##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 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.  Tennessee
    
    62-1222567(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)100 North Main Street, Greeneville, Tennessee
    
    37743-4992(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (423) 639-5111. 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 þ NO o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) YES þ NO o As of May 6, 2004, the number of shares outstanding of the issuers common
stock was: 7,669,095.




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PART 1  FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements of the Registrant and
its wholly owned subsidiaries are as follows:  Condensed Consolidated Balance Sheets  March 31, 2004 and December 31,
2003.Condensed Consolidated Statements of Income and Comprehensive
Income 
For the three months ended March 31, 2004 and 2003.Condensed Consolidated Statement of Stockholders Equity  For the three
months ended March 31, 2004.Condensed Consolidated Statements of Cash Flows  For the three months
ended March 31, 2004 and 2003.Notes to Condensed Consolidated Financial
Statements. 1




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GREENE COUNTY BANCSHARES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2004 and December 31, 2003
 (Dollar amounts in thousands, except share and per share data)
 (Unaudited)March 31,
    
    December 31,2004
    
    2003*ASSETSCash and due from banks
    
    $
    35,046
    
    
    $
    36,087Federal funds sold
    
    
    2,749
    
    
    
    5,254Securities available for sale
    
    
    29,200
    
    
    
    33,199Securities held to maturity (with a market value of $5,126 and $5,846)
    
    
    4,883
    
    
    
    5,632FHLB, Bankers Bank and other stock, at cost
    
    
    6,044
    
    
    
    5,992Loans held for sale
    
    
    3,620
    
    
    
    3,546Loans
    
    
    984,638
    
    
    
    952,225Less: Allowance for loan losses
    
    
    (14,920
    )
    
    
    (14,564
    )Net loans
    
    
    969,718
    
    
    
    937,661Premises and equipment, net
    
    
    34,372
    
    
    
    33,886Goodwill and other intangible assets
    
    
    20,816
    
    
    
    20,970Other assets
    
    
    24,421
    
    
    
    26,295Total assets
    
    $
    1,130,869
    
    
    $
    1,108,522LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDeposits
    
    $
    932,347
    
    
    $
    907,115Repurchase agreements
    
    
    16,597
    
    
    
    12,896Notes payable
    
    
    53,746
    
    
    
    63,030Subordinated debentures
    
    
    10,310
    
    
    
    10,310Accrued interest payable and other liabilities
    
    
    13,945
    
    
    
    13,236Total liabilities
    
    
    1,026,945
    
    
    
    1,006,587Shareholders equityCommon stock: $2 par, 15,000,000 shares authorized,
7,662,640 and 7,659,929 shares outstanding
    
    
    15,325
    
    
    
    15,320Additional paid-in capital
    
    
    24,512
    
    
    
    24,482Retained earnings
    
    
    63,880
    
    
    
    61,947Accumulated other comprehensive income
    
    
    207
    
    
    
    186Total shareholders equity
    
    
    103,924
    
    
    
    101,935Total liabilities and shareholders equity
    
    $
    1,130,869
    
    
    $
    1,108,522
 * Condensed from audited financial statements. See accompanying notes. 2




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GREENE COUNTY BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended March 31, 2004 and 2003
 (Dollar amounts in thousands, except share and per share data)
 Three Months EndedMarch 31,2004
    
    2003(Unaudited)Interest incomeInterest and fees on loans
    
    $
    15,525
    
    
    $
    13,618Investment securities
    
    
    386
    
    
    
    326Federal funds sold and interest-earning deposits
    
    
    19
    
    
    
    5615,930
    
    
    
    14,000Interest expenseDeposits
    
    
    3,186
    
    
    
    3,478Borrowings
    
    
    864
    
    
    
    7174,050
    
    
    
    4,195Net interest income
    
    
    11,880
    
    
    
    9,805Provision for loan losses
    
    
    1,523
    
    
    
    1,126Net interest income after provision
for loan losses
    
    
    10,357
    
    
    
    8,679Noninterest incomeService charges and fees
    
    
    2,395
    
    
    
    2,095Other
    
    
    699
    
    
    
    6293,094
    
    
    
    2,724Noninterest expenseSalaries and employee benefits
    
    
    4,707
    
    
    
    4,205Occupancy and furniture and equipment expense
    
    
    1,489
    
    
    
    1,049Other
    
    
    2,755
    
    
    
    1,9788,951
    
    
    
    7,232Income before income taxes
    
    
    4,500
    
    
    
    4,171Provision for income taxes
    
    
    1,648
    
    
    
    1,553Net income
    
    $
    2,852
    
    
    $
    2,618Comprehensive Income
    
    $
    2,873
    
    
    $
    2,697Per share of common stock:Basic earnings
    
    $
    0.37
    
    
    $
    0.38Diluted earnings
    
    
    0.37
    
    
    
    0.38Dividends
    
    
    0.12
    
    
    
    0.12Weighted average shares outstanding:Basic
    
    
    7,660,578
    
    
    
    6,820,540Diluted
    
    
    7,731,176
    
    
    
    6,880,168
 See accompanying notes. 3




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GREENE COUNTY BANCSHARES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY For Three Months Ended March 31, 2004
 (Dollar amounts in thousands, except share and per share data)
 AccumulatedOther TotalAdditional
    
    
    
    
    
    Compre-
    
    Share-Common
    
    Paid-in
    
    Retained
    
    hensive
    
    HoldersStock
    
    Capital
    
    Earnings
    
    Income
    
    Equity(Unaudited)Balance, January 1, 2004
    
    $
    15,320
    
    
    $
    24,482
    
    
    $
    61,947
    
    
    $
    186
    
    
    $
    101,935Issuance of 2,711 shares under stock
option plan
    
    
    5
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    35Dividends paid ($.12 per share)
    
    
    
    
    
    
    
    
    
    
    (919
    )
    
    
    
    
    
    
    (919
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,852
    
    
    
    
    
    
    
    2,852Change in unrealized gains
(losses), net of reclassification
and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,873Balance, March 31, 2004
    
    $
    15,325
    
    
    $
    24,512
    
    
    $
    63,880
    
    
    $
    207
    
    
    $
    103,924
 See accompanying notes. 4




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GREENE COUNTY BANCSHARES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2004 and 2003
 (Dollar amounts in thousands, except share and per share data)
 March 31,
    
    March 31,2004
    
    2003(Unaudited)Cash flows from operating activitiesNet income
    
    $
    2,852
    
    
    $
    2,618Adjustments to reconcile net income to net cash from
Operating activitiesProvision for loan losses
    
    
    1,523
    
    
    
    1,126Depreciation and amortization
    
    
    711
    
    
    
    465Security amortization and accretion, net
    
    
    16
    
    
    
    46FHLB stock dividends
    
    
    (52
    )
    
    
    (45
    )Net gain on sale of mortgage loans
    
    
    (88
    )
    
    
    (256
    )Originations of mortgage loans held for sale
    
    
    (11,752
    )
    
    
    (18,584
    )Proceeds from sales of mortgage loans
    
    
    11,766
    
    
    
    20,374Net (gain) losses from sales of fixed assets
    
    
    29
    
    
    
    Net (gain) loss on OREO and repossessed assets
    
    
    79
    
    
    
    38Net changes:Accrued interest receivable and other assets
    
    
    1,448
    
    
    
    988Accrued interest payable and other liabilities
    
    
    709
    
    
    
    (1,229
    )Net cash from operating activities
    
    
    7,241
    
    
    
    5,541Cash flows from investing activitiesNet change in securities and other interest-earning investments
    
    
    4,766
    
    
    
    802Increase in cash surrender value of life insurance
    
    
    (123
    )
    
    
    (103
    )Net increase in loans
    
    
    (34,304
    )
    
    
    (18,947
    )Improvements to other real estate and proceeds from sales of
other real estate owned, net
    
    
    1,208
    
    
    
    1,834Proceeds from sale of fixed assets and fixed asset additions, net
    
    
    (1,099
    )
    
    
    (714
    )Net cash used in investing activities
    
    
    (29,552
    )
    
    
    (17,128
    )Cash flows from financing activitiesNet change in deposits
    
    
    25,232
    
    
    
    31,911Net change in repurchase agreements
    
    
    3,701
    
    
    
    4,005Net change in notes payable
    
    
    (9,284
    )
    
    
    (30,071
    )Dividends paid
    
    
    (919
    )
    
    
    (818
    )Proceeds from issuance of common stock
    
    
    35
    
    
    
    Net cash from financing activities
    
    
    18,765
    
    
    
    5,027Net change in cash and cash equivalents
    
    
    (3,546
    )
    
    
    (6,560
    )Cash and cash equivalents, beginning of year
    
    
    41,341
    
    
    
    62,959Cash and cash equivalents, end of period
    
    $
    37,795
    
    
    $
    56,399Supplemental disclosures  cash and noncashInterest paid
    
    $
    3,886
    
    
    $
    3,918Income taxes paid
    
    
    237
    
    
    
    176Loans converted to other real estate
    
    
    817
    
    
    
    1,463
 See accompanying notes. 5




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GREENE COUNTY BANCSHARES, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2004
 Unaudited
 (Dollar amounts in thousands, except share and per share data
 NOTE 1  PRINCIPLES OF CONSOLIDATION The accompanying unaudited condensed consolidated financial statements of
Greene County Bancshares, Inc. (the Company) and its wholly owned subsidiary,
Greene County Bank (the Bank), have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X as promulgated by the Securities and Exchange
Commission (SEC). Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2003. Certain amounts from prior period financial
statements have been reclassified to conform to the current years
presentation. NOTE 2  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 shareholders of the Company approved, at their annual meeting on April 22,
2004, the Greene County Bancshares, Inc. 2004 Long-Term Incentive Plan (the
Plan), for the purpose of attracting, retaining and motivating employees,
officers and directors for the Company and to provide incentives and awards for
superior performance. The Plan reserved 500,000 shares of common stock for
issuance. The following disclosures show the effect on income and earnings per share had
the options fair value been recorded using an option pricing model. Three Months Ended March 31,2004
    
    2003As
    
    
    
    
    
    AsReported
    
    Proforma
    
    Reported
    
    ProformaNet income
    
    $
    2,852
    
    
    $
    2,814
    
    
    $
    2,618
    
    
    $
    2,589Basic earnings per share
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.38
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.38
    
    
    $
    0.38
 6




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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
Unaudited
(Dollar amounts in thousands, except share and per share data) NOTE 3  ALLOWANCE FOR LOAN LOSSES Transactions in the allowance for loan losses for the three months ended March
31, 2004 and twelve months ended December 31, 2003 were as follows: March 31,
    
    December 31,2004
    
    2003Balance at beginning of year
    
    $
    14,564
    
    
    $
    12,586Add (deduct):Reserve acquired in acquisition
    
    
    
    
    
    
    1,340Provision
    
    
    1,523
    
    
    
    5,775Loans charged off
    
    
    (1,580
    )
    
    
    (6,797
    )Recoveries of loans charged off
    
    
    413
    
    
    
    1,660Ending balance
    
    $
    14,920
    
    
    $
    14,564
 March 31,
    
    December 31,2004
    
    2003Loans past due 90 days still on accrual
    
    $
    650
    
    
    $
    224Nonaccrual loans
    
    
    4,513
    
    
    
    4,305Total
    
    $
    5,163
    
    
    $
    4,529
 7




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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
Unaudited
(Dollar amounts in thousands, except share and per share data) NOTE 4  EARNINGS PER SHARE OF COMMON STOCK Basic earnings per share (EPS) of common stock is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share of common stock is computed by dividing net
income by the weighted average number of common shares and potential common
shares outstanding during the period. Stock options are regarded as potential
common shares. Potential common shares are computed using the treasury stock
method. For the three months ended March 31, 2004, 76,355 options are excluded
from the effect of dilutive securities because they are anti-dilutive; 94,325
options are similarly excluded from the effect of dilutive securities for the
three months ended March 31, 2003. The following is a reconciliation of the numerators and denominators used in
the basic and diluted earnings per share computations for the three months
ended March 31, 2004 and 2003: Three Months Ended March 31,2004
    
    2003Income
    
    Shares
    
    Income
    
    Shares(Numerator)
    
    (Denominator)
    
    (Numerator)
    
    (Denominator)Basic EPSIncome available to common shareholders
    
    $
    2,852
    
    
    
    7,660,578
    
    
    $
    2,618
    
    
    
    6,820,540Effect of dilutive securitiesStock options outstanding
    
    
    
    
    
    
    70,598
    
    
    
    
    
    
    
    59,628Diluted EPSIncome available to common shareholders plus
assumed conversions
    
    $
    2,852
    
    
    
    7,731,176
    
    
    $
    2,618
    
    
    
    6,880,168
 8




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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
Unaudited
(Dollar amounts in thousands, except share and per share data) NOTE 5  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. 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. Mortgage banking operations are
included in Bank. All operations are domestic. 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. Three months ended March 31, 2004
    
    Bank
    
    Other
    
    TotalNet interest income
    
    $
    10,394
    
    
    $
    1,486
    
    
    $
    11,880Provision for loan losses
    
    
    1,053
    
    
    
    470
    
    
    
    1,523Noninterest income
    
    
    2,712
    
    
    
    382
    
    
    
    3,094Noninterest expense
    
    
    7,777
    
    
    
    1,174
    
    
    
    8,951Income tax expense
    
    
    1,602
    
    
    
    46
    
    
    
    1,648Segment profit
    
    $
    2,674
    
    
    $
    178
    
    
    $
    2,852Segment assets at March 31, 2004
    
    $
    1,096,453
    
    
    $
    34,416
    
    
    $
    1,130,869
 Three months ended March 31, 2003
    
    Bank
    
    Other
    
    TotalNet interest income
    
    $
    8,186
    
    
    $
    1,619
    
    
    $
    9,805Provision for loan losses
    
    
    585
    
    
    
    541
    
    
    
    1,126Noninterest income
    
    
    2,325
    
    
    
    399
    
    
    
    2,724Noninterest expense
    
    
    6,043
    
    
    
    1,189
    
    
    
    7,232Income tax expense
    
    
    1,462
    
    
    
    91
    
    
    
    1,553Segment profit
    
    $
    2,421
    
    
    $
    197
    
    
    $
    2,618Segment assets at March 31, 2003
    
    $
    870,354
    
    
    $
    35,537
    
    
    $
    905,891
 9




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GREENE COUNTY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
Unaudited
(Dollar amounts in thousands, except share and per share data) NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Goodwill was no longer amortized starting in 2002; however, it is periodically
evaluated for impairment and no impairment was recognized during the first
quarter of 2004. The change in the carrying amount of goodwill for the three months ended March
31, 2004 is as follows: Beginning of year
    
    $
    15,885Goodwill from acquisition during the quarter
    
    
    End of quarter
    
    $
    15,885
 Core deposit and other intangibles 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 a straight-line method over their estimated useful lives,
which is 10 years. Core deposit intangibles had a gross carrying amount of $6,367 for the period
ended March 31, 2004 and the year ended December 31, 2003 and accumulated
amortization of $1,436 and $1,282 for the same periods, respectively.
Aggregate amortization expense for the three months ended March 31, 2004 was
$154. Annual estimated amortization expense for the next five years is: 2004
    
    $
    6162005
    
    
    6162006
    
    
    5062007
    
    
    5062008
    
    
    506Total
    
    $
    2,750
 10




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ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q, including all documents incorporated herein
by reference, contains forward-looking statements. Additional written or oral
forward-looking statements may be made by the Company from time to time in
filings with the Securities and Exchange Commission (SEC) or otherwise. The
words believe, expect, seek, and intend and similar expressions
identify forward-looking statements, which speak only as of the date the
statement is made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of income or loss, expenditures,
acquisitions, plans for future operations, financing needs or plans relating to
services of the Company, as well as assumptions relating to the foregoing. The
Companys actual results may differ materially from the results anticipated in
forward-looking statements due to a variety of factors, including, but not
limited to (1) unanticipated deterioration in the financial condition of
borrowers resulting in significant increases in loan losses and provisions for
those losses; (2) lack of sustained growth in the economy in the markets that
the Bank serves; (3) increased competition with other financial institutions in
the markets that the Bank serves; (4) changes in the legislative and regulatory
environment; and (5) the loss of key personnel. Presentation of Amounts All dollar amounts set forth below, other than per-share amounts and
percentages, are in thousands unless otherwise noted. General Greene County Bancshares, Inc. (the Company) is the bank holding company
for Greene County Bank (the Bank), a Tennessee-chartered commercial bank that
conducts the principal business of the Company. In addition to its commercial
banking operations, the Bank conducts separate businesses through its three
wholly-owned subsidiaries: Superior Financial Services, Inc. (Superior
Financial), a consumer finance company; GCB Acceptance Corporation (GCB
Acceptance), a subprime automobile lending company; and Fairway Title Co., a
title company formed in 1998. 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. On November 21, 2003, the Company entered the Middle Tennessee market by
completing its acquisition of Gallatin, Tennessee-based Independent Bankshares
Corporation (IBC). IBC was the bank holding company for First Independent
Bank, which had four offices in Gallatin and Hendersonville, Tennessee, and
Rutherford Bank and Trust, with three offices in Murfreesboro and Smyrna,
Tennessee. First Independent Bank and Rutherford Bank and Trust were
subsequently merged with the Bank, with the Bank as the surviving entity. The
Company completed the IBC system conversion process during the latter part of
the quarter ended March 31, 2004. Growth and Business Strategy The Company expects that, over the intermediate term, its growth, from
mergers and acquisitions, including acquisitions of both entire financial
institutions and selected branches of financial institutions, will continue. 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 Greene County, Tennessee. 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. 11




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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. 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 liquid assets include investment securities, federal
funds sold and other interest-earning deposits, and cash and due from banks.
Including securities pledged to collateralize municipal deposits, these assets
represented 8.05% of the total liquidity base at March 31, 2004, as compared to
9.03% at December 31, 2003. The liquidity base is generally defined to include
deposits, repurchase agreements, notes payable and subordinated debentures. In
addition, the Company maintains borrowing availability with the Federal Home
Loan Bank of Cincinnati (FHLB) approximating $79,165 at March 31, 2004. The
Company also maintains federal funds lines of credit totaling $80,900 at seven
correspondent banks of which $80,900 was available at March 31, 2004. The
Company believes it has sufficient liquidity to satisfy its current operating
needs. For the three months ended March 31, 2004, operating activities of the
Company provided $7,241 of cash flows. Net income of $2,852 adjusted for
non-cash operating activities, including $1,523 in provision for loan losses,
depreciation and amortization, including premium amortization on securities,
net of accretion of $727 and the net changes in accrued interest receivable and
other assets and in accrued interest payable and other liabilities in the
amounts of $1,448 and $709, respectively, comprised the majority of the cash
generated from operations. The cash flows provided by the proceeds from sales
of mortgage loans were essentially equal to the cash flows used by the
originations of mortgage loans held for sale. The Companys net increase in held-to-maturity loans originated, net of
principal collected, used $34,304 in cash flows and was the primary component
of the $29,552 in net cash used in investing activities. Offsetting, in part,
this use of cash flows were the net changes in securities and other
interest-earning investments and in improvements to other real estate and
proceeds from sales of other real estate owned, net, in the amounts of $4,766
and $1,208, respectively. The net increase in deposits and repurchase agreements provided $25,232
and $3,701 in cash flows, respectively. Offsetting, in part, these increases
in cash flows were the $9,284 decrease in notes payable, net and quarterly
dividends paid in the amount of $919. The $9,284 decrease in notes payable,
net, reflects the Companys payoff of a short-term FHLB advance in early 2004. 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 continues to exhibit a strong capital
position while consistently paying dividends to its shareholders. Further, 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 March 31, 2004 was $103,924, an increase of
$1,989, or 1.95%, from $101,935 on December 31, 2003. The increase in
shareholders equity primarily reflected net income for the three months ended
March 31, 2004 of $2,852 ($.37 per share, assuming dilution). This increase was
offset by quarterly dividend payments during the three months ended March 31,
2004 totaling $919 ($0.12 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
shares of common stock beginning in October 2002 and the repurchase plan was
renewed by the Board of Directors in September 2003. The repurchase plan is
dependent upon 12




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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 2004 or until the total authorized amount is repurchased. As
of March 31, 2004, the Company had not repurchased any shares. 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 its compliance
with minimum federal regulatory capital requirements and to retain its
characterization under federal regulations as a well-capitalized institution. Risk-based capital regulations adopted by the Board of Governors of the
Federal Reserve Board (the FRB) and the Federal Deposit Insurance Corporation
require bank holding companies and banks, respectively, to achieve and maintain
specified ratios of capital to risk-weighted assets. The risk-based capital
rules are designed to measure Tier 1 Capital 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 (consisting of shareholders equity, less
goodwill). At March 31, 2004, 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. 
 CAPITAL RATIOS AT MARCH 31, 2004 RequiredMinimumRatio
    
    Bank
    
    CompanyTier 1 risk-based capital
    
    
    4.00
    %
    
    
    9.68
    %
    
    
    9.66
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.93
    %
    
    
    10.91
    %Leverage Ratio
    
    
    4.00
    %
    
    
    8.53
    %
    
    
    8.50
    %
 On September 25, 2003, the Company issued $10,310 of subordinated
debentures, as part of a privately placed pool of trust preferred securities.
The securities, due in 2033, bear interest at a floating rate of 2.85% above
the three-month LIBOR rate, reset quarterly, and are callable in five years
without penalty. The Company used the proceeds of the offering to support its
acquisition of IBC. Further, the capital raised from the offering currently
qualifies as Tier I capital for regulatory purposes and, while the Company
fully expects this offering to qualify as Tier 1 regulatory capital, up to a
maximum of 25% of such capital, and has been notified by its primary regulator
that the substance and result of the transaction should so qualify, no
regulator of the Company or the Bank has concluded an examination of the
Company or the Bank since the trust preferred securities offering was
completed. Further, no regulator of the Company or the Bank has rendered an
opinion as to the completeness and technical content of the underlying
documents of the offering. Further, the impact of Financial Accounting Standards Board (FASB)
Interpretation No. 46 (FIN 46) and its revisions
(FIN 46R) as
they relate to the accounting for trust
preferred securities is under review by the FRB and is considered in
the FRBs proposed rules discussed below. FIN 46 and FIN 46R concluded that the
trust issuing the securities cannot be consolidated with the Company for
financial reporting purposes. It is believed that it is this consolidation of the trust into the
Companys financial statements that gives rise to the trust preferred
securities being classified as minority interests and, therefore, eligible for
Tier 1 regulatory capital treatment. Prior to the release of the
proposed rules, no decision has been made by
the FRB with respect to the applicability of FIN 46 to the capital treatment of
trust preferred securities, and the current guidance remains in effect.
However, if the FRB were to disallow the eligibility of trust preferred
securities for Tier 1 regulatory capital treatment, there would be a reduction
in the Companys consolidated capital ratios and the Company may not remain
well capitalized, with respect to total risk-based 13




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##### 



capital, under FRB guidelines. However, the Bank would remain well
capitalized, with respect to all capital ratios, as a result of the push down
accounting transaction associated with the IBC acquisition. On May 6, 2004, the FRB issued proposed rules regarding the continued inclusion
of trust preferred securities in the tier 1 capital of bank holding companies,
subject to stricter quantitative limits and qualitative standards. As
mentioned above, the proposed rules also considered the impact of FIN 46 and
FIN 46R, and the related accounting treatment for trust preferred securities, on
the inclusion of trust preferred securities as tier 1 capital. The Company is
currently reviewing the proposed rules and their effect on the Companys trust
preferred securities and related capital treatment. Off-Balance Sheet Arrangements At March 31, 2004, the Company had outstanding unused lines of credit and
standby letters of credit totaling $184,055 and unfunded loan commitments
outstanding of $8,492. Because these commitments generally have fixed
expiration dates and many will expire without being drawn upon, the total
commitment level does not necessarily represent future cash requirements. If
needed to fund these outstanding commitments, the Company has the ability to
liquidate Federal funds sold or securities available-for-sale or, on a
short-term basis, to borrow from the FHLB and/or purchase Federal funds from
other financial institutions. At March 31, 2004, the Company had
accommodations with upstream correspondent banks for unsecured Federal funds
lines. These accommodations have various covenants related to their term and
availability, and in most cases must be repaid within less than a month. The
following table presents additional information about the Companys commitments
as of March 31, 2004, which by their terms have contractual maturity dates
subsequent to March 31, 2004: Less than 1 Year
    
    1-3 Years
    
    3-5 Years
    
    More than 5 Years
    
    TotalCommitments to make loans  fixed
    
    $
    3,518
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,518Commitments to make loans  variable
    
    
    4,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,974Unused lines of credit
    
    
    114,884
    
    
    
    13,104
    
    
    
    1,867
    
    
    
    34,720
    
    
    
    164,575Letters of credit
    
    
    5,943
    
    
    
    10,737
    
    
    
    2,800
    
    
    
    
    
    
    
    19,480Total
    
    $
    129,319
    
    
    $
    23,841
    
    
    $
    4,667
    
    
    $
    34,720
    
    
    $
    192,547
 Disclosure of Contractual Obligations In the ordinary course of operations, the Company enters into certain
contractual obligations. Such obligations include the funding of operations
through debt issuances as well as leases for premises and equipment. The
following table summarizes the Companys significant fixed and determinable
contractual obligations as of March 31, 2004: Less than 1 Year
    
    1-3 Years
    
    3-5 Years
    
    More than 5 Years
    
    TotalDeposits without a stated maturity
    
    $
    452,388
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    452,388Certificate of deposits
    
    
    405,360
    
    
    
    68,709
    
    
    
    5,651
    
    
    
    239
    
    
    
    479,959Repurchase agreements
    
    
    16,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,597FHLB advances and notes payable
    
    
    133
    
    
    
    2,093
    
    
    
    5,288
    
    
    
    46,232
    
    
    
    53,746Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,310
    
    
    
    10,310Operating lease obligations
    
    
    512
    
    
    
    711
    
    
    
    394
    
    
    
    258
    
    
    
    1,875Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050
    
    
    
    1,050Purchase obligations
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Total
    
    $
    875,310
    
    
    $
    71,513
    
    
    $
    11,333
    
    
    $
    58,089
    
    
    $
    1,016,245
 Additionally, the Company routinely enters into contracts for services.
These contracts may require payment for services to be provided in the future
and may also contain penalty clauses for early termination of the contract.
Management is not aware of any additional commitments or contingent liabilities
which may have a material adverse impact on the liquidity or capital resources
of the Company. Changes in Results of Operations Net income.Net income for the three months ended March 31, 2004 was
$2,852, as compared to $2,618 for the same period in 2003. This increase of
$234, or 8.94%, resulted primarily from a $2,075, or 21.16%, increase in net
interest income resulting principally from increased volume of interest-earning
assets. In addition, the Companys non-interest income increased $370, or
13.58%, from $2,724 for the three months ended March 31, 2003 to $3,094 for the
same period of 2004, primarily reflecting additional fees from deposit-related
products. Offsetting these increases, in part, was a $397, or 35.26%, increase
in the provision for loan losses from $1,126 for the three 14




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##### 



months ended March 31, 2003 to $1,523 for the same period of 2004, reflecting
primarily higher loan balances and net chargeoffs in the Bank in the quarter
ended March 31, 2004 compared to the same period in 2003. In addition, total
non-interest expense increased $1,719, or 23.77%, from $7,232 for the three
months ended March 31, 2003 to $8,951 for the same period of 2004, reflecting
increases in all categories primarily as a result of the IBC acquisition. Net Interest Income.The largest source of earnings for the Company is
net interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other
interest-bearing liabilities. The primary factors which affect net interest
income are changes in volume and yields of interest-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 the three months ended March 31, 2004, net interest income was $11,880,
as compared to $9,805 for the same period in 2003, representing an increase of
21.16%. While the Companys average balances of interest-earning assets
increased more than the average balances of interest-bearing liabilities in the
three months ended March 31, 2004, as compared to the same quarter in 2003,
thus enhancing net interest income, such increase was offset, in part, by the
reduction in yield on these interest-earning assets which exceeded the decrease
in cost on interest-bearing liabilities. Nevertheless, the Company experienced
a substantial increase in net interest income, as noted above, in the three
months ended March 31, 2004 as compared to the same quarter in 2003. While the
Companys net interest margin decreased in the three months ended March 31,
2004 as compared to the same period in 2003 (from 4.87% to 4.68%), the
Companys net interest margin for the three months ended March 31, 2004
increased slightly from the quarter ended December 31, 2003 (from 4.65% to
4.68%), as the Company managed liability costs down sufficiently to more than
compensate for the decline in yields on interest-earning assets. The Company
believes its net interest margin will resume compression if interest rates
continue to decline; however, if interest rates begin to rise, based on the
Companys asset-sensitive interest rate risk position and its current mix of
interest-earning assets and interest-bearing liabilities, the Company believes
its net interest margin will continue to increase. Management believes that the
Companys net interest margin may even resume its decline slightly even if
interest rates remain stable, as certain adjustable-rate loans continue to
reprice downward in conjunction with the Companys inability to further lower
deposit rates; however, assuming (a) stable short-term interest rates, (b) no
significant change in the yield curve, (c) moderate annualized loan growth at a
rate of roughly seven to eight percent, and (d) continued growth in low cost
and total deposits, the Company foresees stability in its net interest margin. Provision for Loan Losses.During the three months ended March 31, 2004,
loan charge-offs were $1,580 and recoveries of charged-off loans were $413. The
Companys provision for loan losses increased by $397, or 35.26%, to $1,523 for
the three months ended March 31, 2004 as compared to $1,126 for the same period
in 2003. The Companys allowance for loan losses increased by $356 to $14,920
at March 31, 2004 from $14,564 at December 31, 2003, with the ratio of the
allowance for loan losses to total loans remaining essentially constant from
period to period. As of March 31, 2004, indicators of credit quality, as
discussed below are, mixed compared to December 31, 2003. The ratio of
allowance for loan losses to nonperforming assets was 169.03% and 166.35% at
March 31, 2004 and December 31, 2003, respectively, and the ratio of
nonperforming assets to total assets was .78% and .79% at March 31, 2004 and
December 31, 2003, respectively. The ratio of nonperforming loans to total
loans, excluding loans held for sale, was .52% and .47% at March 31, 2004 and
December 31, 2003, respectively. The slight increase in the ratio of
nonperforming loans to total loans was primarily due to one commercial real
estate loan in the amount of approximately $460 that was 90 days past due but
still accruing at quarter-end. The loan has since been paid in full. The Companys annualized net charge-offs for the three months ended March
31, 2004 were $4,668 compared to actual net charge-offs of $5,137 for the year
ended December 31, 2003. Annualized net charge-offs as a percentage of average
loans improved from .59% for the three months ended March 31, 2003 to .48% for
the three months ended March 31, 2004. Net charge-offs as a percentage of
average loans were .64% for the year ended December 31, 2003. Annualized net
charge-offs in Superior Financial for the three months ended March 31, 2004
were $745 compared to actual net charge-offs of $1,070 for the year ended
December 31, 2003. Annualized net charge-offs in the Bank for the three months
ended March 31, 2004 were $2,617 compared to actual net charge-offs of $2,652
for the year ended December 31, 2003. Annualized net charge-offs in GCB
Acceptance for the three months ended March 31, 2004 were $1,302 compared to
actual net charge-offs of $1,415 for the year ended December 31, 2003. At this
point, management believes that total charge-offs for 2004 in Superior
Financial and GBC Acceptance will slightly improve compared to 2003 charge-offs
based on an improving economy and asset quality trends. Based on the Companys allowance for loan loss calculation, and more
specifically, the collateral values underlying nonperforming assets, management
believes the allowance for loan losses is adequate at March 31, 2004. 15




---



##### 



Management anticipates that the provision for loan losses during the
second quarter of 2004 will be consistent with the first quarter of 2004 and
also anticipates that the provision for loan losses for the entire year of 2004
may be less than the provision for 2003 if indicators of credit quality
continue to stabilize. However, the provision for loan losses could increase
for the entire year of 2004, as compared to 2003, if the Companys loan growth
continues at the rate experienced in the quarter ended March 31, 2004. Non-Interest Income.Income that is not related to interest-earning
assets, consisting primarily of service charges, commissions and fees, has
become an important supplement to the traditional method of earning income
through interest rate spreads. Total non-interest income for the three months ended March 31, 2004 was $3,094,
as compared to $2,724 for the same period in 2003. Service charges, commissions
and fees remain the largest component of total non-interest income and
increased from $2,095 for the three months ended March 31, 2003 to $2,395 for
the same period in 2004. This increase primarily reflects additional fees from
deposit-related products. Non-Interest Expense.Control of non-interest expense also is an
important aspect in enhancing income. Non-interest expense includes personnel,
occupancy, and other expenses such as data processing, printing and supplies,
legal and professional fees, postage, Federal Deposit Insurance Corporation
assessment, etc. Total non-interest expense was $8,951 for the three months
ended March 31, 2004 compared to $7,232 for the same period in 2003. The
$1,719, or 23.77%, increase in total non-interest expense for the three months
ended March 31, 2004 compared to the same period of 2003 reflects increases in
all categories primarily as a result of the IBC acquisition. Personnel costs are the primary element of the Companys non-interest
expenses. For the three months ended March 31, 2004, salaries and benefits
represented $4,707, or 52.58%, of total non-interest expense. This was an
increase of $502, or 11.94%, from the $4,205 for the three months ended March
31, 2003. The Company had 50 branches at March 31, 2004 and December 31, 2003,
as compared to 43 at March 31, 2003, and the number of full-time equivalent
employees in creased 16.1% from 385 at March 31, 2003 to 447 at March 31, 2004. Primarily as a result of this overall increase in non-interest expense,
the Companys efficiency ratio was negatively affected, as the ratio increased
from 57.72% at March 31, 2003 to 59.78% at March 31, 2004. Compression of net
interest margin also contributed to the decline in efficiency. The efficiency
ratio illustrates how much it cost the Company to generate revenue; for
example, it cost the Company 59.78 cents to generate one dollar of revenue for
the three months ended March 31, 2004. Changes in Financial Condition Total assets at March 31, 2004 were $1,130,869, an increase of $22,347, or
2.02%, from total assets of $1,108,522 at December 31, 2003. The increase in
assets was primarily reflective of the $32,057, or 3.42%, increase, as
reflected on the Condensed Consolidated Balance Sheets, in net loans, excluding
loans held for sale, and was funded primarily by the $25,232, or 2.8%, increase
in deposits and the $3,999 decrease in securities available for sale, as the
Company continued deposit promotional programs, as well as shifting some of its
liquidity into higher-yielding loans, during the quarter ended March 31, 2004.
The $3,701 increase in repurchase agreements also provided a funding source for
the loan growth, but was more than offset by the $9,284 decrease in notes
payable, as the Company elected to pay off a short-term FHLB advance in order
to enhance its net interest margin. At March 31, 2004, loans, net of unearned income and allowance for loan
losses, were $969,718 compared to $937,661 at December 31, 2003, an increase of
$32,057, or 3.4%, from December 31, 2003. The increase in loans during the
first three months of 2003 primarily reflects an increase in commercial real
estate loans and residential real estate loans. Non-performing loans include
non-accrual loans and loans 90 or more days past due. 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.
Non-accrual loans that are 120 days past due without assurance of repayment are
charged off against the allowance for loan losses. The Company has aggressive
collection practices in which senior management is heavily involved. Nonaccrual
loans and loans past due 90 days and still accruing increased by $634, or
14.00%, during the three months ended March 31, 2004 to $5,163. The increase is
mainly attributable to the one commercial real estate relationship, discussed
in the earlier section entitled Provision for Loan Losses, which was paid off
subsequent to March 31, 2004. At March 31, 2004, the ratio of the Companys
allowance for loan losses to non-performing assets (which include non-accrual
loans) was 169.03%. 16




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##### 



The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at March 31, 2004 with an amortized cost of $33,748 had a
market value of $34,326. At year-end 2003, investments with an amortized cost
of $38,531 had a market value of $39,045. This decrease consists primarily of
the excess of called short-term agency securities over the reinvested proceeds. Effect of New Accounting Standards In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. This interpretation addresses the
consolidation by business enterprises of variable interest entities as defined
in the interpretation. In December 2003, the FASB issued a revision to FIN 46
(FIN 46R) to clarify some of the provisions of FIN 46 and to exempt certain
entities from its requirements. Public entities, other than small business
issuers, must apply FIN 46R no later than the end of the first reporting period
ending after March 15, 2004. The Company adopted both FIN 46 and FIN 46R in
the prior year, which resulted in the deconsolidation of the Companys trust
preferred subsidiary, resulting in a subordinated debentures long term
liability of $10,310,000 and an increase in other assets of $310,000 for the
Companys investment in the entity. The trust preferred securities presently qualify as Tier 1 regulatory
capital and are reported in FRB regulatory reports as a minority interest in a
consolidated subsidiary. The junior subordinated debentures do not qualify as
Tier 1 regulatory capital. On July 2, 2003, the FRB issued a letter, SR 03-13,
stating that notwithstanding FIN 46, trust preferred securities will continue
to be included in Tier 1 capital until notice is given to the contrary. There
can be no assurance that the FRB will continue to allow institutions to include
trust preferred securities in Tier I capital for regulatory capital purposes.
In the event of a disallowance, there would be a reduction in the Companys
consolidated capital ratios and the Company may not remain well capitalized,
with respect to total risk-based capital, under FRB guidelines. However, the
Bank would remain well capitalized, with respect to all capital ratios, as a
result of the push down accounting transaction associated with the IBC
acquisition. As
discussed above, on May 6, 2004, the FRB issued proposed rules
regarding the treatment of trust preferred securities as regulatory
capital. The Company is currently reviewing the proposed rules and
their effect on the Companys trust preferred securities and
related capital treatment. In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN 45). FIN 45 requires a liability to
be recognized at the time a company issues a guarantee for the fair value of
the obligations assumed under certain guarantee agreements. Additional
disclosures about guarantee agreements were also required in the interim and
annual financial statements. The Company adopted FIN 45 in relation to fees
charged on atand-by letters of credit. The adoption of FIN 45 did not have a
material impact on the Companys consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities(Statement 149). Statement
149 improves financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, Statement 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative, clarifies when a derivative contains
a financing component, amends the definition of an underlying to conform it
to language used in FIN 45 and amends certain other existing pronouncements.
Statement 149 is effective for contracts entered into or modified after June
30, 2003, and for hedging relationships designated after June 30, 2003. In
addition, with some exceptions, all provisions of Statement 149 should be
applied prospectively. The adoption of Statement 149 did not have a material
impact on the Companys consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
Statement is effective for financial instruments entered into or modified by
the Company after May 31, 2003, and was effective at the beginning of the first
interim period beginning after June 15, 2003. However, the FASB has deferred
indefinitely the classification and measurement provisions as they related to
certain mandatorily redeemable noncontrolling interests. The adoption of
Statement 150 did not have a material impact on the Companys consolidated
financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17




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##### 



A comprehensive qualitative and quantitative analysis regarding market
risk was disclosed in the Companys December 31, 2003 Form 10-K. No material
changes in the assumptions used or results obtained from the model have
occurred since December 31, 2003. Actual results for the year ending December 31, 2004 will differ from
simulated results due to timing, magnitude, and frequency of interest rate
changes, as well as changes in market conditions and management strategies. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures, as defined
in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934
(the Exchange Act), that are designed to ensure that information
required to be disclosed by it in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms and that
such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company carried out an evaluation, under the supervision
and with the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of its disclosure controls and procedures as of
the end of the period covered by this report. Based on the evaluation of
these disclosure controls and procedures, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls
and procedures were effective. Changes in Internal Controls There were no changes in the Companys internal control over
financial reporting during the Companys fiscal quarter ended March 31,
2004 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial
reporting. 18




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##### 



PART II  OTHER INFORMATION Item 1. Legal Proceedings The Bank is a party to the lawsuit styled Jimmy Holland Boyd and
Spring City & Co. v. Town of Jonesborough, Tennessee, et al.Court
No.:2:04-CV-71, now pending in the United States District Court for
the Eastern District of Tennessee, Greeneville Division. The
plaintiff alleges, among other claims, that the Bank, along with the other defendants,
violated his civil rights in connection with the repossession of
certain collateral of a Bank borrower in default on its loan. The
collateral was then in the possession of plaintiff who claims to
have had an agreement with the borrower which entitled plaintiff to
the collateral. When the Bank attempted repossession, plaintiff
disputed the Banks rights to the collateral and was thereafter
arrested. The plaintiff seeks from the defendants, jointly and
severally, compensatory damages of not less than $10 million and
punitive damages of not less than the greater of $10 million or 5% of
the net worth of all defendants and the Bank. The Bank intends to vigorously defend this lawsuit and the Company
does not believe it will have a material adverse effect on the
Companys results of operations. The Company and its subsidiaries are also subject to other claims and suits
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of these pending claims and legal proceedings will not have
a material adverse effect on the Companys results of operations.  Item 2.
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None.  Item 3.
    Defaults upon Senior Securities None.  Item 4.
    Submission of Matters to a Vote of Security Holders None  Item 5.
    Other Information None.  Item 6.
    Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. 31.1
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)Exhibit No. 31.2
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)Exhibit No. 32.1
    
    Chief Executive Officer Certification Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002Exhibit No. 32.2
    
    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
 19




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(b) Reports on Form 8-K On January 28, 2004, the Company furnished a Current Report on
Form 8-K pursuant to Item 7, Item 9 and Item 12 announcing the
Companys financial results for the fourth quarter and year
ended December 31, 2003. On March 15, 2004, the Company filed an Amendment to Current
Report on Form 8-K/A pursuant to Item 4, amending its Current
Report on Form 8-K dated November 24, 2003 announcing the
Companys determination to engage Dixon Hughes PLLC as the
Companys independent auditor for the fiscal year ending
December 31, 2004 and dismissal of Crowe Chizek and Company
LLC. 20




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Greene County Bancshares, Inc.          RegistrantDate: May 7, 2004
    
    By:
    
    /s/ R. Stan Puckett
R. Stan Puckett
Chairman of the Board and Chief Executive Officer
(Duly authorized representative)Date: May 7, 2004
    
    
    
    /s/       William F. Richmond
William F. Richmond
Senior Vice President, Chief Financial
Officer (Principal financial and accounting
officer) and Assistant Secretary
 21