557  |        |  |      | 5.47 | %    |         |         | 353,278 |         |   |        | 20,175 |        |  |      | 5.71 | %   
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|                                                                      |                                          | Total deposits |         | $       | 613,162 |          |        | $      | 15,266 |         |      |                        | 2.49 | %    |         | $       | 583,879 |          |        | $       | 24,623 |  |      |      | 4.22 | %       |         | $       | 547,167 |   |        | $      | 25,291 |  |      |      | 4.62 | %
|Securities sold under
repurchase agreements
and short-term
borrowings |                                          |                | 17,133  |         |         |          | 192    |        |        |         | 1.12 | %                      |      |      | 7,620   |         |         |          | 181    |         |        |  | 2.38 | %    |      |         | 6,036   |         |         |   | 304    |        |        |  | 5.04 | %   
|Notes Payable                                                         |                                          |                | 63,014  |         |         |          | 3,222  |        |        |         | 5.11 | %                      |      |      | 66,301  |         |         |          | 3,659  |         |        |  | 5.52 | %    |      |         | 56,934  |         |         |   | 3,548  |        |        |  | 6.23 | %   
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|Total interest-bearing
Liabilities                                    |                                          | $              | 693,309 |         |         | $        | 18,680 |        |        |         | 2.69 | %                      |      | $    | 657,800 |         |         | $        | 28,463 |         |        |  | 4.33 | %    |      | $       | 610,137 |         |         | $ | 29,143 |        |        |  | 4.78 | %   
|Non-interest-bearing
liabilities:                                     |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|                                                                      | Demand deposits                          |                | $       | 63,373  |         |          |        |        |        |         |      |                        |      |      | $       | 49,773  |         |          |        |         |        |  |      |      |      |         | $       | 46,010  |         |   |        |        |        |  |      |      |     
|                                                                      | Other liabilities                        |                |         | 10,122  |         |          |        |        |        |         |      |                        |      |      |         | 10,740  |         |          |        |         |        |  |      |      |      |         |         | 10,685  |         |   |        |        |        |  |      |      |     
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|                                                                      | Total liabilities                        |                | $       | 73,495  |         |          |        |        |        |         |      |                        |      |      | $       | 60,513  |         |          |        |         |        |  |      |      |      |         | $       | 56,695  |         |   |        |        |        |  |      |      |     
|                                                                      | Stockholders equity                     |                |         | 73,234  |         |          |        |        |        |         |      |                        |      |      |         | 67,483  |         |          |        |         |        |  |      |      |      |         |         | 64,219  |         |   |        |        |        |  |      |      |     
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|Total liabilities and
Stockholders equity                            |                                          | $              | 840,038 |         |         |          |        |        |        |         |      |                        |      | $    | 785,796 |         |         |          |        |         |        |  |      |      |      | $       | 731,051 |         |         |   |        |        |        |  |      |     
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|Net interest income                                                   |                                          |                |         |         |         | $        | 41,249 |        |        |         |      |                        |      |      |         |         |         | $        | 39,501 |         |        |  |      |      |      |         |         |         |         | $ | 38,553 |        |        |  |      |     
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|Margin analysis:                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     
|                                                                      | Interest rate spread                     |                |         |         |         |          |        |        |        |         |      | 4.99                   | %    |      |         |         |         |          |        |         |        |  |      | 4.98 | %    |         |         |         |         |   |        |        |        |  |      | 5.18 | %   
|Net yield on interest-earning assets (net
interest margin)            |                                          |                |         |         |         |          |        |        |        |         | 5.29 | %                      |      |      |         |         |         |          |        |         |        |  | 5.41 | %    |      |         |         |         |         |   |        |        |        |  | 5.67 | %   
|                                                                      |                                          |                |         |         |         |          |        |        |        |         |      |                        |      |      |         |         |         |          |        |         |        |  |      |      |      |         |         |         |         |   |        |        |        |  |      |     

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Rate/Volume Analysis. The following table analyzes net interest income in
terms of changes in the volume of interest-earning assets and interest-bearing
liabilities and changes in yields and rates. The table reflects the extent to
which changes in the interest income and interest expense are attributable to
changes in volume (changes in volume multiplied by prior year rate) and changes
in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been separately
identified.

|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |     |        |        |  
|------------------- | --------------------- | ------------------------------------------------ | --------------------------- | ----- | --------------------- | ----- | --------------------- | ------- | ------- | ---- | ------ | ---- | ------ | ---- | ----- | ------ | ------ | --- | ------ | ----- | ----- | ------ | ------ | ------ | ------ | ---- | ----- | ---- | ---- | --- | --- | --- | ------ | ------ | -
|                    |                       |                                                  |                             |       | 2002     vs.     2001 |       | 2001     vs.     2000
|                    |                       |                                                  |                             |       |                       |       |                      
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      | Rate/  |      | Total |        |        |     |        |       |       |        |        |        | Rate/  |      | Total
|                    |                       |                                                  |                             |       | Volume                |       | Rate                  |         | Volume  |      | Change |      | Volume |      | Rate  |        | Volume |     | Change
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |       
|                    |                       |                                                  |                             |       | (In thousands)       
|Interest Income:    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|                    |                       | Loans net of unearned income                     |                             | $     | 2,400                 |       |                       | $       | (10,142 | )    |        | $    | (369   | )    |       | $      | (8,111 | )   |        | $     | 8,473 |        |        | $      | (4,738 | )    |       | $    | (639 | )   |     | $   | 3,096  |       
|                    |                       | Investment securities:                           |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |     |        |       
|                    |                       |                                                  | Taxable                     |       |                       | 1,332 |                       |         |         | (367 | )      |      |        | (485 | )     |        |        | 480 |        |       |       | (1,997 | )      |        |        | (399 | )     |      |      | 253 |     |     |        | (2,143 | )
|                    |                       |                                                  | Tax exempt                  |       |                       | (52   | )                     |         |         | (25  | )      |      |        | 15   |       |        |        | (62 | )      |       |       | (54    | )      |        |        | 2    |       |      |      | (1  | )   |     |        | (53    | )
|                    |                       |                                                  | FHLB and Bankers Bank Stock |       |                       | 17    |                       |         |         | (92  | )      |      |        | (5   | )     |        |        | (80 | )      |       |       | 28     |        |        |        | (25  | )     |      |      | (2  | )   |     |        | 1      |  
|                    |                       | Other short-term investments                     |                             |       | 157                   |       |                       |         | (328    | )    |        |      | (91    | )    |       |        | (262   | )   |        |       | (193  | )      |        |        | (543   | )    |       |      | 103  |     |     |     | (633   | )     
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|                    | Total interest income |                                                  |                             | 3,854 |                       |       |                       | (10,954 | )       |      |        | (935 | )      |      |       | (8,035 | )      |     |        | 6,257 |       |        |        | (5,703 | )      |      |       | (286 | )    |     |     | 268 |       
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|Interest Expense:   |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|                    |                       | Savings, NOW accounts, and
Money market accounts |                             |       | 908                   |       |                       |         | (1,840  | )    |        |      | (331   | )    |       |        | (1,263 | )   |        |       | 501   |        |        |        | (1,408 | )    |       |      | (143 | )   |     |     | (1,050 | )     
|                    |                       | Time deposits                                    |                             |       | (1,738                | )     |                       |         | (6,943  | )    |        |      | 587    |      |       |        | (8,094 | )   |        |       | 1,287 |        |        |        | (851   | )    |       |      | (54  | )   |     |     | 382    |       
|                    |                       | Short-term borrowings                            |                             |       | 316                   |       |                       |         | (115    | )    |        |      | (190   | )    |       |        | 11     |     |        |       | 61    |        |        |        | (168   | )    |       |      | (16  | )   |     |     | (123   | )     
|                    |                       | Debt                                             |                             |       | (193                  | )     |                       |         | (273    | )    |        |      | 29     |      |       |        | (437   | )   |        |       | 436   |        |        |        | (472   | )    |       |      | 147  |     |     |     | 111    |       
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|                    |                       | Total interest expense                           |                             |       | (707                  | )     |                       |         | (9,171  | )    |        |      | 95     |      |       |        | (9,783 | )   |        |       | 2,285 |        |        |        | (2,899 | )    |       |      | (66  | )   |     |     | (680   | )     
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |    
|Net interest income |                       | $                                                | 4,561                       |       |                       | $     | (1,783                | )       |         | $    | (1,030 | )    |        | $    | 1,748 |        |        | $   | 3,972  |       |       | $      | (2,804 | )      |        | $    | (220  | )    |      | $   | 948 |    
|                    |                       |                                                  |                             |       |                       |       |                       |         |         |      |        |      |        |      |       |        |        |     |        |       |       |        |        |        |        |      |       |      |      |     |     |     |        |       

At December 31, 2002, loans outstanding and loans held-for-sale, net of
unearned income and allowance for loan losses, were $744,317 compared to
$679,271 at 2001 year end. The increase is primarily due to the combination of
increased loan demand, lenders first-hand knowledge of the local lending
markets and competitive loan rates. Average outstanding loans, net of unearned
interest, for 2002 were $715,447, an increase of 3.64% from the 2001 average of
$690,333. Average outstanding loans for 2000 were $608,351. The growth in
average loans for the past three years can be attributed to the Companys
continuing market expansion into surrounding counties through the Companys
branch network and aggressive programs with respect to loan production and
pricing. The Company continued its branch expansion with the opening of a new
full-service branch in Loudon County, Tennessee during 2002 and a loan
production office in Bristol, Virginia in January 2003. In 2002, the Company
also consolidated one office of Superior Financial into its existing branch
structure in order to enhance operating efficiencies.

Average investment securities for 2002 were $43,192, compared to $22,634
in 2001, and $51,626 in 2000. The increase of $20,558, or 90.83%, from 2001 to
2002 primarily reflects the purchase of federal agency securities during 2002,
funded principally by increases in transactional deposit account balances. The
decrease of $28,992, or 56.16%, from 2000 to 2001 primarily reflects the
purchase of $25,000 of federal agency securities at the beginning of 2000 for
the principal purpose of pledging public deposits. Such securities were not
held throughout 2001. In 2002, the average yield on investments was 3.99%, a
significant decrease from the 6.12% yield in 2001 and the 6.94% yield in 2000.
This trend of decreasing investment yield primarily reflects (a) the calling of
a substantial amount of the Companys investment securities in a declining
interest rate environment and (b) the negative effect of lower rates on the
Companys adjustable-rate investment securities. Income provided by the
investment portfolio in 2002 was $1,724 as compared to $1,386 in 2001 and
$3,581 in 2000.

Provision for Loan Losses. Management assesses the adequacy of the
allowance for loan losses by considering a combination of regulatory and credit
risk criteria. The entire loan portfolio is graded and potential loss factors
are assigned accordingly. The potential loss factors for impaired loans are
assigned based on regulatory guidelines. The regulatory criteria are set forth
in the Interagency Policy Statement on the Allowance for Loan and Lease Losses.
The potential loss factors associated with unimpaired loans are based on a
combination of both internal and industry net loss experience, as well as
managements review of trends within the portfolio and related industries.

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Generally, commercial, commercial real estate and residential real estate
loans are assigned a level of risk at inception. Thereafter, these loans are
reviewed on an ongoing basis. The review includes loan payment and collateral
status, borrowers financial data and borrowers internal operating factors
such as cash flows, operating income, liquidity, leverage and loan
documentation, and any significant change can result in an increase or decrease
in the loans assigned risk grade. Aggregate dollar volume by risk grade is
monitored on an ongoing basis. The establishment of and any changes to risk
grades for consumer loans are generally based upon payment performance.

The Bank generally maintains only a general loan loss allowance, which is
increased or decreased based on managements assessment of the overall risk of
its loan portfolio. Occasionally, a portion of the allowance may be allocated
to a specific loan to reflect unusual circumstances associated with that loan.

Management reviews certain key loan quality indicators on a monthly basis,
including current economic conditions, delinquency trends and ratios, portfolio
mix changes and other information management deems necessary. This review
process provides a degree of objective measurement that is used in conjunction
with periodic internal evaluations. To the extent that this process yields
differences between estimated and actual observed losses, adjustments are made
to provisions and/or the level of the allowance for loan losses.

Increases and decreases in the allowance for loan losses due to changes in
the measurement of impaired loans are reflected in the provision for loan
losses. Loans continue to be classified as impaired unless payments are
brought fully current and management also considers the collection of scheduled
interest and principal to be probable.

The Companys provision for loan losses increased $1,106, or 18.56%, to
$7,065 in 2002 from $5,959 in 2001. Management recognized the need to
substantially increase the provision from $3,133 in 1999 to $8,009 in 2000 to
address greater loss experience throughout the Company. In 2001, management
determined that loan losses had stabilized; accordingly, management concluded
that the same level of provisions as made in 2000 was not necessary. In 2002,
net charge-offs in Superior Financial and GCB Acceptance were $1,606 and
$1,260, respectively, and $2,834 in the Bank, totaling $5,700. Although net
charge-offs declined $766 to $5,700 in 2002 from $6,466 in 2001, management
increased the provision in 2002 because of its concerns related to accelerated
loan growth and the higher level of charge-off activity in commercial real
estate and commercial loans. Such net charge-offs and increase in
non-performing loans were a result of a decline in loan quality, continued
implementation of an aggressive charge-off policy, a downturn in the local and
regional economy, and significantly high bankruptcy rates in Tennessee.
Assuming no further deterioration of the local and regional economy, and based
upon information presently available, management anticipates that net
charge-offs within the Companys overall loan portfolios should continue the
stabilized trend.

The ratio of non-performing assets to total assets was 1.48% at December
31, 2002 and 1.22% at December 31, 2001. Primarily due to the Companys
increase in non-performing assets, the ratio of the Companys allowance for
loan losses to non-performing assets decreased in 2002 to 94.24% from 112.89%
in 2001. Total non-performing loans increased $1,054, or 15.67%, from $6,728
at December 31, 2001 to $7,782 at December 31, 2002. Non-accrual loans, which
are non-performing loans as to which the Bank no longer recognizes interest
income, increased $1,618, or 27.63%, to $7,475 at December 31, 2002 from $5,857
at December 31, 2001. The increase consists primarily of additional
non-accrual loans at the Bank principally due to three business bankruptcies.
Generally, these business bankrupt accounts are adequately secured and
management does not expect any significant losses as a result of the bankruptcy
reaffirmation or collateral liquidation. For further discussion of
non-performing assets as it relates to foreclosed real estate, see
BUSINESS  Lending Activities  Past Due, Special Mention, Classified and Non-Accrual
Loans located earlier.

To further manage its credit risk on loans, the Company maintains a watch
list of loans that, although currently performing, have characteristics that
require closer supervision by management. At December 31, 2002, the Company
had identified approximately $27,071 in loans that were placed on its watch
list, a significant increase from the approximate $15,100 as of December 31,
2001. During 2002, management revised its policy to increase the number of
distinguishing characteristics that causes a loan to be considered a watch
list loan. Management believes the increased level of watch list loans is
not an indication of further credit quality deterioration but, rather, is the
result of improved risk management processes.

Non-Interest Income. Non-interest income, which is income that is not
related to interest-earning assets and consists primarily of service charges,
commissions and fees, has become more important as increases in levels of
interest-bearing deposits and other liabilities make it more difficult to
maintain interest rate spreads.

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Total non-interest income for 2002 increased to $10,530 as compared to
$9,593 in 2001 and $6,568 in 2000. The largest components of non-interest
income are service charges, commissions and fees, which totaled $8,266 in 2002,
$7,606 in 2001 and $5,200 in 2000. The increase in 2002 was due primarily to
service charges and fees associated with 2002 deposit growth, particularly in
transactional accounts, and attendant electronic banking fees. Loan-related fee
income, primarily generated by the Companys mortgage division and associated
with loans held for sale, declined slightly in 2002 from 2001, reflecting some
softness in the economies located within the Companys market areas. Management
does not anticipate any significant increase in service charge and fee income
in the near future absent continued deposit growth and an expanding mortgage
lending market.

Other non-interest income increased $231, or 11.63%, to $2,218 in 2002 as
compared to $1,987 and $1,368 in 2001 and 2000, respectively. The increase in
2002 is reflective mainly of additional fees generated by the Companys
non-deposit products program, as well as net gains on the sale of fixed assets.

Non-Interest Expense. Control of non-interest expense also is an
important aspect in managing net income. Non-interest expense includes, among
others, personnel, occupancy, and other expenses such as data processing,
printing and supplies, legal and professional fees, postage and Federal Deposit
Insurance Corporation assessments. Total non-interest expense was $29,199 in
2002, compared to $28,665 in 2001 and $29,393 in 2000.

Personnel costs are the primary element of the Companys non-interest
expenses. In 2002, salaries and benefits represented $17,046, or 58.38%, of
total non-interest expenses. This was an increase of only $69, or .41%, over
2001s total of $16,977. Personnel cost for 2001 increased $243, or 1.45%,
over 2000s total of $16,734. The minimal increases in 2002 and 2001 reflect
managements continued focus on overall staffing levels and associated
benefits, despite an increase in employees. Overall, the number of full-time
equivalent employees at December 31, 2002, was 386 versus 372 at December 31,
2001, a increase of 3.76%.

The aggregate of occupancy and equipment expense declined slightly in 2002
as compared to 2001, reflecting, in part, the fact that the Companys overall
branch count was unchanged, at 42, at December 31, 2002 as compared to December
31, 2001.

Changes in Financial Condition

Total assets at December 31, 2002 were $899,396, an increase of $87,784,
or 10.82%, over total assets of $811,612 at December 31, 2001. The increase
reflects an increase in loans, net, of $66,345, or 9.88%, to $737,671 at
December 31, 2002 from $671,326 at December 31, 2001. Average assets for 2002
also increased to $840,038, an increase of $54,242, or 6.90%, from the average
asset balance of $785,796 for 2001. This increase was primarily the result of
a 3.64% increase in the average balance of loans to $715,447 in 2002 from
$690,333 in 2001, and a 90.83% increase in the average balance of investment
securities to $43,192 in 2002 from $22,634 in 2001. Due primarily to the
increase in average assets and the continued decline in net interest margin,
the Companys return on average assets decreased in 2002 to 1.17% from 1.20% in
2001.

Total assets at December 31, 2001 were $811,612, an increase of $22,495,
or 2.85%, over 2000s year end total assets of $789,117. Average assets for
2001 were $785,796, an increase of $54,745, or 7.49%, over 2000 average assets
of $731,051. This increase was primarily the result of a 13.48% increase in
the average balance of loans to $690,333 in 2001, offset in part by a decline
in the average balance of investment securities in 2001 to $22,634 from $51,626
in 2000. Even with the increases in average assets in 2001, the Companys
return on average assets increased in 2001 to 1.20% from 0.75% in 2000 as the
Companys increasing non-interest income continued to more than offset its
declining net interest margin.

Earning assets consist of loans, investment securities and short-term
investments that earn interest. Average earning assets during 2002 were
$779,978, an increase of 6.85% from an average of $729,974 in 2001.

Non-performing loans include non-accrual and classified loans. The
Company has a policy of placing loans 90 days delinquent in non-accrual status
and charging them off at 120 days past due. Other loans past due that are well
secured and in the process of collection continue to be carried on the
Companys balance sheet. For further information, see Note 1 of the Notes to
Consolidated Financial Statements. The Company has aggressive collection
practices in which senior management is significantly and directly involved.

The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at December 31, 2002 had an amortized cost of $33,519
and a market value of $33,777 as compared to an amortized

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cost of $29,297 and market value of $29,407 at December 31, 2001. This
increase in investments in 2002 primarily reflects the Companys purchase of
federal agency securities funded principally by deposit increases. The Company
invests principally in shorter-term, callable federal agency securities which,
while usually generating a higher yield than non-callable securities, are at
risk of being called in a declining interest rate environment. If the
securities are called, the proceeds are typically invested at lower yields than
those existing on the called securities. During 2002, approximately $14,500 of
the Companys securities were called and the proceeds were reinvested at lower
yields. There are, however, certain advantages of investing in shorter-term,
callable securities, including relative price stability, as compared to
non-callable securities, with respect to changes in interest rates. As a
consequence and, in combination with the shorter-term and adjustable securities
in the remainder of the Companys investment portfolio, the Companys
investments are less susceptible to significant changes in market value. An
effect of this approach is reflected in the absence of any significant
difference between the securities amortized cost and market value at December
31, 2002 and December 31, 2001.

The Companys deposits were $719,323 at December 31, 2002. This
represents an increase of $65,410, or 10.00%, from the $653,913 of deposits at
December 31, 2001. Non-interest bearing demand deposit balances increased
3.47% to $67,442 at December 31, 2002 from $65,179 at December 31, 2001.
Average interest-bearing deposits increased $29,283, or 5.02%, in 2002. In
2001, average interest-bearing deposits increased $36,712, or 6.71%, over 2000.
These increases in deposits are primarily the result of the Companys
expansion of full-service branches of the Bank into new markets in East
Tennessee and also branch acquisitions. In addition, the Company has actively
marketed its money market accounts and certificates of deposits with
competitive interest rates in order to fund loan growth and has also targeted
the transactional accounts of selected municipalities.

The Companys continued ability to fund its loan and overall asset growth
remains dependent upon the availability of deposit market share in the
Companys existing market of East Tennessee. As of June 30, 2002,
approximately 58% of the deposit base of East Tennessee was controlled
primarily by five commercial banks, one savings bank and one credit union and,
as of September 30, 2002, the total deposit base of Tennessee commercial banks
had a weighted average rate of 2.42%. Management of the Company does not
anticipate further significant growth in its deposit base unless it either
offers interest rates well above its prevailing rate on average
interest-bearing deposits of 2.49% or it acquires deposits from other financial
institutions. During 2002, the premiums charged in Tennessee by selling
financial institutions for deposit accounts ranged from 2.12% to 41.67%. If
the Company takes action to increase its deposit base by offering above-market
interest rates or by acquiring deposits from other financial institutions and
thereby increases its overall cost of deposits, its net interest income could
be adversely affected if it is unable to correspondingly increase the rates it
charges on its loans.

Interest paid on deposits in 2002 totaled $15,266, reflecting a 2.49% cost
on average interest-bearing deposits of $613,162. In 2001, interest of $24,623
was paid at a cost of 4.22% on average deposits of $583,879. In 2000, interest
of $25,291 was paid at a cost of 4.62% on average deposits of $547,167.

Liquidity and Capital Resources

Liquidity. Liquidity refers to the ability or the financial flexibility
to manage future cash flows to meet the needs of depositors and borrowers and
fund operations. Maintaining appropriate levels of liquidity allows the
Company to have sufficient funds available for reserve requirements, customer
demand for loans, withdrawal of deposit balances and maturities of deposits and
other liabilities. The Companys primary source of liquidity is dividends paid
by the Bank. Applicable Tennessee statutes and regulations impose restrictions
on the amount of dividends that may be declared by the Bank. Further, any
dividend payments are subject to the continuing ability of the Bank to maintain
compliance with minimum federal regulatory capital requirements and to retain
its characterization under federal regulations as a well-capitalized
institution. In addition, the Company maintains lines of credit totaling
$50,000 with the Federal Home Loan Bank of Cincinnati (FHLB), of which
$25,034 was available at December 31, 2002. The Company also maintains federal
funds lines of credit totaling $70,900 at seven correspondent banks. The
Company believes it has sufficient liquidity to satisfy its current operations.

In 2002, operating activities of the Company provided $21,019 of cash
flows, reflecting net income of $9,813 and adjusted to include non-cash
operating expenses such as $7,065 in provision for loan losses and amortization
and depreciation of $1,780, and exclude non-cash operating income, such as
$1,474 in the increased cash surrender value of life insurance contracts and
$2,364 in the net change in accrued interest and other liabilities. Cash flows
from operating activities were increased by the proceeds from the sale of
held-for-sale loans of $61,728, offset by cash used to originate held-for-sale
loans of $59,845.

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Investing activities, including lending, used $81,628 of the Companys
cash flows, as opposed to providing cash flows of $11,208 in 2001. Origination
of loans held to maturity net of principal collected used $80,637 in funds, up
from $27,321 in 2001 as the Companys loan originations increased, primarily as
the result of the Companys implementation of aggressive programs with respect
to loan production and pricing. Maturities and calls of securities, net of
purchases of securities available for sale, used $4,219 in cash flows. Cash
flows from investing activities also increased from the sale of other real
estate and from the sale of fixed assets in the amounts of $4,449, and $587,
respectively. These cash inflows were reduced, in part, by investment in
premises and equipment of $2,877 resulting from the Companys branch expansions
and furnishings related thereto.

Net additional cash flows of $75,515 were provided by financing
activities, while these activities used cash of $4,780 in 2001. The change was
attributable primarily to net deposit flows of $65,409 versus net deposit
decreases in 2001 in the amount of $14,652. During 2002, management actively
pursued deposits in order to fund loan growth and increase liquidity. As in
prior years, the Companys cash flow from financing activities was decreased by
the Companys dividend payments during 2002 of $3,956. Further offsetting
these cash inflows was a decrease in cash resulting from the change in federal
funds purchased and repurchase agreements in the amount of $337.

Capital Resources. The Companys capital position is reflected in its
shareholders equity, subject to certain adjustments for regulatory purposes.
Shareholders equity, or capital, is a measure of the Companys net worth,
soundness and viability. The Companys capital continued to exceed regulatory
requirements at December 31, 2002 and its record of paying dividends to its
stockholders continued uninterrupted during 2002. Management believes the
capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Companys
daily operations.

Shareholders equity on December 31, 2002 was $74,595, an increase of
$5,968, or 8.70%, from $68,627 on December 31, 2001. The increase in
shareholders equity arises primarily from net income for 2002 of $9,813 ($1.43
per share, assuming dilution). This increase was offset in part by quarterly
dividend payments during 2002 that totaled $3,956 ($.58 per share).

On September 18, 2002 the Company announced that its Board of Directors
had authorized the repurchase of up to $2,000 of the Companys outstanding
stock beginning in October 2002. The repurchase plan is dependent upon market
conditions and there is no guarantee as to the exact number of shares to be
repurchased by the Company. The plan will be in effect until the earlier of
October 2003 or until the total authorized amount is repurchased. As of March
21, 2003, the Company had not repurchased any shares.

Risk-based capital regulations adopted by the FRB and the FDIC require
both bank holding companies and banks to achieve and maintain specified ratios
of capital to risk-weighted assets. The risk-based capital rules are designed
to measure Tier 1 capital (consisting of stockholders equity, less goodwill)
and total capital in relation to the credit risk of both on- and off-balance
sheet items. Under the guidelines, one of four risk weights is applied to the
different on-balance sheet items. Off-balance sheet items, such as loan
commitments, are also subject to risk weighting after conversion to balance
sheet equivalent amounts. All bank holding companies and banks must maintain a
minimum total capital to total risk-weighted assets ratio of 8.00%, at least
half of which must be in the form of core, or Tier 1, capital. At December 31,
2002, the Company and the Bank each satisfied their respective minimum
regulatory capital requirements, and the Bank was well-capitalized within the
meaning of federal regulatory requirements.

Asset/Liability Management

The Companys Asset/Liability Committee (ALCO) actively measures and
manages interest rate risk using a process developed by the Bank. The ALCO is
also responsible for approving the Companys asset/liability management
policies, overseeing the formulation and implementation of strategies to
improve balance sheet positioning and earnings, and reviewing the Companys
interest rate sensitivity position.

The primary tool that management uses to measure short-term interest rate
risk is a net interest income simulation model prepared by an independent
national consulting firm and reviewed by another separate and independent
national consulting firm. These simulations estimate the impact that various
changes in the overall level of interest rates over one- and two-year time
horizons would have on net interest income. The results help the Company
develop strategies for managing exposure to interest rate risk.

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Like any forecasting technique, interest rate simulation modeling is based
on a large number of assumptions. In this case, the assumptions relate
primarily to loan and deposit growth, asset and liability prepayments, interest
rates and balance sheet management strategies. Management believes that both
individually and in the aggregate the assumptions are reasonable.
Nevertheless, the simulation modeling process produces only a sophisticated
estimate, not a precise calculation of exposure.

The Companys current guidelines for risk management call for preventive
measures if a gradual 200 basis point increase or decrease in short-term rates
over the next 12 months would affect net interest income over the same period
by more than 18.5%. The Company has been operating well within these
guidelines. As of December 31, 2002 and 2001, based on the results of the
independent consulting firms simulation model, the Company could expect net
interest income to increase by approximately 10.57% and 7.66%, respectively, if
short-term interest rates gradually increase by 200 basis points. Conversely,
if short-term interest rates gradually decrease by 200 basis points, net
interest income could be expected to decrease by approximately 12.87% and
8.89%, respectively.

The scenario described above, in which net interest income increases when
interest rates increase and decreases when interest rates decline, is typically
referred to as being asset sensitive because interest-earning assets reprice
at a faster pace than interest-bearing liabilities. At December 31, 2002,
approximately 49% of the Companys gross loans had adjustable rates. While
management believes, based on its asset/liability modeling, that the Company is
asset sensitive, it also believes that a rapid, significant and prolonged
increase or decrease in rates could have a substantial adverse impact on the
Companys net interest margin.

The Company also uses an economic value of equity model, prepared and
reviewed by the same independent national consulting firms, to complement its
short-term interest rate risk analysis. The benefit of this model is that it
measures exposure to interest rate changes over time frames longer than the
two-year net interest income simulation. The economic value of the Companys
equity is determined by calculating the net present value of projected future
cash flows for current asset and liability positions based on the current yield
curve.

Economic value analysis has several limitations. For example, the
economic values of asset and liability balance sheet positions do not represent
the true fair values of the positions, since economic values reflect an
analysis at one particular point in time and do not consider the value of the
Companys franchise. In addition, we must estimate cash flow for assets and
liabilities with indeterminate maturities. Moreover, the models present value
calculations do not take into consideration future changes in the balance sheet
that will likely result from ongoing loan and deposit activities conducted by
the Companys core business. Finally, the analysis requires assumptions about
events which span several years. Despite its limitations, the economic value
of equity model is a relatively sophisticated tool for evaluating the
longer-term effect of possible interest rate movements.

The Companys current guidelines for risk management call for preventive
measures if an immediate 200 basis point increase or decrease in interest rates
would reduce the economic value of equity by more than 23%. The Company has
been operating well within these guidelines. As of December 31, 2002 and 2001,
based on the results of the independent national consulting firms simulation
model and reviewed by the separate and independent national consulting firm,
the Company could expect its economic value of equity to increase by
approximately 15.03% and 10.90%, respectively, if short-term interest rates
immediately increased by 200 basis points. Conversely, if short-term interest
rates immediately decrease by 200 basis points, economic value of equity could
be expected to decrease by approximately 16.57% and 13.72%, respectively. The
greater percentage changes, particularly in the upward shock scenario, in
economic value of equity as of December 31, 2002, compared to December 31,
2001, are primarily due to shorter effective asset lives at December 31, 2002,
compared to December 31, 2001, resulting primarily from the natural evolution
of the balance sheet in a declining interest rate environment associated with
increased prepayments.

Inflation

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

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

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

Effect of New Accounting Standards

New accounting standards on asset retirement obligations, restructuring
activities and exit costs, operating leases, and early extinguishment of debt
were issued in 2002. Management has determined that when the new accounting
standards are adopted in 2003 they will not have a material impact on the
Companys financial condition or results of operations.

On July 1, 2002, the Company became subject to new accounting guidance for
certain commitments to originate loans. The new guidance requires loan
commitments related to the origination of mortgage loans held for sale to be
accounted for as derivative instruments. The Companys commitments are for
fixed rated mortgage loans, generally last 60 to 90 days and are at market
rates when initiated. The Company had $10,476 in outstanding loan commitment
derivatives at December 31, 2002. Because sales contract derivatives are
entered into for amounts and terms offsetting the interest rate risk of loan
commitment derivatives and both are carried at their fair value with changes
included in earnings and are substantially offset, the impact of adopting this
guidance was not material. Substantially all of the gain on sale generated
from mortgage banking activities continues to be recorded when closed loans are
delivered into the sales contracts. The aggregate market value of mortgage
loans held for sale considers the sales prices of such agreements. The Company
also provides currently for any losses on uncovered commitments to lend or
sell. The Company sells mortgage loans servicing released.

Upon adopting new accounting guidance on January 1, 2002, the Company
ceased amortizing goodwill. Goodwill is assessed at least annually for
impairment and any such impairment will be recognized in the period identified.
The effect on net income of ceasing goodwill amortization in 2002 was $113.

Other intangible assets consist of core deposit intangibles arising from
whole bank and branch acquisitions. They are initially measured at fair value
and then are amortized on an accelerated method over their estimated useful
lives, which is 10 years.

Upon adoption of Statement of Financial Accounting Standards (SFAS) No.
147 on October 1, 2002, the Company reclassified to goodwill $1,629 of
previously-recognized unidentifiable intangible assets associated with the
Companys branch acquisition in 2001. Additionally, prior period amortization
expense was reversed totaling $145 for the year-to-date period ended December
31, 2002.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations  Asset/Liability
Management is incorporated herein by reference.

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ITEM 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Greene County Bancshares, Inc.

We have audited the accompanying consolidated balance sheets of Greene County
Bancshares, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of income, changes in shareholders equity, and cash flows for each
of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Greene County
Bancshares, Inc. as of December 31, 2002 and 2001, and its results of
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 1, during 2002, the Company adopted new accounting
guidance for goodwill and intangible assets.

|                     |  |                                  
|-------------------- |  | ---------------------------------
|                     |  | /s/ Crowe, Chizek and Company LLP
|                     |  |                                  
|Brentwood, Tennessee |  |                                  
|January 16, 2003     |  |                                  

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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(Dollar amounts in thousands, except share and per share data)

|                                           |                                                                                                |                            |         |         |         |      |         |         |         | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | 
|                                           |                                                                                                |                            |         | 2002    |         | 2001
|                                           |                                                                                                |                            |         |         |         |     
|ASSETS                                     |                                                                                                |                            |         |         |         |      |         |        
|                                           | Cash and due from banks                                                                        |                            | $       | 23,466  |         |      | $       | 22,432  |        
|                                           | Federal funds sold                                                                             |                            |         | 39,493  |         |      |         | 25,621  |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|                                           |                                                                                                | Cash and cash equivalents  |         |         | 62,959  |      |         |         | 48,053  | 
|                                           | Interest bearing deposits in other banks                                                       |                            |         |        |         |      |         | 1,100   |        
|                                           | Securities available for sale                                                                  |                            |         | 33,322  |         |      |         | 28,567  |        
|                                           | Securities held to maturity (fair value
$455 and $840)                                         |                            |         | 448     |         |      |         | 833     |        
|                                           | Loans held for sale                                                                            |                            |         | 6,646   |         |      |         | 7,945   |        
|                                           | Loans, net                                                                                     |                            |         | 737,671 |         |      |         | 671,326 |        
|                                           | Premises and equipment, net                                                                    |                            |         | 26,377  |         |      |         | 25,611  |        
|                                           | FHLB and Bankers Bank stock, at cost                                                           |                            |         | 4,744   |         |      |         | 4,538   |        
|                                           | Cash surrender value of life insurance                                                         |                            |         | 8,823   |         |      |         | 7,349   |        
|                                           | Goodwill                                                                                       |                            |         | 2,053   |         |      |         | 424     |        
|                                           | Core deposit and other intangible assets                                                       |                            |         | 743     |         |      |         | 2,481   |        
|                                           | Accrued interest receivable and other assets                                                   |                            |         | 15,610  |         |      |         | 13,385  |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|Total assets                               |                                                                                                | $                          | 899,396 |         |         | $    | 811,612 |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                |                            |         |         |         |      |         |        
|Liabilities                                |                                                                                                |                            |         |         |         |      |         |        
|                                           | Noninterest-bearing deposits                                                                   |                            | $       | 67,442  |         |      | $       | 65,179  |        
|                                           | Interest-bearing deposits                                                                      |                            |         | 651,881 |         |      |         | 588,734 |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|                                           |                                                                                                | Total deposits             |         |         | 719,323 |      |         |         | 653,913 | 
|                                           | Repurchase agreements                                                                          |                            |         | 10,038  |         |      |         | 10,375  |        
|                                           | Notes payable                                                                                  |                            |         | 82,359  |         |      |         | 67,978  |        
|                                           | Accrued interest payable and other liabilities                                                 |                            |         | 13,081  |         |      |         | 10,719  |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|                                           |                                                                                                | Total liabilities          |         |         | 824,801 |      |         |         | 742,985 | 
|Shareholders equity                       |                                                                                                |                            |         |         |         |      |         |        
|                                           | Common stock: $2 par, 15,000,000 shares authorized,
6,820,540 and 6,818,890 shares outstanding |                            | $       | 13,641  |         |      | $       | 13,638  |        
|                                           | Additional paid-in capital                                                                     |                            |         | 4,870   |         |      |         | 4,854   |        
|                                           | Retained earnings                                                                              |                            |         | 55,928  |         |      |         | 50,071  |        
|                                           | Accumulated other comprehensive income                                                         |                            |         | 156     |         |      |         | 64      |        
|                                           |                                                                                                |                            |         |         |         |      |         |        
|                                           |                                                                                                | Total shareholders equity |         |         | 74,595  |      |         |         | 68,627  | 
|                                           |                                                                                                |                            |         |         |         |      |         |        
|Total liabilities and shareholders equity |                                                                                                | $                          | 899,396 |         |         | $    | 811,612 |        
|                                           |                                                                                                |                            |         |         |         |      |         |        

See accompanying notes.

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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except share and per share data)

|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------------------------- | ------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                    |                                                   |   | 2002   |        | 2001 |   | 2000  
|                                                    |                                                   |   |        |        |      |   |       
|Interest income                                     |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    | Interest and fees on loans                        |   | $      | 57,859 |      |   | $      | 65,970 |  |   | $      | 62,874 | 
|                                                    | Taxable securities                                |   |        | 1,490  |      |   |        | 1,010  |  |   |        | 3,153  | 
|                                                    | Nontaxable securities                             |   |        | 25     |      |   |        | 87     |  |   |        | 140    | 
|                                                    | FHLB and Bankers Bank stock                       |   |        | 209    |      |   |        | 289    |  |   |        | 288    | 
|                                                    | Federal funds sold and other                      |   |        | 346    |      |   |        | 608    |  |   |        | 1,241  | 
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    |                                                   |   | 59,929 |        |      |   | 67,964 |        |  |   | 67,696 |       
|Interest expense                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    | Deposits                                          |   |        | 15,266 |      |   |        | 24,623 |  |   |        | 25,291 | 
|                                                    | Federal funds purchased and repurchase agreements |   |        | 192    |      |   |        | 181    |  |   |        | 304    | 
|                                                    | Notes payable                                     |   |        | 3,222  |      |   |        | 3,659  |  |   |        | 3,548  | 
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    |                                                   |   | 18,680 |        |      |   | 28,463 |        |  |   | 29,143 |       
|Net interest income                                 |                                                   |   | 41,249 |        |      |   | 39,501 |        |  |   | 38,553 |       
|Provision for loan losses                           |                                                   |   | 7,065  |        |      |   | 5,959  |        |  |   | 8,009  |       
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|Net interest income after provision
for loan losses |                                                   |   | 34,184 |        |      |   | 33,542 |        |  |   | 30,544 |       
|Noninterest income                                  |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    | Service charges and fees                          |   |        | 8,266  |      |   |        | 7,606  |  |   |        | 5,200  | 
|                                                    | Gain on sale of securities available for sale     |   |        | 46     |      |   |        |       |  |   |        |       | 
|                                                    | Other                                             |   |        | 2,218  |      |   |        | 1,987  |  |   |        | 1,368  | 
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    |                                                   |   | 10,530 |        |      |   | 9,593  |        |  |   | 6,568  |       
|Noninterest expense                                 |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    | Salaries and employee benefits                    |   |        | 17,046 |      |   |        | 16,977 |  |   |        | 16,734 | 
|                                                    | Occupancy expense                                 |   |        | 2,130  |      |   |        | 2,078  |  |   |        | 1,961  | 
|                                                    | Equipment expense                                 |   |        | 1,872  |      |   |        | 2,046  |  |   |        | 1,794  | 
|                                                    | Professional services                             |   |        | 879    |      |   |        | 636    |  |   |        | 887    | 
|                                                    | Advertising                                       |   |        | 440    |      |   |        | 419    |  |   |        | 673    | 
|                                                    | Loss on OREO and repossessed assets               |   |        | 448    |      |   |        | 370    |  |   |        | 477    | 
|                                                    | Goodwill amortization                             |   |        |       |      |   |        | 113    |  |   |        | 106    | 
|                                                    | Core deposit intangible amortization              |   |        | 162    |      |   |        | 162    |  |   |        | 162    | 
|                                                    | Other                                             |   |        | 6,222  |      |   |        | 5,864  |  |   |        | 6,599  | 
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    |                                                   |   | 29,199 |        |      |   | 28,665 |        |  |   | 29,393 |       
|Income before income taxes                          |                                                   |   | 15,515 |        |      |   | 14,470 |        |  |   | 7,719  |       
|Provision for income taxes                          |                                                   |   | 5,702  |        |      |   | 5,047  |        |  |   | 2,206  |       
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |       
|Net income                                          |                                                   | $ | 9,813  |        |      | $ | 9,423  |        |  | $ | 5,513  |       
|                                                    |                                                   |   |        |        |      |   |        |        |  |   |        |        | 
|Earnings per share:                                 |                                                   |   |        |        |      |   |        |        |  |   |        |       
|                                                    | Basic                                             |   | $      | 1.44   |      |   | $      | 1.38   |  |   | $      | .81    | 
|                                                    | Diluted                                           |   |        | 1.43   |      |   |        | 1.38   |  |   |        | .80    | 

See accompanying notes.

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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except share and per share data)

|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |       |       | 
|------------------------------------------------------- | ------------------------------------------------------------ | -------------------------- | ------ | ------ |  | ------- | ----- | ---------- |  | ------- | ------ | -------- |  | ------- | --- | ----------- |  | ----- | ------ | ----- | ----- | 
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     | Accumulated |  |       |        |      
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     | Other       |  | Total
|                                                        |                                                              |                            |        |        |  |         |       | Additional |  |         |        |          |  | Compre- |     | Share-     
|                                                        |                                                              |                            |        | Common |  | Paid-in |       | Retained   |  | Hensive |        | holders
|                                                        |                                                              |                            |        | Stock  |  | Capital |       | Earnings   |  | Income  |        | Equity  
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |         
|Balance, January 1, 2000                                |                                                              | $                          | 13,596 |        |  | $       | 4,479 |            |  | $       | 42,715 |          |  | $       | (18 | )           |  | $     | 60,772 |      
|Issuance of 20,655 shares                               |                                                              |                            | 42     |        |  |         | 347   |            |  |         |       |          |  |         |    |             |  |       | 389    |      
|Dividends paid ($.55 per share)                         |                                                              |                            |       |        |  |         |      |            |  |         | (3,761 | )        |  |         |    |             |  |       | (3,761 | )    
|Tax benefit from exercise of
nonincentive stock options |                                                              |                            |       |        |  |         | 28    |            |  |         |       |          |  |         |    |             |  |       | 28     |      
|Comprehensive income:                                   |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        | Net income                                                   |                            |        |       |  |         |       |           |  |         |        | 5,513    |  |         |     |            |  |       |        | 5,513 |      
|                                                        | Change in unrealized gains
(losses), net of reclassification |                            |        |       |  |         |       |           |  |         |        |         |  |         |     | 69          |  |       |        | 69    |      
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        |                                                              | Total comprehensive income |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |       | 5,582 | 
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|Balance, December 31, 2000                              |                                                              |                            | 13,638 |        |  |         | 4,854 |            |  |         | 44,467 |          |  |         | 51  |             |  |       | 63,010 |      
|Dividends paid ($.56 per share)                         |                                                              |                            |       |        |  |         |      |            |  |         | (3,819 | )        |  |         |    |             |  |       | (3,819 | )    
|Comprehensive income:                                   |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        | Net income                                                   |                            |        |       |  |         |       |           |  |         |        | 9,423    |  |         |     |            |  |       |        | 9,423 |      
|                                                        | Change in unrealized gains
(losses), net of reclassification |                            |        |       |  |         |       |           |  |         |        |         |  |         |     | 13          |  |       |        | 13    |      
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        |                                                              | Total comprehensive income |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |       | 9,436 | 
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|Balance, December 31, 2001                              |                                                              |                            | 13,638 |        |  |         | 4,854 |            |  |         | 50,071 |          |  |         | 64  |             |  |       | 68,627 |      
|Issuance of 1,650 shares                                |                                                              |                            | 3      |        |  |         | 13    |            |  |         |       |          |  |         |    |             |  |       | 16     |      
|Dividends paid ($.58 per share)                         |                                                              |                            |       |        |  |         |      |            |  |         | (3,956 | )        |  |         |    |             |  |       | (3,956 | )    
|Tax benefit from exercise of
nonincentive stock options |                                                              |                            |       |        |  |         | 3     |            |  |         |       |          |  |         |    |             |  |       | 3      |      
|Comprehensive income:                                   |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        | Net income                                                   |                            |        |       |  |         |       |           |  |         |        | 9,813    |  |         |     |            |  |       |        | 9,813 |      
|                                                        | Change in unrealized gains
(losses), net of reclassification |                            |        |       |  |         |       |           |  |         |        |         |  |         |     | 92          |  |       |        | 92    |      
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|                                                        |                                                              | Total comprehensive income |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |       | 9,905 | 
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      
|Balance, December 31, 2002                              |                                                              | $                          | 13,641 |        |  | $       | 4,870 |            |  | $       | 55,928 |          |  | $       | 156 |             |  | $     | 74,595 |      
|                                                        |                                                              |                            |        |        |  |         |       |            |  |         |        |          |  |         |     |             |  |       |        |      

See accompanying notes.

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GREENE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except share and per share data)

|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |          |         |          |        |  
|-------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------- | ---------------------------------------------- | ------- | ------- | ------ | ------- | ------- | ------ | ------- | -------- | ------- | -------- | ------ | -
|                                             |                                                                             |                                                    |                                    |                                                |         | 2002    |        | 2001    |         | 2000  
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |       
|Cash flows from operating activities         |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             | Net income                                                                  |                                                    | $                                  | 9,813                                          |         |         | $      | 9,423   |         |        | $       | 5,513    |        
|                                             | Adjustments to reconcile net income to net cash from Operating activities   |                                                    |                                    |                                                |         |         |        |         |         |        |         |          |        
|                                             |                                                                             | Provision for loan losses                          |                                    |                                                | 7,065   |         |        |         | 5,959   |        |         |          | 8,009   |         
|                                             |                                                                             | Depreciation and amortization                      |                                    |                                                | 1,736   |         |        |         | 1,604   |        |         |          | 1,601   |         
|                                             |                                                                             | Security amortization and accretion, net           |                                    |                                                | 44      |         |        |         | 102     |        |         |          | 188     |         
|                                             |                                                                             | Gain on sale of securities available for sale      |                                    |                                                | (46     | )       |        |         |        |        |         |          |        |         
|                                             |                                                                             | FHLB stock dividends                               |                                    |                                                | (207    | )       |        |         | (284    | )      |         |          | (288    | )       
|                                             |                                                                             | Net gain on sale of mortgage loans                 |                                    |                                                | (584    | )       |        |         | (421    | )      |         |          | (182    | )       
|                                             |                                                                             | Originations of mortgage loans held for sale       |                                    |                                                | (59,845 | )       |        |         | (76,608 | )      |         |          | (31,553 | )       
|                                             |                                                                             | Proceeds from sales of mortgage loans              |                                    |                                                | 61,728  |         |        |         | 70,809  |        |         |          | 31,220  |         
|                                             |                                                                             | Net (gain) losses on sales of fixed assets         |                                    |                                                | (103    | )       |        |         | 138     |        |         |          | 121     |         
|                                             |                                                                             | Net (gain) loss on OREO and repossessed assets     |                                    |                                                | 448     |         |        |         | 370     |        |         |          | 477     |         
|                                             |                                                                             | Increase in cash surrender value of life insurance |                                    |                                                | (1,474  | )       |        |         | (107    | )      |         |          | (822    | )       
|                                             |                                                                             | Net changes:                                       |                                    |                                                |         |         |        |         |         |        |         |          |         |         
|                                             |                                                                             |                                                    |                                    | Accrued interest receivable and other assets   |         |         | 76     |         |         |        | 557     |          |         |          | (3,961 | )
|                                             |                                                                             |                                                    |                                    | Accrued interest payable and other liabilities |         |         | 2,364  |         |         |        | (2,085  | )        |         |          | 865    |  
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             |                                                                             |                                                    |                                    | Net cash from operating activities             |         |         | 21,019 |         |         |        | 9,457   |          |         |          | 11,188 |  
|Cash flows from investing activities         |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             | Net change in interest-bearing deposits with banks                          |                                                    |                                    | 1,100                                          |         |         |        | (1,100  | )       |        |         |         |        
|                                             | Purchase of securities available for sale                                   |                                                    |                                    | (26,349                                        | )       |         |        | (18,500 | )       |        |         | (29,039  | )      
|                                             | Proceeds from sale of securities available for sale                         |                                                    |                                    | 3,790                                          |         |         |        |        |         |        |         |         |        
|                                             | Proceeds from maturities of securities available for sale                   |                                                    |                                    | 17,955                                         |         |         |        | 36,508  |         |        |         | 3,030    |        
|                                             | Proceeds from maturities of securities held to maturity                     |                                                    |                                    | 385                                            |         |         |        | 1,035   |         |        |         | 1,455    |        
|                                             | Purchase of FHLB stock                                                      |                                                    |                                    |                                               |         |         |        |        |         |        |         | (345     | )      
|                                             | Net increase in loans                                                       |                                                    |                                    | (80,637                                        | )       |         |        | (27,321 | )       |        |         | (120,951 | )      
|                                             | Net cash received in branch acquisitions                                    |                                                    |                                    |                                               |         |         |        | 19,924  |         |        |         |         |        
|                                             | Proceeds from sale of other real estate                                     |                                                    |                                    | 4,449                                          |         |         |        | 4,087   |         |        |         | 2,994    |        
|                                             | Improvements to other real estate                                           |                                                    |                                    | (31                                            | )       |         |        | (6      | )       |        |         | (95      | )      
|                                             | Proceeds from sale of fixed assets                                          |                                                    |                                    | 587                                            |         |         |        | 312     |         |        |         | 74       |        
|                                             | Premises and equipment expenditures                                         |                                                    |                                    | (2,877                                         | )       |         |        | (3,731  | )       |        |         | (7,357   | )      
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             |                                                                             |                                                    | Net cash from investing activities |                                                |         | (81,628 | )      |         |         | 11,208 |         |          |         | (150,234 | )     
|Cash flows from financing activities         |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             | Net change in deposits, excluding deposits acquired
via branch acquisitions |                                                    |                                    | 65,409                                         |         |         |        | (14,652 | )       |        |         | 126,259  |        
|                                             | Net change in federal funds purchased and
repurchase agreements             |                                                    |                                    | (337                                           | )       |         |        | 5,662   |         |        |         | (9,868   | )      
|                                             | Proceeds from notes payable                                                 |                                                    |                                    | 120,000                                        |         |         |        | 106,800 |         |        |         | 70,000   |        
|                                             | Repayment of notes payable                                                  |                                                    |                                    | (105,617                                       | )       |         |        | (98,771 | )       |        |         | (56,360  | )      
|                                             | Dividends paid                                                              |                                                    |                                    | (3,956                                         | )       |         |        | (3,819  | )       |        |         | (3,761   | )      
|                                             | Proceeds from issuance of common stock                                      |                                                    |                                    | 16                                             |         |         |        |        |         |        |         | 389      |        
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |          |        
|                                             |                                                                             |                                                    | Net cash from financing activities |                                                |         | 75,515  |        |         |         | (4,780 | )       |          |         | 126,659  |       
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|Net change in cash and cash equivalents      |                                                                             |                                                    | 14,906                             |                                                |         |         | 15,885 |         |         |        | (12,387 | )       
|Cash and cash equivalents, beginning of year |                                                                             |                                                    | 48,053                             |                                                |         |         | 32,168 |         |         |        | 44,555  |         
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|Cash and cash equivalents, end of year       |                                                                             | $                                                  | 62,959                             |                                                |         | $       | 48,053 |         |         | $      | 32,168  |         
|                                             |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |          |        
|Supplemental disclosures  cash and noncash  |                                                                             |                                                    |                                    |                                                |         |         |        |         |         |        |         |         
|                                             | Interest paid                                                               |                                                    | $                                  | 19,634                                         |         |         | $      | 28,427  |         |        | $       | 27,993   |        
|                                             | Income taxes paid                                                           |                                                    |                                    | 4,820                                          |         |         |        | 4,127   |         |        |         | 4,031    |        
|                                             | Loans converted to other real estate                                        |                                                    |                                    | 7,952                                          |         |         |        | 5,941   |         |        |         | 4,152    |        

See accompanying notes.

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the
accounts of Greene County Bancshares, Inc. (the Company) and its wholly owned
subsidiary, Greene County Bank (the Bank), and the Banks wholly owned
subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp., Inc.,
and Fairway Title Company, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation.

Nature of Operations: The Company primarily provides financial services through
its offices in Eastern and Southeastern Tennessee, Western North Carolina and
effective January, 2003, Southwestern Virginia. Its primary deposit products
are checking, savings, and term certificate accounts, and its primary lending
products are residential mortgage, commercial, and installment loans.
Substantially all loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are
expected to be repaid from cash flow from operations of businesses. Real
estate loans are secured by both residential and commercial real estate. Other
financial instruments that potentially represent concentrations of credit risk
include deposit accounts in other financial institutions.

Use of Estimates: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses, loans held for sale, and fair values of financial instruments are
particularly subject to change.

Cash Flows: Cash and cash equivalents includes cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash flows
are reported for loan, deposit and other borrowing transactions.

Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might
be sold before maturity. Securities available for sale are carried at fair
value, with unrealized holding gains and losses reported in accumulated other
comprehensive income.

Interest income includes amortization of purchase premium or discount. Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.

Loans: Loans are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and cost, and allowance for loan losses.

Interest income is reported on the interest method over the loan term.
Interest income on mortgage and commercial loans is discontinued at the time
the loan is 90 days delinquent unless the loan is well secured and in process
of collection. Most consumer loans are charged off no later than 120 days past
due. In all cases, loans are placed on nonaccrual or charged off at an earlier
date if collection of principal and interest is doubtful. Interest accrued but
not collected is reversed against interest income.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Interest received is recognized on the cash basis or cost recovery method until
qualifying for return to accrual status. Accrual is resumed when all
contractually due payments are brought current and future payments are
reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
managements judgment, should be charged-off. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan is
confirmed.

The Bank uses several factors in determining if a loan is impaired. The
internal asset classification procedures include a thorough review of
significant loans and lending relationships and include the accumulation of
related data. This data includes loan payment and collateral status,
borrowers financial data and borrowers operating factors such as cash flows,
operating income, liquidity, leverage and loan documentation, and any
significant changes. A loan is considered impaired, based on current
information and events, if it is probable that the Bank will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Uncollateralized loans are
measured for impairment based on the present value of expected future cash
flows discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at lower of cost or market when acquired, establishing a new
cost basis. If fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.

Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful lives
on a straight-line basis. The depreciable lives of premises and equipment
range from five to 40 years.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Mortgage Banking Activities: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of aggregate cost or market
value. The Company controls its interest rate risk with respect to mortgage
loans held for sale and loan commitments expected to close by usually entering
into agreements to sell loans. On July 1, 2002, the Company became subject to
new accounting guidance for certain commitments to originate loans. The new
guidance requires loan commitments related to the origination of mortgage loans
held for sale to be accounted for as derivative instruments. The Companys
commitments are for fixed rated mortgage loans, generally last 60 to 90 days
and are at market rates when initiated. The Company had $10,476 in outstanding
loan commitment derivatives at December 31, 2002. Because sales contract
derivatives are entered into for amounts and terms offsetting the interest rate
risk of loan commitment derivatives and both are carried at their fair value
with changes included in earnings and are substantially offset, the impact of
adopting this guidance was not material. Substantially all of the gain on sale
generated from mortgage banking activities continues to be recorded when closed
loans are delivered into the sales contracts. The aggregate market value of
mortgage loans held for sale considers the sales prices of such agreements.
The Company also provides currently for any losses on uncovered commitments to
lend or sell. The Company sells mortgage loans servicing released.

Bank Owned Life Insurance: The Company has purchased life insurance policies on
certain key executives. Company owned life insurance is recorded at its cash
surrender value, or the amount that can be realized.

Goodwill and Other Intangible Assets: Goodwill results from prior business
acquisitions and represents the excess of the purchase price over the fair
value of acquired tangible assets and liabilities and identifiable intangible
assets. Upon adopting new accounting guidance on January 1, 2002, the Company
ceased amortizing goodwill. Goodwill is assessed at least annually for
impairment and any such impairment will be recognized in the period identified.
The effect on net income of ceasing goodwill amortization in 2002 was $113.

Other intangible assets consist of core deposit intangibles arising from whole
bank and branch acquisitions. They are initially measured at fair value and
then are amortized on an accelerated method over their estimated useful lives,
which is 10 years.

Upon adoption of Statement of Financial Accounting Standards (SFAS) No. 147
on October 1, 2002, the Company reclassified to goodwill $1,629 of
previously-recognized unidentifiable intangible assets associated with the
Companys branch acquisition in 2001. Additionally, prior period amortization
expense was reversed totaling $145 for the year-to-date period ended December
31, 2002.

Long-term Assets: Premises and equipment and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at fair value.

Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to
cover these liabilities, which are not covered by federal deposit insurance.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Benefit Plans: Retirement Plan Expense is the amount contributed to the plan as
determined by Board decision. Deferred Compensation Plan Expense is recognized
during the year the benefit is earned.

Stock Compensation: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date, whereas
expense for options granted at market price are reported on a pro forma basis.
Pro forma disclosures of net income and earnings per share are shown below
using the fair value method of SFAS No. 123 to measure expense for options
using the Black-Scholes option pricing model to estimate fair value.

The fair value of each option grant is estimated on the date of grant with the
following weighted-average assumptions used for grants in 2001 and 2000:
dividend growth rate of 2.5% and 5%, risk-free interest rate of 5.17% and
5.10%, expected lives of seven years, and estimated volatility of 20.14% and
9.62%. No options were granted in 2002.

The following disclosures show the effect on income and earnings per share had
the options fair value been recorded using an option pricing model.

|                           |  |          |  |          |   |       |  |      |  |          |  |          |   |       |  |    |  |          |  |  |  |   |       |          |  |    |       |  |  |  |  |  |  |   |       |  |  |  |  |  |  |   |       | 
|-------------------------- |  | -------- |  | -------- | - | ----- |  | ---- |  | -------- |  | -------- | - | ----- |  | -- |  | -------- |  |  |  | - | ----- | -------- |  | -- | ----- |  |  |  |  |  |  | - | ----- |  |  |  |  |  |  | - | ----- | 
|                           |  | 2002     |  |          |   |       |  | 2001 |  |          |  |          |   | 2000 
|                           |  |          |  |          |   |      
|                           |  | As       |  |          |   |       |  |      |  |          |  |          |   |       |  | As |  |          |  |  |  |   |       |          |  | As |       |  |  |  |  |  |  |  
|                           |  | Reported |  | Proforma |   |       |  |      |  | Reported |  | Proforma |   |       |  |    |  | Reported |  |  |  |   |       | Proforma
|                           |  |          |  |          |   |       |  |      |  |          |  |          |   |       |  |    |  |          |  |  |  |   |       |         
|Net income                 |  |          |  |          | $ | 9,813 |  |      |  |          |  |          | $ | 9,713 |  |    |  |          |  |  |  | $ | 9,423 |          |  | $  | 9,286 |  |  |  |  |  |  | $ | 5,513 |  |  |  |  |  |  | $ | 5,348 | 
|Basic earnings per share   |  |          |  |          | $ | 1.44  |  |      |  |          |  |          | $ | 1.44  |  |    |  |          |  |  |  | $ | 1.38  |          |  | $  | 1.36  |  |  |  |  |  |  | $ | .81   |  |  |  |  |  |  | $ | .79   | 
|Diluted earnings per share |  |          |  |          | $ | 1.43  |  |      |  |          |  |          | $ | 1.43  |  |    |  |          |  |  |  | $ | 1.38  |          |  | $  | 1.36  |  |  |  |  |  |  | $ | .80   |  |  |  |  |  |  | $ | .78   | 

Income Taxes: Income tax expense is the total of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.

Financial Instruments: Financial instruments include credit instruments, such
as commitments to make loans and standby letters of credit, issued to meet
customer financing needs. The face amount for these items represents the
exposure to loss before considering customer collateral or ability to repay.
Such financial instruments are recorded when they are funded.

Earnings Per Common Share: Basic earnings per common share are net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share includes the dilutive effect of
additional potential common shares issuable under stock options. During May
2001, the Company affected a five-for-one stock split in the form of a
dividend. Earnings and dividends per share are restated for all stock splits
and dividends through the issuance date of the financial statements.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as a separate
component of equity. Comprehensive income is presented in the consolidated
statements of changes in shareholders equity.

New Accounting Pronouncements: New accounting standards on asset retirement
obligations, restructuring activities and exit costs, operating leases, and
early extinguishment of debt were issued in 2002. Management has determined
that when the new accounting standards are adopted in 2003 they will not have a
material impact on the Companys financial condition or results of operations.

On July 1, 2002 the Company became subject to new accounting guidance for
certain commitments to originate loans as described in Mortgage Banking
Activities.

Effective in 2002, the Company adopted a new accounting standard relating to
changes in accounting for business combinations and intangible assets as
described in Goodwill and Other Intangible Assets.

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there are any such matters
that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank
of $5,630 and $3,042 was required to meet regulatory reserve and clearing
requirements at year-end 2002 and 2001. These balances do not earn interest.

Segments: Internal financial reporting is primarily reported and aggregated in
five lines of business, banking, mortgage banking, consumer finance, subprime
automobile lending, and title insurance. Banking accounts for 88.5% of
revenues for 2002.

Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.

Reclassifications: Certain items in prior year financial statements have been
reclassified to conform to the 2002 presentation.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 2  SECURITIES

Securities are summarized as follows:

|     |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|---- |  | ------------------------------------------------- |  | - | ------ | ----- | ------ | ---------- | --- | ---------- | --- | ----- | --- | - | --- | -
|     |  |                                                   |  |   |        |       |        |            |     | Gross      |     | Gross
|     |  |                                                   |  |   |        | Fair  |        | Unrealized |     | Unrealized
|     |  |                                                   |  |   |        | Value |        | Gains      |     | Losses    
|     |  |                                                   |  |   |        |       |        |            |     |           
|     |  | Available for Sale                                |  |   |        |       |        |            |     |            |     |       |     |  
|2002 |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|     |  | U. S. Treasury and government Agency              |  | $ | 21,818 |       |        | $          | 107 |            |     | $     |    |  
|     |  | Obligations of states and political Subdivisions  |  |   | 1,053  |       |        |            | 10  |            |     |       |    |  
|     |  | Mortgage-backed                                   |  |   | 3,951  |       |        |            | 140 |            |     |       | (6  | )
|     |  | Trust preferred securities                        |  |   | 6,500  |       |        |            |    |            |     |       |    |  
|     |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|     |  |                                                   |  |   |        | $     | 33,322 |            |     | $          | 257 |       |     | $ | (6  | )
|     |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|2001 |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|     |  | U. S. Treasury and government Agency              |  | $ | 19,161 |       |        | $          | 84  |            |     | $     | (21 | )
|     |  | Obligations of states and political  Subdivisions |  |   | 1,372  |       |        |            | 5   |            |     |       |    |  
|     |  | Mortgage-backed                                   |  |   | 1,534  |       |        |            | 36  |            |     |       | (1  | )
|     |  | Trust preferred securities                        |  |   | 6,500  |       |        |            |    |            |     |       |    |  
|     |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  
|     |  |                                                   |  |   |        | $     | 28,567 |            |     | $          | 125 |       |     | $ | (22 | )
|     |  |                                                   |  |   |        |       |        |            |     |            |     |       |     |   |     |  

|     |  |                                                  |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     |  |  | 
|---- |  | ------------------------------------------------ |  | - | --- | -------- |  | ------------ | - | ------------ |  | ----- | - |  |  | - | --- |  |  | 
|     |  |                                                  |  |   |     |          |  |              |   | Gross        |  | Gross |   |  |  |  
|     |  |                                                  |  |   |     | Carrying |  | Unrecognized |   | Unrecognized |  | Fair 
|     |  |                                                  |  |   |     | Amount   |  | Gains        |   | Losses       |  | Value
|     |  |                                                  |  |   |     |          |  |              |   |              |  |      
|     |  | Held to Maturity                                 |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     | 
|2002 |  |                                                  |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     |  |  | 
|     |  | Obligations of states and political Subdivisions |  | $ | 448 |          |  | $            | 7 |              |  | $     |  |  |  | $ | 455 | 
|     |  |                                                  |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     |  |  | 
|2001 |  |                                                  |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     |  |  | 
|     |  | Obligations of states and political Subdivisions |  | $ | 833 |          |  | $            | 7 |              |  | $     |  |  |  | $ | 840 | 
|     |  |                                                  |  |   |     |          |  |              |   |              |  |       |   |  |  |   |     |  |  | 

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 2 - SECURITIES(Continued)

Contractual maturities of securities at year-end 2002 are shown below.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.

|                                       |                  |   |                    |        |                  |  |       |  |  |   |     |     |  |   |     |     | 
|-------------------------------------- | ---------------- | - | ------------------ | ------ | ---------------- |  | ----- |  |  | - | --- | --- |  | - | --- | --- | 
|                                       |                  |   | Available for Sale |        | Held to Maturity
|                                       |                  |   |                    |        |                 
|                                       |                  |   | Fair               |        | Carrying         |  | Fair 
|                                       |                  |   | Value              |        | Amount           |  | Value
|                                       |                  |   |                    |        |                  |  |      
|Due in one year or less                |                  | $ | 7,497              |        |                  |  |       |  |  | $ |    |     |  | $ |    |    
|Due after one year through five years  |                  |   | 9,684              |        |                  |  |       |  |  |   |    |     |  |   |    |    
|Due after five years through ten years |                  |   | 3,138              |        |                  |  |       |  |  |   | 98  |     |  |   | 105 |    
|Due after ten years                    |                  |   | 9,052              |        |                  |  |       |  |  |   | 350 |     |  |   | 350 |    
|Mortgage-backed securities             |                  |   | 3,951              |        |                  |  |       |  |  |   |    |     |  |   |    |    
|                                       |                  |   |                    |        |                  |  |       |  |  |   |     |     |  |   |     |    
|                                       | Total maturities |   | $                  | 33,322 |                  |  |       |  |  |   | $   | 448 |  |   | $   | 455 | 
|                                       |                  |   |                    |        |                  |  |       |  |  |   |     |     |  |   |     |    

Gross gains of $46 were recognized in 2002 from proceeds of $3,790 on the sale
of securities available for sale. There were no security sales during 2001 and
2000.

Securities with a carrying value of $20,665 and $13,784 at year-end 2002 and
2001 were pledged for public deposits and securities sold under agreements to
repurchase.

NOTE 3 - LOANS

Loans at year-end were as follows:

|                               |                           |   |         |         |      |   |         |         |  
|------------------------------ | ------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | -
|                               |                           |   | 2002    |         | 2001
|                               |                           |   |         |         |     
|Commercial                     |                           | $ | 93,836  |         |      | $ | 96,122  |        
|Commercial real estate         |                           |   | 342,407 |         |      |   | 295,002 |        
|Residential real estate        |                           |   | 233,128 |         |      |   | 210,489 |        
|Consumer                       |                           |   | 77,644  |         |      |   | 80,314  |        
|Other                          |                           |   | 14,938  |         |      |   | 13,779  |        
|                               |                           |   |         |         |      |   |         |        
|                               |                           |   | 761,953 |         |      |   | 695,706 |        
|Less: Unearned interest income |                           |   | (11,696 | )       |      |   | (13,159 | )      
|                               | Allowance for loan losses |   |         | (12,586 | )    |   |         | (11,221 | )
|                               |                           |   |         |         |      |   |         |        
|                               |                           | $ | 737,671 |         |      | $ | 671,326 |        
|                               |                           |   |         |         |      |   |         |        

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 3 - LOANS(Continued)

Activity in the allowance for loan losses is as follows:

|                                |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                |  | 2002 |        | 2001 |  | 2000
|                                |  |      |        |      |  |     
|Beginning balance               |  | $    | 11,221 |      |  | $    | 11,728 |   |  | $ | 10,332 |  
|Provision                       |  |      | 7,065  |      |  |      | 5,959  |   |  |   | 8,009  |  
|Loans charged off               |  |      | (7,648 | )    |  |      | (7,830 | ) |  |   | (7,788 | )
|Recoveries of loans charged off |  |      | 1,948  |      |  |      | 1,364  |   |  |   | 1,175  |  
|                                |  |      |        |      |  |      |        |   |  |   |        |  
|Balance, end of year            |  | $    | 12,586 |      |  | $    | 11,221 |   |  | $ | 11,728 |  
|                                |  |      |        |      |  |      |        |   |  |   |        |  
|Impaired loans were as follows: |  |      |        |      |  |      |        |   |  |   |        |  

|                                             |  |      |        |      |  |      |        |  |  |   |       | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                             |  | 2002 |        | 2001 |  | 2000
|                                             |  |      |        |      |  |     
|Loans with allowance allocated               |  | $    | 9,557  |      |  | $    | 11,243 |  |  | $ | 9,144 | 
|Amount of allowance allocated                |  |      | 1,434  |      |  |      | 1,686  |  |  |   | 1,372 | 
|Average balance during the year              |  |      | 11,391 |      |  |      | 10,482 |  |  |   | 9,535 | 
|Interest income recognized during impairment |  |      | 220    |      |  |      | 253    |  |  |   | 310   | 
|Cash-basis interest income recognized        |  |      |       |      |  |      |       |  |  |   |      | 
|Nonperforming loans were as follows:         |  |      |        |      |  |      |        |  |  |   |       | 

|                                        |  |      |       |      |  |   |       | 
|--------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                        |  | 2002 |       | 2001
|                                        |  |      |       |     
|Loans past due 90 days still on accrual |  | $    | 307   |      |  | $ | 871   | 
|Nonaccrual loans                        |  |      | 7,475 |      |  |   | 5,857 | 
|                                        |  |      |       |      |  |   |       | 
|Total                                   |  | $    | 7,782 |      |  | $ | 6,728 | 
|                                        |  |      |       |      |  |   |       | 

Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category.

The aggregate amount of loans to executive officers and directors of the
Company and their related interests was approximately $8,094 and $9,249 at
year-end 2002 and 2001. During 2002 and 2001, new loans aggregating
approximately $18,324 and $15,230 and amounts collected of approximately
$19,479 and $18,862 were transacted with such parties.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 4 - PREMISES AND EQUIPMENT

Year-end premises and equipment follows:

|                                  |  |      |        |      |  |   |        |  
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                  |  | 2002 |        | 2001
|                                  |  |      |        |     
|Land                              |  | $    | 4,387  |      |  | $ | 4,752  |  
|Premises                          |  |      | 17,087 |      |  |   | 15,608 |  
|Leasehold improvements            |  |      | 1,442  |      |  |   | 1,591  |  
|Furniture, fixtures and equipment |  |      | 10,849 |      |  |   | 9,727  |  
|Automobiles                       |  |      | 90     |      |  |   | 59     |  
|Construction in progress          |  |      | 2,327  |      |  |   | 2,227  |  
|                                  |  |      |        |      |  |   |        |  
|                                  |  |      | 36,182 |      |  |   | 33,964 |  
|Accumulated depreciation          |  |      | (9,805 | )    |  |   | (8,353 | )
|                                  |  |      |        |      |  |   |        |  
|                                  |  | $    | 26,377 |      |  | $ | 25,611 |  
|                                  |  |      |        |      |  |   |        |  

Rent expense for operating leases was $430 for 2002, $490 for 2001, and $600
for 2000. Rent commitments under noncancelable operating leases were as
follows, before considering renewal options that generally are present:

| |  |            |  |   |       | 
| |  | ---------- |  | - | ----- | 
| |  | 2003       |  | $ | 301   | 
| |  | 2004       |  |   | 243   | 
| |  | 2005       |  |   | 115   | 
| |  | 2006       |  |   | 69    | 
| |  | 2007       |  |   | 61    | 
| |  | Thereafter |  |   | 337   | 
| |  |            |  |  
| |  | Total      |  | $ | 1,126 | 
| |  |            |  |   |       | 

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The change in the carrying amount of goodwill for the year is as follows:

|                                                                              |  |   |       | 
|----------------------------------------------------------------------------- |  | - | ----- | 
|Beginning of year                                                             |  | $ | 424   | 
|Adoption of SFAS No. 147 - Unidentifiable intangible reclassified to goodwill |  |   | 1,629 | 
|Goodwill from acquisition during year                                         |  |   |      | 
|                                                                              |  |   |       | 
|End of year                                                                   |  | $ | 2,053 | 
|                                                                              |  |   |       | 

Goodwill is no longer amortized starting in 2002; however, it is periodically
evaluated for impairment and no impairment was recognized in 2002. The effect
of not amortizing goodwill is summarized as follows:

|                                |                       |   |       |      |      |   |       |      |  |   |       |     | 
|------------------------------- | --------------------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | --- | 
|                                |                       |   | 2002  |      | 2001 |   | 2000 
|                                |                       |   |       |      |      |   |      
|Reported net income             |                       | $ | 9,813 |      |      | $ | 9,423 |      |  | $ | 5,513 |    
|Add back: goodwill amortization |                       |   |      |      |      |   | 113   |      |  |   | 106   |    
|                                |                       |   |       |      |      |   |       |      |  |   |       |    
|Adjusted net income             |                       | $ | 9,813 |      |      | $ | 9,536 |      |  | $ | 5,619 |    
|                                |                       |   |       |      |      |   |       |      |  |   |       |    
|Basic earnings per share:       |                       |   |       |      |      |   |       |      |  |   |       |    
|                                | Reported net income   |   | $     | 1.44 |      |   | $     | 1.38 |  |   | $     | .81 | 
|                                | Goodwill amortization |   |       |     |      |   |       | .02  |  |   |       | .02 | 
|                                |                       |   |       |      |      |   |       |      |  |   |       |    
|                                | Adjusted net income   |   | $     | 1.44 |      |   | $     | 1.40 |  |   | $     | .83 | 
|                                |                       |   |       |      |      |   |       |      |  |   |       |    
|Diluted earnings per share:     |                       |   |       |      |      |   |       |      |  |   |       |    
|                                | Reported net income   |   | $     | 1.43 |      |   | $     | 1.38 |  |   | $     | .80 | 
|                                | Goodwill amortization |   |       |     |      |   |       | .02  |  |   |       | .02 | 
|                                |                       |   |       |      |      |   |       |      |  |   |       |    
|                                | Adjusted net income   |   | $     | 1.43 |      |   | $     | 1.40 |  |   | $     | .82 | 
|                                |                       |   |       |      |      |   |       |      |  |   |       |    

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS(Continued)

Core deposit and other intangibles

Core deposit intangibles had a gross carrying amount of $1,771 for years ended
2002 and 2001 and accumulated amortization of $1,028 and $866 for the same
periods, respectively. Aggregate amortization expense was $162 for each of the
years 2002, 2001, and 2000.

Estimated amortization expense for each of the next five years:

| |       |  |   |     | 
| | ----- |  | - | --- | 
| | 2003  |  | $ | 162 | 
| | 2004  |  |   | 162 | 
| | 2005  |  |   | 162 | 
| | 2006  |  |   | 52  | 
| | 2007  |  |   | 52  | 
| |       |  |   |    
| | Total |  | $ | 590 | 
| |       |  |   |     | 

An unidentifiable intangible asset of $1,629 was reclassified to goodwill
during 2002 as previously indicated.

NOTE 6 - DEPOSITS

Time deposits of $100 thousand or more were $121,561 and $101,101 at year-end
2002 and 2001.

Scheduled maturities of all time deposits for the next five years were as
follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  | $ | 242,123 | 
|2004 |  |   | 131,540 | 
|2005 |  |   | 14,886  | 
|2006 |  |   | 379     | 
|2007 |  |   | 323     | 

The aggregate amount of deposits to executive officers and directors of the
Company and their related interests was approximately $3,969 and $4,497 at
year-end 2002 and 2001.

NOTE 7 - BORROWINGS

Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arrangements. Securities involved
with the agreements are recorded as assets and are held by a safekeeping agent
and the obligations to repurchase the securities are reflected as liabilities.
Securities sold under agreements to repurchase consist of short-term excess
funds and overnight liabilities to deposit customers arising from a cash
management program. While effectively deposit equivalents, such arrangements
are in the form of repurchase agreements.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 7  BORROWINGS (Continued)

Information concerning securities sold under agreements to repurchase at
year-end 2002 and 2001 is as follows:

|                                          |  |      |        |      |  |   |        |  
|----------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                          |  | 2002 |        | 2001
|                                          |  |      |        |     
|Average month-end balance during the year |  | $    | 10,864 |      |  | $ | 6,833  |  
|Average interest rate during the year     |  |      | 80     | %    |  |   | 2.25   | %
|Maximum month-end balance during the year |  | $    | 13,055 |      |  | $ | 10,375 |  

Notes payable consist of the following at year-end:

|                                                                           |  |      |        |      |  |   |        | 
|-------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                           |  | 2002 |        | 2001
|                                                                           |  |      |        |     
|Fixed rate FHLB advance, 1.29%,                                            |  |      |        |      |  |   |        | 
|Matured January, 2003                                                      |  | $    | 30,000 |      |  | $ |       | 
|Fixed rate FHLB advances, from 5.65% to 6.35%,                             |  |      |        |      |  |   |        | 
|Maturities from July, 2003 to September, 2013                              |  |      | 1,059  |      |  |   | 16,678 | 
|Variable rate FHLB advances, from 4.56% to 5.76%,                          |  |      |        |      |  |   |        | 
|Maturities from November, 2008 to January, 2010                            |  |      | 49,500 |      |  |   | 49,500 | 
|Notes
payable, interest due quarterly at 4.83%, principal dueOctober, 2004 |  |      | 1,800  |      |  |   | 1,800  | 
|                                                                           |  |      |        |      |  |   |        | 
|                                                                           |  | $    | 82,359 |      |  | $ | 67,978 | 
|                                                                           |  |      |        |      |  |   |        | 

Each advance is payable at its maturity date; however, prepayment penalties are
required if paid before maturity. At year-end 2002, the advances are
collateralized by a required blanket pledge of qualifying mortgage, commercial,
agriculture, and home equity lines of credit loans totaling $369,213. At
year-end 2001, the advances were collateralized by qualifying mortgage loans
totaling $165,346.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 7 - BORROWINGS(Continued)

Scheduled maturities of notes payable over the next five years are:

|           |  |       |        | 
|---------- |  | ----- | ------ | 
|           |  | Total
|           |  |      
|2003       |  | $     | 30,208 | 
|2004       |  |       | 1,902  | 
|2005       |  |       | 109    | 
|2006       |  |       | 116    | 
|2007       |  |       | 123    | 
|Thereafter |  |       | 49,901 | 
|           |  |       |        | 
|           |  | $     | 82,359 | 
|           |  |       |        | 

At year-end 2002, the Company had approximately $71,000 of federal funds lines
of credit available from correspondent institutions, $25,034 in unused lines of
credit with the FHLB, and $79,100 of letters of credit with the FHLB.

NOTE 8 - BENEFIT PLANS

The Company has a profit sharing plan which allows employees to contribute from
1% to 20% of their compensation. The Company contributes an additional amount
at a discretionary rate established annually by the Board of Directors.
Company contributions to the Plan were $560, $512 and $923 for 2002, 2001 and
2000.

Directors have deferred some of their fees for future payment, including
interest. The amount accrued for deferred compensation was $1,559 and $1,435
at year-end 2002 and 2001. Amounts expensed under the plan were $243, $262 and
$222 during 2002, 2001, and 2000. The Bank paid an interest rate of 10% on
balances in the plan during 2002, 2001, and 2000. Related to these plans, the
Company purchased single premium life insurance contracts on the lives of the
related participants. The cash surrender value of these contracts is recorded
as an asset of the Company.

NOTE 9 - INCOME TAXES

Income tax expense is summarized as follows:

|                  |  |      |       |      |  |      |       |  |  |   |        |  
|----------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | -
|                  |  | 2002 |       | 2001 |  | 2000
|                  |  |      |       |      |  |     
|Current
 federal |  | $    | 5,282 |      |  | $    | 3,974 |  |  | $ | 3,075  |  
|Current  state   |  |      | 754   |      |  |      | 530   |  |  |   | 314    |  
|Deferred          |  |      | (334  | )    |  |      | 543   |  |  |   | (1,183 | )
|                  |  |      |       |      |  |      |       |  |  |   |        |  
|                  |  | $    | 5,702 |      |  | $    | 5,047 |  |  | $ | 2,206  |  
|                  |  |      |       |      |  |      |       |  |  |   |        |  

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 9 - INCOME TAXES(Continued)

Deferred income taxes reflect the effect of temporary differences between
values recorded for assets and liabilities for financial reporting purposes and
values utilized for measurement in accordance with tax laws. The tax effects
of the primary temporary differences giving rise to the Companys net deferred
tax assets and liabilities are as follows:

|                                     |                             |   |        |       |             |   |        |        |             |   |       |       |  |   |      |        |  
|------------------------------------ | --------------------------- | - | ------ | ----- | ----------- | - | ------ | ------ | ----------- | - | ----- | ----- |  | - | ---- | ------ | -
|                                     |                             |   | 2002   |       | 2001       
|                                     |                             |   |        |       |            
|                                     |                             |   | Assets |       | Liabilities |   | Assets |        | Liabilities
|                                     |                             |   |        |       |             |   |        |        |            
|Allowance for loan losses            |                             | $ | 4,937  |       |             | $ |       |        |             | $ | 4,365 |       |  | $ |     |       
|Deferred compensation                |                             |   | 837    |       |             |   |       |        |             |   | 778   |       |  |   |     |       
|Depreciation                         |                             |   |       |       |             |   | (1,143 | )      |             |   |      |       |  |   | (965 | )     
|FHLB dividends                       |                             |   |       |       |             |   | (614   | )      |             |   |      |       |  |   | (529 | )     
|Core deposit intangible              |                             |   |       |       |             |   | (129   | )      |             |   |      |       |  |   | (171 | )     
|Unrealized (gain) loss on securities |                             |   |       |       |             |   | (95    | )      |             |   |      |       |  |   | (39  | )     
|Other                                |                             |   |       |       |             |   | (59    | )      |             |   | 17    |       |  |   |     |       
|                                     |                             |   |        |       |             |   |        |        |             |   |       |       |  |   |      |       
|                                     | Total deferred income taxes |   | $      | 5,774 |             |   | $      | (2,040 | )           |   | $     | 5,160 |  |   | $    | (1,704 | )
|                                     |                             |   |        |       |             |   |        |        |             |   |       |       |  |   |      |       

A reconciliation of expected income tax expense at the statutory federal income
tax rate of 35% with the actual effective income tax rates is as follows:

|                                         |  |      |      |      |  |      |      |   |  |  |      |  
|---------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                         |  | 2002 |      | 2001 |  | 2000
|                                         |  |      |      |      |  |     
|Statutory federal tax rate               |  |      | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State income tax, net of federal benefit |  |      | 2.6  |      |  |      | 3.1  |   |  |  | (1.6 | )
|Tax exempt income                        |  |      | (.1  | )    |  |      | (.3  | ) |  |  | (.7  | )
|Other                                    |  |      | (.8  | )    |  |      | (2.9 | ) |  |  | (4.1 | )
|                                         |  |      |      |      |  |      |      |   |  |  |      |  
|                                         |  |      | 36.7 | %    |  |      | 34.9 | % |  |  | 28.6 | %
|                                         |  |      |      |      |  |      |      |   |  |  |      |  

NOTE 10 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer-financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.

(Continued)

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##### Table of Contents



GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 10 - COMMITMENTS AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK(Continued)

Financial instruments with off-balance-sheet risk were as follows at year-end:

|                                     |  |      |         |      |  |   |        | 
|------------------------------------ |  | ---- | ------- | ---- |  | - | ------ | 
|                                     |  | 2002 |         | 2001
|                                     |  |      |         |     
|Commitments to make loans  fixed    |  | $    | 25,404  |      |  | $ | 8,358  | 
|Commitments to make loans  variable |  |      | 14,706  |      |  |   | 8,653  | 
|Unused lines of credit               |  |      | 120,394 |      |  |   | 96,037 | 
|Letters of credit                    |  |      | 11,076  |      |  |   | 6,304  | 

The fixed rate loan commitments have interest rates ranging from 4.50 % to
8.00% and maturities ranging from one year to five years.

NOTE 11 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators.
Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 11 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS(Continued)

At year-end, the capital requirements were met, as the Company and the Bank
were considered well capitalized under regulations. Actual capital levels and
minimum required levels (in millions) were:

|                                         |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |      |  
|---------------------------------------- | ------------ |  | ------ | ---- | ----------------- |  | ----------------- | ---- | ----- |  | ---------------- | ---- | ------------ |  |  | --- | - |  | ------------------- | ---- |  |  |  | ---- | -
|                                         |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  | Minimum Amounts to 
|                                         |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  | be Well
Capitalized
|                                         |              |  |        |      |                   |  |                   |      |       |  | Minimum Required |      | Under
Prompt
|                                         |              |  |        |      |                   |  |                   |      |       |  | for Capital      |      | Corrective  
|                                         |              |  | Actual |      | Adequacy Purposes |  | Action Provisions
|                                         |              |  |        |      |                   |  |                  
|                                         |              |  | Actual |      | Ratio             |  | Actual            |      | Ratio |  | Actual           |      | Ratio       
|                                         |              |  |        |      |                   |  |                   |      |       |  |                  |      |             
|2002                                     |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|Total Capital (to Risk Weighted Assets)  |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 80.9 |                   |  |                   | 10.9 | %     |  | $                | 59.2 |              |  |  | 8.0 | % |  | $                   | 74.0 |  |  |  | 10.0 | %
|                                         | Bank         |  |        | 81.9 |                   |  |                   | 11.1 |       |  |                  | 59.1 |              |  |  | 8.0 |   |  |                     | 73.9 |  |  |  | 10.0 |  
|Tier 1 Capital (to Risk Weighted Assets) |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 71.6 |                   |  |                   | 9.7  | %     |  | $                | 29.6 |              |  |  | 4.0 | % |  | $                   | 44.4 |  |  |  | 6.0  | %
|                                         | Bank         |  |        | 72.6 |                   |  |                   | 9.8  |       |  |                  | 29.6 |              |  |  | 4.0 |   |  |                     | 44.3 |  |  |  | 6.0  |  
|Tier 1 Capital (to Average Assets)       |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 71.6 |                   |  |                   | 8.3  | %     |  | $                | 34.5 |              |  |  | 4.0 | % |  | $                   | 43.1 |  |  |  | 5.0  | %
|                                         | Bank         |  |        | 72.6 |                   |  |                   | 8.4  |       |  |                  | 34.5 |              |  |  | 4.0 |   |  |                     | 43.1 |  |  |  | 5.0  |  
|2001                                     |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|Total Capital (to Risk Weighted Assets)  |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 73.9 |                   |  |                   | 11.1 | %     |  | $                | 53.1 |              |  |  | 8.0 | % |  | $                   | 66.4 |  |  |  | 10.0 | %
|                                         | Bank         |  |        | 74.8 |                   |  |                   | 11.3 |       |  |                  | 52.9 |              |  |  | 8.0 |   |  |                     | 66.2 |  |  |  | 10.0 |  
|Tier 1 Capital (to Risk Weighted Assets) |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 65.7 |                   |  |                   | 9.9  | %     |  | $                | 26.6 |              |  |  | 4.0 | % |  | $                   | 39.9 |  |  |  | 6.0  | %
|                                         | Bank         |  |        | 66.4 |                   |  |                   | 10.0 |       |  |                  | 26.5 |              |  |  | 4.0 |   |  |                     | 39.7 |  |  |  | 6.0  |  
|Tier 1 Capital (to Average Assets)       |              |  |        |      |                   |  |                   |      |       |  |                  |      |              |  |  |     |   |  |                     |      |  |  |  |     
|                                         | Consolidated |  | $      | 65.7 |                   |  |                   | 8.2  | %     |  | $                | 32.3 |              |  |  | 4.0 | % |  | $                   | 40.4 |  |  |  | 5.0  | %
|                                         | Bank         |  |        | 66.4 |                   |  |                   | 8.3  |       |  |                  | 32.3 |              |  |  | 4.0 |   |  |                     | 40.3 |  |  |  | 5.0  |  

The Companys primary source of funds to pay dividends to shareholders is the
dividends it receives from the Bank. Applicable state laws and the regulations
of the Federal Reserve Bank and the Federal Deposit Insurance Corporation
regulate the payment of dividends. Under the state regulations, the amount of
dividends that may be paid is limited only to the extent that the remaining
balance of retained earnings is at least equal to the capital stock amounts of
the Bank; however, future dividends will be dependent on the level of earnings,
capital and liquidity requirements and considerations of the Bank and Company.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 12 - STOCK OPTIONS

The Company maintains a stock option plan, whereby a maximum of 480,000 stock
options may be issued to selected key executives. The exercise price of each
option is the fair market value of the Companys common stock on the date of
grant. The maximum term of the options is ten years and the options vest at an
annual rate of 20%. At year-end 2002, 247,993 shares are authorized for future
grant.

The Company also has a stock option plan that grants a key executive options to
purchase 9,000 shares per year at one and one-half times year end book value.
The options vest immediately on the grant date. Compensation expense
associated with these options was $17 for 2002, $20 for 2001, and $168 for
2000. No expense for stock options to other key executives is recorded, as the
grant price equals the market price of the stock at grant date.

A summary of the Companys option activity and related information for the
years ended 2002, 2001, and 2000 is presented below:

|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|------------------------------------------------- |  | ------------- | ------ | -------------------- |  | -------- | ----- | ----- |  | ------- | ------- | -------- |  | - | ----- |  |  | -------- | ------- | - |  | - | ----- | 
|                                                  |  | Key Executive |        | Other Key Executives |  | Total   
|                                                  |  |               |        |                      |  |         
|                                                  |  |               |        |                      |  | Weighted |       |       |  |         |         | Weighted |  |   |       |  |  | Weighted
|                                                  |  |               |        |                      |  | Average  |       |       |  |         |         | Average  |  |   |       |  |  | Average 
|                                                  |  |               |        |                      |  | Exercise |       |       |  |         |         | Exercise |  |   |       |  |  | Exercise
|2002                                              |  | Options       |        | Price                |  | Options  |       | Price |  | Options |         | Price   
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |         
|Outstanding at beginning of year                  |  |               | 54,000 |                      |  | $        | 12.64 |       |  |         | 183,730 |          |  | $ | 22.72 |  |  |          | 237,730 |   |  | $ | 20.43 | 
|Granted *                                         |  |               |       |                      |  |          |      |       |  |         |        |          |  |   |      |  |  |          |        |   |  |   |      | 
|Exercised                                         |  |               |       |                      |  |          |      |       |  |         | (1,650  | )        |  |   | 9.67  |  |  |          | (1,650  | ) |  |   | 9.67  | 
|Forfeited                                         |  |               |       |                      |  |          |      |       |  |         | (3,733  | )        |  |   | 22.91 |  |  |          | (3,733  | ) |  |   | 22.91 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Outstanding at end of year                        |  |               | 54,000 |                      |  | $        | 12.64 |       |  |         | 178,347 |          |  | $ | 22.84 |  |  |          | 232,347 |   |  | $ | 20.47 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Options exercisable at year-end                   |  |               | 54,000 |                      |  | $        | 12.64 |       |  |         | 106,083 |          |  | $ | 22.07 |  |  |          | 160,083 |   |  | $ | 18.89 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Fair value of each option
granted during the year |  |               |        |                      |  | $        | N/A*  |       |  |         |         |          |  | $ | N/A*  |  |  |          |         |   |  |   |       | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|* No options granted during 2002                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 12  STOCK OPTIONS(Continued)

|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|------------------------------------------------- |  | ------------- | ------ | -------------------- |  | -------- | ----- | ----- |  | ------- | ------- | -------- |  | - | ----- |  |  | -------- | ------- | - |  | - | ----- | 
|                                                  |  | Key Executive |        | Other Key Executives |  | Total   
|                                                  |  |               |        |                      |  |         
|                                                  |  |               |        |                      |  | Weighted |       |       |  |         |         | Weighted |  |   |       |  |  | Weighted
|                                                  |  |               |        |                      |  | Average  |       |       |  |         |         | Average  |  |   |       |  |  | Average 
|                                                  |  |               |        |                      |  | Exercise |       |       |  |         |         | Exercise |  |   |       |  |  | Exercise
|                                                  |  | Options       |        | Price                |  | Options  |       | Price |  | Options |         | Price   
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |         
|2001                                              | 
|Outstanding at beginning of year                  |  |               | 45,000 |                      |  | $        | 12.15 |       |  |         | 145,865 |          |  | $ | 24.90 |  |  |          | 190,865 |   |  | $ | 21.89 | 
|Granted                                           |  |               | 9,000  |                      |  |          | 15.09 |       |  |         | 42,065  |          |  |   | 16.00 |  |  |          | 51,065  |   |  |   | 15.84 | 
|Exercised                                         |  |               |       |                      |  |          |      |       |  |         |        |          |  |   |      |  |  |          |        |   |  |   |      | 
|Forfeited                                         |  |               |       |                      |  |          |      |       |  |         | (4,200  | )        |  |   | 31.00 |  |  |          | (4,200  | ) |  |   | 31.00 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Outstanding at end of year                        |  |               | 54,000 |                      |  | $        | 12.64 |       |  |         | 183,730 |          |  | $ | 22.72 |  |  |          | 237,730 |   |  | $ | 20.43 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Options exercisable at year-end                   |  |               | 54,000 |                      |  | $        | 12.64 |       |  |         | 77,458  |          |  | $ | 20.85 |  |  |          | 131,458 |   |  | $ | 17.48 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Fair value of each option
granted during the year |  |               |        |                      |  | $        | 3.58  |       |  |         |         |          |  | $ | 3.26  |  |  |          |         |   |  |   |       | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|2000                                              |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Outstanding at beginning of year                  |  |               | 36,000 |                      |  | $        | 11.72 |       |  |         | 125,155 |          |  | $ | 21.53 |  |  |          | 161,155 |   |  | $ | 19.34 | 
|Granted                                           |  |               | 9,000  |                      |  |          | 13.86 |       |  |         | 42,065  |          |  |   | 32.00 |  |  |          | 51,065  |   |  |   | 28.80 | 
|Exercised                                         |  |               |       |                      |  |          |      |       |  |         | (20,655 | )        |  |   | 18.78 |  |  |          | (20,655 | ) |  |   | 18.78 | 
|Forfeited                                         |  |               |       |                      |  |          |      |       |  |         | (700    | )        |  |   | 30.00 |  |  |          | (700    | ) |  |   | 30.00 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Outstanding at end of year                        |  |               | 45,000 |                      |  | $        | 12.15 |       |  |         | 145,865 |          |  | $ | 24.90 |  |  |          | 190,865 |   |  | $ | 21.89 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Options exercisable at year-end                   |  |               | 45,000 |                      |  | $        | 12.15 |       |  |         | 52,285  |          |  | $ | 18.32 |  |  |          | 97,285  |   |  | $ | 15.47 | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Fair value of each option
granted during the year |  |               |        |                      |  | $        | 18.65 |       |  |         |         |          |  | $ | 6.57  |  |  |          |         |   |  |   |       | 
|                                                  |  |               |        |                      |  |          |       |       |  |         |         |          |  |   |      

(Continued)

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##### Table of Contents



GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 12  STOCK OPTIONS(Continued)

Options outstanding at year-end 2002 were as follows:

|                         |  |             |        |             |  |             |     |             |  |          |       |             |  |          |        |           |  |          |     |  |  |   |       |  |  | 
|------------------------ |  | ----------- | ------ | ----------- |  | ----------- | --- | ----------- |  | -------- | ----- | ----------- |  | -------- | ------ | --------- |  | -------- | --- |  |  | - | ----- |  |  | 
|                         |  |             |        | Outstanding |  | Exercisable
|                         |  |             |        |             |  |            
|                         |  |             |        |             |  |             |     | Average     |  |          |       |             |  |          |        |           |  | Average  |     |  |  |  
|                         |  |             |        |             |  |             |     | Weighted    |  | Average  |       |             |  |          |        | Weighted  |  | Average 
|                         |  |             |        |             |  |             |     | Remaining   |  | Weighted |       |             |  |          |        | Remaining |  | Weighted
|                         |  |             |        | Number      |  | Contractual |     | Exercise    |  | Number   |       | Contractual |  | Exercise
|Range of Exercise Prices |  | Outstanding |        | Life        |  | Price       |     | Outstanding |  | Life     |       | Price      
|                         |  |             |        |             |  |             |     |             |  |          |       |            
|*$10.13 - $15.09         |  |             | 54,000 |             |  |             | 6.5 |             |  | $        | 12.64 |             |  |          | 54,000 |           |  |          | 6.5 |  |  | $ | 12.64 | 
|$9.67  -  $20.00         |  |             | 84,039 |             |  |             | 6.4 |             |  | $        | 15.91 |             |  |          | 52,083 |           |  |          | 4.8 |  |  | $ | 15.86 | 
|$21.00 - $32.00          |  |             | 94,308 |             |  |             | 7.2 |             |  | $        | 29.02 |             |  |          | 54,000 |           |  |          | 6.5 |  |  | $ | 28.70 | 



|* |  | Granted in connection with compensation for the key executive.
|- |  | --------------------------------------------------------------

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 13 - EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are
presented below.

|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |           | 
|-------------------------- | --------------------------------------------------------------------------- | - | ---- | --------- |  |  |  |  | ---- | - | ---- | --------- |  |  | ---- |  |  | - | --- | --------- | 
|                           |                                                                             |   | 2002 |           |  |  |  |  | 2001 |   |      |           |  |  | 2000
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |     
|Basic Earnings Per Share   |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|                           | Net income                                                                  |   | $    | 9,813     |  |  |  |  |      |   | $    | 9,423     |  |  |      |  |  |   | $   | 5,513     | 
|                           | Weighted average common
shares outstanding                                  |   |      | 6,819,722 |  |  |  |  |      |   |      | 6,818,890 |  |  |      |  |  |   |     | 6,814,075 | 
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|Basic Earnings Per Share   |                                                                             | $ | 1.44 |           |  |  |  |  |      | $ | 1.38 |           |  |  |      |  |  | $ | .81 |          
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|Diluted Earnings Per Share |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|                           | Net income                                                                  |   | $    | 9,813     |  |  |  |  |      |   | $    | 9,423     |  |  |      |  |  |   | $   | 5,513     | 
|                           | Weighted average common
shares outstanding                                  |   |      | 6,819,722 |  |  |  |  |      |   |      | 6,818,890 |  |  |      |  |  |   |     | 6,814,075 | 
|                           | Add: Dilutive effects of assumed
Conversions and exercises of
stock options |   |      | 27,737    |  |  |  |  |      |   |      | 18,490    |  |  |      |  |  |   |     | 57,415    | 
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|                           | Weighted average common and
dilutive potential common shares
outstanding    |   |      | 6,847,459 |  |  |  |  |      |   |      | 6,837,380 |  |  |      |  |  |   |     | 6,871,490 | 
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          
|Diluted Earnings Per Share |                                                                             | $ | 1.43 |           |  |  |  |  |      | $ | 1.38 |           |  |  |      |  |  | $ | .80 |          
|                           |                                                                             |   |      |           |  |  |  |  |      |   |      |           |  |  |      |  |  |   |     |          

Stock options of 113,693 and 114,937 were excluded from the 2002 and 2001
diluted earnings per share because their impact was antidilutive.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value and estimated fair value of the Companys financial
instruments are as follows at year-end 2002 and 2001.

|                       |                                            |  |          |         |       |  |          |         |       |  |   |         |  |  |   |         | 
|---------------------- | ------------------------------------------ |  | -------- | ------- | ----- |  | -------- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                       |                                            |  | 2002     |         | 2001 
|                       |                                            |  |          |         |      
|                       |                                            |  | Carrying |         | Fair  |  | Carrying |         | Fair 
|                       |                                            |  | Value    |         | Value |  | Value    |         | Value
|                       |                                            |  |          |         |       |  |          |         |      
|Financial assets:      |                                            |  |          |         |       |  |          |         |       |  |   |         |  |  |   |        
|                       | Cash and cash equivalents                  |  | $        | 62,959  |       |  | $        | 62,959  |       |  | $ | 48,053  |  |  | $ | 48,053  | 
|                       | Interest bearing deposits with other banks |  |          |        |       |  |          |        |       |  |   | 1,100   |  |  |   | 1,100   | 
|                       | Securities available for sale              |  |          | 33,322  |       |  |          | 33,322  |       |  |   | 28,567  |  |  |   | 28,567  | 
|                       | Securities held to maturity                |  |          | 448     |       |  |          | 455     |       |  |   | 833     |  |  |   | 840     | 
|                       | Loans held for sale                        |  |          | 6,646   |       |  |          | 6,763   |       |  |   | 7,945   |  |  |   | 7,960   | 
|                       | Loans, net                                 |  |          | 737,671 |       |  |          | 740,829 |       |  |   | 671,326 |  |  |   | 671,862 | 
|                       | FHLB and Bankers Bank stock                |  |          | 4,744   |       |  |          | 4,744   |       |  |   | 4,538   |  |  |   | 4,538   | 
|                       | Accrued interest receivable                |  |          | 3,812   |       |  |          | 3,812   |       |  |   | 4,506   |  |  |   | 4,506   | 
|Financial liabilities: |                                            |  |          |         |       |  |          |         |       |  |   |         |  |  |   |        
|                       | Deposit accounts                           |  | $        | 719,323 |       |  | $        | 732,179 |       |  | $ | 653,913 |  |  | $ | 661,348 | 
|                       | Repurchase agreements                      |  |          | 10,038  |       |  |          | 10,038  |       |  |   | 10,375  |  |  |   | 10,375  | 
|                       | Notes payable                              |  |          | 82,359  |       |  |          | 86,470  |       |  |   | 67,978  |  |  |   | 66,879  | 
|                       | Accrued interest payable                   |  |          | 2,935   |       |  |          | 2,935   |       |  |   | 3,552   |  |  |   | 3,552   | 

The following methods and assumptions were used to estimate the fair values for
financial instruments. The carrying amount is considered to estimate fair
value for cash and short-term instruments, demand deposits, liabilities for
borrowed money, variable rate loans or deposits that reprice frequently and
fully, and accrued interest receivable and payable. Securities available for
sale fair values are based on quoted market prices or, if no quotes are
available, on the rate and term of the security and on information about the
issuer. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, the fair value is
estimated by discounted cash flow analysis using current market rates for the
estimated life and credit risk. Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying collateral values, where
applicable. Fair value of mortgage loans held for sale is based on current
market price for such loans. Liabilities for borrowed money are estimated
using rates of debt with similar terms and remaining maturities. The fair
value of off-balance sheet items is based on current fees or costs that would
be charged to enter into or terminate such arrangements which is not material.
The fair value of commitments to sell loans is based on the difference between
the interest rates committed to sell at and the quoted secondary market price
for similar loans, which is not material.

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

BALANCE SHEETSYears ended December 31, 2002 and 2001

|                     |                                                  |              |        |        |        |  |  |  |  |      |        |        |        |  |  |  |  | 
|-------------------- | ------------------------------------------------ | ------------ | ------ | ------ | ------ |  |  |  |  | ---- | ------ | ------ | ------ |  |  |  |  | 
|                     |                                                  |              |        | 2002   |        |  |  |  |  | 2001 |        |        |        | 
|                     |                                                  |              |        |        |        |  |  |  |  |      |        |        |        | 
|ASSETS               |                                                  |              |        |        |        |  |  |  |  |      |        |       
|                     | Cash and due from financial institutions         |              | $      | 1,146  |        |  |  |  |  |      | $      | 176    |       
|                     | Investment in subsidiary                         |              |        | 74,783 |        |  |  |  |  |      |        | 68,544 |       
|                     | Cash surrender value of life insurance contracts |              |        | 245    |        |  |  |  |  |      |        | 234    |       
|                     | Other                                            |              |        | 808    |        |  |  |  |  |      |        | 2,087  |       
|                     |                                                  |              |        |        |        |  |  |  |  |      |        |       
|                     |                                                  | Total assets |        | $      | 76,982 |  |  |  |  |      |        | $      | 71,041 | 
|                     |                                                  |              |        |        |        |  |  |  |  |      |        |        |       
|Total liabilities    |                                                  | $            | 2,387  |        |        |  |  |  |  | $    | 2,414  |       
|Shareholders equity |                                                  |              | 74,595 |        |        |  |  |  |  |      | 68,627 |       
|                     |                                                  |              |        |        |        |  |  |  |  |      |        |       
|                     | Total liabilities and shareholders equity       |              | $      | 76,982 |        |  |  |  |  |      | $      | 71,041 |       
|                     |                                                  |              |        |        |        |  |  |  |  |      |        |        |       

STATEMENTS OF INCOMEYears ended December 31, 2002, 2001, and 2000

|                                                   |  |      |       |   |  |  |  |      |  |   |       |   |  |      |  |  |  |   |       |   |  |  |  | 
|-------------------------------------------------- |  | ---- | ----- | - |  |  |  | ---- |  | - | ----- | - |  | ---- |  |  |  | - | ----- | - |  |  |  | 
|                                                   |  | 2002 |       |   |  |  |  | 2001 |  |   |       |   |  | 2000 |  |  |  |  
|                                                   |  |      |       |   |  |  |  |      |  |   |       |   |  |      |  |  |  |  
|Dividends from subsidiaries                        |  | $    | 4,056 |   |  |  |  |      |  | $ | 4,006 |   |  |      |  |  |  | $ | 3,959 |  
|Other income                                       |  |      | 136   |   |  |  |  |      |  |   | 245   |   |  |      |  |  |  |   | 187   |  
|Interest expense                                   |  |      | (78   | ) |  |  |  |      |  |   | (190  | ) |  |      |  |  |  |   | (198  | )
|Other expense                                      |  |      | (725  | ) |  |  |  |      |  |   | (642  | ) |  |      |  |  |  |   | (741  | )
|                                                   |  |      |       |   |  |  |  |      |  |   |       |   |  |      |  |  |  |   |       |  
|Income before income taxes                         |  |      | 3,389 |   |  |  |  |      |  |   | 3,419 |   |  |      |  |  |  |   | 3,207 |  
|Income tax benefit                                 |  |      | (277  | ) |  |  |  |      |  |   | (263  | ) |  |      |  |  |  |   | (310  | )
|Equity in undistributed net income of subsidiaries |  |      | 6,147 |   |  |  |  |      |  |   | 5,741 |   |  |      |  |  |  |   | 1,996 |  
|                                                   |  |      |       |   |  |  |  |      |  |   |       |   |  |      |  |  |  |   |       |  
|Net income                                         |  | $    | 9,813 |   |  |  |  |      |  | $ | 9,423 |   |  |      |  |  |  | $ | 5,513 |  
|                                                   |  |      |       |   |  |  |  |      |  |   |       |   |  |      |  |  |  |   |       |  

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS(Continued)

STATEMENTS OF CASH FLOWSYears ended December 31, 2002, 2001, and 2000

|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |        |        |       |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------- | ------ | ------ | ----- |  |  |  | - | ----- | ------ | ------ | ----- |  |  | ---- | - | ----- | ------ | ------ | ----- |  |  |  |  | 
|                                             |                                                                                   |                                          |                                    |        | 2002   |       |  |  |  |   | 2001  |        |        |       |  |  | 2000 |   |       |        |       
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |        |       
|Operating activities                         |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             | Net income                                                                        |                                          | $                                  | 9,813  |        |       |  |  |  |   | $     | 9,423  |        |       |  |  |      |   | $     | 5,513  |       
|                                             | Adjustments to reconcile net income to net
cash provided by operating activities: |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |        |       
|                                             |                                                                                   | Undistributed net income of subsidiaries |                                    |        | (6,147 | )     |  |  |  |   |       |        | (5,741 | )     |  |  |      |   |       |        | (1,996 | )    
|                                             |                                                                                   | Depreciation and amortization            |                                    |        | 110    |       |  |  |  |   |       |        | 216    |       |  |  |      |   |       |        | 216    |      
|                                             |                                                                                   | Change in assets                         |                                    |        | 1,169  |       |  |  |  |   |       |        | (157   | )     |  |  |      |   |       |        | (213   | )    
|                                             |                                                                                   | Change in liabilities                    |                                    |        | (24    | )     |  |  |  |   |       |        | (131   | )     |  |  |      |   |       |        | 61     |      
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             |                                                                                   |                                          | Net cash from operating activities |        |        | 4,921 |  |  |  |   |       |        |        | 3,610 |  |  |      |   |       |        |        | 3,581 | 
|Investing activities                         |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             | Increase in cash surrender value of life insurance                                |                                          |                                    | (11    | )      |       |  |  |  |   |       | (11    | )      |       |  |  |      |   |       | (10    | )     
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             |                                                                                   | Net cash from investing activities       |                                    |        | (11    | )     |  |  |  |   |       |        | (11    | )     |  |  |      |   |       |        | (10    | )    
|Financing activities                         |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             | Dividends paid                                                                    |                                          |                                    | (3,956 | )      |       |  |  |  |   |       | (3,819 | )      |       |  |  |      |   |       | (3,761 | )     
|                                             | Proceeds from issuance of common stock                                            |                                          |                                    | 16     |        |       |  |  |  |   |       |       |        |       |  |  |      |   |       | 389    |       
|                                             | Proceeds from notes payable                                                       |                                          |                                    |       |        |       |  |  |  |   |       | 1,800  |        |       |  |  |      |   |       |       |       
|                                             | Repayment of debt                                                                 |                                          |                                    |       |        |       |  |  |  |   |       | (2,431 | )      |       |  |  |      |   |       | (40    | )     
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|                                             |                                                                                   | Net cash from financing activities       |                                    |        | (3,940 | )     |  |  |  |   |       |        | (4,450 | )     |  |  |      |   |       |        | (3,412 | )    
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|Net change in cash and cash equivalents      |                                                                                   |                                          | 970                                |        |        |       |  |  |  |   | (851  | )      |        |       |  |  |      |   | 159   |       
|Cash and cash equivalents, beginning of year |                                                                                   |                                          | 176                                |        |        |       |  |  |  |   | 1,027 |        |        |       |  |  |      |   | 868   |       
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |       
|Cash and cash equivalents, end of year       |                                                                                   | $                                        | 1,146                              |        |        |       |  |  |  | $ | 176   |        |        |       |  |  |      | $ | 1,027 |       
|                                             |                                                                                   |                                          |                                    |        |        |       |  |  |  |   |       |        |        |       |  |  |      |   |       |        |       

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 16 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components were as follows.

|                                                                                              |  |      |     |   |  |  |  |      |  |   |    |  |  |      |  |  |  |   |    |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  | ---- | --- | - |  |  |  | ---- |  | - | -- |  |  | ---- |  |  |  | - | -- |  |  |  |  | 
|                                                                                              |  | 2002 |     |   |  |  |  | 2001 |  |   |    |  |  | 2000
|                                                                                              |  |      |     |   |  |  |  |      |  |   |    |  |  |     
|Unrealized holding gains and losses on
securities available for sale, net of tax              |  | $    | 120 |   |  |  |  |      |  | $ | 13 |  |  |      |  |  |  | $ | 69 | 
|Less reclassification adjustments for gains and
losses later recognized in income, net of tax |  |      | (28 | ) |  |  |  |      |  |   |   |  |  |      |  |  |  |   |   | 
|                                                                                              |  |      |     |   |  |  |  |      |  |   |    |  |  |      |  |  |  |   |    | 
|Other comprehensive income                                                                    |  | $    | 92  |   |  |  |  |      |  | $ | 13 |  |  |      |  |  |  | $ | 69 | 
|                                                                                              |  |      |     |   |  |  |  |      |  |   |    |  |  |      |  |  |  |   |    | 

NOTE 17 - SEGMENT INFORMATION

The Companys operating segments include banking, mortgage banking, consumer
finance, subprime automobile lending and title insurance. The reportable
segments are determined by the products and services offered, and internal
reporting. Loans, investments, and deposits provide the revenues in the
banking operation, loans and fees provide the revenues in consumer finance,
mortgage banking, and subprime lending and insurance commissions provide
revenues for the title insurance company. Mortgage banking, consumer finance,
subprime automobile lending and title insurance do not meet the quantitative
threshold on an individual basis, and are therefore shown below in other.
All operations are domestic.

The accounting policies used are the same as those described in the summary of
significant accounting policies. Segment performance is evaluated using net
interest income and noninterest income. Income taxes are allocated based on
income before income taxes and indirect expenses (includes management fees) are
allocated based on time spent for each segment. Transactions among segments
are made at fair value. Information reported internally for performance
assessment follows.

|                          |  |         |         |          |  |          |        |       |  |   |         | 
|------------------------- |  | ------- | ------- | -------- |  | -------- | ------ | ----- |  | - | ------- | 
|                          |  |         |         |          |  | Other    |        | Total
|2002                      |  | Banking |         | Segments |  | Segments
|                          |  |         |         |          |  |         
|Net interest income       |  | $       | 34,696  |          |  | $        | 6,553  |       |  | $ | 41,249  | 
|Provision for loan losses |  |         | 3,805   |          |  |          | 3,260  |       |  |   | 7,065   | 
|Noninterest income        |  |         | 9,118   |          |  |          | 1,412  |       |  |   | 10,530  | 
|Noninterest expense       |  |         | 24,418  |          |  |          | 4,781  |       |  |   | 29,199  | 
|Income tax expense        |  |         | 5,754   |          |  |          | (52    | )     |  |   | 5,702   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment profit            |  | $       | 9,837   |          |  | $        | (24    | )     |  | $ | 9,813   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment assets            |  | $       | 862,668 |          |  | $        | 36,728 |       |  | $ | 899,396 | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 17 - SEGMENT INFORMATION(Continued)

|                          |  |         |         |          |  |          |        |       |  |   |         | 
|------------------------- |  | ------- | ------- | -------- |  | -------- | ------ | ----- |  | - | ------- | 
|                          |  |         |         |          |  | Other    |        | Total
|                          |  | Banking |         | Segments |  | Segments
|                          |  |         |         |          |  |         
|2001                      | 
|Net interest income       |  | $       | 33,441  |          |  | $        | 6,060  |       |  | $ | 39,501  | 
|Provision for loan losses |  |         | 1,258   |          |  |          | 4,701  |       |  |   | 5,959   | 
|Noninterest income        |  |         | 7,707   |          |  |          | 1,886  |       |  |   | 9,593   | 
|Noninterest expense       |  |         | 23,601  |          |  |          | 5,064  |       |  |   | 28,665  | 
|Income tax expense        |  |         | 5,778   |          |  |          | (731   | )     |  |   | 5,047   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment profit            |  | $       | 10,511  |          |  | $        | (1,088 | )     |  | $ | 9,423   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment assets            |  | $       | 773,567 |          |  | $        | 38,045 |       |  | $ | 811,612 | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|2000                      |  |         |         |          |  |          |        |       |  |   |         | 
|Net interest income       |  | $       | 32,643  |          |  | $        | 5,910  |       |  | $ | 38,553  | 
|Provision for loan loss   |  |         | 3,727   |          |  |          | 4,282  |       |  |   | 8,009   | 
|Noninterest income        |  |         | 4,785   |          |  |          | 1,783  |       |  |   | 6,568   | 
|Noninterest expense       |  |         | 22,328  |          |  |          | 7,065  |       |  |   | 29,393  | 
|Income tax expense        |  |         | 3,701   |          |  |          | (1,495 | )     |  |   | 2,206   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment profit            |  | $       | 7,672   |          |  | $        | (2,159 | )     |  | $ | 5,513   | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 
|Segment assets            |  | $       | 747,805 |          |  | $        | 41,312 |       |  | $ | 789,117 | 
|                          |  |         |         |          |  |          |        |       |  |   |         | 

(Continued)

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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
December 31, 2002, 2001 and 2000

NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Presented below is a summary of the consolidated quarterly financial data:

|                                            |  |                            |           |         |  |         |           |          |  |   |           |  |  |   |           | 
|------------------------------------------- |  | -------------------------- | --------- | ------- |  | ------- | --------- | -------- |  | - | --------- |  |  | - | --------- | 
|                                            |  | For the three months ended
|Summary of Operations                       |  | 3/31/02                    |           | 6/30/02 |  | 9/30/02 |           | 12/31/02
|                                            |  |                            |           |         |  |         |           |         
|Interest income                             |  | $                          | 14,922    |         |  | $       | 14,966    |          |  | $ | 15,174    |  |  | $ | 14,867    | 
|Net interest income                         |  |                            | 9,814     |         |  |         | 10,362    |          |  |   | 10,668    |  |  |   | 10,405    | 
|Provision for loan losses1                  |  |                            | 1,307     |         |  |         | 1,369     |          |  |   | 1,354     |  |  |   | 3,035     | 
|Income before income taxes                  |  |                            | 4,059     |         |  |         | 4,292     |          |  |   | 4,582     |  |  |   | 2,582     | 
|Net income                                  |  |                            | 2,569     |         |  |         | 2,667     |          |  |   | 2,805     |  |  |   | 1,772     | 
|Basic earnings per share                    |  |                            | .38       |         |  |         | .39       |          |  |   | .41       |  |  |   | .26       | 
|Diluted earning per share                   |  |                            | .38       |         |  |         | .39       |          |  |   | .41       |  |  |   | .26       | 
|Dividends per common share                  |  |                            | .12       |         |  |         | .12       |          |  |   | .12       |  |  |   | .22       | 
|Average common shares outstanding           |  |                            | 6,818,890 |         |  |         | 6,818,890 |          |  |   | 6,820,540 |  |  |   | 6,820,540 | 
|Average common shares outstanding  diluted |  |                            | 6,841,758 |         |  |         | 6,834,909 |          |  |   | 6,839,393 |  |  |   | 6,847,829 | 

|                                            |  |                            |           |         |  |         |           |          |  |   |           |  |  |   |           | 
|------------------------------------------- |  | -------------------------- | --------- | ------- |  | ------- | --------- | -------- |  | - | --------- |  |  | - | --------- | 
|                                            |  | For the three months ended
|Summary of Operations                       |  | 3/31/01                    |           | 6/30/01 |  | 9/30/01 |           | 12/31/01
|                                            |  |                            |           |         |  |         |           |         
|Interest income                             |  | $                          | 18,182    |         |  | $       | 17,150    |          |  | $ | 16,783    |  |  | $ | 15,849    | 
|Net interest income                         |  |                            | 10,260    |         |  |         | 9,794     |          |  |   | 9,727     |  |  |   | 9,720     | 
|Provision for loan losses                   |  |                            | 1,439     |         |  |         | 1,168     |          |  |   | 1,493     |  |  |   | 1,859     | 
|Income before income taxes                  |  |                            | 4,602     |         |  |         | 4,065     |          |  |   | 3,678     |  |  |   | 2,125     | 
|Net income                                  |  |                            | 2,908     |         |  |         | 2,441     |          |  |   | 2,335     |  |  |   | 1,739     | 
|Basic earnings per share                    |  |                            | .43       |         |  |         | .36       |          |  |   | .34       |  |  |   | .26       | 
|Diluted earnings per share                  |  |                            | .42       |         |  |         | .36       |          |  |   | .33       |  |  |   | .25       | 
|Dividends per common share                  |  |                            | .12       |         |  |         | .12       |          |  |   | .12       |  |  |   | .20       | 
|Average common shares outstanding           |  |                            | 6,818,890 |         |  |         | 6,818,890 |          |  |   | 6,818,890 |  |  |   | 6,818,890 | 
|Average common shares outstanding  diluted |  |                            | 6,879,165 |         |  |         | 6,858,866 |          |  |   | 6,851,779 |  |  |   | 6,837,380 | 



---

| |  | 1 The increase in provision for loan losses during the fourth quarter of 2002,
as compared to prior periods, is primarily a result of a decline in the credit
quality of a few commercial loans.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Continued)

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE


Not applicable.




PART III




ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information concerning the Board of Directors of the Company, the
information contained under the section captioned Election of Directors in
the Companys definitive proxy statement for the Companys 2003 Annual Meeting
of Shareholders (the Proxy Statement) is incorporated herein by reference.

Information regarding executive officers of the Company is contained in
the section captioned Executive Officers of the Registrant under Part I
hereof and is incorporated herein by reference.

Information regarding delinquent Form 3, 4 or 5 filers is incorporated
herein by reference to the section entitled Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement.




ITEM 11.    EXECUTIVE COMPENSATION

The information contained under the section captioned Election of
Directors  Executive Compensation and Other Benefits in the Proxy Statement
is incorporated herein by reference.




ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



| | (a) |  | Security Ownership of Certain Beneficial Owners                                                                                                                                                                      
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Information required by this item is incorporated herein by
reference to the section captioned Security Ownership of
Certain Beneficial Owners and Management in the Proxy
Statement.                              
|
| | (b) |  | Security Ownership of Management                                                                                                                                                                                     
|
| |     |  | Information required by this item is incorporated herein by
reference to the sections captioned Security Ownership of
Certain Beneficial Owners and Management and Election of
Directors in the Proxy Statement. 
|
| | (c) |  | Changes in Control                                                                                                                                                                                                   
|
| |     |  | Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a
change in control of the registrant.

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| | (d) |  | Equity Compensation Plan Information                                                                                                                             
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The following table sets forth certain information with respect to securities to be issued under the Company's equity compensation plans as of December 31, 2002.

|                                                           |  |                      |         |                     |  |                           |       |  |  |                      |         | 
|---------------------------------------------------------- |  | -------------------- | ------- | ------------------- |  | ------------------------- | ----- |  |  | -------------------- | ------- | 
|                                                           |  | (a)                  |         | (b)                 |  | (c)                      
|                                                           |  |                      |         |                     |  |                           |       |  |  | Number of securities
|                                                           |  | Number of securities |         | Weighted-average    |  | remaining available for  
|                                                           |  | to be issued upon    |         | exercise price of   |  | future issuance under    
|                                                           |  | exercise of          |         | Outstanding         |  | equity compensation plans
|                                                           |  | outstanding options, |         | Options, warrants   |  | (excluding securities    
|Plan Category                                              |  | warrants and rights  |         | warrants and rights |  | reflected in column (a)) 
|                                                           |  |                      |         |                     |  |                          
|Equity compensation plans
approved by security holders     |  |                      | 178,347 |                     |  | $                         | 22.84 |  |  |                      | 247,993 | 
|Equity compensation plans not approved by security holders |  |                      | 54,000  |                     |  | $                         | 12.64 |  |  |                      | *       | 
|                                                           |  |                      |         |                     |  |                           |       |  |  |                      |         | 
|Total                                                      |  |                      | 232,347 |                     |  | $                         | 20.47 |  |  |                      | 247,993 | 
|                                                           |  |                      |         |                     |  |                           |       |  |  |                      |         | 



|* |  | Pursuant to his employment agreement, this executive receives 9,000 options
annually.
|- |  | -------------------------------------------------------------------------------------




ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference
to the section captioned Election of Directors in the Proxy Statement.




ITEM 14.    CONTROL AND PROCEDURES

A review and evaluation was performed by the Companys management,
including the Companys Chief Executive Officer (the CEO) and Chief Financial
Officer (the CFO), of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of a date within 90 days prior
to the filing of this annual report. Based on that review and evaluation, the
CEO and CFO have concluded that the Companys current disclosure controls and
procedures, as designed and implemented, were effective. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect the Companys internal controls subsequent to the
date of their evaluation. There were no significant material weaknesses
identified in the course of such review and evaluation and, therefore, no
corrective measures were taken by the Company.




PART IV




ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



| | (a)(1) |  | The following consolidated financial statements of the Company
included in the Companys 2002 Annual Report to the Shareholders
(the Annual Report) are incorporated herein by reference from Item
8 of this Report. The remaining information appearing in the Annual
Report is not deemed to be filed as part of this Report, except as
expressly provided herein.
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                 
|-- |  | ----------------------------------------------------------------------------------------------------------------
|1. |  | Report of Independent Auditors.                                                                                 
|  
|2. |  | Consolidated Balance Sheets 
December 31, 2002 and 2001.                                                       
|  
|3. |  | Consolidated Statements of Income for
the Years Ended December 31, 2002, 2001 and 2000.                         
|  
|4. |  | Consolidated Statements of Changes in
Shareholders Equity for the Years Ended December 31,
2002, 2001 and 2000.
|  
|5. |  | Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000.                     

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|   |  |                                            
|-- |  | -------------------------------------------
|6. |  | Notes to Consolidated Financial
Statements.



| | (a)(2) |  | All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
| | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (a)(3) |  | The following exhibits either are filed as part of this Report or
are incorporated herein by reference:                                                                                                                          

|               |  |                                     
|-------------- |  | ------------------------------------
|Exhibit No. 3. |  | Articles of Incorporation and Bylaws

|     |  |                                                                                                                                                                           
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  |  | Amended and Restated Charter,
effective June 18, 1998  incorporated herein by
reference to the Companys Annual Report on Form 10-K
for the year ended December 31, 1998.
|     |  |                                                                                                                                                                           
|(ii) |  | Amended and Restated Bylaws 
incorporated herein by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2000                           

|                |  |                      
|--------------- |  | ---------------------
|Exhibit No. 10. |  | Employment Agreements

|    |  |                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) |  | Employment agreement between the
Company and R. Stan Puckett  incorporated herein by
reference to the Companys Annual Report on Form 10-K
for the year ended December 31, 1995.

|                 |  |                                                                                                                                               
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. 11.  |  | Statement re Computation of Per Share Earnings                                                                                                
|                
|                 |  | Incorporated by reference to Note 13 of the Notes to Consolidated Financial Statements.                                                       
|                
|Exhibit No. 21.  |  | Subsidiaries of the Registrant                                                                                                                
|                
|                 |  | A list of subsidiaries of the Registrant is included as an exhibit to this Report.                                                            
|                
|Exhibit No. 23.  |  | Consent of Crowe, Chizek and Company LLP                                                                                                      
|                
|Exhibit No. 99.1 |  | Chief Executive Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|                
|Exhibit No. 99.2 |  | Chief Financial Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|                



| | (b) |  | Reports on Form 8-K. On October 1, 2002, the Company filed a
Report on Form 8-K to report that its common shares would begin
trading on the Nasdaq National Market at the opening of trading on
Tuesday, October 1, 2002. No financial statements were filed with
the report.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (c) |  | Exhibits. The exhibits required by Item 601 of Regulation
S-K are either filed as part of this Annual Report on Form 10-K or
incorporated herein by reference.                                                                                                               
|
| | (d) |  | Financial Statements and Financial Statement Schedules
Excluded From Annual Report. There are no financial statements and
financial statement schedules which were excluded from the Annual
Report pursuant to Rule 14a-3(b)(1) which are required to be
included herein.    

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SIGNATURES

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

| |                               
| | ------------------------------
| | GREENE COUNTY BANCSHARES,
INC.

|      |  |                |  |     |  |                                 
|----- |  | -------------- |  | --- |  | --------------------------------
|Date: |  | March 27, 2003 |  | By: |  | /s/ R. Stan Puckett             
|      |  |                |  |     |  |                                 
|      |  |                |  |     |  | R. Stan Puckett                 
|      |  |                |  |     |  | Chairman of the Board and       
|      |  |                |  |     |  | Chief Executive Officer         
|      |  |                |  |     |  | (Duly Authorized Representative)

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

|                                                                                                                                          |  |               
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|SIGNATURE AND TITLE:                                                                                                                      |  | DATE:         
|                                                                                                                                         
|/s/ R. Stan PuckettR. Stan Puckett
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)                        |  | March 27, 2003
|                                                                                                                                         
|/s/ Kenneth R. VaughtKenneth R. Vaught
President, Chief Operating Officer, and Director                                                   |  | March 27, 2003
|                                                                                                                                         
|/s/ William F. RichmondWilliam F. Richmond
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 27, 2003
|                                                                                                                                         
|/s/ Phil M. BachmanPhil M. Bachman
Director                                                                                               |  | March 27, 2003
|                                                                                                                                         
|/s/ Charles S. BrooksCharles S. Brooks
Director                                                                                           |  | March 27, 2003
|                                                                                                                                         
|/s/ Bruce CampbellBruce Campbell
Director                                                                                                 |  | March 27, 2003

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|                                                                |  |               
|--------------------------------------------------------------- |  | --------------
|/s/ W. T. DanielsW.T. Daniels
Director                          |  | March 27, 2003
|                                                               
|/s/ James A. EmoryJames A. Emory
Director                       |  | March 27, 2003
|                                                               
|/s/ Jerald K. JaynesJerald K. Jaynes
Director                   |  | March 27, 2003
|                                                               
|/s/ Terry LeonardTerry Leonard
Director                         |  | March 27, 2003
|                                                               
|/s/ Davis StroudDavis Stroud
Director and Secretary             |  | March 27, 2003
|                                                               
|/s/ Charles H. Whitfield, Jr.Charles H. Whitfield, Jr.
Director |  | March 27, 2003

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##### Table of Contents






CERTIFICATION PURSUANT TO,
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SEC RELEASE NO. 33-8124

I, R. Stan Puckett, Chairman of the Board and Chief Executive Officer of the
Company, certify that:



|(1) |  | I have reviewed this annual report on Form 10-K of Greene County
Bancshares, Inc.(the registrant);                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|   
|(3) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|   
|(4) |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|(5) |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|(6) |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                            
|-------------------- |  | ---------------------------
|Date: March 27, 2003 |  | /s/ R. Stan Puckett        
|                     |  | R. Stan Puckett            
|                     |  | Chairman of the Board      
|                     |  | and Chief Executive Officer

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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SEC RELEASE NO. 33-8124

I, William F. Richmond, Senior Vice President and Chief Financial Officer of
the Company, certify that:



(1)  I have reviewed this annual report on Form 10-K of Greene County
Bancshares, Inc.(the registrant);




(2)  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;




(3)  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;




(4)  The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:




| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



(5)  The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):




| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



(6)  The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.


|                     |  |                            
|-------------------- |  | ---------------------------
|Date: March 27, 2003 |  | /s/ William F. Richmond    
|                     |  | William F. Richmond        
|                     |  | Senior Vice President      
|                     |  | and Chief Financial Officer

65